SEL 9779 Mt Lynott McArthur River Region NT Bauhinia Downs SD53-03 annual report on exploration activities year eight of tenure 10 September 2006 to 9 September 2007 and final report

Abstract

SEL 9779 'Mt Lynott' forms part of a farm in 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 were to conduct predominantly diamond exploration over the tenements and would utilize the newly-developed Falcon airborne gravity gradiometer system, which has been shown to be effective in detecting kimberlite pipes. Gravity Diamonds Ltd ('Gravity') is managing the farm in arrangement for Diamond Mines Australia. Gravity Diamonds Limited is further in an access / clawback arrangement with BHP Billiton. A Falcon(r) airborne gravity gradiometer survey was flown during October, 2003, acquiring approximately 1700 linear kilometers (225 km) of gravity gradiometer, magnetics, and laser DEM scanner data. Approximately 75% of this survey was contained within SEL 9779. Initial interpretation by BHP Billiton?s Falcon Operations Group in February 2004 highlighted 20 discrete gravity anomalies and recommended follow-up exploration. Subsequent analysis by Gravity Diamonds Limited identified a further 22 targets requiring follow-up exploration. Exploration programs on these targets during the 2004 ? 2005 reporting period resulted in the discovery of the ABN021 kimberlite and an adjacent satellite pipe. Subsequent exploration on the licence has included a substantial ground gravity survey and a concurrent EM34 survey carried out in the north valley area (north of ABN021), a tenement wide 80 metre line spaced HoistEM survey, and continued loam and gravel Heavy Mineral sampling and conventional ground geochemistry, with a large number of high priority targets with similar geophysical and geochemical profiles to the ABN021 kimberlite identified, but remain as yet undrilled. In late 2006 and early 2007, 240 tonnes of kimberlite was excavated from 5 shallow pits on the ABN021 kimberlite and delivered to the Merlin Mine for processing. Diamond recovery and observation of the concentrate from these bulk samples was carried out by Diatech Laboratories in Perth during 2007. The apparent grade of these shallow samples was low (0.5- 5.3 cpht), however limited retreatment of DMS Plant floats has recovered substantial volumes of HM concentrate and several diamonds ? so some further exploration of the main ABN021 pipe may be warranted, however exploration for further pipes in the Abner cluster will remain the highest priority for future exploration plans. In recognition of the substantial, and successful, exploration carried out to date on SEL 9779 and the large number of high quality kimberlite targets remaining to be explored in the area Gravity Diamonds Limited and Rio Tinto Exploration Pty Ltd (Ashton Mining Limited) have agreed to combine an adjoining tenement EL 23959 to SEL 9779 in a new licence application SEL 26397. SEL 9779 expired on 9 September 2007. Expenditure for the year to 9 September 2007 was $786,325.17, whilst expenditure on the tenement by Gravity since entering into agreement with Rio Tinto in July 2003 totals $1,903,070.80.