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ANNUAL REPORT 2013 FOR THE YEAR ENDED 28 FEBRUARY

Uncovering the facets of our

Rockwell Diamonds (“Rockwell” or “the Company”) is an alluvial diamond mining company that is in production and is listed on the Toronto Stock Exchange and the JSE Limited.

Rockwell’s operations and projects are all located in the Republic of South Africa. At 28 February 2013, the Group had two existing mines which it was operating, namely Saxendrift and Klipdam (sold post financial year end). It is currently constructing a third mine, Saxendrift Hill Complex, which is an expansion of the Saxendrift operation that went into production ramp up in March 2013. Saxendrift and Saxendrift Hill Complex are located in the Middle Orange River region. The acquisition of the Jasper property in fiscal 2013 also provided additional resource potential at the Saxendrift operation. Rockwell’s operation at the Tirisano Mine was put on care and maintenance in December 2012, although economic value from production from the mine continues through various royalty mining agreements.

The Wouterspan and Niewejaarskraal projects have been under review to assess expansion of the Company’s Middle Orange operations,

Rockwell’s

development

objective is to create a growth oriented

mid-tier diamond miningAND company

ABOUT US WHO IS ROCKWELL?

and the Group has a pipeline of other projects with further future development potential. Post the financial year end, a proposal was approved to bring Niewejaarskraal into production and the Preliminary Economic Assessment (“PEA”) on Wouterspan was completed.

In addition to its project work, Rockwell continues to evaluate strategic fits through merger and acquisition opportunities as they arise, which may have the potential to expand its mineral resources and provide new opportunities to develop the additional production that would provide accretive value.

Rockwell’s operations have a track record of producing large gem quality diamonds, which comprise a significant proportion of its production profile. The diamonds recovered from Rockwell’s mines are frequently acquired for investment purposes. The Company has a beneficiation agreement in place which enables it to sell rough +2.8 carat sized diamonds, receive 90% of the fair value sales price at sale and receive the remaining 10% through, and participate equally in, the retail profit on the sale of its stones after polishing and finishing.

Page

Our operational footprint 1Highlights 2Business strategy 3Beneficiation in South Africa 4Notable stones 5Board of Directors 6Senior Management team 7Chairman’s letter 8Chief Executive’s Officer’s report 10

Page

Chief Financial Officer’s report 15Summary of quarterly results 16Mineral reserves and resources 18Operational organogram 20Operational review 22Sustainability review 32Corporate governance 36Annual financial statements 46Corporate information ibc

CONTENTS WHAT’S INSIDE?

1ROCKWELL DIAMONDS ANNUAL REPORT 2013

Our operational

footprint

Ventersdorp

Vaal River

Middle Orange River

Status OperationGrade*

carats/100m3

Processing ratem3/month

Carat value US$

Life of mineYears

In production Saxendrift and Saxendrift Extension 0.40 160,000 2,432 Saxendrift: 3Saxendrift Ext.: 5

In ramp up Saxendrift Hill Complex 0.41 100,000 2,432 >2

Development Niewejaarskraal:New plant in construction**

0.63 100,000 2,432 >10

Evaluation Wouterspan:PEA completed**

0.64 350,000 2,432 >10

Royalty mining Zwemkuil and surrounding farms >50,000 Exploration target: >80m3

Royalty mining Tirisano***:Five Royalty Mining contracts**

2.37 150,000 planned 726 18

Sold after year end Klipdam – – – –

* Refer to page 18 for detailed technical information.** Post fiscal year end.*** On care and maintenance.

ROCKWELL DIAMONDS ANNUAL REPORT 20132

HIGHLIGHTS PERFORMANCE OVERVIEW

Financial overviewAll dollar figures stated herein are expressed in Canadian dollars, unless otherwise specified.

u Gross diamond revenues down 5% to $32.4 million: Major impact being lower beneficiation income of $5.3 million

u Average price per carat of US$1,314 compared to US$1,400 per carat for fiscal 2012

u Production costs increased to $31.3 million: Mainly due to increased production volumes and higher operating costs at Tirisano

u An operating profit before depreciation and amortization of $1.1 million

u Reported loss before tax of $13.9 million: Impairments at Tirisano and Klipdam of $5.8 million recognized

u Effective net cash outflow from operations of $7.2 million: After adjusting for depreciation, amortization and the impairment and other non-cash items

28 February2013

29 February2012

Volume (cubic meters) 2,929,997 2,501,114

Production (carats) 21,871 17,416

Sales (carats) 20,737 19,174

Average price per carat (US$) 1,314 1,400

Revenue (C$) 32,405,263 34,221,023

Average C$ exchange rate (R/C$) 8.37 7.42

Gross (loss)/profit (C$) (6,102,603) (701,902)

Expenses (C$) 7,069,816 14,440,345

Total comprehensive loss (C$) 22,509,549 17,904,867

Basic and diluted loss per Common Share (cents) 22.55 28.74

Total assets (C$) 85,724,412 110,433,273

Net cash and cash equivalents (C$) 2,730,705 9,911,861

Inventories (carats) 1,248 114

Operational overviewAll dollar figures stated herein are expressed in Canadian dollars, unless otherwise specified.

u Annual diamond production up 26% to 21,871 carats: Underpinned by 17% increase in volumes of gravel processed

u The Saxendrift Mine (including Saxendrift tailings) achieved 48% as total gravel volumes increased 24%

u Positive results from Bulk X-Ray project: Revenue of US$4.2 million during pilot phase for capital investment of $1.4 million and operating costs of $0.6 million

u Volumes processed at Klipdam up 25% due to outsourcing mining operations: Increased volume dampened by disappointing grades with 5% increase in carat production

u Operations of the Tirisano Mine placed on care and maintenance in December 2012 to preserve cash resources: Royalty mining contracts to offset care and maintenance costs

u Production ramp up of Saxendrift Hill Complex Mine on track for completion in first quarter of calendar 2013

u Construction of new processing plant commenced after year end at Niewejaarskraal

u Preliminary Economic Assessment completed at Wouterspan early in fiscal 2014 demonstrated viable economics

Annual diamond

production

Gross diamond revenues

26%

5%

up

down

Volumes of gravel

processed

Average price per

carat

17%

6%

up

down


Scorecard: delivery on corporate objectives

Objective Progress during fiscal 2013

Optimizing production mines to deliver better returns by driving down costs and improving metallurgical processes

u Saxendrift Mine: Leveraging recent infrastructure investments with 19% increase in grade to 0.5 carats/100m3 – in line with plan

u Klipdam Mine: Sold after financial year end due to disappointing grades and short mine life

u Tirisano Mine: Placed on care and maintenance with cash neutral strategy by introducing royalty mining agreements to cover costs

Leveraging production profile through further development of assets with a focus on minimizing the dilution of existing shareholders

u Organic growth at Middle Orange River operations: Track record of operating profitably

u Saxendrift life of mine extended with resource definition for Saxendrift Extension: 34% increase in carat production

u Saxendrift Hill Complex: Construction completed of $1.4 million 100,000m3 Bulk X-Ray plant funded internally and in production ramp up

u Wouterspan: Preliminary Economic Assessment completed showing positive economicsu Niewejaarskraal: $2.2 million capital investment for new production plant currently in

construction with 100,000m3 monthly capacity funded internally

Adding value downstream from the Company’s exceptional gemstone diamond production through strategic beneficiation partnerships

u Beneficiation JV with Steinmetz Diamonds: $5.3 million additional revenue generated in fiscal 2012 from the profit share on the sale diamonds through this channel

Creating scale and critical mass to smooth and increase Rockwell’s production and revenue profile through active management of the portfolio of properties, by acquiring select alluvial diamond projects or recycling non-productive and lossmaking assets

u Jasper Mine Project: Acquisition completed post financial year end u Klipdam: Sale of fleet (as part of rightsizing) and disposal of mine (post financial year

end) generated $5.5 million to be reinvested in Middle Orange River operationsu Klipdam and Tirisano: Equipment redeployed at new Saxendrift Hill Complex and

Niewejaarskraal plants to reduce capital expenditure

Conducting geological investigations, including drilling and bulk sampling on new project areas adjacent to the existing operations

u Saxendrift Extension: Drilling and bulk sampling completed and allowed an indicated and inferred resource to be declared

Rockwell’s medium-term organic growth strategy is focussed on the Middle Orange River properties where it has a good track record of profitably producing large, high valued diamonds. Good progress is being made towards its objective of increasing monthly volumes mined from its Middle Orange River operations to 500,000m3. This includes the current development of two new internally funded mines that was partly enabled by decisive action to address the loss making operations.

Rockwell’s organic growth strategy is centered around the Middle Orange River properties

MEDIUM-TERM GOAL:

Production volumes >500,000m3/monthto increase quarterly earnings visibility

Average carat value: US$2,300>0.5m carats valued at

>US$1.3bn

Saxendrift + Saxendrift Ext.: 160,000m3/month

• Meeting Budget• Extend LOM to sweat assets • Large, high valued diamonds

Saxendrift Hill Complex: 100,000m3/month

• Production ramping up• Rapid + cost effective ramp up:

Fit-for-purpose technologies• Chiefly using existing equipment• Funded from working capital

1

2 3

4Wouterspan: 350,000m3/month

• Positive PEA complete• Currently assessing next steps

Niewejaarskraal: 100,000m3/month

• Construction on track• Plant design: DMS (existing) + pans • 220 Klipdam employees transferred• Funded from working capital

strategybusiness


BENEFICIATION IN SOUTH AFRICA CASE STUDY

In 2005 the South African Diamond and Precious Metals Regulator, namely the Department of Mineral Resources, introduced legislation that encouraged beneficiation of diamonds that are produced at mines in South Africa and which is in line with similar regulations in all southern African producing countries. The objective of these new laws was to encourage job creation and skills development in the beneficiation segment of the diamond industry which was severely impacted by shrinking job numbers over recent years as domestically produced diamonds were increasingly cut and polished outside our borders. Beneficiation is a term referring to the value that is added to a commodity, such as a rough diamond, from processing it into a form appropriate for its end use. In the case of rough diamonds, beneficiation entails the cutting and polishing of the stone into a saleable gem stone for incorporation into jewelry or for investment purposes.

In line with its commitment to contributing to the developing diamond industry in South Africa, Rockwell has had a drive to create jobs, not only at its mines but further down the value chain. To this end, we sell up to 10% of run of mine to the State Diamond Trader in support of its commitment to sell these to local diamond cutters. In addition, Rockwell sells rough diamonds to Steinmetz Diamonds’ (SD) black economic empowerment cutting and polishing facility, and directly supplies 100% black-owned manufacturing facilities within South Africa. The combined impact of sales through these channels means that more than 85% of Rockwell’s diamond production is beneficiated within South Africa’s borders. This has enabled the Company to indirectly support the creation of more than 20 jobs for specialized diamond cutters in South Africa.

When the new legislation was introduced, Rockwell also approached SD with a proposal that gave them the first option to purchase Rockwell’s production of large, high valued rough diamonds for cutting and polishing with the Company sharing in the upside value from the sale of these polished diamonds. The proposal led to the joint venture agreement, with SD increasing its ability to secure supply in this specialized segment of the market where demand outstrips supply and SD has an entrenched leadership position. The relationship has since grown from strength to strength and SD has become a supportive shareholder in Rockwell, buying into the long-term growth strategy of the Company.

The joint venture started in 2007 on a trial basis with a 212-carat stone recovered from the Middle Orange River. The Company did not perceive that the tender price for the stone reflected its true value, believing that the actual color that could be achieved on the polished diamond was more valuable than that reflected in the rough diamond. Based on this conviction, Rockwell sold the rough diamond and participated equally in the profits on the sale of the polished diamond, generating an additional 50% in revenue over and above the rough diamond sale price. The trial period was extended and today is incorporated into the joint venture through which Rockwell sells its stones exceeding 2.8 carats. The profit share arrangement leverages Rockwell’s revenue from the sale of special diamonds exceeding 10 carats through this channel.

More than 85% of Rockwell’s diamond production is beneficiated in South Africa, demonstrating the Company’s commitment to creating jobs in the local diamond cutting industry.


RO

UG

HN

OTA

BLE

ST

ON

ESPO

LISH

EDB

ENEF

ICIA

TIO

NVA

LUE

AD

D

145.70 carat Makeable, clean, gem 96.56 carat Sawable, clean, fancy yellow 92.42 carat Makeable, spotted Cape yellow 77.84 carat Sawable, clean, commercial color 76.82 carat Makeable, spotted, commercial color

74.90 carat Industrial 74.44 carat Makeable, clean, fancy yellow with brown 70.55 carat Makeable, clean, H color or better 67.25 carat Sawable, spotted, K/L color

Steinmetz Diamond (SD) profit share agreement (>2.8 carat stones)Additional revenue channel: Market related prices for rough diamonds sold into JV + 50% profit share on sale of polished diamonds

77ct makeableSaxendrift Ext

37ct J Colorbrilliant VS2

145ct makeableOld Saxendrift Tailings

30ct stone being polished. Additional pieces to be polished

105ct Type IIAMiddle Orange

35ct D color internally flawless sold for$230 000/ct

212ct YellowMiddle Orange

102ct vivid yellow

128ct YellowMiddle Orange

81ct vivid yellow

2012 2012 2009 2007 2011

+34% on initial rough sale price

Currently being polished



Not yet sold

CASE STUDYStrategic beneficiation

salepartnership

adds value to the of polished diamonds

Rockwell has a strategic beneficiation partnership with Steinmetz Diamonds (SD) for its production of rough diamonds weighing more than 2.8 carats. These stones are sold to SD at market price and Rockwell benefits from a 50% share in the profits on the ultimate sale of the polished stones. The Company has realized revenue of $21.6 million in fiscal years from 2009 to 2013.

Recovered during the 2013 fiscal year included, among others:


LEADERSHIP BOARD OF DIRECTORS

Dr Mark BristowChairman and DirectorPhD (Geology)

More than 20 years’ experience in exploration, development, project and corporate finance and management in the mining sector in Africa. CEO of Randgold Resources Limited since 1995. Acting CEO of Rockwell Diamonds from December 2010 to end of May 2011. A fellow of the Geological Society of South Africa.

James CampbellPresident and Chief ExecutiveBSc (Hons) ARSM, MBA (Dunelm)

Seasoned diamond executive with career spanning over 20 years at De Beers and four years as managing director of African Diamonds plc. FIMMM, CEng, CSci and PrSciNat.

Stephen DietrichDirectorCA(SA)

A CA(SA) and stalwart of the diamond industry with more than 20 years of financial experience, gained in various positions at De Beers. Retired from De Beers in 2009 at which time he held the position of finance director.

Dr Willem JacobsDirectorBPL (Hons) and DCom

Over 25 years’ experience in the engineering, mining and investment sectors, including 20 years at executive and board level positions of private and public companies. Experience in strategy, corporate finance, company turnarounds and mergers and acquisitions.

Richard J LinnellDirectorGeologist

Active in the resources and metals fields for over 40 years. Significant global experience in the development and marketing of resources and commodities. Originator of the Bakubang Initiative, a forum designed to revive the South African mining industry and which led to the establishment of the New Africa Mining Fund.

Johan van’t HofDirectorCA, MBA

A qualified CA based in Canada holding an MBA with wide-ranging experience in the listed company environment, including regulatory affairs, financing, mergers and acquisitions and corporate finance.

Richard Peter MenellDirectorMSc (Mineral Exploration and Management), MA (Cantab) – Natural Sciences (Geology)

A 35 year career in mining, heading Anglovaal Mining and Teal Exploration & Mining up to 2008. He previously served as President of the South African Chamber of Mines and other boards. He is a non-executive director of Gold Fields Limited, Sibanye Gold Limited, Weir Group plc, Senior Advisor to Credit Suisse investment bank and a Council Member of Business Leadership South Africa.


LEADERSHIP SENIOR MANAGEMENT TEAM

James CampbellPresident and Chief ExecutiveBSc (Hons) ARSM, MBA (Dunelm)

Seasoned diamond executive with career spanning over 20 years at De Beers and four years as managing director of African Diamonds plc. FIMMM, CEng, CSci and PrSciNat.

Richard MhlontloGroup HR/Industrial Relations ManagerNat Dip (HR Management and Development)

Extensive HR and Industrial Relations management experience, including organisational and structural design initiatives as well as strategy development and implementation.

Gerhard JacobsChief Financial OfficerBAcc, MBA

Mining and corporate experience with junior and senior mining companies with operations in South Africa, Australia and Canada. Knowledge of publicly listed mining companies.

Leadership team with strong credentials to facilitate our growth journey

Glenn NortonGroup Technical ManagerBSc (Hons)

Geological, mineral resource management and production experience in alluvial diamond deposits, diamond and coalexploration. Qualified person and PrSciNat.

Jeffrey BrennerDiamond Marketing and Sales Manager

A leading international diamantaire and specialist in valuation, marketing and sales of rough diamond production from alluvial deposits.

Dr Kurt PetersenConsulting Metallurgist PhD (Metallurgical Science)

More than 13 years’ experience in diamond metallurgy of both Kimberlites and alluvial.Expert in plant design, diamond liberation and process performance and simulation.

Stéphanie LeclercqInvestor Relations and Corporate DevelopmentBSc, CFA

More than 12 years in investor relations and corporate development. Worked as a sell-side analyst and in-house investor relations practitioner across various industry sectors, including junior mining.


When Rockwell came into existence in 2006 its goal was to build a mid-tier diamond mining company producing high quality gem stones in southern Africa. While it accumulated a sound portfolio of alluvial diamond properties in South Africa, the operational implementation of the strategy was flawed. This was masked by the easy availability of capital during the commodity boom, and shareholders suffered significant dilution without commensurate rewards. Operational disciplines were also lacking, while the cheap capital enabled the Company to accumulate a large and poorly matched fleet of yellow equipment. These challenges were exacerbated by the global economic crisis in 2008, as demand for diamonds ground to a virtual standstill. In order to preserve its capital, Rockwell placed its operations at Wouterspan on care and maintenance. The two-year hostile bid for the Company, which was successfully fended off in 2010, exacerbated the internal challenges and further eroded shareholder value.

These events culminated in the management changes in December 2010, and the subsequent appointment of James Campbell as the new CEO in June 2011. In the intervening period I assumed the role of Acting CEO and initiated a strategic review of the business to evaluate the underlying reasons for the underperformance and to position the Company to start achieving its production targets. A number of legacy issues were identified, both at the corporate and operational level, that the new management focussed on resolving. At Board level, we appointed several non-executive directors with extensive junior mining experience, while the executive and senior management teams were bolstered, particularly with metallurgical and mine management capability. The BEE partnership with Africa Vanguard Resources was unwound in March 2012, paving the way for Rockwell to partner with a BEE entity who shares our vision and who can fund their shareholding and their share of future and planned investments to grow the Company’s production profile.

Rockwell embarked on a diamond value management strategy to reinvent the business. In the operational environment, this

encompassed the implementation of fit-for-purpose technology and a focus on production disciplines and process metallurgy to complement our strong geological understanding of our assets. This focus enabled our management team to successfully turn the performance of our flagship Saxendrift Mine around. We finally exited our lossmaking operations at Klipdam and Tirisano following exhaustive interventions that were supported by the Board and which did not deliver the anticipated benefits.

Accordingly, we have refined the focus of the Company’s organic growth strategy on bringing our extensive high quality portfolio of Middle Orange River assets to account where we are now targeting monthly production volumes of 500,000m3 in the medium term. We have developed a blueprint for the construction of new processing plants in this region, based on fit-for-purpose technologies that we have successfully implemented elsewhere.

Our new internally funded mines at Saxendrift Hill Complex and Niewejaarskraal should be fully ramped up by the end of calendar 2013, bringing our monthly production capacity to 360,000m3 per month and on track to meet our medium-term goal. The next steps are being evaluated in relation to the Preliminary Economic Assessment that was completed for Wouterspan after the fiscal year end.

Throughout the process of transforming Rockwell over the last two years, we have consistently engaged with our shareholders, providing regular updates of all material issues. Our investors have taken note of the pace and transparency of news flow from the Company, including the resolution of corporate legacy issues and consistent updates relating to our diamond value management strategies at the operational level. We are steadily overcoming the historical reputational issues as our management team builds a track record of delivering on its commitments to extend our production profile through well-considered investments and carefully recycling our available resources. Our approach is to let the results speak for

LEADERSHIP CHAIRMAN’S LETTER

“The period under review has been a watershed year in Rockwell’s drive to build a sustainable mid-tier

diamond mining company that

profitably recovers high value, gem quality diamonds.”

Mark BristowChairman PhD (Geology)

Our new internally funded mines at Saxendrift Hill Complex and Niewejaarskraal should be fully ramped up by the end of calendar 2013, bringing our monthly production capacity to 360,000m3 per month and on track to meet our medium term goal.


themselves rather than over promoting our successes. As the financial performance of the Company begins to reflect the benefits of the strategic turnaround, we believe that Rockwell’s market value will be rerated.

While we have focussed our efforts on building a successful and profitable diamond mining company, we have not lost sight of our core values of honesty and transparency and our broader responsibilities as a solid corporate citizen. We realize that corporate success can only be sustainable if it creates value for all our stakeholders, and channeled through teamwork and investing in our people and our communities. To this end, our executive leadership team defined the guiding principles that encompass Rockwell’s ideal work ethic and culture, which is starting to deliver significant benefits (see page 11 for more information).

We also believe that building strong partnerships is integral to the long-term success of Rockwell, extending from our management and employees, through to the communities that are touched by our operations, and our business partners. Our partnership with Steinmetz Diamonds continues to add significant value to the Company. Not only has Steinmetz supported the Company by providing capital as a strategic investor, but Rockwell also shares equally in the profits on the sale of our rough diamonds that are beneficiated through Steinmetz. Through this partnership, more than 85% of our rough diamond production is beneficiated in South Africa, which also supports the development of the domestic diamond cutting industry (see page 4 for more information).

During the year, we improved the representation of Historically Disadvantaged South African (“HDSA”) professionals on our management team. Five of our six mine geologists are HDSA female graduates, one of whom has recently been promoted to Mining Manager and was nominated as a “Young Leader of Tomorrow”. Rockwell was the only company to present three geology papers at the SAIMM’s Fifth Diamond conference, all of which were presented by HDSA women, also demonstrating that Rockwell is supporting Women in Mining. Rockwell also took on a number of HDSA diplomate metallurgists, who are being developed to become plant managers at our operations.

Rockwell’s executive leadership team, whose collective alluvial diamond mining experience exceeds 90 years, has shown its mettle during the corporate turnaround by taking decisive action to address the unprofitable assets while refocussing the Company

on its portfolio of assets in the Middle Orange River region. The strength of our management team belies the size of the Company and the Board is confident in its ability to leverage Rockwell’s production profile while selectively pursuing value accretive external projects that will enable Rockwell to take its position as a profitable mid-tier diamond mining company.

Rockwell’s inherent potential is also reflected in the caliber of non-executive directors that we have attracted to our Board over the last two years. We succeeded in our goal of increasing the depth of our Board’s financial, deal making and junior mining skills. Each of our directors is actively engaged and involved in Company matters, supporting our executive leadership team with robust and constructive debate. A milestone for the year under review has been the marked improvement in the quality of our audits and filings as well as the overall standard of corporate governance.

Richard Peter Menell joined the board as a non-executive director during the year. He has had a 35-year career in the mining industry, heading Anglovaal Mining and Teal Exploration & Mining up to 2008 as well as serving as a non-executive director on a number of company boards.

The Board thanks David Copeland and Sandile Zungu who did not seek re-election to the Board at the Annual General Meeting held on 30 August 2012 for their contribution to the strategic direction of the Company during their tenure. In particular, I salute David Copeland for his role as founding Chairman of Rockwell and his immense contribution to the Company during the last six years.

I extend my thanks to Rockwell’s executive team for following through with the corporate turnaround during 2013 and more especially for having the courage of their convictions in taking tough decisions that placed the Company in a stronger position to deliver on its potential going forward.

To my fellow directors, I extend my sincere appreciation for their, support and advice to the management team and during the year. Likewise I wish to thank our loyal shareholders, partners and other stakeholders for their continued loyalty and support during these times of change at Rockwell.

I have no doubt as to the ability of James Campbell and his team to continue to deliver on our strategy to build a genuinely profitable mid-tier diamond mining company that can deliver value for all our stakeholders.

delivering on our commitment

Chairman’s annual visit to operations in December 2012: Discussions on the Klipdam mining site with the geology team.


LEADERSHIP CHIEF EXECUTIVE OFFICER’S REPORT

“During fiscal 2013 Rockwell faced a number of

challenges head on, putting the Company on a

sounder footing.”

James CampbellPresident and Chief Executive OfficerBSc (Hons) ARSM, MBA (Dunelm)

Our focus was on continuing with the corporate turnaround and entrenching the diamond value management principles that we implemented in 2012. We have eliminated the drain on the Company’s cash resources and liberated the management team to focus on growth opportunities. We have now narrowed our focus on the properties and mines in the Middle Orange River region where we have a profitable track record of alluvial diamond mining.

Wikus de Winnaar, Mine Manager at Saxendrift reviews the mining operations with James Campbell, Chief Executive Officer.


Our executive leadership team defined the guiding principles that encompass Rockwell’s ideal work ethic and culture, which has already started delivering significant benefits.

These guiding principles are:

Accountability Taking responsibility for

our actions and their impacts

Execution Giving of our best to make

sure that we achieve the expected outcomes

IntegrityActing to the highest ethical standards in

all that we do

PartnershipWorking as a team with

our colleagues, communities and other

stakeholders

ChallengeEncouraging debate to

improve our business and the way in which

we work

ComplianceGoing the extra mile to comply to the laws and

legislation

Fit-for-purpose Designing plants and

systems that are aligned to our business principles,

ore bodies and Company


CHIEF EXECUTIVE OFFICER’S REPORT(continued)

The new Saxendrift Hill Complex plant is based two Bourevestnik X-Ray bulk sorters and two single particle sorters.

FISCAL 2011Fourth quarterStrategic review initiated: Turn around underperforming mines.

FISCAL 2012First quarterHolpan Mine placed on care and maintenance.

Second quarterDiamond Value Management: Launched by new CEO.

Recapitalization plan announced ($7.5 million private placement above market + $6.5 million sale of assets).

Record daily diamond production at Saxendrift: 373 carats.

Third quarterSaxendrift Bulk X-Ray pilot project approved.

Completion of Tirisano acquisition.

In-field screen commissioned at Saxendrift.

Fourth quarterRecord price of $232,000/carat on sale of 35 carat polished diamond.

Continuous operations at Saxendrift and Klipdam: 96 new jobs.

TIMELINE

Having addressed its legacy operational issues, Rockwell is now focussed on its cash generative operations in the Middle Orange River region and on building the Company.

