revised technical report on the …rockwell diamonds inc effective date: 30 november, 2010 signature...

2010

Tania R Marshall Explorations Unlimited Glenn A Norton Rockwell Diamonds Inc

REVISED TECHNICAL REPORT

ON THE WOUTERSPAN ALLUVIAL DIAMOND PROJECT,

HERBERT DISTRICT, SOUTH AFRICA

FOR

ROCKWELL DIAMONDS INC

Effective Date: 30 November, 2010 Signature Date: 30 May2011 Revision Date 25 July 2011

ROCKWELL DIAMONDS INC, WOUTERSPAN PROJECT November 30, 2010

EXPLORATIONS UNLIMITED

Table of Contents Page

1 INTRODUCTION ........................................................................................................................................... 13

1.1 TERMS OF REFERENCE AND SCOPE OF WORK ....................................................................................................... 13 1.2 SOURCES OF INFORMATION .............................................................................................................................. 15 1.3 UNITS AND CURRENCY .................................................................................................................................... 16 1.4 FIELD INVOLVEMENT OF QUALIFIED PERSON ........................................................................................................ 16 1.5 USE OF DATA ................................................................................................................................................ 16

2 RELIANCE ON OTHER EXPERTS ..................................................................................................................... 18

2.1 LEGAL OPINION ............................................................................................................................................. 18 2.2 DIAMOND VALUATION .................................................................................................................................... 18

3 PROPERTY DESCRIPTION AND LOCATION .................................................................................................... 20

3.1 PROPERTY DESCRIPTION AND LOCATION .............................................................................................................. 20 3.2 PERMITS CONTRACTS AND AGREEMENTS ............................................................................................................. 22

3.2.1 The Wouterspan project ....................................................................................................................... 22 3.2.2 Surface ownership / land use rights ...................................................................................................... 22 3.2.3 Mineral rights (Mining/Prospecting Rights, permits, etc) ..................................................................... 22

3.2.3.1 Royalty Payments .......................................................................................................................................... 23 3.3 BEE COMPLIANCE .......................................................................................................................................... 23 3.4 ENVIRONMENTAL ........................................................................................................................................... 24

3.4.1 Water Permits ....................................................................................................................................... 24 3.4.2 Environmental and Rehabilitation ........................................................................................................ 24 3.4.3 ................................................................................................................................................................... 25 3.4.4 Mine closure .......................................................................................................................................... 25

3.5 SOCIAL RESPONSIBILITY ................................................................................................................................... 25 3.5.1 Social and Labour Plans ........................................................................................................................ 26

4 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY .............................. 27

4.1 TOPOGRAPHY, ELEVATION AND VEGETATION ........................................................................................................ 27 4.2 ACCESS AND INFRASTRUCTURE .......................................................................................................................... 28 4.3 CLIMATE ....................................................................................................................................................... 29

5 HISTORY ...................................................................................................................................................... 30

5.1 PREVIOUS OWNERSHIP .................................................................................................................................... 31 5.2 PREVIOUS EXPLORATION/DEVELOPMENT ............................................................................................................ 31

5.2.1 Historic .................................................................................................................................................. 31

6 GEOLOGICAL SETTING ................................................................................................................................. 33

6.1 GENERAL GEOLOGY AND MINERAL DEPOSITS OF SOUTH AFRICA ............................................................................. 33 6.2 THE ALLUVIAL DIAMOND FIELDS OF THE MIDDLE ORANGE RIVER ............................................................................ 34 6.3 PROPERTY GEOLOGY ....................................................................................................................................... 34

7 DEPOSIT TYPES ............................................................................................................................................ 40

7.1 PRIMARY FLUVIAL-ALLUVIAL GRAVEL DEPOSITS .................................................................................................... 40 7.2 DEFLATION OR ‘ROOIKOPPIE’ DEPOSITS .............................................................................................................. 41

7.2.1.1 Eluvial Rooikoppie Gravel ............................................................................................................................. 42 7.2.1.2 Colluvial Rooikoppie Gravel .......................................................................................................................... 43

8 MINERALIZATION ........................................................................................................................................ 45

8.1 NATURE OF MINERALISATION ........................................................................................................................... 45 8.2 SURROUNDING ROCK TYPES ............................................................................................................................. 49 8.3 GEOLOGICAL CONTROLS .................................................................................................................................. 50 8.4 MINERALISATION ON WOUTERSPAN .................................................................................................................. 53

9 EXPLORATION ............................................................................................................................................. 54



10 DRILLING ..................................................................................................................................................... 55

10.1 LOCATION ..................................................................................................................................................... 55 10.2 RESULTS ....................................................................................................................................................... 60 10.3 REPRESENTATIVENESS ..................................................................................................................................... 60

11 SAMPLING METHOD AND APPROACH ......................................................................................................... 61

11.1 LOCATION ..................................................................................................................................................... 61 11.1.1 Diamond Grade Estimation .............................................................................................................. 64 11.1.2 Diamond Value Estimation ............................................................................................................... 64

11.1.2.1 Diamond Size Distribution............................................................................................................................. 64 11.1.2.2 Diamond Sales............................................................................................................................................... 66

11.2 MINING AND PROCESSING OF SAMPLES .............................................................................................................. 67 11.2.1 Mining/Excavation Methodology ..................................................................................................... 67 11.2.2 Sample Processing ............................................................................................................................ 69

11.3 DRILLING, SAMPLING AND RECOVERY FACTORS ..................................................................................................... 72 11.4 SAMPLE QUALITY ........................................................................................................................................... 73 11.5 REPRESENTATIVENESS ..................................................................................................................................... 74

12 SAMPLE PREPARATION, ANALYSES AND SECURITY ...................................................................................... 75

12.1 SAMPLE SECURITY .......................................................................................................................................... 75 12.2 TRACER TESTING ............................................................................................................................................ 76

13 DATA VERIFICATION .................................................................................................................................... 78

14 ADJACENT PROPERTIES ............................................................................................................................... 80

14.1 SAXENDRIFT MINE .......................................................................................................................................... 81 14.2 ELSIESDRIFT (LANYONVALE PORTION OF WOUTERSPAN) ........................................................................................ 83

15 MINERAL PROCESSING AND METALLURGICAL TESTING ............................................................................... 85

15.1.1 Results .............................................................................................................................................. 86 15.1.1.1 Grades ........................................................................................................................................................... 86 15.1.1.2 Diamond Size Distribution............................................................................................................................. 86 15.1.1.3 Diamond Values ............................................................................................................................................ 88

15.1.2 Representivity ................................................................................................................................... 88

16 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES ........................................................................... 89

16.1 RESOURCE ESTIMATION ................................................................................................................................... 89 16.2 PREVIOUS ESTIMATES ..................................................................................................................................... 90 16.3 CURRENT ESTIMATES ...................................................................................................................................... 92

16.3.1 Key Assumptions ............................................................................................................................... 92 16.3.2 Volume ............................................................................................................................................. 94

16.3.2.1 Specific Density ............................................................................................................................................. 94 16.3.3 Diamond Grade ................................................................................................................................ 94

16.3.3.1 Cut-off Grades ............................................................................................................................................... 95 16.3.4 Diamond Value ................................................................................................................................. 95 16.3.5 Resource Estimation ......................................................................................................................... 95 16.3.6 Resource Reconciliation .................................................................................................................... 97

16.4 PROSPECTING AND MINING RISKS ...................................................................................................................... 97 16.4.1 In South Africa ................................................................................................................................ 100

17 OTHER RELEVENT DATA AND INFORMATION ............................................................................................ 101

17.1 EXPLORATION TARGETS/POTENTIAL ................................................................................................................. 101 17.2 PRELIMINARY ECONOMIC ASSESSMENT ............................................................................................................ 101 17.3 MINING OPERATIONS ................................................................................................................................... 102

17.3.1 Mining Method ............................................................................................................................... 102 17.3.1.1 Excavation ................................................................................................................................................... 102 17.3.1.2 Screening .................................................................................................................................................... 103 17.3.1.3 Rehabilitation .............................................................................................................................................. 103



17.3.2 Survey ............................................................................................................................................. 103 17.3.3 Mine Plan ........................................................................................................................................ 104

17.3.3.1 Pit Design .................................................................................................................................................... 105 17.3.3.2 Geotechnical Considerations ...................................................................................................................... 105 17.3.3.3 Mining rates and expected life-of-mine ...................................................................................................... 106 17.3.3.4 Mining dilution factors ................................................................................................................................ 106

17.3.4 Earthmoving fleet ........................................................................................................................... 106 17.4 RECOVERY PROCESS ...................................................................................................................................... 107

17.4.1 Mineralogical Testing ..................................................................................................................... 107 17.4.2 Concentration/Process plant .......................................................................................................... 108

17.5 FINAL RECOVERY .......................................................................................................................................... 110 17.5.1 QA/QC ............................................................................................................................................. 111

17.6 INFRASTRUCTURE ......................................................................................................................................... 111 17.6.1 Roads .............................................................................................................................................. 111 17.6.2 Water .............................................................................................................................................. 111 17.6.3 Power .............................................................................................................................................. 112 17.6.4 Communication .............................................................................................................................. 113 17.6.5 Mine Residue Deposits.................................................................................................................... 113

17.6.5.1 Coarse Dumps ............................................................................................................................................. 113 17.6.5.2 Fine (Slimes) Dumps .................................................................................................................................... 113

17.6.6 Waste Disposal ............................................................................................................................... 115 17.6.7 Fuel storage and supply .................................................................................................................. 115 17.6.8 Staff/Labour ................................................................................................................................... 116 17.6.9 Security ........................................................................................................................................... 117 17.6.10 Accommodation and offices ........................................................................................................... 117 17.6.11 Essential services ............................................................................................................................ 118

17.7 MARKET STUDIES AND CONTRACTS.................................................................................................................. 118 17.7.1 Market Studies ............................................................................................................................... 118

17.7.1.1 Global diamond production ........................................................................................................................ 118 17.7.1.2 The Diamond Pipeline ................................................................................................................................. 119 17.7.1.3 International Diamond Market Trends ....................................................................................................... 120

17.7.2 Rockwell Sales and Contracts ......................................................................................................... 121 17.7.2.1 Diamond Sales............................................................................................................................................. 122 17.7.2.2 Sales Contracts ............................................................................................................................................ 123

17.8 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL/COMMUNITY IMPACT ............................................................ 124 17.8.1 Environmental ................................................................................................................................ 124 17.8.2 Mine Closure ................................................................................................................................... 125 17.8.3 Social Responsibility ....................................................................................................................... 125

17.8.3.1 Social and Labour Plan (SLP) ....................................................................................................................... 126 17.8.3.2 Special projects ........................................................................................................................................... 128

17.9 PRELIMINARY ASSESSMENT ............................................................................................................................ 129 17.9.1 Principal Assumptions .................................................................................................................... 129

17.9.1.1 The tonnage/volume and grade of the mineable material ......................................................................... 129 17.9.1.2 Life of Mine ................................................................................................................................................. 129 17.9.1.3 The annual production of diamonds ........................................................................................................... 129 17.9.1.4 The annual revenue to be received from the sale of diamonds ................................................................. 130 17.9.1.5 The annual cash cost of production, both on-site and off-site ................................................................... 130 17.9.1.6 The annual cash liability for royalties .......................................................................................................... 131 17.9.1.7 The annual level of cash capital expenditure required ............................................................................... 131 17.9.1.8 Taxation ...................................................................................................................................................... 132

17.9.2 Preliminary Cash Flow Estimates .................................................................................................... 133 17.9.2.1 Payback Period ............................................................................................................................................ 133 17.9.2.2 Sensitivity Analysis ...................................................................................................................................... 135

17.9.3 Financial Parameters ...................................................................................................................... 137 17.9.3.1 Exchange rates ............................................................................................................................................ 137 17.9.3.2 Interest rates ............................................................................................................................................... 137 17.9.3.3 Inflation rates .............................................................................................................................................. 137 17.9.3.4 Internal Rate of Return (IRR) ....................................................................................................................... 138 17.9.3.5 NPV Discount Rate Issues and Assumptions ............................................................................................... 138



17.10 COUNTRY PROFILE ................................................................................................................................... 142 17.10.1 South African Economy ................................................................................................................... 142 17.10.2 The Mining Industry ........................................................................................................................ 143

17.10.2.1 South African diamond production ........................................................................................................ 144 17.10.3 South Africa’s Mineral Legislative Environment ............................................................................. 144

17.10.3.1 Mineral Policy ......................................................................................................................................... 144 17.10.3.2 Mineral and Petroleum Resource Development Act 28 of 2002 (“MPRDA”) ......................................... 145 17.10.3.3 Broad Based Black Economic Empowerment (BBBEE) and the Mining Charter ..................................... 146 17.10.3.4 The Minerals and Petroleum Resources Royalty Bill .............................................................................. 148 17.10.3.5 The Diamond Amendment Bill ............................................................................................................... 149 17.10.3.6 Diamond Export Levy Bill 2007 ............................................................................................................... 150 17.10.3.7 Precious Metals Bill and the Beneficiation Strategy ............................................................................... 151 17.10.3.8 Kimberley Process .................................................................................................................................. 151

18 RECOMMENDATIONS ................................................................................................................................ 153

18.1 PROPOSED WORK PROGRAMME FOR 2011/2012 ............................................................................................. 153 18.2 PROPOSED BUDGET ...................................................................................................................................... 154

19 INTERPRETATION AND CONCLUSIONS ....................................................................................................... 155

20 REFERENCES .............................................................................................................................................. 158

DATE AND SIGNATURE PAGE ............................................................................................................................. 161

21 CERTIFICATE OF AUTHORS ......................................................................................................................... 162

21.1 TANIA RUTH MARSHALL ................................................................................................................................ 162 21.2 GLENN ALAN NORTON .................................................................................................................................. 164

Figures

Figure 1.1: Location of Rockwell owned properties in South Africa .................................................. 13Figure 1.2: Corporate shareholdings of Rockwell .............................................................................. 14Figure 3.1: Location of the Saxendrift project in the Northern Cape Province .................................. 20Figure 3.2 Location of the Wouterspan Project Properties .............................................................. 21Figure 5.1: Historical diamond production from the middle Orange River ....................................... 30Figure 6.1: The General Geology of South Africa ............................................................................... 33Figure 6.2: Location of known terraces on Lanyonvale (Wouterspan) .............................................. 35Figure 7.1: Diagrammatic representation of relationships among colluvial, eluvial and fluvial-alluvial

gravels in the Vaal River system (Wilson, et al., 2006) .................................................... 41Figure 7.2: Formation of eluvial gravels (Marshall, 2004) ................................................................. 42Figure 7.3: Formation of Eluvial Gravels (Marshall, 2004) ................................................................ 42Figure 7.4: Formation of colluvial gravels (Marshall, 2004) .............................................................. 43Figure 8.1: Location of identified terraces along the MOR ................................................................ 46Figure 8.2: Schematic view of coarser gravel channel bars in a braided river system ...................... 47Figure 8.3: Schematic representation of diamonds eroding from a kimberlite pipe into a drainage

line .................................................................................................................................... 50Figure 8.4: Fixed and mobile trapsites and their depositional environments (Jacobs, 2005) ........... 51Figure 10.1 Drill localities on Wouterspan C terrace (the purple section lines refer to Figure 10.3) . 56Figure 10.2 Gravel thicknesses as determined by drilling (Rockwell, 2007) ....................................... 57Figure 10.3 Bedrock topography as determined by drilling (Rockwell, 2008) .................................... 58Figure 10.4: Drilling on Wouterspan A and B terraces ......................................................................... 59Figure 11.1 Location of bulk samples on Wouterspan C terrace (2005-2007) ................................... 63Figure 11.2 Variation of average grades and diamond sizes .............................................................. 64



Figure 11.3 Cumulative frequency of bulk-sample stones from Wouterspan .................................... 65Figure 11.4 Comparison of size-frequency relationships between various alluvial diamond areas

(Oosterveld, 2007) ............................................................................................................ 66Figure 11.5 Flowsheet for the Wouterspan sampling (Rockwell, 2007) ............................................. 71Figure 11.6: Schematic distribution of alluvial diamonds within an alluvial deposit – random

distribution of clusters of points (Rombouts, 1987). ....................................................... 72Figure 14.1 Numerous properties around Wouterspan have been prospected for diamonds .......... 80Figure 15.1 Location of mining operations on Wouterspan during 2008 ........................................... 85Figure 15.2: (a) Diamond size distribution and (b) Observed and forecast of large stones for

Wouterspan (Oosterveld, 2008) ...................................................................................... 87Figure 16.1: The extremely low concentrations of diamonds, combined with low homogeneity results

insignificant difficulties in the evaluation of alluvial diamond deposits (after Lock, 2003) .......................................................................................................................................... 93

Figure 16.2: Resource blocks as identified on Wouterspan (as at 30 November 2010) ...................... 96Figure 16.3 Correlation between estimated and recovered grade .................................................... 97Figure 17.1: Preliminary PSD for Wouterspan (C-terrace) gravels ..................................................... 107Figure 17.2: Schematic diagram of the mining/processing high-level plan for Wouterspan mine ... 109Figure 17.3: Proposed layout of the Wouterspan slimes dam ........................................................... 114Figure 17.4: Global diamond production per country by volume and value, 2008 (Chamber of Mines

Annual Report, 2009) ..................................................................................................... 119Figure 17.5: The Diamond Pipeline .................................................................................................... 119Figure 17.6: IDEX index for cut-stones for the period Nov 2009 to Oct 2010 ................................... 121Figure 17.7 Long term rough diamond supply/demand outlook 2000 to 2018, prepared by WWW

International Diamond Consultants Ltd using January 2009 values (redrawn from Read and Janse, 2009). .................................................................................................................... 122

Figure 17.8: Revenue sensitivity to key variables .............................................................................. 135Figure 17.9: Capex sensitivity ............................................................................................................. 136Figure 17.8: Discount Rate vs. Project Stage (Smith, 2002) ............................................................... 140Figure 17.9: Generic illustration of the effect of country risk on the discount rate (Smith, 2002) ... 141Figure 17.10: The effect of different discount values on the NPV of the Wouterspan mine (showing

both static and escalation cases). .................................................................................. 142Figure 19.1: Proposed prospecting (drilling) locations of Wouterspan for 2011 ............................153

Tables

Table 3.1: Co-ordinates of the Wouterspan properties .................................................................... 22Table 3.2 Summary of current mineral rights holdings on Wouterspan held by HCVWD ............... 23Table 11.1 Production data from Wouterspan for the period March, 2005 to 31 October, 2007. ..... 61Table 11.2 Large Stones (+50ct) recovered from Wouterspan March 2005 – 31 October, 2007 ....... 65Table 11.3 Diamond sales data for March 2006 to October 2007 ...................................................... 67Table 14.1 Mineral resources and reserves estimated on Saxendrift Mine (30 November 2010) ..... 82Table 15.1 Production results for Wouterspan March-November, 2008 ............................................ 86Table 15.2 Sales data for the Wouterspan operation ......................................................................... 88Table 16.1 Resource statement as at 28 February 2008 ..................................................................... 91Table 16.2 Resource statement as at 31 August 2009 ........................................................................ 92Table 16.3 Resource statement as at 30 November 2010 ................................................................... 97Table 17.1: Proposed processing specifications ................................................................................. 110Table 17.2: Total expected expenditures budgeted for the Social and Labour Plan – Wouterspan will

only pay a pro-rata percentage of these amounts ......................................................... 127



Table 17.3: Resources used in the life of mine plan ........................................................................... 129Table 17.4: Proposed capital expenditure to re-commission Wouterspan mine ............................... 131Table 17.5 Preliminary Economic Assessment of the Wouterspan Mine (base/static case) ............ 134Table 17.7: IRR estimates on the Wouterspan alluvial diamond project ........................................... 142Table 17.8: Economic indicators for South Africa (October 2010) ..................................................... 143

Plates

Plate 4.1: Landscape typical of the MORO properties ..................................................................... 27Plate 4.2: Shepherds Bush (Boscia albitrunca), a protected species, as found on Wouterspan ...... 28Plate 4.3: Calm after the storm along the Orange River (Wouterspan in the background). ........... 29Plate 6.1 C- Terrace, some 20-30m above the Orange River .......................................................... 36Plate 6.2 B-Terrace, some 40-60m above the Orange River (995m amsl) on Wouterspan ............ 36Plate 6.3 B-Terrace on Lanyonvale .................................................................................................. 37Plate 6.4 Dwyka shale bedrock on Wouterspan ............................................................................. 37Plate 6.5 Rooikoppie gravels on Wouterspan C-Terrace, underlain by calcretised fluvial-alluvial

gravels .............................................................................................................................. 38Plate 6.6 Example of the fluvial-alluvial succession on Wouterspan showing the basal gravels with

some large boulders overlain by a finer-grained fluvial succession of sands and gravel lenses. ............................................................................................................................... 39

Plate 7.1 Typical stratigraphy of the fluvial alluvial gravels with a basal gravel overlain by a “middlings” fluvial unit and separated from it by a widespread sandy unit. Overlying the fluvial unit are the deflation or Rooikoppie gravels (Saxendrift Mine) ............................ 40

Plate 8.1: Dwyka tillite bedrock on which the alluvial gravels are developed along the MOR ........ 49Plate 8.2: Local structures and regional bedrock fabric contributes to diamond concentration

within the Middle Orange River gravels ........................................................................... 51Plate 8.3 Low-angle, Neotectonic fault exposed in mining on the Wouterspan C terrace ............. 52Plate 11.1 Chunks of calcreted gravels that might lock up unknown quantities of diamonds ........... 68Plate 11.2 Ripping and excavating of the calcreted fluvial-alluvial gravel samples on Wouterspan .. 68Plate 11.3 Magnet suspended above plant feed belt to separate out the BIF clasts ......................... 69Plate 11.4 Three of the seven X-Ray recovery FLOWSORT machines ................................................. 70Plate 12.1 Security caging on all sensitive parts of the processing plants .......................................... 75Plate 12.2 Container unit in which the grease plants were housed ................................................... 76Plate 14.1 The A terrace on Saxendrift, showing fluvial-alluvial gravel sequence overlain by

extensive Rooikoppie deposits ......................................................................................... 81Plate 14.2 Reho Mining / Sonop bulk-sampling operation downstream adjacent to Rockwell. ........ 83Plate 14.3: Gravels on the C terrace on Elsiesdrift portion of Wouterspan ........................................ 84Plate 17.1: Static magnets that are used to remove magnetic clasts from the gravels .................... 108Plate 17.2 Bridge over the Orange River, linking Rockwell’s Saxendrift and Wouterspan Sites. All

water for the operation is pumped from the river under license to DWAF (view from Wouterspan, southwards across the Orange River to Saxendrift). Photo courtesy of Rockwell. ........................................................................................................................ 112

Plate 17.3: Construction of slimes dam on Wouterspan (photo courtesy of Rockwell) .................... 115Plate 17.4: Accommodation facilities on Wouterspan ...................................................................... 118



Units and Abbreviations

ABBREVIATION DESCRIPTION Ma Millions of Years before Present ct Carat(s) ct/st Carats per Stone ct/100m3 Carats per 100 cubic metres cpht Carats per 100 Tonnes tph Tonnes per hour m Metres M Million SG Specific Gravity BBBEE Broad Based Black Economic Empowerment (the more correct term of the usually

shortened BEE (Black Economic Empowerment) and used in this report DMR Department of Mineral Resources (Previously known as Department of Minerals and

Energy (DME)) DWAF Department of Water and Forestry DTM Digital Terrain Model QP Qualified Person, as defined by National Instrument 43-101 CP Competent Person, as defined by SAMREC DMS Dense Media Separation plant Bottom cut-off Bottom cut-off refers to the smallest size diamond (in mm) that is recovered in the

sampling and mining process – in this case, no diamonds smaller than 2mm are recovered.

JSE Johannesburg Stock Exchange OTCBB Over-the-Counter Bulletin Board TSX Toronto Stock Exchange



SUMMARY Explorations Unlimited (“EU”) was retained by Rockwell Diamonds Inc. (“Rockwell” or “the Company”) to prepare a Technical Report for the Wouterspan Project in the Herbert District of the Northern Cape Province, South Africa. This technical report, comprising background information, drill and sample data derived from the property up to 30 November 2010, is prepared to document the results of exploration work and the resource estimate on the Wouterspan property as summarized in the Company’s Annual Information Form. In addition, the results of a preliminary economic assessment are presented in support of Rockwell’s Business Plan Update of March 2011. The conclusions expressed in this independent technical report are appropriate as at 30 November 2010. The assessment is, therefore, only valid for this date and will change with time in response to ongoing exploration and production results as well as with variations in economic, market, legal or political factors. Rockwell, listed on the TSX (RDI), the JSE (RDI) and the OTCBB (RDIAF), is a company involved in the exploration and mining of alluvial diamond deposits. In South Africa, Rockwell and its wholly-owned subsidiary Rockwell Resources RSA (Pty) Ltd (Rockwell RSA) owns, and Rockwell RSA operates, the Klipdam/Holpan mines (Barkly West) and the Wouterspan project as well as owns the Makoenskloof Prospect (Middle Orange River) through a 74% shareholding in HC Van Wyk Diamonds Limited. Further, Rockwell and Rockwell RSA also own 74% of Saxendrift Mine (Pty) Ltd. Rockwell's 26% BEE partner of choice is African Vanguard Resources (Pty) Ltd. The Wouterspan project is located along the north bank of the middle Orange River between Douglas and Prieska in the Northern Cape Province of South Africa, some 100km southwest of Douglas and some 200km from Kimberley. The project is comprised of a number of individual farm portions of the farm Wouterspan (Lanyonvale 376), for a total of 7,409.4245 ha. The following permits are valid for the project:

Property Size (ha) Number Validity Portion 16, portion of Portion 9 188.7926

HCVWD

New Order Mining Right

(NC)30/5/1/2/2/0208

MR

An application (208MR) to convert to a Mining Right, along with the consolidation of all the Wouterspan permits, was granted on 25 January 2010 but has not yet been executed

Portion 14 (Stofdraai) Remainder of Portion 9 (Wouter)

1,640.6412 1,369.9544

Portion 16 (portion of portion 9) 240.4480 Remainder of Portion 18 (portion of Portion 10)

271,5347

Portion 7 Portion 11 (De Hoek)

1,628,9209 1,288,5227

Surveyed Portion of Remainder of Portion 9 (Wouter) 780.61

New Order Prospecting Right

Protocol 65/2006

(Okapi Diamonds CC)

Section 11 cession not yet finalised. This portion will

then be incorporated into

the HCVWD Mining right



The present Orange River between Douglas and Prieska, generally referred to as the Middle Orange River (MOR), displays a meandering channel morphology, best developed in areas underlain by the Dwyka Group. Palaeochannel depositional packages of the Orange River are preserved at different elevations above the present Orange River bed. The ages of the terraces young with decreasing elevation and, conversely, the probability of preservation decreases with increasing age and elevation. The Wouterspan deposit comprises an extensive flat lying alluvial sequence located on terraces developed on the left bank of the present Orange River, approximately 20-70m above the Orange River. The bedrock is well exposed in the workings and shale and tillite of the Karoo age Dwyka Group are common. The fluvial-alluvial gravels comprise a sequence of (basal) gravels 2-4m thick overlain by generally less than 5m of variably calcreted sands and silts and covered by a thin layer of soil and scree. The cobble-sized clasts within the gravels consist mostly of lava and quartzite with significant, if variable, amounts of Banded Iron Formation (BIF), and minor amounts of limestone, tillite, and agate. The matrix is sandy to gritty. As is usual with these types of deposits the degree of calcretisation decreases downward, and are characterised by hardpan or laminar calcrete at the surface to loosely cemented gravels at depth. The gravels, which are generally known to be diamondiferous, are, typically, not well sorted and are typical of braid bars that migrate through sections of river channels in response to variable water speed. The Wouterspan properties have been prospected and mined since 2005, initially by professional diggers (alluvial miners) and, subsequently, by Rockwell (in 2007/8). The Wouterspan mine was put on Care & Maintenance at the end of November 2008, as a result of international economic conditions and the declining diamond price. During the period March - November 2008, some 100,000m3 of Rooikoppie and 452,293m3 of calcreted fluvial-alluvial gravel (for a total of 552,293m3 was processed to recover 3,896.42ct at an average grade of 0.70ct/100m3. The resource statement for Wouterspan reflects the situation as at 30 November 2010. Note that: • No production has taken place on this project since end November 2008 when the operation was

put on Care & Maintenance. The volumes and grades reflect the bulk-sampling and trial-mining data up to that time.

• The diamond value given in the statement is the average received for +5,500 of diamonds sold from the adjacent (across the river) Saxendrift mine during FY/2010. Since this does not represent a parcel derived from the Wouterspan property itself1

, the confidence level on this estimate is not as high as it would be after the recovery of 3,000-5,000cts from the mine. This figure will be adjusted accordingly, once the mine is re-commissioned.

These mineral resources were estimated by Rockwell’s Manager, Resources, G. A. Norton, (Pr. Sci. Nat.), a qualified person and reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of the Company and is responsible for the estimate. Inferred

Resources! Indicated Resources

Ave Grade (ct/100m3)*

Ave Value (USD/ct)

Rooikoppie 5,911,000 714,400 0.70 2,029

Fluvial-alluvial 31,863,000 4,311,100

TOTAL 37,774,000 5,025,500 0.70 2,029 * At a bottom cut-off of 2mm (based on the average grade of the total sample mined to date) ! Inferred Resources do not include Indicates resources (“Total” figure rounded off) Note: Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability

1 However, historically, the characteristics and values of diamonds recovered from the Wouterspan and Saxendrift properties have been sufficiently similar to allow for this direct comparison – see section 16 for details.



In addition to these estimated resources, a further +400ha of terrace area had also been identified as exploration target for further prospecting. Current reconnaissance drilling highlights exploration targets of some 10-20Mm3 and an additional area of some 35-45Mm2. The anticipated grade ranges for these targets are 0.5-1.22ct/100m3. During 2009/2010 Rockwell has proceeded with plans to complete trial-mining once the operation is re-commissioned. Work done to date on the adjacent (across the river) Saxendrift mine indicate that the entire sedimentary profile should be excavated and processed – although this has the effect of decreasing the overall recovered grade, the life of mine is significantly increased. Excavation of the gravels is not planned to change from the standard techniques applied on all of Rockwell's alluvial diamond mines – excavation by hydraulic excavator followed by transport of gravel to the plant site in dump trucks. The proposed processing plant will be a high-volume, low-cost plant, specifically designed to deal with the peculiarities of the gravels being processed. The plant will comprise 8 (or 12) 18’ rotary pan plants and trial-mining will investigate the efficiency of sending selected size fractions to selected pans, namely +2-6mm, -6-12mm and +12-32mm. This is expected to greatly improve the recovery efficiencies of the pans. The plant is planned to be automated to the extent that optimal production, with minimal downtime and maintenance can be attained. The mine plan has been developed in two phases – phase 1, comprising plant throughput of 180,000m3 per month, for a period of some 24 months, followed by phase 2, to achieve a throughput of some 340,000m3/month. During 2011, once the operation has been re-commissioned, Rockwell will continue to trial-mine gravels from the C Terrace on Wouterspan and proceed with mining/processing engineering and economic studies necessary to complete the pre-feasibility study on the mine. A preliminary economic assessment was completed for the Wouterspan project – highlighting two scenarios, initially based on a static diamond price and operating cost and, secondly, on realistically assumed, annual diamond price escalation and increasing operating costs as a result of the peculiarity of mining gem-quality diamonds in Africa. In both scenarios, the Capex cost of ZAR 122M applies. Operating costs during trial-mining on Wouterspan are expected to run at ZAR5.2M/month. At a proposed 180,000m3/month for the first 24 months, followed by increased monthly production of 340,000m3 throughput, the preliminary estimation of mine life is 2.3 years, based on indicated mineral resources only. An additional 8.7 years may be added if inferred mineral resources are included, resulting in a total expected mine life of 11 years. The key parameters and results are tabulated below:

Wouterspan Preliminary Assessment Key Parameters

Indicated resources 5,025,500 m3 Inferred resources 37,774,000 m3 Average Grade 0.7 ct/100m3

Average sales value (2011) USD 2,029/ct Proposed monthly throughput 340,000 m3

Proposed mine life 11 years Operating Costs (2011) ZAR 45/m3 Mining Royalties Variable *



Capital required to bring mine into production

ZAR 122,000,000

Tax 28% Key Results

Base Case 10% Price Escalation

Internal Rate of Return (IRR) 101% 135% Net Present Value (NPV) at discount values of:

15% ZAR 482,000,000 ZAR 1,199,000,000 20% ZAR 363,000,000 ZAR 885,000,000 25% ZAR 279,000,000 ZAR 667,000,000

In this preliminary economic assessment, both indicated and inferred mineral resources , as estimated in this NI43-101 technical document, are used. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized. The cash flow is particularly sensitive to changes in grade, diamond price, annual escalation in diamond price, exchange rate and volume of gravel An increase of 15% in working costs drastically decreases the profitability of the operation. Consequently, as with all commercial alluvial diamond operations, operating costs have to be watched carefully, avoiding all unnecessary expenditure. In addition, geological prospecting will continue on the B terraces – 11,249m (1,607 holes) drilling is planned for 2011/12. Exploration drilling costs have been budgeted at ZAR4M for the entire programme. Advancement to the subsequent phase of prospecting, namely bulk-sampling of these terraces) is contingent upon positive results. Trial-mining costs on Wouterspan are expected to run at ZAR5.2M/month. The independent QP has reviewed both the proposed work programme and budget and concurs that they are reasonable for the stage of the project. The programme is contingent upon financing as well as continued improvement in the diamond market.



1 INTRODUCTION

1.1 Terms of Reference and Scope of Work Explorations Unlimited (“EU”) was retained by Rockwell Diamonds Inc. (“Rockwell” or “the Company”) to prepare a Technical Report for the Wouterspan Project in the Herbert District of the Northern Cape Province, South Africa. This technical report, comprising background information, drill and sample data, including the bulk-sampling programmes, derived from the property up to 30 November 2010, is prepared to document the results of exploration work and the resource estimate on the properties. The results of a preliminary economic assessment are included as support for Rockwell's Business Plan Update of April 2011 as well as a private placement by Rockwell, which is planned for completion by the end of June 2011. Rockwell, listed on the TSX (RDI), the JSE (RDI) and the OTCBB (RDIAF), is a company involved in the exploration and mining of alluvial diamond deposits. In South Africa (Fig. 1.1; 1.2), Rockwell and its wholly-owned subsidiary Rockwell Resources RSA (Pty) Ltd (Rockwell RSA) owns, and Rockwell RSA operates, the Klipdam/Holpan mines (Barkly West), has operated the Wouterspan mine (currently on Care & Maintenance) and owns the Makoenskloof Prospect (Middle Orange River) through a 74% shareholding in HC Van Wyk Diamonds Limited. Further, Rockwell and Rockwell RSA also own 74% of Saxendrift Mine (Pty) Ltd. During 2009/2010, Rockwell signed a term sheet with Etruscan Diamonds Limited whereby the Company will purchase (74%) Etruscan’s Blue Gum diamond operation in the Ventersdorp region, South Africa. Rockwell's 26% BEE partner of choice is African Vanguard Resources (Pty) Ltd.

Figure 1.1: Location of Rockwell owned properties in South Africa Explorations Unlimited (EU) is a South African based exploration consultancy owned by Dr Tania R Marshall that has been operating since 1996. EU provides a variety of exploration and prospecting



consulting services to the international minerals community, in particular with respect to geological, evaluation and (financial) valuation of alluvial diamond mineral properties. This Technical Report was prepared, primarily, by Dr T R Marshall (Pr. Sci. Nat.).

