Annual report 2014 - Rockwell · PDF fileﬁscal 2014 on the Wouterspan project, ... polishing and ﬁnishing. TSX: RDI ... Rockwell Diamonds Annual report 2014 1 Looking for the Alana

Annual report 2014for the year ended February 28

WHO IS ROCKWELL?

CONTENTS

Rockwell is in the business of developing and operating alluvial diamond mines.

Its medium-term goal is to become a mid-

tier diamond mining company processing

500,000 cubic meters per month of

quality gravels in the Middle Orange

Region (“MOR”) of South Africa. Rockwell’s

operations and development projects are

all located in the Republic of South Africa.

At February 28, 2014, the Group had

three existing mines in operation, namely

Saxendrift, Saxendrift Hill Complex

(“SHC”) and the recently commissioned

Niewejaarskraal Mine, which had

previously been on care and maintenance

since 2007. All three mines are located

in the MOR region of South Africa.

The Company has an economic interest in a fourth operating property. Rockwell’s operation

at the Tirisano Mine has been on care and maintenance since December 2012. However,

royalty mining agreements were subsequently put in place at Tirisano, where independent

contractors (or royalty miners) mine for own risk and reward, with the Company receiving a

12.5% royalty income based on gross revenue from the carats recovered and sold through

the Company’s tender process.

The Company is considering the development of a fifth mining property prospect.

A Preliminary Economic Assessment has been completed during the first quarter of

fiscal 2014 on the Wouterspan project, which could provide further expansion of the

Company’s Middle Orange operations in future. The Group has a pipeline of other projects

with further future development potential under consideration and evaluation at present.

Rockwell continues to evaluate strategic opportunities through mergers and acquisitions

as they arise, in order to expand its mineral resources and provide new opportunities to

develop the additional production.

Rockwell’s operations have a track record of producing large gem quality diamonds, which

comprise a significant proportion of its production profile. The larger diamonds recovered

from Rockwell’s mines are mostly acquired for investment purposes. In order to participate

further in the diamond value chain from production to retail sale, the Company has a

beneficiation agreement in place. This arrangement enables it to sell rough +2.8 carat sized

diamonds, and receive 90% of the fair value sales price at sale and receive the remaining

10% through, and participate equally in, the retail profit on the sale of its stones after

polishing and finishing.

TSX: RDI | JSE: RDI

Currency values throughout this report are presented in Canadian dollars,

unless otherwise indicated.

1 The story of the Alana 2 Highlights 3 Business strategy 4 How we operate 5 Strategic beneficiation partnership 6 Board of Directors 7 Senior management team 8 Chairman’s letter10 Chief Executive Officer’s report16 Chief Financial Officer’s report18 Summary of quarterly results

Operational review20 Mineral resource summary21 Our operational footprint22 Operational organogram24 Operational review

Governance33 Sustainability review38 Corporate governance

Financial statements51 Directors’ report54 Management’s responsibilities and approval55 Independent auditors’ report56 Consolidated statements of financial position57 Consolidated statements of profit or loss and

other comprehensive income58 Consolidated statements of changes in equity59 Consolidated statements of cash flow60 Notes to the consolidated financial statements

ibc Corporate informationCover: The complex 100,000m3 Niewejaarskraal

processing plant that was commissioned during fiscal 2014, comprising the dense media separator;

in field screen and Bulk X-ray system.

Rockwell Diamonds Annual report 2014 1

Looking for the Alana

Finding the Alana (August 2013)

Exploration pitting at SHC: A method used to evaluate

the quality of gravel to be mined

James Campbell (CEO) and Wikus de Winnaar (GM: MOR Operations) at a trench such as the one where the Alana was eventually found

Penelope Mohale (Mining Geologist) and Mulalo Ndwammbi (Mining Manager: SHC): Responsible for

geology and mining when the Alana was recovered

Large stone plots : Used to determine the possible location of large stones

Location of the Alana

Mining the gravels

The people on the team

Locating the right mining

area

Mining the gravels

Liberating the gravels

Loading and hauling the gravel

Geological daily report: Description of the gravel containing the Alana

Mulalo examines the pit the day before

the discovery

Recovering the Alana (September 2013)

Polishing the Alana

The SHC processing plant: Gravel is screened and prepped before processing through the

Bulk X-ray sorters

At the cutting factory the stone was analyzed in 3D to identify the best cuts and value for recovery

from the stone

The Alana: 169 carats (13 September 2013)

The 109 carat Alana stone: Fancy yellow, no visual flaws

and octahedral shape.

Selling the Alana (March 2014)

ROCKWELL’S DIAMOND PIPELINE: THE STORY OF THE ALANA An exceptional gem quality diamond recovered at Saxendrift Hill Complex

Large boulders act as trap sites

The Alana was named after Alana Claire Norton (daughter of Glenn Norton, Group Technical Manager), who was born on September 13, 2013, the day the Alana stone was recovered.

2 Rockwell Diamonds Annual report 2014

HIGHLIGHTSPerformance overview

FINANCIAL OVERVIEW�• Gross diamond revenues up 39% to

$45.2 million: Underpinned by a 52%

increase in diamond sales revenue

�• Seven consecutive quarters of US dollar

denominated revenue growth

�• Average price per carat of

US$1,484 compared to US$1,314 per

carat for fiscal 2013

�• Production costs up 25% to

$39.2 million: Emerging economies

of scale against 52% improvement in

value of diamond sales

�• An operating profit before depreciation

and amortization of $6.0 million, up

from $1.1 million in prior year

�• Reported loss before tax of

$10.5 million: Narrowed from

$13.9 million

�• Normal operations produced cash

flow of $5.3 million (prior to working

capital movements): $2.7 million after

working capital movements, before

investments amounting to $8.7 million

in property, plant and equipment

OPERATIONAL OVERVIEW�• Met short-term goal of delivering

three producing operations from

MOR: SHC and Niewejaarskraal

commissioned, increasing total monthly

processing capacity to 340,000m3

�• Annual diamond production* up 27%

from 28% increase in volume processed

�• Five rough diamonds exceeding

115 carats recovered in MOR, the

largest of which was 287 carats

�• Carat production at Saxendrift

processing plant up 12% to

9,338 carats, despite a 10% decline

in volumes of gravel processed

�• Production ramp up of new internally

funded Bulk X-ray processing plant

at SHC completed: Production sold at

average value of US$2,781 per carat

�• Sale of lossmaking Klipdam Mine

completed in April 2013: Proceeds

reinvested in new processing plant at

Niewejaarskraal

�• Niewejaarskraal brought back into

production: DMS (dense media

separation) plant and Bulk X-ray system

commissioned on schedule

�• Fleet optimization program initiated to

cost effectively renew aging fleet: To

improve earthmoving availabilities and

facilitate higher mining volumes

�• The royalty mining contractor strategy

on track: Positive income of

US$1.2 million from Tirisano property

VOLUMES OF GRAVEL PROCESSED*

UP28%

CARAT PRODUCTION*

UP27%

AVERAGE PRICE PER CARAT*

UP13%

Feb 28 2014

Feb 28 2013

Volume (cubic meters) 3,761,062 2,929,997

Production (carats) 27,776 21,871

Sales (carats) 26,272 20,737

Average price per carat (US$) 1,484 1,314

Revenue ($) 45,169,410 32,405,263

Average $ exchange rate (R/$) 9.53 8.37

Gross (loss)/profit ($) 32,626 (6,102,603)

Expenses ($) 11,847,015 7,069,816

Total comprehensive loss ($) 8,978,094 22,509,549

Basic and diluted loss per common share (cents) 21.30 22.55

Total assets ($) 79,336,624 85,724,412

Net cash and cash equivalents ($) (1,761,085) 2,730,705

Inventories (carats) 2,752 1,248

All dollar figures stated herein are

expressed in Canadian dollars, unless

otherwise stated.

*From Company owned properties.

ANNUAL REVENUE

UP39%


BUSINESS STRATEGY

Rockwell’s medium-term organic growth strategy is focussed on the Middle Orange River properties where it has a good track record of

profitably producing large, high valued diamonds. Good progress is being made towards its objective of increasing monthly volumes mined

from its Middle Orange River operations to 500,000m3. This includes the commissioning of two new internally funded mines in fiscal 2014

that were partly enabled by decisive action to address the lossmaking operations.

SCORECARD: DELIVERY ON CORPORATE OBJECTIVES

Objective Progress during fiscal 2013

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

• Saxendrift Mine: Grade improvements led to 12% increase in carat production after integrating Saxendrift Extension into mine plan

• Initiated fleet optimization plan to cost effectively renew aging fleet:Implementation in progress to improve availabilities and facilitate higher mining volumes

• Tirisano Property: Royalty mining strategy led to additional income of US$1.2 million from royalties

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

• Achieved short-term target to deliver three producing operations in MOR• Commissioned two internally funded mines at SHC and Niewejaarskraal, increasing

MOR processing capacity to 340,000m3 per month

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

• Beneficiation JV with Diacore: $4.1 million additional revenue generated in fiscal 2014 from the profit share on the sale of diamonds through this channel

• Current ‘beneficiation pipeline’ of more than 6,000 carats provides additional revenue potential

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

• More than doubled monthly production capacity in MOR: Commissioned SHC and Niewejaarskraal

• Ongoing review of accretive consolidation opportunities in the southern African diamond sector: Strict set of acquisition criteria

• Reviewing options to bring Wouterspan to account: Preference for phased and internally funded options

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

• Contiguous exploration of existing resources at Saxendrift Extension property to increase current mine life: Leverage fixed assets at Saxendrift

• Focused exploration and trial mining program at SHC: Maximize resource potential and develop contiguous areas

• Upgrade inferred resource at Niewejaarskraal: Trial mining to upgrade resource to indicated level with eventual declaration of probable reserves

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

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

• Consistent performance• Saxendrift Extension integrated into

mine plan• Fleet optimization to improve

throughput

1 4Wouterspan: 350,000m3/month

• Phased implementation under review

MEDIUM-TERM GOAL

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

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

>US$1.3bn

Saxendrift Hill Complex: 80,000m3/month

• Based on Bulk X-ray system• Achieving high diamond values• Funded from working capital

2 3Niewejaarskraal: 100,000m3/month

• Ramp up completed at fiscal year-end• Plant design: DMS, IFS and Bulk X-ray• 220 Klipdam employees transferred• Potential for internally funded

capacity upgrade

HOW WE OPERATE

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

These guiding principles are:

Accountability Taking responsibility for our actions and their

impacts

Execution Giving of our best to make sure that we achieve the

expected outcomes

IntegrityActing to the highest ethical standards in

all that we do

PartnershipWorking as a team with

our colleagues, communities and other

stakeholders

ChallengeEncouraging debate to

improve our business and the way in which

we work

ComplianceGoing the extra mile to comply to the laws and

legislation

Fit for purpose Designing plants and

systems that are aligned to our business principles,

ore bodies and company



STRATEGIC BENEFICIATION PARTNERSHIPcontinues to add significant value from the sale of polished diamonds

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Mine 20 to 49 carats 50 to 99 carats Larger than 100 carats

Saxendrift 45 stones Nine stones Three stones weighing 116.33 carats; 138.22 carats and 287.35 carats

Saxendrift Hill Complex 16 stones Three stones Two stones weighing 126.51 carats and 169.64 carats

Niewejaarskraal Three stones

Diacore profit share agreement (>2.8 carat stones). Additional revenue channel: Market related prices for rough diamonds sold into joint venture + 50% profit share on sale of polished diamonds.

77ct makeableSaxendrift Ext

37ct J Colorbrilliant VS2

145ct makeableOld Saxendrift Tailings

30ct stone being polished. Additional pieces to be polished

105ct Type IIAMiddle Orange

35ct D color internally flawless

169ct YellowSaxendrift Hill Complex

109ct vivid yellow

128ct YellowMiddle Orange

81ct vivid yellow

2012 2012 2009 2013 2011

+34% on initial rough sale price

Currently being polished




Rockwell has a strategic beneficiation partnership with Diacore for its production of rough diamonds weighing more than 2.8 carats. These

stones are sold to Diacore at market price and Rockwell benefits from a 50% share in the profits on the ultimate sale of the polished stones.

The Company has realized revenue of $25.7 million in fiscal years from 2009 to 2014.

RECOVERED DURING THE 2014 FISCAL YEAR INCLUDED, AMONG OTHERS:


DR MARK BRISTOWChairman and Director PhD (Geology)

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

STEPHEN DIETRICHDirector CA(SA)

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

DR WILLEM JACOBSDirectorBPL (Hons), DCom

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

JAMES CAMPBELLPresident and Chief ExecutiveBSc (Hons) ARSM, MBA (Dunelm)

Seasoned diamond executive with career spanning almost 30 years at De Beers and four years as managing director of African Diamonds plc. FIMMM, FSAIMM, CEng, CSci and PrSciNat.

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RICHARD PETER MENELLDirectorMSc (Mineral Exploration and Management), MA (Cantab) – Natural Sciences (Geology)

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

RICHARD J LINNELLDirector Geologist

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

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JOHAN VAN’T HOFDirector CPA, CA, MBA

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

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JAMES CAMPBELLPresident and Chief ExecutiveBSc (Hons) ARSM, MBA (Dunelm)

Seasoned diamond executive with career spanning almost 30 years at De Beers and four years as managing director of African Diamonds plc. FIMMM, FSAIMM, CEng, CSci and PrSciNat.

GERHARD JACOBSChief Financial Officer – outgoingRetired with effect from July 11, 2014BAcc, MBA

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

JOHN SHELTONChief Financial Officer – incoming Effective July 21, 2014CA (Z)

Chartered Accountant with 25 years’ experience in the diamond sector with De Beers, culminating as Group Accountant. Served on various boards during his tenure with De Beers.

GLENN NORTONGroup Technical ManagerBSc (Hons)

Fourteen years of geological, mineral resource management, technical and production experience in alluvial diamond deposits, diamond and coal exploration. Qualified person and PrSciNat.

JEFFREY BRENNERDiamond Marketing and Sales Manager

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

STÉPHANIE LECLERCQInvestor Relations and Corporate DevelopmentBSc, CFA

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

RICHARD MHLONTLOGroup HR/Industrial Relations ManagerNat Dip (HR Management and Development)

Extensive HR and industrial relations management experience, including organizational and structural design initiatives as well as strategy development and implementation.

DR KURT PETERSENConsulting Metallurgist PhD (Metallurgical Science)

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

RICHARD REEDConsultant: Corporate FinanceBComm, BAcc

A career in corporate finance spanning several decades in advising companies on M&A, treasury and other corporate finance activities including resource companies listed on the JSE and AIM.

WIKUS DE WINNAARGeneral Manager: MOR Operations

Active in the mining industry for 17 years, serving as Mine Manager for several projects, including Wouterspan and Saxendrift during this time. Promoted to General Manager of Rockwell’s MOR Operations in December 2013.

SENIOR MANAGEMENT TEAM


CHAIRMAN’S LETTER


Looking back over the past year, it is

pleasing to note Rockwell’s steady,

successive quarterly improvements and

the achievement of numerous milestones

towards its strategic objective of delivering

value for all stakeholders. Rockwell’s CEO,

James Campbell, and his key executives

also made significant headway in

building a team that fairly represents the

demographics of our operating region

in South Africa, while maintaining a clear

focus on delivering on our stated plans

and adhering to best practice.

Also significant is that the 2014 successes

and progress towards our medium-

term target of being able to process

500,000m3 of quality gravel in the MOR

per month was funded internally without

diluting shareholder value. The Company

increased its monthly processing capacity

to 340,000m3 with the construction of

two mines at the Saxendrift Hill Complex

and Niewejaarskraal, both of which are

now in production. Although below the

360,000m3 target we set ourselves for

2014, this was offset by a very successful

contract mining agreement at Tirisano

and the recovery of overall higher value

diamonds in the period.

As part of our corporate turnaround

referred to in my last report, the executive

management team has really grown

into its role and has implemented the

diamond value management strategy

and disciplined implementation of fit-for-

purpose technologies in a very professional

and businesslike manner, the results of

which are clearly evident. As part of our

ongoing commitment to ensuring we

continue to build and encourage the

development of a world class management

team, during the past year we reviewed

Dr Mark Bristow Chairman

• Steady successive quarterly performance improvements during fiscal 2014.

• Progress against strategic milestones to deliver value for all stakeholders without diluting shareholder value.

• Ongoing development of demographically representative young professional team.

• Agreement concluded with new black economic empowerment partner.

103 carat fancy intense yellow diamond and other high quality stones recovered from MOR in May 2014.


and updated the executive management

incentive scheme and also extended it

to include operational and supervisory

employees. The scheme is based on

performance metrics including individual

key performance indicators, Company

financial profitability and cash flow as

well as safety, environment and corporate

governance compliance.

Our raison d’être is to build our assets

and create value for the benefit of all

stakeholders, including our employees,

the communities around our mines,

national government in addition to our

shareholders. Across the board, South

African companies have embraced

the needs of all stakeholders into their

operations, by virtue of the socio economic

issues facing all aspects of business, and

Rockwell ranks amongst the leaders,

in spite of its relatively small size. With

our operations in the Northern Cape, a

region of high unemployment, we offer

significant career opportunities to local

graduates in their chosen fields, close

to their homes and within a nurturing

professional environment. During the year,

we continued to develop and mentor

our young professionals, particularly in

the areas of geology and metallurgy,

who are increasingly contributing to our

business successes while also becoming

local role models for other members of

the Rockwell family, and entrenching our

culture that people are our most important

asset. The South African mining sector saw

unprecedented levels of labour unrest in

the last year. Rockwell was largely shielded

from these issues, testifying to the success

of our efforts to embrace our people and

local communities.

One of the final outstanding legacy issues

facing Rockwell, securing a new black

economic empowerment (“BEE”) partner

in terms of South African law, was resolved

during the year. Rockwell concluded

an agreement with African Renaissance

Holdings Limited (“ARH”) to acquire a

30% equity stake in the Company’s Middle

Orange operations. ARH, founded in

1994, has an established track record

in value creating BEE transactions and

championing active participation and

ownership by black South Africans in

strategic economic sectors. The purchase

consideration amounted to US$7.3 million,

with an initial subscription deposit of

$1.7 million, which is still outstanding.

The finalization of this strategic partnership

is an important milestone in Rockwell’s

journey to build a leading value-focused

African diamond business with a strong

social license to operate in partnership with

all our stakeholders.

As we continue to grow Rockwell, our

focus has started to look beyond delivering

on production and financial targets and

developing our own growth opportunities.

We have noted renewed investor interest

in the diamond sector and Rockwell’s

successes and so we have started to review

value accretive consolidation opportunities

in the southern Africa diamond sector that

Mining operations at Saxendrift. Review of the mine plan against current production during December 2013.

might supplement our organic growth

prospects and lever our developing

management capacity. Strict criteria are

applied to evaluate the potential of these

opportunities to help grow Rockwell into

a mid-tier, high value diamond producer.

In closing, I wish thank my fellow directors

for the continued support and valued

contribution to the strategic debate and

the guidance given to management in

their quest to deliver on their plans. To

our shareholders, partners and other

stakeholders we remain grateful for your

support during this all important transition

phase and we will continue to work hard

to deliver on our plans. And finally to

James Campbell, the leadership team and

every member of the Rockwell family, my

heartfelt appreciation for all your hard work

and a job well done.


CHIEF EXECUTIVE OFFICER’S REPORT

• Strong delivery against focussed Middle Orange River strategy.

• Achieved short-term target of having three producing mines: Two new internally funded mines completed.

• Improved quality and consistency of production profile.

• Five rough diamonds exceeding 115 carats recovered in the Middle Orange River region.

INTRODUCTIONRockwell’s fiscal 2014 results are beginning

to reflect the operational turnaround of the

Company and its core focus on the Middle

Orange River (“MOR”) region of South

Africa. Revenue increased 39% year-on-

year, underpinned by a 52% increase in

diamond sales. These improvements have

been consistent each quarter over the last

two years, as Rockwell has now reported

seven consecutive quarters of dollar

denominated revenue growth.

Economies of scale as a result of operating

exclusively in the MOR also emerged, as

production costs for the year increased

25%, against the 52% improvement

in the value of diamond sales. The

implementation of an earthmoving vehicle

upgrade program is expected to unlock

further benefits by improving the fleet’s

overall utilization to match production

capacity and renew the equipment to

lower our maintenance expenses while

improving availabilities.

The MOR focus also gained traction

from an operational perspective with

two new mines delivered in fiscal 2014,

namely Saxendrift Hill Complex (“SHC”)

and Niewejaarskraal, both funded

internally from cash reserves, more than

doubling the MOR production capacity to

340,000m3 per month. Rockwell met its

short-term target to have three producing

mines in the MOR, and its production

profile is also more flexible and sustainable.

The diamond quality and the frequency

of larger stones improved as anticipated.

This included the recovery of 12 stones

between 50 carats and 100 carats and five

plus 100 carat rough diamonds.

James Campbell President and Chief Executive Officer

The Alana, a 169 carat MOR yellow diamond recovered from SHC in September 2013.


STRATEGY REVIEWRockwell’s fiscal 2014 results reflect the

benefits of the strategy to grow its MOR

production footprint with a mid-term

target to increase monthly production

volumes of quality gravel processed to

500,000m3. Higher diamond values, better

efficiencies and greater economies of scale

can be achieved in this region to deliver

more consistent quarterly earnings at a

predictable mining cost.

During the year, the Company

progressively refocussed its resources

to grow its production in the region,

facilitated by the sale of Klipdam and

transferring operations at the Tirisano

property to a royalty contract mining

model. At the same time, Rockwell

delivered two new mines in the MOR,

increasing its producing mines in the

region to three, from one at the end of the

prior year. The benefits of this strategy have

started to emerge and during fiscal 2014,

Rockwell made solid progress against a

number of strategic milestones:

• The short-term goal of delivering three

producing operations in the region

was met with the commissioning of

SHC and Niewejaarskraal, bringing the

total monthly processing capacity to

340,000m3*.

• Resources are mined from the

Saxendrift, Saxendrift Extension, SHC

and Niewejaarskraal mining rights

and all have multiple mining faces,

providing benefits from production

diversification and mining flexibility.

• Five rough diamonds exceeding

115 carats were recovered in the MOR in

fiscal 2014, the largest of which was

287 carats, the biggest diamond

recovered in the area in recorded history.

• Three mines in the MOR were in full

production by the fourth quarter.

The average stone size in the quarter

increased 139% to 4.6 carats, up

from 2.0 carats in the prior year when

Rockwell had only one MOR operation

in production. The anticipated rate

of recovery of large diamonds also

materialized, with four rough diamonds

in the plus 50 carat category being

produced in the fourth quarter,

compared to two in comparable period

of the previous year.

• Volumes processed from Rockwell’s

three MOR mines were up 46% year-on-

year, yielding a 12% increase in average

grade and carat production up 63% in

the region from a year ago.

• Carat production at the Saxendrift

processing plant increased 12% to

9,338 carats, despite a 10% decline

in volumes of gravel processed. Its

mine life has been extended, at higher

overall grades after integrating the

newly acquired Saxendrift Extension

property into the Saxendrift mine plan.

• The production ramp up at SHC,

the new internally funded Bulk X-ray

processing plant, was completed and

3,363 carats were recovered, of which

2,945 carats were sold at an average

value of US$2,781 per carat.

• The Bulk X-ray technology at Saxendrift

Hill Complex delivered a grade

improvement of more than 40%

compared to the traditional Saxendrift

pan plant, shown by processing

Saxendrift Extension gravels in parallel

though both plants.

• The lossmaking Klipdam Mine was

sold in April 2013 and the proceeds

reinvested in a new processing plant

to bring Niewejaarskraal back into

production.

• A 100,000m3 per month plant

was completed at Niewejaarskraal,

comprising a DMS (dense media

separation), an in field screen and

Bulk X-ray system and the throughput

reached nameplate capacity by fiscal

year end.

• A fleet renewal program to renew the

Company’s aging fleet is now approved

and underway. This will improve

earthmoving availabilities and thereby

facilitate higher mining volumes at

Saxendrift to better utilize the invested

processing capacity.

REVENUE

UP39%

SevenQUARTERS

OF US$ REVENUE GROWTH

AVERAGE CARAT VALUE FROM OWN

OPERATIONS

UP73%

US$2.6 mNET CASH FLOW

FROM OPERATING ACTIVITIES

Of the five polished diamonds exceeding 100 carats that were produced worldwide in 2013, two were cut from diamonds recovered by Rockwell.

* This comprises Saxendrift (160,000m3/month at a 5mm bottom cut-off size (“BCOS”)), SHC (80,000m3/month at a 5mm BCOS) and Niewejaarskraal (100,000m3/month at a 6mm BCOS).


CHIEF EXECUTIVE OFFICER’S REPORT continued

PRODUCTION AND SALES REVIEW PERFORMANCE The Company’s overall production and sales results for the year are:

Production

Year ended February 28, 2014 Year ended February 28, 2013 Change

Volume(cubic

meters) Carats

Production costs

($)

Volume(cubic

meters) Carats

Production costs

($) Volume CaratsProduction

costs

Total: Own operations 2,662,901 14,222 39,200,432* 2,882,152 18,705 31,338,217 (8%) (24%) 25%

Contractors’ mining* 1,098,161 13,554 – – 1,263 – – 973% –

Saxendrift tailings – – – 47,845 1,903 – – – –

Total 3,761,062 27,776 39,200,432 2,929,997 21,871 31,338,217 28% 27% 25%

Sales, revenue and inventory

Year ended February 28, 2014 Year ended February 28, 2013 Change

Sales(carats)

Valueof sales

(US$)

Averagevalue

(US$ per carat)

Inventory (carats)

Sales(carats)

Valueof sales

(US$)

Averagevalue

(US$ per carat)

Inventory (carats) Sales

Valueof sales

Averagevalue

Total: Own operations 13,782 29,530,594 2,143 1,571 17,861 22,082,654 1,236 1,115 (23%) 34% 73%

Contractors’ mining* 12,490 9,449,127 756 1,181 989 759,075 768 117 1,163% 1,145% (2%)

Saxendrift tailings – – – – 1,887 4,407,492 2,336 16

Total 26,272 38,979,721 1,484 2,752 20,737 27,249,221 1,314 1,248 27% 43% 13%

* Includes ramp up costs at Saxendrift Hill Complex and Niewejaarskraal as well as modifications and other improvements to these two new mines.

The first blast at Niewejaarskraal in August 2013. James Campbell, CEO, Rockwell Diamonds, with the 287 carat rough diamond recovered in November 2013.


• The royalty mining contractor strategy,

implemented in the prior year, enabled

the Company to generate positive

returns from properties that it does

not wish to mine itself. Value of sales

amounts to US$9.4 million, with

US$1.2 million in royalties accruing to

the Company.

• The Company reported a gross profit

(after amortization and depreciation) of

$6.0 million compared to a loss of

$1.1 million a year ago.

PRODUCTION AND SALES REVIEW FOR FISCAL 2014Processed gravel volumes from

Company properties increased 28% to

3,761,062m3 comprising 2,662,901m3

from Rockwell’s own operations, and

the remainder processed by the royalty

mining contractors. Rockwell achieved

a 6% grade improvement across the

Company’s properties to 0.74 carats/100m3,

resulting in a 27% increase in total carat

production, including 14,222 carats from

own operations and 13,554 carats from

contractors.

Diamond sales from own operations

declined 23% to 13,782 carats, reflecting

the transition of the production profile

into the MOR that included the sale of

Klipdam and termination of mining at the

Tirisano property. The five royalty mining

contractors who subsequently started

operating at Tirisano sold a total of

12,490 carats during the year, resulting

in a 27% increase in carat sales from

Company-owned properties. The value of

sales from own operations was up 34% to

US$29.5 million while the average carat

value rose 73% to US$2,143, demonstrating

immediate benefits of the strategy to focus

on the MOR as several large, high value

stones were sold into the beneficiation joint

venture with Diacore. The value of sales

from Company-owned properties improved

43% to US$39.0 million.

Average stone size in the fourth quarter up 139% to 4.6 carats (Q4 F2013: 2.0 carats).

Cash cost (including rehabilitation and royalty payments) per operation:

Revenue/m3

Mining cash cost/m3 Comments

Saxendrift US$12.4 US$10.9 Unit cost impacted by longer hauling

distance as a result of mining Saxendrift

Extension, higher EMV maintenance

costs and lower volumes processed.

Saxendrift Hill

Complex

US$11.7 US$10.0 Continued high quality diamond

recoveries supporting unit revenues.

Unit cost declined in line with increase

in volumes processed. Fiscal 2014

figures include ramp up costs.

Niewejaarskraal US$2.7 US$23.6 Unit revenues impacted by lower carat

values during commissioning phase.

First quarter of expensed costs impacted

by lower volumes during final ramp up

and completion of second commissioning

phase.

SAXENDRIFTThe performance of the Saxendrift

operation continued to improve and

it benefited from higher grades after

incorporating the Saxendrift Extension

property into Saxendrift’s mine plan.

However, overall volumes were impacted

by low earthmoving availabilities because

of the aging fleet and longer haulage

distances due to mining on the Saxendrift

Extension. Notwithstanding a 10%

reduction in volumes of gravel processed

to 1,597,989m3, carat production

increased 12% to 9,338 carats. Revenue

from diamond sales was up 32%,

amounting to US$19.9 million from the

sale of 9,059 carats at an average price

of US$2,194 per carat.

The mine achieved revenue of

US$12.4 per m3 (fiscal 2013:

US$8.41 per m3) with the increase

due to the sale of several exceptional

stones during the period.

