Rockwell wants Sandile Zungu to cough up

[] — ROCKWELL Diamonds CEO James Campbell is stepping up the pressure on black economic empowerment partner Sandile Zungu to cough up more than R50m he owes the company.

Zungu’s African Vanguard Resources (AVR) is the BEE partner in Rockwell’s Saxendrift mine as well as the operations in the Northern Cape that Rockwell acquired through the purchase of the Van Wyk Diamond Group (VDWG).

Zungu told the Rockwell board in late 2009 that AVR “was unable to make outstanding payments to complete its financial obligations.’

In a “strategic update’ released on Monday Campbell said, “the company has also heightened its focus on resolving the funding issues with its black economic empowerment partners who have significant outstanding liabilities to the company.

“A favourable resolution to these negotiations would substantially improve Rockwell’s cash position.’

Campbell took over as CEO at the beginning of June and one of his first actions was to cut back on a proposed fund raising intended to bring in some C$35m so as to avoid further dilution of existing Rockwell shareholders.

Instead, Rockwell raised $6.5m through a sale of assets and brought in a further $7.8m through a private placement.

Campbell told Miningmx, “it seems that previously there was a fairly cosy relationship between Rockwell and AVR but getting those outstanding funds paid over by AVR is now at the top of my priority list.’

He said he was in discussions with Zungu looking at various options which included replacing AVR with a BEE partner that had the available funds to invest or had assets such as mining projects that Rockwell could evaluate and acquire.

According to Rockwell’s management discussion and analysis document for the year to end-February 2011 AVR bought a 15% interest in VWDG for R22.5m in 2007.

AVR subsequently subscribed for another 11% of VDWG at a cost of R17.5m and committed to inject R10.5m in working capital to the operation. As of end-February this year AVR still owed R29.5m to Rockwell in terms of these transactions.

In October 2008, AVR took up a 26% stake in Saxendrift for about R26m on which it paid an initial deposit of R3m. The balance of R23m remains outstanding.

Following the acquisition of VDWG and Saxendrift, Rockwell went through a torrid period both financially and operationally.

In addition to the diamond market meltdown of 2008/2009 Rockwell had to fight off a hostile takeover attempt from Pala Investments which had recruited both Zungu and VWDG founder Hennie Van Wyk in its attempt to reconstitute the Rockwell board.