**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      20-F**





**(Mark
      One)**





**o**
            **REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934**





**OR**





**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR (15d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the fiscal year** **ended
      March 31, 2006**





**OR**





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**OR**





**o**
            **SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934**


Date
      of
      event requiring this shell company report......................................





**For
      the transition period from __________________ to
      __________________**





Commission
      file number 0-27322





MOUNTAIN
      PROVINCE DIAMONDS INC.


(Exact
      name of Registrant as specified in its charter)





Not
      Applicable


(Translation
      of Registrant’s name into English)





Ontario


(Jurisdiction
      of incorporation or organization)





220
      Bay Street, 14 th Floor, Toronto, Ontario Canada M5J 2W4


(Address
      of principal executive offices)





Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act.


Title
                  of each class
              
              Name
                  of each exchange on which registeredNone
              
              Not
                  Applicable
  Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act.





Common
      shares without par value


(Title
      of
      Class)








(Title
      of
      Class)





Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act.





None


(Title
      of
      Class)





Indicate
      the number of outstanding shares of the issuer’s classes of capital or common
      stock as of the close of the period covered by the annual report.


53,075,847




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


o Yes x No




If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.


o Yes x No




Note
      -
      Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
      their obligations under those Sections.





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


x Yes o No




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer o  Accelerated
      filer o  Non-accelerated
      filer x





Indicate
      by check mark which financial statement item the registrant has elected to
      follow.


x Item
      17 o Item
      18




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).


o Yes
x No




(APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
      YEARS)





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court.


o Yes o No


**Not
      Applicable** ****


ii


**TABLE
      OF CONTENTS**





GLOSSARY
            viGLOSSARY
              OF
              TECHNICAL TERMS
            viiiPART
                I**Item
                1**
            **Identity
                of Directors, Senior Management and Advisors.**
            1**Item
                2**
            **Offer
                Statistics and Expected Timetable.**
            1**Item
                3**
            **Key
                Information.**
            1**A.**
            ***Selected
                financial data.***
            1**B.**
            ***Capitalization
                and indebtedness.***
            2**C.**
            ***Reasons
                for the offer and use of proceeds.***
            2**D.**
            ***Risk
                factors.***
            2**Item
                4**
            **Information
                on the Company.**
            9**A.**
            ***History
                and development of the Company.***
            9**B.**
            ***Business
                Overview.***
            11**C.**
            ***Organizational
                structure.***
            14**D.**
            ***Property,
                plants and equipment.***
            14**Item
                4A**
            **Unresolved
                Staff Comments**
            29**Item
                5**
            **Operating
                and Financial Review and Prospects.**
            29**A.**
            ***Operating
                results.***
            29**B.**
            ***Liquidity
                and capital resources.***
            31**C.**
            ***Research
                and development, patents and licenses etc.***
            31**D.**
            ***Trend
                information.***
            31**E.**
            ***Off-balance
                sheet arrangements.***
            32**F.**
            ***Tabular
                disclosure of contractual obligations.***
            32**Item
                6**
            **Directors,
                Senior Management and Employees.**
            33**A.**
            ***Directors
                and Senior Management.***
            33**B.**
            ***Compensation.***
            35**C.**
            ***Board
                practices.***
            36**D.**
            ***Employees.***
            37**E.**
            ***Share
                ownership.***
            38




iii


**Item
                7**
            **Major
                Shareholders and Related Party Transactions.**
            39**A.**
            ***Major
                shareholders.***
            39**B.**
            ***Related
                party transactions.***
            40**C.**
            ***Interests
                of experts and counsel.***
            40**Item
                8**
            **Financial
                Information.**
            40**A.**
            ***Consolidated
                Statements and Other Financial Information.***
            40**B.**
            ***Significant
                Changes.***
            41**Item
                9**
            **The
                Offer and Listing.**
            41**A.**
            ***Offer
                and Listing Details.***
            41**B.**
            ***Plan
                of Distribution.***
            42**C.**
            ***Markets.***
            42**D.**
            ***Selling
                Shareholders.***
            42**E.**
            ***Dilution.***
            42**F.**
            ***Expenses
                of the Issuer.***
            42**Item
                10**
            **Additional
                Information.**
            42**A.**
            ***Share
                capital.***
            42**B.**
            ***Memorandum
                and articles of association.***
            42**C.**
            ***Material
                contracts.***
            45**D.**
            ***Exchange
                controls.***
            46**E.**
            ***Taxation.***
            48**F.**
            ***Dividends
                and paying agents.***
            56**G.**
            ***Statement
                by experts.***
            56**H.**
            ***Documents
                on display.***
            56**I.**
            ***Subsidiary
                Information.***
            57**Item
                11**
            **Quantitative
                and Qualitative Disclosures About Market Risk.**
            57**Item
                12**
            **Description
                of Securities Other than Equity Securities.**
            58





iv




PART II**Item
                13**
            **Defaults,
                Dividend Arrearages and Delinquencies.**
            58**Item
                14**
            **Material
                Modifications to the Rights of Security Holders and Use of
                Proceeds.**
            58**Item
                15**
            **Controls
                and Procedures.**
            58**Item
                16**
            **[Reserved]**
            58**Item
                16A**
            **Audit
                Committee Financial Expert.**
            58**Item
                16B**
            **Code
                of Ethics.**
            58**Item
                16C**
            **Principal
                Accountant Fees and Services.**
            59**Item
                16D**
            **Exemptions
                from the Listing Standards for Audit Committees.**
            60**Item
                16E**
            **Purchases
                of Equity Securities by the Issuer and Affiliated
                Purchasers.**
            60PART
                III**Item
                17**
            **Financial
                Statements.**
            60**Item
                18**
            **Financial
                Statements.**
            60**Item
                19**
            **Exhibits.**
            61**SIGNATURES**
            86**EXHIBIT
                INDEX**
            87




v


**GLOSSARY**





***Affiliate*** has the
      meaning given to affiliated bodies corporate under *the
      Ontario Business Corporations Act ;*





***AK
      Property*** means
      the claims known as the "AK claims" held by MPV;





***AK-CJ
      Properties*** means,
      collectively, the AK Property and CJ Property Claims;





***CJ
      Property*** means
      the claims known as the "CJ claims", which have now lapsed, previously held
      by
      MPV;





***Arrangement*** means
      the arrangement between the Company and Glenmore which was effected as of June
      30, 2000;





***Arrangement
      Agreement*** ** means
      the
      Arrangement Agreement dated as of May 10, 2000, and made between MPV and
      Glenmore, including the Schedules to that Agreement;





***Business
      Corporations Act [Ontario]*** means
      the R.S.O. 1990, CHAPTER B.16, as amended from time to time;





***CDNX*** means
      the Canadian Venture Exchange Inc, formerly the Vancouver Stock Exchange, and
      now known as the TSX Venture Exchange;





***Camphor*** **** means
      Camphor Ventures Inc.;





***Canadian
      National Instrument 43-101*** means
      the *National
      Instrument 43-101 (Standards of Disclosure for Mineral Projects)* adopted
      by the Canadian Securities Administrators;





***Code*** means
      the United States *Internal
      Revenue Code of 1986* ,
      as
      amended;





***Company,***  ***MPV*** or ***Registrant*** means
      Mountain Province Diamonds Inc.;





***De
      Beers*** means De
      Beers Consolidated Mines Ltd.;





***De
      Beers Canada*** or ***Monopros*** means De
      Beers Canada Exploration Inc., formerly known as Monopros Limited, a
      wholly-owned subsidiary of De Beers;





***Exchange
      Act*** means
      the U.S. *Securities*  *Exchange
      Act* of
      1934;





***Gahcho
      Kué*** ** ***Project*** **,** located
      at Kennady Lake, is the aboriginal name for the Kennady Lake Project involving
      the diamondiferous kimberlite bodies in Kennady Lake located on the AK leased
      claims;





***Glenmore*** means
      Glenmore Highlands Inc., a company incorporated under the *Business
      Corporations Act*  *(Alberta)* and
      which, pursuant to the Arrangement, has amalgamated with the Company's
      wholly-owned subsidiary, Mountain Glen Mining Inc., to form an amalgamated
      company, also known as Mountain Glen Mining Inc.;





***Glenmore
      Shares*** means
      the common shares of Glenmore, as the same existed before the Arrangement took
      effect and "Glenmore Share" means any of them;





***Glenmore
      Shareholder*** means a
      holder of Glenmore Shares;





vi


***Joint
      Information Circular*** means
      the joint information circular of the Company and Glenmore dated May 10, 2000
      for the Extraordinary General Meeting and Special Meeting of the Company and
      Glenmore respectively to approve the Arrangement;





***Monopros*** or ***De
      Beers Canada*** means De
      Beers Canada Exploration Inc., formerly known as Monopros Limited, a
      wholly-owned subsidiary of De Beers;





***Mountain
      Glen*** means
      Mountain Glen Mining Inc., a wholly-owned subsidiary (now dissolved) of the
      Company;





***MPV,
      Company*** or ***Registrant*** means
      Mountain Province Diamonds Inc.;





***MPV
      Shares*** ** means
      the
      common shares of MPV, and "MPV Share" means any of them;





***Nasdaq*** ** means **** the
      National Association of Securities Dealers Automatic Quotation
      System;





***NASD
      OTCBB*** means
      the National Association of Securities Dealers over-the-counter bulletin
      board;





***Old
      MPV*** means
      MPV
      prior to its amalgamation with 444965 B.C. Ltd.;





***PFIC*** means
      Passive Foreign Investment Company under the Code;





***Qualified
      Person*** as
      defined by Canadian National Instrument 43-101 (Standards of Disclosure for
      Mineral Projects), means an individual who





(a)
            is
                an engineer or geoscientist with a least five years experience in
                mineral
                exploration, mine development or operation or mineral project assessment,
                or any combination of these;





(b)
            has
                experience relevant to the subject matter of the mineral project
                and the
                technical report; and





(c)
            is
                a member in good standing of a professional association (as that
                term is
                defined in Canadian National Instrument
                43-101);





***Registrant,
      Company*** or ***MPV*** means
      Mountain Province Diamonds Inc.;





***Sight*** means
      an
      invitation to purchase a certain amount of rough diamonds ten times a year
      from
      the De Beers' Diamond Trading Company in London;





***Sightholder*** means
      a
      diamantaire who purchases rough diamonds directly from the De Beers' Diamond
      Trading Company;





***TSX*** means
      the Toronto Stock Exchange; and





***VSE*** means
      the Vancouver Stock Exchange, subsequently renamed the Canadian Venture
      Exchange, and now known as the TSX Venture Exchange.





vii


**GLOSSARY
      OF TECHNICAL TERMS**





***Adit***
            A
                horizontal or nearly horizontal passage driven from the surface for
                the
                working of a mine.





***Archean***
            The
                earliest eon of geological history or the corresponding system of
                rocks.





***Area
                of Interest***
            A
                geographic area surrounding a specific mineral property in which
                more than
                one party has an interest and within which new acquisitions must
                be
                offered to the other party or which become subject automatically
                to the
                terms and conditions of the existing agreement between the parties.
                Typically, the area of interest is expressed in terms of a radius
                of a
                finite number of kilometers from each point on the outside boundary
                of the
                original mineral property.





***Bulk
                Sample***
            Evaluation
                program of a diamondiferous kimberlite pipe in which a large amount
                of
                kimberlite (at least 100 tonnes) is recovered from a
                pipe.





***Carat***
            A
                unit of weight for diamonds, pearls, and other gems. The metric carat,
                equal to 0.2 gram or 200 milligram, is standard in the principal
                diamond-producing countries of the
                world.





***Caustic
                Fusion***
            An
                analytical process for diamonds by which rocks are dissolved at
                temperatures between 450-600°C.
                Diamonds remain undissolved by this process and are recovered from
                the
                residue that remains.





***Craton***
            A
                stable relatively immobile area of the earth's crust that forms the
                nuclear mass of a continent or the central basin in an
                ocean.





***Diabase***
            A
                fine-grained rock of the composition of gabbro but with an ophitic
                texture.





***Dyke***
            A
                body of igneous rock, tabular in form, formed through the injection
                of
                magma.





***Feasibility
                Study***
            As
                defined by Canadian National Instrument 43-101, means a comprehensive
                study of a deposit in which all geological, engineering, operating,
                economic and other relevant factors are considered in sufficient
                detail
                that it could reasonably serve as the basis for a final decision
                by a
                financial institution to finance the development of the deposit for
                mineral production.





***Gneiss***
            A
                banded rock formed during high grade regional metamorphism. It includes
                a
                number of different rock types having different origins. It commonly
                has
                alternating bands of schistose and granulose
                material.





***Indicator
                mineral***
            Minerals
                such as garnet, ilmenite, chromite and chrome diopside, which are
                used in
                exploration to indicate the presence of
                kimberlites.





viii





***Jurassic***
            The
                period of the Mesozoic era between the Triassic and the Cretaceous
                or the
                corresponding system of rocks marked by the presence of dinosaurs
                and the
                first appearance of birds.





***Kimberlite***
            A
                dark-colored intrusive biotite-peridotite igneous rock that can contain
                diamonds. It contains the diamonds known to occur in the rock matrix
                where
                they originally formed (more than 100 km deep in the
                earth).





***Macrodiamond***
            A
                diamond, two dimensions of which exceed 0.5
                millimeters.





***Microdiamond***
            Generally
                refers to diamonds smaller than approximately 0.5mm, which are recovered
                from acid dissolution of kimberlite
                rock.





***Mineral
                Reserve***
            Means
                the economically mineable part of a Measured Mineral Resource or
                Indicated
                Mineral Resource demonstrated by at least a Preliminary Feasibility
                Study.
                This study must include adequate information on mining, processing,
                metallurgical, economic and other relevant factors that demonstrate,
                at
                the time of reporting, that economic extraction can be justified.
                A
                Mineral Reserve includes diluting materials and allowances for losses
                that
                may occur when the material is
                mined.





THE
                TERMS "MINERAL RESERVE," "PROVEN MINERAL RESERVE" AND "PROBABLE MINERAL
                RESERVE" USED IN THIS REPORT ARE CANADIAN MINING TERMS AS DEFINED
                IN
                ACCORDANCE WITH NATIONAL INSTRUMENT 43-101 - STANDARDS OF DISCLOSURE
                FOR
                MINERAL PROJECTS WHICH INCORPORATES THE DEFINITIONS AND GUIDELINES
                SET OUT
                IN THE CANADIAN INSTITUTE OF MINING, METALLURGY AND PETROLEUM (THE
                "CIM")
                STANDARDS ON MINERAL RESOURCES AND MINERAL RESERVES DEFINITIONS AND
                GUIDELINES ADOPTED BY THE CIM COUNCIL ON AUGUST 20, 2000. IN THE
                UNITED
                STATES, A MINERAL RESERVE IS DEFINED AS A PART OF A MINERAL DEPOSIT
                WHICH
                COULD BE ECONOMICALLY AND LEGALLY EXTRACTED OR PRODUCED AT THE TIME
                THE
                MINERAL RESERVE DETERMINATION IS
                MADE.





Under
                United States standards:





"Reserve"
                means that part of a mineral deposit which can be economically and
                legally
                extracted or produced at the time of the reserve determination.





"Economically,"
                as used in the definition of reserve, implies that profitable extraction
                or production has been established or analytically demonstrated to
                be
                viable and justifiable under reasonable investment and market assumptions.





"Legally,"
                as used in the definition of reserve, does not imply that all permits
                needed for mining and processing have been obtained or that other
                legal
                issues have been completely resolved. However, for a reserve to exist,





ix


there
                should be a reasonable certainty based on applicable laws and regulations
                that issuance of permits or resolution of legal issues can be accomplished
                in a timely manner.





Mineral
                Reserves are categorized as follows on the basis of the degree of
                confidence in the estimate of the quantity and grade of the
                deposit.





"Proven
                Mineral Reserve" means, in accordance with CIM Standards, the economically
                viable part of a Measured Mineral Resource demonstrated by at least
                a
                Preliminary Feasibility study. This Study must include adequate
                information on mining, processing, metallurgical, economic, and other
                relevant factors that demonstrate at the time of reporting, that
                economic
                extraction is justified.





The
                definition for "proven mineral reserves" under Canadian standards
                differs
                from the standards in the United States, where proven or measured
                reserves
                are defined as reserves for which (a) quantity is computed from dimensions
                revealed in outcrops, trenches, workings or drill holes; grade and/or
                quality are computed from the results of detailed sampling and
                (b) the sites for inspection, sampling and measurement are spaced so
                closely and the geographic character is so well defined that size,
                shape,
                depth and mineral content of reserves are well established.





"Probable
                Mineral Reserve" means, in accordance with CIM Standards, the economically
                mineable part of an Indicated, and in some circumstances a Measured
                Mineral Resource demonstrated by at least a Preliminary Feasibility
                Study.
                This Study must include adequate information on mining, processing,
                metallurgical, economic and other relevant factors that demonstrate,
                at
                the time of reporting, that economic extraction is
                justified.





The
                definition for "probable mineral reserves" under Canadian standards
                differs from the standards in the United States, where probable reserves
                are defined as reserves for which quantity and grade and/or quality
                are
                computed from information similar to that of proven reserves (under
                United
                States standards), but the sites for inspection, sampling, and measurement
                are further apart or are otherwise less adequately spaced. The degree
                of
                assurance, although lower than that for proven reserves, is high
                enough to
                assume continuity between points of
                observation.





***Mineral
                Resource***
            Under
                CIM Standards, Mineral Resource is a concentration or occurrence
                of
                natural, solid, inorganic or fossilized organic material in or on
                the
                Earth's crust in such form and quantity and of such a grade or quality
                that it has reasonable prospects for economic extraction. The location,
                quantity, grade, geological characteristics and continuity of a Mineral
                Resource are known, estimated or interpreted from specific geological
                evidence and knowledge.





THE
                TERMS "MINERAL RESOURCE", "MEASURED MINERAL RESOURCE", "INDICATED
                MINERAL
                RESOURCE", "INFERRED MINERAL RESOURCE" USED IN THIS REPORT ARE CANADIAN
                MINING TERMS AS DEFINED IN ACCORDANCE WITH NATIONAL INSTRUMENT 43-101
                -
                STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS UNDER THE GUIDELINES
                SET OUT
                IN THE CIM STANDARDS. THE COMPANY ADVISES U.S. INVESTORS THAT WHILE
                SUCH
                TERMS ARE RECOGNIZED AND PERMITTED UNDER CANADIAN REGULATIONS, THE
                U.S.
                SECURITIES AND EXCHANGE COMMISSION DOES NOT RECOGNIZE THEM. THESE
                ARE NOT
                DEFINED TERMS UNDER THE UNITED STATES STANDARDS AND MAY NOT GENERALLY
                BE
                USED IN DOCUMENTS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE
                COMMISSION BY U.S. COMPANIES. AS SUCH, INFORMATION CONTAINED IN THIS
                REPORT CONCERNING DESCRIPTIONS OF MINERALIZATION AND RESOURCES MAY
                NOT BE
                COMPARABLE TO INFORMATION MADE PUBLIC BY U.S. COMPANIES SUBJECT TO
                THE
                REPORTING AND DISCLOSURE REQUIREMENTS OF THE UNITED STATES SECURITIES
                AND
                EXCHANGE COMMISSION.





x


"Inferred
                Mineral Resource" means, under CIM Standards, that part of a Mineral
                Resource for which quantity and grade or quality can be estimated
                on the
                basis of geological evidence and limited sampling and reasonably
                assumed,
                but not verified, geological and grade continuity. The estimate is
                based
                on limited information and sampling gathered through appropriate
                techniques from locations such as outcrops, trenches, pits, workings
                and
                drill holes. U.S. INVESTORS ARE CAUTIONED NOT TO ASSUME THAT ANY PART OR
                ALL OF AN INFERRED RESOURCE EXISTS, OR IS ECONOMICALLY OR LEGALLY
                MINEABLE.





"Indicated
                Mineral Resource" means, under CIM Standards, that part of a Mineral
                Resource for which quantity, grade or quality, densities, shape and
                physical characteristics, can be estimated with a level of confidence
                sufficient to allow the appropriate application of technical and
                economic
                parameters, to support mine planning and evaluation of the economic
                viability of the deposit. The estimate is based on detailed and reliable
                exploration and testing information gathered through appropriate
                techniques from locations such as outcrops, trenches, pits, workings
                and
                drill holes that are spaced closely enough for geological and grade
                continuity to be reasonably assumed. U.S. INVESTORS ARE CAUTIONED
                NOT TO
                ASSUME THAT ANY PART OR ALL OF THE MINERAL DEPOSITS IN THIS CATEGORY
                WILL
                EVER BE CONVERTED INTO RESERVES.





"Measured
                Mineral Resource" means, under CIM standards that part of a Mineral
                Resource for which quantity, grade or quality, densities, shape and
                physical characteristics are so well established that they can be
                estimated with confidence sufficient to allow the appropriate application
                of technical and economic parameters, to support production planning
                and
                evaluation of the economic viability of the deposit. The estimate
                is based
                on detailed and reliable exploration, sampling and testing information
                gathered through appropriate techniques from locations such as outcrops,
                trenches, pits, workings and drillholes that are spaced closely enough
                to
                confirm both geological and grade continuity. U.S. INVESTORS ARE
                CAUTIONED
                NOT TO ASSUME THAT ANY PART OR ALL OF THE MINERAL DEPOSITS IN THIS
                CATEGORY WILL EVER BE CONVERTED INTO
                RESERVES.





xi


***Operator***
            The
                party in a joint venture which carries out the operations of the
                joint
                venture subject at all times to the direction and control of the
                management committee.





***Ordovician***
            The
                period between the Cambrian and the Silurian or the corresponding
                system
                of rocks.





***Overburden***
            A
                general term for any material covering or obscuring rocks from
                view.





***Paleozoic***
            An
                era of geological history that extends from the beginning of the
                Cambrian
                to the close of the Permian and is marked by the culmination of nearly
                all
                classes of invertebrates except the insects and in the later epochs
                by the
                appearance of terrestrial plants, amphibians, and
                reptiles.





***Pipe***
            A
                kimberlite deposit that is usually, but not necessarily,
                carrot-shaped.





***Preliminary
                Feasibility Study***
            Under
                the CIM Standards, means a comprehensive study of the viability of
                a
                mineral project that has advanced to a stage where the mining method,
                in
                the case of underground mining, or the pit configuration, in the
                case of
                an open pit, has been established, and which, if an effective method
                of
                mineral processing has been determined, includes a financial analysis
                based on reasonable assumptions of technical, engineering, operating,
                economic factors and the evaluation of other relevant factors which
                are
                sufficient for a Qualified Person acting reasonably, to determine
                if all
                or part of the Mineral Resource may be classified as a Mineral
                Reserve.





***Proterozoic***
            The
                eon of geologic time or the corresponding system of rocks that includes
                the interval between the Archean and Phanerozoic eons, perhaps exceeds
                in
                length all of subsequent geological time, and is marked by rocks
                that
                contain fossils indicating the first appearance of eukaryotic organisms
                (as algae).





***Reverse
                Circulation Drill***
            A
                rotary percussion drill in which the drilling mud and cuttings return
                to
                the surface through the drill pipe.





***Sill***
            Tabular
                intrusion which is sandwiched between layers in the host
                rock.





***Stringers***
            The
                narrow veins or veinlets, often parallel to each other, and often
                found in
                a shear zone.





***Tertiary***
            The
                Tertiary period or system of rocks.





***Till
                Sample***
            A
                sample of soil taken as part of a regional exploration program and
                examined for indicator minerals.





***Xenolith***
            A
                foreign inclusion in an igneous
                rock.





xii


**NOTE
      REGARDING FORWARD LOOKING STATEMENTS**





This
      report contains forward-looking statements within the meaning of the United
      States Private Securities Litigation Reform Act of 1995 concerning the Company's
      exploration, operations, planned acquisitions and other matters. These
      statements relate to analyses and other information that are based on forecasts
      of future results, estimates of amounts not yet determinable and assumptions
      of
      management.





Statements
      concerning mineral resource estimates may also be deemed to constitute
      forward-looking statements to the extent that they involve estimates of the
      mineralization that will be encountered if the property is developed, and based
      on certain assumptions that the mineral deposit can be economically exploited.
      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" or "does not expect", "is expected", "anticipates" or "does not
      anticipate", "plans", "estimates" or "intends", or stating that certain actions,
      events or results "may", "could", "would", "might" or "will" be taken, occur
      or
      be achieved) are not statements of historical fact and may be "forward-looking
      statements." Forward-looking statements are subject to a variety of risks and
      uncertainties which could cause actual events or results to differ from those
      reflected in the forward-looking statements, including, without
      limitation:





§
            risks
                and uncertainties relating to the interpretation of drill results,
                the
                geology, grade and continuity of mineral
                deposits;




§
            results
                of initial feasibility, pre-feasibility and feasibility studies,
                and the
                possibility that future exploration, development or mining results
                will
                not be consistent with the Company's
                expectations;




§
            mining
                exploration risks, including risks related to accidents, equipment
                breakdowns or other unanticipated difficulties with or interruptions
                in
                production;




§
            the
                potential for delays in exploration activities or the completion
                of
                feasibility studies;




§
            risks
                related to the inherent uncertainty of exploration and cost estimates
                and
                the potential for unexpected costs and
                expenses;




§
            risks
                related to commodity price
                fluctuations;




§
            the
                uncertainty of profitability based upon the Company's history of
                losses;




§
            risks
                related to failure to obtain adequate financing on a timely basis
                and on
                acceptable terms;




§
            risks
                related to environmental regulation and
                liability;




§
            political
                and regulatory risks associated with mining and exploration;
                and




§
            other
                risks and uncertainties related to the Company's prospects, properties
                and
                business strategy.





Some
      of
      the important risks and uncertainties that could affect forward looking
      statements as are described further in this document under the headings "Risk
      Factors", "History and Development of Company," "Business Overview," "Property,
      plants and equipment," and "Operating and Financial Review and Prospects".
      Should one or more of these risks and uncertainties materialize, or should
      underlying assumptions prove incorrect, actual results may vary materially
      from
      those described in forward-looking statements. Forward looking statements are
      made based on management's beliefs, estimates and opinions on the date the
      statements are made and the Company undertakes no obligation to update
      forward-looking statements if these beliefs, estimates and opinions or other
      circumstances should change. Investors are cautioned against attributing undue
      certainty to forward-looking statements.





xiii


**NOTE
      REGARDING FINANCIAL STATEMENTS AND EXHIBITS**





The
      financial statements and exhibits referred to herein are filed with this report
      on Form 20-F in the United States. This report is also filed in Canada as an
      Annual Information Form and the Canadian filing does not include the financial
      statements and exhibits listed herein. Canadian investors should refer to the
      annual financial statements of the Company as at March 31, 2006, which are
      incorporated by reference herewith, as filed with the applicable Canadian
      Securities regulators on SEDAR (the Canadian Securities Administrators' System
      for Electronic Document Analysis and Retrieval) under "Audited Annual Financial
      Statements - English".





**METRIC
      EQUIVALENTS**





For
      ease
      of reference, the following factors for converting metric measurements into
      imperial equivalents are provided:


**To
                Convert From Metric**
            **To
                Imperial**
            **Multiply
                by**Hectares
            Acres
            2.471Metres
            Feet
                (ft.)
            3.281Kilometres
                (km.)
            Miles
            0.621Tonnes
            Tons
                (2000 pounds)
            1.102Grams/tonne
            Ounces
                (troy/ton)
            0.029





xiv


**PART
      I**





**Item
      1.**  **Identity
      of Director, Senior Management and Advisors**





Not
      Applicable





**Item
      2.**  **Offer
      Statistics and Expected Timetable**





Not
      Applicable





**Item
      3.**  **Key
      Information**





**A.**
            ***Selected
                financial data.***





The
      selected financial data set forth below should be read in conjunction with
      Item
      5 - Operating and Financial Review and Prospects, and in conjunction with the
      consolidated financial statements and related notes of the Company included
      under Item 17, "Financial Statements."  The Company's consolidated
      financial statements have been prepared in accordance with Canadian generally
      accepted accounting principles. Material measurement differences between
      accounting principles generally accepted in Canada and the United States,
      applicable to the Company, are described in Note 10 to the consolidated
      financial statements. The Company's financial statements are set forth in
      Canadian dollars.





The
      following chart summarizes certain selected financial information for the
      Company as at and for its fiscal years ended March 31, 2006, 2005, 2004, 2003
      and 2002.  Except as otherwise indicated, dollar amounts presented are
      equivalent under Canadian and United States generally accepted accounting
      principles.


**12
                  Months Ended March 31,****All
                  in CDN$1,000's except Earnings (loss) per Share and Number of Common
                  Shares**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**Operating
                  Revenue
              
              
              nil
              
              
              nil
              
              
              nil
              
              
              nil
              
              
              nilInterest
                  Revenue
              
              
              12
              
              
              13
              
              
              12
              
              
              19
              
              
              18Working
                  Capital
              
              
              808
              
              
              1,041
              
              
              701
              
              
              1,037
              
              
              340Net
                  Earnings (loss) -Under
                  Canadian GAAP:
              
              
              (2,200
              )
              
              1,531
              
              
              (1,813
              )
              
              (1,713
              )
              
              (1,456
              )Under
                  U.S. GAAP:
              
              
              (1,948
              )
              
              1,836
              
              
              (1,223
              )
              
              (14,513
              )
              
              (1,520
              )Basic
                  and diluted earnings (loss) per share -Under
                  Canadian GAAP:
              
              
              (0.04
              )
              
              0.03
              
              
              (0.04
              )
              
              (0.03
              )
              
              (0.03
              )Under
                  U.S. GAAP:
              
              
              (0.04
              )
              
              0.04
              
              
              (0.02
              )
              
              (0.29
              )
              
              (0.03
              )Total
                  Assets -Under
                  Canadian GAAP:
              
              
              34,874
              
              
              36,038
              
              
              33,514
              
              
              34,418
              
              
              33,947Under
                  U.S. GAAP:
              
              
              3,419
              
              
              3,683
              
              
              1,030
              
              
              1,363
              
              
              13,618Total
                  Liabilities
              
              
              181
              
              
              95
              
              
              273
              
              
              240
              
              
              324Share
                  CapitalUnder
                  Canadian GAAP:
              
              
              58,253
              
              
              57,608
              
              
              56,595
              
              
              55,719
              
              
              53,470Under
                  U.S. GAAP:
              
              
              58,233
              
              
              57,587
              
              
              56,595
              
              
              55,719
              
              
              53,470Net
                  Assets -Under
                  Canadian GAAP:
              
              
              34,693
              
              
              35,943
              
              
              33,241
              
              
              34,178
              
              
              33,623Under
                  U.S. GAAP:
              
              
              3,238
              
              
              3,588
              
              
              757
              
              
              1,123
              
              
              13,294Number
                  of Common Shares issued
              
              
              53,075,847
              
              
              52,610,847
              
              
              *51,202,111
              
              
              66,597,766
              
              
              63,883,100less shares owned by subsidiary
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,015,696
              )
              
              (16,015,696
              )53,075,847
              
              
              52,610,847
              
              
              51,202,111
              
              
              50,582,070
              
              
              47,867,404


*The
        16,015,696 shares held by Mountain Glen, were cancelled and returned to treasury
        on March 30, 2004.





No
      dividends have been declared in any of the years presented above.





1


**Currency
      and Exchange Rates**





All
      dollar amounts set forth in this report are in Canadian dollars, except where
      otherwise indicated. The following tables set forth, for the five most recent
      financial years, (i) the average rate (the "Average Rate") of exchange for
      the
      Canadian dollar, expressed in U.S. dollars, calculated by using the average
      of
      the exchange rates on the last day for which data is available for each month
      during such periods; and (ii) the high and low exchange rate during the previous
      six months, in each case based on the noon buying rate in New York City for
      cable transfers in Canadian dollars as certified for customs purposes by the
      Federal Reserve Bank of New York.





The
      Average Rate is set out for each of the periods indicated in the table
      below.


**2006**
              **2005**
              **2004**
              **2003**
              **2002**US$0.8376
              US$0.7842
              US$0.7412
              US$0.6474
              US$0.6380





The
      high
      and low exchange rates for each month during the previous six months are as
      follows:


**Month**
              **High**
              **Low**December
                  2005
              0.8751
              0.8508January
                  2006
              0.8794
              0.8479February
                  2006
              0.8809
              0.8610March
                  2006
              0.8850
              0.8513April
                  2006
              0.8959
              0.8496May
                  2006
              0.9134
              0.8869





On
      June
      15, 2006, the noon buying rate in New York City for cable transfer in Canadian
      dollars as certified for customer purposes by the Federal Reserve Bank of New
      York (the "Exchange Rate") was $1 Canadian = US$0.89509.





**B.**
            ***Capitalization
                and indebtedness.***





Not
      Applicable





**C.**
            ***Reasons
                for the offer and use of
                proceeds.***





Not
      Applicable





**D.**
            ***Risk
                factors.***





**Risks
      of Exploration and Development**





The
      Company, and thus the securities of the Company, should be considered a highly
      speculative investment and investors should carefully consider all of the
      information disclosed in this Annual Report prior to making an investment in
      the
      Company. In addition to the other information presented in this Annual Report,
      the following risk factors should be given special consideration when evaluating
      an investment in any of the Company's securities.





*(a)* *The
        Company's limited operating history makes it difficult to evaluate the Company's
        current business and forecast future results.*





The
      Company has only a limited operating history on which to base an evaluation
      of
      the Company's current business and prospects, each of which should be considered
      in light of the risks, expenses and problems frequently encountered in the
      early
      stages of development of all companies. This limited operating history leads
      the
      Company to believe that period-to-period comparisons of its operating results
      may not be meaningful and that the results for any particular period should
      not
      be relied upon as an indication of future performance.





2


*(b)*
            *Speculative
                business*





Resource
      exploration and development is a speculative business, characterized by a number
      of significant risks including, among other things, unprofitable efforts
      resulting not only from the failure to discover mineral deposits but from
      finding mineral deposits which, though present, are insufficient in quantity
      and
      quality to return a profit from production. Diamonds acquired or discovered
      by
      the Company are required to be sold to The Diamond Trading Co., a wholly-owned
      subsidiary of De Beers, as per the Monopros Joint Venture Agreement (see Item
      4D
      - Property, plant and equipment - Principal Properties - The AK Property),
      at a
      price which is reflective of the market at that time.





*(c)
      The Company has no significant source of operating cash flow and failure to
      generate revenues in the future could cause the Company to go out of
      business.*





The
      Company currently has no significant source of operating cash flow. The Company
      has limited financial resources. The Company's ability to achieve and maintain
      profitability and positive cash flow is dependent upon the Company's ability
      to
      generate revenues.





*(d)
      Exploration and Development*





The
      Company's properties are primarily in the advanced exploration and permitting
      stage. There are no estimates of reserves. Estimates of mineral deposits,
      development plans and production costs, when made, can be affected by such
      factors as environmental permit regulations and requirements, weather,
      environmental factors, unforeseen technical difficulties, unusual or unexpected
      geological formations and work interruptions. In addition, the grade of diamonds
      ultimately discovered may differ from that indicated by bulk sampling results.





There
      can
      be no assurance that diamonds recovered in small scale tests will be duplicated
      in large scale tests under on-site conditions or in production scale. De Beers
      Canada is now paying for all exploration of the AK Property, and will also
      be
      paying for all development of the AK Property and, with regard to that property,
      there is currently no risk to the Company in respect of the further exploration,
      permitting and development costs. Any separate and additional exploration done
      by the Company on its other properties may not result in discovery of any
      diamondiferous kimberlite.





*(e)
      History of Losses*





The
      Company has a history of losses and may continue to incur losses for the
      foreseeable future. During the years ended March 31, 2006, 2005, and 2004,
      the
      Company incurred net earnings (loss) during each of the following
      periods:





·
            $2.200
                million net loss for the year ended March 31,
                2006.





·
            $1.531
                million net earnings for the year ended March 31, 2005 (relating
                primarily
                to gain on sale of the Haveri project to Northern Lion Gold
                Corp).





·
            $1.81
                million loss for the year ended March 31,
                2004.





As
      of
      March 31, 2006, the Company had an accumulated deficit of $24.122 million.
      There
      can be no assurance that the Company will ever be profitable.





None
      of
      the Company's properties have advanced to the commercial production stage,
      and
      the Company has no history of earnings or cash flow from operations and, as
      an
      exploration Company, has only a history of losses. The Company has paid no
      dividends on its shares since incorporation and does not anticipate doing so
      in
      the foreseeable future.





3


*(f)
      Recoverability of capitalized mineral property costs*





The
      recoverability of the amounts capitalized for mineral properties in the
      Company's consolidated financial statements, prepared in accordance with
      Canadian generally accepted accounting principles, is dependent upon the ability
      of the Company to complete exploration and development, the discovery of
      economically recoverable reserves, and, if warranted, upon future profitable
      production or proceeds from disposition of some or all of the Company's mineral
      properties.





