12 April 2016 |

A PERSPECTIVE ON THE SOUTH

AFRICAN DIAMOND MINING INDUSTRY

JAMES AH CAMPBELL

CEO, ROCKWELL DIAMONDS INC“uncover ing the face ts o f our po tent ia l ”

22 April 2016 |

OUTLINE

BRIEF HISTORY OF THE DIAMOND INDUSTRY

DIAMOND INDUSTRY FUNDAMENTALS

THE DIAMOND PIPELINE

SOURCES OF DIAMONDS

ASSESSING DIAMOND POTENTIAL

DIAMOND MINING OPERATIONS AND COMPANIES

REGULATORY AND REPORTING REQUIREMENTS

THE SOUTH AFRICAN DIAMOND MINING INDUSTRY

ROCKWELL DIAMONDS

DIAMOND INDUSTRY TRENDS

CHALLENGES AND OUTLOOK

James Campbell is president and CEO of

Rockwell Diamonds Inc. Previous roles include

Non Executive Director of Stellar Diamonds plc,

Vice President - New Business for Lucara

Diamond Corp, Managing Director of African

Diamonds plc, Executive Deputy Chairman of

West African Diamonds plc.

James worked at De Beers for over twenty

years; his roles included General Manager for

Advanced Exploration & Resource Delivery and

Nicky Oppenheimer's Personal Assistant.

James holds a degree in Mining & Exploration

Geology from the Royal School of Mines

(Imperial College, London University) and an

MBA with distinction from Durham University.

He is a Fellow of the Institute of Mining,

Metallurgy & Materials, South African Institute

of Mining & Metallurgy and Institute of Directors

of South Africa. He is also a Chartered

Engineer (UK), Chartered Scientist (UK) and a

Professional Natural Scientist (RSA).

James also chairs two NPO’s and is deeply

committed to South Africa.

32 April 2016 |

BRIEF HISTORY OF THE DIAMOND INDUSTRY

Diamonds have been known

and treasured for many

centuries

The first diamond deposits

ever to be mined were alluvial

De Beers has been

synonymous with diamonds for

decades

De Beers’ share of the

diamond market has

decreased substantially since

the 1990’s

1700’sEarly days 1800’s 1900’s

• Diamonds

known in India

as early as

2000 BC

• Diamond

merchants

trading since

3rd century BC

• Brazil emerges

as a new

diamond

producer

following

India’s

production

decline

• Rough

diamond

prices fall by

75%

• Brazil remains

top producer

until diamonds

found in Africa

• Alluvial diamond

mining in Russia

First diamond

discovery in South

Africa in 1866

(Kimberley)

• De Beers

Consolidated Mines

established in 1888

• “London Diamond

Syndicate” formed

in 1890: ten

diamond merchants

buying De Beers’

entire production

(first single selling

channel)

• De Beers controls

90% of world

diamond production

• London Syndicate

dissolved

• Diamond Trading

Company formed in

1930s

• “A diamond is forever”

slogan coined in 1947

• New kimberlite

discoveries:• Russia 1950’s

• Botswana 1960’s

• Australia late 1980’s;

• Canada late 1990’s

• Major producers exit

single-channel

system in mid 1990’s

• De Beers Strategic

Review in 1998

(leading to

privatisation in 2001)

Source: GIA, “Famous Diamonds” by Ian Balfour

42 April 2016 |

DIAMOND INDUSTRY FUNDAMENTALS

Demand for rough diamonds is

expected to grow 2-4.5%

annually

This is driven by an increasing

demand for diamond jewellery

in China and India as the

middle class expands

Rough diamond supply is

expected to increase in the

short term, as new mines

come on board

Supply will however be on a

downward trend from around

2019 onwards

Source: Bain

52 April 2016 |

DIAMOND INDUSTRY FUNDAMENTALS

The overall supply-demand

forecast for rough diamonds is

positive in the medium to long

term

Demand is expected to exceed

supply some time after 2019

The rough-diamond supply-

demand balance will be tight in

the next few years

Source: Bain

62 April 2016 |

THE DIAMOND PIPELINE

Only a minor percentage of new

discoveries become economic

mines

It can take over 10 years from

discovery to development of a

new mine

New discoveries have dwindled

in recent years

Rough diamond sales via open

tenders are on the increase

Beneficiation / profit share

arrangements can capture a

share of revenue from polished

sales of high-end goods

Diamond jewellery sales affected

by changes in gold, platinum

prices

Exploration

&

Evaluation

Mining &

Processing

Rough

Diamond

Sales

Cutting &

Polishing

(& Trading)

Jewellery

Manufacturing

& Sales

Two sales

models:

open

tender or

fixed

pricebook

India and

China have

85% of C&P

market share.

