6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF ISSUER PURSUANT TO SECTION 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Month Ended	Commission File Number
November 2017	000-27322

MOUNTAIN PROVINCE DIAMONDS INC. 

(Exact name of the registrant as specified in its charter)

ONTARIO 

(Jurisdiction of Incorporation or Organization)

161 Bay Street, Suite 1410, P.O. Box 216

Toronto, Ontario, Canada M5J 2S1 

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20F- or Form 40-F.

FORM 20-F o FORM 40-F x

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No x

If "Yes" is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

EXHIBIT LIST

Exhibit	Description
99.1	Management’s Discussion and Analysis for the Nine Months Ended September 30, 2017
99.2	Consolidated Interim Financial Statements for the Nine Months Ended September 30, 2017

MOUNTAIN PROVINCE DIAMONDS INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	MOUNTAIN PROVINCE DIAMONDS INC.
Date:  November 13, 2017	By:	/s/ Perry Ing
		Perry Ing
		Chief Financial Officer

EX-99.1

Exhibit 99.1

 

Management’s Discussion and Analysis

For the Three and Nine Months Ended September 30, 2017

TSX: MPVD |NASDAQ: MPVD

MOUNTAIN PROVINCE DIAMONDS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS	Page
Third Quarter 2017 Highlights	3
Company Overview	5
Gahcho Kué Diamond Mine	6
Non-IFRS Measures	12
Results of Operations	14
Financial Review	15
Summary of Quarterly Results	15
Earnings from Mine Operations, Costs and Expenses	16
Income and Resource Taxes	17
Financial Position and Liquidity	17
Off-Balance Sheet Arrangements	19
Significant Accounting Policies Adopted in the current year	20
Significant Accounting Judgments, Estimates and Assumptions	22
Standards and Amendments to Existing Standards	23
Related Party Transactions	24
Contractual Obligations	25
Other MD&A Analysis Requirements	25
Disclosure of Outstanding Share Data	26
Controls and Procedures	26
Cautionary Note Regarding Forward-Looking Statements	27

This Management’s Discussion and Analysis (“MD&A”) as of November 13, 2017 provides a review of the financial performance of Mountain Province Diamonds Inc. (the “Company” or “Mountain Province” or “MPV”) and should be read in conjunction with the MD&A for the year ended December 31, 2016, the unaudited condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2017 and the audited consolidated statements for the year ended December 31, 2016. The following MD&A has been approved by the Board of Directors.

The unaudited condensed consolidated interim financial statements of the Company were prepared in accordance with IAS 34 - Interim Financial Reporting. Except as disclosed in the statements, the interim financial statements follow the same accounting policies and methods of computation as compared with the most recent annual financial statements for the year ended December 31, 2016, which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Accordingly, the interim financial statements should be read in conjunction with the Company’s most recent annual financial statements.

All amounts are expressed in thousands of Canadian dollars, except share and per share amounts, unless otherwise noted.

Technical information included in this MD&A regarding the Company’s mineral property has been reviewed by Dino Pilotto, a Professional Engineer of JDS Energy and Mining Ltd and a Qualified Person as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Properties (“NI 43-101”).

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

HIGHLIGHTS

• The Gahcho Kué Diamond Mine (“GK Mine”) declared commercial production on March 1, 2017 having achieved more than 70% of nameplate capacity of 8,226 tonnes per day over the proceeding 30-day period.

• Net income for the three and nine months ended September 30, 2017 was $27,669 and $33,079 respectively, with this third quarter reflecting the Company’s first full quarter of commercial mining operations results.

• Revenue recognized in the nine months ended September 30, 2017 totaled $160,359 of which $67,493 was capitalized as pre-commercial production revenue and $92,866 is reported as sales in the statement of earnings. Most of this revenue was realized through seven tender sales conducted by the Company through its diamond broker based in Antwerp, with the balance realized through sales direct to De Beers in instances where production split bids for fancies and specials were won by De Beers. Revenue recognized year to date reflects an average realization of US$75 per carat.

• Mining of overburden, waste rock and ore in the 5034 open pit for the nine months ended September 30, 2017 was approximately 24.4 million tonnes. Ore mined in the first nine months totalled 2,674,000, with approximately 695,000 tonnes of ore stockpile at period-end on a 100% basis.

• For the nine months ended September 30, 2017, the GK Mine treated approximately 2,082,000 tonnes of ore through the process plant and recovered approximately 4,306,000 carats on a 100% basis for an average grade of approximately 2.07 carats per tonne (“cpt”). This recovered grade is approximately 28% above the original budget for the nine months ended September 30, 2017. The Company’s 49% attributable share of diamond production for the three months ended September 30, 2017 was approximately 894,000 carats and 2,110,000 carats for the nine months ended September 30, 2017.

• Cash costs of production, including capitalized stripping costs, for the three and nine months ended September 30, 2017 were $73 and $80 per tonne respectively, and $33 and $37 per carat recovered respectively. Note that this term is not clearly defined under IFRS and therefore may not be comparable to similar measures presented by other issuers. Please refer to the Non-IFRS Measures section.

• Gem and near-gem diamonds for the nine months ended September 30, 2017 contributed approximately 95% of the diamond sales proceeds at an average price of US$123 per carat. The remaining 5% of proceeds came from industrial diamonds at an average price of US$8 per carat. Gem and near-gem diamonds represented approximately 57% of sales by volume to September 30, 2017.

• Participation at the Company’s tender sales has been strong from the outset, with participation rates increasing through the year. Bids per lot (approx. 125 lots per sale) increased from an average of 8.1 in January to 11.8 in September. There is a high level of market interest and competition for Gahcho Kué diamonds with an average of 100 companies bidding each sale.

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• In August 2017, the Company increased full-year 2017 production guidance on a 100% basis to 5.5 million carats recovered (2.7 million carats on a 49% basis) from 4.4 million carats previously (2.2 million carats on a 49% basis) and also increased guidance on carats sold to 2.4 million carats from 2.0 million previously. Given the continuation of strong plant performance and favourable grade experience at the GK Mine, the Company is on track to meet and exceed its current full-year 2017 production and sales guidance.

• The Company announced price guidance on April 25, 2017 of approximately US$70 to US$90 per carat as the expected realized diamond price for the 2017 year, and full year realization is expected to be at the low end of that range.

• At September 30, 2017, the Company had drawn US$357 million of its US$370 million Loan Facility, and no further draws against the facility will be made as the availability period defined under the facility has now ended. At September 30, 2017, the Company was subject to maintaining a debt service reserve account balance of approximately US$57.1 million, a sunk cost reserve account balance of $43.0 million and a cash call reserve account balance of approximately $27.9 million, all under the Loan Facility. On August 31, 2017, the lenders provided a waiver whereby funding of the amounts in the debt service reserve account and the sunk cost reserve account were deferred to November 30, 2017. The waiver required the Company to deposit a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company has complied with (see Financial Position and Liquidity section).

• The Company is well advanced in developing a near-term resolution of the project lending facility. The Company anticipates being in a position to publicly announce the specifics of such resolution in the coming few weeks. While the Company is confident that it will be successful in its efforts, there can be no guarantee of success, nor that the lenders will accommodate any further waivers or amendments the Company may seek.

• If the Company is unsuccessful with its intended resolution and is unable to fully fund the required reserve accounts, or is unable to comply with other financial covenants, and is not successful in obtaining suitable waivers or amendments, it would result in an event of default, and the Loan Facility outstanding balance would become payable on demand. To mitigate against this, management may seek further alternative sources of financing. These conditions, until such time as they are resolved, indicate the existence of a material uncertainty that results in substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.

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The following table summarizes key operating highlights for the period ended September 30, 2017.

		Three months ended		Three months ended		Nine months ended		Nine months ended
		September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
GK operating data
Mining
*Ore tonnes mined	kilo tonnes		1,123		147		2,674		147
*Waste tonnes mined	kilo tonnes		7,190		15,753		21,698		15,753
*Total tonnes mined	kilo tonnes		8,313		15,900		24,372		15,900
*Ore in stockpile	kilo tonnes		695		17		695		17
Processing
*Ore tonnes processed	kilo tonnes		823		130		2,082		130
*Average plant throughput	tonnes per day		8,944		2,410		7,626		2,410
*Average diamond recovery	carats per tonne		2.22		1.52		2.07		1.52
*Diamonds produced	000's carats		1,825		97		4,306		97
Approximate diamonds produced - Mountain Province	000's carats		894		48		2,110		48
Cash costs of production per tonne, net of capitalized stripping **		$	73		–		77		–
Cash costs of production per tonne of ore, including capitalized stripping**		$	73		–		80		–
Cash costs of production per carat recovered, net of capitalized stripping**		$	33		–		36		–
Cash costs of production per carat recovered, including capitalized stripping**		$	33		–		37		–
Sales
Approximate diamonds sold - Mountain Province***	000's carats		764		–		1,650		–
Average diamond sales price per carat	US	$	69	$	–	$	75	$	–

* at 100% interest in the GK Mine

**See Non-IFRS Measures section

***Includes the sales directly to De Beers for fancies and specials lost during the bidding process

COMPANY OVERVIEW

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

Physical construction of the GK Mine was substantially completed at June 30, 2016 and the commissioning of the plant began July 2016. Ramp-up to commercial production commenced on August 1, 2016 and commercial production was declared on March 1, 2017 after the GK Mine achieved approximately 70% of nameplate capacity of 8,226 tonnes per day over a 30-day period.

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Under the Gahcho Kué Joint Venture Agreement discussed below, commercial production for sunk cost repayment purposes is based on the first day after 30 days (excluding maintenance days) of achieving and maintaining 70% of designed production capacity. The $10 million sunk cost repayment on reaching commercial production was paid on March 31, 2017. The remaining principal balance of $24.4 million plus accumulated interest of $24.1 million is included in the payable to De Beers Canada on the condensed consolidated interim balance sheet, and is payable on September 1, 2018. For royalty purposes for the Government of the Northwest Territories, commercial production is based on the first day after 90 days of achieving 60% of designed production capacity, which was achieved on December 23, 2016.

The Company’s strategy is to mine and sell its 49% share of rough diamonds at the highest price on the day of the close of the auction. Inventory generally will not be held for speculative purposes, though the sale of certain diamonds may be accelerated or deferred in the short term for tactical marketing purposes. Mountain Province’s long-term view of the rough diamond market remains positive, based on the outlook for a tightening rough diamond supply and growing demand, particularly in developing markets such as China and India, resulting in real, long term price growth.

During the nine months ended September 30, 2017, the Company held seven of ten sales expected to take place in Antwerp during 2017. Sales are held approximately every five weeks during the year.

Revenue from diamond sales is recognized when the performance obligations are completed. Under the Company’s sales terms, the performance obligations are completed when payment has been received for diamonds by the Company or the Company’s agent and diamonds are delivered to the buyer by the Company or the Company’s agent.

GAHCHO KUÉ DIAMOND MINE

Gahcho Kué Joint Venture Agreement

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

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

Under provisions of the 2009 agreement the Company will repay De Beers $59 million (representing 49% of the agreed sum of $120 million) plus interest compounded on the outstanding amounts in settlement of the Company’s share of the agreed historical sunk costs. To date the Company has paid $34.6 million of historical sunk costs.

Amounts remaining to be paid is the balance of approximately $24.4 million plus accumulated interest due September 1, 2018. At September 30, 2017, accumulated interest is approximately $24.1 million plus the principal balance of $24.4 million is included in payable to De Beers Canada on the condensed consolidated interim balance sheet. Accumulated interest is being calculated at the prevailing LIBOR rate plus 5%.

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

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

Between 2014 and 2016, the Company and De Beers signed agreements allowing the Operator to utilize De Beers’ credit facilities to issue reclamation and restoration security deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3% fee annually for their share of the letters of credit issued. As at September 30, 2017, the Company’s share of the letters of credit issued were $23,419 (December 31, 2016 - $23,419).

Gahcho Kué Capital Program

For the period, January 1, 2017 to February 28, 2017, the date immediately preceding the declaration of commercial production, funding of approximately $24.9 million (excluding management fee) was requested by the Operator. Included in this amount are ramp-up operating costs, working capital and the remaining original capital related costs. The Company funded from the Loan Facility approximately $12.5 million representing its proportionate share.

