RE: WHAT THE ??Rockwell resumes mining
2009-03-11 14:18 ET - Street Wire
by Will Purcell
Dr.John Bristow's Rockwell Diamonds Inc. is again mining diamonds at threeof its four alluvial diamond deposits in South Africa and it isresuming sales of rough gems. The company thinks it can generate enoughcash to warrant keeping the mines open this year, but it will placethem on full care and maintenance if things worsen. Fortunately, thereare some hints of hope in recent developments.
The plan
Dr.Bristow said Rockwell has reopened its Saxendrift, Klipdam and Holpanoperations, leaving just the Wouterspan operation, which has a higheroperating cost, shuttered indefinitely. The company continues to lowerits operating costs at the three producing mines and in total, Rockwellhas now laid off about 200 of its original staff of 660 people.
Roughdiamond prices dropped by about 50 per cent late last year and remainat that level, but Dr. Bristow said his company has started sellingdiamonds after a break of nearly four months. The company is puttingconsiderable effort into maximizing its revenues, especially with thelarger stones that account for much of the value contained inRockwell's small parcels of stones.
The South Africa-basedgeologist who has been running Rockwell since 2006 said the companywould be taking its bigger stones directly to Antwerp for sale. Thatmove that should provide some additional insight into the latestdevelopments in the diamond market. For now, Dr. Bristow believes theprices for gems weighing between two and 10 carats are faring better,being down just 30 per cent from their highs. Demand for larger gems issoft, he added, but the toughest market is faced by producers of tinydiamonds. Fortunately, Rockwell does not have a large supply of smallgoods in its mix.
As well, Rockwell has a deal with SteinmetzDiamond Group that is adding value to some of its best stones.Steinmetz is cutting and polishing several of Rockwell's gems andselling them for higher prices than the rough gems would normallyfetch. For instance, Steinmetz turned a 212-carat rough stone into a102-carat vivid yellow gem that it sold, and a 23-carat fancy yellowthat has not yet found a buyer. The partners estimate the preparationadded about 50 per cent to the value of the rough stone.
Dr.Bristow said he believed the current feeling among diamond producersand sellers is more positive than it was. Retail sales are showing theslightest improvements and meanwhile, every single diamond producer hascut production for one reason or another. De Beers is leading the wayin curtailing the supply of rough gems, as nearly all its mines arecurrently closed or on a production hiatus.
Further, the bigRussian gem miner, Alrosa, is not selling its production. As well, RioTinto has its Argyle mine on a three-month stoppage, and althoughDiavik is still running, it is now mining a lower-grade pipe that iscutting production by about 20 per cent from its 2007 peak. Most of thelesser producers are also contributing to the dwindling supply throughindefinite closures or extended holiday breaks.
The encouragement
Rockwell is having some success on the cost side. The company'soperating costs averaged about $8 (U.S.) per tonne through the firsteight months of 2008, but it pared them back to about $6 (U.S.) pertonne in the next two months. Once the three remaining mines get backto full production, Rockwell anticipates its costs will average about$4 (U.S.) per tonne. If so, the decline in operating costs may outstripthe slump in rough diamond prices.
TheSaxendrift deposit is Rockwell's key. It has a diamond grade comparablewith Holpan and Klipdam, but its diamonds have been selling for higherprices. Further, it has about four times the amount of material as thetwo other mines combined.
Rockwell lost one-half cent to close at 3.5 cents Tuesday on 74,500 shares.