Aber Diamond Corporation's Fiscal 2007 Third Quarter Results

TORONTO, Dec. 14  /PRNewswire-FirstCall/ -- ABER DIAMOND CORPORATION (TSE-ABZ, NASDAQ-ABER) announces its third quarter results for the period ended October 31, 2006.

Aber's Chairman and Chief Executive Officer Robert Gannicott stated, "This period has seen the Company continue its success at both ends of the diamond business as we concluded the purchase of 100 percent of Harry Winston while production at the Diavik Mine once again exceeded previous highs. The next phase of mine development at the Diavik Mine has been approved leading to underground production supplementing open pit ore by the end of 2008. We look forward to a future where multiple working faces at the Diavik Mine provide both security and a smoother annual production profile while growth at Harry Winston cements our position as a leading specialist diamond company."

Thomas O'Neill, President of Aber and Chief Executive Officer of Harry Winston added, "Harry Winston's results this past quarter are encouraging as we head into the all important fourth quarter. We had strong sales in the existing store network in the US, our new stores are performing better than expected, and we have seen strong demand in timepieces. We are pleased that we were able to accelerate the purchase of the minority interest and look forward to realizing the full benefit of a successful growth strategy."

  Third Quarter Highlights

  Financial Highlights
  -------------------------------------------------------------------------
                                    Three      Three       Nine       Nine
                                   months     months     months     months
                                    ended      ended      ended      ended
                                  October    October    October    October
                                 31, 2006   31, 2005   31, 2006   31, 2005
  -------------------------------------------------------------------------
  Sales ($ millions)                145.2      153.5      404.5      379.3
  -------------------------------------------------------------------------
  Earnings from operations
   ($ millions)                      37.1       71.7      109.6      139.2
  -------------------------------------------------------------------------
  Net Earnings ($ millions)          18.8       33.7       77.0       66.3
  -------------------------------------------------------------------------
  Earnings per share ($)             0.32       0.58       1.32       1.14
  -------------------------------------------------------------------------
  Cash Earnings per share ($)(1)     0.84       1.46       2.41       2.90
  -------------------------------------------------------------------------
  (1) Cash earnings per share is not a recognized measure under Canadian
      GAAP and does not have a standardized meaning prescribed by Canadian
      GAAP and is therefore unlikely to be comparable to similar measures
      presented by other issuers. Cash earnings per share is earnings
      before non-cash income tax expense, non-cash foreign exchange gains
      (loss), and depreciation and amortization on a per share basis. See
      "Non-GAAP Performance Measures" in the Company's Management's
      Discussion and Analysis for the three months ended October 31, 2006,
      for a reconciliation of earnings to cash earnings.


  Production Highlights
  (Aber's 40% share of Diavik Mine production)
  -------------------------------------------------------------------------
                                    Three      Three       Nine       Nine
                                   months     months     months     months
                                    ended      ended      ended      ended
                                September  September  September  September
                                 30, 2006   30, 2005   30, 2006   30, 2005
  -------------------------------------------------------------------------
  Diamond recovered (000s carats)   1,132        871      2,934      2,577
  -------------------------------------------------------------------------
  Grade (carats/tonne)               3.92       3.52       4.02       3.73
  -------------------------------------------------------------------------
  Operating costs, cash
   ($ millions)                      26.4       19.3       71.1       55.5
  -------------------------------------------------------------------------
  Operating costs per carat,
   cash ($)                            23         22         24         22
  -------------------------------------------------------------------------



"We are pleased with the continued strong performance of both our mining and retail segments" stated Alice Murphy, Aber's Chief Financial Officer. "Our quarter was highlighted by the acquisition of the remaining ownership of Harry Winston for $157 million, financed by a combination of cash and an expanded credit facility. With current cash balances of $131 million and total working capital of $207 million we have maintained our financial flexibility and remain well positioned to implement our corporate growth strategy."

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 December 29, 2006, will be entitled to receive payment of this dividend on January 15, 2007.

Webcast

Aber will host a webcast today at 9:00 a.m. (EST) to review these results. Interested parties may listen to a broadcast on the Internet at http://www.aber.ca/. A replay of the webcast will be available on the Company's website at http://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 (http://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.

                               Highlights

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



Aber's net earnings for the quarter were $18.8 million with earnings per share of $0.32 (cash earnings per share of $0.84(1)) as compared to net earnings of $33.7 million and earnings per share of $0.58 (cash earnings per share of $1.46(1)) for the corresponding quarter of the prior year, which had three rough diamond sales versus two in the current quarter. During the quarter Aber acquired the balance of Harry Winston for $157.2 million, giving it full 100% ownership. Certain costs attributable to this purchase were charged to income in the quarter.

Increased retail sales from Harry Winston have offset the reduced number of rough diamond sales to the extent that sales for the third quarter ended October 31, 2006 were $145.2 million compared to $153.5 million for the comparable quarter of the prior year. Sales for the retail segment were 32% higher than the comparable quarter of the prior year while revenue from rough diamond sales was 19% lower. Rough diamond sales were impacted by both the higher grade and finer size distribution of rough diamonds.

The mining segment generated earnings from operations of $40.6 million for the current quarter compared to $68.5 million for the comparable quarter of the prior year. The retail segment reported a loss from operations of $3.5 million for the third quarter, principally resulting from stock compensation costs of $6.3 million related to the acquisition of the remaining ownership of Harry Winston. Comparable earnings from operations for the retail segment for the comparable quarter of the prior year were $3.2 million.

Diamond production from the Diavik Mine was the highest ever for the second consecutive quarter, with Aber's share being approximately 1.1 million carats for the three months ended October 31, 2006, a 30% increase over the comparable quarter in the prior year.

The Joint Venture partners have approved the second phase of the underground development program. Full feasibility study approvals are expected in mid-2007. Underground mining is anticipated to begin in late 2008, which brings underground reserves into the production schedule, thereby extending the mine life.

In conjunction with the Harry Winston acquisition, working capital decreased to $207.0 million as of October 31, 2006, compared to $285.7 million at January 31, 2006.

The Company has declared a quarterly dividend of $0.25 per share to be paid on January 15, 2007.

                  Management's Discussion and Analysis
                  ------------------------------------
  (All figures are in United States dollars unless otherwise indicated)
                    Prepared as of December 13, 2006

  INTRODUCTION



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 nine months ended October 31, 2006, and its financial position as at October 31, 2006. 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 nine months ended October 31, 2006 and the audited consolidated financial statements of Aber and notes thereto for the year ended January 31, 2006. Unless otherwise specified, all financial information is presented in United States dollars. All references to "third quarter" refer to the three months ended October 31.

