WGI Heavy Minerals Announces Third Quarter Earnings

Expressed in U.S. dollars unless otherwise stated.

COEUR D'ALENE, ID, Nov. 9 /CNW/ - WGI Heavy Minerals, Incorporated ("WGI") (TSX: WG) today reported earnings for the nine-month period ending September 30, 2010 of $0.031 per share ($0.74 million) compared to earnings of $0.031 per share ($0.76 million) in the same period in 2009.  Third-quarter earnings were $0.015 per share ($0.36 million), compared to earnings of $0.025 per share ($0.62 million) in the same period last year. 

Overview

WGI's markets are recovering slowly from the recession of 2008 and 2009.  Third quarter revenues increased 7% to $8.60 million from $8.04 million in the same period a year ago.  Revenues of $25.40 million were up 20% for the nine-month period ending September 30, 2010 when compared to the same period in 2009.  Demand for abrasives in Europe, the Middle East and Asia has started to improve specifically around coarse grade market segments.   WGI's Abrasive segment has achieved revenues of $21.94 million for the nine-month period and is up 21% over the same period in 2009. Concurrently, the Waterjet segment has realized revenues of $3.49 million and is up 12% year over year.  

Financially, WGI's balance sheet remains strong with working capital of $13.67 million at September 30, 2010, up slightly over December 31, 2009's working capital of $13.54 million.  Earnings before interest, tax depreciation and amortization "EBITDA" for the nine-month period ended September 30, 2010 was $1.50 million, up 5% over the same period in 2009.  

Pricing pressure remains strong as customers look for low prices in an oversupplied garnet market.  Gross margins of 24% in the abrasive segment were down from 29% in the nine-month period ending September 30, 2009. This is due to pricing pressures and increased freight costs. The Company's Waterjet segment's gross margins have improved to 31%, up from 26% in the same period in 2009.  This improvement is due to the increased sales of the Company's waterjet line compared to nozzles that are trading more like a commodity.      

The Company's operating business units reported profits of $0.36 million in the third quarter of 2010, achieving the Company's goal of sustained profitability; and marking six consecutive quarters of positive earnings.  General and administrative expenses remain under control, up 1.80% from the same nine-month period in 2009.  The Company is increasing its sales force while adhering to the goal of reducing expenses as a percentage of revenues. As a result the Company has recorded a net income of $0.74 million or $0.03 per share in the nine-month period ended September 30, 2010, compared to net income of $0.76 million or $0.03 per share in the same period in 2009.  This result is despite pricing pressures, higher freight and increased exploration spending.  Emerald Creek Garnet ("ECG") reported 47% improvement in net income for the third quarter of 2010 over the same period in 2009.  This improvement is driven by operational efficiencies and increased demand for ECG's high quality garnet grades. 

The Company's waterjet operation, which is seeing slow but sustained growth, recently moved its waterjet operations from Ephrata, Washington to Coeur d'Alene, Idaho to consolidate the Company's administrative costs and better manage its operations.  In addition to utilizing excess manufacturing capacity in the marketplace, the Company has taken this opportunity to strengthen its engineering capabilities while expanding its customer service and sales team.  Key employees are being retained in the move and are reassigned to further enhance our commitment to customer service in the Waterjet segment of our business.

The Company continues to place high importance on its business partnerships created over the last several years.  Affiliations with industry leaders such as V. V. Mineral are critically important to the success of WGI Heavy Minerals.  In addition, the Company continues to actively look for new, low cost, mineral deposits.  As part of that effort the Company recently filed 30 placer claims on 12,960 hectares in British Columbia, Canada.   Over the next 12 months the Company plans to actively explore these placer claims for garnet, kyanite and other minerals.  In addition, the Company has targeted 3 potential multi-mineral deposits for exploration through 2012.  

"We are encouraged with our operating segments' continued profitability in these difficult times.  An oversupply of finer grained waterjet grades has deteriorated margins making it more important to stress the benefits of providing quality products that over time will assist in the sustainability of our customers' businesses." stated Greg Emerson, President and CEO.   "We are continuing to identify new sources of high quality coarse almandine garnet deposits that can meet the world demand, which we anticipate will grow in 2011 and beyond".  

2010 Third Quarter Results of Operations

Overall revenue for WGI grew in the third quarter of 2010 to $8.60 million, exceeding the $8.04 million recorded in the same period in 2009 by 7%.  This was also an increase of 2% from $8.46 million booked in the second quarter of 2010.  All business segments showed improvement over 2009. Increases ranged from +2% in garnet revenue, +28% in other abrasives and +7% in waterjet parts revenue.  The Abrasives segment sales volume rose 11% but prices slipped 5% as waterjet grade garnet supply still exceeds demand by an estimated 15%.  Due to the Euro declining against the US dollar in 2010 currency exchange rates trimmed third quarter revenue from the Company's European subsidiary 4 percentage points or $0.15 million.

