Aber Posts Record Quarterly Sales



    TORONTO, Sept. 10 /CNW/ - ABER DIAMOND CORPORATION (TSX-ABZ, NASDAQ-ABER)
announces its second quarter results for the period ended July 31, 2007.
    "We are pleased with our strong results this quarter that have delivered
a 24% increase in sales and a 27% increase in earnings from operations with
both segments of our business contributing to the record results," said Robert
Gannicott, Chairman and Chief Executive Officer of Aber Diamond Corporation.
"Rough diamond production increased 21% in the quarter as a result of grade
enhancements from improvements to the diamond recovery process. In our Harry
Winston business, the demand for premier jewelry and watches continued to grow
in our new and existing salons worldwide."
    Mr. Gannicott continued, "Our mining and retail businesses are strong and
we believe we are well positioned for greater growth while retaining a focus
on delivering shareholder value."
    Thomas J. O'Neill, President of Aber and Chief Executive Officer of Harry
Winston added, "Our 41% increase in sales from our worldwide retail portfolio
of 15 salons and selective watch wholesale network, reinforces the strong
global demand for the premier diamond jewelry and watches of Harry Winston.
Our newest salon, in Beijing, opened during the quarter and our clients have
responded well to our collections. We believe we are well positioned for the
important upcoming holiday season. While we are focused on the near term, we
continue to build for the future. We are on schedule to open three additional
salons in the third quarter in key regions throughout the world including Hong
Kong, Chicago and Nagoya, Japan and we look forward to introducing our new
clients in these dynamic cities to our collections and our service."

    Second Quarter Highlights

    
    Financial Highlights (US$)
    -------------------------------------------------------------------------
                      Three months  Three months    Six months    Six months
                             ended         ended         ended         ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Sales ($ millions)       173.3         140.0         314.6         259.2
    -------------------------------------------------------------------------
    Earnings from
     operations
     ($ millions)             56.2          44.3          92.3          72.5
    -------------------------------------------------------------------------
    Net Earnings
     ($ millions)             20.1          34.3          23.3          58.1
    -------------------------------------------------------------------------
    Earnings per
     share ($)                0.34          0.59          0.40          1.00
    -------------------------------------------------------------------------


    Production Highlights
    (Aber's 40% share of Diavik Mine production - reported on a one-month
    lag)

    -------------------------------------------------------------------------
                      Three months  Three months    Six months    Six months
                             ended         ended         ended         ended
                           June 30,      June 30,      June 30,      June 30,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Diamond recovered
     (000s carats)           1,317         1,088         2,351         1,803
    -------------------------------------------------------------------------
    Grade (carats/tonne)      5.12          4.47          5.05          4.09
    -------------------------------------------------------------------------
    Operating costs,
     cash ($US millions)      26.5          23.2          51.5          44.7
    -------------------------------------------------------------------------
    Operating costs per
     carat, cash ($US)          20            21            22            25
    -------------------------------------------------------------------------
    

    "Record consolidated sales and strong margins were key operational
drivers to our Q2 results," stated Alice Murphy, Chief Financial Officer of
Aber Diamond Corporation. "Our consolidated gross margin of 52.8% for the
quarter reflects continuing significant contributions from both our operating
segments. Net earnings of $20.1 million for the quarter were negatively
impacted by a $9.6 million non-cash foreign exchange charge while the
comparable quarter last year included a $6.6 million tax recovery."

    Returning Value to Shareholders

    Aber is pleased to declare a quarterly dividend payment of US$0.25 per
share. Shareholders of record at the close of business on September 28, 2007,
will be entitled to receive payment of this dividend on October 15, 2007.

    Webcast

    Aber will host a webcast today at 8:00 a.m. (EST) to review these results
and its outlook. Interested parties may listen to a broadcast on the Internet
at www.aber.ca. A replay of the webcast will be available on the Company's
website at www.aber.ca later the same day. Aber's unaudited consolidated
interim financial statements together with Management's Discussion and
Analysis are available on the Company's web site and on SEDAR (www.sedar.com).

    Information in this news release that is not current or historical
factual information may constitute forward-looking information or statements
within the meaning of applicable securities laws. Implicit in this
information, particularly in respect of statements as to future operating
results and economic performance of Aber, and resources and reserves at the
Diavik Mine, are assumptions regarding projected revenue and expense, diamond
prices and mining costs. These assumptions, although considered reasonable by
Aber at the time of preparation, may prove to be incorrect. Readers are
cautioned that actual results are subject to a number of risks and
uncertainties, including risks relating to general economic conditions and
mining operations, and could differ materially from what is currently
expected. The Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

    About Aber

    Aber Diamond Corporation is a specialist diamond company focusing on the
mining and retail segments of the diamond industry. The Company supplies rough
diamonds to the global market through its 40% ownership in the Diavik Diamond
Mine and owns one of the world's premier retailers of diamond jewelry, Harry
Winston Inc.


    
                                 Highlights
    (All figures are in United States dollars unless otherwise indicated)
    

    Record consolidated sales drove a 27% increase in earnings from
operations to $56.2 million for the quarter. Net earnings of $20.1 million
(earnings per share of $0.34) compared to prior year net earnings of
$34.3 million (earnings per share of $0.59). Net earnings for the current
quarter were reduced by a $9.6 million non-cash charge to earnings resulting
from the revaluation of the Canadian dollar denominated long-term future
income tax liability. This same revaluation resulted in a $2.5 million gain in
the comparable quarter of the prior year. In addition, the current quarter
included a future tax recovery of $0.9 million as compared to $6.6 million in
same period last year attributable to a reduction in the general federal
corporate income tax rate.
    Consolidated sales of $173.3 million for the quarter represent an
increase of 24% over sales of $140.0 million in the comparable quarter of the
prior year. Consolidated gross margin of $91.4 million represents a 28%
increase over $71.5 million in the comparable quarter of the prior year.
    Sales from the mining segment rose by 15%, increasing to $105.1 million
from $91.5 million in the comparable quarter of the prior year. Earnings from
mining operations of $53.0 million represents a 21% increase over the
comparable quarter of the prior year.
    Strong retail sales for the quarter totalled $68.2 million, an increase
of 41% over the comparable quarter of the prior year. Earnings from retail
operations were $3.2 million in the current quarter versus $0.5 million in the
comparable quarter of the prior year. Both quarters were negatively impacted
by certain acquisition-related costs attributable to the Harry Winston
purchase, totalling $2.3 million in the current quarter and $1.4 million in
the corresponding quarter of the prior year.
    Aber's share of diamonds recovered from the Diavik Mine was 1.3 million
carats for the three months ended June 30, 2007, an increase of 21% compared
to 1.1 million carats for the comparable period of the prior year.
    The Company has declared a quarterly dividend of $0.25 per share to be
paid on October 15, 2007 to shareholders of record on September 28, 2007.


    
                     Management's Discussion and Analysis
                     ------------------------------------
    (all figures are in United States dollars unless otherwise indicated)
                       Prepared as of September 7, 2007
    

    The following is management's discussion and analysis ("MD&A") of the
results of operations for Aber Diamond Corporation ("Aber", or the "Company")
for the three and six months ended July 31, 2007, and its financial position
as at July 31, 2007. This MD&A is based on the Company's consolidated
financial statements prepared in accordance with generally accepted accounting
principles in Canada ("Canadian GAAP") and should be read in conjunction with
the unaudited consolidated financial statements and notes thereto for the
three and six months ended July 31, 2007 and the audited consolidated
financial statements of Aber and notes thereto for the year ended January 31,
2007. Unless otherwise specified, all financial information is presented in
United States dollars. Unless otherwise indicated, all references to "second
quarter" refer to the three months ended July 31, 2007.
    Certain comparative figures have been reclassified to the current year's
presentation.

    CAUTION REGARDING FORWARD-LOOKING INFORMATION

    Certain information included in this MD&A may constitute forward-looking
information within the meaning of securities laws. In some cases,
forward-looking information can be identified by the use of terms such as
"may", "will", "should", "expect", "plan", "anticipate", "believe", "intend",
"estimate", "predict", "potential", "continue" or other similar expressions
concerning matters that are not historical facts. Forward-looking information
may relate to management's future outlook and anticipated events or results,
and may include statements or information regarding projected capital
expenditure requirements, the construction and operation of the Geneva watch
factory, estimated reserves and resources at, and production from, the Diavik
Mine in 2007, potential improvements in grade and tonnage at the Diavik Mine,
plans, timelines and targets for construction, mining, development, production
and exploration activities at the Diavik Mine, future mining and processing at
the Diavik Mine, the Diavik Mine's water license renewal, the number and
timing of expected rough diamond sales, projected sales growth and new store
openings at Harry Winston, expected gross margin and expense trends in the
retail segment, expected diamond prices and expectations concerning the
diamond industry.
    Forward-looking information is based on certain factors and assumptions
regarding, among other things, mining, production, construction and
exploration activities at the Diavik Mine, world and US economic conditions,
the level of worldwide diamond production, the receipt of necessary regulatory
permits, the expected sales mix at Harry Winston, expected salon openings and
potential improvements in sourcing and purchasing polished diamonds.
Specifically, in estimating Aber's projected share of the Diavik Mine capital
expenditure requirements, Aber has used a Canadian/US dollar exchange rate of
$0.88, and has assumed that construction will continue on schedule with
respect to the A-418 dike and with respect to current underground mining
construction initiatives. In making statements regarding estimated production
at the Diavik Mine, potential improvements in grade and tonnage at the Diavik
Mine, future mining activity and mine plans and future rough diamond sales,
Aber has assumed that mining operations and exploration activities will
proceed in the ordinary course according to schedule and consistent with past
results, and that the Diavik Mine's water license will be renewed on expected
terms and conditions. With respect to statements concerning sales growth and
new store openings at Harry Winston, as well as expected gross margin rates
and expense trends, Aber has assumed that current world economic conditions
will not materially change or deteriorate, and that Harry Winston will be able
to realize improvements in sourcing and purchasing of inventory. In making
statements regarding the completion and operation of the Geneva watch factory,
Aber has assumed that construction will proceed according to schedule. While
Aber considers these assumptions to be reasonable based on information
currently available to it, they may prove to be incorrect.
    Forward-looking information is subject to certain factors, including
risks and uncertainties, which could cause actual results to differ materially
from what we currently expect. These factors include, among other things, the
uncertain nature of mining activities, risks associated with joint venture
operations, risks associated with the remote location of and harsh climate at
the Diavik Mine site, risks associated with regulatory requirements,
fluctuations in diamond prices and changes in world economic conditions, the
risk of fluctuations in the Canadian/US dollar exchange rate, risks relating
to the Company's salon expansion strategy and the risks of competition in the
luxury jewelry segment. Please see page 21 of this interim report, as well as
Aber's annual report, available at www.sedar.com, for a more comprehensive
discussion of these and other risks and uncertainties involved in Aber's
operations.
    You should not place undue importance on forward-looking information and
should not rely upon this information as of any other date. While Aber may
elect to, it is under no obligation and does not undertake to update this
information at any particular time, except as required by law.

    -------------------------------------------------------------------------

    Summary Discussion

    Aber Diamond Corporation is a specialist diamond company focusing on the
mining and retail segments of the diamond industry. The Company supplies rough
diamonds to the global market from production received from its 40% ownership
interest in the Diavik Diamond Mine (the "Diavik Mine"), located off Lac de
Gras in Canada's Northwest Territories. Aber also owns a 100% interest in
Harry Winston Inc. ("Harry Winston"), the premier fine jewelry and watch
retailer. Aber's mission is to deliver shareholder value through the enhanced
earning power and longevity of the Diavik Mine asset as the cornerstone of a
profitable synergy with the Harry Winston brand. In a changing diamond
market-place, Aber has charted a unique course to continue to build
shareholder value.
    The Company's most significant asset is a 40% interest in the Diavik
group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an
unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI" -
60%) and Aber Diamond Mines Ltd. (40%) where Aber owns an undivided 40%
interest in the assets, liabilities and expenses. DDMI is the operator of the
Diavik Mine. Both companies are headquartered in Yellowknife, Canada. DDMI is
a wholly owned subsidiary of Rio Tinto plc of London, England, and Aber
Diamond Mines Ltd. is a wholly owned subsidiary of Aber Diamond Corporation of
Toronto, Canada.

