THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OR INVITATION TO ACQUIRE OR DISPOSE OF ANY SECURITIES OR INVESTMENT ADVICE IN ANY JURISDICTION.

Namakwa Diamonds Limited

Announcement of publication of combined
circular and prospectus

04 November 2011

Namakwa Diamonds Limited has today published a combined circular and prospectus (the "Prospectus") in relation to its proposed placing of new ordinary shares in connection with the capitalisation of certain trading debts at a deemed price of 15 pence per share (the "Capitalisation").

The Prospectus, which has been approved by the UK Listing Authority, includes notice of the Special General Meeting of Shareholders which will be held to approve, amongst other things, the Capitalisation, at 10.00am (London time) on 23 November 2011 at the office of Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW.

The Prospectus will be posted to shareholders and will be submitted to the National Storage Mechanism where it will shortly be available for inspection at www.Hemscott.com/nsm.do as well as being available on the Company's website www.namakwadiamonds.com and from the Company's registered office at Clarendon House, 2 Church Street, Hamilton, Bermuda HM11.

The Prospectus, which comprises both a circular prepared in accordance with the Listing Rules and a prospectus prepared in accordance with the Prospectus Rules, provides details of the Capitalisation and the related party transactions associated with the Capitalisation.

Summary

As previously announced on 27 October 2011 in the unaudited preliminary results for the 12 months ended 31 August 2011, the 2011 financial year has been a dramatic year for the Group. Although the start of the financial year was a positive for the Company, Namakwa encountered significant operational and financial difficulties in recent months including a rapid deterioration in the performance of the Group's operations in the North West Province of South Africa and the DRC during the second half of the financial year leading to the Company initiating a strategic review of its operating and financial platform.

During the same period, Namakwa was also in negotiations with Jarvirne in respect of the orderly winding-up of a diamond trading position entered into between the parties in July 2010, pursuant to a Trading Agreement under which Jarvirne had provided a net capital amount of US$17m to Namakwa's Trading & Beneficiation Division and for other corporate purposes. The Board had determined to close down this trading position in April 2011 because of: (i) the volatility in the diamond trading markets; (ii) Namakwa's strategic decision to focus its capital on the development of the Kao Project; and (iii) the inability of Namakwa and Jarvirne to reach agreement on a tax efficient structure through which the trading position would be operated.

In addition, documents relating to the US$30,000,000 finance facility announced in the interim management statement on 11 July 2011 were not finalised. The Company believes that this was due to factors including worsening trading conditions and an inability to reach agreement on the settlement of a trading position between the parties. The parties remained in negotiation with regards to the facility but no amounts were ever drawn down and no formal loan agreement was executed. As a result, Namakwa had an urgent requirement to secure alternative financing for its working capital requirements and entered into negotiations with several potential financiers, including Jarvirne, to seek funding for the Group's operations on the best commercial terms available.

Having considered the commercial terms of all available financing proposals to meet the Group's immediate liquidity needs, Namakwa announced on 8 September 2011 that it had entered into a facility agreement with Jarvirne (the "Facility"). The Facility provides Namakwa with a US$40,000,000 two year secured loan and, in lieu of interest accruing on the loan in the first year, 9,000,000 Ordinary Shares were issued to Jarvirne on 20 September 2011. In addition, certain breaches of financial covenants under the Facility were waived, and the financial ratios related to such covenants amended, pursuant to a waiver and amendment letter from Jarvirne to Namakwa dated 2 November 2011 (the "Waiver and Amendment Letter").

Namakwa also announced on 8 September 2011 that it had entered into a settlement agreement with Jarvirne in relation to all trading debts payable under the Trading Agreement by Namakwa to Jarvirne (the "Settlement Agreement"). The Settlement Agreement was amended by Namakwa and Jarvirne on 2 November 2011 (pursuant to the Waiver and Amendment Letter). Under the Settlement Agreement (as amended), the trading debts would be fully and finally settled by the issue and allotment to Jarvirne of an aggregate of 77,791,667 Ordinary Shares (being 11,000,000 Ordinary Shares at a deemed price of 19.5 pence per share (on the basis of an exchange rate of £1:US$1.62) and 66,791,667 Ordinary Shares at a deemed price of 15 pence per share (on the basis of an exchange rate of £1:US$1.60)), representing an agreed settlement sum of US$19,500,000 (the "Settlement Amount"). Namakwa allotted and issued 11,000,000 Ordinary Shares to Jarvirne at a deemed price of 19.5 p per share on 20 September 2011 in satisfaction of US$3,470,000 of the Settlement Amount. The remaining US$16,030,000 of the Settlement Amount (the "Outstanding Settlement Amount") remains to be satisfied by the allotment and issue to Jarvirne of 66,791,667 Ordinary Shares at a deemed price of 15p per share (the "Capitalisation").

Due to the size and nature of the Capitalisation, Shareholder approval is required at the Special General Meeting to be held on 23 November 2011.

In the event the Capitalisation occurs (and assuming no further Ordinary Shares are acquired by Jarvirne), Jarvirne will own 98,665,158 Ordinary Shares, representing 32.46% of the enlarged share capital of the Company. The Company's Bye-laws contain a mandatory takeover offer threshold of 30%, and therefore the Directors are seeking approval from independent Shareholders for a waiver of a requirement for Jarvirne to make a mandatory takeover bid for the remaining Ordinary Shares if the Capitalisation occurs (the "Whitewash Resolution").

The proportionate ownership and voting interest of Shareholders (other than Jarvirne) in Namakwa will be reduced by 21.98% as a result of the Capitalisation. Shareholders will not be entitled to any form of clawback under the terms of the Capitalisation.

It should be noted that an event of default would occur under the Facility if the Capitalisation does not occur by 30 November 2011. This would entitle Jarvirne to terminate the Facility and immediately demand repayment of all amounts drawn down under the Facility and the Outstanding Settlement Amount. Accordingly, the Capitalisation is critical to the working capital position of the Group.