Gahcho Kué Production Forecast

The Company provided initial full-year guidance in April 2017 of 2.7 million tonnes processed and 4.4 million carats produced for the year ended December 2017 and subsequently in August 2017 revised that guidance to 2.72 million tonnes processed and 5.5 million carats produced on a 100% basis. Given the continuation of strong plant performance and favourable grade experience at the GK Mine, the Company is on track to meet and exceed its current full-year 2017 production guidance. The Company expects to receive 2.7 million carats, being its 49% share of production.

The Company also provided initial guidance in April 2017 to sell at least 2 million carats of diamonds, including pre-commercial production sales and subsequently in August 2017 revised that guidance to sell at 2.4 million carats of diamonds. The Company is on track to meet and exceed its current full year 2017 sales guidance.

These production and sales expectations represent an increase from prior guidance of 2.2 million attributable carats of production and 2.0 million carats sold due to favourable production trends experienced during the second and third quarter of 2017, as the conveyor issues experienced earlier have been overcome and recovered carats per tonne has been higher than planned in certain portion of the 5034 pit. The increased performance is expected to carry throughout 2017.

Diamond Outlook

Q3 is typically impacted by the industry holiday periods in August and the run up to the Jewish and Hindu New Year factory shutdowns in October. The resultant slow-down has been more pronounced as major US retailers push seasonal purchasing to later in the year.

Confidence levels within the diamond midstream were impacted by two sizeable unforeseen bankruptcies in the third quarter. Both were long-established players in Belgium and India, who had been extended credit by multiple major diamond banks and fellow diamond companies and their bankruptcies led to a decline in counter-party trust between trading companies. Short-term, this creates some downward pressure on rough prices. Longer-term it may drive consolidation, a healthier midstream and a stronger banking model.

Feedback from September’s Hong Kong Gem and Jewellery Fair was more positive than the industry’s conservative expectations. Show traffic was good, with a solid turnout of buyers from China and other major markets. Trading levels were reported to be respectable, indicating a positive outlook for the months ahead.

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Consumer markets are relatively stable. US majors have struggled in recent years, as have many mall-based chains from other product categories, as consumer purchasing habits migrate online. US retailers continue to seek opportunities to expand their digital presence, with one leading mall-based chain acquiring a leading online retailer of engagement rings and loose diamonds. The performance of US majors is critical to smaller sized and lower commercial quality rough.

Premium brands are performing well with several luxury goods houses reporting increased year-on-year jewellery and watch revenues. This should support price performance of top-end qualities, particularly in small sizes, where there have been some reported shortages.

Retail sales in major Asian markets were boosted by Chinese Golden week in October, shortly followed by Diwali in India. Hong Kong is recovering from a couple of recently difficult years. Tourists from mainland China to Hong Kong are an important driver of diamond jewellery demand. Mainland Chinese tourist numbers in Hong Kong increased 2.3% in H1 2017 and a major Chinese retailer reported double digit, same store sales growth in its Hong Kong stores last quarter.

The outlook for the remainder of 2017 is stable and expectations for 2018 are cautiously optimistic. Major producers are expected to responsibly manage supply and the midstream sector has purchasing and operational capacity. Manufacturers will however are expected to be less willing to buy loss-making rough and to be cautious in extending credit.

Gahcho Kué Diamond Mine Update

Construction and Development Update

As at September 30, 2017, procurement for the construction of the mine was 100% complete. The close-out of the various procurement packages from Q1 - 2017 was completed, and no significant remaining costs regarding mine construction and development are anticipated to be incurred.

During the GK mine’s first winter of operations, extreme cold conditions affected the mine’s conveyor systems which resulted in downtime and lowered throughput. In 2017, De Beers and the Company approved a capital project totalling $23 million on a 100% basis to install enclosures on two conveyors as well as to install dust collection systems at the primary crusher and plant feed bin. Work has commenced on this project and is expected to be completed by the end of Q1 2018, with the work completed to date considered sufficient to adequately mitigate the operating risk for this upcoming winter.

Mining

For the three months ended September 30, 2017, on a 100% basis, a total of 8.3 million tonnes of overburden, waste rock and ore had been extracted from the 5034 open pit, compared to the original 2017 third quarter plan of approximately 10 million tonnes (83% of plan). For the nine months ended September 30, 2017, on a 100% basis a total of 24.4 million tonnes of overburden, waste rock and ore had been extracted from the 5034 open pit, compared to an original plan of approximately 27.7 million tonnes (88% of plan).

For the three and nine months ended September 30, 2017, 823,000 tonnes and 2,082,000 tonnes of kimberlite ore was processed with 1,825,000 carats (100% basis) and 4,306,000 carats being recovered at a grade of 2.22 and 2.07 carats per tonne for the three and nine months ended September 30, 2017, respectively. It remains unclear at this time to what extent this positive grade variance will be sustainable.

At September 30, 2017, there was approximately 695,000 tonnes (100% basis) of stockpiled ore. Sufficient ore is available in the 5034 pit to meet the planned process throughput rate.

At September 30, 2017, the GK Mine had 573,360 carats on a 100% basis in rough diamond inventory at the GK Mine and at the sorting facility based in Yellowknife. The Company had 598,220 carats within its sale preparation channel plus its 49% share of the 573,360 carats or 280,950 carats for a total of 879,170 carats available for sale inventory.

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Operating Plan Update

Annually at the GK mine, an internal operational review is undertaken mid year and the results are incorporated into updated budgets and operating plans for the subsequent years. The review conducted in 2017 has identified three main areas of update to the operating plans for 2018 and subsequent years.

• Based on realized and sustained plant throughput rates in 2017 and confirmatory engineering assessments, the nameplate capacity of the plant is being increased by 5% to 3,150,000 tonnes per annum.

• Recovered diamond grade through the first three quarters of 2017 has exceeded plan. The 2014 Feasibility Study (entitled “Gahcho Kué Project 2014 Feasibility Study”, dated May 13, 2014 amended May 27, 2014) projected a 2017 recovered grade of 1.75 cpt, and initial 2017 guidance provided by the Company in April 2017 anticipated a recovered grade of 1.62 cpt. Actual recovered grade through the first three quarters of 2017 was 2.07 cpt, and for the third quarter was 2.22 cpt. Work on the annual GK mine reserve statement update is currently under way, with public release anticipated for early 2018. In addition to factoring in normal depletion from 2017 mining, also under consideration is the manner and extent to which the update will need to reflect this recovered grade increase, as well as actual experience regarding stone size and quality distributions.

• As previously disclosed, for geotechnical reasons a layback of the planned east wall of the 5034 open pit is required. Relating primarily to a joint set encountered within the country rock, the revised pit wall design calls for a shallower overall pit slope angle of approximately 41°. The geotechnical issue was identified in the opening several benches of the pit wall, and the pushback of those opening benches was commenced during the summer. Accordingly, the primary impact on the mine plan will be additional waste removal due to the increased stripping requirements. If the joint set issue persists through the full depth of the pit wall, the additional waste removal over life of mine will be approximately 66 million tonnes (beyond initial design). Should the geotechnical issue dissipate at lower bench levels, it may be possible to step in and steepen the pit wall angle and commensurately reduce the additional waste removal required.

For 2018, the GK operational plan anticipates total ore processing of approximately 3,115,000 tonnes, recovering between 6.3 million and 6.6 million carats (100% basis) and reflecting a recovered grade of between 2.02 cpt and 2.12 cpt. This reflects a current expectation that the grade experience of 2017, specifically that attributable to the Centre and East lobes of the 5034 pipe, will continue at least into 2018, and may be subject to revision pending completion of the annual GK mine reserve statement update. Actual cash costs of production, including capitalized stripping costs (see Non-IFRS Measures section), over the first three quarters of 2017 were $80 per tonne processed, versus $79 projected for 2017 in the 2014 Feasibility Study. The 2018 GK operational plan anticipates cash costs of production including capitalized stripping costs increasing to a run-rate of $100 per tonne. The increase in cost is due primarily to the increased waste removal attributed to the push back of the planned 5034 east wall. The 2018 GK operational plan anticipates sustaining and other capital expenditures (other than capitalized stripping) of approximately $47 million (100% basis), approximately $31 million of which is in respect of additional open pit mining equipment, including drill, shovel, haul trucks and ancillary equipment to accommodate the increased waste removal of the 5034 east wall. Exploration expenditures for 2018, if any, will be expensed and not capitalized based on the Company’s accounting policy.

A summary of key parameters from the updated GK operational plan over the next five years is provided as follows (100% basis):

		2018	2019	2020	2021	2022
Ore tonnes processed	000s	3,115	3,153	3,161	3,153	3,153
Carats recovered	000s	6,300 - 6,600	6,000 - 6,300	6,300 - 6,600	5,700 - 6,000	5,300 - 5,600
Cash costs of production per tonne, net of capitalized stripping	$	77	82	80	77	86
Cash costs of production per tonne, including capitalized stripping	$	100	102	104	104	109
Sustaining capital expeditures	$000s	46,629	31,497	12,669	9,070	7,355

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Not included in the updated GK operational plan is any potential processing of diamondiferous kimberlite from the Southwest Corridor, between the 5034 and Hearne pipes. Much of the Southwest Corridor is already scheduled under the mine plan to be mined as waste rock, and in the course of stripping activity to date, this area has been recognized as containing diamondiferous kimberlite that is not included in the current project resource or reserve statements. An exploration program is being carried out in the area of the Southwest Corridor to consider whether resource identification may be validated, with initial results anticipated in early 2018. Also, not included in the updated GK operational plan is any potential grade increase associated with the West lobe of the 5034 pipe. Evaluations are being conducted on the West lobe to better isolate and assess its grade performance, the outcomes of which are anticipated in early 2018 and may justify further revision to production estimates.

Diamond Sales

The Company undertook seven tender sales of diamonds during the first nine months of 2017 through its broker in Antwerp, Belgium, and an eighth sale was completed in October. Although the GK Mine declared commercial production on March 1^st, revenues and costs from four out of the seven sales conducted in the first three quarters have been recorded against the mine construction costs rather than as revenue on the Company’s statement of comprehensive income (loss) as those diamonds sold were all recovered prior to the mine declaring commercial production. The majority of the Company’s revenue is derived from these tender sales, with the remainder attributed to sales of fancies and specials directly to De Beers on such occasions where De Beers has won the periodic fancies and specials bidding process.

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The following table summarizes the results of each sale in Antwerp:

	000's of carats sold		Gross proceeds (US$)		Revenue/carat (US$)
Sale 1(1)		96	$	6,423	$	67
Sale 2		231	$	16,484	$	71
Sale 3(2)		194	$	13,747	$	71
Total Q1(3)		521	$	36,654	$	70
		000's of carats sold		Gross proceeds (US$)		Revenue/carat (US$)
Sale 4(4)		148	$	12,691	$	86
Sale 5(5)		223	$	21,118	$	95
Total Q2		371	$	33,809	$	91
		000's of carats sold		Gross proceeds (US$)		Revenue/carat (US$)
Sale 6		290	$	20,948	$	72
Sale 7		463	$	27,108	$	59
Total Q3		753	$	48,056	$	64
Total year to date		1,645	$	118,519	$	72
		000's of carats sold		Gross proceeds (US$)		Revenue/carat (US$)
Sale 8		353	$	21,214	$	60
Total Q4		353	$	21,214	$	60

(1) Assuming the diamonds withdrawn were sold in sale 1 instead of sale 2.

(2) Although the diamond sale closed on March 29, 2017, the sale of 194,000 carats occurred during the first week of April.

(3) Although 522,000 carats were sold, in accordance with IFRS only 416,000 carats could be recognized as sales proceeds in the quarter. The remaining 106,000 carats were recognized in Q2 2017.

(4) Sold carats were produced in the period before declaration of commercial production, therefore were recorded against the property, plant and equipment in accordance with IFRS.

