Rockwell’s diamond planets aligning

JOHANNESBURG (miningweekly.com) – With performance at Rockwell Diamonds’ operations continuing to improve and legacy issues being gradually swept aside, hopes are rising that the alluvial diamond miner will enter a sustained phase of profitable steady state from the latter part of 2012.

The TSX- and JSE-listed company’s quarter-on-quarter carat output was up in the latest quarter, even after the closure of the Holpan mine, and the need now is for the continually strengthening performance to drop down to the income statement.

While a paper-thin gross third-quarter profit of C$0.6-million was achieved in the latest quarter, the books reflect a $2.1-million loss, caused mainly by the full capitalisation impact of the Tirisano project being absorbed on ramp up and exchange rate volatility.

Going forward, Rockwell expects average diamond values above $800 a carat to continue.

Growth options include the development of Wouterspan, Nuwejaarskraal or Saxendrift Extension, or the doubling of Tirisano.

“Those four present a wealth of opportunity for a tiny company like Rockwell,” CEO James Campbell tells Mining Weekly Online.

The best of the four will be presented to the board for go-ahead, with much depending on the success of the bulk X-ray machine, which will form the cornerstone of the feasibility studies for Wouterspan and Nuwejaarskraal, which are currently based mainly on large-scale pan plant technology.

The bulk X-ray machine has arrived in South Africa for installation at Saxendrift and is expected to bring in lower operating, power, water and labour costs, with increased recovery and security.

The chosen project will be financed internally or by going to the market.

Expanding Wouterspan and Nuwejaarskraal will require significant capital and Rockwell wants to demonstrate more consistent performance before going to the market for large sums.

“We’re very mindful that Rockwell shareholders have been through a very tough time and I am reluctant to dilute them further just to expand the company,” Campbell confides to Mining Weekly Online.

Wouterspan’s six mining and prospecting rights have been consolidated, providing significant upside to extend the mining potential of the property.

Tender sales in the latest quarter totalled C$6-million and the beneficiation profit share arrangement with the Steinmetz group added another C$2.3-million ($734 000 last year), taking overall diamond revenue to C$8.3-million in the three months to November 30.

The C$1.2-million one-off Midamines legal settlement takes known legacy issues out of the way and payment by black economic-empowerment (BEE) partner, African Vanguard Resources, for 26% of the Middle Orange River properties would add R50-million plus interest to the balance sheet.

There are no issues with the Mogopa community BEE at Tirisano, which obtained finance from the State-owned Industrial Development Corporation to fund its R26-million preferential-share-based investment in the Ventersdorp operation.

At Saxendrift, the new in-field screen has resulted in budgeted volume throughputs being exceeded.

The new screen is designed to ensure that the mine can achieve more than 130 000 m³ of head feed a month.

Owing to Saxendrift’s bottom cut-off being increased since early December to 5 mm, Campbell anticipates that the operation will yield above the current $2 000/ct level.

Klipdam suffered a Q3 dollar-per-carat deterioration, not as a result of a softer market, but because of poorer quality stones.

It is expected to improve towards budgeted $1 000/ct diamond values as grade and carat recovery rise.

Mining costs at Klipdam, a mine coming to the end of its natural life, are down 20% and the focus will be on increasing the dollar-per-carat level at the same grade and the same lower mining cost.

With Tirisano under new operational management, the bridal diamond resource is expected to hit its budget from March.

A total of 5 334 carats were produced in the latest quarter at the three operations and 5 376 carats were sold at an average price of $1 109 a carat.

While Rockwell has recorded a C$2-million third-quarter loss, its comprehensive loss is C$10.7-million.

“This is entirely an accounting artefact of the exchange-rate differences,” Campbell explains.

Last year was the exact opposite when, in the corresponding three months to November 30, a $9.5-million positive exchange-rate difference enabled the company to end up with an $8.7-million profit, despite suffering a loss for the period.

The rand depreciated by 11% against the Canadian dollar during the third quarter, which 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, the company warns.

The company is sitting on cash and cash equivalents of C$11.2-million, compared with C$3.7-million in the corresponding period last year, and bank debt of C$0.4-million ($2.2-million in 2010).

A diamond inventory of 1 866 carats has been accumulated for supply into higher demand during the anticipated peak sales period from January to March.

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.

“Our focus continues to be delivering on the objectives of the strategic review that was conducted at the beginning of 2011,” says Campbell.

Eighty per cent of Rockwell’s diamonds are beneficiated in South Africa as part of the company’s joint venture agreement with the Steinmetz group, which has its factory in downtown Johannesburg.

Flawless Diamonds markets and sells the diamonds on Rockwell’s behalf for a 1% commission, which is below the more general 3% to 5% commission and well below De Beers’ 10% commission.

While some see alluvial mining as a hit-and-miss, up-and-down business on which grade prediction is elusive, if not impossible, Rockwell reports that it has developed a tool that allows it to predict grades by modelling four geological metrics on each of the mining faces.

Use of the tool has enabled Saxendrift to exceed its carat target on an ongoing basis.