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

Thanks, Matthew, and I appreciate everyone joining us this Friday afternoon for our review of the third quarter financial statement along with the investor update call. With us on today's conference call are 4 other individuals. John Gustavsen, the company's Chief Executive Officer; Joe Bardswich, one of the company's directors; and Rick Isaak, our CFO, who came on board 3.5 months ago and is the person in charge of getting all our cues caught up and this one filed on time; Melissa Pagen is also joining the call. She'll assist during the Q&A session and help put this call together today. So I'd just like to — we've sort of split up today's conference call among those participating. And I won't say a great deal at the start, but I wanted to inform you that our proxy statement was filed this morning. In that proxy, we've established a date for our Annual Meeting for calendar year — or fiscal year 2023, for December 29. And 3 items will be on the agenda for the Annual Meeting, which is the election of our 4 existing directors. We've put an equity incentive plan in place, which hasn't been the situation for some time, to incentivize existing and new management that might be brought on as well as Board members. And the third item is ratifying our current accounting firm, Assure CPA, which has handled audits of the company's books for a number of years now. So I just wanted to make you aware of that. As a shareholder, you'll be receiving information electronically, and the meeting will also be conducted virtually. There won't be a physical meeting, particularly given the date falling between the Christmas and New Year's holidays. We didn't pick that date for any other reason except that we had to get this completed before the year ends, and we didn't want to hold an annual shareholder meeting without having all our financial statements current, which are all current now. So that's why it was — we have so many days in advance that notice has to be given. So that's the reason that date was selected. I'd like to have Rick go first here and provide a financial overview of the third quarter and the 9 months ended September 30, and he will now take over the floor. Rick?

Appreciate that, Gary. Financially speaking, the third quarter proved difficult, yet we did achieve certain operational gains, and those gains have been—and will keep being—among the areas we prioritize moving forward. Let's begin with the income statement. For Q3 of 2023 versus 2022, sales fell 6%, and across the opening 3 quarters of 2023 versus 2022, they fell 27%. Both gross profit and net income also declined for the third quarter and the year-to-date spans of 2023 against 2022; every one of our businesses except precious metals contributed to those declines. Starting with zeolite. Zeolite sales dropped 15% and 22% for the third quarter and year-to-date periods of 2023 against 2022. The main cause was equipment failure that halted production for roughly 5 weeks in the third quarter and 14 weeks across the year-to-date periods of 2023. That stoppage introduced greater swing in our average sales price per ton figures from quarter to quarter. Comparing year-to-date average sales price per ton, 2023 and 2022 look quite close, which better reflects our trend and aligns more with what we expected; after the cone crusher broke down in 2023, we bought a replacement cone featuring improved performance monitoring capabilities and the ability to raise our output. Zeolite gross profit fell mainly because of higher maintenance expenses plus equipment and facility-related labor costs tied to the production stoppage. Our aim with maintenance has been to reinforce the production process so problems are avoided and to build up more stored product so customer orders can be filled faster. One illustration came in October 2023, when production halted for a period yet we still fulfilled customer orders using stored output. Now for antimony. Antimony sales were down 2% and 31% for the third quarter and year-to-date periods of 2023 against 2022. The primary driver was a reduced sales price per pound, matching the drop in antimony market rates. Antimony gross profit fell largely because of that lower sales price per pound, along with processing ore that contained only a small share of antimony. Turning to the cash flow statement. Cash declined over the first 9 months of 2023. Two components of that decline deserve attention. To start, we recorded a net loss of $2.8 million. Even once noncash charges in the P&L were added back, it still drained cash. That said, setting aside the loss from our Mexico operations, we would have posted a slight profit. The Mexico operating loss appears in our segment footnote. During the third quarter we implemented several improvements in Mexico, including smarter inventory purchasing and some staff reductions, to mention just two. Given how those changes performed, further adjustments could come in the fourth quarter. Next, capital expenditures came to $1.5 million, and a large portion of that went into our zeolite business. Again, the purpose was to make our production process stronger so we can avoid problems and hold more inventory, allowing us to fulfill customer orders faster. A few illustrations of these upgrades include the cone for our cone crusher, the salt sheds we constructed for storing zeolite ore so that production stops during the winter and wet seasons are eliminated, plus extra warehouse space for storing zeolite product to fill customer orders faster. These upgrades build on the upgrades made in 2022. Gary, I'll hand it back to you.

