Monday, January 13, 2014

Orange River diamonds drag Rockwell back to profitability

results from Rockwell Diamonds show the Toronto and JSE-listed diamond junior is grinding its way towards bottom-line profitability as production from its three alluvial mines on the Orange River is steadily ratcheted up.
 Rockwell Diamonds CEO James Campbell. Picture: FINANCIAL MAIL
According to CEO James Campbell, the quarter ended November 30 was the sixth consecutive quarter showing growth in dollar revenues and the second consecutive quarter showing a gross profit after amortisation and depreciation.
Rockwell is still recording bottom-line losses but these are coming down fast. The company reported a total comprehensive loss for the period of $60,000 (November quarter 2012 — $7.3m loss) and a total comprehensive loss of $8.1m for the nine months to end-November compared with a loss of $19.8m for the comparable period of 2012.
The next critical target is reaching full production of 100,000m³ of diamond-bearing gravels treated by the Niewejaarskraal mine, which is "on track for completion by the end of financial 2014."
Mr Campbell says that is crucial because it will take total production from Rockwell’s three mines on the middle Orange River to 360,000m³ of gravel treated a month — at which point the company should show a bottom-line profit.
After that, the strategic objective is to push for a production level of 500,000m³ a month, equivalent to 1.5-million cubic metres a quarter.
He said: "Our production records from the middle Orange River indicate you can expect to recover one diamond larger than 100 carats from every 1.5-million cubic metres of gravel treated.
"So, if we are processing 1.5-million cubic metres every quarter then I would expect to recover these stones on a more regular basis, which is going to improve quarterly earnings."
Rockwell has had a recent run of good fortune, recovering five such stones since August with the largest weighing in at 287 carats. That helped trigger a 60% jump in the share price to as high as 450c during September, from which the stock has eased to about 330c. That is still treble the 12-month low of 110c at which Rockwell sat last May but — to put this in perspective — the shares traded as high as R40 in 2008 before the diamond market collapsed and Rockwell ran into a string of operating problems.
Turning to the state of the market, Mr Campbell said jewellery trading levels were disappointing over the festive trading season with lower sales volumes combined with some price discounting on polished diamond prices. He said that December was traditionally a period of slow rough diamond sales, which was then followed by increased demand in January and February.
In anticipation of this, Rockwell held back an inventory of 5,590 carats to be sold over the next two months and utilised $2.2m of its overdraft facilities to do so. The overdraft was repaid from sales receipts last month.
Rockwell is also due to receive an upfront capital inflow of R17.3m from its new black economic empowerment (BEE) partner to replace African Vanguard Resources. Mr Campbell has declined to name the new BEE partner until the final conditions precedent to the deal are met.

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