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TSX
TSX - Trans Hex Group - Unaudited Interim Results For The Six Months Ended
30 September 2008
Trans Hex Group Limited
Registration number: 1963/007579/06
Incorporated in the Republic of South Africa
ISIN code: ZAE000018552
JSE share code: TSX
NSX share code: THX
("Trans Hex" or "the company")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008
exploration, mining and marketing of diamonds
Abridged consolidated income statement
Notes Six months ended Year ended
30/09/08 30/09/07 31/03/08
Unaudited Unaudited Audited
R`000 R`000 R`000
Continuing operations
Sales revenue 1 329 694 394 558 880 900
Cost of goods sold 1 (307 187) (343 126) (702 934)
Gross income 22 507 51 432 177 966
Royalties: Namaqualand Diamond (12 775) (13 147) (31 386)
Fund Trust
Selling and administration costs (32 125) (37 105) (76 899)
Mining income (22 393) 1 180 69 681
Other income 2 1 514 10 254 28 674
Finance costs (3 585) (3 275) (5 963)
Exploration costs (22 105) (16 456) (39 345)
Reversal of impairment of assets 3 - 19 513 19 513
Impairment of available-for-sale 4 - - (26 360)
investment
Share of results of associated (4) (6) (7)
companies
(Loss)/profit before income tax 1 (46 573) 11 210 46 193
Income tax (9 424) (13 936) (47 683)
Loss for the period from (55 997) (2 726) (1 490)
continuing operations
Discontinued operations
Loss for the period from 5 (8 356) (8 367) (16 972)
discontinued operations
Loss for the period (64 353) (11 093) (18 462)
Loss per share for continuing
operations (cents)
Basic (53,0) (2,6) (1,4)
Diluted (53,0) (2,6) (1,4)
Loss per share for discontinued
operations (cents)
Basic (7,9) (7,9) (16,1)
Diluted (7,9) (7,9) (16,1)
Dividends per share (cents) - 5,0 10,0
Total number of shares in issue 106 051 89 955 106 051
(`000)
Weighted average issued shares 105 699 105 955 105 643
(`000)
Average US$ exchange rate 7,79 7,12 7,14
Headline (loss)/earnings per share (cents)
Continuing operations (cents)
Basic (52,0) (22,0) 8,6
Diluted (52,0) (22,0) 8,6
Discontinued operations (cents)
Basic (7,9) (7,9) (16,1)
Diluted (7,9) (7,9) (16,1)
Abridged consolidated balance sheet
Six months ended Year ended
30/09/08 30/09/07 31/03/08
Unaudited Unaudited Audited
R`000 R`000 R`000
Assets
Property, plant and equipment 649 359 690 791 656 262
Goodwill 37 096 37 096 37 096
Financial assets 319 440 190 033 270 176
Deferred income tax assets - 2 704 -
Current assets 375 962 388 933 428 160
Inventories (note 1) 211 628 108 081 112 720
Trade and other receivables 34 560 81 601 57 051
Current income tax 5 508 19 010 24 401
Financial assets - - 11 588
Cash and cash equivalents 124 266 180 241 222 400
Non-current assets classified as held 77 853 114 315 153 595
for sale
1 459 710 1 423 872 1 545 289
Equity and liabilities
Total shareholders` interest 929 966 982 135 994 472
Long-term borrowings 22 062 24 193 22 489
Deferred income tax liabilities 190 232 151 055 203 819
Provisions 57 284 41 541 54 844
Current liabilities 260 166 220 260 261 427
Borrowings 29 664 40 993 30 088
Bank overdraft 27 493 4 764 28 248
Trade and other payables 203 009 174 503 203 091
Liabilities directly associated with - 4 688 8 238
non-current assets classified as held
for sale
1 459 710 1 423 872 1 545 289
Net asset value per share (cents) 880 1 092 941
Abridged consolidated statement of changes in equity
Six months ended Year ended
30/09/08 30/09/07 31/03/08
Unaudited Unaudited Audited
R`000 R`000 R`000
Balance at 1 April 994 472 1 009 435 1 009 435
Loss for the period (64 353) (11 093) (18 462)
Dividends paid (5 303) (13 493) (17 996)
Translation differences on foreign (1 249) (1 937) (3 699)
subsidiaries
Impairment of available-for-sale - - 26 360
financial assets
Fair value adjustment on available-for-6 399 (801) -
sale financial assets
Share-based payments - 24 48
Treasury shares held by group - - (1 816)
Issue of share capital - - 602
Balance at end of period 929 966 982 135 994 472
Abridged consolidated cash flow statement
Six months ended Year ended
30/09/08 30/09/07 31/03/08
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash available from operating 4 733 38 775 151 619
activities
Movements in working capital (note 1) (71 503) 15 991 45 485
Income tax paid (6 873) (43 203) (51 043)
Dividends paid (5 303) (13 493) (17 996)
Cash (utilised)/generated by (78 946) (1 930) 128 065
operations
Cash employed (18 433) (71 863) (183 183)
Fixed assets
Proceeds from disposal 75 207 1 956 14 794
Replacement (46 552) (56 055) (152 077)
Additional (12 808) (15 724) (29 180)
Borrowings (851) (5 452) (18 061)
Investment, loans and issue of capital (33 429) 3 412 1 341
Net cash flow for the period (97 379) (73 793) (55 118)
Notes
1. Impact of the last tender sale of the period
The negative impact of the last tender sale due to the global banking