Overall gross profit margins declined to 26% in the third quarter of 2010 compared to 30% in the third quarter of 2009. This was mainly due to lower prices and increased freight in the Abrasives segment.   In addition, the Company earned $0.07 million of commissions on the sale of ilmenite in the third quarter of 2009 that did not occur in 2010.

Operating general and administrative expenses increased 4.0% over the third quarter of 2009. The increases were experienced in travel expenditures and selling and marketing expenses, and were offset by a decrease in professional fees, primarily due to bringing legal counsel in-house coupled with lower bad debt expenses.  Income tax expenses increased by $0.15 million to $0.95 million for the third quarter of 2010 compared to the third quarter of last year due to increased taxable income for the quarter incurred by the Company's European subsidiary, Kominex.

The Company posted net earnings of $0.36 million, or $0.015 per share, compared with a net income of $0.62 million, or $0.025 per share for the third quarter of 2009. 

Financially, the Company's balance sheet remains strong, with net cash, cash equivalents, short-term investments and marketable securities in the amount of $6.80 million. The net cash inflow for the third quarter 2010 was $0.13 million, the result of positive cash flow from operations, including working capital movement offset by capital investment, and net repayment of lines of credit and debt.

2010 First Nine Months Results of Operations

Overall revenues for the Company during the first nine months of the year were 20% ahead of the same period in 2009 ($25.40 million-2010 versus $21.13 million-2009).  Year over year revenue growth thus far was highest during the first quarter, increasing by 37%, but slowed as the year progressed to just 7% in the third quarter. All business segments recorded growth during the first nine months of 2010 led by garnet (+21%), other abrasives (+30%), and waterjet parts (+12%). Total sales volume for abrasive products improved 33% versus previous year, driven by a rebound in market demand in the first half of the year and by modest market share gains. By mid-year, volume growth had begun to slow as competition intensified. Abrasives prices in 2010 have fallen 8% versus the levels achieved in 2009. Due to the Euro declining against the US dollar since last year have had an unfavourable impact of about 2 percentage points on current year revenue.

Gross profit margins declined to 25% in the nine months ended September 30, 2010 compared with 29% in the same period of 2009. This was mainly due to pricing concessions involved with gaining market share.   In addition, ocean freight rates for containers increased significantly, lowering margins on delivered product by approximately 10%. 

General and administrative expenses of $5.12 million increased by 1.8% year on year primarily made up of increases in selling and marketing expenses utilized in gaining and retaining customers offset by lower professional fees associated with bringing legal counsel in-house.  

Exploration costs at ECG increased to $0.22 million as the Company continues to look for new mineral deposits.   Exploration will continue into 2011 both at ECG, and on the Company's new mining claims in British Columbia for garnet, and in other locations.

The Company posted net earnings of $0.74 million, or $0.031 per share compared with a net income of $0.76 million, or $0.031 per share, for the first nine months of 2009.

Outlook

WGI's business continues to be influenced by turbulence in global markets.  Asia, Europe and the Middle East have been strong for our Company.  Abrasive and waterjet parts sales in Asia and the Middle East regions are expected to remain steady and grow in Europe as oil prices remain strong and manufacturing continues to improve.   The growing trade deficit in the U.S. continues to concern the Company.  With the expectation of economic recovery being more gradual than originally projected the Company does not anticipate seeing any substantial growth in the North American markets.  The Company continues to work with long-term customers to continue to grow its abrasive and waterjet business in the U.S. and has recently seen growing demand for its high-end waterjet grade garnet, WesJet, produced out of ECG.   In spite of this, the Company anticipates growth in revenues to level out in the fourth quarter, with revenue growth resuming in the spring of 2011, mainly through increased abrasive volumes.  With the increase in world waterjet garnet supplies and an increase in ocean freight and logistics costs, margins will continue to be under pressure.  

The Company continues to implement operational improvements and identify new resources through expanded mineral exploration in North America.  Marketing efforts will continue to expand as the Company competes in abrasive markets that are currently over supplied through the addition of sales and marketing personnel. Waterjet manufacturing has been strengthened through outsourcing in 2010 as the Company takes advantage of underutilized manufacturing capacity and continues to market waterjet consumables engineered to high quality standards in the U.S.A. along with its waterjet garnet. 

