Harry Winston Diamond Corporation Announces Third Quarter Fiscal 2008 Results

- Third Quarter Sales Increased 22% to $176.5 million

TORONTO, Dec. 12 /PRNewswire-FirstCall/ - Harry Winston Diamond
Corporation (TSX: HW, NYSE: HWD) today reported consolidated earnings from
operations of $66.3 million for the third quarter of Fiscal 2008, a 79%
increase over the prior year's comparable period. The operating earnings
growth was driven by a 22% increase in sales to $176.5 million and a 44%
increase in gross margin to $101.9 million.
Strong operating results were offset by a $40.6 million foreign exchange
loss, or $0.70 per share, primarily resulting from the revaluation of future
income taxes. During the third quarter that ended October 31, 2007, the
Canadian dollar, relative to the U.S. dollar, strengthened to $1.06,
representing a 13% increase over the second quarter. As a result, the Company
posted a net loss of $7.4 million or $(0.13) per share compared to net
earnings of $18.8 million, or $0.32 per share, in the prior year's period.
Excluding the impact of the foreign exchange loss for the third quarter, net
earnings would have been $33.2 million, or $0.57 per share.
Rio Tinto Plc, the operator of the Diavik Diamond Mine, has approved a
two-year capital programme to complete the development of an underground mine
which secures the future of the Diavik Project beyond 2020. With this new
development plan in hand, Harry Winston is well advanced in extending its
existing debt facilities which, together with cash flow from operations, will
fund Harry Winston's estimated additional $218 million contribution to
complete this project having already contributed $77 million over the last
year. To ensure prudent fiscal management it is the intention of the Board of
Directors to continue to pay dividends of $0.05 per quarter during the
construction period. The Board of Directors has, therefore, declared a
dividend of $0.05 per share to be paid on January 21, 2008 to shareholders of
record on December 28, 2007.
Third Quarter Fiscal 2008 Financial Highlights
(US$ in millions except Earnings per Share amounts)

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Three Three Nine Nine
months months months months
ended ended ended ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
2007 2006 2007 2006
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Sales 176.5 145.2 491.1 404.5
----------------------------------------
Earnings from operations 66.3 37.1 158.6 109.6
----------------------------------------
Net earnings (loss) (7.4) 18.8 16.0 77.0
----------------------------------------
Earnings (loss) per share
(diluted) $(0.13) $0.32 $0.27 $1.30
----------------------------------------
Currency exchange loss (40.6) (1.6) (65.7) (1.0)
----------------------------------------
Currency exchange loss per share $(0.70) $(0.03) $(1.12) $(0.02)
-------------------------------------------------------------------------

"I am pleased with the record quarterly and year-to-date sales and strong
earnings from operations. Harry Winston Diamond Corporation's 79% increase in
operational results underscores the importance of our unique marketing
position as a pure diamond company. As the diamond production from the Diavik
Mine increases, we are poised to take advantage of the growing global demand
against a backdrop of diminishing world diamond supply," said Robert
Gannicott, Chairman and Chief Executive Officer. "In addition, our Harry
Winston retail business, with an expanding worldwide network of salons,
continues to focus on long-term growth and profits."
Thomas J. O'Neill, President of Harry Winston Diamond Corporation and
Chief Executive Officer of Harry Winston Inc., added, "During the quarter, we
continued to focus on a calibrated growth strategy and to strengthen our core
business. Although we faced a more challenging U.S. environment, we were
pleased with our momentum in Asia and Europe for Harry Winston jewelry and
watches. We continue to see an increasing demand for our designed and
hand-crafted diamond jewelry and watches in our salons and in our select
wholesale watch network worldwide."
Alice Murphy, Chief Financial Officer, said "Although our foreign exchange
loss is substantially non-cash, the strengthening of the Canadian dollar
throughout the year has dramatically impacted our year-to-date net earnings
and entirely masked our strong third quarter operational results. Currently,
the foreign exchange rate is close to parity which would support a currency
gain in the fourth quarter should this rate continue to January 31, 2008 year
end."
Mining Segment Results
Mining revenues, representing production and sales of rough diamonds,
increased 35% or $32 million, to $122.7 million in the third quarter. The
Company held three primary rough diamond sales in the third quarter and two
primary sales in the comparable quarter of the prior year. In addition, as the
Company continues to expand its rough diamond sales network, sales are now
conducted throughout the quarter in selling offices in Belgium, Israel and
India.
Mining earnings from operations were $70.0 million, representing a 72%
increase, or $29.4 million, from the prior year comparable quarter. Additional
highlights of the Harry Winston Diamond Corporation's 40% share of the Diavik
Mine production include:
(Reported on a one-month lag)

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Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
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Diamond recovered (000s carats) 1,249 1,132 3,600 2,934
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Grade (carats/tonne) 4.75 3.92 4.95 4.02
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Operating costs, cash
($US millions) 28.2 26.4 79.7 71.1
-------------------------------------------------------------------------
Operating costs per carat,
cash ($US) 23 23 22 24
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Retail Segment Results

Harry Winston's retail segment reported sales of $53.8 million compared to
$54.5 million for the comparable quarter of the prior year, or relatively flat
to last year. International sales increased 16%, or $4.8 million, to $34.4
million in the third quarter as a result of increases in existing store sales
and sales from three new salons that helped offset the effects of a robbery at
the Paris Salon. U.S. third quarter sales decreased 22%, or $5.5 million, from
$24.9 million to $19.4 million primarily due to the effect of volatility in
the U.S. financial markets. As a result, the segment reported a loss from
operations of $3.6 million compared to a loss of $3.5 million in the prior
year. In addition, included in last year's quarterly results was a $6.3
million adjustment for stock compensation triggered by the acquisition of the
remaining portion of the Harry Winston Inc. operations.
At the end of the third quarter, the Company operated 16 salons compared
to 12 salons in the prior year. In addition, during the third quarter the
Company opened a new watch manufacturing facility in Geneva, Switzerland to
support increased capacity for the growing timepiece business.
Web cast
As previously announced, Harry Winston Diamond Corporation will host a
webcast on Thursday, December 13th beginning at 9:00 AM (EST) to review these
results and its outlook. Interested parties may listen to a broadcast on the
Company's website at investor.harrywinston.com. An online archive of the
webcast will be available on the Company's website later the same day. Harry
Winston Diamond Corporation's unaudited consolidated interim financial
statements together with Management's Discussion and Analysis are available on
the Company's web site and on SEDAR (www.sedar.com).
Information in this news release that is not current or historical factual
information may constitute forward-looking information or statements within
the meaning of applicable securities laws. Implicit in this information,
particularly in respect of statements as to future operating results and
economic performance of Harry Winston Diamond Corporation, and capital
commitments at the Diavik Mine, are assumptions regarding projected revenue
and expense, diamond prices, mining and mine construction and development
costs and the Canadian/US dollar exchange rate. Specifically, in estimating
Harry Winston Diamond Corporation's share of the Diavik Mine capital
expenditure requirements, Harry Winston Diamond Corporation has used a
Canadian/US dollar exchange rate of $1.00, and has assumed that construction
will continue on schedule and without undue disruption with respect to current
underground mining construction initiatives. These assumptions, although
considered reasonable by Harry Winston Diamond Corporation at the time of
preparation, may prove to be incorrect. Forward-looking information is subject
to certain factors, including risks and uncertainties, which could cause
actual results to differ materially from what we currently expect. These
factors include, among other things, the uncertain nature of mining and mine
development activities, risks associated with underground construction
activities, risks associated with joint venture operations, risks associated
with the remote location of the Diavik Mine site, risks associated with
regulatory and financing requirements, fluctuations in diamond prices, changes
in world economic conditions and the risk of continued fluctuations in the
Canadian/US dollar exchange rate.
About Harry Winston Diamond Corporation
Harry Winston Diamond Corporation (NYSE: HWD; TSX: HW) is a specialist
diamond enterprise with assets in the mining and retail segments of the
diamond industry. The company supplies rough diamonds to the global market
from its 40% interest in the Diavik Diamond Mine, located in Canada's
Northwest Territories. The company's retail division, Harry Winston, Inc., is
a premier jewelry and timepiece retailer with salons in key locations
including New York, Paris, London, Beijing, Tokyo and Beverly Hills. For more
information, please go to www.harrywinston.com or for investor information,
visit investor.harrywinston.com.

