THIS CONTRACT OF SINO-FOREIGN CONTRACTUAL JOINT VENTURE made this 22nd day of August, 1996 BETWEEN: SHANDONG LIN YI GEOLOGY AND MINERAL RESOURCES DEVELOPMENT COMPANY, an enterprise incorporated under the laws of People's Republic of China with its...

THIS CONTRACT OF SINO-FOREIGN CONTRACTUAL JOINT VENTURE made this 22nd day of
August, 1996

BETWEEN:

          SHANDONG  XXX  XX  GEOLOGY AND MINERAL RESOURCES DEVELOPMENT
          COMPANY,  an  enterprise  incorporated  under  the  laws  of
          People's  Republic of China with its legal office located at
          Xxxxx  Xx  Lu,  Linyi  City,  Shandong  Province,  People's
          Republic  of  China  (hereinafter referred to as "Party A" )

          OF THE FIRST PART

AND

          XXXXXXX  XXXXXX (ASIA) LIMITED, a company incorporated under
          the laws of Hong Kong with its legal address located at 2203
          Cameron  Commercial Center, 000-000 Xxxxxxxx Xxxx, Xxxx Xxxx
          (hereinafter  referred  to  as  "Party  B")

                    OF THE SECOND PART

WHEREAS:

1.   Party  A  and  Party  B  wish to form a limited liability company that will
     explore  for  diamonds,  other  accompanying  minerals  in an area of 1,500
     square  kilometers  in Xxxx Xx, Fei Xian and Xxxx Xxxx Counties in Shandong
     Province  (hereinafter  called  the  Work  Area);

2.   Party  A  and  Party  B  wish  to record their agreements relating to their
     rights and obligations in respect of such company and between each other as
     shareholders  thereof;

3.   Party  A  and  Party B agree that their overriding purpose in entering into
     and  performing this contract is to enable each party to enjoy, in a spirit
     of  friendship  and  mutual benefit, the maximum possible profit from their
     respective  investments.

With friendly discussion Party A and Party B hereby agree as follows:

ARTICLE 1 - GENERAL PROVISIONS

1.1     Definitions  The  parties agree that where used in this Contract, unless
        -----------
        otherwise  required,  the  following  terms  shall have the meanings set
        forth  below:

     1.1.1     Approving  Authority  means agencies of foreign economy and trade
               of  the State Council and/or local government agencies authorized
               by  the  State  Council.

     1.1.2     Board  means  the  board  of  directors  of  the  company.



     1.1.3     Business  Day means Monday through Friday, both inclusive, except
               for  statutory  holidays  recognized  in  China.

     1.1.4     Business  License  means  a  business  license  issued  by  State
               Administration  of  Industry  and  Commerce  (SAIC) to create the
               company,  and  to  permit  the  company  to  perform each item of
               business  set  out  in  section  4.1;

     1.1.5     Company  means  the limited liability company to be formed by the
               Shareholders  pursuant to Article 3 hereof and in accordance with
               the  Contractual  Joint  Venture  Law.

     1.1.6     Contractual  Joint  Venture  Law  means  the  law of the People's
               Republic  of  China  on  Sino-Foreign  Contractual Joint Venture;

     1.1.7     Duration  of  the  Joint Venture means a period of ten (10) years
               commencing  on  the  date  the  Business  License  is  issued.

     1.1.8     General  Manager  means  the person engaged by the Company as its
               general  manager  pursuant  to  section  9.2.

     1.1.9     Independent  Valuator  means  any  one  of  the International and
               Chinese  Joint  Venture  Accounting  Firms  licensed  to practice
               accounting in China and such Accounting Firm shall be selected by
               Party  B  in  writing.

     1.1.10    Investment  means  for  any  Shareholders all of its right, title
               and  interest  in  and  to  the  Company  and  this  Contract;

     1.1.11    The  Work  Area  means  an  area  of  approximately  1,500 square
               kilometers  in  Xxxx  Xx,  Fei  Xian  and  Xxxx  Xxxx counties In
               Shandong  Province.

     1.1.12    The  Relevant Agencies of Geology and Mineral Resources means the
               government  agencies  which  approve  the  Company  to survey and
               explore  the  mineral  resources  as  set forth in this Contract.

     1.1.13    Survey  and  Exploration  License  means  a license issued to the
               Company  by the Mining Authority which shall grant to the Company
               for the entire Duration of the Joint Venture to do exploration of
               diamonds  and  other  accompanying  minerals  in  the  Work Area;

     1.1.14    Party  A  means  Shandong  Xxx  Xx  Geology and Mineral Resources
               Development Company, an enterprise incorporated under the laws of
               China,  and  being  the Party of the First Part of this Contract;

     1.1.15    Party  B  means  Xxxxxxx  Xxxxxx  (Asia)  Limited,  a  company
               incorporated  under  the laws of Hong Kong and being the Party of
               the  Second  Part  of  this  Contract;

     1.1.16    SAIC  means  the  State  Administration of Industry and Commerce.



     1.1.17    Shareholders  mean  Party  A  and  Party  B  collectively,  and
               Shareholder  means  either  one  of  them.

     1.1.18     Parties  means  Party  A  and  Party  B  collectively.

1.2  Interpretation    For  purposes  of  this  Contract  except  as  otherwise
     --------------
     expressly  provided.

     1.2.1     Contract  means  this  Contract  as  it  may from time to time be
               supplemented,  amended  or  restated  from  time  to  time.

     1.2.2     Articles,  sections  and other subdivisions of this contract mean
               all  references  to  designated  articles,  sections  and  other
               subdivisions  are  to the designated articles, sections and other
               subdivisions  hereof.

     1.2.3     The headings preceding the text, articles and sections hereof are
               for  convenience  only,  do  not  form  a part hereof and are not
               intended  to  interpret,  define  or  limit  the scope, extent or
               intent  hereof  or  of  any  provision  hereof.

     1.2.4     Any  reference  to an entity shall include and shall be deemed to
               include reference to an entity that is a successor or assignee of
               entity.

     ARTICLE  2  -  CONTRACTING  PARTIES

2.1     Parties  The  parties  to  this  Contract  are  as  follows:
        -------

     2.1.1     Shandong  Xxx  Xx  Geology  and  Mineral  Resources  Development
               Company,  an  enterprise incorporated in the People's Republic of
               China  with  its  legal  address  at  Lin  Xi  Xx Xx, Linyi City,
               Shandong  Province,  People's  Republic  of  China.


