Rockwell Diamonds 3Q Revenues -25%

Rockwell Diamonds reported that revenues fell 25 percent year on year to $8.2 million in its third fiscal quarter that ended on November 30, 2011. Revenue was dinged by lower prices for rough diamonds and a drop in production. The mining company sold diamonds worth $5.9 million through tenders, while revenue from its beneficiation agreement with the Steinmetz Group rose to $2.3 million from only $882,162 one year earlier.

“Rockwell met with a number of challenges during the third quarter,” said James Campbell, the company’s chief executive. “A correction in general diamond pricing affected our reported revenue. With Tirisano still being in its production ramp up phase, the operating costs impacted on our overall financial performance.”

The company sold 5,376 carats during the quarter for an average price of $1,109 per carat, representing a price decrease of 29 percent from a year ago. Its production fell 37 percent to 5,334 carats mainly due to the closure of Holpan mine in May 2011.

Rockwell recorded a loss of $2.1 million during the quarter, including depreciation and depletion of mineral property interest of $1.8 million. The company said that it incurred a one-time expense of $1.4 million related to the settlement of Midamines legacy issue during the period. An 11 percent depreciation in the South African rand against Canada’s dollar during the third quarter also had a significant impact on the earnings, it added.

The volatile financial markets during the second quarter of fiscal 2012 affected the diamond sector at the beginning of the third quarter but sentiment subsequently improved, Rockwell noted. The market that reopened late in August 2011 was characterized by limited trade and extreme caution among traders, resulting in a temporary price decline of approximately 30 percent from the record highs in May and June 2011, the company explained. Wholesale polished prices declined by an average of 10 percent while retail prices were stable.

Rockwell said that the market turned in October 2011 and continued its recovery into the fourth quarter with rough and polished diamond prices improving to within 15 percent and 5 percent, respectively, of their May and June 2011 record levels.

The company stated that reports suggest that the Christmas season in the U.S. was better in terms of diamond jewelry sales. This is expected to help in the liquidation of inventory with the resultant cash flow improvement rolling over into the January and February 2012 rough diamond purchasing period, it noted.

Rockwell said that its diamond inventory stood at 1,866 carats at the end of the third quarter and the company is likely to benefit from the higher demand during the anticipated peak sales period from January to March 2012.

The company expects prices and demand to increase through the first half of 2012. 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, it projected.

Rockwell stated that it is currently evaluating the potential returns associated with several investment projects, including extensions to improve returns at the Tirisano and Saxendrift operations as well as the construction of a new production plant at the Wouterspan mine site. Once the current review is completed, projects with the highest projected returns will be pursued dependent on available financing, it noted.

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