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ROCKWELL DIAMONDS INCORPORATED - Rockwell looks to restructuring and cost reductions, to manage the transition from end of life operations to new

Release Date: 15/01/2016 07:06
Code(s): RDI     PDF:  
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Rockwell looks to restructuring and cost reductions, to manage the transition from end of life operations to new

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" or "the Group")

Rockwell looks to restructuring and cost reductions, to manage the transition from end of life operations
to new projects/operations.

January 14, 2016, Johannesburg, South Africa -- Rockwell Diamonds Inc. ("Rockwell" or the "Company")
(TSX:RDI; JSE:RDI) announces results for the three months ended November 30, 2015.

Currency values are presented in Canadian dollars, unless otherwise indicated.

FINANCIAL HIGHLIGHTS
                                                                    %                         %
                                         Q3 F2016    Q3 F2015                  Q2 F2016                  F2015
                                                                 Change                    Change
Total revenue ($m)                            7.1        18.9           (62)       21.0           (66)       68.0
    Rough diamond sales ($m)                  6.9        17.5           (41)       12.3           (44)       56.9
    Beneficiation revenue ($m)                0.2         1.4           (86)        8.7           (98)       11.1
Average price per carat sold (US$)          1,328       1,146            16       1,783           (26)      1,345
Gross (los) / profit before
                                             (5.1)       (3.2)             -        9.2              -       (0.8)
amortization and depreciation ($m)
Average cash operating cost / m3
                                            13.40       11.42            17       11.20            20        11.4
(US$)
Cash generated from operations
                                              0.4        (2.7)             -        3.7           (89)        0.7
($m)
Profit / (loss) attributable to owners
                                             (9.3)       (4.8)             -        1.2              -      (14.0)
of the parent ($m)


Highlights
-   Rockwell achieved 715,015 lost time injury free hours (“LTIFH”) at its MOR operations as at November 30,
    2015, and subsequent to the fatality at the Remhoogte plant (September 3, 2015). The Company responded
    to the fatality with the immediate cessation of operations on both the Remhoogte and Holsloot properties for a
    two-week period. A full investigation into the circumstances of the accident was completed by the Department
    of Mineral Resources and the Company. Rockwell continues to strive for zero harm on all of its operations.
-   Rockwell’s third quarter performance was significantly affected by underperformance in volume processed
    due to the plant shutdown and in field screen throughput problems, as well as the continued weakness in
    global diamond pricing. Both negatively impacted its balance sheet, and limited its ability to invest in
    increased processing capacity.
        o   Reduced volumes at RHC following the fatality in early September 2015 meant that this operation did
            not achieve the 1.0 million m3 processing volumes necessary for the recovery of large stones. An in-
            field screen was installed during December, 2015, increasing throughput going forward to an eventual
            180,000m3.
        o   At Saxendrift, middlings material was processed, to maintain the operation for some period and defer
            closure. However, Company operation at this mine will be closed by the end of February 2016,
            redeploying equipment and key skills to Wouterspan where construction of a 200,000m3 per month
            facility has commenced. Two royalty miners have been contracted to process the tailings, for periods
            of up to three years. All carats produced will be sold by the Company and a royalty received as
            revenue.
-   The Company initiated a significant restructuring. Steps include delayering management, issuing s.189 orders
    to downsize the workforce, the closing of the Johannesburg corporate office, relocation of senior executives to
    the mine offices, and the development of the Company’s property at Wouterspan. These steps were taken to
    place the business on a sustainable footing, and to reaffirm its commitment to processing 500,000m3 per
    month from its MOR operations. Construction has commenced to recommission Wouterspan for operations in
    2016.
-   As part of rebuilding its operational footprint in the Middle Orange River (“MOR”) on the extensive land
    package held by the Company, exploration and development activities have been focused on prioritizing the
    portfolio with near term prospects and partnership opportunities with royalty miners on selected properties.
-   Third quarter revenue was down 66% to $7.1 million from previous quarter, comprising $6.9 million from
    diamond sales and the balance from beneficiation revenue. Much of this decrease is due to the under-
    recovery of larger stones, causing average prices achieved to be under budget.
-   A net loss was recorded of $9.3 million, driven by a 25% reduction in carats sold and a 44% decrease in US$
    revenue compared to Q2 2016, mitigated somewhat by the strengthening of the US dollar against the Rand.
    The recorded loss was also impacted by the recognition of unrealized foreign exchange losses converting the
    US dominated debt raised to acquire the Bondeo assets in May 2015.
-   There was also very little in the way of beneficiation income after the February 2015 pipeline clear-out.
-   Since May 2015, US$4.4 million of acquisition and convertible debt has been repaid, with an outstanding
    balance remaining of US$16.8 million including accrued interest. Operating cash flows from diamond sales
    were used to service and repay debt, limiting the Company’s ability to fast track its exploration and
    development projects.
-   Average cash costs were up 20% from previous quarter to US$13.40 /m3, as a result of lower volumes
    processed by MOR operations, and high fixed costs, as well as the two-week closure at RHC following the
    fatality on September 3, 2015.
-   Volumes processed at RHC were down 27% on the second quarter, also impacting the grade, which was
    down 29%. Additional in field screening capacity was started to be installed towards the end of the quarter.
-   At Saxendrift, the volume of gravel processed was up 15% quarter-on-quarter. Grades were in line with the
    prior year at 0.40 cphm3 (carats per 100 m3). Old dumps were processed during the quarter. It is expected
    that these will be depleted by fiscal year end, at which point the Company will close its Company directed
    operations. Operations will continue indirectly through two royalty mining contractor agreements that will
    process the extensive tailings dumps in order to generate further value from Saxendrift.
-   Priorities for the next quarter are as follows:

