| Thu 18 Oct 2007, 17:58 | | SAL - Sallies - Reviewed Consolidated Results For |
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SAL
SAL
SAL - Sallies - Reviewed Consolidated Results For The Year Ended 30 June 2007
SALLIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1903/001879/06)
JSE share code: SAL & ISIN: ZAE000022588
("Sallies" or "the company" or "the group")
REVIEWED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
Consolidated income statement
Year Year
ended ended
30 Jun 07 30 Jun 06 %
R`000 Reviewed Audited Change
Revenue - mining 109 315 86 882 26
Cost of sales (118 187) (103 197) 15
Loss from mining activities (8 872) (16 315) (46)
Less: Depreciation (11 184) (5 435) 106
Amortisation of mineral rights (2 564) (2 056) 25
Operating loss from mining (22 620) (23 806) (5)
Profit on disposal of PPE 583 1 817 (68)
Administrative expenses (20 639) (22 720) (9)
Investment income 282 85 231
Finance costs (6 480) (2 735) 137
Net foreign exchange gains/(losses) 1 639 (1 435) 214
Provision for onerous contract - 9 366 (100)
Net loss before taxation (47 235) (39 428) 20
Taxation (deferred) 5 600 1 644 (241)
Net loss for year (41 635) (37 784) 10
Issued shares (`000) 506 264 450 064 12
Weighted average shares issued (`000) 494 968 271 263 70
Weighted average shares issued for
diluted earnings per share (`000) 499 430 271 263 73
RECONCILIATION OF EARNINGS
Net loss attributable to ordinary
shareholders
for basic earnings per share (41 635) (37 784) 10
Profit on disposal of assets - net of tax (414) (1 290) (68)
Net loss attributable to ordinary
shareholders
for headline earnings per share (42 049) (39 074) 8
LOSS PER SHARE
Basic
- undiluted (cents) (8,4) (13,9) (26,9)
- diluted (cents) (8,3) (13,9) (28,1)
Headline
- undiluted (cents) (8,5) (14,4) (28,7)
- diluted (cents) (8,4) (14,4) (29,8)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Capital Accumu-
and lated
R`000 reserves loss Total
Balance at 30 June 2005 91 142 (50 769) 40 373
Movement in capital and reserves 85 267 - 85 267
Loss for year - (37 784) (37 784)
Balance at 30 June 2006 176 409 (88 553) 87 856
Movement in capital and reserves 34 423 - 34 423
Loss for year - (41 635) (41 635)
Balance at 30 June 2007 210 832 (130 188) 80 644
CONSOLIDATED BALANCE SHEET
Year Year
ended ended
30 Jun 07 30 Jun 06
R`000 Reviewed Audited
ASSETS
Non-current assets 153 449 82 668
Property, plant and equipment 143 274 71 940
Goodwill 10 175 10 175
Restricted investment - 553
Current assets 49 556 87 155
Inventories 33 921 5 187
Accounts receivable 12 239 4 852
Taxation pre-paid 2 789 2 858
Cash and cash equivalents 607 74 258
Total assets 203 005 169 823
EQUITY AND LIABILITIES
Capital and reserves 80 644 87 856
Share capital and premium 210 108 175 685
Other reserves 724 724
Accumulated loss (130 188) (88 553)
Non-current liabilities 28 899 14 890
Long-term loan 13 943 4 638
Provision for environmental rehabilitation 14 956 4 652
Deferred taxation - 5 600
Current liabilities 93 462 67 077
Accounts payable 30 850 42 204
Short-term loans 26 936 -
Bank overdraft 29 461 14 198
Provisions 587 4 778
Taxation - 142
Current portion of long-term liabilities 5 628 5 755
Total equity and liabilities 203 005 169 823
Net asset value per share (cents) 15,9 19,5
CONSOLIDATED CASH FLOW STATEMENT
Year Year
ended ended
30 Jun 07 30 Jun 06
R`000 Reviewed Audited
Net cash inflows/(outflows) from
operating activities (75 633) 2 638
Cash generated/(utilised) by operations (69 435) 5 157
Interest paid (6 480) (2 735)
Taxation paid - 131
Investment income 282 85
Net cash outflows from investing activities (83 945) (11 063)
Net additions to mine plant, equipment
and buildings (84 528) (12 880)
Proceeds from disposals of plant
and equipment 583 1 817
Net cash inflows from financing activities 70 664 76 489
Long-term loans raised/(repaid) 9 305 (966)
Short-term facility raised 26 936 -
Rights issue - net of costs 34 423 77 455
Net (decrease)/increase in cash and
cash equivalents (88 914) 68 064
Cash and cash equivalents at beginning
of year 60 060 (8 004)
Cash and cash equivalents at end of year (28 854) 60 060
COMMENTARY
Directorate and Management
Tom Dale was appointed as CEO of your company with effect from 1 October 2007
when Izak Marais resigned. Johann Blersch was appointed as Commercial Director
at the same time.
