PROSPECTUS 2008 For personal use only - ASX · PROSPECTUS 2008 For the issue of 20,000,000 ordinary Shares at 20 cents each to raise $4,000,000. ... Peter Fiore Vincent Ferraloro

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For the issue of 20,000,000 ordinary Shares at 20 cents each to raise $4,000,000.

Oversubscriptions of up to a further 5,000,000 Shares at 20 cents per Share to raise up to an additional $1,000,000 may be accepted.

Lead Manager CK Locke and Partners Pty Ltd.

ACN 097 302 675For

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DIRECTORS

Peter Maake (Chairman)

Peter Fiore

Vincent Ferraloro

Anthony Short

SECRETARY

Peter Rasano

REGISTERED OFFICE & PRINCIPAL PLACE

OF BUSINESS

31 Townshend Road

Subiaco, WA 6008

Telephone: (08) 9382 1992

Fax: (08) 9382 1992

Email: [email protected]

Website: www.gemstardiamonds.com.au

AUDITORS

Grant Thornton (WA) Partnership

L1, 10 Kings Park Road

West Perth WA 6005

INDEPENDENT ACCOUNTANTS

Grant Thornton (WA)

Financial Services Pty Ltd

L1, 10 Kings Park Road

West Perth WA 6005

INDEPENDENT CONSULTING GEOLOGIST

Snowden Mining Industry Consultants Pty Ltd

87 Colin Street

West Perth WA 6005

SHARE REGISTRY

Advanced Share Registry Services

110 Stirling Highway

Nedlands Perth WA 6000

Telephone: (08) 9389 8033

Fax: (08) 9389 7871

SOLICITORS REPORTING ON

AUSTRALIAN TENEMENTS

Williams and Hughes

1st floor

25 Richardson Street

West Perth WA 6005

SOLICITORS REPORTING ON

SOUTH AFRICAN TENEMENTS

Tabacks Attorneys

13 Eton Road

Parktown 2193

South Africa

LEAD MANAGER TO THE ISSUE

CK Locke and Partners Pty Ltd

Level 1

12 St Georges Terrace

Perth Western Australia 6000

C O R P O R AT E D I R E C T O R Y

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�G E M S T A R D I A M O N D S L I M I T E D P R O S P E C T U S

The Gemstar Approach

Gemstar targets prospective tenements in areas that are suitable for re-evaluation.

Palmietfontein - South Africa

Large 12.1Ha established diamond bearing kimberlite in an area of interest, and where diamonds were

found during previous exploration

Provides an early trial mining opportunity through the identification and exploitation of areas within the

pipe where economic grades exist

Recovered indicator materials suggest there is the potential to discover additional pipes on the tenement

Full New Order Prospecting Rights

Bushmanland - South Africa

Gemstar will identify settings for lamproite pipes in Bushmanland, which is geologically similar to the

Kimberley region of Western Australia

Gemstar’s partly owned subsidiary has made applications for title in the areas identified and Gemstar

will have an effective 49% interest in any resulting exploration

Australian Projects

The proposed 7 projects are in areas of historic diamond interest

Gemstar has targets on the 3 granted tenements in Durack, East Peak Hill and Conical Hill

Applications are pending for a further 5 tenements

The above highlights are a brief summary only and must be read in conjunction with the remainder of this Prospectus.

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Dear Investor

It is my pleasure to introduce you to Gemstar Diamonds Ltd. Gemstar was incorporated in June 2001 for the purpose of establishing a portfolio of diamond exploration targets which contain identified, or potential diamond sources capable of being developed to the production stage. Gemstar’s exploration philosophy is to target areas that have previously been identified as prospective but to which modern exploration techniques have not been applied or to which Gemstar’s innovative in-house exploration methods are particularly suited.

Considerable time and expenditure has already been committed to the initial evaluations of these areas and the Directors of Gemstar believe that these initial evaluations show sufficient promise to commit substantially to the next stage of development.

Gemstar’s next task will be to continue to focus on generating an early and sustainable cash flow, especially via the Palmeitfontein area.

As required by South African law, Gemstar has signed a shareholders agreement with Matimba Gems, a South African Black Empowerment Group, to establish an entity through which to acquire an interest in the South African projects. This arrangement provides Gemstar with the ability to fulfil the new mining law regime that recently came into power in South Africa.

Gemstar will evaluate its other projects by first pass exploration programs to add to the known data with the aim of identifying high priority exploration targets.

The Directors of Gemstar believe that its combination of board and management expertise puts it in a premium position to successfully develop its portfolio of assets in Australia and South Africa.

On behalf of the Board of Directors, management and staff, I commend this share issue to you and invite you to become a shareholder in Gemstar Diamonds Limited.

Yours sincerely

Peter Maake

Chairman

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SSection � DETAILS OF THE OFFER 4

Section � DIRECTORS AND MANAGEMENT 8

Section � OVERVIEW OF THE COMPANY �0

Section 4 INDEPENDENT GEOLOGIST’S REPORT �8

Section 5 INDEPENDENT ACCOUNTANT’S REPORT 8�

Section 6 SOLICITORS’ REPORT ON AUSTRALIAN TENEMENTS 9�

Section 7 SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTS �08

Section 8 RISK FACTORS ��0

Section 9 ADDITIONAL INFORMATION ��

Section �0 DEFINED TERMS ��5

Section �� APPLICATION FORM ��7

Important InformationThis Prospectus is dated 25 February 2008 and a copy of this Prospectus was lodged with the Australian Securities and Investments Commission (“ASIC”) on that date. The ASIC takes no responsibility for the contents of this Prospectus. No securities will be allotted or issued on the basis of this Prospectus later than the expiry date of this Prospectus being the date which is 13 months after the date of this Prospectus. Securities allotted or issued pursuant to this Prospectus will be allotted or issued on the terms and conditions set out in the Prospectus.

Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, in considering the prospects for the Company, investors should consider the risk factors that could affect the financial performance of the Company. Investors should carefully consider these factors in light of personal circumstances (including financial and taxation issues). The Shares offered by this Prospectus should be considered speculative. Refer to Section 8 of this Prospectus for details relating to risk factors. Investors should seek professional advice from an accountant, stockbroker, lawyer or other professional adviser before deciding whether to invest.

No person is authorised to give any information or to make any representation in connection with the Offer described in this Prospectus which is not contained in this Prospectus. Any information or representation not so contained may not be relied on as having been authorised by the Company in connection with the Offer.

This Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.

No action has been taken to register or qualify the Shares or the Offer, or otherwise to permit a public offering of the Shares, in any jurisdiction outside Australia.

This Prospectus will be issued as an Electronic Prospectus and may be accessed on the Internet at www.gemstardiamonds.com.au. The Offer pursuant to an Electronic Prospectus is only available to persons receiving an electronic version of this Prospectus within Australia. The Corporations Act prohibits any person from passing to another person the Application Form unless it is attached to or accompanies the complete and unaltered version of this Prospectus. During the Offer period, any person may obtain a hard copy of the Prospectus by contacting the Company.

In accordance with Chapter 6D of the Corporations Act, this Prospectus is subject to an exposure period of seven days from the date of lodgement with the ASIC. This period may be extended by the ASIC for a further period of up to seven days. The purpose of this exposure period is to enable this Prospectus to be examined by market participants prior to the raising of funds, which examination may result in the identification of deficiencies in this Prospectus. If this Prospectus is found to be deficient, Applications received during the exposure period will be dealt with in accordance with section 724 of the Corporations Act. Applications received prior to the expiration of the exposure period will not be processed until after the exposure period. No preference will be conferred on Applications received in the exposure period and all Applications received during the exposure period will be treated as if they were simultaneously received on the date on which Applications open.

Figures disclosed in this Prospectus are exclusive of goods and services tax, unless otherwise disclosed.

Unless otherwise stated, items shown in this Prospectus are not assets of the Company.

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1.1 Description of the OfferBy this Prospectus, the Company invites investors to subscribe for a total of 20,000,000 fully paid ordinary shares in the Company at an issue price of 20 cents each to raise $4,000,000.

1.2 Minimum SubscriptionThe minimum subscription is $3,000,000. In accordance with the Corporations Act, no Shares will be allotted by the Company until the minimum subscription has been subscribed. If the minimum subscription is not achieved within four months after the date of this Prospectus, the Company will either repay the application moneys to the Applicants or issue a supplementary or replacement prospectus and allow Applicants one month to withdraw their Application and be repaid their application moneys.

1.3 OversubscriptionsThe Company reserves the right to accept oversubscriptions of up to 5,000,000 Shares to raise an additional $1,000,000. The maximum amount which may be raised under this Prospectus is therefore $5,000,000.

1.4 Indicative DatesThese dates are indicative only and may vary. The Company reserves the right to vary the opening and closing dates of the Offer without prior notice. Applicants are encouraged to apply as soon as possible after the Offer opens as the Offer may close earlier than the date specified above. The Company also reserves the right not to continue with the Offer at any time before the allotment of Shares to Applicants.

1.5 Use of FundsThe purpose of this Offer is to raise funds for the Company to:

undertake the exploration programmes on its mineral tenements and tenement applications (once granted) as outlined in this Prospectus;

identify and evaluate new opportunities in diamond exploration both in Australia and overseas that fit its exploration criteria; meet the costs of the Offer (including Application handling fees) and the general operating costs of the Company; and provide working capital, if oversubscriptions are accepted.

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D E TA I L S O F T H E O F F E R

Prospectus lodged with ASIC 25 February 2008Opening Date 7 March 2008Closing Date 21 April 2008Holding statements to be despatched 1 May 2008Trading commences on ASX 12 May 2008

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSSECTION �

The application of funds raised from the Offer is summarised as follows:

Note 1 The exploration expenditure is on granted tenements only. The intention of the Company is to concentrate on the granted tenements Palmietfontien, Durack, East Peak Hill and Conical Hill as a priority and will only work on the ungranted tenements Bushmanland, Oakover, Malmac Dome and Project K to the extent that they are issued and there are funds available.

Note 2 This sum represents the sum of $50,000 and the monthly retainer of $10,000 per month from January 2006 to February 2008 totalling $260,000 payable to Limewood as set out in Section 9 of this prospectus.

1.6 Capital StructureThe pro forma capital structure of the Company following successful completion of the Offer is as follows:

Further detail with respect to the application of funds to be raised from the Offer to exploration is set out in Section 3.5 and the Independent Geologist’s Report in Section 4.

Note 3 Pursuant to the C.K. Locke mandate referred to in Section 9, C.K. Locke and Parters Pty Ltd is entitled to 1 share in Gemstar for each dollar raised. This figure is based on the Company raising $3,000,000. If the Company were to raise $4,000,000 the figure will be 4,000,000 shares. If $5,000,000 is raised the figure will be 5,000,000 shares and the above percentages will change accordingly.

Note 4

As set out in Section 9.9, each Convertible Preference Share is convertible into 10,000 Shares at the option of the holder and accordingly, upon conversion of all of the Convertible Preference Shares a further 3,500,000 Shares will be issued. Limewood which holds all of the Convertible Preference Shares has agreed to convert their Convertible Preference Shares within 2 days after the listing of the Company and therefore the above table assumes that the Convertible Preference Shares are issued, consolidated and converted to ordinary shares;

1.7 Restricted Securities and Proposed Voluntary ArrangementsASX may classify certain existing Shares as being subject to the restricted securities provisions of the Listing Rules. Accordingly, a proportion of such Shares as determined in conjunction with ASX will be required to be held in escrow under the terms of the restriction agreements prescribed by the Listing Rules.

Limewood has agreed that the 17,340,488 shares to be allotted to it will be subject to escrow for the period of 2 years from the date the Company is admitted to listing on the ASX.

DETAILS OF THE OFFERSECTION �

$3,000,000 Raising $4,000,000 Raising $5,000,000 Raising

Cash at Bank (as at 30 June 2007 – refer to details in the Independent Accountants Report)

$77,385 $77,385 $77,385

Total Cash after Listing $3,077,385 $4,077,385 $5,077,385

Area/Activity

Exploration (refer Section 3.5 and Section 4) 1 $1,210,000 $1,757,000 2,197,000

Expenses of the Issue still to be paid out of Issue proceeds $398,000 $458,000 $518,000Payment of existing creditors (as at 30 June 2007 – refer details in the Independent Accountant’s report)

$23,374 $23,374 $23,374

Other payments due on listing payable to Limewood 2 $310,000 $310,000 $310,000

Limewood - Corporate Fee $60,000 $80,000 $100,000

Limewood - Capital Raising Fee $180,000 $240,000 $300,000

Accumulated Directors Fees $60,000 $60,000 $60,000

Administration Costs for first 2 years $400,000 $400,000 $400,000

Working Capital $436,011 $749,011 $1,169,011

Total $3,077,385 $4,077,385 $5,077,385

Shares %

31,858,001 Current Issued Shares 41.54%

3,500,000 Shares to be issued on conversion of the Convertible Preference Shares 4 4.56%

20,000,000 Shares to be issued pursuant to Offer 26.08%

17,340,488 Shares to be issued to Limewood (see section 9.4 of this prospectus) 22.61%

4,000,000 C.K. Locke 3 5.21%76,698,489 Total 100.00%

6,000,000 Plus oversubscriptions (if issued)

82,698,489

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Mainline has agreed that the shares to be allotted to it pursuant to the arrangements referred to in paragraph 9.4(e) of this prospectus will be subject to escrow for the period of 2 years from the date the Company is admitted to listing on th ASX.

General Goldworld Inc. a company incorporated in Panama has agreed that the 2 million shares in the Company transferred to it by Limewood (as consideration for the acquisition by Limewood of the Shares in Fidulex as described in paragraph 9.4(a) in this prospectus) will be subject to escrow for the period of 12 months from the date the Company is admitted to listing on the ASX.

1.8 Placement FeeThe Company reserves the right to pay any licensed security dealer a fee of up to 5% of application moneys on any Application bearing its stamp which are accepted by the Company.

1.9 Applications for SharesIf you wish to participate in the Offer, you should complete the Application Form enclosed with this Prospectus.

Applicants may apply for a minimum parcel of 10,000 Shares representing a minimum investment of $2,000. Applicants requiring additional Shares must apply for Shares in multiples of 500 Shares (equivalent to $100) thereafter.

Applications for less than the minimum application of 10,000 Shares (equivalent to $2,000) will not be accepted.

1.10 Lodgement of Application FormsAll completed Application Forms, must be lodged at the Company’s share registry, on or before the relevant Closing Date:

by post to or delivered toAdvanced Share Registry Services Advanced Share Registry ServicesPO Box ��56 ��0 Stirling HighwayNedlands WA 6909 Nedlands WA 6009

No brokerage or stamp duty is payable by Applicants in respect of their applications for Shares under this Prospectus. The amount payable on application will not vary during the period of the Offer and no further amount is payable on allotment.

Applications must be accompanied by payment in full in Australian currency of $0.20 for each Share applied for. Payment must be by way of cheque or bank draft drawn on and payable on an Australian bank and should be made payable to “Gemstar Diamonds Limited - Trust Account” and crossed ‘Not Negotiable’.

Application Forms must not be circulated to prospective investors unless accompanied by a copy of this Prospectus.

A duly completed and lodged Application Form will constitute an offer by the Applicant to subscribe for the number of Shares applied for pursuant to the Application Form.

1.11 AllocationThe Company retains an absolute discretion in allocating Shares under the Offer and reserves the right to allot to an Applicant a lesser number of Shares than the number for which the Applicant applies or to reject an Application. If the number of Shares allotted is fewer than the number applied for, surplus application money will be refunded without interest. The acceptance of Applications and the allocation of Shares are at the absolute discretion of the Directors. In the case of an oversubscription the Company reserves the right to accept larger applications in priority.

The Company will not be liable to any person not allocated Shares.

1.12 Application Moneys held in TrustAll Application Moneys will be held in trust in a subscription account until allotment. The subscription account will be established and kept by the Company on behalf of the Applicants.

All interest earned on all Application Moneys (including those which do not result in allotments of Shares) will be retained by the Company.

1.13 Australian Stock Exchange ListingApplication will be made by the Company to ASX, within seven days after the date of this Prospectus, for the Company to be admitted to the Official List of ASX and for admission of the Shares offered pursuant to this Prospectus to quotation on ASX. If the Company is not admitted to the Official List of ASX and the Shares not admitted to quotation within three months after the date of this Prospectus, all Application moneys will be refunded without interest. ASX takes no responsibility for the contents of this Prospectus. The fact that ASX may admit the Company to its Official List is not to be taken in any way as an indication of the merits of the Company or the securities offered pursuant to this Prospectus.

INDEPENDENT GEOLOGIST’S REPORT SECTION �DETAILS OF THE OFFERF

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1.14 CHESSThe Company proposes participating in the Clearing House Electronic Subregister System (“CHESS”), operated by ASX Settlement and Transfer Corporation Pty Ltd (“ASTC”) a wholly owned subsidiary of ASX, in accordance with the Listing Rules and SCH Business Rules.

Under this system, the Company will not issue certificates to investors. Instead, shareholders will receive a statement of their holdings in the Company. If an investor is broker-sponsored, the ASTC will send them a CHESS statement.

The CHESS statement will set out the number of securities allotted to each holder under the Prospectus, give details of the shareholder’s Holder Identification Number and give the Participant Identification Number of the sponsor.

If you are registered on the Issuer Sponsored Subregister, your statement will be dispatched by the share registry and will contain the number of securities allotted under the Prospectus and the Shareholder’s Security older Reference Number.

A CHESS statement or Issuer Sponsored Statement will routinely be sent to shareholders at the end of any calendar month during which the balance of their holding changes. A shareholder may request a statement at any other time, however a charge may be made for additional statements.

1.15 Overseas InvestorsThis Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.

No action has been taken to register or qualify the Shares, or the Offer, or otherwise to permit a public offering of the Shares, in any jurisdiction outside Australia.

The Offer pursuant to an Electronic Prospectus is only available to persons receiving an electronic version of this Prospectus within Australia.

1.16 Privacy Disclosure StatementThe Company collects information about each Applicant from an Application Form for the purposes of processing the Application and, if the Application is successful, to administer the Applicant’s security holding in the Company.

By submitting an Application Form, each Applicant agrees that the Company may use the information in the Application Form for the purposes set out in this privacy disclosure statement and may disclose it for those purposes to the share registry, the Company’s related bodies corporate, agents, contractors and third party service providers, including mailing houses, ASX, ASIC and other regulatory authorities.

If an Applicant becomes a security holder of the Company, the Corporations Act requires the Company to include information about the security holder (name, address and details of the securities held) in its public register. This information must remain in the register even if that person ceases to be a security holder of the Company. Information contained in the Company’s registers is also used to facilitate distribution payments and corporate communications (including the Company’s financial results, annual reports and other information that the Company may wish to communicate to its security holders) and compliance by the Company with legal and regulatory requirements.

If you do not provide the information required on the Application Form, the Company may not be able to accept or process your Application.

DETAILS OF THE OFFERSECTION �F

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2.1 DirectorsPeter Mapheha Maake, BA (Law), LLBChairman Mr Maake is an admitted Advocate of the High Court of South Africa, and practiced at the Johannesburg Bar from 2001 to 2003. He is currently a Director of Matimba Resources (Pty) Ltd, a blacked owned mining company, and Gemstar’s partner in South Africa.

He is formerly the Corporate Affairs Manager of Mpumalalanga Economic Empowerment Corporation, a South African Province’s quasi- governmental development organization.

He has practiced as a Legal Advisor to the Department of Housing of the Gauteng Provincial Government, and as Private Secretary to the Minister for Local Government and Housing in the Limpopo Province of South Africa.

Mr Maake also serves as a director of Cebisa Technologies (Pty) Ltd and Cebisa Telecommunications (Pty) Ltd.

Peter Fiore, BDSc MBADirectorDoctor Fiore is a qualified Dental Surgeon, who brings to the Company relationships in Africa and capital raising relationships in Europe and South East Asia. Dr Fiore is also the director of Mainline Nominees Pty Ltd.

Vincent Ferraloro DirectorMr Ferraloro has over twenty years experience in the business and corporate sectors.

He has played a key role in the formation and administration of several companies and he is also currently the director of Limewood Investments Pty Ltd.

Anthony Short BPE, BCom, GradDipFin, MAICD DirectorMr Short has more than 12 years experience in the administration and management of listed public companies. He has extensive experience at board level in the management and formation of public companies in the areas of gold mining, drilling, oil and gas and forestry.

He has held the position of chairman in a number of listed companies and has also acted as corporate advisor to a number of public company listings.

Mr Short intends to retire from the Company once the offer in this prospectus has been successfully completed and the Company is listed.

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2.2 Management and ConsultantsPeter Rasano, CPA. B Bus.Company SecretaryMr Rasano is a qualified accountant with more than 10 years experience in public accounting. He has extensive experience in taxation, financial accounting, management accounting and business consulting services. Mr Rasano currently works in a CPA Public Accounting firm in Subiaco in the capacity of manager in the business services division.

Mr Rasano holds a Bachelor of Business majoring in Accounting and sub majoring in Public Accounting, and is a certified practising accountant.

Moeti MpuruDirector - South African subsidiary, Urafiki Gems (Proprietary) Limited

Mr Mpuru is a South African with more than 10 years experience in corporate, political and stakeholder communication, having worked for private and public sector institutions in South Africa and abroad.

He is former management consultant for South Africa’s Gauteng Provincial Department of Housing and Local Government.

In addition he was the funding and sponsorship manager for the Johannesburg World Summit Company.

Mr Mpuru holds qualifications in project management and financial management.

Management of ProjectsThe Company has developed a strong relationship with its black empowerment partner Matimba Resources who will be the focal point for all in country work. Matimba Resources has a geological inhouse capacity, the company will make their in house experts available to the Company. Matimba through its other operations in South Africa, is in a position to supply and assist in the sourcing of contractors to assist in the drilling sampling and early mining of the companies assets.

2.3 Corporate Governance Statement Prior to admission to the Official List, Gemstar intends to formally adopt comprehensive systems of control and accountability as the basis for the administration of corporate governance. The Board is committed to ensuring that, once adopted, the policies and procedures will be administered with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Company’s needs. To the extent they are applicable, the Company intends to adopt the Ten Essential Corporate Governance Principles and Best Practice Recommendations as published by ASX Corporate Governance Council. The Company will make the relevant information regarding its corporate governance policies and procedures available on its website as soon as possible after adoption by the Company.

DIRECTORS AND MANAGEMENTSECTION �F

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3.1 Corporate Objective and Strategies

Company Objective:To increase shareholder wealth through the identification and profitable exploitation of diamondiferous ore bodies. This will be achieved by the utilisation of cost effective, proven exploration techniques and the acquisition of under-explored, high potential targets.

Gemstar aims to delineate economic diamond deposits through the targeted exploration and commercial assessment of its portfolio of tenements, and, if they present themselves, through the evaluation of acquisition opportunities for small, advanced projects that may result in securing an economic diamond deposit.

Gemstar’s exploration strategy is based on evaluating multiple kimberlites, recognising that several diamondiferous ore bodies may need to be evaluated to find one pipe capable of supporting commercial development.

To achieve its objectives Gemstar has obtained and applied for exploration tenements and has entered into an aquisition agreement in respect of a tenement application in Western Australia. Additionally, Gemstar has entered into agreements with other parties to secure an interest in tenements and tenement applications regarded as being prospective for diamonds which include the Palmietfontein Project and exploration tenements in the Bushmanland region of South Africa.

3.2 Exploration Philosophy and Background

Exploration PhilosophyGemstar recognizes that conventional exploration techniques and strategies have often failed to locate the primary sources of diamonds and associated indicator minerals.

For almost 100 years it was believed that kimberlite was the only volcanic source rock, and it was not until 1976 that the diamond potential of lamproites was identified. Soon thereafter the large 50 hectare Argyle pipe was discovered in the east Kimberley region of Western Australia, conclusively demonstrating that lamproites can produce economic diamond grades and that lamproite hosted diamonds can be equal in quality to those hosted in kimberlites.

3.3 South African Projects

(a) Introduction The areas which are the subject of the two South African projects, Bushmanland and Palmietfontein, have a well

delineated history of exploration and evaluation in the 1970’s and 1980’s. In the case of Palmietfontein, prior to Gemstar’s involvement a large kimberlite pipe has been delineated and sampled and a “global” diamond grade has been established. The Bushmanland project is based on the testing of the hypothesis that buried diamondiferous lamproite pipes (yet to be discovered) exist within the Bushmanland pipe swarm.

(b) Palmietfontein

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The Palmietfontein project (which includes the entire farm Palmietfontein) is centred on a 12.1 Ha diamondiferous kimberlite pipe discovered in 1925. Exploration by previous owners showed the pipe to be of a low average grade (1.7 carats per 100 tonnes) but to be endowed with diamonds of unusually large average size (0.77 carats). Sampling undertaken in the period 1979-1981 indicates it may be possible to delineate a coherent relatively high grade area (3 to 5 carats per 100 tonnes) that could justify economic evaluation within the pipe. Such an area may be in the region of 1 to 3 Ha. Elsewhere on the farm Palmietfontein there is good potential to discover at least one additional kimberlite intrusive.

New order prospecting rights have been granted to Fidulex in respect of diamonds and the company will have a 74% interest in Fidulex through Urafiki Gems. The Company intends to delineate the high grade area referred to by Snowden, and if successful, to evaluate the area by bulk sampling and trial mining for possible economic diamond recovery. Concurrently with this work, The Company will also evaluate the farm Palmietfontein for the existence of further kimberlite pipes or dykes.

OVERVIEW OF THE COMPANY

Figure 2.1

OVERVIEW OF THE COMPANYSECTION �F

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INDEPENDENT GEOLOGIST’S REPORT SECTION �OVERVIEW OF THE COMPANY

(c) Bushmanland

The Bushmanland project is located on two farms about 150km south-southeast of the town of Springbok. The farms cover part of an area that contains swarms of kimberlite-related pipe-like intrusives. The Bushmanland project is currently the subject of an application for a prospecting right.

The Bushmanland project is based on the theory that some of the pipes in the project area are lamproitic in composition (similar to Argyle and other Western Australian diamondiferous pipes), that they are diamond bearing and that they are the source of some of the alluvial diamond occurrences in the region.

To date very few lamproites have been discovered in South Africa. This is in stark contrast to the Australian experience, where lamproites outnumber kimberlites. Two of the three hard rock Australian mines are lamproites (Argyle and Ellendale 9). So far, no lamproite pipes have been discovered in the Bushmanland project area.

Northville Minerals, a company in which Gemstar has an effective 49% interest has applied for a prospecting right in respect to the Bushmanland project.

In the Independent Geologist’s Report, Snowden state that “discovery of a lamproite (sensu stricto) pipe by Gemstar would be an important achievement. If lamproite (sensu stricto) is discovered this would cause a re-evaluation of the importance of the Bushmanland pipe swarm as a source of diamonds.” The Bushmanland project is the subject of an application only. A previous application was lodged but was rejected because of failure to comply with techincal requirements. A complying application was subsequently lodged. It is not possible at this stage to indicate whether the application will be successful.

(d) Ownership Structure The Company’s interest in the South African projects have been acquired or applied for indirectly via partly owned

subsidiaries of the Company as shown in the table below. Further details on the ownership structure of the South African projects is given in the South African Attorneys Report contained in Section 7 and in the summaries of the agreements contained in Section 9.4(a), 9.4(b) and 9.4(c).

Table 2. South African Tenement and Tenement Application

* To the nearest decimal point

Project Farms Prospecting Permit

Area hectares

Applicant Proposed Indirect Equity

Application Date/ Date of Grant

Status

Bushmanland Riembreek364Namaqualand Rd

Portions 1, 2 & 3 of Gamoep 234Namaqualand Rd

Pending 4,947.6*

5,436.8*

Northville Minerals

Urafiki Gems 66% and Matimba Gems 34% as shareholders of Northville Minerals

Application Date

12/10/06

Pending

Palmietfontein Palmietfontein 208 JP

Granted 3,260.8* Fidulex Diamond Holdings (Proprietary) Limited

Urafiki Gems 100%

Date of Grant

15/11/06

Granted

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The Company has entered into a shareholders agreement with Matimba Gems, a South African Black Empowerment Group, to establish an entity through which to acquire an interest in the South African projects, that entity being Urafiki Gems. The terms of the shareholders agreement is summarised in section 9 (para 9.4 d). Urafiki Gems is owned 74% by Gemstar and 26% by Matimba Resources. This arrangement provides Gemstar with the ability to fulfil the black empowerment requirements of the mining law regime in South Africa. Further details of that regime are included in the report in Section 7. Set out below is diagram showing the corporate structure for the South African projects and the Company’s interest in those projects after the Company has acquired the shares in Fidulex from Limewood and the shares in Fidulex have been transferred to Urafiki Gems.

Under South African Law Fidulex as the holder of the Palmietfontein prospecting permit has the exclusive right to apply for its renewal for a period not exceeding 3 years. Only 1 extension may be granted and must be made prior to the expiry date. The prospecting right will remain valid until the grant of a renewal provided that it is made prior to the exploration date. The criteria which will be applied in considering the renewal include the technical and financial ability of the applicant, compliance with previous work programs and its continued compliance with black empowerment requirements. Fidulex as holder of the prospecting permit has the exclusive right to apply for a mining right in respect of the Palmietfontein project.

Notes:

1. Gemstar effectively has a 49% interest of the Bushmanland project, while the effective black economic empowerment interest of the Bushmanland project is 51%.

2. Gemstar will effectively have a 74% interest in the Palmietfontein project, while the effective black economic empowerment interest in that project will be 26%.

3 As described in Section 9.4 of this prospectus, Limewood has aquired the issued shares in Fidulex from General Goldworld. The Company has entered into an agreement with Limewood to aquire the shares in Fidulex. Upon the Company aquiring the shares in Fidulex it will transfer them to Urafiki Gems (the Company Urafiki will issue shares to the company Gemstar) in consideration of the transfer of the Fidulex shares to it. The acquisition of Fidulex from Limewood and the transfer to Urafiki is subject to the Company being listed on the ASX. The Company will transfer some of the shares it receives from Urafiki to Matimba Gems to ensure that Urafiki Gems is held 74% by the Company and 26% by Matimba Gems.

OVERVIEW OF THE COMPANYSECTION �

Urafiki Gems

100%

66%

26%

34%

Shareholders’ Agreement

MATIMBA RESOURCES

Palmietfontein ProjectNew Prospecting Right granted and registered

Northville Minerals

Bushmanland ProjectApplication for Prospecting

Right

MATIMBA GEMS GEMSTAR

74%

100%

FIDULEX

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A “new order” prospecting right has been granted in respect of the Palmietfontein Project for over the existing “old order” in line with the new mining regime in South Africa. Gemstar effectively has a 74% interest in the Palmietfontein Project, while the effective black economic empowerment group’s interest in that project is 26%. The terms of the agreement between Limewood and the Company are summarised in Section 9 and a summary of the mining regime in South Africa and the “new order” grant are set out in Section 7.

Northville Minerals ( a company in which the company has effective 49% interest) has applied for the grant of a prospecting licence over the Bushmanland project. These applications have been made in line with the new mining regime in South Africa. Gemstar effectively has a 49% interest in the Bushmanland Project, while the effective black economic empowerment group’s interest in the Bushmanland Project is 51%. A summary of the mining regime in South Africa and the status of this application are set out in Section 7.

3.4 West Australian Projects

(a) Introduction Gemstar’s interests in granted tenements and appilcations for tenements in Western Australia is set out below.

The Pilbara is a geological region with a similar physical structure to the Kaapvaal Craton in South Africa and was selected as a prime regional target area in Australia by early diamond explorers.

(b) The Durack Project - South-East Kimberley The Durack Project consists of two tenements (one granted and one application) located in the eastern part of the

Kimberley Basin approximately 190 kilometres north-east of the Ellendale Lamproite Field and 150 kilometres south-west of the Argyle Diamond Mine. The Durack River runs north-south along the western edge of EL 80 / 3942.

Previous exploration on the project resulted in the recovery of 25 micro-diamonds and numerous chromite indicator minerals.

Initial work will include a high resolution aeromagnetic survey with close spaced flight lines to identify potential pipes. This aerial survey may also incorporate a gravity survey. This will be followed by the heavy mineral loam sampling of magnetic anomalies identified by the survey and the drilling of resulting target areas.

On 9th November 2007 the Department of Industry & Resources of Western Australia (DOIR) recommended that the application for exploration licence E80 / 3942 which comprises part of this Durack Project be refused. The Company through its tenement manager has requested the DOIR to review their decision.

(c) The Oakover Project - The Pilbara The Oakover project consists of a single exploration licence application (ELA 45/2376) located approximately

90 kilometres northeast of the town of Nullagine in the Pilbara region of Western Australia.

Upon granting of the tenement, the brecciated areas already identified will be mapped and sampled. This will quickly facilitate the location of drilling and bulk sampling sites. Streams draining other parts of the tenement will also be sampled for indicator minerals.

The tenement lies between Yilgalong Creek and the Oakover River and is easily accessible. The small tenement size reflects Gemstar’s strategy of cost effective and rapid evaluation of focussed exploration targets.

(d) The East Peak Hill Project - The Glengarry Basin The Peak Hill project consists of one tenement application (ELA 52/1612) and is located in the Glengarry Basin about

20kms southeast of Neds Creek Station near the Plutonic goldmine. Gemstar intends to follow up positive kimberlite indicator minerals (including macro-diamonds) reportedly recovered in stream drainage sampling by a previous explorer. Previous exploration recovered one macro-diamond, two micro-diamonds and numerous kimberlitic chromites from this tenement (refer Independent Geologists Report Section 4). This area is 35 kilometres south of the Marymia kimberlite field.

A combination of geological interpretation and geophysics will be used to quickly evaluate this area and any anomalous targets will be loam sampled.

INDEPENDENT GEOLOGIST’S REPORT SECTION �OVERVIEW OF THE COMPANYF

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�5G E M S T A R D I A M O N D S L I M I T E D P R O S P E C T U S


(e) The Malmac Dome Project - Northern Nabberu Basin The Malmac Dome project is located on an exploration licence application approximately 200 kilometres to the north-

east of Wiluna. This is an under explored area in the north of the Nabberu Basin where chromite and diamonds have previously been discovered (such discoveries have been in the area but not this particular tenement).

The Malmac Dome Project is located over a sedimentary sequence that overlies the Archaean Yilgarn Craton which is considered favourable for the preservation of diamondiferous kimberlite.

Figure 3.1

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The tight anticlinal structure within the Frere and Yelma Formations on the tenement is the site of previous positive sample results. The diamondiferous Jewill kimberlites are located 23 kilometres to the south-east of Gemstar’s tenement.

The areas of interest already outlined will be geologically mapped and sampled further to delineate the extent of the drill targets.

(f) Project “K” - The Pilbara Project “K” (comprised of exploration licence application 46/454) is located approximately 55 kilometres north-east of

the town of Newman in the Pilbara region.

The exploration targets on this application area are two strong magnetic anomalies where previous ground magnetic and gravity surveys over these targets confirmed the intensity of the initial aerial discovery and show a strong magnetic high over the top of a gravity low.

The two targets are interpreted to be emplaced within a north-north-easterly lineament or fault which traverses the fault-bounded Fortescue Basin. These faults are regional features which can be traced for several hundred kilometres. One of these faults is known to have been intruded by a kimberlite dyke (the Brockman Creek Dyke). The Brockman Creek Dyke is located north-east of Nullagine where the first diamonds in Western Australia were found.

