Tirisano 43-101 Technical Report

2010

Tania R Marshall Explorations Unlimited

Glenn A Norton Rockwell Diamonds Inc

REVISED TECHNICAL REPORT ON THE

TIRISANO ALLUVIAL DIAMOND PROJECT,

(INCORPORATING THE NOOITGEDACHT 131, HARTBEESTLAAGTE 146 AND ZWARTRAND 145

PROPERTIES), VENTERSDORP DISTRICT,

REPUBLIC OF SOUTH AFRICA,

FOR

ROCKWELL DIAMONDS INC,

Effective Date: 30 November, 2010

Signature Date: 30 May 2011

Revision Date: 25 July 2011

ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

Table of Contents Page

EXECUTIVE SUMMARY ...... 8 1 INTRODUCTION ...... 14

1.1 TERMS OF REFERENCE AND SCOPE OF WORK ...... 14 1.2 SOURCES OF INFORMATION ...... 17 1.3 UNITS AND CURRENCY ...... 17 1.4 FIELD INVOLVEMENT OF QUALIFIED PERSONS ...... 17 1.5 USE OF DATA ...... 18 2 RELIANCE ON OTHER EXPERTS ...... 19

2.1 LEGAL OPINION ...... 19 2.2 ENVIRONMENTAL ...... 19 2.3 DIAMOND VALUATION ...... 19 3 PROPERTY DESCRIPTION AND LOCATION ...... 20

3.1 PROPERTY DESCRIPTION AND LOCATION ...... 20 3.2 PERMITS CONTRACTS AND AGREEMENTS ...... 21 3.2.1 Surface ownership / land use rights ...... 21 3.2.2 Mineral rights (Mining/Prospecting Rights, permits, etc) ...... 21 3.2.2.1 Royalty Payments ...... 23 3.3 BEE COMPLIANCE ...... 23 3.4 ENVIRONMENTAL ...... 23 3.4.1 Environmental Rehabilitation ...... 23 3.4.2 Water permits ...... 25 4 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY ...... 26

4.1 TOPOGRAPHY, ELEVATION AND VEGETATION ...... 26 4.2 DRAINAGE ...... 27 4.3 ACCESS AND INFRASTRUCTURE ...... 27 4.4 CLIMATE ...... 28 5 HISTORY ...... 29

5.1 PREVIOUS OWNERSHIP ...... 29 5.2 PREVIOUS EXPLORATION/DEVELOPMENT ...... 29 5.2.1 Historical ...... 29 5.2.2 Etruscan Resources (Pty) Ltd ...... 32 5.2.2.1 Etruscan Mvelaphanda Joint Venture ...... 34 5.2.2.2 Etruscan Diamonds (Pty) Ltd ...... 34 6 GEOLOGICAL SETTING ...... 40

6.1 GENERAL GEOLOGY AND MINERAL DEPOSITS OF SOUTH AFRICA ...... 40 6.2 THE ALLUVIAL DIAMOND FIELDS OF THE NORTH WEST PROVINCE ...... 41 6.2.1 Morphotectonic Model ...... 42 6.3 PROPERTY GEOLOGY ...... 48 7 DEPOSIT TYPES ...... 51 8 MINERALIZATION ...... 56

8.1 NATURE OF MINERALISATION ...... 56 8.2 SURROUNDING ROCK TYPES/REGIONAL BEDROCK GEOLOGY ...... 57 8.2.1 Post-Gondwana Geomorphology ...... 59 8.3 GEOLOGICAL CONTROLS ...... 60 8.4 MINERALISATION ON TIRISANO MINE ...... 62

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

9 EXPLORATION ...... 63

9.1 REMOTE SENSING (SATELLITE IMAGERY / AERIAL PHOTO INTERPRETATION) ...... 63 9.2 GEOPHYSICS ...... 63 10 DRILLING ...... 69

10.1 DRILLING PROCEDURES AND PROTOCOLS ...... 69 10.2 LOCATION ...... 70 10.3 RESULTS ...... 73 10.3.1 Volume Estimation ...... 74 10.4 LIMITATIONS OF THE DRILLING PROGRAMME ...... 75 10.5 REPRESENTATIVENESS ...... 75 11 SAMPLING METHOD AND APPROACH ...... 76

11.1 DRILLING, SAMPLING AND RECOVERY FACTORS ...... 76 11.2 REPRESENTATIVENESS ...... 77 12 SAMPLE PREPARATION, ANALYSES AND SECURITY ...... 78 13 DATA VERIFICATION ...... 79 14 ADJACENT PROPERTIES ...... 81

14.1 NOOITGEDACHT 131 IP (DEPROCLAIMED PORTION) ...... 82 14.2 GOEDGEDACHT/KLIPGAT MINE...... 84 14.3 KRUGERSDAL MINE ...... 86 15 MINERAL PROCESSING AND METALLURGICAL TESTING ...... 87 16 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES ...... 88

16.1 RESOURCE ESTIMATION ...... 89 16.2 PROSPECTING AND MINING RISKS ...... 90 16.2.1.1 In South Africa ...... 94 17 OTHER RELEVANT DATA AND INFORMATION ...... 95

17.1 TRIAL-MINING PROGRAMME AND PRELIMINARY ECONOMIC ASSESSMENT ...... 95 17.2 MINING OPERATIONS ...... 96 17.2.1 Mining Method ...... 96 17.2.1.1 Excavation ...... 96 17.2.1.2 Screening ...... 96 17.2.1.3 Rehabilitation ...... 97 17.2.2 Survey ...... 97 17.2.3 Mine Plan ...... 98 17.2.3.1 Geotechnical Considerations ...... 99 17.2.3.2 Mining rates and expected life-of-mine ...... 100 17.2.3.3 Mining dilution factors ...... 100 17.2.4 Earthmoving fleet ...... 100 17.2.4.1 Fleet Maintenance ...... 101 17.3 RECOVERY PROCESS ...... 101 17.3.1 Mineralogical Testing ...... 101 17.3.2 Concentration/Process plant ...... 102 17.4 FINAL RECOVERY ...... 104 17.4.1 QA/QC ...... 105 17.5 INFRASTRUCTURE ...... 105 17.5.1 Roads ...... 105 17.5.2 Water ...... 105 17.5.3 Power ...... 106 17.5.4 Communication ...... 107 17.5.5 Mine Residue Deposits...... 107 17.5.5.1 Coarse Dumps ...... 107 17.5.5.2 Fine (Slimes) Dumps ...... 107 Page 3

ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

17.5.6 Waste Disposal ...... 108 17.5.7 Fuel storage and supply ...... 108 17.5.8 Staff/Labour ...... 108 17.5.9 Accommodation and offices ...... 109 17.5.10 Security ...... 110 17.5.11 Essential services ...... 110 17.6 MARKET STUDIES AND CONTRACTS...... 110 17.6.1 Market Studies ...... 110 17.6.1.1 Global diamond production ...... 110 17.6.1.2 The Diamond Pipeline ...... 111 17.6.1.3 International Diamond Market Trends ...... 112 17.6.2 Rockwell Sales and Contracts ...... 113 17.6.2.1 Diamond Sales...... 114 17.6.2.2 Sales Contracts ...... 115 17.7 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL/COMMUNITY IMPACT ...... 116 17.7.1 Environmental ...... 116 17.7.2 Mine Closure ...... 117 17.7.3 Social Responsibility ...... 118 17.7.3.1 Social and Labour Plan (SLP) ...... 118 17.7.4 Mine Closure Plans ...... 118 17.8 PRELIMINARY ASSESSMENT ...... 119 17.8.1 Principal Assumptions ...... 119 17.8.1.1 The volume and grade of the mineable material ...... 119 17.8.1.2 Life of Mine ...... 120 17.8.1.3 The annual production of diamonds ...... 120 17.8.1.4 The annual revenue to be received from the sale of diamonds ...... 120 17.8.1.5 The annual cash cost of production, both on-site and off-site ...... 120 17.8.1.6 The annual cash liability for royalties ...... 121 17.8.1.7 The annual level of cash capital expenditure required ...... 122 17.8.1.8 Taxation ...... 122 17.8.2 Preliminary Cash Flow ...... 123 17.8.3 Payback period ...... 125 17.8.4 Sensitivities ...... 125 17.8.5 Financial Parameters ...... 127 17.8.5.1 Exchange rates ...... 127 17.8.5.2 Interest rates ...... 128 17.8.5.3 Inflation rates ...... 128 17.8.5.4 Internal Rate of Return (IRR) ...... 128 17.8.5.5 NPV Discount Rate Issues and Assumptions ...... 128 17.9 SOUTH AFRICAN ECONOMY ...... 133 17.9.1 The Mining Industry ...... 133 17.9.1.1 South African diamond production ...... 134 17.9.2 South Africa’s Mineral Legislative Environment ...... 135 17.9.2.1 Mineral Policy ...... 135 17.9.2.2 Mineral and Petroleum Resource Development Act 28 of 2002 (“MPRDA”) ...... 135 17.9.2.3 Broad Based Black Economic Empowerment (BBBEE) and the Mining Charter ...... 137 17.9.2.4 The Minerals and Petroleum Resources Royalty Bill ...... 139 17.9.2.5 The Diamond Amendment Bill ...... 140 17.9.2.6 Diamond Export Levy Bill 2007 ...... 141 17.9.2.7 Precious Metals Bill and the Beneficiation Strategy ...... 141 17.9.2.8 Kimberley Process ...... 142 18 INTERPRETATION AND CONCLUSIONS ...... 144 19 RECOMMENDATIONS ...... 150

19.1 PROPOSED WORK PROGRAMME ...... 150 19.2 PROPOSED BUDGET ...... 150 20 REFERENCES ...... 152 21 DATE AND SIGNATURE PAGE ...... 156

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22 CERTIFICATE OF AUTHORS ...... 157

22.1 TANIA RUTH MARSHALL ...... 157 22.2 GLENN ALAN NORTON ...... 159

Figures

Figure 1.1: Location of Rockwell owned properties in South Africa ...... 15 Figure 1.2: Corporate shareholdings of Rockwell ...... 16 Figure 3.1: Location of the Tirisano Project in the North West Province of South Africa ...... 20 Figure 3.2: Location of the Tirisano properties ...... 22 Figure 5.1: Location of previous prospecting activities (pre-2000) on Hartbeestlaagte (from Berezowsky, 1998) ...... 31 Figure 5.2: Location of the bulk-sample pits on the Tirisano project ...... 36 Figure 5.3: Bulk-sample process flow-sheet (Courtesy of Etruscan) ...... 37 Figure 6.1: The General Geology of South Africa ...... 40 Figure 6.2: The alluvial diamond fields of the NorthWest Province ...... 41 Figure 6.3 Underground solution channels carved out by glacial meltwater during the Palaeozoic . 42 Figure 6.4 Enlargement of subterranean karst structures by subsidence and collapse ...... 44 Figure 6.5 Geological Evolution of the Ventersdorp alluvial deposits ...... 45 Figure 6.6: Property Geology Map ...... 49 Figure 7.1: Schematic stratigraphic model for the Ventersdorp alluvial diamond deposits ...... 52 Figure 8.1: Schematic development of dolines ...... 56 Figure 8.2: Generalised Geology of the Ventersdorp Area highlighting the importance of lithology and structure in the location of important alluvial diamond deposits...... 61 Figure 9.1: Extract from the 1996 photo interpretation by N Lockett, showing various interrelationships between the gravel runs, lithology and structures ...... 64 Figure 9.2: Tirisano project residual gravity (250 m regional) (du Plessis, 2006) ...... 66 Figure 9.3: Location of detailed geophysical grid (du Plessis, 2006) ...... 67 Figure 10.1: Location of all drillholes on the Tirisano project area. See Fig. 10.2 for detail of inset ... 71 Figure 10.2: Additional (infill) holes drilled during 2008, within and to the north of Tirisano main pit (see Fig. 10.1 for location of area) ...... 72 Figure 10.3: Contours of drill results showing gravel thicknesses ...... 73 Figure 10.4: Method of resource volume estimation (courtesy A B Global, 2008) ...... 74 Figure 11.1: Schematic distribution of alluvial diamonds within an alluvial deposit – random distribution of clusters of points (Rombouts, 1987)...... 76 Figure 14.1: Location of prospecting/mining activities on properties adjacent to Tirisano ...... 81 Figure 16.1: Indicated and Inferred Resources identified on the Tirisano project ...... 91 Figure 17.1: Schematic diagram of the mining/processing high-level plan for Tirisano mine ...... 103 Figure 17.2: Location of boreholes on Tirisano ...... 106 Figure 17.3: Global diamond production per country by volume and value, 2008 (Chamber of Mines Annual Report, 2009) ...... 111 Figure 17.4: The Diamond Pipeline ...... 111 Figure 17.5: IDEX index for cut-stones for the period Nov 2009 to Oct 2010 ...... 113 Figure 17.6 Long term rough diamond supply/demand outlook 2000 to 2018, prepared by WWW International Diamond Consultants Ltd using January 2009 values (redrawn from Read and Janse, 2009)...... 114 Figure 17.7: Revenue sensitivities to changes in key variables ...... 126 Figure 17.8: Capex sensitivities ...... 127 Figure 17.8: Discount Rate vs. Project Stage (Smith, 2002) ...... 130 Figure 17.9: Generic illustration of the effect of country risk on the discount rate (Smith, 2002) ..... 131

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

Figure 17.9: The effect of different discount values on the NPV of the Tirisano mine (showing both static and escalation cases)...... 132 Figure 19.1: Planned prospecting for the Tirisano mine property during 2011 ...... 151

Tables

Table 3.1: Summary of Mining Right ...... 23 Table 3.2: Summary of rehabilitation guarantees held by Etruscan ...... 24 Table 5.1: Recovered grades for the 2006/2007 bulk-sampling programme (cut-off size 1.6mm) . 35 Table 5.2: Resources estimated for the Tirisano project as at 31 October 2009 ...... 39 Table 8.1: Simplified Stratigraphy of the North West Province (SACS, 1980) ...... 58 Table 16.1: Resource statement as at 30 November 2010...... 90 Table 17.1: Proposed earthmoving fleet requirements ...... 100 Table 17.2: Proposed processing specifications ...... 103 Table 17.3: Resources used in the life of mine plan ...... 119 Table 17.4: Proposed capital expenditure to re-commission Tirisano mine (Phase 1) ...... 122 Table 17.5: Preliminary economic assessment for the proposed Tirisano mine (Base/static scenario) ...... 124 Table 17.6: Preliminary economic assessment for the proposed Tirisano mine (Escalation scenario) ...... 124 Table 17.7: IRR estimations on the Tirisano alluvial diamond mine ...... 132 Table 17.8: Economic indicators for South Africa (October 2010) ...... 133

Plates

Plate 4.1: View of the flat landscape between Hartbeestlaagte and Zwartrand (looking SE). Photo courtesy of Etruscan Diamonds (Pty) Ltd ...... 26 Plate 5.1: Artisanal diggings along the Nooitgedacht – Zwartrand Run. The diggings in the background are situated where the Tirisano main pit is now located. (Photo courtesy of Etruscan Diamonds (Pty) Ltd) ...... 30 Plate 6.1: Rafts of Waterberg karst infill in the dolomite wallrock of Tirisano Main Pit ...... 45 Plate 6.2: Vertical unit of LGP gravel draping the dolomite bedrock and overlain by thick pebble- clay (PCP) infill (Photo from Goedgedacht 27, Courtesy Gothoma CC) ...... 46 Plate 6.3: Thickening of the Kalahari Sands over a pothole (photo from Roodepan 180, courtesy Batton Mining (Pty) Ltd) ...... 47 Plate 6.4: Intersecting fractures and the large sinkhole at the Tirisano main pit (aerial view from the southeast, courtesy of Etruscan) ...... 48 Plate 6.5: Silicic ridges (remnants of the Giant Chert Formation ?) that traverse the property and have an effect on gravel deposition ...... 50 Plate 7.1: General Stratigraphy as seen on Hartbeestlaagte ...... 52 Plate 7.2: Overburden sequence of Kalahari clays and Hutton Soils ...... 54 Plate 7.3: Hutton Sands overlying (manganese) cemented colluvial gravels ...... 55 Plate 8.1: Supergene enriched manganese wad development (defunct Rand London Manganese Mine on Roodepan 180 IP, Ventersdorp district) ...... 60 Plate 10.1: RC Drill-rig used by Etruscan on the Tirisano project (photo courtesy of Etruscan) ...... 69 Plate 10.2: Sample-board preparation at the Etruscan warehouse in Ventersdorp ...... 70 Plate 14.1: Artisanal operation to the north of the Tirisano Mine on the Nooitgedacht Deproclaimed area. Photo courtesy of Etruscan, view from the north ...... 82 Plate 14.2: Manganiferous colluvial deposits mined on Nooitgedacht ...... 83

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Plate 14.3: Lower gravels (LGP) being mined on Nooitgedacht, below old diggers heaps ...... 83 Plate 14.4: Klipgat Mine, as operated by Gothoma for Etruscan Diamonds (Pty) Ltd during 2000- 2006 (Courtesy, Etruscan Diamonds) ...... 84 Plate 14.5 Gothoma’s (2007) operations – mining lower gravels from a deep sinkhole ...... 85 Plate 14.6: Mining operation on S A Gemstone’s Morgenzon property (2004) ...... 86 Plate 17.1: Screening plant in operation on Tirisano mine ...... 97 Plate 17.2: The completed final recovery section, with the six primary flow sort x-ray machines in the back ground and the one of three secondary machines in the foreground...... 104

Units and Abbreviations

Unit Description Ma Millions of Years before Present ct Carat(s) ct/st Carats per Stone ct/100m3 Carats per 100 cubic metres cpht Carats per 100 Tonnes tph Tonnes (metric) per hour m Metres M Million SG Specific Gravity BBBEE Broad Based Black Economic Empowerment (the more correct term of the usually shortened BEE (Black Economic Empowerment) and used in this report DMR Department of Mineral Resources (Previously known as Department of Minerals and Energy (DME)) DWAF Department of Water and Forestry DTM Digital Terrain Model QP Qualified Person, as defined by National Instrument 43-101 CP Competent Person, as defined by SAMREC DMS Dense Media Separation plant Bottom cut-off Bottom cut-off refers to the smallest size diamond (in mm) that is recovered in the sampling and mining process – in this case, no diamonds smaller than 2mm are recovered. JSE Johannesburg Stock Exchange OTCBB Over-the-Counter Bulletin Board TSX Toronto Stock Exchange

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EXECUTIVE SUMMARY

Explorations Unlimited (EU) was retained by Rockwell Diamonds Inc (“Rockwell”) to prepare a Technical Report for the Tirisano project. This technical report, comprising background information, drill and sample data derived from the property up to 30 November 2010, is prepared to document the results of exploration work and the resource estimate on the Tirisano property as summarized in the Company’s Annual Information Form for the 2011 fiscal year. The results of a preliminary economic assessment are included as support for Rockwell's Business Plan Update of March 2011.

This Technical Report has been compiled in accordance with the NI 43-101 Standards of Disclosure for Mineral Projects. The resource estimate has, further, been prepared in agreement with the South African code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC code). The Tirisano project, which includes the Tirisano Diamond Mine, was put on Care & Maintenance on 25 November 2008 and the associated infrastructure and mine plan described here reflects the project status as at this date. The conclusions expressed in this independent resource estimate are appropriate as at 30 November 2010. The estimate is therefore only valid for this date and will change in response to ongoing exploration and production results as well as with variations in economic, market, legal, social or political factors.

The Resource properties, on which this technical report is based, are: Nooitgedacht 131 IP (“Nooitgedacht”) • Portions 1,2,3,5,7,11,R/E farm • Tirisano main pit (portions 8 and 9) Hartbeestlaagte 146 IP (“Hartbeestlaagte”): • Portions 1, 2, 3 and the Remaining Extent (R/E farm) • Deproclaimed Area Zwartrand 145 IP (“Zwartrand”) • Various portions

These properties (totalling 10,805.57ha) are located some 35km due north of the town of Ventersdorp, in the Northwest Province approximately 150km west of Johannesburg. The project is well located within the alluvial diamond fields of the North West Province. The total reported production from these diamond fields from 1904-1984 is estimated at 14.4 million carats, which would have a present day value of over USD 5 Billion. Mining from the Tirisano project, by open cast methods has taken place from 2002 – 2008 (intermittent prospecting and bulk-sampling activities have been taking place since 1979, however).

The mineral holdings on this project are summarised below:

Property Portion Mineral Right Portions 1, 2, 3, 5, 7, 8, 9, 11, Nooitgedacht R/E farm Mining Right, 2/2008 Hartbeestlaagte 1,2,3,Re/farm, Deproclaimed NW 30/5/1/2/2/345MP Zwartrand Various

Due to the karst-hosted nature of the deposits on the properties, concurrent mining and complete rehabilitation is not possible (as the sinkholes have to be mined out totally before they can be

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

rehabilitated). In this situation, the approved Environmental Management Programmes allow for the excavation of much of the gravel resource before rehabilitation is finalised. Environmental rehabilitation guarantees, to a total of ZAR15,026,979 (USD1,878,372.38)have been lodged with various institutions to comply with statutory requirements.

The preferred geological model is one of deposition in a karst environment where the dolomite walls of the host-rock are vertical; the mode of gravel deposition is not typical fluvial alluvial; periodic subsidence has taken place during deposition; and deposition has taken place over a long time (since, at least, the Mesozoic) resulting in a build-up of a very thick gravel sequence. The gravel stratigraphy comprises an upper gravel horizon (UGP) and a lower gravel unit (LGP) that are both economically diamondiferous, separated by a sub-economic fine-grained pebble-clay unit (PCP). The LGP, which is characterized by a predominance of quartzite over chert clasts, may be clay-rich or clay-poor, with the clay-poor varieties being the primary exploration target due to their higher average grades. Mineralisation is confined to the gravel packages in-filling karst caverns etched out of the chert-rich dolomites of the Malmani Group. The clay-poor Lower Gravel Package and Upper Gravel Package units are considered to be the major exploration targets as the diamond grades encountered in these units have, historically, supported commercial mining ventures. Although elevated grades have also been associated with the colluvial manganese nodule layer – this unit is not everywhere present on the property and is, therefore, not considered as part of this study.

The airborne and ground gravity surveys (and supported by extensive drilling) indicates that the karst system trends roughly in a NW-SE direction across the properties, and is offset by a number of structural features. There appear to be a succession of sinkholes connected by a series of linkage channels (which pattern is typical of allogenic streams). The overall length of the karst system is in excess of 6,000 m. Widths of the channels are seen to vary from 135-385 m.

To date, 2,391 boreholes have been drilled on the property, totalling 53,576m. The deepest drilling indicates that, in some of the deeper sinkholes, the lower gravels extend down, at least, to 140m (without intersecting bedrock). Geophysical interpretation, however, indicates that final depths of the sinkholes may be in excess of 120m and, potentially, up to 200m in places. Eleven bulk-samples (Pits 1, 2 (A, B, and C), 3, 3A, 5C, 6, 7, 8 and 9) provided 147,895.88m3 of Lower Gravels (LGP), including Transition Zone gravels (TZP) from which 4,318.6ct were recovered for a global grade of 2.85ct/100m3 (with bottom cut-off of 1.6mm) and value of USD466/ct. In addition, 129,557.46m3 of Upper Gravels (UGP) was processed to recover 2,292.00ct at an average grade of 1.77ct/100m3.

During 2008, mining by Etruscan processed gravels from the base of the Tirisano main pit. A total of 218,718m3 was processed, of which 146,881m3 is LGP, 10,293m3 is UGP and 61,534m3 is a blend of both UGP and LGP. During this period, some 6,459.98ct were recovered (1,042.96ct from LGP gravel and 5,417.02ct from the undifferentiated gravels) from the Tirisano main pit. The average recovered grade of these gravels was 2.43ct/100m3 (2.00ct/100m3 and 2.54ct/100m3, respectively). The drop in average grades for this period is thought to be the result of continuing (increasing?) process recovery problems. Consequently, the average grades determined by the bulk-sampling programme were accepted for the Tirisano resource model until further mining at greater depth shows any differences in the trend. During the period January – June 2008, a total of 5,552.54ct were sold to various diamond buyers on the open market for an average of USD606/ct.

During this time, mining was confined to the Tirisano main pit on Nooitgedacht. Excavation (and rehabilitation) was done under contract to ALS Contractors (Pty) Ltd. Mineral processing was through two DMS plants (Bateman DMS at 40tph and Manhattan DMS at 50tph) as well as two new rotary pan plants. Final recovery was through an X-Ray (FlowSort) system and hand-sort in a secure glove-box.

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Operations highlighted a number of technical issues that needed to be addressed in the on-going mining programme: • There are continuing issues with processing efficiencies as a result of clay and manganese in the gravels that need to be resolved through a detailed investigation of the gravel metallurgy as well as the processing methodology/equipment. • Due to the almost random variation in sedimentological horizons within the gravel unit, production data (specifically grade) must be observed continually and reconciled with modelled figures. The geological model also needs to be monitored and refined as operations expose sinkhole fill at depth. • Sustained attention should be given to finding ways to differentiate between the various gravel horizons in borehole logs, including geochemical and mineralogical studies. • Since these deposits are “high-volume, low-grade” operations, much effort will be required to replace mined gravels. Consequently, an on-going regional exploration programme will need to be pursued to identify and evaluate additional, similar deposits. • Sustained attention should be given to finding ways to differentiate between the various gravel horizons in borehole logs, including geochemical and mineralogical studies.

Although it was planned for the mine to be re-commissioned in 2010, Rockwell decided to re-engineer the entire concentration and recovery process before putting the mine back into production. Numerous mineralogical and metallurgical studies were initiated in order to determine the most effective methods for processing the clay-rich gravels that, heretofore, have resulted in recovery inefficiencies

During 2011, trial-mining and continued pre-feasibility studies will determine the mine-plan which will be implemented to put the Tirisano mine back into full production. During this time, it is expected that the planned modifications to the plant will result in improved grade recoveries. Further, the sale of at least 5,000cts on the open market (through the tender system at Flawless Diamond Trading House (Pty) Ltd) will result in a realistic, current valuation of the diamonds. At that stage, the results of the pre- feasibility study will be presented in a technical report.

No additional work was completed on the mineral resource estimate. Until additional drilling and mineral processing has taken place by Rockwell, this study has accepted the resource estimate declared in the NI43-101 technical report produced as at October 2009. The resource estimate was estimated by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of both Etruscan and Rockwell and is responsible for the estimate. The result of the resource estimation is below.

Indicated Resource Inferred Resource Grade Value

volumes (m3) volumes (m3) (ct/100m3) (USD/ct) Upper Gravel Package 16,109,000 8,613,000 1.77 Lower Gravel Package 11,801,500 6,744,000 2.85 Sub-total 27,910,500 15,357,000 2.37 Depleted during historic -2,365,000 -23,000 activities and sampling SUBTOTAL 25,545,500 15,334,000 Depleted during 2008 trial- -265,658 2.43 606 mining on Tirisano TOTAL 25,279,900 15,334,000 2.37 606

Note: Mineral Resources which are not Mineral Reserves have no demonstrated economic viability

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As can be seen, the existing volumes, grades and values have been accepted until further bulk-sampling and trial-mining by Rockwell can confirm or show differences due to upgraded processing facilities. Since no diamonds have been sold from the Tirisano mine, no current values are available and the early 2008 value of USD606/ct will be applied. Nevertheless, sales values of diamonds from the district are in the USD700/ct range, which is also what management has modelled that they would be expected to average during 2011.

In addition to the Indicated and Inferred Resources for the project, exploration targets exist in large areas of both the LGP and the UGP units. Although some drilling and sampling has taken place in these areas, the results are insufficient to be categorized as a resource. Target areas include • Some 30-40,000m3 of (LGP) gravel estimated to exist in the sinkholes below the present level of Inferred Resources (at 105m), down to the extent of drill data; • Some 150-200,000m3 of gravel within the modelled gravel wireframe, but which does not fall within the inferred categories due, primarily, to lack of borehole coverage; • The estimated, additional, 5-6Mm3 of (LGP) gravel that is modelled to exist in the sinkholes, if a more geologically reasonable shape is accepted (although not yet defined by drilling); • An undefined amount of gravel, specifically southeast of the currently inferred resource area, where gravel is seen to exist (from borehole results), but drill coverage and sampling constraints prevent these from being included within defined resources; • An indefinable volume of (LGP) material that is located below the present drilling level in the sinkholes. Geophysical modelling cannot be used to identify the base of the bedrock in these structures with any accuracy, and drilling has not penetrated the thick gravels. As a result, it has not been possible to estimate the volume of gravels; • The “West Run” on Nooitgedacht and Hartbeestlaagte has not yet been drilled or sampled. Some 200ha of area may be underlain by both UGP and LGP gravels. • Grade ranges for these targets are expected to fall within the values identified by sampling within currently identified resource areas, namely, 1-2ct/100m3 for UGP and 2-3ct/100m3 for LGP units • It is important to note that these statements regarding potential quantity and grade are conceptual in nature, that there has been insufficient exploration to define a mineral resource in these areas and that it is uncertain if further exploration will result in the target being delineated as a mineral resource.

During 2011, the emphasis will be on completing the trial-mining in preparation for putting the Tirisano project into full production. There is, at present, a 12 month trial-mining plan and schedule in place. SRK has been tasked to produce a geotechnical report with recommendations for the long term rehabilitation and mining of the existing and future pits. The detailed mine design, planning and optimisation will start immediately after the completion of the geotechnical report. The processing plant comprises of a bank of 8x16’ rotary pan plants, with a combined total throughput of 180,000m3. Diamonds are recovered from six primary, and three secondary, X-Ray FlowSort units before hand- sorting in a secure glove-box.

Further to the trial-mining, additional drilling of UGP gravels on the western portion of the mine property (500 holes, 5,000m) will be undertaken to increase confidence in the resources in this area, along with a ground geophysical survey comprising some 2,000 points. A total of R73M has been budgeted by Rockwell for capital expenditure to bring the Tirisano Project into production (to end February 2012), of which R30M has been spent to end February 2011, improving infrastructure, re- engineering and re-establishing the processing facilities, transporting earth-moving equipment to site

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(from where they were superfluous on Rockwell’s other operations), internal re-interpretation of existing data as well as detailed technical audits of some of the metallurgical/processing issues identified during a technical due diligence. Over and above the CAPEX requirements, Rockwell has budgeted some ZAR4.5M/month for the trial-mining, processing some 90,000m3 until June 2011 and ramping up to full production test-mining from July 2011. The exploration budget comprises ZAR400,000 for the ground geophysical survey and ZAR4.9M for the drilling programme (ZAR1.3M for exploration holes and ZAR3.6M for geotechnical purposes). The author has considered the proposed programme and budget and agrees they are appropriate for this stage of the project.

A preliminary economic assessment was completed for the Tirisano project – highlighting two scenarios, initially based on a static diamond price and operating cost and, secondly, on realistically assumed, annual diamond price escalation and increasing operating costs as a result of the peculiarity of mining gem-quality diamonds in Africa. In both scenarios, the Capex cost of ZAR 73M applies.

Tirisano Preliminary Assessment Key Parameters Indicated Resources 25,279,800 m3 Inferred Resources 15,334,000 m3 Average Grade 2.37 ct/100m3 Average sales value (2011) USD 606/ct Proposed monthly throughput 180,000 m3 Proposed mine life 18.8 years Operating Costs (2011) ZAR 49/m3 Mining Royalties 0.5-7% Capital required to bring mine into ZAR 73,000,000 production Earthmoving fleet budget N/A Tax 28% Key Results Base Case 10% Price Escalation IRR 59% 81% NPV at discount values of: 15% ZAR 226,000,000 ZAR 1,084,000,000 20% ZAR 153,000,000 ZAR 645,000,000 25% ZAR 105,000,000 ZAR 406,000,000

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In this preliminary economic assessment, both indicated and inferred mineral resources, as estimated in this NI43-101 technical document, are used. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

The independent QP has reviewed both the proposed work programme and budget and concurs that they are reasonable for the stage of the project. The programme is contingent upon financing as well as continued improvement in the diamond market.

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1 INTRODUCTION

1.1 Terms of Reference and Scope of Work

Explorations Unlimited (“EU”) was retained by Rockwell Diamonds Inc. (“Rockwell” or “the Company”) to prepare a Technical Report for the Tirisano in the Ventersdorp District of the North West Province, South Africa. This technical report, comprising background information, drill and sample data, including the bulk-sampling and trial-mining programmes1,derived from the property up to 30 November 2010, is prepared to document the results of exploration work and the resource estimate on the properties as summarized in the Company’s Annual Information Form for the 2011 fiscal year. The results of a preliminary economic assessment are included as support for Rockwell's Business Plan Update of April 2011 as well as a private placement by Rockwell, which is planned for completion by the end of June 2011.

Rockwell signed a term sheet with Etruscan Diamonds Limited (“Etruscan”) whereby2 the Company proposes to purchase Etruscan's Blue Gum diamond operation in the Ventersdorp region of South Africa. The acquisition is for 74% of the operation with the balance owned pursuant to South Africa's Black Economic Empowerment regime. The price to be paid to Etruscan is an amount not exceeding ZAR 33.5 million (approximately C$4.65 million) payable in Rockwell shares valued at C$0.068 each. The Company will also assume certain non-material property maintenance obligations effective immediately and other financial obligations upon completion of the acquisition. The Blue Gum alluvial diamond deposit hosts3 indicated mineral resources of 25 million m3 at 2.37ct/100m3 and inferred resources of 15 million m3 at 2.37ct/100m3 as at October 2009.

Completion of the acquisition is subject to a number of conditions including South African mining ministry consent, securities regulatory approvals including TSX, satisfactory due diligence and project development financing and electric power negotiations. The Rockwell shares to be issued will be subject to escrow, resale and voting restrictions and will not materially affect control. Completion is waiting only on the issuing of a Section 11 cession by the Department of Mineral Resources, which is targeted for mid 2011.

This technical report comprises background information, drill and sample data derived from the property up to 25 November 2008, when it was placed on Care & Maintenance. The conclusions expressed in this technical report are appropriate as at 30 November 2010. The estimate is, therefore, only valid for this date and will change with time in response to ongoing exploration and production results as well as with variations in economic, market, legal or political factors.

Five documents, dealing with some or all of the Tirisano project properties, have been filed on www.sedar.com:

• Independent Resource Estimate of Diamondiferous Gravels at the Tirisano Mine of Etruscan

1 In this document, bulk-sampling is taken to be the initial period of sampling during which reconnaissance targets are investigated and inferred resources are identified, typically, the first one or two years of prospecting (in the case of Tirisano, the period during which it was owned/operated by Etruscan). Thereafter, as the programme expands to estimate significant indicated resources, this is defined as the trial-mining period. 2 News Release, 11 March 2010 3Technical Report on the BlueGum Alluvial Diamond Project, Ventersdorp district, Republic of South Africa, effective date October 31, 2009 by T R Marshall.

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Resources Inc. Estimation Date 23 January 2003. Prepared by N Lock, A van der Merwe and M Sperinck of RSG Global Pty Ltd • Technical Report on the Hartbeestlaagte Alluvial Diamond Property, Republic of South Africa and dated October 31, 2006, by T R Marshall of Explorations Unlimited. • Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, Republic of South Africa, effective date 31 December, 2007 by T R Marshall of Explorations Unlimited . • Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, Republic of South Africa, effective date June 30, 2008 by T R Marshall of Explorations Unlimited. • Technical Report on the Tirisano Alluvial Diamond Project, (Nooitgedacht 131, Hartbeestlaagte 146, And Zwartrand 145 Properties), Ventersdorp District Republic of South Africa (effective date of 31 October 2009) by T R Marshall of Explorations Unlimited.

Rockwell, listed on the TSX (RDI), the JSE (RDI) and the OTCBB (RDIAF), is a company involved in the exploration and mining of alluvial diamond deposits. In South Africa (Fig. 1.1; 1.2), Rockwell and its wholly-owned subsidiary Rockwell Resources RSA (Pty) Ltd (Rockwell RSA) owns, and Rockwell RSA operates, the Klipdam/Holpan mines (Barkly West), has operated the Wouterspan mine (currently on Care & Maintenance) and owns the Makoenskloof Prospect (Middle Orange River) through a 74% shareholding in HC Van Wyk Diamonds Limited. Further, Rockwell and Rockwell RSA also operate the Saxendrift mine and also hold several other prospects including the Niewejaarskraal mine, a past producer of alluvial diamonds through a 74% shareholding in Saxendrift Mine (Pty) Ltd.

Figure 1.1: Location of Rockwell owned properties in South Africa

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Explorations Unlimited is a South African based exploration consultancy owned by Dr Tania R Marshall and has been operating since 1996. EU provides a variety of exploration and prospecting consulting services to the international minerals community, in particular with respect to geological, evaluation and valuation of alluvial diamond mineral properties. This Technical Report for the Project was prepared by Dr T R Marshall (Pr. Sci. Nat.). Dr. Marshall has over 20 years experience in the alluvial diamond industry, including a background in international mineral exploration and evaluation studies and has had direct experience with alluvial-eluvial diamond mining operations as a consulting geologist and, also, as an operator. Dr Marshall’s experience includes operational and financial aspects of alluvial diamond mining, including mine planning and costing. Rockwell has accepted that the qualifications, expertise, experience, competence, independence and professional reputation of Dr Marshall are appropriate and relevant for the preparation of this Report.

Rockwell Diamonds Inc

(RDI-TSX/JSE)

Rockwell Resources RSA (Pty) Ltd Etruscan Diamonds (Pty) Ltd

Saxendrift H C Van Wyk Klipdam

Mine (Pty) Diamonds Ltd Mining Bluegum Ltd Company Ltd Diamonds ("HCVWD") ("SAX") ("KDMC") (Pty) Ltd

Holpan Mine Saxendrift Mine Erf 1, Erf 2004 Niewejaarskraal Mine Klipdam Mine Wouterspan Mine Zwemkuil Project Tirisano Mine Rietputs Project

Figure 1.2: Corporate shareholdings of Rockwell4

The technical report was compiled, primarily, by Dr Marshall. Where the document refers to “the author”, the senior (independent) QP, Dr Marshall, is referenced, unless otherwise indicated. The document was co-authored by Mr G A Norton who is the Mineral Resource Manager for Rockwell Diamonds Inc. Mr Norton has over ten years experience in the exploration and exploitation of alluvial diamonds throughout Africa (and has specific experience with the Tirisano Mine from January 2001 to December 2006) and is Rockwell’s in-house Qualified Person.