If the Capitalisation does not complete for any reason, including if the Resolutions are not passed, there would be an urgent requirement for the Group to obtain alternative financing, which is unlikely to be available on commercially reasonable terms, if at all. If such funding could not be so obtained, it is likely that certain companies in the Group, or Namakwa itself, would be placed into some form of insolvency proceedings.

Javirne is a related party of Namakwa (as defined in the Listing Rules) as it owns over 10 per cent of the issued share capital of Namkwa and, as such, the Capitalisation is a related party transaction (as defined in Chapter 11 of the Listing Rules of the UKLA) as is the Waiver and Amendment Letter, both requiring the approval of Shareholders (other than Javirne and its associates).

The Board is of the opinion that voting in favour of the Resolutions is in the best interests of Namakwa and its Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions to be proposed at the Special General Meeting.

Liberum Capital is acting as Sponsor and financial adviser to the Company.

ENQUIRIES

Namakwa Diamonds

Richard Collocott: Tel (Direct): +27 11 334 8886

Ryan Barrow: Tel (Direct): +44 7974 453 954

Liberum Capital

Clayton Bush: Tel (Direct): +44 203 100 2222

Christopher Britton: Tel (Direct): +44 203 100 2222

Tavistock Communications

Simon Hudson: Tel (Direct): +44 20 7920 3150

John West: Tel (Direct): +44 20 7920 3150

* * *

IMPORTANT INFORMATION

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.

Forward-looking statements

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipates", "believes", "estimates", "envisages", "could", "expects", "intends", "may", "plans", "projects", "should" or "will", or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding Namakwa's intentions, beliefs or current expectations concerning, amongst other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the diamond industry.

By their nature, forward-looking statements involve a number of known and unknown risks and uncertainties because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Group's operations, financial position and liquidity, and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the results of operations, financial position and liquidity, and the development of the markets and the industry in which the Group operates, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations, the Group's ability to recover its resources or develop new resources, including its ability to convert its mineral potential into resources or reserves, changes in its business strategy, political and economic uncertainty and other factors.

Forward-looking statements may, and often do, differ materially from actual results. Any forward-looking statements in this announcement reflect Namakwa's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's operations, results of operations, growth strategy and liquidity. Shareholders should specifically consider the factors identified in this announcement which could cause actual results to differ before making an investment decision. These forward-looking statements speak only as at the date of this announcement. Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules as appropriate and any other applicable laws and regulations, Namakwa undertakes no obligation publicly to release the result of any revisions to any forward-looking statements in this announcement that may occur due to any change in Namakwa's expectations or to reflect events or circumstances after the date of this announcement.

Presentation of financial information

The financial information in this announcement may have been rounded to the nearest whole number or the nearest decimal place. In addition, certain percentages presented in the tables in this announcement reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

FURTHER INFORMATION

Unless otherwise defined in this announcement, defined terms contained herein shall have the meaning given to them in the Prospectus published by the Company.

Expected Timetable of Principal Events

	2011
Voting record time	6.00 p.m. on 21 November
Special General Meeting	10.00 a.m. on 23 November
Admission and commencement of dealings in New Shares on the London Stock Exchange	7.00 a.m. on 28 November

Notes:

(1) The times and dates set out in the expected timetable of principal events above and mentioned throughout this announcement may be adjusted by Namakwa, in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, Shareholders and DI Holders by means of an announcement through a Regulatory Information Service.

(2) References to times in this announcement are to times in London unless otherwise stated.

Capitalisation Statistics

Deemed Price per New Share	15 pence
Number of Ordinary Shares in issue as at the date of this announcement	237,121,814
Number of New Shares to be issued pursuant to the Capitalisation	66,791,667
Number of Ordinary Shares in issue immediately following completion of the Capitalisation⁽¹⁾	303,913,481
New Shares as a percentage of the enlarged issued share capital of Namakwa immediately following completion of the Capitalisation	22%
Estimated expenses of the Capitalisation (inclusive of VAT)	US$4.05m

Note:

(1) On the assumption that no further Ordinary Shares are issued as a result of: (i) the exercise of any options under the Namakwa Employee Share Plan; or (ii) the conversion of "A" Preference Shares in the capital of NDHL, between 2 November 2011 (being the latest practicable date prior to the publication of the Prospectus) and the closing of the Capitalisation. There are no Ordinary Shares held in treasury as at the date of the Prospectus other than in respect of the accounting treatment of Ordinary Shares held by the Namakwa Diamonds Employee Benefit Trust.

Background to and reasons for the proposed capitalisation

1. Introduction and Background

As previously announced, Namakwa has encountered significant operational and financial difficulties in recent months. There was a rapid deterioration in the performance of the Group's operations in the North West Province of South Africa and the DRC during the second half of the financial year ended 31 August 2011. During the same period, Namakwa was also in negotiations with Jarvirne in respect of the orderly winding-up of a diamond trading position entered into between the parties in July 2010, pursuant to a Trading Agreement (as described in paragraph 4 below) under which Jarvirne had provided a net capital amount of US$17m to Namakwa's Trading & Beneficiation Division and for other corporate purposes. The Board had determined to close down this trading position in April 2011 because of: (i) the volatility in the diamond trading markets; (ii) Namakwa's strategic decision to focus its capital on the development of the Kao Project; and (iii) the inability of Namakwa and Jarvirne to reach agreement on a tax efficient structure through which the trading position would be operated. As a result of closure of the position it was agreed that a deemed effective 3% return on capital per month would be paid by Namakwa with effect from the inception of the position. At the same time, Namakwa re-characterised the trading position as a financing arrangement in the accounts of Namakwa.

