Thursday October 11, 2012, Vancouver, BC – Rockwell Diamonds Inc. (“Rockwell” or the “Company”) (TSX:RDI; JSE:RDI) announces results for the three and six months ended August 31, 2012. Currency values are presented in Canadian dollars unless otherwise indicated.
- Quarterly diamond production up 34% year-on-year on the back of a 37% increase in volumes of gravel processed.
- Quarterly operating profit: $199,852 before amortization, depreciation and corporate overhead
- Overall reduction of 8% cash operating cost per unit mined to US$8.71/m3.
- Mining costs up 35% due to higher fuel costs and increased mining volumes.
- Improved volumes of gravel processed at Saxendrift with average carat price of $2,419.
- Klipdam’s mining volumes and diamond values up but still below expectation.
- Project to re-organize Tirisano processing plant to permit mining of Pit 4 completed and operations resumed early in third quarter:
- Unit cost per cubic meter mined down 49% to US$9.31 during six weeks production prior to temporary suspension of activities during re-configuration and implementation phase.
- Recovery of 1,172 carats from bulk sampling at Saxendrift Extension Project.
- Fourth mine under construction at Saxendrift Hill1 : Capital cost of $2 million and scheduled to commence in the first quarter of calendar 2013.
- Four royalty mining contracts concluded on Rockwell’s mining properties to generate additional royalty revenue from diamond sales.
- Second quarter fiscal 2013 loss of $2.4 million after depreciation.
- Net cash balances of $5.4 million.
Rockwell continued to make progress towards its key corporate objectives of increasing its monthly production of high-quality gemstones to 10,000 carats within five years through its two pronged strategy:
• Diamond Value Management:
Optimization projects at the productive mines are delivering better operating results with respective quarterly year-on-year increases of 26% and 27% in volume mined and processed at the Saxendrift Complex (comprising Saxendrift, the Saxendrift Extension Project and the Bulk X-ray system) and Klipdam, respectively. A reconfiguration to permit mining of Pit 4 at Tirisano, which has higher clay content and better geology, was initiated that included rationalizing the processing plant and reducing the overhead structure in light of softening diamond prices particularly in the smaller diamond sizes.
Four royalty mining contracts were concluded on smaller portions of the Klipdam and Tirisano properties that do not suit Rockwell’s high volume operating model, but that can be economically mined by smaller operators. The first contractor started in August 2012 with the others commencing during the third quarter. Contractors carry the full costs of mining and processing operations while Rockwell will derive a fixed royalty from the diamond sales as well as beneficiation revenues. The Company will retain full responsibility for diamond security.
• Re-establishing the Resource – Pipeline of Diamonds for Tomorrow:
Initiatives to increase and extend the mine life of Rockwell’s Middle Orange River properties and its associated operational footprint have commenced. These plans include a drilling campaign and further bulk sampling to define the mineral resources at Saxendrift Extension, and the construction of a processing facility at Saxendrift Hill, based on the Bulk X-ray technology that was piloted at Saxendrift. At Wouterspan, the pre-feasibility study is progressing.
The Company’s production and sales results for the second quarter of fiscal 2013 were as follows:
|Production*||Sales and inventories*|
|Volume (m3)||Carats||Mining costs ($)||Value of Sales (US$)||Sales (carats)||Average value (US$ / carat)||Inventories (carats)|
* Including results from bulk sampling at the Saxendrift Extension Project and Bulk X-ray project at Saxendrift.
- Gross diamond revenues of $7.4 million compared to $6.0 million for first quarter of 2013: Quarter-on-quarter increases of 30% in carats and 40% in average carat value to US$1,322.
- Beneficiation revenues of $0.4 million: Revenue from this source was delayed in second quarter due to particularly quiet northern hemisphere summer trading activity.
- The ‘beneficiation pipeline’ – comprising almost 5,000 carats yet to be sold by Steinmetz Diamond Group – includes several notable stones added during the quarter.
- Operating profit before amortization, depreciation and corporate overhead of $199,852.
- The net loss for the quarter totalled $2.4 million
Summary of performance for three months ended August 31, 2012
The financial performance for the second quarter of fiscal 2013 reflects the focus to drive efficient mining operations at Saxendrift and Klipdam while most of the loss can be attributed to Tirisano where mining activities were temporarily halted in mid July 2012 to implement the right sizing plan.
The Saxendrift Complex recorded total diamond sales of US$4.3 million or revenue/m3 of US$9.11, compared to the average mining cash cost/m3 of US$7.94. Klipdam had total diamond sales of US$2.2 million or revenue/m3 of US$10.40, compared to the average mining cash cost/m3 of US$10.02.
