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Executives

Kim Rogers-Carrete

Nicholas N. Carter - Chairman, Chief Executive Officer, President, Chief Operating Officer and President of Texas Oil & Chemical Co II Inc

Connie J. Cook - Chief Financial Officer, Treasurer and Secretary

Simon Upfill-Brown - Executive Vice President

Analysts

Conner McMahon - Sidoti & Company, LLC

John H. Curti - Singular Research

H. Peter Castellanos

Sam Namiri

Colin Lee

Gregory P. Garner - Millennium Asset Management L.L.C.

Arabian American Development (ARSD) Q4 2013 Earnings Call March 6, 2014 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Arabian American Development Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, March 6, 2014. I would now like to turn the conference over to Kim Rogers with Genesis Select. Please go ahead, ma'am.

Kim Rogers-Carrete

Thank you, Sheral, and good afternoon, everyone. Welcome to the American -- Arabian American Development Co. fourth quarter and full year 2013 financial results earnings call. The earnings release was distributed over the wire service approximately 30 minutes ago and should be available on most financial websites by now.

On our call today will be Nick Carter, President and Chief Executive Officer; Connie Cook, Chief Financial Officer; and Simon Upfill-Brown, Executive Vice President. Following management's prepared comments, there will be a formal Q&A session open to the participants on our call today.

Before we get started, I'm going to review the Safe Harbor statement, which is Slide #2 in the presentation. Statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events and as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995.

Such statements including, but not limited to, expectations about future operating results, involve a number of risks and uncertainties, competitive factors, market demand and the company's ability to fund and exploit its mining resources. Various future events or factors may cause the actual results to differ materially from those expressed in any forward-looking statements made on this conference call today. As a result, actual results may differ materially from any financial outlook stated herein.

Further information on potential factors that could affect the company’s financial results may be found on the company’s reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission, which can be reviewed at sec.gov. As a reminder, this webcast is accompanied by a slide presentation that's accessible on the Arabian American website at arabianamericandev.com.

[Operator Instructions] And now I'd like to turn the call over to President and CEO, Nick Carter, for comments. Nick?

Nicholas N. Carter

Thank you, Kim. I'd like to thank all of you who have joined us for the conference call today to discuss our fourth quarter and full year 2013 financial results. As Kim mentioned, slides are available on the website, and Slide 3 identifies our agenda for today's call.

I'll start with an overview of our financial and operational highlights. Connie Cook will follow with the discussion of the financial details, and Simon Upfill-Brown will discuss operations of South Hampton. I will then conclude with an operational update and information on AMAK mining activities.

Now let's turn to Slide 4. 2013 was a year of records for the company. I'd like to take the time to thank the team that we have here that made this possible. We have an incredible team, and everyone should know that these were the people who delivered these results.

We ended the year with records in almost all pertinent metrics. Our revenue for the year was $236 million on record volume of 67.1 million gallons. This is up from the $223 million we recorded last year on volume of 63.6 million gallons.

We also set a new record for operating income of $20 million, up from our previous year's record of $17.5 million, an improvement of 14% year-over-year and a testament to our operational efficiencies this year. International shipments continued to grow with volume up 5.5% and revenue up 5.6%.

Our strongest area of international growth has been the Middle East. Deferred sales at year end were $6.4 million, an increase of 38.6% year-over-year on volume of 1.8 million gallons, which was an increase of 58.8% from last year. We feel the levels we saw in revenue, net income, EPS, EBITDA and volumes are sustainable going forward. The strong performance in 2013 gives us a solid base for future development.

Now turning to Slide 5. Revenues for the fourth quarter were $66.6 million, up 33% from the $49.9 million a year ago and up 9% sequentially from the $60.9 million in the third quarter. For the fourth quarter, we had an all-time record volume of 19.7 million gallons, which was up 40% year-over-year and up 16% sequentially.

Remember that volumes were down in 2012's fourth quarter due to a refinery fire in California that prevented a customer from purchasing, and then there was an oil sands customer who was offline and had mechanical difficulties at that time also. This partially explains the large increase. Other contributing factors were our Canadian oil sands customer who has been placing orders for volumes higher than originally contracted and also the increase in international sales. I'll address this further in the next slide.

Moving on to Slide 6. This slide shows our consolidated revenues and volumes going back 12 quarters. The past 5 quarters have shown nice, consistent growth ending with our current record quarter, and we feel we can sustain current volumes for the remainder of the year as our customers are all doing well.

While we are pleased with the increase in volumes, however, one downside to the unexpected increase in volume for a specific product is the creation of additional products that are generated out of the feedstock. In the fourth quarter, we were required to sell excess product at margins lower than our corporate average. Now that we anticipate these potential volumes for this material, we're working diligently to place it in our specialized markets at more normalized pricing.

Simply put, the higher demand for C5 plants means that we produce more material across all product lines, and we need to find new distribution channels for these additional products. Simon will get into this topic a little bit more in his presentation.

Now let's turn to Slide 7. The slide shows that in the past 2 years, the price of our feedstock has fluctuated within a range. In this quarter, the price was relatively flat sequentially. Year-over-year, the average price was down 2.3%. Going forward, with increased production of NGLs from shale formations nationwide, we expect feed prices to stay in the current range or possibly decline in 2014.

Historically, our feedstock pricing has followed crude oil direction. However, we continue to see a disconnect with crude price changes being reflected with a price balance in natural gasoline, which is our feedstock, but the magnitude of the changes have decreased from just a couple of years ago. We remain focused on differentiating South Hampton with superior customer service by rapidly responding to their changing needs. This helps us protect our market share. We're working to keep margins relatively stable for the foreseeable future, with our largest challenge being the imbalances in the products that I mentioned earlier.