Highlights

(All figures are in United States dollars unless otherwise indicated)

The Company achieved record consolidated sales for the second consecutive
quarter, generating a 44% increase in gross margin and a 79% increase in
consolidated earnings from operations over the comparable quarter of the prior
year. Consolidated quarterly sales totalled $176.5 million with earnings from
operations of $66.3 million compared to $145.2 million and $37.1 million,
respectively, for the comparable quarter of the prior year.
Net earnings results for the quarter include the negative effects of a net
$40.6 million foreign exchange loss, or $0.70 per share, compared to a $1.6
million foreign exchange loss, or $0.03 per share, in the comparable quarter
of the prior year. The loss is a result of the 13% strengthening of the
Canadian dollar relative to the US dollar during the quarter, which ended
October 31, 2007. This loss relates principally to the revaluation of the
Company's Canadian dollar denominated long-term future income tax liability.
Foreign exchange charges from the revaluation of the Canadian tax liability
are not tax deductible, resulting in a quarterly income tax provision of $26.2
million against earnings before income taxes of $18.9 million. Consequently, a
net loss of $7.4 million, or $0.13 per share, was incurred in the quarter
compared to prior year net earnings of $18.8 million, or $0.32 per share.
The improvement in consolidated sales and earnings from operations was
driven by the mining segment, which posted a 35% quarterly increase in sales
to $122.7 million, and a 72% increase in earnings from operations to $70.0
million, compared to the same quarter of the prior year. Diamond production at
the Diavik Mine, which is recorded on a quarterly calendar basis, increased by
10% to 1.25 million carats for the three months ended September 30, 2007, from
1.13 million carats for the comparable period of the prior year.
Third quarter sales of $53.8 million and a loss from operations of $3.6
million for Harry Winston's retail segment were marginally weaker than the
comparable quarter of last year, primarily due to the effect of volatility in
the US financial markets and the business disruption resulting from a
significant robbery at the Paris salon. The Company was fully insured for the
inventory loss and expects to record a pre-tax gain of approximately $13
million in the fourth quarter reflecting the anticipated settlement of the
insurance claim.
Rio Tinto Plc, the operator of the Diavik Diamond Mine, has approved a
two-year capital program to complete the development of an underground mine
which secures the future of the Diavik Project beyond 2020. With this new
development plan in hand, Harry Winston is well advanced in extending its
existing debt facilities which, together with cash flow from operations, will
fund Harry Winston's estimated additional $218 million contribution to
complete this project having already contributed $77 million over the last
year. To ensure prudent fiscal management it is the intention of the Board of
Directors to continue to pay dividends of $0.05 per quarter during the
construction period. The Board of Directors has, therefore, declared a
dividend of $0.05 per share to be paid on January 21, 2008 to shareholders of
record on December 28, 2007.
Management's Discussion and Analysis
(all figures are in United States dollars unless otherwise indicated)
Prepared as of December 12, 2007

On November 9, 2007, Aber Diamond Corporation changed its name to Harry
Winston Diamond Corporation.
The following is management's discussion and analysis ("MD&A") of the
results of operations for Harry Winston Diamond Corporation ("Harry Winston
Diamond Corporation", or the "Company") for the three and nine months ended
October 31, 2007, and its financial position as at October 31, 2007. This MD&A
is based on the Company's consolidated financial statements prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP") and should be read in conjunction with the unaudited consolidated
financial statements and notes thereto for the three and nine months ended
October 31, 2007 and the audited consolidated financial statements of the
Company and notes thereto for the year ended January 31, 2007. Unless
otherwise specified, all financial information is presented in United States
dollars. Unless otherwise indicated, all references to "third quarter" refer
to the three months ended October 31, 2007. Unless otherwise indicated,
references to "international" for the retail segment refer to Europe and Asia.
Certain comparative figures have been reclassified to the current year's
presentation.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain information included in this MD&A may constitute forward-looking
information within the meaning of securities laws. In some cases,
forward-looking information can be identified by the use of terms such as
"may", "will", "should", "expect", "plan", "anticipate", "believe", "intend",
"estimate", "predict", "potential", "continue" or other similar expressions
concerning matters that are not historical facts. Forward-looking information
may relate to management's future outlook and anticipated events or results,
and may include statements or information regarding projected capital
expenditure requirements, the operation of the Geneva watch factory, estimated
reserves and resources at, and production from, the Diavik Mine in 2007,
potential improvements in grade and tonnage at the Diavik Mine, the expected
life of the Diavik Mine, the timing of a revised resource statement, plans,
timelines and targets for construction, mining, development, production and
exploration activities at the Diavik Mine, future mining and processing at the
Diavik Mine, the number and timing of expected rough diamond sales, projected
sales growth and new store openings at Harry Winston, expected gross margin
and expense trends in the retail segment, expected diamond prices and
expectations concerning the diamond industry.
Forward-looking information is based on certain factors and assumptions
regarding, among other things, mining, production, construction and
exploration activities at the Diavik Mine, world and US economic conditions,
and the level of worldwide diamond production, the expected sales mix at Harry
Winston's retail segment, expected salon openings and potential improvements
in sourcing and purchasing polished diamonds. Specifically, in estimating
Harry Winston Diamond Corporation's projected share of the Diavik Mine capital
expenditure requirements, Harry Winston Diamond Corporation has used a
Canadian/US dollar exchange rate of $1.00, and has assumed that construction
will continue on schedule and without undue disruption with respect to current
underground mining construction initiatives. In making statements regarding
estimated production at the Diavik Mine, potential improvements in grade and
tonnage at the Diavik Mine, future mining activity and mine plans and future
rough diamond sales, Harry Winston Diamond Corporation has assumed that mining
operations and exploration activities will proceed in the ordinary course
according to schedule and consistent with past results.
Forward-looking information is subject to certain factors, including risks
and uncertainties, which could cause actual results to differ materially from
what we currently expect. These factors include, among other things, the
uncertain nature of mining activities including risks associated with
underground construction and mining operations, risks associated with joint
venture operations, risks associated with the remote location of and harsh
climate at the Diavik Mine site, risks associated with regulatory
requirements, fluctuations in diamond prices and changes in US and world
economic conditions, the risk of fluctuations in the Canadian/US dollar
exchange rate, risks relating to the Company's salon expansion strategy and
the risks of competition in the luxury jewelry segment. Please see page 21 of
this interim report, as well as the Company's annual report, available at
www.sedar.com, for a more comprehensive discussion of these and other risks
and uncertainties involved in Harry Winston Diamond Corporation's operations.
You should not place undue importance on forward-looking information and
should not rely upon this information as of any other date. While Harry
Winston Diamond Corporation may elect to, it is under no obligation and does
not undertake to update this information at any particular time, except as
required by law.
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Summary Discussion

Prior to November 9, 2007, Harry Winston Diamond Corporation was known as
Aber Diamond Corporation. The name change reflects the rebranding of the
Company and its international position as a premier diamond company.
Harry Winston Diamond Corporation is a specialist diamond company focusing
on the mining and retail segments of the diamond industry. The Company
supplies rough diamonds to the global market from production received from its
40% ownership interest in the Diavik Diamond Mine (the "Diavik Mine"), located
off Lac de Gras in Canada's Northwest Territories. Harry Winston Diamond
Corporation also owns a 100% interest in Harry Winston Inc., the premier fine
jewelry and watch retailer. Harry Winston Diamond Corporation's mission is to
deliver shareholder value through the enhanced earning power and longevity of
the Diavik Mine asset as the cornerstone of a profitable synergy with the
Harry Winston brand. In a changing diamond market-place, Harry Winston Diamond
Corporation has charted a unique course to continue to build shareholder
value.
The Company's most significant asset is a 40% interest in the Diavik group
of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an
unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI" -
60%) and Harry Winston Diamond Mines Ltd. (formerly Aber Diamond Mines Ltd.)
(40%) where Harry Winston Diamond Corporation owns an undivided 40% interest
in the assets, liabilities and expenses. DDMI is the operator of the Diavik
Mine. Both companies are headquartered in Yellowknife, Canada. DDMI is a
wholly owned subsidiary of Rio Tinto plc of London, England, and Harry Winston
Diamond Mines Ltd. is a wholly owned subsidiary of Harry Winston Diamond
Corporation of Toronto, Canada. The name of Aber Diamond Mines Ltd. was
changed to Harry Winston Diamond Mines Ltd. on December 3, 2007.
Market Commentary
The Diamond Market
During the third quarter, demand for rough diamonds continued to increase
across all ranges, leading to higher rough diamond prices.
Steady demand for polished diamonds in the US market and continued growth
from Asia supported higher polished diamond prices. This was particularly
evident in the better quality white goods, three carats and above. Strong
demand in these ranges is expected to lead to further price increases before
the end of the year.
The Retail Jewelry Market
Sales in the luxury retail jewelry and watch sector were generally robust
worldwide despite the volatility in the US financial markets.
Consolidated Financial Results
The following is a summary of the Company's consolidated quarterly results
for the eight quarters ended October 31, 2007 following the basis of
presentation utilized in its Canadian GAAP financial statements:
(expressed in thousands of United States dollars, except per share
amounts and where otherwise noted)(unaudited)

