ROCKWELL DIAMONDS INC 
By October 10, 2013
Rockwell's second quarter results reveal fifth consecutive quarter of revenue growth and improved operating profitability
October 10, 2013, Johannesburg, South Africa - Rockwell Diamonds Inc. ("Rockwell" or the "Company") (TSX:RDI; JSE:RDI) announces results for the three months ended August 31, 2013.
Second quarter fiscal 2014 results
Currency values are presented in Canadian dollars, unless otherwise indicated.
Salient features of second quarter:
- Fifth consecutive quarter of US$ denominated revenue growth.
- Strong year-on-year revenue growth of 33%: Total revenue of $9.9 million, comprising $8.6 million from diamond sales and beneficiation income of $1.3 million, up 24% and 185%, respectively.
- Overall volume of gravel processed and diamond production from Company-owned properties (including royalty mining contracts) up 26% and 46% year-on-year, respectively.
- Operating profit of $2.5 million: Improving economies of scale with 2% increase year-on-year in production costs (after inventory movements) supporting 33% revenue growth.
- Stable net cash holdings of $0.3 million: Positive cash flow from operations of $3.6 million offset impact of $3.4 million invested in new capacity.
- Inventory of 2,508 carats carried forward (includes 900 carats on royalty mining contracts): Positioned to benefit from peak Thanksgiving and Christmas trading seasons.
- Returns from Tirisano royalty mining contracts continue to grow and Zwemkuil contract commenced (June 2013): 3,497 carats produced and 2,967 carats sold at average price of US$638 per carat (Rockwell's royalty amounts to $236,600) with additional upside as fifth Tirisano contract started in third quarter.
- The 'beneficiation pipeline' of more than 6,272 carats provides continued value-added revenue potential.
- Net loss for the quarter narrowed to $1.4 million compared to a loss of $2.0 million in the prior year.
"Our second quarter results confirm that operationally, we are in a stronger position than two years ago, having delivered on a number of strategic milestones towards our initial objective of processing 500,000m3 per month of quality gravels. We have also been able to extend the life of our flagship operation at Saxendrift by integrating Saxendrift Extension, which has a five-year remaining mine life, into Saxendrift's mine plan with pleasing results. The successful commissioning of the Saxendrift Hill Complex plant, based primarily Bulk X-ray technology, provides us with a blue print for future mine developments. At Niewejaarskraal, we commissioned the mine in record time and are on track to achieve nameplate capacity by the end of 2013, slightly behind our original plans."
"The steady improvement in our operating results is a direct result of our decision to exit our lossmaking operations and focus our resources on growing our footprint in the Middle Orange River region. Notably monthly carat production from our own operations in July and August was at its highest level since the strategic review that took place at the start of fiscal 2012. Second quarter highlights include the 33% revenue growth, representing our fifth consecutive quarter with higher US dollar-denominated revenues. In addition, we achieved a $2.5 million operating profit and positive cash flow from operations of $3.6 million. From a financial perspective, the results are starting to reflect the decisions taken during the course of our corporate turnaround and have equipped us to achieve our objective to be a mid-tier diamond mining company."
Review of second quarter delivery on strategy
The performance of Rockwell in the second quarter provides further justification of the Company's strategy to focus on growing its production footprint in the Middle Orange River ("MOR") region of South Africa where higher diamond values, better efficiencies and greater economies of scale can be achieved. The mid-term target is to increase monthly production volumes of quality gravel processed to 500,000m3 while improving quarterly earnings.
As Rockwell focuses on developing its portfolio of properties in the region, it has reached a number of strategic milestones:
- Volumes processed from Saxendrift and Saxendrift Hill Complex were up 32% year-on-year, and 42%, overall, including the commissioning volumes of gravel processed at Niewejaarskraal: Overall 88% increase in carat production in MOR.
- Production at Saxendrift, comprising traditional Saxendrift and the higher grade Saxendrift Extension gravels, achieved a 41% grade improvement: Carat production up 35% to 2,543 carats.
- Average carat value from own operations improved 84% to US$2,488 per carat as 98% of carats sold (excluding royalty mining contractors) originated from the MOR.
- The new Saxendrift Hill Complex mine achieved an average value of US$3,636 per carat related to the sale of several high-valued diamonds: Revenue from second quarter diamond sales of US$2.0 million, exceed the capital investment cost.
