| Fri 14 Oct 2011, 7:05 | | RDI - Rockwell - Rockwell announces net profit for second quarter of Fiscal 2012 |
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RDI
RDI
RDI - Rockwell - Rockwell announces net profit for second quarter of Fiscal 2012
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: CA77434W2022
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
ROCKWELL ANNOUNCES NET PROFIT FOR SECOND QUARTER OF FISCAL 2012
Thursday October 13, 2011, Vancouver, BC Rockwell Diamonds Inc. ("Rockwell" or
the "Company") (TSX:RDI; JSE:RDI, OTCBB:RDIAF) announces results for the three
and six months ended August 31, 2011.
Highlights of the quarter ended August 31, 2011
- Beneficiation revenue from joint venture with Steinmetz up 64% to $2.3 million
- Total revenue of $9.2 million underpinned by a 109% increase in the average
diamond price to US$2,186 per carat
- Mine site operating costs down 18% to $5.1 million with average total unit
cost for all operations stable at US$10.5 per m3
- Gross profit of $2.7 million, a year-on-year turnaround of $3.9 million
translating into net profit of $2.0 million
- Production decreased 47% to 3,611 carats chiefly due to the closure of Holpan
- Net cash balance of $14.4 million boosted by asset sales and proceeds of
convertible loan and capital raising
- Good progress on short term targets to optimize existing operations
- Board of directors strengthened after quarter end with new chairman and non-
executive independent director
- Completion of Tirisano acquisition with effect from September 1, 2011 ramping-
up to commercial production starting in October 2011
Commenting on Rockwell Diamonds, Mr James Campbell, CEO and president of
Rockwell Diamonds said:
"It is particularly rewarding that Rockwell reported a net profit of $2.0
million for the second quarter, underpinned by strong cash flows from its
operations. This reflects an improvement of $9.1 million from the comparable
quarter in fiscal 2011. It shows that by focusing and delivering on our
strategic imperatives to optimize our current operations and sustainably
increasing our production profile, our operations have the potential to deliver
strong returns for shareholders."
"We have made good progress with the immediate priorities of the new leadership
team. We are on track with the implementation of proven technologies to improve
production at Saxendrift and at Tirisano, where we are ready to start production
in the next few weeks. We have also successfully recapitalized the Company and
raised sufficient capital for our immediate investment requirements,
supplemented by the $6.5 million proceeds from the sale of non-productive assets
in July 2011. As a result, we were able to minimize the dilution of existing
Rockwell investors."
Strategy Overview
Rockwell is advancing towards its goals of ramping up production by optimizing
its productive mines to deliver better returns through lower unit costs and
sustainably enhancing the mining and metallurgical processes to increase the
recovery of diamonds.
The new leadership team has made sound progress with the priorities which were
identified in June 2011 to improve the performance of the Company and the
culture of diamond value management is becoming entrenched across the
operations:
- A recapitalization process was initiated to fund investments at Tirisano and
Saxendrift as well as initial planning for the new Wouterspan plant. Rockwell
raised $7.8 million through a private placement of shares at $0.75, which was at
a premium to the market price and minimized the dilution of existing
shareholders. No warrants or other incentives were offered in the fund raising.
- The production challenges at Saxendrift are being addressed with the
implementation of the new Bivitec front end screen, an independent puddle system
to improve pan plant efficiencies and the imminent installation of bulk x-ray
technology. Diamond production has started showing early indications of
improvement after additional mine faces were opened.
- The Tirisano acquisition has been completed and improvements have been made to
address issues identified during a plant review in June 2011. The plant is
currently in an advanced state of commissioning and production is planned during
October 2011.
- Having put the lossmaking Holpan mine on care and maintenance in the previous
quarter, the Company has realized a significant reduction in its mining costs.
The Company continues to pursue other cost saving measures.
- The sale of three non-productive assets in July 2011 generated $6.5 million
which is supplementing the capital that was raised during the private placement
to fund investments to increase the production profile. Rockwell is assessing
further avenues to rationalize its assets and provide greater returns for
shareholders.
