October 24, 2008

Preliminary Results for Year Ended 30 April 2008

This has been a tumultuous year for West African Diamonds. The lows centre on the problems of our Plant 11 mine in Sierra Leone to deliver the expected gold and diamonds. The highs have been the acquisition of excellent new ground in Guinea, the
expansion in size and grade of the Pipe 3 kimberlite in Sierra Leone and the acquisition of a skilled management team capable of exploiting the opportunities.

Yesterday’s announcement that two experienced directors are joining the board and that their organisations are investing cash to take a 29.9% stake in the Company is both positive and significant. The new funds will be used to bring our Bomboko mine on stream while the contacts and advice of the new directors will assist in determining a development strategy for West African Diamonds.

West African Diamonds, like almost every other AIM listed resource company, has been battered by the financial storms engulfing the world. Share prices have been quartered or decimated, liquidity is gone and new fund raising made almost impossible. Many of us have seen economic recessions and stock exchanges which do not function but the current situation is like no other in recent memory. The collapse in credit is shaking the very foundations of the world financial system. Undoubtedly, the financial malaise will spread into the wider economy which will experience a sharp and deep recession.

But, the recession will end and growth will resume. The political powerhouses of Brazil, Russia, India and China (BRIC) will become economic powerhouses while the Western world wilts. Prior to the current downturn, there were very positive signs that ladies in the BRIC countries were taking to diamonds. It is unrealistic to expect no downturn in diamond demand but in the longer term, the demand fundamentals are very sound.

Diamonds are hard to find, very hard. Very few places in the world are capable of producing good quality gemstone diamonds. West Africa is one such place. Over the years, some of the most beautiful and valuable diamonds, including the 970 carat ‘Star of Sierra Leone’, have come from Sierra Leone and Guinea. West African Diamonds is well positioned in both countries.

Sierra Leone

As an early mover after the Sierra Leone civil war of the last decade, West African Diamonds obtained choice ground. At the same time we entered the far less explored Guinea where we selectively picked licences.

In the early years of this decade, the West African licences were part of African Diamonds plc. This company discovered diamonds in Botswana and had less time and resources to focus on West Africa, so in early 2006, the assets were spun off to a newly AIM listed vehicle, West African Diamonds plc. The early focus of West African Diamonds was on Sierra Leone where we currently hold three advanced projects, the Plant 11 tailings retreatment project, the Pipe 3 kimberlite and the Koidu kimberlite dyke swarm.

We had high hopes that Plant 11 near Koidu would be an early cash provider. This 7 million tonne plus tailing contains gold and diamonds. During 2006 and early 2007, we built a mine capable of treating 1 million tonnes of ore a year. Results were extremely disappointing. Despite repeated efforts to rectify perceived problems, we were unable to make the project generate a positive cash flow. We closed the plant and placed it on care and maintenance while we examine whether the problem is low grades or low recoveries.

Pipe 3 is a small kimberlite located adjacent to the former Koidu Holdings mine on Pipes 1 and 2. We sampled 20,000 tonnes in 2005 and reprocessed material in 2007. We now believe that the pipe has a grade of about 19 carats per hundred tonnes and a value per carat in excess of $225. A geophysical survey over and around the pipe revealed an extension or a smaller pipe. We have been examining economic options for the pipe.

We have over 14km of mapped kimberlite diamondiferous dykes around Pipe 3, some of which are adjacent to the Petra Diamonds dyke mine. We are examining development options for the dykes. We are keeping a close watch on developments at the Petra project.

Guinea

Emerging opportunities in Guinea are overshadowing those in Sierra Leone. Our principal focus is on our Bomboko licence where we are developing a small alluvial mine which will come on stream in early 2009. We hold licences over 77km2 of the upper Bomboko river system in the Banankoro region of Guinea. Work by companies and artisans in earlier decades indicated the presence of diamonds. During 2007, West African Diamonds bulk sampled part of the river and recovered 200 carats averaging $135 per carat in value. The diamonds included stones of 9.2, 4.5, 4.2 and 3.8 carats. A pan plant is on site, earthmoving equipment is on the way and we expect to commence commercial operations in early 2009. Initial production is expected at a rate of 20 tonnes per hour, expanding to 50 tonnes per hour following further investment.

During 2007, West African Diamonds was awarded a 53km2 exploration licence in the Bounoudou area. There is a pipe like body on the licence called Droujba, which is a complex orebody. Earlier work suggested a grade of 65 carats per hundred tonnes for the pipe. West African Diamonds undertook a detailed suite of surveys over the pipe and associated dykes. Results suggest the known pipe is larger than thought, while two new satellite pipes have been discovered.

Work also continues on the secondary alluvial deposits in the Bounoudou area.

Management

Management is a principal asset of West African Diamonds. We have a team on the ground in West Africa who know the area and can explore and build mines. They are complemented by main board directors with decades of diamond mining experience while another has thirty years on the ground experience. The value and scarcity of this team should not be underestimated.

Finance

We raised too little money when we listed the Company. We believed that £1 million would bring the Plant 11 mine into positive cash flow production. It took longer to build the mine, it cost more and produced less. A small placing in 2007 was designed to bring Plant 11 into profit. This did not happen.

Once a decision was made to develop the Bomboko mine in Guinea as well as drill out the Droujba pipe, finance was required.

The attractive portfolio, the strong management team and the stock exchange listing are powerful attractions. A series of potential suitors have had discussions with your board. Agreement was reached with a private company to merge. The falling share price stymied this proposal. After extensive discussions, an agreement has been reached with a group of expert investors to purchase a 29.9% stake in West African Diamonds by acquiring new shares. The funds will be used to complete the Bomboko mine and to undertake exploration programmes in both Sierra Leone and Guinea. Two experienced directors are joining the board.

Future

West African Diamonds will be a very different company in the future. New directors and new money will bring new ideas and projects. I welcome the infusion of cash, talent and experience. It will be good for shareholders.

John Teeling

Chairman

24th October 2008

 

NR-Oct-24-2008