Exhibit
99.2







Consolidated Financial Statements

(Expressed in Canadian Dollars)



MOUNTAIN
PROVINCE

DIAMONDS
INC.

As at December 31, 2016 and 2015

And for the years ended December 31, 2016 and 2015











|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



|CONTENTS                                                                                             | Page   
|---------------------------------------------------------------------------------------------------- | -------
|                                                                                                     |        
|Responsibility for Consolidated Financial Statements                                                 | 3      
|                                                                                                     |        
|Management’s Annual Report on Internal Control Over Financial Reporting                              | 4      
|                                                                                                     |        
|Independent Auditors’ Report of Registered Public Accounting Firm                                    | 6      
|                                                                                                     |        
|Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | 8      
|                                                                                                     |        
|Consolidated Balance Sheets                                                                          | 10     
|                                                                                                     |        
|Consolidated Statements of Comprehensive Income (Loss)                                               | 11     
|                                                                                                     |        
|Consolidated Statements of Equity                                                                    | 12     
|                                                                                                     |        
|Consolidated Statements of Cash Flows                                                                | 13     
|                                                                                                     |        
|Notes to the Consolidated Financial Statements                                                       | 14 – 40



Page | 2







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Responsibility
for Consolidated Financial Statements



The accompanying consolidated financial statements
of Mountain Province Diamonds Inc. (the "Company") are the responsibility of the Board of Directors.



The consolidated financial statements have
been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes
to the Company’s consolidated financial statements. Where necessary, management has made informed judgments and estimates
in accounting for transactions which were not complete at the balance sheet date. The consolidated financial statements have been
prepared in accordance with International Accounting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”) appropriate in the circumstances.



Management has established processes, which
are in place to provide sufficient knowledge to support management representations that it has exercised reasonable diligence that
the consolidated financial statements fairly present in all material respects the financial condition, results of operations and
cash flows of the Company, as of the date of and for the periods presented by the consolidated financial statements.



The Board of Directors is responsible for reviewing
and approving the consolidated financial statements together with other financial information of the Company and for ensuring that
management fulfills its financial reporting responsibilities. The Audit Committee assists the Board of Directors in fulfilling
this responsibility.



The Audit Committee meets with management to
review the financial reporting process and the consolidated financial statements together with other financial information of the
Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated
financial statements together with other financial information of the Company for issuance to the shareholders.



Management recognizes its responsibility for
conducting the Company’s affairs in compliance with IFRS as issued by the IASB, and applicable laws and regulations, and
for maintaining proper standards of conduct for its activities.



|“Patrick C. Evans”                    | “Perry Ing”                           
|------------------------------------- | --------------------------------------
|Patrick C. Evans                      | Perry Ing                             
|President and Chief Executive Officer | VP Finance and Chief Financial Officer



Toronto, Canada

March 28, 2017



Page | 3







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



Management of the Company is responsible for
establishing and maintaining adequate internal control over financial reporting for the Company. Management has designed such internal
control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with IFRS as issued by the IASB.





The term internal control over financial
reporting is defined as a process designed by, or under the supervision of, the issuer's Chief Executive Officer and Chief Financial
Officer, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS
as issued by the IASB and includes those policies and procedures that:



| | (1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the issuer;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
issuer are being made only in accordance with authorizations of management and directors of the issuer; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the issuer's assets that could have a material effect on the financial statements.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Because of its inherent limitations, the Company’s
internal control over financial reporting may not prevent or detect all possible misstatements or frauds. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with policies or procedures may deteriorate.



To evaluate the effectiveness of the Company’s
internal control over financial reporting, Management has used the Internal Control – Integrated Framework (2013), which
is a suitable, recognized control framework established by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Management has assessed that due to material weaknesses in our internal control over financial reporting,
that are described below, the Company’s internal control over financial reporting was not effective as of December 31, 2016.
The Company's independent auditors, KPMG LLP, have issued an attestation report on the effectiveness of our internal control
over financial reporting as of December 31, 2016 and issued an adverse opinion on the effectiveness of the Company's internal
control over financial reporting.





A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the Company’s annual financial statements will not be prevented or detected on a timely basis. In
connection with our assessment of the effectiveness of internal control over financial reporting, our management identified the
following material weaknesses that existed as of December 31, 2016:





| | · | The design of management’s control
in Gahcho Kué Project over the review of manual journal entries was inadequate. Specifically, management did not design
controls to ensure that all manual journal entries were independently reviewed and approved for validity, accuracy and completeness.
This control deficiency, which is pervasive in nature, did not result in any adjustments, however, there is a reasonable possibility
that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis as a result.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The design of management’s control
in Gahcho Kué Project over payroll changes was inadequate. Specifically, management did not design controls to ensure payroll
changes were reviewed for validity, accuracy and completeness. This control deficiency, did not result in any adjustments to payroll
costs capitalized to fixed assets in the financial statements, however, there is a reasonable possibility that material misstatements
of the consolidated financial statements will not be prevented or detected on a timely basis as a result.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The design of management’s control in Gahcho Kué Project over supplies inventory was inadequate.
Specifically, management did not design controls to ensure the completeness, existence and accuracy of supplies inventory. This
control deficiency, resulted in adjustments to increase supplies inventory and decrease assets under construction. This control
deficiency results in a reasonable possibility that a material misstatement of the consolidated financial statements would not
be prevented or detected on a timely basis.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page | 4







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Remediation Plan
for Material Weaknesses in Internal Control over Financial Reporting



In light of the material weaknesses identified
above, the Company performed additional analysis and other post-closing procedures to ensure that the Company’s consolidated
financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board. As a result, notwithstanding the material weaknesses as described above, management concluded that
the consolidated financial statements, present fairly, in all material respects the Company’s consolidated financial position,
and its consolidated financial performance, and its consolidated cash flows for the year ended December 31, 2016 and 2015.



In addition, subsequent to our December 31,
2016 fiscal year end, we began evaluating controls over inventory, payroll, and journal entry processing in order to determine
changes we can make to enhance controls and compliance. We expect to continue our remediation efforts, including testing of operating
effectiveness of new or improved controls for a reasonable period of time.



March 28, 2017



Page | 5







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



INDEPENDENT AUDITORS’
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of Mountain Province Diamonds
Inc.



We have audited the accompanying consolidated
financial statements of Mountain Province Diamonds Inc., which comprise the consolidated balance sheets as at December 31, 2016
and December 31, 2015, the consolidated statements of comprehensive income (loss), equity and cash flows for the years then
ended, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s Responsibility for the
Consolidated Financial Statements



Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.



Auditors’ Responsibility



Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.



An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on our judgment, including the assessment of the risks of material misstatement of the consolidatedfinancial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of Mountain Province Diamonds Inc. as
at December 31, 2016 and December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the
years then ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.



Emphasis of Matter



Without modifying our opinion, we draw attention
to Note 1 in the consolidated financial statements which indicates that Mountain Province Diamonds Inc. does not believe it will
be able to comply with the requirement under the terms of its loan facility to fund certain reserve accounts, and may not be able
to comply with certain other covenants required under the terms of the loan facility. These conditions, along with other matters
as set forth in Note 1 in the consolidated financial statements, indicate the existence of a material uncertainty that casts substantial
doubt about Mountain Province Diamonds Inc.’s ability to continue as a going concern.



Page | 6







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Other Matter



We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), Mountain Province Diamonds Inc.’s internal control
over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
28, 2017 expressed an adverse opinion on the effectiveness of Mountain Province Diamonds Inc.’s internal control over financial
reporting.







Chartered Professional Accountants, Licensed
Public Accountants



March 28, 2017





Toronto, Canada





Page | 7







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING



To the Shareholders of Mountain Province Diamonds
Inc.



We have audited Mountain Province Diamonds
Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mountain Province
Diamonds Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Mountain Province Diamonds Inc.'s
internal control over financial reporting based on our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.



A company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the company’s annual financial statements will not be prevented or detected on a timely basis.
Material weaknesses identified and included in management’s assessment related to: inadequate design of management’s
control in the Gahcho Kué Project over (1) the review of manual journal entries (2) payroll changes and (3) supplies inventory.
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of Mountain Province Diamonds Inc. as of December
31, 2016 and 2015, and the related consolidated statements of comprehensive income (loss), equity, and cash flows for each of
the years then ended. The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied
in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated March 28, 2017, which
expressed an unmodified (unqualified) opinion on those consolidated financial statements.



Page | 8







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



In our opinion, because of the effect of the
aforementioned material weaknesses on the achievement of the objectives of the control criteria, Mountain Province Diamonds Inc.
has not maintained effective internal control over financial reporting as of December 31, 2016, based on Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).





We do not express an opinion or any other
form of assurance on management’s statements referring to corrective actions taken after December 31, 2016, relative to the
aforementioned material weaknesses in internal control over financial reporting.









Chartered Professional Accountants, Licensed
Public Accountants



March 28, 2017



Toronto, Canada





Page | 9







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Consolidated Balance Sheets

In Canadian dollars





|                                               |  |       |  | December 31, |              |   | December 31, |  
|---------------------------------------------- |  | ----- |  | ------------ | ------------ | - | ------------ | -
|                                               |  | Notes |  | 2016         |              |   | 2015         |  
|ASSETS                                         |  |       |  |              |              |   |              |  
|Current assets                                 |  |       |  |              |              |   |              |  
|Cash                                           |  |       |  | $            | 6,843,704    |   |              | $
|Amounts receivable                             |  |       |  |              | 2,036,079    |   |              |  
|Prepaid expenses and other                     |  |       |  |              | 1,317,946    |   |              |  
|Supplies
    inventory                         |  |       |  |              | 11,730,391   |   |              |  
|                                               |  |       |  |              | 21,928,120   |   |              |  
|                                               |  |       |  |              |              |   |              |  
|Restricted cash                                |  | 6     |  |              | 83,878,089   |   |              |  
|Financing costs                                |  | 9     |  |              | 1,902,344    |   |              |  
|Property and equipment                         |  | 7     |  |              | 676,053,329  |   |              |  
|                                               |  |       |  |              |              |   |              |  
|Total assets                                   |  |       |  | $            | 783,761,882  |   |              | $
|                                               |  |       |  |              |              |   |              |  
|LIABILITIES AND
    SHAREHOLDERS’ EQUITY       |  |       |  |              |              |   |              |  
|Current liabilities                            |  |       |  |              |              |   |              |  
|Accounts payable and accrued
    liabilities   |  | 13    |  | $            | 16,115,963   |   |              | $
|Derivative liabilities                         |  | 10    |  |              | 2,912,000    |   |              |  
|Current
    portion of loan facility           |  | 9     |  |              | 33,286,991   |   |              |  
|                                               |  |       |  |              | 52,314,954   |   |              |  
|                                               |  |       |  |              |              |   |              |  
|Deferred tenant inducement                     |  |       |  |              | 37,330       |   |              |  
|Loan facility                                  |  | 9     |  |              | 392,616,147  |   |              |  
|Derivative liabilities                         |  | 10    |  |              | 96,549       |   |              |  
|Decommissioning and restoration
    liability  |  | 8     |  |              | 24,266,348   |   |              |  
|                                               |  |       |  |              |              |   |              |  
|Shareholders' equity:                          |  |       |  |              |              |   |              |  
|Share capital                                  |  | 11    |  |              | 472,995,222  |   |              |  
|Share-based payments reserve                   |  | 11    |  |              | 5,018,181    |   |              |  
|Deficit                                        |  |       |  |              | (163,582,849 | ) |              |  
|                                               |  |       |  |              |              |   |              |  
|Total shareholders'
    equity                 |  |       |  |              | 314,430,554  |   |              |  
|                                               |  |       |  |              |              |   |              |  
|Total liabilities
    and shareholders' equity |  |       |  | $            | 783,761,882  |   |              | $



|Going concern                 |  | 1        |  |  |  |  |  |  |  | 
|----------------------------- |  | -------- |  |  |  |  |  |  |  | 
|Contingencies and commitments |  | 5, 7 & 9 |  |  |  |  |  |  |  | 
|Subsequent events             |  | 11 (iii) |  |  |  |  |  |  |  | 



On behalf of the Board:



|“David Whittle” |  | “Jonathan Comerford” | 
|--------------- |  | -------------------- | 
|Director        |  | Director             | 



The notes to the consolidated financial statements are an integral
part of these statements.



Page | 10







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Consolidated Statements of Comprehensive Income (Loss)

In Canadian dollars





|                                                               |  |         |  | Year ended        |             |   | Year ended        |  
|-------------------------------------------------------------- |  | ------- |  | ----------------- | ----------- | - | ----------------- | -
|                                                               |  | Notes   |  | December 31, 2016 |             |   | December 31, 2015 |  
|Expenses:                                                      |  |         |  |                   |             |   |                   |  
|Consulting fees and payroll                                    |  | 11 & 13 |  | $                 | (2,891,253  | ) |                   | $
|Depreciation                                                   |  |         |  |                   | (16,254     | ) |                   |  
|Exploration and evaluation expenses                            |  |         |  |                   | 1,048       |   |                   |  
|Office and administration                                      |  |         |  |                   | (611,937    | ) |                   |  
|Professional fees                                              |  |         |  |                   | (1,465,656  | ) |                   |  
|Promotion and investor relations                               |  |         |  |                   | (386,495    | ) |                   |  
|Director fees                                                  |  |         |  |                   | (183,898    | ) |                   |  
|Transfer agent and regulatory fees                             |  |         |  |                   | (327,677    | ) |                   |  
|Travel                                                         |  |         |  |                   | (395,053    | ) |                   |  
|                                                               |  |         |  |                   |             |   |                   |  
|Loss for the year from operations                              |  |         |  | $                 | (6,277,175  | ) |                   | $
|                                                               |  |         |  |                   |             |   |                   |  
|Other income (expenses):                                       |  |         |  |                   |             |   |                   |  
|Accretion expense on decommissioning and restoration liability |  | 8       |  |                   | (495,465    | ) |                   |  
|Interest income                                                |  |         |  |                   | 976,039     |   |                   |  
|Management fees                                                |  | 13      |  |                   | 90,000      |   |                   |  
|Derivative gain (loss)                                         |  | 10      |  |                   | 6,028,173   |   |                   |  
|Interest expense                                               |  |         |  |                   | (104,138    | ) |                   |  
|Finance costs                                                  |  |         |  |                   | (254,828    | ) |                   |  
|Foreign exchange gain (loss)                                   |  |         |  |                   | 4,835,228   |   |                   |  
|                                                               |  |         |  |                   |             |   |                   |  
|Net income (loss) and comprehensive income (loss) for the year |  |         |  | $                 | 4,797,834   |   |                   | $
|                                                               |  |         |  |                   |             |   |                   |  
|Basic and diluted earnings (loss) per share                    |  | 11(iv)  |  | $                 | 0.03        |   |                   | $
|                                                               |  |         |  |                   |             |   |                   |  
|Basic weighted average number of shares outstanding            |  |         |  |                   | 159,743,601 |   |                   |  





The notes to the consolidated financial statements are an integral
part of these statements.



Page | 11







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Consolidated Statements of Equity

In Canadian dollars



|                                                                            |  |  | Notes |  |  | Number
    of shares |             |  | Share
    capital |   |             | Share-based
    payments reserve |  |   | Deficit   |   |  | Total |             
|--------------------------------------------------------------------------- |  |  | ----- |  |  | -------------------- | ----------- |  | ----------------- | - | ----------- | -------------------------------- |  | - | --------- | - |  | ----- | ------------
|Balance, December 31, 2014                                                  |  |  |       |  |  |                      | 135,204,550 |  |                   | $ | 377,614,185 |                                  |  | $ | 2,507,424 |   |  | $     | (125,211,712
|Net loss for the year                                                       |  |  |       |  |  |                      | -           |  |                   |   | -           |                                  |  |   | -         |   |  |       | (43,168,971 
|Issuance of common shares – Rights Offering, net of costs                   |  |  | 11    |  |  |                      | 23,761,783  |  |                   |   | 91,821,808  |                                  |  |   | -         |   |  |       | -           
|Stand-by fee                                                                |  |  |       |  |  |                      | 712,500     |  |                   |   | 2,850,000   |                                  |  |   | -         |   |  |       | -           
|Share-based payment expense                                                 |  |  |       |  |  |                      | -           |  |                   |   | -           |                                  |  |   | 2,268,263 |   |  |       | -           
|Balance, December 31, 2015                                                  |  |  |       |  |  |                      | 159,678,833 |  |                   | $ | 472,285,993 |                                  |  | $ | 4,775,687 |   |  | $     | (168,380,683
|Net income for the year                                                     |  |  |       |  |  |                      | -           |  |                   |   | -           |                                  |  |   | -         |   |  |       | 4,797,834   
|Share-based payment expense                                                 |  |  |       |  |  |                      | -           |  |                   |   | -           |                                  |  |   | 468,573   |   |  |       | -           
|Issuance of common shares – exercise of options                             |  |  |       |  |  |                      | 130,000     |  |                   |   | 483,150     |                                  |  |   | -         |   |  |       | -           
|Fair value of share options exercised from share-based payments
    reserve |  |  |       |  |  |                      | -           |  |                   |   | 164,379     |                                  |  |   | (164,379  | ) |  |       | -           
|Issuance of common shares - Restricted Share
    Unit Vesting               |  |  |       |  |  |                      | 10,000      |  |                   |   | 61,700      |                                  |  |   | (61,700   | ) |  |       | -           
|Balance, December 31, 2016                                                  |  |  |       |  |  |                      | 159,818,833 |  |                   | $ | 472,995,222 |                                  |  | $ | 5,018,181 |   |  | $     | (163,582,849



The notes to the consolidated financial statements are an integral
part of these statements.



Page | 12







|MOUNTAIN PROVINCE DIAMONDS INC.
|-------------------------------



Consolidated Statements of Cash Flows

In Canadian dollars



|                                                               |  |  |        |  | Year ended |                   |              | Year ended |                  
|-------------------------------------------------------------- |  |  | ------ |  | ---------- | ----------------- | ------------ | ---------- | -----------------
|                                                               |  |  | Notes  |  |            | December 31, 2016 |              |            | December 31, 2015
|Cash provided by (used in):                                    |  |  |        |  |            |                   |              |            |                  
|Operating activities:                                          |  |  |        |  |            |                   |              |            |                  
|Net income (loss) for the year                                 |  |  |        |  |            | $                 | 4,797,834    |            |                  
|                                                               |  |  |        |  |            |                   |              |            |                  
|Adjustments:                                                   |  |  |        |  |            |                   |              |            |                  
|Accretion expense on decommissioning and restoration liability |  |  |        |  |            |                   | 495,465      |            |                  
|Depreciation                                                   |  |  |        |  |            |                   | 16,254       |            |                  
|Deferred tenant inducement                                     |  |  |        |  |            |                   | 37,330       |            |                  
|Share-based payment expense                                    |  |  |        |  |            |                   | 468,573      |            |                  
|Interest received                                              |  |  |        |  |            |                   | (976,039     | )          |                  
|Finance costs                                                  |  |  |        |  |            |                   | 254,828      |            |                  
|Derivative (gain) loss                                         |  |  |        |  |            |                   | (6,028,173   | )          |                  
|Foreign exchange (gain) loss                                   |  |  |        |  |            |                   | (4,835,228   | )          |                  
|Changes in non-cash operating working capital:                 |  |  |        |  |            |                   |              |            |                  
|Amounts receivable                                             |  |  |        |  |            |                   | (149,353     | )          |                  
|Prepaid expenses and other                                     |  |  |        |  |            |                   | (496,640     | )          |                  
|Supplies inventory                                             |  |  |        |  |            |                   | (11,730,391  | )          |                  
|Accounts payable and accrued liabilities                       |  |  |        |  |            |                   | 134,012      |            |                  
|                                                               |  |  |        |  |            |                   | (18,011,528  | )          |                  
|Investing activities:                                          |  |  |        |  |            |                   |              |            |                  
|Interest received                                              |  |  |        |  |            |                   | 976,039      |            |                  
|Restricted cash                                                |  |  |        |  |            |                   | 10,633,930   |            |                  
|Pre-production sales                                           |  |  |        |  |            |                   | 3,622,441    |            |                  
|Amounts receivable                                             |  |  |        |  |            |                   | (538,708     | )          |                  
|Capitalized interest paid                                      |  |  |        |  |            |                   | (25,006,731  | )          |                  
|Payments for property and equipment                            |  |  |        |  |            |                   | (195,255,074 | )          |                  
|Redemption of short-term investments                           |  |  |        |  |            |                   | -            |            |                  
|                                                               |  |  |        |  |            |                   | (205,568,103 | )          |                  
|Financing activities:                                          |  |  |        |  |            |                   |              |            |                  
|Loan facility                                                  |  |  |        |  |            |                   | 223,600,494  |            |                  
|Financing costs                                                |  |  |        |  |            |                   | (2,876,201   | )          |                  
|Proceeds from option exercises                                 |  |  |        |  |            |                   | 483,150      |            |                  
|Proceeds from share issuance, net of costs                     |  |  | 11(ii) |  |            |                   | -            |            |                  
|                                                               |  |  |        |  |            |                   | 221,207,443  |            |                  
|                                                               |  |  |        |  |            |                   |              |            |                  
|Effect of foreign exchange rate changes on cash                |  |  |        |  |            |                   | 134,101      |            |                  
|(Decrease) increase in cash                                    |  |  |        |  |            |                   | (2,238,087   | )          |                  
|Cash, beginning of year                                        |  |  |        |  |            |                   | 9,081,791    |            |                  
|Cash, end of year                                              |  |  |        |  |            | $                 | 6,843,704    |            |                  



The notes to the consolidated financial statements are an integral
part of these statements.



