Star Diamond : 2023 Fourth Quarter Report

Management's Discussion & Analysis

For the Years Ended December 31, 2023 and 2022

March 25, 2024

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

The following discussion and analysis is prepared by Management as of March 25, 2024 and should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2023 and 2022 available on SEDAR+ atwww.sedarplus.ca.Star Diamond Corporation ("Star Diamond", or "the Company") prepared its financial statements for the years ended December 31, 2023 and 2022, in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"). All currency amounts are quoted in Canadian Dollars, unless otherwise stated.

Corporate Information

The Company was incorporated on April 29, 1985 under the Canada Business Corporations Act and is listed on the Toronto Stock Exchange under the symbol "DIAM". The Company has its head office at 600, 224 - 4th Avenue South, Saskatoon, Saskatchewan, S7K 5M5 and its registered office at 4500, 855 - 2nd Street SW, Calgary, Alberta, T2P 4K7.

Star Diamond is a Canadian natural resource company focused on exploring and developing Saskatchewan's diamond resources. Star Diamond currently holds, through a joint venture arrangement with Rio Tinto Exploration Canada Inc. ("RTEC", a wholly-owned subsidiary of Rio Tinto plc, "Rio Tinto"), a 25% interest in certain Fort à la Corne kimberlite properties (which includes the Star - Orion South Diamond Project, or the "Project"). These properties are located in central Saskatchewan, in close proximity to established infrastructure, including paved highways and the electrical power grid, which provide significant advantages for future mine development.

Corporate Developments

On November 28, 2023, the Company entered into a binding agreement (the "Agreement") with RTEC, providing for the transfer by RTEC to Star Diamond all of RTEC's 75% interest in the Project.

The Agreement provides that, upon closing:

• • RTEC will transfer to Star Diamond all of RTEC's 75% interest in the Project, such that the Project will be 100% owned by Star Diamond;

• • RTEC will transfer to Star Diamond ownership of the trench cutter drill rig used by RTEC to complete its prior bulk sampling program at the Project;

• • RTEC will transfer to Star Diamond the Bulk Sample Plant located at the Project, including the TOMRA XRT diamond sorting machine that is on-site;

• • Star Diamond will issue to RTEC and/or an affiliate that number of common shares of Star Diamond that results in RTEC and its affiliates owning 19.9% of the then outstanding common shares of Star Diamond (RTEC and its affiliates currently own approximately 2.3% of Star Diamond's outstanding common shares); and

• • RTEC and Star Diamond will enter into an Investor Rights Agreement whereby, among other things, RTEC will be granted certain pre-emptive rights to maintain its 19.9% ownership interest in Star Diamond in connection with future financings undertaken by Star Diamond, and RTEC will agree to certain standstill protections provided that RTEC will have the right to increase its 19.9% ownership position in the event that Star Diamond receives an acquisition proposal.

Upon completion of the transactions that are the subject of the Agreement, Star Diamond will have full control and responsibility for the Project, the existing joint venture agreement between RTEC and Star Diamond will terminate, and Star Diamond will release and indemnify RTEC for liabilities arising from or relating to the Project, all in exchange for a $4 million payment from RTEC to Star Diamond. RTEC has agreed that it will

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

provide on Star Diamond's behalf, for up to five years following closing, letters of credit in the aggregate amount of no more than $9.9 million to secure certain environmental remediation and reclamation obligations related to the Project. Star Diamond will be obliged to repay any amounts drawn on these letters of credit and such repayment obligations will be secured against the Project and its assets.

As of the date of this Management's Discussion & Analysis, the Agreement is expected to close in the near future.

On December 29, 2023, the Company closed the first of two tranches of a non-brokered private placement (the "Offering") for gross proceeds of $324,140. These proceeds are from the issuance of 2023 "flow-through" units of the Company ("FT Units"). Pursuant to the closing of the first tranche of the Offering, the Company issued 2,946,728 FT Units at a price of $0.11 per FT Unit for gross proceeds of $324,140, with each FT Unit consisting of one common share of the Company (a "FT Share") and one share purchase warrant (a "Warrant"), each of which will qualify as a "flow-through share" for the purposes of the Income Tax Act (Canada). Each Warrant will entitle the holder thereof to acquire one additional common share of the Company (which shall not be a "flow-through share") at an exercise price of $0.14 for a period of 36 months from the date of issuance.