2008 2008 2008
Q3 Q2 Q1
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Sales $176,478 $173,269 $141,365
Cost of sales 74,591 81,827 71,132
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Gross margin 101,887 91,442 70,233
Gross margin (%) 57.7% 52.8% 49.7%
Selling, general and
administrative expenses 35,539 35,201 34,211
-------------------------------------------------------------------------
Earnings from operations 66,348 56,241 36,022
-------------------------------------------------------------------------
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Interest and financing expenses (7,422) (7,222) (6,132)
Other income (expense) 594 545 913
Foreign exchange gain (loss) (40,584) (11,785) (13,292)
-------------------------------------------------------------------------
Earnings before income taxes 18,936 37,779 17,511
Income taxes 26,197 17,747 14,118
-------------------------------------------------------------------------
Earnings (loss) before minority
interest (7,261) 20,032 3,393
Minority interest 90 (26) 140
-------------------------------------------------------------------------
Net earnings (loss) $ (7,351) $ 20,058 $ 3,253
-------------------------------------------------------------------------
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Basic earnings (loss) per share $ (0.13) $ 0.34 $ 0.06
Diluted earnings (loss) per share $ (0.13) $ 0.33 $ 0.05
Cash dividends declared per share $ 0.25 $ 0.25 $ 0.25
Total assets(i) $ 1,433 $ 1,367 $ 1,315
Total long-term liabilities(i) $ 530 $ 486 $ 408
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2007 2007 2007 2007
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $154,328 $145,232 $139,962 $119,271
Cost of sales 78,559 74,636 68,458 63,845
-------------------------------------------------------------------------
Gross margin 75,769 70,596 71,504 55,426
Gross margin (%) 49.1% 48.6% 51.1% 46.5%
Selling, general and
administrative expenses 38,590 33,480 27,171 27,295
-------------------------------------------------------------------------
Earnings from operations 37,179 37,116 44,333 28,131
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest and financing expenses (6,441) (5,570) (4,805) (4,334)
Other income (expense) (111) 1,764 1,805 1,623
Foreign exchange gain (loss) 9,831 (1,560) 2,619 (2,106)
-------------------------------------------------------------------------
Earnings before income taxes 40,458 31,750 43,952 23,314
Income taxes 13,169 13,005 9,692 (1,036)
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Earnings (loss) before minority
interest 27,289 18,745 34,260 24,350
Minority interest (5) (86) (5) 471
-------------------------------------------------------------------------
Net earnings (loss) $ 27,294 $ 18,831 $ 34,265 $ 23,879
-------------------------------------------------------------------------
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Basic earnings (loss) per share $ 0.47 $ 0.32 $ 0.59 $ 0.41
Diluted earnings (loss) per share $ 0.46 $ 0.32 $ 0.58 $ 0.40
Cash dividends declared per share $ 0.25 $ 0.25 $ 0.25 $ 0.25
Total assets(i) $ 1,288 $ 1,246 $ 1,116 $ 1,111
Total long-term liabilities(i) $ 536 $ 530 $ 460 $ 460
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Nine Nine
Months Months
Ended Ended
2006 Oct. 31, Oct. 31,
Q4 2007 2006
-------------------------------------------------------------------------
Sales $125,891 $491,112 $404,465
Cost of sales 52,782 227,550 206,939
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Gross margin 73,109 263,562 197,526
Gross margin (%) 58.1% 53.7% 48.8%
Selling, general and
administrative expenses 36,654 104,951 87,944
-------------------------------------------------------------------------
Earnings from operations 36,455 158,611 109,582
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest and financing expenses (4,511) (20,776) (14,709)
Other income (expense) 1,767 2,052 5,191
Foreign exchange gain (loss) (5,392) (65,661) (1,049)
-------------------------------------------------------------------------
Earnings before income taxes 28,319 74,226 99,015
Income taxes 10,534 58,062 21,662
-------------------------------------------------------------------------
Earnings (loss) before minority
interest 17,785 16,164 77,353
Minority interest 2,876 204 379
-------------------------------------------------------------------------
Net earnings (loss) $ 14,909 $ 15,960 $ 76,974
-------------------------------------------------------------------------
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Basic earnings (loss) per share $ 0.26 $ 0.27 $ 1.32
Diluted earnings (loss) per share $ 0.27 $ 0.27 $ 1.30
Cash dividends declared per share $ 0.25 $ 0.75 $ 0.75
Total assets(i) $ 1,044 $ 1,433 $ 1,246
Total long-term liabilities(i) $ 434 $ 530 $ 530
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(i) Total assets and total long-term liabilities are expressed in
millions of United States dollars.

The comparability of quarter-over-quarter results is impacted by
seasonality for both the mining and retail segments. Harry Winston Diamond
Corporation expects that the quarterly results for its mining segment will
continue to fluctuate depending on the seasonality of production at the Diavik
Mine, the number of primary and secondary sales events conducted at each sales
location during the quarter, and the volume, size and quality distribution of
rough diamonds delivered from the Diavik Mine in each quarter. The quarterly
results for the retail segment are also seasonal, with generally higher sales
during the fourth quarter due to the holiday season.
Three Months Ended October 31, 2007
Compared to Three Months Ended October 31, 2006

Consolidated Net Earnings

The third quarter consolidated net loss of $7.4 million or $0.13 per share
compares to net earnings of $18.8 million or $0.32 per share in the prior
period last year. This reduction in net earnings is substantially due to a
$40.6 million foreign exchange loss related principally to an unrealized
non-cash cost on future income taxes payable, as discussed under "Consolidated
Income Taxes" below, as compared to a foreign exchange loss of $1.6 million in
the comparable period last year. The comparable quarter of the prior year
included a $6.3 million adjustment for stock compensation triggered by the
acquisition of the remaining portion of the Harry Winston Inc. retail
operations.
Consolidated Revenue
Revenue for the third quarter totalled $176.5 million, representing a 22%
increase over the comparable quarter last year of $145.2 million. On a segment
basis, rough diamond sales were $122.7 million and sales from Harry Winston's
retail salons were $53.8 million as compared to $90.8 million and $54.5
million, respectively, for the comparable quarter of the prior year. Retail
segment sales for the quarter were marginally lower than the comparable
quarter of last year, reflecting the effect of volatility in the US financial
markets and a significant robbery at the Paris salon. Ongoing quarterly
variations in revenues are inherent in Harry Winston Diamond Corporation's
business, resulting from the seasonality of the mining and retail activities
as well as from the variability of the rough diamond sales schedule.
Consolidated Cost of Sales and Gross Margin
The Company's third quarter cost of sales was $74.6 million consistent
with the comparable quarter of the prior year, however gross margin increased
significantly to 57.7% from 48.6% as a result of strong mining segment sales.
The Company's cost of sales includes cash and non-cash costs associated with
mining, sorting and retail sales activities. See "Segmented Analysis" on page
11 for additional information.
Consolidated Selling, General and Administrative Expenses
The principal components of selling, general and administrative ("SG&A")
expenses include expenses for salaries and benefits (including salon
personnel), advertising, professional fees, rent and building related costs.
SG&A expenses for the third quarter were $35.5 million as compared to $33.5
million for the comparable quarter of the prior year. The increase in SG&A
expenses relates to both the mining segment and the retail segment. For the
mining segment, the increase was as a result of the continued development of
our global selling, marketing and administrative operations. For the retail
segment the increase was as a result of our expanded salon retail base, and
reflected an increase in salaries and benefits, rent and building related
expenses and depreciation and amortization expense. The comparable quarter of
the prior year for the retail segment included a $6.3 million stock
compensation charge triggered by the acquisition of the remaining portion of
the Harry Winston Inc. retail operations. See "Segmented Analysis" on page 11
for additional information.
Consolidated Income Taxes
Harry Winston Diamond Corporation recorded a tax expense of $26.2 million
during the third quarter of fiscal 2008, compared to a tax expense of $13.0
million in the comparable quarter of the previous year.
The Company's functional and reporting currency is US dollars; however,
the calculation of income tax expense is based on income in the currency of
the country of origin. As such, the Company is continually subject to foreign
exchange fluctuations, particularly as the Canadian dollar moves against the
US dollar. During the third quarter of fiscal 2008, the Canadian dollar
strengthened by 13% relative to the US dollar during the quarter. As a result,
the Company recorded a foreign exchange loss of $40.6 million, of which $31.4
million was unrealized and resulted from the revaluation of the Company's
Canadian dollar denominated future income tax liability. This foreign exchange
loss is not deductible for Canadian income tax purposes, as the loss does not
exist when calculating the income of the Company in Canadian dollars, which is
the basis of income tax expense computation.
Because of the significant non-deductible unrealized non-cash foreign
exchange loss incurred during the third quarter, the Company's effective
income tax rate for the quarter is substantially inflated. The foreign
exchange loss resulted in a considerably lower net income before tax in US
dollars relative to the net income before tax in the currency of the country
of origin in which income tax expense is calculated. Consequently, all
reconciliation items, when presented as a percentage of the US dollar net
income, become much higher in the current quarter. For the third quarter of
fiscal 2008, the Company's effective income tax rate is 138%. The impact of
foreign exchange accounted for 69% of the overall effective tax rate for the
third quarter. The Northwest Territories mining royalty in the current
quarter, as a percentage of the US dollar net income, is also much higher as
the royalty is computed based on income in Canadian dollars.
The rate of income tax payable by Harry Winston Inc. varies by
jurisdiction. Net operating losses are available in certain jurisdictions to
offset future income taxes payable in such jurisdictions. The net operating
losses are scheduled to expire through 2027.
The Company has provided a table below summarizing the movement from the
statutory to the effective income tax rate as a percentage of earnings before
taxes:

Three Three
Months Months
Ended Ended
Oct. 31, Oct. 31,
2007 2006
-------------------------------------------------------------------------
Statutory income tax rate 34% 37%
Stock compensation 2% 1%
Northwest Territories mining royalty (net of
income tax relief) 33% 12%
Impact of foreign exchange 69% (4)%
Earnings subject to tax different than statutory rate (15)% (4)%
Changes in valuation allowance 10% 2%
Other items 5% (3)%
Effective income tax rate 138% 41%
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Consolidated Interest and Financing Expenses