Production reviewProduction Sales and inventories

Volume (m3) Carats

Mining costs

Value of sales (US$)

Sales (carats)

Average value (US$/carat) Inventories

Fiscal 2013 2,929,997 21,871 31,338,217 27,249,221 20,737 1,314 1,248

Fiscal 2012 2,501,114 17,416 26,936,716 26,834,168 19,174 1,400 114

Change (%) 17 26 16 2 8 (6) 995

IntroductionAlthough Rockwell was still in a lossmaking position for fiscal 2013, the Company made good strategic progress, including decisive action that was taken to eliminate the lossmaking operations.

The performance of the flagship Saxendrift Mine continued to improve during the year while bulk sampling activities to define the resource at Saxendrift Extension were completed which will be processed through the Saxendrift infrastructure, extending its useful life. Two years ago, Saxendrift’s performance was impacted by declining grades and it was not meeting production targets. Its performance over the last two years has improved considerably as a result of implementing the in-field screen and introducing enhanced operational disciplines.

Successive initiatives to turn the lossmaking operations at Tirisano around did not deliver the anticipated benefits. The operational challenges were exacerbated by labor issues, catalyzing the decision to place these operations on care and maintenance in December 2012. Royalty mining contracts that were concluded on sections of the property to cover the care and maintenance costs have started generating month on month operating profits since the start of fiscal 2014.

A right sizing plan was initiated at Klipdam to address its lossmaking performance in October 2012 and mining activities were outsourced to a contract miner, enabling Klipdam’s management team to focus on processing and the recovery of diamonds. Although volumes increased as anticipated, grades continued to disappoint, and the mine remained in a lossmaking position for fiscal 2013. An unsolicited offer from a private alluvial diamond miner to purchase the mine was accepted after the fiscal year end, and the proceeds are being reinvested in the Middle Orange River region.


FISCAL 2013First quarterNorthern Cape BEE partnership with AVR unwound.

Jasper project acquired: Contiguous to Saxendrift.

Pilot Bulk X-Ray system commissioned: 1,109 carats recovered in first six weeks.

Third quarterPilot Bulk X-Ray project completed: Revenue of US$4.2 million vs. $1.4 million capital investment.

Klipdam rightsizing initiated to increase volumes and reduce unit costs: Earthmoving contracted out.

Fourth quarterTirisano on care and maintenance: Royalty miners introduced.

Saxendrift achieves 1.5 million LTIFR free hours of operation.

Saxendrift Hill Complex mine construction completed: 93 new jobs.

FISCAL 2014First quarterUnsolicited offer to sell Klipdam accepted.

Approval to bring Niewejaarskraal into production: 220 jobs retained.

Wouterspan: Positive Preliminary Economic Assessment announced.

MEDIUM-TERM TARGETIncrease monthly production volumes to >500,000m3 from Middle Orange River operations.

Quarterly cash cost (including rehabilitation and royalty payments) per operation

Q4 2013 Q3 2013 Q2 2013 Q1 2013 Comments on Q4 2013 variation

Klipdam US$11.87 US$11.44 US$10.02 US$9.39 Production costs stabilized with marginal increase due to site establishment of contract miner and technical optimization projects

Saxendrift US$8.39 US$8.43 US$7.94 US$6.98 Unit costs within budget, impacted by longer haulage distance for Saxendrift Extension bulk sample

Tirisano US$ n/a US$35.87 US$9.31 US$18.17 Costs increased in fourth quarter due to discontinuance costs when operation placed on care and maintenance

Average US$11.00 US$10.81 US$8.71 US$9.48

Carats sold increased by 8% to 20,737 carats, but the positive impact on the value of sales, which increased 2% to $27.1 million, was dampened by a lower average value per carat. The 6% decrease in average carat value to $1,314 was due to the sale of several very high valued stones in the prior year. The optimization benefits of the diamond value management initiatives implemented in the last 18 months are reflected in the 26% increase in diamond production to 21,871 carats that were recovered from 2,929,997m3 of gravel processed, an increase of 17%.

During the year, Rockwell maintained its focus on managing costs and optimizing its operations. Overall production costs increased 16% to $31.3 million, due to the negative impact of the operational challenges at Klipdam and Tirisano. Despite the increase in volumes produced at the operations, a higher average unit cost was recorded for the period. The Group’s consolidated average cash operating costs for the year ended 28 February 2013, was US$9.92 per cubic meter. The average total cash cost (including rehabilitation and royalty payments) for all the operations for the fiscal 2013, amounted to US$11.33 per cubic meter, compared to US$10.37 per cubic meter for fiscal 2012. The increase is largely due to the operational challenges at Klipdam and Tirisano.

SaxendriftThe performance of the Saxendrift operation showed a solid improvement as the focus on production efficiencies and metallurgy started to pay off. The successful completion of the Bulk X-Ray pilot project that processed tailings at the mine also had a positive impact on the performance for the year. Production volumes at Saxendrift (including the Saxendrift Extension and the pilot Bulk X-Ray system) increased 24% to 1.8 million m3 while carat production was up 48% to 10,276 carats. In addition, bulk sampling activities at the Saxendrift Extension project contributed to the stronger performance with higher grades that increased to 0.56 carats per 100m3 from 0.47 carats per 100m3 in the prior period.

The Saxendrift Mine and its Extension Project (excluding the tailings) achieved revenue of US$8.41 per cubic meter, compared to its cash

unit costs of US$7.78 per cubic meter. This is at the lower end of the alluvial diamond mining cost curve.

Completion of the six-month pilot phase of the Bulk X-Ray plant project at the end of October 2012 yielded positive results with the set-up costs being repaid from processing old recovery tailings. This technology is now becoming an integral component of future mine developments. Recoveries from the pilot project amounted to 1,903 carats (or a grade of 3.98 carats per 100m3).

In the year ahead, Rockwell plans to mine gravels from both Saxendrift and Saxendrift Extension. Saxendrift is reaching the end of its mine life, and with Saxendrift Extension, the Company will extend the useful life of the invested fleet and plant, and continue to provide some 400 jobs at this operation.

KlipdamWhile Klipdam delivered a 25% increase in gravel processed to 886,568m3, its grade deteriorated 16% to 0.92 carats per 100m3, dampening the benefits of the higher throughput with recoveries increasing by only 5% to 8,132 carats.

Klipdam’s lossmaking position persisted from fiscal 2012 into the first half of fiscal 2013, despite several management interventions that yielded only sporadic performance improvements. As a result, a right sizing program was initiated in October 2012 to increase volumes and thereby reduce the unit costs and enable the mine to resume its profitable track record. Its management team and operations were restructured to reduce operating costs and improve overall performance for the remaining life of mine. Mining activities were outsourced to CML Operations on a three year fixed cost contract, that also included the sale of Klipdam’s earthmoving fleet at book value over a two-year period.

Although higher volumes were achieved in the fourth quarter after contracting out the mining activities to CML Operations, this occurred too late in the fiscal period to have a material impact on cash unit costs, which came in at US$11.76 per cubic meter. Unit revenue of


CHIEF EXECUTIVE OFFICER’S REPORT(continued)

US$7.08 per cubic meter for the year was significantly lower than unit costs, reinforcing management’s decision to accept an unsolicited offer to buy this mine for $2.2 million after the balance sheet date and releasing additional manpower and capital to focus on its Middle Orange River properties that yield higher value diamonds.

TirisanoIn December 2012, the operations of the Tirisano Mine were placed on care and maintenance due to persistent industrial relations issues and ongoing losses incurred by the mine. These challenges were exacerbated by operational and metallurgical complexities and a slower than anticipated recovery in the price of smaller diamonds that comprise much of its production profile. Production volumes until the operations were placed on care and maintenance in December 2012, were down 11% on the prior period to 220,454m3, recovering a total of 2,200 carats. The cash unit cost for fiscal 2013 was US$21.47 per m3 compared to revenue of US$3.65 per m3.

A cash positive strategy was adopted to offset the care and maintenance costs at Tirisano by introducing royalty mining contracts on smaller sections of the Tirisano property. Rockwell maintains responsibility for diamond security and sales. Two royalty mining contracts were in force for the last six months of fiscal 2013, recovering a total of 1,263 carats. Of these 962 carats were sold for US$751,990 of which 12.5% accrued to the Company in terms of the royalty mining contract.

Additional royalty mining contracts were concluded after the balance sheet date, bringing the total number to five. Monthly volumes exceeding 150,000m3 are anticipated at Tirisano once all five contracts are commissioned and fully ramped up. These are on track to make a positive contribution to Rockwell’s bottom line in the first quarter of fiscal 2014.

Growth projectsHaving acted to address the operations at Tirisano and Klipdam to stem cash losses, Rockwell is now focussing its available capital and resources to grow the production profile of its properties in the Middle Orange River region. Rockwell’s flagship Saxendrift Mine is operating effectively and is cash generative. The Middle Orange River operations are being expanded from this center of production with the aim of achieving monthly production volumes of 500,000m3.

Progress with this growth strategy is as follows:

u The Saxendrift Hill Complex Mine is currently in production ramp up. Its processing plant, with 100,000m3/month capacity, is based on two Bulk X-Ray systems that have been successfully piloted at Saxendrift during the 2013 fiscal year. The US$1.4 million capital investment was funded internally.

u Bulk sampling to define the resource at Saxendrift Extension was completed after year end. The aim is to integrate the mining of this resource into the existing Saxendrift mine plan, extending the useful life of the existing Saxendrift processing infrastructure by several years.

u Construction of a new processing plant to bring Niewejaarskraal back into production is in progress with a capital budget of $2.2 million that is being funded from internal cash resources. The project is on schedule, and commissioning at the design capacity of 100,000m3 is expected to commence within three months. The majority of the Klipdam employees agreed to relocate to the new mine while the contract miner has also transferred to the mine. Having retained these skills and expertise, a rapid commissioning and ramp up to full capacity are anticipated by the end of August 2013.

u An updated Preliminary Economic Assessment was completed post financial year end at the Wouterspan property. The study indicated positive economics, sufficient to take the project to the detailed design stage. The project has a ten year life of mine with material assumptions of a grade of 0.622 carats/100m3 and average value of $2,300 per carat, all at a 5mm bottom cut-off. The Company is currently reviewing the next steps for this project.

Priorities for fiscal 2014Rockwell’s priority for fiscal 2014 is to manage operating costs, while increasing the production profile in the Middle Orange River region, where the Company has the expertise and track record to profitably recover large, high-value diamonds. This will entail completing the production ramp up at the Saxendrift Hill Complex and commissioning the new production facility at Niewejaarskraal. At Saxendrift, the mine plan for the year comprises a combination of gravels from the traditional (Brakfontein) mining area as well as the Saxendrift Extension that will be processed at Saxendrift to optimize the life of the mine.

Rockwell will also continue to evaluate value accretive merger and acquisition opportunities to expand its diamond inventory and grow production.

Wet commissioning the Niewejaarskraal wet front end in July 2013.


LEADERSHIP CHIEF FINANCIAL OFFICER’S REPORT

The performance of the Company for the twelve months ended 28 February 2013 reflects the current status of its corporate turnaround.

Statement of comprehensive incomeDuring the year ended 28 February 2013, Rockwell realized rough diamond sales of $27.1 million compared to $26.4 million for the comparable period in the prior year. Sales were at an average price of US$1,314 compared to US$1,400 per carat for the comparative period as the operations in the Middle Orange River delivered fewer exceptional, high valued diamonds, which impacted average diamond prices and thus overall revenue for the year.

Gross diamond revenues amounted to $32.4 million (fiscal 2012: $34.2 million) with the major impact being the decrease in beneficiation income of $2.5 million. Tender sales amounted to $27.1 million with a further $5.3 million in income earned from the beneficiation profit share arrangements.

Production costs increased to $31.3 million (fiscal 2012: $26.9 million), which includes a period change in inventory credit of $1.2 million (29 February 2012: charge of $0.1 million) and excludes amortization and depreciation charges of $7.2 million (year ended 29 February 2012: $8.0 million). This was mainly as a result of increased production volumes and operating costs incurred for ten months at Tirisano versus seven months in the previous financial year. An operating profit before depreciation and amortization of $1.1 million was recorded for the year (fiscal 2012: $7.3 million).

The current year impairment resulted from a review of the Tirisano and Klipdam assets following operating decisions. The reversal of the previously recognized impairment resulted from a decision taken to repair and re-commission the plant at Niewejaarskraal. As a result impairments amounting to $5.8 million (fiscal 2012: $4.9 million) and a reversal of impairment previously recognized amounting to $0.6 million was recognized during the year.

The Group recorded a loss of $13.8 million for the year ended 28 February 2013 compared to a loss of $13.7 million for the same period in the prior year. Adjusting for depreciation, amortization and the impairment and other non-cash items, the effective net cash outflow from operations for the year is $7.2 million.

Financial positionAt 28 February 2013 the Group had cash and cash equivalents of $5.6 million (29 February 2012: $10.7 million) and bank indebtedness of $2.8 million (29 February 2012: $0.8 million), for net cash holdings of $2.8 million (29 February 2012: $9.9 million). The Group had working capital of $1.2 million compared to $8.4 million at 29 February 2012. The major reasons for the reduction were cash used in operations and on capital investments.

ConclusionManagement now believes that, with the difficult decisions taken, the ongoing operational improvements and pipeline of future strategic projects the Group’s financial performance should start to show sustainable improvements. In particular, having dealt with the problematic operations, being Tirisano (care and maintenance in December 2012) and Klipdam (sale agreement reached after financial year end), the Company is now focussing its resources on increasing production from its Middle Orange River properties which typically yield higher valued diamonds.

The operations to date are generating sufficient cash and the Company has access to short-term debt facilities to cover cash operating costs and Group overheads. This is expected to improve once Saxendrift Hill Complex and Niewejaarskraal are operating at full production. In addition we closed the quarter with an inventory of 1,248 carats as well as some 4,000 carats that are sitting in the beneficiation pipeline, both of which should provide value-added returns in fiscal 2014.

“Having dealt with its lossmaking operations at Tirisano and Klipdam, Rockwell is anticipatingthe financial benefits of the turnaround should reflect in fiscal 2014.”

Gerhard JacobsChief Financial OfficerBAcc, MBA

The delay in turning to profitability has been due to two major factors: the costs of ramping up and reorganizing Tirisano impacted the Group’s profitability and the operations at Klipdam not delivering on its targets. These issues have been dealt with, as the operations of Tirisano were placed on care and maintenance in December 2012 and an unsolicited offer to sell the Klipdam Mine was accepted post financial year end.


SUMMARY OF QUARTERLY RESULTS

The summarized results are expressed in thousands of Canadian dollars (000), except per-share amounts. Minor differences are due to rounding. Previous reporting periods have been restated in accordance with IFRS. Please refer to the audited consolidated financial statements of the Group for the years ended 28 February 2013 and 29 February 2012.

Consolidated statements of financial position

Amounts in Canadian dollars

28 Feb2013

30 Nov2012

31 Aug2012

31 May2012

29 Feb2012

30 Nov2011

31 Aug2011

31 May2011

Current assets 13,860 13,066 11,484 17,310 18,257 22,028 22,399 12,422

Mineral property interests 31,405 31,873 33,824 32,967 35,949 28,228 23,097 23,569

Other non-current assets 40,459 46,442 49,268 51,079 56,227 59,370 67,367 69,240

Total assets 85,724 91,381 94,576 101,356 110,433 109,626 112,863 105,231

Current liabilities 12,646 12,450 9,713 11,057 9,831 9,984 8,652 8,984

Non-current liabilities 17,706 21,789 20,521 21,877 24,148 14,500 10,047 10,224

Total equity 55,372 57,142 64,342 68,422 76,454 85,141 94,164 86,023

Total equity and liabilities 85,724 91,381 94,576 101,356 110,433 109,625 112,863 105,231

Working capital 1,214 616 1,771 6,253 8,426 12,044 13,747 3,438

focussing on organic

growthTypical Northern Cape diamond bearing gravel.


Consolidated statements of comprehensive income


28 Feb2013

30 Nov2012

31 Aug2012

31 May2012

29 Feb2012

30 Nov2011

31 Aug2011

31 May2011

Revenue 9,146 8,757 7,404 7,098 8,233 8,276 9,206 8,506

Diamond sales 6,922 7,149 6,964 6,071 5,894 5,979 6,941 7,562

Beneficiation income 2,224 1,608 440 1,027 2,339 2,297 2,265 944

Production cost (8,146) (9,630) (7,044) (7,705) (10,343) (5,192) (5,187) (6,162)

Fuel and oil (967) (2,007) (2,054) (2,123) (1,737) (1,552) (1,397) (1,703)

Maintenance (657) (2,151) (1,949) (2,021) (2,193) (1,479) (881) (1,355)

Employee cost (1,789) (3,330) (2,762) (2,574) (2,917) (2,210) (1,843) (1,944)

Royalties 268 (339) (35) (29) 193 (186) (498) (38)

Contract mining (3,237) (367) _ _ _ _ _ _

Other costs (1,764) (1,436) (244) (958) (3,689) 235 (568) (1,122)

Inventory movement (1,279) 1,823 (160) 803 (27) (720) 507 187

Operating (loss)/profit (279) 950 200 196 (2,137) 2,364 4,526 2,531

Amortization and depreciation (1,431) (1,906) (1,936) (1,897) (2,372) (1,766) (1,820) (2,028)

Gross (loss)/profit (1,710) (956) (1,736) (1,701) (4,509) 598 2,706 503

Expenses

Net reclamation obligation recognized/(utilized) 4,597 (567) 16 (496) (1,232) 121 (159) (19)

Other income/(expense) 357 104 53 85 1,073 323 (145) 121

Exploration expenses _ 5 (2) (12) (20) _ _ _

Legal, accounting and audit 19 (71) (302) (366) (103) (335) (771) (213)

Office and administration (1,065) (920) (988) (848) (1,565) (1,190) (1,138) (1,258)

Shareholder communications (38) (58) (20) (37) (58) (59) (63) (27)

Stock-based compensation (248) (98) (87) (125) (125) (245) (28) (128)

Travel and conference (33) (95) (48) (64) (152) 85 (162) (65)

Transfer agent (43) (13) (7) (68) 6 (3) (38) (69)

Write off/(reversal) of amounts receivable _ _ _ _ (15) _ 15 _

(Loss)/gain on sale of assets (474) (86) 336 44 (301) (60) (129) _

Arbitration settlement _ _ _ _ _ (1,370) _ _

Impairment (5,445) _ _ 33 (4,939) _ _ _

Profit/(loss) before net finance costs (4,076) (2,755) (2,785) (3,555) (11,940) (2,135) 88 (1,155)

Finance income 277 158 160 69 301 303 69 107

Finance lease obligation (34) (38) (38) (43) (56) (48) (64) (28)

Other finance cost (742) (216) (148) (148) (305) (224) (68) (81)

Profit/(loss) after net finance costs (4,625) (2,851) (2,811) (3,677) (12,000) (2,104) 25 (1,157)

Share of (loss)/profit from equity accounted investment 17 23 (8) 27 (98) 53 67 15

(Loss)/profit before taxation (4,608) (2,828) (2,819) (3,650) (12,098) (2,051) 92 (1,142)

Taxation 947 (1,841) 408 616 2,058 (1,511) 994 (62)

(Loss)/profit for the period (3,661) (4,669) (2,411) (3,034) (10,040) (3,562) 1,086 (1,204)

Non-controlling interest 623 950 394 909 1,597 17 178 290

(Loss)/profit for the period – Owners of the Group (3,038) (3,719) (2,017) (2,125) (8,443) (3,545) 1,264 (914)

Basic and diluted (loss)/ profit per share (0.06) (0.08) (0.04) (0.04) (0.20) (0.22) 0.06 (0.002)

Weighted average number of Common Shares outstanding 48,349 48,409 48,409 48,174 47,485 47,943 35,493 34,993


Reserves

Mining area Terrace complexBottom

cut-off sizeVolume

m³Grade*

ct/100m³Value

USD/ctPROBABLE RESERVES

Saxendrift Brakfontein Hill (“BHC”)B1 terrace

5mm 6,921,600 0.40 2,400

INDICATED RESOURCESSaxendrift Brakfontein Hill (“BHC)

B1 terrace5mm 7,135,000 0.40 2,400

Saxendrift Hill # Saxendrift Hill (“SHC”) B2 terrace

2mm 1,774,600 1.15 2,300

Saxendrift Extension Saxendrift River (“SRC”) C3 terrace

5mm 1,303,400 0.60 1,884

Wouterspan

Rooikoppie B terrace

2mm5mm

614,400 0.700.62

2,0292,300

Fluvial-AlluvialB terrace

2mm5mm

3,858,800 0.700.62

2,0292,300

INFERRED RESOURCESSaxendrift Brakfontein Hill (“BHC”)

B1 terrace5mm 492,000 0.40 2,400

Saxendrift Hill Saxendrift Hill (“SHC”) B2 terrace

2mm5mm

86,000 0.680.52

2,3002,400

Saxendrift Extension Saxendrift River (“SRC”) C3 terrace

5mm 577,000 0.60 1,884

Kwartelspan Kwartelspan Complex (“KPC”) 2mm5mm

500,000 1.000.76

2,3002,400

Wouterspan


2mm5mm

5,911,000 0.700.62

2,0292,300


2mm5mm

31,863,000 0.700.62

2,0292,300

Niewejaarskraal

Rooikoppie A terrace

2mm5mm

1,840,000 0.84 0.65

2,0292,400

Fluvial-AlluvialA terrace

2mm5mm

11,831,000 0.84 0.65

2,0292,400


2mm5mm

969,000 0.84 0.65

2,0292,400


2mm5mm

5,990,000 0.84 0.65

2,0292,400

# Due to a lack of reliable data on SHC, the 5mm bottom cut-off size (bcos) values are not included at Indicated Mineral Resource classification.

Diamond values (under “Values”) for BHC, SHC, KPC and Niewejaarskraal are based on a two-year moving average (from +10,000cts from The BHC terrace on the Saxendrift Mine at a 5mm bcos).Diamond values for SRC are based on the 5mm bcos sales data for FY2013 only. Diamond values for Wouterspan are based on extrapolation of FY2011 data at 5mm bcos.Resource and Reserve estimates completed by Rockwell’s Group Technical Director, GA Norton, (Pr. Sci. Nat.), a Qualified Person who is not independent of the Company and reviewed by TR Marshall, PhD (Pr. Sci. Nat.), an independent Qualified Person.

Note: The Indicated Mineral Resources on the BHC terrace of the Saxendrift mine are inclusive of the Mineral Reserves.

MINERAL RESOURCE SUMMARYEffective at 1 July 2013, updated after financial year end

extensive diamond inventory

to support growth


µ

LegendPalaeo Rivers

River 1River 2River 3River 4

Saxendrift Hill Complex

Saxendrift River Complex

0 2 4 6 81

Kilometers

Brakfontein Hill Complex

Niewejaarskraal Complex

Wouterspan Complex

GEOGRAPHICAL MAPRockwell’s inventory of properties is sufficient to achieve the Company’s objective to grow its monthly production volumes to 500,000m3 in the medium term.

Mining operations in ramp up at the Saxendrift Hill Complex Mine.James Campbell, Chief Executive Officer and Mulalo Ndwammbi, Mining Manager at Saxendrift Hill Complex.


OPERATIONAL ORGANOGRAM

James Campbell Chief Executive Officer

Kevin van Rensburg ICT Manager

EXCO

Roelien Oosthuizen MLA Manager

George Stevens Geological Manager

Walter Bold Group Projects Manager

Jeffrey Brenner Diamond Sales and Marketing Manager EX

CO

Stéphanie Leclercq Investor Relations and Corporate Development Manager

EXCO

Dr Kurt Petersen Consulting Metallurgist Development Projects: Wouterspan

Attie Benson Group Security Manager

Gerhard Jacobs Chief Financial Officer EX

CO Glenn Norton Group Technical ManagerResponsible for Niewejaars-kraal project development

Richard Mhlontlo Group HR and IR ManagerResponsible for safety and sustainability

EXCO

Paul MayGroup Financial Manager

Johan Oosthuizen Financial Manager: Operations

Brenda BarretoMine Accountant

Paul Hlasoa HR Officer: Industrial Relations

Jerry Mpisekhava Training Officer

Lynn Frylink HR Manager: Operations


Tirisano Royalty Mining ContractorsKlipdamSaxendrift Hill ComplexSaxendrift and Saxendrift Extension

Frans BezuidenhoutContracts Manager

Petronella Mohale Mine Geologist

Ben Nell Mine Manager

Riaan Lubbe Engineering Manager

Naledi Kau HR Officer

Charlie Hartman Ore Manager (CML)

Mulalo Ndwammbi Mining Manager

Johan SpaarwaterPlant Manager

Penelope MohaleMine Geologist

Wikus de WinnaarMine Manager

Dawid Kerelse Pit Superintendent

Koggie Mostert Plant Manager

Theo Greef Safety Officer

Sarel Kriel Fleet Maintenance Manager

Bryn Brandt Engineering Manager

Mahlodi MalowaMine Geologist

Danielle du Toit HR Officer


The in-field screen that was commissioned in November 2011 at Saxendrift contributed to the mine’s improved performance in fiscal 2013.

OPERATIONAL REVIEW MIDDLE ORANGE RIVER


The processing operations at the Saxendrift Mine showed a significant improvement during fiscal 2013 as a result of the improved operational disciplines and a focus on diamond value management.

In production: Saxendrift


Location and geological settingThe Saxendrift is located on the south bank of the Orange River in the Herbert district of the Northern Cape Province, some 50km southwest of Douglas and some 160km from Kimberley.

The geological setting of Saxendrift is an alluvial diamond deposit preserved in fluvial-alluvial palaeochannel and deflation gravels (Rooikoppie) in Orange River terraces.

Production and sales

2013 2012 Change

Volume (m3) 1,822,975 1,469,215 24%

Carats 10,276 6,944 48%

Average grade (carats per 100m3) 0.56 0.47 19%

Sales (carats) 8,810 7,161 23%

Value of sales (US$) 15,684,536 17,502,111 (10%)

Average value (US$ per carat) 1,780 2,444 (27%)

Rough diamond inventories Carats

Beginning of period 66

Production 10,276

Rough diamond sales 8,810

End of period 635

Performance reviewThe 24% improvement in volumes processed underpinned a cash operating cost per cube of US$ 7.78 and total cash cost per cube of US$ 8.67, which is at the low end of the cost curve in alluvial diamond mining. Efficiencies improved as the overall plant utilization at the Saxendrift processing plant increased during the year.

Included in the Saxendrift processing totals is a total bulk sample of 611,260m3 that was processed from the Saxendrift Extension project, which was carried out to complete the definition of an additional resource for this section of the property. These results, together with the outcomes of a drilling program which commenced in February 2013, have been incorporated into an updated NI 43-101 technical report to be published during the second quarter 2014.

Recoveries from the Bulk X-Ray system were in line with expectation. A total of 1,903 carats were recovered from this pilot project during the fiscal year from total gravel processed amounting to 47,845m3. This equates to a grade of 3.98 carats per 100m3. In mid-December 2012, the system was permanently relocated to the new Saxendrift Hill Complex Mine, which is currently in its production ramp up phase.

