30 April 2010 Manager of Company Announcements Australian Securities Exchange Level 6, 20 Bridge Street Sydney NSW 2000 By ELodgement QUARTERLY REPORT Period Ended 31 March 2010 MARCH 2010 QUARTER HIGHLIGHTS MERLIN EVALUATION Resource definition drilling has increased the total Merlin JORC compliant combined Indicated and Inferred diamond resource from 4 million carats to 6.7 million carats, representing an increase of 66% or 2.7million carats. Total PalSac combined Indicated and Inferred JORC compliant resource has been increased by 39% to 13.46 million tonnes for a contained 4 million carats; Total Launfal combined Indicated and Inferred JORC compliant resource has been increased from 1.24 million tonne to 3.0 million tonnes for a contained 0.75 million carats; Drilling on Bedevere pipe has defined a JORC compliant Inferred Resource of 320,000 tonnes. A 24.12 ct gem quality diamond, the largest recovered by NADL since acquiring the Merlin project from Rio Tinto parties in 2004, has been recovered from Kaye pipe. Prefeasibility production trials recommenced in January with 14,000 tonnes of material processed resulting in the recovery of an additional 1,600 carats, a total of 6,900 carats since the commencement of the current trials. Diamonds recovered from the preproduction trials will be used to investigate value adding strategies including branding, cutting and polishing (based on historical sales, rough stone value approx US$150/ct to US$180/ct). Prefeasibility studies are continuing with a view to establishing a sustainable long term mining operation. Resource definition drilling is focussed on PalSac, Launfal and Bedevere pipes. A total of 8 holes have been drilled for 3,135 metres. An RC drill program is currently underway, testing a number of unresolved indicator mineral targets on the Merlin plateau.
MERLIN MINING LEASE MERLIN DIAMOND PROJECT The Merlin Diamond Project is located some 100km south of the settlement of Borroloola and comprises 14 kimberlite pipes of which 9 have been subject to openpit mining over a 5 year period commencing 1998 (Figure 1 and 2). Previous mining operations produced 507,000 carats of diamonds including Australia s largest diamond at 104.73cts which was valued at in excess of US$500,000 in 2002. NADL acquired the project from the Rio Tinto parties in 2004. INFERRED AND INDICATED RESOURCES As a consequence of the current resource definition drilling program, the Merlin project total resources have been updated, and are now 28.4MT @ 23.7 cpht for 6.7 million carats. Prior to commencement of the current drilling program, resources were reported as 22.46MT @ 18.2cpht for 4.093 million carats. This represents an increase in diamond resources of 2.7 million carats or 66%. Merlin Total Resource Table 1: Merlin Total Resource Southern Cluster Indicated Mineral Resource Inferred Mineral Resource Total Carats PalSac 1 8,000,000 5,460,000 13,460,000 4,009,000 Launfal 3 730,000 2,270,000 3,0000,000 750,000 Excalibur 3 464,000 309,000 773,000 263,000 Tristram 2 740,000 740,000 44,000 Central Cluster 17,973,000 5,066,000 Gawain 2 1,100,000 580,000 1,680,000 663,000 Ywain 2 80,000 95,000 175,000 142,000 Northern Cluster 1,855,000 805,000 Gareth 3 125,000 143,000 268,000 59,000 Kaye 2 873,000 2,135,000 3,008,000 360,000 Ector 3 1,510,000 3,470,000 4,980,000 369,000 Bedevere 4 320,000 320,000 80,000 8,576,000 868,000 TOTAL 28,404,000 6,739,000 1 Resource estimated using a +1DTC bottom screen cutoff (approx 0.85mm). 2 Resource estimated using a +1mm slotted bottom screen size. 3 Resource based on previous mining operation recovery. 4 Resource based on bulk sample testwork.