On January 26, 2024, the Company closed the second and final tranche of the Offering for gross proceeds of $785,901 bringing the total proceeds raised to $1,110,041. Pursuant to the closing of the second tranche, the Company issued: i) 8,548,905 units of the Company ("Units") at a price of $0.09 per Unit for gross proceeds of $769,401, with each Unit consisting of one common share of the Company (which is not a "flow-through share") and one share purchase warrant (a "Warrant"); and ii) 150,000 "flow-through" units ("FT Units") at price of $0.11 per FT Unit for gross proceeds $16,500, with each FT Unit consisting of one common share of the Company and one Warrant, each of which will qualify as a "flow-through share" for the purposes of the Income Tax Act (Canada). Each Warrant will entitle the holder thereof to acquire one additional common share of the Company (which shall not be a "flow-through share") at an exercise price of $0.14 for a period of 36 months from the date of issuance.

Effective March 1, 2024, the Board of Directors appointed Ewan Mason to the position of President and Chief Executive Officer. Mr. Mason had served as Interim President and Chief Executive Officer since January 1, 2023.

Fort à la Corne mineral properties

The Company currently holds a 25% interest in certain Fort à la Corne ("FALC") kimberlites (see November 28, 2023 news release: Star Diamond Corporation to acquire Rio Tinto's 75% interest in Fort à La Corne Diamond Project) including the Star and Orion South Kimberlites. The FALC mineral properties are located in the Fort à la Corne Provincial Forest, 60 km east of Prince Albert, Saskatchewan (see Figure 1). Highway 55, located to the north of the Project, connects Prince Albert with several towns located directly north of FALC to the town of Nipawin, east of FALC. Highway 6 runs north-south and is located to the east of FALC.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Figure 1: Location Map of the Star-Orion South Diamond Project.

Recent activities relating to the Star - Orion South Diamond Project and Fort à la Corne mineral properties

In February 2024, Mr. Nelson Karun joined the Star Diamond Corporation technical team as a Diamond Specialist. Mr. Karun will be responsible for providing the Company with detailed diamond sorting and valuation information. Since 2021, Nelson has participated in detailed diamond breakage and sorting exercises of diamonds from the Star and Orion South Kimberlites. Consequently, he has already developed an intimate knowledge of the true character of our Star and Orion South diamond evaluation parcels. His first task is to complete a detailed valuation exercise on the Star and Orion South diamond parcels, as this will be an integral part of our planned revised Mineral Resource estimate for these kimberlites.

In addition, during the first quarter of 2024, Star Diamond continued to work with RTEC and the Saskatchewan Ministry of Environment representatives to ensure an orderly close to the Agreement between Star Diamond and RTEC (see "Corporate Developments").

Buffalo Hills mineral properties

The Company holds a 50% interest in the exploration and evaluation properties and assets of the Buffalo Hills-JV located in north-central Alberta, Canada. Canterra Minerals Corporation ("Canterra") holds the remaining 50% interest and is the operator of the Buffalo Hills-JV.

Recent activities relating to the Buffalo Hills mineral properties

On February 21, 2023, the Company announced the completion of the diamond valuation from the K6, K14, K91 and K252 kimberlites of the Buffalo Hills-JV.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Diamond valuations and characterizations as shown in the table below were completed by Mr. Nelson Karun, Diamond Specialist, Saskatchewan Research Council ("SRC") Diamond Services, on behalf of Star Diamond.

*Very speculative due to the small sample size

As observed by Mr. Karun, diamonds from these kimberlite bodies exhibit good quality, colour and very low to no fluorescence. All the parcels of diamonds appear to be statistically very similar in terms of their graded characteristics. There is an inadequate sample size for K91 to model the average diamond price. Extremely speculative model prices are given for samples K6 and K252, due to the small parcel size. K14 is a larger parcel size, and a price can be modeled, but should still be used with caution.

The diamond valuation exercise has shown that kimberlites K14 and K6 have elevated modelled diamond prices, US$ 160 per carat and US$ 180 per carat, respectively. The K6 parcel includes three fancy yellow stones, the K14 four fancy yellow and the K252 a fancy orange stone. The two highest value stones, which are both from the K6, are 1.06 carats (US$ 532) and 1.07 carats (US$ 506).

