Latest / Investor Exchange / Southern Alliance Mining’s FY2025 Loss Skyrockets 1,157%

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Southern Alliance Mining’s FY2025 Loss Skyrockets 1,157% · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome back to The Deep Dive. Today, our mission is to really crack open the
• 0:14
  full-year financial results for Southern Alliance Mining LTD.
• 0:17
  You might know them as SAM. They're
• 0:19
  a pretty well-established Malaysian producer of high-grade iron ore.
• 0:22
  And we've got the source documents here. And honestly, they tell a kind of a
• 0:26
  contradictory story, which, as you know, is often where the interesting stuff hides.
• 0:31
  Exactly. So here's the puzzle, the core thing we need to figure out for you today.
• 0:35
  Sam reported, get this, a really impressive 20.3% jump in revenue for their
• 0:42
  fiscal year 2025. That looks great, right?
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  Top line growth. Seems good on the surface, yeah. But, and this is the kicker,
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  at the same time, their pre-tax losses, well, they didn't just double or triple.
• 0:51
  They surged by an absolutely staggering, 1157%. Yeah, that's a huge number.
• 0:57
  Right. So how does that even happen? How can a mining company sell 20% more
• 1:00
  stuff basically and yet see its financial results just completely cratered like that?
• 1:04
  We're going deep to find the accounting quirks and the market forces behind this apparent chaos.
• 1:09
  Yeah, look, it's definitely a situation that screams for context.
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  When you see a percentage that big, you just know the real story is,
• 1:16
  well, a lot more nuanced than just a headline.
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  We really need to pull apart two key things here.
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  First, their underlying operational performance, like how well do they actually
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  dig the stuff out of the ground and sell it?
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  And second, these non-cash financial decisions management made,
• 1:31
  basically adjusting their balance sheet because the outlook wasn't looking so great. Okay.
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  So we'll break down what drove those financials, the good bits and the bad bits,
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  and then take a look at how they're trying to pivot strategically,
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  especially with this significant new move they're making into rare earth elements.
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  Okay, let's get into it then. Segment one, the raw financial performance.
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  The shock factor, maybe?
• 1:52
  Let's call it that for now. All right. So the hard numbers. Financial year ended July 31st, 2025.
• 1:58
  FY 2025. As we said, revenue jumped sharply. It went from RM 165.8 million up
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  to RM 199.5 million. That's a 20.3% increase.
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  So it confirms they were definitely moving a lot more product.
• 2:11
  They absolutely were moving volume, no question.
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  But here's the immediate red flag, like right underneath that nice revenue number.
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  You look at the gross profit line.
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  This is what's left after you take out the direct cost of sales, right?
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  Gross profit just collapsed. It fell by nearly two thirds, a 65.9% drop. Yeah.
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  It went from RM 9.1 million, which wasn't huge to begin with,
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  down to just RM 3.1 million.
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  Really meager. That kind of margin squeeze is just brutal. So their gross profit
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  margin then must have shrunk dramatically. Oh, absolutely.
• 2:45
  From 5.5 percent, already pretty slung down to just 1.6 percent. Wow.
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  1.6 percent. Yeah. I mean, think about that. For every ringgit of sales they
• 2:54
  made, they basically earned, what, less than two cent in profit?
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  Yeah. Before even considering all their overheads, admin costs,
• 3:00
  everything else. Yeah, that's incredibly tight.
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  Precisely. And that lack of margin, it feeds directly into that huge percentage
• 3:06
  spike we're trying to unpack.
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  The loss before tax, the OBT, that's the headline shocker number.
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  It ballooned from a RM 2.5 million loss in FY 2024, which isn't great,
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  but manageable, to this enormous RM 31.6 million loss in FY 2025.
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  That's your love thousand 157.1% search. Okay, but hang on. Before anyone listening
• 3:28
  starts thinking the company's about to, you know, go under...
• 3:31
  Let's inject a really crucial positive point right here. We need to talk about
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  cash flow. Yes, absolutely.
