asx probes trading "One analyst, who declined to be named, said...

asx probes trading "One analyst, who declined to be named, said that based on the current earnings forecast, and a price to earnings multiple of 12 times, the stock was only worth about $1.50."



http://www.thewest.com.au/20040716/busines...-sto128175.html

Gwalia plunges as ASX probes trades

MICHAEL WEIR


The Australian Stock Exchange is investigating share trading in Sons of Gwalia ahead of a horror profit warning that stripped $130 million from the gold and tantalum miner's market value yesterday.

Already reeling from a 5 per cent fall on Wednesday before the after-market earnings downgrade, Sons of Gwalia shares plunged 69¢, or 26 per cent, to $1.96 yesterday - the first time it has finished under $2 since its last crisis in early last year.

Wednesday's sales sounded alarm bells at the Australian Stock Exchange, which said it was reviewing the trading for evidence the downgrade leaked into the market before Sons of Gwalia's announcement.

"We are aware that there was a movement in the share price before the announcement which appeared to foreshadow it," stock exchange spokesman Gervase Green said.

"But given the extent of that movement after the announcement you cannot automatically form a conclusion that there was a loss of confidentiality," he said.

"We are considering the matter, but have certainly not formed a view yet."

Sons of Gwalia managing director John Leevers said last night he was responding to the stock exchange but added the company had done nothing wrong.

"We are actually totally at ease about that," he said. "Our decision to make an announcement (on profits) was very much contained amongst the chairman, myself, our corporate adviser, our legal adviser, board and the CFO. "We don't have any issue there at all and we don't believe the stock exchange does either."

Mr Leevers, who took over the reins of Sons of Gwalia from the founding brothers, Peter and Chris Lalor, earlier this year, said Wednesday's share price drop was triggered by a downgrade on the company by broking firm UBS and other research reports earlier in the week that took some of the heat out of the hyped-up tantalum market.

"We have no worries whatsoever with what happened in the market place yesterday (Wednesday), it was quite normal market movements," he said.

Sons of Gwalia said on Wednesday its 2004-05 profit would be more than 35 per cent below analysts' forecasts of about $32 million and would not exceed the expected 2003-04 result of $21 million to $22 million.

Mr Leevers said the company would be able to provide more guidance on the earnings outlook after the completion of a major strategic review at the end of next month.

"I wouldn't describe it as a crisis situation," he said.

"Basically we are in a period of transition now over the next couple of years as we work through the issues that are historic in the organisation and then try and get on a platform to go forward.

"There is no magic bullet solution to all of this, it is just a matter of hard work and addressing issues as they present themselves."

Analysts, however, were shocked by the downgrade and were bracing for more bad news, including asset write-downs of up to $150 million, Continued on page 38Exchange probes Gwalia share trades when the company reports its full year result and the findings of the review.

One analyst, who declined to be named, said that based on the current earnings forecast, and a price to earnings multiple of 12 times, the stock was only worth about $1.50.

Hartleys analyst Jonathan Battershill said it appeared the initial panic selling had finished and the stock was likely to settle above $2.

"But we really see very little upside at the moment," he said.

Macquarie Equities analyst Steven Michael slashed earnings for 2005 by 43 per cent to $20.3 million and reduced the company's valuation 15 per cent to $2.01 on the back of declining margins in the tantalum business and lower gold production at its WA operations.

"Also, there remains considerable risk that the strategic review currently being undertaken will lead to a reduction in the asset carrying values which will impact 2005 earnings," he said.

Credit Suisse First Boston cut its 2005 profit forecast 40 per cent to $19.7 million, adding that "with no compelling earnings driver and further gold weakness expected, we see little reasons for owning the stock at its current price".

Goldman Sachs JBWere downgraded the stock to under perform from market perform.

"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 re-rate the stock," the broking house said.