Appreciate that, Rick. At this point we're handing things over to our chief executive officer, Gus Gustavsen. Gus, go ahead.

Someone requested that I discuss the antimony sector and how antimony is priced. For 16 or 18 months now, the global antimony price has been falling. It reached its high point back in May of 2022, hitting $14,450 per metric ton, which equals $6.55 per pound of antimony. Since that time, a few significant developments have pressed hard on this market. First, there's been a total meltdown in Chinese real estate, and that is actually posing a risk of harming China's whole economy. Second, U.S. pandemic-era spending has come to an end. While the pandemic was going on, many individuals set up home offices and purchased extra furniture and similar items, and every one of those things needs to be flame retardant. Those incentives, as you're aware, have ceased, and so has that buying binge. The war in Ukraine has devastated Ukraine, naturally, and also hurt Europe's economy. Last winter, Russian natural gas became extremely costly, and it probably will be again this winter, dealing a severe blow particularly to Germany's economy, though the rest of Europe suffered too. The Israel-Hamas conflict has essentially brought Israel's entire economy to a halt. The ongoing, or rather just concluded, UAW strike in the U.S. has a big effect on flame retardants and lead antimony alloy used in cars, on flame retardants for wire, cable, and upholstery, and on antimony for lead-acid batteries. On the positive side, ongoing shortages of raw material in China are giving substantial support to the price — under ordinary conditions, with raw material supplied reliably, this antimony price would have dropped considerably further. Looking ahead, there's Perpetua, which might turn into a major antimony producer for several years and could have a significantly negative effect on antimony pricing worldwide. With all of that said, we continue to keep ourselves fully sold out. We can go head-to-head with Chinese pricing. To give one illustration, at the May 2022 peak, we sold antimony at $6.55 per pound FOB Montana in truckload quantities. As of today, the price stands at $4.52 per pound FOB Thompson Falls in truckload quantities. That covers the antimony market, Gary?

Okay, thanks, Gus. That was really informative. At this point I want to hand things over to Joe Bardswich. He's one of our directors and has served on the board for quite a few years now — Joe.

Someone asked me to give my take on the Los Juarez property down in Mexico. When it was bought a few years back, there was quite a bit of excitement, and many folks believe it never delivered on that early hype. Certain work got done, such as mining in small amounts numbering in the millions, and so on, yet nobody ever figured out a resource or reserve, largely because not enough work was carried out to prove continuity through drill holes and to properly lay out the resource. Dr. Baitis, a former Director, held this property in very high regard. Prior to his departure, he brought in a company highly skilled with leapfrog technology, which is a 3D software package used for evaluating exploration results. Even so, 3D data compilation and technical review became available to the Directors, and parts of it are meant to go up on the website so everyone can view them. That study calls for continued exploration at Los Juarez, with RC, meaning reverse circulation, plus core drilling or diamond drilling programs, to chase the extremely high gold values laid out in the soil and rock chip geochemical surveys the company finished during the last couple of years. A thorough geophysical program using more modern, deep-penetrating instruments, the same kind employed in our earlier completed geophysics program, was suggested before any drilling happens; the thinking is that this extra geophysics will improve drill hole selection parameters like locations, azimuth and dip of the holes while cutting drilling costs. The report likewise advises a greater level of quality assurance, quality control, and the gathering and recording of exploration data so as to satisfy the upgraded industry reporting standards the SEC now demands. In essence, I'm enthusiastic about the property, but it remains a long ways away from outlining an ore reserve or even an ore resource. I'll hand it back to you, Gary.

