The Renard Diamond Project Growing in Quantity and Quality

Event

Stornoway recovers high value 9.78 carat stone from the on-going Renard 65 bulk sampling.

Impact: Positive

Analysis

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Stornoway announced on December 11, 2012 that it had recovered a 9.78 carat diamond, with a preliminary valuation of $7,000 per carat, during the ongoing processing of the Renard 65 bulk sample at Stornoway's North Vancouver diamond recovery facility.

Recall that the Renard 65 (Inferred mineral resource of 12.9 Mt @ 29 cpht (3.7 Mcarats) was the object of a 5,000t bulk sampling program in summer/fall 2012 to qualify a parcel of diamonds for valuation with the objective to convert the inferred mineral resource into the indicated category and subsequently into the project's mine plan as mineral reserves (see Exhibit1).

We believe these initial results are positive and indicate that a number of high quality large stones, given the size of the sample, can be recovered; a total of 11 diamonds larger than 1.8 carats in size have been extracted so far.

These initial large diamonds of apparently exceptional quality bold well for the characterization of the diamond size distribution. We understand that the 9.78 carat stone is an unbroken white octahedral gem and that a similar 6.41 carat stone was also recovered. With a preliminary valuation of $7,000 and $4,700 per carat and processing continuing we believe that the Renard Diamond Project, following final third party valuation at Antwerp, should grow in size and potentially in quality. The Renard Diamond Project is proving to contain large, high value stones with values in excess of US$4,000 per carat.

Though the principal hurdle for the Renard Diamond Project remains project financing, we believe Renard is moving ahead on several fronts.

Recall that the Renard Diamond Project received the global Certificate of Authorization from the Quebec Ministere du Developpement Durable, de l'Environnement, de la Faune et des Parcs last week paving the way for mine-site construction and de-risking of the project.

We reiterate our Buy rating and $2.75 one-year target price. We continue to believe that Stornoway is a compelling investment opportunity at current levels. The Renard Diamond Project is being de-risked and has the potential to be a greater than 41M carat operation of long mine life and high value rough diamonds. We continue to believe the results from the summer/fall 2012 surface bulk sampling on Renard 65 should serve as on-going catalysts.