Land status

The following summarizes the Company's current land holdings:

Country	Project Name and Interest Held	Area (km2)
Botswana	Boteti AK6 Diamond License (100% interest)	15.3
Lesotho	Mothae Diamond Mining Lease (75% interest)	20.0

Boteti AK6 Diamond Project, Botswana

Boteti was granted a mining license in 2008 over the AK6 Diamond Project which is located in central Botswana and is part of the Orapa/Letlhakane kimberlite district, one of the world's most prolific diamond producing areas. The kimberlite consists of three lobes, South, Centre and North, of which the South Lobe makes up approximately 75% of the kimberlites' resource potential. The pipe has an area of 4.2 hectares at the surface which expands to 7 hectares at a depth of 120 meters.

In July 2010, a formal decision was made to proceed with the construction of the AK6 diamond mine which is estimated to require a capital investment of approximately US$120-US$130 million (based on ZAR/US$ exchange rate of R7.00), which includes the process plant and all mine site and off-site infrastructures.

The project has an Indicated Resource of 51 million tonnes ("mt") containing an estimated 8.2 million carats ("ct") of diamonds. The mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing an estimated 6.3 million carats of diamonds at a 1.5mm bottom cut-off size, in an open pit to a depth of 324 metres. The reserves will be mined over an estimated 15 year life. The process plant has been designed at an estimated throughput rate of 2.5 million tonnes per annum ("mtpa"). Diamond recovery is estimated at approximately 400,000 carats per year at a March 2010 diamond price of $243/ct.

Nine Months to September Performance

Excellent progress has been made on the development of the AK6 Project. The continued focus on safety, health and environment by the Company, employees, the EPCM contractor and all sub-contractors resulted in 220,000 hours worked with no lost time injuries or environmental incidents. As of the end of September the project had worked 809,474 hours with a LTIFR of 0.25.

Construction advanced from 55% complete at the end of Q2 to 84% complete at the end of Q3. This is as per the August re-baselined schedule, which reflects the impact of the steel industry strike in July. During the quarter, engineering, procurement and fabrication were essentially completed in support of construction activities and the focus of the EPCM contractors and Boteti is fully on the AK6 project site activities. The project is still trending within the initial capital budget, and expenditure to end Q3 is 46% of budget with a total of 83% of the approved capital budget being committed.

In addition to the civil works, structural and mechanical activities, in Q3 building works, piping and electrical installation contractors commenced work on site. By the end of Q3 over 3km of piping around the open pit and to the process plant raw water dam had been installed. Equipping of the required eight dewatering wells is on schedule for delivery of water to the process facility during commissioning. The medium voltage (MV) and low voltage (LV), communications and instrumentation contracts have been awarded. The MV contractor has mobilized to site and work is progressing well. The LV, communications and instrumentation contractor mobilized to site in October.

The overhead power line from the Orapa sub-station to site has been completed. The AK6 substation is expected to be commissioned before the end of November, and the permanent tie in completed during Q4. Initial grid power for commissioning activities will come from a temporary tie in to the Letlhakane line that was completed during Q3.

The senior operation's team has made excellent progress with recruitment of key operations personnel for site. The mining contractor has mobilized to site and the sinking cut for the first production bench has commenced -- the first blast in the pit took place on October 8. Extraction and stockpiling of ore started in October in preparation for commissioning activities early in Q1, 2012. The plant operations and maintenance contractor has mobilized to site and have commenced local recruiting. The contracts management team is working with the Boteti metallurgical team on finalizing operational and critical spares holdings and operational procedures.

In Gaborone the diamond sorting, sales and marketing offices have been completed and senior diamond sorting personnel have been recruited. The stock control software platform has been selected and operational procedures are being developed.


On September 2, Lucara was pleased to host Dr. Ponatshego Kedikilwe, Minister of Minerals, Energy and Water Resources, and other regional and local officials at the AK6 project site. The Minister was impressed by the work completed and the safety, health and environmental accomplishments.

Mothae Diamond Project, Lesotho

The Mothae project is located in northeast Lesotho and is a large low grade kimberlite which is anticipated to contain a population of large, high value Type IIa diamonds.