The production of Saxendrift (including Saxendrift Extension and Saxendrift Hill Complex) in fiscal 2013 totaled 10,276 carats from 1,822,975m3 of gravel processed, compared to 6,944 carats from 1,469,215m3 of gravel processed in the prior year. The 24% year-on-year increase in volumes processed was facilitated by the smooth operation of the in-field screen that had been implemented late in the previous year. Volumes processed were impacted by slightly longer haulage distances from Saxendrift Extension. However, the overall grade improved 19% to 0.56 carats/100m3, from 0.47 carats/100m3 a year ago, as a result of better grades at the Saxendrift Extension. Accordingly the combined diamond production from the Saxendrift Mine and the Saxendrift Extension project increased by 48%.

Sales from Saxendrift (including the Saxendrift Extension) during fiscal 2013 amounted to 8,810 carats, up 23% compared to 7,161 in fiscal 2012. An average price of US$1,780 per carat was achieved during the current period, 27% lower than the reported price of US$2,444 per carat the year before. This is largely in line with industry-wide diamond pricing trends and the impact of selling several exceptional diamonds in fiscal 2012.

Significant operational improvement due to focus on operational disciplines.

Acquisition of the Jasper project: Providing potential to extend the useful life of Saxendrift infrastructure.

Carat sales

Volume processed

23%

24%

up

up

Value of sales

Carats produced

10%

48%

down

up



The administrative and technical support structures at Saxendrift have been bolstered to service the new mine with the aim of enhancing the overall returns from the Saxendrift property including Saxendrift, Saxendrift Extension and Saxendrift Hill Complex.

In production ramp up: Saxendrift Hill Complex

MIDDLE ORANGE RIVER OPERATIONS(continued)

Dry screening on the Saxendrift Hill Complex plant.


Location and geological settingThe Saxendrift Hill Complex Mine is located on the Saxendrift property, 4km from the main Saxendrift plant. This section of the property has an indicated resource of 1,774,500m3 of diamond bearing gravels with a two-year estimated life of mine based on the current defined resource, with the potential to extend this with further exploration work.

The geological setting of Saxendrift Hill Complex is an alluvial diamond deposit preserved in fluvial-alluvial palaeochannel and deflation gravels (Rooikoppie) in Orange River terraces.

Development reviewThe plant construction was funded from internal cash resources at a total cost of $1.4 million for the 100,000m3 per month plant, comprising two Bourevestnik X-Ray bulk sorters and two single particle sorters.

The same team which built the Saxendrift Hill Complex mine was previously responsible for the successful implementation of the in-field screen and Bulk X-Ray single particle sorter plant at Saxendrift on scope, budget and on schedule. Construction of the new processing plant was completed on budget and the mine went into production ramp up in March 2013.

Average carat values are expected to exceed those currently being achieved at Saxendrift due to the 8mm bottom cut-off, but with a budgeted grade of 0.51 carats per 100m3.

Earthmoving requirements at Saxendrift Hill Complex were met by relocating existing equipment from Tirisano, whose operations were placed on care and maintenance in December 2012. This should lower the operating costs and reduce the capital expenditure required to start mining activities.

$1.4 million capital investment internally funded.

Construction completed on budget.

Processing plant based on proven Bulk X-Ray technology.

Rockwell’s leadership team on site with the project team reviewing the production ramp up progress.

The Saxendrift Hill Complex processing plant is based on the Bulk X-Ray system that was successfully piloted at Saxendrift during fiscal 2013.


processing capacity of 100,000m3. The DMS production will be supplemented through the addition of four 16-foot Rotary pans from the Tirisano Mine in addition to using equipment from Klipdam that was not part of the sale.

During the design phase, management considered deploying the same Bulk X-Ray technology that has been installed at other Rockwell operations but this would have taken one year to implement at Niewejaarskraal. The Company opted to re-commission the existing DMS plant and install the 16-foot Rotary pans – a lower cost option which has the added advantage of a shorter implementation period. As part of the design phase, the Company evaluated the potential for a second phase of commissioning to increase the capacity of Niewejaarskraal to 200,000m3; this option will be revisited once the initial phase has been bedded down.

A total of 220 employees from Klipdam relocated to Niewejaarskraal as has the contract miner, CML Operations. Accordingly, the new mine’s production team has the requisite expertise and experience to efficiently run a pan and DMS plant.

Construction of the new processing plant commenced in mid April 2013 and was completed within three months of obtaining approval. The new mine was in production ramp up at time of going to print.

MIDDLE ORANGE RIVER OPERATIONS(continued)

Glenn NortonGroup Technical ManagerBSc (Hons)

Construction of the new processing plant commenced in mid April 2013 and was completed within three months of obtaining approval. The new mine was in production ramp up at time of going to print.

Under construction: Niewejaarskraal

Scrubber circuit and stand by generators. Degrit circuit of the plant.

Diamond deposit has historically produced high quality diamonds similar to Saxendrift.

$2.2 million capital budget funded internally.

Location and geological settingThe Niewejaarskraal project is located on the south bank of the Orange River in the Herbert district of the Northern Cape Province, some 57km southwest of Douglas and some 170km from Kimberley. The property is a past producer that was acquired by Rockwell in 2009. The Company announced results from a Preliminary Assessment of Niewejaarskraal in May 2011.

The geological setting of Niewejaarskraal is an alluvial diamond deposit preserved in fluvial-alluvial palaeochannel and deflation gravels (Rooikoppie) in Vaal River terraces. The property has extensive diamond deposits and has historically produced diamonds that are similar to Saxendrift in terms of size, quality and value.

Development reviewA proposal to take the Niewejaarskraal Mine out of care and maintenance was approved by the Board of Directors post balance sheet date. The capital budget of $2.2 million is being funded in part from the proceeds of the sale of the Klipdam Mine at the end of March 2013.

The project entails bringing the Dense Media Separation (“DMS”) plant at Niewejaarskraal Mine back into operation at a monthly


mid-sized gravels; and the third stream being a dense media separation (DMS) stream to process fine material;

u A reduced water consumption rate that is suited to the environmental conditions in the Middle Orange River region; and

u The use of contract mining at a fixed unit cost that reduces the capital requirements.

Kurt PetersenConsulting MetallurgistPhD (Metallurgical Science)

The Company is currently reviewing options to bring the Wouterspan asset to account. The timing to develop Wouterspan will depend on the availability of funds from external capital sources, supplemented by funds generated from internal cash flows.

Development opportunity: Wouterspan

Preliminary Economic Assessment showed viable economics.

Economic model yielded internal rate of return between 45% and 70% for various scenarios.

Potential to create 300 jobs.

Geological settingThe Wouterspan Property is located near Douglas, South Africa. It comprises portions, totaling 2,579.8ha, of the Lanyon Vale 376 farm. Historically, mining operations were carried out on three portions of the property called the Farhom, Okapi, and Stofdraai farms, exploiting the Rooikoppie and Primary gravel.

The geological setting of Wouterspan is an alluvial diamond deposit preserved in fluvial-alluvial palaeochannel and deflation gravels (Rooikoppie) in Vaal River terraces. The property has extensive diamond deposits and has historically produced diamonds that are similar to Saxendrift in terms of size, quality and value.

Assessment review A Preliminary Economic Assessment (“PEA”) showing viable project economics was completed on the Wouterspan property post balance sheet date. The PEA was carried out by a team led by Dr Kurt Petersen, an expert diamond metallurgist, and Walter Bold Pr. Eng., Rockwell’s Group Engineer, with significant input from Paradigm Project Management (“PPM”), a company with a strong track record in the innovative development of new diamond mines.

The study indicated positive economics, sufficient to take the project to the detailed design stage. The economic model yielded an internal rate of return of between 45% and 70% for a range of scenarios based on the key inputs. The net present value (“NPV”) for the base case is $91.71 million at a 15% discount rate, yielding a project payback period of 2.3 years from the start of construction or approximately 1.3 years from commencement of production. The project is most sensitive to revenue. A 5% variance in the total revenue over the 10 year life of mine impacts the NPV by 15%. The operation is expected to employ 300 people.

Key assumptions of the study were as follows:

u A plant with a capacity of 1,200 tonnes per hour (“tph”) (or 354,000m3 per month), a rate that lowers the diamond production risk associated with the inherent variability of the resource being mined;

u A plant design comprising three processing streams: two Bourevestnik Bulk X-Ray systems to handle the coarse and

Mining Plan after year five, which shows the concentration of mining through the middle of the property.


OPERATIONAL REVIEW VAAL RIVER OPERATIONS

Pit review of Rooikoppie mining being conducted by Rockwell management and CML Operations.

Ben NellMine Manager

Klipdam was sold after balance sheet date for total proceeds of $5.5 million including sale of equipment fleet.

Sold post balance sheet date:

Klipdam


Geological settingThe Klipdam Property is located 45km from Kimberley, South Africa and consists of the adjacent Holpan 161 and Klipdam 157 farms, covering an area of 4,019.9ha. The mining operations are located on the Klipdam (157) property which has a total area of 4,019.9ha. Prospecting properties, Erf 1 and Erf 2004, Windsorton have also been acquired (1,146ha). Holpan (161) was put on care and maintenance in May 2011.

The geological setting of Klipdam is an alluvial diamond deposit preserved in fluvial-alluvial palaeochannel and deflation gravels (Rooikoppie) in Vaal River terraces.

Production and sales

2013 2012 Change

Volume (m3) 886,568 710,261 25%

Carats 8,132 7,768 5%

Average grade (carats per 100m3) 0.92 1.09 (16%)

Sales (carats) 7,751 8,245 (6%)

Value of sales (US$) 6,273,200 6,348,181 (1%)

Average value (US$ per carat) 809 770 5%



Production 8,132


End of period 413

Performance reviewIn the first half of fiscal 2013, management implemented a number of interventions to address Klipdam’s underperformance. It was affected by poor earthmoving availabilities, impacting the mine’s ability to achieved production targets and driving up unit costs. In addition, with the diminishing mine life, average grades were in decline. These interventions included bolstering the mine skills with the aim of driving plant efficiencies and mining the palaeochannel which contains higher value rough diamonds.

However, these initiatives only achieved sporadic performance improvements and in the third quarter Klipdam’s management team and operations were restructured. A three-year contract mining agreement was concluded with CML Operations, a well-established privately-owned contract miner who also acquired Klipdam’s earthmoving fleet at book value over a two-year period. Minor plant adjustments also formed part of the correction plan.

The anticipated increase in volume throughputs was achieved as a result of the contract mining decision. Carat recoveries were however below expectation and with its two year remaining mine life based on the current defined resource, the operation was not considered to be a core asset.

Consequently an unsolicited cash offer to sell the mine for $2.5 million, payable in three tranches, to a private alluvial diamond miner was accepted. The Company opted to reinvest the proceeds to grow production in the Middle Orange River region that yields better grades and diamond values than Klipdam.

Under the terms of the agreement, Rockwell retained ownership of certain items of plant and machinery that will be redeployed, chiefly to Niewejaarskraal. Together with the proceeds from selling the earthmoving equipment in October 2012, the total sale proceeds at the mine is $5.5 million. The contract with CML Operations for mining services was transferred to Niewejaarskraal.

Production at Klipdam amounted to 8,132 carats from 886,568m3 of gravel in fiscal 2013, compared to 7,768 carats from 710,261m3 of gravel in the prior year. Klipdam achieved a 25% increase in volumes processed, which led to a 5% increase in carat production which fell short of plan.

Sales for fiscal 2013 from Klipdam totaled 7,751 carats at an average value of US$809 per carat, compared to 8,245 carats at an average value per carat of US$770 in the prior year. The 5% increase in carat value mitigated the 6% decline in carat sales, with the value of sales declining only 1%.

Volume processed

Carats produced

25%

5%

up

up

Caratsales

6%down

Average carat value

5%up


OPERATIONAL REVIEW NORTH WEST OPERATIONS

Frans BezuidenhoutContracts Manager: TirisanoMine Overseers Certificate of Competency (SA College of Mining)

During fiscal 2013, Rockwell launched its royalty mining contractor strategy to leverage the value of certain mining properties that are not suited to our high volume operating model. At Tirisano, we will have five such contractors in operation during fiscal 2014 with monthly volumes of some 150,000m3.

Tirisano Mine and Royalty Mining

Contractors

Tirisano impacted by softening prices for smaller diamonds and ongoing industrial action: Placed on care and maintenance in December 2012.

Royalty mining contractors introduced to offset care and maintenance costs: 12.5% royalty to Rockwell on diamond sales.

Volumes on track to increase to 150,000m3 per month by end of calendar 2013 from five royalty mining contractors.

The 42-strong workforce celebrate the commissioning of the first of two royalty mining contractor agreements that were in force during fiscal 2013.


Location and geological settingThe Tirisano Mine property covers an area totaling 10,806ha, located some 35km due north of Ventersdorp in the North West Province. It lies approximately 150km west of Johannesburg.

Tirisano Mine is hosted in a unique geological environment where, being karst derived sinkholes where the dolomitic bedrock contacts may be vertical, the mode of gravel deposition is not typical fluvial-alluvial, periodic subsidence has taken place since deposition, which has taken place since, at least, the Mesozoic, resulting in a build-up of a very thick gravel sequence.

Production and salesTirisano Mine

2013 2012 Change

Volume (m3) 220,454 247,742 (11%)

Carats 2,200 1,801 22%

Average grade (carats per 100m3) 1.00 0.73 37%

Sales (carats) 2,289 2,600 (12%)

Value of sales (US$) 803,993 1,863,773 (57%)

Average value (US$ per carat) 351 717 (51%)



Production 2,356


End of period 83

Royalty mining contractors

2013

Volume (m3) –

Carats 1,263

Sales (carats) 989

Value of sales (US$) 759,075

Average value (US$ per carat) 768


Beginning of period –

Production 1,106

Rough diamond sales 989

End of period 117

Performance review

Tirisano MineWhen the acquisition agreement for the Tirisano Mine was initially concluded by Rockwell in March 2010, the objective was to participate in the growing demand for bridal diamonds in China priced in the US$700 to US$900 range per carat, comprising most of this mine’s production. The opportunity met a further objective of the Company to smooth and increase its production profile through the construction of a high volume processing plant with a monthly capacity of 180,000m3. At the time, the Company was only able to secure sufficient equity funding to construct the first phase

of the plant with a capacity of 90,000m3 per month. In the middle of calendar 2011, the new executive management team initiated a full technical study of the processing plant which identified a number of significant processing deficiencies with the operation due to the high clay and manganese content of the gravel.

Management focus for the subsequent 12 months was on redressing these issues and ramping up the plant to its nameplate capacity. However, with a downturn in prices of smaller diamonds which comprise the majority of Tirisano’s typical production profile during the first half of 2012, it continued to operate at a loss and an optimization program that was instituted in July 2012 to prove the recovery principles was not successful in addressing these two issues. Further exacerbating the Tirisano economic situation was global demand for smaller diamonds shrinking and with prices achieved being down by around 30% during this time.

A smaller plant with a capacity of 50,000m3 per month and a wet front end to effectively process the clayey ores was commissioned at the end of September 2012. Despite significant operational and executive management input, the metallurgical and recovery issues persisted and it became clear that the operation could not be profitably mined at this level.

On 12 December 2012, the Company announced that it had placed its Tirisano Mine on care and maintenance. The decision was made because of the combination of persistent industrial relations issues and ongoing losses incurred by the mine, exacerbated by operational complexities as well as a slower than anticipated recovery in the price of smaller diamonds that made up much of its production profile. In addition, the burden of these losses had been carried entirely by Rockwell whose black economic empowerment (“BEE”) partner at the mine, Mogopa Minerals, was unable to contribute any of its required funding since the project’s inception.

When the mine was placed on care and maintenance, a cash neutral strategy was pursued with regard to care and maintenance costs at Tirisano which included the introduction of additional royalty mining contracts for the property.

Royalty mining contractorsDuring fiscal 2013, Rockwell launched its royalty mining contractor strategy to leverage the value of its portfolio of mining properties. Accordingly, smaller areas of properties owned by the Company, but that are unsuited to its high volume operating model, are operated by smaller operators who can mine these smaller sections economically. The royalty miners incur all the operational costs for these activities while Rockwell maintains responsibility for diamond security and generates a 12.5% royalty on diamond sales.

In the second half of the fiscal period, two royalty mining contractors operated on specific areas of the Tirisano property, yielding a total of 1,236 carats. Of these, 962 carats were sold for total revenue of US$751,990, of which 12.5% accrues to Rockwell in terms of the royalty mining agreements. These were applied to offset the care and maintenance costs from March 2013 going forward.

Three additional contracts were concluded after the balance sheet date and a Mine Manager was appointed by Rockwell to oversee these operations. Monthly volumes are expected to exceed 150,000m3 at Tirisano once all five contracts are commissioned and fully ramped up by the end of the 2013 calendar year.

In the Middle Orange River region, Rockwell entered into a contractor arrangement at Zwemkuil for a projected monthly production of 50,000m3, which will commence operations in the second quarter. The Company continues to investigate the contractor royalty option on smaller sections of other properties owned by Rockwell that are not suited to its high volume production model.


SUSTAINABILITY REVIEW

Rockwell is fully

environment

committedto protect the health and safety

communities

of all employees, the protection of the

and the wellbeing ofaround its operations

Preparation of meals provided by Rockwell to senior citizens and HIV/Aids sufferers in Gong-Gong near Barkly West.


Health, safety and wellnessRockwell has a multilateral approach to safety whereby the Department of Minerals and Resources, the relevant trade unions and mine management collaborate to ensure the safety of our employees, contractors, visitors and, more broadly, people who may be affected by our operations. The Company also has a corporate Health and Safety Policy that is adapted to the specific needs of each operation.

A single accident is considered one too many and every operation has the stated objective of achieving a million hours without any lost-time injury. A safety highlight during fiscal 2013 was achieved at Saxendrift which reached 1 million LTI free operating hours on 24 September 2012. At 28 February 2013, this had increased to 1.6 million incident free man hours of production.

We regard our employees as our most valuable asset and are wholly committed to protecting them, as far as is reasonably practical. It is our aim to create a culture of health and safety where our people themselves not only take control of their own health and safety but also provide an environment whereby our people look out for the safety of their colleagues.

In support of Rockwell’s goal of implementing world-class safety standards, a specialist consultancy was engaged who assisted in streamlining and standardizing the standards on all operations, heightening the focus on health and safety. The Company, together with its consultants, reviewed all codes of practises, safe operating practises and policies as well as more operational aspects such as the structure of safety meetings. Recommendations to improve safety were subsequently implemented. Health and safety risk assessments are also being rolled out as new procedures are implemented. Baseline risk assessments were carried out at Saxendrift and the mine under construction at Niewejaarskraal. Booklets were issued to employees, providing them with information to conduct mini risk assessments within their job functions, encouraging proactive and continual management of operational safety risks. Furthermore, whenever a safety incident occurs or new equipment is introduced on the operations, issue based risk assessments are conducted. At Saxendrift 33 Safety Reps underwent training during the year.

In line with Rockwell’s strategy to focus its growth efforts on the Middle Orange River region, we appointed a dedicated manager to oversee safety at these projects and operations on behalf of the CEO.

The Company’s HIV/Aids initiatives are administered in terms of the HIV/Aids Policy. Voluntary HIV/Aids testing is offered quarterly at each operation, together with tuberculosis testing. The Company is planning to train HIV/Aids peer educators before Aids Day on 1 December 2013. These initiatives are yielding positive results as evidenced by higher uptake for HIV/Aids testing as employees increasingly want to know their status.

The Company provides primary health care from a mobile clinic in Barkly West, but is evaluating the feasibility of engaging a qualified nursing sister from Douglas to visit the operations every two weeks.

Employees all undergo medical screening at least once a year, depending on the risk of their job functions. An external occupational hygienist regularly tests illumination, dust, noise and bacterial levels on site to ensure a safe and healthy environment for employees.

Because of the remote location of the mines, the majority of staff is accommodated on site. The hostel accommodation is currently being upgraded and the Company continually reviews its menus to maintain a balanced nutritional quality and staff who work overtime are provided with nutritional supplements.

The Company developed an employee wellness program during the year and launched it at the Saxendrift Mine early in fiscal 2014. The service offers employees and their dependants access to a qualified psychologist, legal and financial telephonic guidance and an electronic e-Care service that provides health and wellness-related information.

Training and developmentDuring the year under review, the Company appointed a dedicated Training Manager to develop and implement a training and development strategy. Training during fiscal 2013 was focussed on driving the Company’s diamond value management principles by improving the skill sets of supervisors and employees working the equipment fleet as well as the pan, scrubbers and screen operators. 227 employees attended training.

During the year, four employees participated in training at the De Beers College.

Job creation At the end of fiscal 2013, Rockwell had 376 permanent employees (excluding the Klipdam employees who transferred to CML Operations and 156 jobs provided by royalty mining contractors at the Tirisano property). The reduction in the total workforce from the prior period was due to retrenchments after placing the operations of Tirisano on care and maintenance in December 2012 as well as the rightsizing and outsourcing of mining operations to CML Operations in November 2012. These retrenchment processes were section 189A process through CCMA facilitation.

The workforce comprised 13% women in total, while the Company’s support of Women in Mining is reflected in the 22% and 30% representation of women in senior and middle management respectively.

At the Middle Management level, Rockwell’s employment equity has improved significantly due to a focus on recruiting young HDSA geologists and metallurgists in plant supervisory roles. This went up from four in 2012 to 12 HDSA men, seven HDSA women and two white women in this category.

Rockwell has a Recognition Agreement with the National Union of Mine Workers (NUM) representing 60% of the workforce. In

Pat Green, who runs the Jannie Roux Home in Barkly West with Elmarie de Bruin, Headmistress of the Vaal River School with James Campbell and Glenn Norton at the annual Christmas Party held for the children from the home in December 2012.


SUSTAINABILITY REVIEW(continued)

fiscal 2012 a two-year wage agreement to increase annual wages of permanent staff by 8% was reached. The Company entered into wage negotiations with the NUM in May 2013 for the next two year period.

Corporate Social Investment Rockwell has devoted its investments to supporting education of future generations of South Africans and has supported the following initiatives in this regard:

u Ongoing support at the Jannie Roux Home in Barkly West which provides a place of safety for 50 children. This includes a fixed monthly stipend which assists with overhead costs at the home and is used to provide nutritional snacks for the children to take to school. Rockwell also covers the costs of internet access to the home and provides ad hoc assistance as required. Rockwell hosts an annual Christmas party at its Barkly West corporate office for these children every year.

u Refurbished the Vaal River School facilities in partnership with the Department of Education and its hostel facilities which provide accommodation and shelter for the underprivileged students. In addition, Rockwell sponsors three meals a day for 70 students.

u Provided computer centers to three schools in Barkly West and continues to sponsor the costs of internet access at these schools

u Sponsors several sport development projects at three local schools as well as a rugby and a soccer tournament

u Provides three meals a week to 140 senior citizens and people living with HIV/Aids in Gong-Gong near Barkly West.

Enterprise development Rockwell initially invested R2 million to start Bokamoso, a brick-making facility which is managed and operated by women. It manufactures and supplies bricks in the Northern Cape. The Company was subsequently expanded to provide civil construction to the mining industry. It also carries out renovations to the local communities at low cost. All Rockwell’s civil construction on its Northern Cape mines has been carried out by Bokamoso. During the year, Rockwell procured goods and services in excess of R1.5 million from Bokamoso. Bokamoso also plays a critical role

in the acceleration of our Social & Labour Plan as it serves as the primary platform through which such initiatives and programs are being channeled.

EnvironmentalRockwell has an environmental policy prescribing environmental procedures across all operations and projects. The cornerstones of its environmental practises are as follows:

u Assessing and monitoring our environmental impact, conserving renewable and non-renewable natural resources and reducing all forms of environmental pollution and degradation including, but not limited to, air, water, chemical, energy and any other general waste-related pollution.

u The recovery process of diamonds does not include any chemicals and water released back into the environment has been shown to be cleaner than existing river water.

u Reducing, reusing, recycling and disposing of waste in a manner reflecting responsible environmental practices.

u Allocating the necessary resources to comply with these commitments which include, but is not limited to, legal compliance in terms of environmental guarantees that must be provided to the Department of Mineral Resources.

u Promoting a culture of environmental awareness through induction, information and training of our employees and contractors.

u Raising awareness on environmental responsibilities and actively promoting good environmental practises by all our staff.

u Preserving, where practical, significant archeological and historical sites to minimize the impact on the cultural heritage of the surrounding environment.

u Optimizing the consumption of renewable and non-renewable resources, to ensure the sustainability of our operations.

u Ensuring that all contractors/consultants and service providers are familiar with the Company’s environmental management practices and that they assist in the implementation and maintenance of the said practices.

The annual Woman’s Day celebration.

TOTAL WORKFORCE

87%2013

13%2013

African male 51%

African female 5%

Coloured male 26%

Coloured female 4%

Caucasian male 11%

Caucasian female 3%

Male Female


u Prioritizing the purchase of products that are environmentally friendly and energy efficient. Consideration is given to buying fair trade and locally grown and manufactured products as these have positive impacts on the environment and livelihoods.

u Rockwell strives to comply with all aspects of the South African environmental legislation.

Rockwell has defined its top environmental impacts as follows:

u The impact on geology due to historical and current mining activities is heightened during the operational phase as mining progresses through areas where previously only prospecting was done and continues as mining progresses over the approved life of mine.

u The impact on soil during the operational phase due to clearing of topsoil and overburden for opencast mining. Mining management is conducted in such a manner as to avoid contamination of topsoil and no chemicals are used in mineral processing. Concurrent rehabilitation to rapidly re-vegetate mining areas lowers the risk of soil losses due to erosion.

u The mining and excavation of the diamond and sand minerals has a long-term impact on the land capability and alters the land use. Mine operations lead to the temporary loss of grazing capability but through concurrent rehabilitation, parts become available for agricultural use as re-vegetation is completed.

u The impact on the topsoil and vegetation layer during mining is high due to clearing and can enhance the establishment of exotic species and bare ground, until rehabilitation commences. Concurrent rehabilitation of cleared and sloped areas mitigates this. These areas are ripped, ameliorated and re-seeded to encourage rapid re-establishment of indigenous species.

u Animal life adapts quickly to mining operations as they commence. Mining is restricted to a maximum area of 50ha at any given time to mitigate the impact on animal life. Rockwell has a policy against illegal poaching. Vehicle movement is restricted to existing roads and disturbed areas.

u Rockwell’s alluvial diamond mining has no impact on the catchment yield or the water quality in the catchment area. It contains no toxic or harmful substances that could influence the quality of the water. Rockwell conducts no mining activities within 100m horizontally of any rivers and has measures in place to manage the handling and storage of petrochemicals within the Company.

u Rockwell’s mining operations do not significantly contaminate the air. Proper maintenance of equipment mitigates the impact of exhaust fumes. Dust on the roads is managed by imposing a maximum speed limit of 40km/hr for loader moves. Dust is minimal in the mineral processing activities.

u The noise impact of mining activities is low due to the location of the mines in rural areas and only affects employees and neighbors are who are generally separated from the mines by long distances.