4 The Etruscan transaction is not yet complete as the mining rights have not yet been ceded to Rockwell. Page 16

ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

This Technical Report has been prepared in accordance with the NI 43-101 Standards Of Disclosure For Mineral Projects, the NAPEGG guidelines for the Reporting of Diamond Exploration Results, Identified Mineral Resources and Ore Reserves and the Best Practice Guidelines prepared by the Canadian Institute of Mining and Metallurgy and Petroleum (CIM) to assist the Qualified Person(s) (QP) in the planning, supervision, preparation and reporting of Mineral Resource and Mineral Reserve (MRMR) estimates, as well as the Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines, Canadian Institute of Mining and Metallurgy (May 4, 2008). The resource estimate has, further, been prepared with reference to the South African code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC code). In particular, the SAMREC Code provides guidelines for the South African diamond industry. The SAMREC Code has also been incorporated into the Johannesburg Stock Exchange (JSE) Listings Rules. Since Rockwell is dual listed in both Canada and South Africa, reference will continually be made to both CIM and SAMREC resource estimation codes (with CIM taking preference, as the Rockwell’s primary listing is the TSX).

1.2 Sources of Information

The comments and recommendations in this report, specific to the Tirisano mine property, are based, primarily, on information and technical documents supplied by Rockwell. Underlying legal contracts, permissions and agreements have not been reviewed by the author. Other technical/scientific papers and miscellaneous documents referred to are identified within the text or have been referenced in Section 21.

Since Dr Marshall was not on the project site for the full period of the site establishment, much reliance was placed on the technical management of Rockwell who provided technical data and internal audit reports for review. Dr Marshall has reviewed this data and considers it to be reasonable for the purpose of this report.

For the description of the ground and airborne geophysical surveys, the author has relied upon the expertise and reports (2003; 2006) of Alten du Plessis (Pr. Sci. Nat.), who is well qualified in this matter. Mr du Plessis has 10 years experience as a geophysicist, with particular expertise in both ground and airborne gravity surveys.

1.3 Units and Currency

All values are metric, unless otherwise stated. Historical grade and tonnage figures are reported in units as originally published. All budget costs are presented in South African Rands (R) and United States Dollars (USD), for which a nominal exchange rate of USD1 = R6.8 has been used. Diamond sales values are expressed in United States Dollars.

1.4 Field involvement of Qualified Persons

Recent site visits to the properties that comprise the Tirisano project were undertaken by T R Marshall on 31 May and 28-29 July, 2010. During these visits, audits were made of technical and administrative procedures and protocols being practiced by Rockwell personnel. In addition, numerous discussions were held with the management and technical personnel of Rockwell, who readily provided all

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010 requested information. EU’s extensive experience in this area including that gained from prior investigations of this and other nearby deposits was also drawn upon as required. Mr Norton is Rockwell’s Mineral Resource Manager and, as such, visits the Tirisano mine on a weekly basis.

1.5 Use of Data

Neither Explorations Unlimited nor family members have a business relationship with Rockwell or any associated company, nor with any other company mentioned in the Report which is likely to materially influence the impartiality of the Report, or create the perception that the credibility of the Report could be compromised or biased in any way. The views expressed herein are genuine and deemed independent of Rockwell. Moreover, neither the author of the report nor family members have any financial interest in the outcome of any transaction involving the properties considered in this Report, other than the payment of normal professional fees for the work undertaken in its preparation (which is based upon hourly charge-out rates and reimbursement of expenses). The payment of such fees is not dependent upon the content, or conclusions, of this Report or any consequences of any proposed transaction.

Rockwell has warranted that a full disclosure of all material information in its possession or control has been made to EU, and that it is complete, accurate, true and not misleading. Draft copies of the Report have been reviewed for factual errors by Rockwell. Any changes made as a result of these reviews did not involve any alteration to the conclusions made. Hence, the statements and opinions expressed in this document are given in good faith and in the belief that such statements and opinions are not false and misleading at the date of this Report.

Written consent is provided for the filing of the Technical Report with any stock exchange and other regulatory authority and also for any publication by them of the Technical Report for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public. EU reserves the right, but will not be obligated, to revise this Report and conclusions if additional information becomes known to EU subsequent to the date of this Report.

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2 RELIANCE ON OTHER EXPERTS

2.1 Legal Opinion

An opinion regarding the underlying legal contracts, permissions and agreements has been provided by Chris Stevens (director) of Taback & Associates (Pty) Ltd on 7 December, 2010 – Title Opinion in respect of the prospecting and mining and mineral rights of Etruscan Diamonds (Pty) Ltd.

The author has not independently verified the status of these contracts, permissions and agreements but has accepted that the legal opinion represents a materially accurate situation. The author has relied on this opinion for the compilation of Section 3.3

2.2 Environmental

The Environmental Management Programme was prepared for Etruscan by Babalwa Fatyi of Myezo Environmental Management Services cc in 2009. Much of the information regarding rehabilitation and environmental issues were summarised from this document.

2.3 Diamond Valuation

Since no diamonds have been produced/sold by Rockwell from the Tirisano property, no formal valuations have been obtained.

With respect to the information discussed later regarding expected annual (alluvial) diamond price increases, this was obtained from personal discussions with Mr Ernest Blom, for this specific purpose. Ernest Blom is the founder of Ernest Blom Diamond Cutting works and Ernest Blom Diamonds and is active in all aspects of the diamond trade and is involved in the following organisations both locally and internationally: • Honorary Life President of the World Federation of Diamond Bourses • Chairman of the Diamond Dealers Club of South Africa • Chairman of the Diamond Council of South Africa • Chairman of the Diamond and Jewellery Federation of South Africa • Founding Member of the World Diamond Council • Member of the Diamond and Precious Metals Regulator of South Africa • Vice President of CIBJO (The World Jewellery Confederation)

As such, Mr. Blom is well qualified to comment on the international diamond market and its potential impact upon diamond prices (especially jewellery stones). However, with the pricing of any commodity that is regarded as a luxury item, there are risks that may appear as a result of unexpected and unforeseeable international economic conditions.

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3 PROPERTY DESCRIPTION AND LOCATION

3.1 Property description and location

The Tirisano Project, located in the North West Province of South Africa (Fig. 3.1) is comprised of a central core of properties on which Etruscan is prospecting diamondiferous gravels. These properties (totalling 10,805.57ha) are located some 35km due north of the town of Ventersdorp, in the Northwest Province approximately 100km west of Johannesburg. The company also has active prospecting licenses on numerous other properties in the district.

Figure 3.1: Location of the Tirisano Project in the North West Province of South Africa

The Resource properties (with a total area of 9,988.3778ha), on which this technical report is based, are: Nooitgedacht 131 IP • Portions 1,2,3,5,7,11,R/E farm • Tirisano Main Pit (portions 8 and 9) Hartbeestlaagte 146 IP • Portions 1, 2, 3 and the Remaining Extent (R/E farm) • Deproclaimed Area Zwartrand 145 IP • Various portions excluding the Mogopa village and the African & Asian claim blocks

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The Nooitgedacht Property is 4,958.15ha in size (WGS84 35S co-ordinates A, B, C, and H, identified on Fig. 3.2). Included within the property boundaries, but not part of the project is the “Deproclaimed area” (some 14ha in extent). This portion is not part of the Tirisano project as the rights are held by the landholder who is also mining on the property. The original Tirisano Mine area (611.56ha) is located on portions 8 and 9 of the greater farm Nooitgedacht.

The Hartbeestlaagte Property is 4,009.33ha in size (C, F, G, and H on Fig. 3.2). The “Deproclaimed area” (some 68.47ha in extent), is included within the boundaries of the greater farm Hartbeestlaagte and forms part of the project. The Zwartrand Property is located adjacent to the east of Hartbeestlaagte, is 1,226.53ha and bounded by C, D, E, F. However, due to the location of the Mogopa Village on Zwartrand and the exclusion of the African & Asian claims, the effective area available for prospecting (1,020.90ha) is limited to F, I, J, K, L (Fig. 3.2).

3.2 Permits contracts and agreements

3.2.1 Surface ownership / land use rights

The Remaining extent of Portion 8 (Ptn of Ptn 3) of Nooitgedacht 131, the portion of property on which the original Tirisano main pit is situated, is owned by Etruscan5. The other portions of Nooitgedacht are owned by various private individuals. The Bakwena Ba-Mogopa Trust is the owner of the surface rights to the Hartbeestlaagte and Zwartrand properties and has held the land since 1922. A sum of R66,965.31 is payable to the Mogopa Trust as a monthly land rental cost.

The mineral rights to all the properties belong to the State (since May 2004). Prior to that, the rights were held by the Bakwena Ba-Mogopa Trust, although numerous parties have held options over various portions of the properties in order to complete the exploration programmes outlined in Section 5.

3.2.2 Mineral rights (Mining/Prospecting Rights, permits, etc)

Up until 2008, the rights to the properties comprising the Tirisano project were held through various separate permits and rights (Table 3.1). In order to simplify matters and move the operation forward under a single permit, Etruscan compiled a new order mining right application so as to include all the relevant portions of Nooitgedacht, Hartbeestlaagte and Zwartrand. The new Mining Right, applied for in the name of Etruscan Diamonds (Pty) Ltd was granted on 30 September, 2008, after having been ceded to Blue Gum Diamonds (Pty) Ltd on 12 August 2008. Unless this mining right is suspended, cancelled or abandoned or lapses, it will be valid for a period of seven years, until 29 September 2015 (further renewals of up to 30 years6 each are allowed after the initial period has expired). The mining right (NW/3/5/MR) was lodged for registration at the Mineral and Petroleum Titles Registration office in Pretoria on 1 October 2008.

The Mining Right in the name of Blue Gum Diamonds (Pty) Ltd is subject to a Section 11 change-of ownership application in terms of the MPRDA. The required documentation was submitted to the DMR on 28 May 2010 and the cession is expected in early 2011. Until the cession is complete, Rockwell operates as a mining subcontractor.

5 Under the terms of the agreement with Etruscan, Rockwell will assume ownership of this land as well. 6 MPRD Act 28 of 2002, Section 24(4) Page 21

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Figure 3.2: Location of the Tirisano properties

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Table 3.1: Summary of Mining Right

New Order Property Portion Hectares Mining Right Farm, excluding Mining Right (Protocol Nooitgedacht 131 Deproclaimed area 4,958.15 02/2008 and file (14ha) NW/345/MR) granted 1,2,3,Re/farm and executed on 30 Hartbeestlaagte 146 including the 4,009.33 September 2008 and Deproclaimed area valid, until 29 Various portions, September 2015. excluding the Zwartrand 145 1,020.90 Mogopa village and Subject to Section 11 claim blocks cession to Rockwell

3.2.2.1 Royalty Payments

In terms of the Mining and Petroleum Royalties Act, royalties are payable from March 1, 2010. The deadline for the registration of mining and minerals firms, under the Act, had closed on January 29. In compliance with this requirement, Rockwell has registered as a royalty payer with the South African Revenue Service (“SARS”).

3.3 BEE Compliance

The 26% Black Economic Empowerment (BEE) partner on Tirisano mine is Mogopa Blue Gum (Pty) Ltd, which is owned by Mogopa Minerals (Pty) Ltd (“Mogopa”). The Mogopa community has about 350 families and is located in the vicinity of the mining area. The formal terms of the venture between Rockwell and Mogopa remain, essentially, the same as with Etruscan7. In addition, many of the properties acquired by Rockwell from Etruscan (as part of the Tirisano deal) which are not suited to Rockwell's bulk-mining methods will be ceded to the Mogopa.

3.4 Environmental

3.4.1 Environmental Rehabilitation

Due to the nature of the deposits on the properties, concurrent mining and complete rehabilitation is not possible. In this situation, the approved environmental management plans (EMPlans) allow for the excavation of much of the gravel resource before rehabilitation is finalised. In preparation for this, topsoil is removed separately and strategically deposited where it will not be contaminated or mixed with the gravels. As soon as possible, mined-out trenches are completely backfilled, the topsoil is

7 See section 3.4 of Technical Report on the Tirisano Alluvial Diamond Project, (Nooitgedacht 131, Hartbeestlaagte 146, And Zwartrand 145 Properties), Ventersdorp District Republic Of South Africa (effective date of 31 October 2009) by T R Marshall of Explorations Unlimited.

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replaced and the area is re-vegetated. In terms of the available EMPlan information, however, bulk- sample excavations may be left open if the project applies for a Mining Right and only need be rehabilitated finally under the Mining Environmental Management Programme (EMPR).

During the upgrading of the old order prospecting permit to an old order mining permit in 2002, a Standard Environmental Management Programme (SEMP) was compiled for the Tirisano Diamond Mine by Digby Wells and Associates. It was approved in June 2003 and continued in force while the new order rights and their associated environmental documents were finalised. Further, the existing, approved EMPlans for Hartbeestlaagte and Zwartrand also remained in place until the new order Mining Right was issued.

In 2008, an Environmental Impact Assessment was conducted over the area under application by the new order Mining Right and, subsequently, an EMPR was compiled by Myezo Environmental Management Systems CC. The EMPR was approved by the Department of Mining and Mineral Resource (DMR) on 30 September 2008. In compliance with the approved EMPlans, Etruscan had lodged various financial rehabilitation guarantees lodged with recognised financial institutions (Table 3.2). In terms of Rockwell’s agreement with Etruscan, these guarantees will be ceded to Rockwell.

Table 3.2: Summary of rehabilitation guarantees held by Etruscan

Issued by Guarantee # Guarantee amount Property Nedbank 19037201 15,000.00 Hartbeestlaagte Nedbank 26457202 35,000.00 Hartbeestlaagte Nedbank 27801918 100,000.00 Hartbeestlaagte Nedbank 27820505 65,000.00 Hartbeestlaagte Nedbank 28457307 500,000.00 Hartbeestlaagte Subtotal 715,000.00 Nedbank 22654518 101,140.00 Nooitgedacht Nedbank 22654607 40,900.00 Nooitgedacht Nedbank 23549904 427,200.00 Nooitgedacht Lombard’s Insurance group M-24671 13,092,739.00 Tirisano Mine Subtotal 13,661,979.00 Nedbank 26484609 50,000.00 Zwartrand Nedbank 27802906 100,000.00 Zwartrand Nedbank 28457501 500,000.00 Zwartrand Subtotal 650,000.00 TOTAL 15,026,979.00

The total amount held in guarantee is R15,026,979. According to the approved EMPR, this sum includes financial provision for mine closure. The various Nedbank guarantees are held in cash, while the Lombard insurance policy is financed through R2,661,912.28 on deposit at Nedbank (Account # 863703050010), plus the payment of R150,000 monthly into an Old Mutual policy (Account # 15183974, balance currently at R3,836,271).

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3.4.2 Water permits

On 22 March 2006, the Department of Water Affairs and Forestry (“DWAF”) issued Etruscan with a water extraction license (License # 23062962) which allows for the extraction of water from the Schoonspruit Dolomite Compartment for use on RE/Hartbeestlaagte, Nooitgedacht and Zwartrand for a period of 10 years from the date of issue. The license allows for the extraction of a maximum volume of groundwater (for all the properties covered by the license) of 1,222,588m3 per annum for the first year and 1,050,868m3 annually thereafter for the duration of the license period. Daily extraction volumes may not exceed 3,358m3 and 2,879m3 respectively.

The license was issued subject to standard conditions which include the submission of a detailed mine site water balance, a groundwater management plan and baseline water monitoring data. Further, groundwater levels need to be measured periodically and this information, along with actual water usage, forwarded to DWAF.

Rockwell will, in due time, apply to DWAF to transfer the water rights to RDNW and to increase the allowance in accordance with new plant requirements.

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4 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

The Tirisano mine properties total some 10,000ha in extent and this is likely to be sufficient for all mining operations, rock dumps, tailings storage facilities, waste disposal areas, processing plants and other related activities. Initial prospecting work identified areas on the property where gravels are not located and these have been demarcated for the necessary infrastructure.

4.1 Topography, elevation and vegetation

The property can be described as generally flat to gently undulating (Plate 4.1). Elevation ranges for the property are between 1,520m and 1,580m AMSL. The property slopes from the northwest to the southeast with a drop in elevation of some 60m over 4km (which represents a slope of only 1:67).

Plate 4.1: View of the flat landscape between Hartbeestlaagte and Zwartrand (looking SE). Photo courtesy of Etruscan Diamonds (Pty) Ltd

The natural vegetation of the area is classified as “Savannah Grassland”. Typical grass species (van Oudtshoorn, 2002) comprise Henterpogon contortus (Spear Grass), Themeda trianda (Red Grass), Cyndon dactylon (Couch Grass), Schizahyrium sanguineuim (Red Autumn Grass) and Pogsnsrthria squarrosa (Sickle Grass). Exotic species such as Acacia longispicata (black wattle bush) and Eucalyptus globulus (Blue Gum Trees) are also known to occur. No Red Book Data Species of endangered vegetation occurs on the Property.

Weed species (Tagetes minuta (tall khaki weed), Argemone mexicana (Mexican poppy) and Conyza albida (tall fleabone)) are common in fallow lands. The only exotic and invasive grass species identified on the property are Arundo donax (giant reed) and Pennisetum clandestium (Kikuyu).

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Since the Property occurs in an area that has been farmed extensively, only common small animals (including jackal, steenbok, duiker, rabbits, meerkat, porcupine, springbok, anteaters and general bird- life) frequent the area in addition to domestic livestock. A number of vulnerable and near-threatened (Red Data) species have been recorded within the general district.

Primary commercial agriculture contributes about 2.5% to South Africa’s gross domestic product (GDP) and about 8% to formal employment. However, there are strong backward and forward linkages into the economy, so that the agro-industrial sector is estimated to comprise about 12% of the GDP (SA Yearbook, 2008/2009). Some 5.3% of the South African GDP in agriculture and 16.96% of total labour in agriculture is based in the North West. Maize and sunflowers are the most important crops and the North West Province is the biggest producer of white maize in the country.

4.2 Drainage

Surface drainage channels are very poorly defined. The flow generate din the local catchment has only a minor contribution towards the whole catchment because most of the surface water passes through the pans and other hollows on the surface and permeates into the ground as a result of the karstic nature of the bedrock. Any remaining surface water in the area drains into the Schoonspruit (some 30km south-southeast of the project area).

Upstream of the Tirisano mine, the Vetpan is classified as a wetland.

The mine is located in the Schroon Sprit subterranean government water control area proclaimed in 1995 to protect the flow from the Ventersdorp eye (also known as the Schoonspruit eye), a spring that supplies drinking water to the town of Ventersdorp, from being impacted on by uncontrolled abstraction of groundwater for irrigation purposes in the area. The Schoonspruit subterranean government water control area covers about 90% of the Schoonspruit compartment.

Groundwater represents the sole source of water supply for domestic, agricultural and industrial use around the mine. Groundwater quality at mine is generally good and suitable of domestic use. Groundwater is dominated by Ca. Mg and HCO3 ions typical of dolomitic environments. The mine has drilled about 20 water boreholes. These have reported yields ranging from zero (dry) to greater than 90m3/hr. Four of these boreholes supply process water to the plant, whilst one provides drinking water to the mine. A private homestead located less than a kilometre north-east of the plant, and Ga-Mogopa village located about 5km south-west of the mine use groundwater for domestic supply. The most prominent spring that occurs in the area is the Ventersdorp Eye, which is located about 22km southeast of the mine and supplies water to the town of Ventersdorp. Flow from the spring is estimated at 24million m3/annum.

4.3 Access and infrastructure

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4.4 Climate

The area is situated in a dry to moderate rainfall area with annual rainfall figures of 597mm (mostly between December and March), which is exceeded by the average annual evaporation of 2,078mm (South African Weather Services). The area is not known for extreme weather conditions, although summer rainfall often occurs during electric storms and sudden downpours (squalls) can cause localised flooding and difficult operating conditions. The mine has a year round operating season and prevailing climatic conditions do not impact on the mining operation to any significant degree. Disruptions do occur due to poor road conditions following heavy rains and three-to-four hour down-time may occur when soaked gravel stockpiles are too wet to process efficiently. During years of exceptional rainfall flooding may occur, resulting in significant disruptions to production, as well as damage to infrastructure (municipal as well as on-mine).

Summer temperatures vary from 12°C to 34°C and winter temperatures varying from -10°C to 18°C. Wind blow predominantly from the North, NNE and NE at an average speed of 2.5 m/s.

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5 HISTORY

5.1 Previous Ownership

Mineral rights comprising the Properties have belonged to the State since May 2004. Prior to that, the rights were held by the Bakwena Ba-Mogopa Trust. Numerous parties have held options over various portions of the properties and completed the exploration programmes outlined below.

Etruscan owned and operated the Tirisano mine until it was placed on Care & Maintenance in November, 2008.

5.2 Previous Exploration/Development

5.2.1 Historical

Historic records from the South African Diamond Bureau up to 1984 show that a total of 24,494ct were produced from Nooitgedacht, 11,330ct from the farm Hartbeestlaagte and another 1,039ct from Zwartrand (Marshall, 1987). It must be noted that these are only the official production records, and the actual production figures are expected to be somewhat higher. All these diamonds were, presumably, derived from artisanal mining of relatively shallow deposits (Plate 5.1) – upper gravels in the sinkholes and the overlying colluvially-derived manganese layers (locally termed “Rooikoppie” gravels). No records exist for volumes or tonnages mined, so nothing is known regarding historical grades or diamond values, although unverifiable regional average grades of 1.6cpht have been reported.

The artisanal diggers followed the surficial gravels and, in many places, the sinkhole gravels and the linkage channels (locally termed “Runs”). Seen from the air these old diggings appear to delineate part of an ancient channel. Two such runs are known to exist on the properties – the Main Run (also known as the Vetpan Run) and the West Run. The West Run appears to have been mined intermittently between 1974 and 1984, but no reliable production figures are available from this period.

During the period 1979-1983, Newmont South Africa Limited prospected on Hartbeestlaagte and Zwartrand as part of an extensive programme of exploration and bulk sampling of diamondiferous gravels in the area between Lichtenberg and Ventersdorp. It has been reported that during Newmont's programme, "considerable geological and geophysical expertise, mainly in gravity and some EM survey techniques, were developed in locating gravel concentrations, or Runs". Bulk sampling8 showed that the better quality and larger stones were found in the eastern part of the North West Province. Consequently, Newmont's efforts were concentrated here and, in particular, on the farm Zwartrand and the adjoining farm Hartbeestlaagte. Newmont outlined one main target on Hartbeestlaagte (Hl a, b, c) and another three on Zwartrand (Z-la, Z-lb and Z-4) (Berezowsky, 1998).

Newmont carried out the following work (Berezowsky, 1998) (Fig. 5.1): • detailed geological mapping on a scale of 1:2,000, on a grid with east-west lines spaced at 100 metre intervals covering all of the proclaimed lands in both Hartbeestlaagte 146 and Zwartrand 145; • magnetometer traverses over selected areas delimited two dyke like bodies;

8 No details are available regarding diamond recoveries Page 29

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• a gravity survey over the grid which apparently showed the area to be extremely anomalous9 with two major gravity lows covering almost 50% of the grid; • regional photogeology analysis for major structural features of the bedrock or basement; • percussion drilling (1,906 metres at 61 locations on Zwartrand) on fences 100 metres apart and a hole spacing of 60 metres

Plate 5.1: Artisanal diggings along the Nooitgedacht – Zwartrand Run. The diggings in the background are situated where the Tirisano main pit is now located. (Photo courtesy of Etruscan Diamonds (Pty) Ltd)

This work defined two buried gravel bodies on Zwartrand, Z-la and Z-lb, and suggested the potential for a third, Z4. Two of Newmont’s targets were held as 540 claim blocks by African & Asian Minerals (Pty) Limited through a direct purchase from the estate of W.A. Vermaas, to whom they were transferred by Newmont. These blocks, named after gravity anomalies underlying respective areas10 are: Z-la (54 claims) 1.2118 hectares; Z-lb (486 claims) 10.9349 hectares; with a total of 12.1467 hectares. The third block, Z-4, is shown on the Newmont maps to measure approximately 1,300 metres by 250 metres, thus covering approximately 32.50 hectares.

9 Italics in original document, details unknown 10 These measurements refer to the areal extent of the claim blocks and have no reference to gravel occurrence. Page 30

ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

Figure 5.1: Location of previous prospecting activities (pre-2000) on Hartbeestlaagte (from Berezowsky, 1998)

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During 1985, a minor amount of the exposed Z-lb gravels immediately NE of the claims was washed to produce a total of 26.24ct. These operations were undertaken by a small (unknown) company while African & Asian were unsuccessfully attempting to negotiate a joint venture agreement with Newmont. The operations were largely ineffective due to insufficient earthmoving equipment, inadequate supervision and management, and inefficient concentrating/sorting procedures. The grade of the gravels worked, therefore, was unfortunately not determined. This attempt to mine extensions of the Z-lb gravels did not approach the (expected high grade) base of the gravel run and the diamonds produced were from gravels exposed in old workings at the extreme north-eastern edge of the deposit. Therefore, the gravel base and well developed "run" within the claims and to the east of the old workings was thought worthy of further investigation. Newmont's drilling data concluded that the lower gravels, which were not excavated in sufficient quantity to have been effectively sampled, could be expected to contain the majority of the diamond.

During 1993-95 Southern Cross Diamond Ventures carried out a programme on Nooitgedacht, Hartbeestlaagte and Zwartrand wherein 27 holes in four lines were drilled and a sample trench was excavated (Fig.5.1). From this reconnaissance programme, some 6,000 tonnes of gravel were treated from which 99.71ct were recovered for a grade of 1.66cpht. The diamonds averaged 1.5ct/st and were sold locally for USD493/ct.

During 1996, a series of photogeological investigations (Lockett, 1996a; Lockett, 1996b and Lockett, 1996c) were carried on the farms Nooitgedacht, Hartbeestlaagte and Zwartrand by Mountain Ash / Ashton Mining. Subsequently, field traverse and photogeological data were superimposed upon pre- existing Newmont gravity data and a drilling programme was initiated to test all of the mapping-inferred and gravity targets on Zwartrand and Hartbeestlaagte. While the distribution of holes was adequate to provide some indication of the presence and extent of sheet type gravel deposits, a far more detailed drill pattern would have been necessary to establish a realistic amount of pothole type gravel. The drilling programme indicated an exploration target11 of some 14-15M tonnes of gravel on the three farms, containing an estimated 200-250,000ct (de Carcenac, 1998). At the end of the drilling programme in January 1998 Ashton withdrew from the joint venture since these potential gravel volumes and grade ranges did not meet their target figures (I Macdonald, Pers. Comm., 2000).

In 1998, Vaaldiam Resources Ltd signed an option and Joint Venture agreement with Mountain Lake to earn a minimum 50% interest in their properties in the Ventersdorp diamond fields in the Northwest Province of RSA, including the Hartbeestlaagte property. A desktop study was commissioned (Marshall, 1998) and a Qualifying Report was completed by A C A Howe of Toronto (Berezowsky, 1998) but Vaaldiam chose not to pursue the project, for reasons not made public.

5.2.2 Etruscan Resources (Pty) Ltd

During the period February 2000 to August 2002 Etruscan contracted Zoutpan Diamonds to complete a mini bulk-sample on the Tirisano main pit. Some 5,080.88ct were recovered from 17 pits (the processed volume was not recorded, however). The majority of these gravels have been defined as part of the Lower Gravel Package12, accounting for the better than expected results, as described below.

Diamond recovery from the Zoutpan pits (1.8cpht or 3.24ct/100m3 at a 2mm bottom cut-off) included a single 26.8 carat stone that represents 20% of the total diamond recovery from this area. With a total

11 It is important to note that statements of potential quantity and grade of an exploration target are conceptual in nature, that insufficient exploration has been done to define a mineral resource and that it is uncertain if further work will result in the target being delineated as a mineral resource. 12 see Section 7 for definition of the gravel units Page 32

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of 4,659 stones recovered, the average stone size was 1.09ct/st (Fig. 5.3). In addition, the diamond size distribution for these stones illustrated a marked shift towards larger stone sizes from above 5 carats (Lock, et al., 2003). The total Hartbeestlaagte parcel realised a value of USD592/ct. This parcel contained two special stones whose value strongly influenced the total parcel value - a 26.8 carat diamond (accounted for over 25% of the parcel value) and a fancy yellow coloured 1.8ct stone (accounting for over 5% of the parcel value).

Later, during the period 2002/2003 RSG Global Pty Ltd (“RSG”) was commissioned to provide an independent mineral resource estimate of the adjacent Tirisano Mine diamond resources as at 23 January 2003 (Lock, et al., 2003). This document was prepared in accordance with the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (The ValMin Code) as adopted by the Australasian Institute of Mining and Metallurgy (AusIMM) in April 1998).

Although the RSG report was prepared with specific reference to the Tirisano Mine on the farm Nooitgedacht 131 IP, it makes reference to resource delineation drilling in an area straddling the farm boundary between Nooitgedacht in the north and Hartbeestlaagte in the south (the area where bulk- sample Pit #1 is located, as described later). In addition, it is noted that this is located immediately adjacent to the Tirisano mine pit that is excavated into a large gravel-filled sinkhole on the farm boundary). In this sinkhole area at the south end of the current Tirisano mine open pit it is possible to recognise a thickening of the gravel (pre-existing depression); a slumping of the top of the gravel which has been covered by a recent soil profile, topped by a very thin deflation gravel and subsequently covered by a final red sandy soil (subsequent depression); and a present day surface depression (continuing subsidence), confirming the karstic nature of these deposits.

During the time of RSG’s evaluation, no classifiable resource had yet been delineated on Hartbeestlaagte, although the area had also been surveyed geophysically (airborne gravity). The gravity map showed a very clear bedrock channel that had, in part, been confirmed by drilling. The details of this survey, and the results thereof, are presented in Section 8.

In an earlier, internal report by RSG (van der Merwe, 2000) the preferred average global grade was estimated at 2.9ct/100m3 (1.6cpht) at a bottom cut-off screen size of 2mm. The production grade achieved by Tirisano Mine since commissioning in November 2002 was 1.8cpht from the Zoutpan pits on Hartbeestlaagte, and 1.0cpht in the Tirisano open pit on Nooitgedacht. The Hartbeestlaagte diamond recovery (1.8cpht) included a single 26.8 carat stone that represents 20% of the total diamond recovery from this area. It was presumed to be appropriate to remove this single stone from the diamond parcel and re-calculate the grade down to 1.46 cpht. On this basis it was accepted that the previous grade of 1.6cpht (2.9ct/100m3) would apply until further sampling should refine the model.

The preferred average global diamond value was estimated by the 2000 RSG study at USD400 per carat (a range of USD300 – 450 was noted). Since commencing production in November 2002, Tirisano Mine sold two parcels of diamonds, one from Nooitgedacht and one from Hartbeestlaagte. The Nooitgedacht parcel realised an average value of USD396/ct and the Hartbeestlaagte parcel realised a value of USD592/ct. A weighted average of the two parcels indicates a value of US$509/ct.

The Hartbeestlaagte parcel contained two special stones whose value was suspected to have strongly influenced the total parcel value. It was suggested that the parcel value be discounted to exclude these two stones, returning an average value for the remaining diamonds was USD458/ct and a weighted value for the two parcels, excluding the special stones, was USD424/ct. This was within the range previously reported and an area value of USD400/ct was accepted until a more representative record of sales was established.

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Based on the known occurrences of gravel, and the tenor of the gravels mined on the Nooitgedacht and Hartbeestlaagte farms, this study considered a realistic exploration potential for a significant gravel volume to occur on the farm Hartbeestlaagte. No resource estimation was attempted since insufficient diamond grade and value information was available.

5.2.2.1 Etruscan Mvelaphanda Joint Venture

Under the terms of a 2004 JV agreement with Etruscan, Mvelaphanda (Pty) Ltd (“Mvela”) was to fund and manage a bulk sampling programme and a feasibility study, culminating in a valuation of the Hartbeestlaagte and Zwartrand properties. Mvela’s required expenditure was estimated at R 190M (Cdn $38M at prevailing exchange rates), and was to include the construction of a plant on these properties with an anticipated design capacity of 600 tonnes/hour. This work was to be carried out by TransHex Diamonds (Pty) Ltd on behalf of Mvela.

Mvela/TransHex, in conjunction with Etruscan, embarked on an R/C drilling programme on Hartbeestlaagte, which comprised 2,595m and 119 holes and cost R195,000. In June 2005, Mvela earned a 50% interest in the Tirisano Diamond Mine by commissioning a plant with a design capacity of 300 cubic metric tonnes per hour throughput and a 50/50 joint venture between Etruscan Diamonds and Mvela was formed with Mvela continuing as operator. The plant, consisting of a screening and scrubbing circuit with a dense media separation plant, had a design capacity of some 50,000 cubic meters per month. During its period of operatorship, Mvela incurred capital and net operating expenditures of in excess of Cdn$13M.

Until the third quarter of 2005, the recovered grade from operations was consistently below the average forecast grade (2.8ct/100m3) because a large volume of uneconomic gravel was processed13. According to incomplete mining/production records, some 697,228m3 were processed for the recovery of 12,056cts, giving a mine grade of 1.73ct/100m3. At this time (end Q3 2005) mining activities progressed into the deeper gravel packages. During the month of November 2005 the grade of diamonds averaged 2.95ct/100m3 and the last 3,200m3 of gravel processed averaged 5.4ct/100m3. However, the period over period operating losses and the low rand/dollar exchange rate resulted in the Tirisano Diamond Mine being placed under care and maintenance during November 2005 and the subsequent impairment of TransHex’s investment in the project14.

Additional problems related to both mining and processing activities at the Tirisano Diamond Mine that were experienced by the Mvela/Etruscan JV at that time included: • Mining problems arose due to the depth of the open pit (36m below surface). This resulted in increased mining unit costs and water inflow as the water table is at 40m. The water problem was, generally, kept under control through continuous pumping. • Processing problems were mostly related to the presence of manganese and clays in the gravels, which difficulties were exacerbated by the poor availability of electricity from the national grid, especially during the summer months.

5.2.2.2 Etruscan Diamonds (Pty) Ltd

During the period 2006-2008, Etruscan sampled eleven sites (Fig. 5.2). A total of 264,204.15m3 of gravel was sampled for the estimation exercise (121,830.27m3 of UGP and 142,373.88m3 of LGP). The samples

13 Etruscan News Release, 19 September 2007 14 TransHex Group Annual Report 2006 Page 34

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were purposefully selected so as to sample shallow (UGP) gravels on the shoulders of the sinkholes as well as gravels, both UGP and LGP, in the sinkholes. These samples have been used to monitor both diamond grade and value variation with respect to the different lithologies as well as with depth and over time.

The top and bottom cut-off sizes for this sampling programme were -25mm and +1.6mm, respectively. Final grade recoveries of the different gravel units of the bulk-sample pits are presented in Table 5.1. Note that grades are given in carats per unit volume rather than per unit weight.

Table 5.1: Recovered grades for the 2006/2007 bulk-sampling programme (cut-off size 1.6mm)

Sample Volume Carats Grade Pit (m3) (bottom cut-off (ct/100m3) of 1.6mm) UGP 2A 12,277.00 187.7 1.53 2B 87,547.43 1,738.56 1.99 5C 29,733.03 365.74 1.23 6 60,923.62 Data not available 3A1 26,996.45 277.92 1.03 81 2,937.38 33.13 1.13 Tirisano2 1,251,539.00 22,998.00 1.84 Subtotal3 129,557.46 2,292.00 1.77

LGP 1 40,189.53 1,439.53 3.58 2A 20,467.82 664.41 3.25 2B 66,525.46 1,664.38 2.5 3 23,655.00 589.46 2.49 6 8,960 197.26 2.20 Subtotal 159,797.81 4,555.04 2.85

BGP 2 3,807 49 1.29 Subtotal 3,807 49 1.29

Colluvial 9 5,879 31.2 0.53 7 1,102.42 6.7 0.61 Subtotal 6,981.42 37.9 0.54

Average/Total4 330,077.52 7,244.99 2.19

Average/Total5 277,435.34 6,610.60 2.38

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Notes: 1. Samples 3A and 8 were not included in the resource estimations due to problems in verifying the data 2. 2003-2005 data shown here for comparison, but not included in resource estimation data 3. Subtotal s for Pits 2A, 2B, 5C and 6 4. Average/Total for all samples 5. Average/Total of UGP and LGP samples only.

The above volumes and grades refer to material extracted during bulk sampling activities and are not mineral resources.

Figure 5.2: Location of the bulk-sample pits on the Tirisano project

During these programmes, four separate mining/processing contractors were employed, namely, Gothoma Diggings (2006/2007) Badenhorst Diamante (2007/2008), Forever Diamonds (2008) and ALS (2008). All mining pits were designed using guidelines provided by AB Global Mining Consultants from Johannesburg, RSA. The earthmoving equipment and operators belong to the companies that were contracted to mine, process and rehabilitate the bulk-samples.

From 2006-2007 all of the sub-contractors processed gravels through rotary pan plants – the flow-sheet of which is shown in Fig. 5.3. During 2007/2008, the gravels from Pit #6 were processed through the DMS.

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Figure 5.3: Bulk-sample process flow-sheet (Courtesy of Etruscan)

Generally, final recovery was by Flow Sort X-ray technology. All areas in the final recovery (of all operations) where diamonds can be accessed are secured by SECURETITE cables. The removal and reattachment of the cables is recorded in the SECURETITE logbook. The final hand sorting took place with at least two people present (on a daily basis), in addition to Etruscan’s security superintendent. In the Etruscan recovery room, the final hand-sorting was inside a glove box.

