| Fri 31 Oct 2008, 14:46 | | RDI - Rockwell Recommends Shareholders Reject Hostile Pala Bid |
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RDI
RDI
RDI - Rockwell Recommends Shareholders Reject Hostile Pala Bid
ROCKWELL DIAMONDS INCORPORATED
(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: CA77434W1032
Share code on the TSX: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
ROCKWELL RECOMMENDS SHAREHOLDERS REJECT HOSTILE PALA BID
Inadequate Bid Significantly Undervalues Rockwell`s Upside Potential
September 22, 2008, Vancouver, B.C. - Rockwell Diamonds Inc. ("Rockwell" or the
"Company") (TSX: RDI; JSE: RDI; OTCBB: RDIAF) today announced that its Board of
Directors, based on the recommendation of its Special Committee of independent
directors, unanimously recommends that Rockwell shareholders reject the
unsolicited offer (the "Offer") by Pala Investments Holdings Limited ("Pala") to
acquire all of the outstanding shares of Rockwell for $0.36 per share. After
careful consideration, including consultation with its independent financial and
legal advisors, Rockwell`s Board concluded that the Offer significantly
undervalues Rockwell and is not in the best interests of its shareholders.
In its Directors` Circular, filed today with securities regulators and mailed to
security holders, Rockwell`s Board strongly recommends that all Rockwell
shareholders reject the Offer and not tender their shares.
"The Offer significantly undervalues Rockwell and would deprive our shareholders
of significant upside potential from the strong production growth we anticipate
over the next months and years," said John Bristow, President, Chief Executive
Officer and director of Rockwell. "Our track record and strategic plan point to
superior value creation for our shareholders than the inadequate premium offered
by Pala. Our Special Committee and Board of Directors unanimously determined
that the Offer is inadequate and unfair. There is no rationale for accepting
the Pala bid and many reasons to reject it."
Mr. Bristow further commented that "the highly conditional nature of Pala`s
Offer, the misleading claims made in their conference call on September 16, 2008
and in their Offering Circular, and Pala`s apparent lack of understanding of
Rockwell`s business, leads to questions regarding the seriousness of Pala`s
Offer and their intent to follow through."
Reasons for Recommendation
The Board believes that the Offer should be rejected for the following reasons,
as are described in more detail in the Directors` Circular available on SEDAR:
The Offer significantly undervalues Rockwell`s assets and growth potential.
Rockwell is a producer of diamonds of high value in excess of US$1,700 per
carat, with a strong upward trend.
Rockwell enjoys low production costs with tight cost control despite an
inflationary environment.
Rockwell has a number of fully financed brownfields projects coming on stream
which will lead to an increase in production from the current run rate of
approximately 23,000 carats per annum to 70,000 carats per year in 2011.
The Company has strong management expertise and a supportive BEE partner in
African Vanguard Resources.
Rockwell benefits from transparent and multi-faceted marketing and beneficiation
arrangements.
The Special Committee`s independent financial advisor, RBC Capital Markets, has
determined that the price of $0.36 per share offered by Pala is inadequate, from
a financial point of view, to shareholders.
The Offer is highly conditional and gives Pala broad discretion to abandon the
bid.
There is substantial uncertainty with respect to Pala`s intentions. Pala is a
financial investor with no experience running a diamond company operating in
South Africa. The Board believes that the Offer is designed to create value for
Pala rather than the Company`s other shareholders.
The Offer does not treat holders of Rockwell securities fairly and does not
comply with the applicable securities laws in South Africa. In particular, the
Offer violates the South African requirements that the Offer be made to holders
of convertible securities, and for the bid to not be subject to conditions that
are dependent on subjective assessment.
Rockwell continues to pursue alternatives to maximize shareholder value, and the
Board believes that tendering shares to the Offer before these alternatives are
fully explored may diminish the likelihood of a better transaction emerging.
The timing of the Offer is opportunistic given the recent decline in Rockwell`s
share price as a result of the overall decline in share prices of diamond
companies and the impact of the recent Wouterspan labour dispute. The Rockwell
share price traded at the Offer price of $0.36 as recently as July 14, 2008 and
as high as $0.59 (or 64% more than the Offer) as recently as March 13, 2008.
The timing of the Offer is opportunistic because it is designed to deny
shareholders the near term benefits of increased production and decreased
operating costs expected to result from the Company`s investment in its
brownfields operations.
The Offer has been rejected by all of Rockwell`s directors and senior officers
who together own 11.08% of the Company`s shares (assuming the exercise of all
warrants and options owned by such directors and senior officers).
"With a proven track record of resource growth and a strong and experienced
management team, we believe Rockwell is poised to deliver superior shareholder
returns. The Board of Directors is pursuing various options to maximize
shareholder value, which include advancing Rockwell`s growth and acquisition
strategy, increasing production and discussions with other third parties. We
believe that given sufficient time to evaluate alternative options, the Company
may be able to source superior value-creating opportunities," said Mr. Bristow.