The mine’s cash unit cost was

US$10.9 per m3 (fiscal 2013:

US$7.78 per m3). Unit costs were

impacted by the longer haulage

distances, higher EMV maintenance

costs and lower volumes processed.

SAXENDRIFT HILL COMPLEXSaxendrift Hill Complex, whose processing

plant comprises a Bulk X-ray system that

pioneered the implementation in South

Africa in both the concentrator and

recovery environment, was commissioned

in March 2013 and achieved full

production in August 2013. The plant

has a monthly throughput capacity

of 80,000m3 and was built for a total

capital budget of $2.5 million. Diamond

recoveries amounted to 3,363 carats

from 697,702 m3 of gravel processed

in line with the current status of ramp

up to full production. Gravels processed

included material mined from SHC and

the Saxendrift Extension project. The mine

generated US$8.2 million from the sale

of 2,945 carats at an average value of

US$2,781 per carat.


CHIEF EXECUTIVE OFFICER’S REPORT continued

The mine achieved revenue of

US$11.7 per m3 supported by high

quality diamond recoveries.

The mine’s cash unit cost was

US$10.0 per m3, having shown a

consistent decline during the year as

the production ramp up gained

momentum and the mine reached

nameplate capacity.

NIEWEJAARSKRAALThe proceeds from the sale of Klipdam

were used to build a new processing plant

at Niewejaarskraal and bring the mine,

which had been on care and maintenance

since 2007, back into production. The

construction of the first phase, based on

dense media separation, was completed

within 10 weeks of obtaining board

approval for the project. The second phase

of the new processing plant to double the

plant capacity to 100,000m3 per month

consisted of an in-field screen (“IFS”) and a

Bulk X-ray system, and was completed at

fiscal year end.

Initial grades and recoveries at the new

mine were disappointing, because mining

had to take place on an adjacent property

while renegotiating the surface rental

agreement on the main property. However,

once this was resolved, and a detailed

review of the existing geological data was

completed, mining commenced according

to the new 18-month mine plan in mid-

February 2014. Two mining faces have

been opened up, adjacent to the IFS, and

these should enable higher productivity

BENEFITS OF THE DIAMOND VALUE MANAGEMENT STRATEGY:Why the 500,000m3/month quality processed gravel target?

Past (Actual)

110,000m3 340,000m3 500,000m3

Saxendrift 110,000m3/

month


month

Niewe- jaarskraal 100,000m3/

month

SHC 80,000m3/

month


month

Niewe- jaarskraal 100,000m3/

month

Wouters- pan (phased)

starting at 150,000m3/

month

SHC 80,000m3/

month

Mines

Monthly throughput

Quarterly revenue*

Revenue Revenue Revenue

Number of +50 carat stones per year*

5 17 25

Current (Actual) Future (Plan)

Four rough diamonds exceeding 50 carats produced in fourth quarter (Q4 F2013: two +50 carat stones).

* Indicative quarterly revenue and +50 carat stone production based on technical reports.


and provide optionality in the mine plan. Early indications are that the grade and diamond values are now approaching budget.

Total volumes of gravel processed in fiscal 2014 amounted to 301,508 m3, from which 986 carats were recovered. This was in line with the current plan for ramp up of the second phase of the mine development.

Sales from Niewejaarskraal amounted to 747 carats with total revenue of $826,025 at an average price of US$1,107 per carat. Carat values are expected to improve and reflect the higher carat values that characterize the MOR region as the volumes processed at the mine increase.

TIRISANOHaving adopted the royalty contract mining strategy at Tirisano, late in fiscal 2013, five contracts were in operation at year end.

Consistent results were achieved by the mining contractors at Tirisano, with total volumes of gravel processed by mining contractors amounting to 1,098,161m3 during the year, from which 13,554 carats were recovered.

A total of 12,490 carats were sold with total proceeds of US$9.4 million. The Company’s 12.5% royalty amounted to US$1.2 million from gross diamond sales in fiscal 2014.

The consistency of results from the royalty mining contractor agreements at Tirisano is now enabling the Company to take a measured approach to assessing the future options of some of its remaining non-core assets.

GROWTH PROJECTSRockwell continues to make progress towards its strategy to increase production from and extend the mine life of its MOR properties:

• Contiguous exploration of existing resources at the Saxendrift Extension property is underway to increase the current life of mine and to enable the Company to leverage the fixed assets of Saxendrift.

• A focussed exploration and trial mining

program is underway at SHC to ensure

the resource potential is maximized and

to develop contiguous areas.

• Through trial mining1, the

Niewejaarskraal inferred resource will

be upgraded to the Indicated level with

the eventual declaration of probable

reserves.

• The Company continues to review

various options to bring the Wouterspan

property to account following the

completion of a preliminary economic

assessment in the first quarter of 2013

that reflected viable economics.

Rockwell is also working towards its

secondary strategy to leverage the value

of certain properties that it does not wish

to mine due to size or other reasons.

Five royalty contract miners operated at

Tirisano during the year with the projected

monthly mining volumes at Tirisano being

200,000m3.

The royalty mining contractor agreement

at Kwartelspan, which commenced

construction in the fourth quarter of fiscal

2014, was converted into a joint venture

mining arrangement early in fiscal 2015.

The Company continues to evaluate consolidation opportunities in the southern Africa diamond sector that are value accretive.

A strict set of criteria is applied to evaluate

the potential acquisitions in order to

leverage the Company’s production

expertise towards its goal to become a

mid-tier diamond producer.

OUTLOOKThe current focus areas for the business are

as follows:

• Rockwell continues to focus on

managing its operating costs.

• At Saxendrift, which is operating

consistently, the Company’s focus is

to complete the implementation of

the earthmoving vehicle (“EMV”) fleet

optimization exercise which will improve

equipment availabilities to enable the

mine to operate at nameplate capacity,

while an option to increase the plant

capacity is also being reviewed.

• At SHC, continuous exploration work

and trial mining is ongoing to increase

this resource. Although the Bulk X-ray

recovery system continues to perform

on plan, first quarter gravel throughput

at the processing plant was impacted

by mechanical failures associated

with the front end of second-hand

equipment and EMV availability, both

of which are being addressed as a high

priority.

• At Niewejaarskraal the focus is on

consolidating the operations now that

the second phase of the 100,000m3 per

month plant has been completed.

Rockwell carried over an inventory of

2,752 carats (including 1,181 contractor

owned carats) into the new fiscal year.

This, together with a beneficiation pipeline

comprising more than 6,000 carats,

provides further potential for value-

added downstream revenues. Rockwell

continues to beneficiate the vast majority

of its diamonds in South Africa. The sale

of the Alana, a 109 carat vivid yellow

polished diamond will be reflected in the

first quarter beneficiation income and

with the MOR focus, the outlook for the

beneficiation revenue trend is positive.

1 Because the Niewejaarskraal mine is currently extracting diamonds from an inferred resource, the Company is required, under the rule of the NI 43-101, to refer to the mining operations as trial mining.


CHIEF FINANCIAL OFFICER’S REPORT

Gerhard Jacobs Chief Financial Officer Retired with effect from July 11, 2014

• Revenue up 39% year-on-year to $45.2 million, underpinned by 52% in value of diamond sales.

• Operating profit before amortization and depreciation of $6.0 million, up from $1.1 million in prior year.

• General and administration expenses declined 24% to $4.4 million.

• Cash and cash equivalents of $1.3 million after capital investments of $8.7 million in new processing capacity.

• Positive cash flow from operating activities of $2.6 million.

• Returns from royalty mining contracts deliver net royalties of $1.2 million.

Rockwell’s typical run of mine production creates a firm foundation.


The performance of the Group for the

twelve months ended February 28, 2014

reflects the current status of its corporate

turnaround.

STATEMENT OF COMPREHENSIVE INCOMEDuring the year ended February 28, 2014,

Rockwell realized rough diamond sales of

$41.1 million compared to $27.1 million

for the comparable period in the prior

year. Sales were at an average price of

US$1,484 compared to US$1,314 per

carat for the comparative period as the

operations in the Middle Orange River

gained momentum and the average

stone size increased consistently during

the year.

Gross diamond revenues amounted to $45.2 million (fiscal 2013: $32.4 million) with the growth driven by the increase in carat sales.

Tender sales amounted to $41.1 million

with a further $4.1 million in income

earned from the beneficiation profit share

arrangements.

Production costs increased to $39.2 million

(fiscal 2013: $31.3 million), which includes

a period change in inventory credit of

$2.4 million (February 28, 2013: credit of

$1.2 million) and excludes amortization

and depreciation charges of $5.9 million

(year ended February 28, 2013:

$7.2 million). This was mainly as a result

of increased production volumes and

some commissioning costs as well as

expenses related to improvements at

the two new mines.

An operating profit before depreciation

and amortization of $6.0 million was

recorded for the year (fiscal 2013:

$1.1 million). General and administration

expenses continued to show a decline with

increased focus on overhead costs, the

delisting from the USA (“OTCBB”) and the

absorption of corporate activities in-house.

A foreign currency reserve was realized

during the year relating to the sale of

subsidiaries. This amounted to a

$6.6 million loss. This had no cash flow

effect on the Group and was effectively

a reallocation of a foreign currency

translation reserve that has moved through

the income statement.

The Group recorded a loss of $10.4 million

for the year ended February 28, 2014

(fiscal 2013: a loss of $13.8 million).

In line with the Company’s approach to

maximize available manpower and capital,

operations at Wouterspan and Tirisano

remain on care and maintenance although

contracted out to independent miners,

while new operations Saxendrift Hills

Complex and Niewejaarskraal replaced

the carat contribution of own operations

after the sale of Holpan/Klipdam and the

Tirisano operations being placed on care

and maintenance during the prior year.

FINANCIAL POSITIONAt February 28, 2013 the Group had

cash and cash equivalents of $1.3 million

(February 28, 2013: $5.6 million) and

bank indebtedness of $3.1 million

(February 28, 2013: $2.8 million), for net

cash holdings of $1.8 million overdrawn

(February 28, 2013: $2.8 million available).

The Group had negative working capital of

$(1.7) million compared to $1.2 million at

February 28, 2013. The major reason for

the reduction in net cash was the timing

of sales receipts and substantial capital

expenditure at Niewejaarskraal and SHC.

CONCLUSIONManagement considered the available

cash resources at year end, the value

realized through diamond tenders post

year end and estimated the cash flows

from operations for the 24 month period

post year end. Based on this information

management concluded that the Group

will have available cash resources to settle

its liabilities as they fall due.

The operations are now generating

sufficient cash to cover cash operating

costs and Group overheads and the

Company does not anticipate making

substantial capital expenditures without

concurrent financing in the coming twelve

months. The Group has adequate cash

holdings as well as access to short-term

debt facilities (bank overdraft facility) to

meet its working capital requirements

for the foreseeable future.


SUMMARY OF QUARTERLY RESULTS

The summarized results are expressed in thousands of Canadian dollars (000), except per-share amounts. Minor differences are due to

rounding.

Feb 28 2014

Nov 30 2013

Aug 31 2013

May 31 2013

Feb 28 2013

Nov 302012

Aug 31 2012

May 31 2012

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONCurrent assets 14,655 13,710 11,801 12,057 13,860 13,066 11,484 17,310

Mineral property interests 26,642 28,205 28,314 28,290 31,405 31,873 33,824 32,967

Other non-current assets 38,040 37,105 37,130 34,685 40,459 46,442 49,268 51,079

Total assets 79,337 79,020 77,245 75,005 85,724 91,381 94,576 101,356

Current liabilities 16,371 12,499 12,140 10,501 12,646 12,450 9,713 11,057

Non-current liabilities 15,736 18,460 17,419 15,533 17,706 21,789 20,521 21,877

Total equity 47,230 48,061 47,686 48,971 55,372 57,142 64,342 68,422

Total equity and liabilities 79,337 79,020 77,245 75,005 85,724 91,381 94,576 101,356

Working capital (1,716) 1,211 (339) 1,556 1,214 616 1,771 6,253

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMERevenue 14,407 11,854 9,869 9,040 9,146 8,757 7,404 7,098

Diamond sales 13,448 11,222 8,614 7,823 6,922 7,149 6,964 6,071

Beneficiation Income 959 632 1,255 1,217 2,224 1,608 440 1,027

Production cost (12,784) (11,730) (8,805) (8,313) (8,146) (9,630) (7,044) (7,705)

Inventory movement (2,040) 2,654 1,470 347 (1,279) 1,823 (160) 803

Operating (loss)/profit (417) 2,778 2,534 1,074 (279) 950 200 196

Amortization and depreciation (1,885) (1,500) (1,291) (1,260) (1,431) (1,906) (1,936) (1,897)

Gross (loss)/profit (2,302) 1,278 1,243 (186) (1,710) (956) (1,736) (1,701)

Expenses

Net reclamation obligation recognized

(utilized) 818 (331) (1,158) (72) 4,597 (567) 16 (496)

Other income/(expense) 677 210 153 109 357 104 53 85

General and admin costs (6,960) (1,320) (1,017) (1,253) (7,320) (1,336) (1,118) (1,443)

Profit/(loss) before net finance costs (7,767) (163) (779) (1,402) (4,076) (2,755) (2,785) (3,555)

Finance income 284 161 86 168 277 158 160 69

Finance lease obligation (7) (10) (12) (21) (34) (38) (38) (43)

Other finance cost (533) (189) (186) (179) (742) (216) (148) (148)

Profit/(loss) after net finance costs (8,023) (201) (891) (1,434) (4,625) (2,851) (2,811) (3,677)

Share of (loss)/profit from equity accounted

investment (24) 27 24 32 17 23 (8) 27

(Loss)/profit before taxation (8,047) (174) (867) (1,402) (4,608) (2,828) (2,819) (3,650)

Taxation 609 (205) (577) 236 947 (1,841) 408 616

(Loss)/profit for the period (7,438) (379) (1,444) (1,166) (3,661) (4,669) (2,411) (3,034)

Non-controlling interest (269) 22 67 (11) 623 950 394 909

(Loss)/profit for the period – Owners of the Group (7,707) (357) (1,377) (1,177) (3,038) (3,719) (2,017) (2,125)

Basic and diluted (loss)/profit per share (0.15) (0.01) (0.03) (0.02) (0.06) (0.08) (0.04) (0.04)

Weighted average number of common shares

outstanding (thousands) 52,511 49,596 48,888 48,833 48,349 48,409 48,409 48,174

OPERATIONAL REVIEW


MINERAL RESOURCE SUMMARY

RESERVES AND RESOURCES

Mining area Terrace complexBottom

cut-off sizeVolume

m³Grade*

ct/100m³Value

USD/ct

PROBABLE RESERVES

Saxendrift Brakfontein Hill (“BHC”)B1 terrace

5mm 6,921,600 0.40 2,400

INDICATED RESOURCES


5mm 7,135,000 0.40 2,400

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

2mm 1,774,600 1.15 2,300

Saxendrift Extension Saxendrift River (“SRC”) C3 terrace

5mm 1,303,400 0.60 1,884

Wouterspan

Rooikoppie B terrace

2mm5mm

614,400 0.700.62

2,0292,300

Fluvial-AlluvialB terrace

2mm5mm

3,858,800 0.700.62

2,0292,300

Tirisano Undifferentiated Upper and Lower Gravel Packages

2mm 25,066,900 2.37 726

INFERRED RESOURCES


5mm 492,000 0.40 2,400

Saxendrift Hill Saxendrift Hill (“SHC”) B2 terrace

2mm5mm

86,000 0.680.52

2,3002,400

Saxendrift Extension Saxendrift River (“SRC”) C3 terrace

5mm 577,000 0.60 1,884

Kwartelspan Kwartelspan Complex (“KPC”) 2mm5mm

500,000 1.000.76

2,3002,400

Wouterspan


2mm5mm

5,911,000 0.700.62

2,0292,300


2mm5mm

31,863,000 0.700.62

2,0292,300

Niewejaarskraal

Rooikoppie A terrace

2mm5mm

1,840,000 0.84 0.65

2,0292,400

Fluvial-AlluvialA terrace

2mm5mm

11,831,000 0.84 0.65

2,0292,400


2mm5mm

969,000 0.84 0.65

2,0292,400


2mm5mm

5,990,000 0.84 0.65

2,0292,400

Tirisano Undifferentiated Upper and Lower Gravel Packages

2mm 15,334,000 2.37 726

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

Diamond values (under “Values”) for BHC, SHC, KPC and Niewejaarskraal are based on a two-year moving average (from +10,000cts from the BHC terrace on the Saxendrift Mine at a 5mm bcos).

Diamond values for SRC are based on the 5mm bcos sales data for FY2013 only.

Diamond values for Wouterspan are based on extrapolation of FY2011 data at 5mm bcos.

Tirisano data is at 29 February 2012.

Resource and Reserve estimates completed by Rockwell’s Group Technical Manager, GA Norton, (PrSciNat), a Qualified Person who is not independent of the Company and reviewed by TR Marshall, PhD (PrSciNat), an independent Qualified Person.

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


OUR OPERATIONAL FOOTPRINT

Pretoria

Bloemfontein

Douglas

Cape Town

Johannesburg

Durban

East London

Port Elizabeth

Kimberley

Welkom

George

Douglas

Ventersdorp

200km

®

Saxendrift Mine

Douglas

KimberleyBarkly West

Niewejaarskraal Mine

Wouterspan Mine

Status OperationGrade*

(Carats/100m3)Processing rate

(m3/month)Carat value

(US$)*Life of mine

(years)**

Evaluation Wouterspan PEA completed**

0.62 350,000 2,300 >10

Tirisano Mine (royalty mining)




(US$)*Life of mine

(years)**

Royalty mining

TirisanoFive royalty mining contracts

0.45 – 0.63 160,000 668 >18

Other MOR




(US$)*Life of mine

(years)**

JV in ramp up

Kwartelspan 0.76 36,000 2,400 1.5

Evaluation Zwemkuil and surrounding farms

1.35 – 2,000 –




(US$)*Life of mine

(Years)**Steady state

unit cost

In production

Niewejaarskraal 0.6 100,000 2,400 >10 US$9.50/m3




(US$)*Life of mine

(Years)**Steady state

unit cost

In Production Saxendrift and Saxendrift Extension

0.45 – 0.51 160,000 2,300 7 US$8.50/m3

In Production Saxendrift Hill Complex

0.51 80,000 2,400 1.5 US$7.50/m3

* Based on the Company’s approved internal budgets for F2015.

** LOM based on NI43-101 report, excludes any future exploration potential.

Tirisano Mine

Prieska

Barkly West


WALTER BOLD Group Engineer

CAROL RINGANE Data Analyst

ATTIE BENSONGroup Security Manager

GARY DORKIN Regional Geologist

RICHARD REEDConsultant: Corporate Finance

KEVIN VAN RENSBURG ICT Manager

DR KURT PETERSEN Consulting Metallurgist

PAUL HLASOA HR Officer: Industrial Relations

GEORGE STEVENS Geological Manager

STÉPHANIE LECLERCQ Investor Relations and Corporate Development Manager

JERRY MPISEKHAYA Training Officer

ROELIEN OOSTHUIZEN MLE Manager

EXCO

JEFFREY BRENNER Diamond Sales and Marketing Manager

LYNN FRYLINK HR Manager: Operations

BRENDA BARRETO Mine Accountant

JOHAN OOSTHUIZEN Financial Manager: Operations

PAUL MAY Group Financial Manager

JOHN SHELTONChief Financial Officer – incoming

GERHARD JACOBS Chief Financial Officer – outgoing

MELCHIOR VAN NIEKERK CEO, CML Operations

EXCO

EXCO

RICHARD MHLONTLO Group HR and IR Manager, safety and sustainability

EXCO

JAMES CAMPBELL Chief Executive Officer

EXCO

GLENN NORTON Group Technical Manager

EXCO

EXCO

OPERATIONAL ORGANOGRAM


DANIELLE DU TOIT HR Officer

MAHLODI MALOWA Mine Geologist

BRYN BRANDT Engineering Manager

SAREL KRIEL Fleet Maintenance Manager

PENELOPE MOHALE Mine Geologist

THEO GREEF Safety Officer

JOHAN SPAARWATER Plant Manager

DAWID KARELSE Pit Superintendent

KOGGIE MOSTERT Senior Production Manager

BEN NELL Tirisano Contracts Manager

BADENHORST DIAMANTE

VISKA DELWERY

GOTHOMA DELWERY

MULALO NDWAMMBI Mining Manager

PETRONELLA MOHALE Mine Geologist

COBUS BOTHAPlant Manager

SUSAN NIEMAND Safety Officer

NALEDI KAU HR Officer

RIAAN LUBBE Engineering Manager

CHARLIE HARTMAN Ore Manager (CML)

FRANS BEZUIDENHOUTSenior Production Manager

WIKUS DE WINNAAR General Manager: MOR

SAXENDRIFT SAXENDRIFT HILL COMPLEX

GUMP MINING KWARTELSPAN JOINT VENTURE

RICHARD HORNExploration Geologist


OPERATIONAL REVIEWMiddle Orange River: Saxendrift Mine

CARATS PRODUCED

UP12%

AVERAGE GRADE

UP23%

VALUE OF SALES

UP32%

SALIENT FEATURES

• Volumes processed through the

Saxendrift processing plant comprised

35% from traditional Saxendrift mining

area (Brakfontein) and remainder from

the higher grade Saxendrift Extension

property.

• Grade improved 23% to 0.58 carats/m3,

due to increased mining at Saxendrift

Extension, in line with the mine plan.

Eight months of mining at Saxendrift

Extension is planned in fiscal 2015.

• Consistent performance from Saxendrift

processing plant although OPU

(78%) was impacted by earthmoving

availability and ore availability.

• Plant optimization program

implemented to cost effectively update

the yellow fleet, including holistic

review to match equipment to mine

plan and processing capacity.

• Newly defined NI43-101 compliant

resource at Saxendrift Extension

integrated into Saxendrift mine plan.

• Volumes processed down 10%, due

primarily to longer haulage distances

on Saxendrift Extension gravels and

earthmoving availabilities.

• The reported cash unit cost of

US$10.9/m3 was negatively impacted

by higher maintenance on the aging

fleet. However, implementing the fleet

enhancement program is expected to

reduce the mine’s unit cost to a steady

level of approximately US$8.50/m3.

• Notable stones recovered during the

year included:

– 20 – 49 carats: 45 stones

– 50 – 99 carats: Nine stones

– +100 carats: Three stones

(116.33 carats, 138.22 carats

and 287.35 carats).

Koggie Mostert Senior Production Manager

MINE SPECIFICATIONS

The 5,142 hectare Saxendrift Mine

property is located on the south

bank of the Middle Orange River

and adjacent to the Wouterspan

property. Four kilometers from the

Saxendrift processing plant is the

616 hectare Saxendrift Extension

property that has extended

the mine life of Saxendrift to

seven years.

PRODUCTION AND SALES

2014 2013 Change

Volume (m3) 1,597,989 1,775,130 (10%)

Carats 9,338 8,373 12%

Average grade (carats per 100m3) 0.58 0.47 23%

Cash unit cost (US$ per m3) US$10.9 US$7.78 40%

Sales (carats) (excluding beneficiation) 9,059 7,821 16%

Value of sales (US$) 19,873,666 15,005,461 32%

Average value (US$ per carat) 2,194 1,918 14%

Inventory at end of period (carats) 914 635 44%

PLANT SPECIFICATIONS

Ore preparationTrommel screen: 4 x 450tph

De-sanding screen: 1 x 650tph

Scrubber: 4 x 50tph

Ore enrichmentPans: 4 x 50tph

Final recoveryFlow sort machine: 12 x (17tph total)

Saxendrift geology team inspect gravels in the mining area with first bulldozer rebuilt in the foreground.


51

180

16.6

49.8

18.7

37.1

10.9

12.6

11.1

59.5

29.7

29.7 34.6

25.4

21.2

23.8

22.7

36.9

42.5

16.53

94.7619.73

17.6611.08

17.01

16.74

14.99

10.68

15.85

13.8416.94

12.81

11.37

10.2528.83

15.1510.83

10.11

31.88

10.05

18.36

15.81

43.54

11.6416.7814.26

24.7935.49

11.3712.82

34.95

11.92

19.26

27.5316.88

14.87

12.48

10.61

12.23

12.01

10.37

12.8310.54

12.8918.19

15.7511.73

12.07

63.22

93.87

13.38

24.81

21.4611.4712.56

96.56

12.97

11.2316.15

13.5651.29

92.43

11.96

48.5414.1413.32

16.42

14.6312.36

56.95

12.76

66.82

11.86

11.95

25.78

12.24

15.2512.9418.94

13.42

10.92

13.4557.04

12.41

15.32

16.78

19.69

27.2756.86

10.17

10.36

15.87

47.77

31.41

25.5317.3310.4127.17

15.33

12.63

26.52

15.56

28.31

23.0126.68

29.1941.85

52.92

11.11

16.69

72.4113.25

11.05

12.69

35.02

48.37

35.14

23.87 20.79

39.76

43.97

24.87

11.2726.06

37.92

23.24

27.59

30.48

27.77

32.66

42.4224.57

32.92

22.46

37.66

33.8948.97

24.79

47.47

33.52

28.28

31.2825.84

47.69

28.28

24.09

25.75

21.53

25.36

22.84

21.4124.94

21.345

29.615

10.625

128.69 142.16

24.375

43.665

µ

0 200 400100Meters

LegendNew Road

Old Road

Mined Out AreasDate: May 2014 Datum: WGS 84

Saxendrift Large Stone PlotName: Mahlodi MLocation: Saxendrift

Scale: 1:4 450Projection: UTM

Legend+10

+20

+30

+40

+50

+100

Saxendrift Extension reconciliation of diamond recovery for fiscal 2014.

Saxendrift mining pit.

Processing plant: Ore preparation.287 carat rough diamond recovered from Saxendrift Extension mining area in November 2013.

Geology team explains the current mine plan to Dr Mark Bristow (Chairman) and his wife, Noeleen Bristow, during the Annual Chairman’s visit (December 2013).


OPERATIONAL REVIEW continued

Middle Orange River: Niewejaarskraal Mine

$3.7 mINTERNALLY

FUNDED

PHASE 1 COMMISSIONED IN

10WEEKS

SALIENT FEATURES

• Wet commissioning of dense media

separation (“DMS”) plant commenced

in July 2013, within ten weeks of

obtaining board approval for the

project.

• Phase I (50,000m3) processing

plant handed over to Operations in

September 2013 by projects team with

$2.5 million capital investment funded

internally.

• Phase II of the plant, taking the monthly

capacity to 100,000m3, was completed

on schedule at the end of January 2014

and comprised an in-field screen

($1.2 million) and a rental Bulk X-ray

system.

• On March 1, 2014 the mine was

transferred to full contract mining with

CML Operations taking responsibility for

moving the gravels from the pit to the

processing plant.

• Initial grades achieved at the mine

were impacted by mining an adjacent

property while renegotiating the

surface rental agreement on the main

property.

• The geological model was updated

and contributed to improved grade

recoveries towards fiscal year end.

• Lower throughput volumes at

Niewejaarskraal during its production

ramp up phase (from July 2013 until

fiscal year end), impacted the reported

cash unit cost ($23.6/m3). Having

completed the ramp up at the end of

February 2014, the mine is on track

to trend towards its steady state unit

cost of approximately US$9.50 in the

short term.

• Since early fiscal 2015, grades and

diamond values improved as mining

commenced according to the long-term

mine plan and volumes through the

plant ramped up to sustainable levels.


year included:

– 20 – 49 carats: Three stones.

Frans Bezuidenhout Senior Production Manager

MINE SPECIFICATIONS

The Niewejaarskraal Mine is located

on the south bank of the Orange

River in the Herbert district of the

Northern Cape province, some

57km southwest of Douglas. It is

a past producer that was acquired

by Rockwell in 2009 and held on

care and maintenance until 2013

when it was returned to productive

status.


2014 2013 Change

Volume (m3) 301,508 – –

Carats 986 – –

Average grade (carats per 100m3) 0.38 – –

Cash unit cost (US$ per m3) 23.6 – –

Sales (carats) 747 – –

Value of sales (US$) 826,025 – –

Average value (US$ per carat) 1,107 – –

Inventory at end of period (carats) 239 – –Bulk X-ray system commissioned to process coarse gravels.


Ore preparationGrizzly screen: 1 x 450tph


Scrubber: 1 x 150tph

Ore enrichmentDMS: 1 x 50tph

BV bulk sorter: 1 x 70tph

Final recoveryFlow sort machine: 4 x (5tph total)

VE recovery machine: 1 x 500kg/h


Niewejaarskraal Palaeo channel interpretation depicting the change in depositional environment with change in the age of the rivers.

Front end product transfer from in-field screen ready for separation into coarse and fine materials to be processed through Bulk X-ray and DMS systems respectively.

The first large stones recovered from the Niewejaarskraal mine during initial commissioning in August 2013.

Monthly technical review of mine plan with Rockwell management team.

Geology team evaluates gravels in Niewejaarskraal pit against current mine plan.

The Niewejaarskraal production team monitor ramp up of operations at the DMS plant.



Middle Orange River: Saxendrift Hill Complex

INTERNALLY FUNDED

$2.5 mBULK X-RAY

PLANT

AVERAGE PRICE PER CARAT

US$2,781

TWO

+100CARAT STONES

RECOVERED

SALIENT FEATURES

• Internally funded mine commissioned

in March 2013 and achieved nameplate

throughput capacity of 80,000m3

(at 5mm bottom cut off size) per month

in August 2013.

