An internal dispute between
On July 1, Trans Hex pulled its MV Namakwa airlift mining vessel from the Marshall Fork marine diamond deposit, only to sail away for good four days later. The structure was one of two owned by Diamond Fields that Trans Hex had agreed, in March 2001, to mine over seven years in return for half the proceeds.
For Diamond Fields, the breakup all but dashes any hope of steady cash flow until the planned launch of its own vessel early next year. To make matters worse, the market has chopped a third off the junior’s share value, which at presstime was entrenched at a new 52-week low of 50.
In a prepared release, Trans Hex said the pair had been at loggerheads over mining recovery rates since November, when actual mining began. But the first sign of trouble can be traced back a month earlier, when the company first noted the geological complexity of Marshall Fork.
Marine mining is inherently unpredictable, given the unstable operating conditions and the natural tendency of alluvial diamonds to prefer the least energetic nook or cranny. Last year, the risks nearly sank
But Trans Hex employed proven airlift technology, even going so far as to replace its MV Ivan Prinsep vessel with the more advanced MV Namakwa. The method was hailed in the September release as prudent and cost-effective, an obvious reference to Namibian’s woes.
Curiously, in the same release, Trans Hex downplayed Namibia’s harsh coastal winter weather and even confirmed the earlier geological studies in light of having found higher grades in some test trenches. States Executive Director Andre Louw: “I’m satisfied that our own sampling activities support these estimates and, more importantly, the proof is in the bank. We have recovered over 6,000 carats in the past three months — a period characterized by very little actual mining.”
Trans Hex provided few project updates after November, but those it did provide had a favourable tone. So why the sudden brush off?
According to the latest Trans Hex release, in the end, the pair disagreed on the interpretation of specified mining rates. The company referred to more difficult geological and mining conditions than Diamond Fields’ earlier investigations had identified.
“We registered our dissatisfaction to our partners in November 2001 in accordance with prescribed procedures,” Louw says. “Although some compromises were agreed to in December 2001, more than seven months have passed without a solution to the fundamental differences. This has resulted in the automatic termination of the joint venture.”
Diamond Fields, while taken aback, accepted the repudiation but not to possible legal recourse. According to management, the termination was improper and all about money, in particular the liabilty that Trans Hex had accrued for failing to achieve the specified rates.
“They said, ‘we won’t go back to mine unless you get rid of these penalties in the future once and for all’ kinda thing,” Horng Dih Lee, chief financial officer, tells The Northern Miner. “That’s why they pulled the vessel — it was all about these performance warranties.”
According to Lee, the warranties had been discussed but not to any serious degree, though he fails to see how their removal was possible without penning a new agreement. In any case, Diamond Fields never invoked its right.
“We are not in the business of suing people, but we do have to keep our obligation to shareholders in mind,” he says. “So, if that’s a route to take, we might have to take it.”
By presstime, Trans Hex had not answered questions the Miner had sent it electronically, nor had it responded to a phone call. Still, the company’s misgivings had some basis in fact: actual mining recovery rates were well off from expectations, averaging just 2,162 carats per month.
A 2000 feasibility study, authored by MRDI, a division of AMEC E&C Services, and based on sampling programs carried out by BHP and De Beers Marine, put Marshall Fork’s indicated resource at 1.4 million cubic metres grading 0.3 carat per cubic metre. In the six months leading up to its bailout, Trans Hex focused on the most heavily sampled area of the deposit.
Despite Tran Hex’s complaints, Lee is holding to his convictions: “Let’s put it this way, when they got into the joint venture with us, we obviously had to provide them with all the geological data, feasibility work and exploration results just so that they could assess whether it was a good deal from a technical point of view. If you ask anybody else, the geological condition is the same: there were three metres of sediment in the exploration work, and there were three metres of sediment in the true mining.”
Another believer is Overseas Private Investment Corp. (OPIC). The U.S. governmental agency still intends to back the junior’s foray into marine mining to the tune of US$15 million.
“We spoke to OPIC, and they looked at our new security package,” says Lee. “The package includes cash flows from mining, and our cash flows have just improved.”
The first vessel, though still not chosen, will be converted into a dual, 24-inch standard airlift vessel. On an area basis, the ship would cover 188% more seabed than the MV Namakwa, which has 20-inch pipes.
Meanwhile, Diamond Fields is considering the use of contract miners and has expanded its offshore portfolio by acquiring a 38-sq.-km prospecting permit in South African coastal waters. The property, 220 km north of Cape Town, is covered by 20-90 metres of water, similar to Marshall Fork, and lies near the offshore extension of the Olifants River, one of two drainage systems responsible for the vast diamond deposits dotting the western coastal region of South Africa and Namibia.
“All and all, it really isn’t a bad thing, but obviously, the phrase ‘suspension of mining’ doesn’t draw any comfort for shareholders,” summarizes Lee. “As far as I’m concerned, the fact that we get 100% of the deposit back for ourselves is really an excellent thing.”
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