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

Good day, and welcome to the United States Antimony Corporation Conference Call. Today's conference is being recorded. Before we begin our presentation, I would like to advise you that today's call will include forward-looking statements within the meaning of the federal securities laws. Our presentation will include statements regarding our projections, estimates, expectations, beliefs and assumptions. These forward-looking statements will relate to, among other things, our revenues and production. These statements are qualified by important factors that could cause our actual results to differ materially from those reflected by the forward-looking statements, including those factors set forth in the Risk Factors sections of our 2019 10-K form and our current 10-Q if applicable. These reports also include glossaries of certain industry terms that may be used in today's conference call. The full forward-looking statements disclaimer is included in our press releases, and this disclaimer is in effect for the duration of the call. At this time, I would like to turn the conference over to Mr. John Lawrence. Please go ahead, sir.

Good afternoon, gentlemen. Dan Parks, is our CFO, and we'll start off with a financial analysis of the 10-K for 2019. Dan?

Thanks, John. For the year ended December 31, 2019, and we reported a net loss of $3,672,891, after depreciation and amortization of $895,990, compared to a net income of $873,225 for 2018 after depreciation and amortization of $904,844. Our company-wide EBITDA was a negative 2 -- pardon me, $2,776,901 for 2019 compared to a positive EBITDA of $1,445,737 for 2018. Our 2018 results were impacted by approximately $2.2 million of revenue from the acquisition of the LANXESS plant in Reynosa, Mexico. During the year ended December 31, 2019, there was a major transaction that had a material impact on the company's net income and balance sheet. During the fourth quarter of 2019, it was decided to abandon 2 mining claims in Mexico, known as the Guadalupe mine and the Soyatal mine. This decision was prompted by the low prices for antimony and the expected cost to develop these properties. The effect of abandoning the properties was a noncash loss of $1,410,736, which was the carrying value of the mineral properties less the balance of related debt. Net noncash expenses for 2019 totaled $2,653,757 and it included the $1,410,736 for abandonment of the Mexican mineral properties, $895,990 for depreciation and amortization, $54,112 for amortization of debt discount, $134,375 for stock-based directors compensation, $136,000 for stock-based employee compensation, $16,396 for the write-down of inventory and $6,148 for other items. During 2019, we saw our average sale price decrease by $0.63 per pound from an average price of $4.11 per pound to $3.48 per pound. During 2019, our raw material from our North American supplier increased by approximately 100,000 pounds, and our supply of raw material for Mexican mines decreased by approximately 20,000 pounds. Even though our sales volume increased, our total sales of antimony decreased due to the decrease in sales price. This resulted in an estimated decreased sales of approximately $662,000. Normal shipments from our North American supplier resumed in 2019 at a lower level than we expected, and we do not expect an increase from this supplier in the near future. In the third quarter of 2019, we renegotiated our sodium antimonite supply from our North American supplier to recognize that antimony prices were in a worldwide slump and that our general and administrative costs were a larger percent of our revenues than they were under the previous agreement. The new price agreement was implemented in quarter 3 of 2019 and resulted in lower antimony production costs and an improved cash flow near the end of 2019 and expectations of better cash flow for the North American operations for 2020. Our sales volume of zeolite in 2019 was 641 tons less than we sold in 2018, a decrease of 4.5%. Our average sales price increased by approximately $6 per ton from $186 per ton in 2018 to $192 per ton in 2019. During 2019, total sales of zeolite decreased by $43,827 from 2018. The zeolite division had an EBITDA of $683,936 for 2019 compared to an EBITDA of $638,764 for 2018. Net income increased from $449,961 in 2018 to $497,470 in 2019, approximately $47,000. Our precious metal sales and EBITDA was $194,239 for 2019 and $254,445 for 2018. Back to you, John.

The company objectives and how they played out in 2019 and how they're looking at the present time. The first objective is the production of gold and silver. And I think this is very important in that the world economy is in a slump. Most nonferrous metals are horrible in terms of price. Gold is leading the pack and I think silver is behind it. I just checked gold, it was roughly $1,650 and silver were $16 an ounce. So what we've done is we have completed the construction and shake down of the plant in Los Juarez, the plant that will process the Los Juarez ore. And we started beginning of the year -- and I'm going to turn it over to Gus, who was on the spot and doing the shakedown and working with the people to train them in terms of analytic procedures. Gus, go ahead.

