Annual report on exploration activities for EL 23995 'Tanaburs SW' year 2 of tenure, 8 September 2005 to 7 September 2006

Abstract

EL 23995 'Tanaburs SW' was granted to Gravity Diamonds Ltd ('Gravity') on 8 September 2004. The EL lies within a general area where Gravity is operating a large diamond exploration program, much of which is under an exploration agreement with Rio Tinto group companies and Diamond Mines Australia (DMA), which is a 100%-owned subsidiary of Gravity. A substantial amount of historical diamond exploration work has been carried out in the general vicinity of the tenement, the main diamond prospect identified to date being the Tanaburs Prospect (also known as Leila Creek). The prospect was identified by Ashton in the 1990s and is located in adjacent EL 22307. During 2003 and 2004, DMA had an exclusive arrangement with BHP Billiton to deploy the Falcon(r) airborne gravity gradiometer system in diamond exploration in Australia. The Falcon(r) system has proved very effective in diamond exploration since its development by BHP Billiton in the late 1990's. The Falcon(r) system includes airborne gravity gradient data, high resolution magnetics and accurate elevation data derived from on-board differential GPS and laser scanner devices. The 2003/04 flying program covered seven areas in the Northern Territory, focusssing on areas where previous exploration reported unresolved kimberlite indicator mineral sampling results, including the Tanaburs prospect. Falcon(r) coverage did not extend into EL 23995, which abuts EL 22307. During the past year of tenure, exploration within EL 23995 has been confined to field reconnaissance and re-evaluation of historic exploration datasets. Although exploration is currently ongoing, results from follow-up of Falcon(r) anomalies in adjacent EL 22307 to date have been generally disappointing and prompted a review of the prospectivity of EL 23995. Field reconnaissance of the area and detailed reviews of previous diamond exploration data within EL 23995 suggest that previous heavy mineral sampling within EL 23995 was adequate, with the generally negative results from these samples indicating the potential of EL 23995 to host an economic diamond deposit appears to be low. However, recent exploration efforts by Gravity Diamonds have been focussed on trying to resolve known indicator mineral occurrences within adjacent EL 22307, one of which lies close to the boundary of EL 23995. Check and follow up sampling of these known indicator mineral anomalies is likely to lead to sampling within EL 23995, with surrender of the tenement likely if encouraging results are not obtained.