Traditional

C&P centres

in Israel, US,

Belgium.

Thailand and

UAE are

emerging

Discovery

and

assessment

of new

diamond

deposits and

development

of Mineral

Resources

Extraction of

ore,

liberation,

recovery

and sorting

of diamonds

US, China

and India

are largest

markets,

followed by

Europe.

Sales down

in China

Source: Bain, Rockwell

Grading &

Valuation

Size, Model,

Quality, Colour

Individual

valuation of

specials

(+10.80ct);

other sizes

split in 1000’s

of categories

and valued per

price points

72 April 2016 |

SOURCES OF DIAMONDS

Kimberlite is the primary source

of diamonds

Diamonds are made of pure

carbon. Diamond and graphite

are “allotropes” of carbon

Diamonds formed in the upper

mantle, under particular

conditions of temperature and

pressure (“Diamond Stability

Field”)

Kimberlite magmas (the vehicle)

transported diamonds from the

DSF to/near surface

Erosion of kimberlites has

created secondary deposits

(alluvial/eluvial and marine)

82 April 2016 |

DIAMOND MINING

92 April 2016 |

ASSESSING DIAMOND POTENTIAL FOR MININGRISK REDUCTION

Confidence in the

deposit/resource improves as

new information is analysed

and assumptions are rivisited

As confidence increases, so

do costs and timeframes

Accurate and reliable resource

models are critical inputs to a

sound economic assessment

Technology plays a key role

Expert operators are able to

compress timeframes by

synchronising workstreams

without compromising on

quality

Deep knowledge, expertise

are key differentiators

Mapping,

sampling,

geophysics

Core drilling or

trenching

(100’s kg)

Initial bulk

sampling

(10-100’s t)

Infill drilling;

bulk sampling

(1000’s t)

Inferred

Resource

Indicated

Resource

Diamond potential;

surface size

estimate

Preliminary grade

estimate; prelim.

geological model

Global grade;

preliminary value

estimate

Geological,

density, volume,

grade, revenue

models

Preliminary

Economic

Assessment

Pre-Feasibility

Study

Bankable

Feasibility Study

DepositTarget /

Anomaly

Activity

Ou

tco

me

sM

inera

l

Re

sou

rce

Eco

no

mic

Stu

die

s

INCREASING COSTS & TIMEFRAMES

DECREASING UNCERTAINTY & RISK

Duration: months

Cost: R millions

Duration: years

Cost: R tens of millions

102 April 2016 |

DIAMOND MINING OPERATIONS

KIMBERLITES

• High establishment costs

• Open pit and/or underground

operations

• Grade, diamond distribution

can be constrained with

sampling and modelling

• High resource confidence can

mitigate uncertainty

ALLUVIALS

• Lower start-up costs

• Low grade, high variability

• High uncertainty

• High volume, low cost

approach

• Scarcity of larger (high-value)

diamonds

• Volumes are key to

repeatability

• Metallurgy and diamond value

management

Primary and secondary diamond

deposits can become economic

mines

Perception that alluvials are

more suited to smaller operators

(juniors) and kimberlites to larger

ones (mid-tier and majors)

Majority of juniors own kimberlite

operations

Majors like De Beers have been

running large-scale alluvial

operations

Offshore marine deposits along

Namibian coast formed by

redistribution of alluvial diamonds

by longshore currents

112 April 2016 |

DIAMOND MINING COMPANIES - MAJORS AND MID-TIER

Company Market Cap Listing Country of

Activity

Operations/projects (K

= kimberlite; A =

alluvial; M = marine)

