US Antimony: Plenty of Reserves of a Rapidly Vanishing Metal

Jun.21.11 | About: United States (UAMY)

The Endangered Species Act (ESA) provides "a program for the conservation of threatened and endangered plants and animals and the habitats in which they are found."

What about a program to mine metals in places where they are found? Rare earth metal stocks, stocks such as Avalon Rare Metals (NYSEMKT:AVL) and Rare Element Resources (NYSEMKT:REE), have attracted plenty of attention over the past few years, in large part because increasing demand for the metals they might one day produce.

Much of the current supply for these metals come from China. Other countries are scrambling to find alternative and sovereign sources for these metals particularly as the Chinese have increasingly kept what they have mined for themselves. To date, neither AVL nor REE have produced revenues from rare earth metals; both are self-described exploration and development companies.

But rare earth metals are not the only metals that are potentially scarce. On May 24, I wrote about the metal antimony in an article entitled US Antimony: A Hidden Monopoly Far Ahead of Any Competition, in which I made the case for what I consider to be the buy of a lifetime.

My premise was that with reduced Chinese production and reduced Chinese exports (the Chinese produce more than 90% of the world's antimony), US Antimony (NYSEMKT:UAMY), the sole and fully integrated miner and producer of antimony products in the United States, would benefit. And further, that as silver and gold are by-products of antimony mining, the recovery of these precious metals would further US Antimony considerably.

In fact the latest earning report states that "the sales revenues for Q1 2011 have set a new corporate record" and "a pretax profit of $69,789 on sales of $2,838,039 during the first quarter of 2011 compared to a loss of $84,117 on sales of $1,414,826 during the same quarter in 2010." Admittedly not huge numbers yet, but first of all profitable and more importantly growing.

Two important news items and one calculation since I wrote that piece:

Most important is this incredible find: The government agency USGS is the

Nation's largest water, earth, and biological science and civilian mapping agency, the U.S. Geological Survey (USGS) collects, monitors, analyzes, and provides scientific understanding about natural resource conditions, issues, and problems. The diversity of our scientific expertise enables us to carry out large-scale, multi-disciplinary investigations and provide impartial scientific information to resource managers, planners, and other customers.

In their latest report on antimony (just published) they included this hidden nugget:

China Minmetals Corp. (Beijing, China), China’s leading metals trader, announced plans to double its profits by 2015 as it expands output and speeds up acquisitions of rare earth and minor metals production facilities. Minmetals completed the acquisition of a 51% stake in Hunan Nonferrous Metals Holding Group Co. in 2010. The firm owns China’s largest deposits of antimony and is China’s leading antimony producer (Bloomberg News, 2011).

Government officials in China’s Hunan Lengshuijiang City, known locally as the “World of Antimony,” announced that the area was facing an apparently diminished outlook for its future antimony production. Officials stated that after more than 110 years of continuous mining, Lengshuijiang, which accounts for 60% of global antimony reserves, now has only 5 years of mining life left.

Read again: China’s biggest supplier of Antimony, after 110 years of mining is RUNNING OUT OF ANTIMONY. They have 5 years left! 60% of the world's supply will disappear. We need an Endangered Metals Act. Fortunately the US has US Antimony with plenty of reserves to make up the shortfall.

Now the calculation:

From SEC Filings we read that

Part of the USAC Mexican property including San Miguel I and II and part of San Juan III was originally drilled by Penoles in 1970 when antimony metal prices were high. They did not proceed with the property due to the complex metallurgy of antimony. Subsequently, the Mexican Government did additional work and reported a reserve of 1,000,000 metric tons (mt) grading 1.8% antimony and 8.1 ounces of silver per metric ton (opmt) in Consejo de Recursos Minerales (Publicacion M-4e). However, the Securities and Exchange Commission does not recognize this report, and the Company claims no reserves.

Let's do the math: 1 million tons of rock with 1.8% antimony = 18,000 tons of antimony and 8.1 ounces of silver per ton = 8,000,000 ounces of silver. At current market prices, $16,000 per ton of antimony is $288,000,000.00 worth of antimony and at $35 per ounce of silver, that is $280,000,000.00 worth of silver. That equals to about $560 million dollars worth of metals from a company that IS ACTUALLY producing revenues from their mining. With a market cap of $140 million, and if the prices of these metals hold up, you are buying this company at a huge discount to very near future production.

The other news item is the recent announcement of a significant purchase order:

THOMPSON FALLS, Mont.--(BUSINESS WIRE)-- United States Antimony Corporation (“USAC”, OTCBB “uamy.ob”) reported the receipt of a significant multi-year purchase order for antimony oxide from a global manufacturer of electrical supplies. USAC intends to fill the order from its new Corral Blanco flotation mill in Guanajuato, Mexico. A GLOBAL MANUFACTURER OF ELECTRICAL SUPPLIES?? There are not too many of these. Given the critical nature and need for the metal, it comes as no surprise that major Global manufacturers would want to lock up supply.

Finally, I called Bert Denton, their IR guy, and asked him why this company is not traded on a major exchange. He told me that the company recognizes that now that the stock is above the $2 level, regulations would allow for a potential listing on the AMEX after 45 days of trading above $2. Many institutional investors cannot buy bulletin board stocks so getting this stock of the bulletin boards will give it greater visibility.

Greater visibility will ensure that while Chinese supplies of antimony go extinct, the US Antimony investor will have years of watching the development of new, abundant and regional supplies with a silver lining to boot.

Disclosure: I am long UAMY.