Page | 13







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | 1. | Nature of Operations and going concern
| | -- | --------------------------------------



Mountain Province Diamonds Inc. (“Mountain
Province” and together with its subsidiaries collectively, the “Company”) was incorporated on December 2, 1986
under the British Columbia Company Act. The Company amended its articles and continued incorporation under the Ontario Business
Corporations Act effective May 8, 2006. The Company holds a 49% interest in the Gahcho Kué Project (“Gahcho Kué
Diamond Mine” or “GK Mine” or “GK Project”) in Canada’s Northwest Territories. The development
of the GK Mine is complete and commercial production was declared on March 1, 2017.



The address of the Company’s registered
office and its principal place of business is 161 Bay Street, Suite 1410, PO Box 216, Toronto, ON, Canada, M5J 2S1. The Company’s
shares are listed on the Toronto Stock Exchange (“TSX”) and the NASDAQ under the symbol ‘MPVD’.





These consolidated financial statements
have been prepared using the going concern basis of preparation which assumes that the Company will realize its assets and settle
its liabilities in the normal course of business.



Under the terms of the
Company’s Loan Facility Agreement, the Company will be subject to funding of reserve accounts and certain financial
covenants as discussed in Note 9. The Loan Facility Agreement also contains material adverse effect clauses. In the absence
of amendments or receipt of waivers, non-compliance with reserve funding requirements or other financial covenants, or the
occurrence of a material adverse effect event, would be an event of default under the terms of the Loan Facility
Agreement.



Commencing on March 31, 2017, the Company
is subject to maintaining a cash call reserve account balance based upon certain budgeted amounts which will vary over the term
of the Loan Facility. Approximately US$27.9 million was originally required to be deposited in the cash call reserve account on
March 31, 2017. On March 27, 2017, the Company received a waiver deferring the requirement to fund the cash call reserve account
to May 31, 2017. As conditions of the waiver, certain information must be furnished to the lenders by May 31, 2017 including:
 an updated financial model and life of mine plan; a diamond pricing valuation comparison between production to date and historic
samples from April 2011 to be prepared by the lender’s independent diamond consultant; and a reconciliation of cumulative
diamond production including a statistical comparison of total diamond carats, size and quality. The failure to comply with any
of the requirements of the waiver constitutes an event of default.



Under the terms of the Loan Facility Agreement,
the Company is also required to fund reserve accounts (Note 9) estimated as follows for the period from January 1, 2017 to December
31, 2017:





|Date
    additional funding is required |  | Funding
    requirements |            
|--------------------------------------- |  | ------------------------ | -----------
|September 2017                          |  | US$                      | 100,100,000
|December 2017                           |  |                          | 50,900,000 





At September 30, 2017, the Company can
use the remaining balance available in the restricted cost overrun account (Note 6) to fund a portion of the above reserve accounts.
Based on the delay in achieving commercial production and current market prices in the diamond industry, management believes the
Company will not be able to comply with the requirement to fully fund these reserve accounts and may not comply with the other
financial covenants in the Loan Facility.



Management expects the Company will seek
additional waivers or amendments from the lenders as to the timing and amount of all of these funding requirements. There are no
assurances the lenders will accommodate further waivers or amendments the Company will seek. If the Company is unable to fully
fund the required reserve accounts, or is unable to comply with other financial covenants, and is not successful in obtaining suitable
waivers or amendments, it would result in an event of default, and the Loan Facility outstanding balance would become payable on
demand. Further, management may seek alternative sources of financing. These conditions indicate the existence of a material uncertainty
that results in substantial doubt as to the Company’s ability to continue as a going concern. These financial statements
do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company
be unable to continue as a going concern. These adjustments may be material.





The underlying value and recoverability
of the amounts shown as “Property and Equipment” (Note 7) are dependent upon future profitable production and proceeds
from disposition of the Company’s mineral properties. Failure to meet the obligations for the Company’s share in the
GK Mine may lead to dilution of the interest in the GK Mine and may require the Company to write off costs capitalized to date.







Page | 14







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Authorization of Financial Statements



These consolidated financial statements were
approved by the Board of Directors on March 28, 2017.



| | 2. | BASIS OF PRESENTATION
| | -- | ---------------------



These consolidated financial statements of
the Company were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.  The policies set out below were consistently applied to all the periods presented.



These financial statements were prepared under
the historical cost convention, as modified by the revaluation of cash, short-term investments and derivative liabilities.



| | 3. | Significant accounting policies
| | -- | -------------------------------



The significant accounting policies adopted
in the preparation of the consolidated financial statements are set out below.



| | (i) | Basis of consolidation
| | --- | ----------------------



The consolidated financial statements include
the accounts of Mountain Province and its wholly-owned subsidiaries:



| | · | 2435572 Ontario Inc. (100% owned)
| | - | ---------------------------------

| | · | 2435386 Ontario Inc. (100% owned by 2435572
Ontario Inc.)
| | - | ---------------------------------------------------------



The Company’s interest in the GK Mine
is held through 2435386 Ontario Inc.



A subsidiary is an entity controlled by the
Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. A subsidiary is included in the consolidated
financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions,
income, expenses, profits and losses, including unrealized gains and losses have been eliminated on consolidation.



The Company has determined that its interest
in the GK Mine through its joint arrangement is a joint operation under International Financial Reporting Standard 11, Joint Arrangements,
and, accordingly has recorded the assets, liabilities, revenues and expenses in relation to its interest in the joint operation.
The Company’s interest in the GK Mine is bound by a contractual arrangement establishing joint control over the mine through
required unanimous consent of the Company and De Beers Canada Inc. (“De Beers” or the “Operator”, and
together with the Company, the “Participants”) for strategic, financial and operating policies of the GK Mine. The
GK Mine management committee has two representatives of each of the Company and De Beers. The Participants have appointed De Beers
as the operator of the GK Mine.



| | (ii) | Foreign currency
| | ---- | ----------------



The functional currency of the Company and
its subsidiaries is the Canadian Dollar.



In preparing the consolidated financial statements,
transactions in currencies other than the Company’s functional currency are recognized at the rates of exchange prevailing
at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are re-translated
at the rates prevailing at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated
at the exchange rate at the date of the transaction.



Exchange differences are recognized in profit
or loss in the period in which they arise and presented in the consolidated Statements of Comprehensive Income (Loss).



Page | 15







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | (iii) | Share-based payments
| | ----- | --------------------



The Company maintains a Restricted Share Unit
(“RSU”), Deferred Share Unit (“DSU”) and stock option plan for employees, directors, and other qualified
individuals.



Equity-settled transactions, which include
RSUs, DSUs and stock options, are measured by reference to the fair value at the grant date. The fair value for RSU’s is
determined using the market value of the share price, as listed on the TSX, at the close of business at the grant date. The fair
value for stock options is determined using a Black-Scholes option pricing model, which relies on estimates of the future risk-free
interest rate, future dividend payments, future share price volatility and the expected average life of options. The Company believes
this model adequately captures the substantive features of the option awards, and are appropriate to calculate their fair values.
The fair value determined for both RSUs and stock options at grant date is recognized over the vesting period in accordance with
the vesting terms and conditions, with a corresponding increase to contributed surplus.



Equity-settled share-based payments to employees
and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding
the determination of the fair value of equity-settled share-based payment transactions are set out in Note 11.



The fair value determined at the grant date
of the equity-settled share-based payments is expensed in profit or loss over the vesting period, if any, which is the period during
which the employee becomes unconditionally entitled to equity instruments. At the end of each reporting period, the Company revises
its estimate of the number of equity instruments expected to vest, if any.



Equity-settled share-based payment transactions
with parties other than employees, if any, are measured at the fair value of the goods or services received, except where that
fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured
at the date the entity obtains the goods or the counterparty renders the service.



| | (iv) | Income taxes and deferred taxes
| | ---- | -------------------------------



The income tax expense or benefit for the year
consists of two components: current and deferred.



Current tax is the expected tax payable or
receivable on the taxable profit or loss for the year. Current tax is calculated using tax rates and laws that were enacted or
substantively enacted at the balance sheet date in each of the jurisdictions and includes any adjustments for taxes payable or
recovery in respect of prior periods.



Taxable profit or loss differs from profit
or loss as reported in the Consolidated Statements of Comprehensive Income (Loss) because of items of income or expense that are
taxable or deductible in other years, and items that are never taxable or deductible.



Deferred tax is recognized on temporary differences
between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences, loss carryforwards and tax credit carryforwards
to the extent that it is probable that taxable profits will be available against which they can be utilized. To the extent that
the Company does not consider it to be probable that taxable profits will be available against which deductible temporary differences,
loss carryforwards, and tax credit carryforwards can be utilized, a deferred tax asset is not recognized.



Page | 16







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Deferred tax assets and liabilities are not
recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.



Deferred tax liabilities are recognized for
taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal
of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred
tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that
it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.



Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax
rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the
end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.



Deferred tax assets and liabilities are offset
when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to
income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on
a net basis.



Current and deferred taxes are recognized in
profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which
case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.



| | (v) | Supplies Inventory
| | --- | ------------------



Supplies inventory are consumable materials
which are measured at the lower of weighted average cost and net realizable value.



| | (vi) | Mineral properties and exploration and evaluation costs and development costs
| | ---- | -----------------------------------------------------------------------------



Exploration and evaluation (“E&E”)
costs are those costs required to find a mineral property and determine commercial viability and technical feasibility. E&E
costs include costs to establish an initial mineral resource and determine whether inferred mineral resources can be upgraded to
measured and indicated mineral resources and whether measured and indicated mineral resources can be converted to proven and probable
reserves.



Exploration and evaluation costs consist of:

| | • | gathering exploration data through topographical and geological
studies;
| | - | ------------------------------------------------------------------------

| | • | exploratory drilling, trenching and sampling;
| | - | ---------------------------------------------

| | • | determining the volume and grade of the resource;
| | - | -------------------------------------------------

| | • | test work on geology, metallurgy, mining, geotechnical
and environmental; and
| | - | -----------------------------------------------------------------------------

| | • | conducting and refining engineering, marketing and financial
studies.
| | - | ---------------------------------------------------------------------



Costs
in relation to these activities are expensed as incurred until such time that the
technical feasibility and commercial viability of extracting the mineral resource are demonstrable. At such time, mineral properties
are assessed for impairment, and an impairment loss, if any, is recognized, and future development costs will be capitalized to
assets under construction.



Page | 17







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The key factors management used in determining
technical feasibility and commercial viability of the Gahcho Kué Diamond Mine are demonstrable are the following;

| | • | completion of a feasibility study;
| | - | ----------------------------------

| | • | obtaining required permits to construct the Gahcho Kué
Diamond Mine;
| | - | --------------------------------------------------------------------

| | • | completion of an evaluation of the financial resources
required to construct the Gahcho Kué Diamond Mine;
| | - | ---------------------------------------------------------------------------------------------------------

| | • | availability of financial resources necessary to commence development activities to construct the
Gahcho Kué Diamond Mine; and
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | • | management’s determination that a satisfactory return on investment, in relation to the risks
to be assumed, is likely to be obtained.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



The Company also recognizes exploration and
evaluation costs as assets when acquired as part of a business combination, or asset purchase, or as a result of rights acquired
relating to a mineral property.



| | (vii) | Commencement of commercial production
| | ----- | -------------------------------------



There are a number of quantitative and qualitative
measures the Company considers when determining if conditions exist for the transition from pre-commercial production to commencement
of commercial production of an operating mine, which include:

| | · | all major capital expenditures have been
completed to bring the mine to the condition necessary for it to be capable of operating in the manner intended by management;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | mineral recoveries are at or near expected
production levels;
| | - | -------------------------------------------------------------

| | · | the ability to sustain ongoing production
of ore; and
| | - | -----------------------------------------------------

| | · | the ability to operate the plant as intended,
achieving 30 days at an average of 70% design capacity.
| | - | -----------------------------------------------------------------------------------------------------



The list of measures is not exhaustive and
management takes into account the surrounding circumstances before making any specific decision.



| | (viii) | Property and equipment
| | ------ | ----------------------



Property and equipment are stated at cost less
accumulated amortization and accumulated impairment losses. Cost comprises the fair value of consideration given to acquire an
asset and includes the direct charges associated with bringing the asset to the location and condition necessary to put the asset
into use, as well as the future cost of dismantling and removing the asset. When parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Replacement
cost, including major inspection and overhaul expenditures are capitalized for components of property, plant and equipment, which
are accounted for separately.



Development costs are capitalized under assets
under construction. Expenditures, including engineering to design the size and scope of the project, environmental assessment and
permitting and borrowing costs are capitalized to assets under construction.



Amortization is provided on property, plant
and equipment. Amortization is calculated so as to allocate the cost of each asset over its expected useful life to its estimated
residual value. The estimated useful lives, residual values and amortization method are reviewed at the end of each annual reporting
period. Mineral properties are not amortized until the properties to which they relate are placed into commercial production, at
which time the costs will be amortized on a unit-of-production method following commencement of commercial production. Assets under
construction are not amortized; rather costs are deferred until the asset is ready for use, at which point the deferred amount
is transferred to the appropriate asset category and amortized as set out below.



Page | 18







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








|Corporate assets                 | two to seven years, straight line 
|-------------------------------- | ----------------------------------
|Vehicles                         | three to five years, straight line
|Production and related equipment | three to ten years, straight line 
|General infrastructure           | four to ten years, straight line  
|Earthmoving equipment            | estimated hours                   
|Assets under construction        | not depreciated until production  







| | (ix) | Impairment of non-financial assets
| | ---- | ----------------------------------



The carrying value of the Company’s
capitalized property and equipment is assessed for impairment when indicators of such impairment exist. If any indication of impairment
exists, an estimate of the asset’s recoverable amount is calculated to determine the extent of the impairment loss, if any.
The recoverable amount is determined as the higher of the fair value less costs to sell for the asset and the asset’s value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.



Impairment is determined on an asset by asset
basis, whenever possible. If it is not possible to determine impairment on an individual asset basis, then impairment is considered
on the basis of a cash generating unit (“CGU”). CGUs represent the lowest level for which there are separately identifiable
cash inflows that are largely independent of the cash flows from other assets or Company’s other group of assets. The Company
has determined that it has one CGU.



If the carrying amount of the asset exceeds
its recoverable amount, the asset is impaired and an impairment loss is charged immediately to profit or loss so as to reduce the
carrying amount to its recoverable amount.



| | (x) | Capitalized interest
| | --- | --------------------



Interest costs for qualifying assets are capitalized.
Qualifying assets are assets that require a significant amount of time to prepare for their intended use, including projects that
are in development or construction stages. Capitalized interest costs are considered an element of the cost of the qualifying asset.
Capitalization ceases when the asset is substantially complete or if active development is suspended or ceases. Where funds borrowed
are directly attributable to a qualifying asset, the amount capitalized represents the borrowing costs specific to those borrowings.



| | (xi) | Financial instruments
| | ---- | ---------------------



The Company classifies non-derivative financial
assets into the following categories: loans and receivables; fair value through profit or loss; held-to-maturity; and available-for-sale.
The Company classifies non-derivative financial liabilities into the following categories: fair value through profit or loss and
other financial liabilities category. Financial assets are initially measured at fair value. Subsequent measurement and recognition
of the changes in fair value of financial instruments depends upon their initial classifications, as follows:



•             Financial assets and financial liabilities
at fair value through profit and loss include financial assets and financial liabilities that are held for trading or designated
upon initial recognition as at fair value through profit and loss. These financial instruments are measured at fair value with
changes in fair values recognized in profit or loss.



•             Financial assets classified as available-for-sale are measured at fair value, with changes in fair values recognized as Other
Comprehensive Income (“OCI”), except when there is objective evidence that the asset is impaired, at which point
the cumulative loss that had been previously recognized in OCI is recognized in profit or loss.



•            Financial assets classified as held-to-maturity
and loans and receivables are measured subsequent to initial recognition at amortized cost using the effective interest method.



Page | 19







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








•            Financial liabilities, other than
financial liabilities classified as fair value through profit and loss, are measured in subsequent periods at amortized cost using
the effective interest method.



The effective interest method is a method of
calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the financial liability, or where appropriate, a shorter period, to the net carrying amount on initial recognition.



The Company may enter into derivative financial
instruments to mitigate economic exposures to interest rate and currency exchange rate fluctuations. Derivatives are initially
recognized at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent
to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
The fair values of derivative assets and liabilities are determined using valuation techniques with assumptions based on prevailing
market conditions on the reporting date. Pursuant to the Loan Facility described in Note 9, the Company entered into foreign currency
forward strip and interest rate swap contracts, described in Note 10.



Derivative instruments are classified as current
or non-current assets or liabilities, depending on their maturity dates. Derivative assets are not offset against derivative liabilities.



The Company has classified its financial instruments
as follows:





|Asset/Liability                          | Classification                     | Measurement   
|---------------------------------------- | ---------------------------------- | --------------
|Cash                                     | Fair value through profit and loss | Fair value    
|Derivative liabilities                   | Fair value through profit and loss | Fair value    
|Amounts receivable                       | Loans and receivables              | Amortized cost
|Restricted cash                          | Loans and receivables              | Amortized cost
|Accounts payable and accrued liabilities | Other liabilties                   | Amortized cost
|Loan facility                            | Other liabilties                   | Amortized cost





The Company’s cash consists of balances
with banks.



The Company had no held-to-maturity financial
assets at December 31, 2016 and 2015.



| | (xii) | Provisions
| | ----- | ----------



Provisions represent liabilities to the Company
for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount
can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value
of the expected expenditures to settle the obligation, applying a risk-free discount rate. The increase in the provision due to
passage of time is recognized as accretion expense. The Company does not have any provisions as of December 31, 2016 and 2015 other
than the provision for decommissioning and restoration associated with the Mineral Properties.



The Company records as decommissioning and
restoration liability the present value of estimated costs of legal and constructive obligations required to restore locations
in the period in which the obligation is incurred. The nature of these decommissioning and restoration activities includes dismantling
and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites,
and restoration, reclamation and re-vegetation of affected areas.



Page | 20







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The obligation generally arises when the asset
is installed or the ground and/or environment is disturbed at the production location. When the liability is initially recognized,
the present value of the estimated cost is capitalized if the Company has a related asset on its balance sheet, or expensed. Over
time, the discounted liability is increased for the change in present value. The periodic unwinding of the discount is recognized
in profit or loss as a finance cost called “accretion expense on decommissioning and restoration liability”. Additional
disturbances or changes in rehabilitation costs will be recognized as additional capitalized costs (or exploration and evaluation
expense depending on whether there was a related asset when the liability was initially recognized) and additional decommissioning
and restoration liability when they occur. If it is determined that the expected costs for decommissioning and restoration are
reduced, the change in the present value of the reduction is recorded as a reduction in the capitalized costs (expensed), and a
reduction of the decommissioning and restoration liability. For closed sites, changes to estimated costs are recognized immediately
in profit or loss.



| | (xiii) | Loss or earnings per share
| | ------ | --------------------------



Basic loss or earnings per share is calculated
by dividing loss or earnings attributable to common shares divided by the weighted average number of shares outstanding during
the year.



Diluted loss or earnings per share is calculated
using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding
stock options. The denominator is increased by the weighted average number of common shares outstanding after adjustment for the
effects of all dilutive potential common shares.



| | (xiv) | Standards and amendments to existing standards that are not yet effective and have not yet been
adopted early by the Company
| | ----- | ----------------------------------------------------------------------------------------------------------------------------



At the date of authorization of these financial
statements, certain new standards and amendments to existing standards have been published but are not yet effective, and have
not been adopted early by the Company. The Company anticipates that all of the relevant standards will be adopted by the Company
in the first period beginning after the effective date of the standard. Information on new standards and amendments that are expected
to be relevant to the Company’s financial statements is provided below.



Share-based payments



In June 2016, the IASB issued amendments to
International Financial Reporting Standard 2, Share-based Payment (“IFRS 2”). IFRS 2 is effective for periods beginning
on or after January 1, 2018 and is to be applied prospectively. The amendments clarify the classification and measurement of share-based
payment transactions. Management is currently assessing the impact of the amendment to IFRS 2 on the consolidated financial statements.



Revenue



In May 2014, the IASB issued International
Financial Reporting Standard 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 is effective for periods
beginning on or after January 1, 2018 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue
from contracts with customers. Management will adopt IFRS 15 effective for the period beginning on January 1, 2017.



Financial instruments



In July 2014, the IASB issued the final version
of International Financial Reporting Standard 9, Financial Instruments (“IFRS 9”) bringing together the classification
and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition
and Measurement. The mandatory effective date of IFRS 9 is annual periods beginning on or after January 1, 2018, with early adoption
permitted. Management is currently assessing the impact of adopting IFRS 9 on the consolidated financial statements along with
timing of adoption of IFRS 9.



Page | 21







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Leases



On January 13, 2016, the IASB issued International
Financial Reporting Standard 16, Leases (“IFRS 16”). The new standard will replace existing lease guidance in IFRS
and related interpretations, and requires companies to bring most leases on balance sheet. The new standard is effective for annual
periods beginning on or after January 1, 2019. The Company is currently assessing the impact of IFRS 16.



