EDITOR: | March 20th, 2014 | 17 Comments

Great Western Minerals Group Reports Year-End 2013 Results and Provides Project Update

| March 20, 2014 | 17 Comments
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March 20, 2014 (Source: Marketwired) — Great Western Minerals Group Ltd. (“GWMG” or the “Company”) (TSX VENTURE: GWG) (OTCQX: GWMGF), a leader in the manufacture and supply of rare earth element-based metals and metal alloys and holder of a low cost, high-grade critical rare earth asset (the “Steenkampskraal Project” or “SKK”), today released its fourth quarter and full year financial results through December 31, 2013, and provided an update on the Company’s activities.

Highlights and Results:

  • Strong top line performance: fourth quarter revenue increased more than 86% to $5.2 million over the prior-year period on strong alloy sales as a result of increased manufacturing capacity and enhanced capabilities. For the full-year 2013 period, revenue increased 10.8% to $17.4 million. Company revenue was primarily attributable to its production subsidiary Less Common Metals Limited (“LCM”).
  • SKK Feasibility Study progressing well: Company plans to take a few extra weeks to perform value engineering to optimize capital expenditure requirements for the SKK project. Expect to report results of the study by May 1, 2014.
  • Advanced corporate-wide objectives and strategy: monthly cash outlays were significantly reduced with aggressive expense management and a continued focus on core assets, which was further supported with the executed joint venture agreement on the Hoidas Lake project and the planned closing of Great Western Technologies Inc. (“GWTI”).

Marc LeVier, Company President and CEO, commented, “2013 and the start of this year can be described as a period of measurable change and progress. We have reduced costs and focused our efforts and resources on the work that will support our mine to metals strategy. Our efforts have put the work process in proper sequence to advance the project and provide for long term success.”

Mr. LeVier added, “We are starting to see the benefits of our capacity and capability enhancements at LCM with increased customer orders. At SKK, we laid out an aggressive plan to get us on the path toward production and have been successful in advancing our objectives. We completed a new NI 43-101 compliant technical report and upgraded mineral resource estimate, optimized the metallurgical process, completed a successful mini-pilot plant test, and the SKK Feasibility Study is in the final stages of review efforts. We believe we have the right-sized operation and right-sized business model to succeed.”

Manufacturing Services

Manufacturing services revenue was $5.2 million in the fourth quarter of 2013, an 86.2%, or $2.4 million, increase from the same period in the prior year 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. In the recent quarter, the Company sold 85 metric tonnes of alloys compared with 37 metric tonnes of alloys for the same period in 2012. The increase was primarily due to the Company being able to sell bulk quantities of strip-cast alloys following full qualification with key customers in 2013. Fourth quarter gross margin improved to $0.8 million, or 15.9% of sales, from $0.3 million, or 10.8% of sales, in the fourth quarter of 2012. The increase was due 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 period, the Company had revenue of $17.4 million, an increase of 10.8% over the 2012 period, which reflects 284 metric tonnes of alloys sold compared with 198 metric tonnes in 2012. The Company’s gross margin remained relatively constant at $4.4 million in 2013 compared with $4.3 million in 2012, though as a percentage of revenue, gross margin declined to 25.6% from 27.1% in the prior-year period. The margin contraction was due 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 amortization of $0.7 million as a result of the new LCM facility and furnaces that were put into production, and an impairment of property, plant and equipment of $0.2 million related to redundant assets at LCM.

Alloy volumes are anticipated to increase over the prior years now that the new furnaces at LCM are fully commissioned and customers expand their orders, although growth will continue to be limited by the Company’s ability to obtain the necessary rare earth materials at competitive pricing. Once the SKK project has commenced production, the Company expects this limitation will be removed.

The Company will be discontinuing the operations of its GWTI business unit located in Troy, Michigan, and will attempt to liquidate the assets in the coming months.

Mr. LeVier added, “The Board and management team have been conducting an extensive review to identify inefficiencies in our operations in order to lower our 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 organization for improved efficiencies.”

The GWMG Board of Directors approved the closing and redundant asset liquidation on March 20, 2014.

Steenkampskraal Project

The Company expended $7.6 million in 2013 on various technical studies, mine site exploration and evaluation investigations, the October 2013 Resource Estimate, finalization of the PEA, the final phase of infill drilling and underground sample collection for higher density resource data, development of a robust structural geology model, metallurgical test works, and commencement of the SKK Feasibility Study. Comparatively, in 2012, GWMG expended $10.8 million predominantly on exploratory drilling and various technical studies.

