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15th December 2009

African Diamonds PLC

Preliminary Results for Year Ended 30 June 2009

Highlights:

• The AK6 diamond discovery in Botswana to be developed in 2010

• Mine to come on stream in 2011 at 400,000 carats a year, rising to 1 million

• The De Beers' stake in AK6 sold to Lucara, a Lundin Group associate

• African Diamonds' stake in AK6 expected to rise to 40%

• African Diamonds has the right to market their share of the diamond output

• Rapid recovery in diamond prices enhances AK6 profitability

• Further excellent exploration targets to be progressed in 2010

John Teeling, Chairman of African Diamonds, commented:

"African Diamonds will take a significant leap forward in 2010 when development commences on the AK6 diamond deposit in Botswana. Negotiations initiated by African Diamonds led to the sale of the De Beers' stake to the Lundin Group. African Diamonds has the right to increase their stake to 40% and the right to market their share of the diamonds.  

Due to low operating costs in Botswana, a scaled down capital cost, a distribution of large stones, and the presence of the rare and valuable Type II diamonds, AK6 has the potential to generate significant profits.  

AK6 will be developed as quickly and efficiently as possible, to the benefit of all stakeholders, at a time when there is recovering confidence and growing demand".  

Enquiries: 

African Diamonds
John Teeling, Executive Chairman	+353 1 833 2833
James Campbell, Managing Director	+27 83 457 3724
Finncap
Matthew Robinson	+44 207 600 1658
College Hill
Nick Elwes	+44 207 457 2020

African Diamonds PLC - Statement Accompanying the Preliminary Results

Shareholders can be optimistic about the future of African Diamonds. Our AK6 diamond deposit in Botswana is now expected to come on stream in 2011. We have a new partner on the project, Lucara. The mine will be developed at a much lower capital cost than anticipated, and crucially, we have the right to market our proportion of the diamonds produced. World developments are also helping. Diamond demand is again growing and prices, which had collapsed under the credit crunch, have recovered.  

The jewel in our crown, literally, is AK6, which was discovered in late 2004. Between then and 2007, when a 15 year mining licence on good terms was negotiated with the Botswana government, our then partner, De Beers, spent US$30 million on exploration and feasibility studies - all at no cost to African Diamonds. De Beers were unable to obtain finance to develop AK6 in a way they wanted - a US$300 million top of the line development. They wanted to delay. Delay is critical to junior exploration companies, so we had no choice but to strike out on our own.  

African Diamonds embarked on a million dollar search for viable alternatives. We found them. We believe that we will build a mine capable of producing one million carats a year for US$88 million. Our mine may not have the glitz and glamour of the De Beers proposal, but it will work. It will be a Toyota, not a Rolls Royce. Our work indicated that AK6 was commercially viable, even using conservative De Beers' estimates. We offered to purchase the De Beers' stake at the Net Present Value of the project, using their numbers. De Beers cooperated.  

We would have preferred to acquire all of AK6, but in 2009, no money was available. Finding Lucara was the result of a focused search for a suitable partner. Lucara bought out De Beers on the basis of figures produced by African Diamonds. Lucara is part of the Lundin Group, which has grown in three decades to a US$10 billion thirteen company group. The principals are young, ambitious, enterprising and successful. The board of Lucara contains diamond experts, including John Gurney and Eira Thomas.  

The new agreement contains many changes from the earlier joint venture. Two stand out; the right of African Diamonds to increase their stake from 29% to 40% and, as least as important, the right to market our percentage of the diamonds. This latter right is valuable and likely to be central to any fundraising by African Diamonds. People want these diamonds.  

I need to explain how African Diamonds can build a mine at 30% of the cost estimated by our former partner. We outsource as much as possible, we build a "Fit for Purpose" plant and we upgrade the existing infrastructure, which in Botswana is excellent. Mining and treatment will be outsourced, while security and diamond recovery will be kept in-house. We will recover as many, if not more, diamonds. Operating costs will be slightly higher, due to the outsourcing, but partially offset by lower indirect and overhead costs.  

