The diamond industry experienced a difficult year in 2015 with falling rough diamond demand and prices. However, the market has strengthened in 2016 with improved sales volumes. While supply is projected to peak in 2021, new mine development has slowed and not all discovered deposits will enter production. This points to a future supply-demand gap that could drive significant price growth. There are opportunities for investment across the diamond pipeline, from mining companies to retailers. However, threats like lab-grown diamonds and changing consumer preferences will need to be addressed. Overall the fundamentals of the industry remain strong long term.

1. James Campbell
June 2, 2016
Dazzling
DIAMONDS

2. Diamond Market Trends
Portrait of the Diamond Industry
Opportunity
Capturing Investment Momentum
Investing
In Diamond Companies
AGENDA

3. Portrait of the Diamond Industry
I.
MARKET TRENDS

4. Recent
Diamond Market
• Structurally industry has settled
• Limited M&A activity
• 2015 was a tough year for diamond producers
• Rough diamond demand fell away significantly
• US$16bn rough diamond supply fell to US$13bn
• Differing views as to exactly why correction took place
• High rough prices
• Overhang of polished
• Middle market choked; no margins; reduced liquidity
and bank finance
• Decline in polished diamond demand from emerging
markets, particularly China and India
• Major producers suffered circa 30% drop in sales
• 15-20% drop in market rough prices
• Production curtailed, some mines on C&MNote:
Tier 2 = RT, DDC & Catoca combined;
Tier 3 = Petra, Gem, active new mines
Source: Author’s research, public information
Key Rough Suppliers - Sales
US$bn
0
1
2
3
4
5
6
7
2007 2008 2009 2010 2011 2012 2013 2014 2015
De Beers
Tier 3
Tier 2
Alrosa

5. Price Index
Rough Diamonds
• Pricing trend is upwards
• However volatility in market pricing is
clear to see
• Prices fell 15-20% in 2015
• Creates instability and challenges for
the trade
• Fragmented supply with differing
sales models
• Increase in tenders and auction
sales
• De Beers dropped prices -7% in
January; raised prices +2-3% in April
• Rest of year predicted to remain
stable
Diamond Price Index
Index Jan. 2001 = 100
Rough Polished
Linear (Rough)
Source: DDA Trading, May 2016

6. Improving
Diamond Performance
• 2016 has seen a much stronger H1 as restocking takes
place
• “Normal” volumes being sold into the trade
• Jan-May 2016 DB & Alrosa sold $4bn+ into market
(FY2015 $7.5bn)
• Jan-April 2016 +18% vs 2015; -13% vs 2014
• Fragile recovery, but a recovery
• DB adjusted prices 7% in Jan, but +2-3% in April
• Potential roadblock ahead H2 as fresh polished comes
from factories
• No major pull of new polished demand
• All eyes on JCK show in Las Vegas
• India considered the bright hope for mid-term growth
0
2000
4000
6000
8000
De Beers - Annual Sales
US$m
2011 2012 2013 2014 2015
De Beers - Sight-by-Sight Sales
US$m
0
200
400
600
800
10 1 2 3 4
2015   2016
Source: Author’s research, public information

7. 2016
Diamonds Dazzle the World
• Certainly not all bad news in the trade
• Strong demand for exceptional large stones and fancy colours
• Record prices achieved
• Public and media interest creating a significant halo effect
© Christie’s
Constellation
813CTS, $63m+
Oppenheimer Blue
14.62CTS, $58m
Lesedi La Rona
1109CTS, $???m

8. Consumer
Demand
• Global DJ retail sales -2% (US$79bn)
• US market a bright spot; record US$39bn diamond
jewellery sales
• Non-US markets saw decline in local currencies,
further impacted by strong US dollar
• India remains a big hope for the industry
• China growth success story on hold for now
• New efforts to invigorate the market underway
-20%
-10%
0%
10% US
+5%
China
-1%
India
-9% Japan
-13%
M. East/Gulf
-3%
Diamond Jewellery Demand by Market
Performance 2015 vs 2014, based on US$
US
45%
Rest of the world
19%
Gulf
8%
Japan
4%
India
7%
China
(incl. Hong Kong and Macau)
17%
Global Sales
2015 – by value
Source: De Beers Group - Market Insight Report, April 2016;
Figures based on US$ at Polished Wholesale Prices

