JOHANNESBURG (miningweekly.com) - JSE-listed diamond producer Trans Hex on Wednesday reported that rough diamond sales had been severely impacted by the global economic downturn, with prices in the six months ended September showing a decrease from previous highs.

Trans Hex CEO Llewellyn Delport stated that demand for top-end stones had dropped to levels lower than those experienced after the September 11 attacks on the US.

“Our reading of the situation is that the credit crisis has taken everybody by surprise. At this stage, everyone is adopting a wait-and-see approach since not many people have experienced a situation quite like this.”

Trans Hex warned that diamond sales were likely to face a “difficult” period until confidence returned.

He added that at this stage, the company had no mitigation strategy in place to drive up diamond sales. “If I told you we had a firm strategy to deal with buyers, I would not be doing the complex situation justice.”

However, Delport said the company’s anticipation was that once the inter bank lending stabilised, the situation for the top-end goods producers would also stabilise, and it would perhaps happen sooner than the rest of the diamond market.

Rough diamond sales for the six months fell by 24% to $42,6-million.

Trans Hex reported a half-year loss of R56-million, compared with a loss of R2,7-million in the first half of 2007. Loss a share amounted to 53c, compared with 2,6c a share, the company reported.

Carat production for the interim period declined by 11%, owing primarily to lower grades achieved in the first quarter. South African production declined from 51 871 ct to 43 670 ct, owing to the lower grade at the Baken operations. However, Delport stated that the Baken operation was back to recovering at its full grade.

With the improved grades at Baken, Trans Hex expected South African carat production to increase by 25% in the second half of the year.

The company has also been awarded 12 new prospecting licences by the Department of Minerals and Energy, mostly in the Northern Cape province. However, Delport warned that exploration might not bear fruit soon.

“From a market perspective, we do not see that in this phase there should be an anticipation that the exploration will bear fruit in the near future.”

Carat production at the company’s Angola operations fared much the same, with the Luarica project, in which the company owns a 35% interest, reducing its production by 44% to 29 000 ct.

The lowered production was mostly owing to the lack of availability of earth-moving equipment, and severe operating cash flows. “Production at Laurica is very poor in this half of the year and the financial distress at the mine is probably now at its high point. However, we are, as a shareholder, in discussions with our partner to find a way forward.”

Recovery at the Fucauma project, in which Trans Hex owned a 32% stake, was progressing well, and Trans Hex had been appointed the management team for the mine. The company reported that production had steadily increased and was already about 26% higher than the prior year monthly averages.

The Luana operation, which had previously been an exploration operation, was now producing at about 2 000 ct a month, and Delport said plans were in place to up the production to 5 000 ct a month before year-end. About 9 400 ct had already been recovered from the site.

“The key message that we would like to put into the market is that we are firmly of the view that we have made significant operational progress in developing our business model in Angola. Luana is continuing to satisfy and exceed our expectations in terms of grade, and even in terms of anticipated diamond value. Given the operating cost model from Fucauma, we look forward to properly producing diamonds from Angola going forward.”

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