Breaking the Chinese stranglehold on Antimony
In only one metal that we know of is the US master of its own destiny and that is Beryllium. Too often since the end of the Cold War the US has felt it could rely upon the “comfort of strangers” when it comes to guaranteeing its supply of metals to keep itself on top of the global economic heap. Bizarrely this “comfort” is offered mainly by China, a country with an avowed goal of pushing the US off the top of the heap.
When it comes to “strategic” or “critical” metals the powers that be in the corridors of Washington (though not the Pentagon) seem to be sanguine that if there are deposits somewhere in Canada or Latin America then these might somehow count as mobilisable in the event of a shooting war. The fact that it takes years to get a mine into production these days seems to have eluded these fireside strategists.
As we know the US has dropped the ball on Rare Earths and may be on the verge of allowing some of the largest sources of Lithium (in Australia) to fall into Chinese control and in a broader array of metals with specialized usages the US is equally as vulnerable such as Tin, Antimony and Gallium to name a few.
In this note we shall look at one of these metals, Antimony, that looks like the “fish that got away” due to sheer mediocrity and paucity of imagination.
Antimony in North America
Certain regions of the world are more gifted with certain minerals and North America certainly drew the short straw when it comes to metals like Antimony and Tin. Canada and the US have had a few on-off mining efforts in Antimony and Mexico has been more propitious. One of the stranger deals to have been approved in the current decade was the approval given to the Chinese to buy the Beaver Brook Antimony mine in Newfoundland at the height of the Antimony price boom. Seemingly this slipped under the radar while pundits were busy frothing at the mouth over Rare Earths dependency. With little aplomb the Chinese swiftly shut down the mine with a few feeble excuses and “then there was none” as far as Antimony production north of the border was concerned.
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The less informed would then pipe up “but there is US Antimony” and we must confess that we too did see this as the Great White Hope for Antimony production in North America. After all they did own one of those very rare beasts, a smelter with licenses, located in the wilds of Montana and they also had “production in Mexico”. Well if we could be suckered with this sales spiel then it would be harsh of us to accuse others of being gullible too. However the marketing effort certainly did make it look like something interesting was going on and that there might be salivation in sight for “domestic” supplies of Antimony in North America. Alas, it was not to be..
We shall concentrate here on US Antimony because compared to Beaver Brook which was only a mine, US Antimony had the ability to mine AND process the metal within North America. However that is only in theory for the practice has turned out to be disappointing.
After guzzling the Kool Aid with gusto for a few years, a nagging suspicion entered our brains that something about The US Antimony story did not add up. The official story is that US Antimony “… operates smelters in Thompson Falls, Montana and at Madero, Coahuila, Mexico, a gravity- and flotation mill in Guanajuato, Mexico, a mine at Los Juarez, Queretaro, Mexico, and a zeolite operation at Preston, Idaho. The company primarily buys in Mexican ore to process, though a certain amount also emanates from Teck’s Canadian refineries”.
The cornerstone of the Mexican operation is the Puerto Blanco gravity-flotation mill in Guanajuato, Mexico. The mill is fed by a collection of mines that UAMY acquires ore from. Then there is the Madero roaster at Coahuila.
These assets and their role have produced some confusion in investors’ minds because many think that UAMY is a miner, when in fact it is mainly a processor. The mines it principally sources from are Los Juarez, Soyatal, Guadelupe and Wadley.
The company was also bringing in material from the Hillgrove mine in Australia, during the first quarter of 2015, UAMY discovered that its IMMEX certification had expired and that the Mexican subsidiary would be required to renew it. Without its IMMEX certification, UAMY is required to pay the Mexican national sales tax of 16% on all items it imports into Mexico, including our capital items and the concentrates it is receiving from Hillgrove. IMMEX requires that UAMY exports a minimum of 60% of everything it imports into Mexico. It then had to scramble to get these back into place.
As for the mines in Mexico there is a symbiotic relationship with the owners/operators of these mines that includes the company funding their working capital shortfalls from time to time and in some cases having offtake agreements with the miners. It even has some long-standing agreements that allow it to acquire some of these mines.
One of the major mysteries for us is why USAC never moved to clean up this untidy structure through a decent sized financing and acquiring the mines and then operating them to industry standards and to its own needs at any given time.
Montana – For Real?
Rumour has it that UAMY’s roaster in Montana is grandfathered under some EPA waiver. The company says that it is processing material containing Sb from Teck’s Trail smelter. Other versions claim it is mothballed. Short of putting on the snowshoes and trudging through the snowy wastes, the average investor has no real way of knowing what the truth is in relation to this asset.
Venerable or Vulnerable?
The old problem of a founder overstaying their welcome and not securing a succession is in evidence at this company. Despite having only a small amount of stock the founder has managed to position his son in the small circle that is the board and administration of the company. Reports indicate that the CEO is in his late seventies. The fact that he still flies his own light plane in the Rockies was offered as evidence of “young at heart” whereas to us this spelled potentially a leaderless organization should a pigeon fly into the propellers.
We were told that investor presentations are not done because he “doesn’t do groups” so that is the rationale for conference calls only. This then does not go down well when hearing difficulties mean that the executive in question cannot understand what the investors are saying. This leads to some Marx Brothers-like interchanges on the investor calls.
Added to this is a certain naiveté with relation to investors which has resulted in institutional holders keeping their distance. We were surprised on one call to hear the volumes of Antimony described in terms of sackloads and truckloads, terminology which is essentially meaningless. On a more serious level though we raised a complaint that the company made no reference to its Wadley property in its 10Q after it had taken on the very onerous and expensive lease on an asset it had indistinct plans to actually mine. This was later remedied, but with over $30,000 per month going out in rental payments this was a meaningful commitment that required mention.
When the issue of the company’s vulnerability through having such a veteran CEO is raised we are told that there IS a succession. A look at the company website informs us that the successor is 65 and in light of the endemic tardiness in updating the website we wonder if he isn’t older by now. The question then is if the CEO is so long in the tooth and the successor is already identified (and also no spring chicken), then why is the current incumbent not superannuated into a chairman role and the baton passed to the “next generation”?
So it looks like the fate of the Antimony industry in North America is being left in the hands of a Chinese monolith and a company that is scarcely fit for purpose. It almost makes one nostalgic for the old concept of the “command economy” (though not the Chinese command economy).
Back at the corporate level, US Antimony has become like an astronaut that went out on a spacewalk and found his cable mooring him to the space craft cut. We have seen this image in innumerable science fiction films (most recently in Gravity) as the drifting spaceman flails his arms and drifts off into the nothingness. If the company cannot “heal thyself” then it looks like the task will be left to a corporate raider. Taking this one down looks pretty easy. The credibility is shot and the management would not be able to make a coherent defence.
Meanwhile over at Beaver Brook, all action seems to be in abeyance with the asset reportedly for sale but with the Chinese needing to be paid a large amount of money to save face considering the excessive rice they paid in the first place. Seems they are having a Mexican stand-off with themselves. That puts the main chance of Canada returning to the tables of Antimony producers deep in the permafrost of corporate apathy.
The question is whether the outcome of any bloodletting at UAMY (and/or a new owner at Beaver Brook) would be the emergence of a REAL Antimony play in North America that might contribute to breaking the Chinese stranglehold on the metal.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>