July 10, 2014, Johannesburg, South Africa – Rockwell Diamonds Inc. (“Rockwell” or the “Company”) (TSX:RDI; JSE:RDI) announces results for the three months ended May 31, 2014.
Currency values are presented in Canadian dollars, unless otherwise indicated.
Features of first quarter fiscal 2014:
- Net profit of $345,000 reported in first quarter compared to a loss of $1.2 million in the prior year.
- First quarter revenue increased 67% year-on-year to $15.1 million, comprising $9.7 million from diamond sales and beneficiation income of $5.4 million (including the sale of a 109 carat polished vivid yellow diamond).
- Eighth successive quarter of dollar denominated revenue growth reported.
- Overall volume of gravel processed and carat production from all Company-owned properties up 26% and 90% year-on-year, respectively.
- Operating profit before amortization and depreciation of $4.2 million, up from $1.1 million in the prior year.
- Net cash flow from operating activities of $1.1 million, compared to cash utilized of $3.0 million in prior year.
- Inventory of 5,237 carats carried forward (includes 2,271 carats on royalty mining contracts).
- Additional revenue potential underscored by ‘beneficiation pipeline’ of more than 6,300 carats.
- Royalty mining contracts at Tirisano deliver net royalties of US$312,576.
Commenting on the first quarter performance of Rockwell, James Campbell, CEO and President said:
“We are pleased to report that Rockwell showed a bottom line net profit of $345,000 in the first quarter. This is a first, as well as a significant achievement after three years of rebuilding Rockwell. These results also represent the eighth successive quarter of US dollar denominated revenue growth, highlighting the consistent delivery against our plan, which saw our exit from lossmaking operations and the resolution of a number of corporate legacy issues.
“Our first quarter performance is the result of higher quality production, led by our Middle Orange River (“MOR”) focus, including the two new mines built at Saxendrift Hill Complex (“SHC”) and Niewejaarskraal in the last year. We showed an 89% increase in carat production while volumes processed were up 19% from a year ago and the grade improved 59%. The average stone size produced by Rockwell from total properties increased 18% in the first quarter, to 4.6 carats from 3.8 carats in the prior year. We recovered four rough diamonds in the plus 50-carat category, the largest of which was a 103.8-carat high intense fancy yellow stone. In addition, Rockwell produced 81 rough diamonds in the +10 carat category, compared to 44 stones in the prior year. In June 2014, we processed record volumes of gravel across Company properties as our three MOR mines all processed higher volumes due to higher equipment availability. We delivered these results while overcoming the challenge of the aging earthmoving fleet at Saxendrift and the breakdown of the de-sanding screen at SHC. Niewejaarskraal offset these impacts, even though it was still in production ramp up at the beginning of the quarter, demonstrating the diversification benefits of our multiple mining faces and processing plants.
“Having invested significant time and effort to analyse our mining and earthmoving fleet requirements at Saxendrift and SHC, the board recently approved an improvement and replacement plan, the implementation of which started this quarter. The lease plan does not require any upfront capital investment and comprises full maintenance leases for the new fleet. Our dozers and excavators are undergoing mid-life overhauls, funded from working capital. Once completed, the new fleet will position Saxendrift and SHC to process higher volumes with a reduction of between 12% and 17% of unit costs when operating at full capacity. Equipment which is no longer required is being auctioned off.
“We continued to deliver towards our organic growth strategy and are on track to meet our medium-term objective of processing 500,000m3 of quality gravels per month. Meanwhile, we have noted renewed investor interest in the diamond sector as we continue to review value accretive consolidation opportunities to supplement organic growth prospects.”
Review of first quarter delivery on strategy
The significant improvement in Rockwell’s first quarter operating and financial results reflect the benefits of its focused strategy to increase its MOR production footprint with a mid-term target to increase monthly production volumes of quality gravel processed to 500,000m3. Higher diamond values, better efficiencies and greater economies of scale can be achieved in this region to deliver more consistent quarterly earnings at a more predictable mining cost.