(5) Sale 5 represents the first sale of diamonds produced after the declaration of commercial production on March 1, 2017, therefore have been recorded as revenue on the statement of comprehensive income (loss). Although 222,000 carats were sold, in accordance with IFRS only 215,000 carats could be recognized as sales proceeds in the quarter. The remaining 7,000 carats have been recognized during Q3 2017.

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To more meaningfully relate prices realized at sale events to production results, the Company provides the following table:

Production period	Inception to end of year 2016	Q1 2017	April 2017	May 2017	June 2017	July 2017	Aug 2017	Sept 2017	YTD Total 2017
Sale in which goods were primarily sold	1 & 2	3 to 5	6	7	7&8	8	N/A**	N/A**
Tonnes processed (100%) (000's)	515	492	201	276	289	314	269	241	2,082
Recovered grade (carats per tonne)	1.64	1.76	2.27	2.09	1.99	2.13	2.32	2.22	2.07
Carats recovered (100%) (000's)	847	867	457	579	578	669	622	535	4,307
Carats recovered (49%) (000's)	415	425	224	284	283	328	305	262	2,111
Price per carat in US$, run of mine basis***	$67	$     79	$   78	$65	$     63	$    60	N/A**	N/A**
Attributed value per tonne in CAD*	$   143	$  188	$225	$   172	$  157	$ 160	N/A**	N/A**

*Attributed value per tonne has been determined based on realized sales results, with accelerated or deferred goods adjusted to their period production, reflecting only the Company’s 49% share of all diamonds including fancies and specials. Attributed value per tonne in CAD is not clearly defined under IFRS and therefore may not be comparable to similar measures presented by other issuers. Please refer to the Non-IFRS Measures section.

**Not applicable as goods from this production period have not yet been sold.

*** Price per carat in US$, run of mine basis is not clearly defined under IFRS and therefore may not be comparable to similar measures presented by other issuers. Please refer to the Non-IFRS Measures section.

The following table summarizes the revenue composition for the seven tender sales above:

	% Volume	% Value	Sale price per carat (US$/ct)
Gem/ Near gem	57%	95%	123
Industrial/ Boart	43%	5%	8

Though the positive experience gained by manufacturers in polishing GK Mine diamonds continues to deepen competition at the Company’s tender sales, instability in the rough diamond market arising from the two bankruptcies impacted price growth during the third quarter.

As previously reported, a significant proportion of diamonds sold to date, including much of the higher quality colourless diamonds, have exhibited varying degrees of fluorescence. As per industry norms, these continue to be discounted by the market compared to non-fluorescent diamonds.

The Company maintains the price guidance announced on April 25, 2017, of approximately US$70 to US$90 per carat as the expected realized diamond price for the remainder of 2017.

NON-IFRS MEASURES

The MD&A refers to the terms “Price per carat in US$, run of mine basis” and “Attributed value per tonne in CAD”, as well as “Cash costs of production per tonne of ore processed” and “Cash costs of production per carat recovered”, both including and net of capitalized stripping costs. Each of these is a non-IFRS performance measure, and is referenced in order to provide investors with information about the measures used by management to monitor performance. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. They do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers.

Price per carat in US$, run of mine basis, and attributed value per tonne in CAD are used by management to analyze the sales results based on date of production rather than sales date. Differences from reported sales are attributed to the holding back or accumulation of diamonds, the expediting of certain diamonds produced into an earlier sale batch, and the inclusion in revenue under IFRS of proceeds from the sale of De Beers’ 51% of fancies and specials won by the Company under the tender process, described as adjustments for stock movements and holdbacks.

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Cash costs of production per tonne of ore processed and cash costs of production per carat recovered are used by management to analyze the actual cash costs associated with processing the ore, and for each recovered carat. Differences from production costs reported within cost of sales are attributed to the amount of production cost included in ore stockpile and rough diamond inventories.

The following table provides a reconciliation of price per carat in US$, run of mine basis, to the amounts included in property, plant and equipment on the condensed consolidated interim balance sheets, and the sales reported on the condensed consolidated interim statements of comprehensive income (loss), as applicable:

Sales per carat (expressed in 000's, except per carat amounts)	Sales 1 & 2(1)			Sales 3 & 4(1)			Sale 5(2)			Sale 6(2)			Sale 7(2)			Sale 8(3)
Sales	$	30,431		$	37,062		$	27,648		$	26,500		$	33,316		$	25,569
Less: effects of foreign exchange spot translations	$	(7,524	)	$	(9,577	)	$	(6,765	)	$	(5,318	)	$	(6,208	)	$	(4,355	)
Sales in $US	$	22,907		$	27,485		$	20,883		$	21,182		$	27,108		$	21,214
Carats sold		327			343			215			297			463			353
Sales per carat, $US	$	70		$	80		$	97		$	71		$	59		$	60

Reconciliation of date of sale to date recovered from processing plant (expressed in 000's)	Sales 1 & 2(1)		Sales 3 & 4(1)		Sale 5(2)		Sale 6(2)		Sale 7(2)		Sale 8(3)		Total
Carats recovered through processing plant
Inception to end of period 2016		327		88		–		–		–		–		415
First quarter production period 2017		–		255		163		7		–		–		425
April 2017 production period		–		–		52		172		–		–		224
May 2017 production period		–		–		–		118		166		–		284
June 2017 production period		–		–		–		–		283		–		283
July 2017 production period		–		–		–		–		14		314		328
Sales in $US adjusted for date recovered from processing plant
Inception to end of period 2016	$	22,907	$	4,898	$	–	$	–	$	–	$	–	$	27,805
First quarter production period 2017	$	–	$	22,587	$	11,179	$	–	$	–	$	–	$	33,766
April 2017 production period	$	–	$	–	$	9,704	$	7,768	$	–	$	–	$	17,472
May 2017 production period	$	–	$	–	$	–	$	13,414	$	5,046	$	–	$	18,460
June 2017 production period	$	–	$	–	$	–	$	–	$	17,829	$	–	$	17,829
July 2017 production period	$	–	$	–	$	–	$	–	$	4,233	$	15,447	$	19,680

Production period (expressed in 000's, except per carat amounts)	Inception to end of 2016		Q1 2017		April 2017		May 2017		June 2017		July 2017		August 2017		September 2017
Carats recovered through processing plant		415		425		224		284		283		328		N/A(3)		N/A(3)
Sales in $US, date recovered through processing plant	$	27,805	$	33,766	$	17,472	$	18,460	$	17,829	$	19,680		N/A(3)		N/A(3)
Price per carat in $US, run of mine basis	$	67	$	79	$	78	$	65	$	63	$	60		N/A(3)		N/A(3)

(1) Total revenue for sales 1 to 4 equates to the amounts included in property, plant and equipment on the condensed consolidated interim balance sheets.

(2) As presented in the condensed consolidated interim statements of comprehensive income (loss).

(3) Sale occurred subsequent to the quarter end, which will be reported in the fourth quarter of 2017.

(4) During Sale 8, approximately 353K of carats were sold, of which approximately 328k were processed in the one-month period ended July 31, 2017. The remainder were processed during August 2017.

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The following table provides a reconciliation of the attributed value per tonne in CAD to the amounts included in property, plant and equipment on the condensed consolidated interim balance sheets, and the sales reported on the condensed consolidated interim statements of comprehensive income (loss):

Production period (expressed in 000's, except per carat amounts)	Inception to end of 2016		Q1 2017		April 2017		May 2017		June 2017		July 2017		August 2017		September 2017
Carats recovered through processing plant		415		425		224		284		283		328		N/A(3)		N/A(3)
Average grade processed through processing plant		1.64		1.76		2.27		2.09		2.00		2.13		N/A(3)		N/A(3)
Tonnes processed through processing plant		253		241		99		136		142		154		N/A(3)		N/A(3)
Sales in $US, date recovered through processing plant	$	27,805	$	33,766	$	17,472	$	18,460	$	17,829	$	19,680		N/A(3)		N/A(3)
Add back effects of foreign exchange spot translations	$	8,381	$	11,632	$	4,731	$	4,912	$	4,387	$	4,958		N/A(3)		N/A(3)
Sales in $, date recovered through processing plant	$	36,186	$	45,398	$	22,203	$	23,372	$	22,216	$	24,638		N/A(3)		N/A(3)
Attributed value per tonne in CAD****	$	143	$	188	$	225	$	172	$	157	$	160		N/A(3)		N/A(3)

(1) Total revenue for sales 1 to 4 equates to amounts included in property, plant and equipment on the condensed consolidated interim balance sheets.

(2) As presented in the condensed consolidated interim statements of comprehensive income (loss).

(3) Sale occurred subsequent to the quarter end, which will be reported in the fourth quarter of 2017.

(4) Attributed value per tonne in CAD is calculated as ‘Sales in $, date recovered through processing plant’ divided by ‘Tonnes processed through plant.’

The following table provides a reconciliation of the cash costs of production per tonne of ore processed and per carat recovered and the production costs reported within cost of sales on the condensed consolidated interim statements of comprehensive income (loss):

		Three months ended		Three months ended		Nine months ended		Nine months ended
(in millions of Canadian dollars, except where otherwise noted)		September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Production costs	$		22,857		–		29,826		–
Variation in inventory, excluding depreciation	$		6,679		–		37,062		–
Cash cost of production of ore processed, net of capitalized stripping	$		29,536		–		66,888		–
Cash costs of production of ore processed, including capitalized stripping	$		29,536		–		69,665		–
Tonnes processed	kilo tonnes		403		–		874		–
Carats recovered	000's carats		894		–		1,864		–
Cash costs of production per tonne of ore, net of capitalized stripping	$		73		–		77		–
Cash costs of production per tonne of ore, including capitalized stripping	$		73		–		80		–
Cash costs of production per carat recovered, net of capitalized stripping	$		33		–		36		–
Cash costs of production per carat recovered, including capitalized stripping	$		33		–		37		–

Results of operations

The Company has funded its share of the remaining costs, associated fees, operating costs during the build-up to commercial production, which was declared on March 1, 2017. The Company, as discussed above, has held seven sales of diamonds during the nine months ended September 30, 2017 and expects to conduct another three sales during the fourth quarter of 2017.

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FINANCIAL REVIEW

Three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016, expressed in thousands of Canadian dollars.

For the three months ended September 30, 2017, the Company recorded net income of $27,669 or $0.17 earnings per share compared to net loss $5,387 or $0.03 loss per share for the same period in 2016. For the nine months ended September 30, 2017, the Company recorded net income of $33,079 or $0.21 earnings per share compared to $13,104 net income or $0.08 earnings per share for the same period in 2016. One significant change was earnings from mine operations of $23,991 and $35,770 in the three and nine months ended September 30, 2017, respectively, compared to $nil for the same periods in 2016. An additional reason for the significant increase in net income for the nine months ended September 30, 2017 was the $32,984 foreign exchange gain, compared to $14,348 for the same period in 2016.

