Rockwell Diamonds expands footprint with new acquisition

Johannesburg-based alluvial miner Rockwell Diamonds (TSX: RDI; US-OTC: RDIAF), which owns three diamond mines near the midpoint of South Africa’s Orange River, is buying assets close to its operations that will enlarge its resource base in the region.

The $28.5-million acquisition of contiguous mineral rights and three fit-for-purpose processing plants offer Rockwell economies of scale and the potential to smooth the volatility of its quarterly production results, management says, while taking the company above its target of processing 500,000 cubic metres per month of quality processed gravels. (Over the last three years, Rockwell has transitioned from processing 120,000 cubic metres of processed gravels per month to 360,000 cubic metres per month, chiefly funded by working capital.)

Rockwell also noted that it has enjoyed a long working relationship with the sellers — who initiated the sale — and the two entities have agreed to work together to find opportunities that could benefit both parties.

In a conference call CEO James Campbell noted that the resources Rockwell is planning to acquire “are right in the very beginning of their life, which is most encouraging,” and that the current operator “is achieving substantially higher grade and higher diamond prices than what we are mining.” He also said the additional operations will help “reduce quarterly volatility on our earnings.”

Campbell told The Northern Miner via email that the acquisition was also fairly priced and emphasized the fit-for-purpose processing plants, the contiguity of the assets with Rockwell’s current operations, and the ability they give the company to reach its processing targets.

The deal is expected to close in April and Rockwell plans to mine the assets at the start of May.

All of Rockwell’s alluvial diamond operations are near the mid-point of the Orange River, 600 km from the coast.

The Orange River is South Africa’s longest river, rising in the Drakensberg mountains of Lesotho and flowing westward through South Africa to the Atlantic Ocean.

Rockwell’s specialty is finding high-value stones. These have included the 109-carat Alana diamond that sold in March 2014 and the 287-carat Rockwell diamond.

In an interview with The Northern Miner in 2014, Campbell estimated that the alluvial diamond mines in the Middle Orange River average US$2,200 per carat, compared to an average industry value of US$100 per carat. For comparative purposes, the average in Canada is between US$300 and US$400 per carat, he said.

“We’re basically mining the paleo-river system,” Campbell explained. “The Orange River is quite small now, but in Paleo times it was like the Congo River is today. It was massive and high energy.”

Rockwell’s philosophy on diamond exploration is to diversify. “We worked out two years ago that in order to achieve stability in quarterly earnings we needed to process half a million cubic metres of gravel a month, or a million tonnes a month,” he explained. “Typically for every half a million cubic metres you’d get a 100-carat stone. And you’d get a big raft of plus-10 carat stones as well.”

Campbell said that Rockwell makes its money from plus-20 carat stones, so at half a million cubic metres, the company would be getting 25 stones.

“When we started a couple of years ago we were getting about five stones.”

Rockwell has a beneficiation partnership with Diacore, a multinational that provides rough and polished diamonds to customers around the world, and has manufacturing facilities in Botswana, South Africa, Namibia and New York. The two companies share the profit from selling polished diamonds on a fifty-fifty basis.

Over the last year Rockwell’s shares traded within 20.5¢ to 48¢. At press time Rockwell’s shares traded at 27.5¢ apiece.

The company has 54.5 million shares outstanding.