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  Essential counter context here, because despite posting that massive net loss
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  on paper, the group actually maintained a positive net cash flow from its operating
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  activities. OK, that's important. Very important.
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  They recorded RM4.4 million in positive operating cash flow.
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  Now, look, that is a steep drop from the RM14.9 million they generated the year before.
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  Still a drop. Yeah, it's still a drop. But the key takeaway for you listening
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  is that their core business digging stuff up and selling it is still generating cash.
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  They aren't actually burning through cash just to keep the lights on day to
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  day. And they've got money in the bank, too, right? They have some reserves. They do.
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  Their cash and bank balances are actually quite strong, sitting at RM1 13.8 million at year end.
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  So this really suggests that that massive, staggering loss figure,
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  that 1157 percent thing, it's largely an artifact of accounting.
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  It's about balance sheet valuation, these non-cash items, rather than a sign
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  that their fundamental business model suddenly stopped generating operating cash.
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  Right. So the operational side is maybe okay cash-wise, but the accounting side
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  took a massive hit. That's a good way to put it.
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  Okay. Segment two then. Well, why did the profit side look so bad?
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  You mentioned the price problem, but they also had this volume upside.
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  Let's unpack that. Right. So if they generated positive operating cash and grew
• 4:50
  revenue by 20 percent, why did that gross profit just get annihilated?
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  They were clearly working hard, moving more material, but the result to show
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  them losing ground financially, what was the main driver there?
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  It really comes down almost entirely to something they couldn't control,
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  the external market forces.
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  The primary villain, if you want to call it that, was the softening average
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  realized selling price, the ARSP.
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  That's the price they actually got paid? Exactly.
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  The actual price they received for their iron ore products. The global iron
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  ore prices, you know, they follow things like the Platt's Iron Ore Index.
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  And they were hit hard, mostly by the economic slowdown happening in China.
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  And just generally reduced demand from the steel industry globally.
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  Less demand, lower prices.
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  Pretty straightforward market economics, unfortunately. Okay,
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  so how bad was the drop for their main product, the iron ore concentrate? It was.
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  Well, catastrophic for profitability is probably not too strong a word.
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  For their high-grade concentrate, the ARSP fell 30.8%. Wow, nearly a third wiped off the price.
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  Almost a third, yeah. Just think about that. You're selling your main product
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  for almost a third less than you were getting the year before.
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  It dropped from RM498.40 down to RM344.92 per dried metric ton per DMT. Right.
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  When your revenue per ton drops that steeply, the sheer amount of extra volume
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  you need to move just to shred water just to break even, it just skyrockets.
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  Which brings us back to the operational success story, I guess.
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  They must have moved incredible amounts of ore just to get that 20% overall
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  revenue growth, despite those prices collapsing.
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  Their operational team really stepped up. You have to give them credit.
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  Iron ore concentrate sales volume was up 21.5%.
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  Reached 376,700 DMT, and their sales of crushed iron ore that surged by 350%.
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  Now, admittedly, that was from a smaller base the year before, but still a big jump.
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  And crucially, this year, they weren't just relying on iron ore,
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  were they? There was something new. Correct.
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  This is where their initial diversification efforts started to pay off,
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  at least on the revenue side. They successfully introduced a whole new revenue
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  stream from selling bauxite.
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  Ah, bauxite. Okay. Yeah. That accounted for RM 44.1 million in revenue from selling 136,200 DMT.
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  And honestly, that bauxite volume was pretty instrumental in actually hitting
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  that overall 20% revenue growth target, given the huge headwind they faced with
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  the iron ore price dropping so much.
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  Okay. Makes sense. But moving all that extra material, more iron ore volume.
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  Plus adding all this new bauxite volume, that must have significantly pushed
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  up their costs, their expenditures, right? Absolutely.
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  And that's the other side of the coin. That's the direct link between the volume
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  success story and the profit collapse we saw earlier.
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  Yeah. Their cost of sales rose 25.3% overall.
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  Okay. Slightly faster than revenue growth. Exactly.