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

SUMMARY OF QUARTERLY RESULTS

Table 1 - Quarterly Financial Data
Expressed in thousands of Canadian dollars
				Three months ended
	September 30			June 30			March 31			December 31
	2017			2017			2017			2016
		$			$			$			$
Earnings and Cash Flow
Sales		65,218			27,648			–			–
Operating expenses		(44,648	)		(19,985	)		(3,428	)		(2,479	)
Net income (loss) for the period		27,669			7,554			(2,144	)		(8,305	)
Basic and diluted earnings (loss) per share		0.17			0.05			(0.01	)		(0.05	)
Cash flow provided by (used in) operating activities		49,238			(15,737	)		(27,239	)		1,911
Cash flow provided by (used in) investing activities		(38,715	)		18,217			7,596			(63,276	)
Cash flow provided by (used in) financing activities		(7,871	)		(8,826	)		30,974			36,527
Balance Sheet
Total assets		884,806			857,320			873,753			783,762

				Three months ended
	September 30			June 30			March 31			December 31
	2016			2016			2016			2015
		$			$			$			$
Earnings and Cash Flow
Operating expenses		(1,426	)		(1,204	)		(1,168	)		(2,368	)
Net income (loss) for the period		(5,387	)		(352	)		18,843			(10,248	)
Basic and diluted earnings (loss) per share		(0.03	)		(0.00	)		0.12			(0.06	)
Cash flow provided by (used in) operating activities		(4,296	)		(13,972	)		(1,654	)		(1,592	)
Cash flow provided by (used in) investing activities		(16,404	)		(36,689	)		(89,198	)		(57,622	)
Cash flow provided by (used in) financing activities		32,539			59,271			92,870			36,316
Balance Sheet
Total assets		752,825			732,959			693,923			582,848

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EARNINGS FROM MINE OPERATIONS, COSTS AND EXPENSES

The earnings from mine operations, costs and expenses, expressed in thousands of Canadian dollars for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 are comparable except for the following:

Earnings from mine operations

Earnings from mine operations for the three and nine months ended September 30, 2017 were $23,991 and $35,770, respectively. Diamond sales for the three and nine months ended September 30, 2017 were $65,218 and $92,866, respectively. Production costs (net of capitalized stripping costs) related to diamonds sold for the three and nine months ended September 30, 2017 were $22,857 and $29,826, respectively. Depreciation and depletion related to diamonds sold for the three and nine months ended September 30, 2017 were $16,493 and $21,587, respectively. The cost to acquire the fancies and specials diamonds sold for the three and nine months ended September 30, 2017 were $1,877 and $5,683, respectively. The GK Mine declared commercial production on March 1, 2017, and as a result, the diamond sales, and cost of goods sold have been recorded for the first time. These would have related to the first three sales taking place in Antwerp, along with any diamonds lost in the bidding process to De Beers. As a result of the declaration occurring on March 1, 2017, there were no earnings from mine operations in the comparative period for 2016.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three and nine months ended September 30, 2017, respectively, were $3,334 and $10,878 compared to $1,426 and $3,798 for the same period in 2016. The significant expenses included in these amounts for the three and nine months ended September 30, 2017, respectively, were $1,489 and $4,614 relating to selling and marketing, $376 and $2,062 related to consulting fees and payroll, and $516 and $1,289 relating to share-based payment expense. Selling and marketing expenses were incurred in 2017 due to the Company holding its first seven sales. Consulting fees and payroll related expenses for the nine months ended September 30, 2017, have significantly increased from $1,024 in 2016 to $2,062 in 2017, both on a year-to-date basis, due to the transition in executive leadership during the period, and the associated costs of severance and transition.

Net finance income (expenses)

Net finance income (expenses) for the three and nine months ended September 30, 2017, respectively, were ($11,141) and ($26,280) compared to $12 and $123 for the same period in 2016. Included in these amounts for the three months and nine months ended September 30, 2017, respectively, were ($11,298) and ($26,578) relating to finance costs, ($140) and ($421) relating to accretion expense on decommissioning liability and $297 and $719 relating to interest income. Finance costs has increased for the three and nine months ended September 30, 2017 due to interest expense incurred on the Loan Facility for the months of March to September 2017 being expensed after the declaration of commercial production. The increase in accretion expense on decommissioning liability is due to a higher decommissioning liability balance. The decrease in interest income is as a result of a lower average balance in the restricted accounts.

Derivative gains

Derivative gains for the three and nine months ended September 30, 2017, respectively, were $635 and $1,415 compared $1,564 and $2,363 for the same period in 2016. For the nine months ended September 30, 2017, the overall derivative gain is attributed to the relative strengthening of the LIBOR rate, which has resulted in a derivative gain on the interest rate swap contracts. The overall derivative gains for the nine months ended September 30, 2016, related to the foreign currency forward strip contracts.

Page 16

Foreign exchange gains (losses)

Foreign exchange gains (losses) for the three and nine months ended September 30, 2017, respectively, were $17,495 and $32,984 compared to ($5,560) and $14,348 for the same period in 2016. The foreign exchange gains for the three and nine months ended September 30, 2017 were a result of the Canadian dollar strengthening relative to the U.S. dollar and the translation of the Loan Facility, net of U.S. dollar cash balances, to Canadian dollar at the spot rate at the period end. At September 30, 2017, the spot exchange rate was $1.2472/US$1 compared to $1.3427/US$1 at December 31, 2016. At September 30, 2016, the spot exchange rate was $1.3117/US$1 compared to $1.384/US$1 at December 31, 2015. The foreign exchange gains for the three months ended September 30, 2016 was a result of the Canadian dollar weakening relative to the U.S. dollar and the translation of the Loan Facility and U.S. dollar cash balances to Canadian dollar at the spot rate at the period end.

INCOME AND RESOURCE TAXES

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

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

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

The Company does not have any current tax expense as there are significant losses carried forward that are available to offset current taxable income.

FINANCIAL POSITION AND LIQUIDITY

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

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

Page 17

Commencing on March 31, 2017, the Company was subject to maintaining a cash call reserve account balance based upon certain budgeted amounts which will vary over the term of the Loan Facility. Approximately US$27.9 million was originally required to be deposited in the cash call reserve account on March 31, 2017. On March 27, 2017, the Company received a waiver deferring the requirement to fund the cash call reserve account to May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received another waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017. The Company was required to deposit a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company has complied with. Under conditions of the waiver, certain information must be furnished to the lenders by August 31, 2017 including:  an updated financial model including a life of mine plan and reflecting the changes to the JV plan and budget which have been approved by the technical agent. The failure to comply with any of the requirements of the waiver constitutes an event of default. All requirements have now been provided to the lenders, and are currently being assessed.

Under the terms of the Loan Facility Agreement, the Company is also subject to maintaining minimum levels of funding of reserve accounts (Note 9 of the financial statements). The table below describes requirements for initial funding of the minimum reserve balance by quarter:

		December 31, 2017		March 31, 2018		June 30, 2018		September 30, 2018			Total
Cash call reserve account(1)	US	$	2,900	$	–		–		–		$	2,900
Sunk cost reserve account(2)			43,000		–		–		(43,000	)		–
Debt service reserve account(3)			89,800		–		–		–			89,800
Environment reclamation reserve account(4)			18,200		14,400		–		–			32,600
	US	$	153,900	$	14,400	$	–	$	(43,000	)	$	125,300

(1) The amount was to be funded by March 31, 2017. On March 27, 2017, the lenders provided a waiver indicating the amount was to be funded by May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received a waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017 and the Company was required to deposit at a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company complied with. The remaining US$2.9 million is required by December 31, 2017.

(2) The sunk cost reserve account is to be funded by September 1, 2017.Cash call reserve account minimum balance represents the cash calls expected to be paid to the Operator in the next three months. On August 31, 2017, the lenders provided a waiver indicating the amount is to be funded by November 30, 2017.

(3) The debt service reserve account is to be funded by September 30, 2017. On August 31, 2017, the lenders provided a waiver indicating the amount is to be funded by November 30, 2017.

Sunk cost reserve account minimum balance represents the total expected sunk cost payments to the Operator as described in note 8 of the financial statements.

(4) The environment reclamation reserve account is to be funded by December 31, 2017.

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

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

At project completion, the Company can use the remaining balance available in the restricted cost overrun account (Note 7 of the financial statements) to fund a portion of the above reserve accounts. Management believes the Company will not be able to comply with the requirement to fully fund these reserve accounts and may from time to time not comply with the other financial covenants in the Loan Facility.

Page 18

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

In accordance with the waiver from the lenders, the Company paid the last two quarterly interest payments of approximately US$13.1 million from operating cash flows, rather than from the Loan Facility. As at September 30, 2017, the availability period of the Loan Facility period has ended, therefore the Company is no longer able to draw further debt.

Cash flow used in operating activities, including change in non-cash working capital for the nine months ended September 30, 2017 were $6,262 compared to ($19,924) for the same period in 2016. The increase in cash used is mainly as a result of the increase in inventories totalling approximately ($57,498). Included in the cash used in inventories of ($57,498) is ($14,320) used for supplies inventories, with the remainder being attributed to the increase of rough diamonds and stockpiled ore, since it is the first year of commercial production.

Investing activities for the nine months ended September 30, 2017 were ($12,902) compared to ($142,292) for the same period in 2016. For the nine months ended September 30, 2017, the outflow for the purchase of equipment and the expenditures directly related to the development of the GK Mine and other commissioned assets were $48,547 compared to $144,008 for the same period in 2016. Capitalized interest paid for the nine months ended September 30, 2017 was $5,451 compared to $17,617 for the same period in 2016. Cash used for investing activities for the nine months ended September 30, 2017 include $48,547 in property, plant and equipment, $5,451 for capitalized interest paid and $27,116 in restricted cash, offset by $67,493 in pre-production sales and $719 of interest income. Included in the $48,547 cash used in property, plant and equipment is the production and processing costs related to the pre-commercial production diamonds, which were sold and generated the $67,493 in pre-production sales.

Financing activities for the nine months ended September 30, 2017 were $14,277 compared to $184,681 for the same period in 2016. Cash flows from financing activities for the nine months ended September 30, 2017, related to cash draws of US$25 million or approximately $32.4 million Canadian dollar equivalent from January 1, 2017 to September 30, 2017 from the Loan Facility, net of financing costs of approximately $19.7million and proceeds from option exercises of $1,577. For the nine months ended September 30, 2016, financing activities related to cash draws of US$146 million or approximately $186.8 million Canadian dollar equivalent from January 1, 2016 to September 30, 2016 from the Loan Facility, net of financing costs of approximately $2.5 million and proceeds from option exercises of $411.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Page 19

SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN THE CURRENT YEAR

Effective March 1, 2017, upon declaring commercial production, the Company transitioned from accounting for certain costs as a development stage company to accounting for certain costs as an operating company. The significant financial reporting changes were as follows: the capitalized costs of the GK Mine were transferred from assets under construction to the relevant asset categories; assets began to be depreciated or depleted consistent with the Company’s accounting policies; capitalization of borrowing costs to assets under construction ceased; capitalization of pre-commercial production operating costs ceased; and mine operating results are recorded in the statement of comprehensive income (loss).

The new accounting policies adopted in the current year, are as follows:

(a) Property, plant and equipment

Upon entering commercial production stage, capitalized costs associated with the acquisition of the mineral property or the development of the mine, are amortized using the various methods based in the asset categories as follows:

Corporate assets	two to seven years, straight line
Vehicles	three to five years, straight line
Production and related equipment	three to ten years or life of mine*, straight line or units of production method
General infrastructure	life of mine*, straight line
Earthmoving equipment	estimated hours
Mineral properties	units of production over proven and probable resources
Assets under construction	not depreciated until ready for use

*Life of mine is estimated at approximately 12 years.

(b) Inventories

Inventories are recorded at the lower of cost and net realizable values. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion. An impairment adjustment is made when the carrying amount is higher than the net realizable value.

Rough diamonds classified as finished goods comprise diamonds that have been subject to the sorting process. Cost is determined on a weighted average cost basis including production costs and value-added processing activity. As outlined in the joint venture agreement between the Company and De Beers Canada, fancies and special diamonds produced at the GK Mine are subject to a bid process. Upon a successful bid by the Company, the fancies and specials diamonds will be included in inventories and 51% of the bid amount will be paid to De Beers and capitalized to the cost of inventory. Cost for fancies and specials diamonds is determined on a weighted average cost basis including production costs and value-added processing activity plus the direct cost of acquiring the fancies and specials diamonds from De Beers.

Stockpiled ore represents coarse ore that has been extracted from the mine and is available for future processing. Stockpiled ore value is based on costs incurred in bringing ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per tonne and are removed at the average cost per tonne of ore in the stockpile.

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

Page 20

(c) Capitalized stripping costs

In open pit mining operations, it is necessary to remove overburden and other waste materials to access ore from which minerals can be extracted economically. The process of mining overburden and waste materials is referred to as stripping. Stripping costs incurred in order to provide initial access to the ore body (referred to as pre-production stripping) are capitalized as mine development costs. These amounts were capitalized under assets under construction.

It may be also required to remove waste materials and to incur stripping costs during the production phase of the mine. The Company recognizes a stripping activity asset if all of the below conditions are met:

• It is probable that the future economic benefit (improved access to the component of the ore body) associated with the stripping activity will flow to the Company.

• The Company can identify the component of the ore body for which access has been improved.

• The costs relating to the stripping activity associated with that component can be measured reliably.

