The final glimmer
South Africa’s commercial pedigree may partially rest on the past deeds of its diamond industry, but over the last 10 years the sector has provided a mixed bag for investors. When all’s said and done, diamond mining is tough work, and resources are drying up. It hasn’t been a happy hunting ground.
De Beers has sold most of its mines to Petra Diamonds, a UK-listed firm that has made a good fist of its endeavours. However, diamond exploration firm, Thabex, was recently forced off the JSE while DiamondCorp (Toronto and JSE), GEM Diamonds (London), and Rockwell (Toronto and JSE) have had their ups and downs. It’s not a sector brimming with success stories.
Enter market contrarian Piet Viljoen, whose interest in Trans Hex, a company in which his RE:CM has about 25%, stems back to 2007. Even then, while the mining boom was in full swing, Viljoen was expressing his interest in buying stocks that did not generate any good news.
At the time, Trans Hex was having its nose bloodied in Angola, where it was hoping to expand while making the best of depleting alluvial resources located in the Orange River in the Northern Cape.
Viljoen, however, says that the company has rewarded RE:CM clients handsomely. If you were able to buy 100% of the company – currently worth R371m on the JSE – it would provide you with free cash f low of R40m every year, equal to an annual yield of about 10% to 11%.
“It’s a good investment. There is hard net asset value of R5/share in there, cash of R4/share, and free cash f low equal to 30c to 40c/share. It’s a small company, not recognised, but we’re very happy,” says Viljoen.
The share is currently trading at R3.35/ share, up about 13% over the last year. “At some point in time, it will be recognised, but I don’t watch the share,” he says.
The share has been held back by delays to a proposed transaction in which Trans Hex’s 50%-held Emerald Panther Investments is to buy De Beers’ stake in Namaqualand Mines for a revised sum of R166m (R83m attributable to Trans Hex).
A recalculation on De Beers’ environmental liabilities, and Government permitting mean that even if Trans Hex completes the deal as anticipated in the third quarter of the calendar year (around this time of year), the deal will have taken three long years to consummate.
In his normal uncompromising style, Llewellyn Delport, Trans Hex’s CEO, has described the process as “torture”. Refreshingly, Delport has refused to reach for the rose-tinted glasses when talking about his own company.
Says Viljoen: “Llewellyn doesn’t talk a good game but he manages the company extremely well. It’s a tight-run ship.”
One of the other major shareholders in Trans Hex is Northam Platinum following the unbundling of shares in Mvelaphanda Resources to its shareholders. Although it seems odd for Northam to have the exposure, there is no chance of it selling, thus no overhang.
“Our Trans Hex stake is small but we think the company has got a good future and we think the share price will go higher,” said Northam Plantinum CEO Glyn Lewis at the company’s recent full-year results presentation.
“I would be surprised if there is any shareholder in Trans Hex who knows what’s going on who would be a seller of the share,” says Viljoen.