1 18 October 2013 |

WHY DIAMONDS? AN INDUSTRY VIEW FOR INVESTORS OCTOBER 2013

2 18 October 2013 |

AGENDA •  Unprecedented changes in the diamond industry •  Investors’ perception of diamonds •  Past diamond demand •  Key drivers of diamond demand •  Long-term diamond demand vs. short-term demand forecast •  Supply forecast •  New supply from potential new projects and expansions •  Supply-demand balance •  Diamond substitution •  Diamond price development •  Profit pool in the pipeline •  Diamond equity performance •  Equity performance of individual diamond producers •  Diamond cost curve •  Investing in diamond equities and investment grade diamonds

Four +100 carat rough diamonds recovered by Rockwell: Middle Orange, August/September 2013

3 18 October 2013 |

UNPRECEDENTED CHANGE IN DIAMOND INDUSTRY

•  De Beers: Relocating to Botswana •  Oligopoly in place: De Beers + Alrosa dominate 70% of global supply •  Alrosa gaining market share: #1 by 2018? and recent announcement of IPO •  Two major attempts to exit: BHP disposals and attempts by Rio Tinto •  New independent producers: Coming on-stream •  Diamond trade modernizing: Moving towards a free market

Changes in industry structure

•  Banks de-risking: Tightening credit lines to cutting centres •  Devaluing rupee: Causing manufacturing problems in India •  Lack of rough diamond price transparency: An issue for investors

Changes in financing

•  Fancy colours and large stones: Continued strong demand •  Lack of diamond advertising •  Emerging threat: Lab-grown diamonds

Other developments

2

Helena�Christensen�showing�the�diamond�in�2003�

©�Getty�Images�Entertainment�

Not�only�has�The�Pink�Star� received� the�highest�colour1�and�clarity� grades� from� the� GIA� for� pink� diamonds,� it� has� also�been� found� to�be�part�of� the� rare�subgroup�comprising� less�than�2�%�of�all�gem�diamonds���known�as�Type�IIa:�stones� in�this�group�are� chemically� the�purest�of�all�diamond� crystals�and� often� have� extraordinary� optical� transparency.� In�addition,� this� extraordinarily� important� gem� is� more� than�twice�the�size�of�the�magnificent�!Graff�PinkF�G�the�24.78�carat�fancy� intense� pink� diamond� which� established� a� world�auction�record� for�a�diamond�and�any�gemstone�or� jewel�at�$46.2� million� at� SothebyFs� Geneva� in� 2010.� The� current�record�price�per� carat� for�a�pink�diamond� ($2,155,332)�was�set�by�a�5�carat�fancy�vivid�pink�diamond2.��SThe�occurrence�of�pink�diamonds�in�nature�is�extremely�rare�in� any� sizeT,� said� Tom�Moses,� senior� vice�president� of� the�Gemological� Institute� of� America.� SItFs� our� experience� that�large�polished�pink�diamonds�G�over�ten�carats�G�very�rarely�occur�with�an�intense�colour�(V)�The�GIA�Laboratory�has�been�issuing�grading� reports� for� fifty�years�and� this� is� the� largest�pink�diamond�with� this�depth�of� colour� [vivid�pink]� that�we�have�ever�characterisedT*.��The� 132.5� carat� rough� diamond�was�mined� by�De� Beers� in�Africa� in�1999�and�painstakingly�cut�and�polished�by�Steinmetz�Diamonds�over�a�period�of� two�years�and�transformed�into�this�stunning�gemstone.�Unveiled�to�the�press�and�public�as�the�_Steinmetz�PinkF�in�Monaco�in�2003,�the�stone�was�first�sold�in�2007�and�subsequently�renamed�_The�Pink�StarF.��In� 2003,� the� diamond� was� shown� at� the� Smithsonian� Institution,� Washington,� DC,� in� the� Splendor� of�Diamonds�exhibition,�along�with� seven�of� the�worldFs� rarest�diamonds� including� the�De�Beers�Millennium�Star,�the�Allnatt�diamond,�and�the�Moussaieff�Red.�In�2005�2006,�it�was�the�star�attraction�of�the�Diamonds�exhibition�at�the�Natural�History�Museum,�London.�The�stone�also�features�in�all�authoritative�books�on�the�subject.��Ever�since�they�were�first�discovered�in�the�mines�of�India�centuries�ago,�pink�diamonds�have�been�coveted�by� rulers�and�prized�by�connoisseurs.�They�are�probably� the�most�desirable�of�all� the�coloured�diamonds.�Many�of�the�great�gems�of�history�happen�to�be�pink�diamonds,� including�the�!Williamson',�the�!Hortense',�the�!Darya�i�Nur'�and�the�!Agra'.��The�sale�of�The�Pink�Star�continues�SothebyFs�tradition�of�bringing�some�of�the�rarest�and�most�extraordinary�objects� to�market.�SothebyFs�Geneva�has� sold�a�number�of� the�most�valuable�diamonds� in� the�world�and�holds�the�current�world�auction�record�for�a�diamond�and�any�gemstone�or�jewel�since�the�sale�of�the�_Graff�PinkF� ��an�exceptionally�rare�and� truly�magnificent�Fancy� Intense�Pink�diamond�of� the�purest,�vibrant�hue,�weighing�24.78�carats�for�CHF�45.4�million�($46.2�million)2.��Given�the�global� interest� in�a�treasure�of�this�nature,�The�Pink�Star�will�be�showcased�on�a�worldwide�tour,�travelling�to�cities�including�Hong�Kong,�New�York,�London,�Zurich�and�Geneva.�

