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Press release from CNW Group

Rockwell announces results for fourth quarter fiscal 2013

Thursday, May 23, 2013

Rockwell announces results for fourth quarter fiscal 2013

16:56 EDT Thursday, May 23, 2013

VANCOUVER, May 23, 2013 /CNW/ - Rockwell Diamonds Inc. ("Rockwell" or the "Company") (TSX:RDI; JSE:RDI) announces results for the three months ended February 28, 2013.

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

Overview of Group Fourth Quarter Performance

  • Positive revenue growth for fourth consecutive quarter: Total revenue of $9.1 million, up 11% year- on-year.
  • Diamond production down 5% year-on-year in fourth quarter, due to 6% decline in overall volume of gravel processed, including impact of decision to place Tirisano on care and maintenance in the fourth quarter.
  • Diamond production and gravel processed from remaining operations up 9% year-on-year.
  • Price per carat improved 30% to average of US$1,355 per carat.
  • Net cash balance of $2.8 million.
  • Inventory of 1,248 carats carried forward.
  • Delivery on goal to increase gravel production in Middle Orange River region to 500,000m3/month.
  • Saxendrift achieved 34% increase in carat production and 24% improvement in diamond sales year-on-year.
  • Production ramp up at the Saxendrift Hill1 on track for full operations in the second quarter of fiscal 2014.
  • Niewejaarskraal to be brought into production by the end of the 2013 calendar year at a capacity of 115,000m3/month.
  • Preliminary Economic Assessment completed at Wouterspan indicating viable project economics, sufficient to take project to detailed design stage.
  • Action taken to resolve loss making operations:
  • Tirisano placed on care and maintenance.
  • Klipdam sold post financial year end.

Fourth Quarter Financial Summary

  • Fourth consecutive quarter with positive revenue growth: Total revenue up 11% year-on-year to $9.1 million.
  • Gross rough diamond sales and beneficiation revenues of $6.9 and $2.2 million, respectively.
  • Carats sold, down 8% year-on-year to 5,308 as a result of lower production at Tirisano and Klipdam.
  • The 'beneficiation pipeline' of more than 4,000 carats provides continued value-added revenue potential.
  • Fourth quarter operating loss before amortization, depreciation and corporate overhead was $279,206, compared to a loss of $2.1 million for the corresponding quarter in 2012.
  • Revenue growth offset by higher average cash operating cost per unit mined: Operating cost up 19% to US$12.39/m3 from prior year.
  • The net loss for the quarter totalled $3.7 million compared to $10.0 million in the fourth quarter of 2012.

The Company's production and sales results for the fourth quarter of fiscal 2013 were as follows:

Fourth
quarter
fiscal
2013
Production Sales and inventories
Volume
(m3)
Carats Production
costs ($)
Value of
Sales (US$)
Sales
(carats)
Average
value (US$ 
per carat)
Inventories
(carats)
619,546 3,854 8,146,364 7,192,266 5,308 1,355 1,248

Summary of operating performance for fourth quarter (three months ended February 28, 2013)

The Company reported 19% year-on-year revenue growth from diamond sales (before beneficiation) to US$7.2 million, underpinned by a 55% increase in carat sales from its operations in South Africa's Middle Orange River region that are key to its production growth strategy. Although total carats sold were down 8% year-on-year to 5,308 carats, a better overall product mix led to a 30% increase in average price per carat of US$1,355 per carat.

Notable impacts of fourth quarter sales compared to the comparable prior year period are as follows:

  Carats Change
(%)
Revenue
(US$m)
Change
(%)
Price per
carat
(US$)
Change
(%)
Notable impacts
Saxendrift
(incl.
tailings)
2,862 55 4.7 24 1,634 -20 Carat value lower due to
impact of high valued
stones sold in prior year:
Effect of lower unit value
offset by significant
increase in carats
produced.
Klipdam 1,574 -47 1.9 14 1,217 115 Lower carat sales offset by
sale of rare 73.52 fancy
yellow diamond.
Tirisano 291 -70 0.2 -67 676 11 Lower carat sales due to
care and maintenance,
carat price in line with
expectation.
Other* 581 - 0.4 - 695 - Royalty mining contracts
gaining momentum

* Other refers to carats from gravel processed by independent contractors and sold through the Company's tender process.