• First implementation in South Africa

of Bulk X-ray technology in the full

production environment, being in a

concentration and recovery mode.

• Processing plant achieved a 40%

increase in grade when processing

Saxendrift Extension gravels in parallel

through Bulk X-ray and Saxendrift pan

plant during July 2013.

• The average price per carat for the

year equated to US$2,781 per carat,

resulting from the high quality of

diamonds produced at the mine since

commissioning.

• Due to the production ramp up being

completed in August 2013, and

accordingly the mine only operating

at nameplate capacity for the second

half of the year, the reported unit cost

(US$10.0/m3) was higher than SHC’s

steady state unit cost of approximately

US$7.50/m3. This is set to normalize in

fiscal 2015.


year included:

– 20 – 49 carats: 16 stones

– 50 – 99 carats: Three stones

– +100 carats: Two stones

(126.51 carats and 169.64 carats).


2014 2013 Change

Volume (m3) 697,702 – –

Carats 3,363 – –


Cash unit cost ($ per m3) 10.0 – –

Sales (carats) 2,945 – –

Value of sales (US$) 8,191,340 – –

Average value (US$ per carat) 2,781 – –

Inventory at end of period (carats) 418 – –

MINE SPECIFICATIONS

The SHC Mine, located on

the Saxendrift property, is four

kilometers from the main Saxendrift

plant and has an indicated resource

of 1,570,000m3 of diamond

bearing gravels with a 1.5 year

estimated life of mine based on

the current defined resource.

Contiguous exploration work is

ongoing to increase this resource.

Koggie Mostert Senior Production Manager

Bulk X-ray concentration and recovery system at SHC.


Ore preparationTrommel screen: 1 x 450tph


Scrubber: 1 x 50tph

Ore enrichmentBV bulk sorters:

1 x 70tph (course), 1 x 35tph (fine)

Final/recon recovery machinesBV single particle sorter:

1 x 750kg/h (course),

1 x 200kg/h (fine)


MINE SPECIFICATIONS

The 10,806 hectare Tirisano Mine

property is located some 35km due

north of Ventersdorp in the North

West province and approximately

150km west of Johannesburg. It

is hosted in a unique geological

environment, being karst derived

sinkholes where the dolomitic

bedrock contacts may be vertical.

The mode of gravel deposition,

which is not typical fluvial-alluvial,

has resulted in a very thick build-up

of gravel sequence.

North West operations: Tirisano Mine and Royalty Mining Contractors

NET ROYALTIES OF

$1.2 mACHIEVED GRADE OF

1.23CARATS/100M3

THIRTY-FOUR

+10CARAT STONES

RECOVERED

SALIENT FEATURES

• Tirisano property is mined by royalty

contract mining operators, in line with

Rockwell’s strategy to generate returns

(12.5% royalty on diamond sales) from

owned properties that it does not wish

to mine due to scale or other reasons.

• Operations ramped up from two private

operators on March 1, 2013 to five

agreements operating at Tirisano at the

end of fiscal 2014 with a total monthly

processing capacity of approximately

200,000m3.

• These contractors delivered consistent

results throughout the year with total

volumes of gravel moved amounting to

1.1 million cubic meters.

• A total of 13,554 carats were recovered,

translating into a grade of 1.23 carats

per 100m3.

• The consistency of results from these

agreements has enabled Rockwell to

take a measured approach to assessing

the future for this asset.

• Returns from royalty mining contracts

delivered net royalties of $1.2 million in

fiscal 2014.

• Notable stones recovered by contractors

during the year included

34 stones exceeding 10 carats.

Ben Nell Contracts Manager


2014 2013 Change

Volume (m3) 1,098,161 – –

Carats 13,554 1,263 –


Sales (carats) (excluding beneficiation) 12,490 989 –

Value of sales (US$) 9,449,127 759,075 –

Average value (US$ per carat) 756 768 (2%)

Inventory at end of period (carats) 1,181 117 –

The 42-strong workforce at one of five of the royalty mining contractors operating at Tirisano.



Development project: Wouterspan

PEA SHOWED

VIABLE ECONOMICS

IRR BETWEEN

45%

AND

70%

POTENTIAL TO CREATE

300JOBS

ASSESSMENT REVIEW A Preliminary Economic Assessment (“PEA”)

showing viable project economics was

completed on the Wouterspan property

post balance sheet date. The PEA was

carried out by a team led by Dr Kurt

Petersen, an expert diamond metallurgist,

and Walter Bold PrEng, Rockwell’s Group

Engineer, with significant input from

Paradigm Project Management (“PPM”),

a company with a strong track record

in the innovative development of new

diamond mines.

The study indicated positive economics,

sufficient to take the project to the detailed

design stage. The economic model yielded

an internal rate of return of between 45%

and 70% for a range of scenarios based

on the key inputs. The net present value

(“NPV”) for the base case is $91.71 million

at a 15% discount rate, yielding a project

payback period of 2.3 years from the start

of construction or approximately 1.3 years

from commencement of production.

The project is most sensitive to revenue.

A 5% variance in the total revenue over the

10 year life of mine impacts the NPV by

15%. The operation is expected to employ

300 people.

Key assumptions of the study were as

follows:

• A plant with a capacity of 1,200 tonnes

per hour (“tph”) (or 354,000m3 per

month), a rate that lowers the diamond

production risk associated with the

inherent variability of the resource

being mined;

• A plant design comprising three

processing streams: two Bourevestnik

Bulk X-ray systems to handle the coarse

and mid-sized gravels; and the third

stream being a dense media separation

(“DMS”) stream to process fine material;

• A reduced water consumption rate

that is suited to the environmental

conditions in the Middle Orange River

region; and

• The use of contract mining at a fixed

unit cost that reduces the capital

requirements.

GEOLOGICAL SETTING

The Wouterspan property is located

near Douglas, South Africa.

It comprises portions, totaling

2,579.8ha, of the Lanyon Vale

376 farm. Historically, mining

operations were carried out on

three portions of the property

called the Farhom, Okapi and

Stofdraai farms, exploiting the

Rooikoppie and Primary gravel.

The geological setting of

Wouterspan is an alluvial diamond

deposit preserved in fluvial-alluvial

palaeochannel and deflation

gravels (Rooikoppie) in Vaal

River terraces. The property has

extensive diamond deposits and

has historically produced diamonds

that are similar to Saxendrift in

terms of size, quality and value.

Recent site visit by the Geology team to one of the bulk sampling pits at Wouterspan.


Typical geological sequence of the upper gravels at Wouterspan.

Geology team explain the depositional environment to the Exco.


GOVERNANCE


SUSTAINABILITY REVIEW

HEALTH, SAFETY AND WELLNESS Rockwell has a multilateral approach

to safety whereby the Department of

Minerals and Resources, the relevant

trade unions and mine management

collaborate to ensure the safety of our

employees, contractors, visitors and, more

broadly, people who may be affected by

our operations. The Company also has a

corporate Health and Safety Policy that

is adapted to the specific needs of each

operation.

We regard our employees as our most

valuable asset and are wholly committed

to protecting them, as far as is reasonably

practical. It is our aim to create a culture

of health and safety where our people

themselves not only take control of their

own health and safety but also provide an

environment whereby our people look out

for the safety of their colleagues.

With four lost time injuries occurring in

2014 in the MOR region, the focus shifted

to behavior based safety. This bore fruit

as evidenced by the last lost time injury

in the MOR having been in August 2013.

Even during the period leading up to the

December summer holiday period including

the Christmas and New Year holidays, when

careless injuries are common, Rockwell was

pleased with the safety performance on its

operations, reporting no lost time injuries

during this time.

Daily inspections of all the mining activities

are conducted and unsafe practices are

immediately attended to. With assistance

from a specialist safety consulting

organization and the safety representatives,

Rockwell has raised the safety bar and

the safety culture in the MOR is gradually

improving. Additional safety representatives

will be trained in fiscal 2015 to further

strengthen the Company’s safety processes

and the implementation thereof.

The lost time injury-free hours (“LTIFH”)

for the MOR, including Saxendrift Mine,

SHC and Niewejaarskraal, exceeded three

million at the end of May 2014, bearing

testimony to the inputs and efforts of all

Rockwell employees and Management.

Voluntary HIV/Aids testing is conducted

quarterly at each operation, together

with tuberculosis testing. The Company

has a number of trained HIV/Aids peer

educators who carry out door-to-door

visitations. Topics such as the correct

usage of condoms are addressed. More

and more employees are undertaking the

testing willingly as the stigma of HIV/Aids

is gradually decreasing globally. Rockwell

has received extensive support from the

local health authorities in and around

the Pixley-ka-Seme district in combatting

the challenges of HIV/Aids on its mines.

Rockwell is working with the Department

of Health who will assist with the planning

of the commemoration of World Aids Day

on December 1, 2014.

Primary health care is conducted by

Sister Heyns, a qualified nurse who

provides these services in Douglas.

Positive feedback is frequently received

from employees for the manner in which

she takes care of them.

A survey was conducted by RESAF

International, providers of nutritional

supplements, to further assist in our fatigue

management system.

The employee wellness program that

was launched at the Saxendrift Mine

early in fiscal 2014 was met with support

among Rockwell employees. Based on this

support, the Company plans to expand this

wellness program, extending the successful

partnership of ICAS to all other operations

during 2014. The service currently offers

employees and their dependants access to

a qualified psychologist, legal and financial

telephonic guidance and an electronic

e-Care service that provides health and

wellness-related information. The expanded

program will also focus on specific problem

areas encountered by employees and

identified in the Annual Wellness Report

that was compiled after completion of the

pilot project. The report showed that the

program was effectively made available to

all targeted employees and led to use of

the facilities provided by the program with

a higher annual engagement rate than

that of the comparable industry. Ongoing

communication has been prioritized to

build on this success while managers

are being encouraged to refer distressed

employees to engage with the professional

services provided, especially for stress

management, relationship problem solving

and financial guidance.

TRAINING AND DEVELOPMENT During fiscal 2014 Rockwell’s training and

development activities were focused on

entrenching the Company’s diamond value

management principles by improving the

skill sets of supervisors and employees

working the equipment fleet as well as

the pan, scrubbers, screen operators and

sorters. Employees were also trained to

operate and maintain our recently installed

Bulk X-ray systems. During this period,

75 employees also attended our Diversity

Training program which will be rolled out

to all our employees in the next two years.

It was a proud achievement for Rockwell

that over 200 employees attended various

training programs during the year.

During this year, five employees and two

learners from the Douglas community

participated in our Learnership program

with training provided at the De Beers

College in Kimberley. This program forms

part of Rockwell’s formal Social Labour Plan.

Also in support of the diamond value

management principles that define

Rockwell’s business culture, the Company is

in the process of rolling out a performance

management system at all levels of

our organization as well as a business

performance improvement project, the

Rockwell Galaxy Business Performance

Improvement Actualization project for

the 2015 fiscal year. It will be used to

implement an integrated performance

management system applicable to all

employees. The implementation will

be phased and will be a coaching

and mentoring system that will be

complemented by an internal leadership

excellence program.


JOB CREATION At the end of fiscal 2014, Rockwell had

480 permanent employees in its service.

The total workforce comprised 13.96%

women, while the Company’s support of

Women in Mining is reflected in the 33%

and 22.8% representation of women in

senior and middle management levels,

respectively.

At the middle management level,

Rockwell’s employment equity has

improved significantly due to a focus

on recruiting young HDSA professionals

in the fields of geology, metallurgy and

engineering as plant supervisors. Middle

management HDSA representation at the

end of the fiscal year was 58%. Following

the success of this program in the

technical areas of the business, Rockwell

is planning to implement similar initiatives

in administrative areas of the business

including finance and human resources.

Rockwell has a Recognition Agreement

with the National Union of Mine Workers

(NUM) representing 66% of the workforce.

Summary total workforce

African male 50%

African female 6.25%

Colored male 26.46%

Colored female 4.79%

Caucasian male 9.58%

Indian female 0.21%

Caucasian female 2.71%

Total female 13.96%

Total male 86.04%

Occupational levels

Male Female%

EE%

women

% women

in mining Total

A C I W A C I W 22

Top management 1 0 0 3 0 0 0 0 25 0 0 4

Senior management 0 0 0 4 0 0 0 2 0 33.3 0 6

Professionally qualified and

experienced specialists and

mid-management 9 1 0 13 6 0 0 2 58 25.8 12.90 31

Skilled technical and

academically qualified

employees, junior

management supervisors,

supervisors, foremen 7 13 0 18 2 0 0 2 57 9.52 4.76 42

Semi-skilled and discretionary

decision making 188 82 0 08 8 13 1 7 97.39 9.45 5.21 307

Unskilled and defined

decision making 35 31 0 0 14 10 0 0 100 26.67 0 90

Total permanent employees including head office and North West and Northern Cape 240 127 0 46 30 23 1 13 90.41 13.96 4.58 480

A-African | C-Coloreds | I-Indians | W-Whites

CORPORATE SOCIAL INVESTMENT (“CSI”)Rockwell has devoted its investments to

supporting education of future generations

of South Africans. In fiscal 2014, its CSI

initiatives were as follows:

• Ongoing support at the Jannie Roux

Home in Barkly West which provides

a place of safety for more than

80 children. This includes a fixed

monthly stipend which assists with

overhead costs at the home and is

used to provide nutritional snacks for

the children to take to school. Rockwell

also covers the costs of internet access

to the home and provides ad hoc

assistance as required. Rockwell hosts

an annual Christmas party at its Barkly

West corporate office for these children.

• Provided computer centers to three

schools in Barkly West and continues to

sponsor the costs of internet access at

these schools.

• Rockwell, in partnership with Wildeklawer,

continues to pay a sports coordinator for

the Barkly West Schools which sponsors

several sport development projects at

three local schools as well as a rugby and

a soccer tournament.

SUSTAINABILITY REVIEW continued


Rockwell’s New Social and Labour Plan

Projects is aligned to the Municipal IDP for

our Middle Orange River Operations with

the Siyancuma Municipality. The projects

which Rockwell has started to roll out in

2014 are as follows:

Project description

• Recycling project

• Paving project

• Community Creche (Outreach School)

• Vaal Oranje Primary (Brypaal) School

food scheme for six months of the year

• Internet Café at Brypaal Library and

Bongani Library

• Soupkitchen Bongani

• Douglas Hoërskool garden project

• Vegetable tunnel project

• Grading of soccer fields

• Water channel in Bongani

• Confluence Vaal and Orange

• Upgrading of roads, signs and names

in Douglas

ENTERPRISE DEVELOPMENTRockwell initially invested R2 million to start

Bokamoso, a brick-making facility which is

managed and operated by women.

It manufactures and supplies bricks in

the Northern Cape. The company was

subsequently expanded to provide civil

construction to the mining industry. It

also carries out renovations to the local

communities at low cost. All Rockwell’s civil

construction on its Northern Cape mines

has been carried out by Bokamoso.

During the year, Rockwell procured goods

and services in excess of R2.1 million from

Bokamoso. Bokamoso also plays a critical

role in the acceleration of our Social and

Labour Plan as it serves as the primary

platform through which such initiatives

and programs are being channeled.

The Company is also in a process to

transfer the brickmaking company to the

Holpan Community.

ENVIRONMENTALRockwell’s environmental policy prescribes

the environmental procedures across all

operations and projects. The cornerstones

of its environmental practices are as

follows:

• Assessing and monitoring our

environmental impact, conserving

renewable and non-renewable

natural resources and reducing all

forms of environmental pollution and

degradation including, but not limited

to, air, water, chemical, energy and any

other general waste-related pollution;

• The recovery process of diamonds does

not include any chemicals and water

released back into the environment has

been shown to be cleaner than existing

river water;

Children from the Jannie Roux Home at the annual Christmas party.

Children from the Jannie Roux Home at the annual Christmas party.

Children from the Jannie Roux Home at the annual Christmas party. Rockwell sponsors schools in Barkly West.

Backfilling in progress.


• Reducing, reusing, recycling and

disposing of waste in a manner

reflecting responsible environmental

practices;

• Allocating the necessary resources to

comply with these commitments which

includes, but is not limited to, legal

compliance in terms of environmental

guarantees that must be provided to

the Department of Mineral Resources;

• Promoting a culture of environmental

awareness through induction,

information and training of our

employees and contractors;

• Raising awareness on environmental

responsibilities and actively promoting

good environmental practices by all our

staff;

• Preserving, where practical, significant

archaeological and historical sites

to minimize the impact on the

cultural heritage of the surrounding

environment;

• Optimizing the consumption of

renewable and non-renewable

resources, to ensure the sustainability

of our operations;

• Ensuring that all contractors/consultants

and service providers are familiar

with the Company’s environmental

management practices and that they

assist in the implementation and

maintenance of the said practices;

• Prioritizing the purchase of products

that are environmentally friendly and

energy efficient. Consideration is

given to buying fair trade and locally

grown and manufactured products

as these have positive impacts on the

environment and livelihoods; and

• Rockwell strives to comply with

all aspects of the South African

environmental legislation.

Rockwell has defined its top environmental

impacts as follows:

• The impact on geology due to

historical and current mining activities

is heightened during the operational

phase as mining progresses through

areas where previously only prospecting

was done and continues as mining

progresses over the approved life of

mine.

• The impact on soil during the

operational phase due to clearing of

topsoil and overburden for opencast

mining. Mining management is

conducted in such a manner as to

avoid contamination of topsoil and

no chemicals are used in mineral

processing. Concurrent rehabilitation to

rapidly re-vegetate mining areas lowers

the risk of soil losses due to erosion.

• The mining and excavation of the

diamond and sand minerals has a long-

term impact on the land capability and

alters the land use. Mine operations

lead to the temporary loss of grazing

capability but through concurrent

rehabilitation, parts become available

for agricultural use as re-vegetation is

completed.

• The impact on the topsoil and

vegetation layer during mining is high

due to clearing and can enhance the

establishment of exotic species and bare

ground, until rehabilitation commences.

Concurrent rehabilitation of cleared and

sloped areas mitigates this. These areas

are ripped, ameliorated and re-seeded

to encourage rapid re-establishment of

indigenous species.

• Animal life adapts quickly to mining

operations as they commence. Mining

is restricted to a maximum area of

50ha at any given time to mitigate the

impact on animal life. Rockwell has a

policy against illegal poaching. Vehicle

movement is restricted to existing roads

and disturbed areas.

• Rockwell’s alluvial diamond mining

has no impact on the catchment yield

or the water quality in the catchment

area. It contains no toxic or harmful

substances that could influence

the quality of the water. Rockwell

conducts no mining activities within

100m horizontally of any rivers and

has measures in place to manage the

handling and storage of petrochemicals

within the Company.

• Rockwell’s mining operations do not

significantly contaminate the air. Proper

maintenance of equipment mitigates

the impact of exhaust fumes. Dust on

the roads is managed by imposing a

maximum speed limit of 40km/hr for

loader moves. Dust is minimal in the

mineral processing activities.

• The noise impact of mining activities is

low due to the location of the mines in

rural areas and only affects employees

and neighbors who are generally

separated from the mines by long

distances.

• The required environmental impact

assessment studies are conducted to

measure these and other impacts,

incorporating a review of the current

status and the extent to which

the environment has already been

modified. In terms of the MPRDA,

bi-annual performance assessment

reports are completed.

Employee communications and newsletters

include discussions of environmental

matters to heighten their awareness of

environmental impacts.

A new awareness program has been

developed which is aligned with the World

Environmental Calendar, including the

following, among others:

• February 2 World Wetland Day: On this day, in 1971, the

Ramsar Convention on Wetlands of

International Importance was signed.

Wetlands are a very important part of

our biodiversity and it is essential to see

that they are well protected.

• February 28 National Science Day: It is necessary to highlight the

role of science in the protection of

the environment. This day should be

taken as a platform to put forward the

message.

• March Earth Hour (20:30 – 21:30): Earth Hour is a worldwide event

organized by the World Wide Fund

for Nature (WWF) encouraging

individuals, communities, households

and businesses to turn off their non-

essential lights for one hour on the last

SUSTAINABILITY REVIEW continued


Saturday in March, as a symbol of their

commitment to the planet.

• March 23 World Meteorological Day: Everyone has to be reminded

that weather is an integral part of the

environment.

• April 7 World Health Day: The

World Health Organization (“WHO”)

was constituted on this day in 1948. In

the changing environment around us

health is becoming an important issue.

• May 22 International Day for Biological Diversity: The United

Nations International Day for

Biological Diversity (“IDB”) to increase

understanding and awareness of

biodiversity issues.

• June 5 World Environment Day: On this day, in 1972, the Stockholm

Conference on Human Environment

was held in Sweden. There was a large

gathering from all over the world and

people expressed their concerns for the

increasing environmental problems.

• July 11 World Population Day: Population has to be given special

attention, as it is an ever-increasing

problem.

• September 16 World Ozone Day: The United Nations declared this

day as the International Day for the

Preservation of the Ozone Layer. It is the

day the Montreal Protocol was signed.

• September 28 Green Consumer Day: The problems of consumerism

and its impact on the environment is an

area of major concern in today’s world.

Awareness building on the importance

of recycling-reusing-reducing should be

taken up seriously.

• October 3 World Habitat Day: The earth is the habitat of not only

human beings but also all living

creatures. Increasing human activities is

threatening the habitat of other living

things.

• October 1 – 7 World Wildlife Week: Celebrate this week by building

awareness on the importance of

preservation of our wildlife.

• October 13 International Day for Natural Disaster Reduction: Due

to a change in the environment there

has been an increase in the number

of natural disasters. Efforts have to be

made to reduce these disasters.

• November 20 Universal Children’s Day: Children can work together for

a better tomorrow by improving the

environment around them.

Key materials used during the year were as follows:

Indicator Units

Energy use (KwH) 13,494,479.67 (Saxendrift, Niewejaarskraal, Wouterspan,

Holpan, Klipdam and Tirisano)

Waste oil 73,411.00 litres (Saxendrift, Niewejaarskraal and Klipdam)

Hydrocarbon oil

contaminated waste

4,950kg (skip bins removals) (Tirisano)

6,090 liters (210 L drums – Roro truck) (Holpan and Saxendrift)

Water consumption (m³) 1,463,400m³ (Saxendrift and Niewejaarskraal)

Rockwell puts its commitment to managing

the impact of its mining operations

on the environment into practice by

delivering against its goal of continuously

rehabilitating, concurrently with

mining whenever practically possible.

Re-vegetation of rehabilitated areas takes

at least two to three growth seasons

to reach the same predetermined land

use. During fiscal 2014, 69.6ha of land

was rehabilitated across the Company’s

properties. Rockwell also carries out

surveys every two weeks on outstanding

rehabilitation to maintain the concurrent

on-site rehabilitation, thereby minimizing

the impact as well as the financial provision

requirements while ensuring legal

compliance.

BACKFILLING IN PROGRESSRockwell only removes protected trees

once the necessary forestry tree licenses

have been issued to the Company. In

terms of license conditions, the Company

is committed to establishing at least two

indigenous trees for every protected tree

which was removed. The Boscia albitrunca

or Shepherd’s tree, which grows on

many of the Company’s mining blocks in

the Middle Orange River, is a protected

tree species in South Africa. This means

that approval from the Department of

Agriculture, Forestry and Fisheries must be

sought to remove the protected trees while

mining blocks of diamond bearing gravels.

Demonstrating Rockwell’s commitment

to preserving this protected tree and in

terms of environmental management, the

Company took a decision to leave trees

larger than two meters intact and to mine

around them.


CORPORATE GOVERNANCE

MANDATE OF THE BOARDThe board adopted a formal mandate

as outlined in Rockwell’s Corporate

Governance Policies and Procedures

Manual (the “Manual”) on February 28,

2008. The Manual mandates the board

to: (i) assume responsibility for the overall

stewardship and development of the

Company and monitoring of its business

decisions, (ii) identify the principal risks

and opportunities of the Company’s

business and ensure the implementation

of appropriate systems to manage these

risks, (iii) oversee ethical management

and succession planning, including

appointing, training and monitoring

of senior management and directors,

and (iv) oversee the integrity of the

Company’s internal financial controls

and management information systems.

In addition, the Manual includes written

charters for each committee. Further, the

Manual encourages but does not require

continuing education for its directors and it

contains a code of ethics, policies dealing

with issuance of news releases and disclosure documents, as well as share trading

black-out periods. A copy of the Manual is available for review at the Company’s website

www.rockwelldiamonds.com.

The attendance record of the directors for the 12 months ended February 28, 2014 is as

follows:

NameBoard meetings

attended% of board meetings

attended

Mark Bristow 5 100

James Campbell 5 100

Stephen Dietrich 5 100

Willem Jacobs 5 100

Richard Linnell 5 100

Johan van’t Hof 5 100

Rick Menell 4 80

COMPOSITION OF THE BOARD

Applicable governance policies require that a listed issuer’s board of directors determine

the status of each director as independent or not, based on each director’s interest in or

other relationship with, the corporation. Applicable governance policies recommend that a

board be constituted with a majority of directors who qualify as independent directors (as

defined below). A board should also examine its size with a view to determining the impact

Liberation of the diamond bearing gravels at Saxendrift Extension.

Geologists review gravels in Saxendrift mining pit. Bulk X-ray plant at SHC.Rough diamond contained in typical MOR calcrete boulder.


of the number of directors upon the

effectiveness of the board, and the board

should implement a system which enables

an individual director to engage an outside

advisor at the expense of the corporation

in appropriate circumstances. The Manual

allows for retention of independent

advisors for board members when they

consider it advisable.

Under applicable policies, an

“independent” director is one who has

no direct or indirect material relationship

with the Company. Generally speaking,

a director is independent if he or she is

free from any employment, business or

other relationship which could, or could

reasonably be expected to, materially

interfere with the exercise of the director’s

independent judgement. A material

relationship includes having been (or

having a family member who has been)

within the last three years an employee

or executive of the Company or having

been employed by the Company’s external

auditor. An individual who (or whose family

member) is or has been within the last

three years, an executive officer of an entity

is deemed to have a material relationship

as is any individual who (or whose family

members or partners) received directly

or indirectly, any consulting, advisory,

accounting or legal fee or investment

banking compensation from the Company

(other than compensation for acting as

a director or as a part time chairman or

vice-chairman).

The board proposes seven nominees

for the office of director of whom five

of the nominees can be considered

as “independent” directors. The

“independent” nominees are Willem

Jacobs, Richard Linnell, Johan van‘t Hof,

Stephen Dietrich and Rick Menell. These

nominees are considered independent

by virtue of not being executive officers

of the Company, not having a material

relationship with the Company and having

received no compensation other than

in their role as independent directors.

The non-independent directors (and the

reasons for that status) are Mark Bristow

(Chairman) and James Campbell (President

and CEO).

The board monitors the activities of the

senior management through regular

meetings and discussions amongst the

board and between the board and senior

management. The board is of the view that

its communication policy between senior

management, members of the board

and shareholders is good. The board is

satisfied with the integrity of the Company’s

internal control and financial management

information systems.

COMMITTEES OF THE BOARDThe Manual requires that (i) committees

of the board be composed of at least a

majority of independent directors, (ii) the

board expressly assume responsibility,

or assign to a committee of directors

responsibility, for the development of the

Company’s approach to governance issues,

(iii) the audit committee be composed

only of independent directors, and the

role of the audit committee be specifically

defined and include the responsibility

for overseeing management’s system of

internal controls, (iv) the audit committee

have direct access to the Company’s

external auditor, and (v) the board appoint

a nominating and governance committee,

composed of a majority of independent

directors, with the responsibility for

proposing new nominees to the board and

for assessing directors on an ongoing basis.

As well as an audit committee, the board

also has a compensation committee and a

nominating and governance committee.

Audit committee

The board has established an audit

committee which currently consists of

Willem Jacobs, Stephen Dietrich and

Johan van‘t Hof. The audit committee

carries out its responsibilities under

applicable laws, regulations and stock

exchange requirements with respect to

the employment, compensation and

oversight of the Company’s independent

auditors and other matters under the

authority of the committee. See further

disclosure in Item 20 of the Company’s

AIF filed on www.sedar.com on May 30,

2014 with respect to the audit committee

and its relationship with the Company’s

independent auditors. The Company

adopted an audit committee charter on

February 28, 2008 and it is included in the

Manual. The audit committee charter is

also available for viewing at the Company’s

website at www.rockwelldiamonds.com.

Compensation committee

The board has established a compensation

committee which currently consists of

Richard Linnell and Johan van’t Hof. The

compensation committee recommends

compensation for the directors and

executive officers of the Company. See

further disclosure under Statement of

executive compensation below. The

compensation committee charter was

adopted on February 28, 2008 and is

included in the Manual. This compensation

committee charter is available to

view at the Company’s website at

www.rockwelldiamonds.com.

The function of the compensation

committee is to review, on an annual basis,

the compensation paid to the Company’s

executive officers and directors, to review

the performance of the Company’s executive

officers and to make recommendations on

compensation to the board.

The compensation committee also

periodically considers the grant of stock

options. Options have been granted to the

executive officers and directors and certain

other service providers taking into account

competitive compensation factors and the

belief that options help align the interests

of executive officers, directors and service

providers with the interests of shareholders.

Nominating and governance committee

The board has established a nominating

and governance committee (the “NG committee”) which currently consists of

Richard Linnell and Willem Jacobs.

The NG committee has the responsibility

of developing and recommending to

the board the Company’s approach to

corporate governance and assists members

of the board in carrying out their duties.


