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GWMG Q4 revenue rises despite weak rare earths prices; shuts US subsidiary

GWMG Q4 revenue rises despite weak rare earths prices; shuts US subsidiary

Photo by Bloomberg

21st March 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Rare earth alloys producer and South Africa-focused project developer Great Western Minerals Group (GWMG) this week said that despite falling prices for the rare earth alloys its subsidiary Less Common Metals (LCM) produces, it managed to lift revenues during the fourth quarter, and full year.

The Saskatoon, Saskatchewan-based firm on Thursday said that manufacturing services revenue was $5.2-million in the three months ended December 31, an 86.2%, or $2.4-million, increase over the same period in 2012, as higher volumes more than offset declining alloy prices. A slow-down in sales near the end of 2012, as customers prepared for price decreases, also contributed to the year-over-year change.

During the fourth quarter, GWMG sold 85 t of alloys, compared with 37 t of alloys for the same period in 2012. The increase was mainly owing to the company being able to sell bulk quantities of strip-cast alloys after fully qualifying with key customers during last year.

The quarter’s gross margin also improved to $800 000, or 15.9% of sales, from $300 000, or 10.8%, of sales, in the fourth quarter of 2012. The increase was owing to the leverage on higher volume and specialty alloy sales during the period, which have historically been at higher margins.

For the full-year 2013, the company had revenue of $17.4-million, an increase of 10.8% over 2012, which reflected 284 t of alloys sold, compared with 198 t in 2012. The company's gross margin remained relatively constant at $4.4-million in 2013, compared with $4.3-million in 2012, despite contracting as a percentage of revenue to 25.6% from 27.1%. This was owing to lower alloy prices.

The manufacturing services segment generated a loss of $2.9-million in 2013, compared with a loss of $1.9-million in 2012. The change was mostly attributable to an increase in depreciation and amortisation of $700 000 as a result of the new LCM facility and new furnaces that were put into production, and an impairment of property, plant and equipment of $200 000 related to redundant assets at LCM.

Alloy volumes are expected to increase over the previous years now that the new furnaces at LCM were fully commissioned and customers were expanding their orders, despite growth being limited by the company's ability to obtain the necessary rare-earth materials at competitive pricing.

Once the Steenkampskraal rare-earth project, in South Africa’s Northern Cape province had started production, the company expected this limitation to be removed.

Meanwhile, GWMG revealed that it would shutter its Great Western Technologies (GWTI) operations in Troy, Michigan, and would attempt to liquidate the assets in the coming months.

GWMG president and CEO Marc LeVier said that the board and management team had conducted an extensive review to identify inefficiencies in the company’s operations in order to lower its overhead and capital outlays.

“GWTI has struggled with losses and, given our strong position with LCM, the board felt this action was prudent and an important step that will eliminate redundancy and better streamline the organisation for improved efficiencies,” he said.

GWMG reported a net loss of $29.4-million, or $0.07 a share, for the year.

PROJECT PROGRESS

GWMG said that it had spent $7.6-million on various technical studies, mine site exploration and evaluation investigations, the October resource estimate, finalising the preliminary economic assessment, the final phase of infill drilling and underground sample collection for higher density resource data, development of a robust structural geology model, metallurgical testworks, and on starting of the feasibility study at its Steenkampskraal project.

During the year, GWMG also started exploration on a 55 000 ha prospecting right surrounding the project. The latest resource estimate, completed in October, had increased the compliant measured and indicated mineral resources to 86 900 t total rare earth oxides, including yttrium oxide.

GWMG said that it was currently evaluating a variety of funding options as well as alternatives to reduce capital outlays. This includes evaluating toll separation alternatives to defer certain upfront capital costs and shorten timelines.

As at December 31, the company had $23.6-million cash in the bank, compared with $28.3-million at September 30, 2013.

Edited by Creamer Media Reporter

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