Half-yearly Report

28 February 2013 Karelian Diamond Resources plc ("Karelian" or "the Company") Half-yearly results for the six months ended 30 November 2012 FURTHER ENCOURAGING RESULTS FROM DIAMOND EXPLORATION PROGRAMME IN FINLAND Karelian Diamond Resources plc (AIM: KDR; ESM: KDR.I), the diamond exploration company focused on Finland, announces its results for the six months ended 30 November 2012. Highlights: * Further microdiamonds identified in Seitaperä pipe * Additional diamondiferous indicator minerals discovered in Riihivaara * Applications made for further licences in Finland Professor Richard Conroy, Chairman, said: "The results of your Company's exploration programme in Finland continue to encourage us to believe that diamond discoveries could be made in the Finnish sector of the Karelian Craton comparable to the world class diamond deposits in the Russian sector of the Craton." Further Information: Professor Richard Conroy, Chairman/ Karelian Diamond Tel: +353-1-661-8958 Resources plc Simon Clements/Virginia Bull/ Merchant Securities Limited Tel: (Nomad) +44-20-7628-2200 Jon Belliss/XCAP Securities PLC (Broker) Tel: +44-20-7101-7070 Brian Farrell/IBI Corporate Finance Limited (ESM Adviser) Tel +353-766-234-800 Michael Padley/Michael Spriggs/ Lothbury Financial Tel: Services +44-20-7868-2567 Don Hall/ Hall Communications Tel: +353-1-660-9377 Visit the website at: www.kareliandiamondresources.com CHAIRMAN'S STATEMENT Dear Shareholder, I have great pleasure in presenting your Company's Interim Report for the six months ended 30 November 2012, a period of continued progress for your Company. The recovery of microdiamonds in the mantle xenolith identified during this year's drilling confirmed that the xenolith encountered was diamondiferous. It is a further indication of the diamond potential of the Seitaperä diamondiferous kimberlite pipe, which at 6.9 hectares is the largest known kimberlite pipe discovered to date in Finland. The microdiamonds most recently identified in your Company's Seitaperä pipe are white in colour, transparent and octahedral. The broken nature of the microdiamond suggests the possibility of larger stone sizes. This is of relevance both in the exploration of the pipe and its diamond and economic potential. These results, in conjunction with the discovery by your Company of diamondiferous indicator minerals during a sampling programme at nearby Riihivaara, indicate that there is more than one source of diamonds in the Kuhmo area and enhances the overall diamond potential of the area in which they are located. Applications for further exploration licences in the area have therefore been made. Work has continued on the integration of the extensive database made available to your the Company under its agreement with Rio Tinto arising from this, applications have been made for additional exploration licences outside the Kuhmo area in this highly exciting Finnish region of the Karelian Craton. Karelian's exploration programme in Finland is based on the existence in Finland of similar geology to that in the Russian sector of the Karelian Craton in which two world class diamond discoveries have been made - Lomonosov and the Grib Diamond Pipe and it is your Company's aim to make a similar large scale diamond discovery in Finland. Finance The results for the six months ended 30 November 2012 are set out below. The loss for the period was €72,545 (2011: loss €84,691). The net assets of the Company at 30 November 2012 were €4,491,981 (2011: €4,609,197). Outlook Karelian looks forward to further progress with the diamond interest in Finland and continues to review other opportunities that may arise. Directors and Staff I would like to thank my fellow directors, staff and consultants for their support and dedication, which has enabled the continued success of the Company. I look forward to the future with confidence. Yours faithfully, Professor Richard Conroy Chairman 28 February 2013 INCOME STATEMENT FOR HALF-YEAR ENDED 30 NOVEMBER 2012 Six months Six months Year ended ended ended 30 November 30 November 31 May 2012 2011 2012 (Unaudited) (Unaudited) (Audited) € € € OPERATING EXPENSES (65,531) (77,907) (194,582) Finance income - bank interest - 5 97 receivable Finance costs - interest on (7,014) (6,790) (13,495) shareholder loan LOSS BEFORE TAXATION (72,545) (84,692) (207,980) Taxation - - - LOSS FOR THE YEAR (72,545) (84,692) (207,980) Loss per ordinary share - basic (€0.0008) (€0.0009) (€0.0023) and diluted STATEMENT OF COMPREHENSIVE INCOME FOR HALF-YEAR ENDED 30 NOVEMBER 2012 Six months Six