UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F



(Mark One)



| |  ̈ | 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
December 31, 2012



OR



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



OR



| |  ̈ | 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 001-32468



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)



161 Bay Street, Suite 2315, PO Box 216,
Toronto, Ontario Canada M5J 2S1

(Address of principal executive offices)



Bruce Ramsden – 416-361-3562

Fax: 416-603-8565; Email: b.ramsden@mountainprovince.com

161 Bay Street, Suite 2315, PO Box 216,
Toronto, Ontario Canada M5J 2S1

(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)



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



|Title of each class        | Name of each exchange on which registered
|-------------------------- | -----------------------------------------
|Common Shares no par value | NYSE MKT                                 



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



Not Applicable

(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.

94,168,151



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

 ̈ Yes   x No



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

 ̈ Yes   x No



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



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

x Yes    ̈ No



Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)

 ̈ Yes    ̈ 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  ̈ | Accelerated filer x | Non-accelerated filer  ̈
|------------------------- | ------------------- | -----------------------



Indicate by check mark
which basis of accounting the registrant has used to prepare the financial statements included in this filing:



|U.S. GAAP   ̈ | International Financial Reporting Standards  x | Other   ̈
|------------ | ---------------------------------------------- | --------
|             | as issued by the International Accounting      |         
|             | Standards Board                                |         



If “Other”
has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.

 ̈
Item 17         ̈ 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).

 ̈ Yes    x No



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



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

 ̈ Yes     ̈ No



Not Applicable











TABLE OF CONTENTS



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





ii







|E.      | Share ownership.                                            | 59
|------- | ----------------------------------------------------------- | --
|        |                                                             |   
|Item 7  | Major Shareholders and Related Party Transactions.          | 60
|        |                                                             |   
|A.      | Major shareholders.                                         | 60
|        |                                                             |   
|B.      | Related party transactions.                                 | 61
|        |                                                             |   
|C.      | Interests of experts and counsel.                           | 62
|        |                                                             |   
|Item 8  | Financial Information.                                      | 62
|        |                                                             |   
|A.      | Consolidated Statements and Other Financial Information.    | 62
|        |                                                             |   
|B.      | Significant Changes.                                        | 62
|        |                                                             |   
|Item 9  | The Offer and Listing.                                      | 63
|        |                                                             |   
|A.      | Offer and Listing Details.                                  | 63
|        |                                                             |   
|B.      | Plan of Distribution.                                       | 64
|        |                                                             |   
|C.      | Markets.                                                    | 64
|        |                                                             |   
|D.      | Selling Shareholders.                                       | 64
|        |                                                             |   
|E.      | Dilution.                                                   | 64
|        |                                                             |   
|F.      | Expenses of the Issuer.                                     | 64
|        |                                                             |   
|Item 10 | Additional Information.                                     | 64
|        |                                                             |   
|A.      | Share capital.                                              | 64
|        |                                                             |   
|B.      | Memorandum and articles of association.                     | 64
|        |                                                             |   
|C.      | Material contracts.                                         | 68
|        |                                                             |   
|D.      | Exchange controls.                                          | 68
|        |                                                             |   
|E.      | Taxation.                                                   | 70
|        |                                                             |   
|F.      | Dividends and paying agents.                                | 78
|        |                                                             |   
|G.      | Statement by experts.                                       | 78
|        |                                                             |   
|H.      | Documents on display.                                       | 78
|        |                                                             |   
|I.      | Subsidiary Information.                                     | 79
|        |                                                             |   
|Item 11 | Quantitative and Qualitative Disclosures About Market Risk. | 79
|        |                                                             |   
|Item 12 | Description of Securities Other than Equity Securities.     | 80



iii







|PART II       |                                                                               |   
|------------- | ----------------------------------------------------------------------------- | --
|              |                                                                               |   
|Item 13       | Defaults, Dividend Arrearages and Delinquencies.                              | 80
|              |                                                                               |   
|Item 14       | Material Modifications to the Rights of Security Holders and Use of Proceeds. | 80
|              |                                                                               |   
|Item 15       | Controls and Procedures.                                                      | 80
|              |                                                                               |   
|Item 16A      | Audit Committee Financial Expert.                                             | 81
|              |                                                                               |   
|Item 16B      | Code of Ethics.                                                               | 81
|              |                                                                               |   
|Item 16C      | Principal Accountant Fees and Services.                                       | 82
|              |                                                                               |   
|Item 16D      | Exemptions from the Listing Standards for Audit Committees.                   | 83
|              |                                                                               |   
|Item 16E      | Purchases of Equity Securities by the Issuer and Affiliated Purchasers.       | 83
|              |                                                                               |   
|Item 16F      | Change in Registrant’s Certifying Accountant.                                 | 83
|              |                                                                               |   
|Item 16G      | Corporate Governance                                                          | 83
|              |                                                                               |   
|Item 16H      | Mine Safety Disclosure                                                        | 84
|              |                                                                               |   
|PART III      |                                                                               |   
|              |                                                                               |   
|Item 17       | Financial Statements.                                                         | 85
|              |                                                                               |   
|Item 18       | Financial Statements.                                                         | 85
|              |                                                                               |   
|Item 19       | Exhibits.                                                                     | 85
|              |                                                                               |   
|SIGNATURES    | 86                                                                           
|              |                                                                              
|EXHIBIT INDEX | 87                                                                           
|              |                                                                               |   
|APPENDIX      | Item 18. Financial Statements                                                 | 88



iv







GLOSSARY



2002 Agreementor Gahcho
Kué Joint Venture Agreementormeans 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, and which was amended and restated on July 3, 2009;



2009 Gahcho Kué Joint Venture
AgreementorGahcho Kué Amended and Restated Joint Venture Agreementmeans the Gahcho Kué Joint
Venture Agreement as amended and restated, and entered into by Mountain Province Diamonds Inc., Camphor Ventures Inc., and De Beers
Canada Inc. on July 3, 2009;



2009 Technical Report means
the Technical Report dated as of April 20, 2009 entitled "Gahcho Kué Kimberlite Project NI 43-101 Technical Report,
Northwest Territories, Canada" prepared for the Company by AMEC Americas Limited;



2010 Technical Report, Definitive
Feasibility Study,orFeasibility Studymeans the “Gahcho Kué Project, Definitive Feasibility
Study, National Instrument (“NI”) 43-101 Technical Report” dated December 1, 2010 (with Information effective
as of October 15, 2010) as prepared and completed by JDS Energy and Mining Inc., and filed by the Company on SEDAR on December
3, 2010;



Affiliate has the meaning
given to affiliated bodies corporate under theBusiness Corporations Act (Ontario);



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



AK-CJ Propertiesmeans, collectively,
the AK Property and CJ Property;



AMECmeans AMEC Americas
Limited;



AMEX or NYSE AMEXmeans the
American Stock Exchange prior to the take-over of the American Stock Exchange LLC by the New York Stock Exchange, and subsequently
renamed NYSE Amex, then renamed NYSE MKT;



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 Agreementmeans 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 or Camphor Venturesmeans Camphor Ventures Inc.;



Canadian National Instrument 43-101means 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,MPVor Registrant means Mountain Province Diamonds Inc.;



v







De Beers means De Beers Consolidated
Mines Ltd.;



De Beers Canada or Monopros
means De Beers Canada Inc., formerly known as De Beers Canada Exploration Inc., and before that 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 (and updated in 2003,
2005, 2006, and 2008) and the Independent Qualified Persons’ review of the Desktop Study provided by AMEC;



Definitive Feasibility Study, Feasibility
Study,or2010 Technical Reportmeans the “Gahcho Kué Project, Definitive Feasibility Study,
National Instrument (“NI”) 43-101 Technical Report” dated December 1, 2010 (with Information effective as of
October 15, 2010) as prepared and completed by JDS Energy and Mining Inc., and filed by the Company on SEDAR on December 3, 2010;



Exchange Act means the U.S.
Securities Exchange Act of 1934, as amended;



Feasibility Study, Definitive Feasibility
Study,or2010 Technical Reportmeans the “Gahcho Kué Project, Definitive Feasibility Study,
National Instrument (“NI”) 43-101 Technical Report” dated December 1, 2010 (with Information effective as of
October 15, 2010) as prepared and completed by JDS Energy and Mining Inc., and filed by the Company on SEDAR on December 3, 2010;



GAAP means Canadian generally
accepted accounting principles;



Gahcho Kué Amended and Restated
Joint Venture Agreementor2009 Gahcho Kué Joint Venture Agreementmeans the Gahcho Kué Joint
Venture Agreement as amended and restated, and entered into by Mountain Province Diamonds Inc., Camphor Ventures Inc., and De Beers
Canada Inc. on July 3, 2009;



Gahcho Kué Joint VentureorJoint Venturemeans the joint venture between Mountain Province Diamonds Inc., Camphor Ventures Inc., and De Beers Canada,
for the Gahcho Kué Project, and as currently governed by the 2009 Gahcho Kué Joint Venture Agreement;



Gahcho Kué Joint Venture Agreementor2002 Agreementmeans 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, and which
was amended and restated on July 3, 2009;



Gahcho KuéProject,located on Kennady Lake, also referred to as the “Kennady Lake Project”, and comprising four mineral leases that
are 100% owned by De Beers Canada Inc. (“De Beers Canada”), which holds them on behalf of the Gahcho Kué Joint
Venture. The participating interest of each of the joint venture parties is governed by the 2009 Gahcho Kué Joint Venture
Agreement;



Glenmore means Glenmore Highlands
Inc., a company incorporated under the Business Corporations Act (Alberta) and which, pursuant to the Arrangement,
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;



IFRSmeans International
Financial Reporting Standards, as issued by the International Accounting Standards Board - a system of generally accepted accounting
principles, as applied to Mountain Province’s financial statements beginning with its transition effective January 1, 2010;



vi







JDSmeans JDS Energy and
Mining Inc.;



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;



Joint VentureorGahcho
Kué Joint Venturemeans the joint venture between Mountain Province Diamonds Inc., Camphor Ventures Inc., and De
Beers Canada, for the Gahcho Kué Project, and as currently governed by the 2009 Gahcho Kué Joint Venture Agreement;



Kennady Arrangementmeans
the arrangement between the Company and Kennady Diamonds Inc. which was effected as of July 6, 2012;



Kennady Arrangement Agreementmeans
the Kennady Arrangement Agreement dated as of March 12, 2012, and made between the Company and Kennady Diamonds Inc., including
the schedules to that agreement;



Kennady North Projectmeans
the mining leases (4330, 4466, 4467, and 4468) and eight mineral claims staked in 2010 (Kwezi 01 to Kwezi 08) which were 100% owned
by Mountain Province in the area around the Gahcho Kué Project and Kennady Lake, and which were transferred to Kennady Diamonds
Inc. under the plan of arrangement between Kennady Diamonds Inc. and Mountain Province effective July 6, 2012;



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 Inc., formerly known as Monopros Limited, a wholly-owned subsidiary of De Beers and also formally
known as De Beers Canada Exploration Inc.;



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



MPV, Mountain Province, Company
or Registrantmeans Mountain Province Diamonds Inc.;



MPV Sharesmeans the
common shares of MPV, and MPV Share means any of them;



Nasdaqmeansthe
National Association of Securities Dealers Automatic Quotation System, now the Nasdaq Stock Exchange;



NYSE MKTmeans the New York
Stock Exchange MKT, renamed from NYSE Amex;



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



OTCBB means the OTC bulletin
board;



PFIC means Passive Foreign
Investment Company under the Code;



vii







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



(1) is an engineer or geoscientist
with a university degree, or equivalent accreditation, in an area of geosciences, or engineering, relating to mineral exploration
or mining;



(2) has at least five years
of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these,
that is relevant to his or her professional degree or area of practice;



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



(4) is in good standing
with a professional association; and



(5) in the case of a professional
association in a foreign jurisdiction, has a membership designation that:

(i) requires attainment of a position of responsibility
in their profession that requires the exercise of independent judgment; and

(ii) requires:

A. a favourable confidential peer evaluation of
the individual’s character, professional judgment, experience, and ethical fitness; or

B. a recommendation for membership
by at least two peers, and demonstrated prominence or expertise in the field of mineral exploration or mining;



Except
where specifically indicated otherwise, scientific and technical information included in this report on Form 20F regarding the
Company’s mineral projects has been reviewed by Carl Verley, a Director of the Company and a Qualified Person as defined
by National Instrument 43-101. Independent Qualified Persons responsible for the 2010 Technical Report prepared for the Gahcho
Kué Joint Venture and discussed in Item 4 D “Property, Plants and Equipment” from the headings “Property
Settings” to “Economic Analysis - Summary” are: Daniel D. Johnson, P.Eng., Mike Makarenko, P.Eng., and Ken Meikle,
P.Eng.;



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 (mm).
| | ------------ | ---------------------------------------------------------------



| | Microdiamond | Generally refers to diamonds smaller than approximately 0.5 mm, 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") DEFINITION STANDARDS FOR MINERAL RESOURCES AND MINERAL RESERVES (THE “CIM
DEFINITION STANDARDS”) AS ADOPTED BY THE CIM COUNCIL ON DECEMBER 11, 2005. 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 Definition 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 CIM Definition 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 Definition 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 CIM Definition 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 Definition Standards, a Mineral Resource is
a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including
base and precious metals, coal, and industrial minerals 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 extractions. 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 DEFINITION
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 Definition 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 Definition 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 Definition 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.
| | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



xii







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



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



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



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



| | Preliminary Feasibility Study | Under the CIM Definition 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 foreign exchange fluctuations and prices of diamonds;
| | - | ----------------------------------------------------------------------



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



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



| | § | risks related to failure of the Company and/or its joint venture partner to obtain adequate financing
on a timely basis and on acceptable terms, particularly given recent volatility in the global financial markets;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| | § | geological and technical conditions at the Company’s Gahcho Kué Project being adequate
to permit development;
| | - | -------------------------------------------------------------------------------------------------------------



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



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



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



xiv







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



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



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.



Forward-looking information is based on
certain factors and assumptions regarding, among other things, exploration, permitting, construction, mining, and production at
the Gahcho Kué Project and any other property as well as world and U.S. economic conditions and the future worldwide demand
for diamonds. Specifically, in making statements regarding expected mineral recovery, diamond prices and expectations concerning
the diamond industry, the Company has made assumptions regarding, among other things, foreign exchange rates, continuing recovery
of world and U.S. economic conditions, our ability to successfully implement our exploration, construction and mining plans, the
success of permitting the Gahcho Kué Project, and overall demand for diamonds. While the Company considers these assumptions
to be reasonable based on the information currently available to it, they may prove to be incorrect. See “Risk Factors”.



CAUTIONARY NOTE TO U.S. INVESTORS REGARDING
RESOURCE AND RESERVE
ESTIMATES – MINING PROPERTIES



This Annual Report on Form 20-F has been
prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of
United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable
mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards
of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the
“CIM Definition Standards”) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM
Council, as amended. These definitions differ from the definitions in United States Securities and Exchange Commission (“SEC”)
Industry Guide 7 (the “SEC Guidelines”) under the United States Securities Act of 1993, as amended (the “Securities
Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required
to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves
and the primary environmental analysis or report must be filed with the appropriate governmental authority.



In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and
are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to
assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral
resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.
Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies,
except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically
or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations;
however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC
Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.



xv







Accordingly, information contained in this
Annual Report on Form 20-F and the documents incorporated by reference herein contain descriptions of our mineral deposits that
may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements
under the United States federal securities laws and the rules and regulations thereunder.



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. Canadian investors should also refer to the annual consolidated financial statements of the Company as at December 31,
2012, 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              |  |             | 2.471
|Metres                 |  | Feet (ft.)         |  |             | 3.281
|Kilometres (km.)       |  | Miles              |  |             | 0.621
|Tonnes                 |  | Tons (2000 pounds) |  |             | 1.102
|Grams/tonne            |  | Ounces (troy/ton)  |  |             | 0.029



xvi







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 18, Financial Statements." 
The Company's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”), effective with the Company’s
transition to IFRS on January 1, 2010. Previously, the Company’s consolidated financial statements were prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”). Material measurement differences between GAAP and
accounting principles in the United States, applicable to the Company, were described in the Company’s previous consolidated
financial statements. With the Company’s transition to IFRS effective January 1, 2010, there is no requirement to report
the material measurement differences between IFRS and accounting principles in the United States.



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 December 31, 2012, 2011 and 2010.



|For the year ending (except as noted)                                               | 
|----------------------------------------------------------------------------------- | 
|All in CDN$1,000's except Earnings (loss) per Share
    and Number of Common Shares | 
|Operating Revenue                                                                   | 
|Working Capital                                                                     | 
|Net Loss  -                                                                         | 
|Under IFRS:                                                                         | 
|Basic and diluted loss per share -                                                  | 
|Under IFRS:                                                                         | 
|Total Assets -                                                                      | 
|Under IFRS:                                                                         | 
|Share Capital                                                                       | 
|Under IFRS:                                                                         | 
|Net Assets -                                                                        | 
|Under IFRS:                                                                         | 
|Number of Common Shares issued                                                      | 



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



1







Currency and Exchange Rates



All dollar amounts set forth
in this report are in Canadian dollars, except where otherwise indicated. The following tables set forth, (i) for the five most
recent financial years, the average rate (the "Average Rate") of exchange for the Canadian dollar, expressed in U.S.
dollars, calculated by using the average of the U.S. noon exchange rates per the Bank of Canada for each trading day of the fiscal
year; and (ii) the high and low exchange rates for each of the previous six calendar months for the Canadian dollar, expressed
per the Bank of Canada.



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



|Dec-12 |        |  | Dec-11 |     |        | Dec-10 |  |     | Dec-09 (nine months) |  |  | Mar-09 |       
|------ | ------ |  | ------ | --- | ------ | ------ |  | --- | -------------------- |  |  | ------ | ------
|US$    | 0.9949 |  |        | US$ | 0.9891 |        |  | US$ | 0.9704               |  |  | US$    | 0.9034



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



|Month          |  | High (US$) |        |  | Low (US$) | 
|-------------- |  | ---------- | ------ |  | --------- | 
|February 2013  |  |            | 1.004  |  |           | 
|January 2013   |  |            | 1.0188 |  |           | 
|December 2012  |  |            | 1.0178 |  |           | 
|November 2012  |  |            | 1.0095 |  |           | 
|October 2012   |  |            | 1.0272 |  |           | 
|September 2012 |  |            | 1.0371 |  |           | 



On March 26, 2013, the noon buying rate in Canadian
dollars as per the Bank of Canada (the "Exchange Rate") was $1 Canadian = US$0.9837.



| | B. | Capitalization and indebtedness.
| | -- | --------------------------------



Not Applicable



| | C. | Reasons for the offer and use of proceeds.
| | -- | ------------------------------------------



Not Applicable



| | D. | Risk factors.
| | -- | -------------



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. Any or all of these risks could have a material adverse effect on the Company’s business, financial
condition, results of operations, cash flows and on the market price of its common stock.



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 growth of all companies, and in mining
companies in particular. The Company has not commenced mining operations and is still in the development and permitting stage of
the Gahcho Kué Project. The Company may not be able to obtain all of the permits which are necessary for it to commence
operations. The Company’s mining operations may not be successful. As a result of this limited operating history, period-to-period
comparisons of the Company’s operating results may not be meaningful and the results for any particular period should not
be relied upon as an indication of future performance.



(b)    The diamond mining business is speculative and the Company may not be successful in implementing its plans to establish a successful
and profitable diamond mining business



Resource exploration and possible
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 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 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.
The Company’s current operations do not generate any cash flow. The Company’s annual operating costs, excluding its
share of costs of the Gahcho Kué Project, are approximately $2.5 million.



(d) The Company
is in the development and permitting stage for the Gahcho Kué Project and may never become profitable.



The Company's Gahcho Kué
Project is in the permitting and engineering design stage. The Company’s proposed mining operations may never become profitable.
Drilling of the 5034, Hearne, and Tuzo kimberlite pipes has been extensive and is completed for purposes for the development of
the mine. Reserves have been established through the Feasibility Study but the permitting of the mine is still underway. 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 that have been developed are not necessarily final.



(e) The
preliminary process testing may not be accurate in predicting the actual presence and recoverability of diamonds on Company properties.



Process testing is limited to
small scale testing based on a number of laboratory test programs, trade-off studies and design evaluations. 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) The
Company may not have adequate funds to explore properties other than the Gahcho Kué Project.



The Company may not have the
ability to pay for exploration or development costs on any other properties it may acquire. If such funds were available, there
is no assurance that expending such funds would result in discovery of any diamondiferous kimberlite.



3







(g) The Company
has a history of losses and is likely to continue to incur losses for the foreseeable future.



The Company has a history of
losses and is likely to continue to incur losses for the foreseeable future. During the fiscal years ended December 31, 2012, 2011,
and 2010, the Company incurred net losses or earnings during each of the following periods:



| | · | $3.338 million loss for the year ended December 31, 2012;
| | - | ---------------------------------------------------------



| | · | $11.539 million loss for the year ended December 31, 2011; and
| | - | --------------------------------------------------------------



| | · | $14.535 million loss for the year ended December 31, 2010.
| | - | ----------------------------------------------------------



As of December 31, 2012, the
Company had an accumulated deficit of $94.2 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 and development company, has only a history of losses.



(h) The Company
may never recover the amounts it has capitalized for mineral property costs.



The recoverability of the amounts
capitalized for mineral properties in the Company's consolidated financial statements 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)
The Company’s failure to raise required financing in the future could cause the Company to go out of business.



As of December 31, 2012, the Company
had cash and cash equivalents and short-term investments of approximately $47.7 million and working capital of approximately $46.7
million. During the past two fiscal years ended December 31, 2012 and December 31, 2011, the Company used approximately $27.5 million
in cash flows in operating activities including approximately $13.8 million during the year ended December 31, 2012, and $13.7
million during the year ended December 31, 2011.



The Company's administrative
and other expenses are expected to be approximately $2.5 million for the next year, in addition to an estimated $42.0 million for
the Company’s proportional share of expenses for the Gahcho Kué joint venture for 2013. The Company expects that a
payment of $10 million for historic sunk costs will be required towards the end of 2013 when permits are expected for the Gahcho
Kué joint venture.



In order to advance the development
of the Gahcho Kué Project, the Company will 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 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. As well, there is no guarantee that the Company will be able to raise additional capital, or to raise
additional capital on terms and conditions which it finds acceptable. If the Company is not able to raise sufficient capital, it
may not be able to grow the Company, or it may be forced to cease doing business.



4







(j) Only the
Company’s Gahcho Kué Project has probable reserves.



The Gahcho Kué Project,
the Company’s major property, is in the permitting stage. The Gahcho Kué Project has probable reserves in three of
the four kimberlite bodies at Kennady Lake. See “Item 4D - Property, plants and equipment - Principal Properties”.



(k)
If the Company does not hold good title to properties, its ability to explore and eventually mine them could be prevented or restricted.



The Company’s business
depends upon having clear title to its properties and its ability to explore, develop and mine its properties without undue restriction.
If any of its properties are subject to prior unregistered agreements that restrict the use of the properties, or if it does not
hold title to the properties as it believes it does, its ability to explore, develop and mine on those properties could be limited
or prevented completely. This would have a material adverse effect on the Company and its results of operation.



(l) Diamond
prices can fluctuate significantly, and as a result, the Company’s results of operation may fluctuate significantly.



The market for rough diamonds
is subject to strong influence from demand in the United States, Japan, China and India, which are the largest markets for polished
diamonds, and supply from major producers such as Alrosa of Russia and Debswana of Botswana. The price of diamonds has historically
fluctuated.  The price of diamonds dropped sharply after September 11, 2001. Between 2003 and 2006 diamond prices increased
on average by approximately 15%.  In 2007, rough diamond prices increased by an average of 25%, and in the first five months
of 2008, by a further 11%.  From about mid-2008 to mid-April 2009, rough diamond prices fell sharply with concerns of the
global economic environment of the time.  By mid-April 2009, rough diamond prices rebounded to pre-global recession levels. 
During 2010, rough diamond prices increased by approximately 30%.  This strengthening continued through the first half of
2011 when diamond prices reached historic highs.  During the second half of 2011, diamond prices dropped sharply resulting
in an overall approximate 17% increase during the year. Accordingly to industry leaders, in 2012 rough diamond prices dropped by
approximately 12 percent. While the supply/demand fundamentals for diamonds would indicate good price support and steadily rising
prices in the future, such fluctuations make it difficult to predict future diamond prices with a high degree of certainty. To
mitigate against this, the Company uses conservative modeled diamond prices in its economic studies and mine planning. Nonetheless,
the Company’s future results of operation may fluctuate significantly if rough diamond price volatility continues into the
future.



(m) The Company
may incur significant costs to comply 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 development, production and other schedules
as a result of the need to comply with applicable laws, regulations and permits. The Company's development 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 exploration, development
and operation 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, development or mining activities which the Company might undertake.





5







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 amounts.



Amendments to current laws, regulations
and permits governing operations and activities of mining companies, or more stringent implementation of existing or new laws,
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 facilities.



(n) Climate
and transportation costs may increase and have a negative effect on the Company’s results of operation.



The Gahcho Kué Project
is subject to climate and transportation risks because of its remote northern location. Such factors can add to the costs of development
and operation, thereby increasing costs and negatively affecting profitability. The availability of weather conducive to building
and operating the Tibbitt to Contwoyto Winter Road is particularly critical to the development of the mine, and production.



(o) The Company
is dependent upon its joint venture partner for the success of the Gahcho Kué Project.



The Company, and the success of
the Gahcho Kué Project, are dependent on the efforts, expertise and capital resources of our 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 Gahcho Kué Project. In addition, De Beers Canada is providing its share of financing for the Gahcho Kué
Project. The Company is dependent on De Beers Canada for accurate information about the Gahcho Kué Project, and the proper
and timely progress of exploration, permitting and development.



(p) Operating
Hazards and Risks



Diamond exploration and mining
involves many risks. Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risks
(such as accidents, injuries, and hazardous waste) normally incidental to exploration, development and production of resources,
any of which could result in work stoppages, damage to property and possible environmental damage.



(q) There are numerous
factors beyond the control of the Company that may 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 and/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.



6







(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)
The Mineral Resources Industry is intensely competitive and the Company competes with many companies with greater financial means
and technical facilities.



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.



(t)
Aboriginal Rights and Title



Governments
in Canada must consult with aboriginal peoples with respect to grants of mineral rights and the issuance of or amendment to project
authorizations. Consultation regarding rights or claimed rights of aboriginal people may require accommodations, including undertakings
with respect to employment and other matters. This may affect the Company’s timetable and costs of development of mineral
properties. Aboriginal rights or title claims could affect the Company’s existing operations, in addition to its future acquisitions.
These legal requirements, among other things, may affect the Company’s ability to develop the Gahcho Kué Project and
other mineral properties or may materially delay the development of such properties.



(u)
Future equity financings which the Company may undertake would cause shareholders’ interests in the Company to be diluted.



The Company's current operations
do not generate any cash flow. As 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 raised funds in recent years through share, option and warrant issuances.
As of December 31, 2012, the Company had cash and cash equivalents and short-term investments of approximately $47.7 million and
working capital of approximately $46.7 million. To develop the Gahcho Kué mine, and perform exploration on any other properties
acquired, the Company will need to investigate sources of additional liquidity to increase the cash balances required in the future.
These additional sources include, but are not limited to, share offerings, private placements, production sharing arrangements,
credit facilities, and debt, as well as further possible exercises of outstanding options by directors and officers. There can
be no assurance that the Company will be able to raise additional funds as needed, or that funds raised, if any, would be on terms
and conditions acceptable to the Company. The Company’s annual cash administrative operating costs, excluding the costs directly
associated with the Gahcho Kué Project, are approximately $2.5 million.





7







(v)
If outstanding options to buy Company stock are exercised, existing shareholders’ interests in the Company will be diluted.



As at March 28, 2013, there were
1,044,000 options (including options not fully vested) outstanding with exercise prices ranging from $1.26 to $6.13 (expiring at
various dates). The stock options, if fully exercised, would increase the number of shares outstanding by 1,044,000. Such options,
if fully exercised, would constitute about 1% (out of 95,212,151 shares (94,168,151 issued and outstanding, plus total outstanding
options)) of the Company's resulting share capital as at March 28, 2013. It is unlikely that outstanding options and warrants 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 dilution to
existing shareholders.



(w)  Members
of our Management and Board of Directors may have outside interests which conflict with the Company or its shareholders.



The President and CEO and director,
Patrick Evans, and the current CFO and Corporate Secretary, Jennifer Dawson, and the Vice President Finance and CFO and Corporate
Secretary designate, Bruce Ramsden, have Consulting Agreements with the Company (see “Item 6C - Board Practices”).
In addition, 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.



(x)
If the Company is not able to attract and maintain qualified key management personnel, it may not be able to successfully implement
its planned business activities and growth.



The nature of the Company's business,
its ability to continue its exploration, development and permitting 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” and “Item 6C - Board Practices”. 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.



(y)   The
Company’s stock price is subject to significant fluctuations.



Prices for the Company's shares
on the TSX and on the NYSE MKT (formerly NYSE Amex), have been extremely volatile. The price for the Company's common shares on
the TSX ranged from $3.25 (low) and $5.60 (high) during the fiscal year ended December 31, 2012, and from $3.50 (low) to $6.50
(high) during the fiscal year ended December 31, 2011. The price on the NYSE MKT ranged from $3.13 US (low) and $5.66 US (high)
during the fiscal year ended December 31, 2012, and from $3.48 US (low) to $6.74 US (high) during the fiscal year ended December
31, 2011. Any investment in the Company's securities is therefore subject to considerable fluctuations in value.



(z)
The Company has not paid dividends in the past and does not anticipate paying them in the foreseeable future.



Since
its inception, the Company has not paid any cash dividends on its common stock and does not anticipate paying any cash dividends
on its common stock in the foreseeable future. Without dividends on its common stock, shareholders will be able to profit from
an investment only if the price of the stock appreciates before the shareholder sells it.



(aa)
Currency rate fluctuations may have a material effect on our financial position, results of operations, and timing of the development
of the Company’s properties.



Feasibility and other studies
conducted to evaluate the Company's properties are typically 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. In
particular, the recent strong increase in the value of the Canadian dollar compared to the U.S. dollar should be expected to have
a material impact on projected future capital and operating costs, which could impact on the economic viability of the Gahcho Kué
Project.



8







(bb)
Historically, the Company has been dependent on the support of De Beers and there is no assurance that their support will continue
in the future.



The exploration of the Gahcho
Kué Project has historically been funded by De Beers Canada. As well, De Beers Canada is the operator of the Project, and
has an equity investment in the Company. With the execution of the 2009 Joint Venture Agreement, De Beers and the Company share
funding responsibility for the Gahcho Kué Project. Under the 2009 Gahcho Kué Joint Venture Agreement, the Company
and De Beers are required to fund their share of costs for future operations. As well, the Company is required to make certain
repayments of agreed historic costs of the Gahcho Kué Project, funded by De Beers, if and when certain events occur. If
either party is unable to fund their share of costs, or, if the Company defaults on its required payments of historic costs if
and when they are due, in addition to interest on late or defaulted payments, marketing rights can be diluted for the defaulting
party. As well, there is no assurance that the Company will have the required funds on hand when the payments are required to be
made. Finally, there is no assurance that the level of support provided by De Beers will continue in the future.



(cc)
It will be difficult for any shareholder of the Company to commence legal action against the Company’s executives. Enforcing
judgments against them or the Company will be difficult.



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 the Company’s directors and officers are residents
of Canada and a significant part of the Company’s 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 the Company’s 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.



(dd) The
MPV Shares may be delisted from NYSE MKT, and if this occurs, shareholders may have difficulty converting their investment into
cash efficiently.



NYSE MKT has established certain
standards for the continued listing of a security on this exchange. If the MPV Shares were to be excluded from NYSE MKT, the prices
of the MPV Shares and the ability of shareholders to sell such stock would be adversely affected. If the Company were to be delisted,
the Company would be required to comply with the initial listing requirements to be relisted on NYSE MKT.





9









(ee)
The Company is likely a "passive foreign investment company" which may have adverse U.S. federal income tax consequences
for U.S. shareholders.