9. Supply
Landscape
• Widely projected peak in supply by 2021
• Followed by gradual supply decline
• Ageing mines will close
• Argyle - 20mcts p.a. scheduled to close by 2020
• Recent large Zimbabwe production has
reduced significantly
• Limited new mine potential
• Exploration budgets/activity have been reduced
• Few new discoveries reported - Angola
• Very long-lead time to production
• Not all discoveries will lead to production
Rough Diamond - Supply
2008 – 2030 (base scenario)
Millions of carats
Note: Smaller players are Dominion Diamond, BHP Billiton for 2008-2012, Petra Diamonds, Gem Diamonds and Catoca
Source: Bain & Company – The Global Diamond Industry 2015
Forecast
2009 2011 2013 2029F
180
150
120
90
60
30
0
2023F 2025F 2027F2015E 2017F 2021F
New mines
Other mines
Smaller players
Rio Tinto
De Beers
ALROSA
2019F

10. Capturing Investment Momentum
II.
OPPORTUNITY

11. Supply demand gap
The Opportunity
• Demand will continue to grow, despite bumps in the
road
• Middle-class development in China & India alone will
drive significant demand growth
• In next 15 years, China (200+m) & India (100+m) new
middle-class households
• On top of this - mature, robust markets such as the US
will continue to perform
• Not all diamond development projects will come into
production
• Potential for significant price growth
• Need to capture the imagination of the Millennials and
beyond
• BUT there are clear threats……
Rough Diamond - Supply and Demand
2000 – 2030 (2015 prices)
+/- 2bncts
known reserves
2001 2007 2011 2015E 2019F 2023F 2027F 2030F
Low demand
Base demand
Base Production
Stable Production
$ billions
16 years’ production
at current levels
Source: Bain & Company – The Global Diamond Industry 2015

12. Supply demand gap
The Opportunity
• Lab-grown diamonds are here and growing
• Swarovski has launched recently a Lab-created
diamond jewellery brand
• Not a current threat to larger diamonds
• Lack of generic advertising has hurt natural
diamonds
• DPA formed by 7 leading producers to maintain
consumer confidence and drive future demand
• Launch of first marketing campaign at JCK in June
• Targeting Millennials to regain lost ground
• Need to position for future 2-tier retail environment
• US - Recycling Diamonds – De Beers/IIDV
Supply demand gap
Risks

13. In Diamond Companies
III.
INVESTING

14. Investing
in the Diamond Industry 1/2
• Mining stocks and indices have had a torrid time
• Diamond industry is not immune
• Producer performance has not been as good as expected,
with one notable exception
• Exploration funding has been difficult
• Market has strengthened in 2016
• Better results expected across the board
• Despite market and price volatility diamonds have
outperformed other commodities
• Opaque trade changing
• Both 2 main producers are becoming increasingly
transparent
• Price growth should drive company values
Indices Evolution
As of January 2012 — 100 = January 2010
Price Indices for Diamonds and Other Commodities
100 = January 2010
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
- Rough price - Polished price - Gold Price - Commodity Price (non-fuel) - Metals
Source: Author’s research, Google Finance, Indexmundi, S&P, DDA Trading
0%
50%
100%
150%
200%
250%
300%
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
S&P Global
Mining
Rio Tinto
share price
S&P/TSX Capped
Diversities Metals & Mining
Alrosa
Share Price
S&P 500

15. Investing
in the Diamond Industry 2/2
• Consolidation opportunities across the pipeline
• Highest profit pool in mining and rough sales
• Investment-grade diamonds strong
• Explorers – high risk; long-lead time to production
• Consider geographic logic – Africa, Canada
• Upstream investment by retail - Tiffany
• Limited options; possible IPOs (De Beers, Rio Tinto
Diamonds)
Industry Player Consolidation
A view – producers, current
10,000
10,000
M Cap (US$)
Annual Revenue
US$m
1,000
100
10
10 100 1,0000
Diamcor
DiamondCorp
Rockwell
Transhex
Firestone
Gem
Rio Tinto Diamonds
Dominion
Lucara
Mountain Province
Alrosa
De Beers
Petra
Kimberley
Lucapa
Source: Author’s research, public information
Profit Pools
2015
Mining/Rough Sales Trading/Cutting/Jewellery Retail
18 – 22%
0 – 5%
4 – 11%
0
10
20
30

16. CONCLUSION
Big growth opportunity is coming
Supply-Demand gap coming next decade
US & Emerging Markets
Rough price growth
Threats will need to be mitigated
Lab-grown Diamonds
Liquidity issues
Recycling Diamonds
Work underway to recapture growth initiative
Diamond Producers Association
Consumer Confidence programmes
Consolidation opportunities exist
Upstream
Retail
Compelling investment case
INDUSTRY FUNDAMENTALS REMAIN STRONG

17. Plant workers at
Saxendrift Hill Complex
James Campbell
Jamesc@rockwelldiamonds.com