Interest and financing expenses of $7.4 million were incurred during the
third quarter compared to $5.6 million during the comparable quarter of the
prior year. The increase in interest and financing expenses is mainly due to
higher debt levels at Harry Winston's retail segment to finance increased
inventory levels and salon openings.
Consolidated Other Income
Other income, which includes interest income on the Company's various bank
balances, was $0.6 million during the third quarter compared to $1.8 million
in the comparable quarter of the prior year. The reduction in other income is
due to higher cash balances held in the comparable quarter of the prior year
in advance of the Harry Winston Inc. acquisition.
In October 2007, approximately $23.2 million in Company-owned retail
inventory at cost was stolen during a robbery at the Harry Winston Paris
salon, and charged to other income during the quarter. The Company is fully
insured against the loss, and has offset the inventory write-off by setting up
a receivable of equal value in respect of the insurance proceeds. The
insurance claim is subject to investigation by the insurance company and is
scheduled to be concluded during the fourth quarter of fiscal 2008, at which
time the claim will be settled. The insurance settlement is expected to result
in the recording of a gain in the fourth quarter of approximately $13 million
pre-tax in retail segment other income, representing the difference between
the cost of the inventory stolen and the insurance proceeds received.
Consolidated Foreign Exchange Loss
A foreign exchange loss of $40.6 million was recognized during the third
quarter compared to a loss of $1.6 million in the comparable quarter of the
prior year. The current quarter loss is comprised of a realized foreign
exchange gain of $1.0 million and an unrealized, non-cash loss of $41.6
million relating principally to the revaluation of the Company's Canadian
dollar denominated long-term future income tax liability stemming from the
strengthening of the Canadian dollar against the US dollar at quarter end.
Harry Winston Diamond Corporation's ongoing currency exposure relates
primarily to expenses and obligations incurred in Canadian dollars, as well as
to the revaluation of certain Canadian monetary balance sheet amounts. The
Company does not currently have any significant derivative instruments
outstanding.
Nine Months Ended October 31, 2007 Compared to Nine Months Ended
October 31, 2006

Consolidated Net Earnings

Net earnings for the nine months ended October 31, 2007 of $16.0 million
or $0.27 per share compares to $77.0 million or $1.32 per share for the nine
months ended October 31, 2006. This reduction in net earnings is substantially
due to a significant foreign exchange loss of $65.7 million related
principally to an unrealized non-cash cost on future income taxes payable as
compared to a foreign exchange loss of $1.0 million in the comparable
year-to-date period last year. The comparable nine-month period of the prior
year included a $6.3 million adjustment to stock compensation triggered by the
acquisition of the remaining portion of the Harry Winston Inc. retail
operations. In addition, the comparable year-to-date period included a future
income tax recovery of $17.0 million attributable to reductions in future
income tax rates.
Consolidated Revenue
Revenue for the nine months ended October 31, 2007 was $491.1 million,
representing an increase of 21% over revenue of $404.5 million for the nine
months ended October 31, 2006. Rough diamond sales accounted for $310.5
million of this revenue compared to $251.5 million for the comparable period
of the prior year. Retail segment sales of $180.6 million accounted for the
balance, compared to $152.9 million for the comparable period of the prior
year. Year-to-date sales performance for the retail segment was negatively
impacted by certain third quarter events, namely the effect of volatility in
the US financial markets and the impact of the Paris salon robbery.
Consolidated Cost of Sales and Gross Margin
The Company recorded cost of sales of $227.6 million during the nine
months ended October 31, 2007 compared to $206.9 million during the nine
months of the prior year, and gross margin increased significantly to 53.7%
from 48.8% as a result of strong year-to-date mining segment sales. The
Company's cost of sales includes cash and non-cash costs associated with
mining, sorting and retail sales activities.
Consolidated Selling, General and Administrative Expenses
Harry Winston Diamond Corporation incurred SG&A expenses of $105.0 million
for the nine months ended October 31, 2007, compared to $87.9 million for the
nine months ended October 31, 2006. SG&A expenses for the current nine months
included $17.7 million for the mining segment and $87.3 million for the retail
segment as compared to $13.8 million and $74.1 million, respectively, for the
comparable nine-month period of the prior year. The principal components of
SG&A expenses are salaries (including salon personnel), advertising,
professional fees, rent, and related office costs.
The increase in SG&A expenses was primarily a result of Harry Winston's
retail expansion strategy, which included the opening of additional salons,
and the growing international presence of our mining sales segment. The
increase of $17.1 million in SG&A expenses from the comparable period of the
prior year included an increase of $4.5 million in advertising and selling
expenses, $4.1 million in rent and building related expenses, and $2.9 million
in amortization expense. Included in the comparable nine-month period of the
prior year was a $6.3 million adjustment to stock compensation triggered by
the acquisition of the remaining portion of the Harry Winston Inc. operations,
which was partially offset by the reversal of a specific provision against
accounts receivable of $2.2 million.
Consolidated Income Taxes
The Company recorded a tax expense of $58.1 million during the nine months
ended October 31, 2007, compared to $21.7 million for the comparable period of
the prior year. The Company's effective income tax rate for the nine months
ended October 31, 2007 was 78%, which was based on a statutory income tax rate
of 34% adjusted for the Northwest Territories mining royalty, items that are
not deductible for income tax purposes, impact of foreign exchange, earnings
subject to tax different than the statutory income tax rate, and impact of
changes in future income tax rates. During the nine months ended October 31,
2007, the Company recorded a future tax recovery of $0.9 million as a result
of the decrease in the Federal corporate income tax rates commencing January
1, 2011, which was substantively enacted during the period. This compares with
a future tax recovery of $17.0 million recorded in the comparable period of
the prior year, which resulted from the decrease in Northwest Territories and
Federal corporate income tax rates and the elimination of Federal surtax.
During the nine months ended October 31, 2007, the Company recorded an
unrealized non-cash foreign exchange loss of $54.7 million on the revaluation
of the Canadian dollar denominated future income tax liability, which is not
deductible for Canadian income tax purposes. The significant unrealized
foreign exchange loss is the primary reason for the increase of the overall
effective income tax rate in the current period.
The rate of income tax payable by Harry Winston Inc. varies by
jurisdiction. Net operating losses are available in certain jurisdictions to
offset future income taxes payable in such jurisdictions. The net operating
losses are scheduled to expire through 2027.
The Company has provided a table below summarizing the movement from the
Company's statutory to the effective income tax rate as a percentage of
earnings before taxes:

Nine Nine
Months Months
Ended Ended
Oct. 31, Oct. 31,
2007 2006
-------------------------------------------------------------------------
Statutory income tax rate 34% 37%
Stock compensation 0% 1%
Northwest Territories mining royalty (net of income
tax relief) 18% 9%
Impact of change in future income tax rate (1)% (17)%
Impact of foreign exchange 27% (3)%
Earnings subject to tax different than statutory rate (6)% (4)%
Changes in valuation allowance 1% 0%
Benefits of losses recognized as reduction of goodwill 2% 0%
Other items 3% (1)%
Effective income tax rate 78% 22%
-------------------------------------------------------------------------

Consolidated Interest and Financing Expenses

Interest and financing expenses of $20.8 million were incurred during the
nine months ended October 31, 2007 compared to $14.7 million for the
comparable period of the preceding year. The increase in interest and
financing expenses is due to a combination of higher debt levels at Harry
Winston's retail segment to finance increased inventory levels and salon
openings, an increased drawdown of Harry Winston Diamond Corporation's
expanded credit facility related to the Harry Winston Inc. retail acquisition,
and higher interest rates.
Consolidated Other Income
Other income, which includes interest income on the Company's various bank
balances, was $2.1 million during the nine months ended October 31, 2007
compared to $5.2 million for the comparable period of the preceding year. The
reduction in income is due to higher cash balances held in the comparable
period of the prior year in advance of the Harry Winston Inc. acquisition.
Consolidated Foreign Exchange Gain (Loss)
A foreign exchange loss of $65.7 million was recognized during the nine
months ended October 31, 2007 compared with a loss of $1.0 million recorded
during the nine months ended October 31, 2006. The current year-to-date loss
is comprised of a realized foreign exchange gain of $0.8 million and an
unrealized, non-cash loss of $66.5 million relating principally to the
revaluation of the company's Canadian dollar denominated long-term future
income tax liability as a result of the strengthening of the Canadian dollar
against the US dollar at quarter end. The Company's ongoing currency exposure
relates primarily to expenses and obligations incurred in Canadian dollars, as
well as the revaluation of certain Canadian monetary balance sheet amounts.
The Company does not currently have any significant derivative instruments
outstanding.
Segmented Analysis

The operating segments of the Company include mining and retail segments.

Mining

The mining segment includes the production and sale of rough diamonds.