U.S. investors in the Common
Shares should be aware that the Company believes it was classified as a PFIC during the tax year ended December 31, 2012, and based
on current business plans and financial expectations, the Company believes that it will be a PFIC for the tax year ending December
31, 2013, and may be a PFIC in subsequent tax years. If the Company is a PFIC for any year during a U.S. shareholder’s holding
period, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of Common Shares, or
any so-called “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge
on a portion of such gain or distributions, unless the shareholder makes a timely and effective "qualified electing fund"
election (“QEF Election”) or a "mark-to-market" election with respect to the Common Shares. A U.S. shareholder
who makes a QEF Election generally must report on a current basis its share of the Company's net capital gain and ordinary earnings
for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. However, U.S.
shareholders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply
to a qualified electing fund, or that the Company will supply U.S. shareholders with information that such U.S. shareholders require
to report under the QEF Election rules, in the event that the Company is a PFIC and a U.S. shareholder wishes to make a QEF Election.
Thus, U.S. shareholders may not be able to make a QEF Election with respect to their Common Shares. A U.S. shareholder who makes
the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Common
Shares over the taxpayer’s basis therein. This paragraph is qualified in its entirety by the discussion below under the heading
“United States Federal Income Tax Consequences.” Each U.S. shareholder should consult its own tax advisor regarding
the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.



| | 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 reflected 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 Actand 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.



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.



10







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 Business Corporations Act (Ontario), 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 Netherlands             
|Baltic Minerals Finland OY |  | May 18, 1994                                 |  | Finland                     
|Camphor Ventures Inc.      |  | May 9, 1986 (as Sierra Madre Resources Inc.) |  | British Columbia, Canada    



On February 27, 2012, the Company
incorporated a wholly-owned subsidiary named Kennady Diamonds Inc. under the Ontario Business Corporations Act. This subsidiary
was formed for the purpose of effecting the transfer of Mountain Province’s interest in the Kennady North Project in Northwest
Territories, Canada and operations to a new company as contemplated under a Mountain Province plan of arrangement which closed
July 6, 2012 (see “Kennady North” discussion under “Other Properties”). Until the completion of the plan
of arrangement, Kennady Diamonds Inc. was a wholly-owned subsidiary of Mountain Province. Upon completion of the plan of arrangement,
Mountain Province distributed the shares of Kennady Diamonds to Mountain Province shareholders on the basis of one Kennady Diamonds’
share for every five shares of Mountain Province held by shareholders.



11







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







The Company's registered, records,
administrative, and executive office is at 161 Bay Street, Suite 2315, PO Box 216, Toronto, Ontario, Canada M5J 2S1, the telephone
number is (416) 361-3562, and the fax number is (416) 603-8565.



The Company's initial public
offering on the 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 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 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 NYSE MKT (formerly NYSE 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, Alberta,
Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland.The Company files reports
in the United States pursuant to Section 13 of the Securities Exchange Act.



The Company’s transfer
agent is Computershare Investor Services Inc. located at 100 University Avenue, 8th Floor, Toronto,
Ontario, Canada, M5J 2Y1.



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 MPV Shares or by the Company in respect of other companies' shares during the last and
current financial year.



Acquisitions and Dispositions



On October 10, 2002, the Company
granted an option for the acquisition by Vision Gate Ventures Limited (now known as Northern Lion Gold Corp.) of a 70% interest
in its Haveri Gold Property, which 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 were volume restrictions on re-sale thereafter. The 4,000,000
common shares of Northern Lion Gold Corp. were sold in July 2007.



12







Acquisition of Camphor Ventures
Inc.



On July 5, 2006, the Company
announced that it had entered into an agreement with certain Camphor Ventures Inc. (“Camphor” or “Camphor Ventures”)
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 MPV 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 MPV 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 was de-listed in July 2007, and is now a wholly owned subsidiary of Mountain Province.



Disposition of Kennady North
Project



On March 12, 2012, Kennady
Diamonds Inc. and Mountain Province entered into an arrangement agreement (the “Kennady Arrangement Agreement”) pursuant
to which Mountain Province agreed to would transfer its interest in the Kennady North Project, in the Northwest Territories in
Canada, including permits, mining claims, rights and title, to Kennady Diamonds Inc. in exchange for common shares of Kennady Diamonds
Inc.



Upon completion of the Kennady
Arrangement on July 6, 2012, Kennady Diamonds Inc. issued 16,143,111 shares to Mountain Province which were distributed along with
the one share held by Mountain Province to the Mountain Province shareholders in exchange for the assets and cash transferred,
as contemplated by the Kennady Arrangement. The transactions contemplated by the Kennady Arrangement were completed on July 6,
2012. Kennady Diamonds Inc. began trading on the TSX Venture Exchange on July 10, 2012 under the ticker symbol “KDI”.



| | B. | Business overview.
| | -- | ------------------



1.1    
Introduction



The Company is a natural resource
property exploration and development company. At this time, the Company has interest in one natural resource property – its
49% interest (including the 4.9% interest in the property held by Camphor) in the Gahcho Kué Joint Venture located in the
Northwest Territories of Canada. See "Item 4D - Property, plants and equipment".



Bulk sampling and drilling on
the Gahcho Kué Project is complete, as is the Definitive Feasibility Study which demonstrates an economically viable project.
The Project is currently in the permitting stage. There are no revenues from the Company’s natural resource property.



In July and November 2010, the
Company acquired eight (8) mineral claims just north and west of the Gahcho Kué Project mineral leases. The Company referred
to these eight claims and its five 100%-owned mineral leases as the Kennady North Project. During 2011, the Kennady North Project
underwent a desktop study to compile the historic exploration information in order to assess what exploration, if any, could be
done on these 13 claims and leases. In 2012, through a plan of arrangement, Mountain Province’s interest in the Kennady North
Project and cash were transferred to Kennady Diamonds Inc. See “Other Properties” for further information on the Kennady
North Project and Kennady Diamonds Inc.



13







1.2    
Historical Corporate Development



AK-CJ Properties, and the
Gahcho Kué Project



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 Properties 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 now known as De Beers Canada 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 AK 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 1,044 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.



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.



14







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



During 2002, the Company entered
into the Gahcho Kué Joint Venture Agreement. This agreement provided that De Beers Canada could have earned up to a 55%
interest in the project by funding and completing a positive definitive feasibility study. The agreement also provided that De
Beers Canada could have earned up to a 60% interest in the project by funding development and construction of a commercial-scale
mine. This Gahcho Kué Joint Venture Agreement was amended and restated in July 2009 (see “Description of Property
– Amended and Restated Joint Venture Agreement”).



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 internal cost estimate study on the Gahcho Kué Project that
incorporated the Kennady Lake diamond deposits. They based their decision on their belief that the improving geo-political and
economic conditions supported confidence in longer-term diamond price projections. In November 2003, the Joint Venture’s
management committee approved a budget of approximately $25 million for the study which started in January 2004, and was completed
mid-2005.



The projected profitability levels
were sufficiently encouraging to the Joint Venture 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 further 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.



During 2006, 2007 and the winter
of 2008, advanced exploration and permitting work continued on the AK Property. For further particulars, reference should be made
to “Item 4D - Property, plants and equipment - Principal Properties - Resource Properties”.



Other Properties



The Company regards only the
AK Property (the “Gahcho Kué Project”) as material at this time. The Company’s former Kennady North Project
is discussed only briefly in this document. For further particulars, reference should be made to “Item 4D - Property, plants
and equipment - Other Properties”.



Kennady North

The Company (outside of the Joint
Venture with De Beers Canada) had the following five mining leases at Kennady Lake, adjacent or close to the Gahcho Kué
Project, with their respective lease numbers –4340, 4342, 4466, 4467, and 4468. These five mining leases represent about
12,755 acres. In late 2010, the Company also staked eight claims around Gahcho Kué – Kwezi 01 to Kwezi 08. These claims
represent approximately 17,619 acres, and together with the five mining leases, comprise 30,374 acres. This was known as the Company’s
Kennady North Project. These mining leases and claims were not part of the 2009 Gahcho Kué Joint Venture Agreement with
De Beers Canada and were not considered part of the Gahcho Kué Project. Historical exploration on the Kennady North Project
was done starting in 1992 and continued until about 12 years ago when the Company and De Beers Canada focussed exploration efforts
on the Gahcho Kué Project. In 2011, the Company undertook a desktop study of the exploration work done in the past on the
Kennady North Project, and in late 2011, undertook an airborne gravity gradiometer survey over the Kennady North Project leases
and claims.



15







On March 12, 2012, Kennady
Diamonds Inc. and Mountain Province entered into the Kennady Arrangement Agreement pursuant to which Mountain Province agreed to
would transfer its interest in the Kennady North Project, in the Northwest Territories in Canada, including permits, mining claims,
rights and title, to Kennady Diamonds Inc. in exchange for common shares of Kennady Diamonds Inc.



Upon completion of the Kennady
Arrangement on July 6, 2012, Kennady Diamonds Inc. issued 16,143,111 shares to Mountain Province which were distributed along with
the one share held by Mountain Province to the Mountain Province shareholders in exchange for the assets and cash transferred,
as contemplated by the Kennady Arrangement. The transactions contemplated by the Kennady Arrangement were completed on July 6,
2012. Kennady Diamonds Inc. began trading on the TSX Venture Exchange on July 10, 2012 under the ticker symbol “KDI”.



Foreign Assets



Until the Arrangement with Glenmore,
all of the Company's assets are and have been 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, having been distributed to the
Company on the winding up of Mountain Glen. The Haveri Gold Property in Finland was transferred to Northern Lion Gold Corp. in
2004. See “Item 4A - History and development of the Company - Acquisitions and Dispositions”.



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 mine-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 and development activities, as well as
future 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 Canadian Environmental Protection Act,the Migatory Bird Act,the Northwest Territories Waters Act,
the Northwest Territories Wildlife Act,the Arctic Waters Pollution Prevention Act, the Navigable Waters Protection
Act, the Mackenzie Valley Resource Management Actand 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. Generally, these licenses outline
the volume of water the mine may use, how tailings will be treated, the quality and types of waste that may 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 water licence also has requirements for monitoring and reporting of water
and waste as well as determines reclamation and closure requirements. 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, Archaeological Resources
Act, 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, Research Act, Wildlife
Act,and Workers Compensation Act.



16







The Fisheries Act, Northwest
Territories Waters Act, Territorial Lands Act and Regulations, Territorial Quarrying Regulations, Mackenzie Valley Land Use Regulations,
Real Property Act, 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, development or mining project which the Company might
undertake.



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



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



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



On October 17, 2007, the Company
entered into an agreement with the Government of the Northwest Territories pursuant to which it agreed to make available 10% of
its share of the diamonds from the Gahcho Kué Project to the Northwest Territories diamond cutting and polishing facilities.



| | C. | Organizational structure.
| | -- | -------------------------



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



17







| | 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 also known
as the Gahcho Kué Project, which is located in the Canada’s Northwest Territories. The Gahcho Kué Project is
in the development and permitting stage.



A "mineral resource"
as defined under the CIM Definition Standards, differs from the SEC Guidelines and 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.



A "mineral reserve"
as defined under the CIM Definition Standards, which are different from the SEC Guidelines, 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. 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 CIM Definition Standards as required by Canadian law for disclosure of material facts. The CIM Definition Standards differ
from those adopted by the SEC in its SEC Guidelines. See “Glossary of Technical Terms” in this Report.



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". See the Mineral Reserves Section, below.



Description of Property



Administrative Offices



The Company's administrative
office is located at 161 Bay Street, Suite 2315, PO Box 216, Toronto, Ontario, Canada M5J 2S1. The Company considers these premises
suitable for its current needs.



Mineral Properties



The Company’s main property
is the Gahcho Kué Project.



Amended and Restated Joint
Venture Agreement



Under the 2002 Agreement with
De Beers Canada previously in effect, the Company was not responsible for funding the Gahcho Kué Project, and De Beers Canada
had no recourse to the Company for repayment of funds until, and unless, the Gahcho Kué Project was built, in production,
and generating net cash flows.



18







On July 3, 2009, the Company
entered the “2009 Gahcho Kué Joint Venture Agreement” with De Beers Canada (jointly, the “Participants”)
with respect to the Gahcho Kué Project that replaces the 2002 Agreement entered into by the Participants. Under the 2009
Gahcho Kué Joint Venture Agreement:

| | 1. | The Participants’ continuing interests in the Gahcho Kué Project will be Mountain
Province 49% and De Beers Canada 51%, with Mountain Province’s interest no longer subject to the dilution provisions in the
2002 Agreement except for normal dilution provisions which are applicable to both Participants;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Each Participant will market their own proportionate share of diamond production in accordance
with their participating interest;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------

| | 3. | Each Participant will contribute their proportionate share to the future project development costs;
| | -- | ---------------------------------------------------------------------------------------------------

| | 4. | Material strategic and operating decisions will be made by consensus of the Participants as long
as each Participant has a participating interest of 40% or more;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The Participants agreed that the sunk historic costs to the period ending on December 31, 2008
will be reduced and limited to $120 million;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | Mountain Province would repay De Beers Canada $59 million (representing 49% of an agreed sum of
$120 million) in settlement of the Company’s share of the agreed historic sunk costs on the following schedule:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

·$200,000
on execution of the 2009 Gahcho Kué Joint Venture Agreement (Mountain Province’s contribution to the 2009 Gahcho Kué
Joint Venture expenses to date of execution of the 2009 Gahcho Kué Joint Venture Agreement) (paid);

·Up
to $5.1 million in respect of De Beers Canada’s share of the costs of the feasibility study (paid $4,417,421 to December
31, 2012, capitalized as “Mineral Properties” in the Company’s financial statements – no further costs
expected);

·$10
million upon the completion of a feasibility study with at least a 15% IRR and approval of the necessary development work for a
mine (as defined in the 2009 Gahcho Kué Joint Venture Agreement – paid March 15, 2011);

·$10
million following the issuance of the construction and operating permits;

·$10
million following the commencement of commercial production; and

·The
balance of approximately $24.4 million within 18 months following commencement of commercial production.



Mountain Province has agreed
that the marketing rights provided to the Company in the 2009 Gahcho Kué Joint Venture Agreement will be diluted if the
Company defaults on certain of the repayments described above.



Extracts from Technical Report

Unless otherwise stated, the
technical information in this section from the sub-headings “Property Setting” to “Economic Analysis - Summary”
is based upon Independent Qualified Person's Technical Report dated as of December 1, 2010 (with information effective as of October
15, 2010) (the "2010 Technical Report") entitled "Gahcho Kué Project, Definitive Feasibility Study, NI 43-101
Technical Report, Northwest Territories, Canada" prepared for the Gahcho Kue Joint Venture by JDS Energy and Mining Inc. by:

| | · | Daniel D. Johnson, P.Eng. (JDS)
| | - | -------------------------------

| | · | Mike Makarenko, P.Eng. (JDS)
| | - | ----------------------------

| | · | Ken Meikle, P.Eng. (JDS)
| | - | ------------------------

| | · | Bob Prince-Wright, P.Eng. (JDS)
| | - | -------------------------------

| | · | Jarek Jakubec, C.Eng. (SRK (Canada) Consulting
Inc.)
| | - | ----------------------------------------------------

| | · | Kevin Jones, P.Eng. (EBA Engineering Consultants
Inc.)
| | - | ------------------------------------------------------



The details about the 2010
Technical Report were filed on EDGAR on December 3, 2010 under Form 6K. The full Technical Report was also filed with the relevant
Securities Commissions in Canada on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on December
3, 2010. Portions of the following information are based on assumptions, qualifications and procedures which are not fully described
herein. Reference should be made to the full text of the 2010 Technical Report.



19







Property Setting



The Gahcho Kué Project
is located at the informally-named Kennady Lake, approximately 300 km east-northeast of Yellowknife in the Northwest Territories
(NWT), Canada at the approximate latitude 63.26.16N and longitude 109.12.05W (NAD83 Zone 12 coordinates 7035620N, 589735E.



The Gahcho Kué Project
is located 150 km south–southeast of the Diavik and Ekati diamond mines operated by Diavik Diamond Mines Inc. (Rio Tinto)
and BHP Diamonds Inc. (BHP Billiton) respectively at Lac de Gras, and 80 km east–southeast of the De Beers Canada Snap Lake
mine.



The Gahcho Kué Project
consists Hearne North and South; 5034 West, Central and North-East; 5034 South Pipe; 5034 North Pipe; Tuzo; Wallace; Dunn Sheet
and Tesla diamondiferous kimberlite pipes, sheets and dykes. Except for the northernmost part of 5034, the main kimberlite pipes
all lie beneath Kennady Lake.



There are myriad lakes in the
area. Kennady Lake, under which the kimberlite pipes lie, is a local headwater lake with a minimal catchment area, very pure water,
and relatively low potential for aquatic life.



Physiography



The Gahcho Kué Project
lies on the edge of the continuous permafrost zone in an area known as the “barren lands”, which are characterized
by heath and tundra, with occasional knolls, bedrock outcrops, and localized surface depressions interspersed with lakes. Thin,
discontinuous covers of organic and mineral soil and glacial till deposits overlie bedrock, which occurs typically within a few
metres of surface. Some small stands of stunted spruce occur in the area.



Fauna
includes red fox, arctic fox, sic sic, grizzly bear, wolf and caribou (during annual migration), ptarmigan, abundant migratory
bird life in summer, and clouds of mosquitoes and black flies during the height of the summer months (mid-June to mid-August).



Vegetation in the area is
characteristic of low arctic tundra. Shrubs of willow and birch occur in drainages, and in some areas may reach over 2 m
in height. Heath tundra covers most upland areas. Conifer stands occur in patchy distribution north of the tree line in lowland,
sheltered areas, and riparian habitats, and are found as far north as Kirk Lake.



Topographic elevations within
the property range between 400 meters above sea level (“masl”) to 450 masl.



Accessibility



The Gahcho Kué Project
occurs at the informally-named Kennady Lake, 20 km north of tree line with no permanent road access. Access to the Gahcho Kué
Project is by float-equipped planes during summer months and ski- or wheel-equipped planes in winter. During winter, larger aircraft
such as the Dash-7 and Super Hercules L100 Transport can operate from an artificially-thickened ice landing strip on Kennady Lake.



Helicopter pads are located
within the base camp to support drilling and logistical operations. During the short ‘shoulder seasons’, access to
the property is via a 1,000 ft long runway established on an esker at Kirk Lake Camp located approximately 26 km north
of the Gahcho Kué Project; passengers and supplies are transferred to the site by helicopter.



20







During winter, a permitted
120 km winter ice road connecting the Gahcho Kué Project with the main Tibbitt Lake to Contwoyto Lake winter road is
built, if required. The winter ice road supports shipment of fuel, heavy equipment, construction materials and bulk samples. The
main winter ice road connects Yellowknife to the Snap Lake, Ekati, and Diavik mines from February to April each year to the extent
that weather allows. The road is operated under a Licence of Occupation by the Joint Venture Partners who operate the Ekati (formerly
BHP Billiton), Snap Lake (De Beers Canada) and Diavik (Rio Tinto) mines.



Climate



As the Gahcho Kué Project
is located 230 km south of the Arctic Circle, the climate is extreme and semi-arid. Temperatures range from -45°C to +25°C
over a twelve-month period. Winter normally lasts from November to May and has average temperatures of about -20°C. Summer
temperatures prevail from early July to mid-September, and average about 18°C. Freeze-up and ice break-up occur in November
and June, respectively. Activities are possible on-site year-round.



Daylight hours range from near
zero in mid winter (Winter Solstice) to effectively 24 hours (Summer Solstice). The spring and fall equinox occur in March and
September respectively, marking the period when length of daylight and darkness are equal.



Infrastructure



Camp – A 124-person
exploration camp was erected on the shore of Kennady Lake near the southeast edge of the postulated future limits of the 5034 pit.
Living quarters are a mixture of four-person soft-shell cabins and skid-mounted dorm units, clustered with other detached buildings,
including kitchen and dining room; recreation building; office building; core storage; men’s and women’s dry; waterless
toilet system; fuel storage; shops; and warehouses. The camp is currently on care-and-maintenance.



Transport – Regular
shipments of consumables and materials can occur over an annual winter road and, for year-round access and deliveries, by aircraft.



Power– There
is currently no local electrical grid or power plant for power supply to site. Power generation for any planned mining operation
is likely to be produced by an on-site diesel generation plant.



Communications –
Current site communications comprise a satellite phone and internet connection.



Water– Process
water for any planned mining operation may be obtained from open-pit water collection, recycling of process water, water management
ponds and from re-treatment of water from waste piles. Hydrogeological studies are required to confirm whether there is adequate
process water from these sources. Kennady Lake is the current source of potable water.



Tenure History



The Gahcho Kué Project
was part of a larger group of mining claims, known as the AK Property, which currently consists of four remaining mining leases.
The AK Property was initially staked in 1992 by Inukshuk Capital Corp., and optioned to Mountain Province Mining, Inc. (now Mountain
Province Diamonds Inc.) later the same year.



21







On staking, the AK Property
covered about 520,000 ha, and included the AK and CJ claims. The CJ claims substantially lapsed in November 2001, and the remaining
CJ claims lapsed on August 17, 2002, leaving only the AK claims as current.



Additional partners in the
AK Property included Camphor Ventures Inc. (“Camphor Ventures”), and 444965 B.C. Ltd, a subsidiary company of Glenmore
Highlands Inc. (“Glenmore Highlands”). At the time, Glenmore Highlands was a controlling shareholder of Mountain Province
Mining Inc. as defined under the Securities Act of British Columbia. The Glenmore Highlands subsidiary amalgamated with MPV in
1997, and Camphor Venture’s interest in the AK Property was acquired by MPV during 2007.



In 1997, Monopros (now De Beers
Canada) joint ventured the property.



Mineral Tenure



The Gahcho Kué Project
comprises four mining leases, 4199, 4341, 4200, and 4201, covering a total area of 10,353 hectares. The mining leases are 100%
owned by De Beers Canada who holds them on behalf of the Gahcho Kué Joint Venture. The participating interest of each of
Gahcho Kué joint venture party is governed by the 2009 Gahcho Kué Joint Venture Agreement, which supersedes the (2002)
Gahcho Kué Joint Venture Agreement. The (2002) Gahcho Kué Joint Venture Agreement is registered against the mineral
leases. The 2009 Gahcho Kué Joint Venture Agreement provides for De Beers Canada’s participating interest to be 51%
and MPV’s interest (including Camphor’s) to be 49% of the Gahcho Kué Project.



Annual lease payments, payable
to the Receiver General Canada (Northwest Territories, c/o Mining Recorders Office), comprise $1.00 per acre for the duration of
the 21-year lease period (note that fees are payable on acres, not hectares, in the Northwest Territories and Nunavut). Payments
increase to $2.00 per acre if a second 21-year term is granted after application to the Northwest Territories Mining Recorder for
the extension. Payments for the leases for 2007 totalled $10,353, and a similar amount is expected for each succeeding year. All
mining leases were legally surveyed by licensed surveyors.



Agreements



The Letter Agreement, dated
March 6, 1997, was entered into between Monopros Ltd. (a wholly-owned Canadian subsidiary of De Beers Consolidated Mines and
now known as De Beers Canada), MPV, and Camphor Ventures. The parties amended the Monopros Ltd. Joint Venture Agreement in 2000,
as a result of agreements reached at a meeting on March 8, 2000.



The Gahcho Kué Joint
Venture Agreement became effective on January 1, 2002, was signed October 24, 2002. This 2002 Agreement provided that De Beers
Canada could earn up to a 55% interest in the Gahcho Kué Project by funding and completing a positive definitive feasibility
study. The 2002 Agreement also provided that De Beers Canada could earn up to a 60% interest in the Gahcho Kué Project by
funding development and construction of a commercial-scale mine.



MPV acquired Camphor Ventures’
interest in the joint venture in 2007.



An updated and amended joint
venture agreement between De Beers Canada and MPV was executed effective July 3, 2009. The 2009 Gahcho Kué Joint Venture
Agreement superseded the previous joint venture agreements. The 2009 Gahcho Kué Joint Venture Agreement maintains the Gahcho
Kué Project ownership at 51% De Beers Canada and 49% MPV. Each party is responsible for funding their respective share
of the Gahcho Kué Project development costs from January 1, 2009 onward, and each party shall receive a proportional share
of the diamond production.



22











The 2009 Gahcho Kué
Joint Venture Agreement also sets forth the amount of “allowable” expenses of exploration work between March 8, 2000
and December 31, 2008 previously funded by De Beers Canada, and sets forth a repayment schedule by MPV to De Beers Canada
for their 49% share of the allowable expenses. The repayment schedule is triggered by milestone events with the final payment required
to be made 18 months after the start of commercial production.



Permits



Exploration
Programs



Exploration programs to date
were conducted under the permits obtained from the appropriate authority, including:

| | · | Indian and Northern Affairs Canada –
Class A Land Use Permit
| | - | ------------------------------------------------------------

| | · | Indian and Northern Affairs Canada –
Type B Water Licence
| | - | ---------------------------------------------------------

| | · | Workers’ Compensation Board (WCB),
Mine Health and Safety – Drilling Authorization
| | - | ----------------------------------------------------------------------------------

| | · | Indian and Northern Affairs Canada –
Quarry Permit
| | - | --------------------------------------------------

| | · | Indian and Northern Affairs Canada –
Registration of Fuel Storage Tanks
| | - | -----------------------------------------------------------------------

| | · | Prince of Wales Northern Heritage Centre
– Archaeology.
| | - | -------------------------------------------------------



Future
Development



The Gahcho Kué Project
is being reviewed and permitted under the Mackenzie Valley Resource Management Act. A list of the permits that may be required
for Gahcho Kué Project development is presented in the 2010 Technical Report.



Previous Work



There is no recorded exploration
prior to 1992 for diamonds, base, or precious metals in the area covered by the Gahcho Kué Project. Exploration conducted
on behalf of MPV by Canamera Geological Ltd. during 1995 resulted in the discovery of the 5034 kimberlite.



De Beers Canada became
the operator of the property via a joint-venture agreement in 1997. Additional kimberlites, including Tesla, Hearne, and Tuzo were
discovered the same year. Tesla, Tuzo, Hearne and 5034 form the main Gahcho Kué kimberlite cluster.



Summary of Exploration and
Development Work Undertaken



Exploration and development
work undertaken during 1997–2008 included:

| | · | sediment sampling, including glacial till,
sediment and outcrop sampling
| | - | ------------------------------------------------------------------------

| | · | geological mapping
| | - | ------------------

| | · | airborne electromagnetic and ground geophysical
surveys
| | - | -------------------------------------------------------

| | · | core drilling, including large diameter core
mini-bulk sampling
| | - | ---------------------------------------------------------------

| | · | reverse circulation drilling, including mini-bulk
and bulk sampling programs utilizing reverse-flood air-lift assist large diameter drill rigs
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | · | geotechnical, hydrogeology, and civil engineering
drilling
| | - | ----------------------------------------------------------

| | · | micro- and macro-diamond sample processing
and analysis
| | - | -------------------------------------------------------

| | · | diamond valuation and diamond breakage analysis
| | - | -----------------------------------------------



23







| | · | bulk density determinations
| | - | ---------------------------

| | · | ore dressing studies
| | - | --------------------

| | · | construction of geological and micro-diamond
grade models and Mineral Resource block models
| | - | -------------------------------------------------------------------------------------------

| | · | construction of density, geotechnical, and
volume models
| | - | --------------------------------------------------------

| | · | conceptual mine plans
| | - | ---------------------

| | · | conceptual process plant design.
| | - | --------------------------------



A first-time Mineral Resource
estimate was completed in 2003 to support a conceptual desktop study of the potential of these pipes. The study included Inferred
Mineral Resources, considered too speculative geologically to have economic considerations applied to them. The study evaluated
a conceptual open pit mining operation, using conventional truck and shovel equipment. A diamond recovery plant with a diamond
recovery efficiency of not less than 98% by weight of free diamonds larger than the bottom cut-off size of 1.5 mm was designed,
using established De Beers’ diamond value management principles. The study indicated that the net present value and
internal rate of return were likely to be positive and supported continuing exploration and evaluation work.



The 2009 Technical Report
supersedes the 2003 mineral resource estimate. The new information was a combination of additional diamond and geotechnical drilling
completed since 2003, conceptual open pit and underground design work, supplementary metallurgical testing and optimization studies.



From 2003 to 2008, a number
of additional desktop studies were completed that consider aspects of conceptual mining studies. These have comprised conceptual
mining and processing considerations, evaluation of different potential input factors and assumptions, and alternatives to and
variations and iterations within such plans, including:

| | · | changes to Mineral Resource estimation methodologies
and strategies
| | - | -------------------------------------------------------------------

| | · | changes to dilution and reconciliation strategies
| | - | -------------------------------------------------

| | · | changes to diamond prices
| | - | -------------------------

| | · | changes in allocations of planned drilling,
or drilling locations
| | - | -----------------------------------------------------------------

| | · | changes to deposit sequencing
| | - | -----------------------------

| | · | changes to production rates
| | - | ---------------------------

| | · | changes in mining equipment strategies
| | - | --------------------------------------

| | · | alternate pit configurations, including laybacks
or pit wall slope changes
| | - | --------------------------------------------------------------------------

| | · | changes to geotechnical or hydrological assumptions
| | - | ---------------------------------------------------

| | · | changes in short-term production
| | - | --------------------------------

| | · | proposed mill design throughput reviews and
potential mill modifications
| | - | ------------------------------------------------------------------------

| | · | process flowsheet development and flowsheet
modifications
| | - | ---------------------------------------------------------

| | · | stockpile throughput, allocations, and planned
depletion rates
| | - | --------------------------------------------------------------

| | · | review of different cash flow scenarios
| | - | ---------------------------------------

| | · | changes to allocations of capital expenditures
to different years within conceptual mine plans
| | - | ----------------------------------------------------------------------------------------------

| | · | modifications to sustaining capital and operating
cost assumptions within conceptual mine plans
| | - | -----------------------------------------------------------------------------------------------

| | · | changes to accounting and taxation assumptions
in conceptual mine plans.
| | - | ------------------------------------------------------------------------



None of the above desktop studies
completed provided for a sufficiently economic robust project.



Between August 2009 and November
2010, JDS was engaged to provide a feasibility study that outlined a sufficiently robust mine development plan. On October 15,
2010, JDS delivered the Definitive Feasibility Study report to the Gahcho Kué Joint Venture from which a detailed summary
is provided in the December 1, 2010 Technical Report. The 2010 Technical Report outlined a plan that exceeds the hurdle rate required
by the 2009 Gahcho Kué Joint Venture Agreement to proceed with mine development.



24







Geology



This excerpt from the 2010
Technical Report was taken from the 2009 Technical Report. JDS reviewed the 2009 Technical Report and believes the information
contained in this section to be accurate.



The Gahcho Kué kimberlite
cluster occurs in the southeast Slave Craton.



Several kimberlite bodies were
discovered and delineated by drilling. The 5034, Hearne North, Hearne South, and Tuzo pipes have the most attractive grades and
tonnages delineated to date. Of the larger kimberlites on the property, the 5034 kimberlite is interpreted as forming an irregular
hypabyssal root zone, Hearne and Tesla as transitional diatreme to root zones and Tuzo as the deeper part of a diatreme zone (Tesla
is not included in the Gahcho Kué Mineral Resource because of its small size (0.4 ha) and relatively low-grade).



The 5034, Hearne, and Tuzo
kimberlites have contrasting pipe shapes. The West Lobe, Centre Lobe, and eastern portion of the North-East Lobe of the 5034 kimberlite
sub-crop below lake-bottom sediments; the northern portion of the 5034 North-East Lobe (referred to as the North Lobe) is a blind
lobe overlain by approximately 80 m of in-situ country rock. The 5034 pipe is dominantly infilled with hypabyssal kimberlite
(“HK”). Hearne South is a roughly circular pipe and smaller than Hearne North, which is a narrow elongated pipe. Hearne
South is infilled predominantly with tuffisitic kimberlite breccia (“TK”); Hearne North is infilled with approximately
equal amounts of HK and TK. Tuzo is characterized by smooth, steep-sided pipe walls and is predominantly infilled with TK with
HK at depth.



In most cases, the top of the
kimberlites occur between 380 and 390 masl. Except for the 5034 North Lobe, which intrudes 70 to 80 m below a peninsula,
the kimberlites subcrop at the bottom of Kennady Lake, covered by 10 to 15 m of water and between 5 to 15 m of glacial
lake sediments. The kimberlites are surrounded laterally by granite and granite-gneiss country rock.



In the 2009 Technical Report,
AMEC Americas Limited determined that the geological understanding of the deposit setting, lithologies, and kimberlite type distributions
was adequate to support Mineral Resource estimation. Understanding of diamond distributions within each kimberlite type, as well
as the style of mineralization were sufficient to support Mineral Resource estimation.



