January 9, 2014, Johannesburg, South Africa — Rockwell Diamonds Inc. (“Rockwell” or the “Company”) (TSX:RDI; JSE:RDI) announces results for the three months ended November 30, 2013.
Third quarter fiscal 2014 results
Currency values are presented in Canadian dollars, unless otherwise indicated.
Features of third quarter:
- Sixth consecutive quarter of US$ denominated revenue growth.
- Revenue increased 35% year-on-year to $11.9 million, comprising $11.2 million from diamond sales (up 57%) and beneficiation income of $0.6 million (down 61%).
- Overall volume of gravel processed and carat production from Company-owned properties (including royalty mining contracts) up 33% and 54% year-on-year, respectively.
- Operating profit of $2.8 million.
- Investment in new capacity at Niewejaarskraal and increased receivable from timing of sales receipts, making temporary use of overdraft facilities in the amount of $2.2 million.
- Debt underpinned by inventory of 5,590 carats carried forward (includes 2,395 carats on royalty mining contracts) held back to feed the supply chain after the peak Thanksgiving and Christmas trading seasons.
- The ‘beneficiation pipeline’ of more than 6,355 carats provides additional revenue potential.
- Returns from royalty mining contracts deliver net royalties of $357,500 from five Tirisano contracts and Zwemkuil contract (ceased in third quarter).
- Net loss for the quarter narrowed to $0.4 million compared to a loss of $4.7 million in the prior year.
Commenting on the third quarter performance of Rockwell, James Campbell, CEO and President said:
“Our third quarter results show the financial merits of our strategy to focus on the Middle Orange River (“MOR”). We reported a sixth consecutive quarter of US$ denominated revenue growth, producing a second successive quarterly gross profit (after amortization and depreciation) of $1.3 million. Normal operations produced cash flow of $2.0 million (prior to working capital movements) and our net loss for the quarter narrowed to $0.4 million.”
“We also remained on track to deliver on a number of strategic milestones towards our initial objective of processing 500,000m3 per month of quality gravels. Volumes processed from our three MOR mines increased 65% from a year ago, with our carat recoveries more than doubling as the average grade increased 27%, all of which are a direct impact of the MOR focus. Saxendrift continues to perform well and is benefiting from our acquisition of the Saxendrift Extension property, with its longer mine life and higher grades. Its processing plant recovered 3,164 carats, which is up 29% from a year ago. At Saxendrift Hill Complex (“SHC”), our new internally funded mine in the MOR, the Bulk X-ray plant is now in full production at a rate of 80,000m3 per month (at a +5mm bottom cut off). It recovered 1,579 carats, with sales of 1,106 consistently high-valued carats at an average value of US$3,354 per carat for total proceeds of US$3.7 million. The first phase newly commissioned Niewejaarskraal plant was handed over to operations on September 1, 2013 and production ramp up continues. The second phase of the 100,000m3 per month plant is on track for completion by the end of fiscal 2014, comprising an in field screen and Bulk X-ray system. Achieved grade at the start-up was lower due to mining being restricted to an adjacent property while renegotiating the surface rental agreement covering the principle reserves. Nevertheless four diamonds exceeding 10 carats were recovered and mining has now moved on to the main section of the property.”
“Looking forward our focus remains on our mid term objective of processing 500,000m3 per month of quality gravels, with tight operation and cost controls, in order to achieve consistent production and quarterly earnings. At Saxendrift, we are busy with a detailed earthmoving vehicle (“EMV”) fleet optimization exercise to improve earthmoving availabilities while also evaluating ways to increase the plant’s capacity. In order to extend the life of our MOR properties, we are conducting contiguous exploration at Saxendrift and SHC which is aimed at both extending and enhancing the quality of the resource. With the delivery of the second phase plant expansion at Niewejaarskraal, the Company’s total monthly processing capacity will increase to 340,000m3 with a further 200,000m3 per month indirectly through royalty contract mining production.”
