**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        20-F**
 
  **(Mark
                  One)**o
              **REGISTRATION
                  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                  ACT
                  OF 1934****OR**x
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR (15d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the fiscal year ended March 31, 2007****OR**o
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****OR**o
              **SHELL
                  COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE
                  ACT OF 1934**Date
                  of event
                  requiring this shell company report
                
                **For
                    the transition period from __________________ to
                    __________________**
  Commission
        file number 000-27322
  **MOUNTAIN
        PROVINCE DIAMONDS INC.** 
 (Exact
          name of Registrant as specified in its charter)
  Not
        Applicable
 (Translation
        of Registrant’s name into English)
  Ontario
 (Jurisdiction
        of incorporation or organization)
  401
        Bay Street, Suite 2700, PO Box 152, Toronto, Ontario Canada M5H
        2Y4
 (Address
        of principal executive offices)
  Securities
        registered or to be registered pursuant to Section 12(b) of the
        Act.
   Title
                  of each
                  class
              Name
                  of
                  each exchange on which registeredNone
              Not
                  Applicable
  Securities
        registered or to be registered pursuant to Section 12(g) of the
        Act.
  Common
        shares without par value
 (Title
        of Class)
 
 (Title
        of Class)
  Securities
        for which there is a reporting obligation pursuant to Section 15(d) of the
        Act.
  None
 (Title
        of Class)
   
  
  Indicate
        the number of outstanding shares of the issuer’s classes of capital or common
        stock as of the close of the period covered by the annual
        report.
  55,670,715
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.
  oYes
              x  
                  No
 
 If
        this report is an annual or transition report, indicate by check mark if
        the
        registrant is not required to file reports pursuant to Section 13 or 15(d)
        of
        the Securities Exchange Act of 1934.




oYes
            x  
                No




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


xYes
            o  
                No




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




xYes
            o  
                  No




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





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





Indicate
      by check mark which financial statement item the registrant has elected to
      follow. xItem
                17
            o   
                Item 18





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


oYes
            x 
                No




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




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


oYes
            o  
                No




**Not
      Applicable**






ii


**TABLES
      OF
      CONTENTS**




GLOSSARY
            
            viGLOSSARY
                  OF TECHNICAL TERMS
            ixPART
                  I**Item
                  1**
            **Identity
                  of Directors, Senior Management and
                  Advisors.**
            1**Item
                  2**
            **Offer
                  Statistics and Expected Timetable.**
            1**Item
                  3**
            **Key
                  Information.**
            1**A.**
            ***Selected
                  financial data.***
            1**B.**
            ***Capitalization
                  and indebtedness.***
            2**C.**
            ***Reasons
                  for the offer and use of proceeds.***
            2**D.**
            ***Risk
                  factors.***
            2**Item
                  4**
            **Information
                  on the Company**
            10**A.**
            ***History
                  and development of the Company.***
            10**B.**
            ***Business
                  Overview.***
            13**C.**
            ***Organizational
                  structure.***
            17**D.**
            ***Property,
                  plants and equipment.***
            17**Item
                  4A**
            **Unresolved
                  Staff Comments**
            36**Item
                  5**
            **Operating
                  and Financial Review and Prospects.**
            36**A.**
            ***Operating
                  results.***
            36**B.**
            ***Liquidity
                  and capital resources.***
            38**C.**
            ***Research
                  and development, patents and licenses
                  etc.***
            38**D.**
            ***Trend
                  information.***
            38**E.**
            ***Off-balance
                  sheet arrangements.***
            38**F.**
            ***Tabular
                  disclosure of contractual obligations.***
            38**Item
                  6**
            **Directors,
                  Senior Management and Employees.**
            40**A.**
            ***Directors
                  and Senior Management.***
            40**B.**
            ***Compensation.***
            42**C.**
            ***Board
                  practices.***
            43**D.**
            ***Employees.***
            44**E.**
            ***Share
                  ownership.***
            44







iii




**Item
                  7**
            **Major
                  Shareholders and Related Party
                  Transactions.**
            45**A.**
            ***Major
                  shareholders.***
            45**B.**
            ***Related
                  party transactions.***
            46**C.**
            ***Interests
                  of experts and counsel.***
            47**Item
                  8**
            **Financial
                  Information.**
            47**A.**
            ***Consolidated
                  Statements and Other Financial
                  Information.***
            47**B.**
            ***Significant
                  Changes.***
            47**Item
                  9**
            **The
                  Offer and Listing.**
            47**A.**
            ***Offer
                  and Listing Details.***
            47**B.**
            ***Plan
                  of Distribution.***
            48**C.**
            ***Markets.***
            49**D.**
            ***Selling
                  Shareholders.***
            49**E.**
            ***Dilution.***
            49**F.**
            ***Expenses
                  of the Issuer.***
            49**Item
                  10**
            **Additional
                  Information.**
            49**A.**
            ***Share
                  capital.***
            49**B.**
            ***Memorandum
                  and articles of association.***
            49**C.**
            ***Material
                  contracts.***
            52**D.**
            ***Exchange
                  controls.***
            52**E.**
            ***Taxation.***
            54**F.**
            ***Dividends
                  and paying agents.***
            62**G.**
            ***Statement
                  by experts.***
            62**H.**
            ***Documents
                  on display.***
            62**I.**
            ***Subsidiary
                  Information.***
            63**Item
                  11**
            **Quantitative
                  and Qualitative Disclosures About Market
                  Risk.**
            63**Item
                  12**
            **Description
                  of Securities Other than Equity Securities.**
            63









iv









PART
                  II**Item
                  13**
            **Defaults,
                  Dividend Arrearages and Delinquencies.**
            63**Item
                  14**
            **Material
                  Modifications to the Rights of Security Holders and Use of
                  Proceeds.**
            63**Item
                  15**
            **Controls
                  and Procedures.**
            64**Item
                  16**
            **[Reserved]**
            64**Item
                  16A**
            **Audit
                  Committee Financial Expert.**
            64**Item
                  16B**
            **Code
                  of Ethics.**
            64**Item
                  16C**
            **Principal
                  Accountant Fees and Services.**
            65**Item
                  16D**
            **Exemptions
                  from the Listing Standards for Audit
                  Committees.**
            65**Item
                  16E**
            **Purchases
                  of Equity Securities by the Issuer and Affiliated
                  Purchasers.**
            65PART
                  III**Item
                  17**
            **Financial
                  Statements.**
            66**Item
                  18**
            **Financial
                  Statements.**
            66**Item
                  19**
            **Exhibits.**
            66**SIGNATURES**
            
            95**EXHIBIT
                  INDEX**
            96






v


**GLOSSARY**




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




***AK
      Property*** means the claims known as the "AK claims" held by the
      Gahcho Kué
      Joint Venture;




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




***AMEC***means
      AMEC E&C Services Ltd.




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




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




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




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




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




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




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




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




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




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




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




***Desktop
      Study*** means the preliminary technical assessment of the Gahcho Kué
resource conducted by De Beers Consolidated Mines Ltd. in 2000
      (updated in
      2003), which considered an 18 million tonne mineable resource. AMEC provided
      an
      Independent Qualified Persons’ review of the Desktop Study. Although the Desktop
      Study incorporates “inferred mineral resources that are considered too
      speculative geologically” to be categorized as “mineral reserves”, AMEC’s
      assessment supports the financial model for the project developed by De Beers.
      The capital and operating cost estimates are considered to be at scoping level,
      with an expected range of accuracy of +/- 30 percent.




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




***Gahcho
      Kué Joint Venture Agreement***means the joint venture agreement
      entered into by Mountain Province Diamonds Inc., Camphor Ventures Inc., and
      De
      Beers Canada Exploration Inc. on October 24, 2002, but which took effect from
      January 1, 2002.




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






vi


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




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




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




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




***Letter
      Agreement*** means the letter agreement dated March 6, 1997 among
      Mountain Province Mining Inc., Camphor Ventures Inc., Glenmore Highlands Inc.,
      444965 B.C. Ltd. and Monopros as amended or supplemented by: an agreement dated
      April 10, 1997 among Mountain Province Mining Inc., Camphor Ventures Inc.,
      Glenmore Highlands Inc., 444965 B.C. Ltd. and Monopros, an assurance given
      to De
      Beers by the other parties., dated July, 1997, an agreement given to De Beers
      by
      the other parties dated November 1, 1997 and two agreements each dated December
      17, 1999 among the parties.




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




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




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




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




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




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




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




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




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




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




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




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




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




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




vii




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




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




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






viii


**GLOSSARY
      OF TECHNICAL TERMS**




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




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




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




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




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




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




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




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




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




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




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




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




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






ix




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




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




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




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




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




Under
                United States standards:




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




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




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




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




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






x




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




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




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




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




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




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






xi




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




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




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




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




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




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






xii




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




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




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


***Proterozoic***
            The
                eon of geologic time or the corresponding system of rocks that includes
                the interval between the Archean and Phanerozoic eons, perhaps exceeds
                in
                length all of subsequent geological time, and is marked by rocks
                that
                contain fossils indicating the first appearance of eukaryotic organisms
                (as algae).  ***Reverse
                Circulation Drill***
            A
                rotary percussion drill in which the drilling mud and cuttings return
                to
                the surface through the drill pipe.




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




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




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




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




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






xiii


**NOTE
      REGARDING FORWARD LOOKING STATEMENTS**




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




Statements
      concerning mineral resource estimates may also be deemed to constitute
      forward-looking statements to the extent that they involve estimates of the
      mineralization that will be encountered if the property is developed, and based
      on certain assumptions that the mineral deposit can be economically exploited.
      Any statements that express or involve discussions with respect to predictions,
      expectations, beliefs, plans, projections, objectives, assumptions or future
      events or performance (often, but not always, using words or phrases such as
      "expects" or "does not expect", "is expected", "anticipates" or "does not
      anticipate", "plans", "estimates" or "intends", or stating that certain actions,
      events or results "may", "could", "would", "might" or "will" be taken, occur
      or
      be achieved) are not statements of historical fact and may be "forward-looking
      statements." Forward-looking statements are subject to a variety of risks and
      uncertainties which could cause actual events or results to differ from those
      reflected in the forward-looking statements, including, without
      limitation:




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




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




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




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




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




•
            risks
                related to commodity price
                fluctuations;




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




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




•
            risks
                related to environmental regulation and
                liability;




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




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




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






xiv


**NOTE
      REGARDING FINANCIAL STATEMENTS AND EXHIBITS**




The
      financial statements and exhibits referred to herein are filed with this report
      on Form 20-F in the United States. This report is also filed in Canada as an
      Annual Information Form and the Canadian filing does not include the financial
      statements and exhibits listed herein. Canadian investors should refer to the
      annual financial statements of the Company as at March 31, 2007, which are
      incorporated by reference herewith, as filed with the applicable Canadian
      Securities regulators on SEDAR (the Canadian Securities Administrators' System
      for Electronic Document Analysis and Retrieval) under "Audited Annual Financial
      Statements - English".




**METRIC
      EQUIVALENTS**




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




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







xv


**PART
      I**




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




Not
      Applicable




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




Not
      Applicable




**Item
      3.                 Key
      Information**




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




The
      selected financial data set forth below should be read in conjunction with
“Item
      5 - Operating and Financial Review and Prospects”, and in conjunction with the
      consolidated financial statements and related notes of the Company included
      under “Item 17, Financial Statements."  The Company's consolidated
      financial statements have been prepared in accordance with Canadian generally
      accepted accounting principles. Material measurement differences between
      accounting principles generally accepted in Canada and the United States,
      applicable to the Company, are described in Note 11 to the consolidated
      financial statements. The Company's financial statements are set forth in
      Canadian dollars.




The
      following chart summarizes certain selected financial information for the
      Company as at and for its fiscal years ended March 31, 2007, 2006, 2005, 2004
      and 2003.  Except as otherwise indicated, dollar amounts presented are
      equivalent under Canadian and United States generally accepted accounting
      principles.


**12
                Months Ended March 31,****All
                  in CDN$1,000's except Earnings (loss) per
                  Share**
            
            **2007**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****and
                  Number of Common Shares**Operating
                  Revenue
            
            nil
            
            
            nil
            
            
            nil
            
            
            nil
            
            
            nilInterest
                  Revenue
            
            
            24
            
            
            
            12
            
            
            
            13
            
            
            
            12
            
            
            
            19Working
                  Capital
            
            
            180
            
            
            
            808
            
            
            
            1,041
            
            
            
            701
            
            
            
            1,037Net
                  Earnings (loss) -Under
                  Canadian GAAP:
            
            
            (1,961
            )
            
            
            (2,200
            )
            
            
            1,531
            
            
            
            (1,813
            )
            
            
            (1,713
            )Under
                  U.S. GAAP: (restated)
            
            
            (1,868
            )
            
            
            (1,948
            )
            
            
            1,836
            
            
            
            (1,223
            )
            
            
            (14,513
            )Basic
                  and diluted earnings (loss) per share -Under
                  Canadian GAAP:
            
            
            (0.04
            )
            
            
            (0.04
            )
            
            
            0.03
            
            
            
            (0.04
            )
            
            
            (0.03
            )Under
                  U.S. GAAP: (restated)
            
            
            (0.03
            )
            
            
            (0.04
            )
            
            
            0.04
            
            
            
            (0.02
            )
            
            
            (0.29
            )Total
                  Assets -Under
                  Canadian GAAP:
            
            
            41,616
            
            
            
            34,874
            
            
            
            36,038
            
            
            
            33,514
            
            
            
            34,418Under
                  U.S. GAAP (restated)
            
            
            9,373
            
            
            
            4,971
            
            
            
            3,683
            
            
            
            1,030
            
            
            
            1,363Total
                  Liabilities
            
            
            419
            
            
            
            181
            
            
            
            95
            
            
            
            273
            
            
            
            240Share
                  CapitalUnder
                  Canadian GAAP:
            
            
            66,579
            
            
            
            58,253
            
            
            
            57,608
            
            
            
            56,595
            
            
            
            55,719Under
                  U.S. GAAP:
            
            
            66,559
            
            
            
            58,233
            
            
            
            57,587
            
            
            
            56,595
            
            
            
            55,719Net
                  Assets -Under
                  Canadian GAAP:
            
            
            41,197
            
            
            **
            *34,693*
            
            
            **
            *35,943*
            
            
            **
            *33,241*
            
            
            **
            *34,178*Under
                  U.S. GAAP (restated)
            
            
            8,954
            
            
            
            4,790
            
            
            
            3,588
            
            
            
            757
            
            
            
            1,123Number
                  of Common Shares issued
            
            
            55,670,715
            
            
            
            53,075,847
            
            
            
            52,610,847
            
            
            
            *51,202,111
            
            
            
            66,597,766less
                  shares owned by subsidiary
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (16,015,696
            )55,670,715
            
            
            
            53,075,847
            
            
            
            52,610,847
            
            
            
            51,202,111
            
            
            
            50,582,070




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




Restated
      figures include 2006 and prior years’ amounts under U.S. GAAP for the following:
      Net Earnings (loss) for 2003, 2004 and 2005; Basic and diluted earnings (loss)
      per share for 2003, 2004, 2005 and 2006; Total Assets under U.S. GAAP for 2003,
      2004, 2005, and 2006; and Net Assets under U.S. GAAP for 2003, 2004, 2005,
      and
      2006.  These restatements are as a result of an accounting error for U.S.
      GAAP purposes.  Please see the audited consolidated financial statements of
      the Company for the year ended March 31, 2007 for more information.






1




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




**Currency
      and Exchange Rates**




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




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




**2007**
            **2006**
            **2005**
            **2004**
            **2003**US$0.8785
            US$0.8376
            US$0.7842
            US$0.7412
            US$0.6474




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




**Month**
            
            **High**
            
            
            **Low**December
                  2006
            
            
            0.8760
            
            
            
            0.8582January
                  2007
            
            
            0.8586
            
            
            
            0.8457February
                  2007
            
            
            0.8631
            
            
            
            0.8437March
                  2007
            
            
            0.8673
            
            
            
            0.8467April
                  2007
            
            
            0.9035
            
            
            
            0.8633May
                  2007
            
            
            0.9345
            
            
            
            0.8980




On
      June
      28, 2007, the noon buying rate in New York City for cable transfer in Canadian
      dollars as certified for customer purposes by the Federal Reserve Bank of New
      York (the "Exchange Rate") was $1 Canadian = US$0.9411.






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




Not
      Applicable




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




Not
      Applicable




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




**Risks
      of Exploration and Development**




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




2




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




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




*(b)
      Speculative business*




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




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




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




*(d)
      Exploration and
      Development*




The
      Company's properties are primarily in the advanced exploration and permitting
      stage. Drilling of the 5034 and Hearne kimberlite pipes has been extensive,
      however, a limited amount of drilling has been conducted at the Tuzo and Telsa
      kimberlite pipes. There are no estimates of reserves. Estimates of mineral
      deposits, development plans and production costs, when made, can be affected
      by
      such factors as environmental permit regulations and requirements, weather,
      environmental factors, unforeseen technical difficulties, unusual or unexpected
      geological formations and work interruptions. In addition, the grade of diamonds
      ultimately discovered may differ from that indicated by bulk sampling results.
      Mine plans and processing concepts developed under the scoping and
      pre-feasibility studies are preliminary in nature. The estimated capital and
      operating costs developed under scoping and pre-feasibility studies are also
      preliminary in nature. Historically, pre-feasibility studies have tended to
      underestimate capital and operating costs.




(*e) Process Testing*




Process
      testing is limited to small scale testing based on a number of laboratory test
      programs, trade-off studies and design evaluations conducted in 2002 and 2004.
      Ore dressing study technical investigations were performed on kimberlite from
      the 5034 and Hearne pipes. A database of operating information developed during
      the 1999/2000 bulk sample processing of 2,000 tonnes of kimberlite was used
      to
      supplement the ore dressing study data. Limited processing data is available
      for
      the Tuzo and Telsa kimberlites. Process plant studies were conducted during
      the
      course of 2005. There can be no assurance that diamonds recovered in small
      scale
      tests will be duplicated in large scale tests under on-site conditions or in
      production scale. Difficulties may be experienced in obtaining the expected
      diamond recoveries when scaling up to a production scale process
      plant.




*(f)
      Project
      Funding*




De
      Beers Canada is now paying for all exploration of the AK Property, and can
      be
      called on to pay all development costs of the AK Property and, with regard
      to
      that property, there is currently no risk to the Company in respect of the
      further exploration, permitting and development costs. Any separate and
      additional exploration done by the Company on its other properties may not
      result in discovery of any diamondiferous kimberlite.




3




*(g)
      History of Losses or
      Earnings*




The
      Company has a history of losses and may continue to incur losses for the
      foreseeable future. During the years ended March 31, 2007, 2006 and 2005, the
      Company incurred net losses or earnings during each of the following
      periods:




•
            $1.961
                million net loss for the year ended March 31,
                2007.




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




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




As
      of
      March 31, 2007, the Company had an accumulated deficit of $26.1 million. There
      can be no assurance that the Company will ever be profitable.




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




*(h)
      Recoverability of capitalized
      mineral property costs*




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




*(i)
      Additional Funding Requirements*




As
      of
      March 31, 2007, the Company had cash and cash equivalents of approximately
      $0.180 million and working capital of approximately $0.180 million. During
      the
      past three fiscal years ended March 31, 2007, the Company has used approximately
      $2.563 million in cash flows in operating activities including approximately
      $0.978 million during the fiscal year ended March 31, 2007, $0.727 million
      during the fiscal year ended March 31, 2006 and $0.858 million during the fiscal
      year ended March 31, 2005.




