• During the first quarter of 2013 the Company completed two sales totalling 144,712 carats for proceeds of $32.5 million. The 2013 sales included six parcels totalling 18,233 carats, which were withheld from the December 2012 sale due to low volumes of competitive bidding. Excluding the December inventory sold in January, the average sales price for full 2013 production sold was $243 per carat. Total sales forecast for 2013 is 400,000 carats.
• The Company sold its second blue stone, a 4.77 carat diamond in its March sale for $1.6 million or $341,416 per carat.
• During the period the Company recovered a number of significant gem quality diamonds from its run of mine production. This includes 6 diamonds in excess of 50 carats and 28 diamonds between 20 and 50 carats. The Company is planning its first large and exceptional stone tender in May, which is in addition to its normally planned tender of over 50,000 carats of diamond. The diamonds which will be sold during the large stone tender can be seen on the Company's website.
• Operating expenses per carat sold was $86 per carat.
• Cash operating earnings during the first quarter of 2013 (excluding depreciation, amortization and depletion) was $16.8 million or 52% of gross revenue.

• A final sale of Mothae diamonds recovered from the test mining phase was held in February 2013. A total of 2,102 carats of diamond were sold for $918,828 for an average price of $437 per carat representing all unsold diamonds recovered from the Mothae test mining phase.
• The Mothae project remained on temporary care and maintenance during the quarter and the Company is currently reviewing a number of development options for Mothae.

• Cash on hand as at March 31, 2013 was $17.4 million. This included $4.5 million drawn from the Company's Scotiabank credit facility.
• The principal balance of a $50 million debenture was reduced to $41.7 million ($50.0 million at December 31, 2012) with the first payment being made as scheduled at the end of the first quarter.

• There were no Lost Time Injuries ("LTI's") or reportable environmental incidents at Karowe during the year continuing its excellent safety, health and environment record. There have been over 3.2 million hours worked without any LTI's since March 2011, including 0.3 million hours since the beginning of 2013. Karowe's Lost Time Injuries Frequency Rate ("LTIFR") was zero for the quarter. LTIFR is defined as the total number of work hours lost per 200,000 work hours.

• There were no Lost Time Injuries ("LTI's") or reportable environmental incidents at Karowe during the year continuing its excellent safety, health and environment record. There have been over 2.9 million hours worked without any LTI's since March 2011, including 1.8 million hours since the beginning of 2012. Karowe's Lost Time Injuries Frequency Rate ("LTIFR") was zero for 2012. LTIFR is defined as the total number of work hours lost per 200,000 work hours.
• Commissioning and production ramp-up activities to achieve sustainable production were completed in the third quarter. Ramp-up to full production capacity, which commenced in April, was achieved by August.
• During the fourth quarter, the mine treated 545,354 tonnes compared to a forecast of 538,242 tonnes, producing 138,487 carats against a forecast of 108,981 carats. During 2012, the mine treated 1.4 million tonnes, 9% above the forecast of 1.27 million tonnes, producing 303,000 carats, which was 12% above the forecast of 271,000 carats. The average recovered grade during the fourth quarter was 25.4 carats per hundred tonnes. The average recovered grade for 2012 was 22.0 carats per hundred tonnes.

• The trial mining program was completed in September with final processing of hard, unweathered kimberlite from the central resource domain of the south lobe of the Mothae kimberlite. This brings the total tonnage sampled from the Mothae kimberlite for economic evaluation purposes to 603,819 dry tonnes yielding an average sample grade of 3.88 carats per hundred tonnes ("cpht").
• In the fourth quarter of 2012, the x-ray recovery tailings audit of all recovery tailings was completed. The project is now fully transitioned to a small care and maintenance team.
• The Company is currently reviewing a number of development options for Mothae following the completion of its trial mining program.

• development of a provisional resource model for the Mothae kimberlite. The model is currently subject to review by an independent Qualified Person (as defined by NI43-101) who will prepare an Independent Technical Report on the Motahe resource. This report will be filed on SEDAR in the second quarter of 2013.
• development of a provisional mine design and mine plan.
• finalization of conceptual layouts for site infrastructure, and
• preliminary estimation of costs for various design options and infrastructure development.