Figure 1.2: Corporate shareholdings of Rockwell2

Dr Marshall has over 20 years experience in the alluvial diamond industry, including a background in international mineral exploration and evaluation studies and has had direct experience with alluvial-eluvial diamond mining operations as a consulting geologist and, also, as an operator. Dr Marshall’s experience includes operational and financial aspects of alluvial diamond mining, including mine planning and costing. Rockwell has accepted that the qualifications, expertise, experience, competence, and professional reputation of Dr Marshall are appropriate and relevant for the preparation of this Report. The technical report was compiled, primarily, by Dr Marshall. Where the document refers to “the author”, the senior (independent) QP, Dr Marshall, is referenced, unless otherwise indicated. The document was co-authored by Mr Glenn Norton who is the Mineral Resource Manager for Rockwell Diamonds Inc. Mr Norton has eight years experience in the exploration and exploitation of alluvial diamonds throughout Africa and is Rockwell’s in-house Qualified Person. This Technical Report has been prepared in accordance with the Canadian NI 43-101 Standards Of Disclosure For Mineral Projects, the NAPEGG guidelines for the Reporting of Diamond Exploration

2 The Etruscan transaction is not yet complete as the mining rights have not yet been ceded to Rockwell.

Rockwell Diamonds Inc(RDI-TSX/JSE)

Rockwell Resources RSA

(Pty) Ltd

Saxendrift Mine (Pty) Ltd

("SAX")

Saxendrift MineNiewejaarskraal MineZwemkuil Project

H C Van Wyk Diamonds Ltd

("HCVWD")

Holpan MineErf 1, Erf 2004Wouterspan MineRietputs Project

Klipdam Mining Company Ltd

("KDMC")

Klipdam Mine

Etruscan Diamonds (Pty) Ltd

Bluegum Diamonds (Pty) Ltd

Tirisano Mine



Results, Identified Mineral Resources and Ore Reserves and the Best Practice Guidelines prepared by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) to assist the Qualified Person(s) (QP) in the planning, supervision, preparation and reporting of Mineral Resource and Mineral Reserve (MRMR) estimates. The resource estimate has, further, been prepared with specific reference to the SAMREC code (“South African Code for Reporting of Mineral Resources and Mineral Reserves”). In particular, the SAMREC Code provides guidelines for the diamond industry. The SAMREC Code has also been incorporated into the Johannesburg Stock Exchange (JSE) Listings Rules. Since Rockwell is dual listed in both Canada and South Africa, reference will continually be made to both CIM and SAMREC resource estimation codes (with CIM taking preference as the company’s primary listing is the TSX). The conclusions expressed in this independent resource estimate are appropriate as at 31 November 2010. The appraisal is, therefore, only valid for this date and will change with time in response to ongoing exploration and production results as well as with variations in diverse external factors. Five documents dealing with the Wouterspan project have been submitted to the JSE Limited Stock Exchange and filed on www.sedar.com

1. “Technical Report on the Wouterspan Alluvial Diamond Deposits, Middle Orange River, Northern Cape Province, South Africa” by R. De Decker of De Decker and Associates Consulting Services, dated 30 March 2006 (“DDA” report),

2. “Update of Resources with respect to National Instrument 43‐101F Technical Report on Rockwell Diamonds Inc Wouterspan Alluvial Diamond Deposits (Wouterspan) Operation, Northern Cape Province, South Africa” by Clay A and McKenna, N , dated May 2007(“Venmyn “ report),

3. “Technical Report on The Wouterspan Alluvial Diamond Deposits, Middle Orange River, The Republic Of South Africa” by T R Marshall, dated 31 October 2007,

4. “Technical Report on The Wouterspan Alluvial Diamond Deposits, Middle Orange River, The Republic Of South Africa” updated on 28 February 2008 by T R Marshall, in conjunction with G Norton, and

5. “Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc. with the effective date of 28 February 2009 by T R Marshall and G Norton,

6. “Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc. Updated on 29 September 2009 by T R Marshall and G Norton,

1.2 Sources of Information The comments and recommendations in this report, specific to the Wouterspan property, are based, primarily, on information and technical documents and production data supplied by Rockwell. Underlying legal contracts, permissions and agreements have not been reviewed by the author. Other technical/scientific papers and miscellaneous documents referred to are identified within the text or have been referenced in Section 21. Since Dr Marshall was not on the Wouterspan Project site for the full period of the prospecting and bulk-sampling, much reliance was placed on the technical management of Rockwell who provided production data and internal audit reports for review. Dr Marshall has reviewed this data and considers it to be reasonable for the purpose of this report. In these aspects, reliance has been placed upon the relevant individuals providing the information, specifically Mr. Glenn Norton (Mineral Resources Manager), who is registered with SACNASP and may act as a QP/CP in his own right.

http://www.sedar.com/�



Up until end August 2010, the mined volumes were surveyed by an independent professional surveyor (F J van der Merwe) who is registered with PLATO3

and who may act as a CP in his own right. These are provided to Rockwell, under certification, on a monthly basis. From September, Rockwell has employed a full-time surveyor, who will be working along with Mr. van der Merwe, who will still, ultimately, be responsible for the certified mining volumes. The author has relied on these mined volumes in all sections dealing with bulk-sample and trial-mining results. Steps taken to verify this information are presented in section 13.

An independent assessment of the regional diamond size frequency distribution was completed by Dr M M Oosterveld in December 2008. Dr Oosterveld is an acknowledged expert in this field, and is registered with SACNASP. The author has not independently verified the findings of this study, but has accepted them to be materially accurate in all respects.

1.3 Units and Currency All values are metric, unless otherwise stated. Historical grade and tonnage figures are reported in units as originally published. All budget costs are presented in South African Rands (R) and United States Dollars (USD), for which a nominal exchange rate of USD1 = R6.8 has been used. Diamond values are expressed in United States Dollars.

1.4 Field involvement of Qualified Person A site visit to the Wouterspan project area was undertaken by Dr Marshall during the week 30 Aug – 2 Sept 2010. During this visits a review was made of all geological, technical and administrative procedures and protocols being practiced by Rockwell personnel. In addition, numerous discussions were held with the management and technical personnel of Rockwell, who readily provided all requested information. EU’s extensive experience in this area (including previous visits to the Property) as well as that gained from prior investigations of other, nearby deposits was also drawn upon as required. Mr Norton is Rockwell’s Mineral Resource Manager and, as such, visits the project area, at least, on a weekly basis during the drilling programme. During bulk-sampling and trial-mining activities, Mr. Norton visits the property more often.

1.5 Use of Data Neither Explorations Unlimited nor family members have a business relationship with Rockwell or any associated company, nor with any other company mentioned in the Report which is likely to materially influence the impartiality of the Report, or create the perception that the credibility of the Report could be compromised or biased in any way. The views expressed herein are genuine and deemed independent of Rockwell. Moreover, neither the author of the report nor family members have any financial interest in the outcome of any transaction involving the properties considered in this Report, other than the payment of normal professional fees for the work undertaken in its preparation (which is based upon hourly charge-out rates and reimbursement of expenses). The payment of such fees is not 3 South African Council for Professional Land Surveyors and Technical Surveyors



dependent upon the content, or conclusions, of this Report or any consequences of any proposed transaction. Rockwell has warranted that a full disclosure of all material information in its possession or control has been made to EU, and that it is complete, accurate, true and not misleading. Draft copies of the Report have been reviewed for factual errors by Rockwell. Any changes made as a result of these reviews did not involve any alteration to the conclusions made. Hence, the statements and opinions expressed in this document are given in good faith and in the belief that such statements and opinions are not false and misleading at the date of this Report. Written consent is provided for the filing of the Technical Report with any stock exchange and other regulatory authority and also for any publication by them of the Technical Report for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public. EU reserves the right, but will not be obligated, to revise this Report and conclusions if additional information becomes known to EU subsequent to the date of this Report.



2 RELIANCE ON OTHER EXPERTS

2.1 Legal Opinion An opinion regarding the underlying legal contracts, permissions and agreements has been provided by Chris Stevens (director) of Taback & Associates (Pty) Ltd on 12 August, 2010 – Rockwell Diamonds Inc: Title Opinion in respect of H C van Wyk Diamonds (Pty) Ltd and Klipdam Diamond Mining company (Pty) Ltd The author has not independently verified the status of these contracts, permissions and agreements but has accepted that the legal opinion represents a materially accurate situation. The author has relied on this opinion for the compilation of Section 3.3

2.2 Diamond Valuation Valuation of the recovered diamonds has been through the industry standard practice of putting representative diamond parcels up for sale through Flawless Diamonds Tender House (“FDTH”). FDTH is a marketing and tender sale company (held 20% by Rockwell) that operates a professional run, fully transparent “sealed-bid tender system”. Details of this process are described in a later section. Values obtained for diamonds by this process represent actual sales completed in competitive market related process by registered, practicing, international diamond buyers whose qualifications are unknown. In fact, all of the bidders (potential buyers) are anonymous, since the tender system relies on a sealed-bid technique. The values obtained are actual, realised sales figures from +5,500ct from the adjacent Saxendrift mine. Historically, diamond characteristics and, therefore, diamond values, have been similar for both Wouterspan and Saxendrift mines4

, there are minimal risks associated with the diamond values used in this technical report. These sales values have been relied upon by the author in all sections relating to mineral resources. The author has checked each brokers note and Kimberley Process Certificate (for the Saxendrift diamond parcels) to verify the information provided.

With respect to the information discussed later regarding expected annual (alluvial) diamond price increases, this was obtained from personal discussions with Mr Ernest Blom, for this specific purpose. Ernest Blom is the founder of Ernest Blom Diamond Cutting works and Ernest Blom Diamonds and is active in all aspects of the diamond trade and is involved in the following organisations both locally and internationally: • Honorary Life President of the World Federation of Diamond Bourses • Chairman of the Diamond Dealers Club of South Africa • Chairman of the Diamond Council of South Africa • Chairman of the Diamond and Jewellery Federation of South Africa • Founding Member of the World Diamond Council • Member of the Diamond and Precious Metals Regulator of South Africa • Vice President of CIBJO (The World Jewellery Confederation) As such, Mr. Blom is well qualified to comment on the international diamond market and its potential impact upon diamond prices (especially jewellery stones). However, with the pricing of any commodity

4 See section 16 for details



that is regarded as a luxury item, there are risks that may appear as a result of unexpected and unforeseeable international economic conditions.



3 PROPERTY DESCRIPTION AND LOCATION

3.1 Property description and location The Wouterspan project is located along the north bank of the middle Orange River between Douglas and Prieska in the Northern Cape Province of South Africa (Fig. 3.1), which area has been the site of intense alluvial diamond activity since the 19th century. The middle Orange River and, particularly, the stretch between Douglas and Prieska, are historically important diamond mining centres, with alluvial deposits having been mined here for over 100 years (de Wit et al., 1997; Marshall, 1987).

Figure 3.1: Location of the Saxendrift project in the Northern Cape Province Wouterspan is located some 100km southwest of Douglas and some 200km from Kimberley on the right bank of the Orange River. The project is comprised of a number of individual farm portions of the farm Wouterspan (Lanyonvale 376), for a total of 7,409.4245 ha (Fig. 3.2; Table 3.1).



Figure 3.2 Location of the Wouterspan Project Properties



Table 3.1: Co-ordinates of the Wouterspan properties

POINT UTM Y UTM X POINT UTM Y UTM X

A 6,758,762.20 707,604.15 I 6,750,728.29 709,273.88

B 6,763,181.96 713,844.13 J 6,751,290.87 706,007.07

C 6,756,535.55 713,375.96 K 6,755,412.57 700,031.49

D 6,755,920.20 713,804.56 L 6,750,418.00 704,708.59

E 6,750,744.54 711,283.96 M 6,745,658.05 705,539.02

F 6,751,882.67 705,966.54 N 6,748,304.59 698,930.32

G 6,752,048.17 707,151.57 O 6,749,854.77 700,122.16

H 6,751,553.58 709,406.23

3.2 Permits contracts and agreements

3.2.1 The Wouterspan project In early 2005, HCVWD entered into agreements with two companies - Okapi Diamonds (Pty) Ltd (“Okapi”) and Farhom Mining and Construction (Pty) Limited (“Farhom”), private South African companies involved in the mining of alluvial diamonds on Lanyonvale (for details of these agreements, consult “Technical Report on The Wouterspan Alluvial Diamond Deposits, Middle Orange River, The Republic Of South Africa” by T R Marshall, dated 31 October 2007). As of April 2009, the Farhom mining right was ceded to HCVWD. The application to cede the Okapi prospecting rights to HCVWD and to consolidate all the rights into a single mining right was submitted to DMR in November 2008. Rockwell is still waiting for this to be completed.

3.2.2 Surface ownership / land use rights The surface right and the land over the greater part of the Lanyonvale mineral holdings is owned4 by HCVWD. In respect of the “Wouter” portion of Lanyonvale (Portion 9, previously under licence to Okapi), both the Surface Right and the land are owned5

by Mr A C Vlok. Final payment for the surface rights and land will be made upon registration of the mining right in the name of HCVWD.

3.2.3 Mineral rights (Mining/Prospecting Rights, permits, etc) An old order Mining Permit (MP144/2004), in the name of Farhom Mining and Construction (Pty) Ltd, was converted successfully to a new order Mining Permit. The application was granted on 06 April 2009. Since the application was in the name of Farhom Mining, a Section 11 cession (and ministerial consent) was required to cede it to HCVWD. The combined Mining Right (over portions 14, 16, 7, 11 and 18 of the farm Lanyonvale 376) was granted on 25 January 2010, but has not yet been executed or

5 Under South African law, the land may also be owned by the holder of the Surface Right



registered at the Mining Titles office. The application has been lodged for diamonds for opencast mining for a period of 30 years. On 21 November 2008 an application to convert the Okapi prospecting permit to a new order Mining Right, along with the consolidation of all the HCVWD prospecting and mining rights and permits into a single entity (208MR) was submitted to the DME. The section 11 cession of portion 9 from Okapi to HCVWD has not yet been completed – this portion will be included in the HCVWD mining right once the cession has been finalised. Table 3.2 Summary of current mineral rights holdings on Wouterspan held by HCVWD

Property Size (ha) Number Validity Portion 16, portion of Portion 9 188.7926

HCVWD

New Order Mining Right

(NC)30/5/1/2/2/0208

MR

An application (208MR) to convert to a Mining Right, along with the consolidation of all the Wouterspan permits, was granted on 25 January 2010 but has not yet been executed

Portion 14 (Stofdraai) Remainder of Portion 9 (Wouter)

1,640.6412 1,369.9544

Portion 16 (portion of portion 9) 240.4480 Remainder of Portion 18 (portion of Portion 10)

271,5347

Portion 7 Portion 11 (De Hoek)

1,628,9209 1,288,5227

Surveyed Portion of Remainder of Portion 9 (Wouter) 780.61

New Order Prospecting Right

Protocol 65/2006

(Okapi Diamonds

(Pty) Ltd

Section 11 cession not yet finalised. This portion will

then be incorporated into

the HCVWD Mining right

3.2.3.1 Royalty Payments As with all mining properties in South Africa, the Wouterspan project is subject to a State royalty. Details are presented in Section 18.2.3.4 but the minimum and maximum rates for diamonds (unrefined minerals) are 0.5% and 7.0%, respectively. In terms of the Mining and Petroleum Royalties Act, royalties are payable from March 1, 2010. The deadline for the registration of mining and minerals firms, under the Act, had closed on January 29. In compliance with this requirement, Rockwell has registered as a royalty payer with the South African Revenue Service (“SARS”).

3.3 BEE Compliance The Black Economic Empowerment (BEE) partner for the Rietputs project is African Vanguard Resources (Pty) Ltd (AVR). In addition, Mr. Sandile Zungu, of AVR sits on the Rockwell Board of Directors, the Compensation Committee as well as the Nominating and Governance Committee, of which he is the



Chairman. AVR is, further, actively engaged in the management and development of both Rockwell and HCVWD and plays a key role in the long term implementation of Rockwell’s social responsibility programmes. The AVR group advised Rockwell in fiscal 2009 that it was unable to complete its financial obligations, and was pursuing other funding mechanisms to meet its obligations. At November 30, 2010, AVR owed Rockwell approximately ZAR32.7 million (Cd$4.8 million). A minority interest of 15% is recognized with the consolidation of Klipdam Mining Company Ltd and HCVWD, until such time as the outstanding loan by the BEE group is fully repaid, at which time the Company will increase the non-controlling interest to 26%. Rockwell RSA has, in conjunction with AVR, endeavoured to identify alternate sources of funding to complete AVR’s investment in the HCVWD projects and, currently, negotiations are being progressed with the Industrial Development Corporation (“IDC”) of South Africa. Rockwell RSA is in ongoing discussions with AVR, and through the assistance of its legal counsel, has engaged the Department of Mineral Resources to address the completion of the BEE participation. The shares for the outstanding equity purchases are held in trust by legal firm Tabacks pending conclusion of the transaction.

3.4 Environmental

3.4.1 Water Permits The Department of Water Affairs and Forestry (DWAF) has issued a permit in their favour (licence # B191/2/470/1 on 23/09/2007) for 72,000m3 per annum. Since this figure is insufficient for planned, future production on Wouterspan, Rockwell has made application to DWAF (20/02/2007) for an additional 350,000m3 per annum. Rockwell is still waiting on DWAF for resolution of this issue.

3.4.2 Environmental and Rehabilitation For all properties, existing approved Standard Environmental Management Programmes (“SEMP”) are in place and will remain valid until new Environmental Management Programmes (EMPR’s) have been approved by DMR. Concomitant with the application of the consolidated mining right (208MR), Rockwell submitted an updated EMPR. This will be signed once Portion 4 is consolidated into the new Mining Right (see section 3.2.3 for details). Table 3.2 summarises the rehabilitation guarantees that have been issued by Rockwell for the Wouterspan properties. The Farhom and Okapi guarantees will be replaced by Rockwell as soon as the section 11 cession has been finalised and all the properties are consolidated into a single licence. Table 3.2

Summary of rehabilitation guarantees

Property Issued to Guarantee quantum (ZAR)

Date Institution

Portion 16, portion of Portion 9

Farhom Mining and

5 000 50 000

28/06/1999 28/08/2000

FNB6

FNB

7

6 No Guarantee number



Construction (Pty) Ltd

45 000 150,000 500,000 500,000

07/07/2004 28/09/2006 14/12/2006 11/09/2007

FNB8

Standard Bank

9

Standard Bank

10

Standard Bank

11

Surveyed Portion of Remainder of Portion 9 (Wouter)

Okapi Diamonds (Pty) Ltd

2,257,104 11/09/2007 Standard Bank12

Portion 14 (Stofdraai) and Remainder of Portion 9 (Wouter)

Surveyed portion of Portion 16, portion of Portion 9

HCVWD 80,000 520,000

07/07/2005 11/09/2007

Nedbank13

Standard Bank

14

Combined Mining Right

HCVWD 100,000 12/02/2010 Standard Bank15

3.4.3

3.4.4 Mine closure Even prior to the opening (re-opening) of Wouterspan, plans are being made to ensure that the eventual mine closure plans will, as far as it is reasonably practicable, rehabilitate the environment affected by the proposed mining operation to its natural or a predetermined state or to a land use which conforms to the generally accepted principle of sustainable development. More specifically, the management of environmental impacts will form an integral part of the proposed mining operation. Negative impacts on the environmental rights will, for as far as is practicable, be anticipated and prevented, and where they cannot be altogether prevented, be both minimised and remedied.

3.5 Social Responsibility Along with focused business objectives, Rockwell's social responsibility values and commitments form an integral part of the mining operations. Rockwell is committed to providing increased returns to shareholders while sharing the value created from the operations with a wider set of stakeholders through the alignment and linkage of business and social responsibilities.

7 No Guarantee number 8 G0657/263718/GLO 9 M468899 10 M473382 11 M482733 12 M482750 13 662/26238209 14 M482771 15 M5 12005



3.5.1 Social and Labour Plans According to the MRPDA a Social and Labour Plan (SLP) is required to be submitted to the DMR along with the other requirements for a mining right. The objectives of the SLP (according to the MPRDA) is to promote employment and advance the social and economic welfare of all South Africans; to contribute to the transformation of the mining industry; and to ensure that holders of mining rights contribute toward the socio-economic development of the areas in which they are operating, as well as the areas from which the majority of the workforce is sourced. In harmony with these objectives, the SLP requires that the company address literacy levels and life skills within the workforce as well as implement career progression paths, mentorships, internships and bursary plans for its employees. In addition, the company is required to contribute to the upliftment and development of the local communities through procurement, establishment of a Future Forum and the creation of Small, Micro and Medium Enterprises (SMME’s). Further details of Rockwell's SLP are given in Section 17.6.5.1.



4 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

4.1 Topography, elevation and vegetation The project area is situated in a region of gently undulating hills on the edge of the Karoo, an area of sparse, arid semi desert that occupies much of central South Africa. The area comprises elevated palaeoriver terraces at elevations of some 20-30m above the present Orange River. The terraces are cut by a number of small ephemeral streams that flow towards the Orange River. The surrounding terrain (Plate 4.1) is a flat semi-desert environment with sparse grass and occasional shrubs, thorn bushes and succulents in a sandy soil. Bigger trees often line the banks of the Orange River.

Plate 4.1: Landscape typical of the MORO properties Since no exploration or mining activities will be undertaken in the present river channel, bank-full discharge conditions will have no effect on operations. Even during floods, the effect on operations will be negligible, since the narrow, modern-day floodplains are not exploration targets. The vegetation occurring in the area falls within two vegetation types namely the Northern Upper Karoo and the Upper Gariep Alluvial vegetation. The Northern Upper Karoo forms part of the Upper Karoo bioregion and the Nama Karoo biome. The vegetation unit is dominated by dwarf Karoo shrubs, grasses and Acacia melifera (subsp. Detinens) and some other low trees (Mucina & Rutherford, 2006). Areas alongside the Orange River lie within the Upper Gariep Alluvial vegetation unit. This vegetation type is dominated by Acacia Karroo and Diospyros lycoides, flooded grasslands, reed beds and ephemeral herblands populating mainly sand banks within the river and on its banks (Mucina & Rutherford, 2006).



Three protected tree species namely Boscia albitrunca (Plate 4.2), Aloe claviflora and Ruschia cf. semidentata were noted during survey. No red data species were found on the surveyed area at the time of the survey.

Plate 4.2: Shepherds Bush (Boscia albitrunca

), a protected species, as found on Wouterspan

An extensive bird life can be found within the project area and specifically on the hills and small valleys with dense vegetation growth. Some of the following birds have been spotted on the property or are known to occur in the area. A number of endangered species (both vulnerable and rare16

) of birds and mammals have been identified on the property, especially in areas which have been rehabilitated.

4.2 Access and infrastructure The project is some 176km from Kimberley and Barkly West via route R357 from Douglas to Prieska south of the Orange River. For reference, Kimberley is some 570km from Johannesburg and can be accessed by national road as well as by rail and air services. Existing infrastructural features are described below. However, results of the pre-feasibility study will determine to what extent this information will be modified when the mine is re-commissioned.

16 Vulnerable includes taxa of which all, or most, populations are decreasing because of overexploitation, extensive destruction or degradation of their habitat or other environmental disturbances i.e. the specie is considered to facing a high risk of extinction in the wild. Rare indicates taxa with small populations which are not presently endangered or vulnerable, but which are potentially at risk.



4.3 Climate Rainfall in the Northern Cape is generally low and highly variable. Average annual rainfall varies from 682mm to 179mm. The average is 256mm, mostly in the form of summer thunderstorms (Plate.4.3). The average annual evaporation rate is measured at 2,524mm. The low rainfall and high evaporation rates result in extremely dry conditions. Daytime temperatures can be extreme and vary from lows of around -5°C in winter to highs of around 42°C in summer. Average temperatures, however, are in the range between a winter minimum of 3°C to a summer maximum of 33°C. Hail is sometimes associated with thunderstorms and mainly occurs in early to late summer (November to February). It occurs, on average, three times a year and although these storms may sometimes be severe and cause much damage, they usually impact on a relatively small area. The period during which frost can be expected lasts for about 120 days (May to August). With extreme minimum temperatures to below -8°C at night in the winter, frost development can be severe. Droughts are common and may vary from mild to severe. During these periods dust storms sometimes occur, depending mainly on denudation of the surface. High winds are unusual but when they do occur can uproot trees and take off roofs. The prevailing wind direction for the area is north to north-north-west for the months January to September and changing from north to sometimes westerly winds during October to December averaging 3.5 m/s (Kimberley 01/01/1990 - 31/08/2000, Station 0290468). The project has a year round operating season and prevailing climatic conditions do not impact on the mining operation to any significant degree. Disruptions do occur due to poor road conditions following heavy rains and three-to-four hour down time may occur when soaked gravel stockpiles are too wet to process efficiently. During years of exceptional rainfall flooding may occur, resulting in significant disruptions to production, as well as damage to infrastructure (municipal as well as on-mine).

Plate 4.3: Calm after the storm along the Orange River (Wouterspan in the background).



5 HISTORY The first alluvial diamond discovery in South Africa was on the farm De Kalk on the banks of the Upper Orange River, some 55km upstream from Saxendrift in 1866 (De Wit, 1996). Recoveries of several large diamonds over 100ct in size led to initial enthusiastic mining of shallow Rooikoppie gravels by artisanal diggers, who flocked to the area mining diamonds from the high level terraces. Since the late 1800’s, numerous properties along the middle Orange River have been prospected/mined for alluvial diamonds (Fig. 5.1), the majority of which have been derived from the Rooikoppie gravels.

Figure 5.1: Historical diamond production from the middle Orange River The Middle Orange River has not seen the intense prospecting and mining activities more typical of the Vaal and Lower Orange Rivers, because: • Large areas are covered by a very hard layer of calcrete, 0.5m – 3m thick, which limits access to the

underlying gravel horizons. With the use of modern mining methods and equipment, it is now possible to mine these deposits economically.

• In many areas, the gravels contain a high percentage of banded ironstone clasts which makes the treatment and concentration of the gravels technically difficult, from a metallurgical perspective, when using the traditional pan plant processes without the use of magnetic separators.



Through the application of modern treatment methods and equipment, recoveries have improved to the extent that these deposits can now be mined efficiently. Since late 1996 the mining problem was solved by the use of blasting and heavy earthmoving equipment to rip and remove the hard calcrete-silcrete layer. This new technology resulted in the area being effectively explored for the first time by companies such as Northern Cape Diamond Mining, Moonstone Diamonds (an Australian Company) (Moonstone Diamonds, 1997), Pioneer Minerals and the Gem Diamond Mining Corporation (Gem Circular to Shareholders, 1998, Gem Diamond Mining Corporation Annual Report, 1999), the latter of which was responsible for initially mining the Saxendrift diamond deposit. The deposit was subsequently mined by Trans Hex, and is now owned and operated profitably by Rockwell.

5.1 Previous Ownership Portion 16 and Portion “Wouter” of Lanyonvale were previously owned by Farhom Mining and Construction (Pty) Limited (“Farhom”), a private company owned by Mr J F Gouws (“Mr. Gouws”). HCVWD entered into a memorandum of agreement with Farhom and Mr. Gouws in terms of which Mr. Van Wyk was granted an option to acquire a mining right over the property, the shares in Farhom, and the property and was appointed as a sub-contractor for mining activities during the option period. A further portion of Lanyonvale was owned by Okapi Diamonds (Pty) Ltd (“Okapi”), which is a private company, owned by A C van Wyk. A contractor’s agreement was concluded by and between Okapi, HCVWD and Mr A C Vlok on 14 February 2005 in terms of which Okapi granted to Mr H C Van Wyk the option to acquire Prospecting Permit PP86/2004, as well as the right to convert such prospecting permit into a new form mining right, as well as the right to apply for a mining right. Both options have, subsequently, been exercised by HCVWD and the permits either have been, or are being, ceded to HCVWD under section 11 cessions (see section 3.2.3 for details)

5.2 Previous Exploration/Development

5.2.1 Historic In July 2005, it was reported that, on the basis of preliminary percussion drilling results, the size of the gravel deposits at Wouterspan could be at some 30-40 million tonnes, with a grade range of 0.4-0.5cpht (Cooke, 2005). These figures were based on limited sampling and drilling during April 2005. These resource estimations do not conform to the reporting guidelines as stipulated by either NI 43-101 or SAMREC and should not be relied upon. They might be considered as exploration target information where the statements of potential quantity and grade are conceptual in nature, that there has been insufficient exploration to define a mineral resource and that it is uncertain if further exploration will result in the target being delineated as a mineral resource. During the period February and May 2006 a local drill contractor under instruction from HCVWD and supervised by Cooke, a drilled a total of 191 boreholes (2,097m) on Okapi, and 278 boreholes (3,265m) on Farhom. The data collected from the boreholes were used in the construction of a geological model for the area from which contour plans illustrating gravel thickness, overburden thickness and bedrock elevation were produced. Potential for some 45-50Mm3 of gravel (4-5Mm3 of Rooikoppie and 40-45Mm3 of Primary gravels) was estimated to exist on the Wouterspan property (De Decker, 2006). An average grade of 0.55ct/100m3 was determined from a bulk-sample programme that processed a total



of 513,892m3 Primary gravel and 24,013m3 Rooikoppie gravel (individual recovered sample grades varied from 0.2-1ct/100m3). This programme was described in a competent persons report in March 2006, compiled by De Decker and Associates. This technical report described the exploration and trial mining operations on Wouterspan. However, no resources were estimated for Wouterspan because the diamond grade data from the sampling was not deemed sufficient to be representative of the deposits on a property-wide scale. The exploration results described in this programme might be considered to define an exploration target, where statements of potential quantity and grade are conceptual in nature, there has been insufficient exploration to define a mineral resource and it is uncertain if further exploration will result in the target being delineated as a mineral resource.



6 GEOLOGICAL SETTING

6.1 General Geology and Mineral Deposits of South Africa The geology of South Africa (Fig. 6.1) is extremely varied and spans a period of about 4 billion years (SACS, 1980). The northeast portion of the country is dominated by the granitic rocks and belts of volcanic and sedimentary rocks forming the Archaean Kaapvaal Craton. Much of the rest of the country is covered by Phanerozoic sediments. The earliest clusters of diamondiferous kimberlites, namely Kuruman and Cullinan, intruded into South Africa during the Proterozoic. The main kimberlitic (both diamondiferous and barren) event took place in the late Mesozoic, however. All the economically viable kimberlites occur on the Kalahari Archon (Kaapvaal and Zimbabwe Cratons), while those occurring in the surrounding Proterozoic basement are non-diamondiferous (Gurney, et al., 1991). Over 2,000 kimberlite pipes, blows and fissures have been recorded across South Africa, Lesotho, Swaziland, Botswana and Zimbabwe, spanning emplacement age range of approximately 1700 – 40 Ma. Kimberlite emplacement was followed by the liberation and entrainment of diamonds and the subsequent deposition of terraces on the ancient Vaal and Orange Rivers.

Figure 6.1: The General Geology of South Africa

WOUTERSPAN PROJECT



6.2 The Alluvial Diamond Fields of the Middle Orange River A key factor in the origin of the extensive and rich alluvial diamond deposits found along the middle Orange River are the over 2,000 kimberlite pipes, blows and fissures that have been recorded across South Africa, Lesotho, Swaziland, Botswana and Zimbabwe spanning emplacement ages of approximately 1,700 – 80Ma, with peaks at 1,700Ma, 1,200Ma, 600-500Ma, 240Ma, and 200-80Ma. Two prolonged periods of exposure and erosion, firstly, between the Archaean eruption of the Ventersdorp lavas and initial Karoo sedimentation at about 300Ma and later between the end of the major Karoo event at 150 Ma and the Vaal River sedimentation at 5Ma, would have substantially landscaped the surface across which the palaeo-Vaal and its tributaries flowed. Added to this, the super-continental scale Dwyka glacial event that marked the onset of Karoo sedimentation would itself have exerted a shaping effect on the post-Ventersdorp surface. The surface over which the palaeo-Vaal and Orange Rivers flowed and on which the diamondiferous gravels were subsequently deposited, would have been irregular, affording high potential for diamond traps. Later, river evolution was strongly influenced by the two periods of uplift known to have affected the eastern part of the interior of southern Africa. The first uplift of 200-300m occurred at about 18.6 Ma, which was followed at 2.5 Ma by an event of by 900m uplift. This uplift would have triggered a period of accelerated river incision and simultaneous lowering and peneplanation of the land surfaces, accompanied by the supply of detritus, which included minute proportions of diamonds (De Wit, 1996, 1997). The present drainage of the region consists of the Vaal-Harts River from the northeast, and the Orange River from the southeast. There is, however, strong evidence that a major drainage, flowing along the eastern face of the Ghaap Plateau, entered the approximately 20km downstream from the Vaal-Orange confluence, during the Miocene-Pliocene. It is suggested that this substantial river may have had as much as four times the discharge of the Orange River. McCarthy (1983) suggested that it had the upper Zambezi, Okavango and Kwando rivers as tributaries. The upper Limpopo may also have flowed into the system during the Miocene-Pliocene. The alluvial diamonds of the Middle Orange, thus, have several probable primary source areas: • the diamondiferous kimberlites of Lesotho, eroded by the present Orange River; • diamonds from the same source as the Lichtenburg - Western Transvaal diamond-fields, eroded

by the Vaal-Harts system; • diamonds derived from the kimberlites of the Kimberley area; and • diamonds from Botswana and the Postmasburg fields, including the Finsch kimberlite, • eroded by the palaeo-drainage note above.

6.3 Property Geology The Wouterspan deposit comprises an extensive flat lying alluvial sequence located on the right bank of the modern Orange River. A number of terraces have been identified on the properties (Fig. 6.2).

• The main deposit gravels occur some 20-30m above the Orange River (“C” terraces) and appear to have been deposited in a braided river environment. (Plate 6.1).

• A small, reconnaissance sample has exposed the “B” terrace (Plate 6.2) and, • A second B-terrace has been identified on Lanyonvale (Plate 6.3)



Figure 6.2: Location of known terraces on Lanyonvale (Wouterspan) The gravels and bedrock are well exposed in the workings on the “C” terrace, identifying shale/tillite of the Karoo age Dwyka Group as common bedrock to the gravels (Plate. 6.3). The gravel deposits on the Wouterspan C terrace appear to be devoid of any obvious size gradation of the clasts upwards through the succession (either upward-fining or upward-coarsening). This has been attributed to high stream velocities and rapid deposition. Clasts of Ventersdorp lava predominate, with significant (if variable) amounts of banded iron formation (BIF), chert, quartzite and quartz also present. Downstream of the Lanyonvale Spruit (located on Wouterspan) all the deposits (both Rooikoppie and fluvial-alluvial), contain considerable amounts of BIF clasts. These clasts are derived from the Pence formation of the Transvaal Supergroup which is developed on the Ghaap Plateau to the north and northwest of the Orange River. The amount of these heavy clasts has caused recovery problems for diggers who, either did not recognise the problem or did not have the equipment to extract the BIF prior to processing the gravels.



Plate 6.1 C- Terrace, some 20-30m above the Orange River

Plate 6.2 B-Terrace, some 40-60m above the Orange River (995m amsl) on Wouterspan



Plate 6.3 B-Terrace on Lanyonvale

Plate 6.4 Dwyka shale bedrock on Wouterspan



Past and present work has shown that the majority of the alluvial diamonds found in gravel deposits along all of the middle Orange River terraces are, typically, found in two distinct gravel horizons. These comprise an upper, deflation deposit (locally known as Rooikoppie gravels) overlying fluvial-alluvial units, often known as Primary gravels. Both deposit types have been seen to be developed extensively on the Wouterspan C terraces; and have also been identified in drilling on the A and B terraces. Rooikoppie gravels The Rooikoppie varies in thickness from a few centimetres up to about 2m and has an average thickness of about 1m (Plate 6.5). These gravels, typically eluvial in origin (Marshall, 2004) may rest on sand, gravel or a hard, semi-continuous layer of calcrete and silcrete. Solution cavities (“makondos”) up to 2m deep in the calcretised material form sharp, discontinuous depressions that are filled with the overlying Rooikoppie gravel. Such cavities are concentrates and, consequently, have very high diamond grade potential, making them of key economic importance.

Plate 6.5 Rooikoppie gravels on Wouterspan C-Terrace, underlain by calcretised fluvial-alluvial gravels

Fluvial-Alluvial Sequence The Primary gravels, typically, consist of two gravel units, namely the suspended or middlings gravels and a basal gravel layer on or near to the bedrock (Plate 6.6). The Rockwell programme does not distinguish between these units due to the fact that they are, typically, mined as a single entity. The complete sequence forms deposits of considerable thickness, often in excess of 15m and consisting of rapidly aggraded (or dumped) material. The sequence is compacted and frequently cemented with



secondary calcrete. In situ, the deposit displays horizontal stratification with occasional sandy units. The basal gravels (Plate 6.7), typically, comprise the lower half to one third of the fluvial-alluvial sedimentary sequence and rest directly on the bedrock. The unit (around 5m thick) generally comprises a poorly sorted assemblage of large boulders (up to 45 cm in diameter at the base of the unit), cobbles and pebbles set in a sandy matrix that is considered to have been deposited by a large, high-energy braided system that would be readily capable of transporting diamonds. The overlying suspended gravels represent younger gravel bars that have migrated down the river system and have not incised into the bedrock. These units have also been shown to contain diamonds. Diamond grades are usually lower than for the basal deposits owing to their being diluted by finer-grained pebble, sand and silt lenses. The thickness of the suspended gravel unit varies from 3-7m, and may represent large volumes of material.

Plate 6.6 Example of the fluvial-alluvial succession on Wouterspan showing the basal gravels

with some large boulders overlain by a finer-grained fluvial succession of sands and gravel lenses.



7 DEPOSIT TYPES Numerous studies have shown that the majority of the alluvial diamonds in gravel deposits along all the terraces along the Orange River are derived from two distinct gravel horizons. These comprise an upper deflation deposit (Rooikoppie) and an underlying (Primary fluvial-alluvial) gravel unit (Plate 7.1).

Plate 7.1 Typical stratigraphy of the fluvial alluvial gravels with a basal gravel overlain by a “middlings” fluvial unit and separated from it by a widespread sandy unit. Overlying the fluvial unit are the deflation or Rooikoppie gravels (Saxendrift Mine)

7.1 Primary Fluvial-alluvial Gravel Deposits The primary palaeo-fluvial succession comprises various proportions of gravel, sand and silt (typically with a basal gravel unit of up to 2m in thickness and an overlying “middlings” unit of up to 6m). Cross-bedded, fine-grained to granular sand layers and lenses reflect lateral stream migration and point bar build-out. Stacked, upward fining sand to pebbly sand to gravel cycles generally represent channel fill deposition. Very fine-grained silty sands reflect upper meander deposits that formed prior to meander cut-off (ox- bow lake phase). Massive, clast-supported gravel beds are generally chaotic without any visible gradation or layering. Most of the primary sedimentary features have been destroyed by the subsequent calcretisation. The poorly sorted gravels vary from pebble to cobble gravels, generally with a fair percentage of boulders (rarely + 1m diameter). Interbedded sandy or granule beds and lenses occur frequently in more sandy, matrix supported gravel successions.



The primary Cainozoic sedimentary succession underlying the calcrete represents ancient fluvial channel and point bar deposits formed in cut-off meanders (ox-bows) of the palaeo-Orange River. Individual bars may reach 11m in thickness and 500-600m in length. The overall sequence varies in thickness from 3 - 20m, increasing in thickness towards the last channel position before abandonment. Channel migration and switching is manifested by channel-in-channel incision and local unconformities at various places in the succession leading to complicated stratigraphic successions and internal variations in gravel thickness and distribution within terraces. Large-scale lateral facies changes, recorded by systematic drilling of the terrace deposits, reflect lateral channel migration prior to meander cut-off.

7.2 Deflation or ‘Rooikoppie’ Deposits The higher terraces are overlain by Rooikoppie gravel. This clast-supported gravel almost entirely consists of siliceous lithologies such as quartz, quartzite, chert, agate, BIF, etc, in an unconsolidated, reddish, iron-stained sandy matrix. The Rooikoppie lies on an irregular karst surface of hard massive calcrete or hard calcrete-cemented gravel. Solution cavities or potholes in the karst surface, known as makondos, are filled with the gravel. These deposits represent a derived gravel and consist mainly of well-rounded and polished siliceous pebbles and reddish coloured sand. The clastic material is believed to originate from the fluvial alluvial gravel units (Marshall, 2004) and consists of its most resistant components, in particular chert, agate, jasper, quartzite and vein quartz. Due to the decomposition and winnowing of the less resistant clastic and matrix material there has been a substantial concentration of the more durable components in the original gravel, including diamonds. Iron has stained the entire assemblage, giving it a reddish colour and hence the name Rooikoppie, literally meaning ‘Red Gravels on a Hill’. In the past, Rooikoppie gravel was mined throughout the region by small-scale prospectors using unsophisticated mining and diamond recovery techniques. Typically, Rooikoppie gravel may occur as both eluvial and colluvial varieties (Fig. 7.1).

