What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-12 compared with 2020-11-12 · 118 added, 226 removed, 84 unchanged (80% 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 nine months ended September 30, 2020 has been prepared based on information available to

us as of November 12, 2020.

The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three months ended March 31, 2021 has been prepared based on information available to us as of May 13, 2021.

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, 2020 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 focused on battery graphite development under the symbol “WWR.

is a 44-year-old public company trading on the NYSE American Stock Exchange (“NYSE American”) 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 an energy materials developer.

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

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

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

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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.

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 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.

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

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.

The addition of Mr.

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 Processing Pilot Programs

During the quarter ended March 31, 2021, the Company continued its pilot plant operations at Dorfner Anzaplan’s facilities near Amberg, Germany, as well as at facilities in Frankfurt, Germany, Chicago, Illinois and Buffalo, New York.

The combined effort at these facilities produced more than 11 metric tonnes of Westwater’s three battery-grade graphite products:

ULTRA-PMG™, ULTRA-CSPG™ and ULTRA-DEXDG™, which were previously produced at a bench scale.

As of March 31, Westwater had produced:

● 9.7 metric tonnes of ULTRA-PMG™ in six sizes (6, 8, 10, 15, 30 and 44 microns):

Production is now complete, and samples will be packaged and shipped to a laboratory for testing.

● 1.5 metric tonnes of the precursor (Spherical Purified Graphite) for ULTRA-CSPG™ in three sizes (10, 18 and 24 microns):

Production of this product will continue until the first week of April, when samples will be packaged and shipped to a laboratory for testing and coating to make ULTRA-CSPG™.

● 0.2 metric tonnes of ULTRA-DEXDG™:

Samples will be packaged and shipped to a laboratory for testing once production is finished in mid-April.

Westwater undertook its pilot program operations to inform and enhance design work for its commercial production facility and to produce products for testing by potential customers.

The information from those operations is being incorporated into a Definitive Feasibility Study (“DFS”).

Definitive Feasibility Study on the Coosa Graphite Project

On February 4, 2021, Westwater entered into a Master Services Agreement (the “Master Services Agreement”) with Samuel Engineering, Inc.

(“Samuel”) for various engineering support and consulting services in connection with the Company’s Coosa Graphite Project DFS.

Under the terms of the Master Services Agreement and as a part of the DFS, Samuel is, among other things, conducting studies that address the Coosa Project’s location, raw materials, product quality, infrastructure and other preliminary assessments, which will provide cost estimates for Phases I and II of the Coosa Project, identifying long-lead items and providing detailed specifications for these items to be ordered, as well as preparing designs and drawings for the detailed engineering phase prior to construction.

The DFS is expected to be completed by the end of the second quarter of 2021.

Westwater plans to utilize the DFS as a basis for engaging financial institutions and to start the construction of the plant, which is anticipated to begin around the end of 2021.

Completion of Phase I is planned for the end of 2022, with production anticipated in 2023.

Vanadium Target Identification

In late November 2018, Westwater announced the discovery of significant concentration of vanadium mineralization at several locations, hosted in the graphitic schists at the Coosa Project.

Westwater subsequently commenced the first of a four-phase exploration program designed to determine the extent, character and quality of the vanadium mineralization at the Coosa Project.

As announced by the Company on February 19, 2019, the first phase demonstrated widespread positive values for vanadium that extended beyond the Coosa graphite deposit, as defined in the 2015 Preliminary Economic Assessment for the Coosa Project.

The second phase of this project began in April 2021.

Scope for this effort includes drilling various targets to expand our knowledge of the geology, examining the core and/or cuttings for mineral constituents, and adding to our geologic model.

In addition, vanadium mineralization is expected to be evaluated using extractive metallurgy techniques to ascertain any economic potential.

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.

On February 24, 2021, the President signed an Executive Order that seeks to provide for more resilient supply chains to revitalize and rebuild domestic manufacturing capacity and maintain America’s competitive edge in research and development.

Graphite and vanadium are specifically named as 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

The President’s declaration asks the Secretary of Energy, as part of larger study involving several branches of the U.S.

government, to submit a report within 100 days identifying risks to the supply chain for high-capacity batteries including those that power electric vehicles.

This effort could be important to Westwater’s plans to develop its battery graphite business in the United States.

