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Sallies: good money after bad? Posted: Mon, 11 Feb 2008 [miningmx.com] -- IN less than two years Sallies, which has been unprofitably occupied in fluorspar mining activities, has managed to raise a chunky R170m from investors. One of those investors was retail tycoon Christo Wiese, who at one point chipped in R30m in a shares-for-cash issue at 70c/share. If we add the R75m that will be raised by the recently proposed debenture issue to existing shareholders then Sallies has raised nearly R250m. That’s a big number for a junior mining operation, but it’s even more gasp-worthy when one realises that Sallies currently only holds a market capitalisation of R315m. Those figures tell you just how much value has been eroded at Sallies, and how much cash has been burnt up sans tangible returns. Still it’s quite surprising that Sallies’ shareholders are willing to pitch in fresh capital again, something which at face value may look like throwing good money after bad. On February 5, chairman and CEO Tom Dale issued a frank assessment of the situation at Sallies – giving a the kind of brutal account that could scare the pants of less hardy investors. Dale noted that after R75m was raised in a rights issue in July 2007 it became clear that management “did not know its production costs.” This meant uneconomical cut off grades were being implemented in the pits. It was during the rebuilding of the information systems, Dale explained, that the “central problem of the company was exposed. The central problem was that Sallies was selling fluorspar at prices below its unit cost of production. In other words Sallies was subsidising its customers. That is a stark admission – especially since Sallies had been so keen to shed its “onerous” Honeywell contract because the arrangement was fixed at an unviable price. Dale’s statements cast previous management – led by Izak Marais – in rather a poor light. Marais, who is now employed at Aflease Gold, may well have sounded the turnaround horn too soon during his tenure at Sallies. Some of Marais’ statements to shareholders were classic cases of over-promising and under-delivering. Dale – a mining industry veteran – has taken a different tack, and perhaps a warts and all assessment at Sallies was long overdue (especially ahead of another fund raising exercise). Sill Dale contended that the main challenges at Sallies have been identified. But that does not mean the short term won’t be ugly. Sallies advised shareholders yesterday that the loss for the half-year ending December 2007 would be R25m – which seems high for a six month trading period even after Dale’s frank account of the group’s trials and tribulations. Click Here to subscribe to our daily newsletter
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