COMPANY

RESEARCH
RECOMMENDATION: ACCUMULATE
7th March 2007

Dwyka Diamonds Limited

(ASX Code: DWY, AIM Code: DWY)

ACQUISITION OF HIGHLY PROSPECTIVE AFRICAN NICKEL ASSETS MARKS THE START OF A

GROWTH STRATEGY OF DIVERSIFICATION AWAY FROM THE CORE BUSINESS OF DIAMONDS
Note: Investment in shares of Dwyka Diamonds Limited should be considered Speculative. Investors should seek appropriate advice before
making a decision to invest in Dwyka Diamonds Limited (see page 4).

Key Investment Points Project Locations

♦ PRINCIPAL OBJECTIVE: Dwyka Diamonds has recently

announced a diversified growth strategy which will DRAFT REPORT
now see the Company broaden its asset base from
purely diamonds into other key commodities. As part
of the new focus the Company will change its name to
NOT FOR
Dwyka Resources Limited. DISTRIBUTION

♦ Dwyka now has four cash generating diamond projects

including its De Beers Tailings Retreatment Project,
the Newlands and Blaauwbosch underground diamond
mines and the Industrial Products business which New Acquisition: Muremera
Nickel Project, Burundi
manufactures bricks and building materials in the
Northern Cape.

♦ The Company has recently announced that it has

acquired the Muremera Nickel Project in Burundi,
which is located 2km from Kabanga, one of the largest
undeveloped nickel sulphide deposits in Africa.

♦ The Muremera Nickel Project, which has been subject

to significant United Nations funded exploration, has
on it several identified geophysical anomalies and
targets believed to be generated from buried
sulphides. The identified anomalies are considered
similar in character to the Kabanga nickel sulphide Current ASX Capital Structure
signature.
Price of Ordinary Shares (cents) 42

♦ The acquisition has attracted funding support of
industry major BHP Billiton in a recently announced
joint venture over the Project whereby BHP Billiton,
in stages, is earning up to 50% interest in the project
by expending up to US$5.2 million.
♦ Management has a track record of making good deals
throughout Africa and developing strong relationships
with major mining houses in the region.
Source:Iress
No of Ordinary Shares on Issue (million)* 100.2
12 Month Price Range of Ordinary Shares (cents) 38.0 — 94.5
No of Options (unlisted) on Issue (million)** 2.5
Market Capitalisation ($ million) 42.1
Current Cash Position (Est.$ million) 2.0
Top 5 shareholders currently hold 31.6% of total issued capital.
Top 5 Shareholders: (22/2/07): Chase Nominees Limited (9.46%), Mellon
Nominees (UK) Limited (6.72%), Allerton Horizon Limited (6.46%),
Pershing Keen (4.53%), Simpson Financial Limited (4.43%).
*The Company has advised in a recent announcement that it is
undertaking a Share Purchase Plan (SPP) and placement to a total value
of A$5million. These additional shares have not been taken into
account on this table.
Directors:
Ms. Melissa Sturgess (Chairperson)
Mr. Adrian Griffin (CEO)
Mr. Mike Langoulant (CFO)
Mr. Ed Nealon (Non Executive Director)
Dr. Evan Kirby (Non Executive Director)

Montagu Stockbrokers Pty Ltd

Level 2, 37 St Georges Terrace, Perth WA 6000 PO Box Z5005, Perth St Georges Terrace, WA 6831
T 61 8 9225 2800 F 61 8 9325 4311 www.montagu.com.au ABN 46 009 368 432
A Participant of ASX Group AFSL No. 238333
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 Company Background ♦ At Stage 2, BHP Billiton will invest US$2,000,000 on target testing
in order to earn a further 20% equity (total 30%); and;

