QUARTERLY REPORT FOR THE THREE MONTHS ENDED 31ST MARCH 1998

1. HIGHLIGHTS

• Tunnel commenced to access inferred resource beneath Mount Ross
• Gloucester ruby trial mining commencing immediately
• Old tunnel discovered at Ruby Hill volcanic pipe

2. DIAMONDS

2.1 COPETON DIAMOND PROJECT (Cluff 100%)

STAR TUNNEL    
Having excavated a series of open cuts over obviously rich deposits which were totally extracted by the miners at the turn of the century, the Company has focused on inferred resources which these miners were unable to work. Such an inferred resource has been identified beneath the centre of Mount Ross. The Company's main focus over the next few months will be the mining of this resource by a tunnel requiring a substantial effort and cost. This harder work has the potential to open up a substantial diamond wllicb, has not been exploited in the past.

Construction of this Star Tunnel, aimed at extending 250 metres beneath Mount Ross to mine diamonds in a depression beneath the centre of the mountain, commenced during the quarter. It has now extended 27 metres and is progressing at a rate of approximately three metres (one set of timbers) per day.

The tunnel is aimed at mining an inferred resource of 500,000 carats of diamonds (One million tonnes of diamondiferous sands with a grade of 50 carats per hundred tonnes). Average value of the diamonds is in excess of $100 US per carat. The sands containing the diamonds were accessed in the 1970s by a series of narrow exploration shafts and tunnels from which it was not possible to haul the sands economically. The two metre by two metre tunnel currently under consruction will allow direct horizontal access to the working faces by underground trucks, with fast hauleage rates.

The tunnel is aiming at a shaft from which an average grade of 65 carats of diamonds per hundred tonnes was obtained over a thickness of seven metres. It is now driving on the contact of river sands overlying granite, and is dipping gently into a channel containing coarser gravels.

 A series of stockpiles were taken during excavation of the portal of the tunnel, and
processed through the Mount Ross plant, yielding the largest gem diamond recovered by Cluff to date, a 1.91 carat yellow, reported last quarter. Subsequent mining from the portal yielded the results SS4 to SS10, detailed at the end of this report.

One stockpile has been processed from material extracted from the tunnel, yielding six diamonds weighing 1.18 carats from 143 tonnes of material.

WONDERLAND
Mining of the Wonderland diamond deposit, with hauleage to the Mount Ross plant for processing, commenced during the quarter. A total of 1427 tonnes were treated and 211 diamonds weighing 44.19 carats were recovered. The largest gem diamond recovered weighed 1.15 carats. The diamonds averaged 0.21 carats in weight, and were of gem quality, with the exception of a 0.78 carat boart industrial diamond. Although dilution with overbiitden was a problem at Wonderland, these results are not encouraging, and the mining crew are now operating at Ruby Hill pending a review of the work to date.

RUBY HILL VOLCANIC PIPE
The Ruby Hill volcanic pipe, south of Bingara, is now operated by Cluff, and is held 100% by the company. The NSW government geologist in 1900 reported on a shallow shaft sunk by a Mr. Morkel. This shaft was stated to have recovered ten diamonds from a small tonneage of volcanic breccia.

Cluff has dug a pit to eight metres depth near this shaft and  exposed a tunnel extending from the shaft into the hill. It has collapsed at a distance of twelve metres in a soft green zone within the breccia. Stockpiles of the green zone, the volcanic breccia, and the overlying alluvial gravels are being mined at present, and will be processed at Mount Ross shortly.

KOHINOOR
A small early open cut at Mount Ross was sampled to determine whether any diamonds were present in altered granitic material beneath the sands worked by the old time miners. 200 tonnes were treated to yield one diamond which was uncharacteristically  small (0.046 ct), and of a brownish colour.

STAR OF THE SOUTH OPEN CUT
432 tonnes of sands and gravels form the previously worked Star of the South open cut were processed,  yielding six diamonds weighing 1.18 carats in total.

STAR OF THE SOUTH MULLOCK
Tailings and mullock from the old Star of the South mine were stockpiled and processed, with 510 tonnes yielding 24 diamonds weighing 5.84 carats.

ROUND MOUNT AND STAGGY CREEK
Governmental approvals for mining at Round Mount and Staggy Creek are still awaited.

2.2 BINGARA DIAMOND PROJECT (CIuff 49%, Diamond Ventures earning up to 75%)
Diamond Ventures are continuing to review the work completed to date.

3.RUBIES   

3.1 GLOUCESTER RUBY PROJECT
Agreement has been reached with the landowner for a trial mining program on one of the company's ruby projects northeast of Gloucester, NSW.

The mining program will commence within the next two weeks, and will be completed within three months.

The alluvial flats which contain the rubies and sapphires are up to 100 metres wide and extend for about 4 km along the river. They have been sampled in the past, yielding from less than one to over five grams per cubic metre of 1st, 2nd and 3rd grade ruby. On today's international wholesale market for uncut stones the top quality red stones should have a value of between $40 and $50 per gram. The rubies are contained in a bed of river gravel about one metre thick beneath clayey overburden which rarely exceeds two metres in thickness.

The following statements apply in respect ofinformation in this report that relates
to Identified Mineral Resources and Exploration Results:
     1.     The information is based on, and accurately reflects information compiled by Peter John Kennewell, who is a corporate member of the Australasian Institute of Mining and Metallurgy.

     2.     Peter John Kennewell is employed by Kennent Pty Ltd, a consultant to the Company. Peter John Kennewell has relevant experience in relation to the mineralisation being reported on, to qualify as a competent person as defined in the Australasian Code for Reporting of Identified Mineral Resources and Ore Reserves.

For more information please contact Peter Kennewell or Walter Penninger on (02) 9487 4655

Peter Kennewell
Managing Director