During the fourth quarter, the average total cash cost for all the operations, increased to US$12.39/m3 from a total cash cost of US$10.37/m3 in the comparative period of 2012. This increase is attributable to phasing Tirisano into care and maintenance and technical optimization programmes at Klipdam. Higher fuel, maintenance and labour costs also had an impact across all operations.

Unit costs and revenues for the operational mines were as follows:

  Revenue/m3
(US$)
Mining cash
cost/m3(US$)
Comments
Saxendrift (excl.tailings) US$11.05 US$8.39 Improved margin led by stable unit cost
management and higher revenue per cubic
meter processed due to meeting budget grade.
Klipdam US$8.42 US$11.87 Widening loss per cubic meter catalyzed
decision to sell the mine after the fiscal year end.

With diamond sales of US$196,590, Tirisano reported a fourth quarter operating loss of some $1 million. Expenses incurred during the quarter related to phasing out owner operations and additional labour costs during the retrenchment process ahead of the concluding the royalty mining agreements.

Rockwell recorded a loss of $3.6 million, including impairments at Tirisano and Klipdam amounting to $5.4 million that are considered necessary as part of the corporate turnaround.

At February 28, 2013, the Company had net cash and cash equivalents of $2.8 million. The operations to date are generating sufficient cash holdings and the Company has access to short-term debt facilities to cover cash operating costs and group overheads. This is expected to improve once Saxendrift Hill and Niewejaarskraal are operating at full production.

Fourth Quarter Operational Summary

  • 3,854 carats produced and 5,308 carats sold.
  • Grade at Saxendrift (including Saxendrift Extension) increased 43% year-on-year.
  • Good increase in mining volumes at Klipdam but disappointing diamond recoveries led the decision to sell the mine, post financial year end
  • Two royalty mining contracts at Tirisano property produced 727 carats and additional royalty contracts being negotiated.

Combined quarterly volumes of gravel processed at the Saxendrift Mine and further bulk sampling at the Saxendrift Extension Project declined 6% year-on-year to 383,770m3 in the fourth quarter, in line with plan while carat production increased 34% to 1,929 carats. The overall grade improved by 43% to 0.5 carats / 100m3 as a result of better grades achieved from the Saxendrift Extension site.

Klipdam operations delivered a 44% increase in fourth quarter mining volume production to 227,361m3, in part due to the outsourcing the mining operations to a specialized earthmoving contractor in November 2012. However, carat production fell 45% from the same period last year to 1,133 carats.

Volumes processed at Tirisano amounted to 1,823m3, until it was placed on care and maintenance in December 2012, producing 39 carats. Two royalty mining contracts were operated by smaller-scale operators on specific areas of the Tirisano property, yielding 727 carats. A third royalty mining contract commenced operation subsequent to the end of the financial year and an additional contract will start in July 2013 to achieve Rockwell's goal of processing 150,000m3 per month at the property within six months.

Growth projects

Having acted to address the operations at Tirisano and Klipdam to stem cash losses, Rockwell is now focusing its available capital and resources to grow the production profile of its properties in the Middle Orange River region. Rockwell's flagship Saxendrift Mine is operating effectively and is cash generative. The Middle Orange River operations are being expanded from this centre of production with the aim of achieving monthly production volumes of 500,000m3.

Progress with this growth strategy is as follows:

  • The Saxendrift Hill Complex Mine is currently in production ramp. Its processing plant, with 100,000m3/month capacity, is based on two Bulk X-ray systems that have successfully been piloted at Saxendrift during the fiscal year.
  • Bulk sampling to define the resource at Saxendrift Extension has been completed. The aim is to integrate the mining of this resource into the existing Saxendrift mine plan, extending the useful life of the existing Saxendrift processing infrastructure by several years.
  • An updated Preliminary Economic Assessment was completed post financial year end at the Wouterspan property. The study indicated positive economics, sufficient to take the project to the detailed design stage. The project has a ten year life of mine with material assumptions of a grade of 0.622 carats / 100m3 and average value of $2,300 per carat, all at a 5mm bottom cut off.
  • Construction of a new processing plant to bring the Niewejaarskraal Mine back into production is in progress with a capital budget of $2.2 million. The project is on schedule, and commissioning at the design capacity of 115,000m3 is expected to commence within three months.