               Legal Representative's Name:   Hu Shi Jie
               Position:                      General Manager
               Nationality:                   Chinese

     2.1.2     Xxxxxxx  Xxxxxx  (  Asia) Limited, a company incorporated in Hong
               Kong  with  its  legal address at 2203 Cameron Commercial Center,
               000--000  Xxxxxxxx  Xxxx,  Xxxx  Xxxx

               Legal Representative's Name:   Po Sun Liu
               Position:                      Chairman and Chief Executive
                                              Officer
               Nationality:                   Canadian

2.2     Representations  of Party B  Party B represents and warrants to Party A
        ---------------------------
        as  follows:

     2.2.1     Party  B  is  a duly organized company validly existing under the
               laws  of  Hong  Kong;

     2.2.2     Party  B  has  full  corporate capacity, power and authority and
               all  necessary governmental approvals ( other than those referred
               to  in  section  7.2.1)  to  enter  into



               and  perform  each  of  its  obligations  hereunder;

     2.2.3     the  execution  and  delivery of this Contract and the observance
               and performance hereof have been duly authorized by all necessary
               corporate  action  on  the  part  of  Party  B;

     2.2.4     once  this  contract has been signed by Party B, it constitutes a
               legal,  valid  and  binding  obligation  to  Party  13;

     2.2.5     the  execution,  delivery  and  performance  by  Party  B of this
               Contract  does  not  and  will not constitute a default under any
               material  agreement  to  which  it  is  a party, any governmental
               regulation,  approval  or  order  to  which it is subject, or any
               provision  of  its  incorporation  documents;  and

     2.2.6     no  governmental  approvals  of  any  kind  are required from any
               relevant agencies in Hong Kong in respect of this Contract or the
               operations  of  the  Company  as  contemplated  hereunder.

2.3     Representations  of Party A  Party A represents and warrants to Party B
        ---------------------------
        as  follows.

     2.3.1     Party A is a duly organized enterprise validly existing under the
               laws  of  People's  Republic  of  China;

     2.3.2     Party  A has full corporate capacity, power and authority and all
               necessary  governmental  approvals ( other than those referred to
               in  section  7.2.1)  to  enter  into  and  perform  each  of  its
               obligations  hereunder;

     2.3.3     the  execution  and delivery of' this Contract and the observance
               and performance hereof have been duly authorized by all necessary
               corporate  action  on  the  part  of  Party  A;

     2.3.4.    once  this  Contract has been signed by Party A, it constitutes a
               legal,  valid  and  binding  obligations  to  Part  A,

     2.3.5     the  execution  delivery  and  performance  by  Party  A  of this
               Contract  does  not  and  will not constitute a default under any
               material  agreement  to  which  it  is  a party, any governmental
               regulation;  approval  or  order  to  which it is subject, or any
               provision of  its  incorporation  document;

     2.3.6     only  government  approvals from government authorities stated in
               article  7.2.1  are  required  in respect of this contract or the
               operation  of  the  Company  as  contemplated  hereunder;

     2.3.7     the Company shall be required to pay no taxes, duties, royalties,
               license  fees or other payments of any kind except only for those
               described  in  section  12.1;



     2.3.8     Party  A  shall  deliver  to   Party B all information concerning
               diamonds, other accompanying minerals in respect of the Work Area
               which  are  in  Party  A's  possession  or  control,  and  such
               information  is  accurate  and  complete;

     2.3.9     Party  A  is the owner of all the Existing Assets, free and clear
               of  all  liens,  mortgages  of  other  encumbrances  of any kind.

2.4     Indemnity  If  any  representation  or  warranty  given herein by any
        ---------
        party  is  untrue  or  inaccurate,  such  party shall indemnity and hold
        harmless  the other party for any loss damage caused to such other party

ARTICLE 3 - ESTABLISHMENT OF THE .JOINT VENTURE COMPANY

3.1     Contractual  Joint  Venture  Company
        ------------------------------------
        In  accordance  with  the Sino-Foreign Contractual Joint Venture Law and
        other  relevant  Chinese laws and regulations, Party A and Party B agree
        that  the  Company  shall  be established as a contractual joint venture

3.2     Name  The  name  of  the  Company  shall  be:
        ----

     3.2.1     in  Chinese: [GRAPHIC OMITTED] and,

     3.2.2     in  English:  Xxxxxxx Xxxxxx Diamond Development Co. Ltd., Linyi,
               Shandong

3.3     Legal Address:  The legal address of the company shall be , Xxxxx Xx Lu,
        -------------
        Linyi  City,  Shandong  Province,  China

3.4     Laws  of  China  All  activities of the Company shall be governed by the
        ---------------
        published and publicly available laws, decrees, rules and regulations of
        China

3.5     Limited  Liability  The  Company  shall  be a limited liability company.
        Each  Shareholder shall be liable to the Company only for the registered
        capital such Shareholder has agreed to contribute in accordance with and
        subject  to  the  provisions  of  Article  5  hereof.

3.6     Legal Person  The Company shall be a legal person existing as a separate
        entity  from  the  Shareholders.

3.7     No  Partnership.  The  parties expressly disclaim any intent to create a
        partnership with respect to the administration or assets of the Company.

3.8     No Agency  Neither party shall have any authority, actual or implied, to
        act  as  agent  for  or  to  bind the other party or the Company, and is
        hereby  prohibited  from  so  doing.

ARTICLE 4 - BUSINESS SCOPE AND PROJECT

4.1     Business Scope  The parties agree that the business scope of the Company
        shall  include  the  following:



     4.1.1     to  explore  diamonds,  other  precious  gems  and  other mineral
               resources  throughout  the  work  Area;  and,

     4.1.2     all  such  complementary  activities  as  may  be  necessary  or
               desirable  for  the  Company  to  fully  engage in all activities
               permitted  by  the Business License or the Survey and Exploration
               License;  and

     4.1.3.    after  the first thirty months of exploration and appraisal, the
               Board may decide upon recommendation of its geologists if it will
               continue  exploration  or  it  will  apply  for  mining;

     4.1.4.     Party  A  cannot cooperate with any other third party to explore
               or  mine  the  diamonds,  precious gems and other minerals in the
               Work  Area.  Any  other third party wishing to explore or to mine
               the  diamonds,  precious gems and other minerals in the Work Area
               must  negotiate  with  the  Company and such agreement(s) must be
               approved  by  the  Board;

     4.1.5     After  reviewing the results of the first 12 months of survey and
               exploration work, Party B may decide upon recommendation of Party
               B's  geologists/engineers not to do any further exploration work,
               Party  B  shall  notify  Party  A  of its decision in writing and
               terminate  its  further investment. This clause is solely for the
               benefit  of  Party  B.