Okay, thanks Joe. I might add a few remarks regarding Los Juarez. Like Joe said, after management and the Board really got a handle on the company, we realized that the study Joe described was quite significant, and all of us have examined it closely. It gives us encouragement that there's some potential here; it still can't be quantified. As Joe noted, additional testing still needs to happen. But it certainly is — when we consider the different properties in Mexico, whether that's Puerto Blanco, the Madero smelter, or every other property we hold, from where I sit, and I believe the Board's management shares this view, this specific property, Los Juarez, carries the greatest potential; so because of that, we're working to focus our efforts on understanding it better, defining that potential, and hopefully locating a possible joint venture partner. There's activity taking place on adjacent properties in that area. And all of that is interesting. I know previously there was considerable discussion about gold and silver, and we can confirm there are — there's a fair amount of potential there, but there's also substantial antimony potential; so it's a property that absolutely deserves more work, and your Management Board is going to tackle that. With that, I believe we've more or less covered the quarter and the 9 months. And Matthew, I'd like you to explain to our listeners how they can submit questions to this group.

All right. Let me proceed with reading the questions that came in. There are some questions here. I'm going to combine them into this initial one. To start, I want to express appreciation to everyone in management who is putting in effort to turn USAC into a well-known and distinguished business with a promising future. Here's the question: is zeolite the primary emphasis at this point? Also, do any concrete opportunities exist when it comes to deals or businesses that have expressed interest in collaborating — with USAC?

All right. Melissa, Gary here. I'll take a shot at answering that. I believe on a few earlier calls we indicated our view that zeolite held really strong promise for this business. If you look at what we invested during 2023, most of it was directed toward the zeolite asset — the BRZ site located in Preston, Idaho. So our belief persists that gains can still be achieved at that location. Clearly, we've dealt with an excessive level of unplanned outages during this year, which we've tried to fix. Much of that stems from inadequate upkeep historically and bad choices made about this asset. Even so, I believe this asset offers tremendous upside, and we keep evaluating further purchase possibilities within the zeolite sector. We've been pursuing a few separate prospective deals, and while we're clearly not in a position to discuss their status, we believe that's a space this company ought to prioritize going forward. With that said, I think we're ready for the next question, Melissa.

All right. A large portion of the inquiries centered on the Zeolite business, so my sense is that your remarks already address nearly all of them.

Anything else coming?

I think that wraps it up.

Here is someone.

Hold on, please. Hold on please.

Appreciate that question. I can go over it again if you'd like, Melissa. Now that U.S. Antimony has satisfied mill spec requirements, are you selling antimony trisulfide to the Department of Defense at present? With that said, I'll hand it over — I believe Gus is the right person to address this; and Gus, could you perhaps also discuss our Montana operations and the way we operate up there.

All right, Gary, absolutely. Let me take a look here. I suppose I'm looking at a different question than the one you've got, but the mill spec has been satisfied. That spec is quite old — it dates back a great many years — and DLA has granted us approval allowing that material to be sold for military purposes. It can also go to the recreational market, which, to my surprise, is considerably bigger than the military one. In any case, we don't sell straight to the Department of Defense or to the DLA; what we do is sell material to a company that grinds it, sizes it correctly, packages it, and then sells it to the Department of Defense. So we operate in a loose partnership with them. Ours is the only company holding the DLA's blessing to do this. That's how we're handling it at present. We hold a stockpile of material from that company, built up over the years as they size it — they end up with oversized and undersized portions that can't go into primers — and they shipped it to us; right now we're reworking that material. We have a proprietary electric furnace in which we melt it at a set temperature for a set duration, and we pour it out into what you'd call a large ingot. We break it out of the ingot, and we send all of this antimony trisulfide in baseball-size chunks off to be ground. We do have a stockpile of antimony sulfide concentrate mined from one of our properties in Mexico, and we're currently producing more of that at the Puerto Blanco mill. At Montana we've got roughly 18 tons. Out of that, 2.5 tons has been successfully converted to acceptable antimony trisulfide, and we hope we can keep getting that material to suppliers going forward. Back to you, Gary.

Very good. Thank you, Gus.

Thank you, Gus; so the next question, will you need to raise additional funds?

Regarding that inquiry, the response is affirmative solely in the event of a major acquisition, and judging by all the information available to me, my reply is negative. What we aim to do is reduce the cash outflow, which has mostly occurred in Mexico. At the BRZ mine, we have already completed the bulk of the capital expenditures required during this year. And the plan is to operate within the resources at our disposal. As of the close of the third quarter — Rick, please tell me if I have this wrong — do we have roughly $13 million in cash? Is that right?

