What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-12 compared with 2020-08-05 · 189 added, 122 removed, 121 unchanged (72% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three and six months ended June 30, 2020 has been prepared based on information available to us as of August 5, 2020.

The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three and nine months ended September 30, 2020 has been prepared based on information available to

us as of November 12, 2020.

This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of WWR for the period ended December 31, 2019 and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S.

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Westwater Resources, Inc.

is a 40-year-old public company trading on the Nasdaq Capital Market under the symbol “WWR.

is a 40-year-old public company trading on the Nasdaq Capital Market focused on battery graphite development under the symbol “WWR.

” Originally incorporated in 1977 as Uranium Resources, Inc.

to mine uranium in Texas, our company has been reborn as a diversified energy materials developer.

Westwater now has a presence in uranium, lithium exploration, and battery-ready graphite materials after its acquisition of Alabama Graphite Corp.

(“Alabama Graphite”) in April 2018 .

In addition, Westwater recently discovered significant vanadium concentrations at the Coosa Graphite Project (the “Coosa Project”) in Alabama and has an exploration plan available to further investigate the size and extent of those concentrations.

Westwater holds battery-ready graphite development properties in Alabama, properties with lithium exploration potential in Nevada and Utah, two idled uranium production properties in Texas and several uranium properties in Texas and New Mexico.

Westwater ceased uranium production in 2009 due to reductions in the price of uranium, although Westwater’s uranium properties and facilities in Texas can be restarted once the price of uranium recovers to acceptable levels.

to mine uranium in Texas, our company has been reborn as an energy materials developer.

Westwater now is focused on battery-ready graphite materials after its acquisition of Alabama Graphite Corp.

(“Alabama Graphite”) and its Coosa Graphite Project (“Coosa Project”) in Alabama in April 2018 .

Westwater recently discovered significant vanadium concentrations at the Coosa Project and has developed an exploration plan to further investigate the size and extent of those concentrations.

RECENT DEVELOPMENTS

Sale of Uranium Business

On September 1, 2020, Westwater signed a binding letter of intent (“LOI”) to sell its U.S.

uranium assets located in New Mexico and Texas to enCore Energy Corp.

(“enCore”), a corporation incorporated under the laws of British Columbia, Canada, and a Toronto Venture Exchange-listed company (TSX.V:EU).

Total compensation accruing to Westwater as part of the deal is expected to be in excess of $2.0 million in enCore shares and royalties from future production from Westwater’s New Mexico uranium properties.

All remaining reclamation liabilities and bonding obligations for the Company’s Texas uranium properties will be transferred to enCore at the time of sale, with the transaction expected to close on or before December 31, 2020.

The transaction is subject to further due diligence, the execution of a definitive agreement, and other customary conditions., and there can be no assurance that the transaction will be completed.

The transaction does not include Westwater’s uranium interests in Turkey, which are subject to an ongoing international arbitration proceeding.

As a result of the estimated value of consideration received and carrying values of asset/liabilities transferred, the Company has recorded a $5.2 million impairment charge.

However, and importantly, the Company will continue its participation in the uranium sector as a significant shareholder of enCore and a royalty holder on the New Mexico uranium properties, while transferring responsibility for remaining reclamation to enCore.

At the same time, the Company expects to save over $4.0 million per year for the next several years in land payments, reclamation expenses and operating costs associated with the uranium properties, funds that can be invested in developing our graphite business.

The successful closing of this transaction will complete the Company’s strategic shift to battery graphite materials, and will allow the Company to devote its full focus and attention on advancing its battery-grade graphite product business.

Graphite Business Developments

Westwater’s graphite business plan continues without pause.

The Company and its consultants continue to produce results that inform pilot plant operations, which are presently scheduled for the fourth quarter of 2020.

Westwater remains focused on the battery materials markets, the end markets for those products, and the role that can be played in supplying critical materials to serve them.

In June 2020, Westwater announced that independent testing of Westwater’s ULTRA-PMG™ battery graphite material has shown outstanding resistivity values as a conductive additive.

In June 2020, Westwater announced that independent testing of Westwater’s ULTRA-PMG TM battery graphite material has shown outstanding resistivity values as a conductive additive.

This milestone achievement is a critical step in developing Westwater’s battery graphite business.

PMG is one of the key products in the Coosa Project business plan being produced at laboratory-scale using proprietary processes that Westwater intends to utilize in the pilot program later this year.

Successful performance testing demonstrates that Westwater can manufacture ULTRA-PMG™ as a premium-grade, conductive enhancement material for all types of batteries at larger scale.

In July 2020, Westwater announced that independent performance testing of Westwater’s ULTRA-CSPG™ (Coated Spherical Purified Graphite "CSPG”) material produced in a laboratory setting shows that it performs as well or better than benchmark commercially available natural flake and synthetic materials.

ULTRA-PMG TM is one of the key products in the Coosa Project business plan being produced at laboratory-scale using proprietary processes that Westwater intends to utilize in the pilot program later this year.

Successful performance testing demonstrates that Westwater can manufacture ULTRA-PMG TM as a premium-grade, conductive enhancement material for all types of batteries at larger scale.