Figure 7.1: Diagrammatic representation of relationships among colluvial, eluvial and fluvial-

alluvial gravels in the Vaal River system (Wilson, et al., 2006)



7.2.1.1 Eluvial Rooikoppie Gravel A thin veneer of red oxidized soil with coarse cobble clasts and windblown sand overlies the calcretised sequence. In places, potholes in the surface of the calcretised layer host pockets of this material. Calcretisation of pre-existing sedimentary sequences, such as alluvial deposits, has been shown to develop according to a definite generic sequence. In fine grained sediments, as are generally found at the top of alluvial sequences, calcrete nodules coalesce to form a honeycomb calcrete, the voids of which are finally filled to form a hardpan deposit. In the underlying more sandy or gravelly sequences, calcification proceeds along similar lines, but more slowly. At the surface, all but the siliceous or resistate clasts including diamonds, become calcreted to form a hardpan conglomerate at the surface (Fig. 7.2).

Figure 7.2: Formation of eluvial gravels (Marshall, 2004)

If calcretes are covered by soil for any length of time, the uppermost layer undergoes a form of decomposition resulting in the formation of makondos – a type of solutional weathering feature that has the appearance of a pothole (Fig. 7.3). These makondos may be infilled with diamond-bearing resistate alluvial gravels and later surface material and the whole sequence may or may not be subsequently calcretised. Where diamond-bearing resistate gravels, in reality a concentrate, infill makondos, the eluvial deposit will be richer in diamonds than the original alluvial deposit. Figure 7.3: Formation of Eluvial Gravels (Marshall, 2004)



7.2.1.2 Colluvial Rooikoppie Gravel These deposits are typically 10 – 20 cm thick and consist of uncemented, granular-to-pebbly, resistant clasts, composed mainly of quartz, quartzite and agate set in a matrix of dark red, fine-to-medium sand. All the larger clasts are of locally derived material (typically Ventersdorp lava), which contains large core-stones at the base of its weathering profile. The deposits are very extensive (often covering many square kilometres) and drape bedrock irregularities with uneven thicknesses. The gravels, in turn, may often be overlain by thin layers of Kalahari Sands. These derived deposits are best preserved as matrix-supported gravels in pockets in deeply weathered Ventersdorp lavas where the palaeosurface has produced pseudokarst features by laterization processes. The main driving forces behind the formation of these types of deposits appear to be the processes associated with laterite and or ferricrete development as well as slope downwearing and backwearing. Laterite is generally formed as a ferruginous cementing precipitate. In one model of laterite formation, the original precipitates form within the narrow depth range of fluctuation of the groundwater table, which sinks as the landsurface is reduced by erosion. These precipitates accumulate as an increasingly thick layer in the lower parts of the soil profile. When downwasting ceases and the water table stabilises, the residuum is hydrated and transformed into a massive variety of laterite. A pallid zone develops beneath the laterite as a result of leaching of the saprolite during subsequent landscape cycles. Crustal uplift causes additional leaching which depletes the underlying saprolite to form pseudokarst features. During leaching and pseudokarst development, retreat of the slope permits older armoured, diamond-bearing alluvial gravels to move downslope and to concentrate as resistate particles within the pseudokarst solution cavities. As the landscape is lowered by weathering and deflation resulting from more than one episode of post-Cretaceous uplift or sea-level lowering the original alluvial gravels are eroded and distributed over the surrounding surface to form thin, laterally extensive, [derived] deposits that have been formed or modified by colluvial or hill-slope processes (Fig. 7.4). This complex process of redistribution of pre-existing, diamondiferous alluvial units may result in significant [lateral] displacement of commercial deposits.

Figure 7.4: Formation of colluvial gravels (Marshall, 2004)



Colluvial Rooikoppie deposits can be formed during any cycle of landscape formation and any pre-existing deposit may be remobilised several times. Consequently, it is possible to have similarly looking colluvial Rooikoppie deposits developed across terraces of different ages and in different locations. As a result, they are not time specific deposits. Their main use in geologic interpretation is twofold; primarily as an indicator of a hiatus at the end of a depositional cycle, and secondarily as a climatic indicator since the better-developed colluvial deposits are more likely to have formed under warm, humid conditions.



8 MINERALIZATION

8.1 Nature of Mineralisation Mineralisation in the Middle Orange River is, typically, confined to alluvial fills preserved on perched terraces. Terraces A terrace is formed by the deposition and subsequent erosion of as an alluvial-fill package of sediments, leaving them perched above current river level. Where incision takes place in the centre of the valley-fill, terraces may be developed on both banks of the river – If incision is accompanied by lateral migration, as is often the case, the terrace is restricted to one bank only. The term “terrace” is, therefore, simply a morphological term, and any number of typical stream features can be displayed on the terrace - such as splays, chute bars, point bars, channels, and sand banks. The terrace initially preserves the morphology of the braided river deposits, but later erosion can dissect or totally remove the terrace. On a regional scale, terraces tend to have an elongated sheet-like shape, with an overall gentle gradient downstream, but this gradient can be stepped at barriers across the river valley, such as lithological changes in bedrock, cross dykes, etc. Consequently, contemporaneous terraces can be deposited at differing elevations, and, conversely, terraces at the same elevation were not necessarily deposited during the same cycle, at the same time. Several attempts have been made to correlate terraces along the Vaal River and middle Orange Rivers using elevations, either above sea level or above the present river level, of the various deposits. These attempts at correlation have met with limited success. In addition to the problem of stepping, no allowance can be made for post-depositional regional warping. Subsequent differential incision of the river into the terrace platform can, further, complicate the issue. The present Orange River between Douglas and Prieska, generally referred to as the Middle Orange River (MOR) displays a meandering channel morphology, best developed in areas underlain by the Dwyka Group. Palaeochannel depositional packages of the MOR (Fig. 8.1) are preserved at different elevations above the present Orange River bed (Gresse, 2003; van der Westhuisen, 2007. Pers. Comm.) namely: Lower (+20m or C) Terrace: 0-30m Intermediate (or B) Terrace: 30-60m Upper (+70m or A) Terrace: 60-90m and High Terrace: + 110m above present riverbed. Diamondiferous Rooikoppie gravel scree slopes higher than the oldest preserved fluvial deposits suggest that even older and higher elevation palaeodeposits were present once and have, subsequently, been removed completely by erosion – the probability of preservation decreases with increasing age and elevation. As a generalisation, the basal gravels on any terrace tend to be better mineralised than the upper or suspended gravel units. Alluvial diamond deposits along the mid-Orange River sector reflect cyclical development and preservation through a series of palaeomeander events preserved at different elevations above the present riverbed. The cyclical development of the Orange River system reflects phased incision interspersed with periods of alluvial plain deposition. The ages of the MOR terraces young with decreasing elevation and vary from Mio-Pliocene for the upper terraces to Plio-Pleistocene for the lower terraces. With continued downcutting of the Orange River with time, the oldest diamondiferous gravels



deposited by the Orange River were recycled and re-deposited repeatedly down to the lowest level gravels as preserved today

Figure 8.1: Location of identified terraces along the MOR Alluvial Fills An alluvial fill is the record of a set of superimposed floodplains, reflecting an interval of net, but not necessarily continuous or homogenous, deposition along a river valley. The unconformities between alluvial fills record erosional phases when the main stream and its local tributaries incised earlier alluvium and bedrock surfaces, removing part of that alluvial record and leaving behind limited, and usually transitory, fill on eroded surfaces, destroying earlier terraces. The alluvial sequences of the middle Orange River record many such erosional and depositional phases. The interpretation of complex alluvial fills is difficult because the processes of sediment supply and those of erosion and transport are interrelated, not only to each other, but also to other factors in the wider geomorphic environment. In addition, the processes responsible for a cumulative history of incision and floodplain aggradation have variable magnitude, frequency, spatial location and temporal context. Such changes, further, do not occur with constant intensity through time; may have been



accomplished by an assortment of events with variable magnitudes, durations and frequencies; and may not be uniformly distributed across the river valley at any particular time. Phases of floodplain incision and deposition can occur in both arid and humid climatic settings. Under more arid conditions, such as appear typical of the palaeo middle Orange River, low stream flow typically results in wide, shallow channel sections. The valleys display moderate sinuosity and braiding may be frequent. Braided stream segments are highly transient environments. The braided channels are unstable through time and gravel bars are formed and destroyed continuously. Shifting bars and channels cause wide variations in local flow conditions resulting in varied depositional assemblages. Common features in braided stream deposits include irregular bed thicknesses, restricted lateral and vertical variations within the sediments, and abundant evidence of erosion and re-deposition. On a broad scale, most deposits are complex with units of no great lateral extent. The coarser-grained (gravel) units are commonly elongate and are surrounded by finer-grained units (Fig. 8.2). The coarser units are, typically, the higher-priority diamond targets, but are generally too small to be targeted for selective mining techniques. The preferred mining method is to bulk mine both the coarse gravel bars and the intervening finer material. Consequently, the ratio of coarse to fine material is an important issue for sample representivity and grade estimation.

Figure 8.2: Schematic view of coarser gravel channel bars in a braided river system In general the sedimentology of all Orange River terrace alluvial fill is similar, reflecting similar depositional environments. However, the higher, older terraces typically, have higher overall grades and form preferential exploration targets. High Level Terraces Few deposits exist that are correlatable with the highest Vaal River (Nooitgedacht or A0) terraces. It is suspected that the Vaal River may have taken another route during the late Cretaceous (de Wit, 1996;



De Wit, et. al, 2000). Rooikoppie gravels and basal calcreted basal gravels of this age have, however, been prospected by TransHex in 2005 on Kwartelspan 25 and White Waters (a portion of Lanyonvale 276). A third deposit occurs on northeast of Douglas on Geduld 61 (initially prospected by TransHex in early 1990's and, subsequently, mined by a professional digger in 2001). Recovered grades (unverified) in these basal gravels were reported to be in the range 0.6-1.2cpht. Upper Terraces (A and B Terraces) Cainozoic (Miocene to Pliocene) diamondiferous fluvial gravel deposits occur as abandoned channel and point bar deposits on terraces and in remnants of palaeochannels. The principal ore consists of coarse boulder gravel resting unconformably on Dwyka age sediments. This basal gravel is usually overlain by pebbly gravel in a sandy matrix. The latter unit has a lower diamond content compared to the basal gravel, thus constituting a lower grade resource. The Cainozoic succession is capped by up to 2m of hard calcrete on which a lag deposit (almost exclusively comprised of very resistant clast types in a matrix of unconsolidated red sandy soil, and locally termed Rooikoppie gravel) may be developed. The latter was extensively worked by the old time diggers. The sedimentary sequences overly an undulating bedrock topography of Dwyka tillite and shale. Sedimentological characteristics of the alluvial deposits indicate that they were laid down during reasonably high energy flows within a braided river environment (not, however, the very high energy environments often associated with the lower Orange River at Baken, for example). In general the sedimentary packages (a total of 6-8m thick) are seen to comprise a basal boulder-gravel (1-6m thick), overlain by an upward-fining alluvial sequence (typically 5-6m thick) of gravels lenses (upper gravels or middlings) and sands and capped by a thin colluvial/eluvial gravel deposit (Rooikoppie gravels). The upper 0.5-3.0m of the alluvial package may be intensively calcreted or silcreted whereas the basal gravels are only loosely cemented. Lower Terraces (C Terrace) Lower elevation terraces (less than about 30 m above present river bed) of the Orange River are typified by up to 30% sand matrix with a high proportion of zeolite-rich sand lenses and a high proportion of red Drakensberg basalt clasts. These gravels normally exhibit intermediate to low diamond grades. They are typically cobble-pebble gravels with occasional boulders. Clast composition is dominated by andesite (Ventersdorp lava), dolerite, shale, quartzite, and riebeckite, with a low percentage of agate and amygdales. Downstream of Lanyonvale (Wouterspan) BIF makes up +60% of the clast assemblages. Clast-rounding is moderate and packing is moderate to poor, both of which impact negatively on diamond entrapment potential. Average grades of 0.5-1.2ct/m3 or 0.23-0.54cpht are known with the occurrence of occasional large stones (P Gresse, Pers. Comm., 2005). The lowest terrace does not appear to be as calcreted as the upper two terraces and mining is, therefore, easier. Lower terrace deposits are generally covered by 1 - 4 m of sand, whereas the upper terrace deposits are capped by a hard calcrete layer some 2 - 3 m thick which protected the gravel deposits from erosion and prevented exploitation in the past. Significant differences in the composition of the sediments in these three cycles reflect on their provenance and show a direct correlation with diamond grade. The composition of the gravels and sands of the +110m and +20m cycles is distinct from the +70m cycle in that they show a much more pronounced Drakensberg basalt and zeolite sand content, reflecting a much higher sediment contribution from the Orange as opposed to the Vaal River. The dominance of an 'Orange River' source usually reflects negatively on diamond grade because of a dilution factor through the introduction of a larger sand component. Although fewer kimberlites are known from the headwaters of the Orange River than the Vaal River, the Orange River is thought to have played a key role in the transportation of



some of the larger diamonds that are found downstream of Douglas and which may have had their source in the Lesotho highlands. Sediments of the +70m cycle exhibit a predominance of Ventersdorp lava clasts and a high percentage of red agate and BIF. The point and timing of BIF introduction into the Orange River deposits is significant as it appears to have contributed substantially to, and also forced, increased bedload deposition downstream from the point of introduction, as a result of added bulk and specific gravity. The added bulk and SG of the bedload provided an increased trapping and blocking mechanism reflected as higher than normal diamond grades in these deposits. BIF was introduced into the system in large amounts some time after deposition of the + 110m cycle, through two main point sources (the Sand River and Lanyon Spruit), two tributaries draining the large catchment between the Orange River and the Ghaap Plateau scarp-break to the north (the latter of which is located on the farm Lanyonvale).

8.2 Surrounding Rock Types The bedrock of the Orange River valley between the confluence of the Vaal and Orange Rivers at Douglas and Prieska is dominated by flat-lying Dwyka tillite and siltstone of the Karoo Supergroup (Plate. 8.1). The Dwyka, typically, comprises matrix-supported diamictite with both local and transported pebbles and boulders as drop-stones in a rock-flour matrix. Underlying the Dwyka are lavas of the Ventersdorp Supergroup, overlain (in places) by sediments of the Transvaal Supergroup, comprising shales, quartzites and dolomites. The bedrock is cut by faults and dolerite dykes, which are rarely exposed.

Plate 8.1: Dwyka tillite bedrock on which the alluvial gravels are developed along the MOR



The surface on which the Dwyka was deposited was irregular with several topographic highs. Owing to the irregularity of the pre-Dwyka surface, several reaches of the river are superimposed on pre-Dwyka topographic highs, which may give rise to more rugged topography. In these instances the Orange River is often confined to gorges with increased river gradients. In contrast, the more easily eroded Dwyka has been dissected by minor tributaries of the Orange River, giving rise to a trellis-type drainage pattern. Remnants of Kalahari sands (Hutton Sands) are found in many places along the Middle Orange. In addition, the area is relatively arid, with sparse vegetation except for a narrow riparian fringe along the river. The prevailing north-westerly wind has blown the finer river sands inland, this process being particularly pronounced on north-south oriented reaches of the river, where the eastern bank may have a blanket of sand extending for several kilometres inland. Aeolian action has tended to mix this sand with the remnants of Kalahari. The sand cover thickens towards the river, and, under longitudinal dunes, may be several metres deep.

8.3 Geological Controls 1. In the Northern Cape numerous kimberlite pipes and fissures are known to exist. Grades of these

kimberlitic intrusives vary dramatically from barren to highly economical. Erosion of these primary kimberlites as well as of older alluvial and colluvial/eluvial deposits has resulted in hundreds of thousands of carats being eroded into surrounding alluvial gravels (Fig. 8.3). As the diamonds entered the alluvial system, a natural attrition process resulted in the destruction of poorer quality stones.

Figure 8.3: Schematic representation of diamonds eroding from a kimberlite pipe into a drainage line

These diamonds were deposited along the course of the river in favourable trap sites either in bedrock-traps or in point-bar complexes and within-channel bars, particularly in meanders, scour pools and areas of divergent flow (Fig. 8.4).



Figure 8.4: Fixed and mobile trapsites and their depositional environments (Jacobs, 2005) 2. Locally, bedrock geology and structural features play an important role in diamond concentration of

the basal alluvial deposits. As has been described above, the bedrock is comprised primarily of Dwyka tillite. This is a friable, flat-lying sedimentary rock that does not, generally, form extensive trapsites and the ensuing deposits are typical of Saxendrift. However, local bedrock structures and regional bedrock textures contribute to heavy mineral concentrations within the middle Orange River (Plate 8.2). Similar controls are expected to have been in place during the Cainozoic, resulting in localised enrichment of diamonds.

Plate 8.2: Local structures and regional bedrock fabric contributes to diamond concentration within the Middle Orange River gravels



3. Post-Miocene faults, as observed in numerous localities along the MOR (Plate 8.3), are probably a

reflection of crustal adjustments and space problems generated by Cainozoic crustal warping (Neotectonic activity).

Plate 8.3 Low-angle, Neotectonic fault exposed in mining on the Wouterspan C terrace



These structures are known to affect present-day drainage patterns and the general geomorphological development of southern Africa as described by various authors (Partridge and Maud, 1987 for example). In a few instances, small dolerite intrusions may be associated with these features which often have a normal displacement in the order of 1 - 3 metres. In some places, slices of Dwyka sediments have even been thrusted over the gravel (van de Westhuisen, 2007 Pers. Comm.). With a dip of less than 30º and a normal displacement, these are classified as lag faults. A prolonged life is indicated for these lineaments, by the fact that they were old enough to offer accommodation sites for intrusive dolerite at c. 182 Ma –and young enough to have displaced Miocene-aged gravel.

8.4 Mineralisation on Wouterspan B and C terraces have been identified on the Wouterspan properties (ref Fig. 8.1). The lower, C terrace, which is the largest of those currently identified on the property, covers an area of approximately 1,000ha. Gravel units are often in excess of 15m thickness. Historically, only the basal gravel unit has been mined for diamonds. Trial-mining by Rockwell on the Saxendrift Mine (adjacent to Wouterspan, across the Orange River) has, however, indicated that the entire fluvial-alluvial unit and overlying Rooikoppie gravel may be mined commercially under certain conditions. Consequently, once the Wouterspan project is re-commissioned, this premise will also be tested on Wouterspan.



9 EXPLORATION The lower lying terraces along the MOR are farmed extensively by means of centre-pivot irrigation systems. In addition, much of the area is blanketed by younger Kalahari sands which support scattered vegetation. As a result, aerial photographs and satellite images are of limited use for delineating potential gravel target areas. Further, the mostly shale bedrock, combined with extensive post-depositional calcretisation of the gravels makes it difficult to identify bedrock channels on the terraces using geophysical surveys. Consequently, neither geophysics, nor satellite images are used extensively as primary exploration tools along the MOR. The Wouterspan mine has been on Care and Maintenance since November 2008. As a result, no exploration has taken place during this period



10 DRILLING Since regional gravel grades are very low (generally less than 0.5ct/100m3) and average diamond sizes typically >1ct/st, boreholes are not sampled for diamonds. Furthermore, no other minerals or elements that can be assayed are known to show positive (or negative) relationships with diamonds in alluvial deposits. Consequently, borehole samples are not collected for assay. All drilling on Wouterspan has been done in accordance with procedures and protocols which were drawn up by both Rockwell and the independent QP. Such are reviewed and audited by the independent QP on each site visit. All drilling has been carried out using conventional Reverse Circulation (RC) machines. Champ Drilling CC (a local drilling company that has many years of experience drilling for alluvial gravels) has been contracted permanently by Rockwell. Champ Drilling uses a 76mm (diameter) bit and a 28 bar compressor. The level of contamination of the samples was kept to a minimum – minor amounts of soap may sometimes be added to assist with penetration. Samples representing every 1.0m advance are collected for observation. The drill was under constant observation and, as a result, the depth estimates of lithological contacts could be noted to within 0.50m. Each sample was logged by a geologist based upon macroscopic examination of the drill cuttings on a metre basis. The results were noted in a field notebook. Observations in the field include grain-size, colour, degree of roundness (especially of quartzite and chert clasts), and end-of-hole lithology (bedrock). The logs were later summarised and gravel deposit types were assigned based upon their stratigraphic and sedimentological characteristics. All drill hole positions were surveyed and elevated. This method of drilling was found to be successful on Wouterspan.

10.1 Location

Drilling has been completed on Wouterspan in three distinct phases: • Over the period April through October 2007, 488 holes drilled (5,371m), were drilled on Re/Portion

9 and Ptn 16 (Ptn/Ptn 9) of Wouterspan (on the C terrace). • During 2008, minor infill drilling 130 holes (1,574m) was completed along the western edge of

Wouterspan, also on the C terrace. • During 2007/8, reconnaissance drilling (1,129 holes and 7,135m) was completed in the northern

section of Wouterspan, on the B and C terraces. In addition, some 16 holes were drilled on the B terrace.

Much of the C terrace was covered by a drilling grid of 200x100m intervals (Fig. 10.1). Infill drilling reduced selected areas to 50x100m. The drill data indicated that significant thicknesses of gravels are located on the property (Fig. 10.2), the thickest of which (up to 18m) occurs within the central large channel. Rockwell’s re-evaluation of the original drilling database has highlighted inadequacies within the logged data. Inconsistencies between the early borehole logs and the Rockwell drilling programme make it difficult to separate out the details of the fluvial-alluvial sequence in a systematic manner (the lack of non-digital data for the original logs compounds this problem). As a result, the gravel volumes only distinguished between Rooikoppie gravels and the total alluvial unit. The drilling, further, indicates the presence of a number of E-W channels. The largest of these channels is some 1,500m wide (Fig. 10.3). The areas where detailed drilling exists highlight a complex pattern of braided river channels, indicating the probable presence of a wide braidplain within an overall meandering river system. It is in this major “channel” feature that the fluvial sequence attains its maximum thickness (on Wouterspan) of 15-18m. Drill logs indicate that the sequence comprises thick sequences of sandy gravel units overlying basal gravels containing boulders.



Figure 10.1 Drill localities on Wouterspan C terrace (the purple section lines refer to Figure 10.3) To the north of, and parallel to, the large “channel” is a secondary feature some 350-400m wide. The gravel package here is of the order of 10m thick. This is the feature that was, subsequently, bulk-sampled. Although there is a bedrock high between the large and secondary channels, both gravels (although attenuated) and the sandy, marker horizon is still present indicating that the two features are part of the same fluvial system. Some 1,500-2,000m to the south of the large channel limited drilling indicates the presence of another deeper section. Once again, there is a bedrock high between the two channels onto which gravels lap. At this stage, very little is known regarding this channel and its gravel infill, except that Sonop Mining CC was recovering diamonds from fluvial-alluvial deposits along strike on the adjacent (to the west) portion of Lanyonvale during 2007.



Figure 10.2 Gravel thicknesses as determined by drilling (Rockwell, 2007) During late 2007/2008, reconnaissance drilling (Fig. 10.4) took place on the B terrace (only 16 holes drilled, with a total of 76m). The terrace on the adjacent Lanyonvale was drilled with 1,129 holes (7,135m), 931 holes (5,561m) of which were located on the B terrace and the rest were on the lower C terrace. Drilling on the B terrace (Lanyonvale) was on a 100x50m grid and outlined a gravel area covering some 40Mm2. An additional potential volume of some 14Mm3 was outlined on Wouterspan. No bulk-sampling was completed and, consequently, neither diamond grade nor value is available. As a result, this gravel volume has not been incorporated into the Wouterspan resource estimate.



Figure 10.3 Bedrock topography as determined by drilling (Rockwell, 2008)



Figure 10.4: Drilling on Wouterspan A and B terraces



10.2 Results Drill results are used, primarily, to define the presence of gravel units and to estimate their thicknesses. The boreholes are all vertical and the gravel deposits are horizontal (since they are very young, geologically, and are not affected by large scale tectono-structural upheavals). Therefore, the gravel thicknesses (as determined from drilling) are true thicknesses. Based on the drilling the following gravel volumes17

C-terrace: some 6-7Mm3 of Rooikoppie gravel and 36-37Mm3 of fluvial-alluvial gravel. have been estimated for Wouterspan:

B-terrace: some 10-20Mm3 of undefined, mixed gravel, as well as an additional area of 35-45Mm2.

10.3 Representativeness As has previously been stated, only Re/Portion 9 and Ptn 16 (Ptn/Ptn 9) of Wouterspan have been drilled on a grid that can be viewed as representative. This drilling covers a portion of the C terrace. Significantly more drilling will need to be planned to cover the rest of the terraces currently identified on the entire property (viz. A and B terraces). The confidence level of the drilling that has been completed at 100x50m is sufficient for the volume so determined to be classified as Indicated Resource. Areas where the drilling grid is wider will have to be filled in to increase the level of confidence in the volumes.

17 Note: the figures presented here are not resource estimates – they are simply available gravel volumes outlined by the drilling programme. The resource estimates of these areas are described in section 16.3 and 17.1



11 SAMPLING METHOD AND APPROACH

11.1 Location During the period June 2005 to October 2007, a total of 2,648,300.95m3 of gravel (excluding tailings) was sampled from the Wouterspan C terrace (Fig. 11.1). During the period prior to February 2006, however, volumes processed were often estimated and not surveyed accurately. As a result, the reported figures for these volumes have been shown to be grossly inaccurate – typically resulting in overestimation of grades. Consequently, the production data for this period was not included for grade estimation purposes. However, since all the diamonds were recorded and sold, this information was included in average diamond size and value estimations. All of the bulk-samples were processed the entire gravel sequence in bulk – not separating Rooikoppie or basal and overlying alluvial (suspended/middlings) gravels. As a consequence, average diamond grades and sizes (Table 11.1) represent bulk values. Based on this data an average global grade of 0.71ct/100m3 was accepted as an average sample value. Table 11.1 Production data from Wouterspan for the period March, 2005 to 31 October, 2007.

Production Date

Volume (m3)

Total Carats Number of Stones

Grade (ct/100m3)

Size (ct/st)

Mar 2005 Tailings 16.67 11 1.52

April Tailings 120.36 67 1.80

May Tailings 261.62 124 2.11

June 56,000.00 357.77 255 0.64 1.40

July 32,643.81 280.5 176 0.86 1.59

August 44,717.14 550.42 300 1.23 1.83

September 45,678.57 301.72 168 0.66 1.80

October 71,717.14 599.3 268 0.84 2.24

November 95,160.00 630.85 303 0.66 2.08

December 46,414.29 312.68 188 0.67 1.66

Jan 2006 11,763.00 432.68 230 3.68 1.88

February 85,368.50 509.71 289 0.60 1.76

March 67,134.00 676.25 280 1.01 2.42

April 104,693.00 438.56 229 0.42 1.92

May 84,820.00 721.66 229 0.85 3.15

June 118,938.50 820.42 257 0.69 3.19

July 155,180.00 943.89 426 0.61 2.22

August 159,100.50 1,023.53 475 0.64 2.15

September 165,224.00 1,094.66 395 0.66 2.77

October 158,199.00 893.35 410 0.56 2.18



November 108,452.50 971.44 423 0.90 2.30

December 59,002.00 367.42 151 0.62 2.43

Jan 2007 56,732.00 439.27 183 0.77 2.40

February 86,092.00 651.27 356 0.76 1.83

March 110,614.00 864.18 462 0.78 1.87

April 60,438.00 318.43 167 0.53 1.63

May 113,744.00 438.86 269 0.39 1.63

June 119,635.00 791.98 353 0.66 2.24

July 110,343.00 1,118.48 505 1.01 2.21

August 124,514.00 684.15 345 0.55 1.98

September 94,602.00 700.87 308 0.74 2.28

October 45,144.00 354.86 165 0.79 2.15

Total (Feb 2006 - Oct 2007) 2,187,970.00 14,823.24 6,677 0.71 2.22

Grey highlighted months represent volume data for which the accuracy is suspect and, therefore, has not been included in the grade estimation. During 2008, one small bulk-sample from a higher (B?) terrace in the northeast of the property (Fig. 10.1) was processed at Wouterspan. Since this sample was not treated separately from the C terrace run-of-mine material it was not possible to determine the volume of the sample or to estimate grade and/or diamond values. This sample, however, confirms that the B terrace is diamondiferous. Once the Wouterspan mine has been re-commissioned, additional bulk-samples will be batch processed through the plant to determine it diamond carrying capacity. Although limited, reconnaissance drilling has been carried out on the Wouterspan A terrace, no bulk-sampling has taken place. As above, sampling will take place once the mine has been re-commissioned.



Figure 11.1 Location of bulk samples on Wouterspan C terrace (2005-2007)



11.1.1 Diamond Grade Estimation The average sample grade, after processing 2,187,970m3 of C terrace gravel (combined basal, suspended and Rooikoppie units) and recovering 14,823.24cts, (6,677stones) was 0.71ct/100m3 (at 2mm bottom cut-off). Moreover, as evidenced in Fig.11.2 on a monthly basis, the grade varied little – from 0.39ct/100m3 to 1.01ct/100m3. These minor variations were seen to compare well with sedimentological variations in the terrace deposits – it is apparent that there is a direct correlation between sedimentology and grade with higher grades being recovered from gravels which have fewer sandy lenses, better clast packing and larger cobbles/boulders in the oversize fraction, as would be expected.

Figure 11.2 Variation of average grades and diamond sizes

11.1.2 Diamond Value Estimation

11.1.2.1 Diamond Size Distribution The sampling programme recovered a total of 8,767 stones (18,703.51 carats) from March 2005 to 31 October 2007, giving an average stone size of 2.13ct/stone. The top and bottom diamond cut-off for the sampling programme was 30mm and 2mm respectively. The upper limit of 30mm, which allows for the recovery of diamonds of approximately 280cts in size, is as a direct result of the theoretical and practical expectation of large stones. The sample data size-frequency curve (Fig. 11.3) very closely approximates the calculated normal curve, with only minor aberrations in the lower portions (stones of approximately 0.2cts), indicating possible stone losses, potentially through processing issues. Since the percentage of stones present in this size category, and their realised value is, minimal, the effect on the total income is negligible.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

06-F

eb

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

Oct

ober

Nov

embe

r

Dece

mbe

r

Jan-

07

Febr

uary

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

Oct

ober

Cts/stone Grade



Figure 11.3 Cumulative frequency of bulk-sample stones from Wouterspan The cumulative frequency of the entire parcel indicates a well sorted diamond population with some 50% of the parcel above 1.6cts/st and almost 15% of the parcel over 4.5ct/st (Fig. 11.2). The production history of Wouterspan (Table 11.2) shows the frequency with which such stones have been recovered, with 14 out of the total of 8,767 stones being over 50cts in size. Table 11.2 Large Stones (+50ct) recovered from Wouterspan March 2005 – 31 October, 2007

156.95 71.80 152.11 62.90 132.20 61.33 98.24 57.33 86.35 50.98 78.65 50.86 78.62 50.65

In March, 2007 a regional comparison of the diamond size frequency of alluvial deposits and kimberlite deposits was completed by MM Oosterveld (Fig 11.4). This study also indicated that the Wouterspan area in the Middle Orange River region (MOR-WPAN curve) shows a relatively large stone size and a well sorted diamond population.



Figure 11.4 Comparison of size-frequency relationships between various alluvial diamond areas

(Oosterveld, 2007)

11.1.2.2 Diamond Sales Small diamond samples (less than 2,000 carats) are not likely to be truly representative in terms of their average recovered sales values. Nowhere is this more apparent than for samples where large diamonds are recovered intermittently, such as is the case here on Wouterspan. However, the total carats sold from Wouterspan exceed 17,000 – 13,116.50 of which have been since March 2006 (Table 11.3). Over 5,000cts were sold previously, but sales figures are incomplete and so this data has not been included in the sample results.

99.99

99.9599.9099.8099.5099.0098.00

95.00

90.0085.0080.0070.0060.0050.0040.0030.0020.0015.0010.00

5.00

2.001.000.500.200.100.05

0.01

-3.72-3.72

0.01 0.1 1 10 100

Perc

enta

ge C

arat

s Gre

ater

than

Z

Carats per Stone (Z)

VE-KLIPGAT VE-HLP VE-ZOUTPAN

SW-RIVERVW BW-HOLPAN MOR-WPAN



Table 11.3 Diamond sales data for March 2006 to October 2007

Date of sale Carats sold USD value USD Fx rate USD/ct March 06 532.58 557,721.45 6.26 1,047.21 April 06 421.57 591,713.65 6.12 1,403.60 May 06 590.12 778,944.66 6.42 1,319.98 June 06 458.82 1,061,264.96 7.15 2,313.03 July 06 898.73 2,136,364.14 7.01 2,377.09 Aug 06 959.88 1,127,805.38 6.94 1,174.94 Sept 06 444.87 463,381.02 7.31 1,041.61 Oct 06 1,123.07 6,454,273.06 7.60 5,746.99 Nov 06 1,154.26 2,554,578.64 7.13 2,213.17 Dec 06 No sale in December Jan 07 796.14 3,901,090.99 7.33 4,900.01 Feb 07 721.57 676,727.24 7.25 937.85 March 07 565.23 490,424.89 7.33 867.66 April 07 0.00 1.00 May 07 1,149.19 1,654,822.47 6.98 1,439.99 June 07 777.95 1,551,781.07 7.21 1,994.71 July 07 418.85 969,172.16 7.00 2,313.89 Aug 07 621.88 2,474,388.65 7.27 3,978.88 Sept 07 No sale in September Oct 07 1,481.79 2,006,149.02 6.43 1,353.87

TOTAL 13,116.50 29,450,603.46

6.35 2,245.31

11.2 Mining and Processing of Samples

11.2.1 Mining/Excavation Methodology

The upper 2-3m of the fluvial-alluvial sequence is calcreted to varying degrees – usually to laminar or hardpan levels. As a result, prior to excavation, the sample block was blasted, typically on a 5x5m grid. This has the effect of breaking up the hard calcrete carapace without damaging diamonds. The broken calcrete material was then stripped off using hydraulic excavators. Varying depths of calcretisation means that some of the upper gravel layers are also highly cemented. If this material was simply excavated and then loaded, large amounts of calcreted gravel chunks (Plate 17.1) would be sent to the plant. Due to the nature of these chunks, unknown numbers of diamonds would be locked up and lost to the recovery system.



Plate 11.1 Chunks of calcreted gravels that might lock up unknown quantities of diamonds However, in order to mitigate against this problem, prior to excavation, the gravels were ripped by one of two D475 (Komatsu) bulldozers (Plate 17.2). This effectively liberates the gravels (and the diamonds) from the calcrete matrix. The disaggregated material was then loaded by excavator, onto articulated dump trucks (ADT’s) and transported to the plant site for further processing.

Plate 11.2 Ripping and excavating of the calcreted fluvial-alluvial gravel samples on Wouterspan During the sampling period, in-pit screening was not possible due to the lack of sufficiently robust screens (able to handle the throughput of calcreted gravels) available on the market.



11.2.2 Sample Processing Twelve 16 ft rotary pan-plants were used to process gravels on Wouterspan. Processing capacities (ROM) on these plants is approximately 312 tph. The screened gravels (-70mm) were stockpiled and processed according to standard operating procedures (Fig. 11.5). Material for the rotary pan plants was fed into the plants by front-end loader. Magnetic separation of the iron-rich component of the plant feed is of crucial importance to successful diamond recovery when using rotary pan plants in the Middle Orange River region due to the fact that the predominant BIF component of the gravels has a high density and can displace the diamonds. Magnetic separation was through a static magnet suspended above the individual pan feed belts (Plate 11.3). This process is capable of removing in the order of 60% of the BIF component of plant feed.

Plate 11.3 Magnet suspended above plant feed belt to separate out the BIF clasts The plant feed bin feeds into the primary, “Trommel” screen, which both disaggregated the gravel and screened it at 30mm. All oversize material was trucked away from the plant site and dumped into open excavations as part of the rehabilitation process. The undersize material (-30mm) was fed directly into the rotary pan plants. The float fraction (light material) was discharged onto a double deck screen, the top deck of which is utilised as a relieving deck allowing for more efficient screening on the bottom deck which removes -2mm material. Undersize material and slurry from the screen was pumped to a separator cyclone situated above the pan tailings conveyor. The cyclone underflow discharged on a single deck screen directly onto the tailings conveyor, whilst the cyclone overflow discharged into a sump, which was then pumped directly to the mine residue deposit. The oversize tailings were transported via conveyor belt to the pan tailings bin where it was combined with the separator cyclone underflow, after which it was trucked to the relevant tailings dumps.



The concentrate from each pan was removed as a batch from the pans using individual screw conveyors. The concentrate from each pan was then combined and transported along a conveyor belt to a dewatering screen. Screened oversize material discharged onto a conveyor belt which transported the material to a concentrate bin. Screened undersize gravitated to the central sump where it was de-gritted. The -2+0.6mm fines were pumped to the coarse tailings residue disposal bin (and used for rehabilitation, along with the light tails from the pan plants). The -0.6mm fraction was pumped to the mine residue facility. Pan concentrate was withdrawn from the bin using vibrating feeders onto conveyors to the classifier, and from there to the seven X-ray FLOWSORT recovery units (Plate 11.4). The waste from the FLOWSORT recovery units was fed to an attrition mill, via a classifying screen, to the Grease plant, which comprises a coarse and a fine stream.

Plate 11.4 Three of the seven X-Ray recovery FLOWSORT machines The FLOWSORT machines operate simultaneously, each processing a specific fraction for purposes of efficiency and optimisation. The fractions that were treated during the sampling programme were +2-5 mm, +5-10 mm, +10-20mm, +20-30mm, though modifications to this configuration can be easily undertaken.