During 2008 Etruscan placed the Tirisano mine on Care & Maintenance (November, 2008). At the time of closure: • 2,391 boreholes had been drilled on the property, totalling 53,576m. The deepest drilling indicates that, in some of the deeper sinkholes, the lower gravels extend down, at least, to 140m (without intersecting bedrock). Geophysical interpretation, however, indicates that final depths of the sinkholes may be in excess of 120m and, potentially, up to 200m in places.

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• The stratigraphy of the deposit was fairly well constrained and it was understood that the primary target gravels are the Lower Gravels (LGP and TZP), which produced higher average grade than the Upper Gravels (UGP). • Eleven bulk-samples provided 147,895.88m3 of Lower Gravels from which 4,318.6ct were recovered for a global grade of 2.85ct/100m3 (with bottom cut-off of 1.6mm) and value of USD466/ct. In addition, 129,557.46m3 of Upper Gravels (UGP) was processed to recover 2,292.00ct at an average grade of 1.77ct/100m3. • Trial-mining during 2008 processed gravels from the base of the Tirisano main pit. A total of 208,718m3 was processed, of which 146,881m3 is LGP, 10,293m3 is UGP and 61,534m3 is a blend of both UGP and LGP. During this period, some 6,459.98ct were recovered (1,042.96ct from LGP gravel and 5,417.02ct from the undifferentiated15 gravels) from the Tirisano main pit. The average recovered grade of these gravels was 2.43ct/100m3 (2.00ct/100m3 and 2.54ct/100m3, respectively). The drop in average grades for this period is thought to be the result of continuing (increasing?) process recovery problems. • During the period January – June 2008, a total of 5,552.54ct were sold to various diamond buyers on the open market for an average of USD606/ct. The reliability of valuations of parcels smaller than 2,000ct16 decreases as the size of the parcels decrease to the point where valuations placed on a small number of diamonds from exploration samples are likely to be misleading. However, the total mass of diamonds from the Tirisano project sold on the open market exceeds 12,000ct. As a result, it is expected that the sales value should be a fair reflection of the value of the stones. Nevertheless, as a result of the current economic climate and the huge fluctuations in the rough diamond market, it was not possible to estimate average diamond prices with any certainty – irrespective of the amount of diamonds sold.

Operations highlighted a number of technical issues faced by Etruscan: • There are continuing issues with processing efficiencies as a result of clay and manganese in the gravels that need to be resolved through a detailed investigation of the gravel metallurgy as well as the processing methodology/equipment. • Due to the almost random variation in sedimentological horizons within the gravel unit, production data (specifically grade) must be observed continually and reconciled with modelled figures. The geological model also needs to be monitored and refined as operations expose sinkhole fill at depth. • Sustained attention should be given to finding ways to differentiate between the various gravel horizons in borehole logs, including geochemical and mineralogical studies. • Since these deposits are “high-volume, low-grade” operations, much effort will be required to replace mined gravels. Consequently, an on-going regional exploration programme will need to be pursued to identify and evaluate additional, similar deposits.

Mineral resources in both Inferred and Indicated categories were estimated for the Tirisano project at 30 June 2008 by Brian J Paull (Pr. Sci. Nat) of A B Global Mining (Pty) Ltd. These resource estimates were reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who was independent of Etruscan and who was responsible for the estimate. No additional drilling or bulk-sampling took place on Tirisano since the compilation of the June 2008 resources. After reviewing the estimate, the author depleted the volume of gravels that was mined and processed until the project was put on Care & Maintenance on 25 November 2008 (Table 5.2).

15 Gravels not classified as UGP or LGP in the mining production logs 16 NAPEGG Guidelines Page 38

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statements regarding potential quantity and grade of exploration targets are conceptual in nature, that there has been insufficient exploration to define a mineral resource in these areas and that it is uncertain if further exploration will result in the target being delineated as a mineral resource. Target areas include • Some 35-40,000m3 of (LGP) gravel estimated to exist in the sinkholes below the present level of Inferred Resources (at 105m), down to the extent of drill data; • Some 150-200,000m3 of gravel within the modelled gravel wireframe, but which does not fall within the inferred categories due, primarily, to lack of borehole coverage; • The estimated, additional, 5-6Mm3 of (LGP) gravel that is modelled to exist in the sinkholes, if a more geologically reasonable shape is accepted (although not yet defined by drilling); • An undefined amount of gravel, specifically southeast of the currently inferred resource area, where gravel is seen to exist (from borehole results), but drill coverage and sampling constraints prevent these from being included within defined resources; • An indefinable volume of (LGP) material that is located below the present drilling level in the sinkholes. Geophysical modelling cannot be used to identify the base of the bedrock in these structures with any accuracy, and drilling has not penetrated the thick gravels. As a result, it has not been possible to estimate the volume of gravels; • The “West Run” on Nooitgedacht and Hartbeestlaagte has not yet been drilled or sampled. Some 200ha of area may be underlain by both UGP and LGP gravels. • Grade ranges for these targets are expected to fall within the values identified by sampling within currently identified resource areas, namely, 1-2ct/100m3 for UGP and 2-3ct/100m3 for LGP units

Table 5.2: Resources estimated for the Tirisano project as at 31 October 2009

Indicated Resource Inferred Resource Grade Value

volumes (m3) volumes (m3) (ct/100m3) (USD/ct) Upper Gravel Package 16,109,000 8,613,000 1.77 Lower Gravel Package 11,801,500 6,744,000 2.85 Sub-total 27,910,500 15,357,000 2.37 Depleted during historical -2,365,000 -23,000 606 operations and sampling SUBTOTAL 25,545,500 15,334,000 Depleted during 2008 trial- -265,658 2.43 520 mining on Tirisano TOTAL 25,279,900 15,334,000 2.37 520

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6 GEOLOGICAL SETTING

6.1 General Geology and Mineral Deposits of South Africa

The geology of South Africa (Fig. 6.1) is extremely varied and spans a period of about 4 billion years (SACS, 1980). The northeast portion of the country is dominated by the granitic rocks and belts of volcanic and sedimentary rocks forming the Archaean Kaapvaal Craton. Much of the rest of the country is covered by Phanerozoic sediments.

The earliest clusters of diamondiferous kimberlites, namely Kuruman and Cullinan, intruded into South Africa during the Proterozoic. The main kimberlitic (both diamondiferous and barren) event took place in the late Mesozoic, however. All the economically viable kimberlites occur on the Kalahari Archon (Kaapvaal and Zimbabwe Cratons), while those occurring in the surrounding Proterozoic basement are non-diamondiferous (Gurney, et al., 1991). Over 2,000 kimberlite pipes, blows and fissures have been recorded across South Africa, Lesotho, Swaziland, Botswana and Zimbabwe, spanning emplacement age range of approximately 1700 – 40 Ma. Kimberlite emplacement was followed by the liberation and entrainment of diamonds and the subsequent deposition of terraces on the ancient Vaal and Orange Rivers.

Tirisano Project

Figure 6.1: The General Geology of South Africa

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6.2 The Alluvial Diamond Fields of the North West Province

The alluvial diamond fields of the North West Province extend over an area of some 25,000 km2. The total reported production from these diamond fields from 1904-1984 (Fig. 6.2) is estimated at 14.4Mct, which would have a present day value of over USD5Billion. This compares with 14.5Mct recovered from the Big Hole at Kimberley from 44 years of mining (Marshall, 1987).

The North West Province alluvial diamond fields have, historically, been divided into three districts (Marshall, 1987; 1990a; 1990b), namely: • Northern Field (Lichtenburg-Bakerville); • Eastern Field (Ventersdorp-Potchefstroom); and, • Southern Field (Christiana-Schweizer-Reneke-Wolmaransstad).

TIRISANO MINE

Figure 6.2: The alluvial diamond fields of the NorthWest Province

The Project is located in the eastern Ventersdorp-Potchefstroom Field, from which over 2.6Mct of diamonds have been derived (Marshall, 1987). It is estimated that the majority of these diamonds have been recovered from the surficial, colluvially-concentrated, manganese gravel layer as well as from the sinkholes (although relatively shallow portions of the sinkholes – typically only Upper Gravels have been accessed). Early reports (du Toit, 1951) and production figures (Marshall, 1987) indicate that diamond values are reasonably high in the Ventersdorp field (typically +USD 400-600/ct at current diamond prices).

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6.2.1 Morphotectonic Model

The evolution of the North West Province, as far as it concerns the diamondiferous gravels, can be traced back beyond the Mesozoic. The sequence of events (post-Dwyka) is considered to be as follows:

Pre- to early-Karoo (345 - 250My)

During the lowered watertables and cold climes associated with the Dwyka glaciation, subterranean solution by phreatic and vadose waters carved out an extensive drainage network in the dolomite plain (Fig 6.3). It is probable that the water derived from the melting Dwyka glaciers may have been the impetus that initiated the collapsing of many of the karstic sinkholes and dolines (especially as subsidence dolines). Most of the channels follow either lithological boundaries (between the chert-rich and chert-poor dolomite strata) or structural features such as dykes, faults and joints. It is unknown whether the conglomerates of the Rietgat Formation (Ventersdorp Supergroup) or the Bevets Conglomerate Member (Pretoria Group) covered the dolomite plain at the time of the glaciation or whether they had since been eroded.

Figure 6.3 Underground solution channels carved out by glacial meltwater during the Palaeozoic

The withdrawal of the glaciers saw the deposition of Dwyka tillite as a thin veneer of material on top of the dolomite plain. This would have been resulted in a semi-unconsolidated gravel unit composed of clasts from the Bevets Conglomerate and Rietgat formations specifically (as well as other formations from the Pretoria Group) that spread out over an area of at least 150 x 100km. A raft of Dwyka shales preserved as cave infill on a farm less than 20km east of Hartbeestlaagte indicates that Dwyka deposits in this area included shale. This was followed by the deposition of thin Ecca shales, remnants of which are still preserved in the cave to the west of Ventersdorp (Martini and Kavalieris, 1976).

Somewhere prior to the onset of the African landscape cycle the gravel on the dolomite plain must have become mixed with the diamonds (pre- or post- glaciation is unclear at this stage). Since diamond characteristics, average grades and qualities/values (USD 500-700/ct) vary little across much of the dolomite plain (over an area of some 30x100km); separate, localised primary sources cannot be the source of the diamonds. Studies are currently in progress to characterise this original diamond-bearing gravel and identify the provenance(s) of the diamonds.

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Post-Karoo (250My - present)

African Landscape Cycle

The African landscape cycle is the one that resulted from uplift and warping associated with the splitting of Gondwanaland in the late Jurassic /early Cretaceous. Uplift and the subsequent lowering of the North West Province landscape resulted in exposing much of the pre-Karoo subterranean caverns to the surface. The surficial gravel was subsequently dumped into these early canyons and sinkholes (as BGP and LGP deposits) that were initiated at the surface as a result of a renewed karst cycle. The drainage channels, which appear to be partly subaerial and partly subterranean, have their headwaters in the Pretoria Group sediments to the north. The subcontinental uplift had also resulted in lowered regional water tables. As a consequence, phreatic and vadose cavern development was initiated below the level of the surface drainage.

During the LGP depositional phase, the deposits appear to have been moved by mass flow, with lots of water and very little, if any, reworking and re-concentration. It is thought that much of the initial deposition may have been subterranean. The subterranean karst structures would have been accessed and enlarged by a combination of subsidence and collapse (Fig. 6.4).

The LGP units are generally red in colour. This is thought to reflect the nature of the source rocks. The matrix of the LGP gravels consists largely of clays derived from sedimentary rocks and basic lavas, indicating the nature of the source material. It may also relate to the warm, humid climatic conditions under which the gravels were deposited. The basal units (BGP) are pale in colour and it is thought that this may be related to deep leaching during the early development of the karst system.

The large red diamictite rafts were introduced as a result of the collapse of karst bridges or spalling of pre-existing cave-infill associated with the Waterberg karst cycle (Plate 6.1). These red clays also contribute to the nature and colour of the matrix of the LGP gravels.

The LGP unit is, typically, characterized by increased concentrations of manganese wad development towards the top of its upper contact. This may be related to a period of intensive weathering during the depositional cycle, representing a depositional hiatus (during which the Waterval Saprolite was formed on the chert-poor iron-rich dolomite units). The late Cretaceous is well known as a period of humid tropical climates during which deep weathering profiles were formed up to depths of 50m in places (Botha, 2000) and this may present a time-line in the depositional sequence.

As a result of the higher temperature and rainfall levels during the African cycle, lateritic soils developed across the Ventersdorp lava surface and terra rossa soils on the manganiferous dolomite plain. In places, the manganese wad is sufficiently developed to form economic manganese deposits. These manganese deposits predominate in sinkholes within the chert-poor dolomite formations. It is envisaged that deposition continued over an extended time period, to account for the great thicknesses seen in sinkholes (drilling on the Etruscan property indicates that these gravels are in excess of 140m thick).

As the karst system was filled in there was periodic/continuous collapse causing the “downwarped” nature of the gravel contacts and the manganese layer. The gravel fills steepen towards the edges of the sinkholes as a result of continued deepening and sidewall drag or shear (Plate 6.2). As a result, older gravels may extend up the sidewalls, even reaching the surface around the margins of the sinkhole. This causes individual geological units and overburden to dip inwards and thicken towards the centre of the sinkhole.

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Figure 6.4 Enlargement of subterranean karst structures by subsidence and collapse

The African surface is known to be of polycyclic origin (Partridge & Maud, 1987) and it is suggested that minor uplift episodes may have been responsible for the deposition of the Transition Gravels (TZP) and the PCP (Pebble-clay package) units. The TZP was deposited locally in the centre of the collapsing cavern structure – since the deposit is almost identical to the lower LGP, only with more clay, this may correlate with spalling of kaolin-rich cherty-dolomite off of the cavern walls during one of the uplift events. The PCP was deposited on top of the TZP as a fluvial unit – perhaps by localised small, low- energy rivers that reworked the underlying units (Fig. 6.5). The introduction of local chert, along with the low energy regime would have resulted in the dilution of grades typically associated with this unit.

Post-African I Landscape Cycle

The African landscape cycle was interrupted toward the end of the early Miocene (± 18Ma) by regional uplift (Partridge & Maud, 1987). In the central interior, some 150-300m of uplift and warping occurred. This had several effects for the landscape, which are noticeable as an unconformity present between the Lower and Upper gravel packages. A drop in the regional water table levels accompanied the Post- African I uplift, allowing for yet another level of phreatic and vadose cavern development to take place below the level of the African caverns. A second consequence of the lowered base level was that the landsurface itself was lowered by dissolution to leave an inverted topography with the more-resistant gravel deposits forming positive relief.

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Plate 6.1: Rafts of Waterberg karst infill in the dolomite wallrock of Tirisano Main Pit

Figure 6.5 Geological Evolution of the Ventersdorp alluvial deposits

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Plate 6.2: Vertical unit of LGP gravel draping the dolomite bedrock and overlain by thick pebble- clay (PCP) infill (Photo from Goedgedacht 27, Courtesy Gothoma CC)

The UGP was deposited as a result of the reworking of the LGP unit, with a concomitant increase in local, angular chert content. This deposition is likely mostly subaerial since the gravels are not only found in the sinkholes/channels, but also spread out on the surface as “sheet gravels” (Fig. 7.3c). On Tirisano, the sheet gravels indicate that, at the time of deposition, the east (at Etruscan’s Klipgat mine) was at least 100m higher in elevation than the west. Additionally, the sheet gravels extend up to 4km to the west of the potholes, but are hardly known to the east.

Following deposition of the UGP unit there appears to have been a depositional hiatus, during which an accumulation of nodular manganese developed (middle manganese layer). This landsurface, thus, attained a maximum duration of some 15-16Ma, which is attested to by the imperfect development of the manganese layer. The development of a thick, mature manganese wad was, further, inhibited by the progressive aridification of the Pliocene climates.

Post-African II Landscape Cycle

Continuing lowering of the landsurface by a combination of surface processes and subsurface dissolution exposed more subterranean caverns to the surface. These became filled with chert-rubble from the surrounding plain in the same manner as the diamond-bearing gravels had been dumped into leached karst features. These are the shallow, non-diamondiferous runs found on the dolomite plain from Lichtenburg to Ventersdorp.

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The Mio-Pliocene landsurface was terminated at the end of the Pliocene by the Post-African II uplift episode. Concentration of uplift in the eastern parts of the country by as much as 900m greatly accentuated the westward tilt that had been imparted by the earlier Miocene movement and resulted in significant rejuvenation along the major inland drainage systems (Partridge & Maud, 1987). This period of uplift initiated the Post-African II landscape cycle. These tectonic events were accompanied by further aridification of the climates and the encroachment of the Kalahari and Namib sand dunes.

During this time, the Clay (CP) Package was deposited as an extensive, sheet. Thickening of the clay unit over the potholes indicates that subsidence was still continuing. The depositional environment of the clay unit is envisioned as part of the prograding Kalahari succession. Other studies (viz. Beukes, et al., 1999) also indicate that drastic environmental and climatic changes may have taken place in the late Tertiary – early Quaternary, with warm semi-arid to arid conditions prevailing. It is, further, speculated that the deposition of the clay package may be related to the Tertiary/Recent karst cycle as similar infill is found in some of the younger potholes and caves.

Subsequently, Pleistocene glacio-eustatic sea-level fluctuation resulted in the development of the colluvial gravel unit that is seen to cut across all of the outcropping units (CP and UGP). Climatic indications are of more humid conditions, relative to the arid to semi-arid climate under which the Kalahari clay package was deposited. . Colluvial processes resulted in the formation of a stone-line throughout much of the sub-continent. Where this stone-line occurs over the alluvial gravel deposits it may be up to 70cm thick. . Lateritization of this unit attests to the more humid climates prevailing at this time. . The entire area was blanketed by Kalahari sands with converted to Hutton soils in Recent time under mild, savannah conditions. Thicknesses of up to 1.0m are common, with greater thickness occurring over sinkholes (Plate 6.3), indicating that subsidence was still on-going during the Quaternary.

Plate 6.3: Thickening of the Kalahari Sands over a pothole (photo from Roodepan 180, courtesy Batton Mining (Pty) Ltd)

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. Presently the Hutton soils may be dissected by stream erosion and vegetated by grass with the development of a thin (40-50cm) humic soil. The soil follows the modern topography, independent of underlying lithology – marking a disconformity that is in the process of formation.

6.3 Property Geology

The Hartbeestlaagte and Zwartrand properties are located at the contact of the Eccles (chert-rich) and Littleton (chert poor) formations (Fig. 6.6) of the Malmani sub-group (Transvaal Supergroup). Nooitgedacht, and the Tirisano Main pit, lies entirely on the Eccles formation. The Eccles formation is composed of chert-rich dolomite and displays deformation features to the east of the East Gravel Run on Zwartrand 145 IP, where a massive chert breccia forms a boss surrounded by highly deformed dolomite cut by a network of narrow dykes (Berezowsky, 1998). The southern extremities of Hartbeestlaagte and Zwartrand are located on the chert-poor Littleton formation.

Two gravel runs have been identified on the properties – the West and Main Gravel Runs. Only the Main Run, as located on Nooitgedacht and Hartbeestlaagte, has been extensively prospected – the West Run and its possible extensions have not yet been investigated in any detail. Only one run is known on Zwartrand, probably associated with the Main Run on Hartbeestlaagte.

The main Tirisano pit is located close to the contact between the Eccles and Littleton formations and the intersection of a number of small structures that have been identified on the aerial photo interpretation. The shape of the main pit is determined by the intersection of two fractures at, roughly, right angles (Plate 6.4). The large sinkhole, that is the Tirisano main mining pit, is formed at the intersection of these two fractures. Clay and gravel infill indicate that these fractures have been the loci for episodic karst activity in this area since, probably, the Precambrian.

Plate 6.4: Intersecting fractures and the large sinkhole at the Tirisano main pit (aerial view from the southeast, courtesy of Etruscan)

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Figure 6.6: Property Geology Map

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A number of prominent ridges traverse the properties (Plate 6.5). These linear highly silicified chert breccias have been interpreted as remnants of an ancient karstic cavity fill, probably part of the Transvaal-age “Giant Chert formation” (Berezowsky, 1998). The ancient breccias were subsequently silicified becoming resistant to erosion thus forming topographic highs. It is obvious that these quartz ridges have influenced the subsequent kart development – as is evidenced by the offset to the east of the East gravel run at the Hartbeestlaagte/Zwartrand boundary, as well as the apparent cut-out at the southwest corner of Zwartrand.

Plate 6.5: Silicic ridges (remnants of the Giant Chert Formation?) that traverse the property and have an effect on gravel deposition

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7 DEPOSIT TYPES

The karst of the North West Province is, perhaps, unique in the world, due to the peculiar composition of the rock involved and probably also to its climatic history. The caves preserved in this area include the largest known in South Africa and are perhaps among the largest dolomite systems known in the world. The dolomite in the Transvaal has undergone at least four periods of karstification since its deposition in the Proterozoic (Brink and Partridge, 1965). The four periods are: . Pre-Pretoria Group (Giant Chert) . Pre-Waterberg (dissolution cavities in the dolomite, filled with red Waterberg sandstone) . Pre-Karoo (the karst forms suggests development under a cold climate as may be expected from the associated glacial deposits) . Tertiary-Recent (by early Tertiary times it is conjectured that the Karoo cover in this region was sufficiently thin (and absent in places) to allow for the evolution of a karst landscape.

It is fundamental to the geological and resource models to appreciate that the gravels were deposited in a karst system where: . the dolomitic bedrock contacts with the gravels may be vertical; . the mode of gravel deposition is not typical fluvial alluvial; . periodic subsidence has taken place during deposition; . deposition has taken place over a long time (at least since the Mesozoic), resulting in a build-up of a very thick gravel sequence.

Detailed mapping of the Tirisano main pit, the nearby Klipgat 18 IQ mine and all available pits and boreholes on both Hartbeestlaagte and Zwartrand, and comparison with other, similar deposits in the North West Province (Marshall & Norton, 2008) has resulted in the development of the model presented below.

The following stratigraphic sequence (Fig. 7.1 and Plate 7.1) is seen to be present in both sinkholes and linkage channels (all units may or may not be present at any one site).

Lower Gravel Package (LGP)

The gravel is generally a clast-supported mixed unit. It is characterized by quartzite clasts dominating over chert clasts (60-80% quartzite) and contains clasts of Waterberg arkose/sandstone, weathered Hekpoort andesites, and red diamictite (Pre-Waterberg cave infill) which are very distinctive. The in-situ weathering of these clasts results in a reddish-brown clay matrix. Even the -25mm fraction has a reddish-brown colour when washed. Typically, this unit has a concentration of manganese wad at its upper contact – the result of weathering before it was collapsed into the karst cavern system. This manganese-rich layer is referred to as the lower manganese horizon and is likely an extension of the Waterval Saprolite (Refer Section 6.4) on chert-rich dolomite and gravels. These gravels generally carry elevated diamond grades and are the primary exploration target on Hartbeestlaagte.

Locally developed within the LGP, and typically located towards the top of the package, is a more clay- rich horizon termed the Transition Zone Package (TZP). This unit is generally similar to LGP, but with slightly higher clay contents resulting in a marginally more matrix-supported gravel. An examination of the matrix material indicates that it has been derived from kaolin (decomposed chert-rich dolomitic wall rock) – a consequence of spalling of the wallrock into the accumulating gravel pile. As a result of the increased clay content, these gravels are distinguished by lower, but still potentially economic, grades and increased processing problems.

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Plate 7.1: General Stratigraphy as seen on Hartbeestlaagte

Figure 7.1: Schematic stratigraphic model for the Ventersdorp alluvial diamond deposits

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Towards the base of the profile in some of the deeper sinkholes a whitish gravel may occur. Termed the Basal Gravel Package (BGP) this gravel is thought to be a variation within the LGP that has been affected by local leaching. It is not seen everywhere and does not occur as a discrete horizon. The Basal Gravel appears as a whitish gravel, composed of rounded to well-rounded clasts of white-grey quartzites, vein quartz, white-grey chert and minor amounts of white arkose, sandstone and very weathered red speckled quartzites.

In the cobble fraction, the quartzitic clasts are slightly more numerous than chert, but this changes in the pebble-gravel fraction, with chert clasts slightly more dominant. In the finer fractions quartzitic clasts again dominate, with few exotics, including agates, present. In all fractions, there is a lack of Waterberg and red diamictite clasts. Also present are large, sub-rounded to rounded, chert boulders, as well as angular chert clasts that appear to have be derived from localised spalling of the bedrock. The matrix is comprised of greyish-white and yellow-orange clays. The gravel is reasonably well packed in places, varying from clast- to matrix-supported. It is thought that this unit may simply represent a leached version of the Lower Gravel Package, as broken quartzites reveal a white leached halo surrounding ferruginous quartzites that typify the Lower Gravels).

At the base of the LPG, and intersected only in drilling is a unit described as a “cherty gravel” (Lock et al., 2003). It has been historically reported that such gravels exists intermittently under the known diamond-bearing mixed gravel, but that it is barren, or at best low grade.

Pebbly Clay Package (PCP)

This unit comprised of clays and pebble to small cobble lenses may reach thicknesses of 5-50m. The matrix is a sandy-clay, white to light yellow in colour. Chert clasts > quartzite clasts (60%:40%). The <10mm fraction is rounded to well rounded. It appears to be a fluvial unit that has reworked the underlying LGP/TZP units. Grades are very low and diamonds are small, resulting in this unit being classified as non-economic “overburden”.

Upper Gravel Package (UGP)

A coarse, clast supported mixed gravel, with little/no sorting. The matrix is comprised of yellow-brown clays. Chert clasts are more abundant than quartzites clasts. The chert is sub-angular to sub-rounded, while the quartzites are sub-rounded to rounded. The implication is that this unit is reworked LGP with the addition of locally derived, angular cherts. Not only do UGP’s occur as sinkhole/channel infill but they also drape over the surface (locally known as “sheet gravels”). With moderate grades this unit is considered an economic horizon.

A deposit-wide discontinuity is evident between the UGP’s and the underlying units. Further, a second phase of manganese enrichment appears to be associated with the end of deposition of UGP (referred to as the middle manganese horizon). This manganese-rich layer occurs mostly as manganese nodules, in contrast to the lower unit where the manganese typically occurs as wad.

Clay Package (CP)

A thick unit (up to 20m) of generally massive clay (with minor grit/pebble lenses) overlays everything. The sheet-like that gets thicker over potholes (subsided areas) but extends between potholes and over 5km away from potholes (Plate 7.2). It is a completely non-diamondiferous overburden.

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Plate 7.2: Overburden sequence of Kalahari clays and Hutton Soils

Hutton Soil

The Hutton soil profile is comprised of a stone lag and overlain by windblown sands (locally termed Hutton Sands). In the vicinity of underlying alluvial gravels the stone lag, which is typically only a single- pebble layer, may be up to 1m thick. The gravel unit cuts across all lower layers, depending on the level of erosion. It is a concentrate layer formed by post-depositional colluvial and eluvial processes. Immediately above the manganiferous laterite layer the soil contains abundant iron and manganese nodules, some of which have been transported and others having been formed in-situ (Beukes, et al., 1999). The transported nodules probably represent nodules (iron and manganese rich) that were reworked from the older Waterval Saprolite (lower manganese horizon). However, many of the transported nodules have been coated in-situ by a new layer of goethite. This goethite may also cement together several nodules to form nodular lumps. A second variety of nodule is only iron-bearing probably formed in-situ as the goethite is the same variety as that which coats the reworked ferromanganese nodules. This unit is referred to as the upper manganese horizon.

The goethite cement also forms lumps composed of colluvial/eluvial gravels, pre-existing ferromanganese and/or goethite nodules and diamonds. This unit was extensively mined by early prospectors (and currently, on Welgevonden 167 IP (see section 14.3) – if all the diamonds are liberated from the cement then the grades may often be economical. However, the amount of manganese present in these deposits results in processing and recovery problems for modern plants with the subsequent loss of diamonds. Therefore, although in-situ grades might be elevated, plant through-puts are low, resulting in sub-economic deposits.

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During Recent times (around 40,000 yrs) windblown and waterborne sands, silts and muds (of Kalahari origin) were deposited over much of Southern Africa, blanketing all underlying sequences (Plate 7.3). This soil is typically massive and unlithified, composed of quartz grains in a silty clay matrix. Pedogenesis of the sediment led to the formation of the Hutton soil profile

Plate 7.3: Hutton Sands overlying (manganese) cemented colluvial gravels

In the UGP, chert clasts predominate (+ 60%) over quartzite and other clasts. In the LGP, however, quartzite clasts make up some 50%, red arkose, lavas, sandstone, and shale 40%, and chert is typically less than 10% in the 50-80mm size fraction. In the 25-50mm fraction, the percentage of chert increases to around 15-20%. In all fractions, the clasts are rounded to well-rounded.

The clasts that make up the gravel deposits may have been derived from a number of sources: • Ventersdorp Supergroup o Rietgat Formation (Conglomerate) • Pretoria Supergroup o Rooihoogte Formation (Conglomerate, granulestone, shale, chert units) o Timeball Hill Formation (Ferruginous quartzite units) o Hekpoort Andesite (andesitic lava, agglomerate, tuff, conglomerate, quartzite, shale and diamictite units) o Daspoort and Magaliesberg quartzites (orthoquartzitic units) • Karoo Supergroup o Dwyka Group (shale and diamictite units) • Other o Pre-existing cave-infill of presumed Waterberg age

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8 MINERALIZATION

8.1 Nature of Mineralisation

The gravel deposits of the Ventersdorp district are developed in the palaeo-karst features of the Transvaal dolomites. As such, an understanding of karst development is essential to the prospecting and evaluation of these diamondiferous deposits. The details of karst development and its application in the North West Province have been described in detail in the 2006-2008 NI43-101 Technical Reports for Etruscan and summarised in Marshall & Norton (2008) and will not be repeated here. It is important, however, to note that: • Karst is terrain with distinctive landforms and drainage arising from greater rock solubility in natural waters than elsewhere (Jennings, 1985). Solution is not always the most prevalent process in karst, nor is it necessarily the most dominant one, but it does play a more important role here than in other kinds of landscapes. Its most critical effect lies in the enlargement of underground voids, causing increased permeability of the rock. As more water passes through the rock, the voids become large enough to become caves. • In normal landscapes, small streams in small valleys join to become large rivers in large valleys. In karst, this harmonious pattern is broken up by the development of small, centripetal drainage basins and closed depressions take over the landscape to varying degrees. Superficially it lacks organization and the drainage system has to be sought underground. In karst areas, the total or partial absorption of a watercourse is known as a swallow hole, watersink, or sinkhole. • Though structural and lithological considerations are very important, the regions with the greatest number of sinkhole-type swallowholes are those of both present- and recent- glaciation. Where thick soils or superficial (glacial or alluvial drift) deposits cover karst rocks, dolines can develop through spasmodic subsidence and more continuous piping of these materials into widened joints and solution pipes in the bedrock beneath (Fig. 8.1).

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• Dolines, are generally circular or oval in plan, with a range of forms; dish and bowl-shaped, conical and cylindrical. In size, dolines vary from a few metres in their dimensions to more than a hundred metres in depth and to several hundred metres in horizontal dimensions. A number of processes are operative in dolines, including solution at or near the surface, cave collapse, piping and subsidence. These processes often work in combination or in sequence to form complex features. • The sinkholes in, and adjacent to the major runs, show varying morphologies ranging from collapse to subsidence doline, yamas (perpendicular or oblique shafts leading to caves at depths), wells, lapies's (solution channels) and buttresses. Residual gravity measurements by Stettler (1979) indicate that the runs are situated in gorge-shaped channels and that potholes occur at the intersections of such channels.

8.2 Surrounding Rock Types/Regional Bedrock Geology

The Transvaal Supergroup, which forms the host-rocks to the diamondiferous alluvial gravels, rests unconformably on the Ventersdorp volcanic succession and, in the North West Province, is comprised of the Black Reef Quartzite and the Chuniespoort and Pretoria groups (Table 8.1,). In this area of the North West Province, the Ventersdorp Supergroup comprises lavas, agglomerates, tuffs/tuffaceous sediments and conglomerates. The clastic sediments (of the Rietgat formation (part of the Bothaville Formation)) are located on a number of farms between Ventersdorp and Lichtenburg (von Backström, et al., 1952). The sedimentary sequence consists of quartzite, gritstone and conglomerate. The coarse clasts of the conglomerate comprise granite, quartzite, quartz, chert, pre-existing conglomerates, and both basic and acid lavas. The clast decrease in size westwards and the entire unit grades into a quartzite.

The Black Reef Quartzite is conglomeratic near its base (SACS, 1980). These conglomerates contain gold eroded from the underlying Witwatersrand rocks and have historically been mined sporadically. The conglomerates are overlain by mature quartz arenites. The Black Reef Quartzite grades upward to the dolomitic Malmani Subgroup through the 10 - 200m thick chert-poor Oaktree Formation. Following on this transition zone is the 300 - 500m thick Monte Christo Formation. This formation can be subdivided into three, namely the Lower, Middle and Upper Monte Christo, as a consequence of their chert content: the Lower and Upper formations being chert rich. Clastic sediments mark the base of the overlying 100 - 200m thick chert-poor zone of the Littleton Formation. This unit, in turn, grades upward into the chert-rich Eccles Formation which is capped by a disconformity.

The uppermost unit is the Frisco Formation, a mixed zone of breccia, shale, chert-poor dolomite and minor iron-formation. These carbonates have a gradational contact with the overlying Penge Iron- Formation. Following the chemical sedimentation of the Chuniespoort Group, the Kaapvaal Craton was uplifted and exposed to weathering and erosion. A karsted surface was extensively developed over the outcropping carbonate formations. Reworking of these deposits resulted in the formation of a widely developed chert breccia (Giant Chert Formation) at the base of the Pretoria Group. The overlying Pretoria Group consists predominantly of quartzite and shale, together with a prominent volcanic unit and minor conglomerate, chemical and volcanic members. Numerous diabase and other basic sills are found at various levels in the Pretoria Group (SACS, 1980).

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Table 8.1: Simplified Stratigraphy of the North West Province (SACS, 1980)

MESOZOIC- Alluvial diamond gravels CAINOZOIC

KAROO ECCA GROUP SUPERGROUP DWYKA GROUP Northern valley facies

Rayton Formation Magaliesberg Quartzite Silverton Shale Daspoort Quartzite Strubenskop Shale

PRETORIA GROUP Dwaalheuwel (sandstone, conglomerate) Hekpoort Andesite (2,222Ma)

Boshoek Formation (periglacial conglomerate) Timeball Hill Formation (shales & quartzites)

Rooihoogte Formation (BIF & shales and TRANSVAAL conglomerate), Bevets Member SUPERGROUP Giant Chert formation Deutschland Formation

Penge Iron Formation (2,480Ma) Frisco Formation (shaley, chert poor)

Eccles Formation (chert rich and erosion breccia) – Regressive environment CHUNIESPOORT Littleton Formation (shaley, chert poor) GROUP MALMANI Upper Monte Christo Formation (chert poor) SUB-GROUP Middle Monte Christo Formation (chert poor) Lower Monte Christ Formation (chert rich) Oak Tree Formation (chert poor) (2,585Ma) Black Reef (2,642Ma) Quartzite

PLATBERG GROUP Rietgat Conglomerate formation VENTERSDORP BOTHAVILLE GROUP SUPERGROUP Undifferentiated volcanic pile ALLANRIDGE GROUP

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The lowermost formation of the Pretoria Group, the Rooihoogte Formation, contains a prominent basal conglomerate – the Bevets Conglomerate member. Pebbles are poorly sorted and may display imbrication. Chert pebbles are usually finely laminated or massive and grey in colour. They tend to discolour white when exposed in outcrop. Some pebbles are cracked due to compaction and the cracks are filled by chlorite. The matrix of the conglomerate is composed of quartz and chert grains and diagenetic siderite and chlorite. Siderite in particular, is found to replace detrital chert. The siderite is usually developed as euhedral crystals and contains small amounts of Mg, Ca and Mn. Siderite-rich matrix tends to become dark brown-red on prolonged exposure to the atmosphere.

Mapable units of the Karoo rocks (Dwyka tillites and Ecca shales) are not found within the Ventersdorp district. The closest outcrops are located east and south of Lichtenburg. The tillite is composed of a soft, clayey, unlaminated matrix, wherein unsorted, brecciated clasts of varying sizes are found. The clasts are comprised of predominantly chert and varying types of quartzite, but also include minor amounts of dolomite, conglomerate, lava and Bushveld lavas (von Backström, et al., 1952). Examples of striated glacial floors are found near Lichtenburg – the orientation of the proposed glaciers is from northeast to southwest. Although outcrops are rare, Dwyka shales are known to exist beneath the tillite in various places around Lichtenburg. Furthermore, a raft of such shales is preserved, as cave infill, on a farm less than 20km east of Tirisano (Marshall & Norton, 2008). Ecca shales are also still preserved in the cave to the west of Ventersdorp (Martini and Kavalieris, 1976).

8.2.1 Post-Gondwana Geomorphology

Several supergene ferromanganese wad deposits (Beukes, et al., 1999), mined on small scale for industrial applications, are developed preferentially on the Oaktree formation of the Malmani dolomites of the Transvaal Supergroup (although they are known to exist on the other formations, they are best developed on the Oaktree unit). The wad (Plate 8.1) represents an ancient saprolite (Waterval Saprolite) developed in the dolomite on a major unconformity. The ferromanganese wad apparently formed after the break-up of Gondwanaland, during the African cycle of erosion. Conditions must have been humid and warm to allow deep chemical weathering with wad formation, kaolinization, and laterization.

