Sabretoothed, I’ve just been having a look at SGW’s balance...

Sabretoothed,

I’ve just been having a look at SGW’s balance sheet, and it’s not, on a first glance, a very pretty sight. SGW has unsecured private placement notes of $US 170 million at 7.3%, due for repayment in 2007 and 2011. As at 30 Dec 2003, SGW had total assets of @$A1.4 billion, of which non current assets were @$A1.23 billion. NCA’s included capitalized expenditure of $A333 million and development properties of $A511 million, (i.e hard to make liquid if need be), and property, plant & equipment of $A211.

As SGW says in its notes to the accounts: “The ultimate recoupment of mine development and deferred mining expenditure is dependent upon the successful development and commercial exploitation or sale of the respective mine.”

My question to you, given that you follow this stock very closely is: based on the current and future expected performance of SGW, and its gold division in particular, how much risk is there in SGW defaulting on its loan covenants? Admittedly the loans are due for repayment until 2007 and 2011, but this is something that could increasingly hang over the stock like a dead weight going forward.
Looking at the stock price history, intuitively one might expect a strong rebound from a level of 1.40 or thereabouts, but, the $US 170 million have got me a little spooked. In particular, what is your take on the future prospects of SGW’s gold division going forward?

I would be grateful for your insights on these issues….