Dear Fellow Shareholders,

Following the Karelian Diamond Resources Ltd circular dated 27/06/2019 please find below a more succinct document that answers some of the current Board's main points and adds more detail to our plans, that have previously been published on our website.


The current Board of Directors asserts that our strategy is not compelling nor different from theirs; that we are:

"...basically using the Company’s own playbook."

Our goals are to:

  • Increase the share price
  • Enable financing of the Company at an enhanced share price
  • Advance projects of merit as quickly as possible ("treading water" is a significant cost to a listed company)
  • Create shareholder value

The major and significant difference between the current Board and our future new team is in the execution of that strategy.

As stated on our website, we completely disagree with the scattergun approach shown by our current Board as seen latterly in the recent application for diamond exploration license in Northern and South Eastern Finland and in Northern Ireland, and by a continued failure to discover any significant kimberlites in Kuhmo Area. Why bother discovering more if you don't advance the current discoveries?

It is our view that our Company has failed to make any significant or material progress on any of its projects since listing in 2005, including specifically, ANY meaningful progress on the Lahtojoki Project, which it has now held for over three years.

We intend to follow the carefully detailed evaluation and development plan, constructed by Dr Stephen Grimmer since 2015, before he was associated with the Company, and subsequently shared by him with the Company in 2017/18, which to date they appear to have failed to implement in any respect.

We confirm that Dr Grimmer is currently bound by an NDA which restricts the ability to disclose that plan to the current management of the Company. However, he assures us that his approach is industry-best-practice, and with minor modifications and updates, is fit-for purpose.

  • The objective is to develop a compliant resource on Lahtojoki to an appropriate standard, e.g. JORC or NI43-101, and then formulate a Definitive Feasibility Study (DFS), including full permitting for a mine, to enable project financing. The Company's Preliminary Economic Assessment (PEA) outlines the approximate size and scale of any likely operation, albeit the detail has never been publicly disclosed by the Company.
  • Completing the above tasks would require a period of circa 24 months from the initiation date, which is also seasonally dependent in Finland.
  • A bulk sampling project of this scale can be reasonably costed at circa £2 Million, including capital assets of circa £750,000 for specialist plant and equipment which cannot be hired, but which will have future use on other projects, or re-sale value.
  • The expenditure can be staged, to coincide with anticipated share-price uplift as positive results are gathered. The nature of the project permits an early provisional diamond package recovery and value estimate, ahead of costly de-watering, mining and full-scale processing.
  • The cost estimate also includes the necessary 3rd party studies and sign-off by independent consultants for a compliant resource and DFS.

At Lahtojoki, presently the only potential diamond mine in Western Europe, we are dealing with a unique and most definitely finite product. This invites innovative marketing strategies, such as those successfully adopted for Scottish Gold and Tanzanite. Your future Board has extensive contacts and networks in fashion, retailing and the downstream diamond and jewellery business, and has already investigated novel concepts such as "boutique mining", "mine-to-ring" and "select rough-diamond jewellery pieces" to ensure the maximum possible price uplift of our intended product.

Our fellow shareholders can rest assured that on successful election to the Board, and so unencumbered by any NDA, we will in short order publish a detailed Management Update, including both details of the existing PEA, and our full development plans for Lahtojoki.

Our current Board has levelled several accusations that we will abandon the fruits of past exploration work, endanger the "Rio Agreement" and jeopardize the development of Lahtojoki. This could not be further from the truth. Our operational objectives are clearly stated here on our website, but we summarize them again.

  1. The Company will immediately seek to determine: what are the Lahtojoki diamonds worth? Without this, no resource development is possible and landowner negotiations, environmental permits or a mining license application are contingent on this testing. All other work (2-5) will be secondary, and subject to not competing with this objective.
  2. Seitapera has not been advanced in seven years. It will be provisionally tested to see if it has merit, or otherwise disposed of.
  3. Riihivaara will be tested for diamond content, and if not diamondiferous it is of no further interest.
  4. The only exploration that will be prioritized will be for additional targets surrounding Lahtojoki.
  5. We will seek to renew the "Rio Agreement", and explore syndicating data with other parties, supported by our proposed bulk sampling facility.

In Finland, the Company have several kimberlite discoveries that have been worked on, reported against, and then left without any further bulk sampling to create resource estimates.  The Company has then moved on to a new areas, again incurring high risk and potentially expensive exploration costs.

