ELEVRA LITHIUM LIMITED - Proxy Solicitation & Information Statement 2011

DIAMONEX LIMITED ABN 26 091 951 978

NOTICE OF GENERAL MEETING AND EXPLANATORY STATEMENT

General�Meeting�to�be�held�at�level�1,�349�Coronation�Drive,�Milton,�Brisbane,�Queensland�on�25� March�2011�commencing�at�11:00�am�(Brisbane�Time).�

This�Notice�of�General�Meeting�( Notice )�and�Explanatory�Statement�( Explanatory�Statement )�should� be�read�in�its�entirety.��If�shareholders�are�in�doubt�as�to�how�they�should�vote,�they�should�seek� advice�from�their�accountant,�solicitor�or�other�professional�adviser�without�delay.�

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Corporate Directory

Directors	MrPaulCrawford(ExecutiveDirector)
	MrPetervanRiet�Lowe(Non�ExecutiveChairman)
	MrDanO’Neill(Non�ExecutiveDirector)
	MrWayneOsterberg(Non�ExecutiveDirector)
	MrLeonardSiwawa(Non�ExecutiveDirector)
CompanySecretary	MrPaulCrawford
RegisteredOffice	Level1,349CoronationDrive
	MILTON,QLD4064
	Ph:(07)38713985
	Fax:(07)37208988
	Email:[email protected]
	Website:www.diamonex.com.au
ABN	26091951978
Auditors	HayesKnightAudit(Qld)PtyLimited
	Level19
	127CreekStreet
	BRISBANEQLD4000
LegalAdvisers	Hemming+Hart
	Level2
	307QueenStreet
	BRISBANEQLD4000
ShareRegistry	ComputershareInvestorServicesLimited
	Level19
	307QueenStreet
	BRISBANEQLD4000

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NOTICE OF GENERAL MEETING

Notice�is�hereby�given�that�a�General�Meeting�of�shareholders�of�DiamonEx�Limited�( DiamonEx �or� the� Company )�will�be�held�at�Level�1,�349�Coronation�Drive,�Milton,�Queensland,�Australia,�on�25� March�2011,�at�11:00�am�(Brisbane�Time).�

RESOLUTION�1:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana� Limited�to�Mantle�Diamonds�Limited��

To�consider�and,�if�thought�fit,�to�pass�without�amendment�the�following�resolution�as�an�ordinary� resolution:�

“That�subject�to�resolutions�3,�4�and�5�being�passed,�in�accordance�with�Listing�Rule�11.2�of�the�ASX� Listing�Rules�and�for�all�other�purposes,�shareholders�approve�the�sale�by�the�Company�of�all�of�the� shares�in�Diamonex�Botswana�Limited.”�

Voting�Exclusion�

The�Company�will�disregard�any�votes�cast�on�this�resolution�by�Mantle�Diamonds�Limited�and�any� associate�of�Mantle�Diamonds�Limited.��However�the�Company�need�not�disregard�a�vote�if�it�is�cast� by�a�person�as�a�proxy�for�a�person�who�is�entitled�to�vote,�in�accordance�with�the�directions�on�the� proxy�form;�or�it�is�cast�by�the�person�chairing�the�meeting�as�proxy�for�a�person�who�is�entitled�to� vote,�in�accordance�with�a�direction�on�the�proxy�form�to�vote�as�the�proxy�decides.

RESOLUTION�2:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana� Limited�in�the�event�that�the�sale�to�Mantle�Diamonds�Limited�does�not� proceed.

To�consider�and,�if�thought�fit,�to�pass�without�amendment�the�following�resolution�as�an�ordinary� resolution:�

“That�subject�to�resolutions�3,�4�and�5�being�passed,�in�accordance�with�Listing�Rule�11.2�of�the�ASX� Listing�Rules�and�for�all�other�purposes,�in�the�event�that�the�sale�to�Mantle�Diamonds�Limited�does� not�proceed,�shareholders�approve�the�sale�by�the�Company�of�all�of�the�shares�in�Diamonex� Botswana�Limited�to�a�nominee�of�Flamenco�(Pty)�Limited�and�the�Note�Holders.”�

Voting�Exclusion�

The�Company�will�disregard�any�votes�cast�on�this�resolution�by�Flamenco�(Pty)�Limited�and�the�Note� Holders�and�any�associate�of�Flamenco�(Pty)�Limited�and�the�Note�Holders.��However�the�Company� need�not�disregard�a�vote�if�it�is�cast�by�a�person�as�a�proxy�for�a�person�who�is�entitled�to�vote,�in� accordance�with�the�directions�on�the�proxy�form;�or�it�is�cast�by�the�person�chairing�the�meeting�as� proxy�for�a�person�who�is�entitled�to�vote,�in�accordance�with�a�direction�on�the�proxy�form�to�vote� as�the�proxy�decides.

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RESOLUTION�3:�Approval�of�issue�of�Shares�to�the�Botswana�Public�Officers� Pension�Fund �( BPOPF)�conditional�upon�the�sale�of�the�shares�of�Diamonex� Botswana�Limited��

To�consider�and,�if�thought�fit,�to�pass�without�amendment�the�following�resolution�as�an�ordinary� resolution:�

“That�subject�to�the�completion�of�the�sale�of�the�shares�of�Diamonex�Botswana�Limited�and�subject� to�resolutions�1�or,�2,�and�resolutions�4�and�5�being�passed,�in�accordance�with�Listing�Rule�7.1�of�the� ASX�Listing�Rules,�item�7�of�section�611�of�the�Corporations�Act�and�for�all�other�purposes,�the�issue� and�allotment�of�up�to�298,657,549�ordinary�shares�in�the�capital�of�the�Company�to�BPOPF�be�and�is� hereby�approved.”�

Voting�Exclusion�

The�Company�will�disregard�any�votes�cast�on�this�resolution�by�the�Botswana�Public�Officers�Pension� Fund�and�any�associate�of�the�Botswana�Public�Officers�Pension�Fund.��However�the�Company�need� not�disregard�a�vote�if�it�is�cast�by�a�person�as�a�proxy�for�a�person�who�is�entitled�to�vote,�in� accordance�with�the�directions�on�the�proxy�form;�or�it�is�cast�by�the�person�chairing�the�meeting�as� proxy�for�a�person�who�is�entitled�to�vote,�in�accordance�with�a�direction�on�the�proxy�form�to�vote� as�the�proxy�decides.�

RESOLUTION�4:�Approval�of�issue�of�Shares�to�creditors�of�the�Company��

To�consider�and,�if�thought�fit,�to�pass,�with�or�without�amendment,�the�following�resolution�as�an� ordinary�resolution:�

“That�subject�to�the�completion�of�the�sale�of�the�shares�of�Diamonex��Botswana�Limited�and�subject� to�resolutions1�or,�2�being�passed�and�resolutions,�3�and�5�being�passed,�in�accordance�with�Listing� Rule�7.1�of�the�ASX�Listing�Rules�and�for�all�other�purposes,�the�issue�and�allotment�of�169,278,926� ordinary�shares�in�the�capital�of�the�Company�to�creditors�of�the�Company,�in�satisfaction�of�money� owing�to�them�respectively,�be�and�is�hereby�approved.”�

Voting�Exclusion�

The�Company�will�disregard�any�votes�cast�on�this�resolution�as�that�part�of�the�resolution�may�relate� to�the�creditors�of�the�Company�described�in�the�Explanatory�Statement�(a� Recipient )�and�any� associate�of�the�Recipient.��However�the�Company�need�not�disregard�a�vote�if�it�is�cast�by�a�person� as�a�proxy�for�a�person�who�is�entitled�to�vote,�in�accordance�with�the�directions�on�the�proxy�form;� or�it�is�cast�by�the�person�chairing�the�meeting�as�proxy�for�a�person�who�is�entitled�to�vote,�in� accordance�with�a�direction�on�the�proxy�form�to�vote�as�the�proxy�decides.�

RESOLUTION�5:�Approval�of�issue�of�Shares�to�Directors�of�the�Company��

To�consider�and,�if�thought�fit,�to�pass,�with�or�without�amendment,�the�following�resolution�as�an� ordinary�resolution:�

“That�subject�to�the�completion�of�the�sale�of�the�shares�of�Diamonex��Botswana�Limited�and�subject� to�resolutions�1�or�2being�passed�and�resolutions�,�3�and�4�being�passed,�in�accordance�with�Chapter�

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2E�of�the�Corporations�Act,�Listing�Rules�10.11�of�the�ASX�Listing�Rules�and�for�all�other�purposes,�the� issue�and�allotment�of�a�maximum�of�37,930,804�ordinary�shares�in�the�capital�of�the�Company�at�a� price�of�AU$0.02�per�share�to�Mr�Paul�Crawford�and�Dan�O’Neill,�Directors�of�the�Company�on�the� terms�set�out�in�the�Explanatory�Statement�in�satisfaction�of�debts�owing�to�those�Directors,�be�and�is� hereby�approved.”�

Voting�Exclusion�

The�Company�will�disregard�any�votes�cast�on�this�resolution�by�Mr�Paul�Crawford�and�Dan�O’Neill� and�any�associate�of�Mr�Paul�Crawford�and�Dan�O’Neill.��However�the�Company�need�not�disregard�a� vote�if�it�is�cast�by�a�person�as�a�proxy�for�a�person�who�is�entitled�to�vote,�in�accordance�with�the� directions�on�the�proxy�form;�or�it�is�cast�by�the�person�chairing�the�meeting�as�proxy�for�a�person� who�is�entitled�to�vote,�in�accordance�with�a�direction�on�the�proxy�form�to�vote�as�the�proxy� decides.�

RESOLUTION�6:�Appointment�of�a�new�Director�

To�consider�and,�if�thought�fit,�to�pass,�with�or�without�amendment,�the�following�resolution�as�an� ordinary�resolution:�

“To�ratify�the�appointment�of�Mr�James�Allan,�as�a�new�Director�of�the�Company�effective�from�the� passing�of�this�resolution”�

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PROXIES�

Please�note�that:�

A�member�of�the�Company�entitled�to�attend�and�vote�at�the�General��Meeting�is�entitled�to� appoint�a�proxy;�
A�proxy�need�not�be�a�member�of�the�Company;�and�
A�member�of�the�Company�entitled�to�cast�two�or�more�votes�may�appoint�two�proxies�and�may� specify�the�proportion�or�number�of�votes�each�proxy�is�appointed�to�exercise,�but�where�the� proportion�or�number�is�not�specified,�each�proxy�may�exercise�half�of�the�votes.�

The�enclosed�proxy�form�provides�further�details�on�appointing�proxies�and�lodging�proxy�forms.� “SNAP�SHOT”�TIME�

The�Directors�have�determined�that�all�Shares�of�the�Company�that�are�quoted�on�ASX�at�7.00pm� AEDT�on�23�March�2011�will,�for�the�purposes�of�determining�voting�entitlements�at�the�General� Meeting,�be�taken�to�be�held�by�the�persons�registered�as�holding�the�Shares�at�that�time.�

By�Order�of�the�Board�of�Directors�

==> picture [127 x 46] intentionally omitted <==

________� Paul�Crawford� Company�Secretary� DiamonEx�Limited� 24�February�2011�

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EXPLANATORY STATEMENT

This�Explanatory�Statement�has�been�prepared�for�the�information�of�shareholders�in�relation�to�the� business�to�be�conducted�at�the�Company’s�General�Meeting�( Meeting )�convened�at�Level�1,�349� Coronation�Drive,�Milton,�Queensland�on�25�March�2011,�at�11:00�am�AEDT.�

The�purpose�of�this�Explanatory�Statement�is�to�provide�shareholders�with�all�information�known�to� the�Company�which�is�material�to�a�decision�on�how�to�vote�on�the�Resolutions�in�the�accompanying� Notice�of�General�Meeting.�This�Explanatory�Statement�is�divided�into�the�following�sections:��

1.� Transaction�Overview�
2.� Background�Information�on�the�resolutions�
Resolutions�to�be�considered�by�the�Meeting�

This�Explanatory�Statement�should�be�read�in�conjunction�with�the�Notice�of�General�Meeting.��

1. TRANSACTION OVERVIEW

The�resolutions�put�to�the�shareholders�as�set�out�in�the�attached�Notice�of�Meeting,�in�general� terms,�are�being�sought�to�enable�the�Directors�to:�

(a) eliminate�the�debts�of�the�Company�and�avoid�a�probable�liquidation�of�the�Company�by�its� creditors�(which�creditors�include�certain�Botswana�Pension�Funds�who�hold�a� BWP50,000,000�convertible�note�facility�( Note�Holders ));�
(b) provide�the�Company�with�immediate�short�term�working�capital;��
(c) enable�the�Directors�to�source�new�resource�projects�for�the�Company;��
(d) enable�the�Directors�to�consider�a�full�recapitalisation�of�the�Company;�and�
(e) ultimately,�enable�the�Directors�to�apply�to�the�ASX�Limited�( ASX )�to�have�the�Company’s� Shares�re�quoted.�

In�order�to�achieve�these�aims,�shareholder�approval�is�sought,�for�the�following�transactions:�

(a) the�sale�of�all�the�Company’s�shares�in�its�main�undertaking�and�wholly�owned�subsidiary�,� Diamonex�Botswana�Limited�( DBL )�which�company�owns�the�Lerala�Diamond�Mine�together� with�other�exploration�licences�in�Botswana�to�repay�secured�debt;�
(b) the�conversion�of�all�other�debt�owing�to�the�Company’s�creditors�into�ordinary�fully�paid� shares�in�the�Company�( Shares ),�and�in�particular�the�conversion�of�debt�owing�to:�
(i) the�Company’s�largest�creditor,�the�Botswana�Public�Officers�Pension�Fund� ( BPOPF )�that�will�increase�BPOPF’s�shareholding�in�the�Company�from�13.8%�to� 37.9% �(pre�capital�raising�via�a�placement�underwritten�by�BPOPF);��
(ii) Note�Holders�(other�than�BPOPF)�(the� Non�BPOPF�Note�Holders );�
(iii) other�trade�creditors;�and��

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(iv) current�Directors�of�the�Company;�and��
(c) a�placement�of�Shares�underwritten�by�the�BPOPF�which�may�increase�the�BPOPF’s� shareholding�in�the�Company�to�a�maximum�of�46.9% .

The completion of these transactions will of themselves not result in the requotation of the shares of the Company on the ASX. The successful implementation of the transaction will however position the Company to pursue opportunities which may, if successful, and subject to compliance with relevant provisions of the ASX Listing Rules lead to the requotation of the Company’s Shares.

