Inadequate Bid Significantly Undervalues Rockwell's Upside Potential
VANCOUVER, Sept. 22 /CNW/ - Rockwell Diamonds Inc. ("Rockwell" or the
"Company") (TSX: RDI; JSE: RDI; OTCBB: RDIAF) today announced that its Board
of Directors, based on the recommendation of its Special Committee of
independent directors, unanimously recommends that Rockwell shareholders
reject the unsolicited offer (the "Offer") by Pala Investments Holdings
Limited ("Pala") to acquire all of the outstanding shares of Rockwell for
$0.36 per share. After careful consideration, including consultation with its
independent financial and legal advisors, Rockwell's Board concluded that the
Offer significantly undervalues Rockwell and is not in the best interests of
In its Directors' Circular, filed today with securities regulators and
mailed to security holders, Rockwell's Board strongly recommends that all
Rockwell shareholders reject the Offer and not tender their shares.
"The Offer significantly undervalues Rockwell and would deprive our
shareholders of significant upside potential from the strong production growth
we anticipate over the next months and years," said John Bristow, President,
Chief Executive Officer and director of Rockwell. "Our track record and
strategic plan point to superior value creation for our shareholders than the
inadequate premium offered by Pala. Our Special Committee and Board of
Directors unanimously determined that the Offer is inadequate and unfair.
There is no rationale for accepting the Pala bid and many reasons to reject
Mr. Bristow further commented that "the highly conditional nature of
Pala's Offer, the misleading claims made in their conference call on September
16, 2008 and in their Offering Circular, and Pala's apparent lack of
understanding of Rockwell's business, leads to questions regarding the
seriousness of Pala's Offer and their intent to follow through."
Reasons for Recommendation
The Board believes that the Offer should be rejected for the following
reasons, as are described in more detail in the Directors' Circular available
- The Offer significantly undervalues Rockwell's assets and growth
- Rockwell is a producer of diamonds of high value in excess of
US$1,700 per carat, with a strong upward trend.
- Rockwell enjoys low production costs with tight cost control
despite an inflationary environment.
- Rockwell has a number of fully financed brownfields projects
coming on stream which will lead to an increase in production from
the current run rate of approximately 23,000 carats per annum to
70,000 carats per year in 2011.
- The Company has strong management expertise and a supportive BEE
partner in African Vanguard Resources.
- Rockwell benefits from transparent and multi-faceted marketing and
- The Special Committee's independent financial advisor, RBC Capital
Markets, has determined that the price of $0.36 per share offered by
Pala is inadequate, from a financial point of view, to shareholders.
- The Offer is highly conditional and gives Pala broad discretion to
abandon the bid.
- There is substantial uncertainty with respect to Pala's intentions.
Pala is a financial investor with no experience running a diamond
company operating in South Africa. The Board believes that the Offer
is designed to create value for Pala rather than the Company's other
- The Offer does not treat holders of Rockwell securities fairly and
does not comply with the applicable securities laws in South Africa.
In particular, the Offer violates the South African requirements that
the Offer be made to holders of convertible securities, and for the
bid to not be subject to conditions that are dependent on subjective
- Rockwell continues to pursue alternatives to maximize shareholder
value, and the Board believes that tendering shares to the Offer
before these alternatives are fully explored may diminish the
likelihood of a better transaction emerging.
- The timing of the Offer is opportunistic given the recent decline in
Rockwell's share price as a result of the overall decline in share
prices of diamond companies and the impact of the recent Wouterspan
labour dispute. The Rockwell share price traded at the Offer price of
$0.36 as recently as July 14, 2008 and as high as $0.59 (or 64% more
than the Offer) as recently as March 13, 2008.
- The timing of the Offer is opportunistic because it is designed to
deny shareholders the near term benefits of increased production and
decreased operating costs expected to result from the Company's
investment in its brownfields operations.
- The Offer has been rejected by all of Rockwell's directors and
senior officers who together own 11.08% of the Company's shares
(assuming the exercise of all warrants and options owned by such
directors and senior officers).
"With a proven track record of resource growth and a strong and
experienced management team, we believe Rockwell is poised to deliver superior
shareholder returns. The Board of Directors is pursuing various options to
maximize shareholder value, which include advancing Rockwell's growth and
acquisition strategy, increasing production and discussions with other third
parties. We believe that given sufficient time to evaluate alternative
options, the Company may be able to source superior value-creating
opportunities," said Mr. Bristow.