CORPORATE GOVERNANCE continued

The NG committee also reviews all new

and modified rules and policies applicable

to governance of listed corporations to

assure that the Company remains in full

compliance with such requirements as are

applicable to the Company.

The nominating function of the

NG committee is to evaluate and

recommend to the board the size of the

board and persons as nominees for the

position of a director of the Company

and to formalize the process for ensuring

the nomination of high caliber directors

and proper director succession planning.

The Company has formal procedures

for assessing the effectiveness of board

committees as well as the board as a whole.

Under the Manual, this function is to be

carried out annually under the direction of

the NG committee and those assessments

are then provided to the board.

BOARD DECISIONSGood governance policies require the

board of a listed corporation, together

with its chief executive officer, to develop

position descriptions for the board and

for the chief executive officer, including

the definition of limits to management’s

responsibilities. Any responsibility which is

not delegated to senior management or

to a committee of the board remains with

the board.

RECRUITMENT OF NEW DIRECTORS AND ASSESSMENT OF BOARD PERFORMANCEGood governance policies require that

(i) every board of a listed corporation

implement a process for assessing

the effectiveness of the board and

the committees of the board and the

contribution of individual directors, (ii)

every corporation provide an orientation

and education program for new directors,

and (iii) every board review the adequacy

and form of compensation of directors and

ensure that the compensation realistically

reflects the responsibilities and risks

involved in being an effective director.

See the discussion under nominating and

governance committee above.

Orientation and continuing education

The Company has traditionally retained

experienced mining people as directors

and hence the orientation needed is

minimized. When new directors are

appointed, they are acquainted with

the Company’s mineral projects and the

expectations of directors. Board meetings

generally include presentations by the

Company’s senior management and

project staff in order to give the directors

full insight into the Company’s operations.

Ethical business conduct

The Board has adopted an ethics policy

(set out in the Manual) which is available

for download from the Company’s website

at www.rockwelldiamonds.com. The

board also believes that the fiduciary

duties placed on individual directors by the

Company’s governing corporate legislation

and the common law, and the restrictions

placed by applicable corporate legislation

on an individual directors’ participation

in decisions of the board in which the

director has an interest, have been

sufficient to ensure that the board operates

independently of management and in the

best interests of the Company.

Nomination of directors

The board considers its size each year when

it considers the number of directors to

recommend to the shareholders for election

at the annual meeting of shareholders,

taking into account the number required to

carry out the board’s duties effectively and to

maintain a diversity of views and experience.

See the discussion under nominating and

governance committee above.

Assessments

The board monitors the adequacy

of information given to directors,

communication between the board

and management and the strategic

direction and processes of the board

and committees. The NG committee is

mandated to oversee an annual formal

assessment of the board and its three

committees namely the audit committee,

compensation committee and the

NG committee.

STATEMENT OF EXECUTIVE COMPENSATIONGeneral provisions

“Named Executive Officer” (“NEO”) means

each of the following individuals:

• A Chief Executive Officer (“CEO”);

• A Chief Financial Officer (“CFO”);

• Each of the three most highly

compensated executive officers, or

the three most highly compensated

individuals acting in a similar capacity,

other than the CEO and CFO, at the

end of the most recently completed

financial year whose total compensation

was, individually, more than $150,000

for that financial year; and

• Each individual who would be an

NEO under paragraph (c) but for the

fact that the individual was neither an

executive officer of the Company,

nor acting in a similar capacity, at

February 28, 2014.

Compensation discussion and analysis

The Company’s compensation policies and

programs are designed to be competitive

with similar resource companies and

to recognize and reward executive

performance consistent with the success

of the Company’s business.

The board has established a compensation

committee consisting of Richard Linnell

and Johan van’t Hof. The function of

the compensation committee as set out

in the Manual is to assist the board in

fulfilling its responsibilities relating to

the compensation practices of the

executive officers of the Company. To

achieve this purpose, the compensation

committee has the duty, responsibility

and authority to:

• recommend to the board the form

and amount of compensation to be

paid by the Company to directors for

service on the board and on board

committees. The compensation


committee shall review director

compensation at least annually;

• annually review the Company’s base

compensation structure and the

Company’s incentive compensation,

stock option and other equity-

based compensation programs and

recommend changes in or additions in

such structure and plans to the board

as needed;

• recommend to the board the annual

base compensation of the Company’s

executive officers and senior managers

(collectively the “Officers”);

• recommend to the board the range of

increase or decrease in the annual base

compensation for non-Officer personnel

providing services to the Company;

• recommend to the board annual

corporate goals and objectives

under any incentive compensation

plan adopted by the Company for

Officers and non-Officer personnel

providing services to the Company, and

recommend incentive compensation

participation levels for Officers and non-

Officer personnel providing services to

the Company under any such incentive

compensation plan. In determining the

incentive component of compensation,

the committee will consider the

Company’s performance and relative

shareholder return, the values of similar

incentives at comparable companies

and the awards given in past years;

• evaluate the performance of Officers

generally, and in light of annual

corporate goals and objectives under

any incentive compensation plan;

• periodically review with the Chairman

and CEO their assessments of

corporate officers and senior managers

and succession plans, and make

recommendations to the board

regarding appointment of officers and

senior managers;

• provide oversight of the performance

evaluation and incentive compensation

of non-Officer personnel providing

services to the Company;

• administer the Company’s stock option

and other equity based compensation

plans and determine the annual grants

of stock options and other equity based

compensation; and

• recommend to the NG committee

the qualifications and criteria for

membership on the compensation

committee.

Report on executive compensation

The Valuation Report on executive

compensation has been authorized by

the compensation committee. The board

assumes responsibility for reviewing and

monitoring the long-range compensation

strategy for the senior management of

the Company although the compensation

committee guides it in this role. As part

of its mandate, the board determines the

type and amount of compensation for the

Company’s executive officers. In addition,

the board reviews the methodology

utilized by the Company for setting salaries

of employees throughout the organization.

The compensation committee receives

competitive market information on

compensation levels for executives.

Mr James Campbell, President and CEO

and Mr. Gerhard Jacobs, the CFO, serve

the Company on a full-time basis.

Philosophy and objectives

The compensation program for the senior

management of the Company is designed

to ensure that the level and form of

compensation achieves certain objectives,

including:

• attracting and retaining talented,

qualified and effective executives;

• motivating the short and long-term

performance of these executives; and

• better aligning their interests with those

of the Company’s shareholders.

In compensating its senior management,

the Company has employed a combination

of base salary, bonus compensation and

equity participation through its share

option plan.

The Company believes that encouraging its executives and employees to become shareholders is the best way of aligning their interests with those of its shareholders.



Base salary

In the board’s view, paying base salaries

that are competitive in the markets in

which the Company operates is a first

step to attracting and retaining talented,

qualified and effective executives.

Competitive salary information on

comparable companies within the

industry is compiled from a variety of

sources, including surveys conducted by

independent consultants and national and

international publications.

Bonus compensation

The Company’s objective is to achieve

certain strategic objectives and milestones.

The board will consider executive bonus

compensation dependent

upon the Company meeting those

strategic objectives and milestones and

sufficient cash resources being available

for the granting of bonuses. Bonuses

are awarded at the discretion of the

board. The board approves executive

bonus compensation dependent

upon compensation levels based on

recommendations of the compensation

committee, and such recommendations

are generally based, if necessary, on

survey data provided by independent

consultants. Bonus compensation was

awarded as per the previous year’s

approval from shareholders in the form of

shares issued.

Equity participation

The Company believes that encouraging

its executives and employees to

become shareholders is the best way

of aligning their interests with those of

its shareholders. Equity participation is

accomplished through the Company’s

share option plan. Stock options are

granted to senior executives taking into

account a number of factors, including

the amount and term of options previously

granted, base salary and bonuses and

competitive factors. Options are generally

granted to senior executives and vest on

terms established by the compensation

committee.

Given the evolving nature of the

Company’s business, the board continues

to review and redesign the overall

compensation plan for senior management

so as to continue to address the objectives

identified above.

Compensation of the Chief Executive

Officer

Under the Manual, the compensation

of the CEO is to be approved by the

board. Base salary and bonus levels

are determined taking into account

independent market survey data.

The compensation committee reviews

the grants of stock options to directors,

management, employees and consultants.

Options have been granted in prior

years taking into account competitive

compensation factors and the belief that

options help align the interests of such

persons with the interests of shareholders.

As noted above under Bonus

compensation, incentive that may be

paid to the CEO and any other member

of the executive or senior management

team are determined in respect of the

individuals and management team

achieving strategic objectives and

milestones which are set at the beginning

of each year by the compensation

committee and approved by the board.

PERFORMANCE The graph below compares the cumulative

total return to a shareholder who invested

$100 in Common Shares of the Company

on February 28, 2009 until February 28,

2014 with the cumulative total return of

the TSX.

The Company’s compensation policies and

programs are designed to be competitive

with similar junior mining exploration

companies and to recognize and reward

executive performance consistent with the

success of the Company’s business.

As a result of the credit crisis, commodities

prices collapsed, with diamonds being

particularly hard hit. This, coupled with

uncertainty raised from an unsolicited take-

over attempt, resulted in a collapse in the

share price.

The performance of management cannot

be measured on the share price, but in

maintaining liquidity, increasing production

and reducing costs. The fact that the

Company is still in operation where many

250

0

50

100

150

200

February 28, 2009

February 28,2010

February 28,2011

February 29,2012

February 28,2013

February 28,2014

RDI

TSX

Performance graph

$


of its peers have failed completely is evidence of the commitment and creativity of management in ensuring that the Company is still operational.

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

Actions, decisions or policies made after February 28, 2014

Given the evolving nature of the Company’s business, the board and its compensation committee continue to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above. No actions, decisions or policies have been made since February 28, 2014 that would affect a reader’s understanding of NEO compensation.

OPTION BASED AWARDSThe Company has in place a rolling share option plan dated for reference September 9, 2011 (the “Plan”). Under TSX policies the Plan must be submitted to shareholders for renewal every three years. The Plan has been established to provide incentive to qualified parties to increase their proprietary interest in the Company and thereby encourage their continuing association with the Company.

Under the Plan, a maximum of 10% of the issued and outstanding Common Shares of the Company may be reserved for issuance. Options up to this limit may be granted at the discretion of the board, or the compensation committee, to eligible optionees (the “Optionees”). In addition, as the number of issued and outstanding Common Shares of the Company increases, the number of options available for granting to eligible Optionees will increase. As at the date hereof there are options outstanding to purchase an aggregate of 4,836,431 Common Shares representing approximately 7.9% of outstanding Common Shares.

The Plan is administered by the

compensation committee of the Company.

The Plan provides that options will be

issued pursuant to option agreements to

directors, officers, employees or consultants

of the Company or a subsidiary of the

Company. All options expire on a date not

later than ten years after the issuance of

such option. Previous grants of option-

based awards are taken into account when

considering new grants of options. Subject

to the requirements of the policies of the

TSX and the prior receipt of any necessary

regulatory approval, the board may, in its

absolute discretion, amend or modify the

Plan or any outstanding option granted

under the Plan, as to the provisions set out

in the Plan.

The following is a summary of the material

terms of the Plan:

• Currently all options granted under

the Plan are non-assignable and non-

transferable and are issuable for a

period of up to ten years.

• For stock options granted to employees

or service providers (inclusive of

management company employees),

the Company must ensure that the

proposed optionee is a bona fide

employee or service provider (inclusive

of management company employees),

as the case may be, of the Company or

any subsidiary.

• If an optionee ceases to be employed

by the Company (other than as a

result of termination with cause) or

ceases to act as a director or officer of

the Company or a subsidiary of the

Company, any option held by such

optionee may be exercised within

90 days after the date such optionee

ceases to be employed as an officer or

director or, as the case may be.

• If an optionee dies, any vested option

held by him at the date of death will

become exercisable by the optionee’s

lawful personal representatives, heirs or

executors until the earlier of one year

after the date of death of such optionee

and the date of expiration of the term

otherwise applicable to such option.

• In the case of an optionee being

dismissed from employment or service

for cause, such optionee’s options,

whether or not vested at the date of

dismissal, will immediately terminate

without right to exercise same.

• The minimum exercise price of an

option granted under the Plan must not

be less than the Market Price calculated

the day before the grant (as defined in

the Plan).

• Vesting of options shall be in

accordance with the option

commitment in the Plan or otherwise,

at the discretion of the board, and will

generally be subject to: (i) the service

provider remaining employed by or

continuing to provide services to the

Company or any of its affiliates as

well as, at the discretion of the board,

achieving certain milestones which

may be defined by the board from

time to time or receiving a satisfactory

performance review by the Company

or any of its affiliates during the vesting

period; or (ii) the service provider

remaining as a director of the Company

or any of its affiliates during the vesting

period.

• The maximum aggregate number of

shares issuable upon exercise of options

to non-employee directors must not

exceed 1% of the total Common Shares

of the Company outstanding at any

time and no more than $100,000 in

total award value per non-employee

director on an annual calendar basis.

• The board reserves the right in its

absolute discretion to terminate the

Plan with respect to all Plan shares in

respect of options which have not yet

been granted hereunder.

The Plan has the following restrictions,

which restrictions may only be superseded

by the Company obtaining approval of the

disinterested shareholders (defined below)

of the Company in each instance:

• Common Shares being issuable

to Insiders under the Plan, when

combined with all of the Company’s

other share compensation



arrangements, exceeding 10% of the

outstanding Common Shares;

• Common Shares to be issued to Insiders

under the Plan, when combined

with all of the Company’s other

share compensation arrangements,

exceeding 10% of the outstanding

Common Shares in any 12 month

period;

• Common Shares being issuable to

independent directors under the

Plan, when combined with all of the

Company’s other share compensation

arrangements, exceeding 1% of the

outstanding Common Shares of the

Company; and

• A reduction in the exercise price of

an option granted hereunder to an

Insider or an extension of the term of

an option granted hereunder benefiting

an Insider.

Options are generally granted to corporate

executives in the first quarter of each year

as part of the annual compensation review.

Any special compensation is typically

granted in the form of options. Options

are granted at other times of the year to

individuals commencing employment with

the Company. The exercise price for the

options is based on the volume weighted

average of the closing price of the shares

of the Company on the TSX for the five

days prior to the date of grant.

SUMMARY COMPENSATION TABLEThe compensation paid to the NEOs during the Company’s three most recently completed financial years ended February 29, 2012,

February 28, 2013 and February 28, 2014 is as set out below:

Non-equity incentive plan compensation3

Name and principal position Year

Salary1

$

Share-based

awards$

Option-based

awards2

$

Annual incentive

plans3

Long-termincentive

plans$

Pension value

$

All other compen-

sation$

Total compen-

sation$

James Campbell

President and

CEO

2014 350,208 59,443 39,721 Nil Nil Nil Nil 449,372

2013 362,278 Nil Nil 50,190 Nil Nil Nil 412,468

2012 270,000 Nil 550,000 Nil Nil Nil Nil 820,000

Gerhard Jacobs

CFO

2014 283,379 44,583 35,749 Nil Nil Nil Nil 363,711

2013 297,536 Nil 17,135 47,806 Nil Nil Nil 362,477


Michael Hunt4

former COO

2014 Nil Nil Nil Nil Nil Nil Nil Nil

2013 Nil Nil Nil Nil Nil Nil Nil Nil


Graham

Chamberlain5

former COO 2012 168,375 Nil Nil Nil Nil Nil Nil 168,375

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

of 1 Canadian dollar = ZAR9.5329 (2013:ZAR8.3682 and 2012:ZAR7.4239) the average monthly rate in effect for the year ended February 28, 2014.2. These amounts represent the dollar amount based on the grant date fair value of the award for the year ended February 28, 2014. The options granted

in the Company’s financial year ended February 28, 2014 were granted pursuant to the share option plan. For compensation purposes, the Black-Scholes option valuation model has been used to determine the fair value on the date of grant. The Black-Scholes option valuation is determined using the expected life of the stock option, expected volatility of the Company’s Common Share Price, expected dividend yield, and risk-free interest rate. The Black-Scholes grant date fair value for awards granted on October 9, 2013 was 100% of the option exercise price.

3. These amounts include annual non-equity incentive plan compensation, such as bonuses and discretionary amounts for the year ended February 28, 2014.4. Mr Hunt commenced employment July 11, 2011 with the Company and was appointed Chief Operating Officer and resigned on October 28, 2012. 5. Mr Chamberlain commenced employment with the Company and was appointed Chief Operating Officer on November 1, 2009 and resigned on

December 31, 2011.


INCENTIVE PLAN AWARDSOutstanding option-based awards

The following table sets out all share-based awards and option-based awards outstanding as at February 28, 2014, for each NEO:

Option-based awards

Name

Number of securities

underlying unexercised

options#

Option exercise price

$ Option expiration date

Value of unexercised

in-the-money options

$1

James Campbell2

President and CEO

100,000 0.40 October 9, 2023 Nil

733,333 0.75 October 12, 2016 Nil

Gerhard Jacobs3

CFO

90,000 0.40 October 9, 2023 Nil

75,000 0.21 December 12, 2022 $2,250

60,000 0.48 October 12, 2016 Nil

53,333 0.975 October 8, 2015 Nil

Notes:1. The value at February 28, 2014 is calculated by determining the difference between the closing price of the Company’s Common Shares at February 28, 2014

($0.295 per Common Share) underlying the option on the TSX and the exercise price of the options.2. Mr Campbell was appointed as CEO effective June 1, 2011.3. Mr Jacobs was appointed as CFO effective July 19, 2010.

Incentive plan awards – value vested or earned during the year

The following table sets out all incentive plan awards (value vested or earned) during the year ended February 28, 2014, for each NEO:

Name

Option-based awards – value vested during the year1

$

Non-equity incentive plan compensation – value earned

during the year$

James Campbell

President and CEO Nil Nil

Gerhard Jacobs

CFO $2,250 Nil

Note:1. These amounts represent the aggregate dollar value that would have been realized if the options under the option-based award had been exercised on the

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

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

TERMINATION AND CHANGE OF CONTROL BENEFITSAs at February 28, 2014 the following NEOs of the Company had written employment contracts between themselves and the Company:

• Gerhard Jacobs dated August 1, 2010; and

• James Campbell dated June 1, 2011.

Under these agreements Gerhard Jacobs and James Campbell are to work full time for the Company and are eligible to receive stock

options and a performance based bonus at the discretion of the compensation committee and the board, as well as other standard benefits

made available by the Company. Please see summary compensation table above.

There are no other compensatory plans or arrangements, with respect to the NEOs resulting from the resignation, retirement or any other

termination of employment of the NEOs or from a change of any NEO’s responsibilities following a change in control except Gerhard Jacobs.



POTENTIAL PAYMENTS UPON TERMINATION The following table provides information concerning the value of payments and benefits following termination of employment of each NEO

under various circumstances. Payments vary based on the reason for termination and the timing of a departure. The amounts below are

calculated as if the NEO’s employment had been terminated on February 28, 2014. Receipt of payments on termination is contingent on

the NEO delivering a release to the Company.

NEO Termination without cause Change of control

James Campbell1 Salary $175,104 $700,414

Bonus Nil Nil

Options Nil Nil

Gerhard Jacobs2 Salary $141,689 $283,378

Bonus Nil Nil

Options Nil Nil

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

Compensation of the Company’s South African executives (including Mr Campbell) was paid to them in South African Rand (“ZAR”). In the

above table, an exchange rate of CDN$1 = ZAR9.5329 was used.

Except as outlined above, there are no contracts, agreements, plans or arrangements that provide for payments to an NEO at, following or

in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement or a change in control of the

Company.

DIRECTOR COMPENSATIONDirector compensation table

Each director of the Company, who is not an executive officer, is paid an annual director’s fee of $25,000. Each director who is a member of

the audit committee receives an additional $5,000. Each director receives a fee per meeting attended ($750 per board meeting, $1,000 per

other meeting) and 10,000 share options per annum. The share options are increased to 15,000 share options per annum should a director

opt not to receive meeting fees.

The compensation provided to the directors, excluding a director who is included in disclosure for an NEO for the Company’s most recently

completed financial year of February 28, 2014 is:

Name

Fees earned

$

Share-based

awards$

Option-based

awards$

Non-equity incentive

plan compen-

sation$

Pension value

$

All other compen-

sation$

Total$

Mark Bristow 28,750 Nil 3,972 Nil Nil Nil 32,722

Richard John Linnell 28,750 Nil 3,972 Nil Nil Nil 32,722

Willem Jacobus Jacobs 37,750 Nil 3,972 Nil Nil Nil 41,722

Johan van’t Hof1 40,750 Nil 3,972 Nil Nil Nil 44,722

Stephen Dietrich 38,750 Nil 3,972 Nil Nil Nil 42,722

Rick Menell1 28,750 Nil 3,972 Nil Nil Nil 32,722

Notes:1. Mr Menell was appointed a director from January 2013.


The following table sets out all share-based awards and option-based awards outstanding as at February 28, 2014, for each director,

excluding a director who is already set out in disclosure for a NEO for the Company:

Option-based awards Share-based awards

Name

Number of securities

underlying unexercised

options#

Option exercise price

$ Option expiration date

Value of unexercised

in-the-money options

$1

Number of shares or

units of shares that have not

vested#

Market or payout value

of share-based awards that

have not vested

$

Mark Bristow 33,333 0.90 Dec 7, 2014 Nil Nil Nil

50,000 0.975 Oct. 8, 2015 Nil Nil Nil

75,000 0.48 Oct 12, 2016 Nil Nil Nil

10,000 0.21 Dec 12, 2022 850 Nil Nil

10,000 0.40 Oct 9, 2023 Nil Nil Nil

Richard John Linnell 20,000 0.90 Dec 7, 2014 Nil Nil Nil

33,333 0.975 Oct. 8, 2015 Nil Nil Nil

10,000 0.21 Dec 12, 2022 850 Nil Nil

Willem Jacobus

Jacobs

33,333 0.90 Dec 7, 2014

33,333 0.975 Oct. 8, 2015 Nil Nil Nil

50,000 0.48 Oct 12, 2016 Nil Nil Nil

10,000 0.21 Dec 12, 2022 850 Nil Nil

10,000 0.40 Oct 9, 2023 Nil Nil Nil

Johan van’t Hof 10,000 0.21 Dec 12, 2022 850 Nil Nil

10,000 0.40 Oct 9, 2023 Nil Nil Nil

Stephen Dietrich 10,000 0.21 Dec 12, 2022 850 Nil Nil

10,000 0.40 Oct 9, 2023 Nil

Rick Menell 10,000 0.40 Oct 9, 2023 Nil Nil Nil

Note:1. The value at February 28, 2014 is calculated by determining the difference between the closing price of the Company’s Common Shares at February 28, 2014

($0.2950 per Common Share) underlying the option on the TSX and the exercise price of the options.

There was no value vested or earned under any incentive plan during the Company’s fiscal year ended February 28, 2014.



SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANSThe following table sets out the equity compensation plan information for the fiscal year ended February 28, 2014.

Equity compensation plan information

Number of securities to be issued upon

exercise of outstanding options

Weighted-average exercise price of

outstanding options

Number of securities remaining available for

future issuance under equity compensation plans

(excluding securities reflected in column (a))

Plan category (a) (b) (c)

Equity compensation plans

approved by security holders –

(the Plan) 4,836,431 $0.54 515,893

Equity compensation plans not

approved by security holders Nil Nil Nil

Total 4,836,431 $0.54 515,893

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERSNo directors, proposed nominees for

election as directors, executive officers or

their respective associates or affiliates, or

other management of the Company were

indebted to the Company as of the end of

the most recently completed financial year

or as at the date hereof.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONSTo the knowledge of management of

the Company, no informed person

(a director, officer or holder of 10% or more

of the Shares) or nominee for election as a

director of the Company or any associate

or affiliate of any informed person or

proposed director had any interest in any

transaction which has materially affected or

would materially affect the Company

or any of its subsidiaries during the

12 months ended February 28, 2014, or

has any interest in any material transaction

in the current year other than in respect of

the share option plan and as set out herein

or in a document disclosed to the public.

Flawless Diamonds Trading House

Flawless Diamonds Trading House

(Proprietary) Limited (“Flawless Diamonds

Trading House” or “FDTH”) is a private

company where one director, DM Bristow,

and certain former directors and/or officers

of the Company, namely, Messrs J Brenner

and W van Wyk are shareholders. Rockwell

owns a 20% interest in FDTH which was

acquired with effect from May 5, 2010 for

consideration of approximately $100,000.

Flawless Diamonds Trading House is a

registered diamond broker which provides

specialist diamond valuation, marketing and

tender sales services to the Company for a

fixed fee of 1% of turnover which is below

the market rate charged by similar tender

houses. FDTH was established in 2006

to provide a professional marketing and

sales facility to market and sell Rockwell’s

diamond production. Rockwell had no

prior experience of marketing high quality

alluvial gemstone production and needed

to position itself in relation to new diamond

legislation which was being implemented

at the time that Rockwell was establishing

itself in the South African market. It was

strategically important for Rockwell to have

access to a strong and secure dedicated

marketing facility to maximize revenue from

the sale of its unique diamond production.

FDTH operates from South Africa’s

internationally recognized high security

diamond trading and manufacturing

hub known as Jewel City, Johannesburg.

FDTH was established and is still run by

experienced and internationally recognized

diamantaire. The facility is operated by a

small and highly experienced marketing

and valuation team which collectively

has over 100 years of rough diamond

valuation, marketing and sales experience.

FDTH follows rigorous diamond handling,

security, and Kimberley Process protocols,

and all marketing and sales procedures are

monitored and facilitated by a proprietary

computer based system. This system

provides independent and transparent

verification of results for sellers and

buyers, and is acknowledged in the

industry as a leading standard for

transacting diamond sales. Aside from

providing marketing and sales to Rockwell,

FDTH also conducts sales on behalf of

other small South African producers.

During fiscal 2014 FDTH was responsible

for selling 100% (or $41.1 million) of the

Company’s aggregate diamond sales.


Relationship with Diacore (previously Daboll Consulting Limited, an affiliate of the Steinmetz Diamond Group)

Diacore, an affiliate of the Steinmetz

Diamond Group, owns 19.4%

(10.2 million Rockwell Common Shares).

Rockwell Diamonds Inc. has a Marketing

and Beneficiation Agreement with Diacore

(previously Steinmetz Diamond Group)

which was initially signed in October

2007. Under the terms of the agreement

high valued rough diamonds produced

by Rockwell are sold to Diacore at the

market price. Rockwell receives 90% of

the price up front with the remaining 10%

payable on sale of the polished stone. The

diamonds are cut and polished by Diacore’

master cutters and on sale of the polished

diamonds, Rockwell participates equally in

the profits from the sale. The partnership

was originally set up for stones exceeding

$500,000 in value, but was extended to

include all stones exceeding 10 carats in

2009. In May 2011, the agreement was

broadened further to include all stones

larger than 2.8 carats.

The partnership has been successful for

both counterparties as Diacore has access

to Rockwell’s pipeline of high valued

stones, while Rockwell participates in

the upside potential on the final sale

of the stones where there is significant

value leverage. Rockwell is the only

diamond producer with a marketing and

beneficiation agreement of this nature.

Rockwell has generated total revenue of

$8.5 million from its profit shares in terms

of the joint venture in the last three years,

with the sale of 6,184 carats, while Diacore

has access to the large and exceptional

gemstones which are its specialty. As the

Removal of the oversize gravel at the Saxendrift in field screen.

stock of special stones in the joint venture

increases, so Rockwell’s potential for value

added revenues grows. With the recent

extension of the agreement to include

stones exceeding 2.8 carats, the benefits

for Rockwell will increase.

Diacore is also a creditor of the Company

having loaned it $2 million on June 2,

2011 under a convertible loan agreement.

Two addendums to the loan were signed

on June 19 and July 8, 2013 to allow

conversion of the $2 million loan into

maximum of 12,235,686 Common Shares,

only during the 21-day period prior to

June 26, 2015, and extending the loan

to June 26, 2015.


FINANCIAL STATEMENTS


DIRECTORS’ REPORT

NATURE OF BUSINESSRockwell is in the business of developing

and operating alluvial diamond mines. Its

medium-term goal is to become a mid-tier

diamond mining company processing

500,000 cubic meters per month of

quality gravels in the Middle Orange River

(“MOR”) region of South Africa. Rockwell’s

operations and development projects are

all located in the Republic of South Africa.

At February 28, 2014, the Group had

three existing mines in operation, namely

Saxendrift, Saxendrift Hills Complex

(“SHC”) and the recently commissioned

Niewejaarskraal Mine (“NJK”), which had

previously been on care and maintenance

since 2007. All three mines are located

in the MOR region of South Africa.

The Company has an economic interest

in a fourth operating property. Rockwell’s

operation at the Tirisano Mine has been

on care and maintenance since December

2012. However, royalty mining agreements

were subsequently put in place at Tirisano,

where independent contractors (or royalty

miners) mine for own risk and reward, with

the Company receiving a 12.5% royalty

income based on gross revenue from the

carats recovered and sold through the

Company’s tender process.

The Company is considering the

development of a fifth mining property

prospect. A Preliminary Economic

Assessment has been completed during

Q1 2014 on the Wouterspan project,

which could provide further expansion of

the Company’s Middle Orange operations

in future. The Group has a pipeline

of other projects with further future

development potential under consideration

and evaluation at present.

Rockwell continues to evaluate strategic

opportunities through merger and

acquisition as they arise, in order to expand

its mineral resources and provide new

opportunities to develop the additional

production.