Drilling and Sampling



Drilling completed to date
on and surrounding the Gahcho Kué kimberlite cluster totals 504 drill holes (96,493 meters). An additional 50 drill holes
were completed on exploration targets located away from the Gahcho Kué cluster. Core holes included PQ (985 mm), HQ (63.5
mm) and NQ (47.6 mm) core sizes, and 76 mm tricone drilling for overburden. RC drill diameters included 140 mm, 149 mm, 324 mm,
334 mm and 610 mm sizes.



Exploration drilling programs
were performed during 1995-2003 around the Gahcho Kué kimberlite cluster to test geophysical anomalies, discover kimberlites,
define pipe boundaries and morphology, delineate internal geology and provide large diameter reverse circulation (“RC”)
drill (“LDD”) mini-bulk samples for value and grade evaluation purposes.



Drilling between 2004 and 2008
comprised LDD and large diameter core (“LDC”) mini-bulk sample, programs, core drilling to provide information to support
advanced evaluation geology, Mineral Resource estimation and ore dressing studies, civil engineering, geotechnical, hydrological,
and geothermal core drilling programs. These drill programs also provided core that was used to inform and support environmental
baseline studies.



25







5034

Canamera Geological Ltd. (“Canamera”)
conducted the earliest drilling and discovered the 5034 kimberlite. Drilling in 1995 included 39 delineation NQ core holes (6,522
m). Since then, small-diameter NQ core drilling was used extensively to test kimberlite indicator mineral
trains and geophysical anomalies in addition to delineation of the 5034 kimberlite.



Large diameter core drilling
was used to collect small mini-bulk samples from 5034. In 1996, Canamera obtained PQ-sized core samples (85 mm diameter),
and in 2007, the Gahcho Kué Project obtained 149 mm diameter LDC samples. The LDC samples provide additional information
(macro-diamonds) regarding the diamond content of the pipes.



Large diameter reverse circulation
drilling was used to collect kimberlite mini-bulk samples. LDD programs have included smaller scale 140 mm (5.5-inch) diameter
drillholes in 1998, 311 mm (12.25-inch) drill holes in 1999, to the largest employed, the 610 mm (24-inch) diameter drill
holes in the 2001, 2002, and 2008 mini-bulk sampling programs. The LDD mini-bulk sample programs obtained macro-diamonds for grade
and revenue estimation.



The 1998 and 1999 drilling
focused on the 5034 West, Centre and East lobes; in 2001 the East Lobe and the west neck of the Centre Lobe were drilled; in 2002
work focused on the narrow corridor drilled previously in 1999 through the West and Centre lobes. There was one delineation NQ
core hole drilled by Gahcho Kué Joint Venture at 5034 in 2003.



In 2004, 13 core holes drilled
into the 5034 kimberlite as part of pit geotechnical, hydrogeology, and ore dressing studies (“ODS”). In 2005, a single
core hole for hydrogeology studies drilled through the East Lobe of 5034, and two core holes were drilled at the North Lobe of
5034 to provide additional geological data. A substantial core program followed this in 2006 that comprised 13 HQ core holes
for pit geotechnical, pipe volume delineation, and geological investigations. The last campaign of core drilling was conducted
in 2007 with five HQ core holes being drilled to provide geological data from the 5034 East Lobe and 5 LDC holes (149 mm,
5.875-inch) drilled into the 5034 North Lobe to obtain a small parcel of macro-diamonds for comparative purposes.



Hearne

A total of 24 core holes were
drilled in and around the Hearne kimberlite during 1997-2003 for delination. In 1998, 19 LDD holes (140 mm diameter) were
drilled into the Hearne kimberlite to test the diamond grade.



In 1999, 10 LDD (311 mm
diameter) holes were drilled into Hearne to obtain macro-diamonds for initial revenue estimation. In 2001, 5 LDD (610 mm
diameter) holes were drilled into Hearne North, and 6 more LDD (610 mm diameter) holes tested in 2002, to increase the parcel
of macro-diamonds available for revenue estimation.



In 2004, 14 NQ core holes
were drilled into the Hearne kimberlite as part of pit geotechnical and ODS programs. In 2005 a single core hole was drilled for
hydrogeological studies, and in 2006 a single core hole was drilled to support pit geotechnical studies.



Tuzo

Between 1997 and 1999, 7 NQ
and 3 NQ3 core holes were drilled into Tuzo. All of these were angle holes collared outside the kimberlite body and drilled into,
and sometimes through, the kimberlite. In 2002, 7 vertical HQ core holes were drilled into the pipe. LDD mini-bulk sample drilling
took place in 1998 and 1999. Drilling to a maximum depth of 166 m, 18 LDD holes (140 mm diameter) were completed
in 1998, and an additional 11 LDD holes (311 mm diameter) were completed in 1999 to a maximum depth of 300 m.



26







In 2004, 2 HQ core holes
were drilled at Tuzo as part of a pit geotechnical study. This was followed by a 16-hole HQ core program in 2006 to provide pipe
delineation and geological data and pilot holes. Two 610 mm holes were drilled in 2006 to provide samples. In 2007, a grid of 27 HQ
core holes was completed to provide additional geological and pipe volume delineation data. The final resource drilling at Tuzo
was an LDD mini-bulk sample program conducted in 2008 with 9 holes (610 mm) completed to provide additional macro-diamonds
for diamond revenue estimation.



AMEC’s Assessment



This excerpt from the 2010
Technical Report was taken from the 2009 Technical Report. JDS reviewed the 2009 Technical Report and believes the information
contained in this section to be accurate.



AMEC assessed the exploration
results to be appropriate to the style of mineralization and adequate to support Mineral Resource estimation. Drill hole types
and orientations were appropriate for the type of mineralization. Small-diameter core holes defined the limits of the kimberlite
bodies. Large-diameter core and reverse circulation drilling provided mini-bulk samples of kimberlite material for macro-diamond
extraction. Micro-diamonds extracted from the small-diameter cores drilled to define the limits of the deposit. Three diamond breakage
studies indicated that breakage was about 10–15% that is typical for this type of drilling program. The diamond parcels obtained
in 2007–2008 were not evaluated for diamond breakage.



AMEC also assessed that the
sampling and sample lengths were appropriate for the type of mineralization. Core sample lengths were somewhat variable during
the early years of the Gahcho Kué Project. Later in the Gahcho Kué Project, core sample lengths were standardized
at 12 m. These standardized samples provided most of the data used for the Mineral Resource estimates reported in the 2009 Technical
Report.



Core and cuttings logging met
and typically significantly exceeded industry practices. Core was quick-logged on site, and the kimberlite intersections were transported
to De Beers’ core logging facility in Sudbury, Ontario where experienced geologists log kimberlite type, mineral and inclusion
types and concentrations, and structures. AMEC assessed that geotechnical work to date was appropriate for the stage of the Gahcho
Kué Project and type of mining planned. Geotechnical logging of exploration core is a routine procedure performed by geologists
trained in the logging methods required. A number of core holes were drilled specifically to obtain geotechnical data. Collar and
downhole surveys were performed using industry-standard methods and instruments.



AMEC determined that the analytical
and diamond recovery procedures were adequate to support Mineral Resource estimation. Macro-diamond and micro-diamond extractions
were performed using procedures standard to the industry. Micro-diamonds were recovered from core using either caustic fusion or
acid dissolution procedures. Both are standard to the industry, although caustic fusion is the most common procedure. Macro-diamonds
are extracted using small-scale diamond recovery plants. Geochemical samples were analyzed using standard procedures and instrumentation.
Density determinations were performed using standard procedures, and the number of density data is adequate to support Mineral
Resource estimation. Most of the density data were obtained using a water immersion procedure standard to the industry. Some of
the data were obtained using geophysical methods, and some were obtained by water displacement methods. Quality control during
drilling, sampling, and sample analysis is adequate and reflects industry best practices. Quality control of diamond extractions
consists of spikes using marked diamonds and tailings audits of a portion of the samples.



Sample and diamond security
throughout the exploration process was determined by AMEC to be excellent and consisted of rigorous chain-of-custody procedures,
multiple locks requiring at least two persons to open critical areas or containers, cameras in all plants and processing areas,
and dedicated security personnel at all plants and processing areas. Shipping of diamonds and diamond concentrates conforms to
requirements of Kimberley Process chain-of-custody procedures.



27







Geological Setting



This excerpt from the 2010
Technical Report was taken from the 2009 Technical Report. JDS reviewed the 2009 Technical Report and believes the information
contained in this section to be accurate.



Gahcho
Kué Kimberlites

The main Gahcho Kué
kimberlite cluster comprises four pipes; the Hearne, 5034, Tuzo, and Tesla bodies. The Hearne Pipe, most of the 5034 Pipe, and
the Tuzo and Tesla pipes occur under Kennady Lake, which has an average depth of 8 m.



Gahcho Kué kimberlites
are overlain by varying thickness of glacial boulder outwash and lake sediments (averaging 10 m thick), and have a combined
water and sediment cover as much as 25 m thick.



Hearne
Kimberlite

Two bodies comprise the Hearne
kimberlite, Hearne South and Hearne North. The bodies have smooth, steep-sided walls, and cover an area of about 1.5 ha. Hearne
South is a roughly circular pipe, whereas Hearne North is a narrow, elongate pipe trending north–south. The pipes may join
at depth. The width of country rock between the two bodies varies from a minimum of approximately 20 m at the sub-crop to
approximately 70 m at depth. Hearne North measures a maximum of 250 m x 50 m north–south. Hearne South
has a dimension of about 80 m x 90 m at surface.



The present pipe geological
model for Hearne South extends to 225 masl; there is no drill information below this level. At Hearne North, the pipe narrows
to less than 10 m wide in the centre of the body at approximately 130 m below lake-surface. There is also evidence at
the north and south ends of the body that the pipe extends below 115 masl.



The distance from the south
end of Hearne to Tuzo is about 2 km.



5034
Kimberlite

The 5034 kimberlite is a highly
irregularly-shaped pipe and dyke complex, which is comparable to kimberlite root zones elsewhere and has a surface area of approximately
2.1 ha (West, Centre and East Lobe).



The 5034 kimberlite is modelled
as a semi-continuous occurrence composed of five discrete kimberlite bodies, three of which are modelled as joined at the subcrop
to form one main continuous body, with two small outlying satellite pipes.



The five modelled kimberlite
bodies are referred to as follows:

| | · | 5034 South Pipe (that occurs along an
interpreted dyke, the “Southwest Corridor”, that is also modelled incorporating the Wallace and Tuffisitic Kimberlite
BBBdrill core intersections)
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 5034 “Main” West Lobe
| | - | ---------------------

| | · | 5034 “Main” Centre Lobe
| | - | -----------------------

| | · | 5034 “Main” North-East Lobe
(i.e., East Lobe and North Lobe)
| | - | ------------------------------------------------------------

| | · | 5034 North Pipe.
| | - | ----------------



The main part of the 5034 occurrence
that reaches the surface occurs under Kennady Lake and can be divided into three lobes: West, Centre, and East. These three lobes
are joined at the surface, but separate at depth. The Centre and East lobes are modelled separately at shallow depth, but rejoin
at greater depth producing what appears to be a window of granite within the kimberlite. The East and North lobes are joined at
depth, geologically continuous, and are collectively referred to as the North-East Lobe. The surface measurements of the three
lobes of the 5034 Main Pipe are approximately as follows:



28







| | · | West Lobe – 125 m x 45 m
| | - | ------------------------

| | · | Centre Lobe – 125 m x 80 m
| | - | --------------------------

| | · | East Lobe – 85 m x 65 m.
| | - | ------------------------



The northern portion of the
5034 North-East lobe, the North Lobe, is blind, and occurs under 60 m to 90 m of country rock cap. Approximately half
of this northern lobe lies below the lake bed and half beneath the main peninsula. The blind northern portion of the 5034 North-East
Lobe measures 240 m long and varies from approximately 20 to 50 m wide, averaging 30 m wide. A combined internal
geology model is developed for the 5034 North-East Lobes. There are four major kimberlite types, three of which occur across both
lobes.



Tuzo
Kimberlite

The overall surface area of
the Tuzo Pipe is about 1.2 ha, which is covered by as much as 25 m of water of and glacial overburden. The kimberlite
body comprises various fragmental and coherent kimberlites, and it contains abundant inclusions of the surrounding granitic country
rock. The 2007 drill program improved the definition of the shape of the pipe, which is unusual as it widens towards depth from
125 m in diameter near the surface to about 225 m diameter at 300 m depth. Tuzo geology model commences about 25 m
below lake level (lake level 420.9 masl) to 354 m below lake level (66.9 masl).



All bodies remain open at depth.



Data Verification



Independent data verifications
were undertaken on a number of occasions between 1999 and 2008:

| | · | 1999, 2004, 2007 – independent consultants
made site visits to review quality assurance/quality control (“QA/QC”)
| | - | -----------------------------------------------------------------------------------------------------------------

| | · | 1999 – external consultant audit
of the 1999 evaluation program
| | - | ---------------------------------------------------------------

| | · | 2000 – geology (petrological) peer
review
| | - | -----------------------------------------

| | · | 2004 – geotechnical and hydrogeology
consultants QA/QC site visit, internal and external Mineral Resource evaluation data base audits, geology (petrological) peer review,
Gemcom® three-dimensional (“3D”) model peer review
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 2007 – internal and external petrological
peer reviews; external verification of macro-diamond resource evaluation data set
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | 2008 – external review of 2003 Technical
Report resource estimation and density (rock density) models.
| | - | ------------------------------------------------------------------------------------------------------



Resource evaluation data base
verification included:

| | · | audits of drill collar locations and lengths
| | - | --------------------------------------------

| | · | down-hole survey data
| | - | ---------------------

| | · | geological logs
| | - | ---------------

| | · | bulk density data
| | - | -----------------

| | · | macro-diamond data.
| | - | -------------------



Diamond Valuations



The Qualified Persons are not
able to apply quality control measures to the valuation process performed by either De Beers or WWW.



29







The reason for this is that
diamond valuation is, at best, only partially analytical (in the way that a gold assay process can be termed analytical), as the
diamonds are sieved and subjectively classified by colour, clarity, and other factors. The dollar per carat determinations for
various stones, however, is ultimately governed by the valuator’s price-book. This part of the process is proprietary, governed
by a given valuator’s view of the marketplace and can vary from valuator to valuator, particularly for larger stones. Even
in larger parcels, valuators must then ‘model’ or extrapolate values in the larger stone size classes where there may
be few representatives. The methodology for modelling is also proprietary.



These diamond valuation procedures
do not lend themselves to quality control measures that a qualified person could apply as with a commercial assay laboratory. At
every step, the QPs are relying on the valuator’s opinions of the diamond market and their subjective view of diamond values.



The Qualified Persons also
rely on the valuators models which are heavily dependent on their view of the diamond market, their proprietary estimates of the
likelihood of finding larger stones in the deposit because of sample-size support, and the perceived value of those larger stones.



The culmination of the process
is the average prices for given zones, lobes or pipes. The heavy dependence of the process on economic market assessments, and
the proprietary nature of the valuators’ assumptions and methods, materially affects the quality of, and confidence in, the
Mineral Resource estimate. In this way, the valuations used in the Mineral Resource assessments are markedly different than the
concept of analytical mineral assays in, for instance, a precious metal project. The proprietary nature of the processes employed
for valuations limit any quantitative assessment of the added risk to the Gahcho Kué Project. Other than reviewing the De
Beers Canada data and the WWW report for transcription errors in the transfer of the valuation figures into the database, no other
data verification procedures can be applied.



Diamond valuators are experts,
but not Qualified Persons, and the Qualified Persons preparing the Mineral Resource estimates and assessing the reasonable prospects
for economic extraction have had to completely rely on the De Beers Canada and WWW diamond values provided.



Mineral Resource and Mineral Reserve Estimates



Mineral Resource Summary



This Mineral Resource Summary
excerpt and summary from the 2010 Technical Report was taken from the 2009 Technical Report. JDS reviewed the 2009 Technical Report
and believes the information contained in this section to be accurate.



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 SEC 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.



30







The estimation and classification
of the mineral resources was completed by AMEC and are summarized in Table 1.



Table
1



|Resource |  | Classification |  | Volume (Mm3) |      |  | Tonnes (Mt) |  |      | Carats (Mct) |  |  | Grade (cpht) | 
|-------- |  | -------------- |  | ------------ | ---- |  | ----------- |  | ---- | ------------ |  |  | ------------ | 
|5034     |  | Indicated      |  |              | 5.1  |  |             |  | 12.7 |              |  |  | 23.9         | 
|         |  | Inferred       |  |              | 0.3  |  |             |  | 0.8  |              |  |  | 1.2          | 
|Hearne   |  | Indicated      |  |              | 2.3  |  |             |  | 5.3  |              |  |  | 11.9         | 
|         |  | Inferred       |  |              | 0.7  |  |             |  | 1.6  |              |  |  | 2.9          | 
|Tuzo     |  | Indicated      |  |              | 5.1  |  |             |  | 12.2 |              |  |  | 14.8         | 
|         |  | Inferred       |  |              | 1.5  |  |             |  | 3.5  |              |  |  | 6.2          | 
|Summary  |  | Indicated      |  |              | 12.4 |  |             |  | 30.2 |              |  |  | 50.5         | 
|         |  | Inferred       |  |              | 2.5  |  |             |  | 6.0  |              |  |  | 10.3         | 

Notes:

1) Mineral Resources are reported
at a bottom cut-off of 1.0 mm; cpht = carats per hundred tonnes.

2) Mineral Resources are not Mineral
Reserves and do not have demonstrated economic viability

3) Volume, tonnes, and carats
are rounded to the nearest 100,000

4) Tuzo volumes and tonnes exclude
0.6 Mt of a granite raft

5) Diamond price assumptions used
to assess reasonable prospects of economic extraction reflect mid-2008 pricebooks with a 20% increase factor. The prices assumed,
on a per pipe basis (in US$), equate to $113/ct for 5034, $76/ct for Hearne and $70/ct for Tuzo.



Mineral Reserves



Cautionary Note for U.S.
Investors



The SEC Guidelines define
the following with respect to mining operations:



Reserves. That part
of a mineral deposit which could be economically and legally extracted or produced at the time of reserve determination.



Proven (Measured) Reserves.
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 geologic character is so well defined that size, shape, depth and mineral content of reserves is well-established.



Probable (Indicated)
Reserves. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proved
(measured) reserves, but the sites for inspection, sampling, and measurements are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between
points of observation.



In Canada, a Mineral Reserve
is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility
Study. This Feasibility Study includes adequate information on mining, processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that economic extraction is justified.



31







Mineral Reserves are those
parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which is
the basis of an economically viable project. The project must take account of all relevant processing, metallurgical, economic,
marketing, legal, environmental, socioeconomic and governmental factors. Mineral Reserves are inclusive of diluting material that
will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility. The term ‘Mineral
Reserve’ need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals
have been received. It does signify that there are reasonable expectations of such approvals.



Mineral Reserves are subdivided
in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a
lower level of confidence than a Proven Mineral Reserve.



The reserve classifications
used in this report conform to the CIM classification of NI 43-101 resource and reserve definitions and Companion Policy 43-101CP
and are listed below.



A ‘Proven Mineral Reserve’
is the economically mineable 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. Application of the Proven Mineral Reserve category implies that
the Qualified Person has the highest degree of confidence in the estimate with the consequent expectation in the minds of the readers
of the report. The term should be restricted to that part of the deposit where production planning is taking place and for which
any variation in the estimate would not significantly affect potential economic viability.



A ‘Probable Mineral Reserve’
is the economically mineable part of an Indicated Mineral Resource, and in some circumstances a Measured Mineral Resource, demonstrated
by at least a Preliminary Feasibility Study. The 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.



The information that follows is excerpted
from the 2010 Technical Report as prepared by JDS.



Open
Pit Mineral Reserves

The detailed pit designs determined
the mineral reserve estimate for each pipe as summarized in Table 2. A mining recovery of 100% was used in mine design and
planning to determine the mineral reserve estimate. The full mining recovery reflects 1.5 m of waste dilution being added
to the circumference of the kimberlite pipes. Therefore, mining ore recovery is 100% because the plan mines an additional 1.5 m
of material past the ore contact around the pipe on every bench.

Table
2

|Pipe   |  | Classification |  | Tonnes(Mt) |  | Carats(Mct) |  | Grade(cpt) | 
|------ |  | -------------- |  | ---------- |  | ----------- |  | ---------- | 
|5034   |  | Probable       |  | 13.2       |  | 23.3        |  | 1.77       | 
|Hearne |  | Probable       |  | 5.4        |  | 11.5        |  | 2.10       | 
|Tuzo   |  | Probable       |  | 12.6       |  | 14.2        |  | 1.13       | 
|Total  |  | Probable       |  | 31.3       |  | 49.0        |  | 1.57       | 



32







The Mineral reserves identified
in Table 2 comply with CIM definitions and standards for an NI 43-101 Feasibility Study. Detailed information on mining, processing,
metallurgical, and other relevant factors are contained in the followings sections of this report and demonstrate, at the time
of this report, that economic extraction is justified.



The economic viability of the
Gahcho Kué Project is presented in the economic analysis section of the full 2010 Technical Report, and confirms the probable
reserve estimates meet and comply with CIM definitions and NI 43-101 standards. At the time of this report, and currently, the
Gahcho Kué Project is economically viable using current diamond prices and, JDS believes, prevailing long-term price estimates.



The 2010 Technical Report did
not identify any mining, metallurgical, infrastructure or other relevant factors that may materially affect the estimates of the
mineral reserves or potential production.



Data Interpretation



The Qualified Persons, as authors
of the 2010 Technical Report, have reviewed the data for the Gahcho Kué Project and are of the opinion that:

| | · | Mining tenure held by De Beers Canada
on behalf of the Gahcho Kué Joint Venture is valid and sufficient to support Mineral Reserves and plans for mine development.
The Gahcho Kué Joint Venture has taken appropriate steps to insure extension of the leases which will remain valid for several
years. Surface rights have not, as yet, been acquired but this is not viewed by JDS as a significant obstacle to further development
of the Gahcho Kué Project. Those rights can be obtained by application to the Crown and are part of the normal permitting
processes.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | At this time, all permits required for
ongoing exploration are in force. Permits required for construction and operation were identified and the process for obtaining
those permits defined.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The 2009 Technical Report which provided
Mineral Resource estimations and resources models suitable for feasibility project work were completed to acceptable standards.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Metallurgical testwork is appropriate
for the stage of the Gahcho Kué Project and is adequate to support Mineral Reserve estimation, Gahcho Kué Project
feasibility, and economic analysis.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Estimates of Mineral Reserves conform
to industry-standard practices. Mine plans, dilution and economic parameters applied to resource estimates have been prepared to
industry standard practices.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Pit slope stability analysis work has
been done to industry standards and conclusions are supported by practices at similar sized operations in the area.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Mineral reserves support a 3M tonne per
year operation with a mine life of 11 years.
| | - | ------------------------------------------------------------------------------------

| | · | Mine plans use traditional open pit mining
utilizing proven equipment.
| | - | ----------------------------------------------------------------------

| | · | Process plant design has been adequately
defined for cost estimating purposes.
| | - | ------------------------------------------------------------------------------

| | · | Mine infrastructure has been adequately
designed and estimated in the feasibility study.
| | - | ----------------------------------------------------------------------------------------

| | · | Sound environmental management plans have
been developed for the feasibility study.
| | - | -----------------------------------------------------------------------------------

| | · | Progressive reclamation plans are included
in the feasibility study.
| | - | --------------------------------------------------------------------

| | · | Mine closure plans have been developed.
| | - | ---------------------------------------

| | · | The Gahcho Kué Project is sufficiently
robust for proceeding into a staged development program commencing with environmental permitting and detail design phases as precursors
for mine construction and operations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33







Feasibility Study Conclusions

(All amounts, unless otherwise
indicated, are in Canadian dollars.)



The 2010 Technical Report represents
an economically viable, technically credible and environmentally sound development plan for the Gahcho Kué Project. The
Gahcho Kué Project is economically viable, generating $4,143 million in realized value (“RV”) revenues over
an 11-year mine life resulting in a 20.7% internal rate of return (“IRR”) (including agreed historic “sunk”
costs) and a $136 million net present value (“NPV”) at 15%. Excluding sunk costs, the Gahcho Kué Project yields
a 33.9% IRR and a $277 million NPV. Diamond values averaged US$74.52 per carat over the life of the mine. Total life-of-mine capital
costs are estimated at $776.5 million consisting of $141.5 million in sunk costs; $549.5 million initial capital; $49.4 million
working capital; and $36.1 million in sustaining and closure costs. Total life-of-mine pre-tax cash operating costs are estimated
at $1,522 million, which equates to $48.68 per tonne processed or $31.04 per carat recovered.



The Gahcho Kué Project
is technically credible, utilizing designs and practices that are proven in the Canadian diamond industry. The Gahcho Kué
Project design is based on open pit mining of the 5034, Hearne and Tuzo deposits in a sequential fashion. Mine plans call for the
extraction of 234 metric tonnes (“Mt”) of waste and 31.3 Mt of ore over a 13-year period utilizing standard drill/blast
- truck/shovel equipment and pit designs that are similar to other open pit diamond mines operating in the area. Ore will be fed
to a 3.0 Mt per annum (“Mt/a”) processing plant with three stages of crushing, dense media separation and X-ray/grease
belt diamond recovery circuits. Process plant designs and equipment selection are based on experience from other operations and
utilize proven suppliers. Security designs are based on De Beers Canada’s standards and practices.



Supporting infrastructure includes
a 14.1 megawatt packaged diesel power plant, 1,350 meter gravel airstrip, five-bay truckshop, emulsion plant, 40 million litres
of fuel storage and a 432 bed accommodation/office complex. The primary facilities are interconnected by utilidors (enclosed corridors)
providing interior access for personnel. These basic fit-for-purpose designs and plans are prepared by Feasibility Study project
personnel that have designed, constructed and operated similar facilities at other diamond mines operating in the area. Likewise,
the suppliers, contractors and service providers nominated in the Feasibility Study are providing similar services for other mines
in the north. Cost estimates are built up from first principles and are benchmarked against relevant operations. Appropriate contingencies
have been applied. De Beers Canada operates the Snap Lake mine in the NWT and has provided estimates of general and administrative
costs, payroll costs, licenses and fees. De Beers Canada has a trained workforce that can assist in the design, commissioning,
training and operation of the Gahcho Kué mine.



The Gahcho Kué Project
is environmentally sound, utilizing simple and proven management plans. Water management plans are adaptations of plans used successfully
at other diamond mines. At Gahcho Kué, all potentially contaminated water is kept within a controlled management basin formed
by natural drainage patterns. Excess storage capacity allowances provide for operational flexibility and contingencies. Normal
mine operations incorporate a program of progressive reclamation that minimizes costs and allows time monitoring of performance.
The mined out 5034 and Hearne pits are used for waste storage during the later years of the mine life providing ample time for
the completion of reclamation of waste storage areas used in the earlier years. A viable plan for fish habitat compensation has
been developed and provides for no-net-loss of habitat. New lake areas for fish habitat replacement are created at the beginning
of operations providing ample time to monitor and measure effectiveness during the mine operation period.



The Gahcho Kué Project
provides socioeconomic benefits. The mine will create close to 1,000 jobs during the two-year construction phase and some 400 permanent
jobs during the 11-year operational phase. Additional employment will be created by service providers to operations. Territorial
and Federal taxes and royalties are estimated to be close to $800 million. In addition, property and payroll taxes will add significant
tax revenues to the local municipality. Impact benefit agreements are planned for the First Nation groups in the area.



34







Risks for the Gahcho Kué
Project are identified and considered reasonable. The greatest economic risk/opportunity is related to diamond values. Over the
past several years, rough diamond demand/prices/sales have experienced unprecedented volatility as a result of the world economic
crisis. Currently demand is strong, and the Gahcho Kué Joint Venture partners forecast a 1% real growth in diamond prices
over the life of the Gahcho Kué Project.



The Gahcho Kué Project
also faces environmental and regulatory risks, as the Gahcho Kué Project must proceed through the Mackenzie Valley Environmental
Impact Review Board environmental screening process. There are risks that the permitting process might take longer than the scheduled
24 to 27 months, causing delays in construction start-up, and/or the regulatory authorities might require significant modifications
to be made to the plans, which will affect designs and costs. In this event, a decision might even be taken to not proceed with
the Gahcho Kué Project.



Economic Analysis - Summary



The financial evaluation of
the Gahcho Kué Project has been undertaken on an after-tax, unleveraged, real rate of return to the Gahcho Kué Joint
Venture partners as a whole. The analyses assumed that three kimberlite ore bodies will be developed, with production on the first
pipe (5034) starting in January 2015. Only probable reserves (derived from indicated resources) were used in the 2010 Technical
Report. Production for the base case ceases part way through the 11th year of production. All production, costs, and
revenues are based on calendar fiscal years.



The Gahcho Kué Project
is economically viable and the projected returns surpass the hurdle rates established by the 2009 Gahcho Kué Joint Venture
Agreement. The Gahcho Kué Project provides a real rate of return to the partners of 20.7% and a real net present value at
15% of $135.9 million in calendar 2010 Canadian dollars. After excluding sunk costs incurred to September 30, 2010, the Gahcho
Kué Project provides a real rate of return of 33.9% and a real NPV of $277.4 million at a discount rate of 15%. The
Gahcho Kué Project is most sensitive to changes in diamond prices, with real dollar returns decreasing the IRR by 3.4% for
a 10% reduction in prices and increasing the IRR by 3.0% for a 10% increase in prices. The Gahcho Kué Project shows a lesser
sensitivity to capital with returns changing by 1.3% for a 10% change in either direction for capital. The sensitivity to operating
cost is about 1.2% in the IRR rate for a 10% in operating costs.



Table 3 provides a summary
of selected financial model inputs and the corresponding results. All costs are quoted in July 2010 Canadian dollars unless otherwise
indicated.



Table
3



|Description                                                                                    |  | 3.0
    Mt/a Case | 
|---------------------------------------------------------------------------------------------- |  | ----------------- | 
|Material Processed – Annual million tonnes (Mt)                                                |  | 3.0               | 
|Material Processed – Life-of-mine million tonnes (Mt)                                          |  | 31.3              | 
|Sunk Costs Exploration and Development pre-July 2009 ($millions)                               |  | 120.0             | 
|Sunk Costs Feasibility Study and Permitting– 2009-2010 ($millions)                             |  | 21.5              | 
|Initial Gahcho Kué Project Capital – 2011 to 2014 ($millions)                                  |  | 549.5             | 
|Working Capital (4 months of operating costs) ($millions)                                      |  | 49.4              | 
|Sustaining Capital including Mine Closure ($millions)                                          |  | 36.1              | 
|Operating Costs – Average over life-of-mine ($/tonne processed)                                |  | 48.68             | 
|Real Diamond Price Escalation – 2010 forward (%/annum) [amount over U.S. Consumer Price Index] |  | 1.00              | 
|Projected Mine Life (years)                                                                    |  | 11.0              | 
|Processing Diamond Cut-off Size (millimeter)                                                   |  | 1.0               | 
|Inflation used for Escalation/De-escalation – (%/annum)                                        |  | 1.80              | 
|Total Carats Recovered (millions)                                                              |  | 49.0              | 
|Diamond Price (RV life-of-mine Escalated, U.S.$/carat)                                         |  | 102.48            | 
|Diamond Price (RV life-of-mine Un-Escalated, U.S.$/carat)                                      |  | 74.52             | 
|Gahcho Kué Project IRR – Including sunk costs (%)                                              |  | 20.7              | 
|NPV @ 5% – Including sunk costs ($millions)                                                    |  | 650.5             | 
|Gahcho Kué Joint Venture Required IRR Hurdle Rate (%)                                          |  | 15.0              | 
|Gahcho Kué Project IRR – Sunk costs not included (%)                                           |  | 33.9              | 
|NPV @ 5% – Sunk costs not included ($millions)                                                 |  | 792.0             | 



35







The Gahcho Kué Project
is a joint venture. All of the numbers presented in this table are based upon 100% ownership and do not include any management
fees or financing costs that are payable between the joint venture partners. Furthermore, the Gahcho Kué Project is evaluated
on a 100% equity basis only, and excludes any financial leveraging effects, as well as any interest expense items that could impact
taxable income and/or provide interest deduction tax shields.



