Diamond miner Trans Hex said recently that its Angola partners want it out of the Fucauma and Luarica alluvial operations in the country.
The company had been negotiating since last year to terminate the mining agreements over the operations.
Both operations were placed on care and maintenance two years ago after registering constant heavy losses.
“We have not yet signed a legally binding contract under Angolan law to achieve this. Once we have done so, we will inform the market,” Trans Hex chief executive Llewellyn Delport was quoted as saying.
He, however, declined to specify what issues still had to be resolved to reach an agreement, which would free Trans Hex from these operations.
Trans Hex had also noted earlier that it had agreed to buy Namaqualand from De Beers for R225million ($32 million) through an associate company, Emerald Panther Investments (EPI), in which it had a 50 percent stake.
Delport said Trans Hex had brought in partners for the acquisition because the group could not afford to do the deal on its own.
“We were not prepared to jeopardise the main business through an acquisition,” he said.
Trans Hex’s South African production also fell from 92 904 carats in 2010 to 69 508 carats in 2011, primarily as a result of grade under-performance at Baken during the first six months of the year and the subsequent decision to suspend stripping operations at the mine.
Whilst total gravels treated increased by 17 percent over the corresponding reporting period in 2010, the average grade achieved decreased from 2.07 carats/100 m3 to 1.27 carats/100 m3.
Total sales attributable to the South African operations marginally decreased to $90.6 million (2010: $91.2 million), at an average price of $1,162 per carat (2010: $957).
Overall, the group posted a loss of R45.1 million ($6.5 million) for the year, compared to a profit of R21.6 million ($3.1 million) in FY 2010.
This painted a picture of a company that was somewhat struggling.
Trans Hex’s announcement that it was going farming, did not help matters as it helped raise (to a crescendo) suspicion that it was in a financial quagmire.
It said Mervyn Carstens, then executive director for Trans Hex’s SA Land Operations, had been seconded “on a full time basis” as the managing director of a new joint-venture (JV) agricultural company.
Farming would take place on the flood plains of the lower Orange River, where it had been mining diamonds, in South Africa.
Trans Hex said the company was being established as a key component of its Social and Labour Plan commitments in terms of the South African Mining Charter.
Not everybody bought this argument.
South Africa’s Cape Business News said cynical responses on this development may well be that “farming could well become more profitable for Trans Hex around the Orange River than its traditional (and fast depleting) alluvial diamond mining efforts”.
The paper went on to say that it was without doubt that Trans Hex’s old lime operations (sold in the late 1990s) were by now probably making more money than the diamond mining business.
However, as Cape Business News even noticed, it was to some extent difficult to conclude that Trans Hex had seen more profit in farming than in diamond mining, especially at a time prices were on an upward trajectory.
Diamond prices were now above pre-crisis levels after a 35 percent to 40 percent rise so far this year, buoyed by increased scarcity and an emerging role as an investment.
Despite the overall decline in group revenue in FY 2011, the company’s March 2011 tender sales of its South Africa production breathed in some hope.
It sold 7 585 carats of rough diamonds for $13,5million.
Five single stones were also sold for an average price in excess of $10 000 per carat, including two stones from Baken Mine that went under the hammer for over $40 000 per carat.
The Namaqualand deal was also said to have the potential to add significant value to the company, in terms of more than 1.6 million economically mineable carats as well as offering valuable synergies with existing Trans Hex assets in the region.
Although, Trans Hex, just like other diamond firms emerging from a “great depression” brought about by the debilitating effects of the global economic downturn, had its own tough times, it was inconceivable that it could have entertained thoughts of replacing carats with carrots.
Mathew Nyaungwa, Rough&Polished
