Brazilian Diamonds Ltd. Third Quarter Report by 24hgold

Wednesday, November 12, 2008
Quarterly Report For The Nine Month Period Ended 30 September 2008

During the nine months ended 30 September 2008, Brazilian Diamonds Limited ("Brazilian Diamonds" or "the Company") has continued to focus its exploration activities on exploring kimberlite bodies located on its properties in Brazil while seeking ways to maximize the value from its extensive diamondiferous alluvial gravel inventories located on some of these same properties.

The Company remains encouraged by the publication of the Brazilian Government's inter-departmental deliberations over the finalization of permanent boundaries for the Serra da Canastra National Park, which is located in proximity to the Canastra 1 project, and the progress made with respect to the passage of this legislation. A draft bill (Projeto de Lei No. 1448/2007) has been submitted to the Brazilian Congress which excludes the Company's Diamond areas from any new proposed National Park boundary. The Company understands that the Congress has yet to complete its review of the legislation, however it remains encouraged that the bill appears to have support from both the Government and Opposition parties. Once approved, the Company will be able to commence trial mining at its Canastra 1 project.

The Company's joint venture partners have now made a decision to defer the next phase of studies with regards to developing a large scale, dredge based mining operation on the Santo Antonio do Bonito alluvials project. As a result, Brazilian Diamonds has commenced discussions with an investor group with the aim of developing an alluvial project focused primarily on the large diamonds found in the river terraces.

The Company is evaluating the results of the drilling and testing of the Salvador 1 kimberlite before deciding on what further activity should be undertaken on this project.

The continuing uncertainties in international capital markets has had a demonstrable and negative impact on the ability of junior resource exploration companies to finance their activities and in light of these developments, the Company is therefore reviewing its plans for future activities which may well require the sale or disposal of assets and the relinquishment of exploration licenses as part of a rationalisation plan to meet the challenges posed by this difficult environment.

For further information contact:

Brazilian Diamonds Limited
Ken Judge, Chairman	+ 44 7733 001 002
Stephen Fabian, CEO	+ 55 31 9186 4660

Hanson Westhouse Limited (Nomad to the Company) Tim Feather/Matthew Johnson	+ 44 113 246 2610

Introduction

The following discussion of performance and financial condition should be read in conjunction with the interim consolidated financial statements of the Company for the nine months ended September 30, 2008. The Company's financial statements are prepared in accordance with Canadian GAAP. The Company's reporting currency is Canadian dollars. The date of this Management's Discussion and Analysis is November 10, 2008.

Description of Business

Brazilian Diamonds is a development stage resource company engaged in the acquisition, exploration and development of kimberlite and alluvial Diamond properties in Brazil. The Company has over 100,000 hectares of alluvial and kimberlite exploration properties in the Paranaiba and Santo Antonio do Bonito River Basins and the Patos de Minas region as well as over 115,000 hectares of prospective exploration properties in the Serra da Canastra Kimberlite Province including the advanced stage diamondiferous Canastra 1 kimberlite pipe. In addition, the Company has its own Diamond laboratory used in the recovery of kimberlite indicator minerals and in 2006 the Company received an ISO 17025 rating for the facility.

The Company's head office is located in Belo Horizonte, Brazil and the corporate office is located in Vancouver British Columbia, Canada. Exploration headquarters are located in Patos de Minas, Brazil.

The Company is a reporting issuer in Ontario and British Columbia, Canada and its common shares trade on the Toronto Stock Exchange and Alternative Investment Market ("AIM") of the London Stock Exchange under the symbol BDY.