Weathering and leaching of the dolomite surface must have taken place under moderately acidic to weakly alkaline and oxidising ground water conditions. For development of up to 80m thick saprolite, chemical weathering must have taken place over a prolonged period of time, with abundant water circulation in areas of low relief with little mechanical erosion. It is also probable that laterization accompanied the formation of the saprolite. It is most likely that ferromanganese nodules were derived from a nodular ferromanganese ferricrete that had originally covered the saprolite. All the features of the saprolite would suggest development under warm humid conditions with very effective chemical weathering – similar to that found in humid tropic/sub-tropical areas today.

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Plate 8.1: Supergene enriched manganese wad development (defunct Rand London Manganese Mine on Roodepan 180 IP, Ventersdorp district)

8.3 Geological Controls

The geological controls on the preferential development of diamondiferous gravels are lithological and structural: . Historically, the better deposits have been found on the chert-rich dolomite units of the Malmani Group as well as along the lithological contacts of the chert-rich and chert-poor strata. . A comparison of alluvial deposits with dykes and other major linear features also indicates that many of the channels have been influenced by these. In addition, sinkhole features are often located at intersections of structural features and also at intersections of structural features with lithological boundaries.

In the Ventersdorp district it is the chert-rich horizons of the Malmani subgroup that host (by volume) the most important diamondiferous gravels (Fig.8.2). The Klipgat/Goedgedacht mine (Gothoma CC), for example is located at the intersection of fractures along a lithological contact. Krugersdal Mine (S A Gemstones (Pty) Ltd) is located along lithological boundaries.

Mineralisation is confined to the gravel packages that in-fill karst caverns etched out of the Malmani chert-rich dolomites. The clay-poor LGP and UGP units are considered to be the major exploration targets as the diamond grades encountered in these units have, historically, supported commercial mining ventures. Although elevated grades have also been associated with the colluvial manganese nodule layer – this unit is not everywhere present on the properties and the processing of these gravels can be problematic due to the manganese content.

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Figure 8.2: Generalised Geology of the Ventersdorp Area highlighting the importance of lithology and structure in the location of important alluvial diamond deposits.

Further, a comparison of alluvial deposits with dykes and other major linear features also indicates that many of the runs have been influenced by these. A geophysical study of the alluvial deposits further west in the Lichtenburg district (Stettler, 1979) indicates that most runs occur in leached zones within the dolomite and that sinkholes occur at the intersections of such leached zones (similar features have been identified in the Ventersdorp district). The implications of this are that the drainage pattern was controlled by inherent lines of weakness within the dolomite, as was the localization of sinkholes within that drainage. Even within the present drainage configuration, many of the swallow holes, springs, poljes and marshes, are located preferentially in the chert-rich horizons (or along contact zones) and are localized by structural features. Examples of such are found at Vetpan (Nooitgedacht 131).

There is significant coincidence between joint orientations and that of the dykes and quartz veins intruding the dolomite plain, suggesting preferential intrusion along these planes of weakness. Similarly a statistical occurrence between the orientation of the dykes and joints, and that of the gravel runs and the gravity anomalies indicates a causal relationship (de Wit, 1981). There is, furthermore, a correlation between the orientation of the gravel deposits and the strike of the chert-dolomite zones at that particular locality. There are some disparities between the orientation of the older, palaeosolution channels and those found in the present day cave systems, however. Studies of caves in the North West Province (Kavalieris and Martini, 1976) indicate that the dominant structural controls on the younger caves are 92º - 110º and 177º - 190º. These younger cave orientations have been attributed to early Tertiary (African) cavern development along tensional jointing developed in post-Karoo times, probably contemporaneous with the Gondwana separation. The totally different orientations of the (earlier)

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gravel-filled solution channels argues for a different, much earlier, age of initial development – most probably pre-Dwyka. This would be in harmony with de Wit's (1981) interpretation that the erosion and karstification of the dolomite bedrock was evidently well advanced prior to the onset of the deposition of the oldest gravels. This would also be substantiated by the lack of speleothems in these solution channels: pre-Dwyka climates are much colder (glacial) than present and cold climates, while enhancing carbonate solution, inhibit the precipitation of carbonates.

In all known alluvial gravel deposits, diamonds occur in clusters formed by natural traps (examples include, but are not limited to gullies, potholes/sinkholes and gravel bars), and are not evenly spaced throughout those trapsites. In addition, diamonds constitute discrete units of varying size (weight) and usual parameters of grade measurements are not entirely applicable. Individual diamonds are not evenly or uniformly distributed throughout an alluvial deposit; neither are they randomly distributed. Rather, their distribution has been described as a random distribution of clusters of points. The clusters are both randomly distributed in space, and the point density of each cluster is also random (Rombouts, 1987).

8.4 Mineralisation on Tirisano Mine

The geophysical surveys (and supported by extensive drilling) indicates that the karst system on Nooitgedacht/Hartbeestlaagte extends southeast across the property towards the adjacent farm Zwartrand, and is offset by a number of structural features. There appear to be a succession of sinkholes connected by a series of linkage channels (which pattern is typical of allogenic streams). The overall length of the karst system (on the Tirisano properties) is approximately 5,500 m. Widths of the channels are seen to vary from 135-385 m. Drilling indicates that depths of the sinkholes and channels can exceed 140m. Geophysical modelling indicates that final depths may be +200m.

As described above, the mineralised zones that are targeted as potential mineable horizons are the UGP and LGP units (especially the more clay-poor units). Geological mapping of outcrops, excavations, drill holes and bulk-sample locations have indicated the gross outline of the occurrence of these units on the Properties. The LGP resource is, typically, confined to the deeper portions of the karst system. UGP deposits generally exist in two locations – on the western shoulder of the karst sinkhole-channel system (as sheet gravel) and overlying the LGP in the sinkholes. It appears, further, that subsidence has been active throughout the system, resulting in the deposition of PCP’s within the solution channel/sinkholes. Sample results indicate that the PCP unit is thicker on Nooitgedacht than on Hartbeestlaagte.

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9 EXPLORATION

9.1 Remote Sensing (Satellite Imagery / Aerial Photo interpretation)

In 1996, Ashton Mining commissioned a photogeological study of the Ventersdorp district from Lockett and Associates of Perth, Australia. This data was acquired by Etruscan (and passed on to Rockwell) and has proved extremely useful for identifying regional areas of interest. It is well known that the chert- rich dolomite lithological units, and especially the Eccles formation have historically, hosted the most significant diamond deposits in the Ventersdorp area. This is presumed to be due to the formation of trapsites in these formations. Further, karst channels tend to form at the contacts of different lithological units and also at structural intersections and structural intersections with lithological boundaries.

It can be seen from the photo-interpretation (Fig. 9.1) that the north-west quadrant of Hartbeestlaagte is located on the Eccles formation, or near the boundary between the Eccles and underlying Littleton formations. The Cretaceous gravel run is seen to run south-north from the “Vetpan” and then swing to the south-east as it hits the contact between the Eccles and the Littleton formations. At about or slightly beyond the Hartbeestlaagte/Zwartrand farm boundary the run abuts against a WNW-ESE trending quartz ridge, where a large pothole is developed. The run swings through 90º and heads off to the SW, towards the south-east corner of Hartbeestlaagte, where it, once again, intersects a quartz ridge (NW-SE trending) at the contact between the chert-poor Littleton formation and the chert-rich Monte Christo formation.

Based on this aerial photo interpretation (the lithology and predominance of structural intersections), the north-east quadrant of Hartbeestlaagte and the north-western quadrant of Zwartrand have been identified as highly prospective parts of the property.

9.2 Geophysics

The gravity technique was selected as the preferential geophysical technique to map the target areas, as it provides excellent contrasts in areas where the underlying bedrock is dolomite. Gravity is also an industry- accepted method for mapping depth to dolomite, as a significant density contrasts exist between unweathered dolomite and weathered rock or gravels overlying the dolomite bedrock.

The gravity technique measures gravitational acceleration on a particular point and data is normally acquired in a grid or on parallel profiles. The gravitational acceleration is measured in mGals17 and higher acceleration is experienced in areas with higher subsurface densities, typically in areas of more shallow bedrock. The gravity method measures the gravitational attraction exerted by the earth at a measurement station on the surface. The strength of the gravitational field is directly proportional to the mass and, therefore, the density of subsurface materials. Anomalies in the earth’s gravitational field result from lateral and depth variations in the density of subsurface materials.

Gravity acceleration is measured in milliGals (mGals) or sometimes in mircoGals (μGals) for very high- resolution surveys. Gravity acceleration variations as a result of geological changes is very small compared to the average gravity acceleration measured and require the need for very precise measuring and field techniques. Gravity works well in environments where there is a dramatic density contrast between the host and the target mediums.

17 The milliGal unit of gravitational acceleration is commonly used in gravity surveys. (1 mGal = 10-5 m/s2) Page 63

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Figure 9.1: Extract from the 1996 photo interpretation by N Lockett, showing various interrelationships between the gravel runs, lithology and structures

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Gravity is typically used in the following applications: . Mapping subsurface voids . Mapping bedrock topography . Mapping density contrasts

In 2003/2004 Bell Geospace was contracted to fly a regional airborne Full Tensor Gradiometry (FTG) survey over Etruscans area of interest in the Ventersdorp district. After an initial test-study over a small area centred on the Tirisano Diamond Mine, some 7,500 line-km of data were acquired. Data lines are spaced 400m with a N-S orientation and tie lines spaced every 1,600m oriented E-W, all at a constant barometric height of 1,745m above mean sea level.

In 2003, Global Geophysical CC had been contracted by Etruscan Diamonds (Pty) Ltd to conduct a ground gravity survey on the farm Nooitgedacht, and this investigation was then expanded (after the completion of the airborne survey in 2004) to include the farms Hartbeestlaagte (eastern portion) and Zwartrand (western portion).

Gravity data was collected with a 25m by 100m grid on average, although later data was acquired on a 50 by 100 m grid. Line orientation was selected to be perpendicular to the strike of the channels to optimize the anomalous effect of the channels, with lines having a south-west to north-east strike on average. It is clear from the interpretation of both the airborne and ground gravity data that the subsurface cavities are not 'stand-alone' features, but show continuity. The impact of these for ground water storage and alluvial gravel concentration is significant due to potential leakage from one cavity to the other. Modelling the gravity data in association with available drilling data indicates that the solution cavities on Nooitgedacht (Tirisano main pit section) exceed 60m in depth and that mineable widths of gravels (including the relatively shallow sheet gravels on the shoulders of the cavities) may be up to 800m in places.

The ground gravity survey, completed by A Du Plessis of Global Geophysics CC was planned to cover the East Run, as found on Hartbeestlaagte and the diggings on Zwartrand. The specific localisation of the grid was based on the results of the airborne survey. The Residual Gravity Anomaly map (Fig. 9.2) produced by removal of a regional field of block size 1000 x 1000 m shows definite trend of low gravity anomalous zones that can be correlated with alluvial channels and deeper dolomite bedrock. Gravity results were correlated with available borehole information to obtain reasonable estimates for the regional gravity contribution.

The gravity technique was used to infer the presence of alluvial channels and zones of deeper dolomite bedrock on the farms Hartbeestlaagte, Nooitgedacht and Zwartrand. Areas of low gravity can be correlated with areas of deeper dolomite and possibly thicker gravel deposits. However, the gravity technique is not effective in quantification of the absolute depth of features and cannot be used as a stand-alone technique to accurate map depth to bedrock in the absence of ground-truth information. It is very accurate in defining changes in the depth to bedrock; however, the absolute depths cannot be inferred with high accuracy.

Notwithstanding the challenges inherent in the gravity method, an attempt was made to model the potential depth to bedrock in the gravity anomalies.

Three profiles were selected in a single anomaly and, a density of 2.0 g/cm3 for gravels and 2.6 g/cm3 for bedrock (weathered dolomite) was chosen as a standard. Based on this information, this particular pothole is estimated to have a maximum depth of some 120m (A du Plessis, Pers. Comm., November 2006). The deepest borehole in this anomaly indicates that the sinkhole is at least 140m deep. It was

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recommended that further modelling be done on additional anomalies to determine their possible depths. Some of the bigger, deeper anomalies are expected to have maximum depths of up to 200m.

Tirisano main pit

Figure 9.2: Tirisano project residual gravity (250 m regional) (du Plessis, 2006) Tirisano Main pit

In 2007, Global Geophysical CC completed a detailed gravity surveys over selected sinkholes on Hartbeestlaagte (Fig. 9.3). This exercise highlighted the strong North-South structural control on the

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010 development of the karst feature (any points related to minor linear drift in the data have been removed, resulting in a clean, real representation of bedrock geology). It also emphasised just how complex the actual edges of the individual sinkholes can be, further highlighting the need for detailed drilling to determine accurate volumes for resource estimation purposes.

Figure 9.3:

Location of detailed geophysical grid (du Plessis, 2006)

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Although depth to bedrock determinations are as a useful tool in understanding the full extent of the karst system, no additional measurements have been made since 2007. Since bulk-sampling has only proceeded down to depths of approximately 60m and present mining technology would indicate that 100-110m is a realistic final mining depth, this feature is of current exploration value only.

Of more immediate interest is the expansion of reconnaissance grids over areas currently defined as exploration targets. These targets cover extensive areas on Zwartrand and Hartbeestlaagte and are expected to provide areas for future prospecting with a view to expanding available gravel resources for the Tirisano project.

No further exploration (remote sensing or geophysics) was completed on the Tirisano project since 2007.

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10 DRILLING

All drilling to date was completed under Etruscan. No additional drilling has been initiated by Rockwell.

10.1 Drilling Procedures and Protocols

All drilling was carried out using a conventional RC machine with a 76mm (diameter) bit and a 28bar compressor (Plate 10.1). The drilling contractor is Champ Drilling CC, a local drilling company that has many years of experience drilling for alluvial gravels in the North West Province. All drillhole positions were surveyed and elevated by Etruscan personnel.

Plate 10.1: RC Drill-rig used by Etruscan on the Tirisano project (photo courtesy of Etruscan)

This method of drilling was found to be successful on Tirisano. When drilling LGP, depths of +100m have routinely been reached. However, 293 holes were abandoned in LGP (mostly due to penetration problems and ground water conditions), indicating that the gravels must be somewhat thicker than seen in the drilling. The great depths of the sinkholes (modelled at in excess of 120m), have created serious problems for the drillers who are only able to penetrate to bedrock in exceptional circumstances. This, in turn, has repercussions for the accurate estimation of gravel volumes that may exist in the sinkholes.

Etruscan had a standard procedure that governs the locating and drilling of boreholes. The chips were logged on site and excess material was taken to a sample laboratory in Ventersdorp for storage (Plate 10.2)

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Plate 10.2: Sample-board preparation at the Etruscan warehouse in Ventersdorp

10.2 Location

Drilling on the Tirisano properties was completed in a number of phases over a period of 10 years. The various programmes were planned to identify the anomalies identified on the gravity surveys. Both expected sinkholes/channels and shallow areas were targeted. Detailed drilling during 2006 was concentrated on areas where the bulk-sample pits were to be located. The 2007 programme concentrated on detailed drilling in the sinkholes where indicated resources were to be estimated and also on Zwartrand, where little/no drill coverage existed. In total some 51,542m (2,305 holes) were completed as part of the exploration programme (Fig. 10.1).

A reasonable correlation between the gravity survey and the drilling is apparent. Generally, where gravity lows are indicated by the geophysics, deeper sinkholes/channels were identified and, likewise, where gravity highs occur, the gravels are thinner and may occur as “sheet gravels”, if present at all. Drilling in the gravity lows did not always locate gravel. Since gravity anomalies simply reflect differences in rock density, it was not possible to differentiate between karst structures filled with clays and those containing potentially diamondiferous gravels.

In order to expand the in-situ resources of the Tirisano project, additional drilling was completed during 2008 (Fig. 10.2). Six holes were drilled in the bottom of the Tirisano main pit, 17 holes to the north of the Tirisano main pit and another 74 holes in areas of inferred resources. The purpose of the drilling was to increase the confidence level of identified gravel volumes in order to upgrade them to Indicated Resource status. These holes were drilled on a 50x50m grid and were planned to intersect bedrock. This was not possible in all cases, due to difficult drilling conditions. In addition, 23 boreholes were drilled to assist with the expansion of the Tirisano Main pit. The total drillhole database available to the resource programme is 53,576m (2,391 holes).

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Figure 10.1: Location of all drillholes on the Tirisano project area. See Fig. 10.2 for detail of inset Page 71

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Figure 10.2: Additional (infill) holes drilled during 2008, within and to the north of Tirisano main pit (see Fig. 10.1 for location of area) Page 72

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10.3 Results

A number of cross-sections were drawn through the drillhole data in order to visualize the progression of the karst system across the property. What is immediately apparent is that the bedrock is extremely uneven, the result of variable subsidence since the Mesozoic. Although the karst channels are not “channels” in the true fluvial sense, they can be traced from one section to another although they are offset and variable in depth. Also obvious are the presence of bedrock pinnacles within the sinkholes and channels. These features, and the extreme unevenness of the bedrock contact, make gravel volume estimation more complicated. As a result, during the current exploration phase, during which some inferred resources have been upgraded to indicated resources, a much more detailed drilling grid has been require to mitigate against these problems.

Once contoured, this data (Fig. 10.3) indicates that there are discrete areas where the gravels thicken perceptibly. This indicates that, rather than being one homogenous trough, the karst system comprises a number of deeper potions (discrete sinkholes) within the leached out zone. For the most part, the overburden is also thicker in these areas of deeper sinkholes.

Figure 10.3: Contours of drill results showing gravel thicknesses

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10.3.1 Volume Estimation

The volume estimates were modelled in June 2008 by Brian Paull of A B Global Mining (Pty) Ltd. The models, the data on which they were developed, the methodology and the results were reviewed and validated in conjunction with the author who is responsible for the estimate. The assumptions on which the model was developed are: • Maximum depth of 60m for Indicated Resources (bulk sample depth at June 2008) • Maximum depth of 105m for Inferred Resources (A B Global planned mining depth) • Maximum distance of 50m between boreholes for Indicated Resources • Maximum distance of 100m between boreholes for Inferred Resources • Assumption of 6m average thickness of UGP across entire mine • Assumption of 2m average thickness of PCP across Hartbeestlaagte and Zwartrand. • Assumption of 15m average thickness of PCP across Nooitgedacht

Different layers were extracted from the list of boreholes and wire-framed to create the four layers, UGP top and bottom, LGP top and bottom (Fig. 10.4a). Each layer was clipped to the dolomite footwall, so that no overlapping of layers occurs (Fig. 10.4b). These layers are seen to represent the gravel body dimensions as defined by the boreholes. The wireframes were, subsequently, filled with cells to form a block model (shown in Fig. 10.4c) and the volume of these cells were evaluated to provide the total volume of each gravel unit.

Subsequently, a 60m depth cut-off was applied to separate the indicated resource blocks from the underlying inferred resource blocks (Fig. 10.4d). Since the planned mining depth of the pits has been estimated at 105m (A B Global, 2008) a resource cut-off has been applied at this depth to separate the inferred resource blocks from the underlying exploration potential. Further, geophysical modelling is unable to determine quantitatively the depth of the dolomite bedrock. As a result, no volume can be estimated between the base of the boreholes and the bedrock contact. All of this material has been delineated as an exploration target area. The result of the modelled volume estimation is presented in section 16 (Mineral Resources).

Boreholes

Clay/Soil Clay/Soil UGP UGP PCP PCP LGP LGP Clay Clay Dolomite Dolomite o (c)

Clay/Soil Clay/Soil

UGP UGP Indicated PCP PCP LGP 60m LGP Dolomite Dolomite Inferred

o (d)

Figure 10.4: Method of resource volume estimation (courtesy A B Global, 2008)

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10.4 Limitations of the drilling programme

The drilling programme highlighted a number of areas that need further study. • It has not been possible to differentiate between the various gravel packages in boreholes. The most significant is the difference between UGP and LGP, since these units appear to be very similar in borehole, but have quite different grade characteristics. The difference between PCP and the UGP/LGP units is sometimes a little easier to identify, but not always. Consequently, average thicknesses have been assigned to the different gravel units based on bulk-sampling pits. On Nooitgedacht, mining in the Tirisano open pit has indicated that UGP thicknesses average 6m, and the PCP unit is some 12-15m thick. Elsewhere on Hartbeestlaagte, UGP thicknesses still average 6m, but the thicknesses of PCP’s is much attenuated, at around 2m. It appears that the sinkholes on Hartbeestlaagte were not as active as those on Nooitgedacht at the time the PCP was being deposited. Until mining operations suggest otherwise, these average thicknesses will be assigned to the different gravel units. • Further, it has not been possible to log the details of clay and manganese contents in the gravels in the drilling. This is most significant in the LGP unit, where increases in the percentage of clay or manganese severely affect diamond recoveries. This results in highly erratic recoveries in the present processing facilities. • The drilling has not penetrated to the bedrock in all circumstances. The percentage boreholes reaching bedrock has improved over 2006, but it is still insufficient to determine an accurate reflection of the bedrock profile. Many of the boreholes end in gravel or clay and it is unknown how much gravel may exist between the end-of-hole and the actual bedrock contact (which, geophysical calculations estimate, may be in the order of 120m) – resulting in an unknown amount (presumed substantial ?) of gravel that may be added to the resource budget in the future. • The steepness of the bedrock contact, which is clearly evident in the bulk-sampling pits, is not as obvious in the drilling. This is visible in the cross-sections that show angular contacts between the gravel and the bedrock. This situation occurs because of the (relatively) coarse drilling grid. However, in order to identify an almost-vertical bedrock, the drill spacing would need to be so close would be impractical. Consequently, the gravel volume estimated from the drilling is based upon direct tie-lines is somewhat less than might be the case if a more free geological interpretation were applied. Different interpretations indicate that this difference might be in the region of 4-5Mm3. In order not to introduce additional problems into the data, it has been decided to present only the data directly observable from the drilling results.

10.5 Representativeness

As can be seen from Fig 10.1 above, the completed drilling programme on the Tirisano mine properties has covered all outcropping and sub-cropping gravels with a detailed grid. The results are, thus, extremely reliable.

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11 SAMPLING METHOD AND APPROACH

Etruscan carried out bulk-sampling programmes on the Tirisano property during 2002-2008. The results of the programmes have been presented in Section 5.2. Rockwell has not yet completed any additional bulk-sampling on Tirisano. A discussion of the sampling methods and other issues, including reconciliation between sampling and production results will be presented once Rockwell has processed sufficient gravels to make such comparisons meaningful.

11.1 Drilling, sampling and recovery factors

Details regarding drilling, gravel thicknesses, and geological controls on deposition are presented in Section 7 (Deposit Types) Section 8 (Mineralisation) and Section 10 (Drilling) and will not be repeated here. A number of issues peculiar to alluvial diamond sampling in general have, however, been identified. These impact specifically on the size of the samples and the complexity of statistical estimations.

 Low grades The grade of a diamond deposit is the estimated number of carats contained in one hundred tonnes (cpht) or hundred cubic metres (ct/100m3) of gravel and, typically, averages ≤ 1cpht (roughly equivalent to 0.001 -0.0001ppm) for inland South African alluvial deposits (Lock, 2003).

 Low homogeneity of diamond distribution Individual diamonds are not evenly or uniformly distributed throughout an alluvial deposit; neither are they randomly distributed. Rather, their distribution has been described as a random distribution of clusters of points (Fig. 11.1), where the clusters are both randomly distributed in space, and the point density of each cluster is also random (Rombouts, 1987).

Figure 11.1: Schematic distribution of alluvial diamonds within an alluvial deposit – random distribution of clusters of points (Rombouts, 1987).

 Large individual diamond size Diamonds constitute discrete units of varying size (weight). In all of the inland alluvial deposits of South Africa, average diamond sizes are in the range of 0.5-2.0ct/st. Consequently, they form discrete particle deposits as opposed to disseminated particle deposits. Often the size and value distribution from stone to stone is erratic and it is possible that the majority of the value of a parcel is attributed to a single stone.

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 Depositional environments Alluvial streams are highly transient environments. The braided channels are unstable through time and gravel bars are formed and destroyed continuously. Shifting bars and channels cause wide variations in local flow conditions resulting in varied depositional assemblages. Common features in braided stream deposits include irregular bed thicknesses, restricted lateral and vertical variations within the sediments, and abundant evidence of erosion and re-deposition. On a broad scale, most deposits are complex with units of no great lateral extent. Locally, bedrock features play an important role in diamond concentration of the alluvial deposits, with diamonds occurring preferentially in natural traps such as gullies, potholes and gravel bars and, typically, reworked through one or more post-depositional colluvial or eluvial.

 Lack of associated minerals or geochemical signature In contrast to kimberlite deposits, alluvial diamond deposits are not characterized by any standard (or deposit-specific) satellite/indicator mineral assemblage that may occur in higher, more easily measureable, concentrations than the diamonds. Neither do the deposits have any associated geochemical signatures that can vary according to diamond grade (or any other geological characteristic).

 Grade variation In a single gravel unit (or even within a few metres), diamond grades may vary from barren to over 100cpht, due to the development of localized trap-sites under favourable bedrock conditions, or hydraulic fractionation within a channel or bar. Consequently, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples.

In order to account for all of these issues, alluvial diamond deposits can only be sampled through bulk- samples comprising tens-hundreds of thousands of cubic metres of gravel. Bulk-sampling is completed in much the same manner as the production mining would be, except on a smaller scale. With positive results, bulk-sampling naturally progresses to trial-mining, during which all of the modifying parameters are determined to allow a decision of whether to proceed to full production.

Diamond recovery is dependent on mechanical recovery through the application of physical properties of both diamond and gravel – density and size variation (to concentrate the heavy mineral portion from the bulk gravel) and fluorescence and wettable properties of the diamond during final recovery. The processing and recovery plants are affected by various issues such as the nature and amount of calcrete in the gravels as well as the amount of clay in the matrix.

11.2 Representativeness

As can be seen from the sampling map, the bulk-samples are not taken along a systematic grid, neither are they sited so as to sample specific horizons. The key reasons for this are: • The extremely large size of the sample (refer Sections 8 and 11.3 for details on diamond distribution patterns). • The anticipated mining plan for the properties is based on high volumes (and low grades) and, therefore, the samples have to address average recoveries. Consequently, samples are not sited to intersect areas of anticipated higher (or lower) grade. • The mining plan combines both Rooikoppie (colluvial) and fluvial-alluvial gravels. As a result, these units have not been sampled separately.

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12 SAMPLE PREPARATION, ANALYSES AND SECURITY

Rockwell has not yet bulk-sampled on any of the properties comprising the Tirisano mine project.

Due to the nature of alluvial diamond deposits, samples are not taken for assay as would be normal for precious or base metal prospects. No samples are dispatched to any analytical or testing laboratories. Gravel bulk-samples were rather, processed through on-site processing plants to determine average sample grade and the recovered diamonds are, subsequently, sold on the open market for a determination of value.

As described in Section 11, alluvial diamond deposits can only be sampled through bulk-samples comprising tens-hundreds of thousands of cubic metres of gravel (often referred to as trial-mining). Further, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples of tens of thousand cubic metres in size. Consequently, “check-samples” such as are standard in the precious and base-metal industries, are not possible and, for the same reasons, sample splitting and reduction methods are not employed.

Since the samples were processed through the company’s plant, company personnel are involved in the entire process, from the excavation of the gravels through to the final recovery of the diamonds. However, no officers or directors of the company are involved in any part of this process.

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13 DATA VERIFICATION

During 2010, no exploration, bulk-sampling or trial-mining took place. Consequently, no data was available for review or verification.

As part of the data verification and resource estimation processes the independent QP and the Mineral Resource Manager (MRM), Rockwell’s non-independent QP, work closely together at each step. Prior to the initiation of new procedures and protocols which may impact on resource estimation results, discussions are held on the potential implications for both short and long term gravel volume, and diamond grade and value assessments. Further, the independent QP audits (both interactively and independently) the procedures used by the MRM to produce the resource estimates and models.

It is, however, important to note that, although every data verification and resource estimation process is reviewed and audited by the independent QP, Rockwell also evaluates these issues in parallel, as part of their internal corporate responsibility. Any discrepancies, as well as potential issues, are thus identified by both parties separately and combined and are dealt with before they can become problems.

Once trial-mining commences in 2011, the following procedures and protocols will be employed to administer both data and the results: • Rockwell has instituted measures to govern every phase of data collection – from drillhole location, through bulk-sampling and processing, to final recovery and sales. The independent QP was involved in the drafting up of these protocols and they are reviewed, updated and audited regularly – during each site visit, during the compilation of the technical report and prior to the initiation of a new phase of exploration or mining. Spot checks are carried out by the independent QP on various aspects of the operation during site visits and, in the opinion of the independent QP. • While the MRM has overall control and responsibility for the resource evaluation programme, QA/QC for individual portions of the project are the responsibility of the designated individuals. The standard of record keeping was found upon inspection to be very high and there was sufficient evidence to show that the internal checks referred to above were being carried out on a regular basis. Among the internal checks performed by Rockwell (and reviewed regularly by the independent QP) to ensure that data is complete and accurate are: . drill-logs are checked and signed off by two different individuals; . gravel volumes are reconciled by exploration/survey and operations personnel; . the production records are examined by the management for inconsistent or unexpected data; . management reconciles the data from the diamond recovery log, mine registry, production records, register of diamonds recovered, and sales slips and; . management regularly audits the buyers’ records of transactions to ensure that they agree with the sales slips received. . advanced computer/network security and backup measures are applied regularly, ensuring minimal disruption in the case of computer failures. • The geological database is the critical starting point to effective resource and reserve estimation and maintaining the integrity of the database is fundamental. In order to verify the integrity of the data and to ensure compatibility across all of Rockwell's properties, the database is routinely processed through DatashedQAQCTM, a database programme that enforces compliance through various protocol levels.

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• Mined volumes are sent to Rockwell under certificate from an independent professional surveyor and subsequently captured onto the production database by the Database Co- ordinator and verified by the MRM. The procedures and protocols of the surveyor have been reviewed by the independent QP and found to be in accord with industry standard. In addition, the surveyor provides a DTM of the area surveyed to Rockwell. This DTM is imported into SURPAC, which then calculates the volume of the mined area. If the computer-calculated volume differs from the surveyor’s volume by more than 5% then the area is re-surveyed. Further, if subsequent mine grades are unexpectedly high or low; the volumes are re-checked or potential errors. This is routinely done by Rockwell staff and reviewed by the independent QP • All diamond data (total carats and total stones as well a list of every individual stone recovered) is recorded on the relevant mine and forwarded to the Database Co-ordinator who adds it to the database. Verification and change reports are used to track changes to the digital database by the Database Co-ordinator; copies of which are forwarded to the MRM. The independent QP receives and reviews this data regularly. • Payment for diamond parcels is always received by electronic transfer and a formal broker’s note is provided from the buyer and this also serves to indicate compliance with the Kimberley Process. This data is, subsequently, added to the production database. • As has been described in section 12 of this document, alluvial diamond deposits can only be sampled through bulk-samples comprising tens-hundreds of thousands of cubic metres of gravel (often referred to as trial-mining). Further, the diamond distribution pattern (grade) of alluvial deposits is such that there is no repeatability of sample results, even from adjacent samples of tens of thousand cubic metres in size. Consequently, “check-samples” such as are standard in the precious and base-metal industries, are not possible. As a result, the author has to rely substantially on the production and sales data collected by all the operational personnel. Random sample data is, however, verified by the independent QP who also audits the information from drilling to modelling.

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14 ADJACENT PROPERTIES

Diamondiferous alluvial gravels are known to occur on three properties adjacent to Tirisano (Fig. 14.1): . Private operations are located on the Deproclaimed portion of Nooitgedacht 131 IP . Witkrans 130 IP was prospected in 1999/2000 by Batton Mining (Pty) Ltd and was being mined by a local prospector during 2007/2008. . Historical diggings are located on Zwartrand (now incorporated into the Tirisano project). The available information on this property is described in section 5.2.

Similar deposits are known from a number of properties in the Ventersdorp district. Some of these, namely Goedgedacht, Klipgat, Zwartplaas and Morgenzon have supported commercial mines.

Figure 14.1: Location of prospecting/mining activities on properties adjacent to Tirisano

Although satellite interpretation, geophysical modelling and surface mapping appears to indicate that all these properties fall on similar karst-hosted gravel systems, the mineralisation on these properties is not necessarily indicative of the mineralisation on Hartbeestlaagte. The author has not independently verified the resource information on all of these properties, unless where indicated.

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14.1 Nooitgedacht 131 IP (Deproclaimed Portion)

Historically, over 26,000ct were recovered from Nooitgedacht (Marshall, 1987), from shallow artisanal diggings located on the gravel “run”. No reliable information regarding diamond grades and values is available from these deposits, although it is suspected that mainly colluvial gravels were mined, although some of the deeper pits must have accessed both upper and lower gravels. Currently, private operations still exist on the 14ha “Deproclaimed” area adjacent to the north of the Tirisano main pit on Nooitgedacht 131 IP (Plate 14.1).

Plate 14.1: Artisanal operation to the north of the Tirisano Mine on the Nooitgedacht Deproclaimed area. Photo courtesy of Etruscan, view from the north

A number of site visits by the author (at various times during 1990 and, more recently, in November 2010) suggests that colluvial gravels (Plate 14.2) and the LGP (Plate 14.3) units are the primary mining targets. In addition, minor amounts of UGP have also been identified. No formal resource estimation programme is in place on this property, and little is known regarding the depth extent of the deposit. Minor drilling indicates that the gravel extends at least 30m below surface. However, the diamond grades and values being recovered18 here are within the ranges found on the Tirisano mine.

18 This information was provided to the author by the current owner/operator of the mine during a site visit in November2010. Page 82

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Plate 14.2: Manganiferous colluvial deposits mined on Nooitgedacht

Plate 14.3: Lower gravels (LGP) being mined on Nooitgedacht, below old diggers heaps

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14.2 Goedgedacht/Klipgat Mine

The farm Klipgat 18 IQ is located approximately 45km north-east of Ventersdorp and represents the northern-most portion of the Klipgat - Goedgedacht run which has been worked extensively over the past 75 years and produced more than 75,700ct during this period. Klipgat's gravel run is a northwest- southeast trending feature with a length of 2,000 m and a width of approximately 550 m. The gravels are concentrated in isolated steep sided channels, small remnants of potholes and large deep potholes. The run appears to be fault constrained and evidence of these faults can be seen in the sidewalls of the pits and on the aerial photographs. The basal (target) gravel has been described as a clay-poor LGP (early grades are recorded as 2.5-2.8ct/100m3). This is overlain by a clay-rich gravel unit, with lower (but still economic) grades. These gravels drape the known sinkholes and have been mined from surface until the overburden has become too thick – thicknesses of overlying clays are known to exceed 10-15m in the centre of some of the larger sinkholes.

A portion of Klipgat was mined by Gothoma CC under contract to Etruscan Diamonds (Pty) Ltd (Plate 5.1) from 2000 until 2006. Average diamond grade and value in 2000 was reported as 2ct/100m3 and USD 400/ct, respectively. End 2005 – beginning 2006 quarterly production from Klipgat Diamond Mine19 was reported as 1.64 ct/100m3 at USD 448.44/ct (120,822m3 processed to recover 1,980.33ct).

Plate 14.4: Klipgat Mine, as operated by Gothoma for Etruscan Diamonds (Pty) Ltd during 2000- 2006 (Courtesy, Etruscan Diamonds)

To the south of Klipgat lies the farm Goedgedacht. Mining operations (in the 1980’s and 90’s by private operators) were initially concentrated on two potholes (the larger of which is at least 100m in diameter and mined down some 10-15m). In 1998, the property was purchased by Goedgedacht Diamonds (Pty)

19 Etruscan Diamonds (Pty) Ltd news release, 4 April 2006 Page 84

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Ltd. During the period September - October of 1998, a percussion drilling programme was completed (some 700m in 20 holes). These holes were all drilled in the immediate vicinity of the two known potholes and drilling confirmed the average depth of the potholes to be in excess of 35m. At that time, diamond values and grades averaged at USD565/ct and 1.09cpht (this grade being a combination of productive gravels and the low grade sandy clay layer - the average recovered grade (for the productive gravel layers) was approximately 1.7cpht (G. Potgieter, Pers. Comm.).

Subsequently, this property was mined by Gothoma CC during 2006-2008, but is currently under Care & Maintenance as a result of depressed rough diamond prices. During the period January to December of 2007, a total of 754,308m3 of gravel was treated from various pits (Fig. 9.1). A total of 5,766.47 carats (5,093 stones) were recovered for an average reported grade of 0.76ct/100m3 (1.13ct/st). By September of 2008, the average sales value of the diamonds from this mine was USD900/ct (Flawless Diamonds (Pty) Ltd., Pers. comm.)

Plate 14.5 Gothoma’s (2007) operations – mining lower gravels from a deep sinkhole

The gravel stratigraphy identified on this property, by Goedgedacht (Zhao et al., 1999), comprises: • A basal gravel (comparable to the LGP gravels) typically + 5m thick, consisting of large, well rounded quartz boulders (often +1m in size, but more typically 50 cm.), cobbles and pebbles in an ochre coloured argillaceous matrix. This unit was identified as the primary mining target, due to the elevated grades obtained (grades of up to 5cpht were reported). • An upper gravel unit (called pothole-fill gravels and thought comparable to the PCP unit) normally with an ochre to red-coloured argillaceous matrix, often accompanied by red, silty, argillaceous lenses that often indicate continued slumping. This unit was identified as an almost barren overburden (with grades of around 0.3cpht). • Laterally more continuous, thin sheet-like gravels (comparable to the UGP) – the result of the erosion and reworking of the older underlying gravels. Diamond concentrations within this gravel Page 85

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are highly variable and it has been noted that small localised potholes within this gravel horizon were the primary target of the early miners.

The detailed surface mapping shows that the Goedgedacht gravel run is composed of a series of adjoining, interlinking potholes, generally between 80 and 120 metres across. Mining of over 96,000 tonnes during 1999/2000 produced an average sample grade of 0.71 cpht (1.27ct/100m3). By selectively mining the basal gravel, the average grade was increased to 1.25cpht (2.25ct/100m3). An average value of USD506/ct was obtained from the sale of 1,257ct. This figure increased to USD650/ct in late 2000. An estimate of the potential volume of diamond-bearing gravel (non-SAMREC or CIM compliant) of some 23M tonnes was made by the Goedgedacht management prior to mine closure in 2000.

