United States Antimony Corporation — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; filed August 9, 2013. Unaudited consolidated results. The company operates antimony and zeolite businesses, with operations in the United States and Mexico.
Financial performance
- Q2 revenue: $2.95 million, down 15.5% from $3.50 million in Q2 2012. First-half revenue was $5.92 million, down 9.6% from $6.55 million.
- Gross profit (loss): Q2 was a loss of $1,912, compared with profit of $288,920 a year earlier; first-half loss was $64,046 versus profit of $409,649. Gross margins were approximately -0.1% and 8.3% for Q2, and -1.1% and 6.3% for the respective first-half periods.
- Net income (loss): Q2 loss was $552,208 ($0.01 per share), versus income of $3,770. First-half loss was $961,033 ($0.02 per share), versus a loss of $112,463. The 2013 first-half result included a $229,451 tax expense from a full valuation allowance on deferred tax assets.
- Cash flow: First-half operating cash flow was $123,136, compared with $582,617 in the cash-flow statement for 2012. Investing used $1.26 million, primarily for property, plant and equipment; financing provided $497,707, including $680,192 net proceeds from stock sales. Cash declined $635,117 to $365,694.
- Liquidity: Current assets were $2.23 million and current liabilities $2.41 million, leaving negative working capital of $180,902, versus positive working capital of $1.30 million at year-end 2012. Cash plus certificates of deposit totaled about $611,634; $75,251 of restricted cash was also reported.
- Debt and other liabilities: Long-term debt totaled $1.36 million, including $378,033 due within a year; the company reported no borrowing on its $202,000 credit line. Liabilities also included a $108,750 derivative liability related to warrants and a $253,560 reclamation obligation.
Changes, operations and management commentary
- Antimony metal sold rose to 433,268 pounds in Q2 from 390,930 pounds, but the reported average selling price fell to $5.32 per pound from $6.46. Management cited world antimony prices falling to $4.22 per pound by June 30, 2013, and reported that U.S. raw-material deliveries temporarily slowed during Q2 before resuming.
- Antimony gross loss was $53,190 in Q2, compared with gross profit of $191,146 a year earlier; first-half antimony gross loss was $195,251. Mexico production increased, but output remained constrained by permits for equipment and explosives, and the Puerto Blanco mill operated at about one-third capacity. Management said required permit applications had been submitted.
- Zeolite revenue fell to $542,840 in Q2 from $767,433, reflecting lower volume and a less favorable sales mix. Zeolite remained profitable, with Q2 gross profit of $51,278.
- Management expected higher Mexican antimony and precious-metals output as production increased and anticipated lower Mexican fuel costs after a natural-gas pipeline hookup, then expected by September 30, 2013. It also reported unprocessed Mexican concentrates estimated to contain 8,500 ounces of silver and 25 ounces of gold, awaiting permits. These are expectations, not assured outcomes.
- The company entered a two-year Wadley mining lease in June, with monthly payments of $25,000 for six months and $30,000 thereafter. It paused spending on a proposed 500-ton-per-day mill while considering another site and halted Los Juarez spending pending a permit. Management asserted available cash and future operating cash flow would cover commitments and debt service.
Risks, contingencies and unusual items
- Commodity-price exposure is significant: raw materials were about 50% of cost of goods sold, and management estimated a $2-per-pound sales-price decline could reduce gross profit by about $1 per pound. Production costs are largely fixed.
- Three customers accounted for 66.7% of Q2 revenue and 67.6% of first-half revenue. Factored receivables are assigned with recourse; the company may have to repay the factor if customers pay late.
- Management disclosed material weaknesses in disclosure controls: inadequate segregation of duties and material financial-statement misstatements identified during the prior year-end audit. The company described CFO review procedures as mitigation; controls were still deemed ineffective at June 30, 2013.
- The filing reported MSHA assessments and accrued $5,431 related to assessments. It reported no legal proceedings and no material mine-safety events requiring disclosure; the mine-safety table listed three Section 104(d) citations/orders and $5,430 in proposed assessments for Bear River Zeolite.
- The filing’s liquidity discussion states estimated commitments of “$250M” for the pipeline and “$500M” over the next 12 months. Those figures appear inconsistent with the surrounding context, and the text does not provide a clear value or unit.
Important facts for investors to verify
- Confirm the pipeline and total construction/improvement commitment amounts and units; the filing prints “$250M” and “$500M.”
- Reconcile first-half operating cash flow: the cash-flow statement reports $582,617 for 2012, while the MD&A liquidity table reports $526,419.
- Track permit approvals, Mexican production ramp-up, pipeline hookup, and the ability to process the reported silver- and gold-bearing concentrates.
- Assess working-capital deterioration, cash needs for capital spending and lease obligations, and the company’s reliance on a small number of customers and recourse factoring.
- Monitor antimony pricing, remediation of material control weaknesses, and any changes in the warrant-related derivative liability or potential share dilution.