In July 2020, Westwater announced that independent performance testing of Westwater’s ULTRA-CSPG TM (Coated Spherical Purified Graphite "CSPG”) material produced in a laboratory setting shows that it performs as well or better than benchmark commercially available natural flake and synthetic materials.

ULTRA-CSPG TM is Westwater’s anode material which is utilized in lithium ion batteries, which are used in the fast-growing electric vehicle market.

Current estimates of the savings in CO2 emissions once our projected plant reaches full production range above 322,000 metric tons per year through the use of our ULTRA-CSPG TM U product in electric vehicles her in the United States.

In August 20, 2020, Westwater announced it had engaged Dorfner Anzaplan of Hirschau, Germany to execute its pilot plant that will advance the development of processes needed to purify graphite concentrates and to produce Westwater’s battery grade products:

ULTRA-PMG TM , ULTRA-CSPG TM and ULTRA-DEXDG TM .

Dorfner Anzaplan is an internationally recognized and highly regarded organization that specializes in high-purity industrial and strategic metals businesses.

Dorfner Anzaplan will employ state-of-the-art analytical methods and facilities and use innovative processing technologies to provide effective solutions tailored to Westwater’s requirements.

Planning and construction of an operational pilot plant is underway, and operation of the pilot plant is anticipated by the end of the year.

Westwater has developed proprietary processes for the production of battery grade graphite from non-Chinese sources that are designed to manufacture high performing products while ensuring a sustainable environmental footprint and low production costs.

Test work on the products from these processes has been performed already in laboratories in Germany and the United States, and those results show that the performance of the Coosa Project’s graphite is on par with or exceeds that of currently available battery products.

The next step in Westwater’s development process is the operation of a pilot plant that is designed to process approximately 30-tonnes of graphite concentrate and to produce more than ten metric tons of ULTRA-PMG TM , ULTRA-CSPG TM and ULTRA-DEXDG TM products, now scheduled for the fourth quarter of this year and the first quarter of 2021.

Westwater has filed a provisional patent application with the U.S.

Patent and Trademark Office for its proprietary graphite purification technology.

This proprietary process, which does not utilize hydrofluoric acid, is a purification methodology that has a more environmentally sustainable footprint than those processes currently used in China and elsewhere.

Our purification process is an integral component in our pilot plant program, which we announced on August 8, 2020.

Westwater also announced the filing of the Provisional Patent application on September 8, 2020.

The invention claimed in the provisional patent application relates to a method of obtaining highly purified graphite – having a graphitic carbon (Cg) grade of at least 99.95% – from a natural flake graphite concentrate sample.

The method consists of three steps:

(1) caustic roasting of the graphite concentrate sample;

(2) acid leaching of the roasted sample;

and (3) thermal treatment of the sample.

Additional steps involving water washing and drying are included in some methods.

The methods provided in the application may further include any combination of varying the weight percentage of the caustic solution, varying the temperature of and time for the caustic roasting, varying the temperature of and time for the acid leaching, and/or varying the temperature of, time for, and the atmosphere used in the thermal treatment.

Sales and Marketing Executive

After a comprehensive search process that yielded many highly qualified candidates, Westwater hired Jay Wago as Vice President – Sales and Marketing on July 1, 2020.

Westwater hired Jay Wago as Vice President – Sales and Marketing on July 1, 2020.

Wago is a proven sales leader, whose unique skills and experience will be instrumental in leading Westwater’s sales and marketing efforts for our battery graphite materials business.

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Wago will help position Westwater to scale its marketing efforts to generate greater awareness of our American-made battery graphite materials to end-users throughout the world.

Graphite, Lithium, Uranium, and Vanadium Listed as Critical Materials

A Presidential Executive Order on a Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals was issued on December 20, 2017, which we believe will result in important energy related mineral development in the United States.

In conjunction with Professional Paper 1802, published by the US Geological Service (“USGS”), where 23 minerals are identified as critical to the Country’s security and economy, WWR believes these actions are important steps in support of domestic minerals development.

One of the important steps outlined in the Executive Order required a list of critical minerals to be provided by the US Secretary of the Interior.

This list was subsequently provided and included all of WWR’s contemplated portfolio products consisting of graphite, lithium and uranium.

The discovery of vanadium on our Alabama property adds an additional element to Westwater’s portfolio of critical elements.

Graphite and lithium, in particular, are critical to the development of batteries and other energy storage systems essential to the electric vehicle, solar and wind power industries, while vanadium is a lightweight metal used in the construction industry, in high strength steel alloys, and in large grid storage batteries.

Creation of The President’s Nuclear Fuels Working Group

On July 1, 2019, President Trump ordered a review of the domestic nuclear supply chain (uranium production, conversion, enrichment and fabrication) in the context of the 2017 White House initiative to revive, revitalize and expand the nuclear energy sector.

Accordingly, to address concerns regarding the production of domestic uranium and ensure a comprehensive review of the domestic nuclear supply chain, the President directed that a Nuclear Fuel Working Group (“NFWG”) be established.

The NFWG includes the Secretary of State, Secretary of Energy and Secretary of Defense, among other key officials.

On April 23, 2020, the U.S.

Department of Energy (“DOE”) announced the NFWG’s strategy to revive the U.S.

uranium industry in a report entitled “Strategy to Restore American Nuclear Energy Leadership.” The most important recommendations in the report for the uranium mining sector are:

purchases of 17-19 million pounds of U3O8 for a strategic uranium reserve, beginning in 2020 from domestic producers using a competitive bidding process.

