The current resources of Concession C9 can be discussed in terms of target areas.

Rio Lapi Garimpo

The Proved Area has been defined with dimensions 1,500 metres by 200 metres within which systematic sampling of:

• Old pits;
• Undisturbed ground,
• Bedrock

has been undertaken.

Within the area, the median thickness of overburden is 0.75 metres, gravels 1.25 metres and up to 0.25 metres of bedrock was penetrated. Grades of diamonds recovered ranged from 0.30 carats per cubic metre in the old diggings to 0.90 carats per cubic metre in the undisturbed ground. The median grade for all the tests was 0.627 carats per cubic metre.

The volume of diamondiferous gravel available in this block is thus:

• 1,500 x 200 x 1.25 cubic metres
• = 375,000 cubic metres.

With a median grade of 0.627 carats per cubic metre this represents a measured resource of 235,000 carats. Dr Smith believes this to be a low figure because of the garimpero prospecting method used. Collaborative work with Professor Morais indicates that the garimpero method recovers approximately 40% of the stones (albeit the larger ones). The true resource figure should be higher.

Assuming a new, engineered extraction process recovers 80% of the stones, the recoverable measured resource should be 188,100 carats.

Rio Lapi Targets

Other target areas are present in the Lapi Garimpo area. (Figure 4) Using the thickness, grade and recovery factors for the Lapi Garimpo, the following inferred resources (see below table) have been calculated.

 

Other prospectivity is present in the Rio Lapi basin. This includes eluvial, terrace and inter alluvial relict deposits as well as proximal materials associated with kimberlites that the author believes may be present in the basin.

Rio Chicapa Prospects

The valley of the Rio Chicapa is also highly prospective for diamonds. These include:

• Point Bar Deposits - downstream of the confluence of the Lapi and the Chicapa is a point bar meander complex. This is a prime exploration target. Grab sampling indicates grades comparable with the Lapi Garimpo. The volume of sediment is approximately 4 million cubic metres and with a grade of 0.6 carats per cubic metre and 80% recovery, this represents an inferred resource of 1,920,000 carats. There is at least one other point bar complex on the licence and they are best suited to exploitation using river cut off and dredging.
• Alluvial Flats near Base Camp - across the Rio Chicapa from the base camp is an extensive alluvial flat. Grab sampling at surface has yielded grades of 0.20 to 0.30 carats per cubic metre. This is believed to be low because the source of this sand and gravel is the area of the Catoca kimberlite field and grades are likely to increase with depth. Exploration work is required. The deposit contains approximately 12 million cubic metres of sand and gravel. Assuming a low grade of 0.30 carats per cubic metre and 80% recovery, this represents an inferred resource of 2,880,000 carats.
• Rio Chicapa Channel and Rapids - no data is forthcoming on this prospecting play. Typical dredge grades for the riverbed are 0.20 to 0.25 carats per cubic metre while in the adjacent areas downstream; grades of up to 2.3 carats per cubic metre have been encountered upstream from rapids.

Rio Luo Prospects

The Rio Luo runs through the eastern part of the licence and drains 40% of its area. No formal work has been done on the Rio Luo but it does yield diamonds to artisanal diggers. This part of the licence is underLain by the classic Calonda succession with relict Kalahari sediments. There is major upside prospectivity for diamonds in this area but work is required.

The Rio Lapi Garimpo has been subject to most investigation and provides the basis for assessment of the Rio Lapi targets. The area has been evaluated by means of hand-dug trial pits and the gravels obtained washed by hand or by using a small separation plant located at the Mombo LDA base camp.

Economic Model of the Rio Lapi Garimpo

An economic model for the Rio Lapi Garimpo Proven Reserve can be based on the test work to date supported by:

• Technical information provided by Mombo LDA.
• Evaluation of mining methods and the leasing to equipment to undertake land clearing, overburden stripping, ore mining and rehabilitation.
• Evaluation of the project.
• An assumption that the proven reserves evaluated in the Rio Lapi Garimpo will be replaced from the Rio Lapi targets.

The project financial model is detailed within this report. Initial production of diamonds will be annualised at 120,000 carats increasing to 240,000 carats five (5) months after operations commence, yielding a profit of US$ 110 per carat rising to US$124 per carat with the increased production. The recoverable reserve of 188,100 carats of diamonds identified in the Rio Lapi Garimpo should thus yield approximately US$ 20 million.

Potential Economic Upside of Indicated and Inferred Resources

The Rio Lapi Garimpo reserves have been investigated in detail and are considered proven. Upside value is derived from Rio Lapi Targets A - E (see above descriptions) with an Inferred Resource of 3,790,080 carats. These will be mined during a period of increased production and will therefore yield the higher profit of US$124 per carat (see above).

If this profitability level were maintained, the above indicated resource would yield a pre tax profit in excess of US$ 500 million. It is reasonable to assume that the exploration and exploitation of the inferred reserves carries some commercial and technical risk and the above resource end value will not be achieved. However, based on the history, local knowledge and the geology of the area, there is a reasonable expectation of at least 40% success and an expected value of US$ 200 million.

Rio Chicapa - Point Bar Deposits

• Inferred Resource 1,920,000 carats.
• Assuming a profit margin of US$ 124 per carat this has an indicated value of US$ 240 million or US$ 47 million allowing for a 20% probability of success.

Rio Chicapa - Alluvial Flats near Base Camp

• Inferred Resource 2,880,000 carats.
• A conservative estimate guess of the profit per carat is US$ 65.00. The resulting estimated value of the resource is US$ 187 million. Allowing for a 20% probability of commercial success this represents an expected value of US$ 37 million.

Rio Chicapa Channel and Rapids, Terraces, Eluvial Deposits, Kalahari Relicts and Rio Luo

• not assessed but they represent a considerable upside value.