| Thu 30 Sep 2010, 7:05 | | SAL - Sallies Limited - Reviewed consolidated results for the year ended 30 June |
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SAL
SAL
SAL - Sallies Limited - Reviewed consolidated results for the year ended 30 June
2010
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 2010
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended Year ended
30 June 30 June
% 2010 2009
R`000 Change Reviewed Audited
Revenue - mining (76) 60 815 251 928
Net foreign exchange losses 88 (1 091) (9 259)
Cost of sales 58 (59 929) (144 406)
(Loss)/Profit from mining activities (100) (205) 98 263
Less: Depreciation (15) (19 451) (16 862)
Less: Amortisation of mineral rights 100 - (1 850)
Operating (loss)/profit from mining (125) (19 656) 79 551
(Loss)/Profit on disposal of plant, (338) (611) 257
property and equipment
Administrative expenses 35 (17 927) (27 650)
Investment income (71) 320 1 087
Finance costs on borrowings (289) (6 432) (1 654)
Interest on convertible debentures - (7 224) (7 207)
(Loss)/Profit before Honeywell, share- (216) (51 530) 44 384
based payments and Buffalo impairment
Honeywell settlement award provision 100 - (9 626)
Honeywell award interest provision 72 (464) (1 658)
Notional interest on convertible (11) (3 204) (2 892)
debentures
Share based payments 90 (920) (8 779)
(Loss)/Profit before Buffalo (362) (56 118) 21 429
impairment
Buffalo impairment 91 (6 464) (74 592)
Net loss before and after taxation (18) (62 582) (53 163)
Total comprehensive loss for the (18) (62 582) (53 163)
period
Issued shares (000) 642 220 642 220
Weighted average shares issued (000) 642 220 640 725
Weighted average shares issued for 642 220 640 725
diluted earnings per share (000)
RECONCILIATION OF EARNINGS
Net loss attributable to ordinary (18) (62 582) (53 163)
shareholders for basic earnings per
share
Loss/(Gain) on disposal of plant and (338) 611 (257)
equipment
Impact of the impairment of Buffalo 91 6 464 68 072
fixed assets
Net (loss) profit attributable to (479) (55 507) 14 652
ordinary shareholders for headline
earnings per share
LOSS PER SHARE (cents)
Loss per share (cents) (18) (9,8) (8,3)
Diluted loss per share (cents) (18) (9,8) (8,3)
Headline (loss)/profit per share (378) (8,7) 2,3
(cents)
Diluted headline (loss)/profit per (378) (8,7) 2,3
share (cents)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
30 June 30 June
2010 2009
R`000 Reviewed Audited
ASSETS
Non-current assets 102 561 104 292
Investment properties 3 143 3 167
Restricted investment 2 779 1 932
Property, plant and equipment 86 464 89 018
Goodwill 10 175 10 175
Current assets 72 609 114 546
Inventories 31 576 64 022
Trade and other receivables 13 543 12 974
Taxation pre-paid 2 789 2 789
Cash and cash equivalents 24 701 34 761
Total assets 175 170 218 838
EQUITY AND LIABILITIES
Capital and reserves 35 671 99 288
Share capital and premium 284 787 284 787
Portion of convertible debentures deemed to be 17 102 17 102
equity
Share based payment reserve 18 946 19 981
Accumulated loss (285 164) (222 582)
Non-current liabilities 109 053 81 148
Long-term loan 1 287 3 926
Provision for environmental rehabilitation 46 532 19 192
Portion of convertible debentures deemed to be 61 234 58 030
equity
Current liabilities 30 446 38 402
Trade and other payables 27 806 30 642
Bank overdraft - 3 730
Current portion of long-term liabilities 2 640 4 030
Total equity and liabilities 175 170 218 838
Current asset/current liability ratio 2,5 3,0
Net asset value per share (cents) 5,7 15,5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended
31 June 31 June
2010 2009
R`000 Reviewed Audited
Net cash (outflows)/inflows from operating (2 770) 39 802
activities
Net cash inflows/(outflows) from investing 470 (29 556)
activities
