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Trans Hex - Reviewed interim results for the six months ended 30 September

Release Date: 14/11/2006 07:00
Code(s): TSX
Wrap Text

Trans Hex - Reviewed interim results for the six months ended 30 September 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") Reviewed Interim Results for the six months ended 30 September 2006 ABRIDGED CONSOLIDATED INCOME STATEMENT Six months ended Year ended 30/09/06 30/09/05 31/03/06
Restated Restated Reviewed Reviewed Audited R"000 R"000 R"000 Sales 479 103 611 649 1 087 897 Cost of goods sold 441 904 485 124 928 912 Depreciation of mining assets 55 927 73 822 132 942 Royalties: Namaqualand Diamond 16 064 19 240 33 034 Fund Trust Other costs 369 913 392 062 762 936 Mining income 37 199 126 525 158 985 Net financial income (Note 1) 7 382 2 599 (4 581) Exploration costs (23 211) (39 079) (63 651) Impairment of assets (Note 7) - (215 609) (218 792) Share of results of associated (9) (3) (6) companies Profit/(loss) before income tax 21 361 (125 567) (128 045) Income tax 18 585 (27 855) (9 117) Profit/(loss) for the period 2 776 (97 712) (118 928) Earnings per share (cents) Basic 2,6 (92,6) (112,7) Diluted 2,6 (92,6) (112,7) Headline 7,5 46,9 29,9 Dividend per share (cents) 5,0 20,0 30,0 Total number of shares in issue 89 872 89 413 89 847 ("000) Weighted average issued shares 105 872 105 255 105 470 ("000) Average US$ exchange rate 6,79 6,44 6,38 ABRIDGED CONSOLIDATED BALANCE SHEET Six months ended Year ended 30/09/06 30/09/05 31/03/06 Restated Restated
Reviewed Reviewed Audited R"000 R"000 R"000 Assets Property, plant and equipment 682 922 745 305 659 027 Goodwill 37 096 37 096 37 096 Investments and loans 248 025 235 648 200 637 Deferred taxation 7 787 11 945 10 166 Current assets 374 076 367 735 368 718 Inventory 117 486 105 846 119 488 Accounts receivable 117 881 92 763 65 431 Cash resources and equivalents 138 709 169 126 183 799 Non-current assets classified 72 845 - 82 854 as held for sale 1 422 751 1 397 729 1 358 498 Equity and liabilities Total shareholders" interest 961 559 1 001 995 961 373 Long-term liabilities 9 324 26 852 18 649 Deferred taxation 159 613 130 437 120 960 Provisions 39 301 26 093 39 096 Current liabilities 248 266 212 352 213 732 Short-term borrowings 17 528 15 419 16 406 Bank overdraft 46 359 13 046 24 414 Other 184 379 183 887 172 912 Liabilities directly associated with non-current assets classified 4 688 - 4 688 as held for sale 1 422 751 1 397 729 1 358 498
Net asset value per share 1 070 1 121 1 070 (cents) ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months ended Year ended
30/09/06 30/09/05 31/03/06 Restated Restated Reviewed Reviewed Audited R"000 R"000 R"000
Balance at 1 April (Audited) 961 373 1 113 883 1 113 883 Change in IAS 19 - (170) (170) 961 373 1 113 713 1 113 713 Net profit/(loss) for the 2 776 (97 712) (118 928) period (Restated) Dividends paid (8 998) (17 868) (35 822) Translation differences on foreign subsidiaries 25 582 4 840 1 179 Fair value adjustment on available-for-sale (1 147) (4 315) (6 157) financial assets Share-based payments 317 616 1 090 Cash flow hedges (18 504) - - Issue of share capital 160 2 721 6 298 Balance at end of period 961 559 1 001 995 961 373 ABRIDGED CONSOLIDATED CASH FLOW STATEMENT Six months ended Year ended 30/09/06 30/09/05 31/03/06 Restated Restated
Reviewed Reviewed Audited R"000 R"000 R"000 Cash available from operating 80 674 162 965 232 338 activities Movements in working capital (10 033) 44 613 54 436 Taxation paid (68 655) (80 031) (83 975) Dividend paid (8 998) (17 868) (35 822) Cash (utilised)/retained from (7 012) 109 679 166 977 operating activities Cash employed (60 023) (61 474) (115 466) Fixed assets Replacement (9 383) (11 010) (24 880) Additional (36 626) (43 381) (69 671) Long-term liabilities (8 203) (7 216) (14 432) Investments, loans and issue of (5 811) 133 (6 483) capital Net cash flow for the period (67 035) 48 205 51 511 NOTES Six months ended Year ended 30/09/06 30/09/05 31/03/06
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 4 208 4 875 4 744 Interest paid (3 964) (3 902) (8 730) Net foreign exchange profit 7 138 1 111 162 Rehabilitation provision - - 515 (757) unwinding of discount 7 382 2 599 (4 581) 2. Reconciliation of headline earnings Profit/(loss) for the period 2 776 (97 712) (118 928) Loss on sale of assets 5 156 347 543 Impairment of assets - 146 766 149 949 Headline earnings 7 932 49 401 31 564 3. Capital commitments (including amounts authorised, but not yet contracted) 235 745 18 833 44 421 These commitments, through to 2009, will be funded out of own resources or borrowed funds. 4. Segment information Sales South Africa (Land and Shallow 404 243 544 989 958 978 Water) Namibia (Marine Vessels) 21 800 23 455 41 327 Angola 53 060 43 205 87 592 Mining income before depreciation South Africa (Land and Shallow 111 536 215 755 324 191 Water) Namibia (Marine Vessels) (10 751) (6 431) (20 479) Angola (7 659) (8 977) (11 785) 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 changes described in Note 6 below. These abridged financial statements comply with IAS34. 