The profitability of a diamond mine depends on two factors; grade and carat value. The AK6 buyout valuation was based on a grade of 22 carats per hundred tonnes (cpht) and on a carat price of US$139. The current evaluation is very likely to upgrade both figures, particularly the diamond price. It is the contention of our experts, all ex De Beers, that the mining grade will be 10% to 15% higher than the sampling grade, because of process and losses, so a minimum grade of 25 cpht is expected.  

More critical is the impact of the diamond price on profits. The US$139 price used reflects the price collapse of late 2008 and early 2009. It is 20% below the figures used in 2007. Prices have rebounded by 20% in the past six months.  

The earlier valuation methods of AK6 diamonds, used by De Beers, valued broken stones as broken diamonds and downplayed the impact of the very rare Type II diamonds contained in the South Lobe of AK6. A full valuation of all diamonds recovered in AK6 exploration will be completed in early 2010.  

The impact of the beautiful, rare Type II diamonds on values should not be underestimated. Less than 1% of the world's diamonds are Type II. Estimates suggest up to 15% of the diamonds in the South Lobe are Type II. If this is true, it will be the highest ever mined. These diamonds contain little or no nitrogen so they tend to be pure, colourless, class D, E, or F colour diamonds. Prices are very high. A 2008 Letseng Type II stone of 478 carats sold for US$38,500 a carat, while a recent Sotheby's auction saw a 29.53 carat D colour Type II cut diamond sold for US$118,000 a carat.  

In summary, the mine which will be built on the edge of the Kalahari will be a rarity. By the time it opens in 2011, there will be less than 20 operating kimberlite mines in the world. It will operate in a diamond province, containing three other diamond mines, in one of the most stable and developed African countries, Botswana. The fiscal, economic, and political climate in Botswana is conducive to private enterprise and to mining. The AK6 mining licence provides a fair sharing of the value which will come from the ground.  

Diamonds are scarce and demand is growing. Ladies in China and India want diamonds because there really is nothing like them in the world. The AK6 diamonds are over 1,300 million years old. The Type II diamonds, which will come from the mine, are so rare that they are usually sold one by one.  

Other Activities:  

It is something of an anti-climax to turn attention to our other assets, but in any other diamond explorer, these would be highly valued. We have extensive prospective ground in Botswana, with advanced projects, such as the AK8 and the AK9 kimberlites, as well as green field projects. Few diamond explorers ever discover a kimberlite which contains diamonds. We have a number of them. Of particular interest is BK5, which is currently 3.7 hectares but estimates suggest it may be as big as 7.2 hectares. We protected this in 2009 by applying for and obtaining a new licence covering a possible extension. Exploration work done this year has been limited due to the focus on AK6.  

In the DRC, Bugeco, in which we hold a 35% interest, discovered new diamondiferous kimberlites. De Beers did some limited drilling and pulled out. AFD and Bugeco are now looking for joint venture partners to take these projects to the next stage. The work also threw up some fascinating geophysical anomalies for minerals other than diamonds. Bugeco has now joint ventured the ground with Swala and Anglo American, who will run the exploration.  

We hold a small stake (5.5%) in West African Diamonds (WAD), which is mining in Guinea. The Bomboko mine came on stream in mid 2009, and is producing diamonds with a carat value of US$140. WAD is merging with Stellar Diamonds, which also has a producing mine in Guinea. The new entity will relist in London in early 2010.  

Finance:

Since listing in 2003, African Diamonds has raised a total of Stg£9 million, a small sum to get the assets we have.  

Our future commitments are small. We will take up our option to go to 40% of the AK6 project. This will cost less than Stg£5 million and must be committed by early in Q2 2010. We have offers from parties interested in the marketing rights for the diamonds. Phase 1 cost of the mine is expected to be Stg£30 million. Early stage indicative offers of project finance were received by African Diamonds. A project finance team, comprising of Lucara and African Diamond executives, will seek out the best package. Assuming 60% debt finance and 40% equity, African Diamonds may have to subscribe for about Stg£5 million in equity in mid to late 2010. This is a small figure to gain such a prize. There are numerous financing options.  

Operating costs in Botswana will be half those of South Africa, a quarter those in DRC and Angola, and a fifth of those in Canada.  