- The effectiveness of the Bulk X-ray technology at Saxendrift Hill Complex was confirmed: A grade improvement exceeding 40% was achieved compared to the traditional Saxendrift pan plant, shown by processing Saxendrift Extension gravels in parallel though both plants.
- Production commissioning commenced at Niewejaarskraal in July 2013 on Rooikoppie gravels with the recovery of 175 carats, including three stones exceeding 10 carats.
- The royalty mining contractors continue to growth: Value of sales amounts to US$1.9 million, with US$236,600 accruing to the Company.
- Having eliminated the impact of the loss-making operations at Tirisano and Klipdam, the Company reported a gross profit (after amortization and depreciation) of $1.3 million compared to a loss of $1.7 million a year ago.
- Subsequent to the balance sheet date, the Company recovered four rough diamonds each exceeding 100 carats in weight from its operations in the MOR region including two typical yellow MOR stones.
The Company's overall production and sales results for the quarter are:
| Production | Sales and inventories | ||||||
| Volume (m3) | Carats |
Production costs ($) |
Value of Sales (US$) | Sales (carats) |
Average value (US$ / carat) |
Inventory (carats) | |
| Own operations | 627,746 | 3,549 | 8,805,727 | 6,608,040 | 2,656 | 2,488 | 1,608 |
| Contractors' mining | 307,229 | 3,497 | - | 1,892,793 | 2,967 | 638 | 900 |
| Total: Company properties | 934,975 | 7,046 | 8,805,727 | 8,500,833 | 5,623 | 1,512 | 2,508 |
Second quarter processed gravel volumes from Company properties reflects the transition towards the MOR. Volumes processed increased 26% to 934,975m3 of which 627,746m3 was recovered from Rockwell's own operations in the MOR and the remainder processed by the royalty mining contractors. Total carat production grew by 46%, and was made up of 3,549 carats from own operations in the MOR (the 25% year-on-year reduction is due to exiting Klipdam and Tirisano) and 3,497 carats from contractors.
Notable impacts of second quarter production compared to the comparable prior year period are as follows:
| Volume (m3) | Change | Carats | Change | Notable impacts | |
| Saxendrift | 462,777 | -3% | 2,543 | 35% | Impact of integrating higher grade Saxendrift Extension into Saxendrift mine plan |
| Saxendrift Hill Complex | 164,969 | - | 831 | - | Successful commissioning and grade improvement due to processing Saxendrift Extension gravels |
| Niewejaarskraal | 48,512* | - | 175 | - | Commissioning of new processing plant started in July 2013 |
| Contractors | 307,229 | - | 3,497 | - | Number of contract miners operating increased from three to four |
* Commissioning volumes in July and August 2013.
The Company's reported revenue from diamond sales (including beneficiation) increased 33% year-on-year to $9.9 million, representing the fifth consecutive quarter of US$-denominated revenue growth in line with the strategy to focus on growing production in the MOR which typically yields high value diamonds. Reported revenue includes the Company's 12.5% royalty from the sale of royalty mining contractors' rough diamond production. The average carat value (own operations) increased by 84%, as a result of the sale of a number of large, high-quality diamonds recovered during the quarter.
Notable impacts of second quarter sales versus the comparable prior year period are as follows:
| Carats | Change | Revenue (US$ millions) | Change | Price per carat (US$) | Change | Notable impacts | |
| Saxendrift | 1,937 | 14% | 4,377,094 | 3% | 2,260 | -10% | Increased carat sales offset impact of lower average carat value |
| Saxendrift Hill Complex | 555 | - | 2,017,992 | - | 3,636 | - | Higher revenue as production gained momentum |
| Klipdam | 53 | -98% | 27,975 | -99% | 528 | -39% | Sale of remaining inventory after disposal |
| Contractors* | 2,967 | - | 1,892,793 | - | - | - | Contractors increased from three to four at Tirisano |
* Contractors refers to carats from gravel processed by independent royalty contractors and sold through the Company's tender process.
During the second quarter, the average total cash cost (including rehabilitation and depreciation) for all the operations, increased to US$12.50/m3 from a total cash cost of US$9.78/m3 in the comparative period of fiscal 2013. This increase is attributable to higher unit costs that were incurred at Saxendrift Hill Complex during production ramp up.
