Press release from CNW Group
Rockwell's results for first quarter fiscal 2014: Early benefits of focus on Middle Orange River region and further revision to $2 Million Convertible Loan
Thursday, July 11, 2013
Rockwell's results for first quarter fiscal 2014: Early benefits of focus on Middle Orange River region and further revision to $2 Million Convertible Loan17:00 EDT Thursday, July 11, 2013
VANCOUVER, July 11, 2013 /CNW/ - Rockwell Diamonds Inc. ("Rockwell" or the "Company") (TSX: RDI; JSE: RDI) announces results for the three months ended May 31, 2013 and that it has executed Addendum No 2 with its principal shareholder, Daboll Consultants Ltd., to revise their June 2, 2011 convertible loan agreement in one further respect ("Loan").
First quarter fiscal 2014 results
Currency values are presented in Canadian dollars, unless otherwise indicated.
Salient features of first quarter:
- Strong year-on-year revenue growth of 27% for first quarter: Total revenue of $9.0 million, comprising $7.8 million from diamond sales and beneficiation income of $1.2 million, up 29% and 19%, respectively.
- Overall volume of gravel processed and diamond production from own operations (excluding royalty mining contractors) down 19% and 54% year-on-year respectively: Due to placing lossmaking Tirisano on care and maintenance (December 2012) and sale of Klipdam (end March 2013), marginally offset by production of royalty mining contractors.
- Net cash holdings of $0.3 million: Reduction mainly due to cash used in working capital reduction and investment in new capacity.
- Inventory of 1,085 carats carried forward (includes 370 carats on royalty mining contracts).
- Royalty mining contractors gaining momentum with three contracts in place at Tirisano: 1,984 carats produced and 1,730 carats sold at average price of US$623 per carat (Rockwell's royalty amounting to $134,749) and set to increase with new contracts concluded.
- The 'beneficiation pipeline' of more than 4,900 carats provides continued value-added revenue potential.
- Net loss for the quarter narrowed to $1.2 million compared to a loss of $3.0 million in the prior year.
Commenting on the first quarter performance of Rockwell, James Campbell, CEO and President said:
"Rockwell reported a first quarter operating profit before amortization and depreciation of $1.1 million, having exited lossmaking operations at Tirisano and Klipdam. Furthermore, our first quarter results are beginning to show the impact of evolving our strategy to refocus on our Middle Orange River properties, which typically yield higher valued diamonds. Rough diamond production and carats sold from our own operations declined by 54% and 38%, respectively, as a result of eliminating Tirisano and Klipdam. However, the 109% increase in average price per carat from our own operations is a direct consequence of transitioning our production profile to the Middle Orange River region. The increased average value per carat compensated for the decline in carats sold. Revenue from diamond sales, together with our share of the revenues from our royalty mining contractors' production, enabled us to post positive revenue growth. Moreover, we benefited from stronger beneficiation income during the quarter. Also noteworthy is that we delivered a fifth consecutive quarter of revenue growth in US$-denominated terms, which is the base currency for all our diamond sales."
"By the end of the first quarter, we had fully dealt with the lossmaking operations at Tirisano and Klipdam. More specifically and in line with plan, the royalty mining contractors at Tirisano are covering the care and maintenance costs and, in doing so, finally eliminated the drain on Rockwell's resources. We are now positioned to achieve the financial benefits of the turnaround, which should be reflected in our results by the end of fiscal 2014. We are confident that Rockwell is now better positioned to start showing sustainable improvements, with our flagship Saxendrift operation running optimally and our new operations at the Saxendrift Hills Complex and Niewejaarskraal coming on stream."
Review of first quarter delivery on strategy
The performance of Rockwell for the first quarter reflects the current status of delivery towards the Company's strategy to grow its production footprint in the Middle Orange River region that offers higher diamond values, better efficiencies and greater economies of scale. The mid-term target is to increase monthly production volumes of gravel processed to 500,000m3 in order to achieve better quarterly earnings visibility. Accordingly, the Company is focusing its capital and resources on the development of its portfolio of properties in the region where it has a track record of positive cash generation.
Delivery highlights of the first quarter results in relation to the Company's Middle Orange River focused growth strategy are as follows:
- Average carat value from own operations improved 109% to US$2,018 per carat: 70% of carats sold (excluding royalty mining contractors) were recovered from the Middle Orange River region versus 39% a year ago.