We are well positioned to benefit from increasing North American shale gas production and believe the country is continuing towards more stable pricing in the petroleum market, which will be good for many petroleum-related businesses such as ourselves. We continue to evaluate long-term strategy with announced additions of ethylene crackers that are expected to come online starting in 2016. These crackers produce the feedstock for polyethylene, and polyethylene is our sweet spot in this niche business that we operate.

At this point, we feel we have sufficient capacity to meet current and near-term demand due to the improvement -- improved composition of the feedstock that we're seeing and also the de-bottlenecking that we've done earlier in 2013. As we mentioned on our last call, we're moving forward with permitting -- with the permitting process for D train that will position us to capture future demand as the aforementioned projects come online.

Now I'm going to hand the call over to Connie Cook, our CFO, who will review our financial results for the quarter. Connie?

Connie J. Cook

Beginning on Slide 8, we'll first address results for the fourth quarter. Consolidated revenues for the fourth quarter increased 33% to $66.6 million compared to revenue of $49.9 million for the same period in 2012.

Petroleum product sales represented $64.9 million or 97.4% of total revenues for Q4 of 2013 and $48.8 million or 97.8% of total revenue for the same period last year. We recorded $1.7 million in total processing fees during the quarter, up from $1.1 million in the year-ago period. This increase was from new and renegotiated contracts.

The cost of sales and processing, including depreciation, was $56.8 million versus $43 million in the same period in 2012. This 32% increase is primarily due to the increase in volume produced during the quarter as average feedstock price was down 1.1% year-over-year.

Total gross profit for the fourth quarter 2013 increased to $9.8 million as compared to $6.9 million in the same period last year. Our gross profit margin for the quarter was 14.7% compared to 13.8% in the year-ago period.

G&A cost for Q4 2012 was $4.3 million versus $4 million for 2012 -- so G&A cost for 2013 was $4.3 million versus $4 million for 2012. The increase was primarily due to increases in compensation, insurance premiums, property taxes, accounting fees, consulting fees and Investor Relations expenses.

We reported net income attributable to Arabian American in the fourth quarter of $3.2 million or $0.13 per basic and diluted share compared to $1.9 million or $0.08 per basic and diluted share for Q4 2012. Adjusted EBITDA for the fourth quarter of 2013 was $6.5 million compared to $3.7 million last year. We are providing adjusted EBITDA in order to provide some continuity from prior year's reporting.

Moving to the full year results. Consolidated revenue for 2013 increased 6% to $236.2 million compared to $222.9 million for 2012. The increase was due to sales volume being up 5.5% and an increase of processing fees of 28.5%.

Petroleum product sales represented $230.6 million or 97.6% of total revenue in 2013 compared to $218.5 million or 98.1% of total revenue for 2012. Petrochemical product sales increased by 5.6% for 2013 due to the increase in total volume of 5.5% while average selling price remains stable. Even though approximately 1/2 of our sales are basic on formulas derived from market prices of raw materials and those prices declined slightly in 2013, we were able to maintain our average selling price.

With growth in international sales during 2013, we shipped a record number of iso-containers, the most frequently used method to ship product overseas. However, because of that, deferred sales volume increased 58.8% in the end of 2012 to 2013, which delays revenue recognition until the subsequent year.

Gross profit margin for the year was 14.9%, up from the 13.8% a year ago. The increase was from improved feedstock composition and increased processing fees. G&A for the year was about (sic) [up] 14.8%, primarily due to the items mentioned previously.

For 2013, we reported net income attributable to Arabian American of approximately $19.5 million or $0.81 per basic and $0.79 per diluted share compared to $10.3 million or $0.43 per basic and $0.42 per diluted share in 2012. Full year adjusted EBITDA was $23.8 million, up 13.8% from $20.9 million last year.

Moving on to Slide 9. Once again, our balance sheet remains strong. We completed the year with $7.6 million in cash compared to $9.5 million at December 31, 2012. Cash provided by operations was $13.2 million for 2013 versus $21.4 million in 2012.

Trade receivables were $22.1 million compared to $15.8 million at year-end 2012. The increase is due to the increased sales volume during the fourth quarter of 2013. Inventory increased by $2.2 million due to an 18.3% increase in volume. Much of the volume increase is due to the 58.8% increase in deferred sales, which are classified as inventory until shipments arrive at their destination.

Long-term debt was approximately 8 -- $11.8 million at year-end 2013 compared to $14.2 million at year-end 2012. Due to the cash flow generated in 2013, we made net principal payments of $2.5 million on our line of credit and term debt.

At December 31, 2013, there was $11.5 million available on our line of credit. We had $32.1 million in working capital at December 31, 2013, compared to $28.2 million at year-end 2012. Capital expenditures decreased 16.1% from 2012 to 2013.

During 2013, we spent $0.3 million for equipment for de-bottlenecking our Penhex unit, $1.6 million for the expansion of the sales loading rack facility, approximately $1 million for the construction of a new control room and lab, $0.4 million for transport trucks, $2.1 million for a new tolling unit and $1.5 million for other equipment. We ended the quarter with a current ratio of 3.2:1. Shareholders' equity was $102.9 million compared to $81.9 million at December 31, 2012.

I would now like to turn the call over to Simon Upfill-Brown for an update of South Hampton's activities. Simon?

Simon Upfill-Brown

Thank you, Connie. As we move to Slide 10, I would like to add some color on our sales and operational activities for the quarter. As both Nick and Connie have reported, we posted a record year and quarter in many areas of our business.

Fourth quarter 2013, prime product sales were up 33% over 2012 even with the $700,000 increase in deferred sales between December 2012 and December 2013. Deferred sales increased by $100,000 from September 2013 to the end of December.

Our de-bottlenecking was a success earlier in the year and has provided us with a runway to meet current and near-term demand. We continue to analyze strategic options and have moved forward with the permitting process for D train and Silsbee. We might even be able to do this permitting on an accelerated basis using a process known as permit by rule. We have budgeted about $5 million this year 2014 for procurement of equipment for D train, so we continue to drive the project on multiple fronts.

