Trans Hex may be the top empowered company in the resources sector, according to Empowerdex, but it has yet to achieve the crucial prize of conversion of its "old order" mineral rights into "new order" rights.
In practical terms that's the final stamp of approval for mining companies going through the BEE process because the department of minerals & energy (DME) in reality is the final adjudicator.
That final stamp of approval has already been achieved by a number of groups ranked lower than Trans Hex in this survey, such as Gold Fields, AngloGold Ashanti and Aquarius Platinum.
On the face of it these groups can rightly protest they should be rated higher than Trans Hex, which claims to be fully compliant with the BEE requirements of the mining charter but has not yet had that ratified by the DME.
Final approval from the DME has proven to be a long and complex process. Just ask executives from Anglo Platinum and African Rainbow Minerals, both of which also claim to be fully BEE-compliant but are involved in extended negotiations with the DME.
BEE technicalities aside, Trans Hex shareholders have had a rough ride since the diamond producer came under the influence of BEE partner Mvelaphanda Resources (Mvela). The main reason for this was the decision to move aggressively into Angola to take advantage of business opportunities created by Tokyo Sexwale when he was appointed Trans Hex chairman. That resulted from the deal through which Mvela bought into Trans Hex in 2002 through an arrangement with controlling shareholder Tegniese Mynbeleggings, which is part of the Rembrandt group. Mvela took an initial direct 6% equity stake, later sold down to 3,3%, and was issued compulsory convertible debentures, which convert in March next year, at which time Mvela's equity stake rises to 21,6%.
Until 2001, Trans Hex's operations were focused mainly in the Northern Cape along the lower Orange River, where it had successfully mined alluvial diamonds along its banks.
Angola is widely viewed as the most prospective country in the world for finding large alluvial and kimberlite diamond deposits. Sexwale's contacts in Angola - dating back to his time as a political exile - were viewed as offering Trans Hex the opportunity to grow rapidly into a heavyweight diamond business. In reality Angolan operating conditions are notoriously difficult and Trans Hex ran into trouble in the form of cost overruns and interference in management from its Angolan partners.
Peter Leon, a mining regulatory specialist and a partner in the legal firm of Webber Wentzel Bowens, describes the regulatory environment in Angola as "appalling". Luanda applies punitive business conditions to diamond mining companies, which put up with them because of the attraction of Angolan diamond resources. Typically, the government gets a 50% "free ride" in a project and allocates a local partner to the project who does not pay for his minority equity stake.
The result is the foreign company, such as Trans Hex, gets an equity stake of only 35%-40% in a diamond mine but has to foot the entire capital expenditure bill to develop that mine. The company gets that capital expenditure back in full from the initial profits before the partners start sharing profits in accordance with their equity stakes, but it still means the foreign company takes the full financial risk of the development.
Trans Hex initially acquired three properties, one of which proved to be "marginal at best", but it was still forced to develop that project in terms of its agreement with the Angolan government or risk losing all its properties.
As a result, Trans Hex swung from making a profit of R225m in 2003 to a loss of R120,7m for 2006. The company took a R218,8m "impairment of assets" charge in its income statement for financial 2006 in respect of the Angolan operations and a mine in SA which it had to mothball.
The share price collapsed from a record high of R30 in March 2004 to a low of R9,60 in June last year, from where it has since recovered to around R16.
The MD who led the charge into Angola - Calvyn Gardner - quit abruptly in December 2003. He was replaced by Llewellyn Delport.
During all this the company has been through extensive management turmoil, with 17 senior managers leaving Trans Hex since 2001 - at least one of them in protest over the appointment of Gardner.