During the year, GWMG also initiated exploration activities on an approximately 55,000 hectare prospecting right surrounding the SKK Project. Work included geologic mapping, ten channel sample lines crossing monazite veins in historic trenches for a total of 126 rock samples and 49 quality control samples, ground radiometric surveys and a combined airborne high-resolution magnetic and radiometric geophysical survey of the area. Geophysical and geological interpretation of the radiometric survey data along with preliminary evaluation of assay results have identified several anomalies that may be related to REE mineralization.

The October 2013 Resource Estimate, which is one of the foundations for the SKK Feasibility Study, increased the Measured and Indicated mineral resources to 86,900 tonnes total rare earth oxides including yttrium oxide (16,600 tonnes Measured and 70,300 tonnes Indicated) and upgraded a significant amount of the December 2012 Resource Estimate from the Indicated and Inferred categories to the Measured and Indicated categories.

The Company is 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. Until such time as the funding is secured, the Company will manage its current cash position to best support key lines of progress at the SKK project.

Liquidity

The Company’s cash and cash equivalent position at December 31, 2013 was $23.6 million compared with $28.3 million at September 30, 2013. The Company continues to take a prudent approach to expense management and has significantly reduced its monthly cash outlays following various operational efficiency initiatives. During the first half of 2013, GWMG averaged cash outlays of approximately $3.0 million per month. This significantly improved to $1.8 million during the second half of 2013.

The Company believes that its current capital level will allow it to perform certain compliance work, undertake necessary engineering and technical studies to complete the SKK feasibility study and make its scheduled interest payments for 2014.

Qualified Persons

Victor-Mark Fitzmaurice, Pr. Eng. M. Engineering (Mining), Managing Director of Rare Earth Extraction Co. Limited and Steenkampskraal Monazite Mine (Pty) Ltd. and Brent C. Jellicoe, B.Sc. (Hon.), P.Geo., Chief Geologist for Steenkampskraal Monazite Mine (Pty) Ltd., are the Qualified Persons (as defined in NI 43-101) responsible for supervising the preparation of the technical content of this news release.

Teleconference and Webcast

The Company will host a conference call and webcast to review its results, key market initiatives and business strategy on Friday, March 21, 2014 at 11:00 a.m. ET. A question-and-answer session will follow.

The conference call can be accessed by calling (201) 689-8471. The live listen-only audio webcast can be monitored on the Company’s website at www.gwmg.ca, where it will be archived afterwards, along with a transcript once available.

A telephonic replay will be available from 2:00 p.m. ET the day of the teleconference until Friday, March 28, 2014. To listen to the archived call, dial (858) 384-5517 and enter replay pin number 13577672.

About GWMG
Great Western Minerals Group Ltd. is a leader in the manufacture and supply of rare earth element-based metals and metal alloys. Its specialty alloys are used in the battery, magnet and aerospace industries. Produced at the Company’s wholly-owned subsidiary, Less Common Metals Limited in Ellesmere Port, U.K., these alloys contain transition metals, including nickel, cobalt, iron and other rare earth elements. As part of the Company’s vertical integration strategy, GWMG also holds 100% equity ownership in Rare Earth Extraction Co. Limited, which controls the Steenkampskraal monazite mine in South Africa. The Company also holds interests in three rare earth exploration properties in North America that are not active.

The Company routinely posts news and other information on its website at www.gwmg.ca.

Email inquiries can also be made to info@gwmg.ca.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Statement 