Subject to grant of this tenement, either close spaced aeromagnetic, or a ground magnetic geophysical survey will be conducted over the tenement to pinpoint the centre of the geological features that have given rise to the initial anomalies.

(g) The Conical Hill Project - Nabberu Basin The Conical Hill Project (exploration licence 69/1753) comprises 160 square kilometres and is located on the northern side of

the Shoemaker Impact Structure within the Nabberu Basin.

Satellite image interpretation shows at least five unusual features which Gemstar believes to be prospective. These anomalies have been sampled and are awaiting treatment. Rock samples have also been taken from anomalous rock outcrop. Gemstar’s initial field trip to the northern end of the tenement produced a single chromite indicator from a soil sample to the immediate west of one of the five targets.

Further work will be planned when the results of the present sampling are available. Good access to the area is possible over station roads.

This tenement is the subject of the Uranium Rights Agreement with Palace Resources Limited ACN 106 240 475 referred to in section 9.4 of this prospectus.

(h) Calawanyah Project - Hamersley Basin Pilbara Craton The Calawanyah project is the subject of an appilcation for an exploration licence (ELA47/1317) and is located in the

northern part of the Hamersley Range approximately 100 km north of Tom Price.

The tenement application is centred over an air photo feature of altered ferruginised material. A similar anomaly approximately three kilometres south east of this anomaly has reportedly yielded two diamonds, and numbers of chromite, picro-ilmenite pyrope garnet and chrome diopside from drill material (refer to the Independent Geologists Report). Once this tenement is granted, the anomaly on Gemstar’s ground will be geologically mapped and sampled.

(i) Ownership Structure

Gemstar’s interest in the West Australian projects have been acquired or applied for by the Company (or are the subject of an acquisition agreement) as shown in the table below.

Table 3. Tenement schedule for current Western Australian Projects.

“MEC” refers to the minimum annual expenditure commitment for a granted tenement. A tenement application is not subject to such a commitment. The Company’s current total MEC for all of its granted tenements is $165,000.

INDEPENDENT GEOLOGIST’S REPORT SECTION �OVERVIEW OF THE COMPANY

Project Tenement Holder(Applicant)

Blocks Equity % Km2 Status MEC$

Application Date/Date Granted

Durack E 80/3942 Gemstar 29 100 81.2 (Pending) $29,000 2/05/07

Durack E 80/2877 Gemstar 66 100 184.8 Granted $66,000 22/03/06

Oakover E 45/2376 Gemstar 24 100 67.2 (Pending) $24,000 29/01/02

EastPeak Hill E 52/1612 Gemstar 39 100 109.2 Granted $39,000 15/07/05

Malmac Dome E 69/2401 Gemstar 70 100 196 (Pending) $70,000 1/05/07

Project K E 46/454 Norwest1 16 100 44.8 (Pending) $20,000 21/10/98

Conical Hill E 69/1753 Gemstar 60 100 168 Granted $60,000 18/06/03

Calawanyah E47/1317 Gemstar 1 100 2.8 (Pending) $10,000 14/10/03

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Note 1 Norwest “is Norwest Mining Services Pty Ltd ABN 73 042 045 049”. Norwest has agreed to transfer the Project K tenement to the Company as referred to in Section 9.4

3.5 Exploration Timing and Budgets

The Company has prepared a two year exploration programme and budget for the tenements in which the Company has an interest.

The chart below depicts the proposed timing for the Company’s planned exploration. The timescales are indicative only and subject to change. In particular, the Company cannot guarantee that any of the pending tenement applications will be granted within the time indicated as this is subject to matters beyond the Company’s control.

Notes:(1) As at the date of the Prospectus, this tenement has not been granted, however the applications have been accepted.

(2) As at the date of the Prospectus, these tenements have not been granted.

(3) An additional tenement extending the main Durack tenement (being E 80/3942) is pending.

The budget for the planned exploration is set out below. For the purposes of the table below, the Company assumes exploration on granted tenements only, but as noted above, a number of the tenements are pending and the Company cannot guarantee when the pending applications will be granted. However, should none of these tenement applications be granted the Company has prioritised the expenditure of funds on the tenement interests that are already granted. It must also be recognised that all exploration budgets are subject to change and review as results are obtained from the proposed programs. Budgeted expenditure may also change in priority as and when those tenement applications are granted.

The table above has been prepared on the assumption of expenditure on granted tenements only. The table on page 19 of the Independent Geologists Report prepared by Snowden was prepared to reflect expenditure on granted and pending

tenements. The Durack Project planned exploration expenditure consists of granted tenement (E80/2877) $390,000 over 2 years and pending application for (E80/3942) $60,000 over 2 years totalling $450,000 over 2 years as per Snowden’s Report.


Durack

East Peak Hill

Conical Hill

Palmietfontein

Bushmanland (1)

Oakover (2)

Malmac

Project K (2)

Calawanyah (2)

Jun 2008 Sep 2008 Dec 2008 Mar 2009

WA

Gra

nted

RS

A

WA

Pen

ding

(wet season)

Durack (3)

Tenement application Sampling / Geophysics Drill testing / Bulk sampling

Years 1 & 2 3 Million Raise 4 Million Raise 5 Million Raise

Palmietfontein $600,000 $1,087,000 $1,527,000

Durack $390,000 $390,000 $390,000

East Peak Hill $40,000 $80,000 $80,000

Conical Hill $180,000 $200,000 $200,000

Working Capital $1,790,000 $2,243,000 $2,803,000

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25 January 2008

The Directors Gemstar Diamonds Limited Trust House 31 Townshend Road SUBIACO WA 6005

Dear SirsIndependent Geologist’s Report on Gemstar Diamonds Limited’s Exploration Projects

in South Africa and Western Australia

At your request Snowden Mining Industry Consultants Pty Ltd (“Snowden”) has prepared an Independent Geologist’s Report on Gemstar Diamonds Limited’s (“Gemstar”) exploration projects in South Africa and Western Australia. It is Snowden’s understanding that this report will be included in a Prospectus to be lodged with the Australian Securities and Investments Commission (“ASIC”). The purpose of the Prospectus is to offer for subscription 20 million ordinary shares at an issue price of 20 cents per share to raise a total of $4 million, before costs of the issue, to fund the future assessment of the projects.

The objective of this report is to present for each project a geological description, an outline of previous exploration work and an opinion on the exploration potential of the projects and on the proposed costed exploration programmes for the next two years.

Snowden has based its assessment of Gemstar’s projects on site visits to the South African (Palmietfontein and Bushmanland) and Western Australian (Durack, and East Peak Hills projects) project areas and also on information provided by Gemstar, technical reports by previous tenement holders, published and unpublished documents, company prospectus’, annual reports, research papers and books. A listing of the documents referenced is provided at the end of this report. Consents have been sought from Gemstar and its consultants to include technical information and opinions expressed by them. None of the other entities referred to in this report have consented to their inclusion in this Prospectus and have only been referred to in the context of reporting material fact.

Snowden satisfied itself that all material information in the possession of Gemstar as at August 2007 had been fully disclosed to Snowden. Snowden has been advised by the Directors of Gemstar that to their knowledge all relevant information in their possession relative to the projects has been divulged to Snowden. A draft version of this report was provided to the directors of Gemstar for comment in respect of omission and factual accuracy prior to the document’s finalisation.

The current ownership status of the tenements within each project is dealt with in a separate Solicitor’s Report in sections 6 and 7 of this Prospectus. Snowden has not independently verified ownership and current standing of the tenements and is not qualified to make legal representations in this regard. Snowden has, however, enquired of the Directors of Gemstar regarding the status of tenements ownership and has prepared this report on the understanding, following representations made to Snowden by Directors of Gemstar, that all Gemstar tenements are currently in good standing and that there is no cause to doubt the eventual granting of all tenement applications.

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I N D E P E N D E N T G E O LO G I S T ’ S R E P O R T

87 Colin Street West Perth WA 6005PO Box 77 West Perth WA 6872

Telephone +61 8 9481 6690Facsimile +61 8 9322 2576

[email protected]

Perth, Brisbane, Vancouver, Johannesburg, London

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSSECTION �

Snowden has been advised by Gemstar that three of its projects are granted ie Palmietfontein (in South Africa), East Peak Hill and Conical Hill (in Western Australia). The Durack project in Western Australia comprises two tenements one of which is granted. The tenements for five projects have still to be granted, ie Bushmanland (in South Africa) Oakover, Malmac Dome, Project K and Calawanyah (all in Western Australia).

The proposed exploration programmes developed by Gemstar have been reviewed by Snowden. Three separate budgets have been developed by Gemstar for each project to reflect planned expenditure in the event that the company raises either A$3 million (the minimum subscription) or A$4 million (the amount sought) or A$5 million (over subscription). Gemstar has indicated that during the first two years following its equity raising it intends expending between 55% and 58% of funds raised on direct exploration of its properties ie “money in the ground”.

Gemstar’s planned exploration budgets are summarised in the following table.

Gemstar: Year 1 and Year 2 planned Exploration Expenditure

The exploration focus during the first two years will be directed towards the Palmietfontein and Durack projects. There is relatively little exploration being planned for the other projects. In Snowden’s opinion Gemstar is correct to focus its attention on the Palmietfontein and Durack projects noting, however, that one of the two tenements that constitute the Durack project is yet to be granted.

From Snowden’s assessment of 9 project areas, it is our opinion that the projects are of merit, are worthy of further exploration and that the exploration programmes proposed over the respective projects have been carefully conceived and costed. Snowden cautions, however, that the proposed exploration programmes may change in Year 2 from that currently stated and will be dependent on the results from the Year 1 programmes. Furthermore, we expect that certain projects will be terminated at the end of Year 1 exploration and that new projects will be established.

Snowden has not attempted to establish the legal status of tenements within each project area with respect to Native Title claims or potential environmental and access restrictions. Again this matter is dealt with in the Solicitor’s Report in this Prospectus.

INDEPENDENT GEOLOGIST’S REPORT SECTION 4

Year 1 Equity Raised

Equity Raised Project

A$3M A$4M A$5M

Palmietfontein 0.300 0.567 0.807

Bushmanland 0.002 0.026 0.026

Conical Hill 0.099 0.109 0.109

East Peak Hill 0.002 0.007 0.0075

Durack 0.225 0.225 0.225

Oakover 0.0035 0.0035 0.0035

Malmac 0.138 0.138 0.138

Project K 0.000 0.000 0.000

Calawanyah 0.000 0.000 0.000

Total Year 1 0.7695 1.0755 1.316

Year 2

Palmietfontein 0.300 0.520 0.720

Bushmanland 0.165 0.185 0.185

Conical Hill 0.081 0.091 0.091

East Peak Hill 0.038 0.0725 0.0725

Durack 0.225 0.225 0.225

Oakover 0.020 0.020 0.020

Malmac 0.090 0.090 0.090

Project K 0.021 0.021 0.021

Calawanyah 0.022 0.022 0.022

Total Year 2 0.962 1.2465 1.4465

Total 1.7315 2.322 2.7625

57% 58% 55%

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INDEPENDENT GEOLOGIST’S REPORT SECTION 4INDEPENDENT GEOLOGIST’S REPORT

This report has been prepared in accordance with the Australasian Institute of Mining and Metallurgy’s (AusIMM) Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Experts Reports (the VALMIN Code) and Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code).

Snowden is a firm providing specialist mining industry consultancy services in the fields of geology, exploration, resource estimation, mining engineering, geotechnical engineering, risk assessment, mining information technology and corporate services including independent expert reports and mineral asset valuations. The company, which operates from offices in Perth, Brisbane, Johannesburg, Vancouver and London has prepared independent technical reports and valuations on a variety of mineral commodities in many countries.

The person responsible for the completion of this report is:

Dr Philip Snowden BSc (Hons), PhD, FAusIMM CPGeo, MAIG is a professional geologist with 35 years experience in the minerals industry including 10 years lecturing in geology in southern Africa, 6 years with Anglo American Gold and Uranium Division in South Africa and 19 years as an independent geological consultant based in Perth. Dr Snowden is an Executive Consultant of Snowden, a Fellow of the AusIMM and a Member of the AIG. Dr Snowden has undertaken numerous independent reviews and valuations of exploration and mining projects throughout Australia, Africa and SE Asia. The author has the appropriate relevant qualifications, experience and competence to be considered an “Expert” under the definitions provided in the VALMIN Code and a “Competent Person” as defined in the JORC Code.

The report has been reviewed by:

Mr J A J McKibben (BSc (Hons), MBA, MAIG) is a professional geologist with more than 12 years experience in exploration, resource definition, project management and industry development gained through working with several mining companies in Western Australia, Zambia and Morocco, as well as the Tasmanian government. At Snowden, Jeames is involved in independent technical reviews, audits and valuations of mining and exploration assets.

Neither Dr Snowden or Mr McKibben have any material interest in Gemstar or in the mineral properties considered in this report. Snowden is remunerated for this report by way of a professional fee determined according to a standard schedule of rates which is not contingent on the outcome of this report.

Snowden has given and has not before lodgement of the prospectus with ASIC withdrawn its written consent to being named as author of this report and to the inclusion of this in the Prospectus by Gemstar.

Yours faithfully

Mr J McKibben BSc(Hons), MBA – MGSM Dr P A Snowden BSc (Hons), PhD, FAusIMM CPGeo, MAIGSenior Consultant Principal Geologist and Executive General Manager

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TA B L E O F C O N T E N T S1.0 INTRODUCTION 24

1.1 GENERAL 24

1.2 CONSIDERATIONS WHEN EXPLORING FOR PRIMARY DIAMOND DEPOSITS 24

1.2.1 Kimberlitic rocks 24

1.2.2 Kimberlite indicator minerals 25

1.2.3 Weathering of kimberlitic rocks 25

1.2.4 Magnetics in kimberlite exploration 26

1.2.5 Lamproite pipes 26

2.0 SOUTH AFRICA 26

2.1 INTRODUCTION 26

2.2 PALMIETFONTEIN 27

2.2.1 Introduction 27

2.2.2 Geology 28

2.2.3 Previous exploration 32

2.2.4 Exploration results 33

2.2.5 Comparisons with other pipes 38

2.2.6 Exploration Potential 41

2.2.7 Evaluation and exploration budgets 44

2.3 BUSHMANLAND 45


2.3.2 Geology 47

2.3.3 Previous exploration and exploration results 52

2.3.4 Exploration potential 53

2.3.5 Work programme and budget 53

3.0 WESTERN AUSTRALIA 53

3.1 INTRODUCTION 53

3.2 DURACK 55


3.2.2 Geology 55




3.2.6 Exploration budget 58

3.3 OAKOVER 59


3.3.2 Geology 59





3.4 EAST PEAK HILL 62


3.4.2 Geology 63





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TA B L E O F C O N T E N T S 3.5 MALMAC DOME 65


3.5.2 Geology 65





3.6 PROJECT K 69


3.6.2 Geology 69





3.7 CONICAL HILL PROJECT 70


3.7.2 Geology 70





3.8 CALAWANYAH PROJECT 72


3.8.2 Geology 72




4.0 PUBLICATIONS AND REPORTS REFERRED TO FOR THIS REPORT 74

5.0 GLOSSARY OF TERMS 77

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TA B L E O F C O N T E N T SLIST OF FIGURESFigure 1.1 Idealised section through the upper section of a kimberlite pipe 25Figure 2.1 Palmietfontein and Bushmanland Project locations. The shaded area marks the extent of the Archaean cratonic terrain. 27Figure 2.2 Locations of most important kimberlite dykes and pipes. The shaded area marks the extent of Archaean cratonic terrain. 29Figure 2.3 Recent photographs of sampling trenches excavated during the period 1979 to 1981 31Figure 2.4 Near surface diamond grades (carats per 100 tonnes) 35Figure 2.5 Near surface diamond contour plan (stones per 100 tonnes) 36Figure 2.6 Near surface diamond contour plan (average stone size) 37Figure 2.7 Location of southern African diamond mines 39Figure 2.8 Palmietfontein surface loam sampling results (pyrope garnet counts) 42Figure 2.9 Palmietfontein aeromagnetic contour map 43Figure 2.10 Location map of Bushmanland project 46Figure 2.11 The Bushmanland tenement applications 48Figure 2.12 The Bushmanland ultramafic pipe swarm 49Figure 2.13 West Coast marine and alluvial diamond deposits 51Figure 3.1 Location of Gemstar’s diamond exploration projects in Western Australia 54Figure 3.2 Situation of the Durack project in the Kimberley Block geological province of Western Australia. Also shown are other significant diamond projects and diamond mines in the region. Inset shows area of previous regional diamond exploration around Durack. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 56Figure 3.3 Durack project showing Gemstar tenements and underlying geology. Also shown are kimberlite indicator mineral occurrences located during previous regional sampling (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 57Figure 3.4 Location of the Wiluna, Oakover, East Peak Hill, Lake Carnegie, Malmac Dome, Project K and Conical Hill projects. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 60Figure 3.5 Oakover project – showing tenement ELA45/2376 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 61Figure 3.6 East Peak Hill – showing tenement EL52/1612 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 64Figure 3.7 Malmac Dome – showing ELA69/1754 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 66Figure 3.8 Project K – showing the two magnetic high-gravity low “bullseye” anomalies on ELA46/454. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 68Figure 3.9 Conical Hill – showing ELA69/1753 and the underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation) 71

LIST OF TABLESTable 2.1 Tenement schedule for current Gemstar projects in South Africa 28Table 2.2 Proposed Exploration Budget - Palmietfontein for Years 1 and 2 45Table 2.3 Proposed Exploration Budget for Bushmanland for Years 1 and 2 53Table 3.1 Tenement schedule for current Gemstar projects 55Table 3.2 Proposed exploration budget - Durack for Years 1 and 2 59Table 3.3 Proposed exploration budget - Oakover for Years 1 and 2 62Table 3.4 Proposed exploration budget – East Peak Hill for Years 1 and 2 65Table 3.5 Proposed exploration budget – Malmac Dome for Years 1 and 2 67Table 3.6 Proposed exploration budget – Project K for Years 1 and 2 70Table 3.7 Proposed exploration budget – Conical Hill Project for Years 1 and 2 72Table 3.8 Proposed exploration budget – Calawanya Project for Years 1 and 2 73

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1.0 INTRODUCTION

�.� GENERALGemstar Diamonds Limited (“Gemstar”) has applied for and agreed to acquire interests in two diamond exploration projects in South Africa and seven projects in Western Australia. The projects in South Africa are Palmietfontein and Bushmanland. The Palmietfontein project is focussed on a 12.1 Ha diamondiferous kimberlite pipe that has so far demonstrated a low diamond grade but appears to have areas within it that are relatively high grade. The pipe is located on a +3,000 Ha farm that has potential to host at least one additional pipe. The Bushmanland project covers two farms within an area hosting an enormous swarm of kimberlitic-like pipes (more than 200) close to the West Coast alluvial and marine diamond mines in the Namaqualand area of South Africa.

Gemstar’s Western Australian projects are located in areas that have previously been explored for diamonds, with all but one of the projects (Project K) yielding positive indications for potential diamond bearing source rocks in their vicinity.

In establishing a portfolio of diamond exploration projects Gemstar has intentionally sought out properties in areas of demonstrated exploration potential ie properties that have progressed beyond the “green fields” diamond exploration stage. A feature of the projects is that they are of small to modest size. Gemstar has intentionally avoided acquiring large tracts of exploration ground (a common approach for diamond exploration companies undertaking green fields exploration) in favour of properties which it believes justify focussed “follow-up” geologically-based exploration supported by targeted sampling. This approach contrasts with that taken by most diamond exploration companies who rely principally on regional sampling programmes with little or no attention paid to local geology. The focus of these companies tends to be directed towards the rapid assessment of the diamond potential of very large areas.

Snowden’s discussions with Gemstar’s geological personnel lead us to the view that Gemstar’s approach to exploration will be multi-dimensional and will be adapted to accommodate the local geological, geomorphological and weathering environments. An important aspect of its philosophy will be the careful selection of exploration projects and its willingness to turn projects over rapidly if they do not provide appropriate encouragement.

�.� CONSIDERATIONS WHEN EXPLORING FOR PRIMARY DIAMOND DEPOSITS

�.�.� Kimberlitic rocksFor the purposes of this report, the term ‘kimberlitic’ describes a hybrid rock of variable composition sourced from a magma derived from the upper mantle that may contain diamonds. By using the term kimberlitic we imply that the precise rock type is uncertain. Kimberlitic rocks include kimberlite sensu stricto, lamproite, olivine nephelinite and olivine melilitite.

The search for primary diamond deposits occurring in kimberlitic pipes and dykes calls for a specialist approach to exploration. Kimberlitic rocks at the earth’s surface are rare and kimberlitic rocks hosting diamonds, let alone economic quantities of diamonds, are very rare. Their rarity arises because they are sourced from deep in the earth (below 150 km depth), with specific conditions existing that allow magmas from this great depth to rise to the surface or near surface carrying diamonds and then freeze (solidify to rock) before the diamonds are resorbed through reaction with the magma in an unstable pressure and temperature environment.

Kimberlitic pipes tend to be funnel shaped and to taper to a narrow dimension at depth (Figure 1.1). Towards the surface they open up to define a circular diatreme component of the pipe and if preserved at surface possibly even a distinct volcanic crater filled with crater sediments. Kimberlitic pipes with their craters intact are rare since most have been destroyed by erosion.

Below the crater facies the rocks take on the form of volcanic breccias containing a mix of kimberlitic matrix material and fragments of wall rock. Surface erosion, however, generally conspires to remove the upper parts of kimberlite pipes with only the deeper narrow, hypabyssal root zone preserved. Diamonds are generally thought to have been concentrated in the diatreme part of the pipe and to diminish in abundance with depth. While this may be generally true, one soon learns that where kimberlites are concerned there are always exceptions to every rule.

Kimberlitic rocks have an unusual and distinctive mineralogy. They are formed from volatile-rich potassic, ultrabasic magmas enriched in magnesium, chromium, nickel and cobalt. They are characterised by hosting megacrysts which may include olivine, enstatite, chrome diopside, pyrope garnet, picro-ilmenite, chrome spinel (chromite), phlogopite mica and diamonds in very small amounts set in a matrix of serpentine, carbonate, phlogopite, magnetite and perovskite.

The chemically distinctive nature of these mineral species from kimberlitic rocks means that by employing the electron microprobe (“probe”) individual grains can be analysed and may be chemically characterised as having been derived from kimberlitic rocks. Because of the distinctive nature of these minerals they are often referred to as “kimberlite indicator minerals” and are fundamental in aiding the search for diamond bearing kimberlitic pipes and dykes.F

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�.�.� Kimberlite indicator mineralsAs a generalisation kimberlitic rocks tend to be eroded and deeply weathered and they make themselves anything but obvious at the earth’s surface. The ground search for pipes relies, therefore, on searching stream and river sediments or the soil profile (loams) for kimberlite indicator minerals (megacrysts) that may have been eroded from a kimberlitic pipe and retained in a recognisable condition and chemically intact.

The most robust of the indicators tend to be diamond, pyrope garnet, picro-ilmenite, high Cr2O3 chromite or chrome spinel. Because these minerals are resilient in the weathering profile they can be relatively widely dispersed from their primary kimberlitic source without being physically destroyed. Other minerals such as chrome diopside and kimberlitic olivine are relatively easily destroyed in the weathering profile. If found they would suggest that a kimberlitic source is relatively close at hand.

Exploration for kimberlite indicator minerals relies upon sample collection in the field, appropriate sizing and reduction of the sample by sieving, concentration of potential indicator minerals by magnetic separator or the use of heavy liquids, scrutiny of the heavy mineral population by an experienced mineralogist or mineral technician and electron microprobing of possible indicator minerals to determine whether the chemistry of the identified mineral species classifies it as an indicator mineral with a kimberlite origin. It is apparent from this brief description that the process is very time consuming and potentially expensive.

There tend to be two approaches to the selection of sample sites for indicator minerals. In areas where there is a developed drainage system, samples collected at strategic sites within the drainage provide insight into the terrain up-stream. Where streams are not well developed then soil or loam sampling is necessary and this is often conducted on a grid. Loam sampling will also often follow positive stream sampling with the loam samples collected from the terrain between streams.

�.�.� Weathering of kimberlitic rocksMuch of Western Australia is characterised by a deeply weathered and in places ferruginised (rocks thoroughly replaced by iron oxide minerals) profile. It is not unusual to visit a mine site in the Yilgarn craton and find the weathering front persists to a depth of 50 m to 60 m and to even greater depths where a fault or shear zone exists.

Given this situation and the fact that kimberlitic rocks are one of the most “easily weathered” rock types known within the extremely weathered terrains of Western and Northern Australia, their olivine rich nature ensures their disaggregation rapidly in a hot, wet environment. It is reasonable to conclude that the possibility of finding anything resembling kimberlite at surface above a kimberlite pipe is remote.

Figure 1.1. Idealised section through the upper section of a kimberlite pipe

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This matter has been considered at length by Gemstar who has concluded that kimberlitic pipes in deeply weathered terrain where ferruginisation is advanced will have characteristics which include:

total destruction of any kimberlitic textures down to a considerable depth – at least 20 m and quite possibly 100 m;

substantial development of clay minerals;

extensive concentration in the weathered profile of iron oxides through the ferruginisation process;

destruction of some or all indicator minerals except diamond;

areas of negative topography such as basins or depressions, which may be filled with recent sediments; and

ferruginised breccias sometimes showing preservation of relic volcanic textures.

Recognition of kimberlitic rocks that have been severely ferruginised in an extreme weathering environment represents a significant challenge which is likely to require particular experience and expertise. Gemstar has concluded that since weathering and alteration of kimberlitic rocks in the Australian environment is so severe the recovery of even a single grain of an indicator mineral from a sample is significant. Furthermore the occurrence of “trails” of indicator minerals leading back to a kimberlitic source is a nice concept but unlikely in reality. Rather the search for kimberlitic rocks must rely on geology, geomorphology and the occurrence of very sparsely distributed indicator minerals and the most important of all indicator minerals may well be micro and macro diamonds.

�.�.4 Magnetics in kimberlite explorationAeromagnetics and ground magnetics are the most frequently used geophysical techniques employed by geologists and geophysicists, to assist in identifying anomalies that may be induced by kimberlite Doc Ref: 071025_Final_5746_Gemstar_IndGeoRpt.doc Page No. 4 pipes or dykes. The scrutiny of aeromagnetic data maps in particular can provide a rapid, initial means to evaluate an area of interest.

The technique relies upon the expectation that kimberlitic pipes are vertical with infinite depth extent and that fresh kimberlitic rock contains between 5% and 10% iron mostly in the form of two magnetic minerals – magnetite and ilmenite. Unweathered kimberlitic rock may therefore be expected to reveal itself through a moderate to strong magnetic signature.

However, the signature is often confused since much of the magnetite is an end product of the serpentinisation of olivine and this results in the magnetic susceptibility of kimberlite to vary greatly depending upon the alteration history of the rocks.

Because of the ease with which most kimberlitic rocks weather (because the rocks tend to be porous and permeable) the magnetic minerals are often destroyed to non-magnetic hydroxides of iron. The result of the alteration and weathering processes usually leads to a complex magnetic response which is not definitive. It is not uncommon, therefore, to identify from magnetic data numerous anomalies which require verification via ground visits. Most anomalies are found to exist for reasons other than the occurrence of kimberlitic rocks.

�.�.5 Lamproite pipesConventional wisdom long held that only magmas of kimberlite (sensu stricto) composition originating in the mantle below thick ancient lithospheric crust could be diamondiferous. The Kaapvaal craton provided such a setting. The discovery of diamonds in pipes of lamproite composition in Western Australia in a metamorphic terrain peripheral to cratonic terrain resulted in a significant reappraisal of the dogma relating to the tectonic setting of diamondiferous pipes.

The distinction between kimberlites and lamproites lies in the geochemical composition of these rocks. Lamproites show characteristic enrichment in elements typical of ultramafic rocks (eg. magnesium, nickel, cobalt, copper, chromium) combined with high values of incompatible elements: K20 - 3% to 12%; Ba0 - 1%; Rb-190-750 ppm; light rare earths (LREE) 300-1800 times the average for chondrites; Zr-600-2500 ppm; Nb-100-300 ppm; Th-20-95 ppm. Kimberlites carry lower contents of incompatible elements among a range of other characteristics.

2.0 SOUTH AFRICA

�.� INTRODUCTIONGemstar has acquired the Palmietfontein diamond exploration project in South Africa (Figure 2.1) and has applications in place for two farm properties in the west of South Africa. The properties together constitute the Bushmanland project. The projects together with applicable title status and tenement areas are listed in Table 2.1.

Both projects Palmietfontein and Bushmanland are located in areas that have previously been explored for diamonds by other companies. In the case of the Palmietfontein project a large kimberlite pipe has been delineated and sampled by previous workers and a “global” diamond grade has been established. Follow-up work by Gemstar is likely to be directed towards establishing whether there are relatively high grade areas in the pipe that can be economically mined in a selective manner. Exploration of the project area surrounding the Palmietfontein pipe is to be a priority matter for Gemstar.

The Bushmanland project is focussed on the testing of an hypothesis that buried diamondiferous lamproite pipes (yet to be discovered) exist within the Bushmanland pipe swarm.

Gemstar has so far not undertaken any systematic exploration on these projects in its own right. As part of the due diligence for this report Dr Snowden visited the Palmietfontein project site and the area of the Bushmanland project in March 2004. In addition numerous reports and several research papers have been reviewed and detailed discussions have been held with Gemstar’s geological personnel.

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�.� PALMIETFONTEIN

�.�.� IntroductionThe Palmietfontein project (which includes the entire farm Palmietfontein) is centred on a ��.� Ha diamondiferous kimberlite pipe discovered in �9�5. Exploration by previous owners showed the pipe to be of low average grade (�.7 carats per �00 tonnes) but to be endowed with diamonds of unusually large average size (0.77 carats). Sampling undertaken in the period �979-�98� indicates that it may be possible to delineate a coherent relatively high diamond grade area (� to 5 carats per �00 tonnes) that could justify economic evaluation within the pipe. Such an area may be in the region of � to � Ha. Elsewhere on the farm Palmietfontein there is good to excellent potential to discover at least one additional kimberlite intrusive beneath a � m to 5 m thick soil cover.

Figure 2.1. Palmietfontein and Bushmanland Project locations. The shaded area marks the extent of the Archaean cratonic terrain.

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Table 2.1. Tenement schedule for current Gemstar projects in South Africa

Scope

The Palmietfontein project described in this report comprises a single farm, Palmietfontein 208 JP, which covers an area of 3260.8415 Ha in the district of Mankwe in the North West Province of South Africa. From a technical standpoint there are two aspects to the project. Firstly, and most importantly is the occurrence of a large (12.1 Ha) diamondiferous kimberlite pipe located centrally within the property. This pipe represents the focus of this report on the Palmietfontein project. The second aspect is the exploration potential of the Palmietfontein farm external to the known limits of the Palmietfontein pipe.

Location

The farm Palmietfontein 208 JP straddles part of the western margin of the Pilansberg Alkaline Complex, a famous, geologically significant, feature. The farm is about 60 km north-northwest of the “platinum” mining town of Rustenburg and 130 km west-northwest of the city of Pretoria. Two tourist facilities of particular note occur just a few kilometres east of the Palmietfontein project, namely the Pilansberg National Park, a park well endowed with indigenous South African game animals and the Sun City entertainment complex.

Access to the Palmietfontein farm, and more particularly to the site of the kimberlite pipe, is straightforward. There is an excellent network of roads in the area as well as very good general infrastructure including electric power.

The Rustenburg area is one of the great mining areas of the world and there are excellent engineering facilities based in the town. In addition the area within a 300 km radius of Palmietfontein is one of the world’s great diamondiferous kimberlite mining areas with considerable evaluation and mining expertise readily available.

Ownership

Snowden understands that Fidulex Diamond Holdings (Proprietary) Limited is the registered owner of limited mineral rights (precious stones only). Ownership of the Palmietfontein project is dealt with in the legal report in Section 7 of the prospectus.

The surface rights of the farm have been divided into three portions, details being as follows:

1. Portion 1, measuring 1520.3909 Ha, held by the Government of the Republic of South Africa. 2. Portion 2, measuring 110.0298 Ha, held by Bartholomeus Jacobus Smit. 3. Portion 3, the remaining extent of the farm measuring 1630.4208 Ha held by the Government of the Republic of South Africa.

Site visit

Dr Philip Snowden visited the site of the Palmietfontein kimberlite pipe in the company of Gemstar’s Consultant Geologist on February 9, 2004. Photographs of excavations made across the pipe in the period 1979/1980 are presented in Figure 2.3. Geological features evident in the photographs are described in Section 2.2.2 of this report.

�.�.� GeologyRegional setting

The Palmietfontein kimberlite pipe is situated within a region of South Africa that is centrally located within the southern African Kaapvaal craton (Figure 2.1). The Kaapvaal craton consists of a deeply rooted crystalline lithospheric basement of granites and greenstone belt rocks aged about 3,500 million years (Ma). Subsequent to its evolution the craton formed the foundation on which several supracrustal sequences (sediments and lavas) were deposited (including the Witwatersrand (2,800 Ma), Ventersdorp (2,600 Ma) and Transvaal (2,200 Ma) Supergroups and, in much more recent geological time, the Karoo Supergroup was deposited during the Mesozoic ie from 200 Ma to 60 Ma. Subsequent to Karoo sedimentation, volcanism and the break-up of the supercontinent of Gondwanaland, the landscape of southern Africa evolved through the Tertiary and Pleistocene to the present day.

Project Farms Prospecting Permit

Area hectares Proposed Indirect Equity

Bushmanland Reimbreek 364

Portions 1, 2 and 3 of Gamoep 234

Pending 4,947.6

5,436.8

Northville

Palmietfontein Palmietfontein 208 JP Granted 3,260.8 Urafiki Gems

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The southern African Kaapvaal craton is endowed with numerous significant intrusives – that is, significant both with respect to their geological characteristics as well as their mineralisation endowment. Such intrusives include the 2000 Ma-old Bushveld Igneous Complex (BIC), which is a vast layered rock sequence hosting the world’s greatest deposits of platinum, palladium and chromite, the 1400 Ma-old Pilansberg Alkaline Complex, one of the largest complexes of its type and, thirdly, one of the world’s most important fields of diamondiferous kimberlite pipes. Emplacement of the pipes has occurred spasmodically over an enormously long period of time.

The emplacement date for the Premier pipe, for instance, is ±2,000 Ma while there are also several younger pipes of Cretaceous age ie, ±100 Ma. Although a detailed discussion on the controls of kimberlite pipe emplacement is beyond the scope of this report we note that at least these periods of kimberlite pipe emplacement coincide with periods of great tension within the Kaapvaal cratonic crust. Evidence of significant crustal tension at ±2000 Ma - ago is indicated by emplacement of the BIC. The great “tension” event of the Cretaceous (between about 60 Ma and 130 Ma-ago) coincided with the break-up of the supercontinent of Gondwanaland.

Great crustal tension events are significant with respect to the emplacement of kimberlite pipes since it appears that during these events crustal factures penetrating deep into the Earth’s crust (and upper mantle) provided zones of weakness, which may allow highly pressured magmas sourced from the upper mantle (probably well in excess of 100 km below surface), to ream their way to surface by a process of hydraulic fracturing.