ARTICLE 5 - TOTAL INVESTMENT AND REGISTERED CAPITAL

5.1     The Total Investment and Registered Capital  The total investment amount
        -------------------------------------------
        of  the Company is U.S. $3,000,000 The registered capital of the Company
        is  U.S. $3,000,000. Party A shall contribute U.S. $ 1,500;000 and Party
        B  shall  contribute $ 1,500,000. The proportion of contribution between
        the  two  parties  is  50%  to  50%.

This  registered  capital mentioned above shall be contributed to the Company by
the  Shareholders  at the time and in the forms set out in articles 5.2 and 5.3.
The  investment  hereof  may  be  contributed  in  cash, equipment, technique or
service.

5.2     Part  B's Capital Contribution.  Party B may make its contribution under
        ------------------------------
        this  Article  5  in  the  form  of  cash,  or  in kind of equipment and
        machinery,  and  technical services as recommended by the engineers. The
        investment  schedule  will  be  decided  separately.

        The  Shareholders  agree  that  Party  13's obligation to contribute its
        capital  contribution  is  subject  to the fulfillment of each Party the
        following  conditions  precedent  to  the  satisfaction  of  Party  B:

     5.2.1     This  Contract and the Charter of Association of the Company have
               been  approved  in  writing  by  Approving  Authority;

     5.2.2     the  Business License has been issued by the SAIC to the Company;



     5.2.3     the  Survey and Exploration License has been issued by the Mining
               Authority  to  the  Company;

     5.2.4     the  Existing Assets has been transferred to the Company free and
               clear  of  all  liens,  mortgages  and  encumbrances of any kind;

     5.2.5     Party  B  has  received  a written legal opinion of a Chinese law
               firm  acceptable  to  Party  B  confirming the following matters:
               A.   the  procedures  of  the  application  and  issuance  of the
                    foregoing  approvals  and  licenses,  and the acquire of the
                    relevant  rights  are  legal  and  valid;
               B.   the  legality,  validity  and  bindingness of this Contract;
               C.   the  completion  of  the  transfer  of  the ownership of the
                    Existing  Assets to the Company free and clear of all liens,
                    mortgages  and  encumbrances  of  any  kind by Party A, and,
               D.   the  accuracy  of  the  tax  description  in  the Contract .

     5.2.6     Party  B  has  received  all  the  exploration, geology and other
               accurate  data  of  the  Work  Area,

     5.2.7     the representations and warranties made by Party A in section 2.3
               are true and correct as confirmed by a certificate to that effect
               signed  and  delivered  to Party B by the legal representative of
               Party  A.

5.3     Party  A's  Capital  Contribution  Party  A  shall make its contribution
        ---------------------------------
        under  this  Article  5 in the form of past geological data, information
        and techniques, existing assets, as listed in Schedule A, to equal Party
        B's  contribution.

        As  Party  A's  capital contribution, Party A shall cause the Company to
        get  the  Survey  and  Exploration  License; and it is part of Party A's
        contribution  of  $1,500,000.

     5.3.1     Party  A shall be solely responsible for and cannot charge to the
               Company  any  of  the  following  costs  or  payments:
               A.   the  retirement  fee  or  replacement  fee  of  any  person,
                    company,  or  governmental  employers  who  are  retired  or
                    unemployed  because  of  the  transfer  of  the  Survey  and
                    Exploration  License,  and  existing  assets to the company;
               B.   any  person  company  entity  or  governmental  authority in
                    respect of any other outstanding liability, tax or any debts
                    whatsoever  owed  by  Party  A.

     5.3.2     Upon  the transfer of the Survey and Exploration License, and the
               transfer of the existing assets to the Company and the payment of
               all  amounts  contemplated  in 5.3.1., Party A shall be deemed to
               have  made  a  contribution  to  the Company's registered capital
               equal  to  Party  B's  capital  contribution of U.S. $ 1,500,000.

     5.3.3     Upon  the  completion  of Party B's contribution of $1,500,000 in
               the  survey  and  exploration  period, Party A shall be deemed as
               completion  of  its  contribution.



5.4     Bank  Loans
        -----------
        If  the  Company  requires to get loans from the bank, the parties shall
        use  their  best  efforts to obtain loans from Chinese or foreign xxxxx.
        The  Company shall grant such security over its assets as the lender may
        require.

5.5.    Additional  Shareholder  Contributions
        --------------------------------------
        If  the  Company  requires  funds in addition to the bank loans obtained
        under  article  5.4,  the  Shareholders  shall  contribute such funds to
        Company  subject  to  the  following  conditions:

     5.5.1     Neither  shareholder  shall  be  required  to nuke any additional
               contribution  unless  approved by a duly passed Board resolution,
               and  agreed  in  writing  by  the  parties;

     5.5.2     to  the  greatest  extent  permitted  under  Chinese  law,  such
               additional contributions of the parties shall be made in the form
               of shareholders loan, and shall be made in the form of registered
               capital.

     5.5.3     if the Shareholders are required to make additional contributions
               under this article 5.5, whether in the form of shareholders loans
               or registered capital, each Shareholder shall provide one-half of
               such  contribution;

ARTICLE 6 - ASSIGNMENT, ENCUMBRANCES AND TRANSFERS

6.1     Assignment.  The  assets  and/or  shares  in  whole  or  in part of each
        ----------
        Shareholder  in  this  Contract hereunder can at any time be assigned by
        any  Shareholder  to  a  subsidiary  upon  written  notice  to the other
        Shareholder.

6.2     Encumbrances In Favor of Lenders.  If the Company agrees to borrow funds
        --------------------------------
        from  a  lender,  any  Shareholder  giving a guarantee to the lender, if
        required  by  the  lender,  may  use,  part  or whole of its investment.
        However  it  requires  the  consent  of  both  parties.

