Rockwell Announces Results for Third Quarter of Fiscal 2012
VANCOUVER, Jan. 12, 2012 /PRNewswire/ – Rockwell Diamonds Inc. (“Rockwell” or
the “Company”) (TSX:RDI; JSE:RDI, OTCBB:RDIAF) announces results for
the three and nine months ended November 30, 2011. (Currency values are
presented in Canadian dollars unless otherwise indicated.)
Salient features of the quarter ended November 30, 2011
-- 5,334 carats were produced at the Tirisano, Klipdam and
Saxendrift operations and 5,376 carats were sold at an average
price of US$1,109 per carat.
-- Tender sales of $6.0 million were achieved, with an additional
$ 2.3 million income coming from the beneficiation profit share
arrangement with the Steinmetz Group. This resulted in diamond
revenues of $8.3 million (Third quarter fiscal 2011 - $11.1
million).
-- Cost of sales including amortization, depletion and impairment
charges totaled $7.7 million (Third quarter fiscal 2011 - $9.2
million.)
-- A gross profit of $0.6 million for the quarter was achieved,
though a loss of $2.1 million was recorded which includes
depreciation and depletion of mineral property interest of $1.8
million.
-- Net general and administrative expenses decreased from $1.9
million to $1.7 million.
-- As settlement of the Midamines legacy issue a one-time
arbitration award was made totaling $1.4 million.
Commenting on Rockwell Diamonds, Mr James Campbell, CEO and president of
Rockwell Diamonds said:
“Rockwell met with a number of challenges during the third quarter. A
correction in general diamond pricing affected our reported revenue.
With Tirisano still being in its production ramp up phase, the
operating costs impacted on our overall financial performance. Having
changed the senior mine management team in December 2011, Tirisano now
has the right people on board to meet mine targets. We also finalized
the legacy Midamines matter, with one off negative financial
implications.”
“Our focus continues to be delivering on the objectives of the strategic
review that was conducted at the beginning of 2011. These all relate to
diamond value management and we have reached a number of milestones. We
have significantly enhanced our management and skills base. These are
critical to delivering on our short and long term objective of becoming
a leading diamond producer in terms of our focus on value and
profitability. The rationalization of Holpan and Klipdam with its
single processing facility should enable us to profitably access the
remnant Rooikoppie resources. Completing the installation of the fit
for purpose in field screen at Saxendrift will enable better efficiency
and profitability at our flagship operation. With the completion of the
Tirisano acquisition, and having completed the new processing and
recovery facilities and mining schedule as well as having replaced
management, we are well on our way to establishing a second profitable
and long-life operation. We are also introducing new and appropriate
technology to further entrench our value management focus, such as the
bulk X-ray technology at Saxendrift which is on track. The six mining
and prospecting rights at Wouterspan were consolidated, providing
significant upside to extend the mining potential of the property.”
“We are pleased with the progress that we have made on all these fronts.
We will maintain our focus on addressing the key operational issues and
associated priorities. Once Rockwell has delivered on these, management
will turn its focus to bringing on stream our substantial pipeline of
projects and resources. We will pursue those opportunities that fit our
strategic objective of profitably producing high value diamonds and
continuing to add value through our beneficiation joint venture with
the Steinmetz Diamond Group. Rockwell is well placed to deliver on its
strategic objectives and our balance sheet provides us with the
required working capital to achieve our short to medium term plans.”
Strategy Overview
Rockwell was faced with a challenging third quarter which included a
correction in the diamond market. The commissioning of Tirisano took
significant management time and commitment while Klipdam yielded
disappointing diamond values even though its grades were on budget.
Saxendrift made progress with its projects to stabilize production. The
key strategic objective is to remain focused on optimizing the
productive mines to deliver better returns. The Company is currently
evaluating the potential returns associated with several investment
projects, including extensions to improve returns at the Tirisano and
Saxendrift operations as well as the construction of a new production
plant at the Wouterspan mine site. Once the current review is
completed, projects with the highest projected returns will be pursued
dependent on available financing.
At the end of the third quarter, due to some operating challenges, the
Company’s senior mine management teams were reorganized, and several
new appointments were made to enhance the skills in the Company.
