2019 FINANCIAL RESULTS

Overview

Results in this reviewed condensed consolidated financial statements are compared with results for the 12 months ended 31 March 2018 (“Previous Corresponding Period”).

Restatement of the financial results for the Previous Corresponding Period

Business Combination

The financial results of West Coast Resources (Pty) Ltd (“WCR”) have been fully consolidated within the Group as of 1 February 2018. Accordingly, a provisional valuation of identifiable assets acquired and liabilities assumed was made as at            31 March 2018, upon the conclusion of the 2018 financial year. The provisional fair values were adjusted upon the finalisation of the valuations on 7 December 2018. Comparative information presented in the Previous Corresponding Period has been revised accordingly.

Furthermore, it should be noted that the consolidation of WCR from 1 February 2018, impacted the comparability of the results for the year ended 31 March 2019, with the results for the Previous Corresponding Period. Prior to 1 February 2018,                        the investment in WCR was accounted for as an investment in an associate under the equity method.

Prior period errors

The Group’s financial statements were restated retrospectively with regards to the year ended 31 March 2018.

The Group reassessed the useful life of several items still in use within property,      plant and equipment, in line with current assessments.

The Group measures its investment in Somiluana at amortised cost. In the prior year the Group did not estimate the future cash flows of the loan. This has now been            re-measured. Refer to note 22 for further details.

Completion of sale of the Lower Orange River operations with effect from                  1 April 2018

LOR operations was sold for a cash consideration of R72 million (exclusive of value added tax), which sale became effective on 1 April 2018. In the circumstances, the results of the LOR operations for the 12 months ended 31 March 2019 are excluded from the results and only the proceeds from the sale are reflected, which impacts the comparability of the results with the results for the Previous Corresponding Period    (i.e. the results of the LOR operations were presented as discontinued operations in the Previous Corresponding Period).

Sales revenue from the South African operations increased to R312,6 million (2018 (restated): R204,7 million).

South African carat production reduced to 131 520 carats (2018: 197 496 carats), mainly due to West Coast Resources producing less carats and the closure of the    LOR operations.

The cost of goods sold increased to R403,0 million compared to the previous corresponding year’s restated figure of R169,5 million , mainly as a result of West Coast Resources (Pty) Ltd becoming a subsidiary of the Group on 1 February 2018.

Gross loss amounted to R90,4 million compared to a restated gross profit of          R35,2 million  during the Previous Corresponding Period.

Other gains amounted to R190,2 million, primarily due to the re-measurement of the rehabilitation provisions which resulted in a gain of R111,2 million being recognised, foreign exchange gains amounting to R21,4 million and a fair value gain of              R51,7 million. The Previous Corresponding Period  was a loss of R13,7 million, mainly due to loss on re-measurement to fair value of R58,8 million and finalisation of gain with acquisition of subsidiary amounting to R3,3 million, fair value gain of R38,8 million and foreign exchange gains of R4,4 million.

Other operating expenses amounted to R63,9 million compared to R66,4 million during the Previous Corresponding Period, the reduction mainly due to selling and administrative expenses decreasing by R6,8 million and explorations costs increasing by R3,8 million.

Loss before tax from the South African continuing operations amounted to              R32,5 million compared to a restated loss of R87,6 million  during the Previous Corresponding Period.

Profit from the Angolan continuing operations amounted to R95,5 million (2018 (restated): profit of R73,3 million), consisting of Somiluana’s equity accounted profit    of R50,4 million (2018: profit of 47,5 million), a fair value gain of  R51,7 million (2018 (restated): R38,8) less Angolan head office costs of R6,6 million (2018: R11,2 million).

Finance income was R16,0 million compared to R25,0 million during the Previous Corresponding Period.

Finance costs was R39,3 million compared to R33,0 million the Previous Corresponding Period.

After-tax profit for the year from continuing operations amounted to R64,7 million (2018 (restated): loss of R16,0 million).

Profit from the discontinued operations amounted to R79,3 million (2018: loss of R213,0 million), consisting of a profit from the Luarica and Fucaúma operations of    R1,5 million (2018: profit of R2,3 million) and a profit from the LOR operations of    R77,8 million (2018: loss of R215,3 million) directly attributable to the proceeds from    its sale.