    Market Commentary

    The Diamond Market
    Rough diamond prices increased significantly in the second quarter due to
a continued supply/demand imbalance. Diamond prices remained particularly
robust in the larger, better quality white goods. Improvements in prices were
also evident in the smaller, lower-quality diamonds, which were previously
weak.
    Polished diamond prices also increased in the quarter, continuing a trend
which began earlier in the year. The increase in polished prices was driven by
strong consumer demand for polished goods in virtually all global markets,
most notably in Asia. US market demand remained resilient in the quarter
despite early concerns that consumers will be impacted by the downturn in the
real estate market and uncertainty surrounding credit liquidity.

    The Retail Jewelry Market
    The luxury retail jewelry and watch sector showed considerable strength
globally throughout the typically slower summer period. Jewelry retailers in
general showed positive sales growth over the prior year period despite
concerns over the continuing US economic slowdown.

    Consolidated Financial Results

    The following is a summary of the Company's consolidated quarterly
results for the eight quarters ended July 31, 2007 following the basis of
presentation utilized in its Canadian GAAP financial statements:

    (expressed in thousands of United States dollars, except per share
    amounts and where otherwise noted)(unaudited)

    
                      2008      2008      2007      2007      2007      2007
                        Q2        Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales         $173,269  $141,365  $154,328  $145,232  $139,962  $119,271
    Cost of sales   81,827    71,132    78,559    74,636    68,458    63,845
    -------------------------------------------------------------------------
                    91,442    70,233    75,769    70,596    71,504    55,426
    Selling,
     general and
     administrative
     expenses       35,201    34,211    38,590    33,480    27,171    27,295
    -------------------------------------------------------------------------
    Earnings from
     operations     56,241    36,022    37,179    37,116    44,333    28,131
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest and
     financing
     expenses       (7,222)   (6,132)   (6,441)   (5,570)   (4,805)   (4,334)
    Other income
     (expense)         545       913      (111)    1,764     1,805     1,623
    Foreign
     exchange
     gain (loss)   (11,785)  (13,292)    9,831    (1,560)    2,619    (2,106)
    -------------------------------------------------------------------------
    Earnings before
     income taxes   37,779    17,511    40,458    31,750    43,952    23,314
    Income taxes    17,747    14,118    13,169    13,005     9,692    (1,036)
    -------------------------------------------------------------------------
    Earnings before
     minority
     interest       20,032     3,393    27,289    18,745    34,260    24,350
    Minority
     interest          (26)      140        (5)      (86)       (5)      471
    -------------------------------------------------------------------------
    Earnings      $ 20,058  $  3,253  $ 27,294  $ 18,831  $ 34,265  $ 23,879
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings
     per share    $   0.34  $   0.06  $   0.47  $   0.32  $   0.59  $   0.41
    Diluted
     earnings
     per share    $   0.33  $   0.05  $   0.46  $   0.32  $   0.58  $   0.40
    Cash dividends
     declared per
     share        $   0.25  $   0.25  $   0.25  $   0.25  $   0.25  $   0.25
    Total
     assets(i)    $  1,367  $  1,315  $  1,288  $  1,246  $  1,116  $  1,111
    Total
     long-term
     liabili-
     ties(i)      $    486  $    408  $    536  $    530  $    460  $    460
    -------------------------------------------------------------------------


                                           Six       Six
                                        Months    Months
                                         Ended     Ended
                      2006      2006   July 31,  July 31,
                        Q4        Q3      2007      2006
    -----------------------------------------------------
    Sales         $125,891  $153,512  $314,634  $259,233
    Cost of sales   52,782    57,641   152,959   132,303
    -----------------------------------------------------
                    73,109    95,871   161,675   126,930
    Selling,
     general and
     administrative
     expenses       36,654    24,189    69,412    54,466
    -----------------------------------------------------
    Earnings from
     operations     36,455    71,682    92,263    72,464
    -----------------------------------------------------
    -----------------------------------------------------
    Interest and
     financing
     expenses       (4,511)   (3,353)  (13,354)   (9,139)
    Other income
     (expense)       1,767       795     1,458     3,428
    Foreign
     exchange
     gain (loss)    (5,392)   (4,184)  (25,077)      513
    -----------------------------------------------------
    Earnings before
     income taxes   28,319    64,940    55,290    67,266
    Income taxes    10,534    30,775    31,865     8,656
    -----------------------------------------------------
    Earnings before
     minority
     interest       17,785    34,165    23,425    58,610
    Minority
     interest        2,876       423       114       466
    -----------------------------------------------------
    Earnings      $ 14,909  $ 33,742  $ 23,311  $ 58,144
    -----------------------------------------------------
    -----------------------------------------------------
    Basic earnings
     per share    $   0.26  $   0.58  $   0.40  $   1.00
    Diluted
     earnings
     per share    $   0.27  $   0.57  $   0.39  $   0.98
    Cash dividends
     declared per
     share        $   0.25  $   0.25  $   0.50  $   0.50
    Total
     assets(i)    $  1,044  $  1,016  $  1,367  $  1,116
    Total
     long-term
     liabili-
     ties(i)      $    434  $    421  $    486  $    460
    -----------------------------------------------------
    (i) Total assets and total long-term liabilities are expressed in
        millions of United States dollars.
    

    The comparability of quarter-over-quarter results is impacted by
seasonality for both the mining and retail segments. Aber expects that the
quarterly results for its mining segment will continue to fluctuate depending
on the seasonality of production at the Diavik Mine, the number of sales
events conducted during the quarter, and the volume, size and quality
distribution of rough diamonds delivered from the Diavik Mine in each quarter.
The quarterly results for the retail segment are also seasonal, with generally
higher sales during the fourth quarter due to the holiday season.

    Three Months Ended July 31, 2007 Compared to Three Months Ended
    July 31, 2006

    Consolidated Net Earnings

    The second quarter earnings of $20.1 million or $0.34 per share represent
a decrease of $14.2 million or $0.25 per share as compared to the results from
the second quarter of the prior year. This reduction in net earnings is
primarily due to a significant unrealized foreign exchange loss of
$9.6 million on future income taxes payable, as discussed under "Consolidated
Income Taxes" on page 7, as compared to a foreign exchange gain of
$2.5 million in the comparable period last year. In addition, the current
quarter included a future tax recovery of $0.9 million as compared to $6.6
million in same period last year attributable to a reduction in the general
federal corporate income tax rate.

    Consolidated Revenue

    Revenue for the second quarter totalled $173.3 million, consisting of
rough diamond sales of $105.1 million and sales from Harry Winston of
$68.2 million. This compares to sales of $140.0 million in the comparable
quarter of the prior year (rough diamond sales of $91.5 million and sales from
Harry Winston of $48.5 million). The Company held three rough diamond sales in
both the current quarter and the comparable quarter of the prior year. Ongoing
quarterly variations in revenues are inherent in Aber's business, resulting
from the seasonality of the mining and retail activities as well as from the
variability of the rough diamond sales schedule.

    Consolidated Cost of Sales

    The Company's second quarter cost of sales was $81.8 million compared to
$68.5 million for the comparable quarter of the prior year, with the majority
of the increase related to Harry Winston. The Company's cost of sales includes
cash and non-cash costs associated with mining, sorting and retail sales
activities. See "Segmented Analysis" on page 11 for additional information.

    Consolidated Selling, General and Administrative Expenses

    The principal components of selling, general and administrative ("SG&A")
expenses include expenses for salaries and benefits (including salon
personnel), advertising, professional fees, rent and building related costs.
With the growth of the Company's international selling activities and the
underlying control infrastructure, along with the expansion of its retail
salons, total SG&A expenses have increased over the comparable period of the
prior year.
    SG&A expenses for the second quarter were $35.2 million as compared to
$27.2 million for the comparable quarter of the prior year.
    The increase of $8.0 million from the second quarter of the prior year
related primarily to the Harry Winston growth strategy and included an
increase of $2.6 million in advertising and selling expenses, an increase of
$2.6 million in salaries and benefits, an increase of $1.6 million in rent and
building related expenses and an increase of $1.0 million in amortization. See
"Segmented Analysis" on page 11 for additional information.

    Consolidated Income Taxes

    Aber recorded a tax expense of $17.7 million during the second quarter of
fiscal 2008, compared to a tax expense of $9.7 million in the comparable
quarter of the previous year. Included in the current quarter's tax expense is
a future income tax recovery of $0.9 million attributable to a reduction in
the general federal corporate income tax rate commencing January 1, 2011,
which was substantively enacted during the quarter. In comparison, a future
income tax recovery of $6.6 million was included in the income tax expense of
the comparable quarter of the previous year, which resulted from the phased
reduction in the general federal corporate income tax rate commencing in 2008,
the elimination of the federal surtax effective January 1, 2008, and the
elimination of the Large Corporations Tax retroactive to January 1, 2006.
    The Company's effective income tax rate for the quarter, excluding Harry
Winston, is 48%, which is based on a statutory income tax rate of 34% adjusted
for the Northwest Territories mining royalty, items that are not deductible
for income tax purposes, impact of foreign exchange, earnings subject to tax
different than statutory rate, and impact of changes in future income tax
rates.
    The Company's functional and reporting currency is US dollars; however,
the calculation of income tax expense is based on income in the currency of
the country of origin. As such, the Company is continually subject to foreign
exchange fluctuations, particularly as the Canadian dollar moves against the
US dollar. During the second quarter, as the Canadian dollar strengthened
against the US dollar, the Company recorded an unrealized foreign exchange
loss of $9.6 million on the revaluation of the Canadian dollar denominated
future income tax liability, which is not deductible for Canadian income tax
purposes.
    The rate of income tax payable by Harry Winston varies by jurisdiction.
Net operating losses are available in certain jurisdictions to offset future
income taxes payable in such jurisdictions. The net operating losses are
scheduled to expire through 2027.
    The Company has provided a table below summarizing the movement from the
statutory to the effective income tax rate as a percentage of earnings before
taxes:

    
                                                  Three Months  Three Months
                                                         Ended         Ended
                                                       July 31,      July 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Statutory income tax rate                              34%           37%
    Large Corporations Tax                                  0%          (1)%
    Stock compensation                                    (1)%            0%
    Northwest Territories mining royalty (net of
     income tax relief)                                    12%            8%
    Impact of change in future income tax rate            (2)%         (15)%
    Impact of foreign exchange                              9%          (3)%
    Earnings subject to tax different than
     statutory rate                                       (2)%          (4)%
    Benefits of losses recognized as reduction of
     goodwill                                               2%            0%
    Other items                                           (5)%            0%
    Effective income tax rate                              47%           22%
    -------------------------------------------------------------------------
    

    Consolidated Interest and Financing Expenses

    Interest and financing expenses of $7.2 million were incurred during the
second quarter compared to $4.8 million during the comparable quarter of the
prior year. The increase in interest and financing expenses is due to a
combination of higher debt levels at Harry Winston to finance increased
inventory levels, an increased drawdown of Aber's expanded credit facility
related to the Harry Winston acquisition, and higher interest rates.

    Consolidated Other Income

    Other income, which includes interest income on the Company's various
bank balances, was $0.5 million during the second quarter compared to
$1.8 million in the comparable quarter of the prior year. The reduction in
income is due to higher cash balances held in the comparable quarter of the
prior year in advance of the Harry Winston acquisition.

