Darnley Bay Resources (DBL) announced an MOU (Memorandum of Understanding) with Diadem Resources Ltd. (DRL- TSX-V)  on Oct. 4, 2011 for Diadem to acquire DBL’s 50% interest in the “Franklin Diamond Project” on the Parry Peninsula and its 50% diamond interest in the South Lands. DBL would retain its 100% interest in all other minerals on the South Lands. As consideration, Diadem will issue DBL 11,700,000 common shares and a 2% diamond royalty. In addition, it is proposed that Diadem undertake at least $1,250,000 of diamond exploration work on the Parry Peninsula and/or South Lands by September 30, 2012 (a definitive agreement reflecting the terms of the MOU has not yet been drafted).

DBL shall retain the option to restore its rights in the subject areas if valuable minerals are discovered on the lands by paying in cash to Diadem, 200% of Diadem’s aggregate expenditure on the subject lands incurred prior to the exercise of the repurchase. Diadem would retain the right to purchase 1% of the diamond royalty for a $1.5 million payment to DBL. DBL would continue to be the beneficiary of Diadem’s success through its back-in rights and, without further cost, through its shareholding and diamond royalty.

PARRY PENINSULA

Diadem financed a program of ground magnetic surveys and five drillholes on the Parry Peninsula in August 2010. Of the four targets drilled, three resulted in the discovery of new kimberlite pipes, bringing the total to thirteen on the Parry Peninsula.  Analysis of the core resulted in encouraging indicator mineral results and three microdiamonds from one pipe. Seven kimberlite pipes have now proven diamondiferous. More than twenty kimberlite pipe targets remain to be drilled on the Parry Peninsula claims. Diadem is currently seeking funds to carry out an expanded drill program in 2012.

Diadem Resources Ltd. reported analysis of kimberlite samples from the 2010 drill core obtained from the three newly discovered kimberlite pipes. Reports received from CF Mineral Research Ltd. indicate the presence of a high incidence of kimberlite indicator minerals (chrome diopside, olivine, purple and orange garnets; of particular note is the presence of one microdiamond which measured approximately 0.25mm in diameter). Microprobe analyses of kimberlitic indicator mineral grains are considered encouraging, indicating favourable diamond preservation conditions.

The 2010 work on the 33 Parry Peninsula claims included a land survey on 24 of these claims. Nine of these claims reached their 10-year anniversary and were taken to lease in early 2011. The land surveys are a necessary part of this process. 

Kimberlitic indicator minerals found in Diadem's 2010 drill core

SOUTH LANDS

Since the late 90’s, DBL has been exploring for diamonds in the Paulatuk region, and in partnership with Diadem since 2005. The NNW-striking dykes associated with the kimberlite pipes on the Parry Peninsula extend southwards, at least as far as Great Bear Lake, and are considered to be an analog to the “Corridor of Hope” that hosts the Lac de Gras diamond deposits. The dyke swarm traverses the South Lands where kimberlite indicator mineral sampling and high-resolution aeromagnetic surveys have located numerous high priority kimberlite pipe targets. Some have been subjected to ground magnetic surveys but none has been drilled yet.

DBL PROPERTIES

DBL retains 100% of the diamond exploration rights on its 7(1)(a) mineral concession and its eight prospecting permits to the northeast. The above-mentioned dyke swarm cuts through these properties. Numerous targets derived from kimberlite indicator mineral sampling, high-resolution aeromagnetic surveys and ground magnetic surveys have not been drill tested. The 2010 VTEM survey that focused on base metal exploration also located several new kimberlite pipe targets (see also Diadem’s website at www.diademresources.com).

The following are photo enlargements of diamonds found in the till samples in 1999:

Thrasher Zone – Macro Diamond (Sample XS5754)		N.W. Zone – Micro Diamond
Size: -1mm to +0.5mm		Size: -0.5 mm to +0.3 mm
The stone is a colourless, somewhat distorted octahedral diamond with variable and often pronounced development of the dodecahedral form.		The diamond is a colourless, almost perfect octahedron, with characteristics of diamonds from the upper part of a kimberlite (e.g. at Venetia or Jwaneng) estimated as being brought to earth’s surface more than 70 million years ago.
Ref: De Beers – consignment CAN 99-238		Ref: De Beers – consignment CAN 99/230

The kimberlites found to date are likely only a small percentage of those that actually occur in the area.