United States Antimony Corporation (NYSE American: UAMY) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The company produces antimony products and precious metals, and mines and sells zeolite. Its operating units span the United States and Mexico. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.464 million | $2.052 million | $9.625 million | $5.581 million |
| Gross profit | $431,000 | $101,000 | $2.285 million | $510,000 |
| Gross margin | 17.5% | 4.9% | 23.7% | 9.1% |
| Operating income (loss) | $60,000 | ($112,000) | $1.199 million | ($686,000) |
| Net income (loss) | $50,000 | ($99,000) | $1.190 million | ($98,000) |
| Net income (loss) available to common | $39,000 | ($111,000) | $1.155 million | ($134,000) |
- Q3 diluted and basic EPS were reported as nil; nine-month EPS was $0.01. Preferred dividends were $11,819 for Q3 and $35,458 year to date.
- Cash from operations was $23,000 for the nine months, versus $2.478 million used in the prior-year period. Investing activities used $13.685 million, primarily reflecting a $13.5 million investment purchase and capital spending; financing used $42,000. Cash, cash equivalents and restricted cash ended at $7.716 million, down from $21.420 million at year-end 2021.
- At September 30, cash and cash equivalents were $7.659 million, certificates of deposit $259,000, and investments $12.974 million. The investment account’s reported cost was $13.061 million; its fair-value decline was $119,000 year to date.
- Working capital was $22.078 million. Total assets were $35.472 million and stockholders’ equity $33.622 million. Debt totaled $335,000, including $93,000 current; no material off-balance-sheet arrangements were reported.
- Management-reported company-wide EBITDA, a non-GAAP measure, was $297,000 for Q3 and $1.895 million for the nine months, compared with $124,000 and $571,000, respectively. The filing states EBITDA approximates free cash flow; it is not the same as cash flow from operations.
Material changes and operating trends
- Nine-month revenue rose 72.5% year over year, led by antimony sales, which increased 106.8% to $6.972 million. Zeolite revenue rose 28.9% to $2.487 million. Precious-metals revenue fell 41.0% to $165,000.
- Antimony gross profit increased substantially as higher prices offset higher costs. The company reported nine-month average antimony selling price of $7.16 per pound versus $4.08, and average cost of $5.24 versus $3.99. Q3 antimony volume sold fell 42.2% year over year, despite a higher average selling price.
- Zeolite revenue and gross profit improved year to date, with tons sold up 17.1%. Q3 zeolite gross profit was $129,000 versus $11,000 in the prior-year quarter. No precious-metals revenue was recorded in Q3 2022.
- Mexican antimony operations reported a $1.477 million operating loss for the nine months, while U.S. antimony operations reported $2.315 million operating income. Company-wide results also benefited from lower operating expenses year to date.
- Inventory fell to $828,000 from $1.055 million at year-end. The company recorded a $410,000 year-to-date write-down of Mexican inventory to net realizable value because production costs exceeded expected sale proceeds.
Outlook, management commentary and risks
- No numerical revenue, earnings or production guidance was provided. Management said it planned to use funds raised in 2021 to improve the Madero, Puerto Blanco, Bear River Zeolite and Thompson Falls operations, with the goal of increasing production and lowering costs.
- Management attributed Q3 antimony production constraints to a North American supplier shutdown, equipment failure and labor difficulties, as well as reduced Mexican sourcing during negotiations over a purchase option. It said these supply problems had been corrected and reported increased ore at the Madero smelter, but warned that processing delays had affected Q3 and would affect Q4.
- The company entered a preliminary option agreement for the Wadley Property in Mexico. It pays eight monthly installments of $11,600 for mining and due-diligence rights; exercising the option would require $2.23 million followed by seven annual payments of $1.16 million. It also entered a separate consultancy agreement related to surface rights and technical services near San Guadalupe, with total consideration of about $1.035 million plus VAT.
- A Mexican court ruled against the company in a tax dispute during Q3; the company appealed. The updated assessment was approximately $1.1 million, including tax, interest and penalties. Management expects to prevail and recorded no accrual, but acknowledged a material adverse effect is possible if the outcome differs.
- Management reported disclosure controls were not effective due to material weaknesses, attributing them primarily to the small accounting staff and inadequate segregation of duties. It relies on management oversight and external professionals to mitigate the limitations.
- Other risks include dependence on foreign raw-material sources, mineral exploration and development uncertainty, commodity-price volatility, regulation and environmental matters, and potential COVID-19-related operating and supply-chain disruption. The company reported no proven or probable antimony reserves and no zeolite reserves or resources under the cited SEC definitions.
Important facts for investors to verify
- Whether the reported improvement in antimony feed availability translates into production, sales and cash generation, particularly given management’s warning of a Q4 processing lag.
- The status, terms and funding implications of the Wadley option and San Guadalupe consultancy agreement, including any decision to exercise the option.
- Developments in the Mexican tax appeal and any change to the unaccrued approximately $1.1 million assessment.
- The composition, liquidity, valuation and subsequent performance of the $12.974 million investment balance, and the effect of further investment fair-value changes on earnings.
- Progress in addressing material weaknesses in disclosure controls, and whether further inventory write-downs, supplier disruptions or operating losses arise.