Stornoway Diamonds (TSX.V: SWY.TO) Investor Update: The Creation and Growth of a Mineral Resource at Renard: Québec’s First Diamond Mine
BUILDING QUÉBEC’S FIRST DIAMOND MINEUpdate, May 14th 2012Matt Manson Pat GodinPresident and CEO COO
2Forward-Looking InformationThis presentation contains "forward-looking information" within the meaning of Canadian securities legislation and “forward-looking statements”within the meaning of the United States Private Securities Litigation Reform Act of 1995. This information and these statements, referred to hereinas “forward-looking statements”, are made as of the date of this presentation and the Company does not intend, and does not assume anyobligation, to update these forward-looking statements, except as required by law.Forward-looking statements relate to future events or future performance and reflect current expectations or beliefs regarding future events andinclude, but are not limited to, statements with respect to: (i) the amount of mineral resources and exploration targets; (ii) the amount of futureproduction over any period; (iii) net present value and internal rates of return of the mining operation; (iv) capital costs and operating costs; (v) mineexpansion potential and expected mine life; (vi) expected time frames for completion of permitting and regulatory approvals and making aproduction decision; (vii) future exploration plans; (viii) future market prices for rough diamonds; and (ix) sources of and anticipated financingrequirements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives,assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “anticipates”, “plans”, “projects”,“estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives” or variations thereof or stating that certain actions, events or results “may”,“could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statementsof historical fact and may be forward-looking statements.Forward-looking statements are made based upon certain assumptions and other important factors that, if untrue, could cause the actual results,performances or achievements of Stornoway to be materially different from future results, performances or achievements expressed or implied bysuch statements. Such statements and information are based on numerous assumptions regarding present and future business strategies and theenvironment in which Stornoway will operate in the future, including the price of diamonds, anticipated costs and ability to achieve goals. Certainimportant factors that could cause actual results, performances or achievements to differ materially from those in the forward-looking statementsinclude, but are not limited to: (i) estimated completion date for the Environmental and Social Impact Assessment; (ii) required capital investmentand estimated workforce requirements; (iii) estimates of net present value and internal rates of return; (iv) receipt of regulatory approvals onacceptable terms within commonly experienced time frames; (v) the assumption that a production decision will be made, and that decision will bepositive; (vi) anticipated timelines for the commencement of mine production; (vii) anticipated timelines related to the Route 167 extension and theimpact on the development schedule at Renard; (viii) anticipated timelines for community consultations and the conclusion of an Impact andBenefits Agreement; (ix) market prices for rough diamonds and the potential impact on the Renard Project’s value; and (x) future exploration plansand objectives. Additional risks are described in Stornoways most recently filed Annual Information Form, annual and interim MD&A, and otherdisclosure documents available under the Company’s profile at: www.sedar.com.When relying on our forward-looking statements to make decisions with respect to Stornoway, investors and others should carefully consider theforegoing factors and other uncertainties and potential events. Stornoway does not undertake to update any forward-looking statement, whetherwritten or oral, that may be made from time to time by Stornoway or on our behalf, except as required by law.
3Stornoway’s Board and Management Team Additional Management Robin Hopkins, VP Exploration Dave Skelton, VP Project Development Ghislain Poirier, VP Public Affairs Matt Manson Pat Godin Zara Boldt Guy Bourque, Chief Mining Engineer President, CEO COO & Director CFO and VP & Director Finance Nick Thomas, Manager, Investor Relations Michel Blouin John LeBoutillier Tony Walsh Independent/ Yves Harvey Independent/ Chairman IQ Designate Independent IQ Designate Monique Mercier Independent/ Peter Nixon Ebe Scherkus Serge Vézina IQ Designate Independent Agnico-Eagle Independent
4Why Stornoway? 100% Ownership in Renard: One of the World’s Best Development Stage Diamond Projects In Québec, one of the World’s Best Mining JurisdictionsRenard Strong Feasibility Base Case Economics Extensive Resource UpsideDiamonds Excellent Long Term Fundamentals Few New Mining ProjectsStornoway Experienced Team Strong Québec Backing
6Summary of Feasibility ResultsReleased November 16th, 2011 Valuation NPV7% and IRR of C$672m and 18.7% (Pre-Tax) and C$376m and 14.9% (After-Tax) Mining and Production Parameters 11 year reserve-based mine life Peak diamond production reaching 2.1Mcarats per year, averaging 1.7Mcarats over LOM, and at a weighted average US$180/carat Operating cash flow of C$2.7B Costs Initial Capital Cost Estimate of C$802m including contingencies LOM Operating Cost Estimate of C$54.71/tonne (C$70.27/carat) giving a 68% operating margin Reserves and Resources1 Probable Mineral Reserve of 18.0 Mcarats (23.1Mtonnes at an average 78 cpht) Inferred Mineral Resources of 17.5 Mcarats (31.1Mtonnes at an average 56 cpht) Key Assumptions C$1=US$1, Oil US$90/barrel, 2.5% real terms diamond price growth Q311-Q425, 83.5% ore recovery, 19.4% mining dilution, 0cpht dilution grade, January 1 2012 effective date for NPV and IRR calculation. 1 Reserve and Resource categories are compliant with the "CIM Definition Standards on Mineral Resources and Reserves". Mineral resources that are not mineral reserves do not have demonstrated economic viability.