● DOE will end the uranium bartering program and reevaluate DOE’s Excess Uranium Inventory Management Policy.

● Streamline regulatory reform and land access for uranium extraction.

● Support Department of Commerce efforts to extend the Russian Suspension Agreement to protect against future uranium dumping in the U.S.

● Enable the Nuclear Regulatory Commission to deny imports of nuclear fuel fabricated in Russia or China for national security purposes.

● Fund advanced water treatment technology for uranium mining and in-situ recovery.

● Increase efficiencies in the export processes and the adoption of 123 Agreements to open new markets for exports of U.S.

civil nuclear technology, materials and fuel.

Graphite and Vanadium Listed as Critical Materials

On September 30, 2020, the President signed an Executive Order (the “Order”) that addresses the threat to the U.S.

domestic supply chain from reliance on critical minerals from foreign adversaries.

The critical minerals referred to in the Order were previously identified by the Department of Interior in May 2018, and include both natural graphite and vanadium.

The President’s declaration that the United States' heavy reliance on foreign nations for critical minerals is a national emergency, highlights the importance of the Westwater’s plans to develop the Coosa Graphite Deposit in east-central Alabama.

Westwater’s business plan for the Coosa Graphite Project over the next two and a half years is to develop a U.S.

domestic supply for natural graphite for use in all types of batteries in the United States.

During recent exploration activities along the Roscoe Ridge at the mine site, Westwater has also discovered wide spread and significant levels of vanadium mineralization.

is 100% dependent on imports for graphite, which is the primary anode material in lithium-ion batteries that power smartphones, laptops, electric vehicles, and stores power from intermittent renewable energy sources.

Graphite, was specifically named as one of the critical minerals in which the U.S.

is heavily dependent on China for its supply.

Also, vanadium is an essential component in the manufacture of high-strength steel, is used as a catalyst in chemical manufacturing, and is also used as a component in the manufacturing of some ceramic, glass and pigment products.

imports virtually all of its industrial vanadium requirements from mines located in South Africa, China and Russia.

In the Order the President says, "a strong America cannot be dependent on imports from foreign adversaries for the critical minerals that are increasingly necessary to maintain our economic and military strength in the 21st century."

The President said the heavy dependence on imports for critical minerals makes the U.S.

vulnerable to adverse foreign government action, natural disaster, or other supply disruptions.

"I therefore determine that our nation's undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States.

I hereby declare a national emergency to deal with that threat,"

President Trump penned in the Executive Order.

Further details on President Trump's critical mineral Executive Order can be read at:

https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-domestic-supply-chain-reliance-critical-minerals-foreign-adversaries

Westwater is uniquely positioned to benefit from the action the U.S.

government is taking to ensure that the United States and its technology manufacturers can rely on a safe and secure source of graphite to drive our next generation of power and technology needs and possibly to meet needs for vanadium as well.

The action by the President orders the Office of Science and Technology, the Secretary of Defense, the Secretary of Energy and the Secretary of the Interior to provide guidance to clarify which minerals and projects are eligible for government support, which can include loans or grants, under Title XVII of the Energy Policy Act of 2005.

Furthermore, these agencies are directed along with the Secretary of Commerce, the Administrator for the Environmental Protection Agency and the Secretary of the Army, to use all available authorities to accelerate the issuance of permits in connection with expanding and protecting the U.S.

domestic supply chain for minerals such as graphite.

Westwater is evaluating the Order and how best to approach the relevant agencies in the U.S.

Government to emphasize the importance of battery graphite, its importance to the nation’s security, and how the Coosa Graphite Project in Alabama fits into the enactment of critical minerals policy.

Global Pandemic and our Actions to Ensure Safety

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Westwater’s corporate business activities are largely unaffected at this time.

Even though Westwater closed offices, remote working arrangements were instituted to ensure that employees were able to work remotely using systems that already were in place.

Even though Westwater has reduced utilization of its offices, remote working arrangements were instituted to ensure that employees were able to work remotely using systems that already were in place.

Westwater’s continued focus on the health and safety of employees, the safety of operations, and the safety of the communities in which our employees live and work remains paramount.

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As a result, our corporate business activities will continue on as before, without interruption.

In South Texas, due to tumultuous capital markets and uncertain economic conditions created by the pandemic, Westwater shut down restoration and reclamation operations and furloughed employees in March 2020.

Westwater complied with stay at home orders issued by county and state jurisdictions.

After consultation with the Texas Commission on Environmental Quality, Westwater maintained certain critical permit compliance activities with a limited workforce.

Upon receipt of the PPP loan proceeds, Westwater reinstated employees and restarted restoration and reclamation activities on May 4, 2020.

During this quarter, our South Texas employees continued to perform normal reclamation and compliance work activities without incident, while utilizing protocols enacted by Westwater management earlier in the year.

To the extent that the COVID-19 pandemic continues or worsens, local governments or governmental agencies may impose additional restrictions.

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Payroll Protection Loan

The Paycheck Protection Program (or “PPP”) was established under the congressionally-approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S.

Small Business Administration (“SBA”).