Rockwell`s Board advises shareholders not to be misled by the claims that Pala
made on a conference call on September 16, 2008. On this call and in its news
releases, Pala has made a variety of claims against Rockwell and its management
that are without foundation. In the Board`s view, these claims suggest that
Pala`s understanding of the Company`s business is flawed and that their methods
of valuing Rockwell`s business are not credible. Schedule A attached to this
news release contains responses to some of the more spurious claims made by
Pala.
Rockwell is mailing its Directors` Circular to shareholders today, which sets
forth the formal recommendation of the Board to reject the Offer.
The directors of Rockwell, accept responsibility for the information contained
in this announcement and confirm that to the best of their knowledge and belief
(having taken all reasonable care to ensure that such is the case) the
information contained in this announcement is in accordance with the facts and,
where appropriate, does not omit anything likely to affect the import of such
information.
The Company will host a telephone conference call on Monday, September 22 at
10:00 a.m. Eastern Time (7:00 a.m. Pacific; 3:00 p.m. London; 4:00 p.m.
Johannesburg) to discuss Board`s recommendation. The conference call may be
accessed by dialing 719-457-2655 or toll free 888-339-3503 in North America,
toll free 0-800-404-7656 in United Kingdom or toll free 080-09-97290 in South
Africa.
For further details on Rockwell Diamonds Inc., please visit the Company`s
website at www.rockwelldiamonds.com or contact Investor Services at (604) 684-
6365 or within North America at
1-800-667-2114.
John Bristow
President and CEO
David Copeland, P.Eng., a qualified person under National Instrument 43-101, who
is also the Chairman and a Director of Rockwell, has reviewed and approved this
news release.
Forward Looking Statements
This release includes certain statements that may be deemed "forward-looking
statements". Other than statements of historical fact may be forward-looking
statements, including, but not limited to, statements in this release about the
expected upside potential of holding Rockwell shares, anticipated increases in
the Company`s level of production, decreases in operating costs and increases in
the price of diamonds, the upward trend in the value of diamonds produced by
Rockwell, and the likelihood of a better transaction emerging. Although the
Company believes the expectations expressed in such forward-looking statements
are based on reasonable assumptions, including, but not limited to assumptions
regarding the success of the Company`s brownfields expansion efforts, the
Company`s cost structure, and matters that would affect a third party`s decision
to enter into an alternative transaction with the Company, 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 market prices, exploitation and exploration successes,
changes in and the effect of government policies regarding mining and natural
resource exploration and exploitation, availability of capital and financing,
geopolitical uncertainty and political and economic instability, and general
economic, and market or business conditions. The Company undertakes no
obligation to update forward-looking statements except to the extent required by
law. For more information on Rockwell, investors should review Rockwell`s
annual Form 20-F filing with the United States Securities and Exchange
Commission www.sec.com and its home jurisdiction filings that are available at
www.sedar.com.
Canada
31 October 2008
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Schedule A
Specific responses of Rockwell to claims made by Pala during its conference call
held on September 16, 2008, and in Pala`s news releases are set out below.
Pala Claim Rockwell`s Response
1. Pala claimed The Board believes that this claim
that Rockwell is demonstrates that Pala does not understand
failing to deliver the nature of Rockwell`s business.
on diamond prices. Pala included in its presentation
accompanying the September 16, 2008
conference call, a comparison of a linear
regression of prices achieved by Rockwell for
the months of January to July 2008 with price
increases quoted by De Beers. The Board
views this comparison as misleading. The
very nature of alluvial diamond mining is the
variability of stones recovered leading to
periods with average returns interspersed
with very high value stones. The results for
the year to date compared with the prior year
shows a different trend with average prices
recovered increasing from $1,657 per carat in
the 2007 calendar year to $1,881 per carat in
the year to date in calendar 2008. This
latter number increases to $2,465 per carat
when the month of September 2008 is included.
It is the Board`s view that the use of De
Beers` pricing, which is based on a universe
of transactions that is many times larger
than that of Rockwell, is statistically
unsound.
2. Pala claimed The Board believes that this claim further
that Rockwell has demonstrates that Pala does not properly
no control over understand the nature of running a mining
costs. operation or the environment in South Africa,
which is an area with unique inflationary
pressures. These inflationary pressures
include power cost increases, the disruption
caused by power outages as well as general
inflation of mining input costs running at
record levels.
A survey of cost escalation experienced by a
number of major South African mining companies
over the last 12 months shows 20%. Management
believes that the cost control measures
outlined in its Directors` Circular and the
downward trend in quarterly operating costs
support the conclusion that cost control
performance by the Company has been good.
