[miningmx.com] — DIAMOND miner Trans Hex has been negotiating for the last 18 months to terminate the mining agreements over the Fucauma and Luarica alluvial operations in Angola.
Both operations were placed on care and maintenance in mid-2009, after making persistent heavy losses which forced Trans Hex to take impairment charges of nearly R800m against the assets.
Trans Hex CEO Llewellyn Delport told investors in Johannesburg on Thursday that “our Angolan partners have told us that they want us out from those operations and we have accepted that.
“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.’
Delport declined to specify what issues still had to be resolved to reach an agreement which would free Trans Hex from those operations, and whether there would be any cancellation costs.
“I have an agreement in principle with our partners. We are now going through the nuts and bolts. These things take time,’ he said.
The agreements concerning Fucauma and Luarica were struck in 2001, when Trans Hex charged into Angola to follow up on diamond mining opportunities secured from former chairperson Tokyo Sexwale’s political contacts in that country.
Delport inherited the ensuing mess when he was appointed CEO in 2003 – after previous CEO Calvyn Gardner quit abruptly – and he’s been battling to sort it out ever since.
Delport has always refused to spell out the issues – apparently because of possible repercussions from the notoriously touchy Angolan authorities – but the problems were laid out explicitly by Petra Diamonds when it quit Angola in December 2008.
The biggest issue cited was the equity limitation placed on the foreign mining company, which was not allowed to own more than 40% of any project.
The balance of the equity is held by the Angolan government through state mining company Endiama and other nominated Angolan partners.
The Angolan partners get a “free carry’ because the foreign mining company has to fund 100% of the capital expenditure upfront.
Once the mine is operating, the foreign mining company has priority over revenues until the capex outlay is recovered. But it may still get only about 80% of the initial revenues, because of profit share agreements with the Angolans.
When Trans Hex finally gets shot of Fucauma and Luarica, its only remaining involvement in Angola will be through the 33% stake in the Somiluana (previously Luana) venture where the contract was negotiated on more normal commercial terms after Delport took over.
These included the requirement that the partners contribute to the cost of the project in proportion to their equity stakes.
Delport pointed out Somiluana had started production build-up from June last year and had operated profitably since October, producing 27,662 carats by end-March and generating sales revenue of $19.3m. So far, $3.5m had been repaid to Trans Hex on its investment.
He added Somiluana was forecast to produce 42,000 carats in the current financial year to end-March 2012, and Trans Hex was in discussions with its Angolan partners over possible production increases.
