2017 ANNUAL FINANCIAL RESULTS

Overview

In this commentary, results are compared with the 12 months of the 2016 financial year (in brackets).

Sales revenue from the South African operations decreased by 19,5% in Rand terms from R671,4 million in 2016 to R540,2 million in 2017, mainly due to a 17,5% decrease in carats sold and a slight (2,2%) decrease in the average US$ diamond price.

South African production decreased by 24,6% to 36 532 carats (2016: 48 435 carats), mainly as a result of the new operating model which was introduced at the Lower Orange River operations towards the end of the 2016 financial year, as well as underperformance at Bloeddrif Mine.

The cost of goods sold decreased to R631,7 million (2016: R678,2 million), mainly due to lower labour, fuel and maintenance costs and depreciation offset by stock movement.

Gross loss for the South African operations amounted to R91,5 million (2016: loss of R6,8 million).

Impairment charges in respect of the LOR operations amounted to R27,4 million (2016: R55,1 million).

At West Coast Resources, in which Trans Hex holds a 40% stake, production amounted to 80 506 carats (2016: 24 930 carats). Sales amounted to R172,1 million at an average price of US$166 per carat (2016: sales of R49,4 million at an average price of US$208 per carat). The 40% equity accounted loss for the year amounted to R71,3 million (2016: loss of R13,6 million). Included in the results is the Group’s share of an impairment charge to mining rights, after tax, of R43,4 million.

The South African operations showed a loss before tax of R221,5 million (2016: loss of R119,1 million).

In Angola, production at Somiluana Mine, in which Trans Hex holds a 33% stake, increased to 137 219 carats (2016: 99 572 carats) due to a 45,1% increase in average grade, partly offset by a 5,0% decrease in gravel treated. Total sales amounted to US$69,7 million at an average price of US$500 per carat (2016: sales of US$34,2 million at an average price of US$351 per carat). Repayments of US$1,3 million (2016:           US$1 million) were made to Trans Hex against the outstanding investment amount and the Group received US$825 000 (2016: US$330 000) in dividends.

Profit from the Angolan continuing operations amounted to R31,8 million (2016: loss of R36,4 million), consisting of Somiluana’s equity accounted profit of R52,3 million less Angolan head office costs of R20,5 million.

The Group reports an after-tax loss for the year from continuing operations of           R211,5 million (2016: loss of R124,8 million).

Profit from the discontinued Luarica and Fucaúma operations amounted to R28,9 million (2016: R21,5 million).

The Group therefore reports a loss for the year of R182,6 million (2016: loss of R100,8 million).

Cash and cash equivalents at the end of the year amounted to R225,4 million (2016: R353,5 million).

 

Operating performance

Detailed project information

Note: Average grade in South Africa is calculated excluding shallow water production.

Lower Orange River operations

During the year under review, stripping of overburden in the main channel at Baken continued. The average grade increased by 71% to 2,19 carats/100 m3 (2016: 1,28 carats/100 m3) mainly due to re-evaluation of ore accounting procedures that resulted in positive grade adjustments. The average price of Baken stones increased from US$986 per carat in 2016 to US$1 015 per carat in 2017, despite a 9% decrease in average stone size to 1,29 carats per stone (2016: 1,42 carats per stone).

Results at Bloeddrif Mine were once again negatively affected by a substantial decrease in average grade from 0,80 carats/100 m3 in 2016 to 0,62 carats/100 m3 in 2017.

In line with Trans Hex’s strategy to responsibly manage these ageing assets in the final years of their economic life cycles, operations at Bloeddrif ceased post year-end due to the grade of gravel dropping below the threshold for economic mining.

West Coast Resources operations

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

During the period, mining activities produced 79 041 carats at an average grade of 32,73 carats/100 m3 compared to 16 517 carats at an average grade of 30,48 carats/100 m3 in 2016. In addition, the final recovery plant treated final recovery tailings and produced 1 465 carats (2016: 8 413 carats).

The average grade decreased by 38% from 53,34 carats/100 m3 in 2016 to 33,28 carats/100 m3 in 2017 due to the treated gravel originating mainly (98,2%) from mining operations. The average stone size amounted to 0,27 carats per stone (2016: 0,30 carats per stone).

Angolan operations

Operations during the year focused exclusively on diamond-bearing calonda formation gravels and 90% of production originated from the Nzagi Valley and the balance from the Lulau area and test blocks.

In August 2016, a record 25 042 carats were recovered from a small high-grade canal found in Nzagi, offsetting low production in preceding months.

The Mine is 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, the Mine purchased mining equipment and has started to implement other projects geared towards accelerating drilling programmes of identified target areas and increasing its gravel treatment and diamond recovery capacities by 2018.

 

Outlook

Lower Orange River operations

Stripping operations in the Baken central channel will continue until the economically viable gravel in the main channel has been exhausted, which is expected to be towards the end of the 2018 financial year.

Bloeddrif Mine has 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 37 000 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 Langklip area and on other sections of the Koingnaas area.

Production for the 2018 financial year is expected to be in the order of 150 000 carats, compared to 2017 actual production of 80 506 carats.

Angolan operations

During the coming 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 2018 financial year is expected to be in the order of           120 000 carats.

Market

The demonetisation of the Indian currency towards the end of the 2016 calendar year resulted in a liquidity squeeze amongst traders in India, causing a slight drop in global demand and prices.

At financial year-end, demand and prices recovered amidst renewed capacity in the Indian polishing factories and lower stock levels.

Firm prices are expected to persist in the short-term as market sentiment remains solid in the commercial and manufacturing sectors. A slower market is traditionally expected between June and August, in line with the European holidays.

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.