| Fri 13 Jan 2012, 7:11 | | RDI - Rockwell Diamonds Incorporated - Rockwell announces results for third |
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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Rockwell announces results for third
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 RESULTS FOR THIRD QUARTER OF FISCAL 2012
Thursday January 12, 2012, Vancouver, BC -- Rockwell Diamonds Inc. ("Rockwell"
or the "Company") (TSX:RDI; JSE:RDI, OTCBB:RDIAF) announces results for the
three and nine months ended November 30, 2011. (Currency values are presented in
Canadian dollars unless otherwise indicated.)
Salient features of the quarter ended November 30, 2011
- 5,334 carats were produced at the Tirisano, Klipdam and Saxendrift
operations and 5,376 carats were sold at an average price of US$1,109 per
carat.
- Tender sales of $6.0 million were achieved, with an additional $ 2.3
million income coming from the beneficiation profit share arrangement with
the Steinmetz Group. This resulted in diamond revenues of $8.3 million
(Third quarter fiscal 2011 - $11.1 million).
- Cost of sales including amortization, depletion and impairment charges
totaled $7.7 million (Third quarter fiscal 2011 - $9.2 million.)
- A gross profit of $0.6 million for the quarter was achieved, though a loss
of $2.1 million was recorded which includes depreciation and depletion of
mineral property interest of $1.8 million.
- Net general and administrative expenses decreased from $1.9 million to $1.7
million.
- As settlement of the Midamines legacy issue a one-time arbitration award
was made totaling $1.4 million.
Commenting on Rockwell Diamonds, Mr James Campbell, CEO and president of
Rockwell Diamonds said:
"Rockwell met with a number of challenges during the third quarter. A
correction in general diamond pricing affected our reported revenue. With
Tirisano still being in its production ramp up phase, the operating costs
impacted on our overall financial performance. Having changed the senior
mine management team in December 2011, Tirisano now has the right people on
board to meet mine targets. We also finalized the legacy Midamines matter,
with one off negative financial implications."
"Our focus continues to be delivering on the objectives of the strategic
review that was conducted at the beginning of 2011. These all relate to
diamond value management and we have reached a number of milestones. We
have significantly enhanced our management and skills base. These are
critical to delivering on our short and long term objective of becoming a
leading diamond producer in terms of our focus on value and profitability.
The rationalization of Holpan and Klipdam with its single processing
facility should enable us to profitably access the remnant Rooikoppie
resources. Completing the installation of the fit for purpose in field
screen at Saxendrift will enable better efficiency and profitability at our
flagship operation. With the completion of the Tirisano acquisition, and
having completed the new processing and recovery facilities and mining
schedule as well as having replaced management, we are well on our way to
establishing a second profitable and long-life operation. We are also
introducing new and appropriate technology to further entrench our value
management focus, such as the bulk X-ray technology at Saxendrift which is
on track. The six mining and prospecting rights at Wouterspan were
consolidated, providing significant upside to extend the mining potential
of the property."
"We are pleased with the progress that we have made on all these fronts. We
will maintain our focus on addressing the key operational issues and
associated priorities. Once Rockwell has delivered on these, management
will turn its focus to bringing on stream our substantial pipeline of
projects and resources. We will pursue those opportunities that fit our
strategic objective of profitably producing high value diamonds and
continuing to add value through our beneficiation joint venture with the
Steinmetz Diamond Group. Rockwell is well placed to deliver on its
strategic objectives and our balance sheet provides us with the required
working capital to achieve our short to medium term plans."
Strategy Overview
Rockwell was faced with a challenging third quarter which included a
correction in the diamond market. The commissioning of Tirisano took
significant management time and commitment while Klipdam yielded
disappointing diamond values even though its grades were on budget.
Saxendrift made progress with its projects to stabilize production. The key
strategic objective is to remain focused on optimizing the productive mines
to deliver better returns. The Company is currently evaluating the
potential returns associated with several investment projects, including
extensions to improve returns at the Tirisano and Saxendrift operations as
well as the construction of a new production plant at the Wouterspan mine
site. Once the current review is completed, projects with the highest
projected returns will be pursued dependent on available financing.
