Zungu committed to Rockwell, deal imminent

David McKay | Fri, 13 Jan 2012 12:24

[miningmx.com] -- ROCKWELL Diamonds CEO, James Campbell, promised that "the firm's legacy issues would be ticked off" this year.

Commenting on the Toronto-listed firm's third quarter production figures, in which the group posted a slender gross profit of C$600,000, Campbell said the strategy of making new executive appointments had been cascaded down to senior operational level. In addition, the balance sheet had been stabilised, and there was also focus on improving the value of its diamonds recoveries. Mineral rights holdings had been cleaned up and certain assets had been sold off.

While Campbell has made good progress since his appointment in June, following a period of some spectacular in-fighting among Rockwell's shareholders, there's still a major loose end in whether the participation of Rockwell's empowerment partner, African Vanguard Resources (AVR), was secure.

Miningmx reported in September that AVR owed about R50m to Rockwell from about 2009, and that Campbell had now made payment of the outstanding funds a priority for the company.

Said Campbell in an interview with Miningmx today: "We are still in discussions. They are not acrimonious. We have top options and that's if AVR wants to commit to the company or make a dignified exit".

AVR owns a combined 26% of Rockwell's Saxendrift mine in the Northern Cape, an asset that Rockwell acquired through the purchase of the Van Wyk Diamond Group (VDWG).

Sandile Zungu, executive chairman of Zungu Investments Corporation (Zico), which owns AVR, said he remained committed to its Rockwell investment. "This is very good diamond exposure for us. We intend to restructure the investment so that it meets our requirements," he said.

He declined to give details of how the relationship between AVR and Rockwell Diamonds would be restructured.

However, a market analyst suggested that one possible structure would be to flip AVR's operating assets up to the listed level. This would not result in AVR retaining a 26% participation in Rockwell, but Zungu could then offset the 'dilution' to his original asset level shareholding by vending it Jasper, a diamond prospect AVR owns which is adjacent to Rockwell's operations in the Northern Cape.

The agreement is still waiting signatures and is, therefore, at a highly sensitive stage, but resolution of the relationship would be a major fillip for Campbell who said he was "never fully satisfied" regarding progress of the company.

The next step for the company, apart from the sought after operational improvements, is the possible expansion of Tirisano which Campbell said could be "doubled up" for modest outlay. He declined to provide capital requirements, but it's possible 2012 could see Rockwell return to shareholders.

It's important Tirisano starts to ramp up production successfully as the commissioning of the mine will not be capitalised and will therefore drag on costs.

However, the diamond market would appear to look supportive while Rockwell gathers itself. "Despite the turmoil which continues to impact global financial markets, the fundamentals for diamond prices remain strong," said Campbell in commentary to the company's third quarter report.