Casper Badenhorst was appointed as General Manager of the Witkop mine on 8
October 2007 and Gerrit Bleeker was appointed at Buffalo on 15 October 2007 to
strengthen the Buffalo team. Casper spent almost five years at Witkop between
September 2001 and March 2006 and ran the operation when it produced
approximately 145 000 dry metric tonnes (dmt) of all fluorspar grades in
F2005.
He brings back to the mine important skills and experience in the fields of
geology, mining and extraction which are specific to the Witkop deposit and
infrastructure. Gerrit brings long experience of open pit mining and related
operations to Buffalo.
The Fluorspar Market
Judging by the level of enquiries recently received for Sallies products, the
market for fluorspar could be tightening. Our challenges are to maintain
quality and timeous delivery and ensure that high specification fluorspar is
appropriately valued in the market place.
Operations
Production of all grades of fluorspar at Witkop increased from 83 409 dmt to
92 197 dmt (11%) between F2006 and F2007. Production at Buffalo in F2007 was
15 041 dmt. These output levels were significantly below budget at both
operations.
The progressive improvements to monthly output between February 2007 and May
2007 reported at the June 2007 rights offer presentations were a false dawn
and an operating turnaround has not yet been delivered.
Rebuilding the management information system has highlighted that the cut-off
grade used at Witkop until recently was too low. In addition, levels of ore
losses and dilution have been higher than budgeted due primarily to the mining
method historically employed. Both of these factors depressed the feed grade
to the plant. The low feed grade issue was compounded by poor fragmentation
leading to plant stoppages. Sub-optimal ore blending resulting from mining
inflexibility depressed recoveries in the plant. These are the principal
challenges facing the Witkop mining team.
Buffalo Fluorspar Mine (Pty) Limited acquired the Buffalo fluorspar assets
with effect from 31 July 2006. Operations commenced on 1 August 2006. The
planned load, haul and dump operations at Dams 1 to 4 were terminated in
December 2006, and a contingency plan to bring forward hydro-mining and to
relocate to the Mill Hill pit was implemented. The hydro-mining contractor has
been unable to deliver budgeted volumes to the plant. In addition, there are
large variations in grade and particle size in the Mill Hill deposits. These
problems have been exacerbated by contaminants which were dumped into the pit.
Normal plant start up challenges have been compounded by the extent of
historical cannibalisation.
Plant refurbishment is now about 75% complete. Management will complete a
strategic review of the Buffalo project shortly and this will determine
whether we continue at Mill Hill.
Finance
Profitability
Failure to achieve operating budgets resulted in a net loss before taxation
for F2007 of R47 mio (F2006 - R39 mio). Operations at Buffalo between August
2006 and June 2007 accounted for R13 mio of this loss.
Selling prices
Although the average price received by Witkop for all grades of fluorspar
improved to R1 140 per dmt in F2007, this was 9% lower than the price received
by our major competitor. The board expects the price received by the group for
its Fluorspar to increase in F2008.
Profit warning
At the rights offer presentations in June 2007, a profit forecast for F2008 of
between R30 mio and R40 mio (5,0 cents per share to 6,5 cents per share) was
given to shareholders. In the light of the strike by members of the National
Union of Mineworkers, between 22 August and 14 September 2007 (resulting in R9
mio lost revenue), and poor operational performance during the first quarter
of F2008 related to the technical and managerial challenges highlighted above,
these profit levels will not be achieved.
This profit warning has not been reviewed by the auditors of the group.
Going concern
Given: (a) the low contaminant levels of our fluorspar and the value of this
in the market place; (b) the buoyancy of the market; (c) the independent views
on our mineral resources in the Competent Persons` Reports; (d) historical
output levels achieved at Witkop and (e) our current understanding of the
mining challenges at Witkop; (f) the recent management changes; and provided
additional funding is available, the directors are satisfied that Sallies is a
going concern.
