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Sunrise Diamonds plc

Operating Review

continued

respect of the same claims. The previous agreement allowed Sunrise to earn up to a 75% Joint Venture Interest by sole funding exploration expenditure totalling 1,000,000 by 11 August 2010 of which a minimum of 500,000 was to be spent by 11 August 2009, after which it would have earned an initial 51% Joint Venture Interest.

Sunrise’s expenditure on the claims is approximately 300,000 to date and so the new agreement effectively relieved the Company of a further 700,000 of earn-in expenditure and increases its equity interest in the claims to 100% from the 75% that could previously be acquired.

The consideration for the acquisition was the issue of 100,000 new ordinary shares in the capital of the Company and the grant to Nordic of a 1% Gross Overriding Royalty on production of diamonds from the claims.

The majority of the claims covered by the agreement were subject to extension applications with the Finnish Ministry of Employment and Economy which have now been granted for a further three year period.

Kimberlites & Diamond Exploration “Primary” diamond deposits form as volcanic eruptions and intrusions of “kimberlite” — a rare rock type originating from deep below those thicker and cooler parts of the earth’s crust forming stable geological blocks called “cratons”. Diamonds can be eroded out of primary deposits and concentrated in river systems as “alluvial” deposits.

About 15% of kimberlites are diamondiferous and only 1% potentially commercial. Natural diamond sizes range from less than 0.5mm (“microdiamonds”) to spectacular stones of hundreds of carats (one carat equals 0.2g). Macrodiamonds (over 0.5mm) occur in much lower concentrations than microdiamonds. Kimberlites also contain specific kimberlite indicator minerals or “KIMs”, including G9/G10 pyrope garnets, high sodium-eclogitic garnets and certain chromites with distinctive mineral chemistries indicating high diamond potential.

Discovery of a commercial kimberlite is challenging. A kimberlite usually covers an area of only a few hectares (0.01 km2) but the prospective cratons cover hundreds of thousands of square kilometres. Fortunately, during erosion, kimberlites break-down and their component minerals, including KIMs, can be dispersed over wide areas in soils, stream sediments or glacial sediments and KIM dispersion trains can then sometimes be tracked back to their source. Some kimberlites are magnetic or electrically conductive and can be found by geophysical surveys.

Once a kimberlite is located, either by drilling or in outcrop, small samples (10–50kg) are processed to

extract any microdiamonds (small samples rarely contain commercial sized diamonds due to their rarity and

uneven distribution). If microdiamond counts are encouraging a larger (200kg minimum) sample is taken for microdiamond extraction and results can be used as a more statistically meaningful guide to commercial diamond content.

Eventually further drilling and trial mining is carried out to define the size of the kimberlite and to collect bulk samples for evaluation of diamond grade and diamond value and for feasibility studies.

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