Diagem Inc.

Diagem Inc.

September 26, 2005 11:22 ET

Diagem Receives a License of Operation for Kimberlite Pipe Collier-04 and Provides an Update and Clarification on the Juina Diamond Project

MONTREAL, QUEBEC--(CCNMatthews - Sept. 26, 2005) - In response to a request by regulatory authorities, DIAGEM INC. ("Diagem" or the "Company") (TSX VENTURE:DGM) issues the following information about its Juina diamond project in Brazil.

For more complete technical information, the reader is referred to the "TECHNICAL REPORT ON THE JUINA DIAMOND PROJECT, MATO GROSSO STATE, BRAZIL" dated March 28, 2005 and amended August 15, 2005, by Dr. Mousseau Tremblay, and "MINERAL RESOURCE ESTIMATE - CHICORIA DIAMOND DEPOSIT, PROPERTY 213, JUINA, MATO GRASSO, BRAZIL" by Mr. Jeremy Bates, dated May 2005. Both reports are available on SEDAR at www.sedar.com.

Collier-04 - Mining Concession 214

The Company is pleased to announce that on August 11, 2005 it received a License of Operation (LO) from the the Mato Grosso State environmental agency SEMA(i) (Secretariat Estadual do Meio Ambiente) covering the area on which the kimberlite pipe Collier-04 is located. Under Brazilian Law, in order to obtain a mining concession and licence of operation, the mineral rights holder must demonstrate the presence of mineralization of sufficient grade and quantity to suggest economic potential. The large scale bulk sampling or experimental mining operations contribute to the evaluation of the resource; however, the resource so defined under Brazilian law does not necessarily meet NI 43-101 standards. Under Canadian securities law, pre-feasibility and economic feasibility studies conforming to NI 43-101 standards must be completed and filed with the regulatory authorities before a company can claim to be in commercial production. There have been no such studies conducted on the property and accordingly, there are no mineral reserves outlined by Diagem on its properties.

The recently awarded LO allows Diagem to perform activities such as large scale bulk sampling; consequently, and also to commence "mining activities". It must be noted that these mining activities are conditional on the accomplishment of pre-feasibility or feasibility studies as defined in NI 43-101. Hence the Company wishes to point out that there has been no such studies conducted on the properties as of yet. The Company is currently preparing the onsite infrastructure and improving access to Collier-04. Equipment is being mobilized in order to carry out a systematic bulk sampling program of the eluvial and colluvial material overlying and surrounding the kimberlite body during the next months. This phase will be followed by large scale bulk sampling of the kimberlite material.

The Company wishes also to clarify a statement in its May 9th 2005 press release which read "The mining concession permits mining of kimberlite and gravel deposits that have been proven to be payable over the entire 10,000 hectare property". There have been no studies extensive enough in order to prove economic viability as defined by NI 43-101. The "scoping study" that was submitted in January 2001 to the National Department of Mineral Production ("DNPM") in support of the application for a mining concession on Property 214 was prepared by Diagem's mining engineer and former local administrator in Brazil and as such was not prepared according to NI 43-101 guidelines.

Rio Tinto ("RTZ") previously calculated a preliminary resource estimate of the Collier-04 kimberlite pipe of 34.5 million tonnes at 0.40 carat per tonne based on an estimated maximum depth of 500 metres. Several subsequent resource calculations were completed by RTZ using different depth parameters and additional drill hole information obtained during 1995 and 1996 activities. One such calculation using a maximum depth of 95 metres yielded a resource estimate of 13,926,000 tonnes at a grade of 0.40 carat per tonne.

In its final exploration report, RTZ did not qualify the confidence category of the calculated resource (i.e. inferred, indicated, and measured). Although the RTZ bulk sampling and drilling results provide sufficient data of quality to define a resource these resources are historical and Diagem has not done sufficient work to classify the historical estimate as mineral resources. The Company is not treating the historical estimate as current mineral resources as defined in sections 1.2 and 1.3 of NI 43-101 and hence the historical estimate should not be relied upon.

The 214 mining concession was granted over a 10,000 hectare area which includes kimberlites and alluvial placer deposits. The mining concession was approved based on exploration and evaluation work performed on one kimberlite, Collier-04. In accordance with Brazilian mining legislation, the LO was granted over an area of 200 hectares encompassing Collier-04 only. The Company intends to evaluate all other deposits that exist within the mining concession particularly the known deposits of the Upper Chicoria Creek area.

A program of pitting for diamondiferous gravels was completed in the Upper Chicoria Creek area. This work was located within the central part of Mining Concession 214, using an excavator. Detailed auger drilling was also performed over the Acuri-01, the JV-39 and the ADK-13 pipes. More work is required to evaluate the economic potential of this area. However, based on past garimpeiro workings the area is considered to be promising.