These four kimberlites have diamond parcels with sufficient diamonds to conduct preliminary diamond typing studies. The number and the percentage of Type IIa diamonds for the Buffalo Hills kimberlites studied are documented in the table below and shows that these kimberlites have an anomalously high percentage of Type IIA diamonds.

The diamond typing exercise has shown presence of Type IIa diamonds, in elevated proportions, in all four of these Buffalo Hills kimberlites. The diamonds analyzed represent a spectrum of diamond sizes from +3 DTC (+0.026 carats) to 5 grainer (1.2 carats).

Type IIa diamonds are very rare and generally account for less than 2 percent of all natural rough diamonds mined world-wide from kimberlite deposits. Only a small number of active diamond mines regularly produce Type IIa diamonds with the most important of these mines being Cullinan Diamond Mine in South Africa, Letseng Diamond Mine in the Kingdom of Lesotho and, more recently, Karowe Diamond Mine in Botswana.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Executive Management and Board of Directors Changes

Effective March 1, 2024, the Board of Directors appointed Ewan Mason to the position of President and Chief Executive Officer. Mr. Mason had served as Interim President and Chief Executive Officer since January 1, 2023.

Effective August 1, 2023, the Company announced the appointment of George Read to Senior Vice President Corporate Development and Mark Shimell to Vice President Exploration.

On March 3, 2023 the Company announced the appointment of Marilyn Spink to the Board.

On December 28, 2022, the Company announced the resignation of Greg Shyluk as Chief Financial Officer, effective January 19, 2023. On February 9, 2023, Richard Johnson was appointed as his replacement.

Effective January 1, 2023, Lisa Riley was appointed the lead independent director of the Board as Mr. Mason stepped into an executive role.

Outlook

Fort à la Corne mineral properties

Subsequent to the successful close of the Agreement with RTEC (see "Corporate Developments"), Star Diamond's technical team will focus on the technical investigation and evaluation of the Star - Orion South Diamond Project, with the goal of a future development decision. The initial work aims to prepare a revised Mineral Resource estimate for the Star - Orion South Diamond Project, which will form the foundation of an updated Prefeasibility study ("PFS"). The PFS will enable a Feasibility Study, on which a production decision can be based.

Highlights

• • The revised Mineral Resource estimate for the Star and Orion South kimberlites will integrate Star trench cutter diamond data, adding improvement to the diamond size frequency curves for both kimberlites.

• • The mitigation of risk in the Orion South diamond price estimate: the 2018 Preliminary Economic Assessment ("PEA") demonstrated that it is economically efficient to mine the Orion South kimberlite first. However, Orion South has a significantly smaller evaluation diamond parcel than Star, adding some risk to the diamond price estimate for Orion South. We believe there is an opportunity to mitigate the risk in the Orion South diamond price estimate, without the necessity of additional bulk sampling to obtain a larger diamond evaluation parcel.

• • The scoping of an updated PFS is expected to commence in 2024.

• • These developments will likely give rise to the ability to complete the updated PFS within a two-year time frame and the Feasibility Study shortly thereafter. We anticipate these major studies will be completed at a substantially lower expenditure level than was previously contemplated.

Revised Mineral Resource Estimate

The goal of the revised mineral resource estimate is to integrate all of the drilling and diamond results recently generated by the Fort à la Corne Joint Venture, with archival data used to build the geological model, which forms the basis of the mineral resource estimate. Importantly, the diamond parcels recovered from the ten Trench Cutter ("TC") holes drilled on the Star kimberlite were recovered in an efficient, modern Bulk Sampling Plant ("BSP") that ensures excellent diamond liberation and recovery. The BSP includes High Pressure Grinding

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Rolls that ensure liberation of the small diamonds (1-6 millimetre) locked in kimberlite, that are subsequently recovered by an efficient Dense Media Separator that operates in the same narrow 1 to 6 millimetre size range. The small diamonds (+1, +3 and +5 DTC) from the Early Joli Fou ("EJF") kimberlite unit of both Star and Orion South include significant proportions of D coloured octahedral diamonds, which have significant value (US$30 -US$50 per carat), which is unusually high for these small diamonds. The integration of the TC diamond data in the evaluation parcel aims to strengthen the diamond grade and price used in the Mineral Resource estimate. The aim of this work is to prepare a rigorously constrained Mineral Resource estimate by the end of Q2 2024. This revised Mineral Resource estimate will provide an improved foundation for the revised PFS.

