United States Antimony: A Hidden Monopoly Far Ahead Of Any Competition

Mar.19.12 | About: United States (UAMY)

In May 2011 I first wrote about United States Antimony (NYSEMKT:UAMY) and made the case that the stock was a perfect storm type of stock because:

  1. China has historically controlled the market in antimony.
  2. The Chinese mines are running out of antimony.
  3. The Chinese are shutting down antimony mines because their mines are so toxic that they are environmental disasters.
  4. The demand for antimony is rocketing.
  5. UAMY is the free world leader in the production of antimony, far ahead of any competition and producers from all over the world are sending their rocks containing antimony to UAMY for smelting.

Since I wrote the story, UAMY has had quarter after quarter of record revenue, largely on the back of predicted higher antimony prices. Antimony HAD to go up because even if demand remained static (which it hasn't), cutting off 95% of the world's supply will continue to push the price of the metal. UAMY is increasing production and tightening its grip on non-Chinese production.

The Chinese have stated that they will continue to reduce their export of antimony; China is becoming a net importer. Bullets need to be hardened by antimony and China is expanding its military. It needs antimony if it is going to make more bullets, and China is expanding its military. So is India, China's neighbor to the south.

MineralsUK is the British Geological Survey's Centre for Sustainable Mineral Development. The website has: "a wealth of information on mineral resources, mineral planning, policy and legislation, sustainable development, statistics and exploration."

Their top download is the Risk List 2011, which lists the supply risk for 52 critical elements. Antimony is the most at-risk element of all.

The USGS (the U.S. counterpart) concurred with the British and wrote late in 2011:

In China, the world's leading antimony producer, the Government continued to shut down antimony mines and smelters in an effort to control environmental issues and resolve safety problems. The local Government in Lengshuijiang, Hunan Province, which accounts for about 60% of the world antimony supply, shuttered almost all of its mines and smelters. Also, officials in Lengshuijiang announced that after more than 110 years of continuous mining, the area now had only 5 years of mining life left.

To summarize.

  1. The Chinese are cutting exports of antimony
  2. Their mining production is rapidly dwindling
  3. The U.S. and the UK have stated that of all the elements antimony is at greatest risk
  4. Neither the U.S. nor the British have stockpiles.

A quick look at what antimony is used for. From readily available information we find that antimony oxide is primarily used to form a flame retardant system for plastics, rubber, fiberglass, textile goods, paints, coatings and paper. It is also used as a color fastener in paints, as a catalyst for the production of polyester resins for fibers and films, as a phosphorescent agent in fluorescent light bulbs, and as an opacifier for porcelains. It is also used to harden lead in bullets and car batteries. It is used as a fining agent for glass television sets and used in toaster ovens. In order to stop social unrest the Chinese have wisely focused on establishing a strong middle class. They will need TVs, toasters and cars, all of which need antimony.

Focusing on UAMY: In its most recent earnings report, UAMY reported record sales of $13,118,090 for 2011, up 45% over $9,073,324 of 2010. Pre-tax income for 2011 was $742,530, up 138% from $312,213 recorded in 2010.

Profitability was strong despite large expansion expenses at the Madero smelter and completion of the Puerto Blanco mill and preparation work at the Los Juarez properties. It wants to expand its own mines (rather than get raw material from others' minds) as this will markedly improve margins. In order to do this it announced a multi-step program to develop its Los Juarez silver-gold-antimony jasperoid deposit.

This is where it starts to get very, very interesting and requires a little bit of elbow grease. First, its extensive mapping and sampling program indicated a strike length on the order of 4,000 meters with widths of up 500 meters. Let us assume a very modest depth of 30 meters (and that there is absolutely no metal below that). This would lead to 60 million cubic meters of rock!!! One cubic meter of rock weighs 3 tons so there is 180 million tons of rock at Los Juarez.

In the earnings release, the report stated that sampling had revealed:

  • Antimony: 1.88 % per metric ton or 41 pounds per metric ton (priced at a very conservative $6/lb).
  • Gold : 0.063 ounces per metric ton (priced at $1644 per ounce.)
  • Silver : 8.03 ounces per metric ton (priced at $32.00 per ounce.)

This means that per metric ton there is about $480 dollars' worth of metal. My back of the envelope calculation has a $180 cost to mill a ton of rock so net to the company is $300 per ton. Let's say that it only gets 50% recovery (which is very conservative given UAMY's expertise at extracting metals. That is $150 per ton. Multiply that by 180 million tons of rock and you get that it is sitting on 27 BILLION dollars' worth of metal AFTER costs.

If we don't get carried away and reduce that number by 90% and assume that they only get 2.7 BILLION, dividing 27 BILLION by 60 million shares is a none too shabby $45 per share. The stock is currently trading at $3.20.

Last year in my second article on the company I had used its then sampling numbers and came up with $560 million worth of metal. The newer and more extensive surveys have blown those numbers away.

Obviously there is risk to the above projections:

  1. The company is small and although it is growing as quickly as it can these are intensive operations and require a massive increase in infrastructure.
  2. The survey numbers are great, but the actual numbers will likely change---maybe up and maybe down.
  3. Monetization of the deposit will take time.
  4. If the survey numbers are accurate, it is hard to imagine that this little company will not be recognized by a major mining company and that we will not see the total value of its holdings.
  5. It is not possible at this time to estimate how fast the deposit, if it gets through the 'next steps,' can be monetized.

Curiously there has been a short on this stock. Not much, just about 1 million shares, but given the upside in the stock, it is hard to imagine that anyone would short a small-cap stock like this, one that is producing record revenue each quarter in a mining sector that produces a scarce and essential element and where the waste products are silver and gold!

For now the company will continue to expand, and as long as the market forces for antimony remain in place, continue to produce record earnings.

Disclosure: I am long UAMY.