progress update on - hdgold.com · de beers and 4 years as managing director of african diamonds...

PROGRESS UPDATE ON STRATEGY AND FUTURE PLANS JAMES CAMPBELL, CHIEF EXECUTIVE OFFICER MARCH 2012

FOCUS ON DIAMOND VALUE MANAGEMENT

AGENDA

•  UNIQUE investment proposition

•  Corporate OVERVIEW

•  DIAMOND MARKET fundamentals

•  Progress with top STRATEGIC PRIORITIES

•  CASHFLOW and INVESTMENTS

•  Operational TARGETS for fiscal 2013

•  VALUATION considerations

•  GROWTH plan and strategy

•  Sustainable DEVELOPMENT

•  PRIORITIES and OUTLOOK for fourth quarter

2

42.50 carat Type 2a from Saxendrift (May 2011)


•  Pipeline of projects to SUSTAIN and GROW production profile

•  Resources and reserve estimates STATED PER NI 43-101

•  Experienced executive leadership and strong board of directors to DRIVE VALUE CREATION

•  Value adding BENEFICIATION partnership

•  ENHANCING management and SKILLS base to unlock value and grow profitability

•  CONSOLIDATING Holpan and Klipdam to profitably process remaining deposits

•  Improve profitability at Saxendrift with FIT-FOR-PURPOSE in-field screen

•  Establish LONG-LIFE OPERATION at Tirisano

•  Appropriate technology underpinning DIAMOND VALUE MANAGEMENT focus e.g. bulk X-ray at Saxendrift

A UNIQUE INVESTMENT PROPOSITION…

Turnaround in progress � Milestones towards executing strategic objectives

Established diamond producer � Well-understood geology � Beneficiation partnership

Significant value gap

3


BENEFICIATION JOINT VENTURE: SIGNIFICANT VALUE ADD 4

ROUGH POLISHED BENEFICIATION VALUE ADD

105 ct Type II A, Middle Orange

35 ct D color internally flawless

Sold for $230,000/ct +62% on initial rough

sale price

212 ct yellow, Middle Orange

102 ct vivid yellow

+50% on initial rough sale price

128 ct yellow, Middle Orange

81 ct vivid yellow

Not yet sold

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 ($5.5m F2012 YTD)

•  ±25% of revenue from beneficiation, expected to increase


ROCKWELL ROUGH DIAMOND PRODUCTION: AVERAGE US$/CARAT

$90/carat <0.3 c/stone #

$1,100 /carat ~1.2 c/stone #

$2,000/carat ~2.5 c/stone #

World Diamond Average

$700/carat ~0.9 c/stone #

Tirisano (North West Province, RSA)

Klipdam (Vaal River, RSA)

Saxendrift* /Wouterspan/Niewejaarskraal (Middle Orange River, RSA)

Small diamonds used in lower price point and pavé jewellery

Engagement rings (Bridal-range), mid to high price point jewellery

Engagement rings, high price point jewellery

High-end luxury jewellery High Net Worth Individuals

Investment Stones

# - Rough stone average sizes

5

* - Before increasing the bottom cut off to 5mm


ROCKWELL OPERATIONS AND PROJECT LOCALITIES: NORTHERN CAPE AND NORTH WEST PROVINCES, SOUTH AFRICA

6


Category Volume (m3)

Carats Value (USD) millions Feb 28 2011

Probable reserves 4,565,400 22,827 46.3

Indicated resources 34,787,600 675,412 489.6

Inferred resources 82,062,000 828,641 1,141.1

1,677.0

See slide 24 for for detailed 43-101 Mineral Reserves & Resources: At 28 February 2011. 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

EXTENSIVE DEPOSITS TO BENEFIT FROM DIAMOND FUNDAMENTALS

Sale of parcels to State Diamond Trader

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

F2009 F2010 F2011 F2012

Saxendrift: Average quarterly price per carat

US $/ct Linear (US $/ct)

Recession impact

7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Saxendrift Klipdam Tirisano

% of carats exceeding 2 cts % of revenue exceeding 2cts

Sales and revenue statistics for +2ct rough diamonds


LEADERSHIP TEAM WITH CREDENTIALS TO DELIVER VALUE

A leading international diamantaire and specialist in valuation, marketing and sales of rough diamond production from alluvial deposits.

Geological, mineral resource management and production experience in alluvial diamond deposits, diamond and coal exploration. Qualified person and Pr.Sci.Nat.

Group Technical Manager

Glenn Norton, BSC (Hons)

Diamond Marketing & Sales Manager Jeffrey Brenner

Mining and corporate experience with junior and senior mining companies with operations in SA, Australia and Canada. Knowledge of public listed mining Companies.

