EL 7970 Arnold River, Hodgson Diamonds Project Annual report on exploration activities year nine of tenure 24 July 2008 to 23 July 2009

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 acquired by Rio Tinto Limited during the 4th quarter of 2000. The tenement forms part of an exploration agreement between Rio Tinto Exploration Pty Ltd ('Rio Tinto') and Diamond Mines Australia Pty Ltd ('DMA') which originally covered numerous Rio Tinto tenements and applications in the Northern Territory. Under this agreement, DMA is conducting predominantly diamond exploration utilising FALCON airborne gravity gradiometer system developed by BHP Billiton. The FALCON system has been shown to be effective in detecting kimberlite pipes when they have an associated gravity 'low'. Gravity Diamonds Limited is managing the operation on behalf of Diamond Mines Australia which is a 100% subsidiary. The tenement is considered prospective for commercial sources of diamonds. During the initial year of the Rio Tinto-DMA agreement, a review of historic exploration data was conducted by Gravity and a FALCON airborne gravity gradiometer survey was planned to cover prospective areas within EL 7970 and adjacent tenements held by Gravity and Rio Tinto to the east of EL 7970. The survey was flown during September 2003. Initial interpretation and exploration targeting from the FALCON data was completed during 2004 and target areas were defined for follow-up work. Field follow-up of targets and reinterpretation of the gravity gradiometer data has been carried out since the 2005 field season. A number of indicator mineral grains (primarily chromite) have been recovered from target testing and comprehensive stream sediment sampling. Microprobe data of these grains has indicated that several are of probable kimberlitic origin. Two diamonds have been recovered by target sampling to date. During the past year of tenure work commenced in the previous year was completed and reported on. In the previous year, with the aid of an access track constructed from Broadmere Station, several rounds of follow-up sampling were carried out primarily in the COX022 target drainage system and the COX02 drainage area that had been previously identified. A total of 37 gravel samples were collected within EL 7970 during exploration campaigns carried out in July-August 2007 and September-October 2007. Of the samples collected, 16 reported chromite, with one of the chromite positive samples also reporting a macrodiamond. This recovery of chromites within EL 7970 by DMA, continues to be at odds with historic sampling results, and may be indicative of a series of kimberlitic intrusions. Previously planned follow-up work was severely curtailed during the period covered by this report. This was brought about by the financial crisis that effected the global world markets that severely impacted junior mining and exploration companies around the world. Gravity Diamonds has moved to place the programme on a firmer footing through the sale of its interest to Legend International Holdings Inc in the future subject to the approval of Rio Tinto Exploration. The field results from the previous year continued with Ni - thermometry and REE discriminant analysis of Cr-spinel grains from the area completed.