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SAL
SAL
SAL - Sallies - Reviewed Consolidated Results For The Six Months Ended 31
December 2008
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 SIX MONTHS ENDED 31 DECEMBER 2008
PROFITABILITY RE-ESTABLISHED AFTER SIX YEARS
- Turnaround progresses
- Drilling programme begins
- Higher sales volumes and prices
- Buffalo impairment
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months Year
ended ended ended
31 Dec 08 31 Dec 07 % 30 Jun 08
R`000 Reviewed Audited change Audited
Revenue - mining 149 608 72 876 105 168 117
Cost of sales (99 334) (75 857) (31) (147 549)
Profit from mining 50 274 (2 981) 1 786 20 568
activities
Less: Depreciation (3 416) (7 500) 54 (15 501)
Less: Amortisation of (1 053) (1 073) 2 (2 023)
mining rights
Operating profit/(loss) 45 805 (11 554) 496 3 044
from mining
Profit on disposal of - - (323)
plant, property and
equipment
Legal fees (2 435) (1 593) (53) (3 861)
Other administrative (13 995) (11 751) (19) (23 927)
expenses
Investment income 425 10 4 150 31
Finance costs (4 661) (2 476) (88) (11 368)
Net foreign exchange (3 782) 1 733 (318) 4 794
gains/(losses)
Profit/(loss) before 21 357 (25 631) 183 (31 610)
notional interest,
share based payments,
the Buffalo impairment
Notional interest on (1 495) - (322)
convertible debentures1
Share based payments (6 853) - (10 466)
Profit before Buffalo 13 009 (25 631) 151 (42 398)
impairment
Impairment of assets of (74 592) - -
Buffalo Fluorspar Mine
Net loss before and (61 583) (25 631) (140) (42 398)
after tax
Issued shares (`000) 642 220 631 181 2 634 981
Further shares to be 144 244 - 151 483
issued if all the
debentures were to be
converted
Weighted average shares 639 255 630 502 1 631 272
issued (`000)
Weighted average shares 639 255 634 053 4 639 178
issued for diluted
earnings per share
(`000)
RECONCILIATION OF
EARNINGS
Net profit attributable (61 583) (25 631) (140) (42 398)
to ordinary
shareholders for basic
earnings per share
Impairment of Buffalo 68 072 - -
fixed assets
Reversal of impairment - - (2 205)
of fixed assets
Profit on disposal of - - 323
assets (net of tax)
Net profit attributable 6 489 (25 631) 125 (44 280)
to ordinary
shareholders for
headline earnings per
share
PROFIT PER SHARE
(cents)
Basic
- undiluted (cents) (9,6) (4,1) (135) (6,7)
- diluted (cents) (9,6) (4,0) (141) (6,6)
Headline
- undiluted (cents) 1,0 (4,1) 125 (7,0)
- diluted (cents) 1,0 (4,0) 125 (6,9)
1 Notional additional interest on the convertible debentures accrued in
accordance with IAS 39 in order to account for the difference between the
deemed fair interest rate (18,5%) and the actual interest payable to
debenture holders (10%).
CONDENSED CONSOLIDATED BALANCE SHEET
31 Dec 08 31 Dec 07 30 Jun 08
R`000 Reviewed Audited Audited
ASSETS
Non-current assets 101 445 149 940 161 804
Investment properties 3 167 - 3 167
Restricted investment 2 064 - 1 635
Property, plant and equipment2 86 039 139 765 146 827
Goodwill 10 175 10 175 10 175
Current assets 97 495 54 265 92 561
Inventories 42 678 31 485 46 390
Accounts receivable 40 002 16 543 18 002
Taxation pre-paid 2 789 2 789 2 789
Cash and cash equivalents 12 026 3 448 25 380
Total assets 198 939 204 205 254 365
EQUITY AND LIABILITIES
Capital and reserves 88 932 127 372 140 785
Share capital and premium 301 890 282 467 299 013
Other reserves 18 044 724 11 191
Accumulated loss (231 002) (155 819) (169 419)
Non-current liabilities 83 553 23 824 87 880
Long-term loan 5 446 8 643 7 957
Provision for environmental 21 474 15 181 20 783
rehabilitation
10% convertible debentures3 56 633 - 59 140
Current liabilities 26 454 53 009 25 700
Accounts payable and provisions 21 665 24 940 21 105
Short-term loan - 21 726 -
Current portion of long-term 4 789 6 343 4 595
liabilities
Total equity and liabilities 198 939 204 205 254 365
Current asset/current liability 3,7 1,0 3,6
ratio
Net asset value per share (cents) 12,3 20,2 22,2
2 The reduction in the property, plant and equipment over the six months is
due to the impairment of the fixed assets of Buffalo.