2. INDEPENDENT EXPERT’S REPORT

The�Directors�instructed�JR�Securities�limited�to�prepare�an�Independent�Expert’s�Report�on�the�sale� of�all�the�shares�in�DBL�to�repay�secured�debt�and�the�conversion�of�all�other�debt�owing�to�the�Note� Holders�( Proposed�Transactions )�and�in�particular�to�comment�on�whether�the�proposed�issue�of� Shares�to�BPOPF�is�fair�and�reasonable�to�the�non�associated�shareholders�of�the�Company�for�the� purposes�of�section�606�of�the�Corporations�Act�and�Listing�Rule�10.2.��

The�Independent�Expert�has�concluded�that�the�terms�of�the�Proposed�Transactions�are�fair�and� reasonable�to�the�non�associated�shareholders�of�DiamonEx.�

Additionally�the�Independent�Expert’s�Report�provides�information�relevant�to�the�proposal�that�the� Company�dispose�of�its�major�asset�–�the�shares�in�DBL.�

The�Independent�Expert’s�Report�accompanies�this�Notice�of�Meeting�and�Explanatory�Statement.�� The�documents�should�be�read�in�conjunction�with�one�another.�

3. BACKGROUND INFORMATION ON THE RESOLUTIONS

Investment�in�Botswana�

DiamonEx�Ltd�( DiamonEx �or�the� Company )�originally�listed�on�the�ASX�in�2004�for�the�purpose�of� developing�diamond�resources,�principally�located�in�Botswana.��Its�Shares�were�subsequently�listed� on�the�Botswana�Stock�Exchange�( BSE )�in�2007.�The�Company�was�delisted�from�the�BSE�in�August� 2010.�

The�Company’s�main�project�has�been�the�Lerala�Diamond�Mine�( Mine )�located�in�north�eastern� Botswana�and�owned�by�the�Company’s�wholly�owned�subsidiary�company�DBL.�Funding�for�the� development�of�the�Mine�was�effected�with�a�combination�of�equity�raisings,�the�issue�of�a� BWP50,000,000�convertible�note�facility�to�Note�Holders,�a�EURO�5,000,000�loan�from�the�European� Investment�Bank�of�Luxembourg�( EIB ),�and�a�finance�lease�from�the�Stanbic�Bank�of�Botswana�for� BWP12,000,000�( Stanbic ).��

The�original�cost�of�the�Mine�construction�and�development�was�forecast�to�be�approximately� A$25,000,000.�The�eventual�cost�was�however�almost�A$36,000,000.�The�main�reasons�for�the�cost� overrun�and�the�subsequent�delays�in�construction�were:�

significant�increases�in�the�price�of�steel�and�copper�over�the�construction�period;�

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increases�in�fuel�costs�(diesel�generators�were�the�main�source�of�power�supply)�over�the�period;�
increased�competition�for�resources,�parts,�and�products�during�the�period�while�the�world� commodity�markets�went�through�a�boom�cycle;�and��
delays�in�financing.�

Lerala�Diamond�Mine�Commissioning�and�First�Diamond�Sale�

DBL�eventually�commenced�commissioning�of�its�dense�media�ore�processing�plant�and�diamond� recovery�section�( Plant )�in�April�2008.�By�August�2008�it�was�still�experiencing�significant�Plant�and� diamond�recovery�problems.�

By�the�middle�of�October�2008,�the�Mine�had�recovered�a�mere�10,000�carats,�well�below�budget,� which�DBL�arranged�to�be�sold�by�WWW�International�Diamond�Consultants�(“WWWIDC”).��Prior�to� the�sale,�WWWIDC�had�valued�the�10,000�carats�at�+/�US$50�per�carat,�a�valuation�supported�by�the� Government�of�Botswana’s�independent�valuer,�which�was�a�condition�under�the�terms�of�the�Mine’s� mining�licence�with�the�Government�of�Botswana.�One�week�later,�the�goods�were�put�up�for�sale�via� WWWIDC’s�online�closed�tender�process.��Disappointingly�the�sales�only�achieved�a�US$20�per�carat� average�price.�

The�advice�from�WWWIDC�after�this�sale�was�that�due�to�the�Global�Financial�Crisis�there�had�been�a� dramatic�decline�in�rough�diamond�prices.�A�critical�factor�in�driving�demand�for�rough�diamonds�is� the�availability�of�credit.�The�polished�market�is�funded�to�a�large�extent�on�debt,�so�the�lack�of�credit� meant�even�without�the�decline�in�jewellery�sales�in�the�US,�polishers�simply�could�not,�at�the�time,� buy�their�goods.�

By�the�time�DBL�sought�to�sell�its�first�diamonds�buyer�interest�had�disintegrated�and�disappeared� from�the�market�altogether.�In�short,�there�was�no�demand�from�buyers,�so�those�that�did�buy,�did� so�at�basement�prices.�

Concurrently�the�Plant�had�begun�to�perform�nearer�its�design�specification�and�during�the�months� of�October�through�to�December�2008,�160,000�tonnes�of�ore�were�processed,�recovering�43,000� carats�of�diamonds.��However,�due�to�the�delay�in�commencing�production,�cost�overruns�and�the� virtual�non�existence�of�a�market�for�DBL’s�goods,�DBL�and�DiamonEx�found�themselves�in�financial� difficulties�in�December�2008.�As�a�consequence�DiamonEx�requested�that�its�Shares�be�suspended� from�trading�on�the�ASX�and�the�BSE�in�January�2009.��

The�Government�of�Botswana,�in�a�show�of�support�for�the�Mine�provided�a�short�term�funding�line� of�BWP10,000,000�secured�against�further�diamond�recovery�of�around�25,000�carats�to�give�DBL� time�to�put�an�off�take�contract�in�place�at�an�acceptable�price�to�underwrite�sales�going�forward,� and�to�then�re�capitalise�DBL.�However,�the�continuing�decline�in�the�world�economy�meant�the� diamond�market�did�not�improve�and�the�prospect�of�an�off�take�contract�at�an�acceptable�price� became�extremely�remote.�

Appointment�of�Judicial�Manger�to�DiamonEx�Botswana�Ltd��

The�Directors�of�DBL�applied�to�the�Botswana�High�Court�to�place�DBL�into�Provisional�Judicial� Management�on�23�January�2009,�which�was�subsequently�confirmed�by�the�High�Court�on�27�March� 2009�for�a�period�of�one�year�commencing�on�27�March�2009.�

The�term�of�the�Judicial�Management�was�extended�by�the�Botswana�High�Court�on�request�from�the� Judicial�Manager�on�Friday�26�March�2010�and�ran�for�another�6�month�period�expiring�on�27� September�2010.�DBL�is�now�back�in�the�hands�of�its�directors�appointed�by�DiamonEx.�Under�

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Botswana�law�a�Judicial�Manager�is�akin�to�the�appointment�of�an�Administrator�under�Australian� law.�

Following�appointment�of�the�Judicial�Manager�the�Directors�of�the�Company�immediately�started� working�with�the�Judicial�Manager�and�the�creditors�of�the�Company�and�DBL,�to�restructure�and� recapitalise�the�DBL�balance�sheet�and�to�assess�options�for�the�future�of�DBL�and�the�Mine.�

The�Recovery�Plan�

In�general�terms,�the�recovery�plan�that�the�Directors�of�DiamonEx�sought�to�execute�for�DBL�was�as� follows�( Recovery�Plan ):�

Place�the�Mine�on�immediate�care�and�maintenance�to�preserve�the�asset;�
Settle�all�preferential�creditors�in�full�and�in�cash;�
Settle�all�unsecured�creditors�by�way�of�an�offer�of�compromise;�
Renegotiate�new�repayment�terms�with�DBL’s�two�secured�creditors,�the�EIB�and�Stanbic;�and�
Either,�return�the�Mine�to�production�once�the�diamond�market�recovered�or,�dispose�of�DBL.�

The�commencement�of�the�Recovery�Plan�was�delayed�when�the�EIB�withdraw�its�support�for�the� plan�and�proceeded�to�apply�to�the�Botswana�High�Court�to�have�DBL�put�into�liquidation�in�April� 2009.��This�application�was�opposed�by�the�Judicial�Manager�and�dismissed�by�the�High�Court�in� August�2009.�EIB�brought�a�further�application,�this�time�against�DiamonEx�in�August�2009�and�again� in�the�Botswana�High�Court,�seeking�to�enforce�two�charges�that�the�EIB�held�over�the�shares�in�DBL,� and�the�loan�account�from�the�Company�to�DBL.�DiamonEx�opposed�the�application�on�the�grounds� that�the�charges�only�secured�debts�owing�by�DiamonEx�to�EIB,�of�which�there�are�none.�

In�October�2009�the�Botswana�High�Court�found�in�favour�of�DiamonEx�and�dismissed�the�EIB’s� application,�and�in�late�January�2010,�the�decision�of�the�Botswana�High�Court�was�upheld�by�the� Botswana�Court�of�Appeal.�This�then�enabled�the�Judicial�Manager�to�commence�the�recovery.�

Initial�funding�of�the�Recovery�Plan�

The�Recovery�Plan�was�initially�funded�by�Fleming�Asset�Management�Botswana�Limited�( FAMB ),�a� Botswana�investment�fund�management�company�whose�pension�fund�clients�represented�85�%�of� the�total�debt�in�DiamonEx,�the�most�significant�of�whom�is�BPOPF.�

In�March�2009,�FAMB�agreed�to�underwrite�in�favour�of�DiamonEx,�with�the�financial�backing�of�the� BPOPF,�BWP35,000,000,�to�support�the�Recovery�Plan.�This�underwriting�was�critical�to�the� confirmation�of�the�Judicial�Management�on�27�March�2009�as�it�was�likely�that�without�this�support� High�Court�would�have�put�DBL�into�liquidation.�

In�October�2009,�another�Botswana�investment�management�company,�Stanbic�Investment� Management�Services�(Pty)�Limited�( SIMS )�also�a�designated�fund�manager�of�the�BPOPF,�agreed�to� share�equally�in�the�underwriting�risk�with�FAMB.��A�special�purpose�vehicle,�Flamenco�(Pty)�Limited,� was�used�to�advance�the�funds�to�DiamonEx�on�behalf�of�FAMB�and�SIMS�for�the�BPOPF�( Flamenco� Loan ).�

Financial�Position�of�DBL�

As�at�the�commencement�of�the�Judicial�Management�of�DBL�in�January�2009,�the�statement�of� financial�position�of�DBL�was�as�set�out�below�(AUD:�BWP,�1:6.46):�

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 10

	BotswanaPula	Australian$

TotalAssets	213,020,000	32,975,232

Liabilities:
Preferentialcreditors	2,356,402	364,768
Securedcreditors(EIB&StanbicBank)	61,228,000	9,478,018
Unsecuredcreditors(tradecreditors)	41,660,000	6,448,916
Unsecuredcreditors(loanfromDiamonEx)	177,115,000	27,417,182

NetLiabilities	BWP(69,339,402)	A$(10,733,653)

The�majority�of�the�Total�Assets�figure�is�made�up�by�the�investment�in�the�development�and� construction�of�the�Mine.��

After�the�resolution�of�the�issues�that�arose�during�Judicial�Management�the�Directors�proposed�to� the�Judicial�Manager�that�DBL�be�restructured�through�a�compromise�of�its�existing�creditors,�or� arrangements�to�restructure�repayment�obligations�of�secured�borrowings.��It�was�proposed�that�the� cost�of�this�restructure�would�be�underwritten�by�Flamenco.��On�this�basis,�the�Judicial�Manager� allowed�Judicial�Management�to�expire�on�27�September�2010,�and�DBL�was�handed�back�to�its� directors,�appointed�by�the�Board�of�DiamonEx.�

The�Sale�of�DBL�to�Mantle�Diamonds�Limited�

The�Directors�announced�the�sale�of�the�shares�of�DBL�to�Mantle�Diamonds�Limited�( Mantle� Transaction )�on�12�November�2010.��Mantle�Diamonds�Limited�( Mantle )�is�a�United�Kingdom�based,� privately�owned�diamond�exploration�and�development�company,�with�a�global�portfolio�of�diamond� projects.��

Under�the�agreement�between�Mantle�and�DiamonEx�( Mantle�Agreement ),�the�key�terms�are�as� follows:�

(a) The�consideration�(the� Mantle�Consideration )is�A$10,200,000�of�which�US�$3,250,000�is� payable�in�cash�and�the�balance�payable�by�the�issue�of�45,330,913�shares�in�Mantle�at�an� issue�price�of�£0.10�(10�pence)�per�share;�
(b) The�sale�is�conditional�on:�
(i) Mantle�raising�sufficient�capital�to�pay�the�purchase�price�and�provide�working� capital�to�bring�the�Mine�into�production.��Mantle�currently�has�a�conditional� funding�offer�of�US$15,000,000�in�place�but�this�funding�has�not,�as�at�the�date� of�this�Notice,�been�concluded;�
(ii) Both�Mantle�and�DiamonEx�undertaking�technical,�legal�and�financial�due� diligence�on�each�other;��
(iii) The�consent�of�the�Botswana�Government�to�the�change�in�control�of�DBL;�
(c) Ten�per�cent�of�the�Mantle�Consideration,�half�in�cash�and�half�in�Mantle�shares,�will�be� retained�for�six�months�post�the�completion�of�the�sale�to�be�held�in�escrow�to�secure� certain�warranties�provided�by�the�Company�in�the�sale�of�the�DBL�shares;�and��

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 11

(d) The�usual�warranties�are�provided�in�the�formal�sale�and�purchase�agreement.��

It�is�planned�for�completion�of�the�sale�to�take�place�immediately�following�the�approval�of�the� shareholders�to�the�sale.�

The�Directors�have�analysed�and�assessed�the�diamond�company�market�over�the�last�18�months�and� have�either�had�discussions�with�diamond�companies�interested�in�acquiring�the�Mine,�or�have� invited�companies�to�register�an�expression�of�interest.��By�a�very�significant�margin,�Mantle�has� offered�the�best�and�most�favourable�terms�for�the�acquisition�of�DBL.�

Distribution�of�the�proceeds�of�the�Mantle�Agreement�

The�Company�will�not�receive�any�of�the�proceeds�of�the�Mantle�Agreement�as�the�proceeds�will�be� distributed�in�there�entirety�to�Flamenco�and�the�Note�Holders.�Both�Flamenco�and�the�Note�Holders� have�agreed�to�the�repayment�in�full�of�debts�owing�to�them�and�to�the�release�of�the�registered� charges�they�hold�over�DBL�shares�in�exchange�for�receipt�from�the�Company�of�the�Mantle� Consideration�together�with�317,842,078�Shares�in�the�Company�( Settlement�Shares ).�

The�Mantle�Consideration�and�the�Settlement�Shares�will�be�applied�between�Flamenco�and�the� Note�Holders�as�set�out�in�the�table�below.�

	US$Cash	MantleShares	DiamonExShares
Flamenco	3,250,000	19,848,382	NIL
NoteHolders		25,482,531	317,852,078

As�the�most�significant�Note�Holder,�the�BPOPF�will�receive�110,804,148�of�the�Settlement�Shares.�

Alternative�transaction�to�the�Mantle�Agreement�

In�the�unlikely�event�that�the�sale�with�Mantle�does�not�complete,�DiamonEx�has�agreed�with� Flamenco�and�the�Note�Holders�that�all�of�the�shares�in�DBL�will�be�transferred�to�a�nominee�of� Flamenco�and�the�Note�Holders�together�with�the�allotment�of�the�Settlement�Shares�in�full�and�final� satisfaction�of�the�Flamenco�Loan�and�the�Notes.��The�loan�account�between�DiamonEx�and�DBL�will� be�assigned�to�Flamenco�and�the�Note�Holders.��As�part�of�this�transaction�DiamonEx�will�proceed� with�the�issuing�of�shares�to�creditors,�Directors’�debts�payment�and�the�capital�raising�contemplated� in�this�Notice�and�Explanatory�Statement.��

From�the�Company’s�and�its�shareholders’�perspective,�the�economic�and�practical�effect�of�this� transaction�is�identical�to�the�effect�in�the�case�where�the�Mantle�Transaction�completed.�

Creditors�of�DiamonEx�

The�total�liabilities�of�the�Company�as�at�the�date�of�this�Notice,�is�$18,214,498,�as�set�out�below� follows�(AUD:�BWP,�1:6.46):�

	BWP	AU$
FlamencoLoan(1stsecured)	38,779,037	6,002,947
Notes(2ndsecured)	50,000,000	7,739,938
Noteinterestaccruedto(28Feb2011)	18,161,055	2,811,309
AmountsowingtocurrentDirectors	N/A	758,616
Amountsowingtootherunsecuredcreditors	N/A	901,688
Total	N/A	18,214,498

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 12

The�Flamenco�Loan�

The�Flamenco�Loan�totals�at�the�date�of�this�Notice,�BWP38,779,037�($6,002,947)�after�allowing�for� the�2%�underwriting�facility�fee�and�the�10%profit�fee�as�set�out�below..�

Key�terms�of�the�Flamenco�Loan�are�as�follows:�

(a) First�charge�over�the�shares�in�DBL�( DBL�shares ),�and�the�loan�advances�from�DiamonEx�to� DBL�( DON�Loan�Account );�
(b) Repayable�no�later�than�31�August�2011;�
(c) An�underwriting�fee�of�2%�per�annum�of�the�undrawn�amount�of�the�loan�facility�(BWP�35�� million)�payable�upon�the�date�of�repayment�of�the�loan�facility;�
(d) The�Flamenco�Loan�bears�no�interest,�however,�Flamenco�will�be�entitled�to�10%�of�all� profits�generated�from�DBL�and�distributed�to�DiamonEx�or�10%�of�the�value�of�the� consideration�payable�in�the�event�of�the�sale�of�DBL;�
(e) The�Flamenco�Loan�is�limited�in�recourse�to�the�DBL�shares�and�the�DON�Loan�Account.�

The�Note�Holders�

The�Convertible�Notes�totalling�BWP50,000,000�( Notes )�were�issued�by�the�Company�pursuant�to�a� BWP50,000,000��Convertible�Note�Issue�Facility�dated�6�August�2007�( Note�Facility ).�The�proceeds�of� the�Note�Facility�were�in�turn�advanced�to�DBL�and�applied�towards�the�construction�of�the�Mine.��

BPOPF�holds�62.5%�of�the�Notes�issued.�The�total�amount�owing�under�the�Note�Facility�including� both�accrued�interest�and�the�principal�amount�as�at�28�February�2011�is�BWP68,161,055�consisting� of�the�original�BWP�50,000,000�Note�principal�and�BWP18,161,055�interest�that�has�accrued�from�3� September�2008�until�4�February�2010.�

The�Note�Facility�was�recently�amended�bringing�the�Note�Facility�out�of�default�and�provides�as� follows:�

(a) Conversion�of�accrued�interest�to�Shares�in�the�Company;�
(b) The�Note�Holders�have�agreed�to�convert�the�interest�due�to�them�as�at�28�February�2011� on�the�same�terms�of�conversion�as�all�other�creditors�of�the�Company;�
(c) Interest�will�no�longer�be�paid�half�yearly�in�arrears,�but�instead�will�accrue�and�be�paid� from�the�future�profits�of�DBL�returned�to�the�Company�or�from�the�sale�proceeds�of�the� sale�of�DBL�shares;�
(d) Security�–�In�consideration�for�waiving�rights�of�enforcement�against�historical�defaults� under�the�Note�Facility�up�to�the�Meeting�date,�the�Company�has�agreed�to�grant�the�Note� Holders�a�second�legal�mortgage�by�way�of�security�over�the�DBL�shares�and�a�legal� assignment�by�way�of�security�of�the�DON�Loan�Account.�
(e) Limited�Recourse�–�Repayment�of�the�Notes�is�now�limited�to�profits�generated�from�DBL� and�returned�to�the�Company�either�by�repayment�of�the�DON�Loan�Account�or�dividends,� or�the�proceeds�of�the�sale�the�DBL�shares.�Beyond�the�DON�Loan�Account�and�the�DBL� shares,�the�Company�has�no�further�liability�to�the�Note�Holders�to�repay�the�Notes;�

