www.wgiheavyminerals.com (expressed in U.S. dollars unless otherwise stated)
COEUR D'ALENE, ID, March 24 /CNW/ - WGI Heavy Minerals, Incorporated ("WGI") (TSX: WG) today announced that on March 31, 2009 Emerald Creek Garnet ("ECG") will resume normal operations in areas where the anticipated grade of garnet will be higher than was experienced prior to the shutdown on December, 31, 2008 at the mine in Fernwood, Idaho.
Results for the year ended December 31, 2008 were also released. Results have been filed and may be viewed at www.sedar.com.
Results of Operations
2008 sales revenue for WGI reached its highest level ever at more than $27.8 million for the year. This represents a 5 percent increase over 2007 revenue ($27.82 million - 2008 versus $26.46 million - 2007) as 24 percent higher prices in the minerals segments of the business more than compensated for a 16 percent decline in sales volume due to lack of supply. Waterjet replacement parts revenue grew 9 percent. Currency exchange rates were favourable for much of the year contributing nearly 3 percent of the growth. Near the end of the year, WGI's markets began to cool as the global economic climate turned decidedly negative, although sales remained steady.
Annual gross profit margins decreased to 18.4 percent in 2008, compared with 19.8 percent in 2007. Increase in sales price for minerals were offset by increased production costs for both the U.S. produced and Indian sourced garnet. The increase in the U.S. production was due to lower concentrate of garnet in the ground, the need to process more run of mine to produce finished product and due to equipment break downs. The increase in costs in India were due to a combination of factors principally, higher energy costs, lower concentrate of garnet prior to the sale of Transworld Garnet India (Pvt.) Ltd. ("TGI") to V.V. Mineral ("VVM") and due to higher sourcing costs from VVM under the distribution agreement after August 15, 2008. Also contributing to the reduction in gross margin was the realization of higher manufacturing costs at International Waterjet Parts ("IWP") in 2008.
Total expenses increased 17 percent year over year due in large part to costs associated with the proxy solicitation in June 2008 of $0.38 million, the special distribution of $0.14 million, accrued costs related to the ECG winter closure and greater travel expenses associated with increased activity in the Chinese market and trade to India.
Unrelated to the companies operations in 2008, the Company realized $0.54 million gain on the receipt of insurance proceeds paid out on a collapsed warehouse owned by the Company's subsidiary ECG, due to heavy snow load.
Due to the negative change in the global economic climate, the Company reviewed its long-lived assets for impairment, specifically at ECG and IWP. Due to general economic conditions, the diminishing garnet deposits at ECG and higher costs of mining the St. Maries river basin, management assessed that the long-lived assets of ECG were impaired. Management decided that mining the St. Maries river basin at the current recovery rate was no longer cost effective, and therefore recalculated ECG's future cash flows excluding the resource found in the St. Maries river basin. As a result, management wrote down ECG's deferred development expenditures and mineral property costs to nil and equipment to current salvage values of $1.08 million. The total charge in the fourth quarter of 2008 was $1.45 million.
With regard to IWP, management felt that the economic crisis, significant down turn in the automotive business and a marked down turn in new waterjet equipment sales, which has put several smaller OEM's in difficult financial stress resulting in the closure of business, one in North America and one in Europe, warranted reviewing the value of IWP's long lived assets. Consequently, management has reassessed IWP's 2009 budget and anticipates a decline for the year in IWP's profitability and future cash flows. Management has determined that the carrying value of goodwill exceeded the fair value of the goodwill and required a write down of $1.08 million. Further evaluation of IWP's customer list, carried on the books for a net value of $0.22 million, determined that little if any of the current cash flow could be directly associated with the customer list. Management wrote the fair value of the customer list to nil. The total write down of IWP's long-lived assets in the fourth quarter of 2008 was $1.30 million.
The Company posted net earnings of $5.63 million, or $0.24 per share, for 2008, compared with a net loss of $1.46 million, or $0.06 loss per share, for 2007.
