Strong rand knocks Trans Hex profits

A shortage of rough diamonds in the cutting centres and strong demand for diamond jewellery at consumer level resulted in rough prices strengthening, with Trans Hex experiencing an average US$ price per carat increase in excess of 18 per cent during 2003/2004, the company said this week.

Trans Hex Group released its audited year results reflecting more raw diamond sales, more direct mining income but less attributable income for their financial year up to end March 2004. The mining concern operates two mines in South Africa (Baken and Saxendrift) and one in Angola (Laurica) with a third (Niewejaarskraal) and fourth (Fucauma) in each respective country to come fully online soon. It has also undertaken mining operations in Namibian waters during the last financial year when, “two vessels commenced contract mining operations in Namibia with proceeds from the sale of 11555 carats accruing to Trans Hex.”According to Bernard van Rooyen, deputy chairman of Trans Hex, such contracts tend to be joint ventures were Trans Hex provides the ships and covers the costs in exchange for some of the proceeds.Apart from Namdeb, van Rooyen mentioned Samicor as a possible partner, the company stance being that it will “continue to pursue contract work in Namibian territorial waters.Various options to improve revenue in the group’s marine exploration and mining operations are being considered.”Van Rooyen said headline earnings were down essentially due to the strong rand-US$ exchange rate, and earnings per share were more effected because share options (such as for employees) mean there are even more shares to benefit from the earnings.Attributable income – which is net income after interest and tax – was hardest hit dropping 15 per cent from the previous year.As the company results show, headline earnings would have been up 29 per cent had the currency and diamond price terms remained constant.In fact Trans Hex warns that although: “It is anticipated that the (US)dollar price of diamonds will further strengthen. If, however, the rand/(US$ exchange rate remains at its present level it will have a substantially negative impact on earnings.”Trans Hex mostly sells its diamonds on tender in South Africa via a process of sealed bidding for parcels inspected by prospective buyers at their diamond rooms.Indications are that raw diamond prices will remain high for the next 12 month according to van Rooyen. He said that continuing high demand would depend on retail demand in economies like the USA which consumes more than half of world sales.The mining concern operates two mines in South Africa (Baken and Saxendrift) and one in Angola (Laurica) with a third (Niewejaarskraal) and fourth (Fucauma) in each respective country to come fully online soon. It has also undertaken mining operations in Namibian waters during the last financial year when, “two vessels commenced contract mining operations in Namibia with proceeds from the sale of 11555 carats accruing to Trans Hex.”According to Bernard van Rooyen, deputy chairman of Trans Hex, such contracts tend to be joint ventures were Trans Hex provides the ships and covers the costs in exchange for some of the proceeds. Apart from Namdeb, van Rooyen mentioned Samicor as a possible partner, the company stance being that it will “continue to pursue contract work in Namibian territorial waters. Various options to improve revenue in the group’s marine exploration and mining operations are being considered.”Van Rooyen said headline earnings were down essentially due to the strong rand-US$ exchange rate, and earnings per share were more effected because share options (such as for employees) mean there are even more shares to benefit from the earnings.Attributable income – which is net income after interest and tax – was hardest hit dropping 15 per cent from the previous year.As the company results show, headline earnings would have been up 29 per cent had the currency and diamond price terms remained constant.In fact Trans Hex warns that although: “It is anticipated that the (US)dollar price of diamonds will further strengthen. If, however, the rand/(US$ exchange rate remains at its present level it will have a substantially negative impact on earnings.”Trans Hex mostly sells its diamonds on tender in South Africa via a process of sealed bidding for parcels inspected by prospective buyers at their diamond rooms.Indications are that raw diamond prices will remain high for the next 12 month according to van Rooyen. He said that continuing high demand would depend on retail demand in economies like the USA which consumes more than half of world sales.