Although overall production in the third quarter fell short of internal
production targets set earlier in the year, the gap is beginning to
close. In line with the strategic principles of Diamond Value
Management, the production profile of the Saxendrift mine has shown
signs of stabilizing. With the completion of the Tirisano acquisition
on September 1, 2011, production began ramping up from mid-October 2011
and although diamond grades were disappointing, the prices achieved for
these stones were higher than expected. Klipdam achieved its budgeted
recoveries in November 2011, but the overall third quarter recovery was
below target and quality. The Holpan mine has been closed and its
associated diamond resources are being treated at Klipdam which will
extend its life.
Financial Overview
The Company reported revenue of $8.3 million for the quarter (Third
quarter fiscal 2011: $11.1 million). Beneficiation profit share from
the joint venture with the Steinmetz Group has shown year-on-year
growth to $2.3 million (Third quarter fiscal 2011: $897,428). Tender
sales amounted to $6.0 million from the sale of 5,376 carats (Third
quarter fiscal 2011: 6,414) from the Company’s three operational mines:
-- Saxendrift achieved a 24% year-on-year improvement in sales to
US$3.3 million, due to a 34% increase in total carats sold to
1,761;
-- Klipdam's sales revenue of US$1.4 million was significantly
lower than in the comparable quarter in fiscal 2011 due to
disappointing diamond values and a decrease in carats; and
-- Sales revenue at Tirisano amounted to US$1.3 million as
diamonds at its first tender sale achieved above budget prices.
A gross profit of $0.6 million for the quarter was achieved, though a
loss of $2.1 million was recorded which includes depreciation and
depletion of mineral property interest of $1.8 million. Mining costs
increased compared to the second quarter of fiscal 2012. This was
mainly due to the inclusion of costs relating to the Tirisano mine for
the first time and given that it was still in its ramp up phase,
operating profitability was negatively affected. The Midamines
settlement, amounting to $1.2 million (before interest) was paid in
October 2011. The total cost including interest and legal fees was $1.4
million in the third quarter. The Company is not aware of any other
outstanding litigation.
It is encouraging, however, that on a year-on-year basis, the average
operating cash cost per cubic metre decreased by 3% to US$10.16.
The South African Rand depreciated by 11% against the Canadian Dollar
during the third quarter, having a significant impact on the Company’s
balance sheet. This reflected as a negative non-cash foreign currency
translation impact of $7.1 million on the income statement. Further
Rand weakness could put upward pressure on dollar denominated costs.
At November 30, 2011, the Company had cash and cash equivalents of $11.2
million (November 30, 2010 – $3.7 million) and bank indebtedness of
$0.4 million (November 30, 2010 – $2.2 million), for net cash holdings
of $10.8 million (November 30, 2010 – $1.5 million). The Company had
working capital of $12.0 million compared to $9.2 million at November
30, 2010.
A diamond inventory of 1,866 carats had been accumulated at the end of
the third quarter to benefit from the higher demand during the
anticipated peak sales period from January to March 2012.
Operational Overview
____________________________________________________________________
| |Production |Sales and inventories |
|__________________|_______________________|_________________________|
| |Volume |Carats|Sales |Average value|Inventories|
| |(m3) | |(carats)|(US$ / carat)|(carats) |
|__________________|_______|______|________|_____________|___________|
|Third quarter 2012|702,573|5,334 |5,376 |1,109 |1,866 |
|__________________|_______|______|________|_____________|___________|
|Year-year change |-31% |-37% |-16% |-29% |-51% |
|__________________|_______|______|________|_____________|___________|
Mining volume declined 31% to 702,573m(3)(Third quarter fiscal 2011: 1,018,691m(3)). While the loss of production volumes due to the closure of operations
at Holpan had an impact, this was dampened by Tirisano which began
ramping-up production from mid-October in 2011. At Saxendrift
production volumes declined 12%, the grade increased by 42% yielding
1,933 carats for the three months to November 2011. Klipdam achieved
its budgeted recoveries in November 2011, but overall recoveries and
quality were below expectations. Decisive action has been taken to
remediate this situation.
The Company produced 5,334 carats (Third quarter fiscal 2011: 8,404
carats). This year-on-year decrease of 37% is largely due to the carats
lost with the closure of Holpan in May 2011. The production of 1,244
carats at Tirisano in the last six weeks of the third quarter had a
beneficial impact and smoothed the Company’s production profile, in
line with the rationale for its acquisition. Although the Company’s
overall production did not meet budget for the quarter, the gap between
actual and budget recovery is reducing.
