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Hedge book emasculates Sons of Gwalia

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  • cxpowell <GATAComm@aol.com>
    8:35p ET Wednesday, February 19, 2003 Dear Friend of GATA and Gold: In his Midas commentary a few weeks ago at www.LeMetropoleCafe.com, GATA Chairman Bill
    Message 1 of 1 , Feb 19, 2003
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      8:35p ET Wednesday, February 19, 2003

      Dear Friend of GATA and Gold:

      In his "Midas" commentary a few weeks ago at
      www.LeMetropoleCafe.com, GATA Chairman
      Bill Murphy warned that its hedge book would
      emasculate Sons of Gwalia. As you'll see from
      the story from the Sydney Morning Herald
      appended here, it has happened.

      CHRIS POWELL, Secretary/Treasurer
      Gold Anti-Trust Action Committee Inc.

      * * *

      Sons of Gwalia digs itself into a big hole

      By Michael Weir
      Sidney Morning Herald, Australia
      February 20, 2003

      Sons of Gwalia was on the verge of a crisis yesterday
      after it abandoned its interim dividend for the first time
      in more than 10 years and said it would struggle to
      meet its already revised full year net profit.

      The company revealed it was cash-flow negative to
      the tune of $21.6 million for the six months to
      December 31 and had no cash in the bank due to
      the crippling impact of its hedge book, operational
      problems in its gold division, and the severe
      downturn in the global market for tantalum, of which
      Sons of Gwalia is the world's biggest producer.

      The company's decision to conserve cash -- it would
      have cost $12 million to maintain the 7.5-cent dividend
      paid in the second half last year -- was seen as
      evidence the problems were bigger than the market
      first thought.

      Its shares plunged a further 22 cents, or 12 percent, to
      a fresh 11-year low of $1.61.

      The latest fall leaves the miner valued at just $305.2
      million compared to $1.33 billion 12 months ago and
      raises further questions about the future role of founding
      directors Peter and Chris Lalor.

      Sons of Gwalia reported a 79 percent slump in net
      profit to $7.2 million for the December half, which
      included significant items of $3 million.

      The company had negative operating cash flows of
      $21.6 million, which included $13.2 million in interest
      payments on the company's $385.4 million debt,
      and exploration expenditure of $7.2 million.

      Sons of Gwalia had no cash in the bank at December
      31 and a bank overdraft of $1.3 million, although it
      had deposits at call of $9.7 million and gold on its
      metal account of $16.2 million.

      Gold division earnings before interest and tax (EBIT)
      fell to $2.5 million, compared to $30.6 million in the
      previous corresponding period, while tantalum
      generated EBIT of $28.7 million, down from $34.5 million.

      Executive chairman Peter Lalor would not return calls
      yesterday, but said in a statement the gold division had
      been hit by lower-than-forecast production and higher
      costs. Tantalum was hit after the company was forced
      to cut production due to a slump in demand, he said.

      The company said it would "not be prudent, nor good
      business practice" to pay a dividend to the company's
      17,000, mostly small shareholders.

      It also said it would decide on a final dividend when the
      full-year result was known.

      The company said it expected the second-half profit
      to be higher.

      "I hope this is as bad as it gets," Euroz Securities
      analyst Andy Clayton said.

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