Land status

The following summarizes the Company's current land holdings:

Karowe Mine, Botswana (formerly AK6 Diamond Project)

The Company 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, Center 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.  The project has been completed within budget at a cost marginally below $120 million. In January 2012 the name of the mine was officially changed to the Karowe Mine.

The project has an Indicated Resource of 51 million tonnes (“mt”) containing an estimated 8.2 million carats (“ct”) of diamond. The mine design delineates a Probable Reserve of 36.2 million tonnes of ore, containing an estimated 6.1 million carats of diamond at a 1.5mm bottom cut-off size, in an open pit to a depth of 324 meters. The reserves will be mined over an estimated 15 year life. The process plant has been designed at throughput rate of 2.5 million tonnes per annum (“mtpa”).

In August, Karowe production exceeded design capacity on several shifts. Ramp-up to full process plant throughput, therefore, was achieved in a little over four months having overcoming water supply and water demand issues. In September, 233,507 tonnes were processed which was 14% above design capacity. For the quarter, a total of 594,000 tonnes were milled producing 91,480 carats.

The mine dewatering projects were well advanced during the third quarter. The equipping of additional boreholes added to the water supply, and this was effectively supplemented by return water from the slimes dam. These projects, along with reduced water consumption per tonne treated, as the operations team optimized the AG mill operation, enabled the mine to meet and then exceed design capacity within the third quarter.  In October, for the first time since start-up, primary, fresh kimberlite was mined and processed.  This competent ore impacted the mill throughput as it takes longer to breakdown than the weathered ore.  Mill operational optimisation work is ongoing to achieve sustained design tonnage throughput.

During the quarter, the mine successfully conducted two sales earning proceeds of $19.9 million. The Company withheld goods from the July sale as the rough diamond market softened, especially in the high-color, high-quality diamond categories. This was due to the diamonds not being offered a competitive price for the quality of goods on sale. For the September sale, viewings were held in both Gaborone and Antwerp increasing the client base substantially. All goods withheld in the July sale were sold in September.  Viewings for the September sale were held in both Gaborone and Antwerp, which resulted in three times the number of people attending viewings compared to viewings being held solely in Gaborone in June and July.

The Karowe Mine was officially opened by the President of Botswana, His Excellency Lieutenant General Seretse Khama Ian Khama on August 17, 2012 by which time the process facilities had ramped up to design capacity and the Company had successfully conducted two diamond sales.

There were no LTI’s or reportable environmental incidents at Karowe during the quarter continuing its excellent safety, health and environment record. There have been over 2.5 million hours worked without any LTI’s since March 2011, including 1.3 million hours since the beginning of 2012. The Karowe Mine has an LTIFR of 0.07.

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

Mothae Diamonds (PTY) Ltd. (“Mothae Diamonds”), a subsidiary which is held 75% by the Company and 25% by the Government of Lesotho, holds a 100% interest in the Mothae project. One half of the interest held by the Government (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. The Company, through a wholly owned subsidiary, is the project operator.

Between February 2008 and December 2009, the Company conducted an 82,000 dry tonne bulk sample program to make an initial assessment of the nature of the diamond population contained within the Mothae kimberlite, to evaluate the grade potential of the pipe and to make a preliminary assessment of tonnage potential.

In 2010, the Company commenced a trial mining program to mine and process up to an additional 620,000 dry tonnes of material from various kimberlite domains, which had been identified in the bulk sample program. This trial mining was aimed at providing confirmation of the frequency of occurrence of high value diamonds within the principal kimberlite domains of the Mothae pipe, better assess the grade potential of these domains, delineate the tonnage potential and internal geology of the pipe to a depth of 300 meters and generally, provide sufficient technical information needed to complete a Preliminary Economic Assessment (“PEA”) of the Mothae kimberlite. To establish the market value of Mothae diamonds, three sealed tender sales were held in March 2011, December 2011 and September 2012.

The trial mining program was completed in September 2012. A small team remains on site into the fourth quarter to reprocess x-ray recovery tailings through the Bourevestnik X-ray unit as an audit of process plant recovery efficiencies. Otherwise, the project has been put on care and maintenance as work continues on completion of the PEA.

