Mountain Province Diamonds Inc. (MPV – TSX - Cdn$4.56; Target Cdn$10.25; BUY) – 80.3 M Shares Outstanding

Surfacing value

Background: Mountain Province’s principal asset is the Gahcho Kué Joint Venture, NWT, between De Beers Canada Inc. (51%) and Mountain Province (49%). Gahcho Kué is currently being permitted.

Event: Yesterday, Mountain Province announced that it would spin out, as a dividend to its existing shareholders, “the Company's 100 percent-controlled Kennady North diamond project into a newly incorporated company, Kennady Diamonds Inc. … [to be listed on the TSX Venture Exchange to] enable Mountain Province to focus on its flagship

Gahcho Kué Project while Kennady Diamonds focuses on advancing the 123 square-kilometer Kennady North Project [the deal is] … subject to regulatory and court approval, as well as shareholder approval at a special meeting currently planned for April, 2012. … Mountain Province will also provide Kennady Diamonds with sufficient working capital to fund the planned exploration activities for 2012.”

Comments: (a) this move should facilitate a takeover of Mountain Province: the purchaser of Mountain Province would buy only a development asset and not take on the responsibilities of sustaining the company’s exploration plays.

(b) We had put no value on Kennady Diamonds in valuing Mountain Province. But clearly the market thinks it is worth

about Cdn
.39/share (or Cdn$31 M), which is the amount by which Mountain Province’s share price rose yesterday.