Mothae Diamonds (PTY) Ltd ("Mothae Diamonds"), an indirect 75% owned subsidiary of the Company, holds a 100% interest in the Mothae Project. The other 25% is owned by the Government of Lesotho. The Company, through a wholly owned subsidiary, is the project operator. One half of the project interest held by the Government (ie 12.5% of the project interest) is a free carried interest and the other 12.5% will ultimately be paid for by the Government through its share of future project dividends, if any.

In 2010, the Company commenced a trial mining program, based on results from the 100,000 tonnes bulk sample completed in 2009. The trial mining program is designed to sample and process up to 720,000 tonnes (including the former bulk sample of 100,000 tonnes) of kimberlite from various kimberlite domains, which have been identified within the pipe to confirm geological potential and the presence of the high value Type IIa diamonds. Periodic open-tender diamond sales, the first of which occurred in March 2011, are being undertaken to validate estimates of diamond value.

Nine Months to September Performance

On the Mothae trial mining project in Lesotho, sampling during Q3 on the 'F' and 'G' kimberlite domains, with samples 2A and G2B having been completed during the period. Results continue to be very good with above average grades returned. Summary tonnage and grade results are shown in the following table:


Table1. Mothae Trial Mining Results as of 3 October 2011

Bulk Sample	Dry Tonnage	Stones	Carats	Ave Stn Size (cts/stone)	Dry Grade (cpht)
F1D	1,592	111	77.65	0.70	4.88
C4A	29,649	1,453	757.70	0.52	2.55
C5A	48,542	3,119	1,117.07	0.36	2.29
C6A	7,296	525	259.54	0.49	3.40
C8A	49,152	3,511	1,440.49	0.41	2.93
C9A	40,370	3,835	1,938.66	0.51	4.78
G2A	33,691	4,245	1,906.87	0.45	5.65
F2A	50,181	4,077	1,978.33	0.49	3.93
G2B	22,689	2,997	1,280.23	0.43	5.64
G3A*	19,721	2,248	985.07	0.44	5.00
Totals	302,883	26,121	11,741.61	0.45	3.88

*Sample G3A is currently in progress, with final results expected during Q4.

Sample F2A yielded 2 stones larger than 20 carats, 10 stones between 10 and 20 carats, 19 stones between 5 and 10 carats, and 95 stones between 2 and 5 carats. The three largest diamonds recovered were 29.94, 22.86, and 19.21 carats.

Sample G2B yielded 2 stones larger than 20 carats, 2 stones between 10 and 20 carats, 9 stones between 5 and 10 carats, and 48 stones between 2 and five carats. The largest 3 diamonds were 28.91, 25.09 and 12.00 carats.

Previous samples yielded the following results:

• F1D, C4A, C5A and C6A completed by October 2011 produced 3 stones greater than 20 carats, 9 stones between 10 and 20 carats, 25 stones between 5 and 10 carats and 97 stones between 2 and 5 carats. The largest three stones recovered to date in this program are 53.53 carats, 37.24 carats and 20.26 carats
• C8A completed in December 2011, produced 1 diamond greater than 20 carats, 12 stones between 10 and 20 carats, 23 stones between 5 and 10 carats and 62 stones between 2 and 5 carats. The three largest stones were 31.87, 17.88 and 16.54 carats.
• C9A completed in mid-March 2011 produced 3 stones greater than 20 carats, 8 stones between 10 and 20 carats, 28 stones between 5 and 10 carats and 82 stones between 2 and 5 carats. The three largest stones were 48.54, 33.80 and 21.82 carats.
• G2A completed in May 2011 produce 1 stone greater than 20 carats, 3 stones between 10 and 20 carats, 10 stones between 5 and 10 carats and 83 stones between 2 and 5 carats. The largest three stones were 41.38, 19.35 and 12.63 carats.

Tonnage estimates are based on daily plant weightometer readings and moisture content measurements to determine a dry tonnage estimate. The process plant is being operated by Minopex under contract to Mothae Diamonds and operates at a 2mm bottom cut off size for diamond recovery. Diamond recovery and characterization work is carried out independently by the diamond sorting staff of Remote Exploration Services, also under contract to Mothae Diamonds.