Figure 11.5 Flowsheet for the Wouterspan sampling (Rockwell, 2007)

ORE RECEIVING SECTION

PALEO

ORE

ROOIKOPPIE

ORE

TROMMEL SCREEN SECTION

(2 MODULES)

DE-MAGNITISATION, SCRUBBING

& SCREENING

SECTION (12 MODULES)

RECOVERY

PLANT

DEGRITTING SECTION

(2 MODULES)

COARSE TAILINGS DISPOSAL

BIN

RREEHHAABBIILLIITTAATTIIOONN

SLIMES DISPOSAL

COMBINED PAN

SECTION (12 MODULES)

STOCKPILE FOR

SURGE CAPACITY

-400MM

-70MM

-400+70MM

-2MM

-30+2MM -2+0.7MM

-70+30MM

PUDDLE

-0.7MM

CONC.

TAILS

ALTERNATIVE



11.3 Drilling, sampling and recovery factors 1. Details regarding drilling, gravel thicknesses, and geological controls on deposition are presented in

Section 7 (Deposit Types) Section 8 (Mineralisation) and Section 10 (Drilling) and will not be repeated here.

2. A number of issues peculiar to alluvial diamond sampling in general have, however, been identified. These impact specifically on the size of the samples and the complexity of statistical estimations. Low grades

The grade of a diamond deposit is the estimated number of carats contained in one hundred tonnes (cpht) or hundred cubic metres (ct/100m3) of gravel and, typically, averages ≤ 1cpht (roughly equivalent to 0.001 -0.0001ppm) for inland South African alluvial deposits (Lock, 2003).

Low homogeneity of diamond distribution Individual diamonds are not evenly or uniformly distributed throughout an alluvial deposit; neither are they randomly distributed. Rather, their distribution has been described as a random distribution of clusters of points (Fig. 11.6), where the clusters are both randomly distributed in space, and the point density of each cluster is also random (Rombouts, 1987).

Figure 11.6: Schematic distribution of alluvial diamonds within an alluvial deposit – random distribution of clusters of points (Rombouts, 1987).

Large individual diamond size Diamonds constitute discrete units of varying size (weight). In all of the inland alluvial deposits of South Africa, average diamond sizes are in the range of 0.5-2.0ct/st. Consequently, they form discrete particle deposits as opposed to disseminated particle deposits. Often the size and value distribution from stone to stone is erratic and it is possible that the majority of the value of a parcel is attributed to a single stone.

Lack of associated minerals or geochemical signature In contrast to kimberlite deposits, alluvial diamond deposits are not characterized by any standard (or deposit-specific) satellite/indicator mineral assemblage that may occur in higher, more easily measureable, concentrations than the diamonds. Neither do the deposits have any associated geochemical signatures that can vary according to diamond grade (or any other geological characteristic).

Grade variation In a single gravel unit (or even within a few metres), diamond grades may vary from barren to over 100cpht, due to the development of localized trap-sites under favourable bedrock conditions, or hydraulic fractionation within a channel or bar. Consequently, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples.

Depositional environments Alluvial streams are highly transient environments. The braided channels are unstable through time and gravel bars are formed and destroyed continuously. Shifting bars and channels cause



wide variations in local flow conditions resulting in varied depositional assemblages. Common features in braided stream deposits include irregular bed thicknesses, restricted lateral and vertical variations within the sediments, and abundant evidence of erosion and re-deposition. On a broad scale, most deposits are complex with units of no great lateral extent. Locally, bedrock features play an important role in diamond concentration of the alluvial deposits, with diamonds occurring preferentially in natural traps such as gullies, potholes and gravel bars and, typically, reworked through one or more post-depositional colluvial or eluvial.

In order to account for all of these issues, alluvial diamond deposits can only be sampled through bulk-samples comprising tens-hundreds of thousands of cubic metres of gravel. Bulk-sampling is completed in much the same manner as the production mining would be, except on a smaller scale. With positive results, bulk-sampling naturally progresses to trial-mining, during which all of the modifying parameters are determined to allow a decision of whether to proceed to full production.

3. Diamond recovery is dependent on mechanical recovery through the application of physical

properties of both diamond and gravel – density and size variation (to concentrate the heavy mineral portion from the bulk gravel) and fluorescence and wettable properties of the diamond during final recovery. The processing and recovery plants are affected by various issues such as the nature and amount of calcrete in the gravels as well as the amount of clay in the matrix.

11.4 Sample Quality

Grade variation in alluvial deposits has always been a contentious issue – however, practical experience has shown that the larger the sample, the more it is possible to mitigate against such variability: • In 2006, De Decker had reported preliminary expected grades of 0.4-0.5cpht (estimated 0.5‐

0.8ct/100m3). This was based on regional averages as well as from just over 500,000m3 of gravel processed by HCVWD, which returned a sample grade of 0.55ct/100m3.

• In March of 2007, Clay & McKenna reported an average grade of 0.63ct/100m3, as determined from 14 months of bulk-sampling. The increase in sample grade is assumed to be due, partly to improvements in processing methods and partly to variations introduced by a significantly larger sample.

• The average sampled grades in 2007/2008 had increased to 0.7ct/100m3. This increase was attributed to the improvements made by Rockwell in both mining and processing. For example,

• Using bulldozers to break up the gravel before it is loaded and sent to the plant has the effect of liberating many more diamonds from the calcrete matrix than was previously the case when mining only with excavators and;

• Initially the gravel was processed through a single magnetic-separator plant, comprising of four parallel belts above which a static magnet was suspended. This process was improved by doing away with the single plant and installing individual magnets on each of the 12 pan-plants, effectively trebling the efficiency of the removal of BIFs. This, in turn, lowers the density of the puddle and decreases the chance of losing diamonds with the lighter pan-overflow.

Since the grades reported are averages, with no distinction between basal units, suspended gravels or Rooikoppie deposits, nothing is known regarding the relative contribution of each of these different units. All of the bulk-samples were processed the entire gravel sequence in bulk – not separating Rooikoppie or basal and overlying alluvial (suspended/middlings) gravels. As a consequence, average diamond grades and sizes represent bulk sample values.



11.5 Representativeness All the sampling, to date, has been on the C terrace. No bulk-sample results are available from the higher B terraces. As can be seen from the sampling map, the bulk-samples on the C terrace have not been taken along a systematic grid, neither are they sited so as to sample specific horizons. The key reasons for this are: • the extremely large size of the sample (refer Section 8 for details on diamond distribution patterns). • the anticipated mining plan for the properties is based on high volumes (and low grades) and,

therefore, the samples have to address average recoveries. Consequently, samples are not sited so as to intersect areas of anticipated higher (or lower) grade.

• the mining plan combines both Rooikoppie (colluvial) and fluvial-alluvial gravels. As a result, these units have not been sampled separately.

As can be seen from Fig. 11.1, the sampling has been concentrated on the northern “channel” identified in the drilling (on Re/Portion 9). Historically, this was due to the thinner overburden and, subsequent, ease of access to the basal gravels. No samples have yet been situated in the deeper sections of the central, large channel target. The same is true respecting the southern channel area. Although gravels from this feature are being mined on an adjacent property, there are no results available from the company. Rockwell will also need to expand their sampling programme to include these gravels before including them in the resource report. The gravels sampled for grade are all located within the northern portion of the property, in a relatively shallow channel feature on the shoulder of the deeper main channel. The drill data indicates that he northern channel and the main channel may have similar broad sedimentology, but is likely to differ in detail. Consequently, although it is suspected that the average recovered grades from the two areas will be similar, additional sampling will be necessary in this area before it can be included in the resource statement.



12 SAMPLE PREPARATION, ANALYSES AND SECURITY Due to the nature of alluvial diamond deposits, samples are not taken for assay as would be normal for precious or base metal prospects. Gravel bulk-samples are processed through Rockwell’s plant to determine average sample grade and the recovered diamonds are then sold on the open market for a determination of value. Consequently, no samples are dispatched to any analytical or testing laboratories. Further, sample splitting and reduction methods are not employed. Since the samples were processed through Rockwell plant, Rockwell personnel were involved from the excavation of the gravels through to the final recovery of the diamonds. However, no officers or directors of Rockwell are involved in any part of this process. The procedures of the recovery processes have been described in detail in section 11.3. Further, section 13 describes the processes employed by the authors to verify and validate the results. As described above (in Section 11), alluvial diamond deposits can only be sampled through bulk-samples comprising tens-hundreds of thousands of cubic metres of gravel (often referred to as trial-mining). Further, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples of tens of thousand cubic metres in size. Consequently “check-samples” such as are standard in the precious and base-metal industries, are not possible.

12.1 Sample Security On the plant and final recovery, all areas where access to gravels and, especially, concentrate, was possible, were fenced or caged off (Plate 12.1).

Plate 12.1 Security caging on all sensitive parts of the processing plants



The area around the sort-house was declared a Red Zone and enclosed with high-security fencing (Plate 12.2) and monitored by surveillance equipment.

Plate 12.2 Container unit in which the grease plants were housed In the final recovery, all of the FLOWSORT concentrates were sent directly to a twin-locked secure box before they were hand-sorted in a glove box. The entire FLOWSORT plant was containerised for security. Access to all areas of the final recovery was controlled and monitored by protection personnel. A minimum of two Rockwell personnel were present whenever diamonds were sorted.

12.2 Tracer testing In order to determine the level of accuracy of the concentrating and final recovery plants, density tracers are used extensively during bulk-sampling operations. Density Tracers are plastic particles which incorporate powders or other materials to impart suitable combinations of properties including density and colour. They are used to determine partitioning characteristics of density separators and other units accurately, rapidly and at low cost. Density tracers with densities spanning the range of interest are added to the circuit feed and retrieved from the product and rejects streams, manually or with the assistance of magnets or X-ray sorters. After retrieval they are sorted into their various densities, and the resulting data are used to plot a partition curve. The form of the curve can indicate whether the metallurgist should take actions such as adjust medium density, replace a worn circuit component, or correct an overload or medium instability situation. On a daily basis, and more often when problems were identified, 40 tracers (10 of each of the 3mm, 5mm, 8mm and 10mm blocks (supplied by Partition Enterprises of Brisbane, Australia) were fed, at random, into different parts of each processing plant to test the recovery efficiencies of the system.



The tracers were fed primarily into the launder chute feeding the pans, but also into the classifier and directly into the X-ray Flow Sort itself. The recovery of the tracers is to be noted in the daily production report and incorporated into the final database. The recovery of the tracers is done by the diamond sorters and all inconsistencies are reported immediately to the Senior Operations Manager. In the opinion of the independent QP, the procedures taken by Rockwell, with respect to sample preparation and security, are reasonable and well executed and within accepted industry standard.



13 DATA VERIFICATION Procedures and protocols govern every phase of data collection – from drillhole location, through bulk-sampling and processing, to final recovery and sales. The independent QP was involved in the drafting up of these protocols and they are reviewed, updated and audited regularly – during each site visit, during the compilation of the technical report and prior to the initiation of a new phase of exploration or mining. Spot checks are carried out by the independent QP on various aspects of the operation during site visits and, in the opinion of the independent QP, the procedures, as applied on Wouterspan, are adequate and well executed by Rockwell staff and are adequate for resource estimates. As part of the data verification and resource estimation processes the independent QP and the Mineral Resource Manager (MRM), Rockwell’s non-independent QP, work closely together at each step. Prior to the initiation of new procedures and protocols which may impact on resource estimation results, discussions are held on the potential implications for both short and long term gravel volume, and diamond grade and value assessments. Further, the independent QP audits (both interactively and independently) the procedures used by the MRM to produce the resource estimates and models. It is, however, important to note that, although every data verification and resource estimation process is reviewed and audited by the independent QP, Rockwell also evaluates these issues in parallel, as part of their internal corporate responsibility. Any discrepancies, as well as potential issues, are thus identified by both parties separately and combined and are dealt with before they can become problems. While the MRM has overall control and responsibility for the resource evaluation programme, QA/QC for individual portions of the project are the responsibility of the designated individuals. The standard of record keeping was found upon inspection to be very high and there was sufficient evidence to show that the internal checks referred to above were being carried out on a regular basis. Among the internal checks performed by Rockwell (and reviewed regularly by the independent QP) to ensure that data is complete and accurate are: • drill-logs are checked and signed off by two different individuals; • gravel volumes are reconciled by exploration/survey and operations personnel; • the production records are examined by the management for inconsistent or unexpected data; • management reconciles the data from the diamond recovery log, mine registry, production records,

register of diamonds recovered, and sales slips and; • management regularly audits the buyers’ records of transactions to ensure that they agree with the

sales slips received. In addition, the audit firm KPMG (Johannesburg) also reviews these records annually.

• Advanced computer/network security and backup measures are applied regularly, ensuring minimal disruption in the case of computer failures.

The geological database is the critical starting point to effective resource and reserve estimation and maintaining the integrity of the database is fundamental. In order to verify the integrity of the data and to ensure compatibility across all of Rockwell's properties, the database is routinely processed through DatashedQAQCTM, a database programme which enforces compliance through various protocol levels. All drill data is captured by the Database Manager to ensure continuity and verified by the geologist who logged the hole. The independent QP has audited the borehole drilling and logging process from beginning to end, and regularly makes spot checks on the operation during each site visit. During July 2009, a data audit was completed for the Rockwell Diamonds Inc Database by Maxwell GeoServices of Australia. This audit was conducted on the data that had been added to the database up to July 2009. Not only was the audit performed on the data, but the data was moved to the Maxwell MDM 4.4.2, which includes a number of new tables to better capture future data. This database has all



the statutory triggers and foreign keys in the database. During the database audit, a number of minor issues were identified which needed attention. In response to this audit, Rockwell’s database manager updated and verified all recommendations (completed January 2010). A copy of both the Maxwell audit and the Rockwell update documents were forwarded to the independent QP. Mined volumes are sent to Rockwell under certificate from an independent professional surveyor and subsequently captured onto the production database by the Database Co-ordinator and verified by the MRM. The procedures and protocols of the surveyor have been reviewed by the independent QP and found to be in accord with industry standard. In addition, the surveyor provides a DTM of the area surveyed to Rockwell. This DTM is imported into SURPAC, which then calculates the volume of the mined area. If the computer calculated volume differs from the surveyor’s volume by more than 5% then the area is re-surveyed. Further, if subsequent mine grades are unexpectedly high or low, the volumes are re-checked or potential errors. This is routinely done by Rockwell staff and reviewed by the independent QP All diamond data (total carats and total stones as well a list of every individual stone recovered) is recorded on the relevant mine and forwarded to the Database Co-ordinator who adds it to the database. Verification and change reports are used to track changes to the digital database by the Database Co-ordinator; copies of which are forwarded to the MRM. The independent QP receives and reviews this data regularly. Payment for diamond parcels is always received by electronic transfer and a formal broker’s note is provided from the buyer and this also serves to indicate compliance with the Kimberley Process. This data is, subsequently, added to the production database. The author has examined each brokers note and found them all to be present and correct. As has been described in section 11 of this document, alluvial diamond deposits can only be sampled through bulk-samples comprising tens-hundreds of thousands of cubic metres of gravel (often referred to as trial-mining). Further, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples of tens of thousand cubic metres in size. Consequently “check-samples” such as are standard in the precious and base-metal industries, are not possible. As a result, the author has had to rely substantially on the production and sales data collected by all the operational personnel. Random sample data have, however, been verified by the independent QP who has audited the information from drilling to modelling. The author has, furthermore, examined all of the original production and sales data files used in the resource estimation process. With respect to both exploration and development programmes and budgets (referred to in sections 18 and 19), the independent QP has consulted with Rockwell's Mineral Resource Manager, Rockwell’s COO and CFO. During these consultations, all exploration and mining plans, costing exercises, formal quotations and final budget numbers were reviewed. All processes and the results have been found to be reasonable.



14 ADJACENT PROPERTIES

Diamonds have been mined from a number of properties around Wouterspan (refer Fig. 5.1). • Rockwell owns the Saxendrift Mine, across the Orange River from Wouterspan; • Niewejaarskraal Project and the advanced prospecting projects on Zwemkuil and Remhoogte were

once owned/operated by THO. Niewejaarskraal mine, previously on care and maintenance has been acquired by Rockwell and is currently being refurbished with the objective of re-starting production during 2011/2012.

• Brakfontein, also, once formed part of the THO stable, but is now owned by African Vanguard Resources (“AVR”). Currently, very little activity is taking place on the upper A terraces that are located on this property, although a professional digger has recently been appointed as a contract miner to the landowner.

• Jasper Mines, a subsidiary of AVR, mined gravel from the lower B- and C- terraces on a separate portion of brakfontein during 2007/2008, but this operation has since ceased.

• KIG Mining PLC has obtained the BRCDiamondCore properties on the farms Silverstreams, Muishoek and Uitdraai (downstream from Niewejaarskraal) that have been on Care & Maintenance since 2008.

• Reho Mining / Sonop Diamante were mining on Elsiesdrift (a portion of Wouterspan), adjacent to Wouterspan. This operation was closed in 2008 as a result of the depressed diamond price.

Only the Saxendrift Mine and Elsiesdrift operations (Fig. 14.1) will be described here, since the mineralisation on all the other properties are broadly similar.

Figure 14.1 Numerous properties around Wouterspan have been prospected for diamonds

Wouterspan Mine

Niewejaarskraal Mine

Elsiesdrift prospect



14.1 Saxendrift Mine Saxendrift is situated on the south bank of the Orange River some 60 km downstream from the town of Douglas in the Northern Cape Province. The mine comprises high and upper level diamondiferous gravel terraces (Terrace A and B). Historical mining activity focussed on the unconsolidated Rooikoppie gravels overlying the calcrete layer, while later operations were developed mainly on the underlying fluvial-alluvial deposits (Plate 14.1).

Plate 14.1 The A terrace on Saxendrift, showing fluvial-alluvial gravel sequence overlain by extensive Rooikoppie deposits

Lower, intermediate and upper terraces of Cainozoic age are present on Saxendrift. Three main terrace areas, belonging to the intermediate and upper terrace groups, namely Terrace A (+ 70 m elevation), B and C (+ 50 m elevation) have been identified and targeted for exploration and mining on the properties that comprise the Saxendrift mine. The deposits of all these terraces overlie an unconformity based on bedrock comprising diamictite and shale of the Carboniferous-Permian Dwyka Group (Karoo Supergroup). Bedrock is exposed at the base of the terrace deposits, especially in some northwest-flowing tributaries of the Orange River. The Dwyka Group is generally slightly weathered and calcretised over a depth of 1 -3m immediately below the unconformity. Because of the relative soft nature of the Dwyka the bedrock surface is generally rather smooth with only local undulations that afford better trap sites for diamondiferous basal lag gravels. Red windblown (Kalahari) sand covers parts of the southern portions of the two properties and often forms the matrix of Rooikoppie gravels, especially where these have gravitated down-slope to form "secondary" fan deposits. Rooikoppie gravels represent a deflation deposit formed on top of the calcrete. The deposit is pervasively stained red by Fe-oxide and the rounded to sub-rounded clasts (pebble to cobble size) comprise only the most resistant siliceous and ferruginous clasts (i.e. banded iron formation, quartzite, quartz, chert, agate, etc.). There has generally been a down-slope gravitational migration of Rooikoppie gravels with time causing an apron of secondary (reworked) Rooikoppie gravel to form at the foot of the scarp and along small recent streams or "runs" on the calcrete surface.



The upper layer of hardpan calcrete is generally very hard and has to be blasted or ripped with specialised machinery. Where gravel layers have been affected by the calcretisation process the calcrete has to be crushed before treatment. The matrix of upper layers of "primary" gravels and sands underlying the surface calcrete are generally calcretised as well but the degree of calcretisation decreases with depth, thus facilitating more efficient liberation of diamonds. The primary palaeo-fluvial succession comprises various proportions of gravel, sand and silt. Cross-bedded, fine-grained to granular sand layers and lenses reflect lateral stream migration and point bar build-out. Stacked, upward fining sand to pebbly sand to gravel cycles generally represent channel fill deposition. Very fine-grained silty sands reflect upper meander deposits that formed prior to meander cut-off (ox- bow lake phase). Massive, clast-supported gravel beds are generally chaotic without any visible gradation or layering. Most of the primary sedimentary features have been destroyed by the subsequent calcretisation. The poorly sorted gravels vary from pebble to cobble gravels, generally with a fair percentage of boulders (rarely + 1m diameter). Interbedded sandy or granule beds and lenses occur frequently in more sandy, matrix supported gravel successions. Clasts are generally rounded to well rounded and polished. Clast types include Ventersdorp and Drakensberg lava, banded iron formation, quartzite, dolomite, chert, agate, chalcedony, jasper and variably coloured, rounded quartz amygdales and zeolites derived from the lavas. The primary Cainozoic sedimentary succession underlying calcrete on Saxendrift represents ancient fluvial channel and point bar deposits formed in cut-off meanders (ox-bows) of the palaeo-Orange River. It varies in thickness from 3 - 20 m, increasing in thickness towards the last channel position before abandonment. Channel migration and switching is manifested by channel-in-channel incision and local unconformities at various places in the succession leading to complicated stratigraphic successions and internal variations in gravel thickness and distribution within terraces. Large-scale lateral facies changes, recorded by systematic drilling of the terrace deposits, reflect lateral channel migration prior to meander cut-off. During 2010, a mineral resource/reserve statement was prepared for the properties that make up the Saxendrift mine (Table 14.1), identifying significant resources as well as additional exploration targets. The mineral resources at 30 November 2010 were estimated by Rockwell’s Manager, Resources, G. Norton, (Pr. Sci. Nat.), a qualified person who is not independent of the Company and reviewed by Dr T.R. Marshall, (Pr. Sci. Nat.), a qualified person who is independent of the Company and is responsible for the estimate. Table 14.1 Mineral resources and reserves estimated on Saxendrift Mine (30 November 2010)

MINING AREA RESOURCE/RESERVE CLASSIFICATION

VOLUME (m³)

GRADE* (ct/100m³)

Value# (USD/ct)

Terrace A Probable Reserve 4,859,900 0.50

2,029 Terrace B Indicated Resource 1,774,600 1.15 Terrace A Inferred Resource 5,400,000 0.50 Terrace B Inferred Resource 86,000 0.68

Kwartelspan prospect Inferred Resource 500,000 1.00

∗ At 2mm cut-off



14.2 Elsiesdrift (Lanyonvale portion of Wouterspan) During 1925 - 1950, portion of the farm Wouterspan (Portion Lanyonvale) was proclaimed as State Diggings. During this period, according to the South African Diamond Board, diggers processed Rooikoppie gravels developed in makondos on the lower and middle terraces, totalling some 30,000cts. Exploration on the adjacent farm Beatrys (another portion of Lanyonvale) was completed by African Selection Trust Exploration (Pty) Ltd (“AST”) in 1982. AST treated 11,864 tonnes of gravel from seven bulk sample sites situated on the lower terrace. This sampling programme was limited to treatment of the Rooikoppie gravel and the upper part of the lower terrace. Only in one sample did AST manage to reach bedrock. This was also the sample (except Rooikoppie samples) which produced the highest grade (0.48 cpht). This information, which was reported by De Decker and Associates (2006), has not been independently verified by the author and is not necessarily indicative of the mineralisation on the property that is the subject of this report. During 1997, Mr. Sakkie Smit, a local digger operating as Quattro C, worked on a small portion of the lower terrace on Beatrys, ±25m above and 200m from the Orange River. He reportedly recovered a 201ct stone from a small excavation (some 50 m x 30 m) which sold for R17 million, as well as several other stones totalling some 100 carats. Reho Mining (Pty) Ltd, in conjunction with Gemrock Exploration and Mining (Pty) Ltd, and Sonop Delwery CC, were prospecting (bulk-sampling) on two portions of Lanyonvale (Elsiesdrift), downstream from Rockwell’s holdings (Plate 14.2). According to their 2007 Prospectus, Reho planned a detailed evaluation of their property through drilling and bulk-sampling expecting to cost some R4 million. During the second half of 2008, this operation was shut down, as a result of the global economic slowdown and Reho went into liquidation in July 2009.

Plate 14.2 Reho Mining / Sonop bulk-sampling operation downstream adjacent to Rockwell.



A visit to the property indicates the presence of gravels (Plate 14.3) that look similar to the gravels previously mined by Rockwell on the Wouterspan C-terrace. No resource, diamond grade or value information is publicly available from this property. Personal discussions with the operator indicated that grades/values were similar to that recovered on the adjacent Wouterspan bulk-sampling operation. This information has not been independently verified by the author and is not necessarily indicative of the mineralisation on the property that is the subject of this report.

Plate 14.3: Gravels on the C terrace on Elsiesdrift portion of Wouterspan



15 MINERAL PROCESSING AND METALLURGICAL TESTING This section covers the mineral processing and diamond recovery (trial-mining18

) which was initiated on the Wouterspan project during May to November of 2008 (after which the mine was put on Care & Maintenance as a direct result of the collapse in the rough diamond price). The excavation of the gravel as well as the method of processing and the final recovery of diamonds were identical to that employed during the bulk-sampling process. These have already been described in Section 11.2 and 11.3 and will not be repeated here. Up to October 2008 a total of some 3,200,593.95m3 of gravel was sampled (Fig. 10.1).

Figure 15.1 Location of mining operations on Wouterspan during 2008

18 The 2005-2007 programme, during which previous results were confirmed, formed part of Rockwell's bulk-sampling programme on the Wouterspan mining area (reported on in the 2008 and 2009 Technical Reports on the Wouterspan properties by Marshall and Norton). During 2008 a trial-mining and pre-feasibility study were initiated on the C-terrace gravels. During 2009/2010, however, this project was put on Care & Maintenance as a result of the international economic downturn. Nevertheless, Rockwell took advantage of this quiet time to continue with engineering and planning studies on these deposits, which could be resumed once production recommenced.



The results of the 2008 trial-mining programme have been sufficient to allow detailed studies of mining and processing methods to begin. However, additional testing will need to continue once the operation has been re-commissioned. Once the mine starts up, another 10-12 months of production-level operation will be necessary to advance the pre-feasibility study to a level where mineral reserves may be discussed.

15.1.1 Results

15.1.1.1 Grades During the period March - November 2008, the resources on Wouterspan were depleted by mining activities (Table 15.1). All of the gravels mined during this period were from previously identified Indicated Resource areas. Some 100,000m3 of Rooikoppie and 452,293m3 of calcreted fluvial-alluvial gravel (for a total of 552,293m3 was processed to recover 3,896.42ct at an average grade of 0.70ct/100m3. Although the volumes of Rooikoppie and Fluvial-Alluvial gravels are estimated separately, the processing combines them, so separate grade estimation was not possible. Table 15.1 Production results for Wouterspan March-November, 2008

15.1.1.2 Diamond Size Distribution During October 2008, Dr M M Oosterveld was asked to compare the diamond distributions of Wouterspan over the years of production and also to compare it with the rest of Rockwell’s mines (Oosterveld, 2008). Except for 2005 when a smaller average stone size was apparent across the property, the results show distinct similarities (Fig. 15.2a). The large stone size end of the distribution shows the normal irregularities caused by the incidental recovery of large stones. During 2006 the large stone recovery was higher than in the other years. The average stone size during 2008 was high for the Farhom portion of Wouterspan mine at 2.847 cts/st (but based on only 101 stones) and for HCVWD at 2.667 cts/st while the average stone size for the Okapi portion was small at 1.792 cts/st. These average sizes appear to be somewhat inconsistent in comparison with 2007 in which

2008 Volume (m3) Carats Grade Stone Size

Mar 77,087 473.11 0.61 2.40

Apr 87,931 578.59 0.66 2.14

May 77,222 568.60 0.74 2.16

Jun 48,798 257.92 0.53 2.03

Jul 44,563 248.96 0.56 1.72

Aug 27,468 201.24 0.73 2.61

Sep 51,285 355.08 0.69 1.76

Oct 74,365 567.85 0.76 1.67

Nov 63,574 645.07 1.01 1.58

Total 552,293 3,896.42 0.70 2.15



Farhom produced an average size of 2.08 cts/st and Okapi 2.22 cts/st. The general impression is that the overall diamond size frequency for Wouterspan is fairly constant but local variations do exist. The number and the cumulative number of large stones per year and per size class were plotted. Because of the different number of stones produced per year the graphs run parallel. To make them comparable the cumulative number of stones for each year was proportionally adjusted to 22,039 carats per year. Fig. 15.2b shows that after this adjustment the annual graphs lie very close together. Above 10 carats the results become more variable because of the variability in the occurrence of large stones related to the small number of stones recovered above this size. To forecast the number of large stones to be expected the cumulative number of stones in the classes larger than 6 cts/st were used. The forecast was obtained by fitting a straight line to the observed values between in the 6 carat and 30 carat classes (>6cts/st to <40cts/st). It is apparent that for the 2005 to 2008 period only two stones larger than 100 carats were observed while the forecast indicates that five stones should have been recovered. On average, the largest stone recovered in 22,039 carats could have been in the order of 250 carats. In a normalized production of 50,000 cts, Wouterspan would have recovered 13 stones larger than 100 carats while only five were observed. This deficiency of large stones is considered by Oosterveld to be caused by the non -recovery of these stones due to the treatment plant characteristics. It is, also, thought possible (but not likely) that these stones were not present in the source diamond population.

(a) (b) Figure 15.2: (a) Diamond size distribution and (b) Observed and forecast of large stones for

Wouterspan (Oosterveld, 2008)



15.1.1.3 Diamond Values During 2007 the average sales value was USD2,290/ct. The high average diamond value was attributed, in part, to the worldwide increase in the value of gemstones as well as to the recovery of a number of large (+50ct) stones during the production period. During March – October 2008, however, over 2,000cts were sold from Wouterspan for an average of only USD1,511/ct (Table 15.2). During this period, there was a decrease in average diamond value of some 33% from the previous year –reflecting a drop in the average size of the diamonds recovered from the Wouterspan operation, combined with general decreases in international diamond prices towards the end of 2008. Table 15.2 Sales data for the Wouterspan operation

Carats sold USD/ct value Mar-08 - -

Apr-08 790.98 1,559.13 May-08 475.92 1,566.33 Jun-08 659.12 1,130.98 Jul-08 - -

Aug-08 434.44 1,462.45 Sep-08 269.70 1,886.20 Oct-08 43.70 3,960.00

TOTAL 2,673.86 1,511.39 Subsequently, Rockwell halted production from Wouterspan until diamond prices were to recover sufficiently to ensure profitable operations. During this time, the company would plan to build and commission a processing plant that would be better able to deal with the declining average diamond sizes recovered from the operations.

15.1.2 Representivity As can be seen from Fig. 15.1, the trial mining has been located on a portion of the C terrace. This information is thought to be representative of the area drilled out, but it cannot be representative of areas which have been neither drilled nor sampled.



16 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES

16.1 Resource Estimation None of CIM, SAMREC, or JORC definitions deal specifically with the peculiarity of alluvial diamonds when it comes to resource or reserve estimations. The reason for this is that, typically, alluvial diamond companies have not, historically, been significant public companies (other than De Beers) that have required guidance in these matters. Since resources have “a reasonable expectation of economic viability”, CIM requires cut off grades to be estimated for resources as well as reserves. Cut-off grades are better defined through feasibility studies that establish reserves. For reserve definition, different cut-off grades are applied to different deposits or sections of a mine at different times. Cut-off grades can vary as average ore value changes (e.g. diamond market conditions, exchange rate, diamond size variations) or as operating cost factors vary (e.g. amount of overburden, haul distance). Reserves for alluvial diamond mining inevitably change as deposits are mined. The Indicated and Inferred Resource categories used in this Report follows the CIM definition19. The resultant estimations are materially similar to those set out in the SAMREC Code20

CIM Standards define Inferred Resources as: An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

Due to the uncertainty that may be attached to Inferred Mineral Resources, it cannot be assumed that all or any part of an Inferred Mineral Resource will be upgraded to an Indicated or Measured Mineral Resource as a result of continued exploration. Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. Inferred Mineral Resources must be excluded from estimates forming the basis of feasibility or other economic studies. For comparison, the 2007 SAMREC code defines an Inferred (Diamond) Resource as:

“that part of a Diamond Resource for which tonnage or volume, grade and average diamond value can be estimated with a low level of confidence. It is inferred from geological evidence and assumed, but not verified, geological and grade continuity and a sufficiently large diamond parcel is not available to ensure a reasonable representation of the diamond assortment. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes that may be limited or of uncertain quality and reliability.”

This category, which has a lower level of confidence than that applying to an Indicated Mineral Resource is intended to cover situations where a mineral concentration or occurrence has been identified and limited measurements and sampling completed, but where the data are insufficient to allow the geological and/or grade continuity to be confidently interpreted. Due to the uncertainty which may be attached to some Inferred Mineral Resources, it cannot be

19 CIM Definition Standards (2004) 20 SAMREC Code (2007)



assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Mineral Resource as a result of continued exploration. Further, confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. CIM defines Indicated Resources as:

An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Mineralization may be classified as an Indicated Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of data are such as to allow confident interpretation of the geological framework and to reasonably assume the continuity of mineralization. The Qualified Person must recognize the importance of the Indicated Mineral Resource category to the advancement of the feasibility of the project. An Indicated Mineral Resource estimate is of sufficient quality to support a Preliminary Feasibility Study which can serve as the basis for major development decisions.

The 2007 SAMREC code defines an Indicated (Diamond) Resource as:

“that part of a Diamond Resource for which tonnage and volume, densities, shape, physical characteristics, grade and average diamond value can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes. The locations are too widely or inappropriately spaced to confirm geological and grade continuity but are spaced closely enough for continuity to be assumed and sufficient diamonds have been recovered to allow a reasonable estimate of average diamond value.”

The confidence level associated with the Indicated Mineral Resource is sufficient for this information to be applied to global mine design, mine planning; to allow the appropriate application of technical and economic parameters; and to enable an evaluation of economic viability.

16.2 Previous Estimates In 2007, Venmyn Rand (Pty) Ltd (Venmyn) completed a resource estimate for Rockwell (Clay & McKenna, 2007), with categories as prescribed by NI43-101. This report was based upon production records from 14 months of full-scale production on Wouterspan, but with no additional drilling. On this basis, a Mineral Resource Statement as of 30 May 2007 was compiled for the Wouterspan project and included as an update to the De Decker report. Production and revenue records for the period January 2006 to February 2007 (reflecting production of in excess of 8,900cts), showed that the diamonds from Wouterspan gravels had an average value of USD2,253/ct and a weighted average global grade of 0.63ct/100m3. It was noted by Clay & McKenna



(2007) that: • The production figures were not specified per mining block, and as a result grade estimations

reflected a global average (based on mixed production from several sources on the Farhom and Okapi Properties rather than reflecting local grade variations with respect to mining blocks);

• No grade distinction was made between the resources of the Rooikoppie, Suspended and Basal Gravels as these were not mined or processed separately. The estimated global average grade therefore reflected the average grade recovered from all three gravel types in the proportion in which they were mined and processed;

• Only drilled areas of the Farhom and Okapi properties were considered in the resource classification;

• Volumes of the different gravel types classified as Inferred and Indicated Resources were calculated (and certified correct) from the Rockwell geological model by F.J. van der Merwe (Pr Mine Surveyor (Plato) SA); and

• The resource figures were categorized as inferred and indicated, as defined by the SAMREC Code and National Instrument 43-101F requirements (CIM standards).

• High quality gemstone diamonds were identified at Wouterspan. An average diamond value of +USD2,200/ct was established from sales of over 8,900 carats.

This technical report by Venmyn (Clay & McKenna, 2007) reported a total of 15,814,000m3 of Indicated Resources and 20,748,000m3 of Inferred Resources over the Wouterspan Terrace (average global grade of 0.63ct/100m3). During late 2007, Rockwell and the author re-evaluated the geological and production data on which this resource estimation is based and highlighted certain inadequacies in the sample data (see the technical document entitled “Revised Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc. dated February, 2008). The resources estimated to be present on Wouterspan as at 28 February 2008 are summarised in Table 16.1 (these figures represent volumes available in the ground, fully depleted of material removed by the bulk-sampling programme). They were estimated by Rockwell’s Manager, Resources, G. A. Norton, (Pr. Sci. Nat.), a qualified person who is not independent of the Company and reviewed by Dr T.R. Marshall, (Pr. Sci. Nat.), a qualified person who is independent of the Company and is responsible for the estimate. Table 16.1 Resource statement as at 28 February 2008 Inferred

Resources! Indicated

Resources! Ave Grade

(ct/100m3)* Ave Value (USD/ct)

Rooikoppie 5,911,000 737,100 0.71 2,290


TOTAL 37,774,000 5,265,000 0.71 2,290 * At a bottom cut-off of 2mm ! Inferred Resources do not include Indicates resources (“Total” figure rounded off) During the period March - November 2008, the resources on Wouterspan were depleted by mining activities. All of the gravels mined during this period were from Indicated Resource areas. Some 100,000m3 of Rooikoppie and 452,293m3 of calcreted fluvial-alluvial gravel (for a total of 552,293m3 was processed to recover 3,896.42ct at an average grade of 0.70ct/100m3. Although the volume of Rooikoppie and Fluvial-Alluvial gravels are estimated separately, the processing combines them, so



separate grade estimation is not possible. Since Indicated Resources are estimated, inter alia, by defining an envelope of 250m around/ahead of the current mining face, given suitable geological conditions and drill spacing, after mining of the above gravel from a previously identified indicated resource block, a new envelope was modelled to contain an estimated 313,000m3 of gravel derived from forward modelling), which would be added to the final depleted resource estimate. The updated resource statement as at 28 February 2009 is given below (Table 16.2). They were estimated by Rockwell’s Manager, Resources, G. A. Norton, (Pr. Sci. Nat.), a qualified person and reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of the Company and is responsible for the estimate. The Wouterspan mine was put on Care & Maintenance at the end of November 2008, so no additional mining took place during the period November 2008-August 2009; consequently there is no change to the February 2009 resource. Note that the diamond value given is the target value that Wouterspan was expected to achieve before it would to go back into production. Table 16.2 Resource statement as at 31 August 2009 Inferred



Ave Value (USD/ct)

Rooikoppie 5,911,000 714,400 0.70 1,511


TOTAL 37,774,000 5,025,500 0.70 1,511 * At a bottom cut-off of 2mm (based on the average grade of the total sample mined to date) ! Inferred Resources do not include Indicates resources (“Total” figure rounded off) In addition to these estimated resources, a further +400ha of terrace area had also been identified as exploration target for further prospecting.

