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Costs down, revenue up, diamonds selling well – Rockwell

Rockwell Diamonds CEO James Campbell tells Mining Weekly Online’s Martin Creamer of the company's nine consecutive quarters of revenue growth. Photographs: Duane Daws. Video: Nicholas Boyd and Duane Daws. Video Editing: Nicholas Boyd.

10th October 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Alluvial diamond mining company Rockwell Diamonds, which managed to cut its costs radically in the three months to August 31 after nine consecutive quarters of revenue lift, said on Friday that its diamonds were selling well in a stabilising market that was no longer prone to wild swings.

The Toronto- and Johannesburg-listed company, which has just entered into a new black economic empowerment (BEE) partnership and clinched a two-year wage deal with workers, lopped 22% off its average operating cost a cubic metre, taking it to $10.30/m3, after reaching a full-upkeep agreement for vehicles including 100 t trucks and large frontend loaders with capital equipment company Eqstra.

“One month we actually dropped below $7/m3 of processed ore,” Rockwell CEO James Campbell told Mining Weekly Online in a video interview on Friday (see attached).

The net result is that Rockwell has been able to exceed its budget volumes, accurately predict maintenance costs and limit fuel and oil use, a lower cost opportunity that opens up lower grade areas and expands the company’s resource base.

After a net profit of $0.3-million in the three months to May 31, Rockwell reported a net loss of $1.5-million for the three months to August 31, despite lifting revenue 71% year-on-year to $16.9-million, made up of $14.2-million from diamond sales and $2.7-million from the beneficiation agreement it has with Diacore, formerly Steinmetz.

“Diamonds are selling well at the moment,” Campbell said, adding that long-term diamond pricing forecasts were also good against the background of looming under supply.

Its ninth successive quarter of dollar-denominated revenue growth was underpinned by 36% higher year-on-year carat output, made up of 3 764 carats from own operations and 5 817 carats from contractors.

Campbell reported renewed interest in the financing of diamond companies and a possible period of consolidation against a background of low company valuations.

He added that a period of stability might be in the offing.

While continuing to optimise organic growth opportunities, Rockwell, with significant assets under proven management, was also well placed to engage in corporate activity to achieve its aim becoming a mid-tier company.

Currently mining at a rate of 360 000 m3 a month, Campbell believes that Rockwell may soon be knocking at the door of 400 000 m3 a month, by taking the Saxendrift operation to 200 000 m3 a month, Saxendrift Hill to 100 000 m3 a month and Niewejaarskraal to 120 000 m3 a month.

“That’s about as far as we can stretch our balance sheet and current resources,” Campbell said, adding that achieving the targeted 500 000 m3 a month would probably require the construction of a new mine at Wouterspan, which the company was contemplating in phases beginning at 150 000 m3 a month.

Rockwell’s statisticians have predicted that for every half-a-million cubic metres, a diamond larger than 100 ct will be recovered, along with a half-dozen diamonds bigger than 50 ct and a number of bigger than 20 ct.

Quarterly earnings visibility and predictability is calculated to arise once the company is producing at a rate of 1.5-million cubic metres a quarter.

A two-year wage agreement has been reached with National Union of Mineworkers for a 9% wage increase this year and another 9% wage increase next year.

Though above inflation, it gives the company a level of certainty to 2016.

The company employs just under 1 000 full-time employees and contractors and moves more than a million tons a month taking in the Tirisano diamond operation, where an application has been accepted for a sixth royalty agreement, this time from Rockwell’s BEE partner at the North West mine.

During the quarter, Tirisano delivered net royalties of $523 000 from the five existing mining contracts.

After the lapsing of its BEE agreement with African Renaissance to acquire a 30% equity stake in its Middle Orange River, Rockwell has entered into a new partly vendor-financed BEE partnership with newly formed BEE investment company Mhlontlo Investment Holdings (MIH) Newco, owned by Rockwell human resources manager Richard Mhlontlo and Limpopo province entrepreneur Oupa Sekhukhune.

MIH will take up a 30% equity stake and will in turn offer 30% of that stake to a broad-based employee trust.

“Our overall second quarter performance is positive, providing further evidence that our business has become more resilient as we have transitioned our operational focus entirely into the Middle Orange River,” Campbell commented.

The company is said to be well placed for the next quarter having migrated its mining activities to higher-grade areas and obtained a high level of confidence in its plant efficiencies, based on the results of ongoing metallurgical testwork.

Edited by Creamer Media Reporter

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