Metal-Tech struggles with tungsten metal demand

Israeli company Metal-Tech Ltd said it expects to report 2010 sales well above market expectations of around $47m, a 30% increase, despite being unable to cope with strong demand for tungsten from its customers.

The company anticipated a reduced loss for the year ahead of expectations before any exceptional write-off relating to its troubled Mongolian joint venture.

Metal-Tech said it continued to see improved trading conditions in the second half of 2010 as higher demand for tungsten led to a continued increase in the metal price.

However, despite increasing capacity it was unable to meet the demand. The company was in the process of installing additional production equipment in its plant in Israel and seeking international opportunities for co-production.

Metal-Tech said it also benefited from tight cost control measures to improve efficiency, improving gross margins.

The company received an update on its Mongolian joint venture, Shim-Technology. On January 6, Shim-Tech received notification from the Mongolian shareholder, EMC, of its intention to initiate bankruptcy and wind-up proceedings.

Shim-Tech is in arrears on repayment of $6.0m in bank debt. EMC is the guarantor of the loan and there is no claim against Metal-Tech, whose liability is limited to $0.5m.

Metal-Tech said it was 'deeply disappointed at the unilateral actions of EMC in not adhering to its contractual obligation to supply raw material to Shim-Tech and as a result, Shim-Tech was unable to restart its operations when prices increased'.

It was currently assessing the situation in Mongolia but said it may have to be prudent and take substantial write-offs in its 2010 financial report.

There would not be any further negative impact on the company's cash flow as a result of EMC's actions as Shim-Tech has not operated for almost two years.

Metal-Tech reserved the right to take legal action to compensate for its losses.

The company's shares were down 4.25p at 14.5p.