Having considered the commercial terms of all available financing proposals, to meet the Group's immediate liquidity needs, Namakwa announced on 8 September 2011 that it had entered into a facility agreement with Jarvirne (the "Facility"), pursuant to which Jarvirne agreed to provide a US$40,000,000 two year secured loan to fund both the Group's Kao Project and for general corporate purposes. In lieu of interest accruing on the loan in the first year, 9,000,000 Ordinary Shares were issued to Jarvirne on 20 September 2011. The value of these Ordinary Shares at close of business on 7 September 2011 was 10.50 pence per share and equates with the cash interest which would otherwise have been payable by Namakwa in the first year of the loan (as if it had been fully utilised). Jarvirne will retain these 9,000,000 Ordinary Shares even if the Facility is not fully utilised, if an event of default occurs or if the Facility is terminated. Certain breaches of financial covenants under the Facility were waived, and the financial ratios related to such covenants were amended, pursuant to a waiver and amendment letter from Namakwa to Jarvirne dated 2 November 2011 (the "Waiver and Amendment Letter").

Namakwa also announced on 8 September 2011 that it had entered into a settlement agreement with Jarvirne in relation to all trading debts payable under the Trading Agreement (as described in paragraph 4 below) by Namakwa to Jarvirne (the "Settlement Agreement"). The Settlement Agreement was amended by Namakwa and Jarvirne on 2 November 2011 (pursuant to the Waiver and Amendment Letter). Under the Settlement Agreement (as amended), the trading debts would be fully and finally settled by the issue and allotment to Jarvirne of an aggregate of 77,791,667 Ordinary Shares (being 11,000,000 Ordinary Shares at a deemed price of 19.5 pence per share (on the basis of an exchange rate of £1:US$1.62) and 66,791,667 Ordinary Shares at a deemed price of 15 pence per share (on the basis of an exchange rate of £1:US$1.60), representing an agreed settlement sum of US$19,500,000 (the "Settlement Amount"). Namakwa allotted and issued 11,000,000 Ordinary Shares to Jarvirne on 20 September 2011 in satisfaction of US$3,470,000 of the Settlement Amount. The remaining US$16,030,000 of the Settlement Amount (the "Outstanding Settlement Amount") remains to be satisfied by the allotment and issue to Jarvirne of 66,791,667 Ordinary Shares (the "Capitalisation").

The Board considers that the Facility (in conjunction with the Capitalisation) is in the best interests of Namakwa, taking into account other financing proposals, Namakwa's current financial position and the relevant interests of Namakwa.

Due to the size and nature of the Capitalisation, Shareholder approval is required, as described in paragraph 9 below. Jarvirne is a related party of Namakwa (as defined in the Listing Rules) as it owns over 10 per cent. of the issued share capital of Namakwa and, as such, the Capitalisation, is a related party transaction (as defined in Chapter 11 of the Listing Rules of the UKLA) as is the Waiver and Amendment Letter, both requiring the approval of Shareholders (other than Jarvirne and its associates).

The purpose of the Prospectus is to provide you with details of the Capitalisation, to explain why the Board considers it to be in the best interests of Namakwa and its Shareholders as a whole, and why you should vote in favour of the Resolutions to be proposed at the Special General Meeting to be held on 23 November 2011, which must be passed in order for the Capitalisation to proceed. Notice of the Special General Meeting will be placed in the Royal Gazette newspaper in Bermuda on 7 November 2011 in accordance with Namakwa's Bye-laws and is set out in the Prospectus.

If the Capitalisation does not complete for any reason, including if the Resolutions are not passed, there would be an urgent requirement for the Group to obtain alternative financing, which is unlikely to be obtained on commercially reasonable terms, if at all. If such funding could not be so obtained, it is likely that certain companies in the Group, or Namakwa itself, would be placed into some form of insolvency proceedings.

2. The Settlement Agreement, Capitalisation and the Facility

The Settlement Agreement and Capitalisation

The Settlement Agreement (as amended by the Waiver and Amendment Letter) provides that all trading debts payable by Namakwa to Jarvirne pursuant to the Trading Agreement (as described in more detail below) would be satisfied by the issue and allotment of an aggregate of 77,791,667 Ordinary Shares (being 11,000,000 Ordinary Shares at a deemed price of 19.5 pence per share (on the basis of the exchange rate of £1:US$1.62) and 66,791,667 Ordinary Shares at a deemed price of 15 pence per share (on the basis of the exchange rate of £1:US$1.60), representing the Settlement Amount of US$19,500,000.

The capitalisation of the Settlement Amount was expressed in the Settlement Agreement (as amended) to occur in two stages. As the first stage, Namakwa allotted and issued 11,000,000 Ordinary Shares to Jarvirne on 20 September 2011 in satisfaction of US$3,470,000 of the Settlement Amount. As the second stage (referred to in this announcement as the Capitalisation), which remains to be completed, Namakwa will allot and issue to Jarvirne 66,791,667 Ordinary Shares (the "New Shares") at a deemed price of 15 pence per share, on the basis of an agreed exchange rate of £1:US$1.60, in satisfaction of the Outstanding Settlement Amount of US$16,030,000.

The Capitalisation is subject to Shareholder approval at the Special General Meeting, which has been convened for 23 November 2011. In the event of such approval being granted, Namakwa shall issue and allot 66,791,667 New Shares to Jarvirne (and seek the admission of those shares to trading on the London Stock Exchange).

If the Capitalisation does not occur by 30 November 2011, the Settlement Agreement provides that the Trading Agreement will terminate with immediate effect, and the Outstanding Settlement Amount will become immediately due and payable by Namakwa to Jarvirne, in full and final settlement of all liabilities owed by Namakwa to Jarvirne pursuant to the Trading Agreement (including the Demand Notice), and neither Namakwa nor Jarvirne shall have any liability to the other party in respect of the Trading Agreement, except in relation to any liability which arises as a result of fraud, fraudulent misrepresentation or any criminal act or omission.