The following MD&A makes reference to certain non-GAAP measures such as cash earnings and cash earnings per share to assist in assessing the Company's financial performance. Non-GAAP measures do not have any standard meaning prescribed by Canadian GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. See "Non- GAAP Performance Measures".

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, estimated production from the Diavik Mine in 2006, timelines and targets for construction, mining development and exploration activities at the Diavik Mine, future mining and processing at the Diavik Mine and the Diavik Mine's water licence renewal, the number of rough diamond sales, projected sales growth and new store openings at Harry Winston, expected diamond prices, gross margin rates from jewelry sales by Harry Winston and expectations concerning the diamond industry.

Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, construction and exploration activities at the Diavik Mine, world economic conditions, the level of worldwide diamond production, the receipt of necessary regulatory permits, the expected sales mix at Harry Winston and potential improvements in sourcing and purchasing polished diamonds. Specifically, in making statements concerning Aber's projected share of the Diavik Mine capital expenditure requirements, Aber has used a Canadian/US dollar exchange rate of $0.89, and has assumed that construction will continue on schedule with respect to current underground mining construction initiatives. In making statements regarding estimated production and future mining and processing activities at the Diavik Mine and future diamond sales, Aber has assumed that mining operations and construction activity will proceed in the ordinary course according to schedule and that the Diavik Mine's water licence will be renewed on expected terms and conditions. With respect to statements concerning sales growth and new store openings at Harry Winston, 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 the sourcing and purchasing of inventory. 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 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, and the risks of competition in the luxury jewelry segment. Please see page 17 of this Interim Report, as well as Aber's annual report available at http://www.sedar.com/ for a 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.

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

  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 increased its ownership of Harry Winston Inc. ("Harry Winston") from 52.83% to 100% effective September 29, 2006.

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% ownership 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


Overall rough diamond prices strengthened slightly during the quarter due to higher demand for polished goods as retailers prepared for the upcoming holiday shopping season. The trend for higher prices on the larger, better- quality, white rough diamonds continued as demand remains undersupplied.

The Retail Jewelry Market

Continuing shortages of better-quality polished goods have allowed prices to remain robust in the medium and larger size ranges. The broader diamond jewelry market continued to show encouraging growth as major jewelry companies posted modest growth in sales over the comparable quarter of the prior year.

Consolidated Financial Results

The following is a summary of the Company's consolidated quarterly results for the eight quarters ended October 31, 2006, 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)

                                                  2007      2007      2007
                                                    Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                                       $145,232  $139,962  $119,271
  Cost of sales                                 74,636    68,458    63,845
  -------------------------------------------------------------------------
                                                70,596    71,504    55,426
  Selling, general and
   administrative expenses                      33,480    27,171    27,295
  -------------------------------------------------------------------------
  Earnings from operations                      37,116    44,333    28,131
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Interest and financing expenses               (5,570)   (4,805)   (4,334)

  Other income                                   1,764     1,805     1,623
  Foreign exchange gain (loss)                  (1,560)    2,619    (2,106)
  -------------------------------------------------------------------------
  Earnings before income taxes                  31,750    43,952    23,314
  Income tax expense (recovery)                 13,005     9,692    (1,036)
  -------------------------------------------------------------------------
  Earnings before minority interest             18,745    34,260    24,350
  Minority interest                                (86)       (5)      471
  -------------------------------------------------------------------------
  Net earnings                                $ 18,831  $ 34,265  $ 23,879
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Basic earnings per share                    $   0.32  $   0.59  $   0.41
  Diluted earnings per share                  $   0.32  $   0.58  $   0.40
  Total assets(i)                             $  1,246  $  1,116  $  1,111
  Total long-term liabilities(i)              $    530  $    460  $    460
  -------------------------------------------------------------------------


                                        2006      2006      2006      2006
                                          Q4        Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                             $125,891  $153,512  $115,699  $110,132
  Cost of sales                       52,782    57,641    53,065    59,119
  -------------------------------------------------------------------------
                                      73,109    95,871    62,634    51,013
  Selling, general and
   administrative expenses            36,654    24,189    22,711    23,394
  -------------------------------------------------------------------------
  Earnings from operations            36,455    71,682    39,923    27,619
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Interest and financing expenses     (4,511)   (3,353)   (3,668)   (3,401)

  Other income                         1,767       795       885       886
  Foreign exchange gain (loss)        (5,392)   (4,184)   (2,263)      496
  -------------------------------------------------------------------------
  Earnings before income taxes        28,319    64,940    34,877    25,600
  Income tax expense (recovery)       10,534    30,775    15,400    12,412
  -------------------------------------------------------------------------
  Earnings before minority interest   17,785    34,165    19,477    13,188
  Minority interest                    2,876       423       457      (394)
  -------------------------------------------------------------------------
  Net earnings                      $ 14,909  $ 33,742  $ 19,020  $ 13,582
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Basic earnings per share          $   0.26  $   0.58  $   0.33  $   0.23
  Diluted earnings per share        $   0.27  $   0.57  $   0.32  $   0.23
  Total assets(i)                   $  1,044  $  1,016  $    928  $    936
  Total long-term liabilities(i)    $    434  $    421  $    378  $    390
  -------------------------------------------------------------------------


                                                            Nine      Nine
                                                          months    months
                                                           ended     ended
                                                  2005   Oct. 31,  Oct. 31,
                                                    Q4      2006      2005
  -------------------------------------------------------------------------
  Sales                                       $144,581  $404,465  $379,343
  Cost of sales                                 77,730   206,939   169,825
  -------------------------------------------------------------------------
                                                66,851   197,526   209,518
  Selling, general and
   administrative expenses                      27,500    87,944    70,294
  -------------------------------------------------------------------------
  Earnings from operations                      39,351   109,582   139,224
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Interest and financing expenses               (5,138)  (14,709)  (10,422)

  Other income                                   8,102     5,191     2,566
  Foreign exchange gain (loss)                   2,837    (1,049)   (5,951)
  -------------------------------------------------------------------------
  Earnings before income taxes                  45,152    99,015   125,417
  Income tax expense (recovery)                 13,755    21,662    58,587
  -------------------------------------------------------------------------
  Earnings before minority interest             31,397    77,353    66,830
  Minority interest                              1,865       379       486
  -------------------------------------------------------------------------
  Net earnings                                $ 29,532  $ 76,974  $ 66,344
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Basic earnings per share                    $   0.51  $   1.32  $   1.14
  Diluted earnings per share                  $   0.50  $   1.30  $   1.12
  Total assets(i)                             $    897  $  1,246  $  1,016
  Total long-term liabilities(i)              $    312  $    530  $    421
  -------------------------------------------------------------------------
  (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 during each quarter. The quarterly results for the retail segment also fluctuate, with higher sales during the fourth quarter's holiday season.