    Consolidated Foreign Exchange Gain (Loss)

    A foreign exchange loss of $11.8 million was recognized during the second
quarter compared to a gain of $2.6 million recorded in the comparable quarter
of the prior year. The loss primarily related to the revaluation of the
Canadian dollar denominated future income tax liability on the balance sheet
of the Company, which resulted from the strengthening of the Canadian dollar
against the US dollar at quarter end. Aber's ongoing currency exposure relates
primarily to expenses and obligations incurred in Canadian dollars, as well as
to the revaluation of certain Canadian monetary balance sheet amounts. The
Company does not currently have any significant derivative instruments
outstanding.

    Six Months Ended July 31, 2007 Compared to Six Months Ended July 31, 2006

    Consolidated Net Earnings

    Net earnings for the six months ended July 31, 2007 of $23.3 million or
$0.40 per share represent a decrease of $34.8 million or $0.60 per share as
compared to the results for the six months ended July 31, 2006. This reduction
in net earnings is primarily due to a significant unrealized foreign exchange
loss of $25.1 million relating principally to future income taxes payable as
compared to a foreign exchange gain of $0.5 million in the comparable year to
date period last year. In addition, the current six-month period ending
July 31, 2007 included a future tax recovery of $0.9 million as compared to
$17.0 million in the same period last year attributable to reductions in
future income tax rates.

    Consolidated Revenue

    Revenue for the six months ended July 31, 2007 was $314.6 million
compared to revenue of $259.2 million for the six months ended July 31, 2006.
Rough diamond sales accounted for $187.8 million of this revenue compared to
$160.8 million for the comparable period of the prior year. The Company held
five rough diamond sales in both the current six months and the comparable
period of the prior year. Harry Winston sales of $126.8 million accounted for
the balance, compared to $98.4 million for the comparable period of the prior
year.

    Consolidated Cost of Sales

    The Company recorded cost of sales of $153.0 million during the six
months ended July 31, 2007 compared to $132.3 million during the six months of
the prior year. The Company's cost of sales includes cash and non-cash costs
associated with mining, sorting and retail sales activities.

    Consolidated Selling, General and Administrative Expenses

    Aber incurred SG&A expenses of $69.4 million for the six months ended
July 31, 2007, compared to $54.5 million for the six months ended July 31,
2006. Included in SG&A expenses for the six months ended July 31, 2007 are
$11.0 million for the mining segment as compared to $9.2 million for the six
months ended July 31, 2006, and $58.4 million for the retail segment as
compared to $45.3 million for comparable period of the prior year. The
principal components of SG&A expense include expenses for salaries (including
salon personnel), advertising, professional fees, rent, and related office
costs.
    The increase of $14.9 million in SG&A expenses from the comparable period
of the prior year resulted principally from an increase of $3.9 million in
advertising, $3.9 million in salaries and benefits, $2.3 million in rent and
building related expenses, and $1.8 million in amortization expense. The
increase in spending was incurred primarily as part of the Harry Winston
growth strategy, which included the opening of additional salons. Included in
the comparable six-month period of the prior year was a reversal of a specific
provision against accounts receivable of $2.2 million.

    Consolidated Income Taxes

    Aber recorded a tax expense of $31.9 million during the six months ended
July 31, 2007, compared to $8.7 million for the comparable period of the prior
year. The Company's effective income tax rate for the six months ended
July 31, 2007, excluding Harry Winston, was 56%, which was based on a
statutory income tax rate of 34% adjusted for the Northwest Territories mining
royalty, items that are not deductible for income tax purposes, impact of
foreign exchange, earnings subject to tax different than the statutory income
tax rate, and impact of changes in future income tax rates. During the six
months ended July 31, 2007, Aber recorded a future tax recovery of $0.9
million as a result of the decrease in the federal corporate income tax rates
commencing January 1, 2011, which was substantively enacted during the period.
This compares with a future tax recovery of $17.0 million recorded in the
comparable period of the prior year, which resulted from the decrease in
Northwest Territories and federal corporate income tax rates and the
elimination of the federal surtax.
    The rate of income tax payable by Harry Winston varies by jurisdiction.
Net operating losses are available in certain jurisdictions to offset future
income taxes payable in such jurisdictions. The net operating losses are
scheduled to expire through 2027.
    The Company has provided a table below summarizing the movement from the
Company's statutory to the effective income tax rate as a percentage of
earnings before taxes:

    
                                                    Six Months    Six Months
                                                         Ended         Ended
                                                       July 31,      July 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Statutory income tax rate                              34%           37%
    Stock compensation                                      0%            1%
    Northwest Territories mining royalty (net of
     income tax relief)                                    13%            7%
    Impact of change in future income tax rate            (2)%         (25)%
    Impact of foreign exchange                             14%          (2)%
    Earnings subject to tax different than
     statutory rate                                       (3)%          (4)%
    Benefits of losses recognized as reduction of
     goodwill                                               3%            0%
    Other items                                           (1)%          (1)%
    Effective income tax rate                              58%           13%
    -------------------------------------------------------------------------
    

    Consolidated Interest and Financing Expenses

    Interest and financing expenses of $13.4 million were incurred during the
six months ended July 31, 2007 compared to $9.1 million for the comparable
period of the preceding year. The increase in interest and financing expenses
is due to a combination of higher debt levels at Harry Winston to finance
increased inventory levels, an increased drawdown of Aber's expanded credit
facility related to the Harry Winston acquisition, and higher interest rates.

    Consolidated Other Income

    Other income, which includes interest income on the Company's various
bank balances, was $1.5 million during the six months ended July 31, 2007
compared to $3.4 million for the comparable period of the preceding year. The
reduction in income is due to higher cash balances held in the comparable
period of the prior year in advance of the Harry Winston acquisition.

    Consolidated Foreign Exchange Gain (Loss)

    A foreign exchange loss of $25.1 million was recognized during the
six months ended July 31, 2007 compared with a gain of $0.5 million recorded
during the six months ended July 31, 2006. The Company's ongoing currency
exposure relates primarily to expenses and obligations incurred in Canadian
dollars, as well as the revaluation of certain Canadian monetary balance sheet
amounts. The Company does not currently have any significant derivative
instruments outstanding.

    Segmented Analysis

    The operating segments of the Company include mining and retail segments.

    
    Mining

    (expressed in thousands of United States dollars) (unaudited)

                      2008      2008      2007      2007      2007      2007
                        Q2        Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales         $105,071   $82,752   $81,035   $90,754   $91,476   $69,308
    Cost of sales   46,217    40,516    39,413    45,461    43,256    38,749
    -------------------------------------------------------------------------
                    58,854    42,236    41,622    45,293    48,220    30,559
    Selling,
     general and
     administrative
     expenses        5,861     5,087     7,397     4,665     4,373     4,787
    -------------------------------------------------------------------------
    Earnings from
     operations   $ 52,993  $ 37,149  $ 34,225  $ 40,628  $ 43,847  $ 25,772
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                           Six       Six
                                        Months    Months
                                         Ended     Ended
                      2006      2006   July 31,  July 31,
                        Q4        Q3      2007      2006
    -----------------------------------------------------
    Sales          $62,528  $112,243  $187,823  $160,784
    Cost of sales   22,780    38,929    86,733    82,005
    -----------------------------------------------------
                    39,748    73,314   101,090    78,779
    Selling,
     general and
     administrative
     expenses        8,221     4,809    10,948     9,160
    -----------------------------------------------------
    Earnings from
     operations   $ 31,527  $ 68,505  $ 90,142  $ 69,619
    -----------------------------------------------------
    -----------------------------------------------------
    

    The mining segment includes the production and sale of rough diamonds.

    Three Months Ended July 31, 2007 Compared to Three Months Ended
    July 31, 2006

    Mining Revenue

    Sales for the second quarter totalled $105.1 million compared to
$91.5 million in the comparable quarter of the prior year. The Company held
three rough diamond sales in both the current quarter and the comparable
quarter last year. Aber expects that the quarterly results for its mining
segment will continue to fluctuate depending on the seasonality of production
at the Diavik Mine, the number of sales events conducted during the quarter,
and the volume, size and quality distribution of rough diamonds delivered from
the Diavik Mine in each quarter.

    Mining Cost of Sales

    Cost of sales includes cash operating costs of $26.5 million, non-cash
operating costs of $17.6 million and private production royalties of
$2.1 million. A substantial portion of cost of sales is mining operating
costs, which are incurred at the Joint Venture level. Cost of sales also
includes sorting costs, which consist of Aber's cost of handling and sorting
product in preparation for sales to third parties. Non-cash costs include
amortization and depreciation, the majority of which is recorded using the
unit-of-production method over estimated proven and probable reserves. Private
production royalties are recorded based on actual production during each
accounting period.
    The second quarter gross margin was 56.0% compared to 52.7% in the
comparable quarter of the prior year. The mining gross margin is anticipated
to fluctuate between quarters, resulting from variations in the specific mix
of product sold during each quarter. Additionally, the second quarter of the
prior year was negatively impacted by higher costs incurred as a result of the
early closure of the 2006 winter road.

    Mining Selling, General and Administrative Expenses

    SG&A expenses for the mining segment increased by $1.5 million to
$5.9 million from $4.4 million in the comparable quarter of the prior year.

    Six Months Ended July 31, 2007 Compared to Six Months Ended July 31, 2006

    Mining Revenue

    Sales for the six months ended July 31, 2007 totalled $187.8 million
compared to $160.8 million for the six months ended July 31, 2006. The Company
held five rough diamond sales in both the current six months and the
comparable period of the prior year. Aber expects that results for its mining
segment will continue to fluctuate depending on the seasonality of production
at the Diavik Mine, the number of sales events conducted, and the volume, size
and quality distribution of rough diamonds delivered from the Diavik Mine.

    Mining Cost of Sales

    Cost of sales includes cash operating costs of $52.4 million, non-cash
operating costs of $30.8 million and private production royalties of
$3.5 million. A substantial portion of cost of sales is mining operating
costs, which are incurred at the Joint Venture level. Cost of sales also
includes sorting costs, which consist of Aber's cost of handling and sorting
product in preparation for sales to third parties. Non-cash costs include
amortization and depreciation, the majority of which is recorded using the
unit-of-production method over estimated proven and probable reserves. Private
production royalties are recorded based on actual production during each
accounting period.
    The six months ended July 31, 2007 gross margin was 53.8% compared to
49.0% in the comparable period of the prior year. The mining gross margin is
anticipated to fluctuate during the year, resulting from variations in the
specific mix of product sold during the period. Additionally, the six-month
period ended July 31, 2006 was negatively impacted by higher costs incurred as
a result of the early closure of the 2006 winter road.

    Mining Selling, General and Administrative Expenses

    SG&A expenses for the mining segment increased by $1.7 million to
$10.9 million from $9.2 million in the comparable period of the prior year.

    
    Retail
    (expressed in thousands of United States dollars) (unaudited)

                      2008      2008      2007      2007      2007      2007
                        Q2        Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Sales         $ 68,198  $ 58,613  $ 73,293  $ 54,478  $ 48,486  $ 49,963
    Cost of sales   35,610    30,616    39,146    29,175    25,202    25,096
    -------------------------------------------------------------------------
                    32,588    27,997    34,147    25,303    23,284    24,867
    Selling,
     general and
     administrative
     expenses       29,340    29,124    31,193    28,815    22,798    22,508
    -------------------------------------------------------------------------
    Earnings
     (loss) from
     operations   $  3,248  $ (1,127) $  2,954  $ (3,512) $    486  $  2,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                           Six       Six
                                        Months    Months
                                         Ended     Ended
                      2006      2006   July 31,  July 31
                        Q4        Q3      2007      2006
    -----------------------------------------------------
    Sales         $ 63,363  $ 41,269  $126,811  $ 98,449
    Cost of sales   30,002    18,712    66,226    50,298
    -----------------------------------------------------
                    33,361    22,557    60,585    48,151
    Selling,
     general and
     administrative
     expenses       28,433    19,380    58,464    45,306
    -----------------------------------------------------
    Earnings
     (loss) from
     operations   $  4,928  $  3,177  $  2,121  $  2,845
    -----------------------------------------------------
    -----------------------------------------------------
    

    The retail segment includes sales from Harry Winston's 15 salons, which
are located in New York, Honolulu, Bal Harbour, Beverly Hills, Las Vegas,
Dallas, Paris, London, Geneva, Tokyo (Ginza, Omotesando and Roppongi), Osaka,
Taipei and Beijing.