Rockwell’s operations have a track record

of producing large gem quality diamonds,

which comprise a significant proportion of

its production profile. The larger diamonds

recovered from Rockwell’s mines are mostly

acquired for investment purposes. In order

to participate further in the diamond value

chain from production to retail sale, the

Company has a beneficiation agreement

in place. This arrangement enables it to

sell rough +2.8 carat sized diamonds, and

receive 90% of the fair value sales price

at sale and receive the remaining 10%

through, and participate equally in, the

retail profit on the sale of its stones after

polishing and finishing.

SUBSEQUENT EVENTSManagement is not aware of any matter or

circumstance arising since the end of the

financial year requiring amendment to the

amounts and disclosure included in these

financial statements.

FINANCIAL RESULTSThe financial statements on pages 56 to 99

set out fully the financial position, results of

operations and cash flows of the Company.

Financing

Rockwell management continues to

evaluate the potential of various projects

to ramp up further or improve its overall

pipeline of production properties. This

includes existing operations as well as

the new projects that the Company has

in its pipeline, with a particular focus on

properties located in the MOR region.

Construction of a processing plant at the

Niewejaarskraal project commenced in

mid-April 2013 and the first phase was

completed within ten weeks. The actual

cost of $2.5 million was funded in part from

the proceeds of the sale of the Klipdam

Mine at the end of March 2013. This first

phase of the project went into production

ramp up at the end of the second quarter

fiscal 2014 and was handed over to the

operations on September 1, 2013. The

second phase of the project entailed the

addition of a Bulk X-ray machine to treat

the coarse material and an in-field screen,

which was completed by the end of fiscal

2014, taking the monthly processing

capacity to 100,000m3.

Future developments include building

a new plant at Wouterspan and further

extensions at Saxendrift. A preliminary

economic assessment was completed

for Wouterspan during first quarter,

demonstrating viable project economics.

Both the Wouterspan and Niewejaarskraal

properties have extensive diamond

deposits, and have historically produced

diamonds that are similar to Saxendrift in

terms of size, quality and average price

per carat. The Company’s strategy is to

deploy high-volume processing plants

incorporating the latest technologies in

diamond recovery including a combination

of the fit for purpose in-field screen and

the Bulk X-ray technology that has been

implemented at Saxendrift Hill Complex.

The timing of Wouterspan and resource

extension projects will be predicated on

the availability of funds from external

capital sources and supplemented by

funds generated from internal cash flows.

With the exception of the Niewejaarskraal

project, no financing plans have been

assessed or determined to date in respect

of any of these projects.

LITIGATIONThe Company is not aware of any material

outstanding or threatened litigation.

INSURANCERockwell has adopted a policy that includes

insurance coverage for all equipment

that is purchased on an installment plan

(called hire purchase in South Africa) or

lease but it does not carry full coverage

for other equipment that is paid off. Cover

is obtained on a risk exposure and some

equipment is self insured. The Group also

has coverage on small vehicles, busses,

road trucks, Flow-sort X-ray equipment and

some of its fixed properties and assets.

LIQUIDITYAt February 28, 2014 the Group had

cash and cash equivalents of $1.3 million

(February 28, 2013: $5.6 million) and bank

indebtedness of $3.1 million (February 28,

2013: $2.8 million), for net cash holdings


DIRECTORS’ REPORT continued

of $1.8 million overdrawn (February

28, 2013: $2.8 million available). The

Group had negative working capital of

$(1.7) million compared to $1.2 million at

February 28, 2013. The major reason for

the reduction in net cash was the timing

of sales receipts and substantial capital

expenditure at NJK and SHC.

Management considered the available

cash resources at year end, the value

realized through diamond tenders post

year end and estimated the cash flows

from operations for the 24 month period

post year end. Based on this information

management concluded that the Group

will have available cash resources to settle

its liabilities as they fall due.

At February 28, 2014, the Group had asset

retirement obligations relating to its mines,

capital lease obligations at Saxendrift

relating to mining equipment with three

year lease agreements and a loan from

the Industrial Development Corporation of

South Africa Limited. The Group’s capital

lease obligations are shown in the table

above. Repayments are required in South

African rand, but reflected in Canadian

dollars in the table below.

The operations are now generating

sufficient cash to cover cash operating

costs and Group overheads and the

Company does not anticipate making

substantial capital expenditures without

concurrent financing in the coming twelve

months. The Group has adequate cash

holdings as well as access to short-term

debt facilities (bank overdraft facility) to

meet its working capital requirements for

the foreseeable future.

Contractual obligations and commitments

Rockwell has the following commitments

in respect of equipment lease payments to

various financial institutions for plant and

equipment. A minimum lease payment

of $0.2 million is payable in the next

12 months, with a further total $0.1 million

payable thereafter.

The following are the maturities of contractual obligations:

Payments due by period ($ millions)

Total

Less than one

year

One to three

years

Three to five years

More than five

years

Finance lease obligations 0.3 0.2 0.1 – –

Long-term debt obligations 5.2 2.0 3.2 – –

Operating lease obligations 4.3 1.2 1.7 1.4 –

Purchase obligations 1.1 1.1 – – –

Total 10.9 4.5 5.0 1.4 –

opportunities as they arise. The Group

considers the components of shareholders’

equity, as well as its cash and cash

equivalents, and bank indebtedness as

capital. The Group’s investment policy is

to invest its cash in highly liquid short-

term interest-bearing investments, having

maturity dates of three months or less from

the date of acquisition, that are readily

convertible to known amounts of cash.

The Group manages the capital structure

and makes adjustments to it in the light

of changes in economic conditions and

the risk characteristics of the underlying

assets. The Group may issue new shares

through private placements, issue debt,

or return capital to shareholders, in order

to maintain or adjust the capital structure.

In order to facilitate the management

of its capital requirements, the Group

prepares annual expenditure budgets

that are updated as necessary depending

on various factors, including successful

capital deployment and general industry

conditions.

There were no changes to the Group’s

approach to capital and working capital

management during the year ended

February 28, 2014 and the Group expects

it will be able to sufficiently fund its capital

development and operations for fiscal 2015.

FINANCIAL INSTRUMENT RISK EXPOSURE AND RISK MANAGEMENTThe Group is exposed in varying degrees

to a variety of financial instrument related

risks. The board approves and monitors

FINANCIAL INSTRUMENTS AND RISKS AND UNCERTAINTIESFinancial risk management

The board of directors has overall

responsibility for the establishment and

oversight of the Group’s risk management

framework. The Group’s risk management

policies are established to identify and

analyze the risks faced by the Group, to

set appropriate risk limits and controls, and

to monitor risks and adherence to limits.

Risk management policies and systems

are reviewed regularly to reflect changes

in market conditions and the Group’s

activities.

Capital management

As at February 28, 2014, the Group

is not subject to externally imposed

capital encumbrances other than through

the terms of its overdraft facility and

finance leases.

At February 28, 2014, of the $1,324,328

(February 28, 2013: $5,570,626)

cash and cash equivalents held by the

Group, $1,151,707 (February 28, 2013:

$5,293,016) were held in South African

rand (“ZAR”), $164,462 (February 28,

2013: $236,075) in Canadian dollars and

$8,159 (February 28, 2013: $41,535) in

United States dollars.

The Group’s primary objectives when

managing capital are to safeguard the

Group’s ability to continue as a going

concern, so that it can continue to provide

returns for shareholders, and to have

sufficient funds on hand for business


the risk management processes, including

treasury policies, counterparty limits,

controlling and reporting structures, credit

risk, liquidity risk, currency risk, interest risk

and diamond price risk.

Credit risk

Credit risk is the risk of potential loss to

the Group if counterparties to a financial

instrument fail to meet their contractual

obligations. The Group’s credit risk is

primarily attributable to its liquid financial

assets including cash and equivalents,

restricted cash, trade and other receivables

and loans to related parties. The carrying

values of the Group’s cash and cash

equivalents, trade and other receivables

and loans to related parties represents the

maximum exposure to credit risk.

The Group limits exposure to credit risk on

liquid financial assets through maintaining

its cash and equivalents with high-credit

quality financial institutions. The Group does

not have financial assets that are invested in

asset backed commercial paper. The Group

minimizes its credit risk by reducing credit

terms to 30 days on its sales.

Liquidity risk

Liquidity risk is the risk that the Group will

not be able to meet its financial obligations

as they fall due. After taking into account

cash flows from operations and the Group’s

holdings of cash and cash equivalents, the

Group believes that these sources will be

sufficient to cover the likely requirements

for the foreseeable future. The Group’s cash

and equivalents are invested in business

accounts which are available on demand

for the Group’s capital programs, and

which are not invested in any asset backed

deposits/investments.

The Group operates in South Africa. The

Group is subject to currency exchange

controls administered by the South African

Reserve Bank, that country’s central bank.

A significant portion of the Group’s funding

structure for its South African operations

consists of advancing loans to its South

Africa incorporated subsidiaries and it is

possible the Company may not be able

to acceptably repatriate such funds once

those subsidiaries are able to repay the

loans or repatriate other funds such as

operating profits should any develop. The

repatriation of cash held in South Africa is

permitted upon the approval of the South

African Reserve Bank.

Market risk

Market risk is the risk that changes in market

prices, such as foreign exchange rates and

interest rates will affect the Group’s income

or the value of its holdings of financial

instruments. The objective of market risk

management is to manage and control

market risk exposures within acceptable

parameters, while optimizing the return.

Foreign currency risk

In the normal course of business, the

Group enters into transactions for

the purchase of supplies and services

denominated in ZAR. In addition, the

Group has cash and certain liabilities

denominated in ZAR. As a result, the Group

is subject to currency risk from fluctuations

in foreign exchange rates. The Group

has not entered into any derivative or

other financial instruments to mitigate this

foreign exchange risk.

Interest rate risk

The Group is subject to interest rate risk

with respect to its investments in cash and

cash equivalents. The Group’s policy is to

invest cash at floating rates of interest and

cash reserves are to be maintained in cash

equivalents in order to maintain liquidity,

while achieving a satisfactory return for

shareholders. Fluctuations in interest rates

when the cash equivalents mature impact

interest income earned.

The Group has finance lease obligations

with several financial institutions as well

as a loan from the Industrial Development

Corporation of South Africa Limited. These

obligations bear interest at rates linked to

the prevailing prime rate, and are subject

to interest rate change risk.

Business risk – diamond price risk

The value of the Group’s mineral resource

properties is dependent on the price

and the outlook of diamonds. Diamond

demand and prices fluctuate and are

affected by numerous factors beyond the

control of the Group, including worldwide

economic trends, worldwide levels of

diamond discovery and production, and

the level of demand for and discretionary

spending on, luxury goods such as

diamonds and jewelry. Low or negative

growth in the worldwide economy,

prolonged credit market disruptions or

activities creating disruptions in economic

growth could result in decreased demand

for diamonds, thereby negatively

affecting the price of diamonds. Similarly,

a substantial increase in the worldwide

level of diamond production could also

negatively affect the price of diamonds.

In each case, such developments could

materially adversely affect the Group’s

results of operations.

The profitability of the Group’s operations

is highly correlated to the market price

of diamonds. If diamond prices decline

for a prolonged period below the cost of

production of the Group’s operating mines,

it may not be economically feasible to

continue production.


MANAGEMENT’S RESPONSIBILITIES AND APPROVAL

The consolidated financial statements,

the notes thereto and other financial

information contained in the annual report

have been prepared in accordance with

International Financial Reporting Standards

as issued by the International Accounting

Standards Board and are the responsibility

of the management of Rockwell Diamonds

Inc. (“Company”). The financial information

presented elsewhere in the annual report

is consistent with the data that is contained

in the consolidated financial statements.

The consolidated financial statements,

where necessary, include amounts which

are based on the best estimates and

judgment of management.

In order to discharge management’s

responsibility for the integrity of the

consolidated financial statements, the

Company maintains a system of internal

accounting controls. These controls

are designed to provide reasonable

assurance that the Company’s assets are

safeguarded, transactions are executed

and recorded in accordance with

management’s authorisation, proper

records are maintained and relevant and

reliable financial information is produced.

These controls include maintaining

quality standards in hiring and training

of employees, policies and procedures

manuals, a corporate code of conduct and

ensuring that there is proper accountability

for performance within appropriate

and well-defined areas of responsibility.

The system of internal controls is further

supported by a compliance function,

which is designed to ensure that we and

our employees comply with securities

legislation and conflict of interest rules.

The board of directors is responsible for

overseeing management’s performance

of its responsibilities for financial reporting

and internal control. The audit committee,

which is composed of non-executive

directors, meets with management as

well as the external auditors to ensure

that management is properly fulfilling its

financial reporting responsibilities to the

directors who approve the consolidated

financial statements. The external auditors

have full and unrestricted access to the

audit committee to discuss the scope of

their audits, the system of internal controls

and review financial reporting issues.

The consolidated financial statements

have been audited by KPMG Inc, the

independent registered public accounting

firm, in accordance with Canadian

Auditing Standards.

The consolidated financial statements set

out on pages 56 to 99 were approved

by the board on May 21, 2014 and were

signed on its behalf by:

James CampbellDirector

Dr Mark BristowDirector


INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Rockwell Diamonds Inc.

We have audited the accompanying

consolidated financial statements of

Rockwell Diamonds Inc., which comprise

the consolidated statements of financial

position as at February 28, 2014 and

February 28, 2013 the consolidated

statements of profit or loss and other

comprehensive income, changes in equity

and cash flows for the years then ended,

and notes, comprising a summary of

significant accounting policies and other

explanatory information, as set out on

pages 56 to 99.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTSManagement is responsible for the

preparation and fair presentation of

these consolidated financial statements in

accordance with International Financial

Reporting Standards as issued by the

International Accounting Standards

Board, and for such internal control as

management determines is necessary to

enable the preparation of consolidated

financial statements that are free from

material misstatement, whether due to

fraud or error.

AUDITORS’ RESPONSIBILITYOur responsibility is to express an opinion

on these consolidated financial statements

based on our audits. We conducted

our audits in accordance with Canadian

generally accepted auditing standards.

Those standards require that we comply

with ethical requirements and plan and

perform the audit to obtain reasonable

assurance about whether the consolidated

financial statements are free from material

misstatement.

An audit involves performing procedures to

obtain audit evidence about the amounts

and disclosures in the consolidated

financial statements. The procedures

selected depend on our judgment,

including the assessment of the risks of

material misstatement of the consolidated

financial statements, whether due to fraud

or error. In making those risk assessments,

we consider internal control relevant to the

entity’s preparation and fair presentation

of the consolidated financial statements in

order to design audit procedures that are

appropriate in the circumstances, but not

for the purpose of expressing an opinion

on the effectiveness of the entity’s internal

control.

An audit also includes evaluating the

appropriateness of accounting policies

used and the reasonableness of accounting

estimates made by management, as well as

evaluating the overall presentation of the

consolidated financial statements.

We believe that the audit evidence we

have obtained in our audits is sufficient

and appropriate to provide a basis for our

audit opinion.

OPINIONIn our opinion, the consolidated financial

statements present fairly, in all material

respects, the consolidated financial

position of Rockwell Diamonds Inc. as at

February 28, 2014 and February 28, 2013

and its consolidated financial performance

and its consolidated cash flows for the

years then ended in accordance with

International Financial Reporting Standards

as issued by the International Accounting

Standards Board.

KPMG Inc.Registered Auditors

Johannesburg, South Africa

May 22, 2014


CONSOLIDATED

STATEMENTS OF FINANCIAL POSITION

Amounts in Canadian dollars Note(s)

As atFebruary 28

2014

As atFebruary 28

2013

ASSETSNon-current assets

Mineral property interests 2 26,641,671 31,405,358

Investment in associates 3 232,616 207,560

Property, plant and equipment 4 30,720,684 33,544,992

Investments and deposits 5 5,385,602 4,888,415

Rehabilitation deposits 14 1,701,493 1,818,291

Total non-current assets 64,682,066 71,864,616

Current assets

Inventories 6 4,607,953 2,304,782

Loans to related parties 15 185,706 94,183

Current tax receivable 35,649 39,587

Trade and other receivables 7 8,500,922 5,850,618

Cash and cash equivalents 8 1,324,328 5,570,626

Total current assets 14,654,558 13,859,796

Total assets 79,336,624 85,724,412

EQUITY AND LIABILITIESEquity

Share capital 9 147,072,948 146,862,257

Reserves (10,008,873) (11,874,763)

Retained loss (88,096,415) (77,478,322)

Total equity attributable to the equity holders of the Group 48,967,660 57,509,172

Non-controlling interest (1,737,222) (2,137,472)

Total equity 47,230,438 55,371,700

LIABILITIESNon-current liabilities

Loans and borrowings 11 3,240,461 3,889,684

Finance lease obligation 12 110,017 281,029

Deferred tax 13 5,925,500 6,543,184

Rehabilitation obligation 14 6,459,061 6,992,157

Total non-current liabilities 15,735,039 17,706,054

Current liabilities

Loans from related parties 15 4,258 48,925

Loans and borrowings 11 1,953,651 1,314,807

Finance lease obligation 12 165,069 321,083

Trade and other payables 16 11,162,756 8,121,922

Bank overdraft 8 3,085,413 2,839,921

Total current liabilities 16,371,147 12,646,658

Total liabilities 32,106,186 30,352,712

Total equity and liabilities 79,336,624 85,724,412


CONSOLIDATED

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


For the year ended

February 282014

For theyear ended

February 282013

Sale of diamonds 21 41,106,550 27,105,988

Beneficiation income 21 4,062,860 5,299,275

Production cost 22 (39,200,432) (31,338,217)

Operating profit before amortization and depreciation 5,968,978 1,067,046

Amortization of mineral property interests 2 (927,709) (803,234)

Depreciation of property, plant and equipment 4 (5,008,643) (6,366,415)

Gross profit/(loss) 32,626 (6,102,603)

Other income 1,703,510 599,031

General and administration expenses (4,439,754) (5,806,816)

Rehabilitation obligation (recognized) revised (743,023) 3,549,572

Realized foreign exchange with sale of subsidiary 28 (6,609,464) –

Impairments (54,774) (5,411,603)

Loss before net finance costs 23 (10,110,879) (13,172,419)

Finance income 24 698,932 613,760

Finance costs 25 (1,137,131) (1,406,635)

Loss after net finance costs (10,549,078) (13,965,294)

Share of profit from equity accounted investment 3 58,962 58,761

Loss before taxation (10,490,116) (13,906,533)

Taxation 26 62,739 130,155

Loss for the year (10,427,377) (13,776,378)

Other comprehensive income net of taxation

Items that are or may be reclassified to profit or loss

Exchange differences on translating foreign operations (5,160,181) (8,733,171)

Reversal of realized foreign exchange with sale of subsidiary 28 6,609,464 –

Other comprehensive income for the year net of taxation 1,449,283 (8,733,171)

Total comprehensive income for the year (8,978,094) (22,509,549)

Loss attributable to:

Owners of the Group (10,618,093) (10,900,533)

Non-controlling interest 190,716 (2,875,845)

Loss for the year (10,427,377) (13,776,378)

Total comprehensive income attributable to:

Owners of the Group (9,378,344) (19,866,594)

Non-controlling interest 400,250 (2,642,955)

Total comprehensive income for the year (8,978,094) (22,509,549)

Loss per share

Basic and diluted loss per share (cents) 27 (21.30) (22.55)


CONSOLIDATED

STATEMENTS OF CHANGES IN EQUITY

Amounts in Canadian dollarsShare

capital

Foreigncurrency

translationreserve1

Share-based

paymentreserve2

Total net

reservesRetained

loss

Total equity attributable

to equity holders of the Group

Non- controlling

interestTotal

equity

Balance at March 1, 2012 145,632,846 (10,451,664) 7,605,893 (2,845,771) (65,620,276) 77,166,799 (712,429) 76,454,370

Total comprehensive income for the year

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

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

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

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

Debt conversion, net of issue costs at

$0.48 per share 218,707 – – – – 218,707 – 218,707

Payment of conversion of mineral right

(note 2) 119,930 – – – – 119,930 – 119,930

Acquisition of non-controlling interest

(note 17) 890,774 (621,342) – (621,342) (957,513) (688,081) 1,217,912 529,831

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

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

Total comprehensive income for the year

Loss for the year – – – – (10,618,093) (10,618,093) 190,716 (10,427,377)

Other comprehensive income – 1,239,749 – 1,239,749 – 1,239,749 209,534 1,449,283

Total comprehensive income for the year – 1,239,749 – 1,239,749 (10,618,093) (9,378,344) 400,250 (8,978,094)

Share-based payment transactions – – 626,141 626,141 – 626,141 – 626,141

Shares issued to employees (note 10) 204,750 – – – – 204,750 – 204,750

Shares issued to consultants (note 10) 29,155 – – – – 29,155 – 29,155

Share issue costs (23,214) – – – – (23,214) – (23,214)

Total changes 210,691 1,239,749 626,141 1,865,890 (10,618,093) (8,541,512) 400,250 (8,141,262)

Balance at February 28, 2014 147,072,948 (18,799,318) 8,790,445 (10,008,873) (88,096,415) 48,967,660 (1,737,222) 47,230,438

Note(s) 9 10

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

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


CONSOLIDATED

STATEMENTS OF CASH FLOWS


For the year ended

February 282014

For theyear ended

February 282013

Cash flows from operating activities

Cash receipts from customers 41,998,575 31,285,232

Cash paid to suppliers and employees (39,328,485) (36,093,313)

Cash generated (used) in operations 19 2,670,090 (4,808,081)

Finance income 372,603 406,835

Finance costs (483,844) (533,085)

Tax paid 20 – (39,587)

Net cash inflow (outflow) from operating activities 2,558,849 (4,973,918)

Cash flows from investing activities

Purchase of property, plant and equipment 4 (8,707,671) (4,750,650)

Proceeds from sale of property, plant and equipment 4 975,321 3,673,148

Purchase of mineral property interests 2 (199,515) –

Sale of mineral property interests 2 2,097,998 215,100

Asset and liability acquisition net of cash and cash equivalents acquired 17 – 2,659

Proceeds from sale of subsidiary 18 1,679,470 –

Net movement in related party loans (143,009) (91,684)

Net movement in investments and deposits (2,383,155) (2,075,420)

Decrease in rehabilitation deposits (65,131) 875,128

Net cash outflow from investing activities (6,745,692) (2,151,719)

Cash flows from financing activities

Share issue costs 9 (23,214) (5,293)

Repayment of loans and borrowings (10,202) –

Repayment of finance lease obligations (271,531) (50,226)

Net cash outflow from financing activities (304,947) (55,519)

Net movement in cash and cash equivalents for the year (4,491,790) (7,181,156)

Cash and cash equivalents at the beginning of the year 2,730,705 9,911,861

Total cash and cash equivalents at the end of the year 8 (1,761,085) 2,730,705


NOTES TO THE

CONSOLIDATED FINANCIAL STATEMENTS

The accompanying notes are an integral

part of these consolidated financial

statements.

1. ACCOUNTING POLICIES1.1 Nature of operations

Rockwell Diamonds Inc. (“Rockwell”

or the “Company”) is engaged in the

business of diamond production and the

acquisition and exploration of natural

resource properties. The consolidated

financial statements of the Company as

at and for the years ended February 28,

2014 and February 28, 2013 comprise

the Company and its subsidiaries (together

referred to as the “Group” and individually

as “Group entities”) and the Group’s

interest in associates. The Group’s mineral

property interests are located in South

Africa. Rockwell is incorporated under the

British Columbia Business Corporations Act.

Rockwell is primarily listed on the Toronto

Stock Exchange (TSX) with a secondary

listing on the Johannesburg Stock

Exchange (JSE).

1.2 Continuance of operations

The financial statements have been

prepared on the basis of accounting

policies applicable to a going concern.

Future events beyond the Group’s control

may change the Group’s ability to continue

as a going concern. If the going-concern

concept was no longer appropriate,

significant adjustments may be required to

the carrying value of assets and liabilities

and would be recorded at that time.

1.3. Basis of preparation

1.3.1 Statement of compliance

The accompanying consolidated financial

statements have been prepared in

accordance with International Financial

Reporting Standards (“IFRS”) as issued by

the International Accounting Standards

Board.

1.3.2 Basis of measurement

The consolidated financial statements have

been prepared on the historical cost basis,

except where otherwise stated, as set out

in the accounting policies below.

1.3.3 Presentation currency

These consolidated financial statements are

presented in Canadian dollars. All financial

information presented in Canadian dollars

has been rounded to the nearest dollar,

except as otherwise indicated.

1.3.4 Use of estimates and judgments

In preparing the consolidated financial

statements, management is required to make

estimates and assumptions that affect the

amounts represented in the consolidated

financial statements and related disclosures.

Use of available information and the

application of judgment are inherent in

the formation of estimates. Estimates and

underlying assumptions are reviewed on

an ongoing basis. Revisions to accounting

estimates are recognized in the period in

which the estimates are revised and in any

future periods affected.

Information about critical estimates and

judgments in applying accounting policies

that have the most significant effect on the

amounts recognized in the consolidated

financial statements is included in the

following notes:

• Note 2 – Mineral property interests

• Note 4 – Property, plant and equipment

• Note 6 – Inventories

• Note 10 – Share-based payments

• Note 13 – Deferred tax

• Note 14 – Rehabilitation obligation

1.4 Significant accounting policies

The accounting policies set out below are

applied consistently to all years presented

in these consolidated financial statements

and have been applied consistently by the

Group entities.

1.4.1 Basis of consolidation

Business combinations

Business combinations are accounted for

using the acquisition method as at the

acquisition date, which is the date on

which control is transferred to the Group.

Consideration transferred is calculated as

the sum of the fair values of the assets

transferred, liabilities incurred by the Group

to the previous owners of the acquiree,

and equity interests issued by the Group.

Consideration transferred also includes the

fair value of any contingent consideration

and share-based payment awards of the

acquiree that are replaced mandatorily in

the business combination.

A contingent liability of the acquiree is

recognized in a business combination

only if such a liability represents a present

obligation and arises from a past event,

and its fair value can be measured reliably.

Transaction costs incurred in connection

with a business combination, such as

legal fees, due diligence fees and other

professional and consulting fees are

expensed as incurred, unless it is debt

related. Directly attributable transaction costs

related to debt instruments are capitalized.

If the Group obtains control over one or

more entities that are not businesses, then

the bringing together of those entities

are not business combinations. The cost

of acquisition is allocated among the

individual identifiable assets and liabilities

of such entities, based on their relative

fair values at the date of acquisition. Such

transactions do not give rise to goodwill.

Non-controlling interests in the

proportionate net assets of consolidated

subsidiaries are identified and recognized

separately from the Group’s interest

therein, and are recognized within equity.

Losses of subsidiaries attributable to non-

controlling interests are allocated to the

non-controlling interests even if this results

in a debit balance being recognized for

non-controlling interests.

Subsidiaries

Subsidiaries are entities controlled by the

Group. The Group controls an entity when

it is exposed to, or has rights to, variable

returns from its involvement with the

entity and has the ability to affect those

returns through its power over the entity.

The financial statements of subsidiaries

are included in the consolidated financial

statements from the date that control

commences until the date on which

control ceases.


Loss of control

When the Group loses control over a

subsidiary, it derecognizes the assets and

liabilities of the subsidiary, and any related

NCI and other components of equity.

Any gain or loss is recognized in profit or

loss. Any interest retained in the former

subsidiary is measured at fair value when

control is lost.

Non-controlling interests (“NCI”)

NCI are measured at their proportionate

share of the carrying amounts of the

acquiree’s identifiable net assets at fair value

at the acquisition date. Changes in the

Group’s interest in a subsidiary that do not

result in a loss of control are accounted for

as equity transactions.

Transactions eliminated on consolidation

Intra-group balances and transactions,

and any unrealized income and expenses

arising from intra-group transactions, are

eliminated. Unrealized losses are eliminated

in the same way as unrealized gains, but

only to the extent that there is no evidence

of impairment.

Interests in equity-accounted investees

The Group’s interests in equity-accounted

investees comprise interests in associates.

Associates are those entities in which the

Group has significant influence, but not

control or joint control, over the financial

and operating policies.

Interests in associates are accounted

for using the equity method. They are

recognized initially at cost, which includes

transaction costs. Subsequent to initial

recognition, the consolidated financial

statements include the Group’s share of

the profit or loss and other comprehensive

income (“OCI”) of equity-accounted

investees, until the date on which

significant influence ceases.

1.4.2 Mineral property interests

The acquisitions of mineral property

interests are initially measured at the

fair value of the consideration paid.

Mineral property acquisition costs and

development expenditures incurred

subsequent to the determination of

the feasibility of mining operations and

approval of development by the Group are

capitalized until the property is placed into

production, sold, abandoned, or when

management has determined that there

has been an impairment in value. Such

acquisition costs are amortized over the

estimated life of the mine, based on the

unit of production method, or written off

to operations if the property is abandoned,

allowed to lapse, or if there is little prospect

of further work being carried out by the

Group. Under the unit of production

method, the yearly depreciation charge is

calculated by dividing the actual resources

mined by the estimated resources at the

beginning of the year and then multiplying

the resulting fraction by the net carrying

value of the related assets. The unit of

production method results in a systematic

and rational allocation of the cost of the

mineral property interests over the period

the resources are utilized.

Exploration expenditure incurred

subsequent to the mining operations

which do not increase production or

extend the life of operations are expensed

in the period incurred.

The amount presented for mineral

property interests represents costs incurred

to date less accumulated amortization

and impairment losses, and does not

necessarily reflect present or future values.

