Harry Winston Corporation

Alexis He & Tatiana Matthews

Legendary DiamondsPorter Rhodes The Hope The Jonker The Crown of Charlemagne Industry Background

Rough diamond prices down 40%-50% last year, but 10% increase since beginning of 09 Polished down only 15%-20% Pricing gap between rough & polished diamonds Rough diamond prices rose 10% in 09 Industry is heavily internally connected and exclusive, especially at the highest end Diamond availability stably and slowly rising, but not so much that it’ll affect pricing negatively Industry Background Few big companies control most of the mines Control over supply=ability to manipulate prices Online diamond retailers have been unsuccessful Middle class retailers most impacted • Tiffany’s, Jared, or even De Beers Temporary shutdowns • save operations cost • keeping underground diamond savings • Boost up prices Mining method improvement likely to cut cost Industry Background

Cheapest product available: $125,000 – 16.60 carats $4,000 – 0.45 carats Industry Background

Jared, Tiffany both around same level De Beers can’t match either Sell mostly G grade diamonds

“Blue Nile” Most expensive: $6,000 Priceless – literally (not listed) Industry Trends “If not a bottom, then a plateau” – HW CEO Robert Gannicott on pricing and demand of rough diamonds. “The fact that the people who are buying rough diamonds for polishing are coming back to the market again and are prepared to pay a bit more indicates that they, at least, have some confidence that this is probably a bottom,” he commented. Competitors share positive opinions – De Beers: Q1 2009 has been tough, but "We have begun to see signs of improvement in the market and expect this to continue as the year unfolds,” stated Stephen Lussier, chairman of De Beers Botswana. Company Overview Specialist diamond enterprise with premium assets in the mining and retail segments of the diamond industry. Supplies rough diamonds to the global market from its 40 % interest in the Diavik Diamond Mine, located in Canada’s Northwest Territories The Company’s retail division, Harry Winston Inc., is a premier diamond jeweler and luxury timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Tokyo and Beverly Hills. Salons opening in Singapore this summer. Company Overview

Sold 61% of rough diamond production at $50 per carat Positioned at highest end “We need to stay very close to our heritage, which is about diamonds and fine designs. You draw a line, over which you don't cross. For example, we don't have silver jewelry, we don't have gold-only jewelry, we don't have platinum-only jewelry, other than for wedding bands.” HWD’s Quotes  Harry Winston Diamond Corporation’s strategy is to leverage its supply of rough diamonds – and its extensive contacts and relationships throughout the industry – as a currency with which to secure a reliable supply of the largest, rarest and highest-quality polished diamonds for Harry Winston Inc.  In addition, by participating in the production and retailing of diamonds - the ‘bookends’ of the diamond business - Harry Winston Diamond Corporation focuses on the two most profitable segments of the business. Another excerpt:  The acquisition of the premiere retailer realized Harry Winston Diamond Corporation’s objective of building value in a diamond business through the exploitation of synergies between the two bookends of the diamond pipeline: mining and retailing. Stock Overview Currently trading at: $4.14 Market Cap: 294.59M • Small, but only caused by low stock prices 52-week range: $1.69 – $31.68 • Lowest in March 9th Continuous Dividend • 2007: $.25 x 4 • 2008: $.25 x 3 + $.05

Why the low price? Investors do not fully understand the high-end diamond industry • Stable • Easily manipulated by large companies Confusing HWD with lower end retailers • Such as Tiffany, Jared and De Beers • Retail makes up the lesser part of HWD’s business Dividend cut causing • Panic • Overreaction Thesis Points

Unique & Profitable Business Model • Mining • Retail Solid Financials Brand Name & Stable Clientele Management & Strategies VAR Analyst Opinions John H. Christy, Forbes International Investment Report, 04.13.09 “In our January issue, I looked at shares of Harry Winston Diamond, one of the premier diamond miners and retailers in the world. At the time, I argued that it looked cheap at $3.90, an 87% plunge from its price just six months earlier and 30% of book value. It then proceeded to get even cheaper, hitting $1.72 on March 9. At that point, the valuation was simply absurd. Unique & Profitable Business Model Corporate Structure Business Model – Synergy

 Production and Retail: the “bookends” of the diamond business  Harry Winston functions as producer, wholesaler, broker, and retailer of rough diamonds and polished diamond products  Oversees production of rough diamonds  Sells and packages rough diamonds to be used as currency to clients in the diamond processing centers of Tel Aviv, Antwerp, New York, and Mumbai  Re-acquires highest-grade stones for production into jewelry and retail by Harry Winston Inc.  The vertical integration of its company gives Harry Winston an edge that other publicly-traded diamond retailers lack Diavik Diamond Mine

