United States Antimony Corporation — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; unaudited consolidated results. The company operates U.S. and Mexican antimony, precious-metals recovery, and U.S. zeolite businesses. Amounts are in U.S. dollars unless noted.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.788 million | $2.092 million | $6.517 million | $6.781 million |
| Gross profit (loss) | $(271,000) | $(177,000) | $(513,000) | $(91,000) |
| Net income (loss) | $(569,000) | $1.267 million | $(1.762) million | $670,000 |
| EBITDA, as reported by the company | $(282,000) | $1.493 million | $(1.029) million | $1.348 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(284,000) | $(351,000) |
Gross margin was approximately negative 15% in Q3 2019 and negative 8% for the first nine months, versus negative 8% and negative 1%, respectively, in the comparable 2018 periods. The filing attributes continuing losses principally to lower antimony prices and Mexican production costs.
At September 30, cash and cash equivalents were $72,000, certificates of deposit $254,000, and restricted reclamation cash $57,000. Current assets were $1.356 million against current liabilities of $4.179 million, resulting in negative working capital of $2.822 million. Total assets were $16.973 million and total liabilities $6.568 million. Stockholders’ equity was $10.405 million.
Reported debt included $198,000 of bank notes, $1.728 million of long-term debt net of discount, and $1.134 million of Hillgrove advances payable. The company disclosed delinquent principal of $465,000 on the Soyatal mine obligation and $92,000 on the Guadalupe mine obligation. Certain bank notes are payable on demand and secured by certificates of deposit.
Changes versus prior comparable periods
- Revenue declined 14.5% in Q3 and 3.9% for the nine months. Antimony revenue fell to $1.081 million in Q3 from $1.367 million and to $4.294 million for the nine months from $4.541 million.
- Antimony pounds sold increased 2.3% in Q3 and 9.9% year to date, but average selling prices fell 22.6% to $3.15 per pound in Q3 and 14.0% to $3.56 for the nine months.
- The 2018 comparison benefited from unusual items: a $1.5 million gain associated with the Lanxess plant transaction and a $443,000 gain on a Mexican tax settlement. These gains were not repeated in 2019.
- Zeolite remained profitable: nine-month net income rose to $448,000 from $373,000. Precious-metals revenue declined to $141,000 from $214,000 for the nine months.
- Cash increased by $15,000 during the first nine months of 2019, versus an increase of $485,000 in 2018. The 2019 cash-flow period included $678,000 of capital spending and a $400,000 land-sale note collection.
Outlook, risks and notable items
- Going concern: Management and the filing identify substantial doubt about the company’s ability to continue as a going concern over the next 12 months, citing recurring losses, negative working capital, the nine-month net loss, and operating cash outflow. Management expects cost reductions and increased production to help meet most obligations, but says some obligations may not be met.
- Operational plans: Management expects increased Mexican antimony output in 2020 using three installed large rotating furnaces, and says direct sales of Mexican antimony metal save about $0.38 per pound in processing and freight costs. A new supplier agreement reduced raw-material cost by $73,469 in Q3.
- Precious metals: The Puerto Blanco leach circuit was described as essentially complete pending assay and laboratory equipment testing. Management expected precious-metals production income in the first half of 2020; timing and recovery estimates remain subject to execution and testing.
- Grant: A $510,528 Defense Logistics Agency grant covers six antimony trisulfide samples, with $85,088 payable per sample over 12 months.
- Funding and dilution: The company reported selling 904,082 common shares at $0.48 each for $431,322 during the nine months, with warrants to purchase 452,041 shares at $0.65. The filing also describes a November 14, 2019 private placement of $431,322; investors should verify the transaction timing and whether these references describe the same financing.
- Controls: Management concluded disclosure controls were ineffective at September 30, 2019, identifying material weaknesses in financial-reporting control design and monitoring, segregation of duties, and management oversight. No significant changes to internal control over financial reporting were reported during the quarter.
- Tax contingency: Mexican tax authorities reopened review of the 2013 tax return after a prior assessment was settled in the company’s favor. The potential outcome was not estimable; management said it did not believe additional taxes, interest, or penalties would be assessed.
- Forward-looking plans depend on antimony prices, supply, production performance, and regulatory and other operating conditions. The filing provides no formal earnings or revenue guidance.
Investor verification priorities
- Review the company’s going-concern disclosures, near-term cash needs, debt maturities, and plans to address delinquent mine-related payments.
- Verify the status and economics of the Mexican furnace ramp-up, raw-material supply, and antimony prices relative to production costs.
- Confirm completion, testing, and expected start date of the precious-metals circuit, including whether forecast recoveries are achieved.
- Reconcile the reported $431,322 stock financing references and assess the warrants and other potential dilution.
- Track remediation of the disclosed internal-control material weaknesses and the reopened Mexican tax review.