From the...

From the WESTAUSTRALIAN
http://www.thewest.com.au/20030218/business/tw-business-home-sto88321.html
Gwalia slump casts doubts over Lalors

By Michael Weir



THE fate of the Lalor brothers, the gold mining stalwarts who could once do no wrong by the sharemarket, could be sealed this week when Sons of Gwalia unveils what many believe will be another dose of dire news for investors.

There are growing calls in the market for Peter and Chris Lalor, who founded the company 20 years ago, to call it a day at the helm of a gold and tantalum group that is now a shadow of its former self.

Some are even tipping that Sons of Gwalia will make its first loss for six years while others are braced for a cut of up to 25 per cent in this year's dividend.

The stock has underperformed its sector peers horrendously in the past year, falling from more than $8 to $1.93 yesterday.

Profit forecasts for Sons of Gwalia were slashed from $70 million to between $34 million and $42 million but many are now questioning whether it will even hit the revised target.

The company has been struck by operational problems in its gold division, a downturn in the tantalum market and concerns about an out-of-the-money gold and foreign exchange hedge book.

The performance has caused Australian institutional investors to dump the stock, including Colonial First State which quit an 18 per cent stake.

During the rapid expansion of the group in the 1990s, the Lalors' stake fell to just one per cent, leaving Canadian-based miner Teck Corp as the biggest shareholder with 11.8 per cent.

This followed Sons of Gwalia's takeover of the Teck-owned PacMin Mining, and major tantalum customer Cabot (7 per cent).

Euroz Securities analyst Andy Clayton, who placed a sell recommendation on the stock when it was $2.31, has forecast a loss for the half year and 2002-03 earnings of $30 million.

"Significant write-downs are also a possibility with capitalised exploration of $327 million," he said.

"There is little in the short term to inspire confidence and we see further downside from these levels."

Paterson Ord Minnett associate director Paul Carter, one of Sons of Gwalia's most vocal critics, said it was time for the Lalor brothers to consider stepping down.

"They really are resting on their laurels," he said.

"This company continues to spend money and not get it back out through the assets."

DJ Carmichael analyst Hayden Bairstow said investors should brace for a cut in the Sons of Gwalia share price.

The company paid a 20¢ dividend last year consisting of 12.5¢ in the first half and 7.5¢ in the second half.

But Mr Bairstow said the company's cash flow could not sustain a dividend rate of 7.5¢ for the half, or 15¢ for the full year.

Peter Lalor would not comment on the forthcoming profit but said the company was tackling problem issues, including tantalum production and the company's hedge book.

He said the search had begun for a replacement for former chief executive Mark Cutifani, who resigned in December and left the company on Friday.

"I've made it clear I would like to review my position sooner rather than later but whilst we are going through this change and with Mark leaving I will hold the fort until we decide which way to go," Mr Lalor said.