credit crisis and unresolved issues regarding the State Diamond
Trader is estimated as follows:
R`m
Reduction in revenue/Increase in cash utilised in working 78
capital
Reduction in cost of goods sold/Increase in diamond (33)
inventories
Negative impact on the loss before income tax 45
Six months ended Year ended
30/09/08 30/09/07 31/03/08
Unaudited Unaudited Audited
R`000 R`000 R`000
2. Other income
Other income consists mainly of
the following principal
categories:
Interest received 7 793 11 286 23 014
Net foreign exchange 1 443 (1 032) 8 871
profit/(loss)
Loss on other financial assets at (6 282) - (912)
fair value through profit or loss
Rehabilitation provision - (1 440) - (2 299)
unwinding of discount
1 514 10 254 28 674
3. Reversal of impairment of assets
During 2006, the group reviewed
the carrying value of its
investment in the Tirisano Mine
near Ventersdorp. The review
indicated impairment to the value
of this investment and the value
of this investment was reduced
during the 2006 financial year.
Due to the sale of the Tirisano
Mine the value of the operation
was reassessed, resulting in an
impairment reversal of R19,5
million.
Details of reversal of net assets
are as follows:
Mining plant and equipment - 4 462 4 462
Mining rights - 12 064 12 064
Net current assets - 2 987 2 987
Net asset impairment reversal - 19 513 19 513
4. Impairment of available-for-sale investment
In light of a significant and - - (26 360)
prolonged decline in the fair
value of the shares held in
Diamond Fields International Ltd,
the cumulative loss previously
recognised in equity, was
reclassified to the income
statement.
5. Discontinued operations
During the 2008 financial year it
was decided to discontinue with
the group`s marine vessel
operations in Namibia. The
results of the operations were as
follows:
Revenue 660 23 544 48 255
Expenses (12 387) (38 154) (78 232)
Loss before income tax (11 727) (14 610) (29 977)
Income tax 3 371 6 243 13 005
Loss for the period (8 356) (8 367) (16 972)
6. Reconciliation of headline earnings
Continuing operations
Loss for the period (55 997) (2 726) (1 490)
Loss/(profit) on sale of assets 1 396 (1 132) 3 142
Taxation impact (350) 63 595
Impairment of assets - (19 513) (19 513)
Impairment of available-for-sale - - 26 360
investment
Headline (loss)/earnings (54 951) (23 308) 9 094
Discontinued operations
Loss for the period (8 356) (8 367) (16 972)
7. Capital commitments
(including amounts authorised, 89 383 171 248 161 937
but not yet contracted)
8. Segment information
Primary segments
Continuing Discontinued
South Angola Liberia Total Namibia
Africa R`000 R`000 R`000 R`000
R`000
Six months ended
30 September 2008
Carats sold 32 690 12 878 - 45 568 417
Revenue 302 172 27 522 - 329 694 660
Operating 67 774 (26 354) - 41 420 (11 727)
income/(loss)
Depreciation (47 599) (16 205) (9) (63 813) -
Mining 20 175 (42 559) (9) (22 393) (11 727)
income/(loss)
Other income 1 514 - - 1 514 -
Finance costs (387) (3 198) - (3 585) -
Exploration costs (2 186) (17 466) (2 453) (22 105) -
Share of results of (4) - - (4) -
associated
companies
Profit/(loss) 19 112 (63 223) (2 462) (46 573) (11 727)
before income tax
Six months ended
30 September 2007
Carats sold 55 793 27 562 - 83 355 21 867
Revenue 343 881 50 677 - 394 558 23 544
Operating 71 779 (10 702) - 61 077 (7 066)
income/(loss)
Depreciation (38 430) (21 467) - (59 897) (3 897)
Mining 33 349 (32 169) - 1 180 (10 963)
income/(loss)
Other income 10 254 - - 10 254 -
Finance costs (1 220) (2 055) - (3 275) -
Exploration costs (2 022) (10 030) (4 404) (16 456) (3 647)
Reversal of 19 513 - - 19 513 -
impairment of
assets
Share of results of (6) - - (6) -
associated
companies
Profit/(loss) 59 868 (44 254) (4 404) 11 210 (14 610)
before income tax
Year ended 31 March
2008
Carats sold 111 175 47 083 - 158 258 35 596
Revenue 791 891 89 009 - 880 900 48 255
Operating 226 220 (37 425) - 188 795 (20 308)
income/(loss)
Depreciation (82 282) (36 832) - (119 114) (7 197)
Mining 143 938 (74 257) - 69 681 (27 505)
income/(loss)
Other income 33 092 (4 418) - 28 674 -
Finance costs (1 175) (4 788) - (5 963) -
Exploration costs (4 691) (25 900) (8 754) (39 345) (2 472)
Reversal of 19 513 - - 19 513 -
impairment of
assets
Share of results of (7) - - (7) -
associated
companies
Profit/(loss) 190 670 (109 363) (8 754) 72 553 (29 977)
before income tax
Impairment of - - - (26 360) -
available-for-sale
investment
Profit/(loss) 190 670 (109 363) (8 754) 46 193 (29 977)
before income tax
9. The accounting policies are consistent with the annual report and the
corresponding prior year period in accordance with International
Financial Reporting Standards. These abridged financial statements
comply with IAS 34. Income does not accrue evenly throughout the year
and the income for the six months, therefore, does not necessarily
represent half of a full financial year`s income.
