United States Antimony Corporation — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016; unaudited. The company operates antimony businesses in the U.S. and Mexico, precious-metals recovery, and a U.S. zeolite business.
Key financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $3.014 million | $3.388 million | $6.320 million | $6.348 million |
| Gross profit (loss) | $190,000 | $66,000 | $397,000 | $(12,000) |
| Gross margin | 6.3% | 1.9% | 6.3% | Negative |
| Net income (loss) | $(157,000) | $(198,000) | $(345,000) | $242,000 |
| Operating cash flow | Not provided separately | Not provided separately | $351,000 | $(146,000) |
Q2 net loss available to common shareholders was $169,000; reported basic and diluted loss per share was “Nil.” Q2 EBITDA was $69,000 versus $25,000 a year earlier. EBITDA is a non-GAAP measure presented in management’s discussion.
- Antimony sales volume increased 8.9% in Q2 to 732,802 pounds, but average selling price fell to $2.81 per pound from $4.06. For the first half, volume rose to 1.646 million pounds while price declined to $2.79 from $4.17.
- Zeolite Q2 sales volume rose 7.3% to 4,218 tons; reported segment net income was $100,000, down from $154,000.
- Cash and cash equivalents were $83,000 at June 30, down from $134,000 at year-end; certificates of deposit were $252,000. Current assets were $2.177 million against current liabilities of $2.936 million, leaving negative working capital of $759,000 and a current ratio of about 0.74.
- Total assets were $18.235 million and stockholders’ equity was $12.252 million. Bank notes were $127,000, long-term debt including current portion was $1.862 million, and Hillgrove advances payable were reported as $1.178 million on the balance sheet.
- Operating cash flow of $351,000 was more than offset by $361,000 of investing outflow, primarily capital spending, and $41,000 of financing outflow. Cash declined $51,000 in the first half.
Changes and unusual items
- First-half revenue was nearly flat year over year, but the company moved from $242,000 net income to a $345,000 loss. The prior-year result included a one-time $915,000 vendor credit for overcharged raw-material purchases; management said this was the primary reason for the 2015 profit.
- Q2 revenue declined 11% year over year, principally reflecting lower antimony prices, despite higher antimony sales volume. Management cited the six-month antimony selling price as the lowest in seven years.
- Mexico antimony operations recorded a $2.608 million operating loss for the first half, while U.S. antimony operations reported $1.859 million operating income. Mexico’s $337,000 first-half non-production costs included holding and care-and-maintenance costs at idle mines and mills, and costs associated with constrained furnace capacity and Los Juarez ore processing.
- Capital expenditures were $361,000 in the first half, versus $894,000 in 2015. The company estimated approximately $150,000 of further construction and improvement spending over the next 12 months.
Outlook, risks and contingencies
- Management stated it believed current cash and expected operating cash flow would cover commitments and debt service over the next 12 months, relying in part on a possible refund of Mexican IVA tax deposits. The filing reported approximately $226,000 on deposit with Mexican tax authorities and disclosed no formal earnings or revenue guidance.
- Management said antimony prices might have reached the end of their decline and expected improved output and margins as Mexican operations approached planned capacity. These are forward-looking expectations, not assured results.
- Hillgrove had suspended Australian mining but was processing ore on hand and shipping concentrates. The company estimated supplies could keep its LRF operating through year-end 2016; Hillgrove permitted use of furnaces built for its material for company production if its supply ceased. Hillgrove may suspend or terminate the processing agreement, and final repayment terms had not been agreed.
- Los Juarez production depended on completion and permitting of leach-circuit work, including a cyanide-leach permit application for the Puerto Blanco mill. The company expressly stated it claims no SEC-defined ore reserves at Los Juarez.
- IMMEX certification requires export of at least 60% of items imported into Mexico; the company said it was meeting the requirement. It believed its tax deposits would be refunded or applied against other tax liabilities.
- Three largest customers accounted for 40.8% of first-half revenue, indicating customer concentration. Factored receivables are with recourse; the CEO personally guarantees the amount due to the factor. Bank notes are also personally guaranteed by the CEO.
- Disclosure controls were deemed ineffective due to material weaknesses, including inadequate segregation of duties and material financial-statement misstatements identified during the prior year-end audit. Management described review procedures but reported no significant control changes during the quarter.
- The company disclosed the settlement in its favor of a lawsuit against Herbert A. Denton and Providence Capital. It reported no liabilities due to MSHA at June 30.
Most important facts for investors to verify
- Whether antimony prices, sales volumes, and unit production costs support a return to profitability, especially given continuing Mexico non-production costs.
- Progress, permitting, remaining costs, and expected recovery outcomes for the Puerto Blanco and Los Juarez projects; the company reports no Los Juarez reserves.
- Hillgrove’s remaining concentrate supply, furnace-use arrangements, and definitive repayment terms. The balance sheet lists $1.178 million payable, while Note 9 states $1.134 million due to Hillgrove; the filing text does not reconcile the difference.
- Whether expected Mexican tax refunds and operating cash flow materialize, given negative working capital and planned capital spending.
- Remediation of the disclosed material weaknesses and the effect of customer concentration and recourse factoring on liquidity.