Westwater Resources Insiders Need to Let Their Money Do the Talking

The last (and only) time I wrote about Westwater Resources (NASDAQ:WWR) was approximately three weeks ago. Regardless of a recent executive order from President Donald Trump, which was intended to reduce the country’s reliance on foreign suppliers of critical minerals such as graphite, I couldn’t recommend WWR stock except for the most speculative investors.

a construction worker looks on as an excavator gets to work in a mine

Source: Shutterstock

Now that some time has passed, I still don’t see the merits of investing in Westwater. Here’s a big reason why. 

Insiders Own Less Than 1% of WWR Stock

Last time, a big chunk of my argument had to do with Lincoln Park Capital, the same investors behind iBio (NYSEAMERICAN:IBIO). They clearly know what they’re doing. Most average investors aren’t likely to be as lucky. 

However, if I were a speculative investor, besides all of the environmental and financial concerns, I’d be worried about how little an investment the directors and management have made in Westwater Resources. 

According to its Schedule 14A, the seven directors and executive officers listed under the “Ownership of Westwater Common Stock” owned a total of 27,952 shares. That’s 0.65% based on 4.3 million shares outstanding at the beginning of March. 

Of course, it’s sold a bunch of its stock since then, so the numbers for both the shares outstanding and shares owned by directors and the named executive officers are much higher today. 

The company requires that the chief executive officer — Christopher Jones — and the chief financial officer — Jeffrey Vigil — own three times the initial base salary in their employment agreements within five years. 

Based on the CEO and CFO’s employment agreements from 2013, their salaries were $275,000 and $200,000, respectively. At three times their salaries, Jones should own 205,736 shares (based on $4.01 share price) and Vigil should own 149,626.

The two executives’ Form 4s from June 12, show that Jones held 32,424 shares and Vigil held 11,837. As of Aug. 5, the duo owned 0.59% of the 7.6 million shares outstanding. If we use the 9.7 million outstanding as of Oct. 5, it drops to 0.45%.  

Based on 9.7 million shares outstanding, Jones should own 2.1% of its stock and Vigil should own 1.5%. 

They’re nowhere close.

How Much Do Other CEOs Invest?

I’ll use two examples from the Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT) to make a quick comparison.

The first example is Albemarle (NYSE:ALB), one the world’s largest lithium producers. Former CEO Luther Kissam owned 756,243 shares of its stock. As of March 9, that represented 0.71 of the company’s 106.3 million shares outstanding. 

That might not seem like a big difference to the Westwater executives. However, based on a $117 share price as I write this, Albemarle’s CEO’s shares are worth $88.4 million, more than 88 times his annual salary of $1 million. 

Westwater’s CEO’s investment is worth $130,000 at current prices, less than half of his annual salary.

The second example is BHP Group (NYSE:BHP), the massive Australian mining company. CEO Mike Henry is required to have shareholdings equivalent to five times his pre-tax annual salary. At the end of fiscal 2020, Henry’s holdings were 4.1 times his pre-tax annual salary.

In fiscal 2020, Henry’s base salary was $850,000. Because BHP’s fiscal year ends at the end of June, we need to multiply his salary by two to $1.7 million.

So, he is required to own $8.5 million in BHP stock. Henry owned 120,069 BHP shares at the end of June and an additional 196,262 BHP Group Plc (NYSE:BBL) shares. 

Based on current prices, the CEO’s BHP holdings are worth $6.3 million and his BBL shares are worth $8.3 million, for a total of $14.6 million, or more than 17 times his base salary, well above the minimum shareholding requirement. 

Now, in both these cases, we’re talking about major companies — Albemarle has a market capitalization of $12.6 billion while BHP’s is 10 times that at $131 billion — so, in many ways, the commitment that their CEOs have made in their respective companies is impressive.

The Bottom Line

In my previous article about Westwater, I said investors shouldn’t touch WWR stock with a 10-foot pole. Knowing how little Westwater’s named executive officers have invested in the business, I now think you’ll need a 20-foot pole if you want to go anywhere near this highly speculative investment.

If you want to make a graphite investment, buy yourself a set of graphite golf clubs. The return on investment will be much higher.    

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.  

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/wwr-stock-insiders-need-to-let-their-money-do-the-talking/.

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