Statement of cash flows

In January 2016, the IASB issued an amendment
to International Accounting Standard 7, Statement of Cash Flows. The amended standard introduced additional disclosure requirements
for liabilities arising from financing activities. The amendment is effective for annual periods beginning on or after January
1, 2017. The Company does not expect this amendment to have a significant impact on its consolidated financial statements.



| | 4. | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
| | -- | -----------------------------------------------------------



The preparation of the Company’s consolidated
financial statements requires management to make judgments and/or estimates that affect the reported amounts of assets and liabilities
at the date of the financial statements and reported amounts of expenses during the reporting period. These judgements and estimates
are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances.
Actual results may differ from the estimates. The key areas where judgements, estimates and assumptions have been made are summarized
below.



| | i) | Significant judgments in applying accounting policies
| | -- | -----------------------------------------------------

The areas which require management
to make significant judgments in applying the Company’s accounting policies are:

| | a) | Impairment analysis – mineral properties
| | -- | ----------------------------------------

As required under IAS 36 – Impairment
of Assets, the Company reviews its mineral properties for impairment based on results to date and when events and changes in circumstances
indicate that the carrying value of the assets may not be recoverable. The Company is required to make certain judgments in assessing
indicators of impairment. The Company’s assessment is that as at December 31, 2016 and 2015 no indicator of an impairment
in the carrying value of its mineral properties had occurred.



| | b) | Commencement of commercial production
| | -- | -------------------------------------

There are a number of quantitative
and qualitative measures the Company considers when determining if conditions exist for the transition from pre-commercial production
to commencement of commercial production of an operating mine, which include:

| | · | all major capital expenditures have been
completed to bring the mine to the condition necessary for it to be capable of operating in the manner intended by management;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | mineral recoveries are at or near expected
production levels;
| | - | -------------------------------------------------------------

| | · | the ability to sustain ongoing production
of ore; and
| | - | -----------------------------------------------------

| | · | the ability to operate the plant as intended.
| | - | ---------------------------------------------



The list of measures is not exhaustive
and management takes into account the surrounding circumstances before making any specific decision.



Page | 22







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | ii) | Significant accounting estimates and assumptions
| | --- | ------------------------------------------------

The areas which require management
to make significant estimates and assumptions in determining carrying values include, but are not limited to:



| | a) | Mineral reserves and resources
| | -- | ------------------------------

Mineral reserve and resource estimates
include numerous uncertainties and depend heavily on geological interpretations and statistical inferences drawn from drilling
and other data, and require estimates of the future price for the commodity and future cost of operations. The mineral reserve
and resources are subject to uncertainty and actual results may vary from these estimates. Results from drilling, testing and production,
as well as material changes in commodity prices and operating costs subsequent to the date of the estimate, may justify revision
of such estimates. Changes in the proven and probable mineral reserves or measured and indicated and inferred mineral resources
estimates may impact the carrying value of the properties. This will also impact the carrying value of the decommissioning and
restoration liability and future depletion charges.



| | b) | Provision for decommissioning and restoration
| | -- | ---------------------------------------------

The decommissioning and restoration
liability and the accretion recorded are based on estimates of future cash flows, discount rates, and assumptions regarding timing.
The estimates are subject to change and the actual costs for the decommissioning and restoration liability may change significantly.



| | c) | Stock options
| | -- | -------------

The stock option pricing model requires
the input of highly subjective assumptions including the expected life and volatility. Changes in the subjective input assumptions
can materially affect the fair value estimate.



| | d) | Deferred taxes
| | -- | --------------

Deferred income tax assets and liabilities
are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unused losses
carried forward, and are measured using the substantively enacted tax rates that are expected to be in effect when the differences
are expected to reverse or losses are expected to be utilized. Deferred tax assets are recorded to recognize tax benefits only
to the extent that, based on available evidence, including forecasts, it is probable that they will be realized.



| | 5. | FINANCIAL INSTRUMENTS
| | -- | ---------------------



Fair value measurement



The Company categorizes each of its fair value
measurements in accordance with a fair value hierarchy. The fair value hierarchy establishes three levels to classify the inputs
to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities
in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and
yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and
volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable
market data or other means. Level 3 inputs are unobservable (supported by little or no market activity).



The fair value hierarchy gives the highest
priority to Level 1 inputs and the lowest priority to Level 3 inputs.



Page | 23







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The following table shows the carrying amounts
and fair values of the Company’s financial assets and financial liabilities, including their levels in the fair value hierarchy.
It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying
amount is a reasonable approximation of fair value.



|                                                     |  | Carrying
    amount       |           |  | Fair
    value                             |  
|---------------------------------------------------- |  | ------------------------- | --------- |  | ------------------------------------------ | -
|December 31,
    2016                                |  | Loans
    and receivables |           |  | Fair
    value through
    profit and loss |  
|Financial assets measured at fair value              |  |                           |           |  |                                            |  
|Cash                                                 |  | $                         | -         |  |                                            | $
|Financial assets not measured at fair value          |  |                           |           |  |                                            |  
|Amounts receivable                                   |  |                           | 2,036,079 |  |                                            |  
|Restricted cash                                      |  |                           | -         |  |                                            |  
|                                                     |  |                           | 2,036,079 |  |                                            |  
|Financial liabilities measures at fair value         |  |                           |           |  |                                            |  
|Derivative liabilities                               |  |                           | -         |  |                                            |  
|Financial liabilities not
    measured at fair value |  |                           |           |  |                                            |  
|Accounts payable and accrued liabilities             |  |                           | -         |  |                                            |  
|Loan facility                                        |  |                           | -         |  |                                            |  
|                                                     |  |                           | -         |  |                                            |  



|                                                     |  | Carrying
    amount       |           |  | Fair
    value                         |  
|---------------------------------------------------- |  | ------------------------- | --------- |  | -------------------------------------- | -
|December 31, 2015                                    |  | Loans
    and receivables |           |  | Fair
    value through profit and loss |  
|Financial assets measured at fair value              |  |                           |           |  |                                        |  
|Cash                                                 |  | $                         | -         |  |                                        | $
|Financial assets not measured at fair value          |  |                           |           |  |                                        |  
|Amounts receivable                                   |  |                           | 1,348,018 |  |                                        |  
|Restricted cash                                      |  |                           | -         |  |                                        |  
|                                                     |  |                           | 1,348,018 |  |                                        |  
|Financial liabilities measures at fair value         |  |                           |           |  |                                        |  
|Derivative liabilities                               |  |                           | -         |  |                                        |  
|Financial liabilities not
    measured at fair value |  |                           |           |  |                                        |  
|Accounts payable and accrued liabilities             |  |                           | -         |  |                                        |  
|Loan facility                                        |  |                           | -         |  |                                        |  
|                                                     |  |                           | -         |  |                                        |  



The fair values of the amounts receivable and
accounts payable and accrued liabilities approximate their carrying values due to the relatively short-term maturity of these financial
instruments.



Fair values of assets and liabilities classified
as Level 2 are valued using discounted cash flow (“DCF”) models. These models require a variety of observable inputs
including market prices, forward price curves, yield curves and credit spreads. These inputs are obtained from or verified with
the market where possible.



Derivative instruments are valued using DCF
models. These models require a variety of observable inputs including market prices, forward price curves and yield curves. These
inputs are obtained from or verified with the market where possible.



Page | 24







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The fair value of the Loan Facility is determined
using a DCF model. This model uses the current market spread and is discounted using the risk-free rate plus a market spread.



Financial instruments risks

The Company examines the various financial
instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks include credit risk,
liquidity risk, market risk, foreign currency risk and interest rate risk.



Credit risk

Credit risk is the risk of financial loss to
the Company if a customer or counterparty to a financial instrument fails to meet its obligations. The Company’s maximum
exposure to credit risk for its amounts receivable is summarized as follows:



|                  |  | December 31, |           |  | December 31, |  
|----------------- |  | ------------ | --------- |  | ------------ | -
|                  |  | 2016         |           |  | 2015         |  
|0-30 days         |  | $            | 1,882,177 |  |              | $
|30 to 90 days     |  |              | 150,098   |  |              |  
|More than 90 days |  |              | 3,804     |  |              |  
|Total             |  | $            | 2,036,079 |  |              | $



On December 31, 2016 and 2015, the Company
does not have any allowance for doubtful accounts, and does not consider that any such allowance is necessary.



All of the Company’s cash and restricted
cash is held with a major Canadian financial institution and thus the exposure to credit risk is considered insignificant. Management
actively monitors the Company’s exposure to credit risk under its financial instruments, including with respect to amounts
receivable. The Company considers the risk of loss for its amounts receivable to be remote and significantly mitigated due to the
financial strength of the parties from whom most of the amounts receivable are due - the Canadian government for harmonized sales
tax (“HST”) refunds receivable in the amount of approximately, $1,659,371 (2015 - $1,312,782).



The Company’s current policy is to hold
excess cash in bank accounts. It periodically monitors the investment income it makes and is satisfied with the credit ratings
of its bank.



Liquidity risk



Liquidity risk is the risk that the Company
will not be able to meet its obligations associated with financial liabilities. Funds from the Loan Facility (Note 9) will be required
to fund its share of the remaining capital and operating costs to commercial production of the GK Mine. The Company's approach
to managing liquidity risk is to monitor forecast cash flows so that it will have sufficient liquidity to meet liabilities when
due. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support
its ongoing requirements. The Company coordinates this planning and budgeting process with its financing activities through its
capital management process. Drawdowns under the Loan Facility are subject to certain conditions, including approval of a quarterly
cost to complete report prepared by an independent technical consultant (Note 9). As discussed in Note 1, the Company does not
expect to generate sufficient liquidity to fully fund the reserve accounts which are conditions of the Loan Facility. If the Company
is unable to fully fund the required reserve accounts, or is unable to comply with other covenants, and is not successful in obtaining
suitable waivers or amendments, or a material adverse event occurs, it would result in an event of default, and the Loan Facility
outstanding balance would become payable on demand. Being able to comply with the covenants, and/or maintain sufficient liquidity,
is dependent upon many factors including, but not limited to, diamond prices, exchange rates, operating costs and levels of production.
Adverse changes in one or more of these factors negatively impact the Company’s ability to comply with the covenants and/or
maintain sufficient liquidity.





Page | 25







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








As at December 31, 2016, the Company has drawn
US$332 million or $445.8 million Canadian dollar equivalent from the Loan Facility.



The following table summarizes the contractual
maturities of the Company’s significant financial liabilities and capital commitments, including contractual obligations:



|                                    |  | Less than |             |   | 1 to 3 |   |             | 4 to 5 |  |   | After 5     |  |  |       |          
|----------------------------------- |  | --------- | ----------- | - | ------ | - | ----------- | ------ |  | - | ----------- |  |  | ----- | ---------
|                                    |  | 1 Year    |             |   | Years  |   |             | Years  |  |   | Years       |  |  | Total |          
|Operating lease obligations         |  | $         | 157,998     |   |        | $ | 456,354     |        |  | $ | 465,744     |  |  | $     | 545,559  
|Gahcho Kué Diamond Mine commitments |  |           | 22,539,444  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|Trade and other payables            |  |           | 16,115,963  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|Loan facility - Principal*          |  |           | 33,286,991  |   |        |   | 261,549,181 |        |  |   | 147,452,601 |  |  |       | 3,487,627
|Loan facility - Interest            |  |           | 32,617,000  |   |        |   | 44,743,300  |        |  |   | 14,617,200  |  |  |       | 69,900   
|Sunk cost repayment - principal     |  |           | 10,000,000  |   |        |   | 24,400,000  |        |  |   | -           |  |  |       | -        
|Sunk cost repayment - interest      |  |           | -           |   |        |   | 25,800,000  |        |  |   | -           |  |  |       | -        
|Interest Rate Swap Contracts:       |  |           |             |   |        |   |             |        |  |   |             |  |  |       |          
|Outflows                            |  |           | 2,397,642   |   |        |   | 98,087      |        |  |   | 7,719       |  |  |       | -        
|Forward Exchange Contracts**:       |  |           |             |   |        |   |             |        |  |   |             |  |  |       |          
|(Inflows)                           |  |           | (10,547,404 | ) |        |   | -           |        |  |   | -           |  |  |       | -        
|Outflows                            |  |           | 11,377,495  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|                                    |  | $         | 117,945,129 |   |        | $ | 357,046,922 |        |  | $ | 162,543,264 |  |  | $     | 4,103,086



*In accordance with the terms of the Loan
Facility at March 31, 2017, the Company is subject to maintaining a cash call reserve account balance in the amount of approximately
US$27.9 million. As of March 27, 2017, the lenders have provided a waiver indicating the amount is now to be funded by May 31,
2017. Under the terms of the Loan Facility Agreement, the Company is also required to fund reserve accounts estimated (Note 9)
of US$100.1 million in September 2017, and additional amounts of US$50.9 million and US$14.4 million at December 31, 2017 and
March 31, 2018, respectively.

**The foreign exchange contracts inflows
and outflows have been signed with the syndicate of lenders. In the scenario where one or more of these lenders are unable to pay,
the Company could be exposed to the outflow of agreed upon funds for the remaining contracts at that time. Any offsetting would
be at the discretion of the lenders. The Company believes it has no significant credit risk.



Market risk

Market risk is the risk that changes in market
prices such as foreign exchange rates, interest rates and equity prices will affect the Company’s income and the value of
its financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable
parameters while optimizing returns.



| | (i) | Interest rate risk
| | --- | ------------------



The Company is exposed to interest rate risk
on its outstanding borrowings and interest rate swap contracts. The Company has entered into interest rate swaps (Note 10) to fix
its interest rate exposure for 75% of its U.S. dollar Loan Facility and therefore has interest rate exposure to the remaining 25%.
At December 31, 2016, the total Loan Facility drawn was US$332 million and interest rate swaps of US$228.9 million were in effect.



At December 31, 2016, a 100-basis point increase
in the LIBOR interest rate for the interest rate swap portion and interest rate on the Loan Facility would have resulted in a decrease
to interest by approximately $6.71 million. A 100-basis point decrease in the LIBOR interest rate for the interest rate swap portion
and interest rate on the Loan Facility would have resulted in an increase to interest for the year ended December 31, 2016 by approximately
$6.87 million.



Page | 26







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | (ii) | Foreign currency
| | ---- | ----------------



The Company is exposed to market risk related
to foreign exchange rates. The Company operates in Canada and has foreign currency exposure to transactions in U.S. dollars. The
majority of development costs of the GK Mine are in Canadian dollars, but funded through the U.S. dollar Loan Facility (Note 9).
The Company has entered into foreign currency forward strip contracts (Note 10) to mitigate the risk that a devaluation of the
U.S. dollar against the Canadian dollar would reduce the Canadian dollar equivalent of the U.S. dollar Loan Facility and the Company
would not have sufficient Canadian dollar funds to develop the GK Mine. The foreign currency forward strip contracts increase the
exposure to risk related to foreign exchange rates. Currency risk relates to the U.S. dollar Loan Facility, foreign currency forward
strip contracts and cash, restricted cash and accounts payable and accrued liabilities denominated in U.S. dollars.



As at December 31, 2016, the Company had cash
and restricted cash, accounts payable and accrued liabilities, derivative liabilities and the Loan Facility that are in U.S. dollars.
The Canadian dollar equivalent is as follows:



|Cash                                     |  | $ | 2,700,000    |  
|---------------------------------------- |  | - | ------------ | -
|Restricted cash                          |  |   | 12,100,000   |  
|Accounts payable and accrued liabilities |  |   | (900,000     | )
|Derivative liabilities                   |  |   | (3,000,000   | )
|Loan facility                            |  |   | (445,800,000 | )
|Total                                    |  | $ | (434,900,000 | )



A 10% appreciation or depreciation of the Canadian
dollar relative to the U.S. dollar at December 31, 2016 would have resulted in an increase or decrease to net income for the year
ended December 31, 2016 of approximately $43.5 million.



| | 6. | RESTRICTED CASH
| | -- | ---------------



Total restricted cash of $83,878,089 at December
31, 2016 (2015 – $94,512,019) included $70,862,538 held in a restricted cost overrun account and $13,015,551 held in restricted
proceeds and other reserve accounts. The amounts held in the restricted cost overrun reserve account are restricted for the use
of funding potential cost overruns of the GK Mine and for the minimum reserve accounts, and the use of this account must be approved
by the lenders under the Loan Facility agreement (Note 9). The amounts held in the restricted proceeds and other reserve accounts
are restricted for the use of funding the Company’s share of expenditures for the GK Mine, and other Loan Facility requirements.
These amounts are expected to be used to fund the Company’s share of expenditures in the first quarter of 2017. These amounts
are restricted under the Loan Facility agreement.



Page | 27







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | 7. | PROPERTY AND EQUIPMENT
| | -- | ----------------------



The Company’s property and equipment as at December 31, 2016
and 2015 are as follows:



|                                           |  | Corporate |         |   |          |   |            | Production and        |  |   | General        |   |  | Earthmoving |            |   | Mineral    |   |            | Assets under |  |   |            | 
|------------------------------------------ |  | --------- | ------- | - | -------- | - | ---------- | --------------------- |  | - | -------------- | - |  | ----------- | ---------- | - | ---------- | - | ---------- | ------------ |  | - | ---------- | 
|                                           |  | assets    |         |   | Vehicles |   |            | related
    equipment |  |   | infrastructure |   |  | equipment   |            |   | properties |   |            | construction |  |   | Total      | 
|Cost                                       |  |           |         |   |          |   |            |                       |  |   |                |   |  |             |            |   |            |   |            |              |  |   |            | 
|At January 1, 2015                         |  | $         | 38,877  |   |          | $ | 2,202,773  |                       |  | $ | 437,798        |   |  | $           | 4,500,646  |   |            | $ | 10,223,823 |              |  | $ | 58,154,481 | 
|Decommissioning and restoration adjustment |  |           | -       |   |          |   | -          |                       |  |   | -              |   |  |             | -          |   |            |   | -          |              |  |   | 14,861,675 | 
|Additions*                                 |  |           | 12,183  |   |          |   | -          |                       |  |   | -              |   |  |             | -          |   |            |   | 192,122    |              |  |   | -          | 
|At December 31, 2015                       |  |           | 51,060  |   |          |   | 2,202,773  |                       |  |   | 437,798        |   |  |             | 4,500,646  |   |            |   | 10,415,945 |              |  |   | 73,016,156 | 
|Decommissioning and restoration adjustment |  |           | -       |   |          |   | -          |                       |  |   | -              |   |  |             | -          |   |            |   | -          |              |  |   | 726,057    | 
|Additions*                                 |  |           | 78,459  |   |          |   | -          |                       |  |   | -              |   |  |             | -          |   |            |   | 507,391    |              |  |   | -          | 
|At December 31, 2016                       |  | $         | 129,519 |   |          | $ | 2,202,773  |                       |  | $ | 437,798        |   |  | $           | 4,500,646  |   |            | $ | 10,923,336 |              |  | $ | 73,742,213 | 
|                                           |  |           |         |   |          |   |            |                       |  |   |                |   |  |             |            |   |            |   |            |              |  |   |            | 
|Accumulated depreciation                   |  |           |         |   |          |   |            |                       |  |   |                |   |  |             |            |   |            |   |            |              |  |   |            | 
|At January 1, 2015                         |  | $         | (20,914 | ) |          | $ | (607,689   | )                     |  | $ | (214,183       | ) |  | $           | (858,905   | ) |            | $ | (920,848   | )            |  | $ | -          | 
|Depreciation                               |  |           | (8,537  | ) |          |   | (390,152   | )                     |  |   | (34,698        | ) |  |             | (584,767   | ) |            |   | (1,010,551 | )            |  |   | -          | 
|At December 31, 2015                       |  |           | (29,451 | ) |          |   | (997,841   | )                     |  |   | (248,881       | ) |  |             | (1,443,672 | ) |            |   | (1,931,399 | )            |  |   | -          | 
|Depreciation                               |  |           | (16,254 | ) |          |   | (388,271   | )                     |  |   | (33,268        | ) |  |             | (525,516   | ) |            |   | (948,906   | )            |  |   | -          | 
|At December 31, 2016                       |  | $         | (45,705 | ) |          | $ | (1,386,112 | )                     |  | $ | (282,149       | ) |  | $           | (1,969,188 | ) |            | $ | (2,880,305 | )            |  | $ | -          | 
|                                           |  |           |         |   |          |   |            |                       |  |   |                |   |  |             |            |   |            |   |            |              |  |   |            | 
|Carrying amounts                           |  |           |         |   |          |   |            |                       |  |   |                |   |  |             |            |   |            |   |            |              |  |   |            | 
|At December 31, 2015                       |  | $         | 21,609  |   |          | $ | 1,204,932  |                       |  | $ | 188,917        |   |  | $           | 3,056,974  |   |            | $ | 8,484,546  |              |  | $ | 73,016,156 | 
|At December 31, 2016                       |  | $         | 83,814  |   |          | $ | 816,661    |                       |  | $ | 155,649        |   |  | $           | 2,531,458  |   |            | $ | 8,043,031  |              |  | $ | 73,742,213 | 



*Included in the additions of assets under construction for the
year ended December 31, 2016 is $34,749,739 (2015-$11,386,094) of borrowing and other costs, and is net of $3,622,441 pre-production
sales.



Page | 28







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars










The Company’s mineral asset, the
GK Mine, was in the commissioning stage at December 31, 2016. Based on successful permitting and demonstrated technical feasibility
and commercial viability of the GK Mine, in December 2013 the Company commenced capitalizing all development expenditures incurred
related to the GK Mine.





The Company holds a 49% interest in the GK
Mine, and De Beers Canada holds the remaining 51% interest. The arrangement between the Company and De Beers Canada is governed
by an agreement entered into on July 3, 2009 (the “2009 Agreement”).



Under a previous agreement (the “2002
Agreement”) in effect until July 3, 2009, De Beers Canada carried all costs incurred by the Project, and De Beers Canada
had no recourse to the Company for repayment of funds until, and unless, the Project was built, in production, and generating net
cash flows.



