Sallies sailing close to the edge

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� Trouble brewing at Sallies
� Sallies still ideally positioned - Izak Marais, CEO, Sallies
� Sallies to launch R75m rights offer
� Flack bids mining farewell
� Sallies looks beyond fluorspar
� Fluorspar prices above $200/t seen
� Wiese Sallies forth

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Sallies sailing close to the edge
Allan Seccombe
Posted: Thu, 19 Apr 2007

[miningmx.com] -- AUDITORS have raised concerns about the financial health of South African fluorspar miner Sallies, which posted an interim loss of R19m, has large liabilities and faces a legal claim from US-based Honeywell for $6.7m.

Sallies will by the end of June complete a fully underwritten one-for-four rights issue at R0.60 � a substantial discount to the current price -- to raise R75m, which will ease the pressure on working capital requirements and restore the company�s financial position.

Sallies� auditors BDO Spencer Steward, who replace the previous auditors who resigned the account earlier this year, noted on Thursday current liabilities were R26m more than its current assets.

doubt on the group�s ability to continue

�These conditions, along with other matters� indicate the existence of a material uncertainty which may cause doubt on the group�s ability to continue as a going concern,� BDO Spencer Steward said in a note accompanying the results to end-December 2006.

However, the board said the June rights issue and the strength of the fluorspar market combined with renewed operating focus by a new management team at good ore bodies gave them confidence that the company remained a going concern.

Sallies shares were last down four percent at R1.01 on heavy volumes.

Honeywell is pursuing a claim of $6.7m against Sallies in the International Chamber of Commerce in Zurich after the South African company unilaterally terminated an onerous supply contract because of delayed payments. The matter will be heard in the first half of May.

Sallies interim net loss deepened to R19m from R16m in the same period a year earlier. Its operating activities consumed R39m after generating R8m in the previous interim period. Its cash position sank R13m into the red after starting the period at a positive R60m.

�Unfortunate and extensive breakdowns in the mining fleet at Witkop forced a deviation in the mine�s long-term mining strategy, which had resulted in an improper mining blend, and as a consequence lead to a drop in feed grade which had had an adverse effect on output at the mine,� said Sallies CEO Izak Marais.

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The fleet has been replaced and since the start of the year there has been an improvement in equipment availability, he said.

At the Buffalo mine heavy rains prevented machinery from accessing the tailings dumps, which are being retreated, prompting the company to change tack and bring in hydro-mining sooner than it had expected.

Sallies raised R65m in a rights issue last June to clear debt and fund the acquisition of the Buffalo mine.

�After the rights issue of 2006, management had planned to trade out of a position of inadequate working capital. This proved impossible and resulted in a further deterioration in the working capital position,� Marais said.

Sallies has replaced a sizeable chunk of its board after Peter Flack left the board as chairman in January along with Lindsay Robertson and Alistair Moffatt, members of the FRM group, after shareholders refused to agree to an issue of more shares. FRM were brought in four years ago to turn Sallies around.

Flack has been replaced by Tom Dale, a former Gold Fields managing director, and Johann Blersch has also joined the board.

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