Campbell pilots Rockwell to new riches on Orange River

When James Campbell completed his honours degree in mining and exploration geology in 1985 from the Royal School of Mines at Imperial College London, he had three job offers waiting for him: working on an oil rig in the North Sea, at a gold company in South Africa, and in diamonds with De Beers.

De Beers seemed like the obvious choice: Campbell had chosen to study the geology and mineral chemistry of some of the smaller Venetia kimberlite pipes owned by De Beers in southern Africa’s Limpopo belt for his honours project, and at the time, his maternal grandfather Harold French was a big fan of the company, serving as finance director at its London office, which was then called the Central Selling Organisation.

“My grandfather was an independent auditor who had been recruited by Harry Oppenheimer to work for De Beers,” Campbell explains during a recent marketing swing through Toronto. “He strongly suggested I work for De Beers, as it was a good company . . . and I’ve been in diamonds ever since.”

Campbell, now president and CEO of Rockwell Diamonds (TSX: RDI; US-OTC: RDIAF), spent the first 20 years of his career at the storied diamond miner, which was founded in 1888 by British businessman Cecil Rhodes before being taken over in 1927 by Ernest Oppenheimer. Today Anglo American (LSE: AAL) owns 85% of De Beers.

It was an excellent technical training ground for a young geologist, and Campbell was credited with being part of exploration teams that discovered three diamond mines — Marsfontein (a joint-venture operation between De Beers and SouthernEra that was the richest-ever diamond deposit), De Beers’ Oaks mine and Klipspringer (now owned by Mwana Africa [US-OTC: MWNAF]).

“I was fortunate to be in the exploration division of De Beers, which was given a huge amount of latitude,” he says, adding that he worked on projects all over the world including in Canada, India, Brazil, Australia and Russia. “It was kind of the heyday at De Beers . . . I was there at a time when it was a hell of a lot of fun.”

In addition to the exposure he received to the exploration side of the business, Campbell’s tenure included a three-year stint working as Nicky Oppenheimer’s personal assistant. And in his last five or six years at the company, he was put in charge of fixing things that didn’t work, such as large sampling operations. He also looked at new acquisitions.   

By December 1996, however, Campbell was ready for a new challenge and joined African Diamonds as managing director. African Diamonds was focused on developing the AK6 diamond mine in Botswana, initially with De Beers as its partner and later with Lucara Diamond (TSX: LUC; US-OTC: LUCRF), a member of the Lundin group of companies.

“For four years we developed the project and brought the capital down from just over US$400 million to just over US$100 million,” Campbell recalls of his time at African Diamonds. “We facilitated the buy-out of De Beer’s 70% share in the project to Lucara at the depth of the recession. Lucara bought out the 70% stake from De Beers for US$49 million, and that US$49 million is at about a ten times multiple now.”

Lucara went on to buy out African Diamonds at the end of 2010 at a 30% premium to its share price. “Lucas Lundin made it clear that he didn’t want a partner,” Campbell says. He stayed on as Lucara’s vice-president of new business in 2011 from January to May. But when the offer came to join Rockwell Diamonds as its CEO in June of that year, Campbell jumped at the chance.

Part of the attraction was fixing a company that seemed to have lost its way. At the time Campbell joined the alluvial diamond miner, two of its three mines in South Africa were in trouble. The Tirisano and Klipdam mines were loss-making and only the Saxendrift mine was profitable. It was just the kind of challenge Campbell was looking for.

Within three years, Rockwell turned Tirisano into a profitable venture by mining multiple faces rather than single mining faces, sold Klipdam to a private diamond miner who didn’t care that the mine only had two years left to run and expanded Saxendrift.

Rockwell also built two new mines from scratch during that period called “Saxendrift Hill” and “Niewejaarskraal.” Now the company runs four mines and moves three quarters of a million tonnes of dirt a month. The Johannesburg-based company employs two geologists at each of its mines (three quarters of whom are black females, Campbell likes to emphasize) and has a US$15-million market capitalization.

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.