16.3 Current Estimates

16.3.1 Key Assumptions

a) This study has applied the following criteria for the estimation of indicated and inferred resource estimates:

• Of primary importance is the confidence that can be placed on the volume model. Rockwell has implemented a system whereby the volumes of mined out areas are regularly reconciled with the volumes predicted by the drilling. Where a good correlation is found (within 10% annually with a variance of less than 15% on a monthly basis) then adjacent areas are considered for indicated resource category;

Indicated Resources

• A minimum drilling grid of 100x50m is preferred, except where mining (see above) has indicated both geological and grade continuity.

• An indicated resource has to lie within 250m of a reference bulk-sampling pit from which a minimum of 3,000 – 5,000cts have been recovered (for confidence in the



grade and value estimations). • Similarly, the geological environment is considered – indicated resource gravels

need to lie within the same geological environment (channel or overbank, for example) as the reference bulk-sample.

• A minimum drill grid on 200x200m Inferred Resources

• A minimum of 500cts from the property (for grade and value estimation) • Similar broad geological environment (same terrace, for example and same gravel

type – no extrapolation from Rooikoppie to fluvial-alluvial units). b) It is noteworthy that no measured resources are estimated on Rockwell properties. The CIM and

SAMREC codes define measured resources as:

that part of a Diamond Resource for which tonnage and volume, densities, shape, physical characteristics, grade and average diamond value can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes. The locations are spaced closely enough to confirm geological and grade continuity and sufficient diamonds have been recovered to allow a confident estimate of average diamond value.

Measured Resources, thus, cover the situation where all of these features can be estimated with a high level of confidence – sufficient to confirm geological and grade continuity. Alluvial diamond deposits are well known for their extreme inhomogeneity and low grades (Fig. 16.1). Figure 16.1: The extremely low concentrations of diamonds, combined with low homogeneity results insignificant difficulties in the evaluation of alluvial diamond deposits (after Lock, 2003)

The resulting scenario makes it extremely difficult to estimate the required parameters to a “high level of confidence” (with the exception of diamond value) without over-capitalising the project. M M Oosterveld, an acknowledged expert in the field of diamond distribution, has indicated that even kimberlite deposits may not be evaluated in terms of measured resources (Lock, 2003). He points to the Orapa kimberlite mine as an example where, although the grade over time has run at some 60cpht, the De Beers ore reserve managers still do not feel that they can claim a measured resource with full confidence.



The industry standard for reserve estimation on alluvial diamond mines, based heavily on the De Beers alluvial deposits of Namaqualand and Namdeb, is to estimate slightly more than two years of Probable Reserves (at prevailing production rates), two/three years of Indicated Resources and multiple years of Inferred Resources. As the reserves are consumed, there is a continuous cycle of resource/reserve rollover.

16.3.2 Volume Estimation of resource volume is completed in two software programmes – initially gravel thicknesses are plotted in Geosoft Target (v 6.4.1) and volumes are later calculated in Gemcom Surpac (v 6.0.1).

• All borehole data is imported into Target which has numerous internal validation routines, ensuring data integrity. Bedrock elevation and gravel thickness maps are created, primarily to identify first-pass targets and geological anomalies.

• The data is then imported into Surpac (which has further validation routines) for resource modelling through the creation of DTM’s.

• Separate DTM’s are created for the bottom and top contacts of the gravel units. All boreholes that do not have gravel intersections are excluded from the model. The envelope around the boreholes was extended to one-half of the drill interval.

• Constraining strings (mined out areas, farm boundaries, for example) are created. During this process all isolated outlier points are deleted from the data, in order not to introduce spurious errors.

• A block model is then created, based on the external limits of the DTM. The block size is based on the geology – 1m3 has been used for the fluvial-alluvial sequence and 1x1x0.3m was used for the Rooikoppie unit. All partial blocks are excluded from the model, resulting in a fairly conservative result

• The model is then, further constrained by the two DTM’s and the constraining strings, producing a volume.

16.3.2.1 Specific Density Specific Gravity (SG) measurements are not routinely completed on alluvial gravels. SG’s of gravels vary considerably from unit to unit due to moisture, clay and heavy mineral contents and conversion to tonnages tend to compound problems rather than simplify them. Regional averages for specific densities of alluvial gravels can vary from as low as 1.6T/m3 to over 2.4T/m3, where the gravels contain large percentages of Banded Iron Formation (BIF). Typically, fluvial-alluvial gravels average 1.8T/m3 and Rooikoppie deposits are somewhat higher, as 2T/m3. All mining, processing and reconciliation on Wouterspan has been done using gravel volumes and not tonnages. However, for the purposes of individuals wishing to estimate tonnages, an average of 2.1T/m3 can be assumed for the Wouterspan Mine, as well as for other similar gravels along the middle Orange River (the marginally higher value being due to the impact of the Rooikoppie gravels that are processed along with the fluvial-alluvial gravels).

16.3.3 Diamond Grade The grade of a diamond deposit is the estimated number of carats contained in one hundred tonnes (cpht) or hundred cubic metres (ct/100m3) of gravel. Alluvial diamond grades are often measured in carats per unit of volume due to the problems associated with accurately predicting the bulk density of



gravels, which are highly variable over short distances due to the relative pebble to sand content of the gravel and the pebble rock type. In this report, grades are reported in ct/100m3.

16.3.3.1 Cut-off Grades Cut-off grades are not entirely pertinent to alluvial diamond mines since grade is not the only gauge of profitability. A far more relevant measure is the cut-off sieve/screen size, as diamond size more closely approximates value. Although more stones may occur in the smaller size fractions, these do not make up the bulk of the value. Also, although the very large stones may contain high value, they may make up so small a percentage of the population that the additional cost of processing larger size fractions may tender their recovery uneconomical. Consequently, any mining operation has an optimum range of stone size recovery where realised value exceeds input costs. Further, cut-off grades are not considered on Rockwell alluvial properties due to the fact that diamonds do not have a fixed, single price, but their values vary significantly from one stone to another. Consequently, income/carat is extremely variable. As a result, the mine works on an income/unit of volume rather than a simple cut-off grade. In addition, since Rockwell has a number of alluvial diamond mines in operation at any given time, individual operations may operate at a loss for a number of months before being put on Care& Maintenance. Accordingly, company-wide income/volume has to exceed cost/volume.

16.3.4 Diamond Value Diamond values are quoted as USD/ct. Valuation of the better quality diamonds, which normally constitute most of the inherent value of the deposit, tends to be subjective and is best determined by sales values obtained on the open market in a free trading economy. Historically, diamonds from the Wouterspan and Saxendrift mines have shown similar characteristics21

and values. As at 28 February 2008 average recovered sales values for Wouterspan and Saxendrift projects were USD2,290/ct and USD2,154/ct respectively. At 28 February 2009 the values were USD1,511/ct and USD1,075/ct, respectively, - reflecting the depressed state of the diamond market during 2008. As a result of these similarities over a period of time, it is judged acceptable to use the current diamond value figure for the Saxendrift mine (based on the sale of +5,500cts) of USD2,029/ct for the Wouterspan mine.

16.3.5 Resource Estimation The resource statement for Wouterspan reflects the situation as at 30 November 2010 (Table 16.3 and Fig. 16.2). Note that: • No production has taken place on this operation since end November 2008 when the mine was put

on Care & Maintenance. The volumes and grades reflect the bulk-sampling and trial-mining data up to that time.

• The diamond value given in the statement is the average received for +5,500 of diamonds sold from the adjacent Saxendrift mine during 2010. Since this does not represent a parcel derived

21 During October 2008, Dr M M Oosterveld was asked to compare the diamond distributions of Wouterspan over the years of production and also to compare it with the rest of Rockwell’s mines (Oosterveld, 2008). Except for 2005 when a smaller average stone size was apparent across the property (processing problems?), the results show distinct similarities with the Saxendrift parcels.



from Wouterspan itself, the confidence level on this estimate is not as high as it would be after the recovery of 3,000-5,000cts from the mine. This figure will be adjusted accordingly, once the mine is re-commissioned.

Figure 16.2: Resource blocks as identified on Wouterspan (as at 30 November 2010) These mineral resources were estimated by Rockwell’s Manager, Resources, G. Norton, (Pr. Sci. Nat.), a qualified person who is not independent of the Company and reviewed by Dr. T.R. Marshall (Pr. Sci. Nat.), a qualified person who is independent of the Company and is responsible for the estimate.



Table 16.3 Resource statement as at 30 November 2010 Inferred



Ave Value (USD/ct)

Rooikoppie 5,911,000 714,400 0.70 2,029


TOTAL 37,774,000 5,025,500 0.70 2,029 * At a bottom cut-off of 2mm (based on the average grade of the total sample mined to date) ! Inferred Resources do not include Indicates resources (“Total” figure rounded off)

16.3.6 Resource Reconciliation Rockwell continually reconciles recovered grades with estimated resource grades on all of their deposits and mines. Where indicated resources are estimated, it is expected that the recovered grades/values must be within 15% of the estimated figures. Figure 16.3 shows the correlation between sampled grade and recovered grade up to the time the mine was put on Care & Maintenance.

Figure 16.3 Correlation between estimated and recovered grade

16.4 Prospecting and Mining risks The prospecting and mining business is speculative. This Technical Report identifies some of the factors that are most likely to affect both the company and the project, as well as the value of its securities. However, this is not an exhaustive list and investors should seek professional advice for further clarification of the risks involved before deciding whether to invest in the diamond mining industry. Whether a diamond deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of a deposit, such as the diamond resource (size, quantity and quality), proximity to infrastructure, water availability, financing cost and governmental regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of diamond and environmental protection. The exact effect of these factors cannot be accurately

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Wouterspan Mine Grade Over TimeMine Grade 43-101 Grade Linear (Mine Grade) Linear (Mine Grade)



predicted, but the combination of these factors may result in the project not returning an adequate return on investment capital. Further, general economic conditions may affect inflation and interest rates which, in turn, may impact upon the projects operating costs and financing. The future viability and profitability of the project is also dependent on a number of other factors affecting performance of all industries and not just the exploration and mining industries, including, but not limited to, the following: • The strength of the equity and share markets in Canada, Johannesburg and throughout the world; • General economic conditions in Canada and Johannesburg and their major trading partners and, in

particular, inflation rates, interest rates, commodity supply and demand factors and industrial disruptions;

• Natural disasters; • Social unrest or war on a local or global scale; • Financial failure or default by a participant in the project or other contractual relationship to which the

Company is, or may become, a party; • Insolvency or other managerial failure by any of the contractors used by the Company in its activities;

and • Industrial disputation. Underlying strategic risks for prospecting and mining companies do not vary significantly over time. However, the acuteness, and hence the priority of these risks, changes depending on the economic environment (Ernest &Young, Strategic Business Risk Report, 2009). The changes may be subtle, but significant enough to sometimes change the drivers of these risks as they develop along with the market. For example, the economic crash of 2008/2009 forced the landscape to transform dramatically and priorities have, therefore, morphed from boom-related restrictions on supply to those risks directly affecting cash flow. The E&Y report has identified the most significant strategic business risks for the mining and metals sector, for 2010, as: Cost containment The spectacular fall in commodity prices has caused an even greater reduction in margins. Boom-time ‘production at any cost’ attitudes have left an unsustainable level of costs for mining and metals companies. However, cost reduction activities should not contribute to value erosion. Cost containment needs to be urgent and, most importantly, sustainable.

Access to capital The global credit squeeze and resulting global recession has severely limited mining and metals companies from freely accessing both the debt and equity markets to fund ongoing operations during a period of low or negative margins. As a result, funding of new projects or refinancing of maturing arrangements can be challenging. Maintaining a social license to operate There is great pressure on companies to reduce capital and operating costs, making the need to maintain a social license to operate more difficult. Mine closures or staff reductions can negatively impact on a community’s and government’s perception of a mining company. Therefore, a balance needs to be struck between cost optimization and environmental and community investment. Climate change concerns As a major user of energy and a primary user of land, climate change is a major issue for the mining and metals sector which risks its reputation and social license to operate. Companies are introducing new initiatives to combat climate change, including using new sources of energy, improving water management, and developing new technology to harness carbon emissions and reduce energy



consumption. There is also an increasing need for companies to respond to increased regulation of emissions including mandated carbon reporting and emissions trading schemes. Skills shortage While a drop in demand resulting from the global financial crisis has checked industry growth, the long-term fundamentals, and hence chronic constraints on the expansion of supply, remain. With an inadequate supply of skilled workers and professionals for the sector, the challenge of recruitment, retention, development and deployment has become a significant strategic threat to the industry. This may delay future project development and production. Infrastructure access Lack of sufficient infrastructure is creating bottlenecks in getting product to market in many countries. Traditional mining and metals companies are increasingly tempted to invest in infrastructure to solve the problem. If they don’t keep pushing forward infrastructure development, when demand returns, they will not be able to capitalize on the recovery. Access to secure energy Mining and metals production is energy intensive and requires reliable, sustainable and efficient energy supplies. Under-investment in critical infrastructure by host governments is putting pressure on the reliability of existing supply, and limits the supply available for mine expansion or new projects. Resource nationalism During the boom, host countries owning the mineral resources were challenging whether they were extracting enough of an economic rent for the right of a mining company to exploit that resource. While predictably economic rents increased during the boom, there has been little change in the basis for these economic rents since the fall in commodity prices. In some instances, governments are looking to replace other areas of lost revenue with further imposts on the mining and metals sector. Pipeline shrinkage Exploration is the life blood of the mining and metals sector, as known reserves waste with production. The general decline in exploration has been exacerbated by the drought in risk capital. The lack of exploration today will limit discoveries tomorrow and production in the years to come. Price and currency volatility The extreme price (and linked currency) volatility witnessed during 2008 led many analysts to view the new challenges as one of the greatest threats facing the industry in 2009. This has had immediate impacts on cash flows, quotational period adjustments and hedge cover. Exposure to distressed counter-parties As the effects of the global financial crisis widens, exposure to distressed counter-parties has become evident in customers, joint venture partners, financiers and key suppliers. To mitigate these risks, a recent Ernst & Young survey found that 32% of mining and metals companies reported they had broadened their customer base by entering new geographical markets or new market segments, and 50% increased their focus on key customers. Some 57% have negotiated longer-term contracts and 53% have narrowed their supplier base for more favourable terms. Scarcity of water Population growth, urbanization and climate change are all contributing to increasing stress on water supplies. The mining industry can require up to 8,000 litres of water per tonne of ore extracted. Water scarcity will, therefore, directly impact the ability of the sector to produce at the current rate. Mining companies are being prompted to spend more to increase their water efficiency. Improved technology



in the water industry provides a range of methods to improve water efficiency, including better ways of treating waste and saline water for reuse, and improved modelling of water systems. Increased regulation As mining and metals companies have expanded their global footprint, they are exposed to greater regulation and greater diversity in regulation. Mining and metals companies are experiencing significant fatigue around managing the myriad of often redundant compliance and regulatory reporting activities, the cost of which is massive and burdensome. Increasingly, companies may seek risk convergence initiatives which allow them to coordinate the various risk and control processes. These will help to drive down costs and, perhaps most importantly, enable more comprehensive enterprise-wide risk reporting to senior management and the board. New communication vehicles for community activism The internet has increased the visibility of the industry’s investment and development portfolio. Public concern over the role mining and metals plays in national economies and the green debate, for instance, are played out openly on this new media platform. To mitigate the risk, a number of corporations and governments are putting more resources into direct-to-the-public and non-government organizations communications, with facilities for feedback and debate. Capital allocation As investment in mining and metals activities involves a variety of risk profiles (exploration, development, production and infrastructure) and hence expected levels of return vary, the allocation of capital in a mining and metals company is inherently complex. The level of gearing, the cost of debt and equity, all become important drivers in the optimal capital structures for mining and metals companies.

16.4.1 In South Africa The greatest risks pertaining to the general minerals and mining industry in South Africa are perceived to be the uncertainties relating to the various mining-related Acts and Bills passed since 1994. Together with crime and the skills shortage, the inadequacy of Southern African infrastructure (and more specifically power and water infrastructure), increases in fuel/power prices, labour unrest and strike action, are all viewed as a material constraint to investment. Not to be forgotten, also, is the uncertainty of the effect of HIV/Aids on the workforce as well as the ever-present threat of resource nationalism from various elements within the ANC Youth League



17 OTHER RELEVENT DATA AND INFORMATION

17.1 Exploration Targets/Potential Insufficient drilling has taken place on the two known B-terraces at Wouterspan to estimate a resource. However, such drilling that has been completed indicates that the gravels are sufficiently widespread to warrant further attention during 2011. This reconnaissance drilling has identified an exploration target of some 10-20Mm3 gravel (plus an additional area covering approximately 35-45Mm2) that will be sampled and further drilled to be upgraded to mineral resources during a forthcoming exploration programme. Little is known regarding potential diamond grades, since no bulk sampling has been completed on these terraces. However, average grades are expected to be similar to the grades of the B terraces on the adjacent Saxendrift mine. Previous sampling on the Saxendrift B terraces reflect grade ranges of 0.5-1.22ct/100m3 (Telfer, 2007). Similar grade ranges might be expected to occur on the B terraces on Wouterspan. It is important to note that these statements of potential quantity and grade are conceptual in nature, that there has been insufficient exploration in these areas to define a mineral resource and that it is uncertain if further exploration will results in the targets being delineated as a mineral resource.

17.2 Preliminary Economic Assessment The extent to which the estimates of mineral resources and reserves on a project may be mined commercially may be affected materially by various environmental, legal, financial, socio-economic, and marketing issues. In an attempt to quantify these variables, the following data (inter alia) is, generally, considered important in a preliminary economic assessment of a mineral deposit: • Mining and Production • Revenue • Operating Costs and Fees • Capital Costs • Taxes and royalties • Depreciation, interest and residual value Trial-mining, and an associated Preliminary Economic Assessment (“PEA”) was initiated on the Wouterspan property during 2008. However, this was interrupted as a result of the economic crisis which has put the mine on Care & Maintenance since October 2008. During this time, Rockwell has continued with mining, processing, engineering and planning studies. Due to the fact that trial-mining on this operation is on-going, it was deemed appropriate to use in-house staff for these assessments. Capital costs of plant and equipment have been determined through formal quotations acquired from suppliers. Operational parameters and operating costs have been determined both during the bulk-sampling and, subsequent, trial-mining phases on Wouterspan and from Rockwell's experience on their other alluvial diamond mines (Saxendrift and Klipdam/Holpan). These studies and assessments have been carried out by relevant, professionally qualified Rockwell staff and have been supervised by both the Rockwell Mineral Resource Manager (non-independent Qualified Person, Mr G A Norton) and the independent Qualified Person (Dr T R Marshall). Also involved in this exercise has been:



• Mr G Chamberlain (Rockwell’s COO), Registered (#53918) with South African Institute of Mining and Metallurgy (SAIMM);

• Mr R J Bold (Registered Professional Engineer (#2005176) with Engineering Council of South Africa (ECSA);

• Mr J Oosthuisen (Financial Manager) • Mr J Brenner (Manager, Diamond Marketing and Sales) The independent QP has extensive experience with the operational aspects of alluvial diamond deposits, including mine planning and is familiar with costs associated with these businesses. Since the QP was not on-site for much of the 22-month duration of the trial-mining programme, much reliance has been placed on the information received from Rockwell. In addition, numerous studies have been carried out (are being carried out) by independent professionals – these studies have been reviewed by the independent QP, but have not been independently verified or duplicated by the QP. The independent QP has reviewed these programmes and costs (including the underlying objectives and data) and concurs that they are reasonable and realistic for this stage of the project. Consequently, it is believed that these figures give a realistic and rational indication of the cash flow anticipated for the life-of-mine.

17.3 Mining Operations

17.3.1 Mining Method The preferred method of extracting the alluvial gravels at Wouterspan is by means of shallow, opencast mining. The diamondiferous alluvial gravels are relatively thin, unconsolidated to semi-consolidated, tabular bodies with generally less than 20m overburden and, accordingly, lend themselves to opencast mining methods. In South Africa this methodology has been the industry norm for these deposits since the 1800’s – details changing with the introduction of newer technologies. Various other mining methods have been tried by professional “diggers” in the NorthWest and Northern Provinces: • Trial-mining of Rooikoppie gravels overlying the fluvial unit along the Middle Orange River

experimented with excavation using a Wirtgen tar cutter during 2008/2009. Although generally successful for relatively small, thin and shallow deposits, this method was not deemed suitable for the volumes that would need to be excavated on Wouterspan.

• Smaller operations have been mined successfully using bulldozers as the primary excavation tool. On Wouterspan, the depth/thickness of the gravels and the hardness of the calcrete overburden makes this method undesirable as a mining technique. However, it has been found that ripping the calcreted gravels prior to excavation minimises clast/diamond lock-up, as described below.

• Due to its unconsolidated nature, this material cannot be mined as an underground operation, but lends itself to opencast mining methods. The use of conveyors as a primary method of transporting gravels from the pits to the plant site was considered, but rejected as unsuitable because of cost (specifically related to haulage distances) and the relatively short lifespan on individual mining pits.

17.3.1.1 Excavation The excavating of the gravels on Wouterspan will be undertaken using techniques virtually identically to the bulk-sampling and trial-mining operations:



• Vegetation is cleared from the proposed mining block. As per environmental regulations, large trees are excluded from the mining area or, if this is not possible, then they are to be uprooted whole to allow for re-planting in rehabilitated areas.

• The topsoil (where present) is removed and stored separately for use in later rehabilitation; • The entire gravel profile is excavated ,loaded into dump trucks and transported to the screening

plant; • During excavation, care is taken to ensure that minimal contamination by the footwall lithologies

occurs, especially where small pothole features need to be cleaned out. However, where the bedrock is soft, approximately 10-20cm of bedrock is excavated with the gravels, so that any diamonds in the weathered rock will be recovered;

• Where the upper 2-3m of the fluvial-alluvial sequence is calcreted to varying degrees (usually laminar or hardpan levels), the mining block may need to be blasted prior to excavation (see 17.1.2.2 for further details). The broken calcrete material is ripped by a bulldozer, then stripped off using hydraulic excavators, loaded onto ADT’s and transported to the plant site for further processing.

17.3.1.2 Screening

The gravels are trucked to the plant site where the screening plant is located – only once the excavation site is +1.5km from the plant site will Rockwell consider in-pit screening. The screening plant is being built in-house and will have a capacity of 1,600tph and will scalp, in two stages, initially at -75mm and, secondly, at +40-2mm. This plant has been designed to remove some 23% of the -75mm material, which is primarily sand.

17.3.1.3 Rehabilitation An on-going rehabilitation programme is important to the mining operation. At Wouterspan, rehabilitation will, normally, entail the immediate or near immediate (following short-term side-casting) backfilling of overburden into pits concurrent with the advance of the pit face. All tailings derived from the concentrating and final recovery processes will be returned to the open excavations by the trucks on their return cycle. In the case of the fine tailings (slimes), such material will be pumped to the fines tailings dam. Any stockpiled topsoil is to be spread out over the surface; the rehabilitated areas will be contoured to fit in with the pre-mining topography and allowed to re-vegetate naturally. Primary vegetation starts is expected to establish itself after the first rainy season.

17.3.2 Survey Mine survey is the responsibility of the company surveyor and an independent consultant (F J van der Merwe, PLATO). Weekly pre- and post profiling of all applicable surfaces is undertaken using a sub -1cm accuracy Real Time GPS. A profile grid of ± 5m on even surfaces and 1m on uneven surfaces is set up. Volumes are calculated using the “Model Maker Systems” software package, a standard package, developed specifically for the technical- and land-surveying, engineering, mining, town-planning, landscaping, quantity surveying, irrigation design and construction industries. The standard checks implemented include: • Start up check maximum tolerance 1cm. • All profiling to be within 1cm accuracy. • Volume calculation - manual editing of all DTM’s where necessary and comparing total volume of

excavations with grid volumes. • Careful record keeping of stockpiles at the plant and in pit. • Communication between survey and mining.



• All volumes get reported at the middle and end of each month. • Accuracy to comply with SAMREC – error in the reported volume not to exceed 5%. • Elimination of grey areas, such as lack of profiling, stockpiles and excavations not surveyed. Once the sample has been excavated and surveyed. The surveyor also supplies the RAW data, volume and DXF of the pit to the Geology department. This allows for independent calculation and comparisons of the resulting volume estimations, both in-house and by the independent QP.

17.3.3 Mine Plan Mine planning is discussed by the Mineral Resource Manager, Mine Manager and Geologist on the specific site. The Pit design will have been done by the Geological department, which design will then be handed down to the necessary persons involved in the mining applications. Any changes in mining areas must be discussed with the Geological department prior to implementation. Mining proceeds: • Mining blocks will be set out as discussed with the Mineral Resource Manager according to the

equipment at hand. • Gravel from each block is to be processed separately. • If two blocks are being processed at any one time then the blocks must be stockpiled separately. • Any overburden must be stripped to such an extent that the gravel is fully exposed and no

overburden is left behind. • The mining of overburden with gravel to create porrel for density at the processing plant is not

allowed. • Mining into the soft bedrock to depth of between 10-30cm is allowed/preferred to ensure the

reconciliation of all the gravel. • Overburden can be ripped with the bulldozer to make stripping easier. • The pushing off of overburden by the bulldozer may be done up until such a stage as the gravel

contour permits, after which stripping should be done using an excavator. • The pushing off of overburden should be done to such an extent that the minimal area of any open

face is disturbed or covered. • All the gravel units must be ripped and crushed by the bulldozer to ensure proper liberation of the

unit. • Where the bedrock is too undulating to use the bulldozer, gravel should again be ripped, crushed by

the bulldozer and then mined using an excavator. • Ore will be transported to the plant using 100T Rigid Trucks. • Stripping will be moved with 100T Rigid Trucks • Main haul roads must have a minimum width of 25m, and secondary/pit roads must be 16m wide. Historically, the bottom 2m of the deposit was mined and sent to the plant, while the balance of the profile (also known as “Middlings”) was stockpiled. Once the operation is re-commissioned, the plan is to excavate and process the entire gravel profile. This mining method has been used effectively on the neighbouring Saxendrift mine. The mine plan has been developed in two phases. Phase 1 comprises an estimated 12 months (from construction through commissioning), inclusive of 7months of trial-mining. This is then ramped up into Phase 2 (full production scale mining).



17.3.3.1 Pit Design On Wouterspan, pits, or “boxcuts”, are planned to cut across the direction of flow of the palaeo channel. From time-to-time, boxcuts may be excavated perpendicular to the flow direction to test the extent of geological features. Typical dimensions of individual boxcuts are 50m wide and 200m long. Where necessary, benches are cut to access deeper gravels. Access ramps should have minimum widths of 25m (using Rigid22

trucks and 16m where ADT’s are utilised) and should have a maximum angle of 10°.

A series of adjacent boxcuts are planned to cover the entire width of a specific geological feature. Once the gravel has been removed from the open boxcut, it is systematically rehabilitated as the next boxcut is opened. The mining operation, consequently, comprises a number of boxcuts that are simply “rolled forward” on a continuous basis. Areas of higher and lower grade are blended to keep the number of carats recovered reasonably constant and to increase the life of mine. Surveying of the box cuts is undertaken on an on-going basis by a qualified surveyor in order to obtain precise volumes for the mined gravel units, the calcrete and the Rooikoppie, against which diamond production can be reconciled and grade determined. Since the excavations are shallow, there is no need for extensive stripping ahead of the mining face. Each excavation is stripped only when it is mined. Backfill takes place concurrent with mining as part of the rehabilitation process.

17.3.3.2 Geotechnical Considerations Since these deposits are shallow and thin and are mined open-cast, few geotechnical problems are encountered. Minor issues that receive consideration on Wouterspan are:

Blasting

In various areas of the property, varying depths of calcretisation has meant that some of the upper gravel layers are also highly cemented. If this material is simply excavated and then loaded, large amounts of calcreted gravel chunks are sent to the plant. Due to the nature of these chunks, unknown numbers of diamonds would be locked up and lost to the recovery system. However, in order to mitigate against this problem, the gravels are ripped by a bulldozer prior to excavation. This effectively liberates the gravels (and the diamonds) from the calcrete matrix, without the damage to the diamonds that is expected from impact crushers. Blasting is not, generally, required on the A Terrace gravels. Where necessary, however, Champ Drilling CC is contracted to drill the holes and Quality Blast is contracted to do the blasting itself. Typically a staggered blasting pattern (4.5m x 4.5m) is utilised.

Sidewall Stability and Bench Heights

Due to the shallowness of the deposit, the mining pits seldom exceed 20m in depth. A study was conducted on Rockwell's Klipdam/Holpan mine in the Barkly West district along the Vaal River. This study concluded that, since the pit life of the alluvial diamond operations is so short (in the order of a few days only) and since the gravel is semi-consolidated and partially calcreted (cemented), high-wall stability would not be expected to be an issue, if bench heights are confined to 5m, with berms of 5m wide (Steyn & Terbrugge, 2008) Consequently, sidewall stability is not seen as a significant factor in mining on either of the Klipdam/Holpan mines or on the mines along the middle Orange River where similar geology is present and where comparable mining practices are applied. 22 Rigid trucks are non-articulated vehicles which are used where manoeuvrability is not essential



Gravel Specific Density

Specific Gravity (SG) measurements are not routinely completed on alluvial gravels. SG’s of gravels vary considerably from unit to unit due to moisture, clay and heavy mineral contents and conversion to tonnages tend to compound problems rather than simplify them. Regional averages for specific densities of alluvial gravels can vary from as low as 1.6T/m3 to over 2.4T/m3, where the gravels contain large percentages of Banded Iron Formation (BIF). Typically, fluvial-alluvial gravels average 1.8T/m3 and Rooikoppie deposits are somewhat higher, at 2.2T/m3. All mining, processing and reconciliation on Wouterspan is done using gravel volumes and not tonnages. However, for the purposes of individuals wishing to estimate tonnages, an average of 2.1T/m3 can be assumed for the Wouterspan Mine, as well as for other similar gravels along the middle Orange River (where significant BIF content is present).

Bulking Factors

The importance of determining valid bulking factor measurements for the Wouterspan gravels was noted. Tests are underway to determine these factors for the gravels on Terrace C.

Hydrological

The mining pits on Wouterspan do not reach the water table. Neither are they located adjacent to any river. Consequently, no water-related issues are anticipated on the mine.

17.3.3.3 Mining rates and expected life-of-mine The preliminary estimation of mine life is 2.32yrs, based on indicated mineral resources only. An additional 8.7years may be added if inferred mineral resources are included, for a total of 11 years estimated mine life. No account has been taken of any exploration targets or additional property acquisitions which are also expected to influence the LoM positively. The mining/processing is planned to proceed in two phases. Phase 1 (processing rate of 180,000m3/month or 2,160,000m3/annum) is planned for the first 12 months. Subsequently, phase 2 is planned to process gravel at a proposed rate of 340,000m3/month (4,080,000m3/annum). Overall plant utilisation has been estimated at 85% of capacity.

17.3.3.4 Mining dilution factors The mining plan is based upon the bulk-mining of the entire fluvial-alluvial profile – grades are determined from ROM throughput. In addition, mining proceeds parallel to the terrace contours and, therefore, varying dilution issues expected downslope (perpendicular to the contours), do not affect the recovered grade materially. Further, since the (indicated) resource is estimated from material within 250m of a bulk-sample (or trial-mining) face and the drill control is within 50m, dilution factors within the identified mining blocks is expected to remain reasonably constant.

17.3.4 Earthmoving fleet Rockwell is considering using contract miners for the excavation and hauling of the gravels to the plant. Rockwell is, currently, engaged in negotiations with a number of professional contract mining companies to deliver the requisite volume of gravel.



17.4 Recovery Process The recovery process on an alluvial diamond mine comprises two phases – initially the screened gravel is concentrated to eliminate oversize and undersize clasts as well as material which is too light or too heavy to contain diamonds. This is followed by the physical separation of diamonds from the gangue minerals/clasts. During the bulk-sampling and trial-mining phases of the operation, various parameters need to be determined to identify the optimum plant design and or combination of processes.

17.4.1 Mineralogical Testing a. One of the most fundamental recovery aspects relates to the size distribution of both gravel clasts

and diamonds. The details have serious implications for top and bottom cut-off’s on the screening plants and final recovery systems. Too small screen-sizes at all locations will, ultimately, result in the loss of larger diamonds, but too large screen-sizes will flood the plant with material. The question of the size of diamonds passing through screens of certain apertures is extremely complex (and relates to both the shape of the diamond as well as the smallest crosscut of the diamond which presents itself to the screen. In addition, the behaviour of diamonds as they pass over a screen (in how many different ways they fall on the screen) is a further complicating issue. An interpretation of expected diamond recoveries has led to the selection of top- and bottom cut-off screen sizes of 40mm and 2mm respectively.

b. It is planned to carry out particle size distribution (“(PSD”) tests on all the mining faces. Preliminary PSD investigations have been completed on the C terrace gravels (Fig. 17.1)

Figure 17.1: Preliminary PSD for Wouterspan (C-terrace) gravels c. A second aspect requiring pro-active operational procedures is the amount and nature of the

gangue (gravel) clasts. This includes problems surrounding sand contents, and magnetic components (BIF’s). The magnetic clasts are removed by fitting static magnets (Plate 17.1) suspended above the individual pan feed belts. This process is capable of removing some 60% of the BIF component of plant feed (based on manufacturer specifications as well as Rockwell’s own practical experience over long periods of testing.

0.0010.0020.0030.0040.0050.0060.0070.0080.0090.00

100.00

0 20 40 60 80 100 120 140 160 180 200

% L

ess T

han

Size fraction (mm)



d. In addition to the presence of BIF’s, Rockwell’s decision to process the entire fluvial-alluvial sequence has meant that the volume of sand has increased significantly. The screening plant has been designed to remove some 90% of the (-2mm) sand fraction

Plate 17.1: Static magnets that are used to remove magnetic clasts from the gravels

17.4.2 Concentration/Process plant Typically, three different concentrating plants are available for use on alluvial diamond mines – Dense Media Separation (“DMS”) plants, Rotary Pans and In-line Pressure jigs (“IPJ”). Each of the plants has particular characteristics and requirements that make them advantageous to specific situations. On Wouterspan Mine, the rotary pan plant was chosen because of its lower capital and operating costs. The main objection to the rotary plant has, historically, been the relatively low recovery efficiency (compared to the DMS). Extensive R&D by Rockwell engineering and metallurgical staff have introduced significant, proprietary, improvements to the standard rotary pan plant, which have the impact of increasing recovery efficiencies appreciably. The processing plant is planned to comprise of a bank of 18’ rotary pan plants. Suring the trial-mining period, Rockwell will test feeding only selected size fractions through individual pans, i.e. +2-6mm, +6-12mm and +12-32mm. The trial-mining will also determine whether 8 or 12 rotary pan plants will be used – the total throughput will remain 180,000m3, however, the feeding rate of the different size fractions will determine the number of pans required. Overall plant utilisation is budgeted at 85% of plant specification to make allowances for planned and unplanned downtime. The planned processing methodology is described below (Fig. 17.2):



Figure 17.2: Schematic diagram of the mining/processing high-level plan for Wouterspan mine The screened gravels (-75mm) are stockpiled and processed according to standard operating procedures. Material for the rotary pan plants is fed into the plants by front-end loader. Magnetic separation of the iron-rich component of the plant feed is of crucial importance to successful diamond recovery when using rotary pan plants in the Middle Orange River region due to the fact that the predominant BIF component of the gravels has a high density and can displace the diamonds. Magnetic separation is through a static magnet suspended above the individual pan feed belts. This process is capable of removing in the order of 60% of the BIF component of plant feed. The plant feed bin feeds into the primary, “Trommel” screen, which both disaggregates the gravel and screens it at 40mm. All oversize material is to be trucked away from the plant site and dumped into open excavations as part of the rehabilitation process. The undersize material (-40mm) feeds directly into the rotary pan plants. The float fraction (light material) is discharged onto a double deck screen, the top deck of which is utilised as a relieving deck

Primary Screening Over & Undersize

to Pits/ Rehab

Scrubbing & Secondary Screening

Haul from Pits

Over & Undersize to Pits/ Rehab

Product Stockpile

Pan Plant

Tailings to Pits/ Rehab

Final Recovery

Tailings to Pits/ Rehab

Plant Feed

Pan Feed

Pan Concentrate

Pan Feed



allowing for more efficient screening on the bottom deck which removes -2mm material (the large screening plant, described earlier, removes some 90% of the -2mm fraction – the rest is removed here). Undersize material and slurry from the screen is pumped to a separator cyclone situated above the pan tailings conveyor. The cyclone underflow discharges on a single deck screen directly onto the tailings conveyor, whilst the cyclone overflow discharges into a sump, which is then pumped directly to the mine residue deposit. The oversize tailings are transported via conveyor belt to the pan tailings bin where it is combined with the separator cyclone underflow, this material is then trucked to the relevant tailings dumps. The concentrate from each pan is removed as a batch from the pans using individual screw conveyors. The concentrate from each pan is then combined and transported along a conveyor belt to the final recovery sorthouse. This plant configuration was selected due to its proven track record at Rockwell’s Klipdam Mine near Barkly West and Saxendrift mine, on the south side of the Orange River. The processing plant is planned to have the following requirements (Table 17.1): Table 17.1: Proposed processing specifications

Metrics Total in Phase 1 Total in Phase 2

Front End Feed Rate ≥ 1,000 tph ≥ 2,000 tph

Live Stock Pile Capacity ≥ 2720 t ≥ 2720 t

Total Stock Pile Capacity ≥ 8160 t ≥ 8160 t

Pan Feed fraction 2mm – 32mm 2mm – 32mm

Pan Feed Rate ≥ 340 tph ≥ 680 tph

Recovery Feed Rate ≥ 17 tph ≥ 34 tph

Product Recovery ≥ 98% ≥ 98%

Plant Availability ≥ 95% ≥ 95%

Plant Utilisation ≥ 95% ≥ 95%

17.5 Final recovery Historically, various methods of diamond recovery have been employed. These, typically, exploit specific physical characteristics of the diamond, such as its hydrophobic nature (grease), weight/size (mechanical jigs), fluorescence (X-Rays) and other optical properties. The Wouterspan Final Recovery will include the following processes:

• Stockpiling and surge control in suitable storage bins, • Particle size distribution to allow optimal feed to the respective sorters, • Sorting and product extraction through a combination of optical and/or grease belt sorters in

series. • Final hand-sorting of concentrate in a secure glove-box.



