Focus on diamond value management:

Transcription

1 Focus on diamond value management: Corporate presentation October 2011 TSX:RDI JSE:RDI OTCBB:RDIAF

2 Forward looking statements Except for statements of historical fact, this presentation release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking 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. 2

3 A unique investment proposition Rockwell is unique because Currently only exploiting 3 out of 7 deposits - underpinning Company s growth potential Mineral resources and reserve estimates stated as per Proven track record in producing large, high quality gemstones Enhanced revenue through beneficiation partnerships Invest at a substantial discount to intrinsic value Significant upside with minimal capital investment New leadership and Board restructuring to drive value creation: additional 40-yrs diamond experience Participate in turnaround of established diamond producer New leadership team focused on closing value gap Investments aimed at delivering higher and more predictable production profile Deploy fit for purpose technology to optimize recovery of diamonds Focus on diamond value management 3

4 Unique investment proposition 4

5 Leadership team with strong credentials to deliver value Board of Directors: David Copeland (Chairman) Mark Bristow Richard Linnell Willem Jacobs Gary Wu Sandile Zungu 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. Dr Kurt Petersen, Ph.D. (Stellenbosch) 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) Mineral Resource 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. Expert in economic diamond metallurgy. Contracted to Rockwell for fiscal Extensive HR & Industrial Relations management experience including organizational and structural design initiatives as well as strategy development and implementation. 5

6 Rockwell operations and project localities: Northern Cape and North West Provinces, South Africa N Botswana Zimbabwe Project hubs in historic alluvial diamond provinces; production since 1860 s and 1920 s 1:VENTERSDORP Tirisano 2 Lower Orange River Springbok Namibia Koa River Valley Prieska Douglas Middle Orange River Bloemhof Vaal River Kimberley Bloemfontein Riet River Pretoria Johannesburg Ventersdorp Lesotho Swaziland Vaal River RSA Kilometres 2:VAAL RIVER Holpan 3 + Klipdam 1 Klipdam-Extension 4 3:MIDDLE ORANGE RIVER Wouterspan 3 Saxendrift 1 Niewejaarskraal 3 1. Producing mine 2. Development mine 3. On care and maintenance 4. Completed bulk sampling project 6

7 Producer of large and exceptional gem diamonds 105 carat Saxendrift stone forms one of pair of exceptional round brilliant cut DIF diamonds with XXX cut measuring some 35 carats each ct (Holpan), 81.30ct (Saxendrift) and 69.24ct (Klipdam) Clockwise: 79.13ct (Klipdam), 75.42ct (Saxendrift), 26.98ct (Holpan), 59.79ct (Klipdam), 49.97ct (Klipdam) and 62.78ct (Klipdam) (centre) 7

8 Rockwell rough diamond production: Average US$/carat World Diamond Average $90/carat <0.3 c/stone # Tirisano (North West Province, RSA) $700/carat ~0.9 c/stone # Holpan/Klipdam (Vaal River, RSA) $1,200 & $1,100 /carat resp. ~1.2 c/stone # Small diamonds used in lower price point and pave jewelry Engagement rings (Bridal-range), mid to high price point jewelry Engagement rings, high price point jewelry Saxendrift /Wouterspan (Moro, RSA) $2,000/carat ~2.5 c/stone # High-end luxury jewellery High Net Worth Individuals Investment Stones # - Rough stone average sizes 8

9 Rockwell Mineral Reserves & Resources 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, , carat Type 2a from Saxendrift (May 2011) See slide 30 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 9

10 Operations of successful peers in the alluvial diamond industry Namdeb (coastal, marine and Orange River): Mining alluvial diamonds since 1908 Still employs 1,600 people Produced 929,000 carats in 2009 and c.95m carats since the beginning Namaqualand Mines: Mining alluvial diamonds since 1927 Mined c.31m carats over the life of mine Sold by De Beers to Trans Hex in 2011 Trans Hex: Mining alluvial diamonds for more than 50-years Marange: World s current richest diamond deposit Grades up to 5,000 cpht 10

11 Current operations Operation Processing capacity (m 3 p.m. ) Carats per month Value as in (US$ / carat) Life of Mine (years) Middle Orange River: Saxendrift Vaal River: Holpan* and Klipdam 130, ,029 5 Klipdam: 90,000 Klipdam: 810 Klipdam: 1,229 Klipdam: 2 Ventersdorp: Tirisano Under construction: 180,000 3, Saxendrift Klipdam Tirisano * on care and maintenance since May

12 Procedures to keep our high value production secure Security outsourced and rotation system for guards Double key system, security and foremen for all concentrate areas Extensive CCTV system at Holpan and Klipdam with third tier watch on sorting and weighing Sorting and weighing at Saxendrift completely hands off First human access to product is on transport from site Plans to upgrade CCTV system Transportation of product never follows a schedule Random use of transport method and people involved Final recovery: Hands off sorting (Saxendrift) Security Control Room (Barkly West) 12

