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Sons of Gwalia hammered on profit warning

Rebecca Keenan

Thursday, July 15, 2004
SHARES in Sons of Gwalia fell nearly 30% this morning following a warning that profits for the next 12 months would not meet expectations and were unlikely to better 2003-04s result – anticipated to be in the order of $21-22 million.

The warning was prompted by declining gold production and lower tantalum grades.

A strategic review of the company in continuing and includes a reassessment of mine plans, analysis of resources and reserves, gold production plans, potential rationalisation plans, hedging policies, asset carrying values and balance sheet management.

SOG said a number of "significant interrelated issues" could also impact the earnings outlook for the new fiscal year. The company said it could not yet disclose these issues, with details expected by the end of August.

Gold production for the quarter was 115,590 ounces of gold at a cash cost of $448 per ounce, with annual production of 521,081oz at a cash cost of $438/oz.

The average sale price received for the quarter was $616 realising a cash margin of $168/oz. Production was actually up 6% quarter on quarter.

Tantalum production and sales reaching forecast levels of 2.3 million pounds and 2.1Mlbs respectively.

SOG said it is currently negotiating extensions on its tantalum long term contracts with Cabot Corporation and HC Starck, which expire in December. It also announced yesterday a new short term contract with a customer in Japan.

Significantly it said that if an agreement is not reached with Cabot in the next few weeks, the matter would be referred to arbitration.

At the end of the quarter the company had cash and cash equivalent on hand of about $20.7 million.

In early afternoon SOG shares had recovered some of their earlier decline and were trading at $2.03, down 62c or 23.4%.