• Hands off recording of all product data and storage in a secure vault. • Tailings discharge.

17.5.1 QA/QC QA/QC will be maintained through the use of tracers – both bort diamonds (supplied by Steinmetz) and ceramic balls. These tracers are introduced into different parts of the plant to ensure optimum diamond recovery. Fluorescent slingshot tracers and bort diamonds are used to continuously test for maximum equipment performance. Daily, 20 tracers are inserted into each FlowSort machine. Recoveries are monitored and problems with tracer recoveries are reported immediately to the plant superintendent who deals with the matter directly.

17.6 Infrastructure Some of these issues have been identified in Section 4.2. Supplementary information is presented here, as necessary.

17.6.1 Roads The Wouterspan project area is best accessed via Saxendrift Mine, along tarred route R357 from Douglas to Prieska. In 2008 Rockwell completed a bridge across the Orange River (Plate 17.2) to allow access between the operations on the south side of the river and those on the north. Unseasonal flooding impacts negatively on this bridge (). During these times, access to the operation is via an unpaved road from Douglas to Prieska on the northern side of the Orange River. This public road is not well maintained and can significantly increase the wear-and-tear on vehicles travelling it on a regular basis. A well-maintained network of high-speed gravel roads and farm tracks provides ingress to all areas of the Wouterspan mining and prospecting area. Within the limits of the mining area, water-bowsers spray the roads to limit dust. An unpaved airstrip is situated on the farm Saxendrift 20, adjacent to Saxendrift Mine. A helipad is located on both Wouterspan and the adjacent Saxendrift mine. A large, national, airport is located at Kimberley.

17.6.2 Water The operations are located next to the Orange River and the necessary pumping stations and water supply pipelines are in place to provide a year-round water supply. The project sources water from the Orange River, currently under a licence to pump 72,000m3per annum. The operation is planned to consume a total of 350,000m3per annum and additional licences have been requested from DWAF. An updated water balance will also be compiled, once plant specifications have been finalised. In essence, however, water for the mine is pumped from the river, via a pipeline to a reservoir. The water is then directed to the various plants. Waste water together with the slimes is pumped to the mined-out areas, after which recycled water is returned to the processing plants.



Plate 17.2 Bridge over the Orange River, linking Rockwell’s Saxendrift and Wouterspan Sites. All water for the operation is pumped from the river under license to DWAF (view from Wouterspan, southwards across the Orange River to Saxendrift). Photo courtesy of Rockwell.

17.6.3 Power The property is connected to the national Electricity Supply Commission (ESKOM) electricity grid, with the necessary transformers and supply lines in place. Power is provided through a 22kV line. Voltage is decreased to 400V through a transformer on site and distributed as required. Rockwell has placed R1,905,00023

in a trust account to cover various ESCOM guarantees.

South Africa’s ability to satisfy the electricity requirements of all its users has been highlighted in the press since 2008. Numerous initiatives have been instituted by both government and private enterprise in order to prevent this from becoming a serious problem, including the commissioning of two additional coal-fired power stations (Medupi and Kusile), due to come on-line within the next five years. In the short term, however, power shortages and, subsequent, load-shedding will undoubtedly have an impact on both costs and production, although an aggressive programme to reduce operating costs and eliminate unnecessary expenses has been initiated at all of the Company's mines and operations. In spite of the power outages affecting business and mining ventures in South Africa, Rockwell’s mines continue to operate although, at times, with interruptions. To this end, Rockwell management has moved rapidly to conduct an operational review of the situation and implement remedial actions to mitigate the consequences of the power outages, including: • All scheduled and planned maintenance is to be conducted during periods of power outages to

reduce overall plant downtime. • Backup generators, with a total of 4MVA have been installed at Wouterspan mine, to run the

processing plants in the event of unscheduled power outages.

23 Guarantee # M514494, M469062 and M481774



• A back-up generator set has also been installed at the Barkly West management and administration office to ensure that there is minimal impact on normal business activities of the Company and that all computer functions, back-up servers, and CCTV monitoring systems remain operational.

Further, Rockwell staff liaises with local and regional ESKOM offices in order to receive advance notice of reduced power availability and scheduled power outages. Furthermore, Rockwell has purchased all available power, as other users have scaled down (or closed down) their operations. For example, when SONOP closed down their operation on Elsie’s Drift (adjacent to Wouterspan mine), Rockwell was able to purchase 3.5MvA for their own use.

17.6.4 Communication A corporate communication system will, eventually, link the Wouterspan project with the main administration office in Barkly West. The telephone system will be upgraded to link the Barkly West office, the Johannesburg Head Office, Wouterspan Mine, Saxendrift Mine, as well as the Klipdam/Holpan mine. The aim of the project is to limit the cost of internal calls between the sites, reducing the monthly Telkom bill. A second project is also planned to upgrade the Internet connection between Barkly West, Johannesburg and Wouterspan. This will be accomplished by installing a 1Mb Diginet leased line between the three sites, and a 3Mb Internet breakout. The lines have already been installed (except for the Wouterspan sections) and are awaiting commissioning from Internet Solutions. On-mine communication for production personnel is conducted through two-way, short-wave (HF) radios. Three cellular telephone networks are also available for project personnel as well as for personal communication.

17.6.5 Mine Residue Deposits A detailed Code of Practice (“COP”) regarding mine residue deposits on Wouterspan was completed by HCVWD during 2008. The COP was drawn up in accordance with DMR guidelines to assess and manage risks generally associated with both coarse and fine tailings dumps. All dumps will be designed by a professional engineering technologist, based on criteria as per Chamber of Mines guidelines and will consider and incorporate all factors having a bearing on potential health and safety issues. The design considerations will include all phases of the anticipated life-cycle of the dumps.

17.6.5.1 Coarse Dumps The primary disaggregation and screening is done next to the plant and the overburden is then backfilled. Trucks take screened material to the treatment plant. The slimes will be pumped to the mine residue dams and the oversized tailings will be dumped, backfilled and landscaped.

17.6.5.2 Fine (Slimes) Dumps The planning includes one slimes dam with a capacity of 6,676,668m3 on Wouterspan (Plate 17.3; Fig. 17.3). The slimes dam will drain into a return water dams, where some 30% of the water will be recovered. The capacity of the slimes dam is planned for the life-of-mine, based on normal operating capacity. At completion, the dump will be 38m high. Decommissioning of the dam must ensure the stability of the structure and will include post mine-closure monitoring.



Figure 17.3: Proposed layout of the Wouterspan slimes dam



Plate 17.3: Construction of slimes dam on Wouterspan (photo courtesy of Rockwell)

17.6.6 Waste Disposal Domestic waste disposal takes place in small landfill sites in the mined out areas. Industrial waste is removed to municipal dump sites. Adjacent to the on-site office is a septic tank leading to a French drain. These facilities are adequate for the 240 people who will be working on the site. Previously, some slimes were pumped into old excavations, as an interim measure. This deposition option was selected as a means of facilitating rehabilitation. The excavations were selected as slimes deposition areas as part of backfilling strategy, rather than disturbance of new areas. At present there are no facilities for the treatment of polluted water, other than the mine residue dams, which act as settling dams, and clean water will be pumped back into the process water once the silt has settled out.

17.6.7 Fuel storage and supply The mining fleet is to be supported by on-site fuel tanks comprising 160,000l of diesel. All diesel tanks will be fully bunded and environmentally compliant against accidental spills. Currently, AL2 Staedler is contracted to supply petrol and diesel, while Lubritene (Pty) Ltd supplies lubricants (oil and grease). Both contracts are subject to standard conditions will be reviewed annually. Oil, grease and related pollutants are regularly removed by a contractor (OILKOL). Fuel usage is strictly managed by control sheets, constant measurement and reconciliation. Variations of more than 2% are investigated immediately. The reconciliation process is also reviewed by the financial controller.



17.6.8 Staff/Labour The Wouterspan project recognizes the growing shortage of critical skills in the Mining industry in South Africa. Development of future leadership is a key strategic focus area. Human resource development (HRD) is managed across all levels of employment and is seen as a critical component of achieving the Company’s employment equity and gender equity targets. The Company’s HRD plans are being continuously aligned with the Workplace Skills Plans and integrated with the long-term business plan. In terms of this process, HRD plans are constantly assessed, reviewed and revised to cover the organization’s short-term, medium-term and long-term human capital development requirements. A full time graduate Human Resources Manager (based at the Barkly West office) has recently been appointed, to ensure that the HRD receives specialised attention. In terms of budget the Company has allocated an amount of some R1.1M during 2010 for training (company-wide), and will increase annually by 15-20% over the next three years. This amount includes the 1% of payroll annual skills development levy, which includes core skills development and training programmes, but which excludes other, more specialized training programmes such as ABET (“Adult Basic Education and Training”), internships and bursaries. An annual Training Report and Workplace Skills Plan (01/04/2006 – 31/03/2007), has been submitted to and was approved by the Mining Qualifications Authority (MQA). In addition to issues regarding payroll, training, career progression, mentorships, internships and bursaries, the HR Manager will also deal with issues regarding HIV/AIDS, employment equity, the special role of women in mining and the application of all facets of the Social and labour Plan (SLP). Wouterspan Mine is planned to have a permanent labour complement of 240 employees, comprising: Managers and supervisors Mining and metallurgical engineers Electricians and boiler makers Mobile equipment operators Excavation and loading operators DMS and pan-plant operators Final recovery operators Human resources professionals Health and Safety professionals Cleaners and general assistants Information technology specialists Geologists Drivers and store-persons

Other business related contractors include the following: Gardening services Cleaning services Security services Civil contractor services Drilling & blasting contractors

The total planned monthly wage bill for the Wouterspan mine is R1.2M, inclusive of shared services. Rockwell has an entry level wage scale of R1,800/month and has implemented plans to narrow the wage gap between lower and higher paid staff over the next two years through the implementation of a split incremental wage scheme where annual increases are biased toward the lower income groups. With respect to staff, there are a number of challenges that Rockwell faces in the Northern Cape – such issues are not specific to Rockwell, but are common to all medium-sized mining companies located outside of the major metropolitan areas of South Africa. • The Northern Cape is one of the less developed provinces in South Africa and this has resulted in the



paucity of readily available technical skills. Consequently, such people skills are being sought from other provinces, especially from those where there is a mining culture.

• There is still the challenge in the implementation of regulations requiring the employment of historically disadvantaged south Africans (“HDSA’s”) at middle and senior management positions. Rockwell is mitigating this challenge by actively pursuing potential recruits at university level and fast-tracking them to be able to fit into these positions in the future.

• Emerging, yet still medium size, companies are not able to offer the salaries and living/working conditions of the senior mining houses which are often located in more attractive areas.

Currently, experienced senior and middle management as well as technical skills have been obtained from the gold- and platinum- mining industry. This is not an entirely satisfactory situation as the management skills (and some specialist technical skills) required on a medium-scale alluvial diamond mine often differ significantly from those obtained on a major underground gold mine. Many of the skills can be developed through in-house training as well as on-mine experience. Unskilled labour (and some semi-skilled labour), however, is abundant and can easily be accessed from nearby towns and communities (such as Barkly West, Delportshoop and Warrenton, as well as local informal settlements. Skilled and semi-skilled labour is generally accessible from the nearby major centres of Kimberley and Bloemfontein.

17.6.9 Security Thorburn Security Solutions provide guards for patrol and access control. An integrated security system will be implemented that is able to monitor all areas of all the operation remotely – including closed circuit television on all sensitive areas of the plants and final recovery rooms, access control (fingerprint biometrics), motion detection and tracking technology, as well as guard patrols. This one system will monitor all of Rockwell’s operations in the Northern Cape (Holpan, Klipdam, Wouterspan, and Saxendrift/Niewejaarskraal) and NorthWest (Tirisano Mine) and is also linked to the Johannesburg head office by a dedicated ADSL line. Security measures are in place throughout the mining and recovery process. Similar procedures are employed in the production mining phase as in the bulk-sampling and trial-mining phases, as described in section 10.1 and 17.3 above. In summary: • Due to the extremely low grades found in the in‐situ gravels, no security measures are employed at

the mine face. Under very specific circumstances, bedrock cleaners may be required to sweep the pit bottom. Under these conditions, security guards are required to supervise the activities.

• At the plant, all areas where people may have access to gravels and, especially, concentrate, are fenced or caged off.

• The area around the sort-house is declared a Red Zone, enclosed with high-security fencing, and monitored by surveillance equipment. Access to all areas of the final recovery is controlled and monitored by closed circuit television.

• At the final recovery, all FLOWSORT concentrates are sent directly to a twin-locked secure box before they are hand-sorted in a glove box.

• The diamonds are moved from the mine to a secure facility by variable means on an irregular schedule.

17.6.10 Accommodation and offices The company’s main administration office is located in Barkly West (45km NW of Kimberley). An on-site mine office will be responsible for daily mining operations, although the majority of the administration



and logistics will be supplied from the Saxendrift mine. Senior management and guest facilities are located on the Wouterspan Mine, on the northbank of the Orange River (Plate 17.4).

Plate 17.4: Accommodation facilities on Wouterspan

17.6.11 Essential services All services and facilities, including hospitals, police, and municipal, are available in Kimberley (~200km), including the regional office of the Department of Mineral Resources. However, most essential services can be obtained at Douglas, some 66km distant from the mine.

17.7 Market Studies and Contracts

17.7.1 Market Studies

17.7.1.1 Global diamond production Total world mine production of diamonds decreased by 3% year-on-year in 2008 in volume terms (some 5 million carats), to 162.91 million carats (Fig. 17.4). The Russian federation contributed most to the production of diamonds, with total share amounting to 23% and production by volume at 36.9 million carats. Botswana slipped down the production rankings to third position behind Russia and the DRC. The DRC’s production of diamonds by volume increased by 17% to 33.4 million carats in 2008,



compared to 28.4 million carats in 2007. Production in Canada, South Africa and Australia fell by 12.9%, 15.1% and 19.4% respectively. The world’s largest producer of diamonds by value remains Botswana, with a global share of 26% valued at USD3.3-billion, followed by Russia at 20% valued at USD2.5-billion. While the DRC may have overtaken Botswana in terms of the volume of production, the value of diamond sales in the DRC was only USD418-million, which ranks the country as the seventh largest. South Africa is the world’s sixth largest producer by volume at 8% of global production and fourth largest by value at 10% of global production.

Figure 17.4: Global diamond production per country by volume and value, 2008 (Chamber of Mines

Annual Report, 2009)

17.7.1.2 The Diamond Pipeline The Diamond Pipeline can be defined as the route the diamond takes from mine to end consumer. The diamond pipeline, typically, comprises (Fig. 17.5):

Figure 17.5: The Diamond Pipeline • Exploration/Prospecting; involves geologists finding diamond deposits in different areas.

Prospecting is vital to the future survival of any diamond business as there is a predicted supply-demand gap.

• Mining and Recovery; once diamonds have been discovered and surveys shown that it is financially viable to mine them; they are now recovered from the ground. The manner in which they are mined and recovered depends on their source, thus, where they are found.

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EXPLORATION MINING SORTING CUTTING & POLISHING

POLISHED MARKET RETAILING



• Sorting and valuing; process of sorting and valuing of diamonds, categorizing them according to size, quality, model and colour.

• Cutting and polishing; refers to manufacturing of diamonds; the process of turning rough diamonds into polished.

• Polished Market; this is referred to as the ‘diamond exchange bourse’, a place where diamonds are traded. These are located in some of the world’s major diamond manufacturing centres, e.g. Belgium.

• Retailing; Polished diamonds find their way to Jewellers and Consumers through Wholesalers and Retailers.

17.7.1.3 International Diamond Market Trends In the first half of 2008, global retail sales of diamonds showed steady growth, especially into the markets of China, India and the Middle East. But because the global crisis hit the United States hardest – the world’s largest diamond market –the second half of the year was extremely challenging. The luxury sector of the United States, European and Japanese markets were particularly hard hit, with jewellery retailers in the United States alone reporting double digit sales declines between Thanksgiving and Christmas. The deterioration in the pipeline in the second half of 2008 is demonstrated by the declines in the value of diamonds in retail sales by 8.9% to USS18.4-billion, and the fall in retail sales by 11.3% to USD65-billion in 2008. The downstream fabrication and retail components of the diamond value chain not only faced declining sales, falling prices and rising stocks, but also increasing capital costs and waning credit lines to fund the inventory pipeline. Total debt in the downstream value chain was estimated to be about USD14-billion. Given this large amount of diamonds in the downstream, the reduction in consumer demand had a negative impact on the diamond mining industry. Accordingly, mining companies drastically reduced production in the second half of 2008 and in the first half of 2009. However, as of the date of this report, there has been considerable improvement in polished prices from the base reached in April 2009. Early in 2010, World Commodity Online predicted that, due to the improved global economic environment and demand outstripping supply for investment diamonds in the medium term, diamond prices would probably rise in 2010 and return to their natural annual growth rate of 12-16% in the medium term. By mid-June 2010, polished diamond prices had vaulted to their highest levels since November 2008 (MiningWeekly.com). Polished diamond prices have an impact of rough diamond sales and have shown steady improvement in 2010 so far, which is encouraging for Rockwell and the industry overall. According to IDEX Online Research reports, global polished diamond prices have continued to recover in May, extending a trend that began in the last quarter of calendar 2009 (Fig. 17.6). The IDEX index for polished sales stood at an average of 116.5 for the month of May 2010, representing a 7.1 %increase over a year ago, and a 1.6 % rise over the average price for April 2010. In terms of a sustained recovery in the diamond sector, the market requires a constant (or increased) demand for polished diamonds in the jewellery market (Des Kilalea, miningmx.com, 13 May, 2009). In this respect, a significant increase in diamond demand is predicted to emerge from China, India, Hong Kong and Taiwan, where demand may increase to 31% of global demand from 2015 onward (Real Economy Yearbook 2010). Currently these countries account for an estimated 19% of the USD65-75-billion global diamond jewellery sales. The biggest growth in the sector is expected to come from China (from a current level of 8% of global diamond turnover to an estimated 16%) and India (7% to 11%). All economic indicators for these countries continue to see sustained growth, albeit at a lesser rate than in past years. However, given the size of the population market and the new upwardly mobile segment, it is a significant market. Therefore, Asia (excluding Japan), could reach a third of total diamond

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consumption within the next five-to-ten years. In anticipation of this expansion, India launched (17 October 2010) the Bharat Diamond Bourse (“BDB”) in a major step towards becoming a global trading centre (Miningmx.com). The BDB is touted as the world's largest diamond trading centre and is located in India's financial capital Mumbai. India is the world's largest cut diamond exporter, with annual exports of around USD28bn, but trading volume is negligible. India's diamond industry could grow by an average 10% to 15% each year in the next five years, as the new bourse attracts global traders.

Figure 17.6: IDEX index for cut-stones for the period Nov 2009 to Oct 2010 The United States is currently the largest diamond consumer, accounting for 40% of the market, compared to seven percent for India and four percent for China. China is a growing rival to India's dominance of the cut-diamond market, sourcing stones from Zimbabwe, Angola and the Democratic Republic of Congo. Conversely, Japan at 11% and the US at 40%, are expected to drop to 9% and 35% respectively. Notwithstanding, the US market still remains the most important consumer of diamonds. According to various sources (Read and Janse, 2009; Kilalea, 2008), there is the suggestion that the peak world diamond production has, or will soon be, passed and that long-term diamond industry fundamentals suggest that the aggregate level of diamond demand will exceed supply, resulting in sustained price growth over the next decade (Fig. 17.7).

17.7.2 Rockwell Sales and Contracts In compliance with government regulations to the local cutting/polishing market, Rockwell offers all of its diamonds to the State Diamond Trader (“SDT”). Each diamond parcel that is sent from the mine to Johannesburg is presented to the SDT to select which stones they would offer to purchase (to an agreed maximum of 10% of the production). The SDT then puts in a purchase offer for the stones, which Rockwell may refuse or accept. If Rockwell refuses the bid, then the Government Evaluator will examine the stones and refine the purchase offer, which Rockwell may accept or refuse. If Rockwell refuses the offer then a third party, independent valuator will value the stones and set a price that both parties must accept. Because of the market supplied by the SDT, the selected stones are generally at the smaller end of the spectrum and do not represent the run-of-mine production.



Figure 17.7 Long term rough diamond supply/demand outlook 2000 to 2018, prepared by WWW

International Diamond Consultants Ltd using January 2009 values (redrawn from Read and Janse, 2009).

17.7.2.1 Diamond Sales All Rockwell diamonds not purchased by the SDT are sold through Flawless Diamonds Trading House (“FDTH”). FTDH is a private company where certain directors and officers of the Company, namely, Messrs. J Brenner, J W Bristow, and D M Bristow are shareholders. FDTH was established, and is still run by, experienced and internationally recognized diamantaire, Jeffry Brenner. FDTH is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the Company for a fixed fee of 1% of turnover which is below the market rate charged by similar tender houses. FDTH was established in the premises of South Africa's internationally recognized high security diamond trading and manufacturing hub known as Jewel City, located on Commissioner Street in Johannesburg. The facility is operated by a small and highly experienced marketing and valuation team which, collectively, has over 100 years of rough diamond valuation, marketing and sales experience. FDTH follows rigorous diamond handling, security, and Kimberley Process protocols, and all marketing and sales procedures are monitored and facilitated by a proprietary computer based system. This system provides independent and transparent verification of results for sellers and buyers, and is acknowledged in the industry as a leading standard for transacting diamond sales. FDTH operates an independent, fully transparent “sealed-bid tender system” for the sale of diamonds from a number of public and private diamond producers. Key to the success of the FDTH tender sales is the software system, wherein the administrators and staff have zero knowledge of, and influence over, the prices tendered. Prior to delivery to FDTH, Rockwell packages the diamonds according to their mine-of-origin. Although they are cleaned in Hydrofluoric Acid (HF) at the mine, no further enhancement techniques are employed. Prior to pre-arranged sales dates, Rockwell delivers the diamonds to FDTH, where they are cleaned again, sorted and divided into categories or parcels according to the different specialities of

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buyers (for example, Indian, Belgian or New York Buyers). The different category or parcels of diamonds are sorted, parcelled and labelled, with each parcel having a unique reference number. The parcels are added to a manifest of goods for sale and this manifest is made available to buyers. Reserve prices are set by FDTH but are not disclosed to bidders. An invitation is then sent to all buyers to make an appointment for viewing. Tenders, typically, run for six working days, dependant on the size of the parcels. FDTH has eight private viewing and buying offices in Johannesburg in the Diamond Centre. As additional security measures, each office has 36 cameras (with a recording system) as well as three persons surveying the buyers from behind one-way protective glass to ensure no swapping of diamonds. Buyers spend, on average, some four hours viewing the individual parcels and then make their respective bids, directly into the computer. The systems administrator does not discuss and cannot view the prices offered by respective buyers. Once all sealed bids have been received from buyers at the end of the six-day viewing period, the bids are processed by computer and a printout of the results is obtained. This printout shows the prices bid for each parcel or category of stones by each bidder. The highest bidder per category or parcel is awarded the sale for that category of stones, subject to the bid price being above the reserve price. In the case that the reserve prices are not met, FDTH and the producer have the discretion to either sell or withdraw these parcels from the tender sale. Once the producer has decided to sell or withdraw the parcel, all results are SMS’d to successful buyers. Payment to producer is within 48 hours of closure of tender and parcels are then released to the bidders subject to funds having been received and cleared by FDTH, which ensures that all regulatory and VAT requirements are completed for the respective transactions. In the six month period ended 30 November 2010, Rockwell received a revenue of USD19.7 million from these tender sales.

17.7.2.2 Sales Contracts In July 2008, Rockwell entered into a mutually non-binding agreement with the Steinmetz Diamond Group (“SDG”) whereby Rockwell may offer to Steinmetz rough diamonds for beneficiation and onward sale. Under the terms of the agreement, any stones selected by Steinmetz (typically good quality, clean stones +50ct in size), will be paid for at 90% of their rough value. Steinmetz will, at their own cost, cut and polish the stone. If the stone shatters (due to internal flaws), no further payment is made to Rockwell. If the stone cuts/polishes successfully and is sold, Rockwell is paid the outstanding 10% of the rough value, plus 50% of the profit obtained on the cut stone. During the year to date, the Company has also received approximately USD1.6 million as its portion of profit share from stones that have been beneficiated in terms of Rockwell's agreement with SDG. This profit share has been derived from stones sold into the SDG beneficiation agreement in November 2009 and August 2010. The Company has a large number of +10 carat stones currently undergoing beneficiation and sales with SDG and expects to achieve a regular income flow from this source during the second half of fiscal 2011.



17.8 Environmental studies, Permitting and Social/Community Impact

17.8.1 Environmental A detailed Environmental Management Programme (“EMPR”) was completed by HCVWD as part of their application for a Mining Right in May 2009. For information on rehabilitation guarantees, refer to section 3.4.1. Pollution Potential The potential for pollution from rehabilitated land and discard dumps after the issuing of a closure certificate in terms of Section 12 of the Minerals Act, 1991 could be any of the following: Air: As all mined areas and discard dumps will have been rehabilitated, contoured, landscaped and compacted prior to the start of the re-vegetation process, it is not anticipated that there will be any dust pollution. Water: Acid mine drainage is not a feature of alluvial diamond mining so there is no concern for this aspect after closure. With the careful anti-erosion measures applied during the life of the mine and during rehabilitation, it is not anticipated that there will be any pollution of water owing to erosion. Monitoring of this will have ensured that any remedial measures were applied timeously. Mitigatory measures and monitoring applied during the life of the mine will have prevented pollution of water (or soil) from sanitation, waste disposal, or hydrocarbons. The water quality of the mine residue dam will have been monitored on an on-going basis so that mitigatory measures can be taken if any form of water and / or soil pollution is noticed Ground level:

It is not expected that there will be any pollution of the surface (see above) following closure. Surface infrastructure will have been re-vegetated and stabilised and any erosion will have been controlled. Re-seeding will be considered if re-vegetation does not proceed according to plan. Hazardous and general waste disposal will have been in compliance with legislation and any pollution minimised. Potential pollution from hydrocarbons will be strictly monitored and controlled to prevent pollution of ground as far as possible. Sanitation has been designed to minimise the risk of ground and ground water pollution.

Aesthetic Acceptability The mined areas and discard dumps will have been contoured to blend in with the surrounding environment and compacted prior to the start of re-vegetation. There will be no steep slopes or high dumps so it is not expected that they will appear as an intrusion on the landscape. Early “diggers” who left large heaps of banded ironstone or “Rooikoppie” wherever they had worked had disturbed most of the area. The present mining project that will have reworked these areas and then rehabilitated them, will thus have ensured that the aesthetics of the area are a great deal better than they were at the start of the project. Required Maintenance Maintenance and monitoring are required in terms of regulatory compliance. Such monitoring forms the basis of a biennial report to the DME. Remedial measures and the necessary corrective action will be applied as soon as any problems are detected. Assuming that the closure objectives are met, it is expected that the net overall impact of the project on the environment will not be detrimental. Early diggers who left mounds of “Rooikoppie” everywhere they worked had already disturbed the majority of the area. These heaps were of no use for any agricultural use, game farming or any other land use. After these “Rooikoppie” areas have been worked, rehabilitated and returned to the natural vegetation, they will be in a far better condition than when the project started.



17.8.2 Mine Closure One of the main objectives of the Social and Labour Plan (see 19.5 below) is to deal with the potential problems that may arise in the future when the mine naturally closes or if downscaling occurs due to whatever reason. The Future Forum will provide structures to facilitate the consultation processes so that HCVW management and worker representatives and recognized trade union representatives can meet on a regular basis to discuss workplace issues. The intention is to provide a formal vehicle where all affected parties can consult and discuss challenges and possible solutions to problems facing the workplace that may have the potential to lead to large scale retrenchment in the future. The most direct and appropriate intervention is for HCVW to assist employees who could be retrenched in securing alternative employment. HCVW has put a number of mechanisms in place to mitigate the impact of job losses in the event of a downscaling or closure of the mine. Some of the measures that will be used are: • Reduce benefits and bonuses • Reduce hours of work • Redeployment • Retraining and multi-skilling The management of HCVW will endeavour to avoid retrenchment wherever possible, through effective planning. Where there is no other alternative, retrenchments will be carried out as fairly as possible and in compliance with section 189 and 196 of the Labour Relations Act of 1995. The HCVW retrenchment policy will apply to all employees other than casual and temporary employees. Retrenched employees may receive compensation in accordance with HCVW’s policy on payment of severance benefits. The mine closure plan is subject to a range of legislation outside of the MPRDA. Care has been taken in this closure plan to ensure that the plan not only subscribes to the spirit and intent of the MPRDA and the Charter, but is consistent with other applicable statutory requirements. Mine closure will be as per Closure Plan in the approved EMPR. The closure objectives will be to leave the land in a rehabilitated state. Some areas would still be fenced off and would require monitoring and control of alien plants until closure. All mining structures and infrastructure, unless agreed otherwise with the landowner in this regard will be removed. All temporary buildings, containers, salvage materials and supplies will be removed. This will include the removal of foundations and debris and rehabilitation of the surface. All equipment and machinery, workshops and parts and stores will be removed and the area rehabilitated. Water storage facilities, disposal facilities and pipelines will all be removed unless agreed otherwise with the landowner. Roads will be ripped and rehabilitated unless otherwise agreed with the landowner. The closing or leaving of any boreholes will be discussed with the landowner. The mine floor will be profiled and will be rehabilitated for the purpose of end use. Adequate drainage will be ensured and mine side will be profiled to a minimum of 1: 3 slope. Monitoring of the rehabilitation, prevention of erosion, re-vegetation and control of alien vegetation will be required until the time that closure is approved. Post closure monitoring, closure and rehabilitation plans will be developed for the mine, including integrated water and waste management and air quality management. The plans will be updated annually

17.8.3 Social Responsibility Along with focused business objectives, Rockwell's social responsibility values and commitments form an integral part of the mining operations. Rockwell is committed to providing increased returns to



shareholders while sharing the value created from the operations with a wider set of stakeholders through the alignment and linkage of business and social responsibilities.

17.8.3.1 Social and Labour Plan (SLP) According to the MRPDA a Social and Labour Plan (SLP) is required to be submitted to the DMR along with the other requirements for a mining right. The objectives of the SLP (according to the MPRDA) is to promote employment and advance the social and economic welfare of all South Africans; to contribute to the transformation of the mining industry; and to ensure that holders of mining rights contribute toward the socio-economic development of the areas in which they are operating, as well as the areas from which the majority of the workforce is sourced. In harmony with these objectives, the SLP requires that the company address literacy levels and life skills within the workforce as well as implement career progression paths, mentorships, internships and bursary plans for its employees. In addition, the company is required to contribute to the upliftment and development of the local communities through procurement, establishment of a Future Forum and the creation of Small, Micro and Medium Enterprises (SMME’s). During the tenure of their mining operations Rockwell has made considerable financial and technical commitments to developing alluvial diamond mining operations in the Northern Cape Province of South Africa. The performance and development of human resources are critical to the long term development of successful mining operations and, consequently, Rockwell is highly cognizant of the need to develop a comprehensive, innovative, and sustainable SLP to achieve:

• Creation of sustainable communities within the environment that the Company operates • Infrastructure that will develop both mining operations and communities • Lasting economic stability in the mining environment which will outlast mining operations • Development of the human resources employed within the Company via training and skills

transfer • Development of the human resources within the adjacent communities • Empowerment of employees to achieve ownership in the Company and other businesses.

In terms of the approved 2007 SLP submitted by Rockwell (HCVWD), the company produced a programme that would be implemented across all the mines currently in the Rockwell stable as well as any that are acquired in the future, and which is to be managed by the Human Resources Manager, ensuring that programme receives required specialised attention. The company, further, implemented career progression planning, mentorship and coaching programmes as well as internal and external bursary schemes. In addition, employment equity in management, operational staff and participation of women are given highest priority. This SLP was developed in conjunction with Stakeholders from all the areas and municipalities in which Rockwell operates including Regional and Local Government, the Departments of Housing, Education and Health, The Department of Mineral Resources, other exploration and mining companies, communities and individuals, as well as company employees. The SLP is premised on the integration of the following: • Human Resource Development (HRD) including:

Education, Training and Skills Transfer to ensure Portability of Skills Employment equity development to reflect the demographics of South Africa in respect of

management and operational positions Development of women

• Sustainable local economic development (LED) requirements with the emphasis on addressing the Integrated Development Programmes (IDP’s) of local Municipalities and meeting the needs of those Communities most directly impacted by mining operations including: Infrastructure development projects such as roads, schools and clinics



Community housing projects Creation of Small and Medium Enterprises (SMME) The alleviation of poverty

• Planning for Closure including creation of a Future Forum. The programmes and projects that would be implemented as part of this SLP and the financial commitments which would be made to these projects in 2010-2012 are summarized below (Table 17.2). Note that these costs (ZAR) refer to the total cost incurred by all of the mines in the Rockwell stable – each Mine will need to carry only a pro‐rata percentage of this total. This percentage is determined annually in arrears and varies according to the number of mines in operation at the end of each year. The total SLP cost is then spread equally across the operations. Table 17.2: Total expected expenditures budgeted for the Social and Labour Plan – Wouterspan

will only pay a pro-rata percentage of these amounts Projects already completed as per the Social and Labour Plan: • Sponsored a series of interpretative displays which forms part of a self-guided tour through the old

digging remains at Canteen Kopje, Barkly West. Canteen Kopje was the first diamond digging site in Barkly West and is a proclaimed national monument and open air archaeological museum;

• Sponsored school bus for transporting learners within the district to Prieska Primary School as part of the school development program. The school bus will enable learners to participate in various school excursions and sporting events in the district;

• Developed a play-park for the Windsorton community in collaboration with the local municipality and the South African Police Service, Windsorton branch. This project forms part of the anti-crime project currently implemented in Windsorton. This current play-park is the only dedicated recreational facility available for the 1,200 primary school learners in the community.

• The company assisted with a South African Police Services (SAPS) project during October 2008 in Niekerkshoop.

• The company also assisted with a small scale diamond project for the people of Windsorton that was initiated by DMR.

• Sponsoring the appointment of a Sports Coordinator by the local High school to promote sports development within the local Barkly West community

• Sponsoring a local High school’s soccer team • Repairing a local High school’s infrastructure • Upgrading a local High school’s sports equipment • Help with the supplying of food to a local high school’s hostel for under-privileged children. • Supplying two computers to a local primary school • Help with the supplying of food to a local primary school’s feeding scheme • Repair and maintain the vehicles for the local orphanage. The establishment of a play-therapy room

at the orphanage. Repair and upgrade the children’s rooms. Repair and upgrade the outside of the

Expenditure Centre 2010/2011 2011/2012 Integrated Development Programme (IDP) 300,000 280,000 Local Economic Development (LED) 1,275,000 1,275,000 Small and Medium Enterprises (SMME) 180,000 150,000 Human Resource Development (HRD) 1,155,000 1,130,000 TOTAL (Rands) 2,910,000 2,835,000



main building of the orphanage. Upgrading of the play park at the orphanage. Help with the supplying of food to the orphanage. Supply two computers for study purposes.

Projects currently in progress as per the Social and Labour Plan: • Development of an HIV/AIDS consultation office for the Holpan community. The unit caters for two

consultation rooms and a store room and will be staffed and managed by the Department of Health; • Providing usage of earth-moving equipment for the Dikgatlong municipality in the preparation of

the Holpan community development which is earmarked for a local housing project. • A number of road upgrade and health care facility projects are underway in the Holpan, Riverton,

and Douglas districts. • Various levels of assistance in local clinics, schools and orphanages. • Repairing a local High school’s infrastructure - Barkly West • Sponsoring the appointment of a Sports Coordinator by the local High school to promote sports

development within the local Barkly West community • Help with the supplying of food to the local high school’s hostel for under privileged children in

Barkly West • Sponsoring a local soccer tournament in Barkly West • Upgrading of infrastructure with regards to water supply at a local primary school in Barkly West • Sponsoring four local school soccer teams in Barkly West • Upgrading infrastructure at the high school in Prieska • Ongoing assistance and maintenance at the local orphanage in Barkly West • A skills audit will be completed on the Wouterspan mine. ABET training has been established on the

Saxendrift mine and functionally illiterate Wouterspan employees will receive training there. • Entrepreneurial training is underway for the eradication of invader plant species

17.8.3.2 Special projects In addition to the broader initiatives contained within the Social and Labour Plan, Rockwell has also undertaken a number of special projects in the Barkly West district, where the company has its main operations centre. These include: • Sponsoring the purchase of sporting equipment for Department of Social Services (Barkly West

branch) Youth day program (16 June 2008); • Regularly availing earth-moving equipment for ad hoc projects (e.g. clearing of roads, preparing of

sport fields) taking place within the Holpan community; • Presenting an HIV/AIDS awareness programme at the local school in Longlands. This project

(Project Thusanang) was initiated by the South African Police services branch in Delportshoop and forms part of an anti-crime initiative at the local schools.

• Rockwell sources all of its brick requirements from Bokomoso, the company that Rockwell helped develop by supplying brick and tile making equipment.

• Rockwell has also supported a children’s home, a primary school and a high school in the Barkly West district with financial aid, physical maintenance, establishing/upgrading media centres and contributions to feeding schemes and sports facilities.



17.9 Preliminary Assessment This preliminary assessment (“PA”) was prepared to define the overall scope of the Wouterspan project, perform preliminary mine planning, report on test work and process design, estimate capital and operating costs and determine the economics to develop the project as an open pit mine. This assessment includes an economic analysis of the potential viability of the mineral resources prior to the completion of a prefeasibility study. The assessment benefits from two years of bulk-sampling and an additional seven months of trial-mining (for a total of some 3,200,593.95m3 of gravel processed).