The
      Company's administrative and other expenses are expected to be approximately
      $1.0 million for the next year. The Company does not have sufficient working
      capital for administrative purposes for the next year, but intends to raise
      capital to finance its operations for the next two years or more through either
      the sale or partial sale of its investment in Northern Lion, and/or through
      the
      private placement of shares. The Company also has access to cash and other
      liquid investments held by Camphor.  The Company may be required to
      raise additional capital through equity and/or debt financings on terms that
      may
      be dilutive to its shareholders' interests in the Company and to the value
      of
      their common shares. The Company may consider debt financing, joint ventures,
      production sharing arrangements, disposing of properties or other arrangements
      to meet its capital requirements in the future. Such arrangements may have
      a
      material adverse affect on the Company's business or results of
      operations.




*(j)
      No Proven Reserves*




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




4


*(k)
      Title Matters*




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




*(l)
      Diamond Prices*




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




*(m)
      Compliance with Environmental and Government Regulation*




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




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




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




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




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




5




*(n)
      Climate and
      Transportation*




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




*(o)
      Joint Venture Partner*




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




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




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




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




The
      table below summarizes the 2005 Gahcho Kué Resource Statement.




**Cautionary
      Note to U.S. Investors concerning estimates of****Indicated and
      Inferred Resources.**This section uses the terms "indicated" and
      "inferred resources." We advise U.S. investors that while those terms are
      recognized and required by Canadian regulations, the U.S. Securities and
      Exchange Commission does not recognize them. "Inferred 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, estimates of Inferred Mineral Resources may not form the basis
      of feasibility or pre-feasibility studies, except in rare cases.





6


**U.S.
      investors are cautioned not to assume that any part or all of mineral deposits
      in these categories will ever be converted into reserves.**





**U.S.
      investors are cautioned not to assume that part or all of an inferred resource
      exists, or is economically or legally minable.**




**2005
      GAHCHO
      KUÉ RESOURCE STATEMENT**




**Pipe**
              **Resource**
            **Category**
            **Tonnes**
            **Carats**
            **Grade**
              **(cpht)(1)**5034
            Indicated
              Inferred
            8,715,000
              4,921,000
            13,943,000
              8,366,000
            160
              170Hearne
            Indicated
              Inferred
            5,678,000
              1,546,000
            9,676,000
              2,373,000
            170
              153Tuzo
            Inferred
            10,550,000
            12,152,000
            115Summary
            Indicated
              Inferred
            14,392,000
              17,017,000
            23,619,000
              22,890,000
            164
              135


(1)Resource cutoff is 1.5 mm




On
      July
      25, 2005, the Joint Venture announced the Joint Venture Management Committee
      had
      approved a budget of $38.5 million for the environmental assessment and
      permitting process and for an advanced exploration program. On November 29,
      2005, it was announced that the Joint Venture had submitted an application
      with
      the Mackenzie Valley Land and Water Board for permits required to construct
      and
      operate a diamond mine at Gahcho Kué. The permit applications were submitted to
      the Mackenzie Valley Environmental Impact Review Board for an Environmental
      Assessment (EA). The Review Board ordered the Gahcho Kué application to an
      Environmental Impact Review (EIR) in June 2006. Out of concern that the Review
      Board may have exceeded its authority in referring the Gahcho Kué
application to EIR prior to conclusive completion of the EA, De Beers took
      the
      Review Board’s decision to judicial review in the Supreme Court on the Northwest
      Territories. On April 2, 2007 the Supreme Court ruled that the Review Board
      had
      acted within its authority and upheld the decision to refer the application
      to
      EIR.




On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was projected to be
      completed by May 2006. Inadequacies on the part of the casing drill contractor
      resulted in the failure of the 2006 bulk sampling programs at Tuzo and the
      5034
      North Lobe. The 2006 core drilling program was successful and laid the
      groundwork for an extended core drilling program at Tuzo during the summer
      of
      2006. The 2006 core drilling program confirmed the presence of flaring of the
      Tuzo kimberlite to depth. The program also confirmed the presence of kimberlite
      between the 5034 South Lobe and the Wallace Anomaly and also between the 5034
      South Lobe and the 5034 West Lobe.




On
      December 19, 2006, the Joint Venture announced the details of a $30 million
      2007
      work program designed to conduct extensive core drilling over the Tuzo
      kimberlite pipe; complete a review of the 2005 pre-feasibility study; and
      advance the permitting for the Gahcho Kue project.




*(p)
      Operating Hazards and Risks*




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




7


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




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




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




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




*(s)
      Competition*




The
      resource industry is intensely competitive in all of its phases, and the Company
      competes with many companies possessing greater financial resources and
      technical facilities. Competition could adversely affect the Company's ability
      to acquire suitable producing properties or prospects for exploration in the
      future. The Company may be required under the Gahcho Kué Joint Venture Agreement
      (see “Item 4B - Information on the Company - Business Overview”) to sell its
      rough diamonds at a price that is reflective of the market price, to The Diamond
      Trading Co., a wholly-owned subsidiary of De Beers, which controls approximately
      50% of the diamond market. There may therefore be no competition for diamonds
      produced from the Company's properties. The Company only competes in the
      acquisition of new properties.




*(t)
      Financing Risks*




The
      Company's current operations do not generate any cash flow. If the Company
      seeks
      additional equity financing, the issuance of additional shares will dilute
      the
      interests of the Company's current shareholders. The amount of the dilution
      would depend on the number of new shares issued and the price at which they
      are
      issued. The Company has successfully raised funds in recent years through share,
      option and warrant issuances. As at June 22, 2007, the Company had approximately
      $0.3 million in cash, including cash that it can access through its subsidiary,
      Camphor, and the Company intends to raise capital to finance its operations
      for
      the next two years or more through either the sale or partial sale of its
      investment in Northern Lion, and/or through the private placement of
      shares.




*(u)  Dilution
      from Outstanding Securities*




As
      at
      June 28, 2007, there were 608,850 options at exercise prices ranging from $0.56
      to $4.50 (expiring at various dates), and no warrants outstanding.  Of
      these, 198,850 options were issued in exchange for stock options of Camphor
      Ventures tendered to complete the acquisition of Camphor.  The stock
      options, if fully exercised, would increase the number of shares outstanding
      by
      608,850. Such options, if fully exercised, would constitute approximately 1%
      (out of 60,332,381 shares (59,723,531 issued and outstanding, plus total
      options) respectively) of the Company's resulting share capital as at June
      28,
      2007. It is unlikely that options would be exercised unless the market price
      of
      the Company's common shares exceeds the exercise price at the date of exercise.
      The exercise of such options and the subsequent resale of such Common shares
      in
      the public market could adversely affect the prevailing market price and the
      Company's ability to raise equity capital in the future at a time and price
      which it deems appropriate. The Company may also enter into commitments in
      the
      future which would require the issuance of additional common shares and the
      Company may grant new share purchase warrants and stock options. Any share
      issuances from the Company's treasury will result in immediate dilution to
      existing shareholders.




8


*(v)   Conflicts
      of Interest*




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




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




*(w)
      Dependence on Key Management Employees*




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




*(x)   Fluctuations
      in Company Stock Prices*




Prices
      for the Company's shares on the TSX and on the Amex, have been extremely
      volatile. The price for the Company's common shares on the TSX ranged from
      $3.05
      (low) and $5.05 (high) during the fiscal year ended March 31, 2007, and from
      $2.15 (low) to $4.96 (high) during the fiscal year ended March 31,
      2006.  The price on the Amex ranged from $2.70 US (low) and $4.40 US
      (high) during the fiscal year ended March 31, 2007, and from $1.70 US (low)
      to
      $4.26 US (high) during the fiscal year ended March 31, 2006.  Any
      investment in the Company's securities is therefore subject to considerable
      fluctuations in value.




*(w)
      Currency Rate Fluctuations*




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




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




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




9


*(z)
      De Beers Support*




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




*General*




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




**Item
      4.                 Information
      on the Company**




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




**The
      Corporate Organization**




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




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




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




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




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




10


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




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




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




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




Mountain
      Glen was voluntarily dissolved on August 4, 2004.




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




The
      Company is domiciled in Canada.




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




**Name
                    of Subsidiary**
              **Date
                    of Incorporation**
              **Juridiction
                    of Incorporation**Baltic
                    Minerals BV
              January
                    26, 1996
              The
                    NetherlandsBaltic
                    Minerals Finland OY
              May
                    18, 1994
              FinlandCamphor
                    Ventures Inc.
              May
                    9, 1986 (as Sierra Madre Resources Inc.)
              British
                    Columbia, Canada




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












11




The
      Company's registered, records and executive office is at 401 Bay Street, Suite
      2700, PO Box 152, Toronto, Ontario, Canada M5H 2Y4.  The Company’s
      administrative and executive office is at 401 Bay Street, Suite 2700, PO Box
      152, Toronto, Ontario, Canada M5H 2Y4, the telephone number is (416) 361-3562,
      and the fax number is (416) 603-8565.




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




**Principal
      Capital Expenditures and Divestitures**




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




**Takeover
      offers**




There
      were no public takeover offers by third parties in respect of the Company's
      shares or by the Company in respect of other companies' shares during the last
      and current financial year, except as discussed under “Acquisitions and
      Dispositions” relating to Camphor Ventures.




**Acquisitions
      and Dispositions**




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




On
      July
      5, 2006, the Company announced that it had entered into an agreement with
      certain Camphor Ventures Inc. (“Camphor”) shareholders to acquire approximately
      33.5 percent of the issued and outstanding shares of Camphor through a private
      agreement exempt share exchange on the basis of 0.3975 Mountain Province shares
      for each Camphor share. The acquisition was completed on July 24,
      2006.




On
      January 19, 2007 the Company announced that Camphor had accepted an offer letter
      from the Company in terms of which the Company offered, subject to certain
      conditions, to acquire all of the outstanding securities of Camphor Ventures
      on
      the basis of 0.41 Mountain Province common shares, options or warrants (as
      the
      case may be) per Camphor common share, option, or warrant. Offering documents
      and the Camphor Directors’ Circular were mailed to Camphor shareholders on
      February 23, 2007, and the offer remained open until March 30, 2007, following
      which Mountain Province took up the Camphor shares tendered into the offer
      increasing the Company’s interest in Camphor to over 90 percent. The offer was
      subsequently extended until April 16, 2007, following which the Company’s
      interest in Camphor increased to 96% percent on a fully diluted basis. On April
      19, 2007, the Company issued a Notice of Compulsory Acquisition to acquire
      the
      balance of the outstanding shares of Camphor.  The Notice expired June
      19, 2007 and the Company took up the balance of the Camphor
      shares.  Camphor Ventures has been de-listed and is now a wholly owned
      subsidiary of Mountain Province.






12




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




*1.1    
      Introduction*




The
      Company is a natural resource property exploration and development company.
      The
      Company has interests in several natural resource properties, the most
      significant and principal property being a 49% interest (including the 4.9%
      interest of Camphor) in the AK Property located in the Northwest Territories.
      See "Item 4D - Property, plants and equipment".




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




*1.2    
      Historical Corporate Development*




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




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




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




During
      1996, the Company completed a 104-tonne mini-bulk sample from the 5034
      kimberlite pipe. The results indicated an average grade of 2.48 carats per
      tonne. During 1997, the Company concluded a joint venture agreement (the "Letter
      Agreement") with Monopros, a wholly-owned subsidiary of De Beers, and now known
      as De Beers Canada Exploration Inc., Camphor Ventures Inc., and other parties,
      and further amended it (as the Gahcho Kué Joint Venture Agreement) in 2002, to
      develop the AK-CJ Properties. The Letter Agreement granted De Beers the sole
      and
      exclusive right and option to acquire a 51% ownership interest in the Property
      in consideration of incurring certain expenditures.




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




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




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




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




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




13


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




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




During
      2002, the Company concluded a new joint venture agreement (the “Gahcho Kué
Joint Venture Agreement”) among Mountain Province Diamonds Inc., Camphor
      Ventures Inc. and De Beers Canada Exploration Inc.  This agreement
      provides that De Beers Canada could earn up to a 55% interest in the project
      by
      funding and completing a positive definitive feasibility study. The agreement
      also provides that De Beers Canada could earn up to a 60% interest in the
      project by funding development and construction of a commercial-scale
      mine.




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




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




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




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




On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was projected to be
      completed by May 2006. Inadequacies on the part of the casing drill contractor
      resulted in the failure of the 2006 bulk sampling programs at Tuzo and the
      5034
      North Lobe. The 2006 core drilling program was successful and laid the
      groundwork for an extended core drilling program at Tuzo during the summer
      of
      2006. The 2006 core drilling program confirmed the presence of flaring of the
      Tuzo kimberlite to depth. The program also confirmed the presence of kimberlite
      between the 5034 South Lobe and the Wallace Anomaly and also between the 5034
      South Lobe and the 5034 West Lobe.




On
      December 19, 2006, the Joint Venture announced the details of a $30 million
      2007
      work program designed to conduct extensive core drilling over the Tuzo
      kimberlite pipe; complete a review of the 2005 pre-feasibility study; and
      advance the permitting for the Gahcho Kué project.




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




14


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




On
      July
      5, 2006 the Company announced that it had entered into an agreement with certain
      Camphor shareholders to acquire approximately 33.5 percent of the issued and
      outstanding shares of Camphor through a private agreement exempt share exchange
      on the basis of 0.3975 Mountain Province shares for each Camphor share. The
      acquisition was completed on July 24, 2006.




On
      January 19, 2007, the Company announced that Camphor had accepted an offer
      letter from the Company in terms of which Mountain Province offered, subject
      to
      certain conditions, to acquire all of the outstanding securities of Camphor
      on
      the basis of 0.41 Mountain Province common shares, options or warrants (as
      the
      case may be) per Camphor common share, option, or warrant. Offering documents
      and the Camphor Directors’ Circular were mailed to Camphor shareholders on
      February 23, 2007, and the offer remained open until March 30, 2007, following
      which Mountain Province took up the Camphor shares tendered into the offer
      increasing the Company’s interest in Camphor to over 90 percent. The offer was
      subsequently extended until April 16, 2007, following which the Company’s
      interest in Camphor increased to 96% percent on a fully diluted basis. On April
      19, 2007, the Company issued a Notice of Compulsory Acquisition to acquire
      the
      balance of the outstanding shares of Camphor.  The Notice expired June
      19, 2007, and the Company took up the rest of the shares.  Camphor
      Ventures has been de-listed and is now a wholly owned subsidiary of Mountain
      Province.




**Foreign
      Assets**




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




**Competition**




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




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




15


**Government
      Regulation**




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




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




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




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




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




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




16




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




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




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




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




**Principal
      Properties**




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




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




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




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




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




Description
      of Property




*Administrative
      Offices*




The
      Company's administrative office is located at 401 Bay Street, Suite 2700, PO
      Box
      152, Toronto, Ontario, Canada M5H 2Y4. The Company considers these premises
      suitable for current needs.




17


**


*Mineral
      Properties*




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




*Location
      and Access*




**GAHCHO
      KUÉ LOCATION MAP (2007)**













18


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




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




*Topography,
      Vegetation and Climate*




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




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




*Acquisition
      - Joint Venture Agreement*




The
      AK
      Property, acquired in August 1992, consists of 132 contiguous claims, which
      total 310,175 acres, in the Mackenzie Mining District, NWT. The AK Property
      forms a nearly rectangular block, which is about 25 kilometers north-south
      by 50
      kilometers east-west.  All of the claims comprising the AK Property
      are federal and have been taken to lease and are in good standing with no legal
      impediments. Annual lease payments are made to the federal government to
      maintain the title over the AK Property.  De Beers, as operator, is
      responsible for the payment of the lease amounts for the Gahcho Kué
claims.  Mountain Province pays about $15,000 Canadian annually for
      the other five leases it holds directly.





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





Pursuant
      to the Letter Agreement dated March 6, 1997, and subsequently replaced by the
      Gahcho Kué Joint Venture Agreement in 2002, De Beers could earn up to a 60%
      interest in the AK-CJ Properties in exchange for conducting an exploration
      program on the property and a bulk sampling program on one or more new
      kimberlites, completing a feasibility study on one or more kimberlites, and
      funding the development and construction of a commercial mine. On completion
      of
      a bulk sampling program, and if De Beers Canada committed to proceed with a
      full
      feasibility study, De Beers Canada would earn an initial 51% interest,
      increasing to a 56% or 60% interest (depending on alternative arrangements
      on
      financing the feasibility study) on the commencement of commercial production.
      If on completion of the full bulk-sampling program, De Beers Canada did not
      commit to proceeding with a feasibility study, De Beers Canada would earn only
      a
      30% interest and the Company and Camphor would continue to control the AK-CJ
      Properties.




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




19




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




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




Pursuant
      to an agreement reached at a meeting on March 8, 2000, the parties agreed to
      amend the Letter Agreement to clarify funding obligations between the parties
      and to enable the parties to defer the feasibility study decision date in order
      to give time to De Beers Canada to investigate several conventional and
      alternative mining scenarios to be the subject of the desktop study. As a
      result, De Beers Canada agreed to fund all exploration, development and other
      project costs going forward, effective immediately and would earn a 51% interest
      upon completion of the desktop study. The Company had been paying 49% (combined
      Company and Camphor Ventures costs) of all project costs since July
      1999.




On
      August 4, 2000, the desktop study was presented to the Company. Upon
      presentation, De Beers Canada was deemed to earn a 51% interest in the AK-CJ
      Properties. Consequently, the Company was left with a 49% interest (combined
      Company and Camphor Ventures interests) in the AK-CJ Properties. The CJ Property
      substantially lapsed in November 2001 with the remaining CJ Property claims
      lapsing on August 17, 2002.




In
      August 2002 De Beers took 30 of the AK claims to lease. These claims contain
      all
      the kimberlite discoveries at and in Kennady Lake, MZ Lake and in the
      Kelvin-Faraday area.  In 2005, the Joint Venture decided to retain
      four leases for the development of the Gahcho Kué project; the Company decided
      to retain five leases for future exploration; and 21 leases were transferred
      to
      GGL Diamond Corp. in exchange for a 1.5 percent royalty.  The four
      leases retained for the development of the Gahcho Kué project are lease numbers
      4341, 4199, 4200, and 4201.  These represent, respectively, claim
      numbers AK 89, AK 90, AK 91, and AK 92.  These four claims represent
      about 10,295 acres.




Mountain
      Province (outside of the Joint Venture with De Beers) has the following five
      claims with their respective claim numbers - AK 81, AK 84, AK 85, AK 86 and
      AK
      93.  These five claims represent about 12,555 acres.




