DIATREME RESOURCES LIMITED — Capital/Financing Update 2007

Oct 2, 2007

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DIATREME RESOURCES LIMITED

ABN 33 061 267 061

Level 2, 87 Wickham Terrace, Spring Hill, Qld, 4000 PO Box 10288 Brisbane Adelaide Street Queensland 4000

Telephone : 61 7 3832 5666 Facsimile : 61 7 3832 5300 Email : manager@diatreme.com.au Website : www.diatreme.com.au

ASX Code: DRX

Company Announcement Office Australian Stock Exchange Limited Level 4, 20 Bridge Street Sydney NSW 2000

3 October 2007

LETTER TO HOLDERS OF “DRXO” OPTIONS FINAL NOTICE

We advise that the attached “Final Notice” documentation has today been mailed to all holders of the Company’s “DRXO” options.

Yours faithfully

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DAVID H HALL

Executive Director – Operations

Attach:

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DIATREME RESOURCES LIMITED

ABN 33 061 267 061

Telephone : 61 7 3832 5666 Facsimile : 61 7 3832 5300 Email : manager@diatreme.com.au Internet : www.diatreme.com.au

Level 2, 87 Wickham Terrace, Spring Hill, Qld, 4000 PO Box 10288 Brisbane Adelaide Street Queensland 4000

ASX Codes: DRX, DRXO

3 October 2007

Dear Option holder

FINAL NOTICE TO EXERCISE OPTIONS “DRXO” LISTED OPTIONS EXPIRING 31 OCTOBER 2007

The Directors would like to take this opportunity to remind you that the “DRXO” options you hold in Diatreme Resources Limited (Diatreme) expire on Wednesday 31 October 2007. Each option carries the right to acquire one fully paid ordinary share in the Company for $0.25 (25 cents).

Please note that if the in specie distribution of Xtreme Resources Limited shares is approved by shareholders at the meeting scheduled for Thursday, 4 October 2007, then, as previously advised, the exercise price of your “DRXO” options (and all other Company issued options) will be reduced by an amount yet to be notified. Once determined, the reduced exercise price will be effective on 12 October 2007, the day after the Record Date for the Xtreme Resources Limited in specie distribution, if such distribution is approved. Otherwise, the exercise price remains unchanged.

Official quotation of the options on the Australian Securities Exchange will cease at the close of business on Wednesday 24 October 2007.

Options not exercised by 5:00pm (Brisbane time) on 31 October 2007 will lapse. However, it should be noted that, on 14 September 2007, the Company announced the securing of an Underwriting Agreement with Patersons Securities Limited for the exercise of up to a total of 30 million DRXO options not taken up by existing option holders, with $7.5 million being the maximum underwritten amount.

As at the close of business on 2 October 2007, the date immediately before this letter, the Diatreme shares last traded at $0.305.

The highest and lowest market sale price of the Company’s shares during the three months immediately before this notice was:

• Highest - $0.55 on 23 July 2007 and a volume of 2,016,100 shares.

• Lowest - $0.21 on 4 July 2007 and a volume of 257,200 shares.

To exercise your options please complete and sign the enclosed Option Exercise Form and return with payment to Diatreme Resources Limited, PO Box 10288, Brisbane Adelaide Street, Qld, 4000, so as to arrive no later than 5:00pm (Brisbane time) on Wednesday, 31 October 2007. Cheques must be made payable to "Diatreme Resources Limited", crossed "Not Negotiable" and drawn on an Australian bank or financial institution, and denominated in Australian currency.

Yours faithfully

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David H Hall Executive Director - Operations

Encl:

DIATREME RESOURCES LIMITED

ABN 33 061 267 061

NOTICE OF EXERCISE OF OPTIONS

EXPIRING 5.00PM BRISBANE TIME 31 OCTOBER 2007

HIN:

To the Directors Diatreme Resources Limited

I/We whose full name(s) and address appears above give notice of the exercise of the options specified below:

Insert number of 31 October 2007 Options being exercised at 25 cents◊ per option

to subscribe for ordinary shares in the capital of Diatreme Resources Limited.