The required environmental impact assessment studies are conducted to measure these and other impacts, incorporating a review of the current status and the extent to which the environment has already been modified. In terms of the MPRDA, bi-annual performance assessment reports are completed. Employee communications and newsletters include discussions of

environmental matters to heighten their awareness of environmental impacts.

Key materials used during the year were as follows:

Indicator Units

Energy use (KwH) 15,244,122

Waste oil: 59,853 liters

Hydro carbon oil contaminated waste:

28,920 liters

Water consumption (m3) 988,000m³ sourced from the Orange River at Saxendrift

Rockwell puts its commitment to managing the impact of its mining operations on the environment into practise by delivering against its goal of continuously rehabilitating, concurrently with mining whenever practically possible. Re-vegetation of rehabilitated areas takes at least two to three growth seasons to reach the same predetermined land use. During fiscal 2013, 155ha of land was rehabilitated across the Company’s properties. Rockwell also carries out surveys every two weeks on outstanding rehabilitation to maintain the concurrent on-site rehabilitation, thereby minimizing the impact as well as the financial provision requirements while ensuring legal compliance.

Rockwell only removes protected trees once the necessary forestry tree licenses have been issued to the Company. In terms of license conditions, the Company is committed to establishing at least two indigenous trees for every protected tree which was removed. The Boscia albitrunca or Shepherd’s tree, which grows on many of the Company’s mining blocks in the Middle Orange River, is a protected tree species in South Africa. This means that approval from the Department of Agriculture, Forestry and Fisheries must be sought to remove the protected trees while mining blocks of diamond bearing gravels. Demonstrating Rockwell’s commitment to preserving this protected tree and in terms of environmental management, the Company took a decision to leave trees larger than 2m intact and to mine around them.

Rockwell has committed to mine around large Shepherd’s Trees rather than seek approval to have them removed, in order to preserve this protected tree.


CORPORATE GOVERNANCE

Mandate of the BoardThe Board adopted a formal mandate as outlined in Rockwell’s Corporate Governance Policies and Procedures Manual (the “Manual”) on 28 February 2008. The Manual mandates the Board to: (i) assume responsibility for the overall stewardship and development of the Company and monitoring of its business decisions, (ii) identify the principal risks and opportunities of the Company’s business and ensure the implementation of appropriate systems to manage these risks, (iii) oversee ethical management and succession planning, including appointing, training and monitoring of senior management and directors, and (iv) oversee the integrity of the Company’s internal financial controls and management information systems. In addition, the Manual includes written charters for each committee. Further, the Manual encourages but does not require continuing education for its directors and it contains a code of ethics, policies dealing with issuance of news releases and disclosure documents, as well as share trading black-out periods. A copy of the Manual is available for review at the Company’s website www.rockwelldiamonds.com.

The attendance record of the directors for the 12 months ended 28 February 2013 is as follows:

NameBoard meetings

attended% of board

meetings attended

Mark Bristow 7 100

James Campbell 7 100

Stephen Dietrich 7 100

Willem Jacobs 7 100

Richard Linnell 7 100

Johan van’t Hof 7 100

Rick Menell1 1 50

Note1. Rick Menell was appointed as a director on 6 January 2013.

Composition of the BoardApplicable governance policies require that a listed issuer’s board of directors determine the status of each director as independent or not, based on each director’s interest in, or other relationship with, the corporation. Applicable governance policies recommend that a board be constituted with a majority of directors who qualify as independent directors (as defined below). A board should also examine its size with a view to determining the impact of the number of directors upon the effectiveness of the board, and the board should implement a system which enables an individual director to engage an outside advisor at the expense of the corporation in appropriate circumstances. The Manual allows for retention of independent advisors for board members when they consider it advisable.

Under applicable policies, an “independent” director is one who has no direct or indirect material relationship with the Company. Generally speaking, a director is independent if he or she is free from any employment, business or other relationship which could, or could reasonably be expected to, materially interfere with the exercise of the director’s independent judgment. A material relationship includes having been (or having a family member who has been) within the last three years an employee or executive of the Company or having been employed by the Company’s external auditor. An individual who (or whose family member) is or has been within the last three years an executive officer of an entity is deemed

to have a material relationship, as is any individual who (or whose family members or partners) received, directly or indirectly, any consulting, advisory, accounting or legal fee or investment banking compensation from the Company (other than compensation for acting as a director or as a part time chairman or vice-chairman).

The Board proposes seven nominees for the office of director of whom five can be considered as “independent” directors. The “independent” nominees are Willem Jacobs, Richard Linnell, Johan van’t Hof, Stephen Dietrich and Rick Menell. These nominees are considered independent by virtue of not being executive officers of the Company, not having a material relationship with the Company and having received no compensation other than in their role as independent directors. The non-independent directors (and the reasons for that status) are Mark Bristow (Chairman) and James Campbell (President and CEO).

The Board monitors the activities of the senior management through regular meetings and discussions amongst the Board and between the Board and senior management. The Board is of the view that its communication policy between senior management, members of the Board and shareholders is good. The Board is satisfied with the integrity of the Company’s internal control and financial management information systems.

Committees of the BoardThe Manual requires that (i) committees of the Board be composed of at least a majority of independent directors, (ii) the Board expressly assume responsibility, or assign to a committee of directors responsibility, for the development of the Company’s approach to governance issues, (iii) the Audit Committee be composed only of independent directors, and the role of the Audit Committee be specifically defined and include the responsibility for overseeing management’s system of internal controls, (iv) the Audit Committee have direct access to the Company’s external auditor, and (v) the Board appoint a Nominating and Governance Committee, composed of a majority of independent directors, with the responsibility for proposing new nominees to the Board and for assessing directors on an ongoing basis.

As well as an Audit Committee, the Board also has a Compensation Committee and a Nominating and Governance Committee.

Audit CommitteeThe Board has established an Audit Committee which currently consists of Willem Jacobs, Stephen Dietrich and Johan van’t Hof. The Audit Committee carries out its responsibilities under applicable laws, regulations and stock exchange requirements with respect to the employment, compensation and oversight of the Company’s independent auditors and other matters under the authority of the committee. See further disclosure in Item 20 of the Company’s AIF filed on www.sedar.com on 30 May 2013 with respect to the Audit Committee and its relationship with the Company’s independent auditors. The Company adopted an Audit Committee Charter on 28 February 2008 and it is included in the Manual. The Audit Committee Charter is also available for viewing at the Company’s website at www.rockwelldiamonds.com.

Compensation CommitteeThe Board has established a Compensation Committee which currently consists of Richard Linnell and Johan van’t Hof. The


managing the Company ethically and

responsibly

Compensation Committee recommends compensation for the directors and executive officers of the Company. See further disclosure under Statement of Executive Compensation below. The Compensation Committee Charter was adopted on 28 February 2008 and is included in the Manual. This Compensation Committee Charter is available to view at the Company’s website at www.rockwelldiamonds.com.

The function of the Compensation Committee is to review, on an annual basis, the compensation paid to the Company’s executive officers and directors, to review the performance of the Company’s executive officers and to make recommendations on compensation to the Board.

The Compensation Committee also periodically considers the grant of stock options. Options have been granted to the executive officers and directors and certain other service providers taking into account competitive compensation factors and the belief that options help align the interests of executive officers, directors and service providers with the interests of shareholders.

Nominating and Governance CommitteeThe Board has established a Nominating and Governance Committee (the “NG Committee”) which currently consists of Richard Linnell and Willem Jacobs.

The NG Committee has the responsibility of developing and recommending to the Board the Company’s approach to corporate governance and assists members of the Board in carrying out their duties. The NG Committee also reviews all new and modified rules and policies applicable to governance of listed corporations to assure that the Company remains in full compliance with such requirements as are applicable to the Company.

The nominating function of the NG Committee is to evaluate and recommend to the Board the size of the Board and persons as nominees for the position of a director of the Company and to formalize the process for ensuring the nomination of high caliber directors and proper director succession planning. The Company has formal procedures for assessing the effectiveness of Board committees as well as the Board as a whole. Under the Manual, this function is to be carried out annually under the direction of the NG Committee and those assessments are then provided to the Board.

Board decisionsGood governance policies require the board of a listed corporation, together with its chief executive officer, to develop position descriptions for the board and for the chief executive officer, including the definition of limits to management’s responsibilities. Any responsibility which is not delegated to senior management or to a committee of the board remains with the board.

Recruitment of new directors and assessment of Board performanceGood governance policies require that (i) every board of a listed corporation implement a process for assessing the effectiveness of the board and the committees of the board and the contribution of individual directors, (ii) every corporation provide an orientation and education program for new directors, and (iii) every board review the adequacy and form of compensation of directors and ensure that the compensation realistically reflects the responsibilities and risks involved in being an effective director.

See the discussion under Nominating and Governance Committee above.

Orientation and continuing educationThe Company has traditionally retained experienced mining people as directors and hence the orientation needed is minimized. When new directors are appointed, they are acquainted with the Company’s mineral projects and the expectations of directors. Board meetings generally include presentations by the Company’s senior management and project staff in order to give the directors full insight into the Company’s operations.

Ethical business conductThe Board has adopted an ethics policy (set out in the Manual) which is available for download from the Company’s website at www.rockwelldiamonds.com. The Board also believes that the fiduciary duties placed on individual directors by the Company’s governing corporate legislation and the common law, and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of the Board in which the director has an interest, have been sufficient to ensure that

A large gem, quality diamond that is typical of Rockwell’s production in the Middle Orange River region.


CORPORATE GOVERNANCE(continued)

the Board operates independently of management and in the best interests of the Company.

Nomination of directorsThe Board considers its size each year when it considers the number of directors to recommend to the shareholders for election at the annual meeting of shareholders, taking into account the number required to carry out the Board’s duties effectively and to maintain a diversity of views and experience. See the discussion under Nominating and Governance Committee above.

AssessmentsThe Board monitors the adequacy of information given to directors, communication between the Board and management and the strategic direction and processes of the Board and committees. The NG Committee is mandated to oversee an annual formal assessment of the Board and its three committees, namely the Audit Committee, Compensation Committee and the NG Committee.

Statement of executive compensationGeneral provisions“Named Executive Officer” (“NEO”) means each of the following individuals:

u A Chief Executive Officer (“CEO”);

u A Chief Financial Officer (“CFO”);

u Each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000 for that financial year; and

u Each individual who would be an NEO as defined in the point above but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at 28 February 2013.

Compensation discussion and analysisThe Company’s compensation policies and programs are designed to be competitive with similar resource companies and to recognize and reward executive performance consistent with the success of the Company’s business.

The Board has established a Compensation Committee consisting of Richard Linnell and Johan van’t Hof. The function of the Compensation Committee as set out in the Manual is to assist the Board in fulfilling its responsibilities relating to the compensation practices of the executive officers of the Company. To achieve this purpose, the Compensation Committee has the duty, responsibility and authority to:

u recommend to the Board the form and amount of compensation to be paid by the Company to directors for service on the Board and on Board committees. The Compensation Committee shall review director compensation at least annually;

u annually review the Company’s base compensation structure and the Company’s incentive compensation, stock option and

other equity-based compensation programs and recommend changes in or additions in such structure and plans to the Board as needed;

u recommend to the Board the annual base compensation of the Company’s executive officers and senior managers (collectively the “Officers”);

u recommend to the Board the range of increase or decrease in the annual base compensation for non-Officer personnel providing services to the Company;

u recommend to the Board annual corporate goals and objectives under any incentive compensation plan adopted by the Company for Officers and non-Officer personnel providing services to the Company, and recommend incentive compensation participation levels for Officers and non-Officer personnel providing services to the Company under any such incentive compensation plan. In determining the incentive component of compensation, the Committee will consider the Company’s performance and relative shareholder return, the values of similar incentives at comparable companies and the awards given in past years;

u evaluate the performance of Officers generally, and in light of annual corporate goals and objectives under any incentive compensation plan;

u periodically review with the Chairman and CEO their assessments of corporate officers and senior managers and succession plans, and make recommendations to the Board regarding appointment of officers and senior managers;

u provide oversight of the performance evaluation and incentive compensation of non-Officer personnel providing services to the Company;

u administer the Company’s stock option and other equity based compensation plans and determine the annual grants of stock options and other equity based compensation; and

u recommend to the NG Committee the qualifications and criteria for membership of the Compensation Committee.

Report on executive compensation The Valuation Report on executive compensation has been authorized by the Compensation Committee. The Board assumes responsibility for reviewing and monitoring the long-range compensation strategy for the senior management of the Company although the Compensation Committee guides it in this role. As part of its mandate, the Board determines the type and amount of compensation for the Company’s executive officers. In addition, the Board reviews the methodology utilized by the Company for setting salaries of employees throughout the organization.

The Compensation Committee receives competitive market information on compensation levels for executives.

Mr James Campbell, President and CEO, and Mr Gerhard Jacobs, the CFO, serve the Company on a full-time basis.

Philosophy and objectives

The compensation program for the senior management of the Company is designed to ensure that the level and form of compensation achieves certain objectives, including:


u attracting and retaining talented, qualified and effective executives;

u motivating the short- and long-term performance of these executives; and

u better aligning their interests with those of the Company’s shareholders.

In compensating its senior management, the Company has employed a combination of base salary, bonus compensation and equity participation through its stock option plan.

Base salary

In the Board’s view, paying base salaries that are competitive in the markets in which the Company operates is a first step to attracting and retaining talented, qualified and effective executives. Competitive salary information on comparable companies within the industry is compiled from a variety of sources, including surveys conducted by independent consultants and national and international publications.

Bonus compensation

The Company’s objective is to achieve certain strategic objectives and milestones. The Board will consider executive bonus compensation dependent upon the Company meeting those strategic objectives and milestones and sufficient cash resources being available for the granting of bonuses. Bonuses are awarded at the discretion of the Board. The Board approves executive bonus compensation dependent upon compensation levels based on recommendations of the Compensation Committee, and such recommendations are generally based, if necessary, on survey data provided by independent consultants. There were no incentive bonuses awarded in the financial year.

Equity participation

The Company believes that encouraging its executives and employees to become shareholders is the best way of aligning

their interests with those of its shareholders. Equity participation is accomplished through the Company’s stock option plan. Stock options are granted to senior executives taking into account a number of factors, including the amount and term of options previously granted, base salary and bonuses and competitive factors. Options are generally granted to senior executives and vest on terms established by the Compensation Committee.

Given the evolving nature of the Company’s business, the Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.

Compensation of the Chief Executive Officer

Under the Manual, the compensation of the CEO is to be approved by the Board. Base salary and bonus levels are determined taking into account independent market survey data.

The Compensation Committee reviews the grants of stock options to directors, management, employees and consultants. Options have been granted in prior years taking into account competitive compensation factors and the belief that options help align the interests of such persons with the interests of shareholders.

As noted above under Bonus Compensation, incentives that may be paid to the CEO and any other member of the Executive or senior management team are determined in respect of the individuals and management team achieving strategic objectives and milestones which are set at the beginning of each year by the Compensation Committee and approved by the Board.

Performance The following graph compares the cumulative total return to a shareholder who invested $100 in Common Shares of the Company on 29 February 2008 until 28 February 2013 with the cumulative total return of the TSX.

120

0

20

40

60

80

100

29 February 2008

28 February 2009

28 February 2010

28 February 2011

29 February 2012

28 February 2013

RDI

TSX

Performance graph

$

The Company’s compensation policies and programs are designed to be competitive with similar junior mining exploration companies and to recognize and reward executive performance consistent with the success of the Company’s business.



As a result of the credit crisis, commodities prices collapsed, with diamonds being particularly hard hit. This, coupled with uncertainty raised from an unsolicited take-over attempt, resulted in a collapse in the share price.

The performance of management cannot be measured on the share price, but in maintaining liquidity, increasing production and reducing costs. The fact that the Company is still in operation where many of its peers have failed completely is evidence of the commitment and creativity of management in ensuring that the Company is still operational.

Senior employees’ salaries were brought in line with the market albeit at the lower end of the percentile and the employees that were on par with the market were given inflation related increases. Union employees were granted band specific increases, as negotiated, to narrow disparities.

Actions, decisions or policies made after 28 February 2013Given the evolving nature of the Company’s business, the Board and its Compensation Committee continue to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above. No actions, decisions or policies have been made since 28 February 2013 that would affect a reader’s understanding of NEO compensation.

Option-based awardsThe Company has in place a rolling share option plan dated for reference 9 September 2011 (the “Plan”). Under TSX policies the

Final works on the construction of the Saxendrift Hill Complex Mine.

Plan must be submitted to shareholders for renewal every three years. The Plan has been established to provide incentive to qualified parties to increase their proprietary interest in the Company and thereby encourage their continuing association with the Company.

Under the Plan, a maximum of 10% of the issued and outstanding Common Shares of the Company may be reserved for issuance. Options up to this limit may be granted at the discretion of the Board, or the Compensation Committee, to eligible optionees (the “Optionees”). In addition, as the number of issued and outstanding Common Shares of the Company increases, the number of options available for granting to eligible optionees will increase. As at the date hereof there are options outstanding to purchase an aggregate of 3,678,826 Common Shares representing approximately 7.6% of outstanding Common Shares.

The Plan is administered by the Compensation Committee of the Company. The Plan provides that options will be issued pursuant to option agreements to directors, officers, employees or consultants of the Company or a subsidiary of the Company. All options expire on a date not later than ten years after the issuance of such option. Previous grants of option-based awards are taken into account when considering new grants of options. Subject to the requirements of the policies of the TSX and the prior receipt of any necessary regulatory approval, the Board may, in its absolute discretion, amend or modify the Plan or any outstanding option granted under the Plan, as to the provisions set out in the Plan.

The following is a summary of the material terms of the Plan:

u Currently all options granted under the Plan are non-assignable and non-transferable and are issuable for a period of up to ten years;

u For stock options granted to employees or service providers (inclusive of management company employees), the Company must ensure that the proposed optionee is a bona fide employee or service provider (inclusive of management company employees), as the case may be, of the Company or any subsidiary;

u If an optionee ceases to be employed by the Company (other than as a result of termination with cause) or ceases to act as a director or officer of the Company or a subsidiary of the Company, any option held by such optionee may be exercised within 90 days after the date such optionee ceases to be employed as an officer or director or, as the case may be;

u If an optionee dies, any vested option held by him at the date of death will become exercisable by the optionee’s lawful personal representatives, heirs or executors until the earlier of one year after the date of death of such optionee and the date of expiration of the term otherwise applicable to such option;

u In the case of an optionee being dismissed from employment or service for cause, such optionee’s options, whether or not vested at the date of dismissal, will immediately terminate without right to exercise same;

u The minimum exercise price of an option granted under the Plan must not be less than the Market Price calculated the day before the grant (as defined in the Plan);

u Vesting of options shall be in accordance with the option commitment in the New Option Plan or otherwise, at the discretion of the Board, and will generally be subject to: (i) the


service provider remaining employed by or continuing to provide services to the Company or any of its affiliates as well as, at the discretion of the Board, achieving certain milestones which may be defined by the Board from time to time or receiving a satisfactory performance review by the Company or any of its affiliates during the vesting period; or (ii) the service provider remaining as a director of the Company or any of its affiliates during the vesting period;

u The maximum aggregate number of shares issuable upon exercise of options to non-employee directors must not exceed 1% of the total Common Shares of the Company outstanding at any time and no more than $100,000 in total award value per non-employee director on an annual calendar basis; and

u The Board reserves the right in its absolute discretion to terminate the Plan with respect to all Plan shares in respect of options which have not yet been granted hereunder.

The Plan has the following restrictions, which restrictions may only be superseded by the Company obtaining approval of the disinterested shareholders (defined below) of the Company in each instance:

u Common Shares being issuable to Insiders under the Plan, when combined with all of the Company’s other share compensation

arrangements, exceeding 10% of the outstanding Common Shares;

u Common Shares to be issued to Insiders under the Plan, when combined with all of the Company’s other share compensation arrangements, exceeding 10% of the outstanding Common Shares in any 12 month period;

u Common Shares being issuable to independent directors under the Plan, when combined with all of the Company’s other share compensation arrangements, exceeding 1% of the outstanding Common Shares of the Company; and

u A reduction in the exercise price of an option granted hereunder to an Insider or an extension of the term of an option granted hereunder benefiting an Insider.

Options are generally granted to corporate executives in the first quarter of each year as part of the annual compensation review. Any special compensation is typically granted in the form of options. Options are granted at other times of the year to individuals commencing employment with the Company. The exercise price for the options is based on the volume weighted average of the closing price of the shares of the Company on the TSX for the five days prior to the date of grant.

Summary compensation tableThe compensation paid to the NEOs during the Company’s three most recently completed financial years ended 28 February 2011, 29 February 2012 and 28 February 2013 is as set out below:

Name and principal position Year

Salary1

$

Share-based

awards$

Option-based

awards2

$

Non-equity incentive plan compensation3

Pension value

$

All other compen-

sation$

Total compen-

sation$

Annual incentive

plans3

$

Long-termincentive

plans$

James Campbell 20132012

362,278270,000

NilNil

Nil550,000

50,190Nil

NilNil

NilNil

NilNil

412,468820,000

Gerhard Jacobs5

CFO20132012 2011

297,536303,843191,133

NilNil Nil

17,13528,800 52,000

47,806NilNil

NilNilNil

NilNilNil

NilNilNil

362,477332,643243,133

Michael Hunt7 former COO

2012 137,886 Nil 141,176 Nil Nil Nil Nil 279,062

John Bristow4

former President and CEO2012 2011

Nil352,753

NilNil

Nil 58,500

NilNil

NilNil

NilNil

58,595Nil

58,595 411,253

Desmond Morgan5 former CFO

2011 47,622 Nil Nil Nil Nil Nil Nil 47,622

Graham Chamberlain6

former COO2012 2011

168,375211,652

NilNil

Nil 58,500

Nil10,441

NilNil

NilNil

NilNil

168,375 280,593

Notes1. The Company’s South African executives are compensated in South African Rand (“ZAR”) and have been presented in Canadian dollars at an exchange rate of 1 Canadian dollar

= ZAR8.3682 (2012: ZAR7.4239 and 2011: ZAR7.0871) the average monthly rate in effect for the year ended 28 February 2013.2. These amounts represent the dollar amount based on the grant date fair value of the award for the year ended 28 February 2013. The options granted in the Company’s financial year

ended 28 February 2013 were granted pursuant to the Stock Option Plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant. The Black-Scholes option valuation is determined using the expected life of the stock option, expected volatility of the Company’s Common Share Price, expected dividend yield, and risk-free interest rate. The Black-Scholes grant date fair value for awards granted on 12 December 2012 was 109.5% of the option exercise price.

3. These amounts include annual non-equity incentive plan compensation, such as bonuses and discretionary amounts for the year ended 28 February 2013.4. Mr Bristow resigned from the position of President and CEO on 14 December 2010.5. Mr Morgan resigned as CFO on 16 July 2010. Mr Jacobs was appointed as CFO on 19 July 2010. 6. Mr Chamberlain commenced employment with the Company and was appointed Chief Operating Officer on 1 November 2009 and resigned on 31 December 2011.7. Mr Hunt commenced employment with the Company on 11 July 2011 and was appointed Chief Operating Officer and resigned on 28 October 2012.



Incentive plan awardsOutstanding option-based awardsThe following table sets out all share-based awards and option-based awards outstanding as at 28 February 2013, for each NEO:

Name

Option-based awards

Number of securities

underlying unexercised

options

Option exercise price

$

Optionexpiration

date

Value of unexercised

in-the-money options

$1

James Campbell2

President and CEO733,333 0.75 12 October 2016 Nil

Gerhard Jacobs3 CFO

75,00060,00053,333

0.210.48

0.975

12 December 202212 October 2016

8 October 2015

NilNilNil

Notes1. The value at 28 February 2013 is calculated by determining the difference between the closing price of the Company’s Common Shares at 28 February 2013 ($0.05 per Common Share)

underlying the option on the TSX and the exercise price of the options.2. Mr Campbell was appointed CEO effective 1 June 2011.3. Mr Jacobs was appointed as the new CFO effective 19 July 2010. Mr. Morgan resigned as CFO effective 16 July 2010 and any options held by Mr Morgan expired unexercised.

Incentive plan awards – value vested or earned during the yearThe following table sets out all incentive plan awards (value vested or earned) during the year ended 28 February 2013, for each NEO:

Name

Option-based awards – value

vested during the year1

$

Non-equity incentive plan

compensation – value earned

during the year$

James CampbellPresident and CEO

Nil 50,190

Gerhard JacobsCFO

Nil 47,806

Note1. These amounts represent the aggregate dollar value that would have been realized

if the options under the option-based award had been exercised on the vesting date. The value of each amount has been determined by taking the difference between the market price of the option at date of exercise and the exercise or base price of the option under the option-based award on the vest date.

The Company has no pension plans for its directors, officers or employees.

Termination and change of control benefitsAs at 28 February 2013 the following NEOs of the Company had written employment contracts between themselves and the Company:

u Gerhard Jacobs dated 1 August 2010; and

u James Campbell dated 1 June 2011.

Under these agreements Gerhard Jacobs and James Campbell are to work full time for the Company and are eligible to receive stock options and a performance-based bonus at the discretion of the Compensation Committee and the Board, as well as other standard benefits made available by the Company. Please see summary compensation table above.

There are no other compensatory plans or arrangements, with respect to the NEOs resulting from the resignation, retirement or any other termination of employment of the NEOs or from a change of any NEO’s responsibilities following a change in control except Gerhard Jacobs.

Potential payments upon termination The following table provides information concerning the value of payments and benefits following termination of employment of each NEO under various circumstances. Payments vary based on the reason for termination and the timing of a departure. The amounts below are calculated as if the NEO’s employment had been terminated on 28 February 2013. Receipt of payments on termination is contingent on the NEO delivering a release to the Company.

NEOTermination

without causeChange of

control

James Campbell1 Salary 90,569 724,556

Bonus Nil Nil

Options Nil Nil

Gerhard Jacobs2 Salary 148,768 297,536

Bonus Nil Nil

Options Nil Nil

Notes1. Mr Campbell was appointed as CEO on 1 June 2011.2. Mr Jacobs was appointed as CFO on 19 July 2010.

Compensation of the Company’s South African executives (including Mr Campbell) was paid to them in South African Rand (ZAR). In the above table, an exchange rate of CDN$1 = ZAR8.3682 was used.

Except as outlined above, there are no contracts, agreements, plans or arrangements that provide for payments to an NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement or a change in control of the Company.


Director compensationDirector compensation tableEach director of the Company, who is not an executive officer, is paid an annual director’s fee of $25,000. Each director who is a member of the Audit Committee receives an additional $5,000. Each director receives a fee per meeting attended ($750 per Board meeting, $1,000 per other meeting) and 10,000 share options per annum. The share options are increased to 15,000 share options per annum should a director opt not to receive meeting fees.