Certain information set out in this News Release constitutes forward-looking information. Forward-looking statements (often, but not always, identified by the use of words such as “expect”, “may”, “could”, “anticipate” or “will” and similar expressions) may describe expectations, opinions or guidance that are not statements of fact and which may be based upon information provided by third parties. Forward-looking statements are based upon the opinions, expectations and estimates of management of GWMG as at the date the statements are made and are subject to a variety of known and unknown risks and uncertainties and other factors that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Those factors include, but are not limited to the assumptions and estimates in the October 2013 resource estimate and the preliminary economic assessment of the Steenkampskraal project proving to be accurate over time; the construction, commissioning and operation of the proposed monazite processing facility and separation facility within estimated parameters; mine refurbishment activities; reliance on third parties to meet projected timelines and commencement of production at Steenkampskraal; risks related to the receipt of all required approvals including those relating to the commencement of production at the Steenkampskraal mine, delays in obtaining permits, licenses and operating authorities in Canada, South Africa and China, environmental matters, water and land use risks; risks associated with the industry in general, commodity prices and exchange rate changes, operational risks associated with exploration, development and production operations, delays or changes in plans, including those estimated in the preliminary economic assessment of the Steenkampskraal project; risks associated with the uncertainty of resource estimates; health and safety risks; uncertainty of estimates and projections of production, costs and expenses; risks that future Steenkampskraal and region exploration results may not meet exploration or corporate objectives; the adequacy of the Company’s financial resources and the availability of additional cash from operations or from financing on reasonable terms or at all; political risks inherent in South Africa and China; risks associated with the relationship between GWMG and/or its subsidiaries and communities and governments in Canada and South Africa, radioactivity and related issues, dependence on one mineral project; loss of, and the inability to attract, key personnel; the factors discussed in the Company’s public disclosure record; and other factors that could cause actions, events or results not to be as anticipated. In light of the risks and uncertainties associated with forward-looking statements, readers are cautioned not to place undue reliance upon forward-looking information. Although GWMG believes that the expectations reflected in the forward-looking statements set out in this press release or incorporated herein by reference are reasonable, it can give no assurance that such expectations will prove to have been correct. Except as required by law, GWMG does not assume any obligation to update forward looking statements as set out in this news release. The forward-looking statements of GWMG contained in this News Release, or incorporated herein by reference, are expressly qualified, in their entirety, by this cautionary statement and the risk factors contained in GWMG’s Annual Information Form available at www.sedar.com.

GREAT WESTERN MINERALS GROUP LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 ($ in CAD)
As at
December 31 December 31
2013 2012
Recast
Assets
Cash and cash equivalents $ 23,573,586 $ 52,095,448
Accounts receivable 3,855,444 2,365,880
Inventories 4,121,182 4,199,561
Escrow account 7,163,280
Deposits and prepaid expenses 1,991,582 837,315
Current assets 33,541,794 66,661,484
Property, plant and equipment 20,677,727 16,388,314
Exploration and evaluation assets 15,233,227 17,624,225
Intangible assets 668,431 749,814
Goodwill 2,323,426 2,132,431
Non-current assets 38,902,811 36,894,784
Total assets $ 72,444,605 $ 103,556,268
Liabilities
Accounts payable and accrued liabilities 7,398,668 11,220,369
Current portion of provisions 2,188,963 1,065,175
Current liabilities 9,587,631 12,285,544
Provisions 1,971,899 3,287,136
Convertible bonds – debt 65,824,047 55,810,316
Convertible bonds – embedded conversion option 7,047,954
Non-current liabilities 67,795,946 66,145,406
Shareholders’ equity / (deficit)
Share capital 111,747,305 111,747,305
Warrants 11,702,153 11,817,308
Share based payments reserve 10,908,496 10,274,967
Accumulated other comprehensive income (loss) (6,192,722 ) (5,020,099 )
Deficit (133,104,204 ) (103,694,163 )
Total shareholders’ equity / (deficit) (4,938,972 ) 25,125,318
Total liabilities and shareholders’ equity $ 72,444,605 $ 103,556,268
GREAT WESTERN MINERALS GROUP LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 ($ in CAD)
For the three months ended For the years ended
December 31, December 31,
2013 2012 2013 2012
Recast Recast
Sales $ 5,193,526 $ 2,789,613 $ 17,385,056 $ 15,687,298
Cost of sales 4,366,563 2,487,218 12,941,697 11,435,785
Gross margin 826,963 302,395 4,443,359 4,251,513
Operating Expenses
General and administration 150,327 1,258,745 3,776,047 4,109,182
Wages and benefits 1,694,610 4,186,612 7,428,157 9,071,977
Stock based compensation (107,695 ) (426,806 ) 633,529 2,109,921
Professional fees 202,898 689,539 1,885,563 2,640,732
Investor relations 51,922 189,584 227,049 369,706
Occupancy 1,020,873 1,427,530 2,642,684 2,876,508
Depreciation and amortization 640,251 142,855 1,750,362 875,137
Exploration and evaluation 1,541,859 3,173,050 7,720,713 12,364,859
Property research 124,498 154,647
Impairment of property, plant and equipment 83,203 1,204,702 236,690 6,469,890
Exchange loss 1,481,306 269,949 1,982,704 21,458
6,759,554 12,240,258 28,283,498 41,064,017
Other
Interest expense and finance costs (3,671,249 ) (3,076,497 ) (12,866,488 ) (10,359,682 )
Interest income (34,223 ) 116,635 104,040 262,061
Gain on conversion option 130,114 15,561,981 7,047,954 26,528,477
Other income (expense) 11,638 (7,913 ) 33,636 147,036
(Loss) Income before income taxes (9,496,311 ) 656,343 (29,520,997 ) (20,234,612 )
Income tax recovery (expense) (4,199 ) 802,976 110,956 715,929
Net Income (loss) $ (9,500,510 ) $ 1,459,319 $ (29,410,041 ) $ (19,518,683 )
Other comprehensive income (loss):
Items that may be reclassified to profit and loss:
Translation adjustment 970,388 (478,201 ) (1,172,623 ) (2,114,079 )
Other comprehensive income (loss) 970,388 (478,201 ) (1,172,623 ) (2,114,079 )
Total comprehensive income (loss) (8,530,122 ) 981,118 (30,582,664 ) (21,632,762 )
Basic and fully diluted income (loss) per share $ (0.023 ) $ 0.003 $ (0.070 ) $ (0.047 )
Weighted average number of shares outstanding 418,738,174 418,564,261 418,738,174 416,470,712
GREAT WESTERN MINERALS GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in CAD)
For the years ended
December 31,
2013 2012
Recast
Cash provided by (used in)
Operating activities
Net loss for the year $ (29,410,041 ) $ (19,518,683 )
Adjustment for:
Depreciation and amortization 1,750,362 875,137
Stock based compensation 633,529 2,109,921
Finance costs 12,866,488 10,359,682
Gain on conversion options (7,047,954 ) (26,528,477 )
Impairment of property, plant & equipment 236,690 6,469,890
Loss on disposal of property, plant & equipment 2,063 5,149
Impairment of inventory 249,457 466,302
Gain on Vaaldiam Mining shares (108,261 )
Income tax recovery (110,956 ) (715,929 )
Income tax received (paid) 122,273 (234,841 )
Other operating items (4,750,180 ) 5,213,380
(25,458,269 ) (21,606,730 )
Investing activities
Property, plant and equipment (5,243,987 ) (11,316,398 )
Proceeds on sale of Vaaldiam Mining shares 159,405
Proceeds on sale of property, plant and equipment 160,422 15,739
Interest received 104,040 262,061
(4,979,525 ) (10,879,193 )
Financing activities
Issuance of share capital, net of issuance costs 913,908
Interest paid (7,397,833 ) (3,813,551 )
Issuance of convertible bonds, net of issue costs 83,405,896
Net change in amounts in escrow 7,163,280 (7,163,280 )
(234,553 ) 73,342,973
Net increase (decrease) in cash and cash equivalents during the year (30,672,347 ) 40,857,050
Exchange rate changes on foreign currency cash balances 2,150,485 308,190
Cash and cash equivalents, beginning of year 52,095,448 10,930,208
Cash and cash equivalents, end of year $ 23,573,586 $ 52,095,448

