United States Antimony Corporation — Q1 2016 Form 10-Q
Reporting period: Unaudited three months ended March 31, 2016; comparisons are to Q1 2015 unless noted. The company operates antimony businesses in the U.S. and Mexico, precious-metals recovery, and U.S. zeolite operations.
Financial performance and position
- Revenue: Consolidated statements report $3.322 million, up 12.7% from $2.947 million. Gross profit was $210,828, versus a gross loss of $104,053; gross margin was approximately 6.3%.
- Profitability: Operating loss was $182,297 and net loss was $188,640, compared with net income of $440,028 in Q1 2015. Net loss per share was reported as nil. Management reported EBITDA of $72,510, down from $660,053.
- Cash flow: Operating activities provided $252,476, versus $255,981 used in Q1 2015. Cash capital expenditures were $245,702; net cash increased $4,121 to $137,664.
- Liquidity: Current assets were $2.326 million and current liabilities $2.948 million, resulting in negative working capital of $622,290, versus negative $293,504 at year-end 2015. The company also held $251,452 in certificates of deposit, some pledged against bank notes.
- Debt and obligations: Long-term debt, including its current portion, was $1.882 million; bank notes were $85,760; Hillgrove advances payable were $1.231 million. The company also reported $97,865 due to its receivables factor and $261,691 in asset retirement and reclamation obligations.
- Other metrics: Antimony sales reached a quarterly record of 912,841 pounds, up 74.9%; average selling price fell to $2.80 per pound from $4.29. Zeolite sales were 3,097 tons and the segment earned $29,802, versus a $18,905 loss.
Changes versus Q1 2015
- Revenue increased, supported by higher antimony volume and precious-metals revenue, but lower antimony prices contributed to the swing from prior-year profit to a loss.
- Q1 2015 results included a $914,967 vendor credit for overcharged raw-material purchases, recorded as a gain on liability adjustment. This unusually large item materially aided the prior-year comparison.
- Antimony metal sales rose from 521,956 to 912,841 pounds, while the reported average price per pound fell 34.7%. Precious-metals revenue increased to $217,617 in segment reporting from $122,665.
- Cash from operations improved from the prior-year use of cash, but working capital deteriorated by approximately $329,000 from December 31, 2015.
Outlook, commentary, and risks
- Management said antimony prices appeared to have stabilized and begun increasing after March 31, 2016; this is not formal numerical guidance. It expected Hillgrove concentrates to support operation of the LRF through year-end 2016, while noting Hillgrove had suspended Australian mining and would ship existing ore until exhausted.
- Management expected to begin processing Mexican material in Q2 2016 and stated that higher production and margins could follow as Mexican operations approach planned capacity. It said Los Juarez metallurgical issues had been solved, but additional leach circuits and permits remained necessary; production could begin in the second half of 2016 if permitting and construction proceed. The company stated it claims no SEC-defined ore reserves.
- Mexico non-production costs were $195,642, primarily reflecting idle mines and mills, including holding and care-and-maintenance costs. Management identified low antimony prices and Mexican non-production costs as major obstacles to profitability.
- Management estimated approximately $150,000 of construction and improvement commitments over the next 12 months, including approximately $50,000 to complete Hillgrove-related furnaces and equipment at Madero. It expected funding from Mexican IVA tax refunds and internally generated cash, and said available liquidity and operating cash flow would be adequate to meet commitments and debt service. The filing also reported approximately $51,000 on deposit with Mexican tax authorities and pending refund applications.
- The Hillgrove processing agreement has unsettled final repayment terms, permits Hillgrove to suspend or terminate at its discretion, and depends on future concentrate shipments. Management’s repayment estimate reflected an 81.25% repayment obligation under specified circumstances.
- Three largest customers represented 46.9% of Q1 revenue; the three largest receivable balances represented 48.0% of receivables. Factored receivables are with recourse, and the CEO personally guarantees amounts due to the factor.
- Disclosure controls were deemed ineffective due to material weaknesses: limited segregation of duties and material financial-statement misstatements identified during the year-end audit. Management described review procedures intended to mitigate these weaknesses; no significant control changes were made during the quarter.
- The company reported a pending lawsuit it filed against Herbert A. Denton and Providence Capital alleging breaches of agreements and securities-law violations. It also disclosed recurring Mexican mining lease payments and a remaining $11,739 payment for San Miguel concessions.
Important facts for investors to verify
- Reconcile revenue: the consolidated statement reports $3.322 million, while the segment table and MD&A show total gross revenue of $3.357 million; the filing text does not clearly explain the difference.
- Assess near-term liquidity, negative working capital, debt maturities, capital commitments, and the timing and collectability of expected Mexican tax refunds.
- Track Hillgrove concentrate availability, use of its furnaces, repayment terms, and the progress of Mexican permits, leach-circuit construction, and production plans.
- Evaluate whether antimony pricing, production costs, customer concentration, and idle Mexican operations support sustained profitability.
- Review remediation and effectiveness of the disclosed material weaknesses in disclosure controls and financial reporting.