Mr. James Campbell reports

ROCKWELL POSTS BOTTOM-LINE PROFIT AND EIGHTH SUCCESSIVE QUARTER OF REVENUE GROWTH

Rockwell Diamonds Inc. has released its results for the three months ended May 31, 2014.

Features of first quarter of fiscal 2015:

• Rockwell reported a net profit of $345,000 in the first quarter, compared with a loss of $1.2-million in the prior year.
• First quarter revenue increased 67 per cent year on year to $15.1-million, comprising $9.7-million from diamond sales and beneficiation income of $5.4-million (including the sale of a 109-carat polished vivid-yellow diamond).
• Rockwell reported its eighth successive quarter of dollar-denominated revenue growth.
• The overall volume of gravel processed and carat production from all company-owned properties were up 26 per cent and 90 per cent year on year, respectively.
• Rockwell had an operating profit before amortization and depreciation of $4.2-million, up from $1.1-million in the prior year.
• The company had net cash flow from operating activities of $1.1-million, compared with cash utilized of $3-million in the prior year.
• Rockwell has an inventory of 5,237 carats carried forward (includes 2,271 carats on royalty mining contracts).
• The company's additional revenue potential is underscored by a beneficiation pipeline of more than 6,300 carats.
• Royalty mining contracts at Tirisano delivered net royalties of $312,576 (U.S.).

Commenting on the first quarter performance of Rockwell, James Campbell, chief executive officer and president, said: "We are pleased to report that Rockwell showed a bottom-line net profit of $345,000 in the first quarter. This is a first, as well as a significant achievement after three years of rebuilding Rockwell. These results also represent the eighth successive quarter of U.S.-dollar-denominated revenue growth, highlighting the consistent delivery against our plan, which saw our exit from loss-making operations and the resolution of a number of corporate legacy issues.

"Our first quarter performance is the result of higher-quality production, led by our Middle Orange River focus, including the two new mines built at Saxendrift Hill complex and Niewejaarskraal in the last year. We showed an 89-per-cent increase in carat production while volumes processed were up 19 per cent from a year ago and the grade improved 59 per cent. The average stone size produced by Rockwell from total properties increased 18 per cent in the first quarter to 4.6 carats from 3.8 carats in the prior year. We recovered four rough diamonds in the plus-50-carat category, the largest of which was a 103.8-carat high-intensity fancy-yellow stone. In addition, Rockwell produced 81 rough diamonds in the plus-10-carat category, compared to 44 stones in the prior year. In June, 2014, we processed record volumes of gravel across company properties as our three MOR mines all processed higher volumes due to higher equipment availability. We delivered these results while overcoming the challenge of the aging earthmoving fleet at Saxendrift and the breakdown of the desanding screen at SHC. Niewejaarskraal offset these impacts, even though it was still in production ramp-up at the beginning of the quarter, demonstrating the diversification benefits of our multiple mining faces and processing plants.

"Having invested significant time and effort to analyze our mining and earthmoving fleet requirements at Saxendrift and SHC, the board recently approved an improvement and replacement plan, the implementation of which started this quarter. The lease plan does not require any upfront capital investment and comprises full maintenance leases for the new fleet. Our dozers and excavators are undergoing midlife overhauls, funded from working capital. Once completed, the new fleet will position Saxendrift and SHC to process higher volumes with a reduction of between 12 per cent and 17 per cent of unit costs when operating at full capacity. Equipment which is no longer required is being auctioned off.

"We continued to deliver toward our organic growth strategy and are on track to meet our medium-term objective of processing 500,000 cubic metres of quality gravels per month. Meanwhile, we have noted renewed investor interest in the diamond sector as we continue to review value-accretive consolidation opportunities to supplement organic growth prospects."

Review of first quarter delivery on strategy

The significant improvement in Rockwell's first quarter operating and financial results reflects the benefits of its focused strategy to increase its MOR production footprint with a midterm target to increase monthly production volumes of quality gravel processed to 500,000 cubic metres. Higher diamond values, better efficiencies and greater economies of scale can be achieved in this region to deliver more consistent quarterly earnings at a more predictable mining cost.

Rockwell maintained its focus on achieving its core medium-term objective of reaching monthly own processing volumes of 500,000 cubic metres in the MOR region. Its three producing operations in the region have a total monthly processing capacity of 340,000 cubic metres, comprising Saxendrift (160,000 cubic metres per month at a five millimetre bottom cut-off), SHC (80,000 cubic metres per month at a five-millimetre bottom cut-off) and Niewejaarskraal (100,000 cubic metres per month at a six-millimetre bottom cut-off). Rockwell is on track to meet its target with the fleet renewal program at Saxendrift, immediately enabling a 20,000-cubic-metre-per-month increase in capacity, while at Niewejaarskraal an upgrade is under consideration to take its capacity to 120,000 cubic metres per month. The phased implementation of a new plant at Wouterspan, also under review, would bring the company's processing capacity to its medium-term target.

