Sallies - fluorspar demand uncertain

Dec. 9, 2010 - Long-suffering shareholders in Sallies waiting for their shares to swing from today's 10c back to the late-2006 peak of 136c have to hope fluorspar demand will recover and the rand will weaken.
Fluorspar has a range of applications in steel and aluminium processing, ceramics and uranium enrichment, all dependent on industrial growth.
Sallies suspended operations at its Buffalo fluorspar mine in October 2008 and at the Witkop mine in June 2009, citing adverse market conditions and a collapse in demand.
Sallies chairman Nicholas Davidoff, who represents the group's biggest shareholder, US hedge fund Firebird Management, said after last week's annual general meeting that restarting operations depended on the price of fluorspar, the rand-dollar exchange rate and orders received.
Davidoff declines to quantify the level of fluorspar prices or exchange rates that would be needed to restart operations but says fluorspar prices are "quite robust". He believes Firebird made a good investment.
Firebird holds interests in other fluorspar operations in Kenya, Tunisia and Mongolia.
Retail tycoon Christo Wiese, who sold his stake in Sallies to Firebird 18 months ago, has said that Firebird had "a big fluorspar plan for the longer term", implying industry consolidation.
Financial director Patrick Cooke says it is costing about R2,5m/month to keep the operations on care and maintenance. The group has employed a new mine manager, Gavin Clarke, formerly of Vergenoegd, who is refurbishing operations in the event that the board approves a restart. Davidoff says it would be desirable to resume production as soon as possible.
More working capital would be needed to do this but it could be borrowed. Sallies held R24,7m in near cash at end-June and about R13m in ore stockpiles. The directors said in the latest annual report that the company had enough cash to meet all its commitments at least until end-June 2011.
In July black empowerment group African Renaissance Holdings bought 26% of the Witkop and Buffalo mines. One of the prominent shareholders in African Renaissance is Max Maisela, founder of SA's second-biggest independent employee benefits group, NBC.
Firebird made a general offer to shareholders at 18c after taking a controlling stake in Sallies. The company's net asset value at end-June, taking the convertible debenture obligation into account, was only 5,6c/share. But Firebird also owns 58% of the debentures, which carry the right to payment at 50c each plus accrued interest of 10%/year by December 31 2012, which can be offset against their loss on the shares.
Though in the next year or two Sallies' prospects and share price could pick up, minority shareholders might be squeezed out if Firebird makes another offer to buy out minorities, this time at 10c or less. Davidoff says there are no plans to make another buyout offer but won't comment on whether there is any advantage to Sallies staying listed on the JSE.