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Trans Hex - Reviewed Interim results for the six months ended 30 September 2005
Trans Hex Group Limited
Registration number 1963/007579/06
(Incorporated in the Republic of South Africa)
ISIN: ZAE000018552
JSE Code: TSX and NSX Code: THX
("Trans Hex" or "the company")
Reviewed Interim results for the six months ended 30 September 2005
Abridged consolidated income statement
Six months ended Year ended
30/09/05 30/09/04 31/03/05
Restated Restated
% Reviewed Reviewed Audited
Change R"000 R"000 R"000
Sales revenue 14,8 611 649 532 770 1 014 798
Cost of sales 25,4 486 404 387 970 778 137
Depreciation of mining assets 73 822 65 434 137 503
Royalties: Namaqualand
Diamond Fund Trust 19 240 13 335 26 034
Other costs 393 342 309 201 614 600
Mining income (13,5) 125 245 144 800 236 661
Net financial income (Note 1) 2 599 6 204 6 882
Exploration costs (39 079) (13 552) (67 306)
Impairment of assets (Note 8) (215 609) - -
Share of results of
associated companies (3) (2) (5)
Profit before taxation (192,3) (126 847) 137 450 176 232
Taxation (28 227) 52 559 80 757
Attributable income (216,2) (98 620) 84 891 95 475
Earnings per share (cents)
- Basic (215,4) (93,7) 81,2 91,1
- Diluted (218,3) (93,7) 79,2 90,6
- Headline (40,3) 46,1 77,2 85,3
Dividend per share (cents) 20,0 20,0 40,0
Total number of shares in
issue ("000) 89 413 88 744 89 095
Weighted average issued
shares ("000) 89 255 88 530 88 767
Average US$ exchange rate 6,44 6,48 6,25
Abridged consolidated statement of changes in equity
Six months ended Year ended
30/09/05 30/09/04 31/03/05
Restated Restated
Reviewed Reviewed Audited
R"000 R"000 R"000
Balance at 1 April (Audited) 1 111 684 1 077 673 1 077 673
Adoption of IAS 16 (Note 6) - 5 109 5 109
Balance at 1 April (Restated) 1 111 684 1 082 782 1 082 782
Net profit attributable to ordinary
shareholders (Restated) (98 620) 84 891 95 475
Dividends paid (17 868) (46 887) (64 676)
Translation differences on foreign
subsidiaries 4 840 3 756 (6 963)
Fair value adjustment on available-
for-sale financial assets (4 315) (450) (1 506)
Share-based payment reserve (Note 6) 616 808 1 579
Issue of share capital 2 721 2 434 4 993
Balance at end of period 999 058 1 127 334 1 111 684
Abridged consolidated cash flow statement
Six months ended Year ended
30/09/05 30/09/04 31/03/05
Restated Restated
Reviewed Reviewed Audited
R"000 R"000 R"000
Cash available from operating
activities 162 965 202 136 317 876
Movements in working capital 44 613 (9 434) (53 230)
Taxation paid (80 031) (107 471) (131 959)
Dividend paid (17 868) (46 887) (64 676)
Cash retained from operating
activities 109 679 38 344 68 011
Cash employed (61 474) (229 038) (317 776)
Fixed assets
- Replacement (11 010) (27 298) (25 329)
- Additional (43 381) (66 633) (119 100)
Long-term liabilities (7 216) (6 348) (12 696)
Investments, loans and issue of
capital 133 (128 759) (160 651)
Net cash flow for the period 48 205 (190 694) (249 765)
Abridged consolidated balance sheet
Six months ended Year ended
30/09/05 30/09/04 31/03/05
Restated Restated
Reviewed Reviewed Audited
R"000 R"000 R"000
Assets
Property, plant and equipment 745 305 802 371 949 188
Goodwill 37 096 37 096 37 096
Investments and loans 235 648 302 968 250 325
Deferred taxation 11 945 16 750 14 351
Current assets 354 689 336 203 365 002
Inventory 105 846 128 414 168 508
Accounts receivable 92 763 40 844 88 620
Cash resources and equivalents 156 080 166 945 107 874
1 384 683 1 495 388 1 615 962
Equity and liabilities
Total shareholders" interest 999 058 1 127 334 1 111 684
Long-term liabilities 26 852 42 271 35 055
Deferred taxation 132 332 148 252 201 493
Deferred liabilities 27 135 33 847 27 003
Current liabilities 199 306 143 684 240 727
