VENTURES: Trans Hex Takes A Shiner
Recent Western Cape Business News
Sales revenue of R637 million (2008: R881 million) at Parow-based Trans Hex was significantly impacted by lower diamond prices in the second half of the financial year.
As a result of the global economic slowdown the Group’s assets were tested for impairment and a once off pre-tax cost of R569 million was incurred to revalue the assets to accurately represent their projected income generation. The impairments include an impairment of the Group’s Angolan investments of R460 million.
The loss for the period was R798 million after accounting for impairments and the revenue loss as a result of the global crisis, compared to a loss of R18 million for the corresponding reporting period.
The loss per share for continuing operations was 719,4 cents (2008: profit of 1,4 cents) with a headline loss per share of 585,1 cents (2008: headline earnings of 8,6 cents). Adjusted headline loss per share, after accounting for the full cost of impairment, was 248,4 cents (2008: adjusted headline earnings of 8,6 cents).
The Group’s net cash position at year end of R205 million provides Trans Hex with sufficient cash reserves so that the Group does not need to raise funding to continue operations. “Although costs will continue to be strictly monitored, the Group’s current cash situation will enable it to sustain its operations without external funding, even without the benefit of the recent improvement in pricing”.
Trans Hex had undertaken a cost cutting strategy in 2008. Further measures were immediately implemented in response to the exceptionally low rough diamond prices experienced in November 2008 and February 2009.The Group closed its PK production plant at Baken and commenced the process of placing its shallow water operations under care and maintenance. In Angola, the Fucauma mining operation has been placed under care and maintenance and the partners of the Luarica operations have effectively put that mine under care and maintenance. Trans Hex is not providing any funding for these operations other than for minimal care and maintenance costs at Fucauma.
At the Group’s rough diamond tender sales during November 2008 and February 2009, diamond prices decreased significantly and by more than 50% for some categories of stones. Llewellyn Delport noted however; “We have seen a notable increase in both demand and prices for our March and May 2009 tender sales and we expect demand to stay stable, and for prices to at least remain at current levels. Our cash position, as well as the cost cutting initiatives, places us in an advantageous position to withstand the current global economic crisis”
South African carat production decreased from 107 305 carats in 2008 to 88 933 as a result of lower grades achieved in the first half and the halt in production during December 2009 and January 2009 due to the decline in diamond prices. The grade produced by the Baken Central Plant should improve as planned mining operations move to areas which are expected to produce higher grades.
The production of high quality and large size stones is expected to continue with production of 100 000 carats anticipated for the 2009/2010 financial year.
No funding is being provided to the Luarica operation, and cash outflows to Fucauma are limited to care and maintenance activities. The mining contract negotiations at the prospective Luana project should be concluded during the financial year.
The Group’s operating mines will remain sustainable without external funding being required and are expected to generate additional cash. This places the Group in a solid position to take advantage of any new business opportunities arising out of the impact of the global economic crisis as well as enabling the Group to capitalise upon the anticipated long term diamond supply demand imbalance.
Llewellyn Delport concluded: “Our cost cutting initiatives as well as the recent increase in diamond prices places us in an advantageous position to withstand the current global economic crisis and we expect our operating mines to increase cash reserves during the financial year.”
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