Relinquishment report on blocks dropped at the conclusion of year four of tenure for EL 22740, period ending 8 July 2006

Abstract

EL 22740 (Hodgson Diamonds Project) is located approximately 215 km SE of Katherine, to the east of the Larrimah and Maryfield Station homesteads. The EL was granted on 9 July 2002 and is part of the Project 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. 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 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 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. This work was conducted in the southern part of the EL outside the area relinquished. No kimberlite pipes were discovered and a compulsory 50% relinquishment comprising the northern part of the EL, was implemented at the conclusion of the reporting period for EL 22740. This Report is in respect of the one hundred and twenty-five (125) blocks relinquished from EL 22740 at the conclusion of Year 4. No on-ground work has been conducted on the relinquished portion and there is no Falcon coverage.