  Three Months Ended October 31, 2006 Compared to Three Months Ended
  October 31, 2005

  Net Earnings


The third quarter earnings of $18.8 million or $0.32 per share, which represents a decrease of $14.9 million or $0.26 per share compared to the earnings in the comparable quarter of the prior year of $33.7 million or $0.58 per share. The Company's cash earnings per share for the third quarter was $0.84 compared to cash earnings per share of $1.46 in the comparable quarter of the prior year.

Revenue

Sales for the third quarter totaled $145.2 million, consisting of rough diamond sales of $90.8 million and sales from Harry Winston of $54.4 million. This compares to sales of $153.5 million in the comparable quarter of the prior year (rough diamond sales of $112.2 million and sales from Harry Winston of $41.3 million). Ongoing quarterly variations in revenues are inherent in Aber's business, resulting from the seasonality of the mining and retail activities as well as the variability of the rough diamond sales schedule.

Cost of Sales

The Company's third quarter cost of sales was $74.6 million compared to $57.6 million for the comparable quarter of the prior year. The Company's cost of sales includes cash and non-cash costs associated with mining, sorting and retail sales activities. Of the $17.0 million increase, approximately 62% corresponds to the growth in Harry Winston sales and the residual is largely a result of additional costs incurred from the Winter Road Recovery Plan.

  See "Segmented Analysis" on page 8 for additional information.

  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 opening of new Harry Winston salons, SG&A expenses have increased during the current year over comparable quarters from the prior year.

SG&A expenses for the third quarter were $33.5 million as compared to $24.2 million for the comparable quarter of the prior year.

The increase in SG&A expenses of $9.3 million over the comparable quarter of the prior year resulted from an increase of $6.6 million in salaries and benefits, which includes a $6.3 million adjustment to stock compensation triggered by the acquisition of the remaining portion of Harry Winston, an increase of $0.9 million in rent and building related expenses, an increase of $0.8 million in advertising expenses, an increase of $0.5 million in professional fees and an increase of $0.5 million in other expenses. See "Segmented Analysis" on page 8 for additional information.

Income Taxes

Aber recorded an income tax expense of $13.0 million during the third quarter, compared to an income tax expense of $30.8 million in the comparable quarter of the prior year. The Company's effective income tax rate for the quarter, excluding Harry Winston, is 36%, which is based on a statutory income tax rate of 36.5% adjusted for Large Corporations Tax, the Northwest Territories mining royalty, items that are not deductible for income tax purposes, impact of foreign exchange, and earnings subject to tax different than statutory rate, all as detailed in the table below.

The Company's functional and reporting currency is the US dollar; 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 third quarter, as the Canadian dollar strengthened against the US dollar, the Company recorded an unrealized foreign exchange loss of $1.6 million on the revaluation of the Company's 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. These net operating losses are scheduled to expire through 2024.

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:

                                                Three months  Three months
                                                       ended         ended
                                                     Oct. 31,      Oct. 31,
                                                        2006          2005
  -------------------------------------------------------------------------
  Statutory income tax rate                              37%           40%
  Large Corporations Tax                                  0%            1%
  Stock compensation                                      1%            1%
  Northwest Territories mining royalty                   11%            9%
  Impact of foreign exchange                              1%            2%
  Earnings subject to tax different than
   statutory rate                                       (6)%          (5)%
  Other items                                           (3)%          (1)%
  Effective income tax rate                              41%           47%
  -------------------------------------------------------------------------

  Interest and Financing Expenses


Interest and financing expenses attributable to both Aber's and Harry Winston's credit facilities totalled $5.6 million for the third quarter compared to $3.4 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.

Other Income

Other income of $1.8 million was recorded during the quarter compared to $0.8 million in the comparable quarter of the prior year. Other income includes interest income on the Company's various bank balances.

Foreign Exchange Gain (Loss)

A foreign exchange loss of $1.6 million was recognized during the quarter compared to a loss of $4.2 million 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 for the quarter. Aber'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 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)


                                                  2007      2007      2007
                                                    Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                                       $ 90,754  $ 91,476  $ 69,308
  Cost of sales                                 45,461    43,256    38,749
  -------------------------------------------------------------------------
                                                45,293    48,220    30,559
  Selling, general and
   administrative expenses                       4,665     4,373     4,787
  -------------------------------------------------------------------------
  Earnings from operations                    $ 40,628  $ 43,847  $ 25,772
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


                                        2006      2006      2006      2006
                                          Q4        Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                             $ 62,528  $112,243  $ 70,795  $ 68,507
  Cost of sales                       22,780    38,929    29,759    37,593
  -------------------------------------------------------------------------
                                      39,748    73,314    41,036    30,914
  Selling, general and
   administrative expenses             8,221     4,809     3,991     4,108
  -------------------------------------------------------------------------
  Earnings from operations          $ 31,527  $ 68,505  $ 37,045  $ 26,806
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


                                                            Nine      Nine
                                                          months    months
                                                           ended     ended
                                                  2005   Oct. 31,  Oct. 31,
                                                    Q4      2006      2005
  -------------------------------------------------------------------------
  Sales                                       $ 85,252  $251,538  $251,545
  Cost of sales                                 46,356   127,466   106,281
  -------------------------------------------------------------------------
                                                38,896   124,072   145,264
  Selling, general and
   administrative expenses                       3,792    13,824    12,908
  -------------------------------------------------------------------------
  Earnings from operations                    $ 35,104  $110,248  $132,356
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------

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


Rough diamond sales for the quarter totalled $90.8 million compared to $112.2 million in the comparable quarter of the prior year. The Company held two rough diamond sales in the third quarter and three in the comparable quarter of the prior year. Sales for the current quarter were impacted by both the higher grade and finer size distribution of rough diamonds. 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 both produced and sold during each quarter.