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 13

(f) Current�conversion�rights�cancelled�–�Any�rights�to�convert�the�Notes�into�Shares�in�the� Company�have�been�waived�and�cancelled�by�the�Note�Holders;��

It�is�important�to�note�that�this�agreement�with�the�Note�Holders�is�conditional�on�the�shareholders� approving�all�resolutions�set�out�in�this�Notice.��If�the�resolutions�are�not�approved,�then�the�Note� Holders�have�advised�that�they�will�immediately�demand�repayment�of�all�moneys�due�and�owing�to� them.��If�such�a�demand�is�made�then�it�is�likely�that�the�directors�would�be�immediately�forced�to� place�the�Company�into�Voluntary�Administration�under�the�provision�s�of�the�Corporations�Act�and� is�also�likely�that�the�Company�would�then�subsequently�be��liquidated�on�the�basis�that�it�was� unable�to�pay�its�debts.�

Money�owed�to�current�and�former�Directors��

The�monies�owing�to�current�Directors�(including�those�who�resigned�within�the�last�six�months�if� any)�relate�to�loans�made�to�the�Company�by�Directors�for�working�capital�purposes,�unpaid�wages� and�statutory�entitlements�of�the�Executive�Directors,�and�to�unpaid�Directors’�fees�up�to�31� December�2008.�The�Directors�of�the�Company�have�not�accrued�Directors’�fees�after�that�date.�

Trade�Creditors�

It�is�proposed�by�the�Directors�that�$4,471,613�of�the�debt�owed�to�the�creditors�of�the�Company� (excluding�the�Flamenco�Loan�and�the�Note�Holders�but�including�Note�Holder�interest�accrued�to�4� February�2011)�will�be�converted�into�Shares�in�the�Company�at�the�issue�price�per�Share�of�$0.02�for� every�$1.00�of�debt�owed,�equating�to�the�issue�of�223,580,642�Shares�to�creditors�of�the�Company.�

Each�of�the�creditors�to�whom�Shares�are�to�be�issued�has�agreed�to�convert�their�debts�into�Shares� in�the�Company�and�have�each�signed�an�agreement�to�this�effect.�The�trade�creditors�of�the� Company�are�mostly�head�office�management�operating�costs.��

The�remainder�of�Company�debt�will�be�paid�in�cash�in�the�ordinary�course�of�business�relating� mainly�to�legal�and�accounting�fees,�rent,�employee�payments�(not�including�Directors�other�than� cash�advances�by�Directors�made�to�the�Company�post�January�2008�to�keep�the�Company�out�of� liquidation),�ASX�and�ASIC�fees,�and�day�to�day�operating�costs.�

Recapitalisation�of�the�Company�and�requotation�of�the�Company’s�Shares��

$500,000�is�being�raised�by�way�of�a�Private�Placement�( Placement )�of�100,000,000�shares�at�an�issue� price�of�$.005�(half�a�cent)�per�share�to�help�provide�immediate�working�capital�for�the�Company� post�the�completion�of�the�transactions�the�subject�of�this�Meeting.��A�more�comprehensive�re� capitalisation�of�the�Company,�together�with�application�for�the�requotation�of�the�Company’s� Shares�to�the�ASX�will�not�occur�until�the�Company�has�identified�suitable�resource�projects�to�invest� in.�

In�the�meantime,�the�capital�raised�by�the�Placement�will�in�the�Directors’�opinion�be�sufficient�to� enable�the�Company�to�assess�new�resource�investment�opportunities.��

Revised�capital�structure�following�the�issue�of�Shares�

As�a�result�of�the�issue�of�Shares�set�out�above,�and�subject�to�the�passing�of�the�resolutions�to�be� considered�at�this�Meeting�the�share�capital�of�the�Company�will�increase�from�193,154,196�Share�to� 694,291,475�Shares.�

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 14

Capital�structure�post�completion�will�be�as�follows:�

	NumberofSharesafterrestructure	%
Directors
PetervanRietLowe	127,700	0.0184%
WayneOsterberg	60,000	0.00864%
PaulCrawford	37,063,875	5.34%
DanO’Neill	11,540,429	1.66%
NoteHolders
BPOPF	325,314,749(seeNote)	46.86%
NonBPOPFNote Holders	141,909,438	20.43%
OtherShareholders	178,275,284	25.68%
Total	694,291,475	100%

Note�–�Assumes�that�the�number�of�Shares�to�be�held�by�BPOPF�includes�the�100,000,000�Shares�issued� under�a�placement�to�sophisticated�and�professional�investors.��

DiamonEx�currently�has�on�issue�the�following�options:�

Optionsonissue	Expiry	A$Price
2,000,000	29Dec11	0.35
1,550,000	17Apr13	0.37

Strategy�for�new�Projects�

The�Directors�plan�to�focus�on�Sub�Saharan�Africa�for�new�resource�projects.�

The�Directors�have�noted�in�the�last�several�years�a�significant�increase�in�the�presence�of�ASX�listed� junior�resource�companies�in�Africa�and�believe�the�trend�will�continue�into�the�future.�

Restructuring�of�Board�and�Management�

The�current�Board�will�remain�in�place�for�the�purposes�of�reviewing�new�opportunities�for�the� Company�to�acquire.��The�Directors�will�use�Consultants�to�review�new�opportunities�and�until�a�new� project�is�acquired�and�the�Company�is�further�recapitalised,�no�Director�fees�will�be�paid,�although� fees�will�commence�to�accrue�commencing�on�the�day�following�the�Meeting.��

In�addition�to�the�current�Directors,�the�Directors�have�invited�Mr�James�Allan�to�join�the�Board.�Mr� Allan,�a�resident�of�Johannesburg,�will�provide�the�Board�with�both�technical�and�jurisdictional� guidance�in�the�assessment�of�projects�reviewed�by�the�Company’s�Consultants.�Details�of�Mr�Allan’s� technical�qualifications�and�technical�background�are�discussed�later�in�this�Notice.��For�the�last�12� months,�Mr�Allan�has�been�the�independent�technical�and�financial�advisor�to�the�BPOPF�in�relation� to�the�Recovery�Plan.�

Divestment�of�Diamonex�USA�

The�Directors�are�also�likely�to�dispose�of�the�Company’s�interest�in�the�exploration�and�development� land�they�have�in�Northern�Colorado,�and�in�particular�the�Sloan�kimberlites.��The�Directors�will� assess�options�for�these�assets�following�the�passing�of�the�resolutions�the�subject�of�this�Notice�of� Meeting.�

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 15

�Any�divestment�is�likely�to�be�undertaken�within�the�next�3�to�6�months�and�is�unlikely�to�be� material�transactions�to�the�Company.��However�if�DiamonEx�USA�is�disposed�of�prior�to�the� acquisition�of�any�other�projects�that�Company�will�at�that�stage�have�no�other�assets�apart�from� cash�at�bank�

Financial�Position�post�transactions�

As�set�out�in�the�Independent�Expert’s�Report,�Appendix�A,�the�pro�forma�balance�sheet�is�based�on� the�audited�balance�sheet�of�DiamonEx�as�at�31�December�2010�adjusted�for�the�transactions� proposed�in�this�document.�

4. RESOLUTIONS TO BE CONSIDERED BY THE MEETING

RESOLUTIONS�1�and�2:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana��

Pursuant�to�the�Proposed�Transactions:�

(a)� The�shares�in�DBL�are�to�be�sold�to�Mantle�for�the�sum�of�$10.2�million,�the�Mantle� Consideration�will�be�paid�to�Flamenco�and�the�Note�Holders�as�part�of�the�full�and�final� settlement�of�all�money�owing�to�them�and�Settlement�Shares�to�satisfy�the�remaining�debt� owed�to�the�Note�Holders�will�be�allotted;�or�
(b)� In�the�event�that�the�Mantle�Agreement�fails�to�complete,�the�shares�in�DBL�are�to�be� transferred�to�a�nominee�of�Flamenco�and�the�Note�Holders,�the�Settlement�Shares�will�be� issued�to�the�Note�Holders�and�DiamonEx�will�be�released�from�its�debts.�

Regulatory�Requirements�

ASX�Listing�Rule�11.2�states�that�if�a�company�is�undertaking�a�significant�change�that�involves�that� company�disposing�of�its�main�undertaking,�then�the�company�must�obtain�the�approval�of�its� shareholders�and�otherwise�comply�with�the�requirements�of�the�ASX.�

Additionally�Listing�Rules�11.1.1�and�11.1.3�will�also�apply�to�the�Company.��As�noted�previously�the� completion�of�the�transactions�the�subject�of�the�Notice�of�Meeting�will�not�result�in�the�requotation� of�the�shares�of�the�Company�on�the�ASX.��

The�effect�of�the�application�of�Listing�Rules�11.1.1�and�11.1.3�is�that�in�order�to�achieve�a� requotation�of�its�shares�the�Company�will�be�obliged�to�satisfy�the�requirements�of�Chapters�1�and�2� of�the�ASX�Listing�Rules.��

In�turn�this�will�require�the�Company�to�meet�the�requirements�for�listing�in�the�ASX�as�if�it�was�a� company�seeking�initial�admission�to�the�ASX,�including�issuing�a�prospectus.��It�would�not�be�unusual� for�such�a�process�to�take�in�excess�of�6�months.�

The�information�included�in�this�Explanatory�Statement�and�the�accompanying�Independent�Expert’s� Report�aims�to�provide�shareholders�with�all�necessary�information�to�resolve�upon�Resolutions�1�and� 2.�

DiamonEx Limited – Notice of Meeting and Explanatory Statement

Page 16

RESOLUTION�3:�Approval�of�issue�of�shares�to�the�Botswana�Public�Officers�Pension�Fund�(BPOPF)��

BPOPF�currently�holds�62.5%�of�the�Notes�and�accordingly,�198,657,549�Shares�will�be�issued�to� BPOPF�as�a�result�of�the�Proposed�Transactions.�

Additionally�BPOPF�has�agreed�to�underwrite�a�private�placement�of�100,000,000�Shares�in�the� Company�at�a�placement�price�of�$0.005�per�Share�to�raise�$500,000�to�provide�the�Company�with� immediate�working�capital�post�the�Meeting.��

The�Directors�have�agreed�to�place�a�minimum�of�60,000,000�Shares�with�the�BPOPF,�and�will�look�to� place�the�balance�with�sophisticated�and�institutional�investors.�If�the�Directors�are�unable�to�place� the�balance,�BPOPF�has�agreed�to�take�up�those�additional�Shares�on�the�same�terms,�resulting�in�the� issue�to�BPOPF�of�up�to�100,000,000�Shares�pursuant�to�the�private�placement.��

Accordingly�as�a�result�of�the�transactions�outlined�in�this�Explanatory�Statement,�BPOPF�may�receive� up�to�298,657,459�Shares�in�DiamonEx.��As�a�consequence�BPOPF’s�relevant�interest�in�the�Shares�of� the�DiamonEx�will�increase�from�13.9%�to�46.9%�

Regulatory�Requirements��

Under�Listing�Rule�7.1,�the�Company�is�limited�to�issuing�up�to�15%�of�its�issued�capital�in�any�12� month�period�without�shareholder�approval,�subject�to�certain�exceptions.�

Shareholders�may�specifically�approve�an�issue�of�shares�under�Listing�Rule�7.1�subject�to� shareholders�being�provided�with�information�in�accordance�with�Listing�Rule�7.3.��

The�effect�of�shareholders�approving�an�issue�of�additional�shares�will�be�that�the�issue�will�not�be� counted�as�part�of�the�15%�rule,�and�the�Company�will�therefore�retain�a�greater�proportion�of�the� 15%�rule�for�any�subsequent�requirements�that�may�arise.�

In�accordance�with�Listing�Rule�7.3�the�Company�advises�as�follows.�

MaximumNumberof SecuritiestobeAllotted:	298,657,459Shares
PriceatwhichtheSecurities wereissued:	198,657,459Sharesat2centsperShare 100,000,000SharesatonehalfofacentperShare
TermsoftheSecurities:	FullyPaidOrdinaryShares
Nameoftheallottees (Investors):	BotswanaPublicOfficersPensionFund
DateofAllotment	Within3monthsofthedateoftheMeeting
UseofFundsRaised	Inrespectofthe198,657,459Sharesat2centsperSharenofunds willbereceived,astheallotmentofSharesisforthepurposesof thesettlementofoutstandingdebtsowedtoBPOPF.The settlementofthedebtsowedtoBPOPFispartoftheacorporate restructurebeingundertakenbytheCompany. 100,000,000SharesatonehalfofacentperSharethefunds receivedwillbeusedforworkingcapital.

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With�respect�to�resolution�3,�each�of�the�Directors�of�the�Company�recommends�that�shareholders� vote�in�favour�of�this�resolution.��

Take�over�disclosure�for�the�purpose�of�Item�7�of�section�611�of�the�Corporations�Act��

The�Corporations�Act�(Chapter�6)�prohibits�an�increase�in�the�relevant�interest�of�a�shareholder�above� the�threshold�of�20%.��A�shareholder’s�relevant�interest�can�exceed�the�20%�threshold�if�the�remaining� shareholders�approve�the�increase�in�that�shareholder’s�interest�in�the�company,�by�the�passing�of�an� ordinary�resolution.��

Resolution�3�seeks�shareholder�approval�for�an�increase�in�the�voting�power�of�BPOPF�above�the�20%� threshold.��The�following�additional�information�is�provided�for�this�purpose.�

The�BPOPF�was�established�in�2001.��The�BPOPF�was�established�to�pool�collective�savings�by�citizens� of�Botswana�to�be�invested�in�appropriate�asset�classes.��Assets�are�managed�on�behalf�of�both� active�and�pensioner�members�of�the�BPOPF.��The�BPOPF�has�had�an�exposure�to�private�equity� investments�as�early�as�2004.��

The�BPOPF’s�existing�level�of�investment�in�the�Company�has�been�previously�disclosed�in�this�Notice.��

The�table�below�sets�out�the�change�in�BPOPF’s�Share�in�the�Company�in�the�event�that�resolutions�1� to�5�are�passed.��

	PreMeeting Numberof Shares	PreMeeting percentage	Postpassingof resolutions1to6 –NumberofShares	Postpassingof resolutions1to6 –NumberofShares
Other Shareholders	166,766,996	86.21%	368,976,726	53.15%
BPOPF	26,657,200	13.79%	325,314,749 (Onplacementof 100,000,000Shares andconversionsfor repaymentofNote HolderDebt 225,314,749Shares)	46.85%
*Total*	*193,424,196*	*100%*	*694,291,475*	*100%*

BPOPF’s�intentions�regarding�the�future�of�the�Company�if�shareholders�agree�to�the�allotment�to� BPOPF�under�resolution�3�are�to�allow�the�Company�to�pursue�activities�for�the�purposes�of�finding�a� new�resource�project.��

BPOPF’s�intention�regarding�the�business�of�the�Company�is�to�assist�with�the�recapitalisation�of�the� Company,�through�underwriting�the�placement�of�100,000,000�Shares.��Once�a�new�resource�project� is�found,�the�BPOPF’s�intention�is�to�support�the�Company’s�plans�for�a�recapitalisation�of�the� Company�and�on�that�basis�to�apply�to�the�ASX�to�have�the�Company’s�Shares�requoted.��

Subject�to�completion�of�the�sale�of�the�shares�in�DBL�to�Mantle,�there�is�no�proposal�whereby�any� property�will�be�transferred�between�the�Company�and�BPOPF.��On�completion�of�the�sale�of�the� shares�in�DBL�to�Mantle,�the�Company�will�have�no�material�fixed�assets�that�could�be�redeployed�or� transferred.�

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�In�the�event�that�the�Mantle�Transaction�does�not�proceed,�BPOPF�along�with�Flamenco�and�the� other�Note�Holders�will�hold�an�interest�in�a�nomine�company�that�will�own�the�shares�of�DBL.�

BPOPF’s�intention�is�to�continue�with�present�arrangements�for�the�officers�of�the�Company.��At�the� date�of�this�Notice�of�Meeting�there�are�no�employees�of�the�Company.��The�current�dividend�policy� of�the�Company�will�not�change.��

As�previously�disclosed�in�this�Notice,�the�key�terms�of�the�proposed�arrangement�for�the�issue�of�the� Shares�to�BPOPF�as�contemplated�by�the�settlement�arrangements�between�the�Company,�the�Note� Holders�and�Flamenco�are�as�follows:�

