South Africa's largest fluorspar producer, Sallies, achieved a further advance in its recovery process during the year to June, but the strengthening rand prevented it from breaking back into the black.

CEO Lindsay Robertson said yesterday that the company's performance improved during the second half of the year under review as a result of sustained optimisation of existing resources and insourced mining at the Witkop operation in October last year, which cut costs by 25%.

Capital expansion and upgrading of the plant at Witkop has been virtually completed and this will raise output by 50%, to 180 000 t/y.

With the second phase of the plant upgrade completed, capacity increased from 450 t a day to 550 t a day, through the addition of another ball-mill and additional regrind and float capacity.

Robertson also reported that, through a marketing drive, Sallies secured additional markets and raised the average price for the new year to a minimum of $120/t.

Managing director Izak Marais stated that, during the year, Sallies, whose main customer is Honeywell, focused on increasing output - a move that was seen as crucial for the group to move into markets in other parts of the world. In terms of a five-year contract with Honeywell, Sallies has to provide the company with 85 000 t of fluorspar a year. Increased production - from 84 215 t to 106 706 t - meant that Sallies could supply new customers in Norway, Italy, France and Germany, Marais explained. New markets are expected to emerge in the Far East and North Africa during the coming year.

Looking ahead, the company is investigating a tailings project that would not only aid its recovery, but also protect it from further strengthening of the rand.

Management has been investigating the feasibility of extracting product from the fluorspar tailings dams at the mine. A pilot plant built from surplus equipment has been running since end-June and has already proved the process, Roberston reported, adding that a capex decision is expected by the end of this month.

The first dam has the potential to produce 550 t a day of fluorspar for ten months. The full project is expected to be on stream by the end of March next year.

There is further scope to set up another five or six tailings dams. Should the rand strengthen further, Sallies is likely to shift its focus from mining to recycling.

In terms of international prices, Robertson pointed out that the world's major fluorspar producer, China, is cutting back on exports to supply its booming domestic market, and fluorspar prices have been rising steadily since 2002.

During the year under review, Sallies posted a loss of R19,2-million on a marginally higher turnover of R84,4-million, but Robertson said at the previous year's average exchange rate of R8,80 it would have been profitable.

“The operating loss incurred in the first half of the year was reduced from almost R9-million to R2-million in the second six months, in spite of a further strengthening of the rand, thanks to the efficiencies and savings which have been achieved at Witkop.

“It is important to note that the production expansion project had no effect on these figures as it was only completed after the year-end,” Robertson said.

Earlier this year, Sallies raised R36-million through a rights offer supplemented by a private placing to fund the expansion project and pay down debt.

Robertson said the company's main creditor, RMB Resources Australia, had since been repaid and gearing had been reduced from 45% to 20%.

Sallies expected to achieve an average price of $120/t, including long-term contracts, for its product in the year to June 2005 and demand was such that it would sell all it could produce.

“In the new year to June 2005, Sallies will enjoy the benefit of substantially increased volumes from the expansion project, an efficiently-run operation, a full order book and the ability to leverage growth opportunities off a much healthier balance sheet.

“At the projected production and price levels for the year, it should, therefore, be modestly profitable even at an exchange rate of R6,50 to the US dollar. Any material strengthening or weakening of the rand from this base will, of course, impact directly on the company's bottom line,” Robertson said.