(expressed in thousands of United States dollars) (unaudited)

2008 2008 2008
Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $122,711 $105,071 $ 82,752
Cost of sales 45,985 46,217 40,516
-------------------------------------------------------------------------
Gross margin 76,726 58,854 42,236
Gross margin (%) 62.5% 56.0% 51.0%
Selling, general and
administrative expenses 6,748 5,861 5,087
-------------------------------------------------------------------------
Earnings from operations $ 69,978 $ 52,993 $ 37,149
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2007 2007 2007 2007
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 81,035 $ 90,754 $ 91,476 $ 69,308
Cost of sales 39,413 45,461 43,256 38,749
-------------------------------------------------------------------------
Gross margin 41,622 45,293 48,220 30,559
Gross margin (%) 51.4% 49.9% 52.7% 44.1%
Selling, general and
administrative expenses 7,397 4,665 4,373 4,787
-------------------------------------------------------------------------
Earnings from operations $ 34,225 $ 40,628 $ 43,847 $ 25,772
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine Nine
Months Months
Ended Ended
2006 Oct. 31, Oct. 31,
Q4 2007 2006
-------------------------------------------------------------------------
Sales $ 62,528 $310,534 $251,538
Cost of sales 22,780 132,718 127,466
-------------------------------------------------------------------------
Gross margin 39,748 177,816 124,072
Gross margin (%) 63.6% 57.3% 49.3%
Selling, general and
administrative expenses 8,221 17,696 13,824
-------------------------------------------------------------------------
Earnings from operations $ 31,527 $160,120 $110,248
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months Ended October 31, 2007
Compared to Three Months Ended October 31, 2006

Mining Revenue

Sales for the third quarter totalled $122.7 million compared to $90.8
million in the comparable quarter of the prior year. The Company held three
primary rough diamond sales in the current quarter and two primary sales in
the comparable quarter of last year. With Harry Winston Diamond Corporation's
continued expansion of its global rough diamond sales network, sales are now
conducted throughout the quarter in each of the Company's three selling
offices located in Belgium, Israel and India. Harry Winston Diamond
Corporation expects that the quarterly results for its mining segment will
continue to fluctuate depending on the seasonality of production at the Diavik
Mine, the number of primary and secondary sales events conducted at each sales
location during the quarter, and the volume, size and quality distribution of
rough diamonds delivered from the Diavik Mine in each quarter.
Mining Cost of Sales and Gross Margin
Cost of sales includes cash operating costs of $23.6 million, non-cash
operating costs of $20.0 million and private production royalties of $2.4
million compared to $28.5 million, $15.3 million and $1.7 million,
respectively, in the same period of the prior year. A substantial portion of
cost of sales is mining operating costs, which are incurred at the Diavik
Mine. The third quarter of the prior year was negatively impacted by higher
cash operating costs incurred as a result of the early closure of the 2006
winter road. Cost of sales also includes sorting costs, which consist of Harry
Winston Diamond Corporation's cost of handling and sorting product in
preparation for sales to third parties. Non-cash costs include amortization
and depreciation, the majority of which is recorded using the unit-of-
production method over estimated proven and probable reserves. Private
production royalties are recorded based on actual production during each
accounting period.
The third quarter gross margin was 62.5% compared to 49.9% in the
comparable quarter of the prior year. The increase in the gross margin
percentage is driven by higher carat production, reflecting both higher grade
and enhanced diamond recovery resulting from processing improvements. The
mining gross margin is anticipated to fluctuate between quarters, resulting
from variations in the specific mix of product sold during each quarter.
Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment increased $2.0 million to $6.7
million from $4.7 million in the comparable quarter of the prior year
primarily due to the continued development of our global selling, marketing
and administrative operations.
Nine Months Ended October 31, 2007 Compared to Nine Months Ended
October 31, 2006

Mining Revenue

Sales for the nine months ended October 31, 2007 totalled $310.5 million
compared to $251.5 million for the nine months ended October 31, 2006. The
Company held eight primary diamond sales year-to-date and seven primary sales
in the comparable period of the prior year. With Harry Winston Diamond
Corporation's continued expansion of its global rough diamond sales network,
sales are now conducted throughout the quarter in each of the Company's three
selling offices located in Belgium, Israel and India. Harry Winston Diamond
Corporation expects that results for its mining segment will continue to
fluctuate depending on the seasonality of production at the Diavik Mine, the
number of primary and secondary sales events conducted at each sales location
during the quarter, and the volume, size and quality distribution of rough
diamonds delivered from the Diavik Mine in each quarter.
Mining Cost of Sales and Gross Margin
Cost of sales includes cash operating costs of $76.1 million, non-cash
operating costs of $50.8 million and private production royalties of $5.8
million compared to $84.5 million, $38.0 million and $5.0 million,
respectively, for the same nine-month period of the prior year. A substantial
portion of cost of sales is mining operating costs, which are incurred at the
Diavik Mine. Prior year cash operating costs were negatively impacted by
higher expenditures resulting from the early closure of the 2006 winter road.
Cost of sales also includes sorting costs, which consist of Harry Winston
Diamond Corporation's cost of handling and sorting product in preparation for
sales to third parties. Non-cash costs include amortization and depreciation,
the majority of which is recorded using the unit-of-production method over
estimated proven and probable reserves. Private production royalties are
recorded based on actual production during each accounting period.
For the nine months ended October 31, 2007, gross margin was 57.3%
compared to 49.3% in the comparable period of the prior year. The increase in
the gross margin percentage is driven by higher carat production, reflecting
both higher grade and enhanced diamond recovery resulting from processing
improvements. The mining gross margin is anticipated to fluctuate during the
year, resulting from variations in the specific mix of product sold during the
period.
Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment increased by $3.9 million to $17.7
million from $13.8 million in the comparable period of the prior year
primarily due to the continued development of our global selling, marketing
and administrative operations.
Retail
The retail segment includes sales from Harry Winston's 16 salons, which
are located in New York, Honolulu, Bal Harbour, Beverly Hills, Las Vegas,
Dallas, Paris, London, Geneva, Tokyo (Ginza, Omotesando and Roppongi), Osaka,
Taipei, Beijing and Hong Kong.
(in thousands of United States dollars) (unaudited)

2008 2008 2008
Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 53,767 $ 68,198 $ 58,613
Cost of sales 28,606 35,610 30,616
-------------------------------------------------------------------------
Gross margin 25,161 32,588 27,997
Gross margin (%) 46.8% 47.8% 47.8%
Selling, general and
administrative expenses 28,791 29,340 29,124
-------------------------------------------------------------------------
Earnings (loss) from operations $ (3,630) $ 3,248 $ (1,127)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2007 2007 2007 2007
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Sales $ 73,293 $ 54,478 $ 48,486 $ 49,963
Cost of sales 39,146 29,175 25,202 25,096
-------------------------------------------------------------------------
Gross margin 34,147 25,303 23,284 24,867
Gross margin (%) 46.6% 46.4% 48.0% 49.8%
Selling, general and
administrative expenses 31,193 28,815 22,798 22,508
-------------------------------------------------------------------------
Earnings (loss) from operations $ 2,954 $ (3,512) $ 486 $ 2,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine Nine
Months Months
Ended Ended
2006 Oct. 31, Oct. 31,
Q4 2007 2006
-------------------------------------------------------------------------
Sales $ 63,363 $180,578 $152,927
Cost of sales 30,002 94,832 79,473
-------------------------------------------------------------------------
Gross margin 33,361 85,746 73,454
Gross margin (%) 52.7% 47.5% 48.0%
Selling, general and
administrative expenses 28,433 87,255 74,120
-------------------------------------------------------------------------
Earnings (loss) from operations $ 4,928 $ (1,509) $ (666)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three Months Ended October 31, 2007
Compared to Three Months Ended October 31, 2006

Retail Revenue

Global sales for the third quarter were $53.8 million compared to $54.5
million for the comparable quarter of the prior year. International sales
increased 16% to $34.4 million in the quarter as a result of existing and new
salon openings offsetting the effects of a robbery at the Paris salon in
October 2007. See "Consolidated Other Income" discussion on page 7 for
additional information. US sales decreased 22% from $24.9 million to $19.4
million primarily due to the effect of volatility in the US financial markets.
Retail Cost of Sales and Gross Margin
Cost of sales for the third quarter were $28.6 million compared to $29.2
million for the comparable quarter of the prior year. Gross margin for the
quarter was $25.2 million and 46.8% compared to $25.3 million and 46.4% for
the third quarter of the prior year. Excluding the impact of sales of Harry
Winston Inc. pre-acquisition inventory, gross margin rate for the third
quarter and the comparable quarter of the prior year would have been 52.4% and
49.9%, respectively.
Retail Selling, General and Administrative Expenses
Third quarter SG&A expenses were flat at $28.8 million compared to the
same quarter of the prior year, which included a $6.3 million adjustment to
stock compensation triggered by the acquisition of the remaining portion of
the Harry Winston Inc. operations. The effective increase in SG&A expenses
during the quarter as compared to the same quarter of the prior year primarily
reflects an increase in salaries and benefits of $2.7 million, an increase in
rent and building related expenses of $2.0 million and an increase in
depreciation and amortization expense of $0.8 million, as a result of our
expanded salon retail base and continued commitment to global expansion. SG&A
expenses include depreciation and amortization expense of $2.1 million
compared to $1.4 million in the comparable quarter of the prior year.
Nine Months Ended October 31, 2007 Compared to Nine Months Ended
October 31, 2006