��

*�Tom�Moses�quoted�in�Mike�Duff,�SThe�Sharpest�CutT�in�Financial�Times,�31�May�2003.�

Pink Star to be auctioned at Sotheby’s Geneva

(Nov 2013): Est. value >$60m

118ct D flawless oval diamond: Sold for $30.6m in

Hong Kong (Oct 2013)

Uncertainty leading to difficulty in judging and volatile short term development

4 18 October 2013 |

PERSISTENT SCEPTICISM AMONG INVESTORS

Why investors don’t like diamonds… despite relative performance and positive diamond outlook

Relatively small diamond investment market Notoriously opaque requiring specific insider knowledge from investors

Apparent rough price fluctuations No clear benchmark with lack of industry rough price list

Polished prices not 100% aligned with rough prices Difficulty in predicting correlation between rough and polished markets

Polished diamond grading perceived as subjective Valuation of investment grade diamonds is complex Resale value of polished diamonds not always attractive

Wide ranging factors affecting valuation of diamond exploration or mining projects Including diamond price movement, political risk, mining project risks

Establishing fair entry point for diamond investment Limited access to players with scale could be alleviated by Alrosa IPO

Analysts offer cautious optimism at best Erosion of shareholder value of diamond exploration and mining companies over last 15 yrs

Poor sector record Few publicly-known diamond investment success stories

5 18 October 2013 |

DIAMOND INDUSTRY FUNDAMENTALS: CONSUMER APPETITE FOR DIAMONDS HAS DECLINED

•  2006 to 2012

•  Diamond content value (retail sales) grew faster than global jewellery sales

•  Strong diamond retail performance

• Surging gold and diamond prices

•  Jewellers expected to reduce gold and diamond content to contain price points

Source: DMM Advisory Group Analysis, IDEX, Tacy Ltd. Chaim Even-Zohar, Polishedprices.com, Kitco

Total diamond jewellery + diamond content retail sales ($bn) vs polished diamond and gold price indices (%)

18.5 20.2 18.4 15.9 18.2 23.6 22.6

80 100 120 140 160 180 200 220 240 260 280

0 10 20 30 40 50 60 70 80

2006 2007 2008 2009 2010 2011 2012

Global diamond jewellery retail sales ($Bn) Value of the diamond content in the jewellery retail sales ($Bn) Polished price index average p.a. (2006=100%) Gold price index (2006=100%)

68.5 73.1 64.8

58.7 60.2 70.8

72.1

0.9% 3.4% 2.9 % 18.5%

CAGR (2006-12)

