COEUR D'ALENE, ID, March 27 /CNW/ - WGI Heavy Minerals, Inc. (TSX: WG) today announced results for the fourth quarter and year ended December 31, 2006. Results have been filed and may be viewed at www.sedar.com. A summary of key financial results for the quarter and year are as follows:
Highlights
- Revenues increased 19% for the quarter to $5.6 million and increased 17% for the year to a record $22.1 million. - Gross margin increased to 13.6% for the quarter from 4.9% in the same period last year. Gross margin for the year remained relatively flat at 14%. - The net loss for the quarter has decreased to $0.7 million from last year's $4.3 million loss due to the absence of asset write-downs and write-offs. The net loss for 2006 was $4.0 million or $0.18 per share compared to a loss of $9.2 million or $0.38 per share in 2005. - At December 31, 2006 the Company had a cash position (including short term investments) of $18.3 million.
"The Company has made modest progress this last year. We have increased sales and improved operating performance in the latter part of the year. This is not at all good enough but, on balance, we are pleased to have been able to achieve this performance given the business challenges we have experienced." stated Chairman and CEO Covell Brown.
"While we have made good progress in furthering our applications for modest sized garnet leases in Tamil Nadu, India, on balance, we continue to experience great difficulty in dealing constructively with the Central and State Indian Mining authorities and the Indian Department of Atomic Energy. While the current and proposed stated policies encourage foreign investment our specific experience has been otherwise. In Tamil Nadu, we expect to obtain leases on nearly 19 acres and begin to mine them in the second half of 2007." said Mr. Brown.
Currently the Company is engaged in Court in Andhra Pradesh in an effort to defend its existing leases and applications for further leases. The Company has learned of a joint venture between a State Company (the Andhra Pradesh Mineral Development Corporation (APMDC)) and a private shell entity, in which the APMDC holds an 11% interest. Since this joint venture proposal has been formalized, there have been a series of steps taken by the State government to deprive TGI (the Company's Indian subsidiary) of the chronological priority that it enjoys in the matter of grant of leases, which priority is given to it by law, and to grant out-of-turn leases over the same lands, to the APMDC, which in turn plans to utilise the lands for the joint venture.
These actions of the State government, if pursued to fruition, would have the effect of taking over the Company's existing lease and obviating its chronological priority in respect of lease applications on about 5,000 hectors of leased lands and turning its position over to the competitors who own the private shell entity, and potentially stranding our factories in Andhra Pradesh. Meanwhile, the thousands of workers who the Company might employ continue without work. The Company is defending itself both administratively and in Court that the rule of law is not being applied fairly to the Company by the State government amongst other defences, which are also open to the Company at law. Given that the Company is in conflict with elements of the State government itself it is uncertain what the legal outcome may be.
The Company continues other cases wherein we dispute Central Government officials' actions or rulings. Typically, such cases are very difficult to get heard, there being many requests for dates to be set over by Government counsel.
Also, the Company filed an application for value addition to upgrade its Andhra Pradesh facilities to a synthetic rutile facility in due course. This application was filed both with the Department of Atomic Energy and with the Government of Andhra Pradesh in 2004. Neither application has been acted on, thus depriving the Indian subsidiary of the legal standing needed to obtain ilmenite leases. One effect of ignoring the Company's application is to open the door to activities such as those described in the preceding paragraph.
"We have been and continue to do all we can to be good corporate citizens in India. We have and do obey and operate according to Indian law. Indeed we turn to the Indian Courts for justice. It remains to be seen whether the Company, while adhering to the rules and practices governing us as a Canadian listed Company subject to Canadian laws, can operate successfully within the culture and practices now prevalent in the Indian and Andhra Pradesh mining industry as currently regulated." added Mr. Brown.
Results of Operations
Revenues for 2006 increased 17 percent to $22.1 million, compared with $19.0 million for 2005. Despite strengthening demand, garnet shipments, in tons, were relatively flat. Production was constrained in India due to wet weather and the U.S. operation had lower production because the concentration of garnet in areas mined is lower and extreme cold temperatures in Idaho reduced operating days.
However, WGI realized modestly higher garnet and abrasives prices, due to industry-wide price increases. WGI also enjoyed a greater percentage of sales from aftermarket ultra high pressure waterjet cutting machine replacement parts due to the realization of a full 12 months sales from this product line versus the 9.5 months in 2005. The Company's revenues come from the following products: Garnet (70%), Waterjet Replacement Parts (16%), and Other Abrasives (14%).