17.9.1 Principal Assumptions

17.9.1.1 The tonnage/volume and grade of the mineable material In this preliminary economic assessment, both indicated and inferred mineral resources , as estimated in this NI43-101 technical document, are used (Table 17.3). Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized. Table 17.3: Resources used in the life of mine plan Inferred

Resources Indicated Resources


Ave Value (USD/ct)

Rooikoppie 5,911,000 714,400 0.70 2,029


TOTAL 37,774,000 5,025,500 0.70 2,029 ∗ At 2mm bottom cut-off

17.9.1.2 Life of Mine The preliminary estimation of mine life is 2.3 years, based on indicated mineral resources only. An additional 8.7 years may be added if inferred mineral resources are included (for a total of 11 year LoM). No account has been taken of any exploration targets or additional property acquisitions which are also expected to influence the LoM positively. On-going exploration to convert inferred resources to indicated resources and the identification of additional resources on the B and C terraces will also affect the downstream life of the mine, as would the acquisition of additional mineral holdings adjacent to the mine. Due to the speculative nature of these exploration targets, they are not considered in the life-of-mine planning.

17.9.1.3 The annual production of diamonds Production targets of 180,000m3 gravels per month are targeted for the first 12 months of the project, thereafter the throughput is to be increased to 340,000m3/month. At the current resource grade of 0.7ct/100m3 the annual expected carat recovery is 15,120ct for phase 1 and28,560ct for phase 2.



The average diamond grades used in the study are the actual recovered values (based on the processing of gravel since 2005). Consequently, no additional modifying factors are added to discount in‐situ diamond grades. The gravel volumes are run of mine (“ROM”). Where appropriate, volumes may be converted to tonnes by an average SG of 2.1g/cm3, an industry acceptable average for the type of gravel under consideration.

17.9.1.4 The annual revenue to be received from the sale of diamonds Sales of diamonds from the adjacent Saxendrift project during the period 2010 indicates that expected values are in the range of USD2,029/ct. During the first month of 2010, diamond prices have been particularly strong, certain categories increasing in price by more than 25%. However, this rate of increase is not seen as sustainable. Rather, average annual increases in gem quality diamond prices are expected to continue to be in the 10-15% range (different categories will command different rates of increase depending upon the disparities of supply and demand), especially in the emerging Chinese markets which continue to grow along with the rest of their economy, but at a slightly lower pace. (Pers. Comm. E Blom, Vice-President of the World Diamond Council, 2011).

17.9.1.5 The annual cash cost of production, both on-site and off-site Based on trial-mining at the adjacent Saxendrift mine, as well as Rockwell's experience at their other mines, preliminary estimates of operational expenses are expected to average at R45/m3 (during 2011). Budgeted expenditures include: • Direct mining costs. These costs include excavation, processing and rehabilitation. Since there is no

stripping24

•

, mining and processing costs are calculated together. Rockwell is presently investigating making use of contract miners as opposed to owning/operating their own fleet. Current discussions with various mining contractors are priced at R36/m3. Marketing costs

• : A 1.5% commission of the final diamond sales value is paid to the tender house.

General & Administration

•

:. These costs include expenses that are not directly chargeable to the plant or mining areas. Power & water

• costs of R450,000-500,000 monthly are included in the mining costs.

Land Rental

• A total staff complement of 240 persons with a total monthly labour cost of some R1.2M.

: monthly payments are to be made to the landowner, Mr Vlok, in the amount of ZAR125,000 once the mine is re-commissioned. Currently, during the period of Care & Maintenance, this figure is ZAR50,000.

• Contingency cost variable of 15% might be added onto estimates, since they are based on current quotations from suppliers to Rockwell.

• The salvage value of assets

is estimated at 2% of its initial cost, based on the practical experience of independent earthmoving contractors.

Not included as on-mine costs are: • Corporate overheads:

24 As has been described in other sections of this document, the mine-plan calls for the processing of the entire fluvial-alluvial sequence (and not only the basal gravels). As a result, there is no stripping ratio to be considered.

includes a management fee of some ZAR2M (covering the Johannesburg and Barkly West office costs as well as a contribution to the Canadian office) that is split pro-rata amongst all of the operating entities annually in arrears. In addition, the Saxendrift operation is responsible for the Care & Maintenance costs of the Wouterspan and Niewejaarskraal properties



(some ZAR4M annually) • Shared Company services

•

: these costs include overheads comprising administrative personnel, consultants, general office supplies, IT, safety and training, employee transportation, contractors, insurance, permits, security, legal, and accounting. Social and Labour Plan

costs include ZAR500 000 towards the core skills training and HRD budget for 2006/7 and 2007/8 financial years (this amount includes the 1% of payroll annual skills development levy, which includes core skills development and training programmes, but which excludes other, more specialized training programmes such as ABET (Adult Basic Education and Training), internships and bursaries).

17.9.1.6 The annual cash liability for royalties

In terms of the proposed formulae, the applicable royalty rates will vary according to the profitability of the mining company, subject to a minimum rate of 0.5% and maximum rate 7.0% for diamonds. The profitability parameter in the formulae is EBIT and it also allows for 100% capital expensing which is an acknowledgement of the high capital costs associated with mining. Although the 2008 Royalty Bill was effective from 1 May 2009, in cognisance of the international economic crisis, the South African Treasury deferred payment of State royalties until March 2010. The general formula (see section 18.2.3.4 for details) is Y(u) = 0.5 + { EBIT / (Gross sales x 9) } Where Y(u) = Royalty percentage rate; and EBIT = Earnings before interest and taxes (EBIT can never go below zero).

17.9.1.7 The annual level of cash capital expenditure required ZAR 122,205,672 has been budgeted to bring Wouterspan into full production over two phases (Table 17.4). The mining/processing on Wouterspan is planned at 340,000m3/month (4,080,000m3/annum) at full capacity. This is expected to be achieved through an initial phase of 160,000m3 per month for one year, followed by a ramp up to full production. The majority of the capital for the complete processing facility will be spent during Phase 1, with additional expenditure following commissioning of the operation. Table 17.4: Proposed capital expenditure to re-commission Wouterspan mine

Phase 1

Processing Plant 61,436,732

Plant Control Building 10,334,570

Workshop 408,000

Stores 373,000

Recovery 6,842,500

Vehicles (non earthmoving) 2,930,000

Infrastructure 8,004,670

TOTAL ZAR 90,329,472



Processing Plant

Phase 2

28,500,000

Plant Control Building 3,326,200

Infrastructure 50,000

TOTAL ZAR 31,876,200

Phase 2 expenditure will expand the capability of the final recovery system on Wouterspan and upgrade the access roads and accommodation facilities on the property. During Phase 1, the majority of Wouterspan labour will be accommodated at the nearby Saxendrift mine and will be transported to/from Wouterspan on a daily basis. Meals will also have to be transported to the mine site daily. This situation is not desirable for any length of time, hence the necessity of the infrastructural upgrades.

17.9.1.8 Taxation The tax year in South Africa runs from 1st March until end of February of the following year. The system applied is residence based, so the income is taxed where it is earned i.e. the place of incorporation. Government revenue is raised primarily from income tax on businesses, individuals and trusts and from the 14% value added tax (VAT) on all goods and services. Company tax for the period April 2010-March 2011 is 28% (foreign resident companies which earn income from a source in South Africa, are taxed at 33% and no income tax would be payable while accumulated capitalised expenditure exceeds net income). Other direct taxes include: • Capital-gains tax (14% for companies) • Secondary tax on companies on (SCT) of 10% on the excess of dividends declared over dividends

received. South African branches of foreign resident companies are exempt from STC. • Transfer duty on certain transactions (acquisition of property), which are not subject to VAT • A Skills Development Levy is payable by employers at a rate of 1% of the total remuneration paid to

employees. Employers paying annual remuneration of less than R500 000 are exempt from the payment of the levy.

• Unemployment Insurance Contributions are payable monthly by employers on the basis of a contribution of 1 per cent by employers and 1 per cent by employees, based on employees’ remuneration below a certain amount.

• Other tax proposals include the introduction of a carbon emissions tax of R75 per g/km for each g/km above 120g/km on new passenger vehicles from 1 September 2010 and a levies increase of 25.5c per litre of petrol and diesel from 7 April 2010 for the fuel and road accident fund

There are a number of tax and investment available that are meant to promote employment, development of Small & Medium Scale Enterprises, reduce poverty and inequality, strengthen BEE, increase competitiveness, attract higher levels of domestic and foreign investment and facilitate sustainable growth. Incentives are available to both domestic and foreign investors. Tax losses by a company may be carried forward and offset against future profits. There are tax allowances on factory plant, buildings and on approved investments. VAT is levied at the standard rate of 14% on the supply of goods and services by registered vendors. A vendor making taxable supplies of more than R1 million per annum must register for VAT and a vendor making taxable supplies of more than R50 000, but not more than R1 million per annum, may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT. Both Rockwell and HCVWD are vendors for VAT purposes. During the construction phase of any project, the



VAT on the capital purchases is netted of against the VAT on sales, and the difference is either claimed/paid over to the Receiver of Revenue. The VAT on purchases is separated into VAT input on capital and VAT input on services and goods other than capital and depending on the purchase type it is declared as such to the Receiver of Revenue

17.9.2 Preliminary Cash Flow Estimates A preliminary economic assessment was completed for the Wouterspan Project over the period of the estimated life of mine. In this preliminary economic assessment inferred mineral resources, as estimated in this NI43-101 technical document, are used. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized. Two scenarios are presented – a base case where all data are presented in 2011 values (Table 17.5) and the situation where diamond prices and operational costs are escalated annually by realistically assumed values (Table 17.6). In both cases the Capex of ZAR122M will have been spent prior to the cash-flow period, during the bulk-sampling and preparation for trial-mining. Alluvial deposits generally comprise a significant proportion of gem quality stones for which annual price escalation far exceed that of average kimberlite diamonds (SA Diamond Council, Pers. Com.). Such annual escalation of sales values is particularly significant in projects that have extended mine lives. Being a luxury item, the demand (and, consequently, the price) of gem diamonds is expected to be in tune with the international economic trend. Under normal circumstances (no international economic meltdown as in 2008) the diamond price is going to increase annually since demand far outstrips supply (Read & Janse, 2009). For kimberlite diamonds, the potential annual price increase is estimated to be less than about 4% (Alrosa Diamond Market Outlook, June 2010; BMO Capital Markets). However based on the past production at Rockwell’s alluvial mines, the Wouterspan Mine is expected to produce gem quality alluvial diamonds, for which higher expected annual increases would make a material difference in the final NPV. The annual price escalation is, further, compounded by volatility of the South African Rand exchange rate. Historically, the South African currency has been extremely unstable, however, current economic forecasts indicate expected devaluation of some 3.3% p.a. (Investec Q4, 2010 macro-economic forecasts). In addition, the annual increase in operating costs is also a significant consideration as inflation, especially in long-term projects where the estimated inflation rate (for mining projects in South Africa) is expected to be around 9% per annum (see section 17.9.2.3).

17.9.2.1 Payback Period Based on current production projections, the payback period has been calculated at one year and one month. It is important to note that, for alluvial diamond deposits, the majority of the Capex is spent prior to the completion of the pre-feasibility study and only limited capital expenditure is required thereafter.



Table 17.5 Preliminary Economic Assessment of the Wouterspan Mine (base/static case) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11

Volumes 2,160,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 3,919,500

Carat 15,120 28,560 28,560 28,560 28,560 28,560 28,560 28,560 28,560 28,560 27,437

Grade 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70

Selling price (USD/ct) 2,029 2,029 2,029 2,029 2,029 2,029 2,029 2,029 2,029 2,029 2,029

Revenue (USD) 30,678,480 57,948,240 57,948,240 57,948,240 57,948,240 57,948,240 57,948,240 57,948,240 57,948,240 57,948,240 55,668,659

Exchange rate 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

Revenue (ZAR) 208,613,664 394,048,032 394,048,032 394,048,032 394,048,032 394,048,032 394,048,032 394,048,032 394,048,032 394,048,032 378,546,878

Operating Cost (ZAR) at ZAR45/m3

97,200,000 183,600,000 183,600,000 183,600,000 183,600,000 183,600,000 183,600,000 183,600,000 183,600,000 183,600,000 176,377,500

Royalties 11,473,752 21,672,642 21,672,642 21,672,642 21,672,642 21,672,642 21,672,642 21,672,642 21,672,642 21,672,642 20,820,078

Tax (28%) - 5,512,092 - 27,243,985 52,857,109 52,857,109 52,857,109 52,857,109 52,857,109 52,857,109 52,857,109 52,857,109 50,777,804

Net Profit 105,452,005 216,019,375 135,918,281 135,918,281 135,918,281 135,918,281 135,918,281 135,918,281 135,918,281 135,918,281 130,571,496

HP 15,200,000 20,800,000 20,800,000 20,800,000 20,800,000 5,600,000

Free Cash 90,252,005 195,219,375 115,118,281 115,118,281 115,118,281 130,318,281 135,918,281 135,918,281 135,918,281 135,918,281 130,571,496

Table 17.6 Preliminary Economic Assessment of the Wouterspan Mine (escalation case) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11

Volumes 2,160,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 4,080,000 3,919,500

Carat 15,120 28,560 28,560 28,560 28,560 28,560 28,560 28,560 28,560 28,560 27,437

Grade 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70

Selling price increased by 10%pa 2,232 2,455 2,701 2,971 3,268 3,594 3,954 4,349 4,784 5,263 5,789

Revenue (USD) 33,746,328 70,117,370 77,129,107 84,842,018 93,326,220 102,658,842 112,924,726 124,217,199 136,638,919 150,302,811 158,829,180

Exchange rate 6.8 increase by 3.3% 7.02 7.26 7.50 7.74 8.00 8.26 8.54 8.82 9.11 9.41 9.72

Revenue ZAR 237,047,706 508,786,028 578,133,563 656,933,168 746,473,159 848,217,450 963,829,489 1,095,199,448 1,244,475,133 1,414,097,093 1,543,628,335

Operating Cost increased by 9%pa 105,948,000 218,135,160 237,767,324 259,166,384 282,491,358 307,915,580 335,627,983 365,834,501 367,200,000 400,248,000 419,108,216

Royalties 13,037,624 27,983,232 31,797,346 36,131,324 41,056,024 46,651,960 53,010,622 60,235,970 68,446,132 77,775,340 84,899,558

Tax (28%) - 0 - 4,787,191 86,399,290 101,257,929 118,419,218 138,221,975 161,053,448 187,356,114 226,472,120 262,100,651 291,093,757

Net Profit 118,062,083 267,454,827 222,169,603 260,377,531 304,506,559 355,427,935 414,137,437 481,772,864 582,356,880 673,973,102 748,526,804

HP 15,200,000 20,800,000 20,800,000 20,800,000 20,800,000 5,600,000

Free Cash 102,862,083 246,654,827 201,369,603 239,577,531 283,706,559 349,827,935 414,137,437 481,772,864 582,356,880 673,973,102 748,526,804



17.9.2.2 Sensitivity Analysis As a consequence of the changeability in some of the key input parameters, a Sensitivity Analysis to these parameters is performed as a tool to accommodate these variables. The determined critical value drivers, typically being commodity prices, production rates, working costs and capital expenditure forecasts, are altered through a step-wise approach. The resultant values are then considered and the overall value of the asset is weighted according to the perception of applicable risk associated with each parameter. However, a Sensitivity Analysis does not take cognizance of the knock-on effect that changing one or more input parameters has on the value of a mineral asset. That is, a Sensitivity Analysis ignores the fact that any change in the economics of a project will impact on the pay value curve of that project. Therefore, Sensitivity Analyses that demonstrate meaningful (over 5%) adjustments to any operating parameter should not be contemplated unless the mining profile can be convincingly amended. Such variations are, however, likely to occur in practice and hence the robustness of the project still needs to be checked. • The notional free cash flow is particularly sensitive to changes in revenue and cash operating cost.

Due to their geological similarities, sensitivities are based upon experience at the adjacent Saxendrift mine (Fig.17.8).

Figure 17.8: Revenue sensitivity to key variables

• The 0% in the middle of the graph represents the revenue/costs estimated in 2010, as estimated in

the cash-flow (Table 17.5 and 17.6). As each variable is increased/decreased by percentages up to 15%, the Y axis shows the increase/decrease expected in the free cash flow.

• Revenue, in turn, is dependent upon grade, diamond sales price and the rate at which diamond prices escalate annually.

• Cash operating costs are impacted, inter alia, by mining rates and inflation rates.

o If all other parameters remain constant, 0.35ct/100m3 reflects an economic cut-off average grade. However, even minor increases in grade result in significant increases. Consequently, it

-20,000,000

-15,000,000

-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

(15%) (10%) (5%) 0% 5% 10% 15%

Not

iona

l Fre

e Ca

sh F

low

(ZAR

)

% Change in Variable

Revenue Cash Operating Cost



is vital that mining and processing methods are optimised to ensure maximum diamond recovery.

o Optimal mining rates (4,080,000m3/annum ) have been determined for the Wouterspan operation through a review of matching production and capital/operating costs. Decreasing the mining and processing rate would have the effect of decreasing the profitability of the operation, although the life of mine may be increased. Increasing the mining rate, conversely, increases the profitability. However, this would require further capital expenditure and would, also, increase the mining costs

o If, however, additional exploration can increase the available resource, then the life of mine may be increased, thereby also increasing the value of the mine.

o The cash flow is, further, sensitive to changes in diamond price – at current production rates and mining costs, diamond values below USD1,100/ct result in negative profitability for the Wouterspan project. The cash flow is, furthermore, sensitive to inflation rates. Inflation rates of 3-6% are targeted by the South African Reserve Bank for the medium term. The higher rates of inflation envisaged for mining costs (especially increases in power costs) severely impact on the economics of the project.

• An increase of even 5% in working costs decreases the profitability of the operation. Consequently,

as with all commercial alluvial diamond operations, operating costs have to be watched carefully, avoiding all unnecessary expenditure.

• The project is also sensitive to Capital Expenditure (Capex) costs (Fig. 17.9).

Figure 17.9: Capex sensitivity As can be seen from this diagram, any increase in Capex will negatively affect the cash flow of the Wouterspan project. This diagram assumes a base of ZAR122M, the amount currently budgeted to bring the Wouterspan mine into production. Increase in Capex shows a concurrent decrease in both NPV and IRR. Although the NPV discount value illustrated here is at 20%, a similar pattern can be seen for any selected value.

0

20

40

60

80

100

120

140

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

IRR

(%)

NPV

(dis

coun

ted

at 2

0%)

Capital Expenditure (ZAR)

NPV

IRR



17.9.3 Financial Parameters

17.9.3.1 Exchange rates Exchange rates are clearly influenced by a wide range of economic factors, and the importance of each varies both from country to country and, for any given currency, over time. The six main factors, according to Foreign Exchange Consensus Forecasts (March 10, 2008) are: relative growth, inflation differentials, the trade or current account balance, short- and long-term interest rate differentials and equity market flows. Nominal interest rate differentials remain the most powerful of the six main factors ranked for most industrialised country currencies, while trade and current account positions play an important medium-term role for emerging market currencies. Inflation expectations and equity flows have also become more closely watched by investors, as risk aversion has intensified. Among the other factors affecting exchange rates, ‘market volatility’ or ‘risk aversion’ has been cited as important for numerous currencies, reflecting uncertainty about the global outlook and today's reduced appetite for risk. Unlike the previous boom period, when low interest rates encouraged credit and investment into high-yielding assets, the downturn in the business cycle has led to a liquidation of carry trade positions. ‘Commodity prices’ have also been ranked highly, as their rapid advance has contributed to a surge in export values and an improvement in the terms of trade. Different financial analysts hold extremely different views on the short-medium term volatility of the South African Rand exchange rate. For the purposed of this economic consideration, a nominal exchange rate of USD=R6.8 will be assumed for the base case. It is expected that the ZAR currency might devalue at some 3.3%p.a (Investec Q4 2010 macro-economic forecasts).

17.9.3.2 Interest rates In South Africa, interest rate decisions are taken by the South African Reserve Bank’s Monetary Policy Committee. The official interest rate is the rate at which central banks lend or discount eligible paper for deposit money banks, typically shown on an end-of-period. For this economic consideration, the interest rate that will be used is the current repo rate of 5.5% (as of October, 2010 according to www.liberta.co.za).

17.9.3.3 Inflation rates Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. High rates of inflation are often associated with fast growing economies where the demand for goods and services is higher that the country’s productive capacity. The fight against inflation is done by central banks that control the money supply by increasing or decreasing short-term interest rates (Trading Economics, Fri. Aug 2009). The most well known measures of Inflation are the CPI that measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy (Trading Economics, Fri. Aug 2009). South Africa's targeted headline consumer price index (CPI) inflation slowed to 4.6% year-on-year in May from 3.7% in October, 2010 (www.tradineconomics.com). However, some economists expect this downward trend in CPI to be temporary. As administered prices, particularly Eskom electricity tariffs, as well as double-digit wage increases filter through, inflation are expected to climb to 5.6% by the end of 2010.

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The South African government has targeted 3-6% as a range for inflation. This increase should be applied to G&A and exploration costs as well as all Hire Purchase agreements. However, taking into account the expected increases in wages, electricity and, potentially, diesel, it is recommended that a higher inflation rate of 9% be added to mining and production costs.

17.9.3.4 Internal Rate of Return (IRR) IRR is the average annual return earned through the life of an investment and is defined as the discount rate that reduces to zero the net present value of a stream of income inflows and outflows. If the IRR is higher than the desired rate of return on investment, then the project is a desirable one. It is important to distinguish between the IRR "hurdle rate" for decision-making purposes and the discount rate used to value the NPV of a property. For example, an exploration prospect that indicates an IRR of X% may be worth spending more money on, but one may use a Y% discount rate to determine what to pay for it. The X% reflects the project’s potential, but the Y% reflects its risk at the exploration stage. The use of a project-specific discount rate may reflect a project’s unique risks but it does not necessarily determine the purchase price of the property.

17.9.3.5 NPV Discount Rate Issues and Assumptions The NPV is the difference between the present value of the future cash flows from an investment and the amount of investment. Present value of the expected cash flows is computed by discounting them at the required rate of return (also called minimum rate of return). A zero NPV means the project repays original investment plus the required rate of return. A positive NPV means a better return, and a negative NPV means a worse return, than the return from zero NPV. Typically, the market attributes implied discount rates for mineral resource companies and mineral assets. The more marginal the producer and the greater the uncertainty surrounding the mineral assets, the higher the range of applicable discount rates. The variables that have the greatest impact on a discounted cash flow evaluation are the mineral resources/reserves, the mineral prices, and the discount rate. Of these, the resources, and commodity prices are, typically, relatively easy to identify. An appropriate discount rate, however, is more difficult to define or to agree between buyer and seller. A simple discount rate for a mineral project, typically, comprises three principal components (Smith, 2002; Baurens, 2010): • Risk-Free Interest Rate. • Mineral Project Risk • Country Risk

Risk Free Interest Rate

The risk-free rate is the building block for estimating both the cost of equity and capital. Usually a long-term government bond is used, with the 10-year bond rate being preferred as the risk-free rate on cash flows for valuation purposes (Damodaran, 2008). The value of the long-term, risk-free, real (no inflation) interest rate averages range from 2.79% in Canada (Bank of Canada, October 2010) and 2.52% in the USA (www.forecasts.org, October 2010). In the UK, 10-year yields are 3%, in Germany 10-year government bond yields are at 2.3% this year and in Japan at 1%. (Financial Mail, 30 Sept 2010). The problem of lack of data usually associated with emerging markets is less of a problem in South Africa. In

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fact, data had already been compiled for capital market returns going back to 1925 (ABSA Group Economic Research, 2005). In 2010, the yield on long-term government bonds has had an average of 8% Further, the risk free rate used to come up with expected returns should be measured consistently with the currency in which the cash flows are measured. Thus, if cash flows are estimated in nominal US dollar terms, the risk free rate will be the US Treasury bond rate (Damodaran, 2008; Baurens, 2010). This will remain the case, whether the company being analyzed is a Brazilian, Indian or Russian company (or, indeed, South African). While this may seem illogical, given the higher risk in these countries, the risk-free rate is not the vehicle for conveying concerns about this risk. This also implies that it is not where a project or firm is domiciled that determines the choice of a risk free rate, but the currency in which the cash flows on the project or firm are estimated. If the difference in interest rates across two currencies does not adequately reflect the difference in expected inflation in these currencies, the values obtained using the different currencies can be different. Although the Wouterspan project is located in South Africa and local expenditure is in South African Rands, all diamond transactions are denominated in United States Dollars. Further, Rockwell is domiciled in Canada and the cash flows on the project are estimated in both South African Rands and United States Dollars. Consequently, this preliminary economic assessment will adopt the US risk-free rate.

Mining Project Risk Components

Mineral project risks include risks associated with reserves/resources (tonnage, mine life, grade,), mining (mining method, mining recovery, dilution, mine layout), process (labour factors, plant availability, metallurgy, recoveries, material balances,), construction (costs, schedules, delays), environmental compliance, new technology, cost estimation (capital and operating), and sales values and market. The knowledge of a mining project at the feasibility study stage describes a certain comfort level and a degree of certainty as to the outcome of the project, and therefore a measure of risk that is then reflected in the selection of the mining project risk component of the discount rate(Smith, 2002). The feasibility study will typically have a Capital and Operating cost assessment in the 10% accuracy range, and a contingency factor added to the entire cost structure of some 5% to 12% depending on the complexity of the site, availability of components and the like. Studies are often made at much earlier stages of project development than the feasibility study. For example, a broad order of-magnitude study is usually undertaken to rank and possibly reject, potential projects in the early stages. A prefeasibility study is undertaken when more data are available, and is generally used to justify continuing expenditures towards a final feasibility study. Because these studies are made at much earlier stages of development, there is less data, the degree of uncertainty is higher so the risk level is higher and the discount rate will higher accordingly. The discount rate applied to the constant-dollar valuation of mineral properties (where country risk is not a consideration), will most commonly be within the range of 8% per year to 20% per year (Lattanzi, 2002). Discount rates at the lower end of this range are applicable to the valuation of well-established, operating mines, while cash-flow evaluations deposits at feasibility study levels

typically use discount rates in the region of 10% (Smith, 2002) or even 12-15% (Lattanzi, 2002). At earlier stage assessments, discounts rates increase to between 15-20% (Fig. 17.8).

In addition, the complexity of the geology also influences the discount rate, with base-metal deposits at feasibility level averaging 11.3% and gold deposits typically at 8.8% (Smith, 2002). Although no similar



studies on diamond operations have been completed, the variability of sedimentological features in alluvial diamond deposits might be expected to result in discount factors in a range of 10 - 15%.

Figure 17.10: Discount Rate vs. Project Stage (Smith, 2002) For the Wouterspan mine, the preliminary economic assessment is based on a combination of Indicated and Inferred Resources, the classification of which is based upon some two and a half years of bulk-sampling by Rockwell. The geology is reasonably well understood – consequently the project risk component might be estimated at some 15%.

Country Risk

The geo-political location of a mineral project can have a significant effect on the final discount rate used in the valuation (Fig. 17.8). The illustration below shows the impact of country risk on a project with assumed 10% project risk at feasibility stage. The level of risk varies from country to country and from year to year. It is essential to have both a current assessment and an historical record of a country’s risk level when considering mineral investment. Measures of country risk can be obtained from a number of sources. South Africa has been classified as a country with potentially medium security risk combined with a low risk of political interference (Control Risks, 2010). The only significant risks in South Africa are thought likely to be supply chain vulnerability and civil unrest in the form of strikes, riot, civil commotion and terrorism (AON RiskMap, 2010) There is, however, considerable difficulty in obtaining a country risk figure expressed as an interest rate that can simply be added to the discount rate. Two such measurements can be obtained from the Stern School of Business (New York University) and the LIBOR rate. Annual analysis by the Stern School of Business shows that, in January 2011, country risk premiums range from 0% to 10% (Damodaran, January 2011) with risk premiums for South Africa at around 1.73%. This compares with 0.00% for many countries in Western Europe, North America and Australasia and 4.0-10.5% for countries in Eastern Europe and Central/South America. The total risk premium is obtained by adding to this basic figure, the historical risk premium for a mature equity market (estimated from US historical data), putting South Africa at 6.73% (for comparison, the US and Canada would be at 5%, Mexico at 7.25%, Colombia at 8% and Cuba at 15.5%).



Figure 17.11: Generic illustration of the effect of country risk on the discount rate (Smith, 2002) An alternative indication of country risk is the LIBOR rate. Traditionally LIBOR (the London Interbank Offered Rate) has been defined as the rate at which a prime commercial bank is offered deposits by other banks in London. The LIBOR is the equivalent of the American Federal Funds Rate and is used as a benchmark for other short-term interest rates. Indications from LIBOR put the current risk for South Africa around 6% for September 2010 (www.global-rates.com).

Combined, project specific discount rate

Using these three components identified above, it is possible to calculate a project specific discount rate (or ranges of discount rates) which has been used for the Wouterspan project. A range of values for each of the identified risk components would suggest that realistic NPV discount rates for the Wouterspan project would be around 20% range (as used in the preliminary economic assessment). The discount rate used in the cash-flow has a significant effect on the NPV of the Wouterspan property. As discussed earlier, basic project risk can be increased through the addition of the country risk. The project risk of the Wouterspan mine is estimated at 15%. However, when adding the country risk of some 6%, the discount value increases to some 20%. This variation in discounted values is illustrated in Fig. 17.10.

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Figure 17.12: The effect of different discount values on the NPV of the Wouterspan mine (showing

both static and escalation cases). In addition to variations in NPV’s, the IRR’s for the Wouterspan project are shown to vary considerably, depending on whether static diamond price and cash mining costs are used in the cash flows or escalated values (Table 17.7). Table 17.7: IRR estimates on the Wouterspan alluvial diamond project

Base case estimations (no annual escalation – static

diamond price)

Estimations with realistic annual escalation and inflation

IRR 101% 135%

17.10 Country Profile

17.10.1 South African Economy South Africa has a two-tiered economy – one which rivals other developed countries and the other with only the most basic infrastructure. It is a productive and industrialized economy that exhibits many characteristics associated with developing countries, including a division of labour between formal and informal sectors and an uneven distribution of wealth and income. The primary sector, based on manufacturing, services, mining, and agriculture, is well developed. The South African Gross Domestic Product (GPD) is worth USD277 billion or 0.45% of the world economy (World Bank, 2010). With a GDP equal to four times that of its immediate neighbours combined, South Africa has the most developed economy in the southern African region. Over one quarter of the trade of countries (other than South Africa) in the southern African region is conducted with South Africa.

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

15% 20% 25%

NPV

(ZA

R)

Discount Values

Escalation Case

Static case



The main economic indicators of the South African economy are shown below (Table 17.8), as at October 2010, (www.tradingeconomics.com): Table 17.8: Economic indicators for South Africa (October 2010) Growth has been robust since 2004, as South Africa has reaped the benefits of macroeconomic stability and a global commodities boom (South Africa's economy grew by 5% in 2006 and by 4.7% in 2007). At the end of 2007, however, South Africa began to experience an electricity crisis because state power supplier Eskom suffered supply problems with aged plants, necessitating "load-shedding" cuts to residents and businesses in the major cities. South Africa’s real GDP rebounded in the second quarter of 2008. This improvement in growth reflected strong increases in the real value added by the primary and secondary sectors, which comfortably offset a further moderation in real output growth of the tertiary sector over the period. Real output of the mining sector, in particular, recovered in the second quarter of 2008, following a sharp contraction in the preceding quarter. At the investment level, mining accounted for 9% of total fixed investment in the economy and 13.3% of total private sector fixed investment. The mining sector continued to be a key component of the Johannesburg Securities Exchange and accounted for 35% or R1.5-trillion of the value of the exchange as at the end of 2008. During 2009, the world experienced the worst economic crisis since the 1930s. South Africa, as a small open trading economy, was not immune from the crisis. Initially, the country weathered the storm better than many other emerging economies. However, by the fourth quarter of 2008 the local economy experienced negative growth. Real GDP growth, after declining by 1.8% in 2009, has rebound to 2.8% in 2010, helped by the recovery in external demand and looser fiscal policy, and is expected to accelerate to 3.7% in 2011, in line with faster global growth (COM, 2009 annual report).

17.10.2 The Mining Industry South Africa boasts an abundance of mineral resources, producing and owning a significant proportion of the world's minerals. South Africa's wealth has been built on the country's vast resources - nearly 90% of the platinum metals on Earth, 80% of the manganese, 73% of the chrome, 45% of the vanadium and 41% of the gold. Only crude oil and bauxite are not found here. The country is a leading producer of precious metals such as gold and platinum, as well as of base metals and coal. It is the world's fourth-largest producer of diamonds. Two of the world's biggest mining companies originated in South Africa. BHP Billiton, the world's largest mining company, came after a merger between South African company Billiton and Australian firm BHP. Anglo American Plc, which has its primary listing in London and its secondary listing in Johannesburg, owns many major subsidiaries, such as Anglo Platinum, Anglo Coal, Impala Platinum and Kumba Iron Ore. Diamond miner De Beers, also a South African company, is owned by Anglo American and a consortium led by the Botswana government. The world's top diamond producer churned out about 51.1-million carats in 2007. In 2008, the total income of the South African mining sector was R404-billion, up by 30% on 2007 (StatsSA). Most of the benefits of the income received by the mining companies was reinvested or spent in South Africa. In 2008, the mining sector’s total expenditure was R409-billion, comprising R199-billion spent on the procurement of goods and services, R61-billion on salaries and wages, R51-billion

Interest Rate Growth Rate Inflation Rate Jobless Rate Exchange Rate 6.5% 3.2% 3.7% 25.30% 6.9811

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went into capital investment in the sector, R33-billion was paid in the form of direct taxes to government, R24-billion was paid as reward to the providers of capital (shareholders), R30-billion was used for depreciation purposes and impairments and R10-billion was paid as interest by the sector to the financial sector for loans to mining. Only a small portion of the expenditure – in the form of capital equipment and dividends – was acquired from offshore, which means most of the benefit accrues locally. Over the past 130-years, the mining sector in South Africa has provided the critical mass for the development of a number of industries that either supply the mining sector or use its products. This cluster of industries includes energy, financial services, water services, engineering services, specialist seismic services, geological and metallurgical services, all of which are world class. This cluster of industries has gone on to service other parts of the economy and has provided a significant export base to service the global mining industry. The JSE was originally established on the basis of funding the mining sector in the late 19th century. The mining sector continues to act as a magnet for foreign investment to the country. During 2008 the State-owned African Exploration Mining & Finance Corporation (AEMFC) – the vehicle for the development of the State mining company – was formed to compete with private and public companies, focussing, initially on commodities with a national strategic interest such as coal and uranium and uranium and would pool existing state assets, notably those held directly by the government’s diamond company, Alexkor, or indirectly by the Development Finance Agency and the Public Investment Corporation (The Financial Times Limited, 31 March 2010)

17.10.2.1 South African diamond production In 2008, South African diamond production fell by 15.4% year-on-year to 12.9 million carats (valued at USD1.2-billion) from 15.2 million carats (valued at USD1.4-billion) in 2007. The impacts of the domestic electricity supply crisis, coupled with the global calamity later in the year were the key drivers of this decline in production. Diamond exports fell from 13.8 million carats (valued atUSD1.8-billion) in 2007 to 10 million carats (valued at USD1.4-billion) in 2008. Similarly, imports of diamonds into South Africa fell by 52.5% from 1.2 million carats in 2007 to 588 320 carats in 2008. In 2008, employment fell by 5.3% to 18 609 workers.

17.10.3 South Africa’s Mineral Legislative Environment

17.10.3.1 Mineral Policy South Africa has endorsed the principles of private enterprise within a free-market system, offering equal opportunities for all the people. The state's influence within the mineral industry has, thus far, been confined to the goal of orderly regulation and the promotion of equal opportunity for all citizens. The Minerals and Petroleum Resources Development Act (MPRDA Act 28 of 2002) was introduced to legislate the official policy concerning the exploitation of the country's minerals. Previously, South African mineral rights were owned by either the State or the private sector. This dual ownership system represented an entry barrier to potential new investors. The new MPRDA was introduced with the objective for all mineral rights to be vested in the State, with due regard to constitutional ownership rights and security of tenure. In an attempt to assist junior exploration/mining companies, in July 2009 the National Treasury introduced a tax incentive for investors through the introduction of venture capital company (VCC)

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funds. This is an attempt to assist bottom-end juniors (engaged in mineral exploration, mining and/or refining) in accessing equity funding, in a similar manner to that which the Canadian flow-through share system. The subsequent tax-break allows for both individual and listed company to invest in the junior; the individual is eligible for a 100% tax deduction of the amount invested, which is limited to R750,000/year with a maximum of R2.25M and listed companies (and their group subsidiaries) are eligible for a 100% deduction with no monetary limit. However, these corporate entities do not receive any deductions for share investments that push their holdings above a 10% equity share interest in a VCC. The VCC must be a South African resident company that is unlisted or a junior mining company that may be listed on the Alt-X and must not be a controlled group subsidiary. The VCC is, further, required to invest 80% of their funds in mining juniors with book assets of not more than R100M after capital raising, and small non-mining companies with assets of not more than R10M after capital raising. The junior would also be required to use all the money received for purposes of its trade within 18 months of receipt and would be required to be producing revenue within 36 months.

The Nationalisation Debate

In the wake of the international economic crisis, Julius Malema, President of the ANC Youth League (ANCYL) and COSATU (SA’s largest union movement) have consistently called for the nationalisation of South Africa’s mines. However, in reply, a Department of Mineral Resources spokesman stated that it is highly unlikely that any policy changes on nationalising South Africa’s mines would be considered in the next two years, but the issue might be raised at the ruling party’s next policy conference in 2012. He, further, added that all legal processes, practices and guidelines would first have to be passed if such a decision were to be implemented (Mining Weekly, January 29 – February 4, 2010). The debate continues with various ministers, including Deputy President, Kgalema Motlanthe, Finance Minister, Pravin Gordhan, and Trevor Manuel, head of the National Planning Commission in the presidency, playing down the issues.