Net cash (outflows) from financing activities (4 030) (4 595)
Net (decrease)/increase in cash and cash (6 330) 5 651
equivalents
Cash and cash equivalents at beginning of 31 031 25 380
period
Cash and cash equivalents at end of period 24 701 31 031
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Portion of
convertible
debentures
deemed
Share Share to be
R`000 capital premium equity
Balance at 30 June 2008 635 280 418 17 960
Debentures converted to shares 7 3 727 (858)
Share based payments - - -
Comprehensive loss for period - - -
Balance at 30 June 2009 642 284 145 17 102
Share based payments - - -
Comprehensive loss for period - - -
Balance at 30 June 2010 642 284 145 17 102
Share
based
pay- Accumu-
ment lated
R`000 reserve loss Total
Balance at 30 June 2008 11 191 (169 419) 140 785
Debentures converted to shares - - 2 876
Share based payments 8 790 - 8 790
Comprehensive loss for period - (53 163) (53 163)
Balance at 30 June 2009 19 981 (222 582) 99 288
Share based payments (1 035) - (1 035)
Comprehensive loss for period - (62 582) (62 582)
Balance at 30 June 2010 18 946 (285 164) 35 671
ABBREVIATED SEGMENTAL ANALYSIS
Witkop Buffalo
R`000 NW Province Limpopo Other Consolidated
Year ended 30 June 2009
External revenue 235 036 16 892 - 251 928
Segmental profit/(loss) 61 580 (77 688) (37 055) (53 163)
Total assets 204 556 6 345 7 937 218 838
Total liabilities (33 439) (11 563) (74 548) (119 550)
Year ended 30 June 2010
External revenue 57 665 3 150 - 60 815
Inter segmental revenue - - 73 707 73 707
Segmental (loss)/profit (105 419) (10 575) 53 412 (62 582)
Total assets 169 147 3 326 2 697 175 170
Total liabilities (33 668) (20 025) (85 806) (139 499)
COMMENTARY FOR THE YEAR ENDED 30 JUNE 2010
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 and the current reporting period must rank with the most turbulent eras
of its 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.
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. Operations at the Buffalo Fluorspar Mine ("Buffalo"), Sallies` other
principle asset, were suspended in October 2008. In the event that Witkop were
to be re-opened an injection of substantial working capital would be required.
FIREBIRD ACQUIRES CONTROL OF SALLIES
On Tuesday, 4 August 2009, Firebird Global Master Fund, Limited and its
affiliate, Firebird Global Master Fund, Limited II, New York-based specialist
hedge funds, (collectively "Firebird"), which had been a minority holder of
Sallies ordinary shares since 2007, 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 made on
Tuesday, 2 September 2009 and was extended to the holders of convertible
debentures ("CDs"), again at 18 cents per CD. The directors commissioned an
independent assessment of this offer and your Board recommended that the holders
of ordinary shares should accept the offer, whereas the CD holders should not.
Subsequent to the share acquisitions mentioned above, Firebird 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 convertible debentures and the modification of the share options of
Messrs Dale and Blersch, were not approved.
NEGOTIATIONS WITH AFRICAN RENAISSANCE INVESTMENTS (PROPRIETARY) LIMITED ("ARI")
ARI is Sallies` BEE partner. It is a wholly owned subsidiary of African
Renaissance Holdings Limited, a company which is owned and managed by
historically disadvantaged South Africans as defined in the Mineral and
Petroleum Resources Development Act, 2002 (Act 28 of 2002).
During Q3 of F2006 Sallies entered into an agreement with ARI in terms of which
Sallies sold to ARI a 30% undivided right to "the entire business undertaking in
respect of the area over which Witkop holds old order mining rights..." This
sale was subject to the fulfilment or waiver of certain conditions precedent.
