Annual report on exploration activities for EL 10436 'Top Spring', year four of tenure, 29 July 2005 to 28 July 2006

Abstract

EL 10436 Top Spring forms part of a farmin agreement between Rio Tinto Exploration Pty Ltd ('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. EL 10427 Spellesie Creek and EL 10428 Lancewood Creek 2, which were previously reported in combination with EL 10436, were surrendered during the period and are subject to separate final reports. Under the terms of the farm-in agreement, DMA was conducting predominantly diamond exploration by utilising the Falcon(tm) airborne gravity gradiometer system. The Falcon(tm) system has been shown to be effective in detecting kimberlite pipes. Falcon(tm) data was acquired over the majority of EL 10427 during 2003, and followed up during 2004. No kimberlites were discovered. EL 10436 is considered prospective for commercial sources of diamonds. Historic sampling has identified kimberlitic indicator mineral occurrences, including diamonds within the tenements. Exploration within EL 10436 during the past year of tenure comprised a detailed review of historical indicator mineral sampling results within the tenement, the collection of 3 loam samples and field inspection of 2 small, circular spectral anomalies evident in regional Aster satellite data. Further details regarding the exploration completed within EL 10436 in Year 4 of tenure are presented in this annual report. Results from sampling programs implemented during 2005 were disappointing, however, they confirm conclusions reached from the analysis of historic sampling results - which suggested that previous indicator mineral recoveries within the EL were both sporadic and difficult to repeat. Based on the sampling results obtained by DMA in 2005, further detailed sampling has not been recommended within EL 10436. High resolution aeromagnetic data previously collected by Ashton has been acquired and reprocessed by DMA. A detailed interpretation of this dataset is planned to generate targets within EL 10436 that may be the result of a kimberlite intrusive. Specific, focused followup will be implemented for targets generated from this interpretation.