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RDI
RDI
RDI - Rockwell - Unaudited Consolidated Financial Statements For The Three
And Six Months Ended 30 November 2007
ROCKWELL DIAMONDS INCORPORATED
(A company incorporated in accordance with the laws of British Columbia,
Canada)
(Incorporation number BCO354545)
(Formerly Rockwell Ventures Inc.)
(South African registration number: 2007/031582/10)
Share code on the JSE Limited: RDI & ISIN: CA77434W1032
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED
30 NOVEMBER 2007
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
November 30 May 31 2007
2007
(unaudited)
ASSETS
Current assets
Cash and equivalents $12,774,973 $32,626,376
Accounts receivable 346,140 1,724,418
Restricted cash (note 11(a)) 15,519,569 15,642,120
Trade receivable from a related 3,817,520 839,253
party (note 10)
Diamond inventory and supplies 3,720,164 2,604,684
(note 4)
Prepaids and deposits 644,945 2,705,721
36,823,311 56,142,572
Deferred financing costs (note 300,000 -
11(b))
Property, plant and equipment 56,980,629 44,790,441
(note 5)
Mineral property interests (note 24,928,327 24,121,855
6)
Other assets and deposits 7,480,814 3,513,449
Reclamation deposits (note 8) 1,782,064 1,038,066
$128,295,145 $129,606,383
LIABILITIES AND SHAREHOLDERS`
EQUITY
Current liabilities
Accounts payable and accrued $7,857,809 $4,460,922
liabilities
Amounts owing pursuant to 622,257 13,842,809
acquisition
Due to related parties (note 10) 541,787 1,609,301
Income taxes 1,146,416 1,677,787
Current portion of capital lease 7,004,539 7,808,955
obligations (note 7)
17,172,808 29,399,774
Long-term liabilities
Capital lease obligations (note 7) 6,976,410 9,294,581
Future income taxes 13,384,349 11,978,860
Reclamation obligation (note 8) 1,422,026 1,361,557
21,782,785 22,634,998
Non-controlling interest 8,612,975 5,978,769
Shareholders` equity
Share capital (note 9) 98,126,339 88,903,530
Warrants (note 9) 1,693,197 1,693,197
Contributed surplus 1,206,856 599,749
Deficit (20,299,815) (19,603,634)
80,726,577 71,592,842
Nature and continuance of
operations (note 1)
Subsequent events (notes 11)
Contingencies and commitments
(note 6 and 12)
$128,295,145 $129,606,383
The accompanying notes are an integral part of these consolidated financial
statements
Approved by the Board of Directors
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited - Expressed in Canadian Dollars)
Three months ended Six months ended
November 30 November 30
Revenue 2007 2006 2007 2006
Rough diamonds $12,072,363 $ - $26,094,337 $-
sales (note
10(h))
Contract - - 179,975 -
diamond sales
(note 10(h))
Other sales 52,581 - 73,096 -
12,124,944 - 26,347,408 -
Cost of sales
Cost of rough (9,570,978) - (15,227,061) -
diamonds sales
Cost of - - (152,979) -
contract
diamond sales
Amortization (2,141,157) - (4,116,170) -
and depletion
Operating 412,809 - 6,851,198 -
profit
Expenses
Accretion of 27,857 - 86,400 -
reclamation
obligation
(note 8)
Exploration 126,741 525,952 430,385 700,693
Foreign (126,397) (394,352) (767,664) (388,601)
exchange gain
Legal, 252,611 325,928 318,373 541,286
accounting and
audit
Office and 849,940 407,954 1,549,836 720,259
administration
Shareholder 64,357 50,976 134,149 91,413
communications
Stock-based 167,109 9,292 173,571 29,301
compensation -
exploration
(note 9(b))
Stock-based 449,672 9,102 475,283 27,134
compensation -
administration
(note 9(b))
Travel and 147,443 125,299 273,247 261,062
conferences
Transfer agent 97,977 52,484 104,870 97,463
2,057,310 1,112,635 2,778,450 2,080,010
Other items
Loss (gain) on 3,323 - (21,954) -
disposal of
equipment
Interest income (185,813) (51,073) (671,566) (52,509)
Interest on 427,301 - 898,496 -
capital leases
Convertible 101,618 1,156,255 187,392 1,501,043
note accretion
and interest
expense
Loss on early - 137,957 - 137,957
extinguishment
of convertible
promissory
notes
Write-down of - - - 1
marketable
securities
346,429 1,243,139 392,368 1,586,492
Profit (loss) (1,990,930) (2,355,774) 3,680,380 (3,666,502)
before income
taxes
Income tax 398 - (26,496) -
recovery
(expense)
Future income 25,768 - (1,715,859) -
tax recovery
(expense)
Profit (loss) (1,964,764) (2,355,774) 1,938,025 (3,666,502)
before non-
controlling
interest
Non-controlling 837,374 - (2,634,206) -
interest
Loss for the (1,127,390) (2,355,774) (696,181) (3,666,502)
period
Other - - - -
comprehensive
income (loss)
Total $(1,127,390) $(2,355,774) $ (696,181) $(3,666,502)
Comprehensive
Loss
Adjust for: (126,397) (394,352) (767,664) (388,601)
Foreign 3,323 - (21,954) -
exchange gain
Loss(gain)on
disposal of
equipment
Headline (1,004,316) (1,961,422) 93,437 (3,277,901)
earnings
Headline $(0.01) $(0.06) $0.00 $(0.13)
(loss)/earnings
per share
Basic and $(0.01) $(0.08) $(0.00) $(0.15)
diluted loss
per common
share
Weighted 187,816,993 30,322,392 187,225,090 25,282,223
average number
of common
shares
outstanding