In August, the Bourevestnik X-ray (high powered X-ray) machine was commissioned on site. The unit has been installed in an audit capacity and is being used to audit recovery tailings. Once audit work has been completed, the unit will be included as part of the sample plant flowsheet, reducing the current bottleneck constraints with currently installed equipment.

A primary crushing unit was delivered to site in early September and has been fully commissioned. A larger capacity secondary crusher will be installed in Q4. Both units are required to efficiently process harder kimberlite and basalt xenoliths, and in particular, to process unweathered kimberlite samples that are planned toward the end of the trial mining program.

A drilling contact was awarded to Remote Drilling Services to conduct a 5,400m delineation drilling program. The objectives of the program are to define the internal geology of the Mothae kimberlite, as well as to extend the currently defined kimberlite volume from a depth of 200m to 320m, to collect suitable sample material for ore dressing studies, and to collect core for geotechnical evaluation.

During October, a contract was awarded to ADP Project, to conduct a pre-feasibility level study in support of a preliminary economic assessment at Mothae. The objective of this study will be to gain an increased understanding of the economic potential of the Mothae project through greater definition of the capital and operating costs required for the development of a mine at Mothae.

Depending on current rough diamond market conditions the Company plans to sell a parcel of diamonds recovered from the trial mining program in December 2011. On March 28, 2011, Mothae had its first diamond sale in Antwerp. The parcel of diamonds totalled 9,381.35 carats and sold for an average price of US$871.70/ carat. Gross proceeds totalled $8.2 million. The three stones with the highest per carat value were a 13.87 carat diamond, which sold for $43,000/ct, a 24.57 carat diamond, which sold for $32,351/ct, and a 20.13 carat diamond, which sold for $27,995/ct.

Namibia

Following an evaluation of the exploration work conducted to-date on the Kavango Project in eastern Namibia, by the Company's joint venture partner, Namdeb Diamond Corporation, the Company has made a determination not to renew the licenses which expire at the end of Q4. The Company is currently preparing the documentation required to formally relinquish its interest in all ten of the prospecting licenses.

Land status

The following summarizes the Company's current land holdings:

Country	Project Name and Interest Held	Area (km2)
Lesotho	Mothae Diamond Mining Lease (75% interest)	20
Botswana	Boteti AK6 Diamond Mining License (100% interest)	15.3
Namibia	Kavango Prospecting License (10) (100% interest)	8,359

Boteti AK6 Diamond Project, Botswana

Boteti was granted a mining license in 2008 over the AK6 Diamond Project which is located in central Botswana and is part of the Orapa/Letlhakane kimberlite district, one of the world's most prolific diamond producing areas. The kimberlite consists of three lobes, South, Centre and North, of which the South Lobe makes up approximately 75% of the kimberlites' resource potential. The pipe has an area of 4.2 hectares at the surface which expands to 7 hectares at a depth of 120 meters.

In July 2010, a formal decision was made to proceed with the construction of the AK6 diamond mine which is estimated to require a capital investment of approximately US$120-US$130 million (based on ZAR/US$ exchange rate of R7.00), which includes the process plant and all mine site and off-site infrastructures.

The project has an Indicated Resource of 51 million tonnes ("mt") containing an estimated 8.2 million carats ("ct") of diamonds, the mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing an estimated 6.3 million carats of diamonds, using a 1.5mm bottom cut-off size, in an open pit to a depth of 324 metres, The reserves will be mined over an estimated 15 year life. The process plant has been designed at an estimated throughput rate of 2.5 million tonnes per annum ("mtpa"). Diamond recovery is estimated at approximately 400,000 carats per year at a base price of $243/ct

As at the end of the second quarter 2011 there were 495 people on site and 497,000 hours worked since the construction decision was made (July 2010). Overall project progress was 75% complete, with engineering 99%, procurement 87%, construction was proceeding on schedule at 55% and fabrication 76% completed. During the quarter, construction of the power line and sub-stations was ongoing and grid power is anticipated to be available in time for early commissioning tasks. In addition, the construction contract was awarded for the employee housing and the contractor has mobilized to site.