Future:  

Shareholders can look forward to a rare event - the opening of a kimberlite diamond mine. I am not aware of any other diamond project in the world at the same stage as AK6. Recovering confidence and growing demand in the BRIC economies underpin demand. Supply is at best flat so prices must rise. We can also anticipate the recovery of Type II diamonds and the possible impact they will have on profit. Do not forget that we have excellent exploration targets in Botswana, in AK8, AK9 and BK5. We will return to them in 2010.  

The only dark cloud I see is the threat of a takeover at a price that does not reflect the potential.  

John Teeling

Chairman

14th December 2009

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

	2009		2008
	£		£
CONTINUING OPERATIONS
REVENUE	-		-
Cost of sales	-		-
GROSS PROFIT	-		-
Administrative expenses	(600,799)		(462,191)
OPERATING LOSS	(600,799)		(462,191)
Finance costs	(2,120)		(1,649)
Finance revenue	93,044		124,550
Loss on investment held at fair value (write down of investment in WAD)	(550,000)		(475,000)
LOSS BEFORE TAXATION	(1,059,875)		(814,290)
Income tax expense	-		-
LOSS AFTER TAXATION FOR THE FINANCIAL YEAR	(1,059,875)		(814,290)
Loss per share - basic	(1.39p)		(1.07p)
Loss per share - diluted	(1.39p)		(1.07p)

CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2009

	2009		2008
	£		£
ASSETS:
NON CURRENT ASSETS
Intangible assets	3,511,158		2,702,531
Investments in associates	838,131		838,131
Financial assets	207,405		757,410
Receivables (due after one year)	1,802,158		-
	6,358,852		4,298,072
CURRENT ASSETS
Receivables	24,246		73,556
Cash and cash equivalents	52,917		2,926,320
	77,163		2,999,876
TOTAL ASSETS	6,436,015		7,297,948
LIABILITIES:
CURRENT LIABILITIES
Trade and other payables	(245,036)		(80,384)
NET CURRENT (LIABILITIES)/ASSETS	(167,873)		2,919,492
NET ASSETS EQUITY:	6,190,979		7,217,564
Called-up share capital	762,108		762,108
Share premium	2,164,526		2,164,526
Share based payment reserve	676,075		663,475
Translation reserve	20,690		-
Retained earnings	2,567,580		3,627,455
TOTAL EQUITY	6,190,979		7,217,564

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009

	Called-up Share Capital		Share Premium		Share Based Payment Reserve		Translation Reserve		Retained Earnings		Total
	£		£		£		£		£		£
At 1 July 2007	761,558		2,132,676		392,300		-		4,441,745		7,728,279
Share based payments	-		-		271,175		-		-		271,175
Shares issued	550		31,850		-		-		-		32,400
Loss for the year	-		-		-		-		(814,290)		(814,290)
At 30 June 2008	762,108		2,164,526		663,475		-		3,627,455		7,217,564
Share based payments	-		-		12,600		-		-		12,600
Loss for the year	-		-		-		-		(1,059,875)		(1,059,875)
Exchange differences arising on translation of foreign operations	-		-		-		20,690		-		20,690
At 30 June 2009	762,108		2,164,526		676,075		20,690		2,567,580		6,190,979

Share based payment reserve

The share based payment reserve arises on the grant of share options to employees and directors under the share option plan.

Retained earnings

Retained earnings comprise accumulated profit and losses in the current year and prior years.

Translation reserve

Exchange differences relating to the translation from the functional currencies of the group's foreign subsidiaries into, the reporting currency of the group are recognised directly in the translation reserve.  

