Consequently, production during the second quarter dropped to just 9,646 carats compared with 12,279 carats in the first quarter. Diamond production is expected to climb sharply from the third quarter onwards as more mining areas are now on stream. It might be interesting to note that further development on the Lu Diversion was abandoned in March last, following the disappointing mining results. However SDM later identified a prospective un-mined area of the river 7.5 kilometres north of Tazua. Initial work on this newGanzo diversion began from April and the diversion channel was completed by late June. The channel is about 800 meters long. Its trap-sites are expected to yield significant quantities of diamondiferous gravel. Work on another river diversion named Ginge was started by SDM's operational base in the last week of June. This diversion was developed to create additional production capacity and to reduce the technical risk arising from dependence on a single source of production.

Surprisingly, the first gravels extracted from Ginge potholes have been of very high grade and produced three ``special diamonds'' ranging in size from 13 to 16 carats. The largest stone produced by SDM during the last quarter weighed 32.58 carats. Encouraged by this success, SDM has planned larger diversions during the latter half of the current year. SDM has also commissioned in June 1999, a small pre-treatment washing plant near the Luzamba diversion. This will enable the company to reduce the volume of material hauled from Luzambato the project's dense media separation plant located 28 km away at Tazua. While the Cuango basin diamond project is thus expected to be quite promising, the security situation continues to cause concern to the company, as UNITA rebels threaten to disturb peace from time to time. There have been no incidents or attacks recently by armed UNITA members of group. The UNO has brought about an agreement for peace between the Angolan government and UNITA which had been waging civil war in the country. However, small groups of UNITA rebels continue to threaten peace from time- to- time by launching violent attacks on men and property in the country. It is believed that disruption of Angola's diamond sector remains the unstated objective of the UNITA group.

Naturally, SDM remains deeply concerned. Currently SDM is maintaining a strong security force to protect the project personnel and assets. In view of constant threats from the UNITA rebels, SDM has put on hold its programme for the exploration in new areas ofAngola.