Figure 2.2 Locations of most important kimberlite dykes and pipes. The shaded area marks the extent of Archaean cratonic terrain.

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Figure 2.2 shows the locations of the most important kimberlite dykes and pipes that have intruded the Archaean cratons in South Africa, Botswana and Zimbabwe. It is evident that most of the important kimberlites discovered so far on the craton are located within a 300 km radius of the Palmietfontein pipe.

Local setting

The Palmietfontein pipe is situated in a geologically distinctive location. The pipe was intruded along the western contact of the Pilansberg Alkaline Complex and the surrounding BIC. The 1400 Ma Pilansberg complex intruded the 2095 Ma-old BIC at its western end, coincident with the east-westtrending synclinal axial zone of the first-order BIC syncline.

The BIC, to the northeast and southwest of the Pilansberg complex, is host to some of South Africa’s most important platinum mines – to the northeast are Anglo Platinum’s Union and Amandelbult mines while to the southeast are the Bafokeng-Rasimone JV (between the Bafokeng people and Anglo Platinum, Impala (Impala Platinum) and Rustenburg (Anglo Platinum) platinum mines).

The Pilansberg complex is one of the world’s largest known alkaline complexes. It is almost circular in plan view (generally referred to as a ring structure) and measures about 25 km in diameter. It contains a huge resource of rare earth and other rare elements which have not been exploited to date, principally because of the complex metallurgy of the rare earth enriched minerals.

The Palmietfontein pipe is one of a number of kimberlites in its general area. Two small kimberlites, intrusive into the main body of the Pilansberg complex, have been mentioned in the literature. They are said to be non diamondiferous. Forty five kilometres to the south-southwest of Palmietfontein is the small town of Swartruggens, where diamondiferous kimberlite dykes are currently being mined - most notably at the Helam mine. The most important diamondiferous kimberlite pipe (actually a cluster of pipes) is the Premier pipe located 160 km east-southeast of Palmietfontein. Premier has long been one of the world’s foremost diamond producing pipes. West-northwest of Palmietfontein, across the South African border in Botswana, is De Beers’ outstanding Jwaneng diamond mine. This pipe is located about 150 km from Palmietfontein.

Air photographic interpretation by one of the former explorers of the area around the Palmietfontein pipe identified numerous “photo linears”. Most linears are fault zones with associated fractures which have influenced local erosion. Most fractures are assumed to have formed in response to the emplacement of the Pilansberg complex although there is no certainty on this conclusion.

The Palmietfontein pipe

Discovery The Palmietfontein kimberlite pipe was discovered in 1925. Quite how the discovery was made has not to our knowledge been documented. The discovery appears to be remarkable since the pipe is covered by some 1.5 m to 5.0 metres of overburden and to our knowledge nowhere was it actually exposed at surface. It was observed in 1937 that the depth of overburden considerably complicated the evaluation process.

Terrain The pipe is located in an area of relatively flat terrain which gives way, a few hundred metres to the east, to the steep rugged terrain of the Pilansberg complex. What is known of the geology of Palmietfontein was largely established by exploration of the pipe during the period 1979 and 1980.

Area Drilling and subsequent trenching demonstrated that the Palmietfontein pipe’s subsurface area is 12.1 Ha, making it one of the largest kimberlite pipes discovered in southern Africa. In 1979 it was considered the third largest pipe in South Africa and the seventh largest pipe in the world.

Depth of weathering The photographs in Figure 2.3 were taken in February 2004, 24 years after the sampling trenches were excavated. The subsequent weathering and erosion has clearly highlighted the contact between the overburden, about 1.5 m thick, and the underlying very deeply weathered and oxidised kimberlite material (known in the industry as “yellow ground”) which consists largely of red to yellow ferruginous clay. The deeply weathered kimberlite persists to considerable depth. The deepest hole drilled on the property was to a depth in excess of 200 m and the hole is reported to have terminated in “yellow ground”.

Geometry of the pipe The Palmietfontein pipe has the shape of an equilateral triangle in plan. Diamond drilling has shown that the western contact of the pipe dips eastwards at about 45 degrees. There is insufficient information available to permit the pipe’s geometry to be stated with any degree of confidence. The explorers of the pipe concluded that it is likely to be trumpet or hour glass shaped, when considered in section.

Wall rock inclusions The exploration company’s sampling programme across the Palmietfontein pipe demonstrated that at least the top 7 m of the pipe contained xenolith inclusions to the extent of 60 percent by volume in places.

The company noted that a Karoo shale xenolith (Ecca Group) with a distinctive fossil plant assemblage was located within the screened spoil material discarded during the diamond recovery process. The occurrence of such xenolith material indicates, firstly, that it must have fallen into the pipe’s caldera (volcanic basin) from the roof since there are no such rocks at depth and, secondly, that the pipe was likely to have been emplaced in the middle to late Mesozoic, probably during the Cretaceous period of ±100 Ma - ago although Snowden notes that a post-Cretaceous age for the pipe could be possible.

Examination of the screened spoil pile at the site of the process plant indicates the presence of both Pilansberg and BIC rocks as xenolith inclusions in the pipe, as would be expected, as well as rocks sourced from the underlying granitic basement.

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Figure 2.3. Recent photographs of sampling trenches excavated during the period 1979 to 1981

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Lithology types The depth of weathering in the kimberlite rocks that were excavated by the exploration company is such that it is impossible to map separate intrusive phases of kimberlite. The company, however, strongly suspected that there are likely to be two phases of kimberlite. This conclusion was based on a significant difference in heavy mineral content between samples. In particular it was noted that the heavy mineral content increased towards the northwest.

During mapping of the trenches, a “pebble line” was recorded with kimberlite rocks both above it and below it. It has been suggested that the “pebble line” may mark the boundary between kimberlite tuffs capping the pipe and underlying magmatic kimberlite.

Snowden is unaware of any petrological work or geochemistry having been carried out on the Palmietfontein pipe.

In Snowden’s opinion there is a considerable amount of work to be done to unravel the geology of the pipe. Unravelling the geology will be critically important when interpreting sampling data, in particular diamond grade, size and quality data and deciding how far results can be reasonably projected.

Associated fissure Work undertaken by a large diamond exploration company in South Africa in 1937 drew attention to a “fissure like feature” protruding from the pipe at the pipes eastern extremity. Snowden is unaware of any work undertaken since 1937 to investigate this feature.

�.�.� Previous explorationDiscovery - 1925

The Palmietfontein pipe was discovered in 1925. The work undertaken by the discoverer that led to the pipe being identified beneath 1.5 m of soil cover in a relatively flat terrain is not recorded.

At about the time the pipe was discovered, a South African Government proclamation was issued prohibiting diamond exploration within the country. This proclamation was in force until 1934, hence no work was undertaken during the intervening period.

Early exploration - 1937

The first recorded exploration of the pipe was undertaken during an eight month option period from March to October 1937 when an intense evaluation programme was completed. Work undertaken included:

the excavation of 40 small shafts or pits; and

processing the kimberlite material from 30 pits. This work was referred to as “test washing”.

In a project completion report dated 19 October 1937 it was noted that exploration was hampered by three principal factors. Firstly, there was limited water available for the diamond recovery plant erected by the first exploration company; secondly, the 1.5 m of overburden proved difficult to manage and, thirdly, Government restrictions were placed on the number of staff that could be employed.

It was evident from the report that there was considerable uncertainty as to whether the option to purchase the precious stone mineral rights should be exercised. In part due to the difficult global political and economic environment of the time, the option was left to expire.

Modern exploration - 1972 to 1983

Except for a brief investigation of Palmietfontein in 1966, no work was undertaken at the project between 1937 and 1972. In January 1973 exploration recommenced with a three year option to all the mineral and precious stone rights taken out over the farm Palmietfontein. The option was extended for three months to 31 January 1976 when the option to acquire the precious stone mineral rights of the farm Palmietfontein was exercised.

Exploration work on the property commenced in 1972 and was concluded in 1983.

Work carried out included the following:

1972 Extensive ground magnetometer surveys with the principal objective being to define the perimeter of the pipe.

1975 Detailed electrical (resistivity) survey to further define the pipe perimeter.

1975 - 1976 Phase 1 An intensive prospecting drilling programme was undertaken to determine pipe limits and commence evaluating the pipe’s diamond potential. A total of 118 large diameter (900 mm) auger holes were reportedly drilled to a depth of 32 m where possible. Eighty nine holes penetrated kimberlite. The outline of the pipe was refined and 950 tonnes of “yellow ground” were recovered and processed and the diamond grade was estimated.

1979 - 1982 Phase 2 of a two-stage sampling programme commenced in 1979. The programme was developed around the excavation of a 9 m trench from southeast to northwest across the entire pipe and construction of a heavy media plant and x-ray fluorescence recovery facility. By the end of 1979 approximately 40,000 tonnes of kimberlite had been processed and heavy mineral concentrate from 36,000 tonnes was sorted. During this Stage 1 of Phase 2 the red clay below the soil was stripped and stockpiled for later treatment. The underlying yellow ground was separated into 20 discrete samples which totalled 40,000 tonnes. Individual samples ranged from 1000 tonnes to 3000 dry tonnes.

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1981 Stage 2 of Phase 2 comprising detailed exploration commenced early in 1981. The work plan involved a significant expansion of the trenching programme and an upgrading of the existing process plant. The overall objective was to sample a larger volume of yellow ground in order to establish the distribution of diamonds with greater reliability (with respect to both size and number) across the pipe.

To this end twelve, 9 m deep trenches were cut on 30 m spaced lines across the entire pipe at right angles to the first north-northwest trench excavated during Stage 1. Each trench was divided into 25 m long sample sections. Excavation and sample collection was achieved with a CAT 235 backhoe with a 7 m reach below track level. Some 3200 m of trench was excavated and 50,000 tonnes of yellow ground was recovered. The “ore” to “waste” ratio was 0.46. Numerous components of the plant were reengineered to reduce operating costs and achieve an industry acceptable diamond recovery performance. It is evident from the results presented that yellow ground from each sample in each trench returned a diamond assay grade. The actual amount of material processed from each sample is not documented. In the period since the second company completed its Phase 2 sampling programme at Palmietfontein in 1981 there has, to our knowledge, been no further systematic sampling work carried out on the property.

�.�.4 Exploration resultsEarly exploration

Testing of the samples, obtained from pits sunk into the Palmietfontein pipe yellow ground, reportedly yielded a grade of 1.7 carats per 100 tonnes. A sample of approximately 1,500 tonnes of yellow ground was processed. Snowden understands that the grade estimated was attributed to the entire Palmietfontein pipe.

Modern exploration - Phase 1 (1975)

The 950 tonnes of yellow ground recovered from 118 large-diameter auger holes were processed using a diamond pan as a primary concentrator, followed by a jig, a grease table and hand sorting. A total of 18 diamonds (5 of which were microdiamonds ie <1.0 mm) were recorded during this processing, yielding 9.14 carats. Individual stones recovered were reported to range from 2.15 carats down to the microdiamonds.

Modern exploration - Phase 2 (1979-81)

Phase 2 - Stage 1 sampling. The Phase 2 (Stage 1) programme commenced with sampling of the central trench excavated along a northwest-southeast line across Palmietfontein and the following was returned after processing:

752.09 carats were recovered from 935 stones at an average grade of 1.67 carats per 100 tonnes;

excluding the +200 carat diamond, the average grade is 1.10 carats per 100 tonnes. The +200 carat diamond was not

considered when determining the average weight of recovered diamonds due to its very poor quality. It was described

as a “conglomerate of micro-diamonds that never formed separate stones”; and

size range of diamonds recovered:

After exclusion of the +200 carat diamond (actual weight 223.9 carats) the average weight of all stones was 0.56 carats.

Phase 2 - Stage 2 sampling. In Stage 2 of Phase 2 (1981), further sampling was undertaken as it was concluded that the Stage 1 sample was too small to be representative and the aerial extent of the sampling was too restricted to provide meaningful evaluation information. The plant recovery was considered to be generally acceptable in Stage 1 although several opportunities were identified to improve the throughput and cost efficiency of the plant. Several plant improvements were implemented prior to the processing of samples recovered from the “cross trenches” excavated in Stage

2 of Phase 2.

The final assay grade of material sampled in Stage 2 of Phase 2 to be 1.72 carats per 100 tonnes with the average individual diamond size being 0.77 carats. The carat grade in Stage 2 was assessed to be 56% higher than in Stage 1, while the average stone size was assessed to be 35% larger. This improvement was attributed to more representative sampling.

With regard to the process plant used during both stages of Phase 2 treatment, Snowden notes that diamond recovery was by heavy media separation followed by X-ray fluorescence Sortex machine. Grease tables were not used for this phase of work.

Size (carats) No of stones

+200 1

20-15 3

14.9-5 13

4.9-1 78

<0.9 840

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Characteristics of the diamond recovery plant constructed on site included:

a scrubber unit rated at 70 dry metric tonnes (DMT) per hour; and

discharge from the scrubber onto a sizing screen. Originally the screen was fitted to reject 0.5 mm material which was pumped to a tailings dam and to pass +25 mm material to a jaw crusher for recirculation to the scrubber.

After Stage 1 the bottom screen size was increased from 0.5 mm to 1.5 mm because results indicated that “insufficient diamonds” will be recovered at a size below 0.5 mm. In addition the recovery of the 223.9 carat diamond in June 1980 prompted the size of material to be passed to the crusher to be increased to 30 mm. It was noted by the company that in theory an octahedral diamond of 120 carats would be the largest size which could pass through a 29 mm aperture screen.

Synthesis of sampling results

To Snowden’s knowledge there is no final report on the Palmietfontein project issued at the conclusion of work in 1981-1982. Figure 2.4, Figure 2.5 and Figure 2.6 presented below summarise the information to hand.

Figure 2.4 is prepared from a hand-drawn and notated diagram dated June 1981. Figure 2.5 and Figure 2.6 accompanied a memorandum dated 7 September 1983.

Figure 2.4 shows the outline of the Palmietfontein pipe, the diamond carat grades of the central trench excavated in 1980 and the diamond carat grades for trench samples (from cross trenches) excavated in 1981. The results for trenches 1W to 8W have not been shown on the original diagram dated June 1981.

We assume that the sample carat grades for data shown are reliably presented. We have no reason to question their authenticity but also have no means of validating the data.

The contours on the diagram outline samples that returned diamond carat grades above 1 and 2 carats per 100 tonnes respectively. It is evident that rather crude grade continuity can be delineated above a 1 carat and 2 carat grade cut off north of the main northwest trench. Confirming that there are “higher” coherent grade areas within the pipe is likely to be a key evaluation issue in any future work.

Note the inset on the figure that shows the dimension of the excavated trenches in profile.

Simple arithmetic averaging of all samples returning diamond carat grades greater than 1 carat per 100 tonnes gives an average grade of 2.82 carats per 100 tonnes. The average grade of the samples in the area returning grades greater than 2 carats per 100 tonnes is 4.09 carats per 100 tonnes and applies to about 20% to 25% of the area for which sample information is available.

Figure 2.5 (near surface diamond grade contour plan in terms of stones per 100 tonnes); and Figure 2.6 (average stone size) are dated 7 September 1983 and were accompanied by an explanatory letter. The following observations were made in the letter:

with respect to the number of stones, the contours suggest “that there may be a relatively high grade area in the NE of the pipe”; and

the derivation of stone size grade is arrived at by “dividing the weight grade by the average stone size which may or may not be accurate”.

With respect to Figure 2.5 and Figure 2.6, Snowden makes the following observations:

Snowden notes that on the basis of the available data the northeast of the pipe appears enriched with respect to the number of diamonds recovered per 100 tonnes of sample (Figure 2.5). There is a suggestion that the enrichment persists to some extent to the southwest of the pipe.

Figure 2.6 indicates that the largest diamonds in the pipe are concentrated in the southwestern area.

Diamonds in the overburden

The source and nature of the deeply weathered and oxidised “overburden” that overlies the Palmietfontein pipe is uncertain. Its thickness across the pipe is reported to range from 1.5 m in the centre of the pipe to as much as 5 m at the margin. The reduction in thickness over the centre of the pipe coincides with a depression in which boulders and pebbles are concentrated in “channels”.

A 2,500 tonne sample of the boulder and pebble material returned a diamond grade of 6.48 carats including a 1.8 carat stone. This result is of limited significance as far as the specific grade is concerned because of the small sample size. It is significant, however, from an evaluation point of view and because of the substantial degree of upgrading and concentration of diamonds on top of the overburden to the pipe. Apparently the diamonds are typical Palmietfontein type diamonds.

Furthermore it is noted that when a 2,500 tonne sample of overburden material was processed through the recovery plant a diamond grade of 0.18 carats per 100 tonnes was returned.

It is evident that investigation of the overburden at Palmietfontein would be an important aspect of any new evaluation programme.

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Figure 2.4. Near surface diamond grades (carats per 100 tonnes)

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Figure 2.5. Near surface diamond contour plan (stones per 100 tonnes)

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Figure 2.6. Near surface diamond contour plan (average stone size)

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Characteristics of the Palmietfontein diamonds

Average Diamond Size The average diamond size of Palmietfontein diamonds was estimated to be 0.77 carats. Snowden has established that this represents an exceptionally high average stone size for a pipe. It will be recalled that the stone size estimate does not include the 223.9 carat stone which was reported to be of good colour but shattered.

It is also noted that Palmietfontein yielded a particularly large number of +5 carat diamonds including three in the 15 to 20 carat range.

The large number of Palmietfontein stones that were classified as “fragments” suggested to the company that large diamonds (>20 carats) will be a feature of the Palmietfontein pipe.

As a point of interest it is recorded in the literature on Premier diamond mine that it produces one +200 carat stone for every 1,200,000 tonnes of ore processed. Overall the diamond size distribution from Palmietfontein is not dissimilar to that at Premier. However, Premier has a substantially higher average grade. The very large stones from Premier are very significant contributors to the commercial viability of that pipe.

This was also the case at the Letseng Le Terai pipe in Lesotho. One 45 carat stone was recovered from the 50,000 tonne sample obtained during initial exploration sampling of Letseng. This one stone accounted for 50 per cent of the value of all stones produced from the sample.

A key economic issue for the evaluation of Palmietfontein will be establishing the frequency of occurrence of exceptionally large diamonds, ie, +20 carats.

Quality Descriptions of stone quality included in documentation detailing Palmietfontein exploration results are reported to have been provided by experts in diamond valuation. Excerpts of the documentation are provided below.

Colour: With respect to diamond colour, 70% to 80% of stones were judged by experts engaged by the company to display “good colour” ie white or top white with some yellowish.

Shape: Stones tend to be fragmentary with rounded and polished surfaces. This has been interpreted to be indicative of fracturing resulting from sudden (explosive) release of high confining pressure causing fragmentation and erosion of crystal faces by resorption.

Purity: Stones are described as clear with good colour and contain relatively few macroscopic inclusions.

Crystallinity: Stones over 2 carats and a high percentage of smaller stones show complex crystal structure. Some stones are polycrystalline as revealed by X-ray diffraction analysis. Such stones are called composites. This applies to the 223.9 carat diamond which was described as a polycrystalline aggregate. Polycrystallinity is attributed to close packing of crystal nucleation centres.

Lattice: Palmietfontein diamond lattice structure varies from perfect to complex twinned.

Fracturing: Degree of diamond fracturing is reported to be variable across the pipe. 90% of all stones recovered from the northern part of the north-northwest-trending central trench were fractured, while it was reported that 50% of stones in the south were fractured. It was considered that the degree of fracturing may reduce with depth. It was the intention to investigate fracturing intensity with depth by considering, in the first instance, fracturing of pyrope garnets and ilmenite crystals within the kimberlite. This was to be achieved by drilling a 700 m deep drill hole. To Snowden’s knowledge this was not done.

Grade It was noted that it was possible that the diamond grade within the pipe could increase with depth. It was noted for instance that the grade in the Premier pipe at 400 m depth below surface was 28 carats per 100 tonnes, but increased to 72 carats per 100 tonnes at 600 m depth.

Gem to boart (industrial diamond) ratio It was reported that the ratio of gem diamond to boart diamond in the Palmietfontein pipe is 60% : 40%. This was considered to be a highly favourable ratio when considered against other kimberlite pipes. Three well known pipes in southern Africa were indicated to have gem to boart ratios of 20% gem to 80% boart.

Adding value It was reported that the dollar value per carat of rough gem was increased 300% during the 1980 exploration phase.

�.�.5 Comparisons with other pipes

Introduction

In order to place the Palmietfontein pipe in a “diamond industry” context we have compiled the following observations relating to a number of important kimberlite pipes that are mined for diamonds in southern Africa.

Some important kimberlite pipe mines in South Africa

Venetia - Figure 2.7 Pipe 1

The Venetia diamond mine, established in 1991, is located in the north of South Africa’s Limpopo Province close to the border confluence of South Africa, Zimbabwe and Botswana. It is the largest producer of diamonds in South Africa. The mine is built on a cluster of 12 pipes rather than a single pipe. The two largest pipes are currently being mined in a single open pit at an average grade of 136.4 carats per 100 tonnes. The main pipe in the cluster strikes east and covers an area of 12.7 Ha. The pipe is dated at 500 Ma. There is more than one “style” of pipe within the Venetia cluster.

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Figure 2.7. Location of southern African diamond mines

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Premier - Figure 2.7 Pipe 10

The Premier diamond mine is situated next to the town of Cullinan 25 km northeast of Pretoria. The Premier pipe, which started production in 1902, is one of 12 pipes in a cluster. Small alluvial diamond deposits occur down-stream from Premier. The Premier pipe has been characterised as “rich” with respect to its diamond content with a high frequency of diamonds larger than 10 carats. In 1995 its average grade of production was 44.6 carats per 100 tonnes. The mine has produced more than 300 stones over 100 carats and 25% of all +400 carat stones produced world-wide. The Premier pipe within the Premier cluster measured 32 Ha, making it by far the largest pipe in southern Africa. It is elongate in shape to a depth of 500 m, below which it narrows into a root zone. The pipe is dated at 1180 Ma, making it one of the oldest dated pipes in South Africa. The pipe is complex in geological structure and comprises three distinct kimberlite phases.

Koffiefontein - Figure 2.7 Pipe 11

The Koffiefontein mine sits at the other end of the grade spectrum from Premier. Its average grade is 6.9 carats per 100 tonnes. It is part of a cluster of kimberlite pipes and dykes that intrude 90 Ma-old shales at the base of the Karoo Supergroup. This makes Koffiefontein similar in age to Palmietfontein. The Koffiefontein pipe measured 10.3 Ha at surface. Geologists estimate that the upper 1000 m of the pipe has been removed by erosion.

Finsch - Figure 2.7 Pipe 5

The Finsch mine is developed on one kimberlite pipe within a cluster of pipes. It was discovered in 1960 in an area located 130 km west-northwest of Kimberley. Its average grade is 80 carats per 100 tonnes. It has been dated at 118 Ma. At surface the pipe measured 17.9 Ha and is the second largest pipe in South Africa after Premier. The mine exploits the diatreme facies of the pipe which persists to a depth of 680 m. It transitions to a root zone at 900 m. The pipe has complex geology and displays 9 phases of intrusion.

Kimberley - Figure 2.7 Pipe 6

There are five main pipes in the cluster that have been mined at Kimberley. There are several lesser pipes and dykes in the cluster. The pipes and their original sizes are:

Kimberley 3.7 Ha DuToitspan 10.6 Ha Bultfontein 9.7 Ha Wesselton 8.7 Ha De Beers 5.1 Ha

These pipes have been dated at between 84 Ma and 87 Ma. Geologists estimate that the upper 1400 m of the “original” pipes have been eroded.

The Oaks - Figure 2.7 Pipe 2 (also known as Marnitz)

The Oaks is a pipe in the so-called Marnitz Kimberlite Province southwest of Venetia and very close to the Botswanan border. The Oaks is just 1 Ha in surface area and is currently or has recently been subject to feasibility study.

Zebedelia - Figure 2.7 Pipe 4

There is a cluster of fissures, pipes and blows at Zebedelia. The most important pipe mined is the M1 which started production in 1998.

Jagersfontein - Figure 2.7 Pipe 13

The Jaggersfontein pipe is the only economically important pipe within a cluster of pipes. Its surface area when mining commenced was 12 Ha. It is described as a “diatreme facies” dated at 86 Ma. Jaggersfontein has produced diamonds of exceptional quality, including the Excelsior which weighed 997.5 carats. This is the second largest gem diamond ever found.

Implications for the Palmietfontein project

Geological age We note that Palmietfontein is of similar age to a number of the economically important pipes such as Jagersfontein, Finsch, and Koffiefontein within the Kaapvaal craton.

Geological setting The Palmietfontein pipe, like the pipes described above, is located centrally within the Kaapvaal craton. Many scholars of “diamond occurrence in kimberlites” would regard the Palmietfontein pipe’s location as optimal from the point of view of lithospheric crustal thickness and deep mantle-tapping fractures.

Pipe clusters and local exploration All the economic pipes described above are characterised by their occurrence within a cluster of pipes. Reference to them would suggest that it is not possible or very unlikely for single pipes to occur in isolation.

Snowden considers this an overwhelmingly important conclusion with respect to Palmietfontein. It appears unlikely that Palmietfontein could exist as a single pipe and there is a very high probability that other pipes exist in its vicinity. If other pipes do exist, there is no reason to believe that Palmietfontein would be the highest grade or lowest grade pipe in the cluster. It would simply have been the first pipe located. Snowden’s review of the available information indicates that exploration at Palmietfontein, since its 1925 discovery, has been focused solely on this pipe. This appears to have been the case even though aeromagnetic surveys and diamond indicator mineral sampling have provided indications of other pipes on the farm Palmietfontein.

The extent to which exploration around the Palmietfontein pipe appears to have been ignored is surprising.

Pipe size and diamond grade considerations Palmietfontein is the fourth largest pipe discovered in South Africa (behind Premier, Finsch and Venetia). The probability of discovering such a pipe is extremely low. Perhaps one such pipe is discovered every 20 to 30 years (globally) at enormous cost. Although all the sampling indicates that the pipe (at the level sampled) is of overall low diamond grade, the pipe is of such a size that it may contain a small area (say 2 Ha) that hosts a coherent, relatively high grade area. The old (1980-81) sampling data provides support for justifying investigation of this possibility at Palmietfontein.

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4�G E M S T A R D I A M O N D S L I M I T E D P R O S P E C T U S


Pipe clusters and diamond grade considerations One of the second exploration company’s undated and untitled reports noted that, although kimberlite pipes in clusters are probably closely related it does not follow that all pipes in a single cluster have similar grades. In fact grades in a cluster typically show considerable variation. At DuToitspan pipe in Kimberley, for example, one of the kimberlite phases in the single pipe hosted economically mineable concentrations of diamonds, while the other is entirely barren.

Only nine out of twenty-six pipes at the Orapa mine in Botswana (Figure 2.7, Pipe 25) are diamondiferous and these range in grade from 5 carats per 100 tonnes to 96 carats per 100 tonnes. There is also considerable variation in the quality of diamonds yielded by the different pipes.

In this context then it is quite possible that other kimberlites (still to be discovered) that may occur in the area can be expected to have different, possibly higher grades and qualities, to that of the Palmietfontein pipe.

Diamond size The large average diamond size recovered from Palmietfontein and the large number of exceptionally large stones is significant for the project. A relatively high percentage of large stones in a deposit with an overall low grade can mean economic viability. The difficulty is confirming the likely large stone frequency at the evaluation stage. This arises from the fact that it is often impractical to obtain (and process) sufficiently large samples to properly evaluate the large stone frequency.

Overall diamond grade Snowden notes that Koffiefontein and Letseng Le Terai (in Lesotho) were both brought to production with overall diamond grades of between 3 and 4 carats per 100 tonnes.

�.�.6 Exploration PotentialIntroduction

There are two aspects to the diamond exploration potential of the Palmietfontein project:

Exploration potential of the Palmietfontein pipe.

Exploration potential of the greater Palmietfontein farm.

Potential of the Palmietfontein pipe

Snowden’s opinion of the exploration potential is given in the context of the following considerations:

1. The Palmietfontein pipe is diamondiferous but relatively low grade at 1.7 carats per 100 tonnes.

2. There is potential to define coherent areas within the pipe that may be selectively mined at a grade significantly higher than the average pipe grade ie, above 3 carats per 100 tonnes.

3. There is potential to recover a significantly large percentage of large diamonds ie >20 carats.

4. The overburden to the Palmietfontein pipe (top 1.5 m to 5 m) and surface alluvial/fluvial sediment requires careful evaluation.

5. The diamond grade of the pipe could increase with depth though this will probably only be determined by drilling large diameter holes.

6. The deeply weathered nature of the kimberlitic rocks means that they could be mined for relatively low mining cost.

7. The available information indicates that the recovery plant, operated by the second exploration company during its 1979-1981 evaluation of Palmietfontein, performed satisfactorily and met the company’s expectation.

8. Re-evaluation of Palmietfontein will require construction of a suitably sized recovery plant to handle samples derived from large diameter (+1 m) drill holes.

In Snowden’s opinion the Palmietfontein pipe has the potential for an area of the pipe to be defined with an average grade between 3 and 5 carats per 100 tonnes. The economic viability of a small to modest size mine of this grade will have to be assessed in a feasibility study.

Potential of the Farm Palmietfontein

In Snowden’s opinion the exploration potential of the area surrounding the Palmietfontein pipe on the farm Palmietfontein to discover diamondiferous kimberlite pipes or dykes is good to excellent. This opinion has been arrived at for the following reasons:

Kimberlite clusters It would be exceptionally unusual if Palmietfontein pipe was not part of a cluster. It is likely that other pipes and dykes will exist in the vicinity of the pipe.

Apophysis An apophysis (or dyke) has been noted to occur protruding from the southeast of the Palmietfontein pipe. To our knowledge this has not been investigated.

Kimberlitic garnets Information acquired by Snowden in order to prepare this report included an A3 map of the Farm Palmietfontein which reports the kimberlitic garnet counts from loam samples collected on an 800 m spaced grid. The map is dated February 1984 and summarises the results of sampling by the first exploration company. Snowden understands that the work was undertaken by the first company who reviewed the project at the invitation of the second company.

The map (Figure 2.8) shows that 66 and 193 kimberlitic garnets respectively in the size range 0.5 to 1.0 mm were collected from two samples 800 m apart in the immediate vicinity of the Palmietfontein pipe. This garnet count occurs within a background count of between about 9 and 2. It is reasonable to say that the garnets provided an unequivocal location for the pipe.

A second garnet anomaly (191 count) about 1400 m north of the Palmietfontein pipe is of considerable interest from an exploration standpoint. We have termed this the 191 Garnet Anomaly. The anomaly is located up against a prominent mountain range which is part of the outer rim of the Pilansberg complex.

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4� G E M S T A R D I A M O N D S L I M I T E D P R O S P E C T U S


Figure 2.8. Palmietfontein surface loam sampling results (pyrope garnet counts)

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Figure 2.9. Palmietfontein aeromagnetic contour map

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Aeromagnetic data Figure 2.9 is a simplified aeromagnetic contour map of the farm Palmietfontein. The map is attributed to a company that no longer operates in South Africa. The plan is undated.

The map displays a number of “circular” high anomalies that measure between about 500 m and 1000 m in diameter. One of these anomalies more-or-less coincides with the Palmietfontein pipe although the anomaly does not appear distinctive compared with several other “circulars”.

Of particular interest is a significantly large “high” aeromagnetic anomaly that coincides with the 191 Garnet Anomaly. This presents compelling support for the existence of a kimberlite pipe at this location.

There are several other aeromagnetic anomalies that require further investigation in addition to the 191 Garnet Anomaly target.

Other kimberlite occurrences In an undated and untitled memorandum the second exploration company responsible for the 1979 to 1981 work recorded a number of observations regarding kimberlite occurrences in the vicinity of the Palmietfontein farm.

Vlakfontein: This farm adjoins Palmietfontein on its western side. The property has been explored for its platinum and nickel potential. Holes drilled close to Vlakfontein’s southern boundary intersected kimberlite fissures up to 2 m wide.

Vlaklaagte: This farm is located southwest of Palmietfontein. Heavy minerals sourced from kimberlite occur on this farm and there is reference in the literature to kimberlite occurring on the property.

Pilansberg area: Kimberlite has been located within at least two locations within the Pilansberg complex east of the Palmietfontein farm.

�.�.7 Evaluation and exploration budgetsThe work programme will focus on two aspects of the Palmietfontein project. The first will be on the identification and evaluation of the high grade areas of the pipe itself. The second aspect will concentrate on the search for more pipes within the Palmietfontein farm boundaries.

As the Prospecting Permit is not yet granted the first year’s work will be confined to non ground invasive work and exploration methods. The initial work undertaken will ultimately depend on the equity raised by the company. Gemstar’s preference is to undertake the following work:

Evaluation

Year 1

Initial work will concentrate on the logistical aspects prior to the commencement of exploration. The mineral rights purchase will be completed and a base camp will be set up with the renting of appropriate facilities close to the area of work. Surveying and gridding of the farm will take place. The demarcation of the highest grade sections of the pipe will initially be guided by the diamond size and grade (based on the number of stones per tonne) data as prescribed by the first exploration company’s study. The most obvious area lies within the northern one third of the pipe where the largest diamonds and the highest diamond concentrations were reported to occur.

Before the bulk sampling at depth is initiated, it will be useful to understand the structure of the pipe and specifically attempt to recognize and map the intrusive phases that make up the pipe. Most kimberlite pipes in South Africa are multiple intrusives.

Ground geophysical surveys, including magnetics, electromagnetics and gravity, will be used in an attempt to target and outline the lobes or phases of intrusion to a depth of 100 metres. Plant and drilling equipment will be contracted and mobilization costs will be paid.

Year 2

Given a favourable outcome, the large diameter drilling programme will be planned to optimize the effectiveness of the bulk sampling programme. The aim will be to test the pipe to a depth of 50 metres and to extract between 2,000 and 3,000 tonnes of kimberlite.

This material will be treated in a DMS (dense media separation) plant with the final concentration through a flow sort X-Ray machine. The final sorting will be done by senior Gemstar staff only.

During the first year, the feasibility study will be conducted to accurately outline the target lobe with high density diamond core drilling. Simultaneously more bulk sampling will be conducted to recover a parcel of 2,000 carats of diamonds to accurately value the diamonds.

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Table 2.2. Palmietfontein - proposed exploration budget Palmietfontein for Years 1 and 2

Exploration

Year 1

The magnetic data collected between 1978 and 1981 over the Palmietfontein farm is sufficiently detailed to locate the Palmietfontein pipe as well as showing several other anomalies with kimberlite potential. However, that survey was completed some 15-20 years ago during which time technology has advanced. A detailed aeromagnetic survey will be conducted using a helicopter borne system. This will allow for a 20 – 50 metre line spacing flown at an altitude of 50 metres. Based on the effectiveness of this survey, additional geophysical techniques may be utilized, such as EM and gravity.

Year 2

It is probable that about a dozen anomalies will need to be tested with air core drilling and pitting/trenching in the early part of the second year.

