Rockwell Diamonds Inc
		Symbol			RDI
		Shares Issued			238,041,569
		Close 2009-03-10			C$ 0.035
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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 three of its four alluvial diamond deposits in South Africa and it is resuming sales of rough gems. The company thinks it can generate enough cash to warrant keeping the mines open this year, but it will place them on full care and maintenance if things worsen. Fortunately, there are some hints of hope in recent developments.

The plan

Dr. Bristow said Rockwell has reopened its Saxendrift, Klipdam and Holpan operations, leaving just the Wouterspan operation, which has a higher operating cost, shuttered indefinitely. The company continues to lower its operating costs at the three producing mines and in total, Rockwell has now laid off about 200 of its original staff of 660 people.

Rough diamond prices dropped by about 50 per cent late last year and remain at that level, but Dr. Bristow said his company has started selling diamonds after a break of nearly four months. The company is putting considerable effort into maximizing its revenues, especially with the larger stones that account for much of the value contained in Rockwell's small parcels of stones.

The South Africa-based geologist who has been running Rockwell since 2006 said the company would be taking its bigger stones directly to Antwerp for sale. That move that should provide some additional insight into the latest developments in the diamond market. For now, Dr. Bristow believes the prices for gems weighing between two and 10 carats are faring better, being down just 30 per cent from their highs. Demand for larger gems is soft, he added, but the toughest market is faced by producers of tiny diamonds. Fortunately, Rockwell does not have a large supply of small goods in its mix.

As well, Rockwell has a deal with Steinmetz Diamond Group that is adding value to some of its best stones. Steinmetz is cutting and polishing several of Rockwell's gems and selling them for higher prices than the rough gems would normally fetch. For instance, Steinmetz turned a 212-carat rough stone into a 102-carat vivid yellow gem that it sold, and a 23-carat fancy yellow that has not yet found a buyer. The partners estimate the preparation added about 50 per cent to the value of the rough stone.

Dr. Bristow said he believed the current feeling among diamond producers and sellers is more positive than it was. Retail sales are showing the slightest improvements and meanwhile, every single diamond producer has cut production for one reason or another. De Beers is leading the way in curtailing the supply of rough gems, as nearly all its mines are currently closed or on a production hiatus.

Further, the big Russian gem miner, Alrosa, is not selling its production. As well, Rio Tinto has its Argyle mine on a three-month stoppage, and although Diavik is still running, it is now mining a lower-grade pipe that is cutting production by about 20 per cent from its 2007 peak. Most of the lesser producers are also contributing to the dwindling supply through indefinite closures or extended holiday breaks.

The encouragement

Rockwell is having some success on the cost side. The company's operating costs averaged about $8 (U.S.) per tonne through the first eight months of 2008, but it pared them back to about $6 (U.S.) per tonne in the next two months. Once the three remaining mines get back to full production, Rockwell anticipates its costs will average about $4 (U.S.) per tonne. If so, the decline in operating costs may outstrip the slump in rough diamond prices.

The Saxendrift deposit is Rockwell's key. It has a diamond grade comparable with Holpan and Klipdam, but its diamonds have been selling for higher prices. Further, it has about four times the amount of material as the two other mines combined.

Rockwell lost one-half cent to close at 3.5 cents Tuesday on 74,500 shares.

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