Payment�of�the�sale�proceeds�received�by�the�Company�from�the�sale�of�the�shares�in�DBL�to� Mantle�or,�in�the�event�that�the�sale�to�Mantle�does�not�complete,�the�transfer�of�the�shares�in� DBL�to�Flamenco�and�the�Note�Holders�jointly;�and�
The�issue�of�317,852,078�Shares�in�the�Company�at�an�issue�price�of�$0.02�per�Share�representing� the�shortfall�in�the�value�of�the�DBL�shares�(as�determined�by�sale�of�the�DBL�shares�to�Mantle)� less�the�total�amount�owing�under�the�Flamenco�Loan�and�the�Notes.��

All�of�the�Directors�have�approved�the�proposal�to�put�this�resolution�to�shareholders.�

Each�Director�recommends�that�shareholders�should�vote�in�favour�of�this�resolution�as�it�is�will� ensure�that�the�current�debts�and�liabilities�of�the�Company�are�cleared��and�reduces�the�likelihood� that�the�Company�will�be�placed�into�liquidation�by�its�current�creditors.��

None�of�the�Directors�has�an�interest�which�is�affected�by�the�outcome�of�this�resolution.�

Please�refer�to�the�conclusions�stated�in�the�Independent�Expert’s�Report,�Appendix�A�stating�that�the� proposed�sale�of�the�shares�in�DBL�and�the�issue�of�Shares�to�the�Note�Holders�as�a�consequence�of� that�sale�is�fair�and�reasonable.��

RESOLUTION�4:�Approval�of�issue�of�Shares�to�creditors�of�the�Company��

Note�Holders�

Simultaneously�with�the�issue�of�Shares�to�BPOPF�as�discussed�above�in�Resolution�3,�shareholders’� approval�is�to�be�sought�to�issue�Shares�to:�

(a) Non�BPOPF�Note�Holders;�and��
(b) general�creditors�of�DiamonEx.�

Following�the�issue�of�Shares�to�BPOPF�a�shortfall�of�$1,329,650�remains�payable�to�the�Non�BPOPF� Note�Holders�in�respect�of�the�principal�amount�of�the�Notes.��Similarly�$1,054,240�will�remain�owing� to�Non�BPOPF�Note�Holders�in�respect�of�outstanding�interest.�It�is�proposed�to�satisfy�the� entitlements�owed�to�Non�BPOPF�Note�Holders�by�the�issue�to�them�of�119,194,529�Shares�issued�at� two�cents�per�share.�

Other�Creditors�

The�remaining�creditors�of�the�Company�who�have�agreed�to�convert�their�debts�into�equity�are�set� out�in�the�table�below.�

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Page 19

�Most�of�the�creditors�are�corporate�service�providers�to�the�Company�although�Messrs�Magang,� Duncan�and�King�are�all�ex�Directors�of�the�Company�who�resigned�more�than�18�months�ago.��

	$Owing	Sharestobeissued
CapitalCorporateFinance	$175,000	8,750,000
RFCCorporateFinanceLtd	$64,852	3,242,579
ConduitPRLtd	$54,654	2,732,732
EdisonInvestmentResearchLtd	$12,000	600,000
FoxDaviesCapitalLtd	$25,717	1,285,809
IRM	$15,812	790,625
DavidMagang	$33,000	1,650,000
DonDuncan	$31,167	1,558,350
GregKing	$489,485	19,687,579
Total(AU$)	$901,687	45,084,397

Regulatory�Requirements��

In�accordance�with�Listing�Rule�7.3�the�Company�advises�as�follows.�

MaximumNumberof SecuritiestobeAllotted:	164,278,926Shares
Priceatwhichthe Securitieswereissued:	2centsperShare
TermsoftheSecurities:	FullyPaidOrdinaryShares
Nameoftheallottees (Investors):	NonBPOPFNoteHolders,CapitalCorporateFinance,RFCCorporate FinanceLtd,ConduitPRLtd,EdisonInvestmentResearchLtd,Fox DaviesCapitalLtd,IRM,DavidMagang,DonDuncanandGregKing (theOtherCreditors).
DateofAllotment	Within3monthsofthedateoftheMeeting
UseOfFundsRaised	Nofundswillbereceived,astheallotmentofSharestotheOther Creditorsisforthepurposesofthesettlementofoutstandingdebts owedtotheOtherCreditors..

With�respect�to�resolution�4,�each�of�the�Directors�of�the�Company�recommends�that�shareholders� vote�in�favour�of�this�resolution.��

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RESOLUTION�5:�Approval�of�issue�of�Shares�to�Directors’�in�relation�to�the�conversion�of�creditor� debt��

Loans�made�by�Mr�Paul�Crawford�

Mr�Paul�Crawford�has�been�an�Executive�Director�and�the�Company�Secretary�of�the�Company�since� its�incorporation.�Mr�Crawford�has�remained�a�Director�of�the�Company�during�the�restructuring� period.�

Over�the�life�of�the�Lerala�Diamond�Mine�project�Mr�Crawford�has�advanced�money�to�the�Company� generally�to�provide�working�capital�in�times�of�urgent�need,�through�the�entity�Kuratyn�Pty�Ltd�as� trustee�for�the Crawford Family Trust.��None�of�these�loans�have�been�repaid.��As�at�the�date�of�this� Notice,�the�sum�of�$374,485�is�owing�to�Mr�Crawford�pursuant�to�loans�made�to�the�Company� through�Kuratyn�Pty�Ltd.�

All�advances�have�been�on�interest�free�terms,�unsecured,�and�repayable�on�demand.�Mr�Crawford� has�never�made�demand�on�the�Company�for�repayment�of�the�advances.�However�Mr�Crawford�has� advised�that�demand�will�be�made�in�the�event�that�the�shareholders�do�not�approve�the� transactions�contemplated�in�this�Notice�and�Explanatory�Statement.�Each�of�the�loans�has�been� independently�reviewed�and�verified�by�the�Auditors�of�the�Company.�

It�is�proposed�to�satisfy�the�loans�made�by�Mr�Crawford�by�the�issue�to�him�or�his�nominee�of� 18,724,250�Shares�issued�at�two�cents�per�Share.

Unpaid�salaries�and�fees�owing�to�Mr�Paul�Crawford�

In�addition�to�loan�advances�made�to�the�Company,�Mr�Crawford�from�time�to�time�has�waived� payment�of�fees�payable�to�him�or�his�consulting�company�Kuratyn�Pty�Ltd,�trading�as�Cambridge� Business�&�Corporate�Services�Pty�Ltd�(“Cambridge�Services”)�in�relation�to�either�Directors’�fees�or� fees�for�services,�primarily�accounting�and�company�secretarial.�As�at�the�date�of�this�Notice,� $251,322�is�owing�to�Mr�Crawford�or�Cambridge�Services.�

Mr�Crawford�waived�payment�of�the�fees�for�almost�24�months�in�order�to�preserve�cash�flow�for�the� Company�during�the�critical�period�of�the�start�up�and�commissioning�of�the�Lerala�Diamond�Mine,� dating�back�to�2007�and�2008.��It�is�proposed�to�satisfy�the�debt�owed,�by�the�issue�to�Mr�Crawford� or�his�nominee�of�12,566,125�Shares,�issued�at�two�cents�per�Share.

Directors’�fees�owing�to�31�December�2008�to�Mr�Paul�Crawford�

Mr�Crawford�in�his�capacity�as�a�Non�Executive�Director�of�the�Company�accrued�Directors’�fees� totalling�$33,000�to�the�period�end�31�December�2008.��

All�Directors,�including�those�Directors�who�have�resigned,�agreed�to�stop�accruing�fees�at�31� December�2008�until�such�time�as�a�viable�reconstruction�plan�for�the�Company�was�put�into�effect.��

Neither�Mr�Crawford�nor�Mr.�O’Neill�(nor�any�of�the�recently�appointed�Directors)�have�accrued� Directors’�fees�since�and�have�agreed�to�waive�them�up�to�the�end�of�the�Meeting.��

It�is�proposed�to�satisfy�the�Directors’�fees�payable�made�by�Mr�Crawford�by�the�issue�to�him�of� 1,650,000�Shares�issued�at�two�cents�per�Share.

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Page 21

Statutory�entitlements�owing�to�Mr�Dan�O’Neill�

Mr�Dan�O’Neill�was�the�founding�Managing�Director�of�the�Company�whose�employment�with�the� Company�dates�back�to�2001.��

Mr�O’Neill’s�accrued�employee�entitlements�for�annual�leave�and�long�service�leave�total�$99,808.58.��

It�is�proposed�to�satisfy�the�entitlements�owed�to�Mr�O’Neil�by�the�issue�to�him�of�4,990,429�Shares� issued�at�two�cents�per�Share.

Regulatory�Requirements�

Chapter�2E�of�the�Corporations�Act�

Chapter�2E�of�the�Corporations�Act�prohibits�a�public�company�from�giving�a�financial�benefit�to�a� related�party�of�a�public�company�unless�the�benefit�falls�within�one�of�various�exceptions�to�the� general�prohibition.��

One�of�the�exceptions�includes�where�the�company�first�obtains�the�approval�of�its�shareholders�in� general�meeting�in�circumstances�where�the�requirements�of�Chapter�2E�in�relation�to�the�convening� of�that�meeting,�have�been�met.�

A�“related�party”�for�the�purposes�of�the�Corporations�Act�is�defined�widely�and�includes�a�director�of� a�public�company�and�former�directors�of�a�public�company.�

A�“financial�benefit”�for�the�purposes�of�the�Corporations�Act�has�a�very�wide�meaning.��It�includes� the�public�company�paying�money�or�issuing�securities�to�a�related�party.��In�determining�whether�or� not�a�financial�benefit�is�being�given,�it�is�necessary�to�look�to�the�economic�and�commercial� substance�and�effect�of�what�the�public�company�is�doing�(rather�than�just�the�legal�form).��Any� consideration�which�is�given�for�the�financial�benefit�is�to�be�disregarded,�even�if�it�is�full�or�adequate.�

This�proposed�resolution,�if�passed,�will�confer�financial�benefits�on�each�of�Mr�Paul�Crawford�and� Dan�O’Neill.��The�Company�therefore�seeks�shareholder�approval�in�accordance�with�the�requirements� of�Chapter�2E�of�the�Corporations�Act�and�for�this�reason�and�for�all�other�purposes,�the�following� information�is�provided�to�shareholders:�

1. The�related�party�to�whom�resolution�5�will�permit�the�financial�benefit�to�be�given�

Mr�Paul�Crawford�and�Dan�O’Neill,�each�a�related�party�of�the�Company�as�each�is�a�Director�of�the� Company.��

2. The�nature�of�the�financial�benefit�

The�allotment�of�37,930,804�Shares�to�Paul�Crawford�(31,290,375�Shares)�and�Dan�O’Neill� (11,540,429�Shares),�at�an�issue�price�of�2�cents�each,�the�total�issue�consideration�being� $758,615.58.�

3. Directors’�recommendation�

The�Directors,�with�the�exception�of�Mr�Paul�Crawford�and�Mr�Dan�O’Neill,�recommend�that� shareholders�vote�in�favour�of�resolution�5.��

The�non�interested�members�of�the�Board�of�the�Company�consider�that�the�settlement�of�the�debts� owing�to�Mr�Paul�Crawford�and�Mr�Dan�O’Neill�are�on�arm’s�length�commercial�terms,�given�the�

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Page 22

restructure�arrangements�over�all�and�the�value�of�the�underlying�Shares�being�allotted�as�settlement� of�the�debt�owed�to�Mr�Paul�Crawford�and�Mr�Dan�O’Neill.��

4.� Recipients’�interest�and�other�remuneration�

Mr�Paul�Crawford�and�Mr�Dan�O’Neill�each�have�a�material�personal�interest�in�the�outcome�of� resolution�5,�as�it�is�proposed�that�Shares�be�issued�to�each�of�them.��Excluding�the�Shares�proposed� to�be�issued�under�this�resolution,�Mr�Paul�Crawford�and�Mr�Dan�O’Neill�hold�the�following�Shares� and�options�to�subscribe�for�Shares�in�the�Company:�

*Director*	*Shares*	*Options*
MrPaulCrawford	4,123,350	Nil
MrDanO’Neill	4,900,000	1,000,000
*Total*	*9,023,350*	*1,000,000*

5. Valuation�

The�Shares�to�be�issued�pursuant�to�resolution�5�are�in�a�class�of�securities�that�are�not�currently� traded�on�the�ASX.��Accordingly�it�is�not�possible�to�provide�a�valuation�of�the�Shares.��Prior�to�the� suspension�of�trading�of�the�Company’s�Shares�in�January�2009�the�Shares�in�the�Company�last�traded� at�$0.045��

6�� Any�other�information�that�is�reasonably�required�by�shareholders�to�make�a�decision�and� that�is�known�to�the�Company�or�any�of�its�Directors�

There�is�no�other�information�known�to�the�Company�or�any�of�its�Directors�concerning�resolution�6,� save�and�except�as�follows:�

7. Opportunity�Costs�

The�opportunity�costs�and�benefits�foregone�by�the�Company�issuing�the�Shares�pursuant�to� resolution�5�is�the�dilutionary�impact�on�the�issued�share�capital�of�the�Company.��This�is�discussed� further�below.�

8.� Taxation�Consequences�

No�stamp�duty�will�be�payable�in�respect�of�the�grant�of�the�Shares.��No�GST�will�be�payable�by�the� Company�in�respect�of�the�grant�of�the�Shares�(or�if�it�is,�it�will�be�recoverable�as�an�input�credit).�

AASB�2�“Share�Based�Payments”�requires�that�these�payments�shall�be�measured�at�the�more�readily� determinable�fair�value�of�the�equity�instrument.�Under�the�accounting�standards,�this�amount�will�be� expensed�in�the�statement�of�financial�performance.��

Where�the�grant�date�and�the�vesting�date�are�different,�the�total�expenditure�calculated�will�be� allocated�between�the�two�dates�taking�into�account�the�terms�and�conditions�attached�to�the� instruments�and�the�counterparties�as�well�as�management’s�assumptions�about�probabilities�of� payments�and�compliance�with�and�attainment�of�the�set�out�terms�and�conditions.�

8. Dilutionary�Effect��

The�issue�of�Shares�to�Mr�Paul�Crawford�and�Mr�Dan�O’Neill�respectively,�will�have�the�following� effect�on�the�current�issued�capital�of�the�Company:�

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Page 23

*Shareholder*	*Shareholding*	*%ofTotal* *ShareCapital*	*Aftertheissueof* *Sharesto* *Directors5*	*%ofTotalShare* *CapitalAfterthe* *issueofSharesto* *theDirectors*
*Other* *Shareholders*	647,337,321 (Note1)	98.63%	647,337,321	93.23%
*MrPaulCrawford*	4,123,350	0.63%	35,413,725	5.10%
*MrDanO’Neill*	4,900,000	0.74%	11,540,429	1.67%
*TOTAL*	*656,360,671*	*100%*	*694,291,475*	*100%*

Note�1:��The�total�stated�in�this�table�assumes�that�all�of�Resolutions�1�to�4�as�stated�in�this�Notice�have�been� passed�and�that�none�of�the�options�currently�on�issue�are�exercised.��

The�dilutionary�impact�of�Resolution�5�is�therefore�that�Other�Shareholders�are�diluted�by�5.4%.�

Save�as�set�out�in�this�Explanatory�Statement,�the�Directors�are�not�aware�of�any�other�information� that�will�be�reasonably�required�by�shareholders�to�make�a�decision�in�relation�to�benefits� contemplated�by�resolution�5.�

Listing�Rule�10.11

Listing�Rule�10.11�requires�an�entity�to�obtain�the�approval�of�shareholders�to�an�issue�of�securities�to� a�related�party.�Mr�Paul�Crawford�and�Mr�Dan�O’Neill�are�each�a�related�party�to�the�Company.�

For�the�purposes�of�Listing�Rule�10.13,�the�Company�advises�as�follows:�

*NumberofSecuritiestobe* *issued:*	37,930,804
*Timing:*	TheShareswillbeissuedandallottednotlaterthan1monthfrom thedateofthisMeeting.
*Priceatwhichthe* *Securitiesaretobeissued:*	2centsperShare
*TermsoftheSecurities:*	FullyPaidOrdinaryShares
*Nameofallotteeand* *relationshiptothe* *Company:*	MrPaulCrawfordandMrDanO’Neill–EachofwhomareDirectors oftheCompany.
*Useofthefunds:*	Nofundswillbereceived.TheallotmentofSharesismadeto outstandingdebtsowedtoMrCrawfordandMrO’Neill.The settlementofthedebtsowedtoMrCrawfordandMrO’Neillispart ofacorporaterestructurebeingundertakenbytheCompany.

