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Executives

Bob Gannicott – Chairman and CEO

Lyle Hepburn – Corporate Secretary

Alan Mayne – CFO

Frederic de Narp – President and CEO, Harry Winston Inc.

Analysts

Paul Gerning [ph]

Harry Winston Diamond Corporation (HWD) F1Q11 (Qtr End 04/30/10) Earnings Call June 3, 2010 10:00 AM ET

Bob Gannicott

First of all, thank you all for coming. My name is Bob Gannicott, I am the Chairman and Chief Executive Officer. Before we get started on this, there are a few things. First of all, we are going to run the meeting as we usually do where we deal with the dry formal material at the beginning, and then we will get into presentations from those of us that are in management. And those presentations will be an introduction from me; then Alan Mayne, the Chief Financial Officer who is seated in the middle of those three gentlemen there who will deal with the financial numbers; followed by Frederic de Narp. Frederic is the new Chief Executive of our Retail and Wholesale Division based in New York, and Frederic is going to – he just joined in January and he’s creating a new vision, a new modus operandi for that side of the business, and he’s going to explain that to the meeting as well, then I am going to come back on and deal with the mining side of the business and sort of where the future takes us there as well.

Before we start on that, let’s just do some introductions then. So, on the head table, Lyle Hepburn, the Corporate Secretary. I have already introduced Frederic and Alan. Then in the front rows, we have our Directors, Micheline Bouchard in the front row here, Noel Harwerth on the other side of the aisle, Matt Barrett, Laurent Mommeja, Roger Phillimore, Jarvis and Tom Boehlert. And also in the room, I notice we have Hugo Dryland. Hugo is from Rothschilds and is our investment bank, principal investment banking relationship. Thanks for coming all of you.

And also then on the management side, at the sort of Vice President level, at least Jim Pounds I think is in the room somewhere. Jim, thank you; Ray Simpson; Robert Scott, and Robert’s from New York, he’s the CFO from New York; Wendy Kei, our Controller in Toronto; Beth Bandler, Legal and HR; Kevin Marchant who is in-charge of diamond sorting, yes, he’s in the room, I let him out for a few hours; Brian Parr [ph], yes, Brian is there as well; and (inaudible). Those three gentlemen will take care of diamond sorting and sales underneath Jim Pounds. So, thanks, that’s the introductions.

So, this is the 2010 Annual General Meeting of Shareholders of Harry Winston Diamond Corporation. In accordance with the bylaws of the corporation, I will preside as Chairman of this meeting and the Secretary of the corporation, while Hepburn will act as the Secretary of the meeting. In order to make the best use of our time, certain shareholders have already been asked if they would jump up and propose second various motions, but I wouldn’t want that to stop any of you that feel motivated to do that to from doing so, would be perfectly happy for you to do that.

Each holder of the common shares entitled to one vote per share. But unless a balance is demanded by a shareholder or proxy holder, we will conduct votes on the resolutions put to the meeting by a show of hands. With the consent of the meeting then, Carol Pineda and Radha Mulchan-Singh of CIBC Mellon Trust will act as scrutineers of this meeting to report on the shareholders present in person and the number of securities represented in person or by proxy at this meeting and any adjournment thereof. We will also compute the votes cast by ballot on any ballots conducted at this meeting or any adjournment thereof and to report the meeting on these matters.

The notice calling this meeting, the management proxy circular of the Corporation dated April 19th, 2010; financial statements of the Corporation for the year ended January 31st, 2010, together with the auditor's report thereon and the form of proxy were mailed to all registered shareholders and were also mailed to all non-registered shareholders in accordance with National Instrument 54-101. The affidavit of mailing has been duly filed and I direct that the affidavit be attached to the minutes of this meeting as a schedule.

A quorum for the transaction of business of the meeting of shareholders is at least two persons present in person, each being a shareholder entitled to vote at the meeting or a duly appointed proxy or representative for an absent shareholder so entitled together holding 5% of the outstanding shares of the Corporation. I will now ask the secretary to report on the attendance of the meeting.

Lyle Hepburn

Indicates that there are 151 shareholders holding 53,142,512 common shares represented in person or by proxy and this represents 69.35% of the issued and outstanding shares.

Bob Gannicott

Thanks Lyle. So, I declare that the requisite quorum of shareholders is present and that the meeting is properly constituted for the transaction of business. I direct that the scrutineers report on attendance be annexed to the minutes of the meeting as a schedule.

The next item of business is the presentation of the financial statements of the corporation for the year ended January 31st, 2010, together with the auditor's report thereon and management's discussion and analysis of Harry Winston's operating results and financial condition. A copy of the annual report of Harry Winston was mailed to all shareholders with the notice of meeting. At this point, I will ask if there are any questions concerning the financial statements but I will also turn the event, of course, Alan is going to discuss this in more detail and there will be opportunity for those kind of questions at the end of the meeting. So, are there any questions at this point? No. Thank you.