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. Change in accounting policies IAS 14 - Segment Reporting During the period the Group refined the definition of the segments to represent the geographic area from which the diamonds are recovered. The comparative figures have been restated. IAS 19 - Employee benefits During the period the Group changed the accounting treatment of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions. In previous periods, these changes were charged to income in the period during which they occurred. Under the new treatment changes in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees" expected average remaining working lives. The impact of this change to the profit/(loss) for the period is a charge of R0,041 million (30 September 2005: credit of R0,908 million; 31 March 2006: credit of R1,816 million; 31 March 2005: cumulative charge of R0,170 million). 7. Impairment of assets During the previous financial year, the Group reviewed the value of its investments in Matikara Limitada, the Tirisano Diamond Mine and the Middle Orange operations. This review indicated impairment to the value of these investments and in accordance with the provisions of IAS 36, the value of these investments was reduced. Six months ended Year ended
30/09/06 30/09/05 31/03/06 Reviewed Reviewed Audited R"000 R"000 R"000 Details of net assets impaired are as follows: Mining plant and equipment - 22 418 22 418 Mining rights - 190 205 190 205 Deferred taxation - (68 843) (68 843) Net current assets - 2 986 6 169 Net assets impaired - 146 766 149 949 8. Review by independent auditors PricewaterhouseCoopers Inc. has 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 2005/06 financial year (in brackets). FINANCIAL SUMMARY Profit amounted to R3 million compared to a loss of R98 million for the comparative period. The Group"s earnings per share was 2,6 cents (loss per share 92,6 cents) whilst headline earnings per share amounted to 7,5 cents (46,9 cents). Compared with the second half of the 2006 financial year, the profit of R3 million was an improvement on the loss of R21 million, with headline earnings per share being 7,5 cents against a headline loss per share of 17,0 cents for the six months to 31 March 2006. Diamond sales decreased by 22% to R479 million (R612 million) and was 23% lower in dollar terms at US$71,6 million (US$92,8 million). Average rough diamond prices were 8% lower compared to the corresponding period. In addition severe regional flooding caused the loss of one month"s production at the Lower Orange operations. The exchange rate applicable to the South African sales was R6,65/US$ compared to the average spot rate during the period of R6,79/US$. During the period of the strengthening rand at the beginning of the financial year, the Group deemed it prudent to implement a currency cash flow hedge on approximately 40% of this year"s South African sales proceeds in order to protect the viability of marginal operations. US$20 million of the total hedge of US$54 million remained unutilised at the end of the reporting period. The average Rand/US$ rate implicit in the remainder of hedge is R6,49/US$. Assuming an average exchange rate of R7,25/US$ for the remainder of the financial year, the combined average exchange rate achieved would be in the order of R7,00/US$. Cost of sales decreased by 9% to R442 million (R485 million) as a result of lower depreciation relating to the Middle Orange River operations and the sell off of stock in the comparative period. Other costs remained unchanged. Cash available from operating activities remains positive. The Group has commenced a R200 million three year earth moving equipment replacement cycle at the Lower Orange River operations. These capital commitments will be funded out of own resources or borrowed funds. Due to the long lead times of this equipment, the bulk of this funding will take place during the 2008 and 2009 financial years. OPERATIONS South Africa Production from the Land operations was 21% lower at 51 200 carats (64 470 carats). Severe regional flooding caused 29 days of production loss at the Lower Orange River operations. The upgraded PK plant has improved gravel throughput by 20% over the corresponding reporting period, contributing to a unit cost reduction of 8%. At Reuning the semi-mobile Nxodap mining and processing plant system was successfully commissioned during September 2006 and the Suidhek plant continued to be fed with dump and remnant material from the central areas at an average grade of 2,21 carats/100m3. Negotiations continue with potential purchasers of the Middle Orange River operations, which include the Saxendrift and Niewejaarskraal operations. The sale is anticipated to be concluded prior to the financial year end. Angola Production at Luarica was 45 100 carats (Attributable 15 785 carats), compared to 51 100 carats (Attributable 17 885 carats) in the comparable period, with an average grade achieved of 13 carats/100m3. The newly installed larger washing plant was successfully commissioned. Almost two weeks of production time was lost due to labour unrest during August. The project"s average cash