Rockwell Recommends Shareholders Reject Hostile Pala Bid

    Inadequate Bid Significantly Undervalues Rockwell's Upside Potential

    VANCOUVER, Sept. 22 /CNW/ - Rockwell Diamonds Inc. ("Rockwell" or the
"Company") (TSX: RDI; JSE: RDI; OTCBB: RDIAF) today announced that its Board
of Directors, based on the recommendation of its Special Committee of
independent directors, unanimously recommends that Rockwell shareholders
reject the unsolicited offer (the "Offer") by Pala Investments Holdings
Limited ("Pala") to acquire all of the outstanding shares of Rockwell for
$0.36 per share. After careful consideration, including consultation with its
independent financial and legal advisors, Rockwell's Board concluded that the
Offer significantly undervalues Rockwell and is not in the best interests of
its shareholders.
    In its Directors' Circular, filed today with securities regulators and
mailed to security holders, Rockwell's Board strongly recommends that all
Rockwell shareholders reject the Offer and not tender their shares.
    "The Offer significantly undervalues Rockwell and would deprive our
shareholders of significant upside potential from the strong production growth
we anticipate over the next months and years," said John Bristow, President,
Chief Executive Officer and director of Rockwell. "Our track record and
strategic plan point to superior value creation for our shareholders than the
inadequate premium offered by Pala. Our Special Committee and Board of
Directors unanimously determined that the Offer is inadequate and unfair.
There is no rationale for accepting the Pala bid and many reasons to reject
    Mr. Bristow further commented that "the highly conditional nature of
Pala's Offer, the misleading claims made in their conference call on September
16, 2008 and in their Offering Circular, and Pala's apparent lack of
understanding of Rockwell's business, leads to questions regarding the
seriousness of Pala's Offer and their intent to follow through."

    Reasons for Recommendation
    The Board believes that the Offer should be rejected for the following
reasons, as are described in more detail in the Directors' Circular available

    -   The Offer significantly undervalues Rockwell's assets and growth

        -  Rockwell is a producer of diamonds of high value in excess of
           US$1,700 per carat, with a strong upward trend.

        -  Rockwell enjoys low production costs with tight cost control
           despite an inflationary environment.

        -  Rockwell has a number of fully financed brownfields projects
           coming on stream which will lead to an increase in production from
           the current run rate of approximately 23,000 carats per annum to
           70,000 carats per year in 2011.

        -  The Company has strong management expertise and a supportive BEE
           partner in African Vanguard Resources.

        -  Rockwell benefits from transparent and multi-faceted marketing and
           beneficiation arrangements.

    -   The Special Committee's independent financial advisor, RBC Capital
        Markets, has determined that the price of $0.36 per share offered by
        Pala is inadequate, from a financial point of view, to shareholders.

    -   The Offer is highly conditional and gives Pala broad discretion to
        abandon the bid.

    -   There is substantial uncertainty with respect to Pala's intentions.
        Pala is a financial investor with no experience running a diamond
        company operating in South Africa. The Board believes that the Offer
        is designed to create value for Pala rather than the Company's other

    -   The Offer does not treat holders of Rockwell securities fairly and
        does not comply with the applicable securities laws in South Africa.
        In particular, the Offer violates the South African requirements that
        the Offer be made to holders of convertible securities, and for the
        bid to not be subject to conditions that are dependent on subjective

    -   Rockwell continues to pursue alternatives to maximize shareholder
        value, and the Board believes that tendering shares to the Offer
        before these alternatives are fully explored may diminish the
        likelihood of a better transaction emerging.

    -   The timing of the Offer is opportunistic given the recent decline in
        Rockwell's share price as a result of the overall decline in share
        prices of diamond companies and the impact of the recent Wouterspan
        labour dispute. The Rockwell share price traded at the Offer price of
        $0.36 as recently as July 14, 2008 and as high as $0.59 (or 64% more
        than the Offer) as recently as March 13, 2008.

    -   The timing of the Offer is opportunistic because it is designed to
        deny shareholders the near term benefits of increased production and
        decreased operating costs expected to result from the Company's
        investment in its brownfields operations.

    -   The Offer has been rejected by all of Rockwell's directors and
        senior officers who together own 11.08% of the Company's shares
        (assuming the exercise of all warrants and options owned by such
        directors and senior officers).

    "With a proven track record of resource growth and a strong and
experienced management team, we believe Rockwell is poised to deliver superior
shareholder returns. The Board of Directors is pursuing various options to
maximize shareholder value, which include advancing Rockwell's growth and
acquisition strategy, increasing production and discussions with other third
parties. We believe that given sufficient time to evaluate alternative
options, the Company may be able to source superior value-creating
opportunities," said Mr. Bristow.
    Rockwell's Board advises shareholders not to be misled by the claims that
Pala made on a conference call on September 16, 2008. On this call and in its
news releases, Pala has made a variety of claims against Rockwell and its
management that are without foundation. In the Board's view, these claims
suggest that Pala's understanding of the Company's business is flawed and that
their methods of valuing Rockwell's business are not credible. Schedule A
attached to this news release contains responses to some of the more spurious
claims made by Pala.
    Rockwell is mailing its Directors' Circular to shareholders today, which
sets forth the formal recommendation of the Board to reject the Offer.
    The directors of Rockwell, accept responsibility for the information
contained in this announcement and confirm that to the best of their knowledge
and belief (having taken all reasonable care to ensure that such is the case)
the information contained in this announcement is in accordance with the facts
and, where appropriate, does not omit anything likely to affect the import of
such information.