        o   Implementation of the corporate restructuring, and closure of Saxendrift Company operations.
        o   Recommissioning of the new processing plant at Wouterspan during fiscal 2016.
        o   Ramping up throughput volumes at RHC to increase the recovery of larger stones.
        o   Continued focus on exploration activities to extend the Company’s resource base.

Commenting on the third quarter financial performance, James Campbell, CEO and President said:

“We experienced tough operating conditions in the third quarter. Some was unfortunately due to the loss of our
colleague in an accident, and some was due to processing volumes being materially impacted by bottlenecks in
screening. In addition, lower carat production and pressure on global rough diamond prices contributed to a 66%
decrease in US$ revenue from to Q2 2016 to US$7.1 million. Having cleared out and recognized the value of the
beneficiation pipeline in the previous quarter, our beneficiation income was only US$200,000. The lower carat
sales were due to declining grades at Saxendrift and decreased volumes processed at RHC. While our production
costs reduced 10% from the second quarter, to $11.3 million, our average cash costs increased 20% to US$13.40
/m3, primarily because of the lower MOR volumes processed but also due to our high fixed equipment lease cost.
We reported a gross loss before amortization and depreciation of $5.1 million and a loss for the period of $9.3
million. Despite the lower revenue, we continued to service the bridging loan, repaying a total of $0.8 million
during the quarter.

“Our focus for the fourth quarter is to fully implement the corporate restructuring plan now and start delivering the
anticipated cost benefits. This includes the immediate closure of our Johannesburg Head Office with several
senior executives relocating to the MOR on a full time basis as well as shutting the Company’s operations at
Saxendrift. We have secured two royalty mining contractors to continue generating cash from this property, and
both will in production by fiscal year end. In order to deliver on our 500,000m3 per month processing target, we
are expecting to commission a new processing facility at Wouterspan in 2016, with a total future monthly
throughput target after commissioning of 200,000m3. At RHC we believe we are now on track to begin processing
volumes as high as 180,000m3 per month, having now increased the in field screening capacity. Ongoing
exploration is also high on the agenda to identify new economically viable resources.”

Financial review:
-   Revenue: Gross rough diamond revenues were $7.1 million (Q2 F2015: $18.9 million), a 62% decrease
    compared to last year. This was mainly due to the loss of the value of goods previously sourced from
    contractor sales at Tirisano after the disposal of that asset on March 28, 2015, lower beneficiation revenue in
    the quarter due to the pipeline having been cleared up to February 28, 2015 and lower carat volumes due to
    the loss of SHC and NJK not being made up by the acquisition of RHC. MOR carats sold were down 29% on
    the prior year with revenue from these operations decreasing by 50% from the prior year in US$ terms.
-   Production Costs: Production costs decreased 21% from $14.3 million last year to $11.3 million, mainly due
    to the closure of NJK and lower actual volumes. On a unit basis the average cash cost for all the operations
    for Q3 F2016, increased 17% to US$13.40 per cubic metre processed (Q3 F2015: US$11.42) due to lower
    volumes and high fixed component of overall costs.
-   Cost of sales before amortization and depreciation was 45% down on the previous year as a result of no
    cost of sales being reflected to the Tirisano royalty contractors, mining and processing cost reduction due to
    the closure of SHC and NJK and subsequent decrease in employee cost.
-   Gross loss before amortization and depreciation: A gross loss before depreciation and amortization of
    $5.1 million was reported by the Group for Q3 2016, which compares to a gross loss of $3.2 million for the
    previous year.
-   Cashflows: The group generated cash flow from operating activities of $0.4 million (Q3 F2015 $3.3 million
    outflow).
-   Net cash position: At November 30, 2015 the Group had negative net cash and cash equivalents of $1.4
    million (Q3 F2015: negative net cash and cash equivalents of $0.5 million), having recorded $5.7 million in
    debt repayments.

