| Wed 31 May 2006, 7:30 | | Trans Hex Group Limited - Audited Results For The |
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Trans Hex Group Limited - Audited Results For The Year Ended 31 March 2006
TRANS HEX GROUP LIMITED
Incorporated in the Republic of South Africa
Registration number: 1963/007579/06
ISIN: ZAE000018552
JSE share code: TSX & NSX share code: THX
("Trans Hex" or "the Company")
AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2006
ABRIDGED AUDITED CONSOLIDATED BALANCE SHEET
Restated
2006 2005
R"000 R"000
Assets
Property, plant and equipment 659 027 949 188
Goodwill 37 096 37 096
Investments 200 637 250 325
Deferred income tax assets 10 166 14 351
Current assets 368 718 365 002
Inventories 119 488 168 508
Trade and other receivables 65 431 88 620
Cash and cash equivalents 183 799 107 874
Non-current assets classified as 82 854 -
held for sale
1 358 498 1 615 962
Equity and liabilities
Capital and reserves 959 727 1 113 883
Borrowings 18 649 35 055
Deferred income tax liabilities 120 288 199 294
Provisions 41 414 27 003
Current liabilities 213 732 240 727
Short-term borrowings 16 406 14 432
Bank overdraft 24 414 -
Other 172 912 226 295
Liabilities associated with non- 4 688 -
current assets classified as held
for sale
1 358 498 1 615 962
Net asset value per share (cents) 1 068 1 250
ABRIDGED AUDITED CONSOLIDATED INCOME STATEMENT
Restated
2006 2005
% change R"000 R"000
Sales revenue 7,2 1 087 897 1 014 798
Cost of sales 19,7 931 470 778 137
Depreciation of mining assets 132 942 137 503
Royalties: Namaqualand 33 034 26 034
Diamond Fund Trust
Other costs 716 474 671 746
Decrease/(increase) in 49 020 (57 146)
inventories
Mining income (33,9) 156 427 236 661
Net financial expenditure (4 581) 6 882
(Note 1)
Exploration costs (63 651) (67 306)
Impairment of assets (Note 2) (218 792) -
Share of results of (6) (5)
associated companies
(Loss)/profit before income (174,1) (130 603) 176 232
tax
Income tax (9 859) 79 848
(Loss)/profit for the year (120 744) 96 384
Earnings per share (cents)
Basic (114,5) 92,0
Diluted (114,5) 100,8
Dividend per share (cents)
Interim 20,0 20,0
Final 10,0 20,0
30,0 40,0
Total number of shares in 89 847 89 095
issue (`000)
Weighted average issued 89 470 88 767
shares (`000)
Average US$ exchange rate 6,38 6,25
Reconciliation of headline earnings
(Loss)/profit for the year (120 744) 96 384
Negative goodwill - (4 621)
Loss/(profit) on sale of assets 543 (1 485)
Impairment of assets 149 949 -
Headline earnings 29 748 90 278
Headline earnings per share (cents) 28,2 86,2
ABRIDGED AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
2005
2006 Restated
R"000 R"000
Balance at 1 April (Audited) 1 113 883 1 077 673
Adoption of IAS 16 (Revised) (Note 6) - 6 399
Balance at 1 April (Restated) 1 113 883 1 084 072
(Loss)/profit for the year (120 744) 96 384
Dividends paid (35 822) (64 676)
Translation differences on foreign 1 179 (6 963)
subsidiaries
Fair value adjustment on available-for- (6 157) (1 506)
sale financial assets
Share-based payments 1 090 1 579
Issue of share capital 6 298 4 993
Balance at end of year 959 727 1 113 883
ABRIDGED AUDITED CONSOLIDATED CASH FLOW STATEMENT
Restated
2006 2005
R"000 R"000
Cash available from operating 232 338 317 876
activities
Movements in working capital 54 436 (53 230)
Taxation paid (83 975) (131 959)
Dividend paid (35 822) (64 676)
Cash retained from operations 166 977 68 011
Cash employed (115 466) (317 776)
Fixed assets - Replacement (24 880) (25 329)
- Additional (69 671) (119 100)
Subsidiaries acquired - (79 323)
Loan to Angolan joint ventures (10 195) (63 771)
Investment in Tirisano mine 665 (21 010)
Long-term liabilities (14 432) (12 696)
Investments, loans and issue of 3 047 3 453
capital
Net increase/(decrease) in cash and 51 511 (249 765)
cash equivalents
NOTES
1. Net financial expenditure 2006 2005
R"000 R"000
Net financial income/(expenses) consist
mainly of the following principal
categories:
Interest received 4 744 7 545
Interest paid (8 730) (11 916)
Net foreign exchange profit 162 7 317
Rehabilitation provision - unwinding of (757) 3 936
discount
(4 581) 6 882
2. Impairment of assets
In light of the lower than anticipated
exploration results, the group has
reviewed the value of its investments in