Dwyka Diamonds Limited (the Company) is a predominantly African ♦ At Stage 3, BHP Billiton will invest a further US$2,000,000 on
focused resource company listed on the ASX since December 2000. resource definition and the completion of a concept study in order
The Company, subsequently in December 2001, successfully listed on to earn the remaining 20% equity (up to a total of 50% interest in
the London Alternative Investment Market. Since listing the Danyland).
Company has concentrated exploration on a number of advanced
diamond properties in South Africa and Tanzania and over time has
built up a strong portfolio of diamond producing assets.
BHP Billiton has retained the rights withdraw from the Project
during or after completion of any of the stages, but if it withdraws
These assets include production of diamonds from a diamond tailings
during a particular stage it retains only the equity earned by virtue
retreatment project with De Beers, as well as production from three
of having completed the previous stage. The project will be
hard rock kimberlite diamond mines (Blaauwbosch, Newlands and
managed by the Danyland board of directors on which Dwyka and
New Elands) and production from the Nooitgedacht Alluvial Diamond
BHP Billiton will have equal representation.
Mine.
Upon BHP Billiton fully satisfying its earn-in obligations, the parties
The cash flows from these projects are now expected to build
will contribute to further development of the Project in proportion
steadily over the coming months and years and as a result the Board
to their percentage shareholdings in Danyland. Normal default and
of Directors have considered it timely to seek other resources
dilution provisions apply where a party fails to meet its share of
opportunities, to provide other growth opportunities for the
project funding.
Company.
We view the new acquisition and joint venture favourably and
Recognising the current ongoing strength in the nickel market and
believe it provides the company with exposure to significant upside
taking advantage of what is believed to be an outstanding strategic
upon exploration success.
acquisition opportunity, the Company has acquired the rights to
explore the Muremera Nickel Project in Burundi, Central East
Africa. Overview of the South African Diamond Portfolio
The Company’s acquisition has immediately attracted the interest of
BHP Billiton who through a Joint Venture agreement will assist with
funding planned exploration discussed below. De Beers Tailings Retreatment Project (DWY 40%)
Mining in and around the Kimberley township since 1888 by De Beers
has resulted in the creation of vast mine dumps, the material of
Muremera Nickel Project Bringing Diversification which was only coarsely crushed. This has created the opportunity
to recover further diamonds from tailings reprocessing. The
Company and its Black Empowerment partner has negotiated with
Muremera Nickel Project (DWY 100% via Danyland Limited) De Beers to allow the processing of approximately 80,000 tonnes per
month of tailings. Revenue is derived by sharing the profits from
The Muremera exploration licence is located within 2km of Barrick & sales of produced diamonds at pre agreed prices minus operating
XStrata’s giant Kabanga Nickel Project, believed to be one of costs.
Africa’s largest undeveloped nickel sulphide deposits, with current
indicated resources of 9.7 million tonnes grading 2.37% nickel and a Nooitedacht Alluvial Diamond Mine (DWY 70%)
total estimated inferred resource of 36.3 million tonnes grading 2.8%
Located 15km northwest of Kimberley The project covering 4,671km
nickel.
extends for 6km along the eastern bank of the Vaal River. The
property prior to Dwyka's acquisition was mined by contract diggers
The Kabanga deposit, which is located immediately across the
under a licence arrangement with De Beers. The Project boasts
border in Tanzania, was discovered by drilling after geophysical
some very large diamond finds including the Largest alluvial
prospecting by the United Nations Development Programme
Diamond ever recovered in South Africa (Ventnor Stone at 511
(“UNDP”), in 1976. Further UNDP surveys undertaken in 1978
carats) two plus 300 carat stones and fourteen 100 carat stones.
resulted in the discovery of the highly prospective Muremera
The property currently yielding approximately 0.72chpt continues to
anomalies located on the Burundi side of the border.
yield some large stones.
The anomalies showing similar characteristics to Kabanga. In
addition, follow up work undertaken by UNDP has confirmed that Newlands Kimberlite Diamond Mine (DWY 70%)
massive sulphide bodies, potentially with nickel mineralisation, are Located 60km northwest of Kimberley 0n the Harts River. The
the source of the anomalies. Extensive geophysics and geochemical project consists of five kimberlite blows occurring on two northeast
surveys have delineated numerous targets requiring immediate drill striking fissures.
testing, however the absence of any drilling to date has resulted in
the previous owners being unable to confirm and establish any form The Company purchased the mine in April 2005, modified the
of resources at the project. processing plant and starting treating ore from tailings and
underground by August 2005. In 2006 the operations were expanded
BHP Billiton Earn-in Details to two shifts (24 hours) . The company envisages and is now
achieving a target of 10,000tonnes of ore per quarter processed.
BHP Billiton has agreed to spend US$5.2 million on the Muremera
nickel project in Burundi in order to earn a shareholding of up to In its latest quarterly Dwyka reported production was on target with
50% in Danyland which holds the exploration rights for nickel and 7,920 tonnes of underground ore had been processed recovering
associated minerals in the Muremera target. 954.27carats at an average grade of 12.04cpht. We note a significant
amount of large stones reported including: seven stones ranging
Under the Agreement, BHP Billiton’s investment will be undertaken from 7.20 carats to 3.81 carats.
in 3 stages as follows:
A further 3,810 tonnes of old pre-Dwyka tailings were also
♦ At Stage 1, BHP Billiton will invest US$1.2 million on initial reprocessed recovering 352.42 carats averaging 9.24cht with a 9.49
exploration activities in order to earn a 10% equity in Danyland; carat and a 3.36 carat stone amongst the recovered diamonds from
tailings.
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Blaauwbosch Kimberlite Diamond Mine (DWY 70%) Itanana Kimberlite (DWY 90%, De Beers 10%)
Located 90km east of Kimberley in the Borshoff diamond province.
Smaller than the Mahene pipe the nearby Itanana Pipe is
approximately 2.3 hectares in diameter. Limited sampling by De
The mine history of produced 967,000 tonnes of ore yielding
Beers has indicated a grade of 3cpht but microdiamond work
338,000 carats at an average grade of 34.95 cpht before flooding
suggests that the grade mat be nearer 8 cpht i.e. similar to the
caused the closure of the operations in 1967 which by then mining
Williamson Mine. The pipe will be further sampled when the
was at a depth of 110 metres.
results of the Mahene pipe are assessed and realised.
The mine was purchased by Dwyka in April 2005. By September
reprocessing of tailings had commenced. Following a short period
of underground mine production the shaft was deepened (now at Overview of the Indian Diamond Assets
225metres and the plant redesigned for better efficiency. In
March 2006 the main Kimberite pipe was intersected by workings.
In November 2002 Dwyka signed an agreement with BHP Billiton to
Dwyka's management envisage full production will eventually be explore for hard rock diamond deposits in India. The alliance
around 10,000 tpm by April 2007. The first ore blocks were covers approximately 55,000km2 of BHP Billiton tenements which
blasted and hauled to surface in January 2007 following an period BHP had spent 2 years acquiring.
of mine development.