All kimberlite pipes or dykes that are discovered, will need to be evaluated to determine the diamond grades. This will require bulk sampling of near surface material using excavators. Any bodies yielding encouraging results will be bulk tested at depth using a Bauer drill to extract the kimberlite from depths of up to 50 metres below surface.

A DMS plant in combination with a flow sort X-Ray separator will be used to treat the kimberlite.

Gemstar’s proposed evaluation and exploration budget for Years 1 and 2 is summarised in Table 2.2. Expenditures reflect the work that will be undertaken depending on equity raised by the company.

�.� BUSHMANLAND�.�.� IntroductionGemstar’s principal objective in this project is to explore for primary diamond deposits in postulated lamproite pipes in the project area at the southern end of the late Cretaceous (50 Ma to 80 Ma) Bushmanland kimberlitic pipe swarm (Figure �.�0). The project is based on an hypothesis by that sediment filled diatremes in the project area (and which occur throughout the Bushmanland pipe swarm) were formed during emplacement of diamondiferous lamproite pipes analogous to those in Western Australia such as the Argyle pipe. The off-craton settings of both the Bushmanland and Western Australian pipes is interpreted to be comparable.

Motivation for the project arises from the close proximity of alluvial diamond deposits in rivers that drain the area occupied by the Bushmanland pipe swarm – notably the Buffels River that flows west to the Atlantic Ocean and the ancient Koa River valley, located on the Bushmanland plateau to the east of the pipe swarm, that flows north to the Orange River.

Year 1 Cost Centre 3 million minimum $ 4 million offer $ 5 million over subscription $

Salaries $83,000 $100,000 $100,000

Base Set Up $40,000 $50,000 $50,000

Equipment $70,000 $100,000 $100,000

Geophysical Survey $50,000 $50,000 $50,000

Surveying/gridding $17,000 $17,000 $17,000

Mobilisation Costs $40,000 $40,000 $40,000

Drilling - $100,000 $250,000

Earthmoving - $30,000 $40,000

Treatment - $50,000 $100,000

Samples - $30,000 $60,000

Total $300,000 $567,000 $807,000


Salaries $100,000 $100,000 $100,000

Base Set Up - - -

Equipment - - -

Geophysical Survey - - -

Surveying/gridding - - -

Mobilisation Costs - - -

Drilling $50,000 $200,000 $300,000

Earthmoving $15,000 $50,000 $50,000

Treatment $100,000 $100,000 $200,000

Samples $35,000 $70,000 $70,000

Total $300,000 $520,000 $720,000

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Initial exploration by Gemstar will be directed towards establishing whether pipes of lamproitic composition exist. If they do, a sampling programme to investigate the pipe or pipes would likely follow.

Objectives and background Gemstar’s Bushmanland project is focussed on the exploration for diamonds on two farms that cover the southern part of a swarm of kimberlite-related, pipe-like intrusives in an area located about 150 km south-southeast of the regionally important town of Springbok. The swarm includes in excess of 200 known intrusives.

It is Gemstar’s intention to test the hypothesis that at least some of the pipes within its project area are lamproitic1 in composition (compositionally similar to the Argyle and other Western Australian diamondiferous pipes), that they are diamond bearing and that they, together with many other similar pipes in the region, are the source of at least some of the

Figure 2.10. Location map of Bushmanland project

1Lamproites vs kimberlites as a source of diamonds. Conventional wisdom long held that only magmas of kimberlite composition that originated in the mantle below thick ancient lithospheric crust (ie Archaean cratons) could be diamondiferous. The Kaapvaal craton provided such a setting. The discovery of diamonds in pipes of lamproite composition in Western Australia in a metamorphic terrain peripheral to cratonic terrain caused a significant reappraisal of the dogma relating to the tectonic setting of diamondiferous pipes.

The distinction between kimberlites and lamproites lies in the geochemical composition of these rocks. Lamproites show characteristic enrichment in elements typical of ultramafic rocks (eg. magnesium, nickel, cobalt, copper, chromium) combined with high values of incompatible elements: K20 - 3% to 12%; Ba0 - 1%; Rb-190-750 ppm; light rare earths (LREE) 300-1800 times the average for chondrites; Zr-600-2500 ppm; Nb-100-300 ppm; Th-20-95 ppm. Kimberlites carry lower contents of incompatible elements among a range of other characteristics.

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West Coast marine and alluvial diamond deposits including those in the Buffels River to the west and the Koa River to the east of the Bushmanland pipe swarm. So far no pipes of lamproite (sensu stricto) composition have been discovered within the Bushmanland swarm but it is Gemstar’s contention that the calderas of these particular types of pipes are sediment filled and have evaded meaningful sampling in the past. In this report this hypothesis is referred to as the “Bushmanland diamond source model”.

This view is in strong contrast with the dominant prevailing view that the West Coast marine and alluvial diamonds had their origin in the kimberlite (sensu stricto) pipes of the Kaapvaal craton and that the Orange River and its greater drainage area carried the diamonds to the West Coast of southern Africa. The complex distribution of diamonds along the West Coast is attributed to changes that have occurred in the course of the Orange River from time to time. In this report this will be referred to as the “Kaapvaal diamond source model”. Proponents of this model do not regard the Bushmanland pipes to be diamondiferous to any meaningful extent and hence not to have contributed to the West Coast alluvial and marine diamond deposits.

Location The two farms selected by Gemstar as a focus for its proposed diamond exploration project area are Gamoep 234 and Reimbreek 364. The properties are about 26km apart (Figure 2.11).

The Bushmanland project straddles a geomorphologically interesting area which consists of two quite distinct terrains. The eastern two thirds of the project area is located over the Bushmanland plateau a flat and featureless terrain covered by recent wind blown Kalahari sands. The main road from Springbok to Plat Bakkies is located along the western edge of the plateau. The western third of the project area is break-away country that has been dissected by the drainage of several rivers that flow west to the Atlantic Ocean. The headwaters area effectively defines an escarpment. It is to be noted that the kimberlitic-like pipes that are being considered in this report, have been located within the escarpment or break-away area.

Commercial activity within the project area is limited to low density sheep and goat farming. In the wider area the most important activity revolves around the mining of diamonds. Of importance is the mining that takes place firstly from the elevated marine terraces along the coast 100 km due west of the project area and for several hundred kilometres to the north and south, secondly, from the sea bed surface (by a vacuuming process conducted from boats and ships close to shore), and thirdly, from alluvial deposits that have formed in the river beds of rivers. No primary pipe deposits are mined or have been mined in the region.

The Bushmanland project falls within the area administered by the Northern Cape Mining District of the Department of Minerals and Energy located in Springbok. All matters relating to the application for prospecting and mining permits are dealt with by the mining commissioner at this office.

Ownership

The two farm properties within the Bushmanland project are currently under Application.

Site visit

A site visit was undertaken by Dr Philip Snowden during the period 11-12 February 2004 in the company of Gemstar’s representative. The visit included an examination of certain geological sites on the farm Plat Bakkies, an examination of certain aspects of the regional geomorphology of the area between Gemstar’s Bushmanland project and the Atlantic coast and, thirdly, an examination of various alluvial diamond mining operations in the Buffels River. The visit to the alluvial diamond mining sites had no specific relevance to Gemstar’s project but it did contribute to an overall appreciation of the diamond mining business in the area. The specific farms Gamoep and Riembreek were not visited by Dr Snowden.

�.�.� GeologyRegional setting

The geology of the Bushmanland swarm of kimberlite-like intrusive pipes (which is described as comprising more than one cluster) has been documented in some considerable detail in a number of published reports. Interest in the geology of these pipes was demonstrated as early as 1911.

It has been reported that the Bushmanland swarm comprises upwards of 200 pipe-like bodies that occur in a broad north-northeasterly swathe centred on the village of Gamoep to the south of Springbok and stretching to Aggeneys in the north of Bushmanland and southwards to the south of Plat Bakkies. Gemstar’s project areas comprise two farms which cover areas in the central and southern part of this swarm (Figure 2.12).

The Bushmanland pipes are all intrusive into rocks of the Namaqua Metamorphic Belt. These are gneissic rocks that were metamorphosed in a 1,800 Ma tectonic event. The ages of the various lithologies within the Namaqua Belt are unknown but they no doubt evolved over a considerable time span. The Bushmanland pipes are reported to be of Cretaceous to early Tertiary age in the age range 50 Ma to 80 Ma. The age of the pipe swarm, its proximity to the West Coast and its approximately parallel alignment with the coast all attest to the pipes tectono-thermal relationship with the break-up of Gondwanaland. The Bushmanland volcanism has been interpreted to be related to a continental warp axis parallel to the rift that eventually became the Atlantic Ocean.

In the dissected escarpment country west of the Bushmanland plateau the pipes are described as generally evident on air photographs as small rounded hills or as depressions among outcrops of granite gneiss.

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Figure 2.11. The Bushmanland tenement application

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Figure 2.12. The Bushmanland ultramafic pipe swarm

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Rock types

The pipes in the Bushmanland swarm are reported to fall into three categories:

1. Olivine melilitites and olivine nepheline melilitites

These are evident as brown rubble-strewn mounds. Melilitites are characterised by their exceptionally low silica content (highly undersaturated). The minerals melilitite and pyroxene dominate the petrology of the rock.

2. Sediment or breccia-filled diatremes

The sediment and breccia filled diatremes range from 50 m to 500 m in diameter and are filled by shale, sandstone, grit, arkose and conglomerate showing graded bedding. The sediments are often disturbed by great blocks of country rock that collapsed into the crater. The outlines of the diatremes are often outlined by marginal opaline quartz veining frequently associated with iron and manganese oxides.

Drilling has proved that as much as 260 m of sedimentary infill is preserved in diatremes. Those which have been described in the literature contain carbonaceaous shale, and tuffaceous bands at depth overlain by coarser sediments with a steep inward dip. Fossil frogs, crocodile teeth, dicotyledonous leaf impressions, petrified wood and pollen grains have been recovered from sediments in diatremes.

In order to accumulate such thicknesses of sediment in narrow depressions, crater lakes in the volcanic vents must have existed for a long time. The sediments have in some cases been disturbed by the collapse of marginal wall rock breccia into the pipe. Below the sediments, solid blue ground resembling kimberlite has been encountered in boreholes. It has been suggested, therefore, that these sediment-filled diatreme craters are merely the surface manifestations of “kimberlitic” diatremes. These sediment filled diatremes represent the greatest number of pipe types in the Bushmanland swarm. Snowden notes that it is these pipes or some of these pipes that Gemstar considers could be lamproites and may have been an important primary source of West Coast diamonds.

3. “Kimberlitic” intrusions

These are described as pipe or dyke-like bodies of altered ultrabasic rock, sometimes covered by a calcrete capping several metres thick. On mineralogical grounds the kimberlitic nature of these rocks has been questioned and it has been suggested that these rocks (or some of them) are altered olivine melilitites. Despite this it has been pointed out that kimberlite indicator minerals including picroilmenite, pyrope garnet and chrome spinel are present in many of these pipes and that their occurrence in olivine melilitites is unknown. The occurrence of the above mentioned kimberlite indicator minerals was used to identify the “kimberlite” pipes in the Bushmanland swarm.

Another strong indicator mineral is diamond. It has been reported that a diamondiferous pipe is located in the south or just to the south of Gemstar’s project (see Figure 2.11) and it has been claimed that a diamond from a pipe on a farm near Gamoep was recovered.

There appears to have been little recent work on the geology of the Bushmanland pipes. One of the few studies has been a brief investigation of samples collected from the Kalkom-1 pipe (also known as the Koeberg kimberlite). This pipe located 50 km east of Springbok, falls within the northern part of the Bushmanland swarm. It’s a large diameter buried pipe which was identified and investigated in the 1960’s. In 2001 a number of samples from shallow holes drilled into Kalkom-1 were analysed. The work suggested the rocks show characteristics not dissimilar to the diamond bearing lamproite pipes in the Kimberley region of Western Australia.

Analytical work on Kalkom-1 samples by internationally recognised experts indicated that they are possibly pyroclastic bedded tuffs of uncertain paragenesis or origin, although a possible lamproitic affinity is noted. It was also noted that the samples have an abundance of the mineral ilmenite, and that their analyses distribute across the kimberlite - para-kimberlite - non-kimberlite fields. This trend is considered typical of ilmenite from para-kimberlitic/non kimberlitic rocks such as melilitites and this investigation concluded that the samples are unlikely to have a lamproitic source, because lamproites do not commonly contain ilmenite and, furthermore the mineral chemistry does not favour classification of the pipe as a lamproite.

It is understood that these rocks were formed from the ash falling back into the volcanic crater that formed following explosive pipe emplacement. It has been suggested that Kalkom-1 is an example of a tuffaceous diatreme capped by 20 m of sediments

Distribution of West Coast marine and alluvial diamonds

Marine diamonds Diamonds in marine terrace gravels and on the ocean floor occur along the Atlantic Ocean coast from the Olifants/South River mouth in the south to well north of the Orange River mouth at Alexander Bay. Terrace mining and off-shore mining has been and is currently underway at numerous locations along this coast line. Many of the most important deposits being mined, such as Kleinsee at the mouth of the Buffels River, are located about 130 km west of the Bushmanland swarm (Figure 2.13).

Alluvial diamonds Widespread mining for diamonds has taken place and continues to take place, along the lower reaches of the Orange River down stream from the town of Vioolsdrif, over a distance of some 150 km, to the mouth of the river (Figure 2.13).

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South of the Orange River mouth, over a distance of 400 km, there are several other rivers that drain westwards to the Atlantic from within the vicinity of the Bushmanland pipe swarm. The most important of these are the Buffels, Swartlintjies, Spoeg, Groen and Olifants/South. Most of the diamond deposits are located on the flood plains of these rivers below the escarpment formed by the breakaway west of the Bushmanland plateau. Some of the deposits are substantial, in particular those in the Buffels River and at Kleinsee at the Buffels River mouth (Figure 2.13).

Just east of the Bushmanland swarm (ie, on its hinterland side) there are two alluvial mines, named Bosluis Pan and Galputs, located in the valley of the ancient Koa River. In addition to the alluvial diamond mining operations noted here, there are several “diamond localities”, where diamonds have been located both in the rivers already referenced and at sample sites within the area of the Bushmanland pipe swarm.

Figure 2.13. West Coast marine and alluvial diamond deposits

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The Bushmanland source model

The Bushmanland source model for the West Coast marine and alluvial diamonds is based on the following considerations.

1. The West Coast marine and alluvial diamonds are unlikely to have been sourced solely by erosion of the diamondiferous kimberlite pipes that intrude the Kaapvaal craton (ie, “the Kaapvaal source model”).

2. “Kaapvaal source model” is flawed for two principal reasons. Firstly, it is unrealistic to appeal to a single river system as responsible for the transport of all diamonds from the Kaapvaal craton to the West Coast to supply all the marine and alluvial deposits south of the present-day Orange River mouth. And secondly, there is a 700 km long stretch in the Orange River, between Prieska and Vioolsdrif along which there has been no recorded diamond mining, known as the “gap”.

3. There is compelling evidence that the Buffels River at least is fed by a system of tributaries that originate within the immediate vicinity of the Bushmanland pipe swarm.

4. The Koa River, with its alluvial diamond deposits in immature gravels that have travelled a relatively short distance, has its source in a drainage network that flows from the vicinity of the Bushmanland pipe swarm. The principal proponent of this view has concluded that the Koa River, which traces a route on the eastern side of the Bushmanland swarm, flows northwards and then northwestwards to join with the Orange River.

5. The opinion is also held that there is more than coincidence in the spatial relationship between the Bushmanland swarm of pipes, the occurrence of alluvial diamond deposits in rivers that obviously drain the area of these pipes and the occurrence of scattered diamonds that are reported within the area of the pipes. Proponents of the hypothesis believe that at least some of the diamonds originate from this geological environment having been sourced from lamproite pipes (postulated) within the province. Further they suggest there is a parallel between the Western Australian diamond-bearing lamproites and the tectonic setting of the Bushmanland swarm, ie, both geographic locations are located in “off-craton” situations.

The Kaapvaal craton source model

“The Kaapvaal craton source model” for the alluvial and marine West Coast diamonds relies on two main river systems draining the interior of southern Africa during the middle to late Cretaceous. This was the time of kimberlite pipe emplacement in the craton and evolution of the Atlantic Ocean.

An inferred southern river system is referred to as the Karoo River and had its source in the upper reaches of the current Orange/Vaal drainage with its outlet where the current Olifants River enters the Atlantic Ocean.

To the north of the Karoo River a second river system named the Kalahari River is inferred to have drained Botswana and Namibia and to have entered the Atlantic via the current lower Orange River system.

During the late Cretaceous, high rainfall and rapid erosion is interpreted to have occurred over the hinterland of South Africa and it has been estimated that some 1400 m of strata was removed. It was during this period that the major westward movement of diamonds occurred following their liberation through erosion of recently emplaced kimberlite pipes and their channelling along the Karoo and Kalahari River systems.

In this model the southerly route of the Karoo River system is taken to be supported by alluvial deposits such as Bosluispan, Brandvlei and Galputs. However, it is noted by advocates of the Bushmanland source model that the Bosluispan gravels hosting the diamonds are very immature and concluded that this clearly points to a local source for the diamonds rather than the popular Kaapvaal craton source.

Towards the end of the Cretaceous there was a rapid decrease in the rate of denudation and a mountain range near the town of Prieska became a barrier to the southwest flowing Karoo River. Eventually its flow was blocked and the Karoo River was captured by the Kalahari River.

For proponents of this model and for the source of West Coast diamonds, this river capture explains the “gap” in diamondiferous gravels between Prieska and Vioolsdrif along the modern Orange River.

�.�.� Previous exploration and exploration results

When the kimberlitic-like pipes of the Bushmanland swarm were discovered in 1925 it was immediately concluded that the source of the West Coast diamonds had been located.

Initial work The first record of exploration of the Bushmanland swarm area dates back to 1931 when a geologist reportedly found diamonds on the farm Plat Bakkies to the south of Gemstar’s southern farm.

There is no record of any significant exploration work in the area until the 1960’s when several companies actively explored the “kimberlites” within the Bushmanland swarm and the palaeo-drainage systems of the Koa and Buffels Rivers for alluvial diamonds. At least 150 kimberlite pipes were located and drilled to depths of between 20 m and 279 m between 1961 and 1966. In addition, bulk samples of up to several thousand tonnes were recovered from 77 kimberlite pipes during the same period although no diamonds were recovered. No sediment-filled pipes appear to have been sampled.

Diamond exploration along the Koa River valley, to the east of the Bushmanland swarm, recovered several alluvial diamonds during the 1960’s.

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�.�.4 Exploration potentialIn Snowden’s opinion there are two quite distinct aspects to Gemstar’s Bushmanland project: firstly, the location of pipes of lamproite composition and secondly, if lamproite pipes are discovered they will then have to be sampled to determine whether they are diamondiferous.

Since it is Gemstar’s hypothesis that it is only the sediment-filled pipes within the project area that could be lamproite it will be necessary to diamond drill the pipes to recover “fresh” rock to analyse and so confirm or reject the lamproite hypthosesis.

If success is achieved by identifying a lamproite pipe a carefully considered sampling programme would follow. Discovery of a lamproite (sensu stricto) pipe by Gemstar would be an important achievement.

In Snowden’s opinion the lamproite hypothesis is worthy of testing through a modest, staged exploration programme. If lamproite (sensu stricto) is discovered this would cause a re-evaluation of the importance of the Bushmanland pipe swarm as a source of diamonds.

Table 2.3. Proposed Exploration Budget for Bushmanland for Years 1 and 2

�.�.5 Work programme and budgetThe aim of the exploration and evaluation of the Bushmanland pipes within the Gemstar’s Application leases is to establish the nature of the previously described “sedimentary” pipes and to determine their diamond grades. The current leases contain several pipes which will be targeted.

Table 2.3 summarises Gemstar’s budgeted expenditure during the first two years following its equity raising. It is important to note that neither of the farms that constitute the Bushmanland project have yet been granted and this is reflected in Gemstar’s very low exploration budget for the project in Year 1 with activities restricted to setting up a field camp and carrying out a small ground-based geophysical survey.

In Year 2 a very modest exploration programme has been planned to include a restricted aeromagnetic survey, preliminary drilling and sampling. The work planned by Gemstar indicates that the company intends taking a very cautious approach to exploration of this project. Snowden endorses this approach.

3.0 WESTERN AUSTRALIA

�.� INTRODUCTIONGemstar has interest in seven diamond exploration projects in Western Australia (Figure 3.1). The projects together with applicable tenement numbers, title status and tenement areas are listed in Table 3.1.

All the projects are located within areas that have previously been explored for diamonds by other companies. Furthermore, for all but one of the projects (Project K), one or more of the kimberlite indicator minerals (micro-diamonds, macro-diamonds, chromites, picro-ilmenite, chrome diopside, garnet) have been recovered during previous exploration on the projects or within their immediate vicinity. Gemstar has so far not undertaken any systematic exploration on these projects in its own right, but has carried out limited reconnaissance sampling.


Salaries - $5,000 $5,000

Geophysical survey - $15,000 $15,000

Farmers agreements $2,000 $2,000 $2,000

Base set up - $4,000 $4,000

Aeromagnetic survey - - -

Drilling - - -

Bulk sampling - - -

Treatment - - -

Total $2,000 $26,000 $26,000


Salaries $20,000 $40,000 $40,000

Geophysical survey - - -

Farmers agreements - - -

Base set up - - -

Aeromagnetic survey $50,000 $50,000 $50,000

Drilling $30,000 $30,000 $30,000

Bulk sampling $30,000 $30,000 $30,000

Treatment $35,000 $35,000 $35,000

Total $165,000 $185,000 $185,000

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As part of the due diligence for this report Dr Philip Snowden visited the Durack, and East Peak Hills project areas. In addition numerous reports and several research papers have been reviewed and detailed discussions have been held with Gemstar geological personnel.

The amount to be spent on the Australian projects in Year 1 (subject to the grant of relevant tenement applications) is budgetted to be A$476,500 if equity raised is A$3 million or A$483,000 if either A$4 million of A$5 million is raised. In Year 2 the company has budgetted A$497,000 in the event that A$3 million is raised of A$541,5000 if either A$4 million or A$5 million is raised.

Figure 3.1. Location of Gemstar’s diamond exploration projects in Western Australia

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Table 3.1. Tenement schedule for current Gemstar projects

*MEC – minimum annual expenditure commitment for a granted tenement

�.� DURACK�.�.� IntroductionThe Durack project has been established by Gemstar in the Kimberley region of Western Australia to explore for kimberlitic pipes in an area where regional exploration has identified numerous kimberlite indicator minerals including micro- and macro-diamonds and a small kimberlitic intrusive just northeast of the project area.

The Durack project is situated in the Kimberley region of northeast Western Australia about 250 km south-southwest of the town of Kununurra and 100 km west of the village of Turkey Creek (Figure 3.2). The project comprises two tenements: exploration licence E80/2877 and exploration licence application number E80/3942. E80/3942 was initially applied for on 2 May 2007 and the tenement was vended to Gemstar on terms presented elsewhere in this prospectus. The second tenement application E80/2877 partially surrounds E80/3942 to the east, south and southwest (Figure 3.3).

Access to the project, which is situated on Vacant Crown Land, is via poorly maintained station tracks east of the project which provide partial access from the Gibb River Road or via tracks on Bedford Downs station to the south. During the site visit, undertaken on 18 and 19 March 2002, access was gained by helicopter sourced from Turkey Creek.

�.�.� GeologyThe Durack project is located in the southeast of the Kimberley Block with about twenty kilometres of its boundary within the Halls Creek mobile zone (Figure 3.2 and Figure 3.3). The Kimberley Block consists of crystalline basement rocks (possibly of Archaean age) overlain by a thick (+5000 m) sequence of mildly deformed Proterozoic supracrustal rocks, which have been dated at about +1800 Ma. The Kimberley Block is bounded on its east side by the north-northeast trending Halls Creek mobile belt and on its southwest side by the King Leopold belt. Within these belts, basement rocks and overlying sediments have been intensely deformed. Although the boundaries of the mobile belts within the Kimberley Block are abrupt, geologists record the occurrence of basement faults in the Kimberley Block paralleling the Halls Creek and King Leopold belts respectively.

The Kimberley Block supracrustals have been classified into four Groups: Speewah, Kimberley, Bastion and Crowhurst. They have been weakly deformed during two “cross folding” events to give a well defined dome and basin pattern across the area.

Gemstar’s Durack project is underlain largely by Mid-Proterozoic Pentecost Sandstone (at the top of the Kimberley Group) which is white to buff coloured, fine to medium grained, feldspathic sandstone and siltstone. Overlying the Pentecost rocks on E 80/3942 are two circular to ovoid outliers of Bastion Group sediments which consist largely of purple coloured siltstones. The outliers define slightly elevated areas marked by distinctive vegetation and an absence of any incised drainage pattern.

Viewed on a regional scale it’s evident that the Durack project is located over the axial zone of an open north-plunging syncline. The outliers of Bastion Group rocks occur, as expected, along the axial plane trace of the syncline.

Immediately to the northeast of Durack is a distinctive geomorphic feature characterised by a circular form which is clearly evident on 1:50,000 air photographs. The feature with a diameter of six kilometres is likely to be a meteorite impact structure (Figure 3.3). Previous diamond explorers in the area have noted its occurrence.

The geomorphology of the project tenements and surrounding areas constitutes a quite deeply incised Tertiary-aged plateau area dominated by two important river systems – in the west is the north-flowing Durack River while to the east is the north-northeast flowing Chamberlain River. East of the Chamberlain the landscape rises to form the pronounced Durack Ranges.

�.�.� Previous explorationThe discovery of diamonds at Ellendale in the west Kimberley region of Western Australia in the late 1970’s prompted a surge in diamond exploration across the area. Between the late 1970’s and mid 1990’s at least four diamond exploration programmes where conducted in close proximity to the current Durack project area. Work completed during this period included aerial photography at 1:80,000 scale; an airborne geophysical survey and stream, loam and indicator mineral sampling.

Project Tenement Holder Blocks Equity %

Km2 Status App date/ date granted

Rent $ MEC*$

Durack E 80/3942 Gemstar 29 100 81.2 Pending 02/05/07 2,628.56 29,000

Durack E 80/2877 Gemstar 66 100 184.8 Granted 08/02/02 5,438.40 66,000

Oakover E 45/2376 Gemstar 24 100 67.2 Pending 29/01/02 1,977.60 24,000

East Peak Hill E 52/1612 Gemstar 39 100 109.2 Granted 29/01/02 3,534.96 39,000

Malmac Dome E 69/2401 Gemstar 70 100 196 Pending 01/05/07 6,344.80 70,000

Project K E 46/454 Gemstar 16 100 44.8 Pending 21/10/98 1,450.24 20,000

Conical Hill E 69/1753 Gemstar 60 100 168 Granted 18/06/03 5,438.40 60,000

Calawanyah E 47/1317 Gemstar 1 100 2.8 Pending 13/10/03 212.00 10,000

Totals 305 856.9 27,024.96 318,000

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Figure 3.2. Situation of the Durack project in the Kimberley Block geological province of Western Australia. Also shown are other significant diamond projects and diamond mines in the region. Inset shows area of previous regional diamond exploration around Durack. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).

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Figure 3.3. Durack project showing Gemstar tenements and underlying geology. Also shown are kimberlite indicator mineral occurrences located during previous regional sampling (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).

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�.�.4 Exploration results

The pioneer drainage sampling work by the first exploration company to sample the area (in 1979) failed to locate convincing kimberlite indicator minerals. The chromite and olivine grains recovered, were believed to have been sourced from the expansive Hart Dolerite.

In 1986, an area of approximately 100 km by 65 km was sampled (area shown on the inset to Figure 3.2). The areas reported on in two separate reports covered twenty four exploration licences in the north and seven licences in the south of Gemstar’s project respectively. Gemstar’s Durack project is located within the southern area reported on. It falls on parts of three of the former tenements: E80/477, E80/478 and E80/479 that were explored and then reported on in 1986.

Exploration (reported on in 1986) in the northern Durack area led to the collection of 930 stream gravel samples and 146 loam samples during two separate periods of exploration – pre 1981 and post 1981. From these samples, 48 minus 0.4 mm diamonds were recovered from 36 gravel samples and two loam samples. Three broad groupings of diamond occurrence were identified at Spring Creek in the drainage of the Chapman River; Three Mile Creek and Salmond – in the drainage of the Salmond River (inset Figure 3.2).

Apart from diamonds, the kimberlite indicator minerals recovered reportedly included picro-ilmenite, chromite and a single pyrope garnet from one sample. In addition it was reported a fragment of kimberlite float was collected from the Chamberlain River and the occurrence of ferruginous breccia on E80/465 just north of Gemstar’s project was identified.

Sampling results reported in 1986 included fifteen samples yielding 25 micro-diamonds, and the two samples yielding the macro-diamonds and 36 samples yielding chromites. Figure 3.3 shows the drainage system across the Durack project and immediately surrounding area and the localities where chromite micro-and macro-diamonds were collected. It was also noted that a small lamproite breccia occurs just to the north of Gemstar’s project boundary close to the rim of the impact structure.

In the 1990’s a project to the north of Gemstar’s project was established to find the primary source of the diamonds recovered during the exploration campaign reported on in 1986. From the east of its project area the company recovered high chrome chromite and a Group 5 pyrope garnet. Shallow, follow-up drilling intersected an ultramafic rock with a pyroclastic texture which was part of a kimberlitic dyke intrusion (Figure 3.3).

�.�.5 Exploration potentialThe Durack project is situated in a part of the Kimberley Block which, in Snowden’s opinion, has been shown by the work of previous explorers to be worthy of further diamond exploration. In Snowden’s opinion it is reasonable to conclude that the widespread occurrence of kimberlite indicator minerals recovered in the wider Durack project area and reported on in 1986 cannot only be attributed to the kimberlitic intrusion subsequently discovered and, secondly, it is common for kimberlitic pipes and dykes to occur in clusters in an area. So far no convincing source has been identified for most of the indicator minerals found in the area. It is noteworthy that the number of diamonds recovered from the region, of which the Durack project is part, reportedly exceeds that recovered during the exploration that led to discovery of the Argyle Diamond Mine.

Gemstar established the Durack project to explore for primary diamond bearing intrusives in an area that it has suggested could be down-faulted between regionally extensive lineaments (shown on the 1:250,000 Mount Elizabeth and Landsdowne geological maps). Gemstar suggests that the down-faulting could be important from the point of view of ‘preserving’ the upper diamond enriched levels of any pipes. It is also noted that the project terrain is slightly elevated with respect to the surrounding area, yet comparatively poorly drained and lacking any stream incision. Gemstar has concluded that the area is topographically distinctive and warrants investigation. A further observation made by Gemstar is the location of the project area with respect to the Salmond impact structure, which it believes could be significant.

In Snowden’s opinion the Durack project is situated in a regionally important area for the occurrence of kimberlites. An exploration programme is justified and it should be possible to execute it rapidly and at relatively low cost.

�.�.6 Exploration budgetGemstar has prepared a two year exploration budget for Durack. The first year’s budget, provides for the completion of an aeromagnetic survey and interpretation, and follow up loam sampling, mapping and provision for access to the tenement. The second year’s budget provides for a modest drilling, sampling and a bulk sampling programme to verify the presence of kimberlite and the diamond content within any kimberlite discovered. Gemstar’s budget is shown in Table 3.2.

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INDEPENDENT GEOLOGIST’S REPORT

Table 3.2. Proposed exploration budget - Durack for Years 1 and 2

3.3 OAKOVER�.�.� IntroductionGemstar’s Oakover project in the eastern Pilbara region of Western Australia (Figure 3.4) has been established to identify the primary kimberlite source of diamond and other kimberlite indicator minerals located on and in the vicinity of the project tenement during past exploration by the major diamond exploration companies.

The Oakover project consists of a single exploration licence application E45/2376. Application for the licence was made in January 2002. The project is located on the west side of the Oakover River valley in the eastern Pilbara in the northwest of Western Australia (Figure 3.4 and Figure 3.5). It lies between Yilgalong Creek and the Oakover River south of the Ripon Hills Road off the track along the west side of the Oakover River. The tenement is situated partly on Vacant Crown Land and partly on Warrawagine Station.

�.�.� GeologyThe Oakover project is situated on the eastern edge of the 3500 Ma – old granite – greenstone belt terrain of the Pilbara craton. In this area early Proterozoic-age Fortescue basalts unconformably overlie the Yilgalong granite basement. Followed eastwards the basalts give way to overlying Carawine Dolomite and Pinjian Chert Breccia also of early Proterozoic age. Younger rocks in the area include scattered outcrops of fluvio-glacial sediments of the Paterson Formation (Permian-age) and remnants of shallow marine Oakover Formation sediments of Tertiary-age.

The local geology of the Oakover project includes Yilgalong granite in the west with east dipping Fortescue basalts and intercalated sediments underlying most of the project. In the east is Pinjin Chert breccia. Much of the eastern part of the tenement is covered by recent colluvium from outwash fans. On a regional scale the Proterozoic rocks in the eastern Pilbara occupy a broad synclinal structure and there is evidence of extensive fault deformation in the area.

The project is situated within an area of quite rugged terrain in the divide between two significant north flowing rivers, the Yilgalong River about 6 km to the west and the Oakover River about 5 km to the east. The main creek draining the project is the Midgengadge which flows northeasterly across the project area. The river displays a strong dendritic drainage pattern in its headwaters region in the southwestern part of the project area.

�.�.� Previous explorationThe area, which includes Gemstar’s Oakover project, was reportedly explored through helicopter supported stream bulk sampling during the early 1990’s.


Salaries $40,000 $40,000 $40,000

Geophysics $65,000 $65,000 $65,000

Access $70,000 $70,000 $70,000

Sampling $50,000 $50,000 $50,000

Drilling - - -

Bulk sampling - - -

Total $225,000 $225,000 $225,000


Salaries $40,000 $40,000 $40,000

Geophysics - - -

Access - - -

Sampling $30,000 $30,000 $30,000

Drilling $80,000 $80,000 $80,000

Bulk sampling $75,000 $75,000 $75,000

Total $225,000 $225,000 $225,000

INDEPENDENT GEOLOGIST’S REPORT SECTION 4F

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Figure 3.4. Location of the Wiluna, Oakover, East Peak Hill, Lake Carnegie, Malmac Dome, Project K and Conical Hill projects. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).

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Figure 3.5. Oakover project – showing tenement ELA45/2376 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).


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�.�.4 Exploration resultsNo systematic exploration of the Oakover project area has been undertaken by Gemstar so far. Company geologists have carried out an orientation visit to the project in order to facilitate exploration budget planning. Two samples collected in the Midgengadge River were submitted to a laboratory specialising in the investigation of samples for kimberlite indicator minerals. Chromite grains were recovered which did not have the morphology expected for chromites sourced from kimberlites. However, probing of some grains showed them to be high in Cr2O3 (+60%) and quite low Al2O3. One chromite grain plots in the diamond inclusion and intergrowth field based on Cr2O3 and TiO2. A rock specimen (sample O1) from a breccia body led Gemstar to conclude that the specimen is a pyroclastic. It was noted that while the complete alteration of the rock makes positive identification impossible, the “phlogopite” and the possible olivine palimpsests (ie, relic olivine crystal forms) are not dissimilar to material found in “pelletal lapilli or autoliths from diatreme/crater facies kimberlites”. Contrary evidence is the highly vesicular and glassy nature of the pyroclastics, not characteristics of kimberlites. There is also a complete absence of the kimberlite refractory minerals such as spinels, zircon or titanates often preserved in highly altered rocks. Furthermore, it has been noted that some of the unusual mineral species identified, including florencite and gorceixite, have a number of sources that include carbonatite. Snowden appreciates that this data, while not being definitive in any way regarding a kimberlite origin for the chromites, provides support to Gemstar’s view that the project is prospective for kimberlitic intrusives given the results achieved by previous explorers of the area.

