NORTH AUSTRALIAN DIAMONDS LTD - ASX: NAD

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Description

North Australian Diamonds Limited is a listed public company on the Australian Stock Exchange trading under the symbol "NAD". The Company is developing its flagship Merlin Diamond Mine Project in the Northern Territory, Australia and is engaged in extensive exploration for additional sources of diamonds in and around Merlin. Exploration is also taking place in the Company's tenement holdings associated with its North Kimberley, Yambarra and Arnhem Land projects.

Merlin Diamond Project

North Australian Diamonds Ltd acquired 100% of Mining Lease 1154 covering the former Merlin Diamond Mine operations in the Northern Territory from Ashton Mining Limited (a wholly owned subsidiary of the Rio Tinto Group) in 2004. This acquisition built on the Merlin Orbit exploration tenements which had been previously acquired from Rio Tinto.

The project is situated approximately 75km SSE by road from McArthur River, 80km due south by air from the town of Borroloola and 720km SE of Darwin in the Gulf Region of the Northern Territory. The Merlin diamond field comprises 14 kimberlite pipes, grouped into four clusters. Twelve of the pipes, all subject to either open pit mining or testing, are located within the mineral lease MLN1154, which was granted on 15th June 1998. Merlin diamonds are known for the brilliant white colour and large size. The largest diamond ever found in Australia, a 104.73 carat white gem quality stone, was recovered from Merlin and was valued at approximately US$525,000 in 2002.

Since July 2009, North Australian Diamonds has been focused on pre-production trials, aimed at advancing its flagship Merlin Project in the Northern Territory, Australia. The successful completion of the trials in September 2010 resulted in the recovery of 10,600cts of diamonds, of which 2,590 carats were greater than 1 carat, representing 24.4% of production. Of the +1ct diamonds, in excess of 75% were assessed as 'gem' or 'near' gem quality.

A 24.12ct gem quality diamond, the largest recovered by NADL since acquiring the Merlin mine, was recovered from Kaye pipe in March 2010 and is yet to be valued. The pre-production trials highlighted the potential to proceed to a commercial mining operation and the Company is advancing studies to confirm the scale, capital cost and timing of the envisaged first stage development. The initial focus will target in excess of 100,000 carats per annum across the whole operation.

Diamonds recovered from the trials are being prepared for independent valuation and value adding studies. The Company believes that the high quality and size of the diamonds produced by Merlin will enable 'branding' and boutique marketing opportunities, which will be important in redeveloping Merlin and successfully establish NADL as an integrated long term diamond producer.

A recent revaluation of Merlin goods indicates that the diamonds from the pre-production trial parcel will achieve well in excess of US$200 per carat, placing Merlin Diamonds within the top quartile of diamond mines worldwide. The prognosis for rough diamond prices over the next 10 years is very favourable with annual increases of 5% predicted due to declining production from current world reserves and increasing demand for diamonds.

Kimberley Project

Within NADL's North Kimberley project area the Company had previously identified a total inferred resource of 1.57M carats, contained within the Ashmore and Seppelt 1 and 2 pipes. The Company holds these resources under mining leases, as they continue to retain commercial potential. The Company also retains 1 exploration license within this region, which is currently under application.

The Seppelt project comprises a number of related kimberlite dykes, blows and pipes constrained within a narrow corridor over a strike length of some 6km. The Seppelt 1 pipe consists of 2 lobes about 100m apart, with a combined area of approximately 0.7ha. The pipe is located 5km NE of Seppelt 2 and within the same structural corridor. An inferred resource of 1.7 million tonnes at an average grade of 38.7cpht has been identified to a depth of 140m in the North lobe and a depth of 110m in the South lobe. Peripheral breccias account for an additional 200,000 tonnes and are largely reported in the upper portions of each lobe.

Seppelt 2 is a kimberlite pipe comprised of both weathered kimberlite and infill gravels. The gravels have a variable grade of approximately 50cpht and persist to a depth of 36m. Beneath the gravels is weathered kimberlite with a grade of 211cpht. The Seppelt 2 pipe has an inferred resource of 200,000 tonnes to 200m depth. The largest diamonds recovered to date includes one 8.5ct and one 6.3ct diamond. The 8.5ct diamond, being clear, white and of gem quality, was valued at US$1,500 per carat (US$12,600).

Ongoing exploration at Seppelt is focused on the discovery of kimberlites within the already identified Seppelt structural corridor as well as the orbit area. Exploration to date has identified a number of areas where both indicator minerals and commercially sized diamond occurrences remain unresolved.

Arnhem Land Project

North Australian Diamonds Ltd was previously a party to a farm-in agreement with De Beers Australia Exploration Limited ("DBAE") whereby the Company could earn a 100% interest for all commodities in tenements with a total project area of 13,200sq km in the Arnhem Land region of the Northern Territory. During the year, the Company purchased all right and title to the De Beers tenements. In 2007, North Australian Diamonds acquired the contractual right to obtain an 80% interest in 2 new tenements covering approximately 2,000sq km in the western region of Arnhem Land. When combined with tenements held 100% by NADL, the total project area covers in excess of 26,500sq km in the Arnhem Land region of the Northern Territory. The project area covers thirty-nine separate tenements of which thirteen are currently held under veto status. These tenements have in part been held by DBAE since 1979, however due to veto restrictions imposed by Aboriginal groups, no exploration has been conducted. Four of the tenements, totaling 1,800sq km, are available for immediate exploration.