Discussion of Operations

Current Year Activity

	December 31 2007	Acquisition (Disposal)	Deferred Exploration	Amortization/ Write Down	September 30 2008

Coromandel	9,745	-	294	-	10,039
Patos de Minas	3,183	-	116	(3,020)	279
Serra da Canastra	7,462	-	229	-	7,691
Salvador 1	2,078	-	1,731	-	3,809
Data Sets	2,115	-	-	(201)	1,914
Other projects	74	-	12	-	86
Total	24,657	-	2,382	(3,221)	23,818

	December 31 2006	Acquisition (Disposal)	Deferred Exploration	Amortization/ Write Down	December 31 2007

Coromandel	8,620	-	1,125	-	9,745
Patos de Minas	2,737	-	446	-	3,183
Serra da Canastra	7,121	-	341	-	7,462
Salvador 1	466	-	1,612	-	2,078
Data Sets	2,383	-	-	(268)	2,115
Other projects	63	-	11	-	74
Total	21,390	-	3,535	(268)	24,657

During the nine months ended September 30, 2008, the Company's Diamond drilling and sampling activities were focused on the Salvador 1 and Santo Antonio do Bonito projects which are being prioritized for further evaluation.

Salvador 1 Kimberlite Testing

The Salvador 1 kimberlite is a six hectare body partly exposed beneath the sands and gravels of an old alluvial Diamond mine in central Bahia State, Brazil. The testing of the Salvador 1 kimberlite has involved the excavation of a number of pits, with each pit designed to extract approximately 1,300 tonnes of kimberlite from different parts of the kimberlite pipe.

Extraction began in the last quarter of 2007 and continued through the nine months ended September 30, 2008. The kimberlite is multiphase with as many as six kimberlite rock types identified in Pit 1, therefore providing numerous challenges in evaluation process.

Processing of the kimberlite samples began in December 2007 using a processing plant consisting of a primary disaggregation rotary pan, followed by x-ray flowsort and grease table for the recovery of diamonds. The processing plant has recently been augmented with a roll crusher to better handle harder kimberlite fragments, however, throughout the nine months ended September 30, 2008, sample treatment remained slower than excavation.

Quality control and quality assurance of this evaluation process is being undertaken at the Company's certified ISO 17025 indicator mineral processing laboratory on Patos de Minas, where concentrates are re-examined for diamonds that may not have been recovered in processing by the on-site plant.

As at September 30, 2008, the Company has completed field operations at its pit sample evaluation of the Salvador 1 kimberlite pipe. The Company excavated three pits from 8 to 11m deep and processed the extracted kimberlite in a plant built on-site. In addition, the Company completed drill holes and conducted microdiamond tests to identify potentially higher grade zone. Kimberlite weighing 603.5 tonnes from Pit 1 yielded 12.44 carats of diamonds, demonstrating that the pipe is diamondiferous although with a low abundance in the portion tested. Preliminary results from 402 tonnes of kimberlite extracted from Pit 3 yielded 10.44 carats of diamonds. Additional kimberlite, mostly from the second and third pits has been shipped to the Company's mineral processing laboratory in Patos de Minas, Brazil for final Diamond processing and quality control tests following initial processing steps on-site. On receipt of the results, the Company will assess the next steps for the project. All field equipment has been moved to the Santo Antonio do Bonito project site in Minas Gerais State where the Company is investigating the possibility of re-starting operations.

Salvador 1 Alluvial Sand and Gravel Testing

Concurrent with the kimberliete sampling and processing at Salvador 1, a separate processing plant was used to recover diamonds from the sands and gravels overlying the Salvador 1 kimberlite. Approximately 2,300 tonnes of sands and gravels were processed through the jig plant, yielding 78.93 carats. The two largest recovered diamonds weighed 3.15 and 2.65 carats respectively. The shallow overlying alluvial sands and gravels are enriched in Diamond content compared to the kimberlite, although the volumes are smaller. The confirmation of a diamondiferous kimberlite feeding the alluvial deposits of central Bahia has positive implications for further exploration within the Company's extensive land position and database for the region.

Santo Antonio do Bonito

Having consolidated all field equipment to the Santo Antonio do Bonito project site in Minas Gerais State, the Company is investigating the possibility of re-starting operations.

Patos de Minas

During the year ended December 31, 2007, the land, building and assets in Parima were transferred to Samsul for R$285,000. The land is now registered in Samsul with the Brazilian land registry. For the nine months ended September 30, 2008, deferred expenses of $3,020,000 mostly relating to the Tucano project were written off and all remaining mineral licenses were transferred from Parima to Samsul for $nil value.