6.3     Transfers.  It  is  not a breach of this Contract when any Shareholder
        ----------
        transfers  all or part of its Investment at any time to a subsidiary if'
        notice is given to the other Shareholder, but approval from the original
        approving  agency  is  required.

ARTICLE 7 - RESPONSIBILITIES OF EACH SHAREHOLDER

7.1     Responsibilities of Party B  Party B shall be responsible for and hereby
        ---------------------------
        agrees  to  perform  each  of  the following matters in a timely manner:

     7.1.1     assist the Company in engaging any foreign consultants experts or
               agents  the  Company  may  wish  to  hire  to  evaluate  all  the
               historical  geological, exploration data delivered to it by Party
               A;

     7.1.2     provide registered capital and shareholder's loans to the Company
               subject  to  and  in  accordance with the terms and conditions of
               articles  5.2  and  5.5  above;



     7.1.3     entrusted  to  purchase  on behalf of the Company, any equipment,
               vehicles,  and  machinery  the  Company may need to purchase from
               outside  China;

     7.1.4     handling  any  other  matter  entrusted  by  the  Company.

7.2     Responsibilities of Party A  Party A shall be responsible for and hereby
        ---------------------------
        agrees to perform each of the following matters at its own cost and in a
        timely  manner:

     7.2.1     obtaining  all  approvals,  business  license,  survey  and
               exploration,  permit,  registrations  and  renewals necessary for
               establishing  the  Company  and enabling the Company to engage in
               the  activities  hereunder,  including but not limited to (1) the
               Business  License,  (2) the Survey and Exploration Permit and (3)
               all  access  permits,  right-of-way,  occupation permits, surface
               rights  and  other  such  rights in respect of places in the Work
               Area  as  the Company may reasonably request for carrying out its
               operation.  And  provided that such licenses and permits shall be
               renewed  on  application by the Company ( which application shall
               be submitted at least 3 months and no more than 6 months prior to
               its  expiration  date)  for a further period of ten (10) years so
               long  as  the Company is engaged in exploration operations in the
               Work  Area

     7.2.2     Party  A  shall  deliver to Party B , upon Party B's request, all
               relevant  geological and historical data including maps, reports,
               and past surveys, exploration data and any other data relating to
               the  finding  of diamonds, other precious gems and other minerals
               located  in  the  Work  Area;

     7.2.3     Make  available  for consultation. to Party B and its consultants
               and  all technical experts in geology exploration of diamonds and
               other  accompanying  minerals  all  data as referred to in 7.2.2.

     7.2.4     Party  A  shall  ensure that the Company may obtain at prices not
               higher  than  prices  normally  paid  by  Chinese  Joint  Venture
               enterprises,  each  of  the  following:

               (A)  all  necessary  utilities,  including  the necessary consent
                    from the Power Supply Administration, as may he required for
                    the  Company's  operations,

               (B)  office space to enable the Company to carry out its work and
                    business;  and

               (C)  all necessary labor and personnel as may be deemed necessary
                    by  the  Company;

     7.2.5     Party  A shall assist the Company to deal with all local, county,
               provincial  and  central  government  authorities,  and any other
               parties  as  may be necessary to ensure that the Company shall be
               able  to  operate in the manner contemplate herein, and to ensure
               that  all  of  Party B's rights hereunder are also protected, and

     7.2.6     Party A shall handle such other matters as may be entrusted to it
               by  the  Company.



ARTICLE 8 - THE BOARD OR DIRECTORS

8.1     Date  of  Establishment  The  Board shall be established on the date the
        -----------------------
        Business  License  is  issued.

8.2     Representation  The  Board  shall comprise seven (7) directors, of which
        --------------
        three  (3) shall be appointed by Party A and four (4) shall be appointed
        by Party B. Any director may be removed and replaced at any time and for
        any  reason  by  the  Shareholder  that  appointed  such  director.

8.3     Chairman  and  Vice-Chairman  The Company shall have one (l) Chairman of
        ----------------------------
        the  Board  and one (1) Vice-Chairman. The Chairman shall be selected by
        Party  B  from amongst the Board members appointed by Party 1:3; and the
        Vice-Chairman  shall  be  one  of the directors selected by Party A from
        amongst  the  Board  members  appointed  by  Party  A.

8.4     Terms of Office  The Chairman and Vice-Chairman and the directors of the
        ---------------
        Board  shall  hold  office for terms of four (4) years and such terms of
        office  may  be  renewed  by  the  continuous  appointment  of  relevant
        Shareholder.

8.5     Legal  Representative  The  Chairman  of  the  Board  shall be the legal
        ---------------------
        representative of the Company. If the Chairman is unable to exercise his
        responsibilities  for  any  reasons,  he  may  temporarily delegate such
        responsibilities to the Vice-Chairman or any other director by a written
        authorization  sent  to  such  person and copied to the Company and each
        Shareholder.

8.6     Quorum  A  quorum  shall  be  formed by any five (5) directors. For such
        ------
        purpose,  a  director shall be deemed present at a meeting or conference
        telephone  call  either  if  he  participates  in  person  or  by  the
        representation  of  a  duly  appointed  alternate  director.

8.7     Board  Decisions  The Board shall manage the business and affairs of the
        ----------------
        Company.  Board  issues  shall be decided by the approval by vote of any
        four  (4)  directors  present at a duly constituted meeting of the Board
        except  that the approval by vote of all the seven (7) directors present
        at a duly constituted meeting of the Board shall be required for each of
        the  issues  set  out  below.

     8.7.1     any  amendment  to  the  Company's  Articles  of  Association;

     8.7.2     any  increase in the registered capital of the Company other than
               an  increase  in  the  registered  capital  resulting  from  a
               requirement  to  contribute  funds  pursuant to article 5.5. Such
               increases are hereby approved in advance by the Shareholders, and
               the  Shareholders  each agree to cause the Board to vote in favor
               thereof;

     8.7.3     any  merger  of the Company with any other economic organization,
               or  the  creation  of  another joint venture entity together with
               some  other  economic  organization;  and



     8.7.4     dissolution  of the Company for any reason prior to the expire of
               the  Duration of the Joint Venture provided always, however, that
               if  unanimous  approval  of  all the directors is not achieved in
               this  regard at any Board meeting duly convened for such purpose,
               a  resolution  for  such dissolution may be effectively passed at
               the next Board meeting duly convened for such purpose if approved
               by  the  votes of at least four (4) of the seven (7) directors at
               such  later  meeting.