One primary case has been considered,
with variations from this base case model assessed as sensitivities. The base case uses an open pit mining operation with a processing
throughput of 3.0 Mt/annum using probable reserves and is based on a nominal +1.00 mm carat cut-off size for the processing
plant. The variations of the base case are as follows:

| | · | project delay of one year due to permitting
with the same throughput of 3.0 Mt/annum for base case
| | - | --------------------------------------------------------------------------------------------------

| | · | sensitivity analyses on diamond prices, capital
costs, and operating costs.
| | - | ---------------------------------------------------------------------------



The financial analysis is based
on mineral reserves, with the objective of demonstrating economic viability; therefore, the analysis is classified as a “feasibility
study” under NI 43-101. The feasibility study is a precursor to formal permit applications, definitive engineering design,
formal commitment to construct, and includes mineral resources that are sufficiently defined geologically to have economic considerations
applied to them that would enable them to be categorized as mineral reserves.



36







GAHCHO KUÉ PROJECT LOCATION
MAP (2007)







37







Gahcho Kué Leases (2011)







38







GAHCHO
KUE MAP – LOCATION OF PIPES (2007)







39







Information Prepared by the Company



The following information is
prepared by the Company. The Company has issued press releases commenting upon recent results and activities for the Gahcho Kué
Project. Such disclosure has been reviewed by Carl G. Verley, P.Geo., or Daniel D. Johnson from JDS (for disclosure relating to
the Definitive Feasibility Study), who serve as the Qualified Persons in relation to such disclosures.



Tuzo Deep Project Drilling
Program



On October 7, 2011, the Company
announced that the first of two drill rigs had commenced drilling the Tuzo kimberlite at the Gahcho Kué Project as part
of the Tuzo Deep Project. A second drill rig arrived in late October, 2011. The news release indicated that the drilling program
is intended to test the depth extension between 350 and 750 metres, and that the program would include five holes drilled from
two land-based platforms to the north and south of the massive Tuzo kimberlite.



The Tuzo Deep drill program
aimed to define a resource between 350 and 750 metres and was completed in April 2012. On April 12, 2012, the Company announced
the results of the drill program as in Table 4 below:



Table 4



|            |  |           |     |  | Inclination |  |     |                                |  |  |        |  |  |           |        |  | End of   | 
|----------- |  | --------- | --- |  | ----------- |  | --- | ------------------------------ |  |  | ------ |  |  | --------- | ------ |  | -------- | 
|            |  | Azimuth   |     |  | at collar   |  |     | Kimberlite intercepts (meters) |  |  | hole   | 
|Drill hole  |  | (degrees) |     |  | (degrees)   |  |     | From                           |  |  | To     |  |  | Intercept |        |  | (meters) | 
|MPV-11-324C |  |           | 350 |  |             |  | -60 |                                |  |  | 391.00 |  |  |           | 603.00 |  |          | 
|MPV-11-325C |  |           | 340 |  |             |  | -65 |                                |  |  | 436.20 |  |  |           | 573.58 |  |          | 
|MPV-11-326C |  |           | 165 |  |             |  | -65 |                                |  |  | 460.60 |  |  |           | 528.00 |  |          | 
|MPV-12-327C |  |           | 173 |  |             |  | -57 |                                |  |  | 463.00 |  |  |           | 675.48 |  |          | 
|MPV-12-328C |  |           | 059 |  |             |  | -55 |                                |  |  | 603.58 |  |  |           | 819.20 |  |          | 
|MPV-12-329C |  |           | 274 |  |             |  | -60 |                                |  |  | 412.20 |  |  |           | 624.87 |  |          | 



*Hole MPV-11-326C was abandoned at 528m due to lost rods at bottom of hole.

Hole MPV-12-327C
is a continuation of MPV-11-326C starting at 400m at a wedge.



The program consisted of five
holes totalling 3,725 meters. One hole, MPV-11-326C was abandoned at 528m due to lost drill rods, however was continued in MPV-11-327C,
which started at 400m at a wedge. All five holes successfully confirmed the substantial presence of kimberlite beyond the current
Resource depth.



The shape of the Tuzo kimberlite
is unusual as it widens to depth, from 125 meters diameter near surface to 225 meters diameter at a depth of 300 meters. In addition,
the diamond grade increases to depth. The average grade from surface to a depth of 300 meters is 1.21 carats per tonne, while the
average grade from a depth of 300 meters to 350 meters increases to 1.75 carats per tonne.



On November 8, 2012, the Company
announced the microdiamond recovery results from the Tuzo Deep drill program completed in April 2012.



Recovery of microdiamonds from
the kimberlite intersects was undertaken by caustic fusion methods performed at the Geoanalystical Laboratories Diamond Services
of the Saskatchewan Research Council (“SRC”), which is accredited to the ISO/IEC 17025 standard by the Standards Council
of Canada as a testing laboratory for diamond analysis using caustic fusion. The microdiamonds recovered by the SRC were then forwarded
to the De Beers Kimberley Microdiamond Laboratory (“KMDL”) for re-weighing of minus 0.3mm diamonds.

40







The combined SRC and KMDL caustic
fusion diamond results for samples taken from Tuzo Deep are summarized below in Table 5.



Table 5



|Total           |        |  | Numbers of
    Diamonds According to Sieve Size Fraction (mm) |  |       |               | 
|--------------- | ------ |  | ------------------------------------------------------------- |  | ----- | ------------- | 
|Weight
    (Kg) |        |  | +0.075 -0.106                                                 |  |       | +0.106 -0.150 | 
|                | 657.13 |  |                                                               |  | 1,199 |               | 

Total carat weight
of sample: 2.3330075

Total macro carats +0.5mm:
1.989658

Total macro carats +0.850mm:
1.485248



On March 12, 2013, the Company
announced that the Tuzo Deep geological report was completed in January, 2013, and the Tuzo Deep grade report was completed in
mid-February, 2013. These reports are prepared by De Beers in its capacity as the Operator of the Gahcho Kué project to
establish the geological continuity of the Tuzo kimberlite from the Probable Reserve portion (from surface to 300 meters) to a
depth of 564 meters, and also to provide a tonnage and grade estimate for Tuzo Deep.



The reports provide evidence
that the kimberlite units present below 300 meters are the same as those present in the Probably Reserve portion and also that
similar grades were estimated at depth.



The De Beers technical report
does not classify the Tuzo Deep potential resource in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum
(CIM) guidelines. Mountain Province is therefore retaining an independent qualified person (QP) to complete a quality assurance
(QA) and quality control (QC) review of the De Beers geological and technical reports with a view to presenting to shareholders
an updated independent National Instrument 43-101 resource estimate for the Tuzo kimberlite. It is expected that this report will
be issued during Q2 2013.



2010 Independent Diamond Valuation



On August 4, 2010, the Company
announced the results of an updated independent diamond valuation of the diamonds recovered from the Gahcho Kué Project
during the exploration phase. The valuation was conducted by WWW International Diamond Consultants Ltd. (“WWW”) and
took place at the London offices of the Diamond Trading Company in early April 2010. All diamond values presented below are based
on the WWW Price Book as at April 13, 2010.



The independent diamond valuation
resulted in substantially the same actual price of the Gahcho Kué diamonds to US$134 per carat compared to the 2008 independent
diamond valuation done by WWW International Diamond Consultants Ltd. for the Company.



Table 6 below reflects the
actual price per carat for the parcel of 8,243.56 carats of diamonds recovered from the Gahcho Kué Project.



Table 6



|Actual Price US$/carat
|----------------------
|Pipe                  
|5034                  
|                      
|                      
|5034 Total            
|Hearne                
|Tuzo                  
|Total                 



41







Table 7 below presents models
of the average price per carat (US$/carat) for each kimberlite lithology. The modeled price per carat is determined using statistical
methods to estimate the average value of diamonds that will be recovered from potential future production from Gahcho Kué.



Table 7



|Modeled Average Price US$/carat
|-------------------------------
|                               
|Pipe                           
|5034 NE Lobe                   
|5034 Centre                    
|5034 West                      
|Tuzo                           
|                               
|Hearne                         

Note: 1.50mm prices provided
for reference purposes only.



In their report to Mountain
Province, WWW stated: "The Tuzo sample and the 5034 East sample both contained one high value large stone. For Tuzo there
was a 25.13 carat stone valued at $17,000 per carat and 5034 East had a 9.90 carat stone valued at $15,000 per carat. It is encouraging
that such high value stones were recovered in samples of this size. If they are found in the same frequency throughout the resource
then the modelled APs [Average Prices] will certainly be towards the ‘high’ values."



2011
Independent Diamond Valuation



On May
5, 2011, the Company announced the results of an updated independent valuation of the diamonds recovered from the Gahcho Kué
Project. The valuation was conducted by WWW International Diamond Consultants Ltd. and took place at the London offices of the
Diamond Trading Company in early April, 2011. All diamond values presented below are based on the WWW Price Book as at April 11,
2011.



Importantly,
for the first time, the Gahcho Kué diamonds were grouped into larger parcels, each parcel representing diamonds from the
Hearne, Tuzo and the separate lobes of the 5034 kimberlite. In the opinion of WWW, grouping of the diamonds into larger parcels
increased the accuracy of the diamond valuation.



The Company
commented that the results of the independent diamond valuation reflect the strong performance of rough diamond prices since the
previous valuation conducted on April 2010. Further, it noted that based on the analysis of leading diamond producers and analysts,
the global diamond industry will experience peak diamond supply during 2011, with burgeoning demand – particularly from the
robust Chinese and Indian markets – outstripping mine supply. There is a strong probability that rough diamond prices will
continue to experience strong double digit increases as production from aging mines decrease and new mine supply falls short of
growing demand.





42













Table
8 below reflects the actual price per carat for the parcel of 8,317.29 carats of diamonds recovered from the Gahcho Kué
Project.



Table 8



|Actual Price US$/carat
|----------------------
|Pipe                  
|5034                  
|                      
|Hearne                
|Tuzo                  
|Total                 



Note:
Total Dollars are the result of rounding.



In their
report to Mountain Province, WWW stated: "The most valuable stone is in the Tuzo sample. This 25.13 carat stone is the largest
stone in all of the bulk samples. The stone is an octahedron of H/I colour which WWW valued at $20,000 per carat giving a total
value of $502,600”. WWW added: “The stone with the highest value per carat sample is a 9.90 carat stone in the 5034
C/E sample. This is a makeable stone of high colour (D/E) which WWW valued at $24,000 per carat giving a total value of $237,600”.



Table
9 below presents models of the average price per carat (US$/carat) for each kimberlite. The modeled price per carat is determined
using statistical methods to estimate the average value of diamonds that will be recovered from potential future production from
Gahcho Kué.



Table
9



|Pipe            |  | High  Model |     |  | Base Model |   |     | Low  Model | 
|--------------- |  | ----------- | --- |  | ---------- | - | --- | ---------- | 
|5034 Centre     |  | $           | 169 |  |            | $ | 134 |            | 
|                |  |             |     |  |            |   |     |            | 
|5034 West       |  |             | 172 |  |            |   | 133 |            | 
|                |  |             |     |  |            |   |     |            | 
|5034 North/East |  |             | 196 |  |            |   | 144 |            | 
|                |  |             |     |  |            |   |     |            | 
|Hearne          |  |             | 139 |  |            |   | 110 |            | 
|                |  |             |     |  |            |   |     |            | 
|Tuzo            |  |             | 136 |  |            |   | 103 |            | 
|                |  |             |     |  |            |   |     |            | 
|Average         |  | $           | 161 |  |            | $ | 122 |            | 



Note: 1 mm nominal square
mesh

Diamond values are in US
Dollars



For mine
feasibility studies, WWW recommends using the base case models for defining the resources and reserves. The “high”
and “low” models are included for sensitivity analysis.



The WWW
averaged modeled price per carat for the Gahcho Kué kimberlites is $122, which represents a 41 percent increase over the
WWW 2010 average price. The WWW models use size distribution models (carats per size class) developed by De Beers.



43







2012 Updated Valuation



In March 2012, Mountain Province
retained WWW International Diamond Consultants Ltd. (“WWW”) to provide an updated valuation of the diamonds recovered
from the Gahcho Kué Project. The valuation took place at the London offices of the Diamond Trading Company. All diamond
values presented below are based on the WWW Price Book as at March 7, 2012.



Table 10 below reflects the
actual price per carat for the parcel of 8,317.29 carats of diamonds recovered from the Gahcho Kué Project.

Table 10



|Actual Price US$/carat
|----------------------
|Pipe                  
|5034                  
|                      
|Hearne                
|Tuzo                  
|Total                 



Note: Total Dollars are
the result of rounding.



Besides the high-value 25.13
and 9.9 carat diamonds referred to above, several other large high-value diamonds of gem quality have been recovered from Gahcho
Kué, including 7.0 carat, 6.6 carat and 5.9 carat diamonds from the 5034 kimberlite and 8.7 carat, 6.4 carat and 4.9 carat
diamonds from the Hearne kimberlite. The presence of coarser diamonds is an important driver of overall diamond value at Gahcho
Kué.



The results
of the 2012 independent diamond valuation indicated that there was almost no change (+0.9%) from the previous valuation conducted
in April 2011. However, De Beers has reported that between January 1 and December 31, 2012, average global rough diamond prices
decreased by 12 percent as a consequence of macroeconomic uncertainty.



Table 11 below presents models
of the March 2012 average price per carat (US$/carat) for each kimberlite. The modeled price per carat is determined using statistical
methods to estimate the average value of diamonds that will be recovered from potential future production from Gahcho Kué.



Table 11



|Pipe        |  | High |     |  | Base |   |     | Low | 
|----------- |  | ---- | --- |  | ---- | - | --- | --- | 
|5034 Centre |  |      | 167 |  |      |   | 134 |     | 
|5034 West   |  |      | 169 |  |      |   | 131 |     | 
|5034        |  |      | 195 |  |      |   | 145 |     | 
|Hearne      |  |      | 138 |  |      |   | 109 |     | 
|Tuzo        |  |      | 136 |  |      |   | 104 |     | 
|Average     |  | $    | 160 |  |      | $ | 122 |     | 



Note:
1 mm nominal square mesh

Diamond
values are in US Dollars



For mine feasibility studies,
WWW recommends using the base case models for defining the resources and reserves. The “high” and “low”
models are included for sensitivity analysis.



44







The WWW averaged modeled price
per carat for the Gahcho Kué kimberlites is US$122, which represents a 41 percent increase over the WWW April 2010 average
modeled price. The WWW models use size distribution models (carats per size class) developed by De Beers.



Definitive Feasibility Study



On September 1, 2009, the
Company announced that the Gahcho Kué Joint Venture had appointed JDS, an independent engineering firm, to produce the
Definitive Feasibility Study for the Gahcho Kué Joint Venture. The Definitive Feasibility Study was expected to take approximately
twelve months to complete with a budget of approximately $10 million.



On October 21, 2010, in a press
release titled “Mountain Province Diamonds Announces Positive Gahcho Kué Independent Feasibility Study”, Mountain
Province announced the results of the independent feasibility study. JDS led and prepared the feasibility study dated October 15,
2010, which was presented to the Gahcho Kué Joint Venture. The Company filed the 2010 Technical Report, representing a detailed
summary of the Feasibility Study, on SEDAR and provided notification of such filing under Form 6K on EDGAR on December 3, 2010.
See Item 4.D, Property Plant and Equipment, for a full summary of the 2010 Technical Report.



The following are the financial
and project highlights from the 2010 Technical Report:

|· | Project IRR including sunk costs          | 20.7%*               
|- | ----------------------------------------- | ---------------------
|· | Project IRR excluding sunk costs          | 33.9%                
|· | Initial project capital                   | $549.5 million       
|· | Working capital                           | $49.4 million        
|· | Sustaining capital including mine closure | $36.1 million        
|· | Operating costs                           | $48.68 per tonne     
|· | Project mine life                         | 11 years             
|· | Average annual production                 | 3 million tonnes     
|· | Total diamond production                  | 49 million carats    
|· | Average annual diamond production         | 4.45 million carats  
|· | Diamond price                             | US$102.48 per carat**





*After taxes/royalties
and unleveraged

**The base case model uses an
average realized diamond price of US$102.48 per carat derived from the mean average between the modeled values of De Beers and
WWW (based on their respective April 2010 price books) inclusive of a real 1% escalation over LOM less an assumed 4% marketing
fee.



Permitting



In November 2005, De Beers
Canada, as operator of the Gahcho Kué Project, 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 an
Environmental Assessment ("EA"). On June 12, 2006, the MVEIRB ordered that an Environment Impact Review (“EIR”)
of the applications should be conducted. The MVEIRB published draft Terms of Reference and a draft Work Plan for the Gahcho Kué
Project in June 2007, and called for comments from interested parties by July 11, 2007.



The EIR is designed to identify
all of the key environmental issues that will be impacted by the development of the Gahcho Kué diamond mine and to facilitate
participation by key stakeholders in addressing these issues.



The
Environmental Impact Statement (EIS) for the Gahcho Kué mine was submitted to the Gahcho Kué Environmental Impact
Review Panel (the “Panel”) of the MVEIRB in December 2010. The EIS details the construction and operation of the proposed
mine to ensure it is sustainable and was assembled to meet the rigorous Terms of Reference established by the Panel for the Gahcho
Kué Project.



45







The feasibility study commissioned
in August 2009 was expected to impact the final project description and the Project Operator, De Beers Canada, had previously advised
the MVEIRB that submission of the EIS would be further deferred pending the completion of an updated project description.



The final Gahcho Kué
Project description was presented to the Gahcho Kué Joint Venture partners, and was incorporated into the EIS to be submitted
to the MVEIRB before the end of 2010. Key elements of the project description include the following:



| | · | Average
annual production rate of approximately 3 million tonnes of ore;
| | - | ------------------------------------------------------------------------

| | · | Life
of mine from the open-pit resource of approximately 11 years; and
| | - | ----------------------------------------------------------------------

| | · | Average
annual production rate of approximately 4.45 million carats.
| | - | --------------------------------------------------------------------



On November 5, 2010, the Company
announced that the Operator of the Gahcho Kué Joint Venture, De Beers Canada, had notified the MVEIRB on November 3, 2010
that the Gahcho Kué EIS was on track for completion and submission before the end of 2010. The Company also announced that
the submission of the EIS will result in the resumption of the environmental impact review by the independent administrative tribunal
established under the Mackenzie Valley Environmental Resource Management Act.



On
December 23, 2010, the Company, in a joint news release with De Beers Canada, announced that the EIS for the Gahcho Kué
mine had been submitted to the Gahcho Kué Environmental Impact Review Panel (the “Panel”) of the MVEIRB. The
EIS details the construction and operation of the proposed mine to ensure it is sustainable. The EIS has been assembled to meet
the rigorous Terms of Reference established by the Panel for the Gahcho Kué Project.



On August 2, 2011, the Company
announced that the Panel had informed the Gahcho Kué Project Operator, De Beers Canada that the EIS conformed to the terms
of reference set by the Panel, thus clearing the way for the EIR to commence.



On January 8, 2013, the Company
announced that the MVEIRB closed the public record for the Gahcho Kué environmental impact review on January 3, 2013 and
that the MVEIRB is expected to complete their report by July 2013.



On March 12, 2013, the Company
announced that the Gahcho Kué Project awaits the report and recommendation from the Gahcho Kué Panel of MVEIRB, and
that on its completion, the report of the Gahcho Kué Panel will be submitted to the Minister of Aboriginal Affairs and Northern
Development who has the authority to approve the development of the first diamond mine at Gahcho Kué. While both the Panel
report and the Ministerial approval are awaited, the Mackenzie Valley Land and Water Board has opened the public registry to facilitate
expeditious processing of the Gahcho Kué permits. The project development schedule remains subject to final regulatory approval.



46







Project Costs to Date



The 2009 Gahcho Kué Joint
Venture Agreement contains the following key terms with respect to the Gahcho Kué Project costs:



| | 1. | Each Joint Venture partner will contribute their proportionate share to the future project development
costs;
| | -- | -------------------------------------------------------------------------------------------------------------

| | 2. | The Joint Venture partners have agreed that the sunk historic costs to the period ending on December
31, 2008 will be reduced and limited to $120 million;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Mountain Province will repay De Beers Canada $59 million (representing 49% of an agreed sum of
$120 million) in settlement of the Company’s share of the agreed historic sunk costs on the following schedule:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

·$200,000
on execution of the 2009 Gahcho Kué Joint Venture Agreement (Mountain Province’s contribution to the 2009 Joint Venture
expenses to date of execution of the 2009 Gahcho Kué Joint Venture Agreement – paid);

·Up
to $5.1 million in respect of De Beers Canada’s share of the costs of the feasibility study commissioned in August 2009 (paid
$4,417,421 to December 31, 2012, recorded as “sunk cost repayment” in the Company’s financial statements);

·$10
million upon the completion of the feasibility study with at least a 15% IRR and approval of the necessary development work for
a mine (as defined in the 2009 Gahcho Kué Joint Venture Agreement – paid March 15, 2011);

·$10
million following the issuance of the construction and operating permits;

·$10
million following the commencement of commercial production; and

·The
balance of approximately $24.4 million within 18 months following commencement of commercial production.



The following table outlines
the Gahcho Kué Project costs (at 100%) to date:



|Period of Time                                                                                     |  | Amount |            
|-------------------------------------------------------------------------------------------------- |  | ------ | -----------
|Agreed historic sunk costs to December 31, 2008                                                    |  | $      | 120,000,000
|Expenditures January 1, 2009 to December 31, 2009                                                  |  |        | 1,654,383  
|Costs for Feasibility Study from August 2009 to December 2009 (of approved budget of $10 million)  |  |        | 2,531,056  
|Total Costs to December 31, 2009                                                                   |  | $      | 124,185,439
|Expenditures January 1, 2010 to December 31, 2010                                                  |  |        | 10,754,884 
|Costs for Feasibility Study from January 2010 to December 2010 (of approved budget of $10 million) |  |        | 5,593,913  
|Total Costs to December 31, 2010                                                                   |  | $      | 140,534,236
|Expenditures January 1, 2011 to December 31, 2011                                                  |  |        | 16,320,970 
|Costs for Feasibility Study from January 1, 2011 to December 31, 2011                              |  |        | 466,526    
|Total Costs to December 31, 2011                                                                   |  | $      | 157,321,732
|Expenditures January 1, 2012 to December 31, 2012                                                  |  |        | 21,698,473 
|Costs for Feasibility Study from January 1, 2012 to December 31, 2012                              |  |        | 100,114    
|Total Costs to December 31, 2012                                                                   |  | $      | 179,120,319
|                                                                                                   |  |        |            
|Budget January 1, 2013 to December 31, 2013 (subject to approval in tranches)                      |  | $      | 85,640,108 



47







| | Item 4A. | Unresolved Staff Comments
| | -------- | -------------------------



None.



| | 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 IFRS as issued by the International Accounting
Standards Board. Discussion and analysis set forth below covers the results obtained for 2012 compared to 2011, and 2011 compared
to 2010.



Fiscal Period ended December
31, 2012 compared to Fiscal Year ended December 31, 2011.



The Company’s net loss
for the year ended December 31, 2012 was $3,337,610 or $0.04 per share, compared to $11,538,935 or $0.15 per share for the year
ended December 31, 2011. Before the accounting gain recorded as a result of the asset transfer to Kennady Diamonds Inc., the loss
for December 31, 2012 was $14,059,255, or $0.17 per share.



Operating expenses were $14,179,216
for the year ended December 31, 2012, and $12,268,455 for the year ended December 31, 2011. Consulting fees, including stock-based
compensation of $463,500 for options granted in the first quarter of 2012 ($487,085 for the first quarter of 2011), as well as
other consulting, were down from approximately $1,631,200 for the year ended December 31, 2011 to approximately $1,435,000 for
the year ended December 31, 2012 due to somewhat reduced consulting activity. Exploration and evaluation expenses are up from approximately
$9,032,600 for the year ended December 31, 2011 to approximately $10,651,600 for the year ended December 31, 2012 as a result of
increased exploration and evaluation expenditures for the Gahcho Kué Project (with a related increase in the Gahcho Kué
management fee) and for the Kennady North Diamond Project prior to transfer of the Kennady North Diamond Project to Kennady Diamonds
in early July 2012. Professional fees are up from approximately $361,000 for the year ended December 31, 2011, to approximately
$664,900 for the year ended December 31, 2012 primarily attributable to increased legal and audit fees associated with the Company’s
spin-out of the Kennady North Diamond Project. Promotion and investor relations costs are up from approximately $110,000 for the
year ended December 31, 2011 to approximately $246,000 for the year ended December 31, 2012 and are attributed to increased costs
associated with the spin-out. Office and administration is down for the year ended December 31, 2012 from the same period in 2011.
Increases in other expense categories such as travel, transfer agent and regulatory fees, and salary and benefits reflect increased
activities for the Company.



Interest income was approximately
$147,800 for the year ended December 31, 2012 compared to approximately $303,400 for the year ended December 31, 2011 as a result
of reduced balances for investment from the 2010 financings. Cash and short-term investment balances increased again late in 2012
with the proceeds from the Company’s Rights Offering which closed November 28, 2012.



Included in other income for
December 31, 2012 is the Company’s gain on the asset transfer to Kennady Diamonds of $10,721,645 as a result of the spin-out
of the Kennady North Project.



Fiscal Period ended December
31, 2011 compared to Fiscal Year ended December 31, 2010.



The Company’s net loss
for the year ended December 31, 2011 was $11,538,935 or $0.15 per share, compared to $14,534,727 or $0.21 per share for the year
ended December 31, 2010 under IFRS.



48







Consulting fees for the year
ended December 31, 2011 at $1,631,188 (December 31, 2010 - $721,987) includes a value for stock based compensation of $487,085
in 2011 (December 31, 2010 - $nil). As well, it includes consulting costs for a variety of corporate projects such as the Company’s
conversion to IFRS.



In the year ended December
31, 2011, the Company’s share of expenses relating to the Gahcho Kué Project included in exploration and evaluation
expenses totalled $8,225,873 (December 31, 2010 – $7,826,126). Also included in exploration and evaluation expenses is $806,712
incurred by the Company for its Kennady North Project (December 31, 2010 - $47,993) which consists of the costs for the airborne
gravity survey conducted in October 2011 over the Kennady North Project as well as consulting costs relating to Kennady North.



The increase in the Gahcho
Kué Project management fee from $162,613 for the year ended December 31, 2010 to $236,464 reflects increased activity at
the Gahcho Kué Project done by the Operator.



Increases in other expense
categories such as travel, transfer agent and regulatory fees, salary and benefits, promotion and investor relations, and professional
fees reflect increased activities for the Company.



The interest income for the
year ended December 31, 2011 at $303,354 reflects increased cash and short term investments over the year compared to the year
ended December 31, 2010 (December 31, 2010 - $122,590) after financings done in 2010.



Office and administration for
the year ended December 31, 2011 of $458,467 (December 31, 2010 - $200,274) includes foreign exchange loss of approximately $250,000.



Other expenses in the year
ended December 31, 2010 included a loss on revaluation of warrants exerciseable in a foreign currency in the amount of $4,767,578.
In the year ended December 31, 2011, there was a gain on revaluation of warrants exerciseable in a foreign currency in the amount
of $489,481.



| | 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 (see Risk Factors, Item 3D(i)).



On November 28, 2012, the Company
completed a rights offering of 4.6 million shares at a price of $3.50 per share, to raise gross proceeds of $47 million. The net
proceeds of the Offering are being used to advance the Gahcho Kué Project and for general corporate purposes.



The Company reported working
capital of $46.7 million at December 31, 2012 ($16.7 million as at December 31, 2011), and cash and cash equivalents and short-term
investments of $47.7 million ($17.8 million at December 31, 2011). The short-term investments reflected in the December 31, 2012
and 2011 figures were guaranteed investment certificates held with a major Canadian financial institution with no counter party
credit risk associated with the bank.



The Company had no long-term
debt at December 31, 2012 or at December 31, 2011. The Company’s required contributions payable to De Beers Canada, described
in Note 7 to the Company’s audited consolidated financial statements for December 31, 2012, are contingent on certain events
occurring such as a decision to build the mine, receipt of permits, and production.



As at December 31, 2012, the
Company has not achieved profitable operations and continues to be dependent upon its ability to obtain external financing to meet
the Company’s liabilities as they become payable. The Company’s ability to continue operations beyond the next twelve
months is dependent on the successful permitting, the ability of the Company to obtain necessary financing to fund its operations,
the successful construction of the diamond mine and the future production or proceeds from developed properties.



49







The Company’s primary
mineral asset is in the development stage and, as a result, the Company has no source of revenues. In the years ended December
31, 2012, 2011 and 2010, the Company incurred losses, had negative cash flows from operating activities, and will be required to
obtain additional sources of financing to complete its business plans going into the future. Although the Company had working capital
of $46.7million at December 31, 2012, including $47.7 million of cash and short-term investments, the Company has insufficient
capital to finance its operations and the Company’s costs of the Gahcho Kué Project over the next 12 months. 
The Company is currently investigating various sources of additional funding to increase the cash balances required for ongoing
operations over the foreseeable future. These additional sources include, but are not limited to, share offerings, private placements,
credit and debt facilities, as well as the exercise of outstanding options. However, there is no certainty that the Company will
be able to obtain financing from any of those sources.  These conditions indicate the existence of a material uncertainty
that results in substantial doubt as to the Company’s ability to continue as a going concern.



The Company’s consolidated
financial statements have been prepared on the basis that the Company will continue as a going concern, and do not reflect adjustments
to assets and liabilities that would be necessary if the going concern assumption were not appropriate. These adjustments could
be material.



During 2012, 370,000 options
were exercised for proceeds of $0.6 million. During 2011, 2,658,866 warrants were exercised for proceeds of $7.2 million, and 270,635
stock options were exercised for proceeds of $0.7 million. There are no warrants outstanding at December 31, 2012.



In order to advance the Gahcho
Kué Project and exploration of the Kennady North Project, the Company will 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 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. As well, there is no guarantee that the Company will be able to raise additional
capital, or to raise additional capital on terms and conditions which it finds acceptable. The Company is required to make repayments
under the 2009 Gahcho Kué Joint Venture Agreement (see Item 4D), which must also be financed. An inability to make the repayments
required could result in a dilution of the Company’s marketing rights as described in the 2009 Gahcho Kué Joint Venture
Agreement.



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.



| | 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.



50







| | F. | Tabular disclosure of contractual obligations.
| | -- | ----------------------------------------------



The Company has no contractual
obligations relating to debt or lease obligations as at December 31, 2012, other than an operating lease for its office premises,
effective February 1, 2012. The lease runs for five years and expires January 31, 2017.



|                                  |  | 2013 |         |  | 2014 |   |         | 2015 |  |   | 2016    |  |  | 2017 |         |  | Total |  
|--------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ----- | -
|Future
    minimum lease payments |  | $    | 142,256 |  |      | $ | 142,256 |      |  | $ | 142,256 |  |  | $    | 142,256 |  |       | $



De Beers Canada, as Operator
of the Gahcho Kué Project, has entered into purchase agreements relating to the Gahcho Kué Project. As at December
31, 2012, the Company’s proportional interest (49%) of the commitments made by the Operator is $5,160,820, including approximately
$4,147,000 relating to the equipment for the Gahcho Kué Project. The commitments are all considered to be 2013.



Significant
Accounting Judgments, Estimates and Assumptions



The preparation of the Company’s
consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses
during the reporting period. Actual outcomes could differ from these estimates. The consolidated financial statements include estimates,
which, by their nature, are uncertain and may require accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current
and future periods. These estimates are based on historical experience, current and future economic conditions, and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.



| | i) | Significant Judgments in Applying Accounting Policies
| | -- | -----------------------------------------------------

The areas which require management
to make significant judgments in applying the Company’s accounting policies in determining carrying values include, but are
not limited to:



| | a) | Mineral reserves
| | -- | ----------------

The information relating to
the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. Changes
in the proven mineral reserves or measured and indicated and inferred mineral estimates may impact the carrying value of the property.



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

The Company reviews its Mineral
Properties for impairment based on results to date and when events and changes in circumstances indicate that the carrying value
of the assets may not be recoverable. IFRS 6 - Exploration for and evaluation of mineral resources and IAS 36 – Impairment
of assets requires the Company to make certain judgments in respect of such events and changes in circumstances, and in assessing
their impact on the valuations of the affected assets. The Company’s assessment is that as at December 31, 2012, there are
no indicators of impairment in the carrying value of its mineral properties.



| | ii) | Significant Accounting Estimates and Assumptions
| | --- | ------------------------------------------------

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



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

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



51







| | b) | Impairment analysis - mineral property
| | -- | --------------------------------------

The Company reviews its mineral
properties for impairmet based on results to date and when events and changes in circumstances indicate that the carrying value
of the asets may not be recoverable. If indicators of impairment are identified, management will perform an impairment test in
accordance with IAS 36 – Impairment of assets (“IAS 36”). IAS 36 requires the Company to make certain
judgments, assumptions, and estimates in determining the estimate of the net recoverable amount. Impairments are recognized when
the carrying values exceed management’s estimate of the net recoverable amounts associated with the affected assets. The
values shown on the balance sheet for Mineral Properties” represent the Company’s assumption that the amounts are recoverable.
As a result of the numerous variables associated with the Company’s judgments and assumptions, the precision and accuracy
of estimates of recoverable amount is subject to significant uncertainties, and may change significantly as additional information
becomes known.



