Thursday July 15, 4:44 PM INTERVIEW: Sons Of Gwalia: Arbitration Could Take A Year
By Stephen Bell OF DOW JONES NEWSWIRES
PERTH (Dow Jones)--Having shed a quarter of its share market value Thursday after a profit downgrade, Sons of Gwalia Ltd. (SGW.AU) warned that stalled contract talks with its biggest tantalum customer may take a year to resolve.
But Managing Director John Leevers denied that the Perth-based miner is in dispute with Cabot Corp. (CBT) of the U.S., despite flagging an arbitration hearing.
"There is an option to go to an official arbitration in London to resolve the deadlock," Leevers told Dow Jones Newswires in an interview. "It is a mechanism to progress a stalemate, not a dispute," he said.
"The timing is in the hands of the arbitrator but it could take anything from six to 12 months," Leevers said, adding that Sons of Gwalia will decide whether to pursue arbitration in the next "week or so."
Shares in the tantalum and gold producer plunged 26%, or 69 cents, to a 14-month low of A$1.96, wiping A$130 million from the company's market capitalization.
Investors deserted the company after it warned late Wednesday that fiscal 2005 profit is unlikely to exceed the forecast 2004 result of A$21 million to A$22 million. At the same time it flagged the arbitration hearing with Cabot.
Analysts had expected earnings to rise to around A$32 million in the year ending June 30, 2005, driven by a recovery in tantalum, a metal used in the telecommunications and electronics sectors.
The profit warning prompted several broking firms to slash their earnings forecasts.
"With no compelling earnings driver and further gold weakness expected, we see little reason for owning the stock at its current price," said Credit Suisse First Boston, which cut its fiscal 2005 profit forecast 40% to A$19.7 million.
Goldman Sachs JBWere downgraded the stock to underperform from marketperform.
"Near-term contractual issues with Cabot (on tantalum sales) and the lack of clarity on the earnings need to be resolved before the market will, in our view, be prepared to rerate the stock," the broker said.
Patersons Securities said that an asset review due for completion next month may include a A$150 million writedown of the company's gold mines.
It also warned that Cabot may intend to reduce contracted tantalum volumes, which would be viewed as a "major negative" for Sons of Gwalia.
Leevers said the talks with Cabot started last August, but "we've gone round in circles to some extent."
"We're talking about multimillion dollar contracts here - it is a matter of reaching mutually acceptable terms," he added.
The contract is due to expire in December next year.
Sons of Gwalia has already concluded a sales deal with H.C. Starck, its second biggest customer.
A unit of Germany's Bayer AG (BAY), Starck agreed to buy a minimum 800,000 pounds of tantalum a year for the calendar years 2006 to 2008 inclusive, on "similar" terms to an existing deal.
Sons of Gwalia sold around 2.1 million lbs of tantalum in fiscal 2004.
The company produced 521,000 ounces of gold from its Western Australian mines in the same period.
SGW Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
