THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you LR 13.3.

1(4)

are in any doubt as to the action you should take, you should consult your stockbroker, bank manager,
solicitor, accountant or other professional adviser authorised under the Financial Services and
Markets Act 2000 immediately.

If you have sold or otherwise transferred all of your Shares, please send this document, together with LR 13.3.1(6)

the accompanying Form of Proxy, at once to the purchaser or transferee, or to the stockbroker, bank
or other agent through whom the sale or transfer was effected for transmission to the purchaser or
transferee.

Gem Diamonds Limited LR 13 Annex 1

(PR App. 3,
Incorporated in the British Virgin Islands under the International Business Companies Ordinance Cap.291 of the British
Annex I, item
Virgin Islands with registered number 669758 and automatically reregistered under the BVI Business Companies Act 2004
5.1.1)
on 1 January 2007

Proposed acquisition of Kimberley Diamond Company NL

and Notice of Extraordinary General Meeting
This document should be read as a whole. Your attention is drawn to the letter from the Chairman of
Gem Diamonds which is set out on pages 3 to 8 of this document and which recommends you to vote
in favour of the Resolution to be proposed at the Extraordinary General Meeting referred to below.

Notice of an Extraordinary General Meeting of Gem Diamonds Limited to be held at Linklaters LLP, One
Silk Street, London EC2Y 8HQ, United Kingdom at 3.30 p.m. on 16 October 2007 is set out at the end of
this document.

A Form of Proxy for use at the Extraordinary General Meeting is enclosed for Shareholders and, to be valid,
should be completed, signed and returned so as to be received by Capita Registrars, The Registry, 34
Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible but, in any event, so as to arrive no later
than 3.30 p.m. on 14 October 2007. Completion and return of a Form of Proxy will not prevent members
from attending and voting in person should they wish to do so.

A Form of Direction is enclosed for holders of Depository Interests in CREST to instruct the Depositary how
to vote. To be valid, the Form of Direction should be completed, signed and returned so as to be received by
Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU as soon as possible but,
in any event, so as to arrive no later than 3.30 p.m. on 13 October 2007.

For a discussion of certain risk factors which should be taken into account when considering what
action you should take in connection with the Extraordinary General Meeting, please see Part II “Risk
Factors”.

JPMorgan Cazenove Limited, which is authorised and regulated in the United Kingdom by the Financial
Services Authority, is acting for Gem Diamonds Limited and no-one else in connection with the Acquisition
and will not be responsible to any other person other than Gem Diamonds Limited for providing the
protections afforded to clients of JPMorgan Cazenove Limited nor for providing advice in relation to the
Acquisition.

Gresham Advisory Partners Limited, which is regulated in Australia by the Australian Securities and
Investments Commission, is acting for Gem Diamonds and no-one else in connection with the Acquisition
and will not be responsible to anyone other than Gem Diamonds for providing the protections afforded to
customers of Gresham Advisory Partners Limited, nor for providing advice in relation to the Acquisition.
 CONTENTS
PAGE

Part I: Letter from the Chairman of Gem Diamonds 3

Part II: Risk Factors 9

Part III: Acquisition Documentation 16

Part IV: Financial Information on Kimberley 24

Part V: Pro Forma Financial Information 100

Part VI: Additional Information 106

Part VII: Mineral Expert’s Report 116

Part VIII: Documentation Incorporated by Reference 245

Part IX: Definitions 246

Notice of Extraordinary General Meeting 252

Throughout this document, except as otherwise stated, the US$ equivalents of amounts stated in A$ have
been provided as a guide to Shareholders using an exchange rate of US$1 to A$1.152, being the closing mid-
point on 25 September 2007 as published in the Financial Times on 26 September 2007.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Latest time and date for receipt of Forms of Direction 3.30 p.m. 13 October 2007

Latest time and date for receipt of Forms of Proxy 3.30 p.m. 14 October 2007

Extraordinary General Meeting 3.30 p.m. 16 October 2007

Expected closing date for the Takeover Bid 5.00 p.m. (Perth, Australia
time) 2 November 2007

All times shown in this document are London times unless otherwise stated

2
 PART I

LETTER FROM THE CHAIRMAN OF GEM DIAMONDS

(incorporated in the British Virgin Islands under the International Business Companies Ordinance
Cap.291 of the British Virgin Islands with registered number 669758 and automatically
reregistered under the BVI Business Companies Act 2004 on 1 January 2007)

Harbour House
Waterfront Drive
Road Town, Tortola
British Virgin Islands

27 September 2007

To Shareholders and, for information only, the Bondholders and the holders of options under Gem
Diamonds’ ESOP

Dear Shareholder

Proposed acquisition of Kimberley Diamond Company NL (“Kimberley”)

1. Introduction
On 19 July 2007, Gem Diamonds announced the terms of the Takeover Bid to acquire all of the issued and LR 10.4.1(2)(a)

to-be-issued share capital of Kimberley, an independent ASX and AIM listed diamond producer operating LR 13.3.1(1)

the Ellendale Diamond Mine in Western Australia. The Takeover Bid is being undertaken by Gem Diamonds,
through its wholly-owned subsidiary Gem Diamonds Australia. Under the terms of the Acquisition, the
Takeover Bid values each Kimberley Share at A$0.70 (US$0.61) and values the entire issued share capital
of Kimberley at approximately A$300 million (US$260,416,667). The Offer Document was posted on 16
August 2007 and the Offer Period is scheduled to close on 2 November 2007 (unless extended or the
Takeover Bid is withdrawn). The Acquisition is unanimously recommended by the board of Kimberley and
is conditional, inter alia, on Gem Diamonds Australia having relevant interests in at least 90 per cent of the
Kimberley Shares at the end of the Offer Period. For further details of the terms of the Acquisition, please
refer to Part III “Acquisition Documentation”.

Gem Diamonds will finance the Acquisition from existing cash reserves. LR 10.4.1(2)(c)

The purpose of this document is to (i) explain the background to and reasons for the Acquisition, (ii) provide LR 13.3.1(3)

you with information about Kimberley, (iii) explain why the Directors unanimously consider the Acquisition LR 13.3.1(5)

to be in the best interests of the Shareholders as a whole and (iv) recommend that you vote in favour of the
Resolution to acquire Kimberley to be proposed at the Extraordinary General Meeting.

2. Background to and reasons for the Acquisition

Gem Diamonds is a diamond mining company with a balanced portfolio of a producing kimberlite mine, two
producing alluvial mines and a number of development projects and long-term prospects. Established in July
2005, Gem Diamonds is pursuing an accelerated growth strategy and aims to become one of the world’s
leading diamond companies. Gem Diamonds currently has one producing kimberlite mine, Lets̆eng, in
Lesotho, two producing alluvial mines – Cempaka in Indonesia and Mbelenge in the DRC, a kimberlite LR13.3.1(1)

development project in Botswana, three development projects in the DRC, one in the CAR and an option to
develop the Chiri kimberlite concession in Angola.

Kimberley is an independent ASX and AIM listed diamond producer operating the Ellendale Diamond Mine
in Western Australia. Diamonds recovered from the Ellendale Diamond Mine include diamonds of gem and
near gem quality, as well as rare and highly valuable fancy yellow diamonds.

3
The Acquisition will be Gem Diamonds’ third acquisition since the Company listed on the London Stock
Exchange in February 2007 and its largest to date. The Board believes that Kimberley presents a strong
strategic fit within Gem Diamonds; both with the geographic diversification it contributes to the Group (the
mine being located in a first world country with limited political risk) as well as with its high value fancy
yellow diamond production. Gem Diamonds’ management believe there is significant scope to improve
operations at the Ellendale Diamond Mine to enhance this asset’s returns. The Ellendale Diamond Mine
brings a fourth producing asset to the Gem Diamonds portfolio and takes Gem Diamonds a step closer to its
ambition of becoming one of the world’s leading diamond companies.

In view of the size of the Acquisition, the Acquisition is conditional on the approval of Shareholders. This LR 13.3.1(2)

will be sought at an EGM of the Company to be held at Linklaters LLP, One Silk Street, London EC2Y 8HQ,
United Kingdom at 3.30 p.m. on 16 October 2007. A notice convening the EGM is set out at page 252 of
this document.

3. Information on Kimberley
Established on 29 September 1993, Kimberley is an Australian public no liability company which listed on LR 10.4.1(2)(b)

ASX on 4 January 1994 and on AIM on 28 July 2006.

Headquartered in Perth, Kimberley’s main activity is the mining of and exploration for diamonds at its 100
per cent owned Ellendale Diamond Mine in the Kimberley region of Western Australia, approximately
2,500km north north-east of Perth. The mine is currently in production and concentrates on two lamproite
pipes, known as Ellendale 4 and Ellendale 9, by means of open pit mining methods. Production comprises a
high proportion of gem and near-gem diamonds with an important component of fancy yellow diamonds. To
date, in excess of 870,000 carats of diamonds have been recovered from mining over 12 million tonnes of
lamproites. As at 30 June 2007, the combined annualised plant throughput was approximately 6.5Mtpa. The
Directors believe that potential exists to increase production at the Ellendale Diamond Mine substantially
over the next few years.

The Ellendale Diamond Mine’s main mining lease covers an area of 12,430 hectares. Kimberley acquired
the Ellendale Mining Lease in April 2002 and mining operations commenced in July 2002. Diamond
production has increased significantly since 2002, when approximately 52,000cts were produced. For the
year ended 30 June 2007, approximately 380,000cts were produced.

During the first half of 2007, the Ellendale Diamond Mine continued its production ramp-up with the
objective of achieving long-term, consistent production levels. This represented the culmination of five years
of infrastructure and mining development, amounting to a total investment of approximately A$150 million.

Following the completion of several staged expansions, at the date of this document the Ellendale Diamond
Mine comprises two separate mining and production centres. Ellendale 9 (approximately 45 hectares) has
two processing facilities, the 380tph East Plant (commissioned in 2003) and 100tph West Plant
(commissioned in 2002), while Ellendale 4 (approximately 76 hectares), located approximately 15km to the
south-east, has the 600tph South Plant (commissioned in late 2006).

The table below is a mineral resource statement (inclusive of ore reserves) for the Ellendale Diamond Mine
as at 31 July 2007 and has been extracted without material adjustment from the Mineral Expert’s Report
prepared by Venmyn set out in Part VII “Mineral Expert’s Report”.

4
 Bottom
Recovered screen size
Resource grade cut-off Value
Source classification Tonnage (cpht) Carats (mm) (US$/ct)
Ellendale 4 7,486,000 11.1 829,700 1.2 103
Ellendale 9 West Measured 3,486,000 6.6 229,600 1.2 215
Ellendale 9 East 308,000 5.8 18,000 1.2 380
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
Total measured 11,280,000 9.6 1,077,300 1.2 131
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
Ellendale 4 7,646,000 9.0 688,700 1.2 103
Ellendale 4 Satellite Indicated 9,372,000 5.6 521,000 1.2 150
Ellendale 9 West 7,923,000 5.8 461,000 1.2 215
Ellendale 9 East 2,854,000 5.2 147,200 1.2 380
Stockpiles 1,715,000 4.7 80,600 1.2 197
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
Total indicated 29,510,000 6.4 1,898,500 1.2 169
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
Ellendale 4 14,760,000 7.2 1,056,900 1.2 103
Ellendale 4 Satellite Inferred 6,649,000 9.2 612,000 1.2 150
Ellendale 9 West 3,794,000 6.5 247,000 1.2 215
Ellendale 9 East 7,732,000 5.0 385,200 1.2 380
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
Total inferred 32,936,000 7.0 2,301,100 1.2 174

Total resources
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
73,725,000 7.2 5,276,900 1.2 163

Notes:
––––––––– ––––––––– ––––––––– ––––––––– –––––––––
1. Resources depleted to 31 July 2007.
2. The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to define grade.
3. For the resource, diamonds were recovered in the 1.2 to 14mm range.
4. Rounding of tonnes to the nearest 1,000 tonnes and nearest 100 carats may result in computational discrepancies in the statement.
5. Ellendale 4 resource is quoted at 5.5cpht minimum cut-off, Ellendale 9 West resource quoted at US$6/t (equivalent of 3cpht)
minimum cut-off, Ellendale 9 East resource quoted at US$6/t (equivalent of 1.6cpht) minimum cut-off, Ellendale 4 Satellite and
Stockpile resources quoted at 0cpht minimum cut-off.
6. Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in production plants.
7. Ellendale 4 resource to ±130m below the original surface, Ellendale 9 resource to ±180m below the original surface. Ellendale
4 Satellite to ±220m below the original surface.
8. Ellendale 4 Satellite modelled in plane and section, grades estimated manually.
9. All UBX (breccia) material has been classified as Inferred Mineral Resource, due to the inherent uncertainties concerning the
grade distribution within this lithology.
10. The resource classification complies with the JORC Code.

As outlined above, the average value of diamonds recovered from the Ellendale Diamond Mine is US$163/ct
but those diamonds from the Ellendale 9 East source are valued at US$380/ct. These high value diamonds
will, in particular, complement Gem Diamonds’ current production at Lets̆eng and Cempaka.

Kimberley also has a 39.14 per cent interest in Blina, an ASX listed company. Blina has several alluvial
diamond prospects on properties surrounding the Ellendale Mining Lease area. Blina is also responsible,
through a joint venture agreement with Kimberley, for all exploration and development of alluvial prospects
on the area covered by the Ellendale Mining Lease. Blina was demerged from Kimberley in 2004. Kimberley
maintained a controlling interest after the demerger, but has since reduced its shareholding to the current
level.

For the 12 months ended 30 June 2007, Kimberley reported revenues of A$63.5 million, EBITDA loss of LR 10.4.1(2)(d)

A$13.7 million and loss before tax of A$32.1 million. As at 30 June 2007, Kimberley had gross assets of LR 10.4.1(2)(e)

A$238.2 million. The financial information set out in this paragraph has been extracted without material LR 13.5.11

adjustment from Part IV “Financial Information on Kimberley”. Shareholders should read the whole of this
document and should not rely solely on the summarised financial information set out above.

5
Due to Kimberley's working capital position the last published financial information for the year ended LR 13.4.2

30 June 2007 contained a modification relating to Kimberley’s ability to continue as a going concern.
However, the Directors believe that this modification will not be significant to Shareholders as a result of the
greater financial resources of Gem Diamonds and, accordingly, the Directors consider that they are able to
recommend Shareholders to vote in favour of the Resolution. Further details of this modification are outlined
in note 1.1(a) to the Kimberley consolidated financial statements for the three years ended 30 June 2007 in
Part IV “Financial Information on Kimberley”.

Whilst the Directors consider the acquisition of Kimberley to be a strong strategic addition to Gem
Diamonds’ portfolio, as with any other mining operation, in addition to the general risks associated with the
mining industry, there are certain risks specifically associated with the Ellendale Diamond Mine. In
particular these include the risk of the local wet season affecting overall production levels and possible
increases in the percentage of operating income payable by way of royalty to the State of Western Australia.
For further details of these and other risks please refer to Part II “Risk Factors”.

4. Financial effects of the Acquisition

The completion of the Acquisition will result in a cash outflow of approximately A$310 million LR 13.4.1(5)

(US$269,097,222 million), being approximately A$300 million (US$260,416,667 million) for the
Acquisition and A$10 million (US$8,680,556 million) for the Working Capital Loan Facility provided by
Gem Diamonds to Kimberley. The Acquisition and the Working Capital Loan Facility will be funded through
existing funds and it is expected that the Acquisition will have no significant impact on the consolidated net
assets of the Group. After completion of the Acquisition, Gem Diamonds will undertake an exercise to fair
value the identifiable assets and liabilities acquired. Any purchase consideration in excess of the net fair
value of identifiable assets and liabilities will be recognised as either a mining asset or goodwill. The
Directors expect that the Enlarged Group will continue to generate strong operational cash flows. This is not
intended to qualify the statement made as to sufficiency of working capital on page 114.

The Directors believe that, following an appropriate capital injection and with Gem Diamonds’ technical and
marketing expertise being made available, the Acquisition will, in due course, be earnings and cash flow
accretive to the Enlarged Group. In addition, the Directors believe that the Acquisition will strongly enhance
Gem Diamonds’ strategic position, significantly increase the Group’s production and at the same time, serve
Gem Diamonds ’ pursuit of an accelerated growth strategy and aim to become one of the world’s leading
diamond companies.

Nothing in the preceding statements should, however, be interpreted to mean that the earnings per share of
the Enlarged Group, for the coming or future financial years, will necessarily be lower, match or exceed the
historic published earnings per Gem Diamonds share.

As at 30 June 2007, the Group had net assets of US$860.3 million1 (extracted, without material adjustment
from the Gem Diamonds Interim Report, parts of which have been incorporated by reference into this
document as described in Part VIII “Documentation Incorporated by Reference”). Following completion of
the Acquisition, the pro forma net assets of the Enlarged Group as at 30 June 2007 would have been LR 10.4.1(2)(f)

US$881.3 million2 (extracted, without material adjustment from the Unaudited Pro Forma Balance Sheet for
the Enlarged Group as set out in Part V “Pro Forma Financial Information”).

The Directors expect the Acquisition to result in ongoing annual cost savings. These cost savings are
expected to result from:
• the delisting of Kimberley from ASX and AIM;
• restructuring of the corporate overhead and related synergies;
• improving processing methods and throughput;
• restructuring and re-financing existing finance facilities to better suit Kimberley’s working capital
requirements; and
1 Unaudited
2 Unaudited

6
• the introduction of planned and ongoing maintenance rather than periodic maintenance which causes
unnecessary and lengthy disruptions to production.

Shareholders should read the whole of this document and should not rely solely on the key or summarised
financial information set out above.

5. Trend information

Gem Diamonds LR 13 Annex 1,

(PR App 3,
On 13 September 2007, Gem Diamonds published the Gem Diamonds Interim Report which contained the
Annex I, item 12)
following statements:

“The Group’s 2007 Interim Results reflect a strong performance from its 70 per cent owned subsidiary
Lets̆eng Diamonds where the number of carats sold and prices achieved have improved significantly and
consequently the Group is able to report a net profit to shareholders in its first six months since listing on the
London Stock Exchange in February this year.”

“Revenue earned of US$69.8 million was predominantly from diamond sales at Lets̆eng Diamonds where
39,204 carats of diamonds were sold at an average price per carat of US$1,776. Whilst diamonds were
recovered at operations in the DRC and Indonesia; diamond sales from these operations only occurred after
the period end.”

“During the period US$106.4 million was applied to the acquisition of new assets, Gope and BDI Mining.
US$32.1 million was invested in property, plant and equipment at existing operations and US$14.8 million
of loans and receivables were granted to associates in the DRC.”

“The Group enters the second half of the year with a cash resource of US$524 million.”

Between the publishing of the Gem Diamonds Interim Report and the date of this document, the Directors
believe that Gem Diamonds has continued to perform broadly in line with management’s expectations.

Looking forward, there are various commitments that are expected to impact upon the cash resources and
assets of the Group. In particular, on 15 August 2007, Gem Diamonds entered into the Woodlark Share
Purchase Agreement and the Woodlark Intangible Asset Purchase Agreement in relation to the disposal of its
interest in Woodlark. In addition, the Company has approved the commitment of approximately US$16
million for capital expenditure at Cempaka.

Kimberley
On 14 September 2007, Kimberley released its audited financial information for the financial year ended 30
June 2007. Since 30 June 2007, the Directors believe that sales and production have remained in line with
Kimberley’s management’s expectations.

6. Terms of the Acquisition

Information in relation to the Offer Document and a summary of the Transaction Agreements are set out in LR 10.4.1(2)(a)

Part III “Acquisition Documentation”.

On 19 July 2007, the Company entered into the Implementation Agreement with Kimberley outlining the
principal terms of the Acquisition. Shareholders should note the following two key terms of the
Implementation Agreement, which are outlined in more detail in Part III “Acquisition Documentation”.

Working Capital Loan Facility

In order to assist Kimberley with meeting its working capital requirements during the Offer Period, Gem
Diamonds has provided to Kimberley a facility of A$10 million (US$8,680,556) (which was drawn down in
full on 11 September 2007). The Working Capital Loan Facility is repayable by Kimberley within 60 days
of the Offer Period closing.

7
Break fee
Gem Diamonds has agreed with Kimberley that Kimberley will pay to Gem Diamonds a break fee of A$2
million if certain agreed events occur following the Announcement Date including, inter alia:

• any Kimberley director recommending, promoting or otherwise endorsing any proposal competing
with or materially prejudicing the prospects of the Takeover Bid succeeding; or

• Kimberley materially breaching the exclusivity provisions, or any other material provisions, of the
Implementation Agreement.

7. Extraordinary General Meeting

Completion of the Takeover Bid is conditional upon Shareholders’ approval being obtained at the
Extraordinary General Meeting. Accordingly, you will find set out at the end of this document a notice
convening an Extraordinary General Meeting to be held at Linklaters LLP, One Silk Street, London EC2Y
8HQ, United Kingdom at 3.30 p.m. on 16 October 2007 at which the Resolution will be proposed to approve
the Acquisition.

8. Action to be taken
You will find enclosed a Form of Proxy for use at the Extraordinary General Meeting. Whether or not you
intend to be present at the Extraordinary General Meeting, you are requested to complete the Form of Proxy
in accordance with the instructions printed on it and return it as soon as possible and in any case so as to be
received by Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, no later than
3.30 p.m. on 14 October 2007. The return of a Form of Proxy will not prevent you from attending the
meeting and voting in person if you wish.

Holders of Depository Interests in CREST will find a Form of Direction enclosed. You are requested to
complete the Form of Direction in accordance with the instructions printed on it and return it as soon as
possible and, in any case, so as to be received by Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU no later than 3.30 p.m. on 13 October 2007.

9. Further information
Your attention is drawn to the further information contained in Parts II to IX and, in particular, to the risk
factors in Part II “Risk Factors”.

10. Recommendation
The Board, which has received financial advice from JPMorgan Cazenove Limited and Gresham Advisory LR 13.3.1(5)

Partners Limited, considers the Acquisition to be in the best interests of Gem Diamonds and Shareholders as
a whole. In providing advice to the Board, JPMorgan Cazenove Limited and Gresham Advisory Partners
Limited have relied on the Directors’ commercial assessment of the Acquisition.

Accordingly the Board unanimously recommends that Shareholders vote in favour of the Resolution to be
proposed at the EGM, as the Directors intend to do in respect of their own beneficial holdings which amount
to 10,675,656 Shares, representing approximately 17.1 per cent of the Company’s existing issued ordinary
share capital.

Yours faithfully

Roger Davis
Chairman

8
 PART II

RISK FACTORS
Prior to making any decision to vote in favour of the proposed Resolution at the Extraordinary General LR 13 Annex 1

Meeting, Shareholders should carefully consider, together with all other information contained in this (PR App 3,

document, the specific factors and risks described below. Gem Diamonds considers the following to be the Annex I, item 4)

most significant risk factors for Shareholders to consider. The risks described below do not necessarily LR 13.3.1(1)

comprise all those associated with Gem Diamonds and/or Kimberley and are not set out in any particular
order of priority. There may be other risks of which the Board is not aware or which it believes to be
immaterial which may, in the future, be connected to the Acquisition and have an adverse effect on the
business, financial condition, results or future prospects of the Enlarged Group after the Acquisition.

RISKS RELATED TO THE ACQUISITION

Risks in relation to the Ellendale Diamond Mine

Mining can only be undertaken at the Ellendale Diamond Mine during the local dry season
Due to the regional wet season, mining is only undertaken at the Ellendale Diamond Mine between mid-
March and mid-December. The plants at the Ellendale Diamond Mine do, however, continue to process ore
throughout the year.

During the wet season, stockpiles created from excess ore mined during the dry season are processed at the
plants. In order to ensure year-round production, it is necessary that the dry season mining operations
produce sufficient amounts of excess ore which can be stockpiled and processed during the wet season.
There can be no guarantee that mining operations at the Ellendale Diamond Mine will continue to recover
sufficient ore to ensure ongoing production throughout the year. Furthermore, if the Acquisition is approved,
it is likely that Gem Diamonds will only take management control of the Ellendale Diamond Mine at the
start of the 2007 wet season. Although Kimberley is required to conduct operations in the usual and ordinary
course consistent with past practice during the Takeover Bid process, there can be no assurance that sufficient
excess ore will have been stockpiled by the current management to ensure continued production through the
forthcoming wet season. In addition, certain access roads to the Ellendale Diamond Mine are closed to heavy
vehicles and others often become impassable by any vehicles during the wet season which makes it difficult
to transport the workforce and necessary supplies to the area during this period. Damage to roads during the
wet season requires significant repair in order to prepare them for the dry season which will result in annual
costs being incurred by the Enlarged Group. An unexpectedly prolonged wet season and/or any delay in
repairing the access roads may result in mining operations recommencing later than expected at the end of
a wet season. This could cause a protracted period for mining and therefore have an adverse effect on
revenues for that period.

The royalty currently paid in relation to the Ellendale Diamond Mine has not been legally formalised and
may be increased
Diamond royalties payable to the State of Western Australia are currently legislated at 7.5 per cent of the
gross operating income. The Argyle diamond mine, also in Western Australia, has however renegotiated this
royalty to 5 per cent of its revenue. On the basis of this arrangement, Kimberley has entered into negotiations
with the State of Western Australia to reduce the royalty payable so as to be in line with the Argyle diamond
mine and in the interim has been operating under a reduced royalty of 5 per cent since 1 January 2006. The
State of Western Australia has consented to this reduced royalty conditional upon certain factors, not all of
which are either within Kimberley’s control or, where relevant, being complied with by Kimberley. Given
that appropriate legislation has not been implemented to give effect to this decreased royalty there can be no
guarantee that the State of Western Australia will enact formal legislation in relation to such arrangements.
Furthermore, Kimberley currently has no arrangements in place to fund any amounts it may be obliged to
pay to the State of Western Australia in relation to the difference between the 5 per cent royalty currently

9
being paid and the royalty that would have been payable at a rate of 7.5 per cent, which sums would currently
need to be funded by Kimberley itself.

The ability to realise the projected valuation of the Ellendale Diamond Mine is dependent on a number of
industry factors and assumptions, some of which are outside the Group’s control
The diamond resources at the Ellendale Diamond Mine, as outlined in Part I “Letter from the Chairman of
Gem Diamonds” and Part VII “Mineral Expert’s Report”, are predominantly in the indicated or inferred
class. There is no guarantee, that as mining operations progress, the recovered grades will meet the predicted
levels. Furthermore, the Ellendale Diamond Mine was evaluated using figures from historical production and
forecast price increases. There can be no assurance that these estimates and forecasts are correct or that
unforeseen events will not impact negatively on these elements; for example, a pit optimisation review will
be undertaken at the Ellendale Diamond Mine following completion of the Acqusition, which might impact
upon the expected rate of resource to reserve conversion (currently estimated at approximately 70 per cent
in the Mineral Expert’s Report contained in Part VII “Mineral Expert’s Report”). In addition, the Directors
anticipate that the modifications which are intended to be made to the plants at the Ellendale Diamond Mine
will achieve the forecast increased throughput levels. Gem Diamonds has only been able to base these
intended modifications on a limited number of inspections and no detailed designs or plans have been
completed. As such, there can been no guarantees that the increases forecast for production and throughput
have been estimated correctly, which could therefore result in the Ellendale Diamond Mine not achieving the
targets planned by Gem Diamonds.

Integration of Kimberley
There can be no assurance that the Group will successfully integrate Kimberley into its existing operational
structure. There are risks associated with diversion of management’s attention from other aspects of the
business, unanticipated events or liabilities, and difficulties in relation to retaining key personnel or
assimilating operations.

Conditions to the Acquisition

The Takeover Bid is subject to a number of conditions (which are set out in Part III “Acquisition
Documentation”), in particular, the approval of Gem Diamonds’ Shareholders. There is a risk that this
approval may not be received and that the Acquisition may not complete.

In addition, the Takeover Bid is subject to Gem Diamonds having a relevant interest in at least 90 per cent
of the Kimberley Shares (on a fully diluted basis calculated assuming that all outstanding Options are
exercised) at the end of the Offer Period. There is a risk that insufficient acceptances of the Offer will be
received to satisfy this condition by the end of the Offer Period. Whilst this condition may be waived by Gem
Diamonds, a risk exists that the final level of ownership acquired will be less than 90 per cent, which could
have an impact on Gem Diamonds’ intentions regarding Kimberley.

Third party consents arising from the change of control

Kimberley is party to agreements (including financing agreements) with third parties which, without
appropriate consent, contain termination and review rights in favour of the counterparties to the agreements
in the event of a change of control of Kimberley. Whilst Gem Diamonds expects the relevant consents to be
granted for a change of control of Kimberley, if these third party consents cannot be obtained on favourable
terms, the Enlarged Group may suffer a loss of potential future revenues or cash outflows.

RISKS RELATED TO GEM DIAMONDS AND, FOLLOWING COMPLETION, THE

ENLARGED GROUP

The business of mining diamonds involves a number of risks and hazards, not all of which are fully
covered by insurance
The mining business is subject to risks and hazards, many of which are outside the Group’s control. These
risks include environmental hazards, industrial accidents, fires, the encountering of unusual or unexpected
geological formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or

10
hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral
properties or production facilities, personal injury or death, environmental damage, reduced production and
delays in mining, asset write-downs, monetary losses and possible legal liability.

Although the Group maintains insurance in an amount that it considers to be adequate, liabilities might
exceed insurance policy limits, in which event the Group could incur significant costs that could materially
and adversely affect its results of operations. Insurance fully covering many environmental risks (including
potential liability for pollution or other hazards as a result of disposal of waste products occurring from
exploration and production) is not generally available to the Group or to other companies in the mining
industry. The realisation of any significant liabilities in connection with the Group’s mining activities as
described above could have a material adverse effect on its results of operations or financial condition.

The profitability of the Group’s operations is highly dependent on diamond prices

The profitability of any diamond mining operations in which the Group is interested, or whether such
operations or prospects are or continue to be economic, will be significantly affected by changes in the
market price of rough diamonds. Prices have varied and do vary for different sizes and qualities of diamonds,
dependent ultimately upon consumer demand for polished goods. This demand, driven by many variables
including personal sentiment, marketing spend and acceptable profit margins, influences the price
relationship between rough and polished diamonds in a complex manner.

The availability of a ready market for rough diamonds to be sold by the Group depends upon numerous
factors beyond the Group’s control, the exact effects of which cannot be accurately predicted. These factors
include, inter alia: general economic activity, world diamond prices, action taken by other diamond
producing countries or business entities, speculative activity, consumer demand for and perception of
diamonds, the availability and pricing of other substitute minerals (including synthetic diamonds), and the
extent of governmental regulation and taxation. The aggregate effect of these factors is impossible to predict.

The Group’s future performance will be affected by its ability to realise its existing reserves base, convert
resources into reserves and mineralised potential into resources, and conduct successful exploration
To extend the lives of its mines and projects, ensure the continued operation of the business and realise its
growth strategy, it is essential that the Group continues to realise its existing identified reserves, convert
resources into reserves, develop its resource base through the realisation of identified mineralised potential,
undertake successful exploration and acquire new resources.

The Group’s mineral reserves and resources constitute estimates that comply with standard evaluation
methods generally used in the international mining industry. In respect of these estimates, no assurance can
be given that the anticipated revenues, tonnages and grades will be achieved, that the indicated level of
recovery will be realised or that the alluvial and kimberlitic resources can be mined or processed profitably.
Reserve data are not indicative of future results of operations.

The Group’s business requires substantial capital expenditure

The mining business is capital intensive and the development and exploitation of alluvial and kimberlitic
reserves and the acquisition of machinery and equipment require substantial capital expenditure. The Group
has a number of development projects and prospects, as well as plans for its existing operations and
Kimberley, which involve significant capital expenditure. Some of the Group’s development projects and
prospects may require greater investment than currently planned. In addition, there can be no guarantee that
costs incurred by the Group in exploring and evaluating potential targets will be translated into revenue
producing assets. Although the Company is of the opinion that, taking into account the facilities available to
the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements, that is,
for at least the next 12 months from the date of this document, there can be no assurance that in the longer
term the Group will be able to maintain its production levels and generate sufficient cash flow, or that the
Group will have access to sufficient investments, loans or other financing alternatives, to continue its
exploration, exploitation, development and processing activities at or above present levels.

11
An increase in the Group’s production costs could materially and adversely affect its profitability
Changes in the Group’s production costs could have a major impact on its profitability. Its main production
expenses are contractor costs, materials, personnel costs and energy. Changes in the costs of the Group’s
mining and processing operations could occur as a result of unforeseen events, including international and
local economic and political events, and could result in changes in profitability or reserve estimates. Many
of these factors may be beyond the Group’s control.

The Group depends on its key personnel. If the Group is unable to attract and retain key personnel, its
business may be materially and adversely affected
The Group’s business depends in significant part upon the contributions of a number of the Group’s
Executive Directors, Senior Managers and its highly skilled team of engineers and geologists. There can be
no certainty that the services of its key personnel will continue to be available to the Group. If the Group is
not successful in retaining or attracting highly qualified individuals in key management positions and highly
skilled engineers and geologists, its business may be materially harmed.

The Group’s business depends on good relations with its employees and is dependent on external
contractors for elements of its mining and exploration activities
Although the Directors believe the Group’s present relations with both employees and contractors are good,
there can be no assurance that work slowdowns, work stoppages or strikes will not occur at any of the
Group’s operating units or development projects. Any such slowdown, stoppage or strike could have a
significant impact on the Group’s operations if there were delays before replacement contractors could be
brought in.

The Group’s current operations, projects and prospects and Kimberley are located in remote areas and
the Group’s production, processing and product delivery relies on the infrastructure being adequate and
remaining available
The Group’s mining, processing, development and exploration activities depend, to one degree or another,
on adequate infrastructure. The regions where the Group’s current operations, projects and prospects are
located are sparsely populated and difficult to access. The Group requires reliable roads, bridges, power
sources and water supplies to access and conduct its operations and the availability and cost of this
infrastructure affects capital and operating costs and the Group’s ability to maintain expected levels of
production, sales and progress with exploration and prospecting. Unusual weather or other natural
phenomena, sabotage or government or other interference in the maintenance or provision of such
infrastructure could impact development of a project, reduce mining volumes, increase mining or exploration
costs or delay the transportation of raw materials to the mines and projects and diamonds to customers. Any
such issues arising in respect of the infrastructure supporting or on the Group’s properties could materially
and adversely affect the Group’s results of operations or financial condition.

Furthermore, any failure or unavailability of the Group’s operational infrastructure (for example, through
equipment failure at its treatment and processing plant or disruption to its transportation arrangements) could
adversely affect the production output from its mines or impact its exploration activities or development of
a mine or project.

The Group’s joint venture arrangements may not be successful

The Group has entered into joint venture arrangements for certain of its mines, projects and prospects.
Although (save in respect of KDC) the Group has management control of its mines and development
projects, joint venture arrangements necessarily involve special risks associated with the possibility that the
joint venture partners may: (i) have economic or business interests or goals that are inconsistent with those
of the Group; (ii) take action contrary to the Group’s policies or objectives with respect to its investments,
for instance by veto of proposals in respect of the joint venture operations; or (iii) as a result of financial or
other difficulties, be unable or unwilling to fulfil their obligations under the joint venture or other
agreements. Any of the foregoing may have a material adverse effect on the results of operations, financial
condition or prospects of the Group. In addition, the termination of certain of these joint venture

12
arrangements, if not replaced on similar terms, could have a material adverse effect on the results of
operations, financial condition or prospects of the Group.

Delay or failure by the Group to complete its expansion and development projects could have a material
adverse effect on the Group’s growth prospects
The Group is currently undertaking production expansion projects at Lets̆eng and Cempaka and aims to
continue the Kimberley production ramp-up post-Acquisition. Any delays to the construction or
commissioning of the planned expansion facility may delay the expected increase in production and the
associated revenue increases. Furthermore, there can be no guarantee that, once complete, the expansions
will deliver the increase in production expected by the Directors.

Successful completion of the Group’s development projects in Botswana, Angola, the DRC and the CAR is
subject to various factors (including risks related to local infrastructure and transportation to the site), many
of which are outside the Group’s control.

Any delays arising in the implementation of the Group’s DRC and CAR development projects may have a
material adverse effect on the results of operations or financial condition of the Group. Furthermore, there
can be no guarantee when the Group’s development projects have been completed, that the resulting
operations will achieve the anticipated production volumes or whether the costs in developing these projects
will be in line with those anticipated.

The Group faces competition from other mining companies for the acquisition of new diamond assets
The Group is actively seeking to expand its portfolio through the acquisition of new mines, projects or
prospects. There is a limited supply of assets with potential kimberlitic and alluvial resources available in the
areas where the Group would consider conducting exploration and/or production activities and which meet
the Group’s investment criteria. Because the Group faces competition for such assets from other mining
companies, some of which may have greater financial resources than the Group, the Group may be unable
to acquire attractive assets on terms that it considers acceptable. As a result, the Group may not be able to
continue to execute its growth strategy, which will affect the Group’s prospects and which may, over time,
materially and adversely affect its results of operations or financial condition.

If the Group fails to execute or integrate acquisitions successfully, its rate of expansion could slow and
its results of operations or financial condition could suffer
The Group has rapidly expanded its operations through both development and acquisition of new projects,
and the Group expects to continue this strategy in the future. There can be no assurance that the Group will
continue to identify suitable areas, projects, acquisitions and strategic investment opportunities or that any
concession area prospected and explored or business acquired will prove to be profitable at all, or as
profitable as its current operations. In addition, acquisitions and investments involve a number of risks,
including possible adverse effects on the Group’s operating results, diversion of management’s attention,
failure to retain key personnel, risks associated with unanticipated events or liabilities and difficulties in the
assimilation of the operations.

Environmental requirements
The activities of the Group are subject to environmental regulations promulgated by the relevant government
authorities and other agencies from time to time. Environmental legislation generally provides for the
remediation of mining sites, which may require significant capital expenditure.

Whilst the Group has made and will continue to make provision for the amounts required to remediate the
sites of its operations, there can be no assurance that the provisions will be sufficient to cover the actual
remediation costs or the costs of tailings disposal or that amendments to current laws, regulations and
permits governing operations and activities of mining companies, or more stringent implementation thereof,
would not increase costs above the levels currently expected.

13
Fluctuations in currencies may adversely affect the Group’s results of operations and financial condition
The Group’s revenues are earned in US dollars; however, many of the Group’s costs, assets and liabilities are
denominated in other currencies, in particular the Lesotho Maloti, the South African Rand, the Congolese
Franc and the CFA Franc. The Acquisition will mean that the Group incurs costs in Australian dollars.
Management cannot predict the effect of foreign exchange rate fluctuations on the Group’s future operating
results and financial condition and there can be no assurance that exchange rate fluctuations will not have a
material adverse effect on the Group’s business, operating results or financial condition.

Political, regulatory and economic instability

The Group has operations in the Kingdom of Lesotho, Indonesia, the DRC, the CAR and Angola which are
subject to the applicable laws and regulations of these countries. The DRC, the CAR and Angola have
histories of prolonged periods of war and pronounced political and civil unrest. As a result, the Group’s
operations will be exposed to various levels of political risk and regulatory uncertainties, including
government regulations, policies or directives relating to mining and mine safety, foreign investors,
restrictions on production, diamond beneficiation, price controls, export controls, income and other taxes,
nationalisation or expropriation of property, repatriation of income, royalties and environmental legislation.

Relations with landholders and local communities

Access to land for exploration and mining purposes can be affected by land ownership (including private
land, pastoral lease and native title) and relations with local communities and the holders of such land. Whilst
the Group believes it maintains good relations with local communities and landholders generally, it cannot
rule out the possibility of local opposition arising in the future in respect of its existing operations,
development projects or prospects. If the Group were to experience opposition in connection with its existing
operations or current or future projects, it could have a material adverse effect on the Group’s financial
condition or results of operations.

Legal
The Kingdom of Lesotho, the DRC, the CAR, Angola and Indonesia have less developed legal systems than
more established economies. In addition, the commitment of local business people, government officials and
agencies and the judicial system to abide by legal requirements and negotiated agreements may be more
uncertain, creating particular concerns with respect to licences and agreements for business. These may be
susceptible to revision or cancellation and legal redress may be uncertain or delayed.

Local health conditions

HIV/AIDS, malaria and other diseases are prevalent in certain of the areas in which the Group operates.
Current and future employees of the Group may have contracted, or could contract, potentially deadly
viruses and diseases. Increased mortality rates due to diseases and viruses would result in lost employee
man-hours, loss of trained and experienced employees, increased absenteeism, depressed morale and
reduced productivity, in addition to increased recruitment and replacement costs, insurance premiums,
benefits payments and other costs of providing treatment, and could have an adverse effect on the Group’s
business, financial condition or results of operations.

Mining and other licences

The Group’s operations are subject to mining, exploration and development concessions, leases, licences,
approvals, permits and regulatory consents (collectively, the “Authorisations”) from the governments of the
countries where operations are carried out. Whilst the Group believes it has obtained or will obtain all
Authorisations that are currently expected to be material in the context of the Group’s business, there can be
no assurance that it has every necessary or desirable Authorisation, that the Authorisations required to carry
on the Group’s operations will not change or be revoked or withdrawn or that the Group will be able to
successfully enforce its current Authorisations. There can also be no assurance that these Authorisations will
be renewed following their expiry or that the terms of any such renewed Authorisations will be commercially
acceptable.

14
Governments may impose conditions on such Authorisations that may affect the viability of the Group’s
operations, including payment and other obligations. If such obligations are not complied with, this could
have a material adverse effect on the Group’s business, operating results and financial condition.

15
 PART III

ACQUISITION DOCUMENTATION

1. Offer Document

1.1 Document and Parties

Pursuant to the Takeover Bid, Gem Diamonds Australia has offered to acquire the Kimberley Shares
on the terms and subject to the conditions set out below including, save where the context requires
otherwise, any subsequent revision, variation, extension or renewal of such offer.

Pursuant to the terms of the Offer Document, Gem Diamonds Australia proposes to make a separate
offer to acquire the Options.

1.2 Consideration
For each Kimberley Share, the consideration payable by Gem Diamonds Australia is A$0.70
(US$0.61) to be satisfied wholly in cash.

1.3 Conditions
The Takeover Bid will be subject to the following conditions:

1.3.1 Foreign Investment Review Board approval

One of the following occurring:

(a) the Treasurer of the Commonwealth of Australia (the “Treasurer”) advising Gem
Diamonds Australia before the end of the Offer Period to the effect that there are no
objections to the Takeover Bid constituted by the dispatch of the Offers in terms of the
Federal Government’s foreign investment policy; or

(b) no order being made in relation to the Takeover Bid constituted by the dispatch of the
Offers under section 22 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) within
a period of 40 days after Gem Diamonds Australia has notified the Treasurer that it
proposes to acquire the Kimberley Shares under that Takeover Bid, and no notice being
given by the Treasurer to Gem Diamonds Australia during that period to the effect that
there are any such objections; or

(c) where an order is made under section 22 of the Foreign Acquisitions and Takeovers Act
1975 (Cth), a period of 90 days having expired after the order comes into operation and
no notice having been given by the Treasurer to Gem Diamonds Australia during that
period to the effect that there are any such objections.

The approval of the Foreign Investment Review Board was obtained on 24 August 2007.

1.3.2 Other regulatory approvals

Before the end of the Offer Period, all approvals or consents that are required by law, or by any
public authority, as are necessary to permit:

(a) the Offer to be lawfully made to and accepted by Kimberley shareholders; and

(b) the transaction contemplated by the Offer Document to be completed (including,

without limitation, full, lawful and effectual implementation of the intentions set out in
the Offer Document),

are granted, given, made or obtained on an unconditional basis, remain in full force and effect
in all respects, and do not become subject to any notice, intimation or indication of intention to

16
 revoke, suspend, restrict, modify or not renew the same and Gem Diamonds Australia must use
its best endeavours to obtain same as soon as practicable.

1.3.3 No regulatory action

Between the Announcement Date and the end of the Offer Period (each inclusive):

(a) there is not in effect any preliminary or final decision, order or decree issued by any
Public Authority;

(b) no action or investigation is announced, commenced or threatened by any Public

Authority; and

(c) no application is made to any Public Authority (other than by Gem Diamonds Australia
or any associate of Gem Diamonds Australia),

in consequence of or in connection with the Offer (other than an application to, or a decision
or order of, ASIC or the Takeovers Panel in exercise of the powers and discretions conferred
by the Corporations Act) which restrains, prohibits or impedes, or materially impacts upon, or
threatens to restrain, prohibit or impede, or materially impact upon, the making of the Offers
and the completion of any transaction contemplated by the Offer Document (including, without
limitation, full, lawful, timely and effectual implementation of the intentions set out in the
Offer Document) or which requires the divestiture by Gem Diamonds Australia of any
Kimberley Shares or any material assets of Kimberley or any subsidiary of Kimberley.

1.3.4 Shareholder approval

To the extent required by Chapter 10 of the Listing Rules, the prior approval to the transaction
contemplated by the Offer Document of the Shareholders in general meeting which Gem
Diamonds must procure as soon as practicable.

1.3.5 Minimum acceptance

At the end of the Offer Period, Gem Diamonds Australia has relevant interests in at least 90 per
cent of the Kimberley Shares (on a fully diluted basis calculated assuming that all outstanding
options are exercised).

1.3.6 No material adverse change

(a) Between the Announcement Date and the end of the Offer Period (each inclusive) none
of the following occurs:

(i) an act, omission, event, change, condition, matter or thing occurs or it is

announced that it will occur or, as a result of any announcement, it is reasonably
likely to occur;

(ii) information is disclosed or announced by Kimberley or any of its subsidiaries

concerning any event, change, condition, matter or thing; or

(iii) information concerning any event, change, condition, matter or thing becomes
known to Gem Diamonds Australia (whether or not the information also becomes
public),

which will have, could reasonably be expected to have or which evidences that there has
been a material adverse effect on the business, value of assets, the amount of liabilities,
financial position and performance, material contracts (taken as a whole), profitability
or prospects of, or terms of approvals from any Public Authority applicable to,
Kimberley or any of its subsidiaries.

(b) For the purposes of clause 1.3.6(a), without limitation, a diminution or reasonably likely
prospective diminution in value of Kimberley assets (including, without limitation, the

17
 assets, liabilities, financial position, financial performance, profitability or prospects of
Kimberley but excluding movements as a consequence of movements in A$-US$
currency exchange rates) in aggregate of A$10 million or an increase or prospective
increase in actual or contingent liabilities in aggregate of A$10 million will be deemed
to be a material adverse effect.

(c) Clause 1.3.6(a) does not apply in relation to particular information, if that information
was previously disclosed before the Announcement Date by Kimberley in a public filing
with the ASX or ASIC or disclosed by Kimberley to Gem Diamonds Australia in writing
before the Announcement Date provided that any disclosure was full and fair (including,
without limitation, in relation to the extent and magnitude of the event, change,
condition, matter or thing, as the case may be) and was not, and is not likely to be,
incomplete, incorrect, untrue, misleading or deceptive.

(d) For the purposes of clause 1.3.6(a), without limitation, if the A$ increases by at least 5
per cent relative to the US$, that shall be deemed a material adverse effect.

1.3.7 Capital expenditures

Between the Announcement Date and the end of the Offer Period (each inclusive), Kimberley
does not incur or commit to incur any amount of capital expenditure in excess, in aggregate, of
A$13 million before the end of the Offer Period other than:

(a) capital expenditure that has been announced by Kimberley before the Announcement
Date as intended to be incurred or committed; and

(b) minor capital expenditure in the day-to-day operating activities of the business of
Kimberley and its subsidiaries conducted in the same manner as before the
Announcement Date.

1.3.8 No persons entitled to exercise or exercising rights under certain agreements or instruments
Between the Announcement Date and the end of the Offer Period (each inclusive), there is no
person entitled to exercise, exercising or purporting to exercise, stating an intention to exercise
(whether or not that intention is stated to be a final or determined decision of that person), or
asserting a right to exercise, any rights under any provision of any agreement or other
instrument to which Kimberley or any Kimberley subsidiary is a party, or by or to which
Kimberley or any Kimberley subsidiary or any of its assets or businesses may be bound or be
subject, which results, or could result, to an extent to which is material in the context of the
Kimberley Group taken as a whole, in:

(a) any moneys borrowed by Kimberley or any Kimberley subsidiary being or becoming
repayable or being capable of being declared repayable immediately or earlier than the
repayment date stated in such agreement or other instrument; or

(b) any such agreement or other such instrument being terminated or modified or any action
being taken or arising thereunder;

(c) the interest of Kimberley or any Kimberley subsidiary in any firm, joint venture, trust
corporation or other entity (or any arrangements relating to such interest) being
terminated or modified;

(d) the assets of Kimberley or any Kimberley subsidiary being sold, transferred or offered
for sale or transfer, including under any pre-emptive rights or similar provisions; or

(e) the business of Kimberley or any Kimberley subsidiary with any other person being
materially adversely affected,

18
 provided that nothing in this clause has any application to any of the matters listed above to the
extent they have an aggregate value of less than A$5,000,000.

1.3.9 Acquisitions and disposals

Unless otherwise agreed between Gem Diamonds Australia and Kimberley, between the
Announcement Date and the end of the Offer Period (each inclusive), neither Kimberley nor
any of its subsidiaries:

(a) acquires or disposes of;

(b) enters into or announces any agreement or intention or proposal for the acquisition or
disposal of;

(c) discloses (without having disclosed to ASX prior to 18 July 2007) the existence of; or

(d) incurs, becomes subject to, or brings forward the time for performance of (or is
reasonably likely to incur, become subject to or bring forward the time for performance
of), any obligation or arrangement in relation to,

any asset or business, or enters into any corporate transaction, which would, or would be likely
to, involve a significant, substantial or material change in:

(e) the manner in which Kimberley conducts its business;

(f) the nature (including balance sheet classification), extent or value of the assets of
Kimberley; or

(g) the nature (including balance sheet classification), extent or value of the liabilities of
Kimberley,

including, without limitation, any transaction which would or (subject to one or more
conditions) may involve:

(h) any new processing or diamond marketing arrangements or variations to existing

arrangements;

(i) Kimberley or any subsidiary of Kimberley acquiring, or agreeing to acquire, one or more
companies, businesses or assets for an amount or value in aggregate greater than A$10
million;

(j) Kimberley or any subsidiary of Kimberley disposing, or agreeing to dispose, of one or

more companies, businesses or assets (or any interest therein) for an amount or value in
aggregate greater than A$10 million.

1.3.10 No litigation on foot or pending

Between the Announcement Date and the end of the Offer Period (each inclusive), no litigation
against or investigation by a Government Authority in relation to Kimberley or its directors
which involves any allegation that Kimberley or its directors (in the case of directors in their
capacity as directors of Kimberley) may be liable to any civil or criminal penalty, relating to a
financial or corporate matter or which may reasonably result in a judgement of A$5 million or
more, is commenced, is threatened to be commenced, is announced, or is made known to Gem
Diamonds Australia (whether or not becoming public) or Kimberley, other than that which is
in the public domain as at the Announcement Date.

1.3.11 No prescribed occurrences

Between the Announcement Date and the date 3 business days after the end of the Offer Period
(each inclusive), none of the following prescribed occurrences (being the occurrences listed in
section 652C of the Corporations Act) happen:

19
 (a) Kimberley converting all or any of the Kimberley Shares into a larger or smaller number
of shares under section 254H of the Corporations Act;

(b) Kimberley or a subsidiary of Kimberley resolving to reduce its share capital in any way;

(c) Kimberley or a subsidiary of Kimberley entering into a buyback agreement or resolving

to approve the terms of a buyback agreement under subsections 257C(1) or 257D(1) of
the Corporations Act;

(d) Kimberley or any company in which Kimberley holds more than 50 per cent of the
issued shares making an issue of Kimberley Shares (other than Kimberley Shares issued
as a result of the exercise of Options into Kimberley Shares) or granting an option over
the Kimberley Shares or agreeing to make such an issue or grant such an option;

(e) Kimberley or a subsidiary of Kimberley issuing, or agreeing to issue, convertible notes;

(f) Kimberley or a subsidiary of Kimberley disposing, or agreeing to dispose, of the whole,

or a substantial part, of its business or property;

(g) Kimberley or a subsidiary of Kimberley charging, or agreeing to charge, the whole, or a

substantial part, of its business or property;

(h) Kimberley or a subsidiary of Kimberley resolving that it be wound up;

(i) the appointment of a liquidator or provisional liquidator of Kimberley or of a subsidiary

of Kimberley;

(j) the making of an order by a court for the winding up of Kimberley or of a subsidiary of
Kimberley;

(k) an administrator of Kimberley or of a subsidiary of Kimberley being appointed under

section 436A, 436B or 436C of the Corporations Act;

(l) Kimberley or a subsidiary of Kimberley executing a deed of company arrangement;

(m) the appointment of a receiver, receiver and manager, other controller (as defined in the
Corporations Act) or similar official in relation to the whole, or a substantial part, of the
property of Kimberley or of a subsidiary of Kimberley.

1.3.12 No distributions
Between the Announcement Date and the end of the Offer Period (each inclusive), Kimberley
does not announce, make, declare or pay any distribution (whether by way of dividend, capital
reduction or otherwise and whether in cash or in specie).

2. Implementation Agreement

2.1 Document and Parties

The Implementation Agreement was entered into on 19 July 2007 between the Company and
Kimberley (together the “Parties” and each a “Party”).

2.2 Consideration
The agreement provided that Gem Diamonds (or a subsidiary of Gem Diamonds) must within 28 days
of the date of the Implementation Agreement:

(a) lodge a bidder’s statement with ASIC in relation to a takeover bid under Chapter 6 of the
Corporations Act to acquire all the Kimberley Shares (including all Kimberley Shares on issue
as at the end of the Offer Period) at A$0.70 per Kimberley Share subject to the agreed

20
 conditions and thereafter, dispatch Offers to acquire the Kimberley Shares as soon as
practicable; and

(b) make offers for the Options in issue in the capital of Kimberley at a price equal to A$0.70 per
Option less the exercise price.

Gem Diamonds Australia complied with the requirement to lodge a bidder’s statement with ASIC on
16 August 2007 and the Offers were despatched on 30 August 2007.

2.3 Break fee

Kimberley and Gem Diamonds have agreed that Kimberley will pay to Gem Diamonds a fee of A$2
million on the occurrence of certain agreed events at any time following the Announcement Date,
including if:

(a) any Kimberley director fails to recommend the Takeover Bid (in the absence of a superior
offer) or makes a public statement which withdraws, revises, revokes or qualifies any
recommendation made previously; or

(b) any Kimberley director recommends, promotes or otherwise endorses any proposal which
competes with or would materially prejudice the prospects of success of the Takeover Bid; or

(c) a person other than Gem Diamonds or an associate of Gem Diamonds directly or indirectly
acquires a legal or beneficial interest in, or control of, 50 per cent or more of the Kimberley
Shares or the share capital of any of Kimberley’s material subsidiaries (from Kimberley) or
acquires an interest in all or a substantial part of the assets of Kimberley and its material
subsidiaries; or

(d) Kimberley materially breaches the exclusivity provisions of the Implementation Agreement or
any other material provision of the Implementation Agreement.

2.4 Warranties
The Company and Kimberley have provided certain warranties to each other in relation to each
company’s due incorporation, its authority to sign and observe the terms of the Implementation
Agreement, the due execution of the Implementation Agreement by it and enforceability of the
Implementation Agreement, its ability to enter into the Implementation Agreement without restriction
imposed by other contractual arrangements and the non-occurrence of certain events that would
prevent, inhibit or otherwise have a material adverse effect on its ability to fulfil its obligations under
the Implementation Agreement.

Further, Kimberley has provided certain warranties in relation to the Options in issue in Kimberley.

2.5 Pre-Acquisition Obligations

2.5.1 Gem Diamonds’ obligations

Gem Diamonds has agreed that:

(a) it will make available to Kimberley a working capital loan facility of up to A$10 million
(US$8,680,556) on agreed terms, the terms of which are summarised in paragraph 3 of
this Part III. Such working capital facility was fully drawn down in September 2007;

(b) it will send an explanatory circular to call a meeting of the Shareholders to obtain their
prior approval in general meeting for the Acquisition and the Board must vote in favour
of the proposal and recommend it to Shareholders for their support; and

(c) as soon as practicable after announcing the Takeover Bid, it will apply for Foreign
Investment Review Board approval in relation to the Takeover Bid. Such application was
made and the approval of the Foreign Investment Review Board was obtained on 24
August 2007.

21
 2.5.2 Kimberley’s obligations
Certain obligations are imposed on Kimberley in respect of repayments to secured lenders. If,
during the Offer Period, Kimberley is required to repay any secured lender, Kimberley must
immediately notify Gem Diamonds of the circumstances relating to the acceleration of the
obligation and the amount required to be repaid.

Thereafter, Kimberley must give Gem Diamonds the opportunity to make a further facility
available to Kimberley (on the same terms as the working capital loan facility) to repay the
amount required to be paid. If Gem Diamonds declines to provide a further facility, Kimberley
may dispose of any or all of its shares in Blina provided that Kimberley gives Gem Diamonds
the first right to buy such shares as Gem Diamonds elects within 3 business days thereafter (at
the 5 day volume-weighted average market price and otherwise on the same terms and
conditions as any subsequent sale) and the proceeds of any sale are used to repay the amount
payable to the secured creditor.

Subject to its fiduciary duties to its shareholders, Kimberley has agreed, until the end of the
Offer Period or the date which is six months after the date of the Implementation Agreement
(whichever is earlier), not to solicit or initiate any other competing proposal or disclose any
non-public information about the business or affairs of Kimberley to a third party with a view
to obtaining, or which may reasonably be expected to lead to receipt of, a competing proposal.

In addition, Kimberley has given customary commitments to continue the business of the
Kimberley Group in its usual and ordinary course, not to do or omit to do anything which will
or is likely to result in any of the conditions of the Takeover Bid being breached or not being,
or not being capable of being, satisfied and to promote the Takeover Bid.

3. Working Capital Loan Facility

3.1 Documentation and Parties

Under the Implementation Agreement, Gem Diamonds agreed to provide Kimberley (directly or
through a subsidiary of Gem Diamonds) a facility of A$10 million (US$8,680,556) for working
capital purposes (or any other purpose approved by the Company). On 11 September 2007, the Loan
Agreement, the Kimberley Charge, the Mining Mortgage, the Priority Deed and the Argyle Side Deed
(the “Facility Documents”) were executed to establish the Working Capital Loan Facility.

3.2 Terms of the Loan Agreement

Pursuant to the Loan Agreement, Gem Diamonds agreed to provide cash advances to Kimberley, in
an aggregate amount up to A$10 million (US$8,680,556), during the period commencing on the date
Gem Diamonds is satisfied (acting reasonably) that all conditions precedent to making such advances
have been satisfied and ending on the earlier of the close of the Offer Period or the date on which Gem
Diamonds gives notice, if an event of default has occurred and is continuing, that its obligation to
provide such advances is terminated. Upon satisfaction of all conditions precedent and receipt of a
drawdown notice from Kimberley, Gem Diamonds advanced the sum of A$10 million
(US$8,680,556) to Kimberley on 11 September 2007.

Interest shall accrue daily on advances at the rate quoted as the average bid rate on the Reuters monitor
system (the “bank bill rate”) plus 2 per cent per annum and is payable calendar monthly (unless
otherwise agreed by the Company). In the event an amount is not paid by Kimberley when due,
Kimberley must pay interest on the unpaid amount accruing each day at the default interest rate, being
the bank bill rate plus 4 per cent per annum, with such amounts being capitalised (if not paid) every
30 days.

Upon the close of the Offer Period, each outstanding advance, together with any accrued but unpaid
interest and all other amounts then outstanding, shall be payable and repayable by Kimberley within
60 days.

22
Kimberley has provided warranties and undertakings to Gem Diamonds which are customary for a
transaction of this type, having regard to the Takeover Bid, the mining tenements owned by Kimberley
and Kimberley’s existing secured finance facilities with Société Générale. Kimberley has also agreed
to indemnify Gem Diamonds and pay to the Company on demand the amount of all losses (excluding
loss of profit), liabilities, costs, expenses and taxes (excluding certain excluded taxes) that Gem
Diamonds incurs in certain circumstances, including (amongst other things) in connection with any
event of default or any enforcement of any of its rights under the Facility Documents. Events of
default include a breach by Kimberley of the Implementation Agreement or a default by Kimberley
under its existing facilities with Société Générale in circumstances where Société Générale serves a
notice of default on Kimberley declaring that all moneys owing by Kimberley to Société Générale
(and relevant others) under those facilities are immediately due and payable. The Loan Agreement
also provides for events of default triggered by Kimberley failing to pay any amounts when due and
payable in respect of principal outstanding or interest thereon when due and payable under a Facility
Document and if Kimberley fails to repay any amount due under a Transaction Agreement which is
in excess of A$100,000 (in aggregate) and such non-payment is continuing for three business days
after demand for payment has been made by Gem Diamonds.

All amounts payable by Kimberley to Gem Diamonds under the Facility Documents are secured by
the Kimberley Charge and the Mining Mortgage both of which were required to be executed, stamped
(or accompanied by an amount on account of stamp duty payable) and in registrable form as
conditions precedent to the Loan Agreement. Pursuant to the Kimberley Charge, Kimberley has
granted a charge over its interest in all its property anywhere (real and personal, present and future)
including its uncalled capital and its called but unpaid capital for the time being. Under the Mining
Mortgage, Kimberley has granted a mortgage over its right, title and interest from time to time in and
to certain mining tenements (including the Ellendale Mining Lease), all buildings, improvements,
structures, systems, plant, machinery, tools and other personal property and fixtures in or upon the
land comprised in those mining tenements and all policies of insurance (and the proceeds thereof)
relating to, and any compensation payable in respect of, the foregoing.

The priority of the Kimberley Charge and the Mining Mortgage in relation to the existing securities
granted by Kimberley in favour of Société Générale (in respect of Kimberley’s existing finance
arrangements with Société Générale) is regulated by the terms of the Priority Deed. The Priority Deed
specifies that the securities granted by Kimberley to Société Générale shall have priority (in respect
of all monies secured thereunder until such monies are fully repaid or recovered in full) over the
Kimberley Charge and the Mining Mortgage. Further, the Priority Deed details the procedures to be
followed by Société Générale and Gem Diamonds when seeking to enforce their security held over
Kimberley’s assets and, in particular, the restrictions imposed on Gem Diamonds as the second
ranking secured creditor of Kimberley.

The execution of the Argyle Side Deed by all parties to it was also a condition precedent to the Loan
Agreement. Gem Diamonds has agreed that for so long as it, or a controller appointed by it, takes
possession of the Ellendale Mining Lease, it will be bound by the obligations of Kimberley in respect
of each of Argyle’s rights under the Argyle Asset Sale Agreement, including Argyle’s right to acquire
an interest in any new diamondiferous pipe discovered by Kimberley within the Ellendale mining
area. Under the Argyle Side Deed, Argyle has consented to the creation of the Kimberley Charge and
the Mining Mortgage.

23
 PART IV

FINANCIAL INFORMATION ON KIMBERLEY

LR 13.5.4(1)

Historical financial information in this document for the Kimberley Group has been extracted without LR 13.5.6

material adjustment (save for the reclassification of depreciation and amortisation in the years ended 30 LR 13.5.7(1)

June 2005 and 30 June 2006 to align with the presentation in 2007) from published information, is presented LR 13.5.7(2)

in Australian dollars and has been prepared in accordance with Australian Accounting Standards LR 13.5.7(3)

(Australian equivalents to International Financial Reporting Standards or “AIFRS”). Specifically, the LR 13.5.10

historical financial information has been extracted without material adjustment (save for the reclassification LR 13.5.13(1)

of depreciation and amortisation in the years ended 30 June 2005 and 30 June 2006 to align with the LR 13.5.14(1)

presentation in 2007) from the following sources: LR 13.5.14(2)

1. the audited consolidated financial statements of Kimberley for the year ended 30 June 2006 and
comparative amounts for the year ended 30 June 2005 as disclosed in the annual accounts of
Kimberley for the year ended 30 June 2006; and

2. the audited consolidated financial statements of Kimberley for the year ended 30 June 2007 and the
restated comparative amounts for the year ended 30 June 2006 as disclosed in the annual accounts
of Kimberley for the year ended 30 June 2007.

Comparability of financial information

During the year ended 30 June 2007, Kimberley changed its accounting policy with respect to recording
gains and losses arising from dilutions in ownership of subsidiaries. Within its 2007 financial statements,
Kimberley retrospectively restated its information for the year ended 30 June 2006. As at the date of this
document, publicly available results for the year ended 30 June 2005 were not available on a restated basis.
To aid the comparability of the financial information for the year ended 30 June 2005, the results for the year
ended 30 June 2006 have been included as they were reported.

24
Income statements for the three years ended 30 June 2007
Note 2005 2006 2006 2007
As reported As restated
A$’000
Revenue from sale of product 40,545 35,864 35,864 63,468
–––––––– –––––––– –––––––– ––––––––
Cost of product sold
Site costs (30,289) (36,365) (35,997) (74,917)
Marketing costs (546) (902) (852) (1,041)
Royalties 5 (4,168) (3,731) (3,731) (2,706)
Restoration and environmental (364) (437) (437) (537)
Inventory movement (1,453) 2,496 2,496 1,063
–––––––– –––––––– –––––––– ––––––––
Total cost of product sold (36,820) (38,939) (38,521) (78,138)
–––––––– –––––––– –––––––– ––––––––
Gross profit/(loss) 3,725 (3,075) (2,657) (14,670)
Other income 4 62 3 3 45
Net foreign exchange gain – – 75 1,764
Gain on dilution of Blina
Diamonds NL shares – – 2,847 8,186
Administrative expenses (3,516) (4,416) (3,746) (6,275)
Share option issue expenses – (1,614) (2,369) (1,315)
Other expenses 5 (205) (11) (11) (1,432)
–––––––– –––––––– –––––––– ––––––––
Earnings/(loss) before interest
taxes, depreciation and
amortisation (EBITDA) 66 (9,113) (5,858) (13,697)
Depreciation and amortisation (3,496) (5,720) (5,720) (14,404)
–––––––– –––––––– –––––––– ––––––––
Loss before net financing and tax (3,430) (14,833) (11,578) (28,101)
Financial income 7 534 910 835 703
Financial expenses 7 (563) (2,056) (2,389) (4,654)
–––––––– –––––––– –––––––– ––––––––
Net financing costs (29) (1,146) (1,554) (3,951)
–––––––– –––––––– –––––––– ––––––––
Loss before tax (3,459) (15,979) (13,132) (32,052)
Income tax benefit 9 – – – 186
–––––––– –––––––– –––––––– ––––––––
Loss for the period (3,459) (15,979) (13,132) (31,866)
–––––––– –––––––– –––––––– ––––––––
Attributable to:
Equity holders of the parent (3,504) (16,163) (13,316) (30,161)
Minority interest 45 184 184 (1,705)
–––––––– –––––––– –––––––– ––––––––
Loss for the period (3,459) (15,979) (13,132) (31,866) LR 13.5.18(2)

–––––––– –––––––– –––––––– ––––––––

Basic and diluted loss per share attributable
to ordinary equity holders – A$ 10 (0.015) (0.055) (0.045) (0.078)

The Group is in a loss making position and it is unlikely that the conversion to, calling of, or subscription
for, ordinary share capital in respect of potential ordinary shares would lead to a diluted earnings per share
that shows an inferior view of the earnings per share. For this reason, the diluted loss per share is therefore
the same as basic loss per share.

The income statements are to be read in conjunction with the accompanying notes.