Summary of Quarterly Results
The fourth quarter of 2008 represented the first full quarter of operations since the sale of WGI's Indian garnet production assets in August. Also, during the period the global economy lost most of its momentum due to upheavals in financial markets, which, in turn, slowed WGI's overall business as the year came to an end. In spite of the general economic downturn, WGI's revenues for the fourth quarter were 7 percent better than during the same period last year ($6.76 million - fourth quarter 2008 versus $6.32 million - fourth quarter 2007) while slipping 9 percent from third quarter levels. The improvement in year over year quarterly performance was the result of 7 percent higher prices on flat sales volume. This revenue increase was accomplished during a period of unfavorable currency exchange rates that depressed results by 3 percent and during a sharp drop in fourth quarter business activity across the global waterjet machine industry, including purchases of machine replacement parts.
Gross profit margins for the fourth quarter were 17 percent in 2008, compared with 17 percent in 2007. While production costs increased at ECG and the Company incurred higher garnet costs out of India, a result of the newly signed supply agreement with VVM, these were offset by increased sales prices of finished product in both operations for the quarter and continued growth from Kominex.
Total expenses increased by 4 percent during the fourth quarter 2008 from 2007. Increased expenses are primarily due to increased professional fees related to the special distribution and accrued costs related to the ECG's winter closure.
The write down of ECG and IWP's long-lived assets to their estimated fair value, which reflect significant adverse fourth quarter 2008 market developments, have a negative net income impact of $2.75 million in the fourth quarter of 2008.
The resulting net loss was $3.65 million, or $0.15 loss per share for the fourth quarter of 2008, compared to a net loss of $0.80 million, or $0.04 loss per share, for the fourth quarter of 2007.
Liquidity and Capital Resources
Cash and short-term investments increased by $11.43 million in 2008. This compares to an increase of $6.72 million for the year of 2007. Cash flow from operating activities was negative at $1.15 million for the twelve-month period ended December 31, 2008. Primary outflow of cash was from operations related to general and administrative costs; specifically, costs associated with the proxy solicitation in June 2008 of $0.38 million, the special distribution of $0.14 million, accrued costs related to the ECG winter closure and greater travel expenses associated with increased activity in the Chinese market and trade to India
Working capital, including the current portion of long-term debt, was $12.83 million at the end of 2008, compared to $20.89 million at the end of 2007, translating into current ratios of 1.54 and 5.52, respectively. The main reason for the decline was due to the accrual of the declared special distribution in the amount of $19.24 million as at December 31, 2008.
Capital expenditures of $1.62 million for 2008 included $0.06 million for mineral properties and deferred development expenditures and $1.56 million for property, plant and equipment. The Company anticipates total capital expenditures of approximately $0.80 million for 2009 in continuing operations. The Company has sufficient resources to fund these capital expenditures.
Outlook
The Company intends to grow its abrasives markets through its relationships with suppliers and customers while developing additional sources of supply. WGI is working hard to manage our distribution agreements with VVM and other suppliers. The Company continues to manage its costs in a difficult economy while providing high quality customer service. We have identified several garnet properties and are reviewing opportunities before us, placing more emphasis on properties under our control.
Modest increases in revenue are planned for 2009. The Company is committed to managing costs and operating our current business units at a profit and within budget. The Board of Directors has reduced directors' fees. Management is taking steps to bring WGI's fixed cost structure into line with revenue from its operations. Faltering operations will be closed or restructured. A case in point, ECG ceased operations for the winter months to avoid the heavy expenses and inefficiencies associated with mining in heavy winter conditions.
Management is currently evaluating several emerging opportunities for growth, including new waterjet technology, lean manufacturing concepts and potential acquisitions, however the current worldwide financial crisis may have a negative impact on revenues and profitability of those opportunities if sustained for an extended period of time.