Performance during the three and nine months ended September 30, 2012

The Company completed a diamond sale on September 14, 2012. A total of 4,657 carats of diamond were sold for gross proceeds of $1.5 million for an average price of $324 per carat. The sale consisted of 32 lots of which 26 were sold on a sealed tender at the offices of Bonas-Couzyn in Antwerp.

Trial mining continued in the central portion of the south lobe of the Mothae kimberlite, and focused on extraction of a sample of fresh, unweathered kimberlite from the south central domain to determine diamond grade and liberation characteristics of this material as compared to the overlying soft, weathered kimberlite. Samples F3A, CD1B and CD1C were completed during the quarter.

Sample F3A consists of material in a geologic transition zone between the west resource domain and the central resource domain of the south lobe of the Mothae pipe. This sample was processed primarily to gain mining access to the central resource domain and also to provide additional diamond size, grade and value data. F3A produced 365.91 carats of diamond from 7,659 dry tonnes of kimberlite for an average sample grade of 4.78 cpht and had an average stone size of 0.63 carats per stone.

Sample CD1B consists of central domain kimberlite in the transition zone between overlying soft weathered kimberlite and underlying hard unweathered kimberlite. CD1B produced 2,936.74 carats of diamond from 52,559 dry tonnes of kimberlite for an average sample grade of 5.59 cpht and had an average stone size of 0.44 carats per stone.

Sample CD1C consists of hard fresh kimberlite from the central resource domain of the Mothae pipe and is representative of the bulk of the central domain resource in terms of processing and diamond liberation characteristics. CD1C yielded 262.07 carats from 5,563 dry tonnes of kimberlite for an average sample grade of 4.71 cpht and had an average stone size of 0.50 carats per stone. This sample was the final kimberlite material processed in the trial mining program.

The following table summarizes all kimberlite material processed from the Mothae pipe through to completion of the trial mining program:

*All diamond recoveries and grades are reported at a bottom cut-off size of 2.0mm

Tonnage estimates are based on daily plant weightometer readings and moisture content measurements to determine a dry tonnage estimate. The process plant was operated at a 2.0mm bottom cut-off size for diamond recovery. Diamond recovery and characterization work was carried out by Mothae Diamonds sorting staff with recovery results being monitored and reported by Remote Exploration Services, also under contract to Mothae Diamonds.

Land status

The following summarizes the Company's current land holdings:

Karowe Mine, Botswana

In July 2010, a formal decision was made to proceed with the construction of the AK6 diamond mine. The project has been completed within budget at a cost marginally below $120 million.

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 meters. The reserves will be mined over an estimated 15 year life. The process plant has been designed at throughput rate of 2.5 million tonnes per annum ("mtpa").

Performance during the three and six months ended June 30, 2012

The Karowe mine transitioned from construction to commissioning in the second quarter of 2012, with its first diamond being recovered on April 4.

During the month of April, production commissioning activities commenced and 30,000 tonnes of kimberlite were treated yielding 10,200 carats. Commissioning and testing continued through May and June with 19,062 carats and 35,007 carats being recovered respectively. Commercial production commenced on July 1.

During this period, it was identified that the material characteristics of the weathered ore differed from that modeled at the design stage impacting commissioning and ramp-up to full production. Water consumption per tonne treated, therefore, has been much higher than expected. Projects have been initiated to increase water supply from the dewatering wells and to reduce water consumption per tonne treated. By the end of the second quarter, the process plant was milling consistent tonnage on a daily basis.

The production plan for 2012 has been reforecast taking cognizance of the ore feed and water balance. The forecast for the second half of 2012 anticipates the treatment of 1.02 million tonnes and the yield of 208,010 carats. Total production for 2012 is expected to be approximately 270,000 carats. The mine plan includes waste stripping and stockpiling of lower grade ore to access better grade ore and ensure sustainable operations into 2013. The Company is forecasting to achieve design capacity during Q1 2013.

The mine continued its excellent safety, health and environment record during the second quarter as the mine transitioned to operations and site responsibility transferred to Karowe staff. Since the beginning of the year, 1.06 million hours have been worked without any loss time injuries. There have been over 2.25 million hours worked since the only LTI recorded at Karowe during March 2011 (LTIFR is 0.09).