25
Balance sheets as at 30 June LR 13.5.18(1)

Note 2005 2006 2006 2007

As reported As restated
A$’000
Current Assets
Cash and cash equivalents 11 8,044 25,538 25,538 6,624
Trade and other receivables 12 2,033 2,392 2,392 2,395
Inventories 13 5,271 8,416 8,416 10,736
–––––––– –––––––– –––––––– ––––––––
Total Current Assets 15,348 36,346 36,346 19,755
–––––––– –––––––– –––––––– ––––––––
Non-Current Assets
Other receivables 12 289 331 331 1,012
Investments 14 225 1,287 1,287 956
Property, plant and equipment 15 68,513 132,088 132,088 186,087
Exploration and evaluation assets 16 13,035 22,993 22,993 30,372
–––––––– –––––––– –––––––– ––––––––
Total Non-Current Assets 82,062 156,699 156,699 218,427
–––––––– –––––––– –––––––– ––––––––
Total Assets 97,410 193,045 193,045 238,182
–––––––– –––––––– –––––––– ––––––––
Current Liabilities
Trade and other payables 18 15,694 19,725 19,725 20,585
Interest bearing liabilities 19 5,084 11,719 11,719 22,271
Provisions 21 511 854 854 1,038
–––––––– –––––––– –––––––– ––––––––
Total Current Liabilities 21,289 32,298 32,298 43,894
–––––––– –––––––– –––––––– ––––––––
Non-Current Liabilities
Interest bearing liabilities 19 247 29,342 29,342 2,354
Deferred tax liability 17 186 186 186 –
Provisions 21 2,668 6,104 6,104 8,769
–––––––– –––––––– –––––––– ––––––––
Total Non-Current Liabilities 3,101 35,632 35,632 11,123
–––––––– –––––––– –––––––– ––––––––
Total Liabilities 24,390 67,930 67,930 55,017
–––––––– –––––––– –––––––– ––––––––
Net Assets 73,020 125,115 125,115 183,165
–––––––– –––––––– –––––––– ––––––––
Equity
Issued capital 22 131,656 192,494 183,854 267,794
Reserves 22 2,395 3,531 3,531 5,634
Accumulated losses (66,678) (82,841) (74,201) (104,362)
–––––––– –––––––– –––––––– ––––––––
Total equity attributable to
equity holders of the parent 67,373 113,184 113,184 169,066
Minority interest 5,647 11,931 11,931 14,099
–––––––– –––––––– –––––––– ––––––––
Total Equity 73,020 125,115 125,115 183,165
–––––––– ––––––––
The balance sheets are to be read in conjunction with the accompanying notes.
–––––––– ––––––––

26
Statements of changes in equity for the three years ended 30 June 2007 LR 13.5.18(4)

Attributable to equity holders of the parent

Issued Accum. Reserves Minority Total
capital losses (note 22) Total interest equity
A$’000
Opening balance at 1 July 2004 104,221 (63,174) 177 41,224 203 41,427
Effective portion of cash
flow hedges – – 272 272 – 272
Loss for the year – (3,504) – (3,504) 45 (3,459)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Recognised income and
expense for the year – (3,504) 272 (3,232) 45 (3,187)
Transfer from option
premium reserve 44 – (44) – – –
Issue of share capital 17,824 – – 17,824 – 17,824
Exercise of options 4,863 – – 4,863 – 4,863
Share transaction costs (1,163) – – (1,163) (117) (1,280)
Issue of shares by controlled
entity Blina – – – – 5,580 5,580
Dilution gain 5,793 – – 5,793 – 5,793
In specie distribution to KDC
shareholders 104 – – 104 – 104
Cost of share-based payments (30) – 1,990 1,960 (64) 1,896
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Balance at 30 June 2005 131,656 (66,678) 2,395 67,373 5,647 73,020
Impact of change in accounting
policy (note 1.2(a)(ii)) (5,793) 5,793 – – – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Balance as at 1 July 2005, restated 125,863 (60,885) 2,395 67,373 5,647 73,020
Effective portion of cash flow hedges – – (827) (827) – (827)
Net gain/(loss) on available-
for-sale financial assets – – 100 100 236 336
Currency translation differences – – 20 20 – 20
Loss for the year – (13,316) – (13,316) 184 (13,132)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Recognised income and expense
for the year – (13,316) (707) (14,023) 420 (13,603)
Issue of share capital 41,832 – – 41,832 – 41,832
Issue of shares by controlled
entity-Blina – – – – 5,785 5,785
Exercise of options 18,035 – – 18,035 – 18,035
Share transaction costs (2,856) – – (2,856) – (2,856)
Cost of share-based payments – – 2,823 2,823 79 2,902
Transfer from share-based
payment reserve 847 – (847) – – –
Transfer from option premium reserve 133 – (133) – – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Balance at 30 June 2006, restated 183,854 (74,201) 3,531 113,184 11,931 125,115
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

27
 Attributable to equity holders of the parent
Issued Accum. Reserves Minority Total
capital losses (note 22) Total interest equity
A$’000
Balance at 1 July 2006, restated 183,854 (74,201) 3,531 113,184 11,931 125,115
Derecognition of hedge as effective – – 555 555 – 555
Currency translation differences – – (19) (19) – (19)
Net gain/(loss) on available-for-
sale financial assets – – (258) (258) (347) (605)
Loss for the year – (30,161) – (30,161) (1,705) (31,866)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Recognised income and expense
for the year – (30,161) 278 (29,883) (2,052) (31,935)
Issue of share capital 85,289 – – 85,289 – 85,289
Issue of shares by controlled
entity-Blina – – – – 1,079 1,079
Increase in net assets – Blina – – – – 3,259 3,259
Share transaction costs (1,349) – – (1,349) – (1,349)
Cost of share-based payments – – 2,641 2,641 1 2,642
Expiry of options – – (751) (751) (18) (769)
Transfer from share-based
payments reserve – – (65) (65) (101) (166)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Closing balance at 30 June 2007 267,794 (104,362) 5,634 169,066 14,099 183,165
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
The statements of changes in equity are to be read in conjunction with the accompanying notes.

28
Statements of cash flows for the three years ended 30 June 2007 LR 13.5.18(3)

2005 2006 2007

As reported
Note and restated
A$’000
Cash flows from operating activities
Cash receipts from customers 39,997 36,527 65,261
Cash paid to suppliers and employees (35,432) (46,895) (75,917)
–––––––– –––––––– ––––––––
Cash generated from operations 4,565 (10,368) (10,656)
Interest paid (3) – –
Interest received 536 793 674
–––––––– –––––––– ––––––––
Net cash inflow/(outflow) from
operating activities 28 5,098 (9,575) (9,982)
–––––––– –––––––– ––––––––
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 57 53 1
Payments for exploration, evaluation
and development expenditure (10,481) (8,748) (7,261)
Receipts recovered during exploration
and evaluation phase – – 431
Payments for property, plant and equipment (20,336) (56,277) (46,453)
Payments for deferred stripping costs (2,784) (6,264) (7,414)
Proceeds on disposal of investments 14 259 – 10,800
–––––––– –––––––– ––––––––
Net cash inflow/(outflow) from
investing activities (33,285) (71,236) (49,896)
–––––––– –––––––– ––––––––

29
 2005 2006 2007
As reported
Note and restated
A$’000
Cash flows from financing activities
Proceeds from issue of shares and options:
Kimberley Diamond Company NL 22,285 59,868 63,346
Blina Diamonds NL 10,422 7,882 1,225
Transaction costs from issue of
shares and options:
Kimberley Diamond Company NL (903) (2,856) (1,349)
Blina Diamond Company NL (702) (308) –
Proceeds from borrowings 4,500 41,188 4,000
Proceeds from directors loans-Blina 50 – –
Proceeds from release of environmental bonds 1,361 – –
Repayment of borrowings – (4,000) (20,800)
Repayment of director loans-Blina (350) – –
Loan to related entity – (1,000) –
Interest received from related entity – 10 37
Payment for environmental bonds (225) – (617)
Payments for bank guarantees – – (40)
Finance lease payments (191) (273) (189)
Interest and other costs of finance paid (764) (2,206) (4,649)
–––––––– –––––––– ––––––––
Net cash inflow/(outflow) from
financing activities 35,483 98,305 40,964
–––––––– –––––––– ––––––––
Net increase in cash and cash equivalents 7,296 17,494 (18,914)
Cash and cash equivalents at the
beginning of the period 748 8,044 25,538
–––––––– –––––––– ––––––––
Cash and cash equivalents at the
end of the period 11 8,044 25,538 6,624
–––––––– ––––––––
The statements of cash flows are to be read in conjunction with the accompanying notes.
––––––––

30
Notes to the consolidated financial statements for the three years ended 30 June 2007

1. Reporting entity
Kimberley is a company domiciled in Australia. The address of Kimberley’s registered office is 12 Walker
Avenue, West Perth 6005, Western Australia. The consolidated financial statements of Kimberley as at and
for the year ended 30 June 2007 comprise Kimberley and its subsidiaries (together referred to as the
“Kimberley Group”). The Kimberley Group is primarily involved in the mining, processing, marketing and
exploration of diamonds.

1.1 Basis of Preparation

(a) Financial Position

Net working capital position and interest bearing liabilities

At 30 June 2007 the Kimberley Group had a working capital deficit of $24,139,000.

The Kimberley Group and Kimberley carry a total of $24,625,000 interest bearing liabilities in
their Balance Sheets relating to the financing facility provided by Societe Generale and
Westpac (“Existing Project Financiers”) for the construction of the Ellendale 4 Operation
(Project Facility) and a working capital facility. $22,271,000 is disclosed as current interest
bearing liabilities payable within 12 months of balance date. Current scheduled repayments of
bank debt are $5,000,000 on each of 1 October 2007, 1 January 2008 and 1 April 2008, with a
final $2,443,000 due on 1 July 2008 (disclosed within non-current interest bearing liabilities).
Kimberley also has $7,757,000 drawn against a working capital facility which is reviewed
periodically and has been rolled until 30 September 2007.

Kimberley’s financial projections were not met for the 2006/2007 financial year,
predominantly due to Kimberley not achieving nameplate throughput on its processing plants.
This has required Kimberley to seek and obtain waivers of, and variations to, the terms of its
loan agreements with its project financiers. Kimberley believes that it is likely to require further
variations to the financial covenants within the loan agreements, which if not agreed could
require the scheduled payments to be accelerated. Repayment of Kimberley’s debt obligations,
whether required under the existing repayment schedule or on an accelerated basis, or in the
event that the working capital facility is not rolled past 30 September 2007, is expected to be
funded by one or more of the following:

• Positive cash flows from operations;

• Issue of new equity in Kimberley (there are restrictions on Kimberley’s ability to issue
new shares during the Gem Diamonds bid period (refer below));

• New debt financing arrangements (refer Gem Diamonds facility below); or

• Sale of shares in Blina Diamonds NL (subject to the approval of the Existing Project
Financiers).

Gem Diamonds takeover bid and working capital facility

Kimberley is subject to a takeover bid from Gem Diamonds Australia, a wholly owned
subsidiary of Gem Diamonds, to acquire the entire issued capital of Kimberley for $0.70 per
share. The bid is subject to a number of conditions.

In September 2007 Gem Diamonds loaned Kimberley $10,000,000 under a working capital
facility, repayable within 60 days after the close of the bid period, being 2 November 2007.

Gem Diamonds has been granted a fixed and floating charge over all of Kimberley’s assets and
a mining mortgage over Kimberley’s tenements, ranking second to Kimberley’s existing
secured project financiers.

31
Despite the bid being recommended unanimously by the directors of Kimberley, it is not known
whether the takeover bid will be successful and as a result significant uncertainty exists in
regard to Kimberley’s cash flow requirements following an unsuccessful bid process.

In the event that the takeover is not successful the Gem Diamonds working capital facility
would become repayable within 60 days of the end of the bid period. The facility would
become repayable immediately if and when Kimberley’s Existing Project Financiers accelerate
the due date for repayment of their facilities, Kimberley fails to pay any amount (of at least
$100,000) due and payable to Gem Diamonds, or Kimberley breaches any provision of the
Implementation Agreement between Kimberley and Gem Diamonds relating to the takeover
bid.

In this event, repayment of the Gem Diamonds facility is expected to be funded by one or more
of the following:

• Issue of new equity in Kimberley (15 per cent placement capacity available); or

• Sale of shares in Blina Diamonds NL (subject to the approval of the Existing Project
Financiers).

However, none of these potential funding options is currently being solicited as Kimberley
remains committed to the successful completion of the Gem Diamonds bid. As discussed above
the bid is subject to a number of conditions. The satisfaction of certain conditions is outside the
control of Kimberley.

If a change in control of Kimberley occurs, Kimberley’s Existing Project Financiers can

demand that their outstanding loans be repaid and discharged on 30 days notice. Kimberley has
been informed by one of its Existing Project Financiers, Westpac, that it intends to exercise its
rights and demand repayment of its portion of the financing facilities in the event of a change
in control of Kimberley. Gem Diamonds has advised Kimberley that Gem has agreed with
Westpac that the facilities will be repaid immediately if Gem holds more than 50 per cent of
the issued shares in Kimberley and the offer is declared unconditional. The other project
financier, Societe Generale, has reserved its rights in relation to the amounts owing to it, should
a change in control occur.

Kimberley’s Board of Directors has considered this bid in its assessment of any potential
impairment of assets and concluded that the bid supports the current carrying value of the
Kimberley Group’s non-current assets.

Cash flow projections and assumptions

The Board of Directors is aware of Kimberley’s working capital requirements and the potential
need to raise additional funds to enable Kimberley and the Kimberley Group to meet its
obligations as and when they fall due.

Kimberley’s twelve month cash flow projections do not include repayment of the Gem
Diamonds facility or the project financiers working capital facility (assumed rolled for a further
twelve months). These projections indicate that further funding of approximately $10,000,000
will be required in January 2008, in particular to fund Kimberley’s working capital
requirements in the lead-up to the 2007/2008 wet season. Importantly, the projected timing of
the requirement for these funds is subsequent to the close of the Gem Diamonds bid period.

These additional funds would need to be sourced from one or more of the following:

• Issue of new equity in Kimberley (possibly subject to restrictions on Kimberley’s ability

to issue new shares should this be required during the Gem Diamonds bid period);

• Increase to the limit of the Gem Diamonds facility (subject to the approval of Gem and
the Existing Project Financiers); or

32
 • Sale of shares in Blina Diamonds NL (subject to the approval of the Existing Project
Financiers).

Going concern basis of preparation

Kimberley considers the going concern basis of preparation to be appropriate for this financial
report.

The directors are confident of sourcing funds if and when necessary to meet Kimberley’s
obligations as and when they fall due. There is uncertainty regarding the outcomes of funding
alternatives set out above. In the event that Kimberley is unable to secure sources of funding,
Kimberley may not be able to continue as a going concern. Accordingly, Kimberley may be
required to realise assets and extinguish liabilities other than in the normal course of business
and at amounts different to those stated in the financial report.

Kimberley will continue to keep the market informed of all material matters including, but not
limited to, the Kimberley Group and Company’s financial position, the Gem Diamonds bid and
financing facilities.

(b) Statement of compliance

The 30 June 2007 financial report is a general purpose financial report which has been prepared
in accordance with Australian Accounting Standards (“AASBs”) (including Australian
interpretations) adopted by the Australian Accounting Standard Board (“AASB”) and the
Corporations Act 2001. The consolidated financial report of the Kimberley Group also
complies with the IFRSs and interpretations adopted by the International Accounting Standards
Board. The financial report of the parent entity complies with IFRS. The financial statements
were approved by the Board of Directors on 14 September 2007.

(c) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except
that derivative financial instruments and financial instruments classified as available-for-sale
are stated at their fair value. The methods used to determine fair values are discussed further in
note 1.2(aa).

(d) Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is
Kimberley’s functional currency and the functional currency of the majority of the Kimberley
Group. Kimberley is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and
in accordance with that Class Order, all financial information presented in Australian dollars
has been rounded to the nearest thousand unless otherwise stated.

(e) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. These estimates and associated assumptions are based on
historical experience and various factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected. Judgements made by management in the
LR 13.5.18(6)
application of Australian Accounting Standards that have significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next year are
discussed in note 1.2(bb).

33
1.2 Significant accounting policies LR 13.5.18(5)

The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, and have been applied consistently by Kimberley Group entities.
Certain comparative amounts have been reclassified to conform with the current year’s presentation.

(a) Basis of consolidation

(i) Subsidiaries
Subsidiaries are entities controlled by the Kimberley Group. Control exists when the
Kimberley Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control
ceases. In Kimberley’s financial statements, investments in subsidiaries are carried at
cost.
Minority interests in the results and equity of subsidiaries are shown separately in the
consolidated income statement and balance sheet respectively.

(ii) Changes in ownership

Change in accounting policy

Gains and losses that arise as a result of a change in ownership interests through dilution,
or through the sale of ownership interests in a subsidiary, are recognised directly in the
income statement. In its financial statements for periods beginning before 1 July 2006
the Kimberley Group recognised such dilution gains and losses and gains and losses on
sale directly in equity.
Management believes that the change in accounting policy results in a more appropriate
and reliable presentation of the Kimberley Group’s financial statements on the basis that
the revised accounting policy recognises that minority interests are not owners in the
Kimberley Group, and therefore any dilution gains or losses made by the equity holders
of the parent should be reflected through the Kimberley Group’s Income Statement.
The change in accounting policy was recognised retrospectively and comparatives have
been restated. It has had the following impact on the Kimberley Group’s consolidated
financial statements.
Kimberley Group – in A$’000 2007 2006
Income statement for the year ended 30 June
Increase in Gain on dilution of Blina Diamonds NL shares 8,186 2,847
––––––– –––––––
Decrease in net loss for the period 8,186 2,847
––––––– –––––––
Balance sheet at 30 June
Cumulative decrease in issued capital 16,826 8,640
––––––– –––––––
Decrease in net loss for the period 16,826 8,640
––––––– –––––––
The adjustment at 1 July 2005 to accumulated losses was a decrease of $5,793,000 and
an increase to issued capital of $5,793,000.
The change in accounting policy resulted in a decrease in basic loss per share of $0.01
for the year ended 30 June 2006.

34
 (iii) Transactions eliminated on consolidation
Intra-group transactions, balances and any unrealised income and expenses arising from
transactions, are eliminated in preparing the consolidated financial statements.
Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the
Kimberley Group.

(b) Foreign currency

(i) Foreign currency transactions and balances

Transactions in foreign currencies are translated to the respective functional currencies
of Kimberley Group entities at exchange rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date
are retranslated to the functional currency at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on retranslation are recognised in the income
statement.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated to Australian dollars at foreign
exchange rates ruling at the reporting date. The income and expenses of foreign
operations are translated to Australian dollars at rates approximating the foreign
exchange rates ruling at the dates of the transactions. Foreign exchange differences
arising on retranslation are recognised directly in a separate component of equity.

(c) Derivative financial instruments

The Kimberley Group used derivative financial instruments to hedge its exposure to foreign
currency risks arising from operational activities. In accordance with its treasury policy, the
Kimberley Group does not hold or issue derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting are accounted for as trading
instruments.
Derivative financial instruments are recognised initially at fair value on the date a derivative
contract is entered into and are subsequently remeasured to their fair value at each reporting
date. The accounting for subsequent changes in fair value depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being hedged.
The Kimberley Group designates certain derivatives as either:
• hedges of the fair value of recognised assets and liabilities or a firm commitment (fair
value hedge), or
• hedges of the cash flows of recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges).
The Kimberley Group documents at the inception of the hedging transaction the relationship
between hedging instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedge transactions. The Kimberley Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions have been and will continue to be highly effective in offsetting
changes in fair value or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when
the remaining maturity of the hedged item is more than 12 months; it is classified as a current
asset or liability when the remaining maturity of the hedged item is less than 12 months.
Trading derivatives are classified as a current asset or liability.

35
 (i) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value
hedges are recorded in the income statement, together with any changes in the fair value
of the hedged asset or liability that are attributable to the hedged risk. The gain or loss
relating to the ineffective portion is recognised in the income statement.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the
carrying amount of a hedge item for which the effective interest method is used is
amortised to the income statement over the period to maturity using a recalculated
effective interest rate.

(ii) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement.

When a hedging instrument expires or is sold, terminated or exercised, or when a hedge

no longer meets the criteria for hedge accounting, any cumulative gain or loss existing
in equity at that time remains in equity and is recognised when forecast transaction is
ultimately recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the income statement.

(iii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair
value of any derivative instrument that does not qualify for hedge accounting are
recognised immediately in the income statement and are included in other income or
other expenses.

(d) Business combinations

The purchase method of accounting is used to account for all business combinations regardless
of whether equity instruments or other assets are acquired. Cost is measured as the fair value
of the assets given, equity instruments 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 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 Kimberley Group’s share
of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less
than the Kimberley Group’s share of the fair value of the identifiable 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.

(e) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits with an original maturity of
three months or less and restricted cash accounts.

36
(f) Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is
the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.

The cost of mining inventories is determined using a weighted average basis. Cost includes
direct material, overburden material, mining, labour, related transportation costs, and other
fixed and variable overhead costs directly related to mining activities.

The cost of other inventories is based on a weighted average basis. The cost of other inventories
includes expenditure incurred in acquiring the inventories and bringing them to their existing
location and condition.

(g) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for impairment (see
accounting policy note 1.2(l)). The fair value of trade and other receivables is estimated as the
present value of future cash flows, discounted at the market rate of interest at the reporting date.

Receivables are generally settled within 30 days. Collectability of trade and other debtors is
reviewed on an ongoing basis. Debts which are known to be uncollectible are written off.

(h) Investments

(i) Investments in equity securities

Listed equity securities held by the Kimberley Group are classified as being available-
for-sale and are stated at fair value, with any resultant gain or loss recognised directly in
equity, except for impairment losses (see note 1.2(l)). Where these investments are
derecognised, the cumulative gain or loss previously recognised directly in equity is
recognised in the income statement.

The fair value of listed equity securities classified as available-for-sale is their quoted
bid price at the balance sheet date.

Financial instruments classified as available-for-sale investments are

recognised/(derecognised) by the Kimberley Group on the date it commits to
purchase/(sell) the investments.

(i) Exploration and evaluation assets

Exploration and evaluation costs, including the costs of acquiring licenses, are capitalised as
exploration and valuation assets on an area of interest basis. Costs incurred before the
Kimberley Group has obtained the legal rights to explore an area are recognised in the income
statement.

Exploration and evaluation costs are recognised as an asset if the rights of the area of interest
are current and either:

(i) the expenditures are expected to be recouped through successful development and
exploitation of the area of interest; or

(ii) activities in the area of interest have not at the reporting date, reached a stage which
permits a reasonable assessment of the existence or other wise of economically
recoverable reserves and active and significant operations in, or in relation to, the area
of interest are continuing.

Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to
determine technical feasibility and commercial viability, and (ii) facts and circumstances

37
 suggest that the carrying amount exceeds the recoverable amount (see impairment accounting
policy 1.2(l)). For the purposes of impairment testing, exploration and evaluation assets are
allocated to cash-generating units to which the exploration activity relates. The cash generating
unit shall not be larger than the area of interest.

Once the technical feasibility and commercial viability of the extraction of mineral resources
in an area of interest are demonstrable, exploration and evaluation assets attributable to that
area of interest are first tested for impairment and then reclassified from exploration and
evaluation assets to mine properties within property, plant and equipment.

Revenue from the sale of diamonds recovered as a result of bulk sampling from identified areas
of interest is offset against exploration and evaluation costs.

(j) Deferred stripping costs

Expenditure incurred to remove overburden or waste material during the production phase of a
mining operation is deferred to the extent it gives rise to future economic benefits and charged
to operating costs on a units of production basis using the excess over the estimated average
stripping ratio for the area being mined.

Changes in estimates of average stripping ratios are accounted for prospectively. For the
purpose of assessing impairment, deferred stripping costs are grouped with other assets of the
relevant cash generating unit.

(k) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated
depreciation (see below) and impairment losses (see accounting policy 1.2(l)).

Cost includes expenditures that are directly attributable to the acquisition of the asset.
The cost of self-constructed assets includes the cost of materials and direct labour, any
other costs directly attributable to bringing the asset to a working condition for its
intended use, and the costs of dismantling and removing the items and restoring the site
on which they are located, and an appropriate proportion of production overheads.

Where parts of an item of property, plant and equipment have different useful lives, they
are accounted for as separate items of property, plant and equipment.

(ii) Mine properties

Mine property assets include costs transferred from exploration and evaluation assets
once technical feasibility and commercial viability of an area of interest are
demonstrable and subsequent costs to develop the mine to the production phase. These
include expenditure incurred by Kimberley in the current and previous reporting
periods. The expenditure was individually allocated to identified ore bodies on the
mining lease. The assets relating to each ore body are separately amortised from the date
mining commences. A review is undertaken at each reporting date for each mine
property area of interest to determine the appropriateness of continuing to carry forward
values in relation to that area. When expenditure carried forward no longer contributes
to the Kimberley Group’s ability to successfully exploit an area of interest, such costs
are written off in the financial period the decision is made.

(iii) Leased assets

Leases on terms of which the Kimberley Group assumes substantially all of the risks and
rewards of ownership are classified as finance leases. Upon initial recognition the leased
asset is measured at an amount equal to the lower of its fair value and the present value

38
 of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset. Lease payments are
accounted for as described in accounting policy 1.2(t).

Other leases are operating leases and the leased assets are not recognised on the
Kimberley Group’s balance sheet.

The Kimberley Group adopted Interpretation 4 Determining whether an Arrangement

Contains a Lease, which is mandatory for annual periods beginning on or after 1 January
2006, in its 2006 consolidated financial statements.

(iv) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in
the carrying amount of the item if it is probable that the future economic benefits
embodied within the part will flow to the Kimberley Group and its cost can be measured
reliably. The costs of the day-to-day servicing of property, plant and equipment are
recognised in the income statement as an expense as incurred.

(v) Depreciation
With the exception of mine properties and exploration and evaluation assets,
depreciation is charged to the income statement on a diminishing value basis over the
estimated useful lives of each part of an item of property, plant and equipment, except
to the extent that they are included in the carrying amount of another asset as an
allocation of production overheads. Items of mine plant and equipment are depreciated
over the lesser period of the estimated useful life of the asset and the projected life of
mine. Depreciation rates and methods are reviewed annually for appropriateness. The
depreciation rates used for the current and comparative period are:

2007 2006 2005

Office furniture and equipment 20%-60% 20%-60% 20%-60%
Plant and equipment 10%-20% 10%-20% 20%-40%
Motor vehicles 30% 30% 30%
Leased plant and equipment 20%-33% 20%-33% 20%-33%
Buildings and equipment 10% 10% 10%

The residual value, if significant, is reassessed annually.

(vi) Amortisation
Amortisation is charged to the income statement, except to the extent that it is included
in the carrying amount of another asset as an allocation of production overheads.

Mine properties in production are amortised on a units of production basis over

economically recoverable tonnes.

Amortisation is not charged on costs carried forward in respect of interest in the

development phase until commercial production commences.

(l) Impairment

(i) Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or
more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is

calculated as the difference between its carrying amount, and the present value of the
estimated future cash flows discounted at the original effective interest rate. An

39
 impairment loss in respect to an available-for-sale financial asset is calculated by
reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis.
The remaining financial assets are assessed collectively in groups that share similar
credit risk characteristics.

All impairment losses are recognised in the income statement. Any cumulative loss in
respect of an available-for- sale financial asset recognised previously in equity is
transferred to the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event

occurring after the impairment loss was recognised. For financial assets measured at
amortised cost the reversal is recognised in the income statement. For available-for-sale
financial assets that are equity securities, the reversal is recognised directly in equity.

(ii) Non-financial assets

The carrying amounts of the Kimberley Group’s non-financial assets, other than
inventories (see accounting policy (f)), are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists then the
asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-

generating unit exceeds its recoverable amount. A cash-generating unit is the smallest
identifiable asset group that generates cash flows that largely are independent from other
assets and groups. Impairment losses are recognised in the income statement, unless the
asset has previously been revalued, in which case the impairment loss is recognised as a
reversal to the extent of that previous revaluation with any excess recognised through the
income statement. Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its fair value
less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the asset belongs.

Impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of
depreciation and amortisation, if no impairment loss had been recognised.

(m) Issued capital

Ordinary issued capital is recorded at consideration received. Incremental costs directly
attributable to the issue of ordinary shares and share options recognised as a deduction from
equity, net of any related income tax benefit. Ordinary issued capital bears no special terms or
conditions affecting income or capital entitlements of the shareholders.

40
(n) Employee benefits

(i) Defined contribution superannuation funds

Obligations for contributions to defined contribution superannuation funds are
recognised as an expense in the income statement as incurred.

(ii) Short-term benefits

Liabilities for employee benefits for wages, salaries and annual leave that are expected
to be settled within 12 months of the reporting date represent present obligations
resulting from employees’ services provided to reporting date and are calculated at
undiscounted amounts based on remuneration wage and salary rates that the Kimberley
Group expects to pay as at reporting date including related on-costs, such as workers
compensation insurance and payroll tax.

Non-accumulating non-monetary benefits, such as medical care, housing, cars and free
or subsidised goods and services, are expensed based on the net marginal cost to the
Kimberley Group as the benefits are taken by the employees.

(iii) Other long-term employee benefits

The Kimberley Group’s net obligation in respect of long-term employee benefits is the
amount of future benefit that employees have earned in return for their service in the
current and prior periods plus related on-costs; that benefit is discounted to determine its
present value, and the fair value of any related assets is deducted. The discount rate is
the yield at the reporting date on AA credit-rated (Commonwealth Government) bonds
that have maturity dates approximating the terms of the Kimberley Groups’ obligations.

(iv) Share-based payment transactions – equity settled

Share-based compensation benefits are provided to employees via the Kimberley
Group’s various share option plans. The fair value of options granted is recognised as an
employee expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted is measured
using the Black-Scholes option pricing model, taking into account the terms and
conditions upon which the options were granted. The amount recognised is adjusted to
reflect the actual number of share options that vest except where forfeiture is only due
to share prices not achieving the threshold for vesting.

(v) Share-based payment transactions with cash alternatives

Share-based payment transactions in which the terms of the arrangement provide the
entity with a choice of settlement, whether to settle in cash or by issuing equity
instruments, are assessed in terms of whether the entity has a present obligation to settle
in cash and accounted for accordingly. If the entity has no present obligation to settle in
cash, it accounts for the transaction as an equity-settled share-based payment (refer
policy n(iv)).

If the entity has a present obligation to settle in cash, it accounts for the transaction as a
cash-settled share-based payment, whereby the fair value of the amount payable to the
employee is recognised as an expense with a corresponding increase in liabilities. The
fair value is initially measured at grant date and spread over the period during which the
employees become unconditionally entitled to the payment. The fair value of the Share
Appreciation Rights are measured based on the Black-Scholes formula, taking into
account the terms and conditions upon which the instruments were granted. The liability
is remeasured at each balance sheet date and at settlement date. Any changes in the fair
value of the liability are recognised as a finance cost.

41
(o) Provisions
A provision is recognised if, as a result of a past event, the Kimberley Group has a present legal
or constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, when appropriate, the risks specific to the liability.

(i) Site restoration

In accordance with the Kimberley Group’s environmental policy and applicable legal
requirements, a provision for site restoration in respect of disturbed land is recognised
when the land is disturbed.

The provision is the best estimate of the present value of the expenditure required to
settle the restoration obligation at the reporting date, based on current legal requirements
and technology. Future restoration costs are reviewed annually and any changes are
reflected in the present value of the restoration provision at the end of the reporting
period.

The amount of the provision for future restoration costs is capitalised and depreciated in
accordance with the policy set out in note 1.2(k). The unwinding of the effect of
discounting on the provision is recognised as a finance cost.

(ii) Mine rehabilitation

Provisions are made for the estimated cost of rehabilitation relating to areas disturbed
during the mine’s operation up to reporting date but not yet rehabilitated. Provision has
been made in full for all disturbed areas at the reporting date based on current estimates
of costs to rehabilitate such areas, discounted to their present value based on expected
future cashflows. The estimated cost of rehabilitation includes the current cost of
recontouring, topsoiling and revegetation, employing legislative requirements. Changes
in estimates are dealt with on a prospective basis as they arise.

Significant uncertainty exists as to the amount of rehabilitation obligations which will

be incurred due to the impact of changes in environmental legislation. The amount of the
provision relating to rehabilitation of mine infrastructure and dismantling obligations is
recognised at the commencement of the mining project and/or construction of the assets
where a legal or constructive obligation exists at that time. The provision is recognised
as a non-current liability with a corresponding asset included in property, plant and
equipment.

At each reporting date the rehabilitation liability is re-measured in line with changes in
discount rates, and timing or amount of the costs to be incurred. Changes in the liability
relating to rehabilitation of mine infrastructure and dismantling obligations are added to
or deducted from the related asset, other than the unwinding of the discount which is
recognised as a finance cost in the income statement as it occurs.

If the change in the liability results in a decrease in the liability that exceeds the carrying
amount of the asset, the asset is written-down to nil and the excess is recognised
immediately in the income statement. If the change in the liability results in an addition
to the cost of the asset, the recoverability of the new carrying amount is considered.
Where there is an indication that the new carrying amount is not fully recoverable, an
impairment test is performed with the write-down recognised in the income statement in
the period in which it occurs.

The amount of the provision relating to rehabilitation of environmental disturbance

caused by on-going production and extraction activities is recognised in the income
statement as incurred. Changes in the liability are charged to the income statement as

42
 rehabilitation expense, other than the unwinding of the discount which is recognised as
a finance cost.

(p) Trade and other payables

These amounts represent liabilities for goods and services provided to the Kimberley Group
prior to the end of the financial year which are unpaid. The amounts are unsecured and are
generally settled on 30 day terms.

(q) Interest-bearing liabilities

Interest-bearing borrowings are recognised initially at fair value less attributable transaction
costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost
with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest basis.

(r) Borrowing costs

Borrowing costs include interest, amortisation of ancillary costs incurred in connection with
arrangement of borrowings, trade creditors and finance charges in respect of finance leases.

Ancillary costs incurred in connection with the arrangement of borrowings are netted against
relevant borrowings and amortised over their life.

Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying
assets are assets which take more than 12 months to get ready for their intended use or sale. In
these circumstances, borrowing costs are capitalised to the cost of the assets. Where funds are
borrowed specifically for the acquisition, construction or production of a qualifying asset, the
amount of borrowing costs capitalised is those incurred in relation to that borrowing, net of any
interest earned on those borrowings. Where funds are borrowed generally, borrowing costs are
capitalised using a weighted average capitalisation rate.

Exploration and evaluation assets carried forward relating to areas of interest which have not
reached a stage permitting reliable assessment of economic benefits are not qualifying assets.

(s) Revenue

(i) Goods sold

Revenue from the sale of goods is measured at the fair value of the consideration
received or receivable, net of returns and allowances. Revenue is recognised in the
income statement when the significant risks and rewards of ownership have been
transferred to the buyer. No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due or there is a risk of return of goods or there
is continuing management involvement with the goods.

(ii) Sale of non-current assets

The net gain/(loss) on the sale of non-current assets is included as revenue or expense at
the date control of the assets passes to the buyer. The gain or loss on disposal is
calculated as the difference between the carrying amount of the asset at the time of
disposal and the net proceeds on disposal (including incidental costs).

(t) Lease payments

Payments made under operating leases are recognised in the income statement on a straight-
line basis over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance
expense and the reduction of the outstanding liability. The finance expense is allocated to each

43
 reporting period during the lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.

(u) Finance income and expenses

Finance income and expenses comprises interest income on funds invested, interest expense on
borrowings calculated using the effective interest method, finance establishment cost
amortisation, unwinding of discounts on provisions, foreign currency gains and losses, and
gains and losses on hedging instruments that are recognised in the income statement (see
accounting policy 1.2(c)).

Interest income is recognised in the income statement as it accrues, using the effective interest
method.

All borrowing costs are recognised in the income statement using the effective interest method.

(v) Loss per share

Basic loss per share is calculated by dividing the net loss attributable to the members of the
parent entity for the reporting period by the weighted average number of ordinary shares of
Kimberley.

(w) Income tax

Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: the initial recognition of assets and liabilities that affect neither accounting
nor taxable profit, and differences relating to investments in subsidiaries to the extent that they
will probably not reverse in the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.

(i) Tax consolidation

Kimberley and its wholly-owned Australian resident entities formed a tax-consolidated
group with effect from 1 July 2003 and have therefore been taxed as a single entity from
that date. The head entity within the tax consolidated group is Kimberley Diamond
Company NL.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from
temporary differences of the members of the tax-consolidated group are recognised in
the separate financial statements of the members of the tax-consolidated group using the
‘separate taxpayer within group’ approach by reference to the carrying amounts of assets
and liabilities in the separate financial statements of each entity and the tax values
applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax
losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and
are recognised by Kimberley as amounts payable/(receivable) to/(from) other entities in
the tax-consolidated group in conjunction with any tax funding arrangement amounts
(refer below). Any difference between these amounts is recognised by Kimberley as an
equity contribution or distribution.

44
 Kimberley recognises deferred tax assets arising from unused tax losses of the tax-
consolidated group to the extent that it is probable that future taxable profits of the tax-
consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses
as a result of revised assessments of the probability of recoverability is recognised by
the head entity only.

(x) Goods and Services Tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax
(GST), except where the amount of GST incurred is not recoverable from the taxation
authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the
asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the balance
sheet.

Cash flows are included in the statement of cash flows on a gross basis. The GST components
of cash flows arising from investing and financing activities which are recoverable from, or
payable to, the ATO are classified as operating cash flows.

(y) Segment reporting

A segment is a distinguishable component of the Kimberley Group that is engaged whether in
providing products or services (business segment), or in providing products or services within
a particular economic environment (geographical segment), which is subject to risks and
rewards that are different from those of other segments. The Kimberley Group primarily
operates in Western Australia, in the diamond mining and exploration industry.

(z) New accounting standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not
mandatory for 30 June 2007 reporting periods and have not been applied in preparing this
financial report. The Kimberley Group’s assessment of the impact of these new standards and
interpretations is set out below:

• AASB 7 Financial Instruments: Disclosure (August 2005) replaces the presentation

requirements of financial instruments in AASB132. AASB 7 is applicable for annual
reporting periods beginning on or after 1 January 2007 and will require extensive
additional disclosures with respect to the Kimberley Group’s financial instruments and
issued capital.

• AASB 2005–10 Amendments to Australian Accounting Standards (September 2005)

makes consequential amendments to AASB 132 Financial Instruments: Disclosures and
Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment
Reporting, AASB 117 Leases, AASB 133 Earnings Per Share, AASB 139 Financial
Instruments: Recognition and Measurement, AASB 1 First-time Adoption of Australian
Equivalents to International Financial Reporting Standards, AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance
Contracts arising from the release of AASB 7. AASB 2005–10 is applicable for annual
reporting periods beginning on or after 1 January 2007 and is expected to only impact
disclosures contained within the consolidated financial report.

Other new standards published but not mandatory for annual reporting periods ended 30 June
2007 are not expected to have an impact on the financial statements of the Kimberley Group.

45
(aa) Fair value estimation
A number of the Kimberley Group’s accounting policies and disclosures require the
determination of fair value, for both financial and non-financial assets and liabilities. Fair
values have been determined for measurement and/or disclosure purposes based on the
following methods. Information about the assumptions made in determining fair values of
assets and liabilities not covered below are disclosed in the notes specific to that asset or
liability.

(i) Derivatives
The fair value of option contracts is based on an external banking option pricing model
and prevailing market quoted economic variables.

(ii) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the
present value of future principal and interest cash flows, discounted at the market rate of
interest at the reporting date.

(bb) Accounting estimates and judgements

Management discusses with the Audit and Risk Committee the development, selection and
disclosure of the Kimberley Group’s critical accounting policies and estimates and the
application of these policies and estimates. The estimates and judgements that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.

(i) Key sources of estimation uncertainty

Note 23 contains detailed analysis about the foreign exchange exposure of the
Kimberley Group and risks in relation to foreign exchange movements.

(ii) Deferred stripping costs

The Kimberley Group capitalises the costs associated with the removal of waste rock
using a life of mine waste-to-ore strip ratio. Costs of mining of waste rock, in excess of
the life of mine waste-to-ore strip ratio, are accumulated and classified as property, plant
and equipment. Significant judgement is required in determining the life of mine strip
ratio. Factors that will affect this ratio include future changes in pit design, cost
structures, product price changes and grade recoveries against modelled grades. When
these factors change or become known in the future, such differences will impact the
deferred stripping costs in property, plant and equipment in the period in which they
change or become known.

(iii) Mine rehabilitation and site restoration provision

The Kimberley Group assesses its mine rehabilitation and site restoration provision at
each balance date in accordance with accounting policy 1.2(o). Significant judgement is
required in determining the provision for mine rehabilitation and site restoration as there
are many transactions and other factors that will affect the ultimate liability payable to
rehabilitate and restore the mine sites and related assets. Factors that will affect this
liability include future development, changes in technology, price increases and changes
in interest rates. When these factors change or become known in the future, such
differences will impact the site restoration provision and asset in the period in which
they change or become known.

46
 (iv) Royalties
The Kimberley Group has recognised a 5 per cent gross State Government Royalty in its
financial statements, effective from 1 January 2006, on the basis of an offer received
from the State Government reducing the royalty attributable to the Ellendale Operation
from 7.5 per cent to 5 per cent. The Kimberley Group has continued dialogue with the
State regarding the offer and the conditions (if any) that relate to that offer.
On the basis of the offer and ongoing discussions, the Kimberley Group believes the
conditions have been satisfied and that it is appropriate to accrue royalties at the rate of
5 per cent of gross revenue, rather than at the rate of 7.5 per cent as remains the
applicable statutory rate payable under the Royalty Act, or indeed any rate lower than 5
per cent which has been requested by the Kimberley Group in discussions with the State.
Should it be found that the conditions have not been satisfied and that the original
royalty rate applies, an additional royalty of approximately A$2,000,000 would be
payable. The directors believe this possibility is remote.

(v) Units of production method of amortisation

The Kimberley Group amortises mine properties in production on a units of production
basis over the economically recoverable tonnes. These calculations require the use of
estimates and assumptions. Significant judgement is required in assessing the available
reserves and resources under this method. Factors that must be considered in
determining reserves and resources are the complexity of metallurgy, product prices,
foreign exchange rates, cost structures and future developments. When these factors
change or become known in the future, such differences will impact amortisation
expense and the carrying value of mine property assets in the period in which they
change.

2. Segment reporting
The consolidated entity operates in Western Australia, in the diamond mining and exploration industry.

3. Acquisitions of Subsidiaries
At the general meeting held on 25 September 2006, Kimberley’s shareholders approved the acquisition of a
combined 3 per cent private royalty interest in its Ellendale Diamond Project. Kimberley reached an
agreement with both Faustus Nominees Pty Ltd (“Faustus”) and Weybridge Pty Ltd (“Weybridge”), each
of which held 1.5 per cent royalty entitlements in respect of gross revenue derived by Kimberley and its
subsidiary, Blina, at Ellendale, to acquire these royalty interests via the purchase of the entire issued capital
of Kimroy Pty Ltd (“Kimroy”), formerly a controlled entity of Faustus, and Royell Pty Ltd (“Royell”),
formerly a controlled entity of Weybridge, for total consideration of A$19,200,000. The consideration
payable was settled via the issue of fully paid ordinary shares in Kimberley at an issue price equivalent to
the volume weighted average price of Kimberley’s shares on the ASX for the five business days prior to the
date on which Kimberley’s shareholders approved the transaction, being 25 September 2006. As a result,
Kimberley issued 20,072,071 fully paid ordinary shares at an issue price of A$0.9565 per share (rounded to
four decimal places) on 6 October 2006, 10,036,035 to Faustus and 10,036,036 to Weybridge. The issue
represented a payment of A$9,600,000 to Faustus and A$9,600,000 to Weybridge. The stamp duty payable
on the acquisition of the entities amounted to A$1,025,000 and was paid in cash.
Recognised
values on
In thousands of A$ acquisition
Property, plant and equipment 17,823
Exploration and evaluation 2,402
—————
Net identifiable assets and liabilities 20,225
—————
—————
Consideration paid, satisfied via the issue of shares 20,225
—————

47
4. Other income
2005 2006 2007
As reported
and restated
A$’000
Other gain on disposal of listed investments 43 – –
Net gain on disposal of property, plant and equipment 19 3 –
Intercompany management fees – – 45
––––––– ––––––– –––––––
62 3 45
––––––– ––––––– –––––––
5. Expenses
Other expenses:
Net loss on disposal of property, plant and equipment 8
Relinquished exploration assets – 11 1,424
Impairment of investments 205 – –
–––––––– –––––––– ––––––––
205 11 1,432
–––––––– –––––––– ––––––––
Depreciation, amortisation and royalties included in income statement

Depreciation of:
Restoration and rehabilitation asset 554 702
Office furniture and equipment 95 134 188
Plant and equipment 1,149 1,578 6,814
Buildings and infrastructure 1,673 2,775 3,272
Motor vehicles 126 180 248
–––––––– –––––––– ––––––––
3,043 5,221 11,224
–––––––– –––––––– ––––––––
Less: depreciation capitalised to exploration and
evaluation assets (263) (443) (395)
–––––––– –––––––– ––––––––
Total depreciation 2,780 4,778 10,829
–––––––– –––––––– ––––––––
Amortisation of:
Mine development property 523 811 3,481
Leased plant and equipment 193 131 94
–––––––– –––––––– ––––––––
716 942 3,575
–––––––– –––––––– ––––––––
Total depreciation and amortisation 3,496 5,720 14,404
–––––––– –––––––– ––––––––

48
 2005 2006 2007
As reported
and restated
A$’000
Royalties:
Government royalties 2,977 2,665 2,668
Vendor royalties 1,191 1,066 38
–––––––– –––––––– ––––––––
4,168 3,731 2,706

Lease payments:
–––––––– –––––––– ––––––––
–––––––– –––––––– ––––––––
Operating lease rental 1,938 1,771 572
–––––––– –––––––– ––––––––
6. Personnel expenses
Wages and salaries 10,048 13,932 18,515
Other associated personnel expenses 623 1,144 1,007
Superannuation costs 939 1,174 1,563
Increase in liability for annual leave 110 343 184
Share-based payments 608 819 1,563
–––––––– –––––––– ––––––––
Total personnel expenses 12,328 17,412 22,832
–––––––– –––––––– ––––––––
Less: personnel expenses capitalised to exploration
and evaluation assets (1,417) (3,293) (3,450)
–––––––– –––––––– ––––––––
10,911 14,119 19,382
–––––––– –––––––– ––––––––
7. Net financing costs
2005 2006 2006 2007
Note As reported Restated
A$’000
Interest income 534 793 792 699
Interest income – related party 29 – 33 33 4
Loan establishment income 29 – 10 10 –
Net foreign exchange gain – 74 – –
–––––––– –––––––– –––––––– ––––––––
Financial income 534 910 835 703

Borrowing costs:
–––––––– –––––––– –––––––– ––––––––
Interest – related parties (4) – – –
Interest – borrowings (310) (2,187) (2,187) (3,318)
Interest – other – (20) (21) –
Finance establishment costs (1,792) (33) (33) –
Mine rehabilitation and site
restoration discount unwind (124) (173) (173) (373)
Finance charges payable on
finance leases (28) (179) (179) (93)
Financing facility work fee – – (332) (812)
Less: capitalised borrowing cost 1,695 1,010 1,010 495
Establishment cost amortisation – (474) (474) (553)
–––––––– –––––––– –––––––– ––––––––
Financial expenses (563) (2,056) (2,389) (4,654)
–––––––– –––––––– –––––––– ––––––––
Net financing costs (29) (1,146) (1,554) (3,951)
–––––––– –––––––– –––––––– ––––––––

49
8. Auditors’ remuneration
2005 2006 2007
As reported
Note and restated
A$’000
Audit services:
Auditors of the company – KPMG (i) 93,500 181,500 172,047
–––––––– –––––––– ––––––––
93,500 181,500 172,047
–––––––– –––––––– ––––––––
(i) The company’s financial statements for the period ended 31 December 2005 were subject to an audit as a requirement for
Kimberley’s listing on the Alternative Investment Market (AIM) Board of the London Stock Exchange on 28 July 2006.

9. Income tax expense

2005 2006 2007
Recognised in the income statement
Deferred tax expense
Origination and reversal of temporary differences
and tax losses – – (499)
Under/(over) provision for prior periods – – 313
–––––––– –––––––– ––––––––
Total income tax expense/(income) in income statement – – (186)
–––––––– –––––––– ––––––––
Numerical reconciliation between tax expense and
pre-tax net profit
Loss before tax (3,459) (13,132) (32,052)
Income tax (benefit) using the domestic corporation
tax rate of 30% (2006 and 2005: 30%) (1,038) (3,940) (9,616)
Increase in income tax due to:
Non-deductible expenses 230 753 1,474
Effect of tax losses not recognised 1,075 4,512 7,404
Net tax effect of sale/dilution of shares in
subsidiary – Blina – – 769
Under/(over) provision for prior periods – – 313
Current year capital losses derecognised 15 – –
Decrease in income tax due to:
Net tax effect of sale/dilution of shares in
subsidiary – Blina – (854) –
Tax deductible equity raising costs (282) (471) (530)
–––––––– –––––––– ––––––––
Income tax expense/(benefit) attributable to entity – – (186)
–––––––– –––––––– ––––––––
10. Loss per share
2005 2006 2006 2007
As reported Restated
A$
Basic loss per share (0.015) (0.055) (0.045) (0.078)

The calculation of basic loss per share at 30 June 2007 was based on the loss attributable to ordinary
shareholders of A$30,161,000 (2006: A$13,316,000, 2005: A$3,504,000) and a weighted average number of
ordinary shares outstanding during the financial year ended 30 June 2007 of 385,581,745 (2006:
294,899,748, 2005: 237,747,175).

50
Diluted loss per share
The Kimberley Group is in a loss making position and it is unlikely that the conversion to, calling of, or
subscription for, ordinary share capital in respect of potential ordinary shares would lead to a diluted earnings
per share that shows an inferior view of the earnings per share. For this reason, the diluted loss per share is
the same as basic loss per share.

11. Cash and cash equivalents

Note 2005 2006 2007
As reported
and restated
A$’000
Bank balances 5,044 14,314 5,252
Term deposits 3,000 6,000 –
Restricted cash account (i) – 5,224 1,372
–––––––– –––––––– ––––––––
Cash and cash equivalents in the
statement of cash flows 8,044 25,538 6,624

(i)
–––––––– ––––––––
These funds relate to a debt service reserve account, use of which is restricted by Kimberley’s project financiers.
––––––––
12. Trade and other receivables
Current
Trade debtors 549 – –
Other debtors 518 469 1,479
Loan – related party (i) – 307 –
GST receivable 694 1,616 916
Derivatives – fair value 23 272 – –
–––––––– –––––––– ––––––––
2,033 2,392 2,395
–––––––– –––––––– ––––––––
Non-current
Security deposit – environmental bonds 263 275 917
Bonds 26 56 95
–––––––– –––––––– ––––––––
289 331 1,012

(i)
–––––––– –––––––– ––––––––
This represents an amount receivable by Kimberley’s controlled entity Blina for loan funds advanced to RNI, formerly Namakwa
Diamond Company NL, during the year ended 30 June 2006. The balance of the loan was repaid during the financial year. Refer
to notes 14 and 29 for more details.

13. Inventories
Ore stockpile at net realisable value – – 4,885
Ore stockpile – at cost 3,024 5,122 –
Diamond inventory – at cost 1,110 1,507 –
Diamond inventory – at net realisable value – – 3,372
Stores – at cost 1,137 1,787 2,479
–––––––– –––––––– ––––––––
5,271 8,416 10,736
––––––––
The impairment writedowns of inventories to net realisable value during the current year amounted to
–––––––– ––––––––
A$1,423,000 and A$1,488,000 for ore stockpiles and diamond inventory respectively. The writedowns have
been disclosed as part of cost of product sold within the income statement.

51
14. Investments
2005 2006 2007
As reported
Note and restated
A$’000
Non-current investments
Listed equity securities available for sale (i) 225 1,287 956
–––––––– –––––––– ––––––––
225 1,287 956

(i)
–––––––– –––––––– ––––––––
Kimberley holds 1,155,300 (2006: 1,553,000, 2005: 1,553,000) ordinary shares in RNI, a company associated with Mr. MA
Kennedy and Mr. PD Danchin. As at 30 June 2007, the fair value of the shares held in RNI was A$43,000 (2006: A$78,000, 2005:
A$225,000).
Further to this, Kimberley’s listed subsidiary, Blina, holds 3,261,356 (2006: 24,185,573, 2005: A$nil) ordinary shares in RNI.
The shares were received in accordance with an election made by Blina to have A$1,000,000 in loaned funds repaid through the
issue of ordinary shares in RNI. As at 30 June 2007, the market value of the shares held in RNI by Blina was A$913,000 (2006:
A$1,209,000, 2005: A$nil). Refer to note 29 for more details.
RNI consolidated its share capital on a 10-to-1 basis during the current financial year, resulting in every ten fully paid shares
being consolidated into one fully paid share.
(ii) During the current financial year, Kimberley disposed of a portion of its interest in Blina for A$10,800,000, via the sale of
20,000,000 Blina ordinary fully paid shares at A$0.54 per share to private investors. The sale realised a gain for Kimberley Group
of A$8,189,000 after transaction costs of A$50,000.
Kimberley also acquired the entire issued capital of Kimroy and Royell during the year, for total consideration of A$19,200,000,
settled via the issue of 20,072,071 fully paid ordinary shares at an issue price of A$0.9565 per share. Stamp duty payable on the
acquisition of the entities was A$1,205,000.

52
15. Property, plant and equipment
2005 2006 2007
As reported
Note and restated
A$’000
Office furniture and equipment:
At cost 991 1,279 1,808
Accumulated depreciation (287) (422) (602)
–––––––– –––––––– ––––––––
704 857 1,206
–––––––– –––––––– ––––––––
Plant and equipment:
At cost 14,433 21,459 90,255
Accumulated depreciation (2,529) (4,028) (10,840)
–––––––– –––––––– ––––––––
11,904 17,431 79,415
–––––––– –––––––– ––––––––
Buildings and infrastructure:
At cost 18,192 20,337 26,040
Accumulated depreciation (3,332) (5,937) 9,210
–––––––– –––––––– ––––––––
14,860 14,400 16,830
–––––––– –––––––– ––––––––
Leased plant and equipment:
At cost 1,218 1,120 1,120
Accumulated depreciation (430) (508) (602)
–––––––– –––––––– ––––––––
788 612 518
–––––––– –––––––– ––––––––
Motor vehicles:
At cost 798 1,148 1,379
Accumulated depreciation (412) (584) (832)
–––––––– –––––––– ––––––––
386 564 547
–––––––– –––––––– ––––––––
Mine properties:
At cost 19,955 20,454 38,980
Accumulated depreciation (1,412) (2,186) (5,667)
–––––––– –––––––– ––––––––
18,543 18,268 33,313
–––––––– –––––––– ––––––––
Deferred stripping: At cost 5,785 10,597 18,011
–––––––– –––––––– ––––––––
Restoration and rehabilitation asset:
At cost – 5,341 7,803
Accumulated depreciation – (839) (1,542)
–––––––– –––––––– ––––––––
(i) – 4,502 6,261
–––––––– –––––––– ––––––––
Capital works in progress: At cost 15,543 64,857 29,986
–––––––– –––––––– ––––––––
Total property, plant and equipment 68,513 132,088 186,087
–––––––– –––––––– ––––––––

53
Reconciliation
A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below.

2005 2006 2007

As reported
and restated
A$’000
Office furniture and equipment
Carrying amount at the beginning of the year 442 704 857
Transfer from capital work in progress – – 272
Additions 357 287 281
Disposals – – (7)
Depreciation (95) (134) (188)
Effect of movement in exchange rate – – (9)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 704 857 1,206
–––––––– –––––––– ––––––––
Plant and equipment
Carrying amount at the beginning of the year 11,501 11,342 17,431
Additions 1,552 7,299 6,657
Disposals – – (3)
Transfer from capital works in progress – 368 62,144
Depreciation (1,149) (1,578) (6,814)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 11,904 17,431 79,415
–––––––– –––––––– ––––––––
Buildings and infrastructure
Carrying amount at the beginning of the year 6,732 13,819 14,400
Additions 9,800 3,356 2,742
Transfer from capital works in progress 2,960
Depreciation (1,673) (2,775) (3,272)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 14,860 14,400 16,830
–––––––– –––––––– ––––––––
Leased plant and equipment
Carrying amount at the beginning of the year 798 788 612
Additions 221 – –
Disposals (38) (45) –
Amortisation (193) (131) (94)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 788 612 518
–––––––– –––––––– ––––––––
Motor vehicles
Carrying amount at the beginning of the year 180 386 564
Additions 332 362 231
Disposals – (4) –
Depreciation (126) (180) (248)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 386 564 547
–––––––– –––––––– ––––––––
Mine properties
Carrying amount at the beginning of the year 16,502 18,238 18,268
Additions 2,564 841 18,526
Amortisation (523) (811) (3,481)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 18,543 18,268 33,313
–––––––– –––––––– ––––––––

54
 2005 2006 2007
As reported
and restated
A$’000
Deferred waste stripping costs
Carrying amount at the beginning of the year – 5,785 10,597
Additions 5,785 4,812 7,414
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 5,785 10,597 18,011
–––––––– –––––––– ––––––––
Capital works in progress
Carrying amount at the beginning of the year – 15,543 64,857
Additions 13,851 49,878 30,047
Borrowing costs capitalised 1,692 989 458
Finance establishment costs offset against interest
bearing liabilities – (1,185) –
Transfer to plant and equipment – (368) (65,376)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 15,543 64,857 29,986
–––––––– –––––––– ––––––––
Restoration and rehabilitation
Carrying amount at the beginning of the year – 1,908 4,502
Additions – 3,148 2,217
Transfers from exploration and evaluation assets – – 244
Depreciation – (554) (702)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year – 4,502 6,261
–––––––– –––––––– ––––––––
Total property, plant and equipment 68,513 132,088 186,087

(i)
–––––––– –––––––– ––––––––
Capitalised restoration and rehabilitation costs have been reclassified from individual asset categories to a separate asset class,
being restoration and rehabilitation asset, to reflect a more appropriate basis of presentation. During the year ended 30 June 2006,
capitalised restoration and rehabilitation costs were allocated to the asset class to which they related. As a result, comparative
amounts have been reclassified to confirm with the current year’s presentation and A$244,000 of restoration and rehabilitation
costs, previously capitalised as exploration and evaluation assets, have been transferred to property, plant and equipment in the
Kimberley Group. Capitalised site restoration and mine rehabilitation costs have been allocated to the asset class to which they
relate for the year ended 30 June 2005 for which information is not publicly available.

Leased plant and equipment

The consolidated entity leases various property, plant and equipment under a number of finance lease
agreements. At the end of each of the leases the consolidated entity has the option to purchase the equipment.
The lease equipment becomes lease obligations (see note 19).

Basis of carrying value

Kimberley’s Board of Directors has considered the Gem Diamonds bid in its assessment of any potential
impairment of assets and concluded that the bid supports the current carrying value of Kimberley’s non-
current assets. Refer to Note 1.1(a) for more details.

Security
Kimberley’s property, plant and equipment is subject to a fixed and floating charge to secure bank funding
relating to the Ellendale Project. Further details are outlined in note 19.

55
16. Exploration and evaluation assets
2005 2006 2007
As reported
and restated
A$’000
Exploration and evaluation assets 13,035 22,993 30,372

Reconciliation
–––––––– –––––––– ––––––––
Carrying amount at the beginning of the year 5,275 13,035 22,993
Expenditure during the period 5,850 8,657 9,478
Revenue from sale of rough diamonds recovered
from exploration activities – – (431)
Capitalised rehabilitation 129 244 –
Impairment of exploration and evaluation asset – – (1,424)
Exploration tenements acquired 1,781 1,057 –
Capitalised rehabilitation transferred to property,
plant and equipment – – (244)
–––––––– –––––––– ––––––––
Carrying amount at the end of the year 13,035 22,993 30,372
–––––––– ––––––––
The recoverability of the carrying amounts of exploration and evaluation assets is dependent on the successful
––––––––
development and commercial exploitation or sale of the respective area of interest.

17. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
——————————————— ——————————————— ———————————————
2005 2006 2007 2005 2006 2007 2005 2006 2007
As As As
reported reported reported
and and and
restated restated restated
A$’000
Property, plant and
equipment – – (13) 5,344 6,857 7,842 5,344 6,857 7,829
Exploration and
evaluation assets – – – 3,849 6,724 8,363 3,849 6,724 8,363
Investments (56) (100) (110) – – – (56) (100) (110)
Other receivables – – – 20 10 – 20 10 –
Other payables and
provisions (778) (782) (1,210) – – – (778) (782) (1,210)
Site and mine
restoration
provision (692) (1,639) (2,608) – – – (692) (1,639) (2,608)
Tax value of losses
recognised (7,426) (10,750) (12,283) – – – (7,426) (10,750) (12,283)
Other items (75) (134) (27) – – 46 (75) (134) 19
–––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– ––––––

––––– ––––– ––––– ––––– ––––– ––––– ––––– ––––– –––––

(9,027) (13,405) (16,251) 9,213 13,591 16,251 186 186 –

56
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following:

2005 2006 2007

As reported
and restated
A$’000
Deductible temporary difference 669 1,125 1,244
Tax income losses 17,782 22,236 29,803
Tax capital losses 19 19 64
–––––––– –––––––– ––––––––
18,470 23,380 31,111
–––––––– –––––––– ––––––––
The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax
assets have not been recognised in respect of these items because it is not probable that future taxable profit
will be available against which the Kimberley Group can utilise the benefits from.

Movement in temporary differences during the year

As reported and restated
Recognised
1 July 2004 in income 30 June 2005
A$’000
Property, plant and equipment 4,591 753 5,344
Exploration and evaluation assets 1,520 2,329 3,849
Investments (23) (33) (56)
Other receivables – 20 20
Other payables and provisions (467) (311) (778)
Rehabilitation and restoration provision (656) (36) (692)
Tax value of losses recognised (4,662) (2,764) (7,426)
Other items (117) 42 (75)
–––––––– –––––––– ––––––––
186 – 186
–––––––– –––––––– ––––––––
Property, plant and equipment 5,344 1,513 6,857
Exploration and evaluation assets 3,849 2,875 6,724
Investments (56) (44) (100)
Other receivables 20 (10) 10
Other payables and provisions (778) (4) (782)
Rehabilitation and restoration provision (692) (947) (1,639)
Tax value of losses recognised (7,426) (3,324) (10,750)
Other items (75) (59) (134)
–––––––– –––––––– ––––––––
186 – 186
–––––––– –––––––– ––––––––
Under/over Recognised
1 July 2006 provision in income Reclass 30 June 2007
A$’000
Property, plant and equipment 6,857 (38) 289 721 7,829
Exploration and evaluation assets 6,724 102 1,434 103 8,363
Investments (100) – (10) – (110)
Other receivables 10 – (10) – –
Other payables and provisions (782) (1) (427) – (1,210)
Rehabilitation and restoration
provision (1,639) (18) (127) (824) (2,608)
Tax value of losses recognised (10,750) – (1,533) – (12,283)
Other items (134) 268 (115) – 19
–––––––– –––––––– –––––––– –––––––– ––––––––

–––––––– –––––––– –––––––– –––––––– ––––––––

186 313 (499) – –

57
18. Trade and other payables
2005 2006 2007
As reported
Note and restated
A$’000
Trade creditors 13,853 17,170 17,644
Other creditors and accruals 1,841 2,000 2,941
Derivatives – fair value 23 – 555 –
–––––––– –––––––– ––––––––
15,694 19,725 20,585
–––––––– –––––––– ––––––––
19. Interest bearing liabilities
This note provides information about the contractual terms of the Kimberley Group’s interest-bearing loans and
borrowings. For more information about the consolidated entity’s exposure to interest rate risk, see note 23.

58
 2005 2006 2007
As reported
Note and restated
A$’000
Current
Secured loan – Working Capital Facility (i) 4,812 7,000 7,757
Secured loan – Ellendale Project Facility (ii) – 5,000 15,000
Capitalised borrowing costs offset against
interest bearing liabilities – (474) (544)
Finance lease liabilities (iv) 272 193 58
–––––––– –––––––– ––––––––
5,084 11,719 22,271
–––––––– –––––––– ––––––––
Non current
Secured loan – Ellendale Project Facility (ii) – 30,000 2,443
Capitalised borrowing costs offset against
interest bearing liabilities – (711) (89)
Finance lease liabilities (iv) 247 53
–––––––– –––––––– ––––––––
247 29,342 2,354
–––––––– –––––––– ––––––––
Financing facilities –
The consolidated entity has access to
the following facilities
Working Capital Facility 6,000 11,000 7,757
Ellendale Project Facility – 35,000 17,443
Government Bond Facility 7,000 7,000 7,000
–––––––– –––––––– ––––––––
13,000 53,000 32,200
–––––––– –––––––– ––––––––
Facilities utilised at reporting date
Working Capital Facility 4,812 7,000 7,757
Ellendale Project Facility – 35,000 17,443
Government Bond Facility 1,357 4,002 4,462
–––––––– –––––––– ––––––––
6,169 46,002 29,662
–––––––– –––––––– ––––––––
Facilities not utilised at reporting date
Working Capital Facility 1,188 4,000 –
Ellendale Project Facility – – –
Government Bond Facility 5,643 2,998 2,538
–––––––– –––––––– ––––––––
6,831 6,998 2,538
–––––––– –––––––– ––––––––

Financing arrangements
Kimberley’s financing arrangements are provided under a secured loan facility with its Ellendale Project
bankers and are secured by a fixed and floating charge over Kimberley’s assets. For more details regarding
Kimberley’s financing activities, refer to Note 1.1(a).

(i) Working Capital Facility

The Working Capital Facility is subject to periodic review and has been rolled until 30 September
2007 with no further new money redraws currently permitted. It bears interest at normal market rates
prevailing for this type of facility. Refer to note 1.1(a).

59
(ii) Ellendale Project Facility
The Ellendale Project Facility is repayable in set quarterly instalments and is to be fully repaid by 1
July 2008. In addition to the required quarterly instalment payments, Kimberley paid A$7,557,000 in
advance during the current financial year. Current scheduled repayments of bank debt are
A$5,000,000 on each of 1 October 2007, 1 January 2008 and 1 April 2008, with a final A$2,443,000
due on 1 July 2008. Interest on the facility is paid at Bank Bill Swap Rate (“BBSW”) plus bank
margin. Refer to Note 1.1(a).

(iii) Government Bond Facility

The Government Bond Facility is drawn in the form of bank guarantee to the Western Australian State
Government for environmental restoration and does therefore not involve the provision of project
funds. No further performance bonds are to be issued under the Government Bond Facility unless
Kimberley provides the financees with an amount of cash (as collateral) equal to the Liability of the
performance bond being issued. A 1 per cent per annum fee is payable on the face value of guarantees
drawn under this facility.

(iv) Finance Lease Facility

The consolidated entity’s lease liabilities are secured by leased assets of A$518,000 (2006:
A$612,000, 2005: A$788,000), as in the event of default, the leased assets revert to the lessor.

Finance Lease Liabilities

Finance lease liabilities of the Kimberley Group are payable as follows:
2005 2006 2007
As reported and restated
Minimum Minimum Minimum
lease lease lease
payments Interest Principal payments Interest Principal payments Interest Principal
A$’000
Less than one year 300 (28) 272 204 (11) 193 59 (1) 58
Between one and
five years 259 (12) 247 54 (1) 53 – – –
–––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– ––––––

–––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– ––––––

559 (40) 519 258 (12) 246 59 (1)

Under the terms of the lease agreements, no contingent rents are payable. At the end of the lease term, the
58

Kimberley Group has the option to purchase the equipment.

20. Employee benefits

With the exception of employee share-based payments listed below, the Kimberley Group does not provide
for any employee benefits beyond normal statutory requirements.

Share based payments

The Remuneration and Nomination Committee has introduced a number of equity-based short-term
incentive (STI) and long-term incentive (LTI) plans designed to promote continuity of employment and to
provide additional incentive to increase shareholder wealth. Equity-based compensation is provided as
options and rights over ordinary shares of the Company and may be issued to directors, executives and
employees. Details of equity-based STIs and LTIs issued to key management personnel, senior management
and employees are summarised below.

Kimberly Diamond Company Employee Option Plan (“Employee Option Plan”)

At the General Meeting held on 14 May 2004, shareholders approved the Kimberley Diamond Company
Employee Share Option Plan (the “option plan”). The option plan provides for selected employees
(including executives) and contractors to be offered the opportunity to subscribe for options over ordinary
fully paid shares each year for no consideration. Each option carries the right to subscribe for one ordinary

60
fully paid share. Of the total of all options issued pursuant to an application, the holder may only exercise
that percentage of such options (the “Exercisable Interest”) during the period commencing from the date
of issue and expiring two years thereafter (the “Qualifying Period”) as provided for below:

Period of continuous employment or engagement Exercisable interest

since date of issue of options %
Within six months 0
From six months to one year 25
From one year to 18 months 50
From 18 months to two years 75
More than two years 100
If a holder ceases to be a participant during the Qualifying Period for any reason, the holder may only
exercise the Exercisable Interest within three months from the date the holder ceases to be a participant, and
thereafter the options will expire. There are no voting or divided rights attached to the options. Voting rights
will be attached to the ordinary issued shares when the options have been exercised. The directors have the
right under the option plan to issue new options on terms and conditions they determine appropriate.

As a result of the plan, Kimberley announced the issue of 2,753,000 unlisted options during the year ended
30 June 2005, with a fair value of A$0.387 per option, to subscribe for ordinary fully paid shares in
Kimberley at any time on or before 30 June 2007 at an exercise price of A$1.60 each. All the options were
allocated on 8 July 2004 and issued on 24 August 2004. Each option is convertible to one fully paid ordinary
share.