- Year-on-year revenue growth of 27%: Higher average carat value from own operations offset 38% decrease in carats sold.
- Operating profit before amortization and depreciation was $1.1 million: Cash drain from lossmaking operations at Tirisano and Klipdam eliminated.
- Good quality production at Saxendrift: 56% increase in value of diamond sales year-on-year despite 4% decline in carat production.
- Ongoing production ramp up at Saxendrift Hill Complex1 with recovery of 269 carats and first diamond sale of 130 carats: Capital investment of developing the Saxendrift Hill Complex processing facility paid off from proceeds of May and June 2013 tender sales.
- Wet commissioning of Niewejaarskraal conducted early in second quarter: On track for first production within three months of re-activation proposal being tabled to Board using the proceeds of the Klipdam sale.
- The results of the preliminary economic assessment for Wouterspan showed viable economics and the Company is currently reviewing options to bring this asset to account.
- New royalty mining contract introduced at Zwemkuil: Not suited to Rockwell's high volume operating model.
First Quarter Performance Summary
The Company's overall production and sales results excluding royalty mining contractors for the quarter are:
|Production||Sales and inventories|
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.
First quarter processed gravel volumes from own operations declined by 19% to 656,313m3 year-on-year while diamond production was 54% lower at 2,840 carats, both results exclusive of contractors. The reduction in carat production is mainly the result of the operations at Tirisano being placed on care and maintenance in December 2012 and the sale of Klipdam at the end of March 2013.
Notable impacts of first quarter production compared to the comparable prior year period are as follows:
|Saxendrift||461,184||2||2,036||-4||Grade within anticipated range for the mine.
Excellent recoveries in April 2013: Nine + 20
carat stones, including four +50 carat stones.
|Saxendrift Hill Complex||129,427||-||269||-||Lower grade block mined in line with strategy
to mine two-year resource on a block basis.
Several high quality diamonds recovered.
|Klipdam||65,702||-72||535||-81||Production declined due to sale of mine at
end March 2013
|Contractors*||237,520||-||1,984||-||Three royalty mining contractors operated at
The Company's reported revenue from diamond sales (before beneficiation) increased 29% year-on-year to $7.8 million. Reported revenue includes the Company's 12.5% royalty from the sale of royalty mining contractors' rough diamond production. The average carat value (own operations) rose 109%, reflecting the transition of Rockwell's focus towards its Middle Orange River properties. In the quarter under review, 70% of carats sold were recovered from the Middle Orange River region (Saxendrift and the newly commissioned Saxendrift Hill Complex Mine), compared to 39% a year ago. Importantly, there was a concomitant increase in average value per carat.
Notable impacts of first quarter sales compared to the comparable prior year period are as follows:
|Saxendrift||2,148||5||5.5||56||2,553||48||Sale of a number of large,
high quality stones
|Saxendrift Hill Complex||130||-||0.5||-||3,668||-||Positive impact of selling a
large high quality diamond
|Klipdam||895||-59||0.6||-53||636||16||Decision to sell mine at end
|Tirisano||83||-92||0.0||-87||505||62||Sale of remaining inventory
of rough diamonds
|Contractors*||1,730||-||1.1||-||623||-||Royalty mining contractors
increased from two to three
* Contractors refers to carats from gravel processed by independent royalty contractors and sold through the Company's tender process.
During the first quarter, the average total cash cost (including rehabilitation and depreciation) for all the operations, increased to US$12.62/m3 from a total cash cost of US$10.95/m3 in the comparative period of 2013. This increase is attributable to higher unit costs during the ramp up phase at Saxendrift Hill Complex and higher fuel and maintenance costs at Saxendrift.
Average cash operating costs and revenues for Rockwell's own operations during the period are:
|Saxendrift||US$11.89||US$9.6||Improved unit revenue offset by higher mining
cash cost per unit (due to increased maintenance
|Saxendrift Hill Complex||US$3.68||US$11.6||Low production and carat sales during ramp up
The sale of the remaining 83 carats in Tirisano's inventory generated total proceeds of US$41,943. These diamonds, together with the Company's royalty of US$134,749 from contractors' total diamond sales, were used to offset the Tirisano care and maintenance costs.
Normal operations produced a stable cash flow position (prior to working capital movements). Adjusting for pay down of payables and collection of receivables, working capital movements and investing activities and creating new capacity at Niewejaarskraal (Fiscal year to date - $1.6 million), resulted in a net cash outflow for the period of $2.4 million.
