United States Antimony Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. The company operates antimony businesses in the United States and Mexico, precious-metals recovery, and Bear River zeolite operations. Unless noted, amounts are U.S. dollars.
Financial performance and liquidity
- Revenue: $2.619 million, down 21.2% from $3.322 million in Q1 2016. Cost of revenues was $2.530 million, leaving gross profit of $89,544 and a 3.4% gross margin, compared with $210,828 and 6.3% in the prior-year quarter.
- Profitability: Operating loss was $311,873 versus $182,297; net loss was $391,303 versus $188,640. Net loss available to common shareholders was $403,465, or $0.01 per share, compared with $200,802, reported as nil per share. EBITDA, as presented by management, was negative $175,628 versus positive $72,510.
- Cash flow: Operating activities provided $143,613, down from $252,476. Capital expenditures were $79,599; financing used $62,942. Cash increased $1,072 to $11,129.
- Liquidity: Current assets were $1.734 million and current liabilities $3.754 million, producing negative working capital of $2.020 million. Management said available liquidity and expected operating cash flow would cover commitments and debt service for the next 12 months. The company had $202,000 of bank credit lines, of which $183,302 was drawn.
- Debt and obligations: Long-term debt, including its current portion, was $1.834 million; bank notes were $183,302. Hillgrove advances payable were $1.134 million, classified as long term. The company also reported $146,011 due to its receivables factor. Current debt maturities were $433,993 for the year ending March 31, 2018.
- Balance sheet: Total assets were $17.719 million and total liabilities $6.600 million at March 31, 2017. Common shares issued and outstanding were 67,488,063, compared with 66,866,278 at December 31, 2016.
Changes versus Q1 2016
- Antimony metal sold fell to 547,850 pounds from 912,841 pounds, while the reported average selling price increased to $3.63 per pound from $2.76. Management said the company realized only a small part of the price increase because sales were priced about three months in advance; it said it was no longer taking orders that far ahead.
- Management attributed the weaker company result primarily to the loss of Australian Hillgrove raw-material supply following closure of the Hillgrove mine. Antimony revenue declined, and precious-metals revenue fell to $20,811 from $217,617.
- Zeolite sales increased 8.3% to 3,353 tons. Zeolite net income rose to $86,205 from $29,802, with management citing lower production costs and a new sales program.
- Customer concentration increased: the three largest customers represented 52.7% of revenue, compared with 46.9% a year earlier.
Outlook, risks, and contingencies
- The company began mining and processing its own Mexican ore in Q1 and reported producing 132,184 pounds, of which 88,184 pounds were sold. It planned to increase production at Wadley and ship high-grade Soyatal ore directly to the Madero smelter.
- Los Juarez pilot processing began at an initial 400 metric tons per month. Management said production could be increased to 2,000 metric tons per month if pilot testing proves economic; further leach-circuit and mill work was conditional or under consideration.
- Management reported approximately $124,732 in settlement costs related to precious-metals production. It also said Hillgrove permitted use of furnaces built for Hillgrove for the company’s own production. The Hillgrove agreement allows Hillgrove to suspend or terminate at its discretion; repayment terms for the advances had not been finalized.
- A Mexican tax authority assessment concerning USAMSA’s 2013 tax return was approximately $737,000 at March 31, 2017. The company appealed and said it disputed numerous findings. It had accrued $451,961 in income taxes payable, including a $41,151 increase attributed to exchange-rate movements; management had previously estimated the eventual payment could range from 30% to the full assessment.
- The company disclosed material weaknesses in disclosure controls and procedures, including inadequate control design and monitoring, insufficient segregation of duties, and ineffective management oversight. It said it planned independent review of material transactions, additional control measures, and use of outside experts for complex transactions.
- Management cautioned that results may be affected by antimony prices, production volatility, market conditions, and regulation. The filing provides no formal financial guidance, and Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether Mexican mine output can replace lost Hillgrove supply, and whether production and sales volumes recover.
- Whether the Los Juarez pilot is economically viable and whether planned production expansion and capital work can be funded.
- The outcome and timing of the Mexican tax appeal, and the ultimate cash liability versus the recorded accrual.
- Near-term liquidity and debt-service capacity given negative working capital, low cash, and current debt maturities.
- Progress in remediating the disclosed material weaknesses and the effect of customer concentration on sales and collections.