The mine's inaugural diamond sale was conducted in June. There were 35 lots totalling 29,339 carats of which 30 lots were sold for gross total proceeds of $5.6 million or $215 per carat. As the Company was in pre-commercial production the proceeds of $5.6 million was allocated to reduce plant and equipment accounts during the six months to June 30, 2012. Karowe's second sale on July 16, 2012, included a total of 35 individual lots containing 36,842 carats of diamond, of which 32 lots were sold for gross total proceeds of $US 6.5 million or $179 per carat. The bidding for high-color, high-quality diamonds was particularly soft and three lots of these goods were withdrawn from the sale.

Mothae Diamond Project, Lesotho

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

Mothae Diamonds (PTY) Ltd. ("Mothae Diamonds"), a subsidiary which is held 75% by the Company and 25% by the Government of Lesotho, holds a 100% interest in the Mothae project. One half of the interest held by the Government (i.e. 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. The Company, through a wholly owned subsidiary, is the project operator.

In 2010, the Company commenced a trial mining program, based on results from a 100,000 tonne bulk sample completed in 2009. The trial mining program is designed to sample and process up to an additional 620,000 wet tonnes of kimberlite from various kimberlite domains identified within the pipe to confirm the occurrence of high value Type IIa diamonds and to better assess the economic potential of the Mothae kimberlite. Sealed tender diamond sales are being undertaken to establish diamond value. In 2011, diamond sales were conducted in March and December.

Performance during the three and six months ended June 30, 2012

Mining was conducted in the central portion of the south lobe, exposing fresh, unweathered kimberlite, which will be tested to determine the comminution and liberation properties of the material. This kimberlite makes up the majority of the potential resource at Mothae. Sample C11C was completed in the second quarter of 2012 and consists of unweathered kimberlite from the west resource domain of the south lobe of the Mothae kimberlite.

Table 1 summarizes trial mining results, together with prior bulk sample results as of June 20, 2012. The bottom cut-off size for diamonds recovered at Mothae is 2.0mm; diamond grade and diamond size information reported in Table 1 is for diamonds greater than 2.0mm.

Samples C11A and C11C were completed during the quarter and sample F3A commenced. Sample C11A consists of kimberlite in the transition zone between weathered kimberlite and fresh kimberlite in the west resource domain of the south lobe of the Mothae pipe. This sample yielded 1,907.59 carats of diamond from 68,110 dry tonnes of kimberlite for a sample grade of 2.80 carats per hundred tonnes ("cpht") and an average stone size of 0.44 carats per stone.

Sample C11C consist of fresh, unweathered kimberlite from the west resource domain of the south lobe of the Mothae pipe and is positioned directly below sample C11A. C11C produced 474.18 carats of diamond from 23,078 dry tonnes of kimberlite for an average grade of 2.05 cpht and an average stone size of 0.51 cpht. The reduction in relative grade and increase in relative stone size in sample C11C as compared to C11A is a result of reduced liberation of small diamonds from hard, unweathered kimberlite in the comminution processes.

Sample F3A consists of material in a geologic transition zone between the west resource domain and the central resource domain of the south lobe of the Mothae pipe. This sample was processed to gain additional diamond size, grade and value data, and to develop access to fresh, unweathered kimberlite in the central resource domain of the pipe.

Table1. Mothae Bulk Sample and Trial Mining Results as of June 20, 2012

* All diamond recoveries and grades are reported at a bottom cut-off size of 2.0mm

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 2.0mm bottom cut-off size for diamond recovery. Diamond recovery and characterization work is carried out by the Mothae Diamonds diamond sorting staff with recovery results being monitored and reported by Remote Exploration Services, also under contract to Mothae Diamonds.

A delineation drilling program was completed in the first quarter of 2012 and consisted of 5,630 meters of core drilling in 31 holes. Evaluation and analysis of the core was carried out during the second quarter to assess the tonnage potential of the Mothae pipe to a depth of 300 meters and to model the internal geology of the pipe. Interpretation of the overall pipe shape to 300 meters depth was completed in the second quarter. This drill information will be used to define the resource model for the Preliminary Economic Assessment which will be completed in the fourth quarter this year.

