Hodgson Diamonds Project, Relinquishment report on blocks dropped at conclusion of year two of tenure period ending 25 July 2004 for EL 22340

Abstract

EL 22340 is located approximately 215 km SE of Katherine, to the east of the Larrimah and Maryfield Station homesteads. The EL was granted on 25 July 2002 and comprises part of a larger block of tenements held by Rio Tinto Exploration Pty Ltd ('Rio Tinto') and Ashton Exploration Australia Pty Limited ('Ashton Exploration') and referred to as the Hodgson Diamonds Project. The tenement forms part of a farm-in agreement between Rio Tinto and Diamond Mines Australia Pty Ltd ('DMA') covering numerous Rio Tinto tenements and applications in the Northern Territory. Under this agreement, DMA will conduct predominantly diamond exploration by utilising the Falcon(tm) airborne gravity gradiometer system to detect kimberlite pipes. Gravity Capital Ltd is managing the farm-in arrangement for Diamond Mines Australia and owns 40% of DMA. The tenement is considered prospective for commercial sources of diamonds. Historic sampling identified kimberlitic indicator mineral occurrences, including microdiamonds within the tenement, but the source of these remains enigmatic. During the past year of tenure, a review of historic exploration data was conducted by Gravity Capital, which confirmed the potential of the area to host diamondiferous kimberlite pipes. On this basis, a Falcon(tm) survey was planned to cover the most prospective area within EL's 22740 and 22741 located northwest and west of EL 22340, however the coverage did not extend to EL 22340. The survey was conducted in August 2003 and results were received by Gravity Capital in November 2003.