Historical Information

Following the acquisition of several mineral exploration databases from De Beers, the Company now has access to the accumulated results of more than 30 years of exploration activity in the Canastra, Santo Antonio do Bonito and Patos de Minas regions in Minas Gerais and the Chapada Diamantina region in Bahia. Included within the Canastra data set are indicator mineral samples, microprobe chemical analyses, and 19,000 line kilometres of proprietary airborne geophysics covering the entire region. De Beers has also provided details about 35 known kimberlite occurrences and the results of ground geophysics within the Canastra region. The Chapada Diamantina data set, acquired in September 2006 from De Beers, includes 194,120 line kilometres of airborne geophysics, indicator mineral samples, microprobe analysis and mineral licenses covering the Salvador 1 kimberlite body plus five other kimberlites.

This data complements an already significant database the Company previously acquired as a result of the purchase of De Beers' Brazilian subsidiary Mineracao do Sul in August 2002. That acquisition also included 40,000 hectares of mineral claims in the Canastra area and the Canastra 1 kimberlite for which licenses are being sought to commence trial mining. The licencing process has been complicated by the potential expansion of a nearby National Park. Although there is every indication that a licence will be granted to mine Canastra 1, it is not possible to accurately estimate the timetable for such a grant. While the Company continues to work with various ministries of the Brazilian federal government in an effort to hasten the process for the license grant, the Company has been concentrating the majority of its exploration activity and resources on its other prospective projects outside the Canastra Region.

During the past three years, the Company has committed significant resources evaluating kimberlite targets in the Santo Antonio do Bonito River Basin and Patos de Minas regions.

Salvador 1

In 2007, the Company collected 6 replicate samples totaling 6 tonnes from the Salvador 1 kimberlite in an attempt to confirm results from a smaller (580 kg) sample taken in 2006. In total, 111 diamonds were recovered from these new samples which together with original sample tallied 120 diamonds. Preparations began in the third quarter of 2007 for the collection of six much larger samples of approximately 650 m3 each from different parts of the Salvador 1 kimberlite in order to better assess its Diamond potential. Excavation of the first pit was completed in the fourth quarter and excavation of the second and third pits were started. Results from the first of the bulk sample pits identified at least six different kimberlitic rock types or "phases". Each of these phases potentially may carry a different Diamond sample.

Serra da Canastra

The Company is awaiting final approval before commencing the environmental licensing process for the development of the Canastra 1 kimberlite body for which mine feasibility work has already been completed and the required Mines Department approvals are already in place. The Company will bring Canastra 1 into production once the environmental licensing process is completed.

Coromandel

The Company with its Joint Venture partners assessed various alternatives for the possible development of one or more alluvial mining operations at the Santo Ant�nio do Bonito alluvial project. These options included large scale dredging operations on the broader river flat areas along the Santo Ant�nio do Bonito river as well as a smaller scale operation on what are considered to be highly prospective but narrower river terrace areas. As at September 30, 2008, the Joint Venture partners have made a decision to defer the next phase of studies.

Patos de Minas

During the first quarter of 2007, the Company's administrative functions in Brazil were consolidated at the Patos de Minas office and laboratory with the Company continuing to maintain a small representative corporate office in Belo Horizonte. Through these measures, the Company has been able to significantly reduce its Brazilian overhead from the levels existing prior to the restructuring carried out in the second half of 2006.

Stage II drilling of holes RDH-03, 04, 05 and 06 at the Company's 100% owned Regis kimberlite project was completed in the first quarter of 2007 and following receipt and evaluation of the final results of lab testing of drill cores for micro-diamonds, the Company will be in a position to determine what further activity should be undertaken on this kimberlite.

Financial Performance

Third Quarter

The loss for the three months ended September 30, 2008 was $293,000 as compared to a loss of $596,000 for the same period last year before other income (expenses). The decrease in expenses over the same period last year is due to a decrease in stock-based compensation of $165,000, foreign exchange loss of $118,000 and travel expenses of $11,000.

Cash and cash equivalent balances decreased by $813,000 to $226,000 at September 30, 2008. The cash spending for mineral properties was $666,000. The working capital was $76,000 (2007 - $883,000).

