• Market Watch

Will diamonds be Trustco’s best friend?

- 2023-06-02 00:00:00

Trustco Group Holdings is banking on more than N$2 billion from plans involving especially its diamond mining company in Sierra Leone to ensure its survival.
The Namibian-based, JSE-listed group’s board of directors concluded that Trustco’s ability to continue as a going concern depends on the successful conclusion of deals and implementation of plans regarding Meya Mining.
Trustco on Wednesday released its unaudited interim results for the six months ended 28 February 2023.
It reported a loss of N$250 million for the half-year and stated that the group’s accumulated loss at the end of the reporting period stood at N$1.9 billion. Cash utilised from operating activities for the six months amounted to N$36 million.

Going concern

At the end of February 2023, the group had N$4 million in cash and cash equivalents, down from N$38 million for the same period in 2022.
Trustco’s basic loss per share for its latest interim results was 25.38c, compared to the earnings per share (EPS) of 138.07c reported on in respect of the 2022 restated interim results.
The board considered the results in determining whether the group could continue as a going concern for the foreseeable future.
It also took into account whether Trustco has sufficient cash resources from investing activities which is readily available to settle its creditors and maturing liabilities as and when they fall due in the foreseeable future, while continuing to maintain its operating abilities.

Legal battles

The board furthermore weighed any significant pending litigation that will threaten the going concern status of the group.
This includes the Bank of Namibia’s (BoN) application to the High Court of Namibia for the liquidation of Trustco Bank Namibia (TBN), a wholly-owned subsidiary of Trustco Group Holdings (TGH).
The group is also at loggerheads with the Namibia Revenue Agency (NamRA) over alleged outstanding tax of N$306 million.
It is also embroiled in a court battle with Mauritius-based Helios Oryx Ltd. Helios is suing Elisenheim Property Development Company, owned by Trustco, over unpaid loans of about N$476 million.
Other board considerations included an assessment of the existing economic conditions related to the various investees and whether the possibility exists to sufficiently scale said operations in the foreseeable future to provide additional cash resources.
It also looked at the solvency and liquidity position of Trustco in accordance with the Companies Act.

Material uncertainty

The board said it believed that “the above factors, coupled with prevailing economic conditions and forecast economic outlook, presents some challenges for the foreseeable future”.
“These conditions are considered to indicate that a material uncertainty exists which may cast significant doubt on the ability of the group to continue as a going concern in the foreseeable future.
“This is largely attributable to the short-term liquidity position of the group,” the board said in Trustco’s full interim results announcement.
Detailed liquidity improvement initiatives have been developed and are being pursued to address future cash flow requirements, and its implementation is regularly monitored, the board said.

Meya Mining

Top of Trustco’s rescue plan is the conclusion of a deal which will see SJSL Investments Ltd become up to a 70% shareholder in Meya for the sum of US$50 million. The proposed deal between Trustco Resources (a full subsidiary of Trustco who owns 65% in Meya Mining), Germinate (who owns 35% in Meya) and SJSL was first announced last June.
In December, Trustco issued a cautionary announcement, saying the parties, together with an international investment fund, entered into discussions to conclude a transaction whereby the parties would increase their investment (through a combination of third-party funding and shareholder funding) to fully capitalise the asset.
In its latest interim results, Trustco board said the group’s detailed liquidity improvement initiatives depend on the completion of various technical, geological and financial milestones related to the mining operations in Sierra Leone in order to conclude a transaction with “an international diamantaire” of a debt and equity investment totalling US$75 million into Meya Mining.
“The additional funding will enable the resources investee to adequately scale production of its flagship asset, which will enable the group to recover its net debt and equity investment in the resources investee in the foreseeable future,” the board added.
In a cautionary announcement this April, Trustco said that the definitive agreements of the deal were being concluded and that the JSE has been engaged for a ruling regarding the categorisation of the transaction.

Debt

Other definitive factors of the detailed liquidity improvement initiatives include the recovery of US$6 million in working capital from its resources investee in the near future, “which will assist with the short-term liquidity requirements of the group”.
Another deciding factor is the recovery of US$42 million in interest-bearing debt from its resources investee by the last quarter of 2023, “once Meya Mining achieves the above-stated production targets, which will assist with the short-term liquidity requirements of the group”.
In addition, Trustco’s ability to continue as a going concern depends on the “continued subordination of debt owing to related party investors of the group for the foreseeable future”, the board said.
It also pivots on the successful negotiations with international lenders in order to agree revised repayments terms associated with borrowings due and payable in the foreseeable future.
According to Trustco’s interim results, the group’s borrowings at the end of February amounted to N$812 million. Amounts due to related parties totaled N$1.591 billion.
Lastly, the board said successful resolutions in various ongoing legal matters are needed “in order to mitigate the potential liquidity impact thereof”.