Letter from the CEO

Dear Shareholder,

Stornoway Diamond Corporation remains solidly committed to an aggressive strategy of exploration, development and growth at a time of strengthening diamond prices and increased global demand for diamond jewellery. Over the course of the past year your company has reached important milestones and established a growing inventory of diamond resources in the ground which will lay the foundation for near term development and cash flow. Renard is on track for potential development as Quebec’s first diamond mine in a few short years and is expected to earn a strong reputation as a producer of large, high quality gems. In addition, Aviat is emerging as a potentially large and high grade diamond resource. Cash flow from operations will allow us to expand our development activities on other advanced projects in Nunavut and Ontario and help us to sustain our Canada-wide exploration efforts to search for further world class diamond deposits.

Despite the volatile, and generally poor, stock performance by the entire diamond exploration sector over a period of close to two years, the market outlook for diamond prices remains strong, an opinion echoed by experienced diamond producing companies and analysts active throughout the world:

“Long term diamond industry fundamentals suggest that at the aggregate level, diamond demand will exceed supply, resulting in sustained price growth over the next decade…”

– Rio Tinto, Diamonds Annual Review 2008

“Despite the 40% rise in average rough diamond prices since January 2007, and the credit crunch, BMO forecasts a 30% increase, from August 2008 levels, by 2012”

– James Picton, BMO Diamond Analyst, 2008

The economics associated with the mining of small to medium sized, high grade diamond deposits are becoming increasingly attractive in the current price environment. Stornoway is one of the few companies with a growing inventory of such projects, and as such is well positioned to take advantage of these strong market fundamentals. Our current asset portfolio includes a 50% interest in Renard, a 17-20 million carat development track project in Quebec, a 90% interest in Aviat, a large scale, and growing, project in Nunavut, three further, advanced stage exploration projects with defineable diamond resources in Nunavut and Ontario, and a broad portfolio of quality diamond exploration projects covering 7.6 million acres throughout Canada.

In 2007, Stornoway and joint venture partner SOQUEM Inc. completed a large scale bulk sampling program and diamond valuation exercise at Renard, the results of which exceeded expectations and confirmed the presence of a high quality diamond resource located in central northern Quebec. On the strength of these results, the partners initiated a two phase pre-feasibility study beginning in June of 2007, designed to define the first formal resource statement for the project and preliminary mine design. Results of this work are expected imminently and if positive, will lead into resource optimization and final feasibility work in advance of a production decision. The project is not currently accessible by road, but a separate pre-feasibility study funded by a consortium of interested stakeholders consisting of other industry players active in the region, local aboriginal communities and all levels of government, is underway to evaluate the potential for a permanent road into this region. We believe that Renard will one day benefit from both road access and hydropower, helping to reduce capital and operating costs for the project over time. Stornoway remains confident of the potential for Renard to be developed as Quebec’s first diamond mine, and we remain committed to working with all of our local stakeholders to advance this project as expeditiously as possible.

At the Aviat project in Nunavut, the Company has solved a complex geological puzzle, identifying a potentially large and high grade diamond resource that could easily exceed 15 million carats, add significantly to our diamond inventory, and become a second development project for the Company in the near term. On the basis of work completed to date, Stornoway has engaged SRK Consulting (Canada) Inc. to provide a conceptual resource study on the AV267 kimberlite. This will provide an estimated range of potential kimberlite tonnage and diamond content within the sheet over its known extent, and will be an important catalyst for future, advanced level work. The results of this study are expected before the end of September 2008.

In addition to Renard and Aviat, we have three other advanced projects in our portfolio, Qilalugaq, Churchill and Timiskaming, each of which have the potential to contribute significant future diamond resources strongly leveraged to diamond price growth.

Although our grass roots exploration activities were scaled back during 2007 and 2008 as we focussed on the more advanced projects, we continued to pursue specific targets of interest and also successfully identified new areas prospective for diamond emplacement. This work, largely conducted on a discrete and unheralded basis, will remain a cornerstone of our overall exploration strategy.

Our shareholders have come to appreciate that the business of diamond exploration takes time and requires patience and commitment. We would like to take this opportunity to thank them, as well as our dedicated employees and Board of Directors for their ongoing support as we continue on our journey to build a premier, Canadian diamond exploration and development equity.

Eira Thomas
CEO