17.10.3.2 Mineral and Petroleum Resource Development Act 28 of 2002 (“MPRDA”) This Act (which came into effect in May 2004) entrenched a "use it and keep it" principle that is applied to companies or individuals who hold any rights to prospect and mine. All privately held mineral rights were to be transferred under the provisions of the Act into licenses to prospect and mine. A further objective of the Act is the pursuance of the government’s policy of furthering Broad Based Black Economic Empowerment ('BBBEE”) within South Africa’s minerals industry. The Act also makes provision for the implementation of social responsibility procedures and programmes by mineral resource companies through the compulsory Social and Labour Plan. Ownership, access and opportunity in regards to the country's mineral resources are regulated by the Minerals and Petroleum Resources Development Act of 2002, which recognises the state's custodianship over the country's mineral resources. Transformation is a key issue facing South Africa's mining sector. Equitable access to mineral resources and opportunities has been legislated, with meaningful participation of historically disadvantaged individuals the subject of the industry's black economic empowerment (BEE) charter. Currently, more than 70% of the mining industry's labour force is black, while less than 5% of managerial positions are held by black people. Targets have been set by the government and, by 2009, all mining companies will be expected to have 40% of managerial positions held by previously disadvantaged South Africans. Other targets include the transfer of 26% of mining assets to black-owned companies, and ensuring that 51% of future mining projects are controlled by black-owned firms.



Applicants for permits and licenses will be required to provide details of these criteria before such are granted. Although the Act envisages that the Minister’s approval will not be 'unreasonably” withheld, the Minister can, and has, turned down applications where 'the application does not meet all the requirements specified by the Act; or if the granting of such right will result in an exclusionary act, prevent fair competition, or result in the concentration of the mineral resources in question under the control of the applicant.” Under the terms of the MPRDA, all old order prospecting rights should have been converted in new order rights by 30th April 2006, and old order mining rights should have been converted by 30th April 2009. At, or before, expiry of the old order right a conversion to a new order right would need to be applied for. These new order rights may not be ceded, transferred, let, sub-let, assigned, alienated or otherwise disposed of, without the written consent of the Minister. Furthermore, new order mining licenses would only be granted for a maximum of 30 years. DMR has proposed to make one sweeping set of amendments to the MPRDA and other pieces of legislation like the Mines Health and Safety Act to clarify exactly what is expected of mining groups operating in South Africa and give potential investors a clear idea what is expected of them, removing uncertainty coming from piecemeal changes. These amendments are likely to be made in early 2011 and are planned to give the mining sector a stable platform from which it can work over the next three or four years, (MiningMx, 31 March 2010). The finalised set of proposals for changes to the updated MPRDA was expected to be completed by mid 2010. As of the date of this report, the review has not yet been received, but is now expected at the end of February 2011. A secondary consideration was the introduction of the Minerals and Energy Legislations Amendment Bill in June 2005. The main objective of this Bill is to correct both the Mining Titles Registration Amendment Act and the Mineral and Petroleum Development Act to ensure that all mining-related rights are registered in the Mining Titles Registration office of the Department of Minerals and Energy and that all rights pertaining to land registration are dealt with by the Deeds Registration Office of the Department of Land Affairs.

17.10.3.3 Broad Based Black Economic Empowerment (BBBEE) and the Mining Charter

Black Economic Empowerment practices were introduced in 2003 as a vehicle to mitigate against discriminatory practices present prior to 1994. The strategy is broad-based, as shown in the name of the legislation: the Broad Based Black Economic Empowerment Act of 2003. This reflects the government's approach, which is to "situate black economic empowerment within the context of a broader national empowerment strategy … focused on historically disadvantaged people, and particularly black people, women, youth, the disabled, and rural communities". Black economic empowerment is driven by legislation and regulation. An integral part of the BEE Act of 2003 is a sector-wide generic scorecard, which measures companies' empowerment progress in four areas:

• Direct empowerment through ownership and control of enterprises and assets. • Management at senior level. • Human resource development and employment equity. • Indirect empowerment through:

o preferential procurement, o enterprise development, and o corporate social investment (a residual and open-ended category).

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This scorecard, for both local and multinational companies, is defined and elaborated in the BEE codes of good practice (2003 and updated in 2006). The codes of good practice were introduced to govern how companies do business in South Africa. The codes are binding on all state bodies and public companies, and the government is required to apply them when making economic decisions on procurement, licensing and concessions, public-private partnerships, and the sale of state-owned assets or businesses. Private companies must also apply the codes if they want to do business with any government enterprise or organ of state - that is, to tender for business, apply for licences and concessions, enter into public-private partnerships, or buy state-owned assets. Companies are also encouraged to apply the codes in their interactions with one another, since preferential procurement will affect most private companies throughout the supply chain. Different industries are required to draw up their own charters on BEE, so that all sectors can adopt a uniform approach to empowerment and how it is measured. The Mining Charter, initially released in 2003 to define BEE and social upliftment goals for the mining industry, is an agreement between the South African government, the collective bargaining agent of the National Union of Mineworkers (NUM), and the mining industry (represented by the Chamber of Mines and small-scale miners). The Charter is the instrument by which the Minister of Mines and Industry has to give effect to BEE. The stated goal of this charter was to create an industry that will reflect the promise of a non-racial South Africa. As a result, mining companies are obliged to promote BBBEE when applying for, or when converting existing mineral rights to the new order rights. The objectives of the charter are to: • Promote equitable access to the nation's mineral resources to all the people of South Africa; • Substantially and meaningfully expand opportunities for historically disadvantaged South Africans

(HDSA's) including women, to enter the mining and minerals industry and to benefit from the exploitation of the nation's mineral resources;

• Utilise the existing skills base for the empowerment of HDSA's; • Expand the skills base of HDSA's in order to serve the community; • Promote employment and advance the social and economic welfare of mining communities and the

major labour sending areas; and • Promote beneficiation of South Africa's mineral commodities. In an attempt to assist companies meet the charters objectives, a “Score Card” has been developed. However, there are still numerous issues that need to be resolved concerning the quantitative assessment of the said “scores” and their application across the mineral industry. Mining companies were required to have put in place a 15% BBBEE shareholding by 2006 and, subsequently, to increase this to 26% by 2014. In the particular case of (previously) State owned right, a 51% BBBEE share was required by 2009. If the BEE component is ruled as insufficient this would prevent a new mining license being awarded. The Mining Charter was review in September 2010, during which time the objectives and implementation of BBBEE initiatives was also be examined. Progress is now to be reported every year on elements relating to: • the 26% historically disadvantaged South African (HDSA) ownership of mining companies by

2014; • the abolition of the mine hostel system by 2014; • the 40% capital goods procurement from black economically empowered (BEE) entities; • the 0.5% of procurement value of multinational suppliers into a fund for the socioeconomic

development of near-mine communities;. the 70% procurement of services from BEEs; • the 50% procurement of consumables from BEEs;



• the 40% employment equity in top management; • a 25% weighting for skills development - the highest single weighting; • a 15% weighting for the development of near-mine communities; • a 12% weighting for sustainable development and growth; and, • the contribution towards value addition to metals and minerals through beneficiation, which is

defined as the transformation of a mineral into a higher-value product. Mining companies may, however, offset the value of the level of beneficiation achieved by the company against a portion of its HDSA ownership requirements not exceeding 11%.

BEE entities must be made up of entrepreneurs, workers and communities. Moreover, "a percentage" of the cash flow to service funding obligations must now go to the BEE entity throughout the term of investment. Also, the BEE entities that embody the HDSA ownership of mining companies have full shareholder rights, regardless of the form of legal instruments used. Every mining company must report its level of compliance with the Mining Charter annually, as provided for by Section 28(2) (c) of the MPRDA. The Department shall monitor and evaluate, taking into account the impact of material constraints which may result in not achieving set targets. Non-compliance with the provisions of the revised Mining Charter will render mining companies in breach of the MPRDA, with errant companies running the risk of being stripped of their mining licence. Further, the Mineral Resources Minister may amend the Mining Charter “s and when the need arises”.

17.10.3.4 The Minerals and Petroleum Resources Royalty Bill The effective date for the royalty bill was May 1, 2009 (in cognisance of the recent international economic crisis, the South African Treasury deferred payment of State royalties until March 2010). However, the royalty will still be applied after that date even if the company has still not applied for conversion of mining rights. According to the National Treasury, the current formula used to calculate the royalty rate helps overcome the problem of various specific rates being perceived as discriminatory, as it is often difficult to justify why certain minerals (specifically diamonds) were being taxed at a higher rate. Further the formula automatically accommodates marginal mines, takes account of “affordability” and is, therefore, more equitable and ensures that government shares in the gains during times of booming commodity prices. However, the Treasury has not relented on the double royalty to be paid by mining companies who pay one royalty to a traditional community and will have to pay a second royalty to the state under the Minerals and Petroleum Resources Royalty bill. The Treasury will, also, insist on royalties even if the minerals in question have been lost, stolen or destroyed – a deemed sales price applies at the proper condition, so a royalty is always charged even if no proceeds are obtained. In terms of the currently applicable formulae, the applicable royalty rates will vary according to the profitability of the mining company, subject to a minimum rate of 0.5% and maximum rate 7.0% for diamonds (unrefined minerals). The profitability parameter in the formulae is EBIT and it also allows for 100% capital expensing which is an acknowledgement of the high capital costs associated with mining.

Y (u) = 0.5 + { EBIT / (Gross sales x 9) } Where: Y (u) = Royalty percentage rate; EBIT = Earnings before interest and taxes (but EBIT can never go below zero).



The formula contains four parameters: (1) an intercept term, 0.5, (2) EBIT, earnings before interest and taxes, (3) gross sales and (4) 9 as a constant: • The 0.5 essentially acts as a minimum royalty percentage rate (0.5%) in order to ensure that

Government (as custodian) always receives some level of royalty payments for the permanent loss of non-renewable resources.

• EBIT essentially measures an extractor’s net operating mining profits in relation to recovered mineral resources to be eventually transferred. Taxes and other Government charges, such as the royalty, are excluded because EBIT is part of the royalty determination. The exclusion of interest effectively neutralises how key methods of financing (i.e. debt or equity) mineral operations are undertaken. EBIT for mineral resources transferred is conceptually viewed as the aggregate amount of:

(1) Gross sales for all transferred mineral resources;

PLUS

(2) Recoupment in respect of the disposal of assets used to develop mineral resources to the extent the depreciation on those assets offset EBIT;

LESS

(3) Operating expenditure incurred (and depreciation allowances applicable to capital

expenditure) relating to the extraction and development of mineral resources to the extent those expenditures are both: (i) deductible under the Income Tax Act, and (ii) bring those minerals to a Schedule 1 or Schedule 2 condition (as applicable).

In a presentation to the mining industry in February 2010, Pricewaterhouse Coopers (PWC) indicated that:

• The EBIT calculation does not take into account any deduction in respect of a financial instrument although costs arising from a mineral resource hedge are deductable because these hedges act as an economic offset against mineral resource gross sales.

• The royalty liability is not deductible from EBIT; • Transport, insurance and handling are not deductible after the mineral has attained the

applicable condition (refined vs. non-refined). These costs are limited to the costs of reaching the specified condition – costs beyond the specified condition are not deductible.

• The EBIT calculation does not take into account the balance of assessed losses stipulated in section 20(1) (a) of the ITA. This rule has no effect in terms of unredeemed capital expenditure. The net effect of this is to prevent carry-over of excess operating losses while allowing for a carry-over of mining capital expenditure.

• EBIT does not allow for currency deductions.

17.10.3.5 The Diamond Amendment Bill The 2005 amendments to the Diamonds Act, viz., Diamonds Amendment Act, 2005 and the Diamonds Second Amendment Act, 2005 as well as the 2007 amendment to Regulations under the Diamonds Act took effect on 1 July 2007. These Regulations were also, subsequently, amended on 4 April 2008. The object of the Regulator (SADPMR) in terms of the Diamonds Act, 1986 (as amended) is to ensure equitable and regular supply of rough diamonds to local beneficiators. It makes provision for the establishment of the State Diamond Trader who will facilitate the supply of rough diamonds equitably



and a Precious Metals and Diamonds Regulator to promote equitable access to rough diamonds to licensees. The objects of the amendments are to: • Promote a culture of value addition of minerals by maximising the value of economic benefit of

South Africa's mineral wealth; • Recognise the fact that beneficiating our minerals locally contributes to South Africa's economy; • Prevent and abolish restrictive and unfair practices with regard to accessibility and availability of

minerals and access to markets; and • Create an internationally competitive and efficient administrative and regulatory regime by means

of national licensing system. In this regard the regulators functions include the implementing, administering and controlling all matters relating to the purchase, sale, beneficiation, import and export of diamonds; and establishing diamond exchange and export centres, which shall facilitate the buying, selling, export and import of diamonds and matters connected therewith. Whilst the former SA Diamond Board had an essentially regulatory role, the SADPMR has a promotional role as well. Through administering licenses and export approvals, the SADPMR will strive to ensure that local demand for diamonds and precious metals is catered for, and that there is growth in local beneficiation of diamonds and precious metals. The State Diamond Trader (SDT) was set up by government in 2007 with major support from De Beers and the Industrial Development Corporation (IDC). It aimed to increase the supply of rough diamonds to local polishers and cutters. De Beers seconded a number of key technical staff to the SDT and the IDC agreed to provide funding through a R60m rollover loan. Crucially, at the same time as the SDT came into operation, De Beers shut down its Diamdel subsidiary (Diamdel’s function was to provide rough diamonds to smaller SA cutting and polishing firms which were not part of the group’s main rough diamond sales system). The end result has not lived up to expectations because the SDT has not fulfilled its function of providing the diamonds. This has resulted in extensive job losses in the local cutting and polishing industry (MiningMx, March02, 2010). Although the SDT was chartered to purchase up to 10% of local producers' run of mine goods, at “market-related” prices, for supply to local diamond manufacturers, it has not fully met its buying objectives. As a result of the short supply of rough diamonds, the South African diamond cutting industry is suffering. The industry was also no longer receiving rough diamond supply from Diamdel. The SDT was buying about 3% of De Beers' diamond production for supply to local beneficiators, while it was set up to buy 10% of the country's rough production for supply to local cutters and polishers. The result was that the local beneficiation industry shrunk from about 3,000 cutters and polishers to about 1,500. Solutions are being sought to the bureaucracy within the SDT. The current emphasis in the SDT sits on legal compliance issues and issues around the operations of the government diamond valuator, whereas emphasis must be placed on efficient access to diamonds – getting the rough diamonds to the buyers.

17.10.3.6 Diamond Export Levy Bill 2007 The Diamond Export Levy Bill was required to give effect to certain provisions of the Diamonds Act, 1986, as amended. The Diamond Export Levy Bill’s main objective is to support the local beneficiation of rough diamonds. The beneficiation of rough diamonds is seen as important to encourage the development of the local economy, skills and employment creation. The Bill proposes a 5% export levy on rough diamonds that should contribute towards local beneficiation, but is low enough so as not to unduly encourage smuggling. The 5% levy applies to all rough (natural unpolished) diamonds that are exported, while synthetic diamonds are exempted. The levy amount will be equal to 5% of the value of a rough diamond exported, as specified on a return described in Section 61 of the Diamonds Act, 1986 or of the value as assessed by the Diamond and Precious Metals Regulator described in section 65 of the Diamonds Act, 1986.



The Bill contains relief measures that may offset the 5% levy in full or in part. A producer is entitled to receive a credit for imported rough diamonds. This credit will offset (in full or in part) a producer’s export duty liabilities. The Minister of Minerals and Energy may also exempt a producer from the 5% export levy if a producer’s activities are supportive of local diamond beneficiation, or the producer has a annual turnover of less than R10 million, and such a producer has offered his or her rough diamonds for sale at the Diamond Exchange and Export Centre but there were no local buyers. However, the diamonds must subsequently be sold for an amount at least equal to the reserve price at which such diamonds were offered at the centre. These conditions preserve South African’s “right of first refusal” with respect to bidding on any rough diamond intended for export.

17.10.3.7 Precious Metals Bill and the Beneficiation Strategy The Precious Metals Bill amends Chapter XVI of the Mining Rights Act, No 20 of 1967, so as to eliminate the barriers to local beneficiation of precious metals and to rationalise the regulation of matters pertaining to the downstream development of precious metals. The objects of the Bill include: • To allow for the acquisition and possession of precious metals for the local beneficiation; • To regulate the precious metal industry; • To repeal the legislations that create barriers to beneficiation; and • To amend the over-regulation of the industry by centralising the issuing of jewellers' permits within

the Department of Minerals and Energy.

The Beneficiation Strategy, which has been under discussion for some 16 years, is a product of an interdepartmental task team consisting of representatives from the DMMR, DTI (Department of Trade & Industry), the Department of Science & Technology, the Department of Public Enterprises, the National Treasury and the Presidency. A draft (Green Paper) document was released for public comment in early 2009, and this is expected to be followed by a White Paper from the department in due course. In the strategy, the South African government has highlighted the need for a national minerals beneficiation strategy, in contrast to legislation forcing mining companies to carry out beneficiation. For South Africa to succeed in beneficiation, it needs to create the necessary skilled labour force and to establish the necessary industrial development zones with attractive tax advantages and low tariff regimes. Customs systems would also have to be streamlined and harbours decongested to facilitate efficient trading conditions.

17.10.3.8 Kimberley Process The Kimberley Process is a joint governments, industry and civil society initiative to stem the flow of conflict diamonds – rough diamonds used by rebel movements to finance wars against legitimate governments. The trade in these illicit stones has fuelled decades of devastating conflicts in countries such as Angola, Cote d'Ivoire, the Democratic Republic of the Congo and Sierra Leone. The Kimberley Process Certification Scheme (“KPCS”) imposes extensive requirements on its members to enable them to certify shipments of rough diamonds as ‘conflict-free’. The core mandate of the KPSC is to guarantee consumers that the organisation is aware of the origin of the diamonds that the consumers buy. As of December 2009, the KP has 49 members, representing 75 countries, with the European Community and its Member States counting as an individual participant. During 2009/2010, Venezuela voluntarily suspended exports and imports of rough diamonds until further notice and Cote d' Ivoire is currently under UN sanctions and is not trading in rough diamonds. The Kimberley Process has also expressed concern at the illicit trade of diamonds from the Marange area in Zimbabwe and decided to



step up international efforts to prevent the illicit trafficking of those diamonds, notably by calling on KP Participants to take appropriate ‘enhanced vigilance measures’. In essence, the participants in the KPSC have agreed that they will only allow for the import and export of rough diamonds if those rough diamonds come from or are being exported to another Kimberley Process participant. The KPSC requires that each shipment of rough diamonds being exported and crossing an international border be transported in a tamper-resistant container and accompanied by a government-validated Kimberley Process Certificate. Each certificate should be resistant to forgery, uniquely numbered and include data describing the shipment’s content. The shipment can only be exported to a co-participant country in the Kimberley Process. No uncertified shipments of rough diamonds will be permitted to enter a participant’s country. Once a certified shipment has entered its country of destination it may be traded – in whole or part – and mixed with other parcels of rough diamonds as long as all subsequent transactions are accompanied by the necessary warranties. Failure to adhere to these procedures can lead to confiscation or rejection of parcels and/or criminal sanctions. Any rough diamonds being re-exported will also require Kimberley Process Certificates, which will be issued in the exporting country. These re-exports can comprise any combination of rough diamonds that have been previously imported through the Kimberley Process Certification Scheme. In order to strengthen the credibility of the Kimberley Process agreement, as well as to provide the means by which consumers might more effectively be assured of the origin of their diamonds, the World Diamond Council proposed that the industry create and implement a System of Warranties for diamonds. Under this system, which has been endorsed by all Kimberley Process participants, all buyers and sellers of both rough and polished diamonds must warrant that, for each parcel of diamonds “The diamonds herein invoiced have been purchased from legitimate sources not involved in funding conflict and in compliance with United Nations resolutions. The seller hereby guarantees that these diamonds are conflict free, based on personal knowledge and/or written guarantees provided by the supplier of these diamonds.” In addition, each company trading in rough and polished diamonds is obliged to keep records of the warranty invoices received and the warranty invoices issued when buying or selling diamonds. This flow of warranties in and warranties out must be audited and reconciled on an annual basis by the company’s own auditors. Failure to abide by the aforementioned principles exposes the member to expulsion from industry organizations.



18 RECOMMENDATIONS

18.1 Proposed Work Programme for 2011/2012 During the next phase, Rockwell will continue to trial-mine gravels from the C Terrace on Wouterspan and proceed with mining/processing engineering and economic studies (necessary to complete the pre-feasibility study on the mine). In addition, geological prospecting will continue on the B terraces – 11,249m (1,607holes) of drilling is planned for 2011/2012 (Fig.19.1). Advancement to the subsequent phase of bulk-sampling of these terraces is contingent upon positive results.

Figure 19.1: Proposed prospecting (drilling) locations of Wouterspan for 2011



18.2 Proposed Budget Trial-mining costs on Wouterspan are expected to run at ZAR5.2M/month. The planned CAPEX budget is R122M which includes infrastructure upgrades as well as the construction and commissioning of a new processing plant (all costs are subject to inflation). Funding is to be sourced from the proceeds of a private placement (Rockwell presentation, March 2011) Exploration drilling costs have been budgeted at ZAR4M for the 2011/12 programme. The independent QP has reviewed both the proposed work programme and budget and concurs that they are reasonable for the stage of the project.



19 INTERPRETATION AND CONCLUSIONS The Wouterspan mine has been on Care & Maintenance since November 2008. As a result no sampling or trial mining has taken place during the period 2009/2010. However, during 2008,Rockwell completed reconnaissance drilling on the B terrace (only 16 holes drilled, with a total of 76m). Further, the terrace on the adjacent Lanyonvale was drilled with 1,129 holes (7,135m), 931 holes (5,561m) of which were located on the A terrace and the rest were on the lower C terrace. The resource statement for Wouterspan reflects the situation as at 30 November 2010. Note that: • No production has taken place on this project since end November 2008 when the mine was put on

Care & Maintenance. The volumes and grades reflect the bulk-sampling and trial-mining data up to that time (this information was reported on in a previous technical report).

• The diamond value given in the statement is the average received for +5,500 of diamonds sold from the adjacent (across the river) Saxendrift mine during 2010. Since this does not represent a parcel derived from Wouterspan itself25

, the confidence level on this estimate is not as high as it would be after the recovery of 3,000-5,000cts from the mine. This figure will be adjusted accordingly, once the mine is re-commissioned.

These mineral resources were estimated by Rockwell’s Mineral Resource Manager, G. A. Norton, (Pr. Sci. Nat.), a qualified person who is not independent of the Company and reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of the Company and who is responsible for the estimate. Inferred



Ave Value (USD/ct)

Rooikoppie 5,911,000 714,400 0.70 2,029


TOTAL 37,774,000 5,025,500 0.70 2,029 * At a bottom cut-off of 2mm (based on the average grade of the total sample mined to date) ! Inferred Resources do not include Indicates resources (“Total” figure rounded off) All of the identified resources are located on the (lower) C terraces. Although drilling has been initiated on both the B terraces, no bulk-samples have been completed at these locations. Additional prospecting, to increase the amount of data on the higher terraces, is necessary to improve the representativeness of the information. Current reconnaissance drilling highlights exploration targets of some 10-20Mm3 and an additional area of some 35-45Mm2; anticipated grades are expected to be in the 0.5-1.22ct/100m3 range During 2011, once the mine has been re-commissioned, Rockwell will continue to trial-mine gravels from the C Terrace on Wouterspan and proceed with mining/processing engineering and economic studies necessary to complete the pre-feasibility study on the mine.

25 However, historically, the characteristics and values of diamonds recovered from the Wouterspan and Saxendrift properties have been sufficiently similar to allow for this direct comparison – see section 16 for details.



A preliminary economic assessment was completed for the Wouterspan project – highlighting two scenarios, initially based on a static diamond price and operating cost and, secondly, on realistically assumed, annual diamond price escalation and increasing operating costs as a result of the peculiarity of mining gem-quality diamonds in Africa. In both scenarios, the Capex cost of ZAR 122M applies. At a proposed 180,000m3/month for the first 12 months, followed by increased monthly production of 340,000m3 throughput, the preliminary estimation of mine life is 2.3 years, based on indicated mineral resources only. An additional 8.7 years may be added if inferred mineral resources are included, resulting in a total expected mine life of 11 years. The key parameters and results are tabulated below:

Wouterspan Preliminary Assessment

Key Parameters Indicated resources 5,025,500 m3

Inferred resources 37,774,000 m3 Average Grade 0.7 ct/100m3

Average sales value (2011) USD 2,029/ct Proposed monthly throughput 340,000 m3

Proposed mine life 11 years Operating Costs (2011) ZAR 45/m3 Mining Royalties Variable Capital required to bring mine into production

ZAR 122,000,000

Tax 28% Key Results

Base Case 10% Price Escalation

Internal Rate of Return (IRR) 101% 135% Net Present Value (NPV) at discount values of:

15% ZAR 482,000,000 ZAR 1,199,000,000 20% ZAR 363,000,000 ZAR 885,000,000 25% ZAR 279,000,000 ZAR 667,000,000

In this preliminary economic assessment, both indicated and inferred mineral resources , as estimated in this NI43-101 technical document, are used. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized. The cash flow is particularly sensitive to changes in grade, diamond price, annual price escalations, exchange rate and volume of gravel An increase of 15% in working costs drastically decreases the



profitability of the operation. Consequently, as with all commercial alluvial diamond operations, operating costs have to be watched carefully, avoiding all unnecessary expenditure. In addition, geological prospecting will continue on the B terraces – 11,249m (1,607 holes) drilling is planned for 2011/12. Exploration drilling costs have been budgeted at ZAR4M for the entire programme. Advancement to the subsequent phase of prospecting, namely bulk-sampling of these terraces) is contingent upon positive results. Trial-mining costs on Wouterspan are expected to run at ZAR5.2M/month. The independent QP has reviewed both the proposed work programme and budget and concurs that they are reasonable for the stage of the project. The programme is contingent upon financing as well as continued improvement in the diamond market



20 REFERENCES Baurens, S. (2010): Valuation of Metals and Mining Companies. A document produced in collaboration

with the University of Zurich, Swiss Banking Institute and Prof T Hens, 81pp Clay A and McKenna, N (2007): Update of Resources with respect to National Instrument 43-101F

Technical Report on Rockwell Diamonds Inc Wouterspan Alluvial Diamond Deposits (Wouterspan) Operation, Northern Cape Province, South Africa

Cooke, R., (2005): Report on the diamond resources of H.C. van Wyk Diamonds (Pty) Ltd. Unpublished

Report. Damodaran, A (2008): What is the risk-free rate? A Search for the Basic Building Block. Stern School of

Business, New York University, December 2008 Damodaran, A (2011): Country Default Spreads and Risk Premiums. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html Damodaran, A (2011): Equity Risk Premiums

http://www1.worldbank.org/finance/assets/images/Equity_Risk_Premiums.pdf De Meillon, L.D. and Bristow, J.W. (1999). Whitewaters (Thornley) Alluvial Diamond Project; Northern

Cape Diamond Mining and Exploration (Pty) Limited. 7 March 1999. De Decker & Associates (2006): Technical Report on the Wouterspan Alluvial Diamond Deposits, Middle

Orange River, Northern Cape Province, RSA De Wit, M C J (1996): The distribution and stratigraphy of inland alluvial diamond deposits in South

Africa. Africa Geoscience Review, 3(2), 175-190 De Wit, M. C.J., Ward J.D., Jacob, J.R., Spaggiari, R. and van der Westhuizen, A. (1997): Diamond-bearing

deposits of the Vaal and Orange River systems. 6th International Fluvial Sedimentological Conference. Pre-Conference Field Excursion, University of Cape Town.

De Wit, M.C.J, Marshall T.R. and Partridge, T.C (2000): Fluvial deposits and drainage systems, p55-72.

In, T C Partridge and RR Maud, The Cenozoic of Southern Africa. Oxford Monographs on Geology and Geophysics No 40. Oxford University Press, New York, 406pp

Gresse, P G (2003): The preservation of alluvial diamond deposits in abandoned meanders of the

middle Orange River. In: Diamonds – Source to Use Colloquium, 29-30 October, 2003, SA National Museum of Military History, Saxonwold.

Gurney, J.J, Moore, R.O, Otter, M.L, Kirkley, M.B, Hops, J.J and McCandless, T.E (1991): Southern African

kimberlites and their xenoliths., p495-536 In: AB Kampunzu and RT Lubala (Eds), Magmatism in Extensional Structural Settings. The Palaeozoic African Plate. Springer-Verlag, Berlin, 619pp.

Jacob, R. J. (2005): The erosional and Cainozoic depositional history of the lower Orange River, south-



western Africa. PhD thesis, University of Glasgow, 167pp. JORC (1999): Australian Code for Reporting of Identified Mineral Resources and Ore Reserves,

issued by the Joint Ore Reserve Committee (JORC), comprising Australasian Institute of Mining and Metallurgy (AusIMM), Australian Institute of Geoscientists (AIM) and Minerals Council of Australia (MCA), September 1999.

Kilalea, D., (2008). Diamonds: Losing Lustre or Still Sparkling? http://www.seekingalpha. com. Lattanzi, C. R. Discounted Cash Flow Analysis Input Parameters and Sensitivity, 13pp Mining

Millennium Valuation 2000, Special Session on Valuation of Mineral Properties, March 8, 2000, Toronto, Canada

Marshall, T R (2004): Rooikoppie Deposits of South Africa. Rough Diamond Review (September), p

21-25 Moonstone Diamonds (1997): Announcement to the Australian Stock Exchange dated 20 October

1997. NAPEGG (1997): Reporting of Diamond Exploration Results, Identified Mineral Resources and Ore

Reserves. Published by the Association of Professional Engineers, Geologists and Geophysicists of the Northwest Territories (Canada).

Partridge, T. C. and Maud, R.R (1987): Geomorphic evolution of southern Africa since the Mesozoic. S.

Afr. J. Geol., 90(2), 179-208. Oosterveld, M.M. (2008): Wouterspan, Holpan and Klipdam, Saxendrift – size frequency and large

stones for 2005-2008 period. Internal report for Rockwell Ventures Inc (November, 2008).

Read, G.H., Janse, A.J.A.(2009): Diamonds: Exploration, mines and marketing, Lithos (in Press), Rombouts, L (1987): Evaluation of Low Grade/High Value Diamond Deposits. Mining Magazine

(September, 1987), 217-220. SACS (1980): Stratigraphy of South Africa Part 1 (Comp L E Kent). Lithostratigraphy of the

Republic of South Africa, South West Africa/Namibia, and the Republics of Bophuthatswana, Transkei and Venda: Handb. Geol. Surv. S. Afr., 8, 690pp.

SAMREC (2000): South African Code for Reporting of Mineral Resources and Mineral Reserves.

Prepared by the South African Mineral Resources Committee (SAMREC), under the auspices of the South African Institute of Mining and Metallurgy (SAIMM). Effective March 2000.

SAMREC (2007): South African Code for Reporting of Mineral Resources and Mineral Reserves.

Prepared by the South African Mineral Resources Committee (SAMREC), under the auspices of the South African Institute of Mining and Metallurgy (SAIMM). Exposure Draft June 2006.

Smith, L. D (2002): Discounted Cash Flow Analysis Methodology and Discount Rates, 15pp. Mining

Millennium Valuation 2000, Special Session on Valuation of Mineral Properties, March 8, 2000, Toronto, Canada

http://www.seekingalpha.com/�



Steyn, T. And Terbrugge, P. T. (2008): Klipdam Bench Stability Assessment. SRK Project Number

388468, for Rockwell Diamonds Inc (January 2008), 56pp. Telfer, C. A (March 2007): Technical Report on Trans Hex Group Limited’s (“Trans Hex”) Middle

Orange River (“Middle Orange”) Operations, South Africa, for Rockwell Ventures Inc.

Wilson, M.G.C., McKenna, N. and Lynn, M., with contributions by T.R. Marshall and A. van der

Westhuizen (2007): The Occurrence of Diamonds in South Africa. Volume 1 Mineral Resources Series, Council for Geoscience, Pretoria.

Sundry Documents

Rockwell production data Sundry hardcopy and electronic technical and production plans and data.



DATE AND SIGNATURE PAGE Respectfully Submitted, Signed and sealed Tania R Marshall (Dr) Geological Consultant (Pr. Sci. Nat) SACNASP registration number 400112/96

P O Box 6578 Homestead, 1412 Republic of South Africa Tel/Fax: +2711 828-2989 E-mail: [email protected] Date of Signature: 30 May 2011 Revision Date : 25 July 2011 Effective Date : 30 November 2010

Glenn A Norton, B.Sc.Hons, Mineral Resource Manager (Pr. Sci. Nat.) SACNASP registration number 400042/06

Level 1, “Wilds View”, Isle of Houghton Cnr: Boundary & Carse O’Gowrie Road Houghton Estate, Johannesburg South Africa, 2198 [email protected]

mailto:[email protected]�


COMPANY , PROJECT November 30, 2010

Explorations Unlimited

21 CERTIFICATE OF AUTHORS

21.1 Tania Ruth Marshall

I, Tania Ruth Marshall (Pr. Sci. Nat.) do hereby certify that: 1. I am a Geological Consultant with:

Explorations Unlimited P O Box 6578 Homestead, 1412 South Africa

2. I graduated with a degree in Bachelor of Science from the University of Witwatersrand in 1982. In

addition, I have obtained a Bachelor of Science (Honours) in Geology in 1984, a Master of Science in Geology in 1987 and a Doctor of Philosophy (Geology) in 1990.

3. I am a member, in good standing, of the Geological Society of South Africa (#38829) and am

registered with the South African Council for Natural Scientific Professions as a Geological Scientist since 1996 (SACNASP registration number 400112/96).

4. I have worked continuously as a geologist since my graduation from university in 1987. During this

period I have been involved in the exploration and exploitation of alluvial diamond deposits throughout Africa, including the evaluation and valuation of a number of such deposits for both private and public companies. Such operations involving mining and financial analysis (together with mine planning and costing) include the Cangandala alluvial diamond mine in Angola, the Cayco alluvial diamond project in Akwatia, Ghana, the Aredor alluvial diamond mine in Guinea, the Lorelei alluvial diamond mine in Namibia, the Krugersdal/Morgenzon and Roodepan alluvial diamond mines in the Ventersdorp district of South Africa, the Schmidtsdrift and Sydney-on-Vaal alluvial diamond mines along the lower Vaal River in South Africa, the London alluvial diamond mine in the Schweizer Reneke district of South Africa, the Kameelfontein alluvial diamond project in the Cullinan district of South Africa, as well as various small-scale alluvial diamond projects in South Africa and Namibia.

5. My experience on alluvial diamond deposits is both as operator and as consultant, during which I

have prepared costing estimates for mining and processing operations. In addition, as consultant, I have seen and reviewed operations and their various cost centres.

6. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”)

and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfil the requirements to be an independent “qualified person” for the purposes of NI 43-101.

7. I am responsible for the preparation of this technical report entitled “Technical Report on the

Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc.(effective date 30 November 2010).



8. I have visited the Wouterspan properties during the week 30 Aug – 2 Sept 2010

9. My previous involvement with the Saxendrift property is the preparation of the technical report entitled “Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc.(effective date 28 February 2009).

10. I am independent of the issuer applying all of the tests of both National Instrument 43-101

11. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been

prepared in compliance with that instrument and form. 12. At the date of signature, to the best of my knowledge, information and belief the technical report

contains all the scientific and technical information that is required to be disclosed so as to make the technical report not misleading.

13. I consent to the filing of the Technical Report with any stock exchange and other regulatory

authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 25 July 2011 Signed and sealed Tania Ruth Marshall (Dr) Geological Consultant (Pr. Sci. Nat.) SACNASP registration number 400112/96

P O Box 6578 Homestead, 1412 Republic of South Africa Tel/Fax: +2711 828-2989 E-mail: [email protected]




21.2 Glenn Alan Norton I, Glenn Alan Norton (Pr. Sci. Nat.) do hereby certify that: 1. I am the Mineral Resources Manager of Rockwell Diamonds Inc. of:

Level 0, “Wilds View”, Isle of Houghton Cnr: Boundary & Carse O’Gowrie Road Houghton Estate, Johannesburg South Africa, 2198

2. I graduated with a degree in Bachelor of Science from Rand Afrikaans University in 1998. In

addition, I have obtained a Bachelor of Science (Honours) in Geology in 1999

3. I am a member, in good standing, of the Geological Society of South Africa (# 965050) and am registered with the South African Council for Natural Scientific Professions as a Geological Scientist since 2006 (SACNASP registration number 400042/06).

4. I have worked as a geologist continuously since my graduation from university in 1999. During this period I have been involved, inter alia, in the exploration and exploitation of alluvial diamond deposits throughout Africa.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfil the requirements to be an internal “qualified person” for the purposes of NI 43-101.

6. As the Mineral Resources Manager of Rockwell, I am not independent of the issuer in terms of

NI43-101.

7. I am the co-author of this technical report entitled “Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc.(effective date 30 November 2010).

8. My previous involvement with the Wouterspan property is as co-author of the technical report

entitled “Technical Report on the Wouterspan Alluvial Diamond Project, Herbert District, The Republic of South Africa”, for Rockwell Diamonds Inc.(effective date 28 February 2009),

9. As the Mineral Resource Manager of Rockwell Diamonds Inc, I oversee the corporate strategy with

regards to the exploitation of the company’s resources. This includes the day to day mining and long term mine planning. Incorporated in to these duties is also the acquisition of new resources either through exploration or through the purchase of existing resources and operations. It is also my duties to ensure that all the company’s resources and rights are maintained in compliance with the exchanges as well as the various governing bodies in South Africa.

10. I visit the Wouterspan Project for a minimum of one day each week, as part of my visit to the adjacent Saxendrift mine.



11. At the date of signature, to the best of my knowledge, information and belief the information asked for in 43-101 section 81 (2) (ii) is accurate and not misleading.

12. I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 25 July 2011 Signed and sealed Glenn A Norton, B.Sc.Hons, Mineral Resource Manager (Pr. Sci. Nat.) SACNASP registration number 400042/06

Level 1, “Wilds View”, Isle of Houghton Cnr: Boundary & Carse O’Gowrie Road Houghton Estate, Johannesburg South Africa, 2198 [email protected]
