One look at any stock that is even tangentially related to electric vehicles explains why Westwater Resources (NASDAQ:WWR) is getting a long look. WWR stock is up nearly 20% in the last month.
Westwater is seeking to become a domestic player in the graphite mining business. Graphite is one of the “rare earth minerals” that is currently being mined (mostly) in China.
Josh Enomoto recently presented information from Roskill.com that emphasizes this point. In 2018, the United States imported 45% of its flake graphite imports from China.
So you can imagine that the United States is looking to change that. Graphite and its equally rare brethren, lithium and cobalt, are three minerals the U.S. is looking to mine domestically.
But there’s a potential snag. As it turns out, mining graphite can have harmful effects for the environment. Up until now the problem has been an “over there” problem. But with the issue of graphite mining moving onshore, it is sure to draw close scrutiny.
And this means that no matter who wins the presidential election, the path to approval may not be as clear as Westwater hopes.
As Simple As Supply and Demand
There is a practical, economic argument to be made. In the first place, graphite is used to make the negative electrode (and approximately 10% to 15% of the cost) of a lithium-ion battery.
As you can imagine, demand for graphite, as well as lithium, is soaring. Consumers are demanding more powerful mobile devices. That requires more capacity and a longer battery life.
Plus, if the pandemic has taught corporations anything it’s this: The industries that need these minerals to produce smartphones and electric vehicles for example, would enjoy having their supply chains closer to home.
And WWR stock is getting a lift as the Trump administration has given the industry the green light in the form of an executive order.
Mining Is Messy Business
Without proper controls in place, graphite mining and refining can pollute air and water.
For example, grinding graphite releases graphite dust that can produce fine particle pollutants that could lead to respiratory difficulties. And the harsh chemicals used during processing can sometimes leak into surrounding lands and water.
But remember I mentioned above “without proper controls in place.” To put it in context, over the last decade, China has cut back its graphite production because of pollution concerns. In fact, one of the reasons the price of graphite has been going up is because China has been shutting graphite producers down in an effort to combat pollution.
So if China was trying to clean up their act, you can bet that graphite mining in the United States will be a highly regulated industry.
And that means that it’s unlikely the U.S. will be able to capture the cost-efficiency hoped for.
Should You Get Your Foot In the Door on WWR Stock?
Westwater knows this undoubtedly. In fact, this is the part of the story that should raise caution flags (if not flashing red lights) for investors. The company is actively engaged in a pilot program. This project puts the safety of its employees and the environment first.
According to Christopher M. Jones, Westwater’s President and CEO, the company’s project is timed to coincide with the “advances in the electrification of our transportation system and grid electricity storage for renewable energy here in the United States and the rest of the world.”
However this feasibility study won’t be completed by the middle of next year. And assuming the company passes the study, the commercial-production facility won’t be ready until the end of 2022.
That’s a long time to wait and there’s a lot that could still go wrong. Particularly for a company that, as Will Ashworth points out, has posted an average annual loss of $75 million over the past 40 years.
The nature of graphite mining may make Westwater unappetizing for the socially conscious investor. And the fundamentals of WWR stock may make it unappealing to speculators. Westwater Resources is an interesting stock to watch. But right now, it’s no more than that.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.