In July 2011, there was an industrial action in the South Africa steel industry that caused delays to steel fabrication and delivery of supplies to the project. Work did continue on the site, delivered steel was erected and project tasks re-prioritised to mitigate the impacts on the construction schedule. The Company is currently evaluating the full impact of the industrial action, which has now ended, on the construction schedule and will provide further updates at they become available.

An agreement was reached with Kalcon (Proprietary) Ltd for a three year mining contract in early July 2011 and they are expected to mobilize to site during the third quarter. The processing contract was awarded to Minopex and negotiations are underway with the agreement anticipated to be finalized in August 2011.

In addition, negotiations continued with Lucara's primary sales consultants to provide diamond sales advisory services for Boteti, with the aim of developing an in-house sales team. Boteti's corporate office relocated in July 2011 and conversion of the current office space in the diamond technology park in Gaborone to a sorting/sales office is expected to be completed during the fourth quarter.


Mothae Diamond Project - Lesotho

The Mothae project is located in northeast Lesotho and is a large low grade kimberlite which is anticipated to contain a population of large, high value Type IIa diamonds.

Mothae Diamonds (PTY) Ltd ("Mothae Diamonds"), an indirect 75% owned subsidiary of the Company, holds a 100% interest in the Mothae Project. The other 25% is owned by the Government of Lesotho. The Company, through a wholly owned subsidiary, is the project operator. One half of the project interest held by the Government (ie 12.5% of the project interest) is a free carried interest and the other 12.5% will ultimately be paid for by the Government through its share of future project dividends, if any.

In 2010, the Company commenced a trial mining program, based on results from the 100,000 tonnes bulk sample completed in 2009. The trial mining program is designed to sample and process up to 720,000 tonnes of kimberlite from various kimberlite domains, which have been identified within the pipe to confirm geological potential and the presence of the high value Type IIa diamonds. Periodic diamond sales, by open tender, will be conducted in order to improve the validity of our valuation process.

Total dry tonnes of kimberlite processed for the current quarter and first half of 2011 were 55,850 and 107,891, respectively, bringing the project to date to 245,539 tonnes, resulting in the recovery of 19,658 stones weighing 8,890 carats.

Diamond recovery information remains provisional; as Mothae Diamonds commissioned a grease table recovery unit during the current quarter and is in the process of treating x-ray recovery tailings for audit purposes. Results of this work will be incorporated into revised diamond recovery and grade information when complete. In addition, the Bourevestnik ("BV") x-ray diamond recovery unit was installed and commissioned subsequent to quarter end and is anticipated to be fully operational in August 2011.

Mothae Diamonds completed an upgrade to the process plant screens during May and early June as a means to reduce maintenance time and thereby increase daily plant throughput. In addition, Mothae Diamonds is planning the installation of a primary crushing circuit and an upgrade to the secondary crusher to improve the plant's ability to process harder kimberlite material encountered as mining progresses deeper into less weathered portions of the Mothae pipe.

During the quarter, work commenced on the Environmental Impact Assessment (EIA) in support of future mine development. It is anticipated that the EIA will be available prior to the end of the third quarter 2011.

Land status

The following summarizes the Company's current land holdings:

Country	Project Name and Interest Held	Area (km2)
Botswana	Boteti AK6 Diamond Mining License (100% interest)	15.3
Lesotho	Mothae Diamond Mining Lease (75% interest)	20
Namibia	Kavango Prospecting License (10) (100% interest)	8,359

Boteti AK6 Diamond Project, Botswana

Boteti was granted a mining license in 2008 over the AK6 Diamond Project which is located in central Botswana and is part of the Orapa/Letlhakane kimberlite district, one of the world's most prolific diamond producing areas. The kimberlite consists of three lobes, South, Centre and North, of which the South Lobe makes up approximately 75% of the kimberlites' resource potential. The pipe has an area of 4.2 hectares at the surface which expands to 7 hectares at a depth of 120 meters.

