Announcements

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Completion of Kimberley Underground Acquisition

19 May 2010

Petra Diamonds Limited announces the completion of its previously announced transaction with De Beers Consolidated Mines Limited ("De Beers") to acquire the mining and associated assets ("Assets") previously used by De Beers in the operation of the Kimberley Underground diamond mines ("Kimberley Underground") in Kimberley, South Africa.

Highlights

• Petra and De Beers entered into the agreement for the sale of the Kimberley Underground Assets in September 2007, however the transaction has taken longer than originally anticipated to complete due to complexities related to the new order mining right, which have now been completely resolved
• The purchase consideration of R78.5 million (US$10.4 million) has been settled by Petra assuming De Beers` rehabilitation obligations with regards to Kimberley Underground of R63.5 million (US$8.4 million) and the payment in cash by Petra to De Beers of R15 million (US$2.0 million)
• Petra has been operating Kimberley Underground under care and maintenance since September 2007, during which time Petra has built up substantial ore stockpiles totalling approximately 500,000 tonnes (estimated to contain 90,000 carats); processing and diamond recoveries will now commence forthwith
• Kimberley Underground is expected to produce 100,000 carats in the financial year to June 2011 ("FY 2011"), rising to 180,000 carats per year thereafter following commissioning of a second production plant by June 2011
• All the capital expenditure ("Capex") required for the rehabilitation of the underground operations and the construction of the new plant at Joint Shaft has already been spent and capitalised; the operation is therefore expected to be profitable and cash generative from month one

Johan Dippenaar, Petra's CEO, commented, "The Kimberley Underground mines' long history of production is testament to the quality of these assets. The mines produce high value gem diamonds and in particular are noted for fancy yellow diamonds. We have been looking forward to commencing diamond recoveries at these mines for some time and are expecting strong operating results. The substantial additional output of high value diamonds will significantly add to group revenues and further assist Petra towards its goal to more than treble group production by 2019."

Background

Kimberley Underground comprises three kimberlite pipes - Bultfontein, Dutoitspan and Wesselton. The operation was closed in 2005 and Petra reached agreement to acquire Kimberley Underground from De Beers in September 2007. The acquisition has taken longer than anticipated to complete due to the complexities of converting the old order mining right and splitting it into two new order rights. Petra has been operating the mines under care and maintenance since 2007 under the De Beers' old order right and this has proved an invaluable period which has enabled Petra to complete all necessary rehabilitation of the underground workings.

Mine plan

Petra has constructed a new diamond recovery plant (capacity over 600,000 tonnes per annum) at Joint Shaft, which will treat production from the Bultfontein and Dutoitspan pipes. This plant was designed and built by Petra's in-house engineering and construction teams, delivering substantial savings over using external consultants/contractors.

A similar plant (expected cost approximately R85 million (US$11.2 million)) will now be built for the Wesselton Shaft, which will be commissioned by June 2011.

As part of the care and maintenance activity necessary to maintain a block cave mining operation, Petra has been able to extract ore from underground and build-up two substantial surface stockpiles of some 250,000 tonnes each, estimated to contain a total of 90,000 carats, at Joint Shaft and Wesselton Shaft. Petra expects to treat approximately 600,000 tonnes of ore at Joint Shaft in FY 2011, of which approximately 180,000 tonnes will be drawn from the Joint Shaft stockpile. Treatment of the stockpile at Wesselton Shaft will only commence when the new Wesselton plant is constructed. Petra expects to haul ore at the rate of approximately 750,000 tonnes per annum (both shafts combined) for FY 2011, increasing to one million tonnes per annum thereafter.

Petra has invested R204.6 million (US$27.0 million) on capital projects at Kimberley Underground since September 2007, incorporating the construction of the Joint Shaft plant; underground development work; and other on-mine Capex (surface infrastructure). A further R89.5 million (US$11.8 million) has been spent on operating costs since September 2007, including R37.6m (US$5.0 million) that is capitalised into the run-of-mine stockpile and R51.9 million (US$6.8 million) on care and maintenance that was not deemed to be capital in nature and has been expensed in Petra's operating results as incurred. All of this expenditure has been financed over the last two years from Petra's own treasury.