10Long Term Business Plan Stornoway has also developed a Long Term Business Plan (“LTBP”) based on the Project’s total Indicated and Inferred Mineral Resources to a depth of 700m. This material is within the scope of the mine infrastructure costed within the Feasibility Study, and includes 6.1 Mcarats of high grade Inferred Mineral Resources between 600-700 meters depth in Renard 2. The LTBP also contemplates an increased production rate within the scope of the process plant’s design parameters, which allows for expansion up to 7,000 tonnes per day (2.6 Mtonnes/annum). Expansion mill feed is expected to be derived from the A 4 carat, top quality diamond open pit on the Renard 65 kimberlite. recovered from Renard 65 drillcore Although highly accretive, the project’s Inferred Mineral Resources are not included in the Feasibility Study economic analysis in accordance with NI 43-101. The LTBP is the basis of the Renard mine permit application, and as such will form part of the project’s public disclosure in connection with the environmental assessment regulatory process under applicable federal and provincial legislation.
11 Renard NI 43-101 Mineral Reserves and Resource Resource announced January 24th, 2011. Reserve announced November 16th, 2011 PROBABLE RESERVE Renard 65 29cpht Drill Delineated Renard 3 Micro/Macro Diamond Sampling Renard 2 106/118cpht 103/118cpht Bulk Sampling for Value 18 million carats Renard 4 53/44cpht Renard 9 INFERRED RESOURCE 47cpht Lower Resolution Drilling, or no Bulk Sample 17 million carats EXPLORATION UPSIDE Lower Resolution Diamond Sampling, or no Drilling. 24 - 49 million caratsNotes: Grades illustrated are for Indicated and Inferred Mineral Resources respectively at a +1DTC sieve size cut-off. Reserve and Resource categories are compliant with the "CIM DefinitionStandards on Mineral Resources and Reserves". Mineral resources that are not mineral reserves do not have demonstrated economic viability. The potential quantity and grade of any ExplorationTarget (previously referred to as a “Potential Mineral Deposit”) is conceptual in nature, and it is uncertain if further exploration will result in the target being delineated as a mineral resource.
Renard’s Resource Upside 12A Project with a Long Resource Tail and Very Long Mine Life Potential Millions(Tonnes, Carats, $) 140 140 Expenditures ($) 120 120 Carats (IND+INF) Tonnes “Conceptual” The Vision: Deposit still 100 100 Open Tonnes PMD High Tonnes PMD Low 80 Tonnes Inferred Resource 80 Tonnes Indicated Resource 60 Tonnes Probable Reserve 60 Permitting and Long Term Business Plan 40 40 20 20 The Feasibility: 11 years of mining 0 0 2001-2004 2005-2006 2007-2008 2009 2011 Notes: Reserve and Resource categories are compliant with the "CIM Definition Standards on Mineral Resources and Reserves". Mineral resources that are not mineral reserves do not have demonstrated economic viability. The potential quantity and grade of any Exploration Target (previously referred to as a “Potential Mineral Deposit”) is conceptual in nature, and it is uncertain if further exploration will result in the target being delineated as a mineral resource.
