Rockwell Diamonds, the South Africa-focused alluvial miner, delivered a poor set of results for the three months to May, reporting a C$5.1 million net loss. The company has however put a operational review strategy in place to improve circumstances moving forward.
Rockwell entered a transition phase in the first quarter and took the decisions to suspend operations at Niewejaarskraal (NJK) pending review of the geological model and plant, to sell its interest in Tirisano and to buy Remhoogte, all of which were completed.
Operating results reflect the transition, reporting a net loss, after impact of non-recurring expenses – $4.9 million in total.
First quarter revenue is down 39%, as diamond sales were impacted by lower production at NJK and Saxendrift Hill Complex (SHC) and the Tirisano disposal. Beneficiation dropped year on year as the prior-year revenue was skewed by the sale of an exceptional 109-carat polished diamond.
Average cash costs declined marginally to US$13.09 per m3 notwithstanding lower volumes processed by Middle Orange River operations (down 14%).
The acquisition of Remhoogte/Holsloot project (RS/HS) and its associated plant and equipment in MOR was completed and Rockwell assumed operating control on May 28, 2015. Grades and volumes achieved have been on plan for the first four weeks of operation, subsequent to the date of change of control.
A financing is planned to raise both equity and asset funding in Q2 to repay the US$ 16.5 million plus R16 million bridging loans from two shareholders, Ascot Diamonds and Rockwell Chairman Mark Bristow, which facilitated the closing of the acquisition.
Cash generated by the new operations have enabled repayment of R16 million in bridge loans during June and July.
Rockwell Diamonds’ on-going focus on delivering medium term strategic target to process 500 000m3 of gravels per month from MOR operations however remains intact, and rebuilding its production profile to achieve sustainable profitability includes:
- Rationalisation of existing MOR operations with redeployment of certain assets to the acquired operations.
- Reviewing the mine plan at Niewejaarskraal to avoid stripping costs experienced to date.
- Medium-term plans including exploration at Lanyonvale and large-scale bulk sampling at Wouterspan with a view to replacing Saxendrift as it approaches the end of its economic life and to deliver additional organic growth.
“Rockwell has come through a challenging first quarter as we dealt with some final legacy issues and rationalised our own operations which have been struggling with declining grades. Having sold Tirisano, suspended operations at Niewejaarskraal and closed Saxendrift Hill Complex, the completion of the Bondeo acquisition delivers a suite of longer life options including the flagship Remhoogte/Holsloot operations,” says Rockwell CEO and president James Campbell.
“With these assets and our own Wouterspan and Lanyonvale feasibility and exploration projects we are now able to look to the future and deliver on our medium term objectives of building a sustainably profitable and integrated diamond business.”
The first quarter was characterised by a continued slowdown in rough purchases and polished price stabilisation largely due to the lower volumes traded. Although finance remains tight, there has been a slight improvement in finance available.
At De Beers’ two sights held during the quarter, prices were down some 5% to 7% and volumes were greatly reduced. The rejection rate by sight-holders was up to 30%, largely due to minimal margin on sight goods and the unavailability of finance. Alrosa also reduced its prices and lowered volumes in line with market demand and resistance to paying high prices. Other producers, the majority selling via tender process, saw prices stabilising in the second quarter of calendar year with steady tender demand.
Players in the polished diamond market continued their attempts to reduce inventory and improve liquidity. Prices stabilised and while polished is still plentiful, shortages of certain more desirable items are emerging. Factories, have adjusted their workforce rather than polishing the expensive rough at a loss.
Looking forward, a continued reduction in rough supply and lower prices could sustain polished prices and stabilise the disparity between rough and polished prices. As the seasonally slow northern hemisphere summer trade does slow down, polished consumption will follow suite, and thus there is no expectation of price increases.