ROCKWELL DIAMONDS: Between a rock and a hard place

Prospects of Rockwell Diamonds getting back on its feet are dim, even with the best management. Not only does it face the threat of liquidation or business rescue, but the legal process is presenting a time-consuming distraction for management just when the focus should be on making the best of its last remaining productive asset.


Rockwell’s problems mounted last year after the closure of its Saxendrift operations as a result of falling grades, closure of its unsustainable Remhoogte/Holsloot project and the resignation of the CFO and CEO.

In November the contractor building the Wouterspan wet plant, C-Rock Mining, started a legal process to recover money it was owed. Last month it was granted an interim liquidation order against three Rockwell companies: HC van Wyk Diamonds, Saxendrift Mine and Rockwell Resources RSA.
Within four days Rockwell’s shares on the JSE dropped 19c to 40c. They were suspended from trade at the company’s request on April 4. Last week Rockwell said it had applied for business rescue, and if this was granted it would halt the liquidation process.
Rockwell’s version of events is that it had to spend millions of rand completing the Wouterspan plant and C-Rock was not due to be paid until it was finished. It says C-Rock’s claims are based on disputed invoices and informal agreements with former management. It says its counter claims against C-Rock far outweigh C-Rock’s against Rockwell.
Melchior van Niekerk, CEO of C-Rock Mining, says there are signed contracts between the company, which is owed R145m, and Rockwell. Rockwell did not meet the conditions set out in them, he says, adding that C-Rock would not have been able to secure a provisional liquidation order without proper documentation.

He says Rockwell has not yet applied for business rescue but if it did, C-Rock would again attach the Wouterspan wet plant to secure its claim.
Rockwell CFO Patrick Cooke says by April 20 Rockwell had applied for business rescue for Rockwell Resources and was preparing applications for the other two companies.
In the three months to November 30 Rockwell made a net loss of C$5.5m, mainly because it lost production as a result of the liquidation application. At that date, it had current assets of C$20.9m and current liabilities of C$29.4m, mostly C$16.3m of trade payables. Cooke says the report for the three months to February will be published in late May. A company called Nelesco 318 has agreed to buy the Saxendrift and Remhoogte properties for R45m (C$4.5m) cash and the assumption of R70m in rehabilitation liabilities. Cooke says the first payment has been made and the second instalment is due once Saxendrift farm has been transferred to the new owners, which has been applied for.
Diehard optimists may see a saviour in the company’s Wouterspan alluvial diamond project. The plant was due to be completed by mid-April, which would be followed by production ramp-up.
The Wouterspan plant will have the capacity to process 200,000m³/month of gravels. A 2013 preliminary economic assessment says Wouterspan’s average grade is about 0.62carats/100m³ with an average value of US$2,300/ct. The grade at Saxendrift was about 0.4ct/100m³, with slightly higher carat values.

Wouterspan was mined until 2008 but suspended when diamond prices plunged in the global financial crisis. Though it is known to be an attractive deposit, it is geologically complex. Given the unpredictable nature of alluvial diamond mining, it would be difficult for a company to be dependent on a single mining area, even one with occasional exceptional stones. Cooke says like all alluvial diamond companies, Rockwell is constantly searching for other attractive deposits.
If the company goes into business rescue and staves off an immediate payment to C-Rock, it will give it time and allow management to focus on generating income from Wouterspan. It might be able to sell Wouterspan or add other assets to become more viable. But it will take a long time to regain the confidence of its bankers and shareholders. 

@Bdlive..