Klipdam
Mining at Klipdam migrated from the palaeo channel to the Rooikoppie
gravels where diamonds of similar grade could be recovered at a lower
unit cost due to less intensive earthmoving and, hence, equipment
requirements. As a result, the mine realized a 20% reduction in average
mining cash cost to US$9.50 per cubic meter, compared to the second
quarter. After quarter end, the mining plan migrated to the in situ
alluvial Rooikoppie gravel which has not been previously mined and is
expected to yield higher quality diamonds.
Carat production at Klipdam was 43% lower than in the third quarter of
fiscal 2011, while volumes declined 24% due to continued intermittent
front end throughput constraints. Corrective actions were implemented
and an in-field screen was erected at the center of mining activities;
these started to have a positive impact in the latter part of the
quarter with improved throughputs.
A total of 1,990 carats were sold at an average value of US$681 per
carat, compared to 2,862 carats at an average value per carat of
US$1,826 in the quarter ended November 30, 2010. The drop in price was
due to the reduced size and quality of the diamond production from the
previously worked area of the Rooikoppie gravel unit which was mined
during the quarter. Management is confident that this has been
addressed by migrating the new mining area.
Saxendrift
Volume production at Saxendrift was on target although carat recoveries
were slightly below budget. Volumes are approaching the long-term
production levels previously estimated for the mine as several Diamond
Value Management initiatives begin to show results.
The in-field screening plant has been fully commissioned and producing
at name plate capacity since the beginning of December 2011. The
anticipated benefits of the new screening plant include improved
capability to process the high sand content in the current gravel feed
that had negatively impacted performance in past quarters. The new
plant also removes significant quantities of heavy magnetic material,
enabling the pans to run more efficiently in terms of diamond recovery.
Implementation of the bulk X-ray project is on schedule. The X-ray
machine has been dispatched from Russia, and is to be set-up in
Johannesburg during January 2012. It is expected that the X-ray unit
will be commissioned and incorporated into the dedicated bulk sorting
plant, then commence testing and performance quantification on various
gravels will begin during April 2012.
Production at Saxendrift in the third quarter increased 27% to 1,933
carats from 355,308 cubic meters of gravel processed, which were 12%
lower than in the comparable quarter in fiscal 2011. Recoveries gained
momentum after a slow start to the quarter due to a scrubber drive
failure at one of the four streams. This was subsequently resolved.
Sales from Saxendrift increased 34% to 1,761 carats at an average price
of US$1,892 per carat. The 7% year-on-year decline was due to the
market correction as well as a decline in stone quality and size.
Tirisano
The acquisition of Tirisano became effective on September 1, 2011.
Production started ramping-up from mid-October 2011 following the
construction and commissioning of the mine, including the
implementation of Continuous Operations (“Contops”) from start-up. A
new recovery plant and front-end extension were also commissioned on
schedule during the quarter.
Although diamond grades were disappointing in the first months after
commissioning, higher than expected prices were paid for the first
stones, chiefly as a result of higher than expected recoveries of +10
carat stones. Production at Tirisano during the quarter totaled 1,244
carats from 153,099 cubic meters of gravel processed. Sales amounted to
1,625 carats at an average price of US$783 per carat. The sales
included product that was acquired when the acquisition became
effective.
In line with the reorganization of the senior mine management across the
Company’s operations, a new plant manager, with extensive diamond
winning experience, and a full time mining manager have been engaged
for the Tirisano operation. After the reporting quarter, the mine
manager of Tirisano Graham Chamberlain left the company and was
replaced by Ben Nell, the mine manager of Saxendrift. With these
management changes, the mine is well placed to achieve planned
production during the next quarter.
Diamond Market
The volatile financial markets during the second quarter of fiscal 2012
affected the diamond sector at the beginning of the third quarter but
sentiment subsequently improved. The market that reopened late in
August 2011 was characterized by limited trade and extreme caution
among traders, resulting in a temporary price decline of approximately
30% from the record highs in May and June 2011. Wholesale polished
prices declined by an average of 10% while retail prices were stable.