Profitability still remains the focus of the Company.   Management is committed to keeping general and administrative costs in line with revenues.  Sales general and administrative expenses as a percentage of revenues have declined in 2010.    This trend should continue in 2011.  Net income after tax and the related earnings per share are expected to increase slightly in 2010 over 2009. 

About WGI 

The principal business of WGI Heavy Minerals, Incorporated is the processing and sale of industrial abrasive minerals and the manufacturing and sale of ultra-high pressure waterjet cutting machine replacement parts.  The Company, through its subsidiaries, markets and sells abrasive products and services and waterjet replacement parts globally.

This news release contains forward-looking statements concerning the business, operations, and financial performance and condition of WGI Heavy Minerals, Incorporated. A number of the matters discussed and statements made in the press release contain forward-looking statements reflecting current expectations regarding future assets. When used in this press release, the words "believe", "anticipate", "intend", "estimate", "expect", "project", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations and are naturally subject to risks, uncertainties, and changes in circumstances beyond management's control that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to: exploration and development risks; risks related to permits and title to property; risks related to foreign countries and regulatory requirements; operating hazards; foreign currency fluctuations; competition; fluctuations in the market price of mineral commodities and transportation costs; uncertainty as to calculations of mineral deposit estimates; uninsured risks; and dependence upon key management personnel and executives.  Actual results may differ materially from those expressed here. You should not place undue reliance on such forward-looking statements. The Company is under no obligation to update or alter such forward-looking statements, whether as a result of new information, future events, or otherwise.

WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)

				September 30, 2010	Dec. 31, 2009
Assets
Cash and Marketable Securities				6,799	7,398
Other Current Assets				12,011	11,044
Total Current Assets				18,810	18,441
Property, plant and equipment				4,039	3,686
Goodwill and Intangible Assets				443	487
Other Assets				-	-
Total Assets				23,292	22,616
Liabilities & Equity
Current Liabilities				5,142	4,899
Long-term debt				226	292
Total Liabilities				5,367	5,190
Capital stock				35,520	35,915
Contributed Surplus				4,792	4,466
Deficit				(22,561)	(23,297)
Accumulated other comprehensive income				173	341
Total Equity				17,924	17,425
Total Liabilities & Equity				23,292	22,616
Consolidated Statements of Operations
$(000's)	For the three months ended			For the nine months ended
	September 30, 2010	September 30, 2009		September 30, 2010	September 30, 2009
Sales	8,604	8,038		25,402	21,129
Operating Costs	6,222	5,489		18,545	14,641
Depreciation, depletion, and amortization	160	158		472	466
Gross Profit	2,222	2,392		6,386	6,023
Gross Margin %	25.8%	29.8%		25.1%	28.5%
Expenses
G&A	1,742	1,675		5,125	5,033
Interest Income	(16)	(30)		(49)	(82)
Interest Expense	6	12		29	50
Stock based compensation	12	2		49	37
Exploration costs	32	74		216	85
Other Expenses (Income)	(8)	(38)		16	(89)
Total	1,768	1,696		5,386	5,033
Income before taxes	454	696		1,000	990
Net Provision for taxes	93	78		264	230
Net Income	361	617		735	760
Basic earning per common share	$                         0.015	$                         0.025		$                         0.031	$                             0.031
Diluted earnings per common share	$                         0.015	$                         0.024		$                         0.030	$                             0.030
Consolidated Statements of Cash Flows	For the three months ended			For the nine months ended
$(000's)	September 30, 2010	September 30, 2009		September 30, 2010	September 30, 2009
Cash flows from operating activities	$                            462	$                            536		$                         1,303	$                                520
Cash flows from investing	$                          (440)	(104)		(874)	(339)
Cash flows from financing	$                          (150)	75		(951)	(391)
Payment of cash distribution	$                                -	-		-	(19,245)
Effect of exchange rate changes on Cash & Cash Eq.	$                            281	65		(77)	169
Inc./(dec.) in Cash and Securities	$                            153	$                            572		$                           (599)	$                         (19,285)
Beginning Cash & Securities	$                         6,646	$                         8,343		$                          7,398	$                           28,201
Ending Cash & Securities	$                         6,799	$                         8,915		$                         6,799	$                             8,915

For further information:

CONTACTS: Greg Emerson, Ed Kok
810 Sherman Ave., Coeur d'Alene, ID 83814  U.S.A.
[phone]  Fax [phone]  www.wgiheavyminerals.com  

Greg Emerson, President & CEO                                               Ed Kok, General Counsel, Investor Relations
[phone]   E-mail [email protected]        [phone]   E-mail [email protected]