Okay. John. I've spent most of November through February in Mexico. And November, December was the shakeup -- shakedown part of the deal, where we did final piping and we tested all the equipment and filled everything with water, make sure it didn't leak and all that. We also trained 2 technicians there on how to use a brand-new atomic absorption spectrophotometer that we tipped down, and both of them are quite competent on it. We also spend time teaching them how to do fire assays, in other words, copulation of ore mill heads, mill tails and retails and they are competent with that. Beginning in January, January 16, as a matter of fact, it was our first leach in what we call the small leach tank. And it was successful in that we got through without any big equipment hang ups or anything like that. We actually got silver and gold in solution. We absorbed it on carbon. We've got that carbon in reserves until we get enough that we can strip the precious metals out of it and then make puree with it. To date, we have done 6 leaches, and all of them have been a success. We seem to learn something new with each leach. And the seventh leach will be this week, and I'm not sure, I haven't been in the office today for various reasons. But we're trying to do the seventh one this weekend. They may have started today. John would know more about that than I do. John?

We'll be sharing it at Thursday, Gus.

Thursday. Okay.

Yes.

So on Thursday, we'll be breaking in a new tank. And John has used these tanks before and so we don't expect any difficulties at all there. That's it for the cyanide leach, I think, John.

Okay. A couple of comments. The things that we learned basically were the concentration of cyanide that should be used. And it turns out, we're going to be using much less than we anticipated. The second item was the retention time of the ore in the leach tanks, and that appears to be on the order of 10 to 12 hours. And the third item was how much precious metal can we absorb in the carbon. And that's turned out very, very positive. So we're switching now to the production-size leach tanks, and we'll be running the first one this week. Turning briefly to scheduling. We should be shipping precious metals this quarter. The objective is to ramp up to the next quarter when we are going to shoot for the mill capacity of 100 tons per day. At that point, we'll be generating sufficient cash to probably complete the 400-ton mill, and I want to digress on that. The mill floor which is a sump, a concrete sump, and the tiers to hold the mill have already been poured. The electricity capacity is adequate to run another 1,000 horsepower. It's been completed. The ore bin for the 400-ton mill is in place. The flotation machines are actually on the floor. So what do we face with to finish that, the biggest job is going to be transporting the mill from Idaho to Puerto Blanco. That's going to be the big cost and it is reasonable, put it that way. So we're expecting to be starting the 400-ton mill during 2021, completing it and shaking it down. Okay, we look at this as our banner for the present time. And I want to turn briefly to antimony. And our objective there was to increase our smelter capacity to dominate the U.S. market. And Russell has moved and installed a 5 large furnaces with a ducting bag houses and so forth to give us a huge capacity. Russ, you want to go ahead and just go over how you've been able to cut costs there?

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

Yes.

Okay. Well, let's see the -- after Gus and Leo went to Reynosa, they sent us 5 SRFs or it should be LRFs, so long rotary furnaces. And the first 6 months of last year I spent down there installing those. And originally, we had thought that they were just going to process high-grade ore. But we were able to figure out a way to process all ore, anything that we get from Wadley or other ore sources. And this is a huge advantage because our throughput in these LRFs as opposed to the small rotary furnaces, the SRFs, we can put 6,000 pounds a day through each 1 of those. So as John says, we have an enormous capacity there. We also -- after the Hillgrove era, we have 14 SRFs. And those go at about 1,000 pounds per day throughput. Of course, we can only make metal in the small rotary furnaces, but we have plenty of those that we can make metaling. During the -- oh, I'd say about a year ago, we had as many as 62 employees on the permanent IMSS down there at Madero. We've sealed it back to 36. So that's a big cost savings. In terms of the other cost savings that I can mention, with the -- depending on the ore grade, we're down to 12.5% coal, which is down from a high of 30%. And of course, that's for various ores. We still have to go higher coal, 30% on low-grade ore. But on higher grade, we can go much lower. So that's another source of savings. And as -- the underscore is we have an enormous untapped capacity at the smelter. So John, that's all I can think.