    Three Months Ended July 31, 2007 Compared to Three Months Ended
    July 31, 2006

    Retail Revenue

    Sales for the second quarter were $68.2 million compared to $48.5 million
for the comparable quarter of the prior year. The 41% increase in Harry
Winston sales relative to the same quarter of the prior year is primarily
attributed to strong same store sales, contributions from new salons and the
continued strength of the luxury goods sector. Sales continued to be strong
throughout the global salon network with quarterly US sales increasing by 22%
to $22.2 million and international sales advancing 52% to $46.0 million in the
quarter.

    Retail Cost of Sales

    Cost of sales for Harry Winston for the second quarter were $35.6 million
compared to $25.2 million for the comparable quarter of the prior year. Gross
margin for the quarter was 47.8% versus 48.0% in the comparable period last
year. The gross margin percentage for the quarter was influenced by the sale
of certain inventory that was on hand at the date of acquisition of Harry
Winston by Aber and was sold at a lower margin than normal. Adjusting for the
impact of this pre-acquisition inventory, gross margin as a percentage of
sales for the second quarter and the comparable quarter of the prior year
would have been approximately 3% higher.

    Retail Selling, General and Administrative Expenses

    As a result of the continued expansion of the retail salon distribution
network in accordance with the retail growth strategy, SG&A expenses increased
to $29.3 million in the second quarter as compared to $22.8 million in the
comparable quarter of the prior year. The increase of $6.5 million was
principally due to an increase in advertising and selling expenses of
$2.7 million, an increase in salaries and benefits of $2.0 million primarily
attributable to new salon personnel, an increase in rent and building related
expenses of $1.4 million and an increase in amortization of $0.8 million.
Included in SG&A expenses is amortization expense of $2.1 million for the
three months ended July 31, 2007 compared to $1.3 million in the comparable
quarter of the prior year.

    Six Months Ended July 31, 2007 Compared to Six Months Ended July 31, 2006

    Retail Revenue

    Sales for the six months ended July 31, 2007 were $126.8 million compared
to $98.4 million for the six months ended July 31, 2006. The 29% increase in
Harry Winston sales relative to the same period of the prior year is primarily
attributed to strong same store sales, contributions from new salons and the
continued strength of the luxury goods sector. US sales for the six-month
period increased by 18% to $46.5 million and international sales rose 36% to
$80.3 million from the comparable period last year.

    Retail Cost of Sales

    Cost of sales for the six months ended July 31, 2007 were $66.2 million
compared to $50.3 million for the six months ended July 31, 2006. The year to
date gross margin percentage of 47.8% compared to 48.9% for the same six month
period last year. The gross margin percentage for the year was influenced by
the sale of certain inventory that was on hand at the date of acquisition of
Harry Winston by Aber and was sold at a lower margin than normal. Adjusting
for the impact of this pre-acquisition inventory, gross margin as a percentage
of sales for the six months year to date would have been approximately 4%
higher.

    Retail Selling, General and Administrative Expenses

    As a result of the continued expansion of the retail salon distribution
network in accordance with the retail growth strategy, SG&A expenses increased
to $58.5 million for the six months ended July 31, 2007 as compared to
$45.3 million in the comparable period of the prior year. The increase of
$13.2 million was principally due to an increase in advertising and selling
expenses of $4.0 million, an increase in salaries and benefits of $3.5 million
primarily attributable to new salon personnel, an increase in rent and
building related expenses of $2.1 million and an increase in amortization
expense of $1.5 million. Included in the comparable six-month period of the
prior year was a reversal of a specific provision against accounts receivable
of $2.2 million. SG&A expenses include $4.0 million in amortization expense in
the six months ended July 31, 2007 compared to $2.5 million in the comparable
period of the prior year.

    Operational Update

    Aber's results of operations include results from its mining operations
and results from Harry Winston.

    Mining Segment
    During the second calendar quarter of 2007, the Diavik Mine produced
3.29 million carats of diamonds from 0.64 million tones of ore, almost
entirely sourced from the A-154 South kimberlite pipe, with a small
contribution from A-154 North. This represented a 21% increase in diamonds
recovered in the quarter over the comparable period last year.
    For the calendar year to date, diamonds recovered increased 30% to
5.88 million carats over the prior calendar period attributable to both higher
grade and enhanced diamond recovery resulting from processing improvements.
    The removal of overburden and waste rock stripping continued in the new
A-418 open pit, with the kimberlite pipe expected to be reached near the end
of the calendar year.
    Underground development and sampling programs continued in the quarter,
with the underground feasibility study expected by calendar year end. In July,
two underground bulk samples were extracted from A-154 North. To determine the
preferred extraction approach, one was mined using conventional drill-blast
techniques while the other was extracted using a road-header or mechanical
mining machine.
    Based on federal government regulatory inspections covering both land and
water use conducted during the quarter, the Diavik Mine continued to meet all
regulatory requirements. In July, the Wek'eezhii Land and Water Board
submitted the water license renewal for approval to the federal government.
The Federal Minister approved an extension of the current license to allow
sufficient time for approval.
    Three rough diamond sales were held during the quarter through our
offices in Belgium, India and Israel, consistent with the number held in the
prior year.

    
    Aber's 40% Share of Diavik Mine Production (reported on a one-month lag)

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           June 30,      June 30,      June 30,      June 30,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Diamonds recovered
     (000s carats)           1,317         1,088         2,351         1,803
    Grade
     (carats/tonne)           5.12          4.47          5.05          4.09
    Operating costs,
     cash ($ millions)        26.5          23.2          51.5          44.7
    Operating costs per
     carat, cash ($)            20            21            22            25
    -------------------------------------------------------------------------
    

    Cash operating costs for the three months ended June 30, 2007 of
$26.5 million increased by $3.3 million from the comparable period last year.
The increase was primarily due to higher equipment maintenance, labour and
fuel costs. Cash operating costs for the six months ended June 30, 2007 of
$51.5 million increased by $6.8 million over last year largely attributable to
an increase in costs due in part to higher equipment maintenance costs.

    Retail Segment
    Harry Winston's strategy of expanding globally in prestigious locations
and strengthening its international presence continued in the quarter with the
opening of a new salon in Beijing and the expansion and refurbishing of the
Taiwan salon. Harry Winston experienced solid sales of high-end jewelry and
watches throughout the worldwide network of 15 salons.
    Construction at the new watch factory in Geneva continued in the quarter
and is expected to be completed by the end of September 2007. The facility is
scheduled to commence manufacturing operations of high-end timepieces in
October 2007.

    Liquidity and Capital Resources

    Working Capital
    At July 31, 2007, Aber had unrestricted cash and cash equivalents of
$51.6 million and contingency cash collateral and reserves of $25.5 million as
required under Aber's debt arrangements, compared to $54.2 million and
$51.4 million, respectively, at January 31, 2007. Included in unrestricted
cash and cash equivalents at July 31, 2007 was $13.8 million held at the
Diavik Mine compared to $30.8 million at January 31, 2007. Working capital
decreased to $71.0 million at July 31, 2007 from $164.0 million at January 31,
2007. The decrease in working capital primarily results from the
reclassification of the amount drawn under the Harry Winston credit facility
from long-term at January 31, 2007 to current at July 31, 2007. The Harry
Winston $200.0 million credit facility has a maturity date of March 31, 2008
with no scheduled repayments required before that date.

    Cash Flow from Operations
    During the quarter ended July 31, 2007, Aber generated $29.8 million in
cash from operations, compared to $44.9 million from the comparable quarter of
the prior year. Ongoing quarterly variations in revenues and operating cash
flows are inherent in Aber's business, resulting from the seasonality of the
mining and retail activities as well as the rough diamond sales schedule.
During the quarter, the Company increased advances and prepaid expenses by
$15.7, increased inventory by $4.0 million, increased accounts payable and
accrued liabilities by $6.1 million, and increased accounts receivable by
$1.0 million. During the six months ended July 31, 2007, the Company increased
inventory by $47.6 million, increased accounts payable and accrued liabilities
by $32.3 million, increased advances and prepaid expenses by $14.1 million and
increased accounts receivable by $5.3 million.

    Financing Activities
    During the quarter, Aber repaid $5.4 million of its $100.0 million senior
secured term facility that was used to finance the acquisition of the
remaining portion of Harry Winston. At July 31, 2007, the Company had
$86.9 million outstanding on its senior secured term credit facilities and
$50.0 million outstanding on its senior secured revolving credit facility. In
comparision, at January 31, 2007, $95.6 million was outstanding on the term
credit facilities and $62.5 million was outstanding on the secured revolving
credit facility.
    As at July 31, 2007, Harry Winston had $151.6 million outstanding on its
$200.0 million secured credit facility, which is used to fund salon inventory
and capital expenditure requirements. This represents an increase of
$39.6 million from the amount outstanding at January 31, 2007.
    Also included in long-term debt of Harry Winston is a 30-year loan
agreement for $14.4 million to finance the construction of a new watch factory
in Geneva, Switzerland. At July 31, 2007, $10.2 million had been drawn against
the facility compared to $2.8 million at January 31, 2007. The bank has a
secured interest in the factory building.
    Harry Winston Japan, K.K. maintains unsecured credit agreements with two
Japanese banks amounting to $12.7 million. At July 31, 2007, $12.6 million had
been drawn against these facilities. A portion of the loans outstanding
amounting to $4.2 million is long term, payable on June 28, 2010, with the
balance of $8.4 million classified as bank advances.
    At July 31, 2007, $32.3 million, $8.4 million and $4.6 million was drawn
under the Company's revolving financing facilities relating to its Belgian
subsidiary, Aber International N.V., its Japanese subsidiary, Harry Winston
Japan, K.K., and its Israeli subsidiary, Aber Diamond Israel 2006 Ltd.,
respectively. At January 31, 2007, $18.5 million, $5.7 million and
$5.6 million was drawn under the Company's revolving financing facilities
relating to Aber International N.V., Harry Winston Japan K.K., and Aber
Diamond Israel 2006 Ltd., respectively.
    During the second quarter, the Company made dividend payments of
$14.6 million or $0.25 per share to its shareholders.

    Investing Activities
    During the quarter, the Company purchased capital assets of
$43.9 million, of which $35.4 million were purchased for the mining segment
and $8.5 million for Harry Winston. Also included in deferred mineral property
costs were purchases of $4.4 million made during the quarter.

