Mr. James Campbell reports

DIAMOND VALUE MANAGEMENT STRATEGY AND CORPORATE TURNAROUND LEVERAGES ROCKWELL REPOSITIONING

Rockwell Diamonds Inc. has released results for the three and 12 months ended Feb. 29, 2012. Currency values are presented in Canadian dollars unless otherwise indicated.

Performance overview:

• Substantial progress with repositioning of Rockwell by new management;
• Saxendrift performance trending up as a direct impact of diamond-value-management strategy;
• Long-term production asset on stream with Tirisano mine ramp-up making progress: one-time cost of ramp-up of $6.7-million charged to earnings;
• Fiscal 2012 performance with loss of $13.7-million: reflects impairment charges and other abnormal costs of repositioning the company to ensure economic sustainability;
• Net cash balances of $9.9-million preserved to finance growth;
• Successful in-field screen and bulk X-ray pilot projects blueprint for new mines;
• Investments undertaken and operating changes made allow Rockwell to deliver further improvements and pursue growth opportunities in fiscal 2013.

Following a review in early 2011 that was initiated after management changes in December, 2010, significant progress has been made in repositioning and refocusing Rockwell. Rockwell identified the deliverables to achieve its key corporate objective of increasing production of high-quality gemstones to 10,000 carats per month within five years. These included a comprehensive overhaul of the business, optimizing the productive mines to deliver better returns, driving down costs and improving metallurgical processes with a focus on recovery of diamonds as part of the value chain strategy. The next phase in the plan is to leverage the company's production profile by focusing in on the development of its asset inventory, as well as selected mergers and acquisitions opportunities, should they arise.

The appointment of a new management team in June, 2011, to drive the corporate turnaround was the first and most important step in initiating the new plan. James Campbell and Michael Hunt, both of whom are seasoned diamond executives with joint diamond experience spanning about 50 years, joined Rockwell as chief executive officer and chief operating officer, respectively. The team introduced the concept of diamond-value management, brought a focus on quality and worked to embed these goals throughout the operations. In the last 12 months, the company has made significant progress in this regard.

An increased focus on diamond-processing metallurgy enabled the company to address prior production issues, which were identified in the plant environment, leading to a number of operational improvements.

At Saxendrift, a new fit-for-purpose-in-field screen and the bulk X-ray pilot project were completed on schedule and have delivered positive recovery performance and results. Management is pursuing these new process technologies for future mine developments.

By adjusting the mine plan at Klipdam to mine the Rooikoppie gravels, which have less intense earth-moving requirements, the economics for the remaining life of mine have improved. With the recent appointment of a new mine manager, Klipdam is in a position to capture these efficiencies.

The acquisition of the Tirisano mine was completed, and the newly rebuilt 90,000-cubic-metre production facility was commissioned. Fatal flaws in the plant design that were identified by the new management team have now chiefly been addressed. Tirisano's full operating and ramp-up costs of $6.7-million were expensed with a short-term negative impact on annual profitability.

The Holpan mine, which delivered marginal results as it was reaching the end of its life of mine, was put on care and maintenance in May, 2011, and options to bring this asset to account are being analyzed.

The new management team conducted a full internal review across the business. Several corporate legacy issues were identified that required immediate attention, a number of which have already been resolved.

The company was recapitalized in the third quarter of fiscal 2012 through a private placement totalling $7.8-million, which was concluded at a premium to the then-current stock price. Rockwell supplemented this with $6.5-million from proceeds with the sale of non-core and underutilized assets. A portion of the funds was utilized to implement the technology improvements at Saxendrift and complete the Tirisano plant, while further funds will only be invested following careful evaluation of the expected returns against the objectives.

During the first quarter of fiscal 2012, the company extended its beneficiation agreement with the Steinmetz Diamond Group from rough diamonds exceeding 10 carats to include all stones exceeding 2.8 carats. The profit-sharing arrangement continues to deliver significant value as the company participates equally in the profit of polished diamond sales generated by the rough diamonds that are sold by Rockwell through this channel.

The arbitration in relation to the legacy Midamines dispute in the Democratic Republic of Congo was concluded, with Rockwell paying a final settlement of $1.2-million, enabling the management team to focus on its properties and mines in South Africa. The company is not aware of any other outstanding litigation.

After year-end, Rockwell announced the finalization of an agreement with Africa Vanguard Resources to unwind the 2008 deal effectively with respect to the Group's Northern Cape operations. This agreement included the acquisition of AVR's Jasper mine property, which is contiguous to Rockwell's Saxendrift mine and has the potential to extend the life of Saxendrift with limited new investment.

The company has achieved its stated objective of enlisting a strong and engaged board of directors to support the management team in its growth objectives. Mark Bristow was appointed as chairman, while Johan van't Hof and Stephen Dietrich joined the board as independent non-executives and members of the audit committee. Both Mr. van't Hof and Mr. Dietrich are chartered accountants and have occupied leading roles in significant enterprises.