On July 3, 2009, the Company entered the 2009
Agreement with De Beers Canada under which:

| | (a) | The Participants’ continuing interests in the GK Mine will be Mountain Province 49% and De
Beers Canada 51%, with the Company’s interest no longer subject to the dilution provisions in the 2002 Agreement except for
normal dilution provisions which are applicable to both Participants;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Each Participant will market their own proportionate share of diamond production in accordance
with their participating interest;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | (c) | Each Participant will contribute their proportionate share to the future project development costs
and will contribute their proportionate share to operating costs;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Material strategic and operating decisions will be made by consensus of the Participants as long
as each Participant has a participating interest of 40% or more;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | The Participants have agreed that the sunk historic costs to the period ended on December 31, 2008
will be reduced and limited to $120 million;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | The Company will repay De Beers Canada $59 million (representing 49% of an agreed sum of $120 million)
plus interest compounded on the outstanding amounts in settlement of the Company’s share of the agreed historic sunk costs.
At December 31, 2016, the following amounts remain to be settled and will be accrued on declaration of commercial production which
occurred on March 1, 2017:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | $10 million following the commencement
of commercial production (commencement of commercial production for the purposes of the 2009 Agreement means the first day of the
calendar month following the first thirty consecutive days (excluding maintenance days) that the relevant mine has achieved and
maintained 70% of rated production specified in the relevant Feasibility Study); and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The balance of approximately $24.4 million
plus accumulated interest of approximately $25.8 million within 18 months following commencement of commercial production, which
was declared on March 1, 2017. At December 31, 2016, accumulated interest is approximately $22.0 million. Accumulated interest
is being calculated at the prevailing LIBOR rate plus 5%.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2435386 Ontario Inc. has agreed that the marketing
rights provided to the Company in the 2009 Agreement will be diluted if the Company defaults on certain of the payments described
above.



Since these payments are contingent on certain
events occurring, and/or work being completed, they will be recorded as the payments become due or are made. As these contingent
payments are made, they will be capitalized to Mineral Properties.



Between 2014 and 2016, the Company and De Beers
signed agreements allowing the Operator to utilize De Beers’ credit facilities to issue reclamation and restoration security
deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3% fee for the
share of the security deposits issued. As at December 31, 2016, the Company’s share of the security deposits issued were
$23,419,125 (2015 - $14,378,228).



Page | 29







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | 8. | DECOMMISSIONING AND RESTORATION LIABILITY
| | -- | -----------------------------------------



The GK Mine decommissioning and restoration
liability was calculated using the following assumptions as at December 31, 2016 and 2015:



|                                 |  | December 31, |            |   | December 31, |  
|-------------------------------- |  | ------------ | ---------- | - | ------------ | -
|                                 |  | 2016         |            |   | 2015         |  
|Expected undiscounted cash flows |  | $            | 32,069,264 |   |              | $
|Discount rate                    |  |              | 2.31       | % |              |  
|Inflation rate                   |  |              | 2.08       | % |              |  
|Periods                          |  |              | 2028       |   |              |  



The decommissioning and restoration liability
has been calculated using expected cash flows that are current dollars, with inflation.



During the year ended December 31, 2016, the
decommissioning and restoration liability was increased by $726,057 (2015 - $14,861,675) for a change in estimate, reflecting primarily
an increase in estimated reclamation costs due to the advancement of the construction work performed at the GK Mine site. Estimation
of the amount of the effect of the change in estimate in future periods is impracticable to determine.



The continuity of the decommissioning and restoration
liability at December 31, 2016 and 2015 is as follows:



|                                            |  | December 31, |            |  | December 31, |  
|------------------------------------------- |  | ------------ | ---------- |  | ------------ | -
|                                            |  | 2016         |            |  | 2015         |  
|Balance, beginning of year                  |  | $            | 23,044,826 |  |              | $
|Change in estimate of discounted cash flows |  |              | 726,057    |  |              |  
|Accretion recorded during the year          |  |              | 495,465    |  |              |  
|Balance, end of the year                    |  | $            | 24,266,348 |  |              | $



| | 9. | LOAN FACILITY
| | -- | -------------



On April 2, 2015, the Company through its
subsidiary 2435572 Ontario Inc. entered into a Loan Facility of US$370 million with a syndicate of lenders led by Natixis S.A.,
Scotiabank and Nedbank Ltd. and including ING Capital LLC, Export Development Canada and the Bank of Montreal. On April 29, 2015,
Société Générale joined the lender syndicate. The lenders hold security over the Company’s 49%
interest in the GK Mine held through the Company’s subsidiaries. The term of the Loan Facility is seven years and the interest
rate is U.S. dollar LIBOR plus 5.5 percent. The Loan Facility has a drawdown schedule that commenced on April 7, 2015 and ends
on September 30, 2017 to correspond with the projected construction period and the required interest payments under the Loan Facility
up to September 30, 2017. At March 31, 2017, the Company is subject to maintaining a cash call reserve account balance in the
amount of approximately US$27.9 million. On March 27, 2017, the lenders have provided a waiver indicating the amount is now to
be funded by May 31, 2017. At September 30, 2017, certain financial covenants related to servicing the debt, as defined by the
Loan Facility agreement, become effective.



Page | 30







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars










The table below describes the initial funding
of minimum reserve balance requirements by quarter:





|                                        |  | March
    31, 2017 |            |  | June
    30, 2017 |   |   | September
    30, 2017 |  |   | December
    31, 2017 |  |  | March
    31, 2018 |            |  | Total |  
|--------------------------------------- |  | ------------------ | ---------- |  | ----------------- | - | - | ---------------------- |  | - | --------------------- |  |  | ------------------ | ---------- |  | ----- | -
|Cash call reserve account*              |  | US$                | 27,900,000 |  |                   | $ | - |                        |  | $ | -                     |  |  | $                  | -          |  |       | $
|Sunk cost reserve account**             |  |                    | -          |  |                   |   | - |                        |  |   | 43,000,000            |  |  |                    | -          |  |       |  
|Debt service reserve account            |  |                    | -          |  |                   |   | - |                        |  |   | 57,100,000            |  |  |                    | 32,700,000 |  |       |  
|Environment reclamation reserve account |  |                    | -          |  |                   |   | - |                        |  |   | -                     |  |  |                    | 18,200,000 |  |       |  
|                                        |  | US$                | 27,900,000 |  |                   | $ | - |                        |  | $ | 100,100,000           |  |  | $                  | 50,900,000 |  |       | $



* As of March 27, 2017, the lenders have provided
a waiver indicating the amount is now to be funded by May 31, 2017

** The sunk cost reserve account is to be
funded by September 1, 2017



Cash call reserve account minimum balance
represents the cash calls expected to be paid to the Operator in the next three months.

Sunk cost reserve account minimum balance
represents the total expected sunk cost payments to the operator as described in note 7.

Debt service reserve account minimum balance
represents the principal and interest payments on the loan facility expected to be paid to the lenders in the next nine months.

Environment reclamation reserve account
minimum balance represents the Company’s share of all letters of credit issued and expected to be issued in the next nine
months to any Government agency pursuant to any environmental or social permit.





As discussed in Note 1, based on the delay
in achieving commercial production and current market prices in the diamond industry, management believes the Company will not
be able to comply with the requirement to fully fund these reserve accounts and may not comply with the other financial covenants
in the Loan Facility, therefore, the Company will seek additional waivers or amendments from the lenders as to the timing and
amount of all of these funding requirements. If the Company is unable to fully fund the required reserve accounts, or is unable
to comply with other financial covenants, and is not successful in obtaining suitable waivers or amendments, or a material adverse
event occurs, it would result in an event of default, and the Loan Facility outstanding balance would become payable on demand.
Being able to comply with the covenants, and/or maintain sufficient liquidity, is dependent upon many factors including, but not
limited to, diamond prices, exchange rates, operating costs and levels of production. Adverse changes in one or more of these
factors negatively impact the Company’s ability to comply with the covenants and/or maintain sufficient liquidity.



Drawdowns under the Loan Facility are subject
to certain conditions, including approval of a quarterly cost to complete report prepared by an independent technical consultant.
The Company has funded a cost overrun reserve account (Note 6), which is restricted to be used to fund potential cost overruns
of the Project up to September 30, 2017, and use of this account must be approved by the lenders. At September 30, 2017, the Company
can use the remaining balance available in the restricted cost overrun account to fund a portion of the above reserve accounts.
A cost to complete shortfall would exist if available funding remaining under the Loan Facility is less than the Projected costs
to completion and commercial production. Such shortfall would represent a cost overrun. If the lenders are satisfied that the
cost overrun can be funded with amounts in the cost overrun reserve account then no event of default would have occurred, and
the lenders would approve further drawdown against the Loan Facility. If the available resources under the Loan Facility plus
the cost overrun reserve account were insufficient to fund the Project to completion and commercial production, additional funding
would be required and no amounts would be available to be drawn until the default was remedied.



The Loan Facility will be used to fund the
Company’s share of the remaining construction cost of the GK Mine, associated fees, general and administrative costs, interest
costs and repayment of $10 million of sunk costs which become payable to De Beers after achievement of commercial production (Note
7), which was declared on March 1, 2017.



At December 31, 2016, US$332 million ($445.8
million Canadian) was outstanding under the Loan Facility. The loan is carried at amortized cost on the consolidated balance sheet.
As at December 31, 2016, financing costs totalling $31,802,974 consisting primarily of fees payable to the lenders, legal and financial
advisory fees, other financing related expenses and commitment fees relating to the Loan Facility were incurred. The loan amount
of $445,776,400 has been reduced by a pro-rata portion of the deferred financing costs relative to what has been drawn to date,
which is being amortized over the life of the Loan Facility using the effective interest method. The resulting balance of financing
costs as at December 31, 2016 is $1,902,344 (2015 - $13,891,403) and will be allocated to future drawdowns and amortized over the
life of the Loan Facility using the effective interest rate method. Unamortized deferred financing costs as at December 31, 2016
of $19,873,262 is netted against the Loan Facility.



Page | 31







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The following table shows the repayment instalment
schedule for the gross amount of the Loan Facility:



|Year  |  |     |            
|----- |  | --- | -----------
|2017  |  | US$ | 24,791,085 
|2018  |  |     | 93,845,271 
|2019  |  |     | 100,948,191
|2020  |  |     | 46,778,076 
|2021  |  |     | 63,039,904 
|2022  |  |     | 40,597,473 
|Total |  | US$ | 370,000,000



Finance costs for the year ended December 31,
2016 were $32,917,730 (2015 - $10,192,292) and include interest expense calculated using the effective interest method; adjusted
for interest paid on interest rate swaps and foreign exchange on the interest paid and accrued. These financing costs have been
capitalized to assets under construction.



| | 10. | DERIVATIVE liabilities
| | --- | ----------------------



The Company has entered into U.S. dollar interest
rate swaps to manage interest rate risk associated with the U.S. dollar variable rate Loan Facility (Note 9) and into foreign currency
forward strip contracts to mitigate the risk that a devaluation of the U.S. dollar against the Canadian dollar would reduce the
Canadian dollar equivalent of the U.S. dollar Loan Facility and the Company would not have sufficient Canadian dollar funds to
develop the GK Mine. The interest rate swaps and forward strip contracts are secured on an equal basis with the Loan Facility and
documented in the form of International Swaps Derivatives Association Master Agreements.



These derivatives have been classified as “non-hedge
derivatives”. Changes in fair value of the interest rate swap and foreign currency forward strip contracts are recognized
in net income or loss as gains or losses on derivatives.



Interest Rate Swap Contracts

On April 7, 2015, the Company entered into
U.S. dollar floating-to-fixed interest rate swaps intended to economically fix the interest rate on 75% of the outstanding principal
of the balance of the Loan Facility based on the forecast loan drawdown schedule up to a maximum of US$277 million. The interest
rate swaps terminate on March 31, 2020. The Company will pay a fixed rate of 1.827% and will receive a variable rate based on the
3 month LIBOR forward curve, reset quarterly. Payments are settled on a quarterly basis in March, June, September, and December
of each year.



The table below provides a summary of interest
rate swap contracts outstanding as at December 31, 2016:



|Period of Interest Rate Contracts    |  | Notional Amount (USD) |            
|------------------------------------ |  | --------------------- | -----------
|January 1, 2017 to December  1, 2017 |  | $                     | 277,500,000
|January 1, 2018 to December 31, 2018 |  |                       | 161,932,194
|January 1, 2019 to December 31, 2019 |  |                       | 41,995,998 
|January 1, 2020 to March 31, 2020    |  |                       | 5,877,827  



Page | 32







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Foreign Currency Forward Strip

On April 7, 2015, the Company executed foreign
currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period from April 7, 2015 to February 1,
2017 for notional amounts of $219,125,894 or US$175,666,949, with a weighted average price of $1.2474/US$1 and on July 10, 2015,
the Company executed foreign currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period from
August 4, 2015 to February 1, 2017 for notional amounts of $54,832,365 or US$43,130,678, with a weighted average price of $1.2713/US$1.



The table below provides a summary of currency
contracts outstanding as at December 31, 2016:



|Period of Currency Contracts        |  | Notional Amount (CAD) |            |  | Weighted Average Price (USD) |   |        | Notional Amount (USD) | 
|----------------------------------- |  | --------------------- | ---------- |  | ---------------------------- | - | ------ | --------------------- | 
|January 1, 2017 to February 1, 2017 |  | $                     | 10,547,404 |  |                              | $ | 1.2447 |                       | 



The following table shows amounts recognized
in the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2016 and 2015:



|                                                                   |  | Year ended        |           |  | Year ended        |  
|------------------------------------------------------------------ |  | ----------------- | --------- |  | ----------------- | -
|                                                                   |  | December 31, 2016 |           |  | December 31, 2015 |  
|Gain (loss) on derivative contracts - currency contracts           |  | $                 | 5,264,974 |  |                   | $
|Gain (loss) on derivative contracts - interest rate swap contracts |  |                   | 763,199   |  |                   |  
|Total                                                              |  | $                 | 6,028,173 |  |                   | $



| | 11. | SHAREHOLDERS’ EQUITY
| | --- | --------------------



| | i. | Authorized share capital
| | -- | ------------------------



Unlimited common shares, without par value.



There is no other class of shares in the Company.



| | ii. | Share capital
| | --- | -------------



The number of common shares issued and fully
paid as at December 31, 2016 is 159,818,833. There are no shares issued but not fully paid.



On March 31, 2015, the Company closed a Rights
Offering for gross proceeds of approximately $95 million. Under the Rights Offering, each registered holder of common shares of
the Company as of the record date established as of February 27, 2015, received one right (a “Right”) for each share
held. 5.69 Rights plus the sum of $4.00 was required to subscribe for one share (“Rights Share”). The Rights expired
on March 30, 2015 (the “Expiry Date”) with unexercised Rights becoming void and without value. The Rights were listed
on the TSX until their expiry.



The Company entered into a stand-by agreement
with Mr. Dermot Desmond, an insider of the Company and principal owner of Bottin (International) Investments Ltd. (“Bottin”)
under which he undertook to fully subscribe for those Rights Shares not otherwise subscribed for on the Expiry Date. Mr. Dermot
Desmond fully exercised his rights and received the previously agreed stand by fee of 3%. Mr. Desmond requested that payment be
received in common shares of the Company at a price of $4.00 per common share, which was subject to shareholder approval at the
Annual Special Meeting held on June 16, 2015. Shareholder approval was received and on June 25, 2015, Mr. Desmond was issued 712,500
common shares of the Company.



A total of 135,204,550 Rights were exercised
by shareholders for 23,761,783 shares.



Page | 33







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








| | iii. | Stock options, RSUs, DSUs and share-based payments reserve
| | ---- | ----------------------------------------------------------



On June 21, 2016, the Company, through its
Board of Directors and shareholders, adopted a long-term equity incentive plan (the “Plan”) which, among other things,
allows for the maximum number of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued
and outstanding shares at the time of the grant. The Board of Directors has the authority and discretion to grant stock option,
RSU and DSU awards within the limits identified in the Plan, which includes provisions limiting the issuance of options qualified
persons and employees of the Company to maximums identified in the Plan. As at December 31, 2016, the aggregate maximum number
of shares pursuant to options granted under the Plan will not exceed 15,981,883 shares, and there were 12,641,883 shares available
to be issued under the Plan. All stock options are settled by the issuance of common shares.



The following table summarizes information about the stock options
outstanding and exercisable:



|                                           |  | December 31, 2016 |           |   | December 31, 2015               |  
|------------------------------------------ |  | ----------------- | --------- | - | ------------------------------- | -
|                                           |  | Number of options |           |   | Weighted average exercise price |  
|Balance at beginning of year               |  |                   | 3,100,000 |   |                                 | $
|Granted during the year                    |  |                   | 200,000   |   |                                 |  
|Exercised during the year                  |  |                   | (130,000  | ) |                                 |  
|Expired during the year                    |  |                   | (150,000  | ) |                                 |  
|Balance at end of the year                 |  |                   | 3,020,000 |   |                                 | $
|Options exercisable at the end of the year |  |                   | 2,920,000 |   |                                 | $



The fair values of the stock options have been
estimated on the date of grant using the Black-Scholes option pricing model. The assumptions are presented below. Expected volatility
is calculated by reference to the weekly closing share price for a period that reflects the expected life of the options.



|                        |  | December 31,    |  | December 31,   
|----------------------- |  | --------------- |  | ---------------
|                        |  | 2016            |  | 2015           
|Exercise price          |  | $6.35 - $6.96   |  | $3.57 - $4.66  
|Expected volatility     |  | 29.27% - 34.06% |  | 34.65% - 37.76%
|Expected option life    |  | 2.5  - 5 years  |  | 5 years        
|Expected forfeiture     |  | none            |  | none           
|Expected dividend yield |  | 0%              |  | 0%             
|Risk-free interest rate |  | 0.58% - 0.66%   |  | 0.73% - 0.85%  



During the year ended December 31, 2016, 130,000
stock options were exercised for gross proceeds of $483,150 (2015 - $Nil). The aggregate market price of the common shares on the
exercise dates was $836,500 (2015 - $Nil).



Page | 34







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Subsequent to the year ended December 31, 2016,
stock options were granted and valued using the assumptions below:



|Date of grant                                                                      |  |   | February 6, 2017       |  
|---------------------------------------------------------------------------------- |  | - | ---------------------- | -
|Number of options granted                                                          |  |   | 100,000                |  
|Fair value per option                                                              |  | $ | 1.7097                 |  
|Fair value total for grant                                                         |  | $ | 170,970                |  
|Term of option                                                                     |  |   | 5 years                |  
|Vesting                                                                            |  |   | See description below* |  
|Assumptions:                                                                       |  |   |                        |  
|Exercise price                                                                     |  | $ | 5.86                   |  
|Expected volatility                                                                |  |   | 31.03                  | %
|Expected option life                                                               |  |   | 5 years                |  
|Expected forfeiture                                                                |  |   | none                   |  
|Expected dividend yield                                                            |  |   | 0                      | %
|Risk-free interest rate                                                            |  |   | 1.11                   | %
|*1/3 vested immediately, 1/3 will vest on February 6, 2018 and 2019, respectively.





Subsequent to December 31, 2016, 355,000 stock
options were exercised for gross proceeds of $1,576,850. The aggregate market price of the common shares on the exercise date was
$2,315,750. In addition, 135,000 stock options expired.



The following tables reflect the Black-Scholes
values, the number of stock options outstanding, the weighted average of options outstanding, and the exercise price of stock options
outstanding at December 31, 2016.



|At December 31, 2016 |  |               |           |  |           |  |           |          | 
|-------------------- |  | ------------- | --------- |  | --------- |  | --------- | -------- | 
|                     |  | Black-Scholes |           |  | Number of |  |           | Exercise | 
|Expiry Date          |  | Value         |           |  | Options   |  |           | Price    | 
|March 8, 2017        |  | $             | 428,738   |  |           |  | 185,000   |          | 
|January 31, 2018     |  |               | 133,700   |  |           |  | 100,000   |          | 
|March 10, 2018       |  |               | 129,300   |  |           |  | 100,000   |          | 
|March 17, 2018       |  |               | 64,250    |  |           |  | 50,000    |          | 
|May 13, 2018         |  |               | 156,700   |  |           |  | 100,000   |          | 
|July 2, 2018         |  |               | 802,500   |  |           |  | 500,000   |          | 
|February 13, 2019    |  |               | 274,600   |  |           |  | 200,000   |          | 
|April 13, 2020       |  |               | 1,399,715 |  |           |  | 885,000   |          | 
|October 14, 2020     |  |               | 133,220   |  |           |  | 100,000   |          | 
|December 10, 2020    |  |               | 676,260   |  |           |  | 600,000   |          | 
|June 30, 2021        |  |               | 119,990   |  |           |  | 100,000   |          | 
|November 3, 2021     |  |               | 213,910   |  |           |  | 100,000   |          | 
|                     |  | $             | 4,532,883 |  |           |  | 3,020,000 |          | 



The weighted average remaining contractual
life of the options outstanding at December 31, 2016 is 2.73 years (2015 - 3.45 years).



The Restricted and Deferred Share Unit plans
are full value phantom shares that mirror the value of the Company’s publicly traded common shares. Grants under the RSU
and DSU plan are made on a discretionary basis to qualified persons and employees of the Company subject to the Board of Directors’
approval. Under the 2016 RSU and DSU plan, RSUs vest according to the terms set out in the award agreement which are determined
on an individual basis at the discretion of the Board of Directors. Vesting under the RSU and DSU plan is subject to special rules
for death, disability and change in control. The awards can be settled through issuance of common shares or paid in cash, at the
discretion of the Board of Directors.