$bn %

Jewellery produced from Rockwell diamonds

6 18 October 2013 |

KEY DRIVERS OF FUTURE DIAMOND DEMAND: HIGH NET WORTH INDIVIDUALS (HNWI) AND CHINESE ENGAGEMENT RINGS

Source: DMM Advisory Group Analysis, CapGemini

•  ±5% historic growth p.a.: Number + average wealth of HNWIs

•  Trend anticipated to persist to 2015

•  Industry challenge: Maintain share of increased wealth spent on

diamonds and diamond jewellery

0

10

20

30

40

50

60

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F

Number of HNWIs (M)

HNWI Wealth ($Tr)

Number (m) and wealth ($tr) of HNWI

m

CAGR (1999-2011): 5.1%

CAGR (1999-2011): 5.8%

Source: DMM Advisory Group Analysis, De Beers

$tr

First time brides receiving a diamond engagement ring

•  40 yrs to reach 80% penetration in USA •  Japan needed ±30yrs to reach 77% •  Significant headroom in China: 10-20 yrs until saturation •  Millions of additional Chinese brides receiving diamond

engagement rings in the future

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

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

USA

Japan China

Possible saturation level

80% 77%

1% 10% 5%

31%

7 18 October 2013 |

0

5

10

15

20

25

30

35

40

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

F 20

14F

2015

F 20

16F

2017

F 20

18F

2019

F 20

20F

2021

F 20

22F

2023

F

Polished diamond demand: Value of the diamond content in the jewellery retail sales

Rough diamond demand (Bain & Co. base case)

Rough diamond demand (Bain & Co. lower case)

Trendline for the polished demand based on 2003-2012 data

POSITIVE LONG TERM FUNDAMENTALS: DEMAND FOR POLISHED AND ROUGH DIAMONDS EXPECTED TO RISE

CAGR (2003-12): 4.8%

CAGR (2012-23): 5.1%

CAGR (2012-23): 4.2%

Source: DMM Advisory Group Analysis, IDEX, Tacy, Bain & Co.

Polished and rough diamond demand (actual and forecast) ($bn)

•  Rough demand: Expected to grow between 4.2% and 5.1% p.a. until 2023 (Bain & Co.)

•  Rough and polished demand: Expected to correlate long-term

•  Clear long-term trend: Increasing demand

•  Short term deviations from trend line anticipated: Both up and down

Deviation from the long term trend Polished

demand

Rough demand

Large stones recovered by Rockwell in 2010

8 18 October 2013 |

195-205 230-240 320-330

470-480 610-620

855-895 980-990 1,010-1,020

365-375 315-325

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

World diamond exploration spend ($m)

Source: NBF Research; Metals Economic Group

CAGR 26%

CAGR -64%

ROUGH DIAMOND SUPPLY FORECAST TO DECLINE AFTER 2018: SUPPLY DEFICIT EXPECTED TO ARISE

• Factors impacting supply: Low liquidity for new projects •  Lack of market transparency •  Difficulty in finding diamond resources •  Price volatility •  The global financial crisis

•  Inadequate historic investment: Replacement of existing diamond production

•  Direct impact on future diamond supply

Rough diamond supply actual and forecast (mcts)

Source: DMM Advisory Group Analysis, Bain & Co, Allan Hochreiter, Charles Stanley Securities

0

20

40

60

80

100

120

140

160

180

1998

19

99

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13F

2014

F 20

15F

2016

F 20

17F

2018

F 20

19F

2020

F 20

21F

2022

F 20

23F

Rough diamond supply - Bain & Co. Rough diamond supply - Allan Hochreiter Rough diamond supply - De Beers, Charles Stanley Securities

9 18 October 2013 |

ADDITIONAL SUPPLY OPTIONS: INSUFFICIENT TO BRIDGE SUPPLY DEFICIT

Source: DMM Advisory Group Analysis, Bain & Co. Industry publications

Additional rough diamond supply from potential new projects and expansions (kcts)

