Sanatana Diamonds Inc. - Mackenzie Diamond Project

Mackenzie Diamond Project Exploration Geology Mineral Rights Diamonds in Canada’s North Investor Info – AIM Rule 26

Exploration Program

Sanatana has adopted a three-fold exploration strategy aimed at identifying areas with high potential for discovery of kimberlites. These high potential areas are followed up with detailed exploration programs, which would include but are not limited to, detailed airborne geophysics, ground geophysics, infill till sampling, prospecting and diamond drilling.

The first element of Sanatana's exploration strategy was a study in 2004, which consisted of collecting and validating all available geological data over the Mackenzie Diamond Project, compiling this data into three dimensional databases and generating three dimensional models and target areas that are prospective for kimberlite exploration.

The second element of Sanatana's exploration strategy was a geochemical program of glacial till sampling aimed at identifying patterns of kimberlite indicator minerals in glacial deposits of till covering the Mackenzie Diamond Project. These indicator minerals were derived from potential diamond bearing rocks known as kimberlites. Indicator minerals are formed under the same temperature and pressure conditions required for the formation of diamonds. These indicator minerals -- pyropes, ilmenite, chrome-diopside and chromite -- are formed at depths of approximately 200 km in the earth's crust and are brought up to or near the surface by kimberlites. These kimberlite pipes may or may not contain diamonds but the mechanism that brings indicator minerals to the surface is the same mechanism that brings diamonds to the surface The layers of glacial till containing kimberlite indicator minerals were formed when the glaciers 'scraped' over kimberlite occurrences and dragged that material along as the ice moved across the landmass and dropped it in the "down-ice" direction. Glacial till samples are collected and the number of each indicator mineral is counted. Over 1300 till samples were collected from the Mackenzie Diamond Project in 2004 and 2135 till samples were collected from the property in 2005. Each till sample weighs about 25kg and they are processed and analyzed for kimberlite indicator minerals. The analysis laboratories returned anomalous kimberlite indicator mineral counts from many of the till samples collected in 2004 and 2005. Processing of the till samples collected in 2004 and 2005 was conducted at the Kennecott Diamond Laboratory in Thunder Bay, Ontario and the Vancouver Indicator Processing Laboratory in Vancouver, British Columbia.

The third element of the Company's exploration strategy is a program of airborne magnetic geophysical surveys aimed at identifying kimberlite clusters. Airborne geophysics offers a high level examination of the material below the glacial till that blankets this area of Canada to depths of 100 meters -- it allows a look 'through' the glacial debris of sand, gravel and boulder sized materials to the rock below. The resulting geophysical maps illustrate "anomalies" or potential areas of interest based on geophysical responses (magnetic and /or gravity) which geologists interpret to determine what type of material may be below the glacial till. Airborne surveying of the Mackenzie Diamond Project at 400 meter line spacing commenced in May, 2005 with a total of approximately 160,000 line kilometres completed by the end of November, 2005. The balance of approximately 20,000 line kilometers was completed in the Spring 2006.

Sanatana's technical team, led by Buddy Doyle with input from a complement of technical experts from Kennecott Canada, evaluates all the geological data derived from each of the exploration strategy to determine drill targets.

2006

Sanatana's 2006 exploration program focused on two main areas within the Mackenzie Diamond Project -- the Kilekale Lake and the Coville Lake -- Lac des Bois areas. Drill targets in the Kilekale Lake area were identified by a helicopter-borne low level magnetic survey done at 100 metre spacings. Sanatana also undertook ground geophysical surveys in these areas and 8 of 30 targets identified in the previous exploration season were drilled.

Sanatana will also carry out glacial till sampling, ground geophysics and drilling on other target areas with the Mackenzie Diamond Project area. Total exploration expenditures for the 2006 exploration program will be in the range of $8 million to $12 million when analysis and data collection are complete. Sanatana plans to issue press releases as results become available during various stages through the 2006 exploration season.

2005

Sanatana carried out a robust exploration program during 2005 with an expenditure of approximately C$10 million. This program consisted of an airborne geophysical survey of the Mackenzie Diamond Project, undertaken from May to November of 2005, which is considered to be the largest airborne geophysics survey undertaken in North America -- more than 160,000 line kilometres. The data collected from this survey was analyzed, resulting in the identification of geophysical anomalies which could indicate the presence of kimberlite pipes. The further examination of the anomalies identified at the beginning of the field season became the basis for the summer 2005 exploration program.

During the 2005 summer exploration season, Sanatana collected 2135 glacial till samples destined for geochemical analysis. The total weight of all of these samples was roughly 80 tonnes. The Kennecott Diamond Laboratory processed and analyzed these samples for recovery of kimberlite indicator minerals. The total cost of the till sampling, processing and analysis program was approximately C$3.2 million

The 2005 exploration season ended in November with data analysis forming the basis for the 2006 exploration season and further examination of the anomalies identified.

2004

Initial exploration of the Mackenzie Diamond Project consisted of the collection of more than 1,400 glacial till samples which were analyzed for diamond indicator minerals. From these wide-spaced till samples, a number of anomalies were identified -- enough positive information was interpreted from these samples to warrant more in-depth investigation of these broad areas within Sanatana's vast landholdings.

Top

Geological Setting

Surface Geology

Quaternary geology of the Mackenzie Diamond Project includes extensive thick glacial deposits that suggest a complex and variable glacial history. Formations observed are lacustrine sediments, several thin to thick boulder till sheets (exposed in sink-holes and deep-cut river valleys) and huge moraines. Drumlins are present in the north, and aligned lakes suggest rapid ice flow in the southwestern and southeastern parts of the property. Glaciofluvial deposits include large delta and floodway deposits, as well as prominent esker ridges, and kettle lakes.