Page | 35







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








During the year ended December 31, 2016, 20,000
RSUs were granted with a fair value of $6.17 per unit and 310,000 RSUs were granted with a fair value of $6.49 per unit on the
grant dates.



For the year ended December 31, 2016, 10,000
RSUs vested and were settled through the issuance of 10,000 common shares. The market value of the RSUs on the date of settlement
were $67,200.



The fair value of each RSU issued is determined at the closing share
price on the grant date.



The following table shows the RSU awards which have been granted
and settled during the year:



|RSU                          |  | Number of units |         |   | Weighted average value |  
|---------------------------- |  | --------------- | ------- | - | ---------------------- | -
|Balance at beginning of year |  |                 | -       |   |                        | $
|RSUs awarded                 |  |                 | 330,000 |   |                        |  
|RSUs vested and issued       |  |                 | (10,000 | ) |                        |  
|Balance, December 31, 2016   |  |                 | 320,000 |   |                        | $



As at December 31, 2016, no DSU awards have been granted.



The share-based payments recognized as an expense for the year ended
December 31, 2016 and 2015 are:



|                               |  | December 31, |         |  | December 31, |  
|------------------------------ |  | ------------ | ------- |  | ------------ | -
|                               |  | 2016         |         |  | 2015         |  
|Expense recognized in the year |  |              |         |  |              |  
|for share-based payments       |  | $            | 468,573 |  |              | $



The share-based payment expense for the year ended December 31,
2016 and 2015 is included in consulting fees and payroll.



| | iv. | Earnings (loss) per share
| | --- | -------------------------



The following table sets forth the computation of basic
and diluted earnings (loss) per share:



Page | 36







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








|                                                                     |  | Year ended        |             |  | Year ended        |  
|-------------------------------------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|                                                                     |  | December 31, 2016 |             |  | December 31, 2015 |  
|Numerator                                                            |  |                   |             |  |                   |  
|Net income (loss) for the year                                       |  | $                 | 4,797,834   |  |                   | $
|                                                                     |  |                   |             |  |                   |  
|Denominator                                                          |  |                   |             |  |                   |  
|For basic - weighted average number of shares outstanding            |  |                   | 159,743,601 |  |                   |  
|Effect of dilutive securities                                        |  |                   | 630,697     |  |                   |  
|For diluted - adjusted weighted average number of shares outstanding |  |                   | 160,374,298 |  |                   |  
|                                                                     |  |                   |             |  |                   |  
|Earnings (Loss) Per Share                                            |  |                   |             |  |                   |  
|Basic                                                                |  | $                 | 0.03        |  |                   | $
|Diluted                                                              |  | $                 | 0.03        |  |                   | $



For the year ended December 31, 2016, 2,289,303
stock options are not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (2015
– 3,100,000).



| | v. | Shareholder rights plan
| | -- | -----------------------



On September 7, 2010, the Board of Directors
of the Company approved an amended Shareholder Rights Plan (the “Rights Plan”), which was ratified by the shareholders
at the Annual General Meeting on November 18, 2010. The Rights Plan is intended to provide all shareholders of the Company with
adequate time to consider value enhancing alternatives to a take-over bid and to provide adequate time to properly assess a take-over
bid without undue pressure. The Rights Plan is also intended to ensure that the shareholders of the Company are provided equal
treatment under a takeover bid.



| | 12. | INCOME TAXES
| | --- | ------------



Rate Reconciliation

The provision for income tax differs from the
amount that would have resulted by applying the combined Canadian statutory income tax rates of approximately 26.5% (2015 –
26.5%):



|                                                        |  | December 31, 2016 |            |   | December 31, 2015 |  
|------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|                                                        |  |                   |            |   |                   |  
|Income (loss) before income taxes                       |  | $                 | 4,797,834  |   |                   | $
|                                                        |  |                   | 26.5       | % |                   |  
|Tax expense (recovery) calculated using statutory rates |  |                   | 1,271,426  |   |                   |  
|                                                        |  |                   |            |   |                   |  
|(Earnings not taxable) expenses not deductible          |  |                   | (1,361,089 | ) |                   |  
|                                                        |  |                   |            |   |                   |  
|Change in tax benefits not recognized                   |  |                   | 89,663     |   |                   |  
|Income tax expenses (recovery)                          |  | $                 | -          |   |                   | $



Page | 37







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Components of deferred tax assets and liabilities



|                               |  | December 31, 2016 |            |   | December 31, 2015 |  
|------------------------------ |  | ----------------- | ---------- | - | ----------------- | -
|Deferred tax liability         |  |                   |            |   |                   |  
|Loan facility                  |  | $                 | (5,266,414 | ) |                   | $
|Deferred tax asset             |  |                   |            |   |                   |  
|Non-capital loss carryforwards |  |                   | 5,266,414  |   |                   |  
|                               |  | $                 | -          |   |                   | $



Unrecognized deferred tax assets



Deductible temporary differences for which
deferred tax assets have not been recognized are attributable to the following:



|                                          |  | December 31, 2016 |             |  | December 31, 2015 |  
|----------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|Property and equipment                    |  | $                 | 4,801,842   |  |                   | $
|Decommissioning and restoration liability |  |                   | 24,266,347  |  |                   |  
|Loss carryforwards                        |  |                   | 88,965,439  |  |                   |  
|Share and debt issuance cost              |  |                   | 22,881,584  |  |                   |  
|Loan facility                             |  |                   | 13,504,000  |  |                   |  
|Derivative liabilities                    |  |                   | 3,008,549   |  |                   |  
|                                          |  | $                 | 157,427,761 |  |                   | $



Tax losses not recognized expire as noted below.
The deductible temporary differences do not expire under current tax legislation.



As at December 31, 2016, the Company had the
following losses available for carry forward and certain other tax attributes as follows:



|                                    |  | Amounts |             |  | Expiry Date
|----------------------------------- |  | ------- | ----------- |  | -----------
|Tax basis of property and equipment |  | $       | 659,241,647 |  |            
|Capital loss carryforwards          |  | $       | 10,142,866  |  |            
|Non-capital loss carryforwards      |  | $       | 98,695,836  |  |            



| | 13. | RELATED PARTIES
| | --- | ---------------



The Company’s related parties include
the operator of the GK Mine, Dermot Desmond, Bottin, key management and their close family members, and the Company’s directors.
Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds have common
members of key management. International Investment and Underwriting (“IIU”) is also a related party since it is controlled
by Mr. Dermot Desmond.



Related party transactions are recorded at
their exchange amount, being the amount agreed to by the parties. Outstanding balances are settled in cash.



The Company had the following transactions
and balances with its related parties including key management personnel including the Company’s directors, Dermot Desmond,
Bottin, IIU, the operator of the GK Mine, and Kennady Diamonds. The transactions with key management personnel are in the nature
of remuneration. The transactions with the operator of the GK Mine relate to the funding of the Company’s interest in the
GK Mine for the current year’s expenditures, capital additions, management fee, and pre-production sales related to the
49% share of fancies and special diamonds. The transactions with Kennady Diamonds are for a monthly management fee charged by
the Company for reimbursement of expenses paid on behalf of Kennady Diamonds. The transactions with IIU are for the director fees
and travel expenses of the Chairman of the Company.



As discussed in Note 11, in 2015 the Company
issued 712,500 common shares or the equivalent of $2,850,000 to Mr. Dermot Desmond as a standby fee.



Page | 38







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








The balances as at December 30, 2016 and 2015
were as follows:



|                                                     |  | December 31, |         |  | December 31, |  
|---------------------------------------------------- |  | ------------ | ------- |  | ------------ | -
|                                                     |  | 2016         |         |  | 2015         |  
|Payable to the operator of the GK Mine*              |  | $            | 926,079 |  |              | $
|Receivable from Kennady Diamonds                     |  |              | -       |  |              |  
|Payable to International Investment and Underwriting |  |              | 52,762  |  |              |  
|Payable to key management personnel                  |  |              | 3,279   |  |              |  



*included in
accounts payable and accrued liabilities



The transactions for the year ended December
31, 2016 and 2015 were as follows:



|                                                      |  | Year ended        |           |  | Year ended        |  
|----------------------------------------------------- |  | ----------------- | --------- |  | ----------------- | -
|                                                      |  | December 31, 2016 |           |  | December 31, 2015 |  
|The total of the transactions:                        |  |                   |           |  |                   |  
|Kennady Diamonds                                      |  | $                 | 90,000    |  |                   | $
|International Investment and Underwriting             |  |                   | 52,762    |  |                   |  
|Remuneration to key management personnel              |  |                   | 2,077,129 |  |                   |  
|Pre-production sales to De Beers Canada Inc.          |  |                   | 3,622,441 |  |                   |  
|Assets purchased from De Beers Canada Inc.            |  |                   | 552,838   |  |                   |  
|Management fee charged by the operator of the GK Mine |  |                   | 5,211,315 |  |                   |  



The remuneration expense of directors and other
members of key management personnel for the year ended December 30, 2016 and 2015 were as follows:



|                                                                    |  | Year ended        |           |  | Year ended        |  
|------------------------------------------------------------------- |  | ----------------- | --------- |  | ----------------- | -
|                                                                    |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                                                    |  |                   |           |  |                   |  
|Consulting fees, director fees, bonus and other short-term benefits |  | $                 | 1,608,556 |  |                   | $
|Share-based payments                                                |  |                   | 468,573   |  |                   |  
|                                                                    |  | $                 | 2,077,129 |  |                   | $



In accordance with International Accounting
Standard 24 Related Parties, key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of
the Company.



| | 14. | CAPITAL MANAGEMENT
| | --- | ------------------





The Company considers its capital structure
to consist of debt, share capital, share-based payments reserve, and net of deficit. The Company manages its capital structure
and makes adjustments to it, in order to have the funds available to support the acquisition, exploration and development of mineral
properties and ongoing operations (Note 1). The Board of Directors does not establish quantitative return on capital criteria for
management, but rather relies on the expertise of the Company’s management to sustain future development of the business.



Page | 39







MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Consolidated Financial Statements

As at December 31, 2016 and 2015 and

For the Years Ended December 31, 2016 and 2015

In Canadian Dollars








Management reviews its capital management approach
on an ongoing basis.



The Company’s capital is summarized as
follows:



|                             |  | December 31, |              |   | December 31, |  
|---------------------------- |  | ------------ | ------------ | - | ------------ | -
|                             |  | 2016         |              |   | 2015         |  
|Loan facility                |  | $            | 425,903,138  |   |              | $
|Share capital                |  |              | 472,995,222  |   |              |  
|Share-based payments reserve |  |              | 5,018,181    |   |              |  
|Deficit                      |  |              | (163,582,849 | ) |              |  
|                             |  | $            | 740,333,692  |   |              | $



There were no changes in the Company’s
approach to capital management during the year ended December 31, 2016. The Company and its subsidiaries are subject to externally
imposed capital requirements in accordance with the Loan Facility. All minimum reserve account amounts, as described in Note 9,
must be fulfilled before any excess cash can be distributed as dividends. Based on the events described in Note 1, the Company
will need to seek waivers and amendments from the reserve funding requirements of the Loan Facility and may also consider the need
to seek additional share capital among its options to maintain future compliance.



| | 15. | SEGMENTED REPORTING
| | --- | -------------------



The Company has determined that it has only one operating segment.



Page | 40











Management’s
Discussion and Analysis



For the Year Ended
December 31, 2016



TSX: MPVD |NASDAQ:
MPVD











MOUNTAIN PROVINCE DIAMONDS INC.



MANAGEMENT’S DISCUSSION AND ANALYSIS



FOR THE YEAR ENDED DECEMBER 31, 2016



|TABLE OF CONTENTS                                           | Page
|----------------------------------------------------------- | ----
|                                                            |     
|Fourth Quarter 2016 Highlights                              | 3   
|Company Overview                                            | 4   
|Gahcho Kué Diamond Mine                                     | 5   
|Financing Transactions                                      | 10  
|Results of Operations                                       | 13  
|Financial Review                                            | 14  
|Summary of Quarterly Results                                | 15  
|Costs and Expenses                                          | 16  
|Income and Resource
    Taxes                               | 17  
|Financial Position
    and Liquidity                        | 17  
|Off-Balance Sheet Arrangements                              | 19  
|Financial Instruments Risks                                 | 19  
|Significant Accounting Judgments, Estimates and Assumptions | 21  
|Standards and Amendments to Existing Standards              | 22  
|Related Party Transactions                                  | 23  
|Contractual Obligations                                     | 24  
|Subsequent Events                                           | 24  
|Other MD&A Analysis Requirements                            | 25  
|Disclosure of Outstanding Share Data                        | 26  
|Controls and Procedures                                     | 26  
|Cautionary Note Regarding
    Forward-Looking Statements    | 27  



This Management’s Discussion and
Analysis (“MD&A”) of March 28, 2017 provides a review of the financial performance of Mountain Province Diamonds
Inc. (the “Company” or “Mountain Province” or “MPV”) and should be read in conjunction with
the audited consolidated financial statements and the notes thereto as at December 31, 2016 and 2015 and for the years ended December
31, 2016 and 2015.



The audited consolidated financial statements
of the Company were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”).



All amounts are expressed in Canadian
dollars unless otherwise stated.



Technical information included in this
MD&A regarding the Company’s mineral property has been reviewed by Carl Verley, a Director of the Company and a Qualified
Person as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Properties (“NI 43-101”).



Additional information, related to the
Company is available on SEDAR at http://sedar.com/ and on EDGAR at http://www.sec.gov/edgar.shtml.



Page 2







HIGHLIGHTS FOR 2016 AND TO DATE



| | · | Ramp up to commercial production commenced on August 1, 2016. The Gahcho Kué Diamond Mine (“GK
Mine”) declared commercial production (defined
below) subsequent to year end on March 1, 2017.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Mining of overburden, waste rock and ore in the 5034 open pit for the twelve months ended December 31,
2016 was approximately 23.7 million tonnes, with approximately 66,000 tonnes of ore stockpiled at year end on a 100% basis.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | From
                                         August 1 to December 31, 2016, the GK Mine on a 100 percent basis processed approximately
                                         565,000 tonnes of ore through the process plant and recovered approximately 949,000 carats
                                         for an average grade of approximately 1.68 carats/tonne.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Approximately
                                         1,361,223 carats were produced prior to declaring commercial production, of which approximately
                                         668,449 carats or 49% are the Company’s share.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | From
                                         the commencement of ramp up on August 1, 2016 to December 31, 2016, three splits of the
                                         diamond production took place at the Diavik Diamond Mines Inc. (‘DDMI’) sorting
                                         facility based in Yellowknife.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Under
                                         the terms of the Gahcho Kué Joint Venture Agreement, the Company and De Beers
                                         Canada Inc. (“De Beers”), (collectively, the “Participants”)
                                         each bid for all Fancies and Special Diamonds. Fancies are diamonds of a fancy or unusual
                                         colour and Specials are diamonds weighing 10.8 carats or more.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | As at March 28, 2017, the Company has conducted two diamond sales through its diamond broker based in
Antwerp, Belgium and a third diamond sale is currently underway and scheduled to be completed on March 29, 2017. The results of
the Company’s first quarter diamond sales will be announced with the 2017 first quarter financial results.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                         Work in Progress (‘WIP’) inventory on hand prior to declaring commercial
                                         production was approximately 257,637 tonnes, estimated at a cost of approximately $8.5
                                         million. The Company expects to sell approximately 201,000 carats based on the expected
                                         grade, being its 49% share of the WIP inventory. It is expected that due to the timing
                                         of production and sales, the Company will only reflect revenue during the second quarter
                                         of 2017.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | · | At December 31, 2016, the Company had drawn US$332
million from the Loan Facility and drawn an additional US$25 million as at March 28, 2017. Commencing on March 31, 2017, the Company
is subject to maintaining a cash call reserve account balance based upon certain budgeted amounts which will vary over the term
of the Loan Facility. Approximately US$27.9 million was originally required to be deposited in the cash call reserve account on
March 31, 2017. On March 27, 2017, the Company received a waiver deferring the requirement to fund the cash call reserve account
to May 31, 2017. As conditions of the waiver, certain information must be furnished to the lenders by May 31, 2017 including:
 an updated financial model and life of mine plan; a diamond pricing valuation comparison between production to date and
historic samples from April 2011 to be prepared by the lender’s independent diamond consultant; and a reconciliation of
cumulative diamond production including a statistical comparison of total diamond carats, size and quality. The failure to comply
with any of the requirements of the waiver constitutes an event of default. Management expects the Company will seek additional
waivers or amendments from the lenders as to the timing and amount of all of these funding requirements. There are no assurances
the lenders will accommodate further waivers or amendments the Company will seek. If the Company is unable to fully fund the required
reserve accounts, or is unable to comply with other financial covenants, and is not successful in obtaining suitable waivers or
amendments, it would result in an event of default, and the Loan Facility outstanding balance would become payable on demand.
Further, management may seek alternative sources of financing. These conditions indicate the existence of a material uncertainty
that results in substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do
not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company
be unable to continue as a going concern. These adjustments may be material.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page 3







The following table summarizes key operating
and financial highlights for the year ended December 31, 2016.





|                                                  |  |                   |  | Year ended |            
|------------------------------------------------- |  | ----------------- |  | ---------- | -----------
|                                                  |  | December 31, 2016 | 
|                                                  |  |                   |  |            |            
|GK Operating data                                 |  |                   |  |            |            
|Mining                                            |  |                   |  |            |            
|*Ore tonnes mined 1                               |  | kilo tonnes       |  |            | 624        
|*Ore tonnes processed                             |  | kilo tonnes       |  |            | 565        
|*Waste tonnes mined 2                             |  | kilo tonnes       |  |            | 23,700     
|*Total tonnes mined                               |  | kilo tonnes       |  |            | 24,324     
|*Ore in stockpile                                 |  | number of days    |  |            | 7          
|                                                  |  |                   |  |            |            
|Processing                                        |  |                   |  |            |            
|*Average plant throughput                         |  | tonnes per day    |  |            | 3,693      
|*Average diamond recovery                         |  | carats per tonne  |  |            | 1.68       
|                                                  |  |                   |  |            |            
|Production and sales                              |  |                   |  |            |            
|*Diamonds produced 3                              |  | carats            |  |            | 949,000    
|Approximate diamonds produced - Mountain Province |  | carats            |  |            | 465,010    
|Financial data                                    |  |                   |  |            |            
|Cash                                              |  | $                 |  |            | 6,843,704  
|Restricted cash                                   |  | $                 |  |            | 83,878,089 
|Working capital                                   |  | $                 |  |            | (30,386,834
|Total debt                                        |  | $                 |  |            | 425,903,138
|Total assets                                      |  | $                 |  |            | 783,761,882
|Total liabilities                                 |  | $                 |  |            | 469,331,328





1. Ore mined since commencement of ramp-up on August 1, 2016

2. Waste tonnes mined since January 1, 2016

3. Diamonds produced on 100% basis as per operator, but before cleaning and splitting

* at 100%



COMPANY OVERVIEW



Mountain Province is a Canadian-based
resource company listed on the Toronto Stock Exchange and NASDAQ under the symbol ‘MPVD’. The Company’s registered
office and its principal place of business is 161 Bay Street, Suite 1410, P.O. Box 216, Toronto, ON, Canada, M5J 2S1. The Company
through its wholly owned subsidiaries 2435572 Ontario Inc. and 2435386 Ontario Inc., holds a 49% interest in the GK Mine, located
in the Northwest Territories of Canada. De Beers Canada Inc. (“De Beers”) holds the remaining 51% interest. The Joint
Arrangement between the Company and De Beers is governed by the 2009 amended and restated Joint Venture Agreement. The Company’s
primary asset is its 49% interest in the GK Mine.



The first blast in the quarry at the GK
Mine occurred on December 13, 2013 and on September 25, 2014, the GK Mine received approval of a Type A Land Use Permit, allowing
the GK Mine to commence full scale construction.



Page 4







Physical construction of the GK Mine was
substantially completed at June 30, 2016 and the commissioning of the plant took place during July 2016. Ramp-up to commercial
production commenced on August 1, 2016 and commercial production was declared on March 1, 2017 after the GK mine achieved approximately
70% of nameplate capacity of 8,333 tonnes/day over a 30-day period.



Under the Gahcho Kué Joint Venture
Agreement discussed below, commercial production for sunk cost repayment purposes is based on the first day after 30 days (excluding
maintenance days) of achieving and maintaining 70% of designed production capacity. The $10 million sunk cost repayment on reaching
commercial production is due March 31, 2017. For royalty purposes for the Government of the Northwest Territories, commercial
production is based on the first day after 90 days of achieving 60% of designed production capacity.



The Company’s strategy is to mine
and sell its 49% share of rough diamonds at the highest price on the day. Mountain Province’s long term view of the rough
diamond market remains positive, based on the outlook for a tightening rough diamond supply and growing demand, particularly in
developing markets such as China and India, resulting in real, long term price growth.



The Company held its first sales of pre-commercial
production diamonds subsequent to the year end during January and February 2017 and will be holding sales approximately every
five weeks thereafter.



GAHCHO KUÉ DIAMOND MINE



Gahcho Kué Joint Venture Agreement



The GK Mine is located in the Northwest
Territories, about 300 kilometers northeast of Yellowknife. The mine covers approximately 10,353 acres, and encompasses four mining
leases (numbers 4341, 4199, 4200, and 4201) held in trust by the Operator, De Beers. The Project hosts four primary kimberlite
bodies – 5034, Hearne, Tuzo and Tesla. The four main kimberlite bodies are within two kilometers of each other.