Of the $666,000 deferred exploration costs, $141,000 was spent on kimberlite exploration in the Santo Antonio do Bonito River Basin, $66,000 was expended on kimberlite projects in the Serra da Canastra Kimberlite Province, $58,000 was spent on the Patos de Minas project, $465,000 was spent on Salvador 1, and $3,000 was spent on other projects. The data sets are amortized over ten years. For the three months ended September 30, 2008, $67,000 (2007 - $56,000) was amortized and proportionally allocated to the related mineral properties. The current period's exploration expenditures were $162,000 less than the same period last year due to a decrease in drilling during the period.

Year-to-date

The loss for the nine months ended September 30, 2008 was $783,000 as compared to a loss of $1,196,000 for the same period last year before other income (expenses). The decrease in expenses over the same period last year is due to a decrease in foreign exchange loss of $183,000, stock-based compensation of $165,000, investor relations of $37,000, legal and audit of $32,000 and travel expenses of $28,000.

Cash and cash equivalent balances decreased by $230,000 to $226,000 at September 30, 2008. The cash spending for mineral properties was $2,181,000. The working capital was $76,000 (2007 - $883,000).

Of the $2,181,000 deferred exploration costs, $294,000 was spent on kimberlite exploration in the Santo Antonio do Bonito River Basin, $229,000 was expended on kimberlite projects in the Serra da Canastra Kimberlite Province, $116,000 was spent on the Patos de Minas project, $1,731,000 was spent on Salvador 1, and $12,000 was spent on other projects. The data sets are amortized over ten years. For the nine months ended September 30, 2008, $201,000 (2007 - $212,000) was amortized and proportionally allocated to the related mineral properties. The current period's exploration expenditures were $136,000 less than the same period last year due to a decrease in drilling during the period. Deferred expenses of $3,020,000 (2007 - $nil) were written off in the nine months ended September 30, 2008. All mineral licenses were transferred from Parima to Samsul for $nil value.

Results of Operations

Summary of Quarterly Results
The table below present's selected financial data for the Company's eight most recently completed quarters.

($000)	Sept.30 2008	June 30 2008	Mar.31 2008	Dec.31 2007	Sept.30 2007	June 30 2007	Mar.31 2007	Dec.31 2006
Financial results
Net loss(income) for period	293	200	3,193	(265)	426	(278)	279	988
Comprehensive loss**	231	120	367	192	743	67	663	-
Basic and diluted loss (income) per share	0.00	0.00	0.02	0.00	0.00	0.00	0.00	0.01
Expenditures on resource properties
Expenditures on resource properties	666	806	709	1,213	573	591	898	1,009
Balance sheet data
Cash and short term deposits	226	1,039	701	456	1,075	2,147	3,037	4,514
Resource properties	23,818	23,152	22,346	24,657	23,693	22,865	22,274	21,390
Total assets	24,512	24,965	23,903	26,408	25,689	25,910	26,249	26,762
Shareholders' equity	24,042	24,572	23,428	25,968	25,069	25,074	24,796	25,075

Selected Annual Information

The following financial data has been prepared in accordance with Canadian generally accepted accounting principles in Canadian currency:


($000)	Year ended December 31 2007	Year ended December 31 2006	Year ended December 31 2005
Financial results
Net loss for period *	162	2,763	790
Other comprehensive loss**	1,503	-	-
Basic and diluted loss per share	0.00	0.02	0.01
Expenditures on resource properties	2,988	3,130	2,472

Balance sheet data
Cash and cash equivalents	456	4,514	1,082
Mineral properties	24,657	21,390	17,770
Total assets	26,408	26,762	19,889
Shareholders' equity	25,968	25,075	18,600

* Net loss for December 31, 2006 includes $.6M stock-based compensation (2005 - $Nil) and reorganization costs of $0.25m (2005 $nil)

** The Company has reflected in its financial statements as at and for the year ended December 31, 2007 the adjustments and disclosures required by the following CICA Handbook Sections 3855 Financial Instruments - Recognition and Measurement; Section 3861 Financial Instruments - Disclosure and Presentation; Section 3865 - Hedges; Section 1530 Comprehensive Income and Section 3251 Equity. However, the Company did not accurately record the effect of these new pronouncements n the 2007 quarterly financial statements. Management has reflected the appropriate adjustments to comprehensive loss in the Summary of Quarterly Results above

Liquidity and Capital

The Company does not currently own or have an interest in any producing mineral properties and does not derive any revenues from operations. The Company's activities have been funded through equity financing and while the Company remains optimistic that it will continue to be able to utilize this source of financing until it develops cash flow from operations, there can be no assurance, however, that the Company will be successful in its efforts. If such funds are not available or other sources of finance cannot be obtained, then the Company will attempt to curtail its activities to a level for which funding is available or can be obtained.