�.�.5 Exploration potential

In Snowden’s opinion reported exploration of the general area, which includes the Oakover project, by previous diamond explorers has been sufficiently encouraging to justify follow-up work by Gemstar on its property. It will be important for Gemstar to sample the project area for kimberlite indicator minerals. In Snowden’s opinion the Oakover project warrants a programme of exploration to evaluate its potential to host kimberlite pipes.

�.�.6 Exploration budgetAlthough this project tenement has still to be granted it is Gemstar’s expectation that exploration access to the ground will be established. The proposed work programme and budget (Table 3.3) assumes that the Oakover exploration licence will be granted and that exploration on the property will commence in Year 2. While it is reasonable to expect that the tenement will be granted its granting is not certain.

Gemstar has already located weathered brecciated material described petrographically as a pyroclastic breccia with former phlogopite. As its tenement remains in application, Gemstar is proposing a minimal exploration programme for Year 1. Following the grant of its tenement, Gemstar proposes a mapping programme to map the extent of the breccia material and other breccias present in the project area. These areas will be followed up by sampling and drilling. Identified kimberlite will be bulk sampled to determine the quantities of diamonds if present.

Table 3.3. Proposed exploration budget - Oakover for Years 1 and 2

3.4 EAST PEAK HILL

�.4.� IntroductionThe East Peak Hill project has been established by Gemstar to follow-up positive kimberlite indicator minerals (including macro-diamonds) reportedly recovered from bulk stream drainage samples by a previous explorer of the area.

The project is covered by one exploration licence application, E52/1612 (application made 29 January 2002), located about 20 km southeast of Neds Creek Station to the east of the gravel road from Wiluna to the Great Northern Highway near Plutonic Gold Mine (Figure 3.4). The area straddles the route taken by the Kalgoorlie Gas Pipeline and is easily accessed via the pipeline road.


Salaries - - -

Data Acquisition $3,500 $3,500 $3,500

Sampling - - -

Drilling - - -

Total $3,500 $3,500 $3,500


Salaries $10,000 $10,000 $10,000

Data Acquisition - - -

Sampling $10,000 $10,000 $10,000

Drilling - - -

Total $20,000 $20,000 $20,000

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The project area is located within the central eastern part of the Peak Hill 1: 250,000 map sheet within the Glengarry Basin. The terrain in the area is flat and access throughout the project area should be straightforward (Figure 3.6).

Gemstar is currently negotiating an agreement with the Yamatji Land and Sea Council to conduct a heritage survey of the project. In early April 2002 Dr Snowden visited this project site as part of the due diligence process for this report.

�.4.� GeologyThe East Peak Hill project is situated in the boundary zone between the Nabarru Basin to the east and the Glengarry Basin to the west. Both these basins are filled with early to middle Proterozoic-age rocks. To the north of the area is the Marymia Dome and to the south the Yilgarn craton.

Earaheedy sediments of the Nabbaru Basin unconformably overly the Glengarry Basin sediments. Nabberu has an age of 1,650 million years. The local geology of the project area consists of a variety of Glengarry Group sediments and volcanics which are intruded by Proterozoic dolerite dykes. The area was subjected to deep weathering during the early Tertiary.

�.4.� Previous explorationThe tenement falls within a large area that has been subjected to exploration by at least two and possibly as many as four major diamond exploration companies, each of whom have taken different approaches to their exploration. Certain companies have reportedly undertaken “open range exploration” which involves regional bulk drainage sampling employing helicopter support. In such cases, tenements are only applied for if reconnaissance results are sufficiently encouraging. Where open range exploration prevails, no statutory reports are presented to the WA Department of Mineral and Petroleum Resources detailing exploration results.

One of the exploration companies is reported to have explored the area for both base metals and diamonds from a base of established exploration licences. A large number of chromite grains and diamonds (including a macro) were reportedly recovered from three sites in the area. Three of the diamond recovery sites are located in the area of Gemstar’s East Peak Hill project (Figure 3.6).

�.4.4 Exploration resultsGemstar has not carried out any systematic exploration of the East Peak Hill project so far. Geologists from the company visited the sites where a previous diamond exploration company is reported to have collected the samples that yielded the macro-diamonds. The diamond from one of the sites was reported to have been recovered from a loam sample collected from a flat scrub area.

Gemstar has advised Snowden that a loam sample they collected from one of the “diamond” sites yielded 180 chromite grains. When grains were subject to microprobe analysis seven were found to have chemical characteristics typical of a kimberlitic source.

The nearest known kimberlitic rocks to the East Peak Hill project are at Marymia about 40 km due north of the project area. The Marymia kimberlites, which have so far proven to be non-economic, were discovered during the course of a regional exploration programme by one of the major diamond exploration companies.

�.4.5 Exploration potentialThe reported occurrence of kimberlite indicator minerals within the area of the East Peak Hill project justifies, in Snowden’s opinion, a limited, focussed exploration programme. It is likely that the project can be evaluated using geophysical techniques and follow-up stream and loam sampling. It is our view that a realistic primary programme will be quite modest in extent and of short duration.

�.4.6 Exploration budgetPending the grant of its tenement, Gemstar proposes carrying out limited air photo interpretation over the East Peak Hill project area in Year 1. Further target generation will be undertaken following the grant of tenure through geological mapping, geophysical surveying, follow-up sampling and drilling.

The exploration budgets (Table 3.4) proposed for East Peak Hill are appropriate given the status of the project. The budgets assume that the tenement will be granted in time for the Year 2 programme to be executed.


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Figure 3.6. East Peak Hill – showing tenement ELA52/1612 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).

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Table 3.4. Proposed exploration budget – East Peak Hill for Years 1 and 2

3.5 MALMAC DOME

�.5.� IntroductionThe Malmac Dome project has been established by Gemstar to explore for diamondiferous kimberlite pipes. Previous explorers have located kimberlite indicator minerals (including diamonds) within and around the project area and the Jewill kimberlite pipes (diamondiferous but not economic) are situated just south of the Malmac Dome project.

The Malmac Dome project is contained within a single application tenement: E69/2401 (applied for 1 May 2001) located approximately 230 km northeast of the town of Wiluna (Figure 3.4 and Figure 3.7). It is situated in the northern part of the Nabberu Basin close to the northeastern margin of the underlying Archaean craton.

The Malmac Dome project is situated on the former Earaheedy station which is now a CALM reserve.

Access to the project area is via a gravel road from Wiluna townsite along the Glen Ayle Station road to an easterly cutoff at the Sydney Heads Pass which turns east to Carnegie Station.

Tenements to the north of E69/2401 are currently held by a large mining company while those to the south are held by a small diamond exploration company that has recently listed on the Australian Stock Exchange. The Jewill kimberlites, which were discovered in the 1980’s are located on the property south of Gemstar’s ground about 12 km south of the Malmac Dome project area.

�.5.� GeologyThe Malmac Dome project is located on the northern side of the Nabberu Basin where the sediments have been moderately deformed within a zone known as the Stanley Fold Belt. Along this edge of the basin there are two conspicuously domed areas which are cored by granites: the Marymia Dome to the northwest and the Malmac Dome to the northeast. Gemstar’s Malmac Dome project straddles the boundary between the granite dome and the unconformably overlying sediments to the south.

During the 1980’s several deformed and quite deeply eroded kimberlitic intrusives were discovered on the Marymia Dome, while the Jewill kimberlites were discovered just south of Malmac (Figure 3.7).

Features of note in the area include the deep weathering (60 to 80 metres) at the Jewill pipes and the occurrence of the Stanley Dyke, a 30 m thick basaltic dyke which defines a strong magnetic anomaly.

�.5.� Previous explorationThe project falls within an area that was subjected to a major exploration effort in the mid 1980’s. In 1985 the company collected 36 gravel samples. Forty chromites were extracted from these samples but analysis showed that none were sourced from kimberlitic rocks. A second phase of sampling and follow-up analysis reportedly yielded numerous chromites, none of which were kimberlitic, and two samples, each of which yielded a single diamond. Follow-up sampling failed to repeat the diamond discovery.


Salaries $2,000 $5,000 $5,000

Geophysics - - -

Data acquisition - $2,500 $2,500

Sampling - - -

Drilling - - -

Total $2,000 $7,500 $7,500


Salaries $7,000 $10,000 $10,000

Geophysics $8,000 $10,000 $10,000

Data acquisition - - -

Sampling $13,000 $20,000 $20,000

Drilling $10,000 $32,500 $32,500

Total $38,000 $72,500 $72,500


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Figure 3.7. Malmac Dome – showing ELA69/2401 and underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).

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In 1988 exploration of the greater area around the Malmac Dome project identified six possible kimberlitic geophysical targets. In addition loam and stream gravel samples were collected. These samples yielded both micro-diamonds and chromites with kimberlitic affinities. Following a detailed loam sampling programme, three holes were drilled at one anomaly intersecting a small lamprophyre (0.5 Ha) with a kimberlitic signature named Jewill 1.

Further exploration of the Jewill project area in 1992/1993 led to discovery of a further three lamprophyre bodies – Jewill 2, Jewill 3 and Jewill 4 located in zone east-northeast of Jewill 1. Two tonnes of rock from Jewill 2 were processed and returned 31 diamonds, most less than 0.44 mm in size and hence classified as micro-diamonds.

In the area around the Jewill project (including the current Gemstar project area) micro-diamonds, chromites with kimberlitic affinities and picro-ilmenites were located through stream sampling over a wide area (Figure 3.7). On Gemstar’s project a diamond was reported in drainage flowing southwards off the Malmac Dome.

�.5.4 Exploration resultsGemstar has not undertaken any systematic exploration of its Malmac Dome project area but has conducted a reconnaissance field trip during which orientation samples were collected. One sample collected from a cross cutting dyke returned unusually high levels of cerium and neodymium, which Gemstar concluded could be indicative of a lamproite intrusive. Follow-up work is required.

�.5.5 Exploration potentialGemstar’s exploration licence E69/2401 represents a comparatively small area (about 200 km2) as diamond exploration areas go and hence it should be possible to undertake a first stage exploration programme quite rapidly. A key objective for Gemstar is to endeavour to trace the source of the diamonds, recovered by using detailed stream drainage sampling. In Snowden’s opinion such a programme supported by aeromagnetic interpretation should be possible at relatively low cost.

Gemstar is aware that because of the widespread occurrence of remnants of Paterson Formation fluvioglacial sediments it is possible to achieve a confused picture of kimberlite indicator mineral distribution.

In Snowden’s opinion the Malmac Dome project is in an area of interest for diamond exploration and warrants a limited, carefully planned sampling programme supplemented by geophysical interpretation.

�.5.6 Exploration budgetThe Malmac Dome project area will be mapped and carefully sampled following on from the anomalous rock sample previously recovered by Gemstar from the area. The exploration will also be directed towards finding the kimberlitic source for the diamond recovered from a stream drainage sample on the tenement and other kimberlitic indicator minerals in the region. Subject to appropriate target generation, a programme of drilling will follow.

The exploration budgets (Table 3.5) assume that focused exploration will take place in the second year with the less prospective areas of the tenement being relinquished after the first year’s exploration.

Table 3.5. Proposed exploration budget – Malmac Dome for Years 1 and 2


Salaries $30,000 $30,000 $30,000

Data acquisition $8,000 $8,000 $8,000

Geophysics $20,000 $20,000 $20,000

Sampling $30,000 $30,000 $30,000

Drilling $50,000 $50,000 $50,000

Total $138,000 $138,000 $138,000


Salaries $20,000 $20,000 $20,000

Data acquisition - - -

Geophysics - - -

Sampling $40,000 $40,000 $40,000

Drilling $30,000 $30,000 $30,000

Total $90,000 $90,000 $90,000


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Figure 3.8. Project K – showing the two magnetic high-gravity low “bullseye” anomalies on ELA46/454. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation)..

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3.6 PROJECT K�.6.� IntroductionProject K is located 65 km north-northeast of the town of Newman in the Pilbara region of Western Australia. The project has been established by Gemstar to explore two “bullseye” magnetic high anomalies. Ground gravity surveys across the anomalies have shown them to be gravity negative. It has noted by Gemstar that a bullseye anomaly, characterised by high magnetics and low gravity, can be indicative of a deeply weathered kimberlite or kimberlitic-like intrusive pipe.

Project K is incorporated within a 16 block exploration licence application E46/454 that was applied for in July 1998 and has been vended to Gemstar on terms presented elsewhere in this prospectus.

The project area is located approximately 26 kilometres south-southeast of the Roy Hill station aerodrome and the west end of the exploration licence straddles the Nullagine Road which connects Roy Hill to Mt Newman (Figure 3.4 and Figure 3.8).

�.6.� GeologyThe Project K exploration licence is largely underlain by recent fluvial sediments deposited within the flood plain of the Fortescue River just north of where it emerges from the Hamersley Ranges following the line of a north-northeast-trending sinistral fault.

The hard rock geology beneath the Fortescue River sediments is partly revealed by aeromagnetic maps. The aeromagnetic data shows a broad 10 km wide magnetic high band trending northeast, from the Hamersley Ranges in the south, across the Fortescue Basin. The lineament is widest in the south where it intersects the Hamersley Ranges. Gemstar has noted that this lineament of high magnetics has been interpreted as a major regional fault.

North-northeast-trending faults are reported to be well known in the Hamersley Basin with some having been intruded by dolerite dykes. Where these dykes intrude banded iron formation in the Hamersley Ranges the dolerite tends to have been preferentially weathered out.

Two geophysical anomalies are spaced 1.8 km apart in a northwesterly direction within the magnetic high lineament. The anomalies have been named the Big Bill anomaly in the northwest and The Wee Ina anomaly in the southeast. A ground magnetometer survey shows the anomalies to measure approximately 600 m and 400 m in diameter respectively. It is notable that that the Big Bill – Wee Ina line disrupts, in a dextral sense, the continuity of the otherwise clearly defined north-northeast-trending magnetic lineament.

It is reported that a consultant geophysicist interpreting the magnetic data within the area of Project K concluded that the intense north-northeast anomaly is generated by a body at a depth of about 100 m. In contrast the northwest-trending anomaly is a response to a distinctive rock body at about 150 m depth. It was noted by the geophysicist that the depth estimates could be in error by 100 per cent.

Follow-up ground based gravity surveys across the Big Bill and Wee Ina magnetic anomalies showed them both to be gravity negative. The occurrence of an anomaly exhibiting positive magnetism and negative gravity is regarded by Gemstar as unusual and it notes that it could be the response expected with the intrusion of kimberlite into non banded iron formation rocks.

Snowden’s assessment of this project has relied upon a technical report dated 1998 and a number of magnetic and gravity maps dated 1978. Snowden is satisfied that the maps were professionally compiled by a competent geophysicist.

�.6.� Previous explorationThe Project K tenement falls within an area that was widely explored in 1977 for high grade iron ore deposits. A key tool for exploration was aeromagnetic data obtained on flight lines spaced 800 m apart and at a height of 100 m.

The Big Bill and Wee Ina magnetic anomalies were identified from this data and follow-up ground magnetic and gravity geophysics were carried out. Two RC holes were targeted to be drilled one into each of the bulls-eye magnetic anomalies. Neither penetrated the base of the Fortescue River sediments due to a combination of technical difficulties. It is also reported that the holes may not have been accurately sited.

�.6.4 Exploration resultsNo exploration of the Project K magnetic anomalies has been carried out since the two aborted RC holes were drilled in 1978.

�.6.5 Exploration potentialThe exploration potential of the two magnetic anomalies on Project K will only be assessed in a meaningful way once they have been geophysically assessed and drilled.

�.6.6 Exploration budgetAssuming the tenement is granted, Gemstar proposes a programme of geophysical exploration to accurately locate the two already defined geophysical anomalies for drill positioning in Year 2 (Table 3.6). The work will include a closely spaced ground magnetic survey and EM survey. Follow up target drilling is planned to commence on completion of the geophysical survey


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Table 3.6. Proposed exploration budget – Project K for Years 1 and 2

3.7 CONICAL HILL PROJECT�.7.� IntroductionThe Conical Hill Project has been established by Gemstar 130 km northeast of Wiluna on the northeast side of the Shoemaker Impact Structure in an area where previous exploration has identified kimberlite indicator minerals. Gemstar proposes to explore the project for kimberlitic pipes.

The project area is currently held under a single granted exploration licence E69/1753 applied for in August 2001 and there were no adjacent tenements at the time this report was written. The report covers parts of both Granite Peak and Cunyu pastoral leases. Access to the area is via the Wiluna – Glen Ayle road to Granite peak station and thereafter via station tracks.

The project area and underlying geology is shown on Figure 3.4 and Figure 3.9.

�.7.� GeologyThe Conical Hill project area is underlain by weakly deformed Proterozoic sediments on the southern margin of the Nabberu Basin. About 30 km to the south west of tenement EL69/1753 are granites and greenstone belt rocks (the Millrose belt) of the Archaean-age Yilgarn craton. This area falls within the northern part of the Eastern Goldfields.

The local geology of the area in the vicinity of the project is dominated by the impressive scar of a meteorite impact structure, now named the Shoemaker Impact Structure, which impacted approximately 1630 Ma–ago. The impact structure has a visible diameter of some 25 to 30 kilometres.

The central core of the impact structure consists of a syenite with fluid filled shock deformation lamelli while the surrounding sediments exhibit shatter cones, brecciation and pseudotachylite veins.

�.7.� Previous explorationThe Conical Hill project falls within a very large area subjected to regional diamond exploration by a large diamond exploration company in the 1980’s. The result of this exploration are not known.

It was explored more recently (commencing in 1993) in an area to the southeast of the Shoemaker Impact Structure (E69/876) in order to assess a number of magnetic anomalies in the outer periphery of the impact structure. Helimagnetics, ground magnetics, loam sampling above magnetic anomalies and vertical aircore drilling was carried out. One of the anomalies was drilled to a depth of 120 m but no lithologies were intersected that would explain the anomaly.

�.7.4 Exploration resultsGemstar has so far conducted no systematic exploration on the exploration licence application E69/1753 but has undertaken a reconnaissance investigation of the property. A sample collected from the project yielded a single chromite, however, whether it has kimberlite affinities is not known. To Snowden’s knowledge none of the exploration conducted so far, by other companies, on the area surrounding the Conical Hill project has yielded results that are positive for diamond exploration.

�.7.5 Exploration potentialIn Snowden’s opinion it is appropriate for Gemstar to undertake a limited programme of exploration on the Conical Hill project and to quite rapidly evaluate its potential through detailed photo-interpretation, airborne geophysics and stream and loam sampling.

�.7.6 Exploration budgetThe Conical Hill project tenement is granted and five satellite anomalies have been identified within the project area. These have been sampled and are currently being treated.

Areas of positive results will have a geophysical programme carried out over the target areas. Further mapping and sampling will be carried out during this year. A budget for drilling prospective targets has been allocated for later in Year 1 and in Year 2 (Table 3.7).


Salaries - - -

Geophysics - - -

Sampling - - -

Drilling - - -

Total - - -


Salaries $6,000 $6,000 $6,000

Geophysics $3,000 $3,000 $3,000

Sampling $4,000 $4,000 $4,000

Drilling $8,000 $8,000 $8,000

Total $21,000 $21,000 $21,000

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Figure 3.9. Conical Hill – showing ELA69/1753 and the underlying geology. (Geology modified from the Western Australian Department of Mineral and Petroleum Resources and the Australian Geological Survey Organisation).


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Table 3.7. Proposed exploration budget – Conical Hill Project for Years 1 and 2

3.8 CALAWANYAH PROJECT

�.8.� IntroductionThe Calawanyah project has been established by Gemstar on a small tenement in the Hamersley Ranges in Western Australia to investigate a circular structure that may be related to a kimberlitic pipe. Two diamonds have been recovered from another kimberlitic pipe just south of the project area.

The project is currently held under a single exploration licence application E47/1317 applied for in October 2003.

The project, which measures 5.75 km², is located in an area of rugged terrain in the Hamersley Range of Western Australia. The project falls within the northeast corner of the 1:100,000 topographic survey sheet JEERINAH (Series R611, Sheet 2353, Edition 2-AAS.). There are four wheel drive tracks in the vicinity of the tenement and there is a power transmission line within 1 km of the eastern boundary of the tenement. About 100 km due west of the project is the town of Pannawonica while a similar distance to the east is the town of Wittenoom.

No site visit has been made by Snowden to this project site.

�.8.� GeologyThe Calawanyah project area is underlain by rocks of the Brockman Iron Formation of the Hamersley Group in the west – central part of the Hamersley Basin. These rocks overlie a southerly extension of the early Archaean-age Pilbara Craton which is generally acknowledged to be 3500 Ma – an age comparable with the generally accepted age of the Kaapvaal Craton in South Africa.

At a local level the project area incorporates a circular photo-feature (ie a feature that can be recognised on an aerial photograph of the area) in an area of rugged terrain on the western side of a steep-sided hill in which there are a series of large fractures some 3 m to 5 m deep in an area of generally flat lying sediments. Gemstar has advised Snowden, that examination of the ground within the area of the circular photo-feature, revealed rocks comprising broken and possibly brecciated banded iron formation material within a limonitic matrix.

Gemstar advises that a second circular photo feature can be distinguished in the northwest of the project area. About one third of this feature falls within the project area (no Gemstar personnel have yet visited the site of this feature), and approximately 3 km south-east of Gemstar’s southern boundary there is a third circular photo-feature. Gemstar has advised Snowden that two diamonds have been reported recovered from samples collected over this structure. In addition numerous kimberlite indicator minerals including pyrope garnet, picro-ilmenite, chromite, enstatite and rare chrome diopside are reported to have been recovered from one hole drilled in this area.

The circular photo feature within the Calawanyah project area appears to be one of a number of similar features identified by Gemstar’s consultants, within a few kilometres of the project. There is no obvious geological control on the location of these features. It is noted, however, that the Fortescue Valley is in the vicinity and this valley may owe its occurrence to faults along a rift valley type structure. It is really premature to speculate on the nature and origin of these circular features.


Salaries $20,000 $20,000 $20,000

Geophysics $12,000 $12,000 $12,000


Sampling $30,000 $30,000 $30,000

Drilling $28,000 $38,000 $38,000

Total $99,000 $109,000 $109,000


Salaries $20,000 $25,000 $25,000

Geophysics - - -


Sampling $31,000 $36,000 $36,000

Drilling $30,000 $30,000 $30,000

Total $81,000 $91,000 $91,000

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�.8.� Previous explorationThe Calawanyah project falls within an area that was subjected to a significant exploration programme for iron ore in the early 1980’s due to the presence an interesting circular photo feature. However, there is no reference to any exploration having been conducted specifically over the feature in Gemstar’s project area.

The circular feature located 3 km to the southeast of Calawanyah has reportedly returned two diamonds together with pyrope garnet, chromite picroilmenite and chrome diopside from drill samples.

�.8.4 Exploration potentialIn Snowden’s opinion it is appropriate for Gemstar to undertake a limited programme of exploration on the Calawanyah project and to quite rapidly evaluate its potential to host a kimberlitic pipe through detailed ground sampling, ground geophysics and drilling.

�.8.5 Exploration budgetThe Calawanyah project consists only of one graticular block, and therefore exploration will be very focused to test the photo anomaly. However it is envisioned that this tenement will not be granted in the first year of field work.

Upon granting of the tenement application, the anomaly will be mapped and sampled. If the anomaly proves positive for indicator minerals or altered indicator minerals, then the anomaly will be drilled to obtain fresh sub-surface material in year two.

Table 3.8. Proposed exploration budget – Calawanya Project for Years 1 and 2


Salaries - - -


Sampling - - -

Drilling - - -

Total - - -


Salaries $8,000 $8,000 $8,000


Sampling $5,000 $5,000 $5,000

Drilling $7,000 $7,000 $7,000

Total $22,000 $22,000 $22,000


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4.0 PUBLICATIONS AND REPORTS REFERRED TO FOR THIS REPORT

African Selection Trust Exploration. Undated map of aeromagnetic survey for the farms Vlakfontein 207 JP and Palmietfontein 208 JP (unpublished).

Aravanis, T. and May, R., February 1988. Annual report on exploration completed within exploration licenses 69/94 (Stanley 5). 69/97 (Stanley 8), 69/173 (Mt Moore 1) 69/200 (Stanley 64), 69/217 (Stanley 67) and 69/220-222 (Stanley 70-72) Stanley 1:250,000, Western Australia Report prepared for CRA Exploration Pty Limited for submission to the Western Australian Department of Mines (unpublished).

Austcape Resources Ltd (undated). Summary of diamond projects, Namaqualand, South Africa. Internal report (unpublished).

Australian Kimberley Diamonds; September 1995 Annual report for the year ending 3/7/95 for Salmond E80/1819, Kimberley Region WA.

Bunting, J.A., Brakel, A.T. and Commander, D.P., 1982. Nabberu Western Australia sheet SG/51-5 International index, 1:250,000 geological series – explanatory notes, Western Australia Geological Survey.

Barnard Jacobs Mellet Securities (2001). Trans Hex Group Limited. Publicly issued report.

Cape to Perth Mining Explorations Pty Ltd (undated). Summary review of alluvial diamond projects in Namaqualand, South Africa. Internal company report (unpublished).

Clarke, A.M. and Fielding, D.C., February 1986. Final report on exploration completed within exploration licences 80/249-252, 255-256, 274-277, 465, 468-472, 476-477, 482, 487-490 and 589 Durack River. Mt Elizabeth, Lissadell and Lansdowne, Western Australia. ITEM 2300 open file report Department of Mines. Report issued by CRA Exploration Limited, Ashton Exploration Joint Venture (unpublished).

Clemen, A., 2002. A report on the Kalkom diamond project, Bushmanland District, Namaqualand, Republic of South Africa. Internal company report prepared for Superior Mining Corporation (unpublished).

Clemen, A., 2002. A report on the Kamiesberg diamond project, Bushmanland District, Namaqualand, Republic of South Africa. Internal report prepared for Superior Mining Corporation (unpublished),.

Clifford, P., March 1994. First and final report on diamond exploration completed E69/860-861 and E38/534-535 (Hoskins 1-4) Stanley and Kingston, 1:250,000 Mapsheets, Western Australia Report for CRA Exploration Pty Limited (unpublished).

Clifford, P.R., September, 1993. Annual report on exploration completed within exploration licence 68/200 (Stanley, 64) for the period ending 17 July 1993. Stanley 1:250,000 mapsheet, Western Australia Report prepared for CRA Exploration Pty Limited to the Mines Department of Western Australia (unpublished).

Confidential 2002. Brief petrography, whole rock geochemistry and indicator mineral chemistry of 5 samples from the Koeberg kimberlite, Namaqualand, South Africa. Internal report (unpublished).

Cornelissen, A.K., and Verwoerd, W.J., 1975. The Bushmanland kimberlites and related rocks. Chemistry of the Earth, Vol. 9.

De Beers Consolidated Mines Limited. Letter dated 7th September 1983 from J.B. Hawthorne to K.J. Barnard (unpublished).

De Beers Consolidated Mines Limited. Sampling plan dated February 1984. 800 m loam sampling programme, Palmietfontein 208 JP (unpublished).

De Wit, M.C.J., Date. Post-Gondwana drainage and the development of diamond placers in western South Africa.

DeBeers. Report titled “Diamond Geology” published on www.De Beersgroup.com

Diamin Resources NL (1996) Annual report to Shareholders.

DuToit, A.L 1939. The Geology of South Africa. Oliver and Boyd.

Edward Nathan and Friedland. Corporate Law Advisors and Consultants Draft for discussion: dated 9 April 2003. Agreement: General Goldworld Inc and Gemstar Diamonds Limited (unpublished).

Field, L., 2002. Oakover project. Internal company report for Gemstar Diamonds (unpublished).

Friedland Hart (incorporated). Letter dated 23 July 2003. Fidulex Diamond Holdings (Pty) Limited – Mineral Search. Letter to Messrs Edward Nathan and Friedland (unpublished).

Geach, C., January 1994. Annual report on exploration licence E69/683, Warburton Mineral Field. Report prepared by Northling Pty Ltd to the Department of Minerals and Energy Western Australia (unpublished).

Geach, C., Matveev, B and Reeves, D., January 1998. Final surrender report on the Stanley South Group of tenements: E69/599 and E69/601 in the Warburton Mineral Field. Report to the Department of Minerals and Energy, Western Australia prepared by Pecan Holdings Pty Ltd/Northing Pty Ltd Item number 9867 (unpublished).

Geach, C.L., July 1999. Geological report on the Nabbaru prospect E381/1095, Mount Margaret Mineral Field, Western Australia Livingstone Resources NL Annual Report for the period 28/8/98 to 27/8/99. Open file item 10905 (unpublished).

Gemstar Diamonds Limited. December 2003, Unpublished Information Memorandum.



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Gemstar Diamonds Memorandum proposed in 2003. Palmietfontein Diamond Pipe. Internal company memorandum (unpublished).

Haebig, E., December 1986. Final report on exploration completed within exploration licences 80/473, 80/478-480 and 80/483-485 Mt Elizabeth and Landsdowne 1:250,000 map sheets, Western Australia. Part of ITEM 2658 open file report Department of Mines, Report issued by CRA Exploration Pty Limited Ashton Exploration Joint Venture (unpublished).

Hamilton, R., August 1990. Terminal technical report on Bulljah project for balance of tenements E69/83-85 and E38/118-119. Report for Western Mining Corporation Limited Exploration Division – Minerals (Australia) (unpublished).

Haughton, S.H. 1969. Geological history of Southern Africa. Published by the Geological Society of South Africa.

Home, D.P., 1995, Final report on exploration completed within Exploration Licence E45/1439 (Carawine1) Nullagine 1:250,000 mapsheet, Western Australia. Unpublished report, CRA Exploration Pty Limited report no. 20616. WAMEX Item no. 8015.

Jaques, A.L., Ferguson, J and Smith, C. B., 1985. Kimberlites in Australia. In Kimberlite occurrence and origin: a basis for conceptual models in exploration. Publication No. 8 pp 214-227; issued jointly by the Geology Department and University Extension, University of Western Australia.

Johnston, G.G., July 1998. The Project K kimberlite prospect, Pilbara region Western Australia. Internal report for Norwest Mining Services (unpublished).

Knight, B.K., Home, D.P., 1994, Annual report on exploration completed within Exploration Licence E45/1439 (Carawine 1) for the period ending October 1994 Nullagine 1:250,000 mapsheet, Western Australia. Unpublished report, CRA Exploration Pty Limited report no. 20266. WAMEX Item no. 8015.

Limb, N.J., March 1981. Final report on exploration completed within temporary reserve 797 3H Panton Bluff and temporary reserve 7974H Acacia Bore, Kingston, Western Australia Report for CRA Exploration Pty Limited (unpublished).

Marx, M.R., 2000. Bushmanland lamproite hypothesis (unpublished).

Marx, M.R., 2001. Independent consulting geologists report. Internal report for Austcape Resources Limited (unpublished).

May, R. and Aravanis, T) December 1988. Final report on exploration completed within exploration licences 69/94 “Stanley 5”, 69/97 “Stanley 8”, 69/173 “Mt Moore 1”, 69-217 “Stanley 67”, 69/220-222 “Stanley 70-72” and surrendered part 69/200 “Stanley 64” Stanley 1:250,000 Western Australia. CRA Exploration Pty Limited report to WA Mines Department. ITEM 3751 (unpublished).

May, R. and Aravanis, T., January 1988. Final report on exploration completed within exploration licences 69/90 (Stanley 1), 93 (Stanley 4), 174-178 (Mt Moore 2-6) and 190 (Stoney Point), Stanley 1:250,000 map sheet Western Australia. CRA Exploration Pty Ltd to Mines Department of Western Australia (unpublished),

Moore, A.E., and Verwoerd, W.J., 1985. The olivine melilitites – “kimberlite” carbonatite, suite of Namaqualand and Bushmanland, South Africa. Trans. Geol. Soc. South Africa.

Mueller, J.A., Smith, G.T. and Hugo, D., 1995. The application for the gravity method in prospecting or kimberlite related diatremes in Bushmanland South Africa. Geophysics Review 1:93-107.

O’Brien, P.M., February 2001. Geological report in the Adamus Resources prospectus.

Otterman, D.W., August 1986. Quartermaine Well project – exploration licence 51/12 (unpublished),

Roger Townend and Associates, 2000. Preparation of thin sections for KALKOM-1. Internal report to M. Marx (unpublished).

Roger Townend and Associates, May 2002. Preparation of 5 polished thin sections of three rocks and petrographic and mineragraphic descriptions (W1, W2, 01) Internal report to Gemstar Diamonds Limited (unpublished).

Schulze, D.J., 1997. The significance of eclogite and Cr-poor megacryst garnets in diamond exploration. Explor. Mining. Geol., Vol. 6, No. 4, pp. 349-366, 1997.

Smith, C.B., 1985. What is a kimberlite? In: Kimberlite occurrence and origin: a basis for conceptual models in exploration. Publication No. 8, pp1-18; issued jointly by the Geology Department and University Extension, University of Western Australia.

Southern Sphere Mining and Development Company (Proprietary) Limited; October 1978. Palmietfontein: Project Summary. Internal company report (unpublished).

Southern Sphere Mining and Development Company (Proprietary) Limited 1979/1980. A review of Southern Sphere’s testing operations at the Palmietfontein Diamond Pipe, Bophuthatswana (unpublished).

Southern Sphere Mining and Development Company (Proprietary) Limited; June 1981. Palmietfontein Project: Present Status Internal company report (unpublished).

Southern Sphere Mining and Development Company (Proprietary) Limited; Undated. Internal company memorandum dealing with: Potential for discovering other diamondiferous pipes; proposed programme of work for 1980 and summary of trench sampling results (unpublished).

Southern Sphere Mining and Development Company (Proprietary) Limited Undated. Recommendations on Palmietfontein 208 J.P. District Rustenberg, Precious Stone Rights. Internal report (unpublished).

Towie, N.J., April 1994. Salmond prospect – E80/1487 – Annual report for the period April 1993 to April 1994 (unpublished).


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Towie, N.J., May 1993. Salmond diamond project – exploration licence E80/1487, annual report to the Department of Mines, Western Australia for the period 16 April 1992 to 16 April 1993 (unpublished).

Towie, N.J., May 1995. Salmond diamond prospect WA – exploration licences E80/1487 and E80/1736, annual report for the period 1994 – 1995 to the Western Australian Department of Minerals and Energy (unpublished).

Vercoe, S.C., August 1990. Partial relinquishment report for exploration licence E38/309. Report for Stockdale Prospecting Limited (unpublished).

Watsham, S.H., February, 1994. First and final report on High Impact 3 (E69/876) Nabbaru 1:250,000

mapsheet, Western Australia. Report for CRA Exploration Pty Limited (unpublished).