Another critical area of the corporate review was the completion of an in-depth analysis of the company's asset register to ensure that all assets were accurately reflected in the balance sheet. The findings led the decision to impair the property, plant and equipment by $4.9-million at the end of the period, following which Rockwell's asset base is now more fairly represented on the balance sheet. Simultaneously, the company has maintained a prudent cash management strategy to preserve its cash resources for capital investments that are fully aligned with the growth objectives. Net cash balances improved to $9.9-million at Feb. 29, 2012, from $2.9-million at the end of fiscal 2011.

Financial overview:

• Gross diamond revenues of $34.2-million: 26-per-cent increase in diamond sales at Saxendrift, offset by impact of Holpan care and maintenance;
• Beneficiation revenues up 64 per cent;
• The loss for the year of $13.7-million, including asset impairment of $4.9-million, Tirisano operating costs of $6.7-million, total litigation expenses in respect of the Midamines dispute of $1.5-million and the Tirisano rehabilitation obligation of 1.3 million rand;
• Effective cash preservation: net cash of $9.9-million after capital expenditure of $6.8-million financed from internal cash flows.

Summary of performance for 12 months ended Feb. 29, 2012

The financial performance of Rockwell for fiscal 2012 reflects its transition and turnaround, as well as financial decisions taken to ensure the long-term sustainability of the company.

Saxendrift recorded a 26-per-cent increase in rough diamond sales to $17.5-million (U.S.) as its average value per carat improved 22 per cent to $2,444 (U.S.) while Tirisano, which was brought on stream in the third quarter, contributed revenue of $1.8-million (U.S.). These increases were offset by the impact of putting the unprofitable Holpan mine on care and maintenance and cessation of the trial mining at the Klipdam extension, both decisions resulting from the review. The net result was a 27-per-cent decline in U.S.-dollar-denominated diamond sales to $26.8-million (U.S.). As Tirisano's production gears up to full capacity in the year ahead, the gap is forecast to close. Total revenue for the company of $34.2-million was reported, including a 64-per-cent increase in beneficiation revenues with the Steinmetz Diamond Group to $7.8-million.

Mining costs declined by 4 per cent for the period to $26.9-million, even though the operating costs for Tirisano have been fully expensed for the ramp-up phase. The company reported an operating profit of $7.3-million for the year.

The loss for the year of $13.7-million reflects the impact of the decisions that were taken during the year to place Rockwell on a solid footing. These will flow through to the financials as its mines' operational transformation continues to yield improved production and lower unit costs. In particular, the Midamines settlement and associated costs amounted to $1.5-million while the asset impairment of $4.9-million also had a material impact on profitability but has resulted in a cleaner balance sheet.

Summary of performance for three months ended Feb. 29, 2012

For the first time since the corporate turnaround was put in motion, the fourth quarter financial performance is beginning to reflect the diamond-value-management principles, which the company believes will be the foundation for future growth.

Tender sales amounted to $5.9-million from the sale of the 5,795 carats that were produced by the company's three operations. Saxendrift achieved a 42-per-cent increase in revenue, as its carats sold increased and average price per carat increased by 32 per cent and 7 per cent, respectively. The overall loss of revenues was primarily due to ceasing operations at Holpan and completing the trial mining at Klipdam extension. This decline was partially offset by revenue from the sale of Tirisano diamonds that generated $500,000 (U.S.).

Total mining costs for the quarter increased marginally by 3 per cent to $10.4-million. The increase is mainly due to incurring the full mining costs of Tirisano during the ramp-up phase. The cost per carat during the fourth quarter showed a 6-per-cent decline even though there were additional upward pressures imposed by fuel, wages and maintenance costs. The latter is related to the aging mining fleet. This is a clear demonstration that the diamond-value-management principles are starting to deliver tangible benefits.

Also impacting the financial performance of the company was the once-off impact of the $4.9-million asset impairment, which contributed to the net loss for the quarter of $10.4-million.

The company remains cash positive, and stringent cost management measures are in place across all areas of the business. At Feb. 29, 2012, the company had cash and cash equivalents of $10.7-million, with net cash holdings of $9.9-million after financing capital expenditure of $4.0-million from internal resources, which compares favourably with a net cash position of $10.8-million at the end of the third quarter.

Operational overview:

• A total of 17,416 carats produced and 19,174 carats sold at average price of $1,400 (U.S.) per carat;
• Continuous operations implemented at Northern Cape operations (1) in January, 2012;
• Good progress with turnaround projects, including commissioning of in-field screen and pilot bulk X-ray implementation at Saxendrift;
• Saxendrift unit cost down 5 per cent due to success of diamond-value-management initiatives;
• Saxendrift reserves increased 60 per cent according to updated NI 43 101 technical statement as at Feb. 29, 2012, that will be posted on SEDAR.