Most of the capital equipment for operations at Canastra 1 has already been acquired and is included as part of resource properties. The Company has minimal operating lease commitments (refer to Contractual Commitments).

These financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due. For the nine months ended September 30, 2008, the Company reported a loss of $3,686,000 and an accumulated deficit of $74,522,000 at that date. In addition to its ongoing working capital requirements, the Company must secure sufficient funding for existing commitments as well as ongoing mineral property exploration. These circumstances lend substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.

The Company's ability to continue as a going concern is dependent upon its ability to fund its ongoing operating costs and exploration and development of mineral properties, attain profitable mining operations, or receive proceeds from the disposition of its mineral property interests. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material.

Subsequent Events

The Company will not be renewing its office leases when the leases expires. The office leases will be assumed by HRG. Office rent is included under the services agreement with HRG Management Ltd. (note a).

Contractual Commitments

Except as outlined below, the Company has no other contractual commitments.

	2008	2009	2010	2011	Total

Office leases	$ 13	$ -	$ -	$ -	$ 13
Photocopier leases	2	9	9	1	21
Services agreement with HRG	55	-	-	-	55

	$ 70	$ 9	$ 9	$ 1	$ 89

Off Balance Sheet Arrangements

The Company has not entered into any off-balance sheet arrangements other than those disclosed in Commitments note 10 of the interim consolidated financial statements.

Transactions with Related Parties

During the nine months ended September 30, 2008 and 2007, the Company entered into the following transactions with related parties:

	2008 $	2007 $
HRG Management Ltd. -- Kenneth Judge, Stephen L. Fabian
-- Kerry Beamish (note a)
Paid or accrued contractual service costs (note a)	165,000	157,000
Miscellaneous office recoveries (note b)	-	12,000
Deposits made (note c)	58,000	62,000

Hamilton Capital Partners Limited ("HCPL") -- Kenneth Judge
Paid or accrued consulting fees and office rent	130,000	144,000
Sale of Hidefield shares (note d)	185,000	-

Massif Limited -- Stephen L. Fabian
Paid or accrued management fees - (note e)	91,000	100,000

Lang Michener -- David Cowan
Paid or accrued legal fees - (note f)	11,000	4,000

Hidefield Gold PLC -- Kenneth Judge, Francis Johnstone
Office and technical cost recoveries (note g)	-	25,000

Effective February 1, 2006, the Company entered into a services agreement with HRG Management Ltd. ("HRG") in which the Company agreed to pay a monthly corporate administration fee of approximately $18,400 that includes office rent, administration, accounting, corporate secretarial, chief financial officer, investor relations and other related services. HRG is a management company jointly owned by the Company and certain other public companies, all of which share office space and staff on a cost recovery basis. The Company share directors and officers in common with HRG. The agreement expires December 31, 2008 and can be terminated by either party prior to expiration with 90 days written notice. Kenneth Judge and Stephen L. Fabian are both directors of HRG. Kerry Beamish is the CFO of HRG.
At September 30, 2008, HRG owed the Company $3,000 (2007 - $Nil) and have normal trade terms.
At September 30, 2008, $58,000 (2007 - $62,000) is included in accounts receivable, prepaids and deposits to HRG for fixed assets and services.
The Company received proceeds of $185,000 on the sale of 2 million Hidefield Gold plc shares at 4.75 pence from HCPL.
The Company paid or accrued management fees of $91,000 (2007 - $100,000) to Massif Limited, a company in which Stephen L. Fabian is interested.
The Company paid or accrued professional fees of $11,000 (2007 - $4,000) to a law firm in which David Cowan, director is a partner.
The Company has capitalized office and technical cost recoveries of $Nil (2007 - $25,000) from Hidefield Gold PLC ("HIF") to mineral properties.