CFO Gerhard Jacobs,

BAcc, MBA

Group HR/IR Manager Richard Mhlonto,

Nat Dip (HR Management & Development)

Extensive HR & Industrial Relations management experience including organizational and structural design initiatives as well as strategy development and implementation.

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.

President and CEO James Campbell,

BSc (Hons ) ARSM, MBA (Dunelm)

Board of Directors: Mark Bristow (Chairman) Dave Copeland Richard Linnell Willem Jacobs Sandile Zungu Johan van’t Hof

>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 2007.

COO Michael Hunt,

MSc (Advanced Chemical Engineering)

8


CAPITAL STRUCTURE AND SHAREHOLDING 9

Number of shares

Shares outstanding 47,942,746

Warrants -

Options ($0.90-9.45) 2,121,931

Convertible Debt (~$0.56) 3,499,257

Fully Diluted 53,563,934

Top shareholders (% shares in issue)

Strategic:

•  Daboll (Steinmetz) 21.3%

•  Godia Capital 8.3%

•  Middle East Investors 7.1%

Institutional:

•  Conus Partners 6.9%

•  Earth Resources (ERIG) 3.6%

•  Craton Capital 2.6%

•  Wells Capital 1.6%

Other:

•  Etruscan 2.6%

•  Mark Bristow 1.2%


STRONG FUNDAMENTALS FOR DIAMOND SECTOR

•  Diamond DEMAND in carats forecast to grow at 6% p.a. to 2020

–  OUTPACING annual SUPPLY growth of 2.8%

–  SHORTAGES, particularly in large carat diamond segments

•  CHINESE and INDIAN MIDDLE CLASS to double by 2020 –  Driving demand surge

–  Combined market share predicted to EQUAL US market share of 30% by 2020

•  Growing SCARCITY of +2CT diamonds

–  Currently represents 5% of diamond PRODUCTION and 50% of sales VALUE for producers

10

Source: PolishedPrices.com

Source: Deutsche Bank / Alrosa


PROGRESS WITH TOP STRATEGIC PRIORITIES

CORPORATE

Board of directors STRENGTHENED Tirisano ACQUISITION closed out

Constructive PROGRESS with resolution of BEE matters

FINALIZATION of Midamines legacy issue

Strategic review of project opportunities for EFFECTIVE CAPITAL ALLOCATION

OPERATIONAL REORGANIZATION of senior mine MANAGEMENT teams

Production RAMP-UP COMMENCED at Tirisano after addressing fatal flaws

Production STABILIZING at Saxendrift

FINANCIAL

$7.8m RAISED at $0.75 without warrants or other incentives

DISPOSAL of non-core assets generated further $6.4m

Gross PROFIT of $0.5m in Q3 (Impact of Tirisano start up and Midamines)

NET CASH holdings of $10.8m at end of Q3

TECHNOLOGY Implementation of in-field screen at Saxendrift COMPLETED Proof of concept commissioning of bulk X-ray technology ON TRACK Relocation of CONTAINERIZED RECOVERY from Holpan (on care & maintenance) to Tirisano

11

ENTRENCHING DIAMOND VALUE MANAGEMENT


CASHFLOW: INVESTING IN CAPACITY FOR GROWTH 12

BALANCE SHEET PROVIDES REQUIRED WORKING CAPITAL TO ACHIEVE SHORT TO MEDIUM TERM OBJECTIVES

$-

$5

$10

$15

$20

$25

Open

ing ca

sh an

d ca

sh eq

uivale

nts

Cash

Gen

erate

d by

Ope

ratio

ns

Net c

hang

es in

wo

rking

capit

al

Proc

eeds

of

Priva

te Pl

acem

ent

Proc

eeds

of

conv

ertib

le bo

nd

Proc

eeds

from

sa

le of

asse

ts

Cape

x: Tir

isano

, Sax

endr

ift an

d pu

rchas

e of m

inera

l pro

perty

int

eres

ts

Move

ment

in

recla

matio

n dep

osits

Othe

r cas

h flow

s

Clos

ing ca

sh an

d ca

sh eq

uivale

nts

$m


OPERATIONAL TARGETS FOR FISCAL 2013

MINE PRODUCTION (m3)

GRADE (carats/100m3)

CASH OPERATING COST/m3 CAPITAL

EXPENDITURE REVENUE/CARAT

(US$) BUDGET F2012 YTD

KLIPDAM At name plate capacity (90 000) Stable $7.32* $10.35 Minimal In line with F2012

YTD

SAXENDRIFT Increase to 150 000 with new in-

field screen Stable $8.42 $8.35 $400,000 In line with two year

average

TIRISANO Ramping up to 90,000m3 p.m.

