John Bristow, CEO, Rockwell Diamonds
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Rockwell maintains freeze on output
Allan Seccombe
Posted: Mon, 12 Jan 2009

[miningmx.com] -- ROCKWELL Diamonds has extended its year-end shutdown by four more weeks because of weak market conditions and it is suspending its low-grade Wouterspan mine to put in a new lower-cost plant.

A number of diamond producers have cut back on production and stopped spending on exploration to conserve cash because of a sharp drop in rough diamond prices and demand.

JSE- and TSX-listed Rockwell has a stockpile of some 6,000 carats it will hold until prices for rough diamonds recovers, said CEO John Bristow, adding the company would closely watch tenders by other firms over the next month for signs of improvement.
We can’t let it go on too long
Rockwell said on 24 November it had extended the normal year-end shutdown to five weeks from the usual two as part of its drive to conserve cash. This has now been extended by four more weeks from 5 January to end-January, which will negatively affect the fourth financial quarter to end-February.

“We had two good quarters and then an exceptional quarter. We’ve nearly 6,000 carats in inventory, ready to sell the minute we see more sparkle in the market. That could help us in our fourth quarter performance,” Bristow told Miningmx.

“We had bit of a working capital cash kitty as well for times like this. We can’t let it go on too long, but we have bit of a leeway for now,” he said.

At the end of November, Rockwell had cash of C$8m.

Rockwell shares were untraded at R0.80 each on the JSE, just above a year-low of R0.75 and well off the 12-month high of R4.39.

January will be an important month for Rockwell to determine if there is any demand and subsequent price increase for rough diamonds at tenders and the overall sentiment from buyers.

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“We know what’s happened in the polished retail market and it’s now a case of when does the other end of the market, the rough diamond market, wake up and start buying again,” Bristow said.

Rockwell has held back from tendering its production for some months now and the halt in production for nearly two months meant its supply of diamonds worth $500,000 or more to the Steinmetz group through a marketing arrangement has also dried up.

“We haven’t mined and produced since the end of November we haven’t much to offer them, but they took stones from us in November. It’s a good solid relationship. In line with the industry, we’ve all tried to cut back and reduce goods going to the market,” Bristow said.

Wouterspan will take roughly three months to re-commission, relying heavily on existing equipment and a relatively small capital input of an estimated R15m. The downside is that jobs will be lost.

Wouterspan and the recently acquired Saxendrift alluvial mine form the centralised Middle Orange River operations within Rockwell, employing some 350 people. These operations will be restructured and 190 people re-employed.

Bringing Wouterspan, with a high-volume, low-cost twin modular 18 foot pan plant, back on stream would depend heavily on the state of the rough diamond market, Bristow said.

Wouterspan has a grade of 0.34 carats per hundred tonnes (against Saxendrift’s 0.42), but realises a high value of $2,292/carat on average from the mine based on financial 2008 results.

Rockwell releases its results on 14 January and talks to the market the following day.

Rockwell’s production targets might have to change if weak market conditions persist, Bristow said. It had a target of 26,700 carats in 2009, doubling that to 53,000 carats a year later, and then rising to 70,000 carats in the following year.

“Our plans are still in place, but it might be prudent that we might have to delay some of that process. It’s not the preferred option. If means we have to conserve cash for a while and do less drilling or bulk sampling to preserve cash we’ll do that,” he said.