• 7:34
  Which is why the margin compressed. It increased by RM 39.6 million in absolute terms.
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  And you can see where it came from. There were massive increases in subcontractor
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  wages that was up RM 24.2 million, mainly due to more underground or extraction
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  activity. Right, that's expensive work. It is.
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  And then you had RM34.9 million specifically tagged for box site mining and
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  processing fees. It's a whole new cost category.
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  Plus just basic stuff. When you mine more volume, your amortization charges
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  on the mine properties go up.
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  That increased by RM8.4 million.
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  So it's kind of a classic squeeze situation then.
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  The increased volume helped prop up the revenue number, but it also drove up
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  both their fixed and variable costs right into an environment where they were
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  getting paid much less per ton. That sums it up perfectly. Yeah.
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  Tough spot to be in. Okay, so that explains the thin margin,
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  the gross profit collapse, but it still doesn't fully explain that insane 1157% loss spike.
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  That takes us down the income statement, I guess, to the general and administrative expenses, G&A.
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  That's exactly where you need to look. Because those rose by,
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  what was it, an astronomical 156.5% up to RM 42.8 million. Where on earth did
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  all that money go if it wasn't directly spent on operations like digging or processing?
• 8:52
  Right. Well, the short answer is it wasn't really spent in the way you'd normally
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  think, like cash going out the door. It was mostly written down.
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  Oh, OK. Accounting again. Accounting again. This big jump in G&A was almost
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  entirely driven by these one-off non-cash impairment losses.
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  They totaled RM 26.1 million. RM 26 million.
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  OK. And this is the accounting distortion we mentioned earlier,
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  and it's really crucial for you, the listener, to grasp this difference between
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  a cash expense and a non-cash charge like this. So maybe let's try an analogy.
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  For someone not deep in finance, what does this RM26 million non-cash impairment
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  write-down actually feel like?
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  What does it represent in practical terms? Okay, think of it like this maybe.
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  Imagine you own, say, a factory full of specialized machinery.
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  And the global market for whatever widget that machinery makes suddenly collapses
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  or the long-term forecast looks really bad. You haven't spent any extra cash today.
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  But the future value, the future earning potential, the sort of recoverable
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  amount from that machinery has just plummeted.
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  Accounting rules require management in that situation to basically downgrade
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  the sticker price of that asset on their books right now.
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  So they take a big paper loss today. Exactly.
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  A paper loss. Because they now expect to get less profit out of those assets
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  in the future than they previously thought.
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  Right. So it's basically taking the hit now for anticipated future weakness.
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  It's that pessimistic market outlook we talked about earlier,
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  but translated into immediate pain on the balance sheet.
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  Precisely. A balance sheet punishment, as you put it. So what specific assets
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  took the biggest hit here?
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  Where did this RM26 million come from? The biggest single chunk,
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  RM18.9 million, was a non-cash impairment loss booked against their core mining assets.
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  Essentially, management reviewed the future prospects, looked at those lower
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  forecasted iron ore prices we discussed, and had to formally admit,
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  okay, these assets likely won't generate the returns we previously expected.
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  Okay, that's the big one related to the core business outlook. Yep.
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  And then you had a couple of other impairments, smaller ones,
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  that seem related to cleaning up the results of past diversification attempts
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  that maybe didn't quite work out as hope. Oh, interesting.
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  Yeah, there was RM 5.0 million written off against some joint venture investments
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  because apparently exploration licenses they held in Saba weren't renewed.
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  So that value is gone. And then another RM 2.2 million hit a different joint
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  venture, again, because the poor price forecast reduced its expected future
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  value, its recoverable value.
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  So it seems like we've got two types of write downs happening here.
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  The really big one that reflects the current pessimism about the iron ore market
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  hitting their main assets. Right.
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  And then the smaller ones that look like finally closing the book on some past
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  exploration or JV efforts that didn't materialize. Kind of a cleanup.
• 11:42
  Exactly. A cleanup based on the current reality. And look, this is the key moment
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  where we really separate the accounting story from the operational story.
