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Sallies cans Buffalo mine
Allan Seccombe
Posted: Mon, 13 Oct 2008
[miningmx.com] -- FLUORSPAR producer Sallies has stopped work at its Buffalo mine, putting it into mothballs, but analysts say the decision is a good one, removing a layer of costs from an operation that wasn’t really contributing to the company.
In the bigger scheme of things, Buffalo isn’t critical to Sallies, which is battling to effect a turnaround of the business to profitability.
In financial 2008, Buffalo contributed 25,720 tonnes of fluorspar to the group’s production of 143,857 tonnes in 2008. With a R10m operating loss in the year, it detracted from the first profit generated by the Witkop mine.
Material from Buffalo has high levels of phosphorous, making it a difficult product to market.
“We have looked at expanding volumes to reduce unit costs and various technical approaches to reducing phosphorous. None of these are viable. The limited power supply
to Buffalo further reduced our options,” Sallies CEO Tom Dale said.
The decision to shut the mine was a good one, said T-Sec analyst Nick Goodwin.
“This is good for Sallies because it removes a layer of overhead costs and it takes out production that wasn’t going to really contribute to earnings,” Goodwin said, adding Buffalo, according to his calculations, would add just one cent per share
to earnings.
After initially rising two percent to 49 cents on the news, the shares then fell hard, shedding 6.25% to 45 cents by midday South Africa time.
Analysts said the purchase of Buffalo by former management had appeared rushed and ill thought out.
Sallies bought Buffalo for R65m in 2006. It raised R110m in June of that year towards the acquisition and to capitalise the business. In the two years subsequent Sallies has raised another R150m in rights issues to recapitalise the business, pouring millions into Buffalo and the flagship Witkop operations.
One irate shareholder said the money raised towards Buffalo, which was punted to shareholders as a great buy for Sallies, has been wasted.
Buffalo focused on treating tailings, but it had power supply problems. It needed 3 MW but received slightly more than half that.
The decision affects 130 workers.
A better idea would be to focus on dumps at the Witkop
operation, said an analyst. Dale told a recent results presentation preliminary work had been done on the dumps, which were shown to contain contaminants and there were problems in establishing a representative sample of those dumps.
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