the Cacolo and Cacuilo alluvial and
kimberlite exploration projects in Angola
and the Tirisano Mine. This review has
indicated impairment to the value of
these investments as well as the Middle
Orange operations and in accordance with
the provisions of IAS 36, the value of
these investments has been reduced as
follows:
Details of net assets impaired are as
follows:
Mining plant and equipment
Mining rights
Net current assets
Impairment of assets before tax
Deferred taxation
Net assets impaired
22 418 -
190 205 -
6 169 -
218 792 -
(68 843) -
149 949 -
3. Segment information
Primary segments
3.1
RSA
2006 Land Angola Marine Unallo- Total
cated
R"000 R"000 R"000 R"000 R"000
Revenue 908 388 87 592 91 917 - 1 087 897
Operating 315 364 (11 785) (17 184) 2 974 289 369
income
Depreciation 94 871 26 167 8 930 2 974 132 942
Mining income 220 493 (37 952) (26 114) - 156 427
Net financial - (1 513) - (3 068) (4 581)
income
Exploration (19 293) (44 358) - - (63 651)
costs
Impairment of (73 501) (145 291) - - (218 792)
assets
Share of (6) - - - (6)
associates"
results
Profit/(loss) 127 693 (229 114) (26 114) (3 068) (130 603)
before income
tax
Assets 610 953 378 594 162 647 206 304 1 358 498
Liabilities 252 904 41 889 30 652 73 326 398 771
Capital 86 925 34 484 386 - 121 795
expenditure
Segment information (continued)
3.2 RSA
Land Angola Marine Unalloca Total
ted
2005 R"000 R"000 R"000 R"000 R"000
Revenue 816 033 74 770 123 995 - 1 014 798
Operating income 370 975 2 782 (2 415) 2 822 374 164
Depreciation 97 410 24 469 12 802 2 822 137 503
Mining income 273 565 (21 687) (15 217) - 236 661
Net financial - - - 6 882 6 882
expense
Exploration (11 747) (52 152) (3 407) - (67 306)
costs
Share of (5) - - - (5)
associates"
results
Profit/(loss) 261 813 (73 839) (18 624) 6 882 176 232
before income
tax
Assets 838 697 474 349 175 321 127 595 1 615 962
Liabilities 280 070 107 799 12 426 101 784 502 079
Capital 34 396 100 212 579 4 819 140 006
expenditure
2006 2005
R"000 R"000
4. Capital commitments (including amounts 44 421 54 373
authorised, but not yet contracted)
These commitments of the group will be financed from its own
resources or borrowed funds.
5. The accounting policies are consistent with the Annual Report and
the corresponding prior year period in accordance with International
Financial Reporting Standards, except for the adoption of IFRS 2
Share-based payments and the revised IAS 16 Property, plant and
equipment. The impact of other changes resulting from the IASB"s
accounting standards improvement project is not material.
6. NEW ACCOUNTING POLICIES ADOPTED
IFRS 2 - Share-based payments
The group has adopted the requirements of IFRS 2 Share-based payments which
resulted in a change in the accounting policy for share-based payments.
Previously the provision of share options to employees did not result in a
charge to the income statement. The group now charges the cost of share options
to the income statement, with a corresponding credit to equity.
The impact of this adjustment on profits is a charge of R1,1 million (2005:
charge of R1,6 million).
IAS 16 - Property, plant and equipment
The adoption of the revised IAS 16 resulted in a change in the accounting policy
relating to:
The frequency of determination and measurement of residual value of assets; and
The inclusion in IAS 16 of property, plant and equipment used to develop or
maintain mining rights and the activities of exploration and extraction which
are not separable from the mining activities.
The impact of this adjustment on profits for previous years amount to R12,8
million.
7. Report of independent auditor. The results have been audited
by PricewaterhouseCoopers Inc. (Stellenbosch). A copy of their
unqualified report is available for inspection at the Company"s
registered office.
FINANCIAL REVIEW
Average rough diamond prices in the second half of the year deteriorated by 18%
relative to the preceding six months. The rough inventory was reduced in
anticipation of this trend. Despite this, diamond sales were only 7% higher in
rand terms at R1 088 million (2005: R1 015 million) and 4% higher in dollar
terms at US$168 million (2005: US$162 million). Cash retained from operating
activities after dividend paid improved from R68 million to R167 million.
