United States Antimony Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with 2018. The filing was signed April 14, 2020. USAC produces and sells antimony products, precious metals, and zeolite, with operations in the United States and Mexico. The company reports no SEC-defined proven or probable reserves for its antimony or zeolite properties.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $8.27 million | $9.03 million |
| Gross profit (loss) | $(816,251) | $1,543 |
| Operating income (loss) | $(3.75) million | $547,036 |
| Net income (loss) | $(3.67) million | $873,225 |
| Net income (loss) per common share | $(0.05) | $0.01 |
| Company-wide EBITDA | $(2.78) million | $1.45 million |
| Cash provided (used) by operations | $(5,711) | $(656,631) |
| Capital expenditures | $792,925 | $999,119 |
- Antimony sales revenue fell to $5.45 million from $6.11 million. Sales volume increased 5% to 1.57 million pounds, but the average sales price declined 15%, to $3.48 per pound from $4.11. Antimony recorded a gross loss of $1.52 million, compared with a $721,169 gross loss in 2018.
- Zeolite revenue was $2.62 million, down from $2.67 million. Volume declined 4.5% to 13,680 tons, while average price rose to about $192 per ton. Segment net income improved to $497,470 from $449,961; EBITDA increased to $683,936 from $638,764.
- Precious-metals revenue decreased to $194,239 from $254,445. Segment net income was $125,172, compared with $186,403.
- Cash and cash equivalents were $115,506; certificates of deposit were $253,552. Current assets of $1.28 million were below current liabilities of $3.98 million, leaving negative working capital of $2.70 million, versus negative $1.61 million in 2018. The current ratio was approximately 0.32.
- Total liabilities were $5.23 million and total assets were $13.69 million. Bank notes payable were $197,066. Long-term debt, including its current portion, was $133,096. Hillgrove advances payable totaled $1.13 million, of which $378,074 was classified as current. The filing identifies substantial doubt about the company’s ability to continue as a going concern over the next 12 months.
- Cash, cash equivalents, and restricted cash totaled $172,767 at year-end. Financing included $404,199 net proceeds from common stock and warrant sales and $237,400 in related-party loans.
Material changes versus 2018
- Revenue declined approximately 8.5%, and the company moved from net income to a substantial net loss. The 2018 result benefited from nonrecurring gains related to a plant acquisition and land sale, as well as a Mexican tax benefit.
- A $1.41 million noncash loss was recorded after USAC abandoned the Soyatal and Guadalupe properties in Mexico in the fourth quarter, citing depressed antimony prices and development costs. Related debt was removed in connection with the abandonment.
- Antimony production costs rose overall, particularly in Mexico, while weaker antimony prices reduced sales proceeds. A renegotiated North American supplier agreement took effect in the third quarter and reduced production costs, according to management.
- Working capital deteriorated despite lower long-term debt balances. Accounts payable and other accrued liabilities increased, and $378,074 of Hillgrove advances was reclassified as current because management believed a stop notice might be forthcoming.
- Common shares outstanding increased from 68.23 million to 69.66 million. During 2019, the company raised funds through a stock-and-warrant offering and issued shares to its CFO for services; director stock compensation was also accrued.
Outlook, risks, contingencies, and unusual items
- Management expected the Puerto Blanco precious-metals leach circuit in Mexico to begin production in the second half of 2020 and projected improved cash flow from precious-metals sales. It planned to process approximately 14,000 tons of Los Juarez ore in 2020 and 24,000 tons annually in 2021 and 2022. A partially installed 400-ton-per-day flotation mill was expected to be completed by the end of 2022. These are forward-looking plans, not reported results.
- Management cited low antimony prices, production costs in Mexico, and uncertainty in raw-material supply as drivers of losses. It did not expect a significant increase in output from Mexican mines in 2020. The filing also warns that COVID-19 could disrupt operations, markets, and access to capital.
- The independent auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management’s plans do not assure that the doubt will be alleviated.
- Disclosure controls and internal control over financial reporting were reported ineffective, with material weaknesses involving control design and monitoring, subsidiary and period-end reporting, segregation of duties, and management oversight. Management described plans to strengthen controls and consult independent experts for complex transactions.
- In November 2019, Mexico’s tax authority reassessed USAMSA for approximately $866,000 as of December 31, 2019 (about $691,000 as of April 9, 2020). The company appealed, posted a required guarantee in March 2020, and recorded no liability because management expected to prevail; there is no assurance that the outcome will not be adverse.
- Environmental reclamation and asset-retirement liabilities totaled $283,868. Management considered the accrual adequate, but said excess potential losses could not be reasonably estimated; the company has no environmental liability insurance.
- Three largest customers accounted for 49.05% of 2019 revenue. Management stated that losing all three could affect profitability. Antimony supply and prices are exposed to foreign sourcing and global market volatility.
Most important facts for investors to verify
- Whether Puerto Blanco leach operations began on schedule, achieved projected recoveries and volumes, and generated cash flow as management expected.
- Whether the company addressed its negative working capital and going-concern uncertainty, including the timing or demands for repayment of Hillgrove advances and related-party loans.
- The final result and financial impact of the Mexican tax appeal and posted guarantee.
- Whether antimony input supply, prices, and production costs improved, and whether the supplier agreement delivered the expected savings.
- Progress in remediating the disclosed internal-control material weaknesses and any subsequent changes in disclosure controls.
- Customer concentration, environmental obligations, and the company’s lack of proven or probable mineral reserves.