20


**Gahcho
      Kué Joint Venture and Mountain Province Diamonds Claims**









*Regional
      Geological Setting*




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




21




**MAP
      - LOCATION OF PIPES**









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




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




*Detailed
      Geological Setting*




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




22


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




*Quaternary
      Geology*




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




*Work
      History*




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




*5034
      Kimberlite Pipe*




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




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




*Mini-Bulk
      Sample of 5034 Kimberlite Pipe*




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






23


**Table
      1**




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


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





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


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




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




*1997
      Exploration Program*




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




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




*The
      Hearne, Tesla and Tuzo Kimberlites*




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




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




24




**Table
      2**




**Diamond
      Recoveries by Caustic Fusion of Drill Core from the Hearne, Tesla and Tuzo
      Kimberlites, Kennady Lake Kimberlite Field, AK Property**




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




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




*1998
      Mini-Bulk Sample*




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




**Table
      3**




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


**In
      The Kennady Lake Kimberlite Field Cluster**




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




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




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




25


*1999
      Bulk Sampling Program*




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




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




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




*5034
      Pipe*




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




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




**Table
      4**




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




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




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




26




*Tesla
      Pipe*




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




*Hearne
      Pipe*




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




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




The
      modeled results for each of these parts of the pipe are summarized in Table
      5
      below:




**Table
      5**




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




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




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




*Tuzo
      Pipe*




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




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




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




27




**Table
      6**




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




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




*1999
      Exploration/Delineation Program*




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




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




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




*Feasibility
      Study Decision - 2000*




When
      the results as set out in Table 6, above, were obtained, both De Beers Canada
      and the Company agreed on March 8, 2000, that it was unlikely that the agreed
      upon rate of return would be achieved from the mining of the 5034, Hearne and
      Tuzo pipes, using the conventional open pit mining method. As a result, the
      Company agreed to extend the feasibility study decision date and De Beers Canada
      has agreed to carry all exploration, development and other project costs. Prior
      to March 8, 2000, the Company had been paying 49% (combined Company and Camphor
      Ventures) of all project expenses since July 1999. De Beers Canada, in the
      meantime, conducted a desktop study to investigate several alternative mining
      scenarios in order to minimize capital and working costs associated with the
      possible mining of the Kennady Lake pipes. The results of that desktop study
      were presented to the Company on August 4, 2000. The study showed that the
      modeled rate of return for the mining of the three main diamond pipes was below
      the agreed upon rate of return needed to proceed to the next phase, but
      sufficiently close to only require an increase in diamond revenues of
      approximately 15% to achieve the agreed upon rate. A management committee was
      constituted and it was decided that the best options to advance the project
      were
      an additional bulk sample and additional exploration. The bulk sample was
      completed in May 2001 and the exploration in June 2001.




28


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




**Exploration
      from 2000 onwards**




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




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




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




**Table
      7: Micro-diamonds recovered from the Faraday and Kelvin bodies compared to
      representative samples from the Hearne and 5034 pipes**.




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




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




29


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




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




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




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




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




Square
                  Mesh
                Size
                  (mm)
            Faraday-1b
                  33kg
                Number
                  of diamonds
            Faraday
                  -2 65 kg
                Number
                  of diamonds
            Kelvin-1b
                  65 kg
                Number
                  of diamonds
            Kelvin-2
                  16 kg
                Number
                  of diamonds
            Hobbes-216
                  kg
              Number
                  of diamonds2.36
            0
            1
            0
            0
            01.70
            0
            2
            0
            0
            01.18
            1
            2
            2
            0
            00.85
            0
            6
            4
            0
            00.60
            1
            7
            6
            0
            00.425
            0
            17
            14
            3
            10.300
            3
            21
            24
            4
            20.212
            11
            41
            40
            4
            40.150
            8
            47
            60
            4
            20.100
            2
            50
            53
            19
            4




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




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




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




30


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




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




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




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




2001/2002
      Bulk Sampling




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




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




31


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




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




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




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




**Table
      9 - Weighted Average Model Grades**




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




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




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




32




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




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




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




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




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




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




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




*Feasibility
      Study Decision*




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




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




33


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




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




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




The
      table below summarizes the 2005 Gahcho Kué Resource Statement.




**Cautionary
      Note to U.S. Investors concerning estimates of****Indicated and
      Inferred Resources.**This section uses the terms "indicated" and
      "inferred resources." We advise U.S. investors that while those terms are
      recognized and required by Canadian regulations, the U.S. Securities and
      Exchange Commission does not recognize them. "Inferred 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, estimates of Inferred Mineral Resources may not form the basis
      of feasibility or pre-feasibility studies, except in. rare cases.





**U.S.
      investors are cautioned not to assume that any part or all of mineral deposits
      in these categories will ever be converted into reserves.**





**U.S.
      investors are cautioned not to assume that part or all of an inferred resource
      exists, or is economically or legally minable.**




**2005
      GAHCHO
      KUÉ RESOURCE STATEMENT**




**Pipe**
              **Resource**
            **Category**
            **Tonnes**
            **Carats**
            **Grade**
              **(cpht)(1)**5034
            Indicated
              Inferred
            8,715,000
              4,921,000
            13,943,000
              8,366,000
            160
              170Hearne
            Indicated
              Inferred
            5,678,000
              1,546,000
            9,676,000
              2,373,000
            170
              153Tuzo
            Inferred
            10,550,000
            12,152,000
            115Summary
            Indicated
              Inferred
            14,392,000
              17,017,000
            23,619,000
              22,890,000
            164
              135


(1)Resource
      cutoff is 1.5 mm




On
      July
      25, 2005, the Joint Venture announced that De Beers had approved a budget of
      $38.5 million for the environmental assessment and permitting process and for
      an
      advanced exploration program.




34


On
      January 12, 2006, the Joint Venture announced details of the advanced
      exploration program which commenced in February 2006 and was completed by May
      2006. . Inadequacies on the part of the casing drill contractor resulted in
      the
      failure of the 2006 bulk sampling programs at Tuzo and the 5034 North Lobe.
      The
      2006 core drilling program was successful and laid the groundwork for an
      extended core drilling program at Tuzo during the summer of 2006.  The
      2006 core drilling program confirmed the presence of flaring of the Tuzo
      kimberlite to depth. The program also confirmed the presence of kimberlite
      between the 5034 South Lobe and the Wallace Anomaly and also between the 5034
      South Lobe and the 5034 West Lobe.




On
      December 19, 2006, the Joint Venture announced the details of a $30 million
      2007
      work program designed to conduct extensive core drilling over the Tuzo
      kimberlite pipe; complete a review of the 2005 pre-feasibility study; and
      advance the permitting for the Gahcho Kué project.




On
      May
      30, 2007, the Joint Venture announced details of an $8 million 2007 summer
      bulk
      sampling program. Under this program a land-based large diameter (5.75 inches)
      core drilling program at the 5034 North Lobe will be undertaken.  This
      program will be used to extract approximately 100 carats to confirm micro to
      macro relationships being used to evaluate the 5034 North
      Lobe.  Current indications are that five large diameter core holes
      over 1,500 meters should be sufficient to recover the approximate 60 tonnes
      required for recovery of the 100 carat sample.  In addition,
      geochemical analysis and thin section work will be completed on the five holes
      drilled into the East Lobe during the 2007 winter core drill
      program.  This analysis will be used to confirm continuity between the
      two lobes. Confirmation of the kimberlite continuity will allow the
      extrapolation of diamond revenue data from the 5034 East Lobe to the North
      Lobe.  The results of the above work will be used with existing data
      to raise the resource confidence of the North Lobe from Inferred to
      Indicated.





**Permitting**





In
      November 2005, De Beers, as operator of the Gahcho Kué Joint Veture,
      applied to the Mackenzie Valley Land and Water Board for a Land Use Permit
      and
      Water License to undertake the development of the Gahcho Kué diamond mine. On
      December 22, 2005, Environment Canada referred the applications to the MacKenzie
      Valley Environmental Impact Review Board (“MVEIRB”), which commenced and
      Environmental Assessment ("EA"). On June 12, 2006, the MVEIRB ordered that
      an
      Environment Impact Review (“EIR”) of the applications should be
      conducted.





In
      July
      2006, De Beers Canada filed an application for a judicial review of the
      referral. De Beers Canada brought the application for judicial review of the
      MVEIRB decision to the Supreme Court of the NWT. On April 2, 2007, the Supreme
      Court of the Northwest Territories dismissed De Beers’ application and upheld
      the decision by the MVEIRB.





Following
      the decision of the Supreme Court of the NWT, the MVIERB has now commenced
      the
      EIR.  The MVEIRB published draft Terms of Reference and a draft Work
      Plan for the Gahcho Kué project in early June 2007, calling for comments from
      interested parties by July 11, 2007.  The draft Work Plan anticipates
      that the EIR of the Gahcho Kué project will be completed by mid-2009, although
      the MVEIRB emphasizes that the dates reported are target dates only, and the
      schedule is subject to change.  The impact on the project’s
      development schedule is not yet known.




**Project
      Costs to Date and Planned Future Costs**




The
      following table outlines the costs to date, their source of funding, and the
      planned future costs.




**Period
                of Time**
            **Amount
                (1)**January
                1, 1997 to December 31, 2005
            $     80,097,783Expenses
                January 1, 2006 to December 31, 2006
            33,409,897Approved
                Budget January 1, 2007 to December 31, 2007
            35,493,800Projected
                Expenses January 1, 2008 to December 31, 2011
            783,020,000TOTAL
                - approximately
            $   932,021,480


(1)As
      provided by the Operator, De Beers Canada Inc., and subject to review by the
      Company




35




**Other
      Properties**




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




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




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




**Item
      4A.               Unresolved
      Staff Comments**




Not
      Applicable




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




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




The
      following discussion of the financial condition and operating results of the
      Company should be read in conjunction with the consolidated financial statements
      and related notes to the financial statements which have been prepared in
      accordance with Canadian generally accepted accounting principles ("GAAP").
      Discussion and analysis set forth below covers the results obtained under GAAP
      in Canada. A significant difference between Canadian and U.S. GAAP exists with
      respect to accounting for mineral property acquisition and exploration costs
      which have been capitalized under Canadian GAAP but are required to be expensed
      under U.S. GAAP when incurred until such time as commercially mineable deposits
      are determined to exist within a particular property. Material measurement
      differences between accounting principles generally accepted in Canada and
      the
      United States, applicable to the Company, are described in Note 11 to the
      consolidated financial statements.




**Fiscal
      Year ended March 31, 2007 compared to Fiscal Year ended March 31,
      2006**




The
      Company had a loss of $ 1,961,263 (or $0.04 per share) for the fiscal year
      ended
      March 31, 2007, compared to a loss of $2,199,888 (or $0.04 per share) for the
      same period ended March 31, 2006.





$480,000
      of the loss was due to the Company’s write down of its long term investment
      related to Northern Lion Gold Corp. in the quarter ending December 31, 2006,
      and
      $143,266 represents the Company’s approximately 33.8% share of the loss of
      Camphor.





Operating
      expenses were $1,361,937 for the year ended March 31, 2007 compared to
      $1,132,061 for the same period ended March 31, 2006.





Increased
      consulting fees for the year (2007 - $476,754; 2006 - $309,217) include fees
      paid to Patrick Evans as President & CEO for the year of $150,000, and to
      Jennifer Dawson as CFO and Corporate Secretary of $94,200, as well as fees
      associated with consulting by third parties for the Gahcho Kué Joint
      Venture, consulting support services, and for regulatory
      requirements.  The consulting fees for the year ended March 31, 2006
      included fees paid to the former President & CEO Jan Vandersande until
      November 2005 ($102,100, including $17,200 of medical benefits paid), to Patrick
      Evans for his part-year service as the new President & CEO ($56,100), for
      recruiting for the President position ($45,000), to Elizabeth Kirkwood, the
      Chair of the Board, CFO and a director for consulting ($12,000), for other
      consulting support services ($11,200), and for consulting by third parties
      for
      the Gahcho Kué Joint Venture ($81,400).





The
      incremental professional fees of $198,628 for the year ended March 31, 2007
      compared to $166,150 for the same period of the prior year included audit and
      tax fee accruals and payments of $81,700 (2006 - $74,600), legal costs for
      general corporate matters and the acquisition of approximately 33.5% of common
      shares of Camphor Ventures in July 2006 in the amount of about $83,700 (2006
      -
      $75,000), and approximately $30,000 for outsourced accounting services (2006
      -
      $16,550).





36


Also
      contributing to the net loss for March 31, 2007 is stock-based compensation
      expense of $186,921 (2006 - $314,879) as a result of options granted in November
      2005 and January 2006 which vested during the year.





Directors’
      fees and benefits of $56,101 for the year ended March 31, 2007 include
      directors’ fees of $37,500, net of an overaccrual of the year ending March 31,
      2006 of $12,917, related payroll costs, as well as medical and dental benefits
      paid on behalf of the former President & CEO in the amount of
      $23,750.  The $37,500 for the year ended March 31, 2006 was an accrual
      for directors’ fees for the year.





Promotion
      and investor relations expense has increased from March 31, 2006’s level of
      $108,184 to $124,467 for the year ended March 31, 2007 as a result of the
      retainer paid until mid-November 2006 to an investor relations firm ($53,000),
      printing and mailing costs for the annual general meeting materials
      (approximately $48,000), and non-recurring charges for website development
      and
      other investor relations work for approximately $24,000.





Transfer
      agent and regulatory fees for the year ended March 31, 2007 are greater than
      those of March 31, 2006 (2007 - $190,121; 2006 - $99,794) as a result of
      increased TSX ($14,100) and Amex fees ($45,000) associated with the issuance
      of
      Company shares in exchange for Camphor shares in July 2006, as well as increased
      charges for increased communications in the form of press releases ($32,723),
      and generally increase filing services and fees over the prior
      year.





Office
      and miscellaneous expenses (2007 - $80,998; 2006 - $54,053) reflect the
      increased cost of rent for premises in the amount of approximately $12,000
      for
      the Company’s head office starting in December 2006, increased insurance costs,
      and other general increases in costs associated with increased
      activity.




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




The
      Company had a loss of $2,199,888 (or $0.04 per share) for the fiscal year ended
      March 31, 2006 (“fiscal 2006”), compared to income of $1,531,244 (or $0.043 per
      share) for the same period ended March 31, 2005 (“fiscal 2005”).





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





37




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




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





The
      Company reported working capital of $179,550 at March 31, 2007 ($808,267 as
      at
      March 31, 2006), and cash and cash equivalents of $179,970 ($845,452 at March
      31, 2006).  The Company had no long-term debt at either March 31, 2007
      or March 31, 2006.  The Company does not incur any direct costs in
      connection with the Gahcho Kué Project as De Beers Canada is responsible for all
      exploration, development, permitting and construction costs to commercial
      production.





The
      Company intends to raise capital to finance its operations for the next two
      years or more through either the sale or partial sale of its investment in
      Northern Lion, and/or through the private placement of shares. As well, it
      has
      access to cash and other liquid investments held by Camphor.





During
      the year, the Company received $888,450 by issuing 650,000 shares upon the
      exercise of various stock options (2006 - $634,850 issuing 465,000 shares upon
      the exercise of options).





The
      Company expects to continue incurring annual losses until it receives revenue
      from production on the Gahcho Kué Project, if placed into production. 
There is no assurance that the property will be developed or placed into
      production.




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




As
      at
      June 28, 2007, the Company has 608,850 stock options outstanding which are
      exercisable at prices between $0.56 and $4.50 per share.  If all of the
      stock options were exercised, the Company would receive proceeds of $1.28
      million**,**but there is no assurance that these will be exercised
      and such exercise cannot be considered to be part of the Company's financing
      strategy. If all of the options were exercised, to which no assurance can be
      given that all or any will be exercised, these funds would be available to
      the
      Company as working capital.




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




The
      Company does not engage in any research and development activities and has
      no
      patents or licenses.




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




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




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




The
      Company has no off balance sheet arrangements.




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




The
      Company has no contractual obligations relating to debt or lease obligations
      as
      at March 31, 2007.




38




**Critical
      Accounting Estimates**




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




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




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




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




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




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




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




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




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






39




**Effect
      of Inflation**




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




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




U.S.
      GAAP differs in some respects from Canadian GAAP, as applied to the Company.
      Reference should be made to Item 3A - Selected Financial Data, and Note 11
      to
      the Consolidated Financial Statements of the Company for a description and
      quantification of material measurement differences between Canadian GAAP and
      U.S. GAAP.




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




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




The
      following table lists, as of June 28, 2007, the names of the directors and
      senior management of the Company. The directors and senior management have
      served in their respective capacities since their election and/or appointment
      and will serve until the next Annual General Meeting of Shareholders or until
      a
      successor is duly elected, unless the office is vacated in accordance with
      the
      Company's Articles or unless there is a prior resignation or
      termination.




**Name**
            **Position
                  with Company**
            **Date
                  of First Appointment**
            **Age**Jonathan
                  Comerford
            Chairman
                  and Director(1)(2)(3)
            Chairman
                  of the Company since May 11, 2006 and Director since September
                  21,
                  2001.
            35Patrick
                  Evans
            President,
                  Chief Executive Officer and Director
            President
                  and director of the Company since November 15, 2005.
            52Jennifer
                  Dawson
            Chief
                  Financial Officer
            Chief
                  Financial Officer since May 11, 2006.
            46D.
                  Harry W. Dobson
            Director
            Director
                  since November 1, 1997
            59Elizabeth
                  J. Kirkwood
            Director
            Director
                  since September 21, 2001.
            57Peeyush
                  Varshney
            Director
            Director
                  since April 13, 2007.
            40Carl
                  Verley
            Director(1)(2)(3)
            Director
                  of Old MPV s ince December 2, 1986 and Director of the Company
                  since
                  November 1, 1997.
            57David
                  E. Whittle
            Director
                  (1)(2)(3)
            Direct
                  or s in ce November 1, 1997
            43




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


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


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




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




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




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




40




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




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




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




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




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




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




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




***Elizabeth
      J. Kirkwood***




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




***Peeyush
      Varshney, LL.B.***




Mr.
      Varshney has been actively involved in the capital markets since 1996 and is
      a
      principal of Varshney Capital Corp., a private merchant banking, venture capital
      and corporate advisory firm.  He is currently a director or officer of
      several public companies listed on the TSX Venture Exchange and the Toronto
      Stock Exchange, including President and Director of Mantle Resources Inc. and
      Director of JER Envirotech International Corp.  He is also a director
      of The Varshney Family Charitable Foundation and is a member of the Business
      Families Center Advisory Board at the Sauder School of Business at the
      University of British Columbia (UBC). Mr. Varshney obtained a Bachelor of
      Commerce Degree (Finance) in 1989 and a Bachelor of Laws in 1993, both from
      UBC.  He then articled at Farris, Vaughan, Wills & Murphy, of
      Vancouver, British Columbia, from 1993 to 1994 and has been a member of the
      Law
      Society of British Columbia since September 1994.





41


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





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




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




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




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




The
      Company has two executive officers (collectively, the "Executive Officers"):
      Patrick Evans, the President and CEO, and Jennifer Dawson, the Chief Financial
      Officer and Corporate Secretary.  For particulars on these executive
      officers, reference should be made to “Item 6A - Directors and Senior
      Management”.




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


**Summary
      Compensation Table**




**Annual
                  Compensation**
            **Long
                  Term Compensation****Awards**
            **Payouts****Name
                  and Principal Position of Named Executive
                  Officer**
            **Financial
                  Year Ending**
            **Salary
                  ($)**
            **Bonus
                  ($)**
            **Other
                  Annual Compensation ($)**
            **Securities**
              **Under**
              **Options
                  /**
              **SARs**
              **Granted
                  (#)**
            **Shares
                  or Units Subject to Resale Restrictions ($)**
            **LTIP
                  Payouts**
              **($)**
            **All
                  Other Compensation ($)**Patrick
                  Evans(1)
              President
                  and Chief Executive Officer (started November 1,
                  2005)
            2007
            Nil
            Nil
            $155,000
            200,000(2)
            Nil
            Nil
            NilJennifer
                  Dawson(3)
              Chief
                  Financial Officer and Corporate Secretary (since May 11,
                  2006)
            2007
            Nil
            Nil
            $94,200
            Nil
            Nil
            Nil
            Nil


(1)    
      $150,000 was paid to Patrick Evans pursuant to a Consulting Agreement for his
      services as President and CEO, as well as a director’s fee of $5,000 for the
      year ended March 31, 2007.