Share Capital Information

The table below presents the Company's common share data as of November 10, 2008.


	Exercise Price	Expiry date	Number of common shares
Common shares, issued and outstanding			194,370,722
Securities convertible into common shares			-
Options	$0.65	March 29, 2009	50,000
	$0.45	October 26, 2009	2,875,000
	$0.41	April 5, 2011	2,175,000
	$0.25	July 12, 2012	1,750,000
	$0.25	October 12, 2012	100,000
			201,320,722

Critical Accounting Estimates

The preparation of financial statements requires the Company to select from possible alternative accounting principles, and to make estimates and assumptions that determine the reported amounts of assets and liabilities at the balance sheet date and reported costs and expenditures during the reporting period. Estimates and assumptions may be revised as new information is obtained, and are subject to change. The Company's accounting policies and estimates used in the preparation of the Financial Statements are considered appropriate in the circumstances, but are subject to judgments and uncertainties inherent in the financial reporting process.

Stock Based Compensation

In calculating the value of stock options granted, management is required to make significant estimates in relation to the future volatility of the Company's share price and the period in which stock options will be exercised. The selection of the volatility factor and the estimate of the expected option life will have a significant impact on costs recognized for stock based compensation. The estimates concerning volatility are made with reference to historical volatility, which is not necessarily an accurate indicator of volatility that will be experienced in the future. Management assumes that stock options will remain unexercised until immediately prior to their expiry date, which may not be the case.

Carrying Value of Assets

The Company reviews the carrying value of mineral properties and deferred exploration costs when there are any events or circumstances that may indicate impairment. Where estimates of future cash flows are available, an impairment charge is recorded if the undiscounted future net cash flows are less than the carrying amount. Reductions in the carrying value of the properties are recorded to the extent the net book value of the property exceeds the discounted value of future cash flows. Where estimates of future cash flows are not available and where other conditions suggest impairment, management assess if carrying value can be recovered and provides for impairment if so indicated. As at September 30, 2008, the Company has written down $3,020,000 in deferred expenses.

Asset Retirement Obligations

The Company relied on the results of a professional, engineering firm and used the discount and inflation rate as at December 31, 2007 to estimate the fair value of its asset retirement obligations.

Changes in Accounting Policies

The Company implemented the following accounting policy changes during the period.

Effective January 1, 2008, the Company adopted three new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA"); Section 1535 -- Capital Disclosures, Section 3862 -- Financial Instruments -- Disclosure, Section 3863 -- Financial Instruments -- Presentation. These standards were adopted on a prospective basis, and as such prior periods have not been restated.

Section 1535, "Capital Disclosures", establishes standards for disclosing information about an entity's capital and how it is managed. These standards require an entity to disclose the following:
1. its objectives, policies and processes for managing capital;
2. summary quantitative data about what the Company views as capital;
3. whether during the period, it complied with any externally imposed capital requirements to which it is subject;
4. when the entity has not complied with such requirement, the consequences of such non-compliance.
Financial Instruments -- Disclosure (Section 3862) and Presentation (Section 3863)

These standards replace CICA 3861, Financial Instruments -- Disclosure and Presentation. The increased disclosures will enable users to evaluate the significance of financial instruments for an entity's financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity's key management personnel.

Risk

There are significant risks that might affect further development of the Company. Although the Company has prospective Diamond projects and has demonstrated that it has the ability to obtain environmental and trial mining permits, there is a risk that these projects will not be economically mineable or that the required permits will be granted in the future. Further, future market prices for diamonds are not predictable. There is also a risk that should additional development of the properties be required, financing may not be obtainable. Repatriation of earnings and capital from Brazil is subject to compliance with registration requirements. There can be no assurance that restrictions on repatriation will not be imposed in the future.

Management's Responsibility for Financial Statements

The information provided in this report, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements.

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President, Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so that appropriate decisions can be made regarding public disclosure.