14.3 Krugersdal Mine

During 2004-2008, S A Gemstone (Pty) Ltd and its wholly-owned subsidiary Boitumelo Diamonds (Pty) Ltd mined alluvial diamonds on Krugersdal, Morgenzon (Plate 13.1) and Illmasdal – from a gravel-filled palaeokarst system that runs parallel to the Klipgat/Goedgedacht run.

Plate 14.6: Mining operation on S A Gemstone’s Morgenzon property (2004)

Historically (from 1929 to 1969), 11,754.25ct were reported to have been produced from these properties (Marshall, 1987). All these diamonds were recovered from the gravels in a “run” some 50 x 1,650m. During 2004/2005 the average grade recovered from gravels identified as similar to LGP gravels was 1.3cpht or 2.34ct/100m3 with top and bottom cut-off sizes of 32mm and 2mm respectively (Marshall, 2004a, 2004b; 2005). The average sales value was USD 600/ct.

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15 MINERAL PROCESSING AND METALLURGICAL TESTING

During 2008, trial-mining was initiated by Etruscan. This was confined to the expansion of the Tirisano main pit on Nooitgedacht. This trial-mining operation was part of a pre-feasibility study that was to lead to the estimation of Probable Reserves on the BlueGum project. However, as a result of the economic crash in late 2008, this study was never finalised.

During 2010, Rockwell commenced with engineering and planning programmes to modify the processing plant and final recovery systems present on the Tirisano mine. During 2011 Rockwell plans to re-commission the mine and initiate a trial-mining programme.

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16 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES

None of CIM, SAMREC, or JORC definitions deal specifically with the peculiarity of alluvial diamonds when it comes to resource or reserve estimations. The reason for this is that, typically, alluvial diamond companies have not, historically, been significant public companies (other than De Beers) that have required guidance in these matters. Since resources have “a reasonable expectation of economic viability”, CIM requires cut off grades to be estimated for resources as well as reserves. Cut-off grades are better defined through feasibility studies that establish reserves. For reserve definition, different cut-off grades are applied to different deposits or sections of a mine at different times. Cut-off grades can vary as average ore value changes (e.g. diamond market conditions, exchange rate, diamond size variations) or as operating cost factors vary (e.g. amount of overburden, haul distance). Reserves for alluvial diamond mining inevitably change as deposits are mined.

The Indicated and Inferred Resource categories used in this Report follows the CIM definition20. The resultant estimations are materially similar to those set out in the SAMREC Code21

CIM Standards define Inferred Resources as: An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

Due to the uncertainty that may be attached to Inferred Mineral Resources, it cannot be assumed that all or any part of an Inferred Mineral Resource will be upgraded to an Indicated or Measured Mineral Resource as a result of continued exploration. Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. Inferred Mineral Resources must be excluded from estimates forming the basis of feasibility or other economic studies.

For comparison, the 2007 SAMREC code defines an Inferred (Diamond) Resource as: “That part of a Diamond Resource for which tonnage or volume, grade and average diamond value can be estimated with a low level of confidence. It is inferred from geological evidence and assumed, but not verified, geological and grade continuity and a sufficiently large diamond parcel is not available to ensure a reasonable representation of the diamond assortment. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes that may be limited or of uncertain quality and reliability.”

This category, which has a lower level of confidence than that applying to an Indicated Mineral Resource is intended to cover situations where a mineral concentration or occurrence has been identified and limited measurements and sampling completed, but where the data are insufficient to allow the geological and/or grade continuity to be confidently interpreted. Due to the uncertainty which may be attached to some Inferred Mineral Resources, it cannot be assumed that all or part of an Inferred Mineral Resource will necessarily be upgraded to an Indicated or Measured Mineral Resource as a result of continued exploration.

20 CIM Definition Standards (2004) 21 SAMREC Code (2007) Page 88

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Further, confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. Notwithstanding, implicit in the definition of resources is that they should have reasonable and realistic prospects for eventual economic extraction.

CIM defines Indicated Resources as: An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Mineralization may be classified as an Indicated Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of data are such as to allow confident interpretation of the geological framework and to reasonably assume the continuity of mineralization. The Qualified Person must recognize the importance of the Indicated Mineral Resource category to the advancement of the feasibility of the project. An Indicated Mineral Resource estimate is of sufficient quality to support a Preliminary Feasibility Study which can serve as the basis for major development decisions.

The 2007 SAMREC code defines an Indicated (Diamond) Resource as: “that part of a Diamond Resource for which tonnage and volume, densities, shape, physical characteristics, grade and average diamond value can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drillholes. The locations are too widely or inappropriately spaced to confirm geological and grade continuity but are spaced closely enough for continuity to be assumed and sufficient diamonds have been recovered to allow a reasonable estimate of average diamond value.”

The confidence level associated with the Indicated Mineral Resource is sufficient for this information to be applied to global mine design, mine planning; to allow the appropriate application of technical and economic parameters; and to enable an evaluation of economic viability.

16.1 Resource Estimation

During 2010, no resources were added or depleted by Rockwell. Consequently the resources estimated at 31 October 2009 remain unchanged as at 30 November 2010 (Table 16.1 and Fig. 16.1). The mineral resources as 31 October 2009 were estimated by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of both Etruscan and Rockwell and is responsible for the estimate.

Indicated resource volumes were based on a drilling grid of 50mx50m or less. Depth was limited to 60m, since that was the depth of bulk-sampling for grade confirmation. Inferred Resource volumes were defined by a combination of RC drilling on 100m x 100m and 150m x 100m centres (down to end- of-hole depth or 105m). The bulk-samples had only confirmed grade continuation down to a maximum of 60m. With no data to the contrary, it was assumed (for inferred resource purposes) that the grade remains constant down to the base of the drillholes or 105m.

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Diamond grade was determined through the bulk-sampling/trial-mining of 486,170m3 of gravel during 2006-2008 Diamond value was estimated through the sale of +5,500ct on the open market during January-June 2008.

Table 16.1: Resource statement as at 30 November 2010

Indicated Resource Inferred Resource Grade Value

volumes (m3) volumes (m3) (ct/100m3) (USD/ct) Upper Gravel Package 16,109,000 8,613,000 1.77 606 Lower Gravel Package 11,801,500 6,744,000 2.85 606 Depleted by end-2008 -2,630,600 -23,000 TOTAL 25,279,900 15,334,000 2.37 606

Notes: • Gravel divisions into UGP and LGP units and their dimension parameters remain unchanged • Grades, volumes and diamond values remain unchanged from the Etruscan sampling/trial- mining data. Although the 2008 sales data has been used for this document and the accompanying preliminary assessment, management has modelled expected diamond values of USD700/ct, which is similar to the values obtained by local diamond diggers.

16.2 Prospecting and Mining risks

The prospecting and mining business is speculative. This Technical Report identifies some of the factors that are most likely to affect both the company and the project, as well as the value of its securities. However, this is not an exhaustive list and investors should seek professional advice for further clarification of the risks involved before deciding whether to invest in the diamond mining industry.

Whether a diamond deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of a deposit, such as the diamond resource (size, quantity and quality), proximity to infrastructure, water availability, financing cost and governmental regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of diamond and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the project not returning an adequate return on investment capital.

Further, general economic conditions may affect inflation and interest rates which, in turn, may impact upon the projects operating costs and financing. The future viability and profitability of the project is also dependent on a number of other factors affecting performance of all industries and not just the exploration and mining industries, including, but not limited to, the following: • The strength of the equity and share markets in Canada, Johannesburg and throughout the world; • General economic conditions in Canada and Johannesburg and their major trading partners and, in particular, inflation rates, interest rates, commodity supply and demand factors and industrial disruptions; • Natural disasters;

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Figure 16.1: Indicated and Inferred Resources identified on the Tirisano project

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• Social unrest or war on a local or global scale; • Financial failure or default by a participant in the project or other contractual relationship to which the Company is, or may become, a party; • Insolvency or other managerial failure by any of the contractors used by the Company in its activities; and • Industrial disputation.

Underlying strategic risks for prospecting and mining companies do not vary significantly over time. However, the acuteness, and hence the priority of these risks, changes depending on the economic environment (Ernest &Young, Strategic Business Risk Report, 2009). The changes may be subtle, but significant enough to sometimes change the drivers of these risks as they develop along with the market. For example, the economic crash of 2008/2009 forced the landscape to transform dramatically and priorities have, therefore, morphed from boom-related restrictions on supply to those risks directly affecting cash flow. This report has identified the most significant strategic business risks for the mining and metals sector, for 2010, as:

 Cost containment The spectacular fall in commodity prices has caused an even greater reduction in margins. Boom-time ‘production at any cost’ attitudes have left an unsustainable level of costs for mining and metals companies. However, cost reduction activities should not contribute to value erosion. Cost containment needs to be urgent and, most importantly, sustainable.

 Access to capital The global credit squeeze and resulting global recession has severely limited mining and metals companies from freely accessing both the debt and equity markets to fund ongoing operations during a period of low or negative margins. As a result, funding of new projects or refinancing of maturing arrangements can be challenging.

 Maintaining a social license to operate There is great pressure on companies to reduce capital and operating costs, making the need to maintain a social license to operate more difficult. Mine closures or staff reductions can negatively impact on a community’s and government’s perception of a mining company. Therefore, a balance needs to be struck between cost optimization and environmental and community investment.

 Climate change concerns As a major user of energy and a primary user of land, climate change is a major issue for the mining and metals sector which risks its reputation and social license to operate. Companies are introducing new initiatives to combat climate change, including using new sources of energy, improving water management, and developing new technology to harness carbon emissions and reduce energy consumption. There is also an increasing need for companies to respond to increased regulation of emissions including mandated carbon reporting and emissions trading schemes.  Skills shortage While a drop in demand resulting from the global financial crisis has checked industry growth, the long- term fundamentals, and hence chronic constraints on the expansion of supply, remain. With an inadequate supply of skilled workers and professionals for the sector, the challenge of recruitment, retention, development and deployment has become a significant strategic threat to the industry. This may delay future project development and production.

 Infrastructure access Lack of sufficient infrastructure is creating bottlenecks in getting product to market in many countries. Traditional mining and metals companies are increasingly tempted to invest in infrastructure to solve

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the problem. If they don’t keep pushing forward infrastructure development, when demand returns, they will not be able to capitalize on the recovery.

 Access to secure energy Mining and metals production is energy intensive and requires reliable, sustainable and efficient energy supplies. Under-investment in critical infrastructure by host governments is putting pressure on the reliability of existing supply, and limits the supply available for mine expansion or new projects.

 Resource nationalism During the boom, host countries owning the mineral resources were challenging whether they were extracting enough of an economic rent for the right of a mining company to exploit that resource. While predictably economic rents increased during the boom, there has been little change in the basis for these economic rents since the fall in commodity prices. In some instances, governments are looking to replace other areas of lost revenue with further imposts on the mining and metals sector.

 Pipeline shrinkage Exploration is the life blood of the mining and metals sector, as known reserves waste with production. The general decline in exploration has been exacerbated by the drought in risk capital. The lack of exploration today will limit discoveries tomorrow and production in the years to come.

 Price and currency volatility The extreme price (and linked currency) volatility witnessed during 2008 led many analysts to view the new challenges as one of the greatest threats facing the industry in 2009. This has had immediate impacts on cash flows, quotational period adjustments and hedge cover.

 Exposure to distressed counter-parties As the effects of the global financial crisis widens, exposure to distressed counter-parties has become evident in customers, joint venture partners, financiers and key suppliers. To mitigate these risks, a recent Ernst & Young survey found that 32% of mining and metals companies reported they had broadened their customer base by entering new geographical markets or new market segments, and 50% increased their focus on key customers. Some 57% have negotiated longer-term contracts and 53% have narrowed their supplier base for more favourable terms.

 Scarcity of water Population growth, urbanization and climate change are all contributing to increasing stress on water supplies. The mining industry can require up to 8,000 litres of water per tonne of ore extracted. Water scarcity will, therefore, directly impact the ability of the sector to produce at the current rate. Mining companies are being prompted to spend more to increase their water efficiency. Improved technology in the water industry provides a range of methods to improve water efficiency, including better ways of treating waste and saline water for reuse, and improved modelling of water systems.

 Increased regulation As mining and metals companies have expanded their global footprint, they are exposed to greater regulation and greater diversity in regulation. Mining and metals companies are experiencing significant fatigue around managing the myriad of often redundant compliance and regulatory reporting activities, the cost of which is massive and burdensome. Increasingly, companies may seek risk convergence initiatives which allow them to coordinate the various risk and control processes. These will help to drive down costs and, perhaps most importantly, enable more comprehensive enterprise-wide risk reporting to senior management and the board.

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 New communication vehicles for community activism The internet has increased the visibility of the industry’s investment and development portfolio. Public concern over the role mining and metals plays in national economies and the green debate, for instance, are played out openly on this new media platform. To mitigate the risk, a number of corporations and governments are putting more resources into direct-to-the-public and non- government organizations communications, with facilities for feedback and debate.

 Capital allocation As investment in mining and metals activities involves a variety of risk profiles (exploration, development, production and infrastructure) and hence expected levels of return vary, the allocation of capital in a mining and metals company is inherently complex. The level of gearing, the cost of debt and equity, all become important drivers in the optimal capital structures for mining and metals companies.

16.2.1.1 In South Africa

The greatest risks pertaining to the general minerals and mining industry in South Africa are perceived to be the uncertainties relating to the various mining-related Acts and Bills passed since 1994. Together with crime and the skills shortage, the inadequacy of Southern African infrastructure (and more specifically power and water infrastructure), increases in fuel/power prices, labour unrest and strike action, are all viewed as a material constraint to investment. Not to be forgotten, also, is the uncertainty of the effect of HIV/Aids on the workforce as well as the ever-present threat of resource nationalism from various elements within the ANC Youth League.

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17 OTHER RELEVANT DATA AND INFORMATION

17.1 Trial-Mining Programme and Preliminary Economic Assessment

The extent to which the estimates of mineral resources and reserves on a project may be mined commercially may be affected materially by various environmental, legal, financial, socio-economic, and marketing issues. In an attempt to quantify these variables, the following data (inter alia) is, generally, considered important in a preliminary economic assessment of a mineral deposit: • Mining and Production • Revenue • Operating Costs and Fees • Capital Costs • Taxes and royalties • Depreciation, interest and residual value

The Tirisano mine was bulk-sampled by Etruscan during 2006-2008 and then placed on Care & Maintenance in November 2008. Throughout 2010, Rockwell commenced with engineering (mining and processing) and planning studies which form the basis of a preliminary economic assessment (“PEA”). Operational parameters and operating costs have estimated from these studies and from Rockwell's experience on their other alluvial diamond mines (Saxendrift and Klipdam/Holpan). Capital costs of plant and equipment have been determined through formal quotations acquired from suppliers.

These studies and assessments have been carried out by relevant, professionally qualified Rockwell staff and have been supervised by both the Rockwell Mineral Resource Manager (non-independent Qualified Person, Mr G A Norton) and the independent Qualified Person (Dr T R Marshall). Also involved in this exercise has been: • Mr G Chamberlain (Rockwell’s COO), Registered (#53918) with South African Institute of Mining and Metallurgy (SAIMM); • Mr J Oosthuisen (Financial Manager) • Mr J Brenner (Manager, Diamond Marketing and Sales)

The independent QP has extensive experience with the operational aspects of alluvial diamond deposits, including mine planning and is familiar with costs associated with these businesses. Since the QP is not on site permanently, much reliance has been placed on the information received from Rockwell. In addition, numerous studies have been carried out (are being carried out) by independent professionals – these studies have not been independently verified or duplicated by the QP, who has assumed them to be accurate and complete). Where possible, however, the QP has independently verified the factors used in the financial analysis.

The independent QP has reviewed these programmes and costs (including the underlying objectives and data) and concurs that they are reasonable and realistic for this stage of the project. Consequently, it is believed that these figures give a realistic and rational indication of the cash flow anticipated for the life-of-mine.

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17.2 Mining Operations

17.2.1 Mining Method

The preferred method of extracting the alluvial gravels at Tirisano is by means of opencast mining. The diamondiferous deposits range from thin tabular horizons to thick (+60m) unconsolidated to semi- consolidated, gravel units infilling palaeokarst hollows and sinkholes. In South Africa opencast mining has been the industry norm for these deposits since the early 1900’s – details changing with the introduction of newer technologies. Various other mining methods have been tried by professional “diggers” (alluvial miners) in the NorthWest and Northern Provinces: • Trial-mining of Rooikoppie gravels overlying the fluvial unit along the Middle Orange River experimented with excavation using a Wirtgen tar cutter during 2008/2009. Although generally successful for relatively small, thin and shallow deposits, this method was not deemed suitable for the volumes that would need to be excavated on Tirisano. • Smaller operations have been mined successfully using bulldozers as the primary excavation tool. On Tirisano, the depth/thickness of the gravels makes this method undesirable as a mining technique. • In karst-hosted deposits, such as are found in the Ventersdorp district (where the Tirisano mine is located), the majority of the diamondiferous gravels are generally confined to relatively deep channels, thicker, often with thicker overburden, but still semi-consolidated. Due to its unconsolidated nature, this material cannot be mined as an underground operation, but lends itself to opencast mining methods. In the Ventersdorp district, the karst bodies are sufficiently large to allow for the use of excavators, front-end loaders (FEL’s) and Articulated Dump Trucks (ADT’s). • The use of conveyors as a primary method of transporting gravels from the pits to the plant site was considered, but rejected as unsuitable because of cost (specifically related to haulage distances) and the relatively short lifespan on individual mining pits.

17.2.1.1 Excavation

The excavating of the gravels on Tirisano will be undertaken using techniques virtually identically to the bulk-sampling and trial-mining operations: • Vegetation is cleared from the proposed mining block. As per environmental regulations, large trees are excluded from the mining area or, if this is not possible, then they are to be uprooted whole to allow for re-planting in rehabilitated areas. • The topsoil (where present) is removed and stored separately for use in later rehabilitation; • Each gravel horizon is excavated (by hydraulic excavator) separately and transported to the screening plant by both articulated and rigid dump trucks – the thick clay unit is stockpiled separately as overburden to be used in the rehabilitation programme. • During excavation, care is taken to ensure that minimal contamination by the footwall lithologies occurs, especially where small pothole features need to be cleaned out. However, where the bedrock is soft, approximately 10-20cm of bedrock is excavated with the gravels, so that any diamonds in the weathered rock will be recovered;

17.2.1.2 Screening

The gravels are trucked to the plant site where the screening plant is located – only once the excavation site is +1.5km from the plant site will Rockwell consider in-pit screening. The screening plant (built in- house with a capacity of 1,800tph) scalps at -75mm.

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Plate 17.1: Screening plant in operation on Tirisano mine

17.2.1.3 Rehabilitation

An on-going rehabilitation programme is important to the mining operation. However, due to the nature of the deposits on the properties, concurrent mining and complete rehabilitation is not possible. In this situation, the approved environmental management plans (EMPlans) allow for the excavation of much of the gravel resource before rehabilitation is finalised. In preparation for this, topsoil is removed separately and strategically deposited where it will not be contaminated or mixed with the gravels. As soon as possible, mined-out trenches are completely backfilled, the topsoil is replaced and the area is re-vegetated.

Where the excavations are shallow, rehabilitation entails the immediate or near immediate (following short-term side-casting) backfilling of overburden into pits concurrent with the advance of the pit face. All tailings derived from the concentrating and final recovery processes will be returned to the open excavations by the trucks on their return cycle. In the case of the fine tailings (slimes), such material will be pumped to the fines tailings dam. Any stockpiled topsoil is to be spread out over the surface; the rehabilitated areas will be contoured to fit in with the pre-mining topography and allowed to re- vegetate naturally. Primary vegetation starts is expected to establish itself after the first rainy season.

With respect to the deeper sinkholes, the waste is stockpiled around the edge of the mining pit. Once the pit has been mined out, the waste will be pushed into the open excavation. Slimes from the on- going processing operation will be used to fill up the hollow and sculpt the landsurface as desired,

17.2.2 Survey

Mine survey is the responsibility of the company surveyor and an independent consultant (F J van der Merwe, PLATO). Weekly pre- and post profiling of all applicable surfaces is undertaken using a sub -1cm accuracy Real Time GPS. A profile grid of ± 5m on even surfaces and 1m on uneven surfaces is set up. Volumes are calculated using the “Model Maker Systems” software package, a standard package, developed specifically for the technical- and land-surveying, engineering, mining, town-planning, landscaping, quantity surveying, irrigation design and construction industries. The standard checks implemented include: Page 97

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• Start up check maximum tolerance 1cm. • All profiling to be within 1cm accuracy. • Volume calculation - manual editing of all DTM’s where necessary and comparing total volume of excavations with grid volumes. • Careful record keeping of stockpiles at the plant and in pit. • Communication between survey and mining. • All volumes get reported at the middle and end of each month. • Accuracy to comply with SAMREC – error in the reported volume not to exceed 5%. • Elimination of grey areas, such as lack of profiling, stockpiles and excavations not surveyed.

Once the sample has been excavated and surveyed. The surveyor also supplies the RAW data, volume and DXF of the pit to the Geology department. This allows for independent calculation and comparisons of the resulting volume estimations, both by the in-house QP and by the independent QP.

17.2.3 Mine Plan

Mine planning is discussed by the Mineral Resource Manager, Mine Manager and Geologist on the specific site. The Pit design will have been done by the Geological department, which design will then be handed down to the necessary persons involved in the mining applications. Any changes in mining areas must be discussed with the Geological department prior to implementation.

Mining proceeds: • Mining blocks will be set out as discussed with the Mineral Resource Manager according to the equipment at hand. • Gravel from each block is to be processed separately. • If two blocks are being processed at any one time then the blocks must be stockpiled separately. • Any overburden must be stripped to such an extent that the gravel is fully exposed and no overburden is left behind. • The mining of overburden with gravel to create porrel for density at the processing plant is not allowed. • Mining into soft bedrock to depth of between 10-30cm is allowed/preferred to ensure the reconciliation of all the gravel. • Overburden can be ripped with the bulldozer to make stripping easier. • The pushing off of overburden by the bulldozer may be done up until such a stage as the gravel contour permits, after which stripping should be done using an excavator. • The pushing off of overburden should be done to such an extent that the minimal area of any open face is disturbed or covered. • All the gravel units must be ripped and crushed by the bulldozer to ensure proper liberation of the unit. • Where the bedrock is too undulating to use the bulldozer, gravel should again be ripped, crushed by the bulldozer and then mined using an excavator. • Gravel will be transported to the plant using articulated and rigid dumper trucks. • Stripping will be moved using articulated and rigid dumper trucks. • Main haul roads must have a minimum width of 25m, and secondary/pit roads must be 16m wide.

There is, at present, a 12 month trial-mining plan and schedule in place, with plans indicating the location, volumes and grades of the existing dumps. There is approximately 2Mm³ available prior to the existing pit. These dumps, however, represent lower grade material of around 1.77ct/100m³.

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SRK22 has been tasked to produce a geotechnical report with recommendations for the long term rehabilitation and mining of the existing and future pits. The mine design, planning and optimisation will start immediately after the completion of the geotechnical report.

17.2.3.1 Geotechnical Considerations

Since the sinkhole deposits are relatively deep, a few geotechnical problems are encountered. During 2010/2011 SRK Consulting has been conducting mining geotechnical studies for mine design going forward. This study comprises geotechnical drilling and logging of the dolomite wall-rock and the gravel infill as well as laboratory testing of all lithological units. Such data would be used as the basis for detailed slope stability studies. Preliminary results indicate:

 Blasting The gravels themselves are not sufficiently consolidated or cemented to require blasting. However, in order to keep the mining pit safe, dolomite sidewall will need to be blasted. Where necessary, Champ Drilling CC will be contracted to drill the holes and Quality Blast will complete the blasting itself. Typically a staggered blasting pattern (4.5m x 4.5m) is utilised.

 Cementing At specific levels within the stratigraphy, varying types of lateritisation is present, resulting in “cementing” of the gravels (generally by a combination of Fe and Mn). In order to prevent significant diamond loss, Rockwell has introduced two additional concentrate scrubbers before the final recovery.

 Sidewall Stability and Bench Heights SRK is, currently, completing slope stability studies on the northern section of the orebody and will provide engineering details before the pit is re-opened.

 Gravel Specific Density Specific Gravity (SG) measurements are not routinely completed on alluvial gravels. SG’s of gravels vary considerably from unit to unit due to moisture, clay and heavy mineral contents and conversion to tonnages tend to compound problems rather than simplify them. Regional averages for specific densities of alluvial gravels can vary from as low as 1.6T/m3 (metric tonnes per cubic metre) to over 2.4T/m3, where the gravels contain large percentages of Banded Iron Formation (BIF). Typically, fluvial- alluvial gravels average 1.8T/m3 and Rooikoppie deposits are somewhat higher, at 2.2T/m3.

All mining, processing and reconciliation on Tirisano Mine is done using gravel volumes and not tonnages. However, for the purposes of individuals wishing to estimate tonnages, a range of 1.75- 2.0T/m3 (average assumed at 1.8T/m3) can be assumed for the Tirisano Mine, as well as for other similar gravels in the Ventersdorp district.

 Bulking Factors The importance of determining valid bulking factor measurements for the Tirisano gravels was noted. During 2008 (Marshall, 2008) ALS was contracted (by Etruscan) to complete an exercise whereby this was calculated on sample of LGP gravel from Sample Pit #6. Sample HLPT620071026 was excavated and a total in-situ volume of 7,598 m3 was modelled from DTM’s created from the top and bottom surfaces of the sample void (Volumes were modelled using SurpacTM v6). The bulk volumes of the stockpiles were also calculated to be 9,218m3. This allowed a calculation of a bulking factor of 21.32%.

22 SRK (Stefan, Robertson and Kirsten) of Johannesburg, RSA is an engineering company contracted to complete various geotechnical studies for Rockwell as part of a planned pre-feasibility study during 2011/2012). Page 99

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 Hydrological Depth to the water table ranges from 20m below surface to about 38m below surface. Since the mining pits are expected to be significantly deeper than this, detailed hydrological studies will be completed before the deeper gravels are to be mined.

17.2.3.2 Mining rates and expected life-of-mine

At a proposed 180,000m3/month throughput, the preliminary estimation of mine life is 11.7yrs, based on indicated mineral resources only. An additional 7.1years may be added if inferred mineral resources are included, resulting in a total expected mine life of 18.8years. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

No account has been taken of any exploration targets or additional property acquisitions which are also expected to influence the LoM positively.

The mining/processing is planned to proceed in two phases. Phase 1 is planned to begin from Q2/2012, with the commissioning of one of the four planned production lines. The three remaining production lines are planned for commissioning by Q3/2012, bringing the mine to a total of 180,000m3/month.

17.2.3.3 Mining dilution factors

The mining plan is based upon the bulk-mining of the entire karst infill gravel sequence – grades are determined from ROM throughput. Further, since the (indicated) resource is estimated from material within 250m of a bulk-sample (or trial-mining) face and the drill control is within 50m, dilution factors within the individual mining blocks is expected to remain reasonably constant.

17.2.4 Earthmoving fleet

The following earthmoving fleet has been planned for on Tirisano mine (Table 17.1). No budget has been allocated to this fleet as it will be supplied from excess capacity on Rockwell’s other operations.

Table 17.1: Proposed earthmoving fleet requirements

Proposed Mining Fleet Number of Units

Mining Vehicles 90TBulldozer 1 40T Articulated Dump Trucks 6 50T Rigid Dump Trucks 3 WA800 Front-End Loaders 3 125T Hydraulic Excavator 1 140T Hydraulic Excavator 1 TLB 1 Service Vehicles Bakkies & busses 8

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Diesel Bowser 1 Water Bowser 1 Service Truck 1 Telehandler 1 Grader 1

17.2.4.1 Fleet Maintenance

As with all of Rockwell's mines, vehicle maintenance is done in-house by qualified staff. The maintenance department keeps a spreadsheet containing, inter alia, a list of all vehicles, hours per vehicle, service intervals and service history. All vehicles have pre-shift checklists filled in on each shift. The checklist contain standard checks for: lights, brakes, oil, tyre pressures, hours started, hours stopped, etc. Minor (non critical) problems are noted on the checklist. Major Breakdowns are reported to the mining supervisor/ Mining superintendent who in turn notify the workshop immediately.

The checklists are imported and reconciled on a weekly basis. This data is then used to identify vehicles nearing service. Job cards are made out to the supply stores in advance, containing a list of parts needed. The mining department is notified on which machines are needed for service 1-2 days in advance. The machines are moved to the workshop and cleaned of mud, grease and dust before service. The job cards are signed off and closed after completion of each job. This process is repeated on a weekly basis.

17.3 Recovery Process

The recovery process on an alluvial diamond mine comprises two phases – initially the screened gravel is concentrated to eliminate oversize and undersize clasts as well as material which is too light or too heavy to contain diamonds. This is followed by the physical separation of diamonds from the gangue minerals/clasts. During the bulk-sampling and trial-mining phases of the operation, various parameters need to be determined to identify the optimum plant design and or combination of processes.

17.3.1 Mineralogical Testing

a. One of the most fundamental recovery aspects relates to the size distribution of both gravel clasts and diamonds. The details have serious implications for top and bottom cut-off’s on the screening plants and final recovery systems. Too small screen-sizes at all locations will, ultimately, result in the loss of larger diamonds, but too large screen-sizes will flood the plant with material. The question of the size of diamonds passing through screens of certain apertures is extremely complex (and relates to both the shape of the diamond as well as the smallest crosscut of the diamond which presents itself to the screen. In addition, the behaviour of diamonds as they pass over a screen (in how many different ways they fall on the screen) is a further complicating issue. An interpretation of expected diamond recoveries will be completed to provide the selection of the most efficient top- and bottom cut-off screen sizes. b. It is planned to complete particle size distribution (“(PSD”) tests on all the mining faces. c. A second aspect requiring pro-active operational procedures is the amount and nature of the gangue (gravel) clasts. This includes problems surrounding sand, clay and manganese content.

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d. In addition, Rockwell’s decision to process the entire karst infill gravel sequence means that the volume of sand is expected to increase significantly, especially when processing the PGP unit – consequently the screening plant has been designed to remove some 90% of the (-2mm) sand fraction

17.3.2 Concentration/Process plant

Typically, three different concentrating plants are available for use on alluvial diamond mines – Dense Media Separation (“DMS”) plants, Rotary Pans and In-line Pressure jigs (“IPJ”). Each of the plants has particular characteristics and requirements that make them advantageous to specific situations. On Tirisano Mine, the rotary pan plant was chosen because of its lower capital and operating costs. The main objection to the rotary plant has, historically, been the relatively low recovery efficiency (compared to the DMS). Extensive R&D by Rockwell engineering and metallurgical staff have introduced significant, proprietary, improvements to the standard rotary pan plant, which have the impact of increasing recovery efficiencies appreciably.

The processing plant is planned to comprise of a bank of 8x16’ rotary pan plants, with a combined total throughput of 180,000m3. Overall plant utilisation is budgeted at 85% of plant specification to make allowances for planned and unplanned downtime. The planned processing methodology is described below (Fig. 17.1).

The screened gravels (-75mm) are stockpiled and processed according to standard operating procedures. Material for the rotary pan plants is fed into the plants by front-end loader. The plant feed bin feeds into the primary, “Trommel” screen, which both disaggregates the gravel and screens it at 32mm. All oversize waste material is to be removed from the plant site by conveyors and dumped adjacent to open excavations as part of the rehabilitation process.

The undersize material (-32mm) feeds directly into the rotary pan plants. The float fraction (light material) is discharged onto a double deck screen, the top deck of which is utilised as a relieving deck allowing for more efficient screening on the bottom deck which removes -1.6mm material. Undersize material and slurry from the screen is pumped to a separator cyclone situated above the pan tailings conveyor. The cyclone underflow discharges on a single deck screen directly onto the tailings conveyor, whilst the cyclone overflow discharges into a sump, which is then pumped directly to the mine residue deposit. The oversize tailings are transported via conveyor belt to the pan tailings bin where it is combined with the separator cyclone underflow, this material is then conveyored to the relevant tailings dumps.

The concentrate from each pan is removed as a batch from the pans using individual screw conveyors. The concentrate from each pan is then combined and transported along a conveyor belt to the final recovery sorthouse.

This plant configuration was selected due to its proven track record at Rockwell’s Klipdam Mine near Barkly West and Saxendrift mine, along the Orange River. The processing plant is planned to have the following requirements (Table 17.2):

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Figure 17.1: Schematic diagram of the mining/processing high-level plan for Tirisano mine

Table 17.2: Proposed processing specifications

Metrics Total

Front End Feed Rate ≥ 1,000 tph

Live Stock Pile Capacity ≥ 2720 t

Total Stock Pile Capacity ≥ 8160 t

Pan Feed fraction 2mm – 32mm

Pan Feed Rate ≥ 340 tph

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Recovery Feed Rate ≥ 17 tph

Product Recovery ≥ 98%

17.4 Final recovery

Historically, various methods of diamond recovery have been employed. These, typically, exploit specific physical characteristics of the diamond, such as its hydrophobic nature (grease), weight/size (mechanical jigs), fluorescence (X-Rays) and other optical properties.

The Tirisano Final Recovery includes the following processes: • Stockpiling and surge control in suitable storage bins, • Particle size distribution to allow optimal feed to the respective sorters, • Sorting and product extraction through six primary FlowSort X-Ray recovery units (Plate 17.2 ) and three secondary units (The secondary machines test 50% of the rejects of the primary machines as a back up and to ensure 100% efficiency). • Final hand-sorting of concentrate in a secure glove-box. • Hands off recording of all product data and storage in a secure vault. • Tailings discharge.

During the trial-mining, Rockwell will investigate the use of optical sorters and grease recovery as additional final recovery methods.

Plate 17.2: The completed final recovery section, with the six primary flow sort x-ray machines in the back ground and the one of three secondary machines in the foreground.

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17.4.1 QA/QC

QA/QC will be maintained through the use of tracers – both bort diamonds (supplied by Steinmetz) and ceramic balls. These tracers are introduced into different parts of the plant to ensure optimum diamond recovery. Fluorescent slingshot tracers and bort diamonds are used to continuously test for maximum equipment performance. Daily, 20 tracers are inserted into each FlowSort machine. Recoveries are monitored and problems with tracer recoveries are reported immediately to the plant superintendent who deals with the matter directly.

17.5 Infrastructure

17.5.1 Roads

The property is easily accessed via a network of regional tarred and gravel roads, as well as farm tracks on the mine property. From the Ventersdorp office, the mine is 30km distant on a 25km tarred and 5 km gravel road. Ventersdorp is 64km from Klerksdorp and 50km from Potchefstroom, the major population centres in the NorthWest Province and some 100km from Johannesburg. A well-maintained network of high-speed gravel roads and farm tracks provides ingress to all areas of the Tirisano mining and prospecting area. Within the limits of the mine area, water-bowsers spray the roads to limit dust. A helipad is located at the Tirisano Diamond Mine. The nearest operational airfield is located at Potchefstroom, some 45 minutes drive from the mine and a small registered air-strip is to be found at Ventersdorp.

17.5.2 Water

The underground water in this area has been tested consistently over the past five years and is suitable for human consumption as per South African Bureau of Standards (SABS) specifications.

A groundwater exploration programme was undertaken to ascertain whether enough water is available for the proposed mining operation. As no potential sustainable surface water source exists within the area it was imperative to confirm the availability of sufficient groundwater. A total of 20 boreholes were drilled of which six were abandoned, and two existing boreholes were rehabilitated as part of this programme. Successful boreholes were cased and equipped with a lockable cap. A well field was developed on the eastern portion of portion 8 of Nooitgedacht, this well field consisting of four wells, BH05, BH13, BH17 and BH19 (Fig.17.2).

From these boreholes, the water is pumped into a small pond next to the boreholes from where it is pumped to two large tanks at the plant. Wastewater from the plant is discharged into a slimes dam where suspended material settles and clear water is pumped back to the plant for re-use. The boreholes are pumped intermittently to provide the shortfall from recycling. The issue of monitoring and recording the quantity of groundwater abstracted from the boreholes will be addressed. The Mine is presently licensed only to abstract groundwater, under Section 21(a) of the National Water Act. Both the use of the slimes dam for the disposal of mine waste and dewatering of the mine to facilitate mining will require licensing from DWAF.

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Figure 17.2: Location of boreholes on Tirisano

17.5.3 Power

Power is available to the Tirisano project via the National Grid (ESKOM) from the Koster grid. All the necessary transformers and supply lines are in place. Currently, 2.0MVA is available (also 1.0MVA from the Aurora substation) and Etruscan had applied for a further 4MVA. Voltage is decreased to 400V through a transformer on site and distributed as required. Rockwell has paid ZAR949,40023 into a trust account to cover various ESCOM guarantees.

South Africa’s ability to satisfy the electricity requirements of all its users has been highlighted in the press since 2008. Numerous initiatives have been instituted by both government and private enterprise in order to prevent this from becoming a serious problem, including the commissioning of two additional coal-fired power stations (Medupi and Kusile), due to come on-line within the next five years. In the short term, however, power shortages and, subsequent, load-shedding will undoubtedly have an impact on short term costs and production, although an aggressive programme to reduce operating costs and eliminate unnecessary expenses has been initiated at all of the Company's mines and operations. In spite of the power outages affecting business and mining ventures in South Africa, Rockwell’s mines continue to operate although, at times, with interruptions.

To this end, Rockwell management has moved rapidly to conduct an operational review of the situation and implement remedial actions to mitigate the consequences of the power outages, including: • All scheduled and planned maintenance is to be conducted during periods of power outages to reduce overall plant downtime.

