United States Antimony Corporation — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; unaudited. The company operates U.S. and Mexican antimony businesses and a U.S. zeolite business.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $2.27 million | $2.95 million | $5.22 million | $5.92 million |
| Gross profit (loss) | $(138,857) | $(1,912) | $(191,397) | $(64,046) |
| Operating loss | $(410,667) | $(265,982) | $(756,492) | $(654,619) |
| Net loss | $(424,272) | $(552,208) | $(782,442) | $(961,033) |
| Net loss per share | $(0.01) | $(0.01) | $(0.01) | $(0.02) |
Gross margin was approximately -6.1% for Q2 and -3.7% for the first half of 2014. Revenue fell about 23% year over year in Q2 and 12% for the half. Net losses narrowed, but gross and operating losses worsened. The 2013 comparison includes a $229,451 income-tax expense; the company reported no tax expense in 2014 and estimated a 0% effective tax rate.
- Cash from operations was $164,640 for the first half, versus $123,136 in the prior-year period. Capital expenditures were $632,278, producing negative operating cash flow after investment.
- Financing provided $2.02 million, mainly from common-stock sales and exercises, alongside debt proceeds and repayments. Cash increased $1.55 million to $1.57 million.
- At June 30, current assets were $3.79 million and current liabilities $3.45 million, leaving working capital of $338,235, versus a $568,777 deficit at year-end 2013. The current ratio was approximately 1.10.
- Reported bank notes were $100,000; long-term debt was $911,241, including $184,235 current. The long-term balance is largely the discounted, non-interest-bearing Soyatal mine obligation. Factored receivables of $173,096 are recorded as secured financing with recourse, and the CEO personally guarantees the factor obligation.
- Total assets were $17.09 million and stockholders’ equity $12.66 million. Common shares issued and outstanding were 65.02 million at June 30; 63.93 million were outstanding August 11.
Operating trends and material changes
- Management attributed losses to lower antimony sales volumes and prices, as well as $471,673 of Q2 and $533,096 of first-half Mexican excess production costs. Causes included Los Juarez not being in production, metallurgical testing, the Soyatal mine shutdown, Puerto Blanco mill running at about 20% capacity, and no Wadley mill production.
- Antimony metal sold fell to 332,106 pounds in Q2 from 433,268; the reported average selling price declined to $4.94 per pound from $5.32. Management said production costs excluding Mexican excess costs were $4.35 per pound, implying a $0.59 per-pound margin before those excess costs.
- Zeolite’s first-half revenue rose to $1.15 million from $1.09 million, and reported segment profit increased to $171,965 from $108,197. Q2 sales volume fell about 12% year over year, while price per ton increased.
- Customer concentration remains significant: three customers accounted for 61.4% of first-half revenue, down from 67.6% a year earlier. Alpha Gary and Kohler were the largest named customers.
Outlook, risks, and unusual items
- Management expected the substantially completed Mexican natural-gas pipeline to be connected by PEMEX around August 2014. It estimated total cost of $1.8 million and projected a 75% reduction in Mexican fuel costs, with combined smelter costs potentially falling from $4.35 to $4.01 per pound. These are management estimates, not guaranteed results.
- The company reported about 192,000 pounds of antimony at or in transit to smelters and an estimated 90,000 pounds at Wadley, forecasting approximately $1.39 million in gross revenue when processed. Management also cited a dedicated truck to address transport problems and expected increased Mexican output and precious-metals revenue.
- Management estimated approximately $550,000 of construction and improvement commitments over the next 12 months and said cash and expected operating cash flow should suffice to fund commitments and service debt. The company had a $202,000 bank line, of which $100,000 was drawn.
- Antimony prices are a key market risk: raw materials represented about half of Q2 cost of goods sold, and management stated that a $2-per-pound sales-price decline could reduce gross profit by about $1 per pound. Antimony oxide prices had declined from $8.11 per pound in 2011 to $3.82 in June 2014.
- Mexico tax returns filed since 2009 were under review for transfer-pricing compliance; management said it could not yet determine whether a Mexican tax liability existed. The company also accrued $7,909 for MSHA assessments. It disclosed no legal proceedings.
- Disclosure controls were deemed ineffective as of June 30 because of material weaknesses: inadequate segregation of duties and material financial-statement misstatements requiring audit adjustments. Management described CFO review procedures, but reported no significant control changes during the quarter.
Important facts for investors to verify
- Whether Mexican mine and mill operations, ore transport, and the natural-gas connection achieved the timing, throughput, and cost improvements management anticipated.
- Whether the projected revenue from material in inventory or transit is realized, including the assumed processing, recovery, and sales prices.
- Cash conversion, future capital spending, debt service, and the company’s ability to sustain liquidity without further equity issuance.
- Resolution and potential financial effect of the Mexican transfer-pricing review and any MSHA assessments.
- Progress in remediating disclosure-control weaknesses, and continued exposure to concentrated customers, antimony-price volatility, factoring recourse, and related guarantees.