An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was conducted as of September 30, 2008, by and under the supervision of management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures, as defined by Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, are effective to ensure that information required to be disclosed in reports filed or submitted under Canadian securities legislation is recorded, processed, summarized and reported within the time period specified in those rules and forms and reported to senior management so that appropriate decisions can be made regarding public disclosure.

Internal Control Over Financial Reporting

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

An evaluation of the design of the Company's internal control over financial reporting was conducted as of September 30, 2008, by and under the supervision of management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO have concluded that the Company's design of internal control over financial reporting, as defined by Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP.

There have been no changes in internal control over financial reporting during the nine months ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Other information

Additional information is available on the Company's website at www.braziliandiamonds.com or on SEDAR at www.sedar.com.

Interim Consolidated Balance Sheet (expressed in thousands of Canadian Dollars) (unaudited)	September 30 2008 $	December 31 2007 $
Assets
Current assets
Cash and cash equivalents	226	456
Accounts receivable, prepaids and deposits	227	240
Due from related parties	8	17
	461	713

Investments	233	1,038

Mineral properties	23,818	24,657
	24,512	26,408

Liabilities
Current liabilities
Accounts payable and accrued liabilities	385	336

Hidefield options	-	19

Asset retirement obligation	85	85
	470	440
Shareholders' Equity
Capital stock	95,326	92,848
Warrants	-	519
Contributed surplus	3,336	2,817
Deficit	(74,522)	(70,836)
Accumulated other comprehensive income	(98)	620
	24,042	25,968

	24,512	26,408
Nature of Operations and Going Concern (note 1)

Interim Consolidated Statements of Loss and Deficit (expressed in thousands of Canadian dollars, except per share amounts) (unaudited)	Three - month period ended Sept 30, 2008 $	Three - month period ended Sept 30, 2007 $	Nine- month period ended Sept 30, 2008 $	Nine- month period ended Sept 30, 2007 $

Expenses
Consultants	55	53	162	162
Corporate administrative services	22	18	61	53
Foreign exchange loss	29	147	8	191
Insurance	11	15	34	49
Interest	(1)	(13)	(4)	(70)
Investor relations	46	53	93	130
Legal and audit	30	38	94	126
Office costs	37	39	116	128
Regulatory	29	34	103	109
Salaries and benefits	31	32	91	100
Stock-based compensation	-	165	-	165
Travel	4	15	25	53

	(293)	(596)	(783)	(1,196)
Other income (expenses)
Unrealized fair value of Hidefield options	-	170	19	769
Gain on sale of investments	-	-	98	-
Write-down of mineral properties	-	-	(3,020)	-

Loss for the period	(293)	(426)	(3,686)	(427)

Deficit - Beginning of period	(74,229)	(70,675)	(70,836)	(70,674)

Deficit - End of period	(74,522)	(71,101)	(74,522)	(71,101)

Loss per common share
Basic and diluted	0.00	0.00	0.02	0.00

Weighted average common shares outstanding (000's)
Basic and diluted	194,371	168,414	186,318	168,414

Interim Consolidated Statements of Comprehensive Loss (expressed in thousands of Canadian dollars) (unaudited)	Three - month period ended Sept 30, 2008 $	Three - month period ended Sept 30, 2007 $	Nine- month period ended Sept 30, 2008 $	Nine- month period ended Sept 30, 2007 $

Loss for the period	(293)	(426)	(3,686)	(427)

Other comprehensive loss
Unrealized loss on available-for-sale securities	(231)	-	(718)	-

Comprehensive loss for the period	(524)	(426)	(4,404)	(427)

Interim Consolidated Statements of Cash Flows (expressed in thousands of Canadian dollars) (unaudited)	Three- month period ended Sept 30, 2008 $	Three- month period ended Sept 30, 2007 $	Nine- month period ended Sept 30, 2008 $	Nine- month period ended Sept 30, 2007 $

