Wrap Text
Rockwell posts solid 2014 results
Rockwell Diamonds Inc.
(A company incorporated in accordance with the laws of British Columbia, Canada)
(Incorporation number BCO354545)
(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 POSTS SOLID 2014 RESULTS WITH SIGNIFICANT INCREASES IN REVENUE AND
OPERATING PROFITS ON THE BACK OF DELIVERING TWO NEW MINES AS PART OF ITS FOCUSED
MIDDLE ORANGE RIVER STRATEGY
May 22, 2014, Johannesburg, South Africa -- Rockwell Diamonds Inc. ("Rockwell" or the "Company")
(TSX:RDI; JSE:RDI) announces results for the year ended February 28, 2014.
Fiscal 2014 results
Currency values are presented in Canadian dollars, unless otherwise indicated.
Features of Fiscal 2014:
- Revenue increased 39% year-on-year to $45.2 million, comprising $41.1 million from diamond sales and
beneficiation income of $4.1 million.
- Seventh successive quarter of dollar denominated revenue growth reported in fourth quarter.
- Overall volume of gravel processed and carat production from all Company-owned properties up 28% and
27% year-on-year, respectively.
- Operating profit before amortization and depreciation of $6.0 million, up from $1.1 million in prior year.
- General and administration expenses declined 29% to $4.4 million.
- Cash and cash equivalents of $1.3 million after capital investments of $8.7 million in new processing capacity.
- Net cash flow from operating activities of $2.6 million, before investment in new plant.
- Inventory of 2,752 carats carried forward (includes 1,181 carats on royalty mining contracts).
- The current ‘beneficiation pipeline’ of more than 6,000 carats provides additional future revenue potential.
- Returns from royalty mining contracts deliver net royalties of $1.2 million from five Tirisano contracts and
Zwemkuil contract (ceased in third quarter).
- Net loss for the year narrowed to $10.4 million compared to a loss of $13.8 million in the prior year, after non
cash charges of $10.1 million for foreign exchange and depreciation.
Commenting on the fiscal 2014 performance of Rockwell, James Campbell, CEO and President said:
“Our fiscal 2014 results are beginning to reflect the operational turnaround of the Company and its core focus on
the Middle Orange River (“MOR”) Region of South Africa. Our revenue increased 39% year-on-year to $45.1
million, underpinned by a 52% increase in diamond sales. These improvements have been consistent each
quarter over the last two years, as we have now reported seven consecutive quarters of dollar denominated
revenue growth. Rockwell reported an operating margin before amortization and depreciation of $6.0 million,
compared to $1.1 million in the prior year. Economies of scale as a result of operating exclusively in the MOR also
emerged, as production costs for the year increased 25% to $39.2 million, against the 52% improvement in the
value of diamond sales. We believe that the implementation of our earthmoving vehicle upgrade programme
should unlock further benefits as we improve the fleet overall utilization to match our production capacity and
renew the equipment to lower our maintenance expenses while improving availabilities. Equally pleasing is the
positive cash flow from normal operations of $3.7 million (prior to working capital movements).”
“From an operational perspective, these results also show that our MOR focus has gained traction. During fiscal
2014, we delivered two new mines, namely Saxendrift Hill Complex (“SHC”) and Niewejaarskraal, both funded
internally from cash reserves and this more than doubled our MOR production capacity to 340,000m3 per month.
Having met our short-term target to have three producing mines in the MOR, our production profile is now more
flexible and sustainable. We are pleased too, that diamond quality and the frequency of larger stones has
improved as anticipated. This included the recovery of 12 stones between 50 carats and 100 carats and five plus
100 carat rough diamonds in fiscal 2014, the largest of which was a 287 carat stone, the biggest stone recovered
in recorded history in the region. The second phase of the Niewejaarskraal mine was commissioned on schedule
at the end of fiscal 2014 and its diamond production performance is improving. At Saxendrift, the plant continues
to operate consistently. Once we implement the Earthmoving Vehicle (“EMV”) renewal plan, the plant utilization
should improve further.”