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

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



| | d) | Stock options
| | -- | -------------

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



| | e) | Deferred taxes
| | -- | --------------

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



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 IFRS as issued by the IASB. The Company’s consolidated financial statements have been prepared only in accordance with
IFRS as issued by the IASB.



52







| | Item 6. | Directors, Senior Management and Employees
| | ------- | ------------------------------------------



| | A. | Directors and senior management.
| | -- | --------------------------------



The following table lists, as
of March 28, 2013, 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, except as noted, 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                                                                            
|--------------------- |  | ----------------------------------------------- |  | -----------------------------------------------------------------------------------------------------
|Jonathan Comerford    |  | Chairman and Director(2)(3)                     |  | Chairman of the Company since May 11, 2006 and Director since September 21, 2001                     
|Patrick Evans         |  | President, Chief Executive Officer and Director |  | President and Director of the Company since November 15, 2005                                        
|Jennifer Dawson(4)    |  | Chief Financial Officer                         |  | Chief Financial Officer since May 11, 2006                                                           
|Bruce Ramsden         |  | Vice-President Finance and CFO-Designate        |  | Vice President Finance since February 1, 2013.  Becomes Chief Financial Officer effective May 1, 2013
|Bruce Dresner(5)      |  | Director                                        |  | Director since March 11, 2013                                                                        
|Elizabeth J. Kirkwood |  | Director(1)                                     |  | Director since September 21, 2001                                                                    
|Peeyush Varshney      |  | Director(2)                                     |  | Director since April 13, 2007                                                                        
|Carl Verley           |  | Director(1)(3)                                  |  | Director of Old MPV since December 2, 1986 and Director of the Company since November 1, 1997        
|David E. Whittle      |  | Director(2)(3)                                  |  | Director since November 1, 1997                                                                      



| | (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.
| | --- | -----------------------------------------------

| | (4) | Ms. Dawson’s consulting arrangement with the Company
will expire on April 30, 2013. Her Chief Financial Officer role will be assumed by Mr. Bruce Ramsden effective May 1, 2013.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Mr. Dresner filled the vacancy on the Board of Directors
effective March 11, 2013. Mr. Harry Dobson retired from the Board of Directors
in November 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------





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)



Mr. Jonathan Comerford has been
a director of the Company since September 2001 and Chairman since April 2006. Mr. Comerford is resident in Dublin, Ireland. He
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 has been Investment Manager at IIU since August 1995. He serves as a director of Kennady
Diamonds Inc. since February 2012, and Optimal Payment Plc.



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



Mr. Patrick C. Evans has been
President, CEO and a director of Mountain Province Diamonds Inc. 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. In 1999 he was appointed a Vice President of Placer Dome Inc. (a major gold mining company) and a non-executive
director of SouthernEra Resources Ltd. (a diamond and platinum exploration, development and mining company).  In 2001, he
was appointed President and CEO of SouthernEra Resources Ltd. and Messina Limited (a platinum mining company). In 2004, he was
appointed President, CEO and a director of Southern Platinum Corp. (a platinum mining company), which was acquired by Lonmin Plcin June 2005. In September 2005, he was appointed President, CEO and a director of Weda Bay Minerals Inc. (a nickel exploration
and development company), which was acquired by Eramet S.A. in May 2006.   Mr. Evans was appointed the CEO and a director
of Norsemont Mining Inc. (a copper exploration and development company) in June 2007 which was taken over by Hudbay in the March
2011.  He also served as a non-executive director of Anvil Mining Limited (a copper mining company) from March 2009 to February
2012 when Anvil Mining was acquired by Minmetals. Mr. Evans has served as the President and CEO and a director of Kennady Diamonds
Inc. since February 2012. Mr. Evans is a non-executive director of Pan Global Resources Inc. and Indico Resources Ltd.



53







Jennifer M. Dawson, BBA



Ms. Jennifer Dawson has been
the Company’s Chief Financial Officer and Corporate Secretary since May 2006, and will serve until April 30, 2013 in this
capacity. 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) from 1984 to 1989, and financial management experience with CCH Canadian Limited (1989 to 2000) and Genesis Media
Inc. (from 2000 to 2004). She provided financial consulting services to SouthernEra Resources Ltd. in its corporate reorganization
in 2004, and ongoing financial consulting services to both SouthernEra Diamonds Inc. and to Southern Platinum Corp. after the reorganization
in 2004 through 2005. Since 2004, she has been a self-employed financial consultant, and in addition to her CFO and Corporate Secretary
roles with the Company, she provided financial and administrative services to Arizona Star Resource Corp. as a consultant from
2005 to 2008 (now owned 100% by Barrick Gold Corporation), and to Blacksands Petroleum, Inc. (2007 to 2010), and Kennady Diamonds
Inc. (2012 to current).



Bruce C. Ramsden, B.Comm,
A.C.I.S.



Mr. Bruce Ramsden has been the
Company’s Vice President Finance and Chief Financial Officer designate (effective May 1, 2013), since February 2013. Mr.
Ramsden is also Vice President Finance and Chief Financial Officer designate (effective May 1, 2013) for Kennady Diamonds Inc.,
since February 2013. He has been a resident of Ontario, Canada since February 1996 and prior to that resided in South Africa where
he graduated by correspondence with a Bachelor of Commerce degree from the University of South Africa and gained through correspondence
a C.I.S through the Institute of Chartered Secretaries and Administrators. Mr. Ramsden worked for a number of large companies in
South Africa, including Mobil Oil, Philips South Africa and Castrol Oil South Africa prior to immigrating to Canada in 1996. Since
1996, Mr. Ramsden has provided financial consulting services to Vaaldiam Resources Ltd. (May 1996 to December 2001) and in addition
to his CFO and Corporate Secretary roles was also a Director. Mr. Ramsden was also a Director and Chief Financial Officer of Sierra
Minerals Inc. (January 1998 to September 2006). Mr. Ramsden also consulted to St Andrew Goldfields Ltd. (January 2002 to June 2005)
and was VP Finance, CFO and Corporate Secretary. Mr. Ramsden was also CFO and a Director for Heritage Exploration Ltd. (January
2005 to June 2005). Mr. Ramsden joined Vaaldiam Mining Inc., formerly Tiomin Resources Inc. (June 2005 to June 2010) as VP Finance,
CFO and Corporate Secretary. Mr. Ramsden was also a Director of Freegold Ventures Limited (October 2009 to April 2011). Mr. Ramsden
consulted to Andean American Gold Corp. (July 2010 to October 2012), which was acquired by Lupaka Gold Corp. (October 2012) and
Southern Legacy Minerals Inc., formerly Sinchao Metals Corp. (July 2010 to June 2012) where in addition to his VP Finance, CFO
and Corporate Secretary roles, he also provided financial and administrative services to both companies.



Bruce Dresner, MBA, BA



Mr. Dresner has had a distinguished
career as an investment professional, including Director of Investments and Chief Investment Officer at Dartmouth College (1985-1990),
Vice President for Investments and Chief Investment Officer at Columbia University (1990-2002), Principal of Quellos Group LLC
(2002-2007) and Managing Director, BlackRock Inc. (2007-2008). Since his retirement from BlackRock, Mr. Dresner has held a number
of board and advisory positions, including serving on the advisory board of Capstone Investment Advisors (2008-2010), as a member
of the strategic advisory board of Wilshire Private Markets at Wilshire Associates Inc. (2010-present), and a trustee of the Gottex
Multi-Asset Endowment and Alternative Asset Funds (2011-present). Bruce Dresner is a graduate of Dartmouth College Tuck School
of Business (MBA, 1971) and the University of Miami (BA Economics, 1969). Mr. Dresner also received his CFA (Chartered Financial
Analyst) designation in 1980. Mr. Dresner is a resident of Connecticut, USA. Mr. Dresner was appointed as a director of Mountain
Province in March 2013. He is also a director of the Sherman Fairchild Foundation (nonprofit).



54







Elizabeth J. Kirkwood



Ms. Elizabeth
J. Kirkwood has been an entrepreneur and independent business woman since February 1989 with a focus on the creation, financing
and management of junior resource companies.  She 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 appointed the President and CEO of Match Capital
Resources Corporation in July, 2010. Ms. Kirkwood was the President and CEO of First Nickel Inc. (November 2003 to June 2006). 
She has been a past director of Everbright Capital Corporation (June 2005 - July 2009), Canadian Shield Resources Inc. (June 2005-June
2007), 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). She is a director of Match Capital Resources Corporation.



Peeyush
Varshney, LL.B.



A resident of British Columbia,
Canada, Mr. Peeyush Varshney has been actively involved in the capital markets since 1996 and has been a principal of Varshney
Capital Corp., a private merchant banking, venture capital and corporate advisory firm since 1996. Since September 2005, he has
also been the Chief Executive Officer and a director of Canada Zinc Metals Corp., a resource exploration company listed on the
TSX Venture Exchange. Mr. Varshney obtained a Bachelor of Commerce degree (Finance) in 1989 and a Bachelor of Laws in 1993, both
from the University of British Columbia. He then articled at Farris, Vaughan, Wills & Murphy, a law firm in Vancouver, British
Columbia, from 1993 to 1994, and has been a member of the Law Society of British Columbia since September 1994. Mr. Varshney is
a director of Afrasia Mineral Fields Inc., Mexigold Corp., Trigen Resources Inc., Minaean International Corp., and Open Gold Corp.,
and Broome Capital Inc.



Carl G. Verley, B.Sc., P. Geo.



Mr. Carl Verley is a resident
of British Columbia, Canada, and a graduate of the University of British Columbia where he received his Bachelor of Science Degree
in May of 1974. He worked for Cordilleran Engineering Ltd. from 1975 to 1982.  He has been a self-employed geologist since
1982.  From August of 1990 to January 2002, he served on the Board of Directors of Gee-Ten Ventures Inc., from May 2002 to
July 2003 he was a director of Rome Resources Ltd., from July 2003 to December 2011, he was a director of Alphamin Resources Corp.,
and from October 2007 to May 2012 he was a director of African Metals Corp. He was vice president of exploration for Windstorm
Resources Inc from July 2011 to October 2012. Currently and since 1986 he has been a director of Mountain Province Diamonds Inc.
and since February 2012, he has been a director of Kennady Diamonds Inc.  He is the President of Amerlin Exploration Services
Ltd., a private company providing exploration services to the mineral industry, that he formed 1983.  He is a registered
Professional Geoscientist with the British Columbia Association of Professional Engineers and Geoscientists.



55







David E. Whittle, B.Comm.,
C.A.



Mr. Whittle is a Chartered Accountant
and is a resident of British Columbia, Canada.  He has been a director of Mountain Province Diamonds Inc. since November 1997.
 From 2004 to August 2007, Mr. Whittle was Chief Financial Officer of Hillsborough Resources Limited, a public company in
the mining business.  Since October 2007, Mr. Whittle’s principal occupation has been Chief Financial Officer of Alexco
Resource Corp., a public company both in the mining business and in the business of providing consulting services to third parties
in respect of environmental remediation and permitting. He is also a director of Kennady Diamonds Inc. since February 2012.



| | 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. Bruce Ramsden was appointed Vice President Finance and CFO Designate effective February
1, 2013. He will replace Jennifer Dawson as CFO and Corporate Secretary on May 1, 2013. 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 as follows:



| | · | Patrick Evans, President and Chief Executive Officer, earned other annual compensation of $440,000
in the most recent fiscal year ending December 31, 2012 including $420,000 pursuant to a consulting agreement (as amended) for
his services as President and CEO, as well as a director’s fee of $20,000 for the year ended December 31, 2012. As at December
31, 2012, he had 200,000 stock options.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Grant date       |  | Number |         |  | Vesting |  |             | Exercise Price |  |   | Term | 
|---------------- |  | ------ | ------- |  | ------- |  | ----------- | -------------- |  | - | ---- | 
|                 |  |        |         |  |         |  |             |                |  |   |      | 
|January 10, 2011 |  |        | 100,000 |  |         |  | Immediately |                |  | $ | 6.13 | 
|                 |  |        |         |  |         |  |             |                |  |   |      | 
|March 8, 2012    |  |        | 100,000 |  |         |  | Immediately |                |  | $ | 4.84 | 



| | · | Jennifer Dawson, Chief Financial Officer and Corporate Secretary, was paid $303,087 pursuant to
a consulting agreement for her services as CFO and Corporate Secretary for the year ended December 31, 2012. As at December 31,
2012, she has 190,000 stock options as follows:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Grant date        |  | Number |        |  | Vesting |  |             | Exercise Price |  |   | Term | 
|----------------- |  | ------ | ------ |  | ------- |  | ----------- | -------------- |  | - | ---- | 
|                  |  |        |        |  |         |  |             |                |  |   |      | 
|November 24, 2008 |  |        | 90,000 |  |         |  | Immediately |                |  | $ | 1.26 | 
|                  |  |        |        |  |         |  |             |                |  |   |      | 
|January 10, 2011  |  |        | 50,000 |  |         |  | Immediately |                |  | $ | 6.13 | 
|                  |  |        |        |  |         |  |             |                |  |   |      | 
|March 8, 2012     |  |        | 50,000 |  |         |  | Immediately |                |  | $ | 4.84 | 



Effective January 1, 2012, compensation
for the directors was approved at the following levels: Chairman of the Board receives $30,000 per annum, the Chairman of the Audit
Committee receives $25,000 per annum, the Director acting as Qualified Person receives $25,000, and all other Directors receive
$20,000 per annum. These amounts continue to be paid semi-annually, in advance.



56







For the year ended December 31,
2011, the compensation for the directors was approved and paid at the following levels: Chairman of the Board - $20,000, the Chairman
of the Audit Committee - $15,000, and all other Directors- $10,000 per annum. These amounts were paid semi-annually, in advance.



During each of the years ended
December 31, 2012, December 31, 2011, and December 31, 2010, director fees were earned by the following directors:



|Director/Position                             |  | December 31, 2012 |        |  | December 31, 2011 |   |        | December 31,2010(1) | 
|--------------------------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | ------------------- | 
|Jonathan Comerford Chairman of the Board      |  | $                 | 30,000 |  |                   | $ | 20,000 |                     | 
|David Whittle Chairman of the Audit Committee |  | $                 | 25,000 |  |                   | $ | 15,000 |                     | 
|Harry Dobson(2) Director                      |  | $                 | 20,000 |  |                   | $ | 10,000 |                     | 
|Patrick Evans Director                        |  | $                 | 20,000 |  |                   | $ | 10,000 |                     | 
|Elizabeth Kirkwood Director                   |  | $                 | 20,000 |  |                   | $ | 10,000 |                     | 
|Carl Verley Director                          |  | $                 | 25,000 |  |                   | $ | 10,000 |                     | 
|Peeyush Varshney Director                     |  | $                 | 20,000 |  |                   | $ | 10,000 |                     | 





| | (1) | The Directors’ Fees were prorated for the first semi-annual payment in 2010 to adjust for the payment, in advance, of the January 1, 2010-March 31, 2010 fees paid in October 2009 before the Company’s change in year end.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | No adjustment was made to Mr. Dobson’s director fees upon his retirement in November 2012.                                                                                                                                 







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 ValueRealized ($)(1) |   |         | Unexercised Options at
    Financial Year-End Exercisable / Unexercisable (#) |  | Value of Unexercised In-the-Money Options at FinancialYear-End Exercisable /Unexercisable ($)(2)
|--------------- |  | ---------------------------------------- | ------- |  | ------------------------------ | - | ------- | ----------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|Patrick Evans   |  |                                          | 300,000 |  |                                | $ | 942,000 |                                                                               |  | 200,000/0                                                                                       
|Jennifer Dawson |  |                                          | Nil     |  |                                |   | Nil     |                                                                               |  | 190,000/0                                                                                       



(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 December 31, 2012, (ie. financial year end) was $3.89.



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.



57







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 shareholders 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. None of the directors, with the exception of Patrick Evans, who serves as
the Company’s President and CEO, have any service agreements with the Company. Mr. Evans’ agreement contains a termination
clause that would provide him with 18 months of compensation if there is a change of control of the Company.



The next Annual General Meeting
of the shareholders of the Company has been scheduled for June 11, 2013.



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.
All three members of the Audit Committee are independent.



The current members of the Audit
Committee are Jonathan Comerford, Peeyush Varshney 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.
| | -- | --------------------------------------------------------------------------------------------



58







Corporate Governance Committee



The members of the Corporate
Governance Committee are Elizabeth Kirkwood (Chair), Carl Verley and Bruce Dresner. They 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 (Chair), David Whittle, and Jonathan Comerford, all of whom are independent. 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
ended December 31, 2012, 2011, and 2010, the Company had no full-time employees. The President and CEO, Patrick Evans, and the
CFO and Corporate Secretary, Jennifer Dawson, have consulting agreements with the Company. 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 development, permitting and other activities for the Gahcho Kué Project.



| | E. | Share ownership.
| | -- | ----------------



The following table sets forth,
as of March 28, 2013, the number of the MPV 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 which are
exercisable within 60 days from the above date.



|Name of Beneficial Owner(12)        |  | Amount and Nature |           |  | Percentage(10)(11)of Class | 
|----------------------------------- |  | ----------------- | --------- |  | -------------------------- | 
|Patrick C. Evans(1)                 |  |                   | 1,517,555 |  |                            | 
|Bruce Dresner(2)                    |  |                   | 424,148   |  |                            | 
|Carl G. Verley(3)                   |  |                   | 283,640   |  |                            | 
|Jonathan Comerford(4)               |  |                   | 200,000   |  |                            | 
|Peeyush  Varshney(5)                |  |                   | 135,122   |  |                            | 
|Elizabeth Kirkwood(6)               |  |                   | 70,660    |  |                            | 
|David E. Whittle(7)                 |  |                   | 136,600   |  |                            | 
|Jennifer Dawson(8)                  |  |                   | 277,500   |  |                            | 
|Bruce Ramsden(9)                    |  |                   | 33,334    |  |                            | 
|Officer and Directors as a Group(9) |  |                   | 3,078,559 |  |                            | 



*    
less than 1%



| | (1) | Includes 1,317,555 MPV Shares and 200,000 options. 100,000 options are exerciseable at a price
of $6.13 per MPV Share, and expire on January 9, 2016. 100,000 options are exerciseable at a price of $4.84 per MPV share, and
expire on March 7, 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes 324,148 MPV Shares and 100,000 options. The options are exercisable at a price of $4.06
per MPV Share, and expire on March 10, 2017.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes 283,640 MPV Shares and nil options.
| | --- | --------------------------------------------



59







| | (4) | Includes 70,000 MPV Shares and 130,000 options. The options are exercisable at a price of $1.26
per MPV Share, and expire on November 23, 2013.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Includes 45,122 MPV Shares and 90,000 options. The options are exercisable at a price of $1.26
per MPV Share, and expire on November 23, 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes 70,660 MPV Shares and nil options.
| | --- | -------------------------------------------



| | (7) | Includes 76,600 MPV Shares, and 60,000 options. The options are exercisable at a price of $1.26
per MPV Share and expire on November 23, 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Includes 87,500 MPV Shares, and 190,000 options. 90,000 options are exercisable at $1.26 per MPV
Share, expiring November 23, 2013. 50,000 options are exercisable at $6.13 per MPV Share and expire January 9, 2016. 50,000 options
are exerciseable at $4.84 per MPV Share and expire March 7, 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Includes nil MPV Shares and 33,334 (vested) options. 33,334 options are exercisable at $4.08 per
MPV Share, expiring January 31, 2018.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Includes 940,668 options outstanding, 803,334 of which are held by the directors and senior management
(exercisable). The calculation does not include stock options that are not exercisable presently or within 60 days (of which there
are 103,332).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Total issued and outstanding capital as at the close of March 26, 2013 was 94,168,151shares.
| | ---- | --------------------------------------------------------------------------------------------

| |      |                                                                                                                                                         
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | (12) | 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 March 28, 2013, the Company's
issued and outstanding capital was 94,168,151 MPV Shares.



The Company is a publicly-owned
corporation the majority of the MPV 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 March
28, 2013, the Company believes that approximately 17,402,000 of the MPV Shares were held by 76 shareholders with addresses in the
United States. A number of these shares are held in "street" name and may, therefore, be held by several beneficial owners.





The following table shows, to the best knowledge of the Company, the number (as at March 28, 2013) and
percentage of MPV Shares, warrants and options held by the Company's major shareholders:



|Name of Shareholder(1)                                                 |  | No. of MPV Shares Held(2) |            |  | Percentage of issued and outstanding share capital of 94,168,151 shares (as at March 28, 2013) | 
|---------------------------------------------------------------------- |  | ------------------------- | ---------- |  | ---------------------------------------------------------------------------------------------- | 
|Bottin (International) Investments Ltd. (controlled by Dermot Desmond) |  |                           | 22,281,490 |  |                                                                                                | 
|Desmond P. Sharkey Dublin, Ireland                                     |  |                           | 6,356,000  |  |                                                                                                | 
|De Beers Canada Inc.                                                   |  |                           | 3,045,543  |  |                                                                                                | 



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



| | (2) | There are no options or warrants held by these shareholders.
| | --- | ------------------------------------------------------------



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



60







| | 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,
other than that listed under “Item 4A. Bottin (International) Investments Ltd.” (“Bottin”). Bottin is controlled
by Dermot Desmond and has significant influence over the Company because it is currently the Company’s largest single shareholder
with 23.66% of the outstanding shares: see “Item 7A - Major shareholders”, above.



The Company’s related
parties include the Gahcho Kué Joint Venture, Bottin, key management and their close family members, and the Company’s
directors. Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds
have common members of key management.



None of the transactions with
related parties incorporate special terms and conditions, and no guarantees were given or received. Related party transactions
are recorded at their exchange amount, being the amount agreed to by the parties. Outstanding balances are settled in cash.



The Company had the following
transactions and balances with its related parties including key management personnel and the Company’s directors, Bottin,
the Gahcho Kué Joint Venture, and Kennady Diamonds. The transactions with key management personnel are in the nature of
remuneration. The transactions with the Gahcho Kué Joint Venture relate to the funding of the Company’s interest in
the Gahcho Kué Joint Venture for the current year’s expenditures and capital additions. The transactions with Kennady
Diamonds are for a monthly management fee charged by the Company and reimbursement of expenses paid on behalf of Kennady Diamonds.



|                                                            |  | December 31, |            |  | December 31, |  |           | December 31, | 
|----------------------------------------------------------- |  | ------------ | ---------- |  | ------------ |  | --------- | ------------ | 
|                                                            |  | 2012         |            |  | 2011         |  |           | 2010         | 
|                                                            |  |              |            |  |              |  |           |              | 
|The total of the transactions:                              |  |              |            |  |              |  |           |              | 
|Bottin - Stand-by Fee under Stand-by Agreement (Note 9(ii)) |  |              | 706,261    |  |              |  | -         |              | 
|Kennady Diamonds                                            |  |              | 120,940    |  |              |  | -         |              | 
|Gahcho Kue Joint Venture expenditures                       |  |              | 10,729,343 |  |              |  | -         |              | 
|Remuneration                                                |  |              | 1,477,715  |  |              |  | 1,450,068 |              | 
|The amount of outstanding balances:                         |  |              |            |  |              |  |           |              | 
|Payable to the Gahcho Kue Joint Venture                     |  |              | 685,290    |  |              |  | -         |              | 
|Payable to key management personnel                         |  |              | 30,180     |  |              |  | 313,000   |              | 



The remuneration of directors
and other members of key management personnel for the years ended December 31, 2012, 2011 and 2010 were as follows:



|                                                     |  | December 31, |           |  | December 31, |   |           | December 31, | 
|---------------------------------------------------- |  | ------------ | --------- |  | ------------ | - | --------- | ------------ | 
|                                                     |  | 2012         |           |  | 2011         |   |           | 2010         | 
|                                                     |  |              |           |  |              |   |           |              | 
|Salary, bonus and other short-term employee benefits |  | $            | 1,014,215 |  |              | $ | 962,983   |              | 
|Share-based payments                                 |  |              | 463,500   |  |              |   | 487,085   |              | 
|                                                     |  | $            | 1,477,715 |  |              | $ | 1,450,068 |              | 



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.



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 other than normal accounts
payable for timing of payments of fees.



61







| | 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 December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011
and 2010, accompanied by the report of our independent registered accounting firm, including:



| | · | Management’s Annual Report on Internal Control Over Financial Reporting.
| | - | ------------------------------------------------------------------------



| | · | Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
| | - | -----------------------------------------------------------------------------------------------------



| | · | Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.
| | - | ---------------------------------------------------------------------------------------------



| | · | Consolidated Balance Sheets as of December 31, 2012 and 2011.
| | - | -------------------------------------------------------------



| | · | Consolidated Statements of Equity for the years ended December 31, 2012, 2011, and 2010.
| | - | ----------------------------------------------------------------------------------------



| | · | Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012., 2011, and
2010.
| | - | -----------------------------------------------------------------------------------------------------



| | · | Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 and 2010.
| | - | ----------------------------------------------------------------------------------------------



| | · | Notes to the Consolidated Financial Statements.
| | - | -----------------------------------------------



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, other than the granting of options as disclosed in the financial statements
included in this Form 20-F.



62













| | Item 9. | The Offer and Listing.
| | ------- | ----------------------



A.Offer and listing details.



The MPV Shares were listed and
posted for trading on TSX on January 22, 1999. The MPV Shares were delisted from the VSE on January 31, 2000, and from the Nasdaq
Smallcap Market on September 29, 2000. The MPV Shares traded on the OTC-Bulletin Board ("OTCBB") under the symbol "MPVI"
until June 1, 2005. Commencing on April 4, 2005, the MPV Shares
were listed for trading on the NYSE MKT under the symbol "MDM".



The following tables set forth
the reported high and low prices of the MPV Shares on the TSX, and for the NYSE MKT,for (a) the five most recent fiscal
years; (b) each quarterly period for the past two fiscal years, and (c) for the most recent six months.



|High and Low Prices for the Five Most Recent Fiscal Years
|---------------------------------------------------------
|Fiscal Year Ended                                        
|                                                         
|December 31, 2012                                        
|December 31, 2011                                        
|December 31, 2010                                        
|December 31, 2009                                        
|March 31, 2009                                           



The MPV 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 MPV Shares began trading on the AMEX.
AMEX was taken over by NYSE Euronext which then rebranded to NYSE Amex, and subsequently to NYSE MKT.



|High and Low Prices for Each Quarterly Period for the
|-----------------------------------------------------
|Past Two Fiscal Years                                
|                                                     
|Period Ended:                                        
|December 31, 2012                                    
|September 30, 2012                                   
|June 30, 2012                                        
|March 31, 2012                                       
|December 31, 2011                                    
|September 30, 2011                                   
|June 30, 2011                                        
|March 31, 2011                                       



63







|High and Low Prices for the Most Recent Six Months
|--------------------------------------------------
|                                                  
|Month Ended                                       
|February 2013                                     
|January 2013                                      
|December 2012                                     
|November 2012                                     
|October 2012                                      
|September 2012                                    



(1) On December
31, 2012, the closing price of the MPV Shares on the TSX was $3.89 and on March 26, 2013 was $4.30. The closing price of MPV Shares
on NYSE MKT on December 31, 2012 was US$3.84 per share. The closing price on March 26, 2013 on the NYSE MKT was US$4.21 per MPV
Share.



B. Plan of distribution.



Not Applicable.



C. Markets.



The MPV Shares are listed on
the TSX 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 (subsequently NYSE Amex and now NYSE MKT) 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.
| | -- | --------------



Not applicable.



| | 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 was amalgamated under the British
Columbia Company Act, which has now been replaced by the Business Corporations Act (British Columbia)(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.



64







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 Ontario. 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 Ontario.



Powers, functions and qualifications
of Directors



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



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



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



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



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



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



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



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



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



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



65







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



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



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



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



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



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



The Ontario Securities Actalso 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 authorized and
issued MPV 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 MPV 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 vote of not less than two-thirds of the 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.



66







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 November 18, 2010 Annual
and Special Meeting of the shareholders, a Shareholder Rights Plan dated September 9, 2010 (the “Shareholder Rights Plan”)
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 Shareholder 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 Shareholder Rights Plan is
designed to discourage discriminatory or unfair take-over bids for the Company and gives the Board of Directors 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 Shareholder 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 Shareholder 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.



The Shareholder 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 Shareholder Rights Plan may deter
some take-over bids.



In addition, the Shareholder Rights
Plan Agreement provides that the continued existence of the Shareholder Rights Plan must be ratified by a majority of the shareholders
of the Company at a meeting of the shareholders at or prior to the annual meeting of the shareholders in the year 2013.



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.



67







| | C. | Material contracts.
| | -- | -------------------



The Company did not enter into
any material contracts in the last two fiscal periods, up to the date of this Form 20-F other than a plan of arrangement agreement
(the “Kennady Arrangement Agreement), which was executed on March 12, 2012. The Kennady Arrangement Agreement was between
the Company and its subsidiary company, Kennady Diamonds Inc., and was the agreement for the spin-out of the Company’s Kennady
North Project to Kennady Diamonds Inc. It included various terms and conditions for the parties, and was included in an information
circular mailed to shareholders of the Company for a special shareholder meeting held April 25, 2012. The plan of arrangement was
concluded on July 6, 2012 with court, regulatory and shareholder approval.



De Beers Canada, as Operator
of the Gahcho Kué Project, has entered into purchase agreements relating to the Gahcho Kué Project. As at December
31, 2012, the Company’s proportional interest (49%) of the commitments made by the Operator is $5,160,820, including approximately
$4,147,000 relating to equipment for the Gahcho Kué Project. The commitments are all considered to be 2013, and are in the
course of normal development of the Gahcho Kué Project.



| | 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".



Subject to certain exemptions,
every "acquisition of control"1 by a "non-Canadian"2 of a "Canadian business",3
even where such business is already controlled by a non-Canadian, requires either notification (essentially a post-closing administrative
formality) or detailed review under the Investment Canada Act (the “ICA”). Whether a transaction is subject
to notification or review depends upon whether certain asset thresholds are satisfied, which thresholds generally depend on (1)
the transaction structure (direct or indirect acquisition),4 (2) whether the purchaser (referred to as the "investor"
under the ICA) and/or current owner of the Canadian business is a "WTO investor"5, (3) whether the Canadian
business is a "cultural business"6, and (4) whether the value of the Canadian assets and assets of the Canadian
entities being acquired exceeds 50% of the value of all assets being acquired. The table below provides a summary of the relevant
asset thresholds.










1 What constitutes
an "acquisition of control" is set out in the ICA and includes the acquisition of all or substantially all of the assets
used in carrying on the Canadian business, or the acquisition of a majority of the voting interests of an entity, whether the entity
is of corporate or some other form (e.g., a partnership). The acquisition of less than one-third of the voting shares of
a corporation is deemed not to be an acquisition of control of that corporation, while the acquisition of less than a majority
but one-third or more of such shares is presumed to be an acquisition of control unless it can be established that the purchaser
will not control the corporation in fact through the ownership of voting shares. The acquisition of less than a majority of the
voting interests of a non-corporation is deemed not to be an acquisition of control.

2 A "non-Canadian"
is a purchaser the ultimate control of which resides outside of Canada.

3 A "Canadian
business" is defined as a business carried on in Canada that has (a) a place of business in Canada, (b) an individual or individuals
in Canada who are employed or self-employed in connection with the business, and (c) assets in Canada used in carrying on the business.

4 A direct acquisition
is the acquisition of assets or voting interests of an entity in Canada that carries on the Canadian business, while an indirect
acquisition is the acquisition of the voting shares of a non-Canadian corporation that controls, directly or indirectly, an entity
in Canada carrying on the Canadian business.

5 A "WTO investor"
is a purchaser that is controlled ultimately by nationals or residents of a World Trade Organization (“WTO”) member
country.

6 A "cultural
business" is one that (i) publishes, distributes or sells books, magazines, periodicals or newspapers, (ii) produces, distributes,
sells or exhibits film or video recordings or audio or video music recordings, (iii) produces, distributes or sells music in print
or machine readable form, or (iv) is a radio, television, cable television or satellite broadcast undertaking.