In July 2010, a formal decision was made to proceed with the construction of the AK6 diamond mine which is estimated to required a capital investment of approximately US$120-US$130 million (based on ZAR/US$ exchange rate of R7.00), which includes the process plant and all mine site off-site infrastructures.

The project has an Indicated Resource of 51 million tonnes ("mt") containing 8.2 million carats ("ct") of diamonds, the mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing 6.3 million carats of diamonds, using a 1.5mm bottom cut-off size, in an open pit to a depth of 324 metres, The reserves will be mined over an estimated 15 year life. The process plant has been designed at an estimated throughput rate of 2.5 million tonnes per annum ("mtpa"). Diamond recovery is estimated at approximately 400,000 carats per year at a base price of $243/ct.

As at the end of the May 2011, project execution is on schedule at overall 64% complete and 65% of the capital investment being committed. Agreements were reached during the first quarter with Botswana Power Corporation for the supply of power and contracts for the construction of the bulk power line which has commenced. Grid power is anticipated to be available in July 2011 in time for early commissioning tasks.

Fabrication of mechanical package orders are progressing very well, with some of the critical long lead items on route or have been delivered to warehouse in South Africa. First planned steel recoveries deliveries have arrived.

Mothae Diamond Project, Lesotho

The Mothae project is located in northeast Lesotho and is a large low grade kimberlite which contains a population of large, high value Type IIa diamonds.

Mothae Diamonds (PTY) Ltd ("Mothae Diamonds") an indirect 75% owned subsidiary of the Company, holds a 100% interest in the Mothae Project. The other 25% is owned by the Government of Lesotho. Mothae Diamonds Holdings Inc, an indirect wholly owned subsidiary of the Company, is the project operator. One half of the project interest held by the Government (ie 12.5% of the project interest) is a free carried interest and the other 12.5% will ultimately be paid for by the Government through its share of future project dividends, if any.

In 2010, the Company commenced a trial mining program, based on results from 100,000 tonnes bulk sample completed in 2009. The trial mining program is designed to sample and process up to 720,000 tonnes of kimberlite from various kimberlite domains, which have been identified within the pipe to confirm geological potential and the presence of the high value Type IIa diamonds. Periodic diamond sales, by open tender, will be conducted in order to improve the validity of our valuation process.

For the quarter 51,966 dry tonnes of kimberlite were processed bringing the project to date to 189,994 tonnes, resulting in the recovery of 13,985 stones weighing 6,261 carats.

Mothae Diamonds completed an upgrade to the process plant screens during May and early June as a means to reduce maintenance time and thereby increase daily plant throughput. In addition, Mothae Diamonds is planning the installation of a primary crushing circuit to the sample plant to improve processing of harder kimberlite material encountered as mining progresses deeper into less weathered portions of the Mothae pipe.

Land status

The following summarizes the Company's current land holdings:

Country	Project Name and Interest Held	Area (km2)
Lesotho	Mothae Diamond Mining Lease (75% interest)	20
Botswana	Boteti AK6 Diamond Mining License (100% interest)	15.3
Namibia	Kavango Prospecting License (10) (100% interest)	8,359

Boteti AK6 Diamond Project, Botswana

In December 2009, the Company, through its indirect wholly-owned subsidiary Boteti Diamond Holdings Inc. ("Boteti Diamond"), acquired an initial 70.268% interest in Boteti Mining (Pty) Limited ("Boteti"). In April 2010, African Diamonds exercised its option to increase its interest in Boteti by a further 10.268% in consideration of a cash payment of $7.3 million to the Company. After the exercise of the option, Boteti was held 60% held by Boteti Diamond and 40% held by African Diamonds.

In December 2010, the Company acquired African Diamonds' non-controlling interest in Boteti for consideration of 80,245,726 common shares of the Company on the basis of 0.80 ("Ratio") of a common share of the Company in exchange for every one common share in the capital of African Diamonds.

