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Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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<h3>KEY POINTS</h3>
<ul>
<li>Catalyst for domestic metal producers.&nbsp;The recently enacted Inflation Reduction Act and its provisions for domestic content of EVs appear to have accelerated discussions throughout the EV supply chain, as battery component and cell manufacturers, as well as automotive OEMs, are racing to secure a domestic supply of battery metals in order to qualify for available tax credits and consumer rebates, with WWR fielding incoming inquiries from once reticent potential customers regarding its pending graphite materials production and supply capabilities.</li>
<li>Continuing progress in securing customers.&nbsp;Last week, WWR announced it signed a letter of intent (LOI) to supply ultra-purified micronized graphite (Ultra-PMGTM) product to a customer, once the company’s Kellyton AL graphite processing plant is fully operational in 2024.</li>
<li>Building the base load.&nbsp;This latest LOI, the company’s fifth, is also the largest signed by WWR to date, accounting for approximately 25% of the expected annual production volume of purified micronized graphite in Phase I of the Kellyton plant. Combined with prior LOIs, WWR has already presold close to half of the PMG production capacity envisioned under Phase I.</li>
<li>Not as sexy, but just as needed.&nbsp;While most graphite converters are focusing their efforts on coated purified spherical graphite (CPSG) products for the EV battery industry, treating micronized graphite produced during the spherification process almost as a waste stream, despite it accounting for anywhere from 40-60% of natural flake graphite processed volume, WWR’s strategy of producing and marketing CSPG, purified and even ultra-purified micronized graphite products can significantly improve the Kellyton plant’s economics, as virtually all of the graphite processed can be converted into marketable products.</li>
</ul>
<h3>OUR INSIGHTS</h3>
<h2>Opportunities</h2>
<p>Domestic production of graphite products for the energy storage market may make WWR a preferred supplier for battery and EV manufacturers, given the Inflation Reduction Act’s provisions for domestic content in EVs and EV batteries.</p>
<p>Obtaining the necessary funds to complete Phase I construction at the Kellyton, AL graphite processing plant should have a positive impact on the pace of customer offtake agreement signings and may result in higher valuation levels for WWR’s stock.</p>
<p>Opportunities to monetize vanadium found in the Coosa deposit, as well as potential reimbursement from Turkey related to WWR’s uranium asset nationalized by that country, may provide further revenue and cash inflow opportunities.</p>
<h2>Obstacles</h2>
<p>Delays in obtaining sufficient project funding may result in a slower pace of customer acquisition and may affect WWR’s stock valuation as investors grow concerned regarding its long-term viability.</p>
<p>Delays in completing Phase I construction and start-up may negatively affect investor sentiment and likewise result in a lower stock price.</p>
<h2>The Company</h2>
<p>Westwater Resources, Inc. operates as an energy materials developer and energy technology company. The company, after a long history as a uranium miner, made a strategic decision in 2017 to pivot toward graphite production and purchased Alabama Graphite in March 2018, completing the sale of its uranium assets in January 2021. Westwater holds interests in the Coosa graphite project, which is the most advanced natural flake graphite deposit in the contiguous United States—covering an area of approximately 41,965 acres in Coosa County, Alabama—and is focused on developing battery-grade natural graphite source for the domestic lithium battery industry. The company’s primary project is the Kellyton graphite processing plant under construction in Alabama. The company is targeting to begin commissioning of Phase I of the plant (7,500 mt/year of flake graphite processing run-rate capacity) in 2023, with production ramp-up thereafter, and plans to expand production through Phase-II (15,000 mt/year run-rate capacity) as demand increases.</p>
<h2>Technology and Approach</h2>
<p>Westwater’s approach to developing a domestic supply of graphite materials for the energy storage market differs in that the company is aiming to construct the production plant first, before developing the graphite deposit at its property in Alabama. The goal is to begin processing natural graphite and produce and sell graphite materials for the battery industry using third-party non-Chinese flake graphite source, before expanding the processing plant through Phase II construction and bringing on its own Coosa flake despot online in 2028. The approach would result in WWR getting to revenue and profitability sooner and acquiring the self-financing capability to fully develop the graphite mine. The strategy also de-risks the impact of potential environmental and other delays in developing its mine by providing the company with flake supply from third parties that it can feed its processing plant and supply the battery industry in the US. The company has set up and successfully ran a virtual pilot plant, producing 13 metric tons (mt) of graphite material and developing a proprietary patent pending graphite purification technology that will be implemented in Phase I and will produce graphite material with a lower environmental impact versus Chinese sources. The company continues to run its pilot program as needed to provide samples to potential customers.</p>
<h2>End-Markets and Applications</h2>
<p>The graphite market is estimated at approximately $20 billion and is forecast to grow at mid- to high single digits through 2030 to about $36 billion, driven in large part by growing demand from the energy storage industry, which is expected to increase at a 20%-plus CAGR over this timeframe. Graphite, utilized in the anode of a lithium battery, represents close to 50% of a battery by weight. Battery demand is expected to increase graphite use from the current 1.2M mt annual market to 7.5M mt annually by 2030. This may result in a structural deficit of graphite over the next three to five years, barring the major expansion of synthetic, but particularly natural, graphite sources. As a result, battery and automotive companies are likely to continue to seek direct tie-ups with graphite producers, as they already do with lithium and other critical metal manufacturers, which should aid WWR’s goals of having definitive letters of intent for its graphite production from Phase I before the construction of the plant is completed.</p>
<h2>Upcoming Fireside Chat</h2>
<p>Water Tower Research will host a fireside chat with Westwater Resources’ CFO Steven Cates to discuss in more detail the most recent LOI to supply U-PMG, as well as related topics. The discussion will take place January 19, 2023, at 2:00 pm ET. Please click on&nbsp;link&nbsp;to register for the event.</p>
<h3>DISCLOSURES</h3>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

Catalyst for domestic metal producers.&nbsp;The recently enacted Inflation Reduction Act and its provisions for domestic content of EVs appear to have accelerated discussions throughout the EV supply chain, as battery component and cell manufacturers, as well as automotive OEMs, are racing to secure a domestic supply of battery metals in order to qualify for available tax credits and consumer rebates, with WWR fielding incoming inquiries from once reticent potential customers regarding its pending graphite materials production and supply capabilities.
