11 July 2008

LSE: NAD

Interim Management Statement for the Seventeen Week Period from 1 March 2008

Namakwa Diamonds Limited ('Namakwa' or the 'Company'), a vertically integrated diamond mining company, today issues its interim management statement for the seventeen week period from 1 March 2008 to 30 June 2008. 

Highlights

• Continued trend of rising prices for high quality rough and polished diamonds, (4-5 carat diamond prices increased by 27% and 5-6 carats diamond prices increased by 32.5% during the current reporting period, according to Rapaport); 

• Improved performance from the South African mining operations following the impact of unusually high rainfalls, together with power shortages; 
• North-West province expansion programme in South Africa remains on track, in line with the revised guidance provided at the interim results;
• Continued consolidation of alluvial mining operations in the North-West province and prospecting areas in the Democratic Republic of Congo ('DRC');
• Development project in the DRC progressing to plan;

• Increased diamond purchases from third party producers, combined with own mine supply, contributed to the strong performance from the beneficiation segment. 

Pricing Environment

Namakwa is focused on the mining and beneficiation of high quality gem diamonds from its own mining activities as well as from third party purchases. For the period under review, the Company has continued to observe substantial increases in the prices of both rough and polished diamonds in the higher quality categories. The prices for larger, and higher quality polished diamonds increased substantially in the period under review, with 4-5 carat diamond prices increasing by 27% and 5-6 carat diamond prices increasing by 32.5% according to Rapaport. The recent trend of prices for smaller, lower quality diamonds remaining flat is expected to continue. 

At 31 May 2008, approximately 60% of the US$ value of Namakwa's inventory comprised five carats and larger rough diamonds, signifying the level of exposure the Company has to the rising prices of larger and higher quality stones. 

Operational Developments

Mining

The problems faced by the mining segment in South Africa due to high rainfall and the Eskom power outages continued into the first six weeks of the quarter to May but have since abated, with 5,364 carats mined during the quarter to May 2008, compared to 3,547 carats mined in the previous quarter, and 3,320 carats in June 2008. The Company put in place contingency measures through installation of standby generators in all operating mines in the North-West province of South Africa, and also employed a new senior geologist and related team, whose primary function is to improve the recovered grade. For the quarter to May 2008, the recovered grade was 0.34 cpht, while the recovered grade for June 2008 improved to 0.37 cpht. 

Growing diesel costs have resulted in an average cash cost of mining to R18.65 per tonne (US$2.38 per tonne) for the quarter to May 2008.  The uncertainty surrounding the supply of increased Eskom power to facilitate Namakwa's expansion in the North-West province led to the Company re-assessing the manner in which it will achieve its production targets. Following this assessment, Namakwa remains confident it will meet the production targets announced in the interim results on 24 April 2008, being 25,000 - 30,000 carats for FY 2008, and 70,000 - 75,000 carats for FY 2009. 

Alluvial Consolidation

Namakwa's interim results announcement on 24 April 2008 included reference to the conditional acquisition of an alluvial diamond property close to its North-West province mining operations for a cash amount of US$1.35 million. The property is known as London, 112HO ('London'). Namakwa's independent technical adviser Venmyn Rand has approved a technical statement which confirms a total indicated and inferred resource of 114,390 carats at an average recovered grade of 0.7 cpht, and an average historical diamond price of US$400 per carat, although Namakwa acquired a recent parcel of 472 carats adjacent to London for US$555 per carat. The conditions precedent to the transaction were fulfilled during the period under review and hence the acquisition became effective on 1 July 2008. Mine production on this property is scheduled to commence in July 2008, which is well ahead of expectations. Until such time as Namakwa has completed its operational assessment, mining will be performed by mining contractors from which Namakwa will earn a 15% mining royalty margin in addition to securing the right to purchase the diamonds for its beneficiation segment for further marketing. 

In addition, a number of due diligence reviews were conducted on several alluvial operations in the North-West province during the period. Pursuant to these reviews, an agreement was reached to acquire further mineral rights close to Namakwa's mining operations in the North-West province. The acquisition of these rights remains subject to the fulfilment of certain conditions precedent and a further announcement will be made in due course, as required. 

In line with its stated strategy, Namakwa continues to pursue attractive alluvial diamond mining consolidation opportunities in its areas of focus. 

Beneficiation

During the period under review, Namakwa significantly increased the trading volumes of its beneficiation segment and in particular its purchases from third party producers. Namakwa acquired a total of 65,197 carats of rough diamonds from third party producers in the quarter to 31 May 2008 compared to 9,533 carats during the first six months to 29 February 2008.  Additionally, in the quarter to 31 May 2008, the beneficiation segment acquired 4,590 carats (774 carats formed part of the mining segment's closing inventory for total mine production of 5,364 carats) from Namakwa's mining segment. The increased beneficiation activities have led to Namakwa's diamond inventory increasing by over 300% to 45,258 rough carats from 10,564 carats at the end of February 2008. Inclusive of 794 polished carats at the end of May 2008 Namakwa's total diamond inventory had a cost price of US$36.4 million. During the quarter from 1 March to 31 May 2008, 35,093 rough carats were sold representing a gross operating margin of approximately 11%.