Rockwell maintained its focus on achieving its core medium-term objective of reaching monthly own processing volumes of 500,000m3 in the MOR region. Its three producing operations in the region have a total monthly processing capacity of 340,000m3 comprising Saxendrift (160,000m3 per month at a 5mm bottom cut-off), SHC (80,000m3 per month at a 5mm bottom cut-off) and Niewejaarskraal (100,000m3 per month at a 6mm bottom cut-off). Rockwell is on track to meet its target with the fleet renewal programme at Saxendrift immediately enabling a 20,000m3 per month increase in capacity, while at Niewejaarskraal an upgrade is under consideration to take its capacity to 120,000m3 per month. The phased implementation of a new plant at Wouterspan, also under review, would bring the Company’s processing capacity to its medium term target.
In addition, Rockwell processes some further 200,000 m3 per month indirectly through royalty contract mining production at Tirisano, bringing the total current production volumes to 560,000 m3 per month on Company-owned properties.
During the first quarter, Rockwell achieved further progress against a number of strategic milestones: Carat production at the Saxendrift processing plant increased 15% to 2,345 carats, despite a 20% decline in volumes of gravel processed. The earthmoving vehicle (“EMV”) renewal plan, the implementation of which commenced in the first quarter, should enable the mine to increase throughput and sustain higher carat production going forward.
SHC delivered a 178% increase in carats to 748 despite a mechanical failure of the de-sanding screen which was subsequently repaired. During this time, recovery tailings were processed through the Bulk X-ray plant which continued to perform on plan, enabling the mine maintain a cost per carat produced of US$2,133; which is comparable to the mine’s performance since its production reached a steady state.
Operations at the 100,000m3 per month Niewejaarskraal plant further improved, with production totalling 1,269 carats at a grade of 0.57 carats per 100 m3, within the long-term grade expectation for the mine. With a reported average value of US$2,408 per carat, the diamond quality achieved is on plan.
The EMV fleet renewal plan to renew the Company’s aging fleet is now underway. This comprises fully managed maintenance leases for the new fleet with no upfront capital investment, also incorporating a new fleet of commercial and staff busses. The dozer and excavator fleet is undergoing mid-life overhauls which are being funded from working capital. These initiatives are aimed at improving earthmoving availabilities to facilitate higher mining volumes at Saxendrift and to better utilize the invested processing capacity.
The royalty mining contractor strategy, implemented in the prior year, enabled the Company to generate positive returns from properties that it does not wish to mine. Value of sales amounts to US$2.5 million, with US$312,576 in royalties accruing to the Company.
Fiscal 2014 Performance Summary
The Company’s overall production and sales results, which are made in the market in US$ for the first quarter are:
|Production||Sales and inventories|
|Volume (m3)||Carats||Production costs (C$m)*||Value of Sales (US$m)||Sales (carats)||Average value (US$ / carat)||Inventory (carats)|
|Total: Company properties||1,129,645||9,162||10.87||8.76||6,677||2,785||5,237|
* Disclosed as Canadian dollars in line the first quarter financial statements posted on the website and on the Company’s profile at www.sedar.com. Equates to total first quarter production costs of US$9.89 million (at average exchange rate of US$1.0995 per C$ for first quarter.)
** Includes inventory credit of C$2,779,637.
For fiscal 2014, processed gravel volumes from Company properties increased 26% to 1.13 million m3 comprising 703,837m3 from Rockwell’s own operations, and the remainder processed by the royalty mining contractors. Rockwell achieved a grade across the Company’s properties of 0.62 carats/100m3, underpinning a 54% increase in total carat production, including 4,362 carats from own operations and 4,800 carats from contractors.
Diamond sales from own operations declined 9% to 2,967 carats, reflecting the transition of the production profile into the MOR. The five royalty mining contractors operating at Tirisano sold a total of 3,710 carats during the quarter, resulting in a 34% increase in carat sales from Company-owned properties. The value of sales from own properties was down 5% to US$6.3 million (excluding beneficiation) while the average carat value rose 5% to US$2,111. These results are underpinned by the diversification benefits of having three production mines in the MOR where Saxendrift performed consistently and Niewejaarskraal showed a strong improvement, dampening the impact of the mechanical failures at SHC. Sales from Company-owned properties improved 18% to US$8.8 million (excluding beneficiation).