Alrosa 7.7Bn USD MCX Russia,

Angola,

Botswana

Yakutia and Arkhangelsk

Region (K/A); Catoca (K)

De Beers Owned by Anglo

American plc (85%)

and Botswana

Government (15%)

Botswana,

South Africa,

Namibia,

Canada

Orapa, Jwaneng,

Damtshaa, Venetia,

Voorspoed, Snap Lake

(K), Namdeb (A/M)

Rio Tinto 69Bn AUD LSE,

ASX

Australia,

Canada, India

Argyle, Diavik, Bunder (K)

Dominion

Diamond

970M USD TSX Canada Ekati, Diavik (K)

Lucara

Diamond

Corp

1Bn CAD TSX Botswana,

Lesotho

Karowe, Mothae (K)

Petra

Diamonds

540M GBP LSE South Africa,

Tanzania,

Botswana

Cullinan, Finsch,

Kimberley, Koffiefontein,

Williamson (K)

Stornoway

Diamonds

770M CAD TSX Canada Renard (K)

Mountain

Province

600M USD TSX,

Nasdaq

Canada Gahcho Kué (K)

Gem

Diamonds

150M GBP LSE Botswana,

Lesotho

Ghaghoo, Letseng (K)

Kennady

Diamonds

160M CAD TSX Canada Exploration (K)

Some common traits of majors:

Owners of mining operations

Typically more than one mine

Exploration activities are internally funded through production cashflow

Exploration spend is discretionary

Publicly traded and privately owned

Large corporate structures

Internal assurance processes

Lengthy decision processes

Technical and non-technical management

Some operations have been placed on care and maintenance pending an improvement in market conditions

Source: company websites

122 April 2016 |

DIAMOND MINING COMPANIES - JUNIORS

Company Market Cap Listing Country of

Activity

Operations/projects (K

= kimberlite; A =

alluvial; M = marine)

Lucapa

Diamond

101M AUD ASX Angola Lulo (A)

Firestone

Diamonds

72M GBP AIM Lesotho Liqhobong (K)

Shoregold 55M CAD TSX Canada Star (K)

Diamcor Mining 39M CAD TSX-V,

OTC

South Africa Krone-Endora (A)

DiamondCorp 36M GBP AIM South Africa Lace (K)

Peregrine 52M CAD TSX Canada,

Botswana

Exploration (K)

Trans Hex 365M ZAR JSE SA, Angola Orange River,

Namaqualand, Somiluana

(A)

Kimberley

Diamonds

16M AUD ASX Botswana Lerala (K)

Merlin

Diamonds

13M AUD ASX Australia Merlin (K)

North Arrow

Minerals

13M CAD TSX-V Canada Exploration (K)

Some common traits of juniors:

“The exploration division of the mining industry”

No clear separation between junior and mid-tier companies

No/little production cashflow to fund exploration activities

Exploration spend is vital

Funding through shares issue

Shareholders rewarded through share price increase

Subject to high degree of public scrutiny and assurance

Technical management teams with deep practical experience

Innovative, agile and fast

Source: company websites

132 April 2016 |

HIGHLY SEGMENTED VALUATIONS CONSOLIDATION OPPORTUNITIES

1

10

100

1,000

10,000

1 10 100 1,000 10,000

Mar

ket

Val

ue

(US

$m)

(Lo

g S

cale

)

Annual Revenue (US$m) (Log Scale)

De BeersAlrosa

Dominion

Rio Tinto (Argyle)

Lucara

Firestone Gem

Petra

Trans Hex

Rockwell

Reinet

Diamcor

Majors

Mid-tier

Juniors

142 April 2016 |

REGULATORY REQUIREMENTS

Reporting requirements applicable in selected jurisdictions

Stock

Exchange

Mining-specific Reporting

Requirements (post-listing)

Mineral Reporting

Standard

ASX Annual and half-year financial report

Quarterly report by CP on production

and development activities (incl.

expenditure); exploration activities;

mineral results & ore results

JORC

JSE Annual and quarterly financial report

Description of exploration and mining

activities by CP; mineral resource and

reserve statement

SAMREC ( new version

to be launched in May

2016)

TSX/TSXV Annual and quarterly financial report CIM (NI 43-101)