I'm very pleased with the growth in International business. International sales were 23.9% of our volume in 2013, representing 26.2% of our revenues. International sales volume is up 5.6% in 2013 over 2012, while revenue was up 5.5%.

We have a representative in China who has done a lot of good work opening doors for us, and we feel confident that she's making headway in building relationships in the procurement and technical departments of potential customers in the higher-value polyolefin end of our market. At this point, she is focusing on 7 target customers.

Our Canadian oil sands customer received record shipments this quarter. In fact, a large portion of our volume spike was due to us receiving and fulfilling higher-than-expected contracted volumes. While we are glad to see these large upfront product orders, it has just created the situation Nick alluded to where we are left with higher-than-expected volumes of other products.

In our manufacturing process, we cannot just manufacture one product. If we have a high demand for 1 or even 2, it means at times we create excess volumes of the others. We have to accept the blend of multiple products that come in our feed. So ultimately, we may be left with excess product with little advance notice for placing it. Since our markets are very specialized and the sales process is lengthy, occasionally, we must move excess product at lower-than-normal price points.

Now that we anticipate the higher volumes to continue at least for the intermediate term, we are focused on placing the material to customers at more normalized rates. We expect the impact of excess products to affect our first -- our margins in the first quarter, but thereafter, we have to be back to more typical corporate gross margin.

As our business has grown over the years, we have been put in this position and have worked through it on numerous occasions. It's always difficult to exactly balance the sale of all products in just the right proportions.

We believe we can sustain these North American volumes with continued uptick from oil sands going forward. We anticipate further volume expansion when the polyethylene demand starts to materialize in 2016 and beyond.

Our processing revenues were up nicely by 28.5% for the year. The results of the newly negotiated contracts with all our customers took full effect in the fourth quarter. As I've said on previous calls, we continue to see strong interest in our custom processing capabilities and plan to continue to build this end of our business.

We continue to evaluate potential acquisition targets that fit our existing model, i.e. in niche markets with a high service component that bring additional customers and products. So far, we have taken a hard look at a number of companies that fit the profile but haven't come to workable terms with anyone of them. So no deals as yet. Any acquisition we execute would have to be accretive and make strategic sense for the business.

If we can turn quickly to Slide 11, I would like you to see some photographs of our new control room and laboratory, which we completed late last year. We spent approximately $1 million on this project, and I'm glad to say that we came in under budget and with this building, we were able to resolve a number of issues, such as facility siting, industrial hygiene and DCS reliability. It is an impressive building and sets us up very well for the future.

With that, I'd like to turn the call back over to Nick.

Nicholas N. Carter

Thank you, Simon. Turning to Slide 12, I'd like to go over an update of AMAK mining project. As those of you know who follow the company have seen, we're making an effort to get more information and updates on the mine as they transpire through press releases and other announcements.

The mine is progressing into a more stable production mode from a start-up operation. AMAK has been focusing on adding staff and mining professionals to bolster their operation. We've been through a search process, and we've recently hired a new AMAK CEO. A public announcement on its qualifications will be forthcoming soon.

The precious metal circuit is in the design stage and should be up and running by the end of the year. The original construction contractor is contractually obligated to make modification at their cost, and we will make sure to have that completed by year end. Simon and I have recently attended the International Zinc Conference, and the consensus for the zinc prices is bullish. Supplies are expected to decline going forward this year with some of the larger mines going offline.

There are expected to be some delays apparently on some start-up mines that are supposed to come online this year, which will be delayed. And there seems to be enough demand growth to potentially move the price. The outlook for copper is not as strong, but it's fairly positive as well. All indications are that it should be in the range of $6,900 to $7,200 per metric ton for most of the year.

In summary, for the year going forward, Slide 13. We had a fantastic year with record revenue, net income, volume and EBITDA. And while we enjoyed our volume, we have some work to do with those volumes to improve our margins. The good news is that we feel that these volumes are sustainable in the coming year, and ultimately, we will solve the issue with the excess product generation.

We continue to look for growth in international markets where we made some success this past year. Simon and his team continue to evaluate and build the total processing business as we see this as a growing piece of our business going forward where we can be responsive and flexible while building our reputation of exceptional quality and service.

Finally, we'll continue to evaluate strategic acquisition targets. We've taken a hard look at a few -- a target that we seek would first and foremost be accretive and secondly, the deal would have to make sense for the company and our shareholders. This second point tends to be the tougher hurdle. What we are seeing in some cases is that expectations right now are high and valuations are elevated in the marketplace. Any potential deal would need to have acceptable valuation.

Before we begin our Q&A, I'd like to provide an update on our pending name change. We've been working with a leading business communications firm and recently settled on a new name to propose to the shareholders. We're still working on developing its tag line, a new logo and our overall business facing message. The name change will be an item for shareholder vote at our annual meeting on May 14, 2014, and the details will be in the proxy when it goes out in April.

This new name that we've chosen is not a state secret or anything, but we would prefer that you wait and see the whole package in the proxy statement and get the full effect rather than just try to discuss it on this phone call. So we're not going to say too much about it here. It's going to be fun to roll out this name change, and we're looking forward to the transition in the place of the company.

This concludes my prepared remarks and at this time, I'd like to open the call for questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Conner McMahon with Sidoti & Company.

Conner McMahon - Sidoti & Company, LLC

So where did the higher-than-anticipated orders come from this quarter? Were there any large orders from 1 or 2 customers or pretty much a pretty diversified customer base?

Nicholas N. Carter

Thanks, Simon. I mentioned that the oil sands customer, they had operating problems for 1 year, 1.5 years and they finally got the thing up and running. Well, they are ordering at a faster rate than what they anticipated, and so that's where most of the extra volume has come from. It's higher than our contract amount and it's higher than what we anticipated, but we're doing everything we can to keep them supplied.