The compensation provided to the directors, excluding a director who is included in disclosure for an NEO, for the Company’s most recently completed financial year of 28 February 2013 is:

NameFees earned

$

Share-basedawards

$

Option-based awards

$

Non-equity incentive plan

compen-sation

$

Pension value

$

All other compen-

sation$

Total$

Mark Bristow 25,500 Nil 2,285 Nil Nil Nil 27,785

Richard John Linnell 33,000 Nil 2,285 Nil Nil Nil 35,285

Willem Jacobus Jacobs 36,000 Nil 2,285 Nil Nil Nil 38,285

Johan van’t Hof 36,000 Nil 2,285 Nil Nil Nil 38,285

Stephen Dietrich 33,003 Nil 2,285 Nil Nil Nil 35,288

Rick Menell1 4,243 Nil Nil Nil Nil Nil 4,243

Note1. Rick Menell was appointed a director from January 2013.

The following table sets out all share-based awards and option-based awards outstanding as at 28 February 2013, for each director, excluding a director who is already set out in disclosure for a NEO for the Company:

Option-based awards Share-based awards

Name

Number of securities

underlying unexercised

options

Option exercise

price$ Option expiration date

Value of unexercised

in-the-money options1

$

Number of shares or

units of shares that have not

vested

Market or payout value

of share-based awards that

have not vested

$

Mark Bristow 33,33350,00075,00010,000

0.900.975

0.480.21


12 October 2016 12 December 2022

NilNilNil

350

NilNilNilNil

NilNilNilNil

Richard John Linnell 20,00033,33310,000

0.900.975

0.21


12 December 2022

NilNilNil

NilNilNil

NilNilNil

Willem Jacobus Jacobs 33,33333,33350,00010,000

0.900.975

0.480.21


12 October 2016 12 December 2022

NilNilNilNil

NilNilNilNil

NilNilNilNil

Johan van’t Hof 10,000 0.21 12 December 2022 350 Nil Nil

Stephen Dietrich 10,000 0.21 12 December 2022 350 Nil Nil

Note1. The value at 28 February 2013 is calculated by determining the difference between the closing price of the Company’s Common Shares at 28 February 2013 ($0.2450 per Common Share)

underlying the option on the TSX and the exercise price of the options.

There was no value vested or earned under any incentive plan during the Company’s fiscal year ended 28 February 2013.



Securities authorized for issuance under equity compensation plansThe following table sets out equity compensation plan information for the fiscal year ended 28 February 2013:

Equity compensation plan information

Number of securities to be issued

upon exercise of outstanding options

Weighted-average exercise price of

outstanding options

Number of securities remaining available for

future issuance under equity compensation

plans (excluding securities reflected in

column A)

Plan category A B C

Equity compensation plans approved by security holders (the Plan) 3,975,605 $0.64 865,336

Equity compensation plans not approved by security holders Nil Nil Nil

Total 3,975,605 $0.64 865,336

Indebtedness of directors and executive officersNo directors, proposed nominees for election as directors, executive officers or their respective associates or affiliates, or other management of the Company were indebted to the Company as of the end of the most recently completed financial year or as at the date hereof.

Interest of informed persons in material transactionsTo the knowledge of management of the Company, no informed person (a director, officer or holder of 10% or more of the Shares) or nominee for election as a director of the Company or any associate or affiliate of any informed person or proposed director had any interest in any transaction which has materially affected or would materially affect the Company or any of its subsidiaries during the 12 months ended 28 February 2013, or has any interest in any material transaction in the current year other than in respect of the share option plan and as set out herein or in a document disclosed to the public.

Mandated to oversee ethicaland effectivemanagement

Inspecting Rockwell’s rough diamond production during the Chairman’s visit in December 2012.


Hunter Dickinson Services Inc.Hunter Dickinson Services Inc. (“HDSI”) is a wholly owned subsidiary of Hunter Dickinson Inc. (“HDI”), a private company. HDSI was, until recently, owned equally by several public companies, one of which was Rockwell. During the year, Rockwell sold its interest in HDSI for nominal value. HDSI had a director in common with the Company (Mr Copeland) and provides geological, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company pursuant to annually set rates. During the year ended 28 February 2013, the Company paid HDSI $74,144 (2012: $338,155; 2011: $467,151) for services rendered and amounts reimbursed to HDSI for third party costs incurred on the Company’s behalf.

Flawless Diamonds Trading HouseFlawless Diamonds Trading House (Pty) Limited (“Flawless Diamonds Trading House” or “FDTH”) is a private company where one director, DM Bristow, and certain former directors and/or officers of the Company, namely, Messrs Brenner and JW Bristow are shareholders. Rockwell owns a 20% interest in FDTH which was acquired with effect from 5 May 2010 for consideration of approximately $100,000.

Flawless Diamonds Trading House 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 2006 to provide a professional marketing and sales facility to market and sell Rockwell’s diamond production. Rockwell had no prior experience of marketing high quality alluvial gemstone production and needed to position itself in relation to new diamond legislation which was being implemented at the time that Rockwell was establishing itself in the South African market. It was strategically important for Rockwell to have access to a strong and secure dedicated marketing facility to maximize revenue from the sale of its unique diamond production.

FDTH operates from South Africa’s internationally recognized high security diamond trading and manufacturing hub known as Jewel City, Johannesburg. FDTH was established and is still run by an experienced and internationally recognized diamantaire. 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. Aside from providing marketing and sales to Rockwell, FDTH also conducts sales on behalf of other small South African producers. During 2013 FDTH was responsible for selling 100% (or $27.1 million) of the Company’s aggregate diamond sales.

Relationship with Daboll Consultants Limited (affiliate of Steinmetz Diamonds)Daboll Consultants Limited, an affiliate of the Steinmetz Diamond Group, owns 21% (10.2 million Rockwell Common Shares).

Rockwell Diamonds Inc. has a Marketing and Beneficiation Agreement with Steinmetz Diamonds which was initially signed in October 2007. Under the terms of the agreement high valued rough diamonds produced by Rockwell are sold to Steinmetz at the market price. Rockwell receives 90% of the price up front with the remaining 10% payable on sale of the polished stone. The diamonds are cut and polished by Steinmetz’ master cutters and on sale of the polished diamonds, Rockwell participates equally in the profits from the sale. The partnership was originally set up for stones exceeding $500,000 in value, but was extended to include all stones exceeding 10 carats in 2009. In May 2011, the agreement was broadened further to include all stones larger than 2.8 carats.

The partnership has been successful for both counterparties as Steinmetz has access to Rockwell’s pipeline of high valued stones, while Rockwell participates in the upside potential on the final sale of the stones where there is significant value leverage. Rockwell is the only diamond producer with a marketing and beneficiation agreement of this nature. Rockwell has generated total revenue of $21.6 million from its profit shares in terms of the joint venture from fiscal 2009 to 2013, while Steinmetz has access to the large and exceptional gemstones which are its speciality. As the stock of special stones in the joint venture increases, so Rockwell’s potential for value added revenues grows. With the recent extension of the agreement to include stones exceeding 2.8 carats, the benefits for Rockwell will increase.

Daboll is also a creditor of the Company having loaned it $2 million on 2 June 2011 under a convertible loan agreement. An addendum was announced on 26 June 2013, extending the Loan repayment date by two years to 2 June 2015 and the conversion right was amended so that the Loan was to be convertible at the prevailing market price of the Company’s shares with a floor price of C$0.16 per share (maximum 12,235,686 shares). Under the subsequent Addendum No 2, it was agreed that the Loan may only be exercised during the final three weeks of its two year remaining term, from 5 June to 26 June 2015 subject to the same floor price. The Loan remains subject to the restriction that it may be converted into no more than 10% of the Company’s share capital as of the date of conversion unless a larger number of shares has been authorized by a prior vote of disinterested Rockwell shareholders.


The reports and statements set out below comprise the consolidated financial statements:

The processing plant at the Saxendrift Mine.

Page

Directors’ report 47Management’s responsibilities and approval 50Independent auditors’ report 51Consolidated statements of financial position 52Consolidated statements of comprehensive income 53Consolidated statements of changes in equity 54Consolidated statements of cash flows 55Notes to the consolidated financial statements 56

CONTENTS ANNUAL FINANCIAL STATEMENTS


DIRECTORS’ REPORT

Nature of businessRockwell is engaged in the business of developing and operating alluvial diamond mines, with the aim of becoming a mid-tier diamond mining company. Rockwell’s operations and projects are all located in the Republic of South Africa.

At 28 February 2013, the Group had two existing mines which it was operating, namely Saxendrift and Klipdam (sold post financial year end). It is currently constructing a third mine, Saxendrift Hill Complex, which is an expansion of the Saxendrift operation that went into production ramp up in March 2013. Saxendrift and Saxendrift Hill Complex are located in the Middle Orange River region. The acquisition of the Jasper property in fiscal 2013 also provided additional resource potential at the Saxendrift operation. Rockwell’s operation at the Tirisano Mine was put on care and maintenance in December 2012, although economic value from production from the mine continues through various royalty mining agreements.

The Wouterspan and Niewejaarskraal projects have been under review to assess expansion of the Company’s Middle Orange operations, and the Group has a pipeline of other projects with further future development potential. Post the financial year end, a proposal was approved to bring Niewejaarskraal into production and the Preliminary Economic Assessment on Wouterspan was completed.

In addition to its project work, Rockwell continues to evaluate strategic fits through merger and acquisition opportunities as they arise, which may have the potential to expand its mineral resources and provide new opportunities to develop the additional production that would provide accretive value to the Group.

Rockwell’s operations have a track record of producing large gem quality diamonds, which comprise a significant proportion of its production profile. The diamonds recovered from Rockwell’s mines are frequently acquired for investment purposes. The Company has a beneficiation agreement in place which enables it to sell rough +2.8 carat sized diamonds, receive 90% of the fair value sales price at sale and receive the remaining 10% through, and participate equally in, the retail profit on the sale of its stones after polishing and finishing.

Subsequent eventsOn 15 April 2013 the Group announced it had reached an agreement to sell Klipdam Mine and associated properties for a total cash consideration of $2.5 million. The purchase consideration of ZAR23 million ($2.5 million) is payable in three tranches, the first ZAR10 million ($1.1 million) was received on signature of agreement, eight monthly installments of ZAR1 million ($0.1 million) and a final ZAR5 million ($0.6 million) on receipt of the Section 11 approval from the Department of Mineral Resources.

Although no formal plan existed at year end to dispose of Klipdam and its related assets, speculative third party offers received prior to year end indicated a value for the suite of assets deployed at Klipdam below the carrying value. As a result of the estimated allocated fair value less cost to sell attributable to the Klipdam suite of assets, an aggregate impairment of $1.4 million relating to mineral properties and property, plant and equipment has been accounted for at 28 February 2013.

As a result of the above transaction, the Company approved the proposal to bring the Niewejaarskraal Mine into production. A reversal of a prior year impairment ($0.6 million) relating to property, plant and equipment was accounted for as a result.

Material transactionsOn 9 March 2012, the Group signed an agreement with Africa Vanguard Resources (“AVR”) on a way forward with respect to the Group’s Northern Cape operations which included an agreement to acquire the Jasper Mine property owned by AVR and a co-shareholder. The Jasper Mine property is contiguous to Rockwell’s Saxendrift Mine property and has the potential to extend the life of Saxendrift Mine with limited new investment.

This agreement effectively unwinds the 2008 deal to purchase a 26% holding in Rockwell’s Northern Cape operations. The restructured agreement includes a payment to AVR by Rockwell of $1.9 million (ZAR15 million) which includes the repayment of the deposit which had been paid by AVR as partial settlement of this transaction. This payment will be in the form of Rockwell shares, listed on the JSE Limited. AVR will therefore have an 8% holding in Rockwell and has undertaken not to trade these shares for a period of one year. Incorporated into the settlement arrangements is the acquisition by Rockwell of the Jasper Mine property from AVR and a co-shareholder (the “Transactions”). The completion of the Transactions was subject to various conditions precedent, including the completion by Rockwell of a due diligence investigation on Jasper, regulatory approvals and obtaining approval from the Department of Mineral Resources (“DMR”) with respect to certain parts of the Transactions. The deadline for the fulfilment of the conditions precedent is 31 December 2013, extendable by mutual agreement between the parties.

Estimates indicated that the past producing Jasper Mine, which is a brownfield opportunity, has remaining diamond-bearing deposits that are easily accessible to the infrastructure at the Saxendrift Mine and could extend the life of Saxendrift Mine.

Financial resultsThe financial statements on pages 52 to 91 set out fully the financial position, results of operations and cash flows of the Company.

FinancingRockwell management continues to evaluate the potential returns of various projects to further ramp up or improve its overall pipeline of production properties. This includes existing operations as well as the new projects that the Company has in its pipeline, with a particular focus on its properties located in the Middle Orange River region.


DIRECTORS’ REPORT(continued)

Based on the results of analyzes for Niewejaarskraal, after the financial year end the Company approved the proposal to bring Niewejaarskraal into production at a total cost of $2.2 million, totally funded from the proceeds of the sale of the Klipdam Mine (also post balance sheet). Other possible future developments that continue to be evaluated include building a new plant at Wouterspan and embarking on extensions at Saxendrift. A Preliminary Economic Assessment was completed for Wouterspan after the financial year end.

Both the Wouterspan and Niewejaarskraal properties have extensive diamond deposits, and have historically produced diamonds that are similar to Saxendrift in terms of size, quality and average price per carat. High-volume processing plants, incorporating the latest technologies in diamond recovery, have been considered including a combination of the fit-for-purpose in-field screen and the Bulk X-Ray technology that has been implemented at Saxendrift Hill Complex during the past financial year. For Niewejaarskraal, the Company has opted to re-commission the existing DMS plant and install two 16-foot Rotary pans from the Tirisano Mine in addition to using equipment from Klipdam that was not part of the sale. This is a lower cost option with a shorter implementation period. The same Bulk X-Ray technology that has been installed at other Rockwell operations would have taken at least one year to implement at Niewejaarskraal.

The timing of Wouterspan and resource extension projects will be predicated on the availability of cost effective funds from external capital sources and supplemented by funds generated from internal cash flows. With the exception of the Niewejaarskraal project, no financing plans have been assessed or determined at present in respect of any of these projects.

AgreementsAn unsolicited offer was received and accepted to dispose of the Klipdam Mine and related assets during March 2013.

LitigationThe Company is not aware of any outstanding or threatened litigation.

InsuranceRockwell has adopted a policy that includes insurance coverage for all equipment that is purchased on an installment plan (called hire purchase in South Africa) or leases but it does not carry full coverage for other equipment that is paid off. Cover is obtained on a risk exposure and self-insurance basis. The Group also has coverage on small vehicles, buses, road trucks, Flow-sort X-ray equipment and some of its fixed properties and assets.

LiquidityAt 28 February 2013 the Group had cash and cash equivalents of $5.6 million (29 February 2012: $10.7 million) and bank indebtedness of $2.8 million (29 February 2012: $0.8 million), for net cash holdings of $2.8 million (29 February 2012: $9.9 million). The Group had working capital of $1.2 million compared to $8.4 million at 29 February 2012. The major reasons for the reduction were cash used in operations and on capital investments.

At 28 February 2013, the Group had asset retirement obligations relating to its mines, capital lease obligations at Saxendrift relating to mining equipment with three year lease agreements and a loan from the Industrial Development Corporation of South Africa Limited. The Group’s capital lease obligations are shown in the table below. Repayments are denominated in South African rand.

The operations are generating sufficient cash to cover cash operating costs and Group overheads. The Group has adequate cash holdings as well as access to short-term debt facilities (bank overdraft facility) to meet its working capital requirements.

Contractual obligations and commitmentsRockwell has the following commitments in respect of equipment lease payments to various financial institutions for plant and equipment. A minimum lease payment of $0.4 million is payable in the next 12 months, with a further total $0.3 million payable during 2014 and 2015.

The following are the maturities of contractual obligations:

Payments due by period ($ millions)

TotalLess than one year

One to three years

Three to five years

More than five years

Finance lease obligations 0.7 0.4 0.3 – –

Long-term debt obligations 5.2 1.3 2.8 1.1 –

Operating lease obligations 2.1 0.5 0.8 0.8 –

Purchase obligations 0.5 0.5 – – –

Total 8.5 2.7 3.9 1.9 –


Financial instrument risk exposure and risk managementMarket riskMarket risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income of the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group is exposed in varying degrees to a variety of financial instrument related risk. The Board approves and monitors the risk management processes, including treasury policies, counterparty limits, controlling and reporting structures, credit risk, liquidity risk, currency risk, interest risk and diamond price risk. The types of risk exposure and the way in which such exposure is managed are provided as follows:

Credit riskCredit risk is the risk of potential loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations. The Group’s credit risk is primarily attributable to its liquid financial assets including cash and equivalents, restricted cash, accounts receivable and trade receivable from a related party. The carrying value of the Group’s cash and cash equivalents, accounts receivable and trade receivable from a related party represent the maximum exposure to credit risk.

The Group limits exposure to credit risk on liquid financial assets through maintaining its cash and equivalents with high-credit quality financial institutions. The Group does not have financial assets that are invested in asset backed commercial paper.

The Group minimizes its credit risk by reducing credit terms to 30 days on its sales.

Liquidity riskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. After taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents, the Group believes that these sources will be sufficient to cover the likely requirements for the foreseeable future. The Group’s cash and equivalents are invested in business accounts which are available on demand for the Group’s programs, and which are not invested in any asset backed deposits/investments.

The Group operates in South Africa. Like other foreign entities operating there, the Company is subject to currency exchange controls administered by the South African Reserve Bank, that country’s central bank. A significant portion of the Group’s funding structure for its South African operations consists of advancing loans to its South Africa incorporated subsidiaries and it is possible the Group may not be able to acceptably repatriate such funds once those subsidiaries are able to repay the loans or repatriate other funds such as operating profits should any develop. The repatriation of cash held in South Africa is permitted upon the approval of the South African Reserve Bank.

Foreign currency riskIn the normal course of business, the Group enters into transactions for the purchase of supplies and services denominated in South African rand (“ZAR”). As a result, the Group is subject to currency risk from fluctuations in foreign exchange rates. The Group has not entered into any derivative or other financial instruments to mitigate this foreign exchange risk. The Group does have an inherent operating hedge due to the fact that its products are sold in US dollars.

Interest rate riskThe Group is subject to interest rate risk with respect to its investments in cash and cash equivalents. The Group’s policy is to invest cash at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders. Fluctuations in interest rates when the cash equivalents mature impact interest income earned.

The Group has finance lease obligations with several financial institutions as well as a loan from the Industrial Development Corporation of South Africa Limited. These obligations bear interest at rates linked to the prevailing prime rate, and are subject to interest rate change risk.

Diamond price risk The value of the Group’s mineral resource properties is dependent on the price and the outlook of diamonds. Diamond demand and prices fluctuate and are affected by numerous factors beyond the control of the Group, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for and discretionary spending on, luxury goods such as diamonds and jewelry. Low or negative growth in the worldwide economy, prolonged credit market disruptions or activities creating disruptions in economic growth could result in decreased demand for diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production could also negatively affect the price of diamonds. In each case, such developments could materially adversely affect the Group’s results of operations.

The profitability of the Group’s operations is highly correlated to the market price of diamonds. If diamond prices decline for a prolonged period below the cost of production of the Group’s operating mines, it may not be economically feasible to continue production.


MANAGEMENT’S RESPONSIBILITIES AND APPROVAL

The consolidated financial statements, the notes thereto and other financial information contained in the Annual Report have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are the responsibility of the management of Rockwell Diamonds Inc. (“Company”). The financial information presented elsewhere in the Annual Report is consistent with the data that is contained in the consolidated financial statements. The consolidated financial statements, where necessary, include amounts which are based on the best estimates and judgment of management.

In order to discharge management’s responsibility for the integrity of the financial statements, the Company maintains a system of internal accounting controls. These controls are designed to provide reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, proper records are maintained and relevant and reliable financial information is produced. These controls include maintaining quality standards in hiring and training of employees, policies and procedures manuals, a corporate code of conduct and ensuring that there is proper accountability for performance within appropriate and well-defined areas of responsibility. The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our employees comply with securities legislation and conflict of interest rules.

The Board of Directors is responsible for overseeing management’s performance of its responsibilities for financial reporting and internal control. The audit committee, which is composed of non-executive directors, meets with management as well as the external auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the directors who approve the consolidated financial statements. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits, the system of internal controls and review financial reporting issues.

The consolidated financial statements have been audited by KPMG Inc, the independent registered public accounting firm, in accordance with Canadian Auditing Standards.

The consolidated financial statements set out on pages 52 to 91, were approved by the Board on 22 May 2013 and were signed on its behalf by:

James AH Campbell Dr Mark BristowDirector Director

Johannesburg, South Africa 22 May 2013


INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Rockwell Diamonds Inc.

We have audited the accompanying consolidated financial statements of Rockwell Diamonds Inc, which comprise the consolidated statements of financial position as at 28 February 2013 and 29 February 2012, the consolidated statements of comprehensive income, statements of cash flows and statements of changes in equity for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Rockwell Diamonds Inc. as at 28 February 2013 and 29 February 2012, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

KPMG Inc Registered Auditors

Johannesburg, South Africa 23 May 2013


Amounts in Canadian dollars Note(s)

As at28 February

2013

As at29 February

2012

AssetsNon-current assets

Mineral property interests 2 31,405,358 35,,949,211

Investment in associate 3 207,560 161,049

Property, plant and equipment 4 33,544,992 49,391,831

Investments and deposits 5 4,888,415 3,569,401

Rehabilitation deposits 14 1,818,291 3,104,716

Total non-current assets 71,864,616 92,176,208

Current assets

Inventories 6 2,304,782 1,622,880

Loans to related parties 15 94,183 276,601

Current tax receivable 39,587 –

Trade and other receivables 7 5,850,618 5,616,243

Cash and cash equivalents 8 5,570,626 10,741,341

Total current assets 13,859,796 18,257,065

Total assets 85,724,412 110,433,273

Equity and liabilitiesEquity

Share capital 9 146,862,257 145,632,846

Reserves (11,874,763) (2,845,771)

Retained loss (77,478,322) (65,620,276)

Total equity attributable to the equity holders of the Group 57,509,172 77,166,799

Non-controlling interest (2,137,472) (712,429)

Total equity 55,371,700 76,454,370

Liabilities

Non-current liabilities

Loans from related parties 15 – 400,616

Loans and borrowings 11 3,889,684 4,582,095

Finance lease obligation 12 281,029 455,086

Deferred tax 13 6,543,184 7,540,531

Rehabilitation obligation 14 6,992,157 11,169,329

Total non-current liabilities 17,706,054 24,147,657

Current liabilities

Loans from related parties 15 48,925 330,116

Loans and borrowings 11 1,314,807 806,049

Finance lease obligation 12 321,083 283,339

Trade and other payables 16 8,121,922 7,582,262

Bank overdraft 8 2,839,921 829,480

Total current liabilities 12,646,658 9,831,246

Total liabilities 30,352,712 33,978,903

Total equity and liabilities 85,724,412 110,433,273

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



For the year ended

28 February2013

For the year ended

29 February2012

Sale of diamonds 20 27,105,988 26,375,947

Beneficiation income 20 5,299,275 7,845,076

Production cost 21 (31,338,217) (26,936,716)

Operating profit before amortization and depreciation 1,067,046 7,284,307

Amortization of mineral property interests (803,234) (1,306,743)

Depreciation of property, plant and equipment (6,366,415) (6,679,466)

Gross loss (6,102,603) (701,902)

Other income 599,031 1,372,463

General and administration expenses (5,806,816) (8,215,897)

Rehabilitation obligation revised (recognized) 3,549,572 (1,288,532)

Arbitration settlement – (1,369,486)

Impairments (5,411,603) (4,938,893)

Loss before net finance costs 22 (13,172,419) (15,142,247)

Finance income 23 613,760 780,482

Finance costs 24 (1,406,635) (873,796)

Loss after net finance costs (13,965,294) (15,235,561)

Share of profit from equity accounted investment 3 58,761 36,918

Loss before taxation (13,906,533) (15,198,643)

Taxation 25 130,155 1,479,259

Loss for the year (13,776,378) (13,719,384)

Other comprehensive loss net of taxation:

Exchange differences on translating foreign operations (8,733,171) (4,185,483)

Total comprehensive loss for the year (22,509,549) (17,904,867)

Loss attributable to:

Owners of the Group (10,900,533) (11,637,408)

Non-controlling interest (2,875,845) (2,081,976)

Loss for the year (13,776,378) (13,719,384)

Total comprehensive loss attributable to:

Owners of the Group (19,866,594) (15,724,277)

Non-controlling interest (2,642,955) (2,180,590)

Total comprehensive loss for the year (22,509,549) (17,904,867)

Loss per share

Basic and diluted loss per share (cents) 26 (22.55) (28.74)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Amounts in Canadian dollarsShare

capital

Foreigncurrency

translationreserve1

Share-basedpayment

reserve2

Total netreserves

Retainedloss

Total equityattributable

to equityholders of the Group

Non-controlling

interestTotal

equity

Balance at 1 March 2011 135,989,508 (6,364,795) 7,079,937 715,142 (53,982,868) 82,721,782 647,407 83,369,189

Total comprehensive loss for the year

Loss for the year – – – – (11,637,408) (11,637,408) (2,081,976) (13,719,384)

Other comprehensive loss – (4,086,869) – (4,086,869) – (4,086,869) (98,614) (4,185,483)

Total comprehensive loss for the year – (4,086,869) – (4,086,869) (11,637,408) (15,724,277) (2,180,590) (17,904,867)

Share-based payment transactions – – 525,956 525,956 – 525,956 – 525,956

Debt conversion, net of issue costs at $0.065 per share 435,715 – – – – 435,715 – 435,715

Private placement, net of issue costs at $0.75 per share 7,756,477 – – – – 7,756,477 – 7,756,477

Share issue costs (35,532) – – – – (35,532) – (35,532)

Asset and liability acquisition (note 17) 1,486,678 – – – – 1,486,678 820,754 2,307,432

Total changes 9,643,338 (4,086,869) 525,956 (3,560,913) (11,637,408) (5,554,983) (1,359,836) (6,914,819)

Balance at 29 February 2012 145,632,846 (10,451,664) 7,605,893 (2,845,771) (65,620,276) 77,166,799 (712,429) 76,454,370

Total comprehensive loss for the year

Loss for the year – – – – (10,900,533) (10,900,533) (2,875,845) (13,776,378)

Other comprehensive loss – (8,966,061) – (8,966,061) – (8,966,061) 232,890 (8,733,171)

Total comprehensive loss for the year – (8,966,061) – (8,966,061) (10,900,533) (19,866,594) (2,642,955) (22,509,549)

Debt conversion, net of issue costs at $0.48 per share 218,707 – – – – 218,707 – 218,707

Share-based payment transactions – – 558,411 558,411 – 558,411 – 558,411

Acquisition of non-controlling interest (note 17) 890,774 (621,342) – (621,342) (957,513) (688,081) 1,217,912 529,831

Payment on conversion of mineral right (note 2) 119,930 – – – – 119,930 – 119,930

Total changes 1,229,411 (9,587,403) 558,411 (9,028,992) (11,858,046) (19,657,627) (1,425,043) (21,082,670)

Balance at 28 February 2013 146,862,257 (20,039,067) 8,164,304 (11,874,763) (77,478,322) 57,509,172 (2,137,472) 55,371,700

Note(s) 9 10

1. Currency translation differences arising on the conversion of the net investment in foreign operations from the functional currency to the Company’s presentation currency are accumulated in the foreign currency translation reserve.