Cost of sales increased by 20% to R931 million (2005: R778 million) mainly as a
result of the reduction in diamond inventories (R106 million movement year on
year). Production costs increased by 6,7% due to higher fuel prices, labour
costs relating to the implementation of the continuous shift system and
increased production from Fucauma.
The loss on Angolan mining income increased from R21,7 million to R38,0 million
as a result of not meeting volume targets.
The deficit on Marine mining income increased from R15,2 million to R26,1
million. Carats decreased from 69 900 carats to 48 500 carats as a result of
sampling in the new NAMDEB contract area and the impact of adverse weather
conditions on the shallow-water operations. The mv Namakwa is now in full
production on these proven ore reserves.
As announced in the interim results, and in accordance with IAS 36 the group has
recorded impairments totalling R150 million. These relate mainly to investments
in the Cacolo and Cacuilo alluvial and kimberlite exploration projects in Angola
and the Tirisano Mine near Ventersdorp. The board also has taken a decision to
dispose of the Middle Orange River assets and subsequently the value of these
assets has been partially impaired.
Headline earnings per share at 28,2 cents is 67% lower than the prior year.
After impairments, the loss for the year amounts to R121 million (or 114,5 cents
per share) compared to a profit of R96 million for the prior year.
OPERATIONS
LAND
SOUTH AFRICA
Carat production totalled 130 700 carats, marginally lower than the 137 100
carats produced during the previous year, due mainly to reduced production at
both Saxendrift and Reuning.
Baken"s carat production increased to 98 850 carats (2005: 87 400 carats), with
an average stone size of 1.19 carats per stone (2005: 1.21 carats per stone).
A significant portion of the increased carat production is attributable to
volumes treated at the Baken Central Plant, which were 29% higher as a result of
the Maximised Shift System, implemented in November 2004, and improvements in
plant utilisation.
The reduction of operating costs continues to be a focus area. Alternative
overburden stripping methods were investigated with the aim of reducing the high
earthmoving equipment replacement costs projected up to 2008. In addition,
Baken"s three large diesel-driven excavators will be replaced by two larger
electrically-driven units, which will reduce operating costs.
At Bloeddrif carat production was 25% higher at 11 700 carats (2005: 8 900
carats) as a result of higher grade and improved operational efficiencies.
The Reuning operation achieved 3 450 carats (2005: 9 000 carats). The reduction
in carats is the result of discontinuing the Jakkalsberg operation as well as
the processing of Nxodap material through the Suidhek Plant.
The Lower Orange River region produced 10 stones exceeding 30 carats (2005: 22
stones) the largest being a 90 carat stone.
The Saxendrift operations achieved 7 400 carats (2005: 14 000 carats). The
focus over the period was on prevention of operational losses while reducing and
limiting rehabilitation liabilities. A tender process is currently underway for
the sale of these operations, with final bids scheduled for adjudication during
June 2006.
Saxendrift produced 18 stones exceeding 30 carats, the largest being a 174 carat
stone recovered by a contractor.
ANGOLA
Production at Luarica, in which Trans Hex has a 35% interest, decreased to 93
000 carats (2005: 96 000 carats) following delays in commissioning the new
larger washing plant, late arrivals of additional earthmoving equipment and an
incident of labour unrest. Revenue continued to average in excess of US$300 per
carat.
The Fucauma project, in which Trans Hex holds a 32% interest, was inaugurated
during June 2005. By October, production levels at the mine had increased to
approximately 8 000 carats per month, with production for the year being 83 000
carats (2005: 17 700 carats).
MARINE
Total production from marine operations was 48 500 carats (2005: 69 900 carats).
Both deep-water mining vessels were utilised for the entire reporting period for
mining and prospecting in the NAMDEB Mid-Shelve Concession areas of Namibia.
Early production indications support the view that sampling work which was
carried out at the end of the financial year will bear fruit this year.
EXPLORATION
ANGOLA
Geological and analytical work undertaken to date at the Gango kimberlite
project suggest moderate to low diamond-bearing potential. Bulk sampling and
further reverse circulation drilling commenced in February 2006, with final
results due by end June 2006, after which a final evaluation of the feasibility
of the project will be undertaken.
At Luana, the results from dredge sampling of the central portion of the Luana
River as well as drilling of the West Bank indicates an extensive gravel deposit
with encouraging potential. After a lengthy process, the Luana service
agreement was replaced with a prospecting contract, which was signed with
Endiama and the project"s minority partners in May 2006. Evaluation bulk
sampling will be undertaken during the current financial year.