The Company takes the view that given its unique expertise and understanding of the end-user requirements it is in an ideal situation to continue to buy diamonds from external sources. Namakwa expects high quality gem diamond prices to remain robust in the short to medium term and the Company's diamond inventory therefore reflects a concentration in the higher quality categories. 

Pursuant to the agreement reached between Harry Winston Inc. and Namakwa Diamonds earlier in 2008, a number of high quality diamonds from Namakwa's diamond inventory were jointly identified by the parties for cutting, polishing and retailing in Harry Winston stores. These diamonds are currently in the cutting and polishing process and will be offered for sale by Harry Winston Inc. upon completion. In addition, a parcel of Namakwa's high quality polished diamonds is already being offered for sale by Harry Winston Inc.

During the period under review, Namakwa also partnered with a company which has access to one of the limited number of rough diamonds trading licenses in Angola, in order to increase its inventory for beneficiation. To date approximately US$4.5 million of rough diamonds have been acquired and Namakwa is encouraged by the opportunity and quality of product which this new supply line has delivered to date.

DRC

Namakwa's resource delineation programme is progressing according to schedule. During the period under review, significant progress was made in establishing the requisite infrastructure and the delineation of an economically extractable resource. The delineation progress is on track and additional plant and equipment is scheduled to arrive on site in July 2008, which will be on time and in budget to achieve its bulk sampling and trial mining targets. 

Namibia

The resource delineation work which Namakwa has planned for its Tidal project has been concluded and work has progressed to the next stage of planning. Discussions are under way to determine the most appropriate way of taking bulk samples whilst at the same time planning mining operations. A number of alternatives are currently being assessed including the economic viability of partnering with established marine diamond mining companies to extract Namakwa's resource. 

  A Preference Shares

On 30 June 2008, the Company announced that it will be holding a general meeting of shareholders on 22 July 2008, in order to seek shareholder approval for resolutions to authorise Directors to allot relevant securities and to allow them to dis-apply pre-emption rights. Once passed, these resolutions will allow the Company the opportunity to streamline the shareholder structure of the Namakwa Group by issuing shares in the Company for cash and using the proceeds to acquire certain of the A Preference Shares in issue in the Group's principal South African operating company, Namakwa Diamond Holdings (Pty) Limited and allowing A Preference Shareholders the opportunity to exchange their A Preference Shares for ordinary shares in Namakwa provided that they obtain the requisite regulatory approvals.

Corporate Broking

Alongside Namakwa's existing broker, Goldman Sachs, the Company is pleased to announce the appointment of Liberum Capital as joint corporate broker. Liberum Capital has a strong and recognised research, sales and trading platform in UK and European equities, particularly in the mining sector.  

Outlook

Namakwa expects its mine production profile to continue to gain momentum, both in terms of recovered grade which has increased steadily throughout the period under review as well as in terms of the volumes mined, whilst the expansion programme in the North-West province of South Africa remains on track to produce projected production levels for the 2009 financial year. 

The completed consolidation of alluvial opportunities thus far is yielding additional production and management is therefore encouraged that the business model of regional consolidation is validated.

Namakwa continues to see significant opportunities in terms of third party sources of diamonds which Namakwa will continue to pursue on a selective basis. In terms of diamond prices, the Company's expects the recent trends to continue; namely that prices of smaller, lower quality diamonds will remain flat whilst the larger, higher quality stones that are the Company's area of expertise will continue to perform strongly in the short to medium term. 

For further information please contact: 

Namakwa Diamonds - Nico Kruger 

Tel: +27 11 334 8886

Taylor Rafferty - Rob Newman 

Tel: +44 207 614 2900

About Namakwa:

Namakwa is the only quoted vertically integrated diamond mining company. Its strategy of backward integration from its management team's 30 years of beneficiation experience into mining has created a unique public investment proposition. Namakwa has a diversified portfolio of diamond projects, which includes five distinct diamond resource target areas. These are located in four African countries, namely; South Africa, the Democratic Republic of Congo, Namibia and Angola. Namakwa's projects are located within historically prospective geological environments. Alluvial diamond deposits constitute the primary focus of the Company, whilst kimberlite opportunities will be considered if they are at an advanced stage of development, consistent with Namakwa's philosophy of a short resource delivery time as provided by its alluvial diamond mines.

• News Channel