13Renard Diamond ValuationConducted by WWW International Diamond Consultants Ltd. May 8th-13th, 2011 Renard kimberlite pipes have a diamond population with a coarse size distribution and high proportion of large white gems. Lynx and Hibou kimberlite dykes have a finer distribution of browner stones. 99% by weight gem/near-gem quality. 1% industrial quality boart. Coarse size distribution: potential for significant “Specials”, not accounted for in the current resource work. (Three to six 50-100ct stones and one to two +100ct stones every 100,000 carats.) Implied grade loss through sampling breakage 15%-38%, not accounted for in the current resource work Renard 3 Bulk Sample Stones larger than 2 carats. “Run of Mine” Size of Largest May 2011 Kimberlite Valuation Diamonds Diamond Sensitivities Body Sample Recovered Price (Minimum to High) (carats) (carats) (US$/carat)1 Renard 2 1,580 15.46, 8.80, 8.42 $163 to $236 Renard 3 2,753 10.15, 7.78, 6.36 $182 $153 to $205 Renard 4 2,674 5.92, 5.74, 3.99 $1122 $105 to $185 Lynx Dyke 535 21.53, 5.36, 5.34 $119 $99 to $144 Hibou Dyke 772 3.14, 3.07, 2.72 $118 $88 to $1361Based on an average of five independent valuations conducted between May 9th and 13th 2011, and supervised byWWW International Diamond Consultants Limited.2 The Renard NI 43-101 compliant Mineral Resource of January 2011 and the Feasibility Study of November 2011utilize a higher diamond price based on an analysis of diamond breakage and poor plant recovery of the Renard 4valuation sample, which is $164/carat. All samples utilize a +0.85mm (+1 DTC) cutoff
14Permitting and Development Schedule 2011 2012 2013 2014 2015 2H 1H 2H 1H 2H 1H 2H 1H 2H BFS (Complete) ESIA (Complete) Community Hearings COMEX and CEAA Review Specific Mine Permits (50) Detailed Engineering Project Financing Road Construction First Vehicle Access Mine Construction Commissioning and Ramp-up Commercial Production
15Infrastructure: Power and Road AccessA Canadian Diamond Project with an All Season Highway and Potential Grid PowerRoad: The Québec Ministry of Transportation“Route 167 Extension”, connecting Renard to Route 167 Extension Hydro Facility Caniapiscauthe provincial highway to the south. Existing Winter Road Existing Hydro Line Stornoway Claims Potential Hydro Line Initial road construction cost of $332m will Mining/Exploration Projects be funded by Québec. Stornoway will Laforge 2 contribute $44m amortized over 10 years, Brisay starting in 2015. Additional Industry Laforge 1 contributions expected. LG4 LG2 LG3 Mirage Potential Road construction commenced January Camp Powerline 2012. Vehicle access is expected to be available to the Renard site to commence project construction by mid-2013. Eleonore Renard (Goldcorp) McLeod LakePower: Separate feasibility study on a 165km (Western Troy) Eastmain161kV powerline connecting Renard to the Eastmain 1 (Eastmain)Laforge-1 generating station is ongoing. Route 167 Matoush Extension (Strateco) The powerline would add capital cost to the (268km) Existing Winter Road project but offers substantial operating cost savings. Troilus Temiscamie (Inmet) Hydro-Québec expect to complete their Mistissini study in 2012, and the impact of the 60 0 60 120 powerline on the Renard Diamond Project Kilometers Chibougamau Scale: 1:3,000,000 will be assessed at that time.
16Environment and PermittingComprehensive ESIA filed in December 2011The Renard Project is under the environmental protectionregime of the James Bay and Northern Québec Agreement(“JBNQA”) and the Canadian Environmental AssessmentAct.Stornoway filed the Renard Environmental and SocialImpact Assessment (“ESIA”) with Quebec and federalregulators in December 2011.Subject to a schedule established by the ReviewCommittee of the JBNQA and the federal regulator, it isexpected that public hearings on the project willcommence in June 2012, with the project becomingeligible for its Certificates of Authorization thereafter.The Renard ESIA describes a limited-footprint project withmodest impacts on the local environment, all of which arewell within existing Québec and federal standards.During the course of the Renard ESIA, an EnvironmentalExchange group met regularly in Mistissini, giving a forumfor the exchange of environmental and traditionalknowledge, and direct input on project design.Stornoway has published the complete ESIA, theEnvironmental Baseline Study, and the project ClosurePlan online.
The “Mecheshoo” Agreement (IBA) 17Renard’s Social Licence. Signed March 2012 The Renard Diamond Project is situated close to the Cree Nation of Mistissini (CNM) and the mining community of Chibougamau. Stornoway and its predecessor companies have conducted extensive community consultations in Mistissini since 2001 on the basis of respect, transparency and full regulatory compliance. In March 2012 Stornoway concluded an Impacts and Benefits Agreement, the “Mecheshoo Agreement”, with the CNM and the Grand Council of the Crees (EI). The Mecheshoo Agreement provides for employment and business opportunities for the Crees, fosters cultural, environmental and social protection, and provides for the Crees’ participation in the project’s long From left: Chief Richard Shecapio, of the Cree Nation of term financial success. Mistissini, Grand Chief Matthew Coon-Come, of the Crees of Eeyou Itschee, and Matt Manson, CEO of Stornoway, in “Stornoway has demonstrated an immense Mistissini on March 27th, 2012, on the occasion of the signing of the Mecheshoo Agreement. openness and has been willing to adapt the project in a manner that respects the Crees of Mistissini, our interests, our values, our culture and our way of life. This is the way we want to be dealt with.” Chief Richard Shecapio, CNM, March 2012.