Alluvial Placer Exploration

Experimental Mining Authorization (Guia) - Property 213

In mid to late 2003, under an experimental mining authorization (Guia de Utilizacao) and an environmental license of operation, Diagem initiated large-scale bulk sampling activities on the north western part of the Fazenda Chicoria Block 1. The intent of the work program was to evaluate the economic viability of the area. The Fazenda Chicoria Block 1 is a 23 hectare block located within the 10,000 hectare Property 213. Although early calculations of the resource were made, in May 2003 and reported in May 2005, Jeremy Bates, an independent qualified person, confirmed a resource estimate of 207,600 cubic metres of mineralized gravel grading 0.22 carats per cubic metre for a total of approximately 45,000 carats in the indicated category. It is to be noted that Jeremy Bates considered that although there are mineral resources, there are no mineral reserves outlined for the Chicoria diamond deposit. Also, the Company wishes to emphasize that mineral resources that are not mineral reserves have not yet demonstrated economic viability as defined by NI 43-101.

The 2003 large-scale bulk sampling program on Block No. 1 recovered 3,755 carats from approximately 12,000 cubic metres for an average grade of 0.31 carats per cubic metre. Natural Diamond Corporation, an Antwerp-based company owned by a director of Diagem, evaluated in July 2004 the diamonds recovered from the experimental mining bulk sample activities. Based on actual sales, the average price per carat obtained was US$44.07, with prices ranging from US$28.78 to US$53.70. In view of the fact that the diamonds were sold on behalf of Diagem on a commission basis, management is of the opinion that the price received represents fair market value.

In November 2003, the Brazilian Institute for the Environment and Renewable Natural Resources ("IBAMA") contested the validity of the Company's experimental mining licence and placed an embargo on a 75 hectare section of Property 213. The embargo entirely covered the Fazenda Chicoria Block 1. As a result, the Company suspended its large scale bulk sampling program.

In 2004, the Federal Attorney, acting for the DNPM on behalf of the General Advocacy of the Union, issued an opinion stating the IBAMA embargo ran counter to existing legislation. This opinion was forwarded to IBAMA by the DNPM with a recommendation to lift the embargo.

Although the notification of the lifting of the IBAMA embargo was received in May 2005, the effective lifting of all operational constraints on the 75 hectare portion of Property 213 is still underway. The Company is actively pursuing all legal and administrative processes in order to complete the lifting of the embargo. Although the Company is not the owner of the surface rights it has already secured a land access agreement with the Fazenda Chicoria owner as well as with other landowners. The Company intends to be active in the area over the long term and consequently strives to develop mutually beneficial and friendly working relationships with the landowners throughout the region.

Sales of Diamonds Recovered from Experimental Mining

Although the Company can sell any diamonds recovered during its experimental mining program, this cannot be considered as commercial production since the Guia is granted only in order to allow the Company to demonstrate the economic viability of the property. The Company can then apply for a mining concession and license of operation. Under Canadian law, in order to announce the commencement of commercial production, the Company must first submit a relevant NI 43-101 compliant report.

Property 1000

Diagem provided a clarification of the Property 1000 status in a press release dated February 17, 2005. The property remains under an IBAMA embargo; hence no work can be carried out on the property. A summary description of the property is as follows:

A historical resource estimate of 1,000,000 cubic metres of gravel grading 1 ct/cubic metre was prepared by Juina Mining Corp. (JMC) in 1999 and was entirely developed by mechanized auger drilling and bulk sampling using an excavator during 1998 and 1999. The results of the gravel delineation done on a 50 x 100 metre rectangular grid provided the data necessary to calculate the volumes of potentially economic gravels. A total of 2,163 cubic metres of gravels from 16 bulk samples were processed; the results provided the data for establishing the average grade of the resource so developed. The samples were processed in a gravity treatment plant which included an X-ray Sortex machine. The historical resource so defined was considered to be sufficiently reliable to justify the acquisition by Emerging Africa Gold Inc. (EAG), a predecessor company of Diagem, of a 51% interest in the property in December 2000. The reader should note that a qualified person has not done sufficient work to classify the historical estimate as current mineral resources and that the Company is therefore not treating the historical estimate as current mineral resources as defined in sections 1.2 and 1.3 of NI 43-101. In 2002, Diagem conducted six bulk samples within the same area. The average grade was approximately one half of the historical results. This difference may be explained by the fact that the historical grade results reported in 1998-1999 were obtained by treating the bulk samples in a larger-scale, well designed processing plant whereas the subsequent results were obtained using basic, less effective methods as their smaller sample sizes precluded using the larger plant. It is possible that the grade variation could also result from the fact that the samples were collected from lower grade material from the same area.

