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Karelian Diamond Res. PLC (KDR)

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Thursday 20 October, 2005

Karelian Diamond Res. PLC

Final Results

                                                To be embargoed until 7.00 a.m.

                                                                20 October 2005

                    Karelian Diamond Resources Plc ('KDR')                     

           Final Results for the period from date of incorporation,            

                          1 March 2004 to 31 May 2005                          

Dear Shareholder,

I have great pleasure in presenting your Company's first Annual Report and
Financial Statements.

Karelian Diamond Resources Plc is the holding company of a diamond exploration
group focused on the discovery of potential world-class diamond deposits on the
Finnish side of the Karelian Craton.

The Karelian Craton, a block of ancient crustal rocks in North West Europe,
shows all the characteristics of diamond producing cratons found elsewhere in
the world. The potential of the Karelian Craton to host diamond deposits is
indicated by major discoveries by other companies on the Russian side of the
same Craton. These include two world class deposits, the Grib pipe which is
estimated to contain a resource of 98 million tonnes at an average grade of 69
cpht with an estimated in situ value of US$3.7 billion and the Lomonosova
diamond deposit whose diamond reserves are estimated to be worth US$ 12.0

The regional geology of Finland is also similar to that of Canada's Slave Lake
Craton, where diamonds were first discovered in 1991. BHP Billiton's Ekati mine
opened in 1998 and produced over 7 million carats in 2003, worth approximately
US$800 million. Rio Tinto's Diavik mine opened in early 2003 and produced some
3.8 million carats in its first year, worth around US$380 million. Two further
diamond mines (Jericho and Snap Lake) are planned to come into production in
the region in the near future.

KDR holds a total of 58 diamond claims in Finland, 21 of which were acquired in
July 2004,when the Company purchased Nordic Diamonds Limited from Conroy Plc
and Karelian Diamonds Limited from Conroy Diamonds and Gold plc., together with
all intellectual property and confidential proprietary data relating to the
diamond exploration programmes in Finland of those two companies. KDR has
subsequently applied for and been awarded a further 37 claims under claim
reservation exclusivity, including claims covering a diamondiferous kimberlite
pipe at Seitaperä in the Kuhmo area.

KDR's licences in Finland are divided on a geographical basis into four
separate claim blocks (Lapland, Western Finland, Kuhmo and South-eastern
Finland) all four of which have been independently assessed as 'highly
prospective for diamonds.'

Diamondiferous kimberlites are largely confined to ancient stable cratons where
the thickness of the earth's crust is sufficient to minimise heat loss and
preserve the high temperatures necessary for diamond formation. The Kuhmo area
of the Karelian Craton is characterised by a particularly thick crustal zone.

KDR management has developed a close working relationship with the Geological
Survey of Finland ('GTK') and is able to draw on its expertise, its extensive
knowledge of the geology of Finland and its excellent technical and laboratory
services. Karelian employs GTK staff as local consultants and to carry out
fieldwork and has benefited greatly from this relationship, which has extended
over many years. In addition KDR's senior consultant, Dr Bert Gerryts, is an
internationally respected diamond geologist who pioneered the use of indicator
minerals and geophysics in diamond exploration.

KDR's exploration programme will include further drilling of the known
diamondiferous pipe at Seitaperä in the Kuhmo block, ground geophysics in the
adjacent area to select further drilling targets and till sampling up ice,
followed where appropriate by ground geophysics and drilling. Work will also
continue on the other three highly prospective blocks.

Your Company is undertaking its diamond exploration programme at a time of
buoyant market conditions for diamonds due to the tightness of supply and
growing demand. Diamond prices are now rising faster than at any time since the
late 1980s.

The management of your Company, together with its staff and consultants, have a
track record of success in mineral exploration and look to enhance this record
with a major commercial diamond discovery in Finland.