Review of third quarter delivery on strategy
Rockwell’s third quarter results reflects the benefits of its focus on growing its production footprint in the Middle Orange River (“MOR”) region of South Africa 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 with the objective of delivering more consistent quarterly earnings at a predictable mining cost.
During the third quarter, Rockwell continued to make progress towards delivering on a number of strategic milestones:
- Volumes processed from Rockwell’s three MOR mines (Saxendrift, Saxendrift Hill Complex and Niewejaarskraal) were up 65% year-on-year, underpinning a 111% increase in carat production in the region as the average grade improved 27% from a year ago.
- The Saxendrift processing plant recovered 3,164 carats, up 29% from a year ago, benefiting from the acquisition of the Saxendrift Extension property in 2012, with its longer life of mine and higher grades.
- SHC, the new internally funded mine in the MOR, is now in full production at a rate of 80,000m3 per month (at a +5mm bottom cut off) and delivered a strong third quarter performance with 1,579 carats recovered through its Bulk X-ray plant. A total of 1,106 carats were sold at an average value of US$3,354 per carat, generating revenue of US$3.7 million.
- Average carat value from own operations improved 24% to US$2,198 per carat with all carats sold (excluding royalty mining contractors) originating from the MOR.
- Five rough diamonds exceeding 115 carats have been recovered in the MOR since the end of August, the largest of which was 287 carats.
- The first phase newly commissioned Niewejaarskraal processing plant was handed over to operations on September 1, 2013 and production ramp up continued. The second phase of the 100,000m3 per month plant is on track for completion by the end of fiscal 2014 and comprises the installation of an in field screen and Bulk X-ray system.
- The royalty mining contractors operated consistently: Value of sales amounts to US$2.9 million, with US$357,500 in royalties accruing to the Company.
- The Company reported a gross profit (after amortization and depreciation) for the second successive quarter, amounting to $1.3 million compared to a loss of $1.0 million a year ago.
Third Quarter Performance Summary
The Company’s overall production and sales results for the quarter are:
|Production||Sales and inventories|
|Value of Sales
(US$ / carat)
|Total: Company properties||1,034,966||9,148||11,718,140||10,698,939||6,066||1,764||5,590|
Third quarter processed gravel volumes from Company properties increased 33% to 1,034,966m3 comprising 763,332m3 from Rockwell’s own operations, all of which are in the MOR and the remainder processed by the royalty mining contractors. Rockwell recorded a 15% increase in grade across Company properties to 0.88 carats / 100 m3 and accordingly total carat production rose 54%, including 5,153 carats from own operations in the MOR (up 8% from the previous year) and 3,995 carats from contractors.
Notable metrics of third quarter production compared to the comparable prior year period are as follows:
|Volume (m3)||Change||Carats||Change||Notable observations|
|Saxendrift||400,610||-13%||3,164||+29%||Impact of mining the Saxendrift Extension (longer hauling distance), lower earthmoving availabilities and maintaining slightly lower processing rate to optimize plant efficiencies|
|Saxendrift Hill Complex||223,827||-||1,579||-||Processing plant reached full capacity (monthly processing rate of 80,000m3 at a +5mm bottom cut off) including SHC gravels and tailings from a previous operator.|
|Niewejaarskraal||138,895||-||410||-||Total volumes processed in line with the current plan for ramp up of the second phase of the mine. Area mined necessitated blasting and drilling, impacting grades.|
|Contractors||271,634||818%||3,995||+647%||Five contractors operating on the Tirisano property|
The Company’s reported revenue from diamond sales (including beneficiation) increased 35% year-on-year to $11.9 million, representing the sixth consecutive quarter of US$-denominated revenue growth that was led by Rockwell’s focus on growing production in the MOR. As a result, several large, high valued diamonds were recovered. Reported revenue includes the Company’s 12.5% royalty from the sale of royalty mining contractors’ rough diamond production. The average carat value (own operations) increased by 85%, with the sale of several large, high-quality diamonds recovered during the quarter.