3. Pala claimed This claim suggests that Pala underestimated
that Rockwell the complexity of the South African approval
mismanaged the process, which involves the Department of
process of Minerals and Energy, Competition Commission,
progressing the Department of Water Affairs, Department of the
Saxendrift Environment, Department of Labour, and several
transaction other central and local government authorities.
through the
Ministerial Rockwell and its Black Economic Empowerment
Consent and partner managed the process diligently and made
Competition all possible efforts and attempts to expedite
Commission the finalisation of the acquisition. The
approval process. transaction timeline was impacted by delays at
the Department of Minerals and Energy in
processing and managing the transaction, which
involved a multi-faceted legal and commercial
process of mineral rights conversion, review of
a comprehensive social and labour plan,
environmental management plan, and mine plan,
transfer of ten sets of mineral rights held in
three companies into a special purpose vehicle,
and Ministerial consent to conclude the
process. It is common for such delays to occur
in many jurisdictions, particularly in South
Africa.
It is the Board`s view that the suggestion that
management either misrepresented or
misunderstood the true process is simply not
true.
4. Pala claimed This claim suggests that Pala does not properly
that Rockwell has understand the nature of running operations
mismanaged its with unionised labour.
labour relations.
As part of the transition from being a
privately owned operation to becoming a public
company, Rockwell`s labour force became
unionised and an inevitable period of
adjustment led to the strike action in August
this year. Management proactively engaged with
its employees and Union representatives from
the outset and as a result was able to achieve
a wage settlement in line with inflation and
operational protocols beneficial to the Company
and its employees. Local operations of
competitors have suffered much longer
stoppages, and in some cases strike action has
led to closures.
5. Pala claimed Rockwell adheres to a high standard of
that Rockwell`s corporate governance and given that Rockwell`s
management is directors and officers own an aggregate of
entrenched and 11.08% of Rockwell`s shares (assuming the
that its interests exercise of all warrants and options owned by
lie elsewhere. such directors and senior officers), their
interests are aligned with the Company`s other
shareholders.
Rockwell has fully disclosed the nature of its
arrangements with Flawless Diamond Trading
House in the Directors` Circular. Flawless
charges a fixed commission of 1% on all sales
with no other remuneration. This arrangement
benefits Rockwell and is at a lower cost than
the available alternatives.
Details of the arrangements with Steinmetz
group have also been publicly disclosed by
Rockwell in the Directors` Circular and
management believes these arrangements benefit
the Company. All diamond sales involve a
robust internal and external arms length
valuation process.
6. Pala claims From a legal standpoint, Rockwell`s Board
that the Rockwell satisfies the requirements of Canadian
Board is not securities laws in terms of required
independent. independence in Board and committee
composition.
From a practical standpoint, all the Company`s
non-executive directors are independent
professionals with considerable experience and
standing in the mining and investment
community, with reputations that speak for
themselves and go beyond the confines of the
Company`s business.
For example, Dr Mark Bristow, who is the Chair
of the
Special Committee and the brother of CEO John
Bristow, is a well respected international
mining executive in his own right who sits on
various boards and is CEO of publicly listed
Randgold Resources. Equally, Hunter Dickinson
is an internationally recognized management and
advisory group which provides services to a
significant number of public and private
companies.
7. Pala claims While Rockwell faces similar liquidity risks as
that Rockwell is other mining companies at a comparable stage of
facing a liquidity development, its financial position is sound.
risk.
Cash on hand on August 31, 2008 was $10
million. The Company recently received
proceeds from a diamond sale as well as the
sale of the recently recovered large diamond
(189.6 carats), which will provide further
funds and reserves to more than adequately
cover the working capital and capital
expenditures of the Company. The Company also
has a debt facility in place with Standard Bank
which may be drawn upon as necessary.
8. Pala claims The Directors` Circular provides a detailed
that Rockwell has overview of the various meetings that Rockwell
not engaged with management has had with Pala since Pala became
their suggestions a shareholder, and the reasons why management
for value and the Board decided not to pursue the various
creation. transactions or strategies suggested by Pala at
these meetings. At all times, Pala`s
suggestions were taken seriously and carefully
considered by management and the Board. It is
Pala`s own intentions and conduct which is
questionable.
9. Pala claims it Pala alleged publicly that they complied with
was wrongly denied all requirements necessary to enable Pala to
the opportunity to vote in person at the Company`s shareholders`
vote at the meeting held on September 15, 2008 and that
Company`s recent Pala was wrongly denied the opportunity to vote
Shareholders` at this meeting.
meeting.
Rockwell and the independent scrutineer at the
meeting took all necessary steps to review the
documentation submitted by Pala in support of
its position, and confirmed that Pala had not
in fact satisfied the legal requirements
necessary to entitle Pala to vote at the
meeting. Rockwell`s transfer agent has
confirmed that it did not receive a legal proxy
from Pala in advance of the meeting, and in
fact this proxy was submitted by the nominee of
Pala`s broker a full two days after the meeting
took place.
Date: 31/10/2008 14:46:37 Produced by the JSE SENS Department.
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