Raj Shah

Editor:

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Comments

  • Motherearth

    I see GWTI ending up in the hands of SUV. There is no way that this company is going anywhere but to help promote Hoidas in the North America REE market. Jim will know exactly how this can be done. GWTI has permits and patents and alot going for them, they will not be willing to give that up so easy. I would love to hear what your thoughts are. Thanks and keep up the great work.

    March 21, 2014 - 5:11 PM

  • hackenzac

    It’s a vertical integration with a mystery middle.

    March 22, 2014 - 12:00 AM

    • Daniel

      From the comcast Louisa Moreno’s last question on whether LCM can turn a heavy mix oxide/carbonate sample to metal she received an affirmative Yes it has been done/proven. Until the mine is in operation managment declined to waste cash on the purification process. Two electrode ionization sounds similar to solid phase extraction.
      Left two messages for public relations for two possible means of financing capex. Let see if they are open to the suggestions.
      Interesting questions by Moreno trying to gauge GWG’s liquidity and her surprise the FS incudes all further costs. I’m curious as to why she is measuring how long the company can stay solvent and whether the feasibility study is included in the residual cash disbursments.
      Its not a mystery if you can think outside of a box.

      March 22, 2014 - 3:20 AM

      • hackenzac

        Maybe she’s attempting to take measure of how long the company can stay solvent because that’s a pretty big issue, don’t you think? The bottom line is that they are nearly out of money. Perhaps the sovereign wealth of South Africa will come to the rescue or the benevolent People’s Republic of China. SKK will mine for sure but under the control of GWM, I’m doubtful. I think at a minimum that they should sell SKK with guaranteed offtake for LCM. Selling GWTI raises interesting questions and I’m curious as to who makes the bid on it. I smell blood in the water with this company but hey, what do I know?

        March 22, 2014 - 1:32 PM

        • Daniel

          Solvancy is a Big Issue but extreme when she asks about the liquidity of the AR and Inventory.
          Good Guess but not in the way you perceive…in regards to China.

