www.wgiheavyminerals.com
COEUR D'ALENE, ID, April 28 /CNW/ - WGI Heavy Minerals, Inc. (TSX: WG)
today announced results for the fourth quarter and year ended December 31,
2005.
In 2005 there has been a divergence between WGI's operating performance
and its financial performance. From an operating perspective, the Company has
shown noticeable improvements: improved cash flow in the face of significantly
increased G&A expenses is one symptom of these improvements. All operating
units have undergone analysis and management steps have been taken and
investments have been and continue to be made to lay the foundation for
improved performance in the coming years.
In April 2006, the Company became aware of an error in its reserves
estimate for its Srikurmam project located in Andhra Pradesh. The initial
reserve report as prepared in 2002 was based on certain assumptions related to
the Company's ability to mine beach areas up to the high-tide line at its
Andhra Pradesh site. A former employee of the Company's Indian subsidiary,
TGI, provided invalid information, indicating that the Company had the ability
to mine those areas. Consequently, the Company has recognized a cumulative
impairment loss for costs incurred on Andhra Pradesh up to December 31, 2004
of $7.3 million and has restated prior years. The effect of these adjustments
on the Company's prior year reported results and balances are shown in Note 3
of the Consolidated Financial Statements.
In India, the Company has carefully and conservatively considered the
quality of each of the investments in the light of current commercial, legal
and political realities and, in some cases, opted to write them down. In
aggregate, these write downs are very significant.
WGI's 2005 financial performance has been seriously disappointing.
Neither management nor shareholders ever welcome operating losses and material
write-downs. In 2005 WGI has both. However, the Company has preserved the bulk
of its cash reserves and, we believe, is positioning itself correctly for
sustained improvements in its operating performance, and there are significant
opportunities for growth by investments within North America.
Results of Operations
Revenues for 2005 decreased 13 percent to $19.0 million, compared with
$21.7 million for 2004. Despite strengthening global economic activity and
firming demand, garnet shipments, in tons, were lower by roughly 9 percent,
due to production constraints in the U.S. and India, caused by wet weather,
lower production (declining quantity/quality of reserves), and extreme cold
temperatures and equipment down-time in Idaho. However, WGI realized modestly
higher garnet prices, due to industry-wide price increases, a greater
percentage of sales into the higher-priced waterjet market, and more sales
with the customers requesting that WGI arrange freight which increased freight
revenue. Ilmenite sales of $4.8 million in 2004 were not repeated in 2005 due
to the cancellation of the Company's ilmenite handling license.
Gross profit margins remained relatively flat at 14.1 percent in 2005,
compared with 13.6 percent in 2004. The addition of IWP contributed a higher
gross margin percent, offset by increased production costs, rising fuel costs
and a write-down of ilmenite inventories of $0.2 million.
Total expenses were flat against the restated 2004 expenses. Increased
expenses before restatement included increased bad debts, salary expenses,
professional fees related to the Indian operations, and the addition of
International Waterjet Parts (IWP) general and administrative expenses
($0.6 million). The Company is also experiencing delays in receiving its
leases in the state of Tamil Nadu and took a write down of $2.6 million, a
result of lower anticipated reserves.
The Andhra Pradesh reserve report has been amended. The reserves
identified in the new reserve report indicated that the carrying value of the
Company's Srikurmam project was impaired along with advances made to an Indian
company of $2.7 million. As a result, the Company has restated its 2004
financial statements. The impact on 2005 and 2004 was $2.0 million and
$6.1 million, respectively. The Company has determined that the significant
mining restrictions, and permit delays indicate that the fair value of the
Srikumam project could be limited to the expected sales value of the Company's
Andhra Pradesh land holdings and salvage values of certain property, plant and
equipment. The total fair and salvage value allocated to these assets has been
conservatively estimated at approximately $0.7 million.
The Company also booked $0.7 million of stock-based compensation in 2005
compared to $0.2 million in 2004. Income tax expense for the year was
$0.06 million for the profits at Kominex.