 Joint venture between Rio Tinto plc (60% ownership) and Harry Winston Diamond Corporation (40%); each of which retain the right to receive and market their share of the diamond production  Some of the world’s highest per ton ore value  Balances production between 4 orebodies , each of different average grades  Strategy for the current economic climate: Cut production in highest- performing orebody to both reduce current supply and retain high- grade supply for future  Rough Diamond Sales for Fiscal Year 2008: $328M  Rough Diamond Production down 23% from previous year to 3.7 million carats produced Harry Winston Inc: Retail  100% Ownership by Harry Winston Diamond Corporation  Headquartered in NYC with 18 salons worldwide including Beverly Hills, South Coast Plaza, Chicago, , Las Vegas, Paris, London, Dubai, Beijing, Tokyo, Taiwan, Japan, and Hong Kong  Unique and Individualized Customer Relations  Retail Segment Recorded 6% increase in sales to $281M in fiscal year 2009  Strong sales to clients in the Middle East, Russia, and Asia outside of Japan offset weaker sales in the US and Japan  Strategies for Current Economic Climate:  Close monitoring of inventory levels  Selective Asian expansion  Harry Winston does not conduct business in the broader retail jewelry market where prices were most negatively effected by the economic downturn Retail Financial Overview

 2009 Fiscal Year Consolidated Net Earnings: $70.1M or $1.15 per share  Retail Segment: Recorded Sales $281M ; 6% increase from previous year  First and Second Quarters: 23% Positive Growth Rate in Retail Division  Third Quarter sales (including Sept 2009): 8% Positive Growth Rate  Fourth Quarter Sales: 21% Negative Growth Rate in Retail Division  Price Range Sales Analysis, Fiscal Year 2009  Gift Purchases: $100,000 and below: 4% Decrease in sales  $250,000-$650,000 Range: Largest Drop in sales at 13% Decrease  $650,000-$850,000: 50% Increase in Sales  $850,000+ Range: 7% Increase in Sales Financials – Statistics  Good Ratios • P/E: 1.26 (Industry: 13.40) • Price to sales= .42; Piece to book= .36; Price to cash = 1.74 • Debt-to-equity: • Implication: If prices were to rise to proper level, stock trade at 10x its current price, assuming earnings do not change.  EPS: $1.15 Financials – Sales  The mining segment recorded sales of $328.2 million, a 21% decrease from $413.8 million in the prior year.  The decrease in sales resulted from lower rough diamond production and lower rough diamond prices in the fourth quarter.  Rough diamond production for the calendar year was down 23% to 3.7 million carats produced versus 4.8 million for the prior year. Earnings from operations for the mining segment decreased 24% to $168.6 million compared to the prior year. The decrease was due primarily to lower sales and to a lesser degree a decrease in gross margin. Financials – Sales  The retail segment recorded a 6% increase in sales to $281.0 million, with a loss from operations of $2.5 million compared to a loss from operations of $3.1 million in the prior year.  Retail segment SG&A as a percentage of sales remained consistent with the prior year at 48%. Financials – Balance Sheet  Of the $78M debt planned for 2009, only $48M (income tax payable) MUST to be repaid  With the closing of the Kinross transaction, all amounts outstanding on the Company’s senior secured term ($49.2M) & revolving debt on Diavik were repaid  Current Liabilities: $313 M  Long-Term Liabilities: $205 M  Current Assets: $505 M Financials – Balance Sheet Financials – Cash  Positive Cash Flow  Retail: <$5M sustaining capital needed annually to maintain operations in salons after cutbacks (down from $12M)  Mining: Sustaining capital was previously $39- 40M at the rate of 2.3M tons per annum  Pre-12-Week-Shutdown  Expected to be reduced by >30% Financials – Cash  Projection: $160M Cash for Q1 of fiscal year 2010 from Kinross deal  CAPEX at most $60M  Cash Taxes at $48M  Projection of Positive Cash Flow for Q1 of fiscal year 2010 of >$30M  Amount necessary to sustain operations at ¼ : maintaining a positive cash flow… and this is the worst quarter Dividend Payment  Suspended March 19, 2009 “for the time being”  Allows for increased cash  Facilitated the lucrative Kinross deal  “Canada's Kinross Gold ( KGC - news - people ) apparently agreed with me. The company stepped in and bid $3 for a 20% stake in Harry Winston. This is no day trade. Strategic investors like Kinross don't buy because they think there's a slight 20% or 30% upside. They're looking to make their investment back several times over. In the words of Kinross CEO Tye Burt: "When do you buy a significant interest in a world class asset? When it's available and hopefully at an attractive price," he said. "We think there's tremendous leverage in the equity price.”” The Harry Winston Brand