Work on interpreting the internal geology of the Mothae pipe is ongoing and is expected to be used to model the pipe's resource potential. This work is expected to be completed in the fourth quarter of 2012.

Work on the preliminary economic assessment of the Mothae kimberlite during the quarter focused primarily on:

• systematic data collection from processing hard kimberlite as input for process plant design,
• ore dressing studies (ODS) of the west resource domain of the south lobe of the pipe for determination of additional plant design parameters,
• drill core logging and interpretation to assess the pipe's tonnage potential to a depth of 300 meters, and
• site layout and infrastructure review, including water and power options.

Work on the Preliminary Economic Assessment is expected to continue through the third quarter and is expected to be complete during the fourth quarter of 2012.

Land status

The following summarizes the Company's current land holdings:

Karowe Mine, Botswana

The Company 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, Center 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 $120 to $130 million (based on a ZAR/USD exchange rate of R7.53), which includes the process plant and all mine site and off-site infrastructures. In December 2011, the AK6 diamond mine was renamed to the Karowe Mine.

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 meters. The reserves will be mined over an estimated 15 year life. The process plant has been designed at throughput rate of 2.5 million tonnes per annum ("mtpa"). Diamond recovery is estimated at approximately 400,000 carats per year at a November 2011 diamond price of $301/ct.

Performance during the three months ended March 31, 2012

In the first quarter of 2012, activities across engineering, procurement, construction and the development of the operations team advanced the project such that construction was sufficiently complete to allow integrated ore commissioning activities to commence in early April.

During the first quarter, all unit processes had been run individually at, or above, design capacity. More than 5,000t of ore was processed through the front-end of the plant (primary crusher to stockpile). Mining activities concentrated on waste stripping (1.5 million tonnes in the first quarter) once the ore stockpile had been built up to 280,000t. In addition to the ore stockpile, production benches were prepared and ready to feed ore directly to the processing plant.

As at March 2012, the project had achieved over 1,500,000 hours without a lost time injury (LTI) and no environmental incidents have been recorded.

The operations team comprising Karowe staff, mining contractor (Kalcon) and process plant contractor (Minopex) staffed up during the first quarter.

Commissioning activities at the Karowe mine were completed during April 2012 and the process facilities have been handed-over to operations. Ramp-up to full production is in progress with a target of 50% of the design throughput during May and 75% in June. At the end of the second quarter the operations are expected to be operating, as scheduled, at the full design capacity of 350 tonnes per hour.

In the sales and marketing offices in Gaborone, the security systems and the stock control systems were installed and commissioned and the facilities are now ready to receive diamonds from the Karowe mine.

The first Karowe sale is forecast in June, with five additional sales scheduled during the year.

Mothae Diamond Project, Lesotho

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

Mothae Diamonds (PTY) Ltd. ("Mothae Diamonds"), a 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 (i.e. 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.

In 2010, the Company commenced a trial mining program, based on results from a 100,000 tonne bulk sample completed in 2009. The trial mining program is designed to sample and process up to an additional 620,000 wet tonnes of kimberlite from various kimberlite domains identified within the pipe to confirm the occurrence of high value Type IIa diamonds and to better assess the economic potential of the Mothae kimberlite. Sealed tender diamond sales are being undertaken to establish diamond value. In 2011, diamond sales were conducted in March and December.

Performance during the three months ended March 31, 2012

Mining was conducted in the central portion of the south lobe, exposing fresh, unweathered kimberlite, which will be tested to determine the comminution and liberation properties of the material. This kimberlite makes up the majority of the potential resource at Mothae. Sample C11A commenced in mid-January and exaction and processing is ongoing. Summary tonnage and grade results for the trial mining program are shown in the following table:

Table1. Mothae Trial Mining Results as of March 31, 2012

* All diamond recoveries and grades are reported at a bottom cut-off size of 2.0mm
** About 3,500t of sample E2A was processed in December 2011.
*** Sample C11A is ongoing. Final results will be reported when this sample is completed.

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 2.0mm bottom cut-off size for diamond recovery. Diamond recovery and characterization work is carried out by the Mothae Diamonds diamond sorting staff with recovery results being monitored and reported by Remote Exploration Services, also under contract to Mothae Diamonds.