The fair value of the options are estimated at the date of grant using the Black-Scholes model. The following
table sets out the assumptions made in determining the fair value of the options granted.

Grant date
Dividend yield 0.00%
Expected volatility 50.00%
Risk-free interest rate 5.25%
Expected life of option (years) 0.50–2.00
Option exercise price A$1.60
Share price at date of grant A$1.58
The expected life of the option is based on historical data and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of
future periods which may also not necessarily be the actual outcome.

The following table illustrates the number and weighted average exercise prices (“WAEP”) of share options
issued under the option plan.
2005 2006 2007
Number WAEP A($) Number WAEP (A$) Number WAEP (A$)
Outstanding at the beginning
of the year – – 2,035,000 1.60 1,933,125 1.60
Granted during the year 2,753,000 1.60 – – – –
Expired during year 1,933,125 1.60
Forfeited during the year 718,000 – 101,875 1.60 – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Outstanding at the end of the year

Exercisable at the end of the year

–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
2,035,000

1,017,500
1.60

1.60
1,933,125

1,933,125
1.60

1.60
–

–
–

–
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
In accordance with the terms of the Employee Option Plan, 2,753,000 options issued under the Plan expired
on 30 June 2007, 819,875 of which had been forfeited in prior financial years due to the employment service
criteria not being met. No options were converted under the plan.

61
Kimberley Diamond Company 2007 Indexed Bonus Plan (Bonus Plan)
The Kimberley Diamond Company Indexed Bonus Plan (the “bonus plan”) provides for selected executive
directors, senior employees (including executives) and contractors to be allocated a certain number of share
appreciation rights (“rights”) based on their capability and experience.

Of the total rights granted to a holder pursuant to the bonus plan, the holder may only receive that portion of
rights issued on the anniversary date as provided for below:

Anniversary date Cumulative

Rights issued rights granted
(%) (%)
1 May 2007 25 25
1 August 2007 25 50
1 November 2007 25 75
1 February 2007 25 100
If a holder ceases to be an employee of Kimberley at any time before 1 February 2008 for any reason, all
outstanding rights will expire and cease to carry any rights or benefits unless otherwise approved by the
Remuneration and Nomination Committee.

Each right has an initial indexed notional value of A$0.80. On each anniversary date, Kimberley’s closing
ASX share price is noted and applied to calculate the notional increase in the value of the rights, being the
closing share price on the anniversary date less A$0.80. The notional increase in the value of the rights will
be converted into Kimberley Shares or in lieu or conversation may, at Kimberley’s discretion, be paid to the
holder as cash. If at the anniversary date the ASX closing Kimberley Share price is below the indexed value
of A$0.80, the rights that would otherwise have been granted on that date will roll over to be granted on the
next anniversary date or, if at the final anniversary date, will lapse with no consequence for Kimberley or the
holder.

The 2007 Indexed Bonus Plan was approved on 19 February 2007. As a result, Kimberley granted 9,700,000
rights, 3,600,000 of which were granted to executive directors and officers of the Kimberley Group, with a
fair value of A$0.136 per right. The fair value of the rights at grant date is determined based on the Black
Scholes option-pricing model. The following table gives the assumptions made in determining the fair value
of the rights granted.

Grant date
Dividend yield 0.00%
Expected volatility 40.00%
Risk-free interest rate 5.25%
Expected term of the right (years) 1.00–3.00
Notional price A$0.80
Share price at date of grant A$0.85
The introduction of the above plan resulted in the cancellation of the 2006 Indexed Bonus Plan introduced
during the year ended 30 June 2006. Accordingly, 2,575,000 rights with an indexed notional value of A$1.30,
300,000 of which related to executive directors of the Kimberley Group, were cancelled on 19 February
2007.

62
The following table illustrates the number and movement of rights issued under the bonus plan.
2006 2007
Number
Outstanding at the beginning of the year – 3,600,000
Forfeited during the year – 2006 Plan 1,025,000
Cancelled during the year – 2,575,000
Granted during the year 4,500,000 9,700,000
Forfeited during the year – 2007 Plan 900,0001 100,000
–––––––––– ––––––––––
Outstanding at the end of the year 3,600,000 9,600,000

1
–––––––––– ––––––––––
Forfeited rights during the period represent rights forfeited due to the service criteria not being met.

Executive Directors Option Plan

At the annual general meeting held on 24 November 2005, shareholders approved the issue of executive
director options to Mr. MA Kennedy and Mr. KM Simich. Each option carries the right to subscribe for one
ordinary fully paid share. Of the total options issued, the option holder may only exercise the Exercisable
Interest during the Qualifying Period as provided below:

Period of directorship and/or employment since date of Exercisable

issue of executive director options interest (%)
Date of issue to 23 November 2006 0
24 November 2006 to 23 November 2007 33
24 November 2007 to 23 November 2008 67
24 November to Expiry Date 100
If the option holder ceases to be a director and/or employee of Kimberley during the Qualifying Period, the
option holder may only exercise the Exercisable Interest within thirty days from the date the option holder
ceases to be a director or employee, as the case may be, and thereafter the options will expire and cease to
carry any rights or benefits unless otherwise approved by the Remuneration and Nomination Committee.
As a result of the above plan, Kimberley issued 2,250,000 unlisted options, 1,250,000 to Mr. Kennedy and
1,000,000 to Mr. Simich, to subscribe for ordinary fully paid shares in Kimberley at any time on or before
23 November 2010 at an exercise price of A$1.40 each. The options were granted and issued on 24
November 2005 and had a fair value of A$0.295 per option.
The fair value of the options are estimated at the date of grant using the Black-Scholes model. The following
table sets out the assumptions made in determining the fair value of the options granted.
Grant date
Dividend yield 0.00%
Expected volatility 35.00%
Risk-free interest rate 5.25%
Expected life of option (years) 1.00–3.00
Option exercise price A$1.40
Share price at date of grant A$1.35
The following table illustrates the weighted average exercise prices (WAEP) of share options issued under
the option plan.
2006 2007
Number WAEP (A$) Number WAEP (A$)
Outstanding at the beginning of the year – – 2,250,000 1.40
Granted during the year 2,250,000 1.40 – –
Forfeited during the year – – – –
–––––––– –––––––– –––––––– ––––––––
Outstanding at the end of the year 2,250,000 1.40 2,250,000 1.40

Exercisable at the end of the year

––––––––
–
––––––––
–
––––––––
750,000
––––––––
1.40
–––––––– –––––––– –––––––– ––––––––

63
21. Provisions
Long service Site and mine
Annual leave leave restoration Total
A$’000
Balance at 1 July 2005 511 – 2,668 3,179
Provisions made during the year 1,104 – 3,263 4,367
Provisions used during the year (761) – – (761)
Unwind of discount – – 173 173
–––––––– –––––––– –––––––– ––––––––
Balance at 30 June 2006 854 – 6,104 6,958
–––––––– –––––––– –––––––– ––––––––
Disclosed as:
Current 854 – – 854
Non-current – – 6,104 6,104
–––––––– –––––––– –––––––– ––––––––
854 – 6,104 6,958

Balance at 1 July 2006

––––––––
854
––––––––
–
––––––––
6,104
––––––––
6,958
Provisions made during the year 1,488 75 2,217 3,780
Provisions used during the year (1,304) – – (1,304)
Unwind of discount – – 373 373
–––––––– –––––––– –––––––– ––––––––
Balance at 30 June 2007 1,038 75 8,694 9,807
–––––––– –––––––– –––––––– ––––––––
Disclosed as:
Current 1,038 – – 1,038
Non-current – 75 8,694 8,769
–––––––– –––––––– –––––––– ––––––––
1,038 75 8,694 9,807
–––––––– –––––––– –––––––– ––––––––

64
22. Issued capital and reserves
Note 2005 2006 2007
A$’000
Ordinary shares
Issued and fully paid 131,656 183,854 267,794
––––––––
2005
––––––––
2006
––––––––
2007
Number
Movement in ordinary shares
On issue at 1 July 223,903,939 253,956,534 330,216,215
Issued for cash 20,000,000 34,443,308 74,546,800
Exercise of options expiring 15 April 2008 – 4,000,000 –
Conversion of convertible notes maturing
30 June 2007 510,000 – –
Exercise of KIMOA options expiring
28 April 2006 4,578,856 37,816,373 –
Exercise of KIMAO options expiring
19 February 2005 943,000 – –
Exercise of KIMAI options expiring
17 December 2004 3,800,000 – –
Issue as part consideration payable in
construction of Ellendale 4 diamond
processing plant 28 – – 2,000,000
Issue as part consideration payable for
acquisition of new camp accommodation 110,739 – –
Issue as consideration payable for the
acquisition of the Ellendale Vendor Royalty 5 – – 20,072,071
Issue as consideration payable for acquisition of
acquisition of new plant infrastructure 28 110,000 – 1,227,163
–––––––––– –––––––––– ––––––––––
On issue at 30 June 253,956,534 330,216,215 482,062,249

Terms and conditions

–––––––––– –––––––––– ––––––––––
The holders of ordinary shares are entitled to receive dividends from time to time and are entitled to one vote
per share at meetings of Kimberley. All shares rank equally with regard to Kimberley’s residual assets.
Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the
concept of authorised capital. Accordingly Kimberley does not have authorised capital or par value in respect
of its issued capital.

Options over shares

2005 2006 2007
Exercise Exercise Exercise
Options price Options price Options price
Notes Number A$ Number A$ Number A$
On or before:
28 April 2006 37,816,373 0.35 – – – –
30 June 2007 20 2,753,000 1.60 – – – –
14 January 2008 1,000,000 1.20 1,000,000 1.20 1,000,000 1.20
15 April 2008 5,000,000 1.20 1,000,000 1.20 1,000,000 1.20
24 August 2008 1,100,000 0.45 1,100,000 0.45 1,100,000 0.45
22 May 2009 – – 5,000,000 1.80 5,000,000 1.80
12 July 2009 – – – – 2,400,000 1.75
28 July 2009 – – – – 3,000,000 1.70
15 May 2010 – – – – 1,000,000 0.80
23 November 2010 29 – – 2,250,000 1.40 2,250,000 1.40
––––––––– ––––––––– –––––––––
47,669,373 10,350,000 16,750,000
––––––––– ––––––––– –––––––––
65
Movement in options over shares
The following options over ordinary shares were issued during the period:

• 2,400,000 options exercisable at A$1.75 each on or before 12 July 2009 to Kimberley’s project
financiers in relation to the extension of banking facilities to coincide more appropriately with
Kimberley’s ramp up to expanded production;

• 1,500,000 options exercisable at A$1.70 each on or before 28 July 2009 to RFC Corporate Finance
Ltd as part consideration for its services in acting as Kimberley’s NOMAD in regard to its admission
to AIM;

• 1,500,000 options exercisable at A$1.70 each on or before 28 July 2009 to Numis Securities Ltd as
part consideration for its services in acting at Kimberley’s London based broker; and

• 1,000,000 options exercisable at A$0.80 each on or before 15 May 2010 to Kimberley’s project
financiers in accordance with the terms and conditions of a letter agreement relating to adjustments to
Kimberley’s financing facilities.

The following options expired during the period:

• 2,753,000 options at an exercise price of A$1.60 expiring 30 June 2007 (2006: 819,875, 2005:
718,000), issued under the Kimberley Diamond Company Employee Option Plan. Refer to Note 20
for further details.

66
 Share- Foreign
based currency Option
payments translation Fair value Hedging premium
reserve reserve reserve reserve reserve Total
A$’000
Reserves
At 1 July 2004 – – – – 177 177
Net gain on cash flow hedges – – – 272 – 272
Conversion of options to shares – – – – (44) (44)
Share based payments 1,990 – – – – 1,990
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
At 30 June 2005 1,990 – – 272 133 2,395
Net (loss) on cash flow hedges – – – (827) – (827)
Net gain/(loss) on available for sale
financial assets – – 336 – – 336
Conversion of options to shares (847) – – – – (847)
Share based payments 2,902 – – – – 2,902
Transfers from option premium
reserve – – – – (133) (133)
Currency translation differences – 20 – – – 20
Minority interest (79) – (236) – – (315)
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
At 30 June 2006 3,966 20 100 (555) – 3,531
Net gain/(loss) on available for sale
financial assets – – (258) – – (258)
Derecognition of hedge as effective – – – 555 – 555
Conversion of options to shares (65) – – – – (65)
Share based payments 2,641 – – – – 2,641
Expiry of options (751) – – – – (751)
Currency translation differences – (19) – – – (19)
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
At 30 June 2007 5,791 1 (158) – – 5,634
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Share-based payments reserve
The share-based payments reserve represents the fair value of equity instruments issued to employees as
compensation and issued to external parties for the receipt of goods and services. This reserve will be
reversed against issued capital when the underlying shares are converted.

Foreign currency translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the
financial statements of foreign operations where their functional currency is different to the presentation
currency of the reporting entity.

Fair value reserve

The fair value reserve includes the cumulative net change in the fair value of available for sale investments
until the investment is derecognised.

Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash
flow hedging transactions related to hedged transactions that have not yet occurred.

Option premium reserve

The option premium reserve records amounts paid by shareholders in acquiring options over ordinary shares.
The balance in the option premium reserve is transferred to issued capital on option conversion and
transferred to accumulated losses on option expiry.

67
23. Financial instruments
Exposure to credit, interest rate and currency risks arises in the normal course of the Kimberley Group’s
business. The Kimberley Group has in the past used derivative financial instruments to hedge its exposure to
fluctuations in foreign exchange rates.

Credit risk
The Kimberley Group is not exposed to significant concentrations of credit risk. The Group’s maximum
exposure to credit risk is represented by the carrying amount of each financial asset, including derivative
financial instruments, in the balance sheet.

Interest rate risk

The Kimberley Group’s exposure to interest rate risk is the risk that a financial instrument’s value will
fluctuate as a result of changes in market interest rates. Exposures are primarily from bank loans bearing
variable interest rates. Investments in equity securities and short-term receivables and payables are not
exposed to interest rate risk.

Effective interest rates and re-pricing analysis

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table
indicates their effective interest rates at the reporting date and the periods in which they mature or, if earlier,
re-price.

For the year ended 30 June 2007

Interest One year One to Two to More than
Notes rate or less two years five years five years Total
% A$’000
Fixed rate
Environmental bonds 12 5.76 917 – – – 917
Bonds 12 4.56 91 – – – 91
Finance lease liabilities 19 7.19 (58) – – – (58)
Floating rate
Cash and cash equivalents 11 5.84 6,624 – – – 6,624
Working Capital Facility 19 7.99 (7,757) – – – (7,757)
Ellendale Project Facility 19 8.34 (14,456) (2,354) – – (16,810)

Financial assets and liabilities not included in the above table are non-interest bearing and not subject to
interest rate risk.

For the year ended 30 June 2006 – as reported and restated

Interest One year One to Two to More than
Notes rate or less two years five years five years Total
% A$’000
Fixed rate
Cash and cash equivalents 11 5.78 6,000 – – – 6,000
Loan – related party 12 8.50 307 – – – 307
Environmental bonds 12 4.10 275 – – – 275
Bonds 12 4.00 52 – – – 52
Finance lease liabilities 19 7.22 (193) (53) – – (246)
Floating rate
Cash and cash equivalents 11 5.43 19,538 – – – 19,538
Working Capital Facility 19 7.33 (7,000) – – – (7,000)
Ellendale Project Facility 19 7.55 (4,526) (19,526) (9,763) – (33,815)

Financial assets and liabilities not included in the above table are non-interest bearing and not subject to
interest rate risk.

68
For the year ended 30 June 2005
Interest One year One to Two to More than
Notes rate or less two years five years five years Total
% A$’000
Fixed rate
Cash and cash equivalents 11 5.49 3,000 – – – 3,000
Environmental bonds 12 5.20 263 – – – 263
Bonds 12 4.00 26 – – – 26
Finance lease liabilities 19 7.21 (272) (200) (47) – (519)
Floating rate
Cash and cash equivalents 11 5.16 5,042 – – – 5,042
Secured loan – Working
Capital Facility 19 7.25 (4,812) – – – (4,812)

Financial assets and liabilities not included in the above table are non-interest bearing and not subject to
interest rate risk.

Foreign currency risk

The Kimberley Group is exposed to foreign currency risk on sales of diamonds that are denominated in a
currency other than the respective functional currency of Kimberley Group entities. The currency giving rise
to this risk is the US dollar.

As at 30 June 2006, the Kimberley Group has hedged up to US$2.5 million of anticipated sales commitments
denominated in foreign currencies (US dollars) expected in each month until December 2007. The
consolidated entity uses foreign currency option contracts to hedge its foreign currency risk. The option
contracts have maturities of less than 18 months after balance sheet date and the consolidated entity’s
revenue hedging strategy locks in a worst case foreign exchange rate of US$0.75:A$1.00, for the hedged
amount. At 1 July 2006 it was determined that these derivatives were ineffective and did not qualify for hedge
accounting.

During the financial year 2007, the Kimberley Group delivered in 12 of the 18 monthly contracts covering
the period July 2006 to June 2007 for a total cover of US$30 million and closed out, in advance, the
remaining six contracts covering the period July to December 2007 for a total cover of US$15 million. The
closing of the contracts realised a gain for the Kimberley Group of A$1,563,000.

Fair value
The fair value together with the carrying amounts shown in the balance sheet are as follows:

2005 2006 2007

Carrying Carrying Carrying
Notes Amount Fair Value Amount Fair Value Amount Fair Value
A$’000
Financial assets
Cash and cash
equivalents 11 8,044 8,044 25,538 25,538 6,624 6,624
Trade and other
receivables 12 1,761 1,761 2,392 2,392 2,395 2,395
Investments
available-for-sale 14 225 225 1,287 1,287 956 956
Security Deposit –
Environmental bonds 12 263 263 275 275 917 917
Bonds 12 26 26 56 56 95 95
Derivatives 12 272 272 – – – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total financial assets 10,591 10,591 29,548 29,548 10,987 10,987
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

69
 2005 2006 2007
Carrying Carrying Carrying
Notes Amount Fair Value Amount Fair Value Amount Fair Value
A$’000
Financial liabilities
Secured loan –
Working Capital
Facility 19 (4,812) (4,812) (7,000) (7,000) (7,757) (7,757)
Secured loan –
Ellendale Project
Facility 19 – – (33,815) (33,815) (16,810) (16,810)
Finance lease liabilities 19 (519) (519) (246) (246) (58) (58)
Trade and other payables 18 (15,694) (15,694) (19,170) (19,170) (20,585) (20,585)
Derivatives 18 – – (555) (555) – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total financial
liabilities (21,025) (21,025) (60,786) (60,786) (45,210) (45,210)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Estimation of fair values
The methods and assumptions used in estimating the fair values of financial instruments are disclosed in
Note 1.2(aa).

24. Operating leases

Leases as lessee
2005 2006 2007
A$’000
Non-cancellable operating lease rentals are
payable as follows:
Less than one year 1,518 186 279
Between one and five years 1,554 356 –
–—––––––– –—––––––– –—–––––––
3,072 542 279
–—––––––– –—––––––– –—–––––––
The Kimberley Group leases corporate office and administrative facilities under non-cancellable operating
leases expiring from one to three years, with an option to renew the lease after that date. During the financial
year ended 30 June 2007, A$572,000 was recognised as an expense in the income statement in respect of
operating lease (2006: A$1,771,000, 2005: A$1,938,000).

25. Capital and other commitments

Related entity commitments

2005 2006 2007
A$’000
Contracted but not provided for and payable:
Within one year 600 750 1,000
Later than one year and no later than five years 750 938 188
–—––––––– –—––––––– –—–––––––
1,350 1,688 1,188
–—––––––– –—––––––– –—–––––––
This relates to the management service contract that exists between Kimberley and Resource Development
Company (“RDC”), a company associated with Messrs Kennedy and Simich and the employment contract
that exists between Kimberley and Mr. GM Gilchrist. The contract has a rolling three year term and was last
extended for an additional term of three years in September 2005 while Mr. Gilchrist’s contract is a fixed
term rolling contract with an initial term of one year to 7 May 2008.

70
Capital expenditure commitments
2005 2006 2007
A$’000
Contracted but not provided for and payable:
Within one year 24,687 320 –
–—––––––– –—––––––– –—–––––––
24,687 320 –
–—––––––– –—––––––– –—–––––––
Exploration expenditure commitments
In order to maintain current rights of tenure to exploration tenements, the group is required to perform
minimum exploration work to meet the minimum expenditure requirements specified by the State
Government. These obligations are subject to renegotiation when application for a mining lease is made and
at other times. These obligations are not provided for in the financial report and are payable:

2005 2006 2007

A$’000
Within one year 3,561 3,657 3,401
Later than one year and no later than five years 13,930 13,966 13,604
Later than five years 1,907 1,934 3,401
–—––––––– –—––––––– –—–––––––
19,398 19,557 20,406
–—––––––– –—––––––– –—–––––––
26. Contingencies
Details of contingent liabilities where the probability of future payments is not considered remote are set out
below. The directors are of the opinion that provisions are not required in respect of these matters, as it is not
probable that a future sacrifice of economic benefits will be required.

(i) In June 1992, the High Court of Australia held in the “Mabo Case” that the common law of Australia
recognises a form of Native Title. The Kimberley Group’s exploration and mining tenements may be
subject to Native Title Claims. At this stage it is not possible to quantify the impact (if any) that Native
Title may have on the operations of the consolidated entity. However, the consolidated entity has
executed an agreement with the Bunuba people relating to all exploration, mining and other
tenements, and all ancillary rights and interests.

As part of the agreement with the Bunuba people and upon signing, the consolidated entity, subject to certain
conditions, has agreed to the following:

• the issue of 100,000 Blina shares credited as fully paid;

• the issue of 5 million options over Blina ordinary shares exercisable within five years from the date
of official quotation of Blina’s shares on ASX at A$0.60 each;

• the issue of 250,000 Kimberley Shares credited as fully paid; and

• the issue of 5 million options over Kimberley Shares exercisable at A$2.00 each within five years
from the date of grant.

Kimberley is yet to fulfil these obligations due to certain conditions not having been met.

71
27. Consolidated entities

Particulars in relation to controlled entities

Note Country of Interest (%)
incorporation 2005 2006 2007
Parent entity
Kimberley Diamond Company NL Australia
Controlled entities
Blina Diamonds NL (i) (ii) Australia 54.54 51.05 39.14
Kimberley Diamonds
Australia BVBA (iii) Belgium – 100 100
Kimberley Mining Services
Pty Ltd Australia 70 70 70
Kimphil Pty Ltd Australia 100 100 100
Kimroy Pty Ltd (iv) Australia – 100
Royell Pty Ltd (iv) Australia – 100

(i) During the financial year Kimberley’s ownership interest in the ordinary shares of Blina was diluted.
Details of the dilution are as follows.

Kimberley’s ownership of Blina reduced by:

• 0.14 per cent as a result of the issue of 500,000 Blina ordinary fully paid shares, at fair value
of A$285,000, in accordance with the terms and conditions of a Heads of Agreement between
Resource & Investment NL and Caldera Resources Inc with regard to Ellendale East and South
tenements;

• 11.00 per cent as a result of the sale, by Kimberley, of 20,000,000 Blina ordinary fully paid
shares at A$0.54 per share to private investors. Refer to Note 14 for more details;

• 0.05 per cent as a result of the issue of 218,182 Blina ordinary fully paid shares to Mine Plant
Construction Pty Ltd (“MPC”) at A$0.45 per share, as consideration payable for plant
infrastructure.

• 0.69 per cent as a result of the issue of 2,950,000 ordinary fully paid shares from the exercise
of 2,950,000 unlisted options at an exercise price of A$0.40 per share, expiring 30 April 2007;
and

• 0.03 per cent as a result of the issue of 112,500 ordinary fully paid shares from the exercise of
112,500 unlisted options at an exercise price of A$0.40 per share, expiring 31 January 2008.

Although the Kimberley Group owns less than 50 per cent of the voting power of Blina Diamonds NL
it is able to govern the financial and operating policies of the company by virtue of being the largest
single shareholder of the company and dominating the composition of Blina’s board of directors,
thereby having the ability to cast the majority of votes at meetings of the board of directors.

(ii) During 2006, Kimberley’s ownership interest in the ordinary shares of Blina was diluted. Details of
the dilution are as follows:

• Kimberley’s ownership interest of Blina reduced from 54.54 per cent to 51.49 per cent as a
result of the issue of 10,000,000 Blina ordinary fully paid shares at A$0.52 per share to private
investors.

• On 21 March 2006, Kimberley’s ownership interest fell a further 0.43 per cent as a result of the
issue of 1,500,000 Blina ordinary fully paid shares, at fair value of A$1,057,500 as
consideration payable by Blina to Atlantic Gold Exploration Pty Ltd for the acquisition of
exploration tenements.

72
 • Kimberley’s ownership interest of Blina reduced a further 0.01 per cent as a result of the issue
of 32,500 Blina ordinary fully paid shares from the exercise of 32,500 unlisted at an exercise
price of A$0.40 per share, expiring 31 January 2008.

(iii) During December 2005, the consolidated entity incorporated Kimberly Diamonds Australia BVBA.
The company was established as a diamond tendering subsidiary with premises in Antwerp, Belgium,
and has enabled the consolidated entity to hold its own tender sales.

(iv) Refer to note 3 for details.

28. Reconciliation of cash flows from operating activities

2005 2006 2007
A$’000
Loss for the period (3,459) (13,132) (31,866)
Adjustments for:
(Profit)/loss on part disposal of controlled entity – Blina (2,847) (8,186)
(Profit) on disposal of non-current assets (19) (3) 8
(Profit) on disposal of investments (42) –
Interest and other costs of finance 450 1,230 4,191
Depreciation and amortisation 3,496 6,194 14,957
Foreign exchange (gain)/loss – – (19)
Relinquishment of exploration tenements – 11 1,424
Income tax benefit – – (186)
Impairment of listed investment 205 – –
Mine rehabilitation and site restoration discount unwind – 152 336
Share-based payment expenses 512 2,703 2,061
–––––––– –––––––– ––––––––
Operating profit before changes in working
capital and provisions 1,143 (5,692) (17,280)
Decrease/(increase) in inventories 1,024 (3,715) (2,320)
Decrease/(increase) in receivables (549) (42) (788)
(Decrease)/increase in creditors 3,258 (601) 10,125
(Decrease)/increase in provisions 222 475 281
–––––––– –––––––– ––––––––
Net cash from operating activities 5,098 (9,575) (9,982)
–––––––– –––––––– ––––––––
Non-cash investing and financing activities
During the period Kimberley issued:

• 2,400,000 unlisted options at an exercise price of A$1.75 each, expiring 12 July 2009, to Kimberley’s
project financiers in relation to the extension of banking facilities to coincide more appropriately with
Kimberley’s ramp up to expanded production;

• 1,500,000 unlisted options at an exercise price of A$1.70 each, expiring 28 July 2009, to RFC
Corporate Finance Ltd as part consideration for its services in acting as Kimberley’s NOMAD in
regard to its admission to AIM;

• 1,500,000 unlisted options at an exercise price of A$1.70 each, expiring 28 July 2009, to Numis
Securities Ltd as part consideration for its services in acting at Kimberley’s London based broker; and

• 1,000,000 unlisted options at an exercise price of A$0.80 each, expiring 15 May 2010, to Kimberley’s
project financiers in accordance with the terms and conditions of a letter agreement relating to
adjustments to Kimberley’s financing facilities.

• 20,072,071 ordinary fully paid shares at fair value of A$19,200,000 as consideration payable by
Kimberley to Faustus Nominees Pty Ltd and Weybridge Pty Ltd in relation to the acquisition of the
Ellendale Vendor Royalty. Refer to Note 5 and 31 for more details.

73
• 2,000,000 ordinary fully paid shares at A$0.85 per share to MPC, in full and final settlement of the
Ellendale 4 construction contract, following the commissioning of the Ellendale 4 diamond
processing plant; and

• 1,227,163 ordinary fully paid shares at A$0.85 per share to MPC, in accordance with an agreement
entered into on 7 April 2007 to acquire plant infrastructure.

During the period Kimberley’s controlled entity, Blina received 8.427.984 ordinary fully paid shares in
Resource & Investment NL, in accordance with an election made by Blina to have A$274,000 in loaned
funds repaid through the issue of ordinary shares. Refer to Note 16 and 31 for more details.

During the period Blina acquired plant infrastructure via the issue of 218,182 ordinary fully paid shares at
A$0.45 per share to MPC.

29. Related Parties

The following were key management personnel of the consolidated entity at any time during the reporting
and unless otherwise indicated were key management personnel for the entire period.

Executive directors Non-executive directors Executives

Mr. M A Kennedy (Chairman) Mr. P D Danchin Mr. W B Crossley (Operation
Manager, resigned 22 January
2007)
Mr. K M Simich (Managing Mr. G J Hutton Mr. J A Clarke (Operations
Director) (Deceased 19 July 2007) Manager, appointed 19 January
2007)

Mr. G M Gilchrist (appointed 7 Mr. K C Somes Mr. M L Fitzgerald (Chief

May 2007) Mr. R G Still Financial Officer, appointed 1
July 2006)

Key management personnel compensation

The key management personnel compensation included in “personnel expenses” (see note 6) are as follows:

2005 2006 2007

A$
Short-term employee benefits 1,199,494 1,746,637 1,814,601
Post-employment benefits 115,276 81,148 85,013
Equity-based compensation benefits 19,377 286,909 625,243
––––––––– ––––––––– –––––––––
1,334,147 2,114,694 2,524,857
––––––––– ––––––––– –––––––––
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation and some equity instruments
disclosure as permitted by Corporations Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration
Report section of the Directors Report.

Apart from the details disclosed in this note, no director has entered into a material contract with Kimberley
or the consolidated entity since the end of the previous financial year and there were no material contracts
involving directors’ interests existing at year end.

Other key management personnel transactions with the company or its controlled entities
A number of key management persons, or their related parties, hold positions in other entities that result in
them having control or significant influence over the financial or operating policies of those entities. A
number of these entities transacted with Kimberley or its subsidiaries in the reporting period. The terms and
conditions of the transactions with management persons and their related parties were no more favourable

74
than those available, or which might reasonably be expected to be available, on similar transactions to non
director related entities on an arm’s length basis.

The aggregate amounts recognised during the year relating to key management personnel and their related
parties were as follows:
Transactions Balance outstanding
value year ended as at 30 June
A$
Key management person
and their related parties Transaction Note 2005 2006 2007 2006 2007
Mr. G J Hutton Royalties (i) 535,944 479,712 17,207 149,671 17,207
- Faustus Nominees Pty Ltd
Mr. M A Kennedy and Loan – (ii) – 43,000 4,000 307,000 –
Mr. P D Danchin – financial
Resource & Investment NL income

(i) During the financial year Kimberley reached an agreement with both Faustus and Weybridge, each of
which held 1.5 per cent royalty entitlements in respect of gross revenues derived by Kimberley and
its subsidiary Blina Diamonds NL, at Ellendale, to acquire these royalty interests via the purchase of
the entire issued share capital of Kimroy, formerly a controlled entity of Faustus, and Royell, formerly
a controlled entity of Weybridge, for total consideration of A$19,200,000. The consideration payable
was satisfied by the issue of 20,072,071 fully paid ordinary shares in Kimberley on 6 October 2006,
10,036,035 to Faustus and 19,036,036 to Weybridge. The issue represented a payment of A$9,600,000
to Faustus and A$9,600,000 to Weybridge. Mr. G J Hutton was a director of Faustus and was a director
of Kimberley. Refer to Note 3 for more details.
An amount of A$17,207 was paid to Faustus during the current financial year, representing final
vendor royalty entitlements relating to the 30 June 2006 period. No other royalty payments were made
to vendors during the 30 June 2007 financial year. An amount of A$479,712 was charged during the
30 June 2006 financial year, payable to Faustus Nominees Pty Ltd pursuant to the Vendor Royalty
Agreement. Of the total charge during the financial year ended 30 June 2006 A$457,585 related to
Kimberley and A$22,127 related to Kimberley’s controlled entity, Blina.
(ii) During January and February 2006, Kimberley’s controlled entity, Blina, lent and advanced a total of
A$1,000,000 under agreement with RNI, a company of which Messrs M A Kennedy and P D Danchin
are directors. Interest on the sum advanced was charged at 8.5 per cent per annum, plus a 1 per cent
(A$10,000) establishment fee. Under the terms of the agreement, Blina held the right, at its sole
discretion, to receive ordinary shares in RNI in satisfaction of the loaned funds. During April 2006,
A$726,000 of the loan balance was repaid to Blina through the issue of 24,185,573 ordinary shares in
RNI at A$0.03 each. At 30 June 2006 a further A$307,000 was repayable by RNI to Blina, represented
by A$274,000 in remaining principal and A$33,000 in interest. During the current financial year, and
in accordance with a resolution of RNI shareholders, Blina received an additional 8,427,984 ordinary
shares at A$0.03256 each in RNI in satisfaction of the remaining principal and A$37,000 (2006:
A$nil) in cash, representing A$33,000 in interest receivable for the year ended 30 June 2006 and a
further A$4,000 recognised as financial income for the current financial year.
Amounts receivable from and payable to key management personnel and other related parties at reporting
date arising from these transactions were as follows:
(A$)
2006 2007
Other receivables – related party loan 307,000 –
–––––––– ––––––––
Total receivables/total assets 307,000 –
–––––––– ––––––––
Current liabilities – trade payables 150,000 –
–––––––– ––––––––
Total payables/total liabilities 150,000 –
–––––––– ––––––––

75
Note: The 2005 information is publicly unavailable and therefore has not been included in the comparatives.

From time to time, key management personnel of the Kimberley Group, its subsidiaries or their related
entities, may purchase goods from the Kimberley Group. These purchases are on the same terms and
conditions as those entered into by other Group employees or customers and are trivial or domestic in nature.

Options and rights over equity instruments granted as compensation

The movement during the reporting period in the number of options and rights over ordinary shares in
Kimberley held, directly or beneficially, by each key management person, including their related parties, is
as follows:
Vested and
Held at Vested exercisable
Held at Granted as Other 30 June during the at 30 June
1 July 2006 compensation Exercised changes 2007 year 2007
Options
Directors
Mr. M A Kennedy(1) 1,250,000 – – 1,250,000 416,667 416,667
Mr. K M Simich(1) 1,000,000 – – 1,000,000 333,333 333,333
Executives
Mr. W B Crossley(2) 100,000 – – – – –
Mr. M L Fitzgerald 32,500 (32,500)
Rights
Executives
Mr. W B Crossley(2) 500,000 – – n/a 166,667 n/a
Mr. J A Clarke – 1,000,000(3) – 1,000,000 250,000 n/a
Mr. M L Fitzgerald 300,000(4) 600,000(3) – (300,000) 600,000 250,000(4) n/a
Directors
Mr. K M Simich 2,000,000(3) 2,000,000 500,000 n/a

(1) These include interests held by Resource Development Company Pty Ltd (“RDC”) a company associated with Mr Kennedy and
Mr Simich.
(2) Mr Crossley resigned on 22 January 2007, at which time he held 100,000 unlisted options at an exercise price of $1.60, expiring
30 June 2007 and forfeited 500,000 share appreciation rights due to the employment service criteria not being met. Prior to his
resignation, one third of the issued rights to Mr Crossley vested on 1 December 2006.
(3) Refer to note 20 for details of the 2007 Kimberley Diamond Company Indexed Bonus Plan.
(4) These rights were cancelled on 19 February 2007 due to the introduction of the 2007 Kimberley Diamond Company Indexed
Bonus Plan. Prior to cancellation, one third of the issued rights to Mr Fitzgerald vested on 1 December 2006. Refer to note 20
for more details.
Vested and
Held at Vested exercisable
Held at Granted as 30 June during the at 30 June
1 July 2005 compensation Exercised 2006 year 2006
Options
Directors
Mr. M A Kennedy(1) 33,936 1,250,000(2) (33,936) 1,250,000 – –
Mr. K M Simich(1) 33,396 1,000,000(2) (33,936) 1,000,000 – –
Executives
Mr. W B Crossley 100,000 – – 100,000 50,000 100,000
Rights
Executives
Mr. W B Crossley – 500,000(3) n/a 500,000 – n/a
Mr. R B Baker – 400,000(3) n/a –(4) – n/a
Mr. D J Tarant – 300,000(3) n/a –(4) – n/a

Notes:
(1) These include interests held by Resource Development Company Pty Ltd (“RDC”) a company associated with Mr Kennedy and
Mr Simich.

76
(2) All options granted to executive directors during the financial year ended 30 June 2006 were granted on 24 November 2005, have
an expiration date of 23 November 2010, an exercise price of $1.40 per share, and a fair value of $0.295 per share at grant date.
The options were granted at no cost to the recipients. Further details including vesting dates and exercise dates regarding the
options granted to executive directors are set out within the Remuneration Report.
(3) Refer to note 24 for details of the 2006 Kimberley Diamond Company Indexed Bonus Plan.
(4) Mr Baker and Mr Tarant resigned on 14 June 2006 and forfeited their rights due to not meeting the required employment service
criteria, as outlined in note 24.
Vested and
Held at Vested exercisable
Held at Granted as 30 June during the at 30 June
1 July 2004 compensation Exercised 2005 year 2005
Options
Directors
Mr. M A Kennedy(1) 2,033,936 – (2,000,000) 33,936 – 33,936
Mr. K M Simich(1) 2,033,936 – (2,000,000) 33,936 – 33,936
Mr. P D Danchin 500,000 – (500,000) – – –
Mr. G J Hutton 1,000,000 – (1,000,000) – – –
Mr. R H Beevor(2)
(resigned 22 December 2004) 550,715 – – – – –
Executives
Mr. W B Crossley – 100,000 – 100,000 50,000 50,000
Notes:
(1) These include interests held by RDC, a company associated with Mr. M A Kennedy and Mr. K M Simich.
(2) Mr. R H Beevor resigned on 22 December 2004, at which time he held 550,715 options in Kimberley.

No options held by key management personnel are vested but not exercisable in any of the years. Options
are not granted to non-executive directors.

Movements in shares
The movement during the reporting period in the number of ordinary shares in Kimberley held, directly,
indirectly or beneficially, by each key management person, including their related parties, is as follows:
Received on Held at
Held at exercise of Other 30 June
1 July 2006 Purchases options changes Sales 2007
Directors
Mr. M A Kennedy(1) 3,806,189 647,312 – – 4,453,505
Mr. K M Simich(1) 4,021,337 641,544 – – 4,662,881
Mr. G M Gilchrist 52,000 – – – 52,000
Mr. G J Hutton 3,455,691 – – 9,032,432 (550,000) 11,938,123
Mr. K C Somes 3,250 25,772 – – 29,022
Mr. R G Still – – – – –
Executives
Mr. W B Crossley 25,000 – – – n/a
Mr. R B Baker – – – – –
Mr. D J Tarant – – – – –

Received on Held at
Held at exercise of 30 June
1 July 2005 Purchases options Sales 2006
Directors
Mr. M A Kennedy(1) 4,790,354 481,899 33,936 (1,500,000) 3,806,189
Mr. K M Simich(1) 4,988,835 498,566 33,936 (1,500,000) 4,021,337
Mr. P D Danchin – – – – –
Mr. G J Hutton 3,651,405 304,286 – (500,000) 3,455,691
Mr. K C Somes 3,000 250 – – 3,250
Mr. R G Still – – – – –

77
 Received on Held at
Held at exercise of 30 June
1 July 2005 Purchases options Sales 2006
Executives
Mr. W B Crossley 20,000 5,000 – – 25,000
Mr. R B Baker – – – – –
Mr. D J Tarant – – – – –

Received on Held at
Held at exercise of 30 June
1 July 2004 Purchases options Sales 2005
Directors
Mr. M A Kennedy(1) 3,670,354 20,000 2,000,000 (900,000) 4,790,354
Mr. K M Simich(1) 3,868,835 20,000 2,000,000 (900,000) 4,988,835
Mr. P D Danchin – – 500,000 (500,000) –
Mr. G J Hutton 4,501,405 50,000 1,000,000 (1,900,000) 3,651,405
Mr. K C Somes 3,000 – – – 3,000
Mr. R G Still – – – – –
Mr. R H Beevor(2)
(resigned 22 December 2004) 543,633 – – – –
Executives
Mr. W B Crossley 20,000 – – – 20,000
Mr. R B Baker – – – – –
Mr. D J Tarant – – – – –
Notes:
(1) These include interests held by RDC, a company associated with Mr. M A Kennedy and Mr. K M Simich.
(2) Mr. R H Beevor resigned on 22 December 2004, at which time he held 543,633 shares.

30. Non-key management personnel disclosures

Identity of related parties

The consolidated entity has a related party relationship with its key management personnel (see note 29), its
subsidiaries (see note 27) and the key management personnel of its subsidiaries or their related parties.

Other related party transactions

Subsidiaries
Kimberley has entered into an agreement with Blina under which Kimberley will manage Blina’s day-to-day
financial, statutory, and administrative affairs and allow Blina to use the offices and office facilities in which
the company has secured certain rights as Blina’s head office. These services (the “management services”)
include general corporate, management, administrative, financial, secretarial and office services to Blina
(including offices and facilities) through Kimberley’s team of professionally qualified and administrative
staff. The total amount charged for management services by Kimberley for the current reporting period was
A$60,000 (2006: A$60,000, 2005: A$52,500).

During the financial year A$45,277 was paid to Kimberley by Blina, under the profit sharing joint venture
agreement, permitting Blina to mine alluvial deposits on Kimberley’s mining lease (M04/372). The amount
was paid in respect of mining operations for the year ended 30 June 2006. No amount was payable for the
current financial year.

Transactions with key management personnel of subsidiaries and their related parties
During the period, an amount of A$3,824 (2006: A$101,686, 2005: A$119,099) was charged in the accounts
of Kimberley payable to Ascidian Prospecting Pty Ltd pursuant to a Vendor Royalty Agreement. A further
A$483,752 (2006: A$223,972, 2005: A$322,879) was charged by Ascidian Prospecting Pty Ltd to
Kimberley for exploration consulting services. Ascidian supplies KDC with exploration consulting,
geological, tenement management and sampling services. Ascidian Prospecting is controlled by Mr. David
Jones, the Managing Director of Kimberley’s partly-owned controlled entity, Blina until 30 June 2007.
Liabilities arising from the above transactions amounted to A$65,809 (2006: A$134,829, 2005: A$60,828).

78
31. Subsequent events

Kimberley Diamond Company NL

On 11 July 2007 Kimberley announced the issue of 3,000,000 unlisted options exercisable at A$0.80 on or
before 7 May 2010 to Mr. Gordon Gilchrist as part of his remuneration package for his services as an
executive director of Kimberley. On 19 July 2007, Kimberley announced a recommended cash offer of
approximately A$300 million by Gem Diamonds for all the issued and to be issued share capital of
Kimberley. The cash offer of A$0.70 per share was unanimously recommended by Kimberley’s directors. In
conjunction with the offer, Gem Diamonds has agreed to provide Kimberley with a short term working
capital facility of A$10,000,000. In this regard, the directors of Kimberley refer the Kimberley shareholders
to the following ASX lodged documents for further details:

Document Lodgement date

Bid and Implementation Agreement Summary 19 July 2007
Bidder’s Statement 16 August 2007

On 26 July 2007, Kimberley announced the issue of 1,000,000 ordinary fully paid shares from the exercise
of 1,000,000 unlisted options at an exercise price of A$0.45 each expiring on 24 August 2008.

32. Explanation of transition to AIFRS

Transition
Transition impact
Previous impact Previous 30 June
Notes GAAP 1 July 2004 AIFRS GAAP 2005 AIFRS
A$’000
Assets
Cash and cash equivalents 748 – 748 8,044 – 8,044
Trade and other receivables (b) 677 – 677 1,761 272 2,033
Inventories 6,295 – 6,295 5,271 – 5,271
Other assets 231 – 231 – – –
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total Current assets 7,951 – 7,951 15,076 272 15,348
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Non-current assets
Receivables 1,427 – 1,427 289 – 289
Investments 646 – 646 225 – 225
Property, plant and equipment (c), (d) 34,320 1,836 36,156 65,522 2,991 68,513
Exploration and
evaluation assets (c), (d) 5,067 – 5,067 12,827 208 13,035
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total Non-current assets 41,460 1,836 43,296 78,863 3,199 82,062
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total assets 49,411 1,836 51,247 93,939 3,471 97,410
Liabilities
Trade and other payables 5,879 – 5,879 15,694 – 15,694
Interest bearing liabilities 633 – 633 5,084 – 5,084
Provisions 376 – 376 511 – 511
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total Current liabilities 6,888 – 6,888 21,289 – 21,289
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Non-current liabilities
Interest bearing liabilities 558 – 558 247 – 247
Deferred tax liability (e) – 186 186 – 186 186
Provisions (c) 150 2,038 2,188 260 2,408 2,668
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total Non-current liabilities 708 2,224 2,932 507 2,594 3,101
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total Liabilities 7,596 2,224 9,820 21,796 2,594 24,390
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Net assets 41,815 (388) 41,427 72,143 877 73,020
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

79
32. Explanation of transition to AIFRS (continued)
Transition
Transition impact
Previous impact Previous 30 June
Notes GAAP 1 July 2004 AIFRS GAAP 2005 AIFRS
A$’000
Equity
Issued capital (d) 104,221 – 104,221 132,011 (355) 131,656
Reserves (b), (d) 177 – 177 133 2,262 2,395
Accumulated losses (c), (b), (d) (62,786) (388) (63,174) (65,618) (1,060) (66,678)
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total equity attributable
to equity holders
of the parent 41,612 (388) 41,224 66,526 847 67,373
Minority interest (d) 203 – 203 5,617 30 5,647
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
Total equity 41,815 (388) 41,427 72,143 877 73,020
–––––––– –––––––– –––––––– –––––––– –––––––– ––––––––
As stated in significant accounting policies note 1(a), these are the consolidated entity’s first consolidated
financial statements prepared in accordance with AIFRS.

The policies set out in the significant accounting policies section of this report have been applied in preparing
the financial statements for the financial year ended 30 June 2006, the comparative information presented in
these financial statements for the financial year ended 30 June 2005 and in the preparation of an opening
AIFRS balance sheet at 1 July 2004 (the consolidated entity’s date of transition).

In preparing its opening AIFRS balance sheet, the consolidated entity has adjusted amounts reported
previously in financial statements prepared in accordance with its old basis of accounting (previous GAAP).
An explanation of how the transition from previous GAAP to AIFRS has affected the consolidated entity’s
financial position, financial performance and cash flows is set out in the following tables and the notes that
accompany the tables.

Notes to the reconciliation of equity

(a) Business combinations

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards
does not require entities to restate business combinations for AIFRS prior to July 2004. If business
combinations prior to this date are restated then all subsequent business combinations must also be
restated.

The consolidated entity has elected not to restate combinations prior to 1 July 2004.

(b) Derivative financial instruments

In accordance with AASBs, all derivative financial instruments have been recognised as assets or
liabilities at fair value. Under previous GAAP, all derivatives were recognised at cost.

The effect of the consolidated entity and Kimberley of measuring derivatives at fair value to increase
Fair value derivatives and Hedging reserves by A$272,000, comprising assets of A$272,000 at 30 June
2005.

(c) Provisions
An obligation exists to restore certain sites for the effect of the consolidated entity’s operations. Under
previous GAAP, the cost of rectification was recognised as an expense when incurred.

In accordance with AIFRS, restoration costs should be recognised as part of the cost of assets and as
a provision at the time of the obligating event.

80
 The effect for the consolidated entity on the transition date, 1 July 2004, and the comparative period
is:

1 July 2004 30 June 2005

A$
Net increase in Property, plant and equipment 1,836,000 1,908,000
Increase in Exploration and evaluation expenditure – 138,000
Increase in Provisions 2,038,000 2,408,000
Increase in Total cost of product sold – 40,000
Increase in Financial expenses – 120,000
Net increase in Accumulated losses 202,000 362,000

(d) Share-based payments

The consolidated entity applied AASB 2 to its active share-based payment arrangements at 1 July
2005 except for equity-settled share based payment arrangements granted before 7 November 2002.
The consolidated entity has elected to apply the exemption in AASB 1 First-time Adoption of
Australian Equivalents to International Financial Reporting Standard to not apply AASB 2 to share
options granted prior to 7 November 2002. The consolidated entity has granted equity-settled share-
based payments during the 2005 and 2006 financial years.

Under previous GAAP, the consolidated entity did not account for equity settled based payments and
share appreciation rights. Such payments are now recognised at fair value in accordance with AASB
2. On adoption the consolidated entity has recognised the fair value of options granted with a
corresponding increase in equity. The fair value measured at grant date will be recognised as an
expense over the relevant vesting period.

The effect for the consolidated entity on the transition date, 1 July 2004, and the comparative period
is:

1 July 2004 30 June 2005

A$
Net increase in Property, plant and equipment – 1,083,000
Increase in Exploration and evaluation expenditure – 70,000
Decrease in Issued Capital – 355,000
Net (decrease)/increase in Minority Interests – 30,000
Increase in Total cost of product sold – 464,000
Increase in Administrative expenses – 48,000
Increase in Reserves – 1,990,000
Net increase in Accumulated losses – 512,000

(e) Taxation
AIFRS adopts a “balance sheet” approach to determining deferred tax balances, which presents a
fundamental change from the “income statement” approach used under Australian GAAP. This
method recognises deferred tax balances when there is a difference between the carrying value of an
asset or liability and its tax base. The net impact on transition of the change in basis and the transition
adjustments on the deferred tax balances for the consolidated entity at 1 July 2004 and the
comparative period, being 30 June 2005, is an increase in deferred tax liabilities of A$186,000 and an
increase in accumulated losses of A$186,000.

81
(f) Effect on accumulated losses
The effect of the above adjustments on accumulated losses is as follows:

Notes 1 July 2004 30 June 2005

A$’000
Net adjustment in respect of share based payments (d) – (512)
Net adjustment in respect of decommissioning costs (c) (202) (362)
Impact of taxation (e) (186) (186)
–––––––– ––––––––
(388) (1,060)
–––––––– ––––––––
Attributable to:
Equity holders of the parent (388) (1,059)
Minority interest (d) – (1)
–––––––– ––––––––
(388) (1,060)
–––––––– ––––––––
Reconciliation of profit for 2005
Effect of
Previous transition to
Notes GAAP AIFRS AIFRS
A$’000
Revenue 40,545 – 40,545
Cost of product sold
Site costs (d) (29,864) (425) (30,289)
Marketing costs (d) (521) (25) (546)
Royalties (4,168) – (4,168)
Restoration and environmental (c), (d) (461) 97 (364)
Depreciation and amortisation (c) (3,303) (151) (3,454)
Stockpile adjustment (1,453) – (1,453)
––––––––– ––––––––– –––––––––
Total cost of product sold (39,770) (504) (40,274)
––––––––– ––––––––– –––––––––
Gross loss 775 (504) 271
Other income 62 – 62
Administrative expenses (d) (3,509) (49) (3,558)
Other expenses (205) – (205)
––––––––– ––––––––– –––––––––
Loss before financing costs (2,877) (553) (3,430)
––––––––– ––––––––– –––––––––
Financial income 534 534
Financial expenses (c) (443) (120) (563)
––––––––– ––––––––– –––––––––
Net financing costs 91 (120) (29)
––––––––– ––––––––– –––––––––
Loss before tax (2,786) (673) (3,459)
Income tax (expense)/benefit – – –
––––––––– ––––––––– –––––––––
Loss for the period (2,786) (673) (3,459)
––––––––– ––––––––– –––––––––
Attributable to:
Equity holders of the parent (2,832) (672) (3,504)
Minority interests (d) 46 (1) 45
––––––––– ––––––––– –––––––––
Loss for the period (2,786) (673) (3,459)

Basic loss per share attributable to

––––––––– ––––––––– –––––––––
ordinary equity holders (A$0.012) (A$0.003) (A$0.015)

82
The consolidated entity is in a loss making position and it is unlikely that the conversion to, calling
of, or subscription for, ordinary share capital in respect of potential ordinary shares would lead to a
diluted earnings per share that shows an inferior view of the earnings per share. For this reason, the
diluted loss per share is the same as basic loss per share.

83
 UNAUDITED IFRS RECONCILIATION OF FINANCIAL
INFORMATION LR
13.5.27(2)(a)R

The information on pages 85 to 97 convert the historical financial information of the Kimberley Group for
the three years ended 30 June 2007 from Australian Accounting Standards (Australian equivalents to
International Financial Reporting Standards or “AIFRS”) to International Financial Reporting Standards
or “IFRS” as applied by Gem Diamonds and also translate these statements from Australian dollars to US
dollars.

The profit and loss account has been translated from Australian dollars to US dollars at the following
average rates for the year:

– 12 months to 30 June 2005 – A$1: US$0.7528

– 12 months to 30 June 2006 – A$1: US$0.7475

– 12 months to 30 June 2007 – A$1: US$0.7861

The balance sheet has been translated from Australian dollars to US dollars at the following year end rates:

– at 30 June 2005 – A$1: US$0.7602

– at 30 June 2006 – A$1: US$0.7433

– at 30 June 2007 – A$1: US$0.8505

with the exception of equity in each year which has been translated at the spot rate prevailing at the opening
balance date and any subsequent movements in the year at the average rates for the year detailed above with
respect to the profit and loss account.

84
Income Statement for the year ended 30 June 2005
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Revenue 40,545 30,522 – 30,522
Cost of sales 1 (40,274) (30,318) (3,544) (33,862)
–––––––– –––––––– –––––––– ––––––––
Gross profit/(loss) 271 204 (3,544) (3,340)
Administration expenses (3,558) (2,678) – (2,678)
Foreign exchange gain/(loss) – – – –
Other expense (205) (154) – (154)
Other income 2 62 47 4,361 4,408
–––––––– –––––––– –––––––– ––––––––
Operating profit/(loss) (3,430) (2,581) 817 (1,764)
Net finance income/(costs)
Finance costs (563) (424) – (424)
Finance income 534 402 – 402
Share of loss in associate – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) before taxation (3,459) (2,603) 817 (1,786)
Income tax expense – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) from continuing
operations (3,459) (2,603) 817 (1,786)
Loss after tax for the period relating
to disposal group held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (3,459) (2,603) 817 (1,786)

Attributable to:
–––––––– –––––––– –––––––– ––––––––
Equity holders of parent (3,504) (2,638) 817 (1,821)
Minority Interest 45 35 – 35
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (3,459) (2,603) 817 (1,786)

Earnings/(loss) per share

–––––––– –––––––– –––––––– ––––––––
Basic and diluted – for profit/(loss)
for the period attributable to
equity holders of the parent (A$0.015) (US$0.011) US$0.003 (US$0.008)

85
Income Statement for the year ended 30 June 2006
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Revenue 35,864 26,808 – 26,808
Cost of sales 1 (44,596) (33,336) (3,554) (36,890)
–––––––– –––––––– –––––––– ––––––––
Gross profit/(loss) (8,732) (6,528) (3,554) (10,082)
Administration expenses (4,071) (3,043) – (3,043)
Foreign exchange gain/(loss) – – – –
Other expense (1,625) (1,215) – (1,215)
Other income 2 2,850 2,130 – 2,130
–––––––– –––––––– –––––––– ––––––––
Operating profit/(loss) (11,578) (8,656) (3,554) (12,210)
Net finance income/(costs)
Finance costs (2,389) (1,786) – (1,786)
Finance income 835 624 – 624
Share of loss in associate – – – –
Profit/(loss) before taxation (13,132) (9,818) (3,554) (13,372)
Income tax expense – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) from continuing
operations (13,132) (9,818) (3,554) (13,372)
Loss after tax for the period relating to
disposal group held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (13,132) (9,818) (3,554) (13,372)

Attributable to:
–––––––– –––––––– –––––––– ––––––––
Equity holders of parent (13,316) (9,954) (3,554) (13,508)
Minority interest 184 136 – 136
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (13,132) (9,818) (3,554) (13,372)

Earnings/(loss) per share

–––––––– –––––––– –––––––– ––––––––
Basic and diluted – for profit/(loss) for
the period attributable to equity
holders of the parent (A$0.045) (US$0.033) (US$0.012) (US$0.045)

86
Income Statement for the year ended 30 June 2007
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Revenue 63,468 49,892 – 49,892
Cost of sales 1 (92,542) (72,747) (8,491) (81,238)
–––––––– –––––––– –––––––– ––––––––
Gross profit/(loss) (29,074) (22,855) (8,491) (31,346)
Administration expenses (6,275) (4,933) – (4,933)
Foreign exchange gain/(loss) 1,764 1,387 – 1,387
Other expense (2,747) (2,159) – (2,159)
Other income 2 8,231 6,470 – 6,470
–––––––– –––––––– –––––––– ––––––––
Operating profit/(loss) (28,101) (22,090) (8,491) (30,581)
Net finance income/(costs)
Finance costs (4,654) (3,659) – (3,659)
Finance income 703 553 – 553
Share of loss in associate – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) before taxation (32,052) (25,196) (8,491) (33,687)
Income tax expense 186 146 – 146
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) from continuing
operations (31,866) (25,050) (8,491) (33,541)
Loss after tax for the period relating
to disposal group held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (31,866) (25,050) (8,491) (33,541)

Attributable to:
–––––––– –––––––– –––––––– ––––––––
Equity holders of parent (30,161) (23,710) (8,491) (32,201)
Minority interest (1,705) (1,340) – (1,340)
–––––––– –––––––– –––––––– ––––––––
Profit/(loss) for the period (31,866) (25,050) (8,491) (33,541)

Earnings/(loss) per share

–––––––– –––––––– –––––––– ––––––––
Basic and diluted – for profit/(loss)
for the period attributable to equity
holders of the parent (A$0.078) (US$0.061) (US$0.021) (US$0.083)

87
Balance Sheet as at 30 June 2005
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
ASSETS
Non-current assets
Property, plant and equipment 3 81,548 61,993 (4,594) 57,399
Investment in associate – – – –
Loans owing by associate – – – –
Other asset 514 391 – 391
Deferred tax assets – – – –
–––––––– –––––––– –––––––– ––––––––
82,062 62,384 (4,594) 57,790
–––––––– –––––––– –––––––– ––––––––
Current assets
Inventories 4 5,271 4,007 1,023 5,030
Trade and other receivables 2,033 1,545 – 1,545
Loans and receivables – – – –
Cash and cash equivalents 8,044 6,115 – 6,115
–––––––– –––––––– –––––––– ––––––––
15,348 11,667 1,023 12,690
Assets of disposal group classified
as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
15,348 11,667 1,023 12,690
–––––––– –––––––– –––––––– ––––––––
TOTAL ASSETS 97,410 74,051 (3,571) 70,480

EQUITY AND LIABILITIES

–––––––– –––––––– –––––––– ––––––––
Equity attributable to equity holders
of the parent
Issued share capital 5 131,656 94,025 (4,361) 89,664
Share premium – – – –
Treasury shares – – – –
Other reserves 6 2,395 4,354 (36) 4,318
Accumulated losses 7 (66,678) (47,112) 826 (46,286)
–––––––– –––––––– –––––––– ––––––––
67,373 51,267 (3,571) 47,696
Minority interest 5,647 4,243 – 4,243
–––––––– –––––––– –––––––– ––––––––
TOTAL EQUITY 73,020 55,510 (3,571) 51,939
Non-current liabilities
Financial liabilities 247 188 – 188
Provisions 2,668 2,028 – 2,028
Deferred tax liabilities 186 141 – 141
Other payables – – – –
–––––––– –––––––– –––––––– ––––––––
3,101 2,357 – 2,357
Current liabilities
Financial liabilities 5,084 3,865 – 3,865
Trade and other payables 15,694 11,931 – 11,931
Provisions 511 388 – 388
Income tax payable – – – –
–––––––– –––––––– –––––––– ––––––––
21,289 16,184 – 16,184

88
Balance Sheet as at 30 June 2005 (continued)
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Liabilities directly associated with the
assets classified as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
21,289 16,184 – 16,184
–––––––– –––––––– –––––––– ––––––––
TOTAL LIABILITIES 24,390 18,541 – 18,541

TOTAL EQUITY AND LIABILITIES

–––––––– –––––––– ––––––––
97,410 74,051 (3,571)
––––––––
70,480
–––––––– –––––––– –––––––– ––––––––

89
Balance Sheet as at 30 June 2006
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
ASSETS
Non-current assets
Property, plant and equipment 3 155,081 115,272 (8,532) 106,740
Investment in associate – – – –
Loans owing by associate – – – –
Other asset 1,618 1,203 – 1,203
Deferred tax assets – – – –
–––––––– –––––––– –––––––– ––––––––
156,699 116,475 (8,532) 107,943
–––––––– –––––––– –––––––– ––––––––
Current assets
Inventories 4 8,416 6,256 1,508 7,764
Trade and other receivables 2,392 1,778 – 1,778
Loans and receivables – – – –
Cash and cash equivalents 25,538 18,982 – 18,982
–––––––– –––––––– –––––––– ––––––––
36,346 27,016 1,508 28,524
Assets of disposal group classified
as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
36,346 27,016 1,508 28,524
–––––––– –––––––– –––––––– ––––––––
TOTAL ASSETS 193,045 143,491 (7,024) 136,467

EQUITY AND LIABILITIES

–––––––– –––––––– –––––––– ––––––––
Equity attributable to equity holders
of the parent
Issued share capital 5 183,854 133,012 – 133,012
Share premium – – – –
Treasury shares – – – –
Other reserves 6 3,531 3,723 65 3,788
Accumulated losses 7 (74,201) (52,705) (7,089) (59,794)
–––––––– –––––––– –––––––– ––––––––
113,184 84,030 (7,024) 77,006
Minority interest 11,931 8,968 – 8,968
–––––––– –––––––– –––––––– ––––––––
TOTAL EQUITY 125,115 92,998 (7,024) 85,974

Non-current liabilities
–––––––– –––––––– –––––––– ––––––––
Financial liabilities 29,342 21,810 – 21,810
Provisions 6,104 4,537 – 4,537
Deferred tax liabilities 186 138 – 138
Other payables – – – –
–––––––– –––––––– –––––––– ––––––––
35,632 26,485 – 26,485

90
Balance Sheet as at 30 June 2006 (continued)
IFRS as
As reported As reported Policy applied
by Kimberley by Kimberley adjustments lied by Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Current liabilities
Financial liabilities 11,719 8,711 – 8,711
Trade and other payables 19,725 14,662 – 14,662
Provisions 854 635 – 635
Income tax payable – – – –
–––––––– –––––––– –––––––– ––––––––
32,298 24,008 – 24,008
Liabilities directly associated with
the assets classified as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
32,298 24,008 – 24,008
–––––––– –––––––– –––––––– ––––––––
TOTAL LIABILITIES 67,930 50,493 – 50,493
–––––––– –––––––– –––––––– ––––––––
TOTAL EQUITY AND LIABILITIES 193,045 143,491 (7,024) 136,467
–––––––– –––––––– –––––––– ––––––––

91
Balance Sheet as at 30 June 2007
IFRS as
As reported As reported Policy applied by
by Kimberley by Kimberley adjustments Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
ASSETS
Non-current assets
Property, plant and equipment 3 216,459 184,098 (17,224) 166,874
Investment in associate – – – –
Loans owing by associate – – – –
Other asset 1,968 1,674 – 1,674
Deferred tax assets – – – –
–––––––– –––––––– –––––––– ––––––––
218,427 185,772 (17,224) 168,548

Current assets
–––––––– –––––––– –––––––– ––––––––
Inventories 4 10,736 9,131 – 9,131
Trade and other receivables 2,395 2,037 – 2,037
Loans and receivables – – – –
Cash and cash equivalents 6,624 5,634 – 5,634
–––––––– –––––––– –––––––– ––––––––
19,755 16,802 – 16,802
Assets of disposal group
classified as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
19,755 16,802 – 16,802
–––––––– –––––––– –––––––– ––––––––
TOTAL ASSETS 238,182 202,574 (17,224) 185,350

EQUITY AND LIABILITIES

–––––––– –––––––– –––––––– ––––––––
Equity attributable to equity
holders of the parent
Issued share capital 5 267,794 198,997 – 198,997
Share premium – – – –
Treasury shares – – – –
Other reserves 6 5,634 22,528 (1,644) 20,884
Accumulated losses 7 (104,362) (76,415) (15,580) (91,995)
–––––––– –––––––– –––––––– ––––––––
169,066 145,110 (17,224) 127,886
Minority interest 14,099 10,672 – 10,672
–––––––– –––––––– –––––––– ––––––––
TOTAL EQUITY 183,165 155,782 (17,224) 138,558

Non-current liabilities
–––––––– –––––––– –––––––– ––––––––
Financial liabilities 2,354 2,002 – 2,002
Provisions 8,769 7,458 – 7,458
Deferred tax liabilities – – – –
Other payables – – – –
–––––––– –––––––– –––––––– ––––––––
11,123 9,460 – 9,460

92
Balance Sheet as at 30 June 2007 (continued)
IFRS as
As reported by As reported by Policy applied by
by Kimberley by Kimberley adjustments Gem
(a) (b) Diamonds
Notes A$’000 US$’000 US$’000 US$’000
Current liabilities
Financial liabilities 22,271 18,941 – 18,941
Trade and other payables 20,585 17,508 – 17,508
Provisions 1,038 883 – 883
Income tax payable – – – –
–––––––– –––––––– –––––––– ––––––––
43,894 37,332 – 37,332
Liabilities directly associated
with the assets classified
as held for sale – – – –
–––––––– –––––––– –––––––– ––––––––
TOTAL LIABILITIES 55,017 46,792 – 46,792

TOTAL EQUITY AND

–––––––– –––––––– –––––––– ––––––––
LIABILITIES 238,182 202,574 (17,224) 185,350
–––––––– –––––––– –––––––– ––––––––

93
Statement of changes in equity
Issued Accumulated Other Minority Total
Capital losses reserves Total interest equity
$’000 $’000 $’000 $’000 $’000 $’000
Opening balance
at 1 July 2004
translated to US$ 73,372 (44,474) – 28,898 143 29,041
Movement in year as
reported 20,653 (2,638) 4,354 22,369 4,100 26,469
Reconciliation adjustments
Prior year adjustments 7 – 9 – 9 – 9
Recognition of dilution
gain in income 5 (4,361) 4,361 – – – –
Adjustment to the loss
for the year 1 – (3,544) – (3,544) – (3,544)
Foreign currency
translation reserve
effect on adjustments 6 – – (36) (36) – (36)
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Reconciled balance
at 30 June 2005 89,664 (46,286) 4,318 47,696 4,243 51,939
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Opening balance
at 1 July 2005
translated to US$ 89,664 (42,751) 4,354 51,267 4,243 55,510
Movement in year as
reported 43,348 (9,954) (631) 32,763 4,725 37,488
Prior year adjustments
brought forward – (3,535) (36) (3,571) – (3,571)
Reconciliation adjustments
Adjustment to the loss for the year 1 – (3,554) – (3,554) – (3,554)
Foreign currency translation
reserve effect on adjustments 6 – – 101 101 – 101
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Reconciled balance
at 30 June 2006 133,012 (59,794) 3,788 77,006 8,968 85,974
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Opening balance
at 1 July 2006
translated to US$ 133,012 (52,705) 3,723 84,030 8,968 92,998
Movement in year as
reported 65,985 (23,710) 18,805 61,080 1,704 62,784
Prior year adjustments
brought forward – (7,089) 65 (7,024) – (7,024)
Reconciliation adjustments
Adjustment to the loss for the year 1 – (8,491) – (8,491) – (8,491)
Foreign currency translation
reserve effect on adjustments 6 – – (1,709) (1,709) – (1,709)
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
Reconciled balance
at 30 June 2006 198,997 (91,995) 20,884 127,886 10,672 138,558
––––––– ––––––– ––––––– ––––––– ––––––– –––––––
There is no impact to the reconciliation on the statements of cash flows for the three years ended 30 June
2007.

94
Unaudited IFRS reconciliation of Kimberley historical financial information
(a) Reclassifications have been made to the Kimberley historical financial information presented under
Australian Accounting Standards (Australian equivalents to International Financial Reporting
Standards or “AIFRS”) in Part IV “Financial Information on Kimberley” to conform to Gem
Diamonds’ presentation under IFRS.

