2018 ANNUAL FINANCIAL RESULTS

Overview

In this commentary, results are compared with the 12 months of the 2017 financial year (in brackets).

On 1 February 2018, West Coast Resources (Pty) Ltd became a subsidiary of the Group. Up to this date, the 40% investment in West Coast Resources (Pty) Ltd was accounted for as an investment in an associate under the equity method.

In line with the Company’s strategy of responsibly managing the LOR operations in the final years of their viable economic life cycles, these operations were gradually downscaled. Production was finally halted on 31 October 2017 following the successful conclusion of a formal consultation process with the National Union of Mineworkers. These operations are disclosed as discontinued operations.

Sales revenue from continuing operations amounted to R192,5 million compared to R91,1 million during the previous corresponding period.

The cost of goods sold increased to R172,2 million compared to R100,3 million during the 2017 financial year.

Gross profit amounted to R20,3 million compared to a gross loss of R9,2 million during the corresponding period.

Share of results from associated companies amounted to R38,7 million (2017: loss of R19,0 million), to which Somiluana contributed a profit of R47,5 million and West Coast Resources (Pty) Ltd a loss of R8,8 million.

Selling and administration costs reduced to R61,2 million (2017: R88,8 million).

Loss before tax from the South African continuing operations amounted to                R6,6 million (2017: loss of R104,7 million).

Profit from the Angolan continuing operations amounted to R34,6 million (2017: profit of R31,8 million), consisting of Somiluana’s equity accounted profit of R47,5 million less Angolan head office costs of R12,9 million.

The Group reports an after-tax profit for the year from continuing operations of             R26,2 million (2017: loss of R65,2 million).

Loss from the discontinued operations amounted to R213,0 million (2017:            R117,4 million), consisting of profit from the Luarica and Fucaúma operations of R2,3 million (2017: Profit of R28,9 million) less loss from the LOR operations of R215,3 million (2017: loss of R146,4 million).

The Group therefore reports a loss for the year of R186,8 million (2017: loss of       R182,6 million).

Cash and cash equivalents at the end of the year amounted to R79,4 million (2017: R225,4 million).

 

Operating performance

* Note:

  1. Calculated per 100 m3 for South Africa and Angola, and per 100 tons for West Coast Resources (Pty) Ltd.
  2. Average grade in South Africa is calculated excluding shallow water production.

West Coast Resources operations

On 1 February 2018, the Group increased its interest in West Coast Resources (Pty) Ltd to 67,2%.

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

During the period, production amounted to 173 920 carats compared to 80 506 carats in 2017.

Sales amounted to R302,5 million at an average price of US$153 per carat (2017: sales of R172,1 million at an average price of US$166 per carat).

The average grade increased by 92,4% to 27,84 carats/100 tons compared to 14,47 carats/100 tons in 2017 due to process improvements allowing for greater gravel control and higher than estimated grades achieved. The average stone size amounted to 0,23 carats per stone (2017: 0,27 carats per stone).

Lower Orange River operations

In line with the Company’s strategy to responsibly manage these ageing assets in the final years of their economic life cycles, operations at Bloeddrif and Baken ceased during the period under review and the mines were placed under care and maintenance in May 2017 and October 2017 respectively.

Angolan operations

Production at Somiluana Mine, in which Trans Hex holds a 33% stake, amounted to 136 402 carats (2017: 137 219 carats). Total sales amounted to US$66,3 million at an average price of US$504 per carat (2017: sales of US$69,7 million at an average price of US$500 per carat). Repayments of US$1,6 million (2017: US$1,3 million) were made to Trans Hex against the outstanding investment amount and the Group received US$825 000 (2017: US$825 000) in dividends.

Operations during the year focused exclusively on diamond-bearing calonda formation gravels and 66% of production originated from the Nzagi Valley, 28% from the Landamona Valley, 2% from the Lulau area and the balance from test blocks as well as Liziria and Terrace formation.

Somiluana Mine is still pursuing an aggressive drilling programme in order to identify new resources in calonda formation gravels, as well as terraces and floodplains.

During the year under review, Somiluana Mine purchased mining equipment and started to implement other projects geared towards accelerating drilling programmes of identified target areas and increasing its gravel treatment and diamond recovery capacities. A second drill rig was acquired and commissioned in February 2018.

 

Outlook

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 Langklip area and on other sections of the Koingnaas area.

Production for the 2019 financial year is expected to be in the order of 240 000 carats, compared to 2018 financial year actual production of 173 920 carats.

Shallow water operations

Production from the Shallow water operations for the 2019 financial year is expected to be in the order of 10 000 carats, compared to 2018 financial year actual production of 9 012 carats.

Lower Orange River operations

Post financial year-end, THO,  a wholly owned subsidiary of Trans Hex, entered into an agreement with LOR Diamonds, in terms of which THO has agreed to, inter alia, dispose of the business conducted by THO, as a going concern, relating to and in connection with the exploration, prospecting, mining for, recovery, treatment, production and disposal of diamonds in respect of the LOR operations, consisting of certain assets, liabilities and the transfer of employees; and cede and transfer the mining right associated with the LOR operations, to LOR Diamonds, for a total cash consideration of R72 million.

Details of the above transaction were released on SENS on 18 April 2018 and are available on Trans Hex’s website at www.transhex.co.za. The transaction is subject to, inter alia, shareholder approval and a circular containing the full details thereof is expected to be distributed to shareholders by 3 August 2018.

Angolan operations

During the 2019 financial year, mining operations will continue on the east bank of the Luana River at Nzagi, in the south-west at Lulau, and at other areas currently being evaluated.

Production results and geological work through drilling and bulk sampling indicate that carat production for the 2019 financial year is expected to be in the order of         145 000 carats.

Market

Towards the middle of the 2017 calendar year, a shortage of stock in Indian factories spurred market strength. Trading slowed down towards the end of the calendar year, but rebounded at the start of 2018, highlighted by strong premiums in the secondary market.

Following positive sales for diamond jewellery during the United States of America’s holiday season, the need for the industry to restock led to strong rough prices overall, a trend that is set to continue as the market remains solid in the short term.

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 a final dividend.