The Company has also heightened its focus on resolving the funding issues with
its black economic empowerment partners who have significant outstanding
liabilities to the Company. A favourable resolution to these negotiations would
substantially improve Rockwell`s cash position From a long-term perspective,
once the projects at Saxendrift have been completed and production has been
ramped up at Tirisano, the Company will review its options to maximize returns
by further increasing its production profile. These include plans to develop the
Wouterspan and Niewejaarskraal mines. Both properties have extensive mineral
resources that have historically been mined with recoveries similar to those at
Saxendrift, in terms of size, quality and average price per carat. Rockwell has
new order mining rights on both properties.
Based on the outcome of the bulk x-ray technology being implemented at
Saxendrift, similar solutions will be considered at these mines in the future.
The timing of these projects will be predicated on the availability of funding.
The preference is to use internal cash flows, but these may need to be
supplemented by external capital.
Financial Overview
(Currency values are presented in Canadian dollars unless otherwise indicated.)
Rockwell`s financial performance continued to improve in the second quarter of
fiscal 2012. Operating costs declined by 18% to $5.1 million (Q2 fiscal 2011:
$6.3 million). As a result, the Company showed a year-on-year improvement of
$3.9 million and $2.1 million in gross profit and operating profit to $2.7
million (Q2 fiscal 2011: loss of $1.2 million) and $87,325 (Q2 fiscal 2011: loss
of $2.1 million) respectively.
The Company reported revenue of $9.2 million for the quarter (Q2 fiscal 2011:
$11.4 million). While it continued to benefit from the improving diamond market,
the lower inventories available for sale during the quarter impacted diamond
sales. Carats sold in the second quarter amounted to 3,223, which were sold at a
significantly higher average price of US$2,186 per carat (Q2 fiscal 2011:
US$1,048 per carat).
Value from the Company`s beneficiation joint venture ("JV") continued to grow
with revenue of $2.3 million (Q2 fiscal 2011: $1.4 million). The increase was
due to the combined effect of increased volumes of polished and certified
diamonds in the JV, strong demand for polished stones and the high quality of
diamonds recovered during the quarter.
At August 31, 2011, the Company had net cash holdings of $14.4 million (August
31, 2010 - $ 1.3 million). It also had working capital of $13.7 million compared
to $7.1 million at August 31, 2010. With current assets amounting to $22.4
million and current liabilities of $8.7 million, the Company`s current ratio
improved to 2.58 (August 31, 2010: 1.58) Operational Overview
Production Sales and inventories
Volume Carats Average Sales Average Inventories
(m3) grade (carats) value (carats)
(carats (US$ /
/ 100 carat)
m3)
Q2 2012 543,750 3,611 0.66 3,223 2,186 1,093
Year-year -45% -47% -3% -65% 109% -42%
change
Mining volume declined 45% to 543,750 m3 (Q2 fiscal 2011: 990,248 m3). The
closure of operations at Holpan was the chief reason for the decrease. Although
volumes at Saxendrift declined by 10%, its diamond recoveries were ahead of
internal targets for the quarter. Production at Klipdam was impacted by
challenges in the front end section of the plant.
The Company produced 3,611 carats (Q2 fiscal 2011: 6,800 carats). This year-on-
year decrease of 47% is largely due to the closure of Holpan in May 2011 and
production issues at Klipdam. Although there were production challenges at
Saxendrift, it recovered a number of notable stones during the quarter. Its
production was boosted with the windfall daily production of 373 carats on
August 2, 2011, which represents half of its monthly budgeted carat production.
Tangible progress is being made to resolve production issues at both mines in
support of the diamond value management strategy and mining at Tirisano will
make a meaningful contribution to the production profile.
Klipdam and Holpan
Mining at Klipdam migrated from the paleao channel to the Rooikoppie gravels
where diamonds of a similar grade aSaxendrift
Diamond recoveries improved, and are moving towards the potential production
levels which were initially estimated for the mine. At the start of the quarter,
production at one of the four streams was intermittently non-operational due to
scrubber drive failures. However, particularly good production was achieved in
August 2011 from the multiple mine faces which were opened and despite the
persistent high sand content in the gravels as well as the absence of a suitable
front-end at the plant.