    The Company will host a telephone conference call on Monday,
    September 22 at 10:00 a.m. Eastern Time (7:00 a.m. Pacific; 3:00 p.m.
    London; 4:00 p.m. Johannesburg) to discuss Board's recommendation. The
    conference call may be accessed by dialling 719-457-2655 or toll free
    888-339-3503 in North America, toll free 0-800-404-7656 in United Kingdom
    or toll free 080-09-97290 in South Africa.

    John Bristow
    President and CEO

    David Copeland, P.Eng., a qualified person under National Instrument
43-101, who is also the Chairman and a Director of Rockwell, has reviewed and
approved this news release.

    Forward Looking Statements

    This release includes certain statements that may be deemed
"forward-looking statements". Other than statements of historical fact may be
forward-looking statements, including, but not limited to, statements in this
release about the expected upside potential of holding Rockwell shares,
anticipated increases in the Company's level of production, decreases in
operating costs and increases in the price of diamonds, the upward trend in
the value of diamonds produced by Rockwell, and the likelihood of a better
transaction emerging. Although the Company believes the expectations expressed
in such forward-looking statements are based on reasonable assumptions,
including, but not limited to assumptions regarding the success of the
Company's brownfields expansion efforts, the Company's cost structure, and
matters that would affect a third party's decision to enter into an
alternative transaction with the Company, such statements are not guarantees
of future performance and actual results or developments may differ materially
from those in the forward-looking statements. Factors that could cause actual
results to differ materially from those in forward-looking statements include
market prices, exploitation and exploration successes, changes in and the
effect of government policies regarding mining and natural resource
exploration and exploitation, availability of capital and financing,
geopolitical uncertainty and political and economic instability, and general
economic, and market or business conditions. The Company undertakes no
obligation to update forward-looking statements except to the extent required
by law. For more information on Rockwell, investors should review Rockwell's
annual Form 20-F filing with the United States Securities and Exchange
Commission and its home jurisdiction filings that are available at

                                 Schedule A

    Specific responses of Rockwell to claims made by Pala during its
conference call held on September 16, 2008, and in Pala's news releases are
set out below.

    Pala Claim               Rockwell's Response

    1. Pala claimed that     The Board believes that this claim demonstrates
    Rockwell is failing to   that Pala does not understand the nature of
    deliver on diamond       Rockwell's business. Pala included in its
    prices.                  presentation accompanying the September 16, 2008
                             conference call, a comparison of a linear
                             regression of prices achieved by Rockwell for
                             the months of January to July 2008 with price
                             increases quoted by De Beers. The Board views
                             this comparison as misleading. The very nature
                             of alluvial diamond mining is the variability of
                             stones recovered leading to periods with average
                             returns interspersed with very high value
                             stones. The results for the year to date
                             compared with the prior year shows a different
                             trend with average prices recovered increasing
                             from $657 per carat in the 2007 calendar year to
                             $1,881 per carat in the year to date in calendar
                             2008. This latter number increases to $2,465 per
                             carat when the month of September 2008 is

                             It is the Board's view that the use of
                             De Beers' pricing, which is based on a universe
                             of transactions that is many times larger than
                             that of Rockwell, is statistically unsound.

    2. Pala claimed that     The Board believes that this claim further
    Rockwell has no control  demonstrates that Pala does not properly
    over costs.              understand the nature of running a mining
                             operation or the environment in South Africa,
                             which is an area with unique inflationary
                             pressures. These inflationary pressures include
                             power cost increases, the disruption caused by
                             power outages as well as general inflation of
                             mining input costs running at record levels.

                             A survey of cost escalation experienced by a
                             number of major South African mining companies
                             over the last 12 months shows 20%. Management
                             believes that the cost control measures outlined
                             in its Directors' Circular and the downward
                             trend in quarterly operating costs support the
                             conclusion that cost control performance by the
                             Company has been good.

    3. Pala claimed that     This claim suggests that Pala underestimated the
    Rockwell mismanaged the  complexity of the South African approval
    process of progressing   process, which involves the Department of
    the Saxendrift           Minerals and Energy, Competition Commission,
    transaction through the  Department of Water Affairs, Department of
    Ministerial Consent and  the Environment, Department of Labour, and
    Competition Commission   several other central and local government
    approval process.        authorities.

