United States Antimony Corporation (UAMY) Earnings Call Transcript & Summary

Good afternoon, everyone. Our CFO is Dan Parks, and to kick things off, we're going to go through a financial review of the 2019 10-K. Dan?

Appreciate that, John. Turning to the twelve months that closed on December 31, 2019 — we posted a net loss of $3,672,891, and that figure came after $895,990 of depreciation and amortization. In 2018, by contrast, we had net income of $873,225, which came after depreciation and amortization of $904,844. On a company-wide basis, EBITDA came in negative — sorry, it was negative $2,776,901 for 2019, versus positive EBITDA of $1,445,737 in 2018. Roughly $2.2 million of revenue tied to buying the LANXESS plant in Reynosa, Mexico, affected our 2018 numbers. In the twelve months that ended December 31, 2019, one significant transaction weighed heavily on both the company's net income and its balance sheet. In the fourth quarter of 2019, we made the call to walk away from 2 mining claims located in Mexico — the Guadalupe mine and the Soyatal mine. Weak antimony pricing and the projected expense of developing those properties drove that choice. Walking away produced a noncash loss of $1,410,736, equal to the carrying value of the mineral properties minus the remaining related debt. All told, net noncash expenses for 2019 came to $2,653,757, and that total was made up of the $1,410,736 tied to abandoning the Mexican mineral properties, $895,990 of depreciation and amortization, $54,112 from amortizing debt discount, $134,375 for stock-based directors compensation, $136,000 for stock-based employee compensation, $16,396 from writing down inventory, and $6,148 of other items. Over the course of 2019, the average price we sold at fell by $0.63 per pound, moving from $4.11 per pound down to $3.48 per pound. Also in 2019, raw material from our North American supplier rose by roughly 100,000 pounds, while raw material supply from our Mexican mines fell by roughly 20,000 pounds. Despite higher sales volume, our overall antimony sales dropped because the sales price declined. That translated into an estimated sales decline of about $662,000. Normal shipments out of our North American supplier got back underway in 2019, though at a weaker level than we'd anticipated, and we don't see this supplier stepping up in the near term. Back in the third quarter of 2019, we went back to the table on our sodium antimonite supply arrangement with our North American supplier, acknowledging that antimony prices were slumping globally and that our general and administrative costs made up a bigger share of revenues than they had under the prior agreement. That new pricing deal took effect in quarter 3 of 2019, and it brought lower antimony production costs and stronger cash flow as 2019 neared its end, plus expectations of improved cash flow for the North American operations in 2020. Zeolite sales volume in 2019 came in 641 tons below what we moved in 2018 — a 4.5% decline. Our average sales price climbed by roughly $6 per ton, from $186 per ton in 2018 up to $192 per ton in 2019. And during 2019, total zeolite sales fell by $43,827 versus 2018. For the zeolite segment, EBITDA came to $683,936 in 2019, versus $638,764 in 2018. Net income went from $449,961 in 2018 up to $497,470 in 2019 — roughly $47,000. Precious metal sales and EBITDA stood at $194,239 for 2019 and $254,445 for 2018. Over to you, John.

What the business set out to do, how those aims unfolded across 2019, and where things stand right now. Objective number one involves producing gold along with silver. This matters a great deal, I believe, given that the global economy has fallen into a downturn. Pricing for the majority of nonferrous metals looks terrible. Gold sits at the front of the line, and silver, in my view, trails right behind it. A moment ago I looked up gold — it stood at approximately $1,650 — while silver came in at $16 per ounce. So here's what we've accomplished: building and shake down at the Los Juarez plant are finished — that's the facility destined to handle ore from Los Juarez. We kicked things off at the start of the year — and now I'll hand things to Gus, who was there in person, running the shakedown and collaborating with the crew to get them trained on analytic procedures. Gus, over to you.

All right, John. From November all the way through February, I was down in Mexico. During November and December, that was the shakedown period — the shakeup portion of the whole thing — when we finished up the piping, ran tests on every piece of equipment, and filled everything up with water to confirm there were no leaks and so forth. On top of that, we provided training to 2 technicians on operating a brand-new atomic absorption spectrophotometer that we had brought in, and the two of them have become quite capable with it. We also put in time instructing them on fire assays — that is, the cupellation of ore mill heads, mill tails, and retails — and they have become proficient at that too. Starting in January — January 16, in fact — we ran our first leach in what we refer to as the small leach tank. It went well in the sense that we made it through with no major equipment problems or anything of that sort; we did actually get silver and gold into solution, and we captured it on carbon. That carbon is being held in reserves until we have enough of it to strip the precious metals out and then turn it into puree. As of now, we have completed 6 leaches, and every one of them has been a success. It seems like we pick up something new from each leach. The seventh leach is coming up this week — I'm not certain, since I haven't been in the office today for a variety of reasons. But we're aiming to run the seventh one this weekend; they might have gotten started today. John would have a better handle on that than I do. John?

