Relinquishment report on blocks dropped at the conclusion of year four of tenure - period ending 25 September 2006

Abstract

This Report is in respect of the forty eight (48) blocks relinquished from EL 22732 at the conclusion of Year 4 of tenure. EL 22732 'Mt Young' was acquired by Gravity Capital Limited from BHP Billiton soon after it was granted, as part of a diamond exploration venture involving Gravity, Gravity's 100%- owned subsidiary, Diamond Mines Australia Pty Ltd and BHP Billiton. These companies also have a diamond exploration arrangement with Rio Tinto Exploration covering a large number of Rio Tinto-controlled tenements in the Northern Territory. During the second year of tenure, on the basis of encouraging diamond sampling data from nearby tenements, a Falcon airborne gravity gradiometer survey was flown over a substantial part of the Mt Young tenement. Detailed interpretation, anomaly ranking and exploration targeting from the Falcon data by Gravity Capital was completed during 2004. Gravity Capital Ltd changed its name to Gravity Diamonds Ltd late in 2004 to reflect its sole emphasis on diamond exploration and development. Several potential target areas were identified from the Falcon survey as requiring ground follow-up work. Statutory requirements for field access and approvals for work programs were finalised in early 2005 and field testing of these targets commenced during the 2005 field season. A helicopter-supported field reconnaissance and sampling program was conducted in the district, predominantly focused on high priority Falcon(r) targets located in licence areas adjacent to EL 22732. However, a number of lower ranking target areas within EL 22732 were visited during this program, with 3 indicator mineral samples collected. Results from sampling within EL 22732 were not encouraging and 50% of the licence area was relinquished effective from 26 September 2006.