The Company measures the stripping activity at cost based on an accumulation of costs incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable costs.

After initial recognition, the stripping activity asset is carried at cost less depreciation and impairment losses in the same way as the existing asset of which it is a part.

The stripping activity asset is depreciated over the expected useful life of the identified components of the ore body that becomes more accessible as a result of the stripping activity using the units of production method.

(d) Revenue

The Company early adopted IFRS 15, Revenue from Contracts with Customers, effective January 1, 2017.

The Company utilizes a sales agent to facilitate the sale of rough and/or fancies and specials diamonds to the end-customer. The Company recognizes revenue when consideration has been received by the Company’s sales agent, which represents the completion of the performance obligation of the Company.

As outlined in the joint venture agreement between the Company and De Beers Canada, fancies and specials diamonds produced at the GK Mine are subject to a bid process. When De Beers is the successful bidder, the Company recognizes 49% of the bid price as revenue at the completion of the bid process, as De Beers receives the fancies and specials diamonds and the Company is paid immediately for its share by De Beers.

(e) Statement of cash flows

In January 2016, the IASB issued an amendment to International Accounting Standard 7 (“IAS 7”), Statement of Cash Flows. The amended standard introduced additional disclosure requirements for liabilities arising from financing activities. The amendment is effective for annual periods beginning on or after January 1, 2017. The adoption of the amendment to IAS 7 did not have an effect on the condensed consolidated interim financial statements for the current period.

Page 21

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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

i)        Significant judgments in applying accounting policies

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

a)       Impairment analysis - mineral properties

As required under IAS 36 - Impairment of Assets, the Company reviews its mineral properties for impairment based on results to date and when events and changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company is required to make certain judgments in assessing indicators of impairment. The Company’s assessment is that as at September 30, 2017 no indicator of an impairment in the carrying value of its mineral properties had occurred.

b)       Commencement of commercial production

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

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

• mineral recoveries are at or near expected production levels;

• the ability to sustain ongoing production of ore; and

• the ability to operate the plant as intended.

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

ii)       Significant accounting estimates and assumptions

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

Mineral reserves and resources

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

Page 22

STANDARDS AND AMENDMENTS TO EXISTING STANDARDS

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

Share-based payments

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

Financial instruments

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

Leases

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

Foreign currency transactions and advance consideration

In December 2016, the IASB issued IFRIC Interpretation 22 “Foreign Currency Transactions and Advance Consideration” (“IFRIC 22”). IFRIC 22 is applicable for annual periods beginning on or after January 1, 2018, and permits early adoption. IFRIC 22 clarifies which date should be used for translation when a foreign currency transaction involves an advance payment or receipt. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of the advance consideration. The Company will adopt IFRIC 22 in its financial statements for the annual period beginning January 1, 2018 on a prospective basis. The Company has completed its assessment of the impact of IFRIC 22 and does not expect the interpretation to have a material impact on the consolidated financial statements.

Uncertainty over income tax treatments

On June 7, 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (“IFRIC 23”). IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. IFRIC 23 is applicable for annual periods beginning on or after January 1, 2019. Earlier application is permitted. Management is currently assessing the impact of the IFRIC 23 on the consolidated financial statements.

Page 23

RELATED PARTY TRANSACTIONS

The Company’s related parties include the Operator of the GK Mine, Dermot Desmond, Bottin (a corporation controlled by Dermot Desmond), key management and their close family members, and the Company’s directors. Dermot Desmond, indirectly through Bottin, is a beneficial owner of greater than 10% of the Company’s shares. Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds have a common member of key management. International Investment and Underwriting (“IIU”) is also a related party since it is controlled by Mr. Dermot Desmond.

Related party transactions are recorded at their exchange amount, being the amount agreed to by the parties.

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

The balances as at September 30, 2017 and December 31, 2016 were as follows:

	September 30,		December 31,
	2017		2016
Payable to the Operator of the GK Mine*	$	1,041	$	926
Payable to De Beers Canada Inc. for sunk cost repayment		48,464		–
Payable to International Investment and Underwriting		48		53
Payable to key management personnel		191		3

*included in accounts payable and accrued liabilities

The transactions for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
The total of the transactions:
Kennady Diamonds	$	23	$	23	$	68	$	68
International Investment and Underwriting		23		10		48		30
Remuneration to key management personnel		655		311		2,800		793
Sunk cost repayment to De Beers Canada Inc.		–		–		10,000		–
Pre-production sales to De Beers Canada Inc.		–		168		1,398		168
Diamonds purchased from De Beers Canada Inc.		4,114		10		12,638		10
Finance costs incurred from De Beers Canada Inc.		742		–		1,743		–
Management fee charged by the Operator of the GK Mine		1,038		805		3,114		3,918

The remuneration expense of directors and other members of key management personnel for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Consulting fees, director fees, bonus and other short-term benefits	$	263	$	195	$	1,850	$	639
Share-based payments		392		116		950		154
	$	655	$	311	$	2,800	$	793

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

Page 24

CONTRACTUAL OBLIGATIONS

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

	Less than		1 to 3			4 to 5		After 5
	1 Year		Years			Years		Years		Total
Operating lease obligations	$	231	$	464		$	473	$	375	$	1,543
Gahcho Kué Diamond Mine commitments		1,679		–			–		–		1,679
Trade and other payables		30,681		–			–		–		30,681
Loan facility - Principal*		122,740		201,264			121,246		–		445,250
Loan facility - Interest		29,693		33,883			10,127		–		73,703
Sunk cost repayment - principal		24,383		–			–		–		24,383
Sunk cost repayment - interest		26,501		–			–		–		26,501
Interest Rate Swap Contracts:
Outflows (inflows)		916		(93	)		–		–		823
	$	236,824	$	235,518		$	131,846	$	375	$	604,563

*In accordance with the terms of the Loan Facility at March 31, 2017, the Company was subject to maintaining a cash call reserve account balance in the amount of approximately US$27.9 million. As of March 27, 2017, the lenders provided a waiver and the amount was to be funded by May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. Under the terms of the Loan Facility Agreement, the Company is also required to fund reserve accounts estimated (Note 9) of US$103 million on November 30, 2017, and additional amounts of US$50.9 million at December 31, 2017 At March 31, 2018, an estimated US$14.4 million of additional funding of the reserve accounts will be required.

Other Management Discussion and Analysis Requirements

Risks

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

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

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

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

• results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with the Company's expectations; mining exploration risks, including risks related to accidents, equipment breakdowns or other unanticipated difficulties with or interruptions in production;

• risks related to foreign exchange fluctuations and prices of diamonds;

• risks related to commodity price fluctuations;

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

• risks related to failure of its joint venture partner;

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

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

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

• risks related to environmental regulation, permitting and liability;

• risks related to legal challenges to operating permits that are approved and/or issued;

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

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

Page 25

• aboriginal rights and title;

• failure of plant, equipment, processes and transportation services to operate as anticipated;

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

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

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

Disclosure of Outstanding Share Data

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

At November 13, 2017, there were 160,245,166 shares issued, 2,630,000 stock options and 257,000 restricted share units outstanding. There were no warrants outstanding.

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

Controls and Procedures

Disclosure Controls and Procedures and internal control over financial reporting

The Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the design of the Company's disclosure controls and procedures and internal controls over financial reporting as of September 30, 2017.

For the fiscal year ended December 31, 2016, management identified the following material weaknesses that existed in our internal control over financial reporting.

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

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

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

Page 26

Remediation activities

Management commenced remediation efforts in the second quarter of Fiscal 2017 related to these material weaknesses. Following management's determination of the material weaknesses, management promptly began taking the following remedial actions:

• The Company designed and implemented additional management review controls over payroll changes to ensure validity, accuracy and completeness.

• The Company designed and implemented additional management review controls over supplies inventory to ensure the completeness, existence and accuracy.

• The Company designed and implemented additional management review controls over the manual journal entries to ensure validity, accuracy and completeness. 

Management anticipates that these remedial actions will strengthen the Company's internal control over financial reporting and will, over time, address the material weaknesses that were identified as of December 31, 2016. Because some of these remedial actions will take place on a quarterly basis, their successful implementation may need to be evaluated over several quarters before management is able to conclude that the material weaknesses have been remediated.

Other than the changes to controls noted above, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations of Controls and Procedures

Management, including the Chief Executive Officer and the Chief Financial Officer, believes that any disclosure controls and procedures and internal control over financial reporting, no matter how well designed and operated, can have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that the objectives of the control system are met.

The CEO and CFO have concluded that our disclosure controls and procedures were not designed and implemented effectively as of September 30, 2017.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” and “forward-looking information” under applicable Canadian and United States securities laws concerning the business, operations and financial performance and condition of Mountain Province Diamonds Inc. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to estimated production and mine life of the project of Mountain Province; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; the future price of diamonds; the estimation of mineral reserves and resources; the ability manage debt; capital expenditures; the ability to obtain permits for operations; liquidity; tax rates; and currency exchange rate fluctuations. Except for statements of historical fact relating to Mountain Province, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be”, “potential” and other similar words, or statements that certain events or conditions “may”, “should” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Many of these assumptions are based on factors and events that are not within the control of Mountain Province and there is no assurance they will prove to be correct.

Page 27

Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include variations in ore grade or recovery rates, changes in market conditions, changes in project parameters, mine sequencing; production rates; availability of waivers from lenders; availability of alternative or additional financing; cash flow; risks relating to the availability and timeliness of permitting and governmental approvals; supply of, and demand for, diamonds; fluctuating commodity prices and currency exchange rates, the possibility of project cost overruns or unanticipated costs and expenses, labour disputes and other risks of the mining industry, failure of plant, equipment or processes to operate as anticipated.

These factors are discussed in detail both in this MD&A and in Mountain Province's most recent Annual Information Form filed on SEDAR, which documents also provide additional general assumptions in connection with these statements. Mountain Province cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Mountain Province believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date of this MD&A.

Although Mountain Province has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Mountain Province undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements. Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent they involve estimates of the mineralization that will be encountered as the property is developed.

Further, Mountain Province may make changes to its business plans that could affect its results. The principal assets of Mountain Province are administered pursuant to a joint venture under which Mountain Province is not the operator. Mountain Province is exposed to actions taken or omissions made by the operator within its prerogative and/or determinations made by the joint venture under its terms. Such actions or omissions may impact the future performance of Mountain Province. Under its current project finance facility Mountain Province is not permitted to pay dividends on common stock unless and until obligations under the facility have been satisfied. The declaration of dividends is at the discretion of Mountain Province’s Board of Directors, subject to restrictions under the Company’s project finance facility, and will depend on Mountain Province’s financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

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

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

Page 28

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

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

Page 29

EX-99.1

Exhibit 99.2

 

Condensed Consolidated Interim Financial Statements

(Expressed in thousands of Canadian Dollars)

MOUNTAIN PROVINCE
DIAMONDS INC.

Three and Nine Months Ended September 30, 2017

(Unaudited)

MOUNTAIN PROVINCE DIAMONDS INC.

CONTENTS	Page
Responsibility for Condensed Consolidated Interim Financial Statements	3
Condensed Consolidated Interim Balance Sheets	4
Condensed Consolidated Interim Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Interim Statements of Equity	6
Condensed Consolidated Interim Statements of Cash Flows	7
Notes to the Condensed Consolidated Interim Financial Statements	8 - 26

Page | 2

MOUNTAIN PROVINCE DIAMONDS INC.

Responsibility for CONDENSED Consolidated INTERIM Financial Statements

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

The unaudited condensed consolidated interim financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the Company’s audited consolidated financial statements as at December 31, 2016. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the balance sheet date. The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards 34 - Interim Financial Reporting using the accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) appropriate in the circumstances.

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

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

The Audit Committee meets with management to review the financial reporting process and the unaudited condensed consolidated interim financial statements together with other financial information of the Company. The Audit Committee approves the unaudited condensed consolidated financial statements together with other financial information of the Company for issuance to the shareholders on behalf of the Board of Directors.