Share issues
On 28 July 2006, 42 858 000 new ordinary shares were placed at a price of 70
cents per share. During F2007, options on 13 341 868 ordinary shares were
exercised at prices between 20 and 60 cents per share.
After the F2007 year-end on 2 July 2007, 124 916 992 new ordinary shares were
issued at 60 cps in terms of the 25-for-100 rights offer.
Human Resources
There has been a spate of resignations of key staff, due to low morale caused
by lack of direction, communication and opportunity for achievement.
Management has addressed these issues and whilst your company is not yet fully
resourced, it is endowed with a wealth of skills and experience. The team is
now being focused and motivated to cost effectively exploit its low grade
deposits.
Subsequent events
Rights issue
The gross proceeds of the rights offer completed on 2 July 2007 were R74 950
195,29 and the expenses pertaining thereto were R2 628 558,27. Accordingly the
share capital and share premium increased by R72 321 636,93 on that date.
The pro forma 30 June 2007 consolidated balance sheet below shows the actual
consolidated balance sheet adjusted as if the proceeds of the rights offer had
been received on 30 June 2007, and the proceeds had been applied to pay the
overdue accounts payable and to repay the short-term (bridging) loans and bank
overdraft.
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2007
Rights offer
R`000 Reviewed proceeds Pro forma
ASSETS
Non-current assets 153 449 153 449
Current assets 49 556 7 202 56 758
Total assets 203 005 7 202 210 207
EQUITY AND LIABILITIES
Capital and reserves 80 644 72 322 152 966
Non-current liabilities 28 899 28 899
Current liabilities 93 462 (65 120) 28 342
Total equity and liabilities 203 005 7 202 210 207
Issued shares (`000) 506 264 631 181
Net asset value per share (cents) 15,9 24,2
Current ratio 0,53 2,00
Honeywell arbitration
Sallies/Witkop Fluorspar Mine (Pty) Limited is claiming $1 067 327 from
Honeywell International Inc for payment of material delivered and Honeywell is
claiming $6 847 305 from Sallies/Witkop for damages as a result of breach of
contract. The witness hearings before the International Court of Arbitration
in Zurich were completed on 27 September 2007.
It is possible that this matter will not be concluded in the current financial
year of Sallies. Shareholders are referred to the SENS release on 2 October
2007 in this regard.
Modified review opinion
The preliminary report for the year ended 30 June 2007 has been reviewed by
the group`s auditors, BDO Spencer Steward (Jhb) Inc, and their modified review
opinion is available for inspection at the registered office of the company.
They have drawn attention to the disclosure made by the directors regarding
going concern and the continuing Honeywell arbitration, as well as the rights
issue subsequent to the year end. The auditors draw further attention to the
fact that reportable irregularities concerning certain statutory deductions
were reported during the year in terms of Section 45 of the Auditing
Professions Act. These irregularities were satisfactorily solved by the year
end.
Accounting policies
The preliminary report has been prepared in accordance with International
Financial Reporting Standards IAS 34 and the JSE Limited Listings
Requirements.
The same accounting policies and methods of measurement and recognition as
those applied in the 30 June 2006 annual financial statements have been
applied in preparing these reviewed results.
Dividends
No dividend has been declared for the year under review.
Outlook
Independent professionals have attested to the calibre of the ore resources at
both Witkop and Buffalo.
The management changes summarised above and new appointments to be made will
require time to become effective and deliver improved operating performance.
This will be the sole focus of the Sallies team until such delivery is in
place.
The group will have to access additional funding to deliver a turnaround and
shareholders will be kept informed.
By order of the board
Tom Dale
Chairman and CEO
Zeerust
18 October 2007
Directors: Tom Dale (Chairman and CEO), Johann Blersch (Commercial Director)
Barney Esterhuizen, Dr Vincent Msibi (alternate: Jurgen Kogl), Jeremy Woods
Registered office: Witkop Fluorspar Mine, Farm Wintershoek, Zeerust, 2865
(Private Bag X1315, Zeerust, 2865)
Transfer secretaries: Computershare Investor Services 2004 (Proprietary)
Limited (Registration number 2004/003647/07), 70 Marshall Street,
Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Date: 18/10/2007 17:58:39 Produced by the JSE SENS Department.
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