In�accordance�with�Listing�Rule�7.2�Exception�14,�since�approval�is�being�sought�under�Listing�Rule� 10.11,�approval�is�not�required�to�be�obtained�from�shareholders�under�Listing�Rule�7.1.�

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Page 24

With�respect�to�resolution�6,�the�Directors,�with�the�exception�of�Mr�Paul�Crawford�and�Mr�Dan� O’Neill,�recommend�that�shareholders�vote�in�favour�of�resolution�6.��

The�reason�for�this�recommendation�is�that�this�allotment�is�part�of�an�overall�restructure�of�the� Company’s�balance�sheet�which�will�ensure�that�the�Company’s�debt�position�is�resolved�and�its� existing�creditor’s�claims�against�the�Company�for�moneys�owed�are�settled.��

RESOLUTION�6:�Appointment�of�a�new�Director�

Mr�James�Allan,�BSc�Engineering�(Mining),�MBA�(University�of�Witwatersrand)�

Mr�Allan�is�joint�Managing�Director�of�Allan�Hochreiter,�a�Johannesburg�based�boutique�corporate� finance�advisory�company�operating�within�the�mining,�and�related�resources,�industries.� The�company�was�started�by�Mr�Allan�in�2005�concentrating�on�the�diamond�and�coal�sectors�in� which�Mr�Allan�had�been�a�top�rated�analyst�on�the�JSE�for�a�number�of�years.�Since�then�the� company�has�expanded�into�other�resources�including�platinum�with�the�arrival�of�Mr�Rene� Hochreiter�in�2006.�

Mr�Allan�commenced�his�career�as�an�underground�coal�mining�engineer,�but�for�the�most�part�of�it� has�been�a�resource�analyst�working�within�Anderson�Wilson�where�he�was�a�Partner,�and�after�that� with�Barnard�Jacob�and�Mellan.�For�a�brief�period�he�worked�for�Questco,�another�boutique�advisory� company,�before�setting�up�Allan�Hochreiter.�

Possibly�Mr�Allan’s�most�significant�role�in�the�diamond�sector,�was�in�representing�the�De�Beers� minorities�in�the�privatisation�of�De�Beers.�

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Page 25

�

14 February 2011

Private & Confidential

The Directors DiamonEx Limited 1/349 Coronation Drive MILTON QLD 4064

Dear Sirs

Independent Expert’s Report

Introduction

DiamonEx Limited (“DiamonEx”) entered into an agreement for the sale of all the issued share capital of Diamonex Botswana Limited (“DBL”) on 12 January 2011 with Mantle Diamonds Limited (“Mantle”). The Agreement constitutes an asset sale with the consideration being the sum of US$3.25 million in cash and the issue of 45,330,913 shares in Mantle (at an issue price of £0.10 per share).

The consideration for the sale of DBL is to be paid to the Company’s secured lenders, Flamenco (Pty) Limited (in full payment) and in part payment to the holders of the convertible capital notes (the Noteholders), for the release of their respective first and second charge over the DBL share capital. It is also proposed that the remaining amounts owed to the Noteholders be repaid by the issue of ordinary shares in DiamonEx at an issue price of 2 cents each. As a result of these transactions, the Botswana Public Officers Pension Fund (BPOPF), which holds 62.5% of the convertible notes and 13.8% of the DiamonEx issued capital, will increase their shareholding in DiamonEx to 37.9%. BPOPF has also agreed to underwrite and subscribe to a private placement of 100 million ordinary shares in DiamonEx on completion of the above transactions. If BPOPF subscribe for the full placement, their shareholding in DiamonEx will increase to 46.9%.

As at the date of the report the sale agreement with Mantle remains conditional. In the event that the conditions precedent to that sale are not satisfied, or Mantle otherwise fail to complete the transaction with DiamonEx, Flamenco and the Noteholders have entered into an agreement whereby DiamonEx will transfer the shares in DBL to a nominee of Flamenco and the Noteholders in consideration for the forgiveness of debt owed by DiamonEx to Flamenco and the Noteholders and the issue of the same number of shares in DiamonEx as would have been issued to the Noteholders if the transaction with Mantle were to proceed.

You have requested JR Securities Limited (Johnston Rorke) to prepare an Independent Expert’s Report advising whether the Proposed Transactions are fair and reasonable to the non-associated shareholders of DiamonEx.

Purpose of Report

Under section 606 of the Corporations Act 2001 a person cannot acquire a relevant interest in a company’s issued voting shares if, because of the transaction, the person’s voting power in the company increases to more than 20% (if their starting point was below 20%) or increase to below 90% (if their starting point was above 20%). An exception to this general prohibition is if such an acquisition is passed by resolution at a general meeting.

ASX Listing Rule 11.2 requires a company to get approval of its shareholders if it is disposing of its main undertaking. The shares in DBL in effect constitute the main undertaking of DiamonEx and as such DiamonEx Directors consider it to be appropriate to commission a report from an Independent Expert to comment on the sale of the shares of DBL.

Liability limited by a scheme approved under Professional Standards Legislation

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DiamonEx – Independent Expert’s Report

ASX listing Rule 10.1 requires a listed entity to obtain approval from shareholders if it proposes to dispose of a substantial asset to a related party, a substantial shareholder, an associate or is such that, in the ASX’s opinion, the transaction should be approved by its members. Although Mantle is not regarded as a related party, the proposed transaction is of such significance to DiamonEx that the Directors have considered it appropriate to commission a report from an Independent Expert stating whether the sale of DBL is fair and reasonable to the non-associated shareholders. BPOPF will receive part of the DBL sale consideration (as part repayment of the secured loans owing by DiamonEx), and will also receive shares in DiamonEx on conversion of the remaining liability owed to them. As such, for the purpose of this report, we have considered BPOPF to be an associated shareholder.

This report is to be included in the Notice of Meeting to be sent to DiamonEx shareholders and has been prepared for the exclusive purpose of assisting shareholders of DiamonEx in their consideration of the Proposed Transactions. This report may not be used for any other purpose.

Opinion

In our opinion, the Proposed Transactions are fair and reasonable to the non-associated shareholders. The principal factors we have taken into account in forming our opinion are discussed in detail in the remainder of our report. The above opinion should be considered in conjunction with, and not independently of, the information set out in the remainder of this report, including the appendices.

The opinion of Johnston Rorke is based on economic, market and other conditions prevailing at the date of this report. This opinion should be read in conjunction with the attached report and the Explanatory Memorandum forming part of the Notice of General Meeting of the Company.

Yours faithfully

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Ross Walker Director

DiamonEx – Independent Expert’s Report

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1.	THE PROPOSED TRANSACTIONS ............................................................................................ 4
2.	INDEPENDENT EXPERT REPORT ............................................................................................. 7
3.	BACKGROUND ON DIAMONEX & DBL ..................................................................................... 9
4.	FINANCIAL POSITION OF DIAMONEX ..................................................................................... 12
5.	FINANCIAL POSITION OF DIAMONEX BOTSWANA (PTY) LIMITED ...................................... 16
6.	ASSESSMENT OF FAIRNESS .................................................................................................. 19
7.	ASSESSMENT OF REASONABLENESS .................................................................................. 24
APPENDIX 1: GLOSSARY OF TERMS ............................................................................................ 25
APPENDIX 2: SOURCES OF INFORMATION .................................................................................. 26
APPENDIX 3: DISCLAIMER ............................................................................................................. 27
APPENDIX 4: FINANCIAL SERVICES GUIDE ................................................................................. 28

DiamonEx – Independent Expert’s Report

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1. THE PROPOSED TRANSACTIONS

1.1 Summary of Proposed Transactions

On 12 November 2010 DiamonEx announced that it had entered into a conditional agreement to sell the shares in its wholly owned subsidiary, DBL, to Mantle together with proposals for the restructuring and recapitalisation of the Company. A formal Agreement with Mantle (the “Mantle Agreement”) for the sale of DBL was executed on 12 January 2011. A summary of the terms and conditions of the Mantle Agreement are set out in Section 1.2 below and in the Explanatory Statement prepared by the Directors. A summary of the alternate agreement the company has entered into with Flamenco and the Noteholders (the “Flamenco/Noteholders Agreement”) is also set out in Section 1.2. The Notice of General Meeting and Explanatory Statement sets out a number of resolutions to be approved by the DiamonEx shareholders at a meeting to be held on 25 March 2011. The resolutions include, among other items, the following proposals which are the subject of this report:

(i) Resolution 1 & 2: Approval for the sale of all the shares in DBL

It is proposed to sell all the issued shares in DBL (a wholly owned subsidiary of DiamonEx) to Mantle for consideration valued by the Directors at approximately $10.2 million. The consideration, which is to comprise US$3.25 million and 45,330,913 ordinary shares in Mantle (at £0.10 each), will, in turn, be paid to the Company’s two secured lenders, Flamenco and the Noteholders, as shown below.

Should Mantle fail to complete the transaction, it is proposed that all the issued shares in DBL be transferred to a nominee of Flamenco and the Noteholders in consideration for the forgiveness of all debt owed by DiamonEx to Flamenco and the Noteholders and the issue of the same number of shares in DiamonEx as would have been issued to the Noteholders if the transaction with Mantle were to proceed. This alternate transaction will provide the same out come for DiamonEx in that the debts to Flamenco and the Noteholders will be discharged and 317,852,078 shares will be issued to the Noteholders, of which BPOPF will receive 198,657,549.

Mantle consideration � Cash US$3,250,000 � Shares in Mantle 45,330,913 @ £0.10 Proceeds applied to repay DiamonEx secured lenders � Flamenco � Noteholders Remaining amounts owing to DiamonEx secured lenders � Flamenco � Noteholders – loan balance – accrued interest	BWP’000 A$’000 20,995 3,250 44,877 6,947
	65,872 10,197
	38,778 6,003 27,094 4,194
	65,872 10,197
	- - 22,905 3,546 18,161 2,811
	41,066 6,357

The loans owing by DiamonEx to Flamenco and the Noteholders are payable in Botswana Pula (BWP). The exchange rates used at the time of the Mantle Agreement (November 2010), for the purpose of determining the value of the Mantle consideration and the number of shares in DiamonEx to be issued to the Noteholders (as payment for the remaining liability), were A$1 to BWP 6.46 and £1 to BWP 9.9. It was also agreed that interest on the loan owing to the Noteholders would accrue up to 4 February 2011, being the expected date of completion.

The terms of both Agreements also requires DiamonEx to effectively forgive all receivable loans and advances made to DBL which, at 31 December 2010, totalled approximately A$25.6 million (fully provided in the Company’s financial statements).

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DiamonEx – Independent Expert’s Report

(ii) Resolution 3: Approval of issue of shares to the Botswana Public Officers Pension Fund (BPOPF)

Issue of Shares in Settlement of debts

Issue of shares in DiamonEx at an issue price of 2 cents each to BPOPF and the other Noteholders as settlement of the remaining amounts owing to the secured lenders as follows:

Noteholders – loan – interest	BPOPF	Other Noteholders
	Balance A$’000 No. of Shares to be issued (‘000) 2,216 110,804 1,757 87,853	Balance A$’000 No. of Shares to be issued (‘000) 1,330 66,483 1,054 57,712
	3,973 198,657	2,384 119,195

Issue of shares in relation to a capital raising

BPOPF, which holds 62.5% of the Notes and 13.8% of the DiamonEx issued capital (before the impact of the Proposed Transactions), has agreed to underwrite a private placement of 100 million shares in the Company at an issue price of 0.5 cent each to raise $0.5 million.

The above resolutions are hereafter referred to as the Proposed Transactions. In addition to the above, DiamonEx proposes to issue shares in the Company to unsecured creditors, including former and current directors, in satisfaction of amounts owed to them. The issue of these shares, although part of the resolutions to be approved by shareholders, does not form part of the proposed transactions which are the subject of this report.

1.2 Summary of Agreements

(i) Mantle Agreement

The following is a high level summary of the terms and conditions of the Mantle Agreement:

� Payment of consideration

Payment at closing date Retention payment	Cash US$’000 Shares in Mantle ‘000 2,750 42,181 500 3,150
	3,250 45,331

Closing date means seven business days after all conditions have been satisfied. Retention payment is to be made 6 months after the closing date.

The intercompany loan between DiamonEx and DBL will be assigned by DiamonEx to Mantle

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DiamonEx – Independent Expert’s Report

Conditions precedent
Both parties undertaking a legal, financial and technical due diligence on the other party.
Mantle raising sufficient capital to pay the cash component of the purchase price and to fund the operation of the Lerala Mine. (Mantle currently has a conditional offer of funding in place).
Conditions to completion
The Botswana Government consenting to the change in control of DBL.
Approval by the DiamonEx shareholders (meeting to be held on 3 March 2011).
Warranties
DiamonEx has provided Mantle with warranties in regard to the truth, completeness and accuracy of various information in relation to DBL.
There are no warranties relating to the state of repair or the fitness for purpose of the Lerala Mine.
The warranties are supported by the retention payment noted above and an indemnity from DiamonEx to make good the breach of any warranty. To the extent that any claim for breach of warranty exceeds the retention amount, Mantle will continue to have a claim against DiamonEx.

(ii) Flamenco/Noteholders Agreement

The following is a high level summary of the terms and conditions of the Flamenco/Noteholders Agreement:

Payment of consideration

The forgiveness of all debt owed by DiamonEx to Flamenco and the Noteholders and the release of DiamonEx of securities granted in respect of those debts.

The issue to the Noteholders of the 317,852,000 of shares in DiamonEx.

The intercompany loan between DiamonEx and DBL will be assigned by DiamonEx to nominee purchaser.

Conditions precedent

The failure of the Mantle transaction to proceed.

Conditions to completion

Flamenco and the Noteholders advising of a nominee company to whom the shares of DBL will be transferred.

Shareholder approvals

Warranties Nil

DiamonEx – Independent Expert’s Report

2 INDEPENDENT EXPERT REPORT

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2.1 Purpose of the report

Under section 606 of the Corporations Act 2001 (“the Act”) a person must not acquire a relevant interest in the issued voting shares in a company if, because of the transaction, that person’s or another party’s voting power in the company increases:

from 20% or below to more than 20%; or
from a starting point that is above 20% and below 90%.

An exception to this general prohibition is set out in section 611 (item 7), whereby such an acquisition is passed by resolution at a general meeting at which no votes are cast in favour of the resolution by the acquirer or the disposer or their respective associates, and for which shareholders of the company have been given all information that is material to the decision on how to vote at the meeting.

ASIC Regulatory Guide 74 “Acquisitions Agreed to by Shareholders” suggests that the obligation to supply shareholders with all information that is material to the decision on how to vote on a resolution can be satisfied by either:

(a) the Independent Directors undertaking a detailed examination of the proposal themselves, if they consider that they have sufficient expertise, experience and resources; or
(b) commissioning an independent expert’s report.

BPOPF holds 62.5% of the Notes and 13.8% of the DiamonEx share capital. The issue of shares to the Noteholders, as settlement of their remaining liability, together with the potential issue of shares to BPOPF through the underwritten placement, will result in BPOPF increasing its shareholding in DiamonEx as shown below.

Relevant Interests Held by	Relevant Interests Held by	BPOPF
	After Payment of
At Report Date	Remaining Liability	Post Placement*
%	%	%
13.8	37.9	46.9*

*Assumes the underwritten placement of 100 million shares in DiamonEx are all issued to BPOPF.

As such, the Directors of DiamonEx have commissioned JRS to prepare an Independent Expert’s Report as part of the information which will be provided to the non-associated shareholders in seeking their approval for the Proposed Transactions. Our report should not be used for any other purpose.

ASX Listing Rule 10.1 also requires a listed entity to obtain approval of the holders of its ordinary securities if it proposes to acquire or dispose of a substantial asset from or to a related party, a subsidiary holder, an associate of any of the aforementioned, or a person whose relationship with the listed entity or any of the aforementioned is such that, in the ASX’s opinion, the transaction should be approved by its members. ASX Listing Rule 10.2 states that an asset is substantial if its value is five percent or more of the equity interests of the entity as set out in the latest financial statements given to the ASX.

DiamonEx – Independent Expert’s Report

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Although Mantle is not regarded as a related party, the proposed sale of DBL is of such significance to DiamonEx that the Directors have considered it appropriate to commission a report from an Independent Expert stating whether the sale of DBL is fair and reasonable to the non-associated shareholders. Since BPOPF will receive part of the DBL sale consideration (as part repayment of the secured loans owing by DiamonEx) and will also receive shares in DiamonEx on conversion of the remaining liability owed to them, for the purpose of this report we have considered BPOPF to be an associated shareholder.

2.2 Assessment of Fairness & Reasonableness

The Act and the ASX Listing Rules do not provide a definition as to the meaning of fair and reasonable. However, guidance is provided by the Regulatory Guides issued by the Australian Securities and Investments Commission (ASIC), which establish certain guidelines in respect of independent expert reports required under the Act.

Under ASIC Regulatory Guide 111 (RG111), which provides guidance in respect of the content of expert reports, a control transaction (which under the RG111 definition includes the Proposed Transactions) is:

fair, when the value of the consideration is equal to or greater than the value of the securities subject to the proposed scheme. The comparison must be made assuming 100% ownership of the target company; and
reasonable, if it is fair, or despite not being fair, after considering other significant factors, securityholders should accept the offer under the proposed scheme, in the absence of any higher bids.