We'll be sharing it at Thursday, Gus.

Thursday. Okay.

Yes.

Therefore, this Thursday we are going to start up an additional tank. John has prior experience with this type of tank, so we anticipate no problems whatsoever in that regard; as far as the cyanide leach goes, that is everything, John, I believe.

All right, a few points to go over. What we essentially found out was the level of cyanide that ought to be utilized. As it happens, we'll be using far less than what we had expected. The next thing concerned how long the ore stays in the leach tanks, and that looks to be roughly 10 to 12 hours. Then the third thing was the quantity of precious metal we're able to take up in the carbon. That has come out extremely, extremely favorable. So at this point we're moving over to the production-size leach tanks, and the first one gets run this week. Briefly on scheduling: precious metals ought to be shipped by us this quarter. The aim is to ramp up by the following quarter, when we intend to target a mill capacity of 100 tons per day. Once there, we'll be producing enough cash to likely finish the 400-ton mill, and I'd like to go off on a tangent about that. The mill floor, which is a sump, a concrete sump, along with the tiers that will hold the mill, have already been poured. Electrical capacity is sufficient for running an additional 1,000 horsepower. That work has been finished. The ore bin for the 400-ton mill sits in place. The flotation machines are in fact on the floor. So what stands in the way of finishing it? The largest task is going to involve moving the mill from Idaho to Puerto Blanco. That will be the major expense and it is reasonable, to put it that way. So we expect to begin the 400-ton mill at some point during 2021, get it completed, and shake it down. All right, we see this as our banner right now. And let me briefly address antimony; our goal in that area was boosting our smelter capacity so as to dominate the U.S. market. Russell has moved and installed a 5 large furnaces, along with ducting bag houses and so forth, to give us enormous capacity. Russ, would you like to go ahead and just walk through how you've managed to cut costs there?

Sure. Let's see. Can you hear me?

Yes.

All right, so here's the situation — once Gus and Leo traveled to Reynosa, they shipped us 5 SRFs, though really I should call them LRFs, meaning long rotary furnaces. During the opening 6 months of last year, I was stationed down there getting those set up. Initially, our assumption was that they'd only handle high-grade ore. However, we figured out how to run all ore through them, whatever comes to us from Wadley or any other ore source. That gives us a massive edge, since our throughput with these LRFs, compared to the small rotary furnaces, the SRFs, reaches 6,000 pounds per day for each unit. So like John says, the capacity we have there is enormous. On top of that — following the Hillgrove period, we've got 14 SRFs. Those run at roughly 1,000 pounds per day of throughput. Naturally, metal production is only possible in the small rotary furnaces, but we have enough of them to do our metaling. Around — I'd say roughly a year back, we had up to 62 employees on the permanent IMSS roster down at Madero. That number has been trimmed to 36, which means substantial cost savings. As for other savings I can point to, based on the ore grade, we've gotten down to 12.5% coal, a drop from a peak of 30%. Obviously, that varies by ore. For low-grade ore, we still need more coal, 30%. But with higher grade, we can drop it a lot further. So that's yet another area of savings. And — the key point is that the smelter has a huge amount of untapped capacity. So John, that's everything I can come up with.

All right. As chance would have it — and this tends to occur fairly frequently — right when you've wrapped something up and it's set to launch, the market price falls, just disappears. That's exactly the situation we ran into with antimony. Some years back, a single truckload of antimony oxide brought us $250,000; today that very same truck earns us just a bit more than $100,000, which means, put differently, $150,000 in income vanished. So how do we respond? We didn't close up shop, yet we pulled in our belts. The initial move, as Dan already brought up, was walking away from 2 mining properties, and that should spare us about $1,500,000 in both near-term and longer-term debt. Regarding the miners, our payment was $1.7 per pound, or rather $1.7 for each pound of antimony they extracted, and we've now pushed that figure down to $0.90. Then, third, we removed the costs tied to running Reynosa as well as constructing a leach plant from the expense column — a substantial relief. And as Russell noted, he's brought the smelting costs down; finally, though hardly least, the combio, the dollar's exchange rate — the value of the dollar has climbed considerably. And Leo, I'd like you to offer them a bit of insight into that. This is Leo Jackson. Leo?

Right, John. On the subject of the peso against the dollar — a few months back, the exchange rate stood at roughly MXN 18 per $1. As of today, my guess is it's sitting around MXN 23.50 per $1. That translates into a meaningful amount of savings, and you can see it not just in a smaller workforce at the plant, but also in fewer dollars going out the door for salaries. The same story applies to natural gas; we gained a considerable edge on that front as well.