Short-term borrowings 15 419 13 564 14 432
Other 183 887 130 120 226 295
1 384 683 1 495 388 1 615 962
Net asset value per share (cents) 1 117 1 270 1 248
Notes
Six months ended Year ended
30/09/05 30/09/04 31/03/05
Restated Restated
Reviewed Reviewed Audited
R"000 R"000 R"000
1. Net financial income
Net financial income consists
mainly of the following
principal categories:
Interest received 4 875 5 845 7 545
Interest paid (3 902) (3 922) (11 916)
Net foreign exchange profit 1 111 5 247 7 317
Rehabilitation provision -
unwinding of discount 515 (966) 3 936
2 599 6 204 6 882
2. Reconciliation of headline
earnings
Attributable income (98 620) 84 891 95 475
(Profit)/loss on sale of assets 347 (617) (1 485)
Impairment of assets 146 766 - -
Negative goodwill - (3 534) (4 621)
Headline earnings 48 493 80 740 89 369
3. Capital commitments
(including amounts authorised,
but not yet contracted) 18 833 97 722 54 373
These commitments will be funded
out of own resources or borrowed
funds.
4. Segment information
Revenue
- RSA Land 516 664 426 754 816 033
- Marine 51 780 69 700 123 995
- Angola 43 205 36 316 74 770
Operating income before
depreciation
- RSA Land 212 864 212 339 372 554
- Marine (4 204) 4 194 (2 415)
- Angola (8 977) (5 742) 2 782
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. 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.
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. Until 30 September 2004, the provision of
share options to employees did not result in a charge to the
income statement. Subsequent to that date, the Group charges the
cost of share options to the income statement, with a
corresponding credit to equity.
The impact of this adjustment on attributable income is a charge
of R0,616 million (30 September 2004: charge of R0,808 million; 31
March 2005: charge of R1,579 million; 31 March 2004: cumulative
charge of R1,259 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 attributable income is a credit
of R4,148 million (30 September 2004: credit of R5,141 million; 31
March 2005: credit of R5,470 million; 31 March 2004: cumulative
credit of R5,109 million).
7. Business combinations
On 6 June 2005, the group acquired a 25% interest in the Tirisano
Diamond Mine near Ventersdorp, via its 50% interest in Mvelaphanda
Exploration (Pty) Ltd. Mvelaphanda Exploration funded the phase
one rectification of the Tirisano plant which was completed in
June 2005. The groups attributable share of the investment
amounted to R20,3 million.
Fair value
R"000
The assets and liabilities
arising from the acquisition are
as follows:
Mining plant and equipment 4 700
Mining rights 22 460
Deferred taxation (6 514)
Cash and cash equivalents 630
Inventories 294
Accounts receivable 165
Accounts payable (1 390)
Net assets acquired 20 345
Purchase consideration:
Settled in cash 20 975
Less: Cash and cash equivalents
acquired 630
Net cash flow 20 345
8. Impairment of assets
In light of the lower than anticipated exploration results, the
group has reviewed the value of its investments in Matikara
Limitada and the Tirisano Diamond 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 22 418
Mining rights 190 205
Deferred taxation (68 843)
Net Current Assets 2 986
Net assets impaired 146 766
9. Review by independent auditors
PricewaterhouseCoopers Inc. reviewed the interim results. A copy
of their unqualified review report is available for inspection at
the company"s registered office.
COMMENTS
In this commentary, results are compared with the first six months of the
2004/05 financial year (in brackets).
FINANCIAL SUMMARY
Diamond sales were 15% higher in rand terms at R612 million (R533 million) and
12% higher in dollar terms at US$92,8 million (US$82,5 million).