Cost of sales includes cash operating costs of $28.5 million, non-cash operating costs of $15.3 million and private production royalties of $1.7 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 third quarter gross margin was 50% compared to 65% in the comparable quarter of the prior year. The decrease in the gross margin from the comparable quarter of the prior year results from higher costs incurred as a direct result of the early closure of the winter road and variations in the mix of product.

SG&A expenses for the mining segment decreased by $0.1 million from the comparable quarter of the prior year.

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

                                                  2007      2007      2007
                                                    Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                                       $ 54,478  $ 48,486  $ 49,963
  Cost of sales                                 29,175    25,202    25,096
  -------------------------------------------------------------------------
                                                25,303    23,284    24,867
  Selling, general and
   administrative expenses                      28,815    22,798    22,508
  -------------------------------------------------------------------------
  Earnings (loss) from operations             $ (3,512) $    486  $  2,359
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


                                        2006      2006      2006      2006
                                          Q4        Q3        Q2        Q1
  -------------------------------------------------------------------------
  Sales                             $ 63,363  $ 41,269  $ 44,904  $ 41,625
  Cost of sales                       30,002    18,712    23,306    21,526
  -------------------------------------------------------------------------
                                      33,361    22,557    21,598    20,099
  Selling, general and
   administrative expenses            28,433    19,380    18,720    19,286
  -------------------------------------------------------------------------
  Earnings (loss) from operations   $  4,928  $  3,177  $  2,878  $    813
  -------------------------------------------------------------------------
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                                                            Nine      Nine
                                                          months    months
                                                           ended     ended
                                                  2005   Oct. 31,  Oct. 31,
                                                    Q4      2006      2005
  -------------------------------------------------------------------------
  Sales                                       $ 59,329  $152,927  $127,798
  Cost of sales                                 31,374    79,473    63,544
  -------------------------------------------------------------------------
                                                27,955    73,454    64,254
  Selling, general and
   administrative expenses                      23,708    74,120    57,386
  -------------------------------------------------------------------------
  Earnings (loss) from operations             $  4,247  $   (666) $  6,868
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------



The retail segment includes sales from Harry Winston's twelve salons, which are located in New York, Honolulu, Bal Harbour, Beverly Hills, Las Vegas, Paris, London, Geneva, Tokyo (Ginza and Omotesando), Osaka and Taipei. Aber now owns 100% of Harry Winston after acquiring the remaining 47.17% ownership on September 29, 2006.

Sales for the third quarter were $54.5 million compared to $41.3 million for the comparable quarter of the prior year. Jewelry sales follow a seasonal trend with sales expected to be higher in the fourth quarter due to the holiday season. The increase in sales of 32% from the comparable quarter of the prior year is primarily attributed to the opening of new salons, an improved merchandising mix and the continued strength of the luxury goods sector.

Cost of sales for Harry Winston for the third quarter was $29.2 million compared to $18.7 million for the comparable quarter of the prior year. The gross margin percentage for the quarter was influenced by the sale of certain inventory that was on hand at the date of the original 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 would have been 3% higher than the comparable quarter of the prior year.

SG&A expenses increased to $28.8 million in the third quarter compared to $19.4 million in the comparable quarter of the prior year, with the increase related primarily to the opening of additional salons and the increase in stock compensation discussed below.

The primary components of the increase in SG&A expenses over the comparable quarter of the prior year are an increase in salaries and benefits of $7.0 million, which includes a $6.3 million adjustment to stock compensation triggered by the acquisition of the remaining portion of Harry Winston, advertising and selling expenses of $0.8 million, rent and building related expenses of $0.8 million, other expenses of $0.3 million and professional fees of $0.5 million.

  Nine Months Ended October 31, 2006 Compared to Nine Months Ended
  October 31, 2005

  Net Earnings


Aber's net earnings for the nine months ended October 31, 2006 totaled $77.0 million or $1.32 per share (cash earnings per share of $2.41), compared to net earnings of $66.3 million or $1.14 per share (cash earnings per share of $2.90) for the same period of the preceding year. During the nine months ended October 31, 2006, the Company recorded a future income tax recovery of $17.0 million or $0.29 per share as a result of the decrease in Northwest Territories and federal corporate income tax rates.

Revenue

Aber recorded sales for the nine months ended October 31, 2006 of $404.5 million compared to sales of $379.3 million for the nine months ended October 31, 2005. Rough diamond sales were $251.5 million for both the nine months ended October 31, 2006 and the comparable period of the prior year. Harry Winston sales of $152.9 million accounted for the balance, compared to $127.8 million for the comparable period of the prior year.

Cost of Sales

The Company recorded cost of sales of $206.9 million during the nine months ended October 31, 2006 compared to $169.8 million during the nine 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. Of this increase, approximately 43% corresponds to the growth in Harry Winston sales. The balance of the increase to cost of sales relates to the mining segment and is due in part to additional costs incurred from the Winter Road Recovery Plan.

Selling, General and Administrative Expenses

Aber incurred SG&A expenses of $87.9 million for the nine months ended October 31, 2006, compared to $70.3 million for the nine months ended October 31, 2005. Included in SG&A expenses for the nine months ended October 31, 2006 are $13.8 million for the mining segment as compared to $12.9 million for the nine months ended October 31, 2005, and $74.1 million for the retail segment as compared to $57.4 million for the prior year.

The principal components of SG&A expenses include expenses for salaries and benefits (including salon personnel), advertising, professional fees, rent and building-related costs.

The increase of $17.6 million in SG&A expenses from the comparable period of the prior year resulted from an increase of $8.9 million in salaries and benefits, which includes a $6.3 million adjustment to stock compensation triggered by the acquisition of the remaining portion of Harry Winston, $4.7 million in advertising, $2.6 million in rent and building related expenses, $1.0 million in professional fees and $0.4 million in other expenses. The increase in spending was incurred as part of the Harry Winston growth strategy, which included the opening of additional salons.

Income Taxes

Aber recorded a tax expense of $21.7 million during the nine months ended October 31, 2006, compared to $58.6 million in the comparable period of the prior year. The Company's effective income tax rate for the nine months ended October 31, 2006, excluding Harry Winston, was 22%, which was based on a statutory income tax rate of 36.5% adjusted for Large Corporations Tax, the Northwest Territories mining royalty, items that are not deductible for income tax purposes, impact of foreign exchange, impact of changes in future income tax rates and earnings subject to tax different than the statutory income tax rate.