Market Outlook

The Company is anticipating a recovery in rough diamond prices of between 5% and 10% for the 2013 calendar year for smaller diamonds. In the market for the larger diamonds that make up most of Rockwell's production profile, demand continues to outstrip supply. There has also been increasing attendance at Rockwell's monthly tenders, and this is interpreted as a positive indicator of rough diamond demand and price.

Rockwell has carried over an inventory of 1,248 carats into the first quarter of fiscal 2014, which, together with the beneficiation pipeline that comprises some 4,000 carats, provides further potential for valued-added downstream revenues.

Rockwell's priority for fiscal 2014 is to manage operating costs, while increasing the production profile in the Middle Orange River region, where the Company has the expertise and track record to profitably recover large, high-value diamonds. In the first quarter the focus includes completing the production ramp up at the Saxendrift Hill Complex and constructing the new internally-funded production facility at Niewejaarskraal. At Saxendrift, the first quarter mine plan comprises a combination of gravels from the traditional (Brakfontein) mining area as well as the Saxendrift Extension that will be processed at Saxendrift to optimize the life of the mine.

Commenting on the fourth quarter performance of Rockwell, James Campbell, CEO and President of Rockwell Diamonds said:

"Although the fourth quarter was challenging, we have taken decisive action at our lossmaking operations, putting us on a sounder footing for fiscal 2014. We delivered good revenue growth, but our financial performance was impacted by the full costs of retrenchments and care and maintenance processes for Tirisano. At Klipdam, volumes increased in line with plan, but the recovery of diamonds was disappointing, resulting in a loss. Now that these legacy operational issues have been addressed, we can focus on our cash generative operations in the Middle Orange River region and on building the Company."

"Our priority is to use our skills and financial resources to leverage our production profile from our properties in the Middle Orange River. Rockwell has a considerable inventory of high value diamondiferous resources in the region where we have a proven track record of successful mining. Saxendrift is in a stable state of operation, and our objective is to continue generating positive cash flows until our other operations are up and running. The ramp up of production at the Saxendrift Hill Complex is on track and we are making good progress with the construction of the new processing facility at Niewejaarskraal; both of these projects have been funded internally. Once these three mines are in operation, we will have reached the halfway mark of increasing production at our Middle Orange River operations to 500,000m3 per month in the medium term."

Conference Call:

Rockwell will host a telephone conference call on Friday, May 24, 2013 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) 1 855 669 9657
USA (Toll) 1 412 317 6060
USA (Toll-Free) 1 866 652 5200
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 6616
UK (Toll-Free) 0808 162 4061
UK Alternative (Toll-Free) 0 800 917 7042
Australia (Toll-Free) 1 800 350 100
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 29, 2013 and can be accessed by dialling the relevant number in the table below and using the pass code 24333#.

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 2012.

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. The Company has three existing operations, namely Saxendrift, Klipdam and Tirisano. It is currently constructing a fourth mine, Saxendrift Hill, which is an expansion of the Saxendrift mine and will go into production by March 2013. The recent acquisition of the Jasper Project has provided further potential to leverage returns from the Middle Orange River properties.

The Company has two future development projects at Wouterspan and Niewejaarskraal and a pipeline of other projects with further future development potential. Rockwell's operations and projects are all located in the Republic of South Africa.

In addition to its project work, Rockwell continues to evaluate merger and acquisition opportunities which may have the potential to expand its mineral resources and provide new opportunities to develop the additional production that would provide accretive value to the Group.

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.

1 Saxendrift Hill is included in the Technical Report on the Saxendrift Alluvial Diamond Mine updated on February 29, 2012 that is available on www.rockwelldiamonds.com


SOURCE: Rockwell Diamonds Inc.

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

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