Yes. Yes.

Therefore, provided that we keep bringing down what we spend in Mexico — through a mix of staffing levels and ensuring that the products we purchase come at the right cost and go out at the right cost — we ought to find ourselves in a situation where there is no need to raise any funds.

All right. Moving on to the next question. We appreciate everything you've done. Could you address how the zeolite output rate compares with what it was before the repairs and upgrades? And also, you brought up better packaging previously — has that wrapped up, or is it still ahead?

Rick, why don't you answer that question?

All right. Regarding the second item, that's the packaging side. We're still working through evaluating the packaging so we can bring automation onto that line; so that effort remains underway. As for the first item, what about the rates — the new cone can make product more quickly. And I believe the downtime we've had in production has made it difficult to really gauge just how fast it's capable of producing. I think previously we were running at roughly 5 tons per hour, and I think we'll be able to produce at a quicker pace. But I think we still have to wait and see, because of the production downtime we experienced in July and early August and then, once more, to some degree in October. But I think the maintenance work we're performing along with the upgrades across that line involving the cone crusher and the hammer mills and the Sweco with the new screen we acquired — our aim, clearly, is to make product more quickly and get more output from that — from the line.

Rick, let me jump in on that point as well — with the screen, you increased the size from what I believe was a 30-inch to a 60-inch — or actually, it went from 36-inch to 60-inch, and that definitely ought to boost output, and then you could take the previous screen and move it over to the hammer mill line. So I believe that also explains part of the downtime, since those screens had to be installed, but I do expect that having so much more screening surface area will help your production quite a bit too.

Yes, I agree.

Right, and there's one more item I should bring up. A headhunting firm has been brought on by us to locate a seasoned new general manager for the BRZ production facility located up in Preston, Idaho. And an e-mail just came in today saying that 2 or 3 candidates are available for us to begin reviewing. So our goal, with any luck, is that within the next 60 days we will have somebody identified, interviewed by the entire management team and the Board, and hired, allowing us to keep making our operations at BRZ better. Next question?

All right. This next one ties in and goes a bit — takes a slightly deeper look at the very same subject. Now that the equipment is in place and operating with no further unplanned outages, would USAC get back to profitability given the market as it stands today?

Rick, do you want to respond?

Therefore, I suppose — I don't know whether when we say USAC, that's about the entire company. My assumption is that it's only about BRZ, given that those were the remarks provided.

Yes.

All right. So yeah, I'd say BRZ has definitely taken a hit from the downtime and from not having production running, and if you look at earlier quarters, we did have quarters where we made a profit. I think that stretch1 has led to significantly higher maintenance expenses, plus disruption on the line that creates inefficiencies, whether that's in materials or in labor; so yes, you can now sort of see that reflected in the P&L for Q3; and what we expect is that we'll — given the improvements we've put in place, that ought to reverse.

Next question?

All right. At present, is demand exceeding what you can supply in zeolite, and do you expect you'll be in a position to satisfy every bit of demand going forward?

I'll do my best to respond to that, and after that Rick can chime in if it becomes necessary. So one thing we started altering at this BRZ mine involved trying to keep more inventory on hand, so that whenever downtime hits us, as it did during calendar 2023, and honestly it happened in 2022 too, we're still capable of meeting supply — sorry, meeting demand. The concept, then, is to keep supply sitting in inventory, and additionally, winter weather historically has blocked certain mining operations. So there were storage bins — essentially very big outdoor storage facilities where inventory could be placed. That inventory is unprocessed, and at least on my most recent visit up there, those bins were being loaded. And Rick has implemented certain adjustments concerning silos that weren't being used correctly, so we could keep finished product sitting in inventory. So I believe that making certain tough management choices regarding unprocessed and processed zeolite inventory, BRZ, is what lets us satisfy demand whenever demand arrives. And so, addressing your question, we have managed to satisfy demand. Now, we did lose a contract within just the last 1.5 months. However, the sole cause we lost it was that the customer wanted faster delivery than we were capable of providing. And that order was a big one. One of our competitors received it. But we want to reach a position where that never happens again. We're doing everything we can to boost daily production, all the items that both Joe and Rick brought up regarding the screens, regarding the cone crusher. We're working to get better. And that's also, at least while we're searching for a new general manager to run this property in a better manner. So right now, we can satisfy demand, and a big part of the reason for that has been the inventory builds we've spent all year long working on; and those inventory builds will show up in the financial statements. You'll notice the inventories have risen a fair amount. Next question?

