Diamond Report 2013

Equity Communications

2013 World Diamond Production Summary

August, 2013

Diamond Prices
In 2012, the average per carat value of annual production declined for only the second time since 2002. The decrease was driven primarily by softer pricing across all diamond categories as well as the increased production of lower quality diamonds. Furthermore, diamond prices had risen to unprecedented levels in the period leading up to long-term supply contract renewals by major diamond producers. We have observed a trend of accelerated rough diamond prices increases beginning in the twelve to eighteen months before the expected announcement of new long-term supply contracts by major diamond producers. Indeed, competition for limited long-term contracts is the greatest source of price increases for major diamond producers. For this reason, we expect diamond prices to trend higher in the period 2014-2015. Green global economic conditions will provide the background to bullish sentiment in the diamond industry pipeline. In calendar year 2013, we expect the average per carat value of world diamond production to increase by 5 percent to US$103.81 per carat.

Diamond Production
World diamond production has entered a period of rising output, driven by the expected increases in the supply of lower quality diamonds from Rio Tinto's Argyle Mine and the Marange region in Zimbabwe. De Beers continues to produce below capacity while it focuses on clearing its waste stripping and maintenance backlog. Development of the Grib Mine by LUKoil has begun. Grib will likely produce two million carats in 2014, and reach capacity the year after of between 4 - 4.5 million carats. In the next three years, development projects by De Beers (Gahcho Ku), Alrosa (Underground expansion), Dominion Diamonds (Misery open pit), and perhaps Stornoway Diamonds (Renard project) will eventually add to world diamond production. No major diamond mine is expected to exhaust production in the next five years. In calendar year 2013, we expect world diamond production to increase by 5 percent to 134.3 million carats.
Equity Communications

www.diamondshades.com

Notable Trends to Influence Supply and Demand Dynamics

Diamonds from Marange are a major discovery of diamonds in the global scheme of things. We do not subscribe to the popular assumption that high value gem diamonds are the only mining projects that matter Analysis points to a trend whereby demand for small value diamonds will rise faster than demand for high value diamonds in the coming years. We attribute this to shifting consumption patterns in diamond retail markets, powered by the growing number of Asian consumers who would like to wear diamonds as part of their everyday jewellery The aggressive politicization of rough diamond markets is moving rough diamond trade out of Europe to Dubai, Asia and Southern Africa. UAE has become the primary destination of rough diamonds from Angola, DRC, and Zimbabwe while Botswana now handles marketing of De Beers produced diamonds

De Beers' Forevermark project is fast gaining momentum; in a few years other diamond producers will have to respond in one way or another

Major diamond producers have reduced exploration budgets while juniors are facing increased difficulty in obtaining new finance. Moves by De Beers to brand and grade its premier diamonds could force more retailers to provide alternative funding for viable small-scale diamond projects in a bid to lock-in supply

www.diamondshades.com

Equity Communications

Charts
Figure 1: 2012 World Diamond Production by Value

Source: Equity Communications Research, Kimberley Process

Production Value - US$/carat

Notes: Producers of high value rough diamonds experienced double digit declines across the board after a very strong 2011 Russias diamond prices remained firm in a soft market because of sales to Gokhran by Alrosa as well as the companys long-term supply contract renewal period

2011

2012

Change

Angola Australia Botswana Canada DRC Namibia Russia South Africa Zimbabwe

139.60 133.28 4.53% 28.19 29.35 4.11% 170.36 144.95 14.92% 236.30 192.07 18.72% 9.33 76.12 210.88 56.01 8.51 8.79% 82.88 8.88% 145.13 31.18% 53.40 4.66% 694.82 552.87 20.43%

www.diamondshades.com

Equity Communications

Figure 2: Rough Diamond Sales by Major Producers

Source: Equity Communications Research, Company reports

Notes: Showing producers with at least US$500 million in rough diamond sales BHP Billitons diamond assets acquired by Dominion Diamond Corporation in the first half of 2013

Figure 3: Forecast World Diamond Production

Source: Equity Communications Research

www.diamondshades.com

Equity Communications

Tables
Table 1: World Diamond Production (Carats)