Québec’s “Plan Nord”: Launched May 9th 2011 18One of the World’s Best Mining Jurisdictions The Renard Diamond Project is at the center of the Plan Nord, the visionaryinitiative to sustainably develop Québec north of the 49th parallel through infrastructure investment, community development and biodiversity conservation.Investments include: $1.2b for infrastructure projects, including the Route 167 Extension $434m for social measures $500m for direct investments through Investissement Québec Jean Charest, Premier of Québec, and Matt Manson, CEO of Stornoway, in Chibougamau on August 1st for the announcement of Route 167 Extension The “Route 167 Extension” and Financing Agreement. Mr. Charest is holding core from Renard 65 containing a four-carat diamond. Investissement Québec’s investment in Stornoway are key planks of the Plan
19Stornoway’s Project Pipeline Mineral resources that are not mineral reserves Stornoway possess a strong pipeline do not have demonstrated economic viability. The potential quantity and grade of any non- of advanced and grassroots resource potential mineral deposit” (“PMD”) is conceptual in nature, and it is uncertain if exploration projects. further exploration will result in the target being delineated as a mineral resource. Internal growth opportunities through the advanced Aviat and Qilalugaq Aviat (90%) Projects. Qilalugaq (100%) Advanced Project Advanced Project 24-40 mcarats “PMD” 2012 focus: new projects in Saskatchewan (“Pikoo”) and Québec (“AEON”) following up pre-2008 indicator anomalies: potential for new kimberlite cluster close to infrastructure. Stornoway will continue to progress its grassroots exploration projects as Pikoo (100%) it works to develop Renard. Grassroots Exploration Renard (100%) NI 43-101 Resource AEON (100%) 24 mcarats Indicated Grassroots 17 mcarats Inferred Exploration 24-49 mcarats “PMD”
20Stornoway’s Platform for Project Development and Financing BALANCE SHEET* ANALYST COVERAGE Market Capitalization: C$ 140 million (based on voting and non-voting shares)h RBC Outperform- Total Shares Outstanding: Des Kilalea, $2.05 161.2 million Speculative Risk (Basic and Non-voting convertible shares) January 11th, 2012 Raymond James Total Options & Warrants Outstanding: 31.2 million Bart Jaworski Outperform $2.50 Nov 21st, 2011 Cash and Short Term Deposits: Paradigm C$ 47.3 million (as of April 30th, 2012 and May 4th Financing) David Davidson Buy $3.15 Nov 17th, 2011 Debt: C$ 20 million ($100m Standby Facility with IQ undrawn) BMO Fully Ed Sterck Market Perform $1.50 PRO-FORMA SHAREHOLDING* Basic Diluted Nov 17th, 2011 (common shares) 25.0% Desjardins IQ** 33.7% Brian Christie Speculative Buy $2.00 (non-voting convertible shares) -------- Nov 17th, 2011 Agnico-Eagle 10.6% 8.9% Laurentian Rio Tinto plc 4.5% 3.5% Eric Lemieux Buy $3.00 May 7th, 2012 Lorito Holdings (Lundin Family) 3.1% 2.4% National Bank Outperform- Float 56.8% 51.5% Eldon Brown $2.05 Speculative Risk March 9th, 2012Notes: Debt Facility: In December 2010, Stornoway announced a $100 million Credit Support Agreement with a subsidiary of Société générale de financement du Québec, now InvestissmentQuébec, with respect to future project debt financing. The Credit Support Agreement has an annual commitment fee of 175 bps undrawn, and will take the form of a direct project loan rankingpari passu with concurrent senior lenders or, as appropriate, on a stand alone basis on terms no less favourable than prevailing commercially reasonable market terms.*Based on market close of $0.87 on May 10 2012.**IQ: Investissement Québec, the Québec governments industrial and financial holding company whose mission is to foster the growth of investment in Québec, thereby contributing toeconomic development and job creation in every region