“We’re basically mining the paleo-river system,” Campbell explains. “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 specialty is finding high value stones, such as the 109-carat Alana diamond that sold in March 2014 and the 287-carat Rockwell diamond. According to Campbell’s estimates, 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 says.

In the three months ended May 31, Rockwell’s revenue from diamond sales was up 15% to US$8.8 million, with total carat sales up 34% to 6,677 carats sold at an average price of US$1,312 per carat.

One of the unique things about Rockwell, Campbell says, is that it was the first company outside of Russia to install a high-throughput or bulk X-ray machine known as the “Bourevestnik” (BV) sorter in both the concentration and recovery environments. The machine, produced by a single company in Russia, is designed to enhance diamond recoveries. Rockwell first piloted the technology in 2011 in the concentration and recovery section of its plant at the Saxendrift mine.

“These BV machines have been used by the Russians at Alrosa for over forty years and by the Russians in Angola as well, but they’ve only recently made them available commercially to the West,” he says. “Companies like Gem Diamonds and Lucara did some test work on them and we followed suit. We found the machine ideally fit our profile for the recovery of large diamonds.”

Campbell explains that because Rockwell mines at low grades but at a high dollar per carat (with a relatively high bottom cut-off compared to other diamond mines), the bulk X-ray machine meets its requirements. Indeed, when Rockwell ran tailings through the machine in initial studies, the BV sorter recovered 1,100 carats in just one month, including a 145-carat stone that sold for over US$3 million.

“When I asked the board if I could build a mine based on this technology,” Campbell laughs, “the answer was: Yes. Next question, please.”

He says that “if you go to any technology conference on diamonds, they will tell you that this is the future of concentration and recovery for coarser diamonds … we only recover coarser diamonds anyway, we don’t recover smaller diamonds, so it fits our model, and of course other people are seeing a market in this. It’s ground-breaking technology.” Campbell adds
that “Russian engineering is incredibly robust and designed to survive in their tundra facilities.”

Rockwell’s philosophy on diamond exploration is that, like stock-market investing, the business model requires diversification. “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 explains. “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.

“Rockwell basically makes its money from plus-20 carat stones, so at half a million cubic metres we’d be getting 25 stones. When we started a couple of years ago, we were getting about five stones.”

Campbell adds that when you mine through a sandbar it can take a week or 10 days to find two or three smaller diamonds. When you reach the head of the sand bar, the odds are that you find larger diamonds. But you could go many days without recovering a single stone, and that’s why diversification is so important.

“We’ve worked out that you need four mines with eight mining faces, because at any given time half of them will be mining good gravels and half of them won’t,” he says.

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.

The company’s largest private shareholder and chairman, Mark Bristow, is president and CEO of Randgold Resources (NASDAQ: GOLD; LSE: RRS).

Campbell says he is optimistic about the outlook for the diamond industry, pointing to three financings in May. Stellar Diamonds (US-OTC: SDIZF; LSE: STEL) announced a £1.9-million financing for trial mining at its Baoulé kimberlite project in Guinea and bulk sampling at its Tongo Dyke-1 in Sierra Leone, while Stornoway Diamond (TSX: SWY; US-OTC: SWYDF) closed a $132-million equity offering for its Renard diamond project in the James Bay region of Quebec. In addition, Firestone Diamonds (US-OTC: FRDIF; LSE: FDI) entered into a US$225.2-million debt facility to build and commission a treatment plant and supporting infrastructure for its Liqhobong diamond mine in Lesotho.

Looking ahead, Campbell argues that the current supply and demand dynamics at work in the diamond sector support prices. “People haven’t invested in exploration since 2008, and because of that no one has been finding anything,” he says. “The few older mines are getting older and becoming deeper and more expensive at the same time as you’ve had the rapid growth in the middle class in India and China, and elsewhere.”

“Our stones tend to be investment stones to high net-worth individuals,” Campbell says. “The Alana was sold almost instantly after it was cut and polished for the price that Diacor wished to sell it for, and they don’t negotiate on price.”