AT 475c, TRANS HEX is sitting just above its 12-month low of 450c/share. However, there are a number of good reasons for that, and any investor looking to buy on recovery grounds should probably hold off. In the first place, there’s no need to rush in given the overall state of the diamond market, where rough prices have come off sharply due to the global credit crisis currently affecting even spendthrift Russian oligarchs.
Second, Trans Hex has a number of its own problems to deal with – in particular, Angola – which still don’t seem sorted out despite the positive noises being made by CEO Llewellyn Delport.
Third, if you must own a diamond share, there are better ones to invest in and also currently sitting at rock-bottom prices, although you’d have to use your foreign investment allowance to get at the top two – Londonlisted Gem Diamonds and Petra Diamonds.
Its latest results for the six months to end-September show Trans Hex made a loss of R64,3m compared with a loss of R11,2m for the previous comparable six months and a loss of R18,5m for the year to end-March.
The main reason was a 24% drop in diamond revenues due to lower prices and sales volumes, with more stock tied up in inventory. Delport says production in both Angola and SA will rise and that Trans Hex is finally turning its Angolan operations around after four years of effort.
On the positive side, Trans Hex is in exclusive negotiations with De Beers about the possible acquisition of its Namaqualand operations. That could be highly beneficial for Trans Hex if it can negotiate the right terms, as the Namaqualand division produced 300 000 carats last year, which is orders of magnitude greater than Trans Hex’s current SA output. Delport refuses to comment on progress.
On the negative side, Trans Hex could be up for sale. Impala Platinum is bidding for Mvelaphanda Resources to acquire Northam Platinum. But Mvela also controls Trans Hex and Implats is highly unlikely to want to move into the diamond business.