Orion South Diamond Price

Orion South has shallower overburden (Orion South 100 metres, Star 140 metres) and higher diamond grade (Orion South 17 cpht, Star 10 cpht) kimberlite in direct contact with overburden, both of which ensure more rapid access to cash flow after overburden removal in a future mine. Consequently, the PEA demonstrated that it is economically efficient to mine Orion South first. However, there is a significant difference in the size of the evaluation diamond parcels recovered from the EJF, the principal economic unit in both Star and Orion South. The Orion South evaluation parcel includes only 1,399 carats, as opposed to the Star EJF parcel of 7,122 carats. In order to commence mining on Orion South, the risk associated with the estimation of diamond price on a smaller evaluation parcel needs to be mitigated. We believe that the close similarities of the kimberlite geology and diamond parcel characteristics for Star and Orion South can enable better estimation of the Orion South diamond price. We have developed a plan to conduct an in-depth investigation of the extent of similarities between the Star and Orion South EJF diamond populations, with the aim of mitigating the risk in the estimation of the diamond price for the Orion South EJF diamond parcel. The goal of this investigation is to accurately estimate the Orion South diamond price without the requirement of additional bulk sampling, which is both expensive and time consuming. The confidence generated in the Orion South diamond price will add to the precision of the mineral resource estimate.

Updated PFS

The scoping of an updated PFS is scheduled to commence in 2024 with the initial work focused on updating the hydrogeology and geotechnical models, in addition to the management of fines in plant process water. Changes in environmental legislation, since the PEA, require that deep groundwater pumped from the Mannville sediments to stabilize the open pits of a future mine will require a revised method of disposal. Geotechnical work will focus on the engineering of pit slopes, particularly in parts of the overburden, to ensure steeper pit slopes and, consequently, a significant reduction in overburden removal. The processing of some Orion South kimberlite results in plant process water from which the fines do not settle quickly or easily. Investigations will be made into the mechanical separation of the fines and the future of a fines management area, as this will minimize the use of "tailings ponds". Significant parts of the work completed for the 2018 PEA, including the mining method, process plant design, site layout and infrastructure, can be updated and incorporated into the updated PFS.

Buffalo Hills mineral properties

Management continues to review the recent results from the diamond valuation and typing analysis. Discussions are ongoing with Canterra to determine possible work programs and a potential path forward for the asset. A more detailed update on activities at the Buffalo Hills-JV will be provided as it becomes available.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Selected Annual Information

Selected financial information of the Company for each of the last three years is summarized as follows:

For the year ended December 31, 2023, the Company recorded a net loss of $2.8 million or $0.01 per share (basic and fully diluted) compared to a net loss of $68.8 million or $0.15 per share in 2022. The decrease in net loss year over year was due primarily to the prior year's impairment charge of $66.3 million combined with the mark-to-market loss on the Wescan Goldfields Inc. ("Wescan") investment offset by the elimination of the $0.9 million contingent consideration.

Interest and other income

For the years ended December 31, 2023 and 2022, the Company reported interest and other income of $43,000 and $42,000, respectively. The Company invests excess cash reserves in interest bearing short-term deposits while ensuring funds are available for cash outflow requirements associated with the Company's exploration and evaluation projects. Other revenue is measured at the fair value of the consideration received or receivable for goods and services in the normal course of business.

Expenses

Expenses incurred during the year ended December 31, 2023 were $2.9 million compared to $3.0 million in 2022. This result was due to lower administration expenditures partially offset by increased consulting and professional fees and corporate development costs. These amounts also include $0.4 million of share-based payments that were expensed during the year ended December 31, 2023 (2022 - $0.2 million).

Administration, consulting and professional fees and corporate development expenditures were $2.1 million for the current year compared to $2.2 million in 2022. This $0.1 million year over year decrease was primarily due to lower management fees incurred offset by increased accounting and legal fees, marketing costs and share-based compensation costs. Approximately $1.0 million (2022 - $1.4 million) of administration, consulting and professional fees and corporate development expenditures were made up of compensation costs, including share-based payments of $0.4 million (2022 - $0.2 million), incurred by the Company.

