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Rockwell cuts year-end production
Brendan Ryan
Posted: Mon, 24 Nov 2008

[miningmx.com] -- ROCKWELL Diamonds is to extend its normal year-end operational shut-down from two to five weeks because of the depressed state of the diamond market.

Announcing this on Monday, Rockwell CEO John Bristow said: “The global economic downturn has compounded the seasonal slowdown in the rough diamond market, placing diamond prices under pressure, and forced major producers like De Beers to reduce diamond sales to sight holders.”

Rockwell is the latest diamond producer to announce production cutbacks, after Gem Diamonds and De Beers.

Bristow said: “Since October, diamond auction tenders in South Africa and Antwerp have resulted in lower realised prices, and further price weakness could occur over the short to medium term.

“Given current market conditions and the uncertainty as to the longer-term situation, we believe that it is prudent to proactively conserve cash and plan operations to best deal with the current economic conditions.”

Rockwell intends putting its operations on temporary shutdown from November 28, with maintenance work to be conducted from December 1 to 5.

Bristow said: “Current plans are to resume operations in January 2009.”

He added that Rockwell “is also reviewing its capital expenditure programme for 2009, non-core activities and all service provider contracts. Management continues to focus on improved operational practices and efficiencies at each mining operation, and is actively identifying additional cost-cutting opportunities.”

Rockwell’s actions follow more radical steps to conserve cash taken by London-listed Gem Diamonds, which were announced on November 17.

Gem said that a detailed management review was under way at its Cempaka mine in Indonesia, which could lead to Cempaka being placed on care and maintenance given that it was a low-margin operation.

In Australia, Gem said it would curtail production from the lower value E4 pit and only treat ore that was on stockpiles or presently available for mining within the existing pit shell.

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All stripping operations planned for the E4 pit in 2009 would be placed on hold, and all capital expenditure was under review. The planned ramp-up of production at the higher value E9 pit would continue.

Gem has stopped all alluvial and dredging exploration activities in the Democratic Republic of Congo (DRC) with immediate effect, and put operations in the country on care and maintenance “for an indefinite period”. The exploration work looking for kimberlite pipes in the DRC will continue.

All bulk sampling activities in the Central African Republic have ceased with immediate effect and this project has been put on care and maintenance for an indefinite period.

Gem CEO Clifford Elphick said that, in the light of the reduction in diamond prices since October, a review of the way in which the sales tenders were run was under way. It was possible that no tender would be held during December.

Elphick said Gem’s results for the full 2008 financial year would be significantly lower than expected when the interim results were released in August, and the company could make a loss.

RBC Capital Markets analyst Des Kilalea commented in a recent research report that “in all likelihood the wave of bad news has not passed.

“While the early part of 2009 should see some improvement from depressed conditions in what is seasonally a poor time for rough diamonds (not for diamond jewellery however), there is no visibility on world economic growth other than the fact that recession is a certainty.”

Kilalea said another negative for the diamond sector was that there were now four large sellers of rough diamonds: De Beers, Alrosa, Rio Tinto and BHP Billiton.

He said the first three “may show some restraint” but that BHP Billiton was “fairly aggressive in its selling strategy, essentially offloading all of its production at a market clearing price”.