The next item of business is the election of the eight nominee directors to hold office for the ensuing year or until their successors are elected or appointed. As described in our management proxy circular, Harry Winston has adopted a majority of voting policies that provides for individual director voting by the shareholders. Under the policy, if any nominee director receives a greater number of votes as were held by votes for this election, he or she will tender their resignation for consideration following the meeting. I now declare the meeting open for nominations.

Unidentified Participant

Matthew W. Barrett, Thomas M. Boehlert, Micheline Bouchard, Robert A. Gannicott, Noel Harwerth, Daniel Jarvis, Laurent E. Mommeja, and J. Roger B. Phillimore for election of Directors of the Corporation.

Bob Gannicott

Thanks Jackie. Are there any further nominations? I declare the nominations closed. All of the nominees have signified their consent to act as Directors of the Corporation. May I have a motion in respect of the election of the nominees as directors?

Unidentified Participant

Mr. Chairman, I move that the individuals I have nominated be elected as Directors of the Corporation, to hold office until the close of the next annual meeting of shareholders or until their successors are duly elected or appointed.

Bob Gannicott

Thanks Jackie.

Unidentified Participant

Mr. Chairman, I second the motion.

Bob Gannicott

Thanks Al. All those in favor, signify by raising your right hand. Oppose if any? Thank you. The scrutineers have obliged me that proxies we receive from holders of a sufficient number of shares of each of the nominees for director received more votes for than the possible number of votes withheld. And accordingly, each of these directors is being duly appointed and none of the directors are required to tender their resignation under the majority voting policy. Accordingly, I declare the motion carry and confirm that Matthew W. Barrett, Thomas M. Boehlert, Micheline Bouchard, Robert A. Gannicott, Noel Harwerth, Daniel Jarvis, Laurent E. Mommeja, and J. Roger B. Phillimore are being elected Directors of the Corporation to hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

The next item of business is the reappointment of the auditors, KPMG Limited Liability Partnership and authorizing the directors to fix their remuneration. May I have a motion on this matter, please?

Unidentified Participant

Mr. Chairman, I move that KPMG Limited Liability Partnership Chartered Accountants be appointed as auditors of the Corporation to hold office until the next annual meeting of shareholders at such remuneration as may be fixed by the directors and that the directors be authorized to fix their remuneration.

Bob Gannicott

Thanks Jackie.

Unidentified Participant

Mr. Chairman, I second the motion.

Bob Gannicott

Thanks Al. All those in favor, signify by raising your right hand. Oppose if any? I declare the motion carried. So, I conclude the scheduled business of the meeting. Is there any questions that anybody wants to ask or any business that anyone wants to put before the meeting at this stage? So, there being no further business, I will ask for the motion to terminate the meeting, please.

Unidentified Participant

Mr. Chairman, I move that the meeting be terminated.

Bob Gannicott

Thank you, Jackie.

Unidentified Participant

Mr. Chairman, I second the motion.

Bob Gannicott

Thank you, Al. All those in favor, oppose if any. I declare the motion carried and the meeting terminated. Thank you for enjoying that, and now we will turn on to some more interesting things. First of all, this fascinating forward-looking information statement, which you can read at your leisure, the presentations are over there and if you do wish to read this. So, I will do with the introduction.

The introduction is really to just stress again why it is we are here, why it is we do what we do, and I will enlarge on this at the end of the presentation, sort of expanding that into that’s what we do, what do we do now. First of all, why are we here doing what we do? We were fortunate enough to be involved in the discovery, those companies involved in the discovery of the Diavik Mine in the Northwest Territories. The discovery was made about 1994, plains were staked by us in 1991-1992, and Rio Tinto are the majority owner and the operator of the mine. It’s a classic Canadian joint venture which means that we pay our share of oil capital and operating costs, and they also take our share of the product and we market it independently from Rio Tinto. And the problem with diamonds is it’s an extremely intrepid product, that’s why we have a team of people serving into all sorts of different categories, material that we get from the mine. We make about 50 different assortments that are sold to about 40 or 50 different customers and we have to do this every five weeks. So, all of those parcels have to have a competent price put on them, an asking price for those parcels of diamonds.

So, the key question here is how does one determine the price. There aren’t any price just for rough diamonds. And while other people manage to do it and they do it like this if you like. The people that are cutting and polishing diamonds in the middle of the chain, they have a feeling for what they can afford to pay for a certain type of rough diamond, because they know what they can squeeze if you like, the price that they can get for the polished product when they sell it on to a jewelry manufacturer or to a jeweler. They have that pricing information, the producer doesn’t unless they find some other way to get it. And that was the challenge that we faced. And we had a relationship with Tiffany & Company at the time, but for various reasons, for understandable reasons, they didn’t want to share price information with us, they didn’t want to share with us the prices that they pay for their polished diamonds, because we were selling them rough diamonds.