SOUTH AFRICA
The first phase of a regional kimberlite exploration programme using airborne
gradiometer technology was completed. It was effective in identifying existing
kimberlites and defining new prospecting targets in previously problematic
kimberlite exploration terrains. Prospecting right applications over a number
of prospects were submitted to the Department of Minerals and Energy.
Liberia
The group joint-venture partners, Mano River Resources, commenced ground
geophysical surveys over the Kpo kimberlite clusters in Liberia in May 2005. To
date six kimberlite pipes have been discovered, five of which are confirmed as
diamondiferous. Kimberlite indicator mineral chemistry indicates high diamond
preservation potential.
THE ROUGH DIAMOND MARKET
Total diamond revenue for the group amounted to US$168,4 million, representing
an increase of 3,8% over the total recorded in the previous financial year.
Although the financial year commenced very strongly in terms of both pricing
levels and demand, the rough market eased in September 2005 for the mid to lower
size ranges. This was largely due to liquidity problems in the international
diamond pipeline and the disparity that existed between rough diamond price
increases and those of polished. This trend continued through to year-end.
However, prices for large gem-quality stones, for which Trans Hex is
particularly renowned, have generally remained firm. Real shortages exist for
large stones and fancy colours.
Highlights from sales during the period under review include twelve stones in
excess of 50 carats, of which two exceeded 100 carats, as well as two fancy
colour pink stones that achieved prices in excess of US$90 000 per carat,
thereby setting a new Trans Hex record price per carat.
HEALTH AND SAFETY
The group"s safety performance, measured in terms of disabling injury frequency
rate (DIFR), improved substantially in the reporting period. The DIFR for 2006
reached a world-class level of 0.51 (2005: 1.64).
DIAMOND AMENDMENT ACT
Although the Diamond Amendment Act was promulgated in early 2006, the amended
regulations for the new diamond legislation as well as the Money Bill, which
governs export duty provisions, are still awaiting finalisation. As such, the
ultimate implications of this revised legislation are yet to be determined.
Trans Hex seeks to adapt to the new legislation in a manner that will satisfy
the Government"s local beneficiation objectives, whilst maintaining its ability
to deliver value to its shareholders.
PROSPECTS
The following factors are anticipated to positively impact on future earnings:
The production profile at Baken is expected to remain consistent for the next
few years.
The newly installed third washing plant at Luarica is expected to improve
production.
The recently signed Luana prospecting agreement provides for more operational
control. Bulk sampling will commence during this financial year.
The Phakalane joint-venture has identified specific kimberlite target areas in
South Africa which are being pursued.
Diamond prices in US dollars achieved through Trans Hex"s South African
marketing system for larger categories stones are expected to remain firm.
DIVIDEND DECLARATION
The directors of Trans Hex have resolved to declare a final dividend number 51
of 10 cents per share.
Last day of trade (cum dividend) Friday 30 June 2006
First date of trading (ex dividend) Monday 3 July 2006
Record date Friday 7 July 2006
Payment date Monday 10 July 2006
Share certificates may not be dematerialised or rematerialised between Monday, 3
July 2006 and Friday, 7 July 2006, both days inclusive.
On the payment date, where so mandated, dividends due to holders of certificated
securities will either be transferred electronically to such shareholders" bank
accounts or, alternatively, cheques will be posted to their registered
addresses.
CHANGE IN DIRECTORSHIP
Mr Denis Falck was appointed non-executive director of the Company on 7 November
2005.
Mr Emil Bhrmann resigned from the Board on 7 November 2005.
SHAREHOLDERS DIARY
The annual report will be mailed before 30 June 2006 and the Annual General
Meeting is scheduled for 4 August 2006.
By order of the Board
T M G Sexwale L Delport
Chairman Managing Director
Parow
30 May 2006
REGISTERED OFFICE
405 Voortrekker Road, Parow 7500, PO Box 723, Parow 7499
JSE share code: TSX NSX share code: THX
ISIN ZAE000018552
Registration number: 1963/007579/06
Incorporated in the Republic of South Africa
TRANSFER SECRETARIES
South Africa: Computershare Investor Services 2004 (Pty) Ltd, PO Box 61051,
Marshalltown 2107
Namibia: Transfer Secretaries (Pty) Ltd, PO Box 2401, Windhoek
DIRECTORATE
TMG Sexwale (Chairman), BR van Rooyen (Deputy Chairman), L Delport (Managing
Director), DM Falck, E de la H Hertzog, DM Hoogenhout, CG Johnson (Alternate),
MS Loubser, A Martin, PC Pienaar (Alternate), MJ Willcox
GJ Zacharias (Company Secretary)
www.transhex.co.za
Date: 31/05/2006 07:30:39 AM Produced by the JSE SENS Department
