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TRANS HEX GROUP LIMITED INTERIM REPORT

Release Date: 26/11/1998 08:09
Code(s): TSX
Wrap Text
INTERIM REPORT
TRANS HEX GROUP LIMITED
REG. NO. 63/07579/06
INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1998
ABRIDGED CONSOLIDATED INCOME STATEMENT

YEAR SIX MONTHS
ENDED ENDED
31.03.98 30.09.98 30.09.97 AUDITED % UNAUDITED UNAUDITED R'000 CHANGE R'000 R'000 293 804 TURNOVER - DIAMONDS 22,2 151 536 123 995 39 665 TURNOVER - LIME (12,7) 16 126 18 477 132 656 NET OPERATING INCOME 62 922 67 153 500 DIVIDENDS RECEIVED 400 500 (3 317) INTEREST PAID (3 284) (420) (40 365) DEPRECIATION (21 296) (18 844) (1 347) EXCEPTIONAL ITEMS (NOTE 1) (4 570) 670 88 127 NET INCOME BEFORE TAXATION (30,3) 34 172 49 059 31 752 TAXATION 12 228 16 388 56 375 NET INCOME AFTER TAXATION (32,8) 21 944 32 671 (637) EQUITY ADJUSTMENT (334) (608) 55 738 NET ATTRIBUTABLE INCOME 21 610 32 063 EARNINGS PER SHARE (CENTS)
374,0 - BEFORE EXCEPTIONAL ITEMS (22,3) 163,1 209,9 369,9 - AFTER EXCEPTIONAL ITEMS (32,6) 143,4 212,8 110,0 DIVIDEND PER SHARE (CENTS) 44,0 44,0 15 067,5 TOTAL NUMBER OF SHARES IN ISSUE ('000) 15 067,5 15 067,5 ABRIDGED CONSOLIDATED BALANCE SHEET
YEAR SIX MONTHS
ENDED ENDED
31.03.98 30.09.98 30.09.97 AUDITED UNAUDITED UNAUDITED R'000 R'000 R'000 CAPITAL EMPLOYED
251 187 TOTAL SHAREHOLDERS' INTERESTS 269 518 237 297 41 649 DEFERRED LIABILITIES 38 435 37 345 292 836 307 953 274 642 EMPLOYMENT OF CAPITAL
185 374 FIXED ASSETS 179 580 177 810 78 208 INVESTMENTS AND LOANS (NOTE 2) 78 046 64 713 29 254 NET CURRENT ASSETS 50 327 32 119 89 263 CURRENT ASSETS 109 785 99 185 25 068 CASH RESOURCES 34 924 1 972 64 195 OTHER 74 861 97 213 60 009 LESS: CURRENT LIABILITIES 59 458 67 066 292 836 307 953 274 642 1 667 NET ASSET VALUE PER SHARE (CENTS) 1 789 1 575 ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
YEAR SIX MONTHS
ENDED ENDED
31.03.98 30.09.98 30.09.97 AUDITED UNAUDITED UNAUDITED R'000 R'000 R'000 129 041 CASH AVAILABLE FROM OPERATING 55 086 67 773 ACTIVITIES
7 750 MOVEMENTS IN WORKING CAPITAL (2 109) (21 730) (14 553) TAXATION PAID (17 344) 1 770 (16 424) DIVIDEND PAID (9 945) (9 794) 105 814 CASH RETAINED FROM OPERATING 25 688 38 019 ACTIVITIES
(85 311) CASH EMPLOYED (15 832) (40 612) (69 148) FIXED ASSETS (15 660) (38 086) (16 163) INVESTMENTS AND LOANS (172) (2 526) 20 503 NET CASH FLOW FOR THE PERIOD 9 856 (2 593) NOTES
YEAR SIX MONTHS
ENDED ENDED
31.03.98 30.09.98 30.09.97 AUDITED UNAUDITED UNAUDITED R'000 R'000 R'000 1. EXCEPTIONAL ITEMS