To assess whether the Proposed Transactions are in the best interests of the non-associated shareholders, we have adopted the test of whether the Proposed Transactions are either fair and reasonable, not fair but reasonable, or neither fair nor reasonable, as set out in RG111.

In determining whether the Proposed Transactions are fair and reasonable we have:

estimated the value of DBL;
estimated the value of the Mantle consideration;
compared the value of DBL to the value of the consideration being offered by Mantle;
estimated the value of the shares in DiamonEx assuming the sale of DBL to Mantle but before conversion of the remaining debt to equity;
assessed the fairness of the proposed repayment of the secured loans by comparing the value of the consideration to be received by the secured lenders to the value of the loans owed to them;
assessed the fairness of the underwriting agreement with BPOPF by comparing the value of the shares in DiamonEx, post conversion of debt to equity, to the issue price for the private placement; and
assessed the reasonableness of the Proposed Transactions having regard to the potential advantages and disadvantages to non-associated shareholders of the Proposed Transactions.

2.3 Current Market Conditions

Our opinion is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.

DiamonEx – Independent Expert’s Report

3 BACKGROUND ON DIAMONEX & DBL

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3.1 Summary

In March 2004 DiamonEx listed on the ASX followed by the Botswana Stock Exchange (BSE) in July 2004. The Company later listed its shares on the Alternative Investment Market of the London Stock Exchange (LSE). DiamonEx focussed almost exclusively on developing its Lerala Diamond Mine in Botswana. Funding the development of the Lerala Mine was through a combination of equity and debt.

Further background information regarding the problems associated with the Lerala Mine and the appointment of a Judicial Manager (similar to an Administrator under Australian law) to DBL is set out in Section 3.2 below. As a consequence, on 26 January 2009 DiamonEx applied to the ASX, BSE and LSE to suspend trading in its shares which continue to be suspended on ASX but have been delisted on both the BSE and LSE.

Since early 2009 the Directors have investigated a number of alternatives regarding the Company’s future. In March 2009 the Directors advised that DiamonEx had entered into a conditional agreement with Fleming Asset Management Botswana (Pty) Limited, acting on behalf of the Noteholders, for the sale of 80% of the shares in DBL. The consideration was to include DiamonEx being released from all obligations owing to the Noteholders. The Noteholders also agreed to provide DiamonEx with a loan A$0.5 million and DBL with a loan of up to A$6.5 million to settle DBL’s debts and provide ongoing working capital. The agreement included a number of conditions precedent. On 2 October 2009 DiamonEx announced that it could not satisfy all the conditions and that the agreement had terminated.

On 31 October 2009 the Directors announced a proposal to issue approximately 865 million shares in DiamonEx at A$0.01 each to effect the conversion of the entire indebtedness of the Noteholders, subject to approval by DiamonEx shareholders. This proposal was never put to the DiamonEx shareholders. However, had this proposal been approved, the Noteholders would have owned 81% of the Company’s issued capital and BPOPF would have held approximately 55%.

On 12 November 2010 DiamonEx announced that it had entered into a conditional agreement to sell DBL to Mantle together with proposals for restructuring and recapitalising the Company, which are the subject of this report.

3.2 DBL – Judicial Management and Recovery Plan

The following information has been extracted from the Directors’ Report of DiamonEx included in the Company’s Financial Report for the year ended 30 June 2010 and provides background information regarding the events which have led to Proposed Transactions being put to the DiamonEx shareholders.

Review of Operations

The Lerala Diamond Mine commenced commissioning in April 2008. By August 2008 it was still experiencing significant operational and diamond recovery problems.

By the end of 2008, the plant had begun to perform nearer to its specification and during the months of October through to December 2008, 160,000 tonnes of ore were processed, recovering 43,000 carats of diamonds. An analysis was then done on minor engineering works which would improve plant performance to at least 100,000 tonnes per month and thus achieve its name plate specification.

By the middle of October 2008, the Mine had recovered around 10,000 carats, which were arranged to be sold by WWW International Diamond Consultants (“WWWIDC”). WWWIDC were engaged by DBL on a two year contract to sell Lerala’s goods.

DiamonEx – Independent Expert’s Report

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WWWIDC valued the 10,000 carats at +/-US$50 per carat, and that valuation was supported by the Government of Botswana’s independent valuation. One week later, the goods were put up for sale via WWWIDC’s online closed tender process. Disappointingly the sales only achieved a US$20 per carat average price.

The advice from WWWIDC after this sale was that due to the Global Financial Crisis there had been a dramatic decline in rough diamond prices. By the time DBL sought to sell its first diamonds, buyer interest had disintegrated and buyers had disappeared from the market altogether.

As a consequence of the previous delay in commencing production, the development cost overruns and the virtual non existence of a market for the Company’s products the Company found itself in financial difficulties in late October 2008. The Company requested that it be suspended from trading on the ASX, the LSE and the BSE on 27 January 2009.

The Government of Botswana, in a show of support for the project, provided a short term funding line of BWP10 million secured against further diamond recovery of around 25,000 carats to give DBL time to put an off-take contract in place at an acceptable price to underwrite sales going forward, and to then re-capitalise the Company. However the continuing decline in the world economy meant the diamond market did not improve and the prospect of an off take contract at an acceptable price became extremely remote.

Appoint of Judicial Manager to DBL

The Directors of DBL applied to the Botswana High Court to place DBL into Provisional Judicial Management on 23 January 2009, which was subsequently confirmed by the High Court on 27 March 2009, for a period of 12 months from that date. In March 2010, the Botswana High Court extended the Judicial Management Order to 27 September 2010. Following re-structuring of group debt and settlement with DBL’s unsecured and some secured creditors, DBL came out of Judicial Management on 27 September 2010.

Following appointment of the Judicial Manager the Directors of the Company immediately started working with the Judicial Manager and the creditors of the Company and DBL, to restructure and recapitalise both companies’ balance sheets with a view to putting the Lerala mine onto care and maintenance until such time as the rough diamond market recovered.

A recovery plan (the “Recovery Plan”) for DBL was presented by the Company to the Botswana High Court on 23 January 2009. On 27 March 2009 when the Judicial Management was confirmed by the High Court, the Company proceeded to execute the Recovery Plan. The Recovery Plan provided for:

the Mine being placed on care and maintenance;
Raising of capital to fund the plan;
Securing an acceptable off take contract for the unprocessed stockpile;
Profitably processing the stockpile ore over 6 months;
Polishing diamonds to improve value with a view to selling polished product at a better price; and
Securing a second off take contract for the ongoing production after the stock pile ore was processed.

The Recovery Plan was put on hold when in April 2009, the European Investment Bank (“EIB”), DBL’s main banker and secured lender, withdrew its support for the plan and proceeded to apply to the Botswana High Court to have DBL put into liquidation.

In August 2009, the Botswana High Court dismissed the EIB’s application and the Judicial Manager was then able to proceed to execute his part of the Recovery Plan. EIB brought a further application in August 2009 in the Botswana High Court against the Company to enforce two charges that the EIB held over the shares in DBL, and the loan account from the Company to DBL. The Company opposed the application on the grounds that the charges only secured debts owing by the Company to EIB, of which there are none.

DiamonEx – Independent Expert’s Report

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In October 2009 the Botswana High Court found in favour of the Company and dismissed EIB’s application, and in late January 2010, the decision of the Botswana High Court was upheld by the Botswana Court of Appeal.

The net result of this case is that the Company’s two main assets, the shares it owns in DBL and the loan advances it has made to DBL, were not encumbered to EIB. However, the need to defend the legal proceedings and the uncertainty created by the litigation meant that the implementation of the Recovery Plan was substantially delayed.

The Recovery Plan

The Recovery Plan has to date been promoted, managed and funded by Fleming Asset Management Botswana (Pty) Limited (“Fleming”), a Botswana investment fund management company whose clients hold a large proportion of the Convertible Notes previously issued by the Company, and more recently by Fleming’s client, the BPOPF through a special purpose company, Flamenco (Pty) Limited.

In March 2009, Fleming agreed to underwrite, with the financial backing of the BPOPF, BWP 35 million (approximately A$6 million), to support the Recovery Plan. In October 2009, another Botswana investment management company, Stanbic Investment Management Services (Pty) Limited (“SIMS”) also with client exposure to the Convertible Notes, agreed to support and share in the risk with Fleming in this underwriting.

A special purpose vehicle, Flamenco (Pty) Limited, has been used to advance the BPOPF funds through the fund managers Fleming and SIMS.

Implementation of the Recovery Plan

The Recovery Plan has three aspects to it:

Return the Lerala Diamond Mine to production;
Balance sheet clean up of the Company – that is the settlement of certain liabilities of the Company mainly by the issue of shares in the Company to those creditors, and either retain the Convertible Notes on new terms or repay; and
Balance sheet clean up of DBL – that is the settlement of current liabilities of DBL and the retention of long term liabilities on new terms.

In September 2010, DBL concluded debt restructuring agreements with all its employees and unsecured creditors, leaving two secured creditors in the company, one of whom has agreed new terms, and the other who is currently in negotiations. On 27 September 2010 the Judicial Management of DBL terminated.

The Company has entered into a conditional agreement to sell DBL to Mantle Diamonds Limited. Consideration consists of US$3.25 million in cash, and the issue of 45,330,913 shares in Mantle at an issue price of GBP0.10 per share. Proceeds of the sale will be used to fund initial working capital, repay the Convertible Notes and funding provided by Fleming and Flamenco during the re-structuring period.

In addition, DiamonEx creditors totalling about $4.5 million have agreed to convert their debt into DiamonEx equity at two cents per share, subject to shareholder approval.

This will extinguish most debt in DiamonEx, and the Company will look to recapitalise as soon as possible, with a view to acquiring new resource projects for the Company.

The implementation of aspects of the recovery plan and the restructure of the Company are subject to shareholder approval. The Company is currently preparing documentation in relation to these transactions and plans to hold a general meeting of the shareholders in early 2011.

DiamonEx – Independent Expert’s Report

4 FINANCIAL POSITION OF DIAMONEX

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4.1 Financial Position

The audited consolidated balance sheet of DiamonEx at 30 June 2010, the unaudited balance sheet at 31 December 2010 and the unaudited pro forma balance of DiamonEx at 31 December 2010 are set out below. The pro forma balance sheet is based on the actual balance sheet of DiamonEx as at 31 December 2010 adjusted for the Proposed Transactions and certain other transactions are set out in Section 4.3.

Notes (Section 4.2) Assets Cash and cash equivalents Other debtors and prepayments Intercompany loans – DBL (i) Provision for impairment Investment in DBL – at fair value (ii) Liabilities Trade and other payables Employee benefits Unsecured loans - Current and former directors - Stanbic guarantee (iii) Secured loans - Flamenco (iv) - Noteholders – loan (v) – accrued interest (v) Net assets/(deficiency) Equity Issued capital 4.3 Reserves Accumulated losses	A$’000
	Actual Pro Forma
	Jun-10 Dec-10 Dec-10 58 50 550 13 30 30 28,585 25,598 - (28,598) (25,598) - 9,556 9,556 -
	9,627 9,636 580
	1,144 1,062 466 196 196 - 768 768 - 1,853 - - 1,632 4,538 - 8,422 7,751 - 2,238 2,723 -
	16,253 17,038 466
	(6,626) (7,402) 114
	39,034 39,034 47,551 (4,308) (4,283) (4,283) (41,352) (42,153) (43,154)
	(6,626) (7,402) 114

DiamonEx has invested in total approximately A$36 million in DBL, through either intercompany loans or equity investment, to develop the Lerala Mine. The Flamenco loan, which was effectively provided by BPOPF, has been used to fund DBL (via the intercompany loan account) after it was placed in Judicial Management.

The intended sale of DBL and proposed restructure of the Company’s remaining debt to equity (as reflected in the pro forma balance shown above), is to re-position the Company to enable it to seek new investment opportunities. Cash raised from the private placement of A$0.5 million (underwritten by BPOPF) is to be used to fund working capital and professional fees for this purpose. It is likely that the acquisition of any new investments will be funded by the issue of shares in DiamonEx which will further dilute existing shareholders.

The secured loans owing to Flamenco and the Noteholders are payable in Botswana Pula. The exchange rates used for the purpose of determining the value of the Mantle consideration and the shortfall amount owed to the Noteholders approximated the rates at 31 December 2010. These rates were also used in determining the pro forma adjustments. Since then the exchange between the BWP and A$ has moved from A$1 to BWP 6.46 to A$1 to BWP 6.75 which would reduce the amount owing to the secured lenders at 31 December 2010 from A$15million to A$14.4 million. The impact of the exchange movement has not been reflected in the pro forma adjustments and was not considered necessary.

DiamonEx – Independent Expert’s Report

4.2 Notes to Balance Sheets

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(i) Intercompany loans – DBL

DiamonEx has two intercompany loans with DBL, one repayable in A$ and the other repayable in BWP. The BWP intercompany loan was funded by the issue of the convertible notes to the Noteholders which have a face value of BWP 50 million – see (v) below. In September 2010, as part of the Recovery Plan under Judicial Management, the unsecured creditors of DBL agreed to a 65% debt compromise (forgiveness). DiamonEx agreed to the debt compromise in respect of its BWP intercompany loan only, not in respect of its A$ intercompany loan.

Movement in the DBL intercompany loans from June 2010 can be summarised as follows:

Reference (Section) Balance – 30 June 2010 � Advances (Jul – Dec 2010) � Debt compromise (65%) � Movement in exchange rate Balance – 31 Dec 2010 Pro forma adjustment: � Debt assignment/forgiveness 4.3(vi) Pro forma balance – 31 Dec 2010	A$’000	A$’000
	Payable in	Total 28,585 2,722 (5,071) (638)
	A$ BWP 20,163 8,422 2,722 - - (5,071) - (638)
	28,885 2,713 (28,885) (2,713)	25,598 (25,598)
	- -	-

(ii) Investment in DBL

Although DiamonEx held all of the issued capital of DBL at 30 June 2010, the assets and liabilities of DBL were not consolidated by DiamonEx as it did not control DBL which was in Judicial Management at the time (refer to Section 3.2). For the purpose of this report, this basis was also adopted in preparing the unaudited balance sheet at 30 December 2010 even though DBL came out of Judicial Management on 27 September 2010.

The investment in DBL at 30 June 2010 is shown at fair value being the Directors’ best estimate based on the proposed sale transaction to Mantle using the applicable exchange rates at that date. Further information regarding the financial position of DBL is set out in Section 5 of this report.

(iii) Unsecured loan – Stanbic Guarantee

DiamonEx had guaranteed the loan provided by Stanbic Bank Botswana Limited for funding the purchase of the tertiary crusher for the Lerala Mine. The appointment of the Judicial Manager in January 2009 resulted in the guarantee becoming an unsecured liability of DiamonEx. On 20 October 2010 Stanbic agreed to cancel the guarantee by DiamonEx in favour of Stanbic securing the obligations of debts owing by DBL to Stanbic – see Section 5.2(iv).

DiamonEx – Independent Expert’s Report

(iv) Secured loan – Flamenco

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The DBL Recovery Plan summarised in Sections 3.2 above has been promoted, managed and funded by DiamonEx through the Flamenco loan facility. Movements in the Flamenco loan from June 2010 can be summarised as follows:

Reference (Section) Balance – 30 June 2010 �Advances (Jul – Dec 2010) �Movement in exchange rate Balance – 31 Dec 2010 Pro forma adjustments: �Fees payable - undrawn facility fee - success fee (10% of DBL sale proceeds) 4.3(i) �Movement in exchange rate 4.3(i) �Repayment – paid from proceeds from sale of DBL 4.3(ii) Pro forma balance – 31 Dec 2010	BWP A$ ‘000 ’000 8,780 1,632 20,911 3,064 - (158)
	29,691 4,538 2,500 387 6,587 1,020 - 58 (38,778) (6,003)
	- -

The Flamenco loan facility of BWP 35 million in total (approximately A$5.4 million) is secured by way of a first charge over the shares in DBL and an assignment of the intercompany loan account owing by DBL. The loan is repayable by 31 August 2011. A facility fee of 2% per annum on the undrawn amount of the facility is payable at the date the loan is repaid. The loan bears no interest, however, Flamenco is entitled to 10% of the value of the consideration payable in the event of the sale of DBL. The loan is limited in recourse to the Company’s shares in DBL and the respective intercompany loan account.

(v) Secured loan – Noteholders

In September 2007 DiamonEx issued 50,000 unsecured fixed rate convertible notes with a face value of BWP 50 million which mature in September 2011. An interest rate of 13.2% per annum is payable six monthly in arrears. DiamonEx, which breached the loan covenants, subsequently granted the Noteholders a second charge over the shares in DBL and an assignment of the intercompany loan account owing by DBL. The loan is limited in recourse to the Company’s shares in DBL and the respective intercompany loan account.