21Project ComparablesDiamond Industry Cost Curve (Anglo American November 2011 after De Beers 2010) COST/REVENUE 2.0 Gahcho Kue (development project) 10.5 Cost/revenue (x) Renard with Powerline Namedeo operations Snap lake 1.0 Damtshaa Renard Orapa Venetia Jwaneng 0.5 0.0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Cumulative revenue (US$m) Source: Anglo-American (After De Beers, November 2011), and Stornoway Estimates
22Value Creation Through Project FinancingAber Diamond Corporation, 1995-2007 Feasibility Study July 1999- Market Low
24 Major Diamond Mines and Development Projects Worldwide Few Enough Mines to Fit on One MapCanada• Ekati (BHPB)• Diavik (Rio Tinto/Harry Winston) Russia• Victor, Snap Lake, Gahcho Kue (De Beers) • Arkhangelsk District (Alrosa)• Renard (Stornoway) • Yakutia District (Alrosa)• Star (Shore Gold/Newmont) • Grib (LUKOIL) India • Bundar (Rio Tinto) Australia Sierra Leone • Argyle (Rio Tinto) • Koidu, (Steinmetz Group) • Ellendale (Gem Diamonds) Democratic Republic of Congo Tanzania • Mbuyi-Mayi • Williamson (Petra Diamonds) Angola • Catoca (Alrosa) Lesotho Botswana South Africa • Letseng (Gem Diamonds) • Jwaneng, Orapa (De Beers) • Venetia (De Beers) • Kao (Namakwa Diamonds) • Gope (Gem Diamonds) • Finsch, Premier (Petra Diamonds) • Liqhobong (Firestone) • AK6 (Lucara Diamonds) • Lace (DiamondCorp) • Mothai (Lucara)
25The Rough Diamond Business in Context1/8th the Size of the Copper Business in 2011 160 140 Value World Production (Billion USD) 120 100 2008 80 2009 2010 60 2011 40 20 0 Diamond Pt-Pd Ni Al Au Cu Source: USGS, LME, Kimberly Process
26 Rough Diamond Production Stornoway Estimates 2011 Production, by Company, by Value 2011 Production, by Company, by Carats Others Others 27.2% 22.7% Zimbabwe HW 2.5% Zimbabwe 1.9% 7.1% HW Gem 2.1% 1.8% Petra Gem De Beers De Beers 0.2% 24.4% 1.4% 34.7% Rio Tinto Petra 4.9% 1.1% Rio Tinto BHPB 9.1% 5.1% BHPB Alrosa Alrosa 2.0% 26.9% 25.2%Source: Company Reports and SWY Estimates 2010 Production, by Country, by Value Source: Company Reports and SWY Estimates Russia 19.6% Botswana 21.2% Others 3.4% Congo 1.4% Canada Lesotho 18.9% 1.6% Australia 2.1% Zimbabwe 2.8% Namibia Angola South Africa 6.1% 8.0% 14.8% Source: Kimberly Process
28Global Rough Diamond Production Forecast Almost all rough diamond production forecasts show flat or declining production long term. Alrosa is an optimistic forecaster, with a 23% increase in carat supply 2010 to 2020. Others (such as RBC below) forecast 15-17% supply growth. Rough production may not reach 2008 levels in carat terms again. No large scale diamond mine has been discovered since the discovery of EKATI and Diavik in the early 1990s. New production from projects under development is not expected to materially impact overall supply. AK6 (LUC) Renard (SWY) Star-Orion (SGF) Koidu (Steinmetz) Gahcho Kue (MPV, De Global Rough Diamond Zimbabwe Production (MMct) 200 Beers) 180 160 140 120 Ct MM 100 80 60 40 20 0 2011E 2012E 2013E 2014E 2015E 2016E 2018E 2019E 2007A 2008A 2009A 2010A 2017E 2006A Angola Australia Botswana Canada DRC Namibia Russia South Afr ica Zimbabwe Other Source: RBC Capital Markets