A total of 1,880 carats were recovered from 379,483 m3 of gravel, representing
stable carat production even though volumes declined 10% from the second quarter
of fiscal 2011. This suggests that the focus on quality tons is starting to bear
fruit. Carats sold amounted to 1,740 in the second quarter with the average
price increasing 90% year-on-year to US$3,186 per carat. The sale of several
exceptional stones compensated for the lower carats sold with total proceeds
increasing by 45% to $5.5 million (Q2 fiscal 2012: $3.8 million).
The fit-for-purpose Bivitec front end in-field screen designed to process wet
and sticky ores at the required processing rates will be commissioned on
schedule towards the end of October 2011. An independent puddle system is being
implemented to improve the pan plant`s performance and better control the
diamond concentration process.
The board has approved the installation of a high throughput bulk x-ray plant to
concentrate and recover diamonds in a single cost effective and secure manner.
This technology will be piloted and tested at Saxendrift. Improved diamond
recoveries are predicted and the results will be evaluated with a view to
deploying similar solutions in new processing plants that are planned at
Wouterspan and/or Niewejaarskraal and Rockwell`s other Middle Orange properties.
Progress on Tirisano acquisition
The Tirisano Mine acquisition was completed with effect from September 1, 2011
on a going concern basis, although the operation has been on a care and
maintenance arrangement for two years. Final Acceptance and Release documents
were signed on October 7, 2011 pursuant to all the conditions precedent being
met (including the mineral property transfer approval and the Industrial
Development Corporation`s commitment to consolidate the Company`s debt finance
with deferred payment terms).
A third condition to the transaction has been the commitment of the local Mogopa
community to its continued partnership with the Company through its support and
involvement. This is a key business requirement in order to resume and build a
sustainable mining operation at Tirisanond value can be recovered at a lower
unit cost due to less intensive earthmoving equipment requirements with the
potential to increase the life of this mine beyond one year.
Klipdam`s production for the quarter declined by 17% due to intermittent front
end throughput constraints caused by high clay content of the material. Short
term solutions have been implemented while in the longer term, a redesign of the
front end is under consideration. A total of 1,456 carats from Klipdam were sold
in the second quarter at an average value of US $1,030 per carat and although
less carats were available for tender, the average price per carat improved as a
result of a higher average stone size and the stronger diamond market.
Holpan remained closed, having been placed on care and maintenance during the
previous quarter. The purchase consideration of ZAR33.5 million ($4.65 million)
is funded by:
- Internal funding - care and maintenance advances / net debt and working
capital movements amounting to ZAR14.5 million ($2.01 million); and
- Equity funding - the issue of 2.6 million Rockwell Diamonds Inc ordinary
shares to settle the balance of ZAR19.0 million ($2.64 million). The effective
share price was established in September 2010, determining the number of shares
to be issued.
The Company has established a resource model, mine plan, mining fleet,
processing plant and final recovery capacity on site over the past eighteen
months to progress to commercial production. The mine has a current production
capacity of 90,000 m3 per month. During the quarter, the Company addressed
issues with the front end and recovery which were revealed during the plant
review in June 2011. The fully containerized Holpan recovery plant was relocated
to Tirisano and a barrel screen from Wouterspan has been installed to double the
front end capacity as an interim solution.
During the next six months, the focus will turn to optimising mining and plant
efficiencies including the development of long term solutions for the front end.
Work will also continue on concept designs to increase the plant`s capacity.
Tirisano is of strategic importance to Rockwell`s long term growth objectives.
The quality and price per carat of the stones recovered at Tirisano during the
commissioning and recovery testing phase are encouraging as these exceeded what
was achieved by the mine`s previous operators.
Diamond Market
Prices for both rough and polished diamonds increased in June and July 2011 as a
result of price speculation among traders who purchased rough stones into
inventory in anticipation of subsequent price increases. Producers increased
their prices to benefit from the premiums that their clients were willing to pay
and rough diamond prices reached all-time highs in July 2011.