The cost of accumulating the stockpiles has been accounted for at a production cost of R75 per tonne and Petra estimates that a further R35 per tonne will be required for plant and diamond recovery.

Kimberley Underground is expected to produce approximately 100,000 carats in FY 2011. The Company will be able to increase production once the Wesselton plant is built and commissioned, enabling Petra to process throughput of one million tonnes per annum and increasing production to a rate of 180,000 carats.

Production of diamonds will commence at the Joint Shaft plant immediately and Petra will sell the first Kimberley Underground diamonds at its tender in July 2010. Kimberley Underground is renowned for high value, gem quality production and in its history has been known to produce large diamonds of several hundred carats in size, as well as fancy yellow diamonds.

Based on examination of historical records, Petra has assumed for planning purposes an average value per carat of at least US$160, although Petra believes there is real potential to exceed US$200 per carat.

Kimberley Underground has a gross resource of 6.9 million carats. The current 12 year mine life is based on one million carats of probable reserves and 0.84 million carats of indicated resource. 5.1 million carats in inferred resources are not included in this initial mine life and therefore certain areas have been earmarked for re-sampling and possible inclusion in future mining plans, which can potentially extend the life of mine significantly. Petra expects that the mine life will therefore be revisited and revised upwards in due course.

Black Economic Empowerment

Petra Diamonds is compliant with South African minerals legislation at Kimberley Underground in that Petra has concluded a joint venture agreement ("JV Agreement") with Sedibeng Mining (Pty) Limited, its Kimberley Underground Black Economic Empowerment ("BEE") partner, and the joint venture will use the Assets acquired from De Beers to operate Kimberley Underground. Under the terms of the JV Agreement, Petra's interest in the JV will be 74%, with the BEE partner holding the remaining 26%.

Sedibeng's 26% share of the acquisition consideration and funding for all Capex and costs have been funded by Petra and are repayable from the BEE partners' share of future cash flows, or by independent financing.

Notes

1. An exchange rate of US$1:R7.57 has been used for the purposes of this announcement.
2. The information in this update that relates to Mineral Resources or Ore Reserves is based on information compiled by Jim Davidson, Pr. Sci Nat (reg No 400031/06), who is a Member of the Geological Society of South Africa, a 'Recognised Overseas Professional Organisation' ('ROPO'). Jim Davidson is the Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Jim Davidson is a full-time employee of the Company and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify. Jim Davidson has given his written consent to the inclusion in this announcement of the matters based on his information in the form and context in which it appears.

For further information, please contact:

Cathy Roberts
Petra Diamonds, London
Telephone: +44 20 7318 0452
Email: cathyr@petradiamonds.com

Bobby Morse / James Strong
Buchanan Communications
Telephone: +44 20 7466 5000
Email: bobbym@buchanan.uk.com
Email: jamess@buchanan.uk.com

Nicola Taylor
Russell & Associates
Telephone: +27 11 880 3924
Email: nicola@rair.co.za

Ryan Gaffney / Andrew Chubb
Canaccord Adams Limited
Telephone: +44 20 7050 6500
Email: rgaffney@canaccordgenuity.com
Email: achubb@canaccordgenuity.com

Joshua Critchley / Martin Eales
RBC Capital Markets
Telephone: +44 20 7653 4000
Email: joshua.critchley@rbccm.com
Email: martin.eales@rbccm.com

About Petra Diamonds

Petra Diamonds is a leading supplier of rough diamonds, with a gross resource base of 262 million carats. The Company offers a unique growth profile within the diamond sector, increasing its annual production fivefold in the year to June 2009 to over one million carats, and with firm plans in place to grow production to over three million carats.

Petra has a well-diversified portfolio, with majority interests in seven producing mines: six in South Africa (Cullinan, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star) and one in Tanzania (Williamson).

Petra conducts all its operations according to the highest ethical standards, and will only work in countries which are members of the Kimberley Process. The Company is quoted on the AIM market of the London Stock Exchange (AIM: PDL).