Okay. As luck had or has, and this seems to happen quite often, the minute you get something finished and ready to go, the price drops -- drops out. And that's what happened to us with antimony. A few years ago, we sold a truckload of antimony oxide for $250,000. We're now getting for the same truck, a little over $100,000, and another way of seeing, we lost $150,000 worth of income. So what do we do? We didn't shut down, but we tightened the belt. And the first thing we did as Dan has mentioned, we've abandoned 2 mining properties, that's going to save us roughly $1,500,000 of short-term and long-term debt. The miners, we were paying $1.7 a pound or what they mined in $1.7 per pound of antimony, we've got it screwed down now to $0.90. And third, we've cut the expenses of doing Reynosa and also building a leach plant out of the expense column, a big help. And Russell pointed out, he's reduced the smelting costs. And last, but not least, the combio, the exchange rate of the dollar has -- the dollar value has gone way up. And Leo, I'll ask you to just give them a little oversight on that. This is Leo Jackson. Leo?

Yes, John. Talking about the peso versus the dollar. A few months ago, we were -- we had about an MXN 18 to $1 exchange rate. And today, I imagine it's about MXN 23.50 to $1. So that's quite a bit of savings there, which is reflected in not only less people at the plant, but less dollars that we have to pay on salaries. And the same can be said on natural gas. We picked up quite an advantage there also.

It's a huge impact. And I've seen it, so it's up to MXN 24 now recently. So where are we with antimony, we're going to go ahead, increase production at Wadley, and we are actually dealing with a strategic metal. And we're doing a job for the Defense Logistics Agency of the Department of Defense on antimony trisulfide, and it's supplied by the Chinese almost exclusively in the world. And anyway Gus has been working on that also. And Gus, I'll let you bring them up-to-date on the trisulfide project.

Okay, John. The antimony trisulfide is used for primers for most artillery and small caliber guns. And the fact that it comes from China has the Defense Department concerned. At anyway, at the end of February, beginning of March, we ran 20 tons, I believe it was, of sulfide ore from a new source near the Wadley mine. We ran it through the mill at Puerto Blanco. It made a very, very nice antimony concentrate, antimony sulfide concentrate. That material was shipped up to Montana in 2 drums. One drum was just a nice prime material. And we process that in our furnace here, we turn it into antimony trisulfide lump, which will subsequently be ground and sized and tested by the Department of Defense at the Picatinny Arsenal in New Jersey. We have done preliminary lab tests on it. It appears that it meets the mill spec. The other drum material has some sand in it because it overflowed on the floor. We're working on a process to refloat that, and I'm confident that it will clean up just fine. And with those 2 drums, we'll have our first sample that's required of the 5 or 6 or if we hit the target sooner, just 1 or 2. At anyway, we'll have a sample to the Defense Department here in the next 3, 4 weeks probably, maybe 5 weeks because it has to be ground and sized. I think that brings us up-to-date, John.

Okay, great. We have confidence -- kind of long-term confidence in the value of antimony ore, in that we're the only significant smelter in North America. And we're beholding to the Chinese. 92% of the world supply of antimony comes out of China. And the Department of Defense has talked to us now for many, many years about the strategic implications of antimony metal. So that concludes the antimony rundown. Bear River Zeolite, Matt, I'm going to turn it over to you for a brief synopsis.

Okay. John. In first of this year, January of 2020, we did increase pricing. Dan mentioned that we increased last year to by about $6 a ton. This year, we increased overall the price by a 3% to 5%. That's depending on the product and the packaging, and absolutely we got no complaints. Nobody said anything, anything negative at all. Everybody must be real happy with the product and the price. So we were pleased with that. Our current sales right now, this time of year are real strong in water filtration, real strong in synthetic turf, an infill for synthetic turf and then the Canadian gold mines are using it both for water filtration and air filtration. So those are the 3 strongest markets right now, and we're real busy making particle size of 1,440 for that. The other markets, animal feed and the other smaller markets, they just seem normal. They're going along this line, picking up a little bit with odor control and for landfills, things like that. We're always looking for new customers, new potential markets. What I do is I do it more by the market rather than by the customers. So I hit everybody within one certain market. Lately, we've had a little bit of luck with myself and the team in air filtration. And that's thinking about that with all these hospitals having to filter their air and other companies. And so I talked to everybody that had zeolite in their air filters. And I've got a few good responses there. Got some good samples out. Got some positives there. And we'll probably be quoting -- have quoted some material, we might be seeing some more orders in that. So we're looking forward to potential there. But in general, everything is going smooth in the zeolite.