Conner McMahon - Sidoti & Company, LLC

Is that just a fluke quarter for them, or is that something we're going to see...

Nicholas N. Carter

No, it's apparently what their current operation is, but they're thinking that later in the year, they'll get the consumption back closer to what they had originally planned. And so how far these higher volumes from this particular customer will go, well, it's pretty hard to predict.

Conner McMahon - Sidoti & Company, LLC

Yes. And I know Simon said volumes going forward could be sustained. But is something like 19.7 million gallons something that we could see all next year every quarter?

Nicholas N. Carter

Well, that's kind of what we're trying to do is keep the volumes up. I can't predict exactly where we're going. We got a budget that we work on, but we don't give guidance. And so I can't really tell you what the budget is and what our goals are. But obviously, our goal is to run the thing at capacity 100% of the time. So other than that -- and plus, I can't predict what the customer's going to order. So I'm sorry [ph].

Conner McMahon - Sidoti & Company, LLC

Sure. Could you just talk about China a little bit more? Is it still in developmental stages, or has there actually been revenue recognition from there?

Simon Upfill-Brown

No, we haven't had orders yet. It's a long process. You got to get approved and all those kind of things. But we're very pleased with the progress thus far, Conner.

Conner McMahon - Sidoti & Company, LLC

Okay. And just...

Nicholas N. Carter

But let me just add. Typically, when you approach a customer and you can make a sales pitch is what -- why they should buy from us, they start out ordering small samples, maybe a gallon, and then they order 5 gallons and test it. And then they maybe order a couple of drums and do some lab tests on it and then they, finally, they may order 1 iso-container and that may be 9 months or a year later. It's the testing that's material. It takes a long time because people are very slow to change suppliers because they don't want to mess up their operation with something that's unknown. And so they're very careful about doing the sufficient testing and then get to know the product where they're comfortable about making a change.

Conner McMahon - Sidoti & Company, LLC

Okay. Just finally, could you give a word on AMAK? Is it going public in 2015? Are you thinking about divesting it? What's the thoughts?

Nicholas N. Carter

Well, the plan that we've talked about really over the last year is the target has been 2015. Now it seems like everything that we've done with AMAK has taken longer than what we thought it should. But we're still -- AMAK is kind of laying the groundwork to try to do that in 2015, but it's far enough away yet that I can't swear to you that that's -- the timing on it. And consequently, until we get a little firmer outlook on the time, we haven't really tried to determine exactly how we're going to handle that. We just don't know enough about how the process is going to shake out at this point.

Operator

Our next question comes from the line of John Curti with Singular Research.

John H. Curti - Singular Research

A question for Simon. I'm trying to understand kind of the process of being able to take the excess, I guess, excess byproducts from the production of the product for the oil sands customer and how you're going to be able to maybe redirect that to other customers. Does that involve additional processing to come up with a different product so it's not so much of a commodity type product that's dumped at lower prices?

Simon Upfill-Brown

Yes, I mean, no, it doesn't -- it generally doesn't need additional processing, John. It's just a matter of finding the guys who are prepared to take it at above feedstock price, and that's the effort that our sales guys go through at finding homes for it that bring the value back, and it takes a bit of time. That's what we're talking about. But we've been through this many times before, as I mentioned, and have been able to work it out. So we're confident that we'd be able to. But it just takes -- it takes some time to get that all worked out.

John H. Curti - Singular Research

In terms of sales volumes in North America, you're kind of saying that the oil sands customer will continue to purchase at elevated levels at least for the first part of the year and the rest of North America are relative stable to up slightly?

Simon Upfill-Brown

Yes, that's our expectation. Not much movement in the rest of North America until we get the additional polyethylene customers coming online in 2016 and beyond.

John H. Curti - Singular Research

So the key then to improving the profitability then will be able to find these customers to take some of these elevated volumes at better prices.

Simon Upfill-Brown

Right.

John H. Curti - Singular Research

And then internationally, the volumes were up about 5.5%. That was a little lower than I was thinking. Any new markets that might be opening up where you've kind of gone through the longer sales process through '13 that might now begin to demand product in 2014 that would get those volumes up a little?

Simon Upfill-Brown

There are few potentially, John, but I think the bulk of what we're likely to get is from China as time goes by because I think they'll...

John H. Curti - Singular Research

And that's probably a 2015 event?

Simon Upfill-Brown

Yes, late 2014, early 2015.

John H. Curti - Singular Research

A couple of questions for Connie. What was total CapEx for the year, and what is it anticipated to be for '14?

Connie J. Cook

I think for '14 -- Simon, what you already have, 5 budgeted, correct?

Simon Upfill-Brown

Yes, we have a little bit more than that. I think in the plan altogether, maybe about 8, but it depends on projects coming in and that kind of thing...

Connie J. Cook

Right

Simon Upfill-Brown

Except for the tolling stuff. The total is about 8.

Connie J. Cook

And for 2013?

Nicholas N. Carter

And that's outside D train expenditures. We're about 5 and we're on the budget. And I think there are about 5 -- the typical CapEx stuff so--

Simon Upfill-Brown

Correct.

Connie J. Cook

And for 2013, it was 6.8.

John H. Curti - Singular Research

So we might be looking at close to maybe $10 million to $12 million then in '14, if you say D train and the other outside projects?

Connie J. Cook

Right, somewhere around 10.

Simon Upfill-Brown

10 I think, yes, no higher than 10.

John H. Curti - Singular Research

And Connie, can you break out the split in the income and loss for AMAK in the fourth quarter between pure operating numbers and the amortization of the difference between the carrying value and the other value? Is it still running $338,000 a quarter for that?

Connie J. Cook

Right. We also, in 2013, had that gain from that additional issuance. It was right around $4 million and we had that in the second quarter. But you're correct. The others is running around at $337,000, $338,000 a quarter.

