PROGRESS UPDATE ON STRATEGY AND FUTURE PLANS

Transcription

1 PROGRESS UPDATE ON STRATEGY AND FUTURE PLANS JAMES CAMPBELL, CHIEF EXECUTIVE OFFICER MARCH 2012

2 2 AGENDA UNIQUE investment proposition Corporate OVERVIEW DIAMOND MARKET fundamentals Progress with top STRATEGIC PRIORITIES CASHFLOW and INVESTMENTS Operational TARGETS for fiscal 2013 VALUATION considerations GROWTH plan and strategy Sustainable DEVELOPMENT PRIORITIES and OUTLOOK for fourth quarter carat Type 2a from Saxendrift (May 2011)

3 3 A UNIQUE INVESTMENT PROPOSITION Established diamond producer Well-understood geology Beneficiation partnership Pipeline of projects to SUSTAIN and GROW production profile Resources and reserve estimates STATED PER NI Experienced executive leadership and strong board of directors to DRIVE VALUE CREATION Value adding BENEFICIATION partnership Turnaround in progress Milestones towards executing strategic objectives ENHANCING management and SKILLS base to unlock value and grow profitability CONSOLIDATING Holpan and Klipdam to profitably process remaining deposits Improve profitability at Saxendrift with FIT-FOR-PURPOSE in-field screen Establish LONG-LIFE OPERATION at Tirisano Appropriate technology underpinning DIAMOND VALUE MANAGEMENT focus e.g. bulk X-ray at Saxendrift Significant value gap

4 4 BENEFICIATION JOINT VENTURE: SIGNIFICANT VALUE ADD ROUGH POLISHED BENEFICIATION VALUE ADD 105 ct Type II A, Middle Orange 35 ct D color internally flawless Sold for $230,000/ct +62% on initial rough sale price 212 ct yellow, Middle Orange 102 ct vivid yellow +50% on initial rough sale price 128 ct yellow, Middle Orange 81 ct vivid yellow Not yet sold Steinmetz Diamond Group (SDG) profit share agreement (>2.8 carat stones) MARKET RELATED PRICES for diamonds sold into JV + 50% profit share Realized revenue of $8.5m in last 3 years from 6,182 carats beneficiated ($5.5m F2012 YTD) ±25% of revenue from beneficiation, expected to increase

5 5 ROCKWELL ROUGH DIAMOND PRODUCTION: AVERAGE US$/CARAT World Diamond Average $90/carat Small diamonds used in lower price point and pavé jewellery <0.3 c/stone # Tirisano (North West Province, RSA) $700/carat Engagement rings (Bridal-range), mid to high price point jewellery ~0.9 c/stone # Klipdam (Vaal River, RSA) $1,100 /carat Engagement rings, high price point jewellery ~1.2 c/stone # Saxendrift* /Wouterspan/Niewejaarskraal (Middle Orange River, RSA) $2,000/carat High-end luxury jewellery High Net Worth Individuals Investment Stones ~2.5 c/stone # # - Rough stone average sizes * - Before increasing the bottom cut off to 5mm

6 ROCKWELL OPERATIONS AND PROJECT LOCALITIES: NORTHERN CAPE AND NORTH WEST PROVINCES, SOUTH AFRICA 6

7 7 EXTENSIVE DEPOSITS TO BENEFIT FROM DIAMOND FUNDAMENTALS $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Saxendrift: Average quarterly price per carat Recession impact US $/ct Sale of parcels to State Diamond Trader Linear (US $/ct) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 F2009 F2010 F2011 F % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sales and revenue statistics for +2ct rough diamonds % of carats exceeding 2 cts % of revenue exceeding 2cts Saxendrift Klipdam Tirisano Category Volume (m 3 ) Feb Carats Value (USD) millions Probable reserves 4,565,400 22, Indicated resources 34,787, , Inferred resources 82,062, ,641 1, ,677.0 See slide 24 for for detailed Mineral Reserves & Resources: At 28 February Estimates completed by Rockwell s Manager, Resources, G.A. Norton, (Pr. Sci. Nat.), a qualified person who is not independent of the Company. Reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), Marshall, an independent qualified person