29 Rough Diamond Supply and Demand Forecasts Alrosa October 2011 Current rough diamond demand forecasting focusses on the expected expansion of the diamond jewelry Normal GDP Forecast by Region markets in Asia. 80,000 CAGR 10-20 Asian diamond jewelry demand growth is expected to 136,959 outpace GDP growth between 2010 and 2020 as the 60,000 26,112 +9.8% $billions 101,845 traditions of diamond gifting become established within 40,000 the growing middle classes. 76,047 16,769 11,175 +10.4% 10,260 6,756 5,756 +2.9% 20,000 4,168 5,097 Alrosa (after Global Insight, October 2011) forecast 4,322 22,087 +4.3% 17,770 global diamond jewelry consumption g CAGR of 5.6% a 0 14,527 year, reaching $128bn by 2020, helping rough diamond 2010 2015F 2020F demand to grow by 10.4% on average till 2020 and to United States Japan India China World Source: Alrosa October 2011 after Global insight reach $40.8bn (from 2010 level of $15.1bn). Note: GDP at purchasing power parity Rough Diamond Demand Diamond Jewellery Consumption by Region 50 CAGR 73.8 97.4 127.8 120 10-20 45 40.8 28.2% 40 100 35 26.0 +12.5% $billions 80 24.5% 30 21.5%$billions 25.4 15.1 20.5 25 60 12.5 +11.0% 8.0 10.0 20 40 7.2 8.8 15.1 +2.4% 15 7.9 20 44.5 35.7 +4.7% 10 28.2 5 0 2010 2015F 2020F 0 2010 2015F 2020F United States Japan India China % of India to China WorldSource: Alrosa October 2011 Source: Alrosa October 2011 after Global insights and Company estimates
30Diamond Price GrowthRough and Polished Diamonds Against a Basket of Indicators, 2003-April 2012 Commodity Index Data 700 16000 14000 S&P TSX Composite Index Weekly Closing 600 12000 500 Index October 2003 = 100 10000 400 8000 300 6000 200 4000 100 WWW R.I. Polished Prices Index Gold IMF CPI 2000 IMF IPI IMF CPI NonFuel IMF Coal(Aust) IMF Metal IMF Cu S&P TSX Comp Index 0 0 01/01/07 01/01/08 31/12/08 31/12/09 01/01/11 01/01/12Source: LME, IMF, Rough Diamond Price data after WWW International Diamond Consultants Limited Indexed to October 2003
31 Diamond Price Growth The Impact of Rising Prices on Producer Results and Cutting Centre Liquidity De Beers Sales, 2000-2011 $8 Long term price growth since $7 2000 has caused De BeersSales (Billion USD) $6 sales volumes to increase in $5 $4 dollar terms despite a $3 shrinking market share. $2 $1 $- De Beers average sales price 2005 2000 2001 2002 2003 2004 2006 2007 2008 2009 2010 2011 up +27% 2009-2010 and Source: Company Reports +29% 2010-2011. Cutting Centre Debt, 2000-2011 Long term increase in cutting $16 center debt levels to $14 accommodate higher valueDebt (Billion USD) $12 business with based on $10 $8 disproportionately smaller $6 change in sales volumes. $4 $2 $- 2005 2000 2001 2002 2003 2004 2006 2007 2008 2009 2010 2011 Source: RBC Capital Markets
32Future Rough Diamond Price GrowthMarket Estimates and Stornoway’s Views Production and Demand in Rough Terms (Q1 2012 values)Recent WWW supply and demand $60bnmodeling predicts excess diamond supply Production $50bn Demandbetween 2011 and 2014, and a RoughDiamond Price CAGR of 7.5% (Nominal) $40bnbetween 2011 and 2025. $30bnWWW modeling highlights short term $20bndiscrepancy between rough and polisheddiamond pricing, yielding short term price $10bncaution and long term optimism $0bn 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025Recent De Beers supply and demand source:WWW Forecasts Ltd Source: WWW February 2011modeling contains no surplus supplyprediction, and is closer to the Alrosarough demand 10% CAGR (Nominal)forecast to 2020, but with a morepessimistic supply forecast.In line with its peers and based onguidance from WWW, Stornowayassumes a 2.5% real price growth factorto 2025 in the the Renard FeasibilityStudy in the all-equity case valuation andfor mine planning purposes. A 0% factor(ie flat diamond prices) is assumed in theFinancing Case model. Source: De Beers November 2011
34Feasibility Study Contributors Capital and Operating Cost Estimates, Onsite Infrastructure Design, Construction Strategy, Risk Assessment Process Plant, Underground Mine Design and Underground Reserve Open Pit Design, Open Pit Reserve and Financial Analysis Geotechnical, Processed Kimberlite Containment, Waste Water Management Environmental, Social and Permitting Considerations Rock Mechanics, Hydrogeology NI 43-101 Resource Human Resources, Operating Plan, Marketing Plan