The Facility

On 7 September 2011, Jarvirne and Namakwa entered into the Facility, pursuant to which Jarvirne has agreed to lend US$40,000,000 in five or more tranches to Namakwa.

The term of the loan is two years and is secured by an inter-company loan assignment and, subject to Namakwa obtaining all necessary consents, a share charge over the then current equity interest of Namakwa in the issued share capital of Storm Mountain Diamonds (currently 62.5%). If Namakwa does not obtain sufficient funds to repay amounts of principal and interest under the Facility, either as a result of a lack of suitable refinancing, failure of the Kao Project to produce sufficient revenues or otherwise, an event of default will be triggered under the Facility.

The purpose of the loan is for: (i) Namakwa's general corporate purposes; and (ii) to on-lend to Storm Mountain Diamonds to finance the Kao Project. Up to 30% of the Facility may be used for Namakwa's general corporate purposes, whilst at least 70% of the Facility must be used by Namakwa to on-lend to Storm Mountain Diamonds to finance the Kao Project.

In lieu of interest accruing on the loan in the first year, 9,000,000 Ordinary Shares were issued to Jarvirne on 20 September 2011, after the first draw down of US$5,000,000 under the Facility. The value of these Ordinary Shares equates with cash interest which would otherwise have been payable by Namakwa in the first year of the loan (as if it had been fully utilised). It was deemed prudent to pay the interest in Shares to conserve working capital in Namakwa. Jarvirne will retain these 9,000,000 Ordinary Shares even if the Facility is not fully utilised, if an event of default occurs or if the Facility is terminated. No further amounts of interest are payable on drawn down amounts of principal under the Facility prior to 1 September 2012.

Interest on the outstanding drawn amount of the loan in the second year is to accrue at the rate of 24% per annum. Interest on the loan in the second year shall be determined and is payable monthly in arrears, with the first payment due on 7 October 2012.

As at the date of the Special General Meeting, total draw downs under the Facility are expected to amount to US$23,000,000, of which US$14,000,000 is already drawn and an additional US$9,000,000 is expected to be received prior to the Special General Meeting.

A further advance of US$2,000,000 under the Facility is available to Namakwa from and including 14 November 2011 up to and including 9 December 2011, subject to the passing of the Resolutions and the issue by Namakwa of the New Shares to Jarvirne pursuant to the Capitalisation and certain other conditions precedent.

The final US$15,000,000 under the Facility is available for drawdown from and including 12 December 2011 up to and including 30 June 2012, subject to certain conditions precedent.

The Facility contains certain representations, warranties and covenants on Namakwa and (to the extent applicable) the Group and also contains a number of events of default. Your attention is drawn to the further description of these provisions and the other terms of the Facility set out in the Prospectus.

In addition, failure by Namakwa to complete the Capitalisation by 30 November 2011 also constitutes an event of default pursuant to the Facility. If an event of default were to occur and remain un-remedied, then Jarvirne would not be obliged to make any further advances under the Facility and could demand that Namakwa makes immediate repayment of all amounts drawn down under the Facility.

Namakwa is obliged to repay the loan in full together with all interest accrued thereon, on or before 30 September 2013 (or otherwise refinance the Facility). Namakwa has the ability to prepay the loan early and there is no penalty payable if Namakwa exercises this right.

Under the Facility, after 30 June 2012, within 2 business days of delivery by Namakwa to Jarvirne of each set of monthly management reports (as required by the Facility), Namakwa is obliged to apply all excess cashflow in excess of operating costs in prepayment of the loan. The amount of excess cashflow for such purpose shall be calculated by reference to Namakwa's cashflow as set out in such management reports.

For the purposes of this provision under the Facility, excess cashflow (being the closing cash balance at the end of each month) is calculated as being Namakwa's operating cashflow less Namakwa's debt service costs. Any excess cashflow for that month in excess of Namakwa's operating costs (calculated as being, for any month, the amount equal to the aggregate of the Namakwa's group's operating costs for the previous two months, (calculated by reference to Namakwa's group's management reports for those two previous months)) shall then be applied by Namakwa in prepayment of the loan.

Subject to the consent of Namakwa, Jarvirne may assign any of its rights under the Facility and security documents to any other person.

Pursuant to a Waiver and Amendment Letter dated 2 November 2011, Jarvirne permanently waived certain breaches of covenant by Namakwa under the Facility and it was agreed that certain financial covenants in the Facility would be amended. The effect of the waiver is that the relevant breaches shall not constitute events of default under the Facility, meaning that Jarvirne will be unable to demand repayment of amounts drawn down under the Facility as a result of the breaches.

3. Key consequences of a failure to complete the Capitalisation

In the event that the Capitalisation does not proceed, Namakwa is likely to have an immediate liability of US$39,030,000 (for the reasons described below) which, absent alternative sources of funding (which it is unlikely to obtain on commercially reasonable terms, if at all), Namakwa will be unable to repay.

The Settlement Agreement provides that if the Capitalisation does not occur by 30 November 2011, the Trading Agreement will terminate with immediate effect, and the Outstanding Settlement Amount of US$16,030,000 will become immediately due and payable by Namakwa to Jarvirne, in full and final settlement of all liabilities owed by Namakwa to Jarvirne pursuant to the Trading Agreement, and neither Namakwa or Jarvirne shall have any liability to the other party in respect of the Trading Agreement, except in relation to any liability which arises as a result of fraud, fraudulent misrepresentation or any criminal act or omission.

Furthermore, if the Resolutions are not passed by Shareholders, or otherwise the Capitalisation does not occur by 30 November 2011, an event of default will be triggered under the terms of the Facility. If such an event of default were to occur, then Jarvirne would not be obliged to make any further advances under the Facility and could demand that Namakwa makes immediate repayment of all amounts drawn down under the Facility. Drawn down amounts as at the date of the Special General Meeting are expected to amount to US$23,000,000, of which US$14,000,000 is already drawn and an additional US$9,000,000 is expected to be received prior to the Special General Meeting.

