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Rockwell Diamonds CEO James Campbell

The company's headline loss per share for the three months to end May, the company's first quarter, was Can$0.002 - unchanged from the same three months last year.

However, the loss for the three months widened to Can$1.2 million from Can$858,517 in the first quarter of 2010.

The widening of the loss could be attributed to a 40% fall in production to 4,428 carats during the quarter. This fall in output was attributed to unseasonal rain, which has extended well into the second quarter.

Production issues at its Saxendrift operation in the Northern Cape and the closure of the Holpan operation outside Kimberley in May also had an impact on output.

Despite this the company's revenue remained stable at Can$8.5 million as diamond prices strengthened.

"Revenue growth was limited by lower inventories available for sale during the quarter as well as disappointing production due to legacy issues at the operations which were exacerbated by the unseasonably long rainy season," the company said in a statement accompanying its first quarter results.

Carats sold in the first quarter decreased 3% year-on-year to 4,779 at a marginally higher average price of US$1,631 per carat, compared to last year's first quarter average price of US$1,611 per carat.

An operating loss of Can$1.2 million in the first quarter compares to an operating profit of Can$329,776 in the comparable period of the previous fiscal year, mainly due to the $2.9 million inventory movement recorded in 2010.

But the company continued to generate cash as reflected by the net cash inflow from operating activities of Can$1.9 million against last year's first quarter net cash outflow of Can$1.0 million).

Rockwell preserved its net cash balances at Can$3.0 million, after making capital investments of Can$2.2 million at the Tirisano project.

With current assets amounting to C$12.4 million and current liabilities of Can$9.0 million, the company's debt to equity ratio improved to 1.13 at the end of May from 0.74 previously.

"The results for the first quarter demonstrate that although production was under pressure, the underlying financial health of Rockwell continued to improve," Rockwell Diamonds president and CEO James Campbell.

"In the last eight weeks, we have taken decisive action to address the areas of underperformance in our operations. I believe that as a result of these actions, we will start to see the further financial benefits from improved efficiencies and recoveries," Campbell said.

Looking ahead the company said although carat production in June and July was disappointing, the strong production of diamonds in the last two weeks should enable the company's performance for the second quarter to at least match the results for the same period last year.

Another critical aspect of the company's turnaround at Saxendrift and Klipdam is the proposed introduction of continuous operations at these mines and management continues to negotiate with the DMR and relevant unions in this regard.

But Rockwell did warn that inflationary pressure on mining expenses, particularly in relation to fuel, power and labour, was an area being monitored closely.

"Efficiency initiatives encompassing the diamond value management approach are being aggressively implemented at the operations and are expected to start paying off in the third quarter of fiscal 2012," it said.