Market update

The prices of rough diamonds in general, declined by up to 18% in 2015. It is expected that diamond miners will
remain under pressure over the next 12 to 18 months with slow jewellery sales and low continued credit
availability for cutters and polishers which have led to a supply and demand mismatch in the current market.
Large producers, who already cut prices last year may continue doing so in 2016, as well as reducing production
in order to rebalance the market. Sightholders anticipate that prices will be lowered further at the De Beers next
sight, starting on 18 January 2016 to bolster demand.
The polished market was more resilient, with prices dropping 8% during 2015, before showing some recovery in
the peak December trading period as shortages supported prices and dealers filled last-minute holiday orders in
the US. Holiday season jewellery sales in the US were anticipated to be in the low single digit range. However,
there was limited retailer diamond inventory buying due to uncertainty about US post holiday demand and the
Chinese New Year, given the slowdown in Chinese economic growth. Manufacturers in India have reduced their
production by some 30% since October 2015.

Given these market fundamentals, the six month outlook for rough diamond prices and demand is muted, while a
recovery in China in the second half of the year could bring some relief.

Outlook

Rockwell remains focused on rebuilding its MOR production profile, delivering and processing budgeted volumes
effectively, and delivering further growth opportunities from its project pipeline as well as new business
opportunities.

Immediate priorities include:

    -   Implementing the corporate restructuring, including closure of the Head Office and Company-wide
        resturturing of the workforce to reduce the overhead cost structure.
    -   Closing Company operations at Saxendrift by the end of February 2016 and transitioning the property to a
        royalty mining contractor operation, with the commencement of the first two miners’ activities.
    -   Commencement of redeployment of plant existing processing and mining equipment and commissioning
        of operations at Wouterspan from Saxendrift, Niewejaarskraal and some from Remhoogte.
    -   Bedding down the in field screening system at RHC and ramping up volumes at RHC to reach the original
        180,000m3 per month processing target.

The Company also continues to evaluate new projects and value accretive consolidation opportunities to meet its
strategy to become a mid tier diamond producer.

Conference Call:

Rockwell will host a telephone conference call on Friday 15, 2016 at 09:30 a.m. Eastern Time (16:30 p.m.
Johannesburg / 14:30 p.m. London) to discuss these results. The conference call may be accessed as follows:

Country                                                                     Access Number
Canada and USA (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: www.rockwelldiamonds.com. The
conference call will be archived for later playback until midnight (ET) January 20, 2016 and can be accessed by
dialling the relevant number in the table below and using the pass code 44351#.

Country                                                                      Access Number
South Africa (Telkom)                                                        011 305 2030
Canada and USA (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 2015.

For further information on Rockwell and its operations in South Africa, please contact

James Campbell                CEO                                  +27 (0)83 457 3724

Stéphanie Leclercq            Investor Relations                   +27 (0)83 307 7587

David Tosi                    PSG Capital – JSE Sponsor            +27 (0)21 887 9602

About Rockwell Diamonds:

Rockwell is engaged in the business of operating and developing alluvial diamond deposits, with a goal to
become a mid-tier diamond production company. Rockwell also has a development project and a pipeline of
earlier stage properties with future development potential. The operations are based on a strategy of throughput
processing and technology. Rockwell continuously strives to be the lowest cost producer in the industry.

The Company is known for producing large, high quality gemstone comprising a major portion of its diamond
recoveries that is enhanced through a beneficiation joint venture that enables it to participate in the profits on the
sale of the polished diamonds.

Rockwell also evaluates consolidation opportunities which have the potential to expand its mineral resources and
production profile and to provide accretive value to the Company.

Rockwell’s common shares trade on the Toronto Stock Exchange and the JSE Limited under the symbol “RDI”.

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 the transaction and the ability of each party to satisfy the conditions precedent in a timely manner or at all,
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 if 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 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 Rockwell's home jurisdiction filings that are available at
www.sedar.com.

Date: 15/01/2016 07:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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