68







|Transaction
Structure               | Status of Investor/
Vendor                    | Cultural Business | Threshold for Review
|----------------------------------- | --------------------------------------------- | ----------------- | --------------------
|Direct                              | WTO Investor or Vendor                        | No                | ≥C$330 million7     
|Yes                                 | ≥C$5 million
        (book value of assets)  
|Non-WTO Investor and Non-WTO Vendor | No                                           
|Yes                                
|Indirect                            | WTO Investor or Vendor                        | No                | Exempt from review  
|Yes                                 | ≥C$50 million*
        (book value of assets)
|Non-WTO Investor and Non-WTO Vendor | No                                           
|Yes                                



*
Note that a C$5 million threshold (rather than C$50 million) applies to indirect acquisitions where the value of the assets of
the entity carrying on the Canadian business and of all other entities in Canada being acquired exceeds 50% of the value of all
the assets acquired.



Where the ICA applies and a
transaction is not reviewable, a notification (containing certain prescribed information about the purchaser, the transaction and
the Canadian business) is required to be filed by the investor with the Investment Review Division of Industry Canada any time
prior to closing the transaction or within thirty (30) days thereafter. However, in the case of an investment in a Canadian business
that has activities related to Canada's cultural heritage or national identity (as prescribed), the Governor in Council has the
option of ordering a review, if notice of same is provided to the investor within 21 days of the filing of the completed notification.
(Note that notification under the ICA is also required with respect to the establishment of a new Canadian business.)



Where a transaction is reviewable
and is a direct acquisition, an application for review must be filed by the investor prior to closing and the parties are prohibited
from closing until the Minister of Industry and/or, in the case of acquisitions of "cultural businesses", the Minister
of Canadian Heritage, confirms to the purchaser that he/she is satisfied or is deemed to be satisfied that the investment is likely
to be of "net benefit to Canada", based on certain prescribed factors set out in the ICA (set out below) and in view
of any legally binding undertakings the purchaser is willing to make. Where a transaction is reviewable and is an indirect acquisition,
an application for review must be filed by the investor within 30 days after closing.



Once an application for review
has been filed, whether pre-or post-closing, and has been certified to be complete, the responsible Minister has a 45-day period
within which to make a "net benefit" determination, which period may be unilaterally extended once by the Minister for
an additional 30 days, and thereafter extended with the consent of the investor. (Where notices related to a national security
review are given to an investor (see below), the length of the initial 45-day review period and any subsequent extension periods
are deemed to expire five days after the expiry of certain time periods or the issuance of certain notices related to the national
security review.)










7Note
that the current C$330 million threshold is based on the book value of assets of the Canadian business for the fiscal year immediately
preceding implementation of the transaction. On a day that is to be fixed by order of the Governor in Council (the federal Cabinet),
the threshold for direct acquisitions by WTO investors will change to one based on the “enterprise value” of the Canadian
business. The enterprise value threshold will be established at C$600 million for investments made in the first two-year period;
and will increase to C$800 million in the following two years and C$1 billion thereafter , subject to indexation to Canada’s
GDP. The ICA does not define "enterprise value"; its manner of calculation will be set out in as yet to be promulgated
regulations.



69







The Minister will determine whether
the investment is likely to be of net benefit to Canada, taking into account the information provided and having regard to certain
assessment factors. These factors include: (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.



Where the Minister has advised
the investor that he is not satisfied that the investment is likely to be of net benefit to Canada, the investor 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 investor and the Minister). Within a reasonable time after the expiration of this 30 day period (or the agreed
extension), the Minister must 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
investor may not proceed with the investment or, if the investment has already been consummated, must divest itself of control
of the Canadian business.



Effective February 6, 2009,
every investment by a non-Canadian to (i) establish a new Canadian business, (ii) acquire control of a Canadian business, or (iii)
acquire in whole or in part (e.g., a minority interest) or establish an entity carrying on all or any part of its operations
in Canada (if the entity has a place of operations in Canada, employees or assets in Canada used in connection with its operations)
may be subjected to a national security review under the ICA, regardless of the value of the investment. Investors that receive
notice of a potential or actual national security review are prohibited from implementing a proposed investment pending the outcome
of the review. Where the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness,
is satisfied that the investment would be "injurious to national security" (an undefined phrase), the Governor in Council
may "take any measures it considers advisable" to protect national security, including: (i) prohibiting implementation
of a proposed investment; (ii) authorizing the investment on terms and conditions or subject to written undertakings from the investor;
and (iii) in the case of completed investments, requiring the investor to divest control of the Canadian business or its interest
in the Canadian business.



Unless a transaction is otherwise
subject to notification or to review under the ICA, an investor is not required to notify Industry Canada of transactions that
may raise potential national security issues. Where, however, a national security review is ordered, an investor is afforded the
right to make representations to the Minister, and is required to provide any information considered necessary by the Minister
for purposes of the review. New National Security Review of Investments Regulations, in effect since September 2009, set out timelines
for each step of the national security review process. If the maximum prescribed periods are fully utilized, a national security
review could take 130 days (assuming a notice of possible review is issued), with the potential for the Minister of Industry to
request from the investor an extension of the review period.



| | E. | Taxation.
| | -- | ---------



A brief description of certain
provisions of the tax treaty between Canada and the United States, Canada-United States 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 holders of common stock of the Company are subject under the Income Tax Act (Canada) and the regulations
thereunder (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 of a general nature only and is not, and is not intended to be, legal or tax advice to any holder or prospective holder of common
stock of the Company and no representations with respect to the income tax consequences to any such holder are made. Holders of
common stock of the Company 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.



70







Certain Canadian Federal
Income Tax Consequences



The discussion under this heading
is a general summary of the principal Canadian federal income tax consequences pursuant to the Canadian Tax Act 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 and the Convention, is not, and is not deemed to be, a resident of Canada, and is solely a resident of
the United States, 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 and on the Company's understanding of the administrative policies and assessing 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 policies
or assessing 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.



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 entitled to all of the benefits of the Convention and the dividends are beneficially owned by
and paid to such shareholder, and to 5 percent if the shareholder is a corporation entitled to all of the benefits of the Convention
that beneficially owns at least 10 percent of the voting stock of the Canadian payor corporation.



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 realized 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"
(as defined in the Canadian Tax Act) of the U.S. Holder at the time of disposition and the U.S. Holder is not entitled to relief
under the Convention.



Provided that shares are listed
on a “designated stock exchange” (which includes the TSX) at the time of disposition, the shares of common stock of
the Company will not constitute taxable Canadian property of a U.S. Holder at a particular time unless (i) 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 were owned by 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; and (ii) more than 50% of the fair market value of the common stock of the Company was derived directly
or indirectly from one or any combination of: (a) real or immoveable property situated in Canada; (b) “Canadian resource
properties” (as defined in the Canadian Tax Act), (c) “timber resource properties” (as defined in the Canadian
Tax Act), or (d) options in respect of, or interests in, or for civil law right in, any of the foregoing, whether or not the property
exists.



71







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



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



| | b) | the shareholder was 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.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 from Canadian tax 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 as determined under the Canadian Tax
Act. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties.
Generally one-half of a capital gain (“taxable capital gain”) is included in income for Canadian tax purposes in the
year of the disposition, and one-half of a capital loss (“an allowable capital loss”) must be deducted from taxable
capital gains realized by the U.S. Holder in that year. Allowable capital losses in excess of taxable capital gains for that year
may generally be carried back three years or forward indefinitely and deducted against net taxable capital gains in those years,
in the manner permitted under the Canadian Tax Act.



United States Federal Income
Tax Consequences



The following is a summary of
certain 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. Except as specifically set forth below,
this summary does not discuss applicable tax reporting requirements. 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 tax advisor
regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of
Common Shares.



No legal opinion from U.S.
legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding
the U.S. federal income tax consequences of the acquisition, ownership and disposition of Common Shares. This summary is not binding
on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in
this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS
and the U.S. courts could disagree with one or more of the conclusions described in this summary.



72







Circular 230 Disclosure



Any 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 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 or proposed changes to the Canada-U.S. Tax Convention.



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



Non-U.S. Holders



A "non-U.S. Holder"
is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders.



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: (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, regulated investment companies or 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) former U.S. citizens or former long-term
residents of the United States as defined in Section 877 of the Code; (f) 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; (g) U.S.
Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for
services; (h) 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, (i) U.S. Holders that hold Common Shares other than
as a capital asset within the meaning of Section 1221 of the Code, and (j) U.S. Holders that own or have owned (directly,
indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. U.S. Holders
that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their
own tax advisors regarding the tax consequences of the acquisition, ownership, and disposition of Common Shares.



73







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



This summary does not address
U.S. state, local or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares,
nor does it address U.S. federal tax consequences other than income tax. Each U.S. Holder should consult its own tax advisors 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



Passive Foreign Investment
Company



The Company generally will be
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. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments
and from incidental or outside operations or sources. "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
and asset 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.
If the Company is a PFIC, in addition to the rules discussed below, U.S. Holders generally may be required to file certain information
returns with the IRS. The PFIC rules are extremely complex, and U.S. Holders should consult their own U.S. tax advisors concerning
the application of the PFIC rules.



The Company believes it was
classified as a PFIC during the tax year ended December 31, 2012, and based on current business plans and financial expectations,
the Company believes that it will be a PFIC for the tax year ending December 31, 2013 and may be a PFIC in subsequent tax years.
The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex
U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC
for any tax year depends on the assets and income of such corporation over the course of each such year and, as a result, cannot
be predicted with certainty as of the date of this document. There can be no assurance, however, that the IRS will agree with a
determination made by the Company concerning its PFIC status.



In any year in which the Company
is classified as a PFIC, U.S. Holders would be required to file an annual report with the IRS containing such information as Treasury
Regulations and/or other IRS guidance may require. U.S. Holders should consult their own tax advisors regarding the requirements
of filing such information returns under these rules, including the requirement to file a IRS Form 8621.



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."



74







A Non-Electing U.S. Holder will
be subject to the rules of Section 1291 of the Code with respect to (a) any gain on the disposition of Common Shares
and any “excess” distribution paid on the Common Shares.



Under Section 1291 of the
Code, any gain recognized on the sale or other disposition of Common Shares, and any excess distribution paid on the Common Shares,
must be rateably 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.



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, 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. 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,
as long as the U.S. Holder always had a QEF election in effect.



Each U.S. Holder should consult
its own U.S. tax advisors regarding the advisability 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 so that a U.S. Holder may make certain
information returns to the IRS, 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. Thus, U.S.
Holders may not be able to make a QEF Election with respect to their Common Shares. Each U.S. Holder should consult its own tax
advisor regarding the availability of, and procedure for making, a QEF Election.



Mark-to-Market Election



As an alternative to the foregoing
rules, a U.S. Holder may make a Mark-to-Market. 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 dispositions of, and certain distributions on, the Common
Shares.



75





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.



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 tax advisors regarding the advisability 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.



Distributions on Common Shares



General Taxation of Distributions



Generally, and subject to the
discussion above, concerning PFICs, 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). However, the Company may
not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder
should therefore assume that any distribution by the Company with respect to the Common Shares will constitute ordinary dividend
income. Dividends received on Common Shares generally will not be eligible for the “dividends received deduction”.
Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends
paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates
applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including
that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.



76







Disposition of Common Shares



Subject to the discussion of
the PFIC rules, above, 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
currently 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 “qualified electing fund” (“QEF”) election is timely
made, as described above. 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.



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 is more advantageous
because it will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will
reduce a U.S. Holder's income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to
all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.



Complex limitations apply to
the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder's
U.S. federal income tax liability that such U.S. Holder's "foreign source" taxable income bears to such U.S. Holder's
worldwide taxable income. In applying this limitation, a U.S. Holder's various items of income and deduction must be classified,
under complex rules, as either "foreign source" or "U.S. source." Generally, dividends paid by a foreign corporation
should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S.
Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and
if an election is properly made under the Code. In addition, this limitation is calculated separately with respect to specific
categories of income known as "baskets", and there are limitations under the basket rules also. 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 tax advisors regarding the foreign tax credit rules.



Receipt of Foreign Currency



The amount of any distribution
paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will
be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless
of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency
equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency
after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and
generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax
advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.



77







Additional Tax on Passive Income



For tax years beginning after December 31, 2012,
certain individuals, estates and trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax
on “net investment income” including, among other things, dividends and net gain from dispositions of property (other
than property held in a trade or business). U.S. Holders should consult with their own tax advisors regarding the effect, if any,
of this tax on their ownership and disposition of Common Shares.



Information Reporting; Backup
Withholding Tax



Under U.S. federal income tax
law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment
in, or involvement in, a foreign corporation. For example, recently enacted legislation generally imposes new U.S. return disclosure
obligations (and related penalties) on individuals who are U.S. Holders that hold certain specified foreign financial assets in
excess of $50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by
a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S.
person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares
are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns
are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns
under these rules, including the requirement to file an IRS Form 8938.



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 tax advisors regarding the information reporting and backup withholding tax rules.



| | F. | Dividend and paying agents
| | -- | --------------------------



Not Applicable



| | G. | Statement by experts.
| | -- | ---------------------



The references herein to excerpts
of or summaries from the “Gahcho Kué Project, Definitive Feasibility Study, NI 43-101 Technical Report, Northwest
Territories, Canada” dated December 1, 2010 (Information effective as of October 15, 2010)” have been consented to
by Daniel D. Johnson, P.Eng., Michael Makarenko, P.Eng, and Kenneth Meikle, P.Eng., all of JDS at Suite 200 - 532 Leon Ave

Kelowna, British Columbia V1Y
6J6.



| | 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.



78







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 (the “Exchange Act”).



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 Exchange Act 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.



Any of the documents referred
to above can also be viewed at the offices of the Company's attorneys, Dorsey and Whitney LLP, 161 Bay Street, Suite 4310, Toronto,
Ontario M5J 2S1. 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 presented under current assets on the Company's balance sheet as at December 31, 2012 as
"Marketable Securities" at an amount of $9,521, which is their quoted market value.  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 feasibility and
permitting 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.



79







| | Item 12. | Description of Securities Other than Equity Securities
| | -------- | ------------------------------------------------------



Not Applicable.



PART II



| | Item 13. | Defaults, Dividend Arrearages and Delinquencies.
| | -------- | ------------------------------------------------



None.



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



Not Applicable.



| | 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 13(a)-15(e) and 15(d)-15(e) 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. Such disclosure controls and procedures are designed to ensure
that the information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange
Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable
rules and forms, and includes controls and procedures designed to ensure information relating to the Company required to be included
in our reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management to allow
timely decision regarding disclosure.



| | (b) | Management’s Annual Report on Internal Control
Over Financial Reporting.
| | --- | ------------------------------------------------------------------------



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



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



To evaluate the effectiveness
of the Company’s internal control over financial reporting, Management has used the Internal Control – Integrated Framework,
which is a suitable, recognized control framework established by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Management has assessed the effectiveness of the Company’s internal control over financial reporting
and concluded that such internal control over financial reporting is effective as of December 31, 2012.



80







| | (c) | Attestation Report of the Company’s Registered
Accounting Firm.
| | --- | ---------------------------------------------------------------



The Registrant’s independent
registered public accounting firm, KPMG LLP, has issued an attestation report expressing an opinion on the Company’s internal
control over financial reporting as of December 31, 2012. For KPMG LLP’s report, see Item 19 of this Annual Report on Form
20-F.



| | (d) | 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 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 NYSE MKT. All other members of the Audit Committee are also independent as defined by the listing
standards of the NYSE MKT.



| | 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. On September 7, 2010, the Board of Directors approved an updated set of the 2006 Corporate Governance Policies. A copy of
the updated 2006 Corporate Governance Policies has been previously filed, and is incorporated by reference to this Annual Report.



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 updated 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 Commission 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.



81







The
Company will provide a copy of the updated 2006 Corporate Governance Policies to any person, without charge. To obtain a copy without
charge, send a request, in writing, to the Company at Mountain Province Diamonds Inc., Attention: Corporate Secretary, 161 Bay
Street, Suite 2315, PO Box 216, Toronto, Ontario, Canada M5J 2S1.



| | Item 16C. | Principal Accountant Fees and Services.
| | --------- | ---------------------------------------



| | A. | Audit Fees
| | -- | ----------



"Audit Fees" are the
aggregate fees billed by KPMG LLP (“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 December 31, 2012 by KPMG were $257,619 including fees for the 2012 audits of the consolidated financial statements and
SOX 404, interim reviews of March 31, 2012, June 30, 2012 and September 30, 2012, and including additional audit fees relating
to the Company’s compliance with IFRS, the audit of Kennady Diamonds’ carve-out financial statements relating to the
proposed spin-out as well as services in connection with the information circular prepared by the Company for the Kennady Diamonds
transfer. The Company was billed $208,500 in the fiscal year ending December 31, 2011. 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 services reasonably related to the performance of the audit or interim review.
"Audit Related Fees" charged by KPMG during the fiscal period ended December 31, 2012 were $nil and $nil for the fiscal
year ending December 31, 2011. 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 December 2012 by KPMG were $19,112 (December 31, 2011 - $16,785) of which $8,362 relates to tax compliance and $10,750 relates
to services in connection with income tax advice. These services were approved by the Audit Committee.



| | D. | All Other Fees
| | -- | --------------



In the fiscal year ending December
31, 2012, aggregate fees billed by KPMG were $nil (December 31, 2011 - $nil).



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 December 31, 2012, were 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.



82











| | 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.



| | Item 16F. | Change in Registrant’s Certifying Accountant.
| | --------- | ---------------------------------------------



Not Applicable.



| | Item 16G. | Corporate Governance.
| | --------- | ---------------------



NYSE MKT Corporate Governance Matters

The MPV Shares are listed on NYSE MKT.
Section 110 of the NYSE MKT Company Guide permits the NYSE MKT to consider the laws, customs and practices of the foreign issuer’s
country of domicile in relaxing certain NYSE MKT listing criteria. A description of the significant ways in which the Company’s
governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is as follows:

| | • | Shareholder Meeting Quorum Requirement: The NYSE MKT minimum quorum requirement for a shareholder
meeting is one-third of the outstanding common shares. In addition, a company listed on NYSE MKT is required to state its quorum
requirement in its bylaws. The Company’s quorum requirement (set forth in its Articles) is two persons who are, or who represent
by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Proxy Delivery Requirement: NYSE MKT requires the solicitation of proxies and delivery of
proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement
that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange
Act and Rule 405 under the Securities Act and the equity securities of the Company are accordingly exempt from the proxy rules
set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable
rules and regulations in Canada.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Shareholder Approval Requirement:The Company will follow the Canadian securities regulatory
authorities and TSX rules for shareholder approval of new issuances of its common shares. Following securities and exchange rules,
shareholder approval is required for certain issuances of shares that: (i) materially affect control of the Company; or (ii) provide
consideration to insiders in aggregate of 10% or greater of the market capitalization of the listed issuer and have not been negotiated
at arm’s length. Shareholder approval is also required, pursuant to TSX rules, in the case of most private placements: (x)
for an aggregate number of listed securities issuable greater than 25% of the number of securities of the listed issuer which are
outstanding, on a non-diluted basis, prior to the date of closing of the transaction if the price per security is less than the
market price; or (y) that during any six month period are to insiders for listed securities or options, rights or other entitlements
to listed securities greater than 10% of the number of securities of the listed issuer which are outstanding, on a non-diluted
basis, prior to the date of the closing of the first private placement to an insider during the six month period.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Board of Director Nomination Requirements: the NYSE MKT requires Board of Director nominations
must be either selected, or recommended for the Board's selection, by either a nominating committee comprised solely of independent
directors or by a majority of the independent directors. The Company currently does not have a nominating committee and follows
the Canadian securities regulatory authority and Toronto Stock Exchange rules with respect to the nomination and selection of directors.
The directors of the Company are elected annually and hold office until the next annual general meeting of the shareholders of
the Company or until their successors in office are duly elected or appointed.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



83







| | • | Executive
                                                                                   Sessions: the NYSE MKT requires the Company
                                                                                   to hold meetings of its Board of Directors
                                                                                   on at least a quarterly basis. The independent
                                                                                   directors should meet on a regular basis as
                                                                                   often as necessary to fulfill their responsibilities,
                                                                                   including at least annually in executive session
                                                                                   without the presence of non-independent directors
                                                                                   and management. The Company follows the Canadian
                                                                                   securities regulatory authority and Toronto
                                                                                   Stock Exchange rules. The Company is not required
                                                                                   to, and currently does not, conduct executive
                                                                                   sessions without the presence of non-independent
                                                                                   directors and management.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Item 16H. | Mine Safety Disclosure.
| | --------- | -----------------------



Not applicable.



84







PART III



| | Item 17. | Financial Statements.
| | -------- | ---------------------



Not Applicable.



| | Item 18. | Financial Statements.
| | -------- | ---------------------



The Company's consolidated financial statements
are stated in Canadian dollars and are prepared in accordance with IFRS as issued by the IASB.



The financial statements and notes thereto
as required under Item 18 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 reports of KPMG LLP, independent registered public accounting
firm, are included herein immediately preceding the financial statements.



| | 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 includes the Consolidated Financial Statements and exhibits
listed below. Canadian investors should refer to the audited Financial Statements of the Company as at December 31, 2012 and 2011,
and for the years ended December 31, 2012, 2011 and 2010 filed with Canadian Securities Regulators on SEDAR under "Audited
Annual Financial Statements - English".



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



Consolidated Financial Statements
of the Company:



| | · | Management’s Annual Report on Internal Control Over Financial Reporting.
| | - | ------------------------------------------------------------------------



| | · | Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
| | - | -----------------------------------------------------------------------------------------------------



| | · | Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.
| | - | ---------------------------------------------------------------------------------------------



| | · | Consolidated Balance Sheets as of December 31, 2012 and 2011.
| | - | -------------------------------------------------------------



| | · | Consolidated Statements of Equity for the years ended December 31, 2012 and 2011 and 2010.
| | - | ------------------------------------------------------------------------------------------



| | · | Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012 and 2011 and
2010.
| | - | ------------------------------------------------------------------------------------------------------



| | · | Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 and 2010.
| | - | ----------------------------------------------------------------------------------------------



| | · | Notes to the Consolidated Financial Statements.
| | - | -----------------------------------------------



85







SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.



|                     | Mountain Province Diamonds Inc.
|-------------------- | -------------------------------
|                     | (Company)                      
|                     |                                
|                     |                                
|                     | (Signature)*                   
|                     |                                
|Date: March 28, 2012 | Patrick C. Evans               
|                     | President, CEO and Director    



*Print the name and title of the signing
officer under this signature.



86







EXHIBIT INDEX



The following exhibits are attached to and form part of this
Annual Report:

|Exhibit |  | Remarks.                                                                                                                                                                                                                                                                                                 
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1     |  | By-Laws of the Company                                                                                                                                                                                                                                                                                   
|1.2     |  | Arrangement Agreement between the Company and Glenmore Highlands Inc. dated May 10, 2000.                                                                                                                                                                                                                
|1.3     |  | Joint Information Circular of the Company and Glenmore Highlands Inc.                                                                                                                                                                                                                                    
|4.1     |  | Transfer agreement between MPV, Monopros and Camphor dated November 24, 1999 pursuant to which MPV and Camphor transferred the GOR to Monopros.                                                                                                                                                          
|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.                                                          
|4.3     |  | Letter Agreement dated December 17, 1999 between MPV, Monopros, Camphor and Glenmore amending the Monopros Joint Venture Agreement.                                                                                                                                                                      
|4.4     |  | Form of Subscription Agreement for the private placement described in item 1 of "Material Contracts".                                                                                                                                                                                                    
|4.5     |  | Agreement dated as of January 1, 2002 between the Company, Camphor Ventures Inc. and De Beers Canada Exploration Inc.                                                                                                                                                                                    
|4.6     |  | Second Amendment Agreement dated January 1, 2002 between the Company and Paul Shatzko.                                                                                                                                                                                                                   
|4.7     |  | Second Amendment Agreement dated January 1, 2002 between the Company and Jan Vandersande.                                                                                                                                                                                                                
|4.8     |  | Third Amendment Agreement dated December 13, 2002 between the Company and Jan Vandersande                                                                                                                                                                                                                
|4.9     |  | Letter agreement dated December 13, 2002 between the Company and Elizabeth Kirkwood                                                                                                                                                                                                                      
|4.10    |  | Consulting Agreement dated January 1, 2004 between the Company and Jan W. Vandersande                                                                                                                                                                                                                    
|4.11    |  | Consulting Agreement dated November 1, 2005 between the Company and Patrick Evans                                                                                                                                                                                                                        
|4.12    |  | Revised Consulting Agreement dated January 31, 2006 between the Company and Patrick Evans                                                                                                                                                                                                                
|4.13    |  | Consulting Agreement dated May 11, 2006 between the Company and Jennifer Dawson                                                                                                                                                                                                                          
|8.1     |  | List of Subsidiaries                                                                                                                                                                                                                                                                                     
|11.1    |  | Corporate Governance Policies dated May 29, 2006, and updated September 7, 2010                                                                                                                                                                                                                          
|11.2    |  | Ethics and Conflict of Interest Policy                                                                                                                                                                                                                                                                   
|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                                                                                                                                                                                                                                       
|15.1    |  | Independent Qualified Persons’ Technical Report dated April 20, 2009 entitled Gahcho Kué Kimberlite Project NI 43-101 Technical Report prepared by Ken Brisebois, P.Eng., Dr. Ted Eggleston, P.Geo., and Alexandra Kozak, P.Eng., all of AMEC Americas Limited.                                          
|15.2    |  | Independent Qualified Persons’ Technical Report dated December 1, 2010 (with Information Effective as of October 15, 2010) entitled “Gahcho Kué Definitive Feasibility Study NI 43-101 Technical Report” prepared by Daniel D. Johnson, Mike Makarenko, and Ken Meikle, all of JDS Energy and Mining Inc.
|15.3    |  | Consents for inclusion of the Technical Report in Exhibit 15.1 and reference in Form 20-F                                                                                                                                                                                                                
|15.4    |  | Consents for use of information of the Technical Report in Exhibit 15.2 and reference in Form 20-F                                                                                                                                                                                                       






(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.

(6)	    Previously filed and incorporated
by reference.

(7)	    Previously filed under Form 6K dated
December 3, 2010, and incorporated by reference.



87







Appendix



Item 18. Financial Statements



88











Consolidated Financial Statements

(Expressed in Canadian Dollars)



MOUNTAIN PROVINCE
DIAMONDS INC.



As at December 31, 2012 and 2011

And for the years ended December 31, 2012, 2011,
and 2010











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



Responsibility
for
Consolidated Financial Statements



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



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



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



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



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



Management recognizes its responsibility
for conducting the Company’s affairs in compliance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.



|“Patrick C. Evans”                    | “Jennifer Dawson”      
|------------------------------------- | -----------------------
|Patrick C. Evans                      | Jennifer Dawson        
|President and Chief Executive Officer | Chief Financial Officer



Toronto, Canada

March 28, 2013



2







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



MANAGEMENT’S ANNUAL
REPORT ON

INTERNAL CONTROL OVER FINANCIAL
REPORTING



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



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



To
evaluate the effectiveness of the Company’s internal control over financial reporting, Management has used the Internal Control
– Integrated Framework, which is a suitable, recognized control framework established by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). Management has assessed the effectiveness of the Company’s internal control
over financial reporting and concluded that such internal control over financial reporting is effective as of December 31, 2012.
The Company's independent auditors, KPMG LLP, have issued an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.



March
28, 2013



3











| | kpmg LLP                   |                          
| | -------------------------- | -------------------------
| | Chartered Accountants      | Telephone  (416) 777-8500
| | Bay Adelaide Centre        | Telefax (416) 777-8818   
| | 333 Bay Street, Suite 4600 | www.kpmg.ca              
| | Toronto, ON M5H 2S5        |                          



INDEPENDENT
AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of Mountain Province
Diamonds Inc.



We have audited the accompanying consolidated
financial statements of Mountain Province Diamonds Inc., which comprise the consolidated balance sheets as at December 31, 2012
and December 31, 2011, the consolidated statements of comprehensive loss, equity and cash flows for each of the years in the three-year
period ended December 31, 2012, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s Responsibility for
the Consolidated Financial Statements



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



Auditors’ Responsibility



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



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



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



Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of Mountain Province Diamonds Inc. as
at December 31, 2012 and December 31, 2011, and its consolidated financial performance and its consolidated cash flows for each
of the years in the three-year period ended December 31, 2012 in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.



4











| | kpmg LLP                   |                          
| | -------------------------- | -------------------------
| | Chartered Accountants      | Telephone  (416) 777-8500
| | Bay Adelaide Centre        | Telefax (416) 777-8818   
| | 333 Bay Street, Suite 4600 | www.kpmg.ca              
| | Toronto, ON M5H 2S5        |                          



Emphasis of Matter



Without modifying our opinion, we draw
attention to Note 1 in the consolidated financial statements which describes that the Company expects to require additional capital
resources to meet planned expenditures in 2013. These conditions, along with other matters as set forth in Note 1, indicate the
existence of a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern.



Other Matter



We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Mountain Province Diamonds Inc.’s internal
control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 28,
2013 expressed an unmodified (unqualified) opinion on the effectiveness of Mountain Province Diamond Inc.’s internal control
over financial reporting.







Chartered Accountants, Licensed Public Accountants



Toronto, Canada
March 28, 2013



5











| | kpmg LLP                   |                          
| | -------------------------- | -------------------------
| | Chartered Accountants      | Telephone  (416) 777-8500
| | Bay Adelaide Centre        | Telefax (416) 777-8818   
| | 333 Bay Street, Suite 4600 | www.kpmg.ca              
| | Toronto, ON M5H 2S5        |                          



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



To the Shareholders of Mountain Province Diamonds Inc.



We have audited Mountain Province Diamonds
Inc.’s internal control over financial reporting as of December 31, 2012, based on the criteria established inInternal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mountain
Province Diamonds Inc.’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, in the accompanying “Management’s
Annual Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.



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



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



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



In our opinion, Mountain Province Diamonds
Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based
on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).



6











| | kpmg LLP                   |                          
| | -------------------------- | -------------------------
| | Chartered Accountants      | Telephone  (416) 777-8500
| | Bay Adelaide Centre        | Telefax (416) 777-8818   
| | 333 Bay Street, Suite 4600 | www.kpmg.ca              
| | Toronto, ON M5H 2S5        |                          



We also have audited, in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Mountain Province Diamonds Inc. as of December 31, 2012 and December 31, 2011, and the
related consolidated statements of comprehensive loss, equity and cash flows for each of the years in the three-year period ended
December 31, 2012, and our report dated March 28, 2013 expressed an unmodified (unqualified) opinion on those consolidated
financial statements.