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

“David Whittle”	“Perry Ing”
David Whittle	Perry Ing
Interim President and Chief Executive Officer	VP Finance and Chief Financial Officer

Toronto, Canada

November 13, 2017

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MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Balance Sheets

Expressed in thousands of Canadian dollars

(Unaudited)

			September 30,			December 31,
	Notes		2017			2016
ASSETS
Current assets
Cash			$	14,867		$	6,844
Amounts receivable		5		1,642			2,036
Prepaid expenses and other				331			1,318
Inventories		6		88,046			11,730
				104,886			21,928
Restricted cash		7		110,994			83,878
Financing costs				—			1,902
Derivative assets				90			—
Property, plant and equipment		8		668,836			676,053
Total assets			$	884,806		$	783,761
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		15	$	30,681		$	16,153
Derivative liabilities				882			2,912
Payable to De Beers Canada		8 & 15		48,464			—
Current portion of loan facility		9		122,740			33,287
				202,767			52,352
Loan facility		9		306,977			392,616
Derivative liabilities				—			97
Decommissioning and restoration liability				24,687			24,266
Shareholders' equity:
Share capital		11		475,570			472,995
Share-based payments reserve		11		5,309			5,018
Deficit				(130,504	)		(163,583	)
Total shareholders' equity				350,375			314,430
Total liabilities and shareholders' equity			$	884,806		$	783,761
Going concern		1
Commitments and Contingencies		8, 9 & 14

On behalf of the Board:    

“David Whittle”	“Jonathan Comerford”
Director	Director

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

Expressed in thousands of Canadian dollars

(Unaudited)

				Three months ended			Three months ended			Nine months ended			Nine months ended
	Notes			September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Sales				$	65,218		$	—		$	92,866		$	—
Cost of sales:
Production costs					22,857			—			29,826			—
Cost of acquired diamonds					1,877			—			5,683			—
Depreciation and depletion					16,493			—			21,587			—
Earnings from mine operations					23,991			—			35,770			—
Selling, general and administrative expenses		12			3,334			1,426			10,878			3,798
Operating income (loss)					20,657			(1,426	)		24,892			(3,798	)
Net finance income (expenses)		10			(11,141	)		12			(26,280	)		123
Derivative gains					635			1,564			1,415			2,363
Foreign exchange gains (losses)					17,495			(5,560	)		32,984			14,348
Other income					23			23			68			68
Net income (loss) and comprehensive income (loss) for the period				$	27,669		$	(5,387	)	$	33,079		$	13,104
Basic and diluted earnings (loss) per share		11	(iv)	$	0.17		$	(0.03	)	$	0.21		$	0.08
Basic weighted average number of shares outstanding					160,227,724			159,784,703			160,170,914			159,723,140

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Equity

Expressed in thousands of Canadian dollars, except for the number of shares

(Unaudited)

	Notes			Number of shares		Share capital		Share-based payments reserve			Deficit			Total
Balance, January 1, 2016					159,678,833	$	472,286	$	4,776		$	(168,381	)	$	308,681
Net income for the period					—		—		—			13,104			13,104
Issuance of common shares - exercise of options					115,000		411		—			—			411
Fair value of options exercised from share-based payments reserve					—		130		(130	)		—			—
Share-based payment expense					—		—		154			—			154
Balance, September 30, 2016					159,793,833	$	472,827	$	4,800		$	(155,277	)	$	322,350
Balance, January 1, 2017					159,818,833	$	472,995	$	5,018		$	(163,583	)		314,430
Net income for the period					—		—		—			33,079			33,079
Share-based payment expense					—		—		1,289			—			1,289
Issuance of common shares - exercise of options		11	(iii)		355,000		1,577		—			—			1,577
Fair value of share options exercised from share-based payments reserve					—		538		(538	)		—			—
Issuance of common shares - Restricted Share Unit vesting					71,333		460		(460	)		—			—
Balance, September 30, 2017					160,245,166	$	475,570	$	5,309		$	(130,504	)	$	350,375

 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Page | 6

MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Cash Flows

Expressed in thousands of Canadian dollars

(Unaudited)

	Nine months ended September 30, 2017			Nine months ended September 30, 2016
Cash provided by (used in):
Operating activities:
Net income for the period	$	33,079		$	13,104
Adjustments:
Net financing (income) expenses		26,280			(123	)
Depreciation and depletion		21,602			10
Share-based payment expense		1,289			154
Derivative gain		(1,415	)		(2,363	)
Foreign exchange gain		(32,984	)		(14,348	)
Changes in non-cash operating working capital:
Amounts receivable		394			(137	)
Prepaid expenses and other		987			(377	)
Inventories		(57,498	)		(15,046	)
Accounts payable and accrued liabilities		14,528			(798	)
		6,262			(19,924	)
Investing activities:
Interest received		719			749
Restricted cash		(27,116	)		18,064
Pre-production sales capitalized		67,493			168
Amounts receivable		—			352
Capitalized interest paid		(5,451	)		(17,617	)
Payments for property, plant and equipment		(48,547	)		(144,008	)
		(12,902	)		(142,292	)
Financing activities:
Loan facility		32,403			186,788
Financing costs		(19,703	)		(2,518	)
Proceeds from option exercises		1,577			411
		14,277			184,681
Effect of foreign exchange rate changes on cash		386			(129	)
Increase in cash		8,023			22,336
Cash, beginning of period		6,844			9,082
Cash, end of period	$	14,867		$	31,418

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Page | 7

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

1. Nature of Operations and going concern

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

Effective March 1, 2017, the GK Mine declared commercial production for accounting purposes.

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

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

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

Commencing on March 31, 2017, the Company was subject to maintaining a cash call reserve account balance based upon certain budgeted amounts which will vary over the term of the Loan Facility. Approximately US$27.9 million was originally required to be deposited in the cash call reserve account on March 31, 2017. On March 27, 2017, the Company received a waiver deferring the requirement to fund the cash call reserve account to May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received another waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017. The Company was required to deposit a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company has complied with. Under conditions of the waiver, certain information must be furnished to the lenders by November 30, 2017 including:  an updated financial model including a life of mine plan and reflecting the changes to the JV plan and budget which have been approved by the technical agent. The failure to comply with any of the requirements of the waiver constitutes an event of default. All requirements have now been provided to the lenders, and are currently being assessed.

Under the terms of the Loan Facility Agreement, the Company is required to fund (release) reserve accounts (Note 9) estimated as follows for the period from October 1, 2017 to September 30, 2018:

Date additional funding (release) is required		Funding requirements
December 2017	US	$	153,900
March 2018			14,400
June 2018			—
September 2018			(43,000	)

 At project completion, the Company can use the remaining balance available in the restricted cost overrun account (Note 7) to fund a portion of the above reserve accounts. Project completion is defined as the date falling thirty days after the date on which the Company has delivered to the Facility Agent the last of the Completion Certificates required to be delivered, provided that each has been certified by the Independent Technical Consultant, the Independent Environmental Consultant, the Independent Diamond Consultant and/or the Technical Agent, and accepted by the Technical Agent (acting on the instructions of the Majority Lenders). Management believes the Company will not be able to comply with the requirement to fully fund these reserve accounts and may not comply with the other financial covenants in the Loan Facility.

Page | 8

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

The Company is in active discussion with the lenders to restructure the requirements under the Loan Facility. Management expects to furnish the lenders with the requested information, and discussions with the lenders are in progress regarding amendments to the structure of the Loan Facility. However, the Company also expects to require a further waiver before any such revisions can be completed. There are no assurances the lenders will accommodate further waivers or amendments the Company will seek. If the Company is unable to fully fund the required reserve accounts or is unable to comply with other financial covenants, and is not successful in obtaining suitable waivers or amendments, it would result in an event of default, and the Loan Facility outstanding balance would become payable on demand. Further, management may seek alternative sources of financing, however, there are no guarantees that the Company may be able to obtain a suitable financing. These conditions indicate the existence of a material uncertainty that results in substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.

The underlying value and recoverability of the amounts shown as “Property, Plant and Equipment” (Note 8) are dependent upon future profitable production and proceeds from disposition of the Company’s mineral properties. Failure to meet the obligations for cash calls to fund the operating expenses for the Company’s share in the GK Mine may lead to dilution of the interest in the GK Mine and may require the Company to impair property, plant and equipment.

Authorization of Financial Statements

These consolidated financial statements were approved by the Board of Directors on November 13, 2017.

2. BASIS OF PRESENTATION

These unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”). The accounting policies used in preparation of these unaudited condensed consolidated interim financial statements are consistent with those used in the annual consolidated financial statements for the year ended December 31, 2016 except for changes indicated in Note 3 (i). 

These interim financial statements do not include all the disclosures required by International Financial Reporting Standards (”IFRS”) for annual financial statements and, accordingly, should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2016 prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).

These financial statements were prepared under the historical cost convention, as modified by the revaluation of cash, short-term investments and derivative assets and liabilities and are presented in thousands of Canadian dollars.

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

• 2435572 Ontario Inc. (100% owned)

• 2435386 Ontario Inc. (100% owned by 2435572 Ontario Inc.)

Page | 9

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

The Company’s interest in the GK Mine is held through 2435386 Ontario Inc. All intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains and losses have been eliminated on consolidation.

3. Significant accounting policies

Effective March 1, 2017, upon declaring commercial production, the Company transitioned from accounting for certain costs as a development stage company to accounting for certain costs as an operating company. The significant financial reporting changes were as follows: the capitalized costs of the GK Mine were transferred from assets under construction to the relevant asset categories; assets began to be depreciated or depleted consistent with the Company’s accounting policies; capitalization of borrowing costs to assets under construction ceased; capitalization of pre-commercial production operating costs ceased; and mine operating results are recorded in the statement of comprehensive income (loss).

(i) New accounting policies adopted in the current year

(a) Property, plant and equipment

Upon entering commercial production stage, capitalized costs associated with the acquisition of the mineral property or the development of the mine, are amortized using the various methods based in the asset categories as follows:

Corporate assets	two to seven years, straight line
Vehicles	three to five years, straight line
Production and related equipment	three to ten years or life of mine*, straight line or units of production method
General infrastructure	life of mine*, straight line
Earthmoving equipment	estimated hours
Mineral properties	units of production over proven and probable resources
Assets under construction	not depreciated until ready for use

 *Life of mine is estimated at approximately 12 years.

(b) Inventories

Inventories are recorded at the lower of cost and net realizable values. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion. An impairment adjustment is made when the carrying amount is higher than the net realizable value.

Rough diamonds classified as finished goods comprise diamonds that have been subject to the sorting process. Cost is determined on a weighted average cost basis including production costs and value-added processing activity. As outlined in the joint venture agreement between the Company and De Beers Canada, fancies and special diamonds produced at the GK Mine are subject to a bid process. Upon a successful bid by the Company, the fancies and specials diamonds will be included in inventories and 51% of the bid amount will be paid to De Beers and capitalized to the cost of inventory. Cost for fancies and specials diamonds is determined on a weighted average cost basis including production costs and value-added processing activity plus the direct cost of acquiring the fancies and specials diamonds from De Beers.

Stockpiled ore represents coarse ore that has been extracted from the mine and is available for future processing. Stockpiled ore value is based on costs incurred in bringing ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per tonne and are removed at the average cost per tonne of ore in the stockpile.

Page | 10

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

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

(c) Capitalized stripping costs

In open pit mining operations, it is necessary to remove overburden and other waste materials to access ore from which minerals can be extracted economically. The process of mining overburden and waste materials is referred to as stripping. Stripping costs incurred in order to provide initial access to the ore body (referred to as pre-production stripping) are capitalized as mine development costs. These amounts were capitalized under assets under construction.

It may be also required to remove waste materials and to incur stripping costs during the production phase of the mine. The Company recognizes a stripping activity asset if all of the below conditions are met:

• It is probable that the future economic benefit (improved access to the component of the ore body) associated with the stripping activity will flow to the Company.

• The Company can identify the component of the ore body for which access has been improved.

• The costs relating to the stripping activity associated with that component can be measured reliably.

The Company measures the stripping activity at cost based on an accumulation of costs incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable costs.

After initial recognition, the stripping activity asset is carried at cost less depreciation and impairment losses in the same way as the existing asset of which it is a part.