So, we felt that a way to do this would be to have a relationship with someone else whom we could do this. And we went to Harry Winston as being an alternative to Tiffany. It turned out that Harry Winston is for sale and we bought a majority position in it, with the main objective of actually getting the price information. Later on, the majority of Harry Winston became available and it is much easier thing to do with 100% ownership of the company. So, then we owned 100%. Owning 100% gave us access to that price information and we became through the efforts of the people like Jim and the team working for him, become a very effective seller of rough diamonds. We are known in the industry as being the most expensive rough diamond supplier, which is what we want to be known as and where we want to be. There is no reason to sell it cheap. But we also realized that it gave supply leverage. In other words, as a supplier of rough diamonds, from a jurisdiction like Canada, it implies non-conflict origin if you like as well as good labor practices, good relationships with local aboriginal people, environmental management and so on.

That special supply of rough diamonds would provide some leverage to a company like Harry Winston in its marketplace, and in fact that is the case and perhaps more so now that Frederic de Narp with the sort of marketing vision that he has, has come to run the company. So, this is what that sort of pricing information has done for us if you like. This graph shows some of the other commodities that you know. The only thing that’s really outperformed diamonds and this graph is based back at February ’07. So, through the horrors of the financial collapse of last year and so on, you can see in that solid line, this isn’t some sort of somebody’s diamond price index. These are the prices based at 100 back in February ’07. These are the actual prices that we have achieved for our rough diamond assortments since then, which is real, live actual prices. And they are compared to the other commodities that you know including gold, and you can see, the only thing that’s outperformed diamonds really is gold and in fact the recovery from the depths of the crisis is being quite remarkable for diamonds, perhaps more so than for other things.

And this isn’t something where we are pushing the price of our rough diamonds beyond what the marketplace could bear. I mean, obviously people, the polished diamonds saw polished always have the view that the rough is too expensive as we always have the view that the rough is too cheap. But you can see here that here again based for 100 back in January ’08, the price of the rough diamonds which is the solid blue line, and this is our rough pricing again, compared to the price that the same group of people within the company are paying in order to purchase various polished diamond items. So, some of the small ones, 2.5 millimeter stones that are used in the watch business for instance all the way up to 5 carat stones, because you see that the – although the rough price fell much deeper than the polished price did, which is fairly obvious because, once demand completely dried up, really the only way to solve rough diamonds at that time is to sell it to someone that’s prepared to take on the stockpiling risk. So, there is always going to be a bigger fall in the raw material than there is in the finished article. But certainly, the comeback is not something that’s not justified by the current price of polished diamonds.

We don’t expect or we don’t see these things as we being out of sync and therefore some correction in rough diamond prices being needed as long as the world space as it is which is a bit of an open question I guess at the moment, we would expect rough diamond pricing to continue to be strong. There is a fundamental shortage of rough diamond production in the world now, which we will get into a bit later in the presentation, and so, we think these prices are sustainable, if not to increase.

So, having said that as an introduction then, I will ask Alan to take over and deal with the financial information and he will be followed by Frederic and I will come back later. Thank you.

Alan Mayne

Thanks Bob, and good morning everyone. I would just like to share some comments and provide some additional context on the financial results for fiscal 2010 and for the first quarter of fiscal 2011 that were released yesterday. This time last year, we were reporting to you on the perilous state of the global economy and how that was impacting the company. What a difference a year makes. The company weathered storm and our businesses responded and economic conditions turned towards the end of last year. And the improvement continued in the first quarter of this year, with advances in key performance measures.

The plan for the Diavik Mine for this year contemplated lower production in the first quarter compared to last year as underground mining commenced at relatively low velocity. Underground production is expected to accelerate as the year progresses. In addition, the timing of carat deliveries meant that we sold fewer carats that were shipped to us, and this resulted in sales being lower than in the first quarter last year. As reported yesterday, sales from the first quarter last year also included 420,000 carats that were carried in inventory. Excluding these carats, sales in the first quarter of this year would have been about 9% higher than in the first quarter last year.

The sales number in the quarter is not indicative of the current strength in the rough diamond market. That strength is reflected in the 98% increase in achieved prices compared to a decrease of 54% in the first quarter of last year. With this price increase and continuing cost control, the minings have recorded an 80% increase in EBITDA in the quarter. We anticipate favorable conditions for the rough diamond market for the remainder of the year and better-than-expected cost performance of Diavik resulting in much improved profitability for the mining segment. I want to spend a lot of time on the retail segment, as you will shortly be hearing from Frederic about his vision for the business. However, we are very pleased to report considerable improvement in key income statement measures for Harry Winston Inc.

And barring a serious reversal in the global economy, we expect this improvement to be sustained for the rest of the year, driven by year-over-year sales growth in the range of 20% to 25%. I just want to close by taking a minute to highlight the changes in the company’s financial position.

Consolidated net debt has been reduced by 168 million since the end of fiscal 2009. The mining segment is now in a net cash position and is expected to remain so. Net debt for the retail business has been reduced as well by 30%. Now, it’s my pleasure to turn the presentation over to Frederic who will outline his vision for the retail business.

