JOHANNESBURG (miningweekly.com) – Diamond pricing was close to pre-crash levels with demand fully back, Trans Hex CEO Llewellyn Delport told Mining Weekly Online on Monday.
"For us, demand is now fully back and buoyant. We anticipate both demand and pricing to maintain going forward," Delport said, adding that that prices were being driven mostly by consumer demand in India and China.
The JSE-listed Trans Hex reported a turnaround from a nigh R800-million loss last year, to an after-tax profit of R22-million in the 12 months to March 31.
The company, whose turnaround was achieved as a result of firmer prices, increased production and reduced costs, expects to produce 100 000 ct from its South African operation in 2011.
The strong rand completely wiped out Trans Hex's 2010 volume gain of R84-million, while increased prices added R125-million.
A total of R165-million was taken out of cash operating costs, leaving the company with R246-million cash in the bank.
Delport reported that the cash position could have been R307-million were it not for a legal dispute with the State Diamond Trader, which is meant to buy 10% of the diamonds produced but has been criticised for having a flawed business plan.
"We have begun to sell the 10% lots of diamonds that have been tied up at the State Diamond Trader. This issue will not run into the numbers in any significant manner going forward, from a financial perspective," Delport said.
However, should Trans Hex fail to reach an amicable solution with the State Diamond Trader, the two will meet in court in early August.
Cash for the first three lots has been received with one lot still in dispute.
"It's probably very fair to say that we did not get the full market price that we would have if we sold it by tender, but we did follow the letter of the law. We are good corporate citizens, and we will continue to be," Delport told Mining Weekly Online.
He chose not to comment on the concept of having a State Diamond Trader: "We sell by tender and our intention is to try to do the best, not only for shareholders, but also for the communities that we serve, because it is only on the back of getting tender prices that we've been able to build a business in South Africa in an area where the grade is just about the lowest. Our intention is to continue to defend that position," he added.
Trans Hex is looking to use its cash conservatively across a spectrum of opportunities.
It has managed to improve productivity year-on-year for the last number of years, which it will have to continue doing, given the declining grades at its flagship Baken operation.
The cost base is seen to be as low as the company can go, and its intention going forward is to manage costs as close to inflation as it can. Fortunately for Trans Hex, electricity represents only 3% of its total costs.
On its share price not responding to the company's better performance, Delport said that he believed that the market was looking to the company to put hard facts on the table about its troubled Angolan operations, which he hoped to do by September.
One third of Luana is Trans Hex's current Angolan focus, as a result of Fucauma and Laurica being put on care-and-maintenance.
"We believe that the market, rightfully, is discounting the share as a result of the difficulties that we've had in Angola," Delport commented.
The Angola grades are significantly higher that the South African grades, with Luana's pricing expected to be in the $300/carat range.
The capital for its development will be raised from partners in proportion to their shareholdings. Because of Luana's richness, it is anticipated that funding may arise from internal resources.
Luana has three-million carats in the indicated category and seven-million carats in the inferred category.
"We have appointed a general manager, financial manager and operations manager, who are all on site. We will decide with our partners in due course exactly how the mine will be developed," he added.
The increased volume and higher prices increased sales revenue to R716-million, up from the R637-million in the previous period, while mining income increased to R52-million from a loss of R235-million.
Dollar revenues were up 25% to $91-million - but only 12% in rand terms to R725-million - while the cost of goods sold declined by 33% to R527-million from R786-million.
The company discontinued cash-negative operations in both Angola and South Africa during the 12 months to March 31.
The South African operations contributed R150-million to the company's turnaround to profit; the Angolan operations R123-million; and the discontinuing of cash-negative operations, R34-million.
Excluding the effect of impairments at the income statement level, Trans Hex made improvements to the tune of R3 300-million, "from our perspective, a really significant performance", Delport said.
Actual cash generated by operations for 2010 was R141-million; net cash generated from disposals was R68-million. Net cash flow was R40,3-million, ending the year at R246-million.