Boteti was granted a mining license over the AK6 Diamond Project which is located in central Botswana and is part of the Orapa/Letlhakane kimberlite district, one of the world's most prolific diamond producing areas. The Boteti AK6 kimberlite consists of three lobes, South, Centre and North, of which the South Lobe makes up approximately 75% of the kimberlites' resource potential. The pipe has an area of 4.2 hectares at the surface which expands to 7 hectares at a depth of 120 meters.

In June 2010, a definitive feasibility study updating previous work to a confidence level to support project approval was completed. The study detailed a cost effective technical solution with a process plant initially designed at a throughput rate of 2.5 million tonnes per annum ("mtpa") increasing to 4.0 mtpa after 4 years. This phased production approach, combined with contract mining reduces up-front capital required to bring this project on stream.

As part of the feasibility study, a resource update was completed on the project. From an Indicated Resources of 51 million tonnes ("mt") containing 8.2 million carats of diamonds, the mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing 6.3 million carats of diamonds, using a 1.5mm bottom cut off size, in an open pit to a depth of 324 metres. The reserves will be mined over an estimated 12 year mine life.

A formal decision was made to proceed with the construction of the AK6 diamond mine which is estimated to require a capital investment of approximately US$120-US$130 million (based on ZAR/US$ exchange rate of R7.00 to 7.50), which includes the process plant and all mine site and off-site infrastructure. Operating costs over the life of mine are estimated to average US$17.51 per tonne treated (based on ZAR/US of R7.53).

Project development activities commenced upon completion of the feasibility study with the selection of Dowding Reynard and Associates ("DRA") as the engineering, procurement and construction management contractor. The project development focus areas in 2010 were the critical path activities to ensure that ramp up to full production in the first quarter of 2012 is achieved. By year end engineering was 40% complete and all major equipment orders had been placed and procurement was 55% complete. The earthworks contract for the site civil works and the access road upgrade was awarded and the contractor mobilized to site in September 2010.

During 2010, parties affected by the mine development were relocated in accordance with the Botswana Land Board assessment report as a minimum. Relocation and resettlement claims were finalized to all parties' satisfaction.

Agreements were reached with Botswana Power Corporation for the supply of power to project and Debswana Diamond Company (PTY) Ltd, to use their existing construction camp. The bulk power line contract was put out to tender and the contract was awarded in March 2011, and grid power is anticipated to be available in July 2011 in time for early commissioning tasks.

Amendments to certain provisions of the mining license with the Government of the Republic of the Botswana ("GRB") were concluded. The mining license was amended to allow the sale of the entire AK6 production of diamonds either through open tender sales or exclusive contract, the removal of the commercial production start date and the mine lease area expanded.

As of the end of the 1st quarter of 2011, project execution is on schedule at overall 42% complete and 55% of the capital investment committed. Major operations contracts for mine operations and plant operations and maintenance are being adjudicated and ramp-up of Boteti manpower continues. All permits and licenses to operate are in place.

Mothae Diamond Project - Lesotho

The Mothae project is located in northeast Lesotho and is a large low grade kimberlite which contains a population of large, high value Type lla diamonds.

Mothae Diamonds (PTY) Ltd ("Mothae Diamonds"), an indirect 75% owned subsidiary of the Company, holds a 100% interest in the Mothae project. The other 25% is owned by the Government of Lesotho. Mothae Diamonds Holdings Inc, an indirect wholly owned subsidiary of the Company, is the project operator. One half of the project interest held by the Government (i.e. 12.5% of the project interest) is a free carried interest and one half is funded by the Government through its share of project dividends.

In 2010, the Company commenced a trial mining program, based on results from the 100,000 tonne bulk sample completed in 2009. The trial mining program is designed to sample and process up to 720,000 tonnes of kimberlite from various kimberlite domains which have been identified within the pipe to confirm geological potential, the presence of the high value Type lla diamonds and achieve true price discovery through periodic diamond sales by open tender.

Prior to the initiation of trial mining significant modifications were made to the process plant to allow for recovery of large diamonds (up to approximately 40mm in diameter) and to minimize diamond breakage.

