On Oct. 6, InvestorPlace’s William White highlighted the Trump executive order that sent Westwater Resources (NASDAQ:WWR) stock up 25% to a 52-week and two-year high. Since then, despite the excitement surrounding the White House’s desire to have domestically produced graphite available, WWR stock has lost 63% of its value.
There are times to buy on the dip. This is not one of them. Here’s why.
Right there in the first sentence of the company description section of its 2019 10-K is the statement that Westwater is a 40-year-old company that was originally incorporated as Uranium Resources in 1977.
Now go to the balance sheet, and you’ll see that it’s got an accumulated deficit of $302.4 million, up from $291.9 million in 2018. So, that’s an average annual loss of $75 million over the past 40 years.
If you look at the opinion statement of its accounting firm, you’ll see more bad news.
“[T]he Company has no revenue, has suffered recurring losses from operations, and has relied on debt and equity financing and asset sales to fund its operations, which raises substantial doubt about its ability to continue as a going concern,” states Moss Adams LLP on page 66 of Westwater’s 10-K.
About the only ray of sunshine is the $253 million in U.S. net operating loss carryforwards. However, the company estimates that $221.6 million of those carryforwards aren’t usable by the company, leaving the actual usable amount around $31.4 million.
But first, it has to have the actual income to offset. That’s going to take a while, even with Trump’s assistance.
The investment company had bought one million shares of its stock for a little more than $1 million. Trading just over $2 a share as I write this (it paid $1.09), it’s still sitting on a nice gain. In total, iBio’s 10-K says that Lincoln Park bought a total of 21.3 million shares of IBIO stock for $26.3 million (an average of $1.23 a share) before ending its March 2020 purchase agreement for Lincoln Park to buy up to $50 million in stock.
While I wouldn’t roll the dice on iBio, my last article made it clear it remains a tempting bet for speculative investors.
This is why I shouldn’t be surprised that Lincoln Park Capital Fund LLC has its name on a purchase agreement with Westwater to purchase up to $10 million in stock between June 6, 2019, and June 6, 2021, in the very same arrangement it had with iBio.
In May 2020, Westwater amended the arrangement so that Lincoln Park could purchase up to $12 million in stock by May 2022. On May 21, 2020, Lincoln Park bought an initial 192,471 shares for $250,000. Westwater can then direct Lincoln Park to buy more shares in the future up to a maximum of $600,000 on any one occasion based on the prevailing share price at the time.
As of Sep. 24, Westwater had issued 1.97 million shares to Lincoln Park at an average price of $1.92 per share for a total outlay of $3.79 million.
While Westwater made an investment case for buying its stock in October 2019, it seems like the only one making money off the stock at the moment is Lincoln Park.
I don’t think it’s a coincidence that Lincoln Park is involved in two very speculative investments in two seemingly unrelated industries.
The common theme of both of these investments is that Lincoln Park had the capital to invest, and iBio and Westwater needed the capital to fund their growth. A deal was struck, and it appears the investment manager’s done reasonably well on both bets.
This doesn’t mean that regular investors should try this at home. Lincoln Park’s obviously developed an investment strategy that plays off these purchase agreements. And to its credit, it’s worked.
But timing is everything. It’s going to take time for its Coosa graphite project in Alabama to play out. In the meantime, except for the most speculative investors, there are much better places to put your money.
I would not touch WWR stock with a 10-foot pole at this point. And you shouldn’t either.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.