 The most recognizable name in couture jewelry  The Oscar Connection  Unique global platform of customer relations  Reliable foundation for perpetuated sales and continued financial success  Current Strategy: “keep the image of the brand nicely shined up [this year] while making sure that it doesn’t suck any money from us” –R.A. Gannicott Company Strategy

 Expansion  Client diversification through international expansion  Opening of Singapore salon, summer 09  Looking at Asian expansion “opportunity to opportunity”

 Kinross Investment  March 19, 2009: Kinross Gold Corporation makes net investment of $150M to acquire indirect interest in Diavik diamond mine and a direct interest in Harry Winston Inc: appx 19.9% of HW issued equity post the transaction  With the closing of the Kinross transaction, all amounts outstanding on the Company’s senior secured term ($49.2M) & revolving debt on Diavik were repaid  Indication that “the natural-resources sector is viewed as a huge opportunity, meaning it will be the focus of tremendous activity in the next few years, and can most likely count on support from healthy players and savvy individual investors.” Management Robert A. Gannicott: Chairman & CEO Appointed CEO in September 1999, Chairman in 2004 Geologist who has worked extensively in the Northwest Territories Currently: Over $2M total compensation with over $8M in exercisable options Previously served as director of natural resource companies in Canada and Alaska Alan S. Mayne: VP & Chief Financial Officer Entered HW in 2008 from CFO position at CHUM limited, a major Canadian media company; also previous positions at TD Securities and UBS Currently: $250,000 total compensation Thomas J. O’Neill: President & CEO of HW subsidaries Came to HW in 2004 from a President Worldwide/Director position at Burberry PLC Has held Senior Executive positions at Louis Vuitton, LVMH, and Tiffany & Co Currently: $2M total compensation Management

 A New York native, O'Neill holds a PhD in international business, economics and business history from McGill University in Canada. He assumed his current position in 2004, after serving in senior executive positions at Tiffany & Co. and LVMH Fashion Group, Americas. He also is president of Harry Winston Diamond Corp., which owns 100 percent of the shares in Harry Winston, Inc.

 The Yomiuri Shimbun: What's the philosophy of your brand?

 Thomas O'Neill: Harry Winston has two strategies: The first is about sourcing and offering our clients the best diamonds in the world. The second is to take the best diamonds in the world and to put them into the most beautiful designs in the world. Management

 Compensations:

 President & Director O’Neil: $1,574,700

 VP & CFO $145,906

 CEO Gannicott: $2,013,560 ($8,194,320 in options)

 Heavy Options Compensations  Incentive Media Coverage Media Coverage  HWD stock analysis is popping up on reader-generated investment websites but has yet to garner analysis from major market publications  MotleyFool: Over on CAPS, 117 of the 118 All-Stars members who have rated Harry Winston -- or 99% -- believe the stock will outperform the S&P 500 going forward.  Seeking Alpha  Hard Assets Investor

 Kinross Gold Corporation  Kinross Gold Corp. ( KGC ), the world’s fourth-largest gold producer, has also proven itself to be one of the shrewdest players, especially in recent months… Kinross recently announced a $150 million purchase of 20% of Harry Winston Diamond Corp. ( HWD ), to gain access to Winston’s Diavik diamond mine in northern Canada. Risks Fluctuation in Global Rough Diamond Prices Of Production: Environmental Factors Of Retail: Cash flow & liquidity dependent on Diavik production and worldwide demand & discretionary spending Economic Environment Credit Crunch: Diamonds as a credit-based industry Diamond Specialist from K.K. Real Gems

Due to the current economic conditions, there are several diamond companies that are suffering - believe it or not, just because companies deal in diamonds it does not mean they are immune to the forces of the economy. I know several companies that have gone bankrupt, or have sold out to other companies to form partnerships to keep their own companies alive. Overall, however, most of the diamond companies are still thriving during these desperate economic times .

The diamond industry is a dicey industry to set foot into. The problem with entering the business is that you've got to have a lot of money in order to reach a status high enough to bring in a profit or be part of a respective company. This is because most of what you do in the business is not diamonds itself -- rather you will find yourself throwing more parties for your co-workers and superiors in order to move up the social status. Hence, all this "kissing feet" processes will need you to have a large financial background to begin with. VAR – Salon in Las Vegas  Economic downturn affected sales, but climbing back up; no need to panic

 Media coverage had no significant impact on sales

 Advantage over competitors (De Beers, Tiffany, ) • Quality: Only D, E, F diamonds; ALL hand-made; one of a kind, unique atmosphere • Exclusivity, quality service • VERY stable clientele; fly in, appointments • 95% clients are out-of-state, very personal relationship • Customers fly in to make purchases, e.g. from Japan • “A Harry Winston client is a client for life” VAR – New York Headquarters