Western Australian Mineral Exploration Index Item 8880, Salmond diamond exploration Report released 4/6/97. Australian Kimberley Diamonds NL for the period 1994 to 1996.

Wilson, P.D., June 1999. Annual report on diamond exploration within exploration licence E69/1348. Report for Stockdale Prospecting Limited Open file item 10761 (unpublished).

Windh, J., 1992., Tectonic evolution and metallogenesis of the early Proterozoic Glengarry Basin, Western Australia. Western Australian Geologist No. 306 (unpublished).

Young, D.J., October, 1987. Final report on exploration completed in El’s 69/122-133, 138-149 Stanley, Stanley, Western Australia. CRA Exploration Pty Limited report to WA Mines Department (unpublished).

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5.0 GLOSSARY OF TERMS

Abbreviations oz – ounce, km – kilometre, m – metre, M – million, t – tonne, ha – hectare, bcm – bulk cubic metres, tpa – tonnes per annum, µm – microns.

Adcumulate An igneous rock formed by the crystallisation of material of the same composition.

Aeromagnetics A geophysical technique utilised from an airborne craft.

Alluvium Unconsolidated detrital material deposited by stream or river.

Alteration A change in mineralogical composition of a rock commonly brought about by reactions with hydrothermal solutions or by pressure changes.

Andradite garnet Common calcium-iron garnet.

Anomalous A departure from the expected norm. In mineral exploration this term is generally applied to either geochemical or geophysical values higher or lower than the norm.

Anticline Applied to strata which dip in opposite directions from a common ridge or axis.

Archaean The oldest rocks of the Earth’s crust - older than 2 400 million years.

Autolith An inclusion in an igneous rock to which it is genetically related. A type of xenolith.

Banded Iron Formation (BIF) A rock composed of iron oxides and chert with distinct layers or bands.

Basalt A dark, fine-grained extrusive igneous rock composed of feldspar and iron and magnesium rich minerals.

Basanite A term applied to certain volcanic rocks that appear black and siliceous. Sometimes used to describe a variety of basalt.

Biotite A dark coloured mica mineral. Common rock-forming mineral.

Breccia Fragmented rock with angular components.

Bulk Density The weight of a material divided by the volume it occupies (including pore spaces).

Bulk sampling Collection of a large (“representative”) sample when seeking sparsely occurring minerals such as kimberlite indicator minerals. Bulk samples typically involve collection of several kilograms of sample to (rarely) hundreds of kilograms of sample. During the search for kimberlite indicator minerals bulk samples are typically collected within creeks, streams or rivers.

Carbonatite A carbonate-enriched rock of magmatic origin, generally associated with kimberlites and alkalic rocks.

Carat A unit employed in weighing diamonds. The international metric carat is 200 mg.

Carbonate Common mineral type consisting of carbonates of calcium, iron, and/or magnesium.

Cerium A rare metallic element (rare earth) resembling iron in colour, symbol Ce.

Chalcopyrite A copper iron sulphide mineral, the most important ore of copper.

Chemical symbols Au – Gold, Ni – Nickel, Cu – Copper, Zn – Zinc, Co – Cobalt, Pb – Lead, W – Tungsten, As – Arsenic, Ag – Silver.

Chert A hard, extremely fine grained sedimentary rock consisting almost entirely of interlocking quartz crystals, of which flint is a dark variety.

Chromite FeCr2O4 a metallic iron black mineral common in ultramafic rocks. High Cr2O4 chromite is a common macrocryst in kimberlite rocks. Its resilience to weathering makes it an important kimberlite indicator mineral.

Chrome diopside A bright green chrome enriched variety of diopside. Diopside is a variety of pyroxene which is a common rock-forming mineral. Chrome diopside can occur as macrocrysts in kimberlite rocks.

Clastic Term to describe sedimentary rocks that consist of fragments of rock or other material that have been transported from their place of origin.

Colluvium Loose soil or rock fragments accumulated by slow down-slope creep or rainwash, as found at the base of slopes or hillsides.

Crater Basin-like or funnel-shaped opening which marks the vent of a volcano.

Craton Stable crust often extensively granitised and displaying medium to high grade metamorphism. Cratons are typically surrounded by metamorphic belts.

Diamond Very hard native crystallised form of carbon. When pure and clear is used as a gem.

Diamond drilling Method of obtaining a cylindrical core of rock by drilling with a diamond impregnated bit.

Diatreme General term for volcanic pipes and vents drilled through enclosing rocks by the explosive energy of gas-charged magmas.

INDEPENDENT GEOLOGIST’S REPORT INDEPENDENT GEOLOGIST’S REPORT SECTION 4F

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Dolerite A medium grained basic intrusive rock composed mostly of pyroxenes and sodium-calcium feldspar.

Dunite An ultramafic igneous rock composed almost entirely of olivine.

Duricrust A general term for a hard crust on the surface or in the upper levels of the weathering profile.

Dyke A tabular intrusion of igneous rock that cuts across the planar structure of the surrounding rock.

Eclogite Inclusions (often referred to as nodules) in kimberlite representing fragments from the mantle where kimberlite magmas are sourced.

Fault A fracture in rocks along which rocks on one side have been moved relative to the rocks on the other.

Felsic Light coloured rock containing an abundance of any of the following:- feldspars, felspathoids and silica.

Ferruginous Containing iron.

Florencite Exotic mineral, a basic phosphate of aluminium and the cerium metals.

Gabbro A coarse grained intrusive rock, which is low in silica and has relatively high levels of magnesium minerals.

Geochemical exploration Used in this report to describe a prospecting technique which measures the content of certain metals in soils and rocks and defines anomalies for further testing.

Geophysical exploration The exploration of an area in which physical properties (eg. resistivity, gravity, conductivity, magnetic properties) unique to the rocks in the area are quantitatively measured by one or more geophysical methods.

Goethite A yellow, red to brown-black iron oxide mineral which is a common weathering product.

Gorceixite Exotic mineral.

Grade cpht = carats per 100 tonnes.

Granite A medium to coarse-grained felsic intrusive rock which contains 10-50% quartz.

Granulite A high-grade metamorphic rock (ie. subject to high temperatures and pressures) of approximately uniform grain-size. Commonly present in metamorphic belts.

Greenstone A collective term for slightly altered mafic igneous rocks.

Hydrothermal A term applied to magmatic emanations rich in water and to the alteration products and mineral deposits produced by them.

Hypabyssal General term applied to minor intrusions that include sills and dykes. Distinguished from volcanic rocks and major intrusions such as batholiths.

Igneous A rock that has solidified from molten material or magma.

Intrusion/Intrusives A body of igneous rock that invades older rocks.

Kimberlite A serpentinised and carbonated mica peridotite (igneous rock) sourced from the earths upper mantle containing high pressure and temperature minerals including pyrope garnet, high Cr203 chromite, ilmenite and occasionally, diamond.

Kimberlite indicator minerals Minerals recovered from stream or loam samples that were ultimately sourced from a kimberlite pipe or dyke. Minerals include pyrope garnet, chromite (chrome spinel), ilmenite, picro-ilmenite, chrome diopside, diamond.

Lag A residual deposit remaining after finer particles have been blown away by wind.

Lamproite A general name for a range of rock types enriched in the mineral leucite although the Western Australian diamondiferous lamproites are low in leucite but enriched in olivine hence often referred to as olivine lamproites. Lamproite is characterised by high K2O/Na2O ratio and abundance of Rb, Sr, Ba, Zr, Nb, Pb, Th, U and light rare earths.

Lamprophyre Term generally reserved for dyke-like rocks of porphyrite texture ie. phenocrysts (large crystals) set in a fine-grained ground-mass. Phenocrysts are generally dark silicate minerals such as pyroxene, amphibole or mica.

Laterite Highly weathered residual material rich in secondary oxides of iron and/or aluminium.

Lherzolite A variety of peridotite containing both mono and clinopyroxene plus olivine.

Limb The side of a fold.

Limonite A general term for yellow to brown-black iron oxide minerals which are a common weathering product.



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Lineament A linear feature of regional extent, generally recognisable in the topography; commonly detected by satellite imagery.

Lithology A term pertaining to the general characteristics of rocks. It generally relates to descriptions based on hand-sized specimens and outcrops rather than microscopic or chemical features.

Loam sampling Collection of a sample typically from the soil profile. The sample generally consists of sand, silt and clay. Samples are generally of relatively low volume + 1 kilogram and are processed to recover kimberlite indicator minerals if present.

Macro-diamond Greater than 0.4 mm in diameter. General industry standard.

Mafic (composition) Igneous rocks composed dominantly of iron and magnesium minerals.

Mantle That part of the earth that underlies oceanic and continental crust to a depth of 2,900 km. The crust is about 5 km thick below the oceans and between 35 km and 65 km below the continents.

Melilitite An igneous rock essentially composed of the minerals melilite and pyroxene. In certain circumstances a rock with kimberlitic affinities.

Metamorphism The process by which changes are brought about in the earth’s crust by the agencies (metamorphic rocks) of heat, pressure and chemically active fluids.

Metasediment Metamorphosed sedimentary rock.

Micro-diamond Less than 0.4 mm in diameter. General industry standard.

Neodymium A rare metallic element (rare earth) often in combination with cerium, lanthanum and other rare metals; symbol Nd.

Nephelenite A granular igneous rock composed essentially of the minerals nephelite and pyroxene. In certain circumstances a rock with kimberlitic affinities.

Obduction Process whereby part of the subducted plate and/or associated igneous rocks and deep-sea sediments are broken off and pushed up onto the overriding plate.

Olivine Magnesian silicate, a rock forming mineral common in “dark” rocks such as basalt (lava), dolerite and gabbro. Particular varieties of olivine occur in kimberlitic rocks. Readily destroyed during weathering oxidation.

Peridotite General term for a coarse grained plutonic rock composed chiefly of olivine with or without mafic minerals such as pyroxenes, amphiboles or micas. Spinel or chrome spinel or chromite is common.

Perovskite Calcium titanate CaTiO3 occurs in the matrix of kimberlite.

Phanerozoic Post-Precambrian which includes Palaeozoic, Mesozoic and Cainozoic eras. Ranges from about 590 million years ago to the present.

Phlogopite Magnesium mica, high potassium and fluorine. Common mineral in certain kimberlitic rocks.

Picro-ilmenite High magnesian ilmenite: (Mg, Fe) TiO3.

Plunge The inclination of a linear geological structure from the horizontal measured in a vertical plane.

Porphyry An igneous rock that contains conspicuous crystals in a fine-grained matrix.

Primary Un-oxidised.

Proterozoic The Precambrian era after the Archaean.

Pseudomorph A mineral whose outward crystal form is that of another mineral species; it has developed by alteration, substitution, incrustation or by other processes.

Pseudotachylite Black fine-grained rock resembles igneous tachylite. Formed by fusion of rock in response to explosive action or implosive impact ie. meteorite impact or through intense movement on faults.

Pyroclastics Fragmental volcanic rocks such as volcanic ash, tuff and agglomerate.

Pyrope garnet Deep red to black variety of garnet enriched in magnesium. A high pressure variety of garnet. Occurs as macrocrysts in kimberlitic rocks.

Quartz Mineral species composed of crystalline silica.

Radiometrics Geophysical technique measuring emission from radioactive isotopes.

Resorbed Crystals in a magma which are partly fused again into the magma generally when temperature and pressure conditions change and the mineral crystal is placed in an unstable environment.

INDEPENDENT GEOLOGIST’S REPORT INDEPENDENT GEOLOGIST’S REPORT SECTION 4F

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Reverse circulation (RC) drilling A method of drilling whereby rock chips are recovered by air flow returning inside the drill rods rather than outside, thereby providing usually reliable samples.

Rock chip sample A series of rock chips or fragments taken at regular intervals across a rock exposure.

Root-zone The narrow conduit for a kimberlite pipe below the downward tapered volcanic vent.

Rotary Air Blast (RAB) drilling Method of drilling in which the cuttings from the bit are carried to the surface by pressurised air returning outside the drill pipe. Most “RAB” drills are very mobile and designed for shallow, low-cost drilling of relatively soft rocks.

Rotary air core A method of rotary drilling whereby rock chips are recovered by air flow returning inside the drill rods rather than outside.

Saprolite A weathered or decomposed, clay-rich rock close to surface. Part of the soil profile.

Schist Fine grained micaceous metamorphic rock with laminated fabric.

Serpentinized Hydrothermally altered magnesium rich rock dominated by serpentine minerals.

Sedimentary rock Rocks formed by deposition of rock and mineral particles carried by air, water or ice.

Shale Fine-grained sedimentary rock with well defined bedding planes.

Shear zone A generally linear zone of stress along which deformation has occurred by translation of one part of a rock body relative to another part.

Silcrete A deposit cemented by silica commonly formed in the weathering profile.

Silicified Alteration of a rock by introduction of silica.

Sill A tabular intrusion that parallels the planar structure of the surrounding rock.

Sinistral A geological structure with a leftward offset.

Spinel An isometric mineral; magnesium aluminate. In kimberlites chromium replaces aluminium to form chrome spinel a mineral close to chromite proper.

Stock A small igneous intrusion.

Stratigraphy The study of formation, composition and correlation of sedimentary rocks.

Strike The direction of bearing of a bed or layer of rock in the horizontal plane.

Sulphides Minerals consisting of a chemical combination of sulphur with a metal.

Supergene An enrichment or deposit formed by descending fluids in weathered rock.

Supracrustal Rocks (typically sedimentary rocks) that overly the basement or craton.

Tailings Finely ground waste product from the crushing and grinding of ore.

Tectonic Forces or movements resulting in the formation of structural features.

Tertiary Geological time period from about 1.8 to 66 million years ago. Incorporates the Paleocene, Eocene, Oligocene, Miocene and Pliocene.

Titanates Minerals enriched in titanium such as ilmenite.

Tonalite A coarse grained igneous rock containing quartz, plagioclase (sodium - calcium feldspar) and minor potassium feldspar, with biotite and hornblende.

Ultramafic An igneous rock composed chiefly of mafic minerals.

Volcanics Collective term for extrusive igneous rocks.

Volcaniclastic Sediments comprising rock fragments derived by explosion or eruption from a volcanic vent.

Xenolith Fragment of other rock (often wall rock) in an igneous intrusion such as a kimberlite pipe.

Zircon Zirconium silicate ZrSiO4. Common accessory mineral in igneous rocks. Constitutes one of the common “heavy” minerals in mineral sands.



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S O L I C I T O R S ’ R E P O R T O N S O U T H A F R I C A N T E N E M E N T S

The Directors

Gemstar Diamonds Limited

31 Townshend Road

SUBIACO WA 6008

17 January 2008

Dear Sirs,

INDEPENDENT ACCOUNTANT’S REPORT ON UNAUDITED PRO-FORMA HISTORICAL FINANCIAL INFORMATION

Grant Thornton (WA) Financial Services Pty Ltd (“Grant Thornton”) has been engaged by Gemstar Diamonds Limited (“Gemstar” or “the Company”) to prepare this Independent Accountant’s Report (“Report”) for inclusion a prospectus to be issued on or around 6 February 2008 (“Prospectus”).

1. Background Information

Gemstar Diamonds Limited was incorporated on 27 June 2001.

Since incorporation the activities undertaken by the Company have been to negotiate and secure interests in a number of exploration tenements and to prepare for its proposed listing on the Australian Securities Exchange (“ASX”).

Gemstar is issuing the Prospectus to offer 20,000,000 ordinary fully paid shares (“Shares”), at an issue price of 20 cents per Share (“the Offer”) to raise $4,000,000. The principal objective of the Offer is to raise funds for the exploration activities of Gemstar. Oversubscriptions on the Offer may be accepted through the issue of a further 5,000,000 Shares at 20 cents each, to raise up to an additional $1,000,000. The minimum subscription of the Offer is the issue of 15,000,000 Shares at 20 cents each to raise $3,000,000. The Offer is not underwritten.

Contingent upon the successful listing of the Company on the ASX, pursuant to a share sale agreement, the Company will acquire 100% of the issued capital in Fidulex Diamonds Holdings (Proprietary) Limited (“Fidulex”) which owns a number of mining rights in South Africa. The Company will issue a convertible note to the vendors of Fidulex for $500,000, and upon listing will be converted to 10 million ordinary shares in the Company. The issued shares of Fidulex will be transferred to Urafiki Gems (Proprietary) Limited, (a South Africa subsidiary of which Gemstar has a 74% interest) to satisfy local statutory requirements.

The Pro-Forma Balance Sheet reported in Appendix A has assumed that the full subscription of $4,000,000 will be achieved and no oversubscriptions being accepted.

If the $3,000,000 minimum subscription is not raised, all applications moneys will be returned to the applicants in accordance with the Corporations Act 2001.

The principal objectives of the Offer are to raise funds to explore prospective tenements in areas of historic interest that are suitable for re-evaluation. The Company proposes to focus on exploration and development of tenements in South Africa and Australia.

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I N D E P E N D E N T A C C O U N TA N T ’ S R E P O R T

Chartered AccountantsBusiness Advisers and Consultants

L1, 10 Kings Park Road West Perth WA 6005 PO Box 570 West Perth WA 6872 T +61 8 9480 2000 F +61 8 9322 7787 E [email protected] W www.grantthornton.com.au

Grant Thornton (WA) Financial Services Pty Ltd ABN 92 064 260 260 AFS Licence 259 864 Grant Thornton (WA) Financial Services Pty Ltd is an independent business entitled to trade under the international name Grant Thornton. Grant Thornton is a trademark owned by Grant Thornton International and used under licence by independent firms and entities throughout the world.

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INDEPENDENT ACCOUNTANT’S REPORT SECTION 5

2. Historical and Pro-Forma information

The historical and pro-forma information (together referred to as “the financial information”) set out in Appendices A and B of this Report comprises:

• The Consolidated Income Statement for the year ended 30 June 2006 and 30 June 2007;

• The Consolidated Balance Sheet as at 30 June 2007;

• The Consolidated Cash flow Statement for the year ended 30 June 2006 and 30 June 2007;

• The Consolidated Statement of Changes in Equity for the year ended 30 June 2006 and 30 June 2007;

• The Pro-forma Balance Sheet as at 30 June 2007, based on the assumption that the transactions contemplated in the Prospectus have been completed at 30 June 2007; and

• Notes to the reviewed, interim and pro-forma financial information.

The historical financial information has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”).

The historical financial information is presented in an abbreviated form in so far as it does not include all the disclosures required under AIFRS applicable to annual financial reports.

�. Scope

You have requested Grant Thornton to prepare this Report covering the following information:

• The historical consolidated results of the Company for the year ended 30 June 2006 and 30 June 2007;

• The historical Consolidated Balance Sheet as at 30 June 2007; and

• The Pro-forma Consolidated Balance Sheet as at 30 June 2007, which assumes completion of the contemplated transactions disclosed in the Prospectus.

The historical information set out Appendices A and B has been extracted from the audited records of the Company for the year ended 30 June 2007.

The Directors of Gemstar are responsible for the preparation and presentation of the financial information included in this Report. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and estimates inherent in the financial information.

We have conducted our review of the financial information including the pro-forma adjustments in accordance with the Australian Auditing Standard ASRE 2410 “Review of an Interim Financial Report Performed by the Independent Auditor of the Entity.” We have made such enquiries and performed such procedures as we in our professional judgement, consider reasonable in the circumstances including:

• analytical procedures on the interim financial performance of the Company for the relevant historical period;

• a review of accounting records, work papers and other documents;

• a review of the assumptions used to compile the pro-forma Balance Sheet;

• a comparison of consistency in application of the recognition and measurement principles of the applicable financial reporting framework and the accounting policies adopted by the Company; and

• enquiry of directors, management and other persons directly responsible for financial and accounting matters.

These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit and accordingly we do not express an audit opinion.

4. Conclusion

Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that:

• the historical financial information contained in Appendices A and B does not present fairly the historical financial position of the Company as at 30 June 2007 and its historical performance and cash flows for the year ended 30 June 2006 and 30 June 2007, in accordance with, in all material respects, the recognition and measurement principles prescribed in AIFRS and other mandatory professional reporting requirements, and the accounting policies adopted by the Company; and

• the pro-forma Balance Sheet as at 30 June 2007 has not been properly prepared on the basis of the pro-forma transactions as described in Appendix B of this Report in accordance with, in all material respects, the recognition and measurement principles prescribed in AIFRS and other mandatory professional reporting requirements, and the accounting policies adopted by the Company.

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSINDEPENDENT ACCOUNTANT’S REPORTSECTION 5

5. Subsequent Events

To the best of our knowledge and belief, and based on the work we have performed as described in the Scope paragraph above, there have been no material transactions or events subsequent to 30 June 2007, other than those disclosed in the Prospectus and Appendix B of this Report, that would require comment on, or adjustment to, the information referred to in our Report or that would cause the information included in this Report to be misleading or deceptive.

6. Disclosures

Grant Thornton directors, employees or related entities does not have any pecuniary interest that could reasonably be regarded as being capable of affecting our ability to give an unbiased opinion in this matter. Grant Thornton will receive a fee for the preparation of this Report.

The Directors have agreed to indemnify and hold harmless Grant Thornton and its directors and employees from any claims arising out of misstatement or omission in any material or information supplied by the Directors.

Consent for the inclusion of the Independent Accountant’s Report in Prospectus in the form and context in which it appears has been given. At the date of this Report this consent has not been withdrawn.

7. General Advice Warning

The giving of our consent for the inclusion of this report in the Prospectus should not be taken as an endorsement of Gemstar or a recommendation by Grant Thornton of any participation in the Offer by any intending investors.

The author of this report gives no assurance or guarantee whatsoever in respect of the future success of or financial returns associated with the subscription for shares being offered pursuant to this Prospectus.

This report should be read in conjunction with Appendices A to C.

Yours faithfully

GRANT THORNTON (WA) FINANCIAL SERVICES PTY LTD

PW WARR

Director

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APPENDIX AGEMSTAR DIAMONDS LIMITED CONSOLIDATED BALANCE SHEET AND PRO FORMA CONSOLIDATED BALANCE SHEET AS AT �0 JUNE �007

Audited Actual Reviewed Pro-forma Notes June 2007 June 2007 $ $

Current Assets

Cash and Cash Equivalents 4 77,385 2,779,385

Trade and other receivables 11,563 11,563

Total Current Assets 88,948 2,790,948

Non-Current Assets

Mineral Exploration and Evaluation Expenditure 5 411,516 1,061,516

Total Non-Current Assets 411,516 1,061,516

Total Assets 500,464 3,852,464

Current Liabilities

Trade and Other Payables 6 83,374 23,374

Non-Interest Bearing Liabilities 7 304,522 -

Total Current Liabilities 387,896 23,374

Total Liabilities 387,896 23,374

Net Assets 112,568 3,829,090

Equity

Contributed Equity 8 1,839,110 5,555,632

Retained Earnings (1,726,542) (1,726,542)

Parent Interest 112,568 3,660,090

Minority Equity Interest 9 - 169,000

Total Equity 112,568 3,829,090

The above consolidated balance sheet and pro-forma consolidated balance sheet should be read in conjunction with the accompanying notes.

APPENDIX AGEMSTAR DIAMONDS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED �0 JUNE �007

Audited Actual Audited Actual June 2007 June 2006 $ $

Revenue 134,489 70,182

Total Current Assets 134,489 70,182

Expenses

Administration expenses (302,219) (172,740)

Impairment of exploration expenditure - (240,767)

Profit from ordinary activities before income tax expense (167,630) (343,325)

Income tax expense - -

Profit from ordinary activities after income tax expense (167,630) (343,325)

The above consolidated income statement should be read in conjunction with the accompanying notes.

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APPENDIX A (CONTINUED)GEMSTAR DIAMONDS LIMITED CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED �0 JUNE �007

Audited Actual Audited Actual June 2007 June 2006 $ $

Operating Activities

Interest received 24,435 66,511

Sundry income 131,365 3,671

Payments made to suppliers (897,692) (307,659)

Cash inflows/(outflows) from operating activities (741,892) (237,477)

Investing Activities

Payments made for Exploration & Evaluation activities (31,542) -

Cash inflows/(outflows) from investing activities (31,542) -

Financing Activities

Proceeds from borrowings 53,574 250,948

Proceeds from issue of shares 316,907 (1,449,600)

Cash inflows/(outflows) from financing activities 370,481 (1,198,652)

Net increase/(decrease) in cash (402,953) (1,436,129)

Cash at the beginning of the period 480,338 1,916,467

Cash at the end of the period 77,385 480,338

The above consolidated income statement should be read in conjunction with the accompanying notes.

APPENDIX A (CONTINUED)GEMSTAR DIAMONDS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED �0 JUNE �007

Issued Capital Retained Earnings Audited Audited $ $

Balance at 1 July 2005 1,522,203 (1,215,487)

Loss attributable to members of the Company - (343,325)

Balance as at 30 June 2006 1,522,203 (1,558,812)

Balance at 1 July 2006 1,522,203 (1,558,812)

Shares issued 316,907 -

Loss attributable to members of the Company - (167,730)

Balance as at 30 June 2007 1,839,110 (1,726,542)

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

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APPENDIX B

NOTES TO THE FINANCIAL STATEMENTS 1. Significant Accounting Policies

The Consolidated Balance Sheet as at 30 June 2007 has been drawn up in accordance with the measurement requirements, but not the disclosure requirements, of applicable Accounting Standards and other mandatory professional requirements.

These financial statements have been prepared under the historical cost convention, as modified where applicable by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. A summary of the Company’s significant accounting policies is set out below.

(a) Going Concern

The Directors have prepared the Balance Sheet on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and extinguishments of liabilities in the ordinary course of business.

The ability of the Company to meet its existing and future obligations will depend on the ability to raise funds pursuant to the Prospectus, or from other sources, and to raise further funds through the issue of additional share capital to meet future exploration commitments, as and when required. If the Company does not raise further capital in the short term, it can continue as a going concern by reducing planned but not committed exploration expenditure until funding is available and/or entering into joint venture arrangement where exploration is funded by the joint venture partner.

(b) Principles of Consolidation

A controlled entity is any entity in which Gemstar has the power to control the financial and operating policies so as to obtain benefits from its activities.

All inter-company balances and transactions between entities, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included / excluded from the date control was obtained or until the date control ceased.

(c) Contributed Equity

Issued capital is recognised at the fair value of the consideration received by the Company.

Any capital raising costs are initially recognised as a prepaid expense and offset directly against equity as a reduction of the share proceeds on receipt.

(d) Cash and Cash Equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

(e) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred (including tenement acquisition costs) is accumulated in respect of each identifiable area of interest.

Exploration and evaluation costs related to areas of interest are carried forward to the extent that:

(i) the rights to tenure of the areas of interest are current and the Company controls the area of interest in which the expenditure has been incurred; and

(ii) such costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively by its sale; or

(iii) exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.

Exploration and evaluation assets will be assessed annually for impairment and where impairment indicators exist, recoverable amounts of these assets will be estimated based on discounted cash flows from their associated cash generating units.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

(e) Exploration and evaluation expenditure (Continued)

The income statement will recognise expenses arising from the excess of the carrying values of exploration and evaluation assets over the recoverable amounts of these assets. Expenditure capitalised under the above policy is amortised over the life of the area of interest from the date that commercial production of the related mineral occurs. In the event that an area of interest is abandoned or if the directors consider the expenditure to be of no value, accumulated costs carried forward are written off in the year in which that assessment is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

(f) Acquisitions of assets

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(g) Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset at the following rates:

Plant and equipment — 10% to 30%

Impairment

The carrying values of plant equipment and software are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate the carrying value may be impaired. Impairment exists when the carrying value of an asset or cash generating unit exceeds its estimated recoverable amount. The assets or cash-generating units are then written down to their recoverable amount.

Derecognition and disposal

An item of plant equipment and software is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in profit or loss in the year the asset is derecognised.

(h) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

(h) Income tax (Continued)

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

2. Post Balance Date Events

There have been no material post balance date events.

3. Basis of Preparation of the Pro-forma Balance Sheet

The Pro-Forma Balance Sheet has been prepared from the Audited Balance Sheet adjusted for the following transactions as if they had taken place on 30 June 2007:

i) Issue of 20,000,000 fully paid ordinary shares at 20 cents each to raise $4,000,000.

ii) The payment of the estimated costs of the Offer of $1,088,000.

iii) Issue of 1,250,000 fully paid ordinary shares to Limewood as partial settlement of costs of the Offer.

iv) Issue of 6,090,488 fully paid ordinary shares at 5 cents to Limewood to eliminate the convertible debt of $304,522 at 30 June 2007.

v) Issue of 10,000,000 fully paid ordinary shares at 5 cents as conversion of a proposed convertible note to be issued by Gemstar to Limewood upon listing pursuant to the Fidulex Acquisition Agreement, in connection with the acquisition of all the issued capital in Fidulex.

vi) The payment of $150,000 to Limewood pursuant to the Fidulex Acquisition Agreement, in connection with the acquisition of all the issued capital in Fidulex.

vii) The transfer of all the issued capital in Fidulex to Urafiki Gems, (a subsidiary of which Gemstar holds a 74% interest).

viii) The payment of $60,000 to the directors in relation to accumulated directors fees.

ix) Issue of 3,500,000 fully paid ordinary shares to Limewood pursuant to the conversion of the Convertible Preference Shares.

x) Issue of 4,000,000 fully paid ordinary shares to C.K. Locke as sponsoring brocker to the offer.

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INDEPENDENT ACCOUNTANT’S REPORTSECTION 5

Audited Actual Reviewed Proforma

Note June 2007 June 2007

$ $

4. Cash

Cash and Cash Equivalents 77,385 2,779,385

Opening balance 77,385

Issue of 20,000,000 Shares pursuant to the Share Offer 3(i) 4,000,000

Associated costs of the Share Offer 3(ii) (1,088,000)

Payment pursuant to the Fidulex Acquisition Agreement 3(vi) (150,000)

Payment of outstanding directors fees 3(viii) (60,000)

Closing balance 77,385 2,779,385

5. Mineral Exploration and Evaluation

Mineral Exploration and Evaluation Expenditure 411,516 1,061,516


Issue of a $500,000 convertible note pursuant to the 3(v) 500,000 Fidulex Acquisition Agreement

Payment pursuant to the Fidulex Acquisition Agreement 3(vi) 150,000

Closing balance 411,516 1,061,516

6. Trade and Other Payables

Trade and Other Payables 83,374 23,374


Payment of outstanding directors fees 3(viii) (60,000)

Closing balance 83,374 23,374

7. Non-Interest Bearing Liabilities

Non-Interest Bearing Liabilities 304,522 -


Conversion of convertible debt 3(iv) (304,522)

Closing balance 304,522 -

8. Contributed Equity

Issued and paid up ordinary share capital 1,839,110 5,555,632

Opening balance 1,839,110

Issue of 20,000,000 Shares pursuant to the Offer 3(i) 4,000,000

Associated costs of the Share Offer 3(ii) (1,088,000)

Issue of 1,250,000 shares relating to associated costs of 3(iii) - the Share Offer

Issue of 6,090,488 shares as conversion of convertible debt 3(iv) 304,522 Issue of 10,000,000 shares pursuant to the 3(v) 500,000 conversion of the convertible note

Issue of 3,500,000 shares pursuant to the conversion on 3(ix) - the Convertible Preference Shares

Issue of 4,000,000 to C.K. Locke as sponsoring broker 3(x) -

Closing balance 1,839,110 5,555,632

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSINDEPENDENT ACCOUNTANT’S REPORT SECTION 5

NOTES TO THE BALANCE SHEET (CONTINUED)

8. Contributed Equity (continued)

Movements in number of ordinary share capital

Details: Number

Balance as at 30 June 2007 31,858,001

Issue of 20,000,000 Shares pursuant to the Share Offer 3(i) 20,000,000

Issue of 1,250,000 shares relating to associated costs of 3(iii) 1,250,000 the Share Offer

Issue of 6,090,488 shares as conversion of convertible debt 3(iv) 6,090,488

Issue of 10,000,000 shares pursuant to the Fidulex 3(v) 10,000,000 Acquisition Agreement

Issue of 3,500,000 shares pursuant to the conversion on 3(ix) 3,500,000 the Convertible Preference Shares

Issue of 4,000,000 to C.K. Locke as sponsoring broker 3(x) 4,000,000

Pro-forma 30 June 2007 76,698,489

Audited Actual Reviewed Proforma

Notes June 2007 June 2007

$ $

9. Minority Equity Interest

Minority Equity Interest - 169,000

Opening balance -

Transfer of issued capital in Fidulex to Urafiki 3(iv) 169,000

Closing balance - 169,000

10. Controlled Entities Company

The pro-forma financial statements incorporate the assets and liabilities of the following subsidiaries in accordance with Note 3 – Pro-Forma Transactions and Note 1(b) Principles of Consolidation.

Name of Entity Country of Incorporation % Owned

Urafiki Gems (Proprietary) Limited South Africa 74%

Fidulex Diamonds Holdings (Proprietary) Limited South Africa 74%

11. Related Party Disclosures

We have not examined related party transactions as part of this independent accountant’s report as these are disclosed elsewhere in the Prospectus.

12. Contingencies and Commitments

In order to maintain current rights of tenure to exploration tenements the Gemstar is required to perform minimum exploration work to meet the requirements specified by various State governments. These obligations can be reduced by selective relinquishment or exploration tenure or application for expenditure exemptions. Due to the nature of the Group’s operations in exploring and evaluating areas of interests, it is very difficult to forecast the nature and amount of future expenditure. It is anticipated that expenditure commitments for the next 12 months will be exploration expenditure of $150,000.

Pursuant to the Fidulex Acquisition Agreement the Company will issue to Limewood 1,000,000 fully paid ordinary shares on each and every occasion that a decision to mine is made by the Company in respect of the Palmeitfontien project. Refer to Section 9 of the Prospectus for further details of this contract and other material contracts.

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INDEPENDENT ACCOUNTANT’S REPORT

APPENDIX C

FINANCIAL SERVICES GUIDE

Grant Thornton (WA) Financial Services Pty Ltd

1. Grant Thornton (WA) Financial Services Pty Ltd (ABN 92 064 260 260) (Grant Thornton) is a specialist valuation firm which provides valuation advice, valuation reports and Independent Expert’s Reports in relation to takeovers and mergers, commercial litigation, tax and stamp duty matters, assessments of economic loss, commercial and regulatory disputes. It also prepares Investigating Accountant’s Reports.

2. Grant Thornton holds Australian Financial Services Licence No 259864.

Financial Services Guide

3. The Corporations Act 2001 authorises Grant Thornton to provide this Financial Services Guide (“FSG”) in connection with its provision of the Independent Accountants Report (“Report”) to be sent to Gemstar Diamonds Limited (“Gemstar”) in relation to the issue of shares from a public offer on or around 6 February 2008.

4. This FSG is designed to assist retail clients in their use of any general financial product advice contained in the Report. This FSG contains information about Grant Thornton generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the Report, and if complaints against us ever arise how they will be dealt with.

Financial services we are licensed to provide

5. Our Australian financial services licence allows us to provide financial product advice for the following classes of financial products:

• securities; and

• superannuation

to retail and wholesale clients.

General financial product advice

6. The Report contains only general product advice. It was prepared without taking into account your personal objectives, financial situation or needs.

7. You should consider your own objectives, financial situation and needs when assessing the suitability of the Report to your own situation. You may wish to obtain personal financial product advice from the holder of an Australia Financial Services Licence to assist you in this assessment.