Retail Revenue

Sales for the nine months ended October 31, 2007 were $180.6 million
compared to $152.9 million for the nine months ended October 31, 2006. This
18% increase in retail sales was driven by a 3% increase in US sales from
$64.3 million to $65.9 million and a 29% increase in international sales from
$88.7 million to $114.7 million. Same store sales and contributions from new
salons during the first nine months were negatively impacted by the Paris
salon robbery in the third quarter.
Retail Cost of Sales and Gross Margin
Cost of sales for the nine months ended October 31, 2007 were $94.8
million compared to $79.5 million for the nine months ended October 31, 2006.
Year to date gross margin increased 17% to $85.7 million from $73.5 million in
the comparable period last year. For the first nine months of fiscal 2008,
gross margin percentage was 47.5% compared to 48.0% in the prior year. The
sale of certain inventory that was on hand at the date of acquisition of Harry
Winston Inc. was at a lower margin than normal. Adjusting for the impact of
this pre-acquisition inventory, gross margin as a percentage of sales for the
nine months year to date would have increased to approximately 51.7% compared
to 50.1% in the prior period.
Retail Selling, General and Administrative Expenses
SG&A expenses increased to $87.3 million for the nine months ended October
31, 2007 as compared to $74.1 million in the comparable period of the prior
year as a result of the continued expansion of the retail salon network
consistent with the retail growth strategy. SG&A expenses reflect an increase
in salaries and benefits of $6.2 million, primarily attributable to new salon
personnel, an increase in advertising and selling expenses of $4.6 million, an
increase in rent and building related expenses of $4.0 million, and an
increase in depreciation and amortization expense of $2.3 million. Included in
the comparable nine-month period of the prior year was a $6.3 million
adjustment to stock compensation triggered by the acquisition of the remaining
portion of Harry Winston Inc. and a reversal of a specific provision against
accounts receivable of $2.2 million. SG&A expenses include depreciation and
amortization expense of $6.1 million compared to $3.8 million in the
comparable period of the prior year.
Operational Update
Harry Winston Diamond Corporation's results of operations include results
from its mining and retail operations.
Mining Segment
During the third calendar quarter of 2007, the Diavik Mine produced 3.12
million carats of diamonds from 0.66 million tonnes of ore representing a 10%
increase in diamonds recovered in the calendar quarter over the comparable
period last year. For the calendar year to date, diamonds recovered increased
23% to 9.0 million carats over the prior calendar year. The increased
production for both the third quarter and the calendar year to date is a
result of both higher grade and increased diamond recovery due to processing
improvements.
Ore production for the third quarter was predominately from the A-154
South kimberlite pipe, with less production from A-154 North. In addition, the
removal of overburden and waste rock stripping continued in the new A-418 open
pit with access to the ore body expected by the second calendar quarter of
2008. During the third quarter of 2007, diesel fuel haulage to a newly
constructed fuel tank farm located in Yellowknife commenced. This initiative
is designed to reduce the risk of fuel delivery shortfall to the mine site
during the winter road season, and to take advantage of the pricing
seasonality of diesel fuel purchases. This has significantly increased the
amount of fuel inventory on hand in comparison to last year's quarter end.
A new mine plan to facilitate underground mining was approved in the
fourth quarter.
Harry Winston Diamond Corporation's 40% Share of Diavik Mine Production
(reported on a one-month lag)

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------
Diamonds recovered (000s carats) 1,249 1,132 3,600 2,934
Grade (carats/tonne) 4.75 3.92 4.95 4.02
Operating costs, cash ($ millions) 28.2 26.4 79.7 71.1
Operating costs per carat, cash ($) 23 23 22 24
-------------------------------------------------------------------------

Cash operating costs for the three months ended September 30, 2007 of
$28.2 million increased by $1.8 million from the comparable period last year.
The increase was substantially due to the strengthening of the Canadian dollar
against the US dollar. Cash operating costs for the nine months ended
September 30, 2007 of $79.7 million increased by $8.6 million over last year
resulting from higher labour, equipment maintenance and fuel costs, as well as
the impact of the appreciating Canadian dollar against that of the US during
the year.
Retail Segment
Harry Winston Inc. continued to expand its international presence by
opening a salon in Hong Kong in late September bringing its worldwide network
to 16 retail salons. The retail segment experienced softer sales of high-end
jewelry and watches in the US with international sales showing strong
increases.
The new watch factory, located in Geneva, Switzerland, was successfully
completed and manufacturing operations commenced in October 2007. The facility
increases the capacity to support the future growth of the watch business.
Liquidity and Capital Resources

Working Capital

At October 31, 2007, Harry Winston Diamond Corporation had unrestricted
cash and cash equivalents of $28.3 million and contingency cash collateral and
reserves of $25.5 million as required under Harry Winston Diamond
Corporation's debt arrangements, compared to $54.2 million and $51.4 million,
respectively, at January 31, 2007. Included in unrestricted cash and cash
equivalents at October 31, 2007 was $7.5 million held at the Diavik Mine
compared to $30.8 million at January 31, 2007. Total cash resources year to
date decreased $51.8 million from $105.6 million at January 31, 2007,
resulting primarily from additional Joint Venture cash calls to support the
development of underground mining.
Working capital decreased to $56.4 million at October 31, 2007 from $164.0
million at January 31, 2007. The decrease in working capital primarily results
from the reclassification of the amount drawn under the Harry Winston Inc.
credit facility from long-term at January 31, 2007 to current at October 31,
2007. The Harry Winston Inc. $200.0 million credit facility is currently up
for renewal, with a maturity date of March 31, 2008. No scheduled repayments
are required before this date.
Cash Flow from Operations
During the quarter ended October 31, 2007, Harry Winston Diamond
Corporation generated $61.4 million in cash from operations, compared to $62.5
million from the comparable quarter of the prior year. Ongoing quarterly
variations in revenues and operating cash flows are inherent in Harry Winston
Diamond Corporation's business, resulting from the seasonality of the mining
and retail activities as well as the rough diamond sales schedule.
During the quarter, the Company increased advances and prepaid expenses by
$16.0 million, increased inventory by $9.5 million, increased accounts payable
and accrued liabilities by $35.6 million, decreased income taxes payable by
$12.5 million and increased accounts receivable by $22.5 million. During the
nine months ended October 31, 2007, the Company increased inventory by $57.1
million, increased accounts payable and accrued liabilities by $27.4 million,
increased income taxes payable by $28.0 million, increased advances and
prepaid expenses by $30.2 million and increased accounts receivable by $27.8
million. Substantially all of the quarterly and year-to-date increase in
accounts receivable represents insurance proceeds outstanding of $23.2 million
relating to the Paris salon robbery, and included in the change in inventory
for the quarter and year-to-date is the write-off of retail inventory relating
to the Paris salon robbery.
Financing Activities
During the quarter, Harry Winston Diamond Corporation repaid $7.6 million
of its $100.0 million senior secured term facility that was used to finance
the acquisition of the remaining portion of Harry Winston Inc. At October 31,
2007, the Company had $79.4 million outstanding on its senior secured term
credit facilities and $50.0 million outstanding on its senior secured
revolving credit facility. In comparison, at January 31, 2007, $95.6 million
was outstanding on the term credit facilities and $62.5 million was
outstanding on the secured revolving credit facility.
As at October 31, 2007, Harry Winston Inc. had $174.7 million outstanding
on its $200.0 million secured credit facility, which is used to fund salon
inventory and capital expenditure requirements. This represents an increase of
$62.7 million from the amount outstanding at January 31, 2007.
Also included in long-term debt of the Company's retail operations is a
30-year loan agreement for $14.4 million used to finance the construction of
the new watch factory in Geneva, Switzerland. At October 31, 2007, $14.4
million had been drawn against the facility compared to $2.8 million at
January 31, 2007. The bank has a secured interest in the factory building.
Harry WinstonJapan, K.K. maintains unsecured credit agreements with two
Japanese banks amounting to $13.1 million. At October 31, 2007, $13.1 million
had been drawn against these facilities, $4.4 million of which is long term,
payable on June 28, 2010, with the balance of $8.7 million classified as bank
advances.
At October 31, 2007, $1.9 million, $8.7 million, $4.0 million and $1.9
million was drawn under the Company's revolving financing facilities relating
to its Belgian subsidiary, Aber International N.V., its Japanese subsidiary,
Harry WinstonJapan, K.K., its Israeli subsidiary, Aber Diamond Israel 2006
Ltd., and its Indian subsidiary, Aber India Private Limited, respectively. At
January 31, 2007, $18.5 million, $5.7 million, $5.6 million and nil was drawn
under the Company's revolving financing facilities relating to Aber
International N.V., Harry WinstonJapan K.K., Aber Diamond Israel 2006 Ltd.,
and Aber India Private Limited, respectively.
During the third quarter, the Company made dividend payments of $14.6
million or $0.25 per share to its shareholders. Rio Tinto Plc, the operator of
the Diavik Diamond Mine, has approved a two-year capital program to complete
the development of an underground mine which secures the future of the Diavik
Project beyond 2020. With this new development plan in hand, Harry Winston is
well advanced in extending its existing debt facilities which, together with
cash flow from operations, will fund Harry Winston's estimated additional $218
million contribution to complete this project having already contributed $77
million over the last year. To ensure prudent fiscal management it is the
intention of the Board of Directors to continue to pay dividends of $0.05 per
quarter during the construction period. The Board of Directors has, therefore,
declared a dividend of $0.05 per share to be paid on January 21, 2008 to
shareholders of record on December 28, 2007.
Investing Activities
During the quarter, the Company purchased capital assets of $61.8 million,
of which $49.9 million were purchased for the mining segment and $11.9 million
for the retail segment.
Contractual Obligations
The Company has contractual payment obligations with respect to long-term
debt and, through its participation in the Joint Venture, future site
restoration costs at the Diavik Mine level. Additionally, at the Joint Venture
level, contractual obligations exist with respect to operating purchase
obligations, as administered by DDMI, the operator of the mine. In order to
maintain its 40% ownership interest in the Diavik Mine, the Company is
obligated to fund 40% of the Joint Venture's total expenditures on a monthly
basis. Harry Winston Diamond Corporation's current projected share of the
planned capital expenditures at the Diavik Mine, which are not reflected in
the table below, including sustaining capital for the calendar years 2008 to
2012, is approximately $301 million at a budgeted Canadian/US exchange rate of
$1.00. The most significant contractual obligations for the ensuing five-year
period can be summarized as follows:
(expressed in thousands of United States dollars)
Contractual Less than Year Year After
Obligations Total 1 Year 2-3 4-5 5 Years
-------------------------------------------------------------------------