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• Backup generators, will be installed at Tirisano mine, to run the processing plants in the event of unscheduled power outages. • A back-up generator set has also been installed at the Barkly West management and administration office to ensure that there is minimal impact on normal business activities of the Company and that all computer functions, back-up servers, and CCTV monitoring systems remain operational.

Further, Rockwell staff liaises with local and regional ESKOM offices in order to receive advance notice of reduced power availability and scheduled power outages. Furthermore, Rockwell moves quickly to all power that becomes available as other local users scale down (or close down) their operations.

17.5.4 Communication

Currently, the Ventersdorp office and Tirisano mine are connected via a Telkom system that is on loan. This system is not connected to the Rockwell network and, further, no VOIP, is available at present. A corporate communication system will, eventually, link the Tirisano project with the main administration office in Barkly West. The telephone system will be upgraded to link the Barkly West office, the Johannesburg Head Office, Wouterspan Mine, Saxendrift Mine, as well as the Klipdam/Holpan and Tirisano mines. The aim of the project is to limit the cost of internal calls between the sites, reducing the monthly Telkom bill.

On-mine communication for production personnel will be conducted through two-way, short-wave (HF) radios. Three cellular telephone networks are also available for project personnel as well as for personal communication.

17.5.5 Mine Residue Deposits

17.5.5.1 Coarse Dumps

The overburden dumps also had to be placed outside the terrace for backfilling purposes. The factors affecting the location of the overburden dump and tailings dump are similar to those for the fine residue disposal facility. However for the overburden dump and tailings dump an overriding consideration is the requirement for the dump to be located as close as possible to the plant (for the tailings dump) and the pit (overburden dump), thereby minimising costs associated with trucking distances and conveyor of belt lengths. Environmental and geotechnical considerations e.g. underlying soil conditions although important, are considered less critical for these dumps compared to a fine residue disposal facility.

Overburden dumps will be hauled back into the pits. It is anticipated that the overburden dumps will be about 2ha in footprint and approximately 10m in height.

17.5.5.2 Fine (Slimes) Dumps

Rockwell does not intend to construct new slimes dams. Instead, the existing dams at Nooitgedacht 131 IP will be consolidated to be able to cater for the increased production capacity. The final configuration of the dam will have a capacity of some 5Mm3. The slimes dam will drain into return water dams, where some 30% of the water will be recovered. The capacity of the slimes dam is planned for the life of the mine based on normal operating capacity. Decommissioning of the dam must ensure the stability of the structure and will include post mine-closure monitoring.

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A detailed Code of Practice (“COP”) regarding mine residue deposits on Tirisano has not yet been completed by Rockwell. The COP will be drawn up in accordance with DMR guidelines to assess and manage risks generally associated with both coarse and fine tailings dumps. All dumps will be designed by a professional engineering technologist, based on criteria as per Chamber of Mines guidelines and will consider and incorporate all factors having a bearing on potential health and safety issues. The design considerations will include all phases of the anticipated life-cycle of the dumps.

17.5.6 Waste Disposal

Septic tanks and French drains provide sewage disposal from portable toilet facilities at the mine site. General waste disposal is delivered to the local (Ventersdorp) municipality. Oil, grease and related pollutants are removed by the mining contractors to their dump facility in Potchefstroom. Any other hazardous waste is transported to a registered hazardous waste site.

17.5.7 Fuel storage and supply

The mining fleet is to be supported by on-site fuel tanks comprising 200,000l of diesel. All diesel tanks will be fully bunded and environmentally compliant against accidental spills. Rockwell, typically, contracts AL2 Staedler to supply petrol and diesel, while Lubritene (Pty) Ltd supplies lubricants (oil and grease). Both contracts are subject to standard conditions will be reviewed annually. Oil, grease and related pollutants are regularly removed by a contractor (OILKOL). Fuel usage is strictly managed by control sheets, constant measurement and reconciliation. Variations of more than 2% are investigated immediately. The reconciliation process is also reviewed by the financial controller.

17.5.8 Staff/Labour

The Tirisano mine recognizes the growing shortage of critical skills in the Mining industry in South Africa. Development of future leadership is a key strategic focus area. Human resource development (HRD) is managed across all levels of employment and is seen as a critical component of achieving the Company’s employment equity and gender equity targets. The Company’s HRD plans are being continuously aligned with the Workplace Skills Plans and integrated with the long-term business plan. In terms of this process, HRD plans are constantly assessed, reviewed and revised to cover the organization’s short- term, medium-term and long-term human capital development requirements. A full time graduate Human Resources Manager (based at the Barkly West office) has recently been appointed, to ensure that the HRD receives specialised attention. In terms of budget the Company has allocated an amount of some R1.1M during 2010 for training (company-wide), and will increase annually by 15-20% over the next three years. This amount includes the 1% of payroll annual skills development levy, which includes core skills development and training programmes, but which excludes other, more specialized training programmes such as ABET (“Adult Basic Education and Training”), internships and bursaries. An annual Training Report and Workplace Skills Plan (01/04/2006 – 31/03/2007), has been submitted to and was approved by the Mining Qualifications Authority (MQA). In addition to issues regarding payroll, training, career progression, mentorships, internships and bursaries, the HR Manager will also deal with issues regarding HIV/AIDS, employment equity, the special role of women in mining and the application of all facets of the Social and labour Plan (SLP).

Tirisano Mine is planned to have a permanent labour complement of 240 employees, comprising: . Managers and supervisors . Mining and metallurgical engineers . Electricians and boiler makers . Mobile equipment operators . Excavation and loading operators

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. DMS and pan-plant operators . Final recovery operators . Human resources professionals . Health and Safety professionals . Cleaners and general assistants . Information technology specialists . Geologists . Drivers and store-persons

Other business related contractors include the following: . Gardening services . Cleaning services . Security services . Civil contractor services . Drilling & blasting contractors

The total monthly wage bill for the Tirisano mine is R1.2M, inclusive of shared services. Rockwell has an entry level wage scale of R1,800/month and has implemented plans to narrow the wage gap between lower and higher paid staff over the next two years through the implementation of a split incremental wage scheme where annual increases are biased toward the lower income groups.

With respect to staff, there are a number of challenges that Rockwell faces – such issues are not specific to Rockwell, but are common to all medium-sized mining companies located outside of the major metropolitan areas of South Africa. • Since the North West Province has a long history of mining, there is no major shortage of technical skills. However, these people skills have to be attracted from other sectors in the mining industry – especially the gold and platinum mines. • There is still the challenge in the implementation of regulations requiring the employment of historically disadvantaged south Africans (“HDSA’s”) at middle and senior management positions. Rockwell is mitigating this challenge by actively pursuing potential recruits at university level and fast-tracking them to be able to fit into these positions in the future. • Emerging, yet still medium size, companies are not able to offer the salaries and living/working conditions of the senior mining houses which are often located in more attractive areas.

Currently, experienced senior and middle management as well as technical skills have been obtained from the gold- and platinum- mining industry. This is not an entirely satisfactory situation as the management skills (and some specialist technical skills) required on a medium-scale alluvial diamond mine often differ significantly from those obtained on a major underground gold mine. Many of the skills can be developed through in-house training as well as on-mine experience. Unskilled labour (and some semi-skilled labour), however, is abundant and can easily be accessed from nearby towns and communities, as well as local informal settlements. Skilled and semi-skilled labour is generally accessible from the nearby major centres of Klerksdorp and Potchefstroom.

17.5.9 Accommodation and offices

The company’s main administration office is located in Barkly West (45km NW of Kimberley). An on- site mine office will be responsible for daily mining operations. A secondary office and company guesthouse is situated in Ventersdorp. The mine is located near to both Ventersdorp and Mogopa, so no on-site accommodation (in the form of hostels) is required. All staff (including contractors) and labour live at their homes and are provided transport to/from work each day. Currently, only essential security and contract managers stay on-site.

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17.5.10 Security

Thorburn Security Solutions provide guards for patrol and access control. An integrated security system will be implemented that is able to monitor all areas of all the operation remotely – including closed circuit television on all sensitive areas of the plants and final recovery rooms, access control (fingerprint biometrics), motion detection and tracking technology, as well as guard patrols. This one system will monitor all of Rockwell’s operations in the Northern Cape (Holpan, Klipdam, Wouterspan, and Saxendrift/Niewejaarskraal) and NorthWest (Tirisano Mine) and is also linked to the Johannesburg head office by a dedicated ADSL line.

Security measures are in place throughout the mining and recovery process. Similar procedures are employed in the production mining phase as in the bulk-sampling and trial-mining phases. In summary: • Due to the extremely low grades found in the in-situ gravels, no security measures are employed at the mine face. Under very specific circumstances, bedrock cleaners may be required to sweep the pit bottom. Under these conditions, security guards are required to supervise the activities. • At the plant, all areas where people may have access to gravels and, especially, concentrate, are fenced or caged off. • The area around the sort-house is declared a Red Zone, enclosed with high-security fencing, and monitored by surveillance equipment. Access to all areas of the final recovery is controlled and monitored by closed circuit television. • At the final recovery, all FLOWSORT concentrates are sent directly to a twin-locked secure box before they are hand-sorted in a glove box. • The diamonds are moved from the mine to a secure facility by variable means on an irregular schedule.

17.5.11 Essential services

All essential services, including hospital, police, and municipal facilities are available in the town of Ventersdorp and anything else can be obtained within two hours drive (in Klerksdorp, Pretoria or Johannesburg).

17.6 Market Studies and Contracts

17.6.1 Market Studies

17.6.1.1 Global diamond production

Total world mine production of diamonds decreased by 3% year-on-year in 2008 in volume terms (some 5 million carats), to 162.91 million carats (Fig. 17.3). The Russian federation contributed most to the production of diamonds, with total share amounting to 23% and production by volume at 36.9 million carats. Botswana slipped down the production rankings to third position behind Russia and the DRC. The DRC’s production of diamonds by volume increased by 17% to 33.4 million carats in 2008, compared to 28.4 million carats in 2007. Production in Canada, South Africa and Australia fell by 12.9%, 15.1% and 19.4% respectively.

The world’s largest producer of diamonds by value remains Botswana, with a global share of 26% valued at USD3.3-billion, followed by Russia at 20% valued at USD2.5-billion. While the DRC may have overtaken Botswana in terms of the volume of production, the value of diamond sales in the DRC was only USD418-million, which ranks the country as the seventh largest. South Africa is the world’s sixth

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010 largest producer by volume at 8% of global production and fourth largest by value at 10% of global production.

30% 25%

20% 15%

By Volume 10% Figure 17.3: Global By Value 5% diamond production per country by volume and 0% value, 2008 (Chamber of Mines Annual Report, 2009)

17.6.1.2 The Diamond Pipeline

The Diamond Pipeline can be defined as the route the diamond takes from mine to end consumer. The diamond pipeline, typically, comprises (Fig. 17.4):

CUTTING & POLISHED EXPLORATION MINING SORTING RETAILING POLISHING MARKET

Figure 17.4: The Diamond Pipeline

• Exploration/Prospecting; involves geologists finding diamond deposits in different areas. Prospecting is vital to the future survival of any diamond business as there is a predicted supply- demand gap. • Mining and Recovery; once diamonds have been discovered and surveys shown that it is financially viable to mine them; they are now recovered from the ground. The manner in which they are mined and recovered depends on their source, thus, where they are found. • Sorting and valuing; process of sorting and valuing of diamonds, categorizing them according to size, quality, model and colour. • Cutting and polishing; refers to manufacturing of diamonds; the process of turning rough diamonds into polished. • Polished Market; this is referred to as the ‘diamond exchange bourse’, a place where diamonds are traded. These are located in some of the world’s major diamond manufacturing centres, e.g. Belgium.

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• Retailing; Polished diamonds find their way to Jewellers and Consumers through Wholesalers and Retailers.

17.6.1.3 International Diamond Market Trends

In the first half of 2008, global retail sales of diamonds showed steady growth, especially into the markets of China, India and the Middle East. But because the global crisis hit the United States hardest – the world’s largest diamond market –the second half of the year was extremely challenging. The luxury sector of the United States, European and Japanese markets were particularly hard hit, with jewellery retailers in the United States alone reporting double digit sales declines between Thanksgiving and Christmas. The deterioration in the pipeline in the second half of 2008 is demonstrated by the declines in the value of diamonds in retail sales by 8.9% to USS18.4-billion, and the fall in retail sales by 11.3% to USD65-billion in 2008.

The downstream fabrication and retail components of the diamond value chain not only faced declining sales, falling prices and rising stocks, but also increasing capital costs and waning credit lines to fund the inventory pipeline. Total debt in the downstream value chain was estimated to be about USD14-billion. Given this large amount of diamonds in the downstream, the reduction in consumer demand had a negative impact on the diamond mining industry. Accordingly, mining companies drastically reduced production in the second half of 2008 and in the first half of 2009.

However, as of the date of this report, there has been considerable improvement in polished prices from the base reached in April 2009. Early in 2010, World Commodity Online predicted that, due to the improved global economic environment and demand outstripping supply for investment diamonds in the medium term, diamond prices would probably rise in 2010 and return to their natural annual growth rate of 12-16% in the medium term. By mid-June 2010, polished diamond prices had vaulted to their highest levels since November 2008 (MiningWeekly.com).

Polished diamond prices have an impact of rough diamond sales and have shown steady improvement in 2010 so far, which is encouraging for Rockwell and the industry overall. According to IDEX Online Research reports, global polished diamond prices have continued to recover in May, extending a trend that began in the last quarter of calendar 2009 (Fig. 17.5). The IDEX index for polished sales stood at an average of 116.5 for the month of May 2010, representing a 7.1 percent increase over a year ago, and a 1.6 percent rise over the average price for April 2010.

In terms of a sustained recovery in the diamond sector, the market requires a constant (or increased) demand for polished diamonds in the jewellery market (Des Kilalea, miningmx.com, 13 May, 2009). In this respect, a significant increase in diamond demand is predicted to emerge from China, India, Hong Kong and Taiwan, where demand may increase to 31% of global demand from 2015 onward (Real Economy Yearbook 2010). Currently these countries account for an estimated 19% of the USD65-75- billion global diamond jewellery sales. The biggest growth in the sector is expected to come from China (from a current level of 8% of global diamond turnover to an estimated 16%) and India (7% to 11%). All economic indicators for these countries continue to see sustained growth, albeit at a lesser rate than in past years. However, given the size of the population market and the new upwardly mobile segment, it is a significant market. Therefore, Asia (excluding Japan), could reach a third of total diamond consumption within the next five-to-ten years. In anticipation of this expansion, India launched (17 October 2010) the Bharat Diamond Bourse (“BDB”) in a major step towards becoming a global trading centre (Miningmx.com). The BDB is touted as the world's largest diamond trading centre and is located in India's financial capital Mumbai. India is the world's largest cut diamond exporter, with annual exports of around USD28bn, but trading volume is negligible. India's diamond industry could grow by an average 10% to 15% each year in the next five years, as the new bourse attracts global traders.

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Figure 17.5: IDEX index for cut-stones for the period Nov 2009 to Oct 2010

The United States is currently the largest diamond consumer, accounting for 40% of the market, compared to seven percent for India and four percent for China. China is a growing rival to India's dominance of the cut-diamond market, sourcing stones from Zimbabwe, Angola and the Democratic Republic of Congo. Conversely, Japan at 11% and the US at 40%, are expected to drop to 9% and 35% respectively. Notwithstanding, the US market still remains the most important consumer of diamonds

According to various sources (Read and Janse, 2009; Kilalea, 2008), there is the suggestion that the peak world diamond production has, or will soon be, passed and that long-term diamond industry fundamentals suggest that the aggregate level of diamond demand will exceed supply, resulting in sustained price growth over the next decade (Fig. 17.6).

17.6.2 Rockwell Sales and Contracts

In compliance with government regulations to the local cutting/polishing market, Rockwell offers all of its diamonds to the State Diamond Trader (“SDT”). Each diamond parcel that is sent from the mine to Johannesburg is presented to the SDT to select which stones they would offer to purchase (to an agreed maximum of 10% of the production). The SDT then puts in a purchase offer for the stones, which Rockwell may refuse or accept. If Rockwell refuses the bid, then the Government Evaluator will examine the stones and refine the purchase offer, which Rockwell may accept or refuse. If Rockwell refuses the offer then a third party, independent valuator will value the stones and set a price that both parties must accept.

Because of the market supplied by the SDT, the selected stones are generally at the smaller end of the spectrum and do not represent the run-of-mine production.

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Demand Supply

$ 22

$ 20

$ 18

$ 16

$ 14

$ 12

$ 10 2006 2008 2010 2012 2014 2016 2018

Figure 17.6 Long term rough diamond supply/demand outlook 2000 to 2018, prepared by WWW International Diamond Consultants Ltd using January 2009 values (redrawn from Read and Janse, 2009).

17.6.2.1 Diamond Sales

All Rockwell diamonds not purchased by the SDT are sold through Flawless Diamonds Trading House (“FDTH”). FTDH is a private company where certain directors and officers of the Company, namely, Messrs. J Brenner, J W Bristow, and D M Bristow are shareholders. FDTH was established, and is still run by, experienced and internationally recognized diamantaire, Jeffrey Brenner. FDTH 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 the premises of South Africa's internationally recognized high security diamond trading and manufacturing hub known as Jewel City, located on Commissioner Street in Johannesburg. 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.

FDTH operates an independent, fully transparent “sealed-bid tender system” for the sale of diamonds from a number of public and private diamond producers. Key to the success of the FDTH tender sales is the software system, wherein the administrators and staff have zero knowledge of, and influence over, the prices tendered.

Prior to delivery to FDTH, Rockwell packages the diamonds according to their mine-of-origin. Although they are cleaned in Hydrofluoric Acid (HF) at the mine, no further enhancement techniques are employed. Prior to pre-arranged sales dates, Rockwell delivers the diamonds to FDTH, where they are

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cleaned again, sorted and divided into categories or parcels according to the different specialities of buyers (for example, Indian, Belgian or New York Buyers). The different category or parcels of diamonds are sorted, parcelled and labelled, with each parcel having a unique reference number. The parcels are added to a manifest of goods for sale and this manifest is made available to buyers. Reserve prices are set by FDTH but are not disclosed to bidders. An invitation is then sent to all buyers to make an appointment for viewing. Tenders, typically, run for six working days, dependant on the size of the parcels.

FDTH has eight private viewing and buying offices in Johannesburg in the Diamond Centre. As additional security measures, each office has 36 cameras (with a recording system) as well as three persons surveying the buyers from behind one-way protective glass to ensure no swapping of diamonds. Buyers spend, on average, some four hours viewing the individual parcels and then make their respective bids, directly into the computer. The systems administrator does not discuss and cannot view the prices offered by respective buyers.

Once all sealed bids have been received from buyers at the end of the six-day viewing period, the bids are processed by computer and a printout of the results is obtained. This printout shows the prices bid for each parcel or category of stones by each bidder. The highest bidder per category or parcel is awarded the sale for that category of stones, subject to the bid price being above the reserve price. In the case that the reserve prices are not met, FDTH and the producer have the discretion to either sell or withdraw these parcels from the tender sale. Once the producer has decided to sell or withdraw the parcel, all results are sent to successful buyers by short message service (SMS). Payment to producer is within 48 hours of closure of tender and parcels are then released to the bidders subject to funds having been received and cleared by FDTH, which ensures that all regulatory and VAT requirements are completed for the respective transactions.

In the six month period ended 30 November 2010, Rockwell received revenue of USD19.7 million from these tender sales.

17.6.2.2 Sales Contracts

In July 2008, Rockwell entered into a mutually non-binding agreement with the Steinmetz Diamond Group (“SDG”) whereby Rockwell may offer to Steinmetz rough diamonds for beneficiation and onward sale. Under the terms of the agreement, any stones selected by Steinmetz (typically good quality, clean stones +50ct in size), will be paid for at 90% of their rough value. Steinmetz will, at their own cost, cut and polish the stone. If the stone shatters (due to internal flaws), no further payment is made to Rockwell. If the stone cuts/polishes successfully and is sold, Rockwell is paid the outstanding 10% of the rough value, plus 50% of the profit obtained on the cut stone.

During the year to date, the Company has also received approximately USD1.6 million as its portion of profit share from stones that have been beneficiated in terms of Rockwell's agreement with SDG. This profit share has been derived from stones sold into the SDG beneficiation agreement in November 2009 and August 2010. The Company has a large number of +10 carat stones currently undergoing beneficiation and sales with SDG and expects to achieve a regular income flow from this source during the second half of fiscal 2011.

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17.7 Environmental studies, Permitting and Social/Community Impact

17.7.1 Environmental

A detailed Environmental Management Programme (“EMPR”) was completed for Etruscan, by Myezo Environmental Management Services cc in April, 2008, as part of their application for a Mining Right. The environment impact assessment completed with the aid of the independent specialist from various field have concluded that there is no unmanageable impact to the social, environment and well being of the surrounding community which will result from the planned mining activities. The management measures which will be applied will be assessed for their effectiveness throughout the duration of the mining activities, to ensure that the agreed objectives are met and to reduce environmental liabilities at closure. a. Loss of arable land: About 28% of land under the mining right application area in Farms Hartbeestlaagte 146 IP and Zwartrand 145 IP is covered by soils of high agricultural potential. This land will be within a fenced area, and will therefore not be accessible for use during the operation of the mine. Etruscan has adopted a rehabilitation strategy that will ensure that the disturbed land is usable after closure. In addition, the mine is supporting the community through supervised and managed commercial farming activities, with income generation potential to improve income level for the community

b. Ground water impacts: Groundwater abstraction, under the current water use licence, has not resulted in any negative impact on other ground water users available water supply. Nevertheless, ground water monitoring will be undertaken to monitor any changes in ground water level and quality. In addition, the quality of the water from the slime dam is within acceptable limits, thus reducing any potential deterioration of water quality for downstream water users. The allocated water licence abstraction volumes will not be exceeded. The mine will re-assess the availability of groundwater resources to meet their anticipated requirements. This will entail an assessment of the potential total yield of the existing boreholes. Should the yield not meet the water demand, then the mine will drill additional boreholes.

c. Visual intrusion, air quality, noise generation and archaeological impacts: Since the topography is relatively flat, the mine infrastructure will be visible from the major roads. There will be ongoing rehabilitation throughout the project life span to mitigate against visual intrusion. Any dust generation during construction and operational activities is not expected to be of a health hazard. Dust suppression measures will be implemented including hauling of wet material where practical, and strict speed control. Daily operations will increase current ambient noise levels for the Ga- Mogopa village. Prevailing wind conditions are considered in the planning of the layout of the infrastructure. About eight archaeological sites were identified at the project site. Positioning of mine infrastructure will be such that these sites are not disturbed.

d. Socio-economic issues: Positive socio-economic impacts are expected from the Blue Gum Project. Besides employment opportunities at various skills levels, the construction and development of various programmes which will be implemented under the mines social and labour plan will benefit the labour sourcing areas.

Maintenance and monitoring are required in terms of regulatory compliance. Such monitoring forms the basis of a biennial report to the DMR. Remedial measures and the necessary corrective action will be applied as soon as any problems are detected. Assuming that the closure objectives are met, it is expected that the net overall impact of the project on the environment will not be detrimental. Early diggers who left mounds of “Rooikoppie” everywhere they worked had already disturbed the majority

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of the area. These heaps were of no use for any agricultural use, game farming or any other land use. After these “Rooikoppie” areas have been worked, rehabilitated and returned to the natural vegetation, they will be in a far better condition than when the project started.

For information on rehabilitation guarantees, refer to section 3.4.1.

17.7.2 Mine Closure

One of the main objectives of the Social and Labour Plan (see 19.5 below) is to deal with the potential problems that may arise in the future when the mine naturally closes or if downscaling occurs due to whatever reason. The Future Forum will provide structures to facilitate the consultation processes so that HCVW management and worker representatives and recognized trade union representatives can meet on a regular basis to discuss workplace issues. The intention is to provide a formal vehicle where all affected parties can consult and discuss challenges and possible solutions to problems facing the workplace that may have the potential to lead to large scale retrenchment in the future.

The most direct and appropriate intervention is for Rockwell to assist employees who could be retrenched in securing alternative employment. Rockwell has put a number of mechanisms in place to mitigate the impact of job losses in the event of a downscaling or closure of the mine. Some of the measures that will be used are: • Reduce benefits and bonuses • Reduce hours of work • Redeployment • Retraining and multi-skilling

The management of Rockwell will endeavour to avoid retrenchment wherever possible, through effective planning. Where there is no other alternative, retrenchments will be carried out as fairly as possible and in compliance with section 189 and 196 of the Labour Relations Act of 1995. The Rockwell retrenchment policy will apply to all employees other than casual and temporary employees. Retrenched employees may receive compensation in accordance with Rockwell’s policy on payment of severance benefits.

The mine closure plan is subject to a range of legislation outside of the MPRDA. Care has been taken in this closure plan to ensure that the plan not only subscribes to the spirit and intent of the MPRDA and the Charter, but is consistent with other applicable statutory requirements. Mine closure will be as per Closure Plan in the approved EMPR. The closure objectives will be to leave the land in a rehabilitated state. Some areas would still be fenced off and would require monitoring and control of alien plants until closure. All mining structures and infrastructure, unless agreed otherwise with the landowner in this regard will be removed. All temporary buildings, containers, salvage materials and supplies will be removed. This will include the removal of foundations and debris and rehabilitation of the surface. All equipment and machinery, workshops and parts and stores will be removed and the area rehabilitated. Water storage facilities, disposal facilities and pipelines will all be removed unless agreed otherwise with the landowner. Roads will be ripped and rehabilitated unless otherwise agreed with the landowner. The closing or leaving of any boreholes will be discussed with the landowner. The mine floor will be profiled and will be rehabilitated for the purpose of end use. Adequate drainage will be ensured and mine dumps will be profiled to a minimum of 1: 3 angle.

Monitoring of the rehabilitation, prevention of erosion, re-vegetation and control of alien vegetation will be required until the time that closure is approved. Post closure monitoring, closure and

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rehabilitation plans will be developed for the mine, including integrated water and waste management and air quality management. The plans will be updated annually

17.7.3 Social Responsibility

Along with focused business objectives, Rockwell's social responsibility values and commitments form an integral part of the mining operations. Rockwell is committed to providing increased returns to shareholders while sharing the value created from the operations with a wider set of stakeholders through the alignment and linkage of business and social responsibilities.

17.7.3.1 Social and Labour Plan (SLP)

According to the MRPDA a Social and Labour Plan (SLP) is required to be submitted to the DMR along with the other requirements for a mining right. The objectives of the SLP (according to the MPRDA) is to promote employment and advance the social and economic welfare of all South Africans; to contribute to the transformation of the mining industry; and to ensure that holders of mining rights contribute toward the socio-economic development of the areas in which they are operating, as well as the areas from which the majority of the workforce is sourced. In harmony with these objectives, the SLP requires that the company address literacy levels and life skills within the workforce as well as implement career progression paths, mentorships, internships and bursary plans for its employees. In addition, the company is required to contribute to the upliftment and development of the local communities through procurement, establishment of a Future Forum and the creation of Small, Micro and Medium Enterprises (SMME’s).

Etruscan had developed a SLP for the period 2009-2013, which was accepted by DMR. In this SLP, Etruscan had committed to spend R2,516,980.00 on Human Resource Development (“HRD”) programmes and R4,540,000 on Local Economic Development (“LED”) programmes over the first five years of the mining right. Rockwell will update this SLP in line with company standards and resubmit it once the mine has been re-commissioned.

17.7.4 Mine Closure Plans

One of the main objectives of the SLP is to deal with the potential problems that may arise in the future when the mine naturally closes or if downscaling occurs due to whatever reason. The Future Forum will provide structures to facilitate the consultation processes so that management and worker representatives and recognized trade union representatives can meet on a regular basis to discuss workplace issues. The intention is to provide a formal vehicle where all affected parties can consult and discuss challenges and possible solutions to problems facing the workplace that may have the potential to lead to large scale retrenchment in the future. The most direct and appropriate intervention is to assist employees who could be retrenched in securing alternative employment. The company will put a number of mechanisms in place to mitigate the impact of job losses in the event of a downscaling or closure of the mine. Some of the measures that will be used are: • Reduce benefits and bonuses • Reduce hours of work • Redeployment • Retraining and multi-skilling

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Management will endeavour to avoid retrenchment wherever possible, through effective planning. Where there is no other alternative, retrenchments will be carried out as fairly as possible and in compliance with section 189 and 196 of the Labour Relations Act of 1995. The HCVW retrenchment policy will apply to all employees other than casual and temporary employees. Retrenched employees may receive compensation in accordance with the company’s policy on payment of severance benefits.

The mine closure plan is subject to a range of legislation outside of the MPRDA. Care has been taken in this closure plan to ensure that the plan not only subscribes to the spirit and intent of the MPRDA and the Charter, but is consistent with other applicable statutory requirements. The company will explore the possible business opportunities that could be developed for the mine community by diversifying the mine’s land and infrastructure assets after mine closure. These will cover recreational activities. The business opportunities that will be generated by this plan will be specifically directed towards alternative income strategies for the mine community. On closure all material stockpiles, plant and other equipment will be removed from the mine. All structures that cannot be reused will be demolished and the sites will be rehabilitated. The mine floor will be profiled and will be rehabilitated for the purpose of end use. Adequate drainage will be ensured and mine side will be profiled to a minimum of 1 : 3 slope. Mine closure will be as per Closure Plan and the approved Environmental Management Programme (EMP).

17.8 Preliminary Assessment

This preliminary assessment (“PA”) was prepared to define the overall scope of the Tirisano project, perform preliminary mine planning, report on test work and process design, estimate capital and operating costs and determine the economics to develop the project as an open pit mine. This assessment includes an economic analysis of the potential viability of the mineral resources prior to the completion of a prefeasibility study. The assessment benefits from a total of some 486,170m3 of gravel processed during 2006-2008.

17.8.1 Principal Assumptions

17.8.1.1 The volume and grade of the mineable material

In this preliminary economic assessment, both indicated and inferred mineral resources , as estimated in this NI43-101 technical document, are used (Table 17.3). Since mineral resources are used, it is important to note that mineral resources that are not mineral reserves do not have demonstrated economic viability.

Table 17.3: Resources used in the life of mine plan

Resource Volumes (m3) Grade (ct/100m3) Carats Value (USD/ct) Indicated 25,279,900 599,131 2.37 606 Inferred 15,334,000 363,416 ∗ At 2mm bottom cut-off

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17.8.1.2 Life of Mine

At a proposed 180,000m3/month throughput, the preliminary estimation of mine life is 11.7yrs, based on indicated mineral resources only. An additional 7.1years may be added if inferred mineral resources are included, resulting in a total expected mine life of 18.8years. No account has been taken of any exploration targets or additional property acquisitions which are also expected to influence the LoM positively. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

On-going exploration to convert inferred resources to indicated resources and the identification of additional resources will also affect the downstream life of the mine, as would the acquisition of additional mineral holdings adjacent to the mine. Due to the speculative nature of these exploration targets, they are not considered in the life-of-mine planning.

17.8.1.3 The annual production of diamonds

Production targets of 180,000m3 gravels per month are targeted for the life of the project. At the current resource grade of 2.37ct/100m3 the annual expected carat recovery is 51,192ct.

The average diamond grades used in the study are the actual recovered values (based on the processing of gravel since 2005). Consequently, no additional modifying factors are added to discount in-situ diamond grades. The gravel volumes are run of mine (“ROM”). Where appropriate, volumes may be converted to tonnes by an average SG of 1.8g/cm3, an industry acceptable average for the type of gravel under consideration.

17.8.1.4 The annual revenue to be received from the sale of diamonds

Sales of diamonds from the Tirisano mine project during early 2008 were USD606/ct. Personal discussions with local artisanal operators indicate that current prices are in the USD700/ct range. The USD606/ct figure will be used in the life-of-mine estimations until Rockwell has sold sufficient diamonds to re-assess the situation.

During the first month of 2010, diamond prices have been particularly strong, certain categories increasing in price by more than 25%. However, this rate of increase is not seen as sustainable. Rather, average annual increases in gem quality diamond prices are expected to continue to be in the 10-15% range (different categories will command different rates of increase depending upon the disparities of supply and demand), especially in the emerging Chinese markets which continue to grow along with the rest of their economy, but at a slightly lower pace. (Pers. Comm. E Blom, Vice-President of the World Diamond Council, 2011).

17.8.1.5 The annual cash cost of production, both on-site and off-site

Based on trial-mining at the adjacent Saxendrift mine, as well as Rockwell's experience at their other mines, preliminary estimates of operational expenses are expected to average at ZAR49/m3 (during 2011). Budgeted expenditures include: • Direct mining costs. These costs include excavation, processing and rehabilitation.

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• Marketing costs: A 1.5% commission of the final diamond sales value is paid to the tender house. • General & Administration costs: These costs include expenses that are not directly chargeable to the plant or mining areas. • Power & water costs are included in the mining costs. • Land Rental: monthly payments of ZAR66,000/month are to be made to the Mogopa in respect of land rentals (during the period of Care & Maintenance, this figure has been ZAR50,000) • Corporate overheads: includes a management fee of some ZAR2M (covering the Johannesburg and Barkly West office costs as well as a contribution to the Canadian office) that is split pro-rata amongst all of the operating entities annually in arrears. • A total staff complement of 240 persons with a total monthly labour cost of ZAR1.2M. • Contingency cost variable of 15% might be added onto estimates, since they are based on current quotations from suppliers to Rockwell. • The environmental liability at end of cash-flow period has been calculated at ZAR15,026,979.00. However, the insurance/savings accounts revert to the owner on obtaining a clearance certificate from the Department of Mineral Resources. • The salvage value of assets is estimated at 2% of its initial cost, based on the practical experience of independent earthmoving contractors.

Not included as on-mine costs are: • Corporate overheads: includes a management fee of some ZAR2M (covering the Johannesburg and Barkly West office costs as well as a contribution to the Canadian office) that is split pro-rata amongst all of the operating entities annually in arrears. In addition, the Saxendrift operation is responsible for the Care & Maintenance costs of the Wouterspan and Niewejaarskraal properties (some ZAR4M annually) • Shared Company services: these costs include overheads comprising administrative personnel, consultants, general office supplies, IT, safety and training, employee transportation, contractors, insurance, permits, security, legal, and accounting. • Social and Labour Plan costs include ZAR500 000 towards the core skills training and HRD budget for 2006/7 and 2007/8 financial years (this amount includes the 1% of payroll annual skills development levy, which includes core skills development and training programmes, but which excludes other, more specialized training programmes such as ABET (Adult Basic Education and Training), internships and bursaries).

17.8.1.6 The annual cash liability for royalties

In terms of the proposed formulae, the applicable royalty rates will vary according to the profitability of the mining company, subject to a minimum rate of 0.5% and maximum rate 7.0% for diamonds. The profitability parameter in the formulae is EBIT and it also allows for 100% capital expensing which is an acknowledgement of the high capital costs associated with mining. Although the 2008 Royalty Bill was effective from 1 May 2009, in cognisance of the international economic crisis, the South African Treasury deferred payment of State royalties until March 2010.

The general formula (see section 18.2.3.4 for details) is Y(u) = 0.5 + { EBIT / (Gross sales x 9) } Where: Y(u) = Royalty percentage rate; EBIT = Earnings before interest and taxes (EBIT can never go below zero).

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17.8.1.7 The annual level of cash capital expenditure required

A total of some ZAR73,000,000 has been budgeted to bring Tirisano into full production. Some ZAR30M was spent in 2010 and an additional ZAR43M is budgeted for expenditure in 2011-2013, in two phases. Phase 1 (ZAR13M) covers the re-commissioning of the plant and peripheries (Table 17.4) and Phase 2 (ZAR 30M) comprises the expanded screening plant and an overland conveyor system which will link the southern mining areas to the plant site. No budget is provided for mining fleet as Rockwell has sufficient spare capacity within the company and these will be diverted to the Tirisano mine.

Overall on-mine operating costs, as estimated by Rockwell, are R49m3 of gravel. These costs were estimated assuming owner-operator mining with significant stripping in the sinkholes.

Table 17.4: Proposed capital expenditure to re-commission Tirisano mine (Phase 1)

Section Capital (ZAR) Line 1 1,090,000 Line 4 1,550,000 Main feed conveyor 485,000 Sub-station 360,000 Generator repairs 100,000 Security 540,000 Transfer belts 360,000 Screening section 1,258,000 Trommel screens 1,411,000 Barrel screen 4,300,000 15% contingency 1,718,100 Total ZAR 13,172,100

17.8.1.8 Taxation

The tax year in South Africa runs from 1st March until end of February of the following year. The system applied is residence based, so the income is taxed where it is earned i.e. the place of incorporation. Government revenue is raised primarily from income tax on businesses, individuals and trusts and from the 14% value added tax (VAT) on all goods and services. Company tax for the period April 2010-March 2011 is 28% (foreign resident companies which earn income from a source in South Africa, are taxed at 33% and no income tax would be payable while accumulated capitalised expenditure exceeds net income). Other direct taxes include: • Capital-gains tax (14% for companies) • Secondary tax on companies on (SCT) of 10% on the excess of dividends declared over dividends received. South African branches of foreign resident companies are exempt from STC. • Transfer duty on certain transactions (acquisition of property), which are not subject to VAT

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• A Skills Development Levy is payable by employers at a rate of 1% of the total remuneration paid to employees. Employers paying annual remuneration of less than R500 000 are exempt from the payment of the levy. • Unemployment Insurance Contributions are payable monthly by employers on the basis of a contribution of 1 per cent by employers and 1 per cent by employees, based on employees’ remuneration below a certain amount. • Other tax proposals include the introduction of a carbon emissions tax of R75 per g/km for each g/km above 120g/km on new passenger vehicles from 1 September 2010 and a levies increase of 25.5c per litre of petrol and diesel from 7 April 2010 for the fuel and road accident fund

There are a number of tax and investment available that are meant to promote employment, development of Small & Medium Scale Enterprises, reduce poverty and inequality, strengthen BEE, increase competitiveness, attract higher levels of domestic and foreign investment and facilitate sustainable growth. Incentives are available to both domestic and foreign investors. Tax losses by a company may be carried forward and offset against future profits. There are tax allowances on factory plant, buildings and on approved investments.

