May 28, 2014 File: L020 Marty Sanderson Manager Diamond Resource - PDF document

May 28, 2014 File: L020 Marty Sanderson Manager Diamond Resource Management North Slave Region, GNWT 16 Yellowknife Airport Yellowknife, NT X1A 3T2 Dear: Mr. Sanderson Re: Snap Lake Mine De Beers Canada Inc. Chloride Exceedance Water Licence #MV2011L2-0004 De Beers Canada Inc. (De Beers) is in receipt of your May 10, 2014 letter regarding the exceedance of the Average Monthly Limit for Chloride at Snap Lake Mine. On May 12, De Beers notified you of a non-compliance of the AML on April 23, April 29, and May 5 (now a confirmed result). Please find herein, a summary of actions undertaken since September 2013, and an action plan intended to prevent non-compliance in the future. Since the previous chloride AML event in September of 2013, Snap Lake Mine has operated within the parameters of its water license, except as previously noted, the reportable chloride AML was out of compliance on three sampling dates. The results of the AMLs calculated to date as they will appear in the April SNP are located in Table 1. The three non- compliant values are highlighted. Table 1: Chloride Concentration in Effluent 02-17B Date Grab (mg/L) Average Monthly 24-Mar-14 262 294 30-Mar-14 369 306 5-Apr-14 310 306 11-Apr-14 316 305 17-Apr-14 314 306 23-Apr-14 309 313 29-Apr-14 307 321 05-May-14 307 311 11-May-14 282 306 17-May-14 296 303 DE BEERS CANADA INC. SUITE 300, 5120-49 th STREET, YELLOWKNIFE, NT X1A 1P8 TEL 1 (867) 766-7300 FAX 1 (867) 766-7347 www.debeersgroup.com/canada

Note that all grab sample values are well below the limit, and that the three non-compliant monthly average values are due to a single high grab sample result on March 30, of 369 mg/L. De Beers attributes this to the unforeseen intersection of an area of connate water high in total dissolved solids (including chloride), during regular mining operations. Work Completed Since September 2013 Water License Amendment Application Subsequent to the November 26, 2013 letter to the Mackenzie Valley Land and Water Board (Attachment 1) De Beers submitted a Water License Amendment Application on December 20, 2014 to increase the effluent AML for TDS and its constituent ions (including Chloride). De Beers’ application presents evidence that higher limits for chloride and TDS as a whole are appropriate and will ensure protection of the aquatic environment. This process is currently underway. Source Control and Grouting Since mid-2013, De Beers has undertaken monitoring and modeling of geological structures and groundwater flow to better understand the sources, characteristics and interconnectivity of high-TDS groundwater. The 2013 update of the Snap Lake Groundwater Flow Model was made available to the MVLWB in April. The model has been used to predict future TDS loadings, and on-going monitoring has been used to identify areas of high TDS groundwater in mine workings. From work done to date, it is becoming evident that grouting is not a practical method for completely reducing overall inflows. De Beers continues to investigate the feasibility of controlled grouting in some areas of high TDS inflows as identified through monitoring. At present, dilution is the main method for managing chloride on site. High-TDS water can be and currently is temporarily stored in designated underground sumps and mine headings. Bi-hourly monitoring of conductivity in effluent allows for a controlled dilution of high-TDS water with “clear” water, before being discharged to the lake. The temporary storage of water in mine headings, renders these headings inoperable. This method is currently effective, as chloride AMLs have returned to compliant values. Ongoing work to prevent a recurrence De Beers is currently undergoing an Environmental Assessment and water license process to increase the AML for chloride at end of pipe to 378 mg/L and 604 mg/L Maximum Daily limit, and to apply a TDS AML at end-of-pipe. The proposal is based on on-going comprehensive site-specific toxicity studies, which conclude that higher AMLs will not result DE BEERS CANADA INC. SUITE 300, 5120-49 th STREET, YELLOWKNIFE, NT X1A 1P8 TEL 1 (867) 766-7300 FAX 1 (867) 766-7347 www.debeersgroup.com/canada

in harmful effects to the aquatic environment. As such, the non-compliance event in April would not have caused harmful effects to the environment. De Beers has indicated to the MVLWB during Technical Sessions and in information requests submitted on April 30 in support of the Water License Amendment, that it is currently conducting engineering studies and pilot testing of options to manage and process mine water for removal of TDS. Results of pilot studies are expected to be known before the end of 2014. De Beers continues to monitor and manage chloride in mine water to ensure compliance until such time as a decision on the amendment application is complete, which will guide De Beers on further evaluation of mitigation options. Environmental Daily reports which include in house chloride values and 6 day legal samples are forwarded to yourself on a daily basis. Additionally De Beers understands that the Inspector will be collecting a duplicate chloride sample over the next 6 day sampling cycles to determine compliance. Should you have any questions or concerns, please feel free to contact me by phone at (867) 766-8506 or by email at Maxwell.Morapeli@debeersgroup.com . Sincerely, Maxwell Morapeli Mine General Manager Snap Lake Mine D E B EERS C ANADA I NC . cc G.E. Koropchuk, E. Bonhomme, T. Bradbury, A. Hood, DBCI M. Sanderson, S. Whitaker, R. Walbourne, P. Green GNWT M. Casas, R. Nicol, R. Chouinard, L. Cymbalisty MVLWB S. Lacey-MacMillan EC P. di Pizzo, Z. Liu SLEMA DE BEERS CANADA INC. SUITE 300, 5120-49 th STREET, YELLOWKNIFE, NT X1A 1P8 TEL 1 (867) 766-7300 FAX 1 (867) 766-7347 www.debeersgroup.com/canada

Attachment 1 Nove ember 26, 20 013 File: L020 Willa rd Hagen, C Chair Mack kenzie Valley y Land and W Water Board d PO B Box 2130 Yello wknife, Nort thwest Territ tories X1A 2 2P6 Dear : Mr. Hagen : Re: S Snap Lake M Mine Conc cerns regar ding Chlori de Monthly y Average at t Surveillan nce Network k Program Stati on (SNP) 02 2-17B - Wat ter License #MV2011L2 2-0004 On O October 30, 2013 De B eers Canad a Inc. (De B Beers) repor rted to the M Mackenzie V Valley Land and Water Board (Boa ard) an exce eedance of t the monthly y average of f chlorides a above the s tipulated lev vels of 310m mg/l at Surve eillance Netw work Progra am Station 0 02-17B of 4 mg/L in Se eptember. D De Beers con ntinued to m monitor the e effluent resu ults to deter rmine any tr rends and anomalies r related to T Total Dissolv ved Solids (TDS) (in la ake) and its s constituen nt ion chlor ides. This letter prov ides an up date on the e status of the Snap Lake Mine TDS respo onse plan. 1.0 B Background d The E Environment tal Assessm ment Report ( (EAR; De Be eers 2002) p predicted tha at concentra ations of TD DS and its c constituent io ons, nutrien nts, and som me metals w would increa se in Snap Lake over the operatio onal life of th he Mine. Wa ater quality in Snap Lak ke is changi ng over time e due to inf fluences fro om treated M Mine water discharge ( (De Beers 2 2012a). TDS S concentra ations have increased a as a result o of mining op perations libe erating deep p groundwa ter characte erized by ele evated TDS . DE BE EERS CANADA A INC. 300, 5120-49 th S SUITE 3 STREET, YELLO OWKNIFE, NT X X1A 1P8 T TEL 1 (867) 766 6-7300 FAX 1 (867) 766-7347 7 m/canada www.deb beersgroup.com