Mr. James Campbell reports

ROCKWELL REPORTS INCREASED DIAMOND SALES ON THE BACK OF IMPROVED CARAT PRODUCTION, MINING EFFICIENCIES AND VOLUMES

Rockwell Diamonds Inc. has released its quarterly production and sales update for the three months ended Aug. 31, 2014.

Corporate:

• Achievement of 2.5 million lost-time-injury-free hours of operation at Saxendrift (Sept. 18, 2014);
• Revenues from diamond sales (excluding beneficiation) up 57 per cent to $13.2-million (U.S.);
• Total carat sales up 58 per cent to 8,864 carats, sold at an average price of $1,489 (U.S.) per carat (down 2 per cent from a year ago);
• Inventory of 5,954 carats (including royalty contract miners' inventory of 3,034 carats) carried over into third quarter of fiscal 2015;
• Successful implementation of earthmoving vehicle renewal plan leads to increased mining efficiencies and volumes.

The company's own operations (1) in the middle Orange River (2):

• Total volumes of gravel processed and carat production increased by 54 per cent to 964,000 cubic metres and 6 per cent to 3,764 carats respectively.
• Carat sales grew 43 per cent to 3,810 carats with a 36-per-cent increase in value of sales to $9.0-million (U.S.).
• Two plus-100-carat diamonds were recovered, including a 104-carat cape yellow and a 117-carat commercial yellow.

Company's total properties (3):

• Total volumes of gravel processed and carat production increased by 57 per cent and 36 per cent, respectively.
• Total carat sales increased by 58 per cent.

(1) Includes contribution from mines operated and managed by Rockwell. The company's own operations for the second quarter of fiscal 2015 comprise gravels mined at Saxendrift, Saxendrift extension (processed at Saxendrift), Saxendrift Hill complex and Niewejaarskraal. The fiscal 2014 comparative included the production of Saxendrift, Saxendrift extension, Saxendrift Hill complex (in production ramp-up) and Klipdam (sold at the end of March, 2013).

(2) Middle Orange River operations included the production and sales of Saxendrift (incorporating Saxendrift extension), Saxendrift Hill complex and Niewejaarskraal in the first quarter of fiscal 2015, while the prior year comprised Saxendrift (including Saxendrift extension) and Saxendrift Hill complex (in production ramp-up).

(3) Includes contribution from mines operated and managed by Rockwell, as well as the royalty mining contractors' contribution.

Commenting on second-quarter production and sales, James Campbell, chief executive officer and president, said:

"We are pleased that our second-quarter production results reflect continued benefits flowing from our focus on the middle Orange River region. Volumes of material mined are up 41 per cent to 1.2 million cubic metres, exceeding the one-million-cubic-metre threshold per quarter for the first time. This is a clear demonstration that our three producing MOR mines have gained critical mass and that the implementation of our managed mining strategy, including the EMV renewal plan, is delivering significantly higher EMV availabilities. Volumes of gravel processed (excluding overburden and a small stockpile of gravels) increased 54 per cent compared to the prior year, providing evidence that our processing plants have risen to the challenge of the higher mining volumes. Accordingly, we are well placed to show a sustainable reduction in unit costs. Carat production rose 6 per cent from our own operations due to higher volumes of ground processed, offset by lower grades, in the second quarter. These, however, were in line with the typical cyclicality of alluvial mining and remained well within the long-term average grades for the region.

"As our volumes have increased, so we have benefited from a higher average stone size, which was in excess of 4.5 carats in the second quarter. We produced two gem-quality plus-100-carat diamonds in the second quarter, which brings the total to eight plus-100-carat stones recovered from our operations in the last 12 months -- another tangible indicator of the success of our focused MOR strategy. In addition, we recovered 13 more stones in the plus-20-carat category, underpinning a 43-per-cent increase in carat sales from our own operations and leading to a 36-per-cent growth in revenue from diamond sales, excluding beneficiation, of $9.0-million (U.S.).

"Our five royalty mining contractors at Tirisano continue to deliver positive returns for Rockwell. Second-quarter carat production and carat sales from these partners increased 66 per cent and 70 per cent respectively. Diamond values showed a 30-per-cent increase per carat, resulting in the value of sales from contractors rising by 121 per cent to $4.2-million (U.S.)."

Second-quarter operational update

Volume and carat production for the company's operational mines for the quarter ended Aug. 31, 2014, are shown in the table.

                                                           Average grade
                          Carats produced       (carats per 100 cubic m)

Operation           Q2 F2015     Q2 F2014     Q2  F2015        Q2  F2014

Klipdam*                   -            -             -                -
Saxendrift             1,531        2,543          0.31             0.55
Saxendrift
Hill complex             938          831          0.41             0.50
Niewejaarskraal        1,295        175**          0.54             -
Total own
operations             3,764        3,549          0.39             0.57
Contractors'
mining***              5,817        3,497          1.16             1.13
Total
production
on company
properties             9,581        7,046          0.65             0.74

Diamond sales and revenue for the company's operations for the quarter ended Aug. 31, 2014, are tabulated.