1.4.3 Exploration and evaluation costs

Exploration and evaluation expenditures

relate to cost incurred on the exploration

for and evaluation of potential mineral

resources and includes costs relating to the

following:

• Acquisition of exploration rights;

• Conducting geological studies;

• Exploratory drilling and sampling; and

• Evaluating the technical feasibility and

commercial viability of extracting a

mineral resource.

Expenditures incurred on activities that

precede exploration for and evaluation of

mineral resources, being all expenditures

incurred prior to securing the legal

rights to explore an area, are expensed

immediately.

Expenditures towards in-house exploration for and evaluation of potential mineral resources for each area of interest are expensed until it is considered probable that future economic benefit will arise through further exploration and subsequent development of the area of interest. Pre-feasibility studies involve the review of one or more potential development options with the aim of moving forward to the more detailed feasibility study stage. Expenditures related to such studies are expensed in full as there is insufficient certainty that future economic benefit will be generated at this stage of a project.

Expenditures relating to feasibility studies which support the technical feasibility and commercial viability of an area are capitalized at cost under mineral property interests. Where a feasibility study reaches a favourable conclusion, the costs are depleted over the unit of production method as described in 1.4.2. Where the feasibility study reaches an adverse conclusion, any previously costs capitalized are written off.

1.4.4 Property, plant and equipment

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

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

• the cost of the item can be measured reliably.

Property, plant and equipment are measured at cost less accumulated depreciation and any impairment losses.

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

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of them can be measured reliably.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

1. ACCOUNTING POLICIES continued

1.4 Significant accounting policies continued

1.4.4 Property, plant and equipment

continued

The carrying amount of the replacement

part is derecognized. All other repairs and

maintenance are recognized in profit or

loss during the financial period in which

they are incurred.

Property, plant and equipment are

depreciated on the straight-line basis

over their expected useful lives to their

estimated residual value.

Consistent with the prior year, the useful

lives of items of property, plant and

equipment have been assessed as follows:

Average usefulItem life

Buildings 12 years

Plant and machinery 4 – 10 years

Motor vehicles 5 years

Office equipment 6 years

Assets under construction are not

depreciated until it is in the location and

condition necessary for it to be capable

of operating in the manner intended by

management.

Land is not depreciated.

The residual value, useful life and

depreciation method of each asset is

reviewed annually. If the expectations differ

from previous estimates, the change is

accounted for as a change in accounting

estimate.

The depreciation for each period is

recognized in profit or loss unless it is

included in the carrying amount of

another asset.

The gain or loss arising from the

derecognition of an item of property, plant

and equipment is included in profit or loss

when the item is derecognized. The gain

or loss arising from the derecognition of

an item of property, plant and equipment

is determined as the difference between

the net disposal proceeds, if any, and the

carrying amount of the item.

1.4.5 Impairment of non-financial

assets

The carrying amounts of the Group’s

non-financial assets, other than inventories

and deferred tax assets, are reviewed at

each reporting date to determine whether

there is any indication of impairment. If

any such indication exists, then the asset’s

recoverable amount is estimated.

The recoverable amount of an asset or cash

generating unit is the greater of its value

in use and its fair value less costs to sell. In

assessing value in use, the estimated future

cash flows are discounted to their present

value using a pre-tax discount rate that

reflects current market assessments of the

time value of money and the risks specific

to the asset. For the purpose of impairment

testing, assets are grouped together into

the smallest group of assets that generates

cash inflows from continuing use that are

largely independent of the cash inflows of

other assets or groups of assets (the “cash-

generating unit”).

An impairment loss is recognized if the

carrying amount of an asset or its cash-

generating units exceeds its estimated

recoverable amount. Impairment losses

are recognized in profit or loss. Impairment

losses recognized in respect of cash-

generating units are allocated to reduce the

carrying amounts of the other assets in the

unit (group of units) on a pro rata basis.

Impairment losses recognized in prior years

are assessed at each reporting date for

any indications that the loss has decreased

or no longer exists. An impairment loss

is reversed if there has been a change

in the estimates used to determine the

recoverable amount. An impairment loss

is reversed only to the extent that the

asset’s carrying amount does not exceed

the carrying amount that would have

been determined, net of depreciation or

amortization, if no impairment loss had

been recognized.

1.4.6 Financial instruments

Initial recognition and measurement

Financial instruments are recognized

initially when the Group becomes a

party to the contractual provisions of the

instruments. The Group classifies financial

instruments, or their component parts,

on initial recognition as a financial asset,

a financial liability or an equity instrument

in accordance with the substance of the

contractual arrangement.

Financial instruments are measured initially

at fair value, except for equity investments

for which a fair value is not determinable,

which are measured at cost and are

classified as available-for-sale financial assets.

For financial instruments which are

not at fair value through profit or loss,

transaction costs are included in the initial

measurement of the instrument.

Transaction costs on financial instruments

at fair value through profit or loss are

recognized in profit or loss.

Subsequent measurement

Financial instruments at fair value through

profit or loss are subsequently measured

at fair value, with gains and losses

arising from changes in fair value being

recognized in profit or loss for the period.

Loans and receivables are subsequently

measured at amortized cost, using the

effective interest method, less accumulated

impairment losses. Loans and receivables

include loans to related parties, trade and

other receivables, deposits and cash and

cash equivalents.

Available-for-sale financial assets are

subsequently measured at fair value.

Financial liabilities are subsequently

measured at amortized cost, using the

effective interest method. Financial liabilities

include loans from related parties, trade

and other payables, loans and borrowings

and bank overdraft.

Investments

The Group classified its investments

into the following categories: fair value

through profit or loss, held to maturity

and available- for-sale. The classification is

dependent on the purpose for which the

investments were required. Management

determines the classification of its

investments at the time of the purchase

and re-evaluates such designation on a

regular basis. Investments that are acquired


principally for the purpose of generating a

profit from short-term fluctuations in price

are classified as trading investments and

included in current assets. Investments

with a fixed maturity that management

has the intention and ability to hold to

maturity are classified as held-to-maturity

and are included in non-current assets,

except for maturities within 12 months

from the reporting date which are classified

as current assets. Investments intended to

be held for an indefinite period of time,

which may be sold in response to needs

for liquidity or changes in interest rates,

are classified as available-for-sale and are

included in non-current assets unless

management has the express intention

of holding the investment for less than

12 months from the reporting date or

unless they will need to be sold to raise

operating capital, in which case they are

included in current assets.

Purchases and sales of investments are

recognized on the trade date, which is the

date that the Group commits to purchase

or sell the asset. Cost of purchase includes

transaction costs. Fair value through profit

or loss and available-for-sale investments

are subsequently measured at fair value.

The fair value of investments is based on

cash value or amounts derived from cash

flow models. Equity securities for which

fair value cannot be measured reliably

are recognized at cost less impairment.

When securities classified as available-for-

sale are sold or impaired, the accumulated

fair value adjustments are included in

the statement of profit or loss and other

comprehensive income as gains or losses

from investment securities. Held-to-maturity

investments are measured at amortized

cost using the effective yield method.

Derecognition

The Group derecognizes a financial

asset when the contractual rights to cash

flows from the asset expire, or it transfers

the rights to receive the contractual cash

flows in a transaction in which substantially

all the risks and rewards of ownership of

the financial asset are transferred. Any

interest in such transferred financial assets

that is created or retained by the Group is

recognized as a separate asset or liability.

The Group derecognizes a financial liability

when its contractual obligations are discharged, cancelled or expire.

Offsetting

Financial assets and financial liabilities are

offset and the net amount presented in the

statement of financial position when, and

only when, the Group has a legal right to

offset the amounts and intends either to

settle on a net basis or to realize the asset

and settle the liability simultaneously.

Share capital and equity

An equity instrument is any contract that

evidences a residual interest in the assets of

an entity after deducting all of its liabilities.

Common shares are classified as equity. Incremental costs directly attributable to the

issue of common shares are recognized as a deduction of equity, net of any tax effects.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other

short-term highly liquid investments that are readily convertible to a known amount

of cash and are subject to an insignificant

risk of changes in value. In the statements

of cash flows, cash and cash equivalents

includes bank overdrafts.

Impairment of financial assets

At each reporting date the Group assesses

all financial assets, to determine whether

there is objective evidence that a financial

asset or group of financial assets has

been impaired. Appropriate allowances

for estimated irrecoverable amounts are

recognized in profit or loss. Significant

financial difficulties of the debtor,

probability that the debtor will enter

bankruptcy or financial reorganization,

and default or delinquency in payments

are considered indicators that the financial

asset might be impaired. The allowance

recognized is measured as the difference

between the asset’s carrying amount and

the present value of estimated future cash

flows discounted at the effective interest

rate computed at initial recognition.

Reversals of impairment losses are

recognized in profit or loss except for

equity investments classified as available-for-sale.

Impairment losses are also not

subsequently reversed for available-for-sale equity investments which are held at cost

because fair value was not determinable.

1.4.7 Tax

Current tax assets and liabilities

Current tax for current and prior periods

is, to the extent unpaid, recognized as

a liability. If the amount already paid in respect of current and prior periods

exceeds the amount due for those

periods, the excess is recognized as a tax

receivable.

Current tax liabilities (assets) for the current

and prior periods are measured at the amount expected to be paid to (recovered

from) the tax authorities, using the tax rates

(and tax laws) that have been enacted or

substantively enacted by the end of the

reporting period.

Deferred tax assets and liabilities

Deferred tax is recognized in respect of all

taxable temporary differences between

the carrying values of assets and liabilities

for accounting purposes and the amounts

used for tax purposes and any tax losses.

No deferred tax is provided on temporary

differences relating to:

• the initial recognition of goodwill;

• the initial recognition (other than in

a business combination) of an asset or liability to the extent that neither

accounting nor taxable profit is affected on acquisition; and

• investments in subsidiaries and associates to the extent that the Group

is able to control the timing and reversal

and it is probable that they will not reverse in the foreseeable future.

Deferred tax is measured using enacted

or substantively enacted rates at the

reporting date that are expected to apply

when the asset is realized or the liability is

settled. A deferred tax asset is recognized to the extent that it is probable that future

taxable profits will be available against

which the deferred tax asset could be

realized.





1.4.7 Tax continued

Tax expenses

Current and deferred taxes are recognized

as income or an expense and included in

profit or loss for the period, except to the

extent that the tax arises from:

• a transaction or event which is

recognized, in the same or a different

period, in other comprehensive income

which is then recognized in other

comprehensive income; or

• a business combination.

Current tax and deferred taxes are

recognized directly in equity if the tax relates

to items that are recognized, in the same or

a different period, directly in equity.

1.4.8 Inventories

Rough diamond inventories are valued

at the lower of average production cost

and net realizable value. Production costs

include the cost of consumable materials,

direct labour, mine-site overhead expenses

and amortization. Work-in-progress stock

piles consist of ground excavated, but

not yet fully processed at reporting date.

The value of these stock piles represents

management’s best estimate of the costs

incurred to excavate and screen the

ground as identified by an independent

surveyor at reporting date.

Mine supplies are valued at the lower of

cost, at the weighted average cost basis,

and net realizable value.

Cost of items that are not ordinarily

interchangeable, and goods and services

produced and segregated for specific

projects, are assigned by using a specific

identification of their individual costs.

Previous write-downs are reversed to the

lower of cost and net realizable value

when there is a subsequent increase in the

value of inventories.

1.4.9 Share-based payments

The fair value of share-based payment

awards granted to employees is

recognized on the grant date as an

employee cost, with a corresponding

increase in reserves, over the period that

the employees become unconditionally

entitled to the awards. The amount

recognized as an expense is adjusted to

reflect the number of awards for which

the related service and non-market

performance conditions are expected to

be met, such that the amount ultimately

recognized as an expense is based on the

number of awards that meet the related

service and non-market performance

conditions at the vesting date.

For share-based payment awards with non-

vesting conditions, the grant date fair value

of the share-based payment is measured to

reflect such conditions and there is no true

up for differences between expected and

actual outcomes.

The fair value of the employee share

options is measured using the Black-Scholes

option pricing model. Measurement

inputs include the share price on the

measurement date, the exercise price of

the instrument, expected volatility (based

on an evaluation of the Group’s historic

volatility, particularly over the historic

period commensurate with the expected

term), expected term of the instruments

(based on historical experience and

general option holder behavior), expected

dividends, and the risk-free interest rate

(based on Canadian government bonds).

Service and non-market performance

conditions attached to the transactions are

not taken into account in determining fair

value.

1.4.10 Rehabilitation obligation

Estimated rehabilitation costs, which are

based on the Group’s interpretation of

current environmental and regulatory

requirements, represent the present value

of the expected future costs to rehabilitate

the mine properties at termination of

mining operations. The estimated costs

of rehabilitation are reviewed annually

and adjusted as appropriate for changes

in legislation, technology or other

circumstances.

Provision is made for the Group’s legal

and constructive obligations to dismantle,

remove and restore items of property,

plant and equipment and remediation

of disturbed areas in the financial

period when the related environmental

disturbance occurs, based on the estimated

future costs using information available

at the reporting date. The provision is

discounted using a market-based

pre-tax discount rate and the unwinding of

the discount is included in finance cost.

Based on current environmental

regulations and known rehabilitation

requirements, management has included

its best estimate of these obligations in its

rehabilitation provision.

1.4.11 Leases

A lease is classified as a finance lease if

it transfers substantially all the risks and

rewards incidental to ownership to the

Group. A lease is classified as an operating

lease if it does not transfer substantially

all the risks and rewards incidental to

ownership to the Group.

Finance leases

Assets held by the Group under finance

leases are recognized in the consolidated

statements of financial position at

amounts equal to the fair value of the

leased property or, if lower, the present

value of the minimum lease payments.

The corresponding liability to the lessor is

included in the consolidated statements

of financial position as a finance lease

obligation.

The discount rate used in calculating

the present value of the minimum lease

payments is the interest rate implicit in the

lease.

The lease payments are apportioned

between the finance charge and reduction

of the outstanding liability. The finance

charge is allocated to each period during

the lease term so as to produce a constant

periodic rate on the remaining balance of

the liability.

Operating leases

Operating lease payments are recognized

as an expense on a straight-line basis over

the lease term. The difference between the

amounts recognized as an expense and

the contractual payments are recognized as


an operating lease asset. Assets held under

operating leases are not recognized in the

Group’s statement of financial position.

Any contingent rents are expensed in the

period they are incurred.

1.4.12 Revenue

Revenue arising from the sale of diamonds

is recognized when all the following

conditions have been satisfied:

• The Group has transferred to the buyer

the significant risks and rewards of

ownership of the goods;

• The Group retains neither continuing

managerial involvement to the degree

usually associated with ownership nor

effective control over the goods sold;

• The amount of revenue can be

measured reliably;

• It is probable that the economic benefits

associated with the sale transaction will

flow to the Group; and

• The costs incurred or to be incurred in

respect of the sale transaction can be

measured reliably.

Revenue is measured at the fair value of

the consideration received or receivable

and represents the amounts receivable for

goods and services provided in the normal

course of business, net of value added tax.

1.4.13 Finance income and finance cost

Finance income comprises interest on

funds invested and fair value gains on

financial assets at fair value through profit

or loss. Finance income is recognized, in

profit or loss, using the effective interest

method.

Finance cost comprises interest expense

on borrowings, unwinding of discount on

provisions and fair value losses on financial

assets at fair value through profit or loss.

Borrowing costs that are not directly

attributable to the acquisition, construction

or production of a qualifying asset are

recognized in profit or loss using the

effective interest method.

1.4.14 Earnings per share

The Group presents basic and diluted

earnings/loss per share (“EPS”) data for its

common shares. Basic EPS is calculated by

dividing the profit or loss attributable to

common shareholders of the Company

by the weighted average number of

common shares outstanding during the

year, adjusted for own shares held. Diluted

EPS is determined by adjusting the profit or

loss attributable to common shareholders

and the weighted average number of

common shares outstanding, adjusted

for own shares held and for the effects

of all dilutive potential common shares,

which comprise share options granted to

employees.

1.4.15 Translation of foreign currencies

Foreign currency transactions

A foreign currency transaction is recorded,

on initial recognition in the functional

currency, by applying to the foreign

currency amount the spot exchange rate

between the functional currency and

the foreign currency at the date of the

transaction.

At the end of the reporting period:

• Foreign currency monetary items are

translated using the closing rate;

• Non-monetary items that are measured

in terms of historical cost in a foreign

currency are translated using the

exchange rate at the date of the

transaction; and

• Non-monetary items that are measured

at fair value in a foreign currency are

translated using the exchange rates

at the date when the fair value was

determined.

Exchange differences arising on the

settlement of monetary items or on

translating monetary items at rates different

from those at which they were translated

on initial recognition during the period or

in previous financial periods are recognized

in profit or loss in the period in which

they arise.

Cash flows arising from transactions in a

foreign currency are recorded in Canadian

dollars by applying to the foreign currency

amount the exchange rate between the

Canadian dollars and the foreign currency

at the date of the cash flow.

Foreign operations

For consolidation purposes the results and

financial position of a foreign operation are

translated into the presentation currency

using the following procedures:

• Assets and liabilities are translated at

the closing rate at the date of that

consolidated statement of financial

position;

• Equity components are translated at

historical rates;

• Income and expenses are translated

at exchange rates at the dates of the

transactions; and

• All resulting exchange differences are

recognized in other comprehensive

income and accumulated as a separate

component of equity. When a foreign

investment is disposed, the cumulative

exchange differences previously

recognized in other comprehensive

income are transferred to profit or loss.

Exchange differences arising on a

monetary item that forms part of a net

investment in a foreign operation are

recognized initially in other comprehensive

income and accumulated in the foreign

translation reserve. They are recognized in

profit or loss as a reclassification adjustment

through to other comprehensive income

on disposal of net investment.

The cash flows of a foreign subsidiary are

translated at the exchange rates between

the functional currency and the foreign

currency at the dates of the cash flows.

1.4.16 Segmental reporting

Segmental results that are reported to the

chief operating decision-maker, or decision-

making group, include items directly

attributable to a segment as well as those

that can be allocated on a reasonable

basis. Unallocated items comprise mainly

corporate assets (primarily the Group’s

headquarters), head office expenses, and

tax assets and liabilities.





1.4.17 Employee benefits

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid

if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the

obligation can be estimated reliably.

The obligation for employee entitlements to wages, salaries and annual leave represents the amount which the Group has a present

obligation to pay as a result of employee services provided to the reporting date. Short-term benefits are undiscounted.

The expected cost of bonus payments is recognized as an expense when there is a legal or constructive obligation to make such payments

as a result of past performance.

1.5. Standards, interpretations and amendments to published standards effective for the year ended February 28, 2014

During the financial year, the following new and revised accounting standards, amendments to standards and new interpretations

were adopted by the Group:

Standard(s)

Amendment(s)

Interpretation(s) Salient features of changesImpact on financial position or performance

IAS 1 (Amendment)Presentation of Financial Statements:Presentation of Items of Other Comprehensive Income

•� Requires that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future, if certain conditions are met, from those that would never be reclassified to profit or loss;

•� It does not change the existing option to present profit or loss and other comprehensive income in two statements;

•� The amendment does not address which items are presented in other comprehensive income or which items need to be reclassified. The requirements of other IFRSs continue to apply in this regard.

No impact*

IAS 27 (Revision)Separate FinancialStatements (2011)

•� IAS 27 (2011) supersedes IAS 27 Consolidation and Separate Financial Statements (2008) and carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor changes.

No impact

IAS 28 (Amendment)Investments in Associatesand Joint Ventures (2011)

•� IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and

•� On cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not re-measure the retained interest.

No impact

IFRS 7 (Amendment)Disclosures – Offsetting Financial Assets and Financial Liabilities

•� The amendments contain new disclosure requirements for financial liabilities that are offset in the statement of financial position, or are subject to enforceable master netting arrangements or similar agreements.

No impact


Standard(s)

Amendment(s)

Interpretation(s) Salient features of changesImpact on financial position or performance

IFRS 10 (Amendment)Consolidated FinancialStatements

•� IFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investees;

•� Control is reassesed as facts and circumstances change; and

•� IFRS 10 supersedes IAS 27 (2008) and SIC 12 Consolidation Special Purpose Entities.

No impact

IFRS 12 (New Standard)Disclosure of Interests in Other Entities

•� IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to evaluate:

– The nature of, and risks associated with, an entity’s interest in other entities; and

– The effects of those interests on the entity’s financial position, financial performance and cash flows.

No impact**

IFRS 13 (New Standard)Fair Value Measurement

•� IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance; and

•� It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

No impact

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transaction Guidance (Amendment)

•� The amendment clarifies the transition guidance in IFRS 10 Consolidated Financial Statements.

No impact

Various IFRSs •� Annual improvements project is a collection of amendments to IFRS and are the result of conclusions reached by the Board on proposals made at its annual improvements project.

No impact

* This IAS 1 amendment has no impact on the amounts recognized in the statement of other comprehensive income. This standard however, requires additional disclosure which has been provided in the statement of other comprehensive income.

** IFRS 12 has no impact on the amounts recognized in the financial statements. This IFRS, however, requires additional disclosure.




1.6 Standards, interpretations and amendments to published standards which are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that apply to the Group’s

accounting periods beginning on January 1, 2014 or later periods but have not been early adopted by the Group. Management is

currently reviewing the impact of these standards on the Group.

These standards, amendments and interpretations are:

Standard(s)Amendment(s) Interpretation(s) Salient features of changes Effective date

IAS 32 (Amendment)Offsetting Financial Assetsand Financial Liabilities

The amendments clarify that an entity currently has a legally enforceable right to set off if that right is:

•� Not contingent on a future event; and

•� Enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.

January 1, 2014

IFRS 9 (New Standard)Financial Instruments (2009)

•� This IFRS is part of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement;

•� Addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortized cost and fair value; and

•� The classification and measurement of financial liabilities are the same as per IAS 39 barring two aspects.

Implementation to be advised

IFRS 9 (New Standard)Financial Instruments (2010)

• Add the requirements related to the classification and measurement of financial liabilities, and derecognition of financial assets and liabilities to the version issued in November 2009; and

•� Includes those paragraphs of IAS 39 dealing with how to measure fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives.

Implementation to be advised

Amendments to IFRS 10,IFRS 12 and IAS 27 –Investment Entities

•� The amendments clarify that a qualifying investment entity is required to account for investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit and loss; the only exception would be subsidiaries that are considered an extension of the investment entity’s investment activities. The consolidation exemption is mandatory and not optional.

January 1, 2014

Amendments to IAS 36 –Impairment of Assets

•� The amendments reverse the unintended requirements in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite lived intangible assets have been allocated; and

•�� Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed.

January 1, 2014

IFRIC 21 – Levies

(New Interpretation)

•� The interpretation provides guidance on accounting for levies in accordance with IAS 37 Provisions, Contingent Liabilities and Assets.

January 1, 2014

# Effective date refers to annual period beginning on or after said date.


Amounts in Canadian dollars

As at February 28, 2014 As at February 28, 2013

Cost

Accumu-lated

amorti-zation

and impairment

lossesCarrying

value Cost

Accumu-lated

amorti-zation

and impairment

lossesCarrying

value

2. MINERAL PROPERTY INTERESTSMineral property interests 30,170,562 (3,528,891) 26,641,671 41,892,378 (10,487,020) 31,405,358

Reconciliation of mineral property interests February 28, 2014


Opening balance Additions Disposals

Foreign exchange

movementsAmorti-zation

Closing balance

Mineral property interests 31,405,358 199,515 (1,617,116) (2,418,377) (927,709) 26,641,671

Fiscal 2014 disposals

Klipdam (note 18) 1,178

Holsloot, Mooidraai, Farhom and Thorngrove 1,615,938

1,617,116

Reconciliation of mineral property interests February 28, 2013


Opening balance

Assets and liabilities

acquisitions (note 17)

Conversion of mineral

right Disposals

Foreign exchange

movementsAmorti-zation

Impair-ments

Closing balance

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

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

Wouterspan (including Farhom, Okapi and Kanonloop)

The Wouterspan property is located in the Herbert district of the Northern Cape province of South Africa approximately 145km

southwest of Kimberley. The operation is located on the farm Lanyonvale (various portions), Farhom, Okapi and Kanonloop, with an

aggregate area of 2,579.8 hectares.

The operation has not been operational since December 2008.

During fiscal 2011 management requested an independent expert to perform a valuation of the Wouterspan mineral properties.

The following significant judgments and estimates were used by the independent expert in determining the recoverable amount of

the Wouterspan mineral properties:

USD selling price 2 029

Grade (ct/100m3) 0.7

Inflation – Sales 4.40%

– Cost 7.00%

Volumes per year (m3) 4 320 000

Available resource (m3) 42 811 200

Discount rate 26%



2. MINERAL PROPERTY INTERESTS continued

Wouterspan (including Farhom, Okapi and Kanonloop) continued

Included in the discounted cash flow model was the estimated cost of construction and commissioning a high volume plant.

Management considered the adverse impact of any subsequent to 2011 changes in the expert’s assumptions used in the cash flow

model and considered these in their conclusion on the carrying value of $12,565,766 (2013: $13,100,929) relating to this mineral

property. Management concluded that no impairment is required.

During fiscal 2014 a preliminary economic assessment was performed.

Holpan/Klipdam

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

157 farms, covering an area of 4,019.9 hectares. Holpan property and mineral property was sold in fiscal 2014 and was fully

depleted at date of sale. The Klipdam mineral property was sold in Q1 of fiscal 2014, refer to note 18 for additional information.

Saxendrift

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

Wouterspan property and is currently being mined. Carrying value of this mineral property at February 28, 2014 amounted to

$2,489,616 (2013: $4,986,345).

Niewejaarskraal

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

Kimberley. The operations are located on Niewejaarskraal 40 and Viegulands Put 39 (total of 3,085.695ha) and is actively being

mined. Carrying value of this mineral property at February 28, 2014 amounted to $389,627 (2013: $195,365).

Windsorton Erf 2004

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

mineral right was sold in Q1 of fiscal 2014 as part of the Klipdam sale.

Tirisano

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

approximately 150km west of Johannesburg. Operations at Tirisano Mine were placed on care and maintenance in December

2012. Management saw this as an impairment indicator and a review of the fair value of property, plant and equipment and

mineral property was undertaken. This review resulted in an impairment relating to property, plant and equipment, after taking

into account moveable assets that can and have been relocated to the Northern Cape operations and remaining property, plant

and equipment that will be used at Tirisano. The recoverable amount of the mineral property interest was deemed to exceed the

carrying value. Management used the value in use method, based on the available gravel, annual production volumes effected

through contract royalty mining operators, projected grade, carat recoveries and product pricing to determine the recoverable

amount. In addition, management assessed the valuation report performed by an independent competent person prior to the

acquisition of Tirisano, and concluded that the assumptions used in the report have not significantly changed since the date of the

report. Therefore no impairment was recognized for the Tirisano mineral property. Management concluded that no impairment is

required.

The following significant judgments and estimates were used by the independent expert in determining the recoverable amount of

the Tirisano mineral property:

USD selling price 607

Grade (ct/100m3) 2.37

Inflation – Sales 4.40%

– Cost 7.00%

Volumes per year (m3) 2 160 000

Available resource (m3) 25 279 900

Discount rate 25.6% – 28.96%


2. MINERAL PROPERTY INTERESTS continued

Tirisano continued

Management considered the adverse impact of any subsequent changes in the expert assumptions used in the cash flow model

and considered these in their conclusion of the carrying value of $10,647,498 (2013: $11,522,445) relating to this mineral

property. Management concluded that no impairment is required.

Jasper

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

and is actively being mined at the Saxendrift operations. Carrying value of this mineral property at February 28, 2014 amounted to

$571,587 (2013: $1,031,358).

Holsloot, Mooidraai, Thorngrove and Farhom

Mineral property interest relating to Holsloot, Mooidraai, Thorngrove and Farhom was sold during fiscal 2014 through the transfer

of the mineral right at an amount of $2,097,998. A profit of $482,060 was realized on the disposal.

Estimations

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

Group and were reviewed by an independent qualified geologist. These resource estimates include inferred resources which have

a great amount of uncertainty as to their existence, and economic and legal feasibility. The estimated carats have been published

as required by National Instrument 43-101. The carats included in the 43-101 are used in the calculation of the amortization for

the period (refer accounting policy). The carats available at Jasper have been assessed as management’s best estimates of expected

carats to be obtained. Currently samples are being evaluated to compile the 43-101 for Jasper.

3. INVESTMENT IN ASSOCIATES3.1 Flawless Diamonds Trading House Proprietary Limited (20% shareholding)


As atFebruary 28

2014

As atFebruary 28

2013

Carrying amount

Opening balance 207,560 161,049

Share of profit from equity-accounted investment 58,962 58,761

Foreign exchange movements (33,906) (12,250)

Closing balance 232,616 207,560

The associate had no other comprehensive income (2013: Nil).

Summarized financial information of associate (100% interest)

Current assets 10,350,746 4,307,087

Non-current assets 61,784 91,228

Total assets 10,412,530 4,398,315

Current liabilities 9,321,651 3,460,173

Non-current liabilities – –

Total liabilities 9,321,651 3,460,173

Net assets 1,090,879 938,142

Revenue 83,642,357 58,084,171

Total comprehensive income for the year 294,808 293,803

Capital commitments and contingent liabilities of associate – –

On April 21, 2010 the Group acquired a 20% shareholding in Flawless Diamonds Trading House Proprietary Limited (“Flawless”)

incorporated in the Republic of South Africa for ZAR700,000 ($95,690) cash. Flawless is a registered diamond broker which provides

specialist diamond valuation, marketing and tender sales services to the Group.