35Financial AnalysisProject Assumptions, Valuation and Pay-Back Key Assumptions in the Financial Model Reserve Carats (m) 18.0 Tonnes Processed (m) 23.0 Recovered Grade (cpht) 78 Mining Average Ore Recovery (%) 83.5%Parameters Average Mining Dilution (%) 14% Dilution Grade (cpht) 0 Processing Rate (Mtonnes/a) 2.2 Mine Life (years) 11 Pre-Production Cap-ex (C$m) $802 Valuation Results (C$m) Cost LOM Cap-Ex (C$m) $994Parameters Oil Price (US$/barrel) $90 Pre-Tax After Tax LOM Op-ex (C$/tonne) $54.71 NPV5% $899 $534 LOM Op-ex (C$/carat) $70.27 Gross Revenue (C$m) $4,112 NPV7% (Base Case) $672 $376 Marketing Costs 2.7% NPV9% $490 $248 Revenue DIAQUEM Royalty 2.0%Parameters Operating Cash Flow (C$m) $2,677 IRR 18.7% 14.9%(real terms) Operating Margin 68% Pay-Back (years) 4.65 4.80 Total Taxes and Mining Duties (C$m) $571 After Tax Net Cash Flow (C$m) $1,151 Renard 2 and Renard 3 (US$/carat) $182 Diamond Renard 4 (US$/carat) $164 Price Diamond Price Escalation, 2012-2025 2.5%Parameters Exchange Rate 1C$=1US$ Effective Date for NPV Calculation January 1 2012 Schedule Construction Mobilization July 1 2013Parameters Plant Commisioning Commences July 1 2015 Commercial Production Declared January 1 2016
36Financial AnalysisCapital Costs Capital Costs (C$m) Direct Costs (C$531m)Site Preparation & General $22.9 Onsite Plant utilitiesMining $236.9 and infra. 32%Mineral processing plant $168.4 19%Onsite utilities and infrastructures $102.4Owner’s Cost $86.2Spares, fills, tools $10.2 Site Prep.EPCM services $45.0 & General Mining 4%Field indirect costs, vendor representatives $22.5 45%Construction camp & Catering $25.0Freight and duties $8.1 Field, Indirect Costs (C$271m) $74.3 VendorContingency EPCM reps Total Pre-Production Capital $801.8 17% 8% $57.3 Spares CampEscalation Allowance on Initial Capital 4% 9%Pre-Production Revenue ($24.6) FreightDeferred & Sustaining Capital $138.8 3%Deferred Capital (Route 167 Extension) $44.0Salvage Value2 ($22.9) Owner’s Cost Total LOM Capital $994.4 32% Conting. 27%
37Financial AnalysisOperating Costs Operating Unit Costs (Real Terms; C$) $/tonne Open Pit Mine $19.99 Underground Mine $24.11 Plant $14.82 G&A $14.69 Total $54.71 ($70.27/ct) Notes: Pit costs incurred before January 1st, 2016 are capitalized Operating Costs LOM Operating Costs (C$1,260m)70 G&A, $334.00 ,60 27% Plant,50 $337.00 , 27%40 Others Open Pit30 Power Mine,20 $40.70 , Labour 3%10 Undergrou nd Mine,0 $547.90 , 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 43%
39 Financial Analysis Renard Diamond Valuation. Conducted by WWW May 9th to 13th 2011 Conducted by WWW International Diamond Consultants Ltd. May 9th-13th 2011 Achieved Prices for the Valuation Samples WWW Price Modeling ValuationKimberlite Average of Minimum of Maximum of WWW Sample Number of WWW WWW Base WWW "High" Body Independent Independent Independent "Minimum" (carats) Independent Valuation Case Model Model Valuations Valuations Valuations Model Valuations (US$/carat) (US$/carat) (US$/carat) (US$/carat) (US$/carat) (US$/carat) (US$/carat)Renard 2 1,580 5 $173 $143 $195 $195 $182 $236 $163Renard 3 2,753 5 $171 $137 $195 $190 $182 $205 $153Renard 4 2,674 5 $100 $87 $107 $107 $1121 $185 $105 1 The Renard Feasibility Study of November 2011, consistent with the NI 43-101 compliant Mineral Resource of January 2011, utilizes a higher diamond price based on an analysis of diamond breakage and poor plant recovery of the Renard 4 valuation sample, which is $164/carat. All samples utilize a +0.85mm (+1 DTC) cutoff.
