|Rockwell -- Fourth quarter operating performance
Rockwell’s fourth quarter operating performance impacted by lower grades and drop in carat sales partially offset by higher overall revenue
Rockwel announced results for the three and twelve months ended February 28, 2015.
- Fourth quarter operating performance mostly impacted by lower grades at Saxendrift and lower volumes at Niewejaarskraal during wind-down.
- Two +120 carat rough diamonds recovered at Saxendrift increased overall average carat value by 22% to USD1,544 per carat. Accordingly, total revenue increased 19% to CAD17.1 million including a 60% increase in beneficiation income over prior year’s fourth quarter.
- Ongoing cost reduction initiatives led to 19% decrease in consolidated average cash operating costs for the Middle Orange River (“MOR”) operations to USD11.2 per m3, with volumes mined and processed up 58% and 45% respectively.
- Mining activities suspended at Niewejaarskraal in early April 2015 in order to refine the geological model and review mine plans to upgrade processing capacity to optimal effectiveness.
- The operations at Saxendrift are being reviewed in light of the expected higher stripping ratios and decline in grades towards the end of its current economic mine life with planning for a reduced operation and rationalization of the current Rockwell plant with that of the Bondeo business and other development assets going forward.
- Additional revenue potential underscored by 'beneficiation pipeline' of more than 6,057 carats.
- Exploration work commenced on the farm Lanyonvale and technical work on a revised plan for a large bulk sampling operation on the Wouterspan property continued.
- Substantial completion of the conditions precedent for the previously announced acquisition of the Remhoogte/Holsloot Operations and associated assets, paving the way to close the transaction and assume ownership and operational control by no later than June 1, 2015.
- Revenue: Gross diamond revenues increased 19% to CAD17.1 million including beneficiation revenue. Rough diamond sales increased 16% to CAD15.6 million, despite a 12% drop to 8,467 carats in carat sold on a period- on-period basis. The average carat price from Company owned properties increased 22%, underpinned by sale of two +120 carat diamonds during the fourth quarter.
- Production Costs: The Group’s consolidated average cash operating cost was down 19% to USD11.21 per cubic metre. The average total cash cost (including rehabilitation and royalty payments) for all the operations for Q4 F2015, declined 11% to USD13.21 per m3.
- Cost of sales before amortization and depreciation: The cash cost of sales increased to CAD20.2 million, largely due to increased volumes mined (2.7 million m3 to 4.7 million m3) and high costs at Niewejaarskraal chiefly driven by the high stripping ratio.
- Gross loss: A gross loss of CAD3.1 million was recorded. Although MOR carats sold were stable with a 14% increase in revenue per carat, these benefits were offset by lower grades (down 23%) and higher volumes processed (up 45%), leading to a CAD3.8 million increase in production costs.
- Net cash position: At February 28, 2015 the Group had net cash and cash equivalents of CAD0.6 million, having recorded a net movement in cash and cash equivalents of CAD1.1 million including the receipt of CAD1.8 million in respect of the convertible debenture issue, and after a transfer of CAD0.8 million to assets held-for-sale.
- Middle Orange River (“MOR”) operating performance: A total of 1.2 million m3 was mined from Rockwell’s MOR operations, up 58% from the prior year, chiefly due to increased stripping ratios and facilitated by the ongoing optimisation of in-field screening operations as well as the earthmoving vehicle (“EMV”) renewal plan. Volumes of gravel processed also increased 57% to 0.9 million m3. The increased volumes processed partially offset the lower grades and lower prices achieved for the rough product.
The diamond market during Rockwell’s fourth quarter was once again dominated by declining polished prices, high rough prices and a lack of financing available for the diamond industry.
While De Beers’ prices remained stable, open market prices have been substantially lower. Sightholders rejected some 30% of rough diamond allocations as pricing left minimal margin to be made on these diamonds. Banks are not offering financial assistance on loss making rough diamonds with the net result that factories are shutting down in southern Africa, India and other cutting centres around the world.
The decline in polished prices persisted albeit at a much slower pace with some price stabilization in certain size categories. Retail sales increased marginally, especially during the peak festive trading season, Chinese New Year and other high profile shopping events. Lower volumes of polished stones and shortages are becoming an issue.
Overall, the industry experienced deflationary pricing due to diamond and gold price reductions. However, there are indications that prices have bottomed out. As industry liquidity improves and rough prices from primary suppliers are lowered to match open market pricing, the industry will be on a solid footing for a recovery.
In addition to the integration of the imminent Bondeo acquisition, Rockwell is also prioritising its exploration activities to extend its inventory of in situ diamonds at its existing properties. The initial focus is on the Lanyonvale and contiguous Wouterspan properties. Both are considered to have significant potential to add to the Company’s resources.
- Assuming a close of the Bondeo acquisition, the Company will take over an existing mine and does not expect any interruption in activities there.
- At Lanyonvale, initial work will focus on the evaluation of the Rooikoppie Exploration Targets with potential resources of 3 to 4 million m3 of gravel, followed by fluvial alluvial Exploration Targets with potential for 1 to 2 million m3 of gravel. Completion is targeted for the end of October 2015.
- At Wouterspan, further pitting of the Rooikoppie gravels at a tighter grid spacing is planned with the intention of converting the initial estimates to Indicated Resources by February 2016.
First quarter fiscal 2016 operational and corporate priorities are as follows:
- Bedding down operations at the Remhoogte/Holsloot Project including the transfer of current employees to Rockwell to ensure continuous production, while at the same time applying Rockwell’s MOR-specific geological and technical skills.
- Completing the suspension of operations at the Niewejaarskraal property, including the Section 189 retrenchment process in addition to conducting further evaluation and process optimisation work.
- The operations at Saxendrift are being reviewed in light of the expected higher stripping ratios and decline in grades towards the end of its current economic mine life with planning for a reduced operation and movement of plant to other Rockwell development properties.
Rockwell will host a telephone conference call on Monday, June 1, 2015 at 09:00 a.m. Eastern Time (15:00 p.m. Johannesburg / 14:00 p.m. London) to discuss the results.
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