Figure 1: Merlin Orbit Tenements Figure 2: Merlin Mining Lease Borroloola Cape Scott Tintagel Prospect Lancelot Prospect Priority Targets Granted Tenements Tenement Applications MLN1154 The combined resource for the pipes to be included in the prefeasibility production trials is in excess of 21Mt (Figure 3). This resource is compliant with JORC reporting standards, and is sufficient to potentially underpin a long term mining operation. Loading ROM Material for processing plant
Figure 3: Palsac Pipes PreFeasibility Production Trials The prefeasibility production trials commenced in 2009. Since this time modifications have been made to the Pilot Processing plant aimed at increasing efficiency and throughput, as well as testing liberation and recovery equipment. 2009 Production Trials The 2009 prefeasibility production trials focussed on the processing of material from the pipes Gawain, Kaye, and PalSac, as well as stockpiled material from previous mining and processing operations. A total of 24,537 tonnes of material were processed during 2009. A total 5,264 carats of diamonds was recovered with the largest being a white 14.73 carat diamond of near gem quality. Processed material was a combination of cleanup material and freshly mined material, and hence is not representative of true insitu pit grades. 2010 Production Trials Production trials are continuing during 2010 with an initial focus on Kaye pipe which is one of the larger pipes in the field. In addition a significant portion of the reject oversize material currently stockpiled from previous operations will be processed. Mining and economic models are being refined as part of the prefeasibility study aimed at moving Merlin towards a long term sustainable mining operation. A total of 14,000 tonnes of material has been processed since operations recommenced in mid January with in excess of 1,600 carats of diamonds recovered during this period. The largest diamond to be recovered was a 24.12 carat gem quality diamond. This diamond, the largest that the Company has recovered since acquiring the Merlin project in 2004, has not yet been valued. Diamond Parcel With the build up of a significantly sized diamond parcel, currently in excess of 6,900 carats, the Company is investigating marketing opportunities including downstream value adding strategies including the branding of Merlin diamonds. The Company strongly believes that the good quality and large diamonds produced by Merlin will enable branding and boutique
marketing opportunities that will be important in redeveloping Merlin and successfully establishing NADL as an integrated long term diamond producer. Resource Grade Testing A total of 5 grade control samples each of approximately 200t are waiting processing. The samples will be used to establish an accurate base of pit grade for both Gawain and Sacramore pipes and will also provide diamond size distribution information that will allow ongoing interpretation of deep core samples which is required for prefeasibility studies. Similar samples are to be excavated from the other pits under evaluation. Resource Definition Drilling A drilling program has been underway since mid January aimed at further defining and increasing the kimberlite resources within selected project pipes at Merlin. The drilling has been focussed on PalSac, adjacent pipe Launfal and Bedevere. A total of 8 holes have been completed for 3,135 metres. Exploration Drilling A major RC drilling program is currently underway at Merlin, testing at depth kimberlite bearing structures associated with the pipes Gareth/Bedevere, Ywain/Gawain and Excalibur. In addition drill testing of three areas with known indicator minerals and diamonds at surface will be completed. This program has the potential to identify both extensions to the known resources as well as new discrete kimberlite occurrences. A total of 3,887 metres of RC drilling has been completed to date. DIAMOND EXPLORATION MERLIN ORBIT TENEMENTS, NORTHERN TERRITORY The Merlin Orbit tenements comprise an area of some 1,700km 2, and encompass numerous known unresolved occurrences of indicator minerals and diamonds. Lancelot Prospect The Lancelot and Lancelot Prospects prospect are situated some 40km south of Merlin and comprises an area where there are significant numbers of indicator minerals and diamonds reporting to surface samples. Drill testing of a number of geophysical, geochemical and indicator mineral anomalies in both of these areas was completed in late 2009 with 77 holes drilled for 2,753 metres. Followon trenching has led to the identification of near surface eluvial material believed to be near sourced. Samples were taken from this material to ascertain whether this material is sourcing the indicator minerals and diamonds. These samples are being processed through the Company s heavy mineral and diamond laboratory in Perth. Pending receipt of outstanding sample results a followup program of trenching, sampling and bulk testing will commence as soon as weather conditions permit. ARNHEM LAND PROJECTS, NORTHERN TERRITORY The total Arnhem Land project area now encompasses 26,000km 2 (Figure 4). NADL Tenements 100% Sampling Results from 23 reconnaissance stream samples completed on granted exploration licences EL10229 and 25976 became available. Three samples reported positive for chromite with alkaline affinities. These will be followed up when weather conditions permit. The samples were processed through the Company s heavy mineral laboratory in Perth. Swancove and Red River Resources Joint Venture Agreement NADL Earning 80% NADL has a contractual right to obtain an 80% interest in 2 tenements covering approximately 2,097km² of land in the prospective western region of Arnhem Land. The Company s right to acquire an 80% interest in the 2 tenements is conditional on the grant of these tenements which are currently at the application stage.
Figure 4: Arnhem Land Project TIMOR SEA Maningrida Ramingini Millingimbi Granted Tenements Tenement Applications Gulf Of Carpentaria YAMBARRA PROJECT, NORTHERN TERRITORY Rio Tinto Yambarra Farmin NADL Earning 100% The Company has a farmin agreement with Rio Tinto to earn 100% interest for diamonds in tenements in the Daly River region of the Northern Territory. These tenements have a total project area of 9,132km 2 (Figure 5). Figure 5: Yambarra Project TIMOR SEA Daly River Door Creek Port Keats Granted Tenements Tenement Applications KIMBERLEY PROJECTS North Kimberley Within the Company s North Kimberley project area, the Company had previously identified a total inferred resource of 1.57M carats, contained within the Ashmore and Seppelt 1 and 2 pipes. The Company holds these resources under mining leases, as they continue to retain commercial potential. The Company also retains 1 exploration license within this region.