4. Background to the Trading Agreement

Namakwa and Jarvirne entered into a letter of agreement on 20 July 2010 (the "Trading Agreement"), under which Jarvirne advanced capital to Namakwa to trade rough and polished diamonds, on its behalf.

The Board had determined to close down this trading position in April 2011 because of: (i) the volatility in the diamond trading markets; (ii) Namakwa's strategic decision to focus its capital on the development of the Kao Project; and (iii) the inability of Namakwa and Jarvirne to reach agreement on a tax efficient structure through which the trading position would be operated. As a result of the closure of the position, it was agreed that a deemed effective 3% return on capital per month would be paid by Namakwa with effect from the inception of this position.

On 1 September 2011, Jarvirne served Namakwa with a demand notice (the "Demand Notice") alleging repudiatory breach by Namakwa of certain terms of the Trading Agreement, and demanding repayment of a debt assessed by Jarvirne to be US$19,706,000 arising in connection with the Trading Agreement. In an accompanying letter from Jarvirne to Namakwa, also dated 1 September 2011, Jarvirne made a simultaneous proposal to capitalise this debt through the issue of Ordinary Shares, and also proposed to advance a new US$40,000,000 debt facility.

Subsequently, after a period of negotiation with both Jarvirne and other potential financiers, Jarvirne and Namakwa entered into the Settlement Agreement and the Facility, both of which are described further in paragraph 2 above. As part of these agreements, the Board of Directors also agreed to appoint on 8 September 2011 two Jarvirne representatives (being Messrs Allen Gessen and Gerard Holden) to Namakwa's Board (and in the case of Mr. Holden, to the vacant position of chairman of Namakwa's Audit, Risk & Compliance Committee). Such appointments remain subject to the ratification of Shareholders at the next Annual General Meeting of Namakwa, notice of which will be distributed to Shareholders separately.

5. Information on Jarvirne

Jarvirne (company number: 1422229) was incorporated in the British Virgin Islands with its registered office being PO Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. It is an investment vehicle owned by Mr. Eduard Prutnik, an industrialist from Ukraine. Mr. Prutnik holds substantial business interests in agriculture, property, ore processing, mining, leisure and other industries. As at the date of the Prospectus, Jarvirne owns 31,873,491 Ordinary Shares representing 13.42 per cent. of the issued share capital of Namakwa. Jarvirne has been a shareholder of Namakwa since early 2010.

On 21 May 2010, prior to entering into the Trading Agreement, Jarvirne provided Namakwa with a US$15,000,000 debt facility (described in more detail in the Prospectus). Namakwa's obligations under the debt facility were terminated on 28 December 2010 in a series of transactions described in more detail in the Prospectus.

On 20 July 2010, Jarvirne entered into the Trading Agreement with Namakwa, investing an aggregate amount of US$17,000,000 in capital with Namakwa's Trading & Beneficiation Division.

On 6 December 2010, Jarvirne entered into a loan agreement with the KFF (the then largest shareholder of Namakwa) to finance the KFF's subscription for entitlements under the 2010 Placing & Open Offer (the "KFF Loan Agreement").

Immediately prior to the date of the Settlement Agreement, Jarvirne owned 11,873,491 Ordinary Shares, representing 5.47% per cent. of the issued share capital of Namakwa, at such time. As a result of the allotment and issue of 11,000,000 Ordinary Shares to Jarvirne under the Settlement Agreement on 20 September 2011 and the allotment and issue to Jarvirne of 9,000,000 Ordinary Shares on 20 September 2011 in lieu of first year interest under the Facility (as described in more detail at paragraph 2 above), at the date of the Prospectus Jarvirne owns 31,873,491 Ordinary Shares, representing 13.42% of the issued share capital of Namakwa. In the event that the Capitalisation is approved by Shareholders (and assuming no further Ordinary Shares are acquired by Jarvirne), Jarvirne shall own 32.46% of the enlarged issued share capital of Namakwa.

6. "Whitewash" approval

As Namakwa is incorporated in Bermuda, the Takeover Code does not apply to Namakwa and Bermuda law does not contain any provisions similar to those in the United Kingdom which are designed to regulate the way in which takeovers are conducted. However, to the extent permitted under the Bermuda Companies Act, Bye-law 82 adopts certain of the provisions of the Takeovers Code, including provisions dealing with compulsory takeover offers (to the extent permitted by Bermuda law), which are to be administered by the Board.

In particular, Bye-law 82.1 provides that (except in certain permitted circumstances) a person must not acquire (whether by himself or with persons determined by the Board to be acting in concert with him) an interest in Ordinary Shares in Namakwa which:

(a) carry 30% or more of the voting rights of the Company; or

(b) increase his percentage of voting rights of the Company whilst he (together with persons determined by the Board to be acting in concert with him) is interested in Ordinary Shares which carry between 30% and 50% of the voting rights of the Company.

Immediately following the issue of the New Shares under the Capitalisation, Jarvirne will be interested in 98,665,158 Ordinary Shares, representing approximately 32.46% of the enlarged issued share capital of Namakwa.

Under Bye-law 82.6, the Board has authority to determine the application of Bye-law 82, including as to the deemed application of the whole or any part of the Takeover Code. Such authority shall include all discretion vested in the Takeover Panel as if the whole or any part of the Takeover Code applied.

The Board has determined that the issue and allotment of the New Shares to Jarvirne under the Capitalisation will be treated as if the Takeover Code applied to Namakwa and the "whitewash" provisions (as set out in Note 1 on Dispensations from Rule 9 to the Takeover Code) were available in relation to such issue and allotment. Shareholders should note that the Board's determination of the applicability of the Takeover Code in this limited circumstance does not mean that Shareholders will gain the benefit of the general protections of the Takeover Code.