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  If you were to hypothetically exclude those RM26.1 million in non-cash impairment
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  losses, just take those paper adjustments out for a second.
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  Suddenly that reported loss before tax shrinks dramatically,
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  goes down to RM5.4 million. Right.
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  Still a loss, but vastly different. Still a loss, which confirms that FY 2025
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  was a tough year operationally, even without the write downs.
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  But it's a world away from the reported RM31.6 million loss,
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  isn't it? And that's why that huge 1,157% spike number is, frankly.
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  Pretty misleading if you don't understand what's underneath it.
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  Yeah, it really highlights the difference between paper losses and actual operational cash burn.
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  You know, it makes you wonder about the pressure the CEO must have felt having
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  to announce that headline loss number.
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  Knowing the day-to-day operating story wasn't quite that dire.
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  I'm sure it wasn't an easy earnings call. Probably not.
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  But okay, despite having to clean up some past stuff, it seems like they are
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  definitely not giving up on their core assets.
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  They're actually doubling down, aren't they? They stopped the open pit mining
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  at their Chaw mine and moved exclusively to underground operations. That's right.
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  They ceased open pit back in September 2023, so during FY 2025.
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  And yes, going exclusively underground requires massive investment up front. Yeah, I bet.
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  Tunnels aren't cheap. Definitely not. And the numbers show they committed heavily.
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  They capitalized, meaning they added to their asset base RM33.3 million just
• 13:13
  for tunnel infrastructure costs in FY 2025. And if you dig into their cash flow
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  statement, you can see where that money went.
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  RM24.7 million specifically for mine infrastructure, access ramps, that sort of thing.
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  Plus another RM2.5 million for ongoing exploration activities.
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  So they're making a pretty substantial long term bet here, betting that this
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  move to exclusive underground mining will eventually lead to what better cost
• 13:39
  efficiencies, maybe more stable production levels. That's certainly the goal. Yes.
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  It's a big strategic investment aimed at achieving exactly that long term cost
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  benefits and more predictable, stable output, hopefully insulating them a bit
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  from those wild price swings eventually.
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  All right. That makes sense. Which brings us nicely to segment four.
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  The outlook and their diversification strategy. Where do they go from here?
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  Right. After a really tough year, low prices, higher costs, those huge write downs.
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  What's the game plan for Sam heading into FY2026 and beyond?
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  How are they planning to justify these big underground investments and maybe
• 14:14
  more importantly, overcome that inherent volatility in the iron ore market that just hammered them?
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  Well, it looks like they're focusing on two key strategic pillars, really.
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  First is what you might call operational optimization.
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  Basically, making that core iron ore business work better. Getting payback on those tunnels.
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  Exactly. They need to turn those large capital investments, the tunnels,
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  the ramps, the infrastructure, into consistent, efficient production.
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  The plan is to keep ramping up those underground operations.
• 14:43
  They mentioned new stopping activities and extraction scheduled to start in
• 14:47
  the southern zone of the Cha mine sometime in 2026. Okay.
• 14:51
  So if they execute that successfully, the idea is that this transition delivers
• 14:56
  those long-term cost savings and gives them much more reliable,
• 14:59
  stable production volumes. That's pillar one.
• 15:02
  Makes sense. And the second pillar, which given the painful write-downs related
• 15:06
  to past diversification attempts we just discussed, seems pretty critical.
• 15:09
  That's the big move into rare earth elements, right, Ari Nies?
• 15:12
  This looks like their major strategic play for the future, trying to build genuine
• 15:16
  long-term resilience and reduce their dependence on the notoriously cyclical iron ore market.
• 15:21
  And the timing seems right, I suppose.
• 15:24
  Demand for rare earths is, well, it's huge, isn't it? It's massive.
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  And it's growing exponentially.
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  It's being driven by everything related to the clean energy transition,
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  electric vehicles, wind turbines, solar panels, plus all the high-tech stuff,
• 15:37
  defense applications, electronics.
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  REs are critical for all of that. So they saw an opportunity and they jumped
• 15:44
  on it pretty quickly. Seems so.