John H. Curti - Singular Research

So was there an x? Was there an operating loss then from AMAK in the fourth quarter? A small...

Connie J. Cook

We did show -- right. We did show a little loss in the fourth quarter, but let me explain part of the reason for that. AMAK had been using a very accelerated rate of depreciation on their financials. So we were having to adjust. We had to recoup some of that depreciation for the first, second, third quarter. Well, when they got down into the fourth quarter, they decided that on their side for Saudi accounting, they did not have to take an accelerated depreciation as they had been taking. So they reversed quite a bit of that. So what that ended up doing to us is because we had reversed it during the first 3 quarters, some of it turned around on us in the fourth quarter. So fourth quarter was kind of a correction quarter is what it ended up being. It wasn't necessarily that they had an operating loss in the fourth quarter. It was just that in order to get the year correct based on the change in their depreciation, it all fell out in the fourth quarter.

John H. Curti - Singular Research

And Nick, in terms of the amounts that you showed on the slide, I think 45,000 tonnes of zinc, 35,000 tonnes of copper expected shipments for 2014, is that likely to occur on a relatively level rate throughout the year in terms of the quarters? Or is it going to be front-end loaded or back-end loaded?

Nicholas N. Carter

No. It's going to be relatively level. But the thing you always got to keep in mind is that, as far as how often this stuff ships, there's only about 8 or 9 shipments throughout the year. And so it's pretty easy for something -- for a ship loading material on revenue to be dropped from like the first quarter into the second quarter just depending on when the ship gets there. If you look at the total year, this kind of production is going to be pretty ratable. But from quarter-to-quarter, I can't predict that that's going to be necessarily true just because of a few number of shipments, and the timing of them is what tells you what quarter it's going to be recorded in. So it's kind of hard to predict that way. Throughout the year, it's going to be pretty ratable, but this quarter-to-quarter thing is going to be kind of iffy. There's not much we can do about that; it just kind of depends on when the ship gets there.

John H. Curti - Singular Research

And has AMAK began to pay back any of its debt?

Nicholas N. Carter

Well, we cleared it out -- we put out a press release. We cleared out the bridge loans that we had with the Saudi French Bank and -- when we got the second tranche from SIDF. And we used some of that to retire both the Ministry of Finance loan, the $11 million loan that had been out there since the '80s. That was retired, and then the bridge loan with Saudi French Bank was retired. And then what cash was left over, of course, we put back for working capital. But the repayments for the SIDF, we have applied for and we've got verbal approval that we're not going to have to start paying that back until sometime later in 2015, which would be a year from this second tranche. But we haven't got an official document that says that, but I don't think that's going to be a problem. I think that's probably the way it’ll shake out. We've not had any pressure from SIDF to start paying anything like that or anything like that, so I think they're working with us on it.

John H. Curti - Singular Research

Lastly, could you give us a bit of an update on the additional leases and what's going on there in terms of exploration activities?

Nicholas N. Carter

Well, the exploration that we're conducting for the most part is right there in the area where we're currently working. We've got pretty orebodies in the study that was done, and the feasibility study really did enough exploration to make sure this project is economically viable, but they didn't really do enough to delineate the edges of the orebodies. And so what we're doing, because it's got the quickest return, is we're concentrating our drilling programs on making sure that we delineate the orebodies that we know about currently. And in the process, we've come across what we think is a fourth -- eventually a fourth orebody right there in the same neighborhood. And so we're finishing doing the -- trying to fill out the edges of the current orebodies, the 3 that we know about. And we're also doing some drilling around what appears to be this fourth orebody to, in fact, find out what it looks like would be there. We're not going out in other areas of the lease because the return is longer. And right now, just kind of getting the thing off the ground over there, we're trying to be real careful about where we spend our money on exploration. And so we're concentrating pretty much on the stuff that's got a quick return. And I expect that'll continue for probably going in to next year, and then we'll see where we're at.

Operator

Our next question comes from the line of Peter Castellanos from Glacier Partners.

H. Peter Castellanos

Nick, I've got a couple of questions on the -- you have to pardon me, I get confused on your -- on the -- the zinc and the copper that you -- the 45,000, I think, tonnes of zinc and is it 32,000 pounds or tonnes of copper that was on the slide?

Nicholas N. Carter

Right, and this copper...

H. Peter Castellanos

Yes. Is that concentrate?

Nicholas N. Carter

Yes, sir, it's concentrate.

H. Peter Castellanos

Oh, it is. So what price -- what's the difference between the price of concentrate and the price of the metal?

Nicholas N. Carter

Well, in the concentrate, you get paid for the pure metal that's contained in the concentrate. You get paid the market price for that...

H. Peter Castellanos

Well, and like for example -- let me just show like, for example, like copper right now is like $7,000 a metric ton, but that's not concentrate. So what I'm trying to...

Nicholas N. Carter

If you ship a ship load of copper concentrate, it'll have typically 24% pure copper out of that 8,000 ton lot that you put on the ship, 24% of it will be pure copper. And that's what you multiply the total price by.

H. Peter Castellanos

Okay. Got it. Then the other, just on the -- one quick question on the oil sale. I do have some more questions on the mine, but just on the oil or the sales to the oil customer, the oil sands customer, are they using more of a percentage -- are they using more of it per unit, or is it just more volume -- is it more -- or are they just having more a requirement, just have extended requirements for the -- for what you're selling.

Nicholas N. Carter

Well, their process was designed to use a certain amount of the C5s in the process, and the process is using more than what they expected it would.

H. Peter Castellanos

Okay. And they -- and so they expect...

Nicholas N. Carter

I think the volume that they're -- in other words, the volume that they're processing in the oil sands is what they expected. It's just taking more C5s than what they thought. And I think that's something that they're -- that's kind of like when you start up. You're not sure about it, then you kind of fine-tune after you run it for a while, and that's something that has to be worked on.

