Trouble brewing at Sallies

[] — I HOPE fluorspar miner Sallies is not turning into a bottomless pit, but the news is not encouraging.

The company was due to publish its interim results on March 22, but I (and no doubt many others) had a call from chairperson Izak Marais saying this had been postponed.

He told me that Messrs Tom Dale and Johann Blersch (who obviously have time on their hands following their abrupt ejection from JCI) have joined the team and after visiting the mine made a number of recommendations that management wants to study and give its considered view on to investors.

That sounded reasonable enough, until I turned on to the JSE’s Stock Exchange News Service a couple of hours later and read the official announcement.

It said that during the six months to December, Sallies failed to achieve budgeted production so requires re-financing to fund a working capital shortfall, to be provided by a one-for four rights offer at 60c to raise about R75m.

This from a company that, only six months ago, said the emphasis this year would shift from survival to growth.

Bear in mind that we’re now in the second half of March. When did the production shortfall become apparent? On January 22 Sallies announced the completion of the Buffalo fluorspar acquisition, but said nothing about either production or cash problems.

And at June 30 last year the balance sheet showed net cash of R54m, though it must be admitted that creditors were an alarming R42m. However, for a company whose sales revenue was only R87m last year to go from net cash of R54m to a need to raise R75m in just nine months is some going.

Inevitably, in such circumstances directors’ share dealings also attract attention. Following Peter Flack’s resignation after last year’s AGM, his FRM group announced they were sellers. Their subsequent sales last October included 705,000 shares at 95c and 8,055m at 85c.

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Still, they were selling into a rising market. Even after a 15c decline by late afternoon today Sallies was still quoted at 94c, higher than all except one of their sales. So their sales have actually cost them money.

Marais now plans a presentation for around April 13. I hope he’s not superstitious, as April 13 is a Friday.

In any event, he’d better prepare himself for some searching questions on why the production shortfall wasn’t disclosed sooner, and how the cash could have run out so quickly.