Wrap Text
Rockwell’s third quarter results boast revenue growth and improved operating profitability
Rockwell Diamonds Inc.
(A company incorporated in accordance with the laws of British Columbia, Canada)
(Incorporation number BCO354545)
(Formerly Rockwell Ventures Inc.)
(South African registration number: 2007/031582/10)
Share code on the JSE Limited: RDI
ISIN: CA77434W2022
Share code on the TSXV: RDI
CUSIP Number: 77434W103
("Rockwell")
Rockwell’s third quarter results boast revenue growth and improved operating
profitability for the sixth successive quarter.
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
$1.0 million a year ago.
Third Quarter Performance Summary
The Company’s overall production and sales results for the quarter are:
Production Sales and inventories
Productio Value of Sales Average Inventor
Volume
Carats n costs Sales (carat value (US$ y
(m3)
($) (US$) s) / carat) (carats)
Own 11,718,14
5,153 3,566 2,198 3,195
operations 763,332 0 7,838,752
Contractors’
3,995 - 2,500 1,144 2,395
mining 271,634 2,860,187
Total:
1,034,9 11,718,14 10,698,93
Company 9,148 6,066 1,764 5,590
66 0 9
properties
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 Change Carats Change Notable observations
(m3)
Saxendrift Impact of mining the Saxendrift
400,610 -13% 3,164 +29%
Extension (longer hauling
distance), lower earthmoving
availabilities and maintaining
slightly lower processing rate to
optimize plant efficiencies
Saxendrift Hill Processing plant reached full
Complex capacity (monthly processing rate
223,827 - 1,579 - of 80,000m3 at a +5mm bottom cut
off) including SHC gravels and
tailings from a previous operator.
Niewejaarskraal Total volumes processed in line
with the current plan for ramp up
138,895 - 410 - of the second phase of the mine.
Area mined necessitated blasting
and drilling, impacting grades.
Contractors Five contractors operating on the
271,634 818% 3,995 +647%
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:
Carat Change Revenue Change Price Change Notable observations
s (US$ per
million carat
s) (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 1,106 - 3.7 - 3,354 - Revenue growth
Hill driven by increasing
Complex production and high
average carat value
Niewejaars 250 - 0.2 - 632 - Carat sales and
kraal values reflect
current stage of
production ramp up
Contractor 2,500 +513% 2.9 +712% 1,144 +33% Consistent
s* 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$8.50 per cubic meter.
Average cash operating costs and revenues for Rockwell’s own operations during the
period are:
Revenue/ Mining cash Comments
m3 (US$) cost/m3
(US$)
Saxendrift US$9.9 US$9.3 Increased unit revenue in line with third
quarter product mix sold. Unit cost impacted
by longer hauling distance as a result of
mining Saxendrift Extension, higher EMV
maintenance costs and lower volumes processed.
Saxendrift US$16.6 US$7.5 Continued high quality diamond recoveries
Hill Complex supporting unit revenues. Unit cost declined
in line with increase in volumes processed.
Niewejaarskr US$1.1 US$20.8 Unit revenues impacted by lower carat values
aal during commissioning phase. First quarter of
expensed costs impacted by lower volumes
during final ramp up and completion of second
commissioning phase.
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.
Growth projects
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.
Market Update
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.
Outlook
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 operations 1 , 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 ($1.7 million) to be settled once the various
regulatory approvals have been achieved. The balance of the purchase price is to be
settled on or before February 28, 2018 at a fixed interest rate of 9.0% per annum.
1
Northern Cape operations comprise the Saxendrift, Saxendrift Hill Complex, Saxendrift
Extension and Niewejaarskraal mines as well as the Wouterspan project, among others.
In December 2013, the Section 102 approvals were obtained from the Department of
Mineral Resources, enabling the Company to complete the unwinding of the BEE
partnership with AVR and triggering the final payment to AVR which was settled by
the issue of 3,466,667 Rockwell Diamonds ordinary shares on December 2013.
In the third quarter of fiscal 2014, the Company signed an agreement to dispose of
its prospecting rights in Mooidraai and Holsloot for a total consideration of ZAR
25 million (C$ 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.
Conference Call:
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:
Country Access Number
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#.
Country Access Number
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
Sponsor
PSG Capital
9 January 2014
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.
Date: 10/01/2014 07:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