H. Peter Castellanos

So steady state, that would increase -- just on its own will increase the level of the C5 that they buy then just because they're calling for a higher concentration?

Nicholas N. Carter

Yes, that's what it appeared to us. Now, I don't know what --

H. Peter Castellanos

And then just back on the AMAK side of it, the precious metal circuit, what's involved there? Is that basically -- what's involved in that circuit? Is it a leaking facility? Or what is it?

Nicholas N. Carter

No, there's -- it's like a 3-step process, and I don't pretend to know all the details, but there's -- you use cyanide to separate the gold and silver from the ore. And then you have to separate the cyanide from the dissolved metal, and then you have to invest in a smelter process to kind of form the dissolved metal into a chunk or a block of ore, depending on what it is. And apparently, that metal process was not working correctly because how these things are set up depends on how the gold and silver is combined with the rock that it's in. And apparently, you set up your process different depending on what combination works. And apparently, the type process they chose to build was not the best as far as getting the best recovery in that type of thing. Then they said let's go back and remodel -- kind of remodel what they did before.

H. Peter Castellanos

And basically, they get that just by assaying that. Is that essentially what they end up doing is just assaying the product and that's where the...

Nicholas N. Carter

Yes, yes, they assayed what you're going to be feeding to the circuit and then pick a process depending on how the assay comes out. Apparently, they didn't do a very good job of researching what process they needed to use because the recovery, when we tried a test run on it, the recovery looked real poor. We were supposed to get about 50% recovery on that stuff, and we got about 12 or something like that.

H. Peter Castellanos

So your target is 50%, or is that -- your target is...

Nicholas N. Carter

Yes. That's what the target is.

H. Peter Castellanos

Yes. Okay. And how much gold would that give you, I mean, roughly? Do you have an idea?

Nicholas N. Carter

Well, it kind of -- it all depends on how much is in the ore to start with. It depends on how much of it stays in the copper circuit because some of it stays in the copper circuit. And then what's left, what you'll actually be treating in a precious metal circuit will be the zinc and the tailings waste material. That's where you'll be recovering gold, the gold comes from the zinc and from the tailings. And so I can't give you a hard and fast number. And that's why that once we get the thing remodeled to where it should operate correctly, we really going to have to do some test runs and do some economic studies and make sure that, in fact, it's a good choice to go ahead and run the thing because it's kind of hard to predict exactly what you're going to get out of it. You just need to run it and then do your study and see if it's economically viable.

Simon Upfill-Brown

We do get paid for the copper -- the gold that's in the copper.

H. Peter Castellanos

Right. Just on the crusher, you got the capacity, as I recall, was 2,000 tonnes a day.

Nicholas N. Carter

Right. Well, actually we're about 110% or 115% above that, but...

H. Peter Castellanos

So you're going to have to expand that. What do you...

Nicholas N. Carter

The design capacity is 2,000.

H. Peter Castellanos

Are you going to have to bring in another crusher, or what -- where are you on that because if you're running at 115%, I'd imagine that's kind of risky I mean.

Nicholas N. Carter

No. It's everything for about -- that's 4 to 5 months we've been running 110%, 115% capacity, and it seems to be working fine. Now what that does is these things are very maintenance intensive. And so you run at 115%, but then you have a 2-week shutdown and do maintenance. In essence, by the end of the year, you're sitting at 100% design capacity. That depends on your shutdown time.

H. Peter Castellanos

And then on the public offering status, the one thing I'm not clear on is that my understanding was that under the Saudi rules, you had to -- well, you had 2 years to file your public offering statement from a certain date. So -- but listening to you on the call, it sounded like well you're not sure about the date. And so I'm curious as to what I'm missing.

Nicholas N. Carter

Well, the law is that after 2 years of profitability, okay, then you start working on your IPO. It's not like you have to file your offering within 2 years. It's after 2 years of profitability then you have to sell a certain percentage to the public. And generally speaking, from what I understand, once you say, okay, we've triggered where we have to do the IPO, then you've got -- it will normally take you a year to get it put together. And so theoretically, you're another year out. Now the one thing that it's not -- there's not anything wrong with doing it early. In other words, you don't have to wait until the government makes you do it. You can do it earlier. And that's why we're kind of tentatively scheduled for 2015. Whether we make a profit or not, that's a tentative target right now.

H. Peter Castellanos

And let me just ask you on the exploration question. Are the -- this fourth orebody you think you may have discovered, can you give us an idea what kind of grades you were getting in your drilling there?

Nicholas N. Carter

No, it's too early for that. But it's -- again, it's right there with the other 3. And so you just assume that it must be similar material that it's so close to the other 3. And so it's got to be a typical zinc/copper mix kind of like we've right now. But we haven't really done enough drilling to tell you that right now.

H. Peter Castellanos

How much -- how many -- do you have one drill on site now or 2? Or what's...

Nicholas N. Carter

No, we've got 2 doing explorations right now.

H. Peter Castellanos

And they're running now?

Nicholas N. Carter

Oh, yes. And then we've got a couple that are actually down in the underground part, doing the horizontal on the orebodies to find out how far out they go.

H. Peter Castellanos

And this is really my last question, I'll jump back into the queue. But I'm just wondering in the delineation if -- it sounds like it still could be open horizontally or it could be still that the orebody sounds like it's really not closed off yet in terms of your mine plan. I mean, it sounds like it could be, as they say, the strike length could be longer than you think or -- I mean, or do you definitely have a feel for where -- what the deposit looks like?

Nicholas N. Carter

Well, if you're a miner, miners are always optimistic.

H. Peter Castellanos

Right. Well, I'm a miner.

Nicholas N. Carter

But if you're a businessman, well, let's wait and see.

Simon Upfill-Brown

There is a thought that it might be an extension of one of the existing orebodies, in which case your point is a valid one.

Nicholas N. Carter

Yes.

Operator

Our next question comes from the line of Erik Volfing with Grand Slam Asset Management.