The Group therefore reports a profit for the year of R144,1 million (2018 (restated):    net loss of R229,0 million).

The Group acquired prospecting rights during the current period of R9,9 million.

Cash and cash equivalents at the end of the year amounted to R65,5 million (2018: R79,4 million).

MINERAL RESOURCES AND MINERAL RESERVES

The total carat resource at West Coast Resources (Pty) Ltd decreased by 4%, primarily due to depletion through mining activities. The indicated and inferred diamond resource carats decreased by 3.8% and 4% respectively, i.e. a decrease of 202,402 carats in total.

Total carats in reserve at Somiluana Mine increased by 173% due to favourable diamond prices, lower operation unit cost and additional resources that were              re-classified from inferred to indicated. The project resource increased by 78% due to new resource blocks that were delineated during the 2018/19 resource review, based on an increased confidence of the geological model through drilling, bulk-sampling and grades based on actual mining.

The marine indicated and inferred diamond resource carats are 211 755 and 121 665 respectively.

The Competent Person for Trans Hex, Mr SBE Damons, has reviewed and approved the information contained in this announcement as it pertains to mineral resources and mineral reserves. Mr Damons is an employee of Trans Hex and serves as the Company’s Mineral Resource Manager.

Operating performance

Detailed project information

* 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

During the year, production amounted to 123 884 carats compared to 173 920 carats in 2018.

Sales amounted to R240,5 million at an average price of US$128 per carat (2018:    sales of R302,5 million at an average price of US$153 per carat).

The average grade decreased by 38.2% to 17,2 carats/100 tons compared to          27,84 carats/100 tons in 2018 due to lower than expected grades achieved in targeted channel blocks. The average stone size amounted to 0,23 carats per stone (2018:    0,23 carats per stone).

Angolan operations

Production at Somiluana Mine, in which Trans Hex holds a 33% stake, amounted to 133 659 carats (2018: 136 402 carats). Total sales amounted to US$70,6 million at an average price of US$547 per carat (2018: sales of US$66,3 million at an average price of US$504 per carat). The Group received US$1,2 million (2018: US$825 000)                  in dividends and US$3,5 million (2018: US$1,6 million) from the repayment of the loan account.

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

Outlook

West Coast Resources operations

Post year-end, Trans Hex Operations (Pty) Ltd, West Coast Resources (Pty) Ltd  (“WCR”), Trans Hex Diamante Ltd (“THD”) (all of which are subsidiaries of Trans Hex) and Kernel Resources (Pty) Ltd (“Kernel Resources”), (collectively, the “Parties”) entered into a process of negotiating the terms and conditions of the potential disposal of the shares held by THD in the issued share capital of WCR (“WCR Shares”), comprising 67.2%        of the WCR’s issued shares, to Kernel Resources.

In anticipation thereof and to ensure undisturbed continuity of WCR’s Namaqualand operations (“Namaqualand Operations”), the Parties entered into a management and mining services agreement, whereby WCR has, subject to the fulfilment of suspensive conditions customary for an agreement of this nature, appointed Kernel Resources as an independent contractor to perform management and mining services in connection with the Namaqualand Operations.

Details of the above agreement were released on SENS on 05 May and 21 May 2019 and are available on Trans Hex’s website at www.transhex.co.za/announcements/

Shallow water operations

Production from the Shallow water operations for the 2020 financial year is expected to be in the order of 8 000 carats, compared to 2019 financial year actual production of 7 636 carats.

Angolan operations

During the 2020 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 2020 financial year is expected to be in the order of      140 000 carats, compared to 2019 financial year actual production of 133 659 carats.

Market

The rough diamond market remains weak with less goods available which is in line with lower levels of demand. The market is expected to remain softer until          Quarter 3 of the 2019 calendar year.

Further reductions in bank credit has further pressurized the sentiment in the market, yet despite less rough diamonds being available supply and demand appear to be in balance. Quarter 1 of the 2020 calendar year will see an increase in demand which should boost prices as factories are set to restock after the December break.

Dividend

The Board has resolved not to declare a final dividend.