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Rockwell post bottom-line profit
Rockwell Diamonds Inc. announces results for the three months ended May 31, 2014.
Currency values are presented in Canadian dollars, unless otherwise indicated.
Features of first quarter fiscal 2014:
- Net profit of USD345,000 reported in first quarter compared to a loss of USD1.2 million in the prior year.
- First quarter revenue increased 67% year-on-year to UASD15.1 million, comprising USD9.7 million from diamond sales and beneficiation income of USD5.4 million (including the sale of a 109 carat polished vivid yellow diamond).
- Eighth successive quarter of dollar denominated revenue growth reported.
- Overall volume of gravel processed and carat production from all Company-owned properties up 26% and 90% year-on-year, respectively.
- Operating profit before amortization and depreciation of USD4.2 million, up from USD1.1 million in the prior year.
- Net cash flow from operating activities of USD1.1 million, compared to cash utilized of USD3.0 million in prior year.
- Inventory of 5,237 carats carried forward (includes 2,271 carats on royalty mining contracts).
- Additional revenue potential underscored by ‘beneficiation pipeline’ of more than 6,300 carats.
- Royalty mining contracts at Tirisano deliver net royalties of USD312,576.
Review of first quarter delivery on strategy
The significant improvement in Rockwell’s first quarter operating and financial results reflect the benefits of its focused strategy to increase its MOR production footprint with a mid-term target to increase monthly production volumes of quality gravel processed to 500,000m(3). Higher diamond values, better efficiencies and greater economies of scale can be achieved in this region to deliver more consistent quarterly earnings at a more predictable mining cost.
Rockwell maintained its focus on achieving its core medium-term objective of reaching monthly own processing volumes of 500,000m(3) in the MOR region. Its three producing operations in the region have a total monthly processing capacity of 340,000m(3) comprising Saxendrift (160,000m(3) per month at a 5mm bottom cut-off), SHC (80,000m(3) per month at a 5mm bottom cut-off) and Niewejaarskraal (100,000m(3) per month at a 6mm bottom cut- off). Rockwell is on track to meet its target with the fleet renewal programme at Saxendrift immediately enabling a 20,000m(3) per month increase in capacity, while at Niewejaarskraal an upgrade is under consideration to take its capacity to 120,000m(3) per month. The phased implementation of a new plant at Wouterspan, also under review, would bring the Company’s processing capacity to its medium term target.
In addition, Rockwell processes some further 200,000m(3) per month indirectly through royalty contract mining production at Tirisano, bringing the total current production volumes to 560,000m(3) per month on Company-owned properties.
During the first quarter, Rockwell achieved further progress against a number of strategic milestones:
- Carat production at the Saxendrift processing plant increased 15% to 2,345 carats, despite a 20% decline in volumes of gravel processed. The earthmoving vehicle (EMV) renewal plan, the implementation of which commenced in the first quarter, should enable the mine to increase throughput and sustain higher carat production going forward.
- SHC delivered a 178% increase in carats to 748 despite a mechanical failure of the de-sanding screen which was subsequently repaired. During this time, recovery tailings were processed through the Bulk X-ray plant which continued to perform on plan, enabling the mine maintain a cost per carat produced of USD2,133; which is comparable to the mine’s performance since its production reached a steady state.
- Operations at the 100,000m(3) per month Niewejaarskraal plant further improved, with production totalling 1,269 carats at a grade of 0.57 carats per 100m(3), within the long-term grade expectation for the mine. With a reported average value of USD2,408 per carat, the diamond quality achieved is on plan.
- The EMV fleet renewal plan to renew the Company’s aging fleet is now underway. This comprises fully managed maintenance leases for the new fleet with no upfront capital investment, also incorporating a new fleet of commercial and staff busses. The dozer and excavator fleet is undergoing mid-life overhauls which are being funded from working capital. These initiatives are aimed at improving earthmoving availabilities to facilitate higher mining volumes at Saxendrift and to better utilize the invested processing capacity.
- The royalty mining contractor strategy, implemented in the prior year, enabled the Company to generate positive returns from properties that it does not wish to mine. Value of sales amounts to USD2.5 million, with USD312,576 in royalties accruing to the Company.
Market Update
The diamond market between March 2014 and May 2014 was similar to the first quarter of the 2014 calendar year with steady rough and polished demand and continued concerns relating to liquidity in the industry. Polished diamond demand has been strong. Rapnet reported a 1% increase in prices of 1-carat diamonds since January 2014 while 0.30-carat polished diamonds increased 7% during the same period. Although the industry is in a steady state the main concern remains the low availability of finance to the industry and primary suppliers continue to finance the secondary market. Retail demand worldwide has grown, assisting liquidity in the industry. However, trading is expected to slow during the Northern hemisphere summer in line with historical patterns.
Rough prices are expected to remain at current levels in the short term, with the potential for price increases in the second half of 2014. Polished diamond prices did not increase in 2013, but are expected to increase this year as the gap high rough and lower polished prices is unsustainable. A correction in polished prices is expected in the second half of 2014.
Rockwell continues to supply rough diamonds to South African beneficiation companies as part of its drive to support the local industry with positive results. Rockwell’s joint venture partner, Diacore continues to sell high quality polished stones to high net worth retail clients. Demand for high value investment diamonds among high net worth individuals as well as institutional and private investors seeking alternate investment options remains strong and prices for these goods are expected to continue outperforming. Rockwell’s primary revenue, through consistent production of high volumes of quality gravels, is from investment type diamonds, which provides a shield against price volatility.
Conference Call:
Rockwell will host a telephone conference call on Friday, July 11, 2014 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 and Canada (Toll-Free) - 1 855 481 5362
South Africa (Toll-Free) - 0 800 200 648
South Africa - Johannesburg - 011 535 3600
South Africa - Cape Town - 021 819 0900
UK (Toll-Free) - 0808 162 4061
Other Countries (Intl Toll) - +27 11 535 3600
Other countries - Alternate - +27 10 201 6800
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 16, 2014 and can be accessed by dialling the relevant number in the table below and using the pass code 31604#.
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