Under Rule 9 of the Takeover Code, any person who acquires an interest in shares which, taken together with the shares in which he is already interested and in which persons acting in concert with him are interested, carry 30% or more of the voting rights in a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Pursuant to the requirements of the Waiver and Amendment Letter, Namakwa is seeking the approval of the Shareholders (other than Jarvirne) to the issue and allotment of the New Shares to Jarvirne as if the Takeover Code applied to Namakwa (by way of the Whitewash Resolution).

Your Board is of the opinion that voting in favour of the Whitewash Resolution is in the best interests of Namakwa and its Shareholders as a whole and recommends that you vote in favour of the Whitewash Resolution.

Due to the size of its shareholding in Namakwa following the Capitalisation, Jarvirne entered into a relationship agreement with Namakwa on 2 November 2011 (the "Relationship Agreement"). The Relationship Agreement, which is conditional on Admission occurring not later than 7.00 a.m. on 30 November 2011, contains provisions to regulate Jarvirne's relationship with Namakwa. Full details of the Relationship Agreement are set out in the Prospectus.

If: (i) the Resolutions are duly passed and the New Shares are issued to Jarvirne; and (ii) no further Ordinary Shares are acquired by Jarvirne between the date of the Prospectus and Admission, Jarvirne will hold, in aggregate, 98,665,158 Ordinary Shares, representing approximately 32.46% of the enlarged issued share capital of Namakwa.

Any further increase in Jarvirne's aggregate interest in Ordinary Shares after the Capitalisation will be subject to the restrictions in Bye-law 82.1 and the provisions of the Relationship Agreement. This is particularly relevant in relation to any future acquisition of additional Ordinary Shares by Jarvirne pursuant to the KFF Loan Agreement between Jarvirne and the KFF (the second largest shareholder of Namakwa with 30,371,148 Ordinary Shares as at 2 November 2011, being the latest practicable date prior to the issue of the Prospectus). Tom Kruger, a non-executive Director of Namakwa, and his wife and two sons (Nico and Heno Kruger, both former directors of Namakwa) are all understood by Namakwa to be beneficiaries of the KFF.

It is the understanding of Namakwa that the KFF Loan Agreement becomes repayable on 6 December 2011, unless the parties to the agreement extend its terms. In the event that this loan (or part thereof) is not repaid in cash on the due date, the KFF may, having given prior notice, choose to repay it, in whole or part, by transferring to Jarvirne Ordinary Shares then held by the KFF. Should such a transfer occur, with an appropriate value to repay amounts due under the loan Jarvirne could become entitled, in aggregate, to voting rights in Namakwa of approximately 42.21% (assuming the Capitalisation occurs and Jarvirne acquires all the Ordinary Shares currently held by the KFF).

In this scenario, the Directors may determine (subject to certain events prescribed by the Bye-laws in relation to Prohibited Acquisitions, as defined therein) that the voting rights allotted to those excess Shares, which increase a shareholding from not less than 30% to not more than 50% of the aggregate voting rights exercisable by the Shareholders ("Excess Shares"), are: (i) suspended either indefinitely or for a period determined by the Directors; and/or (ii) that such Excess Shares be sold; and/or (iii) that such Excess Shares will not carry any right to any dividends or other distributions either indefinitely or for a period determined by them.

Pursuant to the requirements of the Waiver and Amendment Agreement, if Jarvirne receives any Ordinary Shares from the KFF in satisfaction of amounts owing to Jarvirne pursuant to the KFF Loan Agreement, then Namakwa shall procure that the Board consents to such acquisition as a "Permitted Acquisition" under the Bye-laws and use all reasonable endeavours to dispatch a circular to Shareholders which contains notice of a proposed resolution to approve the acquisition and related special general meeting of Namakwa. If any such resolution is not passed by the Shareholders, then Jarvirne shall have 30 days to dispose of the relevant Ordinary Shares (following which the acquisition will become a "Prohibited Acquisition" under the Bye-laws).

7. Litigation

On 22 June 2011, Toro Diamonds Lesotho (Pty) Ltd and Batla Minerals SA instituted proceedings in the High Court of Lesotho against Namakwa, Storm Mountain Diamonds, African Alliance Lesotho Limited, The Government of Lesotho and the Attorney-General of Lesotho. On 22 June 2011 they also obtained, on an ex parte basis, an order which: (i) permitted the Sheriff of the High Court of Lesotho to attach all the shares in Storm Mountain Diamonds registered in the name of Namakwa and prohibited Namakwa from alienating or encumbering such shares in any manner whatsoever; and (ii) prohibited Storm Mountain Diamonds from making any payments to Namakwa in respect of Namakwa's loan account or entering into any further agreements with Namakwa.

The main claim is a claim by Toro Diamonds Lesotho (Pty) Ltd for a joint interest in Namakwa's 62.5% interest in Storm Mountain Diamonds.

Namakwa and Storm Mountain Diamonds oppose the relief sought by Toro Diamonds Lesotho (Pty) Ltd and also applied for the setting-aside of the aforementioned ex parte order granted in its absence and without notice. On 8 August 2011, the High Court of Lesotho released the attachment of Namakwa's shares in Storm Mountain Diamonds and Namakwa provided, concomitantly, an undertaking to the same court to place its 62.5% equity interest in Storm Mountain Diamonds in trust with Webber Newdigate, attorneys for the Government of Lesotho, until such time as the Batla Claim had been determined.

The Batla Claim is listed for hearing in the High Court of Lesotho between 14 - 18 November 2011. Namakwa intends to defend its position and its rights vigorously. However, if the Batla Claim is successful, Namakwa could be required to transfer up to half of its 62.5% interest in Storm Mountain Diamonds to Toro Diamonds Lesotho (Pty) Ltd, which represents the Group's principal asset. In such an event, Namakwa would not have a majority control of Storm Mountain Diamonds and the operations of the Kao Project. This would also constitute a technical breach of the Kao Mining Agreement.