40Financial AnalysisRenard Diamond Valuation SensitivitiesWWW determine High and Minimum sensitivities on their Base Case diamond price model. WWW state thatit is unlikely that an actual diamond price achieved for each kimberlite body upon production would fall belowthe “Minimum” sensitivity, but it is possible that the actual diamond price achieved may be higher than the“High” sensitivity, which is not a maximum price.The Feasibility Study Base Case diamond price of US$182/carat for Renard 2 and 3 and US$164/carat forRenard 4 derives from a value modeling approach that assumes a single diamond size distribution in thethree kimberlites.An alternative interpretation, that each kimberlite’s diamond population is unique and is correctly representedby its diamond sample, yields diamond price models of US$208/carat for Renard 2, US$165/carat for Renard3 and US$112/carat for Renard 4. WWW WWW Base WWW "High" "Minimum" Kimberlite Body Case Model Model Model (US$/carat) (US$/carat) (US$/carat) Scenario 1 (Base Case): Utilizing an R2-R3 Size Frequency Model $182 $201 $163 Renard 2 Scenario 2 (Alternative): Utilizing an R2 only Size Frequency Model $208 $236 $186 Scenario 1 (Base Case): Utilizing an R2-R3 Size Frequency Model $182 $205 $168 Renard 2 Scenario 2 (Alternative): Utilizing an R3 only Size Frequency Model $165 $183 $153 Scenario 1 (Base Case): Utilizing an R2-R3 Size Frequency Model $164 $185 $152 Renard 2 Scenario 2 (Alternative): Utilizing an R4 only Size Frequency Model $112 $121 $105
41Financial AnalysisRenard Diamond Valuation SensitivitiesThis “Alternative” diamond price model is highly accretive to the project’s valuation given the dominance ofRenard 2 in the mine plan. The interpretation of similarity in the diamond populations is the moreconservative approach. Pre-Tax After-Tax Kimberlite Body NPV7% Pay-Back NPV7% Pay-Back IRR IRR (C$m) (years) 1 (C$m) (years) 1 WWW Minimum Model $397 14.6% 5.34 $199 11.5% 5.46 Feasibility Study Base Case Model $672 18.7% 4.65 $376 14.9% 4.80 Alternative Model $871 21.8% 4.07 $502 17.4% 4.20 WWW High Model $1,261 26.5% 3.49 $747 21.4% 3.90 1Calculated on an after-tax basisA real-terms diamond price growth factor of 2.5% per annum has been applied between 2012 and 2025.This is consistent with well constrained rough diamond supply and demand forecasts and industry best-practice. WWW have advised that Stornoway’s assumptions on diamond price and diamond price growthare “reasonable in the context of the overall supply and demand environment” of the diamond industry.The project shows strong sensitivity to future diamond price growth. Pre-Tax After-Tax Diamond Price Escalation (2012-2025)1 NPV7% Pay-Back NPV7% Pay-Back IRR IRR (C$m) (years) 1 (C$m) (years) 1 0% per annum $227 11.8% 5.80 $93 9.2% 5.91 2.5% per annum (Base Case) $672 18.7% 4.65 $376 14.9% 4.80 5% per annum $1,228 25.1% 3.87 $724 20.3% 4.00 1Calculated on an after-tax basis
42Reserves and ResourcesRenard Mineral Reserve Estimate, Announced November 16th, 2011 Mining Recovery Factors Utilized in the Reserve Probable Mineral Reserve Calculation Contained Grade Tonnes Internal Mining Mining Kimberlite Carats (cpht) (millions) Dilution Recovery Dilution (Millions) Renard 2 OP 95 1.31 1.24 0.0% 96.0% 7.1% Renard 2 UG 84 16.30 13.66 6.9% 83.2% 14.0% Renard 3 OP 93 0.72 0.67 0.0% 96.0% 10.5% Renard 3 UG 84 1.00 0.84 21.1% 85.0% 14.0% Renard 4 UG 42 3.72 1.58 1.4% 78.2% 14.0% Total Indicated 78 23.06 18.00 5.9% 83.5% 13.5% Tonnage Carats Revenue R4, R4, 9% R4, 8% 16% R3, R3, 8% 8% R3, R2 , 7% 76% R2 , R2 , 83% 84% Notes: Reserve categories are compliant with the "CIM Definition Standards on Mineral Resources and Reserves". Totals may not add due to rounding. Grades are estimated at a +1DTC sieve size cut-off.
43Reserves and ResourcesRenard Mineral Resource Estimate, Announced January 24th, 2011 Grade Tonnes Contained Carats Kimberlite (cpht) (millions) (Millions) Renard 2 103 17.63 18.09 Renard 3 106 1.75 1.85 Renard 4 53 7.25 3.81 Renard 9 -- -- -- Lynx Dyke -- -- -- Hibou Dyke -- -- -- Total Indicated 89 26.63 23.76 Renard 2 118 5.21 6.14 Renard 3 118 0.54 0.64 Renard 4 44 4.76 2.09 Renard 9 47 5.70 2.69 Renard 65 29 12.94 3.72 Lynx Dyke 107 1.80 1.92 Hibou Dyke 144 0.18 0.26 Total Inferred 56 31.12 17.45 Notes: Resource categories are compliant with the "CIM Definition Standards on Mineral Resources and Reserves". Mineral resources that are not mineral reserves do not have demonstrated economic viability. Indicated Mineral resources are Inclusive of the Mineral Reserve. Totals may not add due to rounding. Grades are estimated at a +1DTC sieve size cut-off.