(2)    
        Options granted as follows: 100,000 options granted November 1, 2005 with
        50,000
        vesting upon acceptance of the Consulting Agreement and 50,000 vesting on
        the
        first anniversary of acceptance of the Consulting Agreement - all have an
        exercise price of $2.63, and are exercisable for a period of 5 years; and
        100,000 options granted on January 30, 2006 with an exercise price of $4.50
        and
        with 50% of the options vesting immediately, and 50% vesting January 31,
        2007.  All 100,000 options granted January 30, 2006 are exercisable
        for a period of 5 years from grant.
  (3)   $94,200
        was paid to Jennifer Dawson pursuant to a Consulting Agreement for her services
        as CFO and Corporate Secretary for the year ended March 31, 2007.




42




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






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




**Name**
            **Securities,**
              **Acquired
                  on**
              **Exercise**
              **(#)**
            **Aggregate
                  Value**
              **Realized
                  ($)(1)**
            **Unexercised
                  Options at**
              **Financial
                  Year-End**
              **Exercisable
                  /**
              **Unexercisable
                  (#)**
            **Value
                  of Unexercised In-the-**
              **Money
                  Options at Financial**
              **Year-End
                  Exercisable /**
                **Unexercisable
                  ($)****(2)**Patrick
                  Evans
            Nil
            Nil
            200,000/0
            160,000/0Jennifer
                  Dawson (since May 11, 2006)
            Nil
            Nil
            Nil/Nil
            Nil/Nil




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




(2)   
      In-the-Money Options are those where the market value of the underlying
      securities as at the most recent financial year end exceeds the option exercise
      price. The closing market price of the Company's shares as at March 30, 2007,
      (ie. financial year end) was $4.23.




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




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




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




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




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




The
      directors of the Company are elected annually and hold office until the next
      annual general meeting of the members of the Company or until their successors
      in office are duly elected or appointed. The Company does not have an executive
      committee. All directors are elected for a one-year term. All officers serve
      at
      the pleasure of the Board. The next Annual General Meeting of the shareholders
      of the Company has been scheduled for September 12, 2007.




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




*Audit
      Committee*




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




43




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




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




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




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




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




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




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




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




*Corporate
      Governance Committee*




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




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




*Compensation
      Committee*




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




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




As
      at
      the end of the fiscal years March 31, 2007, March 31, 2006, and March 31, 2005,
      the Company had no full-time employees (not including the former President
      and
      CEO Jan Vandersande, the current President and CEO, Patrick Evans, the former
      CFO and Corporate Secretary, Elizabeth Kirkwood, and the current CFO and
      Corporate Secretary, Jennifer Dawson).  The Toronto administrative and
      executive office uses outsourced administrative assistance on an as-needed,
      part-time basis.




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




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




The
      following table sets forth, as of June 28, 2007, the number of the Company's
      common shares beneficially owned by (a) the directors and members of senior
      management of the Company, individually, and as a group, and (b) the percentage
      ownership of the outstanding common shares represented by such shares. The
      security holders listed below are deemed to be the beneficial owners of common
      shares underlying options and warrants which are exercisable within 60 days
      from
      the above date.






44







**Name
                  of Beneficial Owner (11)**
            **Amount
                  and Nature**
            **Percentage(9)
                  of Class
                  (No.**
              **of
                  shares, options +**
              **warrants
                  held by owner**
              **divided
                  by total issued and**
              **outstanding(10)
                  plus no.
                  of**
              **options
                  held by owner multiplied by 100)**D.
                  Harry Dobson(1)
            1,192,510
            2.0%Patrick
                  C. Evans(2)
            269,500
            *%Carl
                  G. Verley(3)
            215,250
            *%Jonathan
                  Comerford(4)
            150,000
            *%Peeyush
                  Varshney(5)
            100,122
            *%Elizabeth
                  J. Kirkwood(6)
            60,000
            *%David
                  E. Whittle(7)
            25,600
            *%Officer
                  and Directors as a Group(8)
            2,012,982
            3.4%




***    
      less than 1%**




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




(2)
            Includes
                69,500 shares and 200,000 options (exercisable presently or within
                60
                days).  100,000 options are exercisable at a price of $2.63 per
                share and expire on November 1, 2010.  100,000 options are
                exercisable at a price of $4.50 per share and expire on January 30,
                2011.




(3)
            Includes
                215,250 shares and nil options.




(4)
            Includes
                nil shares and 150,000 options (exercisable presently or within 60
                days).
                The options are exercisable at a price of $1.96 per share and expire
                on
                October 1, 2009.




(5)
            Includes
                50,922 shares and 49,200 options.




(6)
            Includes
                nil shares and 60,000 options (exercisable presently or within 60
                days).
                10,000 options are exercisable at a price of $1.36 per share and
                expire on
                October 21, 2007 and 50,000 options are exercisable at a price of
                $1.96
                per share and expire on October 1,
                2009.




(7)
            Includes
                25,600 shares and nil options.




(8)
            Includes
                459,200 options (exercisable presently or within 60
                days).




(9)
            The
                calculation does not include stock options that are not exercisable
                presently or within 60 days.  (10)
            Total
              issued and outstanding capital as at the close of June 22, 2007 was
              59,723,531 shares.  (11)
            The
                Company has no actual knowledge of the holdings of each individual.
                The
                above information was provided by the respective individuals to the
                Company.




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




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




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




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




As
      at
      June 28, 2007, the Company's issued and outstanding capital was 59,723,531
      shares.




The
      Company is a publicly-owned corporation the majority of the common shares of
      which are owned by persons resident outside the United States. To the best
      of
      the Company's knowledge, the Company is not directly owned or controlled by
      another corporation or any foreign government. As at June 28, 2007, the Company
      believes that approximately 14,389,836 of the issued and outstanding common
      shares were held by 82 shareholders with addresses in the United
      States.  A number of these shares are held in "street" name and may,
      therefore, be held by several beneficial owners.




45




The
      following table shows, to the best knowledge of the Company, the number (as
      at
      June 28, 2007) and percentage of shares, warrants and options held by the
      Company's major shareholders on a partially diluted basis.




The
      percentage ownerships for the major shareholders have decreased slightly because
      of new shares issued by the Company prior to June 28, 2007.




**Name
                  of Shareholder(1)**
            **No.
                  of Shares Held**
            **Percentage
                  of issued and**
              **outstanding
                  share capital of**
              **59,723,531
                  shares**
              **(as
                  at June 28, 2007)**Bottin
                  (International) Investments Ltd.
            13,253,430
            22.19%(controlled
                  by Dermot Desmond)Desmond
                  P. Sharkey
            5,206,001
            8.72%Dublin,
                  IrelandDe
                  Beers Canada Exploration Ltd. (formerly Monopros
                  Limited)
            3,103,543
            5.20%




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




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




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




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




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




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




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




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




46




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




During
      the year ended March 31, 2007, director fees were earned by the following
      directors: Jonathan Comerford ($10,000 in his capacity as Chair of the Board),
      David Whittle ($7,500 in his capacity as Chair of the Audit Committee), Carl
      Verley ($5,000), Elizabeth Kirkwood ($5,000), Patrick Evans ($5,000) and Harry
      Dobson ($5,000).




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




The
      Company has a Consulting Agreement with Patrick Evans for his services as
      President and CEO effective November 1, 2005.  The monthly consulting
      fee under the Consulting Agreement is $12,500, and in the year ended March
      31,
      2007, the Company paid a total of $150,000.




The
      Company signed a Consulting Agreement with Jennifer Dawson for her services
      as
      Chief Financial Officer and Corporate Secretary, effective May 11,
      2006.  The Consulting Agreement is on a time-spent basis, and in the
      year ended March 31, 2007, the Company paid a total of $94,200.




There
      is no indebtedness between the directors and the Company other than amounts
      payable for director fees for April 1, 2005 to March 31, 2007 of $10,000 in
      total as described above.




For
      further particulars on related party transactions, see note 9 to the Company's
      Consolidated Financial Statements for the years ended March 31, 2007, 2006
      and
      2005, in Item 19 of this Annual Report.




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




Not
      Applicable




**Item
      8.       Financial
      Information**




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




Listed
      in Item 19 hereto are audited consolidated financial statements as at March
      31,
      2007 and 2006 and for the fiscal years ended March 31, 2007, 2006 and 2005,
      accompanied by the report of our independent registered accounting
      firm.




There
      are no legal proceedings currently pending.




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




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




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




**Item
        9.       The Offer and
        Listing.**
  **A.**
              ***Offer
                  and listing
                  details.***




The
      common shares of the Company were listed and posted for trading on The Toronto
      Stock Exchange (the "TSX") on January 22, 1999. The Company's shares were
      delisted from the Vancouver Stock Exchange ("VSE", now known as the TSX Venture
      Exchange and before that, the Canadian Venture Exchange ("CDNX")) on January
      31,
      2000, and from the Nasdaq Smallcap Market on September 29, 2000. The Company's
      shares traded on the OTC-Bulletin Board ("OTCBB") under the symbol "MPVI" until
      June 1, 2005. Commencing on April 4, 2005, the Company's shares were listed
      for
      trading on the AMEX under the symbol "MDM".




47




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




**High
                  and Low Prices for the Five Most Recent Fiscal
                  Years****Fiscal
                  Year Ended**
            **TSX**
            **AMEX
                  / NASDAQ (1)
                  /
                  OTCBB****High
                  (CDN$)**
            **Low
                  (CDN$)**
            **High
                  (US$)**
            **Low
                  (US$)**March
                  31, 2007
            $5.05
            $3.05
            $4.40
            $2.70March
                  31, 2006
            $4.90
            $2.26
            $4.26
            $1.90March
                  31, 2005
            $2.68
            $1.61
            $2.00
            $1.19March
                  31, 2004
            $3.00
            $0.60
            $2.25
            $0.37March
                  31, 2003
            $2.26
            $0.62
            $1.55
            $0.39




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




**High
                  and Low Prices for Each Quarterly Period for
                  the****Past
                  Two Fiscal Years****TSX**
            **Amex
                  / OTCBB****Period
                  Ended:**
            **High
                  (CDN$)**
            **Low
                  (CDN$)**
            **High
                  (US$)**
            **Low
                  (US$)**March
                  31, 2007
            $4.46
            $3.40
            $3.79
            $2.93December
                  31, 2006
            $4.65
            $3.30
            $4.10
            $2.89September
                  30, 2006
            $4.20
            $3.35
            $3.73
            $3.06June
                  30, 2006
            $5.05
            $3.05
            $4.40
            $2.70March
                  31, 2006
            $4.96
            $3.47
            $4.38
            $2.97December
                  31, 2005
            $3.73
            $2.20
            $3.25
            $1.85September
                  30, 2005
            $3.05
            $2.15
            $2.55
            $1.83June
                  30, 2005
            $3.44
            $2.25
            $2.81
            $1.83




**High
                  and Low Prices for the Most Recent Six
                  Months****TSX
                  (CDN$)**
            **AMEX(1)****Month
                  Ended**
            **High**
            **Low**
            **High**
            **Low**May,
                  2007
            $5.95
            $4.80
            $5.50
            $4.32April,
                  2007
            $5.40
            $4.10
            $4.85
            $3.60March,
                  2007
            $4.35
            $3.87
            $3.75
            $3.34February,
                  2007
            $4.46
            $3.90
            $3.79
            $3.28January,
                  2007
            $4.26
            $3.40
            $3.65
            $2.93December,
                  2006
            $4.62
            $3.30
            $4.10
            $2.89




**(1)******On
      April 4, 2005, the Company's Common Shares began trading on the American Stock
      Exchange. On March 30, 2007 (being the last trading day for the year ended
      March
      31, 2007), the closing price of the Common Shares on the TSX was $4.23 per
      share
      and on June 28, 2007 was $5.09. The shares commenced trading on AMEX on April
      4,
      2005 and the closing price of the Common Shares on March 30, 2007 was US$3.66
      per share. The closing price on June 28, 2007 on the AMEX was US$4.80 per
      share.




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




Not
      Applicable.




48




***C.  Markets.***




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




***D.
      Selling shareholders.***




Not
      Applicable.




***E.
      Dilution.***




Not
      Applicable.




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




Not
      Applicable.




**Item
      10.     Additional Information.**




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




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




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




**Incorporation**




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




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




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




The
      Company was amalgamated under the British Columbia *Company Act*(the
      "Company Act"), which has now been replaced by the British Columbia *Business
      Corporations Act*(the "BCA"). The BCA came into effect on March 29, 2004.
      The Company has completed its transition from the Company Act to the BCA and
      adopted new Articles which reflect the provisions of the BCA. The Company's
      Memorandum of Articles has been replaced by a Notice of Articles. Pursuant
      to
      the Shareholders special resolution on September 20, 2005 approving the
      continuance of the Company into Ontario, the Company continued under the laws
      of
      the Province of Ontario pursuant to Articles of Continuance dated May 8,
      2006.




**Powers,
      functions and qualifications of Directors**




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




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




49


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




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




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




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




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




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




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




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




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




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




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




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




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




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




50




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




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




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




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




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




**Rights
      and Restrictions Attached to Shares**




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




**Alteration
      of Share Rights**




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




**Annual
      General Meetings**




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




**Foreign
      Ownership Limitations**




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




**Change
      of Control**




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




At
      the
      September 13, 2006 Annual and Special Meeting of the shareholders, a Shareholder
      Rights Plan dated August 4, 2006 was approved, ratified, confirmed and adopted
      by the shareholders of the Company in accordance with and subject to its terms
      and conditions.  The objectives of the Rights Plan are to ensure, to
      the extent possible, that all shareholders of the Company are treated equally
      and fairly in connection with any Take-Over Bid for the Company.





The
      Rights Plan is designed to discourage discriminatory or unfair Take-Over Bids
      for the Company and gives the Board time, if appropriate, to pursue alternatives
      to maximize shareholder value in the event of an unsolicited (or "hostile")
      Take-Over Bid for the Company.  The Rights Plan will encourage a
      person proposing to make, or who has made, a Take-Over Bid for the Company
      (an
      "**Offeror**") to proceed by way of a Permitted Bid or to approach
      the Board with a view to negotiation, by creating the potential for substantial
      dilution of the Offeror's position.  The Permitted Bid provisions of
      the Rights Plan are designed to ensure that, in any Take-Over Bid, all
      shareholders are treated equally, receive the maximum value for their investment
      and are given adequate time to properly assess the Take-Over Bid on a fully
      informed basis.





51


The
      Rights Plan may, however, increase the price to be paid by a potential Offeror
      to obtain control of the Company and may discourage certain transactions,
      including a Take-Over Bid for less than all the common shares of the
      Company.  Accordingly, the Rights Plan may deter some Take-Over
      Bids.





In
      addition, the Rights Plan Agreement provides that the continued existence of
      the
      Rights Plan must be ratified by a majority of the shareholders of the Company
      at
      a meeting of shareholders of the Company to be held not earlier than January
      31,
      2007 and not later than the date on which the 2007 annual meeting of
      shareholders of the Company terminate.




**Share
      Ownership Reporting Obligations**




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




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




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




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




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




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




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




3.
            Consulting
                Agreement with Jennifer Dawson to act as Chief Financial Officer
                and
                Corporate Secretary, effective May 11, 2006 on a time-worked
                basis.




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




**Exchange
      Controls and Investment Canada Act**




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




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




52




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




The
      Act
      was amended with the implementation of the Agreement establishing the World
      Trade Organization ("WTO") to provide for special review thresholds for "WTO
      investors", as defined in the Act. "WTO investor" generally means (i) an
      individual, other than a Canadian, who is a national of a WTO member (such
      as,
      for example, the United States), or who has the right of permanent residence
      in
      relation to that WTO member, (ii) governments of WTO members, and (iii) entities
      that are not Canadian controlled, but which are WTO investor controlled, as
      determined by rules specified in the Act. The special review thresholds for
      WTO
      investors do not apply, and the general rules described above do apply, to
      the
      acquisition of control of certain types of businesses specified in the Act,
      including a business that is a "cultural business". If the WTO investor rules
      apply, an investment in the shares of the Company by or from a WTO investor
      will
      be reviewable only if it is an investment to acquire control of the Company
      and
      the value of the assets of the Company is equal to or greater than a specified
      amount (the "WTO Review Threshold"). The WTO Review Threshold is adjusted
      annually by a formula relating to increases in the nominal gross domestic
      product of Canada. The 2006 WTO Review Threshold is
      CDN$265,000,000.




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




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




Special
      rules specified in the Act apply if the value of the assets of the Company
      is
      more than 50% of the value of the entity so acquired. By these special rules,
      if
      the non-Canadian (whether or not a WTO investor) is acquiring control of an
      entity that directly or indirectly controls the company, and the value of the
      assets of the Company and all other entities carrying on business in Canada,
      calculated in the manner provided in the Act and the regulations under the
      Act,
      is more than 50% of the value, calculated in the manner provided in the Act
      and
      the regulations under the Act, of the assets of all entities, the control of
      which is acquired, directly or indirectly, in the transition of which the
      acquisition of control of the Company forms a part, then the thresholds for
      a
      direct acquisition of control as discussed above will apply, that is, a WTO
      Review Threshold of CDN$265,000,000 (in 2006) for a WTO investor or a threshold
      of CDN$5,000,000 for a non-Canadian other than a WTO investor. If the value
      exceeds that level, then the transaction must be reviewed in the same manner
      as
      a direct acquisition of control by the purchase of shares of the
      Company.




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




53




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




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




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




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




A
      brief
      description of certain provisions of the tax treaty between Canada and the
      United States, *Canada-United States Income Tax Convention (1980)*, as
      amended, (the "Convention"),  is included below, together with a brief
      outline of certain taxes, including withholding provisions, to which United
      States security holders are subject under the *Income Tax Act* (Canada)
      (the "Canadian Tax Act"). The consequences, if any, of provincial, territorial,
      state, local or foreign taxes (other than Canadian federal income taxes) are
      not
      considered.




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




*Certain
      Canadian Federal Income Tax Consequences*




The
      discussion under this heading summarizes the principal Canadian federal income
      tax consequences of acquiring, holding and disposing of shares of common stock
      of the Company for a shareholder of the Company who, at all relevant times
      and
      for purposes of the Canadian Tax Act, is solely a resident of the United States
      for purposes of the Convention,  holds shares of common stock of the
      Company as capital property, deals at arm's length and is not affiliated with
      the Company, and, does not use or hold, is not deemed to use or hold shares
      of
      the common stock of the Company in, or in the course of, carrying on business
      in
      Canada. (a "U.S. Holder"). This summary is based on the current provisions
      of
      the Canadian Tax Act and the regulations to it and on the Company's
      understanding of the administrative practices of Canada Revenue Agency, in
      effect as of the date hereof, and takes into account all specific proposals
      to
      amend the Canadian Tax Act and regulations to it publicly announced by the
      Minister of Finance of Canada prior to the date hereof. No assurances can be
      given that such proposed amendments will be enacted in the form proposed, or
      at
      all.  This summary is not exhaustive of all potential Canadian federal
      income tax consequences to a U.S. Holder and does not take into account or
      anticipate any other changes in law or administrative practices, whether by
      judicial, governmental or legislative action or decision.. This discussion
      is
      general only and is not a substitute for independent advice from a shareholder's
      own Canadian and U.S. tax advisors.