The delineation drilling program which commenced in the fourth quarter of 2011 was completed during the quarter. A total of 31 holes were completed totalling 5,630 meters. Delineation drilling to define the internal geology of the Mothae pipe and to define the kimberlite volume to a depth of 320 meters comprised 26 core holes. In addition to these core holes, five holes were drilled for mining and civil geotechnical evaluation. Information from this drilling campaign is being interpreted to develop an updated geologic and resource model for the Mothae kimberlite.

Work on the preliminary economic assessment of the Mothae kimberlite during the quarter focused primarily on planning for detailed ore dressing studies (ODS) of the main kimberlite facies within the pipe. Core samples from the delineation drilling program have been collected and submitted for preliminary metallurgical analysis. In addition to this, approximately 15,000t of fresh, unweathered kimberlite from sample C11A have been stockpiled and will be processed through the Mothae plant early in the second quarter of 2012 to determine milling characteristics and diamond liberation requirements for this material.

Land status

The following summarizes the Company's current land holdings:

Karowe Mine, Botswana

The Company 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, Center 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 $120 to $130 million (based on a ZAR/USD exchange rate of R7.53), which includes the process plant and all mine site and off-site infrastructures. In December 2011, the AK6 diamond mine was renamed to the Karowe Mine.

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 meters. 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 November 2011 diamond price of $301/ct.

Performance during the year ended December 31, 2011

In 2011, activities across engineering, procurement, construction and the development of the operations team advanced the project significantly. By year end, engineering, procurement and fabrication activities were essentially complete and project construction was standing at over 90% complete. Delays to the project schedule as a result of the steel industry industrial action in July impacted the overall project schedule and the handover to operations shifted from the end of 2011 to early in the second quarter of 2012.

As at December 2011, the project had achieved 1,000,000 hours without a lost time injury (LTI) and no environmental incidents have been recorded.

Environmental and community relations activities as detailed in the Environmental Management Plan were well executed throughout the year. A competition to name the mine as it transitions into production was well supported by the local communities and schools and Karowe (meaning "previous stone" in the local dialect) was selected. Several community projects, including village clean-up campaigns and health and wellness initiatives, in conjunction with the community members were completed. Archaeological monitoring of all construction areas continued throughout the year and no artefacts were discovered on site or at the Boteti housing sites in Letlhakane.

The 25km, 33kVA power-line from the Orapa sub-station to the Karowe Mine site sub-station was completed during the last quarter of 2012 and handed over to BPC. The mine switched to grid power in time to support commissioning activities.

The process plant operations and maintenance contract was also concluded, and the Company's contractor, Minopex has site established. Minopex are working with the operations staff on process stores and operational procedures and are also fully integrated with the commissioning planning.

The operations senior management, technical and support staff were successfully recruited as required to support project advancement throughout the year.

In Gaborone, the sales and marketing offices were completed and the senior staff recruited. The installation of the security systems and the stock control systems commenced in the fourth quarter.

Table1. Mothae Trial Mining Results as of 3 October 2011

Mothae Diamond Project, Lesotho

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

Mothae Diamonds (PTY) Ltd. ("Mothae Diamonds"), a 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 (i.e. 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.

In 2010, the Company commenced a trial mining program, based on results from a 100,000 tonne bulk sample completed in 2009. The trial mining program is designed to sample and process up to an additional 620,000 wet tonnes of kimberlite from various kimberlite domains identified within the pipe to confirm the occurrence of high value Type IIa diamonds and to better assess the economic potential of the Mothae kimberlite. Sealed tender diamond sales are being undertaken to establish diamond value. In 2011, diamond sales were conducted in March and December.

Performance during the year ended December 31, 2011

Mothae Diamonds processed 31,488 dry tonnes (36,430 wet tonnes) of kimberlite in the fourth quarter of 2011 recovering 796.97 carats of diamond. In 2011, Mothae Diamonds processed 208,293 dry tonnes (244,532 wet tonnes) of kimberlite recovering 12,157.35 carats of diamond. Table 1 summarizes Mothae production for the trial mining program which commenced in June 2010.

Table1. Mothae Trial Mining Results as of December 31, 2011

* All samples processed using a bottom cut-off size of 2mm; carats and sample grade represent diamonds greater than 2mm in size.

