United States Antimony Corporation — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018; filed April 1, 2019. This is an annual report, not a standalone fourth-quarter report. USAC produces and sells antimony products, precious metals and zeolite, with operations in the United States and Mexico.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $9.03 million | $10.23 million |
| Gross profit | $1,543 | $275,460 |
| Net income (loss) | $873,225 | ($1,134,394) |
| Net income (loss) per common share, basic and diluted | $0.01 | ($0.02) |
| Net cash from (used in) operations | ($656,631) | $716,776 |
| Capital expenditures | $899,119 | $365,541 |
- Revenue fell about 12%. Antimony revenue declined to $6.11 million from $7.59 million as contained-metal sales decreased 28% to 1.36 million pounds; the average realized price increased 12% to $4.50 per pound.
- Zeolite revenue rose 18% to $2.67 million. Volume increased 16% to 14,321 tons and average price rose to $186.23 per ton. The division reported $449,961 net income, up from $331,472.
- Precious-metals revenue decreased to $254,445 from $374,872. Combined gross margin was approximately 0.02%, versus 2.7% in 2017.
- Management reported company-wide EBITDA of $1.45 million versus negative $165,506 in 2017. This measure is not a substitute for operating cash flow, which was negative in 2018.
- At year-end, cash and cash equivalents were $56,650, certificates of deposit $252,954, and restricted cash $57,247. Current assets of $1.90 million were below current liabilities of $3.52 million, leaving negative working capital of $1.61 million. Total assets were $17.56 million and total liabilities $6.13 million.
- Balance-sheet debt included $1.73 million of long-term debt, net of discount, and $183,917 of bank notes; a further $1.13 million was payable under Hillgrove advances. Total debt and repayment terms should be reviewed in the notes.
Material changes and unusual items
- FY 2018 net income depended substantially on non-recurring items. The filing attributes approximately $2.5 million of net income to such events, including $1.5 million received in the Reynosa plant transaction, a $700,000 gain on land sale, and benefits associated with resolution of a Mexican tax assessment. Demolition and salvage costs included $152,636 in operating expense and $225,925 capitalized; further costs were expected in 2019.
- The Mexican tax audit liability of $443,110 was reversed after a favorable resolution, but the tax authority subsequently reopened its review of the 2013 return. USAC said the outcome could not yet be estimated and did not expect an assessment at year-end.
- Antimony raw-material supply shortfalls constrained production and sales. North American supply was temporarily about half of expected levels; Mexican mine supply increased, while the company remained reliant on outside suppliers and volatile world prices.
- Zeolite’s growth helped offset weaker antimony performance, but Mexico antimony operations remained a material source of losses. The Puerto Blanco mill operated below 10% of capacity in 2017 and 2018.
Liquidity, outlook and risks
- Management cited negative working capital, a $25.7 million accumulated deficit and losses in the preceding three years as conditions that may raise substantial doubt about the company’s ability to continue as a going concern for the next 12 months. Management nevertheless believed cost reductions and anticipated operating improvements would allow it to meet obligations.
- For 2019, management expected normal North American shipments to resume and Mexican antimony output to increase. It forecast approximately 250,000 pounds from Guadalupe and 40,000 pounds from Soyatal in 2019, with Soyatal targeted to reach 250,000 pounds in 2020. These are projections, not guaranteed results.
- USAC planned to process 10,000 tons of Los Juarez ore in 2019 and twice that in 2020, and expected a new leach circuit to support precious-metal recovery and higher Puerto Blanco utilization. The filing states it has about 30,000 tons of ore stockpiled. It claims no SEC-defined proven or probable reserves.
- Management expected continued zeolite growth; its largest customer believed it could double orders in 2019. USAC built a warehouse to support shipments. Management also planned to fund 2019 improvements, including completion of the leach circuit, from operating cash flow.
- Key risks include antimony-price volatility and foreign raw-material dependence; customer concentration (three largest customers represented 51.79% of revenue); execution and cost risks in ramping Mexican mines and mills; environmental remediation exposure without environmental liability insurance; and the going-concern and liquidity position. Accrued asset-retirement and reclamation obligations were $277,720, but excess potential environmental losses could not be reasonably estimated.
Controls, audit and other matters
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2018, citing material weaknesses in financial-reporting control design and monitoring, segregation of duties, and management oversight. Planned remediation included independent review of material transactions and consultation with experts on complex transactions.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor was not engaged to audit internal control and expressed no opinion on its effectiveness.
- No common-stock dividends were paid in the last five years, and none were anticipated in the foreseeable future. Board stock compensation of $175,000 was accrued for 2018.
Important facts for investors to verify
- Whether operating cash flow improves enough to address negative working capital and scheduled debt payments, without additional financing.
- Actual 2019 antimony supply, production, sales volumes and unit costs compared with management’s forecasts.
- Completion, commissioning, recovery performance and funding of the Puerto Blanco leach circuit and planned mill expansion.
- Whether the reopened Mexican tax review results in any liability, and whether additional demolition, reclamation or environmental costs arise.
- Progress in remediating the disclosed material weaknesses and the effect of recurring—not transaction-driven—operations on profitability.