COEUR D'ALENE, ID, Feb. 27 /CNW/ - WGI Heavy Minerals, Incorporated (WGI) (TSE: WG) today announced that it is nearing the completion of an internal review which has resulted in the revaluation of certain assets with respect to the operations of two of its subsidiaries, Emerald Creek Garnet ("ECG") and International Waterjet Parts ("IWP").
The Company tested the value of its assets using current information and determined the carrying value of its long-lived assets at ECG and IWP exceeded the discounted cash flows expected from each specific operation. The Company intends to write down ECG and IWP's long-lived assets to their estimated fair value which the Company currently anticipates being close to US$1 million each. The current total fair value reductions of these operations, which reflect significant adverse fourth quarter 2008 market developments, are expected to have an estimated net income impact of approximately US $2.75 million in the fourth quarter of 2008. There will be no negative impact to working capital.
2008 saw a change in the strategic direction of WGI. The second half of the year will be remembered for turmoil across world markets, and deteriorating economic conditions continuing into 2009. Some of the significant events and activities that occurred at WGI over the past year were:
Sale of Transworld Garnet India Pvt. Ltd ("TGI")
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WGI sold its production assets in India to VV Minerals for net proceeds of US$15.56 million. The Company subsequently reported a gain of US$10.69 million in the third quarter. As part of the VV sale, WGI negotiated and entered into a three-year distribution agreement with VV Minerals for the sale of garnet, ilmenite and other industrial minerals. WGI has repatriated from India US$4.85 million in cash for its 74% equity interest in TGI. In addition, WGI has repatriated US $10.22 million in debt financing by obtaining repayment of certain external commercial borrowings ("ECB loans") from TGI. Rs 17.67 million of the net proceeds remain in a special purpose account with the Central Bank of India ("CBI") to be repatriated pending CBI's receipt of the Reserve Bank of India's approval to repatriate the funds. The relationship between the two organizations is developing well, with both parties meeting their obligations and looking for additional ways to collaborate on future business.
Board and Management Restructuring ----------------------------------
During the year, WGI announced the separation of the roles of Chairman of the Board of Directors and Chief Executive Officer. Greg Emerson was appointed CEO in May 2008 and Gordon Fear, formerly Chairman of WGI's Special Committee, was appointed Chairman of the Board in October 2008. Effective February 23, 2009 Covell Brown has resigned from the Board of Directors. With the resignation of Covell Brown, the Board was reduced from seven members to six. The continuing Directors are Michael Burns, Robert Ackerman, Gordon Fear, Kitson Vincent, Mark Curry and Greg Emerson. The Board will continue to play an active role in the management of WGI.
Special Distribution Paid -------------------------
In early January 2009, WGI paid out a special cash distribution of US$0.80 per share and as of January 31, 2009, WGI had a total of US$8.9 million on deposit with reputable banks in Canada, the U.S. and Germany. In this current global business climate it is extremely important that WGI maintain adequate cash reserves. The Company is looking for opportunities to invest part of this cash, however it will be prudent and conservative in its decision making in this regard.
Risk Management and Cost Containment ------------------------------------
Starting during the summer of 2008, management has been reviewing all operational costs, including credit policies, pay for performance and administrative costs. One result of managements' review was the suspension of operations at Emerald Creek for the first three months of 2009. WGI has engaged an independent consultant, with significant waterjet expertise, to advise both management and the Board on options with respect to WGI's existing waterjet operations. It is expected that this review will be completed by the middle of April 2009. The Company is also taking a close look at its credit exposure and is taking measures to minimize its risk while maintaining customer relationships. At the same time, WGI is working with vendors to reduce transportation costs. In most cases, these cost savings are being passed onto customers to protect market share. WGI has adjusted 2009 budgets where appropriate. Effective November 1, 2008, the Company froze all salaries and wages, until June 30, 2009. WGI is also in the process of finalizing a short-term incentive program for employees. It will be based on performance against specific targets, including Company increases in revenue, gross margin and net income before income taxes.
Shareholder Communication -------------------------
WGI intends to increase the frequency of our communications to ensure that our shareholders are kept apprised of WGI's activities and value-creation efforts, in a timely manner. This press release is part of that effort. All of our efforts at WGI Heavy Minerals are aligned to support our new direction. The challenging economic conditions will not deter us from our commitment to work hard to create value for our shareholders. For further information, we refer you to an investor presentation that has been recently posted to our website at www.wgiheavyminerals.com.
About WGI
WGI Heavy Minerals, Inc. is a marketer of industrial grade minerals sourced primarily out of India, producer of industrial-grade garnet out of Idaho and Germany and manufacturer of replacement parts for ultra-high pressure waterjet cutting systems in the U.S. The Company's shares are listed on the Toronto Stock Exchange under the symbol WG.
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.