United States Antimony Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company operates U.S. and Mexican antimony businesses, precious-metals recovery, and Bear River Zeolite. Figures are unaudited.
Financial performance and position
- Revenue: Q3 revenue was $2.05 million, up 104% from $1.01 million a year earlier. Nine-month revenue was $5.58 million, up 29% from $4.34 million. Q3 antimony revenue rose to $1.28 million from $477,273; zeolite revenue was $693,008 versus $481,126.
- Profitability: Q3 gross profit was $101,209, compared with a $435,091 gross loss in Q3 2020; gross margin was about 4.9%, versus negative 43.2%. Nine-month gross profit was $509,764, versus a $349,975 gross loss; gross margin was about 9.1%, versus negative 8.1%. Net loss was $99,232 for Q3 and $97,579 for the nine months, compared with losses of $993,240 and $1.58 million, respectively, in 2020. Nine-month results included $443,400 of PPP-loan forgiveness and a $113,422 gain on settlement of Hillgrove advances. Net loss available to common stockholders was $111,394 for Q3 and $134,066 for the nine months after preferred dividends.
- Cash flow: Operating activities used $2.48 million in the first nine months, versus $566,587 in 2020. Investing activities used $406,295, including $616,479 of capital spending and $210,184 of certificate-of-deposit redemptions. Financing activities provided $23.78 million, primarily from stock sales and warrant exercises. Cash and cash equivalents were $21.56 million at quarter-end, compared with $665,102 at December 31, 2020.
- Liquidity and debt: Working capital was $21.24 million, compared with a $2.67 million deficit at year-end 2020. Current liabilities were $1.82 million; reported bank notes, long-term debt, Hillgrove advances, and CARES Act debt were all zero at September 30. Total liabilities were $2.21 million and stockholders’ equity was $32.33 million.
- Share issuance: The company raised $25.0 million gross in two February common-stock sales, incurred $1.65 million in issuance costs, and received $1.79 million from warrant exercises. Common shares outstanding increased to 106.1 million from 75.9 million at year-end 2020. A further 12.49 million warrants were outstanding at quarter-end.
Changes, operations, and management commentary
- Antimony sales volumes increased to 306,045 pounds in Q3 and 827,131 pounds for the nine months, versus 146,842 and 675,993 pounds in the comparable 2020 periods. Average sales prices rose to $4.20 and $4.08 per pound, respectively, from $3.25 and $3.71. Management attributed stronger pricing to constrained Chinese exports.
- Antimony operations remained mixed: the U.S. antimony segment reported Q3 operating income of $528,750, while Mexico reported an operating loss of $673,739. For the first nine months, Mexico’s operating loss was $1.49 million. Management cited Mexican production costs and continued efforts to reduce them.
- Zeolite volume rose to 3,045 tons in Q3 and 8,823 tons for the nine months, but Q3 segment results shifted to a $12,867 loss from $95,969 income a year earlier. A jaw-crusher failure interrupted production in August; a refurbished unit was installed and online by September 3.
- Two new Montana furnaces were operational and began test batches of antimony trisulfide in early October. Management said the equipment could raise nameplate throughput from 100 to approximately 1,100 pounds per day, subject to product quality and testing.
- Q3 company-wide EBITDA, a non-GAAP measure, was $123,964, compared with negative $775,590 in Q3 2020; nine-month EBITDA was $568,025, compared with negative $909,107. EBITDA definitions and reconciliation should be reviewed in the filing.
Outlook, risks, and contingencies
- Management expects improved cash flow for the rest of 2021, citing antimony and zeolite sales and higher antimony prices. It believes available funds are sufficient for operations and financial obligations for the 12 months following issuance of the statements. This outlook is not a guarantee; the company reported losses in each of the prior two fiscal years and an accumulated deficit of $32.7 million.
- COVID-19-related labor shortages affected Montana and Idaho operations. The company raised wages, pursued additional recruiting, and sought to increase Mexican smelter capacity, where management said labor was available.
- The Mexican tax authority’s reopened 2013 income-tax assessment was approximately $818,000. The company is appealing, has posted a required guarantee, and accrued no liability because management believes it will prevail; the filing cautions that an adverse outcome could materially affect results or financial position.
- The company paid a $1.12 million Mexican IVA/export-tax assessment in Q1 2021. It also settled the Hillgrove advance for $1.02 million, below the $1.13 million year-end liability, recognizing a $113,422 gain. The PPP loan of $443,400 was forgiven in Q2 2021.
- Management disclosed material weaknesses in disclosure controls: inadequate financial-reporting control design and monitoring, insufficient segregation of duties, and ineffective management-oversight and antifraud controls. Controls were deemed ineffective at September 30, 2021; no significant changes to internal control over financial reporting were reported during the quarter.
- Royalty rates on zeolite sales range from 8% to 13%; the company was negotiating changes with certain royalty holders. Management estimated less than $100,000 of remaining commitments to complete precious-metals leach circuits, subject to geological study results.
Important facts for investors to verify
- Whether higher antimony prices and sales volumes can translate into sustained positive operating cash flow, particularly given Mexican production costs and labor constraints.
- Execution and quality results from the new furnaces, and whether antimony trisulfide output reaches the stated capacity.
- Progress and potential financial exposure from the Mexican tax appeal, including the status of the posted guarantee.
- Use of equity proceeds, future capital needs, and dilution risk from the substantial outstanding warrant balance.
- Remediation of the disclosed material weaknesses and the reliability of future financial reporting.
- Customer concentration: the five largest customers represented 50.3% of nine-month revenue; confirm ongoing demand and collection of receivables.