    Contractual Obligations
    The Company has contractual payment obligations with respect to long-term
debt and, through its participation in the Joint Venture, future site
restoration costs at the Diavik Mine level. Additionally, at the Joint Venture
level, contractual obligations exist with respect to operating purchase
obligations, as administered by DDMI, the operator of the mine. In order to
maintain its 40% ownership interest in the Diavik Mine, the Company is
obligated to fund 40% of the Joint Venture's total expenditures on a monthly
basis. Aber's currently estimated share of the capital expenditures, which are
not reflected in the table below, including sustaining capital for the
calendar years 2007 to 2011, is approximately $240.3 million at a budgeted
Canadian/US exchange rate of $0.88. Aber's estimated share of future capital
expenditures will be updated later in the year when the new mine plan is
finalized.
    The most significant contractual obligations for the ensuing five-year
period can be summarized as follows:

    
    (expressed in thousands of United States dollars)

    Contractual                   Less than       Year       Year      After
     Obligations           Total     1 Year        2-3        4-5    5 Years
    -------------------------------------------------------------------------

    Long-term
     debt(i)(a)(b)      $311,369   $177,067   $112,991   $  1,311   $ 20,000
    Environmental and
     participation
     agreements
     incremental
     commitments(c)       32,379     12,748      3,750      1,874     14,007
    Operating lease
     obligations(d)      125,667     15,050     29,508     19,323     61,786
    Capital lease
     obligations(e)        1,129        437        692          -          -
    -------------------------------------------------------------------------
    Total contractual
     obligations        $470,544   $205,302   $146,941   $ 22,508   $ 95,793
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i) Excludes deferred financing costs

    (a) Long-term debt presented in the foregoing table includes current and
        long-term portions. The Company may at any time prepay, in whole or
        in part, borrowings under both $100.0 million senior secured term
        credit facilities and the $75.0 million senior secured revolving
        credit facility, in minimum amounts of $5.0 million. On May 31, 2007,
        Aber amended its existing credit facilities to extend the maturity
        date to December 15, 2009 from December 15, 2008. At July 31, 2007,
        $86.9 million in total was outstanding on both $100 million term
        credit facilities, and $50 million was outstanding on the revolving
        credit facility. Scheduled repayments on the senior secured term
        credit facilities commence March 15, 2008 with $12.5 million in
        repayments due every quarter. The maximum amount permitted to be
        drawn under the senior secured revolving credit facility is reduced
        by $12.5 million on a quarterly basis commencing March 15, 2009.

        The Company's first mortgage on real property has scheduled principal
        payments of approximately $0.1 million quarterly, and may be prepaid
        after 2009. On July 31, 2007, $8.5 million was outstanding on the
        mortgage payable.

        At July 31, 2007, $151.6 million had been drawn against Harry
        Winston's $200.0 million secured credit facility. The facility
        expires on March 31, 2008 and consequently has been classified as
        current on the consolidated balance sheet. There are no scheduled
        repayments required before maturity.

        Also included in long-term debt of Harry Winston is a 30-year loan
        agreement for $14.4 million to finance the construction of a new
        watch factory in Geneva, Switzerland, and $10.2 million was drawn as
        of July 31, 2007. The bank has a secured interest in the factory
        building.

    (b) Interest on long-term debt is calculated at various fixed and
        floating rates. On an annualized basis, interest payments are
        estimated to be approximately $22.8 million.

    (c) The Joint Venture, under environmental and other agreements, must
        provide funding for the Environmental Monitoring Advisory Board.
        These agreements also state the Joint Venture must provide security
        deposits for the performance by the Joint Venture of its reclamation
        and abandonment obligations under all environmental laws and
        regulations. The Joint Venture has fulfilled its obligations for the
        security deposits by posting letters of credit of which Aber's share
        as at July 31, 2007 was $57.9 million. The requirement to post
        security for the reclamation and abandonment obligations may be
        reduced to the extent of amounts spent by the Joint Venture on those
        activities. The Joint Venture has also signed participation
        agreements with various native groups. These agreements are expected
        to contribute to the social, economic and cultural well-being of area
        Aboriginal bands. The amounts reflected as contractual obligations in
        the table above represent obligations that are in addition to the
        $57.9 million in letters of credit posted. The actual cash outlay for
        the Joint Venture's obligations under these agreements is not
        anticipated to occur until later in the life of the Diavik Mine.

    (d) Operating lease obligations represent future minimum annual rentals
        under non-cancellable operating leases for Harry Winston salons and
        office space. Harry Winston's New York salon lease expires on
        December 17, 2010 with an option to renew.

    (e) Capital lease obligations represent future minimum annual rentals
        under non-cancellable capital leases for Harry Winston exhibit space.
    

    Outlook

    Forecasted rough diamond production from the Diavik Mine for the current
calendar year is expected to meet or exceed 10 million carats, sourced
substantially from the A-154 South pipe.
    Production for the first half of the calendar year was almost 5.9 million
carats. This is well ahead of the current plan and principally the result of
higher recovery of diamonds per tonne of ore processed. The substantial
increase in diamond recovery is a combination of improvements to the
processing circuit to enhance the recovery of small diamonds as well as, to a
lesser extent, recovery of larger stones that were not anticipated by the
1994/95 large diameter core sampling that formed the basis of the resource
model. Similar improvements in recovered grade are expected for all of the
Diavik reserves and resources but to differing degrees for the various
geological units of the different kimberlite pipes.
    Operating experience has shown that the volume, and therefore tonnage, of
A-154 South mined to date has been on the order of 10% greater than the
resource block model for this pipe. However, it is unknown whether this factor
will persist at depth in A-154 South, or in the other pipes making up the
Diavik resource. The increases in grade will deliver higher annual carat
production from the project mining and processing capacity while the increase
in tonnage will have a positive impact on the mine life.
    Work on the new mine plan is now nearing completion, with the expectation
that underground mining will bring three of the four kimberlite pipes into the
underground production schedule.
    Aber expects to hold two rough diamond sales in the third quarter and
three in the fourth quarter.
    Three new Harry Winston salons are scheduled to open in the next two
fiscal quarters, with the Hong Kong salon scheduled for September 2007,
followed by the Chicago and Nagoya (Japan) salons in November 2007. This will
bring the worldwide network of Harry Winston salons to 18 locations. Harry
Winston is well positioned for the all-important holiday season. New product
collections supported by marketing programs and special events are scheduled
to be introduced in the fall. A new watch factory located in Geneva is
scheduled to be fully operational by the third quarter of fiscal 2008.

    Related Parties

    Transactions with related parties for the three months ended July 31,
2007 include $0.4 million of rent ($0.9 million for the six months ended
July 31, 2007) relating to the New York salon, payable to a Harry Winston
employee.

    Critical Accounting Estimates

    Management is often required to make judgments, assumptions and estimates
in the application of Canadian GAAP that have a significant impact on the
financial results of the Company. Certain policies are more significant than
others and are, therefore, considered critical accounting policies. Accounting
policies are considered critical if they rely on a substantial amount of
judgment (use of estimates) in their application or if they result from a
choice between accounting alternatives and that choice has a material impact
on the Company's reported results or financial position. There have been no
changes to the Company's critical accounting policies or estimates from those
disclosed in the Company's MD&A for its fiscal year ended January 31, 2007.

    Changes in Accounting Policies

    Financial Instruments, Hedges and Comprehensive Income

    On February 1, 2007, the Company adopted new accounting standards issued
by the Canadian Institute of Chartered Accountants ("CICA") on equity,
financial instruments, hedges and comprehensive income that require investment
securities and hedging derivatives to be accounted for at fair value. These
standards are substantially harmonized with US GAAP.
    The adoption of these new accounting standards has not had a material
impact on the financial position of the Company. For a description of new
standards and the impact on the Company's financial statements, please see
note 2 to the consolidated financials statements on page 29 of this report.

    Recently Issued Accounting Standards

    Inventories
    In May 2007, the CICA issued Handbook Section 3031, "Inventories", which
supersedes the previously issued standard on inventory. The new standard
introduces significant changes to the measurement and disclosure of inventory.
The measurement changes include: the elimination of LIFO, the requirement to
measure inventories at the lower cost method for inventories that are not
ordinarily interchangeable or goods and services produced for specific
purposes, the requirement for an entity to use a consistent cost formula for
inventory of a similar nature and use, and the reversal of previous
write-downs to net realizable value when there is a subsequent increase in the
value of inventories. Disclosures of inventories have also been enhanced.
Inventory policies, carrying amounts, amounts recognized as an expense,
write-downs and the reversals of write-downs are required to be disclosed.
This new standard will apply to the Company effective February 1, 2008. The
Company is assessing the impact this standard will have on its consolidated
financial statements.

    Risks and Uncertainties

    Aber is subject to a number of risks and uncertainties as a result of its
operations, including without limitation the following risks:

    Nature of Mining
    The operation of the Diavik Mine is subject to risks inherent in the
mining industry, including variations in grade and other geological
differences, unexpected problems associated with required water retention
dikes, water quality, surface or underground conditions, processing problems,
mechanical equipment performance, accidents, labour disputes, risks relating
to the physical security of the diamonds, force majeure risks and natural
disasters. Such risks could result in personal injury or fatality; damage to
or destruction of mining properties, processing facilities or equipment;
environmental damage; delays or reductions in mining production; monetary
losses; and possible legal liability. Hazards, such as unusual or unexpected
rock formations, rock bursts, pressures, flooding or other conditions, may be
encountered in the drilling and removal of ore.
    The Diavik Mine, because of its remote northern location and access only
by winter road or by air, is subject to special climate and transportation
risks. These risks include the inability to operate or to operate efficiently
during periods of extreme cold, the unavailability of materials and equipment,
and increased transportation costs due to the late opening and/or early
closure of the winter road. Such factors can add to the cost of mine
development, production and operation, thereby affecting the Company's
profitability.

    Nature of Joint Arrangement with DDMI

    Aber owns an undivided 40% interest in the assets, liabilities and
expenses of the Diavik Mine and the Diavik group of mineral claims. The Diavik
Mine and the exploration and development of the Diavik group of mineral claims
is a joint arrangement between DDMI (60%) and Aber Diamond Mines Ltd. (40%),
and is subject to the risks normally associated with the conduct of joint
ventures and similar joint arrangements. These risks include the inability to
exert influence over strategic decisions made in respect of the Diavik Mine
and the Diavik group of mineral claims. By virtue of DDMI's 60% interest in
the Diavik Mine, it has a controlling vote in virtually all Joint Venture
management decisions respecting the development and operation of the Diavik
Mine and the development of the Diavik group of mineral claims. Accordingly,
DDMI is able to determine the timing and scope of future project capital
expenditures, and therefore is able to impose capital expenditure requirements
on the Company that the Company may not have sufficient cash to meet. A
failure by the Company to meet capital expenditure requirements imposed by
DDMI could result in the Company's interest in the Diavik Mine and the Diavik
group of mineral claims being diluted.

    Diamond Prices and Demand for Diamonds

    The profitability of Aber is dependent upon production from the Diavik
Mine and on the results of the operations of Harry Winston. Each in turn is
dependent in significant part upon the worldwide demand for and price of
diamonds. Diamond prices fluctuate and are affected by numerous factors beyond
the control of the Company, including worldwide economic trends, particularly
in the US, Japan, China and India, worldwide levels of diamond discovery and
production and the level of demand for, and discretionary spending on, luxury
goods such as diamonds and jewelry. Low or negative growth in the worldwide
economy or the occurrence of terrorist activities creating disruptions in
economic growth could result in decreased demand for luxury goods such as
diamonds and jewelry, thereby negatively affecting the price of diamonds and
jewelry. Similarly, a substantial increase in the worldwide level of diamond
production could also negatively affect the price of diamonds. In each case,
such developments could materially adversely affect Aber's results of
operations.

    Currency Risk

    Currency fluctuations may affect the Company's financial performance.
Diamonds are sold throughout the world based principally on the US dollar
price, and although the Company reports its financial results in US dollars, a
majority of the costs and expenses of the Diavik Mine, which are borne 40% by
the Company, are incurred in Canadian dollars. Further, the Company has a
significant future income tax liability that has been incurred and will be
payable in Canadian dollars. Aber's currency exposure relates primarily to
expenses and obligations incurred by it in Canadian dollars and, secondarily,
to revenues of Harry Winston in currencies other than the US dollar. The
appreciation of the Canadian dollar against the US dollar, and the
depreciation of such other currencies against the US dollar, therefore, will
increase the expenses of the Diavik Mine and the amount of the Company's
Canadian dollar liabilities relative to the revenue Aber will receive from
diamond sales, and will decrease the US dollar revenues received by Harry
Winston. From time to time, the Company may use a limited number of derivative
financial instruments to manage its foreign currency exposure.