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

On May 4, 2020, URI, Inc, a wholly owned subsidiary of Westwater, received loan proceeds in the amount of $0.3 million under the Paycheck Protection Program in accordance with the terms of a promissory note executed in favor of Celtic Bank Corporation, a Salt Lake City based SBA Preferred Lender.

The loan and accrued interest are forgivable after eight weeks as long as the loan proceeds are used for eligible purposes, including payroll and benefits costs, rent and utilities.

Any unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months and the first payment of principal and interest due on November 30, 2020.

Between February 14, 2020 and March 16, 2020, the Company’s share price decreased 63% due to turmoil in the equity capital markets from the COVID-19 pandemic discussed above.

This significantly impacted the Company’s financing facilities because registered share capacity was exhausted faster than anticipated due to the significant decrease in share price.

For instance, the number of registered shares approved by shareholders available under the Company’s 2019 Purchase Agreement with Lincoln Park 2019 was exhausted in April 2020 with $2.3 million of remaining usable capacity lost.

As a result of the severe downturn in the capital markets and uncertainty about when economic conditions would return to normal, the Company shut down its South Texas operations and implemented other cost reduction initiatives.

When the CARES Act was passed and PPP loan eligibility rules were promulgated, the Company’s interpretation of the rules were that the loan proceeds could be used for payroll and benefits of URI’s furloughed employees which would allow restart of operations in South Texas.

Accordingly, the Company used the proceeds for funding its payroll and benefits costs for its South Texas operations over a 10-week period during the months of May, June and July, purposes consistent with the PPP.

While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, no assurance can be provided that the Company will obtain forgiveness of the Loan, in whole or in part.

The loan and accrued interest are forgivable as long as the loan proceeds are used for eligible purposes, including payroll and benefits costs, rent and utilities.

Any unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%.

Payments of principal and interest are deferred until 10 months after the end of the 24-week covered period beginning on the day loan proceeds were received.

URI’s covered period ended on October 19, 2020 making the first payment of any unforgiven amount due August 19, 2021.

The Company used the loan proceeds for funding its payroll and benefits costs for its South Texas operations over 10 weeks during the months of May, June and July, purposes consistent with the PPP.

The deadline to apply for loan forgiveness is the maturity date of the loan, April 30, 2022.

Celtic Bank is currently developing an online forgiveness application for its borrowers in order to streamline the process.

The Company plans to apply for loan forgiveness as soon as the lender makes the electronic application available.

While the Company currently believes that its use of the loan proceeds meets the conditions for forgiveness of the loan, no assurance can be provided that the Company will obtain forgiveness of the Loan, in whole or in part.

Equity Financings

Significant Capital Raise in October Pursuant to Sales Agreement with Cantor Fitzgerald

Between September 9, 2020 and October 26, 2020, the Company sold 9.5 million shares of common stock for gross proceeds of $46.9 million and net proceeds of $45.7 million pursuant to its Controlled Equity Offering Sales Agreement (”ATM Offering Agreement”) with Cantor Fitzgerald & Co.

These shares were sold pursuant to two prospectus supplements filed pursuant to Rule 424(b)(5) as takedowns off the Company’s base shelf registration statement which had been declared effective by the Securities and Exchange Commission on April 13, 2020.

The receipt of net proceeds in the amount of $45.7 million from the ATM Offering Agreement combined with the receipt of net proceeds in the amount of $11.7 million from sales of common stock to Lincoln Park, as noted below, has resulted in a cash balance of approximately $53.3 million at October 31, 2020.

The significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s pilot plant program for processing battery-grade graphite and the remaining product development are now fully funded, and the Company will be able to make substantial initial investment in the commercial graphite plant in the latter half of 2021.

2020 Purchase Agreement (“2020 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”)

At the Annual Shareholders Meeting conducted on April 28, 2020, the Company received shareholder approval to sell up to 8.0 million shares of common stock under the 2020 Purchase Agreement.

On May 21, 2020, the Company entered into the 2020 Purchase Agreement, as amended on May 29, 2020, with Lincoln Park to place up to $12.0 million in the aggregate of the Company’s common stock on an ongoing basis when required by the Company over a term of 24 months.

Westwater will control the timing and amount of any sales to Lincoln Park, and Lincoln Park is obligated to make purchases in accordance with the 2020 Purchase Agreement.

Any common stock that is sold to Lincoln Park will occur at a purchase price that is based on an agreed upon fixed discount to the Company’s prevailing market prices at the time of each sale and with no upper limits to the price Lincoln Park may pay to purchase common stock.

The 2020 Purchase Agreement may be terminated by Westwater at any time, in its sole discretion, without any additional cost or penalty.

The 2020 Purchase Agreement specifically provides that the Company may not issue or sell any shares of its common stock under the 2020 Purchase Agreement if such issuance or sale would breach any applicable rules of The Nasdaq Capital Market.

In particular, Nasdaq Listing Rule 5635(d) provides that the Company may not issue or sell more than 19.99% of the shares of the Company’s common stock outstanding immediately prior to the execution of the 2020 Purchase Agreement without shareholder approval.

The Company received such shareholder approval to sell up to 8.0 million shares of common stock under the 2020 Purchase Agreement at its Annual Shareholders Meeting conducted on April 28, 2020.

Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions.

In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2020 Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock.