• 15:45
  They didn't waste any time. Right after this tough fiscal year ended,
• 15:49
  in September 2025, they actually completed the acquisition of a 40% equity stake
• 15:53
  in a company called MCRE Resources, SDNBHD. Okay.
• 15:58
  MCRE Resources. Yep. And reading the documents, this isn't just like a tentative toe in the water.
• 16:04
  It's positioned as a formal entry into the whole value chain,
• 16:07
  exploration, mining, processing, and eventually selling these specific types
• 16:11
  of rare earths, ion adsorption clays.
• 16:14
  Ion adsorption clays. Okay. Yeah. So they're basically betting that this strong
• 16:18
  global momentum for REE demand driven by EVs and renewables will provide a much
• 16:22
  more stable, hopefully growing and resilient revenue base that iron ore,
• 16:26
  frankly, just hasn't been providing lately. And.
• 16:29
  I guess their internal logic, their rationale, must be that they can leverage
• 16:33
  their existing skills, right?
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  Their operational expertise, their geological knowledge from decades of iron
• 16:40
  ore mining in Malaysia should allow them to maybe accelerate the development
• 16:45
  of these new REA projects faster than, say, a brand new startup company could.
• 16:49
  That certainly seems to be the hope, yes. Yes. They're trying to leverage their
• 16:53
  existing assets, their know-how, their people to essentially leapfrog into this
• 16:57
  really hot, critical mineral sector.
• 17:00
  The aim is clearly to get that diversified revenue stream up and running to
• 17:04
  stabilize the company's overall profitability, hopefully starting to show results
• 17:08
  in FY2026 and definitely beyond.
• 17:11
  OK, so let's try and wrap this up then. Sounds good. So to summarize,
• 17:15
  what we've really learned today is that Southern Alliance Mining,
• 17:17
  Sam, actually showed some pretty remarkable operational resilience in FY2025.
• 17:22
  Yeah, considering the market.
• 17:23
  Right. They managed to grow their sales volume significantly and crucially.
• 17:27
  Maintain positive operating cash flow, even though they were facing these severe
• 17:31
  price headwinds in the iron ore market.
• 17:33
  But. Their bottom line, that huge loss number, was dramatically inflated by
• 17:38
  these substantial one-off non-cash write-downs.
• 17:41
  They were necessary accounting hits, basically, that reflected the poor market
• 17:46
  forecasts for iron ore and also represented a cleanup, closing the book on some
• 17:51
  past unsuccessful diversification attempts.
• 17:53
  Yeah, it paints a really clear picture, I think, of a company that's transitioning
• 17:57
  maybe under quite a bit of stress, but trying to make some big strategic moves.
• 18:01
  And that brings us nicely to our final provocative thought for you,
• 18:05
  the listener, to maybe mull over.
• 18:07
  Sam just went through this process of cleaning up its books, right? Right.
• 18:11
  Writing off assets linked to past
• 18:13
  exploration, past joint ventures that clearly didn't pan out as hoped.
• 18:17
  So given that pattern maybe of some past diversification efforts not succeeding
• 18:21
  and the fact that iron ore prices are likely to remain volatile,
• 18:25
  how absolutely critical is the immediate and successful ramp up of this new
• 18:29
  rare earth element venture with MCRE?
• 18:32
  That's a great question. Like, is the company now really dependent on getting
• 18:36
  significant RE revenue flowing quickly to truly deliver future stability?
• 18:42
  Or can those improvements they're making in the underground iron ore operations
• 18:46
  potentially stabilize them on their own, even if REs take longer?
• 18:50
  Yeah. How much pressure is really on this MCRE venture to deliver and how quickly?
• 18:54
  The key question looking ahead.
• 18:56
  Definitely something to watch. All right. That's our deep dive into Southern
• 19:00
  Alliance Mining's challenging but definitely strategically interesting financial year.
• 19:05
  We really appreciate you diving in with us today. Thanks for listening.
• 19:08
  Music.