    Licenses and Permits

    The operation of the Diavik Mine and exploration on the Diavik property
require licenses and permits from the Canadian government. The Diavik Mine
Type "A" Water License granted by the Mackenzie Valley Land and Water Board
has been extended to allow sufficient time for approval. While Aber
anticipates that DDMI, which is also the operator of the Diavik Mine, will be
able to renew the license, there can be no guarantee that DDMI will be able to
renew this license or obtain or maintain all other necessary licenses and
permits that may be required to maintain the operation of the Diavik Mine or
to further explore and develop the Diavik property.

    Regulatory and Environmental Risks

    The operation of the Diavik Mine, exploration activities at the Diavik
Project and the manufacturing of jewelry are subject to various laws and
regulations governing the protection of the environment, exploration,
development, production, taxes, labour standards, occupational health, waste
disposal, mine safety, manufacturing safety and other matters. New laws and
regulations, amendments to existing laws and regulations, or more stringent
implementation or changes in enforcement policies under existing laws and
regulations could have a material adverse impact on the Company by increasing
costs and/or causing a reduction in levels of production from the Diavik Mine
and in the manufacture of jewelry. As well, as Aber's international operations
expand, it or its subsidiaries become subject to laws and regulatory regimes
which differ materially to those under which they operate in Canada and the
US.
    Mining and manufacturing are subject to potential risks and liabilities
associated with pollution of the environment and the disposal of waste
products occurring as a result of mining and manufacturing operations. To the
extent that Aber or Harry Winston is subject to uninsured environmental
liabilities, the payment of such liabilities could have a material adverse
effect on the Company.

    Resource and Reserve Estimates

    The Company's figures for mineral resources and ore reserves on the
Diavik group of mineral claims are estimates, and no assurance can be given
that the anticipated carats will be recovered. The estimation of reserves is a
subjective process. Forecasts are based on engineering data, projected future
rates of production and the timing of future expenditures, all of which are
subject to numerous uncertainties and various interpretations. Aber expects
that its estimates of reserves will change to reflect updated information.
Reserve estimates may be revised upward or downward based on the results of
current and future drilling, testing or production levels. In addition, market
fluctuations in the price of diamonds or increases in the costs to recover
diamonds from the Diavik Mine may render the mining of ore reserves
uneconomical.
    Mineral resources that are not mineral reserves do not have demonstrated
economic viability. Due to the uncertainty that may attach to inferred mineral
resources, there is no assurance that mineral resources at the Diavik property
will be upgraded to proven and probable ore reserves.

    Insurance
    Aber's business is subject to a number of risks and hazards generally,
including adverse environmental conditions, industrial accidents, labour
disputes, unusual or unexpected geological conditions, risks relating to the
physical security of diamonds and jewelry held as inventory or in-transit,
changes in the regulatory environment and natural phenomena such as inclement
weather conditions. Such occurrences could result in damage to the Diavik
Mine, personal injury or death, environmental damage to the Diavik property,
delays in mining, closing of Harry Winston manufacturing facilities or salons,
monetary losses and possible legal liability. Although insurance is maintained
to protect against certain risks in connection with the Diavik Mine, Aber's
operations and the operations of Harry Winston, the insurance in place will
not cover all potential risks. It may not be possible to maintain insurance to
cover insurable risks at economically feasible premiums.

    Fuel Costs

    The Diavik Mine's expected fuel needs are purchased annually in late
winter and transported to the mine site by way of the winter road. These costs
will increase if transportation by air freight is required due to a shortened
"winter road season" or unexpectedly high fuel usage.
    The cost of the fuel purchased is based on the then prevailing price and
expensed into operating costs on a usage basis. The Diavik Mine currently has
no hedges for its anticipated 2007 fuel consumption.

    Reliance on Skilled Employees

    Production at the Diavik Mine is dependent upon the efforts of certain
skilled employees of DDMI. The loss of these employees or the inability of
DDMI to attract and retain additional skilled employees may adversely affect
the level of diamond production from the Diavik Mine. Currently, there is
significant competition for skilled workers in remote northern operations due
to the significant number of large-scale construction projects ongoing and
planned in Canada's north, including the various construction projects
relating to the development of the oil sands in Northern Alberta.
    Aber's success at marketing diamonds and in operating the business of
Harry Winston is dependent on the services of key executives and skilled
employees, as well as the continuance of key relationships with certain third
parties, such as diamantaires. The loss of these persons or the Company's
inability to attract and retain additional skilled employees or to establish
and maintain relationships with required third parties may adversely affect
its business and future operations in marketing diamonds and in operating
Harry Winston.

    Expansion of the Existing Salon Network

    A key component of the Company's Harry Winston strategy is the expansion
of its existing salon network. This strategy requires the Company to make
ongoing capital expenditures to build and open new salons, to refurbish
existing salons from time to time, and to incur additional operating expenses
in order to operate the new salons. To date, much of this expansion has been
financed through borrowings by Harry Winston. There can be no assurance that
the expansion of Harry Winston's salon network will prove successful in
increasing annual sales or earnings from the retail segment, and the increased
debt levels resulting from this expansion could negatively impact Aber's
results from operations in the absence of increased sales and earnings.

    Competition in the Luxury Jewelry Segment

    Aber, through its ownership of Harry Winston, is exposed to competition
in the retail diamond market from other luxury goods, diamond and jewelry
retailers. The ability of Harry Winston to successfully compete with such
luxury goods, diamond and jewelry retailers is dependent upon a number of
factors, including the ability of Harry Winston to source high-end polished
diamonds and protect and promote its distinctive brand name and reputation. If
Harry Winston is unable to successfully compete in the luxury jewelry segment,
then Aber's results of operations will be adversely affected.

    Outstanding Share Information

    
    As at July 31, 2007
    -------------------------------------------------------------------------
    Authorized                                                     Unlimited
    -------------------------------------------------------------------------
    Issued and outstanding shares                                 58,372,080
    Options outstanding                                            1,619,338
    Fully diluted                                                 59,991,418
    -------------------------------------------------------------------------
    

    Additional Information

    Additional information relating to the Company, including the Company's
most recently filed annual information form, can be found on SEDAR at
www.sedar.com, and is also available on the Company's website at www.aber.ca.

    

                         Consolidated Balance Sheets
                         ---------------------------
              (expressed in thousands of United States dollars)

                                                       July 31,
                                                          2007    January 31,
                                                    (unaudited)         2007
    -------------------------------------------------------------------------
    Assets

    Current assets:
      Cash and cash equivalents (note 4)          $     51,648  $     54,174
      Cash collateral and cash reserves (note 4)        25,510        51,448
      Accounts receivable                               18,756        13,297
      Inventory and supplies (note 5)                  321,313       273,736
      Advances and prepaid expenses                     35,452        21,275
    -------------------------------------------------------------------------
                                                       452,679       413,930
    Deferred mineral property costs                    184,188       188,058
    Capital assets                                     443,937       384,532
    Intangible assets                                  133,474       134,320
    Goodwill                                            96,575        98,142
    Other assets                                        16,069        18,187
    Future income tax asset                             40,344        50,745
    -------------------------------------------------------------------------

                                                  $  1,367,266  $  1,287,914
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities    $    158,756  $    124,747
      Bank advances                                     45,846        29,776
      Current portion of long-term debt                177,067        95,434
    -------------------------------------------------------------------------
                                                       381,669       249,957
    Long-term debt                                     133,299       185,446
    Future income tax liability                        334,286       333,498
    Other long-term liability                            1,087             -
    Future site restoration costs                       17,617        17,200
    Minority interest                                      199            85

    Shareholders' equity:
      Share capital (note 7)                           305,502       305,165
      Contributed surplus                               15,239        14,922
      Retained earnings (note 3)                       159,752       165,625
      Accumulated other comprehensive income            18,616        16,016
    -------------------------------------------------------------------------
                                                       499,109       501,728
    Commitments and guarantees (note 8)
    -------------------------------------------------------------------------
                                                  $  1,367,266  $  1,287,914
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



                     Consolidated Statements of Earnings
                     -----------------------------------
              (expressed in thousands of United States dollars,
                    except per share amounts) (unaudited)

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Sales             $    173,269  $    139,962  $    314,634  $    259,233
    Cost of sales           81,827        68,458       152,959       132,303
    -------------------------------------------------------------------------
                            91,442        71,504       161,675       126,930
    Selling, general
     and administrative
     expenses               35,201        27,171        69,412        54,466
    -------------------------------------------------------------------------
    Earnings from
     operations             56,241        44,333        92,263        72,464
    -------------------------------------------------------------------------
    Interest and
     financing expenses     (7,222)       (4,805)      (13,354)       (9,139)
    Other income               545         1,805         1,458         3,428
    Foreign exchange
     gain (loss)           (11,785)        2,619       (25,077)          513
    -------------------------------------------------------------------------
    Earnings before
     income taxes           37,779        43,952        55,290        67,266
    Income tax expense
     - Current              25,091         4,676        42,531         7,578
    Income tax expense
     (recovery)
     - Future               (7,344)        5,016       (10,666)        1,078
    -------------------------------------------------------------------------
    Earnings before
     minority interest      20,032        34,260        23,425        58,610
    Minority interest          (26)           (5)          114           466
    -------------------------------------------------------------------------
    Net earnings      $     20,058  $     34,265  $     23,311  $     58,144
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
      Basic           $       0.34  $       0.59  $       0.40  $       1.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Diluted         $       0.33  $       0.58  $       0.39  $       0.98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of shares
     outstanding        58,371,004    58,174,486    58,366,574    58,186,843
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



               Consolidated Statements of Comprehensive Income
               -----------------------------------------------
        (expressed in thousands of United States dollars) (unaudited)

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Net earnings      $     20,058  $     34,265  $     23,311  $     58,144
    Other comprehensive
     income
      Net gain on
       translation of
       net foreign
       operations              609          (211)        2,600           683
    -------------------------------------------------------------------------
    Total comprehensive
     income           $     20,667  $     34,054  $     25,911  $     58,827
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



         Consolidated Statements of Changes in Shareholders' Equity
         ----------------------------------------------------------
        (expressed in thousands of United States dollars) (unaudited)

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
                                                                   (Restated)
                                                                     (note 3)
    -------------------------------------------------------------------------
    Common shares
    Balance at
     beginning of
     period           $    305,208  $    299,725  $    305,165  $    298,985
    Issued during
     the period                294           850           337         1,590
    -------------------------------------------------------------------------
    Balance at end
     of period             305,502       300,575       305,502       300,575
    -------------------------------------------------------------------------
    Contributed surplus
    Balance at
     beginning of
     period                 15,107        17,375        14,922        16,934
    Stock option
     expense                   132           388           317           829
    -------------------------------------------------------------------------
    Balance at end of
     period                 15,239        17,763        15,239        17,763
    -------------------------------------------------------------------------
    Retained earnings
    Balance at
     beginning of
     period                154,285       128,961       165,625       119,630
    Net income              20,058        34,265        23,311        58,144
    Dividends paid         (14,591)      (14,548)      (29,184)      (29,096)
    -------------------------------------------------------------------------
    Balance at end
     of period             159,752       148,678       159,752       148,678
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income
    Balance at
     beginning of
     period                 18,007        17,238        16,016        16,344
    Other comprehensive
     income                    609          (211)        2,600           683
    -------------------------------------------------------------------------
    Balance at end of
     period                 18,616        17,027        18,616        17,027
    -------------------------------------------------------------------------
    Total shareholders'
     equity           $    499,109  $    484,043  $    499,109  $    484,043
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



                    Consolidated Statements of Cash Flows
                    -------------------------------------
        (expressed in thousands of United States dollars) (unaudited)

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    Cash provided by
     (used in):

