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January 2007
This past year was a turning point for Diamonds North Resources. Exploration successfully shifted from land acquisition to discovery. Through our clarity, diligence and perseverance the Diamonds North team has achieved several significantmilestones, unprecedented in the industry which brings us closer to our goal of discovering an Ekati or Diavik size deposit.
Our achievements have clearly differentiated Diamonds North from its peers and our property portfolio positions us, in our opinion, as the companymost likely to discover Canada's next major diamond deposit.
Clarity, diligence and perseverance, are the drivers for Diamonds North's success.
Clarity for us is categorically understanding our exploration target and the path to discovery. This is paramount in our business. An Ekati or Diavik size deposit ($10 billion in-situ value) is the target, and the path we have chosen is science, innovation and partnerships. This clarity has successfully increased the number of opportunities, while reducing both financial and technical risk for our shareholders.
We further demonstrated our clarity of purpose when we transferred Diamond North's uranium assets to Uranium North Resources Corp. through a Plan of Arrangement. The successful completion of this transfer realized shareholder value by unleashing themerit of our uraniumassets and enabled Diamonds North to remain focused on the objective of discovering economic diamond deposits.
Diligence, a methodical approach to exploration and business, has been one of our strengths. It is diligence that allowed us to rapidly and effectively evaluate large tracts of prospective land. In 2002, Diamonds North started with approximately 1 million acres of land in its portfolio and, by 2005 we had evaluated over 300 million acres leading to the acquisition of over 27 million acres. As the second largest holder of mineral rights in Canada (after De Beers), Diamonds North diligently focused this diverse portfolio to what we believe are 8million acres of themost prospective diamond terrain in Canada.
Diligence is a fundamental building block forDiamondsNorth and remains themost important pillar of our business plan.Our diligence is reflected by the management team's ability to identify and overcome challenges. Diamonds North has assembled an elite team of diamond explorers, complemented by a management team and board of directors with expertise in finance, business management, exploration and mining-collectively bringing together an intelligent alchemy of science, business and experience.
Perseverance has beenmaintained by focusing on the target and not deviating from the corporate plan. The Company has isolated 4 key projects, 3 ofwhichwe believe have Ekati orDiavik size potential. This year Diamonds North will focus on its 3 main opportunities:
1) Amaruk and surrounding partnerships
2) Hepburn
3) Banks Island
Amaruk
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A good example of management's clarity, diligence and perseverance in 2006 is our consolidation of a 100% interest in the Amaruk property. In early 2006, our senior partner, who was operating and sole funding exploration on Amaruk, informed Diamonds North of its intention to cease sole funding and retain a participating 50% interest in the property. Through a twist of business acumen, Diamonds North obtained a 51% controlling interest and negotiated the partner to a 0% interest subject to a 2% royalty. As a result our shareholders now own 100% of this opportunity.
Within two months of acquiring full ownership of Amaruk, Diamonds North received a third party report written by Dr. John Gurney of Mineral Services which reported on the exceptional characteristics of the diamonds from the property. This report confirms our confidence that the property has economic potential. The Company rapidly reevaluated the existing geophysics to identify high priority targets, obtained landuse permits for drilling, contracted a drill and by August drilled the first 5 kimberlites on the property.
Above: Weatherhavens located on the Amaruk project; Right: Micro diamond recovered from a sample taken from Amaruk in 2005.
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In addition, in its first year of operation, the Company doubled the amount of geophysical surveying that had been completed on the property in the two previous years, and collected an additional 1700 till samples. The Diamonds North team has identified 580 targets within a 90 by 30kilometre area in the central portion of the Amaruk property. Parts of the property with diamond potential peripheral to the 580 targets have been optioned out to other companies and land with no apparent diamond potential has been relinquished.