Notable metrics of first quarter production compared to the comparable prior year period are as follows:
|Volume (m3)||Change (%)||Carats||Change (%)||Notable observations|
|Saxendrift||367,375||-20%||2,345||+15%||Longer haulage distances and lower EMV equipment availabilities offset by higher grades at Saxendrift Extension|
|SHC||113,849||-12%||748||+178%||Impact of six week mechanical failure on de-sanding screen|
|Niewejaarskraal||222,613||-||1,269||-||Increasing throughput volumes after production ramp up and improving grades due to new mine plan|
|Contractors*||425,808||+79%||4,800||+142%||Five contractors operating at Tirisano|
Notable metrics of first quarter sales versus the comparable prior year period are as follows:
|Carats||Change (%)||Revenue (US$ m)||Change (%)||Price / carat (US$)||Change (%)||Notable observations|
|Saxendrift||1,765||-18%||3.7||-32%||2,120||-17%||Reduced recovery associated with lower volumes processed|
|SHC||550||+323%||1.0||+99%||1,728||-53%||Revenue growth driven by increasing production|
|Niewejaarskraal||652||-||1.6||-||2,408||-||Average value per carat in line with expected values|
|Contractors*||3,710||+114%||2.5||132%||674||+8%||Consistent performance from five contractors operating at Tirisano|
* Contractors refers to carats from gravel processed by independent royalty contractors and sold through the Company’s tender process.
During the first quarter, the average total cash cost (including rehabilitation and royalties) for all the operations, was US$14.1/m3 compared to a total cash cost of US$12.6/m3 in the prior year. The increase is largely due to lower mining volumes processed at Saxendrift due to equipment availability. This is now under resolution with the EMV renewal plan now being implemented. The expected higher per unit costs incurred at Niewejaarskraal are all due to lower but improving volumes during the production ramp up period. On a pro forma basis for continuing operations (excluding Niewejaarskraal and SHC ramp ups), the total cash cost (including rehabilitation and royalty costs) amounted to US$10.9/m3. The average total cash cost should normalize as a result of implementing the EMV renewal plan at Saxendrift thus increasing volumes to cover fixed costs, and resuming normal volumes at SHC in June after repairing the de-sanding screen and as volumes at Niewejaarskraal reach nameplate capacity.
Average cash operating costs and revenues for Rockwell’s own operations in US$ during the period are:
|Revenue/m3 (US$)8||Mining cash cost/m3 (US$)||Comments|
|Saxendrift||US$10.2||US$10.1||Unit cost impacted by longer hauling distance as a result of mining Saxendrift Extension, higher EMV maintenance costs and lower volumes processed due to old equipment availability.|
|SHC||US$8.4||US$14.0||Unit cost impacted by lower mining volumes due to six-week breakdown of de-sanding screen. Mitigated effect on carats produced by processing recovery tailings through the Bulk X-ray facility with good results.|
|Niewejaarskraal||US$7.1||US$17.7||Unit revenues impacted by lower carat values during commissioning phase. First quarter of expensed costs impacted by lower volumes during final ramp up and completion of second commissioning phase.|
* Excluding beneficiation
Mining cash cost/m3 are heavily dependent on mining volumes which are dependent on equipment and plant availability.
Normal operations produced cash flow of $3.0 million (prior to working capital movements) and after working capital movements a net $1.1 million. Net outflow from investment activities amounted to $ 0.7 million. The Company reported net cash generated of $308,466 million for the quarter. At the end of the first quarter, the Company had made temporary use of its overdraft facilities in the amount of $1.5 million, due to the timing of cash flows from diamond sales which were received shortly after quarter end.
Rockwell continues to make progress towards its strategy to increase production from and extend the mine life of its MOR properties: Contiguous exploration of existing resources at the Saxendrift Extension property is under way to increase the current life of mine and to enable the Company to leverage the fixed assets of Saxendrift.
A focused exploration and trial mining programme continues at SHC to ensure the resource potential is maximised and to develop contiguous areas.
Through trial mining, the Niewejaarskraal inferred resource will be upgraded to the indicated level.
The Company continues to review the options to bring the Wouterspan property into production, following the completion of a preliminary economic assessment in May 2014 that reflected viable economics.
The Company continues to evaluate consolidation opportunities in the southern Africa diamond sector that are value accretive. A strict set of criteria are applied to evaluate the potential acquisitions in order to leverage the Company’s production expertise towards its goal to become a mid-tier diamond producer.