54


The
      provisions of the Canadian Tax Act are subject to income tax treaties to which
      Canada is a party, including the Convention.




*Dividends
      on Common Shares and Other Income*




Under
      the Canadian Tax Act, a non-resident of Canada is generally subject to Canadian
      non-resident tax at the rate of 25 percent on amounts that are paid or credited
      or deemed under the Canadian Tax Act to be paid or credited as, on account
      or in
      lieu of payment of, or in satisfaction of dividends to a U.S. Holder by a
      corporation resident in Canada. The Convention limits the rate to 15 percent
      if
      the shareholder is a resident of the United States and the dividends are
      beneficially owned by and paid to such shareholder, and to 5 percent if the
      shareholder is also a corporation that beneficially owns at least 10 percent
      of
      the voting stock of the Canadian payor corporation.




The
      Convention generally exempts from Canadian non-resident tax dividends paid
      to
      certain religious, scientific, literary, educational or charitable organizations
      and certain pension organizations that are resident in the United States and
      are
      exempt from income tax under the laws of the United States.




The
      non-resident tax payable on dividends is to be withheld at source by the Company
      or people acting on its behalf.




*Dispositions
      of Common Shares*




Under
      the Canadian Tax Act, a U.S. Holder will generally not be subject to tax in
      respect of capital gains realised on the disposition or deemed disposition
      of
      shares of the common stock of the Company unless, at the time of disposition,
      the shares constitute "taxable Canadian property."




Shares
      of common stock of the Company will not constitute taxable Canadian property
      of
      a U.S. Holder at a particular time unless at any time in the 60 months
      immediately preceding the disposition of such shares 25% or more of the issued
      shares of any class or series in the capital stock of the Company belonged
      to
      one or more persons in a group comprising the U.S. Holder and persons with
      whom
      the U.S. Holder did not deal at arm's length.




The
      Convention relieves U.S. Holders from liability for Canadian tax on capital
      gains derived on a disposition of shares that are "taxable Canadian property"
      unless




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




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






55


If
      a
      U.S. Holder realizes a capital gain or capital loss from a disposition of a
      share of common stock of the Company which constitutes taxable Canadian property
      for purposes of the Canadian Tax Act and is not otherwise exempt under the
      Convention, then the capital gain or capital loss is the amount, if any, by
      which the U.S. Holder's proceeds of disposition exceed (or are exceeded by,
      respectively) the aggregate of the U.S. Holder's adjusted cost base of the
      share
      and reasonable expenses of disposition. The capital gain or loss must be
      computed in Canadian currency using a weighted average adjusted cost base for
      identical properties. Fifty percent of a capital gain (“taxable capital gain”)
      is included in income for Canadian tax purposes. The amount by which one half
      of
      a U.S. Holder's capital loss from the disposition of taxable Canadian property
      exceeds the taxable capital gain in a year may generally be deducted for
      Canadian tax purposes from taxable capital gains realized by the shareholder
      from the disposition of taxable Canadian property in the three years previous
      or
      any subsequent year, in the manner permitted under the Canadian Tax Act. A
      U.S.
      Holder whose shares do not constitute taxable Canadian property for purposes
      of
      the Canadian Tax Act should not be subject to Canadian income tax on any gain
      realized on the disposition of a share of the capital stock of the
      Company.




United
      States Federal Income Tax Consequences




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




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




**Circular
      230 Disclosure**




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




**Scope
      of this Disclosure**




Authorities




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




U.S.
      Holders




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




56




Non-U.S.
      Holders




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




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




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




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




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




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




Distributions
      on Common Shares




*General
      Taxation of Distributions*




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




*Reduced
      Tax Rates for Certain Dividends*




For
      taxable years beginning after December 31, 2002 and before January 1, 2011,
      a
      dividend paid  by the Company generally may be taxed at the
      preferential tax rates applicable to long-term capital gains (generally, a
      15%
      federal tax rate for 2007) if (a) the Company is a "qualified foreign
      corporation" (as defined below), (b) the U.S. Holder receiving such
      dividend is an individual, estate, or trust, and (c) such dividend is paid
      on Common Shares that have been held by such U.S. Holder for at least 61 days
      during the 121-day period beginning 60 days before the "ex-dividend date" (i.e.,
      the first date that a purchaser of such Common Shares will not be entitled
      to
      receive such dividend).




57


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




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




*Distributions
      Paid in Foreign Currency*




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




*Dividends
      Received Deduction*




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




Disposition
      of Common Shares




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




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




Foreign
      Tax Credit




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




58




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




Information
      Reporting; Backup Withholding Tax




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




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




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




Controlled
      Foreign Corporation




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




If
      the
      Company is a CFC, a 10% Shareholder generally will be subject to current
      U.S. federal income tax with respect to (a) such 10% Shareholder's pro rata
      share of the "subpart F income" (as defined in Section 952 of the Code) of
      the Company and (b) such 10% Shareholder's pro rata share of the
      earnings of the Company invested in "United States property" (as defined in
      Section 956 of the Code). In addition, under Section 1248 of the Code,
      any gain recognized on the sale or other taxable disposition of Common Shares
      by
      a U.S. Holder that was a 10% Shareholder at any time during the five-year
      period ending with such sale or other taxable disposition generally will be
      treated as a dividend to the extent of the "earnings and profits" of the Company
      that are attributable to such Common Shares.




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




59


Passive
      Foreign Investment Company




The
      Company generally will be a "passive foreign investment company" under
      Section 1297 of the Code (a "PFIC") if, for a taxable year, (a) 75% or
      more of the gross income of the Company for such taxable year is passive income
      or (b) 50% or more of the assets held by the Company either produce passive
      income or are held for the production of passive income. "Passive income"
      includes, for example, dividends, interest, certain rents and royalties, certain
      gains from the sale of stock and securities, and certain gains from commodities
      transactions.




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




The
      Company believes that it was a PFIC for the taxable year ended March 31, 2006
      and that it will be a PFIC for the taxable year ending March 31, 2007. There
      can
      be no assurance, however, that the IRS will agree with a determination made
      by
      the Company concerning its PFIC status.




*Default
      PFIC Rules Under Section 1291 of the Code*




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




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




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




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




60


*QEF
      Election*




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




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




Each
      U.S. Holder should consult its own financial advisor, legal counsel, or
      accountant regarding the availability of, and procedure for making, a QEF
      Election. U.S. Holders should be aware that there can be no assurance that
      the
      Company will satisfy record keeping requirements that apply to a QEF, or that
      the Company will supply U.S. Holders with information that such U.S. Holders
      are
      required to report under the QEF rules, in the event that the Company is a
      PFIC
      and a U.S. Holder wishes to make a QEF Election.  A U.S. Holder will
      not recognize capital gain on the disposition of the shares and will be subject
      to tax under section 1291 if the U.S. holder owned the shares for any period
      when the Company was not a QEF with respect to the U.S. Holder, unless a purging
      election has been made immediately prior to the QEF election.




*Mark-to-Market
      Election*




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




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




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




61


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




Each
      U.S. Holder should consult its own financial advisor, legal counsel, or
      accountant regarding the availability of, and procedure for making, a
      Mark-to-Market Election.




*Other
      PFIC Rules*




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




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




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




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




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




Not
      Applicable




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




Not
      Applicable.




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




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




Readers
      may review a copy of the Company's filings with the U.S. Securities and Exchange
      Commission ("the "SEC"), including exhibits and schedules filed with it, at
      the
      SEC's public reference facilities at 100 F Street, N.E., Washington, D.C. 20549.
      Readers may call the SEC at 1-800-SEC-0330 for further information on the public
      reference rooms. The SEC maintains a Web site (http://www.sec.gov) that contains
      reports, submissions and other information regarding registrants that file
      electronically with the SEC. The Company has only recently become subject to
      the
      requirement to file electronically through the EDGAR system most of its
      securities documents, including registration statements under the Securities
      Act
      of 1933, as amended and registration statements, reports and other documents
      under the Securities Exchange Act of 1934, as amended.




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




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




62


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




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




Not
      applicable.




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




The
      Company owns shares of other listed companies. Certain of these shares are
      listed under current assets on the Company's balance sheet as at March 31,
      2007
      as "Marketable Securities" at an amount of
      $4,632.****However, the quote market value of these shares at
      March 31, 2007 was $51,808.  The Company also owns 4,000,000 common shares
      of Northern Lion Gold Corp. This long-term investment has a carrying value
      of
      $920,000 as at March 31, 2007, with the quoted market value of such shares
      at
      March 31, 2007 being $1,200,000. The shares were subject to a hold period which
      expired February 27, 2007 and other selling restrictions subsequent to that
      date. Market risk represents the risk of loss that may impact the financial
      position, results of operations, or cash flows of the Company due to adverse
      changes in financial market prices, including interest rate risk, foreign
      currency exchange rate risk, commodity price risk, and other relevant market
      or
      price risks.




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




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




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




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




Not
      Applicable.




**PART
      II**


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




There
      are none.




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




Not
      Applicable.




63




**Item
      15.      Controls and
      Procedures.**




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




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




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




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




**Item
      16.      [Reserved]**




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




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




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




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




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




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




•
            corporate
                opportunities and potential conflicts of
                interest;




•
            the
                quality of public disclosures;




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




•
            the
                protection of confidential
                information;




•
            insider
                trading;




•
            fair
                behaviour; and




•
            reporting
                violations of the Policy or Board
                Directives




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




There
      were no waivers to the 2006 Corporate Governance Policies during fiscal
      2007.  A copy of the 2006 Corporate Governance Policies is filed as
      Exhibit 11.1 to this Annual Report.




64




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




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




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




Aggregate
      audit fees billed in fiscal 2007 by KPMG were $60,182, and the Company was
      billed $50,000 for the fiscal year 2006.  All such fees were approved
      by the Audit Committee.




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




"Audit-Related
      Fees" are fees that are or would be charged by KPMG for presentations or
      training on accounting or regulatory pronouncements, due diligence services
      related to accounting and tax matters in connection with potential
      acquisitions/dispositions, advice and documentation assistance with respect
      to
      internal controls over financial reporting and disclosure controls and
      procedures of the Company, and if applicable, audits of financial statements
      of
      a company's employee benefit plan. "Audit Related Fees" charged by KPMG during
      the fiscal period ended March 31, 2007 were $55,820 and $nil for March 31,
      2006.  All such services were approved by the Audit
      Committee.




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




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




Aggregate
      tax fees billed in fiscal 2007 by KPMG were $12,000 (2006 - $nil) pertaining
      to
      tax compliance.  These services were approved by the Audit
      Committee.




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




There
      were no other fees charged by KPMG during the fiscal periods ended March 31,
      2007 and 2006.




The
      Audit Committee pre-approves all audit services to be provided to the Company
      by
      its independent auditors. The Audit Committee's policy regarding the
      pre-approval of non-audit services to be provided to the Company by its
      independent auditors is that all such services shall be pre-approved by the
      Audit Committee. Non-audit services that are prohibited to be provided to the
      Company by its independent auditors may not be pre-approved. In addition, prior
      to the granting of any pre-approval, the Audit Committee must be satisfied
      that
      the performance of the services in question will not compromise the independence
      of the independent auditors. All non-audit services, performed by the Company's
      auditor, for the fiscal year ended March 31, 2007, have been pre-approved by
      the
      Audit Committee of the Company. No non-audit services were approved pursuant
      to
      the *de minimis* exemption to the pre-approval requirement.




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




Not
      Applicable.




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




There
      were no purchases made by or on behalf of the Company or any affiliated
      purchaser of shares or other units of the Company's equity
      securities.




65


**PART
      III**




**Item
      17.        Financial
      Statements.**




The
      Company's consolidated financial statements are stated in Canadian dollars
      (CDN$) and are prepared in accordance with Canadian Generally Accepted
      Accounting Principles (GAAP). Material measurement differences between GAAP
      in
      Canada and GAAP in the United States applicable to the Company, are described
      in
      Note 11 to the Consolidated Financial Statements.




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




For
      audited financial statements for Fiscal 2007, Fiscal 2006 and Fiscal 2005,
      please see Item 19 below.




**Item
      18.        Financial
      Statements.**




Not
      Applicable.




**Item
                19.**
            **Exhibits**




***Financial
      Statements***




The
      Consolidated Financial Statements of the Company and exhibits listed below
      are
      filed with this annual report on Form 20-F in the United States. This report
      is
      also filed in Canada as an Annual Information Form and the Canadian filing
      does
      not include the Consolidated Financial Statements and exhibits listed below.
      Canadian investors should refer to the audited Financial Statements of the
      Company for the years ended March 31, 2007 and 2006 filed with Canadian
      Securities Regulators on SEDAR under "Audited Annual Financial Statements -
      English" and incorporated herein by reference.




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




*Consolidated
      Financial Statements of the Company:*




•
            Report
                of Independent Registered Public Accounting
                Firm.




•
            Consolidated
                Balance Sheets as of March 31, 2007 and
                2006.




•
            Consolidated
                Statements of Operations and Deficit for the years ended March 31,
                2007,
                2006 and 2005.




•
            Consolidatd
                Statements of Cash Flows for the years ended March 31, 2007, 2006
                and
                2005.




•
            Notes
                to the Consolidated Financial
                Statements.







66




**Consolidated
      Financial Statements**


**(Expressed
      in Canadian dollars)**





**Mountain
      Province Diamonds Inc.**





**Years
      ended March 31, 2007, 2006 and 2005**














67





**REPORT
      OF MANAGEMENT**





The
      accompanying consolidated financial statements are the responsibility of
      management. These statements have been prepared in accordance with generally
      accepted accounting principles in Canada and reflect management’s best estimates
      and judgments based on currently available information.





Management
      has developed and maintains systems of internal accounting controls in order
      to
      ensure, on a reasonable and cost effective basis, the reliability of its
      financial information and the safeguarding of assets.





The
      Board of Directors is responsible for ensuring that management fulfils its
      responsibilities through the Audit Committee of three independent directors
      which meets with management and the auditors during the year, to review
      reporting and control issues and to satisfy itself that each party has properly
      discharged its responsibilities. The Committee reviews the financial statements
      before they are presented to the Board of Directors for approval and considers
      the independence of the auditors.





The
      consolidated financial statements have been audited by KPMG LLP, an independent
      firm of chartered accountants appointed by the shareholders at the Company’s
      last annual meeting. Their report outlines the scope of their examination and
      opinion on the consolidated financial statements.





/s/
      “Patrick Evans”


**Patrick
      C. Evans**


*President
      and Chief Executive Officer*





/s/
      "Jennifer M. Dawson"**Jennifer M. Dawson**


*Chief
      Financial Officer and Corporate Secretary*





June
      22, 2007








68












**Report
      of Independent Registered Public Accounting Firm**




**Auditors’
      Report to the Shareholders**






We
      have
      audited the consolidated balance sheets of Mountain Province Diamonds Inc.
      as at
      March 31, 2007 and 2006 and the consolidated statements of operations and
      deficit and cash flows for each of the years in the three-year period ended
      March 31, 2007.  These financial statements are the responsibility of
      the Company's management.  Our responsibility is to express an opinion
      on these financial statements based on our audits.




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




In
      our
      opinion, these consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as at March 31, 2007 and 2006
      and the results of its operations and its cash flows for each of the years
      in
      the three-year period ended March 31, 2007 in accordance with Canadian generally
      accepted accounting principles.




Canadian
      generally accepted accounting principles vary in certain significant respects
      from accounting principles in the United States of America. Information relating
      to the nature and effect of such measurement differences is presented in note
      11
      to the consolidated financial statements.









Chartered
      Accountants, Licensed Public Accountants




Toronto,
      Canada




June
      22, 2007









69














**Comments
      by Auditor for U.S. Readers on Canada-U.S. Reporting
      Differences**




The
      standards of the Public Company Accounting Oversight Board (United States)
      require the addition of an explanatory paragraph when the financial statements
      are affected by conditions and events that cast substantial doubt on the
      Company’s ability to continue as a going concern, such as those described in
      Note 1 to the consolidated  financial statements, when as a result of
      the correction of an error in the reconciliation from Canadian generally
      accepted accounting principles to U.S. generally accepted accounting principles
      has been restated as described in Note 11(a) to the consolidated financial
      statements, and when there is a change in accounting principle that has a
      material effect on the comparability of the Company’s financial statements, such
      as the change described in Note 11(b).  Although we conducted our
      audits in accordance with Canadian generally accepted auditing standards and
      with the standards of the Public Company Accounting Oversight Board (United
      States), our report to the shareholders dated June 22, 2007 is expressed in
      accordance with Canadian reporting standards which do not permit a reference
      to
      such conditions or events in the auditors’ report when these are adequately
      disclosed in the financial statements.









