Annual report on exploration activities year five of tenure, EL 9926 'Tatoola Creek', 20 January 2007 to 19 January 2008

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 two kimberlite pipes within the Abner survey area, some 30 kilometres northeast of the tenement. The discovery was made subsequent to the decision to partially relinquish EL 9926. Subsequent exploration on EL 9926 has included aerial photography acquisition and geological reconnaissance - especially given the information gleaned from the discovery of the Abner Range kimberlite pipes. Stream gravel samples have been collected in the past reporting year from an adjoining tenement EL 24699 with the drainages sampled both primarily sourced from within EL 9926. Each of these samples were negative and efforts to locate suitable sample sites within the very small tenement EL 9926 were unsuccessful. As the tenement has little prospect of hosting a substantial kimberlite the tenement has been returned to Rio Tinto Exploration and it has been recommended that the tenement be relinquished.