8 8 LEADERSHIP TEAM WITH CREDENTIALS TO DELIVER VALUE Board of Directors: Mark Bristow (Chairman) Dave Copeland Richard Linnell Willem Jacobs Sandile Zungu Johan van t Hof President and CEO James Campbell, BSc (Hons ) ARSM, MBA (Dunelm) Seasoned diamond executive with career spanning over 20 years at De Beers and 4 years as Managing Director of African Diamonds plc. FIMMM, C.Eng, C.Sci and Pr.Sci.Nat. CFO Gerhard Jacobs, BAcc, MBA Mining and corporate experience with junior and senior mining companies with operations in SA, Australia and Canada. Knowledge of public listed mining Companies. COO Michael Hunt, MSc (Advanced Chemical Engineering) >30 yrs in diamonds incl. mgt. roles at Orapa (world s largest diamond mine) & The Oaks (De Beers smallest mine). Operations Manager at Pangea DiamondFields plc from Group HR/IR Manager Richard Mhlonto, Nat Dip (HR Management & Development) Group Technical Manager Glenn Norton, BSC (Hons) Geological, mineral resource management and production experience in alluvial diamond deposits, diamond and coal exploration. Qualified person and Pr.Sci.Nat. Diamond Marketing & Sales Manager Jeffrey Brenner A leading international diamantaire and specialist in valuation, marketing and sales of rough diamond production from alluvial deposits. Extensive HR & Industrial Relations management experience including organizational and structural design initiatives as well as strategy development and implementation.

9 9 CAPITAL STRUCTURE AND SHAREHOLDING Number of shares Shares outstanding 47,942,746 Warrants - Options ($ ) 2,121,931 Convertible Debt (~$0.56) 3,499,257 Fully Diluted 53,563,934 Top shareholders (% shares in issue) Strategic: Daboll (Steinmetz) 21.3% Godia Capital 8.3% Middle East Investors 7.1% Institutional: Conus Partners 6.9% Earth Resources (ERIG) 3.6% Craton Capital 2.6% Wells Capital 1.6% Other: Etruscan 2.6% Mark Bristow 1.2%

10 10 STRONG FUNDAMENTALS FOR DIAMOND SECTOR Diamond DEMAND in carats forecast to grow at 6% p.a. to 2020 OUTPACING annual SUPPLY growth of 2.8% SHORTAGES, particularly in large carat diamond segments CHINESE and INDIAN MIDDLE CLASS to double by 2020 Driving demand surge Combined market share predicted to EQUAL US market share of 30% by 2020 Source: PolishedPrices.com Growing SCARCITY of +2CT diamonds Currently represents 5% of diamond PRODUCTION and 50% of sales VALUE for producers Source: Deutsche Bank / Alrosa

11 11 PROGRESS WITH TOP STRATEGIC PRIORITIES ENTRENCHING DIAMOND VALUE MANAGEMENT Board of directors STRENGTHENED Tirisano ACQUISITION closed out CORPORATE OPERATIONAL Constructive PROGRESS with resolution of BEE matters FINALIZATION of Midamines legacy issue Strategic review of project opportunities for EFFECTIVE CAPITAL ALLOCATION REORGANIZATION of senior mine MANAGEMENT teams Production RAMP-UP COMMENCED at Tirisano after addressing fatal flaws Production STABILIZING at Saxendrift $7.8m RAISED at $0.75 without warrants or other incentives FINANCIAL DISPOSAL of non-core assets generated further $6.4m Gross PROFIT of $0.5m in Q3 (Impact of Tirisano start up and Midamines) NET CASH holdings of $10.8m at end of Q3 TECHNOLOGY Implementation of in-field screen at Saxendrift COMPLETED Proof of concept commissioning of bulk X-ray technology ON TRACK Relocation of CONTAINERIZED RECOVERY from Holpan (on care & maintenance) to Tirisano

