2016 INTERIM FINANCIAL RESULTS

Overview

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

Sales revenue from the South African operations increased by 2,5% in Rand terms from R268,7 million to R275,3 million. The average US$ diamond price increased by 10,4%, mainly as a result of firmer global prices and increased demand. Sales were positively affected by a 15,4% weakening of the Rand against the US$, partly offset by a 19,6% decline in carats sold.

South African production decreased by 20,6% to 18 997 carats (September 2015:           23 940 carats) in line with a new operating model which was introduced at the Lower Orange River operations in February 2016 in order to extend the viable life-of-mine of these operations for as long as possible. These changes have resulted in reduced overburden stripping and less gravel mined.

The cost of goods sold decreased to R261,4 million (September 2015: R293,3 million), mainly due to lower labour, fuel and maintenance costs, as well as depreciation.

Gross profit for the South African operations amounted to R13,9 million (September 2015: loss of R24,7 million).

The South African operations showed a loss before tax of R13,4 million (September 2015: loss of R56,6 million).

At West Coast Resources, in which Trans Hex holds a 40% stake, production amounted to 37 153 carats (September 2015: 4 821 carats). Sales amounted to R78,4 million at an average price of US$176 per carat (September 2015: sales of R7,2 million at an average price of US$170 per carat). The 40% equity accounted loss for the period amounted to R9,0 million (September 2015: loss of R8,8 million).

In Angola, production at Somiluana Mine, in which Trans Hex holds a 33% stake, increased significantly to 91 033 carats (September 2015: 67 981 carats) due to a 50,3% increase in average grade, partly offset by a 10,9% decrease in gravel treated. Total sales amounted to US$32,5 million at an average price of US$477 per carat (September 2015: sales of US$20,2 million at an average price of US$300 per carat). Repayments of US$250 000 (September 2015: US$ 750 000) were made to Trans Hex against the outstanding investment amount and the Group received US$330 000 (September 2015: US$ nil) in dividends.

Profit from the Angolan continuing operations amounted to R21,6 million (September 2015: profit of R1,4 million), consisting of Somiluana’s equity accounted profit of         R34,2 million less Angolan head office costs of R12,6 million.

The Group reports an after-tax profit for the period from continuing operations of         R8,9 million (September 2015: loss of R43,8 million).

Profit from the discontinued Luarica and Fucaúma operations amounted to                   R23,6 million (September 2015: R11,2 million).

The Group therefore reports a profit for the period of R32,5 million (September 2015: loss of R32,5 million).

Cash and cash equivalents at the end of the reporting period amounted to                       R322,4 million (September 2015: R347,5 million).

 

Operating performance

Detailed project information

interim-financial-results-2016

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

Lower Orange River operations

Stripping of overburden in the main channel at Baken continued during the period. The average grade increased significantly from 1,11 carats/100 m3 in September 2015 to 2,30 carats/100 m3 in September 2016 mainly due to the re-evaluation of ore accounting policies that resulted in positive grade adjustments. The average price of Baken stones increased in line with the firmer market from US$923 per carat in September 2015 to US$1 043 per carat in September 2016.

Results at Bloeddrif Mine were again negatively affected by the stripping of lower grade suspended gravel which resulted in a decrease in average grade from                 0,85 carats/100 m3 in September 2015 to 0,51 carats/100 m3 in September 2016 and in carats produced from 2 340 carats in September 2015 to 1 111 carats in September 2016. The lower grade suspended gravel was mined to gain access to higher grade basal gravel which will be mined and treated in the second half of the 2017 financial year.

West Coast Resources operations

Plant construction and improvements are continuing in order to further expand the operational footprint.

During the period, mining activities produced 36 003 carats at an average grade of 33,48 carats/100 m3In addition, the final recovery plant treated final recovery tailings and produced 1 150 carats (September 2015: 4 821 carats).

Angolan operations

During the period, operations at Somiluana Mine remained focused on higher grade areas which have resulted in a substantial increase in carat production and revenue.

 

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.

Performance at Bloeddrif Mine is expected to improve with the mining of higher grade gravel from the exposed basal gravel.

South African production for the 2017 financial year is expected to be in the order of 41 000 carats, compared to 2016 actual production of 48 435 carats.

West Coast Resources operations

Ongoing drilling and prospecting will continue to target high priority areas that may identify additional resources for mining.

Stripping operations have commenced in the Langklip area, which is projected to yield gravel by November 2016. Mining activities will remain focused here, as well as on other sections of the Koingnaas area.

Production for the 2017 financial year is expected to be in the order of 80 000 carats, compared to 2016 actual production of 24 930 carats.

Angolan operations

Mining operations at Somiluana Mine will continue on the east bank of the Luana River and prospecting activities will remain focused on new areas to the north-east, directing operations to areas of interest.

Self-funded new equipment purchases are planned in order to increase the Mine’s production footprint. The equipment will enable the economical mining of lower grade areas.

Production results and geological work through drilling and bulk sampling indicate that carat production for the 2017 financial year will surpass the 99 500 carats achieved in 2016.

Market

The second half of the 2016 calendar year started with a decline in demand, but the market recovered well in September 2016 in both trading and manufacturing sectors. The US is currently entering its year-end holiday period, further boosting polished sales.

Rough demand is expected to remain firm during the remainder of the financial year.

 

Dividend

The Board has resolved not to declare an interim dividend.