3 There are 144 244 008 unsubordinated unsecured convertible debentures with
a nominal value of R0,50 each in issue with a total nominal value of R72 122
004. Each debenture is convertible into ordinary shares on a one-for-one
basis at the the election of the debenture holder. Debentures not converted
are to be repaid on 31 December 2012. In view of the hybrid nature of the
debentures a portion of the nominal value of the debentures outstanding is
included under share capital and premium.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 Dec 08 31 Dec 07 30 Jun 08
R`000 Reviewed Audited Audited
Net cash inflows/(outflows) 6 552 (24 483) (38 561)
from operating activities
Net cash (outflows) from (17 589) (5 064) (21 295)
investing activities
Net cash inflows/(outflows) (2 317) 61 849 114 090
from financing activities
Net (decrease)/increase in (13 354) 32 302 54 234
cash and cash equivalents
Cash and cash equivalents at 25 380 (28 854) (28 854)
beginning of period
Cash and cash equivalents at 12 026 3 448 25 380
end of period
CONDENSED SEGMENTAL REPORT
R`000 Witkop Buffalo Sallies Group
Six months ended 31
December 2007
Revenue 62 417 10 460 72 877
Operating profit/(loss) (3 336) (8 218) (11 554)
from mining
Net loss before and (10 191) (11 172) (4 267) (25 631)
after tax
Total assets 85 246 75 950 43 008 204 205
Total liabilities (40 859) (12 815) (23 159) (76 833)
Six months ended 31
December 2008
Revenue 136 845 12 763 149 608
Operating profit/(loss) 43 853 1 952 45 805
from mining
Profit/(loss) before 32 110 (1 637) (9 116) 21 357
notional interest, share
based payments and the
Buffalo impairment
Profit/(loss) before 31 372 (1 829) (16 534) 13 009
Buffalo impairment
Impairment of assets of (74 592) (74 592)
Buffalo Fluorspar Mine
Net loss before and 32 425 (76 421) (17 587) (61 583)
after tax
Total assets 152 902 11 448 34 590 198 939
Total liabilities (35 340) (12 606) (62 063) (110 008)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Portion of
capital convertible Share
and debentures based Accumu-
share deemed to payment lated
R`000 premium be equity reserve loss Total
Balance at 30 210 108 724 (130 188) 80 644
June 2007
Movement in 72 359 72 359
capital and
reserves
Loss for the (25 631) (25 631)
period
Balance at 31 282 467 724 (155 819) 127 372
December 2007
Restatement of 3 167 3 167
investment
properties
Movement in (1 414) 17 960 10 467 27 013
capital and
reserves
Loss for the (16 767) (16 767)
period
Balance at 30 281 053 17 960 11 191 (169 419) 140 785
June 2008
Conversion of 2 877 6 853 9 730
debentures and
share-based
payments
Loss for the (61 583) (61 583)
period
Balance at 31 283 930 17 960 18 044 (231 002) 88 932
December 2008
COMMENTARY
ANALYSIS OF RESULTS
At the mining operating level there was a R57,4 million turnaround between H1
F2008 (R11,6 million loss) and H1 F2009 (R45,8 million profit), and at the
profit or loss before notional interest, share-based payments and the Buffalo
impairment level the turnaround was R50,2 million from a loss of R28,8
million to a profit of R21,4 million.