Chartered
      Accountants, Licensed Public Accountants




Toronto,
      Canada




June
      22, 2007







70




**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Balance Sheets


(Expressed
      in Canadian dollars)


March
      31, 2007 and 2006


**2007**
            
            
            **2006****Assets**Current
                  assetsCash
                  and cash equivalents
            
            $
            179,970
            
            
            $
            845,452Term
                  deposit
            
            
            275,000
            
            
            
            -Marketable
                  securities (Note 3)
            
            
            4,632
            
            
            
            71,392Amounts
                  receivable
            
            
            127,487
            
            
            
            66,637Advances
                  and
                  prepaid expenses
            
            
            11,260
            
            
            
            6,052598,349
            
            
            
            989,533Long-term
                  investment (Note 4)
            
            
            920,000
            
            
            
            1,400,000Investment
                  in Camphor Ventures (Note 6)
            
            
            7,519,747
            
            
            
            -Mineral
                  properties (Note 7)
            
            
            1,552,553
            
            
            
            1,552,553Deferred
                  exploration costs (Note 7)
            
            
            31,017,771
            
            
            
            30,929,049Equipment
                  (Note 5)
            
            
            7,407
            
            
            
            3,153Total
                  assets
            
            $
            41,615,827
            
            
            $
            34,874,288**Liabilities
                  and Shareholders' Equity**Current
                  liabilitiesAccounts
                  payable and accrued liabilities
            
            $
            418,799
            
            
            $
            181,266Shareholders'
                  equity:Share
                  capital (Note 8(b))
            
            
            66,579,083
            
            
            
            58,253,663Contributed
                  surplus (Note 8(d))
            
            
            701,626
            
            
            
            561,777Deficit
            
            
            (26,083,681
            )
            
            
            (24,122,418
            )Total
                  shareholders' equity
            
            
            41,197,028
            
            
            
            34,693,022Total
                  liabilities and shareholders' equity
            
            $
            41,615,827
            
            
            $
            34,874,288





Nature
      of operations (Note 1)


Going
      concern (Note 1)


Subsequent
      event (Note 6)




See
      accompanying notes to consolidated financial statements




**Approved
      on behalf of the Board**:




"Jonathan
              Comerford"
            Director“David
              Whittle”
            Director








71





**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Statements of Operations and Deficit


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2007, 2006, and 2005


**2007**
              
              
              **2006**
              
              
              **2005****Expenses:**Amortization
              
              $
              (1,675
              )
              
              $
              (1,082
              )
              
              $
              (2,136
              )Consulting
                    fees
                    (Note 9)
              
              
              (476,754
              )
              
              
              (309,217
              )
              
              
              (141,586
              )Directors'
                    fees
                    and benefits
              
              
              (56,101
              )
              
              
              (37,500
              )
              
              
              (2,700
              )Interest
                    and
                    bank charges
              
              
              (1,200
              )
              
              
              (1,231
              )
              
              
              (983
              )Office
                    and miscellaneous
              
              
              (80,998
              )
              
              
              (54,043
              )
              
              
              (108,407
              )Professional
                    fees
              
              
              (198,628
              )
              
              
              (166,150
              )
              
              
              (235,680
              )Promotion
                    and
                    investor relations
              
              
              (124,467
              )
              
              
              (108,184
              )
              
              
              (30,503
              )Stock-based
                    compensation (Note 8(c))
              
              
              (186,321
              )
              
              
              (314,879
              )
              
              
              (189,400
              )Transfer
                    agent
                    and regulatory fees
              
              
              (190,121
              )
              
              
              (99,794
              )
              
              
              (114,459
              )Travel
              
              
              (45,672
              )
              
              
              (39,981
              )
              
              
              (22,648
              )(1,361,937
              )
              
              
              (1,132,061
              )
              
              
              (848,502
              )Other
                    earnings (expenses):Gain
                    on
                    sale of mineral properties
              
              
              -
              
              
              
              -
              
              
              
              4,226,634Write-down
                    of
                    long-term investments (Note 4)
              
              
              (480,000
              )
              
              
              (1,080,000
              )
              
              
              (1,860,000
              )Interest
                    income
              
              
              23,940
              
              
              
              12,173
              
              
              
              13,112Equity
                    loss in investment in Camphor Ventures
              
              
              (143,266
              )
              
              
              -
              
              
              
              -(599,326
              )
              
              
              (1,067,827
              )
              
              
              2,379,746Net
                    (loss) earnings for the year
              
              
              (1,961,263
              )
              
              
              (2,199,888
              )
              
              
              1,531,244Deficit,
                    beginning of year
              
              
              (24,122,418
              )
              
              
              (21,922,530
              )
              
              
              (23,378,874
              )Adjustment
                      on
                      adoption of new accounting standard for stock based compensation
                      (Note
                      2(i))
              
              
              -
              
              
              
              -
              
              
              
              (74,900
              )Deficit,
                    end of year
              
              $
              (26,083,681
              )
              
              $
              (24,122,418
              )
              
              $
              (21,922,530
              )Basic
                    and diluted (loss) earnings per share
              
              $
              (0.04
              )
              
              $
              (0.04
              )
              
              $
              0.03Weighted
                    average number of shares outstanding
              
              
              55,092,966
              
              
              
              52,783,833
              
              
              
              51,781,905


See
      accompanying notes to consolidated financial statements





72


**MOUNTAIN
      PROVINCE DIAMONDS INC.**


Consolidated
      Statements of Cash Flows


(Expressed
      in Canadian dollars)


Years
      ended March 31, 2007, 2006, and 2005





**2007**
            
            
            **2006**
            
            
            **2005**Cash
                  provided by (used in):Cash
                  flows provided by (used in) operating activities:Net
                  (loss) earningsfor the year
            
            $
            (1,961,263
            )
            
            $
            (2,199,888
            )
            
            $
            1,531,244Items
                  not involving cash:Amortization
            
            
            1,675
            
            
            
            1,082
            
            
            
            2,136Stock-based
                  compensation expense
            
            
            186,321
            
            
            
            314,879
            
            
            
            189,400Gain
                  on
                  sale of mineral properties
            
            
            -
            
            
            
            -
            
            
            
            (4,226,634
            )Write-down
                  of
                  long-term investments
            
            
            480,000
            
            
            
            1,080,000
            
            
            
            1,860,000Equity
                  loss in investment in Camphor Ventures
            
            
            143,266
            
            
            
            -
            
            
            
            -Changes
                  in non-cash operating working capitalAmounts
                  receivable
            
            
            (60,850
            )
            
            
            (40,313
            )
            
            
            (7,891
            )Advances
                  and
                  prepaid expenses
            
            
            (5,208
            )
            
            
            30,827
            
            
            
            (28,499
            )Accounts
                  payable and accrued liabilities
            
            
            237,533
            
            
            
            86,290
            
            
            
            (177,770
            )(978,526
            )
            
            
            (727,123
            )
            
            
            (858,014
            )**Cash
                  flows used in investing activities:**Deferred
                  exploration costs
            
            
            (88,722
            )
            
            
            (63,379
            )
            
            
            (37,106
            )Investment
                  in term deposit
            
            
            (275,000
            )
            
            
            -
            
            
            
            -Purchase
                  of equipment
            
            
            (5,929
            )Costs
                  associated with investment in Camphor
            
            
            (205,755
            )
            
            
            -
            
            
            
            -(575,406
            )
            
            
            (63,379
            )
            
            
            (37,106
            )**Cash
                  flows provided by financing activities:**Issuance
                  of
                  shares, net of share issue costs
            
            
            888,450
            
            
            
            634,850
            
            
            
            981,730Increase
                  (decrease) in cash and cash equivalents
            
            
            (665,482
            )
            
            
            (155,652
            )
            
            
            86,610Cash
                  and cash equivalents, beginning of year
            
            
            845,452
            
            
            
            1,001,104
            
            
            
            914,494Cash
                  and cash equivalents, end of year
            
            $
            179,970
            
            
            $
            845,452
            
            
            $
            1,001,104Supplementary
                  information:Income
                  taxes paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Non-cash
                  transactionsShares
                  exchanged for Camphor shares (Note 4)
            
            
            7,390,498
            
            
            
            -
            
            
            
            -Shares
                    issued
                    in exchange for sale of Haveri property (Note
                    7(b))
            
            
            -
            
            
            
            -
            
            
            
            4,340,000Shares
                    issued
                    in exchange for sale of Baffin Island claim (Note
                    7(c))
            
            
            -
            
            
            
            -
            
            
            
            39,000





See
      accompanying notes to consolidated financial statements




73


**MOUNTAIN
          PROVINCE DIAMONDS INC.** Notes
            to Consolidated Financial Statements
 (Expressed
            in Canadian dollars)
 Years
            ended March 31, 2007, 2006, and 2005
 
 **1.         Nature
            of operations:**
  During
                      the
                      year ended March 31, 2006, the Company amended its articles
                      and continued
                      incorporation under the Ontario Business Corporation Act, transferring
                      from the Company Act (British
                      Columbia).
  The
                      Company
                      is in the process of exploring and permitting its mineral properties
                      primarily in conjunction with third parties (Note 7), and has
                      not yet
                      determined whether these properties contain mineral reserves
                      that are
                      economically recoverable. The underlying value and recoverability
                      of the
                      amounts shown for mineral properties and deferred exploration
                      costs is
                      dependent upon the ability of the Company and/or its mineral
                      property
                      partners to complete exploration and development and discover
                      economically
                      recoverable reserves, successful permitting, and upon future
                      profitable
                      production or proceeds from disposition of the Company’s mineral
                      properties. Failure to discover economically recoverable reserves
                      will
                      require the Company to write-off costs capitalized to
                      date.
 
 The
                      Company’s
                      ability to continue as a going concern and to realize the carrying
                      value
                      of its assets and discharge its liabilities is dependent on
                      the discovery
                      of economically recoverable mineral reserves, the ability of
                      the Company
                      to obtain necessary financing to fund its operations, and the
                      future
                      production or proceeds from developed properties.  These
                      financial statements do not reflect adjustments that would
                      be necessary if
                      the going concern assumption were not
                      appropriate.
 
  **2.         Significant
            accounting policies:**
  These
                      consolidated financial statements have been prepared in accordance
                      with
                      Canadian generally accepted accounting principles. A reconciliation
                      of
                      material measurement differences between Canadian generally
                      accepted
                      accounting principles and United States generally accepted
                      accounting
                      principles and practices prescribed by the Securities and Exchange
                      Commission, is included in Note 11.
  **(a)**
                  **Basis
                      of consolidation:**  The
                      consolidated financial statements include the accounts of the
                      Company and
                      its wholly owned subsidiaries.  All intercompany amounts and
                      transactions have been eliminated on
                      consolidation.
  **(b)**
                  **Cash
                      and cash equivalents:**  Cash
                      and cash
                      equivalents consist of highly liquid short-term investments
                      that are
                      readily convertible to known amounts of cash and have original
                      maturities
                      of three months or less when
                      acquired.
  **(c)**
                    **Marketable
                        securities:**  Marketable
                        securities are carried at the lower of cost and quoted fair
                        market
                        value.
 **(d)**
                  **Long-term
                      investments:**  (i)  The
                      long-term investment arose on the sale of mineral property
                      interests in
                      exchange for shares of the purchaser and is accounted for by
                      the cost
                      method since the Company does not have significant influence
                      over the
                      operating, investing and financing activities of the purchaser.
                      Earnings
                      from long-term investment are recognized only to the extent
                      received. The
                      investment is written down when there has been a loss in value
                      that is
                      other than a temporary decline.
 ****
    74
 **MOUNTAIN
              PROVINCE DIAMONDS INC.** Notes
                to Consolidated Financial Statements
 (Expressed
                in Canadian dollars)
 Years
                ended March 31, 2007, 2006, and 2005
 **2.**
                  **Significant
                      accounting policies
                      (continued):**
  **(d)**
                  **Long-term
                      investments (continued):**  (ii)  The
                      investment in common shares of Camphor Ventures Inc. (“Camphor”) is
                      accounted for using the equity method, as the Company has significant
                      influence over Camphor's operating, investing, and financing
                      activities.  Under the equity method, the investment in common
                      shares of Camphor is recorded at cost and is adjusted periodically
                      to
                      recognize the Company's proportionate share of Camphor's net
                      income or
                      losses after the date of the investment, additional contributions
                      made,
                      and dividends received.
  **(e)**
                  **Mineral
                      properties and deferred exploration
                      costs:**  Direct
                      property acquisition costs, advance royalties, holding costs,
                      field
                      exploration and field supervisory costs relating to specific
                      properties
                      are deferred until the properties are brought into production,
                      at which
                      time, they will be amortized on a unit of production basis,
                      or until the
                      properties are abandoned, sold or considered to be impaired
                      in value, at
                      which time an appropriate charge will be made.  The recovery of
                      costs of mining claims and deferred exploration is dependent
                      upon the
                      existence of economically recoverable reserves, the ability
                      of the Company
                      to obtain the necessary financing to complete exploration and
                      development,
                      and future profitable production or proceeds from disposition
                      of such
                      properties.  The
                      Emerging
                      Issues Committee of the CICA issued EIC-126 – “Accounting by Mining
                      Enterprises for Exploration Costs” which interprets how Accounting
                      Guideline No. 11 entitled Enterprises in the Development Stage
                      - (AcG 11)
                      affects mining companies with respect to the deferral of exploration
                      costs. EIC-126 refers to CICA Handbook Section 3061 "Property,
                      Plant and
                      Equipment", paragraph .21, which states that for a mining property,
                      the
                      cost of the asset includes exploration costs if the enterprise
                      considers
                      that such costs have the characteristics of property, plant
                      and
                      equipment.  EIC-126 then states that a mining enterprise that
                      has not established mineral reserves objectively, and therefore
                      does not
                      have a basis for preparing a projection of the estimated cash
                      flow from
                      the property, is not precluded from considering the exploration
                      costs to
                      have the characteristics of property, plant and
                      equipment.  EIC-126 also sets forth the Committee’s consensus
                      that a mining enterprise in the development stage is not required
                      to
                      consider the conditions in AcG-11 regarding impairment in determining
                      whether exploration costs may be initially capitalized.  With
                      respect to impairment of capitalized exploration costs, EIC-126
                      sets forth
                      the Committee’s consensus that a mining enterprise in the development
                      stage that has not established mineral reserves objectively,
                      and therefore
                      does not have a basis for preparing a projection of the estimated
                      cash
                      flow from the property is not obliged to conclude that capitalized
                      costs
                      have been impaired.  However, such an enterprise should consider
                      the conditions set forth in AcG-11 and CICA Handbook sections
                      relating to
                      long-lived assets in determining whether subsequent write-down
                      of
                      capitalized exploration costs related to mining properties
                      is
                      required.  Any resulting writedowns are charged to the statement
                      of operations.
                    
                    The
                      Company
                      considers that exploration costs have the characteristics of
                      property,
                      plant and equipment, and, accordingly, defers such
                      costs.  Furthermore, pursuant to EIC-126, deferred exploration
                      costs would not automatically be subject to regular assessment
                      of
                      recoverability, unless conditions, such as those discussed
                      in AcG 11,
                      exist.
                    
                    AcG
                      11 also
                      provides guidance on measuring impairment of when pre-operating
                      costs have
                      been deferred.  While this guidance is applicable, its
                      application did not result in
                      impairment.
   75
 **MOUNTAIN
              PROVINCE DIAMONDS INC.** Notes
                to Consolidated Financial Statements
 (Expressed
                in Canadian dollars)
 Years
                ended March 31, 2007, 2006, and 2005
 **2.**
                  **Significant
                      accounting policies
                      (continued):**
  **(f)**
                  **Equipment:**
 Equipment
                    is initially recorded at cost and amortized over their estimated
                    useful
                    lives on the declining balance basis at the following annual
                    rates:
  
 Asset
                
                RateFurniture
                      and equipment
                
                
                20%Computers
                
                
                30%
  **(g)**
                **Asset
                    retirement obligations:**
  The
                    fair value of a liability for an asset retirement obligation,
                    such as site
                    reclamation costs, is recognized in the period in which it is
                    incurred if
                    a reasonable estimate of the fair value of the costs to be incurred
                    can be
                    made. The Company is required to record the estimated present
                    value of
                    future cash flows associated with site reclamation as a liability
                    when the
                    liability is incurred and increase the carrying value of the
                    related
                    assets for that amount. Subsequently, these capitalized asset
                    retirement
                    costs will be amortized to expense over the life of the related
                    assets
                    using the unit-of production method. At the end of each period,
                    the
                    liability is increased to reflect the passage of time (accretion
                    expense)
                    and changes in the estimated future cash flows underlying any
                    initial fair
                    value measurements (additional asset retirement
                    costs).
  As
          of
          March 31, 2007 and 2006, the Company has determined that it does not
          have material obligations for asset retirement obligations.
  **(h)**
                **Stock-based
                    compensation:**
  The
                    Company expenses the fair value of all stock options, calculated
                    using the
                    Black-Scholes option pricing model, over the vesting period commencing
                    April 1, 2004.
  As
                    permitted, effective April 1, 2004, the Company has adopted the
                    fair value
                    based method for employee and director stock options granted
                    on or after
                    April 1, 2002, on a retroactive basis without restatement of
                    prior
                    periods.The retroactive adoption of the changes discussed above
                    resulted
                    in an increase to opening deficit as at April 1, 2004 of $74,900
                    with
                    respect to employee and director stock options granted in 2004
                    and
                    2003.
  Direct
                    awards of stock are expensed based on the market price of the
                    shares at
                    the time of the granting of the
                    award.
  **(i)**
                **Income
                    taxes:**
  The
                    Company uses the asset and liability method of accounting for
                    income
                    taxes. Under the asset and liability method, future tax assets
                    and
                    liabilities are recognized for the future tax consequences attributable
                    to
                    differences between the financial statement carrying amounts
                    of existing
                    assets and liabilities and their respective tax bases. Future
                    tax assets
                    and liabilities are measured using enacted or substantively enacted
                    tax
                    rates expected to apply to taxable income in the years in which
                    those
                    temporary differences are expected to be recovered or settled.
                    The effect
                    on future tax assets and liabilities of a change in tax rates
                    is
                    recognized in income in the period that includes the enactment
                    date. The
                    amount of future income tax assets recognized is limited to the
                    amount
                    that is more likely than not to be
                    realized.
  
 76
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **2.**
                **Significant
                    accounting policies
                    (continued):**
  **(j)**
                **Earnings
                    (loss) per share:**  Basic
                    earnings (loss) per share is calculated by dividing the earnings
                    (loss)
                    attributable to common shareholders by the weighted average number
                    of
                    common shares outstanding during the year. For all periods presented,
                    earnings (loss) available to the common shareholders equals the
                    reported
                    earnings or loss. The Company uses the treasury stock method
                    to compute
                    the dilutive effect of options, warrants and similar instruments.
                    Diluted
                    earnings per share is similar to basic earnings per share, except
                    that the
                    denominator is increased to include the number of additional
                    common shares
                    that would have been outstanding if the potential dilutive common
                    shares
                    had been issued. The treasury stock method assumes that the proceeds
                    received on exercise of stock options is used to repurchase common
                    shares
                    at the average market value for the
                    period.
  **(k)**
                **Foreign
                    currency translation:**  Monetary
                    assets and liabilities denominated in a currency other than the
                    Canadian
                    dollar are translated at rates of exchange in effect at the balance
                    sheet
                    date. Revenue and expense items are translated at the average
                    rates for
                    the months in which such items are recognized during the year.
                    Exchange
                    gains and losses arising from the translation are included in
                    the
                    statement of operations.
  **(l)**
                **Financial
                    instruments:**  The
                    fair values of the Company's cash and cash equivalents, accounts
                    receivable, advances and prepaid expenses, accounts payable and
                    accrued
                    liabilities approximate their carrying values because of the
                    immediate or
                    short term to maturity of these financial instruments. The fair
                    value of
                    marketable securities and long-term investments are disclosed
                    in Notes 3
                    and 4, respectively.
  **(m)**
                **Use
                    of estimates:**  The
                    preparation of financial statements in accordance with generally
                    accepted
                    accounting principles requires management to make estimates and
                    assumptions that affect the reported amounts of the assets, liabilities
                    and disclosure of contingent assets and liabilities at the date
                    of the
                    financial statements and the reported amounts of revenue and
                    expenses
                    during the reporting period. Significant areas requiring the
                    use of
                    management estimates relate to the determination of impairment
                    of mineral
                    properties, deferred exploration, and long-term investment, as
                    well as the
                    assumptions used in determining the fair value of stock-based
                    compensation. Actual results could differ from these
                    estimates.
  **(n)**
                **Comparative
                    figures:**  Certain
                  of
                  the prior year’s comparative figures have been reclassified to conform
                  with the current year’s presentation.
    77
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **3.         Marketable
          securities:**
  The
                    quoted market value of marketable securities at March 31, 2007
                    was $51,808
                    (2006 - $217,512).
  **4.         Long-term
          investment:**
  The
                    long-term investment consists of 4,000,000 common shares of Northern
                    Lion
                    Gold Corp. (“Northern Lion”), acquired upon disposal of the Company’s
                    remaining interest in the Haveri property (Note 7(b)). The Company
                    is
                    contractually obligated to sell not fewer than 250,000 common
                    shares at a
                    time and must first offer Northern Lion the right to place the
                    number of
                    shares that the Company wishes to sell. On acquisition in 2005,
                    the
                    Company recorded a gain on the sale in the amount of
                    $4,187,634.  During the year ended March 31, 2007 and 2006, the
                    Company recorded $480,000 and $1,080,000 respectively, as other
                    than
                    temporary write-downs of the investment in Northern
                    Lion.
  The
                    quoted market value of the long-term investment at March 31,
                    2007 was
                    $1,200,000 (2006 - $2,280,000).
  **5.         Equipment:**
 
 March
                      31, 2007
                
                **Cost**
                
                
                **Accumulated
                      Amortization**
                
                
                **Net
                      Book Value**Furniture
                
                $
                11,088
                
                
                $
                (9,803
                )
                
                $
                1,285Equipment
                
                
                4,065
                
                
                
                (4,065
                )
                
                
                -Computers
                
                
                20,513
                
                
                
                (14,391
                )
                
                
                6,122$
                35,666
                
                
                $
                (28,259
                )
                
                $
                7,407
 
 March
                      31, 2006
                
                **Cost**
                
                
                **Accumulated
                      Amortization**
                
                
                **Net
                      Book Value**Furniture
                
                $
                11,088
                
                
                $
                (9,481
                )
                
                $
                1,607Equipment
                
                
                4,065
                
                
                
                (4,065
                )
                
                
                -Computers
                
                
                14,584
                
                
                
                (13,038
                )
                
                
                1,546$
                29,737
                
                
                $
                (26,584
                )
                
                $
                3,153
 
  78
  ****MOUNTAIN
            PROVINCE DIAMONDS INC.****
 Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **6.         Investment
          in Camphor Ventures Inc.:**
  During
          the year, the Company acquired 4,892,750 common shares of Camphor, representing
          approximately 33.5 percent of the issued and outstanding common shares
          of
          Camphor. The acquisition was undertaken through a private agreement exempt
          share
          exchange with five Camphor shareholders. The Camphor shares were acquired
          on the
          basis of 39.75 Mountain Province shares for each 100 Camphor shares, resulting
          in the issuance of 1,944,868 Mountain Province common shares.  The
          investment in Camphor was valued at cost based on the closing price ($3.80)
          of
          Mountain Province common shares on July 24, 2006, the date the shares were
          issued. The Company already owned 100,000 common shares (previously reported
          under Marketable Securities) at a cost of $66,760, bringing its total
          shareholdings in Camphor to 4,992,750 common shares.
 