(b) The details of the IFRS adjustments are as follows:

IFRS adjustments to Kimberley historical financial information

For the year ended 30 June
2005 2006 2007
Notes US$’000 US$’000 US$’000
Note 1
Cost of sales
Amortisation of mine properties i) (206) (845) (1,199)
Amortisation of rehabilitation asset i) 3 378 131
Expense of deferred stripping
previously capitalised ii) (4,354) (3,597) (5,828)
Ore stockpile inventory adjusted
to net realisable value (“NRV”) iii) 1,013 1,476 –
Reversal of opening stock adjustment
from ore stockpile adjustment to NRV iii) – (1,006) (1,595)
Diamond inventory adjusted to NRV iii) – 40 –
–––––––– –––––––– ––––––––
(3,544) (3,554) (8,491)
–––––––– –––––––– ––––––––
Note 2
Other income
–––––––– –––––––– ––––––––
Recognition of dilution gain in income iv) 4,361 – –
–––––––– –––––––– ––––––––
As at 30 June
2005 2006 2007
Notes US$’000 US$’000 US$’000
Note 3
Property, plant and equipment
Opening balance PP&E adjustment
for amortisation changes i) 9 – –
Amortisation of mine properties i) (206) (845) (1,199)
Amortisation of rehabilitation asset i) 3 378 131
Expense of deferred stripping
previously capitalised ii) (4,354) (3,597) (5,828)
Prior year adjustments brought forward v) – (4,594) (8,532)
Foreign currency translation effect vi) (46) 126 (1,796)
–––––––– –––––––– ––––––––
(4,594) (8,532) (17,224)
–––––––– –––––––– ––––––––
Note 4
Inventories
Ore stockpile inventory adjusted to NRV iii) 1,023 1,468 –
Diamond inventory adjusted to NRV iii) – 40 –
–––––––– –––––––– ––––––––
1,023 1,508 –
–––––––– –––––––– ––––––––

95
 As at 30 June
2005 2006 2007
Notes US$’000 US$’000 US$’000
Note 5
Issued share capital
Recognition of dilution gain in income iv) (4,361) – –
–––––––– –––––––– ––––––––
(4,361) – –
–––––––– –––––––– ––––––––
Note 6
Other reserves
Opening balance brought forward – (36) 65
Foreign currency translation effect on adjustments vi) (36) 101 (1,709)
–––––––– –––––––– ––––––––
(36) 65 (1,644)
–––––––– –––––––– ––––––––
Note 7
Accumulated losses
Recognition of dilution gain in income iv) 4,361 – –
Amortisation of mine properties i) (206) (845) (1,199)
Amortisation of rehabilitation asset i) 3 378 131
Expense of deferred stripping
previously capitalised ii) (4,354) (3,597) (5,828)
Ore stockpile inventory adjusted to NRV iii) 1,013 1,476 –
Diamond inventory adjusted to NRV iii) – 40 –
Reversal of opening stock adjustment
from ore stockpile adjustment to NRV iii) – (1,006) (1,595)
Prior year adjustments brought forward v) 9 (3,535) (7,089)
–––––––– –––––––– ––––––––
826 (7,089) (15,580)
–––––––– –––––––– ––––––––
Notes relating to the IFRS adjustments to Kimberley historical financial information
The following notes set out those adjustments that have been made relating to Kimberley in accordance with
IFRS as adopted by Gem Diamonds. Accounting adjustments arising as a result of the Acquisition are
reflected in the unaudited Pro Forma financial information set out in Part V “Pro Forma Financial
Information”.

(i) Amortisation of mine properties and rehabilitation assets

This adjustment to the amortisation of mining assets (both mine properties and rehabilitation asset)
arises as Kimberley adopts a units of production policy over the life of mine whilst Gem Diamonds
adopts a straight line method over the lesser of life of mine and period of lease.

(ii) Expense of deferred stripping previously capitalised

This adjustment expenses post-production deferred stripping costs to the income statement. Under
Kimberley’s policy post-production stripping costs are capitalised to the balance sheet, whilst Gem
Diamonds’ policy is to expense post-production mine stripping costs as incurred.

(iii) Inventory to net realisable value (“NRV”)

This represents the movement in ore stock piles and diamond inventory as a result of absorbing the
additional amortisation costs from mine assets together with expensed deferred stripping costs into the
cost of inventory. Kimberley adopts a policy of determining the cost of inventory using the weighted
average cost method, whilst Gem Diamonds adopts a First-In-First-Out method. Ore stock piles and
diamond inventory are carried at the lower of cost and net realisable value.

96
(iv) Recognition of dilution gain in income
Previously, Kimberley recognised its gains and losses from the dilution of interests in subsidiaries in
equity. Kimberley has changed its accounting policy during the year ended 30 June 2007 to recognise
these gains and losses in the income statement. Accordingly, Kimberley’s results for the year ended
30 June 2005 have been restated for dilution gains generated in that year.

(v) Prior year adjustments brought forward

This adjustment recognises the impact of the above adjustments made in the prior year.

(vi) Movement in foreign currency translation reserve

This adjustment represents the effect of translating Kimberley’s financial information from its
functional currency of A$ to US$.

97
!+ n Ernst & Young LLP
1 More London Place
n Phone:
Fax:
020 7951 2000
020 7951 1345
London SE1 2AF www.ey.com/uk

The Directors LR 13.5.27(2)(b)R

Gem Diamonds Limited LR 13.5.4(1)

Harbour House
Waterfront Drive
Road Town, Tortola
British Virgin Islands
27 September 2007

Dear Sirs

Reconciliation of financial information

We report on the unaudited reconciliations of the consolidated income statements and statements of changes
in equity for each of the years in the three-year period ended 30 June 2007, and of the consolidated balance
sheets as at 30 June 2005, 2006 and 2007, as reported in the financial statements of Kimberley Diamond
Company NL prepared under the Australian equivalents to International Financial Reporting Standards, on
the basis of the accounting policies of Gem Diamonds Limited (the “Company”) (the “reconciliations”),
and on the adjustments set out therein, set out in Part IV of the circular of the Company dated 27 September
2007 (the “Circular”). This report is required by Listing Rule 13.5.27(2)(b)R of the Financial Services
Authority and is given for the purpose of complying with that Listing Rule and for no other purpose.

Save for any responsibility which we may have to those persons to whom this report is expressly addressed
and which we may have to Shareholders as a result of the inclusion of this report in the Circular, to the fullest
extent permitted by law we do not assume any responsibility and will not accept any liability to any other
person for any loss suffered by any such other person as a result of, arising out of, or in connection with this
report or our statement, required by and given solely for the purposes of complying with Listing Rule
13.4.1R(6), consenting to its inclusion in the Circular.

Responsibilities
It is the responsibility of the directors of the Company (the “Directors”) to prepare the reconciliations in
accordance with Listing Rule 13.5.27(2)(a). It is our responsibility to form an opinion as to whether the:

(a) reconciliations have been properly compiled on the stated basis; and

(b) adjustments are appropriate for the purpose of presenting the financial information (as adjusted) on a
basis consistent in all material respects with the accounting policies of the Company.

The reconciliations are based on the audited balance sheets as at 30 June 2005, 2006 and 2007 and income
statements and statements of changes in equity for each of the three years then ended of Kimberley Diamond
Company NL prepared under Australian equivalent to International Financial Reporting Standards, which
were the responsibility of the directors of Kimberley Diamond Company NL and were audited by another
accounting firm. We do not accept any responsibility for any of the historical financial statements of
Kimberley Diamond Company NL, nor do we express any opinion on those financial statements.

Basis of Opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. The work that we performed for the purpose of making this report,
which involved no independent examination of any of the underlying financial information, consisted
primarily of checking whether the unadjusted financial information of Kimberley Diamond Company NL,

98
has been extracted from an appropriate source, making enquiries of management of Kimberley Diamond
Company NL and its auditors to establish the accounting policies which were applied in the preparation of
the unadjusted financial information, assessing whether all, and only, those material adjustments necessary
for the purpose of presenting the financial information on a basis consistent in all material respects with the
Company’s accounting policies have been made and checking the arithmetical accuracy of the calculations
within the financial information reconciliations.

We planned and performed our work so as to obtain the information and explanations we considered
necessary in order to provide us with reasonable assurance that the reconciliations have been properly
compiled on the basis stated and that the adjustments are appropriate for the purpose of presenting the
financial information (as adjusted) on a basis consistent in all material respects with the Company’s
accounting policies.

Our work has not been carried out in accordance with auditing or other standards and practices generally
accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.

Opinion
In our opinion:

(a) the reconciliations have been properly compiled on the basis stated; and

(b) the adjustments are appropriate for the purpose of presenting the financial information (as adjusted)
on a basis consistent in all material respects with the Company’s accounting policies.

Yours faithfully

Ernst & Young LLP

99
 PART V

PRO FORMA FINANCIAL INFORMATION LR 13.3.2R

LR 13.3.3R
LR 13.5.31
UNAUDITED PRO FORMA BALANCE SHEET FOR THE ENLARGED
GROUP
The following unaudited pro forma balance sheet of the Enlarged Group as at 30 June 2007 is prepared to PR App 3

illustrate the effect on the balance sheet of Gem Diamonds of the Acquisition, as if the Acquisition had taken (Annex II,

place on 30 June 2007, and is based on the interim consolidated balance sheet of Gem Diamonds at 30 June item 1)

2007 extracted without material adjustment from the 2007 Gem Diamonds Interim Report (parts of which
have been incorporated by reference into this document as described in Part VIII “Documentation
Incorporated by Reference”) and the unaudited IFRS balance sheet reconciliation of Kimberley as at 30
June 2007 set out in the section headed “Unaudited IFRS Reconciliation of Financial Information” in Part
IV “Financial Information on Kimberley”. It has been prepared on the basis set out in the notes below for PR App 3

illustrative purposes only. Due to its nature, the pro forma financial information addresses a hypothetical (Annex II,

situation and, therefore, does not represent the Enlarged Group’s actual financial position or results. item 2, 3, 6)

As at 30 Adjustments
June 2007 Acquisition and Pro forma
Gem fair value Enlarged
Diamonds(1) Kimberley(2) adjustments(3) Group(4)
US$’000
Assets
Non-current assets
Property, plant and equipment 326,692 166,874 161,966 655,532
Intangible assets 44,723 – 10,514 55,237
Investment in associate 16,787 – – 16,787
Loans owing to associate 30,979 – – 30,979
Other assets 1,211 1,674 – 2,885
Deferred tax assets 1,138 – – 1,138
–––––––– –––––––– –––––––– ––––––––
421,530 168,548 172,480 762,558
Current assets
Inventories 8,241 9,131 – 17,372
Trade and other receivables 9,001 2,037 – 11,038
Loans and receivables 1,370 – – 1,370
Cash and cash equivalents 524,421 5,634 (269,715) 260,340
–––––––– –––––––– –––––––– ––––––––
543,033 16,802 (269,715) 290,120
–––––––– –––––––– –––––––– ––––––––
Assets of disposal group classified
as held for sale 26,093 – – 26,093
–––––––– –––––––– –––––––– ––––––––
569,126 16,802 (269,715) 316,213
–––––––– –––––––– –––––––– ––––––––
Total Assets 990,656 185,350 (97,235) 1,078,771
–––––––– –––––––– –––––––– ––––––––

100
 As at 30 Adjustments
June 2007 Acquisition and Pro forma
Gem fair value Enlarged
Diamonds(1) Kimberley(2) adjustments(3) Group(4)
US$’000
Equity and Liabilities
Equity attributable to equity holders
of the parent
Issued share capital 624 198,997 (198,997) 624
Share premium 786,819 – – 786,819
Treasury shares (4) – – (4)
Other reserves 19,150 20,884 (20,884) 19,150
Accumulated losses (7,111) (91,995) 91,995 (7,111)
–––––––– –––––––– –––––––– ––––––––
799,478 127,886 (127,886) 799,478
Minority interest 60,819 10,672 10,359 81,850
–––––––– –––––––– –––––––– ––––––––
Total Equity 860,297 138,558 (117,527) 881,328
–––––––– –––––––– –––––––– ––––––––
Non-current liabilities
Financial liabilities 18,042 2,002 – 20,044
Provisions 4,400 7,458 – 11,858
Deferred tax liabilities 70,755 – 17,810 88,565
Other payables 381 – – 381
–––––––– –––––––– –––––––– ––––––––
93,578 9,460 17,810 120,848
Current liabilities
Financial liabilities 2,437 18,941 – 21,378
Trade and other payables 31,462 17,508 – 48,970
Provisions – 883 2,482 3,365
Income tax payable 2,831 – – 2,831
–––––––– –––––––– –––––––– ––––––––
36,730 37,332 2,482 76,544
Liabilities directly associated with the
assets classified as held for sale 51 – – 51
–––––––– –––––––– –––––––– ––––––––
36,781 37,332 2,482 76,595
–––––––– –––––––– –––––––– ––––––––
Total Liabilities 130,359 49,792 20,292 197,443

Total Equity and Liabilities

––––––––
990,656
––––––––
185,350
–––––––– ––––––––
(97,235) 1,078,771

Notes:
–––––––– –––––––– –––––––– ––––––––
(1) The interim consolidated balance sheet information of Gem Diamonds at 30 June 2007 has been extracted without material PR App 3
adjustment from the unaudited 2007 Gem Diamonds Interim Report (parts of which have been incorporated by reference into this (Annex II,
document as described in Part VIII “Documentation Incorporated by Reference”).
item 2, 4, 5, 6)
(2) The consolidated balance sheet information of Kimberley at 30 June 2007 has been extracted without material adjustment from LR 13.5.8(1)
the unaudited IFRS reconciliation statements set out in Part IV “Financial Information on Kimberley”. LR 13.5.8(2)
(3) Fair value adjustments to the pro forma balance sheet relating to the Acquisition were calculated as follows:

101
The table below represents an initial assessment of the fair value adjustments relating to the assets and
liabilities shown. A full assessment and allocation of fair values of assets and liabilities will be undertaken
in the 12 month period following the Acquisition.

US$’000
Purchase consideration (including costs of acquisition) 269,715
Less:
Attributable net assets of Kimberley at 30 June 2007 based
on the unaudited IFRS reconciliation statement 138,558
Fair value adjustments comprising: 141,674
Property, plant and equipment(i) 161,966
Deferred tax liabilities(ii) (17,810)
Provisions(iii) (2,482)
––––––––
(10,517)
Minority interests on the above 21,031
––––––––
Goodwill(iv) 10,514
––––––––
(i) Fair value adjustments have been made to reflect the estimated values of the property plant and equipment and mining asset
and liabilities. The adjustments are based upon an exercise performed by the Company to determine the fair values on the
same basis that would be applied in preparing the year end accounts. The assessment has been performed by an independent
third party which included marking listed investments held by Kimberley to market values and an assessment of the value
of the property, plant and equipment of Kimberley using established methodologies together with a reassessment of the other
assets and liabilities. The same approach will be used when reassessing the fair values for the Company’s consolidated
financial statements for the year ended 31 December 2007. The fair value of the Blina Diamond Investment has been
calculated using the listed price of the Blina share as at 14 September 2007.
(ii) The increase in deferred tax liability reflects the tax effect of the fair value adjustments.
(iii) Increase in provisions reflects fair value adjustments to various other provisions.
(iv) Goodwill has been recognised as a consequence of the requirement to recognise a deferred tax liability on the above fair
value adjustments taking into account the minority interest.
(v) Acquisition adjustments have also been made to reflect the cash consideration outflow of US$270 million and elimination
of the issued share capital of Kimberley (US$199 million) and its pre-acquisition reserves of US$21 million and
accumulated losses of US$92 million.
(4) Save as specifically referred to above, transactions or trading post 30 June 2007 have not been reflected in the pro forma financial
information. Specifically, the pro forma balance sheet does not reflect the disposal of Woodlark. If included, the adjustments
would result in the assets and liabilities of the disposed group currently classified as held for sale (which are carried at fair value)
being reflected as cash and cash equivalents.

IMPACT ON EARNINGS
The impact on earnings in the period to 30 June 2007 of the Acquisition has been indicated below.

The Directors believe that, had the Acquisition occurred at the beginning of the financial period 1 January
2007, the income statement would have been impacted by consolidating the Kimberley Group into the
Enlarged Group based on the future earnings of Kimberley from the date of completion of the Acquisition,
taking into account the impact on the earnings arising from the fair value exercise, and allocation of the
purchase price to the net assets acquired, performed in accordance with IFRS. Such impacts will include but
are not limited to:

• Turnover would have increased due to the inclusion of sales by Kimberley;

• Gross profit and operating profit would have decreased due to the inclusion of Kimberley’s costs of
sale and overheads;

• Increased depreciation and amortisation on any movement in the value of tangible and intangible
assets with finite useful lives;

102
• Under the terms of the Offer, cash on deposit would have decreased on payment of the purchase
consideration of US$270 million (inclusive of related acquisition costs) with the result that finance
income in the period would have decreased.

• The impact on net interest income of the refinancing of any interest bearing liabilities on acquisition;
and

• The impact of the items referred to above may lead to additional associated taxation credits and
charges.

This statement should not be taken to mean that the earnings per share of the Group will necessarily match
or exceed the historical reported earnings per share of the Group and no forecast is intended or implied.

103
!+ n Ernst & Young LLP
1 More London Place
n Phone:
Fax:
020 7951 2000
020 7951 1345
London SE1 2AF www.ey.com/uk

The Directors PR App 3

Gem Diamonds Limited (Annex II,

Harbour House item 7)

Waterfront Drive
Road Town, Tortola
British Virgin Islands

27 September 2007

Dear Sirs

Pro Forma Financial Information

We report on the pro forma financial information (the “Pro Forma Financial Information”) set out in Part
V of the circular dated 27 September 2007 (the “Circular”), which has been prepared on the basis described
in the notes to the Pro Forma Financial Information, for illustrative purposes only, to provide information
about how the acquisition of Kimberley Diamond Company NL might have affected the financial
information presented on the basis of the accounting policies adopted by Gem Diamonds Limited (the
“Company”) in preparing the financial statements for the period ended 30 June 2007. This report is required
by Listing Rule 13.3.3R and is given for the purpose of complying with that rule and for no other purpose.

Save for any responsibility which we may have to those persons to whom this report is expressly addressed
and which we may have to ordinary shareholders as a result of the inclusion of this report in the Circular, to
the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to
any other person for any loss suffered by any such other person as a result of, arising out of, or in connection
with this report or our statement, required by and given solely for the purposes of complying with Listing
Rule 13.4.1R (6), consenting to its inclusion in the Circular.

Responsibilities
It is the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in
accordance with Listing Rule 13.3.3R.

It is our responsibility to form an opinion, as required by Listing Rule 13.3.3R, as to the proper compilation
of the Pro Forma Financial Information and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us
on any financial information used in the compilation of the Pro Forma Financial Information, nor do we
accept responsibility for such reports or opinions beyond that owed to those to whom those reports or
opinions were addressed by us at the dates of their issue.

Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. The work that we performed for the purpose of making this report,
which involved no independent examination of any of the underlying financial information, consisted
primarily of comparing the unadjusted financial information with the source documents, considering the
evidence supporting the adjustments and discussing the Pro Forma Financial Information with the directors
of the Company.

n The UK firm Ernst & Young LLP is a limited liability partnership

registered in England and Wales with registered number
OC300001 and is a member practice of Ernst & Young Global.
A list of members’ names is available for inspection at the above
address which is the firm’s principal place of business and its
registered office.

104
We planned and performed our work so as to obtain the information and explanations we considered
necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has
been properly compiled on the basis stated and that such basis is consistent with the Company’s accounting
policies.

Our work has not been carried out in accordance with auditing or other standards and practices generally
accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.

Opinion
In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis stated; and

(b) such basis is consistent with the accounting policies of the Company.

Yours faithfully

Ernst & Young LLP

105
 PART VI

ADDITIONAL INFORMATION

1. Responsibility
LR 13.4.1(4)
The Directors, whose names are set out in paragraph 3 below, accept responsibility for the information
contained in this document. To the best of the knowledge and belief of the Directors (who have taken all
reasonable care to ensure that such is the case), the information contained in this document is in accordance
with the facts and does not omit anything likely to affect the import of such information.

2. Gem Diamonds
The Company was incorporated on 29 July 2005 and registered in the British Virgin Islands under the
International Business Companies Ordinance Cap.291 of the British Virgin Islands as a limited liability
company with registered number 669758 with the name of African Gem Diamond Mining Company
Limited.

Subsequently, the Company’s name was changed to Gem Diamond Mining Company of Africa Limited on
19 August 2005 and to Gem Diamonds Limited on 23 January 2007. With effect from 1 January 2007, the
Company was automatically reregistered under the BVI Business Companies Act.

The registered office of the Company is Harbour House, Waterfront Drive, Road Town, Tortola, British LR 13 Annex 1

Virgin Islands. The principal place of business of the Company is 2 Eaton Gate, London SW1W 9BJ and the (PR App 3, Annex

telephone number of the Company’s principal place of business is +44 (0) 203 043 0280. I, item 5.1.4)

The business of the Company, and its principal activity, is to act as the ultimate holding company of the
Group.

3. Directors, Senior Managers and registered office

The Directors are as follows:

Roger Davis (Non-Executive Chairman)

Clifford Elphick (Chief Executive Officer)

Kevin Burford (Chief Financial Officer)

Graham Wheelock (Chief Mineral Resource Manager)

Gavin Beevers (Non-Executive Director)

Lord Renwick (Non-Executive Director)

Dave Elzas (Non-Executive Director)

The Senior Managers are as follows:

Terry Stewart (Chief Operating Officer)

Glenn Turner (Chief Legal and Commercial Officer)

Peter Heap (Operations Manager)

Nick Selby (Metallurgical Manager)

John Ward (Exploration Manager)

Stephen Wetherall (New Business Manager)

106
4. Directors’ and Senior Managers’ shareholdings and stock options

4.1 Shares LR Annex 1

(PR App 3,
As at 26 September 2007 (being the latest practicable date prior to the publication of this document)
item 17.2
the interests of the Directors and Senior Managers in the share capital of the Company were as
follows:

As a
percentage
of issued
Number of ordinary
Director/Senior Manager Interest Shares capital
Roger Davis Beneficial 289,326(1)(2) 0.46
Clifford Elphick (2) Non-beneficial 9,325,000(3) 14.93
Kevin Burford Beneficial 458,333 0.73
Graham Wheelock Beneficial 458,333 0.73
Gavin Beevers Beneficial 72,332(4) 0.12
Lord Renwick Beneficial –(5) –
Dave Elzas Beneficial 72,332(6) 0.12
Terry Stewart (7) Non-beneficial 500,000 0.80
Glenn Turner Beneficial 600,000 0.96
Peter Heap Beneficial 458,334 0.73
Nick Selby Beneficial 100,000 0.16
John Ward Beneficial 100,000 0.16
Stephen Wetherall – –
(1) Pursuant to his letter of appointment, Mr. Davis will receive a further 289,326 Shares on the first anniversary of
Admission, provided his appointment has not been terminated at that time and he remains Chairman on the relevant
subscription date.
(2) Mr. Elphick is interested in these Shares by virtue of his interest as a potential beneficiary in a discretionary trust which
has an indirect interest in those Shares.
(3) Mr. Elphick’s interest in these Shares includes 3,000,000 Shares acquired by Gem Holdings in the offer under the
Prospectus. These Shares will be subject to security arrangements in connection with the financing arrangements for the
acquisition of Shares by Gem Holdings in the offer under the Prospectus.
(4) Pursuant to his letter of appointment, Mr. Beevers will receive a further 72,332 Shares on the first anniversary of
Admission, provided his appointment has not been terminated at that time.
(5) Pursuant to his letter of appointment, Lord Renwick will receive 144,664 Shares on 24 September 2009, provided his
appointment has not been terminated at that time.
(6) Pursuant to his letter of appointment, Mr. Elzas will receive a further 72,332 Shares on the first anniversary of Admission,
provided his appointment has not been terminated at that time.
(7) Mr. Stewart has an interest in 500,000 Shares as a potential beneficiary under a discretionary trust.

107
4.2 Share options
As at 26 September 2007 (being the latest practicable date prior to the publication of this document)
the following options to acquire Shares had been granted and remained outstanding under the ESOP:

Number of
Shares over
Director/Senior Date of which options Exercise
Manager Grant granted Price Exercise Period
Stephen Wetherall 14 February 2007 20,000 Nil Commencing 14
February 2008 and
ending 13 February
2017
Stephen Wetherall 14 February 2007 15,000 Nil Commencing 14
February 2009 and
ending 13 February
2017

5. Directors’ service contracts

LR 13 Annex 1,
Save for Lord Renwick, details of the Directors’ service contracts or letters of appointment together with
(PR App 3,
details regarding each Director’s remuneration and the pension benefits provided to each Executive Director,
Annex I,
which are still current, are contained in paragraph 8 of Part XV “Additional Information” of the Prospectus
item 16.2)
and are incorporated by reference herein.

The key terms of Lord Renwick’s service contract are summarised below:

Date of joining
Name Position Annual salary the Group Notice period
Lord Renwick Non-Executive Director £70,000 24 September 2007 3 months(1)
(1) This applies to a termination by Lord Renwick. The Company may remove Lord Renwick in accordance with the Memorandum
and Articles (by notice signed by 75 per cent of the Board).

Lord Renwick is engaged by the Company as a Non-Executive Director on the terms of a letter of
appointment dated 27 September 2007. He will serve as a Non-Executive Director until (at least) the
Company’s first AGM (at which he may be obliged to retire but be eligible for re-election by Shareholders).
Lord Renwick will be required to retire at the AGM held in the third calendar year following the AGM at
which he was first elected or re-elected, and if Lord Renwick remains in office for longer than nine years he
will be subject to annual re-election at each subsequent AGM. Lord Renwick’s appointment may be
terminated by him upon giving three months’ notice, or by the Company in accordance with the
Memorandum and Articles. Lord Renwick will receive an annual fee of £70,000 and is subject to a
confidentiality undertaking. He will also be entitled, on 24 September 2009, to receive 0.25 per cent of the
total issued share capital of the Company at Admission (the subscription price being the nominal value of
each share), provided his appointment has not been terminated at that time.

Save for the service contracts described above and in the Prospectus, there are no existing or proposed
service contracts between any Director or proposed director of the Company and the Company and its LR10.4.1(2)(g)

subsidiary undertakings.

A copy of the Prospectus referred to in this paragraph 5 is available for inspection as set out in paragraph 14
of this Part VIII.

6. Major interests in Shares LR 13 Annex 1

(PR App 3,
As at 26 September 2007 (being the latest practicable date prior to the publication of this document) the
Annex I,
Company was aware of the following persons who were directly or indirectly interested in 3 per cent or more
fsitem 18.1)
of the Company’s issued ordinary share capital:

108
 Percentage interest of
Number of issued ordinary
Shareholder Shares share capital
Gem Holdings(1) 9,325,000(2) 14.93
BlackRock Investment Management (UK) Limited 7,735,479 12.40
Capital International, Inc. 4,554,154 7.3
Lansdowne Partners Limited Partnership 3,902,689 6.25
OZ Management, LLC 3,829,215 6.13
Artemis Investment Management Limited 3,824,362 6.12
F&C Asset Management plc 3,105,883 4.97
The Ospraie Portfolio Ltd 2,755,735 4.41
Securities House Nominees Inc(3) 2,175,000 3.48
(1) Mr. Elphick is interested in these Shares by virtue of his interest as a potential beneficiary in a discretionary trust which has an
indirect interest in those Shares.
(2) Gem Holdings’ shareholding includes 3,000,000 Shares acquired in the offer under the Prospectus. These Shares will be subject
to security arrangements in connection with the financing arrangements for the acquisition of Shares by Gem Holdings in the
offer under the Prospectus.
(3) Securities House Nominees Inc. holds Shares on trust for Kevin Burford, Graham Wheelock and each of the Senior Managers.

Save as set out above, the Company is not aware of any other person who is directly or indirectly interested
in 3 per cent or more of the Company’s issued ordinary share capital.

7. Related party transactions LR 13 Annex 1

(PR App 3,
Save as set out in the Prospectus, the Company has not entered into any related party transaction during the
Annex I, item 19)
period covered by the historical financial information contained in Part IV “Financial Information on
Kimberley” up to the date of this document.

8. Material contracts

8.1 The Group LR 13 Annex 1

(PR App 3,
8.1.1 The following contracts (not being contracts entered into in the ordinary course of business)
Annex I, item 22
have been entered into by members of the Group (i) within the two years immediately
preceding the date of this document which are or may be material or (ii) which contain any
provision under which any member of the Group has any obligation or entitlement which is
material to the Group as at the date of this document:

(a) The Transaction Agreements

These agreements are summarised in Part III “Acquisition Documentation”.

(b) Acquisition of Kimberley Diamond Company NL shares

On 19 July 2007, Gem Diamonds acquired (for and on behalf of Gem Diamonds
Australia) 64,037,000 shares in Kimberley (A$0.70 (US$0.61) per share) under
unconditional contracts for total cash consideration of A$44,825,900 (US$38,911,372).
Such shares were acquired from various sellers. Gem Diamonds Australia was registered
as the holder of these Kimberley Shares shortly after it was incorporated.

(c) Material Contracts in the Prospectus

Those contracts summarised in Part XII “Depositary Interests”, Part XIII “Bonds” and
paragraphs 12 and 13 of Part XV “Additional Information” of the Prospectus which by
reference are incorporated herein.

109
(d) Lets̆eng Support Services Agreement
On 26 June 2007, the Company and Lets̆eng Diamonds entered into the Lets̆eng Support
Services Agreement.

Pursuant to the terms of the Lets̆eng Support Services Agreement:

(i) the Company shall provide to Lets̆eng Diamonds support services, advice and
assistance for the purposes of the operation of Lets̆eng in return for a monthly fee
of US$50,000 payable to the Company with effect from 1 July 2006;

(ii) it has been agreed that four directors of Lets̆eng Diamonds (being two board
appointees of the Government of the Kingdom of Lesotho and two board
appointees of Gem Diamonds) shall meet annually to review the performance of
the Company in relation to the support services it provided for the preceding 12-
month period. If unanimously agreed, the fee payable to Gem Diamonds may be
varied (by increase or decrease) for the ensuing 12-month period provided that
the fee shall not be varied by more than 25 per cent in any 12-month period.
Subject to any variation agreed at such review, the fee payable shall increase
annually by the percentage increase in the Consumer Price Index as published by
the Central Bank of Lesotho for the year, provided such increase will not be less
than 5 per cent;

(iii) the Company shall be liable to pay all costs incurred by employees of Gem
Diamonds in discharging its obligations under the agreement, while Lets̆eng
Diamonds shall be responsible for other reasonable costs and expenses incurred
by Gem Diamonds in the provision of its services pursuant to the agreement; and

(iv) the agreement shall be effective from 1 July 2006 until (i) terminated by written
agreement between the Company and the Government of the Kingdom of
Lesotho or (ii) 12 months following written notice.

(e) Acquisition of Gope

On 29 May 2007, Gem Diamonds acquired 100 per cent of the issued share capital of
Gope for total cash consideration of US$34 million. Gope was set up as a joint venture
by De Beers Prospecting (Pty) Ltd and Falconbridge Exploration Botswana (Pty) Ltd (a
subsidiary of Xstrata plc) to explore a known kimberlite deposit in the Gope region of
central Botswana.

The acquisition was completed following the fulfilment of two conditions precedent
being (i) the Government of the Republic of Botswana confirming that it would, in
principle, allow mining in the Central Kalahari Game Reserve and (ii) the Minister of
Minerals, Energy and Water resources consenting to the transfer of shares.

(f) Disposal of Woodlark Gold Project

Pursuant to the Woodlark Share Purchase Agreement and the Woodlark Intangible Asset
Purchase Agreement, Gem Diamonds agreed to sell the Woodlark Shares and Woodlark
Intangible Assets for US$26.5 million.

Pursuant to the Woodlark Share Purchase Agreement, Valkyrie has agreed to purchase
the Woodlark Shares from IMBL. Completion of the Woodlark Share Purchase
Agreement is subject to satisfaction or waiver of the following conditions by 15
February 2008:

• to the extent required, obtaining (i) the consent of the Bank of Papua New Guinea
to the change in ownership of Woodlark and the use of US$ for the acquisition of
the Woodlark Shares; (ii) the consent of the Bank of Papua New Guinea to

110
 Valkyrie raising funds by the issue of shares for the purposes of the transactions
contemplated by the Woodlark Share Purchase Agreement and for related
purposes; (iii) the consent of the Papua New Guinea Investment Promotion
Authority to the change in control of Woodlark;

• Woodlark entering into the Woodlark Drilling Contract and the Woodlark EME
Contract, on terms satisfactory to Valkyrie (acting reasonably);

• closing of the sale and purchase of the Woodlark Intangible Assets;

• Woodlark having entered into arrangements to apply the proceeds from the sale
under the Woodlark Intangible Asset Purchase Agreement in repayment and
satisfaction in full of the Woodlark Intercompany Loan; and

• to the extent required, written consent to the irrevocable waiver of any rights of
pre-emption existing in relation to the Woodlark Shares.

The consideration to be paid by Valkyrie to IMBL for the purchase of the Woodlark
Shares shall be US$14,380,000. However, part of the consideration (in an amount not
exceeding US$500,000) shall be retained by Valkyrie to cover any stamp duty and
related costs incurred by it in remedying the transfers of shares in Woodlark prior to
them being held by IMBL. Upon completion of the post-closing matters, the remaining
amount, together with interest accruing on that remaining amount (at the Barclays Bank
plc base rate), shall be paid to IMBL.

Under the terms of the Woodlark Share Purchase Agreement, IMBL and Gem Diamonds
and Valkyrie have provided warranties to each other which are customary for a
transaction of this type.

The obligations of Valkyrie to IMBL and Woodlark under the Woodlark Share Purchase
Agreement are guaranteed by certain named guarantors.

Under the Woodlark Intangible Asset Purchase Agreement, Valkyrie has agreed to
purchase the Woodlark Intangible Assets from Woodlark. Completion of the Woodlark
Intangible Asset Purchase Agreement is subject to certain conditions including
satisfaction of the conditions set out in the Woodlark Share Purchase Agreement and, to
the extent required, the consent of Bank of Papua New Guinea to Valkyrie raising funds
by the issue of shares for the transactions under the Woodlark Intangible Asset Purchase
Agreement.

The consideration to be paid by Valkyrie to Woodlark for the purchase of the Woodlark
Intangible Assets is the aggregate of:

• the aggregate amount of Holding Costs provided by Gem Diamonds to Woodlark

between 1 July 2007 and completion of the Woodlark Intangible Asset Purchase
Agreement and the Woodlark Share Purchase Agreement; and

• the amount paid by Woodlark between 1 July 2007 and completion of the
Woodlark Intangible Asset Purchase Agreement and the Woodlark Share
Purchase Agreement pursuant to the Woodlark Drilling Contract and the
Woodlark EME Contract; and

• US$12,120,000, being the amount of the Woodlark Intercompany Loan as at

1 July 2007,

subject to adjustments in the event of Woodlark having positive or negative working

capital on 1 July 2007. (In the event working capital is less than zero, the consideration
shall be reduced by an amount equal to the shortfall and in the event the working capital

111
 is greater than zero, the consideration shall be increased by the amount equal to the
excess.)

The obligations of Valkyrie to Woodlark under the Woodlark Intangible Asset Purchase
Agreement are guaranteed by certain named guarantors.

Under the terms of the Woodlark Intangible Asset Purchase Agreement, Woodlark (as
seller) and Valkyrie (as purchaser) provided warranties to each other which are
customary for a transaction of this type.

8.1.2 Save as disclosed in paragraph 8.1.1, there are no contracts (other than contracts entered into
in the ordinary course of business) which have been entered into by members of the Group (i)
within the two years immediately preceding the date of this document which are or may be,
material or (ii) which contain any provision under which any member of the Group has any
obligation or entitlement which is material to the Group as at the date of this document.

8.1.3 A copy of the Prospectus referred to in this paragraph 8.1 is available for inspection as set out
in paragraph 14 of this Part VIII.

8.2 Kimberley LR 13 Annex 1

(PR App 3,
8.2.1 The following contracts (not being contracts entered into in the ordinary course of business)
Annex I, item 22)
have been entered into by members of the Kimberley Group (i) within the two years
immediately preceding the date of this document which are or may be, material or (ii) which
contain any provision under which any member of the Kimberley Group has any obligation or
entitlement which is material to Kimberley as at the date of this document:

(a) The Transaction Agreements

These agreements are summarised in Part III “Acquisition Documentation”.

(b) Disposal of interest in Blina

On 9 March 2007, Kimberley disposed of 20 million ordinary fully paid shares held by
it in Blina for A$10.8 million (A$0.54 per share) to a European-based fund. The shares
in Blina are publicly traded on the ASX. Following this disposal, Kimberley’s
shareholding in Blina amounts to 72,120,133 shares, comprising 39.14 per cent of the
issued share capital of Blina.

(c) Blina Agreement

On or about 17 August 2004, Blina entered into a joint venture with Kimberley in
relation to the exploration and mining of alluvial deposits on the Ellendale Mining
Lease. The material terms and conditions of this joint venture agreement are set out in
Section 9.3.2 of the Mineral Expert’s Report prepared by Venmyn set out in Part VII
“Mineral Expert’s Report”.

(d) State royalty payable to the State of Western Australia

A royalty is payable by Kimberley to the State of Western Australia in respect of the
Ellendale Mining Lease. Kimberley and the State have entered into negotiations to
reduce the royalty payable. Further details in relation to the royalty payable by
Kimberley are set out in Section 4.3 of the Mineral Expert’s Report prepared by Venmyn
set out in Part VII “Mineral Expert’s Report”.

(e) Project Funding Facility with Société Générale

On 15 April 2005, Kimberley entered into the project funding facility with Société
Générale and certain participating banks and financial institutions comprising (i) a

112
 project debt facility of A$35,000,000; (ii) a revolving credit facility of A$11,000,000;
and (iii) a performance bond facility (for Government environmental bonds) of up to
A$7,000,000. Interest is charged at the average bill rate for bank bills plus, in respect of
the project debt facility, a margin of 1.5 per cent and, in respect of the revolving credit
facility, a margin of 1.85 per cent. In relation to the performance bond facility, a fee
equal to 1 per cent per annum calculated on the maximum liability of any performance
bond issued is payable, quarterly in advance. The final repayment date for all facilities
is 1 January 2009.

Security for the project funding facilities has been provided in the form of a fixed and
floating charge, share mortgage and mining mortgage granted by Kimberley in favour of
Société Générale.

Kimberley has provided commitments which include, among others, to comply with
certain financial undertakings and not to deal with, sell or encumber any of its assets
except for disposals or other dealings with Société Générale’s prior written consent, in
respect of the joint venture agreement with Blina as outlined in paragraph (c) above and
any immaterial asset in the ordinary course of Kimberley’s business. If a person acquires
control of Kimberley, the facilities may be reviewed. Thereafter, Société Générale may
by written notice cancel any undrawn commitment and declare the secured monies
immediately due and payable.

Kimberley and Société Générale entered into a letter agreement dated 3 May 2007
relating to adjustments to the project funding facilities. In accordance with this
agreement, on 15 May 2007, 1 million unlisted options to subscribe for Kimberley
Shares, exercisable at A$0.80 each and expiring on the third anniversary of grant, were
issued to Société Générale.

(f) Argyle Asset Sale Agreement

Pursuant to an asset sale agreement dated 5 September 2001, Kimberley acquired a
number of assets in respect of the Ellendale Diamond Mine including the Ellendale
Mining Lease, Argyle Diamonds’ right, title and interest in the Ellendale mining area
and certain information regarding the Ellendale Diamond Mine. In addition, Kimberley
granted certain buyback rights to Argyle to purchase an interest in any new
diamondiferous pipe discovered by Kimberley at the Ellendale mining area. Within 30
days of discovery of any new pipe within the Ellendale mining area, Kimberley must
give notice to Argyle and Argyle may then acquire an interest in the new pipe. Argyle’s
buyback rights under the asset sale agreement continue to have effect.

(g) Private Royalty Purchase Agreements

Following Kimberley obtaining authorisation to purchase certain royalties from its
shareholders at a general meeting on 25 September 2006, Kimberley purchased (free
from all encumbrances):

(I) the 1.5 per cent gross royalty held by Faustus Nominees Pty Ltd (the “Faustus
Royalty”) via the purchase of the entire issued share capital of a shelf company
following the transfer to it of the Faustus Royalty; and

(II) the 1.5 per cent gross royalty held by Weybridge Pty Ltd (the “Weybridge
Royalty”) via the purchase of the entire issued share capital of a shelf company
following the transfer to it of the Weybridge Royalty.

These royalties affect the Ellendale Mining Lease and some or all of the tenement
interests held by Blina. The royalties applied to all revenue derived, accrued or received
by Kimberley from certain mining or other operations of Kimberley.

113
 The consideration paid by Kimberley was A$19.2 million, satisfied by the issue of
20,072,071 Kimberley Shares (free of trading restrictions) at an issue price of A$0.9565
on 6 October 2006.

8.2.2 Save as disclosed in paragraph 8.2.1, there are no contracts (other than contracts entered into
in the ordinary course of business) which have been entered into by members of the Kimberley
Group (i) within the two years immediately preceding the date of this document which are or
may be material or (ii) which contain any provision under which any member of the Kimberley
Group has any obligation or entitlement which is material to Kimberley as at the date of this
document.

9. Litigation

9.1 The Group

LR 13 Annex 1
No member of the Group is or has been involved in any governmental, legal or arbitration proceedings
(PR App 3,
nor, so far as the Company is aware, are any such proceedings pending or threatened by or against any
Annex I,
member of the Group which may have, or have had during the 12 months preceding the date of this
item 20.8)
document, a significant effect on the Group’s financial position or profitability.

9.2 The Kimberley Group

LR 13 Annex 1
No member of the Kimberley Group is or has been involved in any governmental, legal or arbitration
(PR App 3,
proceedings nor, so far as the Company is aware, are any such proceedings pending or threatened by
Annex I,
or against any member of the Kimberley Group which may have, or have had during the 12 months
item 20.8)
preceding the date of this document, a significant effect on the Kimberley Group’s financial position
or profitability.

10. Working capital LR 13 Annex 1

(PR App 3, Annex
The Company is of the opinion that, taking into account the facilities available to the Enlarged Group, the
III, item 3.1)
Enlarged Group has sufficient working capital for its present requirements, that is, for at least the next 12
LR 13.4.3(1)
months from the date of publication of this document.

11. Significant changes

11.1 The Group LR 13 Annex 1

(PR App 3, Annex
There has been no significant change in the financial or trading position of the Group since 30 June
I, item 20.9)
2007, the date to which the last published interim financial statements were prepared.

11.2 The Kimberley Group LR 13 Annex 1

(PR App 3, Annex
There has been no significant change in the financial or trading position of the Kimberley Group since
I, item 20.9)
30 June 2007, the date to which the last published audited financial statements were prepared.

12. Incorporation by reference

The following documents (or parts of documents) are incorporated by reference in, and form part of, this
document:

(a) the disclosures in the Prospectus noted in Part VIII “Documentation Incorporated by Reference”; and LR 13.3.2R
LR 13.1.3
(b) the disclosures in the Gem Diamonds Interim Report noted in Part VIII “Documentation Incorporated LR 3.1.6
by Reference”.

Part VIII “Documentation Incorporated by Reference” sets out the location of references to the above
documents within this document.

114
13. Consents
LR 13.3.1(10)
(a) JPMorgan Cazenove has given and not withdrawn its written consent to the inclusion of its name in
LR13.4.1(6)
this document in the form and context in which it is included.

(b) Gresham Advisory Partners Limited has given and not withdrawn its written consent to the inclusion
of its name in this document in the form and context in which it is included.

(c) Ernst & Young LLP has given and has not withdrawn its written consent to the inclusion in Part IV
“Financial Information on Kimberley” and Part V “Pro Forma Financial Information” of its reports in
the form and context in which they appear.

(d) Venmyn has given and has not withdrawn its written consent to the inclusion in Part VII “Mineral
Expert’s Report” of its report in the form and context in which it appears.

14. Documents available for inspection

LR 13 Ann 1
Copies of the following documents may be inspected during normal business hours on any weekday
(PR App 3,
(Saturdays, Sundays and public holidays excepted) at the offices of Linklaters LLP, One Silk Street, London
Annex I, item 24
EC2Y 8HQ up to and including the date of the Extraordinary General Meeting:

(a) the Memorandum and Articles of Association of the Company;

(b) the consent letters referred to in paragraph 13 above;

(c) the reports of Ernst and Young set out in Part IV “Financial Information on Kimberley” and Part V
“Pro Forma Financial Information”;

(d) the report of Venmyn set out in Part VII “Mineral Expert’s Report”;

(e) the consolidated audited accounts of the Group for the year ended 30 June 2006;

(f) the Gem Diamonds Interim Report;

(g) the Prospectus;

(h) the Facility Documents;

(i) the Offer Document;

(j) the Transaction Agreements; and

(k) this document.

115
 PART VII

MINERAL EXPERT’S REPORT

Rochester Place
173 Rivonia Road
Sandton 2146
PO Box 782761
Sandton 2146
The Directors Republic of South Africa
Gem Diamonds Limited
Harbour House Tel: +27 11 783 9903
Waterfront Drive Fax: +27 11 783 9953
Road Town www.venmyn.com
Tortola
British Virgin Islands

JPMorgan Cazenove Limited

20 Moorgate
London
EC2R 6DA

27 September 2007

Mineral Expert’s Report for the diamond

assets of Kimberley Diamond Company NL

1. Introduction

1.1 Purpose of the Report

This report has been prepared by Venmyn Rand (Pty) Ltd (“Venmyn”) for inclusion in the Class 1
Circular (the “Circular”) to be published by Gem Diamonds Limited (the “Company”) in connection
with its proposed acquisition of Kimberley Diamond Company NL.

Venmyn was instructed by the Directors to prepare a Mineral Expert’s Report for the diamond assets
of Kimberley Diamond Company NL. This report, which summarises the finding of Venmyn’s review,
has been prepared in order to satisfy the requirements of a Mineral Expert’s Report as set out in the
Listing Rules in conjunction with the recommendations of the CESR.

Venmyn has reviewed the practice and estimation methods undertaken by Kimberley Diamond
Company NL and is of the opinion that they are in compliance with the Listing Rules in conjunction
with the recommendations of the CESR and in accordance with the Australasian Code for the
Reporting of Identified Mineral Resources and Ore Reserves, 2004 (the “JORC Code”) and the Code
for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for
Independent Expert Reports 2005 (the “Valmin Code”).

In this report, all diamond reserve and diamond resource estimates, initially prepared by Kimberley
Diamond Company NL in accordance with the JORC Code, have been substantiated by evidence
obtained from Venmyn’s site visits and observation and are supported by details of drilling results,

116
 analyses and other evidence and take account of all relevant information supplied by the directors and
management of Kimberley Diamond Company NL and Gem Diamonds.

1.2 Capability and Independence

This report was prepared by Venmyn. Details of the qualifications and experience of the consultants
who carried out the work are in Appendix 5 of this report. Venmyn operates as an independent
technical consultant providing resource evaluation, mining engineering and mineral asset valuation
services to clients. Venmyn has received, and will receive, professional fees for its preparation of this
report. However, neither Venmyn, its directors, staff nor sub-consultants who contributed to this report
has any interest in:

• Kimberley Diamond Company NL or the Gem Diamonds Group; or

• any of the advisers to Kimberley Diamond Company NL or the Gem Diamonds Group; or

• the mining assets reviewed; or

• the outcome of the Offer.

Drafts of this report were provided to the Kimberley Diamond Company NL and the Gem Diamonds
Group, but only for the purpose of confirming both the accuracy of factual material and the
reasonableness of assumptions relied upon in the report.

Venmyn is responsible for this report as part of the Circular and declares that it has taken all
reasonable care to ensure that the information contained in this report is, to the best of its knowledge,
in accordance with the facts and contains no omission likely to affect its import.

1.3 Scope of work

Venmyn independently assessed the diamond assets of Kimberley Diamonds NL by reviewing
pertinent data, including diamond resources, manpower requirements, environmental issues and life
of mine (“LOM”) plans relating to productivity, production, operating cost, capital expenditure and
revenues.

All opinions, findings and conclusions expressed in this report are those of Venmyn and its
subconsultants.

1.4 Inherent mining risk

Mining is carried out in an environment where not all events are predictable.

Whilst an effective management team can, firstly, identify the known risks and, secondly, take
measures to manage and mitigate these risks, there is still the possibility for unexpected and
unpredictable events to occur. It is therefore not totally possible to remove all risks or state with
certainty that an event that may have a material impact on the operation of a mine will not occur.

1.5 Glossary of terms

Defined terms used in the Circular and adopted in this report are set out in Part IX “Definitions” of
the Circular. The glossary and abbreviations for this report are set out in Appendix 4.

117
 MINERAL EXPERT’S REPORT

ON

KIMBERLEY DIAMOND COMPANY NL (KIMBERLEY)

FOR

GEM DIAMONDS LIMITED (GEM DIAMONDS)

BY

VENMYN RAND (PTY) LIMITED (VENMYN)

FOR THE PURPOSE OF GEM DIAMONDS’ PROPOSED ACQUISITION OF KIMBERLEY

The Directors
Gem Diamonds Limited
Harbour House, Waterfront Drive
Road Town
Tortola
BRITISH VIRGIN ISLANDS

Dear Sirs

EXECUTIVE SUMMARY

Kimberley Diamond Company NL (Kimberley) is an Australian Stock Exchange (ASX) and Alternate
Investment Market (AIM) listed Diamond Mining Company with a 100 per cent interest in the Ellendale
Diamond Mine and a 39.14 per cent interest in alluvial diamond explorer, Blina Diamonds NL (Blina), which
has numerous exploration tenements surrounding the Ellendale Mining Lease area.

Gem Diamonds, a London Stock Exchange (LSE) listed diamond mining and exploration company, has
made an offer to the shareholders of Kimberley to acquire Kimberley, and this Mineral Expert’s Report
(MER) has been prepared by Venmyn in terms of the requirements of the Financial Services Authority,
concerning Class 1 transactions of this nature.

The Ellendale Mining Lease area is situated in the West Kimberley Region of Western Australia. The
Ellendale Mining Lease area covers a surface area of 12,430ha, which encompasses numerous lamproitic
pipes (which are the primary source of the diamonds in the area). The mining operation is serviced by an
excellent infrastructural network, with adequate water and electrical supplies. Operating within a first world
country, this project is associated with very low political risk.

Kimberley’s Ellendale Diamond Mine is a producer of quality, high value diamonds, particularly from the
eastern lobe of Ellendale 9. The mine is a significant producer of ‘fancy’ yellow diamonds, the current high
demand for which is positively affecting the value of the diamonds produced.

Presently, only the Ellendale 9 (45ha) and Ellendale 4 (76ha) lamproite pipes are exploited by Kimberley for
their diamonds. The pipes, while laterally extensive, have only been significantly mineralised within the
tuffaceous lithologies of the pipe. The extensive magmatic components of the pipes are consistently
uneconomic. Various other transitional geological phases are also present with varying degrees of
mineralization. It follows therefore that strong geological control on the mining activities is essential to the
efficient extraction of the highest grade ore types only. Potential exists for additional lamproite resources to
contribute to the mining operation in the short term (such as the Ellendale 4 Satellite pipe) as well as for
additional lamproite discoveries in the area.

The pipes have been the focus of extensive geological investigations by a number of companies in the past
and Kimberley has compiled an extensive geological database, comprising the results of numerous historical
and ongoing work programmes.

118
Mining is undertaken by Macmahon Contractors (Pty) Ltd (Macmahon), an Australian mining contractor.
The ore is extracted using conventional open pit mining methods. To date, in excess of 12Mt of lamproite
ore has been processed, and in excess of 870,000cts of diamonds have been produced. Kimberley produces
quality, high value diamonds (especially from the East Lobe of the Ellendale 9 Pipe – Ellendale 9 East)
which has produced a significant component of ‘fancy’ yellow diamonds. The diamonds of Ellendale 9 East
have been valued at 380US$/ct, and those of the Ellendale 9 West and Ellendale 4 lamproites valued at
215US$/ct and 103US$/ct respectively.

The lamproite material is treated in one of three (3) processing plants within the Ellendale Mining Lease
area, and diamonds extracted using X-ray Flowsort® technology in a centralised Diamond Recovery Plant.
Kimberley has recently demonstrated consistent improvements regarding plant throughputs, however there
remains considerable opportunity to improve throughputs from the current combined annualised throughput
of approximately 6.5Mtpa to approximately 9Mtpa by implementing various upgrades to the existing plants.

Venmyn has conducted a review of the resource model and have updated the Kimberley mineral resource
statement based on the most recent geological information, taking into account depletion of the resource as
at 31 July 2007. The JORC Code compliant resource statement, updated to 31 July 2007, is presented in the
table below.

This resource statement has applied a nominal economic cut-off of US$6/t to the global resource model in
order to eliminate lamproitic material, that while constituting a significant portion of the lamproititc bodies,
is in Venmyn’s opinion, highly unlikely to be extracted economically and which, in terms of the definitions
of the JORC Code, should not be considered as a Resource.

BOTTOM
RE- SCREEN
COVERED SIZE
RESOURCE GRADE CUT-OFF VALUE
SOURCE CLASSIFICATION TONNAGE (cpht) CARATS (mm) (US$/ct)
Ellendale 4 7,486,000 11.1 829,700 1.2 103
Ellendale 9 West Measured 3,486,000 6.6 229,600 1.2 215
Ellendale 9 East 308,000 5.8 18,000 1.2 380
TOTAL MEASURED 11,280,000 9.6 1,077,300 1.2 131
Ellendale 4 7,646,000 9.0 688,700 1.2 103
Ellendale 4 Satellite 9,372,000 5.6 521,000 1.2 150
Ellendale 9 West Indicated 7,923,000 5.8 461,000 1.2 215
Ellendale 9 East 2,854,000 5.2 147,200 1.2 380
Stockpiles 1,715,000 4.7 80,600 1.2 197
TOTAL INDICATED 29,510,000 6.4 1,898,500 1.2 169
Ellendale 4 14,760,000 7.2 1,056,900 1.2 103
Ellendale 4 Satellite Inferred 6,649,000 9.2 612,000 1.2 150
Ellendale 9 West 3,794,000 6.5 247,000 1.2 215
Ellendale 9 East 7,732,000 5.0 385,200 1.2 380
TOTAL INFERRED 32,936,000 7.0 2,301,100 1.2 174
TOTAL RESOURCES 73,725,000 7.2 5,276,900 1.2 163
Notes:
1) Resources depleted to 31 July 2007.
2) The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to define grade.
3) For the resource, diamonds were recovered in the 1.2mm to 14mm range.
4) Rounding of tonnes to the nearest 1,000t and nearest 100cts may result in computational discrepancies in the statement.
5) Ellendale 4 resource is quoted at 5.5cpht minimum cut-off, Ellendale 9 West resource quoted at US$6/t (equivalent of 3cpht)
minimum cut-off, Ellendale 9 East resource quoted at US$6/t (equivalent of 1.6cpht) minimum cut-off, Ellendale 4 Satellite and
Stockpile resources quoted at 0cpht minimum cut-off.
6) Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in production plants.

119
7) Ellendale 4 resource to ±130m below the original surface, Ellendale 9 resource to ±180m below the original surface. Ellendale
4 Satellite to ±220m below the original surface.
8) Ellendale 4 Satellite modelled in plane and section, grades estimated manually.
9) All UBX (breccia) material has been classified as Inferred Mineral Resource, due to the inherent uncertainties concerning the
grade distribution of this lithology.
10) The resource classification complies with the JORC Code.

In consideration of the forecasted plant throughputs and the updated Mineral Resource Statement, Venmyn
has compiled two conceptual resource depletion schedules. The first schedule only considers the extraction
of the Measured Mineral and Indicated Mineral Resources. This scenario results in a conceptual life-of-mine
of a further seven (7) years (ending in 2013). The second scenario includes all classifiable resources (i.e.:
including Inferred Mineral Resources). This inclusion case resulted in an extension of the life-of-mine to
2016.

Blina, while a separately listed exploration company, is 39.14 per cent owned by Kimberley, and as such a
high-level review of their operations has also been conducted by Venmyn.

Blina has identified 5 principal alluvial diamond exploration projects within their tenements that surround
Kimberley’s Ellendale Mining Lease with variable levels of prospectivity and exploration focus. These
projects include:

• Terrace 5;

• Ellendale 9 North;

• J-Channel;

• A-Channel; and

• Regional Projects (which includes the Northern, Central and Southern Reconnaissance Projects).

Kimberley has demonstrated continuous improvements in their production and processing capacities since
mining commenced in 2002, however there is potential to further improve the recovery efficiencies and to
optimise the diamond processing plants. In addition there is potential for additional tonnages to be sourced
from new sources discovered and evaluated by Kimberley and/or Blina. The Ellendale 4 Satellite pipe is one
such source, that subject to a revised evaluation programme could contribute important additional tonnages
to the operation.

While the study highlights the potential of the operation to return to profitability, this is highly reliant on
diamond price escalations and improved plant throughputs.

DISCLAIMER AND RISKS

This MER has been prepared by Venmyn. In the preparation of the report, Venmyn has utilised information
relating to operational methods and expectations provided to them by Kimberley. Where possible, Venmyn
has verified this information from independent sources after making due enquiry of all material issues that
are required in order to comply with the JORC Code. Venmyn and its directors accept no liability for any
losses arising from reliance upon the information presented in this report.

OPERATIONAL RISKS
The business of mining and mineral exploration, development and production by their nature contain
significant operational risks. The business depends upon, amongst other things, successful prospecting
programmes and competent management. Profitability and asset values can be affected by unforeseen
changes in operating circumstances and technical issues.

120
 POLITICAL AND ECONOMIC RISK
Factors such as political and industrial disruption, currency fluctuation and interest rates could have an
impact on Kimberley’s future operations, and potential revenue streams can also be affected by these factors.
The majority of these factors are, and will be, beyond the control of Kimberley or any other operating entity.

FORWARD LOOKING STATEMENTS

The following report contains forward-looking statements. These forward looking statements are based on
opinions and estimates of Kimberley’s management and Venmyn at the date the statements are made. They
are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual
results to differ materially from those anticipated in our forward-looking statements. Factors that could cause
such differences include changes in world diamond markets, equity markets, costs and supply of materials
relevant to the projects, and changes to regulations affecting them. Although we believe the expectations
reflected in our forward-looking statements are reasonable, results may vary, and we cannot guarantee future
results, levels of activity, performance or achievements.

121
 MINERAL EXPERT’S REPORT

ON

KIMBERLEY DIAMOND COMPANY NL (KIMBERLEY)

FOR

GEM DIAMONDS LIMITED (GEM DIAMONDS)

BY

VENMYN RAND (PTY) LIMITED (VENMYN)

FOR THE PURPOSE OF GEM DIAMONDS’ PROPOSED ACQUISITION OF KIMBERLEY

EXECUTIVE SUMMARY

TABLE OF CONTENTS
1 INTRODUCTION 124

2 SCOPE OF THE OPINION 124

3 COMPETENT PERSONS’ DECLARATION 124

4 WESTERN AUSTRALIA STATE PROFILE 126

5 DIAMOND MARKET 128

6 KIMBERLEY’S MINERAL ASSETS 132

7 KIMBERLEY’S CORPORATE STRUCTURE AND MANAGEMENT 133

8 ELLENDALE MINING LEASE 136

9 BLINA DIAMONDS NL (BLINA) PROJECTS 198

10 CONCLUSION 220

122
 LIST OF APPENDICES
Appendix 1: Competent Persons Certificates 221

Appendix 2: Classification of Secondary Diamond Deposits 231

Appendix 3: Carat Stone Sizes in Relation to Grain and Sieve Sizes and Rough Diamond Categories 234

Appendix 4: Glossary and Abbreviations 235

Appendix 5: References 244

123
1. INTRODUCTION
Kimberley Diamond Company NL (Kimberley) was established in 1993 and listed on the ASX in 1994 and
AIM in 2006. Kimberley has several diamond mineral interests in the Kimberley region of Western Australia,
approximately 2,500km NNE of Perth (Figure 1). Kimberley currently has a 100 per cent interest in the
Ellendale Diamond Mine and has a 39.14 per cent interest in Blina Diamonds NL (Blina) which has several
alluvial diamond prospects on properties surrounding the Ellendale Mining Lease area.

The Ellendale Mining Lease area (ML04/372) was acquired in 2002 and represents the core of Kimberley’s
previous “Ellendale Diamond Project”, which until recently encompassed the entire Ellendale Lamproite
Field (approximately 200,000ha). In August 2004, Kimberley listed on the ASX the company Blina
Diamonds NL (Blina), which took responsibility for exploration of the tenements surrounding ML04/372.
Blina is also responsible, through a joint venture agreement, for all exploration and development of alluvial
prospects on the Ellendale Mining Lease area.

The Ellendale Diamond Mine currently exploits two diamondiferous lamproites by means of open pit mining
methods. To date in excess of 870,000cts of diamonds have been recovered from mining over 12Mt of
lamproite. The Ellendale Diamond Mine’s production comprises a high proportion of gem and near-gem
diamonds with an important component of ‘fancy’ yellow diamonds. Since mining commenced in 2002, the
rate of production has progressively increased. As at 30 June 2007, the annualized combined plant
throughput was approximately 6.5Mtpa and potential exists to increase this substantially over the next few
years.

2. SCOPE OF THE OPINION

Venmyn was requested by the directors of Gem Diamonds to independently prepare a Mineral Expert’s
Report (MER) on the diamond exploration and mining properties of Kimberley and Blina. The MER has
been compiled in accordance with the requirements and definitions of the Australasian Code for the
Reporting of Identified Mineral Resources and Ore Reserves, 2004 (JORC Code) and the Code for the
Technical Assessment and Valuation Of Mineral and Petroleum Assets (Valmin Code) as required by the
LSE. The guidelines of these codes are considered by Venmyn to be a concise recognition of the best practice
due diligence methods for this type of mineral asset transaction and accord with the principles of open and
transparent disclosure that are embodied in internationally accepted Codes for Corporate Governance.

The MER has been prepared ahead of Gem Diamonds’ planned acquisition of Kimberley and comprises a
due diligence and technical review of the operation. The investigation was based upon commercial, mining,
environmental and financial information, which has been supplied by Gem Diamonds and Kimberley.

Venmyn has relied on various technical reports and data compiled by Kimberley and/or its nominated
contractors/consultants as well as on extensive discussions with technical and corporate management of
Kimberley and Gem Diamonds. A site visit to the Ellendale Mine was undertaken by Mr. N. Mc Kenna (the
principal author of this report) in August 2007. All operations, plants and other infrastructure were inspected.

3. COMPETENT PERSONS’ DECLARATION

Venmyn is an independent advisory company. Its consultants have extensive experience in preparing mineral
experts, technical advisors’ and valuation reports for mining and exploration companies. Venmyn’s advisors
have, collectively, more than 100 years of experience in the assessment and evaluation of mining projects
and are members in good standing of appropriate professional institutions. The signatories to this report are
qualified to express their professional opinions on the values of the mineral assets described. To this end,
Competent Persons Certificates are presented in Appendix 1. The Competent Persons responsible for the
compilation of and the information contained in this MER are Mr. N. Mc Kenna and Mr. G.D. Stacey.

Neither Venmyn nor its staff have, or have had, any interest in this project capable of affecting their capacity
to give an unbiased opinion, and, have not and will not, receive any pecuniary or other benefits in connection
with this assignment, other than normal consulting fees.

124
 Independence you can trust
Kimberley Diamond Company NL
Figure 1:

LEGEND:
ELLENDALE PROJECT AREA
Main Road
Secondary Road
River
Town
O
14
Ellendale Project Area

Wyndham

Kununurra

Indian Ocean

125
AUSTRALIA
Turkey Creek
NORTHERN BLINA’S EXPLORATION TENEMENTS
TERRITORY

Derby KIMBERLEY’S ELLENDALE MINING LEASE AREA

QUEENSLAND
WESTERN
AUSTRALIA 18O
SOUTH
AUSTRALIA
Looma Fitzroy Crossing Halls Creek
NEW SOUTH Broome
Perth WALES
Sydney

Melbourne
Lagrange

GEMKimberleyCPR’07Fig01.cdr

Source: Venmyn

SCALE:
50 0 50 100 km
O O
124 128

This diagram and the information therein are copyrighted. It

may not be reproduced or transmitted in any form or by any
means without prior written permission from Venmyn Rand
(Pty) Ltd. Trading as Venmyn.
FIGURE 1
Kimberley and Gem Diamonds have provided certain information, reports and data to Venmyn in preparing
this MER. The information, reports and data provided by each of them respectively is, to the best of the
knowledge and understanding of each of Kimberley and Gem Diamonds regarding information, reports and
data provided by it to Venmyn, complete, accurate and true and each of Kimberley and Gem Diamonds
acknowledge that Venmyn has relied on such information, reports and data in preparing this MER. The
Competent Persons have given written permission to use this MER in the public domain.

4. WESTERN AUSTRALIA STATE PROFILE

4.1 Summary of Political and Economic Climate

The State of Western Australia became a self-governing State in 1889 with a bicameral House of
Parliament, situated in Perth. In 1901, Western Australia became a State within Australia’s federal
structure. The sovereign of Western Australia is the Queen of England (Queen Elizabeth II). The
executive power is supposedly vested in the Governor, but the executive power is administered by the
premier, Alan Carpenter and the ministers. The political party presently holding the majority of seats
in the lower house of Parliament is the Labour Party.

Western Australia has the largest per capita output, compared to other states in Australia. The
extraction and export of mining and petroleum commodities are the basis of the economy. Iron,
alumina, natural gas, nickel and gold make up the vast majority of produced commodities in Western
Australia. A high demand of resources from foreign countries such as China has benefited the
economy of Western Australia. Major refining and manufacturing industries such as liquified natural
gas production, petrochemicals and fertilizer productions are found in the State of Western Australia.

Agriculture also plays a major role in the economy of Western Australia with exports such as wheat,
barley, wool and meat amounting to approximately 3 per cent of the Gross State Product (GSP).

The current economic boom has caused a major rise in property values, resulting in average residential
property increasing in value by over 40 per cent, in 2006.

The tourism industry has also grown tremendously, with a large number of visitors from the United
Kingdom, Ireland, Singapore, Japan and Malaysia every year.

4.2 Minerals Industry

Australia is among the top 10 countries in the world that produce bauxite, coal, cobalt, copper, gem
and near-gem diamonds, gold, iron ore, lithium, manganese ore, niobium, rare earths and uranium.
Metals, industrial minerals and mineral fuels are also produced in Australia.

Australian mining is dominated by the production of bauxite and aluminium and Australia is the lead
producing country in the world, with mines such as Huntly, Willowdale and Worsley mines in Western
Australia producing bauxite. Expansions at a few of the refineries were predicted, in order to
accommodate for the demand for bauxite. This resulted in predictions that Australia’s aluminium
output would increase to 20.5 Mt/yr in 2006, resulting in a capacity of 18,000 metric tons per year
(t/yr). It is expected that the aluminium exports in Australia could increase by up to 19 million tonnes
(Mt) by 2010.

Australia is also a major producer of copper and gold. In 2005, Australia produced more than 900,000t
of copper in concentrates and exports more than 300,000 t/yr of refined copper. The copper production
is expected to increase by more than 1 Mt in 2007. New copper mines such as the Jaguar mine in
Western Australia were expected to start producing in 2007.

Australia is currently the second largest gold producer in the world. Due to factors such as the
expansion of mine output capacity, higher gold prices in the international market and an increase in
demand for gold jewellery, the production and export of gold is expected to increase further in the
future.

126
 Western Australia is a large contributing producer of Australia’s total oil and condensate and liquified
natural gas (LNG) production. The Carnarvon Basin in Western Australia accounts for 63 per cent of
the country’s total production.

The Argyle Mine in Western Australia is the main producer of diamonds in Australia. Rio Tinto
intends to develop an underground block-caving operation, bringing the underground mine into full
operation within 3 years. The Ellendale Diamond Mine is the only other diamond mine in Australia
(and is discussed in detail in the sections below).

Western Australia contributes 40 per cent of the Australian export revenues, due to the current boom
in the economy.

4.3 Mineral Policy

All gold, silver and any other precious minerals in Western Australia belong to the Crown. All other
minerals which were not bought from the Crown before 1899 currently belong to the Crown. All
mining activities (prospecting, exploration and mining) are governed by the Mining Act of 1978.

There are several requirements that should be fulfilled before prospecting and mining can take place:

• the “Miner’s Right” has to be obtained before prospecting can commence;

• consultation with indigenous people has to be completed before prospectors and explorers can
gain access to the land in which indigenous people have an interest. The following West
Australian legislative provisions have to be carefully considered before gaining access to the
indigenous people’s land, they are, Aboriginal Heritage Act, 1972; Aboriginal Affairs Planning
Authority Act 1972; Aboriginal Communities Act 1979; Mining Act 1978; Aboriginal and
Torres Strait Islander Heritage Act 1984 and Native Title Act 1993;

• the holders of mining tenements have to pay a prescribed rent at a prescribed time. Royalties
are paid and the Governor prescribes how, by whom and at what rate or differentiating rates,
royalties shall be paid; and

• the Environmental Protection Act describes that responsibilities must be taken during mining
activities, it does this by requiring an environmental management plan.