13 Product leverage: Value-adding downstream partnerships Flawless Diamond Trading House (FDTH) Internationally recognized marketing and sales facility (Johannesburg) Rockwell holds 20% in FDTH in partnership with management Platform to market, sell, and leverage Rockwell production Exploring new opportunities and markets for Rockwell e.g. China 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 MOR Rough stone : 212ct Yellow Rough price: US$2.44m (to RDI) 102ct Vivid Yellow + 25c yellow Value-add: ~50% on rough price (to RDI) 13

14 Access to top quality diamond asset at significant discount 14

15 Volume Per Month Total carats / annum Growth Plan: To create critical mass and scale Proposed 5 year volume production per month Tirisano A & B Saxendrift Klipdam Holpan Niewejaarskraal A Wouterspan B Wouterspan B Wouterspan B Wouterspan A Wouterspan A Wouterspan A Wouterspan A Tirisano A & B Tirisano A & B Tirisano A & B Tirisano A & B Saxendrift Saxendrift Saxendrift* Saxendrift* Additional capital required for Wouterspan and Tirisano with aim to fund subsequent expansion of Niewejaarskraal from internal cash flows Niewejaarskraal B Niewejaarskraal A FY2012 FY2013 FY2014 FY2015 FY to 2 years 3 to 6 years 5 to 6 years Monthly production: 2,500 >4,000 carats Monthly production: 9,000 10,000 carats Annual revenues from C$80m to C$100m Investor support to achieve growth objectives Larger and improved mix of diamonds Sales + beneficiation leverage 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 slide 30 15

16 Vaaldiam Shear Rockwell Stellar Diamondcorp Trans Hex Namakwa Shore Gold Developer Average Stornoway Lucara Mountain Province Producer Average Gem Harry Winston Petra US$/(Carat) FD ITM Market Cap (C$MM) Diamondcorp Mountain Province Shear Harry Winston Petra Developer Average Stellar Stornoway Shore Gold Namakwa Vaaldiam Lucara Producer Average Gem Trans Hex Rockwell Stellar Vaaldiam Shear Diamondcorp Rockwell Harry Winston Lucara Mountain Province Developer Average Namakwa Stornoway Trans Hex Producer Average Shore Gold Gem Petra Average Value Per Carat ($US) In-Situ Value (US$MM) Peer group comparison: Carat Values, In-Situ Value, Market Cap and Margins $1,500 Average Value per Carat $7,000 In-Situ Value $10.5B $14.9B $23.7B $1,250 Average Developer Producer $6,000 Average Developer Producer $1,000 $5,000 $750 $4,000 $3,000 $500 $2,000 $250 $1,000 $0 $0 Highest average value and margin per carat and top tier resources not reflected in market cap $1,400 Margin Per Carat (US$) $750 Market Capitalization $1.4B $1.4B $1,200 $625 Average Developer Producer $1,000 $500 $800 $375 $600 $400 $250 $200 $125 $0 $0 Source: Bloomberg and company estimates; closing prices per Bloomberg as at June 10,

17 Rockwell 10%) Rockwell Blended) Peregrine Stellar Shore Gold Namakwa Developer Average Stornoway Producer Average Gem Lucara Petra Mountain Province Harry Winston 1, 2 1, 3 Price / Net Asset Value Peer group comparison: Price to Net Asset Value 1.2X Average Developer Producer 1.0X 0.8X 0.6X 0.4X 0.2X 0.0X Source: Net asset values based on research analyst consensus estimates; closing prices per Bloomberg as at June 10, Pro-Forma NAV based on revised model from the technical reports to be re-filed, excluding Hoplan and Klipdam mines and includes WWCM estimated corporate adjustments of C($14MM), issuance of common shares at C$0.05 per share pursuant to C$35MM financing and issuance of 68.4MM common shares for Tirisano Acquisition; 2. NPV calculated at 10% discount for each of the properties, in line with research analyst consensus discount rates 3. Saxendrift and 15% discount; Wouterspan and 20% discount 17

18 Trans Hex Rockwell (2016) Rockwell (2013) Rockwell (LTM) Gem Producer Average Petra Harry Winston Price / Cash LTM Cash Flow Per Share 1 1 Peer group comparison: Price to Cash Flow 20.0X 17.5X Producer Developer Average Price to Cash Flow 40.6X 15.0X 12.5X 10.0X 7.5X 5.0X 2.5X 0.0X Source: Bloomberg as at June 10, Pro-Forma CFPS based on company model excluding Hoplan and Klipdam mines and includes WWCM estimated corporate adjustments of C($3MM) per year, issuance of common shares at C$0.05 per share pursuant to C$35MM financing and issuance of 68.4MM common shares for Tirisano Acquisition 18

