| Fri 26 Jun 2009, 17:00 | | SAL - Sallies suspends operations at Witkop |
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SAL
SAL
SAL - Sallies suspends operations at Witkop
Sallies Limited
(Incorporated in the Republic of South Africa)
(Registration number 1903/001879/06)
Share code: SAL & ISIN: ZAE000022588
("Sallies" or "the company")
Sallies Suspends operations at Witkop
In the "Outlook" section of the release of the reviewed consolidated results for
Sallies for the six months ended 31st December 2008, it was stated that the
future of the company was closely aligned to that of the world economy. It was
further stated that management was determined to protect its hard won cash
resources and would consider production cutbacks and mothballing at Witkop
Fluorspar Mine (`Witkop"). This strategy is designed to maximise the timeframe
over which both Witkop and Buffalo Fluorspar Mine ("Buffalo") could survive the
world recession and still be able to exploit a market turnaround.
Many international acid grade fluorspar consumers have been de-stocking since
November 2008 and since their current production levels are a fraction of those
before October 2008, they still maintain sufficient stocks to continue
operations. As a result, new demand for acid grade fluorspar has collapsed and
despite concerted efforts by management and its marketing agent, Witkop has been
unable to secure future orders.
Because the fixed component of costs in mining businesses in general is high, a
cutback of production normally results in escalation of unit costs. This has
been confirmed in the specific case of Witkop by in-depth analyses, and thus a
reduction of output as opposed to a suspension of production does not appear to
be a viable option for Witkop.
As a result of these combined circumstances, the Directors of Sallies have
decided to give notice to employees and their representative unions, that the
company wishes to initiate the 60 day consultation period required by The Labour
Relations Act 66 of 1995, with regard to contemplated retrenchments, with effect
from Monday 29th June 2009.
Since the company has produced sufficient fluorspar to honour its contracts
until the end of calendar 2009, there appears to be no other viable option but
for production to be suspended with immediate effect in order to conserve cash.
This decision will not prejudice either the consultation process or the
financial obligations of the company to its employees and creditors. Once the
company has consulted with its employees and their representatives, it seems
probable that Witkop will be mothballed until the market recovers.
This regrettable development comes at a time when future operating prospects
were improving. The recently acquired exploration rig at Witkop is providing
management with invaluable information for ore reserve management which,
together with the significant improvements in the standards of operations in the
pits and at the plant, has resulted in recent production levels at all time
highs. The promising work on phosphorous reduction and alternative sources of
feed at Buffalo will continue and when the international market for acid grade
fluorspar recovers, Sallies will be able to re-start either or both operations
to exploit the market position it has recently created.
In the interim, management is actively pursuing opportunities for corporate
activity precipitated by the world recession.
Johannesburg
26 June 2009
Sponsor: Bridge Capital Advisors (Pty) Limited
Date: 26/06/2009 17:00:16 Produced by the JSE SENS Department.
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