Average cash operating costs and revenues for Rockwell's own operations during the period are:
| Revenue/m3 (US$) | Mining cash cost/m3 (US$) | Comments | |
| Saxendrift | US$9.5 | US$8.2 | Lower unit revenue due to product mix of carats sold in second quarter. Reduction in unit cost after once-off maintenance costs expensed in first quarter. |
| Saxendrift Hill Complex | US$12.2 | US$16.2 |
Good quality diamond recoveries led to higher unit revenues. Unit cost up due to rental of EMV, increased fuel and haulage costs while processing Saxendrift Extension gravels. |
The Company's 12.5% share of royalty mining contractors' revenues amounted to US$236,000, with Tirisano contractors covering that property's care and maintenance costs in the second quarter.
Normal operations produced cash flow of $1.8 million (prior to working capital movements). After a positive cash flow from working capital movements of $1.8 million, the cash flow from operating activities of $3.6 million was mostly spent on investments in property plant and equipment (mainly Niewejaarskraal plant), leaving a net cash out flow of $0.1 million for the quarter.
Growth projects
Rockwell continues to deliver on its strategy to increase production from and extend the mine life of its MOR properties:
- The useful life of processing facility at Saxendrift was extended with the addition of the Saxendrift Extension, whose indicated and inferred resources of 1,303,400m3 and 577,000m3 have a grade of 0.60 carats per 100m3 compared to Saxendrift's grade of 0.40 carats per 100m3, both at a bottom cut off size ("bcos") of 5mm. These have been integrated into the Saxendrift mine plan.
- The internally funded first phase of the new Niewejaarskraal processing plant was completed within three months of obtaining board approval. Ramp up towards nameplate production capacity of 100,000m3 per month started in July 2013. Although commissioning volumes were behind plan, the plant did achieve instantaneous nameplate capacity. It was handed over to the operational team on September 1, 2013 and is on track to be fully ramped up by the end of 2013.
- The Company continues to evaluate the next steps at Wouterspan, following the positive findings of the preliminary economic assessment announced earlier this year.
The Company continues to evaluate consolidation opportunities in the southern Africa diamond sector that are value accretive. A strict set of criteria are applied to evaluate the potential acquisitions in order to leverage the Company's production profile towards its goal to become a mid-tier diamond producer.
Market Outlook
Although rough diamond prices were stable during the second quarter, the downstream diamond industry remains under pressure due to the high cost of rough diamond production and the devaluation of the Indian Rupee against the US dollar. In addition, the market in the second quarter was affected by the seasonal impact: sales are quieter during northern hemisphere summer months. However, activity levels are expected to recover ahead of the Hong Kong Jewellery and Gem Fair, setting the mood for the remainder of the year.
Rockwell has carried over an inventory of 2,508 carats into the third quarter of fiscal 2014 and is, therefore, well positioned to benefit from the peak Thanksgiving to Christmas retail trading season. This, together with a beneficiation pipeline comprising some 6,272 carats, provides further potential for valued-added downstream revenues. Rockwell continues to beneficiate the vast majority of its diamonds in South Africa. With a number of notable stones recovered during the second quarter, the beneficiation revenue trend is expected to continue in line with past results.
In the third quarter, Rockwell will continue to focus on managing its operating costs and bedding down its new operations in the MOR. At Saxendrift, which is running consistently, the third quarter mine plan comprises a combination of gravels from the traditional (Brakfontein) mining area and the Saxendrift Extension that will be processed at Saxendrift. At the Saxendrift Hill Complex, the mine plan has been adjusted to open up a new mining area while at Niewejaarskraal the focus is on completing the ramp up. As such, Rockwell is on track to have three fully operational mines in the region by the end of the calendar year, with a total monthly processing capacity of 360,000m3 comprising Saxendrift (160,000m3 per month), Saxendrift Hill Complex (100,000m3 per month) and Niewejaarskraal (100,000m3 per month), and a further 200,000 m3 per month indirectly through royalty contract mining production.
