Angola breakthrough for Trans Hex

[] — DIAMOND producer Trans Hex will provide full details on the size and capital cost of its new Luana mine in Angola by end-September at the latest, according to CEO Llewellyn Delport .

Delport told Miningmx on May 13 he had hoped to provide those details when Trans Hex published its 2010 annual results, which were released on Monday.

But he was able to provide one key update on Luana, which is that Trans Hex will only have to kick in its 33% share of the capital expenditure (capex) required to build the mine.

That’s a huge improvement on the typical previous Angolan financial structure for diamond miners, where the foreign mining company had to foot the entire capex bill itself.

The Angolan partners – state diamond mining company Endiama and various Angolan private investors – got a free ride.

The foreign company was entitled to recover the capex outlay as a priority charge against profits made by the mine.

Once the capex was recouped, the partners then shared the profits in proportion to their equity stakes. However, it seems that in a number of cases the Angolan partners were still entitled to some cash flow during that payback period.

Delport said: “Trans Hex is not required to front-load the capital requirements at Luana. In terms of the shareholders’ agreement, the company will raise capital through debt and a rights issue.’

Trans Hex shares recovered from a 12-month low of 160c to a high of 530c over the past 12 months, but have pulled back to current levels of around 400c.

Asked about this share price performance by an analyst at Monday’s presentation, Delport replied that diamond companies generally were not performing as well as might be expected.

He added Trans Hex had been affected in particular by its problems in Angola.

He said he believed market perceptions would change once Trans Hex started to put positive results on the table from the Luana development.

Trans Hex reported a taxed profit of R22m for the year to end-March (2009 – R798m loss). The previous year’s results were hammered by R537m in impairment charges taken mainly against the Angolan assets.

The group’s 2010 results had also been affected by an ongoing dispute with the State Diamond Trader (SDT) over the sale of four lots of diamonds.

Had these lots been sold as scheduled, Trans Hex’s cash balance would have been R307m at year-end instead of the R245,5m reported.

Delport was confident the dispute with the SDT would soon be resolved.

He said: “We have a court date set down for August if we require it, but we have now sold three of the lots and are in the process of selling the fourth.’

Delport refused to provide details of the dispute with the SDT, which has been heavily criticised by both diamond miners and diamond cutters because of its operational failures.

Trans Hex’s main operations are situated along the lower Orange River in the Northern Cape. In recent years it has either sold off or shut down various operations, such as the Saxendrift mine on the Middle Orange and its marine diamond mining activities.

The group started negotiations with De Beers in September 2008 over possible acquisition of De Beers’ Namaqualand division. However, it ended them in March 2009 citing “current uncertain global economic and industry conditions’.

Delport told Miningmx, “It was difficult to price those assets given the market circumstances at the time, but we made an offer to De Beers for Namaqualand based on our perspective of what was going to happen in the diamond industry and to the world economy.

“De Beers decided not to continue with the process. We remain interested in Namaqualand because it’s in our backyard. I don’t know if De Beers is still looking to sell Namaqualand. “

Trans Hex’s operations are all either conventional alluvial mines or large-scale open pit mining on alluvial deposits as at Baken in the Northern Cape.

Delport said the group would consider kimberlite and even underground operations if management believed they were viable.

“We have a set of investment criteria designed to generate cash from mining operations. We bid on Cullinan because we thought we could make a go of it,’ Delport said.

Asked about possible future expansion elsewhere in Africa, Delport replied: “We decided to solve our challenges in Angola and consolidate our business there before reconsidering our position vis-a-vis the rest of Africa.’