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

[Operator Instructions] We'll take the first question.

Mark Menzel. I just had a couple of questions. I really wanted to focus on Los Juarez gold, silver, antimony. But the -- just going back to the DLA, Department of Defense contract. So we got a grant for what was that $0.5 million?

A little over, Mark, yes.

Okay. And that was to provide samples. Assuming the samples are adequate to their requirements, what is the road map here to make some money?

Okay. The first thing is, at that point, which is going to be next September, we may be qualified for what are called expansion funds. And assuming we get those, we will be putting in a production-size facility here at this plant in Montana. And the market initially is probably going to be what we call commercial, and that would be the commercial producers of bullets goes into all center for primers. The advantage of trisulfide is by the time we make it and before we crush it, in other words, we call it a trisulfide block, the antimony would be worth close to $6 a pound as opposed to roughly $3 a pound right now.

Okay. So as far as the road map goes, we got a little more -- or I guess they string you along and pay you over time, this $0.5 million or a little over $0.5 million, then they would provide, if they're happy, additional funds to build a facility to mass produce?

Correct.

Got it.

And it does not limit our sales to the government.

Okay. So this would be potentially a next year item? Or...

We may be selling a little trisulfide this year, and I believe we will, using the present plant.

Okay. Okay. Sorry about how tough the antimony business is. Hey, we could make some more -- produce more antimony and lose more money. But I hope things swing towards higher prices. So getting back to Los Juarez, which really gets my heart racing what potentially could happen here. You said that you plan on gearing up -- you've done all your testing. You think you've got the formula down. You've had outside parties confirm what you know you have. So have you been seeing the $120, $130 per ton realized out of this rock, those numbers holding?

Those appear to be pretty close compared to the target. And one thing that does change is the price of gold, and that margin impact on the overall value.

Okay. I noticed the discrepancy between what I read today and what you said today about gearing up to the additional 400 tons a day. It looked like -- what I read was that this would occur in '22, the additional 400. And now you seem to have moved it up to, I don't know, late '20 or early '21. Did I catch that? Is this correct?

That's correct. I'm figuring 2021 because we have the electricity in, we have the foundation poured, all the flotation machines are there, and the crushing capacity is adequate to run the 100-ton as well as the 400-ton mill. In other words, we have a lot of it done already.

Okay. So assuming antimony pricing doesn't get better, I'm getting the sense that you're going to be using the profits from the 100-ton to fuel the expansion of the 400-ton.

That's correct, although we will be using the 100-ton to do DLA material also, but it's really not many hours.

Okay. So the miracle that happened with that Bear transaction last year and the year before, a lot of these parts you kind of fell into to build this 400-ton a day?

Yes. The actual mill, Mark, we started buying it over 10 years ago. It's a beautiful mill. It's a natural conical mill. The problem is that it's 12-foot diameter and with liners in it, it probably weighs close to 100 tons.

And you got to bring that from Montana down to Mexico?

From Idaho to Mexico. We'll probably...

Okay. Yes, I was just going to say, drive at night, it will be okay. So okay. Well, I can't wait to see the metals production and hopefully that 400-ton comes sooner than later. So on the 100-ton, what would you run, 5 days, 7 days a week?

I'm figuring. Ideally, it'd be a 25-day month.

Okay. So at 120 times 100 times a 25-day month, that's $300,000 in revenues a month. I don't think this company has seen that in a decade. That would be a wonderful thing.

Yes, it would. And we haven't seen that since antimony prices went down.

Okay. Is there -- with what the government is doing, can -- I don't know -- can the company claim any economic damage by what the Chinese has been doing the price -- to pricing? Or that's just business?

No. The Chinese have basically interrupted our supply chain, and we're actively fighting that. And we are seeking government help for that disaster -- the economic interruption.

[Operator Instructions] It appears that there are no questions at the moment.

Okay, Nadia. Okay, gentlemen, I appreciate your attendance and interest in the company, and we'll be getting more information to you here shortly. Thanks, everyone.

This concludes today's call. Thank you for participating. You may go ahead and disconnect.