Notable metrics of third quarter sales versus the comparable prior year period are as follows:
per carat (US$)
|Saxendrift||2,210||+34%||4.0||+36%||1,797||+2%||Increased revenue off the back of higher carat sales and stable average carat value|
|Saxendrift Hill Complex||1,106||-||3.7||-||3,354||-||Revenue growth driven by increasing production and high average carat value|
|Niewejaarskraal||250||-||0.2||-||632||-||Carat sales and values reflect current stage of production ramp up|
|Contractors*||2,500||+513%||2.9||+712%||1,144||+33%||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 third quarter, the average total cash cost (including rehabilitation and depreciation) for all the operations, increased to US$18.82/m3 from a total cash cost of US$15.58/m3 in the comparative period of fiscal 2013. The increase is largely due to the expected higher unit costs incurred at Niewejaarskraal during production ramp up. On a pro forma basis for continuing operations (excluding Niewejaarskraal ramp up), the average total cash cost (including rehabilitation and royalty costs) amounted to US$8.50 per cubic meter.
Average cash operating costs and revenues for Rockwell’s own operations during the period are:
The Company’s 12.5% share of royalty mining contractors’ revenues amounted to US$357,500, paid by the five contractors at Tirisano, covering that property’s security, care and maintenance costs in the third quarter.
Normal operations produced cash flow of $2.0 million (prior to working capital movements) and after working capital movements of $3.7 million and investments in property plant and equipment (mainly Niewejaarskraal plant), the Company reported a net cash out flow of $2.5 million for the quarter. At quarter end, the Company had made temporary use of its overdraft facilities in the amount of $2.2 million, which was repaid from sales receipts in December 2013.
Rockwell continues to make progress towards its strategy to increase production from and extend the mine life of its MOR properties:
- Contiguous exploration is planned to increase the resource at the Saxendrift Extension, which was integrated into Saxendrift’s mine plan to extend that mine’s life and allowing prolonged use of its existing processing infrastructure;
- A focused contiguous exploration programme is planned at SHC to enhance the quality of the resource close to the plant;
- The construction of the initial phase of the Niewejaarskraal processing plant was completed at the end of the second quarter of fiscal 2014 and production ramp up is on track to be operating at nameplate production by fiscal year end, February 2014;
- The Company continues to review the options to bring the Wouterspan property to production following the completion of a preliminary economic assessment in the first quarter of fiscal 2014 that reflected viable project economics.
Rockwell is also working towards its secondary strategy to leverage the value of certain properties that it does not wish to mine due to size or other reasons. Five royalty contract miners operated at Tirisano during the third quarter with the projected monthly mining volumes at Tirisano being 150,000m3. The royalty mining contractor agreement at Zwemkuil expired during the quarter as the operator opted to pursue another opportunity elsewhere, however a new agreement was signed at Kwartelspan, which is also to commence in the fourth quarter.
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 was stable throughout the third quarter and although the diamond industry’s liquidity issues persisted, the peak festive trading season provided some support of diamond prices although trading levels were disappointing. However, Thanksgiving sales were down some 13%, largely due to higher than normal discounting by retailers. The average spend by consumers has also declined during Black Friday sales. December is traditionally a period of slow rough diamond sales but is followed by increased demand in January and February, supporting higher rough diamond prices. Polished sales should reduce polished inventory levels, fuelling the fourth quarter demand for rough. A stable diamond market is anticipated and single digit price increases are expected on secondary market rough diamonds in the first half of calendar 2014.
Rockwell carried over an inventory of 5,590 carats (including 2,395 contractor owned carats) into the fourth quarter of fiscal 2014 in order to participate in increased rough diamond demand in January and February following the peak Thanksgiving to Christmas retail trading season. This, together with a beneficiation pipeline comprising some 6,355 carats, provides further potential for valued-added downstream revenues. Rockwell continues to beneficiate the vast majority of its diamonds in South Africa. With a number of notable stones recovered during the third quarter, the beneficiation revenue trend is expected to revert to past results.
