SEL 26397 Abner Range Annual report on exploration activities year one of tenure 26 March 2008 to 25 March 2009

Abstract

SEL 26397 'Abner Range' was granted in 2008 as a SEL covering two existing tenements SEL 9779 and EL 23959 in the Abner Range area, originally held by Ashton Mining Limited and Gravity Diamonds Limited respectively. The tenement has formed 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 conducted predominantly diamond exploration over tenements and utilising the 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. Previous exploration on the two precursor tenements to SEL 26397 included a Falcon airborne gravity gradiometer survey which acquired approximately 1700 linear kilometers (225 km) of gravity gradiometer, magnetics, and laser DEM scanner data. Approximately 80% of this survey was contained within SEL 26397 with the entire area of the new SEL covered and targets identified. Initial interpretation highlighted 25 discrete gravity anomalies and recommended follow-up exploration. Exploration programs on these targets during 2004 - 2005 resulted in the discovery of the ABN021 kimberlite and an adjacent satellite pipe, which became the focus of exploration in the district with over $1.9 Million spent on exploration and testwork of the newly discovered kimberlites. Subsequent exploration on the licence included substantial ground gravity surveys 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 undrilled at the expiry of the original licence period. In addition 240 tonnes of kimberlite was excavated from 5 shallow pits on the ABN021 kimberlite and delivered to the Merlin Mine for processing during 2007. 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). In recognition of the substantial, and successful, exploration carried out 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) agreed to combine an adjoining tenement EL 23959 to SEL 9779 in a new licence application SEL 26397. During 2008 retreatment of DMS Plant floats from two of the exploration pits into the ABN021 kimberlite has been undertaken. Substantial volumes of HM concentrate and several diamonds have been recovered from this testwork - indicating that further exploration of the main ABN021 pipe remains warranted. Exploration for further pipes in the Abner cluster remains the highest priority for future exploration plans. During the past year funding difficulties have significantly restricted Diamond Mines Australia Pty Ltd ability to carry on its exploration programme however, recently, Gravity has recently reached an agreement with Legend International Holdings Inc and Ashton Mining Limited to facilitate an aggressive exploration programme going forward. SEL 26397 is a key tenement in this arrangement.