Beneficiation Joint Venture

Beneficiation Joint Venture

In 2005 the South African Diamond and Precious Metals Regulator, namely the Department of Mineral Resources, introduced legislation that encouraged beneficiation of diamonds that are produced at mines in South Africa and which is in line with similar regulations in all southern African producing countries. The objective of these new laws was to encourage job creation and skills development in the beneficiation segment of the diamond industry which was severely impacted by shrinking job numbers over recent years as domestically produced diamonds were increasingly cut and polished outside our borders. Beneficiation is a term referring to the value that is added to a commodity, such as a rough diamond, from processing it into a form appropriate for its end use. In the case of rough diamonds, beneficiation entails the cutting and polishing of the stone into saleable gem stone for incorporation into jewellery or for investment purposes.

In line with its commitment to contributing to the developing diamond industry in South Africa, Rockwell has had a drive to create jobs, not only at its mines but further down the value chain. To this end, we sell up to 10% of run of mine to the State Diamond Trader in support of its commitment to sell these to local diamond cutters. In addition, it sells rough diamonds to Diacore black economic empowerment cutting and polishing facility, and directly supplies 100% black-owned manufacturing facilities within South Africa. The combined impact of sales through these channels means that more than 85% of Rockwell’s diamond production is beneficiated within South Africa’s borders. This has enabled the Company to indirectly support the creation of more than 20 jobs for specialized diamond cutters in South Africa.

When the new legislation was introduced, Rockwell also approached Diacore with a proposal that gave them the first option to purchase Rockwell’s production of large, high valued rough diamonds for cutting and polishing with the Company sharing in the upside value from the sale of these polished diamonds. The proposal led to the joint venture agreement, with Diacore increasing its ability to secure supply in this specialized segment of the market where demand outstrips supply and Diacore has an entrenched leadership position. The relationship has since grown from strength to strength and Diacore has become a supportive shareholder in Rockwell, buying into the long term growth strategy of the Company.

The joint venture started in 2008 on a trial basis with a 212-carat stone recovered from the Middle Orange River. The Company did not perceive that the tender price for the stone reflected its true value, believing that the actual color that could be achieved on the polished diamond was more valuable than that reflected in the rough diamond. Based on this conviction, Rockwell sold the rough diamond and participated equally in the profits on the sale of the polished diamond, generating an additional 50% in revenue over and above the rough diamond sale price. The trial period was extended and today is incorporated into the joint venture through which Rockwell sells its stones exceeding 2.8 carats. In the 2011 and 2012 fiscal periods, the profit share arrangement has leveraged Rockwell’s revenue from the sale of special diamond exceeding 10 carats through this channel.

STRATEGIC BENEFICIATION PARTNERSHIP
continues to add significant value from the sale of polished diamonds

Rockwell has a strategic beneficiation partnership with Diacore for its production of rough diamonds weighing more than 2.8 carats.
These stones are sold to Diacore at market price and Rockwell benefits from a 50% share in the profits on the ultimate sale of the polished stones. The Company has realized revenue of $25.7 million in fiscal years from 2009 to 2014.

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