Sam Namiri

This is Sam. First question I had was about seasonality. Typically, fourth quarter, first quarter are your slowest quarters. In terms of demand picking up in the second and third quarter, do you see that like continuing like normal, or has this increase affected that?

Nicholas N. Carter

Yes, there's nothing that would not -- that would keep that from happening. That is more related to the polyethylene business. And the fact that our overall volume is up, I think we'll still see a rise through the second and third quarters. And we talked on previous calls how we'd probably be pretty much totally sold-out for parts of the year. And if that happens, that would be second, third quarters. And the fact that we've got these other volumes coming on is going to probably boost the -- you're going to see more difference in the first and fourth. Second, third, they're still going to be probably our highest quarters.

Sam Namiri

Okay. And then in terms of capacity, what capacity level did you run at in the fourth quarter?

Simon Upfill-Brown

In the fourth quarter on the 6,700 barrels a day of feed, our utilization rate was around 80%.

Sam Namiri

Wow. Okay. And is that the highest ever as well too or...

Simon Upfill-Brown

Well, it's hard to tell.

Nicholas N. Carter

It's the highest since we expanded capacity in '08.

Simon Upfill-Brown

Yes, since we went from 6,000 to 6,700.

Nicholas N. Carter

And second, prior to '08, with the smaller operation, we were running 92% probably.

Sam Namiri

Okay. Wow. So that's pretty impressive. And then so I guess in the summer months, I remember last year you were talking about how at points you would hit capacity. Do you think maybe you'll be at capacity for quite a bit of time now? Like, how are you planning for that?

Simon Upfill-Brown

Well, as you know, we don't give too much of the forecasting side of things. But I mean, there's chances we can be pretty tight there, Mitch. But we're -- we did the budget, and it looks like we can handle it all.

Sam Namiri

And then ex -- the inventory that you have from the, I guess, the other products that were produced, how much -- like how do you think of that in terms of tanks? Like I remember you guys put up some new tanks. Does that help you a lot in terms of not having to sell it at a lower price?

Simon Upfill-Brown

We -- the argument around here is always tanks are a substitute for brains. But you never do have enough tanks, and we're able to move a lot of the excess product. As we mentioned, maybe not at the prices we would like, but we were able to move quite a bit of it and we'll continue to do that. We're thinking right now of additional storage to help tide one over. We are getting rid of valuable products at lower prices to where we get a bump in demand, say, in the middle of the year. So yes, so tankage is tight, and we continue to work on ways to alleviate that.

Nicholas N. Carter

Let me make a point about this additional product that we come up with occasionally. What we don't do is take our high period stuff and dump it out into the market to where somebody would take it to one of our customers and undercut us with our own product. We don't do that type of thing. If we have to sell something into that lower-priced market, we'll blend. We'll do a blend that takes the purity out of it and move it into a market that way. We've got to be real careful with if we had excess material that it didn't get out some place and end up messing up the market or undercutting our sales or something like that. There's a method to what we do to make sure that doesn't happen.

Operator

Our next question comes from the line of Colin Lee with Luzich Partners.

Colin Lee

For your D train expansion, what time in 2014 were you targeting a completion?

Simon Upfill-Brown

Well, we weren't targeting a completion. Sorry, go ahead, Nick, sorry.

Nicholas N. Carter

No, go ahead, Simon. You can do it.

Simon Upfill-Brown

Sorry, talking over each other there. No, the expectation was that we would be permitted by the end of the year. Third -- late third quarter, fourth quarter of this year we would have the permit. And then we would start construction and be ready by the end of 2015. But now if we can get this permit by rule, then we can accelerate that because the permit by rule takes 3 months. So we can have that permit in the second quarter and then take a year beyond that to get constructed.

Colin Lee

Got you. So to confirm, base case is permit by end of 2014, start construction and then the expansion will be done by end of 2015. That's the base case.

Simon Upfill-Brown

That's the base case.

Colin Lee

Got you. And then for the 7 target China customers, Nick kind of I think mentioned the process of sales pitch, lab tests, sending the first iso-container. Where in that process are you guys? Is it...

Simon Upfill-Brown

We're in the sampling process.

Colin Lee

Got you, sampling process. And from a competitive analysis of kind of where do those 7 target customers currently get their supplier -- supply from and obviously, you guys compare well on the quality standpoint. But what would it take for them to change?

Simon Upfill-Brown

Well, it varies by customer. What a number of them do is actually have their own purification process in-house. So what we're optimistic is that we will be able to allow them to eliminate that step.

Colin Lee

Got you. And then these are high-purity products. So...

Nicholas N. Carter

Well, all these people that we get into are using lower purity material, 95% material. And if they started using the higher purity material like we produce, then they can get capacity efficiencies, and that's where it pays them to make the switch. And so consequently, it's not that they're not using material right now, but it's not the grade that we make, and there's some economic gains they can get by switching to a better material, and that's kind of what we're selling.

Colin Lee

Got you. Great. And for the by-product, you mentioned you have sales people looking to offload that at or sell that at kind of above the feedstock price. Do you tap your current existing customer base, or do you guys have to go outside your customer base?

Simon Upfill-Brown

Well, obviously, we work hard all the time to gain market share with the existing customer base, but pretty often, we have to go outside.

Colin Lee

Got you. Okay. Well, that's my question. And I saw that you guys are presenting at Roth Conference. Is that correct? In March?

Nicholas N. Carter

Yes. I do -- we got into it kind of late. And so consequently, our presentation time is on Wednesday. I think it's at either -- I think it's 11:00 maybe on Wednesday, which is kind of tail end of the deal. But we'll probably try to keep going back to that year-after-year. It's such a good conference [indiscernible].

Operator

Our next question comes from the line of Greg Garner with Millennium Asset Management.

Gregory P. Garner - Millennium Asset Management L.L.C.