At the end of the third quarter, due to some operating challenges, the
Company`s senior mine management teams were reorganized, and several new
appointments were made to enhance the skills in the Company.
Although overall production in the third quarter fell short of internal
production targets set earlier in the year, the gap is beginning to close.
In line with the strategic principles of Diamond Value Management, the
production profile of the Saxendrift mine has shown signs of stabilizing.
With the completion of the Tirisano acquisition on September 1, 2011,
production began ramping up from mid-October 2011 and although diamond
grades were disappointing, the prices achieved for these stones were higher
than expected. Klipdam achieved its budgeted recoveries in November 2011,
but the overall third quarter recovery was below target and quality. The
Holpan mine has been closed and its associated diamond resources are being
treated at Klipdam which will extend its life.
Financial Overview
The Company reported revenue of $8.3 million for the quarter (Third quarter
fiscal 2011: $11.1 million). Beneficiation profit share from the joint
venture with the Steinmetz Group has shown year-on-year growth to $2.3
million (Third quarter fiscal 2011: $897,428). Tender sales amounted to
$6.0 million from the sale of 5,376 carats (Third quarter fiscal 2011:
6,414) from the Company`s three operational mines:
- Saxendrift achieved a 24% year-on-year improvement in sales to US$3.3
million, due to a 34% increase in total carats sold to 1,761;
- Klipdam`s sales revenue of US$1.4 million was significantly lower than in
the comparable quarter in fiscal 2011 due to disappointing diamond values
and a decrease in carats; and
- Sales revenue at Tirisano amounted to US$1.3 million as diamonds at its
first tender sale achieved above budget prices.
A gross profit of $0.6 million for the quarter was achieved, though a loss
of $2.1 million was recorded which includes depreciation and depletion of
mineral property interest of $1.8 million. Mining costs increased compared
to the second quarter of fiscal 2012. This was mainly due to the inclusion
of costs relating to the Tirisano mine for the first time and given that it
was still in its ramp up phase, operating profitability was negatively
affected. The Midamines settlement, amounting to $1.2 million (before
interest) was paid in October 2011. The total cost including interest and
legal fees was $1.4 million in the third quarter. The Company is not aware
of any other outstanding litigation.
It is encouraging, however, that on a year-on-year basis, the average
operating cash cost per cubic metre decreased by 3% to US$10.16.
The South African Rand depreciated by 11% against the Canadian Dollar
during the third quarter, having a significant impact on the Company`s
balance sheet. This reflected as a negative non-cash foreign currency
translation impact of $7.1 million on the income statement. Further Rand
weakness could put upward pressure on dollar denominated costs.
At November 30, 2011, the Company had cash and cash equivalents of $11.2
million (November 30, 2010 - $3.7 million) and bank indebtedness of $0.4
million (November 30, 2010 - $2.2 million), for net cash holdings of $10.8
million (November 30, 2010 - $1.5 million). The Company had working capital
of $12.0 million compared to $9.2 million at November 30, 2010.
A diamond inventory of 1,866 carats had been accumulated at the end of the
third quarter to benefit from the higher demand during the anticipated peak
sales period from January to March 2012.
Operational Overview
Production Sales and inventories
Volume (m3) Carats Sales Average Inventories
(carats) value (US$ / (carats)
carat)
Third quarter 702,573 5,334 5,376 1,109 1,866
2012
Year-year -31% -37% -16% -29% -51%
change
Mining volume declined 31% to 702,573m3(Third quarter fiscal 2011: 1,018,691m3).
While the loss of production volumes due to the closure of operations at Holpan
had an impact, this was dampened by Tirisano which began ramping-up production
from mid-October in 2011. At Saxendrift production volumes declined 12%, the
grade increased by 42% yielding 1,933 carats for the three months to November
2011. Klipdam achieved its budgeted recoveries in November 2011, but overall
recoveries and quality were below expectations. Decisive action has been taken
to remediate this situation.
The Company produced 5,334 carats (Third quarter fiscal 2011: 8,404 carats).
This year-on-year decrease of 37% is largely due to the carats lost with the
closure of Holpan in May 2011. The production of 1,244 carats at Tirisano in the
last six weeks of the third quarter had a beneficial impact and smoothed the
Company`s production profile, in line with the rationale for its acquisition.