VAT is levied at the standard rate of 14% on the supply of goods and services by registered vendors. A vendor making taxable supplies of more than R1 million per annum must register for VAT and a vendor making taxable supplies of more than R50 000, but not more than R1 million per annum, may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT.

Both Rockwell and HCVWD are vendors for VAT purposes. During the construction phase of any project, the VAT on the capital purchases is netted of against the VAT on sales, and the difference is either claimed/paid over to the Receiver of Revenue. The VAT on purchases is separated into VAT input on capital and VAT input on services and goods other than capital and depending on the purchase type it is declared as such to the Receiver of Revenue

17.8.2 Preliminary Cash Flow

In the alluvial diamond mining industry, it is standard operating practice to proceed to trial mining on the basis of Indicated Resources. Such trial mining may, or may not, be part of a formal pre- feasibility or feasibility study, leading to the declaration of a recognized mineral reserve statement. The initiation of a trial-mining exercise is usually supported by a preliminary economic assessment, based on realistically assumed values. Such values have been obtained during the extensive bulk- sampling operation on Tirisano as well as Rockwell’s on-mine engineering studies during 2010. The estimated life of mine, based on both indicated and inferred resources. Under these circumstances, however, it is fundamental to appreciate that the assessment is preliminary in nature, that it includes inferred mineral that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

Two scenarios are presented – a base case where all data are presented in 2011 values (Table 17.5) and the situation where diamond prices and operational costs are escalated annually by realistically assumed values (Table 17.6). In both cases the Capex of ZAR73M will have been spent during the bulk- sampling and preparation for trial-mining.

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Table 17.5: Preliminary economic assessment for the proposed Tirisano mine (Base/static scenario) YEAR YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12 YEAR 13 YEAR 14 YEAR 15 YEAR 16 YEAR 17 YEAR 18 YEAR 19

Diamond 606 606 606 606 606 606 606 606 606 606 606 606 606 606 606 606 606 606 606 Price USD Volumes 480,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 1,373,800

Carat 11,376 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 32,559

Grade 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37

Revenue 6,893,856 36,020,398 39,622,437 43,584,681 47,943,149 52,737,464 58,011,211 63,812,332 70,193,565 77,212,921 84,934,213 93,427,635 102,770,39 113,047,43 124,352,18 136,787,40 150,466,140 165,512,754 109,701,56 USD 8 8 2 0 3 Revenue 46,878,22 244,938,70 269,432,57 296,375,83 326,013,41 358,614,75 394,476,23 433,923,85 477,316,24 525,047,86 577,552,65 635,307,91 698,838,70 768,722,57 845,594,83 930,154,32 1,023,169,75 1,125,486,72 745,970,62 ZAR 1 4 4 1 5 6 2 5 0 4 1 6 7 8 6 0 2 7 8 Op. Cost 23,520,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,00 111,720,000 111,720,000 67,316,200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Royalties 2,578,302 13,471,629 14,818,792 16,300,671 17,930,738 19,723,812 21,696,193 23,865,812 26,252,393 28,877,633 31,765,396 34,941,935 38,436,129 42,279,742 46,507,716 51,158,488 56,274,336 61,901,770 41,028,385

Tax 1,121,022 4,981,940 27,132,338 26,717,412 26,260,993 25,758,933 25,206,666 24,599,173 23,930,930 23,195,863 22,387,289 21,497,858 20,519,484 19,443,272 18,259,440 16,957,223 15,524,786 13,949,104 7,360,588 (28%) Net 19,820,67 93,266,431 69,768,870 68,701,917 67,528,269 66,237,256 64,817,141 63,255,015 61,536,677 59,646,505 57,567,315 55,280,207 52,764,387 49,996,986 46,952,844 43,604,289 39,920,878 35,869,126 18,927,227 Profit 5 Capital 25,000,00 3,000,000 15,000,000 0 Free -5,179,325 86,854,540 54,768,870 68,701,917 67,528,269 66,237,256 64,817,141 63,255,015 61,536,677 59,646,505 57,567,315 55,280,207 52,764,387 49,996,986 46,952,844 43,604,289 39,920,878 35,869,126 18,927,227 Cash

Table 17.6: Preliminary economic assessment for the proposed Tirisano mine (Escalation scenario) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12 YEAR 13 YEAR 14 YEAR 15 YEAR 16 YEAR 17 YEAR 18 YEAR 19

Diamond 606 667 733 807 887 976 1,074 1,181 1,299 1,429 1,572 1,729 1,902 2,092 2,301 2,531 2,785 3,063 3,369 price (USD) escalated by 10%pa Volumes 480,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 2,280,000 1,373,800

Carat 11,376 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 54,036 32,559

Grade 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37 2.37

Revenue (USD) 6,893,856 36,020,398 39,622,437 43,584,681 47,943,149 52,737,464 58,011,211 63,812,332 70,193,565 77,212,921 84,934,213 93,427,635 102,770,398 113,047,438 124,352,182 136,787,400 150,466,140 165,512,754 109,701,563 Exchange 6.80 7.02 7.26 7.50 7.74 8.00 8.26 8.54 8.82 9.11 9.41 9.72 10.04 10.37 10.71 11.07 11.43 11.81 12.20 rate Revenue 46,878,22 253,021,68 287,508,53 326,695,94 371,224,60 421,822,52 479,316,93 544,647,82 618,883,32 703,237,12 799,088,34 908,004,08 1,031,765,04 1,172,394,62 1,332,192,00 1,513,769,77 1,720,096,59 1,954,545,76 1,338,219,99 (ZAR) 1 1 6 9 7 1 1 9 8 5 6 7 4 0 6 7 7 4 7 Op. Cost including 23,520,00 121,774,80 132,734,53 144,680,64 157,701,89 171,895,06 187,365,62 204,228,53 222,609,09 242,643,91 264,481,87 288,285,23 314,230,909 342,511,691 373,337,743 406,938,140 443,562,573 483,483,205 317,538,621 9% 0 0 2 0 7 8 4 1 8 7 0 8 inflation Royalties 2,578,302 13,916,192 15,812,969 17,968,277 20,417,353 23,200,239 26,362,431 29,955,631 34,038,583 38,678,042 43,949,859 49,940,225 56,747,077 64,481,704 73,270,560 83,257,338 94,605,313 107,500,017 73,602,100 Tax (28%) 111,918,54 130,153,12 151,141,27 1,075,724 8,595,905 18,131,500 43,515,634 51,223,737 60,142,377 70,450,944 82,354,573 96,087,771 9 4 7 175,282,462 203,032,746 234,912,729 271,516,551 313,522,142 361,702,906 658,863,294 Net Profit 19,704,19 102,559,48 113,515,79 111,897,34 131,718,18 154,651,82 181,159,57 211,768,90 247,082,84 287,790,55 334,679,46 388,648,99 1,694,219,89 4 4 6 4 0 6 0 2 1 6 1 8 450,726,330 522,084,204 604,061,304 698,185,416 806,199,795 930,093,186 9 Capital 25,000,00 0 3,000,000 15,000,000 Free Cash - 111,897,34 131,718,18 154,651,82 181,159,57 211,768,90 247,082,84 287,790,55 334,679,46 388,648,99 1,694,219,89 5,295,806 99,559,484 98,515,796 4 0 6 0 2 1 6 1 8 450,726,330 522,084,204 604,061,304 698,185,416 806,199,795 930,093,186 9

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Alluvial deposits generally comprise a significant proportion of gem quality stones for which annual price escalation far exceed that of average kimberlite diamonds (SA Diamond Council, Pers. Com.). Such annual escalation of sales values is particularly significant in projects that have extended mine lives. Being a luxury item, the demand (and, consequently, the price) of gem diamonds is expected to be in tune with the international economic trend. Under normal circumstances (no international economic meltdown as in 2008) the diamond price is going to increase annually since demand far outstrips supply (Read & Janse, 2009). For kimberlite diamonds, the potential annual price increase is estimated to be less than about 4% (Alrosa Diamond Market Outlook, June 2010; BMO Capital Markets). However based on the past production at Rockwell’s alluvial mines the Tirisano Mine is expected to produce gem quality alluvial diamonds, for which higher expected annual increases would make a material difference in the final NPV. The annual price escalation is, further, compounded by volatility of the South African Rand exchange rate. Historically, the South African currency has been extremely unstable, however, current economic forecasts indicate expected devaluation of some 3.3% p.a. (Investec Q4, 2010 macroeconomic forecasts).

In addition, the annual increase in operating costs is also a significant consideration as inflation, especially in long-term projects where the estimated inflation rate (for mining projects in South Africa) is expected to be around 9% per annum (see section 17.8.2.3).

17.8.3 Payback period

Based on current production projections, the payback period has been calculated at three years and ten month. This estimation assumes a total investment by Rockwell of some ZAR196M, which includes the purchase price as well as budgeted capital expenditure. It is important to note that, for alluvial diamond deposits, the majority of the Capex is spent prior to the completion of the pre-feasibility study and only limited capital expenditure is required thereafter.

17.8.4 Sensitivities

As a consequence of the changeability in some of key input parameters, a Sensitivity Analysis to these parameters is performed as a tool to accommodate these variables. The determined critical value drivers, typically being commodity prices, production rates, working costs and capital expenditure forecasts, are altered through a step-wise approach. The resultant values are then considered and the overall value of the asset is weighted according to the perception of applicable risk associated with each parameter.

However, a Sensitivity Analysis does not take cognizance of the knock-on effect that changing one or more input parameters has on the value of a mineral asset. That is, a Sensitivity Analysis ignores the fact that any change in the economics of a project will impact on the pay value curve of that project. Therefore, Sensitivity Analyses that demonstrate meaningful (over 5%) adjustments to any operating parameter should not be contemplated unless the mining profile can be convincingly amended. Such variations are, however, likely to occur in practice and hence the robustness of the project still needs to be checked.

• The notional free cash flow is particularly sensitive to changes in revenue and cash operating cost (Fig.17.8). The 0% in the middle of the graph represents the revenue/costs estimated in 2010, as estimated in the cash-flows (Table 17.5 and 17.6). As each variable is increased/decreased by percentages up to 15%, the Y axis shows the increase/decrease expected in the free cash flow.

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o Revenue, in turn, is dependent upon grade, diamond sales price and the rate at which diamond prices escalate annually. o Cash operating costs are impacted, inter alia, by mining rates and inflation rates.

25,000,000.00 Tirisano Sensitivity Analysis 20,000,000.00 15,000,000.00 10,000,000.00 5,000,000.00 0.00 -5,000,000.00 (15%) (10%) (5%) 0% 5% 10% 15% -10,000,000.00 -15,000,000.00

Notional Free Cash Flow (ZAR) Flow Cash Free Notional -20,000,000.00 -25,000,000.00

% Change in Variable

Revenue Cash Operating Cost

Figure 17.7: Revenue sensitivities to changes in key variables

o If the average recovered grades drops then the project values are impacted negatively. However, even minor increases in grade result in significant increases. Consequently, it is vital that mining and processing methods are optimised to ensure maximum diamond recovery. o Optimal mining rates have been determined for the Wouterspan operation through a review of matching production and capital/operating costs. Decreasing the mining and processing rate would have the effect of decreasing the profitability of the operation, although the life of mine may be increased. Increasing the mining rate, conversely, increases the profitability. However, this would require further capital expenditure and would, also, increase the mining costs. o The cash flow is, further, sensitive to changes in diamond price as well as to the rate of annual price escalation. • The cash flow is, furthermore, sensitive to inflation rates. Inflation rates of 3-6% are targeted by the South African Reserve Bank for the medium term. The higher rates of inflation envisaged for mining costs (especially increases in power costs) of around 9% per annum severely impact on the economics of the project. • An increase of even 5% in working costs decreases the profitability of the Tirisano operation. o The annual increase in operating costs is also a consideration, as inflation, especially in long- term projects such as Tirisano, where the anticipated life-of-mine is in the order of 19 years and the estimated inflation rate is around 9% per annum (see section 17.8.2.3). o Consequently, as with all commercial alluvial diamond operations, operating costs have to be watched carefully, avoiding all unnecessary expenditure. • The project is also sensitive to Capital Expenditure (Capex) costs. As can be seen below (Fig. 17.8), any increase in Capex will negatively affect the cash flow of the Tirisano project. This diagram assumes a base of ZAR73M, the amount currently budgeted to bring the Tirisano mine into

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production. Increase in Capex shows a concurrent decrease in both NPV and IRR. Although the NPV discount value illustrated here is at 20%, a similar pattern can be seen for any selected value.

660,000,000 90 640,000,000 80

20 %) 620,000,000 70 600,000,000 60 580,000,000 50 560,000,000 40 IRR (%) IRR 540,000,000 30 520,000,000 20 NPV 500,000,000 10 NPV (discounted at at (discounted NPV IRR 480,000,000 0

Capital Expenditure (ZAR)

Figure 17.8: Capex sensitivities

17.8.5 Financial Parameters

17.8.5.1 Exchange rates

Exchange rates are clearly influenced by a wide range of economic factors, and the importance of each varies both from country to country and, for any given currency, over time. The six main factors, according to Foreign Exchange Consensus Forecasts (March 10, 2008) are: relative growth, inflation differentials, the trade or current account balance, short- and long-term interest rate differentials and equity market flows. Nominal interest rate differentials remain the most powerful of the six main factors ranked for most industrialised country currencies, while trade and current account positions play an important medium-term role for emerging market currencies. Inflation expectations and equity flows have also become more closely watched by investors, as risk aversion has intensified.

Among the other factors affecting exchange rates, ‘market volatility’ or ‘risk aversion’ has been cited as important for numerous currencies, reflecting uncertainty about the global outlook and today's reduced appetite for risk. Unlike the previous boom period, when low interest rates encouraged credit and investment into high-yielding assets, the downturn in the business cycle has led to a liquidation of carry trade positions. ‘Commodity prices’ have also been ranked highly, as their rapid advance has contributed to a surge in export values and an improvement in the terms of trade.

Different financial analysts hold extremely different views on the short-medium term volatility of the South African Rand exchange rate. For the purposed of this economic consideration, a nominal exchange rate of USD=R6.8 will be assumed for the base case. It is expected that the ZAR currency might devalue at some 3.3%p.a (Investec Q4 2010 macro-economic forecasts).

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17.8.5.2 Interest rates

In South Africa, interest rate decisions are taken by the South African Reserve Bank’s Monetary Policy Committee. The official interest rate is the rate at which central banks lend or discount eligible paper for deposit money banks, typically shown on an end-of-period. For this economic consideration, the interest rate that will be used is the current repo rate of 5.5% (as of October, 2010 according to www.liberta.co.za).

17.8.5.3 Inflation rates

Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. High rates of inflation are often associated with fast growing economies where the demand for goods and services is higher that the country’s productive capacity. The fight against inflation is done by central banks that control the money supply by increasing or decreasing short-term interest rates (Trading Economics, Fri. Aug 2009). The most well known measures of Inflation are the CPI that measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy (Trading Economics, Fri. Aug 2009). South Africa's targeted headline consumer price index (CPI) inflation slowed to 4.6% year-on-year in May from 3.7% in October, 2010 (www.tradineconomics.com). However, some economists expect this downward trend in CPI to be temporary. As administered prices, particularly Eskom electricity tariffs, as well as double-digit wage increases filter through, inflation are expected to climb to 5.6% by the end of 2010.

The South African government has targeted 3-6% as a range for inflation. This increase should be applied to G&A and exploration costs as well as all Hire Purchase agreements. This increase should be applied to G&A and exploration costs as well as all Hire Purchase agreements. However, taking into account the expected increases in wages, electricity and, potentially, diesel, it is recommended that a higher inflation rate of 8-9% be added to mining and production costs.

17.8.5.4 Internal Rate of Return (IRR)

IRR is the average annual return earned through the life of an investment and is defined as the discount rate that reduces to zero the net present value of a stream of income inflows and outflows. If the IRR is higher than the desired rate of return on investment, then the project is a desirable one.

It is important to distinguish between the IRR "hurdle rate" for decision-making purposes and the discount rate used to value the NPV of a property. For example, an exploration prospect that indicates an IRR of X% may be worth spending more money on, but one may use a Y% discount rate to determine what to pay for it. The X% reflects the project’s potential, but the Y% reflects its risk at the exploration stage. The use of a project-specific discount rate may reflect a project’s unique risks but it does not necessarily determine the purchase price of the property.

17.8.5.5 NPV Discount Rate Issues and Assumptions

The NPV is the difference between the present value of the future cash flows from an investment and the amount of investment. Present value of the expected cash flows is computed by discounting them at the required rate of return (also called minimum rate of return). A zero NPV means the project repays original investment plus the required rate of return. A positive NPV means a better return, and a negative NPV means a worse return, than the return from zero NPV.

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Typically, the market attributes implied discount rates for mineral resource companies and mineral assets. The more marginal the producer and the greater the uncertainty surrounding the mineral assets, the higher the range of applicable discount rates. The variables that have the greatest impact on a discounted cash flow evaluation are the mineral resources/reserves, the mineral prices, and the discount rate. Of these, the resources, and commodity prices are, typically, relatively easy to identify. An appropriate discount rate, however, is more difficult to define or to agree between buyer and seller.

A simple discount rate for a mineral project, typically, comprises three principal components (Smith, 2002; Baurens, 2010): • Risk-Free Interest Rate. • Mineral Project Risk • Country Risk

Risk Free Interest Rate

The risk-free rate is the building block for estimating both the cost of equity and capital. Usually a long- term government bond is used, with the 10-year bond rate being preferred as the risk-free rate on cash flows for valuation purposes (Damodaran, 2008). The value of the long-term, risk-free, real (no inflation) interest rate averages range from 2.79% in Canada (Bank of Canada, October 2010) and 2.52% in the USA (www.forecasts.org, October 2010). In the UK, 10-year yields are 3%, in Germany 10-year government bond yields are at 2.3% this year and in Japan at 1%. (Financial Mail, 30 Sept 2010). The problem of lack of data usually associated with emerging markets is less of a problem in South Africa. In fact, data had already been compiled for capital market returns going back to 1925 (ABSA Group Economic Research, 2005). In 2010, the yield on long-term government bonds has had an average of 8%

Further, the risk free rate used to come up with expected returns should be measured consistently with the currency in which the cash flows are measured. Thus, if cash flows are estimated in nominal US dollar terms, the risk free rate will be the US Treasury bond rate (Damodaran, 2008; Baurens, 2010). This will remain the case, whether the company being analyzed is a Brazilian, Indian or Russian company (or, indeed, South African). While this may seem illogical, given the higher risk in these countries, the risk-free rate is not the vehicle for conveying concerns about this risk. This also implies that it is not where a project or firm is domiciled that determines the choice of a risk free rate, but the currency in which the cash flows on the project or firm are estimated. If the difference in interest rates across two currencies does not adequately reflect the difference in expected inflation in these currencies, the values obtained using the different currencies can be different.

Although the Tirisano Mine is located in South Africa and local expenditure is in South African Rands, all diamond transactions are denominated in United States Dollars. Further, Rockwell is domiciled in Canada and the cash flows on the project are estimated in both South African Rands and United States Dollars. Consequently, this preliminary economic assessment will adopt the US risk-free rate.

Mining Project Risk Components

Mineral project risks include risks associated with reserves/resources (tonnage, mine life, grade,), mining (mining method, mining recovery, dilution, mine layout), process (labour factors, plant availability, metallurgy, recoveries, material balances,), construction (costs, schedules, delays), environmental compliance, new technology, cost estimation (capital and operating), and sales values and market. The knowledge of a mining project at the feasibility study stage describes a certain comfort level and a

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degree of certainty as to the outcome of the project, and therefore a measure of risk that is then reflected in the selection of the mining project risk component of the discount rate (Smith, 2002). The feasibility study will typically have a Capital and Operating cost assessment in the 10% accuracy range, and a contingency factor added to the entire cost structure of some 5% to 12% depending on the complexity of the site, availability of components and the like. Studies are often made at much earlier stages of project development than the feasibility study. For example, a broad order of-magnitude study is usually undertaken to rank and possibly reject, potential projects in the early stages. A prefeasibility study is undertaken when more data are available, and is generally used to justify continuing expenditures towards a final feasibility study. Because these studies are made at much earlier stages of development, there is less data, the degree of uncertainty is higher so the risk level is higher and the discount rate will higher accordingly.

The discount rate applied to the constant-dollar valuation of mineral properties (where country risk is not a consideration), will most commonly be within the range of 8% per year to 20% per year (Lattanzi, 2002). Discount rates at the lower end of this range are applicable to the valuation of well-established, operating mines, while cash-flow evaluations deposits at feasibility study levels typically use discount rates in the region of 10% (Smith, 2002) or even 12-15% (Lattanzi, 2002). At earlier stage assessments, discounts rates increase to between 15-20% (Fig. 17.8).

In addition, the complexity of the geology also influences the discount rate, with base-metal deposits at feasibility level averaging 11.3% and gold deposits typically at 8.8% (Smith, 2002). Although no similar studies on diamond operations have been completed, the variability of sedimentological features in alluvial diamond deposits might be expected to result in discount factors in a range of 10 - 15%.

Figure 17.9: Discount Rate vs. Project Stage (Smith, 2002)

For the Tirisano mine, the preliminary economic assessment is based on a combination of Indicated and Inferred Resources, the classification of which is based upon of bulk-sampling by Etruscan during 2006- 2008. Although the geology of the deposit is reasonably well understood, mining project risk is estimated at 15-20%, since no pre-feasibility study has yet been completed to demonstrate that all expected processing challenges have been overcome.

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Country Risk

The geo-political location of a mineral project can have a significant effect on the final discount rate used in the valuation (Fig. 17.8). The illustration below shows the impact of country risk on a project with assumed 10% project risk at feasibility stage.

The level of risk varies from country to country and from year to year. It is essential to have both a current assessment and an historical record of a country’s risk level when considering mineral investment. Measures of country risk can be obtained from a number of sources. South Africa has been classified as a country with potentially medium security risk combined with a low risk of political interference (Control Risks, 2010). The only significant risks in South Africa are thought likely to be supply chain vulnerability and civil unrest in the form of strikes, riot, civil commotion and terrorism (AON RiskMap, 2010)

Figure 17.10: Generic illustration of the effect of country risk on the discount rate (Smith, 2002)

There is, however, considerable difficulty in obtaining a country risk figure expressed as an interest rate that can simply be added to the discount rate. Two such measurements can be obtained from the Stern School of Business (New York University) and the LIBOR rate. Annual analysis by the Stern School of Business shows that, in January 2011, country risk premiums range from 0% to 10% (Damodaran, January 2011) with risk premiums for South Africa at around 1.73%. This compares with 0.00% for many countries in Western Europe, North America and Australasia and 4.0-10.5% for countries in Eastern Europe and Central/South America. The total risk premium is obtained by adding to this basic figure, the historical risk premium for a mature equity market (estimated from US historical data), putting South Africa at 6.73% (for comparison, the US and Canada would be at 5%, Mexico at 7.25%, Colombia at 8% and Cuba at 15.5%).

An alternative indication of country risk is the LIBOR rate. Traditionally LIBOR (the London Interbank Offered Rate) has been defined as the rate at which a prime commercial bank is offered deposits by other banks in London. The LIBOR is the equivalent of the American Federal Funds Rate and is used as a benchmark for other short-term interest rates. Indications from LIBOR put the current risk for South Africa around 6% for September 2010 (www.global-rates.com).

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Combined, project specific discount rate

Using these three components identified above, it is possible to calculate a project specific discount rate (or ranges of discount rates) which has been used for the Tirisano project. A range of values for each of the identified risk components would suggest that realistic NPV discount rates for the Tirisano project would be around 20-25% range (as used in the preliminary economic assessment).

The discount rate used in the DCF has a significant effect on the NPV of the property. As discussed earlier, basic project risk can be increased through the addition of the country risk. The project risk of the Tirisano mine is estimated at 15-20%. However, when adding the country risk of some 6%, the discount value increases to some 20-25%. This variation in discounted values is illustrated in Fig. 17.10.

1,200,000,000

1,000,000,000

800,000,000

600,000,000 Escalation Case NPV (ZAR) NPV 400,000,000 Static Case

200,000,000

- 15% 20% 25% 30% Discount Values)

Figure 17.11: The effect of different discount values on the NPV of the Tirisano mine (showing both static and escalation cases).

In addition to variations in NPV’s, the IRR’s for the Tirisano project are shown to vary considerably, depending on whether static diamond price and cash mining costs are used in the cash flows or escalated values (Table 17.7).

Table 17.7: IRR estimations on the Tirisano alluvial diamond mine

Base case estimations (no Estimations with realistic annual escalation – static annual escalation of diamond

diamond price) price and inflation IRR 59% 81%

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17.9 South African Economy

South Africa has a two-tiered economy – one which rivals other developed countries and the other with only the most basic infrastructure. It is a productive and industrialized economy that exhibits many characteristics associated with developing countries, including a division of labour between formal and informal sectors and an uneven distribution of wealth and income. The primary sector, based on manufacturing, services, mining, and agriculture, is well developed. The South African Gross Domestic Product (GPD) is worth USD277 billion or 0.45% of the world economy (World Bank, 2010). With a GDP equal to four times that of its immediate neighbours combined, South Africa has the most developed economy in the southern African region. Over one quarter of the trade of countries (other than South Africa) in the southern African region is conducted with South Africa.

The main economic indicators of the South African economy are shown below (Table 17.8), as at October 2010, (www.tradingeconomics.com):

Table 17.8: Economic indicators for South Africa (October 2010)

Interest Rate Growth Rate Inflation Rate Jobless Rate Exchange Rate

6.5% 3.2% 3.7% 25.30% 6.9811

Growth has been robust since 2004, as South Africa has reaped the benefits of macroeconomic stability and a global commodities boom (South Africa's economy grew by 5% in 2006 and by 4.7% in 2007). At the end of 2007, however, South Africa began to experience an electricity crisis because state power supplier Eskom suffered supply problems with aged plants, necessitating "load-shedding" cuts to residents and businesses in the major cities. South Africa’s real GDP rebounded in the second quarter of 2008. This improvement in growth reflected strong increases in the real value added by the primary and secondary sectors, which comfortably offset a further moderation in real output growth of the tertiary sector over the period. Real output of the mining sector, in particular, recovered in the second quarter of 2008, following a sharp contraction in the preceding quarter. At the investment level, mining accounted for 9% of total fixed investment in the economy and 13.3% of total private sector fixed investment. The mining sector continued to be a key component of the Johannesburg Securities Exchange and accounted for 35% or R1.5-trillion of the value of the exchange as at the end of 2008.

During 2009, the world experienced the worst economic crisis since the 1930s. South Africa, as a small open trading economy, was not immune from the crisis. Initially, the country weathered the storm better than many other emerging economies. However, by the fourth quarter of 2008 the local economy experienced negative growth. Real GDP growth, after declining by 1.8% in 2009, has rebound to 2.8% in 2010, helped by the recovery in external demand and looser fiscal policy, and is expected to accelerate to 3.7% in 2011, in line with faster global growth (COM, 2009 annual report).

17.9.1 The Mining Industry

South Africa boasts an abundance of mineral resources, producing and owning a significant proportion of the world's minerals. South Africa's wealth has been built on the country's vast resources - nearly 90% of the platinum metals on Earth, 80% of the manganese, 73% of the chrome, 45% of the vanadium and 41% of the gold. Only crude oil and bauxite are not found here. The country is a leading producer

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of precious metals such as gold and platinum, as well as of base metals and coal. It is the world's fourth- largest producer of diamonds.

Two of the world's biggest mining companies originated in South Africa. BHP Billiton, the world's largest mining company, came after a merger between South African company Billiton and Australian firm BHP. Anglo American Plc, which has its primary listing in London and its secondary listing in Johannesburg, owns many major subsidiaries, such as Anglo Platinum, Anglo Coal, Impala Platinum and Kumba Iron Ore. Diamond miner De Beers, also a South African company, is owned by Anglo American and a consortium led by the Botswana government. The world's top diamond producer churned out about 51.1-million carats in 2007.

In 2008, the total income of the South African mining sector was R404-billion (Fig. 17.10), up by 30% on 2007 (StatsSA). Most of the benefits of the income received by the mining companies was reinvested or spent in South Africa. In 2008, the mining sector’s total expenditure was R409-billion, comprising R199- billion spent on the procurement of goods and services, R61-billion on salaries and wages, R51-billion went into capital investment in the sector, R33-billion was paid in the form of direct taxes to government, R24-billion was paid as reward to the providers of capital (shareholders), R30-billion was used for depreciation purposes and impairments and R10-billion was paid as interest by the sector to the financial sector for loans to mining. Only a small portion of the expenditure – in the form of capital equipment and dividends – was acquired from offshore, which means most of the benefit accrues locally.

Over the past 130-years, the mining sector in South Africa has provided the critical mass for the development of a number of industries that either supply the mining sector or use its products. This cluster of industries includes energy, financial services, water services, engineering services, specialist seismic services, geological and metallurgical services, all of which are world class. This cluster of industries has gone on to service other parts of the economy and has provided a significant export base to service the global mining industry. The JSE was originally established on the basis of funding the mining sector in the late 19th century. The mining sector continues to act as a magnet for foreign investment to the country. During 2008 the State-owned African Exploration Mining & Finance Corporation (AEMFC) – the vehicle for the development of the State mining company – was formed to compete with private and public companies, focussing, initially on commodities with a national strategic interest such as coal and uranium and uranium and would pool existing state assets, notably those held directly by the government’s diamond company, Alexkor, or indirectly by the Development Finance Agency and the Public Investment Corporation (The Financial Times Limited, 31 March 2010)

17.9.1.1 South African diamond production

In 2008, South African diamond production fell by 15.4% year-on-year to 12.9 million carats (valued at USD1.2-billion) from 15.2 million carats (valued at USD1.4-billion) in 2007. The impacts of the domestic electricity supply crisis, coupled with the global calamity later in the year were the key drivers of this decline in production. Diamond exports fell from 13.8 million carats (valued atUSD1.8-billion) in 2007 to 10 million carats (valued at USD1.4-billion) in 2008. Similarly, imports of diamonds into South Africa fell by 52.5% from 1.2 million carats in 2007 to 588 320 carats in 2008. In 2008, employment fell by 5.3% to 18 609 workers.

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17.9.2 South Africa’s Mineral Legislative Environment

17.9.2.1 Mineral Policy

South Africa has endorsed the principles of private enterprise within a free-market system, offering equal opportunities for all the people. The state's influence within the mineral industry has, thus far, been confined to the goal of orderly regulation and the promotion of equal opportunity for all citizens. The Minerals and Petroleum Resources Development Act (MPRDA Act 28 of 2002) was introduced to legislate the official policy concerning the exploitation of the country's minerals. Previously, South African mineral rights were owned by either the State or the private sector. This dual ownership system represented an entry barrier to potential new investors. The new MPRDA was introduced with the objective for all mineral rights to be vested in the State, with due regard to constitutional ownership rights and security of tenure.

In an attempt to assist junior exploration/mining companies, in July 2009 the National Treasury introduced a tax incentive for investors through the introduction of venture capital company (VCC) funds. This is an attempt to assist bottom-end juniors (engaged in mineral exploration, mining and/or refining) in accessing equity funding, in a similar manner to that which the Canadian flow-through share system. The subsequent tax-break allows for both individual and listed company to invest in the junior; the individual is eligible for a 100% tax deduction of the amount invested, which is limited to R750,000/year with a maximum of R2.25M and listed companies (and their group subsidiaries) are eligible for a 100% deduction with no monetary limit. However, these corporate entities do not receive any deductions for share investments that push their holdings above a 10% equity share interest in a VCC. The VCC must be a South African resident company that is unlisted or a junior mining company that may be listed on the Alt-X and must not be a controlled group subsidiary. The VCC is, further, required to invest 80% of their funds in mining juniors with book assets of not more than R100M after capital raising, and small non-mining companies with assets of not more than R10M after capital raising. The junior would also be required to use all the money received for purposes of its trade within 18 months of receipt and would be required to be producing revenue within 36 months.

The Nationalisation Debate

In the wake of the international economic crisis, Julius Malema, President of the ANC Youth League (ANCYL) and COSATU (SA’s largest union movement) have consistently called for the nationalisation of South Africa’s mines. However, in reply, a Department of Mineral Resources spokesman stated that it is highly unlikely that any policy changes on nationalising South Africa’s mines would be considered in the next two years, but the issue might be raised at the ruling party’s next policy conference in 2012. He, further, added that all legal processes, practices and guidelines would first have to be passed if such a decision were to be implemented (Mining Weekly, January 29 – February 4, 2010). The debate continues with various ministers, including Deputy President, Kgalema Motlanthe, Finance Minister, Pravin Gordhan, and Trevor Manuel, head of the National Planning Commission in the presidency, playing down the issues.

17.9.2.2 Mineral and Petroleum Resource Development Act 28 of 2002 (“MPRDA”)

This Act (which came into effect in May 2004) entrenched a "use it and keep it" principle that is applied to companies or individuals who hold any rights to prospect and mine. All privately held mineral rights were to be transferred under the provisions of the Act into licenses to prospect and mine. A further objective of the Act is the pursuance of the government’s policy of furthering Broad Based Black Economic Empowerment ('BBBEE”) within South Africa’s minerals industry. The Act also makes

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provision for the implementation of social responsibility procedures and programmes by mineral resource companies through the compulsory Social and Labour Plan.

Ownership, access and opportunity in regards to the country's mineral resources are regulated by the Minerals and Petroleum Resources Development Act of 2002, which recognises the state's custodianship over the country's mineral resources. Transformation is a key issue facing South Africa's mining sector. Equitable access to mineral resources and opportunities has been legislated, with meaningful participation of historically disadvantaged individuals the subject of the industry's black economic empowerment (BEE) charter. Currently, more than 70% of the mining industry's labour force is black, while less than 5% of managerial positions are held by black people. Targets have been set by the government and, by 2009, all mining companies will be expected to have 40% of managerial positions held by previously disadvantaged South Africans. Other targets include the transfer of 26% of mining assets to black-owned companies, and ensuring that 51% of future mining projects are controlled by black-owned firms.

Applicants for permits and licenses will be required to provide details of these criteria before such are granted. Although the Act envisages that the Minister’s approval will not be 'unreasonably” withheld, the Minister can, and has, turned down applications where 'the application does not meet all the requirements specified by the Act; or if the granting of such right will result in an exclusionary act, prevent fair competition, or result in the concentration of the mineral resources in question under the control of the applicant.”

Under the terms of the MPRDA, all old order prospecting rights should have been converted in new order rights by 30th April 2006, and old order mining rights should have been converted by 30th April 2009. At, or before, expiry of the old order right a conversion to a new order right would need to be applied for. These new order rights may not be ceded, transferred, let, sub-let, assigned, alienated or otherwise disposed of, without the written consent of the Minister. Furthermore, new order mining licenses would only be granted for a maximum of 30 years.

DMR has proposed to make one sweeping set of amendments to the MPRDA and other pieces of legislation like the Mines Health and Safety Act to clarify exactly what is expected of mining groups operating in South Africa and give potential investors a clear idea what is expected of them, removing uncertainty coming from piecemeal changes. These amendments are likely to be made in early 2011 and are planned to give the mining sector a stable platform from which it can work over the next three or four years, (MiningMx, 31 March 2010). The finalised set of proposals for changes to the updated MPRDA was expected to be completed by mid 2010. As of the date of this report, the review has not yet been received, but is now expected at the end of February 2011.

A secondary consideration was the introduction of the Minerals and Energy Legislations Amendment Bill in June 2005. The main objective of this Bill is to correct both the Mining Titles Registration Amendment Act and the Mineral and Petroleum Development Act to ensure that all mining-related rights are registered in the Mining Titles Registration office of the Department of Minerals and Energy and that all rights pertaining to land registration are dealt with by the Deeds Registration Office of the Department of Land Affairs.

As a direct result of weaknesses in the current administration of the MPRDA legislation, a review of the system has been undertaken by DMR and the proposed amendments are to be presented to the Cabinet and, subsequently, to Parliament. The process is expected to take most of 2011. In addition, the Minister of Mineral Resources has also announced that a new Electronic Mineral Management System (EMMS) will be implemented shortly to allow for the on-line registration of prospecting and mining right applications and the on-line monitoring of the approvals process. The workflow would

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follow prescribed and standardised processes, and all applications would have to comply with prescribed and standardised formats, with all supporting documentation also having to be uploaded in a prescribed and standardised manner. The new approach was based on a Geographic Information System, which included data on, for example, environmentally sensitive areas, to prevent the granting of licences covering such regions. Each company using the EMMS would have its own log-in details and password and the system would have "four tiers" of security

17.9.2.3 Broad Based Black Economic Empowerment (BBBEE) and the Mining Charter

Black Economic Empowerment practices were introduced in 2003 as a vehicle to mitigate against discriminatory practices present prior to 1994. The strategy is broad-based, as shown in the name of the legislation: the Broad Based Black Economic Empowerment Act of 2003. This reflects the government's approach, which is to "situate black economic empowerment within the context of a broader national empowerment strategy … focused on historically disadvantaged people, and particularly black people, women, youth, the disabled, and rural communities".

Black economic empowerment is driven by legislation and regulation. An integral part of the BEE Act of 2003 is a sector-wide generic scorecard, which measures companies' empowerment progress in four areas: • Direct empowerment through ownership and control of enterprises and assets. • Management at senior level. • Human resource development and employment equity. • Indirect empowerment through: o preferential procurement, o enterprise development, and o corporate social investment (a residual and open-ended category).

This scorecard, for both local and multinational companies, is defined and elaborated in the BEE codes of good practice (2003 and updated in 2006). The codes of good practice were introduced to govern how companies do business in South Africa. The codes are binding on all state bodies and public companies, and the government is required to apply them when making economic decisions on procurement, licensing and concessions, public-private partnerships, and the sale of state-owned assets or businesses.

