United States Antimony Corporation — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; unaudited consolidated results. The company operates U.S. and Mexican antimony businesses and a U.S. zeolite business.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $3.51 million | $2.95 million | $9.85 million | $8.17 million |
| Gross profit (loss) | $232,128 | ($270,260) | $220,511 | ($461,657) |
| Gross margin, approximately | 6.6% | (9.2%) | 2.2% | (5.6%) |
| Net income (loss) | ($135,890) | ($559,329) | $106,376 | ($1.34 million) |
| Net income (loss) available to common shareholders | ($148,052) | ($571,491) | $69,889 | ($1.38 million) |
| Operating cash flow | Not presented quarterly | $266,142 | ($1.13 million) |
Q3 antimony sales volume rose 27.6% to approximately 675,000 pounds, while the average selling price fell about 14% to $4.06 per pound. Zeolite sales volume increased 56.7% to 3,528 tons. Q3 remained loss-making, with management attributing the loss chiefly to the lower antimony price. Nine-month net income included a one-time $914,967 vendor credit for previously overcharged raw materials; management said this adjustment was the primary reason for the period’s profit. The company reported nine-month EBITDA of $771,151, versus negative $779,641 a year earlier; EBITDA is a company-presented non-GAAP measure.
For the nine months, cash used in investing activities was $1.34 million, principally for property, plant and equipment; financing provided $1.16 million, including $1.01 million in Hillgrove advances. Cash increased by $79,641 from year-end to $203,324. The filing’s MD&A cash-flow table gives a different comparative operating-cash-flow figure from the statements; the financial statements report prior-period operating cash use of $1,128,593.
At September 30, current assets were $3.73 million and current liabilities $3.09 million, producing working capital of $642,837 and a current ratio of approximately 1.21. Cash and certificates of deposit totaled approximately $454,000, including $250,414 in certificates of deposit. Total liabilities were $6.31 million. Debt included $1.88 million of long-term debt, including current maturities, a $92,502 bank borrowing, and $1.18 million in Hillgrove advances payable. A further $272,889 was due to the receivables factor.
Material changes and operating developments
- Nine-month revenue increased approximately 20.5% year over year, and gross results improved from a loss to a profit. The vendor credit materially affected the reported nine-month result.
- Antimony volume sold increased approximately 43.5% over nine months, while the reported average price declined from $4.82 to $4.12 per pound. The company said lower input and fuel costs, higher production, and precious-metal byproduct sales helped reduce unit costs.
- Mexico’s nine-month antimony segment recorded a $4.20 million loss before tax, compared with a $2.90 million loss in 2014. Management cited mine and mill holding costs and Madero smelter testing and production-method experimentation. The U.S. zeolite segment reported nine-month net income of about $267,000, up from $178,000.
- Capital investment increased: nine-month capital expenditures were $3.04 million versus $1.33 million in 2014, mainly reflecting Mexican antimony projects. Property, plant and equipment rose to $15.88 million from $13.51 million at year-end.
- The company exercised its option to purchase the Guadalupe mine in September. The reported obligation was approximately $968,000 at quarter-end, payable in annual amounts through 2026. Soyatal payments were being made at $5,000 monthly while the parties negotiated future terms; a scheduled January 2015 payment was not made.
Outlook, risks, and unusual items
- Management expected the new large furnace at Madero to start up in November 2015, process Mexican inventory, and reduce natural-gas and electricity use compared with the small furnaces. The filing describes expected Hillgrove processing of about 200 metric tons per month and a 9.5% commission on gold sales, subject to processing and recovery arrangements.
- Management said Los Juarez production could proceed in the first half of 2016, conditional on equipment additions and permits, including a permit for a cyanide-leach circuit. The company expressly stated it claims no mineral reserves under SEC definitions; its reported shallow drilling does not comply with NI 43-101.
- Management believed available liquidity and expected operating cash flow would cover debt service and commitments for the next 12 months. However, the reported construction-commitment amounts are stated as “$500M” and “approximately $600M”; the filing text does not provide a clear, reliable value or unit for these figures.
- Commodity-price exposure is significant: antimony prices are market-based, raw materials represented about 50% of Q3 cost of goods sold, and management estimated that a $1-per-pound sales-price decline could reduce gross profit by about $0.50 per pound.
- Customer concentration remains material: the three largest customers represented 54.9% of Q3 revenue and 45.6% of nine-month revenue. Factored receivables are assigned with recourse, and the CEO personally guarantees amounts due to the factor.
- The company’s IMMEX certification expired and required renewal. It had deposited approximately $354,000 in Mexican taxes, applied about $101,000 against other taxes, and reported approximately $253,000 as a current asset while pursuing a refund or tax offset.
- Disclosure controls were determined to be ineffective at September 30, 2015 due to material weaknesses in 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.
- On October 21, 2015, the company filed a lawsuit against Herbert A. Denton and Providence Capital, alleging agreement breaches and violations relating to shareholder communications and proxy solicitation. These are allegations, not adjudicated findings.
Most important facts for investors to verify
- How much of nine-month profitability depends on the $914,967 one-time vendor credit, and whether underlying operations can sustain positive margins.
- Whether the Madero furnace started and achieved expected capacity, cost savings, and recovery of Mexican inventory, and whether Los Juarez permits and equipment are on schedule.
- The actual amount, timing, and funding source for remaining construction commitments; the filing’s stated “$500M” and “$600M” figures are unclear.
- Collection or offset of the Mexican tax deposit, continued liquidity, and repayment terms for Hillgrove, Guadalupe, and Soyatal obligations.
- Remediation of ineffective disclosure controls, customer concentration, recourse factoring exposure, and the outcome of the post-quarter lawsuit.