Gwalia gold turns to dust
By Robin Bromby and David King
MISMANAGED hedging contracts have brought another iconic Australian company to its knees, with West Australian gold miner Sons of Gwalia yesterday calling in administrators as its liabilities passed $700 million.
Sons of Gwalia joined a growing list of primary industry companies burned by poorly managed hedging, including zinc group Pasminco, New Zealand dairy operator Bonlac and fellow gold miner Newcrest.
And it has angered investors, who said they were given no indication the company's position was terminal.
Shareholders would be left with nothing and US bondholders owed about $220 million would probably have to accept just cents in the dollar, one analyst said.
An internal review, started in March and concluded yesterday, revealed that SOG would not be able to produce enough gold to meet its hedge positions.
The review found reserves at the Marvel Loch mine, bought in 1995, could not be economically mined, leaving SOG short by up to a million ounces of gold over the next five years.
"Our future production profiles had depended quite heavily on Marvel Loch being able to produce somewhere between 150,000oz and 200,000oz a year for the next five years," managing director John Leevers said.
"I had to go to the board and say we had to take those ounces out of the production model. That crystallised a significant position."
Chairman Neil Hamilton told the market yesterday that SOG could not get all its creditors to agree to a standstill on debt payments.
The news was met with anger and disbelief from brokers and their clients who said the company gave no warning things were so bad.
Mr Leevers - who joined SOG in January - said administrators Andrew Love, Garry Trevor and Darren Weaver of Ferrier Hodgson would try to sell the gold business and refinance the tantalum operations.
"The administrators have advised me they intend to run the business as usual. We have no immediate plans to close any operations," he said.
Mr Leevers said the company had received expressions of interest in its gold mines from a South African mining company about three months ago.
There are about 3000 trade creditors who are owed, at any given time, about $60 million.
Mr Leevers said the extent of the group's financial problems shocked senior management.
"It's been a significant surprise for all of us. It's disappointing it's got to this stage," he said.
"We all joined the organisation with the expectation that we were going to be able to rebuild it. I'd just like to say it's certainly a different picture to what I envisaged.
"I had no reason to believe that the reserve and resources that were stated in the books weren't completely valid. It was only when we applied our own rigorous assessment of the resources that we'd purchased that the current position was revealed."
The collapse of SOG comes just four months after its founders, brothers Peter and Chris Lalor, stood down and turned the management over to Mr Leevers.
Peter was in North America yesterday while Chris was in Europe.
Analysts had known there were problems at the company, but not that they were terminal. One analyst who heard the news by telephone was said to "have just about fallen off his seat".
The larger shareholders include US financial giant Franklin Templeton, Canadian miner Teck Cominco, Schroeder Investment and tantalum customer Cabot Corp of the US.
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