Rockwell's Board advises shareholders not to be misled by the claims that
Pala made on a conference call on September 16, 2008. On this call and in its
news releases, Pala has made a variety of claims against Rockwell and its
management that are without foundation. In the Board's view, these claims
suggest that Pala's understanding of the Company's business is flawed and that
their methods of valuing Rockwell's business are not credible. Schedule A
attached to this news release contains responses to some of the more spurious
claims made by Pala.
Rockwell is mailing its Directors' Circular to shareholders today, which
sets forth the formal recommendation of the Board to reject the Offer.
The directors of Rockwell, accept responsibility for the information
contained in this announcement and confirm that to the best of their knowledge
and belief (having taken all reasonable care to ensure that such is the case)
the information contained in this announcement is in accordance with the facts
and, where appropriate, does not omit anything likely to affect the import of
The Company will host a telephone conference call on Monday,
September 22 at 10:00 a.m. Eastern Time (7:00 a.m. Pacific; 3:00 p.m.
London; 4:00 p.m. Johannesburg) to discuss Board's recommendation. The
conference call may be accessed by dialling 719-457-2655 or toll free
888-339-3503 in North America, toll free 0-800-404-7656 in United Kingdom
or toll free 080-09-97290 in South Africa.
President and CEO
David Copeland, P.Eng., a qualified person under National Instrument
43-101, who is also the Chairman and a Director of Rockwell, has reviewed and
approved this news release.
Forward Looking Statements
This release includes certain statements that may be deemed
"forward-looking statements". Other than statements of historical fact may be
forward-looking statements, including, but not limited to, statements in this
release about the expected upside potential of holding Rockwell shares,
anticipated increases in the Company's level of production, decreases in
operating costs and increases in the price of diamonds, the upward trend in
the value of diamonds produced by Rockwell, and the likelihood of a better
transaction emerging. Although the Company believes the expectations expressed
in such forward-looking statements are based on reasonable assumptions,
including, but not limited to assumptions regarding the success of the
Company's brownfields expansion efforts, the Company's cost structure, and
matters that would affect a third party's decision to enter into an
alternative transaction with the Company, 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
market prices, exploitation and exploration successes, changes in and the
effect of government policies regarding mining and natural resource
exploration and exploitation, availability of capital and financing,
geopolitical uncertainty and political and economic instability, and general
economic, and market or business conditions. The Company undertakes no
obligation to update forward-looking statements except to the extent required
by law. For more 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 its home jurisdiction filings that are available at
Specific responses of Rockwell to claims made by Pala during its
conference call held on September 16, 2008, and in Pala's news releases are
set out below.
Pala Claim Rockwell's Response
1. Pala claimed that The Board believes that this claim demonstrates
Rockwell is failing to that Pala does not understand the nature of
deliver on diamond Rockwell's business. Pala included in its
prices. presentation accompanying the September 16, 2008
conference call, a comparison of a linear
regression of prices achieved by Rockwell for
the months of January to July 2008 with price
increases quoted by De Beers. The Board views
this comparison as misleading. The very nature
of alluvial diamond mining is the variability of
stones recovered leading to periods with average
returns interspersed with very high value
stones. The results for the year to date
compared with the prior year shows a different
trend with average prices recovered increasing
from $657 per carat in the 2007 calendar year to
$1,881 per carat in the year to date in calendar
2008. This latter number increases to $2,465 per
carat when the month of September 2008 is
It is the Board's view that the use of
De Beers' pricing, which is based on a universe
of transactions that is many times larger than
that of Rockwell, is statistically unsound.
2. Pala claimed that The Board believes that this claim further
Rockwell has no control demonstrates that Pala does not properly
over costs. understand the nature of running a mining
operation or the environment in South Africa,
which is an area with unique inflationary
pressures. These inflationary pressures include
power cost increases, the disruption caused by
power outages as well as general inflation of
mining input costs running at record levels.
A survey of cost escalation experienced by a
number of major South African mining companies
over the last 12 months shows 20%. Management
believes that the cost control measures outlined
in its Directors' Circular and the downward
trend in quarterly operating costs support the
conclusion that cost control performance by the
Company has been good.
3. Pala claimed that This claim suggests that Pala underestimated the
Rockwell mismanaged the complexity of the South African approval
process of progressing process, which involves the Department of
the Saxendrift Minerals and Energy, Competition Commission,
transaction through the Department of Water Affairs, Department of
Ministerial Consent and the Environment, Department of Labour, and
Competition Commission several other central and local government
approval process. authorities.