06/2012

Gradual improvement to

1.8 by 06/12 $10.38** $16.84 $750,000 In line with stated

prices of $700

13

- ZAR/CAD exchange rate of 8.00 - Full implementation of contops at all operations for F2013 - Corporate expenses budgeted to remain stable - Beneficiation (stones > 2.8 carats) not included in average price per carat expectation * Change of mining plan ** Ramp-up


CORRELATION OF RESOURCES TO PRODUCTION RESULTS

0.0

0.5

1.0

1.5

2.0

2.5

3.0

May 0

8

Aug

08

Nov 0

8

Apr 0

9

Jul 0

9

Oct 0

9

Jan

10

Apr 1

0

Jul 1

0

Oct 1

0

Jan

11

Apr 1

1

Jul 1

1

Oct 1

1

Grad

e ct/1

00 m

³

Saxendrift Recovered Grade versus Resource Grade

Mine Grade 43101 Grade Budget Grade

0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Grad

e ct/1

00m

³

Klipdam Recovered Grade versus Resource Grade

Mine Grade 43101 Grade Budget Grade


INDEPENDENT VALUATION: CONFIRMED VALUATION GAP 15

Adjusted book value / Fair Market Value of Properties using discounted cashflow

Resource properties: $121.9m - $137.3m Adjusted book value: $149.5m - $165.0m

Wouterspan ($47.4m - $54.8m)

Tirisano ($17.6m - $20.0m)

Klipdam ($3.6m)

Holpan ($281,000)

Niewejaarskraal ($37.4m -

$42.5m)

Saxendrift ($15.5m - $16.1m)

30%

30%

40%

0

10

20

30

40

50

60

70

Weighted market value estimate: $62m

Adjusted book value method Guideline public company method Trading price method

Additional details contained in “Additional Information”


TRADING AT A DEEP DISCOUNT TO INTRINSIC VALUE 16

•  Closing RDI share price at 31January 2012: C$0.495 •  Enterprise Value: Market cap less Loans from related parties and capital lease obligation less Deferred

tax and reclamation plus cash (Excludes receivable from BEE partner of C$6.9m) •  Value based on budget margin per carat: Uses internal RDI F2013 budget

$m

0

20

40

60

80

100

120

140

160

180

200

Market capitalization Enterprise value Tangible Net Asset Value (NAV - Mineral property

interests)

Net Asset Value Value based on budget margin per carat


PEER GROUP REVIEW OF DIAMOND JUNIORS: FURTHER CONFIRMATION OF ROCKWELL’S VALUE UPSIDE

17

Source: Company websites, ThomsonReuters

0

200

400

600

800

1000

1200

Diamond- corp

Firestone Lucara Mountain Province

Namakwa Rockwell Diamonds

Stellar Trans Hex

Average price/carat sold (US$)

0

1

2

3

4

5

6

7

Diamond- corp



Stellar Trans Hex

Price: Tangible Book Value

0% 2% 4% 6% 8%

10% 12% 14% 16%

Diamond- corp



Stellar Trans Hex

Market Cap: Resource value

$-

$100

$200

$300

$400

$500

Diamond- corp



Stellar Trans Hex

Enterprise value ($m)


GROWTH PLAN: CREATE CRITICAL MASS AND SCALE

Reviewing additional capital requirement to fund expansion with preference for internal cash flows 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 www.rockwelldiamonds.com

18

* Based on budgeted carat values for 2013 and 2.5% annual price increases

-

200 000

400 000

600 000

800 000

-

20 000

40 000

60 000

80 000

100 000

F2012 F2013 F2014 F2015 F2016

Volu

me /

mon

th (m

3)

Tota

l car

ats /

year

Production targets

Niewejaarskraal Wouterspan Tirisano Klipdam Saxendrift Total Production / month

0

50

100

150

200

F2012 F2013 F2014 F2015 F2016

Reve

nue /

year

($m

)

Revenue targets*


REVIEW OF INVESTMENT OPTIONS: VALUE CREATION POTENTIAL

0

2

4

6

8

10

12

Wouterspan Niewejaarskraal Saxendrift Extension

Tirisano Expansion

NPV / Capital Expenditure (times)

19

Wouterspan

Saxendrift Extension IFS

Only

Saxendrift Extension

Complete Plant

Tirisano Expansion

R 0

R 100

R 200

R 300

R 400

R 500

R 600

R 700

R 800

R 900

0 50 100 150

NPV

(ZAR

milli

ons)

Resource Size m3 (millions)

Rockwell Diamonds Inc Capital Development (Bubble Size = Capital Requirement) Niewejaarskraal

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 www.rockwell diamonds.com.