Based on field examination by Diagem personnel, the zone of the alluvial gravels is thought to extend beyond the calculated resource area. The diamondiferous gravels form part of elevated alluvial terraces which continuously border both banks of the river occupying the central part of the property. Although these terraces are continuous over the whole six kilometre length of the river, this continuity does not imply that potentially economic gravel resources are continuous over the entire length of the terraces as this can only be determined by systematic gravel delineation and bulk sampling work which has not yet been done outside the reported resource. Accordingly, no opinion is expressed as to the future economic value of the resource.

Diagem has not done the work necessary to verify the classification of the resource and is therefore not treating the reported resource as an indicated resource within the meaning of NI 43-101 and the historical estimate should not be relied upon.

Property 1000 is still subject to an embargo by the federal environmental agency, IBAMA, and further work or evaluation programs are dependant on the resolution of the IBAMA embargo. In order to advance the evaluation work, the Company intends to apply for a mining concession, pending DNPM's approval of the final exploration report that has already been submitted in December 2004.

Property 118

This exploration permit is located in the centre of the Company's property holdings. Gravel delineation drilling has identified prospective gravel deposits with high heavy mineral contents. A suitable site for bulk sampling has been identified. Diagem has obtained a three year extension of the exploration license to complete the bulk testing of these deposits.

Property 370/96

The 370/96 property is contiguous to Property 118 and centrally located with respect to Diagem's claims in the area and is host to the SL-01 kimberlite pipe. Other than a small bulk sample which yielded one diamond, little work has been done on this pipe. In a separate location within Property 370/96, the Company is set to continue its bulk sampling program on the Zilza farm. Here, a well characterized gravel zone of 750,000 cubic metres has been identified and evaluated with three exploratory bulk samples grading 0.06, 0.27 and 0.55 carats per cubic metre with a very good average stone size of 0.78 carats. The Company plans to continue its delineation and bulk sampling program in this area.

Property 119

Property 119, located south of the 214 mining concession, is host to the ARP-03 cluster of three kimberlite pipes. Little is known about these pipes despite the work done in the area by De Beers in the late 1970's and the early 1980's. The relationship between the ARP-03 kimberlite cluster and the alluvial diamond deposits mined by garimpeiros, approximately six kilometres to the south, is not apparent. Unlike other parts of the region, there is a lack of any significant modern day drainages for gravel washing, which may have precluded the area from exploitation by garimpeiros in the past. A preliminary delineation and evaluation of recent alluvial deposits and of the basal conglomerate will be carried out in order to provide a very preliminary evaluation of the diamond content in the pipes.

Small Scale Mining Operations on Property 1000 and Property 108

The Company announced in two press releases dated October 15, 2004 and January 27, 2005 that it had entered into two joint venture agreements to start small-scale mining operations respectively on Property 108 and Property 1000 which involved two local operators operating on small scale mining permits or PLG's (Permissao de Lavra Garimpeira). Diagem's initial plan was to conduct operations subject to joint venture agreements wherein each of the parties would contribute its equal share of the equipment and other operating costs. Since signing the agreements in September 2004, Diagem has not participated in these two joint ventures and is currently examining other arrangements with small scale miners that may be more beneficial to the Company. Contemplated arrangements could involve processing garimpeiro concentrates to raise the Company's capability to purchase an increased diamond inventory.

Diagem's property holdings in the Juina Diamond Province total approximately 120,000 hectares. To date, the properties are host to 21 of the 33 known kimberlite occurrences in the region. Most of the occurrences are diamondiferous. Extensive diamondiferous gravel deposits are present throughout the Province and Diagem's properties cover most of the zones where historical diamond mining activity has occurred. Diagem wishes to caution the reader again that mineral resources that are not mineral reserves have not yet demonstrated economic viability as defined by NI 43-101.

The technical content of this news release has been approved by Dr. Mousseau Tremblay, of Williamstown, Ontario, a Qualified Person, Chairman of the Board and Director of Diagem Inc.

Mousseau Tremblay

Chairman of the Board

On behalf of DIAGEM INC.

(i) SEMA replaces FEMA which was dissolved by the state government in June 2005.


Contact Information

    Mousseau Tremblay
    Chairman of the Board
    (514) 866-6001 / (613) 347-2561
    (514) 866-6193 (FAX)
    Paul Einarson
    Chief Financial Officer
    (514) 866-6001 Ext. 251
    (514) 866-6193 (FAX)