2018 INTERIM FINANCIAL RESULTS

Overview

In this commentary, results are compared with the first six months of the 2018 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 economic life cycles, these operations were gradually downscaled and finally halted on 31 October 2017. These operations are disclosed as discontinued operations.

The LOR operations were sold effective 1 April 2018 at a profit of R77,8 million.

Sales revenue from continuing operations amounted to R136,2 million          (September 2017: R40,1 million).

South African production reduced to 55 950 carats (September 2017: 76 261 carats, including West Coast Resources’ production), mainly due to West Coast Resources (Pty) Ltd producing less carats and the closure of the LOR operations.

The cost of goods sold increased to R173,3 million (September 2017: R31,1 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 R37,1 million (September 2017: gross profit of R9,0 million).

Other gains – net amounted to R29,7 million, primarily due to the re-measurement of the West Coast Resources (Pty) Ltd rehabilitation provision which resulted in a gain of R94,1 million being recognised and loss on re-measurement to fair value and finalisation of gain with acquisition of subsidiary amounting to R86,1 million (September 2017: R14,9 million).

Loss before tax from the South African continuing operations amounted to            R55,2 million (September 2017: loss of R13,7 million).

Profit from the Angolan continuing operations amounted to R26,7 million              (September 2017: profit of R11,4 million), consisting of Somiluana’s equity accounted profit of R25,9 million and repayment in excess of the recognised loan amount of      R6,3 million, less Angolan head office costs of R5,5 million.

After-tax loss for the period from continuing operations amounted to R26,8 million (September 2017: loss of R2,3 million).

Profit from the discontinued operations amounted to R78,8 million (September 2017: loss of R196,9 million), consisting of profit from the Luarica and Fucaúma operations of R1,0 million (September 2017: Profit of R0,9 million) and profit from the discontinued LOR operations of R77,8 million (September 2017: loss of R197,7 million), directly attributable to the proceeds from its sale.

The Group therefore reports a profit for the period of R52,0 million (September 2017: loss of R199,2 million).

Cash and cash equivalents at the end of the period amounted to R42,9 million (September 2017: R41,3 million).

Operating performance

Detailed project information (unaudited)

 * 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 period, production at West Coast Resources (Pty) Ltd, in which Trans Hex holds a 67,2% stake, amounted to 51 681 carats compared to 60 344 carats in  September 2017.

Sales amounted to R110,3 million at an average price of US$135 per carat (September 2017: sales of R118,5 million at an average price of US$156 per carat).

The average grade decreased by 15,4% to 17,26 carats/100 tons compared to          20,41 carats/100 tons in September 2017 due to lower than expected grades achieved in targeted channel blocks. The average stone size amounted to 0,24 carats per stone (September 2017: 0,24 carats per stone).

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

Lower Orange River operations

At the General Meeting held on 3 September 2018, Trans Hex shareholders approved the sale of the LOR operations, effective 1 April 2018.

Angolan operations

Production at Somiluana Mine, in which Trans Hex holds a 33% stake, amounted to      66 064 carats (September 2017: 67 083 carats).

Total sales amounted to US$35,8 million at an average price of US$520 per carat (September 2017: sales of US$27,7 million at an average price of US$531 per carat). The Group received US$660 000 (September 2017: US$330 000) in dividends and a US$1,15 million repayment on 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

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 140 000 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.

Angolan operations

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      133 000 carats, compared to 2018 financial year actual production of 136 402 carats.

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.