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SAL
SAL
SAL - Sallies - Abridged Financial 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")
ABRIDGED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2007
Consolidated income statement
Year Year
ended ended
30 Jun 07 30 Jun 06 %
R`000 Audited Audited Change
Revenue - mining 109 315 86 882 26
Cost of sales (118 187) (103 197)
Loss from mining activities (8 872) (16 315) 46
Administrative and other
operating expenses (20 639) (22 720)
Depreciation of mineral
rights (2 564) (5 435)
Finance costs (6 480) (2 735)
Investment income 282 85
Profit on disposal of PPE 583 1 817
Net foreign exchange gains
/losses) 1 639 (1 435)
Provision for onerous contract - 9 366
Depreciation and impairments (11 184) (5 435)
Net loss before taxation (47 235) (39 428) 20
Taxation 5 600 1 644
Net loss for year (41 635) (37 784) 10
Issued shares (`000) 506 264 450 064
Weighted average shares
issued (`000) 494 968 271 263
Weighted average shares
issued for diluted earnings
per share (`000) 499 430 271 263
RECONCILIATION OF EARNINGS
Net loss attributable to
ordinary shareholders for basic
earnings per share (41 635) (37 784)
Profit on disposal of
assets - net of tax (414) (1 290)
Net loss attributable to
Ordinary shareholders
for headline earnings per share (42 049) (39 074)
LOSS PER SHARE % Change
Basic
- undiluted (cents) (8,4) (13,9) 40
- diluted (cents) (8,3) (13,9) 40
Headline
- undiluted (cents) (8,5) (14,4) 41
- diluted (cents) (8,4) (14,4) 42
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Accumulated
Share Share option profit/
capital premium reserve (loss) Total
Balance at 30 June 257 88 910 1 975 (50 769) 40 373
2005
Rights issue 141 61 792 - - 61 933
Options exercised 52 24 533 (9 063) - 15 522
Options granted - - 7 812 - 7 812
Loss for the year - - - (37 784) (37 784)
Balance at 30 June 450 175 235 724 (88 553) 87 856
2006
Rights issue 43 29 958 - - 30 001
Options exercised 13 4 409 - - 4 422
Options grants - - - - -
Loss for the year - - - (41 635) (41 635)
Balance at 30 June 506 209 602 724 (130 188) 80 644
2007
CONSOLIDATED BALANCE SHEET
Year Year
ended ended
30 Jun 07 30 Jun 06
R`000 Audited 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 Audited Audited
Net cash inflow/(outflow) from
operating activities (69 435) 5 288
Cash receipts from customers 101 928 84 749
Cash paid to suppliers and employees (171 363) (79 592)
Cash generated/(utilised) by (69 435) 5 157
operations
Normal taxation paid - 131
Net cash (outflow)/inflow from
investing
activities (83 663) (10 978)
Additions to maintain plant and (85 081) (12 859)
equipment
Proceeds from disposal of property,
plant
and equipment 583 1 817
(Increase)/decrease in restricted 553 (21)
investment
Investment income 282 85
Net cash inflow/(outflow) from
financing
activities 64 184 73 754
Long-term loan (repaid)/raised 9 305 (966)
Short-term facility raised 26 936 -
Proceeds from share issue 34 423 80 545
Transaction cost regarding the rights - (3 090)
issue
Finance cost (6 480) (2 735)
Movement of subsidiary loans - -
Net increase/(decrease) in cash and
cash equivalents (88 914) 68 064
Cash and cash equivalents at 60 060 (8 004)
beginning of year
Cash and cash equivalents at end of (28 854) 60 060
year
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 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
million (F2006 - R39 million). Operations at
Buffalo between August 2006 and June 2007
accounted for R13 million 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.
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 Audited
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 abridged report for the year ended 30 June
2007 has been Audited 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 abridged report has been prepared in
accordance with International Financial
Reporting Standards IAS 34 and the Listings
Requirements of the JSE Limited.
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 Audited
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
12 February 2008
Directors: Tom Dale (Chairman and CEO), Johann
Blersch (Commercial Director), Barney
Esterhuizen, Dr Vincent Msibi (alternate:
Jurgen Kogl), Jeremy Woods
Sponsor: Bridge Capital Advisors (Pty) Limited,
2nd Floor, 27 Fricker Road, Illovo Boulevard,
Illovo, 2196 (PO Box 651010, Benmore)
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: 13/02/2008 15:40:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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