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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