Following a competitive bidding process for mining and process plant operations, a mining contract was awarded to Lesotho based Thotanyana Mining and Civil Works and a plant operation contract was awarded to Lesotho based Minerals Operation Executive (Pty) Ltd. Key personnel in Lesotho have been recruited to manage the operations.

Test mining commenced in late May 2010 and continues. The upgraded process plant was commissioned using F domain kimberlite remaining on stockpile from the prior bulk sampling program and plant throughput achieved design capacity of 30,000 tonnes per month in August 2010. Mining and processing during the year was focused on the C domain kimberlite, which is currently interpreted to comprise the largest kimberlite domain of the Mothae pipe. In 2010, a total of 138,798 dry tonnes of kimberlite were processed resulting in recovery of 8,723 stones weighing 3,671 carats. As in the prior bulk sampling program, the bottom cut-off size for diamond recoveries is 2mm. In addition, a total of approximately 90,000 cubic meters of topsoil and residual overburden material have been stockpiled for processing at a later date.

To the end of December 2010, the Company has recovered a total 17,602 stones containing 7,538 carats during the 100,000 bulk sample and test mining phases. The diamonds recovered have been valued and classified as inventory based on weighted average valuations of US$492/ct used for the preparation of the Kingdom of Lesotho Kimberley Process Certificate and export to Antwerp where the diamonds were subsequently sold.

In March 2011, Mothae Diamonds held its first diamond sale by open tender of 9,381 cts and realized total proceeds of $8.18 million at an average of US$871/ct. Included in the sale were diamonds recovered subsequent to year end that had a higher weighted average valuation than those recovered prior to year end.

Land status

The following summarizes the Company's current land holdings:

Country	Project Name and Interest Held	Area (km2)
Lesotho	Mothae Diamond Mining Lease (75% interest)	20
Botswana	Boteti AK6 Diamond Mining License (60% interest)	9
Namibia	Kavango Prospecting License (10) (100% interest)	8,359

Boteti AK6 Diamond Project, Botswana

In December 2009, the Company, through its indirect wholly-owned subsidiary Boteti Diamond Holdings Inc. ("Boteti Diamond"), acquired an initial 70.268% interest in Boteti AK6. In April 2010, African Diamonds exercised its option to increase its interest in Boteti AK6 by a further 10.268% in consideration of a cash payment of $7.3 million to the Company. The current shareholdings in Boteti AK6 are 60% held by Boteti Diamond and 40% held by African Diamonds. Boteti Diamond is the operator.

In October 2010, the Company entered into an agreement with African Diamonds to acquire its interest in Boteti AK6 by acquiring all of the issued and outstanding shares of African Diamonds on the basis of 0.80 of a common share of the Company for each African Diamond common share ("Acquisition"). It is anticipated that the Acquisition will close in December 2010. Upon completion of the Acquisition, ownership of the Boteti AK6 will be consolidated and the Company will hold an undivided 100% indirect interest in the project. In connection with the Acquisition, all of African Diamonds' other assets other than its interest in Boteti AK6, will be transferred into a newly formed company which will be owned by the former African Diamond shareholders.

The Boteti AK6 Diamond Project is located in central Botswana and is part of the Orapa/Letlhakane kimberlite district, one of the world's most prolific diamond producing areas. The Boteti AK6 kimberlite consists of three lobes, South, Centre and North, of which the South Lobe makes up approximately 75% of the kimberlites' resource potential. The pipe has an area of 4.2 hectares at the surface which expands to 7 hectares at a depth of 120 meters.

In June 2010, a definitive feasibility study updating previous work to a confidence level to support project approval was completed. The study details a cost effective technical solution with a process plant initially designed at a throughput rate of 2.5 million tonnes per annum ("mtpa") increasing to 4.0 mtpa after 4 years. This phased production approach, combined with contract mining reduces up-front capital required to bring this project on stream.

The updated study indicates the first phase will require a capital investment, including a 14.5% contingency of approximately US$120 million, which includes the process plant and all mine site and off-site infrastructure. Operating costs over the life of the mine are estimated to average US$17.51 per tonne treated. The project holds all government approvals to proceed and the execution schedule indicates that with work, which commenced in the third quarter, diamond production is expected to ramp up to full design capacity during 2012.

