Rivers running through it
Control of costs, continuous operational innovation and a clear development strategy have enabled Rockwell Diamonds to survive the downturn and move forward into the upturn, as Ruari McCallion learned from CEO John Bristow.
Diamonds may be a girlÔÇÖs best friend but neither recipients nor producers would have found the 50 per cent decline in prices during late 2008 / early 2009 particularly amicable. A number of companies fell by the wayside, unable to survive the hit to their revenues.
However, one personÔÇÖs misfortune can often be anotherÔÇÖs opportunity and that looks like being the case for Rockwell Diamonds Inc. It is listed on the Toronto stock exchange but its activities are focused in South Africa, in the alluvial diamond fields of the Vaal and Orange River valleys.
ÔÇ£Rockwell is pitched to be a successful junior diamond mining company, specialising in alluvial mining,ÔÇØ says John Bristow, CEO of the company. ÔÇ£We operate open-cast or horizontal strip miningÔÇöour core competencies are moving large amounts of dirt and high volume processing, really. We have a large, modern fleet of earth moving equipment and experienced management that enables us to move dirt very effectively.ÔÇØ Rockwell also has a pretty attractive set of mineral resources. It may have to shift a load of dirt and gravel to find its diamonds but they are well worth looking for.
ÔÇ£Most of our diamonds are larger than two carats in size and we regularly find individual diamonds of larger than100 caratsÔÇömuch larger than average sizeÔÇöand achieve prices well above the world norm,ÔÇØ says Bristow. Prices achieved in the period March to 31 July 2009 averaged $753 per carat. ÔÇ£Our rough stones are turned into high-value products that will typically be bought by high net worth individuals. They are scarce and unique.ÔÇØ
Diamonds form deep below the earthÔÇÖs surface and are brought out through ÔÇÿdykesÔÇÖ and ÔÇÿpipesÔÇÖ of kimberlite, ancient volcanoes that exploit deep-seated fractures in the earthÔÇÖs lithosphere and crust to transport diamonds to the earthÔÇÖs surface. Kimberlite is named after Kimberley, the South African city that is synonymous with the countryÔÇÖs diamond industry. Rockwell has a small head office in Johannesburg, with a well-resourced operational base in Barkly West, 35 kilometres north-west of Kimberley. Barkly West, originally known as Klip Drift (ÔÇÿStone DriftÔÇÖ) is where South AfricaÔÇÖs diamond mining business originated.
Rockwell is working away from the long-established kimberlite mines and is instead exploiting alluvial terraces, ancient deposits made by old rivers which picked up diamonds weathered from the kimberlite source rocks, moved them downstream and deposited them amidst millions of tonnes of alluviumÔÇöor gravel, put simply. Rockwell's job is to mine the ancient river terraces in the most cost-effective and efficient manner possible. It has a lot of experience and expertise to bring to the taskÔÇöBristow learnt the business with De Beers, the world's largest diamond company, and most of his senior management and operational team have extensive local and international experience in open cast mining, diamond recovery and the marketing of rough diamonds.
ÔÇ£Our operating costs are around $3 per tonne, which are very low, among the lowest in the sector,ÔÇØ he says. In effect, they have to be because, while the diamonds are high-quality, the company's operations yield around 0.4 carats (one carat is equivalent to 0.2 grams) per 100 tonnes of gravel.
Rockwell achieves this low cost structure by running large scale operations through continual enhancement of its mining and processing procedures, and through the employment of skilled people. Ongoing training and skills transfer is important to improve productivity; and in respect of employment and wages, Bristow says: ÔÇ£We are a publicly-owned company and we have to compete in the marketplace. We pay good wages, offer incentive options, and run a lean and mean organisation. We have a tiny head officeÔÇöit has just three-and-a-half staff. The majority of our people are employed on the sites, in productive activities.ÔÇØ What the company has also done is to invest in a modern earth-moving fleet, primarily of Komatsu equipment, and efficient infrastructure, deploying its expertise to make its efforts as effective as possible.
ÔÇ£We use robust, proven and proprietary geological techniques to evaluate our claims,ÔÇØ Bristow explains. ÔÇ£We put a lot of focus on optimising our recovery plans. And we give people ownership; we have a more entrepreneurial approach than the large companies. Our managers have the latitude to make decisions on site; we don't have a long chain of command.ÔÇØ
Rockwell owns almost all of its earth moving fleet and all its recovery plants which, it maintains, gives it both flexibility and control. The fleet and equipment is contemporary but is, in Bristow's words, ÔÇ£AfricanisedÔÇØ.
ÔÇ£We have modern plants with modern technology and controls but we haven't gone over the top. We have the right technology, rather than high-tech, but with straightforward, hands-on operations and maintenanceÔÇöwe don't have to call Jo'burg to get something fixed,ÔÇØ he says. ÔÇ£We use Komatsu equipment because it's robust. By keeping it simple, we ensure the people on the ground understand it, can operate it effectively and can look after it.ÔÇØ
Rockwell employs around 455 people directly, with a further 70 in a security company. It runs its operations on a five-day, three-shift working week, with planned maintenance and repairs done on weekends. After three good years from its foundation in 2006, the collapse in the diamond price led it to shut down operations completely for two months over its year-end. It is now operating three sitesÔÇöHolpan, Klipdam and Saxendrift. A fourth operation, Wouterspan, is currently on care and maintenance. Revenues are currently a bit better than break-even and its low cost base is further helped by its rehabilitation strategy.
ÔÇ£All mining companies are obliged to make good their mining operations,ÔÇØ says Bristow. ÔÇ£It's best to do that as part of the ongoing mining process. We don't want to come back in five years or something, when it may be more expensive. We run several pits in rectangular blocks and rehabilitation is continuous.ÔÇØ The mines are inspected by the Department of Minerals and EnergyÔÇÖs environmental agency and the company has to deposit rehabilitation bonds. ÔÇ£We survey and measure our mines each fortnight; the environmental agency has calculations for rehabilitation capital and the way we manage our affairs means that we end up committing a smaller rehabilitation guarantee.ÔÇØ
Rockwell has also been able to acquire a large footprint of diamond-bearing properties through making applications to the Department of Minerals and Energy (effectively the custodian of mineral rights) and through acquisitions. It is also eyeing new land from competitors who have gone out of business.
ÔÇ£We're currently producing over 2,500 carats a month and we're covering our costs,ÔÇØ says Bristow. ÔÇ£We have an excellent pipeline of brownfields projects, the majority of these being high level terraces on the south bank of the Middle Orange River, in the same area as the Saxendrift mine. We're well-placed to benefit from the uptick in diamond prices as the market recovers,ÔÇØ he concludes.
The diamond business has been around for over 4,000 years and has faced challenges in the past, but it has survived and remains fundamentally strong. Interestingly, most of the worldÔÇÖs earliest diamond production comprised large and exceptional stones recovered from the famous alluvial deposits of the large Krishna River in Andrha Pradesh state in India. Rockwell is successfully emulating this ancient history through its recovery of large, high-quality diamonds from modern alluvial mining operations on the ancient river terraces of the Vaal and Orange Rivers in South Africa.
