INVESTORS in alluvial diamond mining firms Trans Hex and Rockwell Diamonds may well have found their investment returns as desolate as the Northern Cape’s Orange River where these miners operate.
On a five-year return basis, shares in Trans Hex have gained only 12% whilst Rockwell is down 71%. During this period, the two companies have been in a constant flux of re-organisation and restructuring of their South African operations.
In the past, a lot of the diamond mining in the Northern Cape was done by artisanal miners, often farmers, who operated on a potluck basis and didn’t have ranks of offshore shareholders to pacify when the pickings were slim.
And when the pickings are slim, they are very slim indeed. Quite often, this is because it’s tough to tackle the geology of the region which makes for widely dispersed diamond deposition.
Unlike the diamonds found in kimberlites, the volcanoes or pipes from which diamonds were first formed hundreds of millions of years ago, alluvial diamonds are widely dispersed carried into river beds by erosion over millions of years.
It’s for this reason of geology that Johan Dippenaar, CEO of Petra Diamonds, is wary of the alluvial diamond sector. “Diamonds in a kimberlite are well distributed and known whereas in alluvials you don’t know if you’ve missed a ten million dollar stone,” he said. It’s therefore hard to measure revenue losses.
In an effort to mitigate this risk, Rockwell Diamonds has spent millions of rands investing in x-ray equipment that’s able to spot the gems when they come along. It’s also why it has targeted a mining rate of a staggering 500,000 cubic metres of gravel per month. So far, it hasn’t achieved that type of volume which lies at the basis of the firm’s problems. Trans Hex also has to target volume.
However, shares in both companies are strongly up so far this year. At the time of writing, Trans Hex’s share price was 32% higher year-to-date whilst Rockwell was 36% higher.
James Campbell, CEO of Rockwell, said the share bump was on small volumes. “We are very illiquid,” he said. However, he described the firm’s first quarter production figures, published on June 14, as “an improvement” as volumes, grade and value per carat all significantly up. He’s right to be cautious about massive improvements in fortunes.
The company briefly edged into profit-making last year but that was an exception.
The performance over the longer term led to the closure of the firm’s Johannesburg office and some operations in the Middle Orange River, notably Saxendrift in favour of Remhoogte Holsloot Complex. At $20m (R294m), the debt situation is worrying for a company with a market value of R82.5m.
Mark Bristow, the non-executive chairman of Rockwell Diamonds, said the company is hoping to “spread the base” of its assets. “Fundamentally, the diamond industry has just got to be a good investment,” he said in an interview with Miningmx.
“But it’s so hard in this environment right now and Rockwell is very exposed to alluvials. We’re working hard to spread the base,” he said hinting at possible corporate activity that would achieve this.
For his part, Campebell said the company continued to evaluate organic and acquisitive growth – a tune the company has been playing for several years without moving much.
“All the junior diamond companies are trading at 10% of their real value and they’ve got projects that need R100m or R400m to actually unlock those assets,” said Bristow.
“There’s nothing forthcoming. So you’re in that back water,” said Bristow who in 2014 pumped $1.1m of his own money into Rockwell Diamonds. So no pressure then.
Another poor set of the (as usual) same results tainted by failure. With the usual spin. Fact is Rockwell lost US$ 17 million (last year US$ 8 million) and Trans Hex R 100 million.
If miningmx wishes to continue to be taken seriously then it should start reporting the facts and not the hopes dreams and aspirations of the inflated egos who have embarked on a path of superb value destruction for several years now.
The results are shocking. Rockwell in the last few days has had a fatal accident on its sites which was the result of pure negligence. There is open loathing for the Rockwell management in the Northern Cape. Do some research for miningmx instead of spinning nonsense. You will lose your own credibility if you continue in this vein. This is NOT the environment for De Beers management trainees to live out their dreams of being operators.
The Chairman of Trans Hex has been ensconced in the role for so long that soon he will enter the fossil record. The CEO has presided over year upon year of drudgery and non-delivery.
Why suddenly as so-called “turnaround”??
This is now the time for a new broom to sweep clean. And it is coming.
It has been clear for several years that the corporate CEO and layered management at Rockwell do not know how to run this type of operation on this particular Orange River mining area (on more than adequate orebodies) where mining and metallurgical technology, precision and controls are required and where entrepreneurial thinking should be part of the mindset. This is not gold in West Africa. This is not Petra mining kimberlites. This is a completely different place. This has nothing to do with the commodity cycle or anything else. The orebodies are not to blame, the Board and management are out of their depth here. Why do they always manage to avoid taking responsibility for poor results? Why is the Rockwell Chairman’s ego getting in the way?
The corporate types who run the company simply do not have any idea of what it takes to operate in this environment. They may have had success elsewhere, but have never had and will never have success here. All over this diamond field the founders and competent operators were prematurely removed by cufflink directors and smooth talking promotors (with a promised “turnaround” and in self-interest) 8 years ago. 8 years later, where is the turnaround? Only spin, wasted capital and excuses.
Why are the Rockwell high value diamonds being sold through the world’s most powerful diamond dealer instead of through an independent auctions process? Rockwell is indebted to the tune of US$19 million to this diamond dealer, but the band plays on. Somebody must be making a lot of money if the lon is tolerated to that extent.
An “unqualified” set of results from the Auditors for Rockwell tempered with two “uncertainties” (plus debt and an overdraft facility) on which we are advised that management (who have a record of non-delivery) will remove by increased performance?
Yes, sure, you would have us believe you. Do you take the shareholders for idiots? Going concern here is a definite issue. Too little, too late.
One big ego that has become narcissistic, prescriptive and in his mind a font of “know-how” coupled with subservient, out of their depth (and bullied) corporate management who will never understand the environment, equal this unfortunate situation.
And it now appears that the Auditors will also be terminated for not toeing the ego’s line. Bizarre.
Where is the Board? Where are the other shareholders? Is this acceptable to them? Other management teams have been removed for less. Where is the analytical reporting by the Press? No more glowing stories on this site on the greatness of “the man”? Such a pity.
Time for CHANGE please. Time to think of the shareholders. And please do not replace management with the usual “Corporate” types.
Please do not publish misleading headlines like this one. This management has years of non-delivery without being called to account at all. There is no turnaround. Report it as such please. You are a better journalist than this, David.