Fees, commissions and other benefits we may receive

8. Grant Thornton charges fees to produce reports, including this Report. These fees are negotiated and agreed with the entity who engages Grant Thornton to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the person who engages us.

9. Neither Grant Thornton nor its directors and officers receive any commissions or other benefits, except for the fees for services referred to above.

10. All of our employees receive a salary. Our employees are eligible for bonuses based on overall performance and the firm’s profitability, and do not receive any commissions or other benefits arising directly from services provided to our clients. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors to not receive any commissions or other benefits arising directly from services provided to our clients.

11. We do not pay commissions or provide other benefits to other parties for referring prospective clients to us.

Complaints

12. If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner.

13. If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Industry Complaints Service (FICS), an external complaints resolution service. You will not be charged for using the FICS service.

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTS SECTION 5INDEPENDENT ACCOUNTANT’S REPORT

APPENDIX C (CONTINUED)

Contact details

14. Grant Thornton can be contacted by sending a letter to the following address:

Level 1

10 Kings Park Road

West Perth WA 6005

QUALIFICATIONS, DECLARATIONS AND CONSENTS

Qualifications

1. Grant Thornton is a licensed investment adviser under the Corporations Act. Grant Thornton’s authorised representatives have extensive experience in the field of corporate finance, particularly in relation to the valuation of shares and businesses and have prepared numerous valuations and Independent Expert’s Reports and Independent Accountants Reports.

2. This Report was prepared by Mr Patrick Warr who is a director of Grant Thornton. Mr Warr has significant experience in the provision of valuation advice and preparation of reports as described above.

Declarations

3. This Report has been prepared at the request of Gemstar and is to be used in its Prospectus dated on or around 6 February 2008. It is not intended that this Report should serve any purpose other than as an expression of our opinion in relation the matters it refers.

Interests

4. At the date of this Report, neither Grant Thornton nor Mr Warr have any interest in the outcome of the Prospectus. Grant Thornton is entitled to receive a fee for the preparation of this Report based on time expended at our standard hourly professional rates. With the exception of the above fee, Grant Thornton will not receive any other benefits, either directly or indirectly, for or in connection with the preparation of this Report.

Indemnification

5. As a condition of Grant Thornton’s agreement to prepare this Report, Gemstar agrees to indemnify Grant Thornton in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of Gemstar which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.

Consents

6. Grant Thornton does not consent to the inclusion of this Report in the form and context in any publication without its express authority.

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSSECTION 7

NOTES ON THE GROUP STRUCTURE:

1. Gemstar has acquired the entire issued share capital of Fidulex from Limewood;

2. Subject to the transaction becoming unconditional, Urafiki Gems will acquire the Fidulex shares from Gemstar for a consideration payable by way of additional shares in Urafiki Gems. To the extent necessary to preserve Matimba Gems’ 26% shareholding in Urafiki Gems, additional par value shares will be allotted and issued to Matimba Gems.

MATIMBA RESOURCES (PTY) LIMITED

Shareholders’ Agreement

FIDULEX DIAMOND HOLDINGS (PTY) LIMITED

PALMIETFONTEIN PROJECT –New Prospecting Right granted and registered

NORTHVILLE MINERALS (PTY) LIMITED

BUSHMANLAND PROJECTApplication for Prospecting Right conditionally granted

MATIMBA GEMS(PTY) LIMITED

GEMSTAR LIMITED

URAFIKI GEMS (PTY) LIMITED

74%

100%

100% 66%

26%

34%

LIMEWOOD INVESTMENTS

1

2

GEMSTAR’S SOUTH AFRICAN INTERESTS

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R I S K FA C T O R S

8.1 Introduction

This Section identifies the areas the Directors regard as the major risks associated with an investment in the Company. Investors should be aware that an investment in Company involves many risks, which may be higher than the risks associated with an investment in other companies. Intending investors should read the whole of this Prospectus in order to fully appreciate such matters and the manner in which the Company intends to operate before any decision is made to apply for Shares.

There are numerous widespread risks associated with investing in any form of business and with investing in the share market generally. There is also a range of specific risks associated with the Company’s business and its involvement in the exploration and mining industry. These risk factors are largely beyond the control of the Company and its directors because of the nature of the proposed business of the Company. The following summary, which is not exhaustive, represents some of the major risk factors of which potential investors need to be aware.

8.2 General Risk Factors

Exploration and Mining Risks

The future viability and profitability of the Company as an exploration and mining company will be dependent on a number of factors, including, but not limited to, the following:

commodity prices and exchange rates;

risks inherent in exploration and mining including, among other things, successful exploration and identification of ore reserves, satisfactory performance of mining operations and competent management; Exploration for diamonds is costly and involves exacting techniques which must be applied over extended periods of time. All of the Company’s projects are at an exploration stage and the Company cannot foresee whether the planned exploration programmes will generate positive results. Furthermore, there is no guarantee that the Company’s exploration activities will succeed in the discovery of a commercially viable ore deposit;

risks associated with obtaining grant of any mining tenements which are applications or obtaining renewal of tenements upon expiry of their current term, including the grant of “new order” rights in South Africa over the existing “unused old order” rights - see further Section 7;

potential fluctuations in the demand for diamonds;

risks arising because of Australian native title law and Aboriginal land rights which may affect the Company’s ability to gain access to prospective exploration areas to obtain production titles. Compensatory obligations may be necessary in settling native title claims lodged over any of the tenements held or acquired by the Company. The level of impact of these matters will depend, in part, on the location and status of the tenements held, acquired or applied for by the Company;

some financial resources may be required to be allocated to providing certain economic benefits, in the form of community-based infrastructural development projects or similar, for local communities having historic claims to land within the South African project areas;

the risk of material adverse changes in the government policies or legislation of Australia or South Africa affecting the level of mining and exploration activities;

Changes to Black Empowerment Policy or Legislation in South Africa;

Changes to exchange control regulations in South Africa;

environmental management issues with which the Company may be required to comply from time to time;

poor weather conditions over a prolonged period which might adversely affect mining and exploration activities and the timing of earning revenues;

unforseen major failures, breakdowns or repairs required to key items of mining plant and equipment or mine structure resulting in significant delays, notwithstanding regular programs of repair, maintenance and upkeep;

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exploration and mining costs will reduce the cash reserves of the Company, which may not be replaced through the Company’s proposed mining operations, should these prove unsuccessful or perform below the expected levels. The Company would then be dependent on seeking development capital elsewhere, through equity, debt or joint venture financing, to support long term exploration and evaluation of its projects;

applications for the Bushmanland Project in South Africa and the applications for tenements in Australia not being granted; and

the Palmietfontein prospecting licence not being renewed because of changes in policy or the Company being unable to comply with requirements for renewal.

Development and Operational Risks

Development of any mineral deposit will require obtaining the necessary licences or clearance from the relevant authorities which may require conditions to be satisfied and/or the exercise of discretion by such authorities. It may or may not be possible for such conditions to be satisfied. Mining risks include the uncertainties associated with projected continuity of an ore deposit, fluctuations in grades and values of the product being mined, and unforeseen operational and technical problems. The operations of the Company may be affected by various factors, including, without limitation, failure to locate or identify mineral deposits, failure to achieve predicted grades in exploration and mining, operational and technical difficulties encountered in mining, difficulties in commissioning and operating plant and equipment, mechanical failure or plant breakdown, unanticipated metallurgical problems which may affect extraction costs, adverse weather conditions, industrial and environmental accidents, industrial disputes and unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment.

No assurances can be given that the Company will achieve commercial viability through the successful exploration and/or mining of its tenement interests. If exploration or mining programmes prove to be unsuccessful, this could result in a diminution of the value of the tenements which could have a negative impact on the Company’s share price. In the event that programmes yield negative results, tenements may be relinquished either in total or in part thereof and/or the Company may withdraw from a joint venture or not exercise its option to acquire equity, even though a viable mineral deposit may be present, but undiscovered.

Other Risks

The future viability and profitability of the Company is also dependent on a number of other factors affecting performance of all industries and not just the exploration and mining industries, including, but not limited to, the following:

currency exchange rate fluctuations;

the strength of the equity and share markets in Australia and throughout the world;

general economic conditions in Australia and South Africa and their major trading partners and, in particular, inflation rates, interest rates, commodity supply and demand factors and industrial disruptions;

financial failure or default by a participant in any of the joint ventures, shareholder agreements, option arrangements or other contractual relationship to which the Company is, or may become, a party;

insolvency or other managerial failure by any of the contractors used by the Company in its activities; and

industrial disputation in Australia and overseas.

8.3 Speculative Nature of Investment

The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Shares offered under this Prospectus.

Therefore, the Shares to be issued pursuant to this Prospectus carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares.

Potential investors should consider that the investment in the Company is speculative and should consult their professional advisers before deciding whether to apply for Shares in the Company.

SECTION 8F

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8.4 International Financial Reporting Standards

The Company is required to adopt International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board effective 1 July 2005. The impact of these standards has not been quantified by the Company at the date of this Prospectus. The Company will be required to apply IFRS retrospectively, effectively as if they had always been applied. However, any retrospective adjustments will be made to opening retained earnings and are therefore not expected to impact the statement of financial performance of Gemstar.

The differences between Australian generally accepted accounting principles and IFRS identified by management to date as potentially having a significant effect on the financial performance and financial position of the Company are as follows:

(a) the carrying value of currently reported exploration costs;

(b) the capitalisation of exploration and evaluation costs;

(c) the treatment of share based compensation; and

(d) the reporting of tax liability balances.

8.5 Risks Specific to the Company

Limited Operating History of the Company

The company has limited operating history on which an evaluation of its prospects can be made. The prospects of the company must be considered in the light of the risks, expenses and difficulties which maybe be encountered by companies in their early stage of development, particularly in the mineral exploration sector which has a high level of uncertainty.

Sovereign Risk

Although it is generally regarded that the government of South Africa is stable, it is not possible to guarantee that the current investment climate will continue if social or political upheaval or a change in leadership occurs. Possible sovereign risks include changes to the basis on which mining rights are awarded, royalty changes, remittance of funds offshore laws, changes in the taxation rate or in current taxation concessions and changes in the ability to enforce legal rights.

Mineral and Petroleum Resources Development Act

The Mineral and Petroleum Resources Development Act 28 of 2002 (MRDA) was signed into law by the South African State President on 3 October 2002. The MRDA seeks to facilitate participation by historically disadvantaged South Africans in mining ventures and to ensure that unexploited mineral rights are turned to account by applying the “use it and keep it” principle.

The MRDA allows for the conversion of prospecting and mining rights currently held at common law and under the previous Minerals Act (termed “old order rights” in the MRDA) to the new forms of prospecting and mining rights introduced by the MRDA (“new order rights”).

Conversion will depend on a work program test and compliance with the Broad Based Socio-Economic Empowerment Charter for the South African Mining Industry (the “empowerment charter”). Furthermore, conversion applicants will have to satisfy the specified criteria for conversion including the applicant complying with the black economic empowerment provisions of the MRDA. The empowerment charter embraces a set of criteria such as ownership, human resource development, employment equity and procurement. Specifically, on the issue of ownership, the empowerment charter requires mining companies to achieve 26% ownership in mining companies by historically disadvantaged South Africans within ten years of the promulgation date.

While the MRDA has been implemented in South Africa, there remains considerable uncertainty about the interpretation of the legislation. While Gemstar has complied with the MRDA as it currently stands, there is no certainty that future changes to the legislation or its interpretation may not result in changes to Gemstar’s current South African project tenure.

RISK FACTORS SECTION 8F

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A D D I T I O N A L I N F O R M AT I O N

9.1 RegistrationThe Company was registered on 27th June 2001.

9.2 Company Tax Status and Financial YearThe Directors expect the Company will be taxed in Australia as a public company.

The financial year of the Company ends on 30 June annually.

9.3 Legal ProceedingsThe Directors are not aware of any litigation of a material nature pending or threatened which may significantly affect the Company. The Company received from Mr Leslie John Field (Mr Field) a former director statements claiming payment of $157986.17, together with interest and GST in total $159724.01, as at 1 July 2007 in respect of services provided to the Company.

By a Deed of Settlement dated 21 December 2007 made between Mainline, the Company and Mr Field, Mr Field agreed to release the Company from all claims on the following terms.

(a) That Mainline (a company controlled by Peter Fiore a director of Gemstar) will pay to Mr Field $140,000 in full and final settlement to be paid:

(i) as to $100,000 on execution and delivery of the Deed of Settlement;

(ii) as to $40,000 within 5 business days of the earlier that the company is admitted to the official list of the ASX.

Mainline has paid the first installment of $100,000 and;

(b) The Company and Mainline to the extent permitted by law release Mr Field from all claims.

9.4 Material ContractsSet out below is a brief summary of certain contracts which have been entered into by the Company and which have been identified as material and relevant to potential investors.

(a) Fidulex Acquisition Agreement

(i) Limewood and Gemstar entered into an agreement by which Limewood will transfer to the Company all of the shares in Fidulex acquired by Limewood. The consideration for the transfer of the shares in Fidulex as follows:

(i) The Company agreed to pay to Limewood $500,000.00. This will be satisfied by a convertible note by which Limewood will be entitled to acquire 10,000,000 shares in the Company at the price of $0.05c each upon the Company being admitted to the Official List of the ASX;

(ii) The Company to pay $150,000.00 to Limewood within 7 days of the Company’s shares being admitted to the Official List of the ASX, in reimbursement of expenses incurred by Limewood in connection with the activities and promotion of the Company;

(iii) The Company will issue to Limewood 1,000,000 fully paid ordinary shares on each and every occasion that a Decision to Mine is made by the Company in respect of the Palmeitfontein project: with the shares to be issued on the commencement of commercial mining.

“Decision to Mine” means a decision to commence commercial mining operations based on a Feasibility Study.

“Feasibility Study” means a feasibility study or studies into the establishment of a mine or mines in the whole or in part of the tenement area based on measured resources (which term shall have the meaning given to it in the JORC Code) sufficient to warrant an economically viable commercial mining operation in the whole or part of the tenement area. Any Feasibility Study shall be in a detailed and comprehensive form that may be submitted to a reputable lending institution and be acceptable to it for the purposes of raising finance sufficient to establish or bring into production an economically viable commercial mining operation either on the tenement alone or in conjunction with proven oil reserves or other mining tenements.

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“JORC Code” means the Australasian code for reporting in mineral resources and oil reserves prepared by the joint oil reserves committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia in September 1999.

The Agreement contains warranties by Limewood that it is the legal and beneficial owner of the shares in Fidulex; that at the date of the agreement there is no litigation or government proceedings concerning Fidulex of which Limewood has notice and that Limewood has the absolute right to sell, assign and transfer the shares in Fidulex.

Notes:

(a) Limewood is an entity controlled by Mr Vincent Ferraloro a director of the Company.

(b) Limewood acquired the shares in Fidulex from General Goldworld Inc. (a company incorporated in Panama) in consideration of the transfer of 2 million shares in the company owned by Limewood. These shares were owned by Limewood at the time it entered into the Agreement with General Goldworld.

(c) As noted in Section 9.5 below the transaction between Limewood and the Company was approved for the purposes of Chapter 2E of the corporations net at a general meeting of the company held 13 August 2007.

(b) Agreement for Transfer of Fidulex Shares to Urafiki Gems

On 11 December 2007 the Company entered into an agreement with Urafiki Gems for the transfer of the shares in Fidulex from the Company to Urafiki Gems for the sum of $500,000 to be satisfied by the issue of 740 fully paid shares in Urafiki Gems to the Company. The transfer of the Fidulex shares from the company to Urafiki Gems is subject to the following conditions:

(i) Admission of the Company to the official list of the ASX.

(ii) The transfer of the shares from Limewood to the Company being completed pursuant to the agreement referred to in paragraph (a) above;

(iii) The increase in the authorised share capital of Urafiki Gems to enable the new shares to be issued. This condition has been satisfied.

(c) Issue of Shares In Urafiki Gems to Matimba Gems

It is intended that the Company and Matimba Gems will maintain their current respective holding levels of 74% and 26% in Urafiki Gems (consistent with the intentions of the relevant South African Black Empowerment policy). Upon completion of the transfer of the Fidulex shares from the company to Urafiki Gems and upon issue to the Company of the additional 740 fully paid shares in Urafiki Gems as referred to paragraph (b) above, Urafiki Gems will issue a further 260 fully paid shares to Matimba Gems at 1 Rand each and Matimba Gems has undertaken to subscribe for those shares. Mr Peter Maake a director of the company and its chairman holds 50% of its shares of Matimba Resources and is a director of Matimba Resources. Matimba Gems is a wholly owned subsidiary of Matimba Resources.

(d) Urafiki Gems Shareholders’ Agreement

On 11 February 2005, the Company entered into a shareholders’ agreement with Matimba Gems and Urafiki Gems (“Shareholders Agreement”). The shareholders agreement was subsequently amended on 11 December 2007.

The Shareholders’ Agreement as amended provides for the regulation of the parties’ relationship as shareholders of Urafiki Gems. Under this agreement, the company undertakes to contribute all funding required to conduct the exploration operations of Urafiki Gems in respect of the Palmietfontein Project and the Bushmanland Project, up to pre-feasibility stage, subject to technical results justifying such expenditure. Thereafter the parties will assume pro rata funding obligations in relation to Urafiki Gems, on the further basis that, in the first instance, Urafiki Gems will seek to raise project-specific funding from external sources on commercial terms. Although the Company will consider funding issues on a case by case basis, in practice the Company expects it will assist in funding contributions to be made by Matimba Gems.

Any default by a party in meeting a funding obligation will result in dilution of such party’s interests, subject however to preservation of Urafiki Gems’ black economic empowerment status, as well as the requisite ministerial consent to any transfer of the underlying mineral rights.

As majority shareholder, the company retains the right to appoint the majority of the directors of Urafiki Gems, as well as to control prospecting operations and related exploration expenditure.

The agreement otherwise provides, on terms usual and normal for transactions of this nature, for pre-emptive rights in favour of the shareholders; the rights of the majority to compel a sale by the minority shareholder(s) in circumstances where a third party wishes to acquire shareholding interest on terms acceptable to the majority; with a corresponding tag-along right by the minority shareholders to veto any sale by the majority shareholders(s) unless a similar offer is made to them. It is noted that every transfer of a controlling interest in the company is conditional on ministerial consent in terms of the MPRD Act.

ADDITIONAL INFORMATION SECTION 9F

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTSADDITIONAL INFORMATION SECTION 9

(e) Tenement Acquisition Agreement with Mainline

On 8 September 2006 the company entered into an agreement with Mainline pursuant to which the Company would agree to acquire exploration licences E80/3731 and E69/2284 from Mainline. On 28 May 2007 the Company and Mainline entered into a supplementary agreement pursuant to which Mainline agreed to transfer exploration licence E46/452 to the company by which some amendments were made to the agreement of 6th October 2006. The consideration for the transfer is as follows:

(i) the payment to Mainline of $100,000.00 in reimbursement of expenses incurred by Mainline in connection with the activities and promotion of the company to be paid within 7 days of the Company’s shares being admitted to the official list of the ASX;

(ii) The issue by the company to Mainline one million fully paid ordinary shares in the Company upon all the tenements being transferred.

(iii) The company will issue to Mainline 1,000,000 fully paid ordinary shares on each and every occasion that a Decision to Mine is made by Gemstar in respect of the areas the subject of the tenements, the shares are to be issued upon the date of commencement of commercial mining. The definitions of “Decision to Mine” and “Feasibility Study” are the same as in the Fidulex Acquisition Agreement referred to in paragraph (a) of this section.

(iv) Norwest Mining Services Pty Ltd (Norwest) has agreed to transfer exploration licence E46/454 to the Company by an agreement dated 7 June 2002 as varied by deeds of variation. Norwest has confirmed to Mainline that Mainline is entitled to all rights of Norwest under the agreement between the Company and Norwest. Mainline has agreed to transfer exploration licence E46/454 to the Company without any further consideration being payable. The consideration to which Norwest was entitled (and to which Mainline is entitled) in respect of the transfer of E46/454 is 210,000 shares. In addition within 7 days of Gemstar being admitted to the Official List of the ASX the Company is to pay Norwest (thus Mainline) $11,000 in reimbursement of expenses. Upon an economic diamond deposit being determined by Gemstar within the area of the tenement, Gemstar has agreed to issue to Norwest (Mainline) 1,500,000 options to acquire shares at 30 cents each exercisable within 5 years of the date of issue.

The application by Mainline in respect of E80/3731 (Durack Project) was refused by the Department of Industry & Resources of Western Australia (DOIR) on 22 May 2007. On 2 May 2007 Gemstar applied for exploration licence E80/3942, which application is currently pending. Application E80/3942 covers the same area as former application E80/3731.

The application by Mainline in respect of E69/2284 (Malmac Dome) was refused by DOIR. On 1 May 2007 Gemstar applied for exploration licence E69/2401, which application is currently pending. Application E69/2401 covers the same area as former application E69/2284. Because Mainline will no longer be entitled to exploration licence E80/3731 and E69/2284, no consideration will be payable to it in respect of the transfer of E80/3731 and E69/2284 and Mainline and Gemstar have agreed to this. As noted above Mainline has already agreed that no further consideration will be payable by Gemstar to Mainline in respect of the transfer of E46/454 (although Mainline is entitled to the considersation which would have previously been payable to Norwest).

Note:(a) Mainline is a company controlled by Dr Peter Fiore, a director of the Company. The approval of the above

acquisitions was held at the general meeting of the Company held on 13 August 2007 for the purposes of Chapter 2E of the Corporations Act, as noted in paragraph 9.5 of this section 9; and

(b) At the date of this prospectus E46/452 is the subject of applications only. An application cannot be transferred. Under the provisions of Section 64 of the Mining Act 1978 (WA) an exploration licence can only be transferred within the first 12 months of its grant with the consent of the Minister. Mainline has agreed that pending the grant and transfer of the tenement that it will act in accordance with the directions of the Company. However, until the exploration licence has been granted then Ministerial consent is obtained, or 12 months has expired from the grant of the tenement, The Company will not acquire an ownership interest in these tenements.

(f) Limewood Mandate and Debt Payable to Limewood

On 6 September 2005 Limewood entered into an agreement with the Company by which it agreed to provide services to facilitate the listing of the Company on the ASX. The agreement was subsequently varied by a letter 8th August 2006. The services included the following:

(i) general corporate advice during the process;

(ii) facilitating the coordination of pre-listing capital raising;

(iii) identification of an appropriate underwriter;

(iv) joining the due diligence committee to manage process; and

(v) identifying new projects.

It was agreed that Limewood would charge the following fees on a success basis:

(1) 2% on all capital raisings (including convertible notes);

(2) a fee of 6% in respect of any capital raised; and

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(3) $300,000.00 on the successful listing of the Company, to be paid as to cash $50,000.00 and through equity $250,000.00. The equity component will be satisfied by the issue of 1,250,000 fully paid ordinary shares in the Company issued at 20c each.

If Limewood’s involvement increases to greater than 10 hours per month a retainer of $10,000.00 per month will be paid which will extend for a period of 12 months past the listing of Gemstar on the ASX. On 17th January 2006 Limewood gave notice to the Company that its involvement in Gemstar increased to greater than 10 hours per month. Based on this the company calculates that the monthly retainer payable to Limewood at the date of this prospectus amounts to $260,000 ie $10,000 per month payable from January 2006 to February 2008. The monthly retainer has not yet been paid and accrued and it is intended accrued amounts will be paid from the proceeds from the issue of shares pursuant to this prospectus and there after monthly amounts will be paid against invoices issued by a letter dated 8th August 2006.

During the course of 2006 Limewood acquired by various assignments debts owed by the Company to creditors. The aggregate amount of debt owed by the company which was acquired by Limewood was $304,522.54. Limewood paid on aggregate of $304,522.54 to acquire the debits owed by the company.

The Limewood Mandate was amended by including the additional provision that Limewood would not call on its debt owing to it by the Company but would instead take a convertible note entitling it to acquire shares in the Company at a discount price of 0.05 cents per share upon the company being admitted to the official list of the ASX. As at the 31st December 2006 the debt owed by the Company to Limewood was $304,522.44. The Company’s directors do not expect that this amount will increase. Based on the debt outstanding 31 December 2006 the number of shares that may be issued to Limewood upon the Company being admitted to the official list of the ASX will be 6,090,488 shares.

Limewood will be entitled to recover any out of pocket expenses including travel, photocopying, electronic communication, legal accounting tax and other expenses which arise as a consequence of the engagement. Limewood is an entity controlled by Mr Vincent Ferraloro a director of the company.

(g) Uranium Rights Agreement with Palace Resources

Palace Resources Limited ACN 106 240 475 (’Palace’) and Gemstar are parties to a Uranium rights agreement entered into in or about June 2006. Palace has under the agreement acquired the rights to uranium in the Conical Hill Tenement (E69/1753) in consideration for the issue of 50,000 fully paid ordinary shares in Palace to Gemstar. The rights include the right of access, and to explore, mine and treat uranium.

Under the agreement:

(i) Palace will provide Gemstar with a plan of any material activities that it proposes to undertake on the Conical Hill Tenement and, if those activities materially impact on Gemstar, the parties will negotiate in good faith to modify the plans;

(ii) the parties will allow each other access to and use of exploration and geological data that they hold, and agree to undertake additional assays (that it was not proposing to obtain) of any drill cores or chips that the other party requests (at the requesting party’s cost);

(iii) the parties will notify each other of any deposit or mineralisation of commercial interest that they discover;

(iv) any feasibility study over a discovery shall be prepared using good mining practices to minimise any conflict or interference that may occur in respect of each party’s separate activities within the discovery area;

(v) if a party decides to proceed with development and mining, the area for the development (“Mining Area”) will be excised from the Conical Hill Tenement by applying for further mining tenements in substitution or conversion of the Conical Hill Tenement. The party holding the Mining Area must conduct their affairs with due regard to the interests of the other party;

(vi) if an ore body is discovered in the Mining Area containing uranium as a secondary mineral, Palace may elect to contribute to the development of that ore body at an agreed proportion of the cost and shall be entitled to uranium from that Mining Area. Palace forfeits the right to uranium from that Mining Area if it elects not to contribute;

(vii) if an ore body is discovered in the Mining Area containing predominately uranium but also other non-uranium secondary minerals, Gemstar may elect to contribute to the development of that ore body at an agreed proportion of the cost and shall be entitled to non-uranium minerals from that Mining Area. Gemstar forfeits the right to non-uranium minerals from that Mining Area if it elects not to contribute;

(viii) Palace has a first right of refusal at no cost to any part of the Conical Hill Tenement that Gemstar wishes to surrender or relinquish; and

(ix) the parties indemnify each other with respect to any loss suffered due to the other party’s conduct.

The parties will, pay all rates, rents, survey fees and other fees and charges under the Mining Act (WA) for the Conical Hill Tenement on an equal basis.

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The parties each have a first rights of refusal with respect to the assignment of the other party’s interest under the agreement, unless the assignment is to a related body corporate. The parties may also enter into a joint venture with a third party with respect to their interest in the Conical Hill Tenement.

Mr Anthony Short, a director of the Company, is also the chairman and a director of Palace.

Oklo Uranium Limited (ACN 121 582 607) (“Oklo”), Palace and the Company entered into a Deed in or about March 2007 pursuant to which it was stated that Palace and Oklo had entered into a farmin agreement for exploration joint venture for uranium and that with effect from the date of formation of the joint venture between Oklo and Palace under that agreement Oklo agreed to be a party to the Uranium Rights Agreement entered into between the Company and Palace as to 50% of the Uranium Rights. The Company has written to Palace confirming that it has no interest in the uranium and that Palace may transfer its rights.

(h) Deeds of Indemnity, Insurance and Access

The Company has either entered into or will shortly be entering into deeds of indemnity, insurance and access with the officers of the Company.

In general the deeds of indemnity, insurance and access provide the officers with the following rights:

(i) the Company will indemnify each officer during the period of his or her office and after the cessation of his or her office, in respect of certain claims made against that officer in his or her capacity as officer of the Company to the extent allowable under the Corporations Act;

(ii) the Company will use its best endeavours (subject to cost and availability) to maintain an insurance policy and pay the premiums of insurance as assessed at market rates applicable from time to time, to the extent available under the Corporations Act, for each officer in respect of certain claims made against him or her in his or her capacity as an officer of the Company and to continue to pay those premiums for a period of up to 7 years following the termination of his or her office; and

(iii) while the officer is an officer of the Company and for the period of 7 years following the officer ceasing to be an officer, the Company will provide each officer with access to certain Company records including records which were either prepared or provided to the officer.

The deeds of indemnity, insurance and access also requires each officer to provide certain information to the Company to enable it to comply with its obligation to disclose interests of the officers to ASX and provisions regarding the obligations on each of the parties to notify each other in relation of actual or anticipated proceedings and on the officers not to settle any claims without the consent of the Company.

(i) C.K Locke and Partners Pty Ltd Lead Managers Agreement

On 25 June 2007 the Company entered into an agreement with C.K Locke and Partners Pty Ltd (ACN 081 957 271) (“CKL”) pursuant to which CKL has agreed to act as manager to the issue. CKL has agreed to assist on raising the capital pursuant to the issue on a “best endeavours” basis.

Remuneration will be paid as follows;

(i) a 5% brokerage fee to licensed advisors bearing their stamp on application forms;

(ii) a 5% brokerage fee payable to CKL on applications bearing their stamp;

(iii) a 1% lead management fee payable to CKL based on the total funds raised in the issue;

(iv) a license fee of $25,000 payable to CKL as lead manager; and

(v) 1 share to be issued to CKL for every $1.00 raised in the issue.

9.5 Shareholders Approval to Related Party TransactionsOn 13 August 2007 at a general meeting of the Company the Company’s shareholders approved the following transactions for the purposes of Chapter 2E of the Corporations Act.

(a) The Fidulex Acquisition Agreement between Limewood and the Company referred in paragraph 9.4(a) above.

(b) The Tenement Acquisition Agreement with Mainline referred to in paragraph 9.4(e) above

(c) The Limewood Mandate referred to in paragraph 9.4(f) above.

(d) The issue of 6,090,488 fully paid shares to the Company to Limewood the debt owing to Limewood referred to in paragraph 9.4(f).

At the General Meeting held on 13 August 2007 the Company’s shareholders also approved:

(1) The transfer of the shares in Fidulex from the Company to Urafiki Gems.

(2) The allotment to Matimba Gems of 26 fully paid shares of rand 1.00 each in Urafiki Gems.

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9.6 Section 611 (paragraph 7) of the Corporations ActSection 606 of the Corporations Act contains a general prohibition on the acquisition of shares in the Company (whether by purchase or allotment) if as a result of that transaction that person’s voting power in the Company increases from 20% or if below to more than 20%. A person may acquire a relevant interest under one of the exceptions set out in Section 611 of the Corporations Act.

Under Section 611 (paragraph 7) a person may acquire a relevant interest in the Company’s voting shares in excess of 20% if that acquisition is approved by a Resolution passed at a General Meeting the Company. No votes may be cast in favour of the Resolution by the person proposing to make the acquisition (or their associates) or the persons (if any) from whom the acquisition is to be made (and their associates).

At the General Meeting of the Company held 13 August 2007 the shareholders of the Company with Limewood and Mr Ferralaro abstaining approved the issue of the following shares in the Company to Limewood for the purposes of Section 611 (paragraph 7) of the Corporations Act:

(1) The issue of up to 17,340,488 shares to Limewood pursuant to the agreement relating to the transfer of Fidulex, the Limewood Mandate and in satisfaction on the debt owed by the Company to Limewood and;

(2) 3,500,000 shares to be issued to Limewood pursuant to the conversion of the Convertible Preference Shares.

Notes:

In connection with approval of the transactions pursuant to Chapter 2E of the Corporations Act and Section 611 (paragraph 7) of the Corporations Act the following documents were prepared and were lodged with ASIC and copies may be obtained from the Company free of charge.

(a) Explanatory Memorandum which sets out the background to the transactions

(b) Report from Stanton Partners Corporate Pty Ltd which is an independent expert’s report

(c) Independant valuation of tenements the subject of the transactions approved pursuant to Chapter 2E of the Corporations Act prepared by Snowden Mining Industry Consultants Pty Ltd.

Copies of the above documents may be obtained free of charge from the Company and in this regard please contact the Company Secretary Peter Rasano on (08) 9382 1992 between 9am and 5pm Western Standard Time, Monday to Friday. The Company recommends potential investors to read copies of the documents.

9.7 Annual General MeetingPursuant to the provisions of S 250 P(2) of the Corporations Act 2001 ASIC extended the time for the Company to hold its 2007 Annual General Meeting to the 24 January 2008. In accordance with the Company’s constitution, Mr Anthony Short and Mr Vincent Ferraloro retired by rotation and being eligible for re-election were re-elected. The Annual General Meeting was held 24 January 2008.

9.8 Rights Attaching to SharesThe rights attaching to Shares in the Company are:

(a) set out in the constitution of the Company, a copy of which is available for inspection at the registered office of the Company during normal business hours; and

(b) in certain circumstances, regulated by the Corporations Act, the Listing Rules of ASX, the SCH Business Rules and the general law.

The following is a summary of the principal rights of the holders of Shares in the Company.

VotingEvery holder of Shares present in person or by proxy, attorney or representative at a meeting of shareholders has one vote on a vote taken by a show of hands, and, on a poll every holder of Shares who is present in person or by proxy, attorney or representative has one vote for every fully paid Share held by him or her, and a proportionate vote for every partly paid Share, registered in such shareholder’s name on the Company’s share register.

A poll may be demanded by the chairperson of the meeting, by any five shareholders present in person or by proxy, attorney or representative, or by any one or more shareholders who are together entitled to not less than 5% of the total voting rights of the Shares of all those shareholders having the right to vote at that meeting.

DividendsDividends are payable out of the Company’s profits and are declared by the Directors.

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Transfer of SharesA shareholder may transfer Shares by a market transfer in accordance with any computerised or electronic system established or recognised by ASX or the Corporations Act for the purpose of facilitating transfers in Shares or by an instrument in writing in a form approved by ASX or in any other usual form or in any form approved by the Directors.

The Directors may refuse to register any transfer of Shares, other than a proper SCH transfer (as defined in the Corporations Act), where permitted or required by the Listing Rules of ASX. The Company must not refuse to register or give effect to or delay or in any way interfere with a proper SCH transfer of Shares or other securities.

Meetings and NoticeEach shareholder is entitled to receive notice of and to attend general meetings for the Company and to receive all notices, accounts and other documents required to be sent to shareholders under the constitution of the Company, the Corporations Act or the Listing Rules.

Liquidation RightsAll of the Shares rank equally in the event of liquidation and are subject to the priority rights attaching to the Convertible Preference Shares. Once all the liabilities of the Company are satisfied, a liquidator may, with the authority of a special resolution of shareholders divide the whole or any part of the remaining assets of the Company. The liquidator can with the sanction of a special resolution of the Company’s shareholders vest the whole or any part of the assets in trust for the benefit of shareholders as the liquidator thinks fit, but no shareholder of the Company can be compelled to accept any shares or other securities in respect of which there is any liability.

Shareholder LiabilityAs the Shares under the Prospectus are fully paid Shares, they are not subject to any calls for money by the Directors and will therefore not become liable for forfeiture.