Gross profit margins remained relatively flat at 14.0 percent in 2006, compared with 14.1 percent in 2005. The full year of IWP revenue and the aftermarket ultra high pressure waterjet cutting machine replacement parts product line contributed a higher gross margin. This was offset by increased production costs in both the U.S. and Indian mining operations.
General and administrative expenses increased 3.3 percent year over year. The primary reason for the increase was professional fees paid for legal and external accounting services associated with the write-down of Indian assets which were included in the 2005 reported results. Over $0.4 million of this type of costs should not reoccur in 2007.
The Company posted a net loss of $4.0 million, or $0.17 per share, for 2006, compared with a net loss of $9.2 million, or $0.38 per share, for 2005. In 2005, the Company wrote-down assets associated with operations at Sri Lanka, Tamil Nadu and Andhra Pradesh, India for a total charge of $5.4 million. Excluding the cost of professional fees associated with the write-down, the net loss for 2006 would have been $3.5 million or $0.15 per share, compared to a loss excluding the write-downs of $3.9 million or $0.16 per share in 2005.
4th Quarter Results
For the fourth quarter of 2006, net sales increased 19 percent to $5.6 million, compared with $4.7 million in the fourth quarter of 2005. Higher garnet/abrasive volume compounded by higher prices and increased waterjet parts sales drove the result.
Gross profit for the fourth quarter was 13.6 percent in 2006, compared with 4.9 percent in 2005. While adverse weather and increased fuel costs increased production costs at both TGI and ECG, these were offset by higher yields of finished product in both operations for the quarter.
Total expenses for the quarter decreased by 76 percent from the year-ago period. Decreased expenses are primarily due to the absence of write-downs in India of which $2.5 million were taken in the fourth quarter of 2005.
The Company recorded a foreign exchange gain of $nil in the fourth quarter of 2006 compared to a foreign exchange gain of $0.07 million in 2005. The Company also booked $0.08 million of stock-based compensation in the fourth quarter of 2006, compared to $0.2 million of stock-based compensation in the 2005 fourth quarter.
The resulting net loss was $0.7 million, or $0.03 per share, compared to a net loss of $4.3 million, or $0.18 per share, for the fourth quarter of 2005. Excluding the write-down in Q4 2005, the net loss for that quarter would have been $1.7 million or $0.07 per share.
Segmented Results
Net sales of the Company's Indian operations increased 19 percent in 2006 to $7.2 million. This was despite slightly decreased production. Profitability was positively affected by higher selling prices. This was more than offset by higher operating costs per unit, higher labour and transportation costs, and the on-going development expense at Andhra Pradesh. This segment posted a $0.9 million loss for the year.
The Company's European operation - Kominex - generated sales of $7.1 million, an increase of 29 percent from the prior year. The increase was due to significant increases in volumes across all product lines. Kominex's earnings before tax increased to $0.40 million in 2006 compared to $0.13 million in 2005.
Revenue for the Company's U.S. mining operations, Emerald Creek Garnet Ltd. (ECG), decreased 11 percent to $4.6 million, primarily due to fewer tons produced due to production constraints and lower garnet concentrations. The loss for the year for ECG was $1.0 million, compared to a loss of $0.3 million in 2005.
Revenue for the Company's U.S. manufacturing operation, IWP increased to $3.1 million from $2.2 million in 2005. The majority of the increase was due to the inclusion of IWP for the full year. There was also more than a 13 percent increase due to strengthening demand and a broader product offering. The loss for the year for IWP was $0.2 million compared to a profit of $0.1 million in 2005. Over $0.2 million of the swing in earnings is the result of booking a reserve for slow moving inventory.
Liquidity and Capital Resources
Cash and short-term investments reduced by $4.3 million in 2006. This compares to a reduction of $4.9 million for the year of 2005. Cash flow from operating activities was a positive $0.1 million in the fourth quarter and an outflow of $1.5 million for the year. Working capital movement is the primary cause of the outflow of cash from operations in 2006. This was due to higher receivables associated with higher revenues and lower payables due to timing.
Included in the 2006 cash outflow was $0.6 million used to repurchase and cancel 786,500 shares of the Company's stock. Net movement in debt consumed $0.4 million cash. Capital expenditures of $1.7 million for 2006 included $0.05 million for mineral properties and deferred development and $1.65 million for property, plant and equipment.