Tirisano ramp-up progressing

The company's resolute focus on diamond-value-management principles has driven the operational improvements that have been implemented across the operations. The major focus areas during fiscal 2012 were on improving the performance of Saxendrift and ramping up production at Tirisano.

Saxendrift, the company's flagship mine that produces very-high-valued gemstones, was a primary target for implementing the principles of diamond-value management. While a number of tactical metallurgical initiatives improved plant efficiencies, the implementation of a fit-for-purpose in-field screen led to major operational benefits. The results in the fourth quarter were a 50-per-cent increase in carat production while unit costs declined by 5 per cent to $8.01 (U.S.) per cubic metre. At Tirisano, progress ramping up to full capacity has been slower than anticipated, but continual improvements are being effected on the plant, including the construction of a new wet front-end system.

Implementation of the bulk X-ray project continued on schedule and on budget. It was commissioned and incorporated into the dedicated bulk-sorting plant, and the testing program on various gravels started in mid-April, 2012. The preliminary results from the mine's recovery of tailings also produced encouraging results with a total of 316 stones totalling 1,109 carats being recovered in the first four weeks of production. This includes 14 stones exceeding 10 carats with the largest weighing 52.67 carats.

Outlook

Underpinned by positive diamond supply and demand fundamentals, market analysts are forecasting about 7-per-cent growth in rough diamond prices for the 2012 calendar year, although this is predicated on a stable global economy. In particular, the second half of the year is expected to be strong as dealers sell inventories that were built when prices weakened following the correction in August, 2011. The joint venture with SDG provides Rockwell with a strong base to benefit from positive movements in both rough and polished diamonds, especially for its larger, gem-quality diamonds, which are becoming rarer and are in high demand for investment purposes.

From an operational perspective, the priorities for the first quarter of fiscal 2013

Together with the recently appointed mine manager, the Klipdam team is focused on achieving its production volume targets and improving unit costs due to contops and better earth-moving availabilities.

The objective at Saxendrift is to optimize the mine plan continually to mine the right areas and achieve its quarterly production targets. Two new mining faces have been opened to provide additional operational flexibility and efficiencies. The mine management team will continue to optimize the in-field-screening process.

At Tirisano, the goal is to achieve full production by the end of the second quarter of fiscal 2013, a process that is being closely managed by the Rockwell executive team, in conjunction with the new mine management team, which has increased supervision and focused on consistent operation of the plant. Steady-state operation of the plant is targeted from the new mining area, as well as completing the wet front end by the second half of calendar 2012. Maintenance of the earth-moving fleet has been prioritized to meet the company's required availability. To this end, various options are being evaluated, including contract mining.

Testing of the bulk X-ray system on the recovery and plant tailings will continue at Saxendrift. On completion of this phase, the system will be used in the bulk-sampling mode for other properties, commencing with the newly acquired Jasper property. Rockwell's management is optimistic that implemented in conjunction with Saxendrift's new in-field-screen technology, the bulk X-ray technology should lead to a sustainable long-term improvement in diamond recoveries in the group's operations. The results will be evaluated with a view to deploying similar solutions in new processing plants that are planned at Wouterspan and/or Niewejaarskraal, as well as Rockwell's earlier-stage Middle Orange River area properties. Work on optimizing the prefeasibility study for the Wouterspan mine, which has been on care and maintenance since February, 2009, using more fit-for-purpose technology, will start, once the results from the Saxendrift bulk X-ray project are forthcoming.

Having made significant progress with the corporate turnaround in fiscal 2012 by entrenching the principles of diamond-value management, the long-term economic sustainability of the business has been substantially improved. The management team has well-defined and realistic objectives to complete the repositioning of the company in the year ahead, including the planning and feasibility stages of the Wouterspan project, completing the ramp-up at Tirisano and extending the bulk X-ray pilot project.

Commenting on the fourth quarter performance of Rockwell, Mr. Campbell, chief executive officer and president of Rockwell Diamonds, said: "The diamond-value-management strategy is leading to an improvement in Rockwell's carat production, and, during the past year, the new management team has made good headway with the corporate turnaround. This is still work in progress as is evident in our financial performance for fiscal 2012. A number of the decisions taken to strengthen Rockwell's long-term sustainability have impacted these results, such as putting Holpan on care and maintenance, the costs incurred at Tirisano during the ramp-up phase, and ensuring that our fixed assets are fairly reflected on the balance sheet. Rockwell is now in a much stronger position than it was a year ago, having addressed the majority of the legacy issues. We have concrete plans to deal with the remaining tasks to complete our turnaround.

