RBCCM hosted its Second Annual Diamond Conference, Towards A Brighter Future, in Toronto on March 6. Altogether, 11 companies presented (six currently under coverage by RBCCM), including: BRC DiamondCore, Harry Winston Diamond Corp, Pangea DiamondFields, Shore Gold, Vaaldiam Resources, Gem Diamonds, Namakwa Diamonds, Petra Diamonds, Rockwell Diamonds, Stornoway Diamond Corp and WWW International Diamond Consultants.

RBCCM reports some of the overall themes to come out of the conference included that in the long-term demand for gem-quality diamonds is likely to continue to outstrip demand. However, Neil Buxton of WWW International Diamond Consultants warned that prices of rough diamonds could weaken in the short-term after a strong rise in the past year. Year-on-year, WWW expects polished prices to increase 9% with rough prices up 10%, though the latter could be below their current peaks.There is a growing focus for producers of diamonds to look further downstream to add value to their output. Gem Diamonds, Rockwell Diamonds, Namakwa Diamonds and, naturally, Harry Winston, all pointed to the potential value creation that comes from capturing some of the margin between the mine gate and the jewellery buyer.

Increasing amounts are being spent on diamond exploration ($923 million in 2006 according to Metal Economics Group) with the focus being on southern and central Africa, including the DRC, Botswana, Angola and South Africa. However, Eira Thomas of Stornoway believes that Canada remains under-explored and that there are significant opportunities to find kimberlite bodies too small for the majors to exploit.

Angola is one of the least preferred diamond addresses: While Angola has the potential to host new diamond mines, most presenters pointed to the difficulties of operating in the country. Among the issues that concern explorers and developers are a high level of bureaucracy, logistical difficulties and corruption.

The growth in the production of synthetic diamonds will become an increasing threat, particularly at the lower end of the market. The fall in production of Rio Tinto’s Argyle mine from 30 Mct/y to under 20 Mct (some 16 Mct ultimately as the mine goes underground) will lead to a reduction in supply of more than 120 million stones. This will lead to rising prices at the lower end and could encourage substitution of synthetics for rough in the Indian manufacturing centres.

Key conclusions for various companies are presented below:

The merger of BRC and DiamondCore creates a group with two listings (Toronto and Johannesburg) with greater depth in management and technical ability, as well as the capacity to build its own plants for use in South Africa and the DRC. The group has an Inferred resource of 175,000 ct at Silverstreams and Uitdraai with an in-situ value of some $263 million, with the prospect of a further 15 Mt grading 0.3-0.4 ct/100t at Sandrift. In the DRC, BRC has a 48,000 km² landholding on which it is exploring for alluvial and kimberlite-hosted diamonds.

Management budgets commencing alluvial production at Silverstreams in fourth quarter 2008 and Uitdraai in second quarter 2009 with kimberlite production starting at Paardeberg in first quarter 2009. The company has bought its own drilling rigs to accelerate exploration.

Bob Ganicott, Chairman & CEO of Harry Winston, the first speaker of the day, introduced one of the conference’s recurring themes: the significant appreciation in price at the high end of the spectrum. He noted that high quality diamonds in the 3+ ct category have appreciated by approximately 350% since the company first invested in the Harry Winston retail group in April of 2004. Demand for highend

stones is increasingly coming from emerging economies, notably Russia, as well as from oil producing regions. The HW customer base is now approximately 70% from outside US, up from 25% four years ago and HW will continue to expand global network of salons.

The marriage of retail and mining under one roof continues to generate value-add for both. Sharing of market intelligence, knowledge and contacts has allowed the Company to realize a premium on pricing for rough diamonds from Diavik, while the retail operation has significantly expanded its access to polished stones, which has been a key driver of margin growth.

One of HW’s objectives is to continue to refine way in which it packages/prices rough stones to truly match customer need and will actively pursue supplemental sales throughout the year in India and Israel.

Pangea DiamondFields is an AIM-listed alluvial producer with development and exploration assets in the DRC, CAR, South Africa and Angola. The company has 10 projects in these four countries with one at pilot mining stage and three at bulk-sample stage. The company raised $30 million in October 2006 and a further $15 million in February 2008. Pangea’s Dimbi project in the CAR is at pilot mining stage with production budgeted for fourth quarter 2008 at a rate of 14k ct/month at an average of value of $140/ct. A recent sale of 3,672 ct returned a price of $166/ct.

The Longatshimo alluvial project in the DRC targets production in second quarter 2009 with the Harts River project in South Africa following in fourth quarter 2009 and Tshikapa (DRC) and Etoile (CAR) following in third and fourth quarters 2009, respectively. Pangea owns 32.5% of the Cassanguidi project in Angola. Pilot mining is producing 3,000-4,000 ct/month, which is expected to be boosted to 7,700ct/month by the end of first quarter 2008.

Key near-term catalysts for Shore Gold include:

• Initial resource estimate on the Star project in first quarter 2008
• Large diameter drill results on the Orion South, Orion North and Taurus kimberlite clusters
• Bulk sampling results at Orion South throughout 2008.

• The company reiterated that, based on its experience with the Star project large-diameter drilling and bulk sampling, it expects the average grade estimate on Orion South to continue to increase as sample data increases. A key risk to the ultimate development of the Star and FALC JV (60% Shore/40% NEM) will be the logistics of removing approximately 100 m of overburden. Shore Gold believes that the large-scale and low operating cost nature of a future operation should offset this impediment. The project is located in favourable terrain, with nearby access to power.