As part of the feasibility study, a resource update was completed on the project. From an Indicated Resources of 51 million tonnes ("mt") containing 8.2 million carats of diamonds, the mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing 6.3 million carats of diamonds, using a 1.5mm bottom cut off size, in an open pit to a depth of 324 metres. The reserves will be mined over an estimated 12 year mine life.

Project engineering has been awarded to DRA Africa (PTY) Ltd ("DRA") and work commenced in July 2010. Work on weather sensitive tasks commenced in the third quarter such as the upgrading of the mine access road, contractors lay down area, and plant terracing. In addition, orders for long lead items, the autogenous mill, primary jaw crusher and X-Ray Machines, have been placed.

Agreements were reached during the quarter with Botswana Power Corporation for the supply of power to project and Debswana Diamond Company (PTY) Ltd, to use their existing construction camp. In addition, contracts are being finalized to secure homes and housing plots in the town of Letlhakane for employees.

Relocation of parties affected by the mine development has been completed in accordance with the Botswana Land Board assessment report as a minimum. Relocation and resettlement claims have been finalized to all parties' satisfaction.
Amendments to certain provisions of the mining license with the Government of the Republic of the Botswana ("GRB") have been concluded. The mining license was amended to allow the sale of the entire AK6 production of diamonds either through open tender sales or exclusive contract and the removal of the commercial production start date.

Recruiting of senior management and operating team personnel is progressing according to schedule.

Mothae Diamond Project - Lesotho

The Mothae project is located in northeast Lesotho and is a large low grade kimberlite which contains a population of large, high value Type lla diamonds.

Mothae Diamonds (PTY) Ltd ("Mothae Diamonds"), an indirect 75% owned subsidiary of the Company, holds a 100% interest in the Mothae project. The other 25% is owned by the Government of Lesotho. Mothae Diamonds Holdings Inc, an indirect wholly owned subsidiary of the Company, is the project operator. One half of the project interest held by the Government (i.e. 12.5% of the project interest) is a free carried interest and one half is funded by the Government through its share of project dividends.

Based on results from the 100,000 tonne bulk sample completed in 2009, the Company commenced a test mining program at Mothae to sample and process up to 720,000 tonnes to confirm geological potential and the presence of the high value Type lla diamonds.

Following a competitive bidding process for mining and process plant operations, a mining contract was awarded to Lesotho based Thoytanyana Mining and Civil Works and a plant operation contract was awarded to Lesotho based Minerals Operation Executive (Pty) Ltd. Key personnel in Lesotho have been recruited to manage the operations.

Test mining commenced in late May and to the end of September a total of 100,939 tonnes of kimberlite have been mined from the F and C kimberlite domains. The C domain comprises the largest kimberlite domain of the Mothae pipe. In addition, a total of approximately 90,000 cubic meters of topsoil and residual overburden material have been stockpiled for processing at a later date.
Upgrades to the plant were completed during the first half of the year and commissioning completed during the third quarter. A total of 70,339 dry tonnes of kimberlite has been processed to end of September 2010, with the plant reaching design capacity of 30,000 tonnes per month mid August 2010.
To the end of September a total of 3,823 stones containing 1,760 carats have been recovered, including, 20 stones greater than 5 carats, 8 stones greater than 10 carats and 3 stones greater 20 carats. The bottom cut-off size on the Mothae Project is 2mm. The diamonds recovered have been valued and classified as inventory based on June 2009 valuation report.

Diamond recoveries for the period were lower than forecast in part due to limited plant throughput through commissioning and ramp up to full capacity, and part due to sampling work being concentrated on the comparatively lower grade C domain kimberlite versus forecast recoveries being based on the global grade estimate for Mothae project from previous bulk sampling.

Mothae Diamonds anticipates holding its first diamond sale by open tender in the first quarter of 2011.

During the current quarter, work commenced to increase the tailings dam capacity by raising the height of the dam walls a further 7 meters above current elevation. The expansion is expected to be completed prior to year end and is estimated to cost US$1.0 million.