8.8     Meetings  Board  meetings  shall  be  held  at  least  once per year and
        --------
        whenever  any  two  (2) of the seven (7) directors may request directors
        may  appoint  alternate  directors to represent and vote for them, or by
        written  proxy  authorize another director to vote on his behalf'. Board
        meetings  may  also  be  held  by conference telephone call whereby each
        participant  is  able  to  hear and speak to each other participant. The
        Chairman  or  other  person convening a meeting of' the Board shall give
        each  director at least ten (10) days' written notice of the time, place
        and  proposed  agenda  of  the  meeting.

8.9     Deemed  Quorum  If a quorum is for any reason not present within one (1)
        --------------
        hour  after  the  time  set  for  a  Board  meeting,  such meeting shall
        automatically  stand  adjourned  to  the  fifth  (5th)  business  day
        immediately  following  at  the  same  item and place, and the directors
        present  or deemed present at such meeting shall be deemed to constitute
        a  quorum  and  able  to  pass  effective  resolutions.

ARTICLE 9 - GENERAL MANAGER

9.1     General  Manager  The  Board shall delegate the day-to-day management of
        ----------------
        the  Company  to  the  General  Manner.  The  General  Manager  shall be
        nominated  and  hired  by  the  Board.

9.2     Duties  of  the General Manager The General Manager shall be responsible
        -------------------------------
        for  the  overall  management  of the Company. The General Manager shall
        report  to  the  Board,  and  his  duties  shall  include the following:

     9.2.1     Preparation  of  annual  operating  and capital budgets, business
               plans  and  financial  projections  for  Board  approval;

     9.2.2     implementing  budgets  and  plans  approved  by  the  Board;

     9.2.3     establishing  and maintaining an accounting system and a system
               of financial, budgetary and internal controls designed by any one
               of  the  International and Chinese Joint Venture Accounting firms
               licensed to practice accounting in China and Such Accounting Firm
               shall  be  approved  by  the  Board;

     9.2.4     maintaining  accounting  ledgers, books and records in accordance
               with internationally accepted accounting principles and standards
               and  regulations;

     9.2.5     payroll administration;

     9.2.6     labor relations and personnel administration;



     9.2.7     supervising  and  administering  all  exploration  operations;

     9.2.8     implementing  a  system  of  security  designed by experts in the
               security  field  in  respect  of the Company's diamonds and other
               precious  gems  and  minerals,  and  other  assets  that  is  in
               accordance  with  good  international  standards  and  that  is
               satisfactory  to  the  Board;

     9.2.9     doing  all other things necessary of advisable to ensure that the
               business  of  the  Company  and is called in accordance with this
               Contract.

9.3     The  Vice-General Managers shall be nominated by the General Manager and
        must  be  approved  by  the  Board.

     9.3.1     The  Vice-General  Managers  shall  assist the General Manager in
               carrying  out  his  duties.

ARTICLE 10 - PURCHASES AND CONTRACTS

10.1    Purchases  Outside  China  If  the  Company  needs  to  purchase  any
        -------------------------
        materials,  equipment, vehicles, machinery or other items necessary from
        outside  China,  Party  B  shall  be entrusted to do so on behalf of the
        Company.


ARTICLE 11 - EMPLOYMENT MATTERS

11.1    Employment  Contracts  All  existing employees and retired employees of
        ---------------------
        Party  A are the responsibility of Party A. All employees required to be
        engaged  by  the  Company,  including  but  not  limited  to the General
        Manager, shall be hired pursuant to employment contracts approved by the
        Board.  Such contracts will set out, amongst other things, the title and
        duties  of the employee, the remuneration payable and the terms on which
        such  engagement  may  be terminated by the Company. Such employees, the
        Company  and  the  parties hereto shall be required to keep confidential
        all  the  terms  of  the  engagement  of  such  employees.

11.2    Labor  Market  The Company shall be entitled to hire employees from the
        -------------
        labor market by placing advertisements or using other direct methods for
        recruiting employees, either from China or from abroad, as it deems tit,
        Salaries  and  benefits  payable  to  any management level employee from
        China shall be based on standards prevailing in the Chinese labor market
        for  such  kind  of  employee,  and salaries and benefits payable to any
        employee from outside of China shall be based on standards prevailing in
        the  international  market  for  such  kind of employee. Such employees,
        confidential  all,  the  terms  of  the  engagement  of  such employees.



ARTICLE 12 - TAXES, FINANCE AND AUDIT

12.1    Company  Taxes   The  Company  shall  pay  taxes in accordance with the
        --------------
        stipulations  of  published  and  publicly  available  Chinese  laws and
        regulations  using  the  maximum deductions and allowable deductions and
        preferential  treatments  allowed  in these some laws and regulations of
        the  Income  Tax  for  Foreign Investment Enterprises. The Company shall
        apply for the maximum allowable deductions and maximum allowable credits
        and maximum allowable preferential treatments allowed in these same laws
        and  regulations  covering  and  taxes.

12.2    Personal  Income  Taxes.  Employees  of the Company shall pay individual
        ------------------------
        income  tax  according  to the Individual Income Tax Law of the People's
        Republic  of  China.

12.3    Fiscal year.  The Company's fiscal year shall commence on January 1 and
        ------------
        end  on December 31 of each year, except for the first fiscal year which
        will  commence  on  the  day  the  Business License is issued and end on
        December  31  of  the  same  year.

12.4    Books  of  Account.  The  Company  shall  keep its books of accounts in
        -------------------
        English  and  Chinese,  and  in  accordance  with  generally  accepted
        international  accounting  principles.

12.5    Accounting  Currency.  The  Company  shall  use Chinese Renminbi and/or
        ---------------------
        U.S.  dollar  as  the  base  accounting  currency.

12.6    Reporting  to  Directors.  The  General  Manager  and  the  management
        -------------------------
        committee shall prepare and deliver the following statements and reports
        to  each  member  the  Board:

     12.6.1    quarterly unaudited financial statement within four (4) weeks of
               the  end  of  each  fiscal  quarter;

     12.6.2    annual  unaudited  financial  statements  by  no  later than the
               forty-fifth (45th) day after the end of the previous fiscal year;

     12.6.3    annual  audited  financial  statements  and the auditor's report
               thereon by no later than the sixtieth (60th) day after the end of
               the  previous  fiscal  year;  and

12.7    Rights  to  Inspect  Each  director shall have the right to inspect and
        -------------------
        copy  the  books  of  account  of  the  Company  at  any  time.