During the nine months ended October 31, 2006, Aber recorded a future tax recovery of $17.0 million as a result of the decrease in Northwest Territories and federal corporate income tax rates and the elimination of federal surtax, all substantively enacted during the period.

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. These net operating losses are scheduled to expire through 2024.

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:

                                                 Nine months   Nine months
                                                       ended         ended
                                                     Oct. 31,      Oct. 31,
                                                        2006          2005
  -------------------------------------------------------------------------
  Statutory income tax rate                              37%           40%
  Large Corporations Tax                                  0%            1%
  Stock compensation                                      1%            1%
  Resource allowance                                      0%          (1)%
  Northwest Territories mining royalty                    9%            9%
  Impact of change in future income tax rate           (16)%            0%
  Impact of foreign exchange                              0%            2%
  Earnings subject to tax different than
   statutory rate                                       (5)%          (4)%
  Other items                                           (4)%          (1)%
  Effective income tax rate                              22%           47%
  -------------------------------------------------------------------------

  Interest and Financing Expenses


Interest and financing expenses attributable to both Aber's and Harry Winston's credit facilities totalled $14.7 million for the nine months ended October 31, 2006 compared to $10.4 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.

Other Income

Other income includes interest earned on the Company's various bank accounts.

Foreign Exchange Gain (Loss)

A foreign exchange loss of $1.0 million was recognized during the nine months ended October 31, 2006 compared with a loss of $6.0 million recognized during the nine months ended October 31, 2005. Aber'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 derivative instruments outstanding.

Operational Update

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

Mining Segment

During the third calendar quarter of 2006, the Diavik Mine produced 2.83 million carats from 722 thousand tonnes of ore sourced from the A-154 South (68%) and A-154 North (32%) kimberlite pipes, bringing year-to-date production to 7.34 million carats. The effective processing rate achieved during the calendar quarter was 2.89 million tonnes per annum.

Construction of the new A-418 dike has been successfully completed. The pool water has now been removed in preparation for overburden removal.

The Winter Road Recovery Plan airlift campaign is now complete, having delivered additional fuel and sundry supplies needed to support operations. These airlifts were necessitated by the early closure of the winter road in March 2006.

The main underground decline has now reached A-418 where a continuous mining machine is extracting a bulk sample for later processing. Approximately 700 metres more tunnelling is required to reach the A-154 kimberlite. The decline, or tunnel, to test sample the A-21 pipe has reached the kimberlite. Bulk sample mining is scheduled for the first calendar quarter of 2007.

The Diavik Mine remains in compliance with all environmental permits, licences and authorizations. Updated plans were submitted to the new Wek'eezhii Land and Water Board as part of a process leading to renewal of the water licence in 2007.

Two rough diamond sales were held during the quarter, with rough diamonds sold through offices in Belgium, India and Israel.

  Aber's 40% share of Diavik Mine production:

                    Three months  Three months   Nine months   Nine months
                           ended         ended         ended         ended
                    September 30, September 30, September 30, September 30,
                            2006          2005          2006          2005
  -------------------------------------------------------------------------
  Diamonds recovered
   (000s carats)           1,132           871         2,934         2,577
  Grade (carats/tonne)      3.92          3.52          4.02          3.73
  Operating costs,
   cash ($ millions)        26.4          19.3          71.1          55.5
  Operating costs per
   carat, cash ($)            23            22            24            22
  -------------------------------------------------------------------------



Cash operating costs for the three months ended September 30, 2006 of $26.4 million increased by $7.1 million from the comparable period of the prior year, of which approximately $6.0 million was attributable to an increase in costs due in part to the early closure of the winter road, with the balance largely attributable to the strengthening of the Canadian dollar against the US dollar. Cash operating costs for the nine months ended September 30, 2006 increased by $15.6 million from the comparable period of the prior year, of which $11.3 million was attributable to an increase in costs due in part to the early closure of the winter road, with the balance largely attributable to the strengthening of the Canadian dollar against the US dollar.

Retail Segment

Harry Winston continued to perform well during the period, growing sales over the prior year and maintaining a strengthened underlying gross margin.

The US performed well, with the New York flagship salon, the renovated and relocated Beverly Hills salon and the new salons in Ala Moana and Bal Harbour contributing to global growth as did strong demand for Harry Winston watches.

Marketing efforts focused on advertising and public relations to increase brand awareness, and special events to bring ultra-high net worth individuals into the salons.

  Liquidity and Capital Resources

  Working Capital


Working capital decreased to $207.0 million at October 31, 2006 from $285.7 million at January 31, 2006. As at October 31, 2006, Aber had unrestricted cash and cash equivalents of $87.7 million and contingency cash collateral and reserves of $42.5 million compared to $148.1 million and $14.3 million, respectively, at January 31, 2006. Included in unrestricted cash and cash equivalents at October 31, 2006 was $18.9 million held at the Diavik Mine compared to $10.5 million at January 31, 2006. On September 29, 2006, the Company acquired the remaining portion of Harry Winston at a purchase price of $157.2 million, of which $57.2 million was financed by cash from operations.

Cash Flow from Operations

During the quarter ended October 31, 2006, Aber generated $62.5 million in cash from operations, compared to $81.0 million in the comparable quarter of the previous year. Ongoing quarterly variations in revenues and operating cash flows are inherent in Aber's business, resulting from the seasonality of both the mining and retail activities as well as the rough diamond sales schedule. During the quarter, the Company purchased $9.2 million of inventory, increased accounts receivable by $4.5 million, increased accounts payable and accrued liabilities by $21.2 million and decreased prepaid expenses by $6.1 million. During the nine months ended October 31, 2006, the Company purchased $44.9 million of inventory, increased accounts receivable by $3.2 million, increased accounts payable and accrued liabilities by $24.3 million and decreased prepaid expenses by $6.2 million.

Financing Activities

During the quarter, Aber amended its existing credit facility to include a new senior secured term loan of $100.0 million. The entire amount of the new term facility was used to finance the acquisition of the remaining portion of Harry Winston. Also during the quarter, the Company repaid $7.5 million of its $75.0 million senior secured revolving credit facility. At October 31, 2006, the Company had $134.2 million outstanding on its senior secured term facilities and $62.5 million outstanding on its senior secured revolving credit facility.

As at October 31, 2006, Harry Winston had $112.7 million outstanding on its $130.0 million credit facility, which was used to fund inventory purchases, particularly at new salons, and capital expenditure requirements. This represents an increase of $51.0 million from October 31, 2005.