12 12 CASHFLOW: INVESTING IN CAPACITY FOR GROWTH BALANCE SHEET PROVIDES REQUIRED WORKING CAPITAL TO ACHIEVE SHORT TO MEDIUM TERM OBJECTIVES $m $25 $20 $15 $10 $5 $- Opening cash and cash equivalents Cash Generated by Operations Net changes in working capital Proceeds of Private Placement Proceeds of convertible bond Proceeds from sale of assets Capex: Tirisano, Saxendrift and purchase of mineral property interests Movement in reclamation deposits Other cash flows Closing cash and cash equivalents

13 13 OPERATIONAL TARGETS FOR FISCAL 2013 MINE PRODUCTION (m 3 ) GRADE (carats/100m 3 ) CASH OPERATING COST/m 3 BUDGET F2012 YTD CAPITAL EXPENDITURE REVENUE/CARAT (US$) KLIPDAM At name plate capacity (90 000) Stable $7.32* $10.35 Minimal In line with F2012 YTD SAXENDRIFT Increase to with new infield screen Stable $8.42 $8.35 $400,000 In line with two year average TIRISANO Ramping up to 90,000m 3 p.m. 06/2012 Gradual improvement to 1.8 by 06/12 $10.38** $16.84 $750,000 In line with stated prices of $700 - ZAR/CAD exchange rate of Full implementation of contops at all operations for F Corporate expenses budgeted to remain stable - Beneficiation (stones > 2.8 carats) not included in average price per carat expectation * Change of mining plan ** Ramp-up

14 CORRELATION OF RESOURCES TO PRODUCTION RESULTS May 08 Aug 08 Nov 08 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Grade ct/100m³ Klipdam Recovered Grade versus Resource Grade Mine Grade Grade Budget Grade Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Grade ct/100 m³ Saxendrift Recovered Grade versus Resource Grade Mine Grade Grade Budget Grade

15 15 INDEPENDENT VALUATION: CONFIRMED VALUATION GAP Adjusted book value / Fair Market Value of Properties using discounted cashflow 70 Weighted market value estimate: $62m Saxendrift ($15.5m - $16.1m) Wouterspan ($47.4m - $54.8m) Adjusted book value method Guideline public company method Trading price method Niewejaarskra al ($37.4m - $42.5m) % 20 Holpan ($281,000) Klipdam ($3.6m) Resource properties: $121.9m - $137.3m Adjusted book value: $149.5m - $165.0m Tirisano ($17.6m - $20.0m) % 30% Additional details contained in Additional Information

16 16 TRADING AT A DEEP DISCOUNT TO INTRINSIC VALUE $m Market capitalization Enterprise value Tangible Net Asset Value (NAV - Mineral property interests) Net Asset Value Value based on budget margin per carat Closing RDI share price at 31January 2012: C$0.495 Enterprise Value: Market cap less Loans from related parties and capital lease obligation less Deferred tax and reclamation plus cash (Excludes receivable from BEE partner of C$6.9m) Value based on budget margin per carat: Uses internal RDI F2013 budget

17 PEER GROUP REVIEW OF DIAMOND JUNIORS: FURTHER CONFIRMATION OF ROCKWELL S VALUE UPSIDE Diamondcorp Average price/carat sold (US$) Firestone Lucara Mountain Namakwa Rockwell Province Diamonds Stellar Trans Hex Diamondcorp Firestone Lucara Price: Tangible Book Value Mountain Namakwa Rockwell Province Diamonds Stellar Trans Hex $500 $400 $300 $200 $100 $- Diamondcorp Enterprise value ($m) Firestone Lucara Mountain Namakwa Rockwell Province Diamonds Stellar Trans Hex 16% 14% 12% 10% 8% 6% 4% 2% 0% Diamondcorp Market Cap: Resource value Firestone Lucara Mountain Namakwa Rockwell Province Diamonds Stellar Trans Hex Source: Company websites, ThomsonReuters