12.8    Auditors  The  Company's  books  shall  be  audited  by  any one of the
        --------
        International  and  Chinese  Joint  Venture Accounting Firms licensed to
        practice  accounting in China and such Accounting Firm shall be selected
        by  Party  l3  in  writing.

12.9    Bank Accounts  The Company shall open such bank accounts after approved
        -------------
        by  the  People's  Bank  of  China  in  designated  banks.



ARTICLE 13 - INSURANCE

13.1    Standards  of  Insurance  The Company shall purchase insurance for this
        ------------------------
        project  as  required  by  China  Law. The Board will then decide on any
        other  kind,  value  and  duration  of insurance it considers necessary,
        having  due reference to international insurance practices in respect of
        similar  projects.

13.2    Choice  of  Insurer  The Company shall purchase such insurance from the
        -------------------
        insurance  provider which the Board considers to be the most competitive
        in  terms of coverage, dependability and cost. If the People's Insurance
        Company  of  China  satisfies  Board  that  its policies are at least as
        favorable  to  the Company as those of its competitors in respect of all
        the  Board  considers material, the Company shall purchase its insurance
        from  that  insurer.

ARTICLE 14 - DURATION OF THE JOINT VENTURE

14.1    Duration  of  Joint  Venture  The  Project  shall  have  a duration (the
        ----------------------------
        "Duration of the Joint Venture ) of ten (10) years from the day when the
        Business  License  is  issued.:

14.2    Extended  Duration  The  Company  and  the  Shareholders  shall  make an
        ------------------
        application  to  the Approval Authority at least six (6) months prior to
        the  expire  date of the Duration of the Joint Venture for the extension
        of  the  Joint  Venture  Company.

14.3    Continuation  of  Contract  and  Licenses  If  the Duration of the Joint
        -----------------------------------------
        Venture is extended for any reason, notwithstanding any provision to the
        contrary  herein,  this  Contract  shall  continue in the full force and
        effect,  as  amend by such extension. Party A shall obtain such renewals
        of  the  Business License, Survey and Exploration and Mining License and
        other  rights  and permits referred to article 7.2.1 as may be necessary
        or  desirable.

14.4    Joint  Mining
        -------------
        The  parties  shall  enjoy the priority in mining right in the Work Area
        according  to  the Laws of Mineral Resources of the People's Republic of
        China.  If  diamond  ore  bodies  are  discovered  and  those ore bodies
        demonstrate  proven  economic  value  for  mining  during  the period of
        cooperation, the Company shall apply for mining license according to the
        relevant laws and regulations. The two parties herein also agree that in
        future  joint  mining,  venture  company for this purpose will be set up
        between  the  two  parties.  Each  party shall be entitled to the profit
        according  to  their  contributions,  however,  the  proportion  of  the
        contributions on future joint mining shall be at least 50 to 50 or 60 to
        40  in  Party B's favour. In the case that Party A fails to supply funds
        to  meet the contribution requirement, Party B shall supply to Party A a
        Shareholder's  loan  under  favourable  interest  rates  which  shall be
        decided  later.  Party A agrees that if Party A makes its contribution ,
        in  part  or  wherein the form of Shareholder loans it shall not get any
        dividend  distribution  prior  to  the  payment  to  Party  B.

ARTICLE 15 - DISPOSAL OF COMPANY ASSETS ON EXPIRE OF DURATION

15.1    Litigation  of  Assets  If the Duration of the Joint Venture expires or
        ----------------------
        is  terminated



        pursuant  to  this  Contract  for  any reason; the assets of the Company
        shall be liquidated and the debts of the Company ( including any amounts
        owed to any Shareholder hereunder ) shall be paid. The remaining cash of
        the  Company,  if  any,  shall  be  distributed  by  the  Company to the
        Shareholders  equally  in  accordance  with  the principles set forth in
        article  12.4.  Thereafter,  the  Company  shall.

     15.1.1    make  a  full  report  of  the  liquidation  to  each  of  the
               Shareholders;  and

     15.1.2    cause  the  Business  License  to  be  canceled

15.2    Sales  of  Assets  The liquidation committee shall use its best efforts
        -----------------
        to sell the non-cash assets of the Company ( including the Mining Rights
        and  Exclusive  Marketing  and  Sales  Rights) for the highest available
        price.  Any  Shareholder  may  purchase all or part of those assets at a
        purchase  price  equal  to their fair market value, as determined by the
        parties  by  agreement  (  or by the Independent Valuator, if no written
        agreement is reached within thirty (30) days). Such price may be paid by
        way of set-off against any amount that may be owed by the Company to the
        purchasing  Shareholder.  Such  Mining Right shall get approval from the
        appropriate  Government  Agency.

15.3    Survival of Terms  The provisions o1' this Article 15 shall survive the
        -----------------
        expire or early termination of the Duration of the Joint Venture for any
        reason.

ARTICLE 16 - AMENDMENT AND TERMINATION OF THE CONTRACT

16.1    Amendment  This  Contract  may  only  be amended by a written amendment
        ---------
        agreement signed by both Party A and Party B, and shall come into effect
        on  the  day  such  amendment  agreement  is  approved  by  the Approval
        Authority.

16.2    Terms  of  Contract  This Contract shall come into effect upon approval
        -------------------
        by  the  Approval Authority and subject to article 16.3; shall remain in
        force  until  the  procedures  set  forth  in Article 15 above have been
        completed  following  the expire or early termination of the Duration of
        the  Joint  Venture  pursuant.

16.3    Rescission  of Contract  if for any reason the conditions precedent set
        -----------------------
        forth in article 5.2 and 5.3 have not all been fulfilled by any Party on
        or  prior  to  the 180`h day after the Business License has been issued,
        this  Contract shall be deemed terminated and of no force and effect and
        the  Company  shall  be  dissolved.  The Party that has suffered damages
        resulting  for the breach of the contract can claim such damages against
        the  other  Party.

