3rd Quarter Results

    3rd Quarter Results
             



                     BRAZILIAN DIAMONDS LIMTIED

 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) + 44 113 246 2610
Tim Feather/Matthew Johnson


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                                               September
                 31   Acquisition      Deferred   Amortization/          30
               2007    (Disposal)   Exploration      Write Down        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                                               December
                 31   Acquisition      Deferred   Amortization/         31
               2006    (Disposal)   Exploration      Write Down       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 Antônio  do Bonito alluvial  project.
 These options  included  large  scale  dredging  operations  on  the
broader river flat areas along the  Santo Antônio 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.


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



Selected Annual Information

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



                            Year ended      Year ended     Year ended
($000)                     December 31     December 31    December 31
                                  2007            2006           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

1)      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        2              9              9                     21
leases                                                    1
Services
agreement         55       -              -              -             55
with HRG

                   $         $    9         $    9        $   1         $
                  70                                                   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



a)      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.

b)      At September 30,  2008, HRG owed the  Company $3,000 (2007  -
$Nil) and have normal trade terms.

c)      At September 30, 2008,  $58,000 (2007 - $62,000) is  included
in accounts receivable, prepaids and deposits to HRG for fixed assets
and services.

d)      The Company received  proceeds of $185,000 on  the sale of  2
million Hidefield Gold plc shares at 4.75 pence from HCPL.

e)      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.

f)       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.

g)       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.



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

a)      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:

                      i.             its  objectives,  policies   and
processes for managing capital;
                   ii.             summary  quantitative  data  about
what the Company views as capital;
                   iii.             whether  during  the  period,  it
complied with any externally imposed capital requirements to which it
is subject;
                 iv.            when the entity has not complied with
such requirement, the consequences of such non-compliance.

b)       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)                                   September 30   December 31
(unaudited)                                        2008          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                                   Nine-      Nine-
thousands of          Three -      Three -      month      month
Canadian dollars,     month period month period period     period
except per share      ended Sept   ended Sept   ended Sept ended Sept
amounts)              30,          30,          30,        30,
(unaudited)           2008         2007         2008       2007
                      $            $            $          $

Expenses
Consultants                     55           53        162        162
Corporate                       22           18
administrative
services                                                61         53
Foreign exchange                29          147
loss                                                     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                    31           32
benefits                                                91        100
Stock-based                      -          165
compensation                                             -        165
Travel                           4           15         25         53

                             (293)        (596)      (783)    (1,196)
Other income
(expenses)
Unrealized fair                  -          170
value of Hidefield
options                                                 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       (74,229)     (70,675)
of period                                         (70,836)   (70,674)

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

Loss per common
share
                             0.00
Basic and diluted                          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       Three -    Three -                Nine-
Statements of              month      month      Nine- month month
Comprehensive Loss         period     period     period      period
(expressed in thousands    ended Sept ended Sept ended Sept  ended
of Canadian dollars)       30,        30,        30,         Sept 30,
(unaudited)                2008       2007       2008        2007
                           $          $          $           $

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

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

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



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

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

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

Cash flows from
financing activities
Decrease in long-term             -        (6)
debt                                                     -       (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              (666)      (573)
property costs                                     (2,181)    (2,062)

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

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

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

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


a)      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.

b)      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.

c)      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").

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