Movements in the amounts owed to the Noteholders from June 2010 can be summarised as follows:

BWP‘000 Interest 13,285 4,282 -	A$’000
	Loan Interest 8,422 2,238 - 681 (671) (196)	Total 10,660 681 (867)
17,567 594 - - (18,161)	7,751 2,723 - 88 (11) - (4,194) - (3,546) (2,811)	10,474 88 (11) (4,194) (6,357)
-	- -	-

DiamonEx – Independent Expert’s Report

4.3 Pro Forma Adjustments

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The pro forma balance sheet at 31 December 2010, as set out in Section 4.1, assumes the following occurred as at that date:

(i) January & February costs

The Flamenco loan is increased by the recognition of the undrawn facility fee (A$387,000) payable when the loan is repaid, the 10% success fee of the value of the consideration payable in the event of the sale of DBL (A$1,020,000) and an allowance for movement in the exchange rate (A$58,000) – see Section 4.2(iv). Accrued interest on the Noteholders is increased for interest accrued up to completion together with an allowance for movement in the exchange rate – see Section 4.2(v). The pro forma adjustments also assumes an increase in trade and other payables of A$100,000 for various costs to be incurred up to completion including professional fees associated with the Proposed Transactions.

(ii) Sale of shares in DBL (Resolutions 1 & 2)

Proceeds from the sale of DBL to Mantle (or to Flamenco and the Noteholders if the Mantle sale is not completed), assessed by Directors at A$10,197,000, has been applied to fully repay the Flamenco loan (A$6,003,000) and partly repay the Noteholders (A$4,194,000). The difference of A$641,000 between the value of the proceeds and the carrying value of DiamonEx’s investment in DBL has been recognised as income.

(iii) Issue of shares to the Noteholders (Resolutions 3 & 4)

The remaining liability owing to the Noteholders, comprising the balance of the convertible notes (A$3,546,000) and unpaid interest at 28 February 2011 (A$2,811,000), is paid by the issue of 317,852,000 shares in DiamonEx at 2 cents each.

(iv) Issue of shares to unsecured creditors (Resolution 4 & 5)

The issue of 83,015,200 shares in DiamonEx to unsecured creditors, including former and current directors, as set out in Resolutions 4 & 5 totalling A$1,660,000 as payment of amounts owed to them.

(v) Issue of shares by way of a private placement (Resolution 3)

The issue of 100 million ordinary shares in DiamonEx at an issue price of 0.5 cent each to raise A$500,000.

(vi) Assignment of DBL intercompany loan receivables

The balances owing in respect of the intercompany loans owing by DBL are assigned to Mantle for a nominal consideration of $1.

The movement in contributed equity as reflected in the pro forma balance sheet at 31 December 2010 has been determined as follows:

Reference (Section) Issued capital at 31 Dec 2010 Pro forma adjustments /issue of shares to: - Noteholders 4.3(iii) - Unsecured creditors 4.3(iv) - Private placement 4.3(v) Pro forma issued capital at 31 Dec 2010	No. of Shares ‘000 A$’000 193,424 39,034 317,852 6,357 83,015 1,660 100,000 500
	694,291 47,551

DiamonEx – Independent Expert’s Report

5 FINANCIAL POSITION OF DBL

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5.1 Balance Sheets - DBL

The audited balance sheet of DBL (as stated in Botswana Pula) as at 30 September 2010 and a pro forma balance of DBL at 30 September 2010 are set out below. The pro forma balance sheet is based on the actual balance sheet of DBL as at 30 September 2010 and assumes that the unsecured loans owing to DiamonEx had been assigned to Mantle (for a nominal value of $1) and forgiven as at that date. Both the audited balance sheet and pro forma balance sheet as at 30 September 2010 have, for the purpose of this report, also been summarised in Australian dollars at the exchange rate of BWP 6.46 to A$1.

Notes (Section 5.2) Current Assets Cash and cash equivalents Other debtors and prepayments Inventory Non Current Assets Plant & equipment Mine development (i) Deferred Tax (ii) Total assets Liabilities Trade & other payables (iii) Secured loans bank - Stanbic Bank (iv) - European Investment Bank (v) Unsecured loans - DiamonEx – payable in A$ (vi) – payable in BWP (vi) Net assets/(deficiency) Equity Issued capital Accumulated losses	30 Sep 2010	30 Sep 2010
	BWP’000	A$’000
	Actual Pro Forma 446 446 267 267 249 249	Actual Pro Forma 69 69 41 41 39 39
	962 962 1,707 1,707 66,485 66,485 58,051 58,051	149 149 264 264 10,292 10,292 8,986 8,986
	127,205 127,205	19,691 19,691
	17,411 17,411 10,972 10,972 55,986 55,986 126,039 - 17,500 -	2,695 2,695 1,698 1,698 8,667 8,667 19,511 - 2,709 -
	227,908 84,369	35,280 13,060
	(100,703) 42,836	(15,589) 6,631
	59,000 59,000 (159,703) (16,164)	9,133 9,133 (24,722) (2,502)
	(100,703) 42,836	(15,589) 6,631

The pro forma balance sheet provides an illustration of the assets and liabilities of DBL which are to be effectively acquired by Mantle. DBL’s sole activity is ownership of the Lerala Mine which has been funded by a combination of intercompany loans from DiamonEx and secured loans from Stanbic Bank and European Investment Bank. Both secured loans remain payable by DBL post the Mantle acquisition. The intercompany loan owed to DiamonEx is to be assigned to Mantle as part of the Proposed Transactions.

DiamonEx – Independent Expert’s Report

5.2 Comments on DBL’s financial position

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(i) Mine Development

DBL had capitalised approximately BWP 13.5 million (A$2 million) in exploration and evaluation costs and approximately BWP 176.9 million (A$27.4 million) in infrastructure costs relating to Lerala Mine. A review of the recoverable amount of these assets was undertaken by the Directors of DBL in preparing the September 2010 financial statements which resulted in these assets being written down to nil and BWP 66.485 million (A$10.292 million) respectively. The recoverable amount of these assets was determined having regard to the negotiations regarding the sale of the DBL to Mantle – see also Section 5.3.

(ii) Deferred Tax

A deferred tax asset was recognised at 30 September 2010 on the basis that the Directors anticipate DBL will generate sufficient profits to be utilised against the available carried forward tax losses. While the tax losses can be carried forward indefinitely, it would appear that DBL will only be able to generate profits (to utilise the tax losses) if it has sufficient funding to refinance the secured loans and fund the required capital expenditure and start up working capital. It would appear that this is unlikely to occur while DiamonEx remains the owner.

(iii) Trade and Other Payables

In September 2010, as part of the Recovery Plan under the Judicial Management, the unsecured creditors agreed to a 65% debt compromise (forgiveness), including the unsecured DiamonEx intercompany account payable in BWP. The court approved compromise resulted in the unsecured creditors agreeing to be paid in cash 35% of the amount owed to them. The September 2010 financial statements reflect the agreed comprise which included the recognition of BWP 72.5 million (A$11.2 million) as income and a corresponding reduction of liabilities.

(iv) Secured loan – Stanbic Bank

The Stanbic loan is secured by a charge over the Mine’s tertiary crusher. The loan was re-negotiated in August 2010 and is repayable in monthly instalments over five years with lower payments during the first two years. Interest is at the floating rate which is currently at 11.5% per annum. As part of the loan re-negotiation, Stanbic agreed to release DiamonEx from its guarantee over DBL’s loan to Stanbic – see Section 4.2(iii).

(v) Secured loan – European Investment Bank (EIB)

The EIB loan is secured by a mortgage over the mining licence and surface rights of the Lerala Mine. The loan has been in default since DBL was placed in Judicial Management and EIB has attempted, without success, to enforce its charges over DBL and the shares in DBL – see comments in Section 3.2(ii). We understand that not all the security documents to be provided under the EIB loan facility in 2007 were executed, in particular the guarantee from DiamonEx and charge over DBL’s assets (being the plant and equipment located at the Lerala Mine). We were also advised that EIB’s security has little value if the company was placed in liquidation. The proposed sale of shares in DBL to Mantle means that Mantle will need to renegotiate the terms and conditions of the EIB loan.

(vi) Intercompany loans – DiamonEx

See Section 4.2(i) for details of these loans. The pro forma balance sheet at 30 September 2010 assumes that the intercompany loans owing to DiamonEx are assigned to Mantle, as part of the sale of shares in DBL to Mantle, and then forgiven by Mantle.

DiamonEx – Independent Expert’s Report

5.3 Assessed Value of the Lerala Mine

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In October 2010 DiamonEx commissioned Philip Rider, managing director of P.J Rider & Associates, to provide an independent valuation and technical assessment of the Lerala Mine. Mr Rider is a civil engineer and experienced metallurgist who has undertaken business valuations in respect of a number of diamond operations. The following points were noted from Mr Rider’s report dated 30 November 2010:

The Lerala Mine requires significant upfront capital expenditure (estimated at US$4 million) before it can be returned to production and generate cash flow.
The mining operations will require significant working capital (also estimated at US$4 million) because of the lag time between commencing production and sale of diamonds given there is no ready market or exchange for diamonds. The working capital estimate includes 3 – 4 months operating costs.
For the purpose of his report, Mr Rider believes that the discounted cash flow methodology is the most appropriate valuation approach in determining a value of the Lerala Mine. On this basis, Mr Rider assessed the NPV (net present value) of the mine, before repayment EIB and Stanbic loans, at US$13.34 million. The NPV calculation included cash outflows in respect of the upfront capital expenditure and working capital funding referred to in the previous dot points.
The major assumptions adopted by Mr Rider in preparing the NPV calculation of the Lerala Mine were as follows:

Resource	Tonnes of ore	13,500,000
Strip ratio	Tonnes of Waste mined to ore	1.16:1.00
Grade	Carats per hundred tonnes of ore	27.41
Plant capacity	Tonnes per hour of front end feed	200
Tonnes mined	Tonnes of ore mined and processed per annum	1,440,000
Capital expenditure	$4M upfront $8.2M amortised flat lined over LOM	$8,275,490
Operating costs	Cost per tonne of ore mined and processed	$8.49
Revenue per carat	Year 1	$49.34
	Year 2 & 3	$50.00
	Year 4 plus	$55.00
Government royalty	On gross diamond sales	10%
Sales commission	On gross diamond sales	2%
Discount rate		15%

The cash flow model used in the NPV calculation did not include any taxation payments on the basis that DBL has estimated carried forward tax losses of BWP 300 million (as disclosed in the September 2010 audited accounts) that can be utilised against future profits. Mr Rider also commented that the quantum of tax losses far exceeds the forecast cash profit expected to be generated throughout the life of mine.

For the purpose of this report we have assumed parity between the Australian dollar and US dollar.

DiamonEx – Independent Expert’s Report

6 ASSESSMENT OF FAIRNESS

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6.1 Overview

The proposed sale of DBL to Mantle and the repayment of the secured loans, comprising both the Mantle consideration and issue of shares in DiamonEx, have been considered by us as one transaction since they are both linked to each other. Therefore, in assessing whether the Proposed Transaction, comprising the sale of DBL to Mantle (or to Flamenco and the Noteholders if the Mantle transaction fails to complete) and issue of shares in DiamonEx to the Noteholders, is fair to the non-associated shareholders, we have:

estimated the value of the shares in DBL;
estimated the value of the Mantle consideration;
compared the value of the shares in DBL to the consideration being offered by Mantle;
� estimated the value of the shares in DiamonEx, assuming the sale of DBL to Mantle but before the conversion of the remaining debt to equity; and
assessed the fairness of the proposed repayment of the secured loans by comparing the value of the consideration to be received by the secured lenders, to the value of the loans owed to them.

In assessing whether the Proposed Transaction relating to the agreement with BPOPF to underwrite a private placement of 100 million shares in DiamonEx, we have:

estimated the value of the shares in DiamonEx post conversion of debt to equity, and
� assessed the fairness of the underwriting agreement by comparing the value of the shares in DiamonEx to the issue price for the private placement.

6.2 Value of Shares in DBL

In establishing a value of the shares in DBL we have considered the following:

The pro forma balance sheet of DBL as at 30 September 2010 which is summarised in Section 5.1.
The valuation of the Lerala Mine by P.J Rider dated 30 November 2010 which is summarised in Section 5.3.
An assessment of the fair value of the debt owing by DBL to the European Investment Bank (EIB).

The pro forma balance sheet of DBL as at 30 September (extracted from Section 5.1) and the adjusted pro forma balance sheet, by our assessment of the fair value of DBL’s assets and liabilities, are summarised below.

Assets � Current assets � Non current assets Plant and equipment Mine development Deferred tax Liabilities � Unsecured creditors � Secured loans – Stanbic – EIB Net assets	A$’000 Pro forma Sep-10 (Section 5.1) Adjusted Pro forma (Range) Reference (Section) 149 149 264 10,292 13,340 5.3 8,986 19,691 13,489 (2,695) (2,695) (1,698) (1,698) (8,667) (6,934) –(8,667) 6.2 6,631 429 – 2,162

DiamonEx – Independent Expert’s Report

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As noted in Section 5.2(v) the EIB loan is currently in default and DBL has, as yet, not been able to agree revised terms in respect of the loan repayment. It is likely that Mantle will attempt to renegotiate the terms and conditions of the loan with EIB post sale to seek a reduction in the loan balance. The loan is repayable in US dollars and is currently accruing penalty interest. We are advised that Mantle would be in a reasonable position to negotiate a loan reduction given the additional investment required to be made post acquisition (estimated by P.J Rider at approximately US$8 million – see Section 5.3) in order for the Lerala Mine to re-commence operations. As such, we have assessed the value of this debt at between 80% and 100% of the total loan owing at 30 September 2010.

Based on the above analysis, we have assessed the value of the shares in DBL at between A$0.4 and A$2.2 million.

6.3 Value of the Mantle Consideration

In establishing a value of the Mantle consideration, which includes approximately 45.3 million shares in Mantle, we have considered the following:

A valuation report of Mantle dated 20 July 2010 prepared by a UK based investment research company that was commissioned by Flamenco to provide a valuation of Mantle for the purpose of assessing the offer proposed by Mantle in respect of the acquisition of DBL; and
A letter of offer from a Sydney based private equity firm offering to invest US$15 million in Mantle at an issue price of £0.10 per share.

For the purpose of this report we have not included financial information on Mantle as the non-associated shareholders (of DiamonEx) will not receive any shares in Mantle as part of the Proposed Transactions. The Mantle consideration, which comprises both cash and shares, is to be paid directly to Flamenco and the Noteholders for the release of their respective charges over the DBL issued capital.

Mantle is a privately owned diamond exploration company based in London whose primary activities are focussed in Finland and Canada. The UK investment research company valued Mantle at £21.2 million (approximately A$34 million) or £0.22 per share. It was noted in their report that Mantle was currently finalising an equity raising of £10 million (A$15 million) at £0.10 per share.

The investment offer by the Sydney based private equity firm of US$15 million is subject to satisfactory financial and legal due diligence and completion of a shareholder’s agreement. It was noted that US$12 million of the placement funds are designated to be used to complete the acquisition and refurbishment of the Lerala Mine. The offer also indicated that the US$15 million investment (at £0.10 per share) would result in the private equity firm owning 41% of Mantle. In our opinion, it is not uncommon for placement of shares to be offered at a discount to their market value.

Based on the above, we have adopted a range in the value of each share in Mantle issued as part consideration for the acquisition of DBL at between £0.10 and £0.22. As such, we have assessed the value of the Mantle consideration as follows:

£’000 Cash US$ 3.25 million Shares in Mantle (45.33 million) 4,533 – 9,973	A$’000 3,250 6,947–15,284
	10,197–18,534

DiamonEx – Independent Expert’s Report

6.4 Value of Shares in DiamonEx

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In establishing a value of the shares in DiamonEx, assuming the sale of DBL to Mantle but before the conversion of the Noteholder’s remaining debt to equity, we have considered the following:

The unaudited balance sheet of DiamonEx as at 31 December 2010 which is summarised in Section 4.1.
A pro forma balance sheet of DiamonEx as at 31 December 2010 assuming the sale of DBL to Mantle, the increase in secured loans in January and Februrary and repayment of the secured loans from the sale proceeds, had occurred on that date.
As assessment of the value of a listed ‘shell’ on ASX since, on completion of the Proposed Transactions, DiamonEx will have no business activity and will be seeking new investment opportunities as noted in Section 4.1.

The unaudited assets and liabilities of DiamonEx as at 31 December 2010 (extracted from Section 4.1) and the pro forma assets and liabilities adjusted for those items noted above, can be summarised as follows:

Notes Assets Cash and cash equivalents Other debtors and prepayments Intercompany loans – DBL (iii) Provision for impairment Investment in DBL – at fair value (ii) Intangible – ASX listing (iv) Liabilities Trade and other payables Employee benefits Unsecured loans (current and former directors) Secured loans - Flamenco - Noteholders - loan (i) & (ii) - accrued interest Net assets/(deficiency	A$’000
	Actual Dec-10 (Section 4.1) Pro forma Dec-10 50 50 30 30 25,598 - (25,598) - 9,556 - - 500 -1,000
	9,636 580 -1,080
	1,062 1,062 196 196 768 768 4,538 - 7,751 3,546 2,723 2,811
	17,038 8,383
	(7,402) (7,303)-(7,803)

Notes to the Pro Forma Assets and Liabilities

(i) January and February costs – refer to Section 4.3(i)
(ii) Sale of shares in DBL – refer to Section 4.3(ii)
(iii) Assignment of DBL intercompany receivables – refer to Section 4.3
(iv) Recognition of intangible asset (ASX Listing) - The value of the intangible asset, being DiamonEx’s listing on ASX, although currently suspended from trading, has been assessed based on the premiums generally received by listed ‘shells’ in transactions where private companies are acquired through a ‘back-door’ listing process.