Uranium Exploration

Top End Uranium Ltd. (ASX: TEU) is a uranium focused exploration company that controls, through farm-?in arrangements with NADL, one of the largest portfolios of highly prospective exploration tenements in the Northern Territory, Australia. Its tenement holding covers an area aggregating approximately 33,400sq km across three project areas, Arnhem Land Project Area, Yambarra Project Area and the McArthur South Project Area. NAD has retained 31% of the issued capital in Top End in accordance with the terms of the Mineral Rights Agreement, whereby NADL assigned to Top End the non-?diamond mineral rights to its tenements.

Yambarra Project

The Yambarra Project area comprises a large mostly contiguous land holding located within a major tectonic zone that links the Pine Creek Orogen; one of Australia’s richest mineral fields, to the Halls Creek Mobile Belt that is also host to major mineral occurrences. The Yambarra Project consists of 10 exploration tenements, 5 of which are granted and with approvals in place for work programs allowing general reconnaissance and ground survey work.

The Company has a farm-?in agreement with Rio Tinto to earn 100% interest for uranium in tenements in the Daly River region of the Northern Territory. These tenements have a total project area of 9,100sq km.

Door Creek Uranium Anomaly

The Door Creek Uranium anomaly extends for a distance of almost 5km and is associated with a drainage emanating from the nearby Tom Turner fault, which, in this area, coincides with the unconformity between the Fitzmaurice Group sediments and the underlying older basement rocks. Ground follow-?up of the anomaly which comprised spectrometer traverses and limited auger drilling and sampling was able to confirm the anomaly on the ground. Associated sampling failed to produce anomalous U responses indicating that Radon gas may be responsible for the anomaly. However, a water sample from a spring at the headwaters of Door Creek reported 29 ug/l of uranium in a background of 0.04 ug/l. To identify potential host rocks from which the Door Creek uranium anomaly could be derived, Top End Uranium Ltd undertook a VTEM airborne geophysical survey in 2008. A total of 5 conductor targets were identified, one of which lies at the headwaters of the drainage containing the ‘Door Creek’ radiometric anomaly. The most significant of these conductors lies some 2.5km to the north west of the fault and may represent a discrete conductive unit estimated to be at a depth of less than 100 metres. The close proximity of this anomaly to the Tom Turners Fault is very significant as this is a geological setting that is consistent with the setting of unconformity type uranium mineralisation elsewhere in the Northern Territory. A soil sampling program comprising 93 samples has been completed over the source point of the airborne anomaly, which is some 600m from the Tom Turner fault and removed from the drainage. The samples have been despatched for analysis and results are awaited.

Arnhem Land Project

The Arnhem Land Project Area lies within a region that is host to significant and in some instances world class unconformity related uranium related mineralisation. The company has rights to all minerals other than diamond for 37 tenements comprising an area of approximately 23,000sq km. The Arnhem Land tenements are on land subject to the Aboriginal Land Rights Act. The company now has access to 9 granted tenements, with a further 3 tenements recommended for grant. Work program meetings with the Northern Land Council are ongoing and will enable the Company to conduct additional ground activities.

Anomalous Gold Results: Reconnaissance stream geochemical sampling was completed on granted exploration licences EL10229, 25976, and 26206 in early 2010. Highly anomalous gold assays up to 122ppb were reported in 3 samples, against a background of 10ppb. Validation and follow-?up samples were collected but the highly anomalous results were not repeated to the same degree but the drainage does report elevated gold responses compared to other drainages in this area. Further sampling is planned. Mineralisation with a gold, uranium and palladium association has been reported previously by other explorers from two separate locations within this geological province the closest being some 100km distant from the company’s recent sampling activities. Rock chip samples taken by those earlier explorers reported assays of up to 5.8% U3O8, 38.1 g/t Au and 28.02 g/t Pd. These results provide encouragement and demonstrate a regional association of mineralisation with structurally disturbed mafic rocks, of which there are known occurrences within granted TEUL tenements. Further follow-?up sampling will be undertaken when results from recently collected samples are received and assessed.

Anomalous Pb-Zn: Reconnaissance stream sediment samples collected during the previous quarter have highlighted two areas with anomalous Pb-Zn and anomalous Zn respectively. Follow-?up of these anomalous results has been completed with the collection of 26 stream sediment samples. Results are awaited.

Reconnaissance Sampling: Reconnaissance stream sediment sampling has been completed on a further 3 granted tenements with 55 samples collected and submitted for analysis. Results are awaited.

McArthur South Project

The McArthur South Project consists of 8 exploration tenements, totalling approximately 2,000sq km all of which are granted. The company has been targeting interpreted structures intersecting the unconformity between the Seigal Volcanics and the underlying Westmoreland Conglomerate in the Puzzle Creek area. This is a well established geological setting for uranium mineralization in the Westmoreland area, located 120km to the east. The company is using the RadonX survey technique, which is a refinement of the Radon-?on-?activated-?charcoal technique developed by the South African Atomic Energy Corporation in the 1970’s. A number of anomalous Radon gas responses were highlighted in the initial RadonX survey with the most promising responses being followed up by soil geochemical sampling. Detailed follow-?up soil geochemical sampling revealed one of the radon gas anomalies to be coincident with anomalous soil geochemical responses in the elements U, Th, Cu and constrained to an area approximately 200m by 200m. Access to this area has been restricted due to wet conditions but it is planned drill test the target as soon as ground access permits.

Mine For

diamonds, uranium, gold, lead, zinc

Location of operation(s)

Northern Territory

Address

Level 8, 580 St Kilda Rd
MELBOURNE, VIC, AUSTRALIA

Phone

(61 3) 8532 2800

Email

Website

http://www.nadl.com.au/

Last Updated

3/3/2011