2. Equity settled share-based payment transactions are accumulated in the share-based payment reserve.


CONSOLIDATED STATEMENTS OF CASH FLOWS


For theyear ended

28 February2013

For the year ended

29 February2012

Cash flows from operating activities

Cash receipts from customers 31,285,232 34,169,864

Cash paid to suppliers and employees (36,093,313) (34,019,404)

Cash (used in) generated from operations 18 (4,808,081) 150,460

Finance income 406,835 255,672

Finance costs (533,085) (592,001)

Tax paid 19 (39,587) –

Net cash outflow from operating activities (4,973,918) (185,869)

Cash flows from investing activities

Purchase of property, plant and equipment 4 (4,750,650) (6,802,916)

Proceeds from sale of property, plant and equipment 4 3,673,148 5,664,161

Sale of mineral property interests 2 215,100 –

Asset and liability acquisition net of cash and cash equivalents acquired 17 2,659 (555,121)

Net movement in related party loans (91,684) 74,131

Net movement in investments and deposits (2,075,420) 493,245

Decrease (increase) in rehabilitation deposits 875,128 (1,277,225)

Net cash outflow from investing activities (2,151,719) (2,403,725)

Cash flows from financing activities

Proceeds on share issue 9 – 7,720,945

Share issue costs 9 (5,293) –

Proceeds from convertible loan – 2,066,403

Repayment of loans and borrowings – (885,264)

(Repayment of) proceeds from finance lease obligations (50,226) 615,726

Net cash (outflow) inflow from financing activities (55,519) 9,517,810

Net movement in cash and cash equivalents for the year (7,181,156) 6,928,216

Cash and cash equivalents at the beginning of the year 9,911,861 2,983,645

Total cash and cash equivalents at end of the year 8 2,730,705 9,911,861


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The accompanying notes are an integral part of these consolidated financial statements.

1. Accounting policies1.1 Nature of operations Rockwell Diamonds Inc. (“Rockwell” or the “Company”) is engaged in the business of diamond production and the acquisition and

exploration of natural resource properties. The consolidated financial statements of the Company as at and for the years ended 28 February 2013 and 29 February 2012 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates. The Group’s mineral property interests are located in South Africa. Rockwell is incorporated under British Columbia Business Corporations Act.

1.2 Continuance of operations The financial statements have been prepared on the basis of accounting policies applicable to a going concern. Future events beyond the

Group’s control may change the Group’s ability to continue as a going concern. If the going concern concept was no longer appropriate, significant adjustments would be required to the carrying value of assets and liabilities and would be recorded at that time.

1.3 Basis of preparation1.3.1 Statement of compliance

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

1.3.2 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except where otherwise stated, as set out in the accounting policies below.

1.3.3 Presentation currency

These consolidated financial statements are presented in Canadian dollars.

1.3.4 Use of estimates and judgments

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts represented in the consolidated financial statements and related disclosures. Use of available information and the application of judgment are inherent in the formation of estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

u Note 2 – Mineral property interests

u Note 4 – Property, plant and equipment

u Note 6 – Inventories

u Note 10 – Share-based payments

u Note 13 – Deferred tax

u Note 14 – Rehabilitation obligation

1.4 Significant accounting policies The accounting policies set out below are applied consistently to all years presented in these consolidated financial statements and have

been applied consistently by the Group entities.

1.4.1 Basis of consolidation

Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is

transferred to the Group.

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, consideration is given to potential voting rights that are currently exercisable. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another.


Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.

Transaction costs incurred in connection with a business combination, such as legal fees, due diligence fees and other professional and consulting fees are expensed as incurred, unless it is debt related. Directly attributable transaction costs related to debt instruments are capitalized.

If the Group obtains control over one or more entities that are not businesses, then the bringing together of those entities are not business combinations. The cost of acquisition is allocated among the individual identifiable assets and liabilities of such entities, based on their relative fair values at the date of acquisition. Such transactions do not give rise to goodwill.

Non-controlling interests in the proportionate net assets of consolidated subsidiaries are identified and recognized separately from the Group’s interest therein, and are recognized within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interests even if this results in a debit balance being recognized for non-controlling interests.

Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial

statements from the date that control commences until the date that control ceases.

Associates An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity.

An investment in associate is accounted for using the equity method. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost adjusted for post-acquisition changes in the Group’s share of net assets of the associate, less any impairment losses.

Losses in an associate in excess of the Group’s interest in that associate are recognized only to the extent that the Group has incurred a legal or constructive obligation to make payments on behalf of the associate.

Unrealized profits or losses on transactions between the Group and an associate are eliminated to the extent of the Group’s interest therein.

Transactions eliminated on consolidation Intra-Group balances and transactions, and any unrealized income and expenses arising from intra-Group transactions, are eliminated in

preparing the consolidated financial statements. Unrealized losses relating to intra-Group balances and transactions are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

1.4.2 Mineral property interests

The acquisitions of mineral property interests are initially measured at cost. Mineral property acquisition costs and development expenditures incurred subsequent to the determination of the feasibility of mining operations and approval of development by the Group are capitalized until the property is placed into production, sold, abandoned, or when management has determined that there has been an impairment in value. Such acquisition costs are amortized over the estimated life of the mine, based on the unit of production method, or written off to operations if the property is abandoned, allowed to lapse, or if there is little prospect of further work being carried out by the Group. Under the unit of production method, the yearly depreciation charge is calculated by dividing the actual resources mined into the estimated resources at the beginning of the year and then multiplying the resulting fraction by the net carrying value of the related assets. The unit of production method results in a systematic and rational allocation of the cost of the mineral property interests over the period the resources are utilized.

Exploration expenditure incurred subsequent to the mining operations which do not increase production or extend the life of operations are expensed in the period incurred.

The amount presented for mineral property interests represents costs incurred to date less accumulated amortization and impairment losses, and does not necessarily reflect present or future values.

1.4.3 Property, plant and equipment

The cost of an item of property, plant and equipment is recognized as an asset when:

u it is probable that future economic benefits associated with the item will flow to the Group; and

u the cost of the item can be measured reliably.

Property, plant and equipment are initially measured at cost.


Cost includes costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to and replace part of it. If a replacement cost is recognized in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognized.

Property, plant and equipment are depreciated on the straight-line basis over their expected useful lives to their estimated residual value.

Property, plant and equipment are measured at cost less accumulated depreciation and any impairment losses. The useful lives of items of property, plant and equipment have been assessed as follows:

Item Average useful lifeBuildingsPlant and machinery Motor vehicles Office equipment

12 years4 – 10 years5 years6 years

Land is not depreciated.

The residual value, useful life and depreciation method of each asset are reviewed annually. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

The depreciation for each period is recognized in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.4.4 Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

An impairment loss is recognized if the carrying amount of an asset or its cash-generating units exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

1.4.5 Financial instruments

Initial recognition and measurement Financial instruments are recognized initially when the Group becomes a party to the contractual provisions of the instruments. The

Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets.

For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument.

Transaction costs on financial instruments at fair value through profit or loss are recognized in profit or loss.

Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from

changes in fair value being included in profit or loss for the period.

Loans and receivables are subsequently measured at amortized cost, using the effective interest method, less accumulated impairment losses.

Available-for-sale financial assets are subsequently measured at fair value.

Financial liabilities are subsequently measured at amortized cost, using the effective interest method.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)


Investments The Group classified its investments into the following categories: fair value through profit or loss, held-to-maturity and available-for-sale.

The classification is dependent on the purpose for which the investments were required. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with a fixed maturity that management has the intention and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the reporting date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the reporting date or unless they will need to be sold to raise operating capital, in which case they are included in current assets.

Purchases and sales of investments are recognized on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Fair value through profit or loss and available-for-sale investments are subsequently measured at fair value. The fair value of investments is based on cash value or amounts derived from cash flow models. Equity securities for which fair value cannot be measured reliably are recognized at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the statement of comprehensive income as gains or losses from investment securities. Held-to-maturity investments are measured at amortized cost using the effective yield method.

Loans to (from) related parties Loans to related parties are recognized as loans and receivables on the date that the Group becomes a party to the contractual provisions

of the loan. The Group derecognizes the loan to a related party when the contractual rights to cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

Loans from related parties are recognized on the date that the Group becomes a party to the contractual provisions of the loan. The Group derecognizes the loan from a related party when its contractual obligations are discharged, cancelled or expire. Loans from related parties are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

Loans to (from) related parties are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Loans to (from) related parties are conducted on terms that are at arm’s length.

Trade and other receivables Trade receivables are initially measured at fair value, and are subsequently measured at amortized cost using the effective interest rate

method. Appropriate allowances for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable might be impaired. The allowance recognized is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Trade and other receivables are classified as loans and receivables.

Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction of equity, net of any tax effects.

Trade and other payables, loans and borrowings Trade payables are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method.

Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily

convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially recorded at fair value and subsequently measured at amortized cost.

Impairment of financial assets At each reporting date the Group assesses all financial assets, to determine whether there is objective evidence that a financial asset or

group of financial assets has been impaired.

For amounts due to the Group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payment are considered indicators of impairment.


Impairment losses are recognized in profit or loss.

Reversals of impairment losses are recognized in profit or loss except for equity investments classified as available-for-sale.

Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable.

1.4.6 Tax

Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognized as a liability. If the amount already paid in respect of current

and prior periods exceeds the amount due for those periods, the excess is recognized as a tax receivable.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities Deferred tax is recognized in respect of all temporary differences between the carrying values of assets and liabilities for accounting

purposes and the amounts used for tax purposes and on any tax losses. No deferred tax is provided for on temporary differences relating to the initial recognition of an asset or liability to the extent that neither accounting nor taxable profit is affected on acquisition and any adjustment to tax payable in respect of previous years.

The provision for deferred tax is measured using enacted or substantively enacted rates at the reporting date that are expected to apply when the asset is realized or the liability is settled. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the deferred tax asset could be realized.

Tax expenses Current and deferred taxes are recognized as income or an expense and included in profit or loss for the period, except to the extent that

the tax arises from:

u a transaction or event which is recognized, in the same or a different period, to other comprehensive income which is then recognized in other comprehensive income; or

u a business combination.

Current tax and deferred taxes are recognized directly to equity if the tax relates to items that are recognized, in the same or a different period, directly in equity.

1.4.7 Inventories

Rough diamond inventories are valued at the lower of average production cost and net realizable value. Production costs include the cost of consumable materials, direct labor, mine-site overhead expenses and amortization. Work in progress stock piles consist of ground excavated, but not yet fully processed at reporting date. The value of these stock piles represents management’s best estimate of the costs incurred to excavate and screen the ground as identified by an independent surveyor at reporting date.

Mine supplies are valued at the lower of cost, at the weighted average cost basis, and net realizable value.

Cost of items that are not ordinarily interchangeable, and goods and services produced and segregated for specific projects, are assigned by using a specific identification of their individual costs.

Previous write-downs are reversed to the lower of cost and net realizable value when there is a subsequent increase in the value of inventories.

1.4.8 Share-based payments

The fair value of share-based payment awards granted to employees is recognized on the grant date as an employee cost, with a corresponding increase in reserves, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the employee share options is measured using the Black-Scholes formula. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on an evaluation of the Group’s historic volatility, particularly over the historic period commensurate with the expected term), expected term of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate (based on Canadian government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.



1.4.9 Rehabilitation obligation

Estimated rehabilitation costs, which are based on the Group’s interpretation of current environmental and regulatory requirements, represent the present value of the expected future costs to rehabilitate the mine properties at termination of mining operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances.

Provision is made for the Group’s legal and constructive obligations to dismantle, remove and restore items of property, plant and equipment and remediation of disturbed areas in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. The provision is discounted using a market-based pre-tax discount rate and the unwinding of the discount is included in finance cost.

Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of these obligations in its rehabilitation provision.

1.4.10 Leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the Group. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership to the Group.

Finance leases Finance leases are recognized as assets and liabilities in the consolidated statements of financial position at amounts equal to the fair

value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statements of financial position as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.

Operating leases Operating lease payments are recognized as an expense on a straight-line basis over the lease term. The difference between the amounts

recognized as an expense and the contractual payments are recognized as an operating lease asset.

Any contingent rents are expensed in the period they are incurred.

1.4.11 Revenue

Revenue arising from the sale of diamonds is recognized when all the following conditions have been satisfied:

u The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

u The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

u The amount of revenue can be measured reliably;

u It is probable that the economic benefits associated with the sale transaction will flow to the Group; and

u The costs incurred or to be incurred in respect of the sale transaction can be measured reliably.

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of value added tax.

1.4.12 Finance income and finance cost

Finance income comprises interest on funds invested, gains on rehabilitation deposits held and fair value gains on financial assets at fair value through profit or loss. Finance income is recognized, in profit or loss, using the effective interest rate method.

Finance cost comprises interest expense on borrowings, unwinding of discount on provisions and fair value losses on financial assets at fair value through profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest rate method.

1.4.13 Earnings per share

The Group presents basic and diluted earnings/loss per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held and for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.


1.4.14 Translation of foreign currencies

Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the

spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

At the end of the reporting period:

u Foreign currency monetary items are translated using the closing rate;

u Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and

u Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements, are recognized in profit or loss in the period in which they arise.

Cash flows arising from transactions in a foreign currency are recorded in Canadian dollars by applying to the foreign currency amount the exchange rate between the Canadian dollars and the foreign currency at the date of the cash flow.

Consolidation For consolidation purposes the results and financial position of a foreign operation are translated into the presentation currency using

the following procedures:

u Assets and liabilities are translated at the closing rate at the date of that consolidated statements of financial position;

u Equity components are translated at historical rates;

u Income and expenses are translated at exchange rates at the dates of the transactions; and

u All resulting exchange differences are recognized in other comprehensive income and accumulated as a separate component of equity. When a foreign investment is disposed, the cumulative exchange differences previously recognized in other comprehensive income are transferred to profit or loss.

Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation are recognized initially in other comprehensive income and accumulated in the foreign translation reserve. They are recognized in profit or loss as a reclassification adjustment through to other comprehensive income on disposal of net investment.

The cash flows of a foreign subsidiary are translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.

1.4.15 Segmental reporting

Segmental results that are reported to the chief operating decision-maker, or decision-making group, include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office expenses, and tax assets and liabilities.

1.5 New standards and interpretations not yet adopted At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards

have been published but are not yet effective, and have not been adopted early by the Group.

Management anticipates that all of the pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements.



Standard Details of amendmentAnnual periods beginning on or after

IAS 1 amendment Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income

1 July 2012

IFRS 10 Consolidated Financial Statements 1 January 2013

IFRS 11 Joint Arrangements 1 January 2013

IFRS 12 Disclosure of Interests in Other Entities 1 January 2013

IFRS 13 Fair Value Measurement 1 January 2013

IFRS 10, IFRS 11 and IFRS 12 amendment

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance

1 January 2013

IAS 28 Investments in Associates and Joint Ventures (2011) 1 January 2013

IFRS 7 amendment Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013

7 individual amendments to 5 standards Improvements to International Financial Reporting Standards 2012 1 January 2013

IAS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014

IFRS 9 (2009) Financial Instruments 1 January 2015

IFRS 9 (2010) Financial Instruments 1 January 2015

The aggregate impact of the initial application of the statements and interpretations on the Group’s annual financial statements has not yet been assessed by management.



2. Mineral property interests

As at 28 February 2013 As at 29 February 2012

Amounts in Canadian dollars Cost

Accumulatedamortization

andimpairment

lossesCarrying

value Cost

Accumulatedamortization

and impairment

lossesCarrying

value

Mineral property interests 41,892,378 (10,487,020) 31,405,358 47,029,751 (11,080,540) 35, 949,211

Reconciliation of mineral property interests – 28 February 2013

Opening balance

Assets andliabilities

acquisitions(note 17)

Conversion of mineral

right Disposals

Foreign exchange

movementsAmorti-

zationImpair-ments

Closing balance

Mineral property interests 35,949,211 1,165,529 119,930 (239,000) (3,827,954) (803,234) (959,124) 31,405,358

Reconciliation of mineral property interests – 29 February 2012

Amounts in Canadian dollarsOpening balance

Assets and liabilities

acquisitions (note 17)

Foreign exchange

movements AmortizationClosing balance

Mineral property interests 25,175,713 13,953,802 (1,873,561) (1,306,743) 35,949,211

The Group’s mineral property interests consist of the following:

Wouterspan (Including Farhom, Okapi and Kanonloop) The Wouterspan property is located in the Herbert district of the Northern Cape Province of South Africa approximately 145km southwest

of Kimberley. The operation is located on the farm Lanyonvale (various portions), Farhom, Okapi and Kanonloop, with an aggregate area of 2,579.8ha.

The operation has not been operational since December 2008.

Holpan/Klipdam The Klipdam property is located 45km from Kimberley, South Africa and consists of the adjacent Holpan 161 and Klipdam 157 farms,

covering an area of 4,019.9ha. Holpan was put on care and maintenance in May 2011. The Klipdam mineral property was sold post reporting date, refer to note 31 for additional information.

Saxendrift The 5,142 hectare Saxendrift mine property is located on the south bank of the Middle Orange River, and adjacent to the Wouterspan

property.

Niewejaarskraal Niewejaarskraal is located in the Hay district of the Northern Cape Province of South Africa approximately 124km southwest of Kimberley.

The operations are located on Niewejaarskraal 40 and Viegulands Put 39 (total of 3,085.695ha). The operation has been on care and maintenance since December 2009. The Company made a decision to bring the Niewejaarskraal Mine into production. The total cost of the project is estimated to be $2.2 million, and will be funded from the proceeds of the Klipdam sale. Redeploying equipment from other operations will limit the amount of funding required.

65ROCKWELL DIAMONDS ANNUAL REPORT 2013 65ROCKWELL DIAMONDS ANNUAL REPORT 2013

2. Mineral property interests (continued)

Makoenskloof The Makoenskloof mineral property interest was sold for $215,100 in Q3 of fiscal 2013.

Windsorton Erf 2004 This is a prospecting property covering an area of 1,146ha, and is adjacent to the Klipdam Mine. The Windsorton Erf 2004 mineral right

was sold post reporting date as part of the Klipdam sale. Although no formal plan existed at reporting date to dispose of Klipdam and its related assets, speculative third party offers received prior to reporting date indicated a value for the suite of assets deployed at Klipdam below the carrying value. As a result of the estimated allocated fair value less cost to sell attributable to the Klipdam suite of assets, this property was impaired to zero at 28 February 2013.

Tirisano The Tirisano Mine, totaling 10,805.57ha is located some 35km due north of Ventersdorp, in the North West Province and approximately

150km west of Johannesburg. The Tirisano mineral property was acquired as part of the asset and liability acquisition on 1 September 2011. The purchase price allocated to the mineral property (refer note 17) is supported by a valuation performed by an independent competent person. The range of the attributable value of the mineral property in this valuation exceeds the allocated purchase price. Operations at Tirisano Mine were placed on care and maintenance in December 2012. Management saw this as an impairment indicator and a review of the fair value of property, plant and equipment and mineral property was undertaken. This review resulted in an impairment relating to property, plant and equipment, after taking into account moveable assets that can and have been relocated to the Northern Cape operations and remaining property, plant and equipment that will be used at Tirisano. The recoverable amount of the mineral property interest was deemed to exceed the carrying value. Management used the value in use method, based on the available gravel, annual production volumes effected through contract royalty mining operators, projected grade, carat recoveries and product pricing to determine the recoverable amount. In addition, management assessed the valuation report performed by an independent competent person prior to the acquisition of Tirisano, and concluded that the assumptions used in the report have not significantly changed since the date of the report. Therefore no impairment was recognized for the Tirisano mineral property.

Jasper The Jasper Mining property, consisting of Portion 1 of the farm Brakfontein No. 276, is contiguous to Rockwell’s Saxendrift Mine.

The Jasper mineral property was acquired as part of the asset and liability acquisition on 1 June 2012. Refer to note 17 for the purchase price allocated to mineral property. On 11 February 2013 notice was received from the DMR granting the approval for conversion of the mineral right to new order mining rights in terms of item 7(2) section 11 of the Mineral and Petroleum Resources and Development Act (“MPRD Act”). Rockwell Diamonds Inc. is liable to issue 533,332 shares to African Vanguard Resources on conversion of the mineral right. Fair value of the mineral right conversion cost was estimated by management at $119,930 based on the prevailing share price on the Johannesburg Stock Exchange.

Estimations Carats available at the mineral property interests (excluding Jasper) have been estimated by a qualified geologist employed by the Group

and were reviewed by an independent qualified geologist. These resource estimates include inferred resources which have a great amount of uncertainty as to their existence, and economic and legal feasibility. The estimated carats have been published as required by National Instrument 43-101. The carats included in the 43-101 are used in the calculation of the amortization for the period (refer accounting policy). The carats available at Jasper have been assessed as management’s best estimates of expected carats to be obtained. Currently samples are being evaluated to compile the 43-101 for Jasper.




As at28 February

2013

As at29 February

2012

3. Investment in associate 3.1 Flawless Diamonds Trading House Proprietary Limited (20% shareholding)

Carrying amount

Opening balance 161,049 129,660

Share of profit from equity accounted investment 58,761 36,918

Foreign exchange movements (12,250) (5,529)

Closing balance 207,560 161,049

Summarized financial information of associate

Total assets 4,398,315 2,604,145

Total liabilities 3,460,173 1,847,525

Net assets 938,142 756,620

Revenue 58,084,171 55,570,156

Total comprehensive income for the year 293,803 173,411

Capital commitments and contingent liabilities of associate – –

On 21 April 2010 the Group acquired a 20% shareholding in Flawless Diamonds Trading House Proprietary Limited (“Flawless”) incorporated in the Republic of South Africa for ZAR700,000 ($95,690) cash. Flawless is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the Group.

As the Group has significant influence over Flawless’ operations it accounts for the investment using the equity method.

3.2 Banzi Trade 26 Proprietary Limited (49% shareholding) Banzi Trade 26 Proprietary Limited (“Banzi Trade”) was incorporated in 2005 with nominal equity. The Group acquired a

49% shareholding in the same year. Since the incorporation date the Group’s portion of the losses from Banzi Trade exceeded its investment in the associate. The Group, in terms of its accounting policy, does not account for losses in excess of its investment in associates. The Group’s carrying value of its investment in Banzi Trade is $Nil.

4. Property, plant and equipment

As at 28 February 2013 As at 29 February 2012

Amounts in Canadian dollars Cost

Accumulateddepreciation

andimpairment

lossesCarrying

value Cost

Accumulateddepreciation

and impairment

lossesCarrying

value

Land and buildings 5,749,231 (1,555,030) 4,194,201 7,293,865 (1,484,130) 5,809,735

Plant and machinery 48,792,043 (22,802,226) 25,989,817 75,464,483 (34,654,874) 40,809,609

Motor vehicles 1,427,366 (909,333) 518,033 1,637,108 (1,183,352) 453,756

Office equipment 987,471 (709,143) 278,328 1,065,166 (711,703) 353,463

Construction in progress 2,685,418 (120,805) 2,564,613 1,965,268 – 1,965,268

59,641,529 (26,096,537) 33,544,992 87,425,890 (38,034,059) 49,391,831


4. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment – 28 February 2013


Openingbalance Additions Disposals Transfers

Foreign exchange

movements DepreciationImpairment

lossImpairment

reversalClosingbalance

Land and buildings 5,809,735 79,401 (496,991) – (733,477) (196,894) (267,573) – 4,194,201

Plant and machinery 40,809,609 2,301,725 (3,305,607) 971,877 (5,019,539) (5,928,337) (4,425,834) 585,923 25,989,817

Motor vehicles 453,756 264,098 (26,612) (942) (65,430) (103,920) (2,917) – 518,033

Office equipment 353,463 107,185 – 942 (45,615) (137,264) (383) – 278,328

Construction in progress 1,965,268 1,998,241 – (971,877) (297,107) – (129,912) – 2,564,613

49,391,831 4,750,650 (3,829,210) – (6,161,168) (6,366,415) (4,826,619) 585,923 33,544,992

The impairment loss (reversal) represents

Tirisano Mine plant and machinery 4,415,450

Klipdam plant and machinery, land and capital projects 411,169

4,826,619

Niewejaarskraal reversal of 2012 impairment due to the planned repair and recommission of the plant in fiscal 2014 (585,923)

4,240,696

Impairments on the various operations were done based on the following judgments and estimates:

Tirisano: The mine was placed on care and maintenance and subsequent to that contract miners were appointed. As a result the processing and recovery plant was assessed by management for which components could be transferred to other operations and/or sold. This resulted in a balance which will be transferred to the Northern Cape operations and a balance relating to plant which will be utilized by the contract miners. The remainder was fully impaired as it was considered that its value was no longer recoverable.

Klipdam: As described in note 31 the Klipdam mine was sold post year end. Although no formal plan existed at year end to dispose of Klipdam and its related assets, speculative third party offers received prior to year end indicated a value for the suite of assets deployed at Klipdam below the carrying value. As a result of the estimated allocated fair value less cost to sell attributable to the Klipdam suite of assets, plant and machinery was impaired.

Niewejaarskraal: As a result of the Board decision to repair and recommission the plant at Niewejaarskraal the net book value associated with the assets previously impaired was reversed.

Reconciliation of property, plant and equipment – 29 February 2012


Openingbalance Additions

Assets andliabilities

acquisitions(note 17) Disposals Transfers

Foreign exchange

movements DepreciationImpairment

lossClosingbalance

Land and buildings 6,353,551 12,368 208,838 – 870,038 (357,649) (407,373) (870,038) 5,809,735

Plant and machinery 49,212,345 5,546,769 129,015 (6,104,971) 4,331,970 (2,210,677) (6,025,987) (4,068,855) 40,809,609

Motor vehicles 588,581 6,624 40,995 (13,317) – (33,626) (135,501) – 453,756

Office equipment 391,263 76,088 56,193 (35,488) – (23,988) (110,605) – 353,463

Construction in progress 6,282,698 1,161,067 – – (5,202,008) (276,489) – – 1,965,268

62,828,438 6,802,916 435,041 (6,153,776) – (2,902,429) (6,679,466) (4,938,893) 49,391,831



4. Property, plant and equipment (continued)

The following assets are subject to finance lease obligations; plant and machinery with a net carrying value of $743,058 (2012: $881,772) and motor vehicles with a net carrying value of $157,149 (2012: $Nil) totaling $900,207 (2012: $881,772).