 Mountain
          Province and Camphor are joint venture partners with De Beers Canada Inc.
          (“De
          Beers”) in the Gahcho Kué diamond project, located in Canada’s Northwest
          Territories. Mountain Province has a 44.1 percent interest in the Joint
          Venture;
          Camphor 4.9 percent; and De Beers 51 percent.
 
 Since
          the Company and Camphor do not have co-terminous yearends, in the year
          ended
          March 31, 2007, the Company recognized the Company’s proportionate share of
          Camphor’s loss as at its year end of August 31, 2006 as well as its share of
          Camphor’s loss for the six months ended February 28, 2007, totaling
          approximately $143,000.
 
 In
          January 2007, the Company entered into an agreement with the directors
          and
          officers of Camphor pursuant to which the Company would make an offer (the
          “Offer”) to acquire all of the outstanding common shares, options and warrants
          of Camphor on the basis of 0.41 Mountain Province common shares, options
          and
          warrants, as the case may be, per Camphor common share, option and
          warrant.  On February 23, 2007, the Company mailed its Offer to the
          shareholders of Camphor.
 
 Subsequent
          to the year end, on April 4, 2007, the Company took up all common shares
          of
          Camphor that were tendered to its take-over bid up to March 30, 2007, the
          expiry
          date of the Offer, resulting in the Company owning approximately 13,884,500
          Camphor common shares, representing approximately 93.3% of Camphor’s shares
          outstanding on a non-diluted basis, and announced that it had elected to
          extend
          its Offer to acquire the remaining common shares of Camphor on the same
          basis,
          until close of business on April 16, 2007.  As a result of the
          extension of the Offer, Mountain Province took up an additional 339,391
          common
          shares of Camphor tendered, giving Mountain Province ownership of approximately
          14,223,900 shares of the Camphor, or 95.6% on a non-diluted basis. The
          Company
          issued 3,784,778 shares from treasury in exchange for the Camphor shares
          under
          the Offer.
 
 On
          April 19, 2007, the Company issued a Notice of Compulsory Acquisition to
          the
          remaining shareholders of Camphor to acquire the balance of the common
          shares
          under the same terms as the Offer.  The Notice of Compulsory
          Acquisition expired on June 19, 2007, and the Company took up the remaining
          balance of 653,752 Camphor shares in exchange for 268,038 shares issued
          by the
          Company.  As well, the Company took up the 485,000 stock options of
          Camphor, and exchanged them for 198,850 stock options of the
          Company.
  
 79
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **7.         Mineral
          properties and deferred exploration:**
  Acquisition
          costs:
 
 **2007**
                
                
                **2006**Gahcho
                      Kué Project
                
                $
                1,552,553
                
                
                $
                1,552,553
  Deferred
                      exploration:**Gahcho
                      Kué Project**Balance,
                      March 31, 2004
                
                $
                30,861,544Exploration
                      expenditures:
                  Consulting
                      and
                      other professional services
                
                
                4,126Balance,
                      March 31, 2005
                
                
                30,865,670Geophysical
                
                
                3,220Due
                      Diligence
                
                
                60,159Balance,
                      March 31, 2006
                
                
                30,929,049Consulting
                
                
                77,801Mining
                      lease
                
                
                10,921Balance,
                      March 31, 2007
                
                $
                31,017,771
  **(a)       
          Gahcho Kué Project:**
  As
                    of June 20, 2007, the Company holds a 49% interest (see Note
                    6) in the
                    Gahcho Kué project located in the District of Mackenzie, Northwest
                    Territories, Canada, and De Beers Canada Exploration Inc. (“De Beers
                    Canada”) (51%) holds the remaining 51% interest. De Beers Canada may
                    under
                    certain circumstances earn up to a 60% interest in the Gahcho Kué
                    project.
  De
                    Beers Canada has agreed to carry all costs incurred by the Joint
                    Venture
                    and has undertaken to support the proper and timely exploration
                    and
                    development of the Gahcho Kué Project. Decisions are made jointly
                    (via a Management Committee consisting of two members each from
                    De Beers
                    Canada and the Company) as to the further progress of the project,
                    and
                    specifically the timing of a definitive feasibility study. Once
                    a desktop
                    study shows that an internal rate of return of 15% can be achieved,
                    De
                    Beers Canada is to proceed with a definitive feasibility study.
                    If they do
                    not proceed with the feasibility study, De Beers Canada’s interest will be
                    diluted down to a 30% participating
                    interest.
  Upon
                    completion of a definitive feasibility study funded by De Beers,
                    De Beers’
                    interest in the Joint Venture shall increase to 55%.  Upon the
                    commencement of commercial production, De Beers’ interest in the Joint
                    Venture shall increase to 60%.
  
 80
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **7.         Mineral
          properties and deferred exploration (continued):**
  **(a)       
          Gahcho Kué Project (continued):**
  All
                    costs paid with respect to the expenses incurred by the venturers
                    shall be
                    repaid first to De Beers Canada for all exploration and development
                    costs
                    incurred by them outside of the Kennady Lake area since March
                    8, 2000 out
                    of 100% of annual available cash flow (i.e. cash flow after provision
                    for
                    ongoing operating and non-operating costs including third party
                    debt
                    repayments) from any mine constructed on the property with interest
                    at a
                    rate equal to LIBOR plus 5% compounded annually; then to all
                    venturers for
                    all other exploration, development and mine construction costs
                    out of 90%
                    of annual available cash flow from any mine constructed on the
                    property
                    with interest at a rate equal to LIBOR plus 4% compounded annually;
                    and
                    the remaining 10% of such available cash flow shall be distributed
                    to the
                    participants in proportion to their respective participating
                    interests.
  On
                    November 26, 2003, the Joint Venture Management Committee approved
                    the
                    commencement of a pre-feasibility study on the Gahcho Kué Project. The
                    estimated $25 million cost was borne entirely by De Beers Canada.
                    The
                    in-depth pre-feasibility study was completed in mid-2005 showing
                    that an
                    internal rate of return of 15% can be achieved and the project
                    is
                    proceeding with permitting and advanced
                    exploration.
  **(b)        Haveri
          Project:**
  The
                    Company had a 100% interest in the Haveri Project, a mineral
                    property
                    located 175 kilometres north of Helsinki, Finland. On October
                    10, 2002,
                    Northern Lion was granted an option to acquire a 70% undivided
                    interest in
                    the Haveri property, in exchange for expending a total of $1,650,000
                    in
                    exploration and development expenditures by October 10, 2005.
                    Northern
                    Lion completed the necessary expenditures during the year ended
                    March 31,
                    2005 and exercised its option to acquire a 70% interest in the
                    Haveri
                    property.
  During
                    the year ended March 31, 2005, the Company sold its remaining
                    30% interest
                    in the Haveri property in exchange for 4,000,000 common shares
                    of Northern
                    Lion (Note 4).
  **(c)        Baffin
          Island Project:**
 On
                      September 27, 2004, the Company sold its interest in one remaining
                      Baffin
                      Island mining claim to Patrician Diamonds Inc. (“Patrician”) in exchange
                      for 325,000 common shares of Patrician, the reservation of
                      a 1% Net
                      Smelter Royalty and the agreement to honour a 1% Net Smelter
                      Royalty in
                      favour of two stakeholders, which the Company has the unrestricted
                      right
                      and option to acquire upon payment of $1,000,000. The Company
                      recorded a
                      gain on the sale in the amount of $39,000, during the year
                      ended March 31,
                      2005.
 81
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
  **8.**
                **Share
                    capital:**
  **(a)        Authorized**
  Unlimited
          number of common shares without par value
  **(b)        Issued
          and fully paid:**
 **Number
                      of****Shares**
                
                
                **Amount**Balance,
                      March 31, 2004
                
                
                51,202,111
                
                
                $
                56,595,262Adjustment on adoption of new accounting standard for stock-based
                        compensation (Note 2(i))
                
                
                -
                
                
                
                20,314Exercise
                      of
                      stock options
                
                
                202,858
                
                
                
                282,321Exercise
                      of
                      warrants
                
                
                1,205,878
                
                
                
                699,409Value
                      of stock options exercised
                
                
                -
                
                
                
                10,480Balance,
                      March 31, 2005
                
                
                52,610,847
                
                
                
                57,607,786Exercise
                      of
                      stock options
                
                
                465,000
                
                
                
                634,850Value
                      of stock options exercised
                
                
                -
                
                
                
                11,027Balance,
                      March 31, 2006
                
                
                53,075,847
                
                
                
                58,253,663Exercise
                      of
                      stock options
                
                
                650,000
                
                
                
                888,450Value
                      of stock options exercised
                
                
                -
                
                
                
                46,472Issued
                      shares in exchange for shares in
                      Camphor Ventures (Note 6)
                
                
                1,944,868
                
                
                
                7,390,498Balance,
                      March 31, 2007
                
                
                55,670,715
                
                
                $
                66,579,083
  **(c)        Stock
          options:**
  The
                    Company, through its Board of Directors and shareholders, adopted
                    a
                    November 26, 1998 Stock Option Plan (the “Plan”) which was amended on
                    February 1, 1999, and subsequently on September 27, 2002.  The
                    Board of Directors has the authority and discretion to grant
                    stock option
                    awards within the limits identified in the Plan, which includes
                    provisions
                    limiting the issuance of options to insiders and significant
                    shareholders
                    to maximums identified in the Plan.  The aggregate maximum
                    number of shares pursuant to options granted under the Plan will
                    not
                    exceed 3,677,300 shares, and as at March 31, 2007, there were
                    1,337,432
                    shares available to be issued under the
                    Plan.
   82
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **8.**
                **Share
                    capital (continued):**
  **(c)**           **Stock
          options
          (continued):**
  The
          following presents the continuity
          of stock options outstanding:
 **Number
                      of Options**
                
                
                **Weighted**
                  **Average**
                  **Exercise
                      Price**Balance,
                      March 31, 2004
                
                
                1,327,858
                
                
                $
                1.37Granted
                      (i)
                
                
                200,000
                
                
                $
                1.96Exercised
                
                
                (202,858
                )
                
                $
                1.39Balance,
                      March 31, 2005
                
                
                1,325,000
                
                
                $
                1.48Granted
                      (ii)
                
                
                200,000
                
                
                $
                3.57Exercised
                
                
                (465,000
                )
                
                $
                1.37Balance,
                      March 31, 2006
                
                
                1,060,000
                
                
                $
                1.90Exercised
                
                
                (650,000
                )
                
                $
                1.37Balance,
                      March 31, 2007
                
                
                410,000
                
                
                $
                2.73
  The
                    following are the stock options outstanding and exercisable at
                    March 31,
                    2007.
  
 **Expiry
                      Date**
                
                **Black**
                  **Scholes**
                  **Value**
                
                
                **Number
                      of Options**
                
                **Weighted**
                  **Average**
                  **Remaining
                      Life**
                
                **Exercise
                      Price**October
                      21, 2007
                
                $
                11,026
                
                
                
                10,000
                
                0.56
                      years
                
                $
                1.36October
                      1, 2009
                
                
                189,400
                
                
                
                200,000
                
                2.51
                      years
                
                
                1.96November
                      1, 2010
                
                
                180,100
                
                
                
                100,000
                
                3.59
                      years
                
                
                2.63January
                      30, 2011
                
                
                321,100
                
                
                
                100,000
                
                3.84
                      years
                
                
                4.50$
                701,626
                
                
                
                410,000
  There
          were no options which were not exercised and which expired during the years
          presented, nor were there any options which were forfeited during the years
          presented.
   83
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **8.**
                **Share
                    capital (continued):**
  **(c)        Stock
          options (continued):**
  **(i)**
                During
                    the year ended March 31, 2005, the Company granted 200,000 options
                    to
                    directors of the Company at an exercise price of $1.96 per share,
                    vesting
                    immediately and expiring on October 1, 2009.  The Black-Scholes
                    value of the options granted was $0.95 per option or $189,400
                    in
                    aggregate.
  **(ii)**
                During
                    the year ended March 31, 2006, the Company granted 200,000 options
                    to an
                    officer of the Company of which 100,000 are at an exercise price
                    of $2.63
                    and 100,000 are at an exercise price of $4.50 per share.  These
                    options vested 50% immediately and 50% vest one year after
                    grant.  The Black-Scholes value of the options granted was $1.80
                    per option or $180,000 in the aggregate, and $3.211 or $321,100
                    in the
                    aggregate, respectively.  These options expire November 1, 2010
                    and January 30, 2011 respectively.  During the year ended March
                    31, 2007, the Company recorded compensation expense of $52,519
                    (2006 -
                    $127,571) for the first grant and $133,792 (2006 - $187,308)
                    for the
                    second grant, recognizing the remaining vesting of both
                    grants.
  The
                    fair value of the options granted has been estimated on the date
                    of the
                    grant using the Black-Scholes option pricing model with the following
                    assumptions
  
 **2006**
                
                
                **2005**Dividend
                      yield
                
                
                0%
                
                
                
                0%Expected
                      volatility
                
                
                84%-89.78%
                
                
                
                50%Risk-free
                      interest rate
                
                
                3.9%
                
                
                
                4.1%Expected
                      lives
                
                5
                      years
                
                
                5
                      years
  
 84
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **8.         Share
          capital (continued):**
  **(d)**           Contributed
          surplus:
  **Amount**Balance,
                        March 31, 2003 and March 31, 2004
                  
                  $
                  24,419Adjustment
                        on
                        adoption of new accounting standard for stock-based compensation
                        (Note
                        2(i))
                  
                  
                  74,900Less:
                        value of options exercised prior to adoption of new standard
                        and value
                        transferred to share capital
                  
                  
                  (20,314
                  )Recognition
                        of
                        stock-based compensation expense
                  
                  
                  189,400Value
                        on exercise of stock options transferred to share
                        capital
                  
                  
                  (10,480
                  )Balance,
                        March 31, 2005
                  
                  
                  257,925Recognition
                        of
                        stock-based compensation expense
                  
                  
                  314,879Value
                        on exercise of stock options transferred to share
                        capital
                  
                  
                  (11,027
                  )Balance,
                        March 31, 2006
                  
                  
                  561,777Recognition
                        of
                        stock-based compensation expense
                  
                  
                  186,321Value
                        on exercise of stock options transferred to share
                        capital
                  
                  
                  (46,472
                  )Balance,
                        March 31, 2007
                  
                  $
                  701,626
  **(e)           Shareholder
          Rights Plan:**
 On
          August 4, 2006, the Board of Directors of the Company approved a Shareholder
          Rights Plan (the “Plan”). The 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 Plan is also intended to ensure that the
          shareholders of the Company are provided equal treatment under a takeover
          bid.
          The Company is not currently aware of any pending or threatened take-over
          bid
          for the Company.
  **9.         Related
          party transactions:**
  As
                    at March 31, 2007, $10,000 (2006 - $40,500) was owed to directors
                    or
                    companies controlled by directors of the Company, primarily for
                    unpaid
                    directors’ fees. Amounts are payable on demand, unsecured and non-interest
                    bearing.
  During
                    the year ended March 31, 2007, the Company paid $nil (2006 -
                    $24,000; 2005
                    - $40,050) for consulting, professional, management, property
                    evaluation
                    and administration services to directors and to companies in
                    which
                    directors have an interest.
  During
          the year ended March 31, 2006, the Company entered into a consulting agreement
          with the President and CEO of the Company.  Compensation per the
          agreement is $12,500 per month.
  85
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **9.         Related
          party transactions (continued):**
  Effective
          May 11, 2006, the Company entered into a consulting agreement with a new
          Chief
          Financial Officer (“CFO”) to provide financial and corporate secretarial
          services on the basis of time spent.
  Included
          in Consulting Fees expense for year ended March 31, 2007 is $150,000 (2006
          -
          $56,074) accrued or paid to the President and CEO of the Company for services
          rendered, and $94,200 (2006 - $nil) accrued or paid to the CFO of the Company,
          each pursuant to consulting agreements with the President and CEO and the
          CFO
          respectively.
  These
          transactions were in the normal course of operations and are measured at
          the
          exchange amount, which is the amount agreed to by the related
          parties.
  **10.       **Income
          taxes:****
  Income
          tax recovery differs from the amounts that would have been computed by
          applying
          the combined federal and provincial tax rates of 34.25% for the years ended
          March 31, 2007 (2006 -36.12% and 2005 - 36.12%) to loss before income
          taxes.  The reasons for the differences are primarily as a result of
          the following:
 
 **2007**
                
                
                **2006**
                
                
                **2005**Loss
                      (earnings) before income taxes
                
                $
                1,961,263
                
                
                $
                2,199,888
                
                
                $
                (1,531,244
                )Tax
                      recovery (payable) calculating using statutory rates
                
                
                671,700
                
                
                
                794,600
                
                
                
                (553,000
                )Earnings
                      not subject to taxation or expenses not deductible for
                      taxation
                
                
                195,000
                
                
                
                308,800
                
                
                
                (359,000
                )476,700
                
                
                
                485,800
                
                
                
                (194,000
                )Valuation
                      allowance
                
                
                (476,700
                )
                
                
                (485,800
                )
                
                
                194,000Net
                      future tax asset
                      (liability)
                
                $
                -
                
                
                $
                -
                
                
                $
                -
  
 86
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **10.       Income
          taxes (continued):**
  The
          components that
          give rise to future income tax assets and future tax liabilities are as
          follows:
 
 **2007**
                
                
                **2006**
                
                
                **2005**Mineral
                      properties and deferred exploration
                
                $
                869,900
                
                
                $
                682,300
                
                
                $
                579,000Loss
                      carry forwards
                
                
                810,200
                
                
                
                1,962,200
                
                
                
                2,168,000Equipment
                
                
                143,000
                
                
                
                155,300
                
                
                
                172,000Long-term
                      investment
                
                
                590,000
                
                
                
                503,100
                
                
                
                308,200Other
                
                
                -
                
                
                
                -
                
                
                
                6,0002,413,100
                
                
                
                3,302,900
                
                
                
                3,233,200Valuation
                      allowance
                
                
                (2,413,100
                )
                
                
                (3,302,900
                )
                
                
                (3,233,200
                )Net
                      future income tax asset (liability)
                