Rockwell’s overall financial performance was, once again, negatively impacted by Tirisano which was in operation for the first six weeks of the second quarter, expensing commissioning costs of $0.5 million over this period. Lost production for the remainder of the quarter also had an impact on the Company’s financial performance of $1.3 million.
The Company recorded US$ denominated diamond sales of US$6.8 million, in line with the second quarter of the previous year. Notable impacts are as follows:
- Klipdam showed increases of 72% and 45%, respectively, in carats sold and revenue from diamond sales, compared to the previous year. The average revenue per carat of US$869 rose from US$550 in the previous three months of the current fiscal year due to recent mining in the paleaochannel unit that yields larger, higher quality diamonds.
- Carats sold from the Saxendrift Complex increased by 7% to 1,869 carats but achieved a lower average price of US$2,326 per carat compared to US$3,186 a year ago.
- Diamond sales from Tirisano totaled 776 carats and generated revenue of US$282,808.
Including beneficiation revenues that amounted to $0.4 million, the Company reported total revenue of $7.4 million. The decline in beneficiation revenue is due to a seasonal slowdown in trading during summer in the northern hemisphere.
Mining costs increased 35% year-on-year to $7.0 million and resulted in the Company’s decision to reconfigure Tirisano. The annual increase primarily reflects the upward pressure of higher fuel costs and the 23% increase in the volume of gravel processed.
The unit costs/m3 for all three operational mines was as follows:
|Second quarter fiscal 2013||Quarterly change (%)||Comments|
|Klipdam||US$10.02||+7%||Higher earthmoving requirements due to mining the paleaochannel to produce higher quality diamonds|
|Saxendrift||US$7.94||+14%||Increased transport costs associated with transporting the bulk sample at Saxendrift Extension Project 4km to processing plant, dampening impact of higher throughput volumes|
|Tirisano||US$9.31||-49%||Temporary cessation of mining activities from July 2012 to implement right sizing plan|
Rockwell recorded a total comprehensive loss of $4.2 million, including a non cash $1.8 million foreign currency translation charge on the conversion of the Rand denominated assets into Canadian dollars, resulting from a 3.2% depreciation of the South African Rand against the Canadian dollar.
At August 31, 2012, the Company had cash and cash equivalents of $5.4 million. The operations are currently generating sufficient cash to cover cash operating costs but not corporate overheads or amortization.
- 4,830 carats produced and 5,147 carats sold at average price of US$1,322 per carat.
- Saxendrift maintaining profitable production profile: Better mining efficiencies and attention to in-pit screening.
- Preliminary bulk-sample extracted from Saxendrift Extension Project yielded encouraging results: Better understanding of diamond grade and value.
- Construction of Saxendrift Hill in progress: Two year life of mine with higher average carat values than current Saxendrift value.
- Klipdam still underperforming: Slightly improved due to mining palaeochannel and 27% increase in mining volumes.
- The Tirisano right sizing in ramp up phase: Significantly reduced overhead implemented to halt cash losses.
Klipdam is addressing its production shortfall by installing a second barrel screen and continuing to focus on improving mining fleet availabilities. Diamond production increased 31% year-on-year while mining at the paleaochannel led to slight improvements in diamond sizes and quality produced. Two royalty mining contracts will commence in the third quarter with an initial term of two years.
The Saxendrift Complex recorded a a 6% increase in diamond production. Transporting the bulk sampling volumes from the Saxendrift Extension Project to the Saxendrift processing plant led to slightly higher costs due to more intensive earthmoving requirements. The Bulk X-ray plant achieved a grade of 2.5 carats / 100 m3 from processing 4,808 m3 of tailings material.
The focus at Tirisano was on implementing the board-approved strategy to mine Pit 4, which has better known geology, yet presents clay rich soils that required a retooling of the plant. Mining operations were put on hold in mid July 2012 and work concentrated on reconfiguring the processing plant to cope with the higher clay content. Operations resumed as planned by the end of September 2012, with the ramp up towards the monthly nameplate capacity of 50,000 m3. The new wet front end, designed to separate the clay from the gravels in Pit 4, has been integrated into the new processing configuration. The rationalization included a retrenchment of 111 people, that also contributed to a lower operating cost structure and placed the operation on a sounder footing. Two royalty mining contracts have also been concluded for the mine, with the first commencing in mid September.
The longer-term supply and demand fundamentals for gem quality investment stones, comprising the majority of Rockwell’s production, remains positive. Although the market has experienced price declines for smaller diamonds, the +2 carat segment of the market that represents some 80% of Rockwell’s production, is expected to be price stable for the remainder of the year. The joint venture with Steinmetz Diamond Group provides Rockwell with the ongoing opportunity to participate in pricing movements in both rough and polished diamonds, especially for its larger, gem quality diamonds that are becoming rarer and are in high demand for investment purposes.
