2017 INTERIM FINANCIAL RESULTS

Overview

In this commentary, results are compared with the first six months of the                    2017 financial year (in brackets).

Sales revenue from the South African operations decreased by 45,6% in Rand terms from R275,3 million in September 2016 to R149,7 million in September 2017. The average US$ diamond price decreased by 20,1%, mainly due to a weaker market and a decrease in average stone size. Sales were negatively affected by an 11,8% strengthening of the Rand against the US$ and a 22,9% decrease in carats sold.

South African production decreased by 16,2% to 15 917 carats (September 2016:            18 997 carats) mainly due to the closure of Bloeddrif Mine and underperformance at Baken Mine.

The cost of goods sold increased to R340,7 million (September 2016: R261,4 million) mainly due to retrenchment costs of R111,4 million, offset by lower maintenance costs, depreciation and stock movement of R14,7 million.

Gross loss for the South African operations amounted to R191,0 million          (September 2016: profit of R13,9 million).

At West Coast Resources (Pty) Ltd, in which Trans Hex holds a 40% stake, production amounted to 60 344 carats (September 2016: 37 153 carats). Sales amounted to R118,5 million at an average price of US$156 per carat (September 2016: sales of          R78,4 million at an average price of US$176 per carat). The 40% equity accounted loss for the period amounted to R13,1 million (September 2016: loss of R9,0 million).

The South African operations showed a loss before tax of R211,4 million          (September 2016: loss of R13,4 million).

In Angola, production at Somiluana Mine, in which Trans Hex holds a 33% stake, decreased significantly to 67 083 carats (September 2016: 91 033 carats) due to a 15,0% decrease in average grade and a 13,3% decrease in gravel treated. Total sales amounted to US$27,7 million at an average price of US$531 per carat (September 2016: sales of US$32,5 million at an average price of US$477 per carat). The Group received US$330 000 (September 2016: US$330 000) in dividends.

Profit from the Angolan continuing operations amounted to R11,4 million        (September 2016: profit of R21,6 million), consisting of Somiluana’s equity accounted profit of R18,7 million less Angolan head office costs of R7,3 million.

The Group reports an after-tax loss for the period from continuing operations of R200,0 million (September 2016: profit of R8,9 million).

Profit from the discontinued Luarica and Fucaúma operations amounted to              R0,9 million (September 2016: R23,6 million).

The Group therefore reports a loss for the period of R199,2 million                (September 2016: profit of R32,5 million).

Cash and cash equivalents at the end of the reporting period amounted to                    R41,3 million (September 2016: R322,4 million).

Operating performance

* Average grade is calculated per 100 m³ for South Africa and Angola, and per 100 tons for West Coast Resources. Average grade in South Africa is calculated excluding shallow water production.

Lower Orange River operations

Stripping of overburden in the main channel at Baken Mine continued during the period. The average grade decreased slightly from 2,30 carats/100 m³ in September 2016 to 2,15 carats/100 m³ in September 2017. The average price of Baken stones decreased from US$1 043 per carat in September 2016 to US$879 per carat in September 2017 in line with the weaker market and a smaller average stone size.

In line with the Company’s strategy of responsibly managing the Lower Orange River operations in the final years of their viable economic life cycles, these operations have gradually been downscaled. Production at Reuning Mine was halted during the 2015 financial year and production at Bloeddrif Mine ceased in May 2017.

Production at Baken Mine was halted on Tuesday, 31 October 2017 following the successful conclusion of a formal consultation process with the National Union of Mineworkers.

West Coast Resources operations

Operational and infrastructure improvements continued in order to further expand the operational footprint.

During the period, production increased by 62,4% to 60 344 carats (September 2016: 37 153 carats) due to an increase in gravel treated and the mining of higher grade channel blocks which resulted in a significant increase in average grade from 14,77/100 tons in September 2016 to 20,41 carats/100 tons in September 2017. The average price per carat decreased slightly from US$176 per carat in September 2016 to US$156 in September 2017 mainly as a result of the weaker market and a smaller average stone size.

Angolan operations

Operations at Somiluana Mine remained focused on the east bank of the Luana River at Nzagi, in the south-west at Lulau and on the south bank of the Landa Mona River.

During the period, production decreased by 26,3% from 91 033 carats in September 2016 to 67 083 carats in September 2017, mainly as a result of a decrease in average grade and a high overburden stripping ratio which negatively impacted gravel volumes.

 

Outlook

Lower Orange River operations

Baken Mine and Bloeddrif Mine have been placed under care and maintenance.

Production from the wholly owned South African operations for the 2018 financial year is expected to be in the order of 23 000 carats, compared to 2017 actual production of 36 532 carats.

West Coast Resources operations

Prospecting will continue to target high-priority areas that may identify additional resources for mining.

Mining activities will remain focused on the Koingnaas area and on other sections of the Langklip area.

Production for the 2018 financial year is expected to be in the order of 140 000 carats, compared to 2017 actual production of 80 506 carats.

Angolan operations

Mining operations will continue on the east bank of the Luana River at Nzagi, the south bank of the Landa Mona River and at other areas currently being evaluated.

Production results and geological work through drilling and bulk sampling indicate that carat production for the 2018 financial year is expected to be in the order of          120 000 carats.

Market

The market softened for rough and polished stock during the period, as margins came under pressure in the both the manufacturing and trading sectors.

A surplus in polished diamond inventory, particularly in the Indian factories, and concerns regarding high debt levels further negatively impacted prices.

Marginal price increases are expected for the remainder of the calendar year, with prices set to recover towards the start of 2018.

New business

The Group is actively evaluating potential new diamond properties and pursuing opportunities to expand its diamond-marketing activities.

 

Dividend

The Board has resolved not to declare an interim dividend.