Comments
In this commentary, results are compared with the first six months of the
2007/08 financial year (in brackets).
Financial summary
Continuing operations
Total rough diamond sales for the reporting period amounted to US$42,6 million
(US$55,7 million), a reduction of 24% over those of the comparative period. Rand
revenue at R329,7 million was 16% lower than the comparative period. The decline
in sales revenue was due primarily to the last tender sale coinciding with the
global banking credit crisis, which resulted in lower volumes sold, as well as a
20% drop in the average price per carat. In addition, the average sales mix was
negatively affected, with fewer larger stones being sold. As a result, diamond
inventories have increased to R161,7 million (R69,7 million). In addition, as
per the amendments to the Diamonds Act, 10% of production from the last sales
cycle was offered for purchase to the State Diamond Trader (SDT). The sale will
only be concluded once agreement has been reached on the purchase price, and
therefore these diamonds have been recorded as inventory. The impact of the
above reduced revenue by R78 million.
A loss of R56,0 million was made compared to a loss of R2,7 million for the
comparative period, with a loss per share of 53,0 cents compared to a loss per
share of 2,6 cents in the comparative period. Headline loss per share was 52,0
cents (22,0 cents).
The cost of goods sold was negatively affected by the 11% decline in carat
production, due primarily to lower grades achieved in the first quarter, as well
as a significant escalation in costs including a 66% increase in the fuel cost
per litre from the comparative period last year.
Cash balances at 30 September were R96,8 million (R175,5 million) with
expenditure for the earth-moving equipment replacement cycle being R59,4 million
during the reporting period. The five-year earth-moving equipment replacement
cycle has now been completed.
Discontinued operations
The operations conducted by the two deepwater mining vessels were discontinued
at the March 2008 financial year-end. The after-tax loss for the period was R8,4
million (R8,4 million) and comprised primarily of retrenchment and lay-up costs.
Subsequent to 30 September 2008 the Mv Ivan Prinsep has been successfully sold
for R35,6 million and prospects for the sale of the larger capacity Mv Namakwa
appear positive.
Operations
South Africa
South African production declined from 51 871 carats to 43 670 carats due to
lower grade at Baken during the first quarter. Notwithstanding the considerable
inflationary pressure on operating costs, notably fuel, the operating margin
increased to 22,4% (20,9%).
Baken produced 29 799 carats (39 300 carats) with an average stone size of 1,05
carats per stone (1,16 carats per stone). The average grade realised was 1,40
carats/100 m3 (1,63 carats/100 m3) with grade in the first quarter being 1,20
carats/100 m3 which recovered to 1,58 carats/100 m3 in the second quarter.
The Reuning operation achieved 9 758 carats (6 642 carats). The recommissioned
Bloeddrif plant produced 1 203 carats (nil carats) over the reporting period.
Plans to introduce a high-volume, low-cost operation have commenced, with plant
volumes increasing from 40 000 m3 to 60 000 m3 per month after the introduction
of an in-field screening plant. An infill bulk sampling programme to gain more
geological information to the extent of the reserve has also commenced, with
initial results confirming our confidence levels in the grade.
Angola
Carat production at Luarica, in which Trans Hex has a 35% interest, reduced by
44% to 29 000 carats (51 700 carats). The reduction in carat production was due
to the lack of availability of earth-moving equipment and severe operating cash
flow constraints. The average diamond price achieved during the period declined
to US$305 per carat (US$315 per carat).