19 Participate in significant upside potential 19

20 Confirmed upward trend for diamond sales prices Prices in 2011 overtook 2008 record $2 200 US $/ct Linear (US $/ct) levels Average price up 35% to US$1,365 per $1 700 carat in FY2011 Second quarter fiscal 2012 tender $1 200 average: US$2,186 per carat $700 Recession impact $200 Sale of parcels to State Diamond Trader 20

21 Strong fundamentals for diamond sector Rough Diamonds have historically performed in-line with gold and are expected to outperform gold in the future Diamond demand is expected to outpace diamond supply Inventory restocking will significantly increase polished diamond demand in the near-term 21

22 Improving financial indicators in fiscal % year-on-year increase in revenue to $42.5m 23% year-on-year increase in revenue/m 3 to $12.6/m 3 Operating profit of $4.0m, a turnaround of $7.5m from 2010 Mine operating costs constant at $8.3/m 3 35% increase in average price to US$1,365 / carat 2% rise in sales to 27,017 carats Production increased 5% to 26,165 carats Cash generated by operating activities of $8.9m in FY2011 from ($ ) FY2010 Net cash balance increased to $2.9m from $1.8m Virtually debt free balance sheet Improving financial indicators Focus on delivering on production targets 22

23 Investments for growth (C$m) Use of proceeds March 2010 Current raise Actual Raised Total funds raised OPERATIONAL Critical spares and consumables Working capital during production ramp up phase FINANCIAL Repayment of debt -8.0 Repayment of convertible loan Transferred to capex -3.5 Tirisano creditors INVESTMENT New business and project development Saxendrift Tirisano Wouterspan * Exploration and other * Remainder to be funded from internal cash flow 23

24 The Big Five Priorities under New Leadership Remedy production challenges at Saxendrift Address change in ore body characteristics Optimize stone recovery Replace old equipment to improve efficiency and increase revenue Currently reviewing screening and bulk x-ray technologies Completion of Tirisano Independent review by diamond mine builders & metallurgists Focus on commissioning and bedding down first two streams Offers a solid production base on which to build Cost rationalization Reduce overhead expenses and seek economies of scale Sale of non-productive assets to liberate cash Improve capital structure with sale of large earthmoving assets Executed sale of Makoenskloof for $0.9m Instill a culture of diamond value management Engaged a senior process executive and additional contract skills to address skills shortages Install fit for purpose technology and practices Entrench business and technical disciplines 24

25 Successes under New Leadership Saxendrift Review uncovered opportunities to improve front end processing efficiencies Board approved replacement of in-field screening plant with a Dabmar Bivitec screen to process wet and sticky ores Board approved implementation of bulk x-ray technology as pilot for Company Production analysis disclosed that plant efficiency can improve by increasing recovery cut off from 2.5mm to 5mm Tirisano Plant review highlighted improvements to ensure achievement of anticipated grades Commissioning work schedule modified to accommodate completion of first two streams in Q3 calendar 2011 Review of flow diagrams underway to incorporate latest recovery technologies on remaining two streams Management changes Board appointment of James Campbell formalized Dr Kurt Peterson brought in as a consulting metallurgist Michael Hunt appointed as COO with more than 30 years in diamond sector Graham Chamberlain assumes responsibility of General Manager, Tirisano Capital utilization Significant asset sales far advanced Accountability Management KPIs and incentives at an advanced stage 25

26 Outlook and guidance Diamond prices softened slightly since end August 2011 Long term supply and demand fundamentals Substantial uptake of diamonds from China and India Gradual reduction in supply should continue to support prices Volatility of Rand against US$ could affect pricing but not a significant risk Impact on input costs including fuel but less significant than US$ denominated diamond sales Operations focused on meeting production targets Saxendrift benefiting from initiatives to improve the quality of plant processes Focus on Klipdam to unlock similar improvements Commercial production starting at Tirisano during October 2011 Discussions with relevant unions for wage negotiations and introduction of continuous operations 26

27 Compelling value proposition Rockwell is unique because Currently only exploiting 3 out of 7 deposits - underpinning Company s growth potential Mineral resources and reserve estimates stated as per Proven track record in producing large, high quality gemstones Enhanced revenue through beneficiation partnerships Invest at a substantial discount to intrinsic value Significant upside with minimal capital investment New leadership and Board restructuring to drive value creation: additional 40-yrs diamond experience Participate in turnaround of established diamond producer New leadership team focused on closing value gap Investments aimed at delivering higher and more predictable production profile Deploy fit for purpose technology to optimize recovery of diamonds Focus on diamond value management 27