2014F 2017F 2020F 2023F

ALROSA  GROUP  PRODUCTION  increases 1,811             4,682             6,768             6,853            BUNDER -­‐                       2,500             2,500             2,500            GAGHOO 100                     230                     230                     230                    GAHCHO  KUE -­‐                       4,500             4,500             4,500            GRIB 2,000             4,000             4,000             4,000            KARPINSKOGO-­‐1  /  LOMONOSOV 1,656             2,466             4,647             5,000            KRONE  ENDORA 180                     180                     180                     180                    LACE -­‐                       300                     300                     300                    LERALA 250                     500                     -­‐                       -­‐                      MERLIN 50                         250                     250                     250                    PETRA  EXPANSION -­‐                       1,000             2,000             2,000            RENARD -­‐                       1,600             1,600             1,600            STAR  ORION  SOUTH -­‐                       -­‐                       1,700             1,700            TOTAL 6,047             22,208         28,675         29,113        

•  Limited additional supply including potential new projects and expansions •  Potential new projects and expansions likely to add only limited new future supply

Total supply forecast and expected supply from potential new projects and expansions (mcts)

0 20 40 60 80

100 120 140 160 180

2014F 2017F 2020F 2023F Total diamond supply forecast by Bain & Co.

Supply from potential new diamond projects and expansions (DMM estimate)

10 18 October 2013 |

10

12

14

16

18

20

22

24

26

28

2012 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F

Rough diamond demand forecast - Bain & Co. base case for demand forecast Rough diamond demand - Bain & Co. lower case for demand forecast Rough diamond supply forecast - Bain & Co. base production forecast Rough diamond supply forecast - Bain & Co. including production increase

POSITIVE LONG-TERM OUTLOOK FOR DIAMOND PRODUCERS: EVEN UNDER CONSERVATIVE SUPPLY-DEMAND SCENARIO

Demand forecast

Rough diamond supply and demand forecast (2012 prices) ($m)

Source: DMM Advisory Group Analysis, Bain & Co.

•  Diamond supply-demand gap: Appears

inevitable

•  But, there are still some questions:

•  When will the supply deficit emerge?

•  How wide will the supply gap become?

•  What will be the mix of reactions that fills

this gap?

•  How far will the supply deficit translate

into increased diamond prices or diamond

substitution?

Supply forecast

Supply deficit

11 18 October 2013 |

SUPPLY SIDE GAP: LONG TERM IMPACT OF RECYCLING AND LAB-GROWN DIAMONDS

•  Catalyst for significant polished diamond recycling: More established polished diamond investment market •  Impediment for recycling: Difficulty evaluating polished diamonds and low liquidity in investment diamonds •  Still more attractive to keep diamonds: Sale to retailers generally at deep discounts

Recycling: Not new to the industry but gaining ground

•  Technology developed some time ago: Technological improvements enabled higher volume / lower cost production of high-quality diamonds

•  Misperception among natural diamond stakeholders: Selling lab-grown diamonds for jewellery more profitable than industrial end-uses

•  Fact: Industrial application for optical, electrical and cutting tool applications more lucrative •  High production costs for jewellery-grade synthetics: Synthetic producers likely to remain focused on industrial sector •  Production of jewellery-grade lab-grown diamonds in 2012 estimated 50-100k carats vs 130mcts of natural

diamonds: Few synthetics actually used in jewellery •  Rapid advances expected for lab-grown diamond production technology: Jewellery application will become more

attractive for producers

Lab-grown (synthetic) diamonds: Jewellery end use still low

12 18 October 2013 |

ROUGH AND POLISHED DIAMOND PRICES: OUTPERFORMED OTHER KEY COMMODITIES

Price indices for diamonds and other commodities 2010-2013 (2010 Jan=100%)

Source: DMM Advisory Group Analysis, eDiamond, polishedprices.com, indexmundi, Johnson Matthey, IMF

80%

100%

120%

140%

160%

180%

200%

220%

Jan-

10

Mar-1

0 Ma

y-10

Jul-1

0 Se

p-10

No

v-10

Jan-

11

Mar-1

1 Ma

y-11

Jul-1

1 Se

p-11

No

v-11

Jan-

12

Mar-1

2 Ma

y-12

Jul-1

2 Se

p-12

No

v-12

Jan-

13

Mar-1

3 Ma

y-13

Jul-1

3 Se

p-13

Rough Diamond Price Index

Polished Diamond Price Index

Copper Price Index

Commodity Price Index (Non-Fuel)

