Diamond & Gold

Jequitinhonha Valley, state of Minas Gerais, Brazil

Our diamond and gold operations and properties in the Jequitinhonha Valley area of the state of Minas Gerais in Brazil are in two subsidiaries, Mineração Duas Barras Ltda. (“MDB”) and RST Recursos Minerais Ltda. (“RST”). Details regarding MDB and RST can be found in our Annual Report on Form 10-K as filed with the SEC. An excerpt of the descriptions of MDB and RST from the 10-K is below.

I. Mineração Duas Barras Ltda. (“MDB”)

MDB owns a large alluvial diamond and gold processing and recovery plant, capable of processing upwards of 45 tons of gravel per hour of operation. It is our best information that this plant was built by South African mining engineers hired for the task and cost $2.5 million to construct. It is regarded as the largest such plant in Latin America.

MDB has title to two mineral rights. One is a mining concession for diamond, gold, and sand (discussed below). The other, physically separated, is an area for which we have submitted the application to mine. Both of the MDB mineral rights are located on the left margin of the Jequitinhonha River in the State of Minas Gerais in Brazil. The Jequitinhonha River valley is a well-known area for diamond and gold production; it has hosted alluvial production since the 18th century.

MDB’s plant, mining concession, and mineral right are all approximately one and half hour drive from Montes Claros, Brazil, a city of approximately 500,000 people. The first hour of the drive is on asphalt roads followed by a half-hour on dirt roads. Montes Claros has the infrastructure needed by MDB and also benefits from having an airport with regular carrier service to large Brazilian cities, including São Paulo and Belo Horizonte.

MDB’s Mining Concession

MDB’s mining concession (“Concessão de Lavra”) covers an area of 422 acres. It allows for the exploration and commercialization of diamonds, gold, and sand. “Concessão de Lavra” is the highest level of mineral right in Brazil. It permits the owner to mine in perpetuity provided that environmental licenses are kept current and that mining guidelines are followed.

There are no liens or other encumbrances on MDB’s mining concession, and there are no fees to be paid to maintain such claim. Therefore, we have no outright payments to maintain MDB’s mining concession.

Brazilian law guarantees the owner of the land from which the subsoil is mined a royalty of at least 0.1% of gross revenues. However, most Brazilian mining companies negotiate with the landowner and pay a higher royalty rate as an incentive for greater cooperation. MDB has a contract that pays the surface landowner a 6% royalty rate on any gross revenues from material mined in MDB’s titled mining concession. Additionally, MDB pays “CEFEM” royalties to Brazil’s tax authority if and when it sells diamonds and gold. These royalty rates are fixed by federal decree and currently are 0.1% on diamond sales and 1% on gold sales.

MDB’s Other Mineral Right (“MDB-2″)

MDB’s other mineral right covers an area of 982 acres. In February 2016, we filed with the mining department a detailed application with technical study for commercial mining of this area. We also filed the appropriate permit with the environmental department. We are monitoring both applications.

MDB-2 has not been mined commercially before, but prior to our ownership it has had prospector activity, something viewed by experts as a positive sign. In the plot within MDB-2 for which initial commercial exploration is targeted, our technical team identified both “grupiária” and alluvial gravel available for processing for diamonds and gold. “Grupiária” is a thicker rock mixture known locally for having a lower density diamond concentration, but larger diamonds where they do occur. Anecdotally, diamonds that are 5 to 10-carats in weight are reported from such material, although we have not had independent confirmation. Commercial exploration, when permitted, will be via open-sky, surface mining, with a small, moveable pre-processing structure, which will filter and concentrate material for transport to our large diamond and gold processing plant. We cannot estimate as to when MDB-2 will be operating on a commercial basis, although we have reason to believe it could be sometime in late 2016.

We intend to perform all of the necessary studies to move MDB-2 to the mining concession status as soon as possible in the future. There is no current recurring cost to the mining department to upkeep this area.


The previous owner of MDB’s mineral right performed detailed geological studies in part of MDB’s mining concession leading to the publication of an NI 43-101 technical report in 2007, with an update in 2008, as required by the rules of the Canadian securities administrator. The NI 43-101 report from 2008 describes the existence of mineralized materials amounting to 1,639,200 cubic meters with the following concentrations for diamonds and gold: 0.16 carats of diamonds per cubic meter and 182 milligrams of gold per cubic meter. The previous owner also submitted its “Plano de Aproveitamento Econômico”, a bankable feasibility study, to the mining department in accordance with the mining regulations of Brazil. We do not claim that MDB’s NI 43-101 technical reports and its bankable feasibility study are compliant with the SEC-sanctioned Industry Guide 7. Under the SEC’s Industry Guide 7, no assertion can be made about reserves; moreover, Industry Guide 7 does not recognize the term “resources.”

II. RST Recursos Minerais Ltda. (“RST”)

We acquired from two Brazilian individuals, unrelated to us, 50% of RST. Previously in 2008, RST had been transacted for $10.5 million; the buyer paid $2 million and subsequently was unable to pay the remainder because of the global financial crisis. The RST mineral rights remained largely untouched until our acquisition.

RST has a storied history as holder of highly attractive areas for diamonds and gold. Most of its current mining concessions and mineral rights have never had land-based exploration performed properly. Many of the RST areas were owned before by Mineração Tejucana S.A., a famous Brazilian mining company that lasted for decades and mined inside the Jequitinhonha River by dredge boat.

Currently RST has title to 9 mining concessions and several other mineral rights, as seen in table attached above. All of RST areas are for diamonds and some for gold as well. All of them are located in the Jequitinhonha River valley in the northern part of the state of Minas Gerais, Brazil. Some of the RST areas, including one that is potentially very rich in diamonds and gold, is located next to MDB’s plant and mining concession.

The quality of the RST areas is evidenced in an NI 43-101 technical report published in 2008. We do not claim that RST’s NI 43-101 technical report is compliant with the SEC-sanctioned Industry Guide 7. Under the SEC’s Industry Guide 7, no assertion can be made about reserves; moreover, Industry Guide 7 does not recognize the term “resources.”

RST has no recovery plant for diamonds and gold at this time. We plan on initially utilizing MDB’s plant for such recovery.

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