Business Context and Reporting Period
Company: United States Antimony Corporation (USAC)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2012
Operations: USAC operates two primary segments: Antimony (mining and processing in the U.S. and Mexico) and Zeolite (mining in the U.S.). The company is currently ramping up production at its Puerto Blanco Mill in Mexico.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
|---|---|---|
| Total Revenue | $6,551,855 | $5,888,041 |
| Gross Profit | $409,649 | $523,345 |
| Net Income (Loss) | $(112,463) | $131,791 |
| Operating Cash Flow | $582,617 | $(232,868) |
| Cash and Equivalents (End of Period) | $3,444,003 | $314,278 |
| Total Debt (Current + Noncurrent) | $393,491 | $237,849 |
| Working Capital | $4,488,255 | $1,221,548 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 11.3% year-over-year (Y/Y) to $6.55 million, driven by higher Zeolite sales volume and price, and increased Antimony production from Mexico.
- Profitability Decline: Despite revenue growth, the company reported a net loss of $112,463 compared to a net income of $131,791 in the prior year. This was primarily due to a significant increase in General and Administrative (G&A) expenses ($415,984 vs. $170,316) and higher operating costs associated with ramping up the Mexico facility.
- Antimony Segment: Antimony metal sales volume increased (734,882 lbs vs. 641,523 lbs), but the average sales price per pound dropped to $6.40 from $7.30. Operating income for the segment fell to $264,978 from $528,237.
- Zeolite Segment: Zeolite performance improved significantly, turning a loss into an operating income of $144,671 (vs. a loss of $4,892) due to higher sales prices ($218.26/ton vs. $147.67/ton) and volume.
- Liquidity Improvement: Cash balances surged from $5,427 at year-end 2011 to $3.44 million, primarily funded by the sale of common stock ($4.71 million proceeds) and improved operating cash flow.
Outlook, Risks, and Management Commentary
- Cost Reduction Initiatives: Management expects Mexico fuel costs to decrease by 75% following a switch from propane to natural gas. A pipeline installation contract was signed in July 2012, with completion expected in 9-12 months.
- Production Ramp-Up: Costs in Mexico are expected to remain substantial as production ramps up, but raw material costs per pound should decrease as more Mexican ore is processed. Precious metals revenue is expected to increase alongside Mexico production.
- Customer Concentration: Approximately 86% of Antimony revenues for the six months ended June 30, 2012, were generated by sales to just three customers.
- Internal Control Weaknesses: The company disclosed material weaknesses in internal controls, specifically a lack of segregation of duties (the President authorizes and signs checks) and material misstatements discovered during the audit. Remediation plans include independent review of transactions and consulting experts.
- Regulatory Risks: The company has accrued $14,263 for MSHA fines and penalties. No material safety violations requiring disclosure under the Dodd-Frank Act were reported for U.S. operations.
Investor Verification Checklist
- Capital Expenditure Efficiency: Verify the timeline and cost savings of the natural gas pipeline project in Mexico to confirm the projected 75% fuel cost reduction.
- Customer Dependency: Assess the stability of the three key customers representing 86% of Antimony revenue.
- Internal Controls: Monitor progress on remediation of material weaknesses regarding segregation of duties and financial reporting accuracy.
- Antimony Pricing: Track global antimony market prices, as a $2/lb decrease in sales price would significantly impact gross profit margins.
- Debt Obligations: Review the maturity schedule of the $393,491 in total debt, noting the current portion of $258,988.