Our execution would differ in four key ways

  1. We intend to fully sample the most prospective target (Lahtojoki) and aim to develop a bankable Definitive Feasibility Study if warranted.
  2. Our operational capability and offices will be based in Finland where we will actively manage the local contractors and operate our own processing facilities.
  3. If a project has no merit, we will determine that quickly and cheaply, dispose of it, and move on to the next area of potential.
  4. We will look at all synergies, sharing risk in areas outside our immediate focus and accelerate and maximise JV’s in the region.

Your new Board has a strategy and is prepared to share it. Where is the current Board's plan and time-line?

Board Structure Considerations

It is good to see the current Board recognising the skills and expertise of our proposed technical directors (Stephen Grimmer & Martin Doyle); their pedigree to take on these new roles is beyond any doubt. However, Professor Conroy claims that:

" evaluation programme [that] requires world-class and industry-standard methodology"

and implies that we suffer from:

 " absence of understanding of kimberlite evaluation linked with adequate funding of the Lahtojoki diamond deposit, or of the diamond junior company market place that has evolved and changed significantly over the last five years"

The allegation that our team is somehow not competent and has been by-passed by five years of industry advancements cannot go unchallenged.

  • Our proposed technical directors have significantly more diamond experience than Professor Conroy, critically in the area of diamond mine development and operations, where he and his team have none.
  • Dr Grimmer and Mr Doyle are in regular contact with their network peers across the industry, and frequently consult in this regard, thus are fully aware and up-to-date on industry developments, areas in which the current board has neither expertise or connections.
  • Diamond resource development is a procedure with established protocols and methodology, of which both our technical directors have first-hand experience.
  • Between them they have managed the bulk sampling and resource development on over a dozen kimberlite projects on four continents, which cannot be said for the current, wholly inexperienced management team.

Our Chairman further alleges that:

"...a consultant to the Company, Stephen Grimmer became very familiar with this information and with the potential value of the Lahtojoki deposit".

It should be noted that Dr Grimmer has extensive prior knowledge of the project, gained independently from the Company. He evaluated the project in 2015 at the invitation of GTK and A&G Mining, prior to any involvement of the Company. He also held talks and meetings with representatives of several previous owners, where the project was discussed prior to 2016.

The Company circular also makes disparaging remarks regarding Dr Grimmer and Mr Doyle’s involvement in Paragon Diamonds, referring to them as...

"...individuals who either have no knowledge of the industry or have already overseen the failure of another diamond company"

To put the record straight...

  • Paragon Diamonds was listed in late 2010, with one small alluvial diamond mine in Sierra Leone. Stephen Grimmer assumed the position of mine manager, boosting production from 600 carats to 3,000 carats per month of high-value gems, before advising the Board to dispose of the asset due to a diminishing resource and escalating costs. Paragon then acquired early-stage kimberlite projects in Lesotho, and after raising over £10M, embarked on a vigorous development plan, culminating in the construction of a bulk sampling plant and camp in remote mountains at 2,600m, the delineation of a 48Mt kimberlite with full environmental permitting and a 20 year mining licence in under three years.
  • Stephen Grimmer, has a 30-year track record in diamond discovery, development and production. Following post-doctoral work which ultimately led to the world class Mogalakwena platinum mine, he joined Selection Trust in 1988 as chief geologist on the 2Mct/year Cuango diamond mine. As Technical Manager, COO and VP for Development with various private and public companies, he has personally supervised the bulk sampling and development, or advised on, numerous successful diamond projects (many now mines) in Angola, West Africa, Lesotho, Russia and Canada.
  • Martin Doyle embarked on a long and successful career with the DeBeers Group, initially in exploration in Botswana, followed by senior management positions as President of DeBeers South America and as Exploration Director of DeBeers Canada, where he oversaw that company's transition from explorer to miner with projects such as Snap Lake, Victor and Gahcho Kue. He has served on the board of the PDAC, as a senior manager for internationally renowned consultancy Snowden, and as a consultant in his own capacity.
  • Alan Osborne has spent ten years on the operating board of a fashion company which was eventually sold for £1.6bn at his time of leaving.  This massive growth and success story has provided him with many lessons about business management, strategy and execution regardless of sector.
  • Kevin Taylor is an entrepreneur and businessman with a solid grounding in engineering, skills vital to an industrial development project. Under his management, his private business has undergone an order-of-magnitude increase in turnover.

Our technical teams' combined 65 years of experience in the development of nearly a dozen successful diamond mines is outlined on our website. We would regard this as proper relevant experience.

In contrast, it is our understanding that our Company is effectively run as a "family business" with little if any independent board oversight.

Our Board is chaired by Richard Conroy, the largest single shareholder, (12.05% - June 2019) and supported by close associate Maureen Jones, Sorca Conroy his daughter, Seamus Fitzpatrick his nephew and Louis Maguire, an elderly friend.