          March 22, 2014 - 3:08 PM

        • Springtrader

          Nothing. $23 million in the bank isn’t ‘ almost out of money’.

          March 22, 2014 - 5:27 PM

    • aurelius

      Thanks for that comment Derminator.

      March 22, 2014 - 3:30 AM

      • Daniel

        Ucore Nov 7 press release upgrade from inferred to indicated. Not measured.

        March 22, 2014 - 3:47 AM

        • hackenzac

          Daniel: While going off topic with Ucore, do you have any figures on the current price of tea in China?

          March 22, 2014 - 1:47 PM

          • Daniel

            I dont drink tea only coffee black. Ucore is big news today and the way they got financing is related to the topic especially with the quality of their assets.

            March 22, 2014 - 3:11 PM

  • hackenzac

    Two electrode ionization is nothing like SPE. That statement is a mystery in itself. I have some questions. If separated carbonates are ok feedstock for LCM, what do they need chlorides for? What about this tolling plan? What about the money? How much more do they need? Where are they going to get it? What about the new SA law where they take a 20% cut of strategic minerals and require more domestic value adding? What about the BAR? What about Vince Mora? I guess we can wait for the FS by 1-May for the answers to all but color me skeptical. Clearly the market isn’t impressed either. This mine was supposed to be open by now and it’s still 2 years away, not exactly good execution but hey, what do I know?

    March 22, 2014 - 1:17 PM

    • Daniel

      Point out where you refer to the need for choride so that I could read up on it. Tolling was an option as well as a complete separation. But that is the next stage 24 months to build the capex then 12 more months to do the analysis to toll or do it by themselves.
      I sent an alternative to both these with unlimited financing. SA law 20% only for oil, mineral resources only require partial separation in SA to employ South Africans which already is included in the FS. The comcast answer BAR is ongoing and will not take a year but months/days.
      The market is made up of people who doesnt understand the process and are only influenced by hype. Science is real not a scam like the markets. This isnt about a race on which company survives. This is about a race to when China cuts off the rest of the world from heavy rare earth. We need every single mine operational and we need to work together.

      March 22, 2014 - 3:31 PM

  • Daniel

    How many rare earth mines are in South Africa with a joint venture with China?
    Jobs posting?
    http://www.infomine.com/careers/jobs/job1060246/engineering.project.manager.rare.earth.minerals.aspx
    The applicant must have the following requirements:

    A 4 year engineering degree.
    Be prepared to be relocated to South Africa (Johannesburg for the feasibility study and Cape-Town for the subsequent project phases) for a 3-year contract to oversee the Definitive Feasibility Study, final design, construction and commissioning of the Separation Plant.
    Be prepared to travel between South Africa and China and to other destinations as dictated by his work.
    Report to the Vice President of the company – Project Development.

    Have Rare Earth Separation plant experience:

    Operationally: minimum of 3 years
    Design: minimum 2years
    Have some experience as a project manager or project engineer that has been involved in rare earth separation plant, managing and co-ordinating other engineering disciplines and/or consultants
    Design of the Separation Plant will be performed by the appointed Chinese Specialist Consultants, however the Separation Plant Project Manager will manage and co-ordinate all their activities and deliverables and be able to review their work on an on-going basis
    Salary is highly negotiable (+ R1.5m + Incentives)

    March 25, 2014 - 1:33 PM

  • walt

    I have heard Moreno speak publicly and privately at several events and consider her a complete fraud who knows absolutly nothing so don’t concern yourselves with her comments

    March 25, 2014 - 2:44 PM

    • Daniel

      Did you see my note above. The Chinese are hiring to do a Feasibility study and design of a Tolling station in South Africa. Canada will lose the technology of a Central Tolling Station and none of the Rare Earth Resource will be developed.
      To have Avalon on her top 7 makes me wonder about the people the Federal government is hiring to advise them. Greenland is now under the Chinese. Its all over for the West.

      March 25, 2014 - 3:18 PM

    • Gareth Hatch

      @walt: I, too, have heard Dr. Moreno speak publicly and privately, we have been on a number of analyst site visits together and we correspond regularly on the rare-earth sector. I have found her to be highly knowledgeable, professional and very well informed.

      I therefore find your comment to be offensive, inaccurate and unbecoming.

      March 26, 2014 - 7:13 PM

      • Joe

        Gareth,

        Since GWG’s stated primary problem is obtaining low-priced RE oxides with which to make alloy at LCM at a good profit margin, doesn’t the WTO decision then bode well for GWG?

        March 26, 2014 - 8:00 PM

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