Toronto, Canada
March 28, 2013



7







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



Consolidated Balance Sheets

In Canadian dollars

As at December 31, 2012 and 2011



|                                                   |  | 2012 |             |   | 2011 |  
|-------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|ASSETS                                             |  |      |             |   |      |  
|Current assets                                     |  |      |             |   |      |  
|Cash and cash equivalents (Note 5)                 |  | $    | 274,696     |   |      | $
|Short-term investments (Note 5)                    |  |      | 47,418,997  |   |      |  
|Marketable securities (Note 5)                     |  |      | 9,521       |   |      |  
|Amounts receivable (Note 5)                        |  |      | 337,907     |   |      |  
|Advances and prepaid expenses                      |  |      | 722,402     |   |      |  
|                                                   |  |      |             |   |      |  
|                                                   |  |      | 48,763,523  |   |      |  
|                                                   |  |      |             |   |      |  
|Property and equipment (Note 6)                    |  |      | 146,010     |   |      |  
|Mineral properties (Note 7)                        |  |      | 46,680,519  |   |      |  
|                                                   |  |      |             |   |      |  
|Total assets                                       |  | $    | 95,590,052  |   |      | $
|                                                   |  |      |             |   |      |  
|LIABILITIES AND SHAREHOLDERS’ EQUITY               |  |      |             |   |      |  
|Current liabilities                                |  |      |             |   |      |  
|Accounts payable and accrued liabilities (Note 5)  |  | $    | 2,109,984   |   |      | $
|                                                   |  |      |             |   |      |  
|Decommissioning and restoration liability (Note 8) |  |      | 6,284,770   |   |      |  
|                                                   |  |      |             |   |      |  
|Shareholders' equity:                              |  |      |             |   |      |  
|Share capital (Note 9)                             |  |      | 180,170,247 |   |      |  
|Share-based payments reserve (Note 9)              |  |      | 1,233,857   |   |      |  
|Deficit                                            |  |      | (94,213,695 | ) |      |  
|Accumulated other comprehensive income             |  |      | 4,889       |   |      |  
|                                                   |  |      |             |   |      |  
|Total shareholders' equity                         |  |      | 87,195,298  |   |      |  
|                                                   |  |      |             |   |      |  
|Total liabilities and shareholders' equity         |  | $    | 95,590,052  |   |      | $



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



Going concern (Note 1)

Contingencies and commitments (Notes 7 and 11)

Subsequent events (Note 9 (iii))



On behalf of the Board:



|“Patrick Evans” |  | “Jonathan Comerford” | 
|--------------- |  | -------------------- | 
|Director        |  | Director             | 



8







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



Consolidated Statements of
Comprehensive Loss

In Canadian dollars



|                                                                          |  | Year ended        |             |   | Year ended        |   |             | Year ended        | 
|------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- | 
|                                                                          |  | December 31, 2012 |             |   | December 31, 2011 |   |             | December 31, 2010 | 
|Expenses:                                                                 |  |                   |             |   |                   |   |             |                   | 
|Consulting fees                                                           |  | $                 | (1,434,917  | ) |                   | $ | (1,631,188  | )                 | 
|Depreciation                                                              |  |                   | (21,246     | ) |                   |   | (14,789     | )                 | 
|Exploration and evaluation expenses (Note 7)                              |  |                   | (10,651,622 | ) |                   |   | (9,032,585  | )                 | 
|Gahcho Kué Project management fee                                         |  |                   | (311,076    | ) |                   |   | (236,464    | )                 | 
|Office and administration                                                 |  |                   | (285,698    | ) |                   |   | (458,467    | )                 | 
|Professional fees                                                         |  |                   | (664,878    | ) |                   |   | (361,148    | )                 | 
|Promotion and investor relations                                          |  |                   | (245,936    | ) |                   |   | (109,854    | )                 | 
|Salary and benefits                                                       |  |                   | (166,668    | ) |                   |   | (97,812     | )                 | 
|Transfer agent and regulatory fees                                        |  |                   | (200,461    | ) |                   |   | (169,489    | )                 | 
|Travel                                                                    |  |                   | (196,714    | ) |                   |   | (156,659    | )                 | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Net loss for the period from operations                                   |  | $                 | (14,179,216 | ) |                   | $ | (12,268,455 | )                 | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Other expenses:                                                           |  |                   |             |   |                   |   |             |                   | 
|Accretion expense on decommissioning and restoration liability            |  |                   | (27,801     | ) |                   |   | (63,315     | )                 | 
|Other income:                                                             |  |                   |             |   |                   |   |             |                   | 
|Interest income                                                           |  |                   | 147,762     |   |                   |   | 303,354     |                   | 
|Gain (loss) on revaluation of warrants exerciseable in a foreign currency |  |                   | -           |   |                   |   | 489,481     |                   | 
|Gain on asset transfer to Kennady Diamonds Inc.  (Note 15)                |  |                   | 10,721,645  |   |                   |   | -           |                   | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Net  loss for the period                                                  |  | $                 | (3,337,610  | ) |                   | $ | (11,538,935 | )                 | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Other Comprehensive (Loss) Income                                         |  |                   |             |   |                   |   |             |                   | 
|Change in fair value of available-for-sale marketable securities          |  |                   | (8,157      | ) |                   |   | (5,384      | )                 | 
|Comprehensive loss for the period                                         |  | $                 | (3,345,767  | ) |                   | $ | (11,544,319 | )                 | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Basic and diluted loss per share (Note 9)                                 |  | $                 | (0.04       | ) |                   | $ | (0.15       | )                 | 
|                                                                          |  |                   |             |   |                   |   |             |                   | 
|Weighted average number of shares outstanding                             |  |                   | 82,191,626  |   |                   |   | 79,553,515  |                   | 



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



9









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



Consolidated Statements of
Equity

In Canadian dollars



|                                                                       |  | Number of 
shares |            |  | Share Capital |   |             | Warrants |  |   | Share-based 
Payments Reserve |   |  | Deficit |           |   | Accumulated other comprehensive income (loss) |   |             | Total | 
|---------------------------------------------------------------------- |  | ----------------- | ---------- |  | ------------- | - | ----------- | -------- |  | - | ----------------------------- | - |  | ------- | --------- | - | --------------------------------------------- | - | ----------- | ----- | 
|Balance, January 1, 2010                                               |  |                   | 66,631,746 |  |               | $ | 97,312,714  |          |  | $ | 1,051,564                     |   |  | $       | 1,238,302 |   |                                               | $ | (64,802,423 | )     | 
|Net loss for the year                                                  |  |                   |            |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | (14,534,727 | )     | 
|Issuance of common shares – private placement                          |  |                   | 10,076,177 |  |               |   | 33,048,756  |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Issuance of common shares – exercise of options                        |  |                   | 150,000    |  |               |   | 326,000     |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Issuance of common shares – exercise of warrants                       |  |                   | 558,134    |  |               |   | 1,251,928   |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Fair value of options exercised from Share-based Payments Reserve      |  |                   | -          |  |               |   | 212,000     |          |  |   | -                             |   |  |         | (212,000  | ) |                                               |   | -           |       | 
|Fair value of warrants exercised (exercisable in a foreign currency)   |  |                   | -          |  |               |   | 1,111,846   |          |  |   | -                             |   |  |         |           |   |                                               |   |             |       | 
|Fair value of warrants exercised transferred from Warrants             |  |                   | -          |  |               |   | 81,622      |          |  |   | (81,622                       | ) |  |         | -         |   |                                               |   | -           |       | 
|Other Comprehensive Income (loss):                                     |  |                   |            |  |               |   |             |          |  |   |                               |   |  |         |           |   |                                               |   |             |       | 
|Available-for-sale financial assets - current year unrealized gains    |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Balance, December 31, 2010                                             |  |                   | 77,416,057 |  |               | $ | 133,344,866 |          |  | $ | 969,942                       |   |  | $       | 1,026,302 |   |                                               | $ | (79,337,150 | )     | 
|Net loss for the period                                                |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | (11,538,935 | )     | 
|Issuance of common shares – exercise of options                        |  |                   | 270,635    |  |               |   | 665,000     |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Issuance of common shares – exercise of warrants                       |  |                   | 2,658,866  |  |               |   | 7,242,471   |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Fair value of options exercised from Share-based Payments Reserve      |  |                   | -          |  |               |   | 429,965     |          |  |   | -                             |   |  |         | (429,965  | ) |                                               |   | -           |       | 
|Fair value of warrants exercised transferred from Warrants             |  |                   | -          |  |               |   | 969,942     |          |  |   | (969,942                      | ) |  |         | -         |   |                                               |   | -           |       | 
|Fair value of warrants (exercised in a foreign currency)               |  |                   | -          |  |               |   | 4,259,751   |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Fair value of options grant in period                                  |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | 487,085   |   |                                               |   | -           |       | 
|Other Comprehensive Loss:                                              |  |                   |            |  |               |   |             |          |  |   |                               |   |  |         |           |   |                                               |   |             |       | 
|Available-for-sale financial assets - current period unrealized losses |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Balance, December 31, 2011                                             |  |                   | 80,345,558 |  |               | $ | 146,911,995 |          |  | $ | -                             |   |  | $       | 1,083,422 |   |                                               | $ | (90,876,085 | )     | 
|Net loss for the year                                                  |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | (3,337,610  | )     | 
|Issuance of common shares – Rights Offering, net of costs (Note 9(ii)) |  |                   | 13,452,593 |  |               |   | 46,062,632  |          |  |   |                               |   |  |         |           |   |                                               |   |             |       | 
|Issuance of common shares – exercise of options                        |  |                   | 370,000    |  |               |   | 604,200     |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Fair value of options exercised from Share-based Payments Reserve      |  |                   | -          |  |               |   | 313,065     |          |  |   | -                             |   |  |         | (313,065  | ) |                                               |   | -           |       | 
|Fair value of options granted in period                                |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | 463,500   |   |                                               |   | -           |       | 
|Dividend-in-kind (Note 15)                                             |  |                   | -          |  |               |   | (13,721,645 | )        |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Other Comprehensive Loss:                                              |  |                   |            |  |               |   |             |          |  |   |                               |   |  |         |           |   |                                               |   |             |       | 
|Available-for-sale financial assets - current period unrealized losses |  |                   | -          |  |               |   | -           |          |  |   | -                             |   |  |         | -         |   |                                               |   | -           |       | 
|Balance, December 31, 2012                                             |  |                   | 94,168,151 |  |               | $ | 180,170,247 |          |  | $ | -                             |   |  | $       | 1,233,857 |   |                                               | $ | (94,213,695 | )     | 



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



10







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



Consolidated Statements of
Cash Flows

In Canadian dollars



|                                                                                        |  | Year ended        |             |   | Year ended        |   |             | Year ended        | 
|--------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- | 
|                                                                                        |  | December 31, 2012 |             |   | December 31, 2011 |   |             | December 31, 2010 | 
|Cash provided by (used in):                                                             |  |                   |             |   |                   |   |             |                   | 
|Operating activities:                                                                   |  |                   |             |   |                   |   |             |                   | 
|Net loss for the period                                                                 |  | $                 | (3,337,610  | ) |                   | $ | (11,538,935 | )                 | 
|                                                                                        |  |                   |             |   |                   |   |             |                   | 
|Adjustments:                                                                            |  |                   |             |   |                   |   |             |                   | 
|Gain on asset transfer to Kennady Diamonds Inc. (Note 15)                               |  |                   | (10,721,645 | ) |                   |   | -           |                   | 
|(Gain) loss on revaluation of warrants exerciseable in a foreign currency (Note 9 (ii)) |  |                   | -           |   |                   |   | (489,481    | )                 | 
|Interest expense on decommissioning and restoration liability                           |  |                   | 27,801      |   |                   |   | 63,315      |                   | 
|Depreciation                                                                            |  |                   | 21,246      |   |                   |   | 14,789      |                   | 
|Stock-based compensation (Note 9)                                                       |  |                   | 463,500     |   |                   |   | 487,085     |                   | 
|Interest income                                                                         |  |                   | (147,762    | ) |                   |   | (303,354    | )                 | 
|Changes in non-cash operating working capital:                                          |  |                   |             |   |                   |   |             |                   | 
|Amounts receivable                                                                      |  |                   | 948,267     |   |                   |   | (786,983    | )                 | 
|Advances and prepaid expenses                                                           |  |                   | (620,761    | ) |                   |   | 32,533      |                   | 
|Accounts payable and accrued liabilities                                                |  |                   | (419,577    | ) |                   |   | (1,151,017  | )                 | 
|                                                                                        |  |                   | (13,786,541 | ) |                   |   | (13,672,048 | )                 | 
|Investing activities:                                                                   |  |                   |             |   |                   |   |             |                   | 
|Mineral properties                                                                      |  |                   | (51,058     | ) |                   |   | (10,237,929 | )                 | 
|Interest income                                                                         |  |                   | 147,762     |   |                   |   | 303,354     |                   | 
|Purchase of property and equipment                                                      |  |                   | (124,031    | ) |                   |   | (15,261     | )                 | 
|Investment in short-term investments                                                    |  |                   | (29,599,814 | ) |                   |   | (8,042,094  | )                 | 
|                                                                                        |  |                   | (29,627,141 | ) |                   |   | (17,991,930 | )                 | 
|Financing activities:                                                                   |  |                   |             |   |                   |   |             |                   | 
|Transfer to Kennady Diamonds Inc.  (Note 15)                                            |  |                   | (3,000,000  | ) |                   |   | -           |                   | 
|Share issuance, net of costs (Note 9(ii))                                               |  |                   | -           |   |                   |   | -           |                   | 
|Proceeds from option exercises                                                          |  |                   | 604,200     |   |                   |   | 665,000     |                   | 
|Proceeds from Rights Offering (Note 9(ii))                                              |  |                   | 46,062,632  |   |                   |   | -           |                   | 
|Proceeds from warrant exercises (Note 9(ii))                                            |  |                   | -           |   |                   |   | 7,242,471   |                   | 
|                                                                                        |  |                   | 43,666,832  |   |                   |   | 7,907,471   |                   | 
|                                                                                        |  |                   |             |   |                   |   |             |                   | 
|Increase (decrease) in cash and cash equivalents                                        |  |                   | 253,150     |   |                   |   | (23,756,507 | )                 | 
|Cash and cash equivalents, beginning of period                                          |  |                   | 21,546      |   |                   |   | 23,778,053  |                   | 
|Cash and cash equivalents, end of period                                                |  | $                 | 274,696     |   |                   | $ | 21,546      |                   | 



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



11







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 1. | Nature of Operations AND Going CONCERN
| | -- | --------------------------------------

Mountain Province Diamonds Inc. (“Mountain
Province” or the “Company”) was incorporated on December 2, 1986 under the British Columbia Company Act. The
Company amended its articles and continued incorporation under the Ontario Business Corporation Act effective May 8, 2006. The
Company is involved in the discovery and development of diamond properties in Canada’s Northwest Territories.



The address of the Company’s registered
office and its principal place of business is 161 Bay Street, Suite 2315, PO Box 216, Toronto, ON, Canada, M5J 2S1. The Company’s
shares are listed on the Toronto Stock Exchange under the symbol ‘MPV’ and on the New York Stock Exchange – MKT
under the symbol ‘MDM’.



The Company is in the process of developing
and permitting its mineral properties primarily in conjunction with De Beers Canada Inc. (“De Beers Canada”) (Note
7). The underlying value and recoverability of the amounts shown as “Mineral Properties” is dependent upon the ability
of the Company and/or its mineral property partner to develop economically recoverable reserves, to have successful permitting
and development, and upon future profitable production or proceeds from disposition of the Company’s mineral properties.
Failure to develop economically recoverable reserves will require the Company to write off costs capitalized to date.



As at December 31, 2012, the Company has
not achieved profitable operations and continues to be dependent upon its ability to obtain external financing to meet the Company’s
liabilities as they become payable. The Company’s ability to continue operations beyond the next twelve months is dependent
on the successful permitting, the ability of the Company to obtain necessary financing to fund its operations, the successful construction
of the Gahcho Kué Project, and the future production or proceeds from developed properties.



The
Company’s primary mineral asset is in the exploration and evaluation stage and, as a result, the Company has no source of
revenues. In each of the years December 31, 2012, 2011 and 2010, the Company incurred losses, and had negative cash flows from
operating activities, and will be required to obtain additional sources of financing to complete its business plans going into
the future. Although the Company had working capital of $46,653,539 at December 31, 2012, including $47,693,693 of cash and cash
equivalents and short-term investments, the Company has insufficient capital to finance its operations and the Company’s
costs of the Gahcho Kué Project (Note 7) over the next 12 months.  The Company is currently investigating various sources
of additional funding to increase the cash balances required for ongoing operations over the foreseeable future. These additional
sources include, but are not limited to, share offerings, private placements, credit and debt facilities, as well as the exercise
of outstanding options. However, there is no certainty that the Company will be able to obtain financing from any of those sources. 
These conditions indicate the existence of a material uncertainty that results in substantial doubt as to the Company’s ability
to continue as a going concern.



These
consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, and do not
reflect adjustments to assets and liabilities that would be necessary if the going concern assumption were not appropriate. These
adjustments could be material.



Authorization of Financial Statements

The consolidated financial statements for
the year ended December 31, 2012 (including comparatives) were approved by the Board of Directors on March 28, 2013.



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

These consolidated financial statements
of the Company, including its subsidiaries and joint venture, were prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The policies set
out below were consistently applied to all the periods presented.



12







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



These financial statements were prepared
under the historical cost convention, as modified by the revaluation of cash and cash equivalents, short-term investments and available-for-sale
financial assets at fair value.



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

| | (i) | Basis of Preparation
| | --- | --------------------

The consolidated financial statements are
presented in accordance with IAS 1, Presentation of Financial Statements.



The Company has elected to present the
‘Statements of Comprehensive Loss’ as a single financial statement with its statements of loss, titled ‘Consolidated
Statements of Comprehensive Loss’.



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



| | (ii) | Basis of consolidation
| | ---- | ----------------------

The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. The Company’s interest in the Gahcho Kué Project has
been proportionally consolidated (see Note 7).



Subsidiaries are entities controlled by
the Company. Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. Subsidiaries are included in the consolidated financial statements from the date control is obtained until
the date control ceases. All intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains
and losses have been eliminated on consolidation.



The Company’s interest in the Gahcho
Kué Project is bound by a contractual arrangement establishing joint control over the joint venture through required unanimous
consent of each of the joint venturers for strategic, financial and operating policies of the Gahcho Kué Joint Venture.
The Company’s interest in the Gahcho Kué Project is managed through a jointly controlled unincorporated entity, known
as the Gahcho Kué Joint Venture, in which each of the Company (including its wholly-owned subsidiary, Camphor Ventures Inc.),
and its joint venture partner, De Beers Canada, have an interest. The Gahcho Kué Joint Venture management committee has
two representatives of each of Mountain Province and De Beers Canada. The joint venture partners have appointed De Beers Canada
as the operator of the Gahcho Kué Joint Venture.



| | (iii) | Foreign Currency
| | ----- | ----------------

The Company’s presentation currency
is the Canadian Dollar (“CAD”). The functional currency of the Company, its subsidiaries, and the Gahcho Kué
Joint Venture is the Canadian Dollar.



In preparing the consolidated financial
statements, transactions in currencies other than the Company’s functional currency, known as foreign currencies, are recognized
at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated
in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are re-translated at the rates prevailing at the date when the fair value was determined.



Exchange differences are recognized in
profit or loss in the period in which they arise and presented in consolidated Statements of Comprehensive Loss within Office and
administration.



During the year ended December 31, 2012,
$6,792 of foreign exchange loss was recognized in Office and administrative costs, in the Company’s consolidated Statements
of Comprehensive Loss (December 31, 2011 - $241,564; December 31, 2010 - $41,130).



13







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | (iv) | Interest income
| | ---- | ---------------

Interest income from financial assets is
recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.
Interest income is accrued on the basis of time that has passed, by reference to the principal outstanding and at the effective
interest rate applicable.



| | (v) | Share-based payments
| | --- | --------------------

Equity-settled share-based payments to
employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details
regarding the determination of the fair value of equity-settled share-based payment transactions are set out in Note 9.



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



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



| | (vi) | Income Taxes and Deferred Taxes
| | ---- | -------------------------------

The income tax expense or benefit for the
period consists of two components: current and deferred. Income tax expense or benefit is recognized in the consolidated Statements
of Comprehensive Loss except to the extent it relates to a business combination or items recognized directly in equity.



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



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



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



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



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



14







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



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



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



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



| | (vii) | Mineral properties and exploration and evaluation costs
| | ----- | -------------------------------------------------------

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



Exploration and evaluation costs consist of:

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

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

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

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

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



Costs in relation to these activities are
expensed as incurred until such time as the Company makes a formal decision to develop a mine to extract the mineral reserves.
Once the decision to develop the mine is made, and subject to an impairment analysis, capitalized acquisition costs included in
the Mineral Properties are transferred to capitalized costs within property and equipment, or intangible assets, as appropriate.
The decision to develop a mine may be impacted by management’s assessment of legal, environmental, social and governmental
factors.



The Company also recognizes exploration
and evaluation costs as assets when acquired as part of a business combination, or asset purchase, or as a result of rights acquired
relating to a mineral property. These assets are recognized at fair value, or relative fair value if applicable. Acquired capitalized
exploration and evaluation consists of:

| | · | interest in exploration properties,
| | - | -----------------------------------

| | · | amounts paid for acquired rights associated with exploration
properties, and
| | - | ----------------------------------------------------------------------------

| | · | amounts paid in connection with sunk cost repayments
(Note 7).
| | - | --------------------------------------------------------------



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

Property and equipment are recorded and
measured at initial recognition at cost. Amortization is provided on items of property and equipment so as to write off their carrying
value over their expected useful economic lives. Amortization is calculated once the asset is in use, and at the following rates:



15







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



|Office furniture          |  | five years, straight line       
|------------------------- |  | --------------------------------
|Vehicles                  |  | five years, straight line       
|Production equipment      |  | five years, straight line       
|General infrastructure    |  | 10 years, straight line         
|Assets under construction |  | not depreciated until production



An item of property and equipment and any
significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated Statement of Comprehensive Loss when the asset is derecognized.
The assets’ residual values, useful lives and methods of amortization are reviewed at each reporting period, and adjusted
prospectively if appropriate.



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

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



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



If the carrying amount of the asset exceeds
its recoverable amount, the asset is impaired and an impairment loss is charged immediately to the consolidated Statements of Comprehensive
Loss so as to reduce the carrying amount to its recoverable amount.



An assessment is made at each reporting
date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased.
If such indication exists, the Company makes an estimate of the recoverable amount.



A previously recognized impairment loss
is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last
impairment loss was recognized. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The
increased amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognized for the
asset in prior years. Such reversal is recognized in the consolidated Statements of Comprehensive Loss.



16







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | (x) | Financial instruments
| | --- | ---------------------

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



| | · | Financial assets and financial liabilities at fair value through profit and loss include financial
assets and financial liabilities that are held for trading or designated upon initial recognition as at fair value through profit
and loss. These financial instruments are measured at fair value with changes in fair values recognized in the consolidated Statements
of Comprehensive Loss.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



The Company has classified its financial
instruments as follows:



|Asset/Liability                          |  | Classification                     |  | Measurement   
|---------------------------------------- |  | ---------------------------------- |  | --------------
|Cash and cash equivalents                |  | Fair Value through Profit and Loss |  | Fair Value    
|Short-term investments                   |  | Fair Value through Profit and Loss |  | Fair Value    
|Amounts receivable                       |  | Loans and Receivables              |  | Amortized Cost
|Marketable securities                    |  | Available-for-Sale                 |  | Fair Value    
|Accounts payable and accrued liabilities |  | Other liabilities                  |  | Amortized Cost



The Company’s cash and cash equivalents
consists of balances with banks and highly liquid short-term investments that are readily convertible to known amounts of cash
with original maturities of three months or less when acquired. Short-term investments are investments with original maturities
of greater than three months when acquired (see Note 5).



The Company had no held-to-maturity financial
assets at December 31, 2012 and December 31, 2011.



The market values of marketable securities
are determined based on the closing prices reported on recognized securities exchanges and over-the-counter markets. Such individual
market values do not necessarily represent the realizable value of the total holding of any security, which may be more or less
than that indicated by market quotations.



17













|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



The fair values of the Company's amounts
receivable, advances and accounts payable and accrued liabilities approximate their carrying values because of the immediate or
short-term to maturity of these financial instruments.



Derivative financial liabilities

Derivative instruments, including embedded
derivatives, are recorded at their fair value on the date the derivative contract is entered into. They are subsequently remeasured
at their fair value at each consolidated Balance Sheet date, and the changes in the fair value are recognized in the consolidated
Statements of Comprehensive Loss. Fair values for derivative instruments are determined using valuation techniques, including assumptions
based on market conditions existing at the date of the consolidated Balance Sheets.



Warrants denominated or exerciseable in
a foreign currency different from the functional currency of the Company meet the definition of a derivative financial liability
and are fair valued at each consolidated Balance Sheet date using the Black-Scholes option pricing model, with changes in the fair
value recognized in the consolidated Statements of Comprehensive Loss. There are no derivative financial liabilities as at December
31, 2012 or 2011.



| | (xi) | Provisions
| | ---- | ----------

Provisions represent liabilities to the
Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and
the amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the
present value of the expected expenditures to settle the obligation, applying an inflation-adjusted discount rate. The increase
in the provision due to passage of time is recognized as accretion expense. The Company does not have any provisions as of December
31, 2012 other than the provision for decommissioning and restoration associated with the Mineral Properties.



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



The obligation generally arises when the
asset is installed or the ground and/or environment is disturbed at the production location. When the liability is initially recognized,
the present value of the estimated cost is capitalized if the Company has a related asset on its balance sheet, or expensed as
part of exploration and evaluation expenditures if no asset exists. Over time, the discounted liability is increased for the change
in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. The
periodic unwinding of the discount is recognized in the consolidated Statement of Comprehensive Loss as a finance cost called “accretion
expense on decommissioning and restoration liability”. Additional disturbances or changes in rehabilitation costs will be
recognized as additional capitalized costs (or exploration and evaluation expense depending on whether there was a related asset
when the liability was initially recognized) and additional decommissioning and restoration liability when they occur. If it is
determined that the expected costs for decommissioning and restoration are reduced, the change in the present value of the reduction
is recorded as a reduction in the capitalized costs (or a charge against exploration and evaluation expense), and a reduction of
the decommissioning and restoration liability. For closed sites, changes to estimated costs are recognized immediately in the consolidated
Statement of Comprehensive Loss.



| | (xii) | Loss per share
| | ----- | --------------

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



18







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



Diluted loss or earnings per share is calculated
using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding
stock options and warrants. The denominator is increased by the total number of additional common shares that would have been issued
by the Company assuming exercise of all stock options and warrants with exercise prices below the average market price for the
year.



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



At the date of authorization of these financial
statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective,
and have not been adopted early by the Company.



The Company anticipates that all of the
relevant pronouncements will be adopted in the Company’s accounting policy for the first period beginning after the effective
date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the
Company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are
not expected to have a material impact on the Company’s financial statements and are therefore not discussed below.



IFRS 9 Financial Instruments

The IASB aims to replace IAS 39 Financial
Instruments: Recognition and Measurement in its entirety. IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an
entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of
the financial assets. Two measurement categories continue to exist to account for financial liability in IFRS 9 – fair value
through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held for trading are measured at FVTPL,
and all other financial liabilities are measured at amortized cost unless the fair value option is applied. IFRS 9 is effective
for annual periods beginning on or after January 1, 2015. The Company is evaluating the impact of IFRS 9 on its consolidated financial
statements.



IFRS 10 Consolidated Financial
Statements

IFRS 10 requires an entity to consolidate
an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee, Under existing IFRS, consolidation is required when an entity has the
power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces
SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.
IFRS 10 is effective for annual periods beginning on or after January 1, 2013. The Company is evaluating the impact of IFRS 10
on its consolidated financial statements.



IFRS 11 Joint Arrangements

IFRS 11 requires a venture to classify
its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity
method of accounting whereas for a joint operation, the venturer will recognize its share of each of the assets, liabilities, revenue
and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account
for interest in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13 Jointly Controlled
Entities – Non-monetary Contributions by Venturers. IFRS 11 is effective for annual periods beginning on or after January
1, 2013. The Company has determined that its interest in its joint arrangement, the Gahcho Kué Joint Venture, is a joint
operation, and therefore the adoption of this standard will not have any material impact on its consolidated financial statements
as the Company will continue to proportionately consolidate its interest in the Gahcho Kué Project



19







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



IFRS 12 Disclosure of Interest
in Other Entities

IFRS 12, Disclosure of Interest in Other
Entities was issued by the IASB in May 2011. The new standard includes disclosure requirements about subsidiaries, joint ventures
and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. IFRS 12 is effective
for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company is evaluating the impact of
IFRS 12 on its consolidated financial statements.



IFRS 13 Fair Value Measurement

IFRS 13 is a comprehensive standard for
fair value measurement and disclosure requirements for use across all IFRS statements. The new standard clarifies that fair value
is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market
participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance
on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many
cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods beginning on
or after January 1, 2013. The Company is evaluating the impact of IFRS 13 on its consolidated financial statements.



IFRIC 20 Stripping Costs in the
Production Phase of a Surface Mine

On October 20, 2011, the IASB issued a
new interpretation, IFRIC 20, to address accounting issues regarding waste removal costs incurred in surface mining activities
during the production phase of a mine, referred to as production stripping costs. The new interpretation addresses the classification
and measurement of production stripping costs as either inventory or as a tangible or intangible non-current ‘stripping activity
asset’. The standard also provides guidance for the depreciation or amortization and impairment of such assets. IFRIC 20
is effective for reporting years beginning on or after January 1, 2013, although earlier application is permitted. The Company
is evaluating the impact of IFRIC 20 on its consolidated financial statements.



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



The preparation of the Company’s
consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses
during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include
estimates, which, by their nature, are uncertain and may require accounting adjustments based on future occurrences. Revisions
to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects
both current and future periods. These estimates are based on historical experience, current and future economic conditions, and
other factors, including expectations of future events that are believed to be reasonable under the circumstances.



| | i) | Significant Judgments in Applying Accounting Policies
| | -- | -----------------------------------------------------

The areas which require management
to make significant judgments in applying the Company’s accounting policies in determining carrying values include, but are
not limited to:



| | a) | Mineral reserves
| | -- | ----------------

The information relating to the
geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. Changes
in the proven mineral reserves or measured and indicated and inferred mineral estimates may impact the carrying value of the properties.



20







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



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

The Company reviews its Mineral
Properties for impairment based on results to date and when events and changes in circumstances indicate that the carrying value
of the assets may not be recoverable. IFRS 6 - Exploration for and evaluation of mineral resources and IAS 36 – Impairment
of assets requires the Company to make certain judgments in respect of such events and changes in circumstances, and in assessing
their impact on the valuations of the affected assets. The Company’s assessment is that as at December 31, 2012, there are
no indicators of impairment in the carrying value of its mineral properties.



| | ii) | Significant Accounting Estimates and Assumptions
| | --- | ------------------------------------------------



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



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



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



| | b) | Impairment analysis - mineral properties
| | -- | ----------------------------------------



The Company reviews its mineral
properties for impairment based on results to date and when events and changes in circumstances indicate that the carrying value
of the assets may not be recoverable. If indicators of impairment are identified, management will perform an impairment test in
accordance with IAS 36 – Impairment of assets (“IAS 36”). IAS 36 requires the Company to make certain
judgments, assumptions, and estimates in determining the estimate of the net recoverable amount. Impairments are recognized when
the carrying values exceed management’s estimate of the net recoverable amounts associated with the affected assets. The
values shown on the consolidated balance sheet for Mineral Properties” represent the Company’s assumption that the
amounts are recoverable. As a result of the numerous variables associated with the Company’s judgments and assumptions, the
precision and accuracy of estimates of recoverable amount is subject to significant uncertainties, and may change significantly
as additional information becomes known.



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



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



| | d) | Stock options
| | -- | -------------



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



| | e) | Deferred taxes
| | -- | --------------



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



21







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 5. | Financial instruments
| | -- | ---------------------



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



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



The Company’s financial assets as
at December 31, 2012 and 2011 measured at fair value are cash, short-term investments, and marketable securities. The cash and
marketable securities are classified as Level 1, and the short-term investments are classified as Level 2.



The quoted market value of marketable securities
at December 31, 2012 and 2011 was $9,521 and $17,678 respectively. The original cost of these marketable securities at December
31, 2012 and December 31, 2011 was $4,632 for both periods.



The short-term investments at December
31, 2012 and 2011 are cashable guaranteed investment certificates (“GICs”) held with a major Canadian financial institution.
The short-term investments at December 31, 2012 were purchased with original maturities in December, 2013. There is no restriction
on the use of the short-term investments.



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



|                                                 |  | Balance as at |           
|------------------------------------------------ |  | ------------- | ----------
|                                                 |  | December 31,  |           
|                                                 |  | 2012          |           
|Financial assets                                 |  |               |           
|Fair Value Through Profit or Loss                |  |               |           
|Cash and cash equivalents                        |  | $             | 274,696   
|Short-term investments                           |  |               | 47,418,997
|                                                 |  |               |           
|Loans and Receivables                            |  |               |           
|Amounts receivable                               |  |               | 337,907   
|                                                 |  |               |           
|Available-for-Sale                               |  |               |           
|Marketable securities                            |  |               | 9,521     
|                                                 |  |               |           
|Financial liabilities                            |  |               |           
|Financial liabilities measured at amortized cost |  |               |           
|Accounts payable and accrued liabilities         |  |               | (2,109,984



22







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



The Company’s interest income on
short-term investment carried at fair value is presented on the consolidated Statements of Comprehensive Loss in the interest income
line.



The Company had no transactions with marketable
securities classified as available-for-sale during the years ended December 31, 2012 and December 31, 2011.



Financial Instruments Risks

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



Credit risk

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



|                  |  | 2012 |         |  | 2011 |  
|----------------- |  | ---- | ------- |  | ---- | -
|0-30 days         |  | $    | 279,107 |  |      | $
|30 to 90 days     |  |      | 39,200  |  |      |  
|More than 90 days |  |      | 19,600  |  |      |  
|Total             |  | $    | 337,907 |  |      | $



On December 31, 2012 and December 31, 2011,
the Company does not have any allowance for doubtful accounts, and does not consider that any such allowance is necessary.