The stripping activity asset is depreciated over the expected useful life of the identified components of the ore body that becomes more accessible as a result of the stripping activity using the units of production method.

(d) Revenue

The Company early adopted IFRS 15, Revenue from Contracts with Customers, effective January 1, 2017.

The Company utilizes a sales agent to facilitate the sale of rough and/or fancies and specials diamonds to the end-customer. The Company recognizes revenue when consideration has been received by the Company’s sales agent, which represents the completion of the performance obligation of the Company.

As outlined in the joint venture agreement between the Company and De Beers Canada, fancies and specials diamonds produced at the GK mine are subject to a bid process. When De Beers is the successful bidder, the Company recognizes 49% of the bid price as revenue at the completion of the bid process, as De Beers receives the fancies and specials diamonds and the Company is paid immediately for its share by De Beers.

(e) Statement of cash flows

In January 2016, the IASB issued an amendment to International Accounting Standard 7 (“IAS 7”), Statement of Cash Flows. The amended standard introduced additional disclosure requirements for liabilities arising from financing activities. The amendment is effective for annual periods beginning on or after January 1, 2017. The adoption of the amendment to IAS 7 did not have an effect on the condensed consolidated interim financial statements for the current period.

Page | 11

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

(ii) Standards and amendments to existing standards

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

Share-based payments

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

Financial instruments

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

Leases

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

Foreign currency transactions and advance consideration

In December 2016, the IASB issued IFRIC Interpretation 22 “Foreign Currency Transactions and Advance Consideration” (“IFRIC 22”). IFRIC 22 is applicable for annual periods beginning on or after January 1, 2018, and permits early adoption. IFRIC 22 clarifies which date should be used for translation when a foreign currency transaction involves an advance payment or receipt. The interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of the advance consideration. The Company will adopt IFRIC 22 in its financial statements for the annual period beginning January 1, 2018 on a prospective basis. The Company has completed its assessment of the impact of IFRIC 22 and does not expect the interpretation to have a material impact on the consolidated financial statements.

Uncertainty over income tax treatments

On June 7, 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (“IFRIC 23”). IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. IFRIC 23 is applicable for annual periods beginning on or after January 1, 2019. Earlier application is permitted. Management is currently assessing the impact of the IFRIC 23 on the consolidated financial statements.

Page | 12

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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

i)        Significant judgments in applying accounting policies

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

a)       Impairment analysis - mineral properties

As required under IAS 36 - Impairment of Assets, the Company reviews its mineral properties for impairment based on results to date and when events and changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company is required to make certain judgments in assessing indicators of impairment. The Company’s assessment is that as at September 30, 2017 no indicator of an impairment in the carrying value of its mineral properties had occurred.

b)       Commencement of commercial production

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

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

• mineral recoveries are at or near expected production levels;

• the ability to sustain ongoing production of ore; and

• the ability to operate the plant as intended.

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

ii)       Significant accounting estimates and assumptions

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

Mineral reserves and resources

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

Page | 13

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

5. AMOUNTS RECEIVABLE

	September 30,		December 31,
	2017		2016
GST/HST receivable	$	1,198	$	1,659
Other receivable		444		377
Total	$	1,642	$	2,036

6. INVENTORIES

	September 30,		December 31,
	2017		2016
Ore stockpile	$	13,635	$	—
Rough diamonds		48,360		—
Supplies inventory		26,051		11,730
Total	$	88,046	$	11,730

Depreciation and depletion included in inventories at September 30, 2017 is $18,818.

7. RESTRICTED CASH

Total restricted cash of $110,994 at September 30, 2017 (December 31, 2016 - $83,878) included $66,119 held in a restricted cost overrun account and $44,875 held in restricted proceeds and other reserve accounts under the terms of the loan facility (Note 9). The amounts held in the restricted cost overrun reserve account are restricted for the use of funding potential cost overruns of the GK Mine and for the minimum reserve accounts, and the use of this account must be approved by the lenders under the Loan Facility agreement (Note 9). After project completion, any remaining amounts held in the restricted cost overrun reserve account must be used to fund the other reserve accounts, in accordance with the Loan Facility agreement. The amounts held in the restricted proceeds and other reserve accounts are restricted for the use of funding the Company’s share of expenditures for the GK Mine, and other Loan Facility requirements. The restricted proceeds accounts are expected to be used to fund the Company’s share of expenditures in the fourth quarter of 2017 and the principal and interest payments on the Loan Facility.

Page | 14

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

8. PROPERTY, PLANT AND EQUIPMENT

The Company’s property, plant and equipment as at September 30, 2017 and December 31, 2016 are as follows:

	Property,			Assets under
	plant and equipment			construction			Total
Cost
At January 1, 2016	$	90,625		$	377,283		$	467,908
Decommissioning and restoration adjustment		726			—			726
Additions		585			213,397			213,982
At December 31, 2016		91,936			590,680			682,616
Transfers		541,612			(541,612	)		—
Additions*		68,259			(34,755	)		33,504
At September 30, 2017	$	701,807		$	14,313		$	716,120
Accumulated depreciation
At January 1, 2016	$	(4,651	)	$	—		$	(4,651	)
Depreciation		(1,912	)		—			(1,912	)
At December 31, 2016		(6,563	)		—			(6,563	)
Depreciation and depletion		(40,721	)		—			(40,721	)
At September 30, 2017	$	(47,284	)	$	—		$	(47,284	)
Carrying amounts
At December 31, 2016	$	85,373		$	590,680		$	676,053
At September 30, 2017	$	654,523		$	14,313		$	668,836

*Included in the additions of assets under construction for the nine months ended September 30, 2017 is $10,168 (December 31, 2016 - $34,750) of borrowing and other costs, and is net of $67,493 (December 31, 2016 - $3,622) of pre-production sales. Amounts were transferred to their appropriate asset class upon the declaration of commercial production.

The Company’s mineral asset, the GK Mine, declared commercial production on March 1, 2017.

The Company holds a 49% interest in the GK Mine, and De Beers Canada holds the remaining 51% interest. The arrangement between the Company and De Beers Canada is governed by an agreement entered into on July 3, 2009 (the “2009 Agreement”). Under the 2009 agreement the Company agreed to pay De Beers Canada $59 million (representing 49% of an agreed sum of $120 million) plus interest compounded on the outstanding amounts in settlement of the Company’s share of the agreed historical sunk costs. To date the Company has paid $34.6 million of the historical sunk costs.

Amounts remaining to be paid is the balance of approximately $24.4 million plus accumulated interest due September 1, 2018. At September 30, 2017, accumulated interest is approximately $24.1 million plus the principal balance of $24.4 million is included in the payable to De Beers Canada on the condensed consolidated interim balance sheet. Accumulated interest is being calculated at the prevailing LIBOR rate plus 5%.

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

Page | 15

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

Between 2014 and 2016, the Company and De Beers signed agreements allowing De Beers (“the Operator”) to utilize De Beers’ credit facilities to issue reclamation and restoration security deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3% fee annually for their share of the letters of credit issued. As at September 30, 2017, the Company’s share of the letters of credit issued were $23,419 (December 31, 2016 - $23,419).

9. LOAN FACILITY

On April 2, 2015, the Company through its subsidiary 2435572 Ontario Inc. entered into a Loan Facility of US$370 million with a syndicate of lenders led by Natixis S.A., the Bank of Nova Scotia (Scotiabank) and Nedbank Ltd. and including ING Capital LLC, Export Development Canada and the Bank of Montreal. On April 29, 2015, Société Générale joined the lender syndicate. The lenders hold security over the Company’s 49% interest in the GK Mine held through the Company’s subsidiaries. The term of the Loan Facility is seven years and the interest rate is U.S. dollar LIBOR plus 5.5%. The Loan Facility has a drawdown schedule that commenced on April 7, 2015 and ends on September 30, 2017 to correspond with the projected construction period and the required interest payments under the Loan Facility up to September 30, 2017. At March 31, 2017, the Company was subject to maintaining a cash call reserve account balance in the amount of approximately US$27.9 million. On March 27, 2017, the lenders provided a waiver indicating the amount was to be funded by May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received a waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017 and the Company was required to deposit at a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company complied with. At project completion, certain financial covenants related to servicing the debt, as defined by the Loan Facility agreement, become effective. Project completion is defined as the date falling thirty days after the date on which the Company has delivered to the Facility Agent the last of the Completion Certificates required to be delivered, provided that each has been certified by the Independent Technical Consultant, the Independent Environmental Consultant, the Independent Diamond Consultant and/or the Technical Agent, and accepted by the Technical Agent (acting on the instructions of the Majority Lenders). Project completion can occur up to six months after September 30, 2017, and must be approved by the Loan Facility’s technical agents. Completion certificates must be signed which support that pre-determined tests over the mine and processing plant have been performed. These tests have not been completed at the date of authorization of these financial statements.

Page | 16

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

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

		December 31, 2017		March 31, 2018		June 30, 2018		September 30, 2018			Total
Cash call reserve account(1)	US	$	2,900	$	—		—		—		$	2,900
Sunk cost reserve account(2)			43,000		—		—		(43,000	)		—
Debt service reserve account(3)			89,800		—		—		—			89,800
Environment reclamation reserve account(4)			18,200		14,400		—		—			32,600
	US	$	153,900	$	14,400	$	—	$	(43,000	)	$	125,300

(1) The amount was to be funded by March 31, 2017. On March 27, 2017, the lenders provided a waiver indicating the amount was to be funded by May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received a waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017 and the Company was required to deposit at a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company complied with. The remaining US$2.9 million is required by December 31, 2017.

(2) The sunk cost reserve account is to be funded by September 1, 2017. On August 31, 2017, the lenders provided a waiver indicating the amount is to be funded by November 30, 2017.

(3) The debt service reserve account is to be funded by September 30, 2017. On August 31, 2017, the lenders provided a waiver indicating the amount is to be funded by November 30, 2017.

(4) The environment reclamation reserve account is to be funded by December 31, 2017.

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

Sunk cost reserve account minimum balance represents the total expected sunk cost payments to the Operator as described in note 8.

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

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

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

The Company has funded a cost overrun reserve account (Note 7), which is restricted to be used to fund potential cost overruns of the GK Mine up to September 30, 2017, and use of this account must be approved by the lenders. At project completion, the Company can use the remaining balance available in the restricted cost overrun account to fund a portion of the above reserve accounts. A cost to complete shortfall would exist if available funding remaining under the Loan Facility is less than the projected costs to completion and commercial production. Such shortfall would represent a cost overrun. If the lenders are satisfied that the cost overrun can be funded with amounts in the cost overrun reserve account then no event of default would have occurred, and the lenders would approve further drawdown against the Loan Facility. If the available resources under the Loan Facility plus the cost overrun reserve account were insufficient to fund the GK Mine to completion and commercial production, additional funding would be required and no amounts would be available to be drawn until the default was remedied.

As at September 30, 2017, the Company has drawn US$357 million or $462.8 million Canadian dollar equivalent from the Loan Facility.

Page | 17

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

Total outstanding principal on loan facility	$	445,250
Less: unamortized deferred financing		15,533
Total Loan Facility	$	429,717
Less: current portion of loan facility		122,740
Non-current loan facility	$	306,977

The loan is carried at amortized cost on the consolidated balance sheet.

In accordance with the waivers from the lenders, the Company paid the last two quarterly interest payments of approximately US$13.1 million from operating cash flows, rather than from the Loan Facility. As at September 30, 2017, the availability period of the Loan Facility period has ended, therefore the Company is no longer able to draw further debt.

10. net finance income (expenses)

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Interest income	$	297		$	223		$	719		$	749
Accretion expense on decommissioning and restoration liability		(140	)		(124	)		(421	)		(372	)
Finance costs		(11,298	)		(87	)		(26,578	)		(254	)
	$	(11,141	)	$	12		$	(26,280	)	$	123

Finance costs include interest expense calculated using the effective interest method; adjusted for interest paid on interest rate swaps and foreign exchange on the interest paid and accrued. These financing costs, until the declaration of commercial production had been capitalized to assets under construction. Finance costs from March 1, 2017 to September 30, 2017, are included in the condensed consolidated interim statements of comprehensive income (loss).

