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ACQUISITIONS AND DISPOSALS | 12 Months Ended
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Dec. 31, 2020
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 $742,642 in cash and issued $1,795,000 worth of its common shares to Westwater and 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 $3,796,788 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 $333,120 in cash to enCore, which amount is to be 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 will be released to Westwater upon, and subject to, forgiveness of the PPP Loan under the terms of the CARES Act. In the event that all or a portion of the PPP Loan is ineligible for forgiveness, Celtic Bank will retain the escrowed amount up to the amount of the unforgiven portion of the PPP Loan, plus interest. The PPP Loan forgiveness application was filed on January 25, 2021. Celtic Bank has 60 days from receipt of the PPP loan forgiveness application to issue a decision recommendation to the SBA. The SBA has 90 days from receipt of that application to confirm the forgiveness amount. The divestiture of the uranium business was accounted for as an asset disposal and the non-cash consideration received from enCore was recorded at fair value. In accordance with the terms of the purchase agreement, non-cash consideration included the receipt of shares of enCore common stock in the amount of $1,795,000. The number of shares issued at closing was 2,571,598. 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 $1,895,000. The Company then determined that a discount for lack of marketability should be considered because (1) the shares were not be 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%, or $375,000, should be applied to the shares. Accordingly, the carrying value of the shares has been adjusted to reflect a fair value of $1,520,000, and the discount was charged to loss on sale of uranium assets on the Consolidated Statement of Operations. The cash paid to enCore for the PPP Loan escrow is considered contingent consideration for accounting purposes in accordance with ASC 810 – Consolidation and ASC 805 – Business Combinations. URI, Inc. used 100% of the loan proceeds for eligible payroll and payroll related expenses and provided all supporting documentation required to support the request for forgiveness. Although no assurance can be provided, the Company believes it is “probable” that the loan will be 100% forgiven. Accordingly, the fair value of contingent consideration is deemed to be the carrying value of the $333,120 paid into escrow, and is classified as an account receivable at December 31, 2020. 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 have been recorded as purchase consideration:
(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:
(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. Disposal of Uranium Assets On March 5, 2019, the Company entered into an Asset Purchase Agreement with Uranium Royalty (USA) Corp. and Uranium Royalty Corp. (together “URC”) for the sale of four of its royalty interests on future uranium production from mineral properties located in South Dakota, Wyoming and New Mexico, as well as the remaining amount of the Laramide promissory note in the amount of $2.0 million as discussed below, for $2.75 million, including $0.5 million paid at signing. On June 28, 2019, Westwater and URC entered into an Amendment to the Asset Purchase Agreement. The Amendment extended the date for closing from July 31, 2019 to August 30, 2019. URC delivered an additional $1.0 million as deposit to the Company upon signing the Amendment. The transaction closed on August 30, 2019 at which time the Company transferred ownership of the royalties and promissory note in exchange for the final payment of $1.25 million. The sale of these uranium assets was accounted for as an asset disposal. The Company recorded the following gain on disposal of uranium assets on its Condensed Consolidated Statements of Operations:
URC Transaction |  |  |
(thousands of dollars) |  |  |
Total cash consideration received, net of transaction costs |  | $ | 2,470
Carrying value of promissory note |  |  | (1,741)
Carrying value of royalty interests |  |  | —
Gain on disposal of uranium assets |  | $ | 729

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