16.4    Early  Termination  Either  Shareholder  may  by  written notice to the
        ------------------
        Chairman and Vice-Chairman of the Company, request the Board to consider
        and  approve  a  resolution  pursuant  to  article  8.7 to terminate the
        Duration  of' the Joint Venture prior to its expire date only any of the
        following  reasons:

     16.4.1    the  other  Shareholder has caused an Event of Default to occur,
               and  has  failed to cure such Event of Default within thirty (30)
               days of written notice by the first Shareholder, or if such Event
               of  Default  cannot  be  cured within thirty (30) days, the other
               Shareholder  has  failed  to  use  its beast efforts to cure such
               default,  or



     16.4.2    there  has  been  a  material  change  in  the  applicable laws,
               regulations or policies of the pertinent governmental authorities
               that  adversely  affect  the  interests  of such Shareholder; and

16.5    Government Approval  If any Shareholder gives a notice requesting early
        -------------------
        termination  under  article  16.4  and  the  Board resolves according to
        article  8.7.4 to dissolve the Company, the Shareholders shall cause the
        Company  and  the  Board  to  make  such  applications  to  the Approval
        Authority,  and  to  take  all  such  other steps as may be necessary to
        complete  the  dissolution  of  the  Company  in  accordance  herewith.

16.6    Survival  of  Certain  Provisions  and  Obligations.  The provisions of
        ---------------------------------------------------
        Article  15  and  this  article  16.6  and  all other provisions of this
        Contract  necessary  to give full force and effect thereto shall survive
        the expiration or early termination of the Duration of the Joint Venture
        for  any  reason.

ARTICLE 17 - BREACH OF CONTRACT

17.1    Events  of  Default  Each of the following events shall be deemed to be
        -------------------
        an  Event  of  Default  hereunder:

     17.1.1    if  any  Shareholder  shall  be in breach of any of its material
               obligations hereunder and such breach shall continue for a period
               of  thirty  (30)  days  from  the  receipt of a written notice of
               breach  from  the  other Shareholder, or if such breach cannot be
               cured within thirty (30) days, such Shareholder has failed to use
               its  best  efforts  to  cure  such  breach;

     17.1.2    if  any  Shareholder  passes a resolution that it be wound up or
               liquidated  or  a  meeting is convened for the purpose of passing
               any  such  resolution,  or an order is made for the winding-up or
               liquidation  of  such  Shareholder;

     17.1.3    if a receiver or receiver-manager is appointed in respect to the
               whole  or  a  substantial  part  of  the affairs or assets of any
               Shareholder;  and

     17.1.4    if  a  Shareholder  is adjudged bankrupt or insolvent or files a
               proposal  in  bankruptcy.

17.2    Remedies  If an Event of Default occurs, the Non-Defaulting Shareholder
        --------
        shall  be  entitled to exercise against the Defaulting Party any and all
        rights,  remedies and recourses permitted hereunder or at law, including
        without  limitation,  the  right to obtain an injunction or order from a
        court  of  competent  jurisdiction  setting aside the act giving rise to
        such  Event of Default. All such rights, remedies and recourses shall be
        cumulative and the exercise of one shall not prevent the exercise of any
        other  or  others.

17.3    Interest  Unless otherwise provided herein, any sum at any time
        --------
        owing  hereunder  by any Shareholder to the Company or by the Company or
        any Shareholder to another Shareholder which is not paid when due shall,
        without  derogation  froth any other right or its due date until payment
        in  full  at an interest rate equal to the Prime Rate set by the Bank of
        Nova  Scotia  in  Canada



ARTICLE 18 - FORCE MAJEURE

18.1    Event  of  Force  Majeure  An Event of Force Majeure includes any fire,
        -------------------------
        explosion,  accident, earthquake, tidal wave, strike picketing, lockout,
        labor  dispute,  flood,  drought,  embargo,  war,  riot or insurrection,
        uprising, rebellion, or any other event whether similar or dissimilar to
        the  foregoing  which  shall  be  beyond  the  reasonable control of the
        Shareholder  affected hereby and which shall delay, interrupt of prevent
        in  whole  or  in  part  by  such  Shareholder or any of its obligations
        hereunder  other  than  an  obligation  to  pay  money.

18.2    Notice  of  Force Majeure.  A Shareholder affected by an Event of Force
        -------------------------
        Majeure  shall promptly give notice thereof to the other Shareholder and
        shall  indicate in such notice, as accurately as possible, the effect of
        such  Event  of Force majeure on its capacity to perform its obligations
        hereunder.

18.3    Effect  of  an  Event of Force Majeure  Subject to the giving of notice
        --------------------------------------
        provided  for  in  the  immediately  preceding  article:

     18.3.1    the  non-fulfillment  of  any  obligation  of  any  Shareholder
               hereunder  by  reason  of  an  Event  of  Force Majeure shall not
               constitute  a  breach  or an Event of Default, and shall not give
               rise  to  damages  or  to  any  other  recourse;  and

     18.3.2    any  time  period provided for the performance of any obligation
               of  any  Shareholder hereunder shall be postponed or extended for
               and  by a duration equal toe the period during which the Event of
               Force  Major  shall  continue  to  exist.

18.1    No  Termination An Event of Force Majeure shall not be a cause for
        the  early  termination of this Contract or of the Duration of the Joint
        Venture  unless  the  Event  of  Force Majeure continues for a period in
        excess of 12 months, in which case the Shareholder not directly affected
        by  such Event of Force Majeure may request the early termination of the
        Project  pursuant  to  the  provisions  of  article  16.4.

ARTICLE 19 - APPLICABLE LAWS

19.     Published  Laws  of China  The formation, validity and interpretation of
        -------------------------
        this  Contract  shall  be  governed  and interpretation of this Contract
        shall  be  governed  by the published and publicly available laws of the
        People's  Republic  of  China.

19.2    Effect  of  Future  Laws  The  Shareholders  agree  that  if any law or
        ------------------------
        regulation  of  China  that  is  amended of changed or a new la\v has an
        adverse  effect  on  any Shareholder then, if such Shareholder requests,
        the  parties  shall  forthwith  amend this Contract so that such adverse
        effect  is  eliminated or adjusted to shall cause the Company to use its
        best  efforts  to  cause  such  amendment to be approved by the Approval
        Authority.