In addition, Rockwell processes some further 200,000 cubic metres per month indirectly through royalty contract mining production at Tirisano, bringing the total current production volumes to 560,000 cubic metres per month on company-owned properties.

During the first quarter, Rockwell achieved further progress against a number of strategic milestones:

• Carat production at the Saxendrift processing plant increased 15 per cent to 2,345 carats, despite a 20-per-cent decline in volumes of gravel processed. The earthmoving vehicle renewal plan, the implementation of which commenced in the first quarter, should enable the mine to increase throughput and sustain higher carat production going forward.
• SHC delivered a 178-per-cent increase in carats to 748 despite a mechanical failure of the desanding screen that was subsequently repaired. During this time, recovery tailings were processed through the bulk X-ray plant, which continued to perform on plan, enabling the mine to maintain a cost per carat produced of $2,133 (U.S.), which is comparable with the mine's performance since its production reached a steady state.
• Operations at the 100,000-cubic-metre-per-month Niewejaarskraal plant further improved, with production totalling 1,269 carats at a grade of 0.57 carat per 100 cubic metres, within the long-term grade expectation for the mine. With a reported average value of $2,408 (U.S.) per carat, the diamond quality achieved is on plan.
• The EMV fleet renewal plan to renew the company's aging fleet is now under way. This comprises fully managed maintenance leases for the new fleet with no upfront capital investment, also incorporating a new fleet of commercial and staff buses. The dozer and excavator fleet is undergoing midlife overhauls that are being financed from working capital. These initiatives are aimed at improving earthmoving availabilities to facilitate higher mining volumes at Saxendrift and to better utilize the invested processing capacity.
• The royalty mining contractor strategy, implemented in the prior year, enabled the company to generate positive returns from properties that it does not wish to mine. The value of sales amounts to $2.5-million (U.S.), with $312,576 (U.S.) in royalties accruing to the company.

Fiscal 2015 performance summary

The company's overall production and sales results, which are made in the market in U.S. dollars, for the first quarter are shown in the attached table.

                                     Production                   Sales and inventories
                             Volume          Production  Value of sales      Average
                             (cubic               costs    (millions of        value  Inventory
                            metres)  Carats  (millions)   U.S. dollars)  (US$/carat)   (carats)

Own operations              703,837   4,362     $  8.46         $  6.26      $ 2,967      2,111      2,966
Contractor mining           425,808   4,800     $  2.41         $  2.50      $ 3,710        674      2,271
Total company properties  1,129,645   9,162     $ 10.87         $  8.76      $ 6,677      2,785      5,237

For fiscal 2015, processed gravel volumes from company properties increased 26 per cent to 1.13 million cubic metres, comprising 703,837 cubic metres from Rockwell's own operations and the remainder processed by the royalty mining contractors. Rockwell achieved a grade across the company's properties of 0.62 carat per 100 cubic metres, underpinning a 54-per-cent increase in total carat production, including 4,362 carats from own operations and 4,800 carats from contractors.

Diamond sales from own operations declined 9 per cent to 2,967 carats, reflecting the transition of the production profile into the MOR. The five royalty mining contractors operating at Tirisano sold a total of 3,710 carats during the quarter, resulting in a 34-per-cent increase in carat sales from company-owned properties. The value of sales from own properties was down 5 per cent to $6.3-million (U.S.)(excluding beneficiation), while the average carat value rose 5 per cent to $2,111 (U.S.). These results are underpinned by the diversification benefits of having three production mines in the MOR, where Saxendrift performed consistently and Niewejaarskraal showed a strong improvement, dampening the impact of the mechanical failures at SHC. Sales from company-owned properties improved 18 per cent to $8.8-million (U.S.)(excluding beneficiation).

During the first quarter, the average total cash cost (including rehabilitation and royalties) for all the operations was $14.10 per cubic metre, compared with a total cash cost of $12.60 per cubic metre in the prior year. The increase is largely due to lower mining volumes processed at Saxendrift due to equipment availability. This is now under resolution with the EMV renewal plan now being implemented. The expected higher per-unit costs incurred at Niewejaarskraal are all due to lower, but improving, volumes during the production ramp-up period. On a pro forma basis for continuing operations (excluding Niewejaarskraal and SHC ramp-ups), the total cash cost (including rehabilitation and royalty costs) amounted to $10.90 (U.S.) per cubic metre. The average total cash cost should normalize as a result of implementing the EMV renewal plan at Saxendrift, thus increasing volumes to cover fixed costs, and resuming normal volumes at SHC in June after repairing the desanding screen and as volumes at Niewejaarskraal reach nameplate capacity.