*(g)
      Additional Funding Requirements*





As
      of
      March 31, 2006, the Company had cash and cash equivalents of approximately
      $0.845 million and working capital of approximately $0.808 million. During
      the
      past three fiscal years ended March 31, 2006, the Company has used approximately
      $2.605 million in cash flows in operating activities including approximately
      $0.727 million during the fiscal year ended March 31, 2006, $0.858 million
      during the fiscal year ended March 31, 2005 and $1.020 million during the fiscal
      year ended March 31, 2004.





The
      Company's administrative and other expenses are expected to be approximately
      $0.7 million for the next year. The Company has sufficient working capital
      for
      administrative purposes for the next year, but may need to raise additional
      capital should it participate in exploration programs or undertake independent
      studies. The Company may be required to raise additional capital through equity
      and/or debt financings on terms that may be dilutive to its shareholders'
      interests in the Company or to the value of their common shares. The Company
      may
      consider debt financing, joint ventures, production sharing arrangements,
      disposing of properties or other arrangements to meet its capital requirements
      in the future. Such arrangements may have a material adverse affect on the
      Company's business or results of operations.





*(h)
      No Proven Reserves*





The
      properties in which the Company has an interest, or the concessions in which
      the
      Company has the right to earn an interest, are all in the advanced exploratory
      and permitting stage and at this point, there are only indicated and inferred
      resources in four kimberlite bodies in Kennady Lake. See Item 4D - Property,
      plants and equipment - Principal Properties. The Company has not yet determined
      whether its mineral properties contain mineral reserves that are economically
      recoverable. Failure to discover economically recoverable reserves will require
      the Company to write-off costs capitalized in its financial
      statements.





*(i)
      Title Matters*





While
      the
      Company has investigated title to all of its mineral properties and, to the
      best
      of its knowledge, title to all of its properties and properties in which it
      has
      the right to acquire or earn an interest are in good standing, this should
      not
      be construed as a guarantee of title. The properties may be subject to prior
      unregistered agreements or transfers and title may be affected by undetected
      defects.





*(j)
      Diamond Prices*





The
      market for rough diamonds is subject to strong influence from the world's
      largest diamond producing company, De Beers, of South Africa, and from The
      Diamond Trading Co., (formerly known as the Central Selling Organization),
      a
      marketing agency controlled by De Beers. The price of diamonds dropped sharply
      after September 11, 2001 and has now recovered, but future prices cannot be
      predicted. Over the past three years, diamond prices have increased on average
      by approximately 15%. Current trends suggest an over demand for rough diamonds
      in the near to mid-term.





*(k)
      Compliance with Environmental and Government Regulation*





The
      current and anticipated future operations of the Company, including development
      activities and commencement of production on its properties, require permits
      from various federal, territorial and local governmental authorities and such
      operations are and will be governed by laws and regulations governing
      prospecting, development, mining, production, exports, taxes, labour standards,
      occupational health, waste disposal, toxic substances, land use, environmental
      protection, mine safety and other matters. Companies engaged in the development
      and operation of mines and related facilities generally experience increased
      costs, and delays in production and other schedules as a result of the need
      to
      comply with applicable laws, regulations and permits. The Company's exploration
      activities and its potential mining and processing operations in Canada are
      subject to various Federal and Territorial laws governing land use, the
      protection of the environment, prospecting, development, production, exports,
      taxes, labour standards, occupational health, waste disposal, toxic substances,
      mine safety and other matters.





4


Such
      operations and exploration activities are also subject to substantial regulation
      under these laws by governmental agencies and may require that the Company
      obtain permits from various governmental agencies. The Company believes it
      is in
      substantial compliance with all material laws and regulations which currently
      apply to its activities. There can be no assurance, however, that all permits
      which the Company may require for construction of mining facilities and conduct
      of mining operations will be obtainable on reasonable terms or that such laws
      and regulations, or that new legislation or modifications to existing
      legislation, would not have an adverse effect on any exploration or mining
      project which the Company might undertake.





Further
      detail on governmental regulation may be found in Item 4 - Business Review
      -
      Government Regulation, below.





Failure
      to comply with applicable laws, regulations and permit requirements may result
      in enforcement actions thereunder, including orders issued by regulatory or
      judicial authorities causing operations to cease or be curtailed, and may
      include corrective measures requiring capital expenditures, installation of
      additional equipment or remedial actions. Parties engaged in mining operations
      may be required to compensate those suffering loss or damage by reason of the
      mining activities and may have civil or criminal fines or penalties imposed
      for
      violation of applicable laws or regulations. The amount of funds required to
      comply with all environmental regulations and to pay for compensation in the
      event of a breach of such laws may exceed the Company's ability to pay such
      amount.





Amendments
      to current laws, regulations and permits governing operations and activities
      of
      mining companies, or more stringent implementation thereof, could have a
      material adverse impact on the Company and cause increases in capital
      expenditures or production costs or reduction in levels of production at
      producing properties or require abandonment or delays in development of new
      mining properties.





To
      the
      best of the Company's knowledge, the Company is operating in compliance with
      all
      applicable environmental regulations.





*(l)
      Climate and Transportation*





The
      AK
      Property is subject to climate and transportation risks because of its remote
      northern location. Such factors can add to the cost of exploration, development
      and operation, thereby affecting costs and profitability.





*(m)
      Joint Venture Partner*





The
      Company, and the success of the AK Property, is dependent on the efforts,
      expertise and capital resources of joint venture partner De Beers Canada and
      its
      parent De Beers. De Beers Canada is the project operator and is responsible
      for
      exploring, permitting, developing and operating the AK Property. The Company
      is
      dependent on De Beers Canada for accurate information about the AK Property
      and
      the progress of exploration, permitting and development. Both De Beers Canada
      and the Company agreed on March 8, 2000 that it was unlikely that the agreed
      upon rate of return would be achieved from mining the 5034, Hearne and Tuzo
      pipes using the conventional open pit method. As a result, the Company and
      De
      Beers Canada agreed that De Beers would conduct a desktop study examining the
      costs of both open-pit and underground mining scenarios.





The
      results of the desktop study were presented on August 4, 2000 to the board
      of
      directors of the Company. The study showed that the modeled rate of return
      for
      the mining of the three main diamond pipes was below the agreed upon rate of
      return needed to proceed to the next phase, but sufficiently close to only
      require an increase in diamond revenues of approximately 15% to achieve the
      agreed upon rate. A management committee was constituted and it was decided
      that
      the best options to advance the project were an additional bulk sample and
      additional exploration. The bulk sample was completed in May 2001 and the
      exploration in June 2001. The final results were reported on December 18, 2001
      and were encouraging enough for De Beers to commit to another bulk sample in
      the
      winter of 2002. The results of the 2002 bulk sample program of the Hearne and
      5034 pipes were reported in April 2003 and the results of the updated desk
      top
      study two weeks later. Even though the study showed that estimated capital
      costs
      had increased only slightly and that the estimated operating costs had dropped
      significantly, the effect of lower diamond values (especially for the Hearne
      pipe) and a lower US dollar against the Canadian dollar since the 2000 desktop
      study, had resulted in an internal rate of return (IRR), which was well below
      the agreed hurdle rate. Combined with the then current geo-political environment
      and uncertainties, De Beers decided to postpone a pre-feasibility decision
      until
      the following year when the desktop study would be updated again. In the
      meantime, De Beers would continue with exploration in the Kelvin-Faraday area
      with an objective of adding to the existing resource.





5


However,
      at the end of July 2003, De Beers notified the Company that they had started
      work on a detailed cost estimate of a pre-feasibility study of the Gahcho Kue
      project. They based their decision on the improving geo-political and economic
      conditions which supported confidence in longer-term diamond price projections.
      In November 2003, the board of directors of De Beers approved a budget of
      approximately $25 million for a pre-feasibility study which started in January
      2004. The first phase of the study was completed in June 2004.





The
      pre-feasibility study was completed in mid-2005. The projected profitability
      levels were sufficiently encouraging to support the Joint Venture’s decision to
      proceed to the next phase of permitting and advanced exploration to improve
      the
      resource confidence and input data for mine design to support a definitive
      feasibility study. On July 11, 2005, De Beers reported an increase in the
      modeled value of the diamonds for the Gahcho Kue project with the modeled values
      increasing by approximately 6, 7 and 8 percent for the Tuzo, Hearne and 5034
      pipes respectively.





On
      July
      25, 2005, the Joint Venture announced that De Beers had approved a budget of
      $38.5 million for the environmental assessment and permitting process and for
      an
      advanced exploration program. On November 29, 2005, it was announced that the
      Joint Venture had submitted an application with the Mackenzie Valley Land and
      Water Board for permits required to construct and operate a diamond mine at
      Gahcho Kue. The permit applications have been submitted to the Mackenzie Valley
      Environmental Impact Review Board for an environmental assessment.





On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was projected to be
      completed by May 2006.





*(n)
      Operating Hazards and Risks*





Diamond
      exploration involves many risks which even a combination of experience,
      knowledge and careful evaluation may not be able to overcome. Operations in
      which the Company has a direct or indirect interest will be subject to all
      the
      hazards and risks normally incidental to exploration, development and production
      of resources, any of which could result in work stoppages, damage to property
      and possible environmental damage. The Company maintains insurance policies
      relating to Director's and Officer's liability, but can give no guarantees
      that
      such insurance will be sufficient to protect the Company from
      losses.





*(o)* *Numerous
      factors beyond the control of the Company affect the marketability of any
      diamonds discovered.*





Factors
      beyond the control of the Company may affect the marketability of any diamonds
      produced. Significant price movements over short periods of time may be affected
      by numerous factors beyond the control of the Company, including international
      economic and political trends, expectations of inflation, currency exchange
      fluctuations (specifically, the U.S. dollar relative to the Canadian dollar
      and
      other currencies), interest rates and global or regional consumption patterns.
      The effect of these factors on the prices of diamonds and therefore the economic
      viability of any of the Company's projects cannot accurately be
      predicted.





*(p)* *The
      Company's expectations reflected in forward looking statements may prove to
      be
      incorrect.*





This
      Form
      20-F includes "forward looking statements" A shareholder or prospective
      shareholder should bear this in mind when assessing the Company's business.
      All
      statements, other than statements of historical facts, included in this annual
      report, including, without limitation, the statements under and located
      elsewhere herein regarding industry prospects and the Company's financial
      position are forward-looking statements. Although the Company believes that
      the
      expectations reflected in such forward looking statements are reasonable, such
      expectations may prove to be incorrect.





6


*(q)* *Competition*





The
      resource industry is intensely competitive in all of its phases, and the Company
      competes with many companies possessing greater financial resources and
      technical facilities. Competition could adversely affect the Company's ability
      to acquire suitable producing properties or prospects for exploration in the
      future. The Company is required under the Monopros Joint Venture Agreement
      (see
      Item 4B - Information on the Company - Business Overview) to sell its rough
      diamonds at a price that is reflective of the market price, to The Diamond
      Trading Co., a wholly-owned subsidiary of De Beers, which controls approximately
      60% of the diamond market. There is therefore no competition for diamonds
      produced from the Company's properties. The Company only competes in the
      acquisition of new properties.





*(r)
      Financing Risks*





The
      Company's current operations do not generate any cash flow. If the Company
      seeks
      additional equity financing, the issuance of additional shares will dilute
      the
      interests of the Company's current shareholders. The degree of the dilution
      would depend on the number of new shares issued and the price at which they
      are
      issued. The Company has successfully raised funds in recent years through share,
      option and warrant issuances. As at June 15, 2006, the Company had approximately
      $1.4 million in cash, and the Company does not anticipate having to seek new
      equity financing for the next 12 months **.**





*(s)
      Dilution* *from
      Outstanding Securities*





As
      at
      June 15, 2006, there were 505,000 options at prices ranging from $0.67 to $4.50
      (expiring at various dates), and nil warrants outstanding. The stock options,
      if
      fully exercised, would increase the number of shares outstanding by 505,000.
      Such options, if fully exercised, would constitute approximately 0.93% (out
      of
      54,135,847 shares (53,630,847 issued and outstanding, plus total options)
      respectively) of the Company's resulting share capital as at June 15, 2006.
      It
      is unlikely that options would be exercised unless the market price of the
      Company's common shares exceeds the exercise price at the date of exercise.
      The
      exercise of such options and the subsequent resale of such Common shares in
      the
      public market could adversely affect the prevailing market price and the
      Company's ability to raise equity capital in the future at a time and price
      which it deems appropriate. The Company may also enter into commitments in
      the
      future which would require the issuance of additional common shares and the
      Company may grant new share purchase warrants and stock options. Any share
      issuances from the Company's treasury will result in immediate dilution to
      existing shareholders.





*(t)   Conflicts
      of Interest*





At
      the
      present time, except to the extent that Patrick Evans and Jennifer Dawson have
      Consulting Agreements with the Company (see Item 6C - Board Practices), none
      of
      the officers and directors are in a position of conflict of interest. However,
      certain officers and directors of the Company are associated with other natural
      resource companies that acquire interests in mineral properties.





Such
      associations may give rise to conflicts of interest from time to time. The
      directors of the Company are required by law to act honestly and in good faith
      with a view to the best interest of the Company and to disclose any interest
      which they may have in any project or opportunity of the Company. If a conflict
      of interest arises at a meeting of the board of directors, any director in
      a
      conflict will disclose his interest and abstain from voting on such matter.
      In
      determining whether or not the Company will participate in any project or
      opportunity, the director will primarily consider the degree of risk to which
      the Company may be exposed and its financial position at that time.





*(u)
      Dependence on Key Management Employees*





The
      nature of the Company's business, its ability to continue its exploration and
      development activities and to thereby develop a competitive edge in its
      marketplace depends, in large part, on its ability to attract and maintain
      qualified key management personnel. Competition for such personnel is intense,
      and there can be no assurance that the Company will be able to attract and
      retain such personnel. The Company's development to date has depended, and
      in
      the future will continue to depend, on the efforts of its key management figure,
      Patrick Evans, who has a Consulting Agreement with the Company: See, Item 7B
      -Related party transactions, Item 6C - Board Practices, and Item 10C- Material
      Contracts. Loss of the key person could have a material adverse effect on the
      Company. The Company does not maintain key-man life insurance on Patrick
      Evans.





7


*(* *v)   Fluctuations
      in Company Stock Prices*





Prices
      for the Company's shares on the TSX and on the Amex, have been extremely
      volatile. The price for the Company's common shares on the TSX ranged from
      $2.15
      (low) and $4.96 (high) during the fiscal year ended March 31, 2006, and from
      $1.60 (low) to $2.68 (high) during the fiscal year ended March 31, 2005. Any
      investment in the Company's securities is therefore subject to considerable
      fluctuations in value.





*(* *w)
      Currency Rate Fluctuations*





Feasibility
      and other studies conducted to evaluate the Company's properties are denominated
      in U.S. dollars, and the Company conducts a significant portion of its
      operations and incurs a significant portion of its administrative and operating
      costs in Canadian dollars. The exchange rate for converting U.S. dollars into
      Canadian dollars has fluctuated in recent years. Accordingly, the Company is
      subject to fluctuations in the rates of currency exchange between the U.S.
      dollar and the Canadian dollar, and these fluctuations in the rates of currency
      exchange may materially affect the Company's financial position, results of
      operations and timing of the development of its properties.





*(x)
      The Mineral resources industry is intensely competitive and the Company competes
      with many companies that have greater financial means and technical facilities.*





The
      mineral resources industry is intensely competitive and the Company competes
      with many companies that have greater financial means and technical facilities.
      Significant competition exists for the limited number of mineral acquisition
      opportunities available. As a result of this competition, the Company's ability
      to acquire additional attractive mining properties, should it decide to do
      so in
      the future, on terms it considers acceptable may be adversely
      affected.





*(y)
      De Beers Support*





The
      exploration of the AK Property has been primarily funded by De Beers, and De
      Beers Canada has made an equity investment in the Company. However, there is
      no
      assurance that the level of support provided by De Beers will continue in the
      future.





*General*





As
      the
      Company is a Canadian company it may be difficult for U.S. shareholders of
      the
      Company to effect service on the Company or to realize on judgments obtained
      against the Company in the United States.  Some of its directors and
      officers are residents of Canada and a significant part of its assets are,
      or
      will be, located outside of the United States. As a result, it may be difficult
      for shareholders resident in the United States to effect service within the
      United States upon the Company, directors, officers or experts who are not
      residents of the United States, or to realize in the United States judgments
      of
      courts of the United States predicated upon civil liability of any of the
      Company, directors or officers under the United States federal securities laws.
      If a judgment is obtained in the U.S. courts based on civil liability provisions
      of the U.S. federal securities laws against the Company or its directors or
      officers it will be difficult to enforce the judgment in the Canadian courts
      against the Company and any of the Company's non-U.S. resident executive
      officers or directors. Accordingly, United States shareholders may be forced
      to
      bring actions against the Company and its respective directors and officers
      under Canadian law and in Canadian courts in order to enforce any claims that
      they may have against the Company or its directors and officers. Subject to
      necessary registration, as an extra provincial company, under applicable
      provincial corporate statutes in the case of a corporate shareholder, Canadian
      courts do not restrict the ability of non-resident persons to sue in their
      courts. Nevertheless it may be difficult for United States Shareholders to
      bring
      an original action in the Canadian courts to enforce liabilities based on the
      U.S. federal securities laws against the Company and any of the Company's
      resident executive officers or directors.





8


**Item
      4.**  **Information
      on the Company**





**A.**
            ***History
                and development of the
                company.***





**The
      Corporate Organization**





The
      Registrant, Mountain Province Diamonds Inc., formerly Mountain Province Mining
      Inc., was formed on November 1, 1997 by the amalgamation (the "MPV
      Amalgamation") of Mountain Province Mining Inc. ("Old MPV") and 444965 B.C.
      Ltd.
      ("444965") pursuant to an amalgamation agreement (the "MPV Amalgamation
      Agreement") dated as of August 21, 1997.





Under
      the
      terms of the MPV Amalgamation Agreement, as at November 1, 1997, each Old MPV
      share was exchanged for one MPV Share and each 444965 share was exchanged for
      approximately 0.80 of one MPV Share. The conversion ratios reflect the
      respective interests of Old MPV and 444965 in the AK-CJ Properties prior to
      the
      date of the MPV Amalgamation.





Old
      MPV
      was incorporated under the laws of British Columbia on December 2, 1986 under
      the British Columbia *Company
      Act* (the
      "Old
      Act") and was engaged in the exploration of precious and base mineral resource
      properties until the date of the MPV Amalgamation. Prior to the date of the
      MPV
      Amalgamation, Old MPV held an undivided 50% interest in the AK-CJ Properties
      and
      an interest in each of the other properties which are currently held by MPV,
      as
      described below.





444965,
      a
      wholly-owned subsidiary of Glenmore Highlands Inc., (Glenmore being a former
      controlling shareholder of the Company as defined under the *Securities
      Act* ,
      B.C.)
      prior to the MPV Amalgamation, was incorporated under the laws of British
      Columbia on August 20, 1993. Prior to the MPV Amalgamation, 444965's only
      material asset consisted of a 40% undivided interest in the AK-CJ
      Properties.





As
      of
      March 31, 2000, the Company had one wholly-owned subsidiary, Mountain Province
      Mining Corp. (USA), which has since been voluntarily dissolved.





On
      April
      4, 2000, the Company incorporated a wholly-owned subsidiary, Mountain Glen
      Mining Inc. in Alberta. Pursuant to an arrangement agreement (the "Arrangement
      Agreement") with Glenmore dated May 10, 2000, Glenmore was amalgamated with
      Mountain Glen effective as of June 30, 2000 to form a wholly-owned subsidiary
      (also known as "Mountain Glen Mining Inc.") of the Company. All Glenmore Shares
      were exchanged for common shares in the Company on the basis of 0.5734401 MPV
      Shares to one Glenmore Share, and Glenmore Shares were concurrently cancelled.
      All of the assets of Glenmore became assets of Mountain Glen, including
      16,015,696 MPV Shares previously held by Glenmore.





Glenmore
      had two wholly-owned subsidiaries, Baltic Minerals BV, incorporated in the
      Netherlands, and Baltic Minerals Finland OY, incorporated in Finland. Pursuant
      to the Arrangement, these companies became wholly-owned subsidiaries of the
      Company.





The
      Company changed its name from Mountain Province Mining Inc. to Mountain Province
      Diamonds Inc. effective October 16, 2000. It commenced trading under its new
      name on the TSX on October 25, 2000.





Pursuant
      to an Assignment and Assumption Agreement dated March 25, 2004 between the
      Company and Mountain Glen, Mountain Glen distributed its property and assets
      in
      specie to the Company with the object of winding up the affairs of Mountain
      Glen. The property transferred included Mountain Glen's shares in Baltic
      Minerals BV and the 16,015,696 MPV Shares. On March 30, 2004, the 16,015,696
      MPV
      Shares were cancelled and returned to treasury.





Mountain
      Glen was voluntarily dissolved on August 4, 2004.





Pursuant
      to the repeal of the British Columbia *Company
      Act* and its
      replacement by the British Columbia *Business
      Corporations Act* (the
      "New
      Act"), the Company transitioned to the New Act and adopted new Articles. On
      September 20, 2005, the Shareholders approved a special resolution for the
      continuance of the Company into Ontario, and the Company amended its articles
      and continued incorporation under the Ontario Business Corporation Act,
      transferring from the Company Act (British Columbia).





9


The
      Company is domiciled in Canada.





The
      names
      of the Company's subsidiaries, their dates of incorporation and the
      jurisdictions in which they were incorporated as at the date of filing of this
      Annual Report, are as follows:


**Name
                  of Subsidiary**
              **Date
                  of Incorporation**
              **Juridiction
                  of Incorporation**Baltic
                  Minerals BV
              Friday,
                  January 26, 1996
              The
                  NetherlandsBaltic
                  Minerals Finland OY
              Wednesday,
                  May 18, 1994
              Finland





The
      subsidiaries of the Company, represented diagrammatically, are as
      follows:











The
      Company's registered, records and executive office is at 220 Bay Street,
      14 th Floor,
      Toronto, Ontario, Canada M5J 2W4. The Company’s administrative and executive
      office is at 220 Bay Street, 14 th Floor,
      Toronto, Ontario, Canada M5J 2W4, the telephone number is (416) 361-3562, and
      the fax number is (416) 603-8565.





The
      Company's initial public offering on the Vancouver Stock Exchange ("VSE") was
      pursuant to a prospectus dated July 28, 1988 and was only offered to investors
      in British Columbia. The Company listed its shares on the Toronto Stock Exchange
      ("TSX") (Trading Symbol "MPV") on January 22, 1999 and on the Nasdaq Smallcap
      Market (Trading Symbol "MPVIF") on May 1, 1996. Its shares were delisted from
      the Vancouver Stock Exchange (now known as the TSX Venture Exchange and prior
      to
      that, as the Canadian Venture Exchange ("CDNX")) on January 31, 2000 and from
      the Nasdaq Smallcap Market on September 29, 2000. Presently, the Company's
      shares trade on the TSX under the symbol "MPV" and also on the Amex under the
      symbol MDM. Prior to April 4, 2005 the Company's shares traded on the OTCBB
      under the symbol "MPVI". The Company is also registered extra-provincially
      in
      Manitoba, Saskatchewan, and the Northwest Territory, and is a reporting issuer
      in British Columbia, Ontario and Alberta. **** The
      Company files reports in the United States pursuant to Section 13 of the
      Securities Exchange Act of 1934, as amended.





**Principal
      Capital Expenditures and Divestitures**





There
      are
      no principal capital expenditures and divestitures currently in
      progress.





**Takeover
      offers**





There
      were no public takeover offers by third parties in respect of the Company's
      shares or by the Company in respect of other companies' shares during the last
      and current financial year.





**Acquisitions
      and Dispositions**





On
      October 10, 2002, the Company granted an option for the acquisition by Vision
      Gate Ventures Limited (now known as Northern Lion Gold Corp.) of a 70% interest
      in its Haveri Gold Property, which is not considered to be a property that
      is
      material to the Company. On October 4, 2004, the Company agreed to exchange
      the
      Company's 30% interest in the Haveri Gold Property for 4,000,000 common shares
      of Northern Lion Gold Corp. The shares are subject to a two-year hold period
      and
      volume restrictions on re-sale thereafter.





10


**B.**
            ***Business
                overview.***





*1.1* *Introduction*





The
      Company is a natural resource property exploration and development company.
      The
      Company has interests in several natural resource properties, the most
      significant and principal property being a 44.1% interest in the AK Property
      located in the Northwest Territories. See "Item 4D - Property, plants and
      equipment".





The
      Company, as yet, does not have any commercially viable resource properties.
      Permitting, bulk sampling and drilling continues on the AK
      Property.





*1.2* *Historical
      Corporate Development*





In
      August
      1992, the Company acquired a 100% interest in the AK-CJ Properties that
      encompassed approximately 520,000 acres. Pursuant to an agreement dated November
      18, 1993 (as amended), the Company optioned 40% of its interest in the AK-CJ
      Claims to 444965, a subsidiary of Glenmore.





Pursuant
      to an agreement dated August 16, 1994 (as amended), the Company also optioned
      10% of its interest in the AK-CJ Claims to Camphor. Following the merger of
      the
      Company with 444965, the Company held a 90% interest in the AK-CJ Claims, and
      Camphor, the remaining 10%. Exploration work in the form of soil sampling,
      aerial geophysical surveys and geochemical and geophysical analysis were
      undertaken on these properties during the period from 1992 to 1995.





During
      fiscal 1995, the Company focused the majority of its attention on the AK
      Property. In February 1995, a diamondiferous kimberlite was discovered (the
      "5034" kimberlite pipe) and a program of delineation drilling was undertaken.
      Activity during this period on the Company's other properties was minimal
      because of the focus on the AK Property.





During
      1996, the Company completed a 104-tonne mini-bulk sample from the 5034
      kimberlite pipe. The results indicated an average grade of 2.48 carats per
      tonne. During 1997, the Company concluded a joint venture agreement (the
      "Monopros Joint Venture Agreement") with Monopros, a wholly-owned subsidiary
      of
      De Beers, and now known as De Beers Canada, to develop the AK-CJ Properties.
      This agreement provided that De Beers Canada could earn up to a 60% interest
      in
      the project by conducting exploration and bulk sampling on one or more new
      kimberlite deposits. As well, De Beers Canada is required to complete a
      feasibility study and fund development and construction of a commercial-scale
      mine.





During
      the 1997 exploration season, De Beers Canada discovered three new kimberlite
      pipes on the AK property: Tesla, Tuzo and Hearne. All are
      diamondiferous.





During
      the spring of 1998, De Beers Canada conducted mini-bulk sampling on the three
      new pipes as well as the 5034 kimberlite pipe, the original pipe discovery
      on
      the AK Property. The results were positive enough for De Beers to commit to
      a
      major bulk sample in 1999.





During
      1999, De Beers Canada completed a major bulk sample of the four major pipes.
      For
      the 5034 kimberlite pipe, a total of 1044 carats were recovered from 609 tonnes
      of kimberlite. For the Hearne pipe, a total of 856 carats were recovered from
      469 tonnes of kimberlite. For the Tuzo pipe, a total of 533 carats were
      recovered from 523 tonnes of kimberlite. For the Tesla pipe, 64 carats were
      recovered from 184 tonnes of kimberlite. The Tesla pipe was too low grade to
      be
      considered as part of a mine plan.





On
      March
      8, 2000 the Company agreed to extend the feasibility study decision date and
      De
      Beers Canada agreed to carry all exploration, development and other project
      costs.





On
      August
      4, 2000, De Beers Canada presented the desktop study to the Company. Upon
      presentation, De Beers Canada was deemed to earn a 51% interest in the AK-CJ
      Properties. Consequently, the Company was left with a 44.1% interest and Camphor
      Ventures Inc. with a 4.9% interest in the AK-CJ Properties. The main conclusion
      of the desktop study was that only a 15 percent increase in diamond revenues
      was
      needed for De Beers Canada to proceed to the feasibility stage.





11


On
      May 4,
      2001, De Beers Canada completed the bulk sample program of the Hearne and 5034
      pipes. A total of approximately 307 tonnes and 550 tonnes of kimberlite were
      recovered from the Hearne and 5034 pipes respectively. The modeled values of
      the
      diamonds recovered from the Hearne and 5034 pipes were reported on December
      18,
      2001 and the results were encouraging enough for De Beers to commit to another
      bulk sample during the winter of 2002. The main purpose was to recover more
      high
      quality, top color diamonds, like the 9.9-carat diamond recovered in the 2001
      program.





The
      CJ
      Property claims substantially lapsed in November 2001 and the remaining CJ
      Property claims lapsed on August 17, 2002.





The
      winter 2002 bulk sample program of the 5034 and Hearne pipes was completed
      on
      April 20, 2002. The modeled grades and values per carat for both pipes were
      used
      to update the desktop study. De Beers Canada's 2003 updated desktop study showed
      that, due to the decrease in diamond prices since September 11, 2001 and a
      lower
      U.S. dollar against the Canadian dollar, the projected return on the project
      would be slightly less than that obtained previously. As a result of the
      indicated Internal Rate of Return, well below the agreed hurdle rate of 15%,
      De
      Beers decided to postpone a pre-feasibility decision until the next year when
      the desktop study would be updated again.





At
      the
      end of July, 2003, De Beers notified the Company that they had started work
      on a
      detailed cost estimate of a pre-feasibility study of the Kennady Lake diamond
      deposits. They based their decision on the improving geo-political and economic
      conditions which supported confidence in longer-term diamond price projections.
      In November 2003, the board of directors of De Beers approved a budget of
      approximately $25 million for a pre-feasibility study which started in January
      2004.





The
      pre-feasibility study was completed in mid-2005. The projected profitability
      levels were sufficiently encouraging to support the Joint Venture’s decision to
      proceed to the next phase of permitting and advanced exploration to improve
      the
      resource confidence and input data for mine design to support a definitive
      feasibility study. On July 11, 2005, De Beers reported an increase in the
      modeled value of the diamonds for the Gahcho Kue project with the modeled values
      increasing by approximately 6, 7 and 8 percent for the Tuzo, Hearne and 5034
      pipes respectively.





On
      July
      25, 2005, the Joint Venture announced that De Beers had approved a budget of
      $38.5 million for the environmental assessment and permitting process and for
      an
      advanced exploration program. On November 29, 2005, it was announced that the
      Joint Venture had submitted an application with the Mackenzie Valley Land and
      Water Board for permits required to construct and operate a diamond mine at
      Gahcho Kue. The permit applications have been submitted to the Mackenzie Valley
      Environmental Impact Review Board for an environmental assessment.





On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was projected to be
      completed by May 2006.





For
      further particulars, reference should be made to Item 4D - Property, plants
      and
      equipment - Principal Properties - Resource Properties.





As
      of
      June 30, 2000, the Company, through the amalgamation of its wholly-owned
      subsidiary, Mountain Glen, with Glenmore, acquired the principal properties
      of
      Glenmore, namely, the Haveri and Sirkka gold properties, which are located
      in
      Finland, and indirect interests in the Telegraph and Springtime Property located
      the United States. The Sirkka, Telegraph and Springtime claims all lapsed in
      2002/2003. The Company's interests in the Ketza River Property and Molanosa
      Projects have also lapsed. The Company has a 50% interest (acquired pursuant
      to
      an option/joint venture agreement with Opus Minerals Inc., now known as First
      Strike Diamonds Inc. on July 13, 1998) in claims held by Opus Minerals Inc.
      in
      the northern end of the Baffin Island. The property values for these claims
      have
      been written off and the Baffin Island property is no longer of interest to
      the
      Company. The Company also acquired a group of seven claims in northeastern
      Manitoba on March 20, 2001. Five of the seven claims lapsed in 2003, and the
      remaining two, in 2004. The Company does not regard the properties, other than
      the AK Property, as material, and they are only briefly discussed in this annual
      report. The Haveri property was joint-ventured with Northern Lion Gold Corp.
      (formerly known as Vision Gate Ventures Limited) and in October 2004, the
      Company's remaining 30% interest in the Haveri property was exchanged with
      Northern Lion Gold Corp for 4,000,000 of the latter's common shares. For further
      particulars, reference should be made to Item 4D - Property, plants and
      equipment - Other Properties.





12


**Foreign
      Assets**





Until
      the
      Arrangement with Glenmore Highlands Inc., with the exception of the Maris
      Project (which has been dropped because the claims have lapsed) all of the
      Company's assets were located in Canada (see Item 4D - Property, plants and
      equipment - Principal Properties). Since the Arrangement, the Company has not
      generated any revenue from operations. Pursuant to the Arrangement, the assets
      of Glenmore, including properties in Finland, were acquired by Mountain Glen,
      and are now held by the Company, pursuant to the winding up of Mountain Glen's
      affairs. The Haveri Gold Property in Finland has now been transferred to
      Northern Lion Gold Corp. (formerly Vision Gate Ventures Limited). See Item
      4A -
      History and development of the Company - Acquisitions and
      Dispositions.





**Competition**





Competition
      exists from other mining exploration and development companies in respect of
      the
      acquisition of new natural resource properties. Many of the mining companies
      with which the Company competes have operations and financial strength many
      times that of the Company. Competition could adversely affect the Company's
      ability to acquire suitable properties or prospects for exploration in the
      future.





The
      Company is contractually bound to sell its diamonds from the AK-CJ Properties
      to
      The Diamond Trading Co., pursuant to the terms of the Monopros Joint Venture
      Agreement (see Item 4B - Business Overview - Description of Business - Historic
      Corporate Development). The Diamond Trading Company in turn sells its rough
      diamonds to their customers.





**Government
      Regulation**





The
      current and anticipated future operations of the Company, including development
      activities and commencement of production on its properties, require permits
      from various federal, territorial and local governmental authorities and such
      operations are and will be governed by laws and regulations governing
      prospecting, development, mining, production, exports, taxes, labour standards,
      occupational health, waste disposal, toxic substances, land use, environmental
      protection, mine safety and other matters. Companies engaged in the development
      and operation of mines related facilities generally experience increased costs,
      and delays in production and other schedules as a result of the need to comply
      with applicable laws, regulations and permits. The Company's exploration
      activities and its potential mining and processing operations in Canada are
      subject to various laws governing land use, the protection of the environment,
      prospecting, development, production, exports, taxes, labour standards,
      occupational health, waste disposal, toxic substances, mine safety and other
      matters.





In
      most
      jurisdictions, mining is regulated by conservation laws and regulations. In
      the
      Northwest Territories, the mining industry operates primarily under Canadian
      federal law because the ownership of water, fisheries, and surface and
      sub-surface rights to land are vested in the federal government. Accordingly,
      federal legislation governs prospecting, development, production, environmental
      protection, exports, and collective bargaining. Matters of a purely local or
      territorial nature, such as mine safety standards, the establishment of a
      minimum wage, education and local health services are matters for the
      Territorial government. With respect to environmental matters, the Company's
      properties are subject to federal regulation under, *inter
      alia,* the *Canadian
      Environmental Protection Act* ,
      the *Fisheries
      Act* ,
      the *Northwest
      Territories Waters Act,* the *Arctic
      Waters Pollution Prevention Act* ,
      the *Navigable
      Waters Protection Act* ,
      the *Mackenzie
      Valley Resource Management Act* and
      the *Mackenzie
      Valley Land Use Regulations.* Territorial environmental legislation may also apply for some purposes. The
      Mackenzie Valley Land and Water Board established under the federal *Mackenzie
      Valley Resource Management Act* has the
      responsibility to receive and to process applications for water licenses under
      the *Northwest
      Territories Waters Act* in most
      areas of the Northwest Territories. These licenses outline the volume of water
      the mine may use, how tailings will be treated, the quality and types of waste
      that my be deposited into the receiving environment and how the quality and
      types of waste may be monitored and contain requirements regarding the
      restoration of the tailings disposal and other affected areas. The Mackenzie
      Valley Land and Water Board also issues land use permits applicable to most
      areas of the Northwest Territories under the *Mackenzie
      Valley Land Use Regulations* .
      Such
      permits govern the manner in which various development activities on federal
      Crown and other lands may be undertaken. Applicable territorial legislation
      and
      regulations include the *Apprentice
      and Trade Certification Regulations* , *Boilers
      and Pressure Vessels Regulations, Business Licence Fire Regulations, Civil
      Emergency Measures Act, Environmental Protection Act, Environmental Rights
      Act,
      Explosives Use Act, Explosives Regulations, Fire Prevention Act, Fire Prevention
      Regulations, Labour Standards Act, Mine Health and Safety Act, Mine Health
      and
      Safety Regulations, Public Health Act, Wildlife Act* and *Workers
      Compensation Act.*





13


The *Fisheries
      Act, Northwest Territories Waters Act, Territorial Lands Act, Mackenzie Valley
      Land Use Regulations* , *Transportation
      of Dangerous Goods Act,* and
      the *Canada
      Mining Regulations* are
      federal legislation or regulations. Failure to comply with territorial and/or
      federal legislation or regulations may result in cease work orders and/or fines.





The
      Company's operations and exploration activities are also subject to substantial
      regulation under these laws by governmental agencies. The Company believes
      it is
      in substantial compliance with all material laws and regulations which currently
      apply to its activities. There can be no assurance, however, that all permits
      which the Company may require for construction of mining facilities and conduct
      of mining operations will be obtainable on reasonable terms or that such laws
      and regulations, or that new legislation or modifications to existing
      legislation, would not have an adverse effect on any exploration or mining
      project which the Company might undertake.





