Annual report on exploration activities year three of tenure, EL 9926 'Tatoola Creek', 20 January 2005 to 19 January 2006

Abstract

EL 9926 forms part of a farmin agreement between Rio Tinto Exploration Pty Ltd ('RioTinto') and Diamond Mines Australia Pty Ltd ('DMA') covering numerous Rio Tinto controlled tenements and applications in the Northern Territory. Under this agreement, DMA is conducting predominantly diamond exploration over the tenements utilising the recently developed Falcon(tm) airborne gravity gradiometer system, which has been shown to be very effective in detecting kimberlite pipes. Gravity Diamonds Limited is managing the farmin arrangement for Diamond Mines Australia and owns 100% of DMA. During the initial year of tenure, a review of historic exploration data, including surface sampling focussed on diamonds, was conducted by Gravity and a number of anomalous results were noted in and around EL 9926. The initial field program of the joint venture comprised flying Falcon(tm) airborne gravity gradiometer surveys focussed on a number of anomalous areas, including the 'Abner Range' area located approximately 10 km to the northeast of EL 9926. This resulted in the discovery of a kimberlite pipe within the Abner survey area, some 30 kilometres northeast of the tenement. During Year 3 of tenure on EL 9926, aerial photography was acquired and geological reconnaissance was carried out as part of the program of follow up around the new discovery. Planned airborne geophysical surveys in Year 2 were rescheduled to 2006 due to the unavailability of appropriate systems.