The Mining Regulations of 1981 provide for a general State royalty with respect to diamonds, of 7.5
per cent of the ‘royalty value’ (which is interpreted on a ‘gross operating income’ basis after allowing
for certain transport and packaging costs).

However, in the case of the Ellendale Mining Lease the royalty payable to the state is set out in
regulation 6 of the Mining (Ellendale Diamond Royalties) Regulations 2002, which broadly provides
that the royalty on the Ellendale Mining Lease is the greater of:

(i) 22.5 per cent of the ‘above zero profit’, which is interpreted to be based on a ‘net operating
income’ concept but not allowing deductions for: taxes affecting income or profits; and
royalties (excluding other statutory royalties); or

(ii) Where, in respect of a year, the royalty payable under paragraph (i) above is less that 7.5 per
cent of ‘free on board’ (f.o.b) revenue for that year, which is interpreted to be a ‘gross operating
income’ type concept after allowing for certain insurance, freight, selling, marketing and other
costs, or there is no above profit for that year, the rate of royalty is 7.5 per cent of the f.o.b.
revenue for that year.

While current diamond royalties to the State of Western Australia are set at 7.5 per cent of the gross
operating income, the Argyle diamond mine has renegotiated a royalty for that mine of 5 per cent.
Kimberley, on the basis of this reduced royalty for Argyle, has entered into negotiations with the State
in order to reduce their royalty in line with that of Argyle. The State made an offer to Kimberley that
the rate of royalty be reduced from 7.5 per cent f.o.b. to 5 per cent f.o.b. effective from 1 January 2006.

127
 This offer is subject to certain conditions including that Kimberley provide an unconditional bank
guarantee to the value of the difference between the royalty actually paid and the royalty that would
be payable. At the time of writing, the legislation has not yet been amended to reflect the negotiated
reduced royalty rate but this is still expected.

5. DIAMOND MARKET
The diamond industry is a highly specialized business and production and distribution is largely consolidated
in the hands of a few key players. By far the majority, that is 70 per cent by value of the diamonds, are mined
in four countries namely Botswana, Russia, Canada and the DRC, and the marketing of these diamonds takes
place in traditional diamond trading centers.

The outlook for the diamond market remains good. A shortage in the supply of rough diamonds is expected
in the ensuing ten years as global production is predicted to remain relatively constant whilst global demand
continues to increase.

This would result in continued price increases in the short to medium term. The market in 2006 was subdued
and according to International Diamond Exchange (IDEX) research the global diamond demand is expected
to cool in 2007, reflecting the economic slowdown predicted by most forecasters. Volatility has been evident
and price corrections have been necessary and will continue. However, apart from major economic
meltdown, the global diamond market and the associated diamond prices are driven by the balance between
the supply and demand. The supply volume is anticipated to be reasonably static whilst growing middle
income markets in United States and Asia will continue to grow.

In summary the supply/demand scenario is positive. According to Royal Bank of Canada (RBC) Capital
Markets (May 2007) diamond prices will remain firm for up to five years and are forecast to increase by 2
– 5 per cent per annum. No major diamond mine is forecast to begin production and exploration spending
will continue to run at a high level. The global exploration costs for diamonds in 2006 was US$7.5 billion,
more than five times what it was five years ago.

The market will be favourable for at least five years for any company bringing successful new projects on
stream, and good projects will be valued by both trade buyers and the stock markets.

5.1 Current and Forecast World Diamond Supply

Global diamond production is dominated by Africa which contributed 61 per cent by carats in 2006,
as shown in Figure 2. The major producers within Africa are the DRC and Botswana which each
produce approximately 20 per cent of Africa’s output. South Africa contributed 10 per cent to global
production and Angola a further 5 per cent. Contributions by the Central African Republic are
typically 1 per cent of global production. Australia contributed approximately 19 per cent by carats in
2006.

128
Figure 2:
Graph of World Diamond Production by Country (2006)

Brazil
Canada 1%
DRC
9%
21%

AFRICA
61%
Australia
19%

Botsw ana
SA
20%
10%

Angola
Russia 5%
14% CAR Namibia
1% Ghana
Other (Africa) 1%
1%
1%
st
Based upon 2006 1 half year results.
Source: Gem Diamonds CPR (2005), WWW International (2006), Venmyn (2006)

According to the United States Geological Society (USGS), global production increased from 50Mcts
in 1980 to 192Mcts in 2006 (Figure 3), gem-quality diamonds contributed 107Mcts and industrial
diamonds contributed 85Mct.

The world’s production is dominated by four companies namely De Beers, Alrosa, BHP Billiton and
Rio Tinto which, together, are responsible for 70 per cent of global production.

The reserves associated with the four major producers have steadily been decreasing and no new large
mines are expected to come on stream in the near future. Production is likely to be around the 160Mct
level for the next ten years (Figure 4).

The value of the rough global diamond market was recorded at US$12.8bn in 2005 and is estimated
to reach a value of US$13.2bn by the end of 2007. The associated increase in value along the pipeline
is estimated to be 3.7 times from mine production of rough diamonds to the retail sales of polished
goods in jewellery. The value of the final sales in 2006 was US$68.51bn.

Figure 3:
World Diamond Supply by Volume (1980 – 2005)

180 Botuobinskaya,
Catoca, Russia
Damtsha,
160 Angola
Botswana
Venetia,
140
South Africa
Production (Mcts)

120 Argyle, Diavik,

Australia Canada
Ekati, Canada
100 The Oaks,
Jwaneng, South Africa
80 Botswana

60

40

20

0
1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Year
Source : Rio Tinto Diamonds (2005)

129
 Figure 4:
Industry Supply versus Demand (2005 – 2015)
(Index 2005 = 0)
Supply Demand
1.60

1.40
1.20
Indexed Value 1.00
0.80

0.60
0.40

0.20
0.00
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
Year
Source : Rio Tinto Diamonds (2005)

5.2 Current and Forecast World Diamond Demand and Consumption

The demand for diamonds is generally measured in relation to the manufacturing capacity and the
demand for jewellery going forward. At present, there is a manufacturing over-capacity. In the short-
to medium-term there will be insufficient natural rough diamonds produced to keep all the
manufacturing facilities operational. The world diamond jewellery demand is estimated to grow at an
annual rate of approximately 5.9 per cent per annum over the forecast period. This is based upon the
economics outlined in the International Monetary Fund’s World Economic Review (April 2005). The
projected demand for diamond jewellery is based upon the real GDP growth for the major diamond
consuming countries (Figure 5).

The United States’ diamond jewellery market, which represents 51 per cent of total international
diamond jewellery sales, is growing broadly in line with consumer spending. The depressed dollar and
slow economic growth predicted for the United States is likely to slow jewellery sales in 2007 and
early 2008. A similar picture of weak sales in Europe is also possible.

The economies of the Asia-Pacific region, including China, are expected to slow in 2007 but jewellery
sales are on the upswing because this is an immature market, and demand will remain relatively
strong. Similar strong demand is predicted for the Middle East and India.

130
 Figure 5:
Recent and Projected Global Diamond Consumption by Geographical Area

25

20 Rest
Asia
15
US$bn
Europe
Japan
10
America
5

0
2002 2003 2004 2005 2006 2007 2008 2009 2010
YEARS

Source:WWW International (2002), Venmyn (2006)

The demand for large high quality diamonds is expected to outweigh those of the smaller, low quality
diamonds (Figure 6), and is expected to continue to increase for the next ten (10) years, with the
maximum relative percentage increase coming from the Asian markets.

Figure 6:
Demand for Rough Diamonds in Various Size Categories

+ 2 ct + 0.66 ct - 0.66 ct

4
US$bn

0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Year

Source: WWW International (2002), Venmyn (2006)

5.3 Current and Forecast World Diamond Prices

Diamond prices are notoriously difficult to predict as they are subject to the whims of fashion and
jewellery trends. Over and above this, there are thousands of different polished diamond price
categories as a result of the various combinations of colour, clarity, cut and size within each individual
diamond. The historical rough prices are shown in Figure 7.

Since 2001, diamond prices have increased rapidly. This was due primarily to increased demand
associated with greater market spending and depleted stocks.

The surge in rough prices was also a result of other factors including lower finance costs, a polishing
over-capacity, a weak US Dollar (US$), active encouragement for consumer spending and definite
supply shortages in many diamond categories because of production difficulties. Since mid-2003,
prices of rough diamonds have increased to a greater extent than those for polished stones, creating a
‘price squeeze’ on diamond cutting and polishing factories.

131
 The strong upward movement in rough prices however, has corrected by 5 per cent to make them
compatible with polished prices and volatility will continue to be a feature of the diamond market.

Figure 7:
Indexed Rough Diamond Prices (1960 – 2005)
(Index: 1960 = 100)
300
Market control Bust Declining
250 demand &
destocking
200
Indexed Price

150

100 Inflation Economic Stock depleted,

boom grow th, increased
50 Yen. marketing spend

0
1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002
Year
Source : Rio Tinto Diamonds (2005)

Over the next five (5) years the outlook for diamond prices remains positive, with prices for both
rough and polished rising at an average annual rate in excess of 5 per cent and up to 10 per cent in the
better qualities. Thereafter the market is expecting a slight short-term correction in rough prices and
the current moderate growth of polished prices to continue. This will partly close the gap that has
opened up between rough and polished over the past two years. The market expects margins in the
polished pipeline to continue to be squeezed.

6. KIMBERLEY’S MINERAL ASSETS

The mineral assets of Kimberley comprise:

• a 100 per cent interest in the Ellendale Diamond Mine through the Ellendale Mining Lease; and

• a 39.14 per cent shareholding in Blina, which is currently assessing alluvial diamond deposits on
various properties which lie adjacent to the Ellendale Mining Lease.

Kimberley’s Ellendale Mining Lease area (Ellendale Mine) comprises 12,430ha and encompasses numerous
diamondiferous lamproite pipes, two of which are currently being exploited using conventional open-pit
mining methods. Kimberley continue to evaluate the economic viability of the other bodies within the
Ellendale Mining Lease area. The currently mined lamproites include:-

• Ellendale 4; and

• Ellendale 9 (East and West Lobes)

Blina has acquired 44 tenements held in its own right, which cover in excess of 120,000ha. Blina has
identified 5 alluvial exploration projects which occur across the tenements, namely:

• Terrace 5;

• Ellendale 9 North;

• J-Channel;

• A-Channel; and

132
• Regional Projects (Northern, Central and Southern Reconnaissance Projects).

These projects are focused on exploration for economic diamond deposits in paleo-channels and the
discovery of new lamproites.

7. KIMBERLEY’S CORPORATE STRUCTURE AND MANAGEMENT

The organogram of Kimberley’s organisational structure and management is shown in Figure 8. The
qualifications and experience of each of the management team is described below. The CVs set out below
are based on information provided by Kimberley. Venmyn has not undertaken due diligence on the CVs but
rather, has relied on the information provided to it by Kimberley in this regard. Estimated staff numbers are
194 at Ellendale with 18 in the Corporate office (in Perth) and 160 contractors.

7.1 Executive Management Team

Miles Kennedy Chairman (58)

B.Juris
Miles has held directorships of Australian listed resource companies for the past 21 years. He is the
Executive Chairman of Kimberley and was the founding Chairman of Macraes Mining Company NL,
Chairman of Churchill Resources NL, a Director of Brunswick NL and an Officer of Normandy
Mining Limited. He has extensive experience in the management of public companies with specific
emphasis in the resource industry. He is a Barrister and Solicitor of the Supreme Court of Australia.

Karl Simich, Managing Director (43)

B.Comm, CA, F Fin
Karl joined Kimberley in November 1993. He has considerable international business experience in
the management and administration of publicly listed companies, specialising in resource finance and
corporate management. He has been a non-executive director of Kimberley’s controlled entity Blina,
since November 2002. He is a Chartered Accountant and a Fellow of the Financial Services Institute
of Australasia and has completed post-graduate studies in business and finance.

Matthew Fitzgerald, Chief Financial Officer (37)

B.Comm, CA
Matthew joined Kimberley in July 2003. He is a Chartered Accountant and before taking up his
position of Group Accountant with Kimberley, held the position of Senior Accountant in the
Assurance and Advisory Division of accounting firm, KPMG, with his main focus being the provision
of audit and financial advisory services to the ASX listed companies in the resources sector. In July
2006 he was appointed to the role of Chief Financial Officer of Kimberley with overall responsibility
for the financial and accounting operations of the business.

David Jones, Chief Geologist (56)*

B.Sc (Hons), M.Sc., MAusIMM
David is considered one of Australia’s most experienced and successful diamond exploration
geologists, and has led Kimberley in the exploration programmes in the Ellendale Field for over 11
years. He brings to Kimberley a wealth of experience in diamond exploration and exploration
management and possesses an intimate knowledge of the Ellendale Field and the Tenement Area. He
commenced his diamond exploration career in 1976 as part of the Ashton Joint Venture team
conducting regional exploration programmes in the Kimberley region. He has also held senior
exploration and management positions with a number of other diamond exploration companies, and
is the Managing Director of Blina.

133
 Kimberley Diamond Company NL
Independence you can trust
Figure 8:

KIMBERLEY MANAGEMENT AND STAFF ORGANOGRAM

Kimberley Board

Chairman
(Miles Kennedy)

EA & Company Investor Relations

Secretary Manager
(Jean Mathie) (Arran Gracie)
Managing Director
(Karl Simich)

Executive Assistant
(Kerry-Ann Lewis)

Chief Financial Officer Strategic Planning and Sales and Marketing

Chief Geologist Operations Manager Manager
HR Manager
Kimberley Management and Staff Organogram

(Matthew Fitzgerald) (David Jones) (Justin Clarke)

(Tor Theunissen) (Nick Yiannopoulos)

134
Environmental Administration
Geology Supintendent Mining Superintendent Production Manager Engineering Manager Safety Superintendent Security Manager
Superintendent Superintendent
(TBA) (Dieter Wanke) (Ron Edwards) (Rod Dingwall) (Lee Bouckaert) (Keith Koppman)
(Norman Galli) (TBA)

Environment Officer Accounts Senior Mine Geologist Mining Engineer Safety Officer Security Officer
(2) (3) (2) (2) Senior Metallurgist Projects Engineer (2) (10)
(John Hickling) (Adrian Horne)

Indigenous Liaison Senior Exploration

Officer HR and Logistics Geologist Survey
(2) (4) (1) (3) Production Metallurgist Projects Team Mechanical General Electrical General
(Brad Besson) (6) Supervisor Supervisor
(Jason Higham) (Troy Greaves)
Mining Supervisor and
Indigenous Trainee Warehouse Mine Geologist
Reg, Quarry Manager
(10) (4) (1)
(Martin Drage) Mechanical Workshop Electrical Workshop
Supervisor (5)

E9 General Supervisor Crusher General Recovery General

Information Systems Pit Technician Mining Contractor E4 General Supervisor
(Bruce Meyn) Supervisor Supervisor
(2) (3) (150) (Mark Herbert)
(Mark Craine White) (Steve Peacock) (TBA) Mechanical Workshop Electrical Fixed Plant
(17) (2)

Catering Team Leader Team Leader Team Leader Team Leader

(13) (3) (2) (3) (3)
Mechanical Fixed Plant Maintenance Planner
(6) (1)

Village Senior Operator Operator Senior Operator Operator

(19) (1) (0) (1) (6)

Operator Operator
Source: Kimberley (24) (15) LEGEND:
Corporate Office
This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior written Ellendale Mine Site
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig08.cdr
FIGURE 8
 Justin Clarke, Operations Manager (36)
B.Bus
Justin has for the past 12 years been closely involved with Kimberley’s exploration programmes and
has undertaken a variety of operational and management roles. He has an impressive practical
background and brings to Kimberley considerable knowledge and experience in a wide variety of
diamond exploration and evaluation techniques. He has been responsible for managing construction
and production for Kimberley from the commencement of the project in 1994.

Tor Theunissen, Strategic Planning & HR Manager (58)

BA (Hons), M.Sc, PhD
Tor joined Kimberley full time in January 2006. He has over 30 years of experience in consulting to
the mining industry in South Africa and Australia. His focus is on strategic planning, organisation
design, recruitment, assessment and remuneration structuring. He has been involved in a number of
start-ups and turnarounds including Richards Bay Minerals (RBM), Argyle Diamond Mine, Macraes
Gold Project and Kimberley.

Nicholas Yiannopoulos, Sales & Marketing Manager (52)

Nick joined Kimberly at the commencement of the Ellendale project and has been responsible for
Valuation and Sales since 2002. Nick is the director of Independent Diamond Valuers Pty Ltd (IDV)
which he started in 1998 offering brokerage services to the diamond industry. Previously he worked
at Rio Tinto’s Argyle Diamonds where he managed the valuation operation and for six years
represented Argyle in its sales to De Beers’ Diamond Trading Company (DTC). As the senior valuer
he managed the valuations for Rio Tinto’s other diamond interests including the Diavik and Murowa
feasibilities. He also negotiated on behalf of Argyle the DTC London Master Sample in 1991. He
previously held positions with De Beers in both the polished and rough diamond areas and prior to
that completed a cutting traineeship in Hatton Garden.
* David Jones retired from his executive management roles in Kimberley and Blina with effect from 1 July 2007. He will
continue to work as a geological consultant to both companies.

7.2 Operations Management Team

Justin Clarke, Operations Manager (36 years)

B.Bus
Described in Section 7.1.

Dieter Wanke, Mining Superintendent (43)

B.Eng (Mining), B.Survey, First Class Certificate of Competency
Dieter joined Kimberley in June 2007. He has over 15 years of experience in the industry in
operational roles in coal and nickel mining. He has experience in mining software and has served as
an academic visitor at the Kalgoorlie School of Mines.

Ron Edwards, Production Manager (56)

Fitter & Turner by Trade, completed Mechanical Engineering Certificate
Ron has extensive experience in all aspects of mining plant design, construction, operation and
management. He has worked in most sectors of the mining industry and built and commissioned
Kimberley’s plant at Ellendale 4, before taking on the responsibility for all production at the Ellendale
Mine site.

Rod Dingwall, Engineering Manager (62)

Fitter & Turner by Trade, completed Second Class Mechanical Engineering Certificate
Rod joined Kimberley in July 2003. He has experience in open cut mining, bucket line, cutter suction,
bucket wheel and suction dredging. His 30 years of experience include: Australia tin dredging in north
Queensland, Indonesia dredging gold, Irian Jaya dredging shipping channel, water well drilling in

135
 Irian Jaya, Saudi Arabia dredging salt, Indonesia dredging diamonds offshore, South Africa mining
open cut for diamonds using pans and DMS, Namibia diamonds with pans and Angola installing DMS
plant.

Lee Bouckaert, Occupational Safety & Health Superintendent (36)

Diploma OS&H and Training, Cert IV in Training & Assessing, Industrial Paramedic, Cert II in
Public Safety (Emergency Response), Fitting & Fabrication Trade Certificate
Lee joined Kimberley in June 2005. He has over 19 years experience in the mining industry, 4 years
of which working directly in a safety supervisory role. He has extensive experience managing
maintenance operations and in the development and implementation of quality systems.

Hugh Trenwith, Senior Mining Engineer (39)

B.Eng (Mining), B.Comm, B.Sc. (Mineral Economics), B.Sc. Geology
Hugh joined Kimberley in October 2004. He has 13 years of mining experience including 6 years as
an Engineer. He first joined Kimberley as Mine Engineer and progressed to Senior Mine Engineer and
Mining Superintendent.

John Hickling, Senior Metallurgist (63)

B.Sc.
John has been with Kimberley since May 2002. He has experience in exploration and mining:
diamonds, sapphires, rubies, gold and uranium since 1969 (including Horse Gully, Argyle, Bow River,
Phillips Range, Copeton, Merlin and Barrington).

8. ELLENDALE MINING LEASE

8.1 Legal Tenure and Agreements

The legal status of the granted mineral tenements and applications has not been independently verified
by Venmyn. The present status of these tenements and agreements has been provided to Venmyn by
Kimberley and the report has been prepared on the understanding that the tenements are lawfully
accessible for exploration and development. The descriptions below are a brief summary of the
agreements that Venmyn is aware of and do not necessarily constitute a full documentation of all
aspects of the agreements. Freehills, Gem Diamonds’ Australian solicitors, is currently conducting a
due diligence of all contracts and agreements, the results of which have not been made available to
Venmyn at the time of writing.

8.1.1 Mining Lease Agreement (Lease Agreement)

The Ellendale Mining Lease (ML04/372) was first granted to Argyle Diamond Mines Pty
Ltd (Argyle Diamonds) on 23 November 1999, the project operating by means of a series
of approved Notices of Intent. The Ellendale Mining Lease comprises an area of 12,430ha.

The Ellendale Mining Lease is surrounded by pastoral leases, all of which are covered by
either mining leases or exploration tenements controlled by Blina.

Kimberley acquired the Ellendale Mining Lease from Argyle Diamonds in April 2002. The
Ellendale Mining Lease is subject to the exploration and mining regulations under the
Western Australian Mining Act of 1978. The lease term is initially 21 years, with a right of
renewal for further successive periods of 21 years.

The Ellendale Mining Lease and all of the land surrounding it is Crown Land and there is
no freehold land affected in any way by the present or proposed mining activities.

136
8.1.2 Native Title
The Ellendale Mining Lease is subject to the provisions made in the Aboriginal Heritage
Act. In order to mine in Western Australia, companies must demonstrate that there are no
significant cultural issues and require inter alia:

• proof of native title; and

• an Indigenous Land Use Agreement (ILUA).

The Ellendale Mining Lease does not fall on any Aboriginal pastoral leases, but the Fairfield
Pastoral Lease (to the northeast) and the Leopold Downs Pastoral Lease (in the northeast)
are controlled by the Bunuba People (Bunuba). In accordance with the requirements of the
Aboriginal Heritage Act therefore, numerous Aboriginal heritage surveys, visits and
clearances have been undertaken over the greater Ellendale project area since 1980.
Ongoing consultation with, and involvement of, the Banuba Traditional Owners has been
undertaken through the Ellendale Negotiating Committee (which was formed by
representatives for the Traditional Owners of the Bunuba country in August 2002).

8.1.3 Bunuba Agreement

In March 2004, Kimberley, Blina and the Bunuba People formally reached an agreement
over all of Kimberley’s future activities in the Ellendale Mining Lease area and on all
surrounding exploration tenements now under the control of Blina (39.14 per cent owned
by Kimberley) (the Bunuba Agreement). This agreement allows Kimberley and/or Blina, in
close co-operation with the Bunuba People, unrestricted access to, and development of, the
Mining Lease and Exploration Tenements, subject always to the provisions of the
Aboriginal Heritage Act. The Bunuba Agreement is binding on the successors in title of the
parties.

Under the Bunuba Agreement, Kimberley and Bunuba agreed the terms of an ILUA to be
registered in respect of the Area of Interest and Kimberley agreed to consent to a native title
determination in favour of Bunuba over all lands which they claim, subject to that
determination only taking effect when the ILUA is registered and to the terms and
conditions of the Bunuba Agreement being observed and performed by the Bunuba in all
respects as and when required.

Under the Bunuba Agreement, the Bunuba will, subject to certain conditions, become
entitled to receive:

• from Kimberley, in respect of the Ellendale Mining Lease, when Kimberley mines
any part of the Ellendale Mining Lease on a commercial basis in any year since 1
July 2002, an annual payment (Annual Amount) equal to the greater of A$150,000
(CPI indexed) or 5 per cent of the total dividend paid by Kimberley to its members
in that year;

• from Kimberley and Blina, in respect of revenue from other tenements, a gross
royalty (Bunuba Royalty) equal to 1.4 per cent of the total revenue from all mines
established in the area and operated on a commercial basis by Kimberley and Blina,
other than any mines on the Ellendale Mining Lease. These Bunuba Royalties will
be calculated in accordance with the provisions of the Mining Act 1978;

• 250,000 Kimberley Shares credited as fully paid and 5 million options to subscribe
for Kimberley Shares, each exercisable at $2.00 within 5 years of their grant. The
right to exercise these options will be conditional on the registration of the ILUA;
and

• on or before 1 August 2004, 100,000 shares in Blina credited as fully paid and 5
million options to subscribe for shares in Blina.

137
 The first Annual Amount of A$150,000, relating to the year ended 30 June 2003 has been
paid to Bunuba by Kimberley and all subsequent Annual Amounts will be paid into an
interest bearing account (a Compensation Account) established by Kimberley.

The Bunuba Agreement, and the issue of Kimberley securities under it, were approved by
the shareholders of Kimberley on 14 May 2004.

Blina has executed a Deed Poll in favour of Kimberley which confirms that Blina has
assumed responsibility for that part of Kimberley’s liabilities under the Bunuba Agreement
that is properly referable to the Existing and Future Tenements acquired by Blina under the
Kimberley Asset Sale Agreement (see Section 9.3), Kimberley’s exploration and mining
operations on the Ellendale Mining Lease under the Blina joint venture (see Section 9.3),
Blina’s interest in and operations on the Kimberley Tenements under the Falcon Agreement
(see Section 9.3) and any other tenements, or rights and interests therein subsequently
acquired by Blina from Kimberley.

At present 8 per cent of the Kimberley workforce is Aboriginal. Kimberley has committed
to employing 15 new Aboriginal employees each year and have committed to providing
training and employment for the Bunuba (A$1million to be spent annually).

8.1.4 Land Usage

The use of the land for mining and processing is subject to various permits. It is Venmyns’
understanding that all requirements for the legal use of the land for mining, exploration and
processing have been fulfilled (however this has not been verified).

It is important to note that the entire project area is covered by pastoral land (local farmers
have been granted the right to use the land for grazing), and while there is no apparent legal
requirement for Kimberley to compensate farmers for land disturbed during mining or
prospecting operations, Kimberley has elected to engage with farmers on these issues and
have paid out compensation for pastoral land demarcated for mining and prospecting
operations.

8.1.5 Road Access

Miscellaneous Lease L04/26 covers 164ha over Roberts Road and allows Kimberley usage
of the Roberts Road between Gibb River Road and the Ellendale Mining Lease.

One Low Impact Notice of Intent has been approved by the State Mining Engineer on this
lease, entitled “NOI 4842, Ellendale Kimberley Diamond Access Road.”

8.1.6 Environmental Approvals and Environmental Management Plan (EMP)

Kimberley is in possession of the following clearing permits for the Ellendale Mining Lease
area:

• Permit 1378/1 issued by the Western Australian Government (expiring on 8 April

2012) to clear native vegetation for the northern half of the Ellendale Mining Lease;
and

• Permit 410/1 issued by the Western Australian Government (expiring on 30 April

2010) to clear native vegetation for the southern half of the Ellendale Mining Lease.

Kimberley is also in possession of a licence (SF005914), issued by the Department of

Conservation and Land Management (now Department of Environmental Conservation), to
remove stygofauna (expires on 1 December 2025).

In accordance with the Mining Act of 1978, Kimberley has formulated and are working in
accordance with an Environmental Management Plan (EMP).

138
8.1.7 Water Licenses
Kimberley is in possession of the following licenses issued by the Department of Water (and
which all expire on 31 December 2008), which cover the use of water within the Ellendale
Mining Lease area:

• GWL161408(1) – licence to take 1,000,000klpa of water for dust suppression and

dewatering at the Ellendale 4 operations;

• GWL15019(4) – licence to take 75,000klpa of water for exploration activities and

fire fighting; and

• GWL110067(7) – licence to take 4,256,000klpa of water for dewatering, dust

suppression and processing at the Ellendale 9 operations as well as for the camp.

8.1.8 Operating Permits for Water Wells

Kimberley is in possession of a licence (CAW163014(4)) to construct two (2) non-artesian
wells for the Ellendale 9 operations issued by the Department of Water (and expiring on 30
June 2008).

8.1.9 Radioactive Substances

The Radiological Council has granted two (2) licences (LS303/2006 and LX265/2006) with
respect to the operation of the X-ray equipment used during processing (expiring on 24 July
2009 and 26 June 2009 respectively).

8.1.10 Dangerous Goods

The Department of Consumer and Employment Protection, has issued two (2) licences
(DGS016617 and DGS020472) for the storage of dangerous goods which expire on 28
November 2007 and 12 April 2008 respectively.

8.1.11 Land Mobile

The Australian Communication and Media Authority, has issued a licence (1624225) for the
storage land mobile installed and used on site.

8.1.12 Argyle Agreement

Argyle Diamonds as manager for the Argyle Diamond Mines Joint Venture has the right,
under its agreement of 5 September 2001 with Kimberley, to elect to acquire from
Kimberley, on terms set out in the Argyle Asset Sale Agreement, a 51 per cent or 70 per cent
interest in any ‘new pipe’. A ‘new pipe’ is described in the Argyle Agreement as any
diamondiferous pipe discovered by Kimberley on the Ellendale Mining Lease in addition to
the 48 known lamproite pipes that were documented in the Ellendale Mining Lease area at
the time of the agreement.

8.1.13 Agreement with Mining Contractor

All principle mining activities on the Ellendale Mining Lease are conducted under contract
to Macmahon, which is an Australian mining contractor. The mining contract between
Kimberley and Macmahon is based on the AS2124 – 1992 contract which is one of the
generic suite of contracts licensed by Standards Australia. It consists of a generic style
“general conditions of contract” which is commonly used for the Australian building and
construction industry (with widespread use in the mining sector) with site specific “special
conditions” and “scope of work” attached to it. AS2124 is administered by a superintendent
who is an employee of Kimberley.

Risk allocation in AS2124 is in accordance with the Abrahamson Principle in that ‘a party
who controls the risk, shall bear that risk”.

139
 The contractor’s remuneration under the contract is based on a schedule of rates, which has
both a fixed component (per month) and piecework rates (per unit of work).

The schedule of rates is subject to a rise and fall provision which covers labour and
consumables.

The contractor is subject to the Mines Safety and Inspection Act and Regulations and is
required to hold the principal harmless against claims arising under Statute or Common law.

Other features of the contract include:

• Force Majeure applies (but not to wet weather);

• termination for convenience (without cause) with 90 days’ notice triggers a sliding
scale demobilization charge which covers loss of anticipated profit and unamortized
fixed charges relating to the job (depreciation on fixed assets);

• principal has first right to purchase contractor’s fixed assets on site;

• contractor has exclusive right to certain works (e.g: use of an excavator over 100t);

• dispute resolution is by Arbitration (not mediation or expert determination) and not

subject to Security of Payment Legislation (adjudication);

• no “material adverse change” provision;

• principal has right of set-off, and unconditional right to remove contractor’s

employees or subcontractors;

• the contract is not an “entire contract” so there may be collateral issues, but there are
no express warranties; and

• there are no antecedents or trumping provisions.

In addition to mining, the mining contract’s scope includes ancillary activities of clearing,
stockpiling of topsoil. The mining contract also covers the maintenance of roads, dumps and
stockpiles, as well as managing the dust suppression systems. The scope of works has been
written in such a manner that ancillary activities are included in the piecework rates in an
attempt to keep dayworks to a minimum with a target of less than 5 per cent.

8.1.14 Royalties
There are no private royalties associated with the Kimberley assets. All previous private
royalty holders have been bought out by Kimberley.

While current diamond royalties to the State of Western Australia are set at 7.5 per cent of
the gross operating income, the Argyle diamond mine has renegotiated a royalty for that
mine to 5 per cent. Kimberley, on the basis of this reduced royalty for Argyle, have entered
into negotiations with the State in order to reduce their royalty in line with that of Argyle.
The State made an offer to Kimberley that the rate of royalty be reduced from 7.5 per cent
f.o.b. to 5 per cent f.o.b. effective from 1 January 2006. This offer is subject to certain
conditions including that Kimberley provide an unconditional bank guarantee to the value
of the difference between the royalty actually paid and the royalty that would be payable.
At the time of writing, the legislation has not yet been amended to reflect the negotiated
reduced royalty rate but this is still expected.

8.1.15 Power
Electric power is generated on site according to an agreement between Kimberley and
Powerwest Pty Ltd (Powerwest) using piston generated diesel engines. Kimberley pay
Powerwest per KWh used.

140
 8.1.16 Agreements with Blina
Kimberley has completed various agreements with Blina. These agreements (discussed in
detail in Section 9.3) include:

• Kimberley Asset Sale Agreement;

• Blina Joint Venture Agreement;

• Bazco and Lee Agreement;

• Ellendale Resources Agreement;

• Falcon Agreement;

• Faustus and Weybridge Royalty Agreement;

• Management Services Agreement; and

• Kimberley Loan Agreement.

8.2 General Information and Logistics

8.2.1 Location and Access

The Ellendale Mining Lease area is situated approximately 120km east of Derby and 20km
west of Windjana National Park in the West Kimberley Region of Western Australia (Figure
1). The Ellendale Mining Lease area comprises 12,430ha. The mine is situated
approximately 2,500km north of Perth.

Access to the Ellendale Mining Lease area is via Robert’s Road, which intersects the Gibb
River Road and extends southeast to Ellendale 4, passing Ellendale 9. Dirt tracks allow
vehicular travel throughout the lease, however these tracks are generally impassable during
the wet season (between end-December and March) and require re-establishment every
year. The Gibb River Road is closed to heavy vehicles for much of the wet season, and
closed intermittently to light four-wheel-drive vehicles during flooding. A plan is in place
for the State to upgrade this road into an all-weather road.

The general (but not total) inaccessibility to and within the Ellendale Mining Lease during
the wet season contributes to the shortened operating season of the Ellendale Diamond
Mine (plants continue to process stockpiled ore during the wet season).

Commercial flights are regularly available from Perth to the regional centres in Broome and
Derby and charters can be arranged for flights to the Ellendale Diamond Mine site, which
is serviced by an all weather airstrip for commuter planes.

The Ellendale Diamond Mine rotates personnel on a fly-in/fly-out basis, connecting with
several domicile locations.

8.2.2 Topography and Climate

The topography of the region consists predominantly of a gently undulating plain. The
mean elevation varies between 60m and 200m above sea level. The Mt North and Mt Percy
lamproite peaks rise to elevations of approximately 90m above the plain.

The Ellendale Mining Lease mainly covers elevated ground to the west of the Fairfield
Valley. Low sandy ridges (aeolian remnants of an older desert terrain) are ubiquitous. The
vegetation of the region is predominantly open savannah parkland with grassland plains.
The elevated terrain is covered with large areas of open eucalypt woodland with an
understorey of spear grass, and occasional areas of dense pindan scrub (Figure 10).

141
 Limestone cliffs (Late Devonian) of the Oscar Range up to 50m high dominate the
southeast of the tenement. Low karstic limestone terrain is exposed in the central and
southern regions. The limestone terrains have sparse vegetation cover.

The climate is semi-arid, monsoonal with dry warm winters and wet hot summers from
November to April. The average rainfall of the region is 700mm, with the vast majority of
the rain falling between December and March.

8.2.3 Current Infrastructure

The mine is serviced by an excellent infrastructural network (Figure 10). The transportation
network consists of good gravel roads and a gravel airstrip connecting to regional centres.

Power is generated on site by Powerwest using piston generated diesel engines.

The Ellendale Diamond Mine has a good water supply. Kimberley obtains water from pit
dewatering as well as from borefields located on the property. This water supply has proven
to be in excess of what is required for all mining, processing, dust suppression and camp
requirements. Water quality is excellent at between 250mg/l and 350mg/l dissolved solids.

An excellent telecommunications network including telephonic, internet and cellular

telephone infrastructure is in place.

Security and catering are in-house services. The Ellendale Diamond Mine operates a clinic
on site manned by trained paramedics and have contracted medical support. Employees
who require medical evacuation can be airlifted to Derby (120km away), where the closest
hospital is situated. Alternatively patients can be evacuated to Broome or Perth, depending
on the circumstances.

The Ellendale Diamond Mine site has adequately provided for waste disposal sites.

8.3 Regional Geology

The primary diamond deposits of the Ellendale Mining Lease area form part of the extensive West
Kimberley Lamproite Field, which comprises in excess of 90 lamproite intrusions. The lamproites are
located in the West Kimberley Province of Western Australia within a geological terrain known as the
Lannard Shelf (Figure 9) within the Canning Basin. The Lennard Shelf comprises various shallow
marine sediments of Orovician, Devonian and Permian age. The marine sediments reach a preserved
thickness of approximately 3km. The Lennard Shelf is bound in the southwest by the Pinnacle and
Beagle Bay Faults and in the northeast by the Napier Mountain Ranges.

The oldest units exposed in the region are late-Devonian Nullara Limestones and Windjana
Limestones which form prominent cliffs. Exposed sections of the overlying carboniferous sequence
include calcareous sandstone and siltstone of the Fairfield Group, and poorly sorted arkosic sandstone,
siltstone, and conglomeratic sandstone of the Grant Group. These units are exposed on the steep hills
located adjacent to several lamproite pipes and occasionally sub-crop in the shallow drainage system.

The lamproite field was established between 18 and 22 million years ago when an extensive suite of
lamproitic rocks intruded the sediments of the Canning Basin.

Lamproite magma originates at Upper Mantle depths of 150 – 200km within the earth, and entrains
diamonds and other minerals from the Upper Mantle during its rapid ascent to the earth’s surface.

The interaction of the hot magma with groundwater results in a highly explosive eruption that, in the
case of the Ellendale Lamproite Field, has generally resulted in large flared champagne glass shaped
pipes near surface with a narrow pipe stem extending to depth. Figure 9 illustrates a generalised model
of a lamproite pipe.

142
 Kimberley Diamond Company NL
Independence you can trust
Figure 9:

ELLENDALE PROJECT AREA GEOLOGY

100km
Kimberley
Le Basin
op
old
M
ob
ile
Zo
ne

Kimberley’s Ellendale
Mining Lease Area
Fit
zro BLINA’S EXPLORATION TENEMENTS
Canning yT
rou
Basin gh
Ellendale Project Area Geology

West Kimberly Area

Structural Subdivisions

SCHEMATIC DIAGRAM OF A LAMPROITE PIPE

KIMBERLEY’S MINING LEASE AREA ML04/372

Transitional Magmatic Lamproite
Zone/Breccia
Lamproite Tuff

Sandy Tuff

143
Source: Kimberley CARBONIFEROUS FAIRFIELD GROUP: shale, sandstone, limestone
Alluvial deposits - reddish sand, gravel, and clay in channels and floodplains
LEGEND: Black soil deposits - black clayey gilgai soil
Calcrete and tuta GUMHOLE FORMATION: limestone, siltstone, and shale
CAINOZOIC
Sandplain deposits - unconsolidated colian and residual sands WINDJANA LIMESTONE: limestone
SCALE: Duricrust - siliceous and ferruginous rocks DEVONIAN NULLARA LIMESTONE: well-bedded limestone
Lamproites NAPIER FORMATION: famenian well-bedded to massive limestone
PILLARA LIMESTONE: with some conglomeratic horizons
5 0 5 10 km
LIVERINGA GROUP: fluvial sandstone and siltstone BEHN CONGLOMERATE
NOONKANBAH FORMATION: sandstone, siltstone, and shale, minor dolomite
PERMIAN
POOLE SANDSTONE: marine sandstone PROTEROZOIC Sedimentary rock and dolerite
This diagram and the information therein are copyrighted. It may not be GRANT GROUP: sandstone and siltstone Granite, metamorphic and volcanic rocks
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
FIGURE 9

Fault
GEMKimberleyCPR’07Fig09.cdr
Minerals commonly present within lamproites include olivine, clinopyroxene, phlogopite, leucite and
amphibole. Xenoliths and xenocrysts, including pyrope garnets and rare diamonds (of upper mantle
origin) may also be present. The presence of these xenocrysts is dictated by the mantle lithologies
sampled by the lamproite magma on its ascent to surface. Lamproites can only be diamondiferous if
the lamproite magma intersects and samples diamondiferous mantle lithologies during its ascent, and
if the conditions within the lamproite magma are such that the entrained diamonds are preserved once
emplaced near (or on) the earth’s surface (e.g: rapid cooling of the lamproite to limit diamond
resorbtion).

A significant proportion (>60 per cent) of the lamproitic intrusions are known to be diamondiferous,
however to date, economic concentrations of diamonds have only been confirmed and exploited in
two of the pipes known as Ellendale 4 and Ellendale 9. Both of the pipes are covered by the Ellendale
Mining Lease.

Two types of lamproites have been identified in the region:

• less resistant olivine lamproites; and

• more resistant leucite lamproites.

The olivine lamproites appear to have the higher economic potential (Ellendale 4 and Ellendale 9 are
both of the olivine lamproite type). Being less resistant, these olivine lamproites are preferentially
weathered and eroded and typically form topographic lows filled with younger sediments. These
lamproites are typically surrounded (or partially surrounded) by outcropping sediments (Figure 11
and Figure 13) that form low ridges (which dip into the pipe).

The leucite lamproites, while often diamondiferous tend to be associated with lower economic
potential. Being more resistant these leucite lamproites are commonly associated with topographic
highs. The Mt. North and Mt. Percy (Figure 10) intrusives are leucite lamproites and form among the
highest topographic points in the region. Both these leucite lamproites are barren.

An ancient paleo-drainage system of post-Miocene age underlies the Quaternary surface sediments.
This drainage system post-dates the lamproite intrusive event and therefore contains alluvial
diamonds. These are the systems currently being targeted by Blina in their exploration activities (see
Section 9).

Younger (Tertiary-Quaternary) gravels and conglomerates overlay the Canning Basin sediments and
are exposed in valleys and along some of the steep hillsides. Aeolian sand (in the form of poorly
preserved east-west trending, longitudinal dunes) and clays form low rounded ridges.

These sands are believed to represent a preserved fragment of the Great Sandy Desert that at one stage
covered the area.

Laterite deposits have developed in all lithologies since Tertiary times. Extensive nodular laterite has
been widely developed.

The main structural units of the region are defined by periodic faulting events along sub-vertical
normal faults. These faults run predominantly northwest-southeast trending faults. These structures
are believed to have facilitated and provided loci for the volcanic emplacement.

The individual lamproite pipes often display an east-west elongation parallel to the major Paleozoic
structural trend. Ellendale 9 is clearly emplaced along a fault consistent with this trend).

Limited erosion (approximately 60m) of the host sediments and the lamproites, subsequent to their
intrusion has generally resulted in a high degree of preservation of the lamproite pipes. Many of the
lamproites still exhibit remnants of the original volcanic cones and crater lake sediments. The
preserved pipe remnants manifest on the surface as hillocks and/or ridges (representing the preserved
hard, magmatic vent cores).

144
Figure 10:
Ellendale Mining Lease Lamproite Locations and Sizes and Site Infrastructure
FIGURE 10

Kimberley Diamond Company NL

Independence you can trust

ELLENDALE MINE LEASE, LAMPROITE LOCATIONS, SIZES AND SITE INFRASTRUCTURE

E40 AERIAL VIEW OF TOPOGRAPHY

E27

E21
E16

8,060,000 mN
MT. NORTH
E15 E8

K43
E13
K30 K25
K24 K23
E34
K24 E11 K34
E12 K35
K28
ELLENDALE 9
E9
K29
K36 K19
Airstrip E35
K38 K33 K40
E10
K31 K37
E14a West Plant &
E14 Workshops K26
East K44
Kimberley Plant
Camp Site

E7
E45 K32 K41
K39
E33 Airfield

Mt Percy
Gi
bb
Ri
ve
rR
oa
d

8,050,000 mN
Water Reserve 81MV
K42

K27

E6

K20
E4
ELLENDALE 4

Satellite

Ellendale 4
(South Plant)

690,000 mE 700,000 mE

Source: Kimberley
LEGEND: E40 Lamproite discovered by AJV Mining lease area
K36 Lamproite discovered by Kimberley E9 Pit
SCALE: Existing tailings dams E4 pit
2 0 2 4 km Proposed tailings dams Road
DMS plant areas
This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
GEMKimberleyCPR’07Fig10.cdr

145
8.4 Local Geology and Mineralisation
The primary host rock for the diamonds of the Ellendale Diamond Mine is lamproite. While the
Ellendale Mining Lease area covers numerous lamproite intrusions (Figure 10), only the Ellendale 4
and Ellendale 9 lamproites are currently mined by Kimberley. These intrusions are olivine lamproite
pipes with surface areas of 76ha and 45ha respectively, and represent two of the larger pipes in the
Ellendale Lamproite Field.
Both the Ellendale 4 and Ellendale 9 lamproites are complex bodies formed from the coalescing of
several eruptive centers (Figure 11 and Figure 13).
The diamonds are concentrated in the tuffaceous phases of the pipes, however the diamond grades are
variable, with some areas of the tuffs proving sub-economic.
The tuffaceous rocks represent mixtures of fragmental lamproite and disaggregated or brecciated
country rock. The higher-grade tuffs have been shown to be those tuffs with low levels of country rock
contamination (dilution).
Four tuff lithologies can be identified within the pipes, namely:
• lamproite tuff;
• sandy tuff;
• tuffaceous sand; and
• country-rock breccia.

These lithologies are differentiated by varying amounts of country rock contamination, with the
lamproite tuff containing the least contamination, followed by the sandy tuff and tuffaceous sand and
the country rock breccia representing the pipe lithology with the largest component of country rock
dilution/contamination. The incorporation of country rock increases towards the margins of the pipes.

Because incorporation of country rock has the effect of diluting the diamond grade, it follows that
diamond grades decrease towards the margins of the pipe. In most areas only the lamproite tuff
contains economic diamond concentrations.

The lamproite tuffs are believed to represent an early eruptive phase during the emplacement of the
pipes. These eruptions resulted in the formation of large, wide craters. These craters were then
subsequently filled in by late-stage lamproite lava (or magmatic lamproite). This magmatic lamproite
is generally only associated with traces of diamonds which are of much smaller average size than the
diamonds associated with the tuffs. The smaller size of the diamonds (together with the observation
that most of these are rounded and frosted) suggests that the magmatic lamproite has had the effect of
resorbing the diamonds (most likely due to the slow rate of cooling of the magmatic lamproite lava in
the lava lakes they formed). This would explain the difference in grade between the lamproite tuffs
(cooled sufficiently rapidly to preserve more diamonds) and the magmatic lamproite (which cooled
too slowly to preserve most diamonds).

The contact between the lamproite tuffs and the magmatic lamproite is commonly characterized by
transitional lithologies which carry grades that are comparable with the associated tuffs.

There are two end-members of the transitional rock suite:

• a tuffaceous rock with a glassy magmatic matrix; and

• a strongly brecciated very fine grained magmatic rock, containing abundant country rock
xenoliths.

146
 Kimberley Diamond Company NL
Independence you can trust
Figure 11:

ELLENDALE 4 AND SATELLITE PIPE GEOLOGY IN RELATION TO DRILLING POSITIONS

ELLENDALE 4 EAST LOBE

LEGEND:

8,045,800 mN
ELLENDALE 4 WEST LOBE Calcrete / Limestone Outcrop
Lamproite Tuff
Magmatic Lamproite
Sandstone Outcrop
Siltstone
Kimberley Bauer Drill Hole (2.5m)
Kimberley LDD (1.2m)

8,045,600 mN
CRA LDD (0.6-1.2m)
Aircore Drill Hole (Kimberley & CRA)
Fault

ELLENDALE 4 SATELLITE

8,045,400 mN

147
8,045,200 mN
8,045,000 mN
Ellendale 4 and Satellite Pipe Geology in Relation to Drilling Positions

8,044,800 mN
WGS

703,400 mE 703,600 mE 703,800 mE 704,000 mE 704,200 mE 704,400 mE 704,600 mE 704,800 mE 705,000 mE 705,200 mE

CROSS-SECTION A-B
Source: Kimberley
SCALE:
100 0 100 200 m

This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig11.cdr
FIGURE 11
 Kimberley Diamond Company NL
Independence you can trust
Figure 12:

ELLENDALE 4 AND SATELLITE PIPE GEOLOGY IN RELATION TO SURFACE SAMPLING POSITIONS

LEGEND:
ELLENDALE 4 EAST LOBE
Calcrete / Limestone Outcrop
Lamproite Tuff

8,045,800 mN
ELLENDALE 4 WEST LOBE Magmatic Lamproite
Sandstone Outcrop
Kimberley Trenches / Bulk Samples
CRA Trenches / Bulk Samples

8,045,600 mN
ELLENDALE 4 SATELLITE

8,045,400 mN

148
8,045,200 mN
8,045,000 mN
Ellendale 4 and Satellite Pipe Geology in Relation to Surface Sampling Positions

8,044,800 mN
WGS

703,400 mE 703,600 mE 703,800 mE 704,000 mE 704,200 mE 704,400 mE 704,600 mE 704,800 mE 705,000 mE 705,200 mE

Source: Kimberley
SCALE:
This diagram and the information therein are copyrighted. It may not be 100 0 100 200 m
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig12.cdr
FIGURE 12
 Kimberley Diamond Company NL
Independence you can trust
Figure 13:

ELLENDALE 9 PIPE GEOLOGY IN RELATION TO DRILLING POSITIONS

ELLENDALE 9 WEST LOBE LEGEND:

Fairfield Formation - Siltstone
Lamproite Tuff
Magmatic Lamproite
Grant Formation - Sandstone

8,057,400 mN
Transitional tuff
Sandy tuff
Kimberley Bauer Drill Hole (2.5m)
CRA CDP (0.6 - 12m)
Aircore Drill Hole (Kimberley + CRA)
Fault

ELLENDALE 9 EAST LOBE

8,057,200 mN
A B

149
Ellendale 9 Pipe Geology in Relation to Drilling Positions

8,057,000 mN
8,056,800 mN
696,700 mE 696,900 mE 697,100 mE 697,300 mE 697,500 mE 697,700 mE 697,900 mE

A CROSS-SECTION A-B
B
GEMKimberleyCPR’07Fig13.cdr

Source: Kimberley

This diagram and the information therein are SCALE:

copyrighted. It may not be reproduced or
transmitted in any form or by any means without 50 0 50 100 m
prior written permission from Venmyn Rand (Pty)
Ltd. Trading as Venmyn.
FIGURE 13
 Kimberley Diamond Company NL
Independence you can trust
Figure 14:

ELLENDALE 9 PIPE GEOLOGY IN RELATION TO SURFACE SAMPLING POSITIONS

ELLENDALE 9 WEST LOBE

LEGEND:
Sandy Tuff /Tuffaceous Sand
Lamproite Tuff
Magmatic Lamproite

8,057,400 mN
Sandstone Outcrop
Kimberley Trenches / Bulk Samples
CRA Trenches / Bulk Samples

ELLENDALE 9 EAST LOBE

8,057,200 mN

150
8,057,000 mN
Ellendale 9 Pipe Geology in Relation to Surface Sampling Positions

8,056,800 mN
696,700 mE 696,900 mE 697,100 mE 697,300 mE 697,500 mE 697,700 mE 697,900 mE

GEMKimberleyCPR’07Fig14.cdr

Source: Kimberley

This diagram and the information therein are SCALE:

copyrighted. It may not be reproduced or
transmitted in any form or by any means without 50 0 50 100 m
prior written permission from Venmyn Rand (Pty)
Ltd. Trading as Venmyn.
FIGURE 14
Weathering and erosion of the diamondiferous lamproites has produced a surface enrichment of
diamonds over the lamproites in the Ellendale Lamproite Field. This enrichment is most pronounced
over the larger lamproites such as Ellendale 4 and Ellendale 9. The surface enrichment is the result of
a variety of near-surface chemical and physical processes and is not consistent or regular. Alluvial
action and sheet-wash erosion has controlled the distribution and localization of enrichment.

8.4.1 Ellendale 4
Ellendale 4 is located near the south-eastern limit of the Ellendale Lamproite Field (Figure 10).
It covers approximately 76ha and has been formed by the coalescing of at least three (3)
volcanic vents. It can be grossly divided into an Eastern and Western lobe, with the lobes
connected by a narrow neck (Figure 11). Each of these lobes contains several eruptive centers.
The highest diamond concentrations are associated with tuffs in the south of the Eastern Lobe
and in the north of the Western Lobe.

The Ellendale 4 lamproite intrudes Permian sandstones and Devonian limestones. The
limestones only occur along the north-eastern perimeter of the pipe and are poorly exposed.

The more prominent sandstones define the southern margin of the pipe as a low ridge. The
lamproite facies associated with Ellendale 4 are completely covered by up to 6m of sand and
residual soil cover.

Drilling of Ellendale 4 has identified a complex intrusion which in section reveals three (3) vent
systems (Figure 11) which have acted as conduits for both the explosive eruption of the early
pyroclastic tuffaceous lamproite material as well as the later magmatic lamproite in both the
Western and Eastern lobes. In the case of Ellendale 4 the intrusion of magmatic lamproite has
displaced the majority of the pre-existing tuff material, the preserved remnants of which are
economically important as the tuff material contains the most significant diamond grades.

8.4.2 Ellendale 9
Ellendale 9 is located near the centre of the Ellendale Lamproite field (Figure 10) and covers a
surface area of approximately 45ha. It was among the initial lamproite pipes discovered in the
region, subsequent to the first aeromagnetic survey in 1977. It is a complex body with at least
six eruptive centers. Ellendale 9 comprises a Western Lobe and an elongated Eastern Lobe
oriented approximately east–west (Figure 13). The Western and Eastern lobes are largely
discrete with a pronounced sub-surface sandstone ridge separating most of the two areas.

Ellendale 9 intrudes Permian sandstones which outcrop along the rim of the intrusion. The
entire lamproite body is covered by a veneer of sand, laterite, calcrete and clay. The total cover
reaches a thickness of up to 6m, thickest over the pyroclastic lamproite where the tuffaceous
material was preferentially weathered. Only approximately 1m of red sand covers the more
resistant magmatic lamproite.

The Eastern Lobe (Ellendale 9 East) lies along one of the fissure zones that dominate the
central section of the Ellendale Lamproite Field and comprises a thick dyke-like magmatic
lamproite core rimmed by a relatively thin tuffaceous rim.

The Western Lobe of Ellendale 9 is an irregular oval shape vent with its long axis oriented
generally north-south. The Western Lobe (Elendale 9 West) has a surface area of about 21 ha.
Most of the southern half of the lobe comprises lamproite tuffs without any overlying
magmatics. The Western Lobe includes at least four eruptive centers. The two northern centers
have magmatic cores that align with the Eastern Lobe fissure structure. The two southern
centers are entirely tuffaceous. The tuffs from Ellendale 9 West cover approximately 14 ha and
are characterized by a relatively uniform grade.

151
 As is the case for Ellendale 4, the nature and locality of the pyroclastic rocks (tuffs) is
important to the understanding of economic potential as the tuffs are associated with the
highest diamond grades.

8.5 Sampling and Evaluation of Lamproite Deposits

The primary hosts for diamonds are kimberlites, lamproites and related rocks. The weathering and
erosion thereof gives rise to secondary deposits (Appendix 2) which can be divided into a number of
distinct classes, dependent on the distance of transport from the primary host and the sedimentary
environment in which they are laid down.

A number of problems are inherent in primary host diamond sampling and evaluation, and any
exploration programme should be designed to mitigate these problems:

• diamonds are present in an economically viable deposit in extremely small quantities, and their
distribution within the host tends to be erratic (e.g. 1cpht is equivalent to 0.002 parts per million
or 2 parts per billion);

• the size and value of diamonds is erratic and it is possible that the bulk of the parcel value is
attributable to a single diamond. The value of a diamond is related to its colour, quality and
size; and

• valuation of the better quality diamonds, which normally constitute most of the inherent value
of the deposit, tends to be subjective and is dictated by an unpredictable, fashion-controlled
market demand (see Section 5).

Multiple intrusions within a single lamproite pipe can cause the diamond grade to vary from barren
in one facies to significantly mineralized in an adjacent one. To eliminate the evaluation problems
caused by these factors, very large (bulk) samples are required. The accurate evaluation of a deposit
is generally not possible without advancing to the stage of pilot/trial mining.

In order to determine the typical revenues to be expected for a primary diamond deposit, the following
is required:

• the grade (cpht). This is the estimated number of carats contained in one hundred tonnes of ore.
The grade of primary diamond deposits typically varies from 60cpht to 1cpht and 2.0cpht to
0.3cpht for alluvial. Because of the large component of near-barren material associated with the
Ellendale Diamond Mine lamproites, the average global grades are exceptionally low.
Localised areas, within the lamproite tuffs, of higher grade (typically between 3cpht and 9cpht)
make the lamproites, locally of more substantial economic grade.

• the diamond size frequency distribution (SFD) is a cumulative plot of the percentage of stones
found in each size fraction of the sample. Confidence in the sampling results is obtained when
multiple samples of the same lamproite display similar curves. This curve provides information
regarding the overall value of the stones; and

• the recovered diamond sample should be sold as a parcel in today’s market to provide a typical
value for the diamonds of the deposit. This value is quoted as US$/ct for the whole parcel.
Diamond values can vary significantly between deposits from in excess of US$1,400/ct for an
alluvial deposit such as Saxendrift Mine (South Africa) to US$7/ct for a low value primary
deposit such as Argyle Mine (Australia). Primary diamond deposits (kimberlites and
lamproites) are characterised by a low diamond value in comparison to their associated alluvial
deposits. This is due mainly to the natural processes of attrition that occurs within alluvial
systems, that enriches the deposits with higher quality diamonds at the expense of the poorer
quality diamonds.

In order to assess a diamond deposit with respect to the resource available for mining, three principle
parameters must be investigated with respect to their continuity within the deposit. These parameters
must be specified in the diamond resource and reserve statement and include the following:

152
 • tonnage, which is calculated on the volume of the ore deposit multiplied by its density or
specific gravity;

• grade; and

• diamond value.

8.6 Historical Exploration

A brief history of the ownership and exploration in the Ellendale Diamond Field is discussed in this
section and summarised in the Table 1.

The outcropping lamproites of the region were first noted, but not recognised as volcanic vents, by
E.T. Hardman in 1883, however the economic potential of these intrusives was only recognised in
1976, when diamonds were recovered from the Big Spring pipes on Leopold Downs Station,
northwest of Fitzroy Crossing.

The first geological description of lamproite from the area was by Farquharson in 1920, who
described a rock specimen collected by W.V. Fitzgerald in 1907, as a ‘mica leucitite’.

The first detailed scientific investigation of these rocks was undertaken at the University of Western
Australia in 1940. Over the years additional bodies were found but remained essentially of academic
interest only.

The economic potential of the Ellendale area was first investigated in 1967, when a consortium of
three small companies, Exoil NL, Transoil NL and Petromin NL were granted a 67,000ha Temporary
Reserve (TR4665H), on the northern margin of the Lennard Shelf. A combined
aeromagnetic/radiometric survey was flown in 1968. In addition a 1t bulk sample from the Lennard
River at Police Camp Pool produced nine small diamonds weighing 1.65 carats. However, when the
results could not be repeated, the consortium abandoned the project.

Table 1: History of Ownership and Activities in the Ellendale Area

DATE COMPANY ACTIVITY
1883 E.T. Hardman Outcropping lamproites first noted in
Fitzroy Trough (however, not
recognised as volcanic).
1940 University of Western Australia Scientific investigation of lamproites.
1967 Consortium: Exoil NL, Transoil NL A temporary Reserve was granted to
and Petromin NL the consortium which included 670km2
on the northern margin of the Lennard
Shelf.
1968 Consortium: Exoil NL, Transoil NL Aeromagnetic and radiometric surveys
and Petromin NL were flown over Ellendale, with poor
results which almost destroyed any
further interest in the area.
1968 Consortium: Exoil NL, Transoil NL One tonne bulk sample taken from
and Petromin NL Lennard River at Police Camp Pool.
Nine diamond weighing 1.65 carats
were discovered.
1968–1971 Stellar Minerals NL, Stockdale Exploration of the area for diamonds.
Prospecting Limited and French
Bureau de Recherches Geologiques et
Mineriers (BRGM)

153
DATE COMPANY ACTIVITY
1975 Kalumburu Venture, restructured as Discovery of diamonds at Big Spring
Ashton Joint Venture (AJV), lamproite pipes led to renewed interest
managed by CRA Exploration Pty in the area.
Ltd (CRA)
1976 AJV Diamonds recovered from Big Spring
pipes, northwest of Fitzroy Crossing.
1976 AJV Diamonds and Chromites were
discovered in the tributaries of Mt
North Creek, which now drains the
Ellendale 4 pipe.
1977 AJV Aeromagnetic and radiometric surveys
were flown, over 3500km2, which
covered the majority of the Ellendale
area.
1977–1979 AJV Weak anomalies outlined in the
aeromagnetic and radiometric surveys
were drilled, which led to the discovery
of 45 lamproite bodies.
1977–1979 AJV Exploration was focused on the two
largest olivine lamproites pipes
(Ellendale 9 and Ellendale 4). The
highest diamond grades were from the
tuffaceous zones. The largest diamond
recovered was 6.47 carats from
Ellendale 9.
1979 AJV Discovery of the high-grade Argyle
pipe in October shifted the focus away
from the Lennard Shelf area.
1980 Prospecting Ltd; Seltrust Mining Ltd; Exploration took place by various
amongst others. smaller companies. However the
mineral lease claims remained the
property of AJV.
1980–1990 Century Metals and Mining Limited; Exploration in the Ellendale area.
Afro-West Mining Limited, Auridiam
Consolidated NL; and Western Reefs
NL
1988–1994 JV between Auridiam and Afro-West Evaluated the potential in the J-channel
and later Moonstone Diamond and other gravels, south of Ellendale 4.
Corporation NL
1988–1994 Century Metals and Mining Limited Explored paleo-gravels and lamproites
in the northern parts of the region.
1994–2000 Kimberley; Auridiam and Diamond Exploration of southern and western
Ventures NL margins of the Ellendale Lamproite
Field.

154
DATE COMPANY ACTIVITY
2000 Kimberley Exploration was concentrated on the
gravels within the Terrace 5 paleo-
channel system, as well as primary
sources of lamproite which may occur
in the ancient drainage system.
2001 Kimberley Ellendale Mining claims were sold to
Kimberley for A$23.5 million.
2002 Kimberley In April the Ellendale Mining Lease
was transferred to Kimberley and in
July Kimberley commenced mining at
Ellendale 9.
2003 Diamond Mines Australia A Falcon airborne gravity survey was
flown, and 30 targets were identified.
2
2004 Kimberley A 500km airborne magnetic survey
was flown by Fugro, using the Tempest
AEM system.
2005 Blina Two new AEM’s were commissioned in
the tenement area.

Between 1968 and 1971 Stellar Minerals NL, Stockdale Prospecting Limited (Stockdale) and the
French BRGM were all active in the area prospecting for diamonds.

In the early 1970’s, a consortium of 5 small exploration companies established the Kalumburu Joint
Venture (KJV) to explore for diamonds in the Kimberley region of Western Australia. The area was
selected based on classical African and Siberian kimberlite models.

The KJV was successful in identifying numerous diamondiferous lamproites in the region with the
use of classic tracing of indicator mineral trails. The first lamproite discovery (a 10ha pipe called Big
Spring) was discovered in 1976, in the West Kimberley region, which led to renewed interest in the
Ellendale area. This was followed by a succession of discoveries using indicator mineral trails,
patterns and concentrations. Following the discovery of the pipes, the pipes were subjected to various
phases of evaluation which are discussed in more detail in Sections 8.6.1 and 8.6.2.

In order to assist with the funding of their project, KJV invited CRA to take a major (40 per cent)
interest in the AJV, with the joint venture being managed by CRA. Over the succeeding years the
smaller partners of the Joint Venture were bought out by either CRA or Ashton Mining NL (Ashton),
which was a new company spun-out of the smaller groups.

The area proved unsuitable for conventional stream sediment sampling, and in 1977, based on
orientation work conducted at Big Spring, the AJV flew a 350,000ha of aeromagnetic and radiometric
surveys covering most of the Ellendale Field.

Magnetic anomalies were drilled resulting in the discovery forty-five (45) lamproite bodies. Interest
was focused on the two largest olivine lamproites, called Ellendale 9 (46ha) and Ellendale 4 (76ha),
and extensive evaluation programmes were undertaken (using pitting, drilling, bulks sampling)
between 1977 and 1990. The highest diamond grades were recorded from the tuffaceous zones of the
pipes and these were often covered by low-grade or barren magmatic lamproite. The largest diamond
recovered during this evaluation phase was from Ellendale 9 and weighed 6.47 carats.

At the time the Ellendale 9 and Ellendale 4 lamproites appeared to be marginal to un-economic, and
with the discovery in the East Kimberley of the high-grade, 50ha Argyle pipe in October 1979, focus
rapidly shifted away from the Lennard Shelf area.

155
Exploration activities in the area continued into the 1980’s, but at a much more reduced level than
during the late 1970’s. Several new (but generally small) lamproite pipes were discovered by explorers
such as Stockdale, Seltrust Mining Ltd and others. The core of the field however, lay within the
mineral claims retained by the AJV.

Argyle Diamonds, the successor to CRA, had undertaken very little exploration on the Ellendale
mining claims since 1990 and the area remained held under a special State Agreement.

Kimberley believed that the terms of the State Agreement were not being met, and in 2000 plainted
Rio Tinto, which led to litigation. In 2001, the impasse was broken by a sale offer from Rio Tinto,
which was accepted by Kimberley on a settlement price of A$23.5million.

The Ellendale Mining Lease was transferred in April 2002 and in July 2002, Kimberley commenced
mining at Ellendale 9, with both the grade and the sales price of the diamonds exceeding expectation.

8.6.1 Ellendale 4
The Ellendale 4 pipe was among the first of the discoveries in the region, and was discovered
in 1976 from the tracking of indicator minerals. The discovery was followed by mapping,
geophysical surveys and aircore drilling over the pipe on a 100m x 100m grid to delineate the
pipe. This work, together with deeper core drilling, facilitated the construction of a 3D model
of the pipe as well as the disposition of the various facies that comprise the pipe.

Detailed bulk sampling was carried out on a grid allowing one sample per 2ha during
1879/1980. Each bulk sample comprised approximately 200t of material. The bulk samples
were treated at a central plant that used a 20tph cyclone which concentrated heavy minerals
from a -13mm/+8mm pre-prepared feed. Electromagnetic separation was employed to upgrade
the concentrate further before hand sorting. No X-ray recovery systems were used.

The results from the bulk sampling provided sufficient geological information and parcel of
diamonds for a valuation of the deposit.

In order to determine grade variations with depth, bulk samples from a 1m diameter Wirth Drill
were recovered to a depth of 200m below the surface. In 1990 a further seven (7) holes were
drilled using a 1.4m diameter Wirth Drill to a depth of approximately 200m. In this later
drilling programme, the first 3m of each hole was collard using a 1.6m auger bit.

Importantly, while the first 4m of material sampled during the 1979/1980 was discarded, the
1990 sampling programme processed the 0–3m sample separately (labelled overburden). The
results of this drilling programme have not been well publicised and the records were kept
internally, however a few published reports did highlight the very low grade nature of the
primary magmatic lamproite (0cpht – 1.5cpht) and the higher grade of the southern margin of
the Eastern Lobe of the pipe (pyroclastic, tuffaceous lamproite) which averaged 14cpht (and
varied in grade between 3.1cpht and 24.5cpht).

Since the acquisition of the project from the AJV by Kimberley, considerable additional
drilling, sampling, mapping and evaluation of the pipe has been carried out (see Section 8.7).

8.6.2 Ellendale 9
While the initial discoveries were made with the use of tracing indicator mineral trails, later
aeromagnetic surveying proved to be highly successful in locating lamproite bodies in the later
years.

156
 Kimberley Diamond Company NL
Independence you can trust
Figure 15:

AEROMAGNETIC DATA OVER THE MINING LEASE AREA

8,065,000 mN
KIMBERLEY’S MINING LEASE AREA ML04/372

8,060,000 mN
ELLENDALE 9

8,055,000 mN

157
Aeromagnetic Data over the Ellendale Mining Lease area

BLINA’S EXPLORATION TENEMENTS

8,050,000 mN
ELLENDALE 4

8,045,000 mN
Source: Kimberley

SCALE:
2 0 2 4 km

8,040,000 mN
This diagram and the information therein are 680,000 mE 685,000 mE 690,000 mE 695,000 mE 700,000 mE 705,000 mE 710,000 mE
copyrighted. It may not be reproduced or
transmitted in any form or by any means without
prior written permission from Venmyn Rand (Pty)
Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig15.cdr
FIGURE 15
 Aeromagnetic surveying is suited to lamproite prospecting as approximately half of the
lamproite bodies known in the region have magnetic signatures that can readily be
discriminated from the low background magnetic susceptibility of the host sediments.
Ellendale 9 was one of the first bodies discovered with the use of aeromagnetic surveying.
Figure 15 presents the aeromagnetic data over the Ellendale Mining Lease area, and
demonstrates how the data picks out the lamproite bodies.
Ellendale 9 was subjected to the same bulk sampling campaign as Ellendale 4 (200t bulk
samples every 2ha) and was processed in the same manner at a centralised plant (see Section
8.6.1). However unlike Ellendale 4, the follow up sampling programme during 1990, excluded
Ellendale 9.
Similarly, while the detailed results from the 1979/1980 programme were not made publicly
available, some results were published which identified a grade of 2.1cpht for the magmatic
lamproite of the Western Lobe and a grade of 0.6cpht for the magmatic lamproite Eastern Lobe.
The reported grades of the pyroclastic (tuffaceous) lamproite varied between 3.0cpht and
8.1cpht.