Exploration and evaluation expenditures were $0.7 million for the year ended December 31, 2023 compared to $0.8 million for the same period in 2022. Exploration and evaluation expenditures incurred during 2023 and 2022 primarily related to diamond analyses and test work for the Project as well as other costs associated with the Project. Approximately 72%, or $0.5 million (2022 - 59% or $0.4 million), of the exploration and evaluation expenditures were made up of compensation costs, including share-based payments, incurred by the Company.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Impairment charge

During the fourth quarter of 2022, the Company recognized a non-cash after-tax impairment of $66.3 million on its 25% share of the Fort à la Corne asset leaving it fully impaired at December 31, 2022.

Use of flow-through proceeds

(1) During 2023, the Company raised $0.3 million from flow-through financing activities to be used on flow-through eligible exploration and evaluation expenditures. As of December 31, 2023, the Company is committed to incur $0.3 million of qualifying expenditures by December 31, 2024.

Investment in Wescan Goldfields Inc.

At December 31, 2023, the Company held 5.8 million shares or 10.8% (December 31, 2022 - 5.8 million shares or 11.6%) of Wescan, a publicly traded company listed on the TSX Venture exchange. The fair value of this investment, based on the closing trading price at December 31, 2023, was $0.3 million (2022 - $0.2 million).

Financing

During the year ended December 31, 2023, the Company completed the first tranche of a private placement whereby an aggregate of 2,946,728 Flow-through units ("FT Units") were issued for gross proceeds of $0.3 million. Each Unit was comprised of one common share and one common share purchase warrant. Each warrant entitles the holder thereof to purchase one common share at a price of $0.14 for a period of 36 months from the date of issuance. During the year, the Company also issued common shares from treasury as a result of deferred share unit and restricted share unit redemptions.

Summary of Quarterly Results

• (1) Basic and diluted.

• (2) During the fourth quarter of 2023 and second quarter of 2022, the Company completed two separate private placements. Other changes in shares outstanding were due to shares issued from treasury as a result of stock option and warrant exercises and Deferred Share Unit and Restricted Share Unit redemptions.

Fourth quarter results

For the quarter ended December 31, 2023, the Company recorded a net loss of $1.0 million, or $0.00 per share, compared to a net loss of $66.7 million, or $0.14 per share, for the same period in 2022. This decreased loss was due to an impairment charge of $66.3 million in 2022 offset by a quarter over quarter decrease in operating costs and exploration and evaluation expenditures.

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

For the years ended December 31, 2023 and 2022

TSX: DIAM

Expenses incurred during the quarter ended December 31, 2023 were $1.0 million compared to $1.3 million for the same period in 2022.

Exploration and evaluation expenditures incurred during the quarter ended December 31, 2023 were $0.2 million, compared to $0.3 million during the same period in 2022. Exploration and evaluation expenditures incurred during the quarters ended December 31, 2023 and 2022 were primarily related to diamond analyses and test work for the Project as well as other costs associated with the Project.

In addition, administration, consulting and professional fees, and corporate development expenditures for the quarters ended December 31, 2023 were $0.8 million, compared to $1.0 million during the same period in the prior year. The decrease was due to $0.5 million decrease in management fees offset by increases to legal fees, marketing costs and share-based payments incurred in 2023.

Related Party Transactions

Key management personnel are persons responsible for planning, directing, and controlling the activities of an entity, and include executive and non-executive directors. Compensation of key management personnel, and directors, including payments made or payable to related parties owned by executive officers and directors, is as follows:

The amounts disclosed in the table above are the amounts recognized as an expense during the reporting period related to key management personnel, of which $0.1 million is reflected in accounts payable and accrued liabilities at December 31, 2023. The above transactions were in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The fair value of share-based payments in the form of stock options was determined using the Black-Scholes option pricing model. The fair value of share-based payments in the form of RSUs and DSUs was determined based on the five-day volume weighted average trading price of the Company's shares preceding the date of grant.

The compensation paid to key management personnel is included in the Company's statements of loss and comprehensive loss as follows:

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Star Diamond Corp. published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 11:04:04 UTC.