Long-term debt
(i)(a)(b) $ 332,400 $ 213,225 $ 98,486 $ 2,474 $ 18,215
Environmental and
participation
agreements
incremental
commitments(c) 36,564 14,396 4,235 2,117 15,816
Operating lease
obligations(d) 125,631 15,884 30,143 18,483 61,121
Capital lease
obligations(e) 2,368 812 1,333 223 -
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Total contractual
obligations $ 496,963 $ 244,317 $ 134,197 $ 23,297 $ 95,152
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(i) Excludes deferred financing costs

(a) Long-term debt presented in the foregoing table includes current
and long-term portions. The Company may at any time prepay, in whole
or in part, borrowings under both $100.0 million senior secured term
credit facilities and the $75.0 million senior secured revolving
credit facility, in minimum amounts of $5.0 million. On May 31, 2007,
Harry Winston Diamond Corporation amended its existing credit
facilities to extend the maturity date to December 15, 2009 from
December 15, 2008. At October 31, 2007, $79.4 million in total was
outstanding on both $100 million term credit facilities, and
$50 million was outstanding on the revolving credit facility.
Scheduled repayments on the senior secured term credit facilities
commence March 15, 2008 with $12.5 million in repayments due every
quarter. The maximum amount permitted to be drawn under the senior
secured revolving credit facility is reduced by $12.5 million on a
quarterly basis commencing March 15, 2009.

The Company's first mortgage on real property has scheduled principal
payments of approximately $0.1 million quarterly, and may be prepaid
after 2009. On October 31, 2007, $9.5 million was outstanding on the
mortgage payable.

At October 31, 2007, $174.7 million had been drawn against Harry
Winston Inc.'s $200.0 million secured credit facility. The facility
expires on March 31, 2008 and consequently has been classified as
current on the consolidated balance sheet. There are no scheduled
repayments required before maturity.

Also included in long-term debt of Harry Winston Inc. is a 30-year
loan agreement for $14.4 million used to finance the construction of
the new watch factory in Geneva, Switzerland. The bank has a secured
interest in the factory building. The mortgage bears interest at a
rate of 4% with scheduled monthly principal repayments of $0.05
million commencing December 1, 2007.

(b) Interest on long-term debt is calculated at various fixed and
floating rates. On an annualized basis, interest payments are
estimated to be approximately $22.7 million.

(c) The Joint Venture, under environmental and other agreements, must
provide funding for the Environmental Monitoring Advisory Board.
These agreements also state the Joint Venture must provide security
deposits for the performance by the Joint Venture of its reclamation
and abandonment obligations under all environmental laws and
regulations. The Joint Venture has fulfilled its obligations for the
security deposits by posting letters of credit of which Harry Winston
Diamond Corporation's share as at October 31, 2007 was $65.4 million.
The requirement to post security for the reclamation and abandonment
obligations may be reduced to the extent of amounts spent by the
Joint Venture on those activities. The Joint Venture has also signed
participation agreements with various native groups. These agreements
are expected to contribute to the social, economic and cultural well-
being of area Aboriginal bands. The amounts reflected as contractual
obligations in the table above represent obligations that are in
addition to the $65.4 million in letters of credit posted. The actual
cash outlay for the Joint Venture's obligations under these
agreements is not anticipated to occur until later in the life of the
Diavik Mine.

(d) Operating lease obligations represent future minimum annual rentals
under non-cancellable operating leases for Harry Winston retail
salons and office space. Harry Winston's New York salon lease expires
on December 17, 2010 with an option to renew.

(e) Capital lease obligations represent future minimum annual rentals
under non-cancellable capital leases for Harry Winston retail exhibit
space.

Outlook

Forecasted rough diamond production from the Diavik Mine for the current
calendar year is expected to be approximately 11 million carats, sourced
substantially from the A-154 South kimberlite pipe.
Year-to-date production has reached 9.0 million carats compared to 7.3
million carats in the comparable period last year due to higher recovery of
diamonds per tonne of ore processed. The substantial increase in diamond
recovery is a combination of improvements to the processing circuit to enhance
the recovery of small diamonds as well as, to a lesser extent, improved
recovery of larger stones. Similar improvements in recovered grade are
expected for all of the Diavik reserves and resources but to differing degrees
for the various geological units of the different kimberlite pipes.
Subsequent to the end of the quarter, a new mine plan for the Diavik Mine
was completed and approved by Rio Tinto's Board of Directors. The new mine
plan confirms the Diavik Mine life to beyond 2020 and brings into production
underground mining on the A-154 North, A-154 South and A-418 kimberlite pipes.
Underground production commencing in 2009 is expected to be primarily sourced
from the A-418 kimberlite pipe that year supplemented by contributions from
A-154 North and A-154 South. A-154 North has higher value diamonds than the
other kimberlite pipes. Open pit mining from A-418 will be the main
contributor in 2009. We expect the Diavik Mine to transition fully to
underground by 2012 when we will then be able to more fully access the lower
portions of the ore bodies of A-154South, A-154North and A-418. The ability to
operate multiple ore bodies at once will allow the Diavik Mine to maintain
constant processing plant throughput. A decision has been made to defer the
development of the A-21 kimberlite pipe pending further engineering studies
and economic evaluation.
The mine operator is preparing a revised resource statement to be
delivered in early calendar 2008. The Company's contribution to capital
requirements to complete the underground development and supporting
infrastructure contemplated by the new mine plan is estimated to be $218
million over the next two years, with funding expected to be provided from
operating cash flows and an extension of existing credit facilities. The
Company has contributed $77 million year to date in capital towards the
underground development.
In calendar 2008, mining operations will focus on open pit mining
substantially from A-154 South with contributions from the A-418 kimberlite
pipe.
The federal government approved the renewal of the Diavik water licence
for a period of eight years, effective from November 1, 2007. The regional
Wek'eezhii Land and Water Board recommended licence renewal after an intensive
two-year public review. The licence was granted subject to increased
environmental monitoring, reporting and management controls. The Diavik Mine
continues to operate in compliance with all environmental permits, licences,
and authorizations.
The Company expects to hold two primary rough diamond sales in the fourth
quarter compared with three primary sales held in the comparable period last
year. With Harry Winston Diamond Corporation's continued expansion of its
global rough diamond sales network, sales are now conducted throughout the
quarter in each of the Company's three selling offices located in Belgium,
Israel and India.
Two new Harry Winston retail salons were opened in Chicago and Nagoya
(Japan) during November 2007, increasing the worldwide network of Harry
Winston retail salons to 18 locations.
Related Parties
Transactions with related parties for the three months ended October 31,
2007 include $0.4 million of rent ($1.3 million for the nine months ended
October 31, 2007) relating to the New York salon, payable to a Harry Winston
Inc. employee.
Critical Accounting Estimates
Management is often required to make judgments, assumptions and estimates
in the application of Canadian GAAP that have a significant impact on the
financial results of the Company. Certain policies are more significant than
others and are, therefore, considered critical accounting policies. Accounting
policies are considered critical if they rely on a substantial amount of
judgment (use of estimates) in their application or if they result from a
choice between accounting alternatives and that choice has a material impact
on the Company's reported results or financial position. There have been no
changes to the Company's critical accounting policies or estimates from those
disclosed in the Company's MD&A for its fiscal year ended January 31, 2007.
Changes in Accounting Policies

Financial Instruments, Hedges and Comprehensive Income

On February 1, 2007, the Company adopted new accounting standards issued
by the Canadian Institute of Chartered Accountants ("CICA") on equity,
financial instruments, hedges and comprehensive income that require investment
securities and hedging derivatives to be accounted for at fair value. These
standards are substantially harmonized with US GAAP.
The adoption of these new accounting standards has not had a material
impact on the financial position of the Company. For a description of new
standards and the impact on the Company's financial statements, please see
note 3 to the consolidated financial statements on page 29 of this report.
Recently Issued Accounting Standards