Portions
      of the Northwest Territories will also be subject to the jurisdiction of the
      Tli
      Cho Government, a First Nations government which will have certain powers of
      regulation in respect of "Tli Cho Lands" under the "Tli Cho Agreement", a land
      claim agreement entered into between the Tli Cho First Nation and the federal
      and territorial governments.





Failure
      to comply with applicable laws, regulations and permitting requirements may
      result in enforcement actions thereunder, including orders issued by regulatory
      or judicial authorities causing operations to cease or be curtailed, and may
      include corrective measures requiring capital expenditures, installation of
      additional equipment or remedial actions. Parties engaged in mining operations
      may be required to compensate those suffering loss or damage by reason of the
      mining activities and may have civil or criminal fines or penalties imposed
      for
      violation of applicable laws or regulations.





Amendments
      to current laws, regulations and permits governing operations and activities
      of
      mining companies, or more stringent implementation thereof, could have a
      material adverse impact on the Company and cause increases in capital
      expenditures or production costs or reduction in levels of production at
      producing properties or require abandonment or delays in development of new
      mining properties.





**C.**
            ***Organizational
                structure.***





See
      Item
      4A - History and development of the Company - The Corporate
      Organization.





**D.**
            ***Property,
                plants and equipment.***





**Principal
      Properties**





**In
      this section on "Principal Properties", the reader should note that where
      disclosures pertaining to mineral resources are made, these are not mineral
      reserves and do not have demonstrated economic viability. The Company has only
      one principal property, the AK Property, which is located in the Northwest
      Territories, which is in the permitting and advanced exploration stage and
      there
      are no reserve estimates at this time. All other estimates have been made at
      De
      Beers and De Beers Canada.**





A
      "mineral resource" as defined under the Canadian Institute of Mining and
      Metallurgy Guidelines (the "CIM Guidelines"), which are different from the
      SEC
      guidelines (the "SEC Guidelines") set forth in Guide 7 under Item 802 of
      Regulation S-K, means a concentration or occurrence of natural, solid, inorganic
      or fossilized organic material in or on the Earth's crust in such form and
      quantity and of such a grade or quality that it has reasonable prospects for
      economic extraction. The location, quantity, grade, geological characteristics
      and continuity of a Mineral Resource are known, estimated or interpreted from
      specific geological evidence and knowledge. See "Glossary of Technical Terms"
      in
      this Report.





14


In
      this
      Annual Report, because the Company is a Canadian company with mining properties
      in Canada, the definitions and disclosures are made in accordance with the
      Canadian Standards as required by Canadian law for disclosure of material
      facts.





It
      should
      be noted that the SEC Guidelines define "reserve" to mean "that part of a
      mineral deposit which could be economically and legally extracted or produced
      at
      the time of the reserve determination". No such reserves, as defined in the
      SEC
      Guidelines or as defined in the CIM Guidelines, have been determined to exist
      at
      the present time.





Readers
      should read the Independent Qualified Person's Review and Technical Report
      dated
      as of June 16, 2003 (the "Technical Report") entitled " Gahcho
      Kué, Northwest Territories, Canada "
      prepared for the Company by Malcolm L. Thurston, Ph.D., M.Ausimm, which
      Technical Report is incorporated herewith by reference. The Technical Report
      has
      been filed with the Securities Exchange Commission in the United States and
      filed with the relevant Securities Commissions in Canada on SEDAR.





Description
      of Property





*Administrative
      Offices*





The
      Company's administrative office is located at 220 Bay Street, 14 th Floor,
      Toronto, Ontario, Canada M5J 2W4. The Company considers these premises suitable
      for current needs.





*Mineral
      Properties* **





Of
      the
      Company's properties, the AK Property is currently under the most intense
      development because of the discovery of the Kennady Lake Kimberlite Field and
      is
      considered to be the Company's only principal property.





*Location
      and Access*





The
      AK
      Property, located in the Mackenzie District of the Northwest Territories, is
      centred near 63䓞' north and 109° 30' west. It is situated between Fletcher Lake
      and Walmsley Lake to the east, Kirk Lake to the north, and Margaret Lake to
      the
      west. The property lies 150 kilometers south-southeast of the main Dia Met
      Minerals Ltd. ("Dia Met") and BHP Diamonds Inc. ("BHP") discoveries at Lac
      de
      Gras and 275 kilometers east-northeast of Yellowknife. The major prospects
      are
      in the area of Kennady Lake.





A
      multitude of lakes provide access for ski and float equipped aircraft. A dock
      is
      available on Kennady Lake. The Echo Bay Mines' winter road to the Lupin mine
      site runs from Yellowknife along MacKay Lake, which is about 70 kilometers
      northwest of Kennady Lake.





*Topography,
      Vegetation and Climate*





The
      property lies in the treeless tundra of the "barren lands" some 290 kilometers
      south of the Arctic Circle, and much of the area is lake and muskeg covered.
      The
      climate is extreme with -45°C temperatures. Winter winds can create extreme wind
      chill factors and extensive drifting snow. However, average annual snowfall
      rarely exceeds one meter, most of which falls during autumn and spring storms.
      Ice-up and break-up occupy most of September and June, respectively, during
      which time access to the property is via the esker runway at Kirk Lake camp.
      The
      ice-free season generally lasts two and a half months from early July to
      mid-September. Summer temperatures rarely reach 30°C; furthermore, storms can
      occur at any time.





Local
      relief is generally extremely flat. The elevation of rolling hills varies
      between 400 meters and 550 meters above sea level.





15


*Acquisition
      - Joint Venture Agreement*





The
      AK
      Property, acquired in August 1992, consists of 132 contiguous claims, which
      total 310,175 acres, in the Mackenzie Mining District, NWT. The AK Property
      forms a nearly rectangular block, which is about 25 kilometers north-south
      by 50
      kilometers east-west. All of the claims comprising the AK Property are in good
      standing and have no legal impediments.





Until
      August 3, 2000, the AK Property and the CJ Property (together the "AK-CJ
      Properties") were held by the Company, as to 90%, and by Camphor Ventures Inc.
      ("Camphor"), as to 10%. In March, 1997, Old MPV, 444965 and Camphor announced
      the Monopros Joint Venture Agreement with Monopros (now De Beers Canada) in
      connection with the AK-CJ Properties. Operatorship by De Beers Canada was to
      occur immediately and operatorship by Canamera was effectively terminated at
      that time.





Pursuant
      to the Monopros Joint Venture Agreement dated March 6, 1997, Monopros would
      earn
      up to a 60% interest in the AK-CJ Properties in exchange for conducting an
      exploration program on the property and a bulk sampling program on one or more
      new kimberlites, completing a feasibility study on one or more kimberlites,
      and
      funding the development and construction of a commercial mine. On completion
      of
      a bulk sampling program, and if De Beers Canada committed to proceed with a
      full
      feasibility study, De Beers Canada would earn an initial 51% interest,
      increasing to a 56% or 60% interest (depending on alternative arrangements
      on
      financing the feasibility study) on the commencement of commercial production.
      If on completion of the full bulk-sampling program, De Beers Canada did not
      commit to proceeding with a feasibility study, De Beers Canada would earn only
      a
      30% interest and the Company and Camphor would continue to control the AK-CJ
      Properties.





Concurrently
      with entering into the Monopros Joint Venture Agreement, De Beers Canada
      subscribed for 209,644 units of Old MPV at a price of $4.77 per unit, each
      unit
      consisting of one common share of Old MPV and one non-transferable warrant
      to
      purchase one additional common share of Old MPV at $6.36 per share exercisable
      before March 6, 1999.





Under
      the
      agreement, De Beers Canada had until September 15, 1999 to elect to purchase
      a
      51% interest in a 3% gross overriding royalty against production from the
      property from the Company (as to 90%) and Camphor (as to 10%). This purchase
      was
      completed in November 1999.





Pursuant
      to an amending agreement dated December 17, 1999, the Joint Venture Agreement
      was amended with respect to costs of Stages 1, 2, 3 and 4 of the Joint Venture
      Program. Also, as of December 7, 1999, the joint venture parties entered
      into an Area of Interest Agreement, in respect of acquisition from third parties
      in the designated Area of Interest, being a five kilometer zone as measured
      from
      the boundary of the claims comprising the AK-CJ Properties.





Pursuant
      to an agreement reached at a meeting on March 8, 2000, the parties agreed to
      amend the Monopros Joint Venture Agreement to clarify funding obligations
      between the parties and to enable the parties to defer the feasibility study
      decision date in order to give time to De Beers Canada to investigate several
      conventional and alternative mining scenarios to be the subject of the desktop
      study. As a result, De Beers Canada agreed to fund all exploration, development
      and other project costs going forward, effective immediately and would earn
      a
      51% interest upon completion of the desktop study. The Company had been paying
      44.1% of all project costs since July 1999.





On
      August
      4, 2000, the desktop study was presented to the Company. Upon presentation,
      De
      Beers Canada was deemed to earn a 51% interest in the AK-CJ Properties.
      Consequently, the Company was left with a 44.1% interest, and Camphor Ventures
      Inc. with a 4.9% interest in the AK-CJ Properties. The CJ Property substantially
      lapsed in November 2001 with the remaining CJ Property claims lapsing on August
      17, 2002.





In
      August
      2002 De Beers took 30 of the AK claims to lease. These claims contain all the
      kimberlite discoveries at and in Kennady Lake, MZ Lake and in the Kelvin-Faraday
      area. In 2005, the Joint Venture decided to retain four leases for the
      development of the Gahcho Kue project; the Company decided to retain five leases
      for future exploration; and 21 leases were transferred to GGL Diamond Corp.
      in
      exchange for a 1.5 percent royalty.





16


*Regional
      Geological Setting*





The
      AK
      Property is located about 75 kilometers south of Aylmer Lake in the southeastern
      corner of the Slave Craton. The Slave Craton, about 400 kilometers east-west
      by
      750 kilometers north south, is an integral part of the North American Craton.
      Except for Proterozoic rocks, mainly along the margin, the Slave is composed
      dominantly of Archean rocks greater than 2.4 Ga, which makes it the oldest
      of
      the Canadian Shield. This Archean setting is significant because most economic
      kimberlites are restricted to stable Archean cratons within continental shield
      areas. It is therefore consistent that a significant kimberlite province, which
      hosts more than 150 kimberlite pipes, is centred in the heart of the Slave
      Craton. The first kimberlites were discovered there in 1991.





Kimberlites
      in the Slave Craton intrude granites, metasedimentary rocks, and in some cases,
      diabase dykes. Preliminary dating of these kimberlites indicates that their
      emplacement occurred at various times from Paleozoic to Tertiary. Kimberlite
      pipes are known to have been emplaced in Late Cretaceous and Eocene in the
      Lac
      de Gras area, in Middle Jurassic and Late Ordovician north of Lac de Gras,
      and
      in the Cambrian south of Lac de Gras in the AK Property area. It has been noted
      that corridors between northwest trending diabase dykes may mark preferred
      locations for kimberlite emplacement in the Lac de Gras area. Such parallel
      corridors may represent major crustal fracture zones that facilitate ascent
      of
      kimberlite magma.





Late
      Wisconsinan glaciation above the Slave Structural Province climaxed about 20,000
      years ago. Local and regional ice flow patterns show considerable variation.
      Glacial dispersion trends are further complicated by englacial and deglacial
      processes.





*Detailed
      Geological Setting*





Current
      regional mapping indicates that the AK Property is 90% underlain mainly by
      unsubdivided granitic rocks that intrudes the 10%, older metavolcanic and
      metasedimentary rocks of the Yellowknife Supergroup.





A
      number
      of diamondiferous kimberlite intrusions have been identified on the AK Property.
      Most have been located in the Kennady Lake area. The 5034 kimberlite has been
      dated radiometrically by the Rb-Sr method on phlogopite as Middle Cambrian
      (539
      Ma). Drilling has encountered the 5034 kimberlite, Hearne kimberlite, Tesla
      kimberlite, Tuzo kimberlite, Wallace kimberlite, and 5034-South kimberlite.
      The
      number of kimberlite bodies encountered indicates that the area may represent
      a
      kimberlite field, referred to in this Report as the Kennady Lake Kimberlite
      Field.





*Quaternary
      Geology*





At
      least
      two glaciations have scoured the area and deposited a superficial till veneer
      over bedrock. This till is generally one to two meters thick, but occasionally
      it is up to ten meters thick. The predominant direction of glacial transport
      is
      almost due east to west. All the glacial features and related deposits appear
      to
      be related to the last glacial event, the Late Wisconsinan glaciation. There
      is
      no stratigraphic evidence of deposits from previous glaciation.





*Work
      History*





Historically,
      mineral exploration in the southeastern Slave Craton focused on gold and later
      base metals, within the Yellowknife Supergroup metavolcanic and metasedimentary
      rocks in the Walmsley Lake area. However, no previous exploration for base
      or
      precious metals, within what is now the AK Property, is recorded in the
      assessment files of the Department of Indian Affairs and Northern Development
      ("DIAND"). Furthermore, there is no record of diamond exploration in the AK
      Property area prior to its staking in 1992.





*5034
      Kimberlite Pipe*





The
      5034
      kimberlite pipe was the first kimberlite discovered on the AK Property in 1995.
      It is located near the southeast corner of the AK Property under and adjacent
      to
      Kennady Lake. It is a diamondiferous kimberlite. The pipe has an irregular
      shape
      with a surface dimension of about 120 meters by 180 meters. A 35 meter wide
      dyke-like body extends from the pipe some 300 meters to the north- northeast.
      The overall near surface area is about 2.15 hectares, and the majority of it
      is
      overlain by the shallow water of Kennady Lake.





17


Diamond
      recoveries by caustic fusion of drill core from the 5034-kimberlite pipe was
      performed by The Saskatchewan Research Council and Canamera. Results in terms
      of
      "carats per tonne" and "number of macros per ten kg" are of similar magnitude
      to
      the results reported by Dia Met, Aber and Ashton from the Lac de Gras area.
      The
      results were encouraging enough for a mini-bulk sample in 1996.





*Mini-Bulk
      Sample of 5034 Kimberlite Pipe*





A
      104
      tonne "mini-bulk" test from 42 bulk sample drill holes was performed to obtain
      macro grade estimates and to obtain a reasonable quantity of diamonds for
      preliminary valuation. Macro grade estimates from the "mini-bulk" test by
      Canamera on drill core from the 5034 kimberlite pipe is reported in Table 1.
      Crushing for this test was performed as follows. The first 24.6 tonnes of the
      "mini-bulk" sample were crushed and screened at 24 millimeters, followed by
      systematic step recrushing at 12, 6, 3 and 1.5 millimeters. The second 79.0
      tonne "mini-bulk" sample involved the same crushing stages, except that the
      final crush to 1.5 millimeters was omitted. Diamond recovery utilized a Sortex
      x-ray fluorescence machine, a dense media separation plant, and a grease table.
      Recovery of all diamonds that would not pass through a 20 mesh (0.85 millimeter)
      screen was attempted. 3,895 stones totaling 257 carats were collected. Thus,
      the
      average stone size is about 0.065 carats.





**Table
      1**





**Diamond
      Recoveries by Heavy Media Plant from a "Mini-Bulk"**


**Test
      of Drill Core Samples from the 5034 Kimberlite**


**Sample
                  Weight (Tonnes)**
              
              **Weight
                  Macros >1.0 mm**
              
              **Macro
                  Carats per Tonne****Description**
              
              
              **(Carats)**
              
              **(1,000****Kg)*****5034Kimberlite
                  Pipe: Bulk Sample: Heavy Media Separation
                  Plant***Canamera
              24.6
              
              75.9
              
              3.09Canamera
              79.0(1)
              
              181.1(1)
              
              2.29(1)*Summary*
              *3,895
                  Stones*
              
              *257
                  Carats*
              
              *0.065
                  Carats/Stones*





(1) This
      portion of the bulk sample did not undergo a final crush to 1.5mm.





Valuation
      of the diamonds is difficult given the small parcel of diamonds available.
      De
      Beers Canada released in September 1997 an estimate by De Beers of US$55.00
      per
      carat with a projected revenue per tonne of US$82.50. The valuation was based
      on
      diamonds recovered from the "mini-bulk" test by Canamera (Table 1), as well
      as
      on diamond analysis of core derived from a hole drilled by De Beers Canada.
      De
      Beers valued all diamonds seven points and larger. The techniques used in the
      valuation are proprietary to De Beers.





*1997
      Exploration Program*





During
      1997 the main objective of De Beers Canada was to locate additional kimberlite
      pipes and obtain sufficient samples for diamond analysis to establish the merits
      of exploration on the AK Property. In particular, an additional pipe or pipes
      were sought in the immediate vicinity of the 5034 kimberlite in order to find
      sufficient potential tonnage and diamond content to warrant bulk sampling to
      determine economic viability of the AK Property. Consequently, De Beers Canada
      conducted the following on the AK Property: (i) probe analyses of indicator
      minerals recovered from till samples by Canamera, (ii) additional till sampling,
      (iii) a comprehensive airphoto survey and follow-up analysis of surficial
      geology, (iv) a detailed helicopter-borne magnetometer and electromagnetic
      survey, and (v) a drilling program.





The
      1997
      drilling program, consisted of land based core holes and air drill holes, which
      were targeted with the geophysical survey. Three new diamondiferous kimberlite
      pipes were discovered. The Tesla kimberlite, about 1.0 kilometers
      north-northwest of the 5034 kimberlite, was discovered in May. The Tuzo
      kimberlite and Hearne kimberlite, about 0.6 kilometers north-northwest and
      1.08
      kilometers southwest of the 5034 kimberlite pipe, respectively, were discovered
      in August 1997. The 1997 objectives of De Beers Canada were achieved with the
      discovery of the Tesla, Tuzo and Hearne kimberlite pipes. However, although
      a
      limited amount of drilling was undertaken outside the Kennady Lake Kimberlite
      Field, no new kimberlites were found. Thus, the exploration program for 1998
      was
      designed to focus on the further evaluation of the Hearne, Tuzo, Tesla and
      5034
      kimberlites, as well as the discovery of the sources of the many known indicator
      mineral dispersion trains.





18


*The
      Hearne, Tesla and Tuzo Kimberlites*





Diamond
      recoveries by caustic fusion of drill core from the Hearne, Tesla and Tuzo
      kimberlites are in Table 2. De Beers in Kimberley, South Africa performed
      caustic fusion for De Beers Canada.





Results
      in terms of "number of macros per 10 kg" are of similar magnitude to preliminary
      results reported in Table 2 for the 5034 kimberlite pipe.





**Table** **2**





**Diamond
      Recoveries by Caustic Fusion of Drill Core from the Hearne, Tesla and Tuzo
      Kimberlites,**


**Kennady
      Lake Kimberlite Field, AK Property**


**No.
                  of****Sample**
              
              **No.
                  of**
              
              **Diamonds**
              
              **Weight**
              
              **Macros**
              
              **No.
                  of Macros****Description**
              
              **Weight
                  (kg)**
              
              **Diamonds**
              
              **per
                  10 kg**
              
              **(Carats)**
              
              **>0.5
                  mm****(1)**
              
              **per
                  10 kg*****Hearne
                  Pipe***Hole
                  1
              
              
              132
              
              
              324
              
              
              25
              
              
              0.90
              
              
              33
              
              
              2.5Hole
                  2 &
              
              
              168
              
              
              439
              
              
              26
              
              
              1.33
              
              
              50
              
              
              3.0Hole
                  3***Tesla
                  Pipe***Hole
                  1
              
              
              245
              
              
              188
              
              
              8
              
              
              0.13
              
              
              14
              
              
              0.6***Tuzo
                  Pipe***Hole
                  1
              
              
              124
              
              
              403
              
              
              33
              
              
              2.09
              
              
              36
              
              
              2.9Hole
                  2
              
              
              154
              
              
              294
              
              
              19
              
              
              0.39
              
              
              19
              
              
              1.2


(1) Size
      measured as stones not passing through a 0.5 by 0.5mm screen.





*1998
      Mini-Bulk Sample*





During
      1998, De Beers Canada conducted a mini-bulk sample on the four pipes in Kennady
      Lake on the AK Property that was designed to extract, by reverse circulation
      drill, small bulk samples from the recently discovered Hearne, Tuzo and Tesla
      pipes as well as the 5034 pipe. The object of this work was to determine if
      diamonds of sufficient quantity and value were indicated to be contained in
      these pipes and therefore provide justification for a further large scale bulk
      sampling program. In addition, continued exploration was undertaken outside
      of
      the Kennady Lake Kimberlite Field on both the AK-CJ Properties in an effort
      to
      locate new kimberlite occurrences. Table 3 lists the results of the mini-bulk
      sampling program on the kimberlites in the Kennady Lake Kimberlite Field
      cluster.





19


**Table** **3**





**Results
      Of Mini-Bulk Sampling Of Kimberlites**


**In
      The Kennady Lake Kimberlite Field Cluster**


**Best
                  Fit****Sample**
              
              
              
              
              
              **Best
                  Fit**
              
              
              
              **Value
                  per****Size**
              
              **Carats
                  per**
              
              **Value
                  per**
              
              **Value
                  per**
              
              **Value
                  per**
              
              **Tonne****Description**
              
              **(Tonnes)**
              
              **Tonne**
              
              **Carat
                  (US$)**
              
              **Carat
                  ($US)**
              
              **Tonne
                  (US$)**
              
              **(US$)**Hearne
                  Pipe
              
              
              62.6
              
              
              2.33
              
              
              25
                  - 50
              
              
              44
              
              
              58
                  - 177
              
              
              103Tuzo
                  Pipe
              
              
              48.0
              
              
              2.20
              
              
              51
                  - 108
              
              
              68
              
              
              112
                  - 238
              
              
              150




**Best
                  Fit****Sample**
              
              
              
              
              
              **Best
                  Fit**
              
              
              
              **Value
                  per****Size**
              
              **Carats
                  per**
              
              **Value
                  per**
              
              **Value
                  per**
              
              **Value
                  per**
              
              **Tonne****Description**
              
              **(Tonnes)**
              
              **Tonne**
              
              **Carat
                  (US$)**
              
              **Carat
                  ($US)**
              
              **Tonne
                  (US$)**
              
              **(US$)**Tesla
                  Pipe
              
              
              50.0
              
              
              0.37
              
              
              56
                  - 112
              
              
              96
              
              
              21
                  - 41
              
              
              365034
                  Pipe
              
              
              55.8
              
              
              1.60
              
              
              26
                  - 58
              
              
              51
              
              
              42
                  - 93
              
              
              82





In
      addition to the mini-bulk sampling program, core drilling of the Hearne, Tuzo,
      Tesla and 5034 pipes was conducted in order to provide a better definition
      of
      the geological and tonnage models of each of these bodies.





*1999
      Bulk Sampling Program*





The
      main
      purpose of the bulk sampling phase of evaluation was to obtain a sufficiently
      large number of diamonds for more accurate determination of grade and value
      per
      carat.





The
      bulk
      sample drilling, using two 12.25-inch diameter reverse circulation (RC) drills,
      started January 16, 1999. The objective of sampling approximately 1,600 tonnes
      of kimberlite to recover the anticipated number of carats was completed ahead
      of
      schedule on April 6, 1999. A total of 1,666 tonnes of kimberlite was extracted
      from a total of 43 vertical holes drilled into the four pipes to depths of
      up to
      300 meters. At the completion of drilling, 575 tonnes were extracted from the
      5034 pipe, 454 tonnes from the Hearne pipe, 460 tonnes from the Tuzo pipe and
      177 tonnes from the Tesla pipe.





The
      bags
      of kimberlite chips and diamonds were sent to the De Beers Canada Dense Media
      Separation plant (DMS) in Alberta, where the chips were washed in a scrubber
      and
      the larger pieces crushed to smaller sizes and recombined with the sample which
      was subsequently fed through the DMS plant. The resulting concentrate was
      collected in a tamper-proof cage and the concentrate containers sealed prior
      to
      shipment to South Africa for final diamond recovery. The recovered rough
      diamonds were then sent to Kimberley for evaluation. These values were passed
      to
      the De Beers Mineral Resource Estimation Department in Johannesburg and utilized
      together with all other recorded data in the grade and value modelling. These
      modeled values are De Beers' best estimates for the revenues per tonne expected
      during mine production.





20


*5034
      Pipe*





In
      December 1999, De Beers Canada advised the Company of the modeled revenue and
      grade estimates for the 5034 pipe. The modeled revenue value per tonne increased
      significantly from the initial estimate based on the previous year's mini-bulk
      sample. For the 5034 pipe a total of 1044 carats were recovered from 609 tonnes
      of kimberlite. De Beers valued the recovered diamonds per sieve class in
      Kimberley, South Africa. The De Beers Mineral Resources Estimation Department
      has used these current grade and diamond values, together with the mini-bulk
      sample results and the micro- and macrodiamond results announced previously,
      to
      model a grade (carats per tonne) and a revenue per carat for each of the four
      lobes that make up the 5034 pipe. Production recovery factors, determined by
      De
      Beers, were applied and the commonly used commercial bottom cut-off recovery
      size of a screen with a 1.50 mm square mesh was used to determine the grades.





The
      5034
      pipe was subdivided on the basis of internal geology into four lobes - a west,
      centre, and east lobe as well as a north lobe that extends to the north under
      land. Based on the 1999 bulk sampling results, the west, central and eastern
      lobes are classified in the Indicated Resource category. The north lobe, which
      was not part of the 1999 bulk sampling, remains in the Inferred Resource
      category. The modeled results for each of these parts of the pipe are summarized
      in Table 4 below:





**Table
      4**





**Modeled
      Results for West, Centre, East and North Lobes of 5034
      Pipe**


**Modeled
                  Grade**
              **Modeled
                  Revenue**
              **Value
                  per tonne****5034
                  Pipe**
              **(carats
                  per tonne)**
              **(US$/carat)**
              **US$**West
                  lobe
              1.85
              65
              120.3Centre
                  lobe
              1.30
              55
              71.5East
                  lobe
              1.70
              65
              110.5North
                  lobe
              1.70
              65
              110.5





The
      modeled grades represent grades based on the complete three-dimensional model
      of
      the pipe taking into account the different phases of kimberlite, low and high
      grade zones, etc. These modeled values are thus the best estimates of the grade
      and expected revenue for the pipe.





*Tesla
      Pipe*





In
      December 1999, De Beers Canada notified the Company that 64 carats had been
      recovered from the processing of 184 tonnes of kimberlite from the Tesla pipe
      for a sample grade of 0.35 carats per tonne. This grade compares to a modeled
      grade of 0.37 carats per tonne based on the results of the previous year's
      mini-bulk sample. The largest diamond recovered was 2.7 carats. The Tesla is
      the
      smallest of the four pipes sampled.





*Hearne
      Pipe*





In
      late
      January 2000, De Beers Canada reported to the Company the modeled revenue and
      grade estimates for the Hearne diamond pipe. The modeled value per carat
      increased significantly (from US$44 to US$65 per carat) from the initial
      estimate based on the 1998 mini-bulk sample while the modeled value per tonne
      also increased from US$103 to US$111.





The
      Hearne pipe consists of two parts, a northern and a southern lobe. The two
      lobes
      have been subdivided on the basis of internal geology into several phases.
      Based
      on the 1999 bulk sampling results, all parts of the Hearne body except the
      south
      lobe Phase E between 200 and 300 meters (called Phase E1) were classified in
      the
      Indicated Resource category. Phase E1 remains in the Inferred Resource category.
      The modeled results for each of these parts of the pipe are summarized in Table
      5 below:





21


**Table
      5**





**Modeled
      Results for North and South Lobes of Hearne Pipe**


**Kimberlite****Resource**
              
              
              **Revenue
                  Per****(million**
              **Modeled
                  grade**
              **Modeled
                  Revenue**
              **Tonne****Hearne
                  Pipe**
              **tonnes)**
              **(carats
                  per tonne)**
              **(US$/carat)**
              **US$**North
                  Lobe Phase A
              3.08
              2.05
              65
              133North
                  Lobe Phase B
              1.61
              0.60
              65
              39North
                  Lobe Phase C
              0.72
              2.05
              65
              133South
                  Lobe Phase D
              1.14
              2.05
              65
              133South
                  Lobe Phase E1
              0.31
              2.05
              65
              133





The
      modeled grades are based on a three-dimensional model of the pipe taking into
      account the different phases of kimberlite, (e.g. low and high grade zones).
      These modeled values are thus the best current global estimates of the grade,
      value per carat, and expected revenue per tonne for the pipe.





*Tuzo
      Pipe*





In
      March
      2000, De Beers Canada advised the Company of the modeled revenue and grade
      estimates for the Tuzo diamond pipe.





The
      Tuzo
      pipe can be divided into four zones based on the internal geology. The top
      80
      meters (from 20 meters to 100 meters depth) of the pipe consists mainly of
      Zone
      A and Zone B kimberlite and is classified as an indicated resource of 2.6
      million tonnes. From 100 meters depth to 200 meters, the pipe consists
      predominantly of Zone Bg kimberlite containing generally greater than 40%
      granite inclusions and some Zone B and Zone C kimberlite. This interval of
      the
      pipe is classified as an indicated resource of 3.5 million tonnes. At depths
      of
      200 meters to 300 meters, the pipe is classified as an inferred resource of
      4.1
      million tonnes and consists predominantly of Zone C kimberlite with some Zone
      B
      and Zone Bg kimberlite. An additional 4.7 million tonnes of kimberlite on the
      western side of the pipe (from 200 to 360 meters depth) and in the deeper parts
      of the pipe (from 300 to 360 meters depth) have not been included in the revenue
      and grade modelling. The modeled results for each of these zones of the pipe
      which have been sampled are summarized in Table 6 below.





The
      average modeled grade of 1.22 carats per tonne is greater than the initial
      bulk
      sampling grade of 1.02 carats per tonne. The modeled revenue value per carat
      of
      $43 compares to a best-fit value of $68 determined from the 1998 mini bulk
      sample. The decrease in value per carat is due to the smaller number of larger
      diamonds and hence a higher proportion of smaller stones. The modeled grades
      are
      based on a three-dimensional model of the pipe taking into account the different
      zones of kimberlite, (e.g. low and high grade zones). Systematic auditing of
      the
      processed concentrates (tailings) from the Tuzo kimberlite has recovered an
      additional nineteen carats of diamonds which have been incorporated into the
      modelling of the Tuzo grades. These modeled values are thus the best current
      global estimates of the grade, value per carat, and expected revenue per tonne
      for the pipe.





**Table
      6**





**Modeled
      Results for Zone A, B, Bg and C of Tuzo Pipe** ****


**Kimberlite****Resource****(million**
              **Modeled
                  grade**
              **Modeled
                  Revenue**
              **Revenue
                  Per
                  Tonne****Tuzo
                  Pipe**
              **tonnes)**
              **(carats
                  per tonne)**
              **(US$/carat)**
              **US$**Zone
                  A
              1.0
              2.7
              47
              127Zone
                  B
              2.4
              0.94
              33
              31Zone
                  Bg (>40%granite)
              2.4
              0.62
              33
              20Zone
                  C
              4.4
              1.35
              47
              63





22





*1999
      Exploration/Delineation Program*





Believing
      there could be more kimberlite bodies in Kennady Lake, De Beers Canada in 1999
      continued to undertake surface geological surveys in the vicinity of the known
      kimberlites. Several lake based geophysical targets (EM highs) were identified
      by these surveys. The first to be drilled is located approximately 300 meters
      southwest of the southern extremity of 5034 pipe. The angled drill hole
      intersected 36 meters of kimberlite between 60 and 104 meters giving a
      horizontal projection of 22 meters. Based on the available information, De
      Beers
      Canada believes that the maximum dimension of this pipe, called the Wallace
      pipe, is unlikely to exceed 60 meters.





A
      second
      geophysical target was drilled approximately 150 meters northeast of the
      recently discovered Wallace pipe and approximately 150 meters southwest of
      the
      5034 pipe. This angled drill hole intersected 43 meters of kimberlite between
      56
      and 99 meters giving a horizontal projection of 31 meters. This new body has
      been called 5034-South.





In
      addition, De Beers Canada looked for and found similar EM highs in other areas
      of the southern part of the AK Property. One of these, a lake based geophysical
      target is located in the area of the head of a long, broad indicator mineral
      train. The target is approximately 12 km northeast of Kennady Lake. An angled
      drill hole intersected 34 meters of kimberlite between 38 and 72 meters giving
      a
      horizontal projection of 22 meters. A second hole, collared nearby, intersected
      successive narrow intersections (varying from 2 to 7 meters) of kimberlite.
      The
      exciting part of this discovery was that it was the first time a substantial
      intersection of kimberlite had been discovered outside of the Kennady Lake
      cluster of pipes. This new kimberlite body was named the Faraday
      body.





*Feasibility
      Study Decision - 2000*





When
      the
      results as set out in Table 6, above, were obtained, both De Beers Canada and
      the Company agreed on March 8, 2000, that it was unlikely that the agreed upon
      rate of return would be achieved from the mining of the 5034, Hearne and Tuzo
      pipes, using the conventional open pit mining method. As a result, the Company
      agreed to extend the feasibility study decision date and De Beers Canada has
      agreed to carry all exploration, development and other project costs. Prior
      to
      March 8, 2000, the Company had been paying 44.1% of all project expenses since
      July 1999. De Beers Canada, in the meantime, conducted a desktop study to
      investigate several alternative mining scenarios in order to minimize capital
      and working costs associated with the possible mining of the Kennady Lake pipes.
      The results of that desktop study were presented to the Company on August 4,
      2000. The study showed that the modeled rate of return for the mining of the
      three main diamond pipes was below the agreed upon rate of return needed to
      proceed to the next phase, but sufficiently close to only require an increase
      in
      diamond revenues of approximately 15% to achieve the agreed upon rate. A
      management committee was constituted and it was decided that the best options
      to
      advance the project were an additional bulk sample and additional exploration.
      The bulk sample was completed in May 2001 and the exploration in June 2001.





The
      modeled values of the diamonds recovered in the 2001 bulk sample were reported
      on December 18, 2001 and the results were encouraging enough for De Beers to
      commit to another bulk sample during the winter 2002. The main purpose of the
      program was to recover more high quality, top color diamonds. Such diamonds
      very
      likely would increase the values per tonne, which in turn could positively
      impact the modeled rate of return in the desktop study.





**Exploration
      from 2000 onwards**





De
      Beers
      Canada and the Company recognized that the best way to enhance the potential
      economic viability of the project was by adding quickly to the resource base.
      The results from the extensive 1999 summer sampling program were integrated
      with
      the existing geophysical and sampling databases to define targets that required
      drilling.





The
      2000
      spring exploration drilling program started in early March and ended in the
      second week of May. A new kimberlite body which has been named Kelvin, was
      discovered in a lake located approximately nine km northeast of Kennady Lake,
      which contains the Gahcho Kué diamondiferous kimberlites, and three km southwest
      of the diamondiferous Faraday body. One drill hole in the north-south direction
      intersected 40 meters of kimberlite horizontally projected, while another hole
      in approximately the east-west direction intersected 23 meters of kimberlite
      horizontally projected. A third hole drilled failed to intersect kimberlite.
      The
      shape and dimensions of the Kelvin kimberlite is difficult to determine from
      the
      three holes completed. A 3.3 meter thick kimberlite dyke (called Hobbes) at
      a
      depth of 31 meters was discovered approximately 200 meters south of the Kelvin
      body in the same lake. The Kelvin kimberlite is relatively small, so any
      additional work will concentrate on exploration in the hope of making additional
      discoveries in that area.





23


Kimberlite
      recovered from the Faraday- Kelvin bodies were sent for acid dissolution in
      Kimberley, South Africa. The micro-diamonds recovered per square sieve size
      are
      shown in Table 7 (i.e., the number of micro-diamonds that did not pass through
      each of the square mesh sieves). The two largest diamonds for the Kelvin body
      are 8.9 and 8.5 points (one point is one-hundredth of a carat). Diamonds larger
      than the 0.5 x 0.5 mm square sieve size are called "macro-diamonds". The number
      of macro and micro-diamonds recovered for both the Faraday and Kelvin bodies
      and
      their size-frequency distribution is very similar to that for the 5034 and
      Hearne pipes in Kennady Lake (representative micro-diamond results for the
      5034
      and Hearne pipes are also shown in the table). Those pipes have average grades
      of 1.67 carats per tonne.





