[miningmx.com] – TRANS Hex said it would receive average annual cash flow of R73m over the first seven years of operating Namaqualand Mines (NM) – a transaction it announced on October 29 in which the South African government would retain a 20% stake.
The balance of NM would be held by an investment vehicle, Emerald Panther, in which Trans Hex has a 50% stake. This provides it with a direct stake in NM, its production, and its cashflow, of 40%.
As Trans Hex is the exclusive operator and marketer of diamonds from NM, however, it earns a fee equal to a 5.5% share of additional revenue or R213m over the life of mine, giving it an effective economic interest of 52% in NM.
Trans Hex said acquiring NUM would also provide it with exploration opportunities. “The acquisition also provides Trans Hex with access to the rich channel gravels that extend from land into the South African sea concessions held by Trans Hex and are difficult to explore without access from land,’ it said in an announcement.
Based on a competent persons’ report produced in October by engineering company, Snowden, average production from NM would total 218,000 carats over the first seven years. Given that Trans Hex owns 40% of the project this would be 87,200 carats a year, about a third higher than the 65,339 carats it produced in the 2013 financial year.
There is a similar transformative effect in cash flow. The R73m average cash annual cashflow is equal to about 69c/share. Snowden assumed an average price of $221 per carat and discounted the future cashflow at a rate of 12%. The internal rate of return of the asset is estimated to be about 44%.
Trans Hex could sorely use the impetus from NM. In the six months ended September, Trans Hex suffered a cash outflow of R88m leaving cash reserves at R244.6m. This was partly owing to strike activity which put production at 26,076 carats.
Total capital expenditure will be R353m over the life of mine, it said.
“The acquisition of NM . will increase the scope of Trans Hex’s South African operations by 14 years,’ the company said in its announcement.