Rockwell and its Black Economic Empowerment
partner managed the process diligently and made
all possible efforts and attempts to expedite
the finalisation of the acquisition. The
transaction timeline was impacted by delays at
the Department of Minerals and Energy in
processing and managing the transaction, which
involved a multi-faceted legal and commercial
process of mineral rights conversion, review of
a comprehensive social and labour plan,
environmental management plan, and mine plan,
transfer of ten sets of mineral rights held in
three companies into a special purpose vehicle,
and Ministerial consent to conclude the process.
It is common for such delays to occur in many
jurisdictions, particularly in South Africa.
It is the Board's view that the suggestion that
management either misrepresented or
misunderstood the true process is simply not
4. Pala claimed that This claim suggests that Pala does not properly
Rockwell has mismanaged understand the nature of running operations
its labour relations. with unionised labour.
As part of the transition from being a privately
owned operation to becoming a public company,
Rockwell's labour force became unionised and an
inevitable period of adjustment led to the
strike action in August this year. Management
proactively engaged with its employees and Union
representatives from the outset and as a result
was able to achieve a wage settlement in line
with inflation and operational protocols
beneficial to the Company and its employees.
Local operations of competitors have suffered
much longer stoppages, and in some cases strike
action has led to closures.
5. Pala claimed that Rockwell adheres to a high standard of corporate
Rockwell's management governance and given that Rockwell's directors
is entrenched and that and officers own an aggregate of 11.08% of
its interests lie Rockwell's shares (assuming the exercise of all
elsewhere. warrants and options owned by such directors
and senior officers), their interests are
aligned with the Company's other shareholders.
Rockwell has fully disclosed the nature of its
arrangements with Flawless Diamond Trading House
in the Directors' Circular. Flawless charges a
fixed commission of 1% on all sales with no
other remuneration. This arrangement benefits
Rockwell and is at a lower cost than the
Details of the arrangements with Steinmetz group
have also been publicly disclosed by Rockwell in
the Directors' Circular and management believes
these arrangements benefit the Company. All
diamond sales involve a robust internal and
external arms length valuation process.
6. Pala claims that the From a legal standpoint, Rockwell's Board
Rockwell Board is not satisfies the requirements of Canadian
independent. securities laws in terms of required
independence in Board and committee composition.
From a practical standpoint, all the Company's
non-executive directors are independent
professionals with considerable experience and
standing in the mining and investment community,
with reputations that speak for themselves and
go beyond the confines of the Company's
For example, Dr Mark Bristow, who is the Chair
of the Special Committee and the brother of CEO
John Bristow, is a well respected international
mining executive in his own right who sits on
various boards and is CEO of publicly listed
Randgold Resources. Equally, Hunter Dickinson is
an internationally recognized management and
advisory group which provides services to a
significant number of public and private
7. Pala claims that While Rockwell faces similar liquidity risks as
Rockwell is facing a other mining companies at a comparable stage of
liquidity risk. development, its financial position is sound.
Cash on hand on August 31, 2008 was $10 million.
The Company recently received proceeds from a
diamond sale as well as the sale of the recently
recovered large diamond (189.6 carats), which
will provide further funds and reserves to more
than adequately cover the working capital and
capital expenditures of the Company. The Company
also has a debt facility in place with Standard
Bank which may be drawn upon as necessary.
8. Pala claims that The Directors' Circular provides a detailed
Rockwell has not overview of the various meetings that Rockwell
engaged with their management has had with Pala since Pala became a
suggestions for value shareholder, and the reasons why management and
creation. the Board decided not to pursue the various
transactions or strategies suggested by Pala at
these meetings. At all times, Pala's suggestions
were taken seriously and carefully considered by
management and the Board. It is Pala's own
intentions and conduct which is questionable.
9. Pala claims it was Pala alleged publicly that they complied with
wrongly denied the all requirements necessary to enable Pala to
opportunity to vote at vote in person at the Company's shareholders'
the Company's recent meeting held on September 15, 2008 and that Pala
Shareholders' meeting. was wrongly denied the opportunity to vote at
Rockwell and the independent scrutineer at the
meeting took all necessary steps to review the
documentation submitted by Pala in support of
its position, and confirmed that Pala had not in
fact satisfied the legal requirements necessary
to entitle Pala to vote at the meeting.
Rockwell's transfer agent has confirmed that it
did not receive a legal proxy from Pala in
advance of the meeting, and in fact this proxy
was submitted by the nominee of Pala's broker a
full two days after the meeting took place.
For further information:
For further information: on Rockwell Diamonds Inc., please visit the
Company's website at www.rockwelldiamonds.com or contact Investor Services at
(604) 684-6365 or within North America at 1-800-667-2114