Diamond value management priorities for the third quarter are as follows:
- Saxendrift Complex: Continued focus on meeting production targets and extending the life of mine through further bulk sampling at the Saxendrift Extension Project and commissioning the new Saxendrift Hill mine.
- Tirisano: Completing the ramp up of right sized operation and mining an area of the property that is better understood.
- Klipdam: Focus on meeting production targets and optimizing earthmoving availabilities.
Management remains confident that, with ongoing operational improvements and strategic projects to enhance the recovery of diamonds, reductions in unit costs as production increases, and the long-term positive fundamentals for diamond prices and demand, the Company’s financial performance should start to show sustainable improvements. Decisive action was taken to right size the mining operations at the Tirisano Mine in order to halt the cash losses there in light of the current weakening in the smaller diamond segments. Thus the mine’s drain on the Company’s resources was reduced and a platform for possible positive returns was provided.
Commenting on the second quarter performance of Rockwell, James Campbell, CEO and president of Rockwell Diamonds said:
“Our implementation of the corporate turnaround continues to take shape as evidenced by the consistent downward trend of our cash operating cost over the last six months, from a high point of $12.0/m3 at the end of fiscal 2012 to $8.7/ m3 for the three months to August 31, 2012. Over the same timeframe, we delivered increased revenue from diamond sales, from $6.0 million at the end of fiscal 2012 to $6.9 million against the backdrop of weaker diamond demand as a result of our high quality production profile. Saxendrift, through its focus on mining efficiencies and by paying close scrutiny to in-pit screening, is achieving good margins. At Klipdam, moving the mining to the paleaochannel has benefited the economics of the mine. We took decisive action to right size Tirisano in order to halt the cash losses in light of the current weakening in the smaller diamond segments, and reduce its drain on our resources. The introduction of four royalty miners has also derisked our operating structure, as we will participate in a royalty on the sale of diamonds without incurring any operational costs.”
Looking forward, Campbell added that: “We have three key strategic priorities for the remainder of the fiscal year, firstly to bed down the new processing plant at Tirisano and fine tune the mining operations to deliver the benefits of the lower overhead structure. Secondly, we will maintain our focus on the Middle Orange region, which is the growth engine of Rockwell. We are making progress with the pre-feasibility at Wouterspan, based on the new technologies that we have implemented at Saxendrift. Construction of the new processing plant as Saxendrift Hill is on schedule and will provide additional monthly production capacity of 100,000m3 for a low capital investment of about $2 million, to produce the high quality gem stones for which the region is recognized. Our final strategic focus area is the ongoing evaluation of consolidation opportunities to leverage our production profile.”
Rockwell will host a telephone conference call on Friday, October 12, 2012 at 10:00 a.m. Eastern Time (4:00 p.m. Johannesburg) to discuss these results. The conference call may be accessed as follows:
|Canada (Toll-Free)||1 866 605 3852|
|USA (Toll)||412 858 4600|
|USA (Toll-Free)||1 800 860 2442|
|South Africa (Toll-Free)||0 800 200 648|
|South Africa – Durban||031 812 7600|
|South Africa – Johannesburg||011 535 3600|
|South Africa – Johannesburg Alternate||010 201 6616|
|UK (Toll-Free)||0808 162 4061|
|UK Alternative (Toll-Free)||0 800 917 7042|
|Australia (Toll-Free)||1 800 350 100|
|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) October 17, 2012 and can be accessed by dialling the relevant number in the table below and using the pass code 22373#.
|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 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 2012.
For further information on Rockwell and its operations in South Africa, please contact
|James Campbell||CEO and President||+27 (0)83 457 3724|
|Stéphanie Leclercq||Investor Relations||+27 (0)83 307 7587|
About Rockwell Diamonds:
Rockwell is engaged in the business of developing and operating alluvial diamond mines, with the aim of becoming a mid-tier diamond mining company. The Company has three existing operations, namely Saxendrift, Klipdam and Tirisano. It is currently constructing a fourth mine, Saxendrift Hill, which is an expansion of the Saxendrift mine and will go into production by March 2013. The recent acquisition of the Jasper Project has provided further potential to leverage returns from the Middle Orange River properties.
The Company has two future development projects at Wouterspan and Niewejaarskraal and a pipeline of other projects with further 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 may have the potential to expand its mineral resources and provide new opportunities to develop the additional production that would provide accretive value to the Group.
The Group is establishing a track record of producing large gem quality diamonds, which comprise a significant proportion of its production profile. The diamonds recovered from Rockwell’s mines are frequently acquired for investment purposes. The Group has a beneficiation agreement in place which enables it to sell rough diamonds, receive 90% of the fair value sales price at sale and receive the remaining 10% through, and participate in, the retail profit on the sale of its +2.8 carat sized stones after polishing and finishing.
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 of 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 as 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.