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



3. INVESTMENT IN ASSOCIATES continued

3.2. Banzi Trade 26 Proprietary Limited (49% shareholding)

Banzi Trade 26 Proprietary Limited (“Banzi Trade”) was incorporated in 2005 in the Republic of South Africa with nominal equity.

The Group acquired a 49% shareholding in the same year. Since the incorporation date the Group’s portion of the losses from Banzi

Trade exceeded its investment in the associate. The Group, in terms of its accounting policy, does not account for losses in excess of

its investment in associates. The Group’s carrying value of its investment in Banzi Trade is Nil.

4. PROPERTY, PLANT AND EQUIPMENT

As at February 28, 2014 As at February 28, 2013

Amounts in Canadian dollars Cost

Accumulated amortization

and impairment

lossesCarrying

value Cost

Accumulated amortization

and impairment

lossesCarrying

value

Land and buildings 3,386,311 (853,881) 2,532,430 5,749,231 (1,555,030) 4,194,201

Plant and machinery 48,175,476 (22,520,198) 25,655,278 48,792,043 (22,802,226) 25,989,817

Motor vehicles 1,356,307 (855,952) 500,355 1,427,366 (909,333) 518,033

Office equipment 905,232 (740,211) 165,021 987,471 (709,143) 278,328

Construction in progress 1,976,388 (108,788) 1,867,600 2,685,418 (120,805) 2,564,613

55,799,714 (25,079,030) 30,720,684 59,641,529 (26,096,537) 33,544,992

Reconciliation of property, plant and equipment – February 28, 2014


Opening balance Additions Disposals Transfers

Foreign exchange

movements DepreciationImpairment

losssClosing

balance

Land and buildings 4,194,201 180,073 (1,361,386) – (376,626) (103,832) – 2,532,430

Plant and machinery 25,989,817 3,087,636 (1,890,041) 5,857,104 (2,633,650) (4,719,789) (35,799) 25,655,278

Motor vehicles 518,033 142,903 (27,833) – (52,089) (80,659) – 500,355

Office equipment 278,328 17,425 (91) – (26,278) (104,363) – 165,021

Construction in progress 2,564,613 5,444,486 (36,561) (5,857,104) (247,834) – – 1,867,600

33,544,992 8,872,523 (3,315,912) – (3,336,477) (5,008,643) (35,799) 30,720,684

Included in fiscal 2014 are disposals of property, plant and equipment relating to the Klipdam sale that amounted to:


Land and buildings 1,217,809

Plant and machinery 1,194,891

2,412,700


4. PROPERTY, PLANT AND EQUIPMENT continued

Reconciliation of property, plant and equipment – February 28, 2013


Openingbalance Additions Disposals Transfers

Foreignexchange

movementsDepre-ciation

Impair-ment

loss

Impair-ment

reversalClosingbalance

Land and buildings 5,809,735 79,401 (496,991) – (733,477) (196,894) (267,573) – 4,194,201

Plant and machinery 40,809,609 2,301,725 (3,305,607) 971,877 (5,019,539) (5,928,337) (4,425,834) 585,923 25,989,817

Motor vehicles 453,756 264,098 (26,612) (942) (65,430) (103,920) (2,917) – 518,033

Office equipment 353,463 107,185 – 942 (45,615) (137,264) (383) – 278,328

Construction in progress 1,965,268 1,998,241 – (971,877) (297,107) – (129,912) – 2,564,613

49,391,831 4,750,650 (3,829,210) – (6,161,168) (6,366,415) (4,826,619) 585,923 33,544,992

The impairment loss (reversal) represents


As atFebruary 28

2014

As atFebruary 28

2013

Tirisano Mine plant and machinery – 4,415,450

Klipdam plant and machinery, land and capital projects – 411,169

Wouterspan plant and machinery 35,799 –

35,799 4,826,619

Niewejaarskraal reversal of 2012 impairment due to the planned repair and recommission of the plant in fiscal 2014 – (585,923)

35,799 4,240,696

Impairments for the year ended February 28, 2014 were done on the estimated market value less cost to sell on certain items of

equipment no longer in use.

Impairments for the year ended February 28, 2013 on the various operations were done based on the following judgments and

estimates:

Tirisano: The mine was placed on care and maintenance and subsequent to that contract miners were appointed. As a result the

processing and recovery plant was assessed by management for which components could be transferred to other operations

and/or sold. This resulted in a balance which was transferred to the Northern Cape operations and a balance relating to plant

which has been made available for use by the royalty miners. The remainder was fully impaired as it was considered that its value

was no longer recoverable.

Niewejaarskraal: As a result of the board decision to repair and recommission the plant at Niewejaarskraal the net carrying value

associated with the assets previously impaired was reversed.

The following assets are subject to finance lease obligations: plant and machinery with a net carrying value of $620,393

(2013: $743,058) and motor vehicles with a net carrying value of $159,558 (2013: $157,149) totaling $779,951

(2013: $900,207).

Estimates and judgments

Management performs an annual review of the Group’s property, plant and equipment to consider indicators for impairment and

where indicators for impairment were identified, the recoverable amount is estimated. Comparisons are made to similar assets

available in the market taking into consideration their economic life, residual value, current condition and application in the mining

and recovery processes. Impairment indicators were identified for certain items of property, plant and equipment and where no

future economic benefits (value in use) will flow from the identified assets, judgment was applied to consider fair value less costs to

sell. Assets identified, where the carrying value exceeds the recoverable amount, are impaired. Life of mine cash flow models form

the basis against which the value in use is measured.




As atFebruary 28

2014

As atFebruary 28

2013

5. INVESTMENTS AND DEPOSITSAt fair value through profit or loss

Investments 5,318,661 4,813,657

The Group invests in investment policies with endowment benefits on maturity of the policies in order to provide funding for the rehabilitation obligations. Premiums are invested on an initial lump sum and/or monthly annuity premium basis with the insurers and invested in specific investment plans. Policy investment value at any one time represents the value of premiums and growth after deduction of administration and investment fees. Withdrawals could be made against the policies before endowment against the deduction of penalties, which is lower than the investment value. To surrender the policy prior to maturity date will similarly attract penalties at a lower rate, and represents the value accessible at any one stage. Fair value at any one stage represents the surrender value of the investments. These policies are encumbered by the guarantees issued by Standard Bank on behalf of the Group (refer notes 14 and 30).

At amortized cost

Deposits 66,941 74,758

This deposit relates to deposits paid to the South African electricity supplier.

Total investments and deposits 5,385,602 4,888,415

Non-current assets

At fair value through profit or loss 5,318,661 4,813,657

At amortized cost 66,941 74,758

5,385,602 4,888,415

6. INVENTORIESRough diamond inventories 3,353,013 1,268,784

Stockpile diamond inventory 122,949 38,251

Fuel, oil and grease 268,338 235,615

Mine supplies 863,653 762,132

4,607,953 2,304,782

The net realizable value of rough diamond inventories is estimated at the average price per carat achieved for the most recent

diamond tender taking into account the variable factors of clarity, carat, shape and colour. A write-down to net realizable value of

$1,470,784 (2013: $374,207) was recognized during the year.

Mine supplies were written down by $18,975 (2013: $125,970) during the year.

Estimates and judgments

Management performs an annual review of inventory in order to determine the net realizable value and to identify inventory that

requires a write-off. Obsolete, slow moving and damaged inventory are indicators that a write-off is required. Management’s best

judgment is applied in estimating the write-off should this be necessary.



As atFebruary 28

2014

As atFebruary 28

2013

7. TRADE AND OTHER RECEIVABLESTrade receivables 3,325,467 1,994,267

Other receivables* 2,828,837 2,582,347

Prepayments 809,906 625,753

VAT 1,536,712 648,251

8,500,922 5,850,618

* Other receivables includes an amount of $1,231,713 (2013: $2,582,347) receivable from a mining contractor relating to the sale of earthmoving equipment.

8. CASH AND CASH EQUIVALENTSCash and cash equivalents consist of:

Cash on hand 694 916

Bank balances 887,728 1,863,480

Short-term cash deposits 435,906 3,706,230

1,324,328 5,570,626

Bank overdraft (3,085,413) (2,839,921)

(1,761,085) 2,730,705

Current assets 1,324,328 5,570,626

Current liabilities (3,085,413) (2,839,921)

(1,761,085) 2,730,705

The Group has an overdraft facility in the amount of ZAR31.0 million ($3.2 million) available for its operations of which

ZAR29,897,345 ($3.1 million) has been utilized. This facility has an interest cost of prime (currently 9.0% per annum) plus 0.6%.

The security for the ZAR31.0 million (2013: ZAR28.0 million) overdraft facility consists of joint suretyship limited to ZAR28.0 million

(2013: ZAR28.0 million), by Rockwell Resources RSA Proprietary Limited and HC van Wyk Diamonds Limited, and the cession of an

investment policy.



As atFebruary 28

2014

As at February 28

2013

Number of shares

Number of shares

9. SHARE CAPITALReconciliation of number of shares issued:

Beginning of year 48,409,413 47,942,746

Payment on conversion of mining right (note 2)* 533,332 –

AVR unbundling (note 17)# 3,466,667 –

Shares issued to employees (note 10)^ 1,113,832 –

Debt conversion at $0.48 per share – 466,667

End of year 53,523,244 48,409,413

The Company’s authorized share capital consists of an unlimited number of common shares, without par value, and an unlimited number of preference shares without par value, of which no preference shares have been issued. The directors have the authority to issue shares, up to 10% of shares currently in issue, without shareholders’ approval.

Share capital is shown net of share issuance cost. The issuance cost amounted to $23,214 (2013: $5,293).

The following shares are reserved for issue:

Employee share options 4,836,431

Daboll loan (note 11) 12,235,686

* These shares were issued on March 19, 2013. At February 28, 2013 they were included in share capital at $0.25 per share. The $0.25 per share represents the trading price of the shares at the effective date of this transaction.

# These shares were issued on December 27, 2013. At February 28, 2013 they were included in share capital at $0.25 per share. The $0.25 per share represents the trading price of the shares at the effective date of this transaction. These shares relate to the buy back of non-controlling interests in HC van Wyk Diamonds Limited and Klipdam Diamond Mining Company Limited (refer note 17).

^ Shares issued to consultants and employees amounted to:

Quantity

Share price at grant

date

Consultants 138,832 0.21

Employees 975,000 0.21

1,113,832

The number of shares issued was calculated as the bonus/consulting expense divided by the trading share price at grant date.


10. SHARE-BASED PAYMENTS Employee share-based payments

The Group has a share-based payment plan approved by the shareholders that allows the Group to grant options for up to 10% of the Company’s shares in issue at any point in time, typically vesting over two years, to its directors, employees, officers and consultants. The Company determines the exercise price using an historic volume weighted average which could differ from the closing price on the grant date. Share options have a maximum term of five years and typically terminate 90 days following the termination of the optionee’s employment, except in the case of retirement or death, which terminate one year thereafter.

The Group uses the Black-Scholes option pricing model to estimate a fair value for these options at grant date. This model require inputs such as expected volatility, expected life to exercise, and interest rates. Changes in any of these inputs could cause a significant change in the share-based payment expense charged in a period.

All options are to be settled by physical delivery of shares.

Included under share capital (note 9) are issues to employees and consultants.

Other share-based payments

The Group accounted for a share-based payment at February 28, 2013, relating to an option for a BEE partner to acquire a 26% interest in Jasper Mining Proprietary Limited.

The fair value of the 26% interest in Jasper Mining Proprietary Limited was determined by management using a discounted future cash flow model. This model requires inputs such as time value of money, a risk-based discount rate and expected dividends.

The fair value of the option represents the valuation of the 26% interest less the amount payable by the BEE partner at the grant date. The option expired on May 12, 2013, 90 days after vesting.



10. SHARE-BASED PAYMENTS continued

Other share-based payments continued

The terms and conditions of the grants of the share option plan are as follows:

Assumptions used to fair value option


Number of instruments

granted – key

management


granted – senior

employees


granted – other Vesting conditions

Fair value grant date of option

Share price grant date

Exercise price

Risk free interest-rate

Expected life

Expected volatility

Expected dividend

December 7, 2009 166,666 86,666 42,966

1/3 vests immediately, 1/3 vests in 6 months and 1/3 vests in 12 months 0.80 0.90 0.90 2.4% 5 138.7% Nil

October 8, 2010 271,731 214,531 109,397

1/3 vests immediately, 1/3 vests April 8, 2011 and 1/3 vests October 8, 2011 0.83 0.98 0.98 1.9% 5 128.6% Nil

October 12, 2011 330,000 205,873 60,534

1/3 vests immediately, 1/3 vests March 30, 2012 and 1/3 vests September 30, 2012 0.40 0.55 0.48 1.9% 5 208.6% Nil

October 12, 2011 733,333 – –

1/3 vests June 1, 2013, 1/3 vests June 1, 2014 and 1/3 vests June 1, 2015 0.52 0.55 0.75 1.9% 5 208.6% Nil

October 12, 2011 – 66,667 –1/2 vests May 26, 2012 and 1/2 vests May 26, 2013 0.45 0.55 0.48 1.9% 5 208.6% Nil

October 22, 2012 – 20,000 300,000

1/3 vests October 22, 2012, 1/3 vests April 22, 2013 and 1/3 vests October 22, 2013 0.25 0.25 0.51 1.8% 10 171.9% Nil

December 12, 2012 300,000 220,000 238,267

1/3 vests immediately, 1/3 vests June 12, 2013 and 1/3 vests December 12, 2013 0.23 0.23 0.21 1.8% 10 168.7% Nil

October 9, 2013 415,000 620,000 434,800

1/3 vests immediately, 1/3 vests April 9, 2014 and 1/3 vests October 9, 2014 0.40 0.40 0.40 2.5% 10 167% Nil

Total share option 2,216,730 1,433,737 1,185,964

The following assumptions were used in the valuation of the Jasper Mining Proprietary Limited option:

Life of mine: 3 – 5 years

Discount rate: 16%

Exercise price: $60,000

This option expired on May 12, 2013.




The terms and conditions of the grants of the share option plan are as follows:

Assumptions used to fair value option



granted – key

management


granted – senior

employees


granted – other Vesting conditions

Fair value grant date of option

Share price grant date

Exercise price

Risk free interest-rate

Expected life

Expected volatility

Expected dividend

December 7, 2009 166,666 86,666 42,966

1/3 vests immediately, 1/3 vests in 6 months and 1/3 vests in 12 months 0.80 0.90 0.90 2.4% 5 138.7% Nil

October 8, 2010 271,731 214,531 109,397

1/3 vests immediately, 1/3 vests April 8, 2011 and 1/3 vests October 8, 2011 0.83 0.98 0.98 1.9% 5 128.6% Nil

October 12, 2011 330,000 205,873 60,534

1/3 vests immediately, 1/3 vests March 30, 2012 and 1/3 vests September 30, 2012 0.40 0.55 0.48 1.9% 5 208.6% Nil

October 12, 2011 733,333 – –

1/3 vests June 1, 2013, 1/3 vests June 1, 2014 and 1/3 vests June 1, 2015 0.52 0.55 0.75 1.9% 5 208.6% Nil

October 12, 2011 – 66,667 –1/2 vests May 26, 2012 and 1/2 vests May 26, 2013 0.45 0.55 0.48 1.9% 5 208.6% Nil

October 22, 2012 – 20,000 300,000

1/3 vests October 22, 2012, 1/3 vests April 22, 2013 and 1/3 vests October 22, 2013 0.25 0.25 0.51 1.8% 10 171.9% Nil

December 12, 2012 300,000 220,000 238,267

1/3 vests immediately, 1/3 vests June 12, 2013 and 1/3 vests December 12, 2013 0.23 0.23 0.21 1.8% 10 168.7% Nil

October 9, 2013 415,000 620,000 434,800

1/3 vests immediately, 1/3 vests April 9, 2014 and 1/3 vests October 9, 2014 0.40 0.40 0.40 2.5% 10 167% Nil

Total share option 2,216,730 1,433,737 1,185,964

The following assumptions were used in the valuation of the Jasper Mining Proprietary Limited option:

Life of mine: 3 – 5 years

Discount rate: 16%

Exercise price: $60,000

This option expired on May 12, 2013.





The continuity of share-based payments for the year ended February 28, 2014 is as follows:

Amounts in Canadian dollarsFebruary 28

2013Granted/

issued ExercisedExpired/

cancelledFebruary 28

2014

Grant date

December 7, 2009 673,074 – – (376,776) 296,298

October 8, 2011 703,389 – – (107,730) 595,659

October 12, 2011 918,333 – – (93,201) 825,132

October 12, 2011 571,275 – – – 571,275

October 22, 2012 320,000 – – – 320,000

December 12, 2012 789,534 – – (31,267) 758,267

October 9, 2013 – 1,469,800 – – 1,469,800

3,975,605 1,469,800 – (608,974) 4,836,431

Weighted average exercise price $0.64 $0.40 – $0.81 $0.54

Weighted average fair value of share options granted during the year $0.40

Total options vested 3,367,681

Total options unvested 1,468,750

4,836,431

The continuity of share-based payments for the year ended February 28, 2013 is as follows:

Amounts in Canadian dollarsFebruary 29

2012Granted/

issued ExercisedExpired/

cancelledFebruary 28

2013

Grant date

September 24, 2007 322,790 – – (322,790) –

November 14, 2007 72,421 – – (72,421) –

December 7, 2009 707,734 – – (34,660) 673,074

October 8, 2010 776,722 – – (73,333) 703,389

October 12, 2011 1,153,627 – – (235,294) 918,333

October 12, 2011 571,275 – – – 571,275

October 22, 2012 – 320,000 – – 320,000

December 12, 2012 – 789,534 – – 789,534

3,604,569 1,109,534 (738,498) 3,975,605

Weighted average exercise price $1.64 $0.30 – $5.32 $0.64

Weighted average fair value of share options granted during the year $0.23

Share-based payment expenses


For the yearended

February 282014

For the yearended

February 282013

Share options granted in prior years 202,389 277,668

Share options granted in current year 423,752 175,575

Option to sell non-controlling interest in Jasper to Linaplex (note 17) – 105,168

Total share-based payment cost expensed to operations, with the offset credited to share-based payment reserve 626,141 558,411



As atFebruary 28

2014

As atFebruary 28

2013

11. LOANS AND BORROWINGSHeld at amortized cost

Industrial Development Corporation of South Africa Limited 3,194,224 3,196,330

The loan was acquired by Rockwell Diamonds Inc. with the asset and liability acquisition of Etruscan Diamonds Proprietary Limited, and was entered into by Blue Gum Diamonds Proprietary Limited, a 74% owned subsidiary of Etruscan Diamonds Proprietary Limited.

The loan is repayable in 10 equal bi-annual installments, bears interest at 1.28% above the current prime rate (9.0% p.a.) and is denominated in South African rand.

Daboll loan 1,999,888 2,008,161

On June 2, 2011, the Group signed a Convertible Loan Agreement with Daboll Consultants Limited. It was agreed that Daboll Consultants Limited would lend Rockwell Diamonds Inc USD$2,000,000 within five days of the agreement being signed.

As the loan is repayable at the election of the borrower (except if converted after 12 months by the lender), it is disclosed as non-current.

The loan bears interest at 5% p.a. payable each calendar quarter, and any unpaid interest is compounded annually.

The loan is convertible into common shares of the Company after 12 months, if it is not repaid earlier, at the option of Daboll Consultants Limited. The conversion price is $0.0375 per common share and a maximum of 52 488 853 can be issued in relation to this conversion.

On July 11, 2011, the Company completed a consolidation of its outstanding common shares on the basis of 15 pre-consolidation shares for one post-consolidated common share. Therefore the maximum number of shares that can be issued is now 3 499 256 at $0.5625.

On June 19, 2013, the Group executed an addendum to the loan, extending the loan repayment date by two years to June 2, 2015, amending the conversion right so the loan is convertible at the prevailing market price of the Company’s shares over its two-year remaining term with a floor price of C$0.16 per share (maximum 12,235,686 shares).

On July 8, 2013, the Group executed a second addendum to the loan where it was agreed that the loan may only be converted during the 21 calendar day period prior to June 26, 2015, and extending the loan to June 26, 2015.

This loan is regarded as a related-party loan (refer note 15).

5,194,112 5,204,491

Non-current liabilities

At amortized cost 3,240,461 3,889,684

Current liabilities

At amortized cost 1,953,651 1,314,807

5,194,112 5,204,491




As atFebruary 28

2014

As atFebruary 28

2013

12. FINANCE LEASE OBLIGATIONMinimum lease payments due

– within one year 170,728 365,305

– between one and five years 130,525 306,829

301,253 672,134

Less: Future finance charges (26,167) (70,022)

Present value of minimum lease payments 275,086 602,112

Present value of minimum lease payments due

Current liabilities within one year 165,069 321,083

Non-current liabilities between one and five years 110,017 281,029

275,086 602,112

Finance lease obligations as detailed above are secured over plant and equipment and are repayable, on average, in 36 monthly

installments and are denominated in South African rand. Interest is charged at rates of between 1.25% and 2.00% in excess of the

prevailing prime rate, which is 9.0% per annum (2013: 8.5%) at February 28, 2014. There are no significant restrictions imposed on

the lessee as a result of the lease obligations.

Operating leases are disclosed under note 29.


As atFebruary 28

2014

As atFebruary 28

2013

13. DEFERRED TAXDeferred tax liability

Mineral property interests (2,679,500) (2,870,184)

Property, plant and equipment (3,695,000) (4,054,000)

Other (66,000) –

(6,440,500) (6,924,184)

Deferred tax asset (recognized)

Rehabilitation obligation 515,000 368,000

Other – 13,000

515,000 381,000

(5,925,500) (6,543,184)

Reconciliation of net deferred tax liability

At beginning of the year (6,543,184) (7,540,531)

Foreign exchange movement 554,945 867,192

Recognized in profit or loss 62,739 130,155

(5,925,500) (6,543,184)


13. DEFERRED TAX continued

Judgments and estimates used in recognition of deferred tax asset

Deferred tax assets are raised only to the extent that future taxable income will be available against which the deferred tax asset can

be set off. Management estimates future taxable income using forecasts based on the best available current information. Based on

current estimates there is not sufficient future taxable income in the Group entities to which the unrecognized deferred tax assets

relate against which to set off the deferred tax asset. Therefore no deferred tax asset has been recognized.

Unrecognized deferred tax asset

Deferred tax assets have not been recognized for temporary differences where it is not probable that the respective entities to which

they relate will generate future taxable income against which to utilize the temporary differences. Estimated unrecognized deferred

tax assets could be summarized as follows:

Amounts in Canadian dollars Canada South Africa

Balance as at February 29, 2012 22,031,276 9,801,235

Unrecognized deferred tax losses for the year 187,803 3,053,059


Less: Sale of Klipdam – (775,225)

Unrecognized deferred tax losses for the year 205,984 235,156


14. REHABILITATION OBLIGATION Reconciliation of obligation – February 28, 2014


Opening balance

Rehabili-tation

obligation recognized/

(revised)

Foreign exchange

movements

Decommis- sioning

asset raised (note 4)

Sale of Klipdam

Mine (note 18)

Unwin-ding

Closing balance

Holpan, Wouterspan, and Klipdam Mines 2,154,700 (41,799) (198,969) – (984,324) 77,626 1,007,234

Saxendrift Mine 2,405,511 (663,369) (228,538) – – – 1,513,604

Tirisano Mine 2,238,824 283,401 (229,956) – – 163,946 2,456,215

Jasper Mining 193,122 184,539 (22,201) – – – 355,460

Niewejaarskraal – 980,251 (18,555) 164,852 – – 1,126,548

6,992,157 743,023 (698,219) 164,852 (984,324) 241,572 6,459,061



14. REHABILITATION OBLIGATION continued

Reconciliation of obligation – February 28, 2013

Opening balance

Rehabili-tation

obligation recognized/

(revised)

Foreign exchange

movements

Asset and liability

acquisition (note 17) Unwinding

Closing balance

Holpan, Wouterspan, and Klipdam Mines 2,318,100 149,852 (313,252) – – 2,154,700

Saxendrift Mine 2,019,017 681,925 (295,431) – – 2,405,511

Tirisano Mine 6,832,212 (4,381,349) (747,399) – 535,360 2,238,824

Jasper Mining – – (10,617) 203,739 – 193,122

11,169,329 (3,549,572) (1,366,699) 203,739 535,360 6,992,157

Estimated rehabilitation costs, which are based on the Group’s interpretation of current environmental and regulatory requirements,

represent the present value of the expected future costs to rehabilitate the mine properties during and at termination of mining

operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation,

technology or other circumstances.

Based on current environmental regulations and known rehabilitation requirements, management has included its best estimate of

these obligations in its rehabilitation provision based on professional surveys of the environmental disturbance.

The ultimate rehabilitation will be financed from existing funds and policies invested for this purpose, ongoing contributions as

well as the proceeds on sale of assets and metal from plant clean-up at the time of the mine closure. The expected timing of

the cash flows in respect of the provisions is dependent on the mineral property award and/or the life of mine. Rehabilitation of

disturbed areas, at the operating Northern Cape mines, is performed on a continuous basis. Rehabilitation of disturbed areas where

the alluvial open-cast bench mining process is followed and the non-operating Northern Cape mines will be performed when

the mining operations cease. However, it is reasonably possible that the Group’s estimates of its ultimate rehabilitation liabilities

could change as a result of changes in regulations or cost estimates. The following key assumptions were used in estimating the

rehabilitation obligation and have been consistently applied from the prior year:

Discount period: 2.5 – 9 years (end of life of mine)

South African discount rate: 9%

South African inflation rate: 7%

As required by regulatory authorities, at February 28, 2014, the Group had cash rehabilitation deposits totaling $1,701,493

(February 28, 2013:$1,818,291) comprising $991,906 (February 28, 2013:$1,053,729) for the Holpan, Wouterspan and Klipdam

Mine, Nil (February 28, 2013: Nil) for the Saxendrift Mine and $709,587 (February 28, 2013: $764,562) for the Tirisano Mine. These

deposits are invested in interest-bearing and money market linked investments. These investments have been pledged as security in

favour of the guarantees the bank issued on behalf of the Group. Refer to note 5.

An amount of $871,641 has been included in trade and other receivables (note 7) relating to rehabilitation obligations refundable

from the royalty miners at Tirisano.



As atFebruary 28

2014

As atFebruary 28

2013

15. RELATED PARTIESRelated party balances

Balances payable

Banzi Trade (e) – 44,248

Seven Bridges Trading (c) 4,258 4,677

Current balances payable 4,258 48,925

Loans from related parties 4,258 48,925

All the above named loans are unsecured, interest free and have no fixed terms of repayment and are therefore disclosed as current.

Balances receivable

Banzi Trade (e) 177,711 85,305

Mogopa Minerals (f) 7,995 8,878

Current balances receivable 185,706 94,183

Loans to related parties 185,706 94,183

These loans represent working capital loans and are therefore disclosed as current.

Related party transactions

Services rendered and expenses reimbursed:

Hunter Dickinson Services Inc. (a) – 74,144

CEC Engineering (b) – 10,788

Seven Bridges Trading (c) 45,233 54,241

Banzi Trade (e) 1,326 104,769

Mogopa Minerals (f) 101,782 26,606

Flawless Diamonds Trading House (d) 381,669 276,718

Sales rendered to:

Sale of diamonds – Diacore (h) 29,006,637 24,605,786

Beneficiation income – Diacore (h) 4,062,860 5,299,275

Loan from related party included under loans and borrowings Daboll Consultants Limited (g)

Loans and borrowings 1,999,888 2,008,161

Finance costs 99,171 71,430

Receivables from related party included under trade and other receivables

Diacore (h) 2,483,310 1,980,301

Compensation to key management personnel

Salaries and other short-term benefits 1,013,130 1,218,371

Bonus 170,900 137,855

Share-based payment (note 10) 164,841 68,540

1,348,871 1,424,766


15. RELATED PARTIES continued

All related party transactions are calculated at arm’s length transaction values in the normal course of business.

(a) Hunter Dickinson Services Inc. (“HDSI”) is a private company with a former director (resigned August 30, 2012) in common

with the Group. HDSI provides geological, technical, corporate development, administrative and management services to, and

incurs third-party costs on behalf of, the Group on a full cost recovery market-related basis pursuant to an agreement dated

November 21, 2008.

(b) CEC Engineering Limited is a private company owned by David Copeland, a former director of the Group (resigned

August 30, 2012), which provides engineering and project management services at market rates.

(c) Seven Bridges Trading 14 Proprietary Limited (“Seven Bridges Trading”) is a wholly owned subsidiary of Randgold Resources

Limited, a public company where Mark Bristow, a director of the Group, serves in an executive capacity Seven Bridges Trading

provides office, payroll and other administrative and management services.

(d) Flawless Diamonds Trading House Proprietary Limited (“Flawless Diamonds Trading House”) is a private company where certain

directors, former directors and officers of the Group, namely, Mr JB Brenner and Dr DM Bristow, are shareholders. During fiscal

2011 the Group acquired a 20% shareholding in Flawless Diamonds Trading House (refer note 3). Flawless Diamonds Trading

House is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the

Group for a fixed fee of 1% of turnover which is below the market rate charged by similar tender houses.

