Tue, 30 Jan 2007
 
 

Bernard van Rooyen, director, Mvelaphanda Resources
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» We fit into a niche between Trans Hex and the other three - Wolf Marx, Tawana

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Fur flies at Trans Hex
Brendan Ryan
Posted: Thu, 09 Nov 2006

[miningmx.com] -- AN anonymous circular sent to Trans Hex minority shareholders alleges "gross mismanagement.....coupled with some appalling business decisions taken by the Board" as the reason for the 64% slump in the share price since 2004.

Trans Hex is criticised specifically for the "poor financial and operating terms of the Angolan joint venture agreements" and the "poor technical judgements relating to the Tirisano/Etruscan JV near Ventersdorp."

Trans Hex took a R218,8m "impairment of assets" charge in its income statement for the year to March in respect of the Tirisano mine - now mothballed - and its Angolan operations.

Response from Trans Hex deputy chairman Bernard Van Rooyen is that; "the allegations made in the anonymous document in your possession are clearly factually incorrect and have been made with malicious intent to damage the highly regarded reputation of Trans Hex."
clearly factually incorrect
Van Rooyen does confirm a key point - the loss of 13 senior managers since 2001 - although he provides very different explanations for their departures compared with those alleged in the circular. In fact, by Van Rooyen’s count, 17 senior managers left the group over this period.

Trans Hex has performed poorly during the past three years despite the resources boom. The share price has dropped from an-all time high of R30 in March 2004 to bottom at R9,60 in June this year from where it has recovered to current levels around R10,75.

Long before the appearance of this circular the root of the trouble was held by observers to be the decision to go aggressively into Angola pursuing opportunities opened up by chairman Tokyo Sexwale.

What is new, as revealed by the circular, is the extent of the management turmoil inside the group over the past few years.

Sexwale’s Mvelaphanda Resources (Mvela) owns 3,3% of Trans Hex and has "forward purchased" a further 14,7% to which it will get title in March 2008. Mvelaphanda Exploration - a JV between Mvela and Trans Hex - brought the Tirisano project to Trans Hex.

Trans Hex swung from making a profit of R225m in 2003 to a loss of R120,7m for 2006. The Angolan operations required heavy capital expenditure - all funded by Trans Hex although it held minority stakes in the projects - while diamond production has so far not matched expectations.

Trans Hex will report its interim results for the six months to September on November 14. It put out a SENS statement this week that the interim profit is expected to be R3m compared with the loss of R98m reported for the six months to September 2005.

The circular claims the 13 managers who left were subjected to a "witch hunt" as well as "deliberate and malicious targeting by certain members of the Board."
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It also states Trans Hex had brought criminal charges of fraud and corruption against three of the executives as well as disciplinary and CCMA hearings against others. The circular states; "something has been, and remains, very seriously amiss in the management of the Trans Hex group."

Van Rooyen replies that; "from time to time senior managers do leave the employment of Trans Hex for various reasons. For example, to pursue other opportunities; in terms of retrenchment packages offered in line with the contraction of the South African operations and, in a limited number of cases, following disciplinary procedures due to non-performance or breach of company regulations."

He adds; "all vacant senior management posts are regularly filled without difficulty. The Board fully supports the existing management team and has every confidence in their experience and ability to manage the Group."

Van Rooyen says criminal proceedings were instituted against one executive after he resigned from Trans Hex. "The criminal proceedings followed a supply contract investigation which resulted in our insurers pursuing the matter with the prosecution authorities."

According to Van Rooyen three senior executives have been dismissed since 2001. "Trans Hex has a code of conduct with which all directors and employees are required to comply. The enforcement of this code against non-compliant officials can hardly be described as a 'witch-hunt'."

Turning to Angola, Van Rooyen comments; "The projects acquired in Angola are world-class resources. The terms of Trans-Hex’s participation are dictated by the policy of the Angolan government.

"Trans Hex admits that it has taken longer than anticipated to achieve operational efficiencies under the mixed management regime required by Angola.

"The contract in respect of the new Luana project reflects certain required changes. Trans Hex is confident that it is now on the road to turning Fucuama and Luarica around."

On Tirisano he says that; "the technical assessment of Tirisano was based on a competent persons report obtained by the then owners. The strengthening of the rand as well as lower than anticipated grades and volumes have led to the mothballing of this operation."