MARKETING
Witkop sold 60 251 dmt during H1 F2009, up 15% on the 52 445 dmt of H1 F2008.
Due to closure during October 2008, sales at Buffalo at 5 930 dmt for H1
F2009 were 41% lower than the 10 126 dmt of H1 F2008.
Sales during the period were characterised by timeous delivery of high
specification material. This strengthens customer relationships.
Average international market prices for acid grade fluorspar for C2008
improved sharply to USD301/dmt FOB, with prices breaking the USD400/dmt prior
to the October 2008 world financial crisis. Witkop has sold production
forward into C2009 but the future outlook for prices and volumes is at
present opaque.
OPERATIONS
I am delighted to record that no fatal accidents occurred during this review
period.
Witkop produced 62 638 wmt during H1 F2009, up 10% on the 56 837 wmt of H1
F2008. Specific management focus on optimising feed grades, the "run time" of
plant and machinery and the cost effectiveness of the plant is facilitating
ongoing improvements to output.
MINERAL RESERVES AND RESOURCES
The mineral reserves and resources as tabled in the 2008 annual financial
statements have not changed materially.
Currently the mineral reserves and resources are based on a surface borehole
grid at 25m and 50m spacings drilled prior to 2002. Early in C2009, a new
reverse circulation exploration drill rig was delivered to Witkop. Drilling
will start during March 2009 and the first phase of an intensive programme of
in-fill drilling should be completed by the end of F2010.
EXPLORATION
Sallies hires a capable consultant fluorspar exploration geologist to
investigate local and Southern African targets with the objective of securing
resources which are more cost competitive.
OUTLOOK
Hydrofluoric acid (HF) cannot be produced without acid grade fluorspar. This
acid is feedstock principally for the production of refrigerant gases (which
drive fridges, freezers and air conditioners) and aluminium tri-fluoride
(without which aluminium cannot be cost effectively produced). HF is also
vital for other small, but rapidly growing niche markets.
Witkop has a large mineral resource of high quality (albeit low grade)
fluorspar and a strong reputation amongst a broad, international client base,
as a reliable business partner.
The future of Sallies is therefore closely aligned to that of the world
economy.
The remaining hard rock resources at Buffalo are uneconomical at today`s
price/cost ratio, hence the Buffalo impairment. However, research into
reducing the phosphorus content in the final product from the tailings dams
continues.
Your company is in a better liquidity position than it has been for many
years and management is determined to protect this hard won position. Given
the state of world markets and a downturn in fluorspar demand, cash
conservation strategies, including production cutback and mothballing, are
being evaluated.
THE IMPAIRMENT OF BUFFALO ASSETS
Following the mothballing of Buffalo Fluorspar Mine during October 2008, its
fixed assets and slimes dams were fully impaired and its stores were written
down to net realisable value during H1 F2009. The total charge arising from
this impairment is R74,6 million. In addition, losses of R31,8 million have
been accounted for since 1 August 2006 when the assets constituting the
Buffalo Fluorspar Mine were acquired.
Buffalo carries a provision for environmental rehabilitation of R12 million.
The cost of keeping Buffalo mothballed will be of the order of R250 000 per
month.
HONEYWELL
Honeywell has submitted an alternative claim of USD4,5 million plus interest
and costs to the Zurich based arbitral tribunal (original claim USD6,9
million plus interest and costs). Sallies has opposed this claim and has
submitted a counter claim of USD3,8 million plus interest and costs. Costs of
approximately USD850 000 and USD1 170 000 have been submitted by Honeywell
and Sallies respectively. The directors anticipate that the arbitral tribunal
will hand down their ruling on the dispute between Honeywell, Sallies and
Witkop to the International Chamber of Commerce during March 2009 and that
the ICC will forward the final award to the parties during April. Sallies has
accounted for its own expenses as incurred but has made no provision for a
possible award to Honeywell.