During the December quarter 7,609 tonnes of ore was mined

yielding 1,015.99 carats at an average grade of 13.35cpht. We
note the recovery of 22 stones ranging in size from 6.38 carats to
3.16 carats. In addition a further 5,546 tonnes of old tailings were
processed yielding 267.54 carats at a grade of 4.82cpht.

New Elands Kimberlite Diamond Mine (DWY 70%)

Located 90km northeast of Kimberley in the Borshoff District, Free
State. Historical production has yielded 1.5 million tonnes for
464,000 carats at an estimated high grade of 34.24 cpht.
Following acquisition under option in 2004 the Company plans to
rehabilitate the existing well preserved workings once the
Blaaubosch and Newlands mines are in full production. Currently
some small production is underway from tailings reprocessing.

South African Industrial Minerals Division

Dwyka also has a 70% stake in a profitable industrial division in the

Northern Cape on South Africa which comprises of two brands
Supermix and Biz Afrika which supply paving stone, bricks,
concrete and other building materials to the building industry.
The remaining 30% stake is owned by the Company’s Black
Empowerment Partner Kolong Investments.

In the December quarter the division reported a solid quarter with

brick and concrete sales up to R5,121,943 (~A$0.9 million) with
the Company's brick plant having to implement a second shift due
to strong demand for bricks.

Overview of the Tanzanian Diamond Assets India has been known for centuries as a world class leader in
hosting high quality large diamonds. Examples of large stone
include Kohinoor 793 carats, Great Moghul 787 carats, Regent 410
In October 2005 the Company announced a Joint Venture had carats and the Orloff Stone 189 carats. All of India’s production
been signed with De Beers to explore two known diamondiferous has been derived from alluvial deposits the majority of which are
kimberlite pipes named Mahene and Itanana located in Nzega in the Krishna River of central and southern India. However the
District of Tanzania. hard rock sources to these diamonds have never been discovered.

Mahene Kimberlite (DWY 90% De Beers 10%) Recently Rio Tinto also active in the region announced it had
discovered three kimberlite pipes within 70km of Dwyka’s and BHP
Covering an area of approximately 6.8hectares the Mahene
Billiton’s tenements at Bunder, Madhya and Pradesh.
kimberlite pipe is the largest pipe on Dwkyas inventory presently.
De Beers previously drilled and bulk sampled (53 tonnes) of the
The JV partners are very encouraged by these new discoveries and
kimberlite returning a grade of 8cpht. Dwyka point out that this is
are continuing with exploration test work which indicates
comparable to the grades mined by De Beers at the nearby
kimberlites are present in the areas of interest. We await further
Williamson mine. Some test work has suggested that the grade of
news on what we believe to be very exiting frontier exploration,
the pipe could be in places as high as 26cpht and that larger
which if successful, could have significant upside for Dwyka’s
stones have yet to be discovered. Dwyka plans to bulk sample an
share price.
additional 100,000 tonnes to assess the economic potential of the
pipe.