The market turned in October 2011 and continued its recovery into the
fourth quarter with rough and polished diamond prices improving to
within 15% and 5%, respectively, of their May and June 2011 record
levels.
During the third quarter Rockwell continued to sell diamonds into its
beneficiation joint venture with the Steinmetz Diamond Group (SDG)
whereby the Company enjoys an equal participation in the profits from
the sale of its polished diamonds sold through this channel. The joint
venture has added increasing value in recent years and in November
2011, a 35 carat, D-color, flawless clarity, Round Brilliant Cut
diamond was sold. It was produced from a 105 carat rough stone
recovered from the Saxendrift mine in October 2009 and formed one of a
pair of 35 carat diamonds. The second diamond, which belonged to SDG,
had been purchased and polished over the same time period as Rockwell’s
stone. The polished stones were sold as a pair at a Christie’s auction
with Rockwell’s diamond achieving a price of $230,000 per carat
including buyer’s commission.
Notable Stones
The Company continued to produce large stones at all its operations
during the third quarter:
-- Klipdam produced 14 stones exceeding 10 carats, including seven
stones exceeding 20 carats;
-- Saxendrift produced 33 stones weighing more than 10 carats,
including 12 exceeding 20 carats; and
-- Tirisano produced eight stones that were larger than 10 carats,
including two weighing more than 20 carats.
These stones were channeled into the Company’s beneficiation joint
venture with SDG, which delivers value added revenues for Rockwell’s
stones that are larger than 2.8 carats. High quality stones sold
through the joint venture during the quarter included the following:
-- Saxendrift:
o a 47.47 carat white diamond, makeable shape and spotted;
o a 48.97 carat sawable octahedron, light yellow and spotted;
o a 57.04 carat fancy yellow, octahedron with clean clarity; and
o a 142.16 fancy yellow, flat shape with spots in the center of
diamond.
Outlook
Despite the turmoil which continues to impact global financial markets,
the fundamentals for diamond prices remain strong. Demand extended its
recovery into the fourth quarter following the lull in August 2012.
Anecdotal evidence suggests that the Christmas season in the USA was
better than the year before in terms of diamond jewellery sales. This
is expected to assist in the liquidation of inventory with the
resultant cash flow improvement rolling over into the January and
February 2012 rough diamond purchasing period. Rockwell expects prices
and demand to increase through the first half of 2012.
Having obtained the necessary approvals from the Department of Mineral
Resources, the Northern Cape mines will be fully converted to Contops
by the end of January 2012. With Tirisano having been commissioned on
Contops at outset, all operations in the Company will in future be
operating on this basis with the dual benefits of increased production
as well as higher utilization of the processing plants. There is the
added advantage of the additional jobs which will be created in these
regions where unemployment is high.
From an operational perspective, the priorities for the fourth quarter
of fiscal 2012 are as follows:
-- In order to achieve required benchmark returns, Klipdam is
targeting the recovery of better quality diamonds. For the
longer term, a redesign of the front end and increasing the
plant capacity is under consideration.
-- Saxendrift is focused on with optimizing the production process
for coarser diamond recovery to increase the number of large
diamonds recovered. The bottom cut off size has been raised to
5.0 mm and is expected to start paying off during the fourth
quarter.
-- The continued implementation of the bulk X-ray technology is
also of primary importance at Saxendrift and will be used as a
pilot for deploying this technology in new projects in the
pipeline.
-- At Tirisano, the experienced new mine management team which was
put in place at the end of 2011 is focused on the delivery of
its production budget. The technical team has also been tasked
with planning and implementing a wet front end appropriate for
run of mine preparation before the 2012 rainy season commences.
In conclusion, the long term supply and demand fundamentals, driven by
substantial uptake of diamonds from China and India and a gradual
reduction in supply, bode well for the sector.
Conference Call:
Rockwell will host a telephone conference call on Friday, January 13 at
09:30 a.m. Eastern Time (4:30 p.m. Johannesburg) to discuss these
results. The conference call may be accessed as follows:
___________________________________________
|Country |Access Number |
|___________________________|_______________|
|Canada (Toll-Free) |1 866 605 3852 |
|___________________________|_______________|
|USA (Toll-Free) |1 800 860 2442 |
|___________________________|_______________|
|UK (Toll-Free) |0 800 917 7042 |
|___________________________|_______________|
|South Africa (Toll-Free) |0 800 200 648 |
|___________________________|_______________|
|Other Countries (Intl Toll)|+27 11 535 3600|
|___________________________|_______________|
A transcript of the audio webcast will be available on the Company’s
website: www.rockwelldiamonds.com. The conference call will be archived
for later playback until midnight (ET) January 18, 2012 and can be
accessed by dialing the relevant number in the table below and using
the pass code 19623#.