8. Going concern

Namakwa made a consolidated loss of US$76.7m during FY2011 and, as at 31 August 2011, current liabilities exceeded current assets by US$10.08m. Namakwa also incurred a cash outflow from operating and investment activities of US$53.75m during the period and had available cash resources of US$2.26m, as at 31 August 2011. The financial performance and position of Namakwa places significant doubt over its ability to continue operating as a going concern in the foreseeable future, unless the Facility remains available and the Capitalisation is approved by Shareholders or alternative sources of funding are made available in order to complete the commissioning of Phase 1 operations at the Kao Project. If the Capitalisation is approved by the Shareholders and the Facility remains available to Namakwa, the Board is satisfied, subject to the continued availability of the Facility (or alternative sources of funding to replace the Facility, if required), that Namakwa is a going concern.

Alternative funding is unlikely to be found on commercially reasonable terms, if at all. If such funding could not be so obtained, it is likely that certain companies in the Group, or Namakwa itself, would be placed into some form of insolvency proceedings.

Given that a significant portion of Namakwa's refinancing is subject to the approval of Shareholders at a date following the date of the 2011 Audited Annual Financial Statements, the Group's auditors, PricewaterhouseCoopers Inc., have modified the audit opinion by including an emphasis of matter over the Group's ability to continue operating as a going concern.

9. Shareholder approvals

Jarvirne is a related party of Namakwa (as defined in the Listing Rules as it owns over 10 per cent. of the issued share capital of Namakwa and, as such, the Capitalisation is a related party transaction of Namakwa (as defined in Chapter 11 of the Listing Rules of the UKLA) as is the Waiver and Agreement Letter, both requiring the approval of Shareholders (other than Jarvirne).

Shareholder approval will also be required: (i) to increase the authorised share capital of Namakwa; (ii) to grant the Board of Directors authority to issue the New Shares to Jarvirne pursuant to the Capitalisation; and (iii) to disapply pre-emption rights in respect of the issue of the New Shares to Jarvirne pursuant to the Capitalisation.

Approval of Shareholders (other than Jarvirne) will also be required in relation to the Whitewash Resolution.

The Capitalisation is subject to, and conditional upon, the passing of the Resolutions. Your approval will be sought at the Special General Meeting to be held at 10.00 a.m. on 23 November 2011 at the offices of Taylor Wessing LLP, 5 New Street Square, London EC2A 3TW. Notice of the Special General Meeting will be published in the Royal Gazette newspaper in Bermuda on 7 November 2011 in accordance with Namakwa's Bye-laws, and is set out in the Prospectus.

The implementation of the Capitalisation is conditional upon the passing of the Resolutions set out in the notice. In the event that the Resolutions are not passed, the Capitalisation will not proceed.

10. Action to be taken

You will find enclosed with the Prospectus a Form of Proxy (for use by Shareholders) or a Form of Direction (for use by DI Holders) for the purpose of voting on the Resolutions at the Special General Meeting or any adjournment thereof.

If you are a Shareholder, whether or not you intend to be present at the Special General Meeting, you are requested to complete the Form of Proxy in accordance with the instructions printed on it, sign and return the form by post or by hand (during normal business hours only) and in any case, so as to be received by Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible and, in any event, so as to arrive no later than 10 a.m. on 21 November 2011. Completion and return of the Form of Proxy will not prevent you from attending the Special General Meeting and voting in person if you wish.

If you are a DI Holder, whether or not you intend to be present at the Special General Meeting, you are requested to complete the Form of Direction to instruct the Depositary to vote the number of Ordinary Shares in Namakwa represented by your Depositary Interests in a certain way in relation to the Resolutions and in accordance with the instructions printed on it, sign and return the form by post or by hand (during normal business hours only) and in any case, so as to be received by Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible and, in any event, so as to arrive no later than 10 a.m. on 20 November 2011. If you hold your depositary interest via the depositary interest arrangement and would like to attend the Special General Meeting, please contact the Depositary on the contact details set out on page 29.

If you are in any doubt which action you should take, you should immediately seek your own financial advice from your stock broker, bank manager, solicitor or other independent professional advisor duly authorised under the FSMA who specialises in advice on the acquisition of shares and other securities or, if you are outside the UK, by another appropriately authorised independent financial advisor.

The Boards' recommendation for the action you should take is set our below. CREST members should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf.

11. Working capital

The Directors are of the opinion that, having regard to existing cash resources, the Group does not have sufficient working capital for its present requirements, that is for at least a twelve month period from the date of the Prospectus, without the continued availability of the Facility. Currently, Namakwa's primary source of cash is pursuant to the Facility and remains subject to the Capitalisation.

The Capitalisation can only proceed if all of the Resolutions are passed at the Special General Meeting.

If the Resolutions are not passed or otherwise the Capitalisation does not proceed by 30 November 2011, Namakwa would have a cash flow and working capital shortage and would:

(a) be liable to repay to Jarvirne:

(i) the Outstanding Settlement Amount of US$16,030,000 (which becomes contractually repayable if the Resolutions are not passed at the Special General Meeting); and

(ii) all drawn down amounts under the Facility (which, as at the date of the Special General Meeting, are expected to amount to US$23,000,000), as an event of default will be triggered under the Facility; and

(b) require additional working capital to meet its requirements for the 12 month period from the date of the Prospectus of US$15,993,000, such sum being required to fund the ongoing operations of the Group in accordance with its business plan.

In such circumstances, Namakwa would need to seek alternative funding to provide immediate cash flow for the Group's operations. Efforts to rectify the cash flow and working capital shortfall could include all, or any combination of, asset disposals, an equity issue and seeking to agree new facilities with another lender. These arrangements are unlikely to be on terms, advantageous to the Group and/or to Shareholders, and it is unlikely that any such arrangements could be implemented in less than three months.