Frederic de Narp

So, good morning everyone. Let me share with you that I am obviously very excited to be here today. As I have decided to join Harry Winston, it is because I recognize that Harry Winston has the most important potential in the world of luxury. I think for Harry Winston time has come. There are no ingredients that Harry Winston doesn’t have to perform and to be positioned along the international global luxury brands. The world has come out of a dark place. In the last two years and the market conditions today are right for Harry Winston.

Harry Winston will grow rapidly over the next few years in both sales and profitability. We have currently an excellent team of experts. And we will reinforce this team in order to lead the execution of five year’s vision to bring Harry Winston to the next level. So, the retail, the brand mission statement is obviously to create financial value for shareholders, to make these brands a highly profitable brand. By creating emotional value for clients and goodwill for society, branding is about that. We sell dreams everyday and we want to be recognized as the meaningful brand that people think of when they want to celebrate something important in their lives, by being the most exclusive diamond jeweler and watchmaker in the world.

We came out of the year $225 million. and we will grow the brand the next few years by 20%. By the introduction of new products, jewelry collections, bridal lines, additional watches lines, we will grow the gross margin to the range of 51% to 52%. The operating profit will be a brought to a minimum of 10% in five years, and the EBITDA will grow to a range of 15%. What is the brand mission statement? I have toured – my first three months was to tour around the world, to tour and interview the end clients of Harry Winston. Why Harry Winston? The answer was always the same. To celebrate something meaningful to me, they will answer to me, from Asia to Europe to American customers. It is the only brand in the world which can pretend to be the brand serving and celebrating the meaningful moments of the life of our clients. Meaningful moments means the birth of a child, a wedding anniversary, an engagement, birthday, something important and meaningful to the clients. Why that? Because Harry Winston is not a brand you buy at a Saturday afternoon. It’s not a bag, it’s not seasonal, it’s timeless, it’s diamonds. With meaningful products, this is why we will not compromise in quality.

Harry Winston is renowned in the world for the quality of its stones, the quality of its craftsmanship, and this is why people recognize Harry Winston is the meaningful brand with meaningful products from meaningful people. This is who we are and this is what we will develop. Our people at Harry Winston are more knowledgeable than anybody else in industry. We are passionate, trustworthy, and offering a service unsurpassed in the industry.

Let us see together the source of the power of Harry Winston, the heritage. As I was telling you, we have all the ingredients to be among the most important international luxury brand heritage first. Today, it’s hot to see celebrities red carpet. Harry Winston has invented the celebrity dressing, the red carpet experience. In 1944, Jennifer Jones was walking the red carpet, was proclaimed the first actress in the world at the Academy Awards who was wearing diamonds loaned out by Harry Winston. Since 1945, Harry Winston has become a defining moment, defining brand associated to the red carpet experience. That was in 1944. The Lesotho, the Jones, the Star of Sierra Leone, the Hope Diamond, all the major stones in the 1950s were bought by Harry Winston, kept and polished by Harry Winston and sold by Harry Winston. It would take 900 stones, season it for one year to analyze how we would get the better of the stones, split it in 17 stones and give birth to the 41-carat engagement ring that Onassis would buy for Jackie Kennedy. The larger stones here you see in the hands of Harry Winston itself in the 1960s.

So, the larger stones, the Hope Diamond, are Harry Winston’s. Innovation is also the source of our power. Harry Winston has invented the cluster. The cluster means cutting different stones, setting them in different angles to capture the essence and the sparkle of light. This is where Harry Winston was recognized for and is still recognized today. And we have invented the fruit shapes of the jewels. As you also know that today Harry Winston is the youngest legitimate ology [ph] brand. Time play in our favor. Questioning watch collectors owning more than 600 complicated watches, they would tell me that Harry Winston’s pieces in their collection have the same importance as other brands which took 250 years to get the position they have today. That’s what accomplished with the Opus series. The power of Harry Winston to identify the most important watchmakers in the world, one single most creative watchmaker every year to a series, for example, in this humility to recognize where is the talent, who is the talented person who has developed this movements together with value and time.

In 10 years, Harry Winston has now occupied and developed legitimacy in the world of luxury, and we currently have a manufacturer just located in general between Rolex and Vacheron Constantin, which is probably the most modern manufacturer we will inaugurate this year. Philanthropy is a source of our power. When Harry Winston deemed the most important gem collector in the world after the Royal Court of England. Royal Court of England have been collecting gems for 500 years. Harry Winston in 33 years put together a collection of gems which becomes the second in the world. At the epicenter of this collection is the Hope Diamond, rarest gem on earth, discovered 350 years ago. It takes this collection the Hope Diamond and give hope to the world by giving this rarest gem on earth to the Smithsonian Museum. Today, 7.4 million people go to the Smithsonian Museum to see the Hope. And Harry Winston is the only brand in the world having a dedicated room in the museum.