Attributable income, before impairments, decreased by 44% to R48 million (R85
million), resulting in a 40% decrease in headline earnings per share to 46,1
cents (77,2 cents). Mining income decreased by 14% to R125 million (R145
million). Cost of sales increased by 25% to R486 million (R388 million). The
main contributors to the increase in cost of sales were increased fuel costs as
well as higher labour and associated costs relating to the implementation of the
maximised shift system. Despite this increase in costs, the unit cost per volume
treated reduced by 6%. Start-up mining activities, mainly at Fucauma, also
contributed to the increase in costs. Increased exploration activities,
especially in Angola, contributed to the higher exploration cost of R39 million
(R14 million). Cash flows remain strong with cash retained from operating
activities improving from R38 million to R110 million.
In accordance with IAS 36 the group has recorded impairments totalling R147
million. These relate to investments in the Matikara alluvial exploration
projects in Angola and the Tirisano Diamond Mine. The board has taken a decision
to dispose of the Middle Orange River assets and subsequently the value of these
assets has been partially impaired.
OPERATIONS
Land
South Africa
Production from the Land Operations was 7% higher at 64 470 carats (60 400
carats).
The average grade at Baken was lower than the prior period at 2,39 carats/100 m3
(2,50 carats/100 m3). The PK plant is in an advanced upgrade phase. Once
completed it is anticipated that similar treatment efficiency and reliability to
the Baken Central Plant will be achieved.
Carat production from Bloeddrif exceeded expectation by 12 percent and the
average stone size produced was higher at 1,7 carats per stone.
At Reuning the processing of the Nxodap terrace gravels through the Suidhek
plant was discontinued due to the long hauling distances and associated high
costs. The Suidhek plant is currently being fed with dump and remnant material
from the Reuning central areas. The introduction of a Nxodap production facility
with associated infrastructure and earthmoving capability is planned to come
into production in July 2006.
Due to diminished reserves, the Terrace A and Brakfontein plants at Saxendrift
were decommissioned at the end of the 2005 financial year and the overall
operation has been substantially scaled down. In addition, diminishing grades
have been experienced at Niewejaarskraal. The group has decided to dispose of
the Middle Orange River assets and has accordingly impaired the carrying value
of these assets.
The earn-in target for the Etruscan Diamonds Nooitgedacht property was achieved
in June 2005. As a result the Trans Hex Operations/Mvelaphanda Resources joint
venture company, Mvelaphanda Exploration, now holds a 50% interest in the
property. The upgraded Tirisano mine plant, situated on the Nooitgedacht
property, is performing well and has exceeded anticipated production capacity.
However, lower than expected grades, lack of identified long-term reserves and
the strong rand are negatively affecting the viability of this operation which
was not significantly offset by an increase in diamond prices. The operation
will be placed under care and maintenance resulting in the impairment of the
group"s investment in this project.
Angola
Production at Luarica has averaged 9 000 carats per month since June, with an
average grade achieved of approximately 15 carats/100 m3. Delivery of equipment
to site for the construction of the third washing plant has commenced. Extensive
preparations have been made to sustain production at a higher level during the
imminent wet season. The project"s cost per carat averaged US$236. The new
production plant was commissioned at Fucauma in June 2005 and the production
ramp-up is nearing completion.
Approximately 80 000 (57 700) carats from the Angolan operations were sold
during the period under review. Luarica sales remain in the US$300 per carat
range, with Fucauma averaging US$200 per carat.
Marine
Diamond production amounted to 23 700 carats with the deep-water mining vessels
contributing 74% and the shallow-water contractors 26% of the total production.
The persistence of adverse winter sea conditions, experienced along the west
coast of South Africa, severely impacted shallow-water mining operations
resulting in a below-expectation recovery of 6 200 carats (18 800 carats).
The two airlift-mining vessels, Mv Ivan Prinsep and Mv Namakwa, conducted mid-
water contract mining in the Namdeb concession areas in Namibia, with the
proceeds from the sale of 17 500 carats accruing to Trans Hex and its Namibian
empowerment partner, Epia Minerals.
Exploration
Angola
Kimberlite exploration at the Gango project continues and a reverse circulation
drilling programme has commenced to support bulk sampling.
Dredge sampling and drilling of the central portion of the Luana concession has
been completed. The bulk sample plant has now arrived on site but the delay in
this arrival has postponed bulk sampling until 2006.