The effect here is enormous. I've witnessed it myself, and the price has climbed to as much as MXN 24 lately. As for where things stand with antimony, we intend to move forward and boost output at Wadley, and really, what we're handling is a strategic metal. We're also carrying out work for the Defense Logistics Agency under the Department of Defense related to antimony trisulfide, and across the globe it's provided nearly entirely by the Chinese. In any case, Gus has likewise been involved in that effort. So Gus, I'll hand it over to you to give everyone the latest on the trisulfide project.

Alright, John. So antimony trisulfide goes into primers for the vast majority of artillery pieces and small caliber guns. And the Defense Department is worried about the reality that this stuff originates in China. In any case, around late February into early March, we processed what I believe amounted to 20 tons of sulfide ore from a fresh source close to the Wadley mine. Through the mill at Puerto Blanco we ran it. It produced an extremely good antimony concentrate — antimony sulfide concentrate. That material went up to Montana inside 2 drums. One drum was simply excellent prime material. We put that through our furnace on site, converting it to antimony trisulfide lump, which later on will be ground, sized, and tested by the Department of Defense over at Picatinny Arsenal in New Jersey; preliminary lab tests have already been done by us on it. It looks like it satisfies the mill spec. The remaining drum's contents contain some sand since it spilled onto the floor; we are developing a method to refloat that, and I feel confident it will clean up perfectly well. And using those 2 drums, we'll have the first sample that's mandated — out of the 5 or 6, or if we get there faster, merely 1 or 2. Anyway, a sample will be delivered to the Defense Department within roughly the next 3, 4 weeks, possibly 5 weeks, since grinding and sizing are required. I believe that covers everything current, John.

All right, excellent. Our belief in what antimony ore is worth holds up over the long haul, largely because no other major smelter operates on this continent besides ours. The Chinese have us over a barrel, too. China accounts for 92% of antimony supplies globally. On top of that, for a great many years now, the Department of Defense has been in discussions with us regarding what antimony metal means from a strategic standpoint. That wraps up the antimony overview. Matt, regarding Bear River Zeolite, I'll hand things over so you can give us a quick summary.

All right, John. At the start of this year, in January 2020, we did raise prices. Dan pointed out that we had raised them the prior year by roughly $6 per ton. This year, we took the overall price up by 3% to 5%. That depends on which product and which packaging, and we definitely received no complaints. Not a single person said anything negative whatsoever. Everyone has to be quite pleased with both the product and the price. So that made us happy. As for our sales right now, at this point in the year they're very strong in water filtration, very strong in synthetic turf, in infill for synthetic turf, and then the Canadian gold mines are using it for both water filtration and air filtration; so those 3 markets are the strongest at the moment, and we're very busy producing a particle size of 1,440 for that. The remaining markets, animal feed and the other smaller ones, they appear to just be normal. They're moving along that same trend, improving slightly with odor control and for landfills, that sort of thing. We're constantly searching for new customers, new potential markets. My approach is to do it more by market than by customer. So I reach everyone inside one particular market. Recently, my team and I have had a bit of success with air filtration. And that's considering it in light of all these hospitals needing to filter their air, plus other companies. So I spoke with everyone who had zeolite in their air filters; and I've gotten a few good responses there. Sent out some good samples. Had some positives there. And we'll likely be quoting — we have quoted some material, we might see additional orders in that area; so we're excited about the potential there. But overall, everything is running smoothly in the zeolite.

Let's turn it open for questions and answers at this point, Nadia.

Mark Menzel from Sunrise Wealth Partners here. I've got a few things I'd like to ask about. My main interest was really on the gold, silver, and antimony at Los Juarez. That said — turning back to the DLA, that Department of Defense contract, we received a grant — was it $0.5 million?

Slightly above that, Mark, that's right.

Mark Menzel from Sunrise Wealth Partners: All right. That was meant to give them samples. If those samples meet what they need, what's the path from here to actually earning something?

All right. To start with, once we reach that point — which will be in September of next year — there's a chance we'll qualify for something known as expansion funds. If we do receive them, we'll build a facility sized for production at this Montana plant. At first, the market will likely be what we refer to as commercial, meaning the commercial makers of bullets that supply primer centers. What makes trisulfide advantageous is that when we've produced it but haven't yet crushed it — what we call a trisulfide block — the antimony would be valued at nearly $6 per pound, compared with about $3 per pound at present.

Alright. So where the road map is concerned, we ended up with somewhat more — or I suppose they keep you dangling and dole it out gradually, that $0.5 million, or slightly above $0.5 million, and after that, provided they're pleased, they'd put up more money so a plant could be built for mass production?