                             Rockwell and its Black Economic Empowerment
                             partner managed the process diligently and made
                             all possible efforts and attempts to expedite
                             the finalisation of the acquisition. The
                             transaction timeline was impacted by delays at
                             the Department of Minerals and Energy in
                             processing and managing the transaction, which
                             involved a multi-faceted legal and commercial
                             process of mineral rights conversion, review of
                             a comprehensive social and labour plan,
                             environmental management plan, and mine plan,
                             transfer of ten sets of mineral rights held in
                             three companies into a special purpose vehicle,
                             and Ministerial consent to conclude the process.
                             It is common for such delays to occur in many
                             jurisdictions, particularly in South Africa.

                             It is the Board's view that the suggestion that
                             management either misrepresented or
                             misunderstood the true process is simply not

    4. Pala claimed that     This claim suggests that Pala does not properly
    Rockwell has mismanaged  understand the nature of running operations
    its labour relations.    with unionised labour.

                             As part of the transition from being a privately
                             owned operation to becoming a public company,
                             Rockwell's labour force became unionised and an
                             inevitable period of adjustment led to the
                             strike action in August this year. Management
                             proactively engaged with its employees and Union
                             representatives from the outset and as a result
                             was able to achieve a wage settlement in line
                             with inflation and operational protocols
                             beneficial to the Company and its employees.
                             Local operations of competitors have suffered
                             much longer stoppages, and in some cases strike
                             action has led to closures.

    5. Pala claimed that     Rockwell adheres to a high standard of corporate
    Rockwell's management    governance and given that Rockwell's directors
    is entrenched and that   and officers own an aggregate of 11.08% of
    its interests lie        Rockwell's shares (assuming the exercise of all
    elsewhere.               warrants and options owned by such directors
                             and senior officers), their interests are
                             aligned with the Company's other shareholders.

                             Rockwell has fully disclosed the nature of its
                             arrangements with Flawless Diamond Trading House
                             in the Directors' Circular. Flawless charges a
                             fixed commission of 1% on all sales with no
                             other remuneration. This arrangement benefits
                             Rockwell and is at a lower cost than the
                             available alternatives.

                             Details of the arrangements with Steinmetz group
                             have also been publicly disclosed by Rockwell in
                             the Directors' Circular and management believes
                             these arrangements benefit the Company. All
                             diamond sales involve a robust internal and
                             external arms length valuation process.

    6. Pala claims that the  From a legal standpoint, Rockwell's Board
    Rockwell Board is not    satisfies the requirements of Canadian
    independent.             securities laws in terms of required
                             independence in Board and committee composition.

                             From a practical standpoint, all the Company's
                             non-executive directors are independent
                             professionals with considerable experience and
                             standing in the mining and investment community,
                             with reputations that speak for themselves and
                             go beyond the confines of the Company's

                             For example, Dr Mark Bristow, who is the Chair
                             of the Special Committee and the brother of CEO
                             John Bristow, is a well respected international
                             mining executive in his own right who sits on
                             various boards and is CEO of publicly listed
                             Randgold Resources. Equally, Hunter Dickinson is
                             an internationally recognized management and
                             advisory group which provides services to a
                             significant number of public and private

    7. Pala claims that      While Rockwell faces similar liquidity risks as
    Rockwell is facing a     other mining companies at a comparable stage of
    liquidity risk.          development, its financial position is sound.

                             Cash on hand on August 31, 2008 was $10 million.
                             The Company recently received proceeds from a
                             diamond sale as well as the sale of the recently
                             recovered large diamond (189.6 carats), which
                             will provide further funds and reserves to more
                             than adequately cover the working capital and
                             capital expenditures of the Company. The Company
                             also has a debt facility in place with Standard
                             Bank which may be drawn upon as necessary.

    8. Pala claims that      The Directors' Circular provides a detailed
    Rockwell has not         overview of the various meetings that Rockwell
    engaged with their       management has had with Pala since Pala became a
    suggestions for value    shareholder, and the reasons why management and
    creation.                the Board decided not to pursue the various
                             transactions or strategies suggested by Pala at
                             these meetings. At all times, Pala's suggestions
                             were taken seriously and carefully considered by
                             management and the Board. It is Pala's own
                             intentions and conduct which is questionable.

    9. Pala claims it was    Pala alleged publicly that they complied with
    wrongly denied the       all requirements necessary to enable Pala to
    opportunity to vote at   vote in person at the Company's shareholders'
    the Company's recent     meeting held on September 15, 2008 and that Pala
    Shareholders' meeting.   was wrongly denied the opportunity to vote at
                             this meeting.

                             Rockwell and the independent scrutineer at the
                             meeting took all necessary steps to review the
                             documentation submitted by Pala in support of
                             its position, and confirmed that Pala had not in
                             fact satisfied the legal requirements necessary
                             to entitle Pala to vote at the meeting.
                             Rockwell's transfer agent has confirmed that it
                             did not receive a legal proxy from Pala in
                             advance of the meeting, and in fact this proxy
                             was submitted by the nominee of Pala's broker a
                             full two days after the meeting took place.

For further information:

For further information: on Rockwell Diamonds Inc., please visit the
Company's website at or contact Investor Services at
(604) 684-6365 or within North America at 1-800-667-2114

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