Alteration to the ConstitutionThe constitution can only be amended by a special resolution passed by at least three quarters of shareholders present and voting at the general meeting. At least 28 days written notice specifying the intention to propose the resolution as a special resolution must be given.

ASX Listing RulesIf the Company is admitted to the Official List of ASX, then despite anything in the constitution of the Company, if the Listing Rules prohibit an act being done, the act must not be done. Nothing in the constitution prevents an act being done that the Listing Rules require to be done. If the Listing Rules require an act to be done or not to be done, authority is given for that act to be done or not to be done (as the case may be). If the Listing Rules require the constitution to contain a provision or not to contain a provision the constitution is deemed to contain that provision or not to contain that provision (as the case may be). If a provision of the constitution is or becomes inconsistent with the Listing Rules, the constitution is deemed not to contain that provision to the extent of the inconsistency.

9.9 Rights Attaching to Convertible Preference SharesThe Company has issued 700 Convertible Preference Shares and has consolidated those Convertible Preference Shares on a 2 for 1 basis. Limewood has agreed to the consolidation. 350 Convertable Preference Shares are on issue and are held by Limewood.

The following is a summary of the principal rights attaching to the Convertible Preference Shares:

(a) The holder of Convertible Preference Shares may elect to convert all (and not some only) of the Convertible Preference Shares into Shares during the period that commences on:

(i) the Company being admitted to quotation by any recognised stock exchange, including ASX; or

(ii) the Company being subject to a takeover bid which results in the bidder receiving acceptances for over 50% of the Shares on issue in the Company; and

expiring on the date that is 30 days after the third anniversary of the date on which the Company first issued the Convertible Preference Shares.

Limewood has agreed that it will elect to convert the Convertible Preference Shares upon the Company being admitted to the official list of the ASX.

(b) Upon conversion, each Convertible Preference Share converts into 10,000 Shares.

(c) The holders of Convertible Preference Shares have no right to vote on a winding up or at any meeting of members of the Company except:

(i) during a period in which a dividend (or part of a dividend) on the Convertible Preference Shares is in arrears;

(ii) a proposal to reduce the Company’s share capital; or

(iii) on a resolution to approve the terms of a buy-back agreement;

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(iv) on a proposal that affects rights attached to the Convertible Preference Shares;

(v) on a proposal to wind up the Company;

(vi) on a proposal for the disposal of the whole of the Company’s property, business and undertaking; and

(vii) during the winding up of the Company,

in which case each Convertible Preference Share will carry the same right to vote (both on a show of hands and a poll) as an Share.

(d) Subject to the Corporations Act and the Preference Share Terms, the holders of Convertible Preference Shares are entitled to be paid, in priority to any payment of a dividend on all other classes of shares, a preferential dividend of the dividend amount (as calculated below) for the relevant dividend period and the amount of any other accrued but unpaid dividends on that Convertible Preference Share:

(e) The dividend amount is calculated as:

DA =

DRxN

365

Where:

DR means the dividend rate which is 5% per annum calculated daily on the value of the issue price of the Convertible Preference Share (being $1.00); and

N means the number of days in the relevant dividend period, being the period beginning on the issue date and ending on the day before 30 June and each period thereafter beginning on 30 June and ending on the day before the next 30 June, until the Convertible Preference Share is converted into Shares.

(f) No dividend is payable on a Convertible Preference Share unless and until the Board of the Company has resolved to declare and pay that dividend.

(g) The dividend entitlement attaching to a Convertible Preference Share is cumulative so that if on a dividend date:

(i) the dividend declared and paid on a Convertible Preference Share is less than the dividend amount; or

(ii) no dividend is declared and paid on that Convertible Preference Share,

then that shortfall accrues (whether a dividend has been declared for the relevant dividend period) from that dividend date and is payable to the holder on any subsequent dividend date (in addition to the dividend amount payable for that subsequent dividend period).

(h) On a winding up of the Company, the holders of the Convertible Preference Shares will receive, in priority to the Shares, payment in cash of the sum of the issue price of the Convertible Preference Shares (being $1.00 each) and the dividend amount for the dividend period ending on the day before the Company is wound up and the amount of any other accrued but unpaid dividends on the Convertible Preference Shares, but they have no right to participate in surplus assets and profits of the Company.

(i) The Convertible Preference Shares have priority over all other classes of shares in the capital of the Company for repayments of capital.

(j) Subject to the terms of issue of any particular class of preference share, the issue of further preference shares that rank equally with any of the Convertible Preference Shares is not taken to affect the rights of the holders Convertible Preference Shares whether or not the dividend rate for the new preference share is the same as or different from the dividend rate for the Convertible Preference Shares.

9.10 Employee Share Option PlanThe Company has adopted the Gemstar Employee Share Option Plan (“ESOP”) for the purpose of recognising the efforts of, and providing incentive to, employees of the Company. A summary of full terms and conditions of the ESOP are set out below:

(a) Under the ESOP the Company may offer options to subscribe for Shares in the Company to Eligible Persons. Directors and part time or full time employees of the Company are “Eligible Persons” for the purposes of the ESOP. Eligible Persons may nominate a nominee to hold options in their place.

(b) The Board may determine that an Eligible Person is entitled to participate in the ESOP and the extent of that entitlement, after consideration of specified matters.

(c) Options offered under the ESOP are to be offered on such terms as the Board determines and the offer must set out specified information including the number of options, the period of the offer and calculation of the exercise price. The exercise is to be determined by the Board with reference to the market value of the Shares at the time of resolving to offer the options. Eligible Persons may accept the whole or a lesser number of the options offered to them.

(d) No consideration is payable for the grant of the options unless the Board decides otherwise and the Company will not apply for Official Quotation of the options.

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(e) The options are not transferable except to the optionholders’ legal personal representative in the event of the death of the holder of the options or to certain nominees of the optionholders.

(f) The options may be exercised in whole or part by notice to the Company accompanied by payment of the required exercise price. Within 10 business days of exercise the Board must issue the required number of Shares, which will rank pari passu with previously issued Shares.

(g) The options may be exercised prior to the expiry date determined by the Board prior to the offer of the relevant options but no longer than five years from the date of grant of the options. Any options not exercised by that time will lapse.

(h) Notwithstanding the terms of the options, the options may be exercised in the event of specified occurrences including a change of control allowing replacement of all or a majority of the Board or during the period of a takeover bid for the Company.

(i) Unless the Board determines otherwise, if an Eligible Person ceases to be an Eligible Person prior to the earliest date for exercise of their options, for any other reason other than a “Specified Reason” (being retirement at age 60 or over, permanent disability, redundancy or death), the options held by them or their nominee will automatically lapse.

(j) If an Eligible Person ceases to be an Eligible Person after the earliest date for exercise of their options because of a Specified Reason, such Eligible Person or their nominee is entitled to exercise any such option within 3 months of the date of retirement, redundancy or death or of the date of the Board’s determination of permanent disability, or such longer period as the Board determines.

(k) Option holders may only participate in new issues of securities if an option has been exercised and Shares allotted before the record date for determining entitlements to the new issue. If there is a bonus issue the number of Shares over which the options are exercisable will be increased by the number of Shares the optionholder would have received if the option had been exercised before the record date of the bonus issue. If there is a pro rata issue (other than a bonus issue), the exercise price of the options will be adjusted in the manner provided for in the Listing Rules. If there is a reorganisation of capital the options will be reorganised in the manner provided for in the Listing Rules.

(l) The Company shall not offer options under the ESOP if the total number of Shares the subject of the options to be offered will exceed five percent of the total number of issued Shares of that class when aggregated with:

(i) the number of Shares which would be issued with each outstanding offer or option, being an offer made or option acquired pursuant to the ESOP or any other employee share scheme extended only to employees or Directors, were exercised; and

(ii) the number of Shares issued during the previous five years pursuant to the ESOP or any other employee share scheme extended only to employees or Directors,

but disregarding any offer made, option acquired or Share issued by way of or as a result of an offer under the ESOP to a person situated outside Australia; or an offer under the ESOP that did not need disclosure to investors because of section 708 of the Corporations Act; or an offer made under a disclosure document.

(m) The rules of the ESOP do not form part of any contract of employment of the optionholder and the holder has no rights of compensation or damages as a result of termination of his or her employment so far as those rights arise from the holder ceasing to have rights under the ESOP.

(n) The ESOP is administered by the Board who have the power to determine procedures for administration of the ESOP and resolve questions of fact or interpretation of the ESOP. The Board may also alter, delete or add to the rules of the ESOP at any time, subject to the Listing Rules.

9.11 Directors’ InterestsExcept as disclosed in this Prospectus, no Director or proposed Director holds, or during the last two years has held, any interest in:

(a) the formation or promotion of the Company;

(b) property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer; or

(c) the Offer;

and no amounts of any kind (whether in cash, Shares or otherwise) have been paid or agreed to be paid to any Director or proposed Director to induce him or her to become, or to qualify as, a Director, or otherwise for services rendered by him or her in connection with the formation or promotion of the Company or the Offer except as detailed below:

9.�� Shareholding QualificationsThe Directors are not required to hold any shares in the Company under the constitution of the Company.

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9.�� Directors’ HoldingsSet out in the table below are the details of Directors’ relevant interest in the securities of the company as at the date of this prospectus.

9.�4 Aquisitions by Directors and Associates

The following directors and their associates have aquired the following shares in the Company prior to the date of this prospectus at the prices set out below.

Notes: (a) Limewood acquired 2,514,950 ordinary shares from owners of Seed Capital pursuant to agreements by which Limewood agreed to assist in the ongoing funding of the Company in consideration of the share holders transferring 75% of their shares to Limewood. Mainline acquired these shares from Limewood in consideration pursuant to an agreement by which Mainline agreed to assist Limewood in the ongoing funding of the Company in consideration of Limewood transferring 30% of its shares to Mainline.

(b) Limewood acquired 700 Convertible Preference Shares from at the price of $0.10 (10 cents) each; this included the acquisition of 150 Convertible Preference Shares from Fay Holdings Pty Ltd (ACN 062 426 699) a company associated with Mr Anthony Short, a director of the Company. The Convertible Prefernce Shares have been consolidated (as noted in paragraph 9.9) and 350 are now on issue.

(c) Raysun Investments Pty Ltd is a direct company of which Peter Fiore is a director and shareholder.

9.�5 Remuneration of DirectorsThe constitution of the Company provides that the non-executive Director’s may collectively be paid as remuneration for their services a fixed sum not exceeding the aggregate maximum sum per annum from the time to time determined by the Company in general meeting. Currently the approved maximum sum is $300,000.

A Director may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director. A Director may also be reimbursed for out of pocket expenses incurred as a result of their directorship or any special duties.

9.16 Interests of Named PersonsExcept as disclosed in this Prospectus, no promoter or other person named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of the Prospectus, holds, or during the last two years has held, any interest in:

(a) the formation or promotion of the Company;

(b) property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer; or

(c) the Offer,

and no amounts of any kind (whether in cash, Shares or otherwise) have been paid or agreed to be paid to a promoter or any person named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of the Prospectus for services rendered by that person in connection with the formation or promotion of the Company or the Offer.

Name Number of Shares Date Acquired Price(see note below)

Peter Fiore - Raysun Investments (c) 500,000 21/2/05 $0.10

Peter Fiore - Mainline 5,063,550 5/7/07 see note (a)

Vincent Ferraloro 500,000 15/10/06 $0.10

Vincent Ferraloro - Limewood 2,514,950 5/7/06 see note (a)

Vincent Ferraloro - Limewood (Convertible Preference Shares) 700 10/2/06 $0.10 see note (b)

Anthony Short - Julie Short 500,000 15/10/06 $0.10

Director Number of Shares Held

Directly

Number of Shares Held Indirectly

Number of Existing Options

Issued

Number of Convertible Preference Shares Issued

(Held indirectly)

Peter Maake nil nil nil nil

Peter Fiore nil 5,563,550 nil nil

Vincent Ferraloro 500,000 2,514,950 nil 350

Anthony Short nil 500,000 nil nil

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Williams and Hughes have prepared the Solicitor’s Report on Australian Tenements included in Section 6. Williams and Hughes have also provided the company with advice in connection with this prospectus. The Company has paid approximately $70,000 to Williams and Hughes for these services. Williams and Hughes have provided other professional services to the Company during the 12 months for which the Company has paid or will pay fees totalling approximately $38,000.

Mervyn Taback Incorporated (trading as Tabacks Attorneys) have acted as South African solicitors to the Offer and in that capacity have been involved in undertaking due diligence enquiries in relation to the Company’s legal matters in South Africa. Mervyn Taback Incorporated have also prepared the Solicitor’s Report on the South African Tenements included in Section 7 of this Prospectus. In respect of this work the Company has agreed to pay approximately $26,000 (equates to 180,000 Rand at the exchange rate on 20 February 2008).

Grant Thornton (WA) Financial Services Pty Ltd has prepared the Independent Accountant’s Report included in Section 5 of this Prospectus and has assisted in the conduct of the due diligence programme related to preparation of this Prospectus and the Offer. In respect of this work the Company will pay approximately $15,000.

Snowden Mining Industry Consultants Pty Ltd have prepared the Independent Geologist’s Report included in Section 4 of this Prospectus. In respect of this work the Company has paid approximately $30,000 for these services.

The amounts disclosed above are exclusive of any amount of goods and services tax payable by the Company in respect of those amounts.

9.17 ConsentsEach of the parties referred to in this Section 9.17:

(a) has not authorised or caused the issue of this Prospectus;

(b) does not make, or purport to make, any statement in this Prospectus or on which a statement made in the Prospectus is based other than as specified in this Section;

(c) to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Prospectus other than a reference to its name and a statement included in this Prospectus with the consent of that party as specified in this Section; and

(d) has given and has not, before the lodgement of this Prospectus with ASIC, withdrawn its consent to be named in the Prospectus in the form and context in which it is named.

Snowden Mining Industry Consultants Pty Ltd has given its written consent to the inclusion in this Prospectus of its Independent Consulting Geologist’s Report, and all statements referring to that report in the form and context in which they appear and has not withdrawn such consent before lodgement of this Prospectus with the ASIC.

Grant Thornton (WA) Financial Services Pty Ltd has given its written consent to the inclusion in this Prospectus of its Independent Accountant’s Report and all statements referring to that report in the form and context in which they appear and has not withdrawn such consent before lodgement of this Prospectus with the ASIC.

Grant Thornton (WA) Partnership has given its written consent to be named as auditor in the Prospectus.

Williams and Hughes has given its written consent to the inclusion in this Prospectus of its Solicitors Report on Australian Tenements and all statements referring to that report in the form and context in which they appear and have not withdrawn such consent before lodgement of this Prospectus with the ASIC.

Tabacks have given their written consent to the inclusion in this Prospectus of its Solicitor’s Report on South African Tenements and all statements referring to that report in the form and context in which they appear and have not withdrawn such consent before lodgement of this Prospectus with the ASIC.

Each of the following has consented to being named in the Prospectus in the capacity as noted below and have not withdrawn such consent prior to the lodgement of this Prospectus with the ASIC:

(a) Williams and Hughes in connection with the preparation of the Solicitors Report on Australian Tenements;

(b) Mervyn Taback Incorporated (trading as Tabacks Attorneys) in connection with the preparation of the Solicitors Report on South African Tenements;

(c) Grant Thornton (WA) Financial Services Pty Ltd as Independent Accountants to the Company;

(d) Grant Thornton (WA) Partnership as auditor to the Company

(e) Snowden Mining Industry Consultants Pty Ltd as Independent Geologist; and

(f) Advanced Share Registry Services as share registrar of the Company.

There are a number of persons referred to elsewhere in this Prospectus who are not experts and who have not made statements included in this Prospectus nor are there any statements made in this Prospectus on the basis of any statements made by those persons. These persons did not consent to being named in the Prospectus and did not authorise or cause the issue of the Prospectus.

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9.18 Costs of the IssueThe total estimated costs of the Issue, including legal fees incurred, registration fees, fees for other advisers, Prospectus design, printing and advertising expenses and other miscellaneous expenses, will be approximately $398,000 (exclusive of GST and assuming that minimum subscription only is reached) as shown in the table below. If the Company accepts over subscriptions the costs will increase by $60,000 (exclusive of GST) due to increased fees to brokers and increased listing fees.

Note1 The legal fees - South Africa have been converted in Australian dollars at a rate of $1 AUD to 7.02824 Rand which equates to 180,000 Rand as at 20th February 2008.

Note2 Brokerage fees have been calculated on a 3 million raise. On a 4 million raise they are $265,000 and on a 5 million raise they are $325,000.

Note3 Listing fees have been calculated on a 3 million raise. On a 4 million raise they are $15,981 and on a 5 million raise they are $18,653.

9.19 Electronic ProspectusPursuant to Class Order 00/44 the ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an Electronic Prospectus on the basis of a paper Prospectus lodged with the ASIC and the issue of Shares and Options in response to an electronic application form, subject to compliance with certain provisions.

If you have received this Prospectus as an Electronic Prospectus please ensure that you have received the entire Prospectus accompanied by the Application Form. If you have not, please email the Company and the Company will send to you, for free, either a hard copy or a further electronic copy of the Prospectus or both.

The Company reserves the right not to accept a Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the Electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered. In such a case, the Application moneys received will be dealt with in accordance with section 722 of the Corporations Act.

9.20 Directors Responsibility Statement and ConsentThe Directors state that they have made all reasonable enquiries and on that basis have reasonable grounds to believe that any statements made by the Directors in this Prospectus are not misleading or deceptive and that in respect to any other statements made in the Prospectus by persons other than Directors, the Directors have made reasonable enquiries and on that basis have reasonable grounds to believe that persons making the statement or statements were competent to make such statements, those persons have given their consent to the statements being included in this Prospectus in the form and context in which they are included and have not withdrawn that consent before lodgement of this Prospectus with the ASIC, or to the Directors knowledge, before any issue of Shares pursuant to this Prospectus.

The Prospectus is prepared on the basis that certain matters may be reasonably expected to be known to likely investors or their professional advisers.

Each Director has consented to the lodgement of this Prospectus with the ASIC and has not withdrawn that consent.

Dated 25 February 2008

Signed for and on behalf of Gemstar Diamonds Limitedby Peter Andrew Fiore, Director

Service Estimate of Cost ($)

Independent Consulting Geologist’s Report 30,000

Legal Fees - Australia 35,000

Legal Fees - South Africa1 26,000

Brokerage Fees2 205,000

Administration and Printing 73,690

Accounting Fees 15,000

Listing Fees3 13,310

Total Cost Estimate 398,000

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D E F I N E D T E R M S

The following definitions apply throughout this document unless the context requires otherwise.

Applicant(s) Person(s) who submit valid Application Forms pursuant to this Prospectus.

Application A valid application made to subscribe for a specified number of Shares pursuant to this Prospectus.

Application Form The application form entitled “Public Application Form” relating to the Offer which is attached to or accompanies this Prospectus.

ASIC Australian Securities and Investments Commission.

ASX Australian Securities Exchange (ASX Limited ACN 008 624 691).

Bushmanland Project The project in the Republic of South Africa which involves the applications for rights to prospect and explore for, and/or mine for, precious stones and other minerals in respect of the farms in the district of Namaqualand, Northern Cape Province, explained in more detail in Section 3.3(c).

Closing Date 5 pm Western Standard Time on 10 March 2008.

Company or Gemstar Gemstar Diamonds Limited ACN 097 302 675.

Consulting Mandate The mandate arrangement between the Company, Limewood on the terms summarized in Section 9.4 of this prospectus.

Convertible Preference Shares Convertible preference shares the terms and conditions which are summarised in Section 9 of this Prospectus.

Corporations Act Corporations Act 2001 (Cth).

Directors The Directors of the Company.

Electronic Prospectus An electronic version of the Prospectus.

Fidulex Fidulex Diamond Holdings (Proprietary) Limited, a company incorporated in the Republic of South Africa under registration number 1992/010101/07.

Fidulex Acquisition Agreement Agreement dated 8 November 2006 between the Company and Limewood on the terms summarized in Section 9.4 (a).

Independent Geologist’s Report The report by Snowden contained in Section 4.

Issue The issue of Shares pursuant to this Prospectus.

Limewood Limewood Investments Pty Ltd (ACN 061 881 801)

Limewood Mandates The mandate arrangements between the Company and Limewood

Listing Rules The official listing rules of ASX.

Mainline Mainline Nominees Pty Ltd (ACN 097 302 675)

Matimba Gems Matimba Gems (Proprietary) Limited, a company incorporated in the Republic of South Africa, registration no. 2005/000030/07.

Matimba Resources Matimba Resources (Proprietary) Limited, a company incorporated in the Republic of South Africa, registration no. 2004/002366/07.

MPRD Act Mineral and Petroleum Resources Development Act, 2002 (Act 28 of 2002) (Republic of South Africa), as amended from time to time.

Northville Minerals Northville Minerals (Proprietary) Limited, a company incorporated in the Republic of South Africa, registration no. 2005/001670/07.

Offer The invitation to the public made in this Prospectus to subscribe for Shares.

Official List The official list of ASX.

Palmietfontein Project The project in the Republic of South Africa which involves the rights to prospect, explore and/or mine for precious stones in, or under the farm Palmietfontein 208, Registration Division JP, as held by Fidulex under Notarial Cessation of Mineral Rights No. K39/1993, explained in more detail in Section 3.3(b).

Prospectus This Prospectus and includes the Electronic Prospectus.

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DEFINED TERMS SECTION �0

Rand The currency of The Republic of South Africa

$ and Dollars Australian Dollars

SCH Business Rules Has the same meaning as in the Corporations Act.

Section A section of this Prospectus.

Shareholders Agreement Shareholders agreement between the Company, Matimba Gems and Urafiki on terms summarised in Section 9.4(d).

Share(s) Fully paid ordinary share(s) in the Company.

Shareholder The registered holder of Shares.

Snowden Snowden Mining Industry Consultants Pty Ltd.

Urafiki Gems Urafiki Gems (Proprietary) Limited a company incorporated in the Republic of South Africa, registration no.2004/005889/07.

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G E M S TA R D I A M O N D S L I M I T E D A C N 0 9 7 � 0 � 6 7 5

P U B L I C A P P L I C AT I O N F O R M

Drawer Cheque number BSB number Account number Total amount of cheque

Name of joint applicant 3 or account name

Suburb/town State Postcode

Contact name

Adviser codeBroker codeBroker reference stamp onlyShare Registrars use only


Joint applicant 3/exemption

Joint applicant 2/trust

Name of applicant 1

Number/street

Return of the Application Form with your cheque for the Application moneys will constitute your offer to subscribe for Shares in the Company. I/We declare that:(a) this Application is completed according to the declaration/appropriate statements on the reverse of this form and

agree to be bound by the Constitution of the Company; and (b) I/we have received personally a copy of this Prospectus accompanied by or attached to the Application Form or a

copy of the Application Form or a direct derivative of the Application Form, before applying for Shares. You should read the Prospectus dated 25 February 2008 carefully before completing this Application Form. The Corporations Act prohibits any person from passing on this Application Form (whether in paper or electronic form) unless it is attached to or accompanies a complete and unaltered copy of the Prospectus and any relevant supplementary prospectus (whether in paper or electronic form).

Contact details CHESS HIN (if applicable)

Full postal address

Daytime telephone number Email address

Full name details title, given name(s) (no initials) and surname or company name Tax file number(s) or exemption category

Cheque payment details make your cheque payable to “Gemstar Diamonds Limited - Trust Account”

C

Applicant 1/company

D

E

F

G

H

I

Minimum 10,000 and then multiples of 500 Shares. Cheque(s) to equal this amount

Number of Shares applied for at $0.20 per Share = Total amount payable

A B A$

Please read all instructions on reverse of this form

NO SIGNATURE IS REQUIRED

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APPLICATION FORM SECTION ��

Please complete all relevant sections of the Application Form using BLOCK LETTERS. These instructions are cross referenced to each section of the Application Form. Further particulars and the correct forms of registrable titles to use on the Application Form are contained below.

A Insert the number of Shares you wish to apply for. The Application must be for a minimum of 10,000 Shares and thereafter in multiples of 500 Shares.

B Insert the relevant amount of Application moneys. To calculate your Application moneys, multiply the number of Shares applied for by the sum of $0.20.

C Write the full name you wish to appear on the statement of shareholdings. This must be either your own name or the name of the company. Up to three joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applicants using the wrong form of title may be rejected. Clearing House Electronic Sub-Register System (CHESS) participants should complete their name and address in the same format as that are presently registered in the CHESS system.

D Enter your Tax File Number (TFN) or exemption category. Where applicable, please enter the TFN for each joint Applicant. Collection of TFN(s) is authorised by taxation laws. Quotation of your TFN is not compulsory and will not affect your Application.

E Please enter your postal address for all correspondence. All communications to you from the share registry will be mailed to the person(s) and address as shown. For Joint Applicants, only one address can be entered.

F Please enter your telephone number(s), area code, email address and contact name in case we need to contact you in relation to your Application.

G The Company will apply to ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Stock Exchange Limited. In CHESS, the Company will operate an electronic CHESS subregister of securities holdings and an electronic issuer sponsored subregister of securities holdings. Together the two subregisters will make up the Company’s principal register of securities. The Company will not be issuing certificates to Application in respect of securities allotted.

If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold securities allotted to you under this Application in uncertified form on the CHESS

subregister, complete Section G or forward your Application Form to your sponsoring participant for completion of this section prior to lodgement. Otherwise, leave Section G blank and on allotment, you will be sponsored by the Company and an SRN will be allocated to you. For further information refer to the relevant section of the Prospectus.

H Please complete cheque details as requested: Make your cheque payable to “Gemstar Diamonds Limited - Trust Account” in Australian currency and cross it “Not Negotiable”. Your cheque must be drawn on an Australian Bank. The amount should agree with the amount shown in Section B. Sufficient cleared funds should be held in your account, as cheques returned unpaid are likely to result in your Application being rejected.

I Before completing the Application Form the Applicant(s) should read the Prospectus to which the Application relates. By lodging the Application Form, the Applicant(s) agrees that this Application is for Shares and Options in the Company upon and subject to the terms of this Prospectus, agrees to take any number of Shares equal to or less than the number of Shares indicated in Section A that may be allotted to the Applicant(s) pursuant to the Prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Correct form of Registrable Title Note that only legal entities are allowed to hold Shares. Applications must be in the name(s) of a natural person(s), companies or other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable title may be included by way of an account designation if completed exactly as described in the example of correct forms of registrable title below:

Lodgement of Applications Return your completed Application Form with cheque(s) attached to:

Type of investor Correct form of Registrable Title

Incorrect form of Registrable Title

IndividualUse names in full, no initials

Mr John Alfred Smith JA Smith

Minor (a person under the age of 18)Use the name of a responsible adult, do not use the name of a minor

John Alfred Smith <Peter Smith>

Peter Smith

CompanyUse company title, not abbreviations

ABC Pty Ltd ABC P/LABC Co

TrustsUse trustee(s) personal name(s), do not use the name of the trust

Mrs Sue Smith<Sue Smith Family A/C>

Sue Smith Family Trust

Deceased EstatesUse executor(s) personal name(s), do not use the name of the deceased

Ms Jane Smith <Est John Smith A/C>

Estate of late John Smith

Partnerships Use partners personal names, do not use the name of the partnership

Mr John Smith and Mr Michael Smith <John Smith and Son A/C>

John Smith and Son

Guide to the Gemstar Diamonds Limited Application FormThis Application Form relates to the Offer of 20,000,000 Shares in Gemstar Diamonds at $0.20 per Share (with the right to accept oversubscriptions of up to a further 5,000,000 shares) pursuant to the Prospectus dated 25 February 2008. The expiry date of the Prospectus is the date which is 13 months after the date of the Prospectus. The Prospectus contains information about investing in the Shares of the Company and it is advisable to read this document before applying for Shares. A person who gives another person access to this Application Form must at the same time and by the same means give the other person access to the Prospectus, and any supplementary prospectus (if applicable). While the Prospectus is current, the Company will send paper copies of the Prospectus, and any supplementary prospectus (if applicable), and a Application Form, on request and without charge.

By Post to:Gemstar Diamonds Limitedc/- Advanced Share RegistryServicesPO BOX 1156Nedlands WA 6909

Or delivered to:Gemstar Diamonds Limitedc/- Advanced Share RegistryServices110 Stirling HighwayNedlands WA 6009

Application Forms must be received no later than 5 pm WST time on 21 April 2008.

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G E M S TA R D I A M O N D S L I M I T E D A C N 0 9 7 � 0 � 6 7 5

P U B L I C A P P L I C AT I O N F O R M

Drawer Cheque number BSB number Account number Total amount of cheque


Suburb/town State Postcode

Contact name

Adviser codeBroker codeBroker reference stamp onlyShare Registrars use only


Joint applicant 3/exemption

Joint applicant 2/trust

Name of applicant 1

Number/street

Return of the Application Form with your cheque for the Application moneys will constitute your offer to subscribe for Shares in the Company. I/We declare that:(a) this Application is completed according to the declaration/appropriate statements on the reverse of this form and

agree to be bound by the Constitution of the Company; and (b) I/we have received personally a copy of this Prospectus accompanied by or attached to the Application Form or a

copy of the Application Form or a direct derivative of the Application Form, before applying for Shares. You should read the Prospectus dated 25 February 2008 carefully before completing this Application Form. The Corporations Act prohibits any person from passing on this Application Form (whether in paper or electronic form) unless it is attached to or accompanies a complete and unaltered copy of the Prospectus and any relevant supplementary prospectus (whether in paper or electronic form).

Contact details CHESS HIN (if applicable)

Full postal address

Daytime telephone number Email address

Full name details title, given name(s) (no initials) and surname or company name Tax file number(s) or exemption category

Cheque payment details make your cheque payable to “Gemstar Diamonds Limited - Trust Account”

C

Applicant 1/company

D

E

F

G

H

I

Minimum 10,000 and then multiples of 500 Shares. Cheque(s) to equal this amount

Number of Shares applied for at $0.20 per Share = Total amount payable

A B A$

Please read all instructions on reverse of this form

NO SIGNATURE IS REQUIRED

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SOLICITORS’ REPORT ON SOUTH AFRICAN TENEMENTS SECTION �


APPLICATION FORM SECTION ��

Please complete all relevant sections of the Application Form using BLOCK LETTERS. These instructions are cross referenced to each section of the Application Form. Further particulars and the correct forms of registrable titles to use on the Application Form are contained below.

A Insert the number of Shares you wish to apply for. The Application must be for a minimum of 10,000 Shares and thereafter in multiples of 500 Shares.

B Insert the relevant amount of Application moneys. To calculate your Application moneys, multiply the number of Shares applied for by the sum of $0.20.

C Write the full name you wish to appear on the statement of shareholdings. This must be either your own name or the name of the company. Up to three joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applicants using the wrong form of title may be rejected. Clearing House Electronic Sub-Register System (CHESS) participants should complete their name and address in the same format as that are presently registered in the CHESS system.

D Enter your Tax File Number (TFN) or exemption category. Where applicable, please enter the TFN for each joint Applicant. Collection of TFN(s) is authorised by taxation laws. Quotation of your TFN is not compulsory and will not affect your Application.

E Please enter your postal address for all correspondence. All communications to you from the share registry will be mailed to the person(s) and address as shown. For Joint Applicants, only one address can be entered.

F Please enter your telephone number(s), area code, email address and contact name in case we need to contact you in relation to your Application.

G The Company will apply to ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Stock Exchange Limited. In CHESS, the Company will operate an electronic CHESS subregister of securities holdings and an electronic issuer sponsored subregister of securities holdings. Together the two subregisters will make up the Company’s principal register of securities. The Company will not be issuing certificates to Application in respect of securities allotted.

If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold securities allotted to you under this Application in uncertified form on the CHESS

subregister, complete Section G or forward your Application Form to your sponsoring participant for completion of this section prior to lodgement. Otherwise, leave Section G blank and on allotment, you will be sponsored by the Company and an SRN will be allocated to you. For further information refer to the relevant section of the Prospectus.

H Please complete cheque details as requested: Make your cheque payable to “Gemstar Diamonds Limited - Trust Account” in Australian currency and cross it “Not Negotiable”. Your cheque must be drawn on an Australian Bank. The amount should agree with the amount shown in Section B. Sufficient cleared funds should be held in your account, as cheques returned unpaid are likely to result in your Application being rejected.

I Before completing the Application Form the Applicant(s) should read the Prospectus to which the Application relates. By lodging the Application Form, the Applicant(s) agrees that this Application is for Shares and Options in the Company upon and subject to the terms of this Prospectus, agrees to take any number of Shares equal to or less than the number of Shares indicated in Section A that may be allotted to the Applicant(s) pursuant to the Prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Correct form of Registrable Title Note that only legal entities are allowed to hold Shares. Applications must be in the name(s) of a natural person(s), companies or other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable title may be included by way of an account designation if completed exactly as described in the example of correct forms of registrable title below:

Lodgement of Applications Return your completed Application Form with cheque(s) attached to:

Type of investor Correct form of Registrable Title

Incorrect form of Registrable Title

IndividualUse names in full, no initials

Mr John Alfred Smith JA Smith

Minor (a person under the age of 18)Use the name of a responsible adult, do not use the name of a minor

John Alfred Smith <Peter Smith>

Peter Smith

CompanyUse company title, not abbreviations

ABC Pty Ltd ABC P/LABC Co

TrustsUse trustee(s) personal name(s), do not use the name of the trust

Mrs Sue Smith<Sue Smith Family A/C>

Sue Smith Family Trust

Deceased EstatesUse executor(s) personal name(s), do not use the name of the deceased

Ms Jane Smith <Est John Smith A/C>

Estate of late John Smith

Partnerships Use partners personal names, do not use the name of the partnership

Mr John Smith and Mr Michael Smith <John Smith and Son A/C>

John Smith and Son

Guide to the Gemstar Diamonds Limited Application FormThis Application Form relates to the Offer of 20,000,000 Shares in Gemstar Diamonds at $0.20 per Share (with the right to accept oversubscriptions of up to a further 5,000,000 shares) pursuant to the Prospectus dated 25 February 2008. The expiry date of the Prospectus is the date which is 13 months after the date of the Prospectus. The Prospectus contains information about investing in the Shares of the Company and it is advisable to read this document before applying for Shares. A person who gives another person access to this Application Form must at the same time and by the same means give the other person access to the Prospectus, and any supplementary prospectus (if applicable). While the Prospectus is current, the Company will send paper copies of the Prospectus, and any supplementary prospectus (if applicable), and a Application Form, on request and without charge.

By Post to:Gemstar Diamonds Limitedc/- Advanced Share RegistryServicesPO BOX 1156Nedlands WA 6909

Or delivered to:Gemstar Diamonds Limitedc/- Advanced Share RegistryServices110 Stirling HighwayNedlands WA 6009

Application Forms must be received no later than 5 pm WST time on 21 April 2008.

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ACN 097 302 675

31 Townshend RoadSubiaco, WA 6008

Telephone: (08) 9382 1992Fax: (08) 9380 4466Email: [email protected]: www.gemstardiamonds.com.au

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Documents

PROSPECTUS 2008 For personal use only - ASX · PROSPECTUS 2008 For the issue of 20,000,000 ordinary Shares at 20 cents each to raise $4,000,000. ... Peter Fiore Vincent Ferraloro