In the fourth quarter, Rockwell is focused on managing its operating costs and settling down the new operations at Niewejaarskraal. At Saxendrift, which is operating consistently, the Company’s focus in the fourth quarter will be on implementing the findings of a detailed earthmoving vehicle (‘EMV’) fleet optimization exercise to improve equipment availabilities. A proposal to increase the plant capacity is also under consideration. At Niewejaarskraal the focus is on completing the second phase of the 100,000m3 per month plant, on track for completion by the end of February 2014. This comprises the installation of an in-field screen and Bulk X-ray system. Accordingly, total monthly processing capacity will increase to 340,000m3 comprising Saxendrift (160,000m3 per month), Saxendrift Hill Complex (80,000m3 per month) and Niewejaarskraal (100,000m3 per month), and a further 200,000 m3 per month indirectly through royalty contract mining production.
Post quarter end events
On December 9, 2013, the Company announced that it had concluded an agreement with a long established black investment company (“new BEE partner”), to acquire a 30% equity stake in the Company’s Middle Orange operations1 , replacing AVR as its BEE partner in the region, as required by South African law, under the BEE legislative provisions, subject to some conditions precedent. The total acquisition consideration of ZAR72.6 million (US$7.3 million) will be paid in two tranches with an initial payment of R17.3 million ($1.7 million) to be settled once the various regulatory approvals have been achieved. The balance of the purchase price is to be settled on or before February 28, 2018 at a fixed interest rate of 9.0% per annum. In December 2013, the Section 102 approvals were obtained from the Department of Mineral Resources, enabling the Company to complete the unwinding of the BEE partnership with AVR and triggering the final payment to AVR which was settled by the issue of 3,466,667 Rockwell Diamonds ordinary shares on December 27, 2013.
In the third quarter of fiscal 2014, the Company signed an agreement to dispose of its prospecting rights in Mooidraai and Holsloot for a total consideration of ZAR 25 million (C$ 2.6 million) that were held by Saxendrift Mine Proprietary Limited. The agreement is subject to certain conditions precedent, including the successful completion of a due diligence and Ministerial Consent. As at 30 November 2013, none of the conditions precedent had been fulfilled, and therefore no account of this transaction has been included in these financial statements.
1Northern Cape operations comprise the Saxendrift, Saxendrift Hill Complex, Saxendrift Extension and Niewejaarskraal mines as well as the Wouterspan project, among others.
Rockwell will host a telephone conference call on Friday, January 10, 2014 at 09:00 a.m. Eastern Time (4:00 p.m. Johannesburg) to discuss these results. The conference call may be accessed as follows:
|Canada (Toll-Free)||1 855 669 9657|
|USA (Toll)||1 412 317 6060|
|USA (Toll-Free)||1 866 652 5200|
|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 6800|
|UK (Toll-Free)||0808 162 4061|
|UK Alternative (Toll-Free)||0 800 917 7042|
|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 15, 2014 and can be accessed by dialling the relevant number in the table below and using the pass code 27956#.
|South Africa (Telkom)||011 305 2030|
|USA and Canada (Toll)||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 2013.
Mr Glenn A Norton (Pr. Sci. Nat.), Group Technical Manager for Rockwell and a qualified person has reviewed and approved the technical information in this release.
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. At November 30, 2013, the Group had three existing mines in operation, namely Saxendrift, Saxendrift Hill Complex and Niewejaarskraal, which had been on care and maintenance since 2007 and was commissioned in July 2013 before going into production ramp up in the third quarter fiscal 2014. 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.
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.
For further information on Rockwell, Investors should review the Company’s home jurisdiction filings that are available at www.sedar.com.