Bulk sampling of Matikara"s Cacolo and Lucula alluvial projects has been
completed and results are negative both in terms of grade and volume. At the
Caquilo alluvial project extensive bulk sample work to date has yielded marginal
grades. The group has decided to impair its investment in these projects.
Initial kimberlite exploration work has commenced at Caquilo.
South Africa
Phase one of airborne geophysical surveys over a number of kimberlite targets in
South Africa has been completed and the results are being analysed.
Liberia
Our joint venture partners, Mano River Resources, commenced ground geophysical
surveys over the Kpo kimberlite cluster in Liberia in May 2005 and discovered an
additional kimberlite shortly thereafter. Kimberlite indicator mineral sampling
over the wider concession and core drilling are due to commence within the next
three months.
THE ROUGH DIAMOND MARKET
The fundamental strength of the rough diamond market continued during the period
as demand remained strong for Trans Hex production. The market for large stones,
for which Trans Hex is particularly renowned, continues to benefit from
shortages in supply, which has enabled the Trans Hex tender sales format to
maximise revenues for stakeholders. There has been some easing in prices since
September 2005 as seasonal manufacturing slowdowns and liquidity in the diamond
pipeline have reduced.
Total dollar sales for the period exceeded US$92 million. The sales of South
African production for the first half exceeded US$82,6 million which included
two stones exceeding 100 carats and seven stones weighing more than 50 carats. A
new record sales price per carat was achieved in July when a Baken 9 carat pink
stone was sold for more than US$97 500 per carat. Sales revenue attributable to
Trans Hex from joint venture operations in Angola and Namibia were in excess of
US$6,7 million and US$3,5 million respectively.
HEALTH AND SAFETY
The group"s safety performance, measured in terms of the disabling injury
frequency rate (DIFR), improved remarkably in the reporting period. At 0,53, the
DIFR for the year to September 2005 declined by 69% compared to the
corresponding period in 2004.
DIAMOND AMENDMENT BILL
The second draft of the Diamond Amendment Bill in South Africa was published in
August, with the public hearings of the Parliamentary Portfolio Committee taking
place in October. Whilst supporting Government objectives for greater local
beneficiation and increased employment there were a number of aspects within the
new legislation which were of concern, including the establishment of a State
Diamond Trader and the implementation of an export duty. The export duty
elements will now be contained in a separate Money Bill which is expected to be
enacted during 2006. We continue to consult with Government and key stakeholders
and will closely monitor developments.
PROSPECTS
Medium to long-term volumes are expected to increase with the plant capacity
upgrades at Luarica in Angola and at the PK Plant in the Lower Orange River
region. In addition, the benefits achieved as a result of improved plant
efficiency following the implementation of the maximised shift system at the
Lower Orange River operations, are anticipated to continue.
We remain optimistic that demand for rough diamonds will remain strong with
resultant firm or slightly improved diamond prices being achieved.
CHANGE IN DIRECTORSHIP
Mr WE Buhrmann resigned as a non-executive director effective 7 November 2005.
The board wishes to thank Mr Buhrmann for his valued contribution during his 11
year tenure as a board member.
The board welcomes the financial director of Remgro, Mr DM Falck, who will
replace Mr Buhrmann as non-executive director effective 7 November 2005.
DIVIDEND DECLARATION
The directors of Trans Hex have resolved to declare dividend number 50 of 20
cents per share for the interim period ended 30 September 2005.
Last day to trade (cum dividend) Thursday, 8 December 2005
First date of trading (ex dividend) Friday, 9 December 2005
Record date Thursday, 15 December 2005
Payment date Monday, 19 December 2005
Share certificates may not be dematerialised or rematerialised between Friday, 9
December 2005, and Thursday, 15 December 2005, both days inclusive.
By order of the board
TMG Sexwale L Delport
Chairman Managing director
Parow
14 November 2005
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
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), MS Loubser (Financial director), DM Falck, E de la H Hertzog, DM
Hoogenhout, AR Martin, MJ Willcox
Alternate directors: PC Pienaar, CG Johnson
GJ Zacharias (Company secretary)
www.transhex.co.za
Date: 14/11/2005 08:01:08 AM Supplied by www.sharenet.co.za
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