The GK Mine is an unincorporated Joint
Arrangement between De Beers (51%) and Mountain Province (49%) through its wholly owned subsidiaries. On October 2, 2014, Mountain
Province assigned its 49% interest to its wholly-owned subsidiary 2435386 Ontario Inc. to the same extent as if 2435386 Ontario
Inc. had been the original party to the Joint Venture Agreement. The Company accounts for the mine as a joint operation in accordance
with International Financial Reporting Standard 11, Joint Arrangements. Mountain Province through its subsidiaries holds an undivided
49% ownership interest in the assets, liabilities and expenses of the GK Mine.



Provisions of the Joint Arrangement include
the following:



| | (a) | The Participants’ continuing
                                         interests in the GK Mine will be Mountain Province 49% and De Beers 51%, except for normal
                                         dilution provisions which are applicable to both Participants;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Each Participant markets their
                                         own proportionate share of diamond production in accordance with their participating
                                         interest;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Each Participant has contributed
                                         their proportionate share to the development costs and will contribute their proportionate
                                         share of operating costs;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Material strategic and operating
                                         decisions, including plans and budgets, will be made by consensus of the Participants
                                         as long as each Participant has a participating interest of 40% or more;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | The Participants have agreed
                                         that the sunk historic costs to the period ended on December 31, 2008 will be limited
                                         to $120 million;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 5







| | (f) | The 2009 Agreement’s provision
                                         for consensus decision-making for material strategic and operating decisions provides
                                         the Company with joint control of the Project with De Beers;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | The Company will repay De Beers
                                         $59 million (representing 49% of the agreed sum of $120 million) plus interest compounded
                                         on the outstanding amounts in settlement of the Company’s share of the agreed historic
                                         sunk costs. At December 31, 2016, the following amounts remain to be settled and will
                                         be accrued on declaration of commercial production which occurred on March 1, 2017:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | $10
                                         million within 90 days following the commencement of commercial production This amount
                                         will be paid from the US$370 million Loan Facility during March, 2017; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         balance of approximately $24.4 million plus accumulated interest of approximately $25.8
                                         million within 18 months following commencement of commercial production. At December
                                         31, 2016, accumulated interest is approximately $22.0 million. Accumulated interest is
                                         calculated at the prevailing LIBOR rate plus 5%. The remaining $24.4 million plus the
                                         accumulated interest of $25.8 million will be paid out of future cash flows.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2435386 Ontario Inc. has agreed that the
Company’s marketing rights under the 2009 Agreement may be diluted if the Company defaults on the remaining repayments described
above, if and when such payments become due.



The GK Mine has been successfully constructed
and commissioned, and the Company has funded its 49% share of these costs. The underlying value and recoverability of the amounts
shown in the consolidated financial statements for the Company’s Mineral Properties is dependent upon having access to necessary
working capital and future profitable production.



Between 2014 and 2016, the Company and
De Beers signed agreements allowing the Operator to utilize De Beers’ credit facilities to issue reclamation and restoration
security deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3%
fee for the share of the security deposits issued. As at December 31, 2016, the Company’s share of the security deposits
issued were $23,419,125 (2015 - $14,378,228).



Gahcho Kué Capital Program



The budgeted capital cost to construct
the GK Mine as per the 2014 Feasibility Study NI 43-101 Technical Report was $1,019 million, excluding a management fee of 3%
payable to De Beers who are both a Participant and also the Operator of the mine.



For the year ended December 31, 2016,
approximately $404.6 million (excluding management fee) was required by the Operator. Included in the $404.6 million is $263.8
million relating to the capital budget of $1,019 million, $37.5 million relating to additional estimated costs to complete the
construction of the GK Mine, $14.4 million relating to the remaining minor out-of-scope purchases and movements in foreign exchange,
commissioning and ramp-up operating costs of $69.0 million, $1.7 million for sustaining capital and advanced working capital of
$18.2 million.



The Company contributed approximately
$204.2 million, which included a management fee of approximately $5.9 million. Of the $204.2 million an amount of $178.9 million
was funded from the Loan Facility and the remaining amount of approximately $25.3 million from the Cost Overrun Reserve Account.



For the period, January 1, 2017 to February
28, 2017, funding of approximately $24.4 million (excluding management fee) was required by the Operator. Included in this amount
are ramp-up operating costs of $21.9 million, $1.2 million for working capital and the remaining $1.3 million for original capital
related costs. The Company will fund approximately $12.0 million representing its proportionate share.



Page 6







Table 1 below compares the original budget
against the forecast to completion and commercial production.



Table
1

Capital
Forecast by Work Breakdown Structure (WBS) (Presented on a 100% basis)



|WBS                                         |  | Description                       |  | CAD (M) ORIGINAL BUDGET |         |  | CAD (M) ACTUAL | 
|------------------------------------------- |  | --------------------------------- |  | ----------------------- | ------- |  | -------------- | 
|1000                                        |  | Mine Operations                   |  |                         | 197.3   |  |                | 
|2000                                        |  | Site Development & Roadworks      |  |                         | 10.6    |  |                | 
|3000                                        |  | Process Facilities                |  |                         | 140.1   |  |                | 
|4000                                        |  | Utilities                         |  |                         | 50.2    |  |                | 
|5000                                        |  | Ancillary Buildings               |  |                         | 53.1    |  |                | 
|6000                                        |  | Waste & Water Management          |  |                         | 6.3     |  |                | 
|7000                                        |  | Off-site Facilities               |  |                         | 0.4     |  |                | 
|Subtotal - Direct Costs =                   |  |                                   |  |                         | 458.0   |  |                | 
|8000                                        |  | Owner’s Management Costs          |  |                         | 104.2   |  |                | 
|9000                                        |  | Indirect Costs                    |  |                         | 375.7   |  |                | 
|Subtotal – Owners + Indirect Costs =        |  |                                   |  |                         | 479.9   |  |                | 
|9900                                        |  | Contingency                       |  |                         | 81.1    |  |                | 
|Total - Projects                            |  |                                   |  |                         | 1,019.0 |  |                | 
|Management Reserve                          |  | Out-of-scope and foreign exchange |  |                         | –       |  |                | 
|Total – Projects and Management
    Reserve |  |                                   |  |                         | 1,019.0 |  |                | 



Page 7







Gahcho Kué Production Forecast



Management expects that the GK mine will
produce approximately 4.4 million carats for the year ended December 2017 and the Company expects to receive approximately 2.2
million carats, being its 49% share of production.



During 2017, the Company expects to sell
approximately 2 million carats of diamonds, including pre-commercial production sales.



An update to 2017 production is expected to be completed by
mid-year.



Gahcho Kué Mineral Reserve



On April 2, 2014, Mountain Province announced
a Mineral Reserve estimate for the GK Mine. The Mineral Reserve is the Indicated Resource contained in the open pit mine that
can be mined and processed profitably and is scheduled for treatment in the feasibility study life of mine plan. The Gahcho Kué
Mineral Reserve Summary estimate as of December 31, 2016 is summarized in Table 2 below.



Table 2

Gahcho Kué Mineral Reserves (as of December 31, 2016)
(presented on a 100% basis)



|                   |  |                   |  | Tonnes |      |  | Carats |  |      | Grade | 
|------------------ |  | ----------------- |  | ------ | ---- |  | ------ |  | ---- | ----- | 
|Kimberlite Deposit |  | Classification    |  | Mt     |      |  | Mct    |  |      | Cpht  | 
|5034               |  | Probable Reserve  |  |        | 12.8 |  |        |  | 22.3 |       | 
|Hearne             |  | Probable Reserve  |  |        | 5.6  |  |        |  | 11.7 |       | 
|Tuzo               |  | Probable Reserve  |  |        | 16.4 |  |        |  | 20.6 |       | 
|Summary            |  | Probable Reserves |  |        | 34.8 |  |        |  | 54.6 |       | 



Notes:



(1) Mineral Reserves/Resources are reported at a bottom cut-off
of 1.0 mm.
(2) Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.
(3) Tonnes and carats are rounded to the nearest 100,000.
(4) Tuzo tonnes exclude 0.6 Mt of a granite raft and CRX_BX.

(5) Probable Reserves for 5034 are net of production that occurred
in 2016.

(6) Mt = Metric tonnes, Mct = Million carats, Cpht = Carats
per hundred tonnes.



Page 8







Diamond Outlook



The Global Diamond Report 2016 published
by Bain & Company Inc., reported that restocking by midstream buyers of rough diamonds, following their inventory sell-off
in late 2015, produced growth of around 20% in rough-diamond sales during the first half of 2016. However, continued strong rough-diamond
sales in 2016 may again lead to overstocked midstream inventories if retail demand does not strengthen proportionately. Declining
sales at major jewelry retailers in the first half of 2016 indicate a possible demand slowdown in the U.S. and China.



Also, the global diamond industry is facing
disruption that could stretch through the first half of 2017, as a result of the Indian government’s radical move to abolish
most of the nation’s bank notes overnight.



In the western Indian city of Surat craftsmen
cut and polish approximately 80 percent of the world’s diamonds, a business dependent on cash and the demonetization of
the high-value banknotes from November 8, 2016 has prevented most of the manufacturing industry from operating. Thousands of diamond
brokers in the area are also doing little business which had negatively impacted the demand and price for rough diamonds.



Gahcho Kué Diamond Mine Update



Procurement Progress



As at December 31, 2016, procurement for
the construction of the mine was 100% complete with only ongoing field purchasing remaining (costs to be incurred during ramp
up to commercial production). During the quarter ended December 31, 2016, with the various equipment and construction material
at site, the focus was on the close-out of the various procurement packages, which is expected to be completed by April 2017.



Since commencing construction in December
2013 to December 31, 2016, materials, equipment and services totaling $1,049 million of the revised $1,093.6 million forecast
have been ordered and received at site, which represents approximately 96.0% of the total material, equipment and services costs
for the construction of the Mine. The balance will be spent in Q1 2017 during the ramp up to commercial production as discussed
above.



Mining



For the year ended December 31, 2016,
on a 100% basis, a total of 23.7 million tonnes of overburden, waste rock and ore had been extracted from the 5034 open pit, compared
to a plan of approximately 23.2 million tonnes (102% of plan). A total of 624,000 tonnes of ore have been delivered to the stockpile
compared to a plan of 626,000 tonnes (99%). From August 1 to December 31, 2016, 565,000 tonnes of kimberlite ore was processed
with 949,000 carats (100% basis) being recovered at a grade of 1.68 carats per tonne.



At December 31, 2016, there was approximately
66,000 tonnes (100% basis) of stockpiled ore. Sufficient ore is available in the 5034 pit to meet the planned process throughput
rate. The stockpiling of ore was limited due to mining strategies related to minimizing loader tramming distances and reduced
ore re-handle. Moving into 2017, the Operator will continue to build the stockpile as planned.



Page 9









At December 31, 2016, the Company had 95,986
carats in available for sale inventory, of which the Company sold 49,420 carats in January 2017. The remaining 46,566 carats were
sold in February 2017.



Gahcho Kué Capital Cost Summary



At December 31, 2016, the Operator of
the GK Mine issued purchase orders of $1,055 million of the approved $1,056.5 million budget. As mentioned above, approximately
$1,049.4 million of materials, equipment and services had been received leaving a balance of approximately $7.1 million to be
received or incurred during the ramp up to commercial production. Based on the approved forecast, approximately $1.5 million remains
uncommitted before out of scope and foreign exchange. These orders will be placed from January 2017 to completion. The above amounts
exclude commitments for ramp-up costs, working capital and minor out-of-scope purchases and movements in foreign exchange.



FINANCING
TRANSACTIONS



Loan Facility



On April 2, 2015, the Company through
its subsidiary, 2435572 Ontario Inc. entered into a Loan Facility of US$370 million with a syndicate of lenders led by Natixis
S.A., Scotiabank and Nedbank Ltd. and including ING Capital LLC, Export Development Canada and the Bank of Montreal. On April
29, 2015, Société Générale joined the lender syndicate. The lenders hold security over the Company’s
49% interest in the GK Mine held through the Company’s subsidiaries. The term of the Loan Facility is seven years and the
interest rate is U.S. dollar LIBOR plus 5.5 percent. The Loan Facility drawdown schedule commenced on April 7, 2015 and ends on
September 30, 2017 to correspond with the projected construction period and the required interest payments under the Loan Facility
up to September 30, 2017. At March 31, 2017, the Company is subject to maintaining a cash call reserve account balance in the
amount of approximately US$27.9 million. On March 27, 2017, the lenders have provided a waiver indicating the amount is now to
be funded by May 31, 2017. At September 30, 2017, certain financial covenants related to servicing the debt, as defined by the
Loan Facility agreement, become effective.



The table below describes the initial
funding of minimum reserve balance requirements by quarter:



|                                        |  | March 31, 2017 |            |  | June 30, 2017 |   |   | September 30, 2017 |  |   | December 31, 2017 |  |  | March 31, 2018 |            |  | Total |  
|--------------------------------------- |  | -------------- | ---------- |  | ------------- | - | - | ------------------ |  | - | ----------------- |  |  | -------------- | ---------- |  | ----- | -
|Cash call reserve account*              |  | US$            | 27,900,000 |  |               | $ | - |                    |  | $ | -                 |  |  | $              | -          |  |       | $
|Sunk cost reserve account**             |  |                | -          |  |               |   | - |                    |  |   | 43,000,000        |  |  |                | -          |  |       |  
|Debt service reserve account            |  |                | -          |  |               |   | - |                    |  |   | 57,100,000        |  |  |                | 32,700,000 |  |       |  
|Environment reclamation reserve account |  |                | -          |  |               |   | - |                    |  |   | -                 |  |  |                | 18,200,000 |  |       |  
|                                        |  | US$            | 27,900,000 |  |               | $ | - |                    |  | $ | 100,100,000       |  |  | $              | 50,900,000 |  |       | $



* As of March 27, 2017, the lenders have
provided a waiver indicating the amount is now to be funded by May 31, 2017

** The sunk cost reserve account is to
be funded by September 1, 2017



Cash call reserve account minimum balance
represents the cash calls expected to be paid to the Operator in the next three months.

Sunk cost reserve account minimum balance
represents the total expected sunk cost payments to the operator as described in note 7 of the financial statements.

Debt service reserve account minimum balance
represents the principal and interest payments on the loan facility expected to be paid to the lenders in the next nine months.

Environment reclamation reserve account
minimum balance represents the Company’s share of all letters of credit issued and expected to be issued in the next nine
months to any Government agency pursuant to any environmental or social permit.





As mentioned above, at March 31, 2017,
the Company is subject to maintaining a cash call reserve account balance in the amount of approximately US$27.9 million. As of
March 27, 2017, the Company has received a waiver from the lenders on the amounts due to be funded by March 31, 2017 until May
31, 2017. The Company does not expect to be able to comply with the other reserve account funding requirements at September 30,
2017 and accordingly, the Company expects to seek additional waivers or amendments from the lenders as to the timing and amount
of all of these funding requirements. There are no assurances the lenders will accommodate further waivers or amendments the Company
will seek.



Being able to comply with the covenants, and/or maintain sufficient liquidity, is dependent upon a number
of factors including, realized diamond prices, exchange rates, operating costs and production levels. Adverse changes in one or
more of these factors negatively impact the Company’s ability to comply with the covenants and/or maintain sufficient liquidity.



Page 10









At March 1, 2017, on declaring commercial
production, the Company had funded its 49% share of the development of the GK Mine. Drawdowns under the Loan Facility were subject
to certain conditions, including approval of a quarterly cost-to-complete report prepared by an independent technical consultant.
In addition to the Loan Facility, the Company funded a cost overrun reserve account as discussed below, which was restricted to
fund potential cost overruns of the Project up to September 30, 2017, and use of this account must be approved by the lenders.
At September 30, 2017, the Company can use the remaining balance available in the restricted cost overrun account to fund a portion
of the above reserve accounts.



The Loan Facility required the Company
to arrange a US$75 million cost overrun facility or $93,345,000, which was deposited into a restricted cost overrun account in
2435572 Ontario Inc. At December 31, 2016, $23,785,818 had been used to fund minor out-of-scope items and foreign exchange variances
approved by the Joint Venture Management Committee and the lenders. For the year ended December 31, 2016, interest totaling $675,921
(2015 - $627,435) had been earned in the restricted cost overrun account. At December 31, 2016, the restricted cost overrun account
balance was $70,862,538.





The Loan Facility was used to fund the
Company’s share of the remaining construction cost of the GK Mine, associated fees, operating costs during the build-up to
commercial production, general and administrative costs, interest costs and repayment of $10 million of sunk costs, which became
payable to De Beers after achievement of commercial production as defined in the Gahcho Kué Joint Venture Agreement as discussed
above.





At March 28, 2017, the Company had drawn
US$357 million against the US$370 million Loan Facility. The remaining US$13 million of the Loan Facility will be used to fund
the interest, interest rate swap and the commitment fee payments due on June 30, 2017 and September 30, 2017, respectively. Included
in the US$370 million is an amount of US$5 million drawn and held in a restricted bid reserve account for the bidding of Fancies
and Specials.



The Company has entered into U.S. dollar
interest rate swaps (“IRS”) to manage interest rate risk associated with the U.S. dollar variable rate Loan Facility
and into foreign currency forward strip contracts to mitigate the risk that a devaluation of the U.S. dollar against the Canadian
dollar would reduce the Canadian dollar equivalent to the U.S. dollar Loan Facility and the Company would not have sufficient
Canadian dollar funds to develop the GK Mine. On July 10, 2015, the Company entered into additional foreign currency forward strip
contracts from August 4, 2015 to February 1, 2017. The interest rate swaps and forward strip contracts are secured on an equal
basis with the Loan Facility and documented in the form of International Swaps Derivatives Association Master agreements.



Page 11







These derivatives have been classified
as “non-hedge derivatives”. Changes in the fair value of the IRS and foreign currency forward strip contracts are
recognized in the income (loss) as gains or losses on derivatives.



Interest Rate Swap Contracts

On April 7, 2015, the Company entered
into U.S. dollar floating-to-fixed interest rate swaps intended to economically fix the interest rate on 75% of the outstanding
principal of the balance of the Loan Facility based on the forecast loan drawdown schedule up to a maximum of US$277 million.
The interest rate swaps terminate on March 31, 2020. The Company will pay a fixed rate of 1.827% and will receive a variable rate
based on the 3 month LIBOR forward curve, reset quarterly. Payments are settled on a quarterly basis in March, June, September,
and December of each year.



The table below provides a summary of
the interest rate swap contracts outstanding as at December 31, 2016:



|Period of Interest Rate Contracts    |  | Notional Amount (USD) |            
|------------------------------------ |  | --------------------- | -----------
|January 1, 2017 to December 1, 2017  |  | $                     | 277,500,000
|January 1, 2018 to December 31, 2018 |  |                       | 161,932,194
|January 1, 2019 to December 31, 2019 |  |                       | 41,995,998 
|January 1, 2020 to March 31, 2020    |  |                       | 5,877,827  





Foreign Currency Forward Strip

On April 7, 2015, the Company executed
foreign currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period from April 7, 2015 to February
1, 2017 for notional amounts of $219,125,894 or US$175,666,949, with a weighted average price of $1.2474/US$1 and on July 10,
2015, the Company executed foreign currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period
from August 4, 2015 to February 1, 2017 for notional amounts of $54,832,365 or US$43,130,678, with a weighted average price of
$1.27131/US$1.



The table below provides a summary of
currency contracts outstanding as at December 31, 2016:



|Period of Currency Contracts        |  | Notional Amount (CAD) |            |  | Weighted Average Price (USD) |   |        | Notional Amount (USD) | 
|----------------------------------- |  | --------------------- | ---------- |  | ---------------------------- | - | ------ | --------------------- | 
|January 1, 2017 to February 1, 2017 |  | $                     | 10,547,404 |  |                              | $ | 1.2447 |                       | 



At December 31, 2016, US$332 million ($445.8
million Canadian) was outstanding under the Loan Facility using an exchange rate of $1.3427/US$1. The loan is carried at amortized
cost on the consolidated balance sheet.



As at December 31, 2016, financing costs
totaling $31,802,974 consisting primarily of fees payable to the lenders, legal and financial advisory fees, other financing related
expenses and commitment fees relating to the Loan Facility were incurred. The loan has been reduced by a pro-rata portion of the
deferred financing costs relative to what has been drawn to date, which is being amortized over the life of the Loan Facility
using the effective interest method. The resulting balance of financing costs as at December 31, 2016 is $1,902,344 (2015 - $13,891,403)
and will be allocated to future drawdowns and amortized over the life of the Loan Facility using the effective interest rate method.
Unamortized deferred financing costs as at December 31, 2016 of $19,873,262 is netted against the Loan Facility.



Page 12







Of the US$332 million drawn at December
31, 2016, approximately US$268.6 million was used for capital related costs, US$59.4 million for costs listed below and the remainder
of approximately US$4.0 million for funds held in restricted accounts discussed below.



| | · | US$13.7
                                         million paid to the lenders for fees and various agency roles;
| | - | ---------------------------------------------------------------------------------------------------------------

| | · | US$6.4
                                         million used to fund various legal, advisory fees and other financing and related expenses
                                         incurred to arrange the Loan Facility and other marketing related activity;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | US$6.0
                                         million used to fund general and administration costs;
| | - | ------------------------------------------------------------------------------------------------------

| | · | US$28.3
                                         million of interest and commitment fees; and
| | - | ---------------------------------------------------------------------------------------------

| | · | US$5.0
                                         million set aside in a restricted account for the bidding on Fancy and Special diamonds;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2016, the Company had
US$3,451,329 in the restricted U.S. dollar proceeds account and $952,667 or US$709,516 equivalent in the restricted Canadian dollar
proceeds account. These amounts are restricted to the mine and related expenditure and may only be released on completion of utilization
requests approved by the Facility Agent.