And that was the wish of Harry Winston also to educate people of the beauty of stones for people who could not afford it, to promote the beauty of creations what planet Earth has given us after millions of years. Harry Winston organized the Court of Jewels in the ‘50s. Harry Winston put together assortment of all these stones and jewels and asked its clients to pay to view these jewels. He would ask an admission fee to his clients and 100% of the admission fee would be given to charitable causes. The first socially responsible jeweler was born in 1950s. It’s a market, it’s a world of opportunities for Harry Winston. It’s a world of about $150 billion where only 15% of it is branded jewelry. At the same moment, local jewelers are cursing because of the crisis. Weddings are still happening, people get married more than ever. 1.9 million engagement rings get sold in North America, where do they go if local jewelers close every day. They would go to Harry Winston. As we are the king of diamonds, the jeweler of diamonds.

Today, in this confused world, brands means reassuring, reassurance factor that brings history to the new rich of the world, social status and style guidelines. There is huge branding phenomenon, which was started 10 years ago by all the brands inventing themselves as a jeweler. Everybody today is a jeweler. The true one is Harry Winston. So, it is a magnificent opportunity for us because all these fashion brands invest on their brands as becoming a jeweler. The end consumers get educated. They understand that if they want to buy a piece of jewelry, it shall be branded. At the moment of the choice, they go to the authentic legitimate brand, Harry Winston is the one.

Trends in the global world positive, it’s all expected to be positive between 5% and 10%. 15% in China, 10% in rest of Asia, 4% in North America, minor 3% in Japan, still the most important luxury place in the world where Harry Winston is doing very well. Look at this map. That is a map telling you about the median age per country by continent. You see that the new world is a young world where we embrace the strong world in our marketing planning. You cannot develop luxury brands with understanding that most of the western countries and Japan are older populations and rest of the world where sits huge opportunities of development are much younger.

The wealthy league around the world in this competition, we are talking about people with $1 million of liquid assets. Still very strong in America where everything is well positioned, huge in Europe with 2.6 million inhabitants with 1 million liquid assets where Harry Winston can develop big time in Europe where not like all these brands in need to develop only in China, because they are saturated in all over the world, it’s not the case of Harry Winston. Huge room for growth in all the continents, huge in Europe and of course huge in Asia.

Let us see now a mapping of the cities with the quantity of billionaires. And these are the cities where in green where Harry Winston has a presence. Where Harry Winston does not have a presence, we already have an action plan in place to occupy the space. Of course, we will invest in China, but there are so many cities we need to be in where we are not – we are current only 19 salons. The new media, the world of Internet is an Internet we cannot forget. 80% of the wealthy consumers use the search engines on a daily basis. So, I believe in Harry Winston being the brand of the extremes, the brand with the most exclusive distribution network, and the brand using new media to educate the world as well.

Our strategic statement create a global scalable platform, which is the only way we would be profitable, substantially grow sales and profitability over the next five years through an integrated marketing strategy. All the elements of the brand should be integrated. Harry Winston’s positioning in where we are today in the mind of few clients around the world. We want to occupy the top of this pyramid entirely, because we own it, because we are left alone at the very top of the pyramid as many actors have decided to go in the middle of the pyramid. Harry Winston, with the legitimacy I have explained to you before, with its heritage, with its know-how, with its power, we will occupy this top of the pyramid of the high network.

We will blend tradition and innovation. We are also the brand of the extremes, extreme of having somebody spending 35 years behind the bench setting stones. In fact, the person who is going to set the Hope Diamond on to the new Embracing Hope Necklace this year in November will be a person who has been sitting behind the bench of Harry Winston for the last 35 years. We are the extreme of craftsmanship handcrafted, everything is handcrafted. With the extreme as well of innovation to the watch development and the mechanical movement in watches we develop, we will not compromise on quality. We will strengthen our high end with our core product segment using the umbrella effect of the power of Harry Winston, the most exclusive, the most higher high end jeweler, diamond jeweler. We will become this bridal destination. We will create and develop these collections, modern collections, like the New York collections, which I just started successfully which is a product for the younger generations and is also highly profitable collections.

Timepieces, too many dials [ph], we will rationalize and broaden our offer, and we will create and design watches for new targets, coming back and re-owning the feminine segment. 10 years ago, 75% of our segment of watches were feminine, today’s it more masculine with automatic movement. We want to recapture the feminine segment we own. We will obviously develop the volumes of watches making this activity much more profitable. We have a manufacturer which today produces a few thousand watches while having a capacity of 14,000 to 15,000 watches. This is why we are exciting platform we can develop big time our watch activity. Communication, we will amplify, integrate, synchronize all the elements around the Harry Winston’s message to be of more genuineness and to be understood as a global brand all over the world.

Salons, we want to make every salon obviously profitable and we capture growth opportunities in all continents. Today, we have 19 salons internally run, eight in America, well covered; two only Europe; four in Asia; five in Japan. As we know, there will be in 10 years about 1.6 billion tourists around the world, half of them traveling to Europe, with half to develop in Europe, not only in China, in both continents. Tomorrow, we expect ourselves to have about 35 salons run internally occurring in a more balance way to the world, especially you will see the boom of the salons in Asia.