The gap between the cost of rough diamonds and polished prices persisted as
polished price increases continued to lag rough diamond prices. Downstream
retailers resisted these increases and trade slowed markedly in July 2011 before
the summer vacation due to their reluctance to hold expensive inventory over
this period.
The correction in the world`s financial markets in August 2011 coincided with
the reopening of diamond markets after the summer vacation and price had
corrected by between 10% and 15% at month end, reverting to April and May 2011
levels. During September 2011, they remained constant at the Hong Kong Diamond
Show and De Beers` sight.
Rockwell focused its sales on larger diamonds through its beneficiation JV which
benefits from Steinmetz`s ability to manufacture to achieve value of polished
product. The Company had anticipated the short term price consolidation that
occurred in August 2011 and products were not sold at a discount to drive sales.
Notable Stones
Large stones produced by both operations during the second quarter were as
follows:
- Klipdam produced 14 stones exceeding 10 carats; and
- Saxendrift produced 32 stones weighing more than 10 carats, of which 11 stones
exceeded 20 carats
These stones were channeled into the Company`s beneficiation JV with the
Steinmetz Diamond Group which delivers value added revenues for Rockwell`s
stones that exceed 2.8 carats.
During the quarter the high quality stones sold through the beneficiation joint
venture with Steinmetz Diamond Group, included the following:
- a 128.67 carat perfect sawable; fancy yellow with high clarity stone;
- a 21.52 carat gem quality; clean D/E color stone;
- a 33.51 carat octahedral, clean, H/I colored stone; and
- a 179.95 carat makeable, clean brown colored stone.
Outlook
Reflecting the turmoil which has affected global financial markets since the end
of the second quarter, diamond prices softened slightly and given the economic
outlook, a quick recovery is unlikely. However, the long term supply and demand
fundamentals, driven by substantial uptake of diamonds from China and India and
a gradual reduction in supply, should continue to support prices.
The recent volatility of the Rand against the US$ could also affect pricing,
although this is not currently viewed as a significant risk. However, it does
have an impact on input costs including fuel, though this is less significant
than the additional revenue from diamond sales which are denominated in US$.
From a production perspective, the operations are focused on meeting their
production targets in the third quarter of fiscal 2012, especially with the
imminent rainy season. Saxendrift has started benefiting frominitiatives to
improve the quality of its plant processes, although the new front-end screen
which will be completed at the end of October 2011, will only contribute to
production in the last few weeks of the third quarter. The focus of the
management team has now turned to Klipdam in order to unlock similar
improvements there. Commercial production will start at Tirisano during October
2011.
The Company is at an advanced stage of discussions with the relevant unions in
relation to the 2011/2012 wage negotiations as well as the proposed introduction
of continuous operations and is optimistic that a mutually beneficial solution
will be reached in this regard.
Conference Call:
Rockwell will host a telephone conference call on Friday, October 14 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) 1 866 605 3852
USA (Toll-Free) 1 800 860 2442
UK (Toll-Free) 0 800 917 7042
South Africa (Toll-Free) 0 800 200 648
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) October 19, 2011 and can be accessed by dialling
the relevant number in the table below and using the pass code 18917#.
Country Access Number
South Africa (Telkom) 011 305 2030
USA and Canada (Toll) 1 412 317 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 2010.
For further information on Rockwell and its operations in South Africa, please
contact
James Campbell
CEO and President
+27 (0)83 457 3724
Stephanie Leclercq
Investor Relations
+27 (0)83 307 7587
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 mining company. The Company
has three existing operations, which it is progressively optimizing, two
development projects and a pipeline of earlier stage properties with future
development potential. Rockwell has completed the acquisition of the Tirisano
property with effect from September 1, 2011.
Rockwell also evaluates merger and acquisition opportunities which have the
potential to expand its mineral resources and production profile and would
provide accretive value to the Company.
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 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 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 Rockwell`s annual
Form 20-F filing with the United States Securities and Exchange Commission
www.sec.com and the Company`s home jurisdiction filings that are available at
www.sedar.com
Canada
13 October 2011
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 14/10/2011 07:05:17 Produced by the JSE SENS Department.
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