Business context and reporting period
United States Antimony Corporation (USAC) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2015. Its operations comprise U.S. and Mexican antimony businesses and U.S. zeolite operations. The company processes antimony concentrates and sells antimony and zeolite products.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $3.400 million | $2.270 million | $6.348 million | $5.222 million |
| Gross profit (loss) | $92,436 | ($138,857) | ($11,617) | ($191,397) |
| Net income (loss) | ($197,761) | ($424,272) | $242,267 | ($782,442) |
| Operating cash flow | Not separately presented | ($145,799) | $164,640 | |
| Capital expenditures | Not separately presented | $894,158 | $632,278 |
- Q2 revenue increased about 50% year over year, while the net loss narrowed. Gross margin was approximately 2.7% in Q2 and slightly negative for the first half.
- First-half net income included a $914,967 gain from a vendor credit for overcharged raw materials and $58,139 of Hillgrove-related deferred revenue recognized as income. Management attributed the first-half profit primarily to the vendor adjustment; reported profit therefore does not reflect recurring operations alone.
- Antimony sales volume rose substantially: management reported 672,885 pounds sold in Q2 versus 332,106 a year earlier, and 1,194,841 pounds for the first half versus 773,324. Average antimony selling prices fell to $4.06 per pound in Q2 from $4.94, and to $4.17 for the first half from $4.89.
- Zeolite Q2 sales volume rose 63% to 3,931 tons, and segment net income increased to $154,157 from $63,472. For the first half, zeolite net income declined to $135,252 from $171,965.
Financial position and liquidity
- At June 30, 2015, cash was $74,125, certificates of deposit were $250,180, and current assets were $3.982 million against current liabilities of $3.244 million, yielding working capital of $738,089. Working capital was $11,029 at December 31, 2014. Inventory increased to $2.316 million from $1.434 million.
- Total liabilities were $5.290 million. The balance sheet included $97,297 drawn on a bank line, $864,118 of long-term debt including its current portion, and $1.081 million of Hillgrove advances payable. The company reported $1.272 million in total Hillgrove advances received to date.
- Cash declined by $49,558 during the first half. Operating cash use of $145,799 and investing cash use of $888,958 were funded mainly by $919,640 of Hillgrove advances and $97,297 of bank borrowing; no common stock was issued for cash in the period.
- Receivables are factored with recourse: the company may have to reimburse the factor for overdue customer balances, and its CEO personally guarantees the amount due. Factoring expense was $19,684 for the first half.
Changes, outlook, risks and unusual items
- Management said Mexican operations incurred first-half non-production costs due to mine and mill inactivity and testing production methods at the Madero smelter. It reported higher Mexican output in Q2 while processing Australian Hillgrove concentrates. Management expected the new large furnace to begin operating in August 2015, reduce energy use and processing costs, and enable processing of Mexican inventory; these were forward-looking expectations, not reported outcomes.
- The company said it aimed to fund the Los Juarez startup from internal cash flow rather than issue stock. It described planned permitting and development of a pilot mill and cyanide-leach facilities. Initial drilling results were reported, but USAC stated it claimed no SEC-defined reserves and that the drilling did not comply with NI 43-101.
- Management said it expected adequate liquidity for the next 12 months, relying partly on an expected refund of about $354,000 deposited with Mexican tax authorities and further Hillgrove advances estimated at about $143,000. The refund application was in progress; the filing notes the company had not met the IMMEX export requirement and was exposed to 16% Mexican sales tax on imported items while certification was being renewed.
- The MD&A describes construction commitments using apparent “$500M” and “$600M” figures for the Hillgrove furnace and other improvements. The units or amounts are not clear from the filing text and should be verified; management identified the tax refund and additional Hillgrove funding as expected funding sources.
- Antimony prices are a material risk: management estimated that a $1-per-pound decrease in selling price could reduce gross profit by about $0.50 per pound. Raw materials were about half of Q2 cost of goods sold, while much of the remaining production cost was fixed.
- Other operating risks include customer concentration (the three largest customers represented 48.9% of first-half revenue), recovery and processing of gold in Hillgrove slag, and the Soyatal mine payment renegotiation. The company did not make a scheduled $100,000 Soyatal payment due in January 2015 and said it was making $5,000 monthly payments under an informal arrangement.
- Management reported material weaknesses in disclosure controls: inadequate segregation of duties and material financial-statement misstatements identified during the prior year-end audit. It described CFO review procedures as mitigations; no significant control changes were made during the quarter.
- The company reported no legal proceedings and no reports on Form 8-K during the period. It recorded no income tax expense and maintained a full valuation allowance against deferred tax assets.
Most important facts for investors to verify
- Whether recurring operations can generate positive margins and cash flow without the $914,967 vendor credit, as antimony prices and Mexican non-production costs affect results.
- Actual completion costs, timing and operating performance of the Hillgrove furnace project, and the unclear commitment amounts stated in the MD&A.
- Timing and collectability of the Mexican tax refund, compliance with IMMEX requirements, and availability of the expected additional Hillgrove advances.
- Progress on Los Juarez permitting and development, the reliability and representativeness of early drilling results, and whether the project can be funded without equity issuance.
- Resolution of the Soyatal payment terms, exposure under recourse factoring, and remediation of the disclosed internal-control weaknesses.