Since the acquisition of the project from the AJV, considerable additional drilling, sampling,
mapping and evaluation of the pipe has been carried out by Kimberley (see Section 8.7).

8.6.3 Other Targets

There are numerous other lamproite bodies within the Ellendale Mining Lease area, however
only the Ellendale 4 Satellite pipe (8ha) has attracted significant interest. This pipe was drilled
and sampled to a depth of 105m by AJV.

The proximity of the Satellite pipe to existing infrastructure and operations at Ellendale 4 make
this small pipe economically viable, and it has been considered for incorporation into the
mining plan of Ellendale 4.

8.7 Recent Sampling and Exploration

The Ellendale Mining Lease was granted to AJV in 1999, and in 2000, Kimberley reached an
agreement with Argyle Diamonds to purchase the Ellendale Mining Lease. Kimberley identified an
extensive surface enrichment of diamonds over sections of both the Ellendale 4 and Ellendale 9
lamproite pipes. This was evaluated during 2001 and included:

• aircore drilling at a drill spacing of 50m x 50m;

• initial evaluation sampling in small pits;

• trenching to 12m depth in the regolith and sub-cropping lamproite;

• large diameter (1.25m) reverse circulation sampling drilling; and

• Bauer, 2.5m diameter, auger sampling.

The results of the historic and recent work have been integrated into a common exploration database
for evaluation purposes. Table 2, Table 3, and Table 4 summarise this work, and Figure 11 – Figure
14 illustrate the positions of the various samples over the Ellendale 4 and Ellendale 9 lamproite
bodies.

8.7.1 Narrow Diameter (Delineation) Drilling

The aircore drilling program was initiated to define the pipe lithologies and their three-
dimensional structure. The larger chips provided by the aircore drilling (compared to traditional
reverse circulation – RC – drilling) enabled better logging of lithologies. The vast majority of
aircore holes drilled in the Ellendale Field have been vertical (Table 2).

158
 Table 2: Summary of Small Diameter (Delineation) Drilling
NO.
TOTAL MICRO-
NO. SERIES METERS MAX. DIP DIAMOND
SOURCE COMPANY HOLES NO. TYPE (m) DEPTH (DEG.) SAMPLES
Ellendale 4 Kimberley 96 ELAC Air Core 4,723 120 –90 203
Ellendale 4 CRA 242 4AC Air Core 14,315 318 –90
Ellendale 4 Kimberley 8 4GT Diamond 601 130 –60
Core
Ellendale 4 Kimberley 10 ELAC Air Core 746 102 range
Satellite CRA 36 4AC Air Core 1,929 227 –90
Ellendale 9 Kimberley 5 9GT Diamond 555 135 –90
Core
Ellendale 9 Kimberley 388 ELAC Air Core 15,956 147 range 299
Ellendale 9 CRA 118 9AC Air Core 6,802 219 –90
TOTAL 903 45,627 502
Other* Kimberley, 1331 ELAC Air Core 38,262 126 range 204
CRA
*Notes:
1) Regional drilling of geochem/geophysical anomalism not included.
2) The micro diamond sample count for “Other Drilling” includes pit, LDD and aircore samples.

Most of Kimberley’s aircore drilling was undertaken by Murchison Drilling and Exploration
under the direct supervision of company geologists. In addition to supervising the drilling,
Kimberley’s geologists lithologically logged all drill holes and collected geochemical or micro-
diamond samples as required. Geochemical samples were collected as required and submitted
to Genalysis Laboratory Services Pty Ltd for assay. Micro-diamond samples were processed
through Kimberley’s Perth laboratory.

While details of the CRA drilling program are uncertain, Peter Onley who supervised the
program has stated that similar procedures were followed. The CRA narrow diameter programs
were undertaken with multi-purpose drill rigs and diamond core “tails” were completed on a
number of holes.

Both Kimberley and CRA have completed geotechnical drilling programs to assist with mine
planning and pit design. The drilling was undertaken using diamond core drilling techniques
with cores subjected to a variety of tests to determine physical characteristics of the lithologies.
The CRA geotechnical work was carried out by in-house specialists. Kimberley used John
Kennedy and Associates Pty Ltd to evaluate the geotechnical data.

8.7.2 Large Diameter Drilling (LDD)

Kimberley and CRA completed extensive large diameter drilling programs over the Ellendale
4, Ellendale 9 and Satellite pipes and lesser programs over a number of other pipes in the field
(Table 3).

Kimberley completed most of their drilling using a Bauer BG36 rig imported from Germany
and operated by Bauer. This rig drilled a 2.4m diameter hole and to a maximum depth of 60m.
The Bauer drill could not drill fresh (or calcretised) magmatic lamproite or sandstone and this
limited the amount of drilling.

159
 Table 3: Summary of Large Diameter Drilling
NO. OF
TOTAL MAX. MICRO- NO. TOTAL TOTAL HOLE
NO. SERIES METERS DEPTH DIP DIAMOND BULK TONNES CARATS NO. DIAMETER
SOURCE COMPANY HOLES NO. TYPE (m) (m) (DEG.) SAMPLES SAMPLES (t) (cts) STONES (m)
Ellendale 4 Kimberley 84 E4BLD LDD 1,989 61 -90 32 231 18,368 1,301 8,783 2.4m
Ellendale 4 Kimberley 4 E4BLD LDD 139 56.5 -90
Ellendale 4 CRA 82 4DS/4W LDD 2,761 206 -90 173 4,935 497 3,914 1.2m
Ellendale 4 Kimberley 9 Sat BLD LDD 170 34 -90 5 22 1,832 75 435 2.4m
Satellite CRA 4 E4S-LOD LDD 661 202 -90 7 903 42 541 1.2m
Ellendale 9 Kimberley 94 E9WDD/ LDD/EW 2,890 110 -90 26 172 15,266 672 2,536 2.4m
E9LDD/EW
Ellendale 9 CRA 62 9EDS WDD 2,017 112.7 -90 126 2,017 258 1,161 0.9-2.4
TOTALS 339 10,627 63 731 43,321 2,845 17,370

Kimberley Samples not Processed* 92 BLD LDD 1884 56 -90 193 16,952

The Bauer drill produced about 10t of sample per vertical metre of drilling. Samples were
composited over 10m intervals to produce nominal 100t samples (this varied with rock
density). Samples were stockpiled in the field and then trucked to small (10tph) DMS plants
for processing. The Kimberley geologists logged the drill samples and directly controlled the
drilling programs. All drill collars were accurately surveyed.

Two DMS plants were used to process the Bauer samples. These plants were designed to
recover diamonds in the 1.2 to 14mm size range. The plants did not have crushing capability
and trommel and grizzly oversize was weighed and considered not to have been processed.
Samples were weighed using a weightometer fitted to the front-end loader that fed the plants.

Heavy mineral concentrate from the DMS plants was passed through Kimberley’s twin-stage
Flowsort® X-ray machines and diamonds were recovered by visual sorting. Diamonds
recovered were cleaned, weighed and sorted by size.

Kimberley also used 1.5m diameter wide-diameter reverse circulation mud drilling to sample
deeper parts of Ellendale 4, Ellendale 9 and Satellite pipes. Because of the cost of this drilling,
only a small number of holes were completed using this technique.

Kimberley Water Pty Ltd were employed to undertake this drilling and it employed a tri-cone
roller bit to drill the holes. Sample was returned to the surface using a recirculating mud
technique, with diamonds and drill chips separated from the mud using a shaker screen located
at the surface next to the drill. Sample was collected in 1t bulka bags.

Samples from this drilling were processed through the same DMS plants as the Bauer drill
samples. The weight of sample processed could not be measured directly (because most
material remained in the recirculating mud) and could only be determined from known
volumes and assumed densities.

CRA used a variety of wide diameter drilling techniques to sample the pipes. These included
large diameter augers, bucket drills (equivalent to the Bauer drill) and reverse circulation mud
techniques. Hole diameters varied between 0.9m and 2.4m. Details of the CRA procedures are
uncertain but it is believed the drilling was well supervised.

CRA used a 25tph DMS plant to process most of the exploration samples. This plant reported
diamonds in the 0.8 to 15mm size ranges. Sampling and diamond recovery procedures are not
described in detail, but include ball milling, magnetic and electrostatic methods, with diamonds
recovered by hand sorting. X-ray concentrators or grease tables were not used.

8.7.3 Surface Bulk Sampling

CRA and Kimberley conducted extensive bulk sampling programs in the upper parts of the
Ellendale 4 and Ellendale 9 lamproites. CRA also bulk sampled the Ellendale 4 Satellite pipe.
Both companies have also undertaken smaller bulk sampling programs on a number of other
pipes in the Ellendale Field. Table 4 summarises the surface bulk sampling conducted in the
region.

160
Table 4: Summary of Surface Bulk Sampling
TOTAL
NO. TONNES CARATS NO.
SOURCE COMPANY TYPE SAMPLES (t) (cts) DIAMONDS
Ellendale 4 Kimberley Trenching, 352 35,845 4,243 30,383
Bulk Sampling
Ellendale 4 CRA Trenching, 125 53,845 8,716 47,393
Bulk Sampling
Ellendale 4 Kimberley Trenching, – – – –
Satellite Bulk Sampling
Ellendale 4 CRA Trenching, 8 2,309 118 541
Satellite Bulk Sampling
Ellendale 9 Kimberley Trenching, 276 39,392 2,479 10,971
Bulk Sampling
Ellendale 9 CRA Trenching 166 82,032 3,148 17,493
TOTAL 927 213,423 18,704 106,781
OTHER Kimberley, CRA Trenching, 118 22,115 387.9 2136
Bulk Sampling
Notes:
1) All numbers are minimum figures and reflects data available at the time of compilation.
2) Most near-surface material on E4 and E9 has been mined.
3) Most of CRA’s Ellendale 4 trenching was in the SE lobe.
4) The numbers for Other Pipes is for Kimberley only. CRA data not available.

In general, both companies have preferred to take bulk samples from trenches rather than pits.

The trenching patterns are shown in Figure 12 and Figure 14. Trenching was relatively easy and
straightforward at Ellendale 4, Ellendale 9 and Satellite where overburden is relatively thin; but
more problematic on some of the other pipes sampled with thicker overburden.

Details of the CRA programme are poorly documented, and much of the detail presented is
derived from discussions with Peter Onley (the supervising geologist at the time), and what can
be gleaned from reports that are available.

The CRA trenching program focussed solely on the diamond content of the tuffs and
overburden, and the regolith material was stripped prior to collecting samples. Trenches were
typically excavated to the maximum depth of the excavator (usually about 6m). Trench lengths
were variable but 50m splits were common on longer trenches. Most of the CRA trenching was
over tuffaceous lamproite, however they did complete a systematic, widely spaced trenching
program over the magmatic lamproite.

The overburden on the South-eastern Lobe of Ellendale 4 was originally too thick for trenching
and CRA conducted a major pre-stripping program to enable their trenching program in that
area.

CRA also collected a small number of larger samples from bulk sample pits.

All samples were trucked to CRA’s central processing facility (a Mitchell Cotts Mark IV DMS
plant) and processed at a nominal rate of 25tph. Oversize from the DMS plant was crushed in
a hammer mill and the crushed material was re-processed.

The plant reported diamonds in the 0.8 to 15mm size ranges. Sampling and diamond recovery
procedures are not described in detail, but include ball milling, magnetic and electrostatic
methods, with diamonds recovered by hand sorting. X-ray concentrators or grease tables were
not used.

161
 Kimberley’s trenching program has usually targeted, and checked for, surface enrichment over
the upper portions of the lamproites and associated regolith. The Kimberley program over
Ellendale 4 and Ellendale 9 comprised a series of 1.2m wide trenches at 100m intervals over
the tuffaceous parts of both pipes. The trenches were nominally 3m deep (and split into an A
and a B sample). The A sample comprised the older regolith (any aeolian sand was stripped off
prior to sampling) and the tuff-regolith contact zone; while the B sample targeted the deeper,
tuffaceous lamproite. In areas where the tuff exposure was wide, the trenches were split into
25m samples.

Samples were excavated using a 30–40t excavator and placed on a cleared strip on either side
of the trench; the A sample on one side and the B sample on the other. Geological supervision
of the trenching was continuous and the geologist controlled the A/B split (which often varied
over the length of the trench). Trenches were lithologically logged and sample split levels
recorded.

Samples from the trenching operations were trucked to Kimberley’s central processing facility
where they were processed through one of two, small (10 tph) DMS plants to recover a heavy
concentrate. Neither of the DMS plants had a crushing circuit and considerable oversize
material was generated from some samples. This was weighed and deducted from the original
sample weight. A “recovered grade” and an “in situ grade” were calculated and recorded. In
most areas oversize was typically about 10 per cent of the headfeed, though it did exceed 50
per cent in some samples. The DMS plants were set to recover diamonds in the 1.2 to 14mm
size fraction. The “in situ” grade was used to determine the grade of the regolith resource.

Heavy mineral concentrate from the DMS plants was collected in bulka bags and processed
through a twin-stage, Flowsort® X-ray recovery machine. Diamonds were hand sorted from
the x-ray concentrate, counted and weighed.

Kimberley also processed material from some larger bulk sample pits and from deeper trenches
to examine tuff grades below the upper parts of the pipes. In general, it was found that a surface
enrichment effect extended up to 10m below the tuff/regolith interface. Diamond concentration
in the regolith averaged twice the level recorded in the tuffs and in some samples reached up
to 10 times the underlying values.

8.8 Geological Modelling

Kimberley has compiled an extensive drilling and sampling database which includes all available
historical drilling and sampling as well as the more recent drilling and sampling conducted by
Kimberley since their acquisition of the Ellendale Mining Lease area.

The database includes all data relating to the following exploration and sampling programmes:

• aircore drilling on a 50m x 50m drill grid;

• evaluation pitting;

• trenching;

• large diameter drilling (LDD) to approximately 100m depth;

• Bauer 2.5m diameter auger drilling to approximately 60m; and

• bulk sampling.

This data has been used by Kimberley to produce Vulcan block models of the Ellendale 4 and
Ellendale 9 lamproites and has allowed Kimberley to classify and calculate their resources, on a
regular basis, directly from the block model by ascribing various input parameters.

Venmyn conducted a review of Kimberley’s Vulcan block model, with the ultimate aim of updating
the mineral resource statement for the purpose of this report (see Section 8.14.2).

162
The Vulcan model reviewed was originally set up by Maxwell GeoServices (Maxwell) in February
2004. The model is a 24m x 24m x 12m block support model (Table 5). Since then the model has
regularly been updated with additional drilling and depletion data.
The model is based on all available drilling and sampling data, clipped to borehole intersections and
mapped intersections. The resource estimation, however only incorporates resource information from
the large diameter Bauer drilling data.
With the assistance of a Kimberley employee (trained in the use of Vulcan, and currently responsible
for the modelling), the data was briefly validated from sectioning. Sections are available throughout
the orebodies at a maximum spacing of 50m (some sections were 25m apart). The sections are
snapped to logged drill hole intervals. Where no drilling information is available surfaces are
interpreted from adjoining sections (based on original interpretation of historical data). Geological
surfaces are limited by a natural surface (DTM). Venmyn was satisfied with the interpretation of the
model in the various sections.

Table 5: Details of the Kimberley Block Models

ELLENDALE 9 ELLENDALE 4
Model name E9_0707 E4_0807
Number of blocks 301,094 504,516
Number of variables 19 19
Minimum Block Dimensions 2.50; 2.50; 1.00 2.50; 2.50; 1.00
Maximum Block Dimensions 25.00; 25.00; 12.00 25.00; 25.00; 12.00
Five (5) sectional surfaces have been created in the model. These surfaces correspond to the contacts
between the various pipe lithologies. These include:

• regolith (denoted in the database/model as ‘REG’);

• breccia (denoted in the database/model as ‘UBX’);

• tuff (denoted in the database/model as ‘ULT’);

• sandy tuff (denoted in the database/model as ‘ULTS’); and

• magmatic (denoted in the database/model as ‘ULM’).

A stratified density profile has been applied (by Maxwell) to the geological models, based on the
results from the Bauer drilling programme as documented in Table 6.
Bulk densities were estimated during Kimberley’s Bauer drilling programme by weighing drill
cuttings as they were processed in the test plant and applying the mass of the material removed to an
nominal drill diameter of the hole.
While this technique has the potential to both underestimate (if drill recovery is less than 100 per cent)
or overestimate (if there is hole collapse) density, the technique is believed to generally yield
reasonable results in competent and partially weathered rock (as was the majority of the material
drilled) where large diameter drilling is applied (as was the case here).

Table 6: Specific Gravity (Density) Values Applied to the Geological Model

DOMAIN DEPTH (MRL) SG
Regolith All 1.7
Resource >112.1 – 127.1 1.7
Resource 83.1 – 112.1 1.8
Resource 68.1 – 83.1 1.9
Resource 38.1 – 68.1 2.0
Resource 23.1 – 38.1 2.1
Resource >23.1 2.2

163
The average SG was calculated for a series of depth intervals, using tonnage and volume data from
large diameter drilling, and applied to the model via a script. This data set was then compared and
verified with data gained from the extensive sampling program in 2006. The 2006 program
determined the SG from a series of grab samples collected from Ellendale 9 and Ellendale 4. This
analysis was conducted in-house. Venmyn are satisfied that the densities have been appropriately
apportioned.

Ordinary Kriging techniques are used to interpolate grades into the block model. The grade estimation
parameters are detailed in Table 7 and Table 8.

Table 7: Grade Estimation Parameters for Ellendale 4

FIRST RUN SECOND RUN THIRD RUN
Grade variable CPHT
Discretisation steps x = 4; y = 4; z = 2
Distances to samples Anisotropic distance: average distance
Search region Bearing = 320
Plunge = 0
Dip = 0
Search distances Major axis = 50 Major axis = 100 Major axis = 500
Semi major axis = 50 Semi major axis = 100 Semi major axis = 500
Minor axis = 30 Minor axis = 60 Minor axis = 300
Samples count Minimum number of samples Minimum number of samples Minimum number of
per estimate = 3 per estimate = 2 samples per estimate = 1
Maximum number of samples per estimate = 25
Variography Structural type = spherical
Sill differential = 1.44
Bearing = 100
Plunge = 0
Dip = 0
Major axis = 340
Semi axis = 45
Minor axis = 40
Extra variables Carats per Stone (CPST_C) and Specific Gravity/Density (SG_MEAS)

164
 Table 8: Grade Estimation Parameters for Ellendale 9
FIRST RUN SECOND RUN THIRD RUN
Grade variable CPHT
Discretisation steps x = 4; y = 4; z = 2
Distances to samples Anisotropic distance: average distance
Search region Bearing = 0
Plunge = -70
Dip = 0
Search distances Major axis = 50 Major axis = 100 Major axis = 200
Semi major axis = 50 Semi major axis = 100 Semi major axis = 200
Minor axis = 20 Minor axis = 40 Minor axis = 80
Samples count Minimum number of samples Minimum number of samples Minimum number of
per estimate = 2 per estimate = 1 samples per estimate = 1
Maximum number of samples Maximum number of samples Maximum number of
per estimate = 10 per estimate = 10 samples per estimate = 10
Variography E9E north & south E9W east & west
Structural type = spherical Structural type = spherical
Nugget = 0.27 Nugget = 0.27
Total sill = 0.76 Total sill = 0.76
Sill differential = 0.49 Sill differential = 0.52
Bearing = 105 Bearing = 90
Plunge = 0 Plunge = 0
Dip = 0 Dip = 0
Major axis = 110 Major axis = 175
Semi axis = 140 Semi axis = 60
Minor axis = 235 Minor axis = 40
Extra variables Carats per Stone (CPST_C) and Specific Gravity/Density (SG_MEAS)

Samples (including aircore, Bauer, trench, pit, and bulk samples) are analysed as 10m downhole
composites. Such long composites are appropriate for estimating highly variable deposits such as
diamond deposits.
Maxwell, in 2004, compared the results from estimation using both Kriging and Inverse Distance
Squared methods. Conventional Kriging was selected for reporting purposes as it provided a more
accurate estimate of grade given the relatively high nugget effect typical of diamond deposits. This
Kriging technique has consistently been applied by Kimberley on their geological block models for
their mineral resource updates.
8.9 Mining
Kimberley currently only exploits the Ellendale 9 and Ellendale 4 lamproites. Mining is undertaken
by Macmahon under a typical schedule of rates contract (see Section 8.1). Macmahon is an Australian
mining contractor. Kimberley’s mining staff comprise:
• a mining superintendent;
• a pit supervisor;
• a quarry manager;
• a mining engineer; and
• three (3) surveyors.

This team of Kimberley personnel supervise the activities of Macmahon. All other mining personnel
work for Macmahon.

Mining is only undertaken between mid-March and mid-December, to avoid operations during the wet
season. The plant continues to operate year round, processing contingency stockpiles created from
excess ore mined during the dry season.

165
In order to ensure that production continues year-round, it follows that there is a requirement that the
mining operations not only produce enough ore to be processed during the dry season, but that mining
produces excess ore, which can be stockpiled, sufficient to supply the plants with material to be
processed throughout the wet season.
The minimum mining rate is dictated by the throughput in the processing plants. Pre-stripping and
mining of waste is generally kept to a minimum but without compromising the ability to access ore
should some contingency arise.

8.9.1 Current Mining Method and Equipment

The mining of both the Ellendale 9 and Ellendale 4 lamproites currently consists of relatively
shallow, conventional open-pit mining. Both pits have been designed in two phases. When fresh
rock is encountered, drilling and blasting is facilitated by small diameter (105mm – 115mm)
blast holes on shallow benches (generally 6m in height). Blasting is carried out with the use of
a combination of ANFO and emulsion. Powder factor for drill and blast is between 0.3 kg/m3
to 0.4 kg/m3 but will increase as more competent rock is encountered at depth.
The Ellendale 9 pit has been designed as a two (2) stage operation with a planned final depth
of 130m. The pit is currently mined back to its final (planned) limits. This necessitated a high
initial stripping ratio (and cost). This stripping ratio (and cost of stripping) will reduce as the
pit deepens. The planned final depth of the pit is 130m. The Ellendale 9 pit has three (3) access
ramps, each 25m wide and at gradients of 1 in 9. The catchment berms are generally 6m wide.
The final design of the Ellendale 9 pit is illustrated in Figure 16. Table 9 documents the mining
equipment for Ellendale 9. All mining equipment is owned by Macmahon.
The Ellendale 4 pit also has a two (2) stage pit design to a final depth of 108m. This pit
currently has two (2) access ramps, each 25m wide at gradients of 1 in 9. The catchment berms
are 6m wide. The final design of the Ellendale 4 pit is illusrated in Figure 17. Table 10
documents the mining equipment for Ellendale 9. All mining equipment is owned by
Macmahon.

The mining rate (in addition to the contingency allowance and strip ratio) determine the size of
the excavators used. At Ellendale 9 this is a 100t excavator, and at Ellendale 4 this is a 180/250t
excavator. Truck fleet is chosen to match the dig rate and average haul distance.

This mining method, and the equipment utilised is appropriate for the operation and is effective
in excavating and removing the majority of the shallower material encountered without the
necessity for blasting. The equipment is also effective in removing the blasted material.

The depth of the natural water table in both pits is high. Dewatering of the pits is controlled by
a series of in-pit dewatering boreholes. Currently, the dewatering boreholes are monitored by
Rockwater consultants.

Table 9: List of Major Mining Equipment at Ellendale 9 (Macmahon Owned)

EQUIPMENT NUMBER
CAT 777C Truck 4
CAT 773B Truck 1
CAT 988G Loader 1
CAT 966G Loader 2
CAT 14H Grader 1
CAT 769 Water Truck 1
IT 28B 1
Komatsu W-600 Loader 1
Komatsu 785B Truck 1
Hitachi 1200 Excavator 1

166
 Kimberley Diamond Company NL
Independence you can trust
Figure 16:

CURRENT ELLENDALE 9 PIT DESIGN

West Pit East Pit

EW19 D

8,057,400 mN
Current Ellendale 9 Pit Design

Ellendale 9 Pipe Boundary

112 RL

8,057,200 mN
6 RL

0 RL
PD9-1 PD9-3

167
64 RL
94 RL 118 RL
PD9-4
0 RL PM9-2D

8,057,000 mN
90 RL
PM9-1

82 RL 42 RL East Ramp

8,056,800 mN
South Ramp South Central Ramp

696,700 mE 696,900 mE 697,100 mE 697,300 mE 697,500 mE 697,700 mE 697,900 mE

GEMKimberleyCPR’07Fig16.cdr

Source: Kimberley
SCALE:
This diagram and the information therein are copyrighted. It may not be 100 0 100 200 m
reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
FIGURE 16
 Kimberley Diamond Company NL
Independence you can trust
Figure 17:

CURRENT ELLENDALE 4 PIT DESIGN

Ellendale 4 Pipe Boundary

8,045,800 mN
A3
Current Ellendale 4 Pit Design

A1 123 RL

A5
140 RL
North Ramp

8,045,600 mN
134 RL

PD4-4

111 RL
75 RL
Mining Benches PD4-3
PD4-5
92 RL 86 RL

69 RL
152 RL

8,045,400 mN
PD4-1

168
A22
PD4-6

88 RL

75 RL
A4

86 RL

8,045,200 mN
134 RL
A21
63 RL

74 RL

South Ramp
57 RL

PD4-7C

8,045,000 mN
122 RL

8,044,800 mN
703,400 mE 703,600 mE 703,800 mE 704,000 mE 704,200 mE 704,400 mE 704,600 mE

GEMKimberleyCPR’07Fig17.cdr

Source: Kimberley
SCALE:
This diagram and the information therein are copyrighted. It may not be 100 0 100 200 m
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
FIGURE 17
 Table 10: List of Major Mining Equipment at Ellendale 4 (Macmahon Owned)
EQUIPMENT NUMBER
CAT 785B Truck 6
CAT D10R Dozer 2
CAT 16G Grader 1
CAT 980G IT 2
CAT 773 Water Truck 1
Service Truck 1
CAT 992 Loader 2
Komatsu W-600 Loader 1
Hitachi 2500 Excavator 2
Atlas Copco Drill Rig 1
Monteberg Drill Rig 1
Bulk Explosives Lorry 1

8.9.2 Recent Production

Table 11 summarises the production levels achieved since 2002. Figure 18 illustrates the
progressive increase in production since 2002, as well as the effect the addition of the new
plants have had on the overall production of the mine. The recovered grade dropped from
9.3cpht to 6.1cpht, most likely due to the depletion of the higher grade regolith and the addition
of the relatively lower grade tuffaceous lamproite to the plant mix. The recovered grade has
systematically increased since then with upgrades to the Ellendale 9 West and Ellendale 9 East
plants and of course the addition of the Ellendale 4 (South) Plant.

Table 11: Kimberley Production

2002–2003 2003–2004 2004–2005 2005–2006 2006–2007
Tonnes Processed – E9 West Plant 559,099 674,000 700,000 588,000 545,000
Tonnes Processed – E9 East Plant N/A 324,000 1,470,000 1,655,000 1,619,000
Tonnes Processed – E4 South Plant N/A N/A N/A N/A 2,773,000
TOTAL TONNES PROCESSED 559,099 998,000 2,170,000 2,243,000 4,937,000
Diamonds Recovered (cts) 51,819 61,000 123,000 152,000 378,000
RECOVERED GRADE (cpht) 9.3 6.1 6.8 7.2 7.9

Figure 18 clearly illustrates the decrease in the average recovered grade after the plant
modifications were carried out in December 2004.

169
 Figure 18:
Kimberley Production Results

6,000,000 10.0
9.0
5,000,000
8.0
TONNES PROCESSED
7.0

GRADE (cpht)
4,000,000
6.0
3,000,000 5.0
4.0
2,000,000
3.0
2.0
1,000,000
1.0
0 0.0
2002-2003

2003-2004

2004-2005

2005-2006

2006-2007
YEAR
Ellendale 9 West Plant Ellendale 9 East Plant
Ellendale 4 (South) Plant Recovered Grade (cpht)

8.9.3 Production Planning

Mine planning, optimisation and scheduling has been outsourced to an independent mining
consultancy (Mol Mine Planning Services Pty Ltd), with the most recent mine plan having been
produced in 2005, using a cut-off grade of 0cpht. Kimberley has a mine planner on site,
however he is unable to conduct dynamic mine planning and scheduling and new grade and
production data can not be incorporated into the plan. Daily mining production meetings are
held on site and quarterly mining plans are generated for Ellendale 4 and Ellendale 9. Venmyn
has had sight of the three (3) month mining plan for Ellendale 9 and Ellendale 4 for the months
August 2007 – October 2007 and a LOM plan for Ellendale 9. No LOM Plan was made
available for Ellendale 4. Importantly, Venmyn were unable to correlate the three (3) month
mining plan for Ellendale 9 with the LOM plan. This confirms that the LOM plan is not being
updated dynamically, and that production is primarily controlled from the quarterly plans.

The current pit designs for Ellendale 9 and Ellendale 4 are illustrated in Figure 16 and
Figure 17.

Based on observations made by Venmyn in August 2007, during their resource review (see
Section 8.14.2) of Ellendale 4 and Ellendale 9 and review of the quarterly mining plans, we
recommend that the pit design and mine plan is updated based on the current resource
information. On review it appears that significant areas of the resource model have been
excluded from the current pit design. An updated mine pit optimisation exercise will confirm
if additional material can be added to the mining plan.

8.9.4 Conceptual LOM Production Schedule

In anticipation of a revised pit design and mine plan, Venmyn has prepared a conceptual LOM
depletion schedule based on forecasts for plant capacities. In this section we present these
forecasts.

Snowden, during their high level review of the project in March 2007, stated that based on the
current plant throughputs and potential capacities after their recommended upgrades (see
Section 8.10), that the likely throughput scenario would be approximately 7.5Mtpa for the 2007

170
– 2008 year and in excess of 9Mtpa thereafter. The Snowden forecasts call for an increase in
plant capacity of approximately 30 per cent.

Kimberley continues to make significant progress in increasing plant throughputs. Table 12

shows a steady increase in production over the 4th quarter of the 2006 – 2007 year.

Venmyn has used the actual production figures achieved for June 2007 in order to determine
an approximate production tonnage for the next 12 months. By annualising the June 2007
figures, a production forecast of in excess of 6.5Mtpa is considered achievable.

Table 12: Kimberley Production Forecast by Annualising June 2007 Actuals

FORECASTS
ACTUALS 2007–2008
Q4 2007 (ANNUALISED
APRIL MAY JUNE JUNE 2007)
Tonnes Processed – E9 West Plant
178,000 196,000 217,000 2,604,000
Tonnes Processed – E9 East Plant
Tonnes Processed – E4 South Plant 277,000 319,000 327,000 3,924,000
TOTAL TONNES PROCESSED 455,000 515,000 544,000 6,528,000

This forecast does not take into account any further increases in capacity that Kimberley may
achieve with the current plants or any further upgrades to the plants. Based on this conservative
forecast, Venmyn is satisfied that with the proposed upgrades (see Section 8.10), Snowden’s
forecasted throughputs can be achieved within the timeframes they have prescribed. On this
basis then, Venmyn are satisfied that the forecasts made by Snowden are reasonable and have
considered these forecasts in the depletion schedules presented below. The following plant
capacities have been assumed for the depletion profiles (Table 13 and Table 14 and Figure 19
and Figure 20):

• maximum total plant capacity of 9Mtpa (only achieved in year 2);

• the Ellendale 4 (South) Plant ramping up from current 3.9Mtpa to 5Mtpa in year 2;

• combined Ellendale 9 East and West Plants ramping up from current 2.6Mtpa to 4Mtpa
in year 2.

Venmyn has applied various economic/grade cut-offs (see Section 8.14.3) to the Ellendale
resources, to eliminate the inclusion of material which is believed to be sub-economic (material
with a value of less than US$6/t). The graphs clearly delineate the two depletion cases, and
more specifically the impact that the inclusion of Inferred Diamond Resources has on the life
of the operation.

171
 Table 13: Conceptual LOM Production (tonnes) for Measured and Indicated Mineral Resources Only
ELLENDALE 4 ELLENDALE 4 SATELLITE ELLENDALE 9 EAST ELLENDALE 9 WEST STOCKPILES
TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES
YEAR PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING
2007 3,900,000 11,232,600 0 9,372,000 1,170,000 1,991,615 1,430,000 9,978,908
2008 5,000,000 6,232,600 0 9,372,000 1,800,000 191,615 2,200,000 7,778,908
2009 2,750,000 3,482,600 2,250,000 7,122,000 191,615 0 3,808,385 3,970,523
2010 2,750,000 732,600 2,250,000 4,872,000 0 0 3,970,523 0
2011 732,600 0 4,267,400 604,600 0 0 0 0 0 4,500,000
2012 0 0 604,600 0 0 0 0 0 4,395,400 104,600
2013 0 0 0 0 0 0 0 0 104,600 0

172
 Table 14: Conceptual LOM Production (tonnes) for all Mineral Resources (Including Inferred Resources)
ELLENDALE 4 ELLENDALE 4 SATELLITE ELLENDALE 9 EAST ELLENDALE 9 WEST STOCKPILES
TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES TONNES
YEAR PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING PROCESSED REMAINING
2007 3,900,000 25,992,828 0 16,021,000 1,170,000 9,723,473 1,430,000 13,773,381
2008 5,000,000 20,992,828 0 16,021,000 1,800,000 7,923,473 2,200,000 11,573,381
2009 2,750,000 18,242,828 2,250,000 13,771,000 1,800,000 6,123,473 2,200,000 9,373,381
2010 2,750,000 15,492,828 2,250,000 11,521,000 1,800,000 4,323,473 2,200,000 7,173,381
2011 2,750,000 12,742,828 2,250,000 9,271,000 1,800,000 2,523,473 2,200,000 4,973,381
2012 2,750,000 9,992,828 2,250,000 7,021,000 1,800,000 723,473 2,200,000 2,773,381
2013 2,750,000 7,242,828 2,250,000 4,771,000 723,473 0 2,773,381 0
2014 2,750,000 4,492,828 2,250,000 2,521,000 0 0 0 0
2015 2,750,000 1,742,828 2,250,000 271,000 0 0 0 0 4,500,000
2016 1,742,828 0 271,000 0 0 0 0 0 2,986,172 1,513,828
2017 0 0 0 0 0 0 0 0 1,513,828 0

173
 An important assumption made for the inclusion case is that the Inferred Mineral Resources
will be economically extractable (bearing in mind the economic cut-offs applied by Venmyn in
their review of the resources – see Section 8.14.3).

Figure 19:
Conceptual LOM Schedule Depleting Measured and Indicated Resources Only

10.0
9.0
8.0
PRODUCTION (Mt)

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
YEAR

Ellendale 4 Ellendale 4 Satellite Ellendale 9 East Ellendale 9 West Stockpiles

Figure 20:
Conceptual LOM Schedule Depleting all Diamond Resources (including Inferred
Resources)

10.0
9.0
8.0
PRODUCTION (t)

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
YEAR

Ellendale 4 Ellendale 4 Satellite Ellendale 9 East Ellendale 9 West Stockpiles

8.9.5 Pit Slope Stability and Geotechnical Characteristics

Within the near surface weathered/semi-weathered material, a nominal pit slope angle of 55
degrees is applied. In the competent fresh rock an overall pit slope angle of approximately 65
degrees is applied, unless there are localized discontinuities such as joint sets which may
compromise wall stability. Such joint sets are very rare at Ellendale.

Bench sizes are generally 3m high as this is limited (in top loading which has the quickest cycle
time) by the length of the dipper arm of the excavator.

174
 The host rock on the outer rim is sandstone which is competent with a Rock Quality
Designation (RQD) in the stable range.

Joint structure is competent and there have only been a few small localized wedge failures
which have not affected slope stability in any way. To date there has not been significant
circular slip failures in weathered material at Ellendale.

Pit access ramps (both temporary and permanent) are constructed at an inclination of 1 in 9.

8.10 Processing
The plant systems and configurations used at Ellendale (and described in detail below) are generally
standard for this type of ore and extraction and based on proven diamond recovery technologies.
Numerous upgrades to the plants over the years highlight the fact that the plants have been performing
sub-optimally, and Venmyn concurs with the general view among site management that potential
exists to further enhance their productivity.

8.10.1 Ellendale 9 West Plant

The Ellendale 9 West Plant was designed in 2001 and was commissioned in 2002. It was
originally designed to treat bulk samples. It was built from plant and equipment acquired from
various other plant sites. While the design was based on testwork to determine the processing
characteristics and diamond content of the weathered ore types of both the Ellendale 4 and
Ellendale 9 pipes, the testwork specifically excluded the unweathered, fresh lamproite. Despite
its initial design to treat soft, weathered ore, the plant is currently still in use, processing the
softer ore in order to augment the mines headfeed throughput. Addition of a crushing circuit
would allow more of the fresher ore to be processed through this plant.

The process plant technology is conventional for diamond recovery. The processing involves
scrubbing, washing, and feed of the screened product to a DMS plant where a heavy mineral
concentrate is generated. The concentrate is processed further in the recovery plant (see Section
8.11.4) via X-Ray Flowsort® machines which generate a final concentrate. This final
concentrate is hand-sorted for diamonds.

In 2002, the plant received an upgrade which increased the plant’s throughput to 100tph. The
upgrade included inter alia:

• the instalment of a larger drum scrubber; and

• the installation of a Gekko Inline pressure jig to pre-treat the DMS plant feed.

The front end of the plant is capable of treating 85tph of coarse ore and 100tph of fine ore.
Figure 21 illustrates the process flow of the Ellendale 9 West Plant.

Ore is received at the front end of the plant from a front-end loader. The ore is dumped from
the front-end loader onto a 200mm static grizzly in order to remove the oversize material as
well as any large vegetation.

The ore then passes through a 3.5m x 2.1m scrubber in order to remove the clays and fines
(-1.2mm). Because the plant has not been designed to crush ore material, approximately 20 per
cent of the scrubber feed reports to oversize (+14mm) and is stockpiled for possible future
crushing and processing. To date some 300,000t of oversize material has been accumulated and
stockpiled.

The trommel undersize is pumped to a Gekko Inline pressure jig (with a 16mm slotted wedge
wire screen) that produces a pre-concentrate (limiting the amount of material that reports to the
DMS plant) which was only designed to process 45tph headfeed (about 6tph DMS feed). The
-8mm light rejects from the pressure jig are pumped directly to the tailings recovery system,
the +8mm material is stockpiled.

175
 Kimberley Diamond Company NL
Independence you can trust
Figure 21:

FLOWSHEET FOR ELLENDALE 9 WEST PLANT

ELLENDALE 9 WEST PLANT

Trommel
Bin Oversize
1

Bin
2

+14mm
Flowsheet for Ellendale 9 West Plant

60-100tph
15-35tph

Scrubber

+8mm To
Floats
Floats Dump
Screen -8mm To
Tails

45-65tph
160-180m3/h slime

-14mm

176
to Cyclone INLINE PRESSURE JIG
Floats
Dump
Screen 41-60tph
Jig

4-5tph
Screen +
De-watering ++
Screen Agitator
Tank

<1tph
Diamond
Recovery Mixing
Box

Tube Densifier

Source: RCR Tomlinson Ltd

This diagram and the information therein are

copyrighted. It may not be reproduced or
transmitted in any form or by any means without
prior written permission from Venmyn Rand (Pty)
Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig21.cdr
FIGURE 21
 This initial plant had a design through-put rate of 30tph and a top and bottom cut-off of 14mm
and 1mm respectively. Importantly therefore the plant was not designed with a crushing circuit.

The DMS plant treats approximately 5 per cent of the headfeed material. The feed is washed
to remove material less than 1.2mm in diameter before being mixed with the dense media. It is
important to remove as much of the fines as possible, as these fines can interfere with the
density of the media and compromise the heavy mineral separation.

The ore material together with the dense media (ferro-silicate) is pumped into a 250mm
diameter DMS cyclone. The density of the dense media and the mixture is manually monitored
and controlled.

The separating media is recovered (for re-use) using a magnetic drum. After the recovery of the
separating media, the DMS float rejects (tailings) pass to the tailings storage system. The
pressure jig rejects are sized on a screen to produce a coarse reject that is conveyed to a
stockpile (for future crushing and processing), and a fine rejects that is redirected to the slimes
circuit and deposited on a fines slime dam.

The concentrate (-14mm + 1mm) from the plant is pumped to the Diamond Recovery Plant (see
Section 8.11.4), located adjacent to the Ellendale 9 West Plant, for further treatment.

Snowden, during a review of the plant infrastructure in March 2007, recommended the
following modifications and/or upgrades:

• install a crusher circuit to reduce the scrubber oversize;

• replace the DMS circuit screen panel;

• additional plant security to be installed; and

• the addition of instrumentation for accurate monitoring of the process.

Gem Diamonds estimated that the approximate capital cost required to implement these
recommendations would be in the order of A$5million. Snowden has assessed Gem Diamonds
capital cost estimate and has considered this cost reasonable.

8.10.2 Ellendale 9 East Plant

The Ellendale 9 Plant was commissioned in 2003 and its design was based on the experience
and learnings from the Ellendale 9 West Plant. The plant was designed to treat the same ore
types as the Ellendale 9 West Plant, but with a headfeed capacity of 300tph. The plant was
subsequently upgraded to treat 450tph (Figure 22). This throughput however has not been
realised and the current capacity is in the order of 380tph. The top and bottom cut sizes are
14mm and 1mm respectively.

The upgrade removed the scrubbers from the circuit and installed:

• a coarse double deck sizing screen between the run of mine (ROM) bin and the
secondary crusher. The +50mm material reports to the secondary crusher, and the -
50mm +14mm material reports to the tertiary crushers;

• two (2) Nordberg 1540 Omnicone tertiary gyratory crushers;

• a double deck Schenk banana screen sending +14mm material to the tertiary crushers.
The -14mm +1mm material is sent to twin DMS surge bins and the fines (-1.2mm)
report to tails; and

• a second 150tph twin 510mm cyclone DMS unit was fitted and a balancing circuit
between the old and new DMS was installed.

177
 Kimberley Diamond Company NL
Independence you can trust
Figure 22:

FLOWSHEET FOR THE ELLENDALE 9 EAST PLANT (AS AT FEBRUARY 2007)

NEW SCRUBBER CIRCUIT

(AUG 2007)
370tph Cone
414tph Crusher
Oversize Crusher Feed
Single Deck 2
ROM
Screen Feeder
370tph Stockpile
414tph 1

Undersize
De-watering +
++
Jaw Screen
Crusher
1
60tph
80tph 450tph 158tph
36tph 450tph Pulping Feed
459tph 31tph
Screen Feed 143tph
459tph
Crusher 1 519tph
Discharge 618tph
Conveyor 64tph
Oversize Crusher Feed
214tph
Screen Oversize CONE CRUSHER
2
181tph 89tph
127tph Undersize 286tph

Undersize
243tph Cone

178
134tph Crusher
3
56tph
141tph
78tph Screen Feed
Primary 328tph
Oversize 384tph
Sizing Screen
462tph
Cone Crusher 3
Discharge
Buffer Conveyor 25tph
Flowsheet for the Ellendale 9 East Plant (as at February 2007)

Bin 73tph

Undersize
125tph Oversize
143tph 49tph Oversize
143tph Screen 129tph
3 248tph

230tph Buffer
Bin 87tph
142tph 65tph
Undersize

to DMS 1
139tph 44tph
139tph 186tph
DMS Feed
Prep Screen DMS PLANT
Oversize
Fine
Tailings Feed
4tph Prep Screen
4tph 275tph
134tph

Undersize

to Pulping Feed
to
Process Water

LEGEND:
8tph
to Pulping Feed

36tph Coarse flow rate

to Pulping Feed Concentrate 8tph
DMS
36tph Fine flow rate DMS 2 Effluent
to DMS1 Lights Oversize 1

Source: Pacer Engineers

Diamond
Recovery
This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig22.cdr
FIGURE 22
This installation was due to be finished in June 2006 but by February 2007 the plant had only
managed to achieve 450tph for 2 hours on selected material. Any clayey material introduced
into the circuit, reduced throughput to 300tph or less.

Control of the project was taken over by Kimberley in February 2007 and after legal
consultations, remedial work started in March 2007. This remedial work included the
installation of:

• the removed scrubber;

• a medium pressure rolls crusher in addition to one of the Omnicone tertiary crushers
(which have shown a severe inability to handle clayey material); and

• a larger single toggle Trio 54” x 42” Jaw crusher station. This was added to the front end
of the circuit in parallel to the Jaques jaw crusher.

These alterations have lead to an increase in average hourly throughput which is starting to
consistently approach and is expected to exceed 400tph.

The plant, now has an appropriate crushing circuit (unlike the Ellendale 9 West plant), that
appears to be able to handle most material feeds (including clayey material) efficiently.

The headfeed to the plant (run-of-mine) is fed to the plant by a front-end loader, that dumps the
mined material directly into the Jaques primary jaw crusher. The crushed material is
transported on a conveyor belt to a surge bin, from which ore is extracted at a controlled rate
and fed into the first of the scrubbers.

The scrubber discharge is fitted with a 14mm aperture trammel screen which allows the
oversize to feed directly into the secondary scrubber which is also fitted with a discharge
screen. The oversize from the second trommel screen is fed to the water flushed Kawasaki
secondary crusher.

The undersize from both the primary and secondary crushers is discharged into a sand screw,
the coarse product and undersize from which is conveyed back to the secondary crusher. The
Nordberg Omnicone tertiary crusher and the medium pressure rolls crusher reduces any of the
secondary crushers material coarser than 20mm. The undersize from the two scrubbers is
pumped to the desliming screen with a 1.2mm cut. The undersize (slurry) is pumped to the
tailing dam and the oversize is conveyed to the DMS plant feed bin.

The DMS plant feed is washed to remove material less than 1.2mm in diameter before being
mixed with the dense media. It is important to remove as much of the fines as possible, as these
fines can interfere with the density of the media and compromise the heavy mineral separation
(if the density is too high, then diamonds can be lost, and if the density is to low then too much
concentrate will report to the X-ray sorters). The ore material together with the dense media is
pumped into one of two (2) 510mm diameter DMS cyclones. The density of the dense media
and the mixture is automatically monitored and controlled.

The separating media is recovered (for re-use) using a magnetic roller. After, the recovery of
the separating media, the DMS float rejects (tailings) pass to the tailings recovery system where
the tailings sizing screen produces a coarse reject that is conveyed to a stockpile (for future
crushing and processing), and a fine rejects that is redirected to the slimes circuit and deposited
on a fines slime dam. Media is also recovered from the DMS cyclone sink product before it is
pumped to the concentrate sizing screen. This produces a coarse product that has a top size of
14mm and a bottom size of 3.5mm, and a fine product that has a top size of 3.5mm and a
bottom size of 1mm. The DMS concentrate is processed further in the Diamond Recovery Plant
(see Section 3.11.4).

Snowden, during a review of the plant infrastructure in March 2007, recommended the
following modifications and/or upgrades:

179
 • to re-install the primary scrubbers (this has been done as described above);

• install surge bins ahead of the scrubbers;

• re-design and attempt to remove the gravel pumping circuits; and

• re-balance the feed to the DMS circuits, and investigate the possibility of splitting the
feed into a coarse and fine DMS.

Gem Diamonds estimated that the approximate capital cost required to implement these
recommendations would be in the order of A$3.6million. Snowden has assessed Gem
Diamonds’ capital cost estimate and has considered this cost reasonable.

8.10.3 Ellendale 4 (South) Plant

The Ellendale 4 Plant was commissioned in 2006 and its design (Figure 23) was based on
extensive metallurgical testwork to determine the processing characteristics of the Ellendale 4
lamproite, and was subjected to a detailed Feasibility Study (by Fluor of Australia). This plant
has been designed with a nominal capacity of 600tph.

The design process for this plant, differed fundamentally from the Ellendale 9 East and
Ellendale 9 West plant in that crushing circuits were integrated into the plant at the outset in
anticipation of the fresher, harder Ellendale 4 ore which would come on line as soon as the
softer, weathered material was already depleted.

The headfeed is delivered to the plant by front-end loader and fed through a 600mm grizzly. A
mechanised rock breaker is used to reduce the oversize material in order for it to pass through
the grizzly and into the ROM bin.

The ore is extracted from the ROM bin at a controlled rate and fed into the MMD 850 roll
crusher (primary crusher). This crusher reduces the feed material to -150mm. The crusher
product is split into two equal flows which are fed separately into two primary drum scrubbers
(30mm trommels) installed in parallel. The trommel screen oversize from both trammels are
combined on exit an conveyed to the secondary crusher.

Double deck banana screens are placed in series with each of the primary drum scrubbers. The
undersize from each of the two primary scrubber trommel screens is pumped to the primary
screen associated with the respective scrubber.

The top deck of the screens are fitted with 16mm aperture panels and the oversize from these
screens is fed to the tertiary scrubber. The bottom decks of the screens are fitted with 1.6mm
aperture panels and the oversize from these is conveyed to the DMS plant feed bin. The
undersize material from both screen decks is pumped to the high rate thickener. The overflow
from the thickener flows to the water reservoir, while the thickened underflow slurry is pumped
to the fines tailings dam.

The Ellendale 4 ore is known to be ‘sticky’, and as such, a Cybas 1500 secondary crusher has
been installed with a grooved liner in order to operate effectively under the water-flushed
regime necessary to process the sticky ore. The product from the secondary crusher passes to
a sand screw, the oversize of which is conveyed to the secondary drum scrubber. This drum
scrubber is fitted with a 30mm aperture screen. The oversize from this screen is combined with
the oversize from the primary screen before being fed to the tertiary crusher. The trommel
screens’ undersize is pumped to a primary screen.

The tertiary crusher (also a Cybas 1500) is also fitted with a grooved liner and is water flushed
in order to handle the sticky ore.

180
 The product from the tertiary scrubbing discharges into a sand screw, the oversize of which is
combined on a conveyor belt with the oversize from the sand screw treating the product from
the secondary crusher. This combined feed is conveyed to the secondary drum scrubber. The
underflow from both the sand screws are pumped to a distributor that sends equal amounts of
slurry to the feed chutes of the two primary screens and the feed chute of the secondary
scrubber.

Material from the DMS feed bin is discharged onto two (2) conveyors which separate the feed
into the two (2) 150tph DMS modules. Before, entering the DMS modules, the feed is passed
over a preparation screen that removes any residual -1.2mm fines (slimes) before being mixed
with the dense media. The dense media mixture is fed into one of the two (2) 510mm DMS
cyclones, the floats of which are conveyed to the DMS reject stockpile and the sinks of which
are conveyed to a surge bin. The material is extracted from the surge bin by a feeder at a
controlled rate and mixed in a hopper with water before being pumped to the recovery plant.

The Ellendale 4 Plant has its own, dedicated, X-ray recovery plant comprising three (3) double
pass, Flow Sort X-ray machines. X-ray super-concentrate is collected in secure containers and
transported to the Ellendale 9 Diamond Recovery Plant where hand sorting and diamond
cleaning is conducted.

Snowden, during a review of the plant infrastructure in March 2007, recommended the
following modifications and/or upgrades:

• install surge bins ahead of the scrubbers;

• replace the mineral sizer with a jaw crusher in order to reduce the material to the correct
size before transfer to the remainder of the circuit;

• investigate the feasibility of installing double trammels on the primary scrubbers to

alleviate overloading; and

• carry out mass balance test work to determine if the DMS circuits can be split into a
fines and coarse fraction.

Gem Diamonds estimated that the approximate capital cost required to implement these
recommendations would be in the order of A$5million. Snowden has assessed Gem Diamonds’
capital cost estimate and has considered this cost reasonable.

8.10.4 Ellendale 9 Diamond Recovery Plant and Sort House

The Ellendale 9 Diamond Recovery Plant, is located adjacent to the Ellendale 9 West Plant, and
has been designed (Figure 24) to receive DMS concentrate from both the Ellendale 9 West and
Ellendale 9 East Plant (i.e: two size fractions of feed).
The Ellendale 9 West Plant DMS sinks are pumped directly to the diamond recovery plant into
a holding hopper via a dewatering sieve bend.
The concentrate is then discharged from the hopper into bulka bags, which are hoisted to the
top of the recovery building and discharged into a concentrate hopper. The concentrate is then
pumped from the hopper to a 48 inch Kason sizing screen which produced a -14mm +3.35mm
(coarse) and a -3.35mm +1.2mm (fine) size fraction which are fed into separate surge bins
allocated to the West Plant material. These sized concentrates are discharged into bulka bags
which are weighed and individually labelled.
The Ellendale 9 East Plant DMS sinks are transported to the diamond recovery plant by truck
in bulka bags. Here they are hoisted to the top of the recovery building and fed into the X-ray
sorters feed hopper.
The DMS concentrate material from the Ellendale 9 East Plant and Ellendale 9 West Plant are
stored and processed separately through the ‘shared’ recovery plant. This facilitates grade

181
reconciliations of mined material. The two size fractions from the Ellendale 9 East Plant are
batch treated through three (3) parallel twin stage Flowsort® (wet) X-ray diamond sorters.
Secure bins are used to collect and store the diamond rich super-concentrate. The super-
concentrate is oven-dried once a mining block has been completely processed.
The fine concentrate (-3.35mm) is passed over a magnetic roll separator to remove ironstone
from the concentrate.
The remaining concentrate is then placed in a rubber-lined cement mixer, loaded with ceramic
balls. Low intensity milling, within the mixer, assists in the removal of any remaining lamproite
and barite material clinging to the surface of the diamonds, without damaging the diamonds
themselves. A 1mm aperture screen is used to separate the fines produced from the milling
from the super-concentrate.
The oversize material is then sized further into two (2) size fractions of -3.35mm +2mm and -
2mm +1mm. The coarser size fraction receives two (2) separate hand sorts (to ensure the
recovery of all diamonds) and the fine fraction returns to the tailings circuit.
The +3.35mm X-ray sorter concentrate is sized into three (3) size fractions; +6.70mm, -
6.70mm +3.35mm, and -3.35mm. The -6.70mm +3.35mm size fraction passes over a magnetic
separator and then is sorted and re-sorted by hand as above. The +6.70mm material does not
pass under a magnetic separator and progresses directly to hand sorting (and re-sorting).
The recovery efficiency of the X-ray sorters is tested on a weekly basis using marble tracers
(with a comparable X-ray fluorescence as diamond). Regular audits are also conducted on X-
ray tailings (reprocessing of X-ray tailings through the X-ray recovery system). The tailings
from the hand sorting are collected in secure kibbles and are re-fed into the X-ray sorters on a
monthly basis to audit/check the efficiency of the hand sorting.
The three (3) coarse fractions of recovered diamonds are mixed together before cleaning. The
fine size fraction is cleaned separately.
The cleaning is done using a caustic fusion process. The caustic fusion is conducted within a
stainless steel basket in which the diamonds and sodium hydroxide are placed and heated to
630°C for approximately 2 hours. After the fusion process, the diamonds are removed from the
caustic soda with the aid of hot water. The diamonds are then boiled (twice) in hydrochloric
acid, followed by final cleaning in boiling water.
The cleaned diamonds are then dried in an oven and any remaining lamproitic or secondary
material is removed by hand. The cleaning is essential for the valuation of the diamonds, as
surface dirt can negatively affect the valuation of the diamonds. To facilitate the inspection and
valuation of the goods, the diamonds are sized and weighed prior to their transport from the
Ellendale Diamond Mine site.
Diamonds are transported to Perth using commercial airlines. Kimberley use Brinks as their
product carrier service and they also act as security during their transport to Antwerp where the
diamonds are sold. The Kimberley certification process takes place in Perth.
Snowden, during a review of the plant infrastructure in March 2007, recommended the
following modifications and/or upgrades:
• automate the flow through the recovery to minimise handling of concentrates;
• upgrade the security system; and
• installation of glove boxes.
Gem Diamonds estimates that the approximate capital cost required to implement these
recommendations would be in the order of A$5million. Snowden has assessed Gem Diamonds’
capital cost estimate and has considered this cost reasonable.

182
 Kimberley Diamond Company NL
Independence you can trust
Figure 24:

FLOWSHEET FOR THE DIAMOND RECOVERY CIRCUIT

Concentrate from
Ellendale 9 West
Plant

+
+ De-watering
+Sieve Bend

Kason
Screen
+20mm
3-14mm
1.2-3mm Concentrate from
Ellendale 9 East Plant
(pre-sized)

Concentrate Concentrate Concentrate

Storage Bin Storage Bin Storage Bin
Flowsheet for the Diamond Recovery Circuit

Knife Knife Knife

Valve Valve Valve

1.2-3mm
1.2-3mm
3-14mm

183
TSXR TSXR TSXR
Sorters Sorters Sorters
to
Hand Sort

1.2-14mm (Tails)
-1.2mm

De-watering +
++
Screen

Source: Kimberley

This diagram and the information therein are Tailings

copyrighted. It may not be reproduced or
transmitted in any form or by any means without
prior written permission from Venmyn Rand (Pty)
Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig24.cdr
FIGURE 24
8.10.5 Plant Tonnage Forecast
It is clear from the above descriptions that the plants at Ellendale are still in development and
have yet to achieve their optimum capacity. Several upgrades are still required to achieve such
optimal capacity. In Section 8.9.4, various forecasts were made concerning the potential
throughputs that can be achieved if the plant undergo the upgrades that Snowden proposed
during their review of the plant infrastructure in March 2007.

Snowden suggested that a combined plant throughput of approximately 9.8Mtpa could be

achieved from their proposed upgrades. Venmyn has considered a more conservative
throughput with a maximum throughput of 9Mtpa subsequent to the upgrades. This forecast
comprises:

• a maximum combined throughput of 4Mtpa for the Ellendale 9 East and Ellendale 9
West plants;

• a maximum throughput of 5Mtpa for the Ellendale 4 (South) Plant.

These forecasts have been considered for the conceptual mineral resource depletion schedule
(see Section 8.9.4).

8.10.6 Waste Disposal

Waste material from Ellendale 4 is dumped at the Northern and Southern overburden storage
facilities (Figure 10). Both the Southern and Northern waste dumps have been designed to
control the effects of surface erosion by water.

There are two lights stockpiles. Stockpile 1 is behind Macmahon contractors yard at Ellendale
9 and comprises all lights from the Ellendale 9 East Plant. It has reached its capacity. Stockpile
2 is located at the Ellendale 9 West Plant, storing lights produced from the West Plant, and is
currently still in use. An additional lights stockpile has been created at the Ellendale 9 East
Plant with the specific purpose of providing a noise barrier between the mine camp/village and
the Ellendale 9) East Plant. This noise barrier was necessitated due to the increase in the
throughput from 300tph to 450tph at the Ellendale 9 East Plant. This throughput could increase
further to 600tph after further upgrades (see Section 8.10.1 – Section 8.10.4).

With the commencement of mining at Ellendale 4 and processing of ore through the Ellendale
4 (South) Plant, it has become apparent that there is a portion of the ore that yields distinctly
lower grades, and has hence been classified as low grade ore by the Geology Department. This
ore represents transitional material between the lamproitic tuff/sandstone contact and the
transitional material between magmatic tuff/sandstone contact.

This material is stockpiled separately so that it can be blended through the Ellendale 4 (South)
Plant based on operational needs. This stockpile is located on the western side of the Ellendale
4 (South) Plant.

The mine has three (3) landfill sites, two (2) industrial tips (one (1) at Ellendale 4 and one (1)
at Ellendale 9), and one (1) domestic tip located on the South Waste dump at Ellendale 9. The
Industrial landfill sites are used to dispose of non- putrescibles waste. The Ellendale 4
industrial tip site is still located over an area where the depth to groundwater is over 50 meters
from the surface and is located away from drainage channels or seasonal standing water.

The Ellendale 4 industrial tip comprises a series of narrow, long (25m) and relatively deep
trenches (4m-6m) dug adjacent to each other and which are individually backfilled with
overburden once full. Subsequent trenches are dug parallel to the previous trench, saving the
overburden for backfilling when the trench is full. Once a tip site is compete, topsoil is re-
spread over a relatively flat, even surface. The Ellendale 9 Industrial tip site is located in an area
where the depth to groundwater is over 40 meters from the surface and is also located away

184
 from drainage channels or seasonal standing water. The tip is managed on the same basis as is
done for Ellendale 4.

Kimberley currently provides hydrocarbon bins for oily wastes and fuel and oil filters.
Nationwide Oil collect and remove this waste from site and dispose of them as necessary. In
addition Kimberley have installed a 50,000l waste oil tank provided by Nationwide Oil for
Ellendale 4.

The domestic tip is located in the Ellendale 9 South waste dump and is used for the disposal of
putrescible waste from the kitchen, accommodation facilities and offices. The waste is covered
with at least 250mm of sandstone waste on a regular basis. The area selected is well drained
due to the nature of the waste material (sandstone) and drainage runs off the South waste dump
slope readily, allowing dry and easy access to the tipping face throughout the wet season. The
dry season domestic tip is closed during the wet season and to prevent collection of water via
runoff, the slope into the tip is windrowed.

Two tailings storage facilities are currently being used at Ellendale 9, namely TSF1B and
TSF1C. Tailings from Ellendale 4 are stored at TSF2A, which is a central discharge facility that
has tailings pumped into it from a single discharge point that is located at the top of the slope.

8.11 Diamond Production

Kimberley has produced in excess of 870,000cts of diamonds since production commenced in 2002.
Diamond production has increased significantly since 2002, when only approximately 52,000cts were
produced (Figure 25).

Figure 25:
Kimberley Diamond Production

400,000

350,000

300,000

250,000
CARATS

200,000

150,000

100,000

50,000

0
2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

YEAR

In 2007, approximately 380,000cts were produced. This increased production was a result of the
increased processing capacity of the operation over the years (see Section 8.10), and the additional
resources of Ellendale 4 contributing to the production since 2006 (see Section 8.10.3). With
additional upgrades to the processing plants (see Section 8.10), annual diamond production could
reach in excess of 500,000cts.

185
8.12 Cumulative Size Frequency Distributions by Pipe
In March 2007, WWW International Diamond Consultants (WWW) conducted a review of inter alia:

• the mine size frequency distribution (SFD) per plant from July 2006 to February 2007;

• six (6) valuations of various sources of diamonds from January 2004 to January 2006;

• results from nineteen (19) tenders from February 2003 to March 2007; and

• an independent valuation of the goods from the March 2007 tender.

This section summarises the findings of the WWW investigation.

SFDs from production between July 2006 and February 2007 for the Ellendale 9 East, Ellendale 9
West and Ellendale 4 (South) plants are illustrated Figure 26 – Figure 28. While the Ellendale 4
(South) Plant only treats material from the Ellendale 4 lamproite, it is important to bear in mind that
material from the Ellendale 9 lamproite is fed into the Ellendale 9 West and Ellendale 9 East plants
as required, and do not prescriptively treat material from specific sources within Ellendale 9. This is
important to the interpretation of the data, as Ellendale 9 East is associated with higher diamond
values than Ellendale 9 West.

It follows that Ellendale 9 East and Ellendale 9 West plant production over any particular period will
almost certainly include both Ellendale 9 East and Ellendale 9 West lamproite material. Plant
production is therefore generally a mixture of two discrete diamond sources. This presents challenges
when attempting to derive values from particular sources. It is possible to estimate the diamond
production from the different sources, but this requires exhaustive reconciliations to be done between
mine plan and the plant production. This reconciliation has been done for the majority of the tender
results presented in this section.

Figure 26 illustrates the SFDs for the diamonds recovered from the Ellendale 9 West Plant. These
SFDs plot with a relatively high degree of variability. This may be a reflection of the greater variability
in ore source and/or a reflection of the variable performance of the plant itself.

Figure 26:
SFDs by Carats for Recent Production from Ellendale 9 West Plant

Tender Jan 2007 Tender Feb 2007 Tender Dec 2006 Tender Nov 2006
Tender Oct 2006 Tender Sep 2006 Tender Aug 2006
100

90

80

70
% CARATSS

60

50
40

30

20

10

0
-3 +3 +5 +6 +7 +9 +11 +12 +13 +15 +17 +19 +21 +23
DIAMOND SIZE

Figure 27 illustrates the SFDs for the diamonds recovered from the Ellendale 9 East Plant. It is
observed that all SFDs plot relatively closely together suggesting a more consistent plant recovery.

186
Figure 27:
SFDs by Carats for Recent Production from Ellendale 9 East Plant

Tender Jan 2007 Tender Feb 2007 Tender Dec 2006 Tender Nov 2006
Tender Oct 2006 Tender Sep 2006 Tender Aug 2006
100

90

80

70
% CARATSS

60

50

40

30

20

10

0
-3 +3 +5 +6 +7 +9 +11 +12 +13 +15 +17 +19 +21 +23
DIAMOND SIZE

Figure 28 illustrates the SFDs for the diamonds recovered from the Ellendale 4 (South) Plant. All the
SFDs plot closely together showing consistent recovery. Unlike the Ellendale 9 East and Ellendale 9
West plants the Ellendale 4 (South) Plant does not indicate a deficiency of larger diamonds.

Figure 28:
SFDs by Carats for Recent Production from Ellendale 4 (South) Plant

Tender Jan 2007 Tender Feb 2007 Tender Dec 2006 Tender Nov 2006
Tender Oct 2006 Tender Sep 2006 Tender Aug 2006
100

90

80

70
% CARATSS

60

50

40
30

20

10

0
-3 +3 +5 +6 +7 +9 +11 +12 +13 +15 +17 +19 +21 +23
DIAMOND SIZE

Appendix 3 documents some useful conversion tables that may assist in the interpretation of these
results.

Figure 29 plots the combined SFDs from the 3 plants. The Ellendale 9 East Plant and Elendale 9 West
Plant SFDs are virtually identical apart from some variation in the recovery of small stones. In
comparison to the Ellendale 4 (South) Plant, the Ellendale 9 East and Ellendale 9 West plants have a
much larger average stone size. The Ellendale 9 East and Ellendale 9 West plants both show a relative
deficiency of +2ct stones. The Ellendale 4 (South) Plant does not show a deficiency of larger stones.

187
Figure 29:
Combined SFDs by Carats of the three Processing Plants

Ellendale 4 (South) Plant Ellendale 9 East Plant Ellendale 9 West Plant

100

90
80

70
% CARATSS

60

50

40

30

20

10

0
-3 +3 +5 +6 +7 +9 +11 +12 +13 +15 +17 +19 +21 +23
DIAMOND SIZE

The lower value per stone (average US$/ct) for the Ellendale 4 goods is further demonstrated by
Figure 30, which shows that the majority of the revenue generated from Ellendale 9 East and
Ellendale 9 West is from diamonds between 5gr and 5ct in size (with Ellendale 9 East deriving more
revenue from this range than Ellendale 9 West), the majority of the revenue from Ellendale 4 is
derived from diamonds in the +7 to 4ct sizes (with a large component in the range between +7 and
5gr).

Figure 30:
SFDs by Revenue for Recent Production
Total Ellendale 4 Total Ellendale 9 East Total Ellendale 9 West

25

20
% DOLLARS (USD)

15

10

0
3gr

4gr

5gr

6gr

8gr
-5

+5

+7

+9

+11

+10
10ct
3ct

4ct

5ct

6ct

7ct

8ct

9ct

DIAMOND SIZE

188
 8.12.1 Recent Prices Received
Kimberley has held nineteen (19) tenders between February 2003 and March 2007 as shown in
Table 15.
Importantly, the results in Table 15 refer to the mining locations and not the plants (as above).
That said the carats per source are estimated figures with some of the material being loaded
directly from stockpiles. These values could only be estimated by Kimberley due to an inability
to accurately reconcile production, particularly with respect to material processed from the
stockpiles.
It is clear that in recent tenders, the average price has fallen. This is due to the addition of
Ellendale 4 diamonds to the parcel mix, and is consistent with the lower average value of the
Ellendale 4 goods.