Growth projects

Rockwell continues to make progress toward its strategy to increase production from and extend the mine life of its MOR properties:

• Contiguous exploration of existing resources at the Saxendrift extension property is under way to increase the current life of mine and to enable the company to leverage the fixed assets of Saxendrift.
• A focused exploration and trial mining program continues at SHC to ensure the resource potential is maximized and to develop contiguous areas.
• Through trial mining, the Niewejaarskraal inferred resource will be upgraded to the indicated level.
• The company continues to review the options to bring the Wouterspan property into production following the completion of a preliminary economic assessment in May, 2014, that reflected viable economics.

The company continues to evaluate consolidation opportunities in the South African diamond sector that are value accretive. A strict set of criteria are applied to evaluate the potential acquisitions in order to leverage the company's production expertise toward its goal to become a mid-tier diamond producer.

Market update

The diamond market between March, 2014, and May, 2014, was similar to the first quarter of the 2014 calendar year with steady rough and polished demand, and continued concerns relating to liquidity in the industry. Polished-diamond demand has been strong. Rapnet reported a 1-per-cent increase in prices of one-carat diamonds since January, 2014, while 0.3-carat polished diamonds increased 7 per cent during the same period. Although the industry is in a steady state, the main concern remains the low availability of finance to the industry and primary suppliers continue to finance the secondary market. Retail demand worldwide has grown, assisting liquidity in the industry. However, trading is expected to slow during the northern hemisphere summer, in line with historical patterns.

Rough prices are expected to remain at current levels in the short term, with the potential for price increases in the second half of 2014. Polished-diamond prices did not increase in 2013, but are expected to increase this year as the gap between high-rough and lower-polished prices is unsustainable. A correction in polished prices is expected in the second half of 2014.

Rockwell continues to supply rough diamonds to South African beneficiation companies as part of its drive to support the local industry with positive results. Rockwell's joint venture partner, Diacore, continues to sell high-quality polished stones to high-net-worth retail clients. Demand for high-value investment diamonds among high-net-worth individuals, as well as institutional and private investors seeking alternate investment options, remains strong and prices for these goods are expected to continue outperforming. Rockwell's primary revenue, through consistent production of high volumes of quality gravels, is from investment-type diamonds, which provide a shield against price volatility.

Outlook

The current operational focus areas are as follows:

• At Saxendrift, the implementation of the EMV renewal plan is the top priority, with completion scheduled by the end of calendar 2014. Subsequently, higher mining volumes should facilitate higher processing rates through the plant and lower maintenance costs, resulting in lower mining cash costs per cubic metre.
• At SHC, the focus is on resuming normal mining volumes following the repair of the desanding screen, which impacted its first quarter performance. Contiguous exploration work and trial mining is continuing to increase this resource.
• Achieving steady-state volumes is the priority at Niewejaarskraal, while also evaluating a proposal to upgrade the monthly processing capacity to 100,000 cubic metres per month.
• Across the operations, Rockwell continues to focus on managing its operating costs and volumes processed, as well as concluding the closing of the investment by its new black economic empowerment partner, Africa Renaissance Holdings, and receipt of the initial subscription deposit.

Rockwell carried over an inventory of 5,237 carats (including 2,271 contractor-owned carats) into the second quarter. This, together with a beneficiation pipeline comprising more than 6,300 carats, provides further potential for valued-added downstream revenues. With the MOR focus, the outlook for the beneficiation revenue trend is positive. Rockwell continues to beneficiate the vast majority of its diamonds in South Africa.

Conference call

Rockwell will host a telephone conference call on Friday, July 11, 2014, at 10 a.m. (Eastern Time)(4 p.m. in Johannesburg) to discuss these results. The conference call may be accessed as follows:

Canada:  1-855-481-5362 (toll-free)

South Africa:  0-800-200-648 (toll-free)

South Africa (Johannesburg):  011-535-3600

South Africa (Capetown):  021-819-0900

United Kingdom:  0808-162-4061 (toll-free)

Other countries:  27-11-535-3600

Other countries (alternative):  27-10-201-6800

A transcript of the audio webcast will be available on the company's website. The conference call will be archived for later playback until midnight (ET) on July 16, 2014, and can be accessed by dialling the relevant number below and using the passcode 31604 followed by the number sign.

South Africa (Telkom):  011-305-2030

United States and Canada:  1-855-481-5363 (toll-free)

Other countries:  27-11-305-2030

United Kingdom:  0-808-234-6771 (toll-free)

For further details, see 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 2014.

We seek Safe Harbor.