                                            Value of sales         Average value
                      Sales (carats)          (U.S. $ 000)    (U.S. $ per carat)

Operation        Q2 F2015   Q2 F2014   Q2 F2015   Q2 F2014   Q2 F2015   Q2 F2014

Klipdam*                -         53          -         28          -        528
Saxendrift          1,861      1,937      5,089      4,377      2,734      2,260
Saxendrift
Hill complex          743        555      1,177      2,018      1,585      3,636
Niewejaarskraal     1,206        111      2,745        185      2,276      1,666
Total own
operations          3,810      2,656      9,011      6,608      2,365      2,488
Contractors'
carat sales***      5,054      2,967      4,186      1,893        828        638
Total sales
from company
properties          8,864      5,623     13,197      8,501      1,489      1,512

* The Klipdam operation was disposed of during the first quarter of 2014.

** Niewejaarskraal product was recovered during plant commissioning and the revenue applied against the capital project completed at the end of August, 2013.

*** Contractors' mining refers to independent royalty contractors processing gravel for their own risk and reward on Rockwell-owned mineral properties. Carats recovered are then sold through the company's tender process. The company retains the responsibility for diamond security and sales and recognizes 100 per cent of the revenue on sale. The contractual 87.5 per cent of the sales value, payable to the contractor, is recognized as production costs in the statement of profit and loss.

Changes to MOR operational management roles

At the beginning of the second quarter, Rockwell restructured the management team in the MOR operations to address certain areas of underperformance at the mines. This led to improved overall results for the period under review.

The changes included:

• Frans Bezuidenhout took on the role of general manager, MOR, from his previous position as senior production manager at Niewejaarskraal.
• George Stevens was promoted from geological manager to senior production manager at Saxendrift.
• Mulalo Ndwammbi, previously mining manager at Saxendrift Hill complex, was promoted to production manager, SHC, becoming Rockwell's first black woman production manager.

Saxendrift operations

A capital-investment-neutral EMV renewal plan was implemented at Saxendrift at the end of June, 2014, which included six 100-ton trucks, three front-end loaders, two dozers and other associated vehicles. The plan comprises a two-year, fully managed lease and maintenance agreement with Eqstra based on a fixed cost per hour of usage with a guarantee of 85-per-cent availability or 500 operating hours per month per truck. Quarterly mining volumes increased 8 per cent year on year, reversing the declines consequent to poor EMV availability recorded in the previous three quarters. Saxendrift achieved record volumes of gravel mined in the months of July and August, 2014, demonstrating the benefits of the managed fleet strategy. Although quarterly carat production was down 40 per cent, due to mining a lower-grade area of the Saxendrift property, the variance is within the expected ranges of long-term mine plans and is reflective of the quarterly reporting periods. Mining subsequently reverted to the higher-grade areas at the end of August, 2014. In spite of reporting a lower total carat production, the quality of recoveries at the mine was high; Saxendrift delivered a 21-per-cent increase in average carat values, compensating for the marginal reduction of 4 per cent in carat sales, producing a 16-per-cent increase in revenue from diamond sales (excluding beneficiation).

Saxendrift Hill complex

Quarterly volumes of gravel processed were up 38 per cent from the prior year. Processing of recovery tailings negatively impacted the grade, which was down 18 per cent, and size of diamonds. The average carat value declined 56 per cent as a result of the inclusion of several high-value stones in the prior year, as well as the smaller stone recoveries in the second quarter. In spite of the 34-per-cent increase in carats sold, the mine reported a 42-per-cent decline in sales (excluding beneficiation), largely as a result of lower average values realized.

Niewejaarskraal

Operations at Niewejaarskraal continue to gain momentum, with a 7.5-per-cent increase in volume processed compared with the first quarter of fiscal 2015. The mine recorded a grade of 0.54 carat per 100 cubic metres for the quarter, which is in line with the expected grade for this property. Carat values, which were up 37 per cent over the prior year, are in line with the long-term average MOR diamond values realized. The increases in carat sales and revenue from diamond sales (excluding beneficiation) were about tenfold over the prior year when the mine was newly commissioned and in production ramp-up. Reflecting benefits of increased throughput at Niewejaarskraal, the pace recovery of larger stones has improved, with the largest weighing 62.2 carats for the second quarter.

Royalty mining contractors and joint venture

The royalty mining contractors operating on the Tirisano property performed well in the second quarter, but lower volumes were processed at the joint venture mining arrangement at Kwartelspan. Total volumes of gravel processed and carats produced were up 64 per cent and 66 per cent respectively on the prior year. Carat sales from royalty mining contractors were up 70 per cent and included the recovery of several high-quality stones, which underpinned a 30-per-cent improvement in average carat values in the second quarter. Total revenue generated by the contractors from diamond sales increased 121 per cent, with Rockwell's royalty income amounting to $523,000 (U.S.).

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