Platinum Price Index

Gold Price Index

13 18 October 2013 |

IMPACT OF FUTURE SUPPLY DEFICIT: PRODUCERS BEST POSITIONED TO BENEFIT

0% 2% 4% 6% 8%

10% 12% 14% 16% 18% 20%

Diamond producers Rough diamond trading

Diamond manufacturing

(cutting and polishing)

Polished diamond trading

Diamond jewellery manufacturing

Diamond jewellery retail

Average operating margins in the diamond pipeline 2012 (%)

16-20%

1-3%

Sequence in the diamond pipeline

2-5% 1-4%

3-5%

4-14%

Highest margin in the pipeline

Source: DMM Advisory Group Analysis, Bain & Co.

14 18 October 2013 |

50%

70%

90%

110%

130%

150%

170%

190%

210%

230%

250% HSBC Global Mining Diamonds Index S&P/TSX Capped Diversified Metals & Mining Index Anglo American Share Price Indexed S&P 500 Indexed

HIGH HISTORIC CORRELATION: PERFORMANCE OF DIAMOND SHARES VS DIVERSIFIED MINING & METALS

HSBC Global Diamond Mining Index performance compared to diversified mining companies and portfolios (Mid price on 1/07/2010=100%)

•  High correlation: Aggregated price

index of diamond miners and S&P/

TSX Capped Diversified Metals &

Mining Index

•  That is, diamond companies perform

on average along diversified mining

portfolios

•  Diamond miners on average

outperformed (three year horizon)

Anglo American, a diversified mining

company

Source: DMM Advisory Group Analysis, Yahoo Finance, S&P, HSBC

15 18 October 2013 |

SIGNIFICANT VARIANCE: PERFORMANCE OF DIAMOND MINING PEER GROUP

Source: DMM Advisory Group Analysis, Yahoo Finance, HSBC

HSBC Global Diamond Mining Index performance vs peer group diamond miners (mid price on 1/07/2010=100%)

60%

110%

160%

210%

260%

310%

Jul-1

0 Au

g-10

Se

p-10

Oc

t-10

Nov-1

0 De

c-10

Jan-

11

Feb-

11

Mar-1

1 Ap

r-11

May-1

1 Ju

n-11

Ju

l-11

Aug-

11

Sep-

11

Oct-1

1 No

v-11

Dec-1

1 Ja

n-12

Fe

b-12

Ma

r-12

Apr-1

2 Ma

y-12

Jun-

12

Jul-1

2 Au

g-12

Se

p-12

Oc

t-12

Nov-1

2 De

c-12

Jan-

13

Feb-

13

Mar-1

3 Ap

r-13

May-1

3 Ju

n-13

Ju

l-13

Aug-

13

Sep-

13

HSBC Global Mining Diamonds Index

Petra Share Price Indexed

Dominion Share Price Indexed

Rockwell Share Price Indexed

Lucara Share Price Indexed

16 18 October 2013 |

FEW DIAMOND INVESTMENT OPTIONS: LARGE / LOW COST MINES HARD TO ACCESS FOR INVESTORS

Source: DMM Advisory Group Analysis, De Beers

More than 70% of De Beers production is located on the lower half of the cost curve

28

Higher margin assetsJw

anen

g

Gahc

ho K

ue (p

rojec

t)

Vene

tia

Orap

a

Nam

deb

oper

ation

sDa

mtsh

aa

Snap

lake

Cost/

reve

nue

Cumulative revenue

Source: De Beers

Diamond mining project cost curve (2012) and projects are difficult to access De

Bee

rs

Limited access for investors to low cash cost projects: Either part of a diversified mining company or not publicly traded

Cumulative revenues

De B

eers

De B

eers

De B

eers

De B

eers

De B

eers

??? ??

? ???

???