Rough Diamonds Supply and Net Flow

000 carats Production Angola Australia* Botswana Canada DRC Namibia Russia South Africa Zimbabwe* Others Total Supply Net flow by Region Americas Africa Asia Pacific China European Community India Middle East Russia Rest of Europe Total Net Flow Movements in Stocks -1,412 401 4,255 7,846 -9,165 151,435 -427 5,877 8,112 166,922 -7,793 701 -5,995 2,220 6,806 6,900 143,216 2,714 850 6,112 163,524 13,177 1,639 485 6,384 6,699 13,368 132,181 309 3,451 4,949 169,465 6,565 913 4,805 395 10,849 2,225 143,214 2,712 9,618 792 175,523 -2,324 1,943 24,058 1,272 3,617 -4,382 110,190 3,278 12,707 3,528 156,211 9,444 -426 -3,781 4,122 5,587 -3,200 97,310 -878 20,192 1,549 120,475 -2,114 443 9,054 1,362 5,549 -13,901 132,244 -3,269 -5,470 2,734 128,746 -544 1,873 3,874 1,039 6,116 3,920 95,037 4,942 2,947 4,515 124,263 2,425 2,186 13,630 3,269 6,135 -2,008 117,461 -723 5,264 -520 144,694 -16,732 6,146 20,212 31,036 12,680 30,040 2,007 38,866 14,092 44 4,006 159,129 7,079 32,941 31,890 12,314 33,055 1,866 38,001 15,560 248 3,747 176,701 9,175 29,940 34,293 13,278 28,990 2,402 38,361 14,935 1,046 3,610 176,030 9,700 18,539 33,638 17,008 28,452 2,266 38,291 15,221 5,695 4,389 173,199 8,907 17,400 32,276 14,803 33,402 2,200 36,925 12,901 4,141 2,700 165,655 9,238 10,800 17,734 10,946 21,300 1,140 34,760 6,140 3,972 2,331 118,361 8,333 9,557 22,218 11,870 20,166 1,470 34,857 8,650 8,840 2,241 128,202 8,329 7,830 22,905 10,795 19,249 1,256 35,140 8,205 11,200 1,779 126,688 8,331 9,181 20,555 10,451 21,524 1,629 34,928 7,077 12,060 2,226 127,962 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Kimberley Process Statistics, Equity Communications Research Net Flow is production and imports less exports for region Zimbabwe recalculated to factor in rampant informal production from 2006 to 2009 Australia 2009 producer companies data differs substantially from Kimberley Process data

www.diamondshades.com

Equity Communications

Table 2: World Diamond Production (Value)

Rough Diamonds Supply and Net Flow

US$ millions
Production Angola Australia* Botswana Canada DRC Namibia Russia South Africa Zimbabwe* Others Total Supply 788 314 2,576 1,645 536 673 2,205 1,076 8 396 1,089 547 2,870 1,454 615 697 2,531 1,319 35 445 1,133 560 3,208 1,410 432 901 2,574 1,362 68 513 1,272 365 2,960 1,657 365 715 2,625 1,417 257 694 1,210 326 3,273 2,255 432 918 2,509 1,236 205 527 804 227 1,436 1,475 226 409 2,341 886 125 350 976 252 2,586 2,305 174 744 2,382 1,194 340 436 1,163 221 3,902 2,551 180 873 2,675 1,730 627 635 1,110 269 2,979 2,007 183 900 2,874 1,027 644 650

2004

2005

2006

2007

2008

2009

2010

2011

2012

10,218

11,602

12,159

12,328

12,891

8,279

11,390

14,556

12,645

Net flow by Region Americas Africa Asia Pacific China European Community India Middle East Russia Rest of Europe Total Net Flow 554 -247 385 857 -449 7,152 -708 952 1,842 626 -727 394 1,053 -605 8,559 -764 882 1,557 424 17 590 1,153 -101 8,011 -803 837 1,955 429 1,742 452 1,336 -936 9,063 -871 623 1,632 451 1,395 357 513 -197 8,762 -938 963 1,156 108 26 329 912 -362 6,244 -683 1,235 483 313 1,457 411 1,053 -720 10,270 -3 -338 -1,481 349 255 520 1,717 -33 12,482 -2,267 -1,067 514 87 1,814 588 1,067 -1,024 13,086 -2,269 -873 818

10,338 -121

10,974 628

12,082 77

13,471 -1,143

12,461 429

8,293 -14

10,962 428

12,471 2,085

13,295 -651

Movements in Stocks

Source: Kimberley Process Statistics, Equity Communications Research Net Flow is production and imports less exports for region Zimbabwe recalculated to factor in rampant informal production from 2006 to 2009 Australia 2009 producer companies data differs substantially from Kimberley Process data