Glaciofluvial deposits are more dominant in the northern and north-eastern parts of the property. Government Quaternary mapping shows that most of the Mackenzie Diamond Project area is covered in a till veneer and a till blanket, with areas influenced by glacial fluvial processes. The project area is dominated by till veneer of less than three meters, which mimics bedrock topography, and till blankets of between three and ten meters, which masks, but is still influenced by, bedrock topography. These deposits are thought to be lodgement tills and are considered excellent for till sampling.

Regional & Local Geology

To the east of the Mackenzie Diamond Project is the Proterozoic Bear structural sub-province, which sits between the (proposed) Mackenzie Craton and Slave Craton. The Bear sub-province is dominated by the Wopmay Orogen, which records mid-Proterozoic rifting and subduction. The Wopmay is divided into tectonic belts including the sedimentary Hepburn Asiak and Tree River belts. The Great Bear Zone is Andean-type magmatic arc volcanism. Post collisional sedimentation is represented by the mid-Proterozoic to early Cambrian Coppermine and Rae Groups of the Coppermine Homocline.

In the eastern part of the Mackenzie Diamond Project, near Dease Arm of Great Bear Lake, are gently-dipping clean-white sandstones and orthoquartzites, which are the basal unit of the Hornby Bay Group. Minor extension is represented by a large layered ultramafic body known as the Muskox Intrusion, and north-south Franklin diabase sills and dikes form prominent ridges north of the Dease Arm of Great Bear Lake.

Paleozoic and Mesozoic Mackenzie Platform sediments occur along the Western Inland Seaway (Mackenzie River) east of the Mackenzie Mountains, and have been of great interest to oil and gas exploration companies. Large formations of Paleozoic shales, organic-rich shales, reef and platform carbonates are present. Rocks exposed on the property include Canol Formation organic shale, which overlies Kee Scarp Formation Devonian Limestone Reef deposits, from which much of the MacKenzie oil is derived. The Kee Scarp Limestones overly the 350 million year old Hare Indian Formation (shales) known from deep oil drilling.

Basement Geology

The existence of an underlying Archaean craton in the Mackenzie Diamond Project is theorized based on circumstantial evidence in the form of kimberlite indicator minerals and Archaean gneisses and granitic glacial erratics in the western, but not the eastern part of the property.

Kimberlites are sourced from lithospheric roots of Archaean cratons. Kimberlites have not yet been discovered in the Mackenzie Diamond Project area, however, the discovery of kimberlite indicator minerals (pyrope, chromite and ilmenite) with fragile surface textures such as leucoxene alteration on ilmenite, and kelyphite coronas on pyrope garnet, suggests the existence of undiscovered kimberlites. Kimberlites, if discovered, will likely penetrate platform sediments to the paleosurface present at the time of emplacement.

There are no known Archaean outcrop exposures in the Mackenzie Diamond Project, however, there are half-meter sized gneiss boulders near the western part of the property, but not in the eastern part of the property. Government glaciologists have predicted that these Archaean erratics were carried by the Laurentide ice sheet from exposed Archaean rocks some 350 kilometers to the east. The presence of boulders near the western part of the Mackenzie Diamond Project, but not on the eastern part of the property suggests that glaciers may have sampled a local, buried source.

Top

Ownership of Diamond and Other Mineral Rights

Sanatana owns the diamond and other mineral rights, excluding uranium rights, to the prospecting permits that comprise the Mackenzie Diamond Project (shown above). Prospecting permits allow the holder the exclusive right to locate mineral claims within the permit area. North of 68 degrees north latitude, prospecting permits may be held for a period of 5 years. South of 68 degrees north latitude, prospecting permits may be held for a period of 3 years. The Mackenzie Diamond Project is comprised of 60 prospecting permits located north of 68 degrees north latitude, and 322 prospecting permits located south of 68 degrees north latitude.

Assessment and Bonding Requirements
In order to maintain a prospecting permit in good standing, the holder must post a bond at the start of each applicable work period and complete prescribed levels of exploration work within the permit area during each applicable work period. North of 68 degrees north latitude, the required bond and exploration work is 10 cents per acre during an initial two-year work period, 20 cents per acre during a second two-year work period and 40 cents per acre during a final one-year work period. South of 68 degrees north latitude, the required bond and exploration work is 10 cents per acre during an initial one-year work period, 20 cents per acre during a second one-year work period and 40 cents per acre during a final one-year work period. Provided the required exploration work is completed within the applicable work period, the bond is returned to the holder after submission of a report of the work completed.

In the third term (year 5 for north of 68 degrees north latitude, and year 3 for south of 68 degrees north latitude), the landholder may elect to convert land within the permit area to unpatented claims by staking. Excess work from previous prospecting permits may be transferred to new claims. Prospecting permits south of 68 degrees north latitude that were acquired by Sanatana in 2004 have entered the third work term, and thus physical staking is required to retain any land of merit. Pursuant to Canadian mining legislation, land not staked in the third term will revert to the Crown on February 1, 2007 and Sanatana will be prevented from reacquiring mineral rights to this land for a period of one year.

Sanatana also has rights in 52 unpatented mining claims which were staked on Sanatana's behalf in Spring 2005.

The landholder can hold an unpatented claim for 10 years from the date the claim is recorded if the landholder completes work valued at $4 per acre in the first 2 year term, then work valued at $2 an acre each subsequent year until year 10, when the claim must be taken to lease.

Top