Vaaldiam Resources has two producing mines in Brazil (Chapada and Duas Barras) with output valued at an average of $280/ct. The company targets bringing its kimberlite property Brauna into production next year, making it one of the few listed companies with a production portfolio, and one of only two pure diamond producers on the Toronto Stock Exchange (Rockwell is the other).

Duas Barras production is running at a rate of 60,000 ct/y at an average value of $165/ct, while Chapada’s output is running at 30,000ct/y at an average price of $400/ct. By 2010 production is budgeted at 420,000 ct/y with 500,000 ct/y targeted in 2011.

Vaaldiam’s 43-101 end-2007 resource base of 701,000 ct is expected to rise to 3.5 Mct by end-2008 with the addition of Brauna.

Gem Diamonds operates in seven countries with production currently from three of these – Lesotho, Australia and Indonesia. The company has a resource base of 43 Mct with an in-situ value of $10 billion. The doubling of production at Letseng to 110,000 ct/y is on track and management is examining further expansion, given a life of 35 years. So far, Letseng has not suffered from South Africa’s power cuts (Lesotho receives its power from the South African grid) but the mine is developing contingency plans to cope with expected interruptions.

Since gaining control of newly-acquired Kimberley Diamonds, Gem has boosted monthly throughput from 454 t/month to 652 t/month. Budgeted throughput for 2008 is 9 Mt/y, though in order to achieve this the mining rate needs to be accelerated.

Production from Cempaka in Indonesia has been boosted from 23,000 t/month to 112,000 t since acquisition with a target of 160,000 t in 2008.

Diamond prices for the company’s three mines have been strong, with Letseng’s latest tender returning $2,300/ct compared with a modelled price of $1,374/ct when the company listed in February 2007. Cempaka has seen a 51% increase to $331/ct since Gem bought the mine in 2007, while Ellendale’s run-of mine production has experienced a 25% rise to $220/ct this year. Grades at Gem’s DRC and Central African Republic operations have been below budget and Gem is re-examining its mining

priorities. In Angola, Gem has a toe in the water in the Chiri kimberlite pipe, but management is being cautious given the difficult operating and bureaucratic environment in the country.

Namakwa Diamonds has expanded its operations backwards from dealing and cutting/polishing diamonds into mining. The company raised $185 million gross in December 2007 to develop production at its four mines in the northwest province of South Africa and advance its exploration properties in the DRC, Namibia and Angola.

The company’s resource base, according to Venmyn Rand, is 16.6 Mct (4.1 Mct in Indicated) at prices ranging from $175/ct to $637/ct. Plans to boost production in the NW mines from 30,000 ct/y (annualised from current production) to 100,000 ct/y by end-2009 include additions to the earthmoving fleet and the addition of six new DMS plants over the next 18 months. IPO funds are also being applied to boost throughput at the beneficiation business where Namakwa believes that it can add significant value to selected portions of its own production.

Petra Diamonds’ production is forecast to ramp up from 250,000 ct/y to +1 Mct/y by 2010 as the Koffiefontein and Kimberley underground mines augment the output from the company’s three fissure mines. This figure will be further boosted as the Cullinan mine production is ramped up to a potential 1 Mct/y. Petra is experiencing very strong price increases for its output. The star performance is the Koffiefontein mine where prices in excess of $400/ct are being achieved compared with prices of $250-$280 three years ago under De Beers control.

Petra’s resource base has been boosted from 4.6 Mct in 2004 to 9.3m carats at end-2007. This excludes the recently acquired Cullinan mine and the Kimberley underground mine, as well as the resource in Koffiefontein below 670 m. Cullinan has an indicated resource of 133 Mct in the C-cut which Petra will examine ways of accessing.

Prices remain very strong for better quality rough diamonds, with Rockwell Diamonds’ first 2008 tender returning values of $2,300/ct for Holpan/Klipdam and over $3,000/ct for Wouterspan. This compares with averages of $1,217/ct and $2,146/ct respectively in 2007. Costs pre-amortisation rose strongly from $2.97/t in first quarter FY2008 to $4.21/t in second quarter 2008, largely as a result of the losses being incurred at Makoenskloof and increased input costs. Rockwell expects costs to fall towards $3/t, but with fuel and spares/maintenance (dollar costs) being +50% of operating expenses, management concedes that sub-$3/t levels are unlikely. Rockwell has ordered four generator sets costing C$1.5 million to cope with power outages in South Africa. Should the gensets have to supply 20% of Rockwell’s power needs, costs will increase some 10%.

Stornoway Diamond focuses on small to medium-size kimberlites in Canada that have been overlooked by the majors. The company’s major focus is the Renard kimberlite in Quebec, in which it owns 50% (the balance is owned by Soquem). A 6,000 t bulk sample in 2007 comprising a 6,500 ct sample returned a grade estimate of 65-130 ct/100t and values of $69-$109/ct. Results from the current prefeasibility study are expected early in second quarter 2008. If successful, this could see production

commencing second quarter 2010. Though the company has not given a capex estimate, Thomas did not disagree with market capex estimates of $200m-$300m and production of 1-1.5 Mct/y with annual revenue of $90-$130 million.

Though the focus is on Renard, Stornoway has four advanced exploration projects (Aviat, Churchill, Qilalugag and Timiskaming) as well as some 5 Mha of prospecting tenements in Canada and Botswana on which it is spending $3 million this year.