Although the Company`s overall production did not meet budget for the quarter,
the gap between actual and budget recovery is reducing.
Klipdam
Mining at Klipdam migrated from the palaeo channel to the Rooikoppie gravels
where diamonds of similar grade could be recovered at a lower unit cost due to
less intensive earthmoving and, hence, equipment requirements. As a result, the
mine realized a 20% reduction in average mining cash cost to US$9.50 per cubic
meter, compared to the second quarter. After quarter end, the mining plan
migrated to the in situ alluvial Rooikoppie gravel which has not been previously
mined and is expected to yield higher quality diamonds.
Carat production at Klipdam was 43% lower than in the third quarter of fiscal
2011, while volumes declined 24% due to continued intermittent front end
throughput constraints. Corrective actions were implemented and an in-field
screen was erected at the center of mining activities; these started to have a
positive impact in the latter part of the quarter with improved throughputs.
A total of 1,990 carats were sold at an average value of US$681 per carat,
compared to 2,862 carats at an average value per carat of US$1,826 in the
quarter ended November 30, 2010. The drop in price was due to the reduced size
and quality of the diamond production from the previously worked area of the
Rooikoppie gravel unit which was mined during the quarter. Management is
confident that this has been addressed by migrating the new mining area.
Saxendrift
Volume production at Saxendrift was on target although carat recoveries were
slightly below budget. Volumes are approaching the long-term production levels
previously estimated for the mine as several Diamond Value Management
initiatives begin to show results.
The in-field screening plant has been fully commissioned and producing at name
plate capacity since the beginning of December 2011. The anticipated benefits of
the new screening plant include improved capability to process the high sand
content in the current gravel feed that had negatively impacted performance in
past quarters. The new plant also removes significant quantities of heavy
magnetic material, enabling the pans to run more efficiently in terms of diamond
recovery.
Implementation of the bulk X-ray project is on schedule. The X-ray machine has
been dispatched from Russia, and is to be set-up in Johannesburg during January
2012. It is expected that the X-ray unit will be commissioned and incorporated
into the dedicated bulk sorting plant, then commence testing and performance
quantification on various gravels will begin during April 2012.
Production at Saxendrift in the third quarter increased 27% to 1,933 carats from
355,308 cubic meters of gravel processed, which were 12% lower than in the
comparable quarter in fiscal 2011. Recoveries gained momentum after a slow start
to the quarter due to a scrubber drive failure at one of the four streams. This
was subsequently resolved.
Sales from Saxendrift increased 34% to 1,761 carats at an average price of
US$1,892 per carat. The 7% year-on-year decline was due to the market correction
as well as a decline in stone quality and size.
Tirisano
The acquisition of Tirisano became effective on September 1, 2011. Production
started ramping-up from mid-October 2011 following the construction and
commissioning of the mine, including the implementation of Continuous Operations
("Contops") from start-up. A new recovery plant and front-end extension were
also commissioned on schedule during the quarter.
Although diamond grades were disappointing in the first months after
commissioning, higher than expected prices were paid for the first stones,
chiefly as a result of higher than expected recoveries of +10 carat stones.
Production at Tirisano during the quarter totaled 1,244 carats from 153,099
cubic meters of gravel processed. Sales amounted to 1,625 carats at an average
price of US$783 per carat. The sales included product that was acquired when the
acquisition became effective.
In line with the reorganization of the senior mine management across the
Company`s operations, a new plant manager, with extensive diamond winning
experience, and a full time mining manager have been engaged for the Tirisano
operation. After the reporting quarter, the mine manager of Tirisano Graham
Chamberlain left the company and was replaced by Ben Nell, the mine manager of
Saxendrift. With these management changes, the mine is well placed to achieve
planned production during the next quarter.
Diamond Market
The volatile financial markets during the second quarter of fiscal 2012
affected the diamond sector at the beginning of the third quarter but sentiment
subsequently improved. The market that reopened late in August 2011 was
characterized by limited trade and extreme caution among traders, resulting
in a temporary price decline of approximately 30% from the record highs in May
and June 2011. Wholesale polished prices declined by an average of 10% while
retail prices were stable. The market turned in October 2011 and continued its
recovery into the fourth quarter with rough and polished diamond prices
improving to within 15% and 5%, respectively, of their May and June 2011
record levels.