Inventories

In May 2007, the CICA issued Handbook Section 3031, "Inventories", which
supersedes the previously issued standard on inventory. The new standard
introduces significant changes to the measurement and disclosure of inventory.
The measurement changes include: the elimination of LIFO, the requirement to
measure inventories at the lower cost method for inventories that are not
ordinarily interchangeable or goods and services produced for specific
purposes, the requirement for an entity to use a consistent cost formula for
inventory of a similar nature and use, and the reversal of previous
write-downs to net realizable value when there is a subsequent increase in the
value of inventories. Disclosures of inventories have also been enhanced.
Inventory policies, carrying amounts, amounts recognized as an expense,
write-downs and the reversals of write-downs are required to be disclosed.
This new standard will apply to the Company effective February 1, 2008. The
Company is assessing the impact this standard will have on its consolidated
financial statements.
Financial Instruments - Disclosures
In December 2006, the CICA issued Handbook Section 3862, "Financial
Instruments - Disclosures", and Handbook Section 3863, "Financial Instruments
- Presentation", which supersede Handbook Section 3861, the previously issued
standard on financial instruments. Section 3862 provides guidance on
disclosure of risks associated with both recognized and unrecognized financial
instruments and how the Company manages these risks. Section 3863 details
financial instruments presentation requirements, which are unchanged from
those discussed in Section 3861. This new standard will apply to the Company
effective February 1, 2008. The Company is assessing the impact this standard
will have on its consolidated financial statements.
Capital Disclosures
In December 2006, the CICA issued Handbook Section 1535, "Capital
Disclosures". This new standard requires the disclosure of information about
an entity's objectives, policies and processes for managing capital. This new
standard will apply to the Company effective February 1, 2008. The Company is
assessing the impact this standard will have on its consolidated financial
statements.
Risks and Uncertainties
Harry Winston Diamond Corporation is subject to a number of risks and
uncertainties as a result of its operations, including without limitation the
following risks:
Nature of Mining
The operation of the Diavik Mine is subject to risks inherent in the
mining industry, including variations in grade and other geological
differences, unexpected problems associated with required water retention
dikes, water quality, surface and underground conditions, processing problems,
equipment performance, accidents, labour disputes, risks relating to the
physical security of the diamonds, force majeure risks and natural disasters.
Particularly with underground mining, inherent risks include variations in
rock structure and strength as it impacts on mining method selection and
performance, dewatering and water handling requirements, achieving the
required paste backfill strengths, and unexpected local ground conditions.
Hazards, such as unusual or unexpected rock formations, rock bursts,
pressures, flooding or other conditions, may be encountered during mining.
Such risks could result in personal injury or fatality; damage to or
destruction of mining properties, processing facilities or equipment;
environmental damage; delays, suspensions or permanent reductions in mining
production; monetary losses; and possible legal liability.
The Diavik Mine, because of its remote northern location and access only
by winter road or by air, is subject to special climate and transportation
risks. These risks include the inability to operate or to operate efficiently
during periods of extreme cold, the unavailability of materials and equipment,
and increased transportation costs due to the late opening and/or early
closure of the winter road. Such factors can add to the cost of mine
development, production and operation, thereby affecting the Company's
profitability.
Nature of Joint Arrangement with DDMI
Harry Winston Diamond Corporation owns an undivided 40% interest in the
assets, liabilities and expenses of the Diavik Mine and the Diavik group of
mineral claims. The Diavik Mine and the exploration and development of the
Diavik group of mineral claims is a joint arrangement between DDMI (60%) and
Harry Winston Diamond Mines Ltd. (formerly Aber Diamond Mines Ltd.) (40%), and
is subject to the risks normally associated with the conduct of joint ventures
and similar joint arrangements. These risks include the inability to exert
influence over strategic decisions made in respect of the Diavik Mine and the
Diavik group of mineral claims. By virtue of DDMI's 60% interest in the Diavik
Mine, it has a controlling vote in virtually all Joint Venture management
decisions respecting the development and operation of the Diavik Mine and the
development of the Diavik group of mineral claims. Accordingly, DDMI is able
to determine the timing and scope of future project capital expenditures, and
therefore is able to impose capital expenditure requirements on the Company
that the Company may not have sufficient cash to meet. A failure by the
Company to meet capital expenditure requirements imposed by DDMI could result
in the Company's interest in the Diavik Mine and the Diavik group of mineral
claims being diluted.
Diamond Prices and Demand for Diamonds
The profitability of Harry Winston Diamond Corporation is dependent upon
production from the Diavik Mine and on the results of the operations of Harry
Winston Inc.'s retail operations. Each in turn is dependent in significant
part upon the worldwide demand for and price of diamonds. Diamond prices
fluctuate and are affected by numerous factors beyond the control of the
Company, including worldwide economic trends, particularly in the US, Japan,
China and India, worldwide levels of diamond discovery and production and the
level of demand for, and discretionary spending on, luxury goods such as
diamonds and jewelry. Low or negative growth in the worldwide economy or the
occurrence of terrorist activities creating disruptions in economic growth
could result in decreased demand for luxury goods such as diamonds and
jewelry, thereby negatively affecting the price of diamonds and jewelry.
Similarly, a substantial increase in the worldwide level of diamond production
could also negatively affect the price of diamonds. In each case, such
developments could materially adversely affect Harry Winston Diamond
Corporation's results of operations.
Currency Risk
Currency fluctuations may affect the Company's financial performance.
Diamonds are sold throughout the world based principally on the US dollar
price, and although the Company reports its financial results in US dollars, a
majority of the costs and expenses of the Diavik Mine, which are borne 40% by
the Company, are incurred in Canadian dollars. Further, the Company has a
significant future income tax liability that has been incurred and will be
payable in Canadian dollars. Harry Winston Diamond Corporation's currency
exposure relates primarily to expenses and obligations incurred by it in
Canadian dollars and, secondarily, to revenues of Harry Winston Inc. in
currencies other than the US dollar. The appreciation of the Canadian dollar
against the US dollar, and the depreciation of such other currencies against
the US dollar, therefore, will increase the expenses of the Diavik Mine and
the amount of the Company's Canadian dollar liabilities relative to the
revenue Harry Winston Diamond Corporation will receive from diamond sales, and
will decrease the US dollar revenues received by Harry Winston Inc. From time
to time, the Company may use a limited number of derivative financial
instruments to manage its foreign currency exposure.
Licenses and Permits
The operation of the Diavik Mine and exploration on the Diavik property
require licenses and permits from the Canadian government. Renewal of the
Diavik Mine Type "A" Water License was granted by the regional Wek'eezhii Land
and Water Board on November 1, 2007. While Harry Winston Diamond Corporation
anticipates that DDMI, which is also the operator of the Diavik Mine, will be
able to renew this license and other necessary permits in the future, there
can be no guarantee that DDMI will be able to do so or obtain or maintain all
other necessary licenses and permits that may be required to maintain the
operation of the Diavik Mine or to further explore and develop the Diavik
property.
Regulatory and Environmental Risks
The operation of the Diavik Mine, exploration activities at the Diavik
Project and the manufacturing of jewelry are subject to various laws and
regulations governing the protection of the environment, exploration,
development, production, taxes, labour standards, occupational health, waste
disposal, mine safety, manufacturing safety and other matters. New laws and
regulations, amendments to existing laws and regulations, or more stringent
implementation or changes in enforcement policies under existing laws and
regulations could have a material adverse impact on the Company by increasing
costs and/or causing a reduction in levels of production from the Diavik Mine
and in the manufacture of jewelry. As well, as Harry Winston Diamond
Corporation's international operations expand, it or its subsidiaries become
subject to laws and regulatory regimes which differ materially to those under
which they operate in Canada and the US.
Mining and manufacturing are subject to potential risks and liabilities
associated with pollution of the environment and the disposal of waste
products occurring as a result of mining and manufacturing operations. To the
extent that the Company's operations are subject to uninsured environmental
liabilities, the payment of such liabilities could have a material adverse
effect on the Company.
Resource and Reserve Estimates
The Company's figures for mineral resources and ore reserves on the Diavik
group of mineral claims are estimates, and no assurance can be given that the
anticipated carats will be recovered. The estimation of reserves is a
subjective process. Forecasts are based on engineering data, projected future
rates of production and the timing of future expenditures, all of which are
subject to numerous uncertainties and various interpretations. Harry Winston
Diamond Corporation expects that its estimates of reserves will change to
reflect updated information. Reserve estimates may be revised upward or
downward based on the results of current and future drilling, testing or
production levels and on changes in mine design. In addition, market
fluctuations in the price of diamonds or increases in the costs to recover
diamonds from the Diavik Mine may render the mining of ore reserves
uneconomical.
Mineral resources that are not mineral reserves do not have demonstrated
economic viability. Due to the uncertainty that may attach to inferred mineral
resources, there is no assurance that mineral resources at the Diavik property
will be upgraded to proven and probable ore reserves.
Insurance
Harry Winston Diamond Corporation's business is subject to a number of
risks and hazards generally, including adverse environmental conditions,
industrial accidents, labour disputes, unusual or unexpected geological
conditions, risks relating to the physical security of diamonds and jewelry
held as inventory or in-transit, changes in the regulatory environment and
natural phenomena such as inclement weather conditions. Such occurrences could
result in damage to the Diavik Mine, personal injury or death, environmental
damage to the Diavik property, delays in mining, closing of Harry Winston Inc.
manufacturing facilities or salons, monetary losses and possible legal
liability. Although insurance is maintained to protect against certain risks
in connection with the Diavik Mine, Harry Winston Diamond Corporation's
operations and the operations of Harry Winston Inc., the insurance in place
will not cover all potential risks. It may not be possible to maintain
insurance to cover insurable risks at economically feasible premiums.
Fuel Costs
The Diavik Mine's expected fuel needs are purchased periodically during
the year for storage, and transported to the mine site by way of the winter
road. These costs will increase if transportation by air freight is required
due to a shortened "winter road season" or unexpectedly high fuel usage.
The cost of the fuel purchased is based on the then prevailing price and
expensed into operating costs on a usage basis. The Diavik Mine currently has
no hedges for its future anticipated fuel consumption.
Reliance on Skilled Employees
Production at the Diavik Mine is dependent upon the efforts of certain
skilled employees of DDMI. The loss of these employees or the inability of
DDMI to attract and retain additional skilled employees may adversely affect
the level of diamond production from the Diavik Mine. Currently, there is
significant competition for skilled workers in remote northern operations due
to the significant number of large-scale construction projects ongoing and
planned in Canada's north, including the various construction projects
relating to the development of the oil sands in northern
Alberta.
SOURCE HARRY WINSTON DIAMOND CORPORATION

Nancy Murray, nmurray@harrywinston.com, (212) 245-2000/ /FIRST AND FINAL ADD
TO FOLLOW