Your Company's strategy is to apply up-to-date diamond exploration techniques
in the Finnish Karelian Craton with a view to the discovery in Finland of major
diamond deposits similar to those which have been found in the same Craton
across the border in Russia. KDR has developed a model for diamond
prospectivity in Finland. Key elements in the model include:

  * the identification of thick Archaean crust (45km to 240km);
  * the identification of favourable structural zones for emplacement of
    kimberlites, including activation zones and broad zones of deep seismic
    activity indicating the presence of these zones; and
  * the identification of diamondiferous rocks in target areas of the craton,
    e.g. kimberlites, lamproites and various hybrids.
The extensive aeromagnetic and electromagnetic data available in Finland has
therefore been useful in your Company's regional exploration. Kimberlite pipes,
because of their geological composition, may exhibit a geophysical signature
different to that of the surrounding rock, however, similar geophysical
anomalies may arise from other causes. The interpretation of the geophysical
data has, therefore, been followed by extensive regional deep till sampling in
the course of which over a thousand samples were collected and analysed. A
number of these samples yielded both kimberlitic and diamond indicator
minerals, including G9 and G10 garnets. These garnets are particularly
important as they are formed at similar temperatures and pressures to diamonds.

A number of potential diamond targets have been identified using this strategy.
This led to the selection of four blocks of licences grouped geographically and
referred to as the Lapland, Kuhmo, Western Finland and South-eastern Finland
licence blocks. All four blocks are highly prospective for diamonds.

The Kuhmo block is known to contain a diamondiferous kimberlite body with a
reported grade of 1.09 cpht (the Seitaperä pipe). KDR's exploration programme
will include follow up drilling of the Seitaperä pipe. This pipe has a surface
area of four hectares and to date has been the subject of only a limited
drilling programme.

Diamond indicator minerals have been discovered by KDR elsewhere in the Kuhmo
block, leading to the conclusion that multiple sources for diamonds may exist
in this area. Ground geophysics and deep till sampling will be used to search
for and drill other kimberlite pipes in the Kuhmo area.

A follow up exploration programme will also be carried out on the other highly
prospective blocks with a view to the location and drilling of potential
diamondiferous kimberlite pipes.


Your Company's claims are divided into four blocks.

Kuhmo Block

The Kuhmo block in eastern Finland, which contains a known diamondiferous pipe
at Seitaperä, comprises forty nine claims, which are believed to be highly
prospective for diamondiferous kimberlites.

An extensive reconnaissance till sampling programme has been completed in the
area, with samples from approximately 200 sites, on three north-south
traverses, initially collected and processed and subsequently followed up by
further localised traverses.

Some 28 diamond indicator pyrope garnets (including G9s and G10s) have been
recovered as well as 15 chrome diopsides of kimberlitic composition. Sixteen
separate indicator mineral anomalies have been identified. Drill targets have
been highlighted by ground geophysics over one of the sixteen anomalies and the
remaining fifteen similar anomalies are scheduled for systematic evaluation.
Coupled with the presence of the known diamondiferous kimberlite pipe at
Seitaperä, these findings suggest that multiple sources for diamonds may exist
in the area.

Western Block

A group of five claims in an area of west-central Finland that is characterised
by aeromagnetic anomalies. Preliminary basal till sampling from 34 sites
located down-ice from selected anomalies has resulted in the identification of
a number of kimberlitic indicator minerals, including a G9 garnet.

Lapland Block

Three claims have been taken out in this area in the Kola portion of the
Karelian Craton following a detailed examination of the aeromagnetic database
and an extensive till sampling programme. Initial results have been encouraging
with a kimberlite indicator mineral (chrome diopside) recovered from 1 claim
following preliminary deep till sampling.

Southeastern Block

This block comprises a single claim to the south-east of the Kuhmo block in an
area of strong aeromagnetic anomalies.


An independent geologist's report was prepared by the CSA Group ('CSA') to
provide an independent assessment of Karelian's diamond exploration properties
and information portfolio in Finland in preparation for the listing of your
Company on AIM.

CSA, in their summary and conclusions stated that, `The Archaean Cratons (Kola
and Karelia) of Finland are an area of thick lithosphere and low heat flow.
Structural zones (activation zones) exist that provide pathways for Kimberlite
emplacement. Significant and world class diamond occurrences have been found
within the Craton, eg. Archangel Kimberlite Fields in Russia. Diamonds have
also been found in the Karelian Craton, e.g. the Kuopio-Kaavi kimberlite
clusters. The area has proven prospectivity for diamonds.'