As an initial purchase on May 21, 2020, Lincoln Park bought $250,000 worth of Common Stock of the Company at a price of $1.2989 per share.

The Company issued 156,250

shares of Common Stock to Lincoln Park as consideration for its commitment to purchase shares of Common Stock under the 2020 Purchase Agreement.

Also, on May 21, 2020, the Company entered into a registration rights agreement with Lincoln Park pursuant to which the Company filed a registration statement on Form S-1 with the SEC, which was declared effective on June 26, 2020 relating to the resale of an initial tranche of 1,971,000 shares subject to the 2020 Purchase Agreement.

As of June 30, 2020, the Company has sold 192,471 shares of common stock for gross proceeds of $250,000 under the 2020 Purchase Agreement and through July 31, 2020, the Company has sold 1.1 million shares of common stock for gross proceeds of $2.3 million.

The Company issued 156,250 shares of Common Stock to Lincoln Park as consideration for its commitment to purchase shares of Common Stock under the 2020 Purchase Agreement.

The Company entered into a registration rights agreement with Lincoln Park pursuant to which the Company filed registration statements on Form S-1 with the SEC, which were declared effective on June 26, 2020 relating to the resale of an initial tranche of 1,971,000 shares and October 4, 2020 relating to the resale of 3,243,000 shares.

During the period from July 8, 2020 to October 6, 2020, the Company sold 2.8 million shares of common stock for net proceeds of $11.7 million.

Turkish Government Taking of Temrezli and Sefaatli Licenses and Westwater’s Arbitration Filing and Proceedings

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On April 28, 2020, the arbitral tribunal denied Turkey’s bifurcation request.

On May 13, 2020, Turkey filed with the arbitral tribunal a request, which Westwater elected not to oppose, to extend the date on which their Counter-Memorial must be filed (and to change dates for subsequent pleadings as well as document production and witness identification deadlines), which the tribunal approved on June 3, 2020.

As a result of these decisions by the tribunal, Turkey must file its Counter-Memorial on or before September 14, 2020, and the hearing on the substantive issues and damages is scheduled for September 13-17, 2021.

Overall, the filing on May 13, 2020 had no effect on the timing of the hearing in 2021.

pleadings as well as document production and witness identification deadlines), which the tribunal approved on June 3, 2020.

As a result of these decisions by the tribunal, Turkey filed its Counter-Memorial on September 14, 2020.

The hearing on the substantive issues and damages is scheduled for September 13-17, 2021.

Additional information regarding the ICSID arbitration proceeding is presented in Part II, Item 1 below.

RESULTS OF OPERATIONS

Our consolidated net loss for the three months ended June 30, 2020 was $2.5 million, or $0.43 per share, as compared with a consolidated net loss of $2.8 million, or $1.81 per share for the same period in 2019.

The $0.3 million decrease in our consolidated net loss from the respective prior period was the result of a decrease in mineral property expenses in the current year in an effort to conserve cash during the economic uncertainties arising from the COVID-19 pandemic and a decrease in arbitration costs due to minimal scheduled proceedings during the current quarter.

Our consolidated net loss for the six months ended June 30, 2020 was $5.8 million, or $1.18 per share, as compared with a consolidated net loss of $5.9 million, or $3.95 per share for the same period in 2019.

The $0.1 million decrease in our consolidated net loss from the respective prior period was partially the result of a $0.7 million loss on the sale of securities comprised of Laramide shares and warrants in the first half of 2019 offset by interest income from the Laramide promissory note.

No such losses or interest income was recorded for the same period in 2020.

Our consolidated net loss for the three months ended September 30, 2020 was $9.8 million, or $1.23 per share, as compared with a consolidated net loss of $1.8 million, or $0.95 per share for the same period in 2019.

The $8.0 million increase in our consolidated net loss from the respective prior period in 2019 was largely due to the $6.4 million net loss from discontinued operations.

During the third quarter of 2020, the Company entered into an agreement to sell its U.S.

uranium assets to enCore in order to focus its efforts on the development of battery-grade graphite.

Management believes this major strategic shift in its business model qualifies its uranium and lithium segments for treatment as discontinued operations.

Accordingly, the assets and related liabilities of these segments were classified as held for sale.

Upon initial held for sale recognition, the carrying value of the long-lived assets belonging to these segments was compared to the assets’ fair value less costs to sell.

Following this evaluation, it was determined that the $11.4 million carrying value of the property, plant and equipment belonging to the uranium segment was greater than its estimated fair value less disposal costs.

As a result, an impairment loss of $5.2 million was recognized for the quarter and is included in the net loss from discontinued operations for the period.

In addition to impairment, product development expenses related to our graphite projects has increased by $1.6 million from the same period in 2019.

The factors identified above that led to the increased net loss for the third quarter of 2020 also contributed to the $7.8 million increase in our consolidated net loss for the nine months ended September 30, 2020 from the respective prior year period.

The Company’s enhanced focus on developing its graphite business and dedication of resources to that pursuit is reflective of the $1.9 million increase in product development spending year to date 2020 compared with 2019.

Likewise, the $5.5 million increase to net loss from discontinued operations for the three months ended September 30, 2020 is mostly comprised of the $5.2 million write down on Texas uranium property, plant and equipment recognized in September, 2020.