3 818 RATIONALISATION OF LIME DIVISION (4 570) 670 AND RELATED INTERESTS AND CANCELLATION OF LONG-TERM CONTRACT
(5 165) PROVISION FOR CLOSURE OF PROJECTS AS A - - RESULT OF THE DECREASE IN DIAMOND PRICES
(1 347) (4 570) 670 (729) TAXATION (1 599) 235 (618) (2 971) 435 2. INVESTMENTS AND LOANS LISTED INVESTMENTS AT COST*
68 477 SHARES 68 477 55 172 8 762 LOANS 8 969 8 558 77 239 77 446 63 730 25 377 MARKET VALUE (INCLUDING LOANS) 26 767 60 825 969 UNLISTED INVESTMENTS AND LOAN AT 600 983 CARRYING VALUE (ALSO DIRECTORS' VALUATION) 3. ADDITIONAL INFORMATION NET OPERATING INCOME NET INCOME BEFORE TAXATION IS STATED AFTER TAKING THE FOLLOWING INTO ACCOUNT:
3 399 EXPLORATION COSTS 985 888 17 606 NET MINE DEVELOPMENT COST 14 170 9 370 37 044 GROSS MINE DEVELOPMENT COST 21 728 9 953 19 438 LESS: PROCEEDS INCLUDED IN TURNOVER 7 558 583 10 182 ROYALTIES: NAMAQUALAND DIAMOND 5 147 4 718 FUND TRUST
1 234 PROVISION FOR REHABILITATION 510 1 415 27 218 CAPITAL LIABILITIES (INCLUDING AMOUNTS 23 717 30 912 AUTHORISED, BUT NOT YET CONTRACTED) 4. 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
* THE GROUP'S INTEREST IN TRANS HEX INTERNATIONAL LTD IS NOT ACCOUNTED FOR IN THE CONSOLIDATED STATEMENTS. THIS COMPANY'S ACCOUNTING POLICY COMPLIES WITH CANADIAN REQUIREMENTS FOR EXPLORATION COMPANIES, WHICH DIFFER FROM THAT OF THE GROUP. THE QUARTERLY REPORT FOR THE SIX MONTHS ENDED
30 SEPTEMBER 1998 OF TRANS HEX INTERNATIONAL LTD PRESENTED IN CANADIAN DOLLARS SHOULD BE READ TOGETHER WITH TRANS HEX GROUP'S REPORT. COMMENTS FINANCIAL RESULTS
AS A RESULT OF THE COMBINATION OF THE DEPRESSED WORLD DIAMOND MARKET, THE THREE-WEEK STRIKE IN JULY/AUGUST BY THE NATIONAL UNION OF MINEWORKERS AT BAKEN, BELOW TARGET PRODUCTION FROM HONDEKLIP BAY AND THE MARKET DECLINE FOR THE VARIOUS LIME PRODUCTS, THE RESULTS REPORTED FOR THE HALF YEAR PERIOD ARE LESS THAN SATISFACTORY. THESE FACTORS WERE TEMPERED TO A DEGREE BY THE SHARP DECLINE IN THE RAND/DOLLAR EXCHANGE RATE TOWARDS THE END OF THE PERIOD.
THE GROUP HAS MAINTAINED ITS INTERIM DIVIDEND AT 44 CENTS PER SHARE DESPITE THE DECREASE IN NET INCOME AND EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS BY 22% TO R24,6 MILLION AND 163,1 CENTS RESPECTIVELY. THIS WAS MADE POSSIBLE BY POSITIVE CASH FLOW EVIDENCED BY AN INCREASE IN CASH RESOURCES OF
R9,9 MILLION DESPITE A SUBSTANTIAL INCREASE IN MINE DEVELOPMENT COSTS, WHICH ALSO CONTRIBUTED TO THE DECLINE IN NET INCOME. IN THE LIGHT OF THE THEN PREVAILING FINANCIAL CIRCUMSTANCES, THE FINAL DIVIDEND WILL HAVE TO BE CAREFULLY CONSIDERED.