Some shortcomings had been identified in the structure of the transaction and
the transaction has been restructured as announced to shareholders subsequent to
year end on SENS.
See Significant Post Year-End Events below.
MARKETING
Witkop completed the delivery of the last remaining export orders received prior
to the mothballing of the operation during the year. No new export orders were
received for either Buffalo or Witkop acid grade fluorspar.
Witkop sold 6 617 dry metric tonnes ("dmt") (2009: 6 995 dmt) into the domestic
market during the year. No domestic sales were achieved by Buffalo. Post year
end Witkop received an order for 5 500 wet metric tonnes ("wmt") which is
expected to be delivered in October 2010. It will be necessary to commence
production at Witkop for a short while to manufacture acid grade to supplement
the stock on hand to complete this order.
The markets for acid grade fluorspar remain challenging with the spot price
currently in a range of between US$280 and US$300 per wmt. The decision to
commence production at the company`s mines is dependent inter alia upon the US$
price of acid grade, the Rand to US$ exchange rate and the receipt of orders of
sufficient volume and regularity. As of the date of this report these conditions
are not met and the operations will remain on care and maintenance for the
foreseeable future.
OPERATIONS
No fatal accidents occurred at either operation during the review period.
Witkop
Consultation on retrenchments commenced on Monday, 29 June 2009. These matters
were completed during the first quarter of F2010 and Witkop remains on care and
maintenance.
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 F2009 and
the registration of the rights for Wintershoek took place during F2010.
Buffalo
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 extracting fluorspar from the fines in the 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
the owners, Rooiberg Stone, to secure this feed succeed, Buffalo could process
this material in preference to that from tailings.
FINANCE
At 30 June 2010, net near cash was R25 million (F2009: R31 million). Operating
loss from mining for F2010 was less than R1 million (F2009: profit R98 million).
The loss before providing for the award to Honeywell International Inc
("Honeywell"), interest thereon, IFRS adjustments and the impairment of Buffalo
assets was R52 million (F2009: profit R44 million), and the loss after taxation
was R63 million (F2009: R53 million). During the year under review the group
reassessed its environmental liability due to changes in the requirements from
the Department of Mineral Resources (DMR). The reassessment was performed by
Digby Wells & Associates, environmental solutions provider. The assessment of
both the Buffalo and Witkop liability on closure of the mine was based on the
Minerals and Petroleum Resources Development Act, Act 28 of 2002 as well as
relevant Regulations and guidelines.
The Swiss Arbitral Tribunal dealing with the Honeywell arbitration awarded
Honeywell US$1 243 824 (18% of their original claim) plus interest thereon at 5%
per annum from 19 January 2006 to repayment, comprising a total of US$1 922 000
if paid by 30 June 2010. On 19 May 2009 Sallies lodged an application for a
review of this award which application was unsuccessful. The Honeywell award and
interest thereon is fully provided for in the financial statements. Subsequent
to year end Sallies and Honeywell have agreed to settle this award and interest
through the issue of Sallies shares at 13,5 cents per share. See Significant
Post Year-End Events below.
Sallies has had a longstanding dispute with South African Revenue Service
("SARS") over VAT refunds of R3,2 million. Subsequent to year end this matter
was resolved and Sallies has received the majority of the VAT refunds due to it.
Witkop is involved in various disputes with SARS over the refund of R6,7 million
in income tax. Should Witkop be unsuccessful in all its disputes with SARS, SARS
would have a claim against Witkop for R0,7 million before interest. This in turn
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. This matter has been set down to be heard by the Tax Court in November
2010. No dividend is proposed or declared for F2010 (F2009: nil).
HUMAN RESOURCES
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.
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.
During the year the operational mining equipment and plant has been maintained
and serviced and the operation can commence production within a relatively short
period should the market environment improve.
If the tests at Buffalo succeed in reducing the high phosphorous content in the
fluorspar from tailings dams 5 and 6, or if fluorspar can be profitably
extracted from the aggregate dump fines, initial calculations suggest that
Buffalo could re-enter the market as a low/medium cost producer.