The Group’s bankers have registered two notarial general covering bonds (First Lien) of ZAR10 million ($1.3 million) each over all movable assets related to the property known as Holpan, district Barkly West, Northern Cape Province (refer note 8).

Transfers during fiscal 2013 from construction in progress to plant and machinery related to the completion of three major projects at Saxendrift, namely the BV plant, puddle tank and CCTV projects. Disposals during fiscal 2013 related mainly to the sale of mining equipment to the mining contractor at Klipdam, and the sale of Makoenskloof land.

Estimates and judgments Management performs an annual review of the Group’s property, plant and equipment to consider indicators for impairment and where

indicators for impairment were identified, the recoverable amount. Comparisons are made to similar assets available in the market taking into consideration its economic life, residual value, current condition and application in the mining and recovery processes. Impairment indicators were identified for certain items of property, plant and equipment and where no future economic benefits (value in use) will flow from the identified assets, judgment is applied to consider fair value less costs to sell. Assets identified, where the carrying value exceeds the recoverable amount, are impaired. Life of mine cash flow models form the basis against which the value in use is measured.


As at28 February

2013

As at29 February

2012

5. Investments and depositsAt fair value through profit or loss

Investments 4,813,657 3,498,558

The Group invests in investment policies with endowment benefits on maturity of the policies in order to provide funding for the rehabilitation obligations. Premiums are invested on an initial lump sum and/or monthly annuity premium basis with the insurers and invested in specific investment plans. Policy investment value at any one time represents the value of premiums and growth after deduction of administration and investment fees. Withdrawals could be made against the policies before endowment against the deduction of penalties, which is lower than the investment value. To surrender the policy prior to maturity date will similarly attract penalties at a lower rate, and represents the value accessible at any one stage. Fair value at any one stage represents the surrender value of the investments. These policies are encumbered by the guarantees issued by Standard Bank on behalf of the Group (refer notes 14 and 28).

At amortized cost

Deposits 74,758 70,843

This deposit relates to deposits paid to the South African electricity supplier.

Total investments and deposits 4,888,415 3,569,401

Non-current assets

At fair value through profit or loss 4,813,657 3,498,558

At amortized cost 74,758 70,843

4,888,415 3,569,401



As at28 February

2013

As at29 February

2012

6. InventoriesRough diamond inventories 1,268,784 150,751

Stockpile diamond inventory 38,251 39,490

Fuel, oil and grease 235,615 209,067

Mine supplies 762,132 1,223,572

2,304,782 1,622,880

The net realizable value of rough diamond inventories is estimated at the average price per carat achieved for the most recent diamond tender taking into account the variable factors of clarity, carat, shape and color. A write-down to net realizable value of $374,207 (2012: $Nil) was done during the year.

Mine supplies were written down by $125,970 (2012: $Nil) during the year.

Estimates and judgments Management performs an annual review of inventory in order to determine the net realizable value and to identify inventory that requires

a write-off. Obsolete, slow moving and damaged inventory are indicators that a write-off is required. Management’s best judgment is applied in estimating the write-off should this be necessary.


As at28 February

2013

As at29 February

2012

7. Trade and other receivablesTrade receivables 1,994,267 2,887,305

Other receivables 2,582,347 –

Prepayments 625,753 876,537

VAT 648,251 1,852,401

5,850,618 5,616,243

8. Cash and cash equivalentsCash and cash equivalents consist of:

Cash on hand 916 946

Bank balances 1,863,480 10,740,395

Short-term cash deposits 3,706,230 –

5,570,626 10,741,341

Bank overdraft (2,839,921) (829,480)

2,730,705 9,911,861

Current assets 5,570,626 10,741,341

Current liabilities (2,839,921) (829,480)

2,730,705 9,911,861

The Group has an overdraft facility in the amount of ZAR28.0 million ($3.9 million) available for its operations. This facility has an interest cost of prime (currently 8.5% per annum) plus 0.6%. The security for the ZAR28.0 million overdraft facility consists of two covering bonds (First Lien) of ZAR10.0 million ($1.4 million) each over moveable assets and property of the farm Holpan.



As at 28 February

2013Number of

shares

As at 29 February

2012 Number of

shares

9. Share capitalReconciliation of number of shares issued:

Beginning of year 47,942,746 518,185,238

Debt conversion at $0.065 per share – 6,703,292

Share consolidation 15:1 (a) – (489,895,959)

Number of post-consolidation shares 47,942,746 34,992,571

Private placement at $0.75 per share (b) – 10,341,969

Shares issued with asset and liability acquisition (c) – 2,608,206

Debt conversion at $0.48 per share 466,667 –

End of year 48,409,413 47,942,746

The Company’s authorized share capital consists of an unlimited number of Common Shares, without par value, and an unlimited number of preference shares without par value, of which no preference shares have been issued. The directors have the authority to issue shares, up to 10% of shares currently in issue, without shareholders’ approval.

Share capital is shown net of share issuance cost. The issuance cost amounted to $5,293 (2012: $Nil).

(a) Effective 11 July 2011 the Company completed a consolidation of its outstanding shares on the basis of 1 post-consolidated common share for 15 pre-consolidated shares.

(b) The Company raised $7,8 million through a private placement, with shares issued at $0.75 per share during Q3 2012.

(c) As at 1 September 2011, the Company issued 2,608,206 shares for the asset and liability purchase of Etruscan Diamonds Proprietary Limited and Blue Gum Diamonds Proprietary Limited (refer note 17).

The following shares are reserved for issue:

Employee share options 3,975,605

Daboll loan 3,499,256

Payment on conversion of mining right (note 2) 533,332*

AVR unbundling (note 17) 3,466,667#

* These shares were issued on 19 March 2013. At 28 February 2013 they were included in share capital at $0.25 per share. The $0.25 per share represents the trading price of the shares at the effective date of this transaction.

# These shares are still to be issued. At 28 February 2013 they were included in share capital at $0.25 per share. The $0.25 per share represents the trading price of the shares at the effective date of this transaction. These shares relate to the buy-back of non-controlling interests in HC van Wyk Diamonds Limited and Klipdam Diamond Mining Company Limited (refer note 17).



10. Share-based payments Employee share-based payments

The Group has a share-based payment plan approved by the shareholders that allows the Group to grant options for up to 10% of the Group’s shares in issue at any point in time, typically vesting over two years, to its directors, employees, officers, and consultants. The exercise price of each share option is set by the Board of Directors at the time of the grant and cannot be less than the market price (less permissible discounts) on the Toronto Stock Exchange on the day before the grant. Share options have a maximum term of five years and typically terminate 90 days following the termination of the optionee’s employment, except in the case of retirement or death, which terminate one year thereafter.

From time to time, the Group may grant share options to employees, directors and service providers. The Group uses the Black-Scholes option pricing model to estimate a fair value for these options at grant date. This model require inputs such as expected volatility, expected life to exercise, and interest rates. Changes in any of these inputs could cause a significant change in the share-based payment expense charged in a period.

Effective 11 July 2011 the Company completed a consolidation of its outstanding shares on the basis of 15 pre-consolidated common shares for 1 post-consolidated common share. The effect of the share consolidation has been applied retrospectively.

All options are to be settled by physical delivery of shares.

Other share-based paymentsThe Group has accounted for a share-based payment relating to an option for a BEE partner to acquire a 26% interest in Jasper Mining Proprietary Limited.

The fair value of the 26% interest in Jasper Mining Proprietary Limited was determined by management using a discounted future cash flow model. This model requires inputs such as time value of money, a risk-based discount rate and expected dividends.

The fair value of the option represents the valuation of the 26% interest less the amount payable by the BEE partner at the grant date.


10. Share-based payments (continued)

The terms and conditions of the grants of the share option plan are as follows:

Amounts in

Canadian dollars

Number of instruments

granted – key management


granted –senior employees

Numberof instruments

granted – other Vesting conditionsFair value

grant dateShare price grant date

Exercise price

Assumptions used to fair value options:

Risk free interest rate

Expected life(years)

Expected volatility

Expected dividend

24 September 2007 194,332 380,711 – 1/3 in 6 months, 1/3 in 12 months and 1/3 in 18 months

7.53 7.95 9.30 4.0% 5 119.2% Nil

14 November 2007 1,060,214 54,286 – 1/3 in 6 months, 1/3 in 12 months and 1/3 in 18 months

7.686.90

9.454.0% 5 120.2% Nil

20 June 2008 66,665 72,222 – 1/3 immediately, 1/3 in 12 months and 1/3 in 24 months

3.906.90 6.75

4.0%5

87.4% Nil

7 December 2009 360,666 931,289 – 1/3 immediately, 1/3 in 6 months and 1/3 in 12 months

0.800.90 0.90 2.4%

5138.7%

Nil

18 January 2010 – 40,000 – 1/3 immediately, 1/3 in 6 months and 1/3 in 12 months

0.95 1.20 1.05 2.6%5

139.7%Nil

8 October 2010 253,333 749,467 – 1/3 immediately, 1/3 vests 8 April 2011 and 1/3 vests 8 October 2011

0.83 0.98 0.98 1.9% 5 128.6% Nil

12 October 2011 185,000 517,408 – 1/3 immediately, 1/3 vests 30 March 2012 and 1/3 vests 30 September 2012

0.400.55 0.48 1.9%

5 208.6% Nil

12 October 2011 733,333 – – 1/3 vests 1 June 2013, 1/3 vests 1 June 2014 and 1/3 vests 1 June 2015

0.520.55

0.751.9% 5

208.6%Nil

12 October 2011 –66,667 –

1/2 vests 26 May 2012 and 1/2 vests 26 May 2013 0.45

0.55 0.481.9% 5 208.6% Nil

12 October 2011 235,294 – – 1/3 vests 11 July 2012, 1/3 vests 11 July 2013 and 1/3 vests 11 July 2014

0.500.55

0.60 1.9% 5 208.6%Nil

22 October 2012

–

20,000 300,0001/3 vests 22 October 2012, 1/3 vests 22 April 2013 and1/3 vests 22 October 2013

0.25

0.25 0.51 1.8%

10

171.9% Nil

12 December 2012

300,000 220,000

269,5341/3 immediately, 1/3 vests 12 June 2013 and 1/3 vests12 December 2013

0.23 0.23 0.21 1.8% 10 168.7% Nil

Total share options 3,388,837 3,052,050 569,534

The following assumptions were used in the valuation of the Jasper Mining Proprietary Limited option:

Life of mine: 3 – 5 years Discount rate: 16% Exercise price: $60,000

This option vested on 11 February 2013 and remained unexercised at 28 February 2013.




The terms and conditions of the grants of the share option plan are as follows:

Amounts in

Canadian dollars


granted – key management


granted –senior employees

Numberof instruments

granted – other Vesting conditionsFair value

grant dateShare price grant date

Exercise price

Assumptions used to fair value options:

Risk free interest rate

Expected life(years)

Expected volatility

Expected dividend

24 September 2007 194,332 380,711 – 1/3 in 6 months, 1/3 in 12 months and 1/3 in 18 months

7.53 7.95 9.30 4.0% 5 119.2% Nil

14 November 2007 1,060,214 54,286 – 1/3 in 6 months, 1/3 in 12 months and 1/3 in 18 months

7.686.90

9.454.0% 5 120.2% Nil

20 June 2008 66,665 72,222 – 1/3 immediately, 1/3 in 12 months and 1/3 in 24 months

3.906.90 6.75

4.0%5

87.4% Nil

7 December 2009 360,666 931,289 – 1/3 immediately, 1/3 in 6 months and 1/3 in 12 months

0.800.90 0.90 2.4%

5138.7%

Nil

18 January 2010 – 40,000 – 1/3 immediately, 1/3 in 6 months and 1/3 in 12 months

0.95 1.20 1.05 2.6%5

139.7%Nil

8 October 2010 253,333 749,467 – 1/3 immediately, 1/3 vests 8 April 2011 and 1/3 vests 8 October 2011

0.83 0.98 0.98 1.9% 5 128.6% Nil

12 October 2011 185,000 517,408 – 1/3 immediately, 1/3 vests 30 March 2012 and 1/3 vests 30 September 2012

0.400.55 0.48 1.9%

5 208.6% Nil

12 October 2011 733,333 – – 1/3 vests 1 June 2013, 1/3 vests 1 June 2014 and 1/3 vests 1 June 2015

0.520.55

0.751.9% 5

208.6%Nil

12 October 2011 –66,667 –

1/2 vests 26 May 2012 and 1/2 vests 26 May 2013 0.45

0.55 0.481.9% 5 208.6% Nil

12 October 2011 235,294 – – 1/3 vests 11 July 2012, 1/3 vests 11 July 2013 and 1/3 vests 11 July 2014

0.500.55

0.60 1.9% 5 208.6%Nil

22 October 2012

–

20,000 300,0001/3 vests 22 October 2012, 1/3 vests 22 April 2013 and1/3 vests 22 October 2013

0.25

0.25 0.51 1.8%

10

171.9% Nil

12 December 2012

300,000 220,000

269,5341/3 immediately, 1/3 vests 12 June 2013 and 1/3 vests12 December 2013

0.23 0.23 0.21 1.8% 10 168.7% Nil

Total share options 3,388,837 3,052,050 569,534

The following assumptions were used in the valuation of the Jasper Mining Proprietary Limited option:

Life of mine: 3 – 5 years Discount rate: 16% Exercise price: $60,000

This option vested on 11 February 2013 and remained unexercised at 28 February 2013.



The continuity of share-based payments for the year ended 28 February 2013 is as follows:

Amounts in Canadian dollars Grant date29 February

2012Granted/

issued ExercisedExpired/canceled

28 February2013

24 September 2007 322,790 – – (322,790) –

14 November 2007 72,421 – – (72,421) –

7 December 2009 707,734 – – (34,660) 673,074

8 October 2010 776,722 – – (73,333) 703,389

12 October 2011 1,153,627 – – (235,294) 918,333

12 October 2011 571,275 – – – 571,275

22 October 2012 – 320,000 – – 320,000

12 December 2012 – 789,534 – – 789,534

3,604,569 1,109,534 – (738,498) 3,975,605

Weighted average exercise price $1.64 $0.30 – $5.32 $0.64

Weighted average fair value of share options granted during the year $0.23

The continuity of share-based payments for the year ended 29 February 2012 is as follows:

Amounts in Canadian dollars28 February

2011Granted/

issued ExercisedExpired/canceled

29 February2012

24 September 2007 392,767 – – (69,977) 322,790

14 November 2007 72,433 – – (12) 72,421

20 June 2008 63,333 – – (63,333) –

7 December 2009 912,173 – – (204,439) 707,734

18 January 2010 40,000 – – (40,000) –

8 October 2010 1,002,800 – – (226,078) 776,722

12 October 2011 – 1,153,627 – – 1,153,627

12 October 2011 – 584,075 – (12,800) 571,275

2,483,506 1,737,702 – (616,639) 3,604,569

Weighted average exercise price $2.70 $0.61 – $2.52 $1.64

Weighted average fair value of share options granted during the year $0.46


For theyear ended

28 February 2013

For theyear ended

29 February 2012

Share-based payment expenses

Share options granted in prior years 277,668 209,575

Share options granted in current year 175,575 316,381

Option to sell non-controlling interest in Jasper to Linaplex (note 17) 105,168 –

Total share-based payment cost expensed to operations, with the offset credited to share-based payment reserve 558,411 525,956




As at28 February

2013

As at29 February

2012

11. Loans and borrowingsHeld at amortized cost

Industrial Development Corporation of South Africa Limited 3,196,330 3,321,741

The loan was acquired by Rockwell Diamonds Inc. with the asset and liability acquisition of Etruscan Diamonds Proprietary Limited, and was entered into by Blue Gum Diamonds Proprietary Limited, a 74% owned subsidiary of Etruscan Diamonds Proprietary Limited.

The loan is repayable in 10 equal bi-annual installments, the first of which was paid in fiscal 2013, bears interest at 1.28% above the current prime rate (8.5% p.a.) and is denominated in South African rand.

Daboll loan 2,008,161 2,066,403

On 2 June 2011, the Group signed a Convertible Loan Agreement with Daboll Consultants Limited. It was agreed that Daboll Consultants Limited would lend Rockwell Diamonds Inc. $2,000,000 within five days of the agreement being signed.

As the loan is repayable at the election of the borrower (except if converted after 12 months by the lender), it is disclosed as non-current.

The loan bears interest at 5% p.a. payable each calendar quarter, and any unpaid interest is compounded annually.

The loan is convertible into Common Shares of the Company after 12 months, if it is not repaid earlier, at the option of Daboll Consultants Limited. The conversion price is $0.0375 per common share and a maximum of 52,488,853 can be issued in relation to this conversion.

On 11 July 2011, the Company completed a consolidation of its outstanding Common Shares on the basis of 15 pre-consolidation shares for 1 post-consolidated common share. Therefore the maximum number of shares that can be issued is now 3,499,256 at $0.5625.

This loan is regarded as a related party loan (refer note 15). Due to the terms of the loan it is disclosed as loans and borrowings.

5,204,491 5,388,144

Non-current liabilities At amortized cost 3,889,684 4,582,095

Current liabilities At amortized cost 1,314,807 806,049

5,204,491 5,388,144



As at28 February

2013

As at 29 February

2012

12. Finance lease obligationMinimum lease payments due– within one year 365,305 349,069– between one and five years 306,829 492,589

672,134 841,658Less: future finance charges (70,022) (103,233)Present value of minimum lease payments 602,112 738,425Present value of minimum lease payments dueCurrent liabilities – within one year 321,083 283,339Non-current liabilities – between one and five years 281,029 455,086

602,112 738,425

Finance lease obligations as detailed above are secured over plant and equipment and are repayable, on average, in 36 monthly installments and are denominated in South African rand. Interest is charged at rates of between 1.25% to 2.00% in excess of the prevailing prime rate, which is 8.50% per annum at 28 February 2013. There are no significant restrictions imposed on the lessee as a result of the lease obligations.

Operating leases are disclosed under note 27.


As at28 February

2013

As at 29 February

2012

13. Deferred taxDeferred tax liabilityMineral property interests (2,870,184) (3,428,142)Property, plant and equipment (4,054,000) (6,131,253)

(6,924,184) (9,559,395)

Deferred tax asset

Rehabilitation obligation 368,000 840,820

Estimated tax losses carry-forward – 1,145,884

Other 13,000 32,160

381,000 2,018,864

(6,543,184) (7,540,531)

Reconciliation of net deferred tax liability

At beginning of the year (7,540,531) (9,728,409)

Foreign exchange movement 867,192 708,619

Recognized through statement of comprehensive income 130,155 1,479,259

(6,543,184) (7,540,531)

Judgments and estimates used in recognition of deferred tax asset Deferred tax assets are raised only to the extent that future taxable income will be available against which the deferred tax asset can be set off. Management estimates future taxable income using forecasts based on the best available current information. Based on current estimates there is not sufficient future taxable income in the Group entities to which the unrecognized deferred tax assets relate against which to set off the deferred tax asset and therefore no deferred tax assets are raised.

Unrecognized deferred tax asset Deferred tax assets have not been recognized for temporary differences where it is not probable that the respective entities to which they relate will generate future taxable income against which to utilize the temporary differences. Estimated unrecognized deferred tax assets could be summarized as follows:

Canada 22,219,079 22,031,276

South Africa 12,854,294 9,801,235

35,073,373 31,832,511



Amounts in Canadian dollarsOpening balance

Rehabilitationobligationrecognized

(revised)

Foreignexchange

movements

Asset and liability

acquisition(note 17) Unwinding

Closing balance

14. Rehabilitation obligationReconciliation of obligation – 28 February 2013

Holpan, Wouterspan andKlipdam Mines 2,318,100 149,852 (313,252) – – 2,154,700

Saxendrift Mine 2,019,017 681,925 (295,431) – – 2,405,511

Tirisano Mine 6,832,212 (4,381,349) (747,399) – 535,360 2,238,824

Jasper Mining – – (10,617) 203,739 – 193,122

11,169,329 (3,549,572) (1,366,699) 203,739 535,360 6,992,157

The Tirisano Mine rehabilitation obligation movement of $4,381,349 represents a change in estimate compared to 2012, based on a new financial quantum calculation lodged and accepted with the Department of Mineral Resources, removing all uncertainties with regard to the backfilling obligation as determined at the date of acquisition of this property.

Reconciliation of obligation – 29 February 2012

Opening balance

Rehabilitationobligationrecognized

(revised)

Foreignexchange

movements

Asset and liability

acquisition(note 17) Unwinding

Closing balance

Holpan, Wouterspan andKlipdam Mines 2,565,377 (104,569) (142,708) – – 2,318,100

Saxendrift Mine 1,249,261 856,781 (87,025) – – 2,019,017

Tirisano Mine – 536,320 (356,220) 6,370,317 281,795 6,832,212

3,814,638 1,288,532 (585,953) 6,370,317 281,795 11,169,329

Estimated rehabilitation costs, which are based on the Group’s interpretation of current environmental and regulatory requirements, represent the present value of the expected future costs to rehabilitate the mine properties during and at termination of mining operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances.

Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of these obligations in its rehabilitation provision based on professional surveys of the environmental disturbance.

The ultimate rehabilitation will be financed from existing funds and policies invested for this purpose, ongoing contributions as well as the proceeds on sale of assets and metal from plant clean-up at the time of the mine closure. The expected timing of the cash flows in respect of the provisions is dependent on the mineral property award and/or the Life of Mine. Rehabilitation of disturbed areas, at the operating Northern Cape mines, is performed on a continuous basis. Rehabilitation of disturbed areas where the alluvial open-cast bench mining process is followed and the non-operating Northern Cape mines will be performed when the mining operations cease. However, it is reasonably possible that the Group’s estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or cost estimates. The following key assumptions were used in estimating the rehabilitation obligation:

Discount period: 2.5 years South African discount rate: 9% South African inflation rate: 7%

As required by regulatory authorities, at 28 February 2013, the Group had cash rehabilitation deposits totalling $1,818,291 (29 February 2012: $3,104,716) comprised of $1,053,729 (29 February 2012: $1,160,196) for the Holpan, Wouterspan and Klipdam mines, $Nil (29 February 2012: $Nil) for the Saxendrift Mine and $764,562 (29 February 2012: $1,944,520) for the Tirisano Mine. These deposits are invested in interest-bearing and money market linked investments. These investments have

been pledged as security in favour of the guarantees the bank issued on behalf of the Group. Refer to note 28.



As at28 February

2013

As at 29 February

2012

15. Related partiesRelated party balances

Balances payable

Banzi Trade (e) 44,248 4,065

Hunter Dickinson Services Inc. (a) – 43,425

CEC Engineering (b) – 4,292

Seven Bridges Trading (c) 4,677 –

Dr DM Bristow (h) – 278,334

Current balances payable 48,925 330,116

Non-current balances payable – Liberty Lane (g) – 400,616

Loans from related parties 48,925 730,732

Balances receivable

Banzi Trade (e) 85,305 105,530

Steinmetz – 127,817

Mogopa Minerals (f) 8,878 43,254

Current balances receivable 94,183 276,601

Loans to related parties 94,183 276,601

Related party transactions

Services rendered and expenses reimbursed:

Hunter Dickinson Services Inc. (a) 74,144 338,155

CEC Engineering (b) 10,788 24,678

Seven Bridges Trading (c) 54,241 87,690

Banzi Trade (e) 104,769 107,799

Mogopa Minerals (f) 26,606 61,423

Flawless Diamonds Trading House (d) 276,718 354,947

Sales rendered to:

Banzi Trade (e) – 122

Sale of diamonds – Steinmetz (j) 24,605,786 20,830,099

Beneficiation income – Steinmetz (j) 5,299,275 7,845,076

Loan from related party included under loans and borrowings – Daboll

Consultants Limited (i)

Loans and borrowings 2,008,161 2,066,403

Finance costs 71,430 108,026

Receivables from related party included under trade and other receivables

Steinmetz (j) 1,980,301 1,839,800

Compensation to key management personnel

Salaries and other short-term benefits 1,218,371 1,191,314

Bonus 137,855 20,205

Termination benefits – 67,350

Share-based payment (note 10) 68,540 229,365

1,424,766 1,508,234



15. Related parties (continued)

All related party transactions are calculated at arm’s length transaction values in the normal course of business.

(a) Hunter Dickinson Services Inc. (“HDSI”) is a private company with a former director (resigned 30 August 2012) in common with the Group. HDSI provides geological, technical, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Group on a full cost recovery market related basis pursuant to an agreement dated 21 November 2008.

(b) CEC Engineering Limited is a private company owned by David Copeland, a former director of the Group (resigned 30 August 2012), which provides engineering and project management services at market rates.

(c) Seven Bridges Trading 14 Proprietary Limited (“Seven Bridges Trading”) is a wholly owned subsidiary of Randgold Resources Limited, a public company where Mark Bristow, a director of the Group, serves in an executive capacity. Seven Bridges Trading provides office, payroll and other administrative and management services.

(d) Flawless Diamonds Trading House Proprietary Limited (“Flawless”) is a private company where certain directors, former directors and officers of the Group, namely, Mr JB Brenner and Dr DM Bristow, are shareholders. During fiscal 2011 the Group acquired a 20% shareholding in Flawless Diamonds Trading House (refer note 3). Flawless is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the Group for a fixed fee of 1% of turnover which is below the market rate charged by similar tender houses.

(e) Banzi Trade 26 Proprietary Limited (“Banzi Trade”) is 49% owned by HC van Wyk Diamonds Limited and 51% by Bokomoso Trust. Banzi Trade is an empowered private company established to provide self sustaining job creation programs to local communities as part of the Company’s Social and Labor Plan which is required in terms of the Minerals and Petroleum Resources Development Act (“MPRDA”). Banzi Trade provides the Group with building materials at market rates.

(f) The Bakwena Ba Mogopa Trust is the beneficial owner of 26% in the Tirisano Mine operation resident in Blue Gum Diamonds Proprietary Limited. This interest is held by Magopa Minerals Proprietary Limited through Magopa Blue Gum Proprietary Limited. As the landowner, surface rentals are paid to the Trust, while business and support services are paid to Magopa Minerals for shareholder relations and related services.

All the above named loans are unsecured, interest free and have no fixed terms of repayment and are therefore disclosed as current.

(g) Liberty Lane Trading 167 Proprietary Limited (“Liberty Lane”) is the BEE partner of the Saxendrift property and has certain directors in common with the Group. In terms of the sale of shares and claims agreement, Liberty Lane made a partial payment towards shares to be issued in terms of this agreement. The agreement specifies for the shares in Saxendrift only to be issued once Liberty Lane has made full payment of the purchase consideration in terms of the agreement. The amount was settled with Liberty Lane during fiscal 2013.