“Looking forward, we remain firmly focussed on our medium term target to process 500,000m3 per month of
quality gravels. We are conducting contiguous exploration of existing resources at the Saxendrift Extension
property to increase the current life of mine, further leveraging our invested mining infrastructure at Saxendrift. We
also have a focused exploration and trial mining programme at SHC to maximize the resource potential and
develop contiguous areas. Mining at Niewejaarskraal, where the processing rate approached the monthly
nameplate capacity of 100,000m3 at fiscal year-end, is aimed at upgrading the inferred resource to the indicated
level. At the same time, we continue to review our options to bring the Wouterspan property to fruition, with a
preference for an internally funded and phased approach.”
Review of fiscal 2014 delivery on strategy
Rockwell’s fiscal 2014 results reflect the benefits of the strategy to grow 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.
During fiscal 2014, Rockwell achieved further progress against a number of strategic milestones:
- The short-term goal of delivering three producing operations in the region was met with the commissioning of
SHC and Niewejaarskraal, bringing the total monthly processing capacity to 340,000m3(1).
- Resources mined from the Saxendrift, Saxendrift Extension, SHC and Niewejaarskraal mining rights all have
multiple mining faces, providing production diversification and mining flexibility.
- Five rough diamonds exceeding 115 carats were recovered in the MOR in fiscal 2014, the largest of which
was 287 carats.
- The three mines in the MOR were all in full production by the fourth quarter. The average stone size in the
quarter increased 139% to 4.6 carats, up from 2.0 carats in the prior year when Rockwell had only one MOR
operation in production. The anticipated rate of recovery of large diamonds also materialized, with four rough
diamonds in the plus 50-carat category being produced in the fourth quarter, compared to two in comparable
period of the previous year.
- Volumes processed from Rockwell’s three MOR mines were up 46% year-on-year, yielding a 12% increase in
average grade and carat production up 63% in the region from a year ago.
- Carat production at the Saxendrift processing plant increased 12% to 9,338 carats, despite a 10% decline in
volumes of gravel processed. Its mine life has been extended, at higher overall grades after integrating the
newly acquired Saxendrift Extension property into the Saxendrift mine plan.
- The production ramp up at SHC, the new internally funded Bulk X-ray processing plant, was completed and
3,363 carats were recovered, of which 2,945 carats were sold at an average value of US$2,781 per carat.
- The Bulk X-ray technology at Saxendrift Hill Complex delivered a grade improvement of more than 40%
compared to the traditional Saxendrift pan plant, shown by processing Saxendrift Extension gravels in parallel
though both plants.
- The lossmaking Klipdam mine was sold in April 2013 and the proceeds were reinvested in a new processing
plant to bring Niewejaarskraal back into production.
- A 100,000m3 per month plant was completed at Niewejaarskraal, comprising a DMS (dense media
separation), an in field screen and Bulk X-ray system and the throughput reached nameplate capacity by
fiscal year-end.
- A fleet renewal programme to renew the Company’s aging fleet is now approved and underway. This will
improve earthmoving availabilities and thereby facilitate higher mining volumes at Saxendrift 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 itself. Value of sales amounts to US$9.4 million,
with US$1.2 million in royalties accruing to the Company.
- The Company reported a gross profit (after amortization and depreciation) of $6.0 milllion compared to a $1.1
million a year ago.
(1) This comprises of Saxendrift (160,000m3 / month at a 5mm bottom cut-off size (“BCOS”)), SHC (80,000m3 / month at a 5mm
BCOS) and Niewejaarskraal (100,000m3 / month at a 6mm BCOS).
Fiscal 2014 Performance Summary
The Company’s overall production and sales results, which are made in the market in US$ for the year are:
Production Sales and inventories
Average
Volume Production Value of Sales Inventory
Carats value (US$ /
(m3 ) costs ($) Sales (US$) (carats) (carats)
carat)
Own operations 2,662,901 14,222 39,200,432* 29,530,594 13,782 2,143 1,571
Contractors’
1,098,161 13,554 - 9,449,127 12,490 756 1,181
mining
Total: Company
3,761,062 27,776 39,200,432 38,979,721 26,272 1,484 2,752
properties
* Includes ramp up costs at Saxendrift Hill Complex and Niewejaarskraal as well as modifications and other improvements to
these two new mines.