The diamond market between March 2014 and May 2014 was similar to the first quarter of the 2014 calendar year with steady rough and polished demand and continued concerns relating to liquidity in the industry. Polished diamond demand has been strong. Rapnet reported a 1% increase in prices of 1-carat diamonds since January 2014 while 0.30-carat polished diamonds increased 7% during the same period. Although the industry is in a steady state the main concern remains the low availability of finance to the industry and primary suppliers continue to finance the secondary market. Retail demand worldwide has grown, assisting liquidity in the industry. However, trading is expected to slow during the Northern hemisphere summer in line with historical patterns.
Rough prices are expected to remain at current levels in the short term, with the potential for price increases in the second half of 2014. Polished diamond prices did not increase in 2013, but are expected to increase this year as the gap high rough and lower polished prices is unsustainable. A correction in polished prices is expected in the second half of 2014.
Rockwell continues to supply rough diamonds to South African beneficiation companies as part of its drive to support the local industry with positive results. Rockwell’s joint venture partner, Diacore continues to sell high quality polished stones to high net worth retail clients. Demand for high value investment diamonds among high net worth individuals as well as institutional and private investors seeking alternate investment options remains strong and prices for these goods are expected to continue outperforming. Rockwell’s primary revenue, through consistent production of high volumes of quality gravels, is from investment type diamonds, which provides a shield against price volatility.
The current operational focus areas are as follows: At Saxendrift, the implementation of the EMV renewal plan is the top priority with completion scheduled by the end of calendar 2014. Subsequently, higher mining volumes should facilitate higher processing rates through the plant and lower maintenance costs, resulting in lower per mining cash cost/m3.
At SHC, the focus is on resuming normal mining volumes following the repair of the de-sanding screen which impacted its first quarter performance. Contiguous exploration work and trial mining is ongoing to increase this resource.
Achieving steady state volumes is the priority at Niewejaarskraal while also evaluating a proposal to upgrade the monthly processing capacity to 100,000m3 per month plant.
Across the operations, Rockwell continues to focus on managing its operating costs and volumes processed as well as concluding the closing of the investment by its new black economic empowerment partner, Africa Renaissance Holdings (“ARH”) and receipt of the initial subscription deposit.
Rockwell carried over an inventory of 5,237 carats (including 2,271 contractor-owned carats) into the second quarter. This, together with a beneficiation pipeline comprising more than 6,300 carats, provides further potential for valued-added downstream revenues. With the MOR focus, the outlook for the beneficiation revenue trend is positive. Rockwell continues to beneficiate the vast majority of its diamonds in South Africa.
Rockwell will host a telephone conference call on Friday, July 11, 2014 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 and Canada (Toll-Free)||1 855 481 5362|
|South Africa (Toll-Free)||0 800 200 648|
|South Africa – Johannesburg||011 535 3600|
|South Africa – Cape Town||021 819 0900|
|UK (Toll-Free)||0808 162 4061|
|Other Countries (Intl Toll)||+27 11 535 3600|
|Other countries – Alternate||+27 10 201 6800|
A transcript of the audio webcast will be available on the Company’s website. The conference call will be archived for later playback until midnight (ET) July 16, 2014 and can be accessed by dialling the relevant number in the table below and using the pass code 31604#.
|South Africa (Telkom)||011 305 2030|
|USA and Canada (Toll Free)||1 855 481 5363|
|Other Countries (Intl Toll)||+27 11 305 2030|
|UK (Toll-Free)||0 808 234 6771|
For further details, see 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 2014.
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
David Tosi PSG Capital +27 (0)21 887 9602
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. At February 28, 2014, the Group had three existing mines in operation, namely Saxendrift, Saxendrift Hill Complex and Niewejaarskraal. All three mines are located in the Middle Orange River region.
Rockwell’s operations at the Tirisano Mine are on care and maintenance. Royalty mining agreements are in place at Tirisano whereby independent contractors (or royalty miners) mine for own risk and reward, with the Company receiving a 12.5% royalty income based on the carats recovered and sold through the Company’s tender process.
A Preliminary Economic Assessment has been completed on the Wouterspan project, which would provide further expansion of the Company’s Middle Orange operations in future. The Group has a pipeline of other projects with further future development potential under consideration and evaluation at present.
In addition to its project work, Rockwell continues to evaluate strategic opportunities through merger and acquisition as they arise, in order to expand its mineral resources and provide new opportunities to develop the additional production.
Rockwell 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.
For further information on Rockwell, Investors should review the Company’s home jurisdiction filings that are available at www.sedar.com.