It has been another extremely active year for Stornoway, and I am pleased to provide our shareholders with this year’s President’s Message in an electronic format for the first time. Paper copies are also available for those who would prefer to receive a hard copy.

Forecasts suggest that the world diamond market remains strong, and Stornoway’s goal is to create Canada’s premier, growth oriented, diamond exploration and development company, balancing near term production objectives with an aggressive exploration strategy to seek and develop world class diamond mining opportunities.

The past year has been very exciting as Stornoway, alone and in conjunction with 14 joint venture partners, conducted diamond exploration on 35 properties representing some 22.6 million acres. Work on these landholdings was either operated by Stornoway (26 properties; about 12 million acres) or our joint venture partners (9 properties; about 10.6 million acres). Nine properties were tested with more than 14,000m of drilling. Kimberlite was found on five of the properties, representing a total of 29 new discoveries. In addition to the drilling we flew 59,500 line kilometers of airborne geophysics, surveyed 205 ground geophysical grids, collected and processed 5,906 till samples, submitted 2,750kg of rock for microdiamond extraction through caustic fusion; and are recovering macrodiamonds from a further 15.3 tonnes of rock through a dense media separation (DMS) plant wholly owned by Stornoway. Since 2002, Stornoway has been involved in the discovery of 63 kimberlites, 30 of which have proven diamondiferous.

Stornoway also undertook generative exploration programs on or within 29 other areas (approximately 252.5 million acres) investigating unsourced indicator mineral anomalies, unexplained geophysical targets and geologically prospective terrains. Although results for some of this reconnaissance work remain outstanding, we have identified new project areas that have the potential to host diamondiferous kimberlites, and a portion of our $14 million exploration budget for 2006 is focussed on these new holdings.

Of the current exploration properties, Aviat (70% SWY) and Churchill (35% SWY) remain our principal focus – to date 10 diamond bearing kimberlites have been found at Aviat (including a new body announced June 28, 2006) and 41 kimberlites at Churchill and Churchill West (including two new diamondiferous bodies announced July 13, 2006). At Aviat we are presently pursuing promising kimberlite indicator mineral chemistry in eight different unsourced distribution trains with high diamond potential, and are confident that more new discoveries will be made.

Following our aggressive acquisition, exploration and development philosophy, existing diamond exploration properties have been assessed and either advanced or dropped from our portfolio. New properties have been added, either as a result of our own generative exploration activities or through the optioning of promising or under-evaluated properties held by others. Recently (July 12, 2006), Stornoway optioned the 1.04 million acre Qilalugaq Diamond Property from BHP Billiton. This property, situated between Stornoway’s Aviat and Churchill Properties, hosts ten known kimberlites, including the Qilalugaq 1 to 4 pipes that coalesce at surface with an approximate area of 14ha. Mini-bulk sampling of this body by BHP Billiton indicates a sample grade of 0.27 carats per tonne for diamonds greater than 1.1mm. Continued investigation of the other large tonnage bodies, as well as systematic evaluation of unsourced kimberlite indicator mineral anomalies elsewhere on the property, is warranted. We see tremendous synergies between the Qilalugaq and Aviat Projects and believe this is a great opportunity to consolidate our exploration efforts on the Melville Peninsula of Nunavut.

At the time of writing, Stornoway currently holds varying interests in 40 properties representing about 18 million acres.

The most recent development has been Stornoway’s offer (announced July 24, 2006) to purchase all of the outstanding shares of both Ashton Mining of Canada and Contact Diamond Corporation. Ashton holds a 50% interest in the Foxtrot Property in the Otish Mountains area of Quebec, where publicly available information suggests that four of the Renard kimberlite bodies (Renard 2, 3, 4 and 9) could collectively contain 18.6 to 22.0 million carats of diamonds. Numerous other kimberlite bodies on the property remain to be evaluated. The other 50% interest in the Foxtrot Property is held by SOQUEM Inc., the Quebec Government’s mine development group. Contact has discovered eight kimberlites in the Timiskaming Region of northeastern Ontario/northwestern Quebec. Their 95-2 kimberlite pipe yielded a population of highly commercial diamonds at marginally subeconomic grades in a mini-bulk sampling program and is favourably situated for fast track development should changes in diamond prices support this decision.

Stornoway’s offer for Ashton is supported by a lock-up agreement between Stornoway and two wholly owned subsidiaries of Rio Tinto plc, under which they agree to tender their combined 52% shareholding interest in Ashton to the offer. Agnico-Eagle Mines Limited, Contact’s largest shareholder, has made a $22.5 million private placement in Stornoway for the purposes of funding our offer for Ashton. Stornoway’s offer for Contact is supported by a lock-up agreement between Stornoway and Agnico-Eagle, under which it agrees to tender its 32% shareholding interest in Contact to the offer. Contact’s board of directors has unanimously recommended shareholder approval of our offer. As of the time of writing, Ashton’s board of directors has struck a Special Committee to consider our offer and make a recommendation to the Ashton shareholders. Assuming these transactions are completed, Agnico-Eagle Mines, a respected Quebec based gold mining company, is well positioned to provide technical advice to the combined company as it builds its own standalone mine development and operating capacity. We will shortly be mailing formal takeover bid circulars to the shareholders of Ashton and Contact which will further detail the offers.

Assuming the transactions are completed, the combined company will be in a unique position to both lead and further consolidate the diamond exploration and development landscape, offering shareholders an unmatched diamond project pipeline, strong management team with market profile and track record of wealth creation, one of Canada’s most experienced diamond exploration teams with a history of discovery, significant growth potential and access to capital.

In closing I would like to thank you, our shareholders, for your continued support of Stornoway. I anticipate a continued flow of exciting news as we pursue our goal of discovering and developing a world class diamond mine. I would also like to thank our board of directors, employees, contractors, consultants and skilled service providers for their dedication, teamwork and innovative approach to exploration. I look forward to everyone’s contribution as we move to meet our near term production objectives.

Eira Thomas
President and Director

* Certain information in this letter constitutes “forward looking information”. Disclaimers regarding such information is included in the Company’s Management, Discussion and Analysis, which accompanies this letter, and in the formal takeover bid circulars to be mailed to shareholders of Ashton and Contact and such disclaimers apply to the information in this letter.

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