JOHANNESBURG (miningweekly.com) – South African fluorspar miner Sallies was well positioned to benefit from any upward economic “bounce” – and also sufficiently financially liquid to ward off any blows that might arise should market conditions happen to deteriorate, its CEO Tom Dale said on Tuesday.

Announcing a turnaround to an operating profit of R45-million for the six months to December 31, Dale spoke of an upward economic “bounce” possibly eventuating from US President Barack Obama’s “detox” initiative, but also of the company being at the ready to parry any unexpected downturn blows.

“From the liquidity point of view, whatever arises, we’ll be able to cope with, and, if it’s a real bounce, which many seem to be getting euphoric about, we have shown how profitable the company can be,” Dale said.

Sallies was geared “like a rocket” to fluorspar prices in local currency.

“We’ve seen the high profits in this period from rand prices. Because of that growing profitability, our liquidity pool is systematically growing and will continue to grow at least until the end of this financial year,” he added.

The profits were the result of better operations and higher sales volumes, with revenue doubling and R12-million cash on hand.

The mining operating level saw a R57,4-million turnaround, from a first-half 2008-financial-year loss of R11,6-million to a first-half 2009-financial-year profit of R45,8-million. However, spoiling the party was a hefty R74-million impairment at the mothballed Buffalo operation, which resulted in a financial loss for the period of R61-million.

Mining fluorspar underground at Buffalo had been found to be uneconomical at current price-cost ratios, and keeping Buffalo in mothballs would cost some R250 00 a month. Continuing at Buffalo would be efforts to reduce the phosphorous content of Buffalo tailings.

On the world’s need for fluorspar, Dale was unequivocal: “Fluorspar is a vitally important ingredient in the manufacture of hydrofluoric acid, that’s why it’s called acid-grade fluorspar.”

The principal 60% market, he said, was the so-called cool-gases market, in which fluorspar – in hydrofluoric acid – was used to make refrigerant gases, used in fridges, freezers and air conditioners.

“You cannot make a fridge, freezer or an airconditioner without hydrofluoric acid, which cannot be produced without fluorspar,” Dale said.

Likewise, aluminium trifluoride, which represented about 30% of the market for fluorspar, was indispensable in reducing the melting temperature of alumina by 40% during aluminium smelting.

“You cannot make aluminium without aluminium trifluoride, without hydrofluoric acid and thus without fluorspar," he added.

In addition, there are niche markets which form the remaining 10% of the total market, like the use of fluorspar in fluoroplastics and fluoropolymers, and also the need for fluorspar in the uranium-enrichment process and in lithium-battery manufacture.

“They’re all big, international, strong markets under normal economic circumstances,” Dale said.

Until the global economic dislocation of 2008, demand for fluorspar had been growing at a rate of between 3% and 4% a year, and, if and when the world economy returned to normal, that demand would return to the levels of demand that had ensured Sallies’ turnaround.

Simultaneously, the outlook for additional supply remained constrained, with no major new fluorspar mining projects being announced in the past two years, despite the fluorspar price having risen sharply.

South Africa was endowed with significant fluorspar resources and reserves, with a 300-year resource life at the current rate of consumption.

Dale pointed out that the rand price of fluorspar had reached record levels before the world financial crisis, and the dollar price had gone through the $400/t level convincingly during calendar year 2008.

“But the world economy has taken a massive setback, and prices have come off. The attitude in the markets is now one of wait-and-see,” Dale said.

Not yet out of Sallies' way, however, is its litigation with fluorspar user, Honeywell: “We are in the final stages of litigation with Honeywell, which is claiming $4,5-million compensation for the cancellation of the contract that we had with them plus interest, plus expenses.

“We have a counterclaim of $2,7-million plus interest, plus expenses. If they are awarded everything they claim, it would be R65-million negative and, if we are awarded everything we claim, it would be R45-million positive. So we wait with bated breath,” he said, adding that the case was being arbitrated by a three-person tribunal, whose verdict would be delivered first to the International Chamber of Commerce in March and then to Sallies in April.

Sallies’ flagship Witkop operation sold 60 251 dry metric tons (dmt) of fluorspar in the half-year period, which was up 15% on the 52 445 dmt previoiusly. Owing to closure during October 2008, sales at Buffalo were 41% lower at 5 930 dmt.

The average international market prices for acid grade fluorspar for the 2008 calendar year improved sharply to $301/dmt fob.

Currently, the mineral reserves and resources were based on a surface borehole grid at 25 m and 50 m spacings, which was drilled prior to 2002, but a new reverse-circulation exploration drill rig would start drilling at Witkop this month as part of the first phase of an intensive in-fill drilling programme to be completed by the end of 2010.

The company said that the current largest shareholder was Trinity Dale Capital with 26%, the second-largest was Firebird Management of the US, which manages funds dedicated to equity investment in emerging markets, with 24%, entrepreneur Christo Wiese with 8% and Investec  also having a holding.

the company said.