Wholesale, we have 188 doors around the world. There is huge room for growth still and always keeping the most exclusive brand in the world. We would open the network of partner salons. It’s a hybrid distribution model where we operate salons with the image of Harry Winston with business partners. We maintain and control the brand image with the book of guidances driven by the brand and from the brand. We will limit the company exposures in riskier markets and add to the network 20 salons around the world.

We will capitalize on the exhibitions, the most important exhibitions, the Doha Exhibition, the Leonardo da Vinci, the Masters, the most important exhibitions in the world having, Harry Winston will be there. And we expect ourselves to be from four to seven major exhibitions every year very soon.

Our financial vision is, I told you, to grow the next few years by 20% or around 20% year-after-year, to grow the margin to the range of 51% to 52% by the introduction of new products, having an operating profit close to 12% over 10% and EBITDA of 15%. We will operate the group of salons from 19 to 35 salons roughly, partners salons additional 20 salons, so network of 55 salons in five years, which would still make us the most exclusive jeweler brand in the world, and around 300 watch doors.

So, with that, I can tell you that after having spent 18 years in the industry, after having spent five years in Japan, two years in Switzerland, seven years in Italy, and now five years in America, I can tell you that this plan I am very, very comfortable with and extremely confident that we are going to take Harry Winston to the next level. Enjoy.

Bob Gannicott

Thanks Frederic. I can attest to the fact that I have actually seen Frederic in a TV interview in Japanese, in Japan, which I guess is quite an achievement for someone that’s not Japanese. So, mining, so this view is the view of the Diavik Mine site and the two open pits. The open pit production from the biggest one in the foreground, which contains two Kimberlite pipes, A154 South and North is now essentially complete. There is some a little bit being dug out of the very bottom of A154 South. The smaller open pit to the left of it is A418. And that one won't go as deep as had been originally planned, mostly because there's a potential for a new mining method, which means that rather than accept the bigger stripping ratio that one has to get deeper in the pit, floor economic to actually take the rest of it from underground.

Over in the distance, let me just point out some of the –on the way here. So, 154 South and North, A418, the airstrip is over here. You can see it, waste rock piles. This area with the dam on the front of it is what used to be called tailings, but that’s now reprocessed, named to be processed kimberlite containment. This is the processing plant, and out in the lake, just about there, there’s right the other fourth kimberlite pipe is called A21. And if we were to be able to look at those from underground as it were, this is what they would look like then. These three are all in the correct relationship to one another. A21 is often the distance. The green areas are measured resources like proven reserve type of material. The blue are indicated reserves. And if we take measured and indicated resources, about 80 million carats remaining here. Having already extracted everything what’s behind the gray shadow here which is the open pit.

So, as you can see, there is still lot of A418 to go and in fact A418 hasn’t been bottomed. These gold sort of teased on the bottom of these pipes are not included in any of the reserve or resource statements. They are simply material that we know is found there, but hasn’t yet been measured to a level but allows it to be included in resource state, but I think it’s pretty obvious on what the outcome of further work down here would be for example. So, the balance of this will be mined from underground and this rather hazy kind of zigzag arrangements that you see here, it’s the underground development, that’s already being completed to be able to mine them.

So, where does this fit into the world of diamond mining? Well, the heights of the bar is here, indicate the dollar value of the ton of rock, in other words, the value of the diamonds is contained in a ton of work. The width of bars indicate the dollar value of the production in the prior year. So, you can see that the biggest producer in the world is Jwaneng in Botswana, and Diavik comes in pretty close behind. You have got Orapa, and then Diavik is a big producer. It’s not – although it’s a relatively small kimberlite client, the grade in carats per ton is so high that the number of diamonds that come out of it makes it one of the largest in the world, to the extent that, just ourselves, Harry Winston together with the Kinross interest, of course, the 40% of the Diavik project that we control accounts for about 4% by value of the world’s diamond market and is equivalent. We are equivalent to the sales that are being made by BHP. Rio Tinto, of course is higher, biggest in the world is De Beers and behind them are Alrosa, and then there is a batch of African production that comes from various small productions that are – some of them even artisanal productions. So, we are – Diavik itself is quite a big piece of the diamond map and we are quite a big piece of that.

We are going to move on from open pit mining to underground mining. This was all going to be accomplished by the end of 2012. It may actually be slightly ahead of that now, because of more favorable mining methods. There are three types of mining methods that probably would be employed here in various proportions. First one is, underhand cut and fill. Without getting into the details of it, what it really means is that you make tunnels which of course are an expensive form of mining, but like taking of big slabs, you actually got to drill quite a lot of holes as it were to make a tunnel or else use some mechanical mining machine, both of which are relatively expensive. Having completed a tunnel all the way across the kimberlite pipe, you then fill it with concrete, so that you can then go underneath that tunnel and actually mine another tunnel underneath it, having concrete above your head instead of having a rather unpredictable natural rock. Very safe, very effective, gets very last drop of kimberlite out of the ore body. You don’t leave any pits of kimberlite in areas that are inaccessible, but it’s extremely expensive. We could imagine that the concrete is 10% cement and getting that cement to the site, the end of the winter road is certainly expensive.