$

I/We request that the company allot to me/us the shares to which I/we are entitled in accordance with the terms and conditions of the options held by me/us. I/We agree to accept the shares allotted to me/us subject to the Constitution of the Company.

If this Notice is signed by an Attorney, the Attorney declares that no notice of revocation has been received in respect of the Power under authority of which this Notice is signed.

◊ Note: If the proposed in specie distribution of shares in the Company’s wholly owned subsidiary,

Xtreme Resources Limited, is approved by shareholders at the meeting scheduled for 4 October 2007, then the 25 cent option exercise price will be reduced. The new exercise price, to be announced to the market will be effective on 12 October 2007, the day after the Record Date for the Xtreme Resources Limited in specie distribution, if such distribution is approved. Otherwise, the exercise price remains unchanged.

SIGNING REQUIREMENTS

I/We authorise you to act in accordance with my/our instructions above. Security Holder 1 (Individual) Security Holder 2 (Individual) Joint Security Holder 3 (Individual) Sole Director and Sole Company Secretary Director Director/Company Secretary DATE / / Day Month Year

In the case of joint Optionholders each Optionholder must sign.

Where the Optionholder is an incorporated body its Common Seal and Attestation Clause are to be affixed and the Attestation Clause signed by its authorised signatories.

Cheques must be in Australian currency, payable to "Diatreme Resources Limited, and crossed "Not Negotiable”. The application for shares on exercise of the Options with the appropriate remittance should be lodged with the Company at its registered office, Level 2, 87 Wickham Terrace, Spring Hill, Qld, 4000 or mailed to Diatreme Resources Limited, PO Box 10288, Brisbane Adelaide Street, Qld, 4000.

Contact Name: ……………………………… Contact Telephone No: ………………………

TERMS AND CONDITIONS OF OCTOBER 2007 OPTIONS ASX CODE “DRXO”

Holders of Options are entitled to subscribe for and be allotted one ordinary Share in the capital of Diatreme Resources Limited (Diatreme) on the following terms:

Shares issued on Options exercise

Each Option entitles the Optionholder to subscribe for one new Share upon exercise of the Option and payment of the Exercise Price.

Option period

The Options are exercisable at any time prior to 5:00 pm Brisbane time on 31 October 2007, the Expiry Date, by completing the Option Exercise Form and delivering it together with the payment for the number of Shares in respect of which the Options are exercised to the registered office of Diatreme.

Exercise price

The exercise price of the Options is $0.25 (25 cents) per Option.

Transferability

Subject to the Corporations Act, the ASX Listing Rules (if appropriate at the time) and the Constitution of Diatreme, Options are freely transferable. An application has been made to the ASX for Official Quotation of the Options upon the completion of any escrow period imposed by ASX, if appropriate at the time.

Class of Share

All ordinary fully paid Shares issued upon exercise of Options will rank pari passu in all respects with Diatreme’s then issued ordinary fully paid Shares. Diatreme may apply for Official Quotation by ASX of all Shares issued upon exercise of Options, subject to satisfaction of any applicable restriction requirements.

There are no participating rights and entitlements inherent in the Options and Optionholders will not be entitled to participate in new issues of capital offered to shareholders during the currency of the Options. Diatreme will ensure that Optionholders will be allowed at least 10 business days notice to allow for the conversion of Options prior to the Record Date in relation to any offer of securities made to shareholders.

In the event of any reconstruction or reorganisation of capital (including consolidation, subdivision, reduction or return) of the issued capital of Diatreme prior to the Expiry Date, rights of the holders of the Options, the number of Options and/or the exercise price of the Options shall be changed to the extent necessary to comply with the ASX Listing Rules (if applicable at the time) applying to the reorganisation of capital at the time of the reorganisation.

Dividends

Upon exercise of the Options, the Shares allotted will rank pari passu in all respects with Diatreme’s existing fully paid ordinary Shares on issue.

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DRXO Exercise Form dated 2-10-2007