Plant throughput was reduced in the fourth quarter of 2011 as a result of a shutdown in November to complete upgrades to the plant crushing and diamond recovery circuits. These included integration of a new secondary crushing circuit required to handle harder kimberlite material as mining operations move deeper into less weathered, fresher kimberlite and interlocking of a Bourevestnik high intensity diamond recovery unit into the main plant circuit. In December, the plant operated at a reduced throughput as part of the commissioning of these upgrades.

Samples G3A, C7A and C6B were completed in the fourth quarter with overall results shown in Table 1. A small tonnage of sample E2A was also processed as part of the commissioning of plant upgrades.

The bulk of sample G3A was processed in the third quarter of 2011 and the sample was completed in the fourth quarter. A total of 3,722 diamonds weighing 1,654.70 carats were recovered from 29,874 dry tonnes (34,497 wet tonnes) yielding a sample grade of 5.54 carats per hundred tonnes (cpht) and an average stone size of 0.44 carats/stone. Recoveries included 2 stones between 10 and 20 carats, 19 stones between 5 and 10 carats and 68 stones between 2 and 5 carats. The three largest diamonds recovered were 19.94, 11.81 and 10.97 carats.

Sample C7A yielded 875 diamonds weighing 403.20 carats from 18,425 dry tonnes (21,287 wet tonnes) for a sample grade of 2.19 cpht. Recoveries included one diamond weighing 56.62 carats, 4 stones between 5 and 10 carats and 14 stones between 2 and 5 carats. The three largest diamonds recovered were 56.62, 8.06 and 6.62 carats.

Sample C6B produced 572 diamonds weighing 348.02 carats from 9,592 dry tonnes (11,215 wet tonnes) for a sample grade of 3.63 cpht. C6B yielded one stone larger than 10 carats, 6 stones between 5 and 10 carats and 18 stones between 2 and 5 carats. The three largest diamonds recovered were 10.52, 8.59 and 8.58 carats. Sample C6B comprised the remaining portion of sample C6A which was excavated and partially processed in 2010 (Table 1). Sample C6B is that portion of the C6 sample which was stockpiled pending upgrade of the process plant crushing circuits.

No grease table audits of x-ray recovery tailings were conducted during the quarter and diamond grades reported above are subject to change pending audit results.

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 by the Mothae Diamonds diamond sorting staff with recovery results being monitored and reported by Remote Exploration Services, also under contract to Mothae Diamonds.

In August 2011, Mothae Diamonds acquired a Bourevestnik X-ray (high powered X-ray) diamond recovery machine in an effort to improve recovery of low luminescent, potentially high value Type IIa diamonds. The Bourevestnik unit was initially tested and commissioned in an audit capacity to audit recovery tailings from the Flowsort and VE x-ray diamond recovery units in the main plant circuit. In the fourth quarter of 2011, the Bourevestnik unit was interlocked into the main plant circuit as the primary large diamond recovery facility, bypassing the Flowsort unit, which has been taken offline.

During the year, a primary crushing unit and a secondary crushing unit were installed and commissioned. Both units are required to efficiently process harder kimberlite and basalt xenoliths and in particular, to process unweathered kimberlite samples that are planned in 2012.

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 2011, a contract was awarded to ADP Projects to complete a preliminary economic assessment of the Mothae kimberlite. 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.

Two diamond sales were completed during the year. The first took place in March 2011 which sold a total of 9,379 carats for gross proceeds of $8.2 million (average of $871 per carat). The second took place in December 2011 which sold a total of 7,190 carats for gross proceeds of $6.4 million (average of $893 per carat).

During the third quarter of 2011, Mothae Diamonds completed an Environmental Impact Assessment (EIA) of the Mothae project based on a conceptual mining study completed by the Company in 2009. The EIA has been submitted to and approved by the Lesotho Department of Environment.

Namibia

Following an evaluation of the exploration work conducted to date on the Kavango Project in eastern Namibia by the Company and its joint venture partner, Namdeb Diamond Corporation, the Company has made a determination not to renew the licenses which expired at October 29, 2011. 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:

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

*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:

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:

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:

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.