When the underground project was first conceived, they thought that as much as 70% of the mining is going to have to be done by this method, because they had no firm idea of what the competency of the rock was underground, having not been there, and they needed to get the place dewatered before they could measure the rock strength and so on. So, the conservative point of view was that this was going to be most of the underground mining. That part that wasn’t going to be done was to be done by some of blasthole stoping, which is still a cut and fill method in a way. It’s just that instead of making tunnels, you are actually going to create big rooms by blasting rings of fuel holes. So, it’s cheaper than cut – underhand cut and fill, but it still requires fuel, and that’s still expensive.

The other method that’s come to the floor more recently because BHP has successfully used it is something called sublevel caving, and this is really just opening the underground up to the sky. In other words, there is no fill put in at all, just in this spiral of tunnels that goes in the granite around the edge of the kimberlite pipe. Tunnels are put into the kimberlite. The kimberlite is blasted into a broken rock and that broken rock is picked up by scoop trams and removed by coming in from the side all the time. And you end up with the sort of open holes gradually getting deeper and deeper and deeper. BHP has used it successfully, but BHP don’t have two dikes that they have to be very conscious of managing. And we do. The integrity of the dikes is fundamentally both from a safety point of view.

Obviously people working underground, just to figure all those dikes would be catastrophic, also from an environment point of view. So, we are very careful about mining methodology that’s used here. But it does look as if a substantial amount of the underground mining may be turned over to this sublevel caving method, which is significantly cheaper than the other two methods, principally because it doesn’t require any of the backfill, therefore any of the cement. It’s also advantageous because the velocity of mining is much bigger. In other words, we are capable of keeping the processing plant full of its capacity with ore delivered from underground if this type of mining method really does come to the floor, which then therefore means we don’t need to develop the fourth kimberlite pipe as early in the history of the mine as we otherwise would have, which is A21. In fact, the development of A21 until the engineering of this and what possibilities this opens up has been established later this year. The A21 has been deferred for its current development.

So, now diamonds is a commodity then, which is sort of back to why we do what we do and how we view our future. This compares diamonds in terms of their usage where two other common commodities, the ones we view as precious, but first of all, gold of course, and the other one being platinum. I think the thing to point out here is that whereas gold does have some industrial usage and quite a lot of investment usage, and platinum even more industrial usage, there is only really one use of diamonds. They are used to make jewelry, and there is a complete sort of iron bar that connects diamond mining in a commodity sense to diamond jewelry sales. There really is no other cushion in the middle other than corporate stockpiling. These industries are very connected, which is why our pricing mechanism works very well. There is translation of demand at the retail end goes immediately into polished prices and that’s going to immediately dictate how we can move our rough prices.

We take advantage of that, but there is also no way to escape it. There isn’t any London Metal exchange, that’s going to offtake diamonds when things are slackening, put them back into the market when they are not. It’s a complete direct action. So, looking into what one does with the ownership of diamond cash flows, that’s interesting to take a look at of course is exploration. This part of the slide is from De Beers. They recently used it in a presentation that they made to the Anglo-American investors. And it shows that in the last 140 years, and the reason 140 years is picked is because it was 140 years ago approximately that the first kimberlite pipe was ever found, in other words diamonds were never known in hard rock deposits until 140 years ago.

What it shows is that, this isn’t just De Beers’ history, this is the entire history of the world of diamond exploration and development. So, there were 5,000 kimberlites that were being found in that time, of which 850 contained diamonds and 50 of those were economic. So, in 140 years, including with our pipes accounting four of that 50, only being 50 economic deposits that have been put in production. That is the challenge that one faces in exploration. Compare this with some numbers that were kindly given to us by Kinross actually, in that same 140-year period, there were 1,025 economically viable gold mines that were discovered compared to the 50 diamond mines. So, you can see why grassroots exploration on a worldwide basis has actually been a challenge for people, even the very big companies where they spent a lot of money on it have not been successfully. Now, that doesn’t mean that you stay away from it completely. This is to buy the property, so the outline, the blue outline that you see here are all the claims that constitute the Diavik property. The mining that we are doing is just in this little set here. These are the only kimberlite that we are actually mining. All of the red dots are known kimberlite pipes. This adjacent property is BHP’s and in fact the Koala Panda pipes are in there, and the Misery [ph] pipes down here, the Misery pipe down there.

The reason that we still carry on doing it, we are still doing exploration on this property, because I think it’s obvious, in this big area, the population of pipes here doesn’t really relate to the whole that you see here, rather they should be more kimberlite pipes here than being found. There are some reasons for that, and one of the reasons is that there is a covering of glacier material over the top of rock, it’s reasonably thick here. So, it doesn’t permit some types of sampling that could be quite easily done over there, but nonetheless, it’s a challenge that they are now trying to meet. So, the joint venture is now putting in some more effort into trying to flow in, as it were, to populate this group here with kimberlite pipes in the hopes that one of them particularly in the context of already having a producing mine here would become an economic pipe. This little grouping of purple dots over here, right in this corner is actually some very interesting, both geophysical anomalies and particularly indicator of mineral anomalies. These are the anomalies in the glacier material that have been shed by diamond-bearing kimberlite pipes. You find over here, and so, this is an attractive area that’s receiving quite a lot of attention there.