                $
                -
                
                
                $
                -
                
                
                $
                -
  At
          March 31, 2007, the Company has available losses for income tax purposes
          totaling approximately $2.7 million, expiring at various times from 2008
          to
          2016. Of the available losses, $1.7 million are subject to acquisition
          of
          control rules which may restrict their future deductibility. The Company
          also
          has available resource tax pools of approximately $35.6 million, which
          may be
          carried forward and utilized to reduce future taxable income. Included
          in the
          $35.6 million of tax pools is $24.9 million which can only be utilized
          against
          taxable income from specific mineral properties.
  **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP"):**  As
                    disclosed in Note 2, these financial statements have been prepared
                    in
                    accordance with Canadian generally accepted accounting principles
                    (“Canadian GAAP”). A description and reconciliation of material
                    measurement differences to US GAAP and practices prescribed by
                    the US
                    Securities and Exchange Commission (“SEC”)
                    follows:
  **(a)        Mineral
          properties and deferred exploration costs:**
  Under
          United States GAAP, acquisition costs associated with mining interests
          are
          classified according to the land tenure position and the existence of proven
          and
          probable reserves as defined under Industry Guide 7.
  Under
          United States GAAP, exploration expenditures relating to mining interests
          prior
          to the completion of a definitive feasibility study, which establishes
          proven
          and probable reserves, must be expensed as incurred. Under Canadian GAAP
          these
          costs may be deferred.
  87
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP")
                    (continued):**
  **(a)        Mineral
          properties and deferred exploration costs (continued):**
  During
                    2007, the Company became aware of an accounting error under US
                    GAAP
                    relating to $1,552,553 in mineral property costs which were incorrectly
                    expensed in the US GAAP reconciliation in periods prior to March
                    31,
                    2004..  The correction of this error results in the restatement
                    of Total Assets at March 31, 2006 such that mineral properties
                    increased
                    by $1,552,553 and the Deficit decreased by the same amount.  The
                    reconciliations of Total Assets and Deficit in Notes 11(f)(i)
                    and 11(f)(v)
                    have been restated to reflect the corrected treatment of mineral
                    property
                    acquisition costs.  As the restatement related to periods prior
                    to 2005, there is no impact to the previously reported loss (earnings)
                    or
                    cash flows for the years ended March 31, 2006 or 2005 under US
                    GAAP.
  For
                    Canadian GAAP, cash flows relating to mineral property costs
                    are reported
                    as investing activities. For US GAAP, these costs would be characterized
                    as operating activities.
  **(b)        Stock-based
          compensation**
  On
                    April 1, 2006, the Company adopted the provisions of SFAS 123(R)
                    on a
                    modified prospective application for stock options
                    granted.  Under the modified prospective transition method,
                    compensation expense is recognized for all unvested stock options
                    as of
                    the date of adoption of SFAS 123(R) over the remaining service
                    period
                    during which an employee is required to provide service in exchange
                    for
                    the award.  The effect of applying SFAS 123(R) in fiscal 2007 on
                    this basis results in the same stock-based compensation cost
                    as has been
                    recognized for Canadian GAAP.
  Prior
                    to the adoption of SFAS 123(R), the Company accounted for stock-based
                    compensation using the intrinsic value method of accounting for
                    stock-based compensation as prescribed by APB Opinion
                    25.
  For
                    Canadian GAAP purposes, the Company adopted the fair value based
                    method to
                    all employee and director stock options granted on or after April
                    1, 2002,
                    without restatement of prior periods.  An adjustment was made to
                    contributed surplus and deficit as at April 1, 2004 in the amount
                    of
                    $74,900 to reflect the cumulative effect of the change in accounting
                    policy.  An amount of $20,314 was also transferred from
                    contributed surplus to share capital as at April 1, 2004 in respect
                    of
                    employee and director options exercised during the years ended
                    March 31,
                    2004 and 2003.  In addition, the Company booked stock-based
                    compensation during the year ended March 31, 2006 and 2005 of
                    $314,879 and
                    $189,400, respectively, for employee and director stock
                    options.  Prior to the adoption of the fair value based method
                    for Canadian GAAP, the stock-based compensation expense in respect
                    of
                    stock options granted to non-employees, under US GAAP determined
                    using an
                    option pricing model, would cumulatively be $1,704,000 from the
                    date of
                    adoption of SFAS 123 to March 31,
                    2002.
   
 88
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
  **(c) Unrealized
          holding gains
          and losses on marketable securities, long-term** **investments:**
  Statement
                    of Financial Accounting Standards Board No. 115, “Accounting for
                    Investments in Debt and Equity Securities” (“SFAS 115”) requires that the
                    Company’s marketable securities be classified as available-for-sale
                    securities and that they be recorded at market value with unrealized
                    gains
                    or losses recorded outside of income as a component of shareholders’
                    equity unless a decline in value is considered to be other than
                    temporary.
                    The Company’s marketable securities are presented at the lower of cost or
                    market value under Canadian GAAP. At March 31, 2007, there is
                    a cumulative
                    unrealized gain of $47,176 (2006 - $146,120; 2005 - $63,380)
                    between the
                    carrying value and fair value of marketable securities which
                    has been
                    recorded through comprehensive income for US GAAP purposes in
                    the amounts
                    of $8,704, $82,740,  and $13,450 for each of the years ended
                    March 31, 2007, 2006, and 2005,
                    respectively.
  The
          Company's long-term investments are presented at the lower of cost or market
          value under Canadian GAAP and would also be accounted for as available-for-sale
          securities under US GAAP.  At March 31, 2007, there is a cumulative
          unrealized loss of $600,000 (2006 - gain of $880,000; 2005 - Nil) between
          the
          carrying value and fair value of long-term investments which has been recorded
          through comprehensive income for US GAAP purposes in the amounts of $280,000
          (2006- $880,000; 2005 - Nil) for each of the years ended March 31, 2007,
          2006
          and 2005 respectively.
  **(d)  Reporting
          comprehensive income:**
  Statement
          of Financial Accounting Standards No. 130 (“SFAS 130”) “Reporting Comprehensive
          Income”, establishes standards for the reporting and display of comprehensive
          income and its components in a full set of general purpose financial statements.
          Comprehensive income equals net income (loss) for the period as adjusted
          for all
          other non-owner changes in shareholders’ equity. SFAS 130 requires that all
          items that are required to be recognized under accounting standards as
          components of comprehensive income be reported in a financial
          statement.
  89
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
  **(e)  Recent
          accounting
          pronouncements:**
  In
                    June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”),
                    “Accounting for Uncertainty in Income Taxes”, which clarifies the
                    accounting for uncertainties in income taxes recognized in accordance
                    with
                    SFAS 109, “Accounting for Income Taxes”.  The interpretation is
                    effective for fiscal years beginning on or after December 15,
                    2006.  The Company will adopt this interpretation on April 1,
                    2007, and is currently assessing the impact of the adoption on
                    its
                    consolidated financial statements.
  In
                    September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,
                    which establishes a framework for measuring fair value in GAAP,
                    and is
                    applicable to other accounting pronouncements in which fair value
                    is
                    considered to be the relevant measurement attribute.  SFAS 157
                    also expands disclosures about fair value measurement.  This
                    statement is effective for fiscal years beginning on or after
                    November 15,
                    2007.  The Company will adopt this statement on April 1, 2008,
                    and is currently assessing the impact of adoption on its consolidated
                    financial statements.
  Statement
          of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid
          Financial Instruments - an amendment of FASB Statements No. 133 and 140” (“SFAS
          155”) was issued in February 2006.  This statement allows an entity to
          elect to measure certain hybrid financial instruments at fair value in
          their
          entirety, with changes in fair value recognized in earnings.   The
          statement is effective for fiscal years beginning after September 15,
          2006.  The Company is currently reviewing the impact of this
          statement.
  Statement
          of Financial Accounting Standards No. 159, “The Fair Value Option for Financial
          Assets and Financial Liabilities” (“SFAS 159”), was issued in February
          2007.  The statement permits entities to choose to measure many
          financial instruments and certain other items at fair value, providing
          the
          opportunity to mitigate volatility in reported earnings caused by measuring
          related assets and liabilities differently without the need to apply hedge
          accounting provisions.  SFAS 159 is effective for fiscal years
          beginning after November 15, 2007, with earlier adoption
          permitted.  The Company is currently reviewing the impact of this
          statement.
  90
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
  **(f)  Reconciliation:**
  The
                    effect of the differences between Canadian GAAP and US GAAP (including
                    practices prescribed by the SEC) on the consolidated balance
                    sheets,
                    statements of loss and cash flows is summarized as
                    follows:
  
 **As
                      at March 31**
                
                **2007**
                
                
                **2006****(restated
                      - a)**(i)  
                      Total assets:Total
                      assets, under Canadian GAAP
                
                $
                41,615,827
                
                
                $
                34,874,288Adjustment
                      for
                      deferred exploration costs (Note 11(a))
                
                
                (31,017,771
                )
                
                
                (30,929,049
                )Adjustment
                      for
                      change in fair value of available-for-sale marketable securities
                      (Note
                      11(c))
                
                
                47,176
                
                
                
                146,120Adjustment
                      for
                      change in fair value of long-term investments (Note
                      11(c))
                
                
                (600,000
                )
                
                
                880,000Total
                      assets, under US GAAP
                
                $
                10,045,232
                
                
                $
                4,971,359(ii) 
                      Share capital:Share
                      capital, under Canadian GAAP
                
                $
                66,579,083
                
                
                $
                58,253,663Adjustment
                      for
                      fair value of employee and director options exercised prior
                      to adoption of
                      new accounting standard and
                    transferred
                      to
                      share capital (Note 11(b))
                
                
                (66,786
                )
                
                
                (20,314
                )Share
                      capital, under US GAAP
                
                $
                66,512,297
                
                
                $
                58,233,349(iii)
                      Contributed surplusContributed
                      surplus, under Canadian GAAP
                
                $
                701,626
                
                
                $
                561,777Adjustment
                      for
                      grant of employee stock options (Note 11(b))
                
                
                (457,807
                )
                
                
                (504,279
                )Adjustment
                      on
                      adoptions of new accounting standard for stock-based compensation
                      (Note
                      11(b))
                
                
                (74,900
                )
                
                
                (74,900
                )Adjustment
                      for
                      fair value of employee and director options exercised prior
                      to adoption of
                      new accounting standard and
                    transferred
                      to
                      share capital (Note 11(b))
                
                
                20,314
                
                
                
                20,314Adjustment
                      for
                      stock-based compensation (Note 11(b))
                
                
                1,704,000
                
                
                
                1,704,000Contributed
                      surplus, under US GAAP
                
                $
                1,893,233
                
                
                $
                1,706,912
   91
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
 **(f)  
Reconciliation
          (continued):**
 **As
                      at March 31**
                
                **2007**
                
                
                **2006**
                    **(restated
                      - a)**(iv)
                      Accumulated other comprehensive income:Adjustment
                      for
                      fair value of available for sale marketable securities (Note
                      11(c))
                
                $
                47,176
                
                
                $
                146,120Adjustment
                      for
                      fair value of long-term investments (Note 11(c))
                
                
                (600,000
                )
                
                
                880,000Accumulated
                      other comprehensive income, under US GAAP
                
                $
                (552,824
                )
                
                $
                1,026,120(v) 
                      Deficit:Deficit,
                      under
                      Canadian GAAP
                
                $
                (26,083,681
                )
                
                $
                (24,122,418
                )Adjustment
                      for
                      deferred exploration (Note (11(a))
                
                
                (31,017,771
                )
                
                
                (30,929,049
                )Grant
                      of stock options (Note 11(b))
                
                
                504,279
                
                
                
                504,279Adjustment
                      on
                      adoption of new accounting standard for stock-based compensation
                      (Note
                      11(b))
                
                
                74,900
                
                
                
                74,900Adjustments
                      for
                      stock-based compensation (Note 11(b))
                
                
                (1,704,000
                )
                
                
                (1,704,000
                )Deficit,
                      under US GAAP
                
                $
                (58,226,273
                )
                
                $
                (56,176,288
                )
   92
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
  **(f)  Reconciliation
          (continued):**
 **Years
                      ended March 31**
                
                **2007**
                
                
                **2006**
                
                
                **2005**(vi) 
                      (Loss) earnings and (loss) earnings per share for the year:
                    (Loss)
                      earnings for the year, under Canadian GAAP
                
                $
                (1,961,263
                )
                
                $
                (2,199,888
                )
                
                $
                1,531,244Adjustment
                      for
                      deferred exploration expenditures (Note 11(a))
                
                
                (88,722
                )
                
                
                (63,379
                )
                
                
                (4,126
                )Adjustment
                      to
                      gain on sale of mineral property previously written-off
                    (Note
                      11(a))
                
                
                -
                
                
                
                -
                
                
                
                119,386Adjustment
                      for
                      stock-based compensation Note (11(b))
                
                
                -
                
                
                
                314,879
                
                
                
                189,400Loss
                      (earnings) for the year, under US GAAP
                
                
                (2,049,985
                )
                
                
                (1,948,388
                )
                
                
                1,835,904Other
                      Comprehensive income:
                  Change
                      in fair value of available for sale marketable securities (Note
                      11(c))
                
                
                8,704
                
                
                
                82,740
                
                
                
                13,450Change
                      in fair value of long-term investments (Note 11(c))
                
                
                (600,000
                )
                
                
                880,000
                
                
                
                -Comprehensive
                    (loss) earnings, under US GAAP
                
                $
                (2,641,281
                )
                
                $
                (985,648
                )
                
                $
                1,849,354Basic
                    and diluted (loss) earnings per share, under US GAAP
                
                $
                (0.05)
                
                
                $
                (0.04
                )
                
                $
                0.04(vii)
                    Cash used in operating activities:
                  Cash
                    used in operating activities, under Canadian GAAP
                
                $
                (978,527)
                
                
                $
                (727,123
                )
                
                $
                (858,014
                )
 Adjustment
                      for
                      deferred exploration costs (Note 11(a))
                
                
                (88,722
                )
                
                
                (63,379
                )
                
                
                (37,106
                )Cash
                      provided by (used in) operating activities under US
                      GAAP
                
                $
                (1,067,249
                )
                
                $
                (790,502
                )
                
                $
                (895,120
                )
   93
 **MOUNTAIN
            PROVINCE DIAMONDS INC.** Notes
              to Consolidated Financial Statements
 (Expressed
              in Canadian dollars)
 Years
              ended March 31, 2007, 2006, and 2005
 **11.**
                **Reconciliation
                    to United States generally accepted accounting principles ("US
                    GAAP") (continued):**
  **(f)  
Reconciliation
          (continued):**
 **Years
                      ended March 31**
                
                **2007**
                
                
                **2006**
                
                
                **2005**(viii) Cash
                      used in
                      investing activities:
                    Cash
                      used in investing activities, under Canadian GAAP
                
                $
                (575,405
                )
                
                $
                (63,379
                )
                
                $
                (37,106
                )Adjustment
                      for
                      deferred exploration (Note 11(a))
                
                
                88,722
                
                
                
                63,379
                
                
                
                37,106Cash
                      used in investing activities under US GAAP
                
                $
                (486,683
                )
                
                $
                -
                
                
                $
                -
  
  94
  **SIGNATURES**
  The
          registrant hereby certifies that it meets all of the requirements for filing
          on
          Form 20-F and that it has duly caused and authorized the undersigned to
          sign
          this annual report on its behalf.
  **Mountain
                    Province Diamonds Inc.**Date:
                    June
                    29, 2007
                By:
                /s/ Patrick
                  C. EvansName:
                  **Patrick C. Evans**Title:
                  **President, CEO and Director**
 
  95
   **EXHIBIT
          INDEX**
  
 The
                    following exhibits are attached to and form part of this Annual
                    Report:
                  
                  *Exhibit*
                *Remarks.*1.1
                By-Laws
                    of the Company
                (3)1.2
                Arrangement
                    Agreement between the Company and Glenmore Highlands Inc. dated
                    May 10,
                    2000.
                (5)1.3
                Joint
                    Information Circular of the Company and Glenmore Highlands
                    Inc.
                (4)4.1
                Transfer
                    agreement between MPV, Monopros and Camphor dated November 24,
                    1999
                    pursuant to which MPV and Camphor transferred the GOR to
                    Monopros.
                (3)4.2
                Letter
                    Agreement between MPV, Monopros, Glenmore and Camphor dated December
                    17,
                    1999 relating to acquisition of property, within the "Area of
                    Interest" as
                    defined in the agreement and acquisition of property through
                    third party
                    agreements.
                (3)4.3
                Letter
                    Agreement dated December 17, 1999 between MPV, Monopros, Camphor
                    and
                    Glenmore amending the Monopros Joint Venture Agreement.
                (3)4.4
                Form
                    of Subscription Agreement for the private placement described
                    in item 1 of
                    "Material Contracts".
                (3)4.5
                Agreement
                    dated as of January 1, 2002 between the Company, Camphor Ventures
                    Inc. and
                    De Beers Canada Exploration Inc.
                (1)4.6
                Second
                    Amendment Agreement dated January 1, 2002 between the Company
                    and Paul
                    Shatzko.
                (3)4.7
                Second
                    Amendment Agreement dated January 1, 2002 between the Company
                    and Jan
                    Vandersande.
                (3)4.8
                Third
                    Amendment Agreement dated December 13, 2002 between the Company
                    and Jan
                    Vandersande
                (3)4.9
                Letter
                    agreement dated December 13, 2002 between the Company and Elizabeth
                    Kirkwood
                (3)4.10
                Consulting
                    Agreement dated January 1, 2004 between the Company and Jan W.
                    Vandersande
                (3)4.11
                Consulting
                    Agreement dated November 1, 2005 between the Company and Patrick
                    Evans
                (3)4.12
                Revised
                    Consulting Agreement dated January 31, 2006 between the Company
                    and
                    Patrick Evans
                (3)4.13
                Consulting
                    Agreement dated May 11, 2006 between the Company and Jennifer
                    Dawson
                (3)8.1
                List
                    of Subsidiaries
                (2)11.1
                Corporate
                    Governance Policies dated May 29, 2006.
                (3)12.1
                Section
                    302 Certification of the Company's Chief Executive Officer
                -12.2
                Section
                    302 Certification of the Company's Chief Financial Officer
                -13.1
                Section
                    906 Certification of the Company's Chief Executive Officer
                -13.2
                Section
                    906 Certification of the Company's Chief Financial Officer
                -14.1
                Independent
                    Qualified Person's Review and Technical Report dated June 16,
                    2003
                    entitled *Gahcho Kué, Northwest Territories, Canada* prepared by
                    Malcolm L. Thurston, Ph.D., MAusimm
                (3)15
                Revised
                    Charter of the Board of Directors and Committees thereof of Mountain
                    Province Diamonds Inc.
                (3)
  (1)    
          The Registrant has received approval for confidential treatment with respect
          to
          certain portions of this Agreement, which have been omitted, pursuant to
          Rule
          24b-2 of the Securities Exchange Act of 1934, as amended.
  (2)    
          See list of subsidiaries on page 11 of this Annual Report.
  (3)    
          Previously filed and incorporated by reference.
  (4)    
          Previously furnished under cover of Form 6K dated June 2, 2000 and incorporated
          by reference.
  (5)    
          Attached as Appendix A to the Joint Information Circular of the Company
          and
          Glenmore Highlands Inc. which information circular was previously furnished
          under cover of Form 6K dated June 2, 2000, and incorporated by
          reference.
  
   96