**Table
      7: Micro-diamonds recovered from the Faraday and Kelvin bodies compared to
      representative**


**samples
      from the Hearne and 5034 pipes** .


Square
                  mesh
                Size
                  (mm)
              Kelvin:
                  184kg
                Number
                  of
                diamonds
              Faraday:
                  40kg
                Number
                  of
                diamonds
              Hearne:
                  128kg
                Number
                  of
                diamonds
              5034:
                  160 kg
                Number
                  of
                diamonds2
              5
              1
              2
              41
              9
              0
              10
              100.5
              11
              5
              17
              230.3
              44
              11
              46
              370.212
              65
              12
              77
              680.15
              139
              21
              83
              1380.104
              73
              24
              143
              218





A
      ground
      gravity survey conducted in the 2003 winter program covered the Kelvin body
      and
      as far as a few hundred meters south of Hobbes, and identified several drill
      targets. A hole (called Kelvin 1b) drilled 50 m to the west of the original
      2000
      drill hole into Kelvin (called Kelvin 1a) intersected a total of 25 m of
      kimberlite horizontally projected in two closely spaced intervals, while a
      hole
      drilled 60 m to the east intersected 2.01 m of kimberlite horizontally
      projected. The Kelvin body now appears to extend not just in the north-south
      direction, but also in the east-west direction.





A
      hole
      (called Kelvin-2) drilled 120 m south of Kelvin along the suspected structure
      between Kelvin and Hobbes intersected 7.4 m of kimberlite horizontally
      projected, while a hole (called Hobbes-2) drilled 70 m south of Hobbes
      intersected two kimberlite intersections of 2.4 m and 3.0 m horizontally
      projected, respectively. It is suspected that this Hobbes intersection and
      the
      Kelvin body could be connected with a kimberlite bearing structure that pinches
      and swells.





A
      ground
      gravity survey and detailed ground magnetic survey was then conducted over
      the
      Faraday body and approximately 600 m to the south along the suspected structure
      connecting the Faraday body and the 2001 hole that intersected some kimberlite.
      The main purpose of the survey was to identify wider areas along the observed
      dyke structure. Several such areas were identified and two of the better target
      areas were drilled.





The
      first
      target, a magnetic anomaly, was approximately 100 m southwest of the Faraday
      body and 5.6 m of kimberlite horizontally projected was intersected. The
      kimberlite contained some country rock. The second target, a gravity anomaly,
      was approximately 520 m southwest of the Faraday body and approximately 80
      m
      north of the 2001 drill hole. Kimberlite was encountered just below the lake
      bottom and 21.5 m of kimberlite horizontally projected was intersected. It
      is
      suspected that the kimberlite intersections to the north and south of the
      Faraday body are probably connected to the Faraday body with a kimberlite
      bearing dyke structure that pinches and swell.





24


The
      recovered kimberlite from all intersections was sent for petrographic analysis
      and micro-diamond recovery and the results are shown on Table 8.





**Table
      8: Micro-diamonds from the Faraday, Kelvin and Hobbes kimberlite
      bodies**


Square
                    Mesh Size
                  (mm)
                Faraday-1b
                    33kg
                  Number
                    of
                  diamonds
                Faraday
                    -2 65 kg
                  Number
                    of
                  diamonds
                Kelvin-1b
                    65 kg
                  Number
                    of
                  diamonds
                Kelvin-2
                    16 kg
                  Number
                    of
                  diamonds
                Hobbes-2
                  16
                    kg
                  Number
                    of
                  diamonds2.36
                0
                1
                0
                0
                01.70
                0
                2
                0
                0
                01.18
                1
                2
                2
                0
                00.85
                0
                6
                4
                0
                00.60
                1
                7
                6
                0
                00.425
                0
                17
                14
                3
                10.300
                3
                21
                24
                4
                20.212
                11
                41
                40
                4
                40.150
                8
                47
                60
                4
                20.100
                2
                50
                53
                19
                4





The
      number of diamonds recovered from the kimberlite bodies in the Kelvin-Faraday
      lakes and their size-frequency distribution are very similar to those for the
      5034 and Hearne pipes, which each have grades averaging 1.67 carats per tonne.
      The two largest diamonds recovered weigh 0.40 carats (Faraday-2) and 0.09 carats
      (Kelvin-1b). The important point to notice is, besides the total number of
      diamonds recovered, that there are a relatively large proportion of
      macro-diamonds (those that did not pass through the 0.425-0.6 sieve sizes
      (Lakefield) or the 0.5 sieve sizes (De Beers), especially considering the small
      sample sizes.





The
      kimberlite samples for Kelvin-2 and Hobbes-2 were very small (only 16 kg each)
      so even though the micro-diamond counts for these bodies are not as good as
      for
      the others, the results are still very encouraging. This is especially so
      considering that, even for the 5034 and Hearne pipes, the micro-diamond counts
      for 20 kg samples varied significantly.





The
      winter-spring exploration program started at the end of February 2004. De Beers
      conducted a very large ground gravity survey from the northern part of Faraday
      Lake following the structural trend in a southwestern direction to the property
      border. The survey area was approximately three km wide and six gravity meters
      were used (compared to one meter the previous year). The targets obtained from
      the survey were prioritized and then the best and larger ones were drilled.
      A
      kimberlite intersection of 2.0 m was intersected approximately 1300 m to the
      southwest of the Faraday body.





During
      the 1999 winter program kimberlite dykes were discovered in MZ Lake located
      in
      the central part of the AK claims, approximately 20 km northwest of Kennady
      Lake. A larger number of indicator minerals, mainly garnets, have been recovered
      on the western edge of the lake and as far west as the border of the AK claims
      (approximately 20 km to the west). A land based target on the north shore of
      MZ
      Lake, was drilled with a vertical hole to a depth of 35 meters. Five kimberlite
      stringers with the largest two having thicknesses of 0.40 and 0.70 meters were
      intersected, as well as a 1.70 meter thick intersection of what is believed
      to
      be a sill (an approximately horizontal lying kimberlite body).





This
      result was followed up in March and April, 2001, by a ground penetrating radar
      (GPR) survey that covered the entire length of the northern shore of the lake
      (approximately 4 km) and several shallow dipping reflectors were detected on
      land along most of the area surveyed. De Beers Canada drilled five of the seven
      holes in May 2001, mainly along the periphery of the surveyed area where strong
      GPR reflector signals were recorded. All holes were drilled vertically, on
      land
      and all except one were drilled to a maximum depth of 50 m. Kimberlite was
      intersected in five of seven drill holes on land just north of MZ Lake. The
      thickest intersection was 3.20 meters of kimberlite at a depth of 27 meters
      and
      the distance between the most easterly and most westerly intersections of
      kimberlite was nearly four kilometers. De Beers Canada believes that there
      are
      several sills of various lengths, widths and thicknesses north of the
      lake.





25


Most
      of
      the recovered kimberlite (34 kg) was sent to South Africa for both indicator
      mineral and micro-diamond recovery. An additional 22 kg from the two holes
      drilled into the MZ kimberlite during 1999 (MPV-99-33) and 2000 (MPV-00-004)
      was
      also treated. A total of 40 micro-diamonds were recovered from four of the
      six
      holes.





The
      largest number of microdiamonds was recovered from hole MPV-01-73 (called
      sill-73): 28 diamonds from 5 kg with the largest diamond being 1mm. The second
      largest number of microdiamonds was recovered from hole MPV-01-070: 9 diamonds
      from 4 kg. Four of the five sills discovered so far have been determined to
      be
      diamondiferous. Because of these encouraging results De Beers decided upon
      a
      follow-up program at MZ Lake during the spring of 2002. A detailed ground
      penetrating radar (GPR) survey using closer line spacing than in 2001, was
      conducted over a large area encompassing sill-73. The results of survey were
      used to determine drill hole locations. A total of 10 follow-up holes were
      drilled into sill-73 and numerous intersections of kimberlite was recovered.
      The
      thicknesses of the intersections varied from 7cm to 2.19m with the largest
      combined kimberlite intersection in one drill hole being 3.49m, between 14.66m
      and 19.25m depth. This sill appears to extend at least one kilometer. The MZ
      kimberlite from sill-73 was sent to Kimberley, South Africa for micro-diamond
      recovery. Only five microdiamonds were recovered.





2001/2002
      Bulk Sampling





The
      winter 2001 bulk sample program of the Hearne and 5034 kimberlite pipes was
      completed on May 4, 2001. De Beers Canada recovered 751 carats from 334 tonnes
      of kimberlite from the Hearne pipe and 914 carats from 635 tonnes from the
      5034
      pipe. There were three holes drilled into the high-grade northern part of the
      Hearne pipe and four holes into the high-grade eastern lobe of the 5034 pipe.
      The kimberlite samples were processed in Grand Prairie, Alberta, Canada and
      the
      sample concentrates were subsequently shipped to South Africa where the diamonds
      were recovered.





The
      1,665
      carats that were recovered from both pipes (to a 1.5mm lower cut-off) plus
      the
      diamonds recovered from the 1999 bulk sample were all valued, based on August
      2001 diamond prices, at The Diamond Trading Company (DTC) in London. The De
      Beers Mineral Resources Estimation Department in Johannesburg has used these
      values for both bulk samples to update the modeled revenue per carat for each
      pipe. Production recovery factors, determined by De Beers, were applied and
      the
      commonly used commercial bottom cut-off recovery size screen with a 1.50mm
      square mesh was used. De Beers changed the way diamond values were reported
      to
      the Company to make them comparable to the values reported by other Canadian
      diamond mining companies. To compare the 1999 and the current values, 10% was
      added to the 1999 values. The average revenue per carat for the 5034 pipe based
      on August 2001 values was US $65.50 for the combined 1999 and 2001 parcels,
      compared to the adjusted US $69.30 value for the 1999 bulk sample. Similarly
      the
      average revenue per carat for the Hearne pipe was US $63.30 compared to the
      adjusted US $71.50 value for the 1999 bulk sample. According to analysts and
      industry sources, the prices of rough diamonds had fallen by an average of
      around 20% during the recession of 2000-2001 and at least 10% since late 1999.
      The decreases in value for the diamonds from the 5034 and Hearne pipes were
      thus
      consistent with or less than the large drop in rough diamond market
      values.





A
      9.9-carat diamond recovered from the 5034 pipe was of high quality and top
      color, and was valued by the DTC at approximately US $60,000. The Company's
      consultant, Overseas Diamonds N.V. from Antwerp, Belgium, valued representative
      parcels of the diamonds at the DTC in November. Their values for selected
      parcels were within several percent of the De Beers' values for those same
      parcels. It was observed at the DTC that a population of high quality diamonds
      (such as that of the 9.9 carat diamond) exists amongst the diamonds recovered
      to
      date from the Hearne and 5034 pipes. This observation and additional follow-up
      analysis of these diamonds has led De Beers to the decision that more bulk
      sampling of the Hearne and 5034 pipes was needed. More high quality diamonds
      needed to be recovered so that their size frequency distribution could be
      determined more accurately. High quality diamonds have a large impact,
      especially the larger ones, on the revenue per tonne so the more accurately
      their size frequency distribution is known, the greater the confidence in and
      the accuracy of the revenue modeling. High quality diamonds also offer upside
      potential to the values per carat. The occurrence of the 9.9-carat stone posed
      the possibility that these stones could occur regularly during production.
      Consequently, De Beers Canada decided to do more bulk sampling of the Hearne
      and
      5034 pipes in 2002.





26


The
      2002
      bulk sample program of the 5034 and Hearne diamond pipes started on February
      13,
      2002 and ended April 20, 2002. A total of six large diameter holes were drilled
      into the 5034 pipe and five into the Hearne pipe. The same drill (24 inch
      diameter) and same drill method (a "diamond friendly" flood reverse system)
      that
      was used in 2001 was used again in 2002. De Beers recovered approximately 684
      tonnes of kimberlite from the Hearne pipe and approximately 837 tonnes of
      kimberlite from the 5034 pipe for a total of 1,521 tonnes.





The
      1,215
      carats recovered from the 5034 pipe and the 1,174 carats recovered from the
      Hearne pipe as well as the diamonds recovered from the 1999 and 2001 bulk
      samples (all to a 1.5 mm lower cut-off) were all valued, based on the January
      2003 diamond prices, at the Diamond Trading Company (DTC) in London. The De
      Beers Mineral Resource Department in Johannesburg has used these values for
      all
      three (1999, 2001, 2002) bulk samples to update the modeled revenue per carat
      for each pipe. Production recovery factors, determined by De Beers, have been
      applied and the commonly used commercial bottom cut-off recovery size screen
      with a 1.50 mm square mesh has been used. These diamond values were then
      combined with the updated grade information to give modeled revenue per tonne
      values.





Table
      9
      shows the weighted average modeled grades, values per carat and revenues per
      tonne for the four lobes in the 5034 pipe and the various geologic zones in
      the
      Hearne pipe. The 5034 pipe has an indicated resource of 8.6 million tonnes
      and
      an inferred resource of 4.5 million tonnes, while Hearne has an indicated
      resource size of 5.5 million tonnes and an inferred resource of 1.6 million
      tonnes, all to a depth of 290 m below lake surface.





**Table
      9 - Weighted Average Model Grades**


Pipe
              Modeled
                  Grade
                (Carats
                  per tonne)
              Modeled
                  Values
                (US$
                  Carat)
              Revenue
                  per tonne
                (US$)5034
              1.67
              62.70
              104.70Hearne
              1.67
              50.00
              83.50





The
      previous valuation of the diamonds from the 1999 and 2001 bulk samples was
      in
      August 2001. After September 11, 2001, diamond prices decreased in value by
      an
      average of around 20% with more severe decreases in certain categories of
      diamonds according to industry sources. Since then, De Beers has increased
      diamond prices twice and on average diamond prices are now nearly back to
      pre-September 11, 2001 levels. Specifically, the January 2003 valuations of
      the
      1999 and 2001 bulk sample diamonds were on average 5-6% less than the August
      2001 valuations for the same diamonds.





The
      average modeled value per carat of US $62.70 for the 5034 pipe compares to
      the
      average value of US $65.50 based on the August 2001 price book, reported in
      December 2001. The drop is slightly less than the average drop in diamond values
      since then. The weighted average modeled grade for the 5034 pipe increased
      to
      1.67 carats per tonne from 1.64 carats per tonne as reported in December 1999.
      The upper and lower limits for the value per carat modeling are 18% -
      20%.





The
      average modeled value per carat of US $50.00 for the Hearne pipe compares to
      a
      value of US $63.30 based on the August 2001 values. The weighted average modeled
      grade for the Hearne pipe decreased to 1.67 carats per tonne from 1.71 carats
      per tonne as reported in December 1999. The upper and lower limits for the
      value
      per carat modelling are 18% and 16% respectively.





De
      Beers
      and the Company's consultant, Overseas Diamonds N.V., have confirmed that a
      sub-population of high quality, top color diamonds exists in both the 5034
      and
      Hearne pipes. A 3.4 carat diamond recovered from the Hearne pipe is such a
      diamond and has been valued at US $7,140. These diamonds represent a significant
      part of the total value of the diamonds even though they only represent a small
      fraction of the total number of diamonds.





In
      2003,
      De Beers used a De Beers group composite of a year's production from kimberlite
      mines with wide ranges of production but similar dollar per carat values, in
      the
      value per carat modelling in the over two carat size range. The reason for
      this
      is that relatively speaking, only a small number of over two carat diamonds
      were
      recovered from the Hearne and 5035 pipes and these diamonds have a wide range
      of
      values. This modelling technique models the shape of the revenue curves for
      the
      Hearne and 5034 pipes to be similar to the shape of the curves for a composite
      of producers above the two carat size range. This technique is slightly more
      conservative than the technique used previously but is more representative
      of an
      actual production scenario.





27


The
      diamonds recovered from the 1999, 2001 and 2002 bulk samples of the Hearne
      and
      5034 pipes and the 1999 bulk sample of the Tuzo pipe (all to a 1.5 mm lower
      cutoff), were last valued at the Diamond Trading Company (DTC) using the March
      2004 diamond prices. The modeled values per carat, based on those valuations
      and
      on production recovery factors as determined by De Beers, were reported on
      June
      16, 2004. Since March 2004, diamond prices have risen due to strong demand
      and
      the DTC has increased their selling prices several times. The modeled values
      per
      carat for the three pipes were adjusted recently using the August 2004 DTC
      diamond prices.





The
      table
      below shows the weighted average modeled values per carat for the three pipes
      in
      March 2004 and August 2004.


Name
                  of Pipe
              March
                  2004 Modeled Value Per
                Carat
                (US$
                  per Carat)
              August
                  2004 Modeled Value Per
                Carat
                (US$
                  per Carat)5034
              74.20
              79.20Hearne
              61.00
              65.00Tuzo
              49.00
              53.00





The
      average modeled values per carat increased by an average of approximately 7%
      between March 2004 and August 2004. The increase since January 2003 has been
      25%
      for the 5034 and 29% for the Hearne pipes.





*Feasibility
      Study Decision*





The
      results of the 2002 bulk sample program of the Hearne and 5034 pipes were
      reported in April 2003 and the results of the updated desk top study two weeks
      later. Even though the study shows that estimated capital costs have increased
      only slightly and that the estimated operating costs have dropped significantly,
      the effect of lower diamond values (especially for the Hearne pipe) and a lower
      US dollar against the Canadian dollar since the 2000 desktop study, has resulted
      in an internal rate of return (IRR) slightly less than that obtained previously.
      Considering the indicated IRR, which is well below the agreed hurdle rate,
      combined with the current geo-political environment and uncertainties, De Beers
      decided to postpone a pre-feasibility decision until the next year when the
      desktop study would be updated again. In the meantime, De Beers would continue
      with exploration in the Kelvin-Faraday area with an objective of adding to
      the
      existing resource.





At
      the
      end of July, 2003, De Beers notified the Company that they had started work
      on a
      detailed cost estimate of a pre-feasibility study of the Kennady Lake diamond
      deposits. They based their decision on the improving geo-political and economic
      conditions which supported confidence in longer-term diamond price projections.
      In November 2003, the De Beers board approved a budget of approximately $25
      million for a pre-feasibility study which started in January 2004.





The
      table
      below shows the weighted average modeled values per carat for the three pipes
      in
      August 2004 and June 2005.




**Name
                of Pipe**
            ****August
                2004****
              **Modeled
                Value Per Carat**
              **(US
                  $ per Carat)**
            ****June
                2005****
              **Modeled
                Value Per Carat**
              **(US
                $ per Carat)**5034
            $79.20
            $85.70Hearne
            $65.00
            $70.00Tuzo
            $53.00
            $56.00


28





The
      pre-feasibility study was completed in mid-2005. The projected profitability
      levels were sufficiently encouraging to support the Joint Venture’s decision to
      proceed to the next phase of permitting and advanced exploration to improve
      the
      resource confidence and input data for mine design to support a definitive
      feasibility study. On July 11, 2005, De Beers reported an increase in the
      modeled value of the diamonds for the Gahcho Kue project with the modeled values
      increasing by approximately 6, 7 and 8 percent for the Tuzo, Hearne and 5034
      pipes respectively.





On
      July
      25, 2005, the Joint Venture announced that De Beers had approved a budget of
      $38.5 million for the environmental assessment and permitting process and for
      an
      advanced exploration program. On November 29, 2005, it was announced that the
      Joint Venture had submitted an application with the Mackenzie Valley Land and
      Water Board for permits required to construct and operate a diamond mine at
      Gahcho Kue. The permit applications have been submitted to the Mackenzie Valley
      Environmental Impact Review Board for an environmental assessment.





On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was completed by May
      2006.





**Other
      Properties**





No
      work
      has been done on the Baffin Island Joint Venture since 2001 and the property
      was
      written off in fiscal 2004.





Pursuant
      to the amalgamation of Mountain Glen and Glenmore, the Company's wholly-owned
      subsidiary, Mountain Glen, acquired mineral properties in Finland. These mineral
      properties were transferred to the Company when Mountain Glen wound up its
      affairs.





As
      of the
      previous fiscal year, the Company had one non-material property in Finland,
      the
      Haveri Gold Property. An option was granted on October 10, 2002 to Northern
      Lion
      Gold Corp. (formerly Vision Gate Ventures Limited) for the acquisition of a
      70%
      interest in the Haveri Property. On October 4, 2004, the Company agreed to
      exchange its remaining 30% interest in the Haveri Property for 4,000,000 shares
      of Northern Lion Gold Corp.





**Item
      4A.**  **Unresolved
      Staff Comments**





Not
      Applicable





**Item
      5.**  **Operating
      and Financial Review and Prospects**





**A.**
            ***Operating
                results.***





The
      following discussion of the financial condition and operating results of the
      Company should be read in conjunction with the consolidated financial statements
      and related notes to the financial statements which have been prepared in
      accordance with Canadian generally accepted accounting principles ("GAAP").
      Discussion and analysis set forth below covers the results obtained under GAAP
      in Canada. A significant difference between Canadian and U.S. GAAP exists with
      respect to accounting for mineral property acquisition and exploration costs
      which have been capitalized under Canadian GAAP but are required to be expensed
      under U.S. GAAP when incurred until such time as commercially mineable deposits
      are determined to exist within a particular property. Material measurement
      differences between accounting principles generally accepted in Canada and
      the
      United States, applicable to the Company, are described in Note 10 to the
      consolidated financial statements.





**Fiscal
      Year ended March 31, 2006 compared to Fiscal Year ended March 31,
      2005**





The
      Company had a loss of $2,199,888 (or $0.04 per share) for the fiscal year ended
      March 31, 2006 (“fiscal 2006”), compared to income of $1,531,244 (or $0.03 per
      share) for the same period ended March 31, 2005 (“fiscal 2005”).





29





Other
      than operating expenses, the majority of this loss was due to the Company’s
      write down of $1,080,000 in its long term investment related to Northern Lion
      Gold Corp. Operating expenses were $1,132,061 for the year ended March 31,
      2006
      compared to $848,502 for the same period ended March 31, 2005. Increased
      consulting fees for the year (2006 - $309,217; 2005 - $141,586) were somewhat
      offset by lower professional fees (2006 - $166,150; 2005 - $235,680) in the
      year. Included in consulting fees were the amounts paid to Jan Vandersande
      in
      his capacity as the former President and CEO until October 31, 2005 in the
      amount of $102,127 (2005 - $131,905), and to Patrick Evans as President and
      CEO
      from November 7, 2005 to the yearend in the amount of $56,074 (2005 - $nil)
      as
      well as recruitment costs and the outside engineering and other consulting
      associated with the Gahcho Kue Joint Venture. The incremental Professional
      fees
      for 2005 included costs associated with listing the Company on Amex with trading
      beginning April 4, 2005. Also contributing to the net loss for March 31, 2006
      is
      stock-based compensation expense of $314,879 (2005 - $189,400) as a result
      of
      options granted during the year to an officer of the Company, as well as
      increased directors’ fees and honourarium of $37,500 for March 31, 2006 compared
      to $2,700 for the year ended March 31, 2005. Promotion and investor relations
      expense has increased from March 31, 2005’s level of $30,503 to $108,184 for the
      year ended March 31, 2006 as a result of increased promotion and investor
      relations activity. Regulatory and filing fees during the year ended March
      31,
      2006 are less than those of March 31, 2005 (2006 - $99,794; 2005 - $114,459)
      with the completion of the Amex listing application in the March 31, 2005 fiscal
      year. Office and miscellaneous expenses (2006 - $43,647; 2005 - $89,941) are
      down due to cost cutting measures taken in the year ending March 31, 2005,
      and
      low ongoing administration costs for the Company.





**Fiscal
      Year ended March 31, 2005 compared to Fiscal Year ended March 31,
      2004**





The
      Company had net earnings for the fiscal year ended March 31, 2005 ("fiscal
      2005") totaling $1,531,244 or $0.03 per share compared to a loss for the fiscal
      year ended March 31, 2004 ("fiscal 2004") of $1,813,005 or $0.04 per share.





During
      fiscal 2005, operating expenses were $848,502 compared to $1,231,491 in fiscal
      2004. The reduction in operating expenses of $382,989 or 31% was the result
      of
      continuing cost cutting measures including (i) reduced consulting fees ($126,080
      in fiscal 2005 and $182,846 in fiscal 2004), (ii) reduced directors' fees
      ($2,700 in fiscal 2005 and $33,350 in fiscal 2004), and (iii) reduced
      professional fees ($235,680 in fiscal 2005 and $307,441 in fiscal 2004. There
      was an increase in transfer agent and regulatory fees ($114,459 in fiscal 2005
      and $37,890 in fiscal 2004) due to listing on the American Stock Exchange and
      a
      new expense for stock-based compensation in fiscal 2005 ($189,400) due to a
      change in accounting policy for expensing stock options.  Commencing April
      1, 2004, in accordance with new Canadian accounting standards, the Company
      expenses the fair value of all stock options. Previously, the Company only
      recorded stock-based compensation for options that were granted to
      non-employees. The change in accounting policy was adopted on a retroactive
      basis without restatement of prior periods.





During
      fiscal 2005 the Company's interest income was $13,112 compared to $12,127 a
      year
      earlier. The increase is a result of increased funds available for
      investment.





In
      fiscal
      2005, there was a gain on the sale of mineral properties in the amount of
      $4,226,634 and no similar gain in fiscal 2004.  The gain relates mainly to
      the sale of the Company's remaining 30% interest in its Haveri property in
      return for 4,000,000 common shares of Northern Lion Gold Corp. The gain and
      initial value of the 4,000,000 common shares were determined based on the fair
      value of Northern Lion Gold Corp. shares. This resulted in a gain of $4,187,634
      to the Company on this sale. The Company also recorded a gain of $39,000 on
      the
      sale of the Baffin Island project to Patrician Diamonds Inc. in exchange for
      325,000 common shares of Patrician Diamonds Inc. During fiscal 2005, the Company
      incurred a write-down on long-term investments relating to the decrease in
      the
      market price of the Northern Lion Gold Corp. shares subsequent to their
      acquisition. In fiscal 2005 there was no write-down of mineral properties,
      however in fiscal 2004 expenses include a write-down of $589,669 of mineral
      properties and deferred exploration costs, relating principally to the Baffin
      Island diamond property.





30





**B.**
            ***Liquidity
                and capital
                resources.***





Since
      inception, the Company’s capital resources have been limited. The Company has
      had to rely upon the sale of equity securities to fund property acquisitions,
      exploration, capital investments and administrative expenses, among other
      things.





The
      Company reported working capital of $808,267 at March 31, 2006 ($1,040,723
      as at
      March 31, 2005), and cash and cash equivalents of $845,452 ($1,001,104 at March
      31, 2005). The Company had no long-term debt at either March 31, 2006 or March
      31, 2005. The Company does not incur any direct costs in connection with the
      Gahcho Kue Project as De Beers Canada is responsible for all exploration,
      development, permitting and evaluation costs to commercial production.





During
      the year, the Company received $634,850 by issuing 465,000 shares upon the
      exercise of various stock options (2005 - $981,730 issuing 1,408,736 shares
      upon
      the exercise of options).





Subsequent
      to the year-end, the Company received proceeds of $776,250 through the exercise
      of options including $610,000 through the exercise of options by directors.
      With
      cash on hand of approximately $1,330,000 as at June 27, 2006, the Company
      believes it has sufficient capital for planned spending through fiscal 2007.





The
      Company expects to continue incurring annual losses until it receives revenue
      from production on the Gahcho Kué Project, if placed into production. 
There is no assurance that the property will be developed or placed into
      production.  On July 25, 2005, the Joint Venture announced that De Beers
      had approved a budget of $38.5 million for the environmental assessment and
      permitting process and for an advanced exploration program. On November 29,
      2005, it was announced that the Joint Venture had submitted an application
      with
      the Mackenzie Valley Land and Water Board for permits required to construct
      and
      operate a diamond mine at Gahcho Kue. The permit applications have been
      submitted to the Mackenzie Valley Environmental Impact Review Board for an
      environmental assessment.





It
      is
      anticipated that the cash and cash equivalents on March 31, 2006 provide the
      Company with sufficient funds until approximately late calendar 2007. Although
      the Company has received funds from the exercise of stock options and warrants
      in the past and the exercise of some outstanding options, which are currently
      in
      the money, could conceivably  extend that date into calendar 2008, there is
      no assurance that such stock options will be exercised in which case the Company
      will consider undertaking an equity financing.  It follows that there can
      be no assurance that financing, whether debt or equity, will always be available
      to the Company in the amount required at any particular time or for any
      particular period or, if available, that it can be obtained on terms
      satisfactory to the Company. If the Company is unable to receive additional
      funds through the issuance of its shares, it will be required to reduce
      operations.





As
      at
      June 15, 2006, the Company has 505,000 stock options outstanding which are
      exercisable at prices between $0.67 and $4.50 per share.  If all of the
      stock options were exercised, the Company would receive proceeds of
      $1,230,800 **,** but
      there
      is no assurance that these will be exercised and such exercise cannot be
      considered to be part of the Company's financing strategy. If all of the options
      were exercised, to which no assurance can be given that all or any will be
      exercised, these funds would be available to the Company as working
      capital.





**C.**
            ***Research
                and development, patents and licenses,
                etc.***





The
      Company does not engage in any research and development activities and has
      not
      patents or licenses.





**D.**
            ***Trend
                information.***





There
      are
      no major trends which are anticipated to have a material effect on the Company's
      financial condition and results of operations in the near future. The reduction
      of expenses has been achieved in most areas. Management will continue its
      efforts to reduce other expenses.





31





**E.**
            ***Off-balance
                sheet arrangements.***





The
      Company has no off balance sheet arrangements.





**F.**
            ***Tabular
                disclosure of contractual
                obligations.***





The
      Company has no contractual obligations relating to debt or lease obligations
      as
      at March 31, 2006.





**Critical
      Accounting Estimates**





The
      preparation of financial statements in conformity with Canadian generally
      accepted accounting principles requires the Company to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting periods. Significant estimates and assumptions
      are
      used in determining the application of the going concern concept, the continual
      deferral of costs incurred for mineral properties and deferred exploration,
      assumptions used to determine the fair value of stock-based compensation, and
      impairment of long-term investment. The Company evaluates its estimates on
      an
      ongoing basis and bases them on various assumptions that are believed to be
      reasonable under the circumstances. The Company's estimates form the basis
      for
      making judgments about the carrying value of assets and liabilities that are
      not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





The
      Company believes the policies for going concern, mineral properties and deferred
      exploration are critical accounting policies that affect the significant
      judgments and estimates used in the preparation of the Company's financial
      statements.





The
      Company considers that its mineral properties have the characteristics of
      property, plant and equipment, and, accordingly defers acquisition and
      exploration costs under Canadian generally accepted accounting principles.
      The
      recoverability of mineral property acquisition and deferred exploration
      expenditures is dependent upon the discovery of economically recoverable
      reserves and on the future profitable production, or proceeds from disposition,
      of the Company's properties. The Company is in the process of exploring its
      mineral properties and has not yet determined whether the properties contain
      mineral reserves that are economically recoverable. Development of any property
      may take years to complete and the amount of resulting income, if any, is
      difficult to determine with any certainty. The sales value of any mineralization
      discovered by the Company is largely dependent upon factors beyond the Company's
      control, such as the market value of the diamonds recovered.





Changes
      in circumstances in the future, many of which are outside of management's
      control, will impact on the Company's estimates of future recoverability of
      net
      amounts to be realized from their assets. Such factors include, but are not
      limited to, the availability of financing, the identification of economically
      recoverable reserves, co-venturer decisions and developments, market prices
      of
      minerals, the Company's plans and intentions with respect to its assets and
      other industry and competitor developments.





While
      the
      Company believes that economically recoverable reserves will be identified,
      there is no assurance that this will occur. Failure to discover economically
      recoverable reserves will require the Company to write-off costs capitalized
      to
      date and will result in further reported losses.





The
      consolidated financial statements have been prepared on a going concern basis
      in
      accordance with Canadian generally accepted accounting principles, which assumes
      that the Company will continue in operation for the foreseeable future and
      be
      able to realize its assets and discharge its liabilities and commitments in
      the
      normal course of business.





The
      Company believes that it has the ability to obtain the necessary financing
      to
      meet commitments and liabilities as they become payable and that economically
      recoverable reserves will be discovered. The costs of further exploration of
      the
      AK claims are being borne by De Beers Canada.





The
      Company uses the Black-Scholes option pricing model to determine the fair value
      of stock-based compensation recognized. Estimates and assumptions are required
      under the model, including those related to the Company's stock volatility,
      expected life of options granted, and the risk free interest rate.  The
      Company believes that its estimates used in arriving at stock-based compensation
      are reasonable under the circumstances.





32


The
      Company's long term investment of shares in Northern Lion Gold Corp. is
      considered to be impaired if a decline in value is considered to be other than
      temporary. During the year ended March 31, 2006, the Company wrote down its
      investment equal to the quoted market price of the Northern Lion Gold Corp.
      shares at the time, as it considered the decline in the investment to be other
      than temporary.





**Effect
      of Inflation**





In
      the
      Company's view, at no time during any of the last three fiscal years have
      inflation or changing prices had a material impact on the Company's sales,
      earnings or losses from operations, or net earnings.





**U.S.
      Generally Accepted Accounting Principles**





U.S.
      GAAP
      differs in some respects from Canadian GAAP, as applied to the Company.
      Reference should be made to Item 3A - Selected Financial Data, and Note 10
      to
      the Consolidated Financial Statements of the Company for a description and
      quantification of material measurement differences between Canadian GAAP and
      U.S. GAAP.





**Item
      6.**  **Directors,
      Senior Management and Employees**





**A.**
            ***Directors
                and senior
                management.***





The
      following table lists, as of June 15, 2006, the names of the directors and
      senior management of the Company. The directors and senior management have
      served in their respective capacities since their election and/or appointment
      and will serve until the next Annual General Meeting of Shareholders or until
      a
      successor is duly elected, unless the office is vacated in accordance with
      the
      Company's Articles or unless there is a prior resignation or
      termination.


**Name**
                **Position
                    with Company**
                **Date
                    of First Appointment**
                **Age**Jonathan
                    Comerford
                Chairman
                    and Director(1)(2(3)
                Chairman
                    of the Company since May 11, 2006 and Director since September
                    21,
                    2001.
                34Patrick
                    Evans
                President,
                    Chief Executive Officer and Director
                President
                    and director of the Company since November 15, 2005.
                51Jennifer
                    Dawson
                Chief
                    Financial Officer
                Chief
                    Financial Officer since May 11, 2006
                45Carl
                    Verley
                Director(1)(2(3)
                Director
                    of Old MPV since December 2, 1986 and Director of the Company
                    since
                    November 1, 1997.
                56David
                    E. Whittle
                Director(1)(2)(3)
                Saturday,
                    November 01, 1997
                42D.
                    Harry W. Dobson
                Director
                Saturday,
                    November 01, 1997
                58Elizabeth
                    J. Kirkwood
                Director
                Director
                    since September 21, 2001.
                56


(1)    
      Member of the Company's Corporate Governance Committee.





(2)    
      Member of the Company's Audit Committee.





(3)    
      Member of the Company's Compensation Committee.





33


The
      following is a description of the Company's directors and senior management.
      The
      information provided is not within the knowledge of the management of the
      Company and has been provided by the respective directors and senior
      officers.





***Jonathan
      Christopher James Comerford, B.A. (Econ.), M.B.S.
      (Finance)***





A
      director of the Company since September, 2001 and Chairman since April 2006.
      Mr.
      Comerford is resident in Dublin, Ireland. Mr. Comerford obtained his Masters
      in
      Business from the Michael Smurfit Business School in 1993 and his Bachelor
      of
      Economics from University College, Dublin, in 1992. Mr. Comerford is Investment
      Manager at IIU Limited (since August, 1995). Jonathan Comerford represents
      the
      Company's largest shareholder, Bottin (International) Investments Ltd. on the
      Company's board. **





***Patrick
      C. Evans, B.A., B.Sc.***





President,
      CEO and a director of the Company since November 2005. He is a resident of
      Wisconsin, USA. Mr. Evans is a graduate of the University of Cape Town where
      he
      received his Bachelor of Arts degree in 1977 and Bachelor of Science degree
      in
      1978. He was a career diplomat from 1979 to 1998. In 1999, he was appointed
      a
      Vice President of Placer Dome Inc. and a non-executive director of SouthernEra
      Resources Ltd. In 2001 he was appointed President and CEO of SouthernEra
      Resources Ltd. and Messina Limited. In 2004, he was appointed President, CEO
      and
      a director of Southern Platinum Corp, which was acquired by Lonmin ***Plc*** in
      June
      2005. In September 2005 he was appointed President, CEO and a director of Weda
      Bay Minerals Inc., which was acquired by Eramet S.A. in May 2006.





*Jennifer
      M. Dawson, B.B.A.*





Chief
      Financial Officer and Corporate Secretary since May 2006. She is a resident
      of
      Ontario, Canada. Ms. Dawson is a graduate of St. Francis Xavier University
      where
      she received her Bachelor of Business Administration in 1984. Her work
      experience includes public accounting experience with Touche Ross & Co. (now
      Deloitte), and financial management experience with CCH Canadian Limited and
      Genesis Media Inc. She provided financial support to SouthernEra Resources
      Ltd.
      in its corporate reorganization in 2004, and ongoing financial support to both
      SouthernEra Diamonds Inc. and to Southern Platinum Corp. after the
      reorganization. In addition to her CFO and Corporate Secretary roles with the
      Company, she provides financial and administrative services to Arizona Star
      Resource Corp.