So, then to translate that exploration difficulty if you like into production, it has, as you can see, those are big tail-off, why has this happened, what happened in these jolly years, it isn’t happening here. This is due with technology, those of you being around the mining business for a long time probably note that, for instance, there was a huge burst of discovery of base metal deposits in the 1950s. And that was really because the kind of technology that have been put together to find submarines in the Atlantic, in other words, flying aircraft over the Atlantic Ocean with magnetometers on the back and then some electromagnetic equipment as well, got brought into the mining industry. And so, there were whole host of base metal deposits that had electromagnetic signatures that were found in a hurry. What happened in the world of diamonds wasn’t that, it was that this understanding of so-called indicator mineral chemistry and I won’t get into that, but the fact that you could take samples of material that were either glacier material or else weather material that were shed by kimberlite pipes. These are mineral grains in them. If you could do chemical analysis of these individual tiny grains, you could actually determine whether they came from likely pregnant kimberlite pipes or barren ones.

And there was a machine called electron microprobe that was developed that was capable of doing this. And that led to a host of discoveries that really took us from these Botswana discoveries all the way up and including the Diavik discovery. This brand new black box is where that rolled out across the potential prospective areas of the world for a host of discoveries made on that basis. However, that magic wand is largely been waived over the prospective areas. So, it’s much more difficult to make new discoveries, and so this production is tailing off.

And because the production is tailing off, of course, there is an implication for price rise, as Frederic has already mentioned, the surge in diamond buying in China for instance meets a lack of production from the diamond producing areas of the world. So then, we could then if you like the Diavik underground development as a brand new mine. Although these are the same ore body, it’s a completely different set of mining methods, different mining economics and so on. And it required a capital, a significant capital cost to bring it in, capital costs close to $900 million. So, we could view it as a new mining development. And on that basis, compared to the other diamond mine potential, diamond mine developments in the world, this is where the Diavik Underground stocks up on the basis of that same kind of plot that we were just looking at. In other words, value per ton with the hike and the value of the ore reserve is with the bar. So, you can see that compared to everything else out there, the Diavik Underground is actually just viewed as a standalone project. It’s the best diamond mine you got there, it’s happening in the world for the foreseeable future.

So then, these two assets, they are complementary, and the one provides pricing information, the retail side provides pricing information to the rough diamond side. The rough diamond side provides more authority to the retail side. We have a common group of people who sell rough diamonds and purchase polished diamonds. And these two assets put together and they support one another. And we are looking forward now to a future where the world has become, perhaps if it’s not really back on its feet, not completely stable yet, and at least we have got a growth engine in China, things are improving in the US, and hopefully is never, never a very serious diamond consumer anyway. So, the trouble is in Europe at the moment don’t seriously affect the diamond industry as much as they do than any other commodity industry like energy and so on. And so, we are looking forward to a future now with an underground mine that’s fully developed and our retail business is really showing that it can get on its feet and dance now. Thank you very much.

We would be happy to take any questions.

Question-and-Answer Session

Paul Gerning

Paul Gerning [ph] is my name. First and obvious question is, why doesn’t Harry Winston have a Toronto store if Vegas and Dallas does?

Bob Gannicott

Yes, actually, Canadian consumers tend to buy serious diamond purchase. There is a tendency for them to make them outside of Canada. There are still come punitive taxes applied in Canada to luxury goods purchases, at least to diamond jewelry purchases, besides the GSTs and the PSTs, there is also a special excise tax applied that tends to discourage purchases here.

Paul Gerning

Okay. My second question, if we look at the bottom of page 5, I am not blaming management for the worldwide recession not for a minute, so we won’t talk about sales and profits, but let’s talk about diamonds recovered and that’s fallen by more than a half between late in ’10. I certainly hope that, that line isn’t a trending line, I hope your new kimberlite pipes you are looking at are going to make that line turn around, go back up?

Bob Gannicott

Well, the open pit on A154 South was the highest grade. It was almost 5 carats per ton on average. And that open pit is finished. There is underground production to come from there, but on a go-forward basis, it’s really going to be between 7.5 million and 8 million carats, that kind of range on an annual basis, on a 100% basis going forward.

Alan Mayne

I like to add is that in the year you are referring to, there was a strategic decision to reduce production. As you know, the price of rough diamond had fallen dramatically. So, there was more value to actually reducing production in digging out the carats and actually selling them. So, that was not as a result of any particular adverse conditions at the mine, but more so a strategic decision by the partner to actually deliberately reduce production, so that production could now be mined and sold at much higher prices.

Paul Gerning

Yes, thanks a lot.

Bob Gannicott

Anybody else? Okay. Thank you very much.

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Source: Harry Winston Diamond Corporation F1Q11 (Qtr End 04/30/10) Earnings Call Transcript
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