Continuing progress in securing customers.&nbsp;Last week, WWR announced it signed a letter of intent (LOI) to supply ultra-purified micronized graphite (Ultra-PMGTM) product to a customer, once the company’s Kellyton AL graphite processing plant is fully operational in 2024.
Building the base load.&nbsp;This latest LOI, the company’s fifth, is also the largest signed by WWR to date, accounting for approximately 25% of the expected annual production volume of purified micronized graphite in Phase I of the Kellyton plant. Combined with prior LOIs, WWR has already presold close to half of the PMG production capacity envisioned under Phase I.
Not as sexy, but just as needed.&nbsp;While most graphite converters are focusing their efforts on coated purified spherical graphite (CPSG) products for the EV battery industry, treating micronized graphite produced during the spherification process almost as a waste stream, despite it accounting for anywhere from 40-60% of natural flake graphite processed volume, WWR’s strategy of producing and marketing CSPG, purified and even ultra-purified micronized graphite products can significantly improve the Kellyton plant’s economics, as virtually all of the graphite processed can be converted into marketable products.

OUR INSIGHTS
Opportunities
Domestic production of graphite products for the energy storage market may make WWR a preferred supplier for battery and EV manufacturers, given the Inflation Reduction Act’s provisions for domestic content in EVs and EV batteries.
Obtaining the necessary funds to complete Phase I construction at the Kellyton, AL graphite processing plant should have a positive impact on the pace of customer offtake agreement signings and may result in higher valuation levels for WWR’s stock.
Opportunities to monetize vanadium found in the Coosa deposit, as well as potential reimbursement from Turkey related to WWR’s uranium asset nationalized by that country, may provide further revenue and cash inflow opportunities.
Obstacles
Delays in obtaining sufficient project funding may result in a slower pace of customer acquisition and may affect WWR’s stock valuation as investors grow concerned regarding its long-term viability.
Delays in completing Phase I construction and start-up may negatively affect investor sentiment and likewise result in a lower stock price.
The Company
Westwater Resources, Inc. operates as an energy materials developer and energy technology company. The company, after a long history as a uranium miner, made a strategic decision in 2017 to pivot toward graphite production and purchased Alabama Graphite in March 2018, completing the sale of its uranium assets in January 2021. Westwater holds interests in the Coosa graphite project, which is the most advanced natural flake graphite deposit in the contiguous United States—covering an area of approximately 41,965 acres in Coosa County, Alabama—and is focused on developing battery-grade natural graphite source for the domestic lithium battery industry. The company’s primary project is the Kellyton graphite processing plant under construction in Alabama. The company is targeting to begin commissioning of Phase I of the plant (7,500 mt/year of flake graphite processing run-rate capacity) in 2023, with production ramp-up thereafter, and plans to expand production through Phase-II (15,000 mt/year run-rate capacity) as demand increases.
Technology and Approach
Westwater’s approach to developing a domestic supply of graphite materials for the energy storage market differs in that the company is aiming to construct the production plant first, before developing the graphite deposit at its property in Alabama. The goal is to begin processing natural graphite and produce and sell graphite materials for the battery industry using third-party non-Chinese flake graphite source, before expanding the processing plant through Phase II construction and bringing on its own Coosa flake despot online in 2028. The approach would result in WWR getting to revenue and profitability sooner and acquiring the self-financing capability to fully develop the graphite mine. The strategy also de-risks the impact of potential environmental and other delays in developing its mine by providing the company with flake supply from third parties that it can feed its processing plant and supply the battery industry in the US. The company has set up and successfully ran a virtual pilot plant, producing 13 metric tons (mt) of graphite material and developing a proprietary patent pending graphite purification technology that will be implemented in Phase I and will produce graphite material with a lower environmental impact versus Chinese sources. The company continues to run its pilot program as needed to provide samples to potential customers.
End-Markets and Applications
The graphite market is estimated at approximately $20 billion and is forecast to grow at mid- to high single digits through 2030 to about $36 billion, driven in large part by growing demand from the energy storage industry, which is expected to increase at a 20%-plus CAGR over this timeframe. Graphite, utilized in the anode of a lithium battery, represents close to 50% of a battery by weight. Battery demand is expected to increase graphite use from the current 1.2M mt annual market to 7.5M mt annually by 2030. This may result in a structural deficit of graphite over the next three to five years, barring the major expansion of synthetic, but particularly natural, graphite sources. As a result, battery and automotive companies are likely to continue to seek direct tie-ups with graphite producers, as they already do with lithium and other critical metal manufacturers, which should aid WWR’s goals of having definitive letters of intent for its graphite production from Phase I before the construction of the plant is completed.
Upcoming Fireside Chat
Water Tower Research will host a fireside chat with Westwater Resources’ CFO Steven Cates to discuss in more detail the most recent LOI to supply U-PMG, as well as related topics. The discussion will take place January 19, 2023, at 2:00 pm ET. Please click on&nbsp;link&nbsp;to register for the event.
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Taking a Major Step Forward with Ultra-PMG™ Letter of Intent