BlueRock tumbles as wet weather hits production outlook

BlueRock Diamonds updated the market on operations at its Kareevlei mine in the Kimberley region of South Africa on Wednesday, reporting that it experienced nearly double its normal annual rainfall in the first five months of the year.

The AIM-traded firm said May's rain in particular, at over three times the long-term average, had a “significant impact” on both mining development and processing, against expectations.

Mining development fell 36% compared to budget for April and May, which limited the mine's access to quality kimberlite, and necessitated the use of lower-grade and more-difficult-to-handle material in Kareevlei's processing operations.

Additionally, where BlueRock said it hoped to ramp up production at its new one million tonnes-per-annum processing plant, the unforeseen lost days to rain and the lower-grade feed resulted in operations being down against budget over the March to May period, by 48% on tonnes processed, 51% on grade and 74% on carats produced.

Accordingly, while South Africa was now experiencing belated drier weather conditions, the delayed roll-out of the company's mining development plan would impact production output in the second quarter and early in the third quarter, and thus its 2022 outlook.

In addition, the board said that as a result of global economic conditions, the firm was facing increased costs of production due to higher diesel prices, and increased costs of major suppliers.

As a result of fewer diamonds being produced and sold as well as increasing costs, BlueRock's cash resources were depleted during what continued to be a “period of heavy investment” in mining development.

The company said it had thus entered discussions with a major shareholder and providers of debt finance to support it through the period.

“While it is of course disappointing to report the problems caused by the continuing wet weather at a time when we expected to be operating at near capacity, the safety of our personnel and equipment is our foremost obligation,” said executive chairman Mike Houston.

“As we finally move into drier weather, I am pleased to report operations are improving rapidly, which will enable us to take advantage of the buoyant market, with prices achieved for BlueRock's unique stones averaging over $600 per carat during 2022 - marking an uplift of 29% versus 2021 prices.

“While our reduced mining activity during the last few months will impact in the near term on our ability to achieve the consistent grade that we expected in 2022, our guidance for 2023 remains unchanged.”

Houston said that, while the board acknowledged that the company could “plan better” for the wet season, no preparation could fully prepare for such “extraordinary” circumstances.

“However, management is confident that fundamentals remain sound for Kareevlei building up output to one million tonnes-per-annum and circa 43,000 carats production in 2023.

“This year, we are still on track to increase output by at least 50% and the plant has performed well in the intermittent periods of dry weather.”

At 1254 BST, shares in BlueRock Diamonds were down 26.43% at 20.6p.

Reporting by Josh White at Sharecast.com.