Private companies must also apply the codes if they want to do business with any government enterprise or organ of state - that is, to tender for business, apply for licences and concessions, enter into public-private partnerships, or buy state-owned assets. Companies are also encouraged to apply the codes in their interactions with one another, since preferential procurement will affect most private companies throughout the supply chain. Different industries are required to draw up their own charters on BEE, so that all sectors can adopt a uniform approach to empowerment and how it is measured. The Mining Charter, initially released in 2003 to define BEE and social upliftment goals for the mining industry, is an agreement between the South African government, the collective bargaining agent of the National Union of Mineworkers (NUM), and the mining industry (represented by the Chamber of Mines and small-scale miners). The Charter is the instrument by which the Minister of Mines and Industry has to give effect to BEE.

The stated goal of this charter was to create an industry that will reflect the promise of a non-racial South Africa. As a result, mining companies are obliged to promote BBBEE when applying for, or when converting existing mineral rights to the new order rights. The objectives of the charter are to: • Promote equitable access to the nation's mineral resources to all the people of South Africa;

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• Substantially and meaningfully expand opportunities for historically disadvantaged South Africans (HDSA's) including women, to enter the mining and minerals industry and to benefit from the exploitation of the nation's mineral resources; • Utilise the existing skills base for the empowerment of HDSA's; • Expand the skills base of HDSA's in order to serve the community; • Promote employment and advance the social and economic welfare of mining communities and the major labour sending areas; and • Promote beneficiation of South Africa's mineral commodities. In an attempt to assist companies meet the charters objectives, a “Score Card” has been developed. However, there are still numerous issues that need to be resolved concerning the quantitative assessment of the said “scores” and their application across the mineral industry. Mining companies were required to have put in place a 15% BBBEE shareholding by 2006 and, subsequently, to increase this to 26% by 2014. In the particular case of (previously) State owned right, a 51% BBBEE share was required by 2009. If the BEE component is ruled as insufficient this would prevent a new mining license being awarded.

The Mining Charter was review in September 2010, during which time the objectives and implementation of BBBEE initiatives was also be examined. Progress is now to be reported every year on elements relating to: • the 26% historically disadvantaged South African (HDSA) ownership of mining companies by 2014; • the abolition of the mine hostel system by 2014; • the 40% capital goods procurement from black economically empowered (BEE) entities; • the 0.5% of procurement value of multinational suppliers into a fund for the socioeconomic development of near-mine communities; • the 70% procurement of services from BEEs; • the 50% procurement of consumables from BEEs; • the 40% employment equity in top management; • a 25% weighting for skills development - the highest single weighting; • a 15% weighting for the development of near-mine communities; • a 12% weighting for sustainable development and growth; and, • the contribution towards value addition to metals and minerals through beneficiation, which is defined as the transformation of a mineral into a higher-value product. Mining companies may, however, offset the value of the level of beneficiation achieved by the company against a portion of its HDSA ownership requirements not exceeding 11%.

BEE entities must be made up of entrepreneurs, workers and communities. Moreover, "a percentage" of the cash flow to service funding obligations must now go to the BEE entity throughout the term of investment. Also, the BEE entities that embody the HDSA ownership of mining companies have full shareholder rights, regardless of the form of legal instruments used.

Every mining company must report its level of compliance with the Mining Charter annually, as provided for by Section 28(2) (c) of the MPRDA. The Department shall monitor and evaluate, taking into account the impact of material constraints which may result in not achieving set targets. Non-compliance with the provisions of the revised Mining Charter will render mining companies in breach of the MPRDA, with errant companies running the risk of being stripped of their mining licence. Further, the Mineral Resources Minister may amend the Mining Charter “s and when the need arises”.

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17.9.2.4 The Minerals and Petroleum Resources Royalty Bill

The effective date for the royalty bill was May 1, 2009 (in cognisance of the recent international economic crisis, the South African Treasury deferred payment of State royalties until March 2010). However, the royalty will still be applied after that date even if the company has still not applied for conversion of mining rights.

According to the National Treasury, the current formula used to calculate the royalty rate helps overcome the problem of various specific rates being perceived as discriminatory, as it is often difficult to justify why certain minerals (specifically diamonds) were being taxed at a higher rate. Further the formula automatically accommodates marginal mines, takes account of “affordability” and is, therefore, more equitable and ensures that government shares in the gains during times of booming commodity prices. However, the Treasury has not relented on the double royalty to be paid by mining companies who pay one royalty to a traditional community and will have to pay a second royalty to the state under the Minerals and Petroleum Resources Royalty bill. The Treasury will, also, insist on royalties even if the minerals in question have been lost, stolen or destroyed – a deemed sales price applies at the proper condition, so a royalty is always charged even if no proceeds are obtained.

In terms of the currently applicable formulae, the applicable royalty rates will vary according to the profitability of the mining company, subject to a minimum rate of 0.5% and maximum rate 7.0% for diamonds (unrefined minerals). The profitability parameter in the formulae is EBIT and it also allows for 100% capital expensing which is an acknowledgement of the high capital costs associated with mining.

Y (u) = 0.5 + { EBIT / (Gross sales x 9) }

Where: Y (u) = Royalty percentage rate; EBIT = Earnings before interest and taxes (but EBIT can never go below zero).

The formula contains four parameters: (1) an intercept term, 0.5, (2) EBIT, earnings before interest and taxes, (3) gross sales and (4) 9 as a constant: • The 0.5 essentially acts as a minimum royalty percentage rate (0.5%) in order to ensure that Government (as custodian) always receives some level of royalty payments for the permanent loss of non-renewable resources. • EBIT essentially measures an extractor’s net operating mining profits in relation to recovered mineral resources to be eventually transferred. Taxes and other Government charges, such as the royalty, are excluded because EBIT is part of the royalty determination. The exclusion of interest effectively neutralises how key methods of financing (i.e. debt or equity) mineral operations are undertaken. EBIT for mineral resources transferred is conceptually viewed as the aggregate amount of:

(1) Gross sales for all transferred mineral resources;

PLUS

(2) Recoupment in respect of the disposal of assets used to develop mineral resources to the extent the depreciation on those assets offset EBIT;

LESS

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(3) Operating expenditure incurred (and depreciation allowances applicable to capital expenditure) relating to the extraction and development of mineral resources to the extent those expenditures are both: (i) deductible under the Income Tax Act, and (ii) bring those minerals to a Schedule 1 or Schedule 2 condition (as applicable).

In a presentation to the mining industry in February 2010, Pricewaterhouse Coopers (PWC) indicated that: • The EBIT calculation does not take into account any deduction in respect of a financial instrument although costs arising from a mineral resource hedge are deductable because these hedges act as an economic offset against mineral resource gross sales. • The royalty liability is not deductible from EBIT; • Transport, insurance and handling are not deductible after the mineral has attained the applicable condition (refined vs. non-refined). These costs are limited to the costs of reaching the specified condition – costs beyond the specified condition are not deductible. • The EBIT calculation does not take into account the balance of assessed losses stipulated in section 20(1) (a) of the ITA. This rule has no effect in terms of unredeemed capital expenditure. The net effect of this is to prevent carry-over of excess operating losses while allowing for a carry-over of mining capital expenditure. • EBIT does not allow for currency deductions.

17.9.2.5 The Diamond Amendment Bill

The 2005 amendments to the Diamonds Act, viz., Diamonds Amendment Act, 2005 and the Diamonds Second Amendment Act, 2005 as well as the 2007 amendment to Regulations under the Diamonds Act took effect on 1 July 2007. These Regulations were also, subsequently, amended on 4 April 2008. The object of the Regulator (SADPMR) in terms of the Diamonds Act, 1986 (as amended) is to ensure equitable and regular supply of rough diamonds to local beneficiators. It makes provision for the establishment of the State Diamond Trader who will facilitate the supply of rough diamonds equitably and a Precious Metals and Diamonds Regulator to promote equitable access to rough diamonds to licensees. The objects of the amendments are to: • Promote a culture of value addition of minerals by maximising the value of economic benefit of South Africa's mineral wealth; • Recognise the fact that beneficiating our minerals locally contributes to South Africa's economy; • Prevent and abolish restrictive and unfair practices with regard to accessibility and availability of minerals and access to markets; and • Create an internationally competitive and efficient administrative and regulatory regime by means of national licensing system.

In this regard the regulators functions include the implementing, administering and controlling all matters relating to the purchase, sale, beneficiation, import and export of diamonds; and establishing diamond exchange and export centres, which shall facilitate the buying, selling, export and import of diamonds and matters connected therewith.

Whilst the former SA Diamond Board had an essentially regulatory role, the SADPMR has a promotional role as well. Through administering licenses and export approvals, the SADPMR will strive to ensure that local demand for diamonds and precious metals is catered for, and that there is growth in local beneficiation of diamonds and precious metals. The State Diamond Trader (SDT) was set up by government in 2007 with major support from De Beers and the Industrial Development Corporation (IDC). It aimed to increase the supply of rough diamonds to local polishers and cutters. De Beers seconded a number of key technical staff to the SDT and the IDC agreed to provide funding through a

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R60m rollover loan. Crucially, at the same time as the SDT came into operation, De Beers shut down its Diamdel subsidiary (Diamdel’s function was to provide rough diamonds to smaller SA cutting and polishing firms which were not part of the group’s main rough diamond sales system).

The end result has not lived up to expectations because the SDT has not fulfilled its function of providing the diamonds. This has resulted in extensive job losses in the local cutting and polishing industry (MiningMx, March02, 2010). Although the SDT was chartered to purchase up to 10% of local producers' run of mine goods, at “market-related” prices, for supply to local diamond manufacturers, it has not fully met its buying objectives. As a result of the short supply of rough diamonds, the South African diamond cutting industry is suffering. The industry was also no longer receiving rough diamond supply from Diamdel. The SDT was buying about 3% of De Beers' diamond production for supply to local beneficiators, while it was set up to buy 10% of the country's rough production for supply to local cutters and polishers. The result was that the local beneficiation industry shrunk from about 3,000 cutters and polishers to about 1,500.

Solutions are being sought to the bureaucracy within the SDT. The current emphasis in the SDT sits on legal compliance issues and issues around the operations of the government diamond valuator, whereas emphasis must be placed on efficient access to diamonds – getting the rough diamonds to the buyers.

17.9.2.6 Diamond Export Levy Bill 2007

The Diamond Export Levy Bill was required to give effect to certain provisions of the Diamonds Act, 1986, as amended. The Diamond Export Levy Bill’s main objective is to support the local beneficiation of rough diamonds. The beneficiation of rough diamonds is seen as important to encourage the development of the local economy, skills and employment creation. The Bill proposes a 5% export levy on rough diamonds that should contribute towards local beneficiation, but is low enough so as not to unduly encourage smuggling. The 5% levy applies to all rough (natural unpolished) diamonds that are exported, while synthetic diamonds are exempted. The levy amount will be equal to 5% of the value of a rough diamond exported, as specified on a return described in Section 61 of the Diamonds Act, 1986 or of the value as assessed by the Diamond and Precious Metals Regulator described in section 65 of the Diamonds Act, 1986.

The Bill contains relief measures that may offset the 5% levy in full or in part. A producer is entitled to receive a credit for imported rough diamonds. This credit will offset (in full or in part) a producer’s export duty liabilities. The Minister of Minerals and Energy may also exempt a producer from the 5% export levy if a producer’s activities are supportive of local diamond beneficiation, or the producer has a annual turnover of less than R10 million, and such a producer has offered his or her rough diamonds for sale at the Diamond Exchange and Export Centre but there were no local buyers. However, the diamonds must subsequently be sold for an amount at least equal to the reserve price at which such diamonds were offered at the centre. These conditions preserve South African’s “right of first refusal” with respect to bidding on any rough diamond intended for export.

17.9.2.7 Precious Metals Bill and the Beneficiation Strategy

The Precious Metals Bill amends Chapter XVI of the Mining Rights Act, No 20 of 1967, so as to eliminate the barriers to local beneficiation of precious metals and to rationalise the regulation of matters pertaining to the downstream development of precious metals. The objects of the Bill include: • To allow for the acquisition and possession of precious metals for the local beneficiation; • To regulate the precious metal industry; • To repeal the legislations that create barriers to beneficiation; and

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• To amend the over-regulation of the industry by centralising the issuing of jewellers' permits within the Department of Minerals and Energy.

The Beneficiation Strategy, which has been under discussion for some 16 years, is a product of an interdepartmental task team consisting of representatives from the DMMR, DTI (Department of Trade & Industry), the Department of Science & Technology, the Department of Public Enterprises, the National Treasury and the Presidency. A draft (Green Paper) document was released for public comment in early 2009, and this is expected to be followed by a White Paper from the department in due course.

In the strategy, the South African government has highlighted the need for a national minerals beneficiation strategy, in contrast to legislation forcing mining companies to carry out beneficiation. For South Africa to succeed in beneficiation, it needs to create the necessary skilled labour force and to establish the necessary industrial development zones with attractive tax advantages and low tariff regimes. Customs systems would also have to be streamlined and harbours decongested to facilitate efficient trading conditions.

17.9.2.8 Kimberley Process

The Kimberley Process is a joint governments, industry and civil society initiative to stem the flow of conflict diamonds – rough diamonds used by rebel movements to finance wars against legitimate governments. The trade in these illicit stones has fuelled decades of devastating conflicts in countries such as Angola, Cote d'Ivoire, the Democratic Republic of the Congo and Sierra Leone. The Kimberley Process Certification Scheme (“KPCS”) imposes extensive requirements on its members to enable them to certify shipments of rough diamonds as ‘conflict-free’. The core mandate of the KPSC is to guarantee consumers that the organisation is aware of the origin of the diamonds that the consumers buy.

As of December 2009, the KP has 49 members, representing 75 countries, with the European Community and its Member States counting as an individual participant. During 2009/2010, Venezuela voluntarily suspended exports and imports of rough diamonds until further notice and Cote d' Ivoire is currently under UN sanctions and is not trading in rough diamonds. The Kimberley Process has also expressed concern at the illicit trade of diamonds from the Marange area in Zimbabwe and decided to step up international efforts to prevent the illicit trafficking of those diamonds, notably by calling on KP Participants to take appropriate ‘enhanced vigilance measures’.

In essence, the participants in the KPSC have agreed that they will only allow for the import and export of rough diamonds if those rough diamonds come from or are being exported to another Kimberley Process participant. The KPSC requires that each shipment of rough diamonds being exported and crossing an international border be transported in a tamper-resistant container and accompanied by a government-validated Kimberley Process Certificate. Each certificate should be resistant to forgery, uniquely numbered and include data describing the shipment’s content. The shipment can only be exported to a co-participant country in the Kimberley Process. No uncertified shipments of rough diamonds will be permitted to enter a participant’s country. Once a certified shipment has entered its country of destination it may be traded – in whole or part – and mixed with other parcels of rough diamonds as long as all subsequent transactions are accompanied by the necessary warranties. Failure to adhere to these procedures can lead to confiscation or rejection of parcels and/or criminal sanctions. Any rough diamonds being re-exported will also require Kimberley Process Certificates, which will be issued in the exporting country. These re-exports can comprise any combination of rough diamonds that have been previously imported through the Kimberley Process Certification Scheme.

In order to strengthen the credibility of the Kimberley Process agreement, as well as to provide the means by which consumers might more effectively be assured of the origin of their diamonds, the

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World Diamond Council proposed that the industry create and implement a System of Warranties for diamonds. Under this system, which has been endorsed by all Kimberley Process participants, all buyers and sellers of both rough and polished diamonds must warrant that, for each parcel of diamonds “The diamonds herein invoiced have been purchased from legitimate sources not involved in funding conflict and in compliance with United Nations resolutions. The seller hereby guarantees that these diamonds are conflict free, based on personal knowledge and/or written guarantees provided by the supplier of these diamonds.” In addition, each company trading in rough and polished diamonds is obliged to keep records of the warranty invoices received and the warranty invoices issued when buying or selling diamonds. This flow of warranties in and warranties out must be audited and reconciled on an annual basis by the company’s own auditors. Failure to abide by the aforementioned principles exposes the member to expulsion from industry organizations.

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18 INTERPRETATION AND CONCLUSIONS

Mineralisation is confined to the gravel packages in-filling karst caverns etched out of the chert-rich dolomites of the Malmani Group. The clay-poor Lower Gravel Package and Upper Gravel Package units are considered to be the major exploration targets as the diamond grades encountered in these units have, historically, supported commercial mining ventures. Although elevated grades have also been associated with the colluvial manganese nodule layer – this unit is not everywhere present on the property and is, therefore, not considered as part of this study.

To date, 2,391 boreholes have been drilled on the property, totalling 53,576m. The deepest drilling indicates that the lower gravels extend down at least to 140m (without intersecting bedrock). Geophysical interpretation, however, indicates that final depths of the sinkholes may be, potentially, up to 200m in places.

Over the period 2006-2008, eleven bulk-samples (Pits 1, 2 (A, B, and C), 3, 3A, 5C, 6, 7, 8 and 9) were excavated to process 147,895.88m3 of Lower Gravels (LGP), including Transition Zone gravels (TZP) and recover 4,318.6ct for a global grade of 2.85ct/100m3 (bottom cut-off of 1.6mm) and USD 466/ct. In addition, 129,557.46m3 of Upper Gravels (UGP) was processed to recover 2,292.00ct at an average grade of 1.77ct/100m3.

Due to the generally low grades and relatively large stone sizes present in alluvial diamond deposits it is imperative that large bulk samples are taken to ensure representivity of results. For Indicated Resources, this study has endeavoured to sample some 2% of the resource with a minimum recovery of 2,000ct for diamond value estimations. For the Inferred Resource portion, the goal was some 0.5% of the resource sampled for grade estimations and a minimum of 500ct for value.

Unfortunately, due to the inability of the drill results to determine accurately the location of clay/manganese rich or poor areas, the bulk-samples have not been able to sample all areas equally (to determine a representative average grade). The samples have, thus, almost been sited randomly. As can be seen from the sample results, clay/manganese rich and poor areas have been sampled, reflecting the full variety of sedimentary features that will be expected throughout the deposit.

During 2008, material from the trial-mining programme was processed from the base of the Tirisano main pit. A total of 218,718m3 of which 146,881m3 was LGP, 10,293m3 was UGP and 61,534m3 is a blend of both UGP and LGP. Within the LGP, there are individual resource blocks where the grades are

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significantly higher than the average. Intuitively, it has been noticed that these elevated grades appear to be associated with proximity to bedrock highs, an increase in average clast size and a decrease in clay content. These observations will continue to be monitored to see whether the perceived relationships are real and whether the variations are systematic and measurable.

In addition, increased grades were also noticed at (and immediately below) the manganese wad horizon. This horizon is a curved surface that is at some 27m below surface at the sinkhole edge and at 35-37m below surface towards the centre of the sinkhole. The wad is thought to represent a late Cretaceous landsurface and the increased grades may be the result of surface concentration (by deflation) prior to subsiding into the collapsing sinkhole.

At the date of this technical report, two sample blocks of 6,677m3 and 52,037m3 have been sampled and processed separately at depth (60m and 64m respectively). The recovered grades of these sample (at 2.80ct/100m3 and 2.0ct/100m3 are similar to (slightly lower than) the 2007 average LGP of 2.85ct/100m3. At this stage, it is assumed that the elevated grades are only associated with the wad horizon and the average grade returns to the sample average of 2.85ct/100m3. If the grades of the samples recovered from deeper than 38m are considered separately, it appears as if the grade is decreasing with depth. It is suspected, however, that this perception has more to do with on-going processing problems associated with a higher clay content. Samples at depths below the manganiferous layer will continue to be monitored in order to determine grade variation trends.

During the period January – June 2008, a total of 5,552.54ct were sold to various diamond buyers on the open market for an average of USD606/ct. The reliability of valuations of parcels smaller than 2,000ct24 decreases as the size of the parcels decrease to the point where valuations placed on a small number of diamonds from exploration samples are likely to be misleading. However, the total mass of diamonds from the Tirisano project sold on the open market exceeds 12,000ct. As a result, it is expected that the sales value should reflect fairly on the value of the stones. Nevertheless, as a result of the current economic climate and the huge fluctuations in the rough diamond market, it has not been possible to estimate present average diamond prices with any certainty – irrespective of the amount of diamonds sold.

During 2008, sampling (trial-mining) was confined to the Tirisano main pit on Nooitgedacht. Excavation (and rehabilitation) was contracted to ALS Contractors (Pty) Ltd. All gravels were excavated using hydraulic excavators, which are most efficient in selectively removing the overburden and excavating the gravels without much contamination of horizons. After they have been excavated, the gravels are transported to the processing plant stockpile area by articulated dump trucks. Prior to processing through the concentrating plants the ROM gravels was to be prepared through a front-end screening plant to be able to deliver a sized product to the sample stockpile. On the mineral processing side, two streams were designed to feed the DMS plants (Bateman DMS at 40tph and Manhattan DMS at 50tph) as well as two new rotary pan plants (planned combined monthly production targets of 100,000m3). During the commissioning phase, however, the average monthly throughput was some 50-90% of the targets (with most of the production coming from the DMS plant at a reduced production rate of 50,000m3 per month) as a result of numerous processing and recovery problems.

At 25 November end of 2008 the mine was put on Care & Maintenance as a result of the international economic slowdown and, consequent, drop in rough diamond prices.

The Etruscan study highlighted a number of technical issues that need to be addressed in the Rockwell mining programme:

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• Continuing issues with processing efficiencies as a result of clay and manganese in the gravels. • Due to the almost random variation in sedimentological horizons within the gravel unit, production data (specifically grade) needs to be continually monitored and reconciled with modelled figures. • Since these deposits are “high-volume, low-grade” operations, much effort will be required to replace mined gravels. Consequently, an extensive regional exploration programme will need to be pursued to identify and evaluate additional, similar deposits. • Sustained attention should be given to finding ways to differentiate between the various gravel horizons in borehole logs, including geochemical and mineralogical studies.

During the period November 2008 to November 2010, no geological activity (including bulk-sampling and trial-mining) has taken place on the Tirisano property. No additional work was completed on the mineral resource estimate during 2010. Until additional drilling and mineral processing has taken place by Rockwell, this study has accepted the resource estimate declared in the NI43-101 technical report produced as at October 2009. The resource estimate was reviewed by T.R. Marshall, PhD, (Pr. Sci. Nat.), a qualified person who is independent of both Etruscan and Rockwell and is responsible for the estimate. The result of the resource estimation is below.

Indicated Resource Inferred Resource Grade Value

volumes (m3) volumes (m3) (ct/100m3) (USD/ct) Upper Gravel 16,109,000 8,613,000 1.77 Package Lower Gravel 11,801,500 6,744,000 2.85 Package Sub-total 27,910,500 15,357,000 2.37 Depleted during -2,365,000 -23,000 2007/2008 sampling SUBTOTAL 25,545,500 15,334,000 Depleted during 2008 mining on -265,658 2.43 Tirisano TOTAL 25,279,900 15,334,000 2.37 606

Mineral resources which are not mineral reserved do not have demonstrated economic viability

As can be seen, the existing grades have been accepted until further bulk-sampling and trial-mining by Rockwell can confirm or show differences due to upgraded processing facilities. Since no diamonds have been sold from the Tirisano mine, no current values are available. Nevertheless, sales values of diamonds from the district are in the USD700/ct range. These values are expected to be similar to those diamonds recovered from the Tirisano mine in early 2008 (USD606/ct).

In addition to the Indicated and Inferred Resources, exploration targets exist over large areas in both the LGP and the UGP units. It is important to note that these statements regarding potential quantity and grade are conceptual in nature, that there has been insufficient exploration to define a mineral resource in these areas and that it is uncertain if further exploration will result in the target being delineated as a mineral resource. Although some drilling and sampling has taken place in these areas, the results are insufficient to be categorized as a resource:

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• Some 33-40,000m3 of (LGP) gravel estimated to exist in the sinkholes below the present level of Inferred Resources (at 105m), down to the extent of drill data; • Some 150-200,000m3 of gravel within the modelled gravel wireframe, but which does not fall within the indicated or inferred categories due, primarily, to lack of borehole coverage; • The estimated, additional, 5-6Mm3 of (LGP) gravel that is modelled to exist in the sinkholes, if a more geologically reasonable shape is accepted (although not yet defined by drilling); • An undefined amount of gravel, specifically southeast of the currently inferred resource area, where gravel is seen to exist (from borehole results), but drill coverage and sampling constraints prevent these from being included within defined resources; • An indefinable volume of (LGP) material that is located below the present drilling level in the sinkholes. Geophysical modelling is unable to identify the base of the bedrock in these structures with any accuracy, nor has the drill programme been able to penetrate the thick gravels. As a result, it has not been possible to estimate what volume of gravel might exist here, although it is expected to be significant; • The “West Run” on Nooitgedacht and Hartbeestlaagte has not yet been drilled or sampled. Some 200ha of area may be underlain by both UGP and LGP gravels. • Grade ranges for these targets are expected to fall within the values identified by sampling within currently identified resource areas, namely, 1-2ct/100m3 for UGP and 2-3ct/100m3 for LGP units

Further to the trial-mining, additional drilling of UGP gravels on the western portion of the mine property (some 500 holes, 5,000m) will be undertaken to increase confidence in the resources in this area, along with a ground geophysical survey comprising some 2,000 points

A total of R73M has been budgeted by Rockwell for capital expenditure to bring the Tirisano Project into production (to end February 2012), of which R30M has been spent to end February 2011, improving infrastructure, re-engineering and re-establishing the processing facilities, transporting earth-moving equipment to site (from where they were superfluous on Rockwell’s other operations), internal re- interpretation of existing data as well as well as detailed technical audits of some of the metallurgical/processing issues identified during a technical due diligence. Over and above the CAPEX requirements, Rockwell has budgeted some ZAR 4.5M/month for the trial-mining, processing some 90,000m3 until June 2011 and ramping up to full production test-mining from July 2011. The exploration budget comprises ZAR400,000 for the ground geophysical survey and ZAR4.9M for the drilling programme (ZAR1.3M for exploration holes and ZAR3.6M for geotechnical purposes).

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The key parameters and results of the preliminary assessment are tabulated below:

Tirisano Preliminary Assessment Key Parameters 3 Indicated Resources 25,279,800 m Inferred Resources 15,334,000 m3 3 Average Grade 2.37 ct/100m

Average sales value (2011) USD 606/ct Proposed monthly throughput 180,000 m3

Proposed mine life 18.8 years

3 Operating Costs (2011) ZAR 49/m Mining Royalties 0.5-7%

Capital required to bring mine into ZAR 73,000,000

production Earthmoving fleet budget N/A Tax 28%

Key Results Base Case 10% Price Escalation

IRR 59% 81%

NPV at discount values of:

15% ZAR 226,000,000 ZAR 1,084,000,000

20% ZAR 153,000,000 ZAR 645,000,000 25% ZAR 105,000,000 ZAR 406,000,000

The author believes that, notwithstanding the problems inherent in resource/reserve estimations in alluvial diamond deposits, the results to date are sufficiently encouraging to permit trial-mining from the Indicated Resource areas. Due to the geological nature and economic characteristics of alluvial diamond deposits in the North West Province, proving-up of substantial reserves ahead of trial mining is not warranted, and is not industry standard in South Africa.

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19 RECOMMENDATIONS

19.1 Proposed Work Programme

During 2011, the emphasis will continue to be on putting the Tirisano project back into production. The initial production will be on a trial-mining basis and full production will only be initiated once minor processing issues have been resolved.

Ongoing review and updating of resources based on production will be done by existing Rockwell staff (specifically G Norton, Rockwell’s Mineral Resource Manager) and the author, as necessary. Since Rockwell will acquire large amounts of existing drill data from Etruscan through this transaction, much of which still requires on-going and further rigorous analysis and integration with mining results, only minimal exploration has been planned for this property for the period 2011 (Fig. 19.1). A ground gravity survey comprising some 2,000 stations is planned for the area to the west and north of the plant site. Some 5,000m (±500 holes) of RC drilling is planned for the same area, where UGP gravels are known to occur (and have not been properly drilled in previous programmes). In addition, geotechnical drilling comprising a total of 18 holes will be completed, as part of the mine planning.

19.2 Proposed Budget

Some ZAR43M has been budgeted by Rockwell for capital expenditure during 2011 to bring the Tirisano project into production. The capital costs for this exercise were provided by Rockwell and were reviewed by the author. Finance for this operation will be provided for by a combination of debt and the proceeds of a planned financing to be held once the Section 11 cession has been completed.

In addition to CAPEX requirements, Rockwell has budgeted ZAR 4.5M/month for the trial-mining, processing some 90,000m3 until June 2011 and ramping up to full production test-mining from July 2011. The exploration budget comprises ZAR400,000 for the ground geophysical survey and ZAR4.9M for the drilling programme (ZAR1.3M for exploration holes and ZAR3.6M for geotechnical purposes).

The author has considered the proposed programme and budget and agrees they are appropriate for this stage of the project.

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Figure 19.1: Planned prospecting for the Tirisano mine property during 2011

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Smith, L. D (2002): Discounted Cash Flow Analysis Methodology and Discount Rates, 15pp. Mining Millennium Valuation 2000, Special Session on Valuation of Mineral Properties, March 8, 2000, Toronto, Canada

Stettler, E.H. (1979): A geological and geophysical investigation of the diamond runs on Ruigtelaagte and vicinity, in the Bakerville area, Lichtenburg district. Unpubl. MSc. thesis. Univ. Pretoria, Pretoria, 12Opp.

Van der Merwe, A.J., van der Westhuizen, H., Hill, S., Feldtmann, F. 2000. Nooitgedacht & Mooi River Alluvial Diamond Projects. Due Diligence technical Audit. Prepared for Etruscan Resources Inc.

Van Oudtshoorn, F (2002): Guide to Grasses of Southern Africa. Briza Publications, Pretoria, RSA, 288pp.

von Backström, J.W, Schumann, F.W, le Roux ,Kent, L.E, and du Toit, A.L. (1952): Die Geolgie van die Gebied om Lichtenburg. Geol. Surv. 70pp.

Wesselloo, J., Venter, J., and Terbrugge, P (2004): Tirisano Diamond Mine – Design of Pit Slopes. SRK Report # 329942

Zhao, B, Jamison, A, Viljoen, R.P, and Viljoen M.J. (1999): Geological Evaluation of the Goedgedacht Diamondiferous Gravel Mine in Ventersdorp, Northwestern Province, South Africa (A Preliminary Report). Sundry hardcopy and electronic technical and production plans and data.

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21 DATE AND SIGNATURE PAGE

Respectfully Submitted,

Signed and sealed

Tania R Marshall (Dr) Glenn A Norton, B.Sc.Hons,

Geological Consultant (Pr. Sci. Nat) Mineral Resource Manager (Pr. Sci. Nat.) SACNASP registration number 400112/96 SACNASP registration number 400042/06

P O Box 6578 Level 1, “Wilds View”, Isle of Houghton Homestead, 1412 Cnr: Boundary & Carse O’Gowrie Road Republic of South Africa Houghton Estate, Johannesburg Tel/Fax: +2711 828-2989 South Africa, 2198 E-mail: [email protected] [email protected]

Date of Signature: 30 May 2011

Date of Revision: 25 July 2011

Effective Date : 30 November 2010

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22 CERTIFICATE OF AUTHORS

22.1 Tania Ruth Marshall

I, Tania Ruth Marshall (Pr. Sci. Nat.) do hereby certify that:

I am a Geological Consultant with: Explorations Unlimited P O Box 6578 Homestead, 1412 South Africa

1. I graduated with a degree in Bachelor of Science from the University of Witwatersrand in 1982. In addition, I have obtained a Bachelor of Science (Honours) in Geology in 1984, a Master of Science in Geology in 1987 and a Doctor of Philosophy (Geology) in 1990. 2. I am a member, in good standing, of the Geological Society of South Africa (#38829) and am registered with the South African Council for Natural Scientific Professions as a Geological Scientist since 1996 (SACNASP registration number 400112/96). 3. I have worked as a geologist continually since my graduation in 1987. During this period I have been involved in the exploration and exploitation of alluvial diamond deposits throughout Africa, including the evaluation and valuation of a number of such deposits for both private and public companies. Such operations involving mining and financial analysis (together with mine planning and costing) include the Cangandala alluvial diamond mine in Angola, the Cayco alluvial diamond project in Akwatia, Ghana, the Aredor alluvial diamond mine in Guinea, the Lorelei alluvial diamond mine in Namibia, the Krugersdal/Morgenzon and Roodepan alluvial diamond mines in the Ventersdorp district of South Africa, the Schmidtsdrift and Sydney-on-Vaal alluvial diamond mines along the lower Vaal River in South Africa, the London alluvial diamond mine in the Schweizer Reneke district of South Africa, the Kameelfontein alluvial diamond project in the Cullinan district of South Africa, as well as various small-scale alluvial diamond projects in South Africa and Namibia. 4. My experience on alluvial diamond deposits is both as operator and as consultant, during which I have prepared costing estimates for mining and processing operations. In addition, as consultant, I have seen and reviewed operations and their various cost centres. 5. I have read the definition of “competent person” set out in the SAMREC Code and certify that by reason of my education, affiliation with a professional association and past relevant work experience, I fulfil the requirements to be a “competent person” for the purposes of public reporting. 6. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfil the requirements to be a “qualified person” for the purposes of NI 43-101. 7. I am responsible for the preparation of this technical report entitled “Technical Report on the Tirisano Alluvial Diamond Project, (Nooitgedacht 131, Hartbeestlaagte 146, And Zwartrand 145 Properties), Ventersdorp District Republic Of South Africa”, for Rockwell Diamonds Inc (effective date 30 November 2010) 8. I have visited the mine properties on 31 May and 28-29 July, 2010 9. My previous involvement with the Tirisano project is the preparation of the following technical reports:

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

a. Technical Report on the Hartbeestlaagte Alluvial Diamond Property, Republic of South Africa and dated October 31, 2006 b. Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, , Republic of South Africa, effective date 31 December, 2007 c. Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, Republic of South Africa for Etruscan Diamonds (Pty) Ltd., Etruscan Resources Inc., Etruscan Diamonds Ltd. and Mountain Lake Resources Inc." and dated January 30, 2008 d. Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, Republic of South Africa, effective date June 30, 2008 e. Technical Report on the BlueGum Alluvial Diamond Project (Nooitgedacht 131, Hartbeestlaagte 146 and Zwartrand 145 properties), Ventersdorp district, Republic of South Africa for Rockwell Diamonds Inc., Etruscan Diamonds (Pty) Ltd., Etruscan Resources Inc., Etruscan Diamonds Ltd. and Mountain Lake Resources Inc.” Effective date 31 October 2009.

10. I am independent of the issuer applying all of the tests of both the SAMREC code and National Instrument 43-101. 11. I have read National Instrument 43-101 and Form 43-101F1, and the Technical Report has been prepared in compliance with that instrument and form. 12. At the date of signature, to the best of my knowledge, information and belief that the technical report contains all the scientific and technical information that is required to be disclosed so as to make the technical report not misleading. 13. I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 25 July 2011

Signed and sealed

Tania Ruth Marshall (Dr)

Geological Consultant (Pr. Sci. Nat.) SACNASP registration number 400112/96

P O Box 6578 Homestead, 1412 Republic of South Africa Tel/Fax: +2711 828-2989 E-mail: [email protected]

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ROCKWELL DIAMONDS INC, TIRISANO MINE November 30, 2010

22.2 Glenn Alan Norton

I, Glenn Alan Norton (Pr. Sci. Nat.) do hereby certify that:

1. I am the Mineral Resources Manager of Rockwell Diamonds Inc. of: Level 0, “Wilds View”, Isle of Houghton Cnr: Boundary & Carse O’Gowrie Road Houghton Estate, Johannesburg South Africa, 2198

2. I graduated with a degree in Bachelor of Science from Rand Afrikaans University in 1998. In addition, I have obtained a Bachelor of Science (Honours) in Geology in 1999

3. I am a member, in good standing, of the Geological Society of South Africa (# 965050) and am registered with the South African Council for Natural Scientific Professions as a Geological Scientist since 2006 (SACNASP registration number 400042/06).

4. I have worked as a geologist continuously since my graduation from university in 1999. During this period I have been involved, inter alia, in the exploration and exploitation of alluvial diamond deposits throughout Africa.

5. I have read the definition of “qualified person” set out in National Instrument 43-101 (“NI 43-101”) and certify that by reason of my education, affiliation with a professional association (as defined in NI 43-101) and past relevant work experience, I fulfil the requirements to be an internal “qualified person” for the purposes of NI 43-101.

6. As the Mineral Resources Manager of Rockwell, I am not independent of the issuer in terms of NI43-101.

7. I am the co-author of this technical report entitled “Technical Report on the Tirisano Alluvial Diamond Project, (Nooitgedacht 131, Hartbeestlaagte 146, And Zwartrand 145 Properties), Ventersdorp District Republic Of South Africa”, for Rockwell Diamonds Inc (effective date 30 November 2010)

8. As the Mineral Resource Manager of Rockwell Diamonds Inc, I oversee the corporate strategy with regards to the exploitation of the company’s resources. This includes the day to day mining and long term mine planning. Incorporated in to these duties is also the acquisition of new resources either through exploration or through the purchase of existing resources and operations. It is also my duties to ensure that all the company’s resources and rights are maintained in compliance with the exchanges as well as the various governing bodies in South Africa.

9. I visit the Tirisano Mine for a minimum of one day each week.

10. At the date of signature, to the best of my knowledge, information and belief the information asked for in 43-101 section 81 (2) (ii) is accurate and not misleading.

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11. I consent to the filing of the Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their websites accessible by the public, of the Technical Report.

Dated this 25 July 2011

Signed and sealed

Glenn A Norton, B.Sc.Hons,

Mineral Resource Manager (Pr. Sci. Nat.) SACNASP registration number 400042/06

Level 1, “Wilds View”, Isle of Houghton Cnr: Boundary & Carse O’Gowrie Road Houghton Estate, Johannesburg South Africa, 2198 [email protected]

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