Mineral Property Expenses

The following table details our mineral property expenses for the three and six months ended June 30, 2020 and 2019:

The following table details our mineral property expenses for the three and nine months ended September 30, 2020 and 2019:

For the Three months Ended

For the Six months ended

For the Nine months ended

September 30,

(thousands of dollars)

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Exploration and evaluation costs

Coosa project

Other projects

Total exploration and evaluation costs

Land maintenance and holding costs

Total mineral property expenses

For the three and six months ended June 30, 2020, mineral property expenses decreased by $0.2 million from the corresponding periods during 2019.

The decreases were primarily due to the timing of the annual lease rental for a uranium property in New Mexico.

The full amount of lease rental is normally paid during the second quarter of the year but for the current year the leaseholder agreed to payments in seven monthly installments from May to November.

At June 30, 2020 five monthly payments remained.

(Less) Mineral Property expenses attributable to Discontinued Operations

Mineral Property expenses for Continued Operations

For the nine months ended September 30, 2020, mineral property expenses decreased by $0.3 million from the corresponding period in 2019.

The decrease was primarily due to the decision not to renew the leases for the lithium mineral properties in Nevada and Utah that were due in August 2020.

General and Administrative Expenses

Significant expenditures for general and administrative expenses for the three and six months ended June 30, 2020 and 2019 were:

Significant expenditures for general and administrative expenses for the three and nine months ended September 30, 2020 and 2019 were:

For the Three months ended

For the Six months ended

For the Nine months ended

September 30,

(thousands of dollars)

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Other expenses

General and administrative expenses for the three and six months ended June 30, 2020 and 2019 remained relatively constant at $1.7 million and $3.4 million respectively.

Total General and Administrative Expenses

(Less) General and Administrative Expenses attributable to Discontinued Operations

General and Administrative Expenses for Continued Operations

General and administrative expenses for the three and nine months ended September 30, 2020 increased by $0.5 million and $0.6 million from their respective periods in 2019.

The increase was due primarily to a reversal of executive bonuses of approximately $0.4 million in 2019.

Arbitration Costs

The majority of costs associated with the Request for Arbitration against the Republic of Turkey in 2020 occurred in the first quarter and slowed significantly in the second quarter resulting in a $0.3 million decrease for the three months ended June 30, 2020 compared with the same period in 2019.

During the six months ended June 30, 2020, the Company incurred arbitration related legal and expert consulting costs of $0.7 million, a $0.2 million increase over the $0.5 million of costs incurred during the same period in 2019.

The increase was due to the significant activity in January 2020 leading up to and following the filing of the Company’s Memorial with ICSID on January 27, 2020.

The majority of cost in the third quarter associated with the Request for Arbitration against the Republic of Turkey was related to review and evaluation of the Republic of Turkey’s Counter-Memorial which was filed with ICSID on September 14, 2020.

During the nine months ended September 30, 2020, the Company incurred arbitration related legal and expert consulting costs of $0.9 million, a $0.3 million increase over the $0.6 million of costs incurred during the same period in 2019.

The increase was due to the significant activity in January 2020 leading up to and following the filing of the Company’s Memorial with ICSID on January 27, 2020 and costs in September 2020 to review and evaluate the Republic of Turkey’s Counter-Memorial.

For further reference, see discussion in the Recent Developments section of this Part I and below at Part II, Item 1.

Other Income and Expenses

For the three months ended June 30, 2020, the $0.1 million decrease in other income compared to the three months ended June 30, 2019 was primarily due to interest income from the Laramide promissory note recorded in 2019.

For the six months ended June 30, 2020, the $0.4 million increase in other income compared to the six months ended June 30, 2019 was primarily due to the $0.7 million loss on the sale of securities comprised of Laramide shares and warrants in the first half of 2019 offset by interest income from the Laramide promissory note.

For the nine months ended September 30, 2020, the $0.4 million increase in other income compared to the nine months ended September 30, 2019 was primarily due to the $0.7 million loss on the sale of securities comprised of Laramide shares and warrants in the first half of 2019 offset by $0.3 million of interest income from the Laramide promissory note.

No such losses or interest income was recorded over the same period in 2020.

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Operating Activities

Net cash used in operating activities was $6.0 million for the six months ended June 30, 2020, as compared with $4.3 million for the same period in 2019.

The $1.7 million increase in cash used was primarily due to an increase in prepaid assets and a decrease in accounts payable and accrued liabilities in 2020.

Net cash used in operating activities was $10.1 million for the nine months ended September 30, 2020, as compared with $7.2 million for the same period in 2019.

The $2.9 million increase in cash used in operating activities was primarily due to increased graphite product development expenses, general and administrative expenses and arbitration costs in 2020 compared to 2019.

Investing Activities

Net cash used for investing activities for the six months ended June 30, 2020 was $0.1 million for the purchase of equipment, as compared with $2.8 million of cash provided by investing activities for the six months ended June 30, 2019.

For the 2019 period, the Company received note payments on the Laramide note in the amount of $0.8 million in cash.

Additionally, the Company received net proceeds of $0.5 million from the sale of Laramide securities and $1.5 million from URC as a deposit in accordance with the terms of the Asset Purchase Agreement signed on March 5, 2019.