At October 31, 2006, $15.0 million was drawn under the Company's revolving financing facility relating to its Belgian subsidiary, Aber International N.V., compared to nil drawn at October 31, 2005.

During the third quarter, Aber made a dividend payment to its shareholders of $0.25 per share for a total of $14.6 million. Dividend payments for the nine months ended October 31, 2006 totalled $43.7 million.

Investing Activities

In September, the Company acquired the remaining 47.17% ownership in Harry Winston from the minority shareholders for $157.2 million, of which $100.0 million was financed from a new senior secured term loan and the $57.2 million was paid in cash, both paid on closing of the transaction.

During the quarter, the Company incurred $4.3 million of deferred mineral property costs and purchased capital assets of $40.6 million, of which $35.5 million was related to the mining segment and $5.1 million to Harry Winston. During the nine months ended October 31, 2006, the Company incurred $11.3 million of deferred mineral property costs and purchased capital assets of $90.0 million, of which $75.9 million was related to the mining segment and $14.1 million to Harry Winston.

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 $191.0 million at a budgeted Canadian/US exchange rate of $0.88. There can be no assurance, however, that actual capital expenditure requirements will not be materially different from Aber's current estimates. See "Caution Regarding Forward-Looking Information" and "Risks and Uncertainties".

The most significant contractual obligations for the ensuing five-year period and thereafter 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(a)(b)         $317,830    $95,438   $215,324     $1,152     $5,916
  Environmental and
   participation
   agreements
   incremental
   commitments(c)       40,936      8,904     13,890      2,849     15,293
  Operating lease
   obligations(d)       95,131     11,112     22,765     17,301     43,953
  Capital lease
   obligations(e)        1,409        423        845        141          -
  -------------------------------------------------------------------------
  Total contractual
   obligations        $455,306   $115,877   $252,824    $21,443    $65,162
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------

  (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 the original $100.0 million term
      facility and the $75.0 million revolving facility, in minimum amounts
      of $5.0 million. Scheduled repayment of the original term facility is
      over ten equal consecutive semi-annual installments of $10.0 million
      that commenced on June 15, 2004. The scheduled repayment of the new
      term facility is over four equal consecutive semi-annual installments
      of $25.0 million commencing on December 15, 2006. The maximum amount
      permitted to be drawn under the senior secured revolving facility is
      reduced by $12.5 million semi-annually, commencing September 2006.
      The Company's first mortgage on real property has scheduled principal
      payments of $0.1 million monthly, and may be prepaid after 2009.

      Harry Winston's $130.0 million credit facility expires on March 31,
      2008, with no scheduled repayments required before that date. Also
      included in long-term debt of Harry Winston is a secured credit
      arrangement for $14.0 million. This credit facility is being used to
      finance the construction of a new watch factory in Geneva,
      Switzerland. 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
      approximated to be $17.2 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 October 31, 2006 was $46.1 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 letter of credit in the amount of $46.1 million
      satisfies that part of the respective contractual obligations
      included in the table above. 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 has a remaining
      term of five years 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



As a result of the successful airlift campaign and the commitment by Diavik Mine management to meet operational targets, forecasted rough diamond production for the current year is expected to exceed previous estimates of 8.5 million carats. Mining and processing activities are expected to focus on the A-154 South kimberlite pipe during the fourth calendar quarter.

Construction of the new Harry Winston store in Dallas, Texas was completed early in the fourth quarter and opened the weekend after US Thanksgiving in time for the holiday selling season. New salons in Chicago, Illinois, and Beijing, China are scheduled for next fiscal year, along with a dedicated watch salon in Tokyo and a flagship salon in Osaka, Japan.

Aber expects to hold three rough diamond sales in the final quarter of the fiscal year.

There can be no assurance that Aber's current plans and expectations will be achieved or realized, or that Aber's outlook will not change as a result of subsequent events or changing priorities. See "Caution Regarding Forward-Looking Information" and "Risks and Uncertainties".

  Other Disclosures

  Non-GAAP Performance Measures


References to "cash earnings" are earnings before non-cash income tax expense, non-cash foreign exchange gain (loss), and depreciation and amortization. Management believes that the inclusion of cash earnings enables investors to better understand the impact of certain non-cash items on Aber's financial results and as such provides a useful supplemental measure in evaluating the performance of Aber. Cash earnings is not, however, a measure recognized by Canadian GAAP and does not have a standardized meaning under Canadian GAAP. Management cautions investors that cash earnings should not be construed as an alternative to earnings (as determined in accordance with Canadian GAAP) as an indicator of Aber's performance or cash flows from operating, investing and financing activities as a measure of the Company's liquidity and cash flows. Aber's method of calculating cash earnings may differ from the methods used by other companies. Therefore, cash earnings may not be comparable to similar measures presented by other companies. See below for a reconciliation of earnings to cash earnings.

  Reconciliation of Earnings to Cash Earnings
  (expressed in thousands of United States dollars, except per share
   amounts) (unaudited)

                                                  2007      2007      2007
                                                    Q3        Q2        Q1
  -------------------------------------------------------------------------
  Earnings                                    $ 18,831  $ 34,265  $ 23,879
  Non-cash income tax (recovery)                 9,057     5,016    (3,938)
  Non-cash foreign exchange loss (gain)          1,576    (1,943)    2,970
  Depreciation and amortization                 19,441    17,926    13,362
  -------------------------------------------------------------------------
  Cash earnings                               $ 48,905  $ 55,264  $ 36,273
  -------------------------------------------------------------------------
  Cash earnings per share                     $   0.84  $   0.95  $   0.62
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


                                        2006      2006      2006      2006
                                          Q4        Q3        Q2        Q1
  -------------------------------------------------------------------------
  Earnings                          $ 14,909  $ 33,742  $ 19,020  $ 13,582
  Non-cash income tax (recovery)      10,412    30,375    12,788     5,320
  Non-cash foreign exchange
   loss (gain)                         5,201     3,656     3,618    (1,896)
  Depreciation and amortization        7,697    16,662    17,472    13,685
  -------------------------------------------------------------------------
  Cash earnings                     $ 38,219  $ 84,435  $ 52,898  $ 30,691
  -------------------------------------------------------------------------
  Cash earnings per share           $   0.66  $   1.46  $   0.91  $   0.53
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


                                                            Nine      Nine
                                                          months    months
                                                           ended     ended
                                                  2005   Oct. 31,  Oct. 31,
                                                    Q4      2006      2005
  -------------------------------------------------------------------------
  Earnings                                    $ 29,532  $ 76,974  $ 66,344
  Non-cash income tax (recovery)                11,905    10,136    48,483
  Non-cash foreign exchange loss (gain)         (1,550)    2,603     5,378
  Depreciation and amortization                 29,421    50,729    47,819
  -------------------------------------------------------------------------
  Cash earnings                               $ 69,308  $140,442  $168,024
  -------------------------------------------------------------------------
  Cash earnings per share                     $   1.20  $   2.41  $   2.90
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


  Related Parties



Transactions with related parties for the three months ended October 31, 2006 include $0.4 million ($1.3 million for the nine months ended October 31, 2006) of rent 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 generally accepted accounting principles 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, 2006.

