Annual report on exploration activities for EL 5954 'Benda Bluff', year seven of tenure, 29 March 2006 to 28 March 2007

Abstract

EL 5954 currently forms part of a farmin agreement between Rio Tinto Exploration Pty Ltd 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, which is a wholly owned subsidiary of Gravity. Under the terms of the farm-in agreement, DMA is 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. EL 5954 is considered prospective for commercial sources of diamonds. Previous sampling has identified kimberlitic indicator mineral occurrences, including diamonds within the tenement. During 2003 Falcon(tm) data was acquired over the majority of EL 5954. The flying program also included coverage of an adjacent exploration license controlled by Rio Tinto (and included in the Rio Tinto - Gravity Diamonds - DMA joint venture). During 2004, detailed interpretation, anomaly ranking and exploration targeting from the Falcon(tm) data by Gravity Diamonds was completed. Delays relating to the receipt by DMA of statutory approvals for access and work programs deferred the testing of these targets until the 2005 field season. During 2005, 20 Falcon anomalies from the Benda Falcon(tm) survey were directly assessed within EL 5954 and sampled where appropriate. A total of 33 heavy mineral samples, comprising 26 gravel samples and 7 loam samples were collected. Additionally, a total of 129 geochemical samples were collected, the majority comprising standard -200 micron soil samples. However, -200 micron samples were also collected at the majority of the gravel sample sites as a test for base metal anomalism. Eighteen (18) indicator mineral samples returned chromites while two (2) samples reported pyrope garnets. Work completed during the past year of tenure has continued to focus on the interpretation of the probe data from extensive sampling completed in late 2005. Probe data indicates that some of the recovered chromite grains are possibly of kimberlitic origin, however, the majority of recovered chromite display chemistries consistent with a crustal origin. Internal debate as to the significance of the indicator mineral sampling results, particularly given the spatially extensive distribution of dolerite sills in the area (evident in the magnetic data acquired with Falcon gradiometer system) and the high cost of conducting exploration in this remote area, has led to independent interpretation being sought from a number of third parties with regard to the provenance / significance of the recovered indicator minerals. The consensus reached from the various third parties consulted is that the recovered chromite, while potentially derived from a kimberlite source, have been assigned a low priority for follow up. Conversely, pyrope garnets recovered from samples 159840 and 159841 were deemed to be of sufficient interest to warrant further work. It is the companies intention to conduct a sampling program early in 2007, focussed on the area where the pyropes were previously recovered, thus leaving sufficient time for additional work programs should further encouraging results be obtained.