(h) A short-term loan was advanced by Dr DM Bristow, a non-executive director of the Group, to Etruscan Limited (previous owner of the Tirisano Mine operations), in order to make critical creditor payments and to proceed with capital orders on Tirisano in 2009. The loan is convertible into equity. 466,667 shares of the Company were issued during Q1 2013 in settlement of the capital portion of the loan.

(i) Daboll Consultants Limited (“Daboll”) owns 21% shares in the Company and is considered a related party. Daboll has a convertible loan agreement with the Company at market related terms.

(j) Steinmetz Diamond Group (“Steinmetz”) is the holding company of Daboll and per definition identified as a related party. Steinmetz is the Company’s strategic beneficiation partner, with plus 2.8 carat sized diamonds being acquired by Steinmetz through the diamond trading house and beneficiated. The Company and Steinmetz participate equally in the retail profit from the sale of its stones, after polishing and finishing.




As at28 February

2013

As at 29 February

2012

16. Trade and other payablesTrade payables 2,211,049 2,706,586

Royalties payable 2,997,231 3,201,935

Other payables 1,787,956 362,626

Payroll accruals 701,296 553,162

VAT 424,390 757,953

8,121,922 7,582,262

17. Asset and liability acquisition17.1 Jasper Mining Proprietary Limited

In June 2012, the Group completed the acquisition of 100% of the share capital in Jasper Mining Proprietary Limited. The total consideration paid by the Group for the interest was $12 and additional Rockwell Diamonds Inc. shares to be issued upon conversion of the old order mining right.

The acquisition was accounted as the acquisition of assets and liabilities based on the acquisition not meeting the criteria for an acquired business in terms of IFRS 3: Business Combinations.

The Jasper Mining property is contiguous to Rockwell’s Saxendrift Mine and has the potential to extend the life of Saxendrift Mine with limited new investment.

The following summarizes the assets and liabilities acquired:

Allocated cost based on relative fair value


As at28 February

2013

Mineral property interests 1,165,529

Cash and cash equivalents 2,671

Trade and other payables (964,449)

Rehabilitation obligation (203,739)

Total identifiable net assets 12

The Group financed the purchase consideration through

Cash 12

Purchase price* 12

* In terms of the sale of shares and claims agreement (Jasper Mining) an additional purchase consideration is payable in the form of 533,532 Rockwell Diamonds Inc. shares payable on the notification from the DMR granting approval for conversion of the Jasper old order mining right to a new order mining right. Notification was received on 11 February 2013 from the DMR. Refer note 2 for additional information.

As at year end Linaplex Proprietary Limited has the option to purchase 26% of Jasper Mining Proprietary Limited as disclosed in note 10.

17.2 Acquisition of non-controlling interestsOn 11 February 2013 the Group acquired the remaining 15% of the share capital in HC van Wyk Diamonds Proprietary Limited and Klipdam Diamond Mining Limited. This effectively unwinds the deal concluded in fiscal 2009 to purchase 26% of the Group’s Northern Cape operations by African Vanguard Resources Proprietary Limited. The settlement of the purchase price was completed after year end in the form of 3,466,667 Rockwell Diamonds Inc. shares listed on the Johannesburg Stock Exchange. As part of this transaction the liability of $529,831 payable to Liberty Lane Trading 167 Proprietary Limited (a subsidiary of African Vanguard Resources Proprietary Limited) was settled through the issue of shares. At reporting date these shares are still to be issued (refer note 9).


17. Asset and liability acquisition (continued)

17.3 Etruscan Diamonds Proprietary LimitedOn 1 September 2011, the Group obtained control of 100% of the share capital in Etruscan Diamonds Proprietary Limited, which holds 74% of the shares in Blue Gum Diamonds Proprietary Limited.

The interest was obtained for the aggregate purchase consideration of $3,086,697 and with the purpose of expanding the current diamond operations of the Group. Non-controlling interest was measured at 26% of the book value of the net identifiable assets and liabilities at acquisition date of Blue Gum Diamonds Proprietary Limited.

The acquisition was accounted as the acquisition of assets and liabilities as the acquisition did not meet the criteria for an acquired business in terms of IFRS 3: Business Combinations.

Etruscan, previously owned by Etruscan Diamonds Limited (25%) and Etruscan Diamonds Bermuda Limited (75%), is located in Ventersdorp and was acquired with the purpose of producing type 2, gem quality diamonds at the Tirisano Mine.

The Group financed the purchase consideration through:


As at 29 February

2012

Cash advances in the current year 587,953

Cash advances in the prior years on loan account 1,012,066

Total cash advances* 1,600,019

2,608,206 common shares issued (non-cash) 1,486,678

Total acquisition price 3,086,697

* Amounts advanced in terms of the sale of shares agreement and to be capitalized as a reduction of the purchase price.

The following summarizes the assets and liabilities acquired:

Allocated cost based on relative fair value

Mineral property interests** 13,953,802

Property, plant and equipment 435,041

Rehabilitation deposits 1,889,355

Inventory 153,715

Trade and other receivables 375,002

Cash and cash equivalents 32,832

Non-controlling interest (820,754)

Rehabilitation obligation (6,370,317)

Other financial liabilities (4,473,135)

Trade and other payables (2,088,844)

3,086,697

** The fair value placed on the mineral property interest for the purpose of allocating the purchase price was supported by a competent independent valuator and was in excess of the allocated carrying value indicated above.




Year ended28 February

2013


2012

18. Cash (used in) generated from operationsLoss before taxation (13,906,533) (15,198,643)

Adjustments for:

Depreciation and amortization 7,169,649 7,986,209

Loss on disposal of property, plant and equipment 156,062 489,615

Loss on disposal of mineral properties 23,900 –

Share of profit from equity accounted investment (58,761) (36,918)

Finance income (613,760) (780,482)

Finance costs 1,406,635 873,796

Rehabilitation obligation (revised) recognized (3,549,572) 1,288,532

Share-based payment expense 558,411 525,956

Impairment of mineral property interests 959,124 –

Impairment of property, plant and equipment 4,826,619 4,938,893

Write down to net realizable value of diamond inventories 374,207 –

Write down of mine supplies 125,970 –

Impairment of sundry receivables 85,813 –

Reversal of impairment on property, plant and equipment (585,923) –

Changes in working capital:

Inventories (1,452,434) 867,004

Trade and other receivables (1,120,031) (51,159)

Trade and other payables 792,543 (752,343)

(4,808,081) 150,460

19. Tax paidBalance at beginning of the year – –

Current tax for the period recognized in profit or loss – –

Balance at end of the year (39 587) –

(39 587) –

20. RevenueSale of diamonds 27,105,988 26,375,947

Beneficiation income 5,299,275 7,845,076

32,405,263 34,221,023

Beneficiation income represents profit share on value add (cut and polish), arising through the Group’s beneficiation agreement with the Steinmetz Diamond Group. The Group is entitled to 50% of the profits from the sale of the polished diamonds produced by the Group and sold through this channel. The beneficiation income is recognized on the date the Steinmetz Diamond Group notifies the Group of the successful sale of the diamonds to third parties.




2013


2012

21. Production costProduction cost 32,524,879 26,882,953

Inventory movement (1,186,662) 53,763

31,338,217 26,936,716

22. Loss before net finance costsLoss before net finance costs for the year is stated after accounting for the following:


Loss on disposal of mineral property interests 23,900 –

Depreciation on property, plant and equipment 6,366,415 6,679,466

Amortization on mineral property interests 803,234 1,306,743

Salaries and wages 1,901,079 2,084,773

Share-based payment expense 558,411 525,956

Arbitration settlement – 1,369,486




Write down to net realizable value of diamond inventories 374,207 –

Write down of mine supplies 125,970 –

Impairment of sundry receivables 85,813 –

Auditors' remuneration

– Audit fee 477,213 504,665

– Other services 36,908 47,881

23. Finance incomeBank 406,835 255,672

Fair value adjustments on other financial assets 206,925 524,810

613,760 780,482

24. Finance costsLoans and borrowings 338,190 134,031

Finance lease obligation 152,988 196,386

Bank 380,097 261,584

Unwinding of rehabilitation obligation 535,360 281,795

1,406,635 873,796




2013


2012

25. TaxationMajor components of the tax income

Deferred tax

Movement in deferred tax balance recognized through profit or loss (130,155) (1,479,259)

Reconciliation of taxation

Reconciliation between accounting loss and taxation

Loss before tax (13,906,533) (15,198,643)

Tax at the applicable tax rate of 25.00% (2012: 26.26%) (3,476,634) (3,991,164)

Tax effect of adjustments on taxable loss

Difference in foreign tax rates (372,365) (264,456)

Non-deductible expenses 477,982 278,850

Unrecognized deferred tax assets 3,240,862 2,497,511

(130,155) (1,479,259)



2013


2012

26. Loss per shareBasic and diluted loss per share

Basic loss per share

Cents per share (22.55) (28.74)

Basic loss per share was calculated based on a weighted average number of ordinary shares of 48,349,322 (2012: 40,485,275).

Reconciliation of loss for the year to basic loss

Loss for the year (13,776,378) (13,719,384)

Adjusted for:

Loss attributable to non-controlling interest 2,875,845 2,081,976

Basic loss attributable to owners of the Group (10,900,533) (11,637,408)

At 28 February 2013 and 29 February 2012 the impact of share-based payment options was excluded from the weighted average number of shares, for the purpose of the diluted loss per share calculation, as the effect would have been anti-dilutive.

Basic and diluted headline loss per share

Headline loss per share (cents) (14.27) (15.34)

Reconciliation between basic loss and headline loss

Basic loss attributable to owners of the Group (10,900,533) (11,637,408)

Adjusted for:

Loss on disposal of mineral properties 23,900 –





Non-controlling interest portion of above adjustments (1,380,556) –

Headline loss attributable to owners of the Group (6,901,307) (6,208,900)

The basic and diluted headline loss per share disclosure is provided based on the listing requirements of the Johannesburg Stock Exchange (Group’s secondary listing). The disclosure of basic and diluted headline loss per share is provided in accordance with Circular 3/2012 as issued by the South African Institute of Chartered Accountants. Headline loss represents the basic loss attributable to the owners of the Group excluding certain re-measurements.





2013


2012

27. CommitmentsAuthorized capital expenditure (not contracted for)

– Property, plant and equipment – 630,119

– Mineral property interests – 812,585

The Company did not commit to spending funds as at 28 February 2013 on capital projects during the following year, but post reporting date approval was granted to bring the Niewejaarskraal Mine into production.

Operating leases

Minimum lease payments due

– within one year 521,677 265,729

– in second to fifth year inclusive 1,623,161 965,348

2,144,838 1,231,077

Operating lease payments represent rentals payable by the Group for surface rentals and certain of its office properties.

Purchase orders

Stores 464,505 –

28. Contingencies HC van Wyk Diamonds Limited, Klipdam Mining Company Limited, Saxendrift Mine Proprietary Limited, Etruscan Diamonds Proprietary

Limited and Blue Gum Diamonds Proprietary Limited held guarantees with the bank towards Eskom (electricity provider) of ZAR5,615,100 ($643,491) and the Department of Minerals and Energy (“DME”) of ZAR45,366,643 ($5,199,019) towards rehabilitation expenses.

29. Segmental informationThe Group has three reportable operating segments, as described below, which are the Group’s operating divisions. These divisions offer different diamond product characteristics, qualities, geological characteristics, processes and services, and are managed separately because they require different technology and profit or cost strategies. For each of the divisions the Group Executive Committee (chief operating decision-making body) reviews internally managed reports on at least a monthly basis. The following describes the operations in each of the Group’s reportable segments:

u Northern Cape operation is associated with the mining of Paleo Channels and Rooikoppie gravels and the recovery of high value and larger carat size diamonds;

u North West operation is associated with the mining of potholes and the recovery of lower value and smaller carat size diamonds; and

u Corporate represents the corporate management and administrative function of the Group.


29. Segmental information (continued)

The reconciliation column represents the inter-Group transactions eliminated on consolidation. All reportable segments are located in the same geographical jurisdiction. Information regarding the results of each of the reportable segments is included below.

Amounts in Canadian dollarsNorthern

CapeNorth West Corporate Reconciling Total

For the year ended 28 February 2013

Property, plant and equipment 29,105,278 4,431,591 8,123 – 33,544,992

Mineral property interests 19,821,470 11,583,888 – – 31,405,358

Total assets 55,769,553 17,251,694 80,189,009 (67,485,844) 85,724,412

Total liabilities 69,560,627 25,888,561 2,389,368 (67,485,844) 30,352,712

External revenue 30,600,628 1,804,635 – – 32,405,263

Other material non-cash items

– Depreciation on property, plant and equipment 5,032,684 1,330,381 3,350 – 6,366,415

– Amortization on mineral property interests 760,635 42,599 – – 803,234

– Rehabilitation obligation (revised) recognized 831,778 (4,381,350) – – (3,549,572)

– Impairment of mineral property interests 959,124 – – – 959,124

– Impairment of property, plant and equipment 411,169 4,415,450 – – 4,826,619

– Reversal of impairment on property, plant and equipment (585,923) – – – (585,923)

– Write down to net realizable value of diamond inventories 374,207 – – – 374,207

– Write down of mine supplies 125,970 – – – 125,970

– Impairment of sundry receivables 55,938 29,875 – – 85,813

– Share of profit from equity accounted investment – – 58,761 – 58,761

Finance income 356,463 85,079 172,218 – 613,760

Finance costs 423,076 879,018 104,541 – 1,406,635

Taxation 130,155 – – – 130,155

Loss for the year 5,184,428 7,217,461 1,374,489 – 13,776,378

For the year ended 29 February 2012

Property, plant and equipment 39,892,086 9,499,331 414 – 49,391,831

Mineral property interests 22,762,857 13,186,354 – – 35,949,211

Total assets 74,061,479 27,679,859 82,962,380 (74,270,445) 110,433,273

Total liabilities 78,062,807 27,519,153 2,667,388 (74,270,445) 33,978,903

External revenue 32,299,173 1,921,850 – – 34,221,023

Other material non-cash items

– Depreciation on property, plant and equipment 6,195,990 482,655 821 – 6,679,466

– Amortization on mineral property interests 1,282,834 23,909 – – 1,306,743

– Rehabilitation obligation (revised) recognized 752,212 536,320 – – 1,288,532

– Impairment of property, plant and equipment 4,938,893 – – – 4,938,893

– Share of profit from equity accounted investment – – 36,918 – 36,918

Finance income 563,868 125,864 90,750 – 780,482

Finance cost 475,060 247,434 151,302 – 873,796

Taxation 1,479,259 – – – 1,479,259

Loss for the year 5,465,268 4,411,757 3,842,359 – 13,719,384



30. Financial risk management The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The

Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

Overview This note presents information about the Group’s exposure to risks, the Group’s objectives, policies and processes for measuring and

managing risk and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

Capital management As at 28 February 2013, the Group is not subject to externally imposed capital encumbrances other than its overdraft facility.

Refer to note 8.

At 28 February 2013, of the $5,570,626 (29 February 2012: $10,741,341) cash and cash equivalents held by the Group, $5,293,016 (29 February 2012: $4,121,433) were held in South African rand (“ZAR”), $236,075 (29 February 2012: $6,005,288) in Canadian dollars and $41,535 (29 February 2012: $614,619) in United States dollars.

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders, and to have sufficient funds on hand for business opportunities as they arise. The Group considers the components of shareholders’ equity, as well as its cash and cash equivalents, and bank indebtedness as capital. The Group’s investment policy is to invest its cash in highly liquid short-term interest-bearing investments, having maturity dates of three months or less from the date of acquisition, that are readily convertible to known amounts of cash.

The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The Group may issue new shares through private placements, issue debt, or return capital to shareholders, in order to maintain or adjust the capital structure.

In order to facilitate the management of its capital requirements, the Group prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.

There were no changes to the Group’s approach to capital and working capital management during the year ended 28 February 2013 and the Group expects it will be able to sufficiently fund its capital development and operations for fiscal 2014 as disclosed in note 1.2.

Carrying amount and fair values of financial instruments The fair value of a financial instrument is the price at which a party would accept the rights and/or obligations of the financial instrument

from an independent third party. Given the varying influencing factors, the reported fair values are only indicators of the prices that may actually be realized for these financial instruments.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

It is not practicable to determine the fair value of amounts due to and from related parties as the loans do not have fixed repayment terms and the absence of a secondary market for such instruments.


30. Financial risk management (continued)

The following tables show the estimated fair values of the financial instruments:

28 February 2013 29 February 2012

Amounts in Canadian dollarsCarrying amount

Fairvalue

Carrying amount

Fair value

Assets carried at fair value through profit and loss

Investments 4,813,657 4,813,657 3,498,558 3,498,558

Assets carried at amortized cost

Deposits 74,758 74,758 70,843 70,843

Rehabilitation deposits 1,818,291 1,818,291 3,104,716 3,104,716

Trade and other receivables 4,576,614 4,576,614 2,887,305 2,887,305

Cash and cash equivalents 5,570,626 5,570,626 10,741,341 10,741,341

Liabilities carried at amortized cost

Loans and borrowings 5,204,491 5,204,491 5,388,144 5,388,144

Trade and other payables 3,999,001 3,999,001 3,069,212 3,069,212

Finance lease obligations 602,112 602,112 738,425 738,425

Bank overdraft 2,839,921 2,839,921 829,480 829,480

The following table illustrates the classification of the Group’s financial instruments recorded at fair value within the fair value hierarchy:

Financial assets at fair value – 28 February 2013 Level 1 Level 2 Level 3 Level 4

Investments 4,813,567 – – 4,813,657

Financial assets at fair value – 29 February 2012

Investments 3,498,558 – – 3,498,558

The financial assets designated at fair value through profit and loss are investments that would otherwise be classified as available-for-sale. The performance of these investments is managed on a fair value basis.

Financial instrument risk exposure and risk management The Group has exposure to the following risks from its use of financial instruments:

– Market risk

– Credit risk

– Liquidity risk

– Foreign currency risk

– Interest rate risk.



30. Financial risk management (continued) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income of the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, including treasury policies, counterparty limits, controlling and reporting structures, credit risk, liquidity risk, currency risk, interest risk and diamond price risk. The types of risk exposure and the way in which such exposure is managed are provided as follows:

Credit risk Credit risk is the risk of potential loss to the Group if counterparties to a financial instrument fail to meet their contractual obligations. The Group’s credit risk is primarily attributable to its liquid financial assets including cash and equivalents, restricted cash, accounts receivable and trade receivable from a related party. The carrying values of the Group’s cash and cash equivalents, accounts receivable and trade receivable from a related party represent the maximum exposure to credit risk.

The Group limits exposure to credit risk on liquid financial assets through maintaining its cash and equivalents with high-credit quality financial institutions. The Group does not have financial assets that are invested in asset backed commercial paper.

The Group minimizes its credit risk by reducing credit terms to 30 days on its sales. The ageing of receivables at the reporting date was:


28 February 2013 29 February 2012

Carrying amount Impairment

Carrying amount Impairment

Not past due 4,576,614 – 2,887,305 –

Past due 0 – 30 days – – –

Past due 31 – 120 days – – –

More than one year – – –

The current carrying values represent the Group’s maximum exposure to credit risk.

Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group raised $7.8 million

in a private placement during the prior year. After taking into account cash flows from operations and the Group’s holdings of cash and cash equivalents, the Group believes that these sources will be sufficient to cover the likely requirements for the foreseeable future. The Group’s cash and equivalents are invested in business accounts which are available on demand for the Group’s capital programs, and which are not invested in any asset backed deposits/investments.

The Group operates in South Africa. The Group is subject to currency exchange controls administered by the South African Reserve Bank, that country’s central bank. A significant portion of the Group’s funding structure for its South African operations consists of advancing loans to its South Africa incorporated subsidiaries and it is possible the Company may not be able to acceptably repatriate such funds once those subsidiaries are able to repay the loans or repatriate other funds such as operating profits should any develop. The repatriation of cash held in South Africa is permitted upon the approval of the South African Reserve Bank. Cash balances in South Africa are disclosed below.

The following are the contractual maturities of financial liabilities at carrying values (excluding future interest payments):

28 February 2013 Non-derivative financial liabilities


Contractualcash flow 2014 2015 2016 – 2018

Trade and other payables 3,999,001 3,999,001 3,999,001 – –

Due to related parties 48,925 48,925 48,925 – –

Bank overdraft 2,839,921 2,839,921 2,839,921 – –

Finance lease obligations 602,112 602,112 321,083 281,029 –

Loans and borrowings 5,204,491 5,204,491 1,314,807 541,537 3,348,147


30. Financial risk management (continued)

Liquidity risk (continued)

29 February 2012Non-derivative financial liabilities


Contractualcash flow 2013 2014 2015 – 2017

Trade and other payables 3,069,212 3,069,212 3,069,212 – –

Due to related parties 730,732 730,732 330,116 400,616 –

Bank overdraft 829,480 829,480 829,480 – –

Finance lease obligations 738,425 738,425 283,339 315,399 139,687

Loans and borrowings 5,388,144 5,388,144 806,049 624,232 3,957,863

Foreign currency risk

In the normal course of business, the Group enters into transactions for the purchase of supplies and services denominated in ZAR. In addition, the Group has cash and certain liabilities denominated in ZAR. As a result, the Group is subject to currency risk from fluctuations in foreign exchange rates. The Group has not entered into any derivative or other financial instruments to mitigate this foreign exchange risk.

The exposure of the Group’s financial assets and liabilities to currency risk is as follows:

Foreign currency exposure at the end of the reporting period


As at28 February

2013

As at29 February

2012

Assets

South African rand

Cash and cash equivalents 5 293 016 4 121 433

Trade and other receivables 4 576 614 2 887 305

Investments and deposits 4 888 415 3 569 401

Rehabilitation deposits 1 818 291 3 104 716

United States dollar

Cash and cash equivalents 41 535 614 619

Total financial assets denominated in currency different to the reporting currency (“CDN”) 16 617 871 14 297 474

Liabilities

South African rand

Bank indebtedness 2 839 921 829 480

Trade and other payables 3 973 044 3 069 212

Due to related parties 48 925 452 398

Finance lease obligations 602 112 738 425

Loans and borrowings 3 196 330 3 321 741

United States dollar

Loans and borrowings 2 008 161 2 066 403

Total financial liabilities denominated in currency different to the reporting currency (“CDN”) 12 668 493 10 477 659

Exchange rates used for conversion of foreign operations were:

CDN vs. ZAR – Annual average rate 0.1195 0.1347

CDN vs. ZAR – Year end spot rate 0.1146 0.1321

CDN vs. USD – Annual average rate 0.9987 0.9916

CDN vs. USD – Year end spot rate 1.0314 1.0136

Sensitivity analysis The Group does not have any significant financial instruments exposed to currencies different to the functional currency of the respective

Group entity. Therefore the Group is not significantly exposed to foreign currency movements through profit or loss.



30. Financial risk management (continued) Interest rate risk The Group is subject to interest rate risk with respect to its investments in cash and cash equivalents. The Group’s policy is to invest cash

at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders. Fluctuations in interest rates when the cash equivalents mature impact interest income earned.

The Group has finance lease obligations with several financial institutions (note 12) as well as a loan from the Industrial Development Corporation of South Africa Limited (note 11). These obligations bear interest at rates linked to the prevailing prime rate, and are subject to interest rate change risk.

Sensitivity analysis A 10% increase/decrease in the prime rate for the year ended 28 February 2013 would have a net loss/gain effect on profit or loss

before tax of $79,287 (29 February 2012: $18,848). This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.

Business risk – Diamond price risk The value of the Group’s mineral resource properties is dependent on the price and the outlook of diamonds. Diamond demand and

prices fluctuate and are affected by numerous factors beyond the control of the Group, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds and jewelry. Low or negative growth in the worldwide economy, prolonged credit market disruptions or activities creating disruptions in economic growth could result in decreased demand for diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production could also negatively affect the price of diamonds. In each case, such developments could materially adversely affect the Group’s results of operations.

The profitability of the Group’s operations is highly correlated to the market price of diamonds. If diamond prices decline for a prolonged period below the cost of production of the Group’s operating mines, it may not be economically feasible to continue production.

31. Subsequent events On 15 April 2013 the Group announced it had reached an agreement to sell Klipdam Mine and associated properties for a total

cash consideration of $2.5 million. The purchase consideration of ZAR23 million ($2.5 million) is payable in three tranches, the first ZAR10 million ($1.1 million) was received on signature of agreement, eight monthly installments of ZAR1 million ($0.1 million) and a final ZAR5 million ($0.6 million) on receipt of the Section 11 approval from the Department of Mineral Resources.

Although no formal plan existed at year end to dispose of Klipdam and its related assets, speculative third party offers received prior to year end indicated a value for the suite of assets deployed at Klipdam below the carrying value. As a result of the estimated allocated fair value less cost to sell attributable to the Klipdam suite of assets, an aggregate impairment of $1.4 million relating to mineral properties and property, plant and equipment has been accounted for at 28 February 2013.

As a result of the above transaction, approval was granted by the Company post year end to bring the Niewejaarskraal Mine into production. A reversal of a prior year impairment ($0.6 million) relating to property, plant and equipment was accounted for as a result.


NOTES

Niewejaarskraal at night – in commissioning during July 2013.

Registered office – South AfricaLevel 1, Wilds View, Isle of HoughtonCorner Carse O’Gowrie and Boundary RoadsHoughton Estate, Johannesburg 2198

PO Box 3011, Houghton 2041, South Africa

Telephone: +27 11 484 4722Facsimile: +27 86 501 6328

Corporate address – Canada1020–800 West Pender Street, VancouverBritish Columbia, Canada V6C 2V6

Telephone: +1 604 684 636Facsimile: +1 604 684 8092Toll Free: 1 800 667 2114

Corporate advisorAllan Hochreiter Proprietary Limited4 Fricker Road, IllovoSandton 2196, South Africa

JSE sponsorSasfin Capital (a division of Sasfin Bank Limited)29 Scott Street, WaverleyJohannesburg, South Africa

International brokerNorthland Capital Partners Limited60 Gresham Street, London, EC2V 7BBUnited Kingdom

AuditorsKPMG IncChartered AccountantsKPMG Crescent, 85 Empire RoadParktown 2193, South Africa

Transfer agentsSouth AfricaComputershare Investor Services Proprietary Limited(Registration number 2004/0036471/07)Ground Floor, 70 Marshall Street Johannesburg 2001, South Africa

CanadaComputershare Investor Services Inc.3rd Floor, 510 Burrard Street, Vancouver British Columbia, Canada V6C 3B9

LawyersSouth AfricaBrink Falcon Hume Inc AttorneysSecond Floor, 8 Melville Road, IllovoSandton 2196, South Africa

CanadaMc Millan LLPRoyal Centre 1055 West Georgia StreetSuite 1500 VancouverBritish Columbia, Canada V6E 4N7

CORPORATE INFORMATION

WWW.ROCKWELLDIAMONDS.COM

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