The market for acid grade fluorspar remains challenging. Although the price has
improved during the year there is still no firm commitment to place orders of
large enough volume to warrant recommissioning either plant.
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.
SIGNIFICANT POST YEAR-END EVENTS
Sallies, Witkop and Buffalo have entered into a collection of interrelated
agreements in terms of which ARI will become a 26% beneficial shareholder in
each of Witkop and Buffalo subject to inter alia shareholder approval. ARI will
subscribe for shares in Witkop at an aggregate price of R83 million which funds
Witkop will advance to ARI. This funding will be repaid from future dividends
which will only be declared once all funds advanced by Sallies to Witkop have
been repaid. ARI have undertaken that 31% of any funds received by it from
Witkop will be distributed to the community from which Witkop draws its
employees.
ARI will acquire from Sallies 26% of its shares in Buffalo at par for cash.
Similarly, ARI have undertaken that 31% of any funds received by it from Buffalo
will be distributed to the community from which Buffalo draws its employees.
Sallies will subscribe for preference shares in both Witkop and Buffalo which
preference shares shall pay a dividend based on the after tax interest costs on
the funds lent to Witkop and Buffalo respectively by Sallies.
As reported previously, the Swiss Arbitral Tribunal awarded Honeywell US$1 243
824 plus interest at 5% per annum. Honeywell and Sallies have entered into an
agreement to settle the award and interest by the issue of Sallies shares. The
shares will be issued at a price of 13,5 cents per share and the liability
converted into Rands at an exchange rate of R7,2881 to the US$ which equates to
the issue of 82 335 700 ordinary shares. This issue is a specific issue of
shares for cash and is permissible in terms of the general authority granted by
Sallies shareholders.
BASIS OF PREPARATION
The reviewed financial information of the group for the year ended 30 June 2010
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 (with the exception of the adoption of the revised IAS 1 -
Presentation of Financial Statements).
GOING CONCERN
The dump retreatment operation at Buffalo was placed on care-and-maintenance on
10 October 2008. Witkop ceased mining and processing on 26 June 2009.
At present the operations at Buffalo and Witkop only employ key staff required
to:
- deliver the remaining export orders;
- process in-stock fluorspar for the local market;
- keep the mothballed operations in a condition to ensure that a restart of
operations can be done efficiently if and when needed;
- rebuild the organisation if and when the international market for acid grade
fluorspar recovers.
Witkop will recommence production once it is able to attract sufficient orders
at economic prices. Buffalo is evaluating alternative sources of feedstock and
new production processes which could improve the quality of its end product and
reduce the cost thereof to levels that could enable it to operate profitably,
even at the depressed prevailing price levels for acid grade fluorspar in the
international markets.
The monthly costs of keeping the operations mothballed are consuming the group`s
working capital. The group will need to replenish its working capital if and
when it recommences production. Such recommencement could create as many as 300
new jobs and it is reasonable to expect that the working capital could be
borrowed, provided that the feasibility study, which will shortly be prepared by
the remaining staff, confirms its viability.
As disclosed under the Significant Post Year-End Events note above, Sallies has
agreed to issue shares to Honeywell in settlement of the award and the interest
liability and has concluded an agreement to dispose of the properties in Springs
for an estimated R3,5 million.
The 10% interest on the 144 million unsecured unsubordinated convertible
debentures of R0,50 each in issue is payable at the end of June and December at
R3,6 million per payment and, if not converted earlier, the convertible
debentures are repayable in an amount of R72 million on 31 December 2012. Unless
the group can fund these payments from profits earned from recommenced
operations, fresh equity will have to be raised to meet these obligations.
Against this background, the directors are of the opinion that the Sallies group
is a going concern for the foreseeable future as it has adequate cash resources
to meet all its commitments until at least the end of F2011.