LSE/AIM Annual and half-year financial report

Interim management statement

Resource updates by CP (AIM)

JORC, SAMREC, CIM,

other selected codes

HKEx/GEM Annual and quarterly financial report

Half-yearly updates on mining

JORC, SAMREC, CIM

Professional codes of practice set

minimum standards for public

reporting. Public reports must be

prepared by a Competent Person

(CP)

Majority of national reporting

standards share a common set of

codes and guidelines

TSX and ASX host the bulk of junior

and mid-tier exploration and

development companies (TSX

prevalently diamond companies)

In 2013, TSX and TSX-V combined

were home to 57% of the world’s

publicly listed mining companies

62% of global mining equity

financing was raised on TSX and

TSX-V in 2013

Source: PWC, Mining Association of Canada

152 April 2016 |

MINERAL RESOURCE REPORTING

Stringent reporting

requirements dictate the type

of information that must be

available at each stage of

Mineral Resource

classification, as well as its

level of accuracy

Key parameters for diamond

resources:

• Volume

• Diamond Grade

• Diamond Value

• Diamond Size Frequency

Distribution

162 April 2016 |

THE SOUTH AFRICAN MINING INDUSTRY

172 April 2016 |

MINING IN SOUTH AFRICA

General trends:

♦ A mature mining sector – declining grades, increasing

operating costs

♦ Infrastructure (chiefly electricity) constraints

♦ Ongoing tension between employers and unions

♦ Rand devaluation not compensating for declining prices

♦ Wages affordability

Commodity trends

♦ Coal production stable, yet not growing in the short term

♦ Platinum production plagued by protracted industrial action

and mine closures

♦ Declining gold production due to deeper mines, rising costs,

decreasing gold price

♦ Over-supply of iron ore, with continuing pressure on price

♦ Diamonds gradually recovering, yet prices still depressed

Mining contributes 6% to SA’s

GDP

Main commodities: coal, PGMs,

gold, iron ore, diamonds

Mining generates 60% of SA’s

exports

In 2014 mining contributed R18

billion to the South African fiscus

Approximately 500,000 people

were employed in the mining

sector in 2014

Source: PWC, SA Chamber of Mines

182 April 2016 |

DIAMOND MINING IN SOUTH AFRICA

Diamondiferous kimberlites are

found on stable cratons, like

the Kaapvaal in SA

De Beers’ Venetia Mine is the

largest South African diamond

producer

Alluvial operations are located

along the Orange River and

the West Coast

De Beers no longer owns

Kimberley Mines (tailings

deposits sold in 2016)

Petra Diamonds’ operations

have been acquired from De

Beers

Koffiefontein

Source: SA Chamber of Mines

Voorspoed

192 April 2016 |

DIAMOND MINING COMPANIES IN SOUTH AFRICA

Company Listing Operations in

South Africa (K =

kimberlite; A =

alluvial)

Annual

Production

(cts)

Annual

Revenue

(US$)

De Beers N/A Venetia, Voorspoed

(K)

4.5M No SA

reports

Diamcor

Mining

TSX-V,

OTC

Krone-Endora (A) +/- 20,000

(incidental)

+/- 3M

DiamondCorp AIM Lace (K) +/- 7,000

(ramp-up)

N/A

Petra

Diamonds

LSE Cullinan, Finsch,

Kimberley,

Koffiefontein (K)

3,000,000 360M

Rockwell

Diamonds

TSX,

JSE

Middle Orange River

(A)

36,000 51M

Trans Hex JSE Lower Orange River,

Namaqualand (A)

62,000 83M

South Africa currently

produces 15% of world

diamonds by volume

In 2014 South Africa produced

8.1 million carats of diamonds

The majority of SA diamond

production is from primary

sources

Diamonds from alluvial

operations are on average

larger (cts/stone) and more

valuable ($/ct)