months Year ended ended ended 30 November 30 November 31 May 2012 2011 2012 (Unaudited) (Unaudited) (Audited) € € € LOSS FOR PERIOD (72,545) (84,692) (207,980) Total income and expense - - - recognised in other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE (72,545) (84,692) (207,980) PERIOD - ENTIRELY ATTRIBUTABLE TO EQUITYHOLDERS STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2012 30 November 30 November 31 May 2012 2011 2012 (Unaudited) (Unaudited) (Audited) ASSETS € € € Non-current Assets Intangible assets 6,581,906 6,154,525 6,390,694 Investment in Subsidiary 4 4 4 Property, plant and equipment 417 585 501 6,582,327 6,155,114 6,391,199 Current Assets Trade and other receivables 43,574 8,551 47,382 Cash and cash equivalents 24,282 203,917 10,054 67,856 212,468 57,436 Total Assets 6,650,183 6,367,582 6,448,635 EQUITY AND LIABILITIES Capital and Reserves Called up share capital 922,083 922,083 922,083 Share premium 4,621,158 4,621,158 4,621,158 Share based payments reserve 412,598 333,981 375,039 Retained losses (1,463,858) (1,268,025) (1,391,313) Total Equity 4,491,981 4,609,197 4,526,967 Non-current Liabilities Financial Liabilities 1,107,283 812,665 1,007,214 Total Non-current Liabilities 1,107,283 812,665 1,007,214 Current Liabilities Trade and other payables 1,050,919 945,720 914,454 Total Current Liabilities 1,050,919 945,720 914,454 Total Liabilities 2,158,202 1,758,385 1,921,668 Total Equity and Liabilities 6,650,183 6,367,582 6,448,635 STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 30 NOVEMBER 2012 Share-based Retained Share Share Payment Earnings Total Capital Premium Reserve (Deficit) Equity € € € € € At 1 June 2012 922,083 4,621,158 375,039 (1,391,313) 4,526,967 Share-based payments - - 37,559 - 37,559 Loss for the period - - - (72,545) (72,545) At 30 November 2012 922,083 4,621,158 412,598 (1,463,858) 4,491,981 Share-based Retained Share Share Payment Earnings Total Capital Premium Reserve (Deficit) Equity € € € € € At 1 June 2011 922,083 4,261,158 292,921 (1,183,333) 4,652,829 Share issue - - - - - Share premium - - - - - Share-based payments - - 41,060 - 41,060 Loss for the period - - - (84,692) (84,692) At 30 November 2011 922,083 4,621,158 333,981 (1,268,025) 4,609,197 CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 30 NOVEMBER 2012 Six months Six months Year ended ended ended 30 November 30 November 31 May 2012 2011 2012 (Unaudited) (Unaudited) (Audited) € € € Cash flows from operating activities Cash generated/(used in) by operations 74,703 (56,031) (58,631) Tax paid - - - Net cash generated by/(used in) 74,703 (56,031) (58,631) operating activities Cash flows from investing activities Investment in exploration and (160,544) (360,965) (509,687) evaluation Net cash used in investing activities (160,544) (360,965) (509,687) Cash flows from financing activities Issue of share capital - - - Advances of shareholder loan 100,069 - - Repayment of shareholder loan - (125,000) (125,000) Bank interest received - 5 97 Interest paid on shareholder loan - - (42,633) Net cash (used in)/generated from 100,069 (124,995) (167,536) financing activities (Decrease)/Increase in cash and cash (14,228) (541,991) (735,854) equivalents Cash and cash equivalents at beginning 10,054 745,908 745,908 of period Cash and cash equivalents at end of 24,282 203,917 10,054 period NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 30 NOVEMBER 2012 1. Basis of preparation The half-yearly financial statements have been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and their interpretations adopted by the International Accounting Standards Board (IASB). The accounting policies used in the preparation of the half-yearly financial information are the same as those used in the Company's audited financial statements for the year ended 31 May 2012. 2. Earnings per share The calculation of the loss per ordinary share of €0.0008 (2011 - €0.0009) is based on the loss for the financial year of €72,545 (2011 - €84,692) and the weighted average number of ordinary shares in issue during the year of 92,208,342 (2011 - 92,208,342). Since the Company incurred a loss the effect of share options and warrants would be anti-dilutive. 3. Dividends No dividends were paid or are proposed in respect of the period ended 30 November, 2012. 4. Copy of half yearly report A copy of the half yearly report will be available on the Company's website www.kareliandiamondresources.com and will be available from the Company's registered office, 10 Upper Pembroke Street, Dublin 2.

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