***Elizabeth
      J. Kirkwood***





Ms.
      Elizabeth J. Kirkwood has been a director of the Company since September, 2001
      and Chairman of the Board of the Company since January 2003. She was appointed
      Chief Financial Officer on September 16, 2003 and Corporate Secretary of the
      Company on November 6, 2003. She is resident in Ontario, Canada, and a member
      of
      the Prospectors and Developers Association of Canada. Ms. Kirkwood was the
      President and CEO of First Nickel Inc. (November 2003 to June 2006).  She
      is also a director of Intrepid Minerals Corporation (since April 1999) Canadian
      Shield Resources Inc. (since June 2005) and Everbright Capital Corporation
      (since June 2005). She has been a past director of Investor Links.com (March
      1993-May 2001), Canada's Choice Spring Water (July 1996-August 1999), Stroud
      Resources Ltd. (August, 2000 - March 2002) and a past director and officer
      of
      O.S.E Corp. (formerly Oil Springs Energy Corp. (July, 1993- June 2005), Hucamp
      Mines Limited (May 2001-May 2002), and First Strike Diamonds Inc. (October
      1995
      - March 2004).





***Carl
      G. Verley, B.Sc., P. Geol.***





A
      director of Old MPV since December 1986 and a director of the Company since
      November 1997. He is a resident of British Columbia, Canada. Mr. Verley is
      a
      graduate of the University of British Columbia where he received his Bachelor
      of
      Science Degree in May of 1974. From August of 1990 to January 2002, he has
      served on the Board of Directors of Gee-Ten Ventures Inc. In August of 1991,
      the
      Association of Professional Engineers and Geoscientists of British Columbia
      awarded him the professional designation of Professional Geologist. He has
      been
      a self-employed geologist since 1982. Since July 2003, he has been a director
      of
      La Plata Gold Corporation.





34


***David
      E. Whittle, B.Com., C.A.***





A
      director of the Company since November 1997. He is a resident of British
      Columbia, Canada. A Chartered Accountant, Mr. Whittle was employed with Coopers
      & Lybrand, Chartered Accountants, from 1987 to 1992. From 1992 through 2004,
      Mr. Whittle served as operator or partner of a financial consulting and
      chartered accounting practice. From 1993 to June 2000, Mr. Whittle was President
      and director of Glenmore Highlands Inc. and President and director of 444965
      B.C. Ltd. From November 1997 to April 1998, Mr. Whittle served as Secretary
      of
      the Company. From 1994 to January 1998, Mr. Whittle was CFO and a director
      of
      Lytton Minerals Limited. From 1993 to January 1998, Mr. Whittle was CFO,
      Corporate Secretary and a director of New Indigo Resources Inc. Currently,
      Mr.
      Whittle is Chief Financial Officer of Hillsborough Resources Limited and a
      director of Image Innovations Holdings Inc.





***D.
      Harry W. Dobson***





A
      director of the Company since November 1997. He is a resident of Scotland.
      Mr.
      Dobson was the founder and chairman of American Pacific Mining Company Inc.
      and
      a director of Breakwater Resources Ltd. until 1991. Subsequent to 1991, Mr.
      Dobson served as Deputy Chairman of the Board and a director of Lytton Minerals
      Limited. He is a former officer and director of 444965 B.C. Ltd., and served
      as
      a director and Chairman of Glenmore Highlands Inc. Since October 2001, he has
      been a director and officer of Kirkland Lake Gold Inc.





Compensation
      for the directors has been approved effective April 1, 2005 at the following
      levels: the Chairman of the Board receives $10,000 per annum, the Chairman
      of
      the Audit Committee receives $7,500 per annum, and all other Directors receive
      $5,000 per annum. All are paid semi-monthly, in advance.





**B.**
            ***Compensation.***





The
      Company has two executive officers (collectively, the "Executive Officers"):
      Patrick Evans, the President and CEO, and Jennifer Dawson, the Chief Financial
      Officer and Corporate Secretary. Elizabeth Kirkwood held the positions of Chief
      Financial Officer and Corporate Secretary for the most recently completed
      financial year, and Jan Vandersande held the position of President and CEO
      until
      October 31, 2005. For particulars on these executive officers, reference should
      be made to Item 6A - Directors and Senior Management.





The
      compensation paid to the executive officers and details of management contracts
      and incentive options granted to the two executive officers of the Company
      for
      the Company's most recently completed financial years is detailed in the table
      below:





**Summary
      Compensation Table**




**Annual
                  Compensation**
              **Long
                  Term Compensation****Awards**
              **Payouts****Name
                  and Principal Position of Named Executive Officer**
              **Financial
                  Year Ending**
              **Salary
                  ($)**
              **Bonus
                  ($)**
              **Other
                  Annual Compensation ($)**
              **Securities
                  Under Options / SARs Granted (#)**
              **Shares
                  or Units Subject to Resale Restrictions ($)**
              **LTIP
                  Payouts ($)**
              **All
                  Other Compensation ($)**Patrick
                  Evans(1)
                President
                    and Chief Executive Officer (started November 1,
                    2005)
              2006
              Nil
              Nil
              $58,157
              200,000(2)
              Nil
              Nil
              NilJan
                  W. Vandesande(3)
                President
                    and Chief Executive Officer (until October 31, 2005)
              2006
              Nil
              Nil
              $102,127
              Nil
              Nil
              Nil
              NilElizabeth
                  Kirkwood(4)
                Chairman,
                    Chief Financial Officer and Corporate Secretary (until May 10,
                    2006)
              2006
              Nil
              Nil
              $34,000
              Nil
              Nil
              Nil
              Nil
 35





(1)    
      $56,074 was paid to Patrick Evans pursuant to a Consulting Agreement for his
      services as President and CEO, as well as a prorated director’s fee of $2,083
      for the year ended March 31, 2006.





(2)    
      Options granted as follows: 100,000 options granted November 1, 2005 with 50,000
      vesting upon acceptance of the Consulting Agreement and 50,000 vesting on the
      first anniversary of acceptance of the Consulting Agreement - all have an
      exercise price of $2.63, and are exercisable for a period of 5 years; and
      100,000 options granted on January 30, 2006 with an exercise price of $4.50
      and
      with 50% of the options vesting immediately, and 50% vesting January 31, 2007.
      All 100,000 options granted January 30, 2006 are exercisable for a period of
      5
      years from grant.





3)    
      These monies were paid to Dr. Vandersande pursuant to a consulting agreement.
      This amount includes drug, medical and dental benefits paid to Dr.
      Vandersande.





(4)    
      Includes $18,000 paid to a company which is wholly owned by Elizabeth Kirkwood
      in consideration for accounting and corporate services performed by her,, $6,000
      for consulting services provided by her to the Company, and $10,000 for
      director’s fees in her capacity as Chairman of the Board for the year ended
      March 31, 2006.





The
      Company has no Long-Term Incentive Plan ("LTIP) in place and therefore there
      were no awards made under any long-term incentive plan to the Executive Officers
      during the Company's most recently completed financial year. A "Long-Term
      Incentive Plan" is a plan providing compensation intended to motivate
      performance over a period of greater than one financial year, other than a
      plan
      for options, SARs (stock appreciation rights) or compensation through shares
      or
      units that are subject to restrictions on resale.





The
      following table sets out incentive stock options exercised by the Executive
      Officers during the most recently completed financial year, as well as the
      financial year end value of stock options held by the Executive Officers. During
      this period, no outstanding SARs were held by the Executive
      Officers.


**Name**
              **Securities,
                  Acquired on Exercise (#)**
              **Aggregate
                  Value Realized ($)****(1)**
              **Unexercised
                  Options at Financial Year-End Exercisable / Unexercisable
                  (#)**
              **Value
                  of Unexercised In-the-Money Options at Financial Year-End Exercisable
                  /
                  Unexercisable ($)****(2)**Elizabeth
                  Kirkwood (until May 10, 2006)
              10,000
              $12,600
              80,000/Nil
              244,400/NilPatrick
                  Evans (since November 1, 2005)
              Nil
              Nil
              100,000/100,000
              122,500/122,500Jan
                  W. Vandersande (until October 31, 2005)
              170,000
              $255,250
              Nil/Nil
              Nil/Nil





(1)   
      Based on the difference between the option exercise price and the closing market
      price of the Company's shares on the date of exercise.





(2)   
      In-the-Money Options are those where the market value of the underlying
      securities as at the most recent financial year end exceeds the option exercise
      price. The closing market price of the Company's shares as at March 31, 2006,
      (ie. financial year end) was $4.79.





There
      were no options or freestanding SARs held by the Executive Officers that were
      re-priced downward during the most recently completed financial year of the
      Company.





The
      Company does not have a defined benefit/actuarial plan, under which benefits
      are
      determined primarily by final compensation and years of service of the Company's
      officers and key employees.





In
      addition to the foregoing, some of the executive officers of the Company are
      also entitled to medical and dental benefits, reimbursement of all reasonable
      business expenses and, from time to time, the grant of stock
      options.





No
      plan
      exists, and no amount has been set aside or accrued by the Company or any of
      its
      subsidiaries, to provide pension, retirement or similar benefits for directors
      and officers of the Company, or any of its subsidiaries.





**C.**
            ***Board
                practices.***





The
      directors of the Company are elected annually and hold office until the next
      annual general meeting of the members of the Company or until their successors
      in office are duly elected or appointed. The Company does not have an executive
      committee. All directors are elected for a one-year term. All officers serve
      at
      the pleasure of the Board. The next Annual General Meeting of the shareholders
      of the Company has been scheduled for September 13, 2006.





36


The
      Board
      has adopted a Charter under which it and the Board's committees operate. The
      Company's board of directors has three committees- the Audit Committee, the
      Nominating/Corporate Governance Committee and the Compensation Committee.





*Audit
      Committee*





The
      members of the Audit Committee do not have any fixed term for holding their
      positions and are appointed and replaced from time to time by resolution of
      the
      board of directors. It is composed of at least three directors, and the Board
      has determined that David Whittle, C.A. of the Audit Committee meets the
      requirement of an "audit committee financial expert" as defined in Item 16A
      of
      Form 20-F. Each member of the Audit Committee has the financial ability to
      read
      and understand a balance sheet, an income statement and a cash flow
      statement.





The
      current members of the Audit Committee are Jonathan Comerford, Carl Verley
      and
      David Whittle. Except for the chairman (as described in Item 6.B), David
      Whittle, the Audit Committee members receive no separate remuneration for acting
      as such and their appointments are not for any fixed term.





The
      Audit
      Committee is appointed by the Board to assist the Board in fulfilling its
      oversight responsibilities. Its primary duties and responsibilities are
      to:





a.
            identify
                and monitor the management of the principal risks that could impact
                the
                financial reporting of the Company;





b.
            monitor
                the integrity of the Company's financial reporting process and system
                of
                internal controls regarding financial reporting and accounting
                compliance;





c.
            make
                recommendations regarding the selection of the Company's external
                auditors
                (by shareholders) and monitor their independence and
                performance;





d.
            provide
                an avenue of communication among the external auditors, management
                and the
                Board;





e.
            handle
                complaints regarding the Company's accounting practices;
                and





f.
            administer
                and monitor compliance with the Company's Ethics and Conflict of
                Interest
                Policy.





*Nominating/Corporate
      Governance Committee*





The
      members of the Corporate Governance Committee are Jonathan Comerford, David
      Whittle and Carl Verley, a majority of whom are unrelated.





The
      Corporate Governance Committee is responsible for assessing directors on an
      ongoing basis and for developing the Company's approach to governance issues
      and
      for the Company's response to the Sarbanes-Oxley Act of 2002, as implemented
      by
      the U.S. Securities and Exchange Commission, and the Toronto Stock Exchange's
      governance guidelines.





*Compensation
      Committee*





The
      Compensation Committee is composed of Carl Verley, David Whittle, and Jonathan
      Comerford, a majority of whom are unrelated. The Committee, in consultation
      with
      the Chairman and CEO of the Company, makes recommendations to the Board on
      the
      Company's framework of executive remuneration and its cost and on specific
      remuneration packages for each of the executives. The remuneration of
      non-executives, including members of the Compensation Committee, is determined
      by the Board.





37


**D.**
            ***Employees.***





As
      at the
      end of the fiscal years March 31, 2006, March 31, 2005, and March 31, 2004,
      the
      Company had no full-time employees (not including the former President and
      CEO
      Jan Vandersande, the current President and CEO, Patrick Evans, and the former
      CFO and Corporate Secretary, Elizabeth Kirkwood). The Toronto administrative
      and
      executive office uses outsourced administrative assistance on a part-time
      basis.





De
      Beers
      Canada employs personnel who conduct the exploration, permitting and other
      activities on the AK Property.





**E.**
            ***Share
                ownership.***





The
      following table sets forth, as of June 15, 2006, the number of the Company's
      common shares beneficially owned by (a) the directors and members of senior
      management of the Company, individually, and as a group, and (b) the percentage
      ownership of the outstanding common shares represented by such shares. The
      security holders listed below are deemed to be the beneficial owners of common
      shares underlying options and warrants which are exercisable within 60 days
      from
      the above date.





**Name
                  of Beneficial Owner****(11)**
              **Amount
                  and Nature**
              **Percentage****(9)****of
                  Class (No. of shares, options + warrants held by owner divided
                  by total
                  issued and outstanding****(10)****plus no. of options held by owner multiplied by
                  100)**D.
                  Harry Dobson(1)
              1,192,510
              2.2%Patrick
                  C. Evans(2)
              269,500
              *%Carl
                  G. Verley(3)
              225,250
              *%David
                  E. Whittle(4)
              185,000
              *%Jonathan
                  Comerford(5)
              150,000
              *%Elizabeth
                  J. Kirkwood(6)
              80,000
              *%Jan
                  W. Vandersande(7)
              36,000
              *%Officer
                  and Directors as a Group(8)
              2,138,260
              4.0%





***    
      less than 1%**





(1)
            Includes
                1,192,510 shares and nil options.





(2)
            Includes
                69,500 shares and 100,000 options (exercisable presently or within
                60
                days). 50,000 options are exercisable at a price of $2.63 per share
                and
                expire on November 1, 2010. 50,000 options are exercisable at a price
                of
                $4.50 per share and expire on January 30,
                2011.





(3)
            Includes
                225,250 shares and nil options.





(4)
            Includes
                185,000 shares and nil options.





(5)
            Includes
                nil shares and 150,000 options (exercisable presently or within 60
                days).
                The options are exercisable at a price of $1.96 per share and expire
                on
                October 1, 2009.





(6)
            Includes
                nil shares and 80,000 options (exercisable presently or within 60
                days).
                30,000 options are exercisable at a price of $1.36 per share and
                expire on
                October 21, 2007 and 50,000 options are exercisable at a price of
                $1.96
                per share and expire on October 1,
                2009.





(7)
            Includes
                36,000 shares and nil options.





(8)
            Includes
                1,708,260 shares and 505,000 options (exercisable presently or within
                60
                days).





(9)
            The
                calculation does not include stock options that are not exercisable
                presently or within 60 days.





(10)
            Total
                issued and outstanding capital as at the close of June 15, 2006 was
                53,630,847 shares.





(11)
            The
                Company has no actual knowledge of the holdings of each individual.
                The
                above information was provided by the respective individuals to the
                Company.





38





The
      Company has a Stock Option Plan pursuant to which stock options may be granted
      to its directors, officers and employees. Stock options are awarded by
      resolution of the board of directors.





**Item
      7.**  **Major
      Shareholders and Related Party Transactions**





**A.**
            ***Major
                shareholders.***





A
      major
      shareholder is a shareholder beneficially owning more than 5% of the issued
      shares of the Company **.**





As
      at
      June 15, 2006, the Company's issued and outstanding capital was 53,630,847
      shares.





The
      Company is a publicly-owned corporation the majority of the common shares of
      which are owned by persons resident outside the United States. To the best
      of
      the Company's knowledge, the Company is not directly owned or controlled by
      another corporation or any foreign government. As at June 15, 2006, the Company
      believes that approximately 13,344,544 of the issued and outstanding common
      shares were held by 83 shareholders with addresses in the United States. A
      number of these shares are held in "street" name and may, therefore, be held
      by
      several beneficial owners.





The
      following table shows, to the best knowledge of the Company, the number (as
      at
      June 15, 2006) and percentage of shares, warrants and options held by the
      Company's major shareholders on a partially diluted basis.





The
      percentage ownerships for the major shareholders has decreased slightly because
      of new shares issued by the Company to June 15, 2006.


**Name
                  of Shareholder**
              **No.
                  of Shares Held**
              **Percentage
                  of issued and outstanding share capital of 53,630,847 shares (as
                  at June
                  15, 2006)**Bottin
                  (International) Investments Ltd. (controlled by Dermot
                  Desmond)
              13,253,430
              24.70%Desmond
                  P. Sharkey Dublin, Ireland
              5,206,001
              9.70%De
                  Beers Canada Exploration Ltd. (formerly Monopros Limited)
              3,103,543
              5.80%





(1)    
      The Company has no actual knowledge of the above shareholdings. The above
      information was provided to the Company by the named shareholders.





Major
      shareholders of the Company do not have any special voting rights.





**B.**
            ***Related
                party transactions.***





The
      Company is not directly or indirectly controlled by any enterprise and does
      not
      control, directly or indirectly, any other enterprises other than its
      subsidiaries listed under Item 4A. Bottin (International) Investments Ltd.,
      which is controlled by Dermot Desmond, has significant influence over the
      Company as its largest single shareholder: see Item 7A - Major shareholders,
      above.





Key
      management personnel of the Company are Patrick Evans, who is President and
      CEO,
      and Jennifer Dawson, who is Chief Financial Officer and Corporate Secretary.
      Patrick Evans is also a director of the Company. See Item 6B - Compensation.





Both
      Mr.
      Evans and Ms. Dawson have Consulting Agreements with the Company. See Item
      10C -
      Material Contracts.





The
      Company entered into a Corporate Services Agreement effective September 1,
      2003
      with 1014620 Ontario Inc. **** Elizabeth
      J. Kirkwood, the Chairman, Chief Financial Officer, Secretary and a director
      of
      the Company until May 10, 2006, is also the sole director, officer and
      shareholder of 1014620 Ontario Inc. Under the Corporate Services Agreement,
      the
      Company retained 1014620 Ontario Inc. to provide bookkeeping and accounting
      services (including cash-flow management, accounts payable, accounts receivable,
      government remittances, preparing unaudited interim financial statements, and
      assisting the Company in the preparation of the audited year-end financial
      statements) and corporate secretarial services (including the preparation,
      dissemination and filing of all press releases and material change reports
      and
      any and all agendas, minutes, reports and proxy materials that are required
      by a
      publicly traded company, including filing all such press releases, notices,
      reports and financial statements on SEDAR) (the "Corporate
      Services").





39


The
      two-year term of the Corporate Services Agreement expired on August 31, 2005.
      During the term, 1014620 Ontario Inc. was paid a monthly fee of $3,000 ($36,000 *per
      annum* )
      for
      providing the Corporate Services, and was also reimbursed for all reasonable
      out-of-pocket expenses properly incurred in connection with the performance
      of
      the Corporate Services. During the year ended March 31, 2006, the Company paid
      $18,000 for corporate services to 1014620 Ontario Inc. before the Corporate
      Services Agreement was terminated on September 30, 2005. Ms. Kirkwood was also
      paid $6,000 for consulting services in the year ended March 31,
      2006.





During
      the year ended March 31, 2006, Elizabeth Kirkwood, in her individual capacity,
      also earned $10,000 for the director's fees in her capacity as Chairperson
      of
      the Board. Directors fees were also earned by the following directors: David
      Whittle ($7,500 in his capacity as Chair of the Audit Committee), Carl Verley
      ($5,000), Patrick Evans ($5,000 prorated for part year service), Harry Dobson
      ($5,000) and Jonathan Comerford ($5,000).





During
      the year ended March 31, 2006, the Company paid a total of $102,127 to Jan
      W.
      Vandersande, the former President, Chief Executive Officer and a director of
      the
      Company, for consulting, management, property evaluation and administration
      services to the Company and for drug, medical and dental benefits. There are
      no
      debts owing directly or indirectly to the Company or its subsidiaries by any
      director or officer of the Company or vice versa.





The
      Company has a Consulting Agreement with Patrick Evans for his services as
      President and CEO effective November 1, 2005. The monthly consulting fee under
      the Consulting Agreement is $12,500, and in the year ended March 31, 2006,
      the
      Company paid a total of $56,074.





The
      Company signed a Consulting Agreement with Jennifer Dawson for her services
      as
      Chief Financial Officer and Corporate Secretary, effective May 11, 2006. There
      were no amounts paid to her in the year ended March 31, 2006.





As
      of
      March 31, 2006, the Company owed $3,000 to David Whittle, a director of the
      Company. This was in respect of an account that Mr. Whittle had paid on behalf
      of Glenmore. The Company proposes to pay Mr. Whittle the outstanding amount
      this
      year and otherwise there is no indebtedness amongst the directors and the
      Company other than amounts payable for director fees for April 1, 2005 to March
      31, 2006 of $37,500 in total as described above.





For
      further particulars on related party transactions, see note 8 to the Company's
      Consolidated Financial Statements for the years ended March 31, 2006, 2005
      and
      2004, in Item 19.





**C.**
            ***Interests
                of experts and
                counsel.***





Not
      Applicable





**Item
      8.**  **Financial
      Information**





**A.**
            ***Consolidated
                Statements and Other Financial
                Information***





Listed
      in
      Item 19 hereto are audited consolidated financial statements as at March 31,
      2006 and 2005 and for the fiscal years ended March 31, 2006, 2005 and 2004,
      accompanied by the report of our independent registered accounting firm.





There
      are
      no legal proceedings currently pending. ****





The
      Company has not paid dividends in the past and does not expect to pay dividends
      in the near future.





40


**B.**
            ***Significant
                Changes.***





There
      have been no significant changes to the Company since the end of last fiscal
      year.





**Item
      9.**  **The
      Offer and Listing.**





**A.** **** **** ***Offer
      and listing details.***





The
      common shares of the Company were listed and posted for trading on The Toronto
      Stock Exchange (the "TSX") on January 22, 1999. The Company's shares were
      delisted from the Vancouver Stock Exchange ("VSE", now known as the TSX Venture
      Exchange and before that, the Canadian Venture Exchange ("CDNX")) on January
      31,
      2000, and from the Nasdaq Smallcap Market on September 29, 2000. The Company's
      shares traded on the NASD's OTC-Bulletin Board ("NASD OTCBB") under the symbol
      "MPVI" until June 1, 2005. Commencing on April ì ,
      2005,
      the Company's shares were listed for trading on the AMEX under the symbol
      "MDM".





The
      following tables set forth the reported high and low prices on the TSX, and
      for
      Nasdaq and/or NASD OTCBB (combined for the period ended March 2006), **** for
      (a)
      the five most recent fiscal years; (b) each quarterly period for the past two
      fiscal years, and for the most recent six months.


**High
                  and Low Prices for the Five Most Recent Fiscal Years****Fiscal
                  Year Ended**
              **TSX**
              **NASDAQ****(1)****/
                  NASD OTCBB****High
                  (CDN$)**
              **Low
                  (CDN$)**
              **High
                  (US$)**
              **Low
                  (US$)**Friday,
                  March 31, 2006
              $4.90
              $2.26
              $4.26
              $1.90Thursday,
                  March 31, 2005
              $2.68
              $1.61
              $2.00
              $1.19Wednesday,
                  March 31, 2004
              $3.00
              $0.60
              $2.25
              $0.37Monday,
                  March 31, 2003
              $2.26
              $0.62
              $1.55
              $0.39Sunday,
                  March 31, 2002
              $1.50
              $0.44
              $1.08
              $0.27





(1)
      The
      Company's shares were listed on the Nasdaq Smallcap Market on May 1, 1996 and
      delisted from the Nasdaq Smallcap Market on September 29, 2000, at which time
      they commenced trading on the NASD OTCBB and continued through April 1, 2005.
      On
      April 4, 2005 the Company's shares began trading on the AMEX.


**High
                  and Low Prices for Each Quarterly Period for the**
                **Past
                  Two Fiscal Years****TSX**
              **NASD
                  OTCBB****Period
                  Ended:**
              **High
                  (CDN$)**
              **Low
                  (CDN$)**
              **High
                  (US$)**
              **Low
                  (US$)**Friday,
                  March 31, 2006
              $4.96
              $3.47
              $4.38
              $2.97Dec.
                  31, 2005
              $3.73
              $2.20
              $3.25
              $1.85Friday,
                  September 30, 2005
              $3.05
              $2.15
              $2.55
              $1.83Thursday,
                  June 30, 2005
              $3.44
              $2.25
              $2.81
              $1.83Thursday,
                  March 31, 2005
              $2.50
              $1.60
              $1.96
              $1.31Dec.
                  31, 2004
              $2.01
              $1.60
              $1.64
              $1.35Thursday,
                  September 30, 2004
              $2.30
              $1.62
              $1.77
              $1.24Wednesday,
                  June 30, 2004
              $2.68
              $1.61
              $2.00
              $1.19




41


**High
                  and Low Prices for the Most Recent Six Months****TSX
                  (CDN$)**
              **NASD
                  OTCBB (US$)/AMEX****(1)****Month
                  Ended**
              **High**
              **Low**
              **High**
              **Low**Saturday,
                  December 31, 2005
              $3.68
              $3.26
              $3.25
              $2.70Tuesday,
                  January 31, 2006
              $4.70
              $3.47
              $4.05
              $2.97Tuesday,
                  February 28, 2006
              $4.90
              $4.04
              $4.30
              $3.40Friday,
                  March 31, 2006
              $4.90
              $4.40
              $4.38
              $3.60Sunday,
                  April 30, 2006
              $5.05
              $3.80
              $4.40
              $3.38Wednesday,
                  May 31, 2006
              $4.42
              $3.47
              $4.03
              $3.17





(1)
      On
      April 4, 2005 the Company's Common Shares began trading on the American Stock
      Exchange. On March 31, 2006 (being the last trading day for the year ended
      March
      31, 2006), the closing price of the Common Shares on the TSX was $4.79 per
      share
      and on June 15, 2006 was $3.32. The shares commenced trading on AMEX on April
      4,
      2005 and the closing price of the Common Shares on March 31, 2006 was US$4.07
      per share. The closing price on June 15, 2006 on the AMEX was US$ 2.88 per
      share.





***B.
      Plan of distribution.***





Not
      Applicable.





***C.
      Markets.***





The
      Company's shares are listed on the Toronto Stock Exchange under the symbol
      "MPV"
      and were also quoted on the over-the-counter (OTC) Bulletin Board pursuant
      to
      Rule 6530(a) of the NASD's OTC Bulletin Board Rules under the symbol "MPVI.OB"
      until April 1, 2005. Commencing April 4, 2005 the Company's shares commenced
      trading on the AMEX under the symbol "MDM". The Common Shares are not registered
      to trade in the United States in the form of American Depository Receipts or
      similar certificates.





***D.
      Selling shareholders.***





Not
      Applicable.





***E.
      Dilution.***





Not
      Applicable.





***F.
      Expenses of the issue.***





Not
      Applicable.





**Item
      10.**  **Additional
      Information.**





**A.**
            ***Share
                capital.***





This
      Form
      20-F is being filed as an annual report and, as such, there is no requirement
      to
      provide information under this sub-item.





**B.**
            ***Memorandum
                and articles of
                association.***





**Incorporation**





The
      Company was amalgamated in British Columbia under incorporation number 553442
      on
      November 1, 1997 under the name of Mountain Province Mining Inc. The
      Company changed its name to Mountain Province Diamonds Inc. on October 16,
      2000.





The
      Company is also registered as an extra-territorial corporation in the Northwest
      Territories (Registration no. E 6486, on February 25, 1998, amended October
      16,
      2000 for the name change).





The
      Company does not have any stated "objects" or "purposes" as such are not
      required by the corporate laws of the Province of British Columbia. Rather,
      the
      Company is, by such corporate laws, entitled to carry on any activities
      whatsoever, which are not specifically precluded by other statutory provisions
      of the Province of British Columbia.





42


The
      Company was amalgamated under the British Columbia *Company
      Act* (the
      "Company Act"), which has now been replaced by the British Columbia *Business
      Corporations Act* (the
      "BCA"). The BCA came into effect on March 29, 2004. The Company has completed
      its transition from the Company Act to the BCA and adopted new Articles which
      reflect the provisions of the BCA. The Company's Memorandum of Articles has
      been
      replaced by a Notice of Articles. On September 20, 2005, the Shareholders
      approved a special resolution for the continuance of the Company into
      Ontario.





**Powers,
      functions and qualifications of Directors**





The
      powers and functions of directors are set forth in the Ontario Securities Act
      (OSA) and in the ** Bylaws
      of
      the Company.





With
      respect to the voting powers of directors, the Ontario Securities Act provides
      that a director (or senior officer) has a disclosable interest in a contract
      or
      transaction if the contract or transaction is material to the Company and the
      director has a material interest in the contract.





The
      Bylaws provide that a director or senior officer who has, directly or
      indirectly, a material interest in an existing or proposed material contract
      or
      transaction of the Company or who holds any office or possesses any property
      whereby, directly or indirectly, a duty or interest might be created to conflict
      with his duty or interest as a director or senior officer, has to disclose
      the
      nature and extent of this interest or conflict with his duty and interest as
      a
      director or senior officer, in accordance with the provisions of the Ontario
      Securities Act.. A director is also prohibited from voting in respect of any
      such proposed material contract or transaction and if he does so, his vote
      shall
      not be counted, but he shall be counted in the quorum at the meeting at which
      such vote is taken. Notwithstanding this, if all of the directors have a
      material interest in a proposed material contract or transaction, any or all
      of
      those directors may vote on a resolution to approve the contract or transaction.
      However, in this case the directors must have the contract or transaction
      approved by special resolution of the shareholders to avoid accountability
      for
      any profits.





The
      Bylaws further provide that, subject to the provisions of the Ontario Securities
      Act, no disclosure is required of a director or senior officer, and a director
      need not refrain from voting in respect of the following types of contracts
      and
      transactions:





a)
            A
                contract or transaction where both the Company and the other party
                to the
                contract or transaction are wholly owned subsidiaries of the same
                corporation;





b)
            A
                contract or transaction where the Company is a wholly owned subsidiary
                of
                the other party to the contract or
                transaction;





c)
            A
                contract or transaction where the other party to the contract or
                transaction is a wholly owned subsidiary of the
                Company;





d)
            A
                contract or transaction where the director or senior officer is the
                sole
                shareholder of the Company or of a corporation of which the Company
                is a
                wholly owned subsidiary;





e)
            An
                arrangement by way of security granted by the Company for money loaned
                to,
                or obligations undertaken by, the director or senior officer, or
                a person
                in whom the director or senior officer has a material interest, for
                the
                benefit of the Company or an affiliate of the Company;





f)
            A
                loan to the Company, which a director or senior officer or a specified
                corporation or a specified firm in which he has a material interest
                has
                guaranteed or joined in guaranteeing the repayment of the loan or
                any part
                of the loan;





43





g)
            Any
                contract or transaction made or to be made with, or for the benefit
                of a
                corporation that is affiliated with the Company and the director
                or senior
                officer is also a director or senior officer of that corporation
                or an
                affiliate of that corporation;





h)
            Any
                contract by a director to subscribe for or underwrite shares or debentures
                to be issued by the Company or a subsidiary of the
                Company;





i)
            Determining
                the remuneration of the director or senior officer in that person's
                capacity as director, officer, employee or agent of the Company or
                an
                affiliate of the Company;





j)
            Purchasing
                and maintaining insurance to cover a director or senior officer against
                liability incurred by them as a director or senior officer;
                or





k)
            The
                indemnification of any director or senior officer by the
                Company.





The
      Ontario Securities Act provides that a contract or transaction with a company
      is
      not invalid merely because a director or senior officer of the company has
      an
      interest, direct or indirect, in the contract or transaction, a director or
      senior officer of the company has not disclosed an interest he or she had in
      the
      contract or transaction, or because the directors or shareholders of the company
      have not approved the contract or transaction in which a director or senior
      officer of the company has an interest.





The
      Ontario Securities Act ** also
      provides that a director or senior officer with a "disclosable interest" in
      a
      contract or transaction with the Company is liable to account for any profit
      made from the contract or transaction unless disclosure of the director's
      interest in such contract or transaction had been made and the director
      abstained from voting on the approval of the transaction.





Subject
      to the provisions of the Ontario Securities Act, the directors may vote on
      compensation for themselves or any members of their body. A contract relating
      primarily to a fiduciary's remuneration as a director, officer, employee or
      agent of the Company or its affiliates is a permitted conflict of interest
      under
      the Company's Corporate Governance Policy.





There
      are
      no limitations on the exercise by the board of directors of the Company's
      borrowing powers.





There
      are
      no provisions for the retirement or non-retirement of directors under an age
      limit.





There
      is
      no requirement for any director to hold any shares in the Company.





**Rights
      and Restrictions attached to Shares**





As
      all of
      the Company's authorized and issued shares are of one class, there are no
      special rights or restrictions of any nature or kind attached to any of the
      shares. All authorized and issued shares rank equally in respect of the
      declaration and receipt of dividends, and the rights to share in any profits
      or
      surplus on liquidation, dissolution or winding up of the Company. Each share
      has
      attached to it one vote.





**Alteration
      of Share Rights**





To
      alter
      the rights of holders of issued shares of the Company, such alteration must
      be
      approved by a majority vote of not less than two-thirds of the votes cast by
      shareholders voting in person or by proxy at a meeting of the shareholders
      of
      the Company.





**Annual
      General Meetings**





Annual
      general meetings are called and scheduled upon decision by the board of
      directors. The directors may also convene a general meeting of shareholders
      at
      any time. There are no provisions in the Company's Bylaws for the requisitioning
      of special meetings by shareholders. However, the Ontario Securities Act
      provides that the holders of not less than 5% of the issued shares of the
      Company may requisition the directors to call a general meeting of the
      shareholders for the purposes stated in the requisition. All meetings of the
      shareholders may be attended by registered shareholders or persons who hold
      powers of attorney or proxies given to them by registered
      shareholders.





44


**Foreign
      Ownership Limitations**





There
      are
      no limitations prohibiting shares being held by non-residents, foreigners or
      any
      other group.





**Change
      of Control**





There
      are
      no provisions in the Company's Bylaws that would have the effect of delaying,
      deferring or preventing a change in the control of the Company, or that would
      operate with respect to any proposed merger, acquisition or corporate
      re-structuring of the Company.





**Share
      Ownership Reporting Obligations**





There
      are
      no provisions in the Company's Bylaws requiring share ownership to be disclosed.
      The securities laws of the Province of Ontario and other provinces in Canada
      having jurisdiction over the Company require disclosure of shareholdings
      by:





(a)
            insiders
                who are directors or senior officers of the Company;
                and





(b)
            a
                person who has direct or indirect beneficial ownership of, control
                or
                direction over, or a combination of direct or indirect beneficial
                ownership of and of control or direction over securities of the Company
                carrying more than 10% of the voting rights attached to all the Company's
                outstanding voting securities.





The
      threshold of share ownership percentage requiring disclosure of ownership is
      higher in the home jurisdiction of Ontario than in the United States where
      United States law prescribes a 5% threshold for ownership
      disclosure.





**C.**
            ***Material
                contracts.***





The
      following is a list of material contracts, other than contracts entered into
      in
      the ordinary course of business, to which the Company or any member of the
      group
      is a party, for the two years immediately preceding publication of the document,
      including dates, parties, general nature of the contracts, terms and conditions,
      and amount of any consideration passing to or from the company or any other
      member of the group.





1.
            Consulting
                Agreement dated January 1, 2004 between the Company and Jan W. Vandersande
                pursuant to which the Consulting Agreement between the same parties
                dated
                June 1, 1997 (as amended) was terminated in consideration for the
                payment
                to Dr. Vandersande of the sum of US$120,000, payable monthly in 12
                equal
                installments and the issuance of 60,000 common shares of the Company
                from
                the pool of shares available for stock option grants under the Company's
                Stock Option Plan. 55,000 of these shares were held in escrow pursuant
                to
                an escrow agreement for release monthly in 11 equal
                installments.





Under
                the terms of the 2004 Consulting Agreement, Dr. Vandersande agreed
                to
                provide certain services to the Company for a term of three years
                in
                consideration for a fee of US$7,500 per month. The Consulting Agreement
                with Dr. Vandersande terminated on October 31,
                2005.





2.
            Consulting
                Agreement with Patrick Evans, as President and CEO and director,
                effective
                November 1, 2005 at a monthly rate of
                $12,500.00.





3.
            Consulting
                Agreement with Jennifer Dawson to act as Chief Financial Officer
                and
                Corporate Secretary, effective May 11, 2006 at an hourly rate for
                hours
                worked.





45





**D.**
            **Exchange
                controls.**





**Exchange
      Controls and Investment Canada Act**





Canada
      has no system of exchange controls. There are no exchange restrictions on
      borrowing from foreign countries nor on the remittance of dividends, interest,
      royalties and similar payments, management fees, loan repayments, settlement
      of
      trade debts, or the repatriation of capital. Any such remittances to United
      States residents, however, may be subject to a withholding tax pursuant to
      the
      Canadian Income Tax Act as modified by the reciprocal tax treaty between Canada
      and the United States. See "Item 10E., Taxation".