THE DEPRESSED DIAMOND MARKET REMAINS A MATTER OF CONCERN. ALL VALUE SECTORS HAVE BEEN AFFECTED WITH THE MOST SEVERE IMPACT ON THE LOWER VALUE "MELEE" AND "INDIAN" CATEGORIES. THE ASIAN ECONOMIC CRISIS CONTINUES AND THE DEMAND FOR ORANGE RIVER "CAPE" (YELLOW) STONES HAS VIRTUALLY DISAPPEARED. THE NORMAL PRE-CHRISTMAS UPSWING IN DIAMOND DEMAND IS NOT EXPECTED TO OCCUR. INDICATIVE OF THE PROBLEM IS THE SHARP DECLINE OF AVERAGE DOLLAR PRICES ACHIEVED IN THE SIX MONTHS BEING REPORTED, SEEN AGAINST THE CORRESPONDING PERIOD OF THE PREVIOUS FINANCIAL YEAR : ORANGE RIVER (-19%), HONDEKLIP BAY/KOMAGGAS (-8%) AND THE SO VER KIMBERLITE DUMP RETREATMENT OPERATION (-33%). IT IS NOTED, HOWEVER, THAT PRICES FOR THE ORANGE RIVER PRODUCTION REACHED AN ALL-TIME PEAK IN APRIL 1997. OPERATIONS DIAMOND DIVISION
PRODUCTION - TOTAL CARAT PRODUCTION WAS 15% BELOW BUDGET FOR THE HALF YEAR LARGELY DUE TO THE STRIKE AT BAKEN AND THE EXCESSIVE CLAY CONTENT OF THE PLANT FEED AT HONDEKLIP BAY WHICH RESTRICTED PLANT THROUGHPUT. THE LATTER PROBLEM IS BEING ADDRESSED BY MAJOR PLANT MODIFICATIONS AND UP-SCALING, WHICH WILL RESULT IN A TEMPORARY SHUT-DOWN OF OPERATIONS BETWEEN NOVEMBER 1998 AND APRIL 1999. TECHNICAL AND FINANCIAL STUDIES WHICH ARE FOCUSSED ON EXPANDING PRODUCTION FROM THE ORANGE RIVER LEASE AREA WILL CONTINUE.
EXPLORATION - BAKEN'S PK3 MEGA TRENCH WAS COMPLETED WITH MARGINAL RESULTS. OVERBURDEN STRIPPING OF TRENCH PK4 CONTINUED AND COMPLETION IS NOW ESTIMATED FOR MARCH 1999. STRIPPING OF TRENCH PK28 - 1 HAS COMMENCED, AND THE COMPLETION OF ALL EXPLORATION AT BAKEN IS NOW SCHEDULED FOR MID 2000. ALL THESE SAMPLING ACTIVITIES ARE BEING CONDUCTED IN SECTIONS OF THE PALAEOCHANNEL WHICH ARE SCHEDULED TO BE MINED IN THE YEAR 2004 AND BEYOND.
DUE TO VERY PROMISING RESULTS PREVIOUSLY REPORTED FROM THE NXODAP PROSPECT IT WAS DECIDED TO SUSPEND FURTHER BULK SAMPLING UNTIL THE 10 KM LONG ACCESS ROAD HAS BEEN UPGRADED AND A NEW DEDICATED 100 TON/HOUR DMS SAMPLING PLANT HAS BEEN CONSTRUCTED AND ERECTED AT A COST OF R10 MILLION. EXPLORATION WILL RECOMMENCE EARLY IN 1999.
EXPLORATION ACTIVITIES AT BLOEDDRIF, REUNING SOUTH AND HONDEKLIP BAY CONTINUED NORMALLY.
MARINE GEOPHYSICAL SURVEYS WERE COMPLETED BY BENGUELA CONCESSIONS (AS JOINT VENTURE PARTNER AND TECHNICAL MANAGER) ON TRANS HEX'S 11(B), (C) AND 13(B) CONCESSION AREAS. RESULTS TO DATE ARE VERY ENCOURAGING AND THE FIRST SAMPLING OF PROSPECTIVE AREAS IS TO COMMENCE TOWARDS THE END OF 1999. LIME DIVISION
OPERATIONS AT VREDENDAL AND LANGVLEI CONTINUED NORMALLY WITH THE NEW CALCINING FACILITY AT THE FORMER LOCATION FINALLY EXCEEDING ITS DESIGN CAPACITY. CO-OPERATION AND FURTHER STUDIES WITH A MAJOR EUROPEAN LIME PRODUCER AND SPECIALTY MINERALS SOUTH AFRICA CONTINUE.