18 GROWTH PLAN: CREATE CRITICAL MASS AND SCALE 18 Total carats / year Production targets Volume / month (m3) Revenue / year ($m) F2012 F2013 F2014 F2015 F2016 Niewejaarskraal Wouterspan Tirisano Klipdam Saxendrift Total Production / month Revenue targets* F2012 F2013 F2014 F2015 F2016 Reviewing additional capital requirement to fund expansion with preference for internal cash flows Projected production based on mine plans in November 2010 preliminary assessments (Tirisano, Wouterspan and Niewejaarskraal) and prefeasibility study (Saxendrift). Refer to Saxendrift resource statement on * Based on budgeted carat values for 2013 and 2.5% annual price increases

19 REVIEW OF INVESTMENT OPTIONS: VALUE CREATION POTENTIAL NPV / Capital Expenditure (times) R 900 Rockwell Diamonds Inc Capital Development (Bubble Size = Capital Requirement) Niewejaarskraal 10 R 800 R 700 Wouterspan 8 6 NPV (ZAR millions) R 600 R 500 R 400 Saxendrift Extension IFS Only Tirisano Expansion 4 R R 200 R 100 Saxendrift Extension Complete Plant 0 Wouterspan Niewejaarskraal Saxendrift Extension Tirisano Expansion Projected production based on mine plans in November 2010 preliminary assessments (Tirisano, Wouterspan and Niewejaarskraal) and prefeasibility study (Saxendrift). Refer to Saxendrift resource statement on diamonds.com. R Resource Size m 3 (millions)

20 20 SUSTAINABLE DEVELOPMENT Supporting LOCAL ECONOMIC DEVELOPMENT LOCAL BENEFICIATION: 85% of diamonds in South Africa Provided STARTUP CAPITAL and mentorship for construction and brickmaking factory SAFETY: Committed to providing safe working environment ONE MILLION LTI FREE hour record at Saxendrift Employment: 683 full time employees Total of 79 new jobs created with conversion to CONTOPS in Northern Cape Corporate Social Investment Supporting LOCAL ORGANIZATIONS focused on under privileged children, education and feeding schemes for elderly Managing ENVIRONMENTAL impact: REHABILITATION as land is mined

21 21 PRIORITIES AND OUTLOOK: FISCAL 2013 PRIORITIES: Ramp up of TIRISANO to full production RESOLVE issues with BEE shareholding and funding Further progress with IMPLEMENTATION of bulk X-ray technology at Saxendrift OUTLOOK: Long term FUNDAMENTALS underpinned by uptake from CHINA and INDIA and REDUCING SUPPLY PRICES and DEMAND expected to INCREASE to June 2012 Rockwell s BALANCE SHEET provides working capital for short to medium term plans Ongoing REVIEW of potential CORPORATE ACTIONS for growth Continue ADDING value through BENEFICIATION joint venture with Steinmetz Deliver on operational priorities to start seeing FINANCIAL BENEFITS

22 22 FORWARD LOOKING STATEMENTS Except for statements of historical fact, this presentation release contains certain "forward-looking information" within the meaning of applicable securities law. Forwardlooking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include uncertainties and costs related to exploration and development activities, such as those related to determining whether mineral resources exist on a property; uncertainties related to expected production rates, timing of production and cash and total costs of production and milling; uncertainties related to the ability to obtain necessary licenses, permits, electricity, surface rights and title for development projects; operating and technical difficulties in connection with mining development activities; uncertainties related to the accuracy of our mineral resource estimates and our estimates of future production and future cash and total costs of production and diminishing quantities or grades if mineral resources; uncertainties related to unexpected judicial or regulatory procedures or changes in, and the effects of, the laws, regulations and government policies affecting our mining operations; changes in general economic conditions, the financial markets and the demand and market price for mineral commodities such and diesel fuel, steel, concrete, electricity, and other forms of energy, mining equipment, and fluctuations in exchange rates, particularly with respect to the value of the US dollar, Canadian dollar and South African Rand; changes in accounting policies and methods that we use to report our financial condition, including uncertainties associated with critical accounting assumptions and estimates; environmental issues and liabilities associated with mining and processing; geopolitical uncertainty and political and economic instability in countries in which we operate; and labour strikes, work stoppages, or other interruptions to, or difficulties in, the employment of labour in markets in which we operate our mines, or environmental hazards, industrial accidents or other events or occurrences, including third party interference that interrupt operation of our mines or development projects. For further information on Rockwell, Investors should review Rockwell's annual Form 20-F filing with the United States Securities and Exchange Commission and the Company's home jurisdiction filings that are available at This presentation also uses the terms 'indicated resources' and 'inferred resources'. Rockwell Diamonds Inc. advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. In addition, 'inferred resources' have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for Preliminary Assessment as defined under Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable. The securities of Rockwell being offered have not been, nor will be, registered under the U.S. Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from U.S. registration requirements. This information does not constitute an offer or sale of securities in the United States. Prior to making any investment decision, investors should consult a professional advisor.