As a result, the Company posted a net loss of $9.2 million, or $0.38 per
share, for 2005, compared with a restated net loss of $7.5 million, or
$0.31 per share, for 2004.
Segmented Results
Revenue for the Company's U.S. operations, including Emerald Creek Garnet
Ltd. (ECG) and IWP, increased 52 percent to $7.4 million, primarily due to the
inclusion of IWP. ECG revenues increased 7 percent over the prior year, on
higher prices and 6 percent increase in tonnage volume. The ECG loss for the
year was $0.3 million, compared to earnings of $0.04 million in 2004. IWP
income for the year totaled $0.1 million after amortization and depreciation
totaling $0.1 million.
The Company's European operation - Kominex generated sales of
$5.5 million, an increase of 12 percent from the prior year, due to improved
sales of mixed corundum and waterjet products. Kominex's earnings before tax
increased to $0.1 million compared to $0.04 million in 2004.
Net sales of the Company's Indian operations decreased 50 percent in
2005, on 7 percent less garnet production and no ilmenite sales.
4th Quarter Results
For the fourth quarter of 2005, net sales increased 7 percent to
$4.7 million, compared with $4.4 million in the fourth quarter of 2004.
Offsetting higher garnet prices was lower volume, which was affected by
production constraints in the U.S. and India. Ilmenite shipments stopped due
to licenses cancelled.
Gross profit margins for the fourth quarter were 4.9 percent in 2005,
compared with 2.4 percent in 2004. Adverse weather and increased fuel costs
led to increased production costs in both TGI and ECG.
Total expenses decreased against the restated 2004 expenses by
39 percent. Decreased expenses are primarily due to write-downs in India of
$2.5 million against $5.3 million in the fourth quarter of 2004. General and
administrative expenses increased by 22 percent from the fourth quarter of
2004 to the fourth quarter of 2005. But as a percent of sales, general and
administrative expenses increased to 35 percent in the fourth quarter of 2005,
compared to 30 percent in the fourth quarter of 2004. The addition of IWP
increased insurance and professional fees.
In the fourth quarter of 2005, the Company revised its garnet reserve
estimates at its Tamil Nadu site. As a result, the Company has determined that
the carrying value of its Tamil Nadu assets exceeded the discounted cash flows
expected to be generated from the Tamil Nadu operations and the write down of
Tamil Nadu long-lived assets of $2.6 million was charged to operations. The
writedown is based on a discounted cash flow model. A similar discounted cash
flow analysis of Andhra Pradesh resulted in identifying an impairment, and a
write down to fair and salvage values of $0.1 million and $5.3 million were
charged to operations in the fourth quarter of 2005 and 2004, respectively.
The Company recorded a $0.07 million foreign exchange gain in the fourth
quarter of 2005 compared to a foreign exchange gain of $0.16 million in 2004.
The Company also booked $0.25 million of stock-based compensation in the
fourth quarter of 2005, compared to $0.08 million of stock-based compensation
in the year-ago period.
The resulting net loss was $4.3 million, or $0.18 per share, compared to
a restated net loss of $5.8 million, or $0.24 per share, for the fourth
quarter of 2004.
Liquidity and Capital Resources
Cash flow from operations improved from $0.1 million to $0.3 million for
2005. Capital expenditures of $3.1 million for 2005 included $1.5 million for
mineral properties and deferred development and $1.6 million for property,
plant and equipment.
Working capital, including the current portion of long-term debt, was
$24.8 million at the end of 2005, compared to $32.4 million at year-end 2004,
translating into current ratios of 5.6 and 13.2, respectively.
As of the end of 2005, the Company's debt-to-equity ratio was
18.3 percent, compared with 8.3 percent at year-end 2004.