Based on the above analysis, we have assessed the value of the shares in DiamonEx at $nil.

DiamonEx – Independent Expert’s Report

6.5 Value of Shares in DiamonEx (post debt to equity conversion)

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In establishing a value of the shares in DiamonEx, post completion of the sale of DBL and conversion of debt to equity, we have considered the following:

The pro forma balance sheet of DiamonEx as at 31 December 2010 which is summarised in Section 4.1; and
An assessment of the value of a listed ‘shell’ on ASX as noted in Section 6.4.

The pro forma balance sheet of DiamonEx as at 31 December 2010 (extracted from Section 4.1) and the pro forma balance sheet adjusted for our assessment of the value of the listed ‘shell’ on ASX, are summarised below.

Reference (Section) Assets Cash and cash equivalents Other debtors and prepayment Intangible – ASX listing 6.4 Liabilities Trade and other payables Net assets No. of shares on issue (‘000) 4.3 Net asset value per share (cents)	Pro forma Adjusted Dec-10 Pro forma (Section 4.1) (Range) 550 550 30 30 - 500-1,000
	580 1,080 - 1,580 (466) (466)
	114 614-1,114
	694,291 0.09c - 0.16c

Based on the above analysis, we have assessed the value of the shares in DiamonEx, post completion of the proposed sale of DBL and proposed conversion of debt to equity, at between 0.09 to 0.16 cent per share.

DiamonEx – Independent Expert’s Report

6.6 Summary of Fairness Assessment

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(i) Sale of DBL and issue of shares to the Noteholders The proposed sale of DBL to Mantle and repayment of the secured loans, comprising both the Mantle consideration and the issue of shares in DiamonEx, have been considered by us as one transaction since they are both linked to each other. In Section 6.2 we estimated the value of shares in DBL at between A$0.4 to A$2.2 million. Since the estimated value of the Mantle consideration exceeds the estimated value of DiamonEx’s shares in DBL, we have considered the fairness of the Proposed Transaction in terms of the premium or shortfall that will be received by the Noteholders (including BPOPF) if the Proposed Transactions are approved.

Reference (Section) Estimated value of the Mantle consideration 6.3 Estimated amounts owing to secured lenders: - Flamenco - Noteholders Estimated premium/(shortfall) Estimated value of shares in DiamonEx to be issued to the Noteholders as repayment of the remaining loans 6.4 Estimated premium/(shortfall) received by the Noteholders	A$’000 (Range) 10,197 – 18,534 (6,003) (10,551)
	(6,357) – 1,980 -
	(6,357)–1,980

Based on the above, we estimated that the Noteholders (which BPOPF comprise 62.5% thereof) will receive a net outcome if the Proposed Transactions are approved in the range of a A$6,357,000 shortfall to a A$1,980,000 premium. Given this range, we are of the opinion that the sale of DBL and issue of shares in DiamonEx to the Noteholders is fair to the non associated shareholders.

(ii) Potential issue of shares in DiamonEx to BPOPF through the proposed underwriting agreement

greement
	Reference	A cent
	(Section)	per share
Estimated value of shares in DiamonEx to be issued	6.5	0.09c – 0.16c
by way of private placement underwritten by BPOPF
Issue price underwritten by BPOPF		0.5c

The issue price of the 100 million shares in DiamonEx is above our assessed range of the estimated value of the shares in DiamonEx, post completion of the sale of DBL and conversion of debt to equity. As such, we have assessed the proposed underwriting agreement as fair to the non-associated shareholders.

6.7 Conclusion on Fairness

In our opinion, after having regard to the above, it is our opinion that the Proposed Transactions are fair.

DiamonEx – Independent Expert’s Report

7 ASSESSMENT OF REASONABLENESS

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7.1 Overview

As stated in Section 2.2, the Independent Expert must compare the likely advantages and disadvantages of the Proposed Transactions on the basis that the Proposed Transactions proceed or do not proceed.

7.2 Advantages if the Proposed Transactions Proceed

The advantages to the non-associated shareholders if the Proposed Transaction proceeds are as follows:

DiamonEx will be restructured and receive cash from the underwritten placement to enable it to re-position itself and seek new investment opportunities.
The Company will be able to repay all its liabilities and, as a consequence, become debt free.
The proposed change in the Company’s shareholder mix has resulted in the appointment of new directors who bring international experience to the board and will oversee the Company’s new investment strategy.

7.3 Disadvantages if the Proposed Transactions Proceed

A disadvantage to the non-associated shareholders if the Proposed Transactions proceed is that DiamonEx will be disposing the Lerala Mine at a point of time when the diamond industry is starting to recover. However, the Company lost control of the Lerala Mine when DBL was placed in Judicial Management in January 2009. After coming out of Judicial Management in September 2010, DBL is effectively controlled by the Company’s secured lenders who have continued to provide both DiamonEx and DBL with financial support.

7.4 Advantages if the Proposed Transactions do not Proceed

We have not identified any advantage to the non-associated shareholders of the Proposed Transactions not proceeding, unless there was a possibility of an alternative restructure plan which would result in the Company retaining a part interest in the Lerala Mine. We are not aware of any alternative proposals and believe it is unlikely any practical alternative will become available.

7.5 Disadvantages if the Proposed Transactions do not Proceed

The disadvantages to the non-associated shareholders of the Proposed Transaction not proceeding are:

The non-associated shareholders will not attain the advantages referred to above resulting from the Proposed Transaction proceeding.
There is a high likelihood of DiamonEx being liquidated as the Company will be unable to pay its debts. On this basis the non-associated shareholders would receive no value for their shares.

7.6 Conclusion on Reasonableness

In our opinion, after having regard to the advantages and disadvantages, it is our opinion that the Proposed Transactions are reasonable.

DiamonEx – Independent Expert’s Report

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APPENDIX 1: GLOSSARY	OF TERMS
A$	Australian dollars
ASIC	Australian Securities and Investments Commission
ASX	ASX limited
BPOPF	Botswana Public Officers Pension Fund
BWP	Botswana Pula
DBL	DiamonEx Botswana Limited
DiamonEx or the Company	DiamonEx Limited
EIB	European Investment Bank
FAMB	Fleming Asset Management Botswana (Pty) Limited
Flamenco	Flamenco (Pty) Limited, a special purpose entity used to advance
	funds to DiamonEx on behalf of FAMB & SIMS
JRS	JR Securities Limited
Mantle	Mantle Diamonds Limited
Mantle Agreement	Agreement for the sale of the entire issued share capital of DBL
	dated 12 January 2011
Note Holders	Fixed rate convertible capital notes
RG	Regulation Guide
SIMS	Stanbic Investment Services (Pty) Limited
Stanbic	Stanbic Bank Botswana Limited

DiamonEx – Independent Expert’s Report

APPENDIX 2: SOURCES OF INFORMATION

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In preparing this report we have had regard to the following sources of information:

The Agreement;
Explanatory Memorandum;
Audited financial statements for DiamonEx for the year ended 30 June 2010;
Management accounts of DiamonEx for the period ended 31 December 2010;
Audited financial statements of DBL for the period ended 30 September 2010;
Pro forma work papers prepared by management assuming the various transactions as set out in Section 4.3 had occurred as at 31 December 2010;
Independent Technical Valuation Report on Lerala Mine prepared by P.J Rider dated 30 November 2010;
Valuation Report of Mantle prepared by a UK investment research company dated 20 July 2010; and
Letter of offer to Mantle by a Sydney based private equity firm dated 15 December 2010.

In addition, we have relied upon information and representations of both an operative and financial nature provided to us by Mark Gray, acting on behalf of Flamenco, and Paul Crawford, non-executive director of DiamonEx.

DiamonEx – Independent Expert’s Report

APPENDIX 3: DISCLAIMER

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This Report has been prepared at the request of the Independent Directors of DiamonEx specifically for the non-associated shareholders of DiamonEx. It is not intended that this Report be used for any purpose other than to accompany the Notice of General Meeting and Explanatory Memorandum to be sent to DiamonEx’s shareholders.

In particular, this Report should not be used for any purpose other than by the non-associated shareholders of DiamonEx in deciding whether to accept or reject the Proposed Transactions.

Accordingly, this Report and the information contained herein may not be relied upon by anyone other than the non-associated shareholders of DiamonEx without the written consent of JRS.

Neither JRS, nor Johnston Rorke, nor any member or employee thereof undertakes responsibility to any person, other than the non-associated shareholders of DiamonEx, in respect of this Report, including any error or omissions however caused.

In the preparation of this Report we have considered the information and explanations given to us. We emphasise that we have not carried out an independent confirmation of the information nor have we conducted anything in the nature of an audit or in any way verified any of the information provided to us. We do not imply, and it should not be construed, that our assessment has revealed all the matters which an audit or more detailed examination might disclose.

We have evaluated the information provided to us by DiamonEx and other parties through inquiry, analysis and review and nothing has come to our attention to indicate the information provided was materially misstated or would not afford reasonable grounds upon which to base our Report.

The statements and opinions given in this Report are given in good faith and the belief that such statements and opinions are not false or misleading. The statements and opinions are based upon JRS’s consideration and assessment of the information provided by the Directors, management and advisers of DiamonEx as well as other parties and which is believed to be reliable and accurate. We have no reason to believe that any information has been withheld from us.

We have considered our relationships and regard ourselves as independent of DiamonEx, Flamenco and BPOPF for the purpose of the preparation of an independent expert’s report in accordance with RG112.

The information relied upon in the preparation of this Report is set out in Appendix 2. DiamonEx has provided an indemnity to JRS, JR or any of their partners, directors, agents or associates for any claims arising out of any misstatement or omission in any material or information provided to JRS in the preparation of this Report.

Consent

JRS consents to the issue of this Report in the form and context in which it is included in the Notice of General Meeting and Explanatory Memorandum to be sent to DiamonEx shareholders.

DiamonEx – Independent Expert’s Report

APPENDIX 4: FINANCIAL SERVICES GUIDE

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JR Securities Limited

JR Securities Limited ABN 99 054 784 619 (“JR Securities” or “we” or “us” or “ours” as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you.

2. Financial Services Guide

In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (“FSG”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as a financial services licensee.

This FSG includes information about:

who we are and how we can be contacted;
the services we are authorised to provide under our Australian Financial Services Licence, Licence No: 255 516;
remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;
any relevant associations or relationships we have; and
our complaints handling procedures and how you may access them.

3. Financial services we are licensed to provide

We hold an Australian Financial Services Licence which authorises us to provide financial product advice in relation to:

superannuation;
certain derivatives (old law securities options contracts);
interests in managed investments schemes; and
securities (such as shares and debentures).

We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.

Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

4. General financial product advice

In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product and there is no statutory exemption relating to the matter, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.

DiamonEx – Independent Expert’s Report

5. Benefits that we may receive

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We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis.

Except for the fees referred to above, neither JR Securities, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

6. Remuneration or other benefits received by our employees

All our employees receive a salary. Our employees may be eligible for bonuses based on overall productivity and contribution to the operation of JR Securities or related entities but not directly in connection with any engagement for the provision of a report.

7. Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Associations and relationships

JR Securities Limited is ultimately owned by the partnership of Johnston Rorke. The partnership of Johnston Rorke and its related entities provide services primarily in the areas of audit, tax and financial advisory services. The directors of JR Securities Limited are also partners in the partnership of Johnston Rorke.

The financial product advice in our report is provided by JR Securities Limited and not by the partnership of Johnston Rorke.

From time to time JR Securities or Johnston Rorke may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business.

9. Complaints resolution

Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to The Complaints Officer, JR Securities, GPO Box 1144, BRISBANE QLD 4001.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service Limited (“FOS”). FOS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry. JR Securities is a member of FOS (Member Number F-1593).

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DiamonEx – Independent Expert’s Report

Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below.

Financial Ombudsman Service Limited GPO Box 3 MELBOURNE VIC 3001 Toll free: 1300 78 08 08 Facsimile: (03) 9613 6399

10. Contact details

You may contact us using the details set out at the top of our letterhead.

323COI0074

AI assistant

ELEVRA LITHIUM LIMITED — Proxy Solicitation & Information Statement 2011

64838_rns_2011-02-24_c15a529d-dab9-4d48-9a4c-bd5aa2c6b9e6.pdf

DIAMONEX LIMITED ABN 26 091 951 978

NOTICE OF GENERAL MEETING AND EXPLANATORY STATEMENT

Corporate Directory

NOTICE OF GENERAL MEETING

RESOLUTION�1:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana� Limited�to�Mantle�Diamonds�Limited��

Voting�Exclusion�

RESOLUTION�2:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana� Limited�in�the�event�that�the�sale�to�Mantle�Diamonds�Limited�does�not� proceed.

Voting�Exclusion�

RESOLUTION�3:�Approval�of�issue�of�Shares�to�the�Botswana�Public�Officers� Pension�Fund �( BPOPF)�conditional�upon�the�sale�of�the�shares�of�Diamonex� Botswana�Limited��

Voting�Exclusion�

RESOLUTION�4:�Approval�of�issue�of�Shares�to�creditors�of�the�Company��

Voting�Exclusion�

RESOLUTION�5:�Approval�of�issue�of�Shares�to�Directors�of�the�Company��

Voting�Exclusion�

RESOLUTION�6:�Appointment�of�a�new�Director�

PROXIES�

EXPLANATORY STATEMENT

1. TRANSACTION OVERVIEW

2. INDEPENDENT EXPERT’S REPORT

3. BACKGROUND INFORMATION ON THE RESOLUTIONS

Investment�in�Botswana�

Lerala�Diamond�Mine�Commissioning�and�First�Diamond�Sale�

Appointment�of�Judicial�Manger�to�DiamonEx�Botswana�Ltd��

The�Recovery�Plan�

Initial�funding�of�the�Recovery�Plan�

Financial�Position�of�DBL�

The�Sale�of�DBL�to�Mantle�Diamonds�Limited�

Distribution�of�the�proceeds�of�the�Mantle�Agreement�

Alternative�transaction�to�the�Mantle�Agreement�

Creditors�of�DiamonEx�

The�Flamenco�Loan�

The�Note�Holders�

Money�owed�to�current�and�former�Directors��

Trade�Creditors�

Recapitalisation�of�the�Company�and�requotation�of�the�Company’s�Shares��

Revised�capital�structure�following�the�issue�of�Shares�

Strategy�for�new�Projects�

Restructuring�of�Board�and�Management�

Divestment�of�Diamonex�USA�

Financial�Position�post�transactions�

4. RESOLUTIONS TO BE CONSIDERED BY THE MEETING

RESOLUTIONS�1�and�2:�Approval�for�the�sale�of�the�shares�of�Diamonex�Botswana��

Regulatory�Requirements�

RESOLUTION�3:�Approval�of�issue�of�shares�to�the�Botswana�Public�Officers�Pension�Fund�(BPOPF)��

Regulatory�Requirements��

RESOLUTION�4:�Approval�of�issue�of�Shares�to�creditors�of�the�Company��

Note�Holders�

Other�Creditors�

Regulatory�Requirements��

RESOLUTION�5:�Approval�of�issue�of�Shares�to�Directors’�in�relation�to�the�conversion�of�creditor� debt��

Loans�made�by�Mr�Paul�Crawford�

Unpaid�salaries�and�fees�owing�to�Mr�Paul�Crawford�

Directors’�fees�owing�to�31�December�2008�to�Mr�Paul�Crawford�

Statutory�entitlements�owing�to�Mr�Dan�O’Neill�

Regulatory�Requirements�

Chapter�2E�of�the�Corporations�Act�

1. The�related�party�to�whom�resolution�5�will�permit�the�financial�benefit�to�be�given�

2. The�nature�of�the�financial�benefit�

3. Directors’�recommendation�

4.� Recipients’�interest�and�other�remuneration�

5. Valuation�

6�� Any�other�information�that�is�reasonably�required�by�shareholders�to�make�a�decision�and� that�is�known�to�the�Company�or�any�of�its�Directors�

7. Opportunity�Costs�

8.� Taxation�Consequences�

8. Dilutionary�Effect��

Listing�Rule�10.11

RESOLUTION�6:�Appointment�of�a�new�Director�

Private & Confidential

Independent Expert’s Report

Introduction

Purpose of Report

Opinion

Contents

1. THE PROPOSED TRANSACTIONS

1.1 Summary of Proposed Transactions

(i) Resolution 1 & 2: Approval for the sale of all the shares in DBL

Issue of Shares in Settlement of debts

ELEVRA LITHIUM LIMITED Proxy Solicitation & Information Statement 2011