ARTICLE 20 - SETTLEMENT OF DISPUTES

20.1    Overriding  Principle  Any  dispute  arising out of or relating to this
        ---------------------
        Contract  shall  be  resolved  by procedures set out in this Article 20.
        First,  there  shall  be  friendly  discussions between the Shareholders
        based  on  the overriding principle that the Shareholders have a-xxxx to
        establish  the  Company in order to generate maximum profits for each of
        the  Shareholders.


20.2    Binding  Arbitration  If  the  dispute  is  not  resolved  by  friendly
        --------------------
        discussions  under the immediately preceding article any Shareholder may
        give  to  the  other  Shareholder written notice under this article 20.2
        requesting  the  dispute  to be resolved. If the dispute is not resolved
        within  forty  (40)  days after such notice, either Shareholder shall be
        entitled to refer the dispute for arbitration by arbitrators pursuant to
        the  rules  of  an  under  the auspices of the International Arbitration
        Institute  of the Stockholm Chamber of Commerce. In their determination,
        such  arbitrators  shall  have due regard to international practice. The
        award  of  such  arbitrators  shall be binding on the parties and may be
        entered  in  any  court  of  competent  jurisdiction.


ARTICLE 21 - MISCELLANEOUS

21      Notices  Any  and  all  notices  or  other  communications required  or
        -------
        permitted  pursuant  to  this Contract shall be in writing and shall be:

     2         delivered  by  courier,  by  a  fax or telex thereof to the
               addresses  referred  to  below in which case such notice or other
               communication  shall conclusively be deemed to have been given to
               the addressee thereof at the time of such delivery or on the next
               business day if delivered on a day that is not a business day; or

     2  1.2    telexed  or  faxed  to  the addressee at the numbers referred to
               below,  confirmed  by  delivery  by  courier,  in which case such
               notice  or  other  communication  shall conclusively be deemed to
               have been given to the addressee thereof on the day upon which it
               was received if received prior to 3:00 p.m. ( local time) on such
               day or on the next business day if received after 3:00 p.m.(local
               time)  on a business day or on the next business day it 'received
               on  a  day  that  is  not  a  business  day:

                    For Party A:
                    ------------

                    Shandong Xxx Xx Geology and Mineral Resources
                    Development Company
                    Xxxxx Xx Lu, Linyi City
                    Shandong Province
                    People's Republic of China

                    Attention:  Hu Shi lie
                    Telephone: (0000) 0000000



                    For Party B:
                    ------------

                    Xxxxxxx Xxxxxx (Asia) Limited
                    2203 Cameron Commercial Xxxxxx
                    000 - 000 Xxxxxxxxx), Xxxx
                    Xxxx Xxxx

                    Xxxxxxxxx: Po Sun Liu
                    Telephone: 000-000-0000

               Each  Shareholder  may  change its address for service by Written
               notice,  given  in  the  manner  provided  above,  to  the  other
               Shareholder and such change shall be effective: upon the date the
               notice  shall  be  deemed  to  received.

21.2    Entire  Agreement  This  Contract  constitutes  the  entire  agreement
        -----------------
        between  the  parties hereto. There are no, and shall not he any, verbal
        or  written  statements,  representations,  warranties,  undertakings or
        agreements  between  the parties pertaining to the subject matter hereof
        other  than  as  expressly  provided for herein. If any provision hereof
        conflicts  with  any  provision  of  the  Articles of Association of the
        Company or with anything in the feasibility Study, the provision of this
        Contract  shall  prevail.

21.3    Business  Day  Where the time limit for the doing of anything hereunder
        -------------
        expires  or  falls  upon  a  day  that is not a business day the time so
        limited  extends to and the thing may be done on the day first following
        that  is  a  Business  Day.

21.4    Time  of  Essence  Time  and  each  of the terms and conditions of this
        -----------------
        Contract  shall  be  the  essence  of this Contract and no waiver by any
        Shareholder  of  any  default by the Shareholder of any provision herein
        shall  be  deemed  to  be  a waiver of any other provision herein nor to
        release  such  other  Shareholder  from  any  such  provision.

21.5    Further  Assurances  Cooperation  Each  of the parties hereto shall do
        --------------------------------
        all  things and execute all documents necessary or desirable in order to
        carry  out  the intents of this Contract, and shall fully cooperate with
        each  other  and the Company in all respect in good faith to ensure that
        the  Company operates in the manner contemplated herein and achieves the
        purpose  set  out  in  the  Contract.

21.6    Corrective  Actions   If  any  time  during  the  Duration of the Joint
        -------------------
        Venture, any government authority of China enacts or law or policy , and
        if  such  actions have the effect ( a " Negative Effect" ) of preventing
        or  constraining  the  exercise of any right or of materially increasing
        the  burden  of  performance of any obligation of Party B or the Company
        hereunder the Company shall, at the Company's cost, take such measures (
        "  Corrective  Action")  as  may  be  required to restore Party B or the
        Company to the position it would have retained had such actions not been
        taken.  Such  Corrective  Action  may  taken any or all of the following
        forms:

     21.6.1    obtaining  from  the  relevant  authority  an exemption from the
               application  of  the law or policy that is the direct or indirect
               subject  to the Unilateral Action or the direct or indirect cause
               of  the  Negative  Effect;



     21.6.2    causing  the  enactment of specific legislation to eliminate the
               Negative Effect; or 21.6.3 other actions acceptable to Party B. .

21.7    Language  This  Contract has been written in Chinese and in English and
        --------
        dully  executed  in  Chinese and in English. The Parties asree that both
        versions  are  equal,  and  legally  binding on both Parties. In case of
        discrepancy, the meaning and spirit of the Chinese version shall prevail
        at the same time the meaning and the spirit of the English version shall
        be  referred  to.

21.8    Enurement  This  Contract  shall enure to the benefit of and be binding
        ---------
        upon,  the  parties hereto and their respective successors and permitted
        assigns.

IN  WITNESS  WHEREOF  duly  authorized  officers  of  each  of the parties have
executed  this  Contract  in Linyi, Shandong province, China on this 22nd day of
August,  1996.


Shandong Xxx Xx Geology and                    Xxxxxxx Xxxxxx (Asia) Limited
Mineral Resources Development
Company



     /s/  Zhou Denshi                         /s/  Dai Zhenfei
     -------------------------------          --------------------------------
     Name:  Zhou Denshi                       Name   Dai Zhenfei
     Title: Deputy General Manager            Title: Senior Vice President
                                                     China Operations