___________________________________________
|Country |Access Number |
|___________________________|_______________|
|South Africa (Telkom) |011 305 2030 |
|___________________________|_______________|
|USA and Canada (Toll) |1 412 317 0088 |
|___________________________|_______________|
|Other Countries (Intl Toll)|+27 11 305 2030|
|___________________________|_______________|
|UK (Toll-Free) |0 808 234 6771 |
|___________________________|_______________|
For further details, see the Rockwell’s complete financial results and
Management’s Discussion and Analysis posted on the website and on the
Company’s profile at www.sedar.com. These include additional details on production, sales and revenues for
the quarter, as well as comparative results for fiscal 2010.
About Rockwell Diamonds:
Rockwell is engaged in the business of developing and operating alluvial
diamond mines, to become in a mid-tier diamond mining company. The
Company has three existing operations, namely Saxendrift, Klipdam and
Tirisano, which it is progressively optimizing. It also has two
development projects -Wouterspan and Niewejaarskraal- and a pipeline of
other projects with future development potential. Rockwell’s
operations and projects are all located in the Republic of South
Africa.
In addition to its project work, Rockwell continues to evaluate merger
and acquisition opportunities which have the potential to expand its
mineral resources and provide new opportunities to develop the
additional production that would provide accretive value to the
Company.
The Company has an established track record of producing large gem
quality diamonds; these comprise a significant proportion of its
production profile. The diamonds recovered from Rockwell’s mines are
frequently acquired for investment purposes. The Company has a
beneficiation joint venture which enables it to participate in the
profit on the sale of its +2.8 carat sized stones after they have been
polished.
No regulatory authority has approved or disapproved the information
contained in this news release.
Forward Looking Statements
Except for statements of historical fact, this news release contains
certain “forward-looking information” within the meaning of applicable
securities law. Forward-looking information is frequently characterized
by words such as “plan”, “expect”, “project”, “intend”, “believe”,
“anticipate”, “estimate” and other similar words, or statements that
certain events or conditions “may” or “will” occur. Although the
Company believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions, such statements are not
guarantees of future performance and actual results or developments may
differ materially from those in the forward-looking statements.
Factors that could cause actual results to differ materially from those
in forward-looking statements include uncertainties and costs related
to exploration and development activities, such as those related to
determining whether mineral resources exist on a property;
uncertainties related to expected production rates, timing of
production and cash and total costs of production and milling;
uncertainties related to the ability to obtain necessary licenses,
permits, electricity, surface rights and title for development
projects; operating and technical difficulties in connection with
mining development activities; uncertainties related to the accuracy of
our mineral resource estimates and our estimates of future production
and future cash and total costs of production and diminishing
quantities or grades if mineral resources; uncertainties related to
unexpected judicial or regulatory procedures or changes in, and the
effects of, the laws, regulations and government policies affecting our
mining operations; changes in general economic conditions, the
financial markets and the demand and market price for mineral
commodities such and diesel fuel, steel, concrete, electricity, and
other forms of energy, mining equipment, and fluctuations in exchange
rates, particularly with respect to the value of the US dollar,
Canadian dollar and South African Rand; changes in accounting policies
and methods that we use to report our financial condition, including
uncertainties associated with critical accounting assumptions and
estimates; environmental issues and liabilities associated with mining
and processing; geopolitical uncertainty and political and economic
instability in countries in which we operate; and labour strikes, work
stoppages, or other interruptions to, or difficulties in, the
employment of labour in markets in which we operate our mines, or
environmental hazards, industrial accidents or other events or
occurrences, including third party interference that interrupt
operation of our mines or development projects.
For further information on Rockwell, Investors should review Rockwell’s
annual Form 20-F filing with the United States Securities and Exchange
Commission www.sec.com and the Company’s home jurisdiction filings that
are available at www.sedar.com.
SOURCE Rockwell Diamonds Inc.