Cost/

reve

nue

17 18 October 2013 |

DIAMOND INVESTMENTS: ATTRACTIVE OPPORTUNITIES FOR SPECIFIC INVESTORS

•  Diamond producer equities and investment grade diamonds offer attractive market fundamentals with significant future supply-demand deficit

Positive market fundamentals

•  Diamond investment is for long-term investors as short-term volatility might be difficult to judge without deep insider knowledge

Diamond equity is for long-term investors

•  Due-diligence and selection of right investment target is important when investing in diamond mining companies as risks involved need to be judged realistically

Due-diligence is important for diamond equity investors

•  Investment grade diamonds offer a good opportunity for diversified portfolios as alternative investment form

Investment grade diamonds offer an attractive alternative investment class

•  Finding access to attractive diamond producers might require new investment solutions and external support

Finding access to investment opportunities is key

18 18 October 2013 |

SUCCESSFUL MARKET PARTICIPANTS EXIST: CAREFUL SELECTION OF INVESTMENTS IS KEY

•  Direct exposure to diamond market (production vs. exploration) •  Track record of delivery and success •  Size of resources •  Good position on the cost curve •  Industry and mining knowledge •  Strong management team •  Risk management •  Prudent financial management •  Consolidation opportunities

Recommended selection criteria for investment in diamond equities

August 2013: 10.3ct mackle; 37.8ct sawable; 13.6ct sawable (Saxendrift Extension)

June 2013: 25.2ct D colour (SHC), 56.8ct makeable (Saxendrift)

September 2013: 126ct, 169ct makeable (SHC)

19 18 October 2013 |

FEW EXPLORATION / DEVELOPMENT COMPANIES: CONSOLIDATION POTENTIAL IN CANADA & SOUTHERN AFRICA

Alrosa

De Beers/MPV Dianor

Dominion Grizzly Discoveries Kennady Diamonds

Metalex Ventures North Arrow

Peregrine Rio Tinto

Shore Gold Stornoway

Alrosa De Beers

Gem Itm

Lucapa Mwana

Sml Transhex

Alrosa Botswana Diamonds

Debswana Gem Diamonds

Kimberley Diamond Petra Diamonds

Tsodilo Pangolin

CNK

Rio Tinto De Beers

Lucara Paragon Firestone

Namakwa Diamonds

Karelian Mantle Sunrise

Res.

True North Gems

Stellar

Sunrise

Delrand

Blue Rock Diamcor

Diamondcorp

Alrosa Lukoil

Alrosa

•  Numerous single project companies � Financing challenges

20 18 October 2013 |

CONCLUSION: THE INVESTMENT CASE FOR DIAMONDS

•  Unprecedented changes and volatile short term development

Diamond industry has been difficult to judge

•  Despite positive relative performance and industry outlook

Investors remain cautious of diamonds

•  Consumers still have a strong appetite for diamonds •  Future demand drivers: High Net Worth Individuals, steady uptake for Chinese engagement rings •  Long term demand for polished and rough diamonds expected to rise, with some short term deviations •  Supply deficit anticipated after 2018: Anticipated decline in rough diamond supply •  Limited additional supply options from potential new projects and expansions: Insufficient to bridge supply deficit •  Recycling / lab-grown diamonds could reduce supply-demand gap, unlikely to halt positive long-term diamond outlook

Industry fundamentals

•  Producers best positioned to capture impact of anticipated supply deficit •  Diamond mining stocks on average have been correlated with diversified mining & metals portfolios •  Significant variance between share price performance of individual diamond mining companies •  Few investment options for diamond investors: Low cash cost operators typically occur among few large mines or private

companies

Rough and polished diamond prices: Good performance relative to other key commodities

•  Successful market participants exist but careful selection is key

Diamond investments can offer attractive opportunities for specific investors

21 18 October 2013 |

THANK YOU FOR YOUR ATTENTION: QUESTIONS?

116.3 carat sawable, recovered at Saxendrift plant from Saxendrift Extension gravels (August 2013)

22 18 October 2013 |

FOR FURTHER INFORMATION CONTACT:

Rockwell Diamonds Inc. James Campbell Chief Executive Officer Email: jamesc@rockwelldiamonds.com Tel: +27 (0)11 484 0830 WWW: rockwelldiamonds.com

DMM Advisory Group Krisztina Kalman-Schueler Managing Partner Email: kks@dmmadvisorygroup.com Tel: +44 (0) 208 832 3765 WWW: dmmadvisorygroup.com

Two identical internally flawless D-colour polished diamonds weighing 35 carats each. Sold in December

2010 for $232,000 per carat. One of the pair was polished from a 105ct Saxendrift stone.