All of the Company’s cash and cash
equivalents and short-term investments are held with a major Canadian financial institution and thus the exposure to credit risk
is considered insignificant. The short-term investments are in the form of guaranteed investment certificates (“GICs”)
and are cashable in whole or in part, with interest, at any time to maturity. Management actively monitors the Company’s
exposure to credit risk under its financial instruments, including with respect to amounts receivable. The Company considers the
risk of loss for its amounts receivable to be remote and significantly mitigated due to the financial strength of the parties from
whom most of the amounts receivable are due - the Canadian government for harmonized sales tax (“HST”) refunds receivable
in the amount of approximately $153,500 (December 31, 2011 – approximately $350,500) and the Gahcho Kué Joint Venture
for the remaining amounts.



The Company’s current policy is to
invest excess cash in GICs. It periodically monitors the investments it makes and is satisfied with the credit ratings of its bank.



Liquidity risk

Liquidity risk is the risk that the Company
will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process
in place by which it anticipates and determines the funds required to support its operating requirements. The Company coordinates
this planning and budgeting process with its financing activities through its capital management process (see Note 1). The Company’s
financial liabilities comprise its accounts payable and accrued liabilities, all of which are due within the next 12 month period.
Other than minimal office space rental commitments, there are no other operating lease commitments.



23







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



Market risk



The Company’s marketable securities
are classified as available-for-sale, and are subject to changes in the market prices. They are recorded at fair value in the Company’s
financial statements, based on the closing market value at the end of the period for each security included. The original cost
of the marketable securities is $4,632. The Company’s exposure to market risk is not considered to be material.



Foreign currency sensitivity



The Company is exposed to foreign currency
risk at the balance sheet date through its U.S. denominated accounts payable and cash. A 10% depreciation or appreciation of the
U.S. dollar against the Canadian dollar would result in an approximate $8,000 decrease or increase, respectively, in both net and
comprehensive loss. The Company currently has only limited exposure to fluctuations in exchange rates between the Canadian and
U.S. dollar. Accordingly, the Company has not employed any currency hedging programs during the current period.



Interest rate sensitivity



The Company has no significant exposure
at December 31, 2012, 2011 or 2010 to interest rate risk through its financial instruments. The short-term investments are at fixed
rates of interest that do not fluctuate during the remaining term. The Company has no interest-bearing debt.



| | 6. | Property and Equipment
| | -- | ----------------------



The Company’s property and equipment for the year ended
December 31, 2012 and 2011 are as follows:



|                          |  |      |         |  | Accumulated  |   |        |                | 
|------------------------- |  | ---- | ------- |  | ------------ | - | ------ | -------------- | 
|                          |  | Cost |         |  | Amortization |   |        | Net Book Value | 
|December 31, 2012         |  |      |         |  |              |   |        |                | 
|                          |  |      |         |  |              |   |        |                | 
|Office furniture          |  | $    | 32,996  |  |              | $ | 6,049  |                | 
|Vehicles                  |  |      | 59,992  |  |              |   | 34,494 |                | 
|Production equipment      |  |      | 5,635   |  |              |   | 1,972  |                | 
|Computer equipment        |  |      | 7,822   |  |              |   | 2,218  |                | 
|General infrastructure    |  |      | 7,326   |  |              |   | 122    |                | 
|Assets under construction |  |      | 77,094  |  |              |   | -      |                | 
|                          |  | $    | 190,865 |  |              | $ | 44,855 |                | 
|December 31, 2011         |  |      |         |  |              |   |        |                | 
|                          |  |      |         |  |              |   |        |                | 
|Vehicle                   |  | $    | 59,992  |  |              | $ | 22,496 |                | 
|Production equipment      |  |      | 5,635   |  |              |   | 845    |                | 
|Computer equipment        |  |      | 1,207   |  |              |   | 268    |                | 
|                          |  | $    | 66,834  |  |              | $ | 23,609 |                | 



24







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



The continuity of the property and equipment is:



|                                     |  | December 31, 2012 |         |   | December 31, 2011 |   |         | December 31, 2010 | 
|------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- | 
|Opening balance, beginning of period |  | $                 | 43,225  |   |                   | $ | 42,753  |                   | 
|Additions in the period              |  |                   | 124,031 |   |                   |   | 15,261  |                   | 
|Depreciation in the period           |  |                   | (21,246 | ) |                   |   | (14,789 | )                 | 
|Net book value, end of period        |  | $                 | 146,010 |   |                   | $ | 43,225  |                   | 



| | 7. | MINERAL PROPERTIES
| | -- | ------------------



The Company holds a 49% interest in the
Gahcho Kué Joint Venture (the “Gahcho Kué Project”, the “Project”) located in the Northwest
Territories, Canada, and De Beers Canada holds the remaining 51% interest. The joint venture between the Company and De Beers Canada
is governed by an agreement entered into on July 3, 2009 (the “2009 Agreement”). The Company considers that the Gahcho
Kué Joint Venture is a related party under IAS 24 – Related Parties.



The 2009 Agreement’s provision for
consensus decision-making for material strategic and operating decisions provides the Company with joint control for the Gahcho
Kué Project with De Beers Canada, and the Company accounts for the Project as a joint venture in accordance with IAS 31
– Interests in Joint Ventures. The Company has determined its proportionate share (49%) of the assets, liabilities,
revenues and expenses of the joint venture, and recorded them in its consolidated financial statements.



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



On July 3, 2009, the Company entered the
2009 Agreement with De Beers Canada (jointly, the “Participants”) under which:

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

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

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

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

| | (e) | The Participants have agreed that the sunk historic costs to the period ending on December 31,
2008 will be reduced and limited to $120,000,000;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | The Company will repay De Beers Canada $59 million (representing 49% of an agreed sum of $120,000,000)
plus interest compounded on the outstanding amounts in settlement of the Company’s share of the agreed historic sunk costs
on the following schedule:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | $200,000 on execution of the 2009 Agreement (the Company’s contribution to the 2009 Joint
Venture expenses to date of execution of the 2009 Agreement – paid and expensed);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Up to $5.1 million in respect of De Beers Canada’s share of the costs of the feasibility
study; (paid - $4,417,421 to December 31, 2012, included in “Mineral Properties”; no further payments are expected);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | $10 million upon the completion of a feasibility study with at least a 15% IRR and approval of
the necessary development work for a mine (as defined in the 2009 Agreement) (paid March 15, 2011, included in “Mineral Properties”);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | $10 million following the issuance of the construction and operating permits;
| | - | -----------------------------------------------------------------------------

25







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | · | $10 million following the commencement of commercial production; and
| | - | --------------------------------------------------------------------

| | · | The balance of approximately $24.4 million plus accumulated interest within 18 months following
commencement of commercial production.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



Mountain Province has agreed that the marketing
rights provided to the Company in the 2009 Agreement will be diluted if the Company defaults on certain of the repayments described
above.



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



The continuity of the Mineral Properties
is as follows:



|Balance, January 1, 2010                                     |  | $ | 35,672,632 |  
|------------------------------------------------------------ |  | - | ---------- | -
|Change in expected decommissioning and restoration liability |  |   | (2,608,255 | )
|Amounts capitalized for sunk cost repayments in the year     |  |   | 2,837,596  |  
|Balance, December 31, 2010                                   |  | $ | 35,901,973 |  
|Change in expected decommissioning and restoration liability |  |   | 410,593    |  
|Amounts capitalized for sunk cost repayments in the year     |  |   | 10,237,929 |  
|Balance, December 31, 2011                                   |  | $ | 46,550,495 |  
|Change in expected decommissioning and restoration liability |  |   | 78,965     |  
|Amounts capitalized for sunk cost repayments in the year     |  |   | 51,058     |  
|Balance, December 31, 2012                                   |  | $ | 46,680,518 |  



The Company has reclassified immaterial
changes in working capital previously presented within Mineral Properties to accounts payable and accrued liabilities or amounts
receivable as appropriate for each of the years presented.



Summarized below is certain summarized
financial information relating to the Company’s proportional interest (49%) in the accounts of the Gahcho Kué Joint
Venture for the years ended December 31, 2012, 2011 and 2010:



26







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



|                                                           |  | Year ended   |             |   | Year ended   |   |            | Year ended   | 
|---------------------------------------------------------- |  | ------------ | ----------- | - | ------------ | - | ---------- | ------------ | 
|                                                           |  | December 31, |             |   | December 31, |   |            | December 31, | 
|                                                           |  | 2012         |             |   | 2011         |   |            | 2010         | 
|Results of Operations                                      |  |              |             |   |              |   |            |              | 
|Revenue                                                    |  | $            | -           |   |              | $ | -          |              | 
|Expenses                                                   |  |              | (10,681,306 | ) |              |   | (8,540,441 | )            | 
|Proportionate share of net loss                            |  | $            | (10,681,306 | ) |              | $ | (8,540,441 | )            | 
|                                                           |  |              |             |   |              |   |            |              | 
|Cash Flows                                                 |  |              |             |   |              |   |            |              | 
|Operating activities                                       |  | $            | (9,869,353  | ) |              | $ | (7,889,959 | )            | 
|Financing activities                                       |  |              | 9,994,998   |   |              |   | 7,905,220  |              | 
|Investing activities                                       |  |              | (91,035     | ) |              |   | (15,261    | )            | 
|                                                           |  |              |             |   |              |   |            |              | 
|Proportionate share of change in cash and cash equivalents |  | $            | 34,610      |   |              | $ | -          |              | 



|                                       |  | As at             |            |   | As at             |  
|-------------------------------------- |  | ----------------- | ---------- | - | ----------------- | -
|                                       |  | December 31, 2012 |            |   | December 31, 2011 |  
|Financial Position                     |  |                   |            |   |                   |  
|Current assets                         |  | $                 | 1,516,313  |   |                   | $
|Non-current assets                     |  |                   | 6,113,370  |   |                   |  
|Current liabilities                    |  |                   | (1,633,055 | ) |                   |  
|Non-current liabilities                |  |                   | (6,284,770 | ) |                   |  
|Proportionate share of net liabilities |  | $                 | (288,142   | ) |                   | $



Included in Exploration and evaluation
expenses on the consolidated Statements of Comprehensive Loss for the year ended December 31, 2012 is approximately $1,258,500
of payroll related expenses (December 31, 2011 – approximately $696,500; December 31, 2010 – approximately $302,100).



The Company’s proportional interest
(49%) of commitments made by the operator of the Gahcho Kué Project is $5,160,820. Of this, approximately $4,147,000 relates
to commitments associated with equipment for the Gahcho Kué Project for 2013.



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



The Gahcho Kué Joint Venture decommissioning and restoration
liability was calculated using the following assumptions as at December 31, 2012:



|                                                           |  | December 31, |                       |   | December 31, |  
|---------------------------------------------------------- |  | ------------ | --------------------- | - | ------------ | -
|                                                           |  | 2012         |                       |   | 2011         |  
|Expected undiscounted cash flows                           |  | $            | 13,484,544            |   |              | $
|Inflation-adjusted discount rate ("real" rate of interest) |  |              | 0.38                  | % |              |  
|Periods                                                    |  |              | between 2014 and 2028 |   |              |  
|With probabilities between                                 |  |              | 10% and 70%           |   |              |  



27







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



The decommissioning and restoration liability
has been calculated using expected cash flows that are current dollars, without inflation.



The continuity of the decommissioning and restoration liability
at December 31, 2012 is follows:



|                                                         |  | Year ended   |           |  | Year ended   |   |           | Year ended   | 
|-------------------------------------------------------- |  | ------------ | --------- |  | ------------ | - | --------- | ------------ | 
|                                                         |  | December 31, |           |  | December 31, |   |           | December 31, | 
|                                                         |  | 2012         |           |  | 2011         |   |           | 2010         | 
|Balance, beginning of year                               |  | $            | 6,178,004 |  |              | $ | 5,704,096 |              | 
|Change in estimate of discounted cash flows for the year |  |              | 78,965    |  |              |   | 410,593   |              | 
|Accretion recorded during the year                       |  |              | 27,801    |  |              |   | 63,315    |              | 
|Balance, end of the year                                 |  | $            | 6,284,770 |  |              | $ | 6,178,004 |              | 



28







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 9. | SHAREHOLDERS’ EQUITY
| | -- | --------------------



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



Unlimited common shares, without par value. Each common share
entitles the holder to one shareholder vote.



There is no other class of shares in the Company.



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

The number of common shares issued and
fully paid as at December 31, 2012 is 94,168,151. There are no shares issued but not fully paid.



On November 28, 2012, the Company closed
a previously-announced Rights Offering for gross proceeds of approximately $47.1 million. Under the Rights Offering, each registered
holder of common shares of the Company as of the record date established as October 30, 2012, received one right (a “Right”)
for each share held. Six (6) Rights plus the sum of $3.50 (the “Subscription Price”) were required to subscribe for
one share (“Rights Share”). The Rights expired on November 28, 2012 (the “Expiry Date”) with unexercised
Rights becoming void and without value. The Rights were listed on the TSX until their expiry.



The Company entered into a stand-by agreement
with Bottin (International) Investments Ltd. (“Bottin”) under which Bottin undertook to fully subscribe for those Rights
Shares not otherwise subscribed for on the Expiry Date.



A total of 65,100,414 Rights were exercised
by shareholders for 10,850,069 shares, and Bottin subscribed to an additional 2,602,524 Rights Shares for the Rights not otherwise
subscribed for on the Expiry Date, under the stand-by agreement. Fees charged by Bottin in connection with the stand-by agreement
have been recorded as share issuance costs (Note 12).



The proceeds are being used to fund the
Company’s 49% share of the initial capital costs for the Gahcho Kué Project and for general corporate purposes.



During 2011, the remaining 2,658,866 warrants
outstanding were exercised before expiry for gross proceeds of $7,242,471 (2010 – 558,124 warrants for gross proceeds of
$1,251,928). The warrants issued August 4, 2009 were exercisable for either $2.00 Canadian or $1.73 US. As they could be exercised
in a foreign currency different than the functional currency of the Company, they met the definition of a financial liability.
They were revalued at fair value at each period using the Black-Scholes option pricing model. The reevaluation of these warrants
generated an accounting gain of $489,481 in the year ended December 31, 2011 (December 31, 2010 – a loss of $4,767,578).



On May 17, 2010, the Company completed
a non-brokered private placement of 5,476,177 common shares at a price of $2.10 per common share, to raise gross proceeds of $11,499,972,
and on November 18, 2010, the Company completed a private placement financing of 4,600,000 common shares at $5.00 per share for
gross proceeds of $23,000,000. Net proceeds totaled $33,048,756.



29







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | iii. | Stock Options and Share-based Payments Reserve
| | ---- | ----------------------------------------------

The Company, through its Board of Directors
and shareholders, adopted a stock option plan (the “Plan”) which, among other things, allows for the maximum number
of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued and outstanding shares at the
time of the grant. The Board of Directors has the authority and discretion to grant stock option 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 6,309,774 shares,
and as at December 31, 2012, there were 5,515,774 shares available to be issued under the Plan. All stock options are settled
by issuance of common shares.



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



|                                               |  | December 31, 2012     |          |   | December 31, 2011                   |   |      | December 31, 2010     | 
|---------------------------------------------- |  | --------------------- | -------- | - | ----------------------------------- | - | ---- | --------------------- | 
|                                               |  | Number of
    options |          |   | Weighted average
    exercise price |   |      | Number of
    options | 
|Balance at beginning of year                   |  |                       | 964,000  |   |                                     | $ | 2.16 |                       | 
|Granted during the year                        |  |                       | 200,000  |   |                                     |   | 4.84 |                       | 
|Exercised during the year                      |  |                       | (370,000 | ) |                                     |   | 1.63 |                       | 
|Balance at end of the
    year                 |  |                       | 794,000  |   |                                     | $ | 2.12 |                       | 
|Options
    exercisable at the end of the year |  |                       | 794,000  |   |                                     |   |      |                       | 



The fair value of the 200,000 stock options
granted in the year ended December 31, 2012 has been estimated on the date of the grant using the Black-Scholes option pricing
model. These options vested immediately. The assumptions are presented below. Expected volatility is calculated by reference to
the weekly closing share price for a period that reflects the expected life of the options (three and a half years). 150,000 stock
options were granted in the year ended December 31, 2011 and valued using the assumptions below. No options were granted in 2010.



|                             |  | Year ended   |           |   | Year ended   |  
|---------------------------- |  | ------------ | --------- | - | ------------ | -
|                             |  | December 31, |           |   | December 31, |  
|                             |  | 2012         |           |   | 2011         |  
|Exercise price               |  | $            | 4.84      |   |              | $
|Expected volatility          |  |              | 66.29     | % |              |  
|Expected option life         |  |              | 3.5 years |   |              |  
|Expected forfeiture          |  |              | none      |   |              |  
|Expected option cancellation |  |              | none      |   |              |  
|Expected dividend yield      |  |              | 0         | % |              |  
|Risk-free interest rate      |  |              | 1.50      | % |              |  



During the year ended December 31, 2012,
370,000 stock options were exercised for gross proceeds of $604,200 (December 31, 2011 – 270,635 stock options were exercised
for gross proceeds of $665,000; December 31, 2010 – 150,000 stock options were exercised for gross proceeds of $326,000).
The market price of stock options exercised during the year ended December 31, 2012 was $1,826,200 (December 31, 2011 - $1,543,610;
December 31, 2010 - $625,500).



The following tables reflect the Black-Scholes
values (share-based payments reserve amounts), the number of stock options outstanding, the weighted average of options outstanding,
and the exercise price of stock options outstanding at December 31, 2012 and December 31, 2011.

30







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



|At December 31, 2012 |  |               |           |  |           |  |         |                  |  |  |             | 
|-------------------- |  | ------------- | --------- |  | --------- |  | ------- | ---------------- |  |  | ----------- | 
|                     |  | Black-Scholes |           |  | Number of |  |         | Weighted Average |  |  | Exercise    | 
|Expiry Date          |  | Value         |           |  | Options   |  |         | (Years)          |  |  | Price       | 
|November 23, 2013    |  | $             | 283,272   |  |           |  | 444,000 |                  |  |  | 0.50  years | 
|January 9, 2016      |  |               | 487,085   |  |           |  | 150,000 |                  |  |  | 0.57  years | 
|March 8, 2017        |  |               | 463,500   |  |           |  | 200,000 |                  |  |  | 1.05  years | 
|                     |  | $             | 1,233,857 |  |           |  | 794,000 |                  |  |  | 2.12  years | 



|At December 31, 2011 |  |               |           |  |           |  |         |                  |  |  |              | 
|-------------------- |  | ------------- | --------- |  | --------- |  | ------- | ---------------- |  |  | ------------ | 
|                     |  | Black-Scholes |           |  | Number of |  |         | Weighted Average |  |  | Exercise     | 
|Expiry Date          |  | Value         |           |  | Options   |  |         | (Years)          |  |  | Price        | 
|November 23, 2013    |  | $             | 327,932   |  |           |  | 514,000 |                  |  |  | 1.01   years | 
|August 25, 2014      |  |               | 268,405   |  |           |  | 300,000 |                  |  |  | 0.83   years | 
|January 9, 2016      |  |               | 487,085   |  |           |  | 150,000 |                  |  |  | 0.63   years | 
|                     |  | $             | 1,083,422 |  |           |  | 964,000 |                  |  |  | 2.47   years | 



The share-based payments recognized as an expense for each year
are:



|                                                        |  | Year ended   |         |  | Year ended   |   |         | Year ended   | 
|------------------------------------------------------- |  | ------------ | ------- |  | ------------ | - | ------- | ------------ | 
|                                                        |  | December 31, |         |  | December 31, |   |         | December 31, | 
|                                                        |  | 2012         |         |  | 2011         |   |         | 2010         | 
|Expense recognized in the year for share-based payments |  | $            | 463,500 |  |              | $ | 487,085 |              | 



The share-based payments expense for the
years ended December 31, 2012 and 2011 are recorded in Consulting fees.



Subsequent to the year-end, as detailed
in the table below, stock options were granted by the Board of Directors. The fair values of the stock options has been estimated
on the date of the grant using the Black-Scholes option pricing model, using the assumptions below, and total $327,250. The expected
volatility is calculated by reference to the weekly closing price for a period that reflects the expected life of the options,
recalculated for each of the grants.



|Date of grant                                                                                             |  | February 1, 2013 |             |   | March 11, 2013 |   |            | March 18, 2013 | 
|--------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | -------------- | - | ---------- | -------------- | 
|Number of options granted                                                                                 |  |                  | 100,000     |   |                |   | 100,000    |                | 
|Fair Value per option                                                                                     |  | $                | 1.337       |   |                | $ | 1.293      |                | 
|Fair Value total for grant                                                                                |  | $                | 133,700     |   |                | $ | 129,300    |                | 
|Term of option                                                                                            |  |                  | 5 years     |   |                |   | 5 years    |                | 
|Vesting                                                                                                   |  |                  | see below * |   |                |   | immediate  |                | 
|Assumptions:                                                                                              |  |                  |             |   |                |   |            |                | 
|Exercise price                                                                                            |  | $                | 4.08        |   |                | $ | 4.06       |                | 
|Expected volatility                                                                                       |  |                  | 43.96       | % |                |   | 43.7       | %              | 
|Expected option life                                                                                      |  |                  | 3.36 years  |   |                |   | 3.23 years |                | 
|Expected forfeiture                                                                                       |  |                  | none        |   |                |   | none       |                | 
|Expected option cancellation                                                                              |  |                  | none        |   |                |   | none       |                | 
|Expected dividend yield                                                                                   |  |                  | 0           | % |                |   | 0          | %              | 
|Risk-free interest rate                                                                                   |  |                  | 1.28        | % |                |   | 1.15       | %              | 
|* these options vest 1/3 immediately, and 1/3 on the first and 1/3 on the second anniversary of the grant | 



31







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | iv. | Loss Per Share
| | --- | --------------



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



|                                                                     |  | Year ended |                   |   | Year ended |   |                   | Year ended | 
|-------------------------------------------------------------------- |  | ---------- | ----------------- | - | ---------- | - | ----------------- | ---------- | 
|                                                                     |  |            | December 31, 2012 |   |            |   | December 31, 2011 |            | 
|Numerator                                                            |  |            |                   |   |            |   |                   |            | 
|Net loss for the period                                              |  | $          | (3,337,610        | ) |            | $ | (11,538,935       | )          | 
|                                                                     |  |            |                   |   |            |   |                   |            | 
|Denominator                                                          |  |            |                   |   |            |   |                   |            | 
|For basic - weighted average number of shares outstanding            |  |            | 82,191,626        |   |            |   | 79,553,515        |            | 
|Effect of dilutive securities                                        |  |            | -                 |   |            |   | -                 |            | 
|For diluted - adjusted weighted average number of shares outstanding |  |            | 82,191,626        |   |            |   | 79,553,515        |            | 
|                                                                     |  |            |                   |   |            |   |                   |            | 
|Loss Per Share                                                       |  |            |                   |   |            |   |                   |            | 
|Basic                                                                |  | $          | (0.04             | ) |            | $ | (0.15             | )          | 
|Diluted                                                              |  | $          | (0.04             | ) |            | $ | (0.15             | )          | 



For the year ended December 31, 2012, stock
options totaling 794,000 (December 31, 2011 – 964,000 stock options; 2010 - 3,741,501 stock options and warrants) are not
included in the calculation of diluted loss per share since to include them would be anti-dilutive.



| | v. | Shareholder Rights Plan
| | -- | -----------------------



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



32







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 10. | INCOME TAXES
| | --- | ------------



Rate Reconciliation



The provision for income tax differs from
the amount that would have resulted by applying the combined Canadian statutory income tax rates of approximately 26.5% (2011
and 2010 – 26.5%):





|                                                                    |  | December 31, 2012 |            |   | December 31, 2011 |   |            | December 31, 2010 | 
|------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | ----------------- | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|Loss before income taxes                                            |  | $                 | 3,337,610  |   |                   | $ | 11,538,935 |                   | 
|                                                                    |  |                   | 26.5       | % |                   |   | 26.5       | %                 | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|Tax recovery calculated using statutory rates                       |  |                   | 884,467    |   |                   |   | 3,057,818  |                   | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|Non-taxable portion of gain on Kennady North Project asset transfer |  |                   | 1,420,618  |   |                   |   | -          |                   | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|(Expenses not deductible)/ Earnings not taxable                     |  |                   | (123,904   | ) |                   |   | 69,491     |                   | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|Other                                                               |  |                   | 67,660     |   |                   |   | (33,226    | )                 | 
|                                                                    |  |                   |            |   |                   |   |            |                   | 
|Change in tax benefits not recognized                               |  |                   | (2,248,841 | ) |                   |   | (3,094,083 | )                 | 
|Income tax recovery (expenses)                                      |  | $                 | -          |   |                   | $ | -          |                   | 



Unrecognized deferred tax assets



Deferred income tax assets have not been
recognized in respect of the following items:





|                                          |  | December 31, 2012 |            |  | December 31, 2011 |  
|----------------------------------------- |  | ----------------- | ---------- |  | ----------------- | -
|Mineral properties                        |  | $                 | 14,556,178 |  |                   | $
|Decommissioning and restoration liability |  | $                 | 1,665,464  |  |                   | $
|Loss carryforwards                        |  | $                 | 2,288,519  |  |                   | $
|Share issuance cost                       |  | $                 | 443,119    |  |                   | $





As at December 31, 2012, the Company had
the following non-capital losses available for carryforward and deductible difference as follows:





|                                                                        |  | Amounts |            |  | Expiry Date | 
|----------------------------------------------------------------------- |  | ------- | ---------- |  | ----------- | 
|Non-capital losses                                                      |  | $       | 8,635,900  |  |             | 
|Tax basis of mineral properties                                         |  | $       | 55,597,300 |  |             | 
|Tax basis of mineral properties, successored                            |  | $       | 29,151,900 |  |             | 
|*Deductibility is restricted to income from specific mineral properties | 



33







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 11. | OTHER COMMITMENTS
| | --- | -----------------



The total future minimum lease payments
for office space by the Company under non-cancellable operating leases are as follows:



|                              |  | 2013 |         |  | 2014 |   |         | 2015 |  |   | 2016    |  |  | 2017 |         |  | Total |  
|----------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ----- | -
|Future minimum lease payments |  | $    | 142,256 |  |      | $ | 142,256 |      |  | $ | 142,256 |  |  | $    | 142,256 |  |       | $



| | 12. | RELATED PARTIES
| | --- | ---------------



The Company’s related parties include
the Gahcho Kué Joint Venture, Bottin, key management and their close family members, and the Company’s directors.
Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds have common
members of key management.



None of the transactions with related parties
incorporate special terms and conditions, and no guarantees were given or received. Related party transactions are recorded at
their exchange amount, being the amount agreed to by the parties. Outstanding balances are settled in cash.



The Company had the following transactions
and balances with its related parties including key management personnel and the Company’s directors, Bottin, the Gahcho
Kué Joint Venture, and Kennady Diamonds. The transactions with key management personnel are in the nature of remuneration.
The transactions with the Gahcho Kué Joint Venture relate to the funding of the Company’s interest in the Gahcho Kué
Joint Venture for the current year’s expenditures and capital additions. The transactions with Kennady Diamonds are for a
monthly management fee charged by the Company and reimbursement of expenses paid on behalf of Kennady Diamonds.



|                                                            |  | December 31, |            |  | December 31, |  |           | December 31, | 
|----------------------------------------------------------- |  | ------------ | ---------- |  | ------------ |  | --------- | ------------ | 
|                                                            |  | 2012         |            |  | 2011         |  |           | 2010         | 
|The total of the transactions:                              |  |              |            |  |              |  |           |              | 
|Bottin - Stand-by Fee under Stand-by Agreement (Note 9(ii)) |  |              | 706,261    |  |              |  | -         |              | 
|Kennady Diamonds                                            |  |              | 120,940    |  |              |  | -         |              | 
|Gahcho Kue Joint Venture expenditures                       |  |              | 10,729,343 |  |              |  | -         |              | 
|Remuneration                                                |  |              | 1,477,715  |  |              |  | 1,450,068 |              | 
|The amount of outstanding balances:                         |  |              |            |  |              |  |           |              | 
|Payable to the Gahcho Kue Joint Venture                     |  |              | 685,290    |  |              |  | -         |              | 
|Payable to key management personnel                         |  |              | 30,180     |  |              |  | 313,000   |              | 



The remuneration of directors and other
members of key management personnel for the years ended December 31, 2012, 2011 and 2010 were as follows:



|                                                     |  | December 31, |           |  | December 31, |   |           | December 31, | 
|---------------------------------------------------- |  | ------------ | --------- |  | ------------ | - | --------- | ------------ | 
|                                                     |  | 2012         |           |  | 2011         |   |           | 2010         | 
|Salary, bonus and other short-term employee benefits |  | $            | 1,014,215 |  |              | $ | 962,983   |              | 
|Share-based payments                                 |  |              | 463,500   |  |              |   | 487,085   |              | 
|                                                     |  | $            | 1,477,715 |  |              | $ | 1,450,068 |              | 



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



34







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



| | 13. | CAPITAL MANAGEMENT
| | --- | ------------------



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



The Company’s main property, Gahcho
Kué, is in the development and permitting stage, and as such the Company is dependent on external equity financing to fund
its activities. In order to carry out the planned management of our properties and pay for administrative costs, the Company will
spend its existing working capital and raise additional amounts as needed.



Management reviews its capital management
approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.



The Company’s capital for the reporting periods is summarized
as follows:



|                             |  | December 31, |             |   | December 31, |  
|---------------------------- |  | ------------ | ----------- | - | ------------ | -
|                             |  | 2012         |             |   | 2011         |  
|Share capital                |  | $            | 180,170,247 |   |              | $
|Share-based payments reserve |  |              | 1,233,857   |   |              |  
|Deficit                      |  |              | (94,213,695 | ) |              |  
|                             |  | $            | 87,190,409  |   |              | $



There were no changes in the Company’s
approach to capital management during the year ended December 31, 2012. Neither the Company nor its subsidiaries are subject to
externally imposed capital requirements.



| | 14. | SEGMENTED REPORTING
| | --- | -------------------



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



| | 15. | COMPLETION OF PLAN OF ARRANGEMENT WITH KENNADY DIAMONDS
INC.
| | --- | ------------------------------------------------------------



In January 2012, the Company announced
that the Board of Directors had approved a proposal to spin-out the Company’s 100%-controlled Kennady North project into
a newly incorporated company, Kennady Diamonds, through a plan of arrangement and subject to regulatory, court and shareholder
approvals.



On March 12, 2012, Kennady Diamonds and
Mountain Province entered into an arrangement agreement (the “Arrangement”) pursuant to which Mountain Province would
transfer its interest in the Kennady North Project, including permits, mining claims, rights and title, in the Northwest Territories
in Canada, and $3 million of cash, to Kennady Diamonds in exchange for one common share of Kennady Diamonds for every five common
shares of Mountain Province outstanding. The Arrangement called for the share capital of Mountain Province to be reorganized into
a new class of shares which would be distributed, with the Kennady Diamonds common shares, to the existing Mountain Province common
shareholders.



35







|MOUNTAIN PROVINCE DIAMONDS INC.                     
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|As at December 31, 2012 and 2011, and               
|For the Years Ended December 31, 2012, 2011 and 2010
|In Canadian Dollars                                 



The Arrangement was approved by the Board
of Directors of Mountain Province and was subject to approval by two-thirds of the votes cast by holders of Mountain Province common
shares, at a special meeting of Mountain Province shareholders held on April 25, 2012. The Mountain Province shareholders voted
99.57% in favour of the Arrangement. As well, on April 30, 2012, Mountain Province received final court approval for the Arrangement.
Regulatory approval was obtained by the Toronto Stock Exchange and the TSX Venture Exchange.



The various transactions under the Arrangement
were completed on July 6, 2012, the effective date of the Arrangement. The Company transferred the Kennady North Project and cash
of $3 million to Kennady Diamonds in exchange for 16,143,111 shares of Kennady Diamonds which in turn were distributed to the Mountain
Province shareholders on the basis of one Kennady Diamonds’ share for every five shares of Mountain Province held by the
shareholders.



The Company recorded the fair value of
the transaction as a dividend-in-kind of $13.7 million. The fair value was calculated by applying the simple average of the closing
share price for Kennady Diamonds on the TSX Venture Exchange for the first five days of its trading to the number of shares outstanding.
The fair value in excess of the book value of the transferred assets was recorded as a gain on asset transfer to Kennady Diamonds
of $10.7 million in the Company’s Statement of Comprehensive Loss.



36