Cash flows from operating activities
Loss for the year	(293)	(426)	(3,686)	(427)
Adjustments for non-cash changes
Amortization	-	2	-	7
Stock-based compensation		165		165
Write-down of mineral properties	-	-	3,020	-
Gain on sale of investments	-	-	(98)	-
Unrealized fair value of Hidefield options	-	(170)	(19)	(769)
Changes in non-cash working capital
(Increase) decrease in accounts receivable and prepaids	79	(23)	13	(58)
(Increase) decrease due from related parties	(4)	(1)	9	3
Increase (decrease) in accounts payable and accrued liabilities	77	(40)	49	(284)

	(141)	(493)	(712)	(1,363)

Cash flows from financing activities
Decrease in long-term debt	-	(6)	-	(14)
Issue of shares for private placement	-	-	2,596	-
Share issue costs	(6)	-	(118)	-

	(6)	(6)	2,478	(14)

Cash flows from investing activities
Proceeds from exercise of HIF options and shares	-	-	185	-
Deferred mineral property costs	(666)	(573)	(2,181)	(2,062)

	(666)	(573)	(1,996)	(2,062)

Decrease in cash and cash equivalents	(813)	(1,072)	(230)	(3,439)

Cash and cash equivalents - Beginning of period	1,039	2,147	456	4,514

Cash and cash equivalents - End of period	226	1,075	226	1,075

Notes to Consolidated Financial Statements 1. Nature of Operations and Going Concern The Company is engaged in the exploration for and development of mineral resources. The properties of the Company are without a known body of commercial ore, the exploration programs undertaken and proposed constitute an exploratory search, and there is no assurance that the Company will be successful in its search. The Company has not earned any revenue to date from its current operations and is therefore considered to be in the development stage. The business of exploring for minerals and mining involves a high degree of risk, and few properties that are explored are ultimately developed into producing mines. Significant expenses may be required to establish ore reserves, to develop recovery processes, and to construct mining and processing facilities at a particular site. It is not possible to ensure that the current exploration programs planned by the Company will result in a profitable commercial mining operation. Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to prior agreements and non-compliance with regulatory requirements. The Company is actively exploring and maintaining its current mineral property portfolio in Brazil. It expects to selectively explore and develop the portfolio itself, through joint venture or other arrangements. The scheduling and scale of such future activities will depend on results and market conditions. Repatriation of earnings and capital from Brazil is subject to compliance with registration requirements. These financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as the come due. For the nine months ended September 30, 2008, the Company reported a loss of $3,686,000 and an accumulated deficit of $74,522,000 at that date. In addition to its ongoing working capital requirements, the Company must secure sufficient funding for existing commitments as well as ongoing mineral property exploration. These circumstances lend substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The Company's ability to continue as a going concern is dependent upon its ability to fund its ongoing operating costs and exploration and development of mineral properties, attain profitable mining operations, or receive proceeds from the disposition of its mineral property interests. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material. 2. Significant accounting policies These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and they follow the same accounting policies and methods of application as the most recent annual financial statements. Consequently, these statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2007. 3. Investments

	September 30, 2008
	Number of Shares	Amount	% Holding
Hidefield Gold plc	7,625,000	$ 233	2.75%

	September 30, 2007
	Number of Shares	Carrying value	Fair value	% Holding
Hidefield Gold plc	14,625,000	$ 634	$ 1,711	5.31%

During the nine month period ended September 30, 2008, the Company recognized an unrealized loss of $718,000 (2007 - $Nil) on marketable securities designated as available-for-sale in other comprehensive income.
On February 8, 2008, the Company sold 2,000,000 Hidefield Gold plc ("Hidefield") shares at a price of 4.75 pence (market value -- 4.20 pence) per share for a total of $185,000 to Hamilton Capital Partners Limited (note 9(d)) and recorded a gain of $98,000 on the sale.
On January 25, 2008, the Company's 7,125,000 Hidefield options expired and the $19,000 unrealized fair value of the Hidefield options was written down. During the year ended December 31, 2005, the Company sold 12,125,000 Hidefield units to related parties. Each Hidefield unit was sold for 4.5 pence and was comprised of one ordinary common share of Hidefield and an option granted to acquire one additional ordinary share of Hidefield from the Company's remaining shareholding at 6 pence per share ("the Hidefield options").

Legends
	Production
	Mine development
	Discovery
	Exploration
	Past producer
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