Trans Hex reports a strained balance sheet and warns investors
The alluvial diamond miner’s board warns of ‘material uncertainty’ around the need for shareholders and the IDC to put in some money
Trans Hex, an alluvial diamond miner, has posted results showing the deep financial difficulties it is contending with as its operations in SA posted an operating loss, as well as its current liabilities swamping its current assets.
JSE-listed Trans Hex has sold its Lower Orange River operation for R72m, while it also has its 67% stake in West Coast Resources, the company owning the former Namaqualand diamond assets of De Beers, in a sales process.
The profitable segment of its asset suite came from a 33% stake in Somiluana Mine in Angola.
Trans Hex posted a R144m profit for the year to end-March 2019 compared with a R229m loss the previous year, but this profit came from sources outside its operations, with a R111m benefit stemming from a “remeasurement of rehabilitation provision” playing a major role.
However, further up the income statement, the cost of sales shot up to R403m against revenue of R313m. For the previous year, costs were R170m and revenue was R205m. The profit line was also flattered by the R72m realised from the sale of Lower Orange River.
On the balance sheet, the true difficulties Trans Hex finds itself in were exposed. Its current assets of R137m are less than half the current liabilities of R315m. Cash holdings have fallen to R65m from R79m.
The board maintains that the company remains a going concern due to “the cash flows for the ensuing year, in particular those of West Coast Resources and assumptions embedded therein”.
The board did sound a warning about the “worst-case scenario” being the sale of its 67% stake of the West Coast Resources shares to privately owned Kernel Resources.
“The group’s ability to fund its short-term liquidity requirements is dependent on the financial support of its shareholders and the Industrial Development Corporation (IDC), creating a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern.”
Trans Hex’s auditor Mazars advised shareholders of an emphasis of matter, pointing out that the diamond miner had not included “any adjustments that might result should the disposal not be concluded”.
Trans Hex bought the Namaqualand mine from De Beers in 2014 through a 40% stake in a company called Emerald Panther. Trans Hex subsequently increased its stake in assets housed in West Coast Resources to 67%.
The purchase price of the Namaqualand mine was set at Emerald Panther assuming R166m of environmental liabilities and injecting capital of R130m into the operations that mined the beach south of Port Nolloth on SA’s west coast.
Trans Hex shares closed 33% higher on Friday, with the four trades in the stock totalling nearly R11,000 made in the morning buying well ahead of the results, which came out late in the afternoon. Trans Hex, which closed at 56c on Friday, giving it a capitalisation of nearly R65m, has halved in value since trading at 112c exactly a year ago.