Table 15: Tender Results and Estimated Contributions from Source

Mar-07 Jan-07 Oct-07 May-06 Mar-06 Nov-05 Sep-05 Sep-05 Apr-05
Tender T 57 55 T 51 T 46 T 44 T 41 T 38 T 38 T 33 T
US$/ct 140.97 174.77 188.59 190.99 194.67 128.41 324.65 104.63 328.96
Dollars 5,441,575 4,414,924 4,226,514 2,374,636 3,756,079 3,017,883 2,561,920 1,075,153 3,098,596
Carats 38,602 25,261 22,263 12,433 19,295 23,501 7,891 10,276 9,419

ESTIMATED CONTRIBUTION (Source: Kimberley)

E9 East 8% unknown 27% 27% 12% 10% 17% – 62%
E9 West 14% unknown 27% 68% 42% 25% 77% – 33%
E9 mix – unknown – – 18% – – – –
E4 78% unknown 43% 5% 28% 46% 6% 100% –
Other – unknown – – – – – – 5%
TOS – unknown – – – 3% – – –
Blina – unknown – – – 11% – – –
TOTAL 100% unknown 100% 100% 100% 94% 100% 100% 100%

Feb-05 Oct-04 Aug-04 Jul-04 Feb-04 Dec-03 Oct-03 Aug-03 Jun-03 Feb-03
Tender 31 T 27 T 25 T 22 T 18 T 16 T 15 T 14 T 10 T 6T
$ Carat 301.09 197.56 287.16 345.73 229.29 174.05 162.60 179.40 180.92 214.72
Dollars 3,121,251 1,913,295 2,364,032 2,773,825 2,184,650 1,461,699 1,082,878 927,708 1,018,622 878,033
Carats 10,367 9,685 8,232 8,023 9,528 8,398 6,660 5,171 5,630 4,089

ESTIMATED CONTRIBUTION (Source: Kimberley)

E9 East 83% 17% unknown unknown unknown 14% – – – –
E9 West 17% 83% unknown unknown unknown 86% 100% 100% 100% 100%
E9 mix – – unknown unknown unknown – – – – –
E4 – – unknown unknown unknown – – – – –
Other – – unknown unknown unknown – – – – –
TOS – – unknown unknown unknown – – – – –
Blina – – unknown unknown unknown – – – – –
TOTAL 100% 100% unknown unknown unknown 100% 100% 100% 100% 100%

189
8.13 Diamond Valuations
Kimberley provided WWW with six (6) valuations of different sources that they have undertaken
between January 2004 and January 2006 as shown in Table 16 and Table 17.

Table 16: Kimberley’s Valuations per Source by Carats

Sale 42 Sale 17– Sale 17–20 Sale 33 Sale 38 Sale 38
(2004) 20 (2004) (2004) (2005) (2005) (2006)
E4 E9 EAST E9 WEST E9 EAST E9 MIX E4 TOTAL
SIZE CARATS (cts)
+10.8 – – – – – 27.14 27.14
10ct – 9.97 – – – 10.02 19.99
9ct – – 9.41 – 9.21 – 18.62
8ct – – 7.80 – – 16.29 24.09
7ct – 36.43 – 14.21 14.03 7.54 72.21
6ct – 87.2 44.65 – 24.69 31.06 187.6
5ct – 96.76 61.21 37.04 35.41 62.56 292.98
4ct 4.11 294.26 146.23 60.88 125.91 88.72 720.11
3ct 35.1 106.44 307.45 278.9 246.26 126.64 1,700.79
8gr 73.22 1,476.73 775.41 483.92 656.99 452.81 3,919.08
6gr 96.5 972.73 559.14 342.44 525.89 440.75 2,397.45
5gr 63.54 651.39 388.57 224.18 335.53 289.3 1,952.51
4gr 150.15 1,224.53 894.41 481.76 701.48 663.68 4,116.01
3gr 216.38 1,263.54 1,007.71 475.01 823.35 943.79 4,729.78
+11 599.96 2,526.10 2,565.29 988.72 1,987.59 2,489.40 11,157.06
+9 445.76 1,157.39 1,514.34 526.56 1,162.12 1,776.26 6,582.43
+7 262.81 500.01 808.88 250.76 621.33 1,104.30 3,548.09
+5 299.05 523.11 978.45 166.95 569.39 1,384.94 3,921.89
-5 64.47 133.66 288.69 21.08 42.08 360.96 910.94
TOTAL 2,311.05 11,660.25 10,357.64 4,352.41 7,881.26 10,276.16 46,838.77

Table 17: Kimberley’s Valuations per Source by Carats

Sale 42 Sale 17– Sale 17–20 Sale 33 Sale 38 Sale 38
(2004) 20 (2004) (2004) (2005) (2005) (2006)
E4 E9 EAST E9 WEST E9 EAST E9 MIX E4 TOTAL
SIZE USD/ct
+10.8 – – – – – 917.80 917.80
10ct – 1,600.00 – – 7,500.00 154.44 4,934.94
9ct – – 7,021.00 – 8,090.28 – 7,549.90
8ct – – 960.00 – – 514.96 659.05
7ct – 1,946.71 – 5,184.09 10,796.22 2,400.84 4,350.62
6ct – 2,027.09 1,569.07 – 2,131.66 373.41 1,658.05
5ct – 1,420.64 1,729.52 2,586.02 4,109.20 1,011.09 1,870.00
4ct 2,586.15 1,336.36 1,023.34 1,786.45 2,689.50 405.46 1,452.14
3ct 481.81 969.85 813.09 1,186.78 1,116.35 621.22 962.27
8gr 370307 509.23 532.52 779.04 763.10 387.88 573.09
6gr 223.55 339.8 299.46 328.64 381.51 202.17 313.82
5gr 145.08 257.60 237.86 244.55 271.10 171.29 238.04
4gr 157.08 197.10 178.91 198.83 205.77 135.59 183.45
3gr 96.01 101.45 95.08 130.50 124.40 92.24 104.92
+11 53.15 49.71 46.26 63.17 64.82 65.21 56.45
+9 51.71 39.64 39.32 53.00 46.46 54.60 46.69
+7 46.20 35.59 35.23 43.68 43.22 50.42 42.82
+5 32.51 20.79 20.75 27.13 27.04 36.91 28.55
-5 27.30 10.40 10.36 13.08 12.96 29.09 19.17
TOTAL 90.15 283.84 174.53 325.67 302.09 108.06 218.58

One comparison that WWW indicated should be valid is the E9 East vs E9 West valuations for Sales
17–20, January to May 2004. These valuations have been highlighted in Figure 16 and Figure 17.
These valuation data show that Ellendale 9 East has better values per size class than Ellendale 9 West.
In the +11 sizes and above the values are at least 7 per cent higher.

190
8.13.1 Prices Used for Purposes of MER
The discussion in Section 8.13, highlights the difficulties in assessing the true value of the
diamonds from the various sources at Ellendale. These difficulties arise primarily because the
three (3) plants, do not exclusively treat material from each of the various sources on a
consistent basis. The WWW report did not explicitly provide a valuation per source but did
however confirm that the Ellendale 4, Ellendale 9 West and Ellendale 9 East diamonds were
significantly different with respect to their size distributions and values. The report also
confirmed that the Ellendale 4 diamonds were the lowest valued diamonds, and that among the
diamonds of the Ellendale 9 pipe, Ellendale 9 East was associated with significantly higher
values than Ellendale 9 West. Only one of Kimberley’s valuations was considered an
appropriate comparison between the values of Ellendale 9 West and Ellendale 9 East, however
this valuation was done in 2004, and does not reflect current values.

The following values (Table 18) are used for the purposes of forecasting, based on Kimberley’s
in-house evaluation of their production and escalations provided by WWW.

Table 18: Average Stone Prices Used in the MER

OVERALL
AVERAGE
SOURCE OF PRICE
PIPE FACIES DATA (US$/ct)
Ellendale 4 Tuffs Kimberley, WWW 103
Ellendale 4 Satellite Tuffs Kimberley, WWW 150
Ellendale 9 West Tuffs Kimberley, WWW 215
Ellendale 9 East Tuffs Kimberley, WWW 380
Stockpiles Tuffs Kimberley, WWW 197
* Notes: Current Prices and escalation provided by WWW.

Venmyn has had sight of the Kimberley valuation for the past three (3) months, and although
consent has not been given to publish this data, Venmyn is satisfied that the values above are
in close agreement with the estimated values recorded from most recent monthly in-house
valuation (taking into account escalations provided by WWW).

On this basis therefore, Venmyn has accepted the values above for the purposes of this report.

8.13.2 Future Rough Diamond Prices

Using the Kimberley valuations in Table 18, WWW have made forecasts for future rough
diamond prices from Ellendale, based on their diamond market outlook and the quality of the
Ellendale goods. These price forecasts are documented in Table 19.

WWW have also suggested that a more consistent assortment of diamonds (WWW were of the
view that the assortments they viewed were very inconsistent) should receive at between 5 per
cent and 10 per cent greater average price than the prevalent general market price received for
the goods.

Table 19: WWW’s Escalation Forecasts for Ellendale Diamonds

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Nominal
Price Escalation 10.3% 8.9% 3.3% 7.9% 7.0% 5.1% 7.9% 7.2% 7.2% 7.2% 7.0%
Total Real Price
Escalation 7.3% 5.9% 0.3% 4.9% 4.0% 2.1% 4.9% 4.2% 4.2% 4.2% 4.0%

It is important to emphasise that these forecasts are based on valuations carried out by
Kimberley. WWW have recommended that parcels per source are made available for valuation

191
 on WWW’s latest price book. WWW can then produce SFD and value models based on their
latest price book.

8.14 Classification of Mineral Resources and Mineral Reserves

Venmyn conducted a review of the Kimberley block models (see Section 8.8) and mineral resource
classification parameters, and together with Kimberley geologists have updated the mineral resource
statements taking into account most recent depletion (31 July 2007) and revising certain classification
parameters (discussed in this Section 8.8).

8.14.1 Recent Mineral Resource Statements

The most recent previous mineral resource statements from Kimberley are presented in this
section. Table 20 documents the mineral resource statement as at 30 June 2006 (as presented
in the 2006 Annual Report). Table 21 documents the update to the Ellendale 9 mineral resource
statement as at 1 June 2007.

Table 20: Mineral Resource Statement (Inclusive of Ore Reserves) for Ellendale as at
30 June 2006
BOTTOM
RECOVER- SCREEN
ED SIZE
RESOURCE GRADE CUT-OFF
SOURCE CLASSIFICATION TONNAGE (cpht) CARATS (mm)
Ellendale 4 25,928,000 7.6 1,983,000 1.2
Ellendale 4 Satellite Indicated 9,372,000 5.6 521,000 1.2
Ellendale 4 Stockpile 148,000 10.1 15,000 1.2
Ellendale 9 7,710,000 5.7 443,000 1.2
TOTAL INDICATED 43,158,000 6.9 2,962,000 1.2
Ellendale 4 15,309,000 4.8 728,000 1.2
Ellendale 4 Satellite Inferred 6,649,000 9.2 612,000 1.2
Ellendale 9 13,032,000 5.2 682,000 1.2
TOTAL INFERRED 34,990,000 5.8 2,022,000 1.2
TOTAL RESOURCES 78,148,000 6.4 4,984,000 1.2
Notes:
1) Resources depleted to June 2007.
2) The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to
define grade.
3) For the resource, diamonds were recovered in the 1.2mm to 14mm range.
4) Rounding of tonnes to the nearest 1,000t and nearest 100cts may result in computational discrepancies in the
statement.
5) Practically mining occurs at 0cpht within pit shells designed at economic cut-offs as at June 2006.
6) Resource quoted at 0cpht, Whittle pit shells designed at 4.5, 4.4 and 2cpht for Ellendale 4, Ellendale 9 West and
Ellendale 9 East pipes respectively.
7) Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in
production plants.
8) Ellendale 4 resource to ±130m below the original surface, Ellendale 9 resource to +180m below the original
surface. Ellendale 4 Satellite to ±220m below the original surface.
9) Ellendale 4 Satellite modelled in plane and section, grades estimated manually.
10) The resource classification complies with the JORC Code.

192
 Table 21: Mineral Resource Statement (Inclusive of Ore Reserves) for Ellendale 9 as at
1 June 2007
BOTTOM
RECOVER- SCREEN
ED SIZE
RESOURCE GRADE CUT-OFF
SOURCE CLASSIFICATION TONNAGE (cpht) CARATS (mm)
Ellendale 9 Measured 4,645,000 6.7 309,200 1.2
Ellendale 9 Indicated 11,958,000 5.5 656,400 1.2
Ellendale 9 Inferred 12,691,000 4.9 623,300 1.2
TOTAL RESOURCES 29,294,000 5.4 1,588,900 1.2
Notes:
1) Resources depleted to May 2007.
2) The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to
define grade.
3) For the resource, diamonds were recovered in the 1.2mm to 14mm range.
4) Rounding of tonnes to the nearest 1,000t and nearest 100cts may result in computational discrepancies in the
statement.
5) The resource has been calculated with a 0cpht cut-off.
6) Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in
production plants.
7) The resource has been calculated down to a reduced level (RL) of 0m above sea level. This equates to about
130m below the initial land surface.
8) The resource classification complies with the JORC Code.

8.14.2 Review of Mineral Resource Estimation

Classification of the resources (as defined by the JORC Code) is based on drilling density,
number of holes and the number of samples used to make the estimate.

Table 22 documents the classification criteria that has been applied in the classification of the
resources. These classification criteria are entered into Vulcan via a script.

Table 22: Resource Classification Criteria

MEASURED INDICATED INFERRED
Estimation Run 1 1–2 2–3
Number of Holes >2 >1 >1
Number of Samples >3 >3 >1
Venmyn are satisfied that the criteria described above are appropriate for the purposes of
resource estimation.

8.14.3 Mineral Resource Statement for 31 July 2007

While Venmyn were satisfied with Kimberley’s interpretation of the geological model, Venmyn
recommended that the Ellendale 9 resource be extended from the 0MRL level to -50MRL, due
to the sufficiency of the data to assume continuity to these depths for Ellendale 9. The resource
estimates in this section reflect this increased resource to -50MRL.

Venmyn has classified all material described as ‘UBX’ (breccia) in the Inferred Mineral
Resource category due to the inherent uncertainties concerning grade distribution in this
lithology (Table 23 and Table 24).

The resource estimations (Table 23) were conducted in Vulcan using the methodology and
parameters described in Section 8.8. The modelling incorporated all available geological and
depletion data as at 31 July 2007. Initially resources were estimated without applying any grade
cut-offs to the model in order to determine the global resource.

193
On review of the blocks that had been included in the global resource estimates, it became clear
that many of the blocks were associated with exceptionally low grades, which would certainly
not constitute a Resource in terms of the definitions within the JORC Code (mineral
concentration with reasonable prospects for eventual economic extraction). In order to
determine an estimate for resources which have the potential to be economically extracted, the
models were re-run with a script that provided for an economic cut-off that was equivalent to
approximately US$6/t (a value which Venmyn consider to represent material with reasonable
prospects for future economic extraction). As such a cut-off grade of 5.5cpht for Ellendale 4
was applied. For Ellendale 9 the cut-off of US$6/t is equivalent to an cut-off grade of 3cpht for
Ellendale 9 West and 1.6cpht for Ellendale 9 East.

Table 23: Global Mineral Resource Statement (Inclusive of Ore Reserves) for Ellendale
as at 31 July 2007 (at 0cpht cut-off)
BOTTOM
RECOVER- SCREEN
ED SIZE
RESOURCE GRADE CUT-OFF VALUE
SOURCE CLASSIFICATION TONNAGE (cpht) CARATS (mm) (US$/ct)
Ellendale 4 9,720,000 9.3 904,400 1.2 103
Ellendale 9 West Measured 3,733,000 6.3 235,300 1.2 215
Ellendale 9 East 308,000 5.8 18,000 1.2 380
TOTAL MEASURED 13,761,000 8.4 1,157,700 1.2 130
Ellendale 4 20,191,000 5.1 1,033,100 1.2 103
Ellendale 4 Satellite 9,372,000 5.6 521,000 1.2 150
Ellendale 9 West Indicated 9,559,000 5.1 489,700 1.2 215
Ellendale 9 East 3,284,000 4.7 153,600 1.2 380
Stockpiles 1,715,000 4.7 80,600 1.2 197
TOTAL INDICATED 44,121,000 5.2 2,278,000 1.2 160
Ellendale 4 30,369,000 5.4 1,635,100 1.2 103
Ellendale 4 Satellite 6,649,000 9.2 612,000 1.2 150
Ellendale 9 West Inferred 4,706,000 5.6 263,400 1.2 215
Ellendale 9 East 9,464,000 4.3 409,200 1.2 380
TOTAL INFERRED 51,188,000 5.7 2,919,700 1.2 162
TOTAL RESOURCES 109,070,000 5.8 6,355,400 1.2 155
Notes:
1) Resources depleted to 31 July 2007.
2) The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to
define grade.
3) For the resource, diamonds were recovered in the 1.2mm to 14mm range.
4) Rounding of tonnes to the nearest 1,000t and nearest 100cts may result in computational discrepancies in the
statement.
5) Resources quoted at 0cpht.
6) Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in
production plants.
7) Ellendale 4 resource to ±130m below the original surface, Ellendale 9 resource to +180m below the original
surface. Ellendale 4 Satellite to ±220m below the original surface.
8) Ellendale 4 Satellite modelled in plane and section, grades estimated manually.
9) All UBX (breccia) material has been classified as Inferred Mineral Resource, due to the inherent uncertainties
concerning the grade distribution of this lithology.
10) The resource classification complies with the JORC Code.

194
Table 24: Mineral Resource Statement (Inclusive of Ore Reserves) for Ellendale as at
31 July 2007 (at various cpht cut-offs)
BOTTOM
RECOVER- SCREEN
ED SIZE
RESOURCE GRADE CUT-OFF VALUE
SOURCE CLASSIFICATION TONNAGE (cpht) CARATS (mm) (US$/ct)
Ellendale 4 7,486,000 11.1 829,700 1.2 103
Ellendale 9 West Measured 3,486,000 6.6 229,600 1.2 215
Ellendale 9 East 308,000 5.8 18,000 1.2 380
TOTAL MEASURED 11,280,000 9.6 1,077,300 1.2 131
Ellendale 4 7,646,000 9.0 688,700 1.2 103
Ellendale 4 Satellite 9,372,000 5.6 521,000 1.2 150
Ellendale 9 West Indicated 7,923,000 5.8 461,000 1.2 215
Ellendale 9 East 2,854,000 5.2 147,200 1.2 380
Stockpiles 1,715,000 4.7 80,600 1.2 197
TOTAL INDICATED 29,510,000 6.4 1,898,500 1.2 169
Ellendale 4 14,760,000 7.2 1,056,900 1.2 103
Ellendale 4 Satellite 6,649,000 9.2 612,000 1.2 150
Ellendale 9 West Inferred 3,794,000 6.5 247,000 1.2 215
Ellendale 9 East 7,732,000 5.0 385,200 1.2 380
TOTAL INFERRED 32,936,000 7.0 2,301,100 1.2 174
TOTAL RESOURCES 73,725,000 7.2 5,276,900 1.2 163
Notes:
1) Resources depleted to 31 July 2007.
2) The resource has been calculated from aircore drilling (to establish lithologies) and large diameter drilling to
define grade.
3) For the resource, diamonds were recovered in the 1.2mm to 14mm range.
4) Rounding of tonnes to the nearest 1,000t and nearest 100cts may result in computational discrepancies in the
statement.
5) Ellendale 4 resource is quoted at 5.5cpht minimum cut-off, Ellendale 9 West resource quoted at US$6/t
(equivalent of 3cpht) minimum cut-off, Ellendale 9 East resource quoted at US$6/t (equivalent of 1.6cpht)
minimum cut-off, Ellendale 4 Satelitte and Stockpile resources quoted at 0cpht minimum cut-off.
6) Resource does not include metallurgical recovery factors, mining dilution or change in bottom screen size in
production plants.
7) Ellendale 4 resource to ±130m below the original surface, Ellendale 9 resource to ±180m below the original
surface. Ellendale 4 Satellite to ±220m below the original surface.
8) Ellendale 4 Satellite modelled in plane and section, grades estimated manually.
9) All UBX (breccia) material has been classified as Inferred Mineral Resource, due to the inherent uncertainties
concerning the grade distribution of this lithology.
10) The resource classification complies with the JORC Code.

Venmyn recommend that pit optimisation is re-done in consideration of the new resource
models. Venmyn anticipate that the pit optimisation would include the vast majority of the
mineral resources that have been classified using the economic cut-offs described above.

The classification into the resource categories is based upon historical and recent exploration
drilling and bulk sampling as well as on recent production information. The resource categories
as defined by the JORC Code are described in the Glossary in Appendix 4. Venmyn is confident
that the logging, sampling, data density and distribution are suitable for resource estimation as
described in this section.

Kimberley continue to elect not to report on any Ore Reserves. This exclusion has historically
been based on Kimberley’s continued approach to project development, in which plant
capacities continued to be escalated in a staged manner.

195
 Venmyn would add that until an updated pit design is done based on the new resource data
presented here it is appropriate that Ore Reserves are excluded (the current optimal pit does not
necessarily take into account the revised resources presented here).

Venmyn are satisfied that the global resource estimates are generally correct, however caution
that local block grades are likely to have a high local error. This is due to the sparsity of data
available for such estimations in many of the blocks (particularly those classified in the Inferred
Category).

8.15 Environmental Issues and Impact of the Ellendale Diamond Mine on the Environment

8.15.1 Environmental Policy

Kimberley’s environmental policy objective is to prevent pollution and to minimise the adverse
impact on the environment as a result of the activities of mining and processing within the
Ellendale Mine Lease area. To achieve this objective Kimberley has committed to:

• develop and sustain an integrated Environmental Management System;

• provide adequate resources to continually improve the environmental performance of

their mining and exploration activities;

• encourage and empower all people to integrate environmental management into the way
they work;

• comply with Government conditions including relevant legislation set down under
Australian and International law and other criteria to which the company subscribes;

• reduce waste and consumption of resources (materials, fuel and energy);

• commit to recovery and recycling, as opposed to disposal where possible;

• develop and contribute to programs that will provide opportunities and assistance for
Aboriginal landowners to achieve identified aspirations and choice of lifestyle, by
actively contributing to Kimberley’s environmental management;

• perform rigorous periodic review of environmental performance against environmental

requirements and their authorisation to operate; and

• maintain open consultation with regulators, shareholders, Aboriginal landowners and the
general public.

8.15.2 Key Environmental Issues

The main environmental risks facing Kimberley include:

• water contamination;

• the open pits (final voids); and

• aboriginal issues.

8.15.3 Environmental Liabilities

Kimberley has a general closure plan in place, and estimate current closure costs of
approximately A$6million. Kimberley must provide bank guarantees (A$8million) for an
environmental bond on a rate per hectare basis, depending on the type of impact.

Kimberley conducts ongoing rehabilitation of exploration areas and waste sites. This generally
involves in-filling, contouring, replacement of topsoil and re-seeding.

196
 Controlled burning is conducted to reduce the hazard of fire generation. Permits are obtained
from the Shire of Derby West Kimberley to complete such burning.

Kimberley has initiated a weed eradication programme in 2002. Calotropis Procera and
Tribulus Terrestris (Caltrop or Double Gee) are actively sprayed in the village and around site.
Individual Calotropis Procera plants appear around site, but there are currently no areas of
infestation. Plants are sprayed with ‘Access’ herbicide and diesel mixture. Caltrop Terribulus
appear in the camp after rainfall, and are sprayed with ‘Round Up’ herbicide by the village
staff. To prevent new weeds being introduced to site, new machinery arriving on site must be
inspected by Environmental staff for any soil, oil leaks and exhaust defects before going to
work in the field. If the machine has not been washed prior to arriving on site, it is washed in
the wash down bay with chlorinated water.

8.16 Personnel
The staff of Kimberley are all on permanent individual employment contracts. Kimberley employees
are engaged under a common law employment contract between Kimberley and the individual
employee.

Ellendale employees typically work according to a Fly-In – Fly-Out (FIFO) roster arrangement
involving 14 days on, followed by 7 days off. Employees work 10 or 12 hour shifts, depending upon
their role. Those engaged in production or maintenance work may be involved in day or night shift
work. Site employees receive 24 days (shifts) of paid annual leave.

Where possible, employees are sourced from Broome or Derby and this region accounts for about 60
per cent of the number of employees on site. Skilled personnel, professionals and managers typically
are sourced from Perth and make the trip to site via Broome.

8.17 Capital Costs

Snowden, in their review of Kimberley in March 2007, have estimated approximately A$14million for
their proposed plant upgrades (Section 8.10) and an additional A$3million for other related upgrades.

8.18 Operating Costs

The operating cost history at Kimberley since production began in 2002 is presented in Table 25 and
illustrated in Figure 31.

Table 25: Kimberley’s Historical Costs in Relation to Historical Production

COST OF
PRODUCT SOLD 2002–2003 2003–2004 2004–2005 2005–2006 2006–2007
Site Costs (A$) (8,980,000) (12,322,000) (30,289,000) (34,629,000) (72,588,000)
Marketing Costs (A$) (285,000) (399,000) (546,000) (582,000) (778,000)
Royalty Costs (A$) (1,304,000) (1,468,000) (4,168,000) (3,559,000) (4,503,000)
Restoration and Environment
Costs (A$) (26,000) (283,000) (364,000) (437,000) (537,000)
TOTAL COST (10,595,000) (14,472,000) (35,367,000) (39,207,000) (78,406,000)
Ore Processed (t) 559,099 998,000 2,170,000 2,243,000 4,937,000
Unit Site Cost (A$/t) 16.06 12.35 13.96 15.44 14.70
Unit Marketing Cost (A$/t) 0.51 0.40 0.25 0.26 0.16
Unit Royalty Cost (A$/t) 2.33 1.47 1.92 1.59 0.91
Unit Restoration and
Environmental Cost (A$/t) 0.05 0.28 0.17 0.19 0.11
Unit Total Cost (A$/t) 18.95 14.50 16.30 17.48 15.88

197
 Figure 31:
Kimberley’s Historical Unit Costs

Unit Site Cost Unit Total Cost Ore Processed

20.00 6.00

18.00
5.00
16.00

j
f

14.00
4.00
UNIT COST (AUSD/t)

ORE PROCESSED (t)

12.00

10.00 3.00

8.00
2.00
6.00

4.00
1.00
2.00

0.00 0.00
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
YEAR

It is clear that in financial year 2007, Kimberley achieved significant reduction in unit costs, through
both improving process efficiencies and plant throughputs. In the June 2007 quarter, with increased
throughputs through the plants (Section 8.9.4), total unit costs of A$12.5/t were recorded. This
indicates that total unit costs of less than A$11/t are achievable if plant throughputs reach the forecast
levels (Section 8.9.4).

8.18.1 Future Operating Costs

From the results presented in Table 25, Venmyn consider that opportunity to further reduce unit
costs exists in terms of Kimberley’s forecast production (Section 8.10.5), particularly if the
various plant upgrades (Section 8.9.4) are carried out. Further reductions in unit costs are
essential to re-establishing the Ellendale Diamond Mine as a profitable project. Diamond price
escalations (Section 8.13.2) would further contribute to profitability.

9. BLINA DIAMONDS NL (BLINA) PROJECTS

Blina has acquired 44 tenements (Table 26) held in its own right covering in excess of 120,000ha. The Blina
projects are discussed in this section as they comprise important mineral assets in which Kimberley has a
39.14 per cent interest.
The Blina tenements (Figure 32) surround the Ellendale Mining Lease area, and as a consequence general
descriptions of the region, regional geology, climate, access etc (described in Section 8) are not repeated in
this section, as they are broadly (if not significantly) similar for the Blina projects as they are for the
Ellendale Mining Lease area.

9.1 Blina’s Mineral Assets

Blina has identified 5 alluvial exploration projects which occur across the tenements, namely:

• Terrace 5;
• Ellendale 9 North;
• J-Channel;
• A-Channel; and
• Regional Projects (which includes the Northern, Central and Southern Reconnaissance
Projects).

198
 The Terrace 5, Ellendale 9 North, J-Channel and A-Channel are all advanced stage projects focussing
on the exploration for economic diamond deposits in paleo-channels. The objective of the regional
work is a complete re-evaluation of the Ellendale Field. This is expected to lead to the identification
of new diamondiferous lamproites and alluvial deposits. An early success for the program occurred
with the recent discovery of the Ellendale 9 North alluvial deposit.

9.2 Blina’s Corporate Structure and Management

Figure 33 presents the corporate structure of Blina. The CVs set out below are based on information
provided by Blina. Venmyn has not undertaken due diligence on the CVs but rather, has relied on the
information provided to it by Blina in this regard.

There are currently 36 personnel employed on the Blina projects. The employees are engaged under
a common law employment contract between Blina and the individual employee. Blina employees
typically work according to a Fly-In – Fly-Out (FIFO) roster arrangement involving 14 days on,
followed by 7 days off. Employees work 10 or 12 hour shifts, depending upon their role. Those
engaged in production or maintenance work may be involved in day or night shift work. The majority
of employees are sourced locally.

Miles Kennedy Non Executive Chairman (58)

B.Juris
Miles has held directorships of Australian listed resource companies for the past 21 years. He is the
Executive Chairman of Kimberley and was the founding Chairman of Macraes Mining Company NL,
Chairman of Churchill Resources NL, a Director of Brunswick NL and an Officer of Normandy
Mining Limited.

He has extensive experience in the management of public companies with specific emphasis in the
resource industry. He is a Barrister and Solicitor of the Supreme Court of Australia.

David Jones Managing Director (56)*

B.Sc (Hons), M.Sc., MAusIMM
David is considered to be one of Australia’s most experienced and successful diamond exploration
geologists and possesses an intimate knowledge of the Ellendale Field. David commenced his
diamond exploration career in 1976 as part of the Ashton Joint Venture team conducting regional
exploration programmes in the Kimberley region. For the past 10 years, he has led Kimberley’s
exploration programs in the Ellendale Field as Exploration Manager. This has resulted in the
discovery or confirmation of a significant number of new lamproite pipes or alluvial systems,
substantial increases in the recognised size and grade of these orebodies and the discovery and
evaluation of the Ellendale 9 East orebody. This deposit has proven to be the most valuable alluvial
orebody so far recognised in the Ellendale Field. He has also held senior exploration and management
positions with a number of other diamond exploration companies, including Ashton Mining Limited,
Cluff Resources Pacific NL and the companies formerly known as Gem Exploration and Minerals
Limited, Metana Minerals NL and Western Reefs Limited.

Justin Clarke Operations Director (36)

B.Bus
Justin has a degree in Business Studies from Massey University in New Zealand. For most of the last
10 years, he has been closely involved with Kimberley’s exploration programs and has carried out a
variety of operational and management roles. He has an impressive practical background and brings
to Blina considerable knowledge and experience in a wide variety of diamond exploration and
evaluation techniques. During the recent successful commissioning of Kimberley’s new 2.2Mtpa
plant, he was the Construction Operations Manager.

199
 Kimberley Diamond Company NL
Independence you can trust
Figure 32:

LEGEND: LOCATION OF BLINA’S PROJECT TENEMENTS

Kimberley’s Mining Lease Area
Blina Tenements
Lamproite Pipe
Paleo-channels E 04/1092
Northern Reconnaissance P 04/240
Terrace 5
(Falcon) area
M 04/423 M 04/410 M 04/411
Central Reconnaissance area

P 04/239
Southern Reconnaissance area M 04/390 M 04/355 M 04/397 M 04/422 M 04/412
Rivers E 04/1093
M 04/389 M 04/356 M 04/424 M 04/425
Roads M 04/
398 E 04/821
M 04/426 M 04/427
P 04/204
E 04/1105
M 04/
Location of Blina’s Project Tenements

358 E 04/911
E 04/1212 E9 North Alluvials
M 04/428 M 04/429 M 04/391

M 04/346 M 04/393 E 04/820

8,060,000 mN

M 04/392
P 04/205

E 04/1186 E 04/1212
E 04/1052 ELLENDALE 9 E 04/801

200
P 04/206

E 04/1212

E 04/1186 M 04/372
A Channel Alluvials

E 04/1075 E 04/726

J Channel

ELLENDALE 4
GEMKimberleyCPR’07Fig32.cdr

Source: Kimberley June 2007 E 04/1186

8,040,000 mN

E 04/1254 E 04/1656

SCALE:
2.5 0 2.5 5 km

This diagram and the information therein

are copyrighted. It may not be reproduced
or transmitted in any form or by any
means without prior written permission
from Venmyn Rand (Pty) Ltd.
Trading as Venmyn.
680,000 mE 700,000 mE
FIGURE 32
 Kimberley Diamond Company NL
Independence you can trust
Figure 33:

BLINA MANAGEMENT AND STAFF ORGANOGRAM

Blina Board

Operations Director
(Justin Clarke)

Operations Manager - acting

(Gina Rockett Greg Davies)
Blina Management and Staff Organogram

Administration Geology Processing Maintenance

201
Senior Exploration
Camp Manager Process Foreman Maintenance Foreman
Geologist
(Greg Davies) (Stewart Wilson) (1)
(Gina Rockett)

Maintenance
Accounts Geologist Process Supervisor Technician
(1) (2) (1) (4)

Catering Field Technician Leading Hand

(5) (3) (6)

Camp Maintenance Operator

(2) (8)

Source: Kimberley

This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig33.cdr
FIGURE 33
 Karl Simich Non Executive Director (43)
B.Comm, CA, ASIA
Karl has over 16 years experience in the management and administration of publicly listed companies,
specialising in resource financing and corporate management, with experience in the international
business arena. He is an Executive Director of Kimberley. He is a Chartered Accountant and a member
of the Securities Institute of Australia and has completed post graduate studies in business and finance.

Greg Davies Camp Manager (38)

Greg has had considerable experience in diamond exploration with his experience spread over
Production, Administration and Logistics. He has been Camp Manager for Blina since March 2005.
He also spent 4 years as Production Supervisor for Kimberley and was part of commissioning both
the Ellendale 9 West and Ellendale 9 East Production Plants. Prior to this he spent 8 years working
for Astro Mining, mostly in administrative and logistic roles for their laboratory and exploration
teams.

Gina Rockett Exploration Manager (43)

B.Sc. (Hons)
Gina has a Bachelor of Science degree with First Class Honours from the University of Western
Australia. Her Honours project was on the petrology and weathering of two diamondiferous
kimberlites in the North Kimberley Province.

Since leaving her position as Curator of the Geological Museum at UWA in 1997, she has worked
almost exclusively in diamond exploration. The initial five years were with Astro Mining and the
remainder with Conquest Mining and Kimberley, before joining Blina in March of 2005.
* David Jones retired from his executive management roles in Kimberley and Blina with effect from 1 July 2007. He will
continue to work as a geological consultant to both companies.

9.3 Legal Tenure and Agreements

The legal status of the granted mineral tenements and applications (Table 26) has not been
independently verified by Venmyn. The present status of these tenements and agreements has been
provided to Venmyn by Blina and the report has been prepared on the understanding that the
tenements are lawfully accessible for exploration and development. The descriptions below are a brief
summary of the agreements and do not necessarily constitute a full documentation of all aspects of
the agreements. Freehills, Gem Diamonds’ Australian solicitors, is currently conducting a due
diligence of all contracts and agreements, the results of which have not been made available to
Venmyn at the time of writing.

202
Table 26: List of Blina Tenements
AREA DATE OF AREA DATE OF
TENEMENT (ha) GRANT TENEMENT (ha) GRANT
E04/726 9,500 21/01/1993 M04/390 1,000 10/6/2004
E04/801 12,400 15/01/1993 M04/391 1,000 10/6/2004
E04/813 3,300 9/8/1993 M04/392 900 10/6/2004
E04/820 2,600 13/09/1993 M04/393 1,000 10/6/2004
E04/821 8,600 13/09/1993 M04/397 1,000 11/1/2005
E04/911 1,800 23/05/1994 M04/398 1,000 11/1/2005
E04/1052 5,900 29/11/1996 M04/426 1,000 19/02/2007
E04/1075 2,600 14/10/1997 M04/427 1,000 19/02/2007
E04/1092 7,800 25/11/1999 M04/428 1,000 19/02/2007
E04/1093 3,600 4/7/2001 M04/429 1,000 19/02/2007
E04/1105 3,600 19/07/1999 M04/4101 1,000 Application
E04/1186 5,900 16/08/2002 M04/4111 1,000 Application
E04/1212 3,300 23/07/2003 M04/4121 1,000 Application
E04/1254 3,900 6/12/2002 M04/4221 1,000 Application
E04/16531 3,300 Application M04/4231 1,000 Application
E04/16542 2,900 Application M04/4241 700 Application
E04/16561 17,600 Application M04/4251 700 Application
M04/346 1,000 11/1/2005 P04/204 200 3/12/2004
M04/355 1,000 11/1/2005 P04/205 200 3/12/2004
M04/356 1,000 11/1/2005 P04/206 100 3/12/2004
M04/358 1,000 11/1/2005 P04/2391 100 Application
M04/389 1,000 10/6/2004 P04/2401 200 Application
Notes:
1. Mining Lease Applications will revert to Exploration Leases E04/1653 or E04/1654.
2. Blina application, replaces E04/1098.

9.3.1 Kimberley Asset Sale Agreement

Blina has entered into an agreement with Kimberley to purchase all of Kimberley’s right, title
and interest in and to the following tenements: E04/993, E04/1006, E04/1052, E04/1075,
E04/1105 and E04/1212, all held by Kimberley (Existing Tenements), Kimberley’s
applications for tenements E04/1098, M04/346, M04/355, M04/356, M04/358, M04/389,
M04/390, M04/391, M04/392, M04/393, M04/397, M04/398, P04/204, P04/205 and P04/206
and any tenements (Future Tenements) resulting from the grant of those applications.

Under the Kimberley Asset Sale Agreement, Kimberley has agreed to assign and Blina has
agreed to accept all Kimberley’s right, title and interest in, and to assume all Kimberley’s
obligations under, the Falcon Agreement (see Section 9.3.7). All amounts received by
Kimberley under that agreement after settlement must be paid to Blina and Blina must
indemnify Kimberley for any liabilities attributable to any act or omission by Blina in the
performance of the obligations subcontracted or delegated to it.

Blina has also assumed responsibility for, and agreed to indemnify Kimberley against any
claims relating to all royalties, including the Faustus/Weybridge Royalty (see Section 9.3.8),
payable in respect of minerals or metals produced by or on behalf of Blina and its successors
and assigns from the Existing Tenements or Future Tenements.

9.3.2 Blina Joint Venture Agreement

Blina has entered into an agreement with Kimberley in relation to the exploration and mining
of alluvial deposits within the Ellendale Mining Lease area.

203
 In terms of the agreement, Blina must, as soon as practicable after commencement of the joint
venture, arrange and pay for a low-level electromagnetic (EM) survey to be flown over the
Ellendale Mining Lease. The results of that survey must be made available to Kimberley.

Blina will be entitled, at its own cost, to explore for, evaluate and have first right to develop and
mine alluvial deposits identified by the EM Survey, including the extensions and tributaries of
the areas known to the parties as Terrace 5, J-Channel, A-Channel, B-Channel and North
Channel whether or not they are detected by the EM survey, and Kimberley will have the right
to explore and mine lamproite bodies identified by that survey.

The agreement entitles Blina to access and remain on the Ellendale Mining Lease with its
personnel and equipment.

Blina is entitled to have its ore processed through Kimberley’s recovery facilities but
Kimberley will at all times be entitled to priority processing of its own ore through those
facilities. Blina will be obliged to reimburse all Kimberley’s reasonable costs incurred in
connection with the processing of the Blina’s ore.

In terms of the agreement, Kimberley’s mining operations are to take precedence over Blina’s
exploration and mining operations.

If, Blina encounters any lamproite body, it must notify Kimberley, but may continue mining the
alluvial deposit where it is located above the lamproite to a maximum depth of 1m below the
level of the bedrock-lamproite interface.

Kimberley has undertaken to advise and assist Blina with the marketing and sale of diamonds
recovered from within the Ellendale Mining Lease. Blina is entitled to appoint Kimberley to
act as its agent for the sale of any diamonds produced by Blina from the alluvial deposits.

The net operating profit from any joint venture operations is to be distributed to the parties
quarterly in the following proportions:

• Blina 90 per cent, and

• Kimberley 10 per cent.

The Blina joint venture contains various other provisions relating to meetings, insurance,
indemnities, rehabilitation, dispute resolution and other matters similar to those commonly
found in agreements of this nature.

9.3.3 Bunuba Agreement

The details of this agreement have been described in Section 8.1.3.

9.3.4 Bazco and Lee Agreement

Under this agreement, entered into between Bazco, Lee, Kimberley and Blina, Bazco agreed to
sell its 100 per cent interest in E04/819, E04/820 and E04/821 (Bazco Tenements), and all
information in its possession in respect of those tenements, to Blina in consideration for Blina
issuing to Bazco such number of the Blina’s shares as represents 8.5 per cent of its issued share
capital immediately prior to Blina’s listing on ASX.

The agreement recites that Lee had lodged objections affecting the Bazco Tenements and had
also commenced proceedings by plaints in the Warden’s Court at Broome in respect of the
Bazco Tenements. Under the agreement, Lee agreed to withdraw all proceedings, including
objections and plaints instituted by him in respect of the Bazco Tenements, and in consideration
for this, Blina agreed to pay Lee the sum of A$27,000 and to issue to Lee such number of
Blina’s shares as represents 1.5 per cent of its issued share capital immediately prior to Blina
listing on ASX.

204
 The register maintained by the Western Australian Department of Industry and Resources
(DIR) records that the plaints lodged by Lee in respect of the Bazco Tenements were dismissed
on 11 April 2003.

Blina also agreed to pay a royalty to Bazco of 0.85 per cent, and to Lee of 0.15 per cent, of the
proceeds of the sale of production (net of certain post recovery of production costs) derived by
Blina from the Bazco Tenements.

9.3.5 Ellendale Resources Agreement

Blina, Kimberley and Ellendale Resources NL (Ellendale Resources) have entered into an
agreement in relation to tenements E04/801, E04/911, E04/1062 and E04/1093 (Ellendale
Tenements).

Prior to that agreement, Kimberley was earning a 75 per cent interest in the Ellendale
Tenements by free carrying Ellendale Resources to bankable feasibility over the area of those
tenements. Kimberley has agreed to withdraw from their rights to earn 75 per cent of the
Ellendale Tenements. In terms of the agreement, Blina has agreed to purchase all Ellendale
Resources’ right, title and interest in the Ellendale Tenements in consideration for the issue to
Ellendale Resources of 11,500,000 shares or 10 per cent of the issued shares at the date of the
Ellendale Resources Agreement (Vendor’s Shares), whichever is greater.

Further to the agreement, Blina will also pay Ellendale Resources a royalty at the rate of 1.5
per cent (plus any applicable GST) of the proceeds of sale of production (net of costs incurred
in respect of that production post recovery) from the Ellendale Tenements. No costs incurred
to the time of recovery of production are deductible from the amount payable under the royalty.

9.3.6 Diamond Ventures Joint Venture Agreement

This joint venture agreement was entered into between Auridiam Consolidated NL (Auridiam)
and Diamond Ventures Exploration Pty Ltd (DVEPL) in relation to E04/813 and any other
tenements acquired for the purposes of the joint venture. Auridiam’s right, title and interest in
and to E04/813 was purchased by Blina in May 2002.

Blina has entered into a deed of covenant with Auridiam Resources NL, Auridiam and DVEPL
pursuant to which Blina covenanted with Auridiam Resources NL and DVEPL that it would:

• be bound by the terms of the Diamond Ventures Joint Venture agreement;

• assume, observe, perform and satisfy all of the relevant proportion of the liabilities and
obligations of Auridiam Resources NL arising under or by virtue of the Diamond
Ventures Joint Venture agreement; and

• pay, or make adequate provisions to pay, any monies owing by Auridiam Resources NL
to DVEPL under or by virtue of the Diamond Ventures Joint Venture agreement.

9.3.7 Falcon Agreement

Blina has entered into an agreement with Kimberley and DMA in relation to E04/911,
E04/1092, E04/1093 and E04/1105 (Kimberley Tenements) and E04/820 and E04/821 (Blina
Tenements) (the Kimberley and Blina Tenements are collectively referred to as Falcon
Tenements). The agreement covers the intended Falcon™ geophysical surveying of these
tenements and various provisions for the programme and for any discoveries that may be made
as a result of the programme. The Falcon™ technology is owned by BHP Billiton, and as such
the agreement makes provisions for BHP Billiton to gain an interest in any new discoveries.

In terms of the Kimberley Asset Sale Agreement (see Section 9.3.1), the previous Kimberley
Tenements become Blina Tenements for the purposes of the Falcon Agreement and Blina
becomes bound to observe the Falcon Agreement in respect of those tenements.

205
 9.3.8 Faustus and Weybridge Royalty Agreement
This is an agreement entered into between Kimberley, Faustus Nominees Pty Ltd (Faustus) and
Weybridge Pty Ltd (Weybridge).

Under this agreement, Kimberley effectively agreed to pay to each of Faustus and Weybridge
a royalty (Faustus/Weybridge Royalty) of 1.5 per cent of the gross revenue derived, accrued or
received by Kimberley and its successors and assigns from any mining or other operations on
any ground within a radius of 50 km of the coordinates of Pit 5 on the Terrace 5 paleogravel
system, and from any tenement partly within that area.

Under the Kimberley Asset Sale Agreement (see Section 9.3.1) Blina is subject to the
Faustus/Weybridge Royalty and Blina has agreed, under the Kimberley Asset Sale Agreement,
that none of those tenements, or any rights or interests in them, may be sold, transferred or
disposed of unless that transaction is subject to the rights and interests of Faustus and
Weybridge in respect of the Faustus/Weybridge Royalty.

There is currently a difference of opinion between Blina’s view that this royalty is confined to
the Ellendale Mining Lease area and Tenements acquired from Kimberley, and the view of one
of the royalty holder’s that it extends any tenements within the 50 km radius described above.
Blina has entered into negotiations with the royalty holder concerned for the purpose of
resolving this difference of opinion and simplifying the effect of all non-statutory royalties.

9.3.9 Management Services Agreement

Blina has entered into an agreement with Kimberley under which Kimberley will manage
Blina’s day-to-day financial, statutory, and administrative affairs and allow Blina to use the
offices and office facilities in which Kimberley has secured certain rights as Blina’s head office.

These services (Management Services) will include general corporate, management,

administrative, financial, secretarial, and office services to Blina (including offices and
facilities) through Kimberley’s team of professionally qualified and administrative staff.

Kimberley’s remuneration for providing the Management Services will be US$5,000 (plus
GST) per month.

This agreement will continue indefinitely, unless otherwise agreed, and can be terminated by
either party by giving the other party at least one month’s notice.

9.4 Sampling and Evaluation of Alluvial Diamond Deposits

The primary hosts for diamonds are kimberlites, lamproites and related rocks, the weathering and
erosion of which gives rise to secondary deposits. Secondary diamond deposits can be divided into a
number of distinct classes, dependent on the degree of transport of diamonds and the sedimentary
environment in which the deposits are laid down. Descriptions of the various types of secondary
diamond deposits are located in Appendix 2. It is emphasized that the deposits can, and often do,
grade into one another, and the older deposits can supply diamonds to the younger ones, during which
processes of either concentration or dilution of grade can occur. A number of difficulties are inherent
in diamond sampling and evaluation, and any exploration programme should be designed to
ameliorate these problems:

• diamonds are present in an economically viable deposit in small quantities, and their
distribution tends to be erratic (e.g. 1ct/t is equivalent to 0.2 parts per million or 200 parts per
billion);

• the size and value distribution from stone to stone is erratic and it is possible that the majority
of the value of a parcel is attributed to a single stone. Similarly, the value may be related to the
colour and quality of the stone; and

206
 • valuation of the better quality diamonds, which normally constitute most of the inherent value
of the deposit, tends to be subjective and is dictated by an unpredictable, fashion-controlled
market demand (see Section 5).

Even within a single gravel unit, the diamond grade may vary from barren to over 1ct/t, due to the
development of localized trap-sites under favourable bedrock conditions, or hydraulic fractionation
within a channel or bar. To eliminate the evaluation problems caused by these factors, very large
samples are required. In order to determine the typical revenues to be expected for a diamond deposit,
the following is required:

• the grade (ct/t). This is the estimated number of carats contained in a tonne of ore. The grade
of diamond deposits typically varies from 6ct/t to 0.1ct/t for kimberlites and 0.2ct/t to 0.003ct/t
for alluvial deposits. Alluvial diamond grades are often measured in carats per unit of volume
due to the problems associated with accurately predicting the bulk density of gravels. Gravel
densities are highly variable over short distances due to the relative pebble to sand content of
the gravel and the pebble rock type. In this report, grades are commonly reported in carats per
cubic metre (ct/m3);

• the diamond size frequency distribution is a cumulative plot of the percentage of stones found
in each size fraction of the sample. Confidence in the sampling results is obtained when
multiple samples of the same deposit display similar curves. This curve provides information
regarding the overall value of the stones. For example, a high percentage of large stones will
provide a high value to the overall parcel and gives an indication of the degree of liberation
obtained from the sample. Hard rock tends to show a lower number of small stones due to this
reduction in liberation, i.e. soft or weathered gravels release stones more readily than hard
calcretised gravels. Alluvial deposits are normally associated with high value stones; and

• the recovered diamond sample should be sold as a parcel in today’s market to provide a typical
value for the diamonds of the deposit. This value is quoted as US$/ct for the whole parcel and
typically varies from US$1,400/ct for an alluvial deposit such as Saxendrift Mine (South
Africa) to US$7/ct for a low value primary deposit such as Argyle (Australia). Alluvial deposits
are characterised by high diamond values in comparison to kimberlite deposits.

In order to assess a diamond deposit three (3) parameters must be investigated with respect to their
continuity within the deposit. These parameters must be specified in the diamond resource and reserve
statement and include the following:

• tonnage. This is calculated on the volume of the ore deposit multiplied by its bulk density. Due
to the highly variable densities found in alluvial gravels, these deposits typically quote
resources as volumes in order to eliminate this uncertainty;

• grade. Alluvial deposits quoting resource volumes report grades as ct/m3; and

• diamond value (US$/ct).

9.5 Historical Exploration

Focused interest in the Ellendale area alluvials began in the late 1980s and early 1990s by junior
exploration companies such as, Century Metals and Mining Limited (Century), Afro-West Mining
Limited (Afro-West), Auridiam and Western Reefs NL. Between 1988 and 1994 Auridiam, in joint
venture with Afro-West and later Moonstone Diamond Corporation NL (Moonstone), tested the
diamond potential of the J-Channel and other gravels within the Mt Wynne Project area south of
Ellendale 4. Century tested palaeo-gravels and lamproites in the northern part of the area.

The current phase of exploration commenced in the late 1990’s and was managed principally by
Kimberley, Auridiam and Diamond Ventures NL. These companies focused mainly on the southern
and western margins of the Ellendale Lamproite Field. Exploration licences on the northeastern side
of the Ellendale Mining Lease area were held mainly by Ellendale Resources and by Bazco Pty Ltd

207
 (Bazco) (later in joint venture with Prima Resources NL (Prima)). Smaller tenements were also held
by Tudor Rose Holdings Pty Ltd, Kanowna Consolidated Gold Mines NL, Panda Investments Pty Ltd,
E.C. Sorensen and others.

The most active of the companies was undoubtedly Kimberley which concentrated on the evaluation
of the gravels within the Terrace 5 palaeo-channel system. With the development of the Ellendale
Mining Lease area, in August 2004, Kimberley floated on the ASX the company Blina, which took
responsibility for exploration of the tenements surrounding Kimberley’s Ellendale Mining Lease area
(ML04/372). Blina is also responsible, through a joint venture agreement (see Section 9.3.2), for all
exploration and development of alluvial prospects within Kimberley’s Ellendale Mining Lease area.

9.6 Blina’s Current Exploration Activities

9.6.1 The Terrace 5 Project

Terrace 5 is located on the western side of the Ellendale 9 Lamproite (Figure 32), currently
mined by Kimberley. Terrace 5 can be traced for a distance over 40km.

It is believed to represent one of the major rivers which flowed through the area, with channel
widths recorded of 200–500m, and gravels averaging at 1m thickness.

The gravels of Terrace 5 are unique in relation to the surrounding paleo-channels, yielding
significant concentrations of relatively large diamonds. The source of this unique paleo-
channel has not been located and the search for the source is a primary objective for
exploration.

The current exploration leases and mining leases this project covers are listed in Table 27.

Gravels within Terrace 5 were discovered in the late 1980’s by Stockdale. However the Terrace
5 project only became a prime exploration area between 1996 and 2001, when a joint venture
was entered into between Kimberley, Auridiam and Diamond Ventures.

At the end of 2000 Kimberley withdrew from the joint venture and Diamond Ventures once
again became the management company of the E04/813 tenement. The historical exploration
of Terrace 5 is summarised in Table 28. The bulk pitting results from this historical work are
shown in Figure 34.

Table 27: Tenements Covered by Terrace 5 Project

AREA AREA
TENEMENTS (ha) TENEMENTS (ha)
Mining Lease M04/390 1,000 Mining Lease M04/429 1,000
Mining Lease M04/389 1,000 Mining Lease M04/392 900
Mining Lease M04/355 1,000 Mining Lease M04/391 1,000
Mining Lease M04/356 1,000 Mining Lease M04/393 1,000
Mining Lease M04/398 1,000 Mining Lease M04/397 1,000
Mining Lease M04/358 1,000 Mining Lease Application M04/424 700
Mining Lease M04/346 1,000 Mining Lease Application M04/422 1,000
Mining Lease M04/426 1,000 Mining Lease Application M04/423 1,000
Mining Lease M04/428 1,000 Mining Lease Application M04/425 700
Mining Lease M04/427 1,000 Exploration Lease E04/1105 3,600

208
Table 28: Historical Exploration of Terrace 5
DATE COMPANY TYPE WORK DONE
1980 Stockdale Loam-sampling programme

1994 Kimberley Geophysics Aeromagnetic and electromagnetic survey

1994 Kimberley Drilling Scout drilling programme
1995 Drilling Aircore-drilling and large diameter holes to define
and map the paleo-channel network
1996 Kimberley Bulk samples The bulk samples were 250t samples. Diamonds
were recovered from seven of the nine samples. Pit
5 showed the best results
1997 Kimberley Bulk Samples Bulk samples were collected on 0.5 to 1km,
focused east and west of Terrace 5. Costeaning of
the entire paleo-channel showed that the gravels
were rarely more than 2m thick.
1998 JV: Drilling Drilling of the geochemical and geophysical targets
Kimberley, began, which led to the discovery of 15 new
Auridiam lamproites.
and
Diamond
Ventures
1999 Kimberley Pitting Pitting programmes were conducted to follow the
southern channel of Terrace 5.
2000 Kimberley Pitting The continued pitting traced the channel to the
west. Pitting was down every 500m and bulk
samples were taken every 1km. They tried to trace
the paleo-channel eastward, but found it few
diamonds.
2001 Diamond Sampling Programme on Terrace 5 on the E04/813
Ventures tenement.

In 2005, Blina excavated 60,000t from two (2) cuts within Terrace 5, namely Cut 1 and Cut 2,
in order to recover sufficient diamonds to complete a run-of mine valuation on the project. The
exploration was completed in 2007. The two cuts can be seen on Figure 34.

Cut 1, the eastern-most excavation, was 350m long, 70m wide and up to 12m in depth. In the
southern portion of the cut a discrete gutter, with gravels 3m thick, was located which
contained a significant proportion of diamonds. Cut 1 was then used as the tailings dam for the
processing operations.

Cut 2, excavated 3.5km east of Cut 1, was 450m long, 45m wide and up to 8m in depth. Several
gutters containing diamonds were located on the southern portion of Cut 2.

A total of 1,750cts were recovered from the two (2) cuts, with an average stone size of 0.42cts.
A parcel of 1,497.58cts was sent to IDV for valuation. The average value given for the diamond
parcel was US$242 per carat. This exploration provided evidence that the diamonds
concentrate in trap sites, typical of alluvial diamond deposits world-wide.

209
 Kimberley Diamond Company NL
Independence you can trust
Figure 34:

HISTORICAL EXPLORATION OF TERRACE 5

670 000mE 675 000mE 680 000mE 685 000mE 690 000mE 695 000mE

RESULTS
r Road
Gibb Rive
Pit 5 2.3cpht
Pit 22 0.47cpht
Pit 29 1.9cpht
Pit 5N Pit 50 0.0cpht
8 070 000mE

Pit 21 Northern
Tributaries Pit 52 5.2cpht
Pit 32
Pit 54 0.7cpht
Pit 22 Pit 61 9.8cpht
Ellendale 41 Ellendale 42 Pit 67 6.1cpht
Pit 5 Pit 30 3.5cpht
Pit 69
Historical Exploration of Terrace 5

Pit 31
Pit 23 Pit 50

67
Pyrope

Mi
le
Pit 53 Corridor
Pit 51

Bo
Tributary

re
Kimberley 18
Ellendale 18
Pit 54
Pit 29
8 065 000mE

Pit 28 Pit 52
Pit 57 Pyrope Corridor
Ro
be

210
Ellendale 24 Pit 55 rts
Ro
ad
DV 13
Pit 69 Pit 63

Ellendale 22
DV 05 Pit 67
Pit 75 Pit 76
Pit 74
DV 04 Pit 66
Pit 77 Ellendale 13
8 060 000mE

Ellendale 11
LEGEND:
Pit 71
Pit 64
Terrace 5 Paleo - Drilling channel Pit 65
Other Defined Paleo -Drilling channel Pit 61 Pit 72
Lamproite Intrusive Ol
dT
ele Pit 73
Bulk Sample Pit gr
ap Ellendale 12
hL
Incised Paleo Pit ine

Source: Blina
Eastern Extensions
8 055 000mE

SCALE:
2.5 0 2.5 5 km

This diagram and the information therein are copyrighted. It may not
be reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
GEMKimberleyCPR’07Fig34.cdr
FIGURE 34
 Kimberley Diamond Company NL
Independence you can trust
Figure 35:

RECENT EXPLORATION OF TERRACE 5

Rob
K 24

erts
ELLENDALE 13

Roa
d
K 30
Recent Exploration of Terrace 5

KIMBERLEY 23

Terrace 5

K 21
8,058,000 mN

ELLENDALE 11

K 35
K 34

211
K 28

ELLENDALE 12
E 35

K 22
K 24
ELLENDALE 10
8,056,000 mN

E 14a
ELLENDALE 14
KIMBERLEY 26

LEGEND:
Source: Blina
SCALE: Lamproite Pipe
0.5 0 0.5 1 km Terrace 5 - Main Channel
Terrace 5 - Tributary
690,000 mE 692,000 mE 694,000
Wide mEDiameter Drill Hole 696,000 mE
This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior written
permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn. GEMKimberleyCPR’07Fig35.cdr
FIGURE 35
 In May 2006, Blina commenced wide-diameter Bauer drilling upstream of Cut 1. This
programme aimed at defining and mapping the headwaters of the Terrace 5 system, in order to
locate gravels of higher grade. A Bauer BG20, sourced from Singapore, was used to drill one
metre wide holes to a maximum depth of 50m. The hole spacing was 250m by 40m, over an
area of 3,000ha. A total of 2,201 holes were drilled. The positions of these drill holes are
presented in Figure 35.

As a result of this recent exploration Blina have extended the known extent of Terrace 5 for
7km east of Cut 1 and 15 new tributaries and terraces have been identified.

Blina commenced a bulk sampling programme in 2006 to test the alluvial targets identified in
the wide Bauer drilling programme. The project has been set up to clarify whether these targets
contain the same type of diamonds as Terrace 5.

Terrace 5 has had extensive exploration with positive results showing economic grades of
diamonds, with the average reported stone size of 0.42cts. There are high quantities of fancy
yellow diamonds which increase the prospectivity of the project. The prospectivity rating of
this project is considered high.

A total of A$9.10m has been spent on the Terrace 5 Project up until 30 June 2007.

9.6.2 The Ellendale 9 North Project

The Ellendale 9 North Project is located immediately north of the Ellendale 9 pipe and extends
over the company’s exploration lease E04/821 (Figure 32). The project targets diamonds which
have been directly weathered from the Ellendale 9 pipe.

Ellendale 9 North was only discovered in 2005, when an anomaly was identified from
completed geochemical and airborne electromagnetic exploration surveys. This anomaly was
located in the footprint of the proposed Kimberley waste dump.

The majority of the exploration has taken place on the Western Channel, with very little
exploration on the Eastern Channel.

In mid-2005 a pitting and trenching programme commenced, which identified the two north
flowing paleo-channels, the eastern and the western channels.

A preliminary bulk sampling programme, conducted in 2005 was focused on the western
channel, where it was established that the older gravels produced higher grades and that lower
grades occurred in the overlying laterite gravels. The average stone recovered in the Western
Channel has been reported as 0.38cts. Diamonds from this bulk sampling programme have
been valued between US$175 and US$205 per carat.

At the end of 2005, Blina commenced a campaigning programme on the southern end of the
Western channel, where bulk samples totalling 52,000t were excavated (Figure 36). The
majority of the material was toll treated through Kimberley’s Ellendale 9 West processing
plant, with the final 16,000t being treated using the Blina plant. A total of 24,815 diamonds
weighing 9,290cts were recovered during the year. Approximately 75 per cent of these
diamonds have been sold, at just under US$190/ct.

Blina recommenced exploration on the northern extensions of the Western channel, with
positive results, suggesting that the orebody continues to the north.

In 2006, a single trench was excavated in the Eastern Channel, revealing a strongly incised and
reworked channel. The values of the diamonds are recorded as US$350/ct.

Operations at the Ellendale 9 North have produced average diamond stone sizes of 0.44cts and
have recovered 12,060 diamonds, weighing 4,500cts. Intense fancy yellow diamonds have also
been recovered. This project is consequently believed to have high prospectivity.

212
 Kimberley Diamond Company NL
Independence you can trust
Figure 36:

LEGEND: RECENT EXPLORATION OF ELLENDALE 9 NORTH

Lamproite Pipe
Paleo-channel
TRENCHING
Nb Geochemical anomaly 2006 Exploration Limit
Mining blocks ELLENDALE 34
Bulk Sample sites West Channel
River
Trenches

East Channel
8,058,000 mN
Recent Exploration of Ellendale 9 North

Stockpile

W051025
W050919
W051022

213
W050923

W050925 W051010/13

PROPOSED WASTE DUMP LIMIT

KIMBERLEY 28 W051006

ELLENDALE 9

PITTING

GEMKimberleyCPR’07Fig36.cdr

Source: RSG CPR June 2006

KIMBERLEY 29

SCALE:
8,057,000 mN

100 0 100 200 m

KIMBERLEY 19
This diagram and the information therein
are copyrighted. It may not be reproduced
or transmitted in any form or by any
means without prior written permission
from Venmyn Rand (Pty) Ltd.
Trading as Venmyn.
697,000 mE 698,000 mE
FIGURE 36
9.6.3 The J-Channel Project
The J-Channel Project is located south of the Ellendale 4 pipe, and can be traced over 7km,
with a valley width of up to 2km. Gravel thicknesses of 4m thick have been identified. The
project extends over the company’s exploration lease E04/726.

The J-Channel was first discovered in 1988 by Afro-West, and was initially traced in
southwesterly direction, over a distance of 18km. After 1988, Afro-West, Auridiam and
Moonstone concentrated their exploration on the gravels to the south of Dome Hill occurrence.
The historical exploration of the J-Channel is summarised in Table 29.

Blina are planning a Bauer drilling programme, to assist in delineating the channel and allow
for more controlled sighting of future bulk samples.

The source of the J-Channel alluvials is believed to be from the Ellendale 4 Project. There has
been very little exploration in this area in comparison to the Terrace 5 and Ellendale 9 North
projects, and an insufficient number of diamonds have been collected for a meaningful
valuation to be conducted. This project is considered to be of medium-low alluvial
prospectivity.

A total of US$0.96m has been spent on the J-Channel Project up until 30 June 2007.

Table 29: Historical Exploration of J-Channel

DATE COMPANY TYPE WORK DONE

1988 Afro-West Sampling To evaluate the gravels.
and Programme
Auridiam
1996 Kimberley, Drilling Re-examine the diamond potential. 129 holes were
Auridiam Programme drilled for 1,584m
1996 Kimberley, Bulk Samples Five bulk samples were taken from different gravel
Auridiam horizons. Only two samples were diamondiferous.
1998 Kimberley Geophysics Helicopter-borne EM was flown over a portion of
the J-channel.
1998 Kimberley Drilling Anomalies identified in the EM were drilled.
2001 Kimberley Mapping Mapping of the Dome Hill area was conducted,
which demonstrated that the gravels were
completely eroded south of Dome Hill.
2002 Kimberley Drilling and Two pits from the northern portion of the J-channel
sampling (previously unexplored) were excavated to define
programme the northern extensions of J-Channel.

9.6.4 The A-Channel Project

The A-channel is described as a colluvial deposit with gravels being sourced from the
sandstone located around the Mt Percy lamproite and from coarse in-fill gravels from the south.
The A-channel is located on the Exploration lease E04/801 as well as on Kimberley’s Ellendale
Mining Lease area, which can be explored by Blina under the agreement discussed in Section
9.3.2.

The A-channel was first mapped in 1986, and has been the focus of several exploration
programmes by various companies over the years. The historical exploration is summarised in
Table 30.

214
Figure 37:
Recent Exploration of J-Channel
FIGURE 37

Kimberley Diamond Company NL

Independence you can trust

RECENT EXPLORATION OF J CHANNEL

ELLENDALE 4

MW14
5.02 cpht

Ol
dT
ele
gr
ap
hL
ine

MW04
1.11 cpht

Ellendale
Mining Lease
boundary

MW05
3.47 cpht

MW01
5.22 cpht

GEMKimberleyCPR’07Fig37.cdr

Source: Kimberley LEGEND: Lamproite Pipe

Paleo-channel
SCALE:
Bulk Sample sites
0.5 0 0.5 1 km
Wide diameter Drill Hole

This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.

215
Figure 38:
Recent Exploration of A-Channel
FIGURE 38

Kimberley Diamond Company NL

Independence you can trust

RECENT EXPLORATION OF A-CHANNEL

702,000 mE 704,000 mE
8,050,000 mN
8,048,000 mN

Trace of Geochemical Anomaly

8,046,000 mN

ELLENDALE 4

ELLENDALE 4 SATELLITE

Source: Kimberley LEGEND: Lamproite Pipe

Paleo-channel
SCALE:
Alluvial Diamonds Recovered
0.5 0 0.5 1 km

This diagram and the information therein are copyrighted. It may not be
reproduced or transmitted in any form or by any means without prior
written permission from Venmyn Rand (Pty) Ltd. Trading as Venmyn.
GEMKimberleyCPR’07Fig38.cdr

216
 Very little exploration has been completed in the A-Channel Project area recently (Figure 38),
however preliminary bulk sampling from pitting and trenching by Blina has returned grades as
high as 21.5cpht. A more extensive and focused sampling programme is planned for the project
area and should increase the confidence in the prospectivity of this project. This project
currently has a low prospectivity.

A total of A$1.31m has been spent on the A-Channel Project up until 30 June 2007.

Table 30: Historical Exploration of the A-Channel

DATE COMPANY TYPE WORK DONE
1986 Century Metals and Trenching 10 trenches were dug to delineate the
Mining NL paleo-channel.
1987 Century Metals and Bulk Samples One 26t bulk samples was excavated,
Mining NL and a grade of 7.52cpht was recorded.
One 203t bulk sample was taken at the
same site and returned a grade of
0.06cpht. 8 reconnaissance samples
were processed.
2001 Dioro Exploration NL Drilling 47 RAB holes for 2027m and 2 aircore
holes for 60m were drilled.
2002 Kimberley Mapping and This was done to re-evaluated previous
Pitting exploration in the area. Landsat
images and DEM were used in
conjunction with the survey.
2003 Kimberley Pitting and Limited sampling and pitting were
sampling conducted to confirm the presence of
diamonds.

9.6.5 The Northern Reconnaissance Project

The Northern Reconnaissance Project covers approximately 30,000ha located north of the
Ellendale Ridge.

The current exploration leases and mining leases this project covers are listed in Table 31.