See Note 4 to our unaudited Condensed Consolidated Financial Statements included herewith for more information.

Net cash used for investing activities for the nine months ended September 30, 2020 was $0.1 million for the purchase of equipment, as compared with $3.8 million of cash provided by investing activities for the nine months ended September 30, 2019.

For the 2019 period, the Company received installment payments on the Laramide note in the amount of $0.8 million in cash.

Additionally, the Company received net proceeds of $0.5 million from the sale of Laramide securities and $2.5 million from Uranium Royalty (USA) Corp.

and Uranium Royalty Corp.

(together “URC”) in accordance with the terms of the Asset Purchase Agreement signed on March 5, 2019.

See Note 3 to our unaudited Condensed Consolidated Financial Statements included herewith for more information on the URC transaction and the Laramide note and securities.

Financing Activities

Net cash provided by financing activities was $6.6 million for the six months ended June 30, 2020, resulting primarily from the proceeds of sales of common stock through the Company’s ATM Offering Agreement and the Lincoln Park 2019 Purchase Agreement and 2020 Purchase Agreement.

Net cash provided by financing activities was $13.9 million for the nine months ended September 30, 2020, resulting primarily from the proceeds of sales of common stock through the Company’s ATM Offering Agreement with Cantor Fitzgerald and the Company’s 2019 Purchase Agreement and 2020 Purchase Agreement with Lincoln Park.

Additionally, $0.3 million was received from the PPP loan in May 2020.

Net cash provided by financing activities for the same period in 2019 was $2.6 million.

The $5.5 million increase was due to better financing capacity under the Company’s financing agreements with Cantor and Lincoln Park in the first six months of 2020 compared to the same period in 2019.

The $11.3 million increase was due to greater shelf registration capacity with which to offer registered shares under the Company’s financing agreement with Cantor and increased sales activity under the Company’s financing agreements with Lincoln Park in the first nine months of 2020 compared to the same period in 2019.

LIQUIDITY AND CAPITAL RESOURCES

The interim Condensed Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or may be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.

The Company last recorded revenues from operations in 2009 and expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses.

Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations and the Company expects to rely on these forms of financing to fund its operations into the near future.

The Company will also continue to identify ways to reduce its cash expenditures.

The Company’s current business plan requires working capital to fund non-discretionary expenditures for uranium reclamation activities, mineral property holding costs, early stage graphite battery-material product development costs and administrative costs.

The Company intends to pursue project financing to support execution of the graphite business plan, including discretionary capital expenditures associated with ongoing graphite battery-material product development costs, construction of pilot plant facilities and construction of commercial production facilities.

The Company’s current lithium business plan will be funded by working capital;

however, the Company is pursuing project financing including possible joint venture partners to fund discretionary greenfield exploration activities.

At June 30, 2020 the Company’s cash balances were $2.3 million and the Company had a working capital deficit balance of $1.0 million.

The Company’s cash balance at July 31, 2020 is $2.9 million.

Subsequent to July 31, 2020, the Company expects to fund operations as follows:

● The Purchase Agreement with Lincoln Park Capital, LLC (“Lincoln Park”) dated as of May 21, 2020 and as amended on May 29, 2020 (the “2020 Purchase Agreement”), the issuance of shares pursuant to which was approved by the Company’s shareholders at the annual shareholders meeting on April 28, 2020.

Pursuant to the 2020 Purchase Agreement, the Company may place up to $12.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 24-months ending in May 2022.

As of July 31, 2020, the Company has 722,279 registered shares for resale by Lincoln Park on a current Form S-1 and $9.7 million remaining sales capacity under the 2020 Purchase Agreement, subject to periodic registration of shares on Form S-1.

● The Controlled Equity Offering Sales Agreement (the “ATM Offering Agreement”) with Cantor Fitzgerald & Co.

(“Cantor”) which currently has $19.5 million remaining sales capacity, subject to periodic registration of shares on Form S-3.

The Company is currently eligible to, and intends to, register the sale of additional shares under the agreement on Form S-3 pursuant to the SEC’s shelf registration rules.

● Other possible debt and equity financings and asset sales.

The Company last recorded revenues from operations in 2009.

Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations.

The Company expects to rely on debt and equity financing to fund its operations into the near future.

The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.

In 2016, the Company began to incorporate energy-related materials into its business plan.

Between 2016 and 2020 the Company obtained mineral leases in Nevada and Utah and evaluated a green-fields exploration program for lithium.

In 2018, the Company acquired Alabama Graphite Corp.

and its Coosa Graphite Project for the purpose of developing the only commercial sized graphite mineral deposit in the contiguous United States and production of advanced graphite products for use in batteries.

In the third quarter of 2020, as further discussed below and as further discussed in Note 8, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business and discontinuing its investment in its lithium mineral properties.

As of September 30, 2020, execution of the business plan for development of the Coosa Graphite Project was underway, with the commissioning of pilot plants for processing flake graphite into battery grade graphite products.

The start-up of operations for those plants is expected to commence before the end of 2020 or shortly thereafter.

The Company expects the pilot plant phase to last into mid-2021.

The Company will use the data generated from the pilot plant operations to inform the requirements and specifications for building a commercial sized graphite processing facility.

