[miningmx.com] — I HEAR from our usually reliable sources that retail tycoon Christo Wiese stood up and congratulated the management of Sallies on managing a successful turnaround at a recent presentation to analysts in Cape Town.
Wiese has been a very dogged backer of Sallies – injecting many millions of rands into in the fluorspar miner over the last few years.
Indeed Wiese must rank as one of the single biggest investors in Sallies, which has – to date – been a grave disappointment for shareholders.
So for Wiese to stand up – in front of other investors and analysts – to offer encouragement to management (now led by mining doyen Tom Dale) must speak volumes for the turnaround effort.
Wiese, while best know for his retail exploits at Pepkor and Shoprite, is an astute resources investor – even outsmarting Remgro’s Johann Rupert in a late nineties battle for Ocean Diamond Mining Holdings (ODM). The truth is that Wiese’s participation at Sallies made me regard – to my great cost – that the fluorspar caper was a sure thing.
Let me say this; the year to end June financial results are the most encouraging set of numbers I have seen from Sallies. But, I am not quite ready to stand up and clap. Although heartened by developments, I remain wary of Sallies – having had my hopes dashed at least twice by previous management.
The only thing that has let me down more than Sallies over the last few years is the so-called “natural draw’ in my golf game. But my morbid fascination with this junior miner continues in the form of Sallies Debentures – which can perhaps be likened to taking a six iron off the tee.
Some folk might believe the debentures are the “soft option’, and that ultimately future dividends from Sallies ordinary shares will be more lucrative.
Still, I’m in no hurry to switch. The Sallies share price has not looked terribly convincing of late – which suggests the market is still not ready to remove the “dodgy’ tag just yet.
Sallies did, after all, produce a bottom line loss of around R40m in recently published results for the year to end June 2008.
What looked most ominous – especially for a Sallies Debenture holder like me – is that cash outlows topped R33m for the period. That means despite the R59m raised from issuing debentures earlier this year and the R70m raised last year from a rights issue, Sallies cash balance at the end of June was halved from R54m to R25m.
But what Wiese and other shareholders may find heartening is that Sallies flagship Witkop mine churned a rather impressive R16,5m profit in the second half of the financial year.
Buffalo – which I reckon was not the best acquisition in the world – reduced its operating loss in the second quarter to less than R2m.
The end result was – accounting for forex gains – an operating profit of R17m in the second half. Still general expenses and finance costs of around R20m kept Sallies in the red for the second half to the tune of some R3m.
Just to add a cynical context to operational progress, it may be worth noting that the R170m turnover generated in the year to end June 2008 is still considerably less than R250m shareholders have collectively invested in Sallies over the last three years.
Looking ahead to the new financial year, it would seem Sallies fortunes hinge on its gearing to the rand fluorspar price – which hopefully is on the rise or at least steady at around R3200/ton (roughly $400/ton).
Previously CEO Tom Dale noted that the main hitch was that Sallies was selling fluorspar at prices below its unit cost of production. In other words, Sallies was subsidising its customers.
That untenable situation appears to have been rectified, and Sallies now seems to have some sort of competitive edge. One of my regular correspondents reckons all things point to not only significant profits at Sallies in financial 2009, but also comforting cash flows.
I can’t help worrying, though. The group, over the last few years, has had a habit of stumbling just as operations begin picking up speed.
Suggestions that Witkop is hitting its straps are tempered, for me, by Dale’s earlier assessment that the ore body at Witkop is low grade and highly variable.
And I fret about Buffalo – which despite management’s reassurances – is probably still going to burn cash in financial 2009.
As such, I wish Sallies would defer any exploratory thrusts into Zambia and Mozambique – at least until cash flows turn reassuringly positive and Buffalo can wash its own face.
