ACQUISITIONS AND DISPOSALS

12 Months Ended

Dec. 31, 2021

ACQUISITIONS AND DISPOSALS.

ACQUISITIONS AND DISPOSALS

3. ACQUISITIONS AND DISPOSALS

Sale of Uranium Business to enCore Energy

On December 31, 2020, Westwater, its wholly owned subsidiary URI Neutron Holdings II, Inc. (“Neutron Holdings”), and enCore Energy Corp. (“enCore”) entered into a securities purchase agreement (the “Purchase Agreement”) to sell their subsidiaries engaged in the uranium business in Texas and New Mexico (the “Uranium Subsidiaries”) to enCore. The transaction closed December 31, 2020.

At the closing of the transaction, enCore delivered $0.7 million in cash and issued $1.8 million worth of its common shares to Westwater. EnCore shares received by Westwater totaled 2,571,598 common shares.  The number of shares was determined by a pricing formula based on the volume weighted average price (“VWAP”) of enCore’s common shares for the ten trading days ending on and including December 30, 2020.  The VWAP formula resulted in a price of $0.698. For purposes of determining the fair value of the enCore shares, the Company used the closing price for enCore shares on December 31, 2020 which was $0.736, resulting in a value of approximately $1.9 million.  The Company then determined that a discount for lack of marketability should be considered because (1) the shares were not eligible for sale by Westwater until May 1, 2021, and (2) after May 1, 2021, the terms of the purchase agreement require WWR to offer enCore a first right to buy the shares if the amount to be sold in a single transaction is greater than 250,000 shares.  Utilizing a precedent comparable transaction and Black-Scholes valuation methodology for fair value evaluation, the Company determined that a discount of 21% should be applied to the shares.  Accordingly, the carrying value of the shares was adjusted to reflect a fair value of $1.5 million as of December 31, 2020, and the discount was charged to loss on sale of uranium assets on the Consolidated Statement of Operations.

Westwater and Neutron Holdings transferred all of the equity interests in the Uranium Subsidiaries to enCore along with a copy of a database relating to the Grants Mineral Belt located in New Mexico. In addition, enCore delivered to Westwater a 2% net smelter return royalty (“NSR Royalty”) on production from the uranium properties held by Uranco, Inc. in New Mexico, and a 2.5% net profits interest (“NPI”) on the profits from operations of Neutron Energy, Inc.’s Juan Tafoya and Cebolleta Projects. Pursuant to the terms of the Purchase Agreement, enCore has also agreed to replace the

indemnification obligations of Westwater for certain reclamation surety bonds held in the name of URI, Inc., and Westwater transferred to enCore all rights to $3.8 milion in cash collateral held to secure such indemnity obligations.

Also, at closing, in accordance with the terms of the Side Letter executed by the parties, Westwater delivered $0.3 million in cash to enCore, which amount was delivered in escrow upon the request of the lender, Celtic Bank, under the loan made to URI, Inc. in May 2020 pursuant to the Small Business Administration (“SBA”) Paycheck Protection Program (the “PPP Loan”).  The escrowed amount was to be released to Westwater upon, and subject to, forgiveness of the PPP Loan under the terms of the Coronavirus Aid, Relief, and Economic Security Act. The PPP Loan forgiveness application was filed on January 25, 2021, and Westwater received a notification from the SBA on March 31, 2021 that 100% of the loan had been forgiven. As a result, on March 31, 2021, the escrowed funds were returned to Westwater.

Finally, due to the high degree of uncertainties surrounding future mine development and uranium prices, as well as limited marketability, the Company determined the fair value of the NSR Royalty and NPI to be nil.

The following fair value amounts were recorded as purchase consideration at December 31, 2020:

(thousands of dollars)
Cash	$	743
Transaction costs		(558)
Contingent consideration for PPP Loan escrow		333
enCore common stock		1,520
Total Consideration Received	$	2,038

The Company recorded the following loss on disposal of uranium properties within its Consolidated Statement of Operations for the year ended December 31, 2020:

(thousands of dollars)
Total Consideration Received	$	2,038
Carrying value of uranium property, plant and equipment		(6,204)
Restricted Cash		(3,797)
Other assets		(579)
Asset retirement obligation		5,239
Note Payable (PPP loan)		333
Other liabilities		305
Loss on disposal of Uranium Entities	$	(2,665)

The loss was primarily related to resolution of transaction issues and final negotiations in the fourth quarter leading up to the transaction closing on December 31, 2020.