Conference Call:
Rockwell will host a telephone conference call on Friday, October 11, 2013 at 10:00 a.m. Eastern Time (4:00 p.m. Johannesburg) to discuss these results. The conference call may be accessed as follows:
| Country | Access Number |
| Canada (Toll-Free) | 1 855 669 9657 |
| USA (Toll) | 1 412 317 6060 |
| USA (Toll-Free) | 1 866 652 5200 |
| South Africa (Toll-Free) | 0 800 200 648 |
| South Africa -- Durban | 031 812 7600 |
| South Africa -- Johannesburg | 011 535 3600 |
| South Africa - Johannesburg Alternate | 010 201 6800 |
| UK (Toll-Free) | 0808 162 4061 |
| UK Alternative (Toll-Free) | 0 800 917 7042 |
| Other Countries (Intl Toll) | +27 11 535 3600 |
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) October 15, 2013 and can be accessed by dialling the relevant number in the table below and using the pass code 26597#.
| Country | Access Number |
| South Africa (Telkom) | 011 305 2030 |
| USA and Canada (Toll) | 412 317 0088 |
| Other Countries (Intl Toll) | +27 11 305 2030 |
| UK (Toll-Free) | 0 808 234 6771 |
For further details, see the Rockwell's complete financial results and Management Discussion and Analysis posted on the website and on the Company's profile at www.sedar.com. These include additional details on production, sales and revenues for the quarter, as well as comparative results for fiscal 2013.
Mr Glenn A Norton (Pr. Sci. Nat.), Group Technical Manager for Rockwell and a qualified person has reviewed and approved the technical information in this release.
For further information on Rockwell and its operations in South Africa, please contact:
James Campbell CEO and President +27 (0)83 457 3724
Stéphanie Leclercq Investor Relations +27 (0)83 307 7587
About Rockwell Diamonds:
Rockwell is engaged in the business of developing and operating alluvial diamond mines, with the aim of becoming a mid-tier diamond mining company. At August 31, 2013, the Group had two existing mines in operation, namely Saxendrift and Saxendrift Hills Complex. It has completed the first phase of the development of a new plant at a third mine, Niewejaarskraal, which had been on care and maintenance since 2007 and was commissioned in July 2013 before going into production ramp up in the third quarter fiscal 2014. All three mines are located in the Middle Orange River region.
Rockwell's operations at the Tirisano Mine are on care and maintenance. Royalty mining agreements are in place at Tirisano whereby independent contractors (or royalty miners) mine for own risk and reward, with the Company receiving a 12.5% royalty income based on the carats recovered and sold through the Company's tender process.
A Preliminary Economic Assessment has been completed on the Wouterspan project, which would provide further expansion of the Company's Middle Orange operations in future. The Group has a pipeline of other projects with further future development potential under consideration and evaluation at present.
In addition to its project work, Rockwell continues to evaluate strategic opportunities through merger and acquisition as they arise, in order to expand its mineral resources and provide new opportunities to develop the additional production.
The Group is establishing a track record of producing large gem quality diamonds, which comprise a significant proportion of its production profile. The diamonds recovered from Rockwell's mines are frequently acquired for investment purposes. The Group has a beneficiation agreement in place which enables it to sell rough diamonds, receive 90% of the fair value sales price at sale and receive the remaining 10% through, and participate in, the retail profit on the sale of its +2.8 carat sized stones after polishing and finishing.
No regulatory authority has approved or disapproved the information contained in this news release.
Forward Looking Statements
Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.
Factors that could cause actual results to differ materially from those in forward-looking statements include uncertainties and costs related to exploration and development activities, such as those related to determining whether mineral resources exist on a property; uncertainties related to expected production rates, timing of production and cash and total costs of production and milling; uncertainties related to the ability to obtain necessary licenses, permits, electricity, surface rights and title for development projects; operating and technical difficulties in connection with mining development activities; uncertainties related to the accuracy of our mineral resource estimates and our estimates of future production and future cash and total costs of production and diminishing quantities or grades of mineral resources; uncertainties related to unexpected judicial or regulatory procedures or changes in, and the effects of, the laws, regulations and government policies affecting our mining operations; changes in general economic conditions, the financial markets and the demand and market price for mineral commodities such as and diesel fuel, steel, concrete, electricity, and other forms of energy, mining equipment, and fluctuations in exchange rates, particularly with respect to the value of the US dollar, Canadian dollar and South African Rand; changes in accounting policies and methods that we use to report our financial condition, including uncertainties associated with critical accounting assumptions and estimates; environmental issues and liabilities associated with mining and processing; geopolitical uncertainty and political and economic instability in countries in which we operate; and labour strikes, work stoppages, or other interruptions to, or difficulties in, the employment of labour in markets in which we operate our mines, or environmental hazards, industrial accidents or other events or occurrences, including third party interference that interrupt operation of our mines or development projects.
For further information on Rockwell, Investors should review the Company's home jurisdiction filings that are available at www.sedar.com.
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