The
      Investment Canada Act (the "Act"), enacted on June 20, 1985, requires prior
      notification to the Government of Canada on the "acquisition of control" of
      Canadian businesses by non-Canadians, as defined in the Act. Certain
      acquisitions of control, discussed below, are also to be reviewed by the
      Government of Canada. The term "acquisition of control" is defined as any one
      or
      more non-Canadian persons acquiring all or substantially all of the assets
      used
      in the Canadian business, or the acquisition of the voting shares of a Canadian
      corporation carrying on the Canadian business or the acquisition of the voting
      interests of an entity controlling or carrying on the Canadian business. The
      acquisition of the majority of the outstanding shares is deemed to be an
      "acquisition of control" of a corporation. The acquisition of less than a
      majority, but one-third or more, of the outstanding voting shares of a
      corporation is presumed to be an "acquisition of control" of a corporation
      unless it can be established that the purchaser will not control the
      corporation.





Investments
      requiring notification and review are all direct acquisitions of Canadian
      businesses with assets of CDN$5,000,000 or more (subject to the comments below
      on WTO investors), and all indirect acquisitions of Canadian businesses (subject
      to the comments below on WTO investors) with assets of more than CDN$50,000,000
      or with assets of between CDN$5,000,000 and CDN$50,000,000 which represent
      more
      than 50% of the value of the total international transaction. In addition,
      specific acquisitions or new businesses in designated types of business
      activities related to Canada's cultural heritage or national identity could
      be
      reviewed if the Government of Canada considers that it is in the public interest
      to do so.





The
      Act
      was amended with the implementation of the Agreement establishing the World
      Trade Organization ("WTO") to provide for special review thresholds for "WTO
      investors", as defined in the Act. "WTO investor" generally means (i) an
      individual, other than a Canadian, who is a national of a WTO member (such
      as,
      for example, the United States), or who has the right of permanent residence
      in
      relation to that WTO member, (ii) governments of WTO members, and (iii) entities
      that are not Canadian controlled, but which are WTO investor controlled, as
      determined by rules specified in the Act. The special review thresholds for
      WTO
      investors do not apply, and the general rules described above do apply, to
      the
      acquisition of control of certain types of businesses specified in the Act,
      including a business that is a "cultural business". If the WTO investor rules
      apply, an investment in the shares of the Company by or from a WTO investor
      will
      be reviewable only if it is an investment to acquire control of the Company
      and
      the value of the assets of the Company is equal to or greater than a specified
      amount (the "WTO Review Threshold"). The WTO Review Threshold is adjusted
      annually by a formula relating to increases in the nominal gross domestic
      product of Canada. The 2005 WTO Review Threshold is
      CDN$250,000,000.





If
      any
      non-Canadian, whether or not a WTO investor, acquires control of the Company
      by
      the acquisition of shares, but the transaction is not reviewable as described
      above, the non-Canadian is required to notify the Canadian government and to
      provide certain basic information relating to the investment. A non-Canadian,
      whether or not a WTO investor, is also required to provide a notice to the
      government on the establishment of a new Canadian business. If the business
      of
      the Company is then a prescribed type of business activity related to Canada's
      cultural heritage or national identity, and if the Canadian government considers
      it to be in the public interest to do so, then the Canadian government may
      give
      notice in writing within 21 days requiring the investment to be
      reviewed.





For
      non-Canadians (other than WTO investors), an indirect acquisition of control,
      by
      the acquisition of voting interests of an entity that directly or indirectly
      controls the Company, is reviewable if the value of the assets of the Company
      is
      then CDN$50,000,000 or more. If the WTO investor rules apply, then this
      requirement does not apply to a WTO investor, or to a person acquiring the
      entity from a WTO investor.





46


Special
      rules specified in the Act apply if the value of the assets of the Company
      is
      more than 50% of the value of the entity so acquired. By these special rules,
      if
      the non-Canadian (whether or not a WTO investor) is acquiring control of an
      entity that directly or indirectly controls the company, and the value of the
      assets of the Company and all other entities carrying on business in Canada,
      calculated in the manner provided in the Act and the regulations under the
      Act,
      is more than 50% of the value, calculated in the manner provided in the Act
      and
      the regulations under the Act, of the assets of all entities, the control of
      which is acquired, directly or indirectly, in the transition of which the
      acquisition of control of the Company forms a part, then the thresholds for
      a
      direct acquisition of control as discussed above will apply, that is, a WTO
      Review Threshold of CDN$250,000,000 (in 2005) for a WTO investor or a threshold
      of CDN$ 5,000,000 for a non-Canadian other than a WTO investor. If the value
      exceeds that level, then the transaction must be reviewed in the same manner
      as
      a direct acquisition of control by the purchase of shares of the
      Company.





If
      an
      investment is reviewable, an application for review in the form prescribed
      by
      the regulations is normally required to be filed with the Director appointed
      under the Act (the "Director") prior to the investment taking place and the
      investment may not be consummated until the review has been completed. There
      are, however, certain exceptions. Applications concerning indirect acquisitions
      may be filed up to 30 days after the investment is consummated and applications
      concerning reviewable investments in culture-sensitive sectors are required
      upon
      receipt of a notice for review. In addition, the Minister (a person designated
      as such under the Act) may permit an investment to be consummated prior to
      completion of the review, if he is satisfied that delay would cause undue
      hardship to the acquiror or jeopardize the operations of the Canadian business
      that is being acquired. The Director will submit the application to the
      Minister, together with any other information or written undertakings given
      by
      the acquiror and any representation submitted to the Director by a province
      that
      is likely to be significantly affected by the investment.





The
      Minister will then determine whether the investment is likely to be of net
      benefit to Canada, taking into account the information provided and having
      regard to certain factors of assessment where they are relevant. Some of the
      factors to be considered are (i) the effect of the investment on the level
      and
      nature of economic activity in Canada, including the effect on employment,
      on
      resource processing, and on the utilization of parts, components and services
      produced in Canada; (ii) the effect of the investment on exports from Canada;
      (iii) the degree and significance of participation by Canadians in the Canadian
      business and in any industry in Canada of which it forms a part; (iv) the effect
      of the investment on productivity, industrial efficiency, technological
      development, product innovation and product variety in Canada; (v) the effect
      of
      the investment on competition within any industry or industries in Canada;
      (vi)
      the compatibility of the investment with national industrial, economic and
      cultural policies taking into consideration industrial, economic and cultural
      objectives enunciated by the government or legislature of any province likely
      to
      be significantly affected by the investment; and (vii) the contribution of
      the
      investment to Canada's ability to compete in world markets.





The
      Act
      sets certain time limits for the Director and the Minister. Within 45 days
      after
      a completed application has been received, the Minister must notify the acquiror
      that (a) he is satisfied that the investment is likely to be of net benefit
      to
      Canada, or (b) he is unable to complete his review, in which case he shall
      have
      30 additional days to complete his review (unless the acquiror agrees to a
      longer period), or (c) he is not satisfied that the investment is likely to
      be
      of net benefit to Canada.





Where
      the
      Minister has advised the acquiror that he is not satisfied that the investment
      is likely to be of net benefit to Canada, the acquiror has the right to make
      representations and submit undertakings within 30 days of the date of the notice
      (or any further period that is agreed upon between the acquiror and the
      Minister). On the expiration of the 30 day period (or the agreed extension),
      the
      Minister must forthwith notify the acquiror (i) that he is now satisfied that
      the investment is likely to be of net benefit to Canada or (ii) that he is
      not
      satisfied that the investment is likely to be of net benefit to Canada. In
      the
      latter case, the acquiror may not proceed with the investment or, if the
      investment has already been consummated, must divest itself of control of the
      Canadian business.





47


**The
      Act provides civil remedies for non-compliance with any provision. There are
      also criminal penalties for breach of confidentiality or providing false
      information.**





**E.**
            ***Taxation.***





A
      brief
      description of certain provisions of the tax treaty between Canada and the
      United States is included below, together with a brief outline of certain taxes,
      including withholding provisions, to which United States security holders are
      subject under existing laws and regulations of Canada. The consequences, if
      any,
      of provincial, state and local taxes are not considered.





The
      following information is general and security holders should seek the advice
      of
      their own tax advisors, tax counsel or accountants with respect to the
      applicability or effect on their own individual circumstances of the matters
      referred to herein and of any provincial, state or local taxes.





*Certain
      Canadian Federal Income Tax Consequences*





The
      discussion under this heading summarizes the principal Canadian federal income
      tax consequences of acquiring, holding and disposing of shares of common stock
      of the Company for a shareholder of the Company who is not a resident of Canada
      but is a resident of the United States and who will acquire and hold shares
      of
      common stock of the Company as capital property for the purposes of the *Income
      Tax Act* (Canada)
      (the "Canadian Tax Act"). This summary does not apply to a shareholder who
      has
      carried on business in Canada through a "permanent establishment" situated
      in
      Canada or performs independent personal services in Canada through a fixed
      base
      in Canada if the shareholder's holding in the Company is effectively connected
      with such permanent establishment or fixed base. This summary is based on the
      provisions of the Canadian Tax Act and the regulations to it and on the
      Company's understanding of the administrative practices of Canada Revenue
      Agency, and takes into account all specific proposals to amend the Canadian
      Tax
      Act and regulations to it publicly announced by the Minister of Finance of
      Canada as of the date hereof. It has been assumed that there will be no other
      relevant amendment of any governing law although no assurance can be given
      in
      this respect. This discussion is general only and is not a substitute for
      independent advice from a shareholder's own Canadian and U.S. tax
      advisors.





The
      provisions of the Canadian Tax Act are subject to income tax treaties to which
      Canada is a party, including the Canada-United States Income Tax Convention
      (1980), as amended (the "Convention").





*Dividends
      on Common Shares and Other Income*





Under
      the
      Canadian Tax Act, a non-resident of Canada is generally subject to Canadian
      withholding tax at the rate of 25 percent on dividends paid or deemed to have
      been paid to him or her by a corporation resident in Canada. The Convention
      limits the rate to 15 percent if the shareholder is a resident of the United
      States and the dividends are beneficially owned by and paid to such shareholder,
      and to 5 percent if the shareholder is also a corporation that beneficially
      owns
      at least 10 percent of the voting stock of the payor corporation.





The
      amount of a stock dividend (for tax purposes) would generally be equal to the
      amount by which the paid up or stated capital of the Company had increased
      by
      reason of the payment of such dividend. The Corporation will furnish additional
      tax information to shareholders in the event of such a dividend.





The
      Convention generally exempts from Canadian income tax dividends paid to a
      religious, scientific, literary, educational or charitable organization or
      to an
      organization constituted and operated exclusively to administer a pension,
      retirement or employee benefit fund or plan, if the organization is a resident
      of the United States and is exempt from income tax under the laws of the United
      States.





The
      tax
      payable on dividends is to be withheld at source by the Company or people acting
      on its behalf. The Company is liable for the amount of the tax, penalties and
      interest if it fails to so withhold. The taxpayer is liable in any event if
      the
      Company fails to withhold.





48


*Dispositions
      of Common Shares*





Under
      the
      Canadian Tax Act, a taxpayer's capital gain or capital loss from a disposition
      of a share of common stock of the Company is the amount, if any, by which his
      or
      her proceeds of disposition exceed (or are exceeded by, respectively) the
      aggregate of his or her adjusted cost base of the share and reasonable expenses
      of disposition. The capital gain or loss must be computed in Canadian currency
      using a weighted average adjusted cost base for identical properties. Fifty
      percent of a capital gain are included in income. The amount by which a
      shareholder's capital loss exceeds the capital gain in a year may be deducted
      from a capital gain realized by the shareholder in the three years previous
      or
      any subsequent year, subject to certain restrictions in the case of a corporate
      shareholder.





Under
      the
      Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable
      capital gains, and may deduct allowable capital losses, realized on a
      disposition of "taxable Canadian property." Shares of common stock of the
      Company will constitute taxable Canadian property of a shareholder at a
      particular time if the shareholder used the shares in carrying on business
      in
      Canada, or if at any time in the five years immediately preceding the
      disposition 25% or more of the issued shares of any class or series in the
      capital stock of the Company belonged to one or more persons in a group
      comprising the shareholder and persons with whom the shareholder did not deal
      at
      arm's length and in certain other circumstances.





The
      Convention relieves United States residents from liability for Canadian tax
      on
      capital gains derived on a disposition of shares unless





(a)
            the
                value of the shares is derived principally from "real property" situated
                in Canada, including the right to explore for or exploit natural
                resources
                and rights to amounts computed by reference to production,
                or





(b)
            the
                shareholder was resident in Canada for 120 months during any period
                of 20
                consecutive years preceding, and at any time during the 10 years
                immediately preceding, the disposition and the shares were owned
                by him
                when he or she ceased to be resident in
                Canada.





United
      States Federal Income Tax Consequences





The
      following is a summary of certain anticipated material U.S. federal income
      tax
      consequences to a U.S. Holder (as defined below) arising from and relating
      to
      the acquisition, ownership, and disposition of shares of common stock of the
      Company ("Common Shares").





This
      summary is for general information purposes only and does not purport to be
      a
      complete analysis or listing of all potential U.S. federal income tax
      consequences that may apply to a U.S. Holder as a result of the acquisition,
      ownership, and disposition of Common Shares. In addition, this summary does
      not
      take into account the individual facts and circumstances of any particular
      U.S.
      Holder that may affect the U.S. federal income tax consequences of the
      acquisition, ownership, and disposition of Common Shares. Accordingly, this
      summary is not intended to be, and should not be construed as, legal or U.S.
      federal income tax advice with respect to any U.S. Holder. Each U.S. Holder
      should consult its own financial advisor, legal counsel, or accountant regarding
      the U.S. federal, U.S. state and local, and foreign tax consequences of the
      acquisition, ownership, and disposition of Common Shares.





**Circular
      230 Disclosure**





**Any
      tax statement made herein regarding any U.S. federal tax is not intended or
      written to be used, and cannot be used, by any taxpayer for purposes of avoiding
      any penalties. Any such statement herein is written in connection with the
      marketing or promotion of the transaction to which the statement relates. Each
      taxpayer should seek advice based on the taxpayer’s particular circumstances
      from an independent tax advisor.**





**Scope
      of this Disclosure**





49


Authorities





This
      summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
      Treasury Regulations, published Internal Revenue Service ("IRS") rulings,
      published administrative positions of the IRS, the Convention Between Canada
      and
      the United States of America with Respect to Taxes on Income and on Capital,
      signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"), and
      U.S. court decisions that are applicable as of the date of this Annual Report.
      Any of the authorities on which this summary is based could be changed in a
      material and adverse manner at any time, and any such change could be applied
      on
      a retroactive basis. This summary does not discuss the potential effects,
      whether adverse or beneficial, of any proposed legislation.





U.S.
      Holders





For
      purposes of this summary, a "U.S. Holder" is a beneficial owner of Common Shares
      that, for U.S. federal income tax purposes, is (a) an individual who is a
      citizen or resident of the U.S., (b) a corporation, or other entity
      classified as a corporation for U.S. federal income tax purposes, that is
      created or organized in or under the laws of the U.S. or any state in the U.S.,
      including the District of Columbia, (c) an estate if the income of such
      estate is subject to U.S. federal income tax regardless of the source of such
      income, or (d) a trust if (i) such trust has validly elected to be
      treated as a U.S. person for U.S. federal income tax purposes or (ii) a
      U.S. court is able to exercise primary supervision over the administration
      of
      such trust and one or more U.S. persons have the authority to control all
      substantial decisions of such trust.





Non-U.S.
      Holders





A
      "non-U.S. Holder" is a beneficial owner of Common Shares other than a U.S.
      Holder. This summary does not address the U.S. federal income tax consequences
      of the acquisition, ownership, and disposition of Common Shares to non-U.S.
      Holders. Accordingly, a non-U.S. Holder should consult its own financial
      advisor, legal counsel, or accountant regarding the tax consequences (including
      the potential application of and operation of any tax treaties) of the
      acquisition, ownership, and disposition of Common Shares.





U.S.
      Holders Subject to Special U.S. Federal Income Tax Rules Not
      Addressed





This
      summary does not address the U.S. federal income tax consequences of the
      acquisition, ownership, and disposition of Common Shares to U.S. Holders that
      are subject to special provisions under the Code, including but not limited
      to
      the following U.S. Holders: (a) U.S. Holders that are tax-exempt
      organizations, qualified retirement plans, individual retirement accounts,
      or
      other tax-deferred accounts; (b) U.S. Holders that are financial
      institutions, insurance companies, real estate investment trusts, or regulated
      investment companies or that are broker-dealers or dealers in securities;
      (c) U.S. Holders that have a "functional currency" other than the U.S.
      dollar; (d) U.S. Holders that are subject to the alternative minimum tax
      provisions of the Code; (e) U.S. Holders that own Common Shares as part of
      a straddle, hedging transaction, conversion transaction, constructive sale,
      or
      other arrangement involving more than one position; (f) U.S. Holders that
      acquired Common Shares in connection with the exercise of employee stock options
      or otherwise as compensation for services; (g) partners of partnerships
      that hold Common Shares or owners of other entities classified as partnerships
      or "pass-through" entities for U.S. federal income tax purposes that hold Common
      Shares, (h) U.S. Holders that hold Common Shares other than as a capital
      asset within the meaning of Section 1221 of the Code. U.S. Holders that are
      subject to special provisions under the Code, including U.S. Holders described
      immediately above, should consult their own financial advisor, legal counsel
      or
      accountant regarding the tax consequences of the acquisition, ownership, and
      disposition of Common Shares.





Tax
      Consequences Other than U.S. Federal Income Tax Consequences Not
      Addressed





This
      summary does not address the U.S. non-income state, local or foreign, tax
      consequences to U.S. Holders of the acquisition, ownership, and disposition
      of
      Common Shares. Each U.S. Holder should consult its own financial advisor, legal
      counsel, or accountant regarding these and other tax consequences of the
      acquisition, ownership, and disposition of Common Shares.





50


**U.S.
      Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
      of Common Shares**





Distributions
      on Common Shares





*General
      Taxation of Distributions*





A
      U.S.
      Holder that receives a distribution, including a constructive distribution,
      with
      respect to the Common Shares will be required to include the amount of such
      distribution in gross income as a dividend (without reduction for any Canadian
      income tax withheld from such distribution) to the extent of the current or
      accumulated "earnings and profits" of the Company (as determined under U.S.
      tax
      principles). To the extent that a distribution exceeds the current and
      accumulated "earnings and profits" of the Company, such distribution will be
      treated (a) first, as a tax-free return of capital to the extent of a U.S.
      Holder's tax basis in the Common Shares and, (b) thereafter, as gain from
      the sale or exchange of such Common Shares. (See more detailed discussion at
      "Disposition of Common Shares" below).





*Reduced
      Tax Rates for Certain Dividends*





For
      taxable years beginning after December 31, 2002 and before January 1, 2011,
      a
      dividend paid by the Company generally will be taxed at the preferential tax
      rates applicable to long-term capital gains (generally, a 15% federal tax rate
      for 2006) if (a) the Company is a "qualified foreign corporation" (as
      defined below), (b) the U.S. Holder receiving such dividend is an
      individual, estate, or trust, and (c) such dividend is paid on Common
      Shares that have been held by such U.S. Holder for at least 61 days during
      the
      121-day period beginning 60 days before the "ex-dividend date" (i.e., the first
      date that a purchaser of such Common Shares will not be entitled to receive
      such
      dividend).





The
      Company generally will be a "qualified foreign corporation" under
      Section 1(h)(11) of the Code (a "QFC") if (a) the Company is
      incorporated in a possession of the U.S., (b) the Company is eligible for
      the benefits of the Canada-U.S. Tax Convention, or (c) the Common Shares
      are readily tradable on an established securities market in the U.S. However,
      even if the Company satisfies one or more of such requirements, the Company
      will
      not be treated as a QFC if the Company is a "passive foreign investment company"
      (each as defined below) for the taxable year during which the Company pays
      a
      dividend or for the preceding taxable year.





As
      discussed below, the Company believes that it is a "passive foreign investment
      company" (see more detailed discussion at "Additional Rules that May Apply
      to
      U.S. Holders-Passive Foreign Investment Company" below). Accordingly, the
      Company does not believe that it will be a QFC. If the Company is not a QFC,
      a
      dividend paid by the Company to a U.S. Holder, including a U.S. Holder that
      is
      an individual, estate, or trust, generally will be taxed at ordinary income
      tax
      rates (and not at the preferential tax rates applicable to long-term capital
      gains). The dividend rules are complex and each U.S. Holder should consult
      its
      own financial advisor, legal counsel, or accountant regarding the dividend
      rules.





*Distributions
      Paid in Foreign Currency*





The
      amount of a distribution paid to a U.S. Holder in foreign currency generally
      will be equal to the U.S. dollar value of such distribution based on the
      exchange rate applicable on the date of receipt. A U.S. Holder that does not
      convert foreign currency received as a distribution into U.S. dollars on the
      date of receipt generally will have a tax basis in such foreign currency equal
      to the U.S. dollar value of such foreign currency on the date of receipt. Such
      a
      U.S. Holder generally will recognize ordinary income or loss on the subsequent
      sale or other taxable disposition of such foreign currency (including an
      exchange for U.S. dollars).





*Dividends
      Received Deduction*





Dividends
      paid on the Common Shares generally will not be eligible for the "dividends
      received deduction." The availability of the dividends received deduction is
      subject to complex limitations that are beyond the scope of this discussion,
      and
      a U.S. Holder that is a corporation should consult its own financial advisor,
      legal counsel, or accountant regarding the dividends received
      deduction.





51


Disposition
      of Common Shares





A
      U.S.
      Holder will recognize gain or loss on the sale or other taxable disposition
      of
      Common Shares in an amount equal to the difference, if any, between (a) the
      amount of cash plus the fair market value of any property received and
      (b) such U.S. Holder's tax basis in the Common Shares sold or otherwise
      disposed of. Any such gain or loss generally will be capital gain or loss,
      which
      will be long-term capital gain or loss if the Common Shares are held for more
      than one year.





Although
      preferential tax rates generally apply to long-term capital gains of a U.S.
      Holder that is an individual, estate, or trust, such preferential tax rates
      are
      not available if the Company is a PFIC, unless a QEF election is
      made , as
      described below. There are currently no preferential tax rates for long-term
      capital gains of a U.S. Holder that is a corporation. Deductions for capital
      losses and net capital losses are subject to complex limitations. For a U.S.
      Holder that is an individual, estate, or trust, capital losses may be used
      to
      offset capital gains and up to U.S.$3,000 of ordinary income. An unused capital
      loss of a U.S. Holder that is an individual, estate, or trust generally may
      be
      carried forward to subsequent taxable years, until such net capital loss is
      exhausted. For a U.S. Holder that is a corporation, capital losses may be used
      to offset capital gains, and an unused capital loss generally may be carried
      back three years and carried forward five years from the year in which such
      net
      capital loss is recognized.





Foreign
      Tax Credit





A
      U.S.
      Holder who pays (whether directly or through withholding) Canadian income tax
      with respect to the Common Shares generally will be entitled, at the election
      of
      such U.S. Holder, to receive either a deduction or a credit for such Canadian
      income tax paid. Generally, a credit will reduce a U.S. Holder's U.S. federal
      income tax liability on a dollar-for-dollar basis, whereas a deduction will
      reduce a U.S. Holder's income subject to U.S. federal income tax. This election
      is made on a year-by-year basis and applies to all foreign taxes paid (whether
      directly or through withholding) by a U.S. Holder during a year.





Complex
      limitations apply to the foreign tax credit, including the general limitation
      that the credit cannot exceed the proportionate share of a U.S. Holder's U.S.
      federal income tax liability that such U.S. Holder's "foreign source" taxable
      income bears to such U.S. Holder's worldwide taxable income. In applying this
      limitation, a U.S. Holder's various items of income and deduction must be
      classified, under complex rules, as either "foreign source" or "U.S. source."
      In
      addition, this limitation is calculated separately with respect to specific
      categories of income known as "baskets" (including "passive income," "high
      withholding tax interest," "financial services income," "shipping income,"
      and
      certain other categories of income), although after 2006 "basket" limitations
      will be significantly altered. Dividends paid by the Company generally will
      constitute "foreign source" income and generally will be classified as "passive
      income" or, in the case of certain U.S. Holders, "financial services income."
      In
      addition, a U.S. Holder that is a corporation and that owns 10% or more of
      the
      voting stock of the Company may, subject to complex limitations, be entitled
      to
      an "indirect" foreign tax credit under Section 902 of the Code with respect
      to dividends paid by the Company. Unused foreign tax credits generally can
      be
      carried back one year and forward ten years. The foreign tax credit rules are
      complex, and each U.S. Holder should consult its own financial advisor, legal
      counsel, or accountant regarding the foreign tax credit rules.





Information
      Reporting; Backup Withholding Tax





Payments
      made within the U.S. of dividends on, and proceeds arising from certain sales
      or
      other taxable dispositions of, Common Shares generally will be subject to
      information reporting and backup withholding tax, at the rate of 28%, if a
      U.S.
      Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer
      identification number (generally on Form W-9), (b) furnishes an incorrect
      U.S. taxpayer identification number, (c) is notified by the IRS that such
      U.S. Holder has previously failed to properly report items subject to backup
      withholding tax, or (d) fails to certify, under penalty of perjury, that
      such U.S. Holder has furnished its correct U.S. taxpayer identification number
      and that the IRS has not notified such U.S. Holder that it is subject to backup
      withholding tax. However, U.S. Holders that are corporations generally are
      excluded from these information reporting and backup withholding tax rules.
      Any
      amounts withheld under the U.S. backup withholding tax rules will be allowed
      as
      a credit against a U.S. Holder's U.S. federal income tax liability, if any,
      or
      will be refunded, if such U.S. Holder furnishes required information to the
      IRS.
      Each U.S. Holder should consult its own financial advisor, legal counsel, or
      accountant regarding the information reporting and backup withholding tax
      rules.





52


**Additional
      Rules that May Apply to U.S. Holders**





If
      the
      Company is a "controlled foreign corporation" or a "passive foreign investment
      company" (each as defined below), the preceding sections of this summary may
      not
      describe the U.S. federal income tax consequences to U.S. Holders of the
      acquisition, ownership, and disposition of Common Shares.





Controlled
      Foreign Corporation





The
      Company generally will be a "controlled foreign corporation" under
      Section 957 of the Code (a "CFC") if more than 50% of the total voting
      power or the total value of the outstanding shares of the Company is owned,
      directly or indirectly, by citizens or residents of the U.S., domestic
      partnerships, domestic corporations, domestic estates, or domestic trusts (each
      as defined in Section 7701(a)(30) of the Code), each of which own, directly
      or indirectly, 10% or more of the total voting power of the outstanding shares
      of the Company (a "10% Shareholder").





If
      the
      Company is a CFC, a 10% Shareholder generally will be subject to current
      U.S. federal income tax with respect to (a) such 10% Shareholder's pro rata
      share of the "subpart F income" (as defined in Section 952 of the Code) of
      the Company and (b) such 10% Shareholder's pro rata share of the
      earnings of the Company invested in "United States property" (as defined in
      Section 956 of the Code). In addition, under Section 1248 of the Code,
      any gain recognized on the sale or other taxable disposition of Common Shares
      by
      a U.S. Holder that was a 10% Shareholder at any time during the five-year
      period ending with such sale or other taxable disposition generally will be
      treated as a dividend to the extent of the "earnings and profits" of the Company
      that are attributable to such Common Shares. If the Company is both a CFC and
      a
      "passive foreign investment company" (as defined below), and if certain other
      circumstances are present, the Company generally will be treated as a CFC (and
      not as a "passive foreign investment company") with respect to any
      10% Shareholder.





The
      Company does not believe that it has previously been, or currently is, a CFC.
      However, there can be no assurance that the Company will not be a CFC for the
      current or any future taxable year.





Passive
      Foreign Investment Company





The
      Company generally will be a "passive foreign investment company" under
      Section 1297 of the Code (a "PFIC") if, for a taxable year, (a) 75% or
      more of the gross income of the Company for such taxable year is passive income
      or (b) 50% or more of the assets held by the Company either produce passive
      income or are held for the production of passive income, based on the fair
      market value of such assets (or on the adjusted tax basis of such assets, if
      the
      Company is not publicly traded and either is a "controlled foreign corporation"
      or makes an election). "Passive income" includes, for example, dividends,
      interest, certain rents and royalties, certain gains from the sale of stock
      and
      securities, and certain gains from commodities transactions.





For
      purposes of the PFIC income test and assets test described above, if the Company
      owns, directly or indirectly, 25% or more of the total value of the outstanding
      shares of another foreign corporation, the Company will be treated as if it
      (a) held a proportionate share of the assets of such other foreign
      corporation and (b) received directly a proportionate share of the income
      of such other foreign corporation. In addition, for purposes of the PFIC income
      test and asset test described above, "passive income" does not include any
      interest, dividends, rents, or royalties that are received or accrued by the
      Company from a "related person" (as defined in Section 954(d)(3) of the
      Code), to the extent such items are properly allocable to the income of such
      related person that is not passive income.





The
      Company believes that it was a PFIC for the taxable year ended March 31, 2005
      and that it will be a PFIC for the taxable year ending March 31, 2006. There
      can
      be no assurance, however, that the IRS will agree with a determination made
      by
      the Company concerning its PFIC status.





*Default
      PFIC Rules Under Section 1291 of the Code*





If
      the
      Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder
      of
      the acquisition, ownership, and disposition of Common Shares will depend on
      whether such U.S. Holder makes an election to treat the Company as a "qualified
      electing fund" or "QEF" under Section 1295 of the Code (a "QEF Election")
      or makes a mark-to-market election under Section 1296 of the Code (a
      "Mark-to-Market Election"). A U.S. Holder that does not make either a QEF
      Election or a Mark-to-Market Election will be referred to in this summary as
      a
      "Non-Electing U.S. Holder."





53


A
      Non-Electing U.S. Holder will be subject to the rules of Section 1291 of
      the Code with respect to (a) any gain recognized on the sale or other
      disposition of Common Shares and (b) any excess distribution paid on the
      Common Shares. A distribution generally will be an "excess distribution" to
      the
      extent that such distribution (together with all other distributions received
      in
      the current taxable year) exceeds 125% of the average distributions received
      during the three preceding taxable years (or during a U.S. Holder's holding
      period for the Common Shares, if shorter).





Under
      Section 1291 of the Code, any gain recognized on the sale or other taxable
      disposition of Common Shares, and any excess distribution paid on the Common
      Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder's
      holding period for the Common Shares. The amount of any such gain or excess
      distribution allocated to prior years of such Non-Electing U.S. Holder's holding
      period for the Common Shares will be subject to U.S. federal income tax at
      the
      highest tax applicable to ordinary income in each such prior year. A
      Non-Electing U.S. Holder will be required to pay interest on the resulting
      tax
      liability for each such prior year, calculated as if such tax liability had
      been
      due in each such prior year. Such a Non-Electing U.S. Holder that is not a
      corporation must treat any such interest paid as "personal interest," which
      is
      not deductible. The amount of any such gain or excess distribution allocated
      to
      the current year of such Non-Electing U.S. Holder's holding period for the
      Common Shares will be treated as ordinary income in the current year (but will
      not qualify for the preferential dividend rate previously discussed), and no
      interest charge will be incurred with respect to the resulting tax liability
      for
      the current year.





If
      the
      Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder
      holds Common Shares, the Company will continue to be treated as a PFIC with
      respect to such Non-Electing U.S. Holder, regardless of whether the Company
      ceases to be a PFIC in one or more subsequent years. A Non-Electing U.S. Holder
      may terminate this deemed PFIC status by electing to recognize gain (which
      will
      be taxed under the rules of Section 1291 of the Code discussed above) as if
      such Common Shares were sold on the last day of the last taxable year for which
      the Company was a PFIC.





*QEF
      Election*





A
      U.S.
      Holder that makes a QEF Election generally will not be subject to the rules
      of
      Section 1291 of the Code discussed above. However, a U.S. Holder that makes
      a QEF Election will be subject to U.S. federal income tax annually on such
      U.S.
      Holder's pro rata share of (a) net capital gain of the Company, which will
      be taxed as capital gain to such U.S. Holder, and (b) and the ordinary
      earnings of the Company, which will be taxed as ordinary income to such U.S.
      Holder. Generally, "net capital gain" is the excess of (a) net long-term
      capital gain over (b) net short-term capital loss and "ordinary earnings"
      are the excess of (a) "earnings and profits" over (b) net capital
      gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal
      income tax on such amounts for each taxable year in which the Company is a
      PFIC,
      regardless of whether such amounts are actually distributed to such U.S. Holder
      by the Company. However, a U.S. Holder that makes a QEF Election may, subject
      to
      certain limitations, elect to defer payment of current U.S. federal income
      tax
      on such amounts, subject to an interest charge. If such U.S. Holder is not
      a
      corporation, any such interest paid will be treated as "personal interest,"
      which is not deductible. A U.S. Holder that makes a QEF Election also must
      report certain information concerning the Company to the IRS.





A
      U.S.
      Holder that makes a QEF Election generally also (a) may receive a tax-free
      distribution from the Company to the extent that such distribution represents
      "earnings and profits" of the Company that were previously included in income
      by
      the U.S. Holder because of such QEF Election and (b) will adjust such U.S.
      Holder's tax basis in the Common Shares to reflect the amount included in income
      or allowed as a tax-free distribution because of such QEF Election. In addition,
      a U.S. Holder that makes a QEF Election generally will recognize capital gain
      or
      loss on the sale or other taxable disposition of Common Shares.





54


The
      procedure for making a QEF Election, and the U.S. federal income tax
      consequences of making a QEF Election, will depend on whether such QEF Election
      is timely. A QEF Election will be treated as "timely" if such QEF Election
      is
      made for the first year in the U.S. Holder's holding period for the Common
      Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF
      Election by filing the appropriate QEF Election documents at the time such
      U.S.
      Holder files a U.S. federal income tax return for such first year. However,
      if
      the Company was a PFIC in a prior year, then in addition to filing the QEF
      Election documents, a U.S. Holder must elect to recognize (a) gain (which
      will be taxed under the rules of Section 1291 of the Code discussed above)
      as if the Common Shares were sold on the qualification date or (b) if the
      Company was also a CFC, such U.S. Holder's pro rata share of the post-1986
      "earnings and profits" of the Company as of the qualification date. The
      "qualification date" is the first day of the first taxable year in which the
      Company was a QEF with respect to such U.S. Holder. The election to recognize
      such gain or "earnings and profits" can only be made if such U.S. Holder's
      holding period for the Common Shares includes the qualification date. By
      electing to recognize such gain or "earnings and profits," such U.S. Holder
      will
      be deemed to have made a timely QEF Election. In addition, under very limited
      circumstances, a U.S. Holder may make a retroactive QEF Election if such U.S.
      Holder failed to file the QEF Election documents in a timely manner.





A
      QEF
      Election will apply to the taxable year for which such QEF Election is made
      and
      to all subsequent taxable years, unless such QEF Election is invalidated or
      terminated or the IRS consents to revocation of such QEF Election. If a U.S.
      Holder makes a QEF Election and, in a subsequent taxable year, the Company
      ceases to be a PFIC, the QEF Election will remain in effect (although it will
      not be applicable) during those taxable years in which the Company is not a
      PFIC. Accordingly, if the Company becomes a PFIC in another subsequent taxable
      year, the QEF Election will be effective and the U.S. Holder will be subject
      to
      the QEF rules described above during any such subsequent taxable year in which
      the Company qualifies as a PFIC. In addition, the QEF Election will remain
      in
      effect (although it will not be applicable) with respect to a U.S. Holder even
      after such U.S. Holder disposes of all of such U.S. Holder's direct and indirect
      interest in the Common Shares. Accordingly, if such U.S. Holder reacquires
      an
      interest in the Company, such U.S. Holder will be subject to the QEF rules
      described above for each taxable year in which the Company is a
      PFIC.





Each
      U.S.
      Holder should consult its own financial advisor, legal counsel, or accountant
      regarding the availability of, and procedure for making, a QEF Election. U.S.
      Holders should be aware that there can be no assurance that the Company will
      satisfy record keeping requirements that apply to a QEF, or that the Company
      will supply U.S. Holders with information that such U.S. Holders require to
      report under the QEF rules, in event that the Company is a PFIC and a U.S.
      Holder wishes to make a QEF Election.





*Mark-to-Market
      Election*





A
      U.S.
      Holder may make a Mark-to-Market Election only if the Common Shares are
      marketable stock. The Common Shares generally will be "marketable stock" if
      the
      Common Shares are regularly traded on (a) a national securities exchange
      that is registered with the Securities and Exchange Commission, (b) the
      national market system established pursuant to section 11A of the Securities
      and
      Exchange Act of 1934, or (c) a foreign securities exchange that is
      regulated or supervised by a governmental authority of the country in which
      the
      market is located, provided that (i) such foreign exchange has trading
      volume, listing, financial disclosure, and other requirements and the laws
      of
      the country in which such foreign exchange is located, together with the rules
      of such foreign exchange, ensure that such requirements are actually enforced
      and (ii) the rules of such foreign exchange ensure active trading of listed
      stocks.