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 unanticipated 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.

Joint Venture

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 is therefore 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 and Japan, 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, particularly in the US or Japan, 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 uses a limited number of derivative financial instruments to manage its foreign currency exposure.

Licences and Permits

The operation of the Diavik Mine and exploration on the Diavik property require licences and permits from the Canadian government. The Diavik Mine Type "A" Water Licence granted by the Mackenzie Valley Land and Water Board expires on August 31, 2007. While DDMI, which is also the operator of the Diavik Mine, anticipates being able to renew the licence, there can be no guarantee that Aber and/or DDMI will be able to obtain or maintain this or all other necessary licences 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 of 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.

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 retail 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 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, 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.

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.

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 October 31, 2006
  -------------------------------------------------------------------------
  Authorized                                                     Unlimited
  -------------------------------------------------------------------------
  Issued and outstanding shares                                 58,355,230
  Diluted(i)                                                    59,230,120
  Weighted average outstanding shares                           58,223,777
  Options outstanding                                            1,637,738
  (i)Diluted shares outstanding under the treasury stock method.


  Additional Information



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

                       Consolidated Balance Sheets
                       ---------------------------

            (expressed in thousands of United States dollars)

                                                  October 31,   January 31,
                                                        2006          2006
                                                  (unaudited)
  -------------------------------------------------------------------------
  Assets

  Current assets:
    Cash and cash equivalents (note 4)           $    87,670   $   148,116
    Cash collateral and cash reserves (note 4)        42,538        14,276
    Accounts receivable                               18,205        14,917
    Inventory and supplies (note 5)                  264,637       202,571
    Advances and prepaid expenses                     21,257        27,437
  -------------------------------------------------------------------------
                                                     434,307       407,317
  Deferred mineral property costs                    201,177       196,367
  Capital assets                                     351,546       301,735
  Intangible assets, net                              42,415        42,922
  Goodwill (note 3)                                  154,915        41,966
  Deferred charges and other assets                   20,973        22,681
  Future income tax asset                             41,151        30,625
  -------------------------------------------------------------------------
                                                 $ 1,246,484   $ 1,043,613
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Liabilities and Shareholders' Equity

  Current liabilities:
    Accounts payable and accrued liabilities     $   109,118   $    83,822
    Bank advances                                     22,703         9,882
    Current portion of long-term debt                 95,446        27,915
  -------------------------------------------------------------------------
                                                     227,267       121,619
  Long-term debt                                     222,341       157,344
  Future income tax liability                        287,148       256,426
  Other long-term liability                            4,929         4,929
  Future site restoration costs                       15,208        15,316
  Minority interest (note 3)                              91        36,086

  Shareholders' equity:
    Share capital (note 7)                           299,900       297,114
    Stock options                                     12,805        11,805
    Retained earnings                                159,921       126,630
    Cumulative translation adjustment                 16,874        16,344
  -------------------------------------------------------------------------
                                                     489,500       451,893
  Commitments and guarantees (note 8)
  -------------------------------------------------------------------------
                                                 $ 1,246,484   $ 1,043,613
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  See accompanying notes to consolidated financial statements.



                   Consolidated Statement of Earnings
                   ----------------------------------

            (expressed in thousands of United States dollars,
                  except per share amounts) (unaudited)

                    Three months  Three months   Nine months   Nine months
                           ended         ended         ended         ended
                         Oct. 31,      Oct. 31,      Oct. 31,      Oct. 31,
                            2006          2005          2006          2005
  -------------------------------------------------------------------------
  Sales              $   145,232   $   153,512   $   404,465   $   379,343
  Cost of sales           74,636        57,641       206,939       169,825
  -------------------------------------------------------------------------
                          70,596        95,871       197,526       209,518
  Selling, general
   and administrative
   expenses               33,480        24,189        87,944        70,294
  -------------------------------------------------------------------------
  Earnings from
   operations             37,116        71,682       109,582       139,224
  -------------------------------------------------------------------------
  Interest and
   financing expenses     (5,570)       (3,353)      (14,709)      (10,422)
  Other income             1,764           795         5,191         2,566
  Foreign exchange
   gain (loss)            (1,560)       (4,184)       (1,049)       (5,951)
  -------------------------------------------------------------------------
  Earnings before
   income taxes           31,750        64,940        99,015       125,417
  Income tax expense
   - Current               3,948          (489)       11,526         9,215
  Income tax expense
   - Future                9,057        31,264        10,136        49,372
  -------------------------------------------------------------------------
  Earnings before
   minority interest      18,745        34,165        77,353        68,830
  Minority interest          (86)          423           379           486
  -------------------------------------------------------------------------
  Net earnings       $    18,831   $    33,742   $    76,974   $    66,344
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Earnings per share
    Basic            $      0.32   $      0.58   $      1.32   $      1.14
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
    Diluted          $      0.32   $      0.57   $      1.30   $      1.12
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Weighted average
   number of shares
   outstanding        58,208,653    57,918,644    58,223,777    57,908,364
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  See accompanying notes to consolidated financial statements.



               Consolidated Statement of Retained Earnings
               -------------------------------------------

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

                                                  October 31,   October 31,
  For the period ended                                  2006          2005
  -------------------------------------------------------------------------
  Retained earnings, beginning of period         $   126,630   $   101,460
    Net earnings                                      76,974        66,344
    Dividends paid                                   (43,683)      (37,667)
    Excess of repurchase price of common shares
     over stated value                                     -        (3,903)
  -------------------------------------------------------------------------
  Retained earnings, end of period               $   159,921   $   126,234
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  See accompanying notes to consolidated financial statements.