SUSTAINABLE DEVELOPMENT •  Supporting LOCAL ECONOMIC DEVELOPMENT

–  LOCAL BENEFICIATION: 85% of diamonds in South Africa

–  Provided STARTUP CAPITAL and mentorship for construction and brickmaking factory

•  SAFETY: Committed to providing safe working environment

–  ONE MILLION LTI FREE hour record at Saxendrift

•  Employment: 683 full time employees

–  Total of 79 new jobs created with conversion to CONTOPS in Northern Cape

•  Corporate Social Investment

–  Supporting LOCAL ORGANIZATIONS focused on under privileged children, education

and feeding schemes for elderly

•  Managing ENVIRONMENTAL impact: REHABILITATION as

land is mined

20


PRIORITIES AND OUTLOOK: FISCAL 2013

•  PRIORITIES:

–  Ramp up of TIRISANO to full production

–  RESOLVE issues with BEE shareholding and funding

–  Further progress with IMPLEMENTATION of bulk X-ray technology at Saxendrift

•  OUTLOOK:

–  Long term FUNDAMENTALS underpinned by uptake from CHINA and INDIA and REDUCING SUPPLY

–  PRICES and DEMAND expected to INCREASE to June 2012

–  Rockwell’s BALANCE SHEET provides working capital for short to medium term plans

–  Ongoing REVIEW of potential CORPORATE ACTIONS for growth

–  Continue ADDING value through BENEFICIATION joint venture with Steinmetz

–  Deliver on operational priorities to start seeing FINANCIAL BENEFITS

21


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 www.sec.com and the Company's home jurisdiction filings that are available at www.sedar.com.

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 43-101 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 43-101. 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.

22

ADDITIONAL INFORMATION


ROCKWELL 43-101 MINERAL RESERVES & RESOURCES: AT 28 FEBRUARY 2011

PROPERTY CATEGORY VOLUME (M3) GRADE VALUE (USD/CT)

NOV 30 2010 FEB 28 2011* (CT/100M3) 43-101 FY2011

SAXENDRIFT/ KWARTELSPAN

Probable* 4,859,900 4,565,400 0.5 $2,029 $2, 003 Indicated 1,774,600 NC 0.66

Inferred 5,986,000 NC 0.56

KLIPDAM Indicated 2,091,200 1,907,900

1.21 $1,049 $1,119 Inferred 949,000 NC

HOLPAN Indicated 517,800 395,000

0.95 $1,229 $1,202 Inferred 527,000 NC

ERF 404 Indicated 404,700 NC

0.63 $986 Inferred 127,000 NC

RIETPUTS Inferred 782,000 735,000 0.76 $788 $974

WOUTERSPAN Indicated 5,025,500 NC

0.7 $2,029 Inferred 37,774,000 NC

NIEWEJAARSKRAAL Inferred 20,630,000 NC 0.84 $2,029

TIRISANO** Indicated 25,279,900 NC

2.37 $606 Inferred 15,334,000 NC

Estimates done at November 30, 2010 and reconciled to February 28, 2011 by including material removed by trial mining and bulk sampling in Q4 FY2011.

NC : no change Value: average value of the sales of diamonds during sampling.

* Saxendrift probable mineral reserves are exclusive from the indicated mineral resources.

** Tirisano acquisition not yet complete as the mining rights have not yet been ceded to Rockwell. Rockwell also holds the Zwemkuil Project (incl. Zwemkuil, Mooidraai and Holsloot properties), which was reviewed in fiscal 2011. This is a significant exploration target, but to date there has not been sufficient work done to estimate mineral resources

24


INDEPENDENT VALUATION1: CONFIRMED VALUATION GAP 25

1.  The valuation, dated February 28, 2011, conducted by Jennifer Lucas, MBA, CBV, ASA, of Evans & Evans Inc. 1.  Valuation of 74% of mine 2.  Discount rates:

Wouterspan, Tirisano and Niewejaarskraal: 25.36% to 28.96% Klipdam, Holpan and Saxendraft: 22.36% to 24.96%

4.  Adjustments to balance sheet of Rockwell to evaluate fair value of net assets at February 28, 2011

Adjusted book value method using discounted cashflow

Operation Value range

Fair M

arke

t Valu

e2

Wouterspan3 $47.4m - $54.8m

Tirisano3 $17.6m - $20.0m

Klipdam3 $3.6m

Holpan3 $281,000

Niewejaarskraal3 $37.4m - $42.5m

Saxendrift3 $15.5m - $16.1m

Resource properties $121.9m - $137.3m

Adjusted book value4 $149.5m - $165.0m

Valuation method Midpoint of fair market value

($m) Weighting Value

($m) Weighting Value ($m)

Trading price method5 25.28 40% 10.11 40% 10.1

Guideline public company method6 15.80 30% 4.74 25% 3.95

Adjusted book value method 157.25 30% 47.18 35% 55.04

Total 62.00 69.10

5.  Valuation using average trading price of Rockwell for the 10 and 90 days preceding the valuation date

6.  A guideline public company method comparing Rockwell’s average dollar value per enterprise value of reserves and resources to eight peer group companies

progress update on - hdgold.com · de beers and 4 years as managing director of african diamonds...

Documents