Next question, are we still in talks to supply Ambri?

I don't know. I'm not familiar with that. Gus, are you?

Correct. Ambri is a firm located in Cambridge, Massachusetts, that came up with a battery employing a calcium or magnesium electrode at one end, with molten antimony at the other. They hold strong aspirations to become a significant provider of storage for the net — the electrical net, that is. Put another way, a location for holding electricity from wind engines while the wind blows and from solar energy while the sun shines. Since at present, much of that energy simply gets wasted. The electrical grid lacks capacity to carry it. So a great deal of success is lost. We've held conversations with Ambri, perhaps for 10 years. Our relationship with them is very good. Not only do we discuss supply with them, we also provide them antimony, and we've done so for 3 or 4 years now. The quantity grows annually, though not to the extent they'd wished. They'd hoped to be far larger by this point, yet some rival technologies exist that use vanadium solutions and such; regardless, we were quite close with Ambri.

Alright, moving on to the next question. Has your North American supplier completely resumed operations and started delivering feedstock again? You mentioned that the ore quality coming from Mexico had improved. What adjustments have been made on the ore purchasing side to ensure that higher quality is maintained?

Rick, do you want to respond to this?

Yeah. So, yeah, the U.S. provider is operational once more and shipping feedstock our way, and that's been a really solid partnership that I'm sure Gus can speak to at length too when it comes to U.S. Antimony. The superior ore coming out of Mexico boils down to a couple of points. First, they're skilled at turning out metal ingots. So that's the part of the process they've concentrated on, and it results in antimony being in a form that's more or less ready for sale to a buyer. As for the antimony ore and concentrate they'd been purchasing, our approach — what we're essentially doing — is making certain they only buy antimony at or below a set price per pound, and with a set antimony percentage or above, which lets them process antimony at an improved rate, ideally one that comes in under the selling price. Gus, I'm not sure whether you'd like to say more regarding the North American supplier.

There was, in fact, an unanticipated longer outage for them early in the summer. Come December or January, they'll likely take a maintenance shutdown; apart from that, shipments are arriving on a very consistent basis, and despite that supply disruption early in the summer, once the year wraps up we'll have gotten the identical quantity that we got in the prior year and the one before it. So with them, we're sitting in a solid position.

Okay. Next question? Melissa?

My apologies. Does anyone have any views regarding a reverse split? Or is it possible for the stock to recover on its own without requiring one?

I'll take that one. A reverse stock split, as I'm sure everyone here, particularly the investors joining us today, understands, can cut both ways. Now for the upside. On the plus side, it pushes your share price above $5 and opens the door to institutional ownership. When you look at who owns our shares right now, 98% of it is retail. That's not a problem in itself, but historically it's institutions that drive a stock. So my strong view is that you shouldn't pursue a reverse split simply for its own sake. It has to come alongside something else — an acquisition, an equity offering, some event that is material and delivers benefit to shareholders. So I expect that in our proxy statement next year, you'll see approval granting the ability to carry out a reverse stock split if and when it's needed, though at this moment we aren't requiring it as a necessity. Our belief is that we can get this company turned around, reach profitability, let the stock climb back to where it belongs, and perhaps consider it then; so right now, it isn't on the table. Next question?

At this point, can management make purchases on the open market? Or do the zeolite acquisitions currently being negotiated place restrictions on them?

There's no way for me to give a response to that. Which is to say — I'm not able to — I would — an answer to that simply isn't possible. Moving on to the next question?

Moving on to the next question. Going forward, will the modernization at BRZ shift the zeolite product mix toward sales of zeolite at a higher average price?