    Operating:
    Net earnings      $     20,058  $     34,265  $     23,311  $     58,144
    Items not
     involving cash:
      Amortization
       and accretion        20,054        17,926        39,657        31,288
      Future income
       taxes                (7,344)        5,016       (10,538)        1,078
      Stock-based
       compensation
       and other               132           388         1,405           829
      Foreign exchange      11,439        (1,943)       24,901         1,027
    Minority interest          (26)          (31)          114           440
    Change in non-cash
     operating working
     capital               (14,507)      (10,720)      (34,726)      (31,139)
    -------------------------------------------------------------------------
                            29,806        44,901        44,124        61,667
    -------------------------------------------------------------------------
    Financing:
    Net decrease in
     term debt              (5,368)      (10,106)       (8,994)      (10,206)
    Increase (decrease)
     in revolving
     credit                 35,734        (3,384)       54,746        39,260
    Dividends paid         (14,591)      (14,548)      (29,184)      (29,096)
    Issue of common
     shares                    294           850           337         1,590
    Cash advance from
     minority
     shareholder                 -        (1,925)            -          (830)
    -------------------------------------------------------------------------
                            16,069       (29,113)       16,905           718
    -------------------------------------------------------------------------
    Investing:
    Cash collateral and
     cash reserve           13,679       (41,488)       25,938       (53,993)
    Deferred mineral
     property costs         (4,378)       (4,651)       (8,160)       (7,024)
    Capital assets         (43,939)      (27,214)      (81,504)      (49,358)
    Deferred charges
     and other assets          345          (166)         (745)         (265)
    -------------------------------------------------------------------------
                           (34,293)      (73,519)      (64,471)     (110,640)
    -------------------------------------------------------------------------
    Foreign exchange
     effect on cash
     balances                  538          (283)          916         1,299
    Increase (decrease)
     in cash and cash
     equivalents            12,120       (58,014)       (2,526)      (46,956)
    Cash and cash
     equivalents,
     beginning of
     period                 39,528       159,174        54,174       148,116
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period        $     51,648  $    101,160  $     51,648  $    101,160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Change in non-cash
     operating working
     capital:
    Accounts receivable       (993)        2,720        (5,279)        1,323
    Advances and
     prepaid expenses      (15,646)       (2,948)      (14,135)           66
    Inventory and
     supplies               (3,995)       (9,868)      (47,576)      (35,660)
    Accounts payable
     and accrued
     liabilities             6,127          (624)       32,264         3,132
    -------------------------------------------------------------------------
                      $    (14,507) $    (10,720) $    (34,726) $    (31,139)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash
     flow information:
    Cash taxes paid   $      2,305  $      8,143  $      3,041  $      9,863
    Cash interest
     paid             $      5,463  $      5,208  $     11,206  $      8,132
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



                 Notes to Consolidated Financial Statements
                 ------------------------------------------
                   July 31, 2007 with comparative figures
               (tabular amounts in thousands of United States
                     dollars, except as otherwise noted)

      NOTE 1:
      Nature of Operations

      Aber Diamond Corporation (the "Company" or "Aber") is a specialist
      diamond company focusing on the mining and retail segments of the
      diamond industry.

      The Company's most significant asset is a 40% ownership interest in the
      Diavik group of mineral claims. The Diavik Joint Venture (the
      "Joint Venture") is an unincorporated joint arrangement between Diavik
      Diamond Mines Inc. ("DDMI") (60%) and Aber Diamond Mines Ltd. (40%).
      DDMI is the operator of the Diavik Diamond Mine (the "Diavik Mine").
      Both companies are headquartered in Yellowknife, Canada. DDMI is a
      wholly owned subsidiary of Rio Tinto plc of London, England, and Aber
      Diamond Mines Ltd. is a wholly owned subsidiary of Aber Diamond
      Corporation of Toronto, Canada. The Diavik Mine is located
      300 kilometres northeast of Yellowknife in the Northwest Territories.
      Aber records its proportionate interest in the assets, liabilities and
      expenses of the Joint Venture in the Company's financial statements
      with a one-month lag.

      During fiscal 2007, Aber acquired the remaining 47.17% interest in
      Harry Winston Inc. ("Harry Winston") that it did not previously own.
      The results of Harry Winston, located in New York City, US, are
      consolidated in the financial statements of the Company.

      NOTE 2:
      Significant Accounting Policies

      The interim consolidated financial statements are prepared by
      management in accordance with accounting principles generally accepted
      in Canada. The interim consolidated financial statements include the
      accounts of the Company and all of its subsidiaries as well as its
      proportionate interest in the assets, liabilities and expenses of joint
      arrangements. Intercompany transactions and balances have been
      eliminated.

      The interim consolidated financial statements should be read in
      conjunction with the consolidated financial statements and the notes
      thereto in the Company's annual report for the year ended January 31,
      2007, since these interim financial statements do not include all
      disclosures required by Canadian generally accepted accounting
      principles ("GAAP"). Excluding adoption of the new standards for
      financial instruments described below, these statements have been
      prepared following the same accounting policies and methods of
      computation as the consolidated financial statements for the year ended
      January 31, 2007.

      Changes in Accounting Policy
      On February 1, 2007, the Company adopted three new accounting standards
      issued by the Canadian Institute of Chartered Accountants ("CICA") on
      financial instruments, hedges and comprehensive income that require
      investment securities and hedging derivatives to be accounted for at
      fair value. These standards are substantially harmonized with US GAAP.

      Financial Instruments
      This new standard requires the Company to revalue certain of its
      financial assets and liabilities, including derivatives designated in
      qualifying hedging relationships and embedded derivatives in certain
      contracts, at fair value on the initial date of implementation and at
      each subsequent financial reporting date.

      The adoption of this new standard has not had a material impact on the
      financial position of the Company. Under the new standard, the Company
      has elected to add transaction costs related to its non-revolving long-
      term debt to the carrying amount of the debt, which has resulted in the
      following adjustments to the consolidated balance sheet on February 1,
      2007:

                                                      As at February 1, 2007
                                                         Increase/(Decrease)
      -----------------------------------------------------------------------
      Assets
      Other assets                                               $     (859)

      Liabilities and Shareholders' Equity
      Long-term debt                                             $     (859)
      Cumulative translation adjustment                             (16,016)
      Accumulated other comprehensive income                         16,016
      -----------------------------------------------------------------------

      This standard has had no material impact on the consolidated
      statement of earnings. Prior period earnings have not been restated.

      This standard also requires the Company to classify financial assets
      and liabilities according to their characteristics and management's
      choices and intentions related thereto for the purposes of ongoing
      measurement. Subsequent measurement for these assets and liabilities
      is based on either fair value or amortized cost using the effective
      interest method, depending upon their classification. In accordance
      with the new standard, the Company's financial assets and liabilities
      are generally classified and measured as follows:

      Asset/Liability                Category                 Measurement

      Cash and cash equivalents      Held for trading         Fair value
      Cash collateral and
       cash reserves                 Held for trading         Fair value
      Accounts receivable            Loans and receivables    Amortized cost
      Accounts payable and
       accrued liabilities           Held for trading         Fair value
      Bank advances                  Held for trading         Fair value
      Long-term debt                 Other liabilities        Amortized cost

      Hedges
      This new standard contains new rules for reporting fair value and
      cash flow hedges. The Company has no significant hedges and therefore
      this new standard has had no impact on the Company's consolidated
      financial statements.

      Comprehensive Income
      This new standard requires the Company to present a new consolidated
      statement of comprehensive income to detail income items impacting
      accumulated other comprehensive income, which is reported as part of
      shareholders' equity. This statement has been included above in the
      consolidated statement of changes in shareholders' equity.

      Recently Issued Accounting Standards
      Inventories

      In May 2007, the CICA issued Handbook Section 3031, "Inventories",
      which supersedes the previously issued standard on inventory. The new
      standard introduces significant changes to the measurement and
      disclosure of inventory. The measurement changes include: the
      elimination of LIFO, the requirement to measure inventories at the
      lower cost method for inventories that are not ordinarily
      interchangeable or goods and services produced for specific purposes,
      the requirement for an entity to use a consistent cost formula for
      inventory of a similar nature and use, and the reversal of previous
      write-downs to net realizable value when there is a subsequent
      increase in the value of inventories. Disclosures of inventories have
      also been enhanced. Inventory policies, carrying amounts, amounts
      recognized as an expense, write-downs and the reversals of write-
      downs are required to be disclosed. This new standard will apply to
      the Company effective February 1, 2008. The Company is assessing the
      impact this standard will have on its consolidated financial
      statements.

      NOTE 3:
      Restatement

      The Company has determined that the $7.0 million received from Tiffany
      in fiscal 2005 to remove certain restrictions on the resale of Aber
      shares owned by Tiffany should be treated as a capital transaction
      rather than included in other income. The impact of this correction is
      to reduce fiscal 2005 other income by $7.0 million, or $0.12 per share
      (basic and fully diluted), and to create contributed surplus of
      $7.0 million. Accordingly, other income, net income and earnings per
      share for the year ended January 31, 2005 are restated to $2.6 million,
      $46.1 million, $0.80 basic earnings per share and $0.78 fully diluted
      earnings per share, respectively. Originally this amount was classified
      as an operating activity rather than a financing activity in the
      consolidated statement of cash flows. Accordingly, cash provided by
      operating activities in fiscal 2005 would decrease to $143.4 million
      and cash used in financing activities would decrease to $54.0 million.
      Retained earnings at the beginning of fiscal 2006 have been restated to
      reflect the above.

      NOTE 4:
      Cash Resources

                                                       July 31,   January 31,
                                                          2007          2007
      -----------------------------------------------------------------------
      Diavik Joint Venture                        $     13,756  $     30,776
      Cash and cash equivalents                         37,892        23,398
      -----------------------------------------------------------------------
      Total cash and cash equivalents                   51,648        54,174
      Cash collateral and cash reserves                 25,510        51,448
      -----------------------------------------------------------------------
      Total cash resources                        $     77,158  $    105,622
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------

      NOTE 5:
      Inventory and Supplies

                                                       July 31,   January 31,
                                                          2007          2007
      -----------------------------------------------------------------------
      Rough diamond inventory                     $     17,833  $     17,648
      Merchandise inventory                            258,472       228,157
      Supplies inventory                                45,008        27,931
      -----------------------------------------------------------------------
      Total inventory and supplies                $    321,313  $    273,736
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------

      NOTE 6:
      Diavik Joint Venture

      The following represents Aber's 40% proportionate interest in the
      Joint Venture as at June 30, 2007 and December 31, 2006, which is
      reflected in the Company's consolidated financial statements as
      follows:

                                                       July 31,   January 31,
                                                          2007          2007
      -----------------------------------------------------------------------
      Current assets                              $     80,364  $     66,037
      Long-term assets                                 519,445       477,753
      Current liabilities                               26,346        35,671
      Long-term liabilities and participant's
       account                                         573,463       508,119
      -----------------------------------------------------------------------

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
                           July 31,      July 31,      July 31,      July 31,
                              2007          2006          2007          2006
      -----------------------------------------------------------------------
      Net expense           47,609        47,161        87,710        80,918
      Cash flows
       resulting from
       operating
       activities          (39,941)      (44,408)      (83,983)      (51,119)
      Cash flows
       resulting from
       financing
       activities           79,454        49,974       143,726       102,043
      Cash flows
       resulting from
       investing
       activities          (38,191)      (20,309)      (67,813)      (38,721)
      -----------------------------------------------------------------------

      The Company is contingently liable for the other participant's
      portion of the liabilities of the Joint Venture and to the extent the
      Company's participating interest has increased because of the failure
      of the other participant to make a cash contribution when required,
      the Company would have access to an increased portion of the assets
      of the Joint Venture to settle these liabilities.

      NOTE 7:

      Share Capital

      (a) Authorized
          Unlimited common shares without par value.