CSA also commented that the `comprehensive data package, exclusive survey
results and a significant portfolio of claims transferred into Karelian will
provide Karelian with a significant advantage in its' future operations.' They
also stated that `all four blocks of claims are highly prospective for


Your Company's shares were admitted to trading on AIM on September 1st, 2005.
On admission, KDR raised £500,000 (before expenses) through a placing of
10,000,000 ordinary shares at 5 pence each, representing 22.3 per cent of the
enlarged issued share capital of 44,771,676 ordinary shares.

The Directors believe that Admission to AIM will have a number of benefits,
including the following:

  * raising the profile of the Company, both amongst the investment community
    and within the mining industry;
  * facilitating the raising of further equity capital should it become
    required or desirable, thereby assisting the Company's ability to grow;
  * the Company will be better able to enter into negotiations with vendors of
    target businesses or assets, to whom the issue of publicly traded shares as
    consideration is potentially more attractive than shares in a private
  * the provision of share based incentive schemes involving quoted shares
    should assist in the recruitment, incentivisation, reward and retention of
    high calibre employees; and
  * an AIM listing will provide liquidity for current and future Shareholders.

City Capital Securities Limited, a part of City Capital Corporation (3C), have
been appointed as your Company's Broker, and John East & Partners Limited as
your Company's Nominated Advisor.

I have great pleasure in welcoming them and thanking them for the recent
successful placing and admission of your Company to AIM.


The Financial Statements refer to the period from date of incorporation, 1
March 2004 to 31 May 2005. The Financial Statements were previously published
in the admission document to AIM.

The Company recorded a loss for the period of €98,941. Since the accounts were
completed the Company has raised €735,294 gross in the placing referred to

The Directors intend to raise additional equity financing from time to time, as
required in order to continue your Company's activities and/or make such other
joint venture, farm-out, or other arrangements as are appropriate in the
interests of the Company.


I would also like to express my appreciation and support and dedication of
Directors, Management and Consultants, which has made possible the excellent
progress, and significant success which your Company has already achieved. I
look forward with confidence to the future.

Professor Richard Conroy


Profit and Loss Account

For the period from date of incorporation, 1 March 2004 to 31 May 2005

Operating Expenses                                                     (98,941)
Loss for the Financial Period                                          (98,941)
Profit and Loss Account at beginning of period                                -
Profit and Loss Account at end of period                               (98,941)
Loss per share                                                          €0.0028

There are no recognised gains or losses other than that for the period

Balance Sheet - 31 May 2005

Fixed Assets                                                                   
Mineral interests                                                     2,885,831
Financial assets                                                              4
Current Assets                                                                 
Debtors                                                                     660
Cash at bank and in hand                                                      3
Creditors: Amounts falling due within one year                        (397,747)
Net Current Liabilities                                               (397,084)
Net Assets                                                            2,488,751
Capital and Reserves                                                           
Called up share capital                                                 347,716
Share premium account                                                 2,239,976
Profit and loss account                                                (98,941)
Shareholders' Funds                                                   2,488,751


Cash Flow Statement

For the period from date of incorporation, 1 March 2004 to 31 May 2005

Net Cash Inflow from Operating Activities                               139,978
Capital Expenditure and Financial Investments                         (225,835)
Net cash Outflow before Financing                                      (85,857)
Financing                                                                85,860
Increase in Cash                                                              3

Notes to the Financial Statements

1. Publication of non-statutory accounts

The financial information set out in this preliminary announcement does are
abbreviated accounts as defined in Section 19 of the Companies (Amendment) Act

The financial information for the period ended 31 May 2005 have been extracted
from the Company's financial statements to that date which have received an
unqualified auditors' report but have not yet been delivered to the Registrar
of Companies.

2. Loss per share

The calculation of basic loss per ordinary share is based on a loss of €98,941
and on 34,771,600 ordinary shares, being the weighted average number of
ordinary shares in issue during the period.

3. Dividends

No dividends were paid or are proposed in respect of the period ended 31 May,

4. A copy of the Annual Report and Accounts will be sent to all shareholders
shortly and will be available from the Company's registered office, 10 Upper
Pembroke Street, Dublin 2.