23 ADDITIONAL INFORMATION

24 ROCKWELL MINERAL RESERVES & RESOURCES: AT 28 FEBRUARY 2011 PROPERTY SAXENDRIFT/ KWARTELSPAN KLIPDAM HOLPAN ERF 404 CATEGORY VOLUME (M 3 ) GRADE VALUE (USD/CT) NOV FEB * (CT/100M 3 ) FY2011 Probable* 4,859,900 4,565, Indicated 1,774,600 NC 0.66 Inferred 5,986,000 NC 0.56 Indicated 2,091,200 1,907,900 Inferred 949,000 NC Indicated 517, ,000 Inferred 527,000 NC Indicated 404,700 NC Inferred 127,000 NC $2,029 $2, $1,049 $1, $1,229 $1, $986 RIETPUTS Inferred 782, , $788 $974 WOUTERSPAN Indicated 5,025,500 NC Inferred 37,774,000 NC 0.7 $2,029 NIEWEJAARSKRAAL Inferred 20,630,000 NC 0.84 $2,029 TIRISANO** Indicated 25,279,900 NC Inferred 15,334,000 NC 2.37 $ Estimates done at November 30, 2010 and reconciled to February 28, 2011 by including material removed by trial mining and bulk sampling in Q4 FY2011. NC : no change Value: average value of the sales of diamonds during sampling. * Saxendrift probable mineral reserves are exclusive from the indicated mineral resources. ** Tirisano acquisition not yet complete as the mining rights have not yet been ceded to Rockwell. Rockwell also holds the Zwemkuil Project (incl. Zwemkuil, Mooidraai and Holsloot properties), which was reviewed in fiscal This is a significant exploration target, but to date there has not been sufficient work done FOCUS to estimate ON DIAMOND mineral VALUE resources MANAGEMENT

25 25 INDEPENDENT VALUATION 1 : CONFIRMED VALUATION GAP Fair Market Value 2 Adjusted book value method using discounted cashflow Operation Wouterspan 3 Tirisano 3 Klipdam 3 Value range $47.4m - $54.8m $17.6m - $20.0m $3.6m Holpan 3 $281,000 Niewejaarskraal 3 Saxendrift 3 $37.4m - $42.5m $15.5m - $16.1m 1. The valuation, dated February 28, 2011, conducted by Jennifer Lucas, MBA, CBV, ASA, of Evans & Evans Inc. 1. Valuation of 74% of mine 2. Discount rates: Wouterspan, Tirisano and Niewejaarskraal: 25.36% to 28.96% Klipdam, Holpan and Saxendraft: 22.36% to 24.96% 4. Adjustments to balance sheet of Rockwell to evaluate fair value of net assets at February 28, 2011 Valuation method Midpoint of fair market value ($m) Weighting Value ($m) Weighting Value ($m) Trading price method % % 10.1 Resource properties Adjusted book value 4 $121.9m - $137.3m $149.5m - $165.0m Guideline public company method % % Valuation using average trading price of Rockwell for the 10 and 90 days preceding the valuation date 6. A guideline public company method comparing Rockwell s average dollar value per enterprise value of reserves and resources to eight peer group companies Adjusted book value method % % Total