The new order builds upon the prior Administration’s Executive Order issued on September 30, 2020 related to critical minerals.

is 100% dependent on imports for battery-grade graphite, which is currently the primary anode material in the Lithium-Ion batteries that power smartphones, laptops, electric vehicles, and store power generated from intermittent renewable energy sources.

Westwater intends to develop the Coosa Graphite Project to supply natural flake graphite for beneficiation into battery-grade graphite for all types of batteries.

Further details on the Executive Order on America’s Supply Chains can be found at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/.

Westwater will work to support the efforts by the relevant agencies in the U.S.

government and will ensure that they remain aware of the importance of battery-grade graphite, its importance to the nation’s security, and how the Coosa Graphite Project fits into the critical minerals-equation.

The COVID-19 Pandemic and our Actions to Ensure Safety

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic.

The pandemic spread outside of China during the first quarter of 2020 and has impacted businesses throughout the world.

The pandemic spread outside of China during the first quarter of 2020 and has impacted businesses and economies throughout the world.

In the U.S., many state and local governments have, based on local conditions, either recommended or mandated actions to slow the transmission of COVID-19.

These measures range from limitations on crowd size, together with closures of bars and dine-in restaurants, to mandatory orders for non-essential citizens to “shelter in place” or “stay at home” until further direction.

These measures range from limitations on crowd size to mandatory orders for non-

essential citizens to “shelter in place” or “stay at home” until further direction.

Borders between many countries have been closed to contain the spread of COVID-19.

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Westwater has the following priorities while managing business activities during this period of volatility and uncertainty:

● First, to ensure the health and safety of employees and the communities where they work.

● Second, to work with business partners to maintain the advanced graphite product development schedule.

● Third , to ensure adequate financial liquidity to support key operations and business activities.

● First, to ensure the health and safety of our employees and the communities where they work.

● Second, to work with our business partners to maintain the advanced graphite product development schedule in a safe and measured manner.

● Third , to ensure the Company has access to adequate financial liquidity to support key operations and business activities.

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

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.

Prior to March 1, 2021, Westwater reduced utilization of its offices and remote working arrangements were instituted to ensure that some employees were able to work remotely using systems that already were in place.

On March 1, 2021, Westwater reopened its Centennial corporate facility and allowed employees to return to the office to work together with appropriate health protocols 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.

To that end, Westwater eliminated unnecessary travel, instituted health protocols for working together, and ensured that employees are permitted to take time off due to illness or the illness of those around them without penalty.

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

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 that end, Westwater has continued to restrict unnecessary travel, and ensured that employees are permitted to take time off due to illness or the illness of those around them without penalty.

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

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As a result, it may be challenging to obtain and process raw materials to support business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.

Also, governments may impose other laws, regulations or taxes which could adversely impact Westwater’s business, financial condition or results of operations.

Governments may also impose other laws, regulations or taxes which could adversely impact Westwater’s business, financial condition or results of operations.

The potential effects of COVID-19 could also impact Westwater in a number of other ways including, but not limited to, laws and regulations affecting business, the availability of future borrowings, the cost of borrowings, and potential impairment of the carrying value of long-lived tangible assets.

Payroll Protection Loan

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 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.

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.

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.

Significant Capital Raises during the Quarter ended March 31, 2021

During the month of January 2021, the Company sold 9.3 million shares of common stock for net proceeds of $47.3 million pursuant to the ATM Offering Agreement with Cantor.

These shares were sold pursuant to a prospectus supplement filed on December 4, 2020 pursuant to Rule 424(b)(5) as a takedown off the Company’s shelf registration statement which had been declared effective by the Securities and Exchange Commission on December 1, 2020.

During the months of February and March 2021, the Company sold 3.8 million shares of common stock for net proceeds of $24.9 million pursuant to the Purchase Agreement (the “December 2020 PA”) entered into with Lincoln Park.

The receipt of combined net proceeds in the amount of $72.2 million from these financing facilities has resulted in a cash balance of approximately $118 million at March 31, 2021.

The significant treasury balance has mitigated the Company’s capital risk through 2021 and 2022 as the Company’s budgeted pilot program for processing battery-grade

graphite, the DFS and the remaining budgeted product development costs are now fully funded, and the Company will be able to make substantial initial investment in the commercial graphite processing facility in the latter half of 2021.

