Vaaldiam, Elkedra and Great Western Diamond eye Brazilian three-way

Vancouver – Subscribing to the philosophy ‘bigger is better’, emerging diamond producer Vaaldiam Resources (VAA-T, VAAFF-O) has tabled plans to merge with Australian company Elkedra Diamonds (EDN-A, EDN-L), also a producer in Brazil, and Great Western Diamonds (GWD-V, GWS) in an all stock transaction.

The proposed deal sees Vaaldiam offering 0.52 and 0.45 of a share for each Elkedra and Great Western Diamond share respectively in a bid to consolidate three smaller-to-mid-tier companies and become South Americas top diamond producer.

Vaaldiams bid for Elkedra represents the issuance of 60.3-million Vaaldiam shares. Under Australian regulations, we are only allowed to lock up to 20% of Elkedra shareholders, so we have 19% locked up but we are very confident we have support of well over 50% of Elkedra shareholders, stated Vaaldiam president and CEO Ken Johnson.

In its bid for Great Western Diamond, Vaaldiam would issue a total of 43.6 million shares and reports it has irrevocable lock-ups on 49% of the Great Western shares.

Johnson described a goal to, create South Americas largest diamond producer – producing 50,000 carats of high-quality diamonds in 2007, increasing to a projected 200,000 carats in 2009 from three operations: Chapada, Elkedras operating mine, our own Duas Barras operation that just started production this month, and our Brauna kimberlite project, which will be South Americas first kimberlite deposit being brought into production by 2009 after we complete a successful feasibility study.

Vaaldiam recently commissioned its Duas Barras diamond mine in Brazils Minas Gerais State and has recovered its first batch of stones from the alluvial operation. The mine is forecast to produce about 25,000 carats for the remainder of 2007 and then about 50,000 carats annually for several years.

Elkedras Chapada alluvial diamond operation is located in Mato Grosso State, about 80 km northeast of Cuiab. Brought into production in mid-2006, the mine hit its design capacity in early-2007 and has produced just over 20,000 carats of diamonds in its initial year at an average sale value of US$393 per carat. Stone output is forecast at 25,000 carats for 2007 and 36,000 carats in 2008.

Additionally, Vaaldiam plans a 5,000-tonne kimberlite bulk sample from its Brauna project in Bahia State. Four identified diamondiferous kimberlite pipes on the project are associated with a kimberlite dike system traced for over 15 km. It anticipates, pending positive economics, a proposed mine could contribute significant primary diamond production.

Vaaldiam also holds the Pimenta Bueno property located in western Brazilian State of Rondonia. Exploration has identified 38 kimberlite pipes with a mini-bulk sampling program planned this year on four of the kimberlites that are diamondiferous. Rio Tinto (RTP-N, RIO-L) holds 60% back-in rights on any kimberlite in the southern block of the project.

Great Westerns Rondonia diamond project consists of 8,300-sq. km of diamond concessions and is located northwest of Vaaldiams 2,480-sq. km Pimenta Bueno. Of the eight identified kimberlites on the Rondonia project, five are diamond bearing.

Additionally, Great Western Diamond has the Candle Lake project in Saskatchewans Fort la Corne region where it is evaluating a pair of large kimberlite pipes know to host macrodiamonds.

This transaction has Vaaldiam holding 100% ownership of two producing mines with a very high value of production a combined average value of US$300 per carat, well above the world average production of US$75 per carat, continued Johnson. It also gives us a diversified project pipeline in terms of advanced stage projects well have 53 kimberlite deposits, some of these at a very advanced stage of exploration, where theyre either at the bulk sampling stage or entering feasibility study. Our focus is going to remain in Brazil where you have a very low cost operating jurisdiction and a favourable operating climate where we can work 12 months out of the year.

Assuming the deal goes through, current Vaaldiam shareholders will own 46% of the new Vaaldiam, Elkedra shareholders will have 31% and Great Western shareholders would hold about 23%.

The new company will have significant production, a bolstered market capitalization (more than $160 million), a strong balance sheet (upon conversion of Elkedras debt to equity) with over $20 million in cash and a resource base of over 700,000 carats in the indicated and inferred class.

Shares of Vaaldiam notched up two pennies to close at 94 apiece following the announcement. Great Western Diamond remained even on the day at 41.5 per share while Elkedra posted a 33% gain in Aussie-board trading to close up A11 at A44 per share.