What a difference a year can make! Diamonds North has greatly reduced its financial commitment on Amaruk and progressed the project from till sampling to minibulk sampling in just one year. Diamond results from the first kimberlite discovered by Diamonds North are very encouraging, as predicted by the mineral chemistry. The recovery of 606 diamonds from 457 kilograms from the Qavvik kimberlite warrants a 5 to 10 tonne minibulk sample as the next phase of exploration.
HepburnDuring 2006 Diamonds North also experienced exploration success on the 100% owned Hepburn property which is approximately 200 kilometres northwest of the Ekati Diamond Mine and is located along the western margin of the Slave Craton. The Slave Craton is one of the most prolific diamond producing terrains in North and South America. Over 200 geophysical targets have been identified from an airborne survey covering only 30% of the property. These targets range in size from 1 to 8 hectares and are associated with kimberlite indicator minerals including G10 and eclogitic garnets often found in highly diamondiferous kimberlite.
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Above: Mobilizing camp on Hepburn.
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Banks Island
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Banks Island, our least developed project, also shows promise. In 2006, Diamonds North and partner, Majescor Resources Inc., completed an airborne survey covering about 10% of the property. A total of 65 targets have been identified including a high priority target estimated at 12 to 14 hectares in size. High quality indicator minerals with numerous targets make this project our newest potential Ekati or Diavik size opportunity. We have been successful in leveraging our property assets through option agreements. Of the $45 million spent on developing our property portfolio prior to mid 2006, about $30 million was funded by partners and the balance by the Company. This has enabled us to explore much larger tracts of land and more projects while minimizing dilution of the Company's shares. The majority of $15 million spent by Diamonds North was recovered through the formation of Uranium North which generated about $15 million in value for Diamonds North shareholders.
| Left: 12-hectare geophysical target identified on Banks Island. Right: Stream sampling on Banks Island in 2005. |
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Building on the success of this model, in 2006 we entered into agreements with International Samuel Exploration Corp. to fund exploration on the Ualliq property, located on the western portion of the Pelly Bay Diamond District; Shear Minerals Ltd. to fund exploration expenditures on the Sakari property, and Arctic Star Diamonds Corp. to fund exploration of the Siku property, both located in the Franklin kimberlite district. Part of our leveraging strategy includes receiving significant equity positions in other companies. Diamonds North currently holds marketable securities of 6 public companies all valued at approximately $ 6 million at the end of 2006.
Looking Ahead
Diamonds North has made exceptional progress over the past year defining Amaruk, Hepburn and Banks Island as our key properties that offer Ekati or Diavik size opportunities. As we move into the value adding stage, we believe that through our $10 million budget, plans to drill over 100 targets and collect at least 1 minibulk sample, we will create significant value in 2007.
At Amaruk, we plan to evaluate over 200 targets with detailed geophysics and drill test the best 60 targets. Using a core drill we anticipate collection of a 5 to 10 tonne minibulk sample from the Qavvik kimberlite.
In addition, we will be working with our joint venture partners to explore the Siku and Sakari projects to determine if the recently discovered neighbouring Franklin kimberlite field extends on to either of the properties. At Ualliq, we will be conducting an exploration program with the aim of discovering an entirely new kimberlite field immediately northwest of Amaruk.
At Hepburn, we plan to evaluate half of the 200 targets identified, drill test at least 20 of the best targets and complete geophysical surveys over the remaining 70 percent of the property.
On Banks Island, drill targets will be qualified using detailed geophysics and the remaining 90% of the property not covered by geophysics will be surveyed for additional target generation.
We are eager to embark on an aggressive drill testing program this year, and anticipate more kimberlite discoveries on our properties in 2007. This is an exciting time for the Company, and we are working on many fronts to deliver enhanced shareholder wealth. We look forward to reporting further positive developments on the Company's projects during the coming months. We are wellpositioned to take full advantage of the growing demand for diamonds and discover Canada's next diamond mine.
Thank you all for your continued support.
On behalf of the Board of Directors,
Mark Kolebaba,
President, CEO and Director
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