Working capital, including the current portion of long-term debt, was $22.2 million at the end of 2006, compared to $24.8 million at year-end 2005, translating into current ratios of 6.3 and 5.6, respectively. As of the end of 2006, the Company's debt-to-equity ratio was 17.4 percent, compared with 18.3 percent at year-end 2005. The Company cash and cash equivalents position was $18.3 million as of December 31, 2006.
Outlook
The Company continues to look for additional land to strengthen its reserves in Tamil Nadu and to continue to manufacture in Tamil Nadu. Recent results have been encouraging. Should this land and necessary mining leases be obtained on a timely basis, improvements in profitable sales are expected.
The Andhra Pradesh project may take the Company several years to sort out the critical issues before the Company. If the Company were to obtain all of the licenses and permits immediately, the Company would perhaps not be in a position to operate commercially until sometime in 2009. However, earlier scenarios are also possible. The Company is not in a position to predict the timing of operations in Andhra Pradesh.
The Company is making strenuous efforts to return to profitability at its Emerald Creek Garnet (ECG) facility through reinvestment in exploration and in the facility and improved procedures. Significant improvements in ECG's performance are not expected in 2007. The Company expects continued improvement in volume and profitability from IWP. Performance in Europe has seen increased volumes on all product lines. Sales in the Far East are growing and the Company anticipates modest growth in sales and income for 2007.
Modest increases in revenue are planned for 2007. The focus will be on increasing lease holdings and the efficiency of our operations and retaining shareholder value. Areas of opportunity have been identified and action plans are in place in all business units of the Company to continue this improvement.
The company is seeking useful transactional opportunities.
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 (Kominex) 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.
WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)
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As at As at
December December
Consolidated Balance Sheet 31, 2006 31, 2005
----------------------
Assets
Cash and Short term deposits 18,321 22,597
Other Current Assets 8,136 7,551
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Total Current Assets 26,456 30,149
Property, plant and equipment 7,279 7,802
Goodwill and Intangible Assets 2,049 2,136
Other Assets 0 30
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Total Assets 35,784 40,117
Liabilities & Equity
Current Liabilities 4,226 4,801
Long-term debt 1,067 1,409
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Total Liabilities 5,293 6,210
Capital stock 53,432 54,016
Stock-based compensation 2,088 1,192
Deficit (24,510) (20,540)
Foreign currency translation account (519) (761)
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Total Equity 30,491 33,907
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Total Liabilities & Equity 35,784 40,117
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Twelve Twelve
3 months 3 months months months
ended ended ended ended
Consolidated Statements of December December December December
Operations and Deficit 31, 2006 31, 2005 31, 2006 31, 2005
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Sales 5,639 4,722 22,113 18,959
Operating Costs 4,281 4,012 16,601 14,654
Depreciation, depletion
and amortization 593 479 2,409 1,641
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Gross Margin 766 231 3,103 2,665
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G&A 1,488 1,631 6,085 5,890
Interest Income (238) (212) (861) (696)
Interest Expense 53 60 189 180
Stock based compensation 77 245 897 733
Development costs 93 - 227 102
Prior year Write-down/
write-offs - 2,642 - 5,364
Other Expenses/(income) 19 41 391 271
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Total 1,492 4,407 6,927 11,846
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Loss before taxation &
Non-controlling interest (727) (4,176) (3,824) (9,181)
Taxes & Non-controlling loss 11 (139) 146 62
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Loss for the period (738) (4,315) (3,970) (9,243)
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Basic and diluted loss
per common share $(0.03) $(0.18) $(0.17) $(0.38)
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Twelve Twelve
3 months 3 months months months
ended ended ended ended
Consolidated Statements December December December December
of Cash Flows 31, 2006 31, 2005 31, 2006 31, 2005
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Cash flows from operating
activities 139 195 (1,533) 284
Cash flows from investing
activities (680) (530) (1,675) (4,979)
Cash flows from financing
activities (69) 23 (1,028) (194)
Effect of exchange rate on
cash and cash equivalents (41) 0 (41) 31
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Net increase (decrease) in
cash & ST Investments (651) (311) (4,277) (4,858)
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Cash & ST Investments
- beginning of period 18,948 22,908 22,597 27,456
Cash & ST Investments
- end of period 18,321 22,597 18,321 22,597
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All figures stated in U.S. dollars unless noted otherwise.