Pursuant to the Company’s Preliminary Economic Assessment of the Coosa Graphite Project as modified, financing required for the estimated capital expenditures to construct the commercial plant is approximately $120 million.

Subject to financing, the Company expects the construction phase for the commercial plant to begin in the second half of 2021 and be completed in mid-2022.

The Company expects to begin generating revenues from sales of advanced graphite products from the Coosa Graphite Project in 2023.

While executing on its graphite business plan, the Company has continued to fulfill its obligation to restore and reclaim its legacy uranium properties in South Texas.

These activities have resulted in expenditures of approximately $3.5 million per year, and these reclamation activities are expected to continue for an additional 4-5 years before completion.

The Company has provided $9.3 million in performance obligation bonds to the Texas Commission for Environment Quality as financial assurance related to its permits and licenses in South Texas, and has a recorded liability of approximately $6.0 million for asset retirement obligations on its balance sheet (see Note 9).

In addition to its South Texas uranium operations, the Company has spent about $0.5 million to $1.0 million annually to maintain its uranium mineral property holdings in New Mexico.

In furtherance of the Company’s strategic shift to graphite battery materials, on September 1, 2020 the Company entered into a Letter of Intent (“LOI”) to sell its U.S.

uranium business, including its U.S.

uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy Corp.

(“enCore”) (see Note 8).

The pending sale includes the elimination of the $9.3 million bonding liability, the elimination of the $6.0 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs at the Company’s Kingsville, Vasquez, and Rosita sites in South Texas and its New Mexico land holding costs.

The Company anticipates that it will receive approximately US$2.0 million of enCore common stock and retain royalty interests on the New Mexico uranium properties as consideration for the sale.

This transaction is expected to close on or before December 31, 2020.

The Company will retain its uranium interests in Turkey, which are subject to ongoing international arbitration proceeding.

The Company’s strategic shift to focus solely on its graphite business also resulted in its decision not to renew its lithium mineral leases in Nevada and Utah when the annual rentals of approximately $0.2 million came due in late August 2020.

At September 30, 2020 the Company’s cash balances were $5.5 million.

During the month of October 2020, the Company sold 8.5 million shares of common stock for net proceeds of $50.2 million pursuant to its Controlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co.

(“Cantor”) and its Purchase Agreement with Lincoln Park Capital LLC (“Lincoln Park”) (see Note 17).

The funding provided by these financing facilities has resulted in a cash balance of approximately $53.3 million at October 31, 2020.

Management believes the significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s 2021 non-discretionary budget, budgeted graphite pilot plant program and the remaining budgeted product development initiatives are now fully funded.

The Company is

pursuing project financing to support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021.

Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through 2022.

In addition to pursuing other project financing, the Company is evaluating the renewal of the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company to support project financing for construction of the commercial graphite facility.

While the Company has been successful in the past in raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company.

Stock price volatility and uncertain economic conditions caused by the recent Covid-19 pandemic could significantly impact the Company’s ability to raise funds through equity financing.

In the event that we are unable to raise sufficient additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our business, operating results, financial condition, long-term prospects and ability to continue as a viable business.

Considering all of the factors above, the Company believes there is substantial doubt regarding its ability to continue as a going concern.

Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic could significantly impact the Company’s ability to raise funds through equity financing.

In the event funds are not available for project financing to complete construction of the commercial facility in 2022, the Company will be able to fund its non-discretionary expenditures, however, the Company may be required to change our planned business strategies.

OFF-BALANCE SHEET ARRANGEMENTS

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We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements include, without limitation, statements regarding the adequacy of funding, liquidity, the timing or occurrence of any future

drilling or production from the Company’s properties, the ability of the Company to acquire additional properties or partner with other companies, the construction of pilot plant facilities and construction of commercial production facilities, the realization of expected benefits from recent business combinations and the Company’s anticipated cash burn rate and capital requirements.

Such forward-looking statements include, without limitation, statements regarding the adequacy of funding, liquidity, the timing or occurrence of any future drilling or production from the Company’s properties, the ability of the Company to acquire additional properties or partner with other companies, the construction of pilot plant facilities and construction of commercial production facilities, the realization of expected benefits from recent business combinations and the Company’s anticipated cash burn rate and capital requirements.

Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements.

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Factors that could cause actual results to differ materially from these forward-looking statements include, among others:

● the spot price and long-term contract price of graphite, vanadium, lithium and uranium;

● the spot price and long-term contract price of graphite and vanadium;

● the ability of the Company to enter into and successfully close acquisitions, dispositions or other material transactions;

● the Company’s ability to raise capital in the future;

● government regulation of the mining industry and the nuclear power industry in the United States;

● government regulation of the mining industry in the United States and a new federal administration;

● risks associated with our operations and the operations of our partners, including the impact of COVID-19;

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● operating conditions at our projects;

● the world-wide supply and demand of graphite, vanadium, lithium and uranium;

● the world-wide supply and demand of graphite and vanadium;

● weather conditions;

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● the results of our exploration activities, and the possibility that future exploration results may be materially less promising than initial exploration results;

● any graphite, vanadium, lithium or uranium discoveries not being in high enough concentration to make it economic to extract the metals;

● any graphite or vanadium discoveries not being in high enough concentration to make it economic to extract the metals;

● currently pending or new litigation or arbitration;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis