| Mon 21 Sep 2009, 7:05 | | SAL - Sallies - Preliminary Audited Consolidated Results For The Year Ended 30 |
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SAL
SAL
SAL - Sallies - Preliminary Audited Consolidated Results For The Year Ended 30
June 2009
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")
PRELIMINARY AUDITED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2009
HIGHLIGHTS
Operating profit from mining activities increases tenfold
Profit before Honeywell, share-based payments and Buffalo impairment up from
R31 million loss to R44 million profit
Ongoing improvements to Witkop operating standards
Both operations mothballed due to market collapse
Sufficient cash resources to end FY2010
R11 million charge to provide fully for Honeywell award
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
% 30 Jun 09 30 Jun 08
R`000 change Audited Audited
Revenue - mining 50 251 928 168 117
Net foreign exchange (293) (9 259) 4 794
(losses)/gains
Cost of sales 2 (144 406) (147 549)
Profit from mining activities 287 98 263 25 362
Less: Depreciation (9) (16 862) (15 501)
Amortisation of mineral rights 9 (1 850) (2 023)
Operating profit from mining 915 79 551 7 838
activities
Profit/(Loss) on disposal of 179 257 (323)
plant and equipment
Administrative expenses 2 (27 650) (28 110)
Finance costs on borrowings 83 (1 654) (10 009)
Investment income 3 406 1 087 31
Interest on convertible (7 207) -
debentures
Profit/(Loss) before Honeywell, 25 44 384 (30 573)
share-based payments and Buffalo
impairment
Honeywell settlement award (9 626) -
provision
Honeywell award interest (1 658) -
provision
Notional interest on convertible (213) (2 892) (1 359)
debentures
Share-based payments 16 (8 779) (10 466)
Profit/(Loss) before Buffalo 21 429 (42 398)
impairment
Buffalo impairment (74 592) -
Loss before taxation (25) (53 163) (42 398)
Taxation - -
Loss for the year (25) (53 163) (42 398)
Issued shares (`000) 642 220 634 981
Weighted average shares issued 640 725 631 264
(`000)
Weighted average shares issued 640 725 661 798
for diluted loss per share
(`000)
RECONCILIATION OF EARNINGS
Net loss attributable to (25) (53 163) (42 398)
shareholders for basic earnings
per share
(Gain)/Loss on disposal of plant 179 (257) 323
and equipment
Impact of impairment of - (2 205)
decommissioning asset
Impact of impairment of Buffalo 68 072 -
fixed assets
Net headline earnings/(loss) 133 14 652 (44 280)
attributable to ordinary
shareholders
PROFIT/(LOSS) PER SHARE
Loss per share (cents) (24) (8,3) (6,7)
Diluted loss per share (cents) (25) (8,3) (6,6)
Headline profit/(loss) per share 133 2,3 (7,0)
(cents)
Diluted headline profit/(loss) 133 2,3 (6,9)
per share (cents)
CONSOLIDATED BALANCE SHEET
30 Jun 09 30 Jun 08
R`000 Audited Audited
ASSETS
Non-current assets 104 292 161 804
Investment properties 3 167 3 167
Goodwill 10 175 10 175
Property, plant and equipment 89 018 146 827
Restricted investments 1 932 1 635
Current assets 114 546 92 561
Inventories 64 022 46 390
Other financial assets - 498
Trade and other receivables 12 974 17 504
Taxation prepaid 2 789 2 789
Cash and cash equivalents 34 761 25 380
Total assets 218 838 254 365
EQUITY AND LIABILITIES
Capital and reserves 99 288 140 785
Share capital and premium 284 787 281 053
Portion of convertible debentures deemed 17 102 17 960
to be equity
Share-based payments reserve 19 981 11 191
Accumulated loss (222 582) (169 419)
Non-current liabilities 81 148 87 880
Long-term loans 3 926 7 957
Provision for environmental 19 192 20 783
rehabilitation
Portion of convertible debentures deemed 58 030 59 140
to be debt
Current liabilities 38 402 25 700
Trade and other payables 30 642 21 105
Bank overdraft 3 730 -
Current portion of long-term loans 4 030 4 595
Total equity and liabilities 218 838 254 365
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended
30 Jun 09 30 Jun 08
R`000 Audited Audited
Net cash inflow/(outflow) from operating 39 802 (38 561)
activities
Net cash outflow from investing (29 556) (21 295)
activities
Net cash (outflow)/inflow from financing (4 595) 114 090
activities
Net increase in cash and cash equivalents 5 651 54 234
Cash and cash equivalents at beginning of 25 380 (28 854)
year
Cash and cash equivalents at end of year 31 031 25 380
CONDENSED SEGMENTAL REPORT
R`000 Witkop Buffalo Other Group
Year ended 30 June 2008
Segmental (loss) (861) (16 865) (24 672) (42 398)
Total assets 141 931 91 290 21 684 254 905
Total liabilities (38 383) (14 515) (60 682) (113 580)
Year ended 30 June 2009
Segmental profit/(loss) 61 580 (77 688) (37 055) (53 163)
Total assets 204 556 6 345 7 936 218 837
Total liabilities (33 439) (11 563) (74 548) (119 550)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Portion
of
convertible
debentures
Share Share deemed to
R`000 capital premium be equity
Balance at 1 July 2007 506 209 602 -
Rights issue 125 74 827 -
Options exercised 4 1 079 -
Share and debenture issue - (5 090) -
expenses written off
Portion of convertible - - 17 960
debentures deemed to be equity
Options granted - - -
Loss for the year - - -
Balance at 30 June 2008 635 280 418 17 960
Debentures converted to shares 7 3 727 (858)
Options granted - - -
Loss for the year - - -
Balance at 30 June 2009 642 284 145 17 102
Share-
based Accumu-
payment lated
R`000 reserve loss Total
Balance at 1 July 2007 724 (127 021) 83 811
Rights issue - - 74 952
Options exercised - - 1 083
Share and debenture issue - - (5 090)
expenses written off
Portion of convertible - - 17 960
debentures deemed to be equity
Options granted 10 467 - 10 467
Loss for the year - (42 398) (42 398)
Balance at 30 June 2008 11 191 (169 419) 140 785
Debentures converted to shares - - 2 876
Options granted 8 790 - 8 790
Loss for the year - (53 163) (53 163)
Balance at 30 June 2009 19 981 (222 582) 99 288
JOINT STATEMENT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
SYNOPSIS
During the decade since the acquisition of Witkop Fluorspar Mine ("Witkop") by
Sallies in 1999, the company has had a volatile business history as a fluorspar
producer. The 2009 financial year and up to the time of writing must rank with
the most turbulent eras of this history. Sadly, concerted management efforts to
build a sound business and deliver value to shareholders have been thwarted by
the 2008 global financial crisis. As a result, shareholders will again have to
look to the future for returns from their investment.
The turnaround in operating profits delivered in FY2008, was accelerated during
FY2009 (FY2007: operating loss R21 million; FY2008: operating profit R8 million;
FY2009: operating profit R80 million). Ironically, as detailed under "FINANCE"
below, because of the provision for the Honeywell award and interest thereon,
statutory IFRS adjustments and the impairment of the Buffalo assets, the loss
after taxation or "bottom line", deteriorated over FY2009.
During the first half of FY2008, when speculative expectations for the company
were neutralised by forthright management reporting, the share price declined to
a low of 36 cents per share ("cps"). Towards the beginning of FY2009, as
marketing and operational challenges were effectively addressed, and this became
known in the market, the share price recovered to 91 cps. As the seriousness of
the sub-prime market crisis in the USA emerged, during the first half of FY2009,
the prices of commodities and commodity based equities world-wide collapsed.
In tandem with the general market collapse, demand for acid grade fluorspar
evaporated as inventories were run down and consequently, in order to conserve
cash for as long as possible, operations at Witkop were suspended on Friday, 26
June 2009. Employees and their representatives were informed that management
would begin statutory consultation on retrenchments on Monday, 29 June 2009.
These matters have been completed subsequent to year end and Witkop remains on
care and maintenance at an estimated cost of between R2 million and R3 million
per month.
In the event that Witkop were to be re-opened an injection of substantial
working capital would be required, probably between R50 million and R100
million.
MARKETING
The market continued to strengthen early in FY2009 up until October 2008. Prices
as high as USD500 per dry metric tonne (dmt) FOB China, were reported. At these
price levels, both Witkop and Buffalo were highly profitable. During this period
Sallies secured enough contracts at acceptable prices to continue operations for
almost nine months after the "crash" of October 2008.
Sales of all grades of fluorspar, from Witkop only, during FY2009 at 92 955 dmt
were about 12% lower than FY2008 (105 511 dmt). This decline was a direct result
of the market collapse. About 25 000 wet metric tonnes (wmt) of stock from
production during FY2009 will be sold to honour existing contracts in the first
half of FY2010.
Sales of all grades from Buffalo for FY2009 at 7 365 dmt were sharply lower than
the 19 066 dmt of FY2008 due to the mothballing of this operation. Buffalo had
about 3 500 wmt of high phosphorous material in stock at year-end. About 1 500
wmt of this was sold during August 2009.
Our new marketing agents performed effectively during the year.
OPERATIONS
No fatal accidents occurred at either operation during the review period.
Witkop
The last fatality at Witkop occurred in November 2001, and as of 30 June 2009, 8
267 fatality free shifts had been accumulated. The 12 month historical average
Disabling Injuries Frequency Rate ("DIFR`) at year-end was 1,71 (FY2008 3,63)
and the six-month average for the second half of FY2009 was 0,49. The ISO rating
agency, Bureau Veritas Certification ("BVC"), which rates the mine annually on a
comprehensive range of internationally accepted operational standards, announced
their intention to upgrade their standards for rating by December 2009.
Management at Witkop requested that the upgraded standards be applied to its
annual rating six months early in June 2009. Only five minor findings were
tabled by BVC. This is one reflection of the ongoing improvements to operations
which have been delivered.
Notarisation of new order mining rights for both Wintershoek (existing
operations) and Buffelshoek (possible future operations) took place in June
2008. Registration of the rights for Buffelshoek was effected during FY2009 and
registration of the rights for Wintershoek is still in progress.
Total inferred, indicated and measured resources (the latter including probable
and undiluted proven reserves) declined marginally, year-on-year, to 68,3
million tonnes at a CaF2 grade of 14,1% (30 June 2008: 69,7 million tonnes at
14,09%).
A critically important operational challenge for Witkop is the achievement of
feed grades which reconcile properly to the reserve/resource grade. Until
recently this reconciliation has been frustrated by the fact that surface
borehole information (based on 25m to 50m borehole spacing) has not been updated
since 2002 due to a lack of funds. Since March 2009, over 4 500 metres of infill
drilling was completed using a newly acquired reverse circulation drill fitted
with state of the art sampling equipment. Almost 5 million tonnes of ore (two to
three years mining) had been drilled out by year-end and the analyses of
completed samples are being incorporated into the geological model. Given the
vital importance of exploration to future operations, the directors have
authorised drilling to continue until the end of September 2009. If and when
Witkop is re-opened, the foundation for enhanced grade reconciliation will
therefore be in place.
Production of all grades of fluorspar was 119 945 wmt, marginally above the 118
137 wmt of FY2008. The condition of the pits, concurrent rehabilitation, and
management of slimes dams were all positive features of this year`s operations
at Witkop.
Buffalo
No fatal accidents have occurred at Buffalo since it was re-opened in August
2006 and as of 30 June 2009, 2 451 fatality free shifts had been accumulated.
The mine has received its permit to explore for underground ore but the new
order surface mining rights, applied for by Rooiberg Stone, have not yet been
approved.
The Buffalo operations have been mothballed since October 2008. Empirical test
work to reduce phosphorous levels in the fluorspar produced from tailings dams 5
and 6 is showing encouraging results. Should these tests show that the
phosphorous content can be reduced to levels comparable to Witkop, Buffalo could
re-open in order to treat material from these tailings dams.
Test work on fluorspar containing fines from Rooiberg Stone, the owners of
substantial aggregate dumps produced from the heavy medium separation circuits
originally in use at the property, is in progress. If the results from this work
are positive and negotiations with Rooiberg to secure this feed succeed, Buffalo
could process this material in preference to tailings.
Production of all grades of fluorspar was 5 031 wmt (FY2008 25 720 wmt).
FINANCE
Ongoing improvement to financial reporting was a feature of this year and has
enabled timeous decisions to be made regarding the viability of operations.
At 30 June 2009, net cash and near cash was R31 million. Operating profit from
mining for FY2009 was R80 million (FY2008: R8 million). Profit before providing
for the Honeywell award, interest thereon, and the impairment of Buffalo assets
was R44 million (FY2008: loss R31 million), and the loss after taxation was R53
million (FY2008: R42 million).
The Swiss Arbitral Tribunal dealing with the Honeywell issue awarded Honeywell
USD1 243 824 (18% of their original claim) plus interest at 5% per annum from 19
January 2006, a total of USD1 458 000 if paid by 30 June 2009. On 19 May 2009
Sallies lodged an application for a review of this award and accordingly the
payment has not been made. The Honeywell award and interest thereon is however
fully provided for in the financial statements.
Solvadis, an agent for Sallies in Europe, made a claim of USD500 000 arising
from the cancellation of their contract. The arbitration clause in this contract
provided for expensive legal processes in Switzerland. Sallies and Solvadis have
settled the claim amicably at USD225 000, paving the way for possible future co-
operation.
Sallies is in dispute with SARS over VAT refunds of R3,2 million. Failure in its
dispute would result in a charge of R2,3 million to Sallies` income statement.
Witkop is in various disputes with SARS over the refund of R6,7 million in
income tax. Should Witkop fail in all its disputes, SARS would have a claim
against Witkop for R0,7 million before interest and this would result in a
charge to Witkop`s income statement of R3,5 million before interest as Witkop
carries R2,8 million pre-paid income tax on its balance sheet.
HUMAN RESOURCES
Much of the sterling work that was focused on our human resources at Witkop
during the review period has been overshadowed by the suspension of operations
towards the end of June and the start of a consultation process on retrenchment
with our employees and their representatives. This regrettable decision was
precipitated by the pressing need to conserve scarce cash resources, in order to
survive, in anticipation of a recovery in world markets, specifically the export
market for acid grade fluorspar.
Industrial peace, based on frequent interaction between management, employees
and their representatives was a feature of FY2009. The introduction of a health
clinic on site this year, has assisted employees with minor injuries and
ailments and facilitated our efforts with a new HIV/AIDS awareness campaign. A
recent audit amongst employees has identified candidates who could benefit from
adult literacy and maths education. All of these initiatives now await a market
recovery.
A small core team of technical and managerial specialists has been retained on
site with the objectives of managing the responsibilities of a "mothballed mine"
and retaining the core skills required for planning for the future and rapidly
rebuilding the organisation, if and when this becomes appropriate.
GOVERNANCE
During the year Sallies significantly improved its situation as regards
Corporate Governance. Appointments to the Board enabled an Audit Committee to be
established having an Independent Non-executive Chairman and a majority of
Independent Non-executive Directors. A Board Charter was approved and a Code of
Ethics for directors, officers and management was implemented. The company also
attempted to modernise the company`s Articles of Association, which are over a
century old but this was thwarted by post year-end events as reported below.
OPERATIONS OUTLOOK
Witkop operates on a low grade highly variable deposit and as a result is a
medium/high cost producer which is highly geared to the Rand fluorspar price.
This was evidenced by the significant profits of specific months during FY2009.
From an operational mining/plant perspective, great progress has been made at
Witkop during the year and the operation will be viable should the market
environment improve and be sustained at a permanently higher level. If the test
work on either the high phosphorous fluorspar from tailings dams 5 and 6, or the
fines from aggregate dumps prove successful, initial calculations suggest that
Buffalo could re-enter the market as a low/medium cost producer.
Sallies has been active on the ground in Zambia and Mozambique during FY2009 and
continues to pursue permits on high grade fluorspar deposits with the objective
of moving down the international cost of production curve.
In conclusion we thank all stakeholders in Sallies - shareholders; regulatory
bodies; suppliers; our fellow directors and most importantly, managements,
employees and their representatives at the operations - for their unstinting and
selfless support during the year.
POST YEAR-END EVENTS
From an investment perspective, much of your company`s history recorded above
has been superseded by events post 30 June 2009. On Thursday, 30 July 2009 more
than 30% of Sallies ordinary shares changed hands on the JSE. On Tuesday, 4
August 2009, Firebird Global Master Fund, Limited and its affiliate, Firebird
Global Master Fund II, Limited, New York-based specialist hedge funds, which had
held about 25% of Sallies ordinaries since 2008, announced that they had brought
their holding up to 63% at a price of 18 cps and intended acquiring the shares
they did not yet hold via an offer to minorities at 18 cps. This offer was
subsequently made on Tuesday, 2 September 2009 and was extended to the holders
of Convertible Debentures ("CDs"), again at 18 cents per CD. Your directors have
commissioned an independent assessment of this offer and your Board has
recommended that the holders of ordinary shares should accept the offer, whereas
the CD holders should not.
Subsequent to the share acquisitions mentioned above, the new controlling
shareholder voted against certain resolutions that were placed before
shareholders at a Special General Meeting convened on Friday, 14 August 2009.
The resolutions, relating to the revised Articles of Association, authority for
the company to purchase its own shares and debentures and the modification of
the share options of Messrs Dale and Blersch, were not approved.
During September 2009 Witkop Fluorspar Mine notified 318 of its employees that
their employment would terminate on 30 September 2009. The cost of this
retrenchment will be R6,6 million.
Fred Roux Tom Dale
Chairman Chief Executive Officer
Johannesburg
21 September 2009
BASIS OF PREPARATION
The audited financial information of the group for the year ended 30 June 2009
has been presented in accordance with, and containing the information required
by IAS34: Interim Financial Reporting. The results have been prepared in
accordance with accounting policies of the group that comply with International
Financial Reporting Standards and the Listings Requirements of the JSE Limited
and have been consistently applied throughout the group, to all periods
presented.
The audited financial information of the group set out above has been prepared
from the annual financial statements for the year ended 30 June 2009.
MODIFIED AUDIT REPORT
BDO Spencer Steward has issued a modified audit report on the annual financial
statements of the company for the year ended 30 June 2009.
They have drawn attention to the disclosure made by the directors regarding the
ability of the company to continue as a going concern.
The modified audit report is available for inspection at the company`s
registered office.
ANNUAL REPORT 2009, THE FIREBIRD OFFER AND THE ANNUAL GENERAL MEETING
The Annual Report for 2009 will be mailed on or about Wednesday, 23 September
2009.
The Firebird Offer to acquire the ordinary shares and the convertible debentures
that they do not hold closes on Friday, 2 October 2009.
The 107th Annual General Meeting of Sallies will take place at Summer Place, 69
Melville Road, Hyde Park at 15:00 on Thursday, 22 October 2009.
Directors:
Fred Roux* (Chairman)
Tom Dale (Chief Executive Officer)
Johann Blersch (Financial Director)
Patrick Cooke*
Barney Esterhuyzen*
Dennis Kerrison* (British)
Jurgen Kogl*
Stephen Morris* (British)
Sandile Swana*
* Non-executive Independent
Registered Office:
BDO Place, 457 Rodericks Road, Lynnwood, Pretoria, 0081
(Postal: Private Bag X1315, Zeerust, 2865)
Auditors:
BDO Spencer Steward
BDO Place, 457 Rodericks Road, Lynnwood, Pretoria, 0081
(PO Box 95436, Waterkloof, Pretoria, 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 (Pty) Limited
2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196
Website: www.sallies.co.za
Date: 21/09/2009 07:05:05 Produced by the JSE SENS Department.
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