EL 7970 Arnold River Hodgson Diamonds Project, NT annual report on exploration activities year seven of tenure 24 July 2006 to 23 July 2007

Abstract

EL 7970 forms part of Rio Tinto's 'Hodgson Diamond Project' and is centred approximately 150km northeast of Daly Waters in the Northern Territory, within the Hodgson Downs 1:250,000 map sheet. The EL was granted to Ashton Mining on 24th July 2000. Ashton Mining Ltd was taken over by Rio Tinto Limited in the 4th quarter of 2000. The tenement 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 tenements and applications in the Northern Territory. Under this agreement, DMA is conducting predominantly diamond exploration utilising the newly-developed Falcon- airborne gravity gradiometer system. The Falcon- system has been shown to be effective in detecting kimberlite pipes. Gravity Diamonds Ltd is managing the farmin arrangement for Diamond Mines Australia and owns 100% of DMA. The tenement is considered prospective for commercial sources of diamonds. During the initial year of the Rio Tinto-DMA farmin arrangement, a review of historic exploration data was conducted by Gravity. On this basis, a Falcon- survey was planned to cover prospective areas within EL 7970 and adjacent farmin tenements to the east. The survey was conducted in August - September 2003 and results were received by Gravity in November 2003. Interpretation and exploration targeting from the Falcon- data was completed during 2004, with target areas defined for follow-up work. Statutory requirements for clear access to target areas were completed in February 2005 and field testing of these targets commenced in late 2005 (year six of tenure). During year six of tenure, 11 anomalies generated from the Falcon- survey were field inspected within EL 7970 and sampled where appropriate. Field inspection downgraded the kimberlite potential for a number of the Falcon- targets, although some anomalies required further assessment. Two of the collected samples reported chromite, while another sample reported a macrodiamond. Interpretation of the probe data from the recovered indicator minerals indicated that some of the recovered grains are of probable kimberlitic origin. During the past year of tenure, exploration activities have focused primarily on the follow up of the positive sample results achieved during year six of tenure, to gain a better understanding of the overall indicator mineral distribution within the tenement. A total of 16 gravel samples and 1 loam samples were collected within EL 7970 during November 2006. Of the 17 samples collected, 13 reported chromite, with one of the chromite positive samples also reporting a macrodiamond. The fairly consistent recovery of chromites within EL7970 by DMA, which is somewhat at odds with historic sampling results, prompted the completion of a tenement-wide regional sampling program. A further 19 gravel samples and 7 loam samples were collected within EL 7970 during July 2007. Further details regarding these exploration efforts are outlined in this annual report. Results for these latest samples are not available and will assist with determining priority areas and future work programs. However, follow-up work is likely to comprise some ground geophysical surveys within areas which sampling results suggest have a high priority, followed by the drilling of the targets generated from these surveys as well as previously delineated targets.