Retail tycoon Christo Wiese – who is known for the odd dabble in the mining sector – looks set to rekindle his passion for diamonds. Last month Wiese emerged as the largest shareholder in Parow-based diamond mining company Trans Hex Group. Wiese – joined by Cape Town-based investment company RECM & Calibre (which owns around 25% of Trans Hex) – is now looking at buying out the remaining smaller shareholders in the diamond company.
Trans Hex is one of the oldest diamond mining companies on the JSE. Not so long ago Trans Hex was controlled by Stellenbosch-based investment company Remgro, which is controlled by the Rupert family. But a few years ago Remgro got shot of its investment in Trans Hex when it unbundled its shares in the company to shareholders. Trans Hex has been a fair operation in terms of profit, but it was minuscule measured against Remgro’s sprawling investment portfolio.
Wiese, though, clearly sees longer term potential in Trans Hex, which recently brought onboard new operations in the form of West Coast Resources – previously owned by diamond giant De Beers.
Ironically, it might well have been Wiese who stymied efforts by Remgro to bulk up Trans Hex. In the late nineties Remgro backed Trans Hex in making a bid to takeover a promising marine diamond mining company called Ocean Diamond Mining Holdings (ODM) – headed by respected gem hunters Ivan Prinsep and Andre Louw.
Wiese, however, built a significant minority stake in Trans Hex, and ended up as the kingmaker when marine diamond miner Namco emerged as a bidder for ODM. Wiese sold his shares to Namco, and Trans Hex had to retreat. Trans Hex ended up acquiring Benguella Concessions, a marine diamond miner that was not in the same league as the profitable ODM. Eventually Trans Hex’s marine mining ambitions fizzled.
Wiese’s tilt at Trans Hex looks a fairly low risk endeavour as the company’s market value is largely underpinned by the company’s large cash holdings.
There is speculation that Wiese – who is believed to hold other small diamond interests – will drive corporate action at Trans Hex, which has its operations centred around alluvial deposits on the Orange River and in Angola.
According to wire service Bloomberg, Wiese saw an opportunity to consolidate diamond operations in the region.
Bloomberg quoted Wiese as saying, “There are opportunities for consolidating diamond operations in southern Africa.’’
In the greater scheme of things, Wiese’s investment in Trans Hex pales in comparison to his mainstay investments in supermarket giant Shoprite, global retailing conglomerate Steinhoff International and specialist investment company Brait.
But one should not forget that Wiese has a clear penchant for mining investments … albeit that he has endured some mixed fortunes. About ten years ago Wiese backed a compelling story for fluorspar when he invested heavily in the luckless Sallies venture. Wiese helped recapitalise Sallies on several occasions, before the business was sold at a knockdown price to American investors.
Wiese, though, was not to be disheartened by developments at Sallies, and almost immediately re-invested in small gold mining counter GoldOne International. Wiese more than made up for his losses at GoldOne, which was eventually sold to Chinese investors.
Whether Wiese can make Trans Hex glitter again remains to be seen. Trans Hex’s latest annual report at least confirms that operationally things cannot get much worse. In South Africa sales revenue decreased 28,6% from R940m in 2015 to R671m in 2016. Sales from the LOR (Lower Orange River) shallow water operations decreased by 15,4% due to a decline of 23,5% in US$ diamond prices and 16% fewer carats sold. But revenue was boosted by the marked weakening in the Rand. South African production decreased 21,5% to 48 435 carats – mainly as a result of a 13,4% reduction in gravel treated and a 5,4% decline in average grade at the LOR operations to 1,22 carats/100m2.
It’s still too early to assess the real potential of West Coast Resources – in which Trans Hex holds a 40% stake. But Trans Hex’s annual report did note production commenced during the past financial year and amounted to just under 25,000 carats. Sales at West Coast Resources amounted to R49,4m at an average price of $208/carat. Looking ahead to 2017, Trans Hex expected production to hit 123,000 carats at West Coast Resources, 99 500 from the Angolan operations and 41,000 from the South African LOR operations.
The good news is that Trans Hex CEO Llewellyn Delport reported that demand for rough and polished stones improved at the start of the 2016 calendar year after months of low manufacturing output and reduced inventories at the cutting centres. He believed shortage of stock in the Indian manufacturing sector and at the US retailers boosted rough diamond prices – supported by healthy trading activity in the secondary market.
Delport said, “Post year-end, the diamond market is enjoying a relatively stable period, improving the confidence of traders and dealers.”
Maybe Wiese has got his timing just right at Trans Hex…