Combined annual report on exploration activities for EL 22740 and EL 22741, year four of tenure, 9 July 2005 to 8 July 2006

Abstract

EL's 22740 & 22741 (Hodgson Diamonds Project) are located approximately 215 km SE of Katherine, to the east of the Larrimah and Maryfield Station homesteads. The EL's were granted on 9 July 2002 and are referred to as the Hodgson Diamonds Project. The tenements form 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. Gravity Diamonds Ltd (formerly Gravity Capital Ltd) is managing the farm-in arrangement for Diamond Mines Australia and now has 100% ownership of DMA. Under the terms of the farm-in agreement, DMA has been conducting predominantly diamond exploration on tenements covered by the agreement by utilising the Falcon(tm) airborne gravity gradiometer system. The Falcon(tm) system has been shown to be effective in detecting kimberlite pipes. The tenements being reported are considered prospective for commercial sources of diamonds. Historic sampling identified kimberlitic indicator mineral occurrences, including microdiamonds within the tenements, but the source of these remains enigmatic. During the previous reporting period, 20 Falcon(tm) anomalies were field inspected and sampled where appropriate. Three loam, 5 gravel and 57 soil samples were collected. Additionally, 19 RC holes & 1 RAB hole for a total of 961 metres were drilled to test 10 Falcon(tm) anomalies. No kimberlite pipes were discovered and compulsory 50% relinquishments were implemented at the conclusion of the reporting period for both EL 22740 and EL 22741. Given the disappointing results from the drilling in the previous reporting period, an internal review of the potential for the Hodgson EL's was conducted with a view to determining what future work programs might be conducted, if any. The internal review process re-affirmed the potential of the area to host diamondiferous kimberlites and that their discovery would likely result from a geophysically driven exploration programs. Further work programs were proposed for implementation, including those outlined in the previous annual report. However, the companies focus on the Abner Range region, where the diamondiferous ABN021 kimberlite was discovered in late 2004, precluded field activities being undertaken in 2005 while the heavy rains experienced in the Northern Territory during March and April of 2006 have restricted access to the majority of the companies exploration licences this year, including EL 22740 and EL 22741.