Annual report on exploration activities year four of tenure, EL 9926 'Tatoola Creek', 20 January 2006 to 19 January 2007

Abstract

EL 9926 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-controlled tenements and applications in the Northern Territory. Under this agreement, DMA is conducting predominantly diamond exploration over the tenements utilising the recentlydeveloped Falcon(tm) airborne gravity gradiometer system, which has been shown to be very effective in detecting kimberlite pipes. Gravity Diamonds Limited ('Gravity') is managing the farmin arrangement for Diamond Mines Australia and owns 100% of DMA. During the initial year of tenure, a review of historic exploration data, including surface sampling focussed on diamonds, was conducted by Gravity and a number of anomalous results were noted in and around EL 9926. At the end of year 2 of tenure seven (7) of the original fifteen (15) sub blocks were relinquished after little progress had been made in targeting on the EL. The initial field program of the Rio Tinto joint venture had comprised flying Falcon(tm) airborne gravity gradiometer surveys focussed on a number of anomalous areas, including the 'Abner Range' area located approximately 20km to the northeast of EL 9926. This resulted in the discovery of a kimberlite pipe within the Abner survey area, some 30 kilometres northeast of the tenement. The discovery was made subsequent to the decision to do a partial relinquishment of EL 9926. During Year 3 of tenure on EL 9926, aerial photography was acquired and geological reconnaissance was carried out as part of the program of follow up around the new discovery. During Year 4 of tenure, a planned airborne geophysical survey was conducted over part of Gravity's project area in the district, but this did not extend coverage to the small area of EL 9926. Owing to the extended wet season during 2006, and priority requirement for exploration on the newly discovered kimberlite pipe at Abner Range, no field exploration was conducted on EL 9926.