For fiscal 2014, processed gravel volumes from Company properties increased 28% to 3,761,062m3 comprising
2,662,901m3 from Rockwell’s own operations, and the remainder processed by the royalty mining contractors.
Rockwell achieved a 6% grade improvement across the Company’s properties to 0.74 carats/100m3 , resulting in a
27% increase in total carat production, including 14,222 carats from own operations and 13,554 carats from
contractors.
Diamond sales from own operations declined 23% to 13,782 carats, reflecting the transition of the production
profile into the MOR that included the sale of Klipdam and termination of mining at the Tirisano property. The five
royalty mining contractors who subsequently started operating at Tirisano sold a total of 12,490 carats during the
year, resulting in a 27% increase in carat sales from Company-owned properties. The value of sales from own
properties was up 34% to US$29.5 million while the average carat value rose 73% to US$2,143, demonstrating
immediate benefits of the strategy to focus on the MOR as several large, high value stones were sold into the
beneficiation joint venture with Diacore. The value of sales from Company-owned properties improved 43% to
US$39.0 million.
Notable metrics of fiscal 2014 production compared to the comparable prior year period are as follows:
Volume Change Change
Carats Notable observations
(m3 ) (%) (%)
Impact of mining at Saxendrift Extension (longer
hauling distance), lower earthmoving equipment
Saxendrift 1,597,989 -10 9,338 +12
availabilities and maintaining slightly lower
processing rate to optimize plant efficiencies
Saxendrift Hill Processing plant reached full capacity (monthly
697,102 - 3,363 -
Complex processing rate of 80,000m3 at a +5mm BCOS).
Commissioning commenced in July 2013,
Niewejaarskraal 301,508 - 986 - reaching full capacity by fiscal year end. Area
mined necessitated blasting and drilling,
impacting grades.
Contractors* 1,098,161 - 13,554 - Five contractors operating on at Tirisano
Notable metrics of fiscal 2014 sales versus the comparable prior year period are as follows:
Revenue Price per
Change Change Change
Carats (US$ carat Notable observations
(%) (%) (%)
millions) (US$)
Increased revenue off the
Saxendrift 9,059 +16 19.9 +32 2,194 +14 back of higher carat sales
and increased carat value
Revenue growth driven by
Saxendrift
2,945 - 8.2 - 2,781 - increasing production and
Hill Complex
high average carat value
Carat sales and values
Niewejaarskr
747 - 0.8 - 1,107 - reflect process of
aal
production ramp up
Consistent performance
Contractors* 12,490 - 9.4 - 756 -2 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. Final carat sales from Klipdam in fiscal 2014 not shown.
During fiscal 2014, the average total cash cost (including rehabilitation and royalties) for all the operations, was
US$11.1/m3 compared to a total cash cost of US$10.2/m3 in the prior year. The increase is largely due to the
expected higher unit costs incurred at SHC and Niewejaarskraal during production ramp up period at these new
mines. 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$10.9 / m3.
Average cash operating costs and revenues for Rockwell’s own operations in US$ during the period are:
Revenue/ Mining cash Comments
3 3
m (US$) cost/m (US$)
Unit cost impacted by longer hauling distance as a result of
Saxendrift US$12.4 US$10.9 mining Saxendrift Extension, higher EMV maintenance costs
and lower volumes processed.
Continued high quality diamond recoveries supporting unit
Saxendrift Hill
US$11.7 US$10.0 revenues. Unit cost declined in line with increase in volumes
Complex
processed.
Unit revenues impacted by lower carat values during
commissioning phase. First quarter of expensed costs
Niewejaarskraal US$2.7 US$23.6
impacted by lower volumes during final ramp up and
completion of second commissioning phase.