A MARKED DECLINE IN THE DEMAND FOR VIRTUALLY ALL LIME PRODUCTS OCCURRED LATE IN THE PERIOD UNDER REVIEW AND THIS SITUATION IS SEEN AS BEING UNLIKELY TO IMPROVE IN THE SHORT TO MEDIUM TERM. IT HAS THUS BEEN DECIDED TO RATIONALISE THE PRODUCTION ACTIVITIES AND MANNING OF THE TWO OPERATIONS IN ORDER TO OPTIMISE PRODUCTION AND REDUCE COSTS. TRANS HEX INTERNATIONAL
BULK SAMPLING AT THE NORTHBANK PROJECT ON THE BLOCK 9 CONCESSION IN NAMIBIA HAS BEEN DELAYED DUE TO OBJECTIONS LODGED BY THE NEARBY FARMING OPERATION AT AUSSENKEHR. A DEPARTMENTAL HEARING IN LATE NOVEMBER WILL CONSIDER THE MATTER AND EXCAVATION OF THE BULK SAMPLE SITES SHOULD COMMENCE EARLY IN 1999. PRELIMINARY SAMPLING OF PROSPECTIVE MARINE GRAVELS LOCATED IN THE SHALLOW WATER SECTIONS OF THE SKELETON COAST PROJECT LEASE AREA, HAVE COMMENCED.
GEOLOGIC MAPPING AND DRILLING WERE INITIATED ON THE RIO GRANDE ALLUVIAL PROSPECT IN BRAZIL IN A JOINT VENTURE WITH VERENA MINERALS OF BRAZIL. THE EXTENSIVELY DEVELOPED, THICK DIAMONDIFEROUS GRAVELS HAVE HISTORICALLY PRODUCED HIGH QUALITY STONES IN THE US $ 400/CT RANGE AND PROVIDE A VERY ENCOURAGING EXPLORATION TARGET.
IN ANGOLA A WATCHING BRIEF WAS MAINTAINED DUE TO THE SECURITY SITUATION IN THE LUNDA NORTE PROVINCE. PROSPECTS
THE ROUGH DIAMOND MARKET IS NOT EXPECTED TO IMPROVE IN THE BALANCE OF THE FINANCIAL YEAR. THE SAME CAN BE SAID FOR THE BULK OF LIME PRODUCTS BEING PRODUCED. DIAMOND PRODUCTION WILL PROBABLY BE MARGINALLY UNDER TARGET FOR THE YEAR WITH BAKEN MAKING UP LOST PRODUCTION DURING THE STRIKE. HONDEKLIP BAY WILL ONLY RESUME FULL PRODUCTION EARLY IN THE NEW FINANCIAL YEAR. IN THESE
CIRCUMSTANCES, AND GIVEN THE CURRENT LEVEL OF THE RAND/DOLLAR EXCHANGE RATE, THE GROUP'S FINANCIAL PERFORMANCE IS UNLIKELY TO IMPROVE IN THE CURRENT FINANCIAL YEAR DESPITE ONGOING STRINGENT COST CONTROLS. DIVIDEND
AN INTERIM DIVIDEND OF 44C PER SHARE (1997 : 44C PER SHARE) WAS DECLARED ON 25 NOVEMBER 1998 PAYABLE TO ORDINARY SHAREHOLDERS REGISTERED IN THE BOOKS OF THE COMPANY ON 18 DECEMBER 1998. DIVIDEND CHEQUES WILL BE POSTED ON OR BEFORE 25 JANUARY 1999. YEAR 2000 COMPLIANCE
CORE ASPECTS OF THE GROUP'S ACTION PLAN ARE AS FOLLOWS :
* A NEW COMPUTER SYSTEM, LINKED TO ALL OPERATING CENTRES, IS BEING INSTALLED AT HEAD OFFICE AT A COST OF SOME R7 MILLION. THE SYSTEM WILL BE FULLY OPERATIONAL BY 1 APRIL 1999 AND WILL BE FULLY YEAR 2000 COMPLIANT.
* A TASK GROUP AND EXTERNAL CONSULTANTS HAVE BEEN APPOINTED TO AUDIT THE AGENTS OF, AND SUPPLIERS TO, THE GROUP.
NO MATERIAL OPERATIONAL DIFFICULTIES HAVE AS YET BEEN EXPERIENCED, NOR ARE THEY ANTICIPATED. BY ORDER OF THE BOARD
E DE LA H HERTZOG D M HOOGENHOUT
CHAIRMAN GROUP MANAGING DIRECTOR PAROW 25 NOVEMBER 1998
REGISTERED TRANSFER SECRETARIES:
OFFICE: OPTIMUM REGISTRARS (PTY) LTD
405 VOORTREKKER ROAD 40 COMMISSIONER STREET (PO BOX 62391) PAROW MARSHALLTOWN

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