Transfer of Common Stock Listing to the NYSE American Stock Exchange

On March 8, 2021, Westwater Resources, Inc., acting pursuant to authorization from its Board of Directors, determined to voluntarily withdraw the listing of the Company's common stock, par value $0.001 per share, from The Nasdaq Capital Market (“Nasdaq”) and transfer the listing to the NYSE American.

The Company informed Nasdaq on March 8, 2021 of its intent to transfer the listing of its common stock to the NYSE American.

The Company’s listing and trading of its common stock on Nasdaq ended at market close on March 18, 2021, and trading began on the NYSE American on March 19, 2021.

The Company’s common stock continues to trade under the ticker symbol “WWR” on the NYSE American.

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.

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

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 filed its Counter-Memorial on September 14, 2020.

Westwater filed its reply to the Counter-Memorial on March 17, 2021.

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 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 nine months ended September 30, 2020 and 2019:

For the Three months Ended

For the Nine months ended

September 30,

(thousands of dollars)

Restoration/Recovery expenses

Kingsville Dome project

Rosita project

Vasquez project

Total restoration/recovery expenses

Standby care and maintenance expenses

Kingsville Dome project

Rosita project

Vasquez project

Total standby care and maintenance expenses

Exploration and evaluation costs

Coosa project

Other projects

Total exploration and evaluation costs

Land maintenance and holding costs

Total mineral property expenses

(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.

Our consolidated net loss for the three months ended March 31, 2021 was $5.4 million, or $0.190 per share, as compared with a consolidated net loss of $3.3 million, or $0.82 per share for the same period in 2020.

The $2.1 million increase in our consolidated net loss from the respective prior period in 2020 was primarily due to an increase in product development costs, arbitration costs and general and administrative costs, offset by the elimination of costs from discontinued operations.

Product development expenses

For the three month period ended March 31, 2021, $1.8 million was spent on product development.

Of that, approximately $1.2 million was related to our graphite processing pilot program with the remaining attributable to product testing, other lab work, shipping, travel, and other auxiliary costs associated with the Coosa Project.

Arbitration Costs

During the first quarter of 2021, Westwater incurred arbitration related legal and expert consulting costs of $1.5 million.

This represents an increase of 114% or $0.8 million in costs associated with the Request for Arbitration against The Republic of Turkey since December 31, 2020.

For further reference, see discussion above in the Recent Developments section of this Part I, Item 2 and in Part II, Item 1 below.

General and Administrative Expenses

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

Significant expenditures for general and administrative expenses for the three months ended March 31, 2021 and 2020 were:

For the Three months ended

For the Nine months ended

September 30,

(thousands of dollars)

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Salaries and payroll burden

Legal, accounting, and public company expenses

Legal, accounting, public company expenses

Insurance and bank fees

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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 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 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.

(Less) General and adminitrative expenses from discontinued operations

General and adminitrative expenses from continuing operations

General and administrative expenses for the three months ended March 31, 2021 increased by $0.3 million from the respective period in 2020.

The difference is primarily due to increased legal and consulting expenses related to the Company’s Coosa Graphite Project.

FINANCIAL POSITION

Operating Activities

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.

Net cash used in operating activities was $4.9 million for the three months ended March 31, 2021, as compared with $3.5 million for the same period in 2020.

The $1.4 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 2021 compared to 2020.

Investing Activities

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.

Net cash provided by investing activities was $0.3 million for the three months ended March 31, 2021 with no investing cash flows for the same period in 2020.

The sole investing activity that resulted in cash flows for the three months

ended March 31, 2021 was the receipt of $333,120 held in escrow for the balance of the outstanding PPP loan and accrued interest at December 31, 2020 when the loan was transferred to enCore with the sale of uranium subsidiaries (see Note 3).

The loan was officially forgiven in full by the SBA on March 31, 2021 and the entire balance of the escrow fund was transferred to the Company’s operating account.

Financing Activities

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 was $72.1 million for the three months ended March 31, 2021, resulting primarily from the proceeds of sales of common stock through the Company’s ATM Offering Agreement with Cantor and the Company’s 2020 Purchase Agreement with Lincoln Park.

Net cash provided by financing activities for the same period in 2019 was $2.5 million.

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.

The $69.6 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 three months of 2021 compared to the same period in 2020.