(e) Banzi Trade 26 Proprietary Limited (“Banzi Trade”) is 49% owned by HC van Wyk Diamonds Limited (note 3) and 51% by

Bokomoso Trust. Banzi Trade is an empowered private company established to provide self-sustaining job creation programs to

local communities as part of the Company’s Social and Labour Plan which is required in terms of the Minerals and Petroleum

Resources Development Act (“MPRDA”). Banzi provides the Group with building materials at market rates.

(f) The Bakwena Ba Mogopa Trust is the beneficial owner of 26% in the Tirisano Mine operation resident in Blue Gum Diamonds

Proprietary Limited. This interest is held by Magopa Minerals Proprietary Limited through Magopa Blue Gum Proprietary Limited.

As the landowner, surface rentals are paid to the Trust, while business and support services are paid to Magopa Minerals for

shareholder relations and related services.

(g) Daboll Consultants Limited (“Daboll”) owns 21% shares in the Company and is considered a related party. Daboll has a

convertible loan agreement with the Company at market-related terms.

(h) Diacore Diamond Group (“Diacore”) is the holding company of Daboll and per definition identified as a related party. Diacore

is the Company’s strategic beneficiation partner, with plus 2.8 carat sized diamonds being acquired by Diacore through the

diamond trading house and beneficiated. The Company and Diacore participate equally in the retail profit from the sale of its

stones, after polishing and finishing.


As atFebruary 28

2014

As atFebruary 28

2013

16. TRADE AND OTHER PAYABLESTrade payables 4,148,622 2,211,049

Royalties payable 3,401,004 2,997,231

Other payables* 2,484,811 1,787,956

Payroll accruals 717,153 701,296

VAT 411,166 424,390

11,162,756 8,121,922

* Included in other payables is an obligation to transfer investments and deposits amounting to $1,715,200 (refer note 18) to the purchaser as part of the sale of Klipdam.



17. ASSET AND LIABILITY ACQUISITION17.1. Jasper Mining Proprietary Limited

In June 2012, the Group completed the acquisition of 100% of the share capital in Jasper Mining Proprietary Limited. The total

consideration paid by the Group for the interest was $12 and additional Rockwell Diamonds Inc. shares to be issued upon

conversion of the old order mining right.

The acquisition was accounted as the acquisition of assets and liabilities based on the acquisition not meeting the criteria for an

acquired business in terms of IFRS 3 Business Combinations.

The Jasper Mine property is contiguous to Rockwell’s Saxendrift Mine and has the potential to extend the life of Saxendrift Mine

with limited new investment.


As atFebruary 28

2013

The following summarizes the assets and liabilities acquired:

Allocated cost based on relative fair value

Mineral property interests 1,165,529

Cash and cash equivalents 2,671

Trade and other payables (964,449)

Rehabilitation obligation (203,739)

Total identifiable net assets 12

The Group financed the purchase consideration through

Cash 12

Purchase price* 12

Net cash outflow on acquisition

Cash consideration paid (12)

* In terms of the sale of shares and claims agreement (Jasper Mining) an additional purchase consideration is payable in the form of 533,532 Rockwell Diamonds Inc. shares payable on the notification from the DMR granting approval for conversion of the Jasper old order mining right to a new order mining right. Notification was received on February 11, 2013 from the DMR. Refer note 9 for additional information.

The Linaplex Proprietary Limited option to purchase 26% of Jasper Mining Proprietary Limited expired during fiscal 2014.

17.2. Acquisition of non-controlling interests

On February 11, 2013 the Group acquired the remaining 15% of the share capital in HC van Wyk Diamonds Proprietary Limited

and Klipdam Diamond Mining Limited. This effectively unwinds the deal concluded in fiscal 2009 to purchase 26% of the Group’s

Northern Cape operations by African Vanguard Resources Proprietary Limited. The settlement of the purchase price was completed

on December 27, 2013 in the form of 3,466,667 Rockwell Diamonds Inc. shares listed on the Johannesburg Stock Exchange.


18. SALE OF SUBSIDIARY On March 27, 2013 (“effective date”) the Rockwell Diamonds Inc. Group disposed of a 100% shareholding in Klipdam Diamond

Mining Company Proprietary Limited, which formed part of the Northern Cape operations. The entity was sold for an amount of $2,413,770 of which an amount of $734,300 is receivable only on transfer of the mineral right to the purchaser. The assets and liabilities sold amounted to:


As atFebruary 28

2014

Carrying value of assets sold

Property, plant and equipment (2,412,700)

Mineral property interests (1,178)

Rehabilitation obligation 984,324

Obligation to transfer investments and deposits (1,715,200)

Trade and other payables 472,050

Total net assets sold (2,672,704)

Net assets sold (2,672,704)

Loss on disposal 258,934

(2,413,770)

Consideration received

Cash 1,679,470

Deferred consideration – included in other receivables (note 7) 734,300

2,413,770


Year endedFebruary 28

2014


2013

19. CASH GENERATED (USED) IN OPERATIONSLoss before taxation (10,490,116) (13,906,533)

Adjustments for:

Depreciation and amortization 5,936,352 7,169,649

Realized foreign exchange with sale of subsidiary 6,609,464 –

(Profit) loss on disposal of property, plant and equipment (72,109) 156,062

(Profit) loss on disposal of mineral properties (482,060) 23,900

Loss on sale of subsidiary 258,934 –

Share of profit from equity-accounted investment (58,962) (58,761)

Finance income (698,932) (613,760)

Finance costs 1,137,131 1,406,635

Rehabilitation obligation recognized (revised) 743,023 (3,549,572)

Share-based payment expense 626,141 558,411

Equity-settled employee cost 233,905 –

Impairment of mineral property interests – 959,124

Impairment of property, plant and equipment 35,799 4,826,619

Write-down to net realizable value of diamond inventories 1,470,784 374,207

Write-down of mine supplies 18,975 125,970

Impairment of sundry receivables – 85,813

Reversal of impairment on property, plant and equipment – (585,923)

Changes in working capital:

Inventories (4,948,363) (1,452,434)

Trade and other receivables (3,170,835) (1,120,031)

Trade and other payables 5,520,959 792,543

2,670,090 (4,808,081)





2014


2013

20. TAX PAIDBalance at beginning of the year 39,587 –

Current tax for the period recognized in profit or loss – –

Exchange rate movements (3,938) –

Balance at end of the year (35,649) (39,587)

– (39,587)

21. REVENUESale of diamonds 41,106,550 27,105,988

Beneficiation income 4,062,860 5,299,275

45,169,410 32,405,263

Beneficiation income represents profit share on value add (cut and polish), arising through the Group’s beneficiation agreement

with Diacore. The Group is entitled to 50% of the profits from the sale of the polished diamonds produced by the Group and sold

through this channel. The beneficiation income is recognized on the date Diacore notifies the Group of the successful sale of the

diamonds to third parties.


Year ended February 28

2014


2013

22. PRODUCTION COSTProduction cost 41,631,657 32,524,879

Inventory movement (2,431,225) (1,186,662)

39,200,432 31,338,217

23. LOSS BEFORE NET FINANCE COSTSLoss before net finance costs for the year is stated after accounting for the following:

(Profit) loss on sale of property, plant and equipment (72,109) 156,062

(Profit) loss on disposal of mineral property interests (482,060) 23,900



Depreciation on property, plant and equipment 5,008,643 6,366,415

Amortization on mineral property interests 927,709 803,234

Salaries and wages 1,760,572 1,901,079

Share-based payment expense 626,141 558,411

Operating lease expense 845,504 531,843




Write-down to net realizable value of diamond inventories 1,470,784 374,207

Write-down of mine supplies 18,975 125,970

Impairment of sundry receivables – 85,813

Auditors’ remuneration

– Audit fee 323,823 477,213

– Other services 23,835 36,908




2014


2013

24. FINANCE INCOMEBank 372,603 406,835

Fair value adjustments on other financial assets 326,329 206,925

698,932 613,760

25. FINANCE COSTSLoans and borrowings 430,424 338,190

Finance lease obligation 43,528 152,988

Bank 167,649 380,097

Unwinding of rehabilitation obligation 241,572 535,360

Other 253,958 –

1,137,131 1,406,635

26. TAXATIONMajor components of the tax income

Deferred tax

Movement in deferred tax balance recognized through profit or loss (62,739) (130,155)

Reconciliation of taxation

Reconciliation between accounting loss and taxation:

Loss before tax (10,490,116) (13,906,533)

Tax at the applicable tax rate of 26.5% (2013: 25.00%) (1,028,373) (3,476,634)

Tax effect of adjustments on taxable loss

Difference in foreign tax rates (29,252) (372,365)

Non-deductible expenses 553,746 477,982

Unrecognized deferred tax assets 441,140 3,240,862

(62,739) (130,155)





2014


2013

27. LOSS PER SHAREBasic and diluted loss per share

Cents per share (21.30) (22.55)

Basic loss per share was calculated based on a weighted average number of common shares of 49 839 859 (2013: 48 349 322).

Reconciliation of loss for the year to basic loss

Loss for the year (10,427,377) (13,776,378)

Adjusted for:

(Profit) loss attributable to non-controlling interest (190,716) 2,875,845

Basic loss attributable to owners of the Group (10,618,093) (10,900,533)

At February 28, 2014 and February 28, 2013 the impact of share-based payment options was excluded from the weighted average number of shares, for the purpose of the diluted loss per share calculation, as the effect would have been anti-dilutive.

Basic and diluted headline loss per share

Cents per share* (8.68) (14.40)

Reconciliation between basic loss and headline loss

Basic loss attributable to owners of the Group (10,618,093) (10,900,533)

Adjusted for:

(Profit) loss on disposal of mineral properties (482,060) 23,900

(Profit) loss on disposal of property, plant and equipment (72,109) 156,062




Share of profit from equity accounted investment* (58,962) (58,761)



Non-controlling interest portion of above adjustments – (1,380,556)

Headline loss attributable to owners of the Group* (4,327,027) (6,960,068)

The basic and diluted headline loss per share disclosure is provided based on the Listings Requirements of the Johannesburg Stock

Exchange (Group’s secondary listing). The disclosure of basic and diluted headline loss per share is provided in accordance with

Circular 2/2013 as issued by the South African Institute of Chartered Accountants. Headline loss represents the basic loss attributable

to the owners of the Group excluding certain re-measurements.

At February 28, 2014 and February 28, 2013 the impact of share-based payment options was excluded from the weighted average

number of shares, for the purpose of the diluted headline loss per share calculation, as the effect would have been anti-dilutive.

* February 28, 2013 restated due to Circular 2/2013 which is the new requirement applicable for financial statements issued after April 30, 2013.


28. REALIZED FOREIGN EXCHANGE WITH SALE OF SUBSIDIARY During the year ended February 28, 2014, the Group sold three subsidiaries, namely Klipdam Diamond Mining Company

Proprietary Limited (note 18), Durnpike Investments Proprietary Limited (dormant) and Rockwell Diamonds Explorations Proprietary

Limited (dormant). While operating these subsidiaries, the Group recorded foreign exchange losses on the subsidiaries’ assets to

reflect the change in relative exchange rates. Upon the sale, the prior foreign exchange reserve was thus released to income.

This is effectively a reversal of the foreign currency translation reserve to retained earnings, and has no cash flow effect.



2014


2013

Breakdown of realized foreign exchange with sale of subsidiary:

Durnpike Investments Proprietary Limited 7,509,752 –

Klipdam Diamond Mining Company Proprietary Limited (900,288) –

Rockwell Diamonds Explorations Proprietary Limited – –

6,609,464 –

29. COMMITMENTS Authorized capital expenditure (not contracted for)

At February 28, 2014, the Company committed to spend $860,679 (2013: Nil) on capital projects during the following year to be

funded through cash flows from operating activities.



2014


2013

Operating leases

Minimum lease payments due

– within one year 1,159,822 521,677

– in second to fifth year inclusive 3,177,712 1,623,161

4,337,534 2,144,838

Operating lease payments represent rentals payable by the Group for surface rentals and certain of its office properties.

Purchase orders 1,099,645 464,505

30. CONTINGENCIES HC van Wyk Diamonds Limited, Saxendrift Mine Proprietary Limited, Etruscan Diamonds Proprietary Limited and Blue Gum

Diamonds Proprietary Limited held guarantees with the bank in favour of Eskom (electricity provider) of ZAR5,302,500 ($547,219)

(2013: ZAR5,615,100; $643,491) and the Department of Minerals and Energy (DME) of ZAR53,692,314 ($5,541,060)

(2013: ZAR45,366,643; $5,199,019) for rehabilitation expenses.



31. SEGMENTAL INFORMATION The Group has three reportable operating segments, as described below, which are the Group’s operating divisions. These divisions

offer different diamond product characteristics, qualities, geological characteristics, processes and services, and are managed

separately because they require different technology and profit or cost strategies. For each of the divisions the Group executive

committee (chief operating decision-making body) reviews internally managed reports on at least a monthly basis. The following

describes the operations in each of the Group’s reportable segments:

• Northern Cape operation is associated with the mining of Paleo Channels and Rooikoppie gravels and the recovery of high

value and larger carat size diamonds;

• North West operation is associated with the mining of potholes and the recovery of lower value and smaller carat size diamonds;

and

• Corporate represents the corporate management and administrative function of the Group.

The reconciliation column represents the inter-group transactions eliminated on consolidation. All reportable segments are located in

the same geographical jurisdiction. Information regarding the results of each of the reportable segments is included below.

Amounts in Canadian dollarsNorthern

CapeNorth West Corporate Reconciling Total

For the year ended February 28, 2014

Property, plant and equipment 29,079,243 1,627,368 14,073 – 30,720,384

Mineral property interests 16,265,209 10,376,462 – – 26,641,671

Total assets 57,737,809 13,988,120 71,697,759 (64,087,064) 79,336,624

Total liabilities 72,155,110 21,589,291 2,448,849 (64,087,064) 32,106,186

External revenue 36,444,590 8,724,820 – – 45,169,410

Other material non-cash items

– Depreciation on property, plant and equipment 4,763,815 241,488 3,340 5,008,643

– Amortization on mineral property interests 784,774 142,935 – – 927,709

– Rehabilitation obligation (revised) recognized 1,167,318 (424,295) – – 743,023

– Impairment of mineral property interests – – – – –

– Impairment of property, plant and equipment 35,799 – – – 35,799

– Reversal of impairment on property, plant and equipment – – – – –

– Write-down of mine supplies 18,975 – – – 18,975

– Share of profit from equity accounted investment – – (58,962) – (58,962)

Finance income 514,170 92,669 92,093 – 698,932

Finance costs 532,919 505,030 99,182 – 1,137,131

Taxation 62,739 – – – 62,739

Loss for the year (2,293,652) 688,261 (8,821,986) – (10,427,377)


31. SEGMENTAL INFORMATION continued

Amounts in Canadian dollarsNorthern

CapeNorth West Corporate Reconciling Total

For the year ended February 28, 2013

Property, plant and equipment 29,105,278 4,431,591 8,123 – 33,544,992

Mineral property interests 19,821,470 11,583,888 – – 31,405,358

Total assets 55,769,553 17,251,694 80,189,009 (67,485,844) 85,724,412

Total liabilities 69,560,627 25,888,561 2,389,368 (67,485,844) 30,352,712

External revenue 30,600,628 1,804,635 – – 32,405,263

Other material non-cash items

Depreciation on property, plant and equipment 5,032,684 1,330,381 3,350 6,366,415

– Amortization on mineral property interests 760,635 42,599 – – 803,234

– Rehabilitation obligation (revised) recognized 831,778 (4,381,350) – – (3,549,572)

– Impairment of mineral property interests 959,124 – – – 959,124

– Impairment of property, plant and equipment 411,169 4,415,450 – – 4,826,619

– Reversal of impairment on property, plant and equipment (585,923) – – – (585,923)

– Write-down to net realizable value of diamond inventories 374,207 – – – 374,207

– Write-down of mine supplies 125,970 – – – 125,970

– Impairment of sundry receivables 55,938 29,875 – – 85,813

– Share of profit from equity accounted investment – – 58,761 – 58,761

Finance income 356,463 85,079 172,218 – 613,760

Finance cost 423,076 879,018 104,541 – 1,406,635

Taxation 130,155 – – – 130,155

Loss for the year (5,184,428) (7,217,461) (1,374,489) – (13,776,378)

32. FINANCIAL RISK MANAGEMENT The board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The

Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits

and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect

changes in market conditions and the Group’s activities.

Overview

This note presents information about the Group’s exposure to risks, the Group’s objectives, policies and processes for measuring and

managing risk and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated

financial statements.



32. FINANCIAL RISK MANAGEMENT continued

Capital management

As at February 28, 2014, the Group is not subject to externally imposed capital encumbrances other than its overdraft facility and

finance leases. Refer to note 8.

At February 28, 2014, of the $1,324,328 (February 28, 2013: $5,570,626) cash and cash equivalents held by the Group,

$1,151,707 (February 28, 2013: $5,293,016) were held in South African rand (“ZAR”), $164,462 (February 28, 2013: $236,075)

in Canadian dollars and $8,159 (February 28, 2013: $41,535) in United States dollars.

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that

it can continue to provide returns for shareholders, and to have sufficient funds on hand for business opportunities as they arise.

The Group considers the components of shareholders’ equity, as well as its cash and cash equivalents, and bank indebtedness as

capital. The Group’s investment policy is to invest its cash in highly liquid short-term interest-bearing investments, having maturity

dates of three months or less from the date of acquisition, that are readily convertible to known amounts of cash.

The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk

characteristics of the underlying assets. The Group may issue new shares through private placements, issue debt, or return capital to

shareholders, in order to maintain or adjust the capital structure.

In order to facilitate the management of its capital requirements, the Group prepares annual expenditure budgets that are updated

as necessary depending on various factors, including successful capital deployment and general industry conditions.

There were no changes to the Group’s approach to capital and working capital management during the year ended February 28, 2014

and the Group expects it will be able to sufficiently fund its capital development and operations for fiscal 2015 as disclosed in note

1.2.

Carrying amount and fair values of financial instruments

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. Given the varying influencing factors, the reported fair values are

only indicators of the prices that may actually be realized for these financial instruments.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative

reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

It is not practicable to determine the fair value of amounts due to and from related parties as the loans do not have fixed repayment

terms and there is no secondary market for such instruments.



Carrying amount and fair values of financial instruments continued

The following tables show the estimated fair values of the financial instruments:


February 28 2014

Carrying amount

February 282014

Fairvalue

February 28 2013

Carrying amount

February 282013

Fairvalue

Assets carried at fair value through profit or loss

Investments 5,318,661 5,318,661 4,813,657 4,813,657

Assets carried at amortized cost

Deposits 66,941 66,941 74,758 74,758

Rehabilitation deposits 1,701,493 1,701,493 1,818,291 1,818,291

Trade and other receivables 6,154,304 6,154,304 4,576,614 4,576,614

Cash and cash equivalents 1,324,328 1,324,328 5,570,626 5,570,626

Liabilities carried at amortized cost

Loans and borrowings 5,194,112 5,194,112 5,204,491 5,204,491

Trade and other payables 6,633,433 6,633,433 3,999,005 3,999,005

Finance lease obligations 275,086 275,086 602,112 602,112

Loans from related parties 4,258 4,258 48,925 48,925

Bank overdraft 3,085,413 3,085,413 2,839,921 2,839,921

The following table illustrates the classification of the Group’s financial instruments recorded at fair value within the fair value

hierarchy:

Amounts in Canadian dollars Level 1 Level 2 Level 3 Total

Financial assets at fair value February 28, 2014

Investments 5,318,661 – – 5,318,661

Financial assets at fair value February 28, 2013

Investments 4,813,567 – – 4,813,657

The financial assets designated at fair value through profit or loss are investments that would otherwise be classified as available-for-

sale. The performance of these investments is managed on a fair value basis.

Financial instrument risk exposure and risk management

The Group is exposed in varying degrees to a variety of financial instrument-related risks. The board approves and monitors the risk

management processes, including treasury policies, counterparty limits, controlling and reporting structures, credit risk, liquidity risk,

currency risk, interest risk and diamond price risk. The types of risk exposure and the way in which such exposure is managed are

provided as follows:

Credit risk

Credit risk is the risk of potential loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations.

The Group’s credit risk is primarily attributable to its liquid financial assets including cash and equivalents, trade and other receivables

and loans to related parties. The carrying values of the Group’s cash and cash equivalents, trade and other receivables and loans to

related parties represent the maximum exposure to credit risk.

The Group limits exposure to credit risk on liquid financial assets through maintaining its cash and equivalents with high credit

quality financial institutions. The Group does not have financial assets that are invested in asset-backed commercial paper.




Credit risk continued

The Group minimizes its credit risk by reducing credit terms to 30 days on its sales. The aging of receivables at the reporting date

was:


February 28 2014

Carrying amount

February 282014

Impairment

February 28 2013

Carrying amount

February 282013

Impairment

Not past due 6,154,304 – 4,576,614 –

Past due 0 – 30 days – – – –

Past due 31 – 120 days – – – –

More than one year – – – –

The current carrying values represent the Group’s maximum exposure to credit risk.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. After taking into account

cash flows from operations and the Group’s holdings of cash and cash equivalents, the Group believes that these sources will be

sufficient to cover the likely requirements for the foreseeable future. The Group’s cash and cash equivalents are invested in business

accounts which are available on demand for the Group’s capital programs, and which are not invested in any asset-backed

deposits/investments.

The Group operates in South Africa. The Group is subject to currency exchange controls administered by the South African Reserve

Bank, that country’s central bank. A significant portion of the Group’s funding structure for its South African operations consists

of advancing loans to its South Africa incorporated subsidiaries and it is possible the Company may not be able to acceptably

repatriate such funds once those subsidiaries are able to repay the loans or repatriate other funds such as operating profits should

any develop. The repatriation of cash held in South Africa is permitted upon the approval of the South African Reserve Bank. Cash

balances in South Africa are disclosed below.

The following are the contractual maturities of financial liabilities at carrying values (excluding future interest payments):

Amounts in Canadian dollarsCarrying amount

Contractual cash flow 2015 2016 2017 – 2019

February 28, 2014

Non-derivative financial liabilities

Trade and other payables 6,633,433 6,633,433 6,633,433 – –

Loans from related parties 4,258 4,258 4,258 – –

Bank overdraft 3,085,413 3,085,413 3,085,413 – –

Finance lease obligations 275,086 275,086 165,069 110,017 –

Loans and borrowings 5,194,112 5,194,112 1,999,888 3,194,224

February 28, 2013

Non-derivative financial liabilities

Trade and other payables 3,999,005 3,999,005 3,999,005 – –

Loans from related parties 48,925 48,925 48,925 – –

Bank overdraft 2,839,921 2,839,921 2,839,921 – –

Finance lease obligations 602,112 602,112 321,083 281,029 –

Loans and borrowings 5,204,491 5,204,491 1,314,807 541,537 3,348,147

The Group incurred a loss of $10.4 million (2013: $13.8 million) for the year ended February 28, 2014 and as at this date its current

liabilities exceeded its current assets by $1.7 million (2013: net current asset position of $1.2 million). Management considered the

available cash resources at year end, the value realized through diamond tenders post year end and estimated the cash flows from

operations for the 24-month period post year end. Based on this information management concluded that the Group will have

available cash resources to settle its liabilities as they fall due.



Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income

or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters, while optimizing the return.

Foreign currency risk

In the normal course of business, the Group enters into transactions for the purchase of supplies and services denominated in ZAR.

In addition, the Group has cash and certain liabilities denominated in ZAR. As a result, the Group is subject to currency risk from

fluctuations in foreign exchange rates. The Group has not entered into any derivative or other financial instruments to mitigate this

foreign exchange risk.

The exposure of the Group’s financial assets and liabilities to currency risk is as follows:

Foreign currency exposure at the end of the reporting period


As atFebruary 28

2014

As atFebruary 28

2013

ASSETSUnited States dollar

Cash and cash equivalents 8,159 41,535

Total financial assets denominated in currency different to the functional currency of the respective Group entity 8,159 41,535

LIABILITIESUnited States dollar

Loans and borrowings 1,999,888 2,008,161

Total financial liabilities denominated in currency different to the functional currency of the respective Group entity 1,999,888 2,008,161

Exchange rates used for conversion of foreign operations were:

CDN vs. ZAR – Annual average rate 0.1049 0.1195

CDN vs. ZAR – Year end spot rate 0.1032 0.1146

CDN vs. USD – Annual average rate 1.0467 0.9987

CDN vs. USD – Year end spot rate 1.1074 1.0314

Sensitivity analysis

The Group does not have any significant financial instruments exposed to currencies different to the functional currency of the

respective Group entity. Therefore the Group is not significantly exposed to foreign currency movements through profit or loss.

Interest rate risk

The Group is subject to interest rate risk with respect to its investments in cash and cash equivalents. The Group’s policy is to invest

cash at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to maintain liquidity, while

achieving a satisfactory return for shareholders. Fluctuations in interest rates when the cash equivalents mature impact interest

income earned.

The Group has finance lease obligations with several financial institutions (note 12) as well as a loan from the Industrial

Development Corporation of South Africa Limited (note 11). These obligations bear interest at rates linked to the prevailing prime

rate, and are subject to interest rate change risk.

Sensitivity analysis

A 100 basis point increase/decrease in the prime rate for the year ended February 28, 2014 would have a net loss/gain effect on

profit or loss before tax of $2,185 (28 February 2013: $7,929). This analysis assumes that all other variables, in particular foreign

exchange rates, remain constant.




Business risk – diamond price risk

The value of the Group’s mineral resource properties is dependent on the price and the outlook of diamonds. Diamond demand

and prices fluctuate and are affected by numerous factors beyond the control of the Group, including worldwide economic trends,

worldwide levels of diamond discovery and production, and the level of demand for and discretionary spending on, luxury goods

such as diamonds and jewelry. Low or negative growth in the worldwide economy, prolonged credit market disruptions or activities

creating disruptions in economic growth could result in decreased demand for diamonds, thereby negatively affecting the price of

diamonds. Similarly, a substantial increase in the worldwide level of diamond production could also negatively affect the price of

diamonds. In each case, such developments could materially adversely affect the Group’s results of operations.

The profitability of the Group’s operations is highly correlated to the market price of diamonds. If diamond prices decline for a

prolonged period below the cost of production of the Group’s operating mines, it may not be economically feasible to continue

production.

33. LIST OF SUBSIDIARIES

Name of subsidiaryPrincipal place

of businessOwnership

interest 2014Ownership

interest 2013

HC v Wyk Diamonds Limited1 South Africa 100% 100%

Saxendrift Mine Proprietary Limited1 South Africa 100% 100%

Klipdam Diamond Mining Company Limited1 South Africa – 100%

Jasper Mining Proprietary Limited3 South Africa 100% 100%

Etruscan Diamonds Proprietary Limited 2 South Africa 100% 100%

Blue Gum Diamonds Proprietary Limited1 South Africa 74% 74%

N9C Resources Inc.2 Cayman Island 100% 100%



Rockwell Resources RSA Proprietary Limited1 South Africa 100% 100%

Rockwell Diamonds North West Proprietary Limited3 South Africa 100% 100%

Rockwell Diamonds Explorations Proprietary Limited3 South Africa – 100%

Linaplex Proprietary Limited3 South Africa 100% –

Durnpike Investments Proprietary Limited3 South Africa – 100%

1. Operating company.

2. Investment holding company.

3. Dormant.

34. SUBSEQUENT EVENTS Management is not aware of any matter or circumstance arising since the end of the financial year.


CORPORATE INFORMATION

REGISTERED OFFICE – SOUTH AFRICALevel 1, Wilds View, Isle of Houghton

Corner Carse O’Gowrie and Boundary Roads

Houghton Estate, Johannesburg 2198

PO Box 3011, Houghton 2041, South Africa

Telephone: +27 11 484 0830

Facsimile: +27 86 262 2838

CORPORATE ADDRESS – CANADA1020–800 West Pender Street, Vancouver

British Columbia, Canada V6C 2V6

Telephone: +1 604 684 636

Facsimile: +1 604 684 8092

Toll free: 1 800 667 2114

CORPORATE ADVISORPolo Capital Proprietary Limited

4 Fricker Road, Illovo

Sandton 2196, South Africa

JSE SPONSORPSG Capital

1st floor, Ou Kollege Building, 35 Kerk Street

Stellenbosch 7600, South Africa

INTERNATIONAL BROKERNorthland Capital Partners Limited

60 Gresham Street, London, EC2V 7BB

United Kingdom

AUDITORSKPMG Inc

Chartered Accountants

KPMG Crescent, 85 Empire Road

Parktown 2193, South Africa

TRANSFER AGENTSSouth Africa

Computershare Investor Services Proprietary Limited

(Registration number 2004/0036471/07)

Ground Floor, 70 Marshall Street

Johannesburg 2001, South Africa

Canada

Computershare Investor Services Inc.

3rd Floor, 510 Burrard Street, Vancouver

British Columbia, Canada V6C 3B9

LAWYERSSouth Africa

Brink Falcon Hume Inc Attorneys

Second Floor, 8 Melville Road, Illovo

Sandton 2196, South Africa

Canada

Mc Millan LLP

Royal Centre 1055 West Georgia Street

Suite 1500 Vancouver

British Columbia, Canada V6E 4N7

www.rockwelldiamonds.com

Documents

Annual report 2014 - Rockwell · PDF fileﬁscal 2014 on the Wouterspan project, ... polishing and ﬁnishing. TSX: RDI ... Rockwell Diamonds Annual report 2014 1 Looking for the Alana