No new discoveries, nor

significant projects in the

pipeline

Source: company websites, SA Chamber of Mines

202 April 2016 |

ROCKWELL DIAMONDS

212 April 2016 |

ROCKWELL’S PROFILE

• Rockwell is a producing diamond mining company with a

solid track record of safe, low cost, high volume mining

• It is known for producing large, high-value, gem quality

gemstones which comprise a major portion of its diamond

recoveries

• The Company employs almost 1,000 people at its mining

operations, most of them from local communities

• Rockwell has a strong focus on operational efficiencies

• It has successfully embraced Diamond Value Management

and a fit-for-purpose approach to technology deployment

• Rockwell’s medium-term strategic goal is to position itself

as a mid-tier diversified diamond producer

222 April 2016 |

OUR LEADERSHIP TEAM

Rockwell’s leadership team has

over 150 years of combined

diamond experience

The CEO has over 30 years’

experience in diamonds, which

include developing a number of

kimberlites from discovery through

to mining

The CEO and CFO worked at De

Beers for more than two decades

Management team includes a

leading international diamantaire

and specialist in valuation,

marketing and sales of rough

diamonds

A technical management team with

deep practical experience and

strategic vision

232 April 2016 |

OUR GEOGRAPHIC FOOTPRINT

Existing properties, recent

acquisitions and new

prospecting rights

100 kms of river length,

between Prieska and Douglas

in Northern Cape

Access over majority of

Orange River alluvial diamond

fields

242 April 2016 |

DIAMOND MINING IN ROCKWELL

Overburden is removed and

used to backfill as mining

advances

Ore is loaded and hauled to an

in-field screening plant

Screened gravels are

transported to the processing

plant

Discarded fractions are used for

rehabilitation, as are plant

tailings

Concentrate goes to final

recovery sorthouse

Fine residues (inert) are

deposited and reused for

rehabilitation once dry

Optimised EMV fleet is vital

252 April 2016 |

STRATEGIC HIGHLIGHTS 2006-2016

2010

Strategic review

initiated

2006

Rockwell listed on TSX

/ JSE

2011

New CEO + Private

placement + Diamond

Value Management

strategy2012

Internally funded Bulk

X-ray plant

commissioned at SHC

+Klipdam sold

2013

New internally funded

Niewejaarskraal plant

commissioning

2015

Acquisition of Bondeo

(RHC)

2014

New BEE partnership

+ EMV renewal

2016

Corporate restructuring

262 April 2016 |

OPERATIONAL PERFORMANCE FACTORS LEADING TO CORPORATE RESTRUCTURING

- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

1000

1200

1400

1600

1800

2000

2200

2400

2600

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

F2011 F2012 F2013 F2014 F2015 F2016

Re

ve

nu

e (

inc

l. b

en

efi

cia

tio

n (

US

$m

)

Av

era

ge v

alu

e p

er

cara

t (U

S$ 1

2

3 4

5 6

1

2

3

4

5

6

Holpan on C&M

Saxendrift Ext. acquired

Klipdam sold

SHC closed

RHC acquired + NJK on C&M

Saxendrift approaching end of LOM

272 April 2016 |

* Indicative quarterly revenue and +50 carat stone production based on technical reports

PAST

(Actual)

CURRENT

(Actual)

FUTURE: ORGANIC

(Plan)

MIN

ES

(000

M3 /

MO

NT

H)

QU

AR

TE

RLY

RE

VE

NU

E*

# +

50

CA

RA

T

ST

ON

ES

PE

R

YE

AR

*

9

110,000m3 360,000m3 480,000m3

MO

NT

HLY

MO

R

TH

RO

UG

HP

U

T

Time

Rev

enu

e

Time

Rev

enu

e

Time

Rev

enu

e

4427

FUTURE: POST

ACQUISITION (Plan)

700,000m3 growing to 1,000,000m3

Rev

enu

e

48

+22

110

SX SHC NJK WP RH

Time

180

80 100

SX SHC NJK WP RH

200

130 150

SX SHC NJK WP RH

200 200 150 150

150 150

SX SHC NJK WP RH

DIVERSIFYING PRODUCTION BASEFOR STABLE PERFORMANCE

282 April 2016 |

DIAMOND INDUSTRY TRENDS

292 April 2016 |

DIAMOND EXPLORATION TRENDS

Fluctuations in exploration

spend typically mirror the ups

and downs in the markets

Value of exploration for long-

term growth is recognised

Exploration spend however is

regarded as discretionary in

the short term

Majors have pulled back in

recent years

Juniors’ exploration spend

constrained by tougher funding

climate

Diamond exploration spend

peaked around 2007-8

Source: MinEx, SNL

Global exploration spend 1975-2013 (all commodities)