cost was US$267 per carat. Measures are being implemented to ensure that the availability of mobile equipment is increased to acceptable levels. On this basis, the project should, by financial year end achieved its target production rate of 12 000 carats per month. The Fucauma project achieved 28 900 carats (Attributable 9 248 carats), compared to 37 300 carats (Attributable 11 936 carats) in the comparable period. US$9,4 million of capital investment, through third party financing, has been allocated for the installation of additional productive capacity. The successful implementation of this capacity is expected to take Fucauma to an economic level of production by financial year end. Luarica sales remain in the US$300 per carat range, with Fucauma averaging US$190 per carat. Namibia The Mv Ivan Prinsep and Mv Namakwa were utilised for mining and prospecting in the NAMDEB Mid-Shelve Concession Areas of Namibia, as per joint-venture agreement with the Namibian empowerment group, EPIA Minerals (Pty) Ltd. The average mining grades declined resulting in 16 900 carats (19 400 carats) being produced. EXPLORATION South Africa The first phase of a regional kimberlite exploration program utilising airborne gradiometer technology has proven effective in identifying existing kimberlites and defining new prospective targets in previously problematic kimberlite exploration terrains. Prospecting rights over a number of properties have been issued by the Department of Minerals and Energy and ground follow-up and drilling work has commenced. Angola Dredge sampling of a five kilometre stretch of the river at Luarica to delineate reserves will commence in November 2006 and will be completed before financial year end. The Luana project concession prospecting contract was signed during May 2006. Initial sampling results indicate an extensive gravel deposit with encouraging potential. Bulk sampling, to prove a minimum of one million carats, is scheduled to be completed by the end of the 2007 calendar year. Based on disappointing results, a decision was taken to end involvement in the Gango project. Demobilisation of all equipment was completed by the end of October. Liberia Core drilling of six kimberlite pipes at the Kpo project in joint venture with Mano River Resources, has been completed. Kimberlite indicator mineral chemistry indicates high diamond preservation potential. Bulk sampling to establish a macro diamond grade is set to commence by early 2007. A sample plant is currently being shipped to Liberia for the treatment of bulk samples. THE ROUGH DIAMOND MARKET Pricing levels for the first-half have remained stable across the production with the exception of the plus 10 carats where demand has been strong due to the shortage of good quality large sizes of polished in the market. Two stones in excess of 50 carats and one Lower Orange River stone in excess of 100 carats were sold. DIAMOND RELATED LEGISLATION In October the National Treasury released the Draft Diamond Export Levy Bill together with the Mineral and Petroleum Resources Royalty Bill. The proposed export duty on exports of rough diamonds in terms of the Export Levy Bill is set at 5%, with provision now having been made for various exemptions. Consultations with key stakeholders continue and developments are being closely monitored in respect of the Export Levy Bill and the Royalty Bill. PROSPECTS The upgraded PK plant, commissioning of the Nxodap semi-mobile plant and the extension of the maximised shift system to the Suidhek and Gariep joint- venture operations is anticipated to enhance South African land production. In Angola, at Luarica the third river diversion and improved equipment efficiencies should improve production levels. Trans Hex still believes that Luarica and Fucauma are world-class alluvial diamond mining properties and that towards the end of calendar 2007 they will be profitable. Liquidity and profitability issues in the downstream diamond industry continue to cause concerns and may continue to negatively affect diamond prices. This will be countered to some extent, should the rand remain at current weaker levels. DIVIDEND DECLARATION In light of the continued positive cash headline earnings per share, the directors of Trans Hex have resolved to declare dividend number 52 of 5,0 cents per share for the interim period ended 30 September 2006. Last day to trade (cum dividend) Friday, 8 December 2006 First date of trading (ex dividend) Monday, 11 December 2006 Record date Friday, 15 December 2006 Payment date Monday, 18 December 2006 Share certificates may not be dematerialised or rematerialised between Monday 11 December 2006 and Friday 15 December 2006, both days inclusive. By order of the Board T M G Sexwale L Delport Chairman Managing Director Parow 14 November 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) Limited, 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, PC Pienaar (Alternate Director), CG Johnson (Alternate Director) GJ Zacharias (Company Secretary) www.transhex.co.za Date: 14/11/2006 07:00:35 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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