      (b) Issued
                                              Number of Shares        Amount
          -------------------------------------------------------------------
          Balance, January 31, 2007                 58,360,755  $    305,165
          Shares issued for:
            Exercise of options                         11,325           337
          -------------------------------------------------------------------
          Balance, July 31, 2007                    58,372,080  $    305,502
          -------------------------------------------------------------------
          -------------------------------------------------------------------

      (c) RSU and DSU Plans
                                                             Number of Units
          -------------------------------------------------------------------
          Balance, January 31, 2007                                  233,539

          Net awards during the period                                13,391
          Payouts during the period                                  (52,548)
          -------------------------------------------------------------------
          Balance, July 31, 2007                                     194,382
          -------------------------------------------------------------------
          -------------------------------------------------------------------

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
          Expense for      July 31,      July 31,      July 31,      July 31,
          the period:         2007          2006          2007          2006
          -------------------------------------------------------------------
          RSU         $        295  $        139  $        460  $        525
          DSU                   76          (173)            3           (37)
          -------------------------------------------------------------------
                      $        371  $        (34) $        463  $        488
          -------------------------------------------------------------------
          -------------------------------------------------------------------

          During the second quarter, the Company granted 757 Restricted Share
          Units ("RSUs") and 758 Deferred Share Units ("DSUs") under an
          employee and director incentive compensation program, respectively.
          The RSU and DSU Plans are full value phantom shares that mirror the
          value of Aber's publicly traded common shares. In addition, 52,548
          RSUs vested during the second quarter, resulting in a payout of
          $2.1 million.

          Grants under the RSU Plan are primarily on a discretionary basis to
          employees of the Company subject to Board of Director approval.
          Each RSU grant vests on the third anniversary of the grant date,
          subject to special rules for death and disability. The Company
          settles its obligations under the RSU and DSU plans in cash in
          accordance with the terms of the respective plans.

          Only non-executive directors of the Company are eligible for grants
          under the DSU Plan. Each DSU grant vests immediately on the grant
          date.

          The expenses related to the RSUs and DSUs are accrued based on the
          price of Aber's common shares at the end of the period and on the
          probability of vesting. This expense is recognized on a straight-
          line basis over the term of the grant.

      NOTE 8:

      Commitments and Guarantees

      (a) Environmental Agreement

          Through negotiations of environmental and other agreements, the
          Joint Venture must provide funding for the Environmental Monitoring
          Advisory Board. Aber's share of this funding requirement was
          $0.2 million for calendar 2007. Further funding will be required in
          future years; however, specific amounts have not yet been
          determined. These agreements also state the Joint Venture must
          provide security deposits for the performance by the Joint Venture
          of its reclamation and abandonment obligations under all
          environmental laws and regulations. Aber's share of the Joint
          Venture's letters of credit outstanding with respect to the
          environmental agreements as at July 31, 2007 was $57.9 million. The
          agreement specifically provides that these funding requirements
          will be reduced by amounts incurred by the Joint Venture on
          reclamation and abandonment activities.

      (b) Participation Agreements

          The Joint Venture has signed participation agreements with various
          native groups. These agreements are expected to contribute to the
          social, economic and cultural well-being of the Aboriginal bands.
          The agreements are each for an initial term of twelve years and
          shall be automatically renewed on terms to be agreed for successive
          periods of six years thereafter until termination. The agreements
          terminate in the event the mine permanently ceases to operate.

      (c) Commitments Commitments include the cumulative maximum funding
          commitments secured by letters of credit of the Joint Venture's
          environmental and participation agreements at Aber's 40% share,
          before any reduction of future reclamation activities, and future
          minimum annual rentals under non-cancellable operating and capital
          leases for retail salons and corporate office space, and are as
          follows:

          2008                                                  $     74,725
          2009                                                        87,664
          2010                                                        88,381
          2011                                                        86,252
          2012                                                        85,665
          Thereafter                                                 153,402
          ------------------------------------------------------------------

      NOTE 9:
      Employee Benefit Plans

                      Three Months  Three Months    Six Months    Six Months
                             Ended         Ended         Ended         Ended
      Expense for          July 31,      July 31,      July 31,      July 31,
      the period:             2007          2006          2007          2006
      -----------------------------------------------------------------------
      Defined benefit
       pension plan at
       Harry Winston  $          6  $         30  $         12  $         60
      Defined
       contribution
       plan at Harry
       Winston                 390            90           600           180
      Defined
       contribution
       plan at the
       Diavik Mine             238           186           401           364
      -----------------------------------------------------------------------
                      $        634  $        306  $      1,013  $        604
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------

      NOTE 10:

      Related Parties

      Transactions with related parties for the six months ended July 31,
      2007 include $0.9 million ($0.9 million for the six months ended
      July 31, 2006) of rent relating to the New York salon, payable to a
      Harry Winston employee.

      NOTE 11:

      Segmented Information

      The Company operates in two segments within the
      diamond industry, mining and retail, for the three months ended
      July 31, 2007.

      The mining segment consists of the Company's rough diamond business.
      This business includes the 40% interest in the Diavik group of mineral
      claims and the sale of rough diamonds in the market-place.

      The retail segment consists of the Company's ownership in Harry
      Winston. This segment consists of the marketing of fine jewelry and
      watches on a worldwide basis.

      For the three months
      ended July 31, 2007                 Mining        Retail         Total
      -----------------------------------------------------------------------
      Sales
        Canada                       $   105,071   $         -   $   105,071
        United States                          -        22,162        22,162
        Europe                                 -        21,248        21,248
        Asia                                   -        24,788        24,788
      Cost of sales                       46,217        35,610        81,827
      -----------------------------------------------------------------------
                                          58,854        32,588        91,442
      Selling, general and
       administrative expenses             5,861        29,340        35,201
      -----------------------------------------------------------------------
      Earnings from operations            52,993         3,248        56,241
      -----------------------------------------------------------------------
      Interest and financing expenses     (3,982)       (3,240)       (7,222)
      Other income                           356           189           545
      Foreign exchange gain (loss)       (11,985)          200       (11,785)
      -----------------------------------------------------------------------
      Segmented earnings before
       income taxes                  $    37,382   $       397   $    37,779
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------
      Segmented assets as at
       July 31, 2007
        Canada                       $   761,976   $         -   $   761,976
        United States                          -       470,233       470,233
        Other foreign countries            8,284       126,773       135,057
      -----------------------------------------------------------------------
                                     $   770,260   $   597,006   $ 1,367,266
      -----------------------------------------------------------------------
      Goodwill as at July 31, 2007   $         -   $    96,575   $    96,575
      Capital expenditures           $    35,383   $     8,556   $    43,939
      Other significant non-cash
       items:
        Income tax recovery - Future $    (7,122)  $      (222)  $    (7,344)
        Amortization and accretion   $    17,969   $     2,086   $    20,054
      -----------------------------------------------------------------------



      For the three months
      ended July 31, 2006                 Mining        Retail         Total
      -----------------------------------------------------------------------
      Sales
        Canada                       $    91,476   $         -   $    91,476
        United States                          -        18,185        18,185
        Europe                                 -        14,776        14,776
        Asia                                   -        15,525        15,525
      Cost of sales                       43,256        25,202        68,458
      -----------------------------------------------------------------------
                                          48,220        23,284        71,504
      Selling, general and
       administrative expenses             4,373        22,798        27,171
      -----------------------------------------------------------------------
      Earnings from operations            43,847           486        44,333
      -----------------------------------------------------------------------
      Interest and financing expenses     (2,714)       (2,091)       (4,805)
      Other income                         1,772            33         1,805
      Foreign exchange gain                2,489           130         2,619
      -----------------------------------------------------------------------
      Segmented earnings (loss)
       before income taxes           $    45,394   $    (1,442)  $    43,952
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------
      Segmented assets as at
       July 31, 2006
        Canada                       $   743,288   $         -   $   743,288
        United States                          -       278,501       278,501
        Other foreign countries           20,383        73,427        93,810
      -----------------------------------------------------------------------
                                     $   763,671   $   351,928   $ 1,115,599
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------
      Goodwill as at July 31, 2006   $         -   $    41,966   $    41,966
      Capital expenditures           $    20,883   $     6,331   $    27,214
      Other significant non-cash
       items:
        Income tax expense
         (recovery) - Future         $     6,513   $    (1,497)  $     5,016
        Amortization and accretion   $    16,675   $     1,251   $    17,926
      -----------------------------------------------------------------------

      Sales to one customer in the mining segment totalled $8.1 million for
      the three months ended July 31, 2007 ($5.7 million for the three
      months ended July 31, 2006).


    For the six months ended
     July 31, 2007                        Mining        Retail         Total
    -------------------------------------------------------------------------
    Sales
      Canada                         $   187,823   $         -   $   187,823
      United States                            -        46,503        46,503
      Europe                                   -        43,595        43,595
      Asia                                     -        36,713        36,713
    Cost of sales                         86,733        66,226       152,959
    -------------------------------------------------------------------------
                                         101,090        60,585       161,675
    Selling, general and
     administrative expenses              10,948        58,464        69,412
    -------------------------------------------------------------------------
    Earnings from operations              90,142         2,121        92,263
    -------------------------------------------------------------------------
    Interest and financing expenses       (7,657)       (5,697)      (13,354)
    Other income                           1,122           336         1,458
    Foreign exchange gain (loss)         (25,296)          219       (25,077)
    -------------------------------------------------------------------------
    Segmented earnings (loss) before
     income taxes                    $    58,311   $    (3,021)  $    55,290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented assets as at
     July 31, 2007
      Canada                         $   761,976   $         -   $   761,976
      United States                            -       470,233       470,233
      Other foreign countries              8,284       126,773       135,057
    -------------------------------------------------------------------------
                                     $   770,260   $   597,006   $ 1,367,266
    -------------------------------------------------------------------------
    Goodwill as at July 31, 2007     $         -   $    96,575   $    96,575
    Capital expenditures             $    72,948   $     8,556   $    81,504
    Other significant non-cash items:
      Income tax recovery - Future   $    (9,805)  $      (861)  $   (10,666)
      Amortization and accretion     $    35,659   $     3,998   $    39,657
    -------------------------------------------------------------------------



    For the six months ended
     July 31, 2006                        Mining        Retail         Total
    -------------------------------------------------------------------------
    Sales
      Canada                         $   160,784   $         -   $   160,784
      United States                            -        39,333        39,333
      Europe                                   -        31,235        31,235
      Asia                                     -        27,881        27,881
    Cost of sales                         82,005        50,298       132,303
    -------------------------------------------------------------------------
                                          78,779        48,151       126,930
    Selling, general and
     administrative expenses               9,160        45,306        54,466
    -------------------------------------------------------------------------
    Earnings from operations              69,619         2,845        72,464
    -------------------------------------------------------------------------
    Interest and financing expenses       (5,511)       (3,628)       (9,139)
    Other income                           3,375            53         3,428
    Foreign exchange gain                    242           271           513
    -------------------------------------------------------------------------
    Segmented earnings (loss) before
     income taxes                    $    67,725   $      (459)  $    67,266
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented assets as at
     July 31, 2006
      Canada                         $   743,288   $         -   $   743,288
      United States                            -       278,501       278,501
      Other foreign countries             20,383        73,427        93,810
    -------------------------------------------------------------------------
                                     $   763,671   $   351,928   $ 1,115,599
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill as at July 31, 2006     $         -   $    41,966   $    41,966
    Capital expenditures             $    40,341   $     9,017   $    49,358
    Other significant non-cash items:
      Income tax expense (recovery)
       - Future                      $     2,678   $    (1,600)  $     1,078
      Amortization and accretion     $    28,836   $     2,452   $    31,288
    -------------------------------------------------------------------------
    

    Sales to one customer in the mining segment totalled $12.7 million for
the six months ended July 31, 2007 ($14.2 million for the six months ended
July 31, 2006).

    %SEDAR: 00003786E




For further information:

For further information: Robert A. Gannicott, Chairman and Chief
Executive Officer, (416) 362-2237; Nancy Murray, Vice President of Investor
Relations and Corporate Communication, (212) 245-2000, or
nmurray@harrywinston.com

Organization Profile

Dominion Diamond Corporation

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890