South Africa: Mining Licence Delay Costs Sallies R50 Million

THE cost in lost revenue to fluorspar producer Sallies of a nine-month delay in the minerals and energy department granting it a mining licence was about R50m, it emerged from the company’s annual financial results released yesterday.

This represented the difference between the 150000 wet metric tons that the company could have produced and the 94885 tons that it was able to produce in the year to June, multiplied by $150/wet metric ton which was the prevailing export price, at the average exchange rate of R6,04/$ for the year.

Delays in granting mining and exploration licences under the recently introduced Minerals and Petroleum Resources Development Act have been highlighted by almost every South African mining company. The department has said it processes applications within the given timeframe but often waits for extended periods for companies to respond to questions about their applications.

Sallies CE Izak Marais told media and investors the company had expected to get the mining licence for its Buffelshoek deposit in July last year but received it only in April. Although Sallies could mine from its Witkop Mine, without a contribution of ore from Buffelshoek it could not achieve the right mix for the processing plant, and with limited cash flow it struggled with maintenance and breakdown problems.

The company’s revenue fell 14% to R86,9m for the year, and its net loss swelled to R39,1m from R31,8m last year. The headline loss was 14,4c (12,4c) a share.

Auditors Ernst & Young drew attention to the loss and material uncertainty over the group’s ability to continue as a going concern. It also pointed out that because of severe cash-flow problems subsidiary Witkop Fluorspar Mine had been unable to make certain pension-fund payments during the year, which had since been rectified.

In addition to the delay arising from the mining licence application, Sallies is in dispute with Honeywell over Honeywell’s nonpayment for contractual shipments last year.

Sallies has cancelled the contract and fully provided for the R7m for which Honeywell is in arrears. The matter has gone to international arbitration.

Marais said that in the current financial year fluorspar prices continued to improve and exchange rates were favourable. The company had raised R110m, which would ease its financial strain.

Management was positive about the potential of recent acquisition Buffalo, not only for its fluorspar but also for rare earth minerals, and would focus on increasing production and efficiencies.