                  Consolidated Statements of Cash Flows
                  -------------------------------------

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

                    Three months  Three months   Nine months   Nine months
                           ended         ended         ended         ended
                         Oct. 31,      Oct. 31,      Oct. 31,      Oct. 31,
                            2006          2005          2006          2005
  -------------------------------------------------------------------------
  Cash provided by
   (used in):

  Operating:
    Net earnings       $  18,831     $  33,742     $  76,975     $  66,344
    Items not involving
     cash:
      Amortization and
       accretion          19,441        16,662        50,729        47,819
      Future income
       taxes               9,057        30,375        10,135        48,483
      Stock-based
       compensation          171           531         1,001         1,878
      Foreign exchange     1,576         3,656         2,603         5,378
    Minority interest        (89)        2,361           351         2,813
    Loss on disposal
     of capital assets         -           199             -           199
    Change in non-cash
     operating working
     capital              13,550        (6,542)      (17,591)      (30,443)
  -------------------------------------------------------------------------
                          62,537        80,984       124,203       142,471
  -------------------------------------------------------------------------
  Financing:
  Repayment of
   long-term debt           (107)          (91)      (10,312)      (19,064)
  Increase in revolving
   credit                116,281        19,548       155,540        80,628
  Deferred financing           -             -             -          (321)
  Dividends paid         (14,588)      (14,496)      (43,683)      (37,667)
  Issue of common shares   1,196         1,262         2,786         3,166
  Cash advance from
   minority shareholder        3             -          (827)            -
  Common shares purchased
   for cancellation            -             -             -        (4,660)
  -------------------------------------------------------------------------
                         102,785         6,223       103,504        22,082
  -------------------------------------------------------------------------
  Investing:
  Cash collateral and
   cash reserve           25,731          (427)      (28,262)         (480)
  Deferred mineral
   property costs         (4,307)       (2,778)      (11,331)      (33,104)
  Capital assets         (40,626)      (20,562)      (89,983)      (30,605)
  Deferred charges          (587)          216          (852)         (332)
  Purchase of Harry
   Winston              (159,150)            -      (159,150)            -
  Payment to Harry
   Winston minority
   shareholders                -             -             -       (57,867)
  -------------------------------------------------------------------------
                        (178,939)      (23,551)     (289,578)     (122,388)
  -------------------------------------------------------------------------
  Foreign exchange
   effect on cash
   balances                  127         2,349         1,425         1,095
  Increase (decrease)
   in cash and cash
   equivalents           (13,490)       66,005       (60,446)       43,260
  Cash and cash
   equivalents,
   beginning of period   101,160       100,851       148,116       123,596
  -------------------------------------------------------------------------
  Cash and cash
   equivalents,
   end of period       $  87,670     $ 166,856     $  87,670     $ 166,856
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Change in non-cash
   operating working
   capital:

  Accounts receivable     (4,534)       (1,544)       (3,211)        1,563
  Advances and prepaid
   expenses                6,116        (2,596)        6,181       (11,018)
  Inventory and supplies  (9,222)      (11,191)      (44,881)      (46,119)
  Accounts payable and
   accrued liabilities    21,190         8,789        24,320        25,131
  -------------------------------------------------------------------------
                       $ (13,550)    $  (6,542)    $ (17,591)    $ (30,443)
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------
  Supplemental cash
   flow information:

  Cash taxes paid      $    (566)    $   1,279     $   9,297     $   5,200
  Cash interest paid   $   5,391     $   3,296     $  13,523     $   9,615
  -------------------------------------------------------------------------
  See accompanying notes to consolidated financial statements.



               Notes to Consolidated Financial Statements
               ------------------------------------------

                October 31, 2006 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 the quarter, Aber acquired the remaining 47.17% ownership of Harry
  Winston Inc. ("Harry Winston") located in New York City, US. The results
  of Harry Winston 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. 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, 2006.

  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,
  2006, since these financial statements do not include all disclosures
  required by Canadian generally accepted accounting principles.

  NOTE 3:
  Acquisition

  On September 29, 2006, the Company acquired the remaining 47.17%
  ownership of Harry Winston for $157.2 million, paid in cash on the
  acquisition date.

  The preliminary allocation of the purchase price to the fair values of
  assets acquired and liabilities assumed is detailed below. The
  finalization of the purchase price allocation is pending the completion
  of the valuation of intangible assets and goodwill. Any portion of the
  purchase price further allocated to the fair values of intangible assets
  will give rise to future income tax liabilities, to be recorded in the
  same period in which the intangible assets are separately identified in
  the financial statements.

      Cash                                                       $   2,433
      Accounts receivable                                            4,909
      Inventory                                                    107,516
      Goodwill and intangibles                                     110,162
      Other assets                                                  31,835
      Accounts payable and accrued liabilities                     (18,728)
      Bank loan                                                    (54,653)
      Other liabilities                                            (24,324)
      ---------------------------------------------------------------------
                                                                 $ 159,150
      ---------------------------------------------------------------------
      ---------------------------------------------------------------------

      Cash paid at acquisition                                   $ 157,150
      Acquisition and other costs                                    2,000
      ---------------------------------------------------------------------
                                                                 $ 159,150
      ---------------------------------------------------------------------
      ---------------------------------------------------------------------

  NOTE 4:
  Cash Resources

                                                  October 31,   January 31,
                                                        2006          2006
  -------------------------------------------------------------------------
  Diavik Joint Venture                             $  18,940     $  10,523
  Cash and cash equivalents                           68,730       137,593
  -------------------------------------------------------------------------
  Total cash and cash equivalents                     87,670       148,116
  Cash collateral and cash reserves                   42,538        14,276
  -------------------------------------------------------------------------
  Total cash resources                             $ 130,208     $ 162,392
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------

  NOTE 5:
  Inventory and Supplies

                                                  October 31,   January 31,
                                                        2006          2006
  -------------------------------------------------------------------------
  Rough diamond inventory                          $  23,063     $  21,612
  Merchandise inventory                              223,147       164,691
  Supplies inventory                                  18,427        16,268
  -------------------------------------------------------------------------
  Total inventory and supplies                     $ 264,637     $ 202,571
  -------------------------------------------------------------------------
  -------------------------------------------------------------------------


DATASOURCE: Aber Diamond Corporation



CONTACT: Robert A. Gannicott, Chairman and Chief Executive Officer, (416)

362-2237; Amir Kalman, Director, Investor Relations, [phone] (ext.

244)

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