During the third quarter Rockwell continued to sell diamonds into its
beneficiation joint venture with the Steinmetz Diamond Group (SDG) whereby the
Company enjoys an equal participation in the profits from the sale of its
polished diamonds sold through this channel. The joint venture has added
increasing value in recent years and in November 2011, a 35 carat, D-color,
flawless clarity, Round Brilliant Cut diamond was sold. It was produced from a
105 carat rough stone recovered from the Saxendrift mine in October 2009 and
formed one of a pair of 35 carat diamonds. The second diamond, which belonged to
SDG, had been purchased and polished over the same time period as Rockwell`s
stone. The polished stones were sold as a pair at a Christie`s auction with
Rockwell`s diamond achieving a price of $230,000 per carat including buyer`s
commission.
Notable Stones
The Company continued to produce large stones at all its operations during the
third quarter:
- Klipdam produced 14 stones exceeding 10 carats, including seven stones
exceeding 20 carats;
- Saxendrift produced 33 stones weighing more than 10 carats, including 12
exceeding 20 carats; and
- Tirisano produced eight stones that were larger than 10 carats, including
two weighing more than 20 carats.
These stones were channeled into the Company`s beneficiation joint venture with
SDG, which delivers value added revenues for Rockwell`s stones that are larger
than 2.8 carats. High quality stones sold through the joint venture during the
quarter included the following:
- Saxendrift:
- a 47.47 carat white diamond, makeable shape and spotted;
- a 48.97 carat sawable octahedron, light yellow and spotted;
- a 57.04 carat fancy yellow, octahedron with clean clarity; and
- a 142.16 fancy yellow, flat shape with spots in the center of diamond.
Outlook
Despite the turmoil which continues to impact global financial markets, the
fundamentals for diamond prices remain strong. Demand extended its recovery into
the fourth quarter following the lull in August 2012. Anecdotal evidence
suggests that the Christmas season in the USA was better than the year before in
terms of diamond jewellery sales. This is expected to assist in the liquidation
of inventory with the resultant cash flow improvement rolling over into the
January and February 2012 rough diamond purchasing period. Rockwell expects
prices and demand to increase through the first half of 2012.
Having obtained the necessary approvals from the Department of Mineral
Resources, the Northern Cape mines will be fully converted to Contops by the
end of January 2012. With Tirisano having been commissioned on Contops at
outset, all operations in the Company will in future be operating on this basis
with the dual benefits of increased production as well as higher utilization of
the processing plants. There is the added advantage of the additional jobs
which will be created in these regions where unemployment is high.
From an operational perspective, the priorities for the fourth quarter of fiscal
2012 are as follows:
- In order to achieve required benchmark returns, Klipdam is targeting the
recovery of better quality diamonds. For the longer term, a redesign of the
front end and increasing the plant capacity is under consideration.
Saxendrift is focused on with optimizing the production process for coarser
diamond recovery to increase the number of large diamonds recovered. The
bottom cut off size has been raised to 5.0 mm and is expected to start
paying off during the fourth quarter.
- The continued implementation of the bulk X-ray technology is also of
primary importance at Saxendrift and will be used as a pilot for deploying
this technology in new projects in the pipeline.
- At Tirisano, the experienced new mine management team which was put in
place at the end of 2011 is focused on the delivery of its production
budget. The technical team has also been tasked with planning and
implementing a wet front end appropriate for run of mine preparation before
the 2012 rainy season commences.
In conclusion, the long term supply and demand fundamentals, driven by
substantial uptake of diamonds from China and India and a gradual reduction in
supply, bode well for the sector.
Conference Call:
Rockwell will host a telephone conference call on Friday, January 13 at 09:30
a.m. Eastern Time (4:30 p.m. Johannesburg) to discuss these results. The
conference call may be accessed as follows:
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) January 18, 2012 and can be accessed by dialing
the relevant number in the table below and using the pass code 19623#.
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`s 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
Johannesburg
13 January 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 13/01/2012 07:11:17 Produced by the JSE SENS Department.
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