WGI Heavy Minerals, Inc. is a fully integrated miner, producer, and
marketer of industrial-grade minerals and replacement parts for ultra-high
waterjet cutting systems. The Company's operations include mining and
processing facilities in Idaho, U.S. (Emerald Creek Garnet), Tamil Nadu, India
(Bengal Bay Garnet) and Ermsleben, Germany and a manufacturing facility in
Washington, U.S. (International Waterjet Parts).
This press release contains forward-looking statements concerning the
business, operations, and financial performance and condition of WGI Heavy
Minerals, Incorporated. A number of the matters discussed and statements made
in the press release contain forward-looking statements reflecting current
expectations regarding future assets. When used in this press release, the
words "believe", "anticipate", "intend", "estimate", "expect", "project", and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words. These
forward-looking statements are based on current expectations and are naturally
subject to risks, uncertainties, and changes in circumstances beyond
management's control that may cause actual results to differ materially from
those expressed or implied by such forward-looking statements. Factors that
may cause such differences include but are not limited to: exploration and
development risks; risks related to permits and title to property; risks
related to foreign countries and regulatory requirements; operating hazards;
foreign currency fluctuations; competition; fluctuations in the market price
of mineral commodities and transportation costs; uncertainty as to
calculations of mineral deposit estimates; uninsured risks; and dependence
upon key management personnel and executives. Actual results may differ
materially from those expressed here. You should not place undue reliance on
such forward-looking statements. The Company is under no obligation to update
or alter such forward-looking statements, whether as a result of new
information, future events, or otherwise.
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WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)
For the For the
three months ended year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
$ $ restated $ $ restated
Sales 4,721,938 4,425,545 18,958,846 21,742,462
Operating costs 4,012,338 3,912,075 14,653,686 17,390,812
Depreciation,
depletion and
amortization 478,619 409,285 1,640,612 1,388,157
----------- ----------- ----------- -----------
230,981 104,185 2,664,548 2,963,493
Expenses
Depreciation and
amortization 27,489 21,021 92,076 80,266
General and
administrative 1,630,570 1,340,558 5,890,018 4,536,275
Foreign exchange
loss (gain) (65,022) (155,002) (45,358) 449,252
Interest and
financing 60,236 35,295 180,420 151,585
Interest income (212,434) (175,516) (695,602) (668,305)
Board fees 70,238 112,188 201,688 138,377
Severance - 670,446 - 670,446
Write-down of
Andhra Pradesh
assets 114,128 5,302,201 1,953,678 6,113,981
Write-down of Indian
and Sri Lankan
assets 2,527,615 - 3,512,651 -
Loss on disposal
of equipment 8,727 37,383 23,002 37,473
Stock-based
compensation 245,070 82,999 733,424 189,954
----------- ----------- ----------- -----------
4,406,617 7,271,573 11,845,997 11,699,304
(Loss) earnings before
taxation and
non-controlling
interest (4,175,636) (7,167,388) (9,181,449) (8,735,811)
Provision for income
taxes
Current (3,325) - 23,102 -
Future 3,314 105,152 38,699 323,625
----------- ----------- ----------- -----------
(11) 105,152 61,801 323,625
----------- ----------- ----------- -----------
(Loss) earnings before
non-controlling
interest (4,175,625) (7,272,540) (9,243,250) (9,059,436)
Non-controlling
interest share of
(earnings) loss of
subsidiary (138,992) 1,501,005 - 1,524,375
----------- ----------- ----------- -----------
(Loss) earnings for
the period (4,314,617) (5,771,535) (9,243,250) (7,535,061)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted
(loss) earnings per
common share (0.18) (0.24) (0.38) (0.31)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic and diluted
(loss) earnings per
common share
(Canadian dollars) (0.21) (0.29) (0.44) (0.38)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Balance Sheet Data
Dec. 31, Dec. 31,
2005 2004
$ $ restated
Cash and short-term
deposits 22,597 27,456
Working capital 24,755 32,442
Total assets 40,117 46,497
Long-term debt 1,931 1,281
Shareholders' equity 33,907 42,928
All figures stated in U.S. dollars unless noted otherwise.
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