AFTER some really dark days Parow-based diamond miner Trans Hex Group has found a little sparkle – although developments have not been enough to convince an anchor shareholder to hold its position.

The year to end March 2010 finally saw an operational turnaround with a profit of R22 million reversing the previous year’s massive loss of R798 million.

Revenue climbed encouragingly to R716 million (2009: R637 million) as increased volumes and higher prices from the South African operations offset by the stronger rand/dollar exchange rate. Most impressive is that cash operating costs were reduced by a whopping R165 million and net cash generated was a reassuring R40 million.

But probably the most important development was not operational, but rather a strategic one. Recently Trans Hex announced that agreement had been reached with the Angolan parties on the terms and structure of the very promising Luana diamond concession – a development which has been hailed as a significant breakthrough.

Curious then – taking into account the positive developments – that Stellenbosch based investment conglomerate Remgro should choose this moment to offload its 28.9% stake in Trans Hex.

While Trans Hex is one of Remgro’s older investment it was also one of Remgro’s smallest investments. In fact, the investment was classified as ‘held for sale’ in November last year.

In an official statement Remgro says it was decided to exit the investment in Trans Hex as the directors believed that shareholders should be given the choice of ownership given the company’s exposure to the Angolan operations “and potential upside that might result from it”.

Remgro points out that due to its size relative to the company’s investment portfolio (which includes large holdings in RMB, Medi-Clinic, Distell and Rainbow Chickens) the “potential uplift (in Trans Hex) will be materially diluted within Remgro”.

Fair enough. But how much ‘potential uplift’ is there really in Trans Hex if an astute investor like Remgro is willing to let go a strategic stake in the business?

Perhaps it might be more succinct to ponder the risks associated with Trans Hex achieving its long awaited ‘potential uplift’. Perhaps Remgro deemed the Angolan thrust as to risky in terms of funding requirements – especially since Remgro has a surfeit of capital hungry technology projects on its books since merging with Venfin.

Remgro may also be determined to err on the side of caution with Trans Hex after seeing a couple of disappointing investments of late – including life assurance group Sage and industrial group Dorbyl.

Writing in the recently released Trans Hex annual report Trans Hex chairman Bernard van Rooyen, however, felt Trans Hex had seen a marked turnaround. “As the global economy has continued its recovery, demand for our product and prices achieved through our tender sales process have both improved significantly.”

Van Rooyen says production remains solid in South Africa and was key to delivering a very encouraging set of results (see accompanying box).

But it is the Angolan operations – which have not really lived up to potential to date - that continue to intrigue.

Van Rooyen stresses cash outflows to support the Angolan operations remained under very tight control.

With Luarica and Fucauma under care and maintenance, Van Rooyen says the focus has been on the Luana project. “The successful conclusion of mining contract negotiations in May 2010 was a significant event.”

He says pilot production is continuing at Luana (in which Trans Hex has a 33% stake) and the group is now in discussions with its Angolan partners to determine how the mine will be developed.

In the interim the first sale of Luana product was recently concluded with Van Rooyen reporting that encouraging prices were achieved.

Trans Hex CEO Llewellyn Delport explains that the mining contract allows Trans Hex to appoint the general manager, financial manager and operations manager at the project.

Delport says pilot production will continue with equipment already on site. “The partners will in due course decide how the mine will be developed.”

He reveals pilot production at Luana is 20 510 carats at an average grade of 33.91 carats per 100 cubic metres. This is a massive improvement on the previous financial year when pilot production and bulk sampling achieved
6 950 carats at an average grade of 28.93 carats per 100 cubic metre mined.

Delport says at year-end the project already had 31 822 carats available for sale – adding that sales of the Luana product produced during pilot production commenced in May 2010.