The following table shows the repayment
schedule for the gross amount of the Loan Facility:



|Year  |  |     |            
|----- |  | --- | -----------
|2017  |  | US$ | 24,791,085 
|2018  |  |     | 93,845,271 
|2019  |  |     | 100,948,191
|2020  |  |     | 46,778,076 
|2021  |  |     | 63,039,904 
|2022  |  |     | 40,597,473 
|Total |  | US$ | 370,000,000



Results of operations



The expenditures directly attributable
to the development of the GK Mine are capitalized. The total budgeted cost to construct the mine was $1,019 million (excluding
exchange rate movements, out-of-scope purchases and adjustments resulting from the QRA as discussed above). The revised forecast
is $1,093.6 million as discussed above.



The Company has funded its share of the remaining costs, associated
fees, operating costs during the build-up to commercial production, which was declared on March 1, 2017. The Company, as discussed
above, has held two sales of diamonds in January and February 2017, respectively and expects to conduct sales approximately every
five weeks generating cash by selling its 49% share of the diamonds produced at the GK Mine.



Page 13







SELECTED ANNUAL
INFORMATION





|                                            |  | December 31, 2016 |             |   | December 31, 2015 |   |             | December 31, 2014 | 
|------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- | 
|Interest income                             |  | $                 | 976,039     |   |                   | $ | 1,130,419   |                   | 
|Management fees                             |  |                   | 90,000      |   |                   |   | 90,000      |                   | 
|Operating expenses                          |  |                   | (6,277,175  | ) |                   |   | (6,316,576  | )                 | 
|Other income (expenses)                     |  |                   | 11,570,474  |   |                   |   | (38,072,814 | )                 | 
|Net income (loss) for the period            |  |                   | 4,797,834   |   |                   |   | (43,168,971 | )                 | 
|Basic and diluted earnings (loss) per share |  |                   | 0.03        |   |                   |   | (0.28       | )                 | 
|Cash flow from operating activities         |  |                   | (18,011,528 | ) |                   |   | (4,243,550  | )                 | 
|Cash, end of year                           |  |                   | 6,843,704   |   |                   |   | 9,081,791   |                   | 
|Total assets                                |  |                   | 783,761,882 |   |                   |   | 582,848,108 |                   | 
|Long-term liabilities                       |  |                   | 417,016,374 |   |                   |   | 230,226,813 |                   | 
|Dividend declared                           |  |                   | Nil         |   |                   |   | Nil         |                   | 



FINANCIAL
REVIEW



Three months and year ended December
31, 2016 compared to the three months and year ended December 31, 2015



For the three months ended December 31,
2016, the Company recorded a net loss of $8,305,428 or $0.05 loss per share compared to $10,247,682 net loss or $0.06 loss per
share for the same period in 2015. For the year ended December 31, 2016, the Company recorded net income of $4,797,834 or $0.03
earnings per share compared to a $43,168,971 net loss or $0.28 loss per share for the same period in 2015. The main reason for
the significant change was a foreign exchange gain of $4,835,228 in 2016 compared to a $18,224,300 loss for the same period in
2015. Another contributing factor was the reduction in stock based compensation from $2,268,263 for the year ended December 31,
2015 compared to $468,573 for the same period in 2016.



Quarterly financial information for the past eight quarters
is shown in Table 1.



Page 14







SUMMARY OF QUARTERLY RESULTS



|Table 1 - Quarterly Financial Data          |  |             |             |   |                    |  |             |         |  |  |             |  
|------------------------------------------- |  | ----------- | ----------- | - | ------------------ |  | ----------- | ------- |  |  | ----------- | -
|                                            |  |             |             |   | Three months ended |  |             |         | 
|                                            |  | December 31 |             |   | September 30       |  |             | June 30 |  |  | March 31    |  
|                                            |  | 2016        |             |   | 2016               |  |             | 2016    |  |  | 2016        |  
|                                            |  | $           |             |   | $                  |  |             | $       |  |  | $           |  
|Earnings and Cash Flow                      |  |             |             |   |                    |  |             |         |  |  |             |  
|Interest income                             |  |             | 226,919     |   |                    |  | 222,602     |         |  |  | 256,735     |  
|Operating expenses                          |  |             | (2,478,863  | ) |                    |  | (1,425,970  | )       |  |  | (1,204,053  | )
|Net (loss) income for the period            |  |             | (8,305,428  | ) |                    |  | (5,387,201  | )       |  |  | (351,915    | )
|Basic and diluted (loss) earnings per share |  |             | (0.05       | ) |                    |  | (0.03       | )       |  |  | (0.00       | )
|Cash flow from operating activities         |  |             | 1,910,825   |   |                    |  | (4,295,911  | )       |  |  | (13,971,585 | )
|Cash flow from investing activities         |  |             | (63,276,213 | ) |                    |  | (16,403,918 | )       |  |  | (36,689,415 | )
|Cash flow from financing activities         |  |             | 36,527,306  |   |                    |  | 32,538,916  |         |  |  | 59,271,268  |  
|Balance Sheet                               |  |             |             |   |                    |  |             |         |  |  |             |  
|Total assets                                |  |             | 783,761,882 |   |                    |  | 752,824,874 |         |  |  | 732,958,630 |  



|                                    |  |             |             |   | Three months ended |  |             |         | 
|----------------------------------- |  | ----------- | ----------- | - | ------------------ |  | ----------- | ------- | 
|                                    |  | December 31 |             |   | September 30       |  |             | June 30 | 
|                                    |  | 2015        |             |   | 2015               |  |             | 2015    | 
|                                    |  | $           |             |   | $                  |  |             | $       | 
|Earnings and Cash Flow              |  |             |             |   |                    |  |             |         | 
|Interest income                     |  |             | 457,389     |   |                    |  | 241,928     |         | 
|Operating expenses                  |  |             | (2,367,544  | ) |                    |  | (676,617    | )       | 
|Net loss for the period             |  |             | (10,247,682 | ) |                    |  | (26,590,291 | )       | 
|Basic and diluted loss per share    |  |             | (0.06       | ) |                    |  | (0.17       | )       | 
|Cash flow from operating activities |  |             | (1,591,933  | ) |                    |  | (369,311    | )       | 
|Cash flow from investing activities |  |             | (57,622,213 | ) |                    |  | (23,496,193 | )       | 
|Cash flow from financing activities |  |             | 36,315,623  |   |                    |  | 32,484,728  |         | 
|Balance Sheet                       |  |             |             |   |                    |  |             |         | 
|Total assets                        |  |             | 582,848,108 |   |                    |  | 553,299,200 |         | 



Page 15







COSTS AND EXPENSES



The costs and expenses for the three
months and year ended December 31, 2016 compared to the three months and year ended December 31, 2015 are comparable except for
the following:



Consulting fees and payroll



Consulting fees for the three months ended December 31, 2016
and 2015 respectively were $1,713,672 and $1,727,384. For the years ended December 31, 2016 and 2015, consulting fees and payroll
respectively were $2,891,253 and $4,123,689. Included in these amounts for the year ended December 31, 2016 and 2015 respectively
were $468,573 and $2,268,263 relating to stock based compensation. In October 2015, a Vice President of diamond marketing was
appointed and during 2016 the Company engaged two additional staff in the diamond marketing division.



Professional fees



Professional fees for the three months
ended December 31, 2016 and 2015 respectively were $158,526 and $309,582. For the years ended December 31, 2016 and 2015, professional
fees respectively were $1,465,656 and $678,842. The increase from 2016 compared to 2015 relates to various legal and audit related
matters. For the year ended December 31, 2016, legal fees of approximately $619,000 were incurred in connection with executing,
consulting, sorting and marketing agreements with reputable companies, in advance of the first diamond sale that took place in
January 2017.



Promotion and investor relations



Promotion and investor relations for the
three months ended December 31, 2016 and 2015 respectively were $196,591 and $21,966. For the years ended December 31, 2016 and
2015, promotion and investor relations respectively were $386,495 and $134,606. The main reason for the significant increase in
2016, is due to a one-time cost for 49% of the opening mine ceremony of the GK Mine.



Transfer agent and regulatory fees



Transfer agent and regulatory fees for
the three months ended December 31, 2016 and 2015 respectively were $53,584 and $63,655. For the years ended December 31, 2016
and 2015, transfer agent and regulatory fees respectively were $327,677 and $408,834. Due to the rights offering in 2015, transfer
agent and regulatory fees were higher than in 2016.



Interest income



Interest income for the three months ended
December 31, 2016 and 2015 respectively was $226,919 and $457,389. For the years ended December 31, 2016 and 2015, interest income
respectively was $976,039 and $1,130,419. The decrease in 2016 is as a result of a lower average balance in the proceeds accounts
compared to 2015.



Derivative gains (losses)



Derivative gains (losses) for the three
months ended December 31, 2016 and 2015, respectively, were $3,665,191 and ($991,720). For the years ended December 31, 2016 and
2015, derivative gains (losses), respectively, were $6,028,173 and ($19,408,350). On April 7, 2015, foreign exchange and interest
rate swap contracts were entered into and on July 10, 2015 additional foreign exchange contracts were executed. For the year ended
December 31, 2016, the derivative gain is attributed to the relative strengthening of the Canadian dollar to the U.S. dollar over
2015, which has resulted in a derivative gain on the foreign currency strip contracts. The increase in derivative gain is as a
result of the majority of the foreign currency forward strip contracts being settled during the year. The remaining foreign currency
forward strip contracts will be settled by February 2017.



Page 16







Foreign exchange gains (losses)



Foreign exchange losses for the three
months ended December 31, 2016 and 2015 respectively were $9,513,171 and $7,296,986. For the years ended December 31, 2016 and
2015, foreign exchange gains (losses) respectively were $4,835,228 and ($18,224,300). The foreign exchange gain for the year ended
December 31, 2016 is a result of the Canadian dollar strengthening relative to the U.S. dollar and the translation of the Loan
Facility and U.S. dollar cash balances to Canadian dollar at the spot rate at the period end. During the year ended December 31,
2016, the spot exchange rate fell from $1.384/US$1, at December 31, 2015, to 1.3427/US$1.



INCOME AND RESOURCE TAXES



The Company is subject to income and mining
taxes in Canada with the statutory income tax rate at 26.5%.



No deferred tax asset has been recorded
in the financial statements as a result of the uncertainty associated with the ultimate realization of these tax assets.



The Company is subject to assessment by
Canadian authorities, which may interpret tax legislation in a manner different from the Company. These differences may affect
the final amount or the timing of the payment of taxes. When such differences arise, the Company makes provision for such items
based on management’s best estimate of the final outcome of these matters.



FINANCIAL POSITION AND LIQUIDITY



The development of the GK Mine is complete
and commercial production was declared on March 1, 2017. The underlying value and recoverability of the amounts shown as “Property
and Equipment” are dependent upon future profitable production and proceeds from disposition of the Company’s mineral
properties. Failure to meet the obligations for the Company’s share in the GK Mine may lead to dilution of the interest
in the GK Mine and may require the Company to write off costs capitalized to date. As discussed above, the Company arranged the
necessary equity and Loan Facility to fund its share of the construction and commissioning costs of the GK Mine. The Company held
its first sales of diamonds in January and February 2017 and will conduct sales approximately every five weeks thereafter.





Under the terms of the Company’s
Loan Facility Agreement, the Company will be subject to funding of reserve accounts and certain financial covenants as discussed
in Note 9 of the financial statements. The Loan Facility Agreement also contains material adverse effect clauses. In the absence
of amendments or receipt of waivers, non-compliance with reserve funding requirements or other financial covenants, or the occurrence
of a material adverse effect event, would be an event of default under the terms of the Loan Facility Agreement.



Commencing on March 31, 2017,
the Company is subject to maintaining a cash call reserve account balance based upon certain budgeted amounts which will vary over
the term of the Loan Facility. Approximately US$27.9 million was originally required to be deposited in the cash call reserve account
on March 31, 2017. On March 27, 2017, the Company received a waiver deferring the requirement to fund the cash call reserve account
to May 31, 2017. As conditions of the waiver, certain information must be furnished to the lenders by May 31, 2017 including:
 an updated financial model and life of mine plan; a diamond pricing valuation comparison between production to date and historic
samples from April 2011 to be prepared by the lender’s independent diamond consultant; and a reconciliation of cumulative
diamond production including a statistical comparison of total diamond carats, size and quality. The failure to comply with any
of the requirements of the waiver constitutes an event of default.







Under the terms of the Loan Facility Agreement,
the Company is also required to fund reserve accounts (Note 9 of the financial statements) estimated as follows for the period
from January 1, 2017 to December 31, 2017:



|Date additional funding is required |  | Funding requirements |            
|----------------------------------- |  | -------------------- | -----------
|September 2017                      |  | US$                  | 100,100,000
|December 2017                       |  |                      | 50,900,000 



At September 30, 2017, the Company can
use the remaining balance available in the restricted cost overrun account (Note 6 of the financial statements) to fund a portion
of the above reserve accounts. Based on the delay in achieving commercial production and current market prices in the diamond
industry, management believes the Company will not be able to comply with the requirement to fully fund these reserve accounts
and may not comply with the other financial covenants in the Loan Facility.



Page 17









Management expects the Company will seek
additional waivers or amendments from the lenders as to the timing and amount of all of these funding requirements. There are no
assurances the lenders will accommodate further waivers or amendments the Company will seek. If the Company is unable to fully
fund the required reserve accounts, or is unable to comply with other financial covenants, and is not successful in obtaining suitable
waivers or amendments, or a material adverse event occurs, it would result in an event of default, and the Loan Facility outstanding
balance would become payable on demand. Further, management may seek alternative sources of financing. These conditions indicate
the existence of a material uncertainty that results in substantial doubt as to the Company’s ability to continue as a going
concern. The financial statements do not include the adjustments to the amounts and classification of assets and liabilities that
would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.





Cash flow used in operating activities,
including change in non-cash working capital for the year ended December 31, 2016 were $18,011,528 compared to $4,243,550 for
the same period in 2015. The increase is mainly as a result of the purchase of supplies inventory totalling approximately $11.7
million.



Investing activities for the year ended
December 31, 2016 were $205,568,103 compared to $255,747,163 for the same period in 2015. For the year ended December 31, 2016,
the outflow for the purchase of equipment and the expenditures directly related to the development of the GK Mine were $195,255,074
compared to $239,795,590 for the same period in 2015. Capitalized interest paid for the year ended December 31, 2016 was $25,006,731.
Cash used for investing activities for the year ended December 31, 2016 include $10,633,930 in restricted cash, $195,255,074 in
property and equipment, $25,006,731 for capitalized interest paid, $538,708 in amounts receivable, offset by $976,039 of interest
income. For the year ended December 31, 2015, $239,795,590 was used for property and equipment, which was offset by the redemption
of $77,261,842 in short-term investments and $1,130,419 of interest income and $168,185 of amounts receivable.



Financing activities for the year ended
December 31, 2016 were $221,207,443 compared to $265,190,421 for the same period in 2015. Cash flows from financing activities
for the year ended December 31, 2016, related to cash draws of US$174 million or approximately $223.6 million Canadian dollar
equivalent from January 1, 2016 to December 31, 2016 from the Loan Facility, net of financing costs, approximately $2.89 million.
For the year ended December 31, 2015, approximately $27.7 million was used in financing costs and approximately $94.9 million
of proceeds from share issuance, net of costs, was received and cash draws of US$158 million (or approximately $198.2 million
Canadian dollar equivalent) were made from the Loan Facility.



Page 18







Off-Balance
Sheet Arrangements



The Company has no off-balance sheet arrangements.



FINANCIAL INSTRUMENTS RISKS



The Company examines the various financial
risks to which it is exposed and assesses the impact and likelihood of those risks. These risks include credit risk, liquidity
risk, market risk, foreign currency risk and interest rate risk.



Credit risk

Credit risk is the risk of financial loss
to the Company if a customer or counterparty to a financial instrument fails to meet its obligations.



On December 31, 2016 and 2015, the Company
does not have any allowance for doubtful accounts, and does not consider that any such allowance is necessary.



All of the Company’s cash and restricted
cash is held with a major Canadian financial institution and thus the exposure to credit risk is considered insignificant. Management
actively monitors the Company’s exposure to credit risk under its financial instruments, including with respect to amounts
receivable. The Company considers the risk of loss for its amounts receivable to be remote and significantly mitigated due to
the financial strength of the parties from whom most of the amounts receivable are due - the Canadian government for harmonized
sales tax (“HST”) refunds receivable in the amount of approximately $1,659,371 (2015 - $1,312,782).



The Company’s current policy is
to hold excess cash in bank accounts. It periodically monitors the investment income it makes and is satisfied with the credit
ratings of its bank.



Liquidity risk

Liquidity risk is the risk that the Company
will not be able to meet its obligations associated with financial liabilities. Funds from the Loan Facility (Note 9 of the financial
statements) will be required to fund its share of the remaining capital and operating costs to commercial production of the GK
Mine. The Company's approach to managing liquidity risk is to monitor forecast cash flows so that it will have sufficient liquidity
to meet liabilities when due. The Company has a planning and budgeting process in place by which it anticipates and determines
the funds required to support its ongoing requirements. The Company coordinates this planning and budgeting process with its financing
activities through its capital management process. As discussed in Note 1 of the financial statements, the Company does not expect
to generate sufficient liquidity to fully fund the reserve accounts which are conditions of the Loan Facility. If the Company
is unable to fully fund the required reserve accounts, or is unable to comply with other covenants, and is not successful in obtaining
suitable waivers or amendments, or a material adverse event occurs, it would result in an event of default, and the Loan Facility
outstanding balance would become payable on demand. Being able to comply with the covenants, and/or maintain sufficient liquidity,
is dependent upon many factors including, but not limited to, diamond prices, exchange rates, operating costs and levels of production.
Adverse changes in one or more of these factors negatively impact the Company’s ability to comply with the covenants and/or
maintain sufficient liquidity.



Under the terms of the Loan Facility Agreement,
the Company is also required to fund reserve accounts (Note 9 of the financial statements) estimated as follows for the period
from January 1, 2017 to December 31, 2017:





|Date additional funding is required |  | Funding requirements |            
|----------------------------------- |  | -------------------- | -----------
|September 2017                      |  | US$                  | 100,100,000
|December 2017                       |  |                      | 50,900,000 







At September 30, 2017, the Company can
use the remaining balance available in the restricted cost overrun account (Note 6 of the financial statements) to fund a portion
of the above reserve accounts. Based on the delay in achieving commercial production and current market prices in the diamond industry,
management believes the Company will not be able to comply with the requirement to fully fund these reserve accounts and may not
comply with the other financial covenants in the Loan Facility.





Page 19









Management expects the Company will seek
additional waivers or amendments from the lenders as to the timing and amount of all of these funding requirements. There are no
assurances the lenders will accommodate further waivers or amendments the Company will seek. If the Company is unable to fully
fund the required reserve accounts, or is unable to comply with other financial covenants, and is not successful in obtaining suitable
waivers or amendments, or a material adverse event occurs, it would result in an event of default, and the Loan Facility outstanding
balance would become payable on demand. Further, management may seek alternative sources of financing. These conditions indicate
the existence of a material uncertainty that results in substantial doubt as to the Company’s ability to continue as a going
concern. The financial statements do not include the adjustments to the amounts and classification of assets and liabilities that
would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.





As at December 31, 2016, the Company had
drawn US$332 million or $445.8 million Canadian dollar equivalent from the Loan Facility.



Market risk

Market risk is the risk that changes in
market prices such as foreign exchange rates, interest rates and equity prices will affect the Company’s income and the
value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters while optimizing returns.



Interest rate risk

The Company is exposed to interest rate
risk on its outstanding borrowings and interest rate swap contracts. The Company has entered into interest rate swaps to fix its
interest rate exposure for 75% of its U.S. dollar Loan Facility and therefore has interest rate exposure to the remaining 25%.
At December 31, 2016, the total Loan Facility drawn was US$332 million and interest rate swaps of US$228.9 million were in effect.



At December 31, 2016, a 100 basis point
increase in the LIBOR interest rate for the interest rate swap portion and interest rate on the Loan Facility would have resulted
in a decrease to interest by approximately $6.71 million. A 100 basis point decrease in the LIBOR interest rate for the interest
rate swap portion and interest rate on the Loan Facility would have resulted in an increase to interest for the year ended December
31, 2016 by approximately $6.87 million.



Foreign currency risk

The Company is exposed to market risk related to foreign exchange rates. The Company operates in Canada
and has foreign currency exposure to transactions in U.S. dollars. The majority of development costs of the GK Mine are in Canadian
dollars, but funded through the U.S. dollar Loan Facility (Note 9 of the financial statements). The Company has entered into foreign
currency forward strip contracts to mitigate the risk that a devaluation of the U.S. dollar against the Canadian dollar would reduce
the Canadian dollar equivalent of the U.S. dollar Loan Facility and the Company would not have sufficient Canadian dollar funds
to develop the GK Mine. The foreign currency forward strip contracts increase the exposure to risk related to foreign exchange
rates. Currency risk relates to the U.S. dollar Loan Facility, foreign currency forward strip contracts and cash and restricted
cash denominated in U.S. dollar.