Table 31: Tenements Covered by Northern Reconnaissance Project

AREA AREA
TENEMENTS (ha) TENEMENTS (ha)
Mining Lease M04/410 1,000 Exploration Lease E04/821 8,600
Mining Lease M04/411 1,000 Exploration Lease E04/1105 3,600
Mining Lease M04/412 1,000 Exploration Lease E04/911 1,800
Mining Lease M04/391 1,000 Exploration Lease E04/820 2,600
Exploration Lease E04/1092 7,800 Prospecting Lease E04/240 200
Exploration Lease E04/1093 3,600 Prospecting Lease E04/239 100

217
 Table 32: Historical Exploration of Northern Reconnaissance Project
DATE COMPANY TYPE WORK DONE
1968 Exoil Geophysics An aeromagnetic survey was flown over
the area.
1978 AJV Geophysics An aeromagnetic survey was flown over
3,500km2 of the northern Lennard Shelf
around Mt North. Line spacing was 250m
flown at 80m.
1980’s Afro-West, Century Exploration took place to the east and
north of the areas explored by AJV.
1993 Auridiam, Geophysics and Detailed aeromagnetics was flown over
Diamond Ventures subsequent drilling the area, identifying anomalies which
and Ellendale were then drilled.
1993 Diamond Ventures Bulk Samples Bulk samples were taken from three of
the lamproites within the project area, but
none were diamondiferous.
1993 Kimberley Drilling Five small lamproite pipes
1993–2001 Bazco, Ellendale Geophysics Several Aeromagnetics and EM were
flown over the northeastern area of the
NRP.
1999 Prima Drilled Four lamproite pipes were drilled and
initiated the work for the B-Channel and
Cobble Hill gravels.
1999–2000 Dioro Geophysics Airborne magnetic and EM surveys were
completed on the Ellendale tenements
and two new lamproites were discovered.
Work was also conducted on the B-
Channel anomaly.
2000 Kimberley Pitting A pitting and sampling programme was
done on the Cobble Hill gravels, but the
results of Prima could not be duplicated.
2000 Kimberley Mapping and Bulk Kimberley mapped a 6km strike length of
sampling the B-channel and took a 365t sample,
but no diamonds were recovered.
2003 Kimberley, Bazco, Geophysics The Falcon™ survey was flown to
Ellendale recover differential gravitational data and
topographic and magnetic information.
Initially 27 anomalies were identified and
three possible paleo-channels.
2003 Blina Drilling An aircore drilling programme was
completed testing the 27 anomolies. 68
holes were drilled. Two lamproite pipes
were discovered. Heavy mineral and
micro-diamond samples were taken from
gravel and lamproites.
The Northern Reconnaissance Project was first explored in 1968, and has been the subject of
multiple exploration programmes over the years. The historical exploration is summarised in
Table 32. No recent exploration has been conducted by Blina on this project.

9.6.6 The Central Reconnaissance Project

The Central Reconnaissance Project is centred on the Ellendale Lamproite Field. The current
exploration leases and mining leases this project covers are listed in Table 33.

Table 33: Tenements Covered by Central Reconnaissance Project

AREA
TENEMENTS (ha)
Exploration Lease E04/1052 5,900
Exploration Lease E04/1075 2,600

218
 The historical exploration for the Central Reconnaissance Project is summarised in Table 1. No
recent exploration has been completed on this project by Blina.

A total of A$16.45m has been spent on the Central Reconnaissance Project up until 30 June
2007.

9.6.7 The Southern Reconnaissance Project

The Southern Reconnaissance Project is located to the southwest of the Ellendale Ridge. The
current exploration leases and mining leases this project covers are listed in Table 34

Limited exploration has take place in the region, with the majority of the work completed by
Stockdale and Kimberley. Between 1987 and 1993 a regional loam sampling programme was
conducted on a 1km2 grid that covered the majority of the Southern Reconnaissance Project.
Follow-up programmes looked at the pyrope-bearing anomalies and located a cluster of small
lamproites southeast of the Southern Reconnaissance Project area.

Table 34: Tenements Covered by Central Reconnaissance Project

AREA
TENEMENTS (ha)
Exploration Lease E04/1254 3,900
Prospecting Lease P04/204 200
Prospecting Lease P04/205 200
Prospecting Lease P04/206 100
Aeromagnetic and Electromagentic surveys were flown over the western part of the project, by
Kimberley and was followed up by drilling of the anomolies identified in the geophysical
survey. A paleo-channel was discovered which related to Terrace 5.

No recent exploration has been completed on this project by Blina.

A total of A$1.26m has been spent on the Southern Reconnaissance Project up until 30 June
2007.

9.7 Blina’s Sampling Plants and Diamond Recovery Facility

Blina operates three (3) bulk sample processing plants, each of which have a capacity of 10tph. These
plants employ conventional scrubbing, screening and DMS technologies, which Venmyn consider
appropriate for this type of bulk sample/trial mining processing. However, these plants are dated and
require various upgrades in order to increase their efficiency.

Blina recently (2006) purchased and commissioned a containerised Flow Sort X-ray recovery plant
which can process DMS concentrate from each of the three (3) bulk sample processing plants using
proven X-ray sorting technology.

By agreement (see Section 9.3.2), Kimberley hand sort Blina’s X-ray super-concentrate, for
diamonds. Sizing and sorting of the diamonds is also generally done by Kimberley under a non-
exclusive agreement.

9.8 Diamond Marketing

All diamonds recovered during the sampling programmes and/or trial mining are evaluated by Blina’s
in-house valuator to obtain the average diamond price.

Generally, Kimberley purchase and market the diamonds produced by Blina. However this is a non-
exclusive arrangement and Blina have at times marketed their own goods on tender using brokers in
Johannesburg, South Africa.

219
9.9 Future Exploration and Costs
All spend on Blina’s future exploration is funded from the diamond sales obtained from the diamonds
recovered in the Terrace 5 and Ellendale 9 North projects. Currently Blina’s spend rate is A$2–3milion
per year.

10. CONCLUSION
The operations of Kimberley and Blina (in which Kimberley has a 39.14 per cent interest) are situated in
Australia, a first-world country with very low political risk. The project area is serviced by an excellent
infrastructural network, considering its remote location and has an adequate water and electricity supply.
Kimberley’s Ellendale Diamond Mine is a producer of quality, high value diamonds, particularly from the
East Lobe of Ellendale 9 (Ellendale 9 East). The mine is a significant producer of ‘fancy’ yellow diamonds,
the current high demand for which is positively affecting the value of the diamonds produced.
The diamond grades of the exploited lamproites are very low and selective mining is required with very tight
geological control.
Kimberley have demonstrated continuous improvements in their production and processing capacities since
mining commenced in 2002, however there remains potential to further improve the recovery efficiencies
and to optimise the diamond processing plants. In addition there is potential for additional tonnages to be
sourced from new sources discovered and evaluated by Kimberley and/or Blina. The Ellendale 4 Satellite
pipe is one such source that subject to a revised evaluation programme could contribute important additional
tonnages to the operation in the short term.
Venmyn have reviewed and updated the mineral resources of Kimberley, adding additional resources to
Ellendale 9, by extending the resource depth. In consideration of the forecasted plant throughputs and the
updated Mineral Resource Statement, Venmyn have compiled two conceptual resource depletion schedules.
The first schedule only considered the extraction of the Measured and Indicated Resources. This scenario
resulted in a conceptual life-of-mine of seven (7) years (ending in 2013). The second scenario includes all
classifiable resources (i.e: including Inferred Resources). This inclusion case resulted in an extension of the
life-of-mine to 2016. The current resource base therefore provides for a relatively short mine life.
While the study highlights the potential of the operation to return to profitability, this is highly reliant on
diamond price escalations and improved plant throughputs with the resultant economies of scale.
Yours faithfully

N. McKENNA G. D. STACEY
M.Sc (Geol) B.Sc. (Eng) Mining
Pr. Sci. Nat., MGSSA , MSAIMM MSAIMM, MAusIMM, MSACMA
MINERAL INDUSTRY ADVISOR DIRECTOR

S. MILLWARD
B.Sc (Honsl)
MGSSA
MINERAL PROJECT ANALYST

220
 Appendix 1

Competent Persons Certificates

Proposed Position: Minerals Industry Advisor
Name of Firm: Venmyn Rand (Pty) Ltd
Name of Staff: Neil McKenna
Profession: Geologist
Date of Birth: 05 June 1977
Years with Firm/Entity: Joined March 2007
Nationality: South African
Membership in Professional Societies:
PROFESSIONAL YEAR OF
CLASS SOCIETY REGISTRATION
Member Geological Society of South Africa 2002
Member South African Institute of Mining and Metallurgy 2007
Member South African Council for Natural Scientific Professions 2002
Detailed Tasks Assigned:
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2007 Gem Diamond Limited Diamonds Mineral Resource Review of the Cempaka
Diamond Mine, Indonesia.
2007 International Development Ferro-Magnesium Assessment of the geological and resource/reserve
Corporation data provided to the IDC on the Riders Ferro-
magnesium Slag Dump, Pennsylvania, USA, by
Apic Toll Treatment (Pty) Limited as part of their
application for funding.
2007 Harmony Gold Mining Gold and Uranium Mineral Resource Statements for Harmony’s
Company surface dump resources of the Randfontein and
Free State Operations in South Africa.
2007 Gem Diamond Limited Diamonds SAMREC compliant Resource and Reserve
Statements for the mineral assets of the Cempaka
Diamond Mine in Indonesia for BDI Mining
Corporation (Subsidiary of Gem Diamonds
Limited).
2007 Gem Diamonds Limited Diamonds SAMREC compliant Resource Statement on the
mineral assets of Gope Exploration Company (Pty)
Limited (Gope Project) (Subsidiary of Gem
Diamonds Limited)
2007 Mintek/Department of N/A Review and recommendations on the
Minerals and Energy Kumba/Exxaro proposal for Environmental
Provisioning.
2007 Rockwell Resources (Pty) Diamonds Compilation of Technical Statement (NI-43101) for
Limited the Wouterspan Operation.
2007 Gem Diamonds Limited Diamonds High level valuation of Cullinan Diamond Mine
2007 JCI Limited Uranium Review of and Recommendations on JCI’s
Laingsburg Uranium Project
2007 Harmony Gold Mining Gold and Uranium Sample trail Audit and Competent persons sign-off
Company Limited (SAMREC) on Dump Drilling and Sampling
2007 Magnum Resources Limited Tantalum High Level Due Diligence of the Tantalite Valley
Project, Southern Namibia
2007 Mintek/Department of Minerals N/A Review of the System for Financial Provisioning
and Energy (South Africa) for Mine Closure in South Africa
2004 De Beers Consolidated Mines Diamonds A study of the Relationship Between the Micro-
and Macro Diamonds from Finsch Diamond Mine.
2004 De Beers Consolidated Mines Diamonds A study of the Relationship Between the Micro-
and Macro Diamonds from Snap Lake Diamond
Mine.

221
Key Qualifications:

Mr. McKenna has recently joined the Venmyn team in March 2007. He brings with him a combined 5 years
experience in terrestrial diamond exploration and mining. This includes 2 years in a position as Technical
assistant to senior management in which he gained experience in mineral project feasibility and technical
due diligence studies.

Education:

DEGREE/DIPLOMA FIELD INSTITUTION YEAR

B.Sc Geology University of the Witwatersrand 1998
B.Sc (Hons) Geology University of the Witwatersrand 1999
MSc Geology University of Cape Town 2001
Employment Record:
POSITION COMPANY JOB DESCRIPTION DURATION
Minerals Industry Venmyn Rand Venmyn Rand operates as a techno-economic March 2007 – Present
Advisor (Pty) Ltd consultancy for the resources industry on a world
wide basis.
Responsibilities at Venmyn include:
• Compiling technical and geological
information into reports which are compliant
with the SAMREC and JSE listing rules.
• Production of techno-economic reports for
clients.

Project Manager De Beers, Responsible for the Mineral Resource Evaluation October 2006 –
Resource Finsch Mine Drilling of the Block 5 Extension of the Finsch March 2007
Extension Drilling Diamond Mine, Northern Cape. This role included
the following activities:
• Management of diamond core drilling for
volume, geological, structural and grade
determinations.
• Co-ordination of drilling/sampling activities
of four LM90 drill rigs on three
underground levels (510, 650 and 888
levels).
• Managing the capturing of all geological
data in a Datamine drill-hole database.
• Responsible for the managing of drilling
contractors (Boart Longyear) and
maintaining project schedules.
• Responsible for the supervision and
mentorship of approximately 10
subordinates (including senior and junior
geologists, geological officers and
geological assistants).
Technical Assistant De Beers • Responsible for routine reporting, and ad- 2005 – 2006
Group hoc reviews and requests by Group
Exploration Managers Office.
• Corporate governance of Resource Delivery
Group.
• Technical reviews of advanced stage
projects and resource statements.
• Compilation of position papers.
• Ad-hoc reports and resource reviews.
• Joint venture reporting.

222
POSITION COMPANY JOB DESCRIPTION DURATION
Technical Assistant De Beers • Responsible for routine reporting. 2004 – 2005
Africa • liaison between field operations and
Exploration laboratories.
• Ad-hoc technical reports and reviews.
• Corporate governance of Africa
Management team and HOD committee.
• Active management of relationships and
data for a Joint Venture in Madagascar.
• Projects tracking.
• Business plan management.
Senior Geologist De Beers • Industrial and exploration related diamond 2003 – 2004
Geoscience research
Centre • Responsible for diamond related service
work and decision support
• Supervision and mentoring for diamond
related projects.
• Providing exploration ventures with
targeting and mineral chemistry
interpretations and decision support.
Staff Geologist De Beers Exposure to various aspects of exploration and 2002 – 2003
Group mining geology over a 13 month training period.
Exploration Competencies gained include:
Services • diamond indicator mineral identification
and interpretation.
• bulk sample evaluation.
• laboratory practices.
• stream and loam exploration sampling (both
reconnaissance and follow-up sampling).
• Underground geological mapping, density
measurements, waste control, bulk sampling
and grade determination studies.
Languages:

English: Excellent
Afrikaans: Good

Certification:

I, the undersigned, certify that to the best of my knowledge and belief, these data correctly describe me, my
qualifications, and my experience.

Date: 31 August 2007

Full name of staff member: Neil McKenna

223
Proposed Position: Independent Techno-economic advisor
Name of Firm: Venmyn Rand (Pty) Ltd
Name of Staff: Graham David Stacey
Address: 1st Floor
Block G
173 Rivonia Road
Sandton
2146
Profession: Mining Engineer
Date of Birth: 13 June 1973
Years with Firm/Entity: 3
Nationality: South African

Membership in Professional Societies:

CLASS PROFESSIONAL SOCIETY YEAR OF REGISTRATION
Member Australasian Institute of Mining and Metallurgy 2004
Member South African Institute of Mining and Metallurgy 1992
Member South African Colliery Managers Association 1998

Detailed Tasks Assigned:

YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2007 Diamond Core Resources Diamonds NI43–101 Technical Report on Diamond
Limited Core’s South African Mineral Assets
2007 Escom Bank Espirito Diamonds Competent Persons Report on Escom’s
Santo Angolan Diamond Assets
2007 Groenfontein Collies (Pty) Coal Independent techno economic valuation
Ltd certificate on the coal group metal
mineral assets held by Afplats’ Leeuwkop
2007 Great Basin Gold Gold Independent Transaction Valuation
Report
2007 Gem Diamonds Ltd Diamond High level due diligence and valuation
report on Gope Project
2007 Standard Bank plc Coal Due diligence on the Maamba Colliery,
Zambia (In progress)
2006 Letseng Diamonds Ltd Diamonds CPR for listing of Gem Diamonds
2006 JCI, Matodzi & Investec Diamond Update of Competent Persons Report on
Letseng Diamonds
2006 Sekoko Resources (Pty) Coal Techno Economic Valuation On The Coal
Ltd Mineral Assets Of Sekoko Coal.
2006 LionOre Mining Nickel & Base Independent Valuation of Falconbridge
International Metals International and Nikkelverk Refinery
2006 Ilima Mining (Pty) Ltd Coal Techno Economic Valuation on the Coal
Mineral Assets of Ilima Mining.
2006 Trans Hex Group Diamonds Competent Persons Report on Trans
Hex’s Middle Orange Operations.
2006 Lets̆eng Diamonds Diamonds Updated Competent Persons Report on
Lets̆eng Diamonds on behalf of Gem
Diamond Mining Company of Africa
Limited

224
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2006 Afplats Platinum Independent techno economic due
diligence and valuation report on
platinum group metal mineral assets held
by Afplats’ Leeuwkop Project.
2006 Trans Hex Group Diamonds Competent Persons Report on the Middle
Orange Operations
2005 Eyesizwe Mining Coal Due diligence of reserves and resources
of all Kumba Resources’ coal mines
required as part of a BEE transaction.
2005 Samadi/Diamond Core Diamonds Competent Persons Report and techno-
Resources economic valuation
2005 Eyesizwe Mining Coal Due diligence of reserves and resources
of Sasol Mining’s Twistdraai Colliery
required as part of a BEE transaction.
2005 Nkwe Platinum Limited Platinum Independent techno-economic valuation
report as part of a BEE transaction
2005 Ixia Investments (Pty) Ltd Platinum Independent techno-economic valuation
of the Boynton PGE mineral assets as part
of a BEE restructuring exercise
2005 Lanxess Chemicals (Pty) Chrome Independent valuation of chrome value
Ltd chain as part of a restructuring exercise
2005 Washington Resources Fluorspar Independent assessment of the economic
Limited merits of an investment in Sallies
Fluorspar Limited
2005 Stuart Coal Coal Independent techno-economic valuation
report
2005 Letseng Diamonds Diamonds Competent Persons Report on Letseng
Diamonds
2005 Samadi/Diamond Core Diamonds Competent Persons Report and techno-
Resources economic valuation
2004–5 Gallery Gold Platinum Independent Due Diligence and valuation
report on the mineral assets of Platmin
Limited
2004–5 Macphail/Umcebo Mining Coal Independent techno economic due
diligence and valuation report on coal
resources and processing assets
2004 Kumba Coal Coal Capital Gains Tax Valuation on Mineral
Assetsa
2004 Bayer Chemicals Chromite Capital Gains Tax Valuation on
Rustenburg chrome mine
2004 Dwyka Diamonds Diamonds Independent valuation and technical due
diligence on Dancarl Mine
2004 Dwyka Diamonds Diamonds Independent Prospectivity Report and
Desktop Review of the Newland
Diamond Mine
2004 Dwyka Diamonds Diamonds Independent Prospectivity Report and
Desktop Review of the New Elands
Diamond Mine

225
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2004 Dwyka Diamonds Diamonds Independent Prospectivity Report and
Desktop Review of the Westend Diamond
Mine
2004 Dwyka Diamonds Diamonds Independent Prospectivity Report and
Desktop Review of the Rovic Diamond
Mine
2004 Dwyka Diamonds Diamonds Independent Prospectivity Report and
Desktop Review of the Blaauwbosch
Diamond Mine
2004 Dwyka Diamonds Diamonds Independent Due Diligence and valuation
report on the Dancarl Diamond Mine
2004 Kumba Resources Coal, Heavy Capital Gains Tax Certificates
Minerals,
Industrial
Minerals, Iron
2004 Mettle Limited Coal Independent techno-economic valuation
and technical due diligence on Kangra’s
Welgedacht Colliery
2004 Zimbabwe Platinum Platinum Independent techno-economic valuation
Limited of company assets with regard to
finalising an acquisition and production
expansion
2004 Mintek Resource Evaluation of delivery of regional
technology technical projects
2004 Sudor Coal (Pty) Ltd Coal Competent Persons Report and Valuation
to be used in the raising of finance for a
new coal project in Bethal, South Africa

Key Qualifications:
Mr. Stacey’s key areas of expertise lie in the technical elements of colliery design and evaluation in the South
African coal mining industry. In this regard, he has over eight years of experience with one of South Africa’s
largest coal mining groups, at both operational and project development levels. Details of his experience are
tabulated overleaf. His experience in the coal industry is complemented his more recent focus on corporate
finance and valuation modelling.

Education:
DEGREE/DIPLOMA FIELD INSTITUTION YEAR
B.Sc (Eng) Mining University of the Witwatersrand 1995
MBA Business Administration University of the Witwatersrand 2004
specialising in corporate finance
and valuation modelling

226
Employment Record:
POSITION COMPANY JOB DESCRIPTION DURATION
Consultant Venmyn Rand (Pty) Ltd Part of the consulting team, with the majority of May 2004 –
assignments being Due Diligence and valuation Present
exercises. Also undertaking capital gains tax,
mineral rights, projects and mine valuations in the
coal mining industry. Projects worked on
include:
• Valuation and strategic analysis of mining
companies and mineral projects using the
discounted cashflow and other comparative
methods;
• Valuations on chromite and ferrochrome
projects;
• Due diligence and independent valuation on
coal assets at Welgedacht Colliery;
• Valuation of various platinum mineral rights
and projects.
Underground Section Anglo Coal - Underground production management on both 2 December 2001 –
Manager Goedehoop Colliery and 4 seams including conventional board and March 2002
(Witbank Coalfield) pillar production, dolerite development,
mechanised continuous miner production, mini-
pit opencast production and new decline and
underground infrastructure development.
Responsibilities included:
• Personnel deployment and management;
• Safety and health systems management;
• Production planning, management and quality
control;
• Total cost control and capital budgeting;
• Equipment maintenance and condition
monitoring;
• Development of secondary orebody access
through twin decline, including project
management of ancillary infrastructure
development.
Assistant to project Anglo Technical Project technical pre-feasibility including: August –
manager Division • Orebody accessibility, grade and December 2001
mineralization assessment;
• Mine design and method evaluation,
environmental impact assessment, and water
balance.
Underground Mine Anglo Coal – Underground production management on the No. August 1998 –
Overseer Goedehoop Colliery 4 seam. Management responsibilities as outlined August 2001
above on a more localised basis. Further
responsibilities include Mines Rescue captaincy.
Underground Shift Anglo Coal – Production, safety and logistics management. June 1996 –
Overseer Goedehoop Colliery August 1998
Graduate Mining New Vaal Colliery • Strip mine pit design and highwall stability December 1995 –
Engineer assessment; June 1996
• Overburden stripping productivity study;
• Pit rehabilitation design and implementation.
Student Mining New Denmark Colliery Longwall production management; December 1994 –
Engineer • Safety and quality management; January 1995
• Continuous miner chain road development
supervision and application.

Languages:
English: Excellent
Afrikaans: Excellent

227
Certification:
I, the undersigned, certify that to the best of my knowledge and belief, these data correctly describe me, my
qualifications, and my experience.

Date: 31 August 2007

Full name of staff member: Graham David Stacey

Full name of authorized representative: N/A

228
Proposed Position: Mineral Project Analyst
Name of Firm: Venmyn Rand (Pty) Ltd
Name of Staff: Siobhan Millward
Profession: Geologist
Date of Birth: 08 July 1983
Years with Firm/Entity: Joined January 2007
Nationality: South African
Membership in Professional Societies:
YEAR OF
CLASS PROFESSIONAL SOCIETY REGISTRATION
Candidate Professional South African Council for Natural Scientific Professions 2007
Member South African Institute of Mining and Metallurgy 2007
Member Fossil Fuel Foundation 2006
Member Geological Society of South Africa 2003

Detailed Tasks Assigned:

YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2007 GEM Kimberley Diamonds-alluvials Compilation of Competent Persons Report
on the Kimberley and Blina Assets,
Australia. For listing on Australian Stock
exchange.
2007 Brinkley Mining Gold and Uranium Sample trail Audit and Competent persons
sign-off (SAMREC) on Dump Drilling and
Sampling
2007 Escom Diamonds Data modelling in surfer and assistance in
compilation of CPR
2007 Harmony Gold and Uranium Geostatistical Statements.
2007 Harmony Gold and Uranium Sample trail Audit and Competent persons
sign-off (SAMREC) on Dump Drilling and
Sampling
2007 Mamba Coal Data modelling in Surfer
2007 Energem: Koidu Diamonds Compilation of Technical Statement
(NI-43/101) for Koidu Pipe.
2007 Universal Pulse Trading Sand Due Diligence of Mineral Resources.
2006/2007 Trade and Investment Coal Detailed overview of the KZN Coal deposits,
KwaZulu/Natal and including identifying potential sources in the
Mintek province.
2006 Mintek: DME Gold, diamonds An industry review of the specified
commodities.
2006 Mintek: African Scan Gemstones and A mineral scan of the Sub Saharan
diamonds gemstones and diamond deposits.
2006 Mintek: Kgabane Sugilite This project involved the sugilite trade in the
Northern Cape Province. Research mostly
involved questionnaires to those involved in
the trade of sugilite.
2006 Mintek: Northern Cape Diamonds A detailed strategy was set out for the
Government Northern Cape Government, to establish a
jewellery hub in the province. As this was
my first project at Mintek, my involvement
was mostly in the Kimberley Process and
other smaller research areas, regarding
diamonds.

229
Key Qualifications:
Siobhan Millward studied at the University of Pretoria and her major subjects were geology and geography.
During her studies she was involved in research related to mining, environmental management and GIS. She
joined Venmyn in 2007 as a Mineral Project Analyst and has since predominantly worked on coal, diamonds,
gold and uranium related projects. She worked at Mintek for a year where she predominantly worked on
diamond, gemstone and other precious metals related projects.

Education:
DEGREE/DIPLOMA FIELD INSTITUTION YEAR
B.Sc Geology University of Pretoria 2004
B.Sc (Hons) Geology University of Pretoria 2005

Employment Record:
POSITION COMPANY JOB DESCRIPTION DURATION
Minerals Project Analyst Venmyn Rand (Pty) Ltd Venmyn Rand operates as a techno-economic January 2007 –
consultancy for the resources industry on a world Present
wide basis.
Responsibilities at Venmyn include:
• Compiling technical and geological
information into reports which are compliant
with the SAMREC and JSE listing rules.
• Production of techno-economic reports for
clients.
Junior Mineral Economist Mintek Mintek is a mining technology company. MESU January 2006 –
is the Mineral Economic s and Strategy Unit. December 2006
Responsibilities at Mintek included:
• Assist in procuring information within the
minerals and mineral commodities industry
by utilizing research expertise in mineral
economics.
• Undertake execution of established projects
within research groups with the view to the
transfer of information to the industry
• Participate in the identification of
opportunities in the minerals industry by
studying market trends and gathering data for
analyses.

Languages:
English: Excellent
Afrikaans: Fair

Certification:
I, the undersigned, certify that to the best of my knowledge and belief, these data correctly describe me, my
qualifications, and my experience.

Date: 31st August 2007

Full name of staff member: Siobhan Millward

230
 Appendix 2

Classification of Secondary Diamond Deposits

The primary hosts for diamonds are kimberlites, lamproites and related rocks, the weathering and erosion of
which gives rise to secondary deposits. Secondary diamond deposits in general can be divided into a number
of distinct classes, dependent on the degree of transport of diamonds and the sedimentary environment in
which the deposits are laid down. It is emphasised that the deposits can, and often do, grade into one another,
and the older deposits can supply diamonds to the younger ones, during which process either concentration
or dilution of grade can occur.

Eluvial Deposits
Eluvial diamond deposits are those which are essentially in place, and are derived from in-situ weathering
of the primary host, without lateral transport. Solution leaching and aeolian removal (deflation) of the
chemically weathered host usually gives rise to concentration of the diamonds, often by high factors. The
material is generally unconsolidated or only partly consolidated, except by processes of calcretisation or
lateritisation.

Colluvial Deposits
A general term applied to any loose, heterogeneous, and incoherent mass of soil material and/or rock
fragments deposited by rain-wash, sheet-wash, or slow continuous down-slope soil creep, usually collecting
on or at the base of gentle slopes or hillsides. Also alluvium deposited by surface runoff or sheet erosion.
Transport is not fluvial, in the sense that it does not take place in a river system. The material is generally
unconsolidated, and comprises material derived from the host rock and the underlying bedrock. Removal of
the fine fraction by sheet-wash can lead to a concentration of heavier and coarser fragments in the colluvium,
and irregularities in the bed-rock, such as dykes or quartz veins can give rise to low order trap sites.

Alluvial Deposits
Essentially, almost all alluvial deposits are products of a braided stream environment. A braided stream is
one which divides into or follows an interlacing or tangled network of several small branching and reuniting
shallow channels separated from each other by branch islands or channel bars, resembling in plan the strands
of a complex braid. A braided system is the result of a river system subjected to periodic, usually seasonal
high-energy flooding, flowing in a wide channel on a flood plain. Other than during floods, such a stream is
generally incapable of carrying all of its bed-load, that is, an overloaded and aggrading system.

Diamond mineralization of any significance is restricted to the gravel banks, bars and to a lesser degree to
the thinner gravel layers. If the bedrock of the braided system is at all irregular, enrichments of diamond may
be found in trap situations such as gullies, cracks, coarse boulder banks, etc. Diamond grades in general are
moderate and patchy, but reasonably high tonnages of ore can be developed.

Several forms of deposit can be laid down in the flood plain of a braided river system:-

Alluvial Fans, Channel Fans or Splays

This is a small to large alluvial fan or outspread deposit formed where an overloaded stream breaks through
a restriction (nick-point) such as a gorge, or through a levee, and deposits its material on the flood plain. Such
splays are generally ovoid in plan, with the narrow end just downstream of the nick-point, and can be
anything from a few metres to several kilometres in length. The proportion of gravel in the package, average
pebble/boulder size, and diamond grade decrease radially with distance from the nick-point. A fan without
an obvious nick-point, in the centre of the channel, is often called a Channel Bar.

231
Point bars
A low, arcuate ridge of sand and gravel developed on the inside of a growing meander by the slow addition
of individual accretions accompanying migration of the channel toward the outer bank. Gravel proportion
and diamond grade tend to decrease downstream and towards the centre of the channel.

Lateral Bars
An elongated gravel ridge developed at the foot of the river bank in a straight stretch of the river, analogous
to a point bar in a meander. Again, gravel proportion and diamond grade tend to decrease downstream and
towards the centre of the channel.

Channel Deposits
Channel deposits, in the sense used here, are developed in the same manner as braided stream deposits, but
in more confined valleys, where valley-floor widths are restricted, and gradients are steeper. Channel and
lateral bars can develop, but with the relatively restricted valley floor, with faster water flow, the proportion
of gravel in the package is generally much higher than in a braided stream environment in a wider valley.
The high flow rates can lead to relatively high levels of concentration of diamonds due to the winnowing out
of the sand and silt fractions.

Particularly where the bedrock is either soft or heterogeneous, the high-energy flow of the river during flood
periods leads to the cutting of gullies and potholes, often several metres deep, which provide an ideal trap
situation for diamonds. Grades can be very high (>100ct/m3 has been recorded), but tonnages are generally
low, and such potholes and gullies are difficult to locate, particularly if the river system has silted up, and to
mine.

Plunge Pools
In a river system crossed by rock bars, particularly in situations where the bedrock downstream of the rock
bar is much softer than the bar itself, a chute or waterfall can form, and a deep pool is eroded out of the softer
rock. The pool traps gravel in times of flooding and acts as a very efficient milling system. The mechanism
is analogous to the formation of a pothole, but on a much larger scale, leading to the concentration of
diamonds, often to very high levels, with significantly greater tonnages of ore. An added advantage of the
plunge-pool situation is that the deposits are usually inaccessible to artisan workers, and have therefore have
not been exploited to any extent.

Plunge pools can in fact occur on any scale, and in any system of rapids, the deeper water areas can be
considered to be small plunge pools, which again act as very efficient trap sites for diamond. During the dry
season, the plunge pools are often exploited by artisan workers, with great success.

Riffle Traps, Potholes and Gullies

Riffle traps are formed when the stream flows over an irregular surface, such as heavily jointed bedrock, a
series of closely spaced dykes, or a semi-consolidated coarse gravel or boulder bed, this last being referred
to as a false bedrock.

Particularly where the bedrock is either soft or heterogeneous, the high energy flow of the river during flood
periods leads to the cutting of gullies and potholes, often several metres deep, into the floor of the channel,
these providing an ideal trap situation for diamonds. Grades can be very high (>100ct/m3 has been quoted
for a potholes), but tonnages are generally low, and such potholes and gullies are difficult to locate,
particularly if the river system has silted up, and to mine.

Such traps can occur beneath any of the above deposit-types, and are generally the reason for the
concentration of diamonds at the base of such deposits, where diamonds or other heavy minerals are trapped
in the spaces in the stream floor.

When situated in the present river channel, with active transport of the bed-load taking place, in a more or
less continually active stream, with the bed-load in constant motion, gravels in any of these traps may be the

232
only sites of diamond deposition. Such trap deposits are generally of limited tonnage, but can be very high
grade, and can often be considered to be a “renewable resource”.

“Perched” Deposits and River Terraces

All the deposit types found in a braided stream environment are valley-floor fillings, gradually building up
with time, and the river is not to any significant degree cutting down into its own bed, but migrating laterally
and irregularly within its valley.

Regional uplift or long-term fluctuations in climate can alter the flow regime of the river, uplift or a decrease
in mean energy of the system both leading to incision of the stream into a fixed channel. The deposits
resulting from either mechanism are the same.

A decrease in mean rainfall, or during the rainy season, will reduce the average energy of the system and
reduce the carrying capacity of the stream, and inflow of solids will decrease or cease altogether. The system
stabilises under the new flow regime, the river tends to flow in a fixed channel, rather than wandering across
the width of the valley, and this channel will tend to cut down into the bedrock with time. Lowering of the
river bed leaves the earlier-formed braided stream deposits high and dry above the then-prevailing river level,
giving rise to “perched” splays, fans and channels.

If the rate of lowering of the river level is relatively slow, or the system has stabilised for any length of time,
the braided stream deposits tend to be spread out, particularly during flood periods, and to a greater or lesser
degree mixed, with preferential removal of the finer fractions only. A wide gravel deposit with a relatively
flat upper surface will develop, with any pre-existing traps preserved beneath. Subsequent channel incision
and lowering of the river level leaves these river terraces hanging.

Terraces are generally relatively thin (<1–2m) except where they overlie traps, but often extensive, diamond
grades are relatively low, but normally still economic, and substantial tonnages of ore may be developed.
Should the erosion base change with time, terrace deposits may be left at various elevations above the present
river, and reworking of the terraces can lead to reconcentration and enrichment of diamonds in the lower
terraces and the present river bed.

Flats
The term “flat” is frequently used in African francophone countries to describe terrace-like deposits, lying
on bedrock, which are inclined towards the present river bed, often with slopes of several degrees. It is
usually assumed that these have been formed during the course of migration of the river-bed itself as it cuts
down into bedrock. In contrast to the true terrace deposits, which generally have planar tops and bottoms,
the flats apparently have planar tops, but the base of the gravel can be quite irregular, with well developed
gullies and potholes. Such “flat” deposits are said to be of relatively low grade (overall?), but with rich
patches, presumably the gullies and potholes. However, ground examination of several “flats” in the C.A.R.
indicates that the deposits are more likely to be due to hill-wash, with a minor fluvial reworking. Diamond
grades are said to be relatively low, except in bedrock trap-sites, but substantial tonnages of ore may be
present.

Meander Flats
Uplift, as noted above, leads to the formation of “perched” deposits. Subsidence, on the other hand, with a
concomitant decrease in the overall energy of the fluvial system, generally leads to the burial of high energy
gravel deposits under low energy sands and silts, often several metres thick. This can apply to any of the
deposit alluvial deposit types discussed above.

233
 Appendix 3

Carat Stone Sizes in Relation to Grain and Sieve Sizes and Rough
Diamond Categories
GRAIN SIZE RANGES
GRAIN SIZE FROM – CTS TO – CTS
+10.8 10.8
10c 9.8 10.79
9c 8.8 9.79
8c 7.8 8.79
7c 6.8 7.79
6c 5.8 6.79
5c 4.8 5.79
4c 3.8 4.79
3c 2.8 3.79
10grn 2.5 2.79
8grn 1.8 2.49
6grn 1.4 1.79
5grn 1.2 1.39
4grn 0.9 1.19
3grn 0.66 0.89

SIEVE SIZES
APPROX.
CRITICAL SIZE APPROX. AVE.
SIEVE (CTS) (CTS/STONE)
23 9.2
21 3.9 5.0
19 1.9 2.7
17 1.5 1.7
15 1.2 1.3
13 0.7
0.9
12 0.5 0.6
11 0.32 0.4
9 0.17 0.23
7 0.12 0.14
6 0.08 0.10
5 0.05 0.07
3 0.03 0.04
2 0.02 0.02
1 0.01 0.01

CLASSIFICATION ROUGH DEFINITION

Fine Large +3gr, D – I colour, flawless – VS2
Fine Small –3gr, D – I colour, flawless – VS3
Commercial Large +3gr, J – K colour, SI1 – SI3
Commercial Small –3gr, J – K colour, SI1 – SI3
Mixed All good colour K down and below I1

234
 Appendix 4

Glossary and Abbreviations

aeolian Formed or deposited by the action of the wind.

aeromagnetic survey A geophysical study undertaken from the air for the purpose of
recording magnetic characteristics of rocks by measuring deviations
of the earth’s magnetic field.

aircore Rotary drilling method whereby sample is delivered to the surface

inside the rod string by compressed air. Typically used in shallow
drilling of weathered or porly consolidated rock.

AJV Ashton Joint Venture.

alluvial Diamond deposits which are located in sediments transported by

river or marine systems.

alluvial diamond Diamond associated with alluvial material (a secondary source).

anomaly A physical feature or measured value different to the expected norm

which outlines a zone of potential exploration interest but not
necessarily of commercial significance.

Argyle Asset Sale Agreement The asset sale agreement dated 5 September 2001 between Argyle
Diamonds, Aryle Diamonds Ltd, Ashton Argyle Holdings Pty Ltd,
AML Nominees Pty Ltd (as responsible entity for the WA Diamond
Trust).

audit Checking mechanisms to verify the veracity of results.

ASX ASX Limited.

barren Kimberlite/lamproite which does not contain diamonds.

basalt A fine grained basic igneous rock which is erupted through volcanic
activity.

basement Rocks underlying a younger rock sequence; often used to refer to

igneous and metamorphic crust.

basic Of igneous rocks having a relatively low silica content.

Bauer 2.5m diameter auger Drilling method for recovering bulk samples.

Blina Blina Diamonds NL

block model Technique of modelling which divides the resources into a number
of mineable blocks.

breccia A rock consisting of coarse, angular fragments.

bulk sample Large sample which is processed through a small-scale plant, not a
laboratory.

calcareous A descriptive term for rocks containing significant calcium

carbonate.

calcrete Superficial gravels cemented by secondary calcium carbonate.

235
carat Unit of weight for diamonds, 0.2g = 1 carat.

clast An individual fragment of rock mass removed by the physical

disintegration of a larger mass.

concentrate The heavy mineral fraction of a sample.

contact Surface between to materials of differing composition or

depositional history.

CRA CRA Exploration Pty Ltd.

crater Surface expression of volcanic eruption.

cut-off grade The lowest grade of mineralised material considered economic to

extract; used in the calculation of the ore reserves in a given deposit.

cyclone In a processing plant, a device that allows seperation of sinking

heavy minerals from floating light minerals in a fluid of
intermediate density.

density Measure of the relative “heaviness” of objects with a constant

volume, density = mass/volume.

deposit Any sort of earth material that has accumulated through the action
of wind, water, ice or other agents.

Development Property a Mineral Property that is being prepared for mineral production
and for which economic viability has been demonstrated.

diamond drilling A drilling method, where the rock is cut with a diamond bit, to
extract cores.

diamond grade The content of diamonds, measured in carats, within a volume or

mass of rock.

diamond value The estimated average value of diamonds from the deposit, quoted
in US$/carat.

diamondiferous Containing diamonds.

dilution Waste which is mixed with ore in the mining process.

dip The angle that a structural surface, i.e. a bedding or fault plane,
makes with the horizontal measured perpendicular to the strike of
the structure.

dyke Intrusive igneous rock vertically or subvertically emplaced.

electromagnetic A geophysical technique whereby transmitted electromagnetic

fields are used to energise and detect conductive material beneath
the earths surface.

estimation The quantitative judgment of a variable.

Ellendale Lamproite Field Extensive lamproite volcanic field in the West Kimberley region of
Western Australia.

Ellendale Diamond Mine Kimberley’s diamond project in the Kimberley region of Western
Australia, currently exploiting two diamondiferous lamproites.

236
Ellendale Mining Lease ML04/372 located in the West Kimberley region of Western
Australia and held by Kimberley.

exploration Prospecting, sampling, mapping, diamond drilling and other work

involved in the search for mineralization.

exploration Property A Mineral Asset which is being actively explored for Mineral
deposits or petroleum fields, but for which economic viability has
not been demonstrated.

facies As assemblage or association of mineral, rock or fossil features

reflecting the environment and the conditions of the origin of the
rock.

fault A fracture in earth materials, along which the opposite sides have
been displaced parallel to then plane of the movement.

Feasibility Study A definitive engineering estimate of all costs, revenues, equipment

requirements and production levels likely to be achieved if a mine
is developed. The study is used to define the economic viability of
a project and to support the search for project financing.

fresh rock Hard rock, at depth beneath the earth, which has not been subjected
to the processes of weathering.

formation A geologic unit used in the classification of strata or rocks.

Gem Diamonds Gem Diamonds Limited.

geophysics A section of earth science that employs the principles and methods
of physics.

geotechnical Application of earth sciences to engineering.

grade The relative quantity or percentage of diamonds within the rock

mass. Measured as carats per hundred tonnes in this report.

gravel An unconsolidated accumulation of particles larger than sand

(pebbles or cobbles).

igneous Rocks resulting from the crystallization of a molten magma, either

intrusive or volcanic.

in situ In its original place, most often used to refer to the location of the
mineral resources.

Indicated Mineral Resource That part of a mineral resource for which tonnage, densities, shape,
physical characteristics, grade and average diamond value can be
estimated with a reasonable level of confidence. It is based on
exploration sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes. The locations are too widely or
inappropriately spaced to confirm geological and/or grade
continuity but are spaced closely enough for continuity to be
assumed.

indicator mineral A suite of resistant minerals with an origin and mode of occurrence
similar to diamond, that can be indicative of the presence of primary
diamond deposits.

237
indurated Hardened; applied to rocks hardened by heat, pressure, or by the
addition of a cementing ingredient.

Inferred Mineral Resource That part of a mineral resource for which tonnage, grade and
average diamond value can be estimated with a low level of
confidence. It is inferred from geological evidence and assumed but
not verified by geological and/or grade continuity. It is based on
information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that may
be limited or of uncertain quality and reliability.

intrusion A body of igneous rock which has forced its way through pre-
existing rocks.

jig A device that separates minerals by means of their difference in

specific gravity, in a pulsating water medium.

JORC Code The Australasian Code for Reporting of Mineral Resources and Ore
Reserves.

Kimberley Kimberley Diamond Company NL.

kimberlite An ultra basic rock defined as a porphyritic alkalic peridotite

containing phenocrysts of olivine and phlogopite. Occurs as dykes
or as characteristically carrot-shaped pipes.

Kimberley Process Requires certification of all diamonds mined and upon every
transfer of ownership of the diamonds.

KJV Kalumburu Joint Venture.

lamproite Highly alkaline volcanic or subvolcanic rock characterised by the

presence of unusual potassium and titanium minerals. Mafic and
ultramafic lamproites may host diamond.

laterite A cemented, residuum of weathering, generally leached in silica

with a high alumina and. or iron content and often containing
rounded pisolites.

lava Molten silicate material extruded by a volcano.

License, Permit, Lease or other Any form of license, permit, lease or other entitlement granted by
similar entitlement the relevant Government department in accordance with its mining
legislation that confers on the holder certain rights to explore for
and/or extract minerals that might be contained in the land, or
ownership title that may prove ownership of the minerals.

liberation Release of diamonds from the host rock through processing.

life of Mine – LoM Expected duration of time that it will take to extract accessible
material.

limestone A sedimentary rock containing at least 50 per cent calcium or

calcium-magnesium carbonates.

lithology The description of the characteristics of rocks as seen in hand-

specimens.

mafic Pertaining to iron and magnesium, equivalent to basic.

magmatic Related to bodies of molten rock within the earth.

238
mantle The layer of the Earth between the crust and the core. The upper
mantle, which lies between depths of 50km and 650km beneath
continents, is the principal region where diamonds are crystalised.

matrix Fine grained rock which supports larger clasts or pebbles.

Measured Mineral Resource That part of mineral resource for which tonnage, densities, shape,
physical characteristics, grade and mineral content can be estimated
with a high level of confidence. It is based on detailed and reliable
exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings, and drill holes. The locations are spaced closely
enough to confirm geological and/or grade continuity.

micro-diamond Very small diamonds, generally less than 1mm and generally un-
economic to recover.

mineable That portion of a resource for which extraction is technically and

economically feasible.

mineral Naturally occurring element or compound of non biological origin,

having an ordered atomic structure and characteristic chemical
composition, physical properties and crystal form.

Mineral Asset(s) any right to explore and/or mine which has been granted
(“property”), or entity holding such property or the securities of
such an entity, including but not limited to all corporeal and
incorporeal property, mineral rights, mining titles, mining leases,
intellectual property, personal property (including plant equipment
and infrastructure), mining and exploration tenures and titles or any
other right held or acquired in connection with the finding and
removing of minerals and petroleum located in, on or near the
earth’s crust. Mineral Assets can be classified as Dormant
Properties, Exploration Properties, Development Properties, Mining
Properties or Defunct Properties.

Mineral Reserve Is the economically mineable material derived from a Measured

and/or Indicated Mineral Resource, It is inclusive of diluting
materials and allows for losses that Reserves to denote
progressively increasing uncertainty in their recoverability. Proved
Reserve can be categorised as Developed or Undeveloped.

Mineral Resource A concentration of material of economic interest in or on Earth’s

crust in such form, quality and quantity that there are reasonable
and realistic prospects for eventual economic extraction. The
location, quantity, grade, continuity an other geological
characteristics of a Mineral Resource are known, estimated from
specific geological evidence and knowledge, or interpreted from a
well constrained and portrayed geological model. Mineral
Resources are subdivided, in order of increasing confidence in
respect of geoscientific evidence, into Inferred, Indicated and
Measured categories.

mineralisation A deposit is a concentration of material of possible economic

interest in, on or near the Earth’s crust. Portions of a deposit that do
not have reasonable and realistic prospects for eventual economic
extraction must not be included in a Mineral resource.

239
Mining Property The presence of a target mineral in a mass of host rock.

olivine A silicate mineral commonly found in igneous rocks.

opencast/open pit Surface mining in which the ore is extracted from a pit. The
geometry of the pit may vary with the characteristics of the ore
body.

ore A naturally occurring material from which a valuable mineral can

be extracted

orebody A continuous well defined mass of material of sufficient ore content

to make extraction economically feasible.

outcrop An area where rocks occur at the surface, they may or may not be
covered by alluvium or vegetation.

overburden The alluvium and rock that must be removed in order to expose an
ore deposit.

paleo-channel An ancient preserved stream or river.

parcel A collection of diamonds of various sizes made available for sale as

a single package.

Prefeasibility Study Referring to a study of a Mineral asset, in which appropriate

assessments have been made of realistically estimated mining,
metallurgical, economic, marketing legal, environmental, social,
Governmental, geological, engineering, operational and all other
modifying factors are considered in sufficient detail to demonstrate
at the time of reporting that extraction is reasonably justified and the
factors are considered in sufficient detail to serve as a reasonable
basis for a decision to proceed or not to proceed to a Feasibility
Study.

primary deposit With reference to the deposition of diamonds, these deposits

include kimberlite pipes, dykes, blows and fissures as well as
lamproites. Contrasted with alluvial.

primary Gravel Potentially diamondiferous alluvial gravels occurring on the

Hospital and Uitdraai properties.

Probable reserves Is the economically mineable material derived from a Measured

and/or Indicated Diamond Resource. It is estimated with a lower
level of confidence than a Proved Reserve. It is inclusive of diluting
materials and allows for losses that may occur when the material is
mined. Appropriate assessments, which may include feasibility
studies, have been carried out, including consideration of, and
modification by, realistically assumed mining, metallurgical,
economic, marketing, legal, environmental, social and
Governmental factors. These assessments demonstrate at the time of
reporting that extraction is reasonably justified.

prospect A deposit with the potential for economic extraction.

pyroclastic Detrital volcanic material that has been explosiveley ejected from a
volcanic vent.

regolith The layer of unconsolidated material which overlies or covers insitu

basement rock.

240
rehabilitation The process of restoring mined land to a condition approximating to
a greater or lesser degree its original state. Reclamation standards
are determined by the South African Department of Mineral and
Energy Affairs and address ground and surface water, topsoil, final
slope gradients, waste handling and re-vegetation issues.

sample The removal of a small amount of rock pertaining to the deposit

which is used to estimate the grade of the deposit and other
geological parameters. Kimberlite samples for the recovery of
diamonds are usually several hundred tonnes per sample.

sampling Taking small pieces of rock at intervals along exposed

mineralization for assay (to determine the mineral content). Bulk
samples in the case of kimberlites.

sandstone A fine to very coarse grained arenaceous sedimentary rock

consisting of silicate group minerals e.g. Sand.

saprolite Disintegrated, in-situ rock, partially decomposed by the chemical

and physical process of oxidation and weathering, often with a high
clay content.

sedimentary Formed by the deposition of solid fragmental or chemical material

that originates from weathering of rocks and is transported from a
source to a site of deposition.

shale A fine grained argillaceous sedimentary rock consisting of clays.

silt A detrital particle, smaller than sand and coarser than clay, in the
range 0.004 to 0.062mm.

size frequency distribution Graph which plots the number of carats in each of the sieve size
fractions as a cumulative fraction of the total diamond production of
that sample. The graph can also be plotted on log/log axes to form
a straight line.

slimes The fine fraction of tailings discharged from a processing plant

without being treated. In the case of diamonds, usually that fraction
which is less than 1mm in size.

slimes dam A storage facility for all fine waste products from the processing
plant.

specific gravity Measure of quantity of mass per unit of volume, density.

stockpile A store of unprocessed ore or marginal grade material.

stone size Average size of the diamonds, expressed as carats/stone.

stones Diamonds.

strike The direction taken by a structural surface such as a fault plane as it

intersects the horizontal.

stripping Removal of waste overburden covering the mineral deposit.

stripping ratio Ratio of ore rock to waste rock.

tailings The waste products of the processing circuit. These may still
contain very small quantities of the economic mineral.

241
tailings dam Dams or dumps created from waste material from processed ore
after the economically recoverable metal or mineral has been
extracted.

tenements Granted mining leases, granted exploration and prospecting

licenses, mining lease applications and exploration and prospecting
licence applications.

tonnage Quantities where the tonne is an appropriate unit of measure.

Typically used to measure reserves of metal-bearing material in-situ
or quantities of ore and waste material mined, transported or milled.

Tonne Metric Ton.

trenching Making elongated open-air excavations for the purposed of

mapping and sampling.

trommel A revolving cylidrical screen used in size classification of gravel.

tuff A rock formed of compacted volcanic fragments, generally smaller

than 4mm in diameter.

tuffaceous A sedimentary rock which contains a significant component of

volcanic tuff.

tuffisitic In the form of a tuff or pyroclastic rock, formed as a result of

explosive volcanic activity.

ultramafic Containing > 90 per cent mafic minerals.

Valmin Code Code and Guidelines for the Technical Assessment and/or Valuation
of Mineral and Petroleum Assets and Mineral and Petroleum
Securities for use of Independent Experts Reports, maintained by
the Australasian Institute of Mining and Metallurgy.

Venmyn Venmyn Rand (Pty) Ltd.

volcanic Igneous rocks that have reached or nearly reached the earth’s
surface before solidifying, for example lavas.

waste rock Rock with an insufficient diamond content to justify processing.

weathered rock Rock which has been broken down by the influences of water and
air and which becomes softened and partially decomposed.

Whittle Optimisation Commercial software commonly used for pit optimisation and
scheduling functions.

xenoliths An inclusion of a pre-existing rock into an igneous rock.

X-ray Flowsort® machine Metallurgical processing equipment that uses X-rays and directed
air-blasts to recover diamonds from a concentrate stream.

242
ABBREVIATION EXPLANATION
° Angle in degrees
°C Degrees centrigrade
A$ Australian Dollars
Ave Average
cpht Carats per hundred tonne
CPR Competent Persons Report
cts Carats
DCF Discounted cash flow
DMS Dense Medium Separation
DRC Democratic Republic of the Congo
EMP Environmental Management Plan
GDP Gross domestic product
gr Grain
ha Hectare
kg Kilogramme
klpa Kilolitre per annum
km Kilometre
kV Kilovolt
KWh Kilowatt hour
LOM Life of mine
m Metre
m2 Square metres
m3 Cubic metre
Mct Million carats
mm Millimetre
Mt Million tonnes
Mtpa Million tonnes per annum
MER Mineral Expert’s Report
MRL Mean, reduced level (average sea level)
MW Mega watt
N/A Not applicable
ROM Run of mine
SFD size frequency distribution
t Tonnes
tph Tonnes per hour
tpm Tonnes per month
US$ United States Dollar
US$/ct United States Dollar per carat
WWW WWW International Diamonds Consultants Ltd

243
 Appendix 5

References
DATE AUTHOR TITLE
Jun-86 Jaques, A.L., J.D. Lewis, and C. B. Smith The Kimberlies and Lamproites of Western
Australia. Bulletin 132. Department of Mines,
Western Australia
Mar-89 Argyle Diamond Mines Pty. Ltd Ellendale Diamond Project Premininary
Feasibility Study
Oct-90 Argyle Diamond Mines Pty. Ltd Draft feasibility Study
Mar-01 Snowden Mining Industry Consultants Pre-Feasibility Study for the Ellendale Mining
(Pty) Ltd Area
Nov-02 Kimberley Diamond Company NL Pre-Feasibility Study of the proposed 2A
Development of Ellendale 4 – South East
Lobe. (Volumes 1–2)
Sep-03 Kimberley Diamond Company NL Annual Report 2003
May-04 Manfred R. Marx and Associates Pty Ltd Independent Geologists Report on Blina
Diamonds NL
Sep-04 Kimberley Diamond Company NL Annual Report 2004
Nov-04 Snowden Mining Industry Consultants Ellendale 4 Feasibility Study (Volumes 1 – 4)
(Pty) Ltd
Jun-05 Blina Diamonds NL Annual Environmental Report 2005
Jul-05 Kimberley Diamond Company NL Annual Environmental Report 2005
Sep-05 Kimberley Diamond Company NL Annual Report 2005
May-06 Blina Diamonds NL Annual Environmental Report 2006
Jun-06 RSG Global Pty Ltd Competent Persons Report on Kimberley
Diamond Company NL
Sep-06 Kimberley Diamond Company NL Annual Report 2006
Oct-06 Blina Diamonds NL Annual Report 2006
Mar-07 Snowden Mining Industry Consultants High Level Review. Project No. J964. Project
(Pty) Ltd Amarula. Draft Report
Mar-07 WWW International Diamond Consultants Analysis of Data from Kimberley Diamonds’
Ellendale Project
Jul-07 Kimberley Diamond Company NL Annual Environmental Report 2006
Aug-07 Mr. David Jones (Kimberley Diamond Personal Communication
Company NL)
Aug-07 Mr. John Hickling (Kimberley Diamond Personal Communication
Company NL)
Aug-07 Mr. Mathew Fitzgerald (Kimberley Personal Communication
Diamond Company NL)
Aug-07 Ms. Gina Rockett (Blina Diamonds NL) Personal Communication
Aug-07 Mr. Justin Clarke (Kimberley Diamond Personal Communication
Company NL)
Aug-07 Mr. Norman Galli (Kimberley Diamond Personal Communication
Company NL)
Aug-07 Mr. Peter Preston (Kimberley Diamond Personal Communication
Company NL)
Aug-07 Mr. Peter Onley Personal Communication

244
 PART VIII

DOCUMENTATION INCORPORATED BY REFERENCE

Information incorporated Page number(s) in
by reference Document reference this document
Prospectus Paragraph 8 of Part XV (pages 108 Part VI, paragraph 5 LR 13.3.2R

199 to 202) LR 13.1.6

Prospectus Part XII (pages 170 to 173) 109 Part VI, paragraph 8
Part XIII (pages 174 to 176)
Paragraph 12 of Part XV
(pages 209 and 210)
Paragraph 13 of Part XV
(pages 210 to 220)
Gem Diamonds Interim Report n/a 100 Part V

245
 PART IX

DEFINITIONS
The following definitions apply throughout this document, unless stated otherwise:

A$ the lawful currency of Australia

Acquisition the proposed acquisition of the entire issued share capital of

Kimberley by Gem Diamonds by way of the Takeover Bid

Admission admission of the Shares to the Official List and to trading on the
London Stock Exchange’s main market for listed securities which
occurred in February 2007

AGM the annual general meeting of the Shareholders

AIM the AIM market of London Stock Exchange plc

Announcement Date the date of the announcement of the Takeover Bid, being 19 July
2007

Argyle Argyle Diamonds Limited

Argyle Asset Sale Agreement the asset sale agreement dated 5 September 2001 between Argyle
Diamonds, Argyle, Ashton Argyle Holdings Pty Ltd, AML
Nominees Pty Ltd (as responsible entity for the WA Diamond Trust)
and Kimberley, as amended, and as more particularly described in
paragraph 8.2.1(f) of Part VI “Additional Information” of this
document

Argyle Diamonds Argyle Diamond Mines Pty Ltd

Argyle Side Deed the asset sale agreement side deed dated 11 September 2007
between Kimberley, Gem Diamonds and Argyle

ASIC the Australian Securities and Investments Commission

ASX ASX Limited

Blina Blina Diamonds NL

Board the board of Directors of Gem Diamonds

Bondholders the holders of the Bonds

Bonds US$16,000,000 variable rate convertible bonds due 2009 issued by

Gem Diamonds to the Bondholders and convertible into Shares

CAR the Central African Republic

Company or Gem Diamonds Gem Diamonds Limited

Corporations Act the Australian Corporations Act 2001 (Cth)

cpht carats per hundred tonnes

CREST the electronic, paperless transfer and settlement mechanism to

facilitate the transfer of title of shares in uncertificated form
operated by CRESTCo Limited

cts carats

246
Depositary Capita IRG Trustees Limited of The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4BR

Depository Interests the dematerialised depository interests in respect of the Shares

issued by the Depositary

Directors the directors of the Company, whose names are set out on page 106
of this document

DRC the Democratic Republic of Congo

EBITDA earnings before interest, tax, depreciation and amortisation

Ellendale Diamond Mine Kimberley’s diamond project in the Kimberley region of Western
Australia, currently exploiting two diamondiferous lamproites

Ellendale Mining Lease ML04/372 located in the West Kimberley mineral field of Western
Australia and held by Kimberley

Enlarged Group the Group, as enlarged following the acquisition of Kimberley

pursuant to successful completion of the Takeover Bid

ESOP the employee share option plan approved by the Company on 1

February 2007

Executive Directors each of Clifford Elphick, Kevin Burford and Graham Wheelock

Extraordinary General Meeting or the extraordinary general meeting of the Company to be held at
EGM Linklaters LLP, One Silk Street, London EC2Y 8HQ, United
Kingdom on 16 October 2007 at 3.30 p.m. (or any adjournment
thereof), notice of which is set out at the end of this document

Facility Documents the documents described in paragraph 3.1 of Part III “Acquisition
Documentation” of this document

Form of Direction the form of direction accompanying this document for use by
holders of Depository Interests in relation to the Extraordinary
General Meeting

Form of Proxy the form of proxy accompanying this document for use by
Shareholders in relation to the Extraordinary General Meeting

FSMA the Financial Services and Markets Act 2000 and all regulations
promulgated pursuant to it

Gem Diamonds Australia Gem Diamonds Australia Pty Limited, a subsidiary of Gem
Diamonds

Gem Diamonds Interim Report Gem Diamonds’ interim results report for the six months ended 30
June 2007 released to the market on 13 September 2007

Gem Holdings Gem Diamond Holdings Limited, a subsidiary of Gem Diamonds

Gope Gope Exploration Company (Pty) Ltd

Group the Company and its subsidiary undertakings

ha hectare

Holding Costs the costs (of approximately US$150,000 each month) to be paid by
Gem Diamonds as may be required to enable Woodlark to pay the
ongoing costs of its operations

247
IMBL Indo Mineratama BVI Limited, a subsidiary of Gem Diamonds

Implementation Agreement the implementation agreement between the Company and

Kimberley dated 19 July 2007, which is described in Part III
Acquisition Documentation” of this document

Indicated Mineral Resource that part of a mineral resource for which tonnage, densities, shape,
physical characteristics, grade and average diamond value can be
estimated with a reasonable level of confidence. It is based on
exploration sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes. The locations are too widely or
inappropriately spaced to confirm geological and/or grade
continuity but are spaced closely enough for continuity to be
assumed

Inferred Mineral Resource that part of a mineral resource for which tonnage, grade and average
diamond value can be estimated with a low level of confidence. It is
inferred from geological evidence and assumed but not verified by
geological and/or grade continuity. It is based on information
gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that may be
limited or of uncertain quality and reliability

JORC Code the Australasian Code for Reporting of Mineral Resources and Ore
Reserves

KDC Kabongo Development Company, a société privée résponsabilité

limitée with registered address at 917 avenue Bas-Congo, Kinshasa-
Gombe, DRC

Kimberley Kimberley Diamond Company NL

Kimberley Charge the fixed and floating charge dated 11 September 2007 granted by
Kimberley in favour of Gem Diamonds over all of Kimberley’s
interest in all its property to secure Kimberley’s punctual payment
of all amounts payable, owing but not payable, or that otherwise
remain unpaid by Kimberley to Gem Diamonds at any time under
or in connection with the Facility Documents or any transaction
contemplated by the Facility Documents

Kimberley Group Kimberley and its subsidiary undertakings

Kimberley Shares fully paid ordinary shares in the capital of Kimberley

km kilometre

lamproites highly alkaline volcanic or sub volcanic rock characterised by the

presence of unusual potassium and titanium materials. Mafic and
ultramafic lamproites may host diamonds

Lets̆eng the Lets̆eng diamond mine in Lesotho

Lets̆eng Diamonds Lets̆eng Diamonds (Pty) Limited

Lets̆eng Support Services Agreement the support services agreement dated 26 June 2007 entered into by
Gem Diamonds and Lets̆eng Diamonds described in paragraph
8.1.1(d) of Part VI “Additional Information” of this document

248
Listing Rules the listing rules of the UK Listing Authority made under section 74
of FSMA

Loan Agreement the loan agreement dated 11 September 2007 between Kimberley
and Gem Diamonds, as described in paragraph 3.2 of Part III
“Acquisition Documentation” of this document

Measured Mineral Resource that part of a mineral resource for which tonnage, densities, shape,
physical characteristics, grade and mineral content can be estimated
with a high level of confidence. It is based on detailed and reliable
exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings, and drill holes. The locations are spaced closely
enough to confirm geological and/or grade continuity

Memorandum and Articles the memorandum and articles of association of the Company as
amended from time to time

Mining Mortgage the mining mortgage dated 11 September 2007 granted by

Kimberley in favour of Gem Diamonds over, among other things,
the Ellendale Mining Lease, miscellaneous licence 04/26 and
miscellaneous licence 04/48, to secure Kimberley’s punctual
payment of all amounts payable, owing but not payable, or that
otherwise remain unpaid by Kimberley to Gem Diamonds at any
time under or in connection with the Facility Documents or any
transaction contemplated by the Facility Documents

Mtpa million tonnes per annum

Offer or Offers the offer for the Kimberley Shares under the terms and conditions
contained in the Offer Document

Offer Document the bidder’s statement of Gem Diamonds Australia under Part 6.5
Division 2 of the Corporations Act (Australian offer document)
lodged with ASIC on 16 August 2007, detailing the terms and
conditions of the Offer

Offer Period the period during which the Offer will remain open for acceptance
in accordance with the Offer Document. At the date of this
document, the end of the Offer Period is 2 November 2007 (unless
extended or the Takeover Bid is withdrawn)

Options options to subscribe for Kimberley Shares issued to directors,

employee and contractors of Kimberley, the exercise price and
expiry dates of which are set out in the Offer Document

Priority Deed the priority deed between Kimberley, Gem Diamonds and Société
Générale dated 11 September 2007, pursuant to which the parties
have agreed to regulate the priorities between the security granted
by Kimberley in favour of Société Générale and the Kimberley
Charge and the Mining Mortgage

Prospectus the initial public offering prospectus in relation to the Company and
Admission dated 14 February 2007

Public Authority any government or any governmental, semi-governmental, statutory

or judicial entity, agency or authority, whether in Australia or
elsewhere, including (without limitation) any self-regulatory
organisation established under statute or otherwise discharging

249
 substantially public or regulatory functions, and ASX or any other
stock exchange

Resolution the resolution set out in the notice of Extraordinary General

Meeting at the end of this document

Senior Managers the senior managers of the Company, whose names are set out on
page 106 of this document

Shares the ordinary shares of US$0.01 each in the capital of the Company

Shareholders the holders of the Shares

Société Générale Société Générale Australia Branch

Takeover Bid the off market takeover bid constituted by the dispatch of the Offers
in accordance with the Corporations Act

tpa tonnes per annum

tph tonnes per hour

Transaction Agreements the Implementation Agreement and the Facility Documents

described in Part III “Acquisition Documentation” of this document

UK Listing Authority the Financial Services Authority acting in its capacity as the
competent authority for the purposes of Part 6 of the FSMA

United States or US the United States of America, its territories and possessions, any
state of the United States of America, and the District of Columbia

US$ the lawful currency of the United States

Valkyrie Valkyrie No.18 Ltd

Venmyn Venmyn Rand (Pty) Ltd

Woodlark Woodlark Mining Limited, a subsidiary of IMBL

Woodlark Drilling Contract the drilling contract to be entered into by Woodlark and United
Pacific Drilling (PNG) Limited (or such other party as agreed)
pursuant to the Woodlark Share Agreement

Woodlark EME Contract the earth moving equipment contract to be entered into by
Woodlark, pursuant to the Woodlark Share Agreement, to mobilise
and employ certain earth moving equipment for the support of the
drilling contractor under the Woodlark Drilling Contract

Woodlark Intangible Assets the mining information of Woodlark, comprising information

regarding exploration and evaluation of the mining licences held by
Woodlark

Woodlark Intangible Asset Purchase the intangible asset purchase agreement dated 15 August 2007
Agreement between IMBL, Gem Diamonds, Woodlark, Valkyrie and certain
named guarantors

Woodlark Intercompany Loan the intercompany loan payable by Woodlark to IMBL

Woodlark Shares the entire issued share capital of Woodlark

250
Woodlark Share Purchase Agreement the share purchase agreement dated 15 August 2007 between
IMBL, Gem Diamonds, Woodlark, Valkyrie and certain named
guarantors

Working Capital Loan Facility the A$10,000,000 working capital loan facility made available by
Gem Diamonds to Kimberley pursuant to the terms of the Facility
Documents

251
 Gem Diamonds Limited
Incorporated in the British Virgin Islands under the International Business Companies Ordinance Cap.291 of the
British Virgin Islands with registered number 669758 and automatically reregistered under the BVI Business
Companies Act 2004 on 1 January 2007

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an EXTRAORDINARY GENERAL MEETING of Gem Diamonds
Limited (the “Company”) will be held at Linklaters LLP, One Silk Street, London EC2Y 8HQ, United
Kingdom on 16 October 2007 at 3.30 p.m. to consider and, if thought fit, pass the following resolution,
which will be proposed as an ordinary resolution.

Ordinary resolution
THAT the Acquisition (as defined in the circular to shareholders dated 27 September 2007 (the “Circular”)),
on the terms and subject to the conditions of the offer set out in the Offer Document (as defined in the
Circular) (a copy of which is produced to the meeting and for identification purposes signed by the Chairman
of the meeting) and the Transaction Agreements (as defined in the Circular), be and is hereby approved and
the Directors (or a committee of the Directors) be and are hereby authorised to waive, amend, vary or extend
any of the terms of the Offer Document and the Transaction Agreements and to do all things as they may
consider to be necessary or desirable to implement and give effect to, or otherwise in connection with, the
Acquisition and any matters incidental to the Acquisition.

By order of the Board,

André Confavreux
Secretary
27 September 2007

Registered office:
Harbour House
Waterfront Drive
Road Town, Tortola
British Virgin Islands

Notes:
(1) A member entitled to attend and vote is entitled to appoint a proxy (or proxies) to attend and, on a poll, vote instead of him. A
proxy need not be a member of the Company.
(2) A form of proxy is enclosed for Shareholders. The appointment of a proxy will not prevent a member from attending and voting
at the meeting in person.
(3) To be effective, the instrument appointing a proxy, and any power of attorney or other authority under which it is executed (or a
duly certified copy of any such power or authority) must be received by Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU not less than 48 hours before the time for holding the meeting or adjourned meeting, or (in the case
of a poll taken otherwise than at or on the same day as the meeting or adjourned meeting) for the taking of the poll at which it
is to be used.
(4) Entitlement to attend and vote at the meeting, and the number of votes which may be cast thereat, will be determined by reference
to the Company’s register of members at 3.30 p.m. on 14 October 2007 or, if the meeting is adjourned, 48 hours before the time
fixed for the adjourned meeting (as the case may be). In each case, changes to the register of members after such time will be
disregarded.
(5) A form of direction is enclosed for holders of depository interests. To be effective, the form of direction and any power of attorney
or other authority under which it is executed (or a duly certified copy of any such power or authority) must be received by Capita
Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 72 hours before the time for holding
the meeting or adjourned meeting.

252
sterling 92789