The recovery plan at Fucauma project, in which Trans Hex has a 32% interest, is
progressing well, with a Trans Hex appointed management team now in place.
Production started during May after a three-month shutdown with 15 600 carats
(31 600 carats) produced. Production has steadily increased and is already 26%
higher than prior year monthly averages. The average diamond price realised
during the period was US$200 per carat (US$180 per carat). These prices are
expected to decrease as a result of prevailing market conditions. Earth-moving
equipment has been in a process of rehabilitation, which is now largely
completed. Detailed geological work is being performed on the resource which
should facilitate a further increase in production. Significant cost reduction
measures have been implemented.
Exploration
South Africa
Trans Hex continues to evaluate new exploration prospects and acquisitions on a
regular basis. Twelve new prospecting rights have been awarded to the group,
with several more being evaluated by the Department of Minerals and Energy.
The regional kimberlite exploration programme which utilised airborne
gradiometer technology is nearing completion. One hundred and twenty six
anomalies have been evaluated by means of a combination of target sampling,
ground geophysics and drilling. A small number of kimberlite pipes and fissures
of low-order potential were identified. Several other kimberlite exploration
projects, at various stages of development, are continuing.
Angola
The bridge over the Luana River has been completed and access roads are being
established on the eastern side of the river to facilitate planned drilling and
bulk sampling. These programmes are designed to confirm and upgrade the
previously reported resource of 10,0 million carats. Following completion of the
bulk sampling on the west bank, pilot production has commenced with excellent
grades in excess of the predicted 25 carats/100 m3 being achieved and 9 400
carats have already been recovered. It is planned to increase output to 5 000
carats per month by year end. A pre-feasibility study has been completed and
mining contract negotiations are due to commence in November 2008.
Liberia
Following completion of the bulk sampling of five kimberlites on the Kpo joint
venture with Stellar Diamonds Liberia, Stellar continued with regional stream
and soil sampling but failed to identify any significant new anomalies. The
project has been placed under care and maintenance for the next six months in
order to allow Stellar to formulate its funding strategy for continuation of the
exploration programme. Trans Hex is in the process of disposing of its fixed and
movable assets in Liberia.
The rough diamond market
Although the bulk of the reporting period was characterised by strong demand and
continuous price increases, sales after August 2008 were severely impacted as
the global economic downturn impacted negatively on the industry. Rough prices
for this period showed decreases from previous highs and demand has fallen as
liquidity and concerns over polished jewellery sales have now resulted in slower
rough diamond buying activity.
During the period, eleven stones were sold in excess of US$20 000 per carat,
with one stone of 27 carats from Baken exceeding US$50 000 per carat.
Prospects
With the improved grades currently being achieved at Baken, South African carat
production is expected to increase by 25% in the second half. In spite of the
current high inflationary cost environment, additional cost control measures
have started to yield results.
Production at Fucauma is anticipated to increase further as Trans Hex`s recovery
plan gains impetus.
At Luana pilot production is expected to increase from 2 000 carats per month to
5 000 carats per month by year end. The feasibility study is due to be concluded
during November 2008 and is anticipated to confirm the high potential of this
resource.
Given the economic climate, rough and polished sales are likely to face a
difficult period until confidence returns. This will to some extent be mitigated
should the current Rand/US$ exchange rate prevail. We remain positive that
strong demand for the high-value large stones which Trans Hex produces will
return to pre-global credit crisis levels.
Dividend
In order to maintain cash resources and until such time as the global credit
crisis situation stabilises, the directors deem it prudent not to declare an
interim dividend.
Changes to the board of directors
The Board confirms the resignation, effective 15 September 2008, of Mr Dennis
Martin Falck from the board of directors following his recent retirement as
financial director of Remgro Limited as a non-executive director and the
appointment of Advocate Theodore van Wyk in his place effective 15 September
2008.
By order of the board
PL Zim L Delport
Chairman Chief Executive Officer
Parow
12 November 2008
www.transhex.co.za
Registered office
405 Voortrekker Road, Parow 7500
PO Box 723, Parow 7499
Transfer secretaries
South Africa
Computershare Investor Services (Pty) Limited
PO Box 61051, Marshalltown 2107
Namibia
Irwin Jacob, Greene & Associates
PO Box 2401, Windhoek
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Directorate
PL Zim (Chairman), BR van Rooyen (Deputy Chairman), L Delport (Chief Executive
Officer), AG Muller (Financial Director), MJ Carstens (SA Land Operations), T de
Bruyn, E de la H Hertzog, AR Martin, PC Pienaar, T van Wyk, GJ Zacharias
(Company Secretary)
Date: 12/11/2008 07:05:02 Produced by the JSE SENS Department.
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