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Rockwell Diamonds CEO James Campbell

Rockwell produced 5,334 carats from its Tirisano, Klipdam and Saxendrift operations in SA for the quarter ended November 2011 and 5,376 carats were sold at an average price of US$1,109 per carat.

It achieved tender sales of Can$6.0 million, with an additional Can$2.3 million income coming from the beneficiation profit share arrangement with the Steinmetz Group. This resulted in diamond revenues of Can$8.3 million.

A gross profit of Can$0.6 million for the quarter was achieved, though a loss of Can$2.1 million was recorded which includes depreciation and depletion of mineral property interest of Can$1.8 million.

Speaking to I-Net Bridge/BusinessLIVE, CEO James Campbell said the costs associated with ramping up at Tirisano went to the income statement in the quarter ended November. However, Rockwell installed a very experienced new diamond team towards the end of the quarter and they have "started work with a vengeance" and the mine is now well placed to achieve planned production during the next quarter.

That will have a major effect on the current quarter's financial results," said Campbell.

Production at Tirisano started ramping-up from mid-October 2011 following the construction and commissioning of the mine, including the implementation of continuous operations from start-up. A new recovery plant and front-end extension were also commissioned on schedule during the quarter.

Although diamond grades were disappointing in the first months after commissioning, higher than expected prices were paid for the first stones, chiefly as a result of higher than expected recoveries of more than 10-carat stones.

Campbell said the grades issue was being addressed by the new team.

Production at Tirisano during the quarter totaled 1,244 carats and sales amounted to 1,625 carats at an average price of US$783 per carat. The sales included product that was acquired when the acquisition became effective on September 2011.

Carat production at Klipdam was 43% lower than in the third quarter of fiscal 2011, while volumes declined 24% due to continued intermittent front end throughput constraints. Corrective actions were implemented.

A total of 1,990 carats were sold at an average value of US$681 per carat, compared to 2,862 carats at an average value per carat of US$1,826 in the quarter ended November 2010. The drop in price was due to the reduced size and quality of the diamond production from the previously worked area of the Rooikoppie gravel unit which was mined during the quarter. Management is confident that this has been addressed by migrating the new mining area.

The in-field screening plant has been fully commissioned and producing at name plate capacity since the beginning of December 2011. The anticipated benefits of the new screening plant include improved capability to process the high sand content in the current gravel feed that had negatively impacted performance in past quarters. The new plant also removes significant quantities of heavy magnetic material, enabling the pans to run more efficiently in terms of diamond recovery.

Implementation of the bulk X-ray project is on schedule. The X-ray machine has been dispatched from Russia, and is to be set up in Johannesburg this month. It is expected that the X-ray unit will be commissioned and incorporated into the dedicated bulk sorting plant, then commence testing and performance quantification on various gravels will begin during April 2012.

Production at Saxendrift in the third quarter increased 27% to 1,933 carats from 355,308 cubic meters of gravel processed, which were 12% lower than in the comparable quarter in fiscal 2011. Recoveries gained momentum after a slow start to the quarter due to a scrubber drive failure at one of the four streams. This was subsequently resolved.

Sales from Saxendrift increased 34% to 1,761 carats at an average price of US$1,892 per carat. The 7% year-on-year decline was due to the market correction as well as a decline in stone quality and size.

Campbell added that one of the strategic priorities for the next six months was to ensure that Tirisano hits its production targets.

Turning to the outlook for supply and demand, he said he expected demand would continue to outstrip supply leading to real diamond price growth rates - but perhaps not as much as last year.

"The wild card will be how events in the eurozone pan out and the impact on supply and demand. Assuming we muddle through... demand will continue to outstrip supply and prices will continue to growth albeit not as much as last year," he said.

He added that he expected demand to continue to be strong from China and India, as the middle class population grew and jewellery demand increased.

"But the importance of North America can't be underestimated. Some 25% of world diamonds are sold in that region between Thanksgiving and new year - and from a volume perspective that's very important. But in the long term we see demand remaining strong from China, India and the Middle East," he said.

The company added that anecdotal evidence suggested that the Christmas season in the USA was better than the year before in terms of diamond jewellery sales. This was expected to assist in the liquidation of inventory with the resultant cash flow improvement rolling over into the January and February 2012 rough diamond purchasing period.

Having obtained the necessary approvals from the Department of Mineral Resources, the Northern Cape mines will be fully converted to Contops by the end of January 2012. With Tirisano having been commissioned on Contops at outset, all operations in the company will in future be operating on this basis with the dual benefits of increased production as well as higher utilisation of the processing plants. There is the added advantage of the additional jobs which will be created in these regions where unemployment is high.

"In conclusion, the long term supply and demand fundamentals, driven by substantial uptake of diamonds from China and India and a gradual reduction in supply, bode well for the sector," Rockwell said.