July 15, 2010, Vancouver, BC – Rockwell Diamonds Inc. (“Rockwell” or the “Company”) (TSX:RDI; JSE:RDI, OTCBB:RDIAF) announces financial results for the three months ended May 31, 2010. Currency values are presented in Canadian dollars unless otherwise indicated.
Rockwell is engaged in alluvial diamond production with focus on the mining and development of alluvial diamond deposits that yield high value gemstones. The Company has continued to operate three mines – Holpan, Klipdam and Saxendrift – during its first fiscal quarter of 2011, and has initiated a bulk sampling program on the Klipdam Extension property to evaluate this property, which is near to the Klipdam operation. All of these operations are located in the Northern Cape Province area of South Africa.
A total of 7,316 carats of diamonds were produced during the quarter, including a 66-carat stone recovered at the Company’s Holpan mine and 124-carat and 145-carat stones recovered from production at its Saxendrift mine. The large diamonds were sold into Rockwell’s joint venture agreement with Steinmetz Diamond Group (“SDG”) to be manufactured and sold as polished goods, and will provide additional profit share revenue to the Company.
One tender sale of rough diamonds was held during the quarter. The Company received significantly improved prices for its better quality stones, particularly for diamonds with good color and clarity. The average price achieved was US$1,611.11 per carat.
The prices received for the rough diamonds its recent tender are comparable to those achieved during calendar 2008, indicating the diamond business has improved over the past eighteen months. Other evidence of this recovery includes an increasing demand for larger stones. In addition, polished diamond prices have also improved in calendar 2010, although the increase in price of polished stones on a percentage basis is still less than for rough diamonds. The retail sector has shown a year-on-year increase in trade but has not yet fully recovered. Margins on polished stones are still small because of high rough diamond prices. Yet credit terms have improved from the exceptionally high terms offered to the industry prior to the credit crisis in late 2008, and this should increase the purchasing power of the retail sector.
Operations and Projects
During the first two months of the quarter Rockwell’s three operations underperformed against budgeted production targets, but exceeded budgeted carats in May. This was primarily the result of weather factors and high sand contents in the ore bodies, which impeded plant throughput and processing capacity. Remedial actions have been put in place. The Company has implemented the construction of an in-pit screening facility at Saxendrift that will remove the fine sand fraction and oversize gravel component and produce a pre-concentrate ore that will be transported to the processing plant. This will result in cost savings in respect of transport and diesel greater processing capacity through the plant, and quicker rehabilitation thereby providing additional savings.
In May, the Company pre-commissioned its Klipdam Extension bulk sampling project to the east of the Klipdam mine. This project will evaluate alluvial diamond properties that the Company holds in the vicinity of Klipdam with a view to developing further production capacity from properties which yield good results in terms of grade and diamond value. The Company is also proceeding with the design, re-engineering of the Wouterspan processing plant to build a high volume low cost mining and processing operation with greater production capacity Saxendrift. The Company plans to delay the construction and re-commissioning of Wouterspan to ensure that front end engineering enhancements made at Saxendrift are incorporated into the new Wouterspan plant design. These will ensure greater throughput capacity and lower operating costs. At the same time Rockwell aims to fast track the acquisition of the Tirisano project (see below) to provide additional carat production in place of production from Wouterspan.
- 7,368 carats were produced at the Holpan, Klipdam and Saxendrift operations and the Klipdam Extension bulk sampling project, including contractor recoveries.
- 4,927.46 carats were sold at an average price of US$1,611.11 per carat.
- Tender sales of US$7.9 million plus US$0.3 million returns from beneficiation profit share (the joint venture with the Steinmetz Group, where rough stones are polished and sold and the profit shared) resulted in diamond revenues for the quarter of $8.5 million (US$8.2 million).
- Cost of sales including amortization, depletion and impairment charges totalled $6.0 million. A fair value adjustment on investments of $0.1 million was recognized in the quarter. This resulted in a combined amortization, depletion and impairment charge of $3.1 million for the quarter.
- An operating profit of $2.5 million was realized for the period.
- Net general and administrative expenses amounted to $1.4 million, travel and conference expenses amounted to $0.1 million, interest expenses amounted to $0.1 million and future income tax expense was $0.3 million.
- A loss of $0.03 million or $0.00 per share was realized for the period.
- Diamond inventories at May 31, 2010 totalled 4,351 carats.
- Production at the three operations steadily increased, reaching 756,476 cubic metres. The Company’s overall increase in production has been significantly influenced by the expanded capacity of the Saxendrift plant.
- The Company’s drive to cut costs and optimize its operations continues to yield results. The average operating cash cost over the quarter for the three operations was US$6.68 per cube, which is within the US$6.00 — US$7.0 per cube range that was forecasted for fiscal 2011.
- The average total cost for all the operations over the first quarter of fiscal 2011, including rehabilitation, lease payments and royalties was US$9.95 per cube. These costs include the pre-commissioning of the Klipdam Extension bulk sampling project.
Note: Rockwell has elected to report its production and cost data in terms of cubic metres or cubes rather than per tonne as was the case in the past. This is in line with conventional industry standards for alluvial deposits. For conversion from cubic metres or cubes to metric tonnes, the specific gravity factor for the Holpan, Klipdam, and Klipdam Extension deposits is 1.8 g/cm3, for the Saxendrift and Wouterspan deposits the factor is 2.1 g/cm3, and for the Blue Gum (Tirisano) deposit near Ventersdorp (see below) the factor is 1.80 g/cm3.
Additional details on production, sales and revenues for the quarter and with comparative results for the first quarter of fiscal 2010 are provided below. Complete financial results and the Company’s Management Discussion and Analysis are posted on the website and on the Company’s profile at www.sedar.com.
|Operation||3 months ending May 31, 2010||3 months ending May 31, 2009|
|Volume (cubic meters)||Carats||Average grade (carats per 100 cubic meters)||Volume
|Carats||Average grade (carats per 100 cubic meters)|
|Sales AND Revenue|
|Operation||3 months ending May 31, 2010||3 months ending May 31, 2009|
|Sales (carats)||Value of Sales (US$)||Average value (US$ per carat)||Inventory (carats)||Sales (carats)||Value of Sales (US$)||Average value (US$ per carat)||Inventory (carats)|
*Other refers to an independent contractor processing gravels and sold with the groups tender. These carats are excluded from grade calculations.
The higher grade of the Tirisano deposits, compared to the low grades of Rockwell’s Northern Cape operations, and large volume resources will facilitate high production rates and greater consistency of carat production, thereby smoothing the Company’s revenue stream.
Completion of the acquisition is subject to a number of conditions including South African mining ministry consent, securities regulatory approvals including TSX, satisfactory due diligence and project development financing and electric power negotiations. The Rockwell shares to be issued will be subject to escrow, resale and voting restrictions and will not materially affect control. Completion is targeted for the third calendar quarter.
President and CEO John Bristow commented, “The Company continues to implement initiatives to improve operating and costs structures in all parts of its business which will form the foundation for Rockwell’s growth and acquisition plans. The objective is to create a gemstone producer of about 10,000 carats per month in the long term. Plans to fund and achieve this target will be presented to shareholders in due course.”
For further information on Rockwell and its operations in South Africa, please contact Investor Services at (604) 684-6365 or within North America at 1-800-667-2114.
President and CEO