11. SHAREHOLDERS’ EQUITY

i. Authorized share capital

Unlimited common shares, without par value.

There is no other class of shares in the Company.

ii. Share capital

The number of common shares issued and fully paid as at September 30, 2017 is 160,245,166. There are no shares issued but not fully paid.

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

On June 21, 2016, the Company, through its Board of Directors and shareholders, adopted a long-term equity incentive plan (the “Plan”) which, among other things, allows for the maximum number of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued and outstanding shares at the time of the grant. The Board of Directors has the authority and discretion to grant stock option, RSU and DSU awards within the limits identified in the Plan, which includes provisions limiting the issuance of options qualified persons and employees of the Company to maximums identified in the Plan. As at September 30, 2017, the aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 16,024,517 shares, and there were 13,137,517 shares available to be issued under the Plan. All stock options are settled by the issuance of common shares.

Page | 18

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

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

	September 30, 2017					December 31, 2016
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price
Balance at beginning of period		3,020,000		$	4.68		3,100,000		$	4.58
Granted during the period		100,000			5.86		200,000			6.66
Exercised during the period		(355,000	)		4.44		(130,000	)		3.72
Expired during the period		(135,000	)		4.84		(150,000	)		6.13
Balance at end of the period		2,630,000		$	4.75		3,020,000		$	4.68
Options exercisable at the end of the period		2,496,667		$	4.70		2,920,000		$	4.65

The fair values of the stock options granted have been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions are presented below. Expected volatility is calculated by reference to the weekly closing share price for a period that reflects the expected life of the options. The stock options issued in 2017 vested 1/3 immediately, 1/3 vest on February 6, 2018 and 1/3 on February 6, 2019.

	September 30,		December 31,
	2017		2016
Exercise price	$	5.86		$6.35 - $6.96
Expected volatility		31.03%		29.27% - 34.06%
Expected option life		5 years		2.5 - 5 years
Contractual option life		5 years		5 years
Expected forfeiture		none		none
Expected dividend yield		0%		0%
Risk-free interest rate		1.11%		0.58% - 0.66%

During the nine months ended September 30, 2017, 355,000 (December 31, 2016 - 130,000) stock options were exercised for proceeds of $1,577 (December 31, 2016 - $483). The aggregate market price of the common shares on the exercise dates was $2,316 (December 31, 2016 - $837).

The following tables reflect the number of stock options outstanding, the weighted average of options outstanding, and the exercise price of stock options outstanding at September 30, 2017. The Black-Scholes values are measured at the grant date.

Page | 19

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

At September 30, 2017
	Black-Scholes		Number of		Number of		Exercise
Expiry Date	Value		Options		Exercisable Options		Price
March 10, 2018	$	129		100,000		100,000		4.06
March 17, 2018		64		50,000		50,000		4.11
May 13, 2018		157		100,000		100,000		5.00
July 2, 2018		803		500,000		500,000		5.28
February 13, 2019		206		150,000		150,000		5.29
April 13, 2020		1,242		785,000		785,000		4.66
October 14, 2020		133		100,000		66,667		4.21
December 10, 2020		614		545,000		545,000		3.57
June 30, 2021		120		100,000		66,667		6.35
November 3, 2021		214		100,000		100,000		6.96
February 5, 2022		171		100,000		33,333		5.86
	$	3,853		2,630,000		2,496,667	$	4.75

The weighted average remaining contractual life of the options outstanding at September 30, 2017 is 2.28 years (December 31, 2016 - 2.73 years).

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

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

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

RSU	Number of units			Weighted average value
Balance at beginning of period		320,000		$	6.48
Awards and payouts during the period (net):
RSUs awarded		25,000			3.90
RSUs vested and common shares issued		(71,333	)		6.45
RSUs forfeited		(16,667	)		6.49
Balance, September 30, 2017		257,000		$	6.24

As at September 30, 2017, no DSU awards have been granted.

Page | 20

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

The share-based payments recognized as an expense for the three and nine months ended September 30, 2017 and 2016 are as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Expense recognized in the period
for share-based payments	$	516	$	116	$	1,289	$	154

The share-based payment expense for the three and nine months ended September 30, 2017 and 2016 is included in selling, general and administrative expenses.

iv. Earnings (loss) per share

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

	Three months ended		Three months ended			Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
Numerator
Net income (loss)  for the period	$	27,669	$	(5,387	)	$	33,079	$13,104
Denominator
For basic - weighted average number of shares outstanding		160,227,724		159,784,703			160,170,914	159,723,140
Effect of dilutive securities		365,178		—			430,159	519,063
For diluted - adjusted weighted average number of shares outstanding		160,592,902		159,784,703			160,601,073	160,242,203
Earnings (Loss) Per Share
Basic	$	0.17	$	(0.03	)	$	0.21	$0.08
Diluted	$	0.17	$	(0.03	)	$	0.21	$0.08

For the three months ended September 30, 2017, 2,521,822 stock options were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (three months ended September 30, 2016 - 2,935,000 stock options and 20,000 RSUs). For the nine months ended September 30, 2017, 2,456,841 stock options were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (nine months ended September 30, 2016 - 2,315,937 stock options).

v. Shareholder rights plan

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

Page | 21

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

12. Selling, general and administrative expenses

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Consulting fees and payroll	$	376	$	428	$	2,062	$	1,024
Share-based payment expense		516		116		1,289		154
Selling and marketing		1,489		—		4,614		—
Depreciation		5		3		15		10
Office and administration		198		179		647		420
Professional fees		449		351		1,311		1,307
Promotion and investor relations		99		75		149		190
Director fees		38		45		270		134
Transfer agent and regulatory fees		75		76		294		274
Travel		89		153		227		285
	$	3,334	$	1,426	$	10,878	$	3,798

13. FINANCIAL INSTRUMENTS

(a) Derivative Liabilities

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

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

Interest Rate Swap Contracts

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

The table below provides a summary of interest rate swap contracts outstanding as at September 30, 2017:

Period of Interest Rate Contracts		Notional Amount (USD)
	October 1, 2017 to December  31, 2017	$	277,500
	January 1, 2018 to December 31, 2018		161,932
	January 1, 2019 to December 31, 2019		41,996
	January 1, 2020 to March 31, 2020		5,878

Foreign Currency Forward Strip

On April 7, 2015, the Company executed foreign currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period from April 7, 2015 to February 1, 2017 for notional amounts of $219,126 or US$175,667, with a weighted average price of $1.2474/US$1 and on July 10, 2015, the Company executed foreign currency forward strip contracts to buy Canadian dollars and sell U.S. dollars for the period from August 4, 2015 to February 1, 2017 for notional amounts of $54,832 or US$43,131, with a weighted average price of $1.2713/US$1.

Page | 22

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

As at September 30, 2017, the Company has settled all foreign currency forward strip contracts.

(b) Fair value measurement

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

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

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

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

	Carrying amount								Fair value
September 30, 2017	Loans and receivables		Fair value through profit and loss		Other financial liabilities		Total		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Cash	$	—	$	14,867	$	—	$	14,867	$	14,867	$	—	$	—	$	14,867
Derivative assets		—		90		—		90		—		90		—		90
	$	—	$	14,957	$	—	$	14,957
Financial assets not measured at fair value
Amounts receivable		1,642		—		—		1,642
Restricted cash		—		110,994		—		110,994		110,994		—		—		110,994
	$	1,642	$	110,994	$	—	$	112,636
Financial liabilities measures at fair value
Derivative liabilities		—		882		—		882		—		882		—		882
Financial liabilities not measured at fair value
Accounts payable and accrued liabilities		—		—		30,681		30,681
Loan facility		—		—		429,717		429,717		—		447,755		—		447,755
	$	—	$	—	$	460,398	$	460,398

Page | 23

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

	Carrying amount								Fair value
December 31, 2016	Loans and receivables		Fair value through profit and loss		Other financial liabilities		Total		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Cash	$	—	$	6,844	$	—	$	6,844	$	6,844	$	—	$	—	$	6,844
Financial assets not measured at fair value
Amounts receivable		2,036		—		—		2,036
Restricted cash		—		83,878		—		83,878		83,878		—		—		83,878
	$	2,036	$	83,878	$	—	$	85,914
Financial liabilities measures at fair value
Derivative liabilities		—		3,009		—		3,009		—		3,009		—		3,009
Financial liabilities not measured at fair value
Accounts payable and accrued liabilities		—		—		16,153		16,153
Loan facility		—		—		425,903		425,903		—		449,249		—		449,249
	$	—	$	—	$	442,056	$	442,056

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

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

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

14. Commitments

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

	Less than		1 to 3			4 to 5		After 5
	1 Year		Years			Years		Years		Total
Operating lease obligations	$	231	$	464		$	473	$	375	$	1,543
Gahcho Kué Diamond Mine commitments		1,679		—			—		—		1,679
Trade and other payables		30,681		—			—		—		30,681
Loan facility - Principal*		122,740		201,264			121,246		—		445,250
Loan facility - Interest		29,693		33,883			10,127		—		73,703
Sunk cost repayment - principal		24,383		—			—		—		24,383
Sunk cost repayment - interest		26,501		—			—		—		26,501
Interest Rate Swap Contracts:
Outflows (inflows)		916		(93	)		—		—		823
	$	236,824	$	235,518		$	131,846	$	375	$	604,563

*In accordance with the terms of the Loan Facility at March 31, 2017, the Company was subject to maintaining a cash call reserve account balance in the amount of approximately US$27.9 million. As of March 27, 2017, the lenders provided a waiver and the amount was to be funded by May 31, 2017. On May 31, 2017, the Company received an additional waiver extension to August 31, 2017. On August 31, 2017, the Company received another waiver extension for the debt service reserve account and the sunk cost reserve account to November 30, 2017 and the Company was required to deposit a minimum of US$25 million in the cash call reserve account on or before September 15, 2017, which the Company complied with. Under the terms of the Loan Facility Agreement, the Company is required to fund reserve accounts estimated (Note 9) of US103 million in November 30, 2017, and additional amounts of US$50.9 million at December 31, 2017. At March 31, 2018, an estimated US$14.4 million of additional funding of the reserve accounts will be required.

Page | 24

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

15. RELATED PARTIES

The Company’s related parties include the Operator of the GK Mine, Dermot Desmond, Bottin (a corporation controlled by Dermot Desmond), key management and their close family members, and the Company’s directors. Dermot Desmond, indirectly through Bottin, is a beneficial owner of greater than 10% of the Company’s shares. Kennady Diamonds Inc. (“Kennady Diamonds”) is also a related party since the Company and Kennady Diamonds have a common member of key management. International Investment and Underwriting (“IIU”) is also a related party since it is controlled by Mr. Dermot Desmond.

Related party transactions are recorded at their exchange amount, being the amount agreed to by the parties.

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

The balances as at September 30, 2017 and December 31, 2016 were as follows:

	September 30,		December 31,
	2017		2016
Payable to the Operator of the GK Mine*	$	1,041	$	926
Payable to De Beers Canada Inc. for sunk cost repayment		48,464		—
Payable to International Investment and Underwriting		48		53
Payable to key management personnel		191		3

*included in accounts payable and accrued liabilities

The transactions for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
The total of the transactions:
Kennady Diamonds	$	23	$	23	$	68	$	68
International Investment and Underwriting		23		10		48		30
Remuneration to key management personnel		655		311		2,800		793
Sunk cost repayment to De Beers Canada Inc.		—		—		10,000		—
Pre-production sales to De Beers Canada Inc.		—		168		1,398		168
Diamonds purchased from De Beers Canada Inc.		4,114		10		12,638		10
Finance costs incurred from De Beers Canada Inc.		742		—		1,743		—
Management fee charged by the Operator of the GK Mine		1,038		805		3,114		3,918

The remuneration expense of directors and other members of key management personnel for the three and nine months ended September 30, 2017 and 2016 were as follows:

Page | 25

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2017

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Consulting fees, director fees, bonus and other short-term benefits	$	263	$	195	$	1,850	$	639
Share-based payments		392		116		950		154
	$	655	$	311	$	2,800	$	793

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

Page | 26