302 April 2016 |

DIAMOND MARKET TRENDS

Rough diamond prices under pressure for past 18 months

♦ High levels of polished in the pipeline

♦ Growing above-ground inventories of rough

♦ Restriction of rough supplies by majors in late 2015 has led to

some restocking

Potential rough supply expected to grow in the short term

♦ New production coming online (+20M cts/yr)

♦ Substantial above-ground stocks remain

♦ Weak currencies in producing countries are boosting margins

Decline in rough supply expected around 2020

♦ Exploration spend down since 2008: no new deposits

♦ Argyle anticipated closure; Ekati, Diavik declining

♦ Expected positive impact on rough prices

Additional factors to consider

♦ Increasing competition from synthetic diamonds

♦ Decreasing value of polished diamonds in jewellery

♦ Unsold rough will increase inventories

♦ Demand growth needs to be developedSource: RBC Capital Markets, Bain

The rough-diamond supply-

demand balance will be tight in

the next few years

Demand is forecast to exceed

supply in the next decade

In the longer term, both

polished and rough prices are

driven by macroeconomic

fundamentals that remain

positive

312 April 2016 |

THE RETAIL SECTOR

Source: Bain, McKinsey

Global diamond jewellery retail

sales grew by 4% in 2014, 2%

in 2015

The luxury goods market is the

traditional reference for

diamond jewellery

Stable growth in luxury goods

in America, Europe

compensated for decline in

Asia-Pacific

Consumers’ preference for

branded jewellery is

increasing, especially in

younger groups

In developed markets, brands

provide differentiation and

identity; in developing markets,

they inspire trust and

confidence (authenticity)

32 3 April 2016 |

DIAMOND JEWELLERY MARKETING

In 2015 De Beers relaunched generic advertising, including its 1947 “A Diamond is Forever” slogan

Jewellery advertising spend is slowly growing again

Keywords related to diamonds and engagement rings attract the bulk of online ad spend around Valentine’s Day

Continued marketing needs to ensure that consumers perceive diamonds as more attractive than other competing goods

Source: De Beers, Forevermark, McKinsey, AdGooroo

12%

29%

59%

Adspendbykeyword(Feb2015)

engagementring/s

diamond/s

diamondring/s

diamondengagementring/s

watches

other

332 April 2016 |

CHALLENGES FOR THE DIAMOND INDUSTRY

Sustaining consumer demand in the long term against

changing consumer behaviours of the new generation. Generic

marketing and branding efforts to be scaled up

Dearth of new discoveries will lead to an inevitable decline in

rough diamond production, creating opportunities for

substitution in the long term

Threat of undisclosed synthetic diamonds to consumer

confidence (especially for smaller stones). Detection

technology and tighter certification requirements can address

this to a large extent

Recycling of second-hand polished diamonds (trade-ins).

Currently at 3-5% of wholesale polished diamond market, but

expected to increase as supply declines and polished diamond

prices rise

Declining profitability in the mid-market segment of the value

chain (cutting and polishing). Likely to result in overall

consolidation in the segment, which will improve efficiencies

Source: Bain, idexonline.com

The impact of synthetic

diamonds (whether disclosed

or undisclosed) is still poorly

understood

Developments in diamond

cutting technology may

increase cutting yields in the

future, thus impacting rough

supply

342 April 2016 |

OUTLOOK AND CONCLUDING REMARKS

Outlook for rough diamond prices remains subdued in short

term

Fundamentals of supply and demand remain solid

The investment case for diamonds remains strong

Diamond stocks continue to be regarded as attractive by

expert analysts

♦ Preference for established producers (over developers)

♦ Growth indicators and positive balance sheets

♦ Preference for large stone producers (better price outlook)

The downturn may not have bottomed out, however a

turnaround is to be expected in the medium term

Increased marketing efforts (both generic and branded) are

required to drive demand growth

Diamond miners are set to

prosper in the longer term

Rockwell is positioning itself to

take full advantage of the

industry turnaround