In order to implement any proposal to rectify the cash flow and working capital shortfall, Namakwa would need to obtain agreement from Jarvirne to defer any call for immediate repayment of the Outstanding Settlement Amount and repayment of drawn down amounts under the Facility and to defer cancellation of undrawn amounts under the Facility in each case for at least three months. There is no guarantee that such agreement would be reached.

If asset disposals could not be effected, if new equity could not be raised or if new facilities could not be agreed, each in the requisite timescales, there is no guarantee that Namakwa would be able to continue to trade as a going concern which could result in certain companies of the Group, or Namakwa itself, being placed in some form of insolvency proceedings thereafter and, in such circumstances, no assurance can be give to Shareholders as to the level of distribution that would be made to them (if any).

The Directors are therefore of the view that the Group's future viability is dependent upon the passing of the Resolutions.

In the event that the Resolutions are passed and the Capitalisation is completed by 30 November 2011, and assuming that:

(i) funds continue to be available to Namakwa under the Facility;

(ii) production at the Kao Project remains within its current scheduled timeframe and levels for commercial production in the first quarter of the 2012 calendar year;

(iii) there are no breaches of the Kao Mining Agreements, which could ultimately result in Storm Mountain Diamonds losing the economic benefit and control of the Kao Project (and thereby the ability to repay its current loans and/or dividends and distributions to Namakwa), or Namakwa being unable to assume the obligations of Storm Mountain Diamonds under the Kao Mining Agreements; and

(iv) Toro Diamonds Lesotho (Pty) Ltd and Batla Minerals SA are not successful in their claim against Namakwa for a joint interest in Namakwa's 62.5% interest in Storm Mountain Diamonds,

the Directors are of the opinion that the Group will have sufficient working capital for its present requirements, that is, for at least a twelve month period from the date of the Prospectus.

12. Importance of Vote

It should be noted that if, for any reason, the Resolutions are not passed, the Capitalisation will not proceed. This will have the following consequences for the Group:

(a) the Outstanding Settlement Amount (being US$16,030,000) will become immediately due and payable by Namakwa to Jarvirne pursuant to the Settlement Agreement;

(b) an event of default would be triggered under the Facility, resulting in all amounts drawdown by Namakwa thereunder as at the date of the Special General Meeting, which are expected to amount to US$23,000,000, becoming immediately due and repayable by Namakwa to Jarvirne and entitle Jarvirne to enforce its security under the Facility;

(c) undrawn amounts under the Facility as at the date of the Special General Meeting, which are expected to amount to US$17,000,000, would cease to be available to Namakwa;

(d) in the circumstances described at (a) to (c) above, Namakwa would need to seek alternative funding to provide immediate cash flow for the Group's operations (and it is unlikely that alternative funding will be obtained on commercially reasonable terms, if at all). Efforts to rectify the working capital shortfall could include all, or any combination of, asset disposals, an equity issue and seeking to agree new facilities with another lender, as set out further in paragraph 11 above. In those circumstances, there is no guarantee Namakwa would be able to continue to trade as a going concern, which could result in certain companies in the Group or Namakwa itself, being placed in some form of insolvency proceedings immediately thereafter and, in such circumstances, no assurance can be given to Shareholders as to the level of distribution that would be made to them (if any); and

(e) there is a risk that:

(i) Namakwa would be unable to continue to finance the operations of Storm Mountain Diamonds at the Kao Project;

(ii) the Kao Mining Agreement (which grants Storm Mountain Diamonds the exclusive right to prospect for and mine diamonds in the Kao Production Area) could be terminated; and

(iii) Storm Mountain Diamonds could lose the Kao Mining Lease.

As the majority of the Group's revenues are likely to be derived from the Kao Project during FY2012, if the Kao Mining Agreement is terminated and/or the Kao Mining Lease is transferred, it is likely that the Group's results of operations or financial condition would be materially and adversely affected (which could ultimately result in certain companies in the Group, or Namakwa itself, being placed in some form of insolvency proceedings).

13. Directors' Recommendation

The Board, which has been so advised by Liberum Capital, considers that the Capitalisation and the Waiver and Amendment Letter are fair and reasonable as far as Shareholders are concerned. In giving its advice, Liberum Capital has taken into account the Board's commercial assessment of the Capitalisation and the Waiver and Amendment Letter.

Allen Gessen and Gerard Holden have not participated in the Board's consideration of the Capitalisation and the Waiver and Amendment Letter because they are each nominated Non-Executive Directors of Jarvirne. Tom Kruger has also not participated in the Board's consideration of the Capitalisation and the Waiver and Amendment Letter because the KFF is a party, with Jarvirne, to the KFF Loan Agreement, giving rise to a potential conflict of interest.

Under the Listing Rules, Jarvirne is precluded from voting on the third Resolution (relating to the approval of the Capitalisation and the Waiver and Amendment Letter as related party transactions) because it is a related party of Namakwa. Jarvirne will abstain and will take all reasonable steps to ensure that its associates will abstain from voting on the third Resolution.

The Board has determined that Jarvirne should be precluded from voting on the Whitewash Resolution, because it is not an independent Shareholder in relation to that Resolution. Jarvirne will abstain, and will take all reasonable steps to ensure that its associates abstain, from voting on the Whitewash Resolution.

The Board is of the opinion that voting in favour of the Resolutions is in the best interests of Namakwa and its Shareholders as a whole. Accordingly the Board recommends that you vote in favour of the Resolutions to be proposed at the Special General Meeting, as each Director voting intends to do so in respect of his own beneficial holdings which amount in aggregate to 399,045 Ordinary Shares, representing approximately 0.168 per cent. of the existing issued Ordinary Share capital of Namakwa as at 2 November 2011, being the last practicable day prior to the publication of the Prospectus.