I just wanted to get a better understanding of that excess offtake. My interpretation from the comments was that it was sold at a below feedstock price in the quarter, in the fourth quarter. Is that a correct interpretation?

Nicholas N. Carter

Simon?

Simon Upfill-Brown

There was some that was, yes.

Gregory P. Garner - Millennium Asset Management L.L.C.

Okay. But overall, I guess then what I'm trying to drive at is what was the margin impact on the quarter, on the gross margin of that offtake? I mean, is it just 10 basis points? Is it 50 basis points to the gross margin? Just trying to get a sense for what's the impact there.

Simon Upfill-Brown

Connie, would you have a feel for what the impact was?

Nicholas N. Carter

I don't think we...

Connie J. Cook

No, we haven't looked at it.

Gregory P. Garner - Millennium Asset Management L.L.C.

But if it were sold at a more reasonable level with a lineup of customers and events, any sense for what that impact might be on the gross margin?

Simon Upfill-Brown

I'm not sure that we're ready to share that, Greg. But I mean, it would be a positive impact for sure. But a lot depends on where we can get it to go and at kind of what price, of course.

Gregory P. Garner - Millennium Asset Management L.L.C.

And that would show up in the second quarter, not so much in the first quarter of this year. Is that right?

Simon Upfill-Brown

Right.

Operator

[Operator Instructions] Our next question comes from the line of John Curti with Singular Research.

John H. Curti - Singular Research

For Simon, you mentioned about an 80% utilization rate in the fourth quarter. What was it for the overall for the year?

Simon Upfill-Brown

For the year, it was 70%.

Connie J. Cook

Remember that that's based on 6,700. Last year, we were basing everything on 6,000 barrels per day. So we've changed what we're doing there.

John H. Curti - Singular Research

70% for the year 2013 based on a full year at 6,700 or partial year at 6,700?

Connie J. Cook

Correct.

Simon Upfill-Brown

Full year, 6,700.

Connie J. Cook

Full year.

Simon Upfill-Brown

Last year for the full year, we were 73%, but that was based on 6,000 barrels a day -- I mean, 2012, yes.

John H. Curti - Singular Research

Right. So trying to get a little better feeling for this product that's being offloaded in the market at lower margins as a result of the increased requirements that your Canadian oil sands customers is placing on you. So is it your sense that the elevated levels from the tar sands customer last through maybe the third quarter of this year and that your ability to begin to move the product into newer markets or with -- to new customers begins to gain some traction in the second quarter so that you possibly have like maybe just kind of a one quarter continuing negative impact from this and likely to be less of a negative impact in the first quarter of '14 than in the first -- the fourth quarter of '13?

Simon Upfill-Brown

I think that we'll have -- first quarter of this year, we will have some negative impact. I think Nick mentioned that. It's going to get better second quarter and third quarter. It's very difficult to predict how much these guys are going to take. They're working hard at optimizing their process. They do have some expansions coming on stream early next year as well. So that'll increase demand again. But we just have to focus on making sure we get the best balance of what comes in our feed as we can. And that's -- we've been through this before, and we'll do it again this time. It just takes a little bit of time to get it optimized, John.

John H. Curti - Singular Research

And in terms of running at kind of what -- the full capacity in the second and third quarters, is that somewhere in the neighborhood of like about a 90% of effective rate of capacity?

Nicholas N. Carter

On a practical basis, John, even when we were smaller operation, it was hard to get it above that 92% because you got maintenance things that come up or different things. And so even with the operation that we've got right now, if you have 90%, 92%, well that's probably going to be close to what you're going to get at full capacity. And that's just because you have certain down periods or maintenance items or something breaks or whatever, and so you just can't get 100%.

Simon Upfill-Brown

And our guys continue to find ways to squeeze a little bit more through the system as well. So obviously, anything like that we can do, we will do as well.

John H. Curti - Singular Research

Do you anticipate that you'll be able to meet all customer demand even if you've got to maybe produce a little heavier in the first quarter into the early part of the second quarter, and build up some inventory, meet demand?

Simon Upfill-Brown

Yes, we don't have a lot of space to build inventory, but there are ways. We can -- perhaps storage offsite and that kind of thing, and all those things are under consideration as part of this program.

John H. Curti - Singular Research

And then [indiscernible].

Nicholas N. Carter

We [indiscernible] at some of that kind of stuff, John. We did a pretty thorough market study versus a material balance that we can produce. And that's why that we're aiming to get this D train into operation at the end of 2015 is because we really think that we can manage until we get to that point. And that's when some of those new polyethylene business will start to come online, and that's where it would get to where we'd actually have to have more capacity to manage the business.

John H. Curti - Singular Research

If this tar sands customer begins to further refine their process and get a little more efficient and not have to use as much C5s, that will provide you a little bit of a cushion to sell to your customer base, correct?

Nicholas N. Carter

Yes, true. That's true, and that's what they're telling us. I mean, they're obviously working on trying to get their efficiency to where it needs to be, and it's kind of what we're counting on.

John H. Curti - Singular Research

Okay. And then one last question for Connie. When do you anticipate filing the 10-K?

Connie J. Cook

We're dating everything for the 14th. It actually goes for tagging tomorrow, and that's kind of a back-and-forth process, making sure everything's checked correctly. So we're just anticipating the 14th.

Operator

And there are no further questions at this time. I would like to hand the call back over to Mr. Carter for closing remarks.

Nicholas N. Carter

Well, I just like to close by saying that we appreciate everyone's participation on the call, and we thank you for your interest. We know your time's important, and we hope that you'll join us on our next call. And in the meantime, we're going to keep working hard, and I think we've got a good future ahead of us right now and everything's going in the right direction. So anyway, thank you, and join us again.

Operator

Ladies and gentlemen, this does conclude the Arabian American Development fourth quarter 2013 earnings conference call. We thank you for your participation, and you may now disconnect.

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