Page 20







As at December 31, 2016, the Company had
cash and restricted cash, accounts payable and accrued liabilities, derivative liabilities and the Loan Facility that are in U.S.
dollars. The Canadian dollar equivalent is as follows:



|Cash                                     |  | $ | 2,700,000    |  
|---------------------------------------- |  | - | ------------ | -
|Restricted cash                          |  |   | 12,100,000   |  
|Accounts payable and accrued liabilities |  |   | (900,000     | )
|Derivative liabilities                   |  |   | (3,000,000   | )
|Loan facility                            |  |   | (445,800,000 | )
|Total                                    |  | $ | (434,900,000 | )



A 10% appreciation or depreciation of
the Canadian dollar relative to the U.S. dollar at December 31, 2016 would have resulted in an increase or decrease to net income
for the year ended December 31, 2016 of approximately $43.5 million.





SIGNIFICANT
ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS



The preparation
of the Company’s consolidated financial statements requires management to make judgments and/or estimates that affect the
reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the
reporting period. These judgements and estimates are continuously evaluated and are based on management’s experience and
knowledge of the relevant facts and circumstances. Actual results may differ from the estimates. The key areas where judgements,
estimates and assumptions have been made are summarized below.



i)       
Significant judgments in applying accounting policies



The
areas which require management to make significant judgments in applying the Company’s accounting policies are:



a)       Impairment
analysis – mineral properties



As
required under IAS 36 – Impairment of Assets, the Company reviews its mineral properties for impairment based on results
to date and when events and changes in circumstances indicate that the carrying value of the assets may not be recoverable. The
Company is required to make certain judgments in assessing indicators of impairment. The Company’s assessment is that as
at December 31, 2016 and 2015 no indicator of an impairment in the carrying value of its mineral properties had occurred.



b)       Commencement
of commercial production



There
are a number of quantitative and qualitative measures the Company considers when determining if conditions exist for the transition
from pre-commercial production to commencement of commercial production of an operating mine, which include:



| | · | all
                                         major capital expenditures have been completed to bring the mine to the condition necessary
                                         for it to be capable of operating in the manner intended by management;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | mineral
                                         recoveries are at or near expected production levels;
| | - | ------------------------------------------------------------------------------------------------------

| | · | the
                                         ability to sustain ongoing production of ore; and
| | - | ----------------------------------------------------------------------------------------------

| | · | the
                                         ability to operate the plant as intended.
| | - | --------------------------------------------------------------------------------------



The
list of measures is not exhaustive and management takes into account the surrounding circumstances before making any specific
decision.



ii)       Significant
accounting estimates and assumptions



The
areas which require management to make significant estimates and assumptions in determining carrying values include, but are not
limited to:



a)       Mineral
reserves and resources



Mineral
reserve and resource estimates include numerous uncertainties and depend heavily on geological interpretations and statistical
inferences drawn from drilling and other data, and require estimates of the future price for the commodity and future cost of
operations. The mineral reserve and resources are subject to uncertainty and actual results may vary from these estimates. Results
from drilling, testing and production, as well as material changes in commodity prices and operating costs subsequent to the date
of the estimate, may justify revision of such estimates. Changes in the proven and probable mineral reserves or measured and indicated
and inferred mineral resources estimates may impact the carrying value of the properties. This will also impact the carrying value
of the decommissioning and restoration liability and future depletion charges.





Page 21







b)Provision
for decommissioning and restoration



The
decommissioning and restoration liability and the accretion recorded are based on estimates of future cash flows, discount rates,
and assumptions regarding timing. The estimates are subject to change and the actual costs for the decommissioning and restoration
liability may change significantly.



c)       Stock
options



The
stock option pricing model requires the input of highly subjective assumptions including the expected life and volatility. Changes
in the subjective input assumptions can materially affect the fair value estimate.



d)       Deferred
taxes



Deferred
income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets
and liabilities and on unused losses carried forward, and are measured using the substantively enacted tax rates that are expected
to be in effect when the differences are expected to reverse or losses are expected to be utilized. Deferred tax assets are recorded
to recognize tax benefits only to the extent that, based on available evidence, including forecasts, it is probable that they
will be realized.



STANDARDS AND AMENDMENTS TO EXISTING
STANDARDS



At the date of authorization of these
financial statements, certain new standards and amendments to existing standards have been published but are not yet effective,
and have not been adopted early by the Company. The Company anticipates that all of the relevant standards will be adopted by
the Company in the first period beginning after the effective date of the standard. Information on new standards and amendments
that are expected to be relevant to the Company’s financial statements is provided below.



Share-based payments



In June 2016, the IASB issued amendments
to International Financial Reporting Standard 2, Share-based Payment (“IFRS 2”). IFRS 2 is effective for periods beginning
on or after January 1, 2018 and is to be applied prospectively. The amendments clarify the classification and measurement of share-based
payment transactions. Management is currently assessing the impact of the amendment to IFRS 2 on the consolidated financial statements.



Revenue



In May 2014, the IASB issued International
Financial Reporting Standard 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 is effective for periods
beginning on or after January 1, 2018 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue
from contracts with customers. Management will adopt IFRS 15 effective for the period beginning on January 1, 2017.



Financial instruments

In July 2014, the IASB issued the final
version of International Financial Reporting Standard 9, Financial Instruments (“IFRS 9”), bringing together the classification
and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition
and Measurement. The mandatory effective date of IFRS 9 is annual periods beginning on or after January 1, 2018, with early adoption
permitted. We are currently assessing the impact of adopting IFRS 9 on the consolidated financial statements along with timing
of adoption of IFRS 9.



Leases

On January 13, 2016, the IASB issued International
Financial Reporting Standard 16, Leases (“IFRS 16”). The new standard will replace existing lease guidance in IFRS
and related interpretations, and requires companies to bring most leases on-balance sheet. The new standard is effective for annual
periods beginning on or after January 1, 2019. The Company is currently assessing the impact of IFRS 16.



Page 22







Statement of cash flows

In January 2016, the IASB issued an amendment
to International Accounting Standard 7, Statement of Cash Flows. The amended standard introduced additional disclosure requirements
for liabilities arising from financing activities. The amendment is effective for annual periods beginning on or after January
1, 2017. The Company does not expect this amendment to have a significant impact on its consolidated financial statements.



RELATED PARTY TRANSACTIONS



The Company’s related parties include
the operator of the GK Mine, Dermot Desmond, Bottin, key management and their close family members, and the Company’s directors.
Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds have common
members of key management. International Investment and Underwriting (“IIU”) is also a related party since it is controlled
by Mr. Dermot Desmond.



Related party transactions are recorded
at their exchange amount, being the amount agreed to by the parties. Outstanding balances are settled in cash.



The Company had the following transactions
and balances with its related parties including key management personnel and the Company’s directors, Dermot Desmond, Bottin,
the operator of the GK Mine, and Kennady Diamonds. The transactions with key management personnel are in the nature of remuneration.
The transactions with the operator of the GK Mine relate to the funding of the Company’s interest in the GK Mine for the
current year’s expenditures, capital additions, management fee, and pre-production sales related to the 49% share of fancies
and special diamonds. The transactions with Kennady Diamonds are for a monthly management fee charged by the Company and reimbursement
of expenses paid on behalf of Kennady Diamonds. The transactions with IIU are for the director fees and travel expenses of the
Chairman of the Company.



As discussed in Note 11 of the financial
statements, in 2015 the Company issued 712,500 common shares or the equivalent of $2,850,000 to Mr. Dermot Desmond as a standby
fee.



The balances as at December 31, 2016 and
2015 were as follows:



|                                                     |  | December 31, |         |  | December 31, |  
|---------------------------------------------------- |  | ------------ | ------- |  | ------------ | -
|                                                     |  | 2016         |         |  | 2015         |  
|Payable to the operator of the GK Mine*              |  | $            | 926,079 |  |              | $
|Receivable from Kennady Diamonds                     |  |              | -       |  |              |  
|Payable to International Investment and Underwriting |  |              | 52,762  |  |              |  
|Payable to key management personnel                  |  |              | 3,279   |  |              |  



*included in accounts payable and accrued
liabilities



The transactions for the year ended December 31, 2016 and 2015
were as follows:



|                                                      |  | Year ended        |           |  | Year ended        |  
|----------------------------------------------------- |  | ----------------- | --------- |  | ----------------- | -
|                                                      |  | December 31, 2016 |           |  | December 31, 2015 |  
|The total of the transactions:                        |  |                   |           |  |                   |  
|Kennady Diamonds                                      |  | $                 | 90,000    |  |                   | $
|International Investment and Underwriting             |  |                   | 52,762    |  |                   |  
|Remuneration to key management personnel              |  |                   | 2,077,129 |  |                   |  
|Pre-production sales to De Beers Canada Inc.          |  |                   | 3,622,441 |  |                   |  
|Assets purchased from De Beers Canada Inc.            |  |                   | 552,838   |  |                   |  
|Management fee charged by the operator of the GK Mine |  |                   | 5,211,315 |  |                   |  



Page 23







The remuneration expense of directors
and other members of key management personnel for the year ended December 31, 2016 and 2015 were as follows:



|                                                                    |  | Year ended        |           |  | Year ended        |  
|------------------------------------------------------------------- |  | ----------------- | --------- |  | ----------------- | -
|                                                                    |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                                                    |  |                   |           |  |                   |  
|Consulting fees, director fees, bonus and other short-term benefits |  | $                 | 1,608,556 |  |                   | $
|Share-based payments                                                |  |                   | 468,573   |  |                   |  
|                                                                    |  | $                 | 2,077,129 |  |                   | $



In accordance with International Accounting
Standard 24 Related Parties, key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of
the Company.



The Company has a consulting agreement
with the President and CEO for his services in this capacity.



CONTRACTUAL OBLIGATIONS



The following table summarizes the contractual
maturities of the Company’s significant financial liabilities and capital commitments, including contractual obligations:



|                                    |  | Less than |             |   | 1 to 3 |   |             | 4 to 5 |  |   | After 5     |  |  |       |          
|----------------------------------- |  | --------- | ----------- | - | ------ | - | ----------- | ------ |  | - | ----------- |  |  | ----- | ---------
|                                    |  | 1 Year    |             |   | Years  |   |             | Years  |  |   | Years       |  |  | Total |          
|Operating lease obligations         |  | $         | 157,998     |   |        | $ | 456,354     |        |  | $ | 465,744     |  |  | $     | 545,559  
|Gahcho Kué Diamond Mine commitments |  |           | 22,539,444  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|Trade and other payables            |  |           | 16,115,963  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|Loan facility - Principal*          |  |           | 33,286,991  |   |        |   | 261,549,181 |        |  |   | 147,452,601 |  |  |       | 3,487,627
|Loan facility - Interest            |  |           | 32,617,000  |   |        |   | 44,743,300  |        |  |   | 14,617,200  |  |  |       | 69,900   
|Sunk cost repayment - principal     |  |           | 10,000,000  |   |        |   | 24,400,000  |        |  |   | -           |  |  |       | -        
|Sunk cost repayment - interest      |  |           | -           |   |        |   | 25,800,000  |        |  |   | -           |  |  |       | -        
|Interest Rate Swap Contracts:       |  |           |             |   |        |   |             |        |  |   |             |  |  |       |          
|Outflows                            |  |           | 2,397,642   |   |        |   | 98,087      |        |  |   | 7,719       |  |  |       | -        
|Forward Exchange Contracts**:       |  |           |             |   |        |   |             |        |  |   |             |  |  |       |          
|(Inflows)                           |  |           | (10,547,404 | ) |        |   | -           |        |  |   | -           |  |  |       | -        
|Outflows                            |  |           | 11,377,495  |   |        |   | -           |        |  |   | -           |  |  |       | -        
|                                    |  | $         | 117,945,129 |   |        | $ | 357,046,922 |        |  | $ | 162,543,264 |  |  | $     | 4,103,086



*In accordance with the terms of the Loan Facility at March 31, 2017, the Company is subject to maintaining
a cash call reserve account balance in the amount of approximately US$27.9 million. As of March 27, 2017, the lenders have provided
a waiver indicating the amount is now to be funded by
May 31, 2017. Under the terms of the Loan Facility Agreement, the Company is also required to fund reserve accounts estimated (Note
9 of the financial statements) of US$100.1 million in September 2017, and additional amounts of US$50.9 million and US$14.4 million
at December 31, 2017 and March 31, 2018, respectively.



**The foreign exchange contracts inflows
and outflows have been signed with the syndicate of lenders. In the scenario where one or more of these lenders are unable to
pay, the Company could be exposed to the outflow of agreed upon funds for the remaining contracts at that time. Any offsetting
would be at the discretion of the lenders. The Company believes it has no significant credit risk.



subsequent
events



Subsequent to December 31, 2016, 355,000
stock options were exercised for gross proceeds of $1,576,850. The aggregate market price of the common shares on the exercise
date was $2,315,750. In addition, 135,000 stock options expired.



Page 24







Subsequent to the year ended December
31, 2016, stock options were granted and valued using the assumption below:



|Date of grant              |  |   | February 6, 2017       |  
|-------------------------- |  | - | ---------------------- | -
|Number of options granted  |  |   | 100,000                |  
|Fair value per option      |  | $ | 1.7097                 |  
|Fair value total for grant |  | $ | 170,970                |  
|Term of option             |  |   | 5 years                |  
|Vesting                    |  |   | See description below* |  
|Assumptions:               |  |   |                        |  
|Exercise price             |  | $ | 5.86                   |  
|Expected volatility        |  |   | 31.03                  | %
|Expected option life       |  |   | 5 years                |  
|Expected forfeiture        |  |   | none                   |  
|Expected dividend yield    |  |   | 0                      | %
|Risk-free interest rate    |  |   | 1.11                   | %



Other
Management Discussion and Analysis Requirements



Risks



Mountain Province’s business of
developing and operating mineral resources involves a variety of operational, financial and regulatory risks that are typical
in the mining industry. The Company attempts to mitigate these risks and minimize their effect on its financial performance, but
there is no guarantee that the Company will be profitable in the future, and investing in the Company’s common shares should
be considered speculative.



Mountain Province’s business of
developing and operating mineral properties is subject to a variety of risks and uncertainties, including, without limitation:

| | § | risk
                                         that the development of the mine will not be consistent with the Company’s expectation;
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | § | 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | § | risks
                                         related to foreign exchange fluctuations and prices of diamonds;
| | - | ---------------------------------------------------------------------------------------------------------------

| | § | risks
                                         related to commodity price fluctuations;
| | - | ---------------------------------------------------------------------------------------

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

| | § | risks
                                         related to failure of its joint venture partner;
| | - | -----------------------------------------------------------------------------------------------

| | § | risks
                                         relating to complying with the covenants in our Loan Facility and the Company’s
                                         ability to negotiate further waivers and amendments from the lenders which may be required;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | risk of events of default occurring, under
Loan Facility, and not being able to continue as a going concern;
| | - | ------------------------------------------------------------------------------------------------------------



| | § | development
                                         and production risks including and particularly risks for weather conducive to the building
                                         and use of the Tibbitt to Contwoyto Winter Road;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | § | risks
                                         related to environmental regulation, permitting and liability;
| | - | -------------------------------------------------------------------------------------------------------------

| | § | risks
                                         related to legal challenges to operating permits that are approved and/or issued;
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | § | political
                                         and regulatory risks associated with mining, exploration and development;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | § | the
                                         ability to develop and operate the Company’s GK Mine on an economic basis and in
                                         accordance with applicable timelines;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | § | aboriginal
                                         rights and title;
| | - | ---------------------------------------------------------------------

| | § | failure
                                         of plant, equipment, processes and transportation services to operate as anticipated;
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | § | possible
                                         variations in ore grade or recovery rates, permitting timelines, capital expenditures,
                                         reclamation activities, land titles, and social and political developments, and other
                                         risks of the mining industry; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



Page 25







As well, there can be no assurance that
any further funding required by the Company will become available to it, and if so, that it will be offered on reasonable terms,
or that the Company will be able to secure such funding. Furthermore, there is no assurance that the Company will be able to secure
new mineral properties or Projects, or that they can be secured on competitive terms.



Disclosure of Outstanding
Share Data



The Company’s common shares are
traded on the Toronto Stock Exchange (TSX) under the symbol MPVD and on the NASDAQ under the symbol MPVD.



At March 28, 2017, there were 160,173,833
shares issued, 2,630,000 stock options and 320,000 restricted share units outstanding. There were no warrants outstanding.



There are an unlimited number of common
shares without par value authorized to be issued by the Company.



Controls
and Procedures



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 of December 31,
2016 (the "Evaluation Date"). Based upon that evaluation, as a result of the material weaknesses in internal control
over financial reporting described in Management’s Annual Report on Internal Control Over Financial Reporting below, the
Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were
not effective as of the Evaluation Date.





Management’s
Annual Report on Internal Control Over Financial Reporting



Management has evaluated the effectiveness
of its internal controls over financial reporting as of December 31, 2016 and management’s assessment is contained in Management's
Annual Report on Internal Control Over Financial Reporting appearing on page 4 of our consolidated financial statements for the
year ended December 31, 2016 filed on SEDAR, and is incorporated by reference herein. Management has assessed that due to material
weaknesses in our internal control over financial reporting, the Company’s internal control over financial reporting was
not effective as of December 31, 2016. Our auditors, KPMG LLP, an independent registered public accounting firm, have issued an
attestation report on management’s assessment of internal control over financial reporting expressing an adverse opinion
on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. This report appears
on page 8 of such consolidated financial statements.



CHANGES IN INTERNAL CONTROLS



In addition to the material weaknesses disclosed on page 4 of the consolidated financial statements there
have been additional changes in the Company’s internal control over financial reporting during the fiscal year ended December
31, 2016. The Operator of the GK Mine relocated from Toronto to Calgary, which resulted in the majority of the new compliment of
staff being recruited in Calgary. As part of the restructuring, the accounts payable, effective July 1, 2016 was outsourced to
Anglo American Global Shared Services.



Page 26







CAUTIONARY NOTE ON FORWARD-LOOKING
STATEMENTS



Certain of the statements made and
information contained herein is “forward-looking information” within the meaning of the Ontario Securities Act. Forward-looking
information may include, but is not limited to, statements with respect to the success of exploration activities, future mineral
exploration, permitting time lines, requirements for additional capital, sources and uses of funds, the estimation of mineral
reserves and mineral resources, the realization of mineral reserve and mineral resource estimates, future remediation and reclamation
activities, the timing of activities and the amount of estimated revenues and expenses.  Forward-looking information is based
on various assumptions including, without limitation, the expectations and beliefs of management, the assumed long term price
of diamonds; that the Company can access financing, appropriate equipment and sufficient labour and that the political environment
where the Company operates will continue to support the development and operation of mining projects. Should underlying assumptions
prove incorrect, or one or more of the risks and uncertainties described below materialize, actual results may vary materially
from those described in forward-looking statements. Accordingly, readers are advised not to place undue reliance on forward-looking
statements.



Forward-looking information is subject
to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking
information, including, without limitation, risks and uncertainties relating to foreign currency fluctuations; risks inherent
in mining including environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems
and flooding; delays or the inability to obtain necessary governmental permits or financing;  risks associated with the estimation
of mineral resources and reserves and the geology, grade and continuity of mineral deposits; the possibility that future exploration,
development or mining results will not be consistent with the Company’s expectations; the potential for and effects of labor
disputes or other unanticipated difficulties with or shortages of labor or interruptions in production; failure of plant, equipment
or processes to operate as anticipated; actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical
and other characteristics; the inherent uncertainty of production and cost estimates and the potential for unexpected costs and
expenses, diamond price fluctuations; uncertain political and economic environments; changes in laws or policies, and other risks
and uncertainties, including those described under Risk Factors. Historical results of operations and trends that may be inferred
from the following discussions and analysis may not necessarily indicate future results from operations. The Company undertakes
no obligation to publicly update or review the forward-looking statements whether as a result of new information, future events
or otherwise, other than as required under applicable securities laws.



Cautionary Note to U.S. Investors
– Information Concerning Preparation of Resource Estimates



This MD&A has been prepared in
accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States
securities laws.  Unless otherwise indicated, all resource and reserve estimates included in this MD&A have been prepared
in accordance with NI 43-101 and the Canadian Institute of Mining and Metallurgy Classification System.  NI 43-101 is a rule
developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific
and technical information concerning mineral projects.



Canadian standards, including NI 43-101,
differ significantly from the requirements of Industry Guide 7 promulgated by the United States Securities and Exchange Commission
(“SEC”) under the United States Securities Act of 1933, as amended, and resource and reserve information contained
herein may not be comparable to similar information disclosed by U.S. companies.  In particular, and without limiting the
generality of the foregoing, the term “resource” does not equate to the term “reserves”.  Under U.S.
standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time the reserve determination is made.  The SEC's disclosure
standards under Industry Guide 7 do not define the terms and normally do not permit the inclusion of information concerning “measured
mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions
of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents
filed with the SEC.  U.S. Investors should also understand that “inferred mineral resources” have a great amount
of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility.  It cannot be assumed
that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category.  Under Canadian
rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except
in rare cases.  Investors are cautioned not to assume that all or any part of an “inferred mineral resource”
exists or is economically or legally mineable.





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Disclosure of “contained ounces”
(or “contained carats”) in a resource is permitted disclosure under Canadian regulations; however, the SEC normally
only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage
and grade without reference to unit measures.  The requirements of NI 43-101 for identification of “reserves”
are also not the same as those of the SEC’s Industry Guide 7, and reserves reported by the Company in compliance with NI
43-101 may not qualify as “reserves” under Industry Guide 7 standards.  Accordingly, information concerning mineral
deposits set forth herein may not be comparable with information made public by companies that report in accordance with U. S.
standards.



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