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

	2009		2008
	£		£
CASH FLOW FROM OPERATING ACTIVITIES
Loss before tax	(1,059,875)		(814,290)
Finance cost	2,120		1,649
Finance revenue	(93,044)		(124,550)
Exchange movement	(4,656)		-
Fair value on investment held at fair value through profit or loss	550,000		475,000
MOVEMENTS IN WORKING CAPITAL	(605,455)		(462,191)
Increase in trade and other payables	173,969		27,833
Decrease in receivables	49,310		40,385
NET CASH USED BY OPERATIONS	(382,176)		(393,973)
Interest paid	(2,120)		(1,649)
Finance revenue	93,044		124,550
NET CASH USED IN OPERATING ACTIVITIES	(291,252)		(271,072)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for intangible assets	(796,027)		(483,536)
Payment to acquire investment	-		(5)
Movement in long term receivables	(1,802,158)		-
NET CASH USED IN INVESTING ACTIVITIES	(2,598,185)		(483,541)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of equity shares	-		-
Share issue costs	-		-
NET CASH GENERATED FROM FINANCING ACTIVITIES	-		-
NET DECREASE IN CASH AND CASH EQUIVALENTS	(2,889,437)		(754,613)
Cash and cash equivalents at beginning of the financial year Effect of exchange rate changes on cash held in foreign currencies	2,926,320 16,034		3,680,933 -
Cash and cash equivalents at end of the financial year	52,917		2,926,320

Notes:

1. Accounting Policies

There were no changes in accounting policies from those set out in the Group's Annual Report for financial year ended 30 June 2008. The financial statements have been prepared in accordance with International Financing Reporting Standards (IFRS) and IFRSs as adopted by the European Union.  

2. Loss per Share

Basic loss per share is computed by dividing the loss after taxation for the year available to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking for dividend during the year. Diluted earnings per share is computed by dividing the profit or loss after taxation for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

The following table sets forth the computation for basic and diluted earnings per share (EPS):

	2009		2008
	£		£
Numerator
For basic and diluted EPS retained loss	(1,059,875)		(814,290)
Denominator	No.		No.
For basic and diluted EPS	76,210,766		76,155,766
Basic EPS	(1.39p)		(1.07p)
Diluted EPS	(1.39p)		(1.07p)

The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of shares for the purposes of the diluted earnings per share:  

	2009		2008
	No.		No.
Share Options	3,400,000		3,350,000

3. Intangible Assets - Group

	2009		2008
	£		£
Exploration and Evaluation Assets:
Cost:
Opening balance	2,702,531		1,947,820
Additions	808,627		754,711
Closing balance	3,511,158		2,702,531
Carrying amount:
Closing balance	3,511,158		2,702,531

Exploration and evaluation assets relates to expenditure incurred in mineral exploration in Botswana.

The directors are aware that by its nature there is an inherent uncertainty in exploration and evaluation, and therefore inherent uncertainty in relation to the carrying value of capitalised exploration and evaluation assets. 

The realisation of these intangible assets is dependent on the successful discovery and development of economic resources, and is subject to a number of significant potential risks including;

• Price fluctuations;

• Foreign exchange rates;

• Uncertainties over development and operational costs; 

• Political and legal risks, including arrangements with governments for licences, profit sharing and taxation; 

• Currency exchange fluctuations and restrictions; and

• Foreign investment risks including increases in taxes, royalties and renegotiation of contracts; 

Should these prove unsuccessful the value included in the balance sheet would be written off to the income statement. 

Having reviewed the exploration and evaluation expenditure at 30 June 2009, the directors are satisfied that the value of the intangible asset is not less than carrying value. This is supported by the fact that subsequent to the year end, Lucara Diamond Corp, a company based on the Toronto Venture Exchange, acquired a 71% share in the AK6 diamond project from De Beers. In addition, Lucara Diamond Corp have given African Diamond plc a US$2m loan to fund 40% of the cost of a feasibility study in respect of AK6 and for working capital purposes. 

Included in the exploration and evaluation assets are amounts of £184,146 (2008: £181,981) of wages and salaries and £12,600 (2008: £271,175) relating to equity-settled share based payment transactions during the year.  

4. Financial Assets

Financial assets carried at fair value through profit and loss (FVTPL):  

	Group		Group
	2009		2008
	£		£
Non-derivative financial assets designated as at FVTPL	175,000		725,000

5. General Information

The financial information set out above does not constitute the Company's financial statements for the year ended 30 June 2009. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Registrar of Companies. The auditors have reported on 2008 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial statements for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. 

A copy of the Company's Annual Report and Accounts for 2009 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 20-22 Bedford Row, London WC1R 4JS. The Annual Report and Accounts may also be viewed on African Diamonds plc's website at www.afdiamonds.com. 

ENDFR EAXALFFANFFE