Normal operations produced cash flow of $3.7 million (prior to working capital movements) and after working
capital movements of $1.1 million and investments amounting to $8.7 million in property plant and equipment
(mainly Niewejaarskraal plant), the Company reported a net cash out flow of $4.5 million for the year. At year-end,
the Company had made temporary use of its overdraft facilities in the amount of $1.7 million, due to the timing of
cash flows from diamond sales which were received shortly after the year end.
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 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 is underway at SHC to ensure the resource potential is
maximised and to develop contiguous areas.
- Through trial mining(2), the Niewejaarskraal inferred resource will be upgraded to the Indicated level with the
eventual declaration of probable reserves.
- The Company continues to review the options to bring the Wouterspan property to account following the
completion of a preliminary economic assessment in the first quarter of 2013 that reflected viable economics.
Rockwell is also achieving 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 year with the
projected monthly mining volumes at Tirisano now being 200,000m(3). The royalty mining contractor agreement at
Kwartelspan, which commenced construction in the fourth quarter of fiscal 2014, is in the process of being
converted into a joint venture mining arrangement.
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
Towards the end of fiscal 2014 rough diamond demand increased, as retailers continued replenishing their
polished stock. Polished diamond sales were buoyant, particularly during the December festive season, driven
largely by discounting among retailers to drive demand for jewellery. As a result, polished diamond inventories
across the industry were depleted, leading to increased liquidity and higher polished prices. December rough
diamond sales were in line with historic and sales by major rough diamond producers in January and February
2014 were strong. The open market was extremely active with increased attendance at tenders coupled and
higher prices driven by speculation in the secondary market and demand from factories to replenish their work
load.
(2) Because the Niewejaarskraal mine is currently extracting diamonds from an inferred resource, the Company is required
under the rule of the NI 43-101, to refer to the mining operations as trial mining.
Rockwell continues to support downstream beneficiation of its rough diamonds by backing local South African
manufacturing companies. The benefits of the JV with Diacore achieved continued success with some
exceptional results on certain large diamonds recovered by Rockwell Diamonds. Demand for high value
investment diamonds among high net worth individuals as well as institutional and private investors seeking
alternate investment options has been strong, as evidence by results at various auction houses. Prices of
investment diamonds continue to break records and based on historical performance these are expected to
continue outperforming. Rockwell’s primary revenue, through consistent production of high volumes of quality
gravels, is from investment type diamonds. Accordingly, its polished product is in the most secure product range
with respect price volatility.
Outlook
The current focus areas for the business are as follows:
- Rockwell continues to focus on managing its operating costs.
- At Saxendrift, which plant is operating consistently, the Company’s focus is to complete the
implementation of the earthmoving vehicle (‘EMV’) fleet renewal exercise which will improve equipment
availabilities to enable the mine to operate at nameplate capacity, while an option to increase the plant
capacity is also being reviewed.
- At SHC, continuous exploration work and trial mining is ongoing to increase this resource. Although the
Bulk X-ray recovery system continues to perform on plan, first quarter gravel throughput at the processing
plant was impacted by mechanical failures associated with the front end of second hand equipment,
which is being addressed as a high priority.
- At Niewejaarskraal the focus is on consolidating the operations now that the second phase of the
100,000m3 per month plant, has been completed.
Rockwell carried over an inventory of 2,752 carats (including 1,181 contractor owned carats) into the new fiscal
year. This, together with a beneficiation pipeline comprising more than 6,000 carats, provides further potential for
valued-added downstream revenues. Rockwell continues to beneficiate the vast majority of its diamonds in South
Africa. The sale of a 109 polished vivid yellow polished diamond will be reflected in the first quarter beneficiation
income and with the MOR focus, the outlook for the beneficiation revenue trend is positive.
Conference Call:
Rockwell will host a telephone conference call on Friday, May 23, 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:
Country Access Number
Canada (Toll-Free) 1 855 481 5362
USA (Toll) 1 412 317 6060
USA (Toll-Free) 1 855 481 5362
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) May 28, 2014 and can be accessed by
dialling the relevant number in the table below and using the pass code 31017#.
Country Access Number
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 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 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
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.
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: 23/05/2014 07:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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