These individuals have in truth, had very limited exposure to mineral exploration and mining, and hold no formal qualifications in the industry. Apart from involvement in the 1980's discovery of Galmoy, the smallest and shortest-lived of the Irish Zinc mines, Richard Conroy's other major claim to the discovery of the Pogo Gold Deposit in fact occurred some two years AFTER he abandoned the area, having failed in his search for Zinc.

It is our opinion that the present stagnation is in part due to the current Board's inexperience as to how the Exploration, Development and Mining Industry actually operates.

It is well documented with world-class discoveries such as Ekati, Diavik and Voisey's Bay, that the initial discoverers rarely continue to the specialist resource development stage. Indeed, new teams then often take over for the Mine Development, and they in turn rarely continue to manage Mining Operations. As our Company achieves its objectives, and moves on to the technically complex and more specialized task of development, it is essential, and quite normal, for past management to pass the baton to a new team. Indeed, many companies where Richard Conroy was involved in the early stages went on to great success under subsequent management.

Your new Board would add significant expertise, and a preparedness to finally commence development on the Company's single most important asset, which has lain dormant for over three years under the management of the current Board.

The Elephant in the Room – Finance

Our Boards' circular states that our finance plans are unclear.

As it currently stands the Company is regarded by many as un-investible for numerous reasons that we do not intend to state here, but which are clear to any engaged investor.

What is clear is that the current business has largely run out of cash and the likelihood of getting more money from institutions, given the lack of tangible results and the ongoing share price collapse, is next to zero.

The new team have considered this aspect very carefully and have had discussions with potential providers. These are positive towards the new team and the approach being taken i.e. that over 80% of cash raised will go into focussed asset development.

As the current Board states, we have not shared this detail with them and we do not intend to do so, for obvious reasons. Notwithstanding, a private offer was made to the Board, pre-Requisition, for us to negotiate a major finance package on behalf of the Company, in return for our management participation, an offer which they declined.

The proposed new team have invested time and money into getting this far. Undertaking this without making any provision for future finance would be nonsensical.

Share Price

Our Chairman also claims that:

"Many diamond companies, some of them very large and other small explorers such as your Company, have come and gone in Finland over the years. Only one company, your Company, Karelian Diamond, has remained and built a portfolio of assets. As these assets are developed there is the potential for its share value to reflect the true value of that portfolio provided the opportunity is not lost by hasty, ill-judged actions such as those proposed by the requisitionists."

Prior to the EGM request the share price was at an all-time low, valuing the company as low as £750,000. Even AIM-listed shell companies are worth much more than that!

The share price and market capital is a reflection of the Board's performance. It can only be so, as our Chairman agrees that the Company Assets are extremely undervalued. The Board also has a fiduciary duty to maximize both share price and market capital and to maximize use of productive assets. The new Board will be incentivised to do exactly this, rather than draw generous salaries for part time positions, necessitating repeated cash calls to provide funding. As we have previously stated: The Board will not be taking salaries!

In the case of diamond exploration, "what is in-the-ground is in-the-ground". This is the risk nature of natural resource investment. No one can offer any guarantees, and neither do we. What we will do is determine the results as quickly, and at as low a cost as possible, and update our shareholders in an objective, accurate and timely manner. In fact, we will be "delighted" to do so.

Cash needs to be spent in a focussed manner with the objective of returning value as soon as possible to provide a shareholder return. Along the way, however. transparency around plans and time-scales drives investor confidence and we will commit to an entirely different approach to the current Board. This will include regular Management Updates, and the public disclosure of relevant technical documents, a mandatory practice for Canadian listed companies such as Arctic Star.

NOMAD and Broker

The assertion made in the circular that shares might be suspended from trading, or indeed from AIM, if the existing NOMAD does not support the proposed new directors is farcical.

Full due diligence has to be completed by the Nomad to ensure that the new Board have the right credentials and untarnished backgrounds prior to the EGM, which we fully understand and have complied with willingly. Our team has successfully served on the boards of numerous companies, both public and private, as previously outlined in our biographies on our website.


Our Chairman claims:

"...there is no evidence that the directorial candidates proposed by the Requisitionists would add new value to or would provide significant improvements or enhancements to the Company or its assets; in fact the Board believes that the proposed changes are unnecessary and likely to damage the interests of the shareholders."

Clearly the current Board have not done their homework on our proposed Board. They fail to address their own short-comings or provide any vision of a way forward, yet at the same time they are treating industry professionals with contempt and disregard, and many would say that is exactly what they do to shareholders and funds!


Yours sincerely,

Alan Osbourne

Alan Osborne

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