www.diamondshades.com

Equity Communications

Table 3: Forecast World Diamond Production

Primary Producers Rough Diamond Sales

US$ millions Group A US$500 million plus Alrosa Angola BHP Billiton* De Beers Group Rio Tinto Zimbabwe (Marange) Sub Total Group B US$101 million-US$499 million BHP Billiton (Minorities) Dominion Diamond Corporation* Democratic Republic of Congo Gem Diamonds Petra Diamonds Sierra Leone Trans Hex Other Russia Sub Total Group C US$1 million-US$100 million Central Africa Republic Firestone Diamonds Ghana Guinea Guyana Liberia Lucara Diamond Namakwa Diamonds Rockwell Diamonds Other Sub Total Total Rough Diamond Sales 47 0 7 18 15 9 0 10 22 14 142 8,971 48 0 12 29 7 15 0 22 38 24 195 12,976 60 5 16 36 10 16 0 39 27 23 232 16,012 62 17 12 47 6 12 54 60 35 25 330 15,296 172 188 248 243 95 79 65 160 1,250 236 279 294 279 180 106 110 100 1,584 235 290 334 388 232 124 123 112 1,838 137 345 262 322 372 163 108 146 1,855 2,292 791 688 3,233 450 125 7,579 3,334 824 945 5,082 682 330 11,197 4,261 1,150 940 6,473 726 392 13,942 4,450 1,145 549 5,502 754 711 13,111 2009 2010 2011 2012

Source: Equity Communications Research, Company Reports Dominion acquired BHP Billiton's diamond assets in 2013

www.diamondshades.com

Equity Communications

Table 3: Rough Diamond Sales by Primary Producers

Forecast World Diamond Production

Carats 000s 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F

At least 1 million carats recovered in 2012

Alrosa Angola BHP Billiton Operated/Dominion* De Beers Group DRC Petra Diamonds Rio Tinto Operated Zimbabwe (Marange) Other Total

32,791 9,238 4,277 24,600 21,298 1,099 16274 3,812 4,972 118,361

34,331 8,333 3,611 32,997 20,166 1,166 16483 8,662 2,453 128,202

34,552 8,329 2,581 31,328 19,249 1,490 14486 10,833 1,142 123,990

34,420 8,331 1,818 27,875 21,524 2,491 16098 11,657 3,750 127,963

34,700 8,451 1,389 28,590 20,200 2,800 19,130 13,800 5,240 134,300

34,900 8,800 1,080 30,100 21,300 3,200 21,700 16,900 6,640 144,620

35,300 9,200 600 32,500 21,500 3,400 26,000 16,900 9,700 155,100

36,000 9,700 1,880 33,100 20,500 3,650 27,200 17,400 10,150 159,580

37,000 10,100 8,590 34,000 20,500 3,900 26,000 17,400 10,600 168,090

38,000 10,100 5,010 34,000 20,500 4,200 26,000 17,400 11,200 166,410

Production Value (US$ millions) US$/carat $69.94 $88.85 $117.40 $98.81 $103.81 $106.04 $116.67 $104.32 $107.96 $106.33

Total

$8,279

$11,390

$14,556

$12,645

$13,942

$15,335

$18,095

$16,647

$18,147

$17,695

Source: Equity Communications Research

Notes:
Dominion Diamond Corporation acquired BHP Billiton's diamond assets in 2013 Forecasts based on confirmed expansion projects and development projects at an advanced stage

www.diamondshades.com

Equity Communications

2013 Diamond Report Production Summary

In its third edition, the 2013 Diamond Industry Report provides a comprehensive view of the global diamond value chain. The report is split into three key sections - Production, Trade, plus Retail - and provides analysis on the distinct trends within each section. The Production section of the 2013 Diamond Report opens with an overview of 2012 world rough diamond production. It then follows this up with a review of trends in rough diamond production, both at key producer country level as well as focusing on the leading diamond producing companies, including Alrosa, De Beers, Rio Tinto, Dominion Diamond Corporation and Zimbabwe (Marange). The section closes with a review of the outlook for rough diamond production to 2018. In particular, this focuses on the changing rough diamond production landscape.

Comprehensive Reviews of the leading diamond producers are available for download at the following links: Rio Tinto Diamonds 2013 - Published May 15, 2013 De Beers Group 2013 Published July 24, 2013 Alrosa 2013 (excluding Catoca) Published July 25, 2013 Dominion Diamond Corporation Published July 25, 2013 Zimbabwe Diamond Mining Published August 1, 2013

Or please visit www.diamondshades.com/diamondreport

Please Note
The views expressed herein are solely those of Equity Communications as of the date of this report and are subject to change without notice. Data Tables, Survey Results and Financials provided in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either investment advice or legal opinion.

General Disclaimer
This document is produced and circulated for general informational and educational purposes only. It is provided by Equity Communications. Equity Communications research utilizes data and information from public, private and internal sources. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or suitability of this publication. The information and analysis contained in this publication has been compiled or arrived at from sources believed to be reliable but Equity Communications does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. For more information, please visit http://www.diamondshades.com

Copyright 2013, Equity Communications Private Limited, ALL RIGHTS RESERVED.

www.diamondshades.com

Equity Communications