LIQUIDITY AND CAPITAL RESOURCES

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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 expects to rely on debt and equity financing to fund its operations for the foreseeable 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.

In 2016, the Company began to expand its business plan into acquisition and development of energy-related materials.

Between 2016 and 2020 the Company obtained lithium mineral leases in Nevada and Utah and acquired Alabama Graphite Corp.

and its Coosa Graphite Project in Alabama in 2018 for the purpose of developing and mining a commercial sized graphite mineral deposit and processing the flake graphite into advanced graphite products for use in batteries.

In the third quarter of 2020, the Company executed the strategic decision to focus most of its resources on its graphite business, discontinuing its investment in its lithium mineral properties and announced a proposed transaction to sell its uranium business enCore Energy Corp.

As discussed in Note 3, the sale to enCore closed on December 31, 2020 and included the elimination of a $9.3 million bonding liability, the elimination of $5.2 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs.

The Company received approximately $1.8 million of enCore common stock and retained royalty interests on the New Mexico uranium properties as consideration for the sale.

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

During the first quarter of 2021, the Company primarily focused on graphite process development activities including operation of the pilot programs for processing flake graphite into battery-grade graphite products and the kickoff of a Definitive Feasibility Study (“DFS”) on the Coosa Graphite Project.

The data generated and experience gained from operating the pilot programs will be used to inform the DFS and will also inform the requirements and specifications for building a commercial graphite processing facility.

On March 31, 2021, the Company’s cash balances were approximately $118 million.

During the quarter ended 2021, the Company sold 9.3 million shares of common stock for net proceeds of $47.3 million pursuant to its Controlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co.

(“Cantor”) and 3.8 million shares of common stock for net proceeds of $24.9 million pursuant to the December 2020 PA (as defined below) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 7).

As of March 31, 2021, the Company has no shares of common stock registered for sale under the ATM Offering Agreement and has sold approximately 19.9% of the outstanding shares of common stock as of the date of the Lincoln Park December 2020 PA.

The December 2020 PA specifically provides that the Company may not issue or sell any shares of its common stock under the agreement if such issuance exceeds 19.99% of the shares of the Company’s common stock outstanding immediately prior to the execution of the December 2020 PA unless (i) shareholder approval is obtained or (ii) the average price of all applicable sales of common stock to Lincoln Park under the December 2020 PA equals of exceeds $6.15 per share.

The Company has scheduled its Annual Shareholders Meeting for May 21, 2021 and has included a proposal in its Proxy Statement which seeks shareholder approval of the issuance of more than 19.99% of the shares of the Company’s common stock outstanding on December 4, 2020.

The December 2020 PA provides the Company with a reliable source

of capital at low cost as compared to other sources, and the ability to access that capital when and as needed, which de-risks the Coosa Graphite Project.

The Company is also considering 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.

The alternative sources of project financing could include, but are not limited to, convertible debt facility or pursuing a partnership or joint venture.

The Company may pursue any one of the forgoing options, others not listed, or a combination of one or more.

There can be no assurance that the Company will be able to access project financing at terms acceptable to the Company or at all.

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.

In addition to pursuing other project financing, the Company is evaluating the continued use 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 processing 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 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.

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

OFF-BALANCE SHEET ARRANGEMENTS

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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 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 in the United States and a new federal administration;

● the spot price and long-term contract price of graphite (both flake graphite feedstock and purified graphite products) and vanadium, and the world-wide supply and demand of graphite and vanadium;

● government regulation of the mining industry in the United States;

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

● our expectations regarding the use of funds from the Company’s PPP Loan and the potential for loan forgiveness under the terms of the PPP Loan;

● operating conditions at our projects;

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

● weather conditions;

● operating conditions at our mining and processing industries in the United States;

● unanticipated geological, processing, regulatory and legal or other problems we may encounter;

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

● our ability to finance growth plans;

● currently pending or new litigation or arbitration;

● our ability to continue to satisfy the listing requirements of the Nasdaq Capital Market;

● our ability to maintain and timely receive mining and other permits from regulatory agencies.

as well as other factors described elsewhere in this Quarterly Report on Form 10-Q, our 2019 Annual Report on Form 10-K and the other reports we file with the SEC.

as well as other factors described in our Annual Report on Form 10-K for the year ended December 31, 2020 and the other reports we file with the SEC.

Most of these factors are beyond our ability to predict or control.

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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