TERMINATION OF THE SOLVADIS AGENCY AGREEMENT
Solvadis was appointed as the European agents for Witkop on 1 November 1999
and for Buffalo on 29 September 2006. The agency was terminated with effect
from 31 December 2008 by giving the 12 months notice required in the
agreement. In December 2008 Solvadis claimed some $500 000 as compensation
for the termination of the agreement in terms of the Swiss Code of
Obligations. This claim is being contested by Sallies and no provision has
been made for it in the accounts.
SOUTH AFRICAN REVENUE SERVICES
Witkop Fluorspar Mine (Pty) Limited is currently involved in disputes with
the SARS regarding the 2000 to 2003 years of assessment. SARS has disallowed
the deduction of certain inter company expenditure and rejected the timing of
revenue recognised.
If Witkop is successful in the disputes, provisional payments amounting to
R6,7 million (excluding interest) will be refunded to the group. If
unsuccessful in all of the disputes, the total amount payable by Witkop will
amount to approximately R0,7 million (excluding interest). Taxation pre-paid
of R2 789 000 is currently carried in the consolidated balance sheet of
Sallies.
SHARE OPTIONS
Since 30 June 2008, the board has cancelled the outstanding options of Mr IJ
Marais, and has granted options over 19 400 000 ordinary shares to management
and directors at strike prices between 58.06 and 64 cents per share. Options
over 57 906 298 ordinary shares and 9 241 510 convertible debentures are now
outstanding.
Shareholders will shortly be asked to formally approve the granting of
options over 4 004 505 convertible debentures to each of Messrs Blersch and
Dale accruing to them as a result of the rights offer of convertible
debentures completed during May 2008, and the granting of options to
directors.
For purposes of determining the share based payment charge to the income
statement, the options granted were valued using the American Binomial Method
using the volatility of the Mining Index. This method takes no cognisance of
the conditions prevailing in the markets served by the group and other
fundamentals of the group. Currently the prices of the Sallies Limited
ordinary shares and convertible debentures are trading significantly below
the strike prices of the options (between 58,06 and 64 cents per ordinary
share and 50 cents per convertible debenture).
BASIS OF PREPARATION
The interim report is prepared in accordance with International Financial
Reporting Standards (IFRS) and IAS 34 Interim Financial Reporting, the
Companies Act of South Africa and the JSE Listings Requirement. The interim
results incorporate accounting policies that are consistent with those used
in preparing the financial results for the year ended 30 June 2008.
MODIFIED REVIEW OPINION
The interim results have been reviewed by the company`s auditors and their
modified review report is available for inspection at the company`s
registered office. They have drawn attention to the disclosure made by the
directors regarding the Honeywell arbitration.
BOARD OF DIRECTORS
Dr FJP (Fred) Roux was appointed non-executive chairman with effect from 1
July 2008. Messrs DGJ (Dennis) Kerrison and S (Sandile) Swana were appointed
directors on 14 November 2008. Sandile was also appointed to chair the audit
committee.
DIVIDENDS
No dividends were declared in the period under review.
By order of the board
Tom Dale
Chief Executive Officer
Zeerust
23 March 2009
Directors:
Dr Fred Roux (Chairman), Tom Dale (Chief Executive Officer), Johann Blersch
(Commercial Director), Barney Esterhuizen, Dennis Kerrison, Jurgen Kogl,
Sandile Swana
Registered office:
Witkop Fluorspar Mine, Farm Wintershoek, Zeerust, 2865
(Private Bag X1315, Zeerust, 2865)
Auditors:
BDO Spencer Steward
BDO Place, 457 Rodericks Road, Lynnwood, 0081, Pretoria
(PO Box 95436, Waterkloof, 0145)
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
(Registration number 2004/003647/07)
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Sponsor:
Bridge Capital Advisors (Proprietary) Limited
2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196
Date: 23/03/2009 17:00:04 Produced by the JSE SENS Department.
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