The economic slowdown could cause demand for our products to decline. Growth in our customers' businesses is affected by the economic environment and could therefore have an impact on the Company's operating results. We can neither predict the impact current economic conditions will have on our future results, nor predict when the economy will show meaningful improvement. During the current period of recession, our current and potential customers might reduce or delay purchases or projects. This situation could also lead to greater delays and defaults in payments resulting in lower operating results. Because of lower sales during an economic slowdown, competition may reduce prices to maintain or expand their market share. Our pricing revenues and profitability could be adversely affected as a result of such factors.
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.
WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)
As at As at
Dec. 31, Dec. 31,
Consolidated Balance Sheet 2008 2007
Assets
Cash and Short term deposits 28,201 16,921
Other Current Assets 8,249 7,410
Assets of discontinued operations - 1,182
----------------------
Total Current Assets 36,450 25,513
----------------------
Property, plant and equipment 3,758 4,389
Goodwill and Intangible Assets 543 1,971
Non-current assets of discontinued operations - 3,635
----------------------
Total Assets 40,752 35,508
----------------------
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Liabilities & Equity
Current Liabilities 23,618 3,879
Long-term debt 488 594
Liabilities of discontinued operations - 743
----------------------
Total Liabilities 24,106 5,216
----------------------
Capital stock 38,456 53,388
Contributed surplus 2,215 2,498
Deficit (24,186) (25,969)
Foreign currency translation account 161 375
----------------------
Total Equity 16,646 30,292
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Total Liabilities & Equity 40,752 35,508
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Consolidated Statements of
Operations and Deficit Three Three Twelve Twelve
months months months months
ended ended ended ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
-------------------- --------------------
Sales $ 6,759 $ 6,326 $ 27,819 $ 26,462
Operating Costs 5,408 5,072 21,827 20,488
Depreciation, depletion,
and amortization 206 210 867 719
-------------------- --------------------
Gross Margin 1,145 1,045 5,125 5,255
-------------------- --------------------
Gross Margin % 16.9% 16.5% 18.4% 19.8%
Expenses
G&A 1,677 1,541 6,710 5,779
Interest Income (163) (108) (475) (762)
Interest Expense 32 40 95 121
Stock based compensation (33) 40 181 374
Development costs 11 41 21 164
Other Expenses (Income) 33 (61) 32 (60)
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Total 1,557 1,493 6,564 5,617
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Loss before taxation &
Impairments (414) (447) (1,439) (362)
Write-down of assets (2,746) - (2,746) -
-------------------- --------------------
Loss before taxes (3,158) (447) (4,183) (362)
-------------------- --------------------
Taxes 45 71 240 401
-------------------- --------------------
(Loss) from operations for
the year (3,203) (519) (4,423) (763)
-------------------- --------------------
Insurance poceeds - - 544 -
Sale of discontinued operations,
net of related taxes (449) - 9,693 -
Realized currency
translation loss - - (121) -
Net loss from discontinued
operations (note 8) - (282) (60) (696)
-------------------- --------------------
$ (3,652) $ (801) $ 5,633 $ (1,460)
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Basic and diluted loss
per common share $ (0.15) $ (0.04) $ 0.24 $ (0.06)
WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)
Three Three Twelve Twelve
months months months months
ended ended ended ended
Consolidated Statements Dec. 31, Dec. 31, Dec. 31, Dec. 31,
of Cash Flows 2008 2007 2008 2007
-------------------- --------------------
Cash flows from operating
activities $ (979) $ (534) $ (1,152) $ 569
Cash flows from operating
activites of discontinued
operations $ - $ 371 $ (60) $ 527
Cash flows from investing $ (77) $ (915) $ 12,719 $ 6,265
Cash flows from financing $ 164 $ (245) $ (4) $ (572)
Effect of exchange rate
changes on Cash & Cash Eq. $ (571) $ (181) $ (75) $ (65)
-------------------- --------------------
-------------------- --------------------
Inc./(Dec.) in Cash and
ST Inv. $ (1,463) $ (1,504) $ 11,428 $ 6,724
-------------------- --------------------
Beginning Cash &
ST Investments $ 29,664 $ 18,277 $ 16,773 $ 10,049
Ending Cash & ST Investments $ 28,201 $ 16,773 $ 28,201 $ 16,773
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