A
      U.S.
      Holder that makes a Mark-to-Market Election generally will not be subject to
      the
      rules of Section 1291 of the Code discussed above. However, if a U.S.
      Holder makes a Mark-to-Market Election after the beginning of such U.S. Holder's
      holding period for the Common Shares and such U.S. Holder has not made a timely
      QEF Election, the rules of Section 1291 of the Code discussed above will
      apply to certain dispositions of, and distributions on, the Common Shares.





A
      U.S.
      Holder that makes a Mark-to-Market Election will include in ordinary income,
      for
      each taxable year in which the Company is a PFIC, an amount equal to the excess,
      if any, of (a) the fair market value of the Common Shares as of the close
      of such taxable year over (b) such U.S. Holder's tax basis in such Common
      Shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed
      a
      deduction in an amount equal to the lesser of (a) the excess, if any, of
      (i) such U.S. Holder's adjusted tax basis in the Common Shares over
      (ii) the fair market value of such Common Shares as of the close of such
      taxable year or (b) the excess, if any, of (i) the amount included in
      ordinary income because of such Mark-to-Market Election for prior taxable years
      over (ii) the amount allowed as a deduction because of such Mark-to-Market
      Election for prior taxable years.





55


A
      U.S.
      Holder that makes a Mark-to-Market Election generally also will adjust such
      U.S.
      Holder's tax basis in the Common Shares to reflect the amount included in gross
      income or allowed as a deduction because of such Mark-to-Market Election. In
      addition, upon a sale or other taxable disposition of Common Shares, a U.S.
      Holder that makes a Mark-to-Market Election will recognize ordinary income
      or
      loss (not to exceed the excess, if any, of (a) the amount included in
      ordinary income because of such Mark-to-Market Election for prior taxable years
      over (b) the amount allowed as a deduction because of such Mark-to-Market
      Election for prior taxable years).





A
      Mark-to-Market Election applies to the taxable year in which such Mark-to-Market
      Election is made and to each subsequent taxable year, unless the Common Shares
      cease to be "marketable stock" or the IRS consents to revocation of such
      election. Each U.S. Holder should consult its own financial advisor, legal
      counsel, or accountant regarding the availability of, and procedure for making,
      a Mark-to-Market Election.





*Other
      PFIC Rules*





Under
      Section 1291(f) of the Code, the IRS has issued proposed Treasury
      Regulations that, subject to certain exceptions, would cause a U.S. Holder
      that
      had not made a timely QEF Election to recognize gain (but not loss) upon certain
      transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts
      and
      exchanges pursuant to corporate reorganizations).





An
      individual U.S. Holder's estate may not receive a step-up in basis in the Common
      Shares at the U.S. Holder's death, if the Company is or was a PFIC during the
      U.S. Holder's period of ownership of the Common Shares.





Certain
      additional adverse rules will apply with respect to a U.S. Holder if the Company
      is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For
      example under Section 1298(b)(6) of the Code, a U.S. Holder that uses
      Common Shares as security for a loan will, except as may be provided in Treasury
      Regulations, be treated as having made a taxable disposition of such Common
      Shares.





The
      PFIC
      rules are complex, and each U.S. Holder should consult its own financial
      advisor, legal counsel, or accountant regarding the PFIC rules and how the
      PFIC
      rules may affect the U.S. federal income tax consequences of the acquisition,
      ownership, and disposition of Common Shares.





**F.**
            ***Dividend
                and paying agents***





Not
      Applicable





**G.**
            ***Statement
                by experts.***





Not
      Applicable.





**H.**
            ***Documents
                on display.***





Any
      statement in this Annual Report about any of the Company's contracts or other
      documents is not necessarily complete. If the contract or document is filed
      as
      an exhibit to this Annual Report, the contract or document is deemed to modify
      the description contained in this Annual Report. Readers must review the
      exhibits themselves for a complete description of the contract or document.





Readers
      may review a copy of the Company's filings with the U.S. Securities and Exchange
      Commission ("the "SEC"), including exhibits and schedules filed with it, at
      the
      SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth
      Street, N.W., Washington, D.C. 20549. Readers may also obtain copies of such
      materials from the Public Reference Section of the SEC, Room 1024, Judiciary
      Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
      Readers may call the SEC at 1-800-SEC-0330 for further information on the public
      reference rooms. The SEC maintains a Web site (http://www.sec.gov) that contains
      reports, submissions and other information regarding registrants that file
      electronically with the SEC. The Company has only recently become subject to
      the
      requirement to file electronically through the EDGAR system most of its
      securities documents, including registration statements under the Securities
      Act
      of 1933, as amended and registration statements, reports and other documents
      under the Securities Exchange Act of 1934, as amended.





56


Readers
      may read and copy any reports, statements or other information that the Company
      files with the SEC at the address indicated above and may also access them
      electronically at the Web site set forth above. These SEC filings are also
      available to the public from commercial document retrieval services.





The
      Company is required to file reports and other information with the SEC under
      the
      Securities Exchange Act of 1934, as amended. Reports and other information
      filed
      by the Company with the SEC may be inspected and copied at the SEC's public
      reference facilities described above. As a foreign private issuer, the Company
      is exempt from the rules under the Securities Exchange Act of 1934, as amended
      prescribing the furnishing and content of proxy statements and the Company's
      officers, directors and principal shareholders are exempt from the reporting
      and
      short-swing profit recovery provisions contained in section 16 of the Securities
      Exchange Act of 1934, as amended. Under the Securities Exchange Act of 1934,
      as
      amended, as a foreign private issuer, the Company is not required to publish
      financial statements as frequently or as promptly as United States
      companies.





Any
      of
      the documents referred to above can also be viewed at the offices of the
      Company's solicitors, Hodgson Russ, 150 King Street West, Suite 2309, Toronto,
      Ontario M5H 1J9 All of the documents referred to above are in
      English.





**I.**
            ***Subsidiary
                Information.***





Not
      applicable.





**Item
      11.**  **Quantitative
      and Qualitative Disclosures About Market Risk.** ****





The
      Company owns shares of other listed companies. Certain of these shares are
      listed under current assets on the Company's balance sheet as at March 31,
      2006
      as "Marketable Securities" at an amount of $71,392. **** However,
      the quote market value of these shares at March 31, 2006 was $217,512.  The
      Company also owns 4,000,000 common shares of Northern Lion Gold Corp. This
      long-term investment has a carrying value of $1,400,000 as at March 31, 2006,
      with the quoted market value of such shares at March 31, 2006 being $2,280,000.
      The shares are subject to a hold period expiring February 27, 2007 and
      other selling restrictions subsequent to that date. Market risk represents
      the risk of loss that may impact the financial position, results of operations,
      or cash flows of the Company due to adverse changes in financial market prices,
      including interest rate risk, foreign currency exchange rate risk, commodity
      price risk, and other relevant market or price risks.





As
      the
      Company is in the permitting and advanced exploration stage, it presently has
      no
      activities related to derivative financial instruments or derivative commodity
      instruments.





The
      financial results are quantified in Canadian dollars. In the past, the Company
      has raised equity funding through the sale of securities denominated in Canadian
      dollars, and the Company may in the future raise additional equity funding
      or
      financing denominated in Canadian dollars. The Company currently does not
      believe it currently has any materially significant market risks relating to
      operations resulting from foreign exchange rates. However, if the Company enters
      into financing or other business arrangements denominated in currency other
      than
      the Canadian or United States dollar, variations in the exchange rate may give
      rise to foreign exchange gains or losses that may be significant.





The
      Company currently has no long-term debt obligations. The Company does not use
      financial instruments for trading purposes and is not a party to any leverage
      derivatives. In the event the Company experiences substantial growth in the
      future, the Company's business and results of operations may be materially
      affected by changes in interest rates and certain other credit risk associated
      with the Company's operations.





57


**Item
      12.**  **Description
      of Securities Other than Equity Securities**





Not
      Applicable.





**PART
      II**





**Item
      13.**  **Defaults,
      Dividend Arrearages and Delinquencies.**





There
      are
      none.





**Item
      14.**  **Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds.**





Not
      Applicable.





**Item
      15.**  **Controls
      and Procedures.**





(a)  **Evaluation
      of Disclosure Controls and Procedures** .





The
                Company's Chief Executive Officer and Chief Financial Officer have
                evaluated the effectiveness of the Company's disclosure controls
                and
                procedures (as such term is defined in Rules 13a-15 and 15d-15 under
                the
                Securities Exchange Act of 1934, as amended (the "Exchange Act"))
                as of
                the end of the period covered by this annual report (the "Evaluation
                Date"). Based on such evaluation, such officers have concluded that,
                as of
                the Evaluation Date, the Company's disclosure controls and procedures
                are
                effective in alerting them on a timely basis to material information
                relating to the Company required to be included in our reports filed
                or
                submitted under the Exchange Act.





(b)  **Changes
      in Internal Controls over Financial Reporting.**





There
                have not been any changes in the Company's internal controls over
                financial reporting or in other factors that have been identified
                in
                connection with the evaluation described above that occurred during
                the
                period covered by this Annual Report that has materially affected,
                or is
                reasonably likely to materially affect, the Company's internal controls
                over financial reporting.





**Item
      16.**  **[Reserved]**





**Item
      16A.**  **Audit
      Committee Financial Expert.**





The
      Company's Board of Directors has determined that there is at least one audit
      committee financial expert, as defined under Item 16A of Form 20-F, serving
      on
      its audit committee, namely, David Whittle, whose qualifications are set out
      in
      Item 6, above. **** Mr.
      Whittle is independent, as such term is defined by the listing standards of
      the
      AMEX.





**Item
      16B.**  **Code
      of Ethics.**





The
      Board
      of Directors, on February 2, 2003, adopted a Code of Ethics (the "Code")
      entitled "Ethics and Conflict of Interest Policy" which applies to each of
      the
      directors and officers of the Company and its affiliates. A copy of the 2003
      Code has been previously filed. On May 29, 2006 the Board of Directors adopted
      an updated and expanded set of Corporate Governance Policies, which replaced
      the
      2003 Code.





The
      Corporate Governance Policy governs the actions of and is applicable to all
      of
      the directors and officers of the Company and its subsidiaries, and their
      affiliates. The 2003 Code and 2006 Corporate Governance Policies address the
      following:





·
            compliance
                with all the laws and regulations identified therein and with the
                requirements of the U.S. Securities and Exchange Commissions as mandated
                by the Sarbanes-Oxley Act of 2002, and the requirements of the Toronto
                Stock Exchange;





58





·
            corporate
                opportunities and potential conflicts of
                interest;





·
            the
                quality of public disclosures;





·
            the
                protection and appropriate use of the Company's assets and
                resources;





·
            the
                protection of confidential
                information;





·
            insider
                trading;





·
            fair
                behaviour; and





·
            reporting
                violations of the Policy or Board Directives





The
      Company has also adopted an Insider Trading Policy which applies to all
      employees of the Company.





There
      were no waivers to the Ethics and Conflicts of Interest Policy during calendar
      2006.





**Item
      16C.**  **Principal
      Accountant Fees and Services.**





**A.**
            ***Audit
                Fees***





"Audit
      Fees" are the aggregate fees billed by KPMG for the audit of the Company's
      consolidated annual financial statements, assistance with interim financial
      statements, attestation services that are provided in connection with statutory
      and regulatory filings or engagements, services associated with registration
      statements, prospectuses, periodic reports and other documents filed with
      securities regulatory bodies and stock exchanges and other documents issued
      in
      connection with securities offerings and admissions to trading, and assistance
      in responding to comment letters from securities regulatory bodies, and
      consultations with the Company's management as to accounting or disclosure
      treatment of transactions or events and/or the actual or potential impact of
      final or proposed rules, standards or interpretations by the securities
      regulatory authorities, accounting standard setting bodies, or other regulatory
      or standard setting bodies.





Aggregate
      audit fees to be billed in fiscal 2006 by KPMG are $50,000, and the Company
      was
      billed $52,500 for the fiscal year 2005.





**B.**
            ***Audit-Related
                Fees***





"Audit-Related
      Fees" are fees that are or would be charged by KPMG for presentations or
      training on accounting or regulatory pronouncements, due diligence services
      related to accounting and tax matters in connection with potential
      acquisitions/dispositions, advice and documentation assistance with respect
      to
      internal controls over financial reporting and disclosure controls and
      procedures of the Company, and if applicable, audits of financial statements
      of
      a company's employee benefit plan. There were no "Audit Related Fees" charged
      by
      KPMG during the fiscal periods ended March 31, 2006 or March 31,
      2005.





**C.**
            ***Tax
                Fees***





"Tax
      Fees" are fees for professional services rendered by KPMG for tax compliance,
      tax advice on actual or contemplated transactions.





Aggregate
      tax fees billed in fiscal 2006 by KPMG were $nil and $16,682 for the fiscal
      year
      2005 pertaining to tax compliance and tax planning pertaining to the wind-up
      of
      Mountain Glen. These services were approved by the Audit Committee.





**D.**
            ***All
                Other Fees***





There
      were no other fees charged by KPMG during the fiscal periods ended March 31,
      2006 and 2005.





The
      Audit
      Committee pre-approves all audit services to be provided to the Company by
      its
      independent auditors. The Audit Committee's policy regarding the pre-approval
      of
      non-audit services to be provided to the Company by its independent auditors
      is
      that all such services shall be pre-approved by the Audit Committee. Non-audit
      services that are prohibited to be provided to the Company by its independent
      auditors may not be pre-approved. In addition, prior to the granting of any
      pre-approval, the Audit Committee must be satisfied that the performance of
      the
      services in question will not compromise the independence of the independent
      auditors. All non-audit services, performed by the Company's auditor, for the
      fiscal year ended March 31, 2006, have been pre-approved by the Audit Committee
      of the Company. No non-audit services were approved pursuant to the *de
      minimis* exemption to the pre-approval requirement.





59


**Item
      16D.**  **Exemptions
      from the Listing Standards for Audit Committees.**





Not
      Applicable.





**Item
      16E.**  **Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers.**





There
      were no purchases made by or on behalf of the Company or any affiliated
      purchaser of shares or other units of the Company's equity securities other
      than
      an exchange of the Company's remaining 30% interest in the Haveri property
      for
      4,000,000 of Northern Lion Gold Corp.'s common shares (see Item 4D- Property,
      plants and equipment - Other Properties, above) and the exchange of the
      Company's Baffin Island properties for 325,000 of Patrician Diamond Inc.'s
      common shares.





**PART
      III**





**Item
      17.**  **Financial
      Statements.**





The
      Company's consolidated financial statements are stated in Canadian dollars
      (CDN$) and are prepared in accordance with Canadian Generally Accepted
      Accounting Principles (GAAP). Material measurement differences between GAAP
      in
      Canada and GAAP in the United States applicable to the Company, are described
      in
      Note 10 to the Consolidated Financial Statements.





The
      financial statements and notes thereto as required under Item 17 are attached
      hereto and filed as part of this Annual Report, are individually listed under
      Item 19, and are found immediately following the text of this Annual Report.
      The
      audit report of KPMG LLP, independent registered public accounting firm, is
      included herein immediately preceding the financial statements.





For
      audited financial statements for Fiscal 2006, Fiscal 2005 and Fiscal 2004,
      please see Item 19 below.





**Item
      18.**  **Financial
      Statements.**





Not
      Applicable.





60


**Item
                19**
            **Exhibits**





***Financial
      Statements***





The
      Consolidated Financial Statements of the Company and exhibits listed below
      are
      filed with this report on Form 20-F in the United States. This report is also
      filed in Canada as an Annual Information Form and the Canadian filing does
      not
      include the Consolidated Financial Statements and exhibits listed below.
      Canadian investors should refer to the audited Financial Statements of the
      Company for the years ended March 31, 2006 and 2005 filed with Canadian
      Securities Regulators on SEDAR under "Audited Annual Financial Statements -
      English" and incorporated herein by reference.





The
      following financial statements are attached to and form a part of this report
      filed with the SEC (see Appendix):





*Consolidated
      Financial Statements of the Company:*





·
            Report
                of Independent Registered Public Accounting
                Firm.





·
            Consolidated
                Balance Sheets as of March 31, 2006 and
                2005.





·
            Consolidated
                Statements of Operations and Deficit for the years ended March 31,
                2006,
                2005 and 2004.





·
            Consolidated
                Statements of Cash Flows for the years ended March 31, 2006, 2005
                and
                2004.





·
            Notes
                to the Consolidated Financial
                Statements.





61


**Consolidated
      Financial Statements**


**(Expressed
      in Canadian dollars)**





**Mountain
      Province Diamonds Inc.**





**Years
      ended March 31, 2006, 2005 and 2004**













**KPMG
                LLP**
              **Chartered
                Accountants**
              PO
                Box 10426 777 Dunsmuir Street
              Vancouver
                BC V7Y 1K3
              **Canada**
            Telephone(604)
                691-3000
              Fax(604)
                691-3031
              Internetwww.kpmg.ca




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Shareholders


Mountain
      Province Diamonds Inc.





We
      have
      audited the accompanying consolidated balance sheets of Mountain Province
      Diamonds Inc. as at March 31, 2006 and 2005 and the consolidated statements
      of operations and deficit and cash flows for each of the years in the three-year
      period ended March 31, 2006. These financial statements are the responsibility
      of the Company's management. Our responsibility is to express an opinion on
      these financial statements based on our audits.




We
      have
      conducted our audits in accordance with Canadian generally accepted auditing
      standards and with the standards of the Public Company Accounting Oversight
      Board (United States). Those standards require that we plan and perform an
      audit
      to obtain reasonable assurance whether the financial statements are free of
      material misstatement. An audit includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements. An audit
      also includes assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of the Company as at March
      31,
      2006 and 2005 and the results of its operations and its cash flows for each
      of
      the years in the three-year period ended March 31, 2006 in accordance with
      Canadian generally accepted accounting principles.




As
      discussed in note 2(i) to the consolidated financial statements, the Company
      changed its method of accounting for stock-based compensation in
      2005.




Canadian
      generally accepted accounting principles vary in certain significant respects
      from accounting principles generally accepted in the United States of America.
      Information relating to the nature and effect of such measurement differences
      is
      presented in note 10 to the consolidated financial statements.








**KPMG
      LLP (signed)**


Chartered
      Accountants





Vancouver,
      Canada


May
      19,
      2006




KPMG
        LLP,
        a Canadian limited liability partnership is the Canadian member
        firm of KPMG International, a Swiss cooperative.
 F-2





**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Balance Sheets


(Expressed
      in Canadian dollars)


March
      31,
      2006 and 2005


**2006**
            
            **2005****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            845,452
            
            $
            1,001,104Marketable
                securities (Note 3)
            
            
            71,392
            
            
            71,392Accounts
                receivable
            
            
            66,637
            
            
            26,324Advances
                and prepaid expenses
            
            
            6,052
            
            
            36,879989,533
            
            
            1,135,699Long-term
                investment (Note 4)
            
            
            1,400,000
            
            
            2,480,000Mineral
                properties (Note 6)
            
            
            1,552,553
            
            
            1,552,553Deferred
                exploration costs (Note 6)
            
            
            30,929,049
            
            
            30,865,670Equipment
                (Note 5)
            
            
            3,153
            
            
            4,235Total
                assets
            
            $
            34,874,288
            
            $
            36,038,157**Liabilities
                and Shareholders' Equity**Current
                liabilitiesAccounts
                payable and accrued liabilities (Note 8)
            
            $
            181,266
            
            $
            94,976Shareholders'
                equity:Share
                capital (Note 7(b))
            
            
            58,253,663
            
            
            57,607,786Contributed
                surplus (Note 7(e))
            
            
            561,777
            
            
            257,925Deficit
            
            
            (24,122,418
            )
            
            (21,922,530
            )Total
                shareholders' equity
            
            
            34,693,022
            
            
            35,943,181Total
                liabilities and shareholders' equity
            
            $
            34,874,288
            
            $
            36,038,157





Nature
      of
      operations (Note 1)


Subsequent
      event (Note 7(f))




See
      accompanying notes to consolidated financial statements




**Approved
      on behalf of the Board** :




*“Jonathan
      Comerford”*  Director




**Approved
      on behalf of the Board**:


*“Patrick
      Evans”* ** Director


F-3


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Statements of Operations and Deficit


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004


**2006**
            
            **2005**
            
            **2004****Expenses:**Amortization
            
            $
            1,082
            
            $
            2,136
            
            $
            2,853Consulting
                fees (Note 8)
            
            
            309,217
            
            
            141,586
            
            
            182,846Directors'
                fees and honourarium
            
            
            37,500
            
            
            2,700
            
            
            33,350Interest
                and bank charges
            
            
            1,231
            
            
            983
            
            
            1,137Office
                and miscellaneous
            
            
            43,647
            
            
            89,941
            
            
            78,619Professional
                fees (Note 8)
            
            
            166,150
            
            
            235,680
            
            
            307,441Promotion
                and investor relations
            
            
            108,184
            
            
            30,503
            
            
            94,803Rent
            
            
            10,396
            
            
            18,466
            
            
            23,600Salaries
                and benefits
            
            
            -
            
            
            -
            
            
            78,805Severance
                and contract termination
            
            
            -
            
            
            -
            
            
            368,668Stock-based
                compensation (Note 7(c))
            
            
            314,879
            
            
            189,400
            
            
            -Transfer
                agent and regulatory fees
            
            
            99,794
            
            
            114,459
            
            
            37,890Travel
            
            
            39,981
            
            
            22,648
            
            
            21,4791,132,061
            
            
            848,502
            
            
            1,231,491Other
                earnings (expenses):Gain
                on sale of mineral properties
            
            
            -
            
            
            4,226,634
            
            
            -Write-down
                of long-term investments (Note 4)
            
            
            (1,080,000
            )
            
            (1,860,000
            )
            
            -Interest
            
            
            12,173
            
            
            13,112
            
            
            12,127Loss
                on disposal of equipment
            
            
            -
            
            
            -
            
            
            (3,972
            )Write-down
                of mineral properties anddeferred
                exploration
            
            
            -
            
            
            -
            
            
            (589,669
            )(1,067,827
            )
            
            2,379,746
            
            
            (581,514
            )Net
                (loss) earnings for the year
            
            
            (2,199,888
            )
            
            1,531,244
            
            
            (1,813,005
            )Deficit,
                beginning of year
            
            
            (21,922,530
            )
            
            (23,378,874
            )
            
            (21,565,869
            )Adjustment
                on adoption of new accountingstandard
                for stock based compensation (Note 2(i))
            
            
            -
            
            
            (74,900
            )
            
            -Deficit,
                end of year
            
            $
            (24,122,418
            )
            $
            (21,922,530
            )
            $
            (23,378,874
            )Basic
                and diluted (loss) earnings per share
            
            $
            (0.04
            )
            $
            0.03
            
            $
            (0.04
            )Weighted
                average number of sharesoutstanding
            
            
            52,783,833
            
            
            51,781,905
            
            
            50,759,430





See
      accompanying notes to consolidated financial statements


F-4





**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Statements of Cash Flows


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004


**2006**
            
            **2005**
            
            **2004**Cash
                provided by (used in):Cash
                flows provided by (used in) operating activities:Net
                (loss) earnings for the year
            
            $
            (2,199,888
            )
            $
            1,531,244
            
            $
            (1,813,005
            )Items
                not involving cash:Amortization
            
            
            1,082
            
            
            2,136
            
            
            2,853Stock-based
                compensation expense
            
            
            314,879
            
            
            189,400
            
            
            156,000Gain
                on sale of mineral properties
            
            
            -
            
            
            (4,226,634
            )
            
            -Write-down
                of long-term investments
            
            
            1,080,000
            
            
            1,860,000
            
            
            -Loss
                on disposal of equipment
            
            
            -
            
            
            -
            
            
            3,972Write-down
                of mineral properties anddeferred
                exploration
            
            
            -
            
            
            -
            
            
            589,669Changes
                in non-cash operating working capitalAccounts
                receivable
            
            
            (40,313
            )
            
            (7,891
            )
            
            6,508Advances
                and prepaid expenses
            
            
            30,827
            
            
            (28,499
            )
            
            1,816Accounts
                payable and accrued liabilities
            
            
            86,290
            
            
            (177,770
            )
            
            32,651Due
                to related party
            
            
            -
            
            
            -
            
            
            (50
            )(727,123
            )
            
            (858,014
            )
            
            (1,019,586
            )**Cash
                flows provided by (used in) investing activities:**Mineral
                properties
            
            
            (63,379
            )
            
            (37,106
            )
            
            -Proceeds
                on sale of equipment
            
            
            -
            
            
            -
            
            
            4,002(63,379
            )
            
            (37,106
            )
            
            4,002**Cash
                flows provided by financing activities:**Issuance
                of shares, net of share issue costs
            
            
            634,850
            
            
            981,730
            
            
            720,002Increase
                (decrease) in cash andcash
                equivalents
            
            
            (155,652
            )
            
            86,610
            
            
            (295,582
            )Cash
                and cash equivalents, beginning of year
            
            
            1,001,104
            
            
            914,494
            
            
            1,210,076Cash
                and cash equivalents, end of year
            
            $
            845,452
            
            $
            1,001,104
            
            $
            914,494Supplementary
                information:Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            8,307Non-cash
                transactionsShares
                issued in exchange for saleof
                Haveri property (Note 6(b))
            
            
            -
            
            
            4,340,000
            
            
            -Shares
                issued in exchange for saleof
                Baffin Island claim (Note 6(c))
            
            
            -
            
            
            39,000
            
            
            -Shares
                issued pursuant to consultingagreement
                (Note 8)
            
            
            -
            
            
            -
            
            
            156,000





See
      accompanying notes to consolidated financial statements





F-5


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Notes
      to
      Consolidated Financial Statements


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004





**1.**
            **Nature
                of operations:**




During
                the year ended March 31, 2006, the Company amended its articles and
                continued incorporation under the Ontario Business Corporation Act,
                transferring from the Company Act (British
                Columbia).




The
                Company is in the process of exploring its mineral properties primarily
                in
                conjunction with third parties (Note 6) and has not yet determined
                whether
                these properties contain mineral reserves that are economically
                recoverable. The underlying value and recoverability of the amounts
                shown
                for mineral properties and deferred exploration costs is dependent
                upon
                the ability of the Company and/or its mineral property partners to
                complete exploration and development and discover economically recoverable
                reserves and upon future profitable production or proceeds from
                disposition of the Company’s mineral properties. Failure to discover
                economically recoverable reserves will require the Company to write-off
                costs capitalized to date.





**2.**
            **Significant
                accounting policies:**




These
                consolidated financial statements have been prepared in accordance
                with
                Canadian generally accepted accounting principles. A reconciliation
                of
                material measurement differences between Canadian generally accepted
                accounting principles and United States generally accepted accounting
                principles and practices prescribed by the Securities and Exchange
                Commission, is included in Note 10.





**(a)**
            **Basis
                of consolidation:**




The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. All intercompany amounts and transactions have been
      eliminated on consolidation.




**(b)**
            **Cash
                and cash equivalents:**




Cash
      and
      cash equivalents consist of highly liquid short-term investments that are
      readily convertible to known amounts of cash and generally have maturities
      of
      three months or less when acquired.




**(c)**
            **Marketable
                securities:**




Marketable
      securities are carried at the lower of cost and quoted fair market
      value.




**(d)**
            **Long-term
                investments:**




The
      long-term investment has arisen on the sale of mineral property interests in
      exchange for shares of the purchaser and is accounted for by the cost method.
      Earnings from long-term investment are recognized only to the extent received.
      The investment is written down when there has been a loss in value that is
      other
      than a temporary decline.




F-6


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Notes
      to
      Consolidated Financial Statements


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004





**2.**
            **Significant
                accounting policies
                (continued):**




**(e)**
            **Mineral
                properties and deferred exploration
                costs:**




The
      Company accounts for its mineral properties whereby all direct costs related
      to
      the acquisition, exploration and development of these properties are
      capitalized. All sales and option proceeds received are first credited against
      the costs of the related property, with any excess credited to earnings. Once
      commercial production has commenced, the net costs of the applicable property
      will be charged to operations using the unit-of-production method based on
      estimated recoverable reserves. On an ongoing basis, the Company evaluates
      each
      property based on results to date to determine the nature of exploration work
      that is warranted in the future. If there is little prospect of future work
      on a
      property being carried out, the deferred costs related to that property are
      written down to the estimated amount recoverable.




The
      amounts reported as mineral properties and deferred exploration costs represent
      unamortized costs to date, less write-downs, and do not necessarily reflect
      present or future values.




All
      general and administrative expenses are expensed as incurred.




**(f)**
            **Equipment:**




Equipment
      is initially recorded at cost and amortized over their estimated useful lives
      on
      the declining balance basis at the following annual rates:


Asset
            
            RateFurniture
                and equipment
            
            
            20
            %Computers
            
            
            30
            %




**(g)**
            **Impairment
                of long-lived assets:**




The
      Company assesses the impairment of long-lived assets, which consist of mineral
      property interests (including deferred exploration costs) and equipment,
      whenever events or changes in circumstances indicate that the carrying value
      of
      an asset may not be recoverable. Recoverability of a long-lived asset is then
      determined by a comparison of the carrying value of the asset to future
      undiscounted net cash flows expected to be generated by the asset. If such
      assets are considered to be impaired, the amount of the impairment is measured
      by the amount by which the carrying amount of the asset exceeds its fair
      value.


F-7


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004




**2.**
            **Significant
                accounting policies
                (continued):**




**(h)**
            **Asset
                retirement obligations:**




The
      fair
      value of a liability for an asset retirement obligation, such as site
      reclamation costs, is recognized in the period in which it is incurred if a
      reasonable estimate of the fair value of the costs to be incurred can be made.
      The Company is required to record the estimated present value of future cash
      flows associated with site reclamation as a liability when the liability is
      incurred and increase the carrying value of the related assets for that amount.
      Subsequently, these capitalized asset retirement costs will be amortized to
      expense over the life of the related assets using the unit-of production method.
      At the end of each period, the liability is increased to reflect the passage
      of
      time (accretion expense) and changes in the estimated future cash flows
      underlying any initial fair value measurements (additional asset retirement
      costs).




As
      of
      March 31, 2006 and 2005, the Company has determined that it does not have
      material obligations for asset retirement obligations.




**(i)**
            **Stock-based
                compensation:**




The
      Company expenses the fair value of all stock options, calculated using the
      Black-Scholes option pricing model, over the vesting period commencing April
      1,
      2004.




For
      the
      period from April 1, 2002 to March 31, 2004, the Company applied the fair value
      method of accounting for stock options granted to consultants and the settlement
      method for stock options granted to employees and directors. Under the
      settlement method, no stock-based compensation expense was recognized for
      options granted and proceeds received on the issuance of share capital pursuant
      to the exercise of stock options is credited to share capital. The pro forma
      effect of applying the fair value method for options granted to employees and
      directors to loss and loss per share for the years ended March 31, 2004 is
      disclosed in Note 7(c) to these consolidated financial statements. Prior to
      April 1, 2002, the Company applied the settlement method to all stock options
      granted.




As
      permitted, effective April 1, 2004, the Company has adopted the fair value
      based
      method for employee and director stock options granted on or after April 1,
      2002, on a retroactive basis without restatement of prior periods.




The
      retroactive adoption of the changes discussed above resulted in an increase
      to
      opening deficit as at April 1, 2004 of $74,900 with respect to employee and
      director stock options granted in 2004 and 2003, an increase to the contributed
      surplus as at April 1, 2004 of $54,586 and an increase to share capital as
      at
      April 1, 2004 of $20,314 with respect to employee and director stock options
      granted and exercised in 2004 and 2003.




Direct
      awards of stock are expensed based on the market price of the shares at the
      time
      of the granting of the award.


F-8


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Notes
      to
      Consolidated Financial Statements


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004





**2.**
            **Significant
                accounting policies
                (continued):**




**(j)**
            **Income
                taxes:**




The
      Company uses the asset and liability method of accounting for income taxes.
      Under the asset and liability method, future tax assets and liabilities are
      recognized for the future tax consequences attributable to differences between
      the financial statement carrying amounts of existing assets and liabilities
      and
      their respective tax bases. Future tax assets and liabilities are measured
      using
      enacted or substantively enacted tax rates expected to apply to taxable income
      in the years in which those temporary differences are expected to be recovered
      or settled. The effect on future tax assets and liabilities of a change in
      tax
      rates is recognized in income in the period that includes the enactment date.
      The amount of future income tax assets recognized is limited to the amount
      that
      is more likely than not to be realized.




**(k)**
            **Earnings
                (loss) per share:**




Basic
      earnings (loss) per share is calculated by dividing the earnings (loss)
      attributable to common shareholders by the weighted average number of common
      shares outstanding during the year. For all periods presented, earnings (loss)
      available to the common shareholders equals the reported earnings or loss.
      The
      Company uses the treasury stock method to compute the dilutive effect of
      options, warrants and similar instruments. Diluted earnings per share is similar
      to basic earnings per share, except that the denominator is increased to include
      the number of additional common shares that would have been outstanding if
      the
      potential dilutive common shares had been issued. The treasury stock method
      assumes that the proceeds received on exercise of stock options is used to
      repurchase common shares at the average market value for the
      period.




**(l)**
            **Foreign
                currency translation:**




Monetary
      assets and liabilities denominated in a currency other than the Canadian dollar
      are translated at rates of exchange in effect at the balance sheet date. Revenue
      and expense items are translated at the average rates for the months in which
      such items are recognized during the year. Exchange gains and losses arising
      from the translation are included in the statement of operations.




**(m)**
            **Financial
                instruments:**




The
      fair
      values of the Company's cash and cash equivalents, accounts receivable, advances
      and prepaid expenses, accounts payable and accrued liabilities approximate
      their
      carrying values because of the immediate or short term to maturity of these
      financial instruments. The fair value of marketable securities and long-term
      investments are disclosed in Notes 3 and 4, respectively.




**(n)**
            **Use
                of estimates:**




The
      preparation of financial statements in accordance with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of the assets, liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenue and expenses during the reporting period.
      Significant areas requiring the use of management estimates relate to the
      determination of impairment of mineral properties, deferred exploration, and
      long-term investment, as well as the assumptions used in determining the fair
      value of stock-based compensation. Actual results could differ from these
      estimates.


F-9


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004




**2.**
            **Significant
                accounting policies
                (continued):**




**(o)**
            **Comparative
                figures:**




Certain
      of the prior year’s comparative figures have been reclassified to conform with
      the current year’s presentation.





**3.**
            **Marketable
                securities:**




The
                quoted market value of marketable securities at March 31, 2006 was
                $217,512 (2005 - $134,772).





**4.**
            **Long-term
                investment:**




The
                long-term investment consists of 4,000,000 common shares of Northern
                Lion
                Gold Corp. (“Northern Lion”), acquired upon disposal of the Company’s
                remaining interest in the Haveri property (Note 6(b)). The common
                shares
                are subject to a hold period expiring February 24, 2007, following
                which
                the Company is contractually obligated to sell not fewer than 250,000
                common shares at a time and must first offer Northern Lion the right
                to
                place the number of shares that the Company wishes to sell. The Company
                has also agreed to provide Northern Lion’s management a proxy for the
                purpose of voting the common shares for a period of three years.
                On
                acquisition, the Company recorded a gain on the sale in the amount
                of
                $4,187,634. During the year ended March 31, 2006 and 2005, the Company
                recorded $1,080,000 and $1,860,000 respectively, as other than a
                temporary
                write-down of investments.




The
                quoted market value of the long-term investments at March 31, 2006
                was
                $2,280,000 (2005 - $2,480,000).





**5.**
            **Equipment:**




2006:**Accumulated**
            
            **Net
                Book****Cost**
            
            **Amortization**
            
            **Value**Furniture
            
            $
            11,088
            
            $
            (9,481
            )
            $
            1,607Equipment
            
            
            4,065
            
            
            (4,065
            )
            
            -Computers
            
            
            14,584
            
            
            (13,038
            )
            
            1,546$
            29,737
            
            $
            (26,584
            )
            $
            3,153




2005:**Accumulated**
            
            **Net
                Book****Cost**
            
            **Amortization**
            
            **Value**Furniture
            
            $
            11,088
            
            $
            (9,079
            )
            $
            2,009Equipment
            
            
            4,065
            
            
            (4,048
            )
            
            17Computers
            
            
            14,584
            
            
            (12,375
            )
            
            2,209$
            29,737
            
            $
            (25,502
            )
            $
            4,235


F-10


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004


**6.**
            **Mineral
                properties and deferred
                exploration:**





Acquisition
      costs:


**2006**
            
            **2005**Gahcho
                Kue Project
            
            $
            1,552,553
            
            $
            1,552,553




Deferred
      exploration:


**Gahcho
                  Kue**
            
            **Baffin
                Island****Project**
            
            **Project**
            
            **Total**Balance,
                March 31, 2003
            
            $
            30,861,544
            
            $
            559,949
            
            $
            31,421,493Write-down
                of deferred exploration costs
            
            
            -
            
            
            (559,949
            )
            
            (559,949
            )Balance,
                March 31, 2004
            
            
            30,861,544
            
            
            -
            
            
            30,861,544Exploration
                expenditures:Consulting
                and other professional services
            
            
            4,126
            
            
            -
            
            
            4,126Balance,
                March 31, 2005
            
            
            30,865,670
            
            
            -
            
            
            30,865,670Geophysical
            
            
            3,220
            
            
            -
            
            
            3,220Due
                Diligence
            
            
            60,159
            
            
            -
            
            
            60,159Balance,
                March 31, 2006
            
            $
            30,929,049
            
            $
            -
            
            $
            30,929,049




**(a)**
            **Gahcho
                Kue Project:**




The
                Company currently holds a 44.1% interest in the Gahcho Kue project
                located
                in the District of Mackenzie, Northwest Territories, Canada. Other
                interests are held by De Beers Canada Exploration Inc. (“De Beers Canada”)
                (51%) and Camphor Ventures Inc. (“Camphor”) (4.9%). De Beers Canada has
                been granted the right to earn up to a 60% interest in the Gahcho
                Kue
                project.