Figure 6: North Kimberley Perth Granted Tenements Tenement Applications URANIUM INTERESTS URANIUM EXPLORATION Top End Uranium Ltd (ASX: TEU) is a uranium focused exploration company which controls through farmin arrangements with NADL, one of the largest portfolios of highly prospective exploration tenements in the Northern Territory, Australia. Its tenement holding covers an area aggregating approximately 33,400km² across three project areas, Arnhem Land Project Area, Yambarra Project Area and the McArthur South Project Area (Figure 7). NADL has retained 25% of the issued capital in Top End in accordance with the terms of the Mineral Rights Agreement, whereby NADL assigned to Top End the nondiamond mineral rights to its tenements. Figure 7: NT Project Areas ARAFURA SEA Darwin Yambarra Arnhem Land McArthur South Granted Tenements Tenement Applications Tennant Creek YAMBARRA PROJECT The Yambarra Project area comprises a large mostly contiguous land holding located within a major tectonic zone that links the Pine Creek Orogen, one of Australia s richest mineral fields, to the Halls Creek Mobile Belt, which is also host to major mineral occurrences.
Rio Tinto Yambarra Farmin TEU Earning 100% The Company has a farmin agreement with Rio Tinto to earn 100% interest for uranium in tenements in the Daly River region of the Northern Territory. These tenements have a total project area of 9,100km 2. Airborne Geophysical Survey Top End Uranium Ltd undertook a VTEM airborne geophysical survey within its Yambarra Project in 2008. The survey flown by Geotech Pty Ltd comprised a total 500 line km focussing on the priority Door Creek uranium anomaly and associated prospective geological elements. The purpose of the survey was to identify potential host rocks from which the Door Creek uranium anomaly could be derived and to this end a total of 5 conductor targets have been identified. One of the targets lies at the headwaters of the drainage containing the Door Creek radiometric anomaly. Door Creek Anomaly The Door Creek anomaly extends for a distance of almost 5km and appears to be associated with a drainage emanating from the nearby Tom Turner fault, which, in this area, coincides with the unconformity between the Fitzmaurice Group sediments and the underlying older basement rocks. Ground Reconnaissance Ground followup of the anomaly which comprised spectrometer traverses and limited auger drilling was able to confirm the anomaly on the ground. The associated sampling did not however produce anomalous U responses indicating that Radon gas may be responsible for the anomaly. A water sample from a spring at the headwaters of Door Creek reported 29ug/l in a background of 0.04ug/l. Soilo Geochemical Survey A RadonX survey targeting the likely source area for the Door Creek anomaly highlighted an anomalous Radon gas response. A followup soil geochemical survey was completed in late 2009 with 238 samples collected. A number of anomalous multi element responses have reported associated with the radon gas anomaly. This significance of these results is being reviewed. Access The Yambarra Project consists of 10 exploration tenements, 5 of which are granted and with approvals in place for work programs allowing general reconnaissance and ground survey work. ARNHEM LAND PROJECT The Arnhem Land Project Area lies within a region that is host to significant and in some instances world class unconformity related uranium related mineralisation. The Company has rights to all minerals other than diamond for 37 tenements comprising an area of approximately 21,000km 2. The Company has identified 23 target areas in the Arnhem Land Project for initial ground followup once access is available. Sampling Reconnaissance stream geochemical sampling was completed on granted exploration licences EL10229, 25976, and 26206 during the previous quarter. Results from which are awaited. MCARTHUR SOUTH PROJECT The McArthur South Project consists of 8 exploration tenements, totalling approximately 2,500km 2 all of which are granted. In late 2008 a reconnaissance RadonX survey was undertaken targeting interpreted structures intersecting the unconformity between the Seigal Volcanics and the underlying Westmorland Conglomerate in the Puzzle Creek area. This is a well established geological setting for uranium mineralization in the Westmorland area, located 120km to the east. RadonX is a uranium exploration tool which is a refinement of the Radononactivatedcharcoal technique developed by the South African Atomic Energy Corporation in the 1970 s. This initial survey highlighted a number of anomalous Radon gas responses which were followed up by a more detailed RadonX survey in 2009. The most promising anomalous response was followed up by a trial soil sampling traverse which revealed anomalous responses in a number of elements including U and Cu. The anomalous soil responses are partially coincident with the Radon gas anomaly. A more detailed followup soil geochemical survey has been completed and reveals the radon gas and soil geochemical responses are coincident. Further infill soil sampling comprising 120 samples has been completed in late 2009. The results from this followup survey have confirmed initial sample results with associated soil geochemical responses in the elements U, Th, Cu being constrained to an area approximately 200m by 200m. This target will be drill tested as soon as ground conditions permit.