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 Share Placement Plan To be Conditionally Underwritten By Montagu Stockbrokers
On 17th January 2007 the Company announced its intention to undertake a Share Purchase Plan (SPP) with existing shareholders in
addition to undertaking a placement to a maximum of $5million. Montagu Stockbrokers has conditionally agreed to underwrite the
SPP which will enable shareholders to subscribe for up to $5,000 of shares at 31cps equating to a 20% discount to market price.

Director Profiles and Key Personnel

Ms. Melissa Sturgess, Executive Chairperson BSc, MBA geologist with 29 years’ experience in the mining and exploration
industry. Having spent six years in South Africa with Anglo-
Ms. Sturgess, who was appointed to the Dwyka board in April America Corporation, he moved to Australia in 1980 and spent
2001, became an Executive Director in November 2002. In June two years involved in exploration with the Rio Tinto Group. In
2003, she was appointed to the position of Chief Executive 1983, Mr. Nealon founded his own consulting company and since
Officer of the Company, and in June 2005 became its Chairman. then has practiced in Africa, Australia, the United States and
Ms. Sturgess, who holds a Bachelor of Science degree and an MBA Canada, as well as other regions.
from The University of Western Australia, began her career with
British Airways before moving on to law firm Mallesons Stephen Dr. Evan Kirby, Non Executive Director Phd
Jaques. Having founded her own consultancy in 1994, Ms.
Sturgess has been actively involved in the corporate development Dr Kirby was appointed to the Dwyka board in November 2002. A
of a range of public companies. metallurgist, he worked in South Africa for 17 years — primarily
for Impala Platinum, Rand Mines and Rustenburg Platinum Mines
Mr. Adrian Griffin, Chief Executive Officer BSc before moving to Australia in 1992. In Australia, Dr Kirby worked
for Minproc Engineers and Bechtel before starting his own
Mr. Griffin, who graduated from the University of Melbourne in consulting business a decade later. With his broad experience, he
1975 with majors in geology and metallurgy, was appointed to has been involved in the development of a wide range of mining
the board of Dwyka in December 2005. With 30 years’ experience and minerals processing projects in Africa and Australia, as well
in the mining industry, his responsibilities during that time have as other parts of the world.
included exploration, feasibility studies, financing and the
development of a wide range of commodities. Mr. Griffin’s Mr. Mike Langoulant (CFO), Chief Financial Officer CA
exposure to the industry worldwide includes professional
involvement in Africa, Asia, Eastern Europe, Australia and Appointed to the Dwyka board in April 2005, Mr. Langoulant is a
Antarctica. He has been instrumental in the development of chartered accountant with 20 years’ experience in corporate
operations that have explored for and produced a range of administration and fundraising for public companies. Having
commodities, among them gemstones, iron ore, base metals, spent 10 years with large international accounting firms, during
mineral sands, platinum group metals and gold.
which time he acted as chief financial officer, company secretary
Mr. Ed. Nealon, Non Executive Director BSc and non-executive director with a number of publicly listed
companies, Mr. Langoulant established his own consultancy firm
A Director of Dwyka since April 2000, Mr. Nealon is a qualified
in 1994.

Risks Associated with Investment In Dwyka Diamonds Limited

Potential investors need to be aware that investment in Dwyka Diamonds Limited, like all investments in junior resource
companies, is of a highly speculative nature. Normal share market risk conditions apply including commodity prices, currency
fluctuations, sentiment, supply and demand and general economic outlook. Normal exploration, development and production
risks also apply as well as operating, environmental, and sovereign risks.

Disclosure Disclaimer & Warning

Disclaimer
The author of this publication, Montagu Stockbrokers Pty Limited ABN 46 009 368 432 (‘Montagu’), its Directors and their Associates from
time to time may hold shares in the securities mentioned in this research document and therefore may benefit from any increase in the
price of those securities. Montagu and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of
transactions arising from any advice mentioned in publications to clients.

Montagu does not provide corporate advice to Dwyka Diamonds Limited. Montagu has agreed to conditionally underwrite Dwyka Diamonds
$5.0 million share purchase plan announced on 17th January 2007. Montagu will receive a fee for preparation of this report.

Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first
consulting your Adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular
needs.

Montagu believes that any information or advice (including any financial product advice) contained in this document is accurate when
issued. However, Montagu does not warrant its accuracy or reliability. Any opinions, forecasts or recommendations reflects the judgment
and assumptions of Montagu as at the date of publication and may change without notice. Montagu, its officers, agents and employees
exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent
permitted by law.
A Participant of the ASX Group

Report compiled by
Ian Spence
BSc. (Joint Hons) Geology & Petroleum Geology, MSc. Mineral Exploration & Mining Geology, MBA
Resource Consultant