just floated. still cheap, page-11

Kimberley Diamonds owns a diamond exploration lease of 1600 square kilometres around the Ellenvale Mine and there is some urgency to find a way to explore this area because, under WA law, if the lease isn't explored it may have to be surrendered.

The previous success of the diamond exploration within the Ellenvale Diamond Lease in he Kimberley region of Western Australia has led to a situation where the successful explorer, Kimberley Diamond company NL, has now focussed its main attention on the mining operation at the deposit.

However, due to the fact that the deposit was discovered reasonable early in the exploration phase, the situation has arisen where the remainder of the tenements may be under explored. This means that Kimberley Diamonds owns a diamond exploration lease of around 1600 square kilometres around the site of the Ellenvale Mine and there is some urgency to find a way to explore this area because, under WA law, if the lease is not explored it may have to be surrendered. In short, in WA, you have to use it or lose it.

In order for the capital owned by Kimberley Diamond shareholders to be most efficiently utilised in developing the existing mine, a decision has been taken that the best way to complete the exploration task in the remainder of the lease is to spin off a company with the specific purpose of doing this. In this way the capital raised in the market can all be dedicated to a specific exploration task. It also means that further exploration capital can be raised without diminishing or risking the current shareholder value in Kimberley Diamonds.

Blina Diamonds NL is proposed as the vehicle to carry out this exploration. All the remaining leases will be consolidated for the Blina exploration. The first part of the prospectus offer is specifically to Kimberley Diamond shareholders in a preference share issue. Following the close of the preference share offer, the prospectus will be on offer to the general public.

Blina will have the unique opportunity to explore the core of the commercially proven but under-explored Ellendale Field. KDC and Blina have a commanding influence over the centre core of the Ellendale Field, enabling a co-ordinated and comprehensive re-evaluation of this largely untested area for the first time since its discovery in 1976.

Blina will target both ‘near mine’ advanced and more regional projects in its exploration. Over the last 20 million years, erosion has removed about 50m from the upper parts of the Ellendale Field and favourable concentrations of diamonds have been recovered from some of the ancient alluvial (river) systems known from the Ellendale Field. The most advanced and exciting of the alluvial prospects is the Terrace 5 Project. This ancient gravel system was discovered by KDC and has been traced beneath sand cover for more than 30km. It is known to contain substantial gravel deposits and favourable concentrations of large, high-quality gem diamonds. The diamonds recovered from Terrace 5 have an average stone size of around 0.4 carats per stone, almost identical in average size to diamonds recovered from the Ellendale 9 East Orebody, which have been sold for more than U $300 per carat. However, a major bulk sampling project is required to establish a run-of-mine diamond-value for the deposit. small parcels of Terrace 5 diamonds were previously valued at U $130 a carat, although in light of the sales from the Ellendale 9 East Orebody, Blina is optimistic that the Terrace 5 diamonds could sell for significantly more than this amount.

Some of the 50 lamproite pipes known to occur within the Tenement Area will also be examined. A number of these have never been sampled and are yet to be tested for their economic viability. Moreover, the recent development and/or evaluation of the Ellendale 4 and 9 Pipes by KDC has delivered a much greater understanding of the distribution of microdiamonds in lamproites. Based on these recent advances, Blina will be re-evaluating the Kimberley 1 and 2 pipes and two microdiamond-rich lamproites identified from the Falcon™ survey will also be targeted.

While exploration on advanced projects will be a major part of the Blina operations, equally important will be the regional search for new lamproite pipes and diamondiferous alluvial deposits.

A significant number of new lamproite pipes have already been identified by KDC in recent years and Blina is optimistic in continuing with this success. A variety of regional geophysical and geochemical surveys are also planned for the area. The Falcon™ survey conducted in conjunction with Diamond Mines Australia Pty Ltd, is already showing the potential of innovative exploration programmes to identify new exploration targets. With only a third of the identified anomalies tested, the (aforementioned) two microdiamond-rich lamproites have been identified and a new palaeo-channel recognised.

Of special interest to long-term KDC shareholders, Blina will continue the search for the source of the Terrace 5 diamonds. As the diamonds recovered from Terrace 5 contain a high proportion of large white stones and the population is distinctly different from the dominantly yellow, Ellendale production, Blina and KDC are convinced that the source of the Terrace 5 diamonds remains to be discovered. Electromagnetics, which can detect both non-magnetic lamproites and buried alluvial channels, may be the key to solving this puzzle. Blina will therefore fly a detailed electromagnetic survey over 500km2 of the central areas of the Ellendale Field.

While Blina will appear as a newly listed company, it will be building on 10 years of successful exploration in the Ellendale Field. The exploration achievements of KDC and the team that will be leading Blina are quite remarkable and have included:

* the discovery of 33 new lamproite bodies in areas previously explored (including the Kimberley 28 pipe where KDC has recently commenced trial mining);

* the discovery and evaluation of a major diamondiferous palaeo-channel (Terrace 5) ;

* the identification of high-grade surface enrichment over the Ellendale 4 and 9 Pipes (enabling the initial mining at Ellendale 9 to proceed) and the ongoing definition of additional resources in these and other known pipes that have seen KDC increase its resources to in excess of 90Mt; and most recently;

* the discovery of the Ellendale 9 East Orebody (the most valuable so far identified in the Ellendale Field).