The Company is making tangible progress towards its objective to increase and extend the mine life of Rockwell's Middle Orange River properties:
- The internally-funded development of the Saxendrift Hill Complex mine, which commenced operations in March 2013, is expected to reach nameplate capacity of 100,000m3 in the second quarter.
- Resource definition at the Saxendrift Extension was finalized, with the results planned to be published in an updated NI 43-101 technical report during the second quarter. The mine plan at Saxendrift has now incorporated the Saxendrift Extension, and is expected to extend the life of the 160,000m3 per month processing facility at Saxendrift.
- The internally funded construction of the first phase of the Niewejaarskraal processing plant was completed within three months of obtaining board approval. The Niewejaarskraal mine is currently in ramp up towards its nameplate production capacity of 100,000m3 per month.
- The preliminary economic assessment for Wouterspan, completed during the quarter, demonstrated positive project economics. The Company is currently reviewing options to bring this asset to account.
In addition to its growth strategy for the Middle Orange River region, early in fiscal 2013 Rockwell embarked on a secondary strategy to introduce royalty mining contracts on properties that it does not wish to mine due to scale or other reasons. During the quarter, two additional contracts were awarded at Tirisano, which are set to increase monthly production volumes to 150,000m3 by the end of calendar 2013. A further contract for Rockwell's Zwemkuil property, also located in the Middle Orange River region, has been finalized and projected monthly volumes of 50,000m3 will commence in the second quarter.
In order to supplement its considerable in situ diamond inventory, the Company continues to evaluate value accretive consolidation opportunities in the southern African diamond sector. A strict set of criteria are applied to evaluate the potential of acquisitions in order to leverage the Company's production profile towards its goal to become a mid-tier diamond producer.
Rough diamond prices showed a few a percentage point decline at the end of May 2013, after having improved earlier in the calendar year. As a result of Northern hemisphere summer vacations and the limited availability of credit in the industry, expectations for rough diamond prices in the second quarter are muted. Overall polished prices are expected to remain stable, showing increases in certain sectors but declines in areas with lower demand.
Rockwell has carried over an inventory of 1,085 carats into the second quarter of fiscal 2014 which, together with a beneficiation pipeline comprising some 4,996 carats, provides further potential for valued-added downstream revenues. Rockwell continues to beneficiate the vast majority of its diamonds in South Africa and due to the recovery of prices for some special diamonds during the first quarter of fiscal 2014, the beneficiation revenue trend is expected to continue in line with past results.
Rockwell's priority for the second quarter of fiscal 2014 is to continue to manage operating costs. At Saxendrift, the second 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. Completing the ramp up at the Saxendrift Hill Complex and bringing Niewejaarskraal on stream are top priorities for the Company, with the overall monthly processing capacity at the three operational mines in the Middle Orange River region projected to be 360,000m3 by the end of the calendar year.
Addendum No 2 revising convertible loan agreement with Daboll Consultants Ltd.
Rockwell announces that it has under the first Addendum announced June 26, 2013, the Loan repayment date was extended by two years to June 2, 2015 and the conversion right was amended so that the Loan was to be convertible at the prevailing market price of the Company's shares with a floor price of C$0.16 per share (maximum 12,235,686 shares). Under Addendum No 2, it was agreed that the Loan may only be exercised during the final three weeks of its two-year remaining term, from June 5 to June 26, 2015 and subject to the same floor price. The Loan remains subject to the restriction that it may be converted into no more than 10% of the Company's share capital as of the date of conversion unless a larger number of shares has been authorized by a prior vote of disinterested Rockwell shareholders.
Rockwell is seeking such approval at its July 26, 2013 annual and special shareholders meeting with details of the transaction described in its information circular on file at www.sedar.com.
Rockwell will host a telephone conference call on Monday, July 15, 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:
|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 6800|
|UK (Toll-Free)||0808 162 4061|
|UK Alternative (Toll-Free)||0 800 917 7042|
|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) July 18, 2013 and can be accessed by dialling the relevant number in the table below and using the pass code 24976#.
|South Africa (Telkom)||011 305 2030|
|USA and Canada (Toll)||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.
SOURCE: Rockwell Diamonds Inc.
For further information:
For further information on Rockwell and its operations in South Africa, please contact:
CEO and President
+27 (0)83 457 3724
+27 (0)83 307 7587