De
                Beers Canada has agreed to carry all costs incurred and has committed
                to
                certain minimum expenditures and activities per year. Decisions are
                to be
                made jointly (via a management committee consisting of two members
                each
                from De Beers Canada and the Company) as to the further progress
                of the
                project, and specifically the timing of possible full feasibility
                study.
                Once a desktop study shows that an internal rate of return of 15%
                can be
                achieved, De Beers Canada is to proceed with a bankable feasibility
                study.
                If they do not proceed with the feasibility study, De Beers Canada’s
                interest will be diluted down to
                30%.




Upon
                completion of a bankable feasibility study, De Beers Canada’s interest in
                the claims shall increase to 55% and upon development, construction
                and
                commencement of production of a commercial mine, De Beers Canada’s
                interest shall increase to 60%.


F-11


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004


**6.**
            **Mineral
                properties and deferred exploration (continued):**





**(a)**
            **Gahcho
                Kue Project (continued):**




All
                costs paid with respect to the expenses incurred by the venturers
                shall be
                repaid first to De Beers Canada for all exploration and development
                costs
                incurred by them outside of the Kennady Lake area since March 8,
                2000 out
                of 100% of annual available cash flow (i.e. cash flow after provision
                for
                ongoing operating and non-operating costs including third party debt
                repayments) from any mine constructed on the property with interest
                at a
                rate equal to LIBOR plus 5% compounded annually; then to all venturers
                for
                all other exploration, development and mine construction costs out
                of 90%
                of annual available cash flow from any mine constructed on the property
                with interest at a rate equal to LIBOR plus 4% compounded annually;
                and
                the remaining 10% of such available cash flow shall be distributed
                to the
                participants in proportion to their respective participating
                interests.




On
                November 26, 2003, the Board of Directors of De Beers Canada approved
                the
                commencement of a pre-feasibility study on the Gahcho Kue Project.
                The
                estimated $25 million cost was borne entirely by De Beers Canada.
                The
                in-depth pre-feasibility project was completed in mid-2005 showing
                that an
                internal rate of return of 15% can be achieved and the project is
                proceeding with permitting and advanced
                exploration.




**(b)**
            **Haveri
                Project:**




The
                Company had a 100% interest in the Haveri Project, a mineral property
                located 175 kilometres north of Helsinki, Finland. On October 10,
                2002,
                Northern Lion was granted an option to acquire a 70% undivided interest
                in
                the Haveri property, in exchange for expending a total of $1,650,000
                in
                exploration and development expenditures by October 10, 2005. Northern
                Lion completed the necessary expenditures during the year ended March
                31,
                2005 and exercised its option to acquire a 70% interest in the Haveri
                property.




During
                the year ended March 31, 2005, the Company sold its remaining 30%
                interest
                in the Haveri property in exchange for 4,000,000 common shares of
                Northern
                Lion (Note 4).




**(c)**
            **Baffin
                Island Project:**




Pursuant
                to an agreement dated July 13, 1999, the Company was granted an option
                to
                acquire a 50% interest in four mineral claims located in the Northwest
                Territories and Nunavut Territory. In order to exercise the option
                and
                earn the 50% interest in the property, the Company had to incur
                expenditures on or in respect of the property of not less than $300,000
                on
                or before July 13, 2000. The Company incurred the minimum required
                expenditure and exercised its option. Subsequent to entering into
                the
                agreement, the Company staked another claim that was subject to the
                option
                agreement.




During
      the year ended March 31, 2004, the property and related deferred exploration
      was
      written down to a nil value as the Company would not be proceeding with further
      exploration and would not be renewing the claims.


F-12
 
 **MOUNTAIN
            PROVINCE DIAMONDS INC.**
 Notes
            to
            Consolidated Financial Statements
 (Expressed
            in Canadian dollars)
 Years
            ended March 31, 2006, 2005, and 2004


**6.**
            **Mineral
                properties and deferred exploration (continued):**





**(c)**
            **Baffin
                Island Project:
                (continued)**




On
                September 27, 2004, the Company sold its interest in the one remaining
                Baffin Island mining claim to Patrician Diamonds Inc. (“Patrician”) in
                exchange for 325,000 common shares of Patrician, the reservation
                of a 1%
                Net Smelter Royalty and the agreement to honour a 1% Net Smelter
                Royalty
                in favour of two stakeholders, which the Company has the unrestricted
                right and option to acquire upon payment of $1,000,000. The Company
                recorded a gain on the sale in the amount of $39,000, during the
                year
                ended March 31, 2005.





**7.**
            **Share
                capital:**




**(a)**
            **Authorized**




Unlimited
      number of common shares without par value




**(b)**
            **Issued
                and fully paid:**


**Number
                of****Shares**
            
            **Amount**Balance,
                March 31, 2003
            
            
            50,582,071
            
            $
            55,719,260Issued
                pursuant to consulting agreement (Note 8)
            
            
            60,000
            
            
            156,000Exercise
                of stock options
            
            
            560,040
            
            
            720,002Balance,
                March 31, 2004
            
            
            51,202,111
            
            
            56,595,262Adjustment
                on adoption of new accounting standardfor
                stock-based compensation (Note 2(i))
            
            
            -
            
            
            20,314Exercise
                of stock options
            
            
            202,858
            
            
            282,321Exercise
                of warrants
            
            
            1,205,878
            
            
            699,409Value
                on stock options exercised
            
            
            -
            
            
            10,480Balance,
                March 31, 2005
            
            
            52,610,847
            
            
            57,607,786Exercise
                of stock options
            
            
            465,000
            
            
            634,850Value
                on stock options exercised
            
            
            -
            
            
            11,027Balance,
                March 31, 2006
            
            
            53,075,847
            
            $
            58,253,663




On
                March 30, 2004, the Company cancelled 16,015,996 shares previously
                owned
                by its wholly-owned subsidiary Mountain Glen Mining Inc. ("Mountain
                Glen")
                that were received by the Company on the wind up of Mountain Glen.
                The
                cancelled shares have been excluded from the above table for all
                periods
                presented.


F-13


**MOUNTAIN
          PROVINCE DIAMONDS INC.**
 Notes
          to
          Consolidated Financial Statements
 (Expressed
          in Canadian dollars)
 Years
          ended March 31, 2006, 2005, and 2004




**7.**
            **Share
                capital (continued):**





**(c)**
            **Stock
                options:**




The
      Company, through its Board of Directors and shareholders, adopted a November
      26,
      1998 Stock Option Plan (the “Plan”) which was amended on February 1,
      1999.




The
      following presents the continuity of stock options outstanding:


**Weighted****Number
                of**
            
            **Average****Options**
            
            **Exercise
                Price**Balance,
                March 31, 2003
            
            
            2,399,100
            
            $
            1.46Granted
                (i)
            
            
            12,858
            
            $
            1.40Exercised
            
            
            (560,040
            )
            $
            1.29Expired
            
            
            (324,060
            )
            $
            2.19Cancelled
            
            
            (200,000
            )
            $
            1.32Balance,
                March 31, 2004
            
            
            1,327,858
            
            $
            1.37Granted
                (ii)
            
            
            200,000
            
            $
            1.96Exercised
            
            
            (202,858
            )
            $
            1.39Balance,
                March 31, 2005
            
            
            1,325,000
            
            $
            1.48Granted
                (iii)
            
            
            200,000
            
            $
            3.57Exercised
            
            
            (465,000
            )
            $
            1.37Balance,
                March 31, 2006
            
            
            1,060,000
            
            $
            1.90




The
                following are the stock options outstanding and exercisable at March
                31,
                2006.


**Black**
            
            
            
            **Weighted****Expiry**
            
            **Scholes**
            
            **Number
                of**
            
            **Average**
            
            **Exercise****Date**
            
            **Value**
            
            **Options**
            
            **Remaining
                Life**
            
            **Price**May
                11, 2006
            
            $
            -
            
            
            215,000
            
            
            0.11
                years
            
            $
            1.25May
                11, 2006
            
            
            -
            
            
            340,000
            
            
            0.11
                years
            
            $
            1.50December
                21, 2006
            
            
            -
            
            
            50,000
            
            
            0.73
                years
            
            $
            0.67October
                21, 2007
            
            
            33,079
            
            
            30,000
            
            
            1.56
                years
            
            $
            1.36March
                21, 2008
            
            
            24,419
            
            
            25,000
            
            
            1.98
                years
            
            $
            2.06October
                1, 2009
            
            
            189,400
            
            
            200,000
            
            
            3.51
                years
            
            $
            1.96November
                1, 2010
            
            
            127,571
            
            
            100,000
            
            
            4.59
                years
            
            $
            2.63January
                30, 2011
            
            
            187,308
            
            
            100,000
            
            
            4.84
                years
            
            $
            4.50$
            561,777
            
            
            1,060,000
            
            
            1.74
                years
            
            $
            1.90




F-14


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004


**7.**
            **Share
                capital (continued):**





**(c)**
            **Stock
                options (continued):**




**(i)**
            During
                the year ended March 31, 2004, the Company granted 12,858 options
                to an
                employee at an exercise price of $1.40 per share. The Black-Scholes
                value
                of the options granted was $0.38 per option or $4,943 in aggregate.
                In
                accordance with the Company's accounting policy (Note 2(i)), no
                compensation expense was recorded for share options granted to directors
                and employees during the year ended March 31,
                2004.




**(ii)**
            During
                the year ended March 31, 2005, the Company granted 200,000 options
                to
                directors of the Company at an exercise price of $1.96 per share,
                vesting
                immediately and expire on October 1, 2009. The Black-Scholes value
                of the
                options granted was $0.95 per option or $189,400 in aggregate.




**(iii)**
            During
                the year ended March 31, 2006, the Company granted 200,000 options
                to an
                officer of the Company of which 100,000 are at an exercise price
                of $2.63
                and 100,000 are at an exercise price of $4.50 per share. These options
                vested 50% immediately and 50% vest 1 year after grant. The Black-Scholes
                value of the options granted was $1.80 per option or $180,000 in
                the
                aggregate and $3.211 or $321,100 in the aggregate, respectively.
                These
                options expire November 1, 2010 and January 30, 2011 respectively.
                During
                the year ended March 31, 2006, the Company recorded compensation
                expense
                of $127,571 for the first grant and $187,308 for the second
                grant.




The
                table below presents the net loss and net loss per share if the
                Black-Scholes fair value method of accounting was used for stock
                options
                granted to employees and directors for the year ended March 31, 2004.
                The
                pro forma adjustments presented below pertain to the new options
                granted
                to employees since adoption of the stock-based compensation standards
                on
                April 1, 2002. As discussed in Note 2(i), the pro forma adjustment
                amounts
                below were recorded as a cumulative adjustment to deficit as at April
                1,
                2004.


**2006**
            
            **2005**
            
            **2004**Net
                loss as reported
            
            $
            (2,199,888
            )
            $
            1,531,244
            
            $
            (1,813,005
            )Pro
                forma adjustment
            
            
            -
            
            
            -
            
            
            (4,943
            )Pro
                forma net loss
            
            $
            (2,199,888
            )
            $
            1,531,244
            
            $
            (1,817,948
            )Pro
                forma basic and diluted loss per share
            
            $
            (0.04
            )
            $
            0.03
            
            $
            (0.04
            )




The
                fair value of the options granted has been estimated on the date
                of the
                grant using the Black-Scholes option pricing model with the following
                assumptions


**2006**
            
            **2005**
            
            **2004**Dividend
                yield
            
            
            0%
            
            
            0%
            
            
            0%Expected
                volatility
            
            
            84%-89.78%
            
            
            50%
            
            
            93%Risk-free
                interest rate
            
            
            3.9%
            
            
            4.1%
            
            
            3.0%Expected
                lives
            
            
            5
                years
            
            
            5
                years
            
            
            5
                to 8 months





F-15


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004
 
  **7.**
              **Share
                  capital (continued):**





**(d)**
            **Warrants:**




The
      following presents the continuity of share purchase warrants
      outstanding:


**Weighted****Number
                of**
            
            **Average****Warrants**
            
            **Exercise
                Price**Balance,
                March 31, 2003 and March 31, 2004
            
            
            1,205,878
            
            $
            0.58Exercised
            
            
            (1,205,878
            )
            $
            0.58Balance,
                March 31, 2005 and March 31, 2006
            
            
            -
            
            $
            -




**(e)**
            **Contributed
                surplus:**


**Amount**Balance,
                March 31, 2003 and March 31, 2004
            
            $
            24,419Adjustment
                on adoption of new accounting standard forstock-based
                compensation (Note 2(i))
            
            
            74,900Less:
                value of options exercised prior to adoption ofnew
                standard and value transferred to share capital
            
            
            (20,314
            )Grant
                of stock options
            
            
            189,400Value
                on exercise of stock options transferred to share capital
            
            
            (10,480
            )Balance,
                March 31, 2005
            
            
            257,925Issuance
                of stock options
            
            
            314,879Value
                on exercise of stock options transferred to share capital
            
            
            (11,027
            )Balance,
                March 31, 2006
            
            $
            561,777




**(f)**
            **Subsequent
                event:**




Subsequent
      to March 31, 2006, 555,000 options were exercised for proceeds of
      $776,250.





**8.**
            **Related
                party transactions:**




As
      at
      March 31, 2006, $40,500 (2005 - $6,210; 2004 - $3,000) was owed to directors
      or
      companies controlled by directors of the Company, primarily for unpaid
      directors’ fees. Amounts are payable on demand, unsecured and non-interest
      bearing.




During
      the year ended March 31, 2006, the Company paid $24,000 (2005 - $40,050; 2004
      -
      $197,896) for consulting, professional, management, property evaluation and
      administration services to directors and to companies in which directors have
      an
      interest.


F-16


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Notes
      to
      Consolidated Financial Statements


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004





**8.**
            **Related
                party transactions
                (continued):**




During
                the year ended March 31, 2004, the Company entered into a new consulting
                agreement with the former President of the Company. As compensation
                for
                terminating his old consulting agreement, the director received US$120,000
                paid in 12 equal monthly instalments commencing January 1, 2004.
                As at
                March 31, 2004, the remaining US$90,000 was included in accounts
                payable
                and accrued liabilities. No amounts are unpaid at March 31, 2005.
                As
                further compensation, 60,000 shares were issued to the President
                on
                February 20, 2004 with 55,000 shares held in escrow to be released
                in 11
                equal monthly portions commencing February 27, 2004. The value of
                the
                shares based on quoted market prices on the date of issuance, was
                $156,000
                and this amount along with the US$120,000 cash payment, was charged
                to
                contract termination expense during the year ended March 31, 2004.
                During
                the year ended March 31, 2006, the former President was paid $102,127
                (2005 - $131,905) (US$7,500 per month plus benefits) pursuant to
                a former
                consulting agreement.




During
                the year ended March 31, 2006, the Company entered into a consulting
                agreement with the new President and Director of the Company. Compensation
                per the agreement is $12,500 per month. During the year ended March
                31,
                2006, the new President was paid $56,074 pursuant to this consulting
                agreement.




These
      transactions are in the normal course of operations and are measured at the
      exchange amount, which is the amount of consideration established and agreed
      to
      by the related parties.





**9.**
            **Income
                taxes**




Income
                tax recovery differs from the amounts computed by applying the combined
                federal and provincial tax rates of 36.1% for the years ended March
                31,
                2006 and 2004, respectively, primarily as a result of tax benefits
                which
                have not been recognized.




Income
                tax expense differs from the amounts computed by applying the combined
                federal and provincial tax rate of 36.1% to pre-tax income for the
                year
                ended March 31, 2005 primarily as a result of income which has been
                offset
                by unrecognized mineral property tax
                pools.




The
                tax effect of the significant components within the Company’s future tax
                asset (liability) are as follows:


**2006**
            
            **2005**
            
            **2004**Mineral
                properties and deferred exploration
            
            $
            682,300
            
            $
            579,000
            
            $
            1,756,000Loss
                carry forwards
            
            
            1,962,200
            
            
            2,168,000
            
            
            2,095,000Equipment
            
            
            155,300
            
            
            172,000
            
            
            172,000Long-term
                investment
            
            
            503,100
            
            
            308,200
            
            
            -Other
            
            
            -
            
            
            6,000
            
            
            3,0003,302,900
            
            
            3,233,200
            
            
            4,026,000Valuation
                allowance
            
            
            (3,302,900
            )
            
            (3,233,200
            )
            
            (4,026,000
            )Net
                future income tax asset (liability)
            
            $
            -
            
            $
            -
            
            $
            -




F-17


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Notes
      to
      Consolidated Financial Statements


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2006, 2005, and 2004





**9.**
            **Income
                taxes****(continued)**




At
      March
      31, 2006, the Company has available losses for income tax purposes totaling
      approximately $6.0 million, expiring at various times from 2006 to 2016. Of
      the
      available losses, $1.7 million are subject to acquisition of control rules
      which
      may restrict their future deductibility. The Company also has available resource
      tax pools of approximately $34.6 million, which may be carried forward and
      utilized to reduce future taxable income. Included in the $34.6 million of
      tax
      pools is $24.9 million that is successored, which can only be utilized against
      taxable income from specific mineral properties.





**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US
                GAAP"):**




As
      disclosed in Note 2, these financial statements have been prepared in accordance
      with accounting principles generally accepted in Canada (“Canadian GAAP”). A
      description and reconciliation of material measurement differences to US GAAP
      and practices prescribed by the US Securities and Exchange Commission (“SEC”)
      follows:




**(a)**
            **Mineral
                properties and deferred exploration
                costs:**




US
                GAAP requires that long-lived assets be reviewed for impairment whenever
                events or changes in circumstances indicate that the carrying amount
                of an
                asset may not be recoverable. In performing the review for recoverability,
                the Company is to estimate the future cash flows expected to result
                from
                the use of the asset and its eventual disposition. If the sum of
                the
                expected future cash flows (undiscounted and without interest charges)
                is
                less than the carrying amount of the asset, an impairment loss is
                recognized. SEC staff have indicated that their interpretation of
                US GAAP
                requires mineral property exploration and land use costs to be expensed
                as
                incurred until commercially minable deposits are determined to exist
                within a particular property as cash flows cannot be reasonably estimated
                prior to such determination. Accordingly, for all periods presented,
                the
                Company has expensed all mineral property exploration and land use
                costs
                for US GAAP purposes. The Company also expenses mineral property
                acquisition costs for US GAAP
                purposes.




For
                Canadian GAAP, cash flows relating to mineral property costs are
                reported
                as investing activities. For US GAAP, these costs would be characterized
                as operating activities.




**(b)**
            **Stock-based
                compensation**




The
                Financial Accounting Standards Board in the U.S. has issued Statement
                of
                Financial Accounting Standards No.123, “Accounting for Stock-Based
                Compensation” (“FAS 123”). FAS 123 encourages entities to adopt a fair
                value methodology of accounting for employee stock-based
                compensation.




As
                permitted by FAS 123, the Company has elected to continue measuring
                compensation costs using the intrinsic value method of accounting
                for
                stock-based compensation as prescribed by APB Opinion No. 25. Under
                the
                intrinsic value method, compensation is the excess, if any, of the
                quoted
                market value of the stock at the date of the granting of options
                to
                employees and directors to purchase stock over the amount an optionee
                must
                pay to acquire the stock at that date. This excess is recognized
                by a
                charge to operations over the vesting period. As the exercise price
                of
                options granted by the Company to employees and directors approximates,
                or
                is greater than, the market value at the grant date, the Company
                has
                determined that the adoption of this accounting policy for stock
                options
                granted to employees and directors results in no material expense
                for US
                GAAP purposes.


F-18


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004




**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US GAAP")**
              **(Continued):**




**(b)**
            **Stock-based
                compensation (continued):**




Under
                FAS 123, stock options granted to non-employees for services rendered
                to
                the Company are required to be accounted for as compensation cost
                and
                charged to operations as the services are performed and the options
                earned. The compensation cost is to be measured based on the fair
                value of
                the stock options granted. This method is similar to the Canadian
                standard
                adopted April 1, 2002, and the application of this accounting policy
                for
                US GAAP purposes does not result in a measurement difference for
                grants
                made in the years ended March 31, 2003 and 2004. The stock-based
                compensation expense in respect of stock options granted to non-employees,
                under US GAAP, based upon the fair value of the options granted,
                determined using an option pricing model, would cumulatively be $1,704,000
                from the date of adoption of FAS 123 to March 31,
                2002.




Effective
                April 1, 2004, the Company adopted the revised provisions of the
                CICA
                Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based
                Payments”. As a result, the Company now expenses the fair value of all
                stock options, calculated by using the Black-Scholes option pricing
                model
                commencing April 1, 2004.




For
                Canadian GAAP purposes, as permitted, the Company has adopted the
                fair
                value based method to all employee and director stock options granted
                on
                or after April 1, 2002, without restatement of prior periods. An
                adjustment has been made to contributed surplus and deficit as at
                April 1,
                2004 in the amount of $74,900 to reflect the cumulative effect of
                the
                change in accounting policy, consistent with that permitted under
                the
                retroactive restatement method. An amount of $20,314 has also been
                transferred from contributed surplus to share capital as at April
                1, 2004
                in respect of employee and director options exercised during the
                years
                ended March 31, 2004 and 2003. In addition, the Company has booked
                stock-based compensation during the year ended March 31, 2006 of
                $314,879
                (2005 - $189,400) for employee and director stock options. Under
                US GAAP,
                these adjustments and stock-based compensation amounts would not
                be
                recorded.




**(c)**
            **Unrealized
                holding gains and losses on marketable securities and long-term****investments:**




Statement
                of Financial Accounting Standards Board No. 115, “Accounting for
                Investments in Debt and Equity Securities” (“FAS 115”) requires that the
                Company’s marketable securities be classified as available-for-sale
                securities and that they be recorded at market value with unrealized
                gains
                or losses recorded outside of income as a component of shareholders’
                equity unless a decline in value is considered to be other then temporary.
                The Company’s marketable securities are presented at the lower of cost or
                market value under Canadian GAAP. At March 31, 2006, there is a cumulative
                unrealized gain of $146,120 (2005 - $63,380; 2004 - $49,930) between
                the
                carrying value and fair value of marketable securities which has
                been
                recorded through comprehensive income for US GAAP purposes in the
                amounts
                of $82,740, $13,450 and $(17,856) for each of the years ended March
                31,
                2006, 2005 and 2004, respectively.


F-19


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004




**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US
                GAAP")**


**(Continued):**




**(c)**
            **Unrealized
                holding gains and losses on marketable securities and
                long-term**




**investments
      (Continued):**




The
                Company's long-term investments are presented at the lower of cost
                or
                market value under Canadian GAAP and would also be accounted for
                as
                available-for-sale securities under US GAAP. At March 31, 2006, there
                is a
                cumulative unrealized gain of $880,000 (2005 - Nil) between the carrying
                value and fair value of long-term investments which has been recorded
                through comprehensive income for US GAAP purposes in the amounts
                of
                $880,000 (2005 - Nil) for each of the years ended March 31, 2006,
                and 2005
                respectively.




**(d)**
            **Reporting
                comprehensive income:**




Statement
                of Financial Accounting Standards No. 130 (“FAS 130”) “Reporting
                Comprehensive Income”, establishes standards for the reporting and display
                of comprehensive income and its components in a full set of general
                purpose financial statements. Comprehensive income equals net income
                (loss) for the period as adjusted for all other non-owner changes
                in
                shareholders’ equity. FAS 130 requires that all items that are required to
                be recognized under accounting standards as components of comprehensive
                income be reported in a financial statement. For the year ended
                March 31, 2006, the Company has recorded an unrealized holding gain
                (loss) of $82,740 (2005 - $13,450); 2004 - ($17,856)) on marketable
                securities classified as “available-for-sale”, and on long-term
                investments of $880,000 (2005 - Nil) as a component of comprehensive
                income under US GAAP.




**(e)**
            **Recent
                accounting pronouncements:**




In
                December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
                Payment” (“SFAS No. 123R”), which replaces FASB’s SFAS No. 123,
                “Accounting for Stock-Based Compensation”, and supercedes APB Opinion No.
                25, “Accounting for Stock Issued to Employees”. SFAS No. 123R requires a
                public entity to measure the cost of employee services received in
                exchange for an award of equity instruments based on the grant-date
                fair
                value of the award (with limited exceptions). That cost will be recognized
                over the period during which an employee is required to provide service
                in
                exchange for the award - the requisite service period (usually the
                vesting
                period). No compensation cost is recognized for equity instruments
                for
                which employees do not render the requisite service. Employee share
                purchase plans will not result in recognition of compensation cost
                if
                certain conditions are met; those conditions are much the same as
                the
                related conditions in SFAS No. 123. SFAS No. 123R will be effective
                for
                the Company commencing April 1, 2006. The Company has not yet determined
                the effect the adoption of SFAS No. 123R will have on its consolidated
                financial statements.


F-20


**MOUNTAIN
        PROVINCE DIAMONDS INC.**
 Notes
        to
        Consolidated Financial Statements
 (Expressed
        in Canadian dollars)
 Years
        ended March 31, 2006, 2005, and 2004




**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US
                GAAP")**


**(Continued):**




**(f)**
            **Reconciliation:**




The
                effect of the differences between Canadian GAAP and US GAAP (including
                practices prescribed by the SEC) on the consolidated balance sheets,
                statements of loss and cash flows is summarized as
                follows:


**As
                at March 31,**
            
            **2006**
            
            **2005**(i)   
                Total assets:Total
                assets, under Canadian GAAP
            
            $
            34,874,288
            
            $
            36,038,157Adjustment
                for mineral property acquisitionand
                deferred exploration costs (Note 10(a))
            
            
            (32,481,602
            )
            
            (32,418,223
            )Adjustment
                for change in fair value ofavailable-for-sale
                marketablesecurities
                (Note 10(c) and (d))
            
            
            146,120
            
            
            63,380Adjustment
                for change in fair value oflong-term
                investments (Note 10(c) and (d))
            
            
            880,000
            
            
            -Total
                assets, under US GAAP
            
            $
            3,418,806
            
            $
            3,683,314(ii)   Share
                capital:Share
                capital, under Canadian GAAP
            
            $
            58,253,663
            
            $
            57,607,786Adjustment
                for fair value of employee anddirector
                options exercised prior to adoptionof
                new accounting standard and transferredto
                share capital (Note 10(b))
            
            
            (20,314
            )
            
            (20,314
            )Share
                capital, under US GAAP
            
            $
            58,233,349
            
            $
            57,587,472(iii)  Contributed
                surplusContributed
                surplus, under Canadian GAAP
            
            $
            561,777
            
            $
            257,925Adjustment
                for grant of employeestock
                options (Note 10(b))
            
            
            (504,279
            )
            
            (189,400
            )Adjustment
                on adoptions of new accounting standardfor
                stock-based compensation (Note 10(b))
            
            
            (74,900
            )
            
            (74,900
            )Adjustment
                for fair value of employeeand
                director options exercised prior toadoption
                of new accounting standard andtransferred
                to share capital (Note 10(b))
            
            
            20,314
            
            
            20,314Adjustment
                for stock-based compensation(Note
                10(b))
            
            
            1,704,000
            
            
            1,704,000Contributed
                surplus, under US GAAP
            
            $
            1,706,912
            
            $
            1,717,939




F-21


**MOUNTAIN
          PROVINCE DIAMONDS INC.**
 Notes
          to
          Consolidated Financial Statements
 (Expressed
          in Canadian dollars)
 Years
          ended March 31, 2006, 2005, and 2004




**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US
                GAAP")**


**(Continued):**




**(f)**
            **Reconciliation
                (continued):**


**As
                at March 31,**
            
            **2006**
            
            **2005**(iv) 
                Accumulated other comprehensive income:Adjustment
                for fair value of availablefor
                sale marketable securities (Note 10(c) and (d))
            
            $
            146,120
            
            $
            63,380Adjustment
                for fair value of long-terminvestments
                (Note 10(c) and (d))
            
            
            880,000
            
            
            -Accumulated
                other comprehensive income,under
                US GAAP
            
            $
            1,026,120
            
            $
            63,380(v)  
                Deficit:Deficit,
                under Canadian GAAP
            
            $
            (24,122,418
            )
            $
            (21,922,530
            )Adjustment
                for mineral property acquisition costsand
                deferred exploration (Note (10(a))
            
            
            (32,481,602
            )
            
            (32,418,223
            )Grant
                of stock options (Note 10(b))
            
            
            504,279
            
            
            189,400Adjustment
                on adoption of new accounting standardfor
                stock-based compensation (Note 10(b))
            
            
            74,900
            
            
            74,900Adjustments
                for stock-based compensation(Note
                10(b))
            
            
            (1,704,000
            )
            
            (1,704,000
            )Deficit,
                under US GAAP
            
            $
            (57,728,841
            )
            $
            (55,780,453
            )




F-22


**MOUNTAIN
          PROVINCE DIAMONDS INC.**
 Notes
          to
          Consolidated Financial Statements
 (Expressed
          in Canadian dollars)
 Years
          ended March 31, 2006, 2005, and 2004


**10.**
            **Reconciliation
                to United States generally accepted accounting principles ("US
                GAAP")**


**(Continued):**




**(f)**
            **Reconciliation
                (continued):**


**Years
                ended March 31,**
            
            **2006**
            
            **2005**
            
            **2004**(vi) 
                (Loss) earnings and (loss) earnings per share for the
                year:(Loss)
                earnings for the year,under
                Canadian GAAP
            
            $
            (2,199,888
            )
            $
            1,531,244
            
            $
            (1,813,005
            )Adjustment
                for deferred explorationexpenditures
                (Note 10(a))
            
            
            (63,379
            )
            
            (4,126
            )
            
            -Adjustment
                for write-down of mineralproperty
                acquisition and deferredexploration
                costs (Note 10(a))
            
            
            -
            
            
            -
            
            
            589,669Adjustment
                to gain on sale of mineralproperty
                previously written-off (Note 10(a))
            
            
            -
            
            
            119,386
            
            
            -Adjustment
                for stock-based compensationNote
                (10(b))
            
            
            314,879
            
            
            189,400
            
            
            -Loss
                (earnings) for the year, under US GAAP
            
            
            (1,948,388
            )
            
            1,835,904
            
            
            (1,223,336
            )Other
                Comprehensive income:Change
                in fair value of available for salemarketable
                securities (Note 10(c) and (d))
            
            
            82,740
            
            
            13,450
            
            
            (17,856
            )Change
                in fair value of long-terminvestments
                (Note 10(c))
            
            
            880,000
            
            
            -
            
            
            -Comprehensive
                (loss) earnings, underUS
                GAAP
            
            $
            (985,648
            )
            $
            1,849,354
            
            $
            (1,241,192
            )Basic
                and diluted (loss) earnings per share,under
                US GAAP
            
            $
            (0.04
            )
            $
            0.04
            
            $
            (0.02
            )(vii)
                Cash provided by (used in) operating activities:Cash
                provided by (used in) operatingactivities,
                under Canadian GAAP
            
            $
            (727,123
            )
            $
            (858,014
            )
            $
            (1,019,586
            )Adjustment
                for deferred exploration(Note
                10(a))
            
            
            (63,379
            )
            
            (37,106
            )
            
            -Cash
                provided by (used in) operating activitiesunder
                US GAAP
            
            $
            (790,502
            )
            $
            (895,120
            )
            $
            (1,019,586
            )




F-23
 
 **MOUNTAIN
            PROVINCE DIAMONDS INC.**
 Notes
            to
            Consolidated Financial Statements
 (Expressed
            in Canadian dollars)
 Years
            ended March 31, 2006, 2005, and 2004
  **10.**
              **Reconciliation
                  to United States generally accepted accounting principles ("US
                  GAAP")**


**(Continued):**





**(f)**
            **Reconciliation
                (continued):**


**Years
                ended March 31,**
            
            **2006**
            
            **2005**
            
            **2004**(viii)
                Cash provided by (used in) investing activities:Cash
                provided by (used in) investingactivities,
                under Canadian GAAP
            
            $
            (63,379
            )
            $
            (37,106
            )
            $
            4,002Adjustment
                for deferred exploration(Note
                10(a))
            
            
            63,379
            
            
            37,106
            
            
            -Cash
                provided by (used in) investing activitiesunder
                US GAAP
            
            $
            -
            
            $
            -
            
            $
            4,002




F-24


**SIGNATURES**





The
      registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.





**Mountain
      Province Diamonds Inc.**


(Company)





Patrick
      C. Evans


(Signature)*




Date: June 29, 2006
            **Patrick
                C.
                Evans**


**President,
      CEO and Director**





*Print
      the name and title of the signing officer under this signature.


62


**EXHIBIT
      INDEX**





The
                following exhibits are attached to and form part of this Annual
                Report:
              
              *Exhibit*
            *Remarks.*1.1
            By-Laws
                of the Company
            -1.2
            Arrangement
                Agreement between the Company and Glenmore Highlands Inc. dated May
                10,
                2000.
            (5)1.3
            Joint
                Information Circular of the Company and Glenmore Highlands
                Inc.
            (4)4.1
            Transfer
                agreement between MPV, Monopros and Camphor dated November 24, 1999
                pursuant to which MPV and Camphor transferred the GOR to
                Monopros.
            (3)4.2
            Letter
                Agreement between MPV, Monopros, Glenmore and Camphor dated December
                17,
                1999 relating to acquisition of property, within the "Area of Interest"
                as
                defined in the agreement and acquisition of property through third
                party
                agreements.
            (3)4.3
            Letter
                Agreement dated December 17, 1999 between MPV, Monopros, Camphor
                and
                Glenmore amending the Monopros Joint Venture Agreement.
            (3)4.4
            Form
                of Subscription Agreement for the private placement described in
                item 1 of
                "Material Contracts".
            (3)4.5
            Agreement
                dated as of January 1, 2002 between the Company, Camphor Ventures
                Inc. and
                De Beers Canada Exploration Inc.
            (1)4.6
            Second
                Amendment Agreement dated January 1, 2002 between the Company and
                Paul
                Shatzko.
            (3)4.7
            Second
                Amendment Agreement dated January 1, 2002 between the Company and
                Jan
                Vandersande.
            (3)4.8
            Third
                Amendment Agreement dated December 13, 2002 between the Company and
                Jan
                Vandersande
            (3)4.9
            Letter
                agreement dated December 13, 2002 between the Company and Elizabeth
                Kirkwood
            (3)4.10
            Consulting
                Agreement dated January 1, 2004 between the Company and Jan W.
                Vandersande
            (3)4.11
            Consulting
                Agreement dated November 1, 2005 between the Company and Patrick
                Evans
            -4.12
            Revised
                Consulting Agreement dated January 31, 2006 between the Company and
                Patrick Evans
            -4.13
            Consulting
                Agreement dated May 11, 2006 between the Company and Jennifer
                Dawson
            -8.1
            List
                of Subsidiaries
            (2)11.1
            Corporate
                Governance Policies dated May 29, 2006.
            -12.1
            Section
                302 Certification of the Company's Chief Executive Officer
            -12.2
            Section
                302 Certification of the Company's Chief Financial Officer
            -13.1
            Section
                906 Certification of the Company's Chief Executive Officer
            -13.2
            Section
                906 Certification of the Company's Chief Financial Officer
            -14.1
            Independent
                Qualified Person's Review and Technical Report dated June 16, 2003
                entitled*Gahcho
                Kué, Northwest Territories, Canada*prepared by Malcolm L. Thurston, Ph.D., MAusimm
            (3)15
            Revised
                Charter of the Board of Directors and Committees thereof of Mountain
                Province Diamonds Inc.
            (3)





(1)    
      The Registrant has received approval for confidential treatment with respect
      to
      certain portions of this Agreement, which have been omitted, pursuant to Rule
      24b-2 of the Securities Exchange Act of 1934, as amended.





(2)    
      See list of subsidiaries on page 10 of this Annual Report.





(3)    
      Previously filed and incorporated by reference.





(4)    
      Previously furnished under cover of Form 6K dated June 2, 2000 and incorporated
      by reference.





(5)    
      Attached as Appendix A to the Joint Information Circular of the Company and
      Glenmore Highlands Inc. which information circular was previously furnished
      under cover of Form 6K dated June 2, 2000, and incorporated by
      reference.





63