"Solid progress has been made with improving recoveries. This is clearly evidenced by the year-on-year improvement in volume and carat production of 40 per cent and 77 per cent, respectively, from the three operational mines. Saxendrift's production profile has stabilized, and it achieved record production volumes in February, 2012, that have been sustained into the new fiscal year. We are confident that the pilot implementation of the bulk X-ray project, which was delivered on schedule and on budget, will lead to a new plant blueprint for our Northern Cape operations. In addition, with management committing significant time and attention to the production ramp-up at Tirisano, we have addressed the major challenges at the mine and are making steady progress."

Mr. Bristow, chairman of Rockwell Diamonds, added: "The last 12 months have seen a number of milestones in Rockwell's repositioning. This was catalyzed with the strategic review in the first six months of fiscal 2012 and the subsequent appointment of the new management team to refine and action the new strategy. The decisive strategic actions that characterized the last year's business activities, together with the diamond-value-management culture which is becoming business as usual for Rockwell, place the company on a sound footing to meet its medium-term goal to be the leading mid-tier alluvial diamond producer."

Conference call

Rockwell will host a telephone conference call on May 25, 2012, at 10:30 a.m. Eastern Time (4:30 p.m. Johannesburg time) to discuss these results.

                CONFERENCE CALL DETAILS
Country                                    Access number  

Canada (toll-free)                        1-866-605-3852 
United States (toll-free)                 1-800-860-2442 
United Kingdom (toll-free)                0-800-917-7042 
South Africa (toll-free)                   0-800-200-648  
Other countries (international toll)      27-11-535-3600

A transcript of the audio webcast will be available on the company's website. The conference call will be archived for later playback until May 30, 2012, at midnight (ET) and can be accessed by dialling the relevant number provided herein and using the passcode 20772 followed by the number sign.

               PLAYBACK DETAILS
Country                               Access number  

South Africa (Telkom)                  011-305-2030   
U.S. and Canada (toll)               1-412-317-0088 
Other countries (international toll) 27-11-305-2030
U.K. (toll-free)                     0-808-234-6771 

For further details, see the Rockwell's complete financial results and management's discussion and analysis posted on the website and on the company's profile at SEDAR. These include additional details on production, sales and revenues for the quarter, as well as comparative results for fiscal 2011.

Saxendrift mineral resource and reserve update

Based on the results of operations and additional trial mining at Saxendrift in 2011, an economic study and estimate of the year-end mineral resources and reserves were completed. The mineral resources at Feb. 29, 2012, were estimated by Rockwell's group technical manager and reviewed by Dr. T.R. Marshall (PrSciNat), a qualified person who is independent of the company and responsible for the estimate. Dr. Marshall is also responsible for the economic study and estimate of the mineral reserves.

                                        MINERAL RESOURCES

Mining area                         Resource classification Volume (m3) Grade* (ct/100 m3) Value (U.S.$/ct)

Brakfontein Hill complex                          Indicated  8,085,500               0.47           $2,444     
Saxendrift Hill complex, terrace B2               Indicated  1,774,600               1.15                     
Total                                             Indicated  9,860,100               0.59            2,444     
Brakfontein Hill complex                           Inferred    705,200               0.47            2,444     
Saxendrift Hill complex, terrace B2                Inferred     86,000               0.68                     
Kwartelspan prospect                               Inferred    500,000               1.00                     
Total                                              Inferred  1,291,200               0.69            2,444     

* Based on a bottom cut-off of five millimetres. Mineral resources that are 
not mineral reserves do not have demonstrated economic viability.

           THE MINERAL RESERVES AND KEY ECONOMIC LIMITS OF 
                     THE SAXENDRIFT MINE STUDY

Key limits, Saxendrift mine                             Key results    

Volume of gravel (probable reserves)                   8,085,500 m3
Average grade (probable reserves)                    0.47 ct/100 m3
Average sales value (2011)                         $2,444 (U.S.)/ct
Proposed monthly throughput                              180,000 m3
Proposed mine life (reserves only)                        44 months
Mining costs  (2011)                                     67 rand/m3
Mining royalties                                              0.5-7%
Capex required to bring mine into production        27 million rand
Company tax                                                      28%
IRR                                                             143%
NPV                                           17%, 133,095,000 rand

The Saxendrift mine plan involves continuous operations on the Brakfontein Hill complex using shallow, opencast mining. The processing plant is composed of four scrubbers followed by four 18-foot rotary pan-plants and has a design plant throughput of 800 tonnes per hour. With an expected annual treatment of 2.16 million cubic metres, about 10,000 cubic tonnes of diamonds are expected to be recovered through a bank of 12 Flowsort machines, as well as final hand sort in a glovebox under secure conditions. Access to all areas of the final recovery is controlled and monitored by protection personnel and closed circuit television. Quality assurance/quality control is maintained through the use of tracers (bort diamonds and ceramic balls).

(1) Saxendrift and Klipdam mines.

We seek Safe Harbor.