CORPORATE During the quarter, the share purchase plan concluded and the Company issued 56,680,086 fully paid ordinary shares raising $2,607,284. Tom Reddicliffe Chief Executive Officer Tom Reddicliffe, a full time employee of the Company, and who is a Fellow of the AUSIMM, has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves. Tom Reddicliffe consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.
Appendix 5B Mining exploration entity quarterly report Rule 5.3 Appendix 5B Mining exploration entity quarterly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001. Name of entity NORTH AUSTRALIAN DIAMONDS LIMITED ABN Quarter ended ( current quarter ) 86 009 153 119 31 March 2010 Consolidated statement of cash flows Cash flows related to operating activities Current quarter $A 000 YTD (9 months) $A 000 1.1 Receipts from product sales and related debtors 114 140 1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration (2,457) (237) (5,858) (520) 1.3 Dividends received 1.4 Interest and other items of a similar nature received 73 161 1.5 Interest and other costs of finance paid (1) (3) 1.6 Income taxes paid 1.7 Other (R & D refund) 66 335 Net Operating Cash Flows (2,442) (5,745) Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets (272) (542) (273) (1,093) 1.10 Loans to other entities (51) (165) 1.11 Loans repaid by other entities 845 1.12 Other (security deposit) (2) (2) Net investing cash flows (867) (688) 1.13 Total Operating and investing cash flows (carried forward) (3,309) (6,433)
Appendix 5B Mining exploration entity quarterly report 1.13 Total operating and investing cash flows (brought forward) (3,309) (6,433) Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 2,607 16,272 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings (45) 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other (provide details if material) Share/Option issue costs (99) (202) Net financing cash flows 2,463 16,070 Net increase (decrease) in cash held (846) 9,637 1.20 Cash at beginning of quarter/year to date 13,670 3,187 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end of quarter 12,824 12,824 Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities Current quarter $A'000 1.23 Aggregate amount of payments to the parties included in item 1.2 28 1.24 Aggregate amount of loans to the parties included in item 1.10 51 1.25 Explanation necessary for an understanding of the transactions Remuneration of directors $28k Share of Merlin camp costs from parent entity $51k Noncash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest Financing facilities available Add notes as necessary for an understanding of the position. Amount available $A 000 Amount used $A 000 3.1 Loan facilities 3.2 Credit standby arrangements
Appendix 5B Mining exploration entity quarterly report Estimated cash outflows for next quarter $A 000 4.1 Exploration and evaluation 3,600 4.2 Development 4.3 Administration 270 Total 3,870 Reconciliation of cash Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Current quarter $A 000 Previous quarter $A 000 5.1 Cash on hand and at bank 2,824 1,634 5.2 Deposits at call 10,000 12,036 5.3 Bank overdraft 5.4 Other (money held on behalf of shareholders) Total: cash at end of quarter (item 1.22) 12,824 13,670 Changes in interests in mining tenements 6.1 Interests in mining tenements relinquished, reduced or lapsed Tenement reference Nature of interest (note (2)) Nil Interest at beginning of quarter Interest at end of quarter 6.2 Interests in mining tenements acquired or increased Nil
Appendix 5B Mining exploration entity quarterly report Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. 7.1 Preference + securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks, redemptions 7.3 + Ordinary securities Total number Number quoted Issue price per security (see note 3) (cents) 2,334,241,368 2,334,241,368 Amount paid up per security (see note 3) (cents) 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks 7.5 + Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) 56,680,086 56,680,086 4.6 cents 4.6 cents 80,000,000 Exercise price 0.8 cents Expiry date 09/02/2012
Appendix 5B Mining exploration entity quarterly report Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Law or other standards acceptable to ASX (see note 4). 2 This statement does give a true and fair view of the matters disclosed. Sign here:... Date: 30 April 2010 (Company Secretary) Print name: Peter Lee Notes 1 The quarterly report provides a basis for informing the market how the entity s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report. 2 The Nature of interest (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2. 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 Appendix 5B has been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board. 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with. == == == == ==