Mine closures should put Trans Hex in profit
Rising gem prices to help turn around record R798m loss
May 27, 2009
By Justin Brown
Trans Hex expected to move back into profit in its next financial year after closing loss-making diamond mines in South Africa and Angola, chief executive Llewellyn Delport said yesterday.
A recovery in gem prices, which was expected to continue, would help it return to profit, he added.
In the year to March Trans Hex sustained a record loss of R798 million, mainly as a result of a R569m write-down in the value of its assets, including R460m related to its Angolan diamond mines. It had a loss of R18m in the previous year.
A decline in diamond prices and the closure of operations added R244m to Trans Hex's losses.
The company shut its PK production plant at Baken and put its shallow water operations under care and maintenance. In Angola the Fucauma and Luarica operations have both been placed into care and maintenance.
Diamond prices peaked at $1 390 (R11 536) a carat last July before falling as low as $486 a carat in February. Prices were unlikely to return to the lows that were seen in February.
"Demand for diamonds has returned since March," said Delport. "March and May sales show strengthening in demand and pricing."
It had achieved average diamond prices of $920 a carat this month, said Delport.
Sales revenue fell to R637m, 28 percent down on sales in the previous year because of the fall in diamond prices in the second half.
Delport added: "The global financial crisis, combined with subsequent adverse market conditions, resulted in what has probably been the most challenging period in the diamond industry's history."
Trans Hex shares fell 4.5 percent to close at R1.27 on the JSE yesterday, valuing the company at R135m.
Despite its losses, the group had a net cash position at the end of March of R205m, up from R194m at the end of March last year.
The group, which did not pay an interim dividend, also skipped a final dividend.
Delport said that the diamond mining company would not pay a dividend until the market recovered.
The company's local diamond output slid 17 percent to 88 933 carats due to lower grades achieved in the first half of the financial year, as well as a halt to production in December and January.
Trans Hex said it expected to produce 100 000 carats of diamonds in the current year to next March.
Delport said this output would come from the firm's Baken mine on the Orange River and its two operations in the Richtersveld in the Northern Cape.
This projected recovery in Trans Hex's diamond production is in contrast to estimates by consultancy Frost & Sullivan that South Africa's diamond output will decline from 15.8 million carats last year to 12 million carats in 2011.
Trans Hex is still developing the Luana diamond project in Angola. Delport said that the mining contract negotiations in Angola were expected to be concluded in the next six months.
Last year Trans Hex sold the company's Middle Orange River operations and its deep water mining vessels stopped operations last April.
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