MINERAL RESOURCES AND MINERAL RESERVES
Witkop Fluorspar Mine
The mineral resources for the Witkop Fluorspar Mine have been estimated by Peter
Siegfried, Principal Geological Consultant with GeoAfrica Prospecting Services
cc. Peter is a geologist registered with the Australian Institute of Mining and
Metallurgy (registration number 221116). Written representation was obtained
from him that the summary below has been defined according to the guidelines of
the SAMREC Code and may be published.
The mineral reserve was undertaken by Coffey Mining. The Competent Person is Dr
Steven Rupprecht (Pr.Eng.).
30 June 2010 30 June 2009
Tonnage (mt) CaF2 (%) Tonnage (mt) CaF2 (%)
Summary of Mineral
Resources
Measured resources 19,97 11,60 16,90 15,50
Indicated resources 33,11 13,80 29,00 14,10
Inferred resources 2,27 31,50 22,40 13,00
55,35 13,73 68,30 14,10
Summary of Mineral
Reserves
Probable reserves 16,10 10,30 1,05 29,3
Proved reserves - - 19,80 11,9
16,10 10,30 20,85 12,78
Mineral Resources are reported inclusive of mineral reserves.
Note: Mineral resources are estimates for which uncertainties are conveyed
through rounding of the figures presented in the table.
The majority of the decrease in Inferred resource was due to the previous
interpretation in which assumptions were made regarding the presence of fluorite
which does not exist. The Indicated and Measured resources have both increased
using a tighter borehole spacing and hence better confidence in the original
data.
The revision of the mineral reserve is part of a process that included a revised
mineral resource estimate completed in January 2010 and a new mine plan in May
2010. In addition the current economic situation and the suspension of
operations at Witkop have been considered in classifying the mineral reserve as
probable.
Material factor that could impact this statement is inter alia, that Witkop, in
the period March to September 2009, implemented a reverse circulation drill
programme with the state of the art sampling equipment to drill in between the
original 25m x 50m grid in the current mining area.
As the results of this programme are analysed the conclusions will be
incorporated in the Witkop geological model. Further in-fill drilling will be
done when the mine re-opens.
Buffalo Fluorspar Mine
At Buffalo Fluorspar Mine operations were suspended on 10 October 2008. Since no
mining of tailings dumps 5 and 6 has taken place, the figures shown below have
been extracted from the competent person`s report of RSG Global dated August
2006.
The Competent Person for the mineral resource estimate is Mr. Ken Lomberg
(Pr.Sci.Nat.) (Registration number 400038/01).
30 June 2010 30 June 2009
Tonnage (mt) CaF2 (%) Tonnage CaF2 (%)
(mt)
Summary of Mineral
Resources at August
2006
Indicated resource 6 7,4 6 7,4
MODIFIED REPORT
BDO South Africa Inc. has issued a modified review report on the reviewed
consolidated results of the company for the year ended 30 June 2010.
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 review report is available for inspection at the company`s
registered office.
By order of the board
Nicholas Davidoff
Non-executive Chairman
Johannesburg
30 September 2010
Directors in office at year-end and at the date of this report:
Nicholas Davidoff (Chairman)*, Andrew Kamau*, Jurgen Kogl*,Patrick Cooke
(Financial Director and COO), Sandile Swana*, Stephen Morris*
Directors who held office during the year:
FJP Roux*, TG Dale, J Blersch+, BC Esterhuyzen*, GGJ Kernson*
held office until 22 October 2009 + held office until 31 January 2010 *
Non-executive Independent
Registered office:
Block C, Riverwalk Office Park, 41 Matroosberg Road, Ashlea Gardens, Pretoria,
0081. (Private Bag X1315, Zeerust, 2865)
Auditors:
BDO South Africa Incorporated
Block C, Riverwalk Office Park, 41 Matroosberg Road, Ashlea Gardens, Pretoria,
0081. (PO Box 95436, Waterkloof, 0145)
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
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: 30/09/2010 07:05:07 Produced by the JSE SENS Department.
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