The accompanying notes are an integral part of these consolidated
financial statements
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Six months ended November Year ended May
30 2007 31 2007
(unaudited)
Share capital Number of Number of
shares shares
Balance at 186,976,219 $88,903,530 23,694,776 $11,857,649
beginning of
the period
Share purchase 107,917 43,167 9,167 3,734
options
exercised at
$0.40 per
share
Share purchase 10,000 4,200 - -
options
exercised at
$0.42 per
share
Private - 4,160 42,000,000 19,784,230
placement
November 2006,
net of issue
costs at $0.47
per share
Private - - 116,007,154 54,184,270
placement May
2007, net of
issue costs at
$0.47 per
share
Interest - - 1,734,127 1,045,000
consideration
for
convertible
promissory at
$0.60 per
share notes
Interest - - 1,939,562 1,182,869
consideration
for credit
facility at
$0.61 per
share
Interest - - 497,993 273,896
consideration
for loan at
$0.55 per
share
Commission - - 1,093,440 568,588
consideration
for private
placement at
$0.52 per
share
Commission 500,000 300,000 - -
consideration
for private
placement at
$0.60 per
share
Warrants 2,400,000 1,440,000 - -
exercised at
$0.60 per
share
Consideration 7,848,663 6,081,842 - -
for
acquisition of
property net
of issue cost
at $0.78 per
share (note 6)
Consideration 1,676,529 1,307,693 - -
for property
finders fees
at $0.78 per
share (note 6)
Fair value of - 41,747 - 3,294
stock options
allocated to
shares issued
on exercise
Balance at end 199,519,328 $98,126,339 186,976,219 $88,903,530
of the period
Warrants
Broker 1,693,197 1,693,197
warrants
issued as
consideration
for private
placement
$1,693,197 $1,693,197
Contributed
surplus
Balance at 599,749 523,420
beginning of
the period
Stock-based 648,854 79,623
compensation
(note 9(b))
Fair value of (41,747) (3,294)
stock options
allocated to
shares issued
on exercise
Balance at end $1,206,856 $ 599,749
of the period
Deficit
Balance at (19,603,634) (13,238,492)
beginning of
the period
Loss for the (696,181) (6,365,142)
period
Balance at end $(20,299,815) $(19,603,634)
of the period
TOTAL $ 80,726,577 $ 71,592,842
SHAREHOLDERS`
EQUITY
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended November Six months ended November 30
30
Cash provided 2007 2006 2007 2006
by (applied
to):
Operating
activities
Profit (loss) $(1,127,390) $(2,355,774) $(696,181) $(3,666,502)
for the period
Items not
affecting cash
Accretion of 27,857 - 86,400 -
reclamation
obligation
Amortization 1,381,374 219 2,580,237 219
and depletion
Amortization 759,783 - 1,535,933 -
of capital
lease
equipment
Write-down of - - - 1
marketable
securities
Loss on early - 137,957 - 137,957
extinguishment
of convertible
promissory
note
Non cash - 1,156,255 - 1,501,043
convertible
note accretion
and interest
expense
Stock-based 616,781 18,394 648,854 56,434
compensation
Unrealized (28,444) - (1,078,947) -
foreign
exchange gain
(Profit) loss 3,323 - (21,954) -
on disposal of
equipment
Future income (25,768) - 1,715,859 -
tax expense
Provision for (4,722) - (25,931) -
site
reclamation
Non- (837,374) - 2,634,206 -
controlling
interest
Changes in non-
cash working
capital items
Accounts 85,450 (590,839) 1,378,278 (659,281)
receivable
Amounts due to (1,022,759) - (2,978,267) -
and from
related
parties
Inventory 1,723,631 - (1,115,480) -
Prepaids and (1,447,334) - (300,000) -
deposits
Accounts 3,328,091 (46,807) 3,396,887 (52,284)
payable and
accrued
liabilities
Income taxes (261,320) - (531,371) -
Cash provided 3,171,179 (1,680,595) 7,228,523 (2,682,413)
by (used in)
operating
activities
Investing
activities
Loan to - (3,779,144) - (11,559,922)
Durnpike
Investments
(Pty) Limited
Restricted 21,087 - 122,551 -
cash
Mineral 2,426,673 - 926,071 -
property
acquisitions
Purchase of (10,769,428) (10,500) (15,192,168) (10,500)
equipment
Proceeds 447,020 - 829,923 -
received on
disposal of
equipment
Other assets (1,684,772) - (3,967,365) -
and deposits
Reclamation (63,177) - (743,998) -
deposits
Cash used in (9,622,597) (3,789,644) (18,024,986) (11,570,422)
investing
activities
Financing
activities
Principal (2,846,194) - (4,701,019) -
repayments
under capital
lease
obligations
Common shares 1,297,167 19,784,254 1,491,527 19,784,587
and warrants
issued for
cash, net of
issue costs
Amounts (2,199,094) (220,213) (1,067,514) (944,867)
received
(paid) to
related
parties
Amounts paid (478,304) - (7,138,710) -
pursuant to
property
acquisition
Credit - 6,000,000 - 6,000,000
facility
Repayment of - (9,500,000) - (9,500,000)
convertible
promissory
notes
Issuance of - - - 9,500,000
convertible
promissory
notes
Cash provided (4,226,425) 16,064,041 (11,415,716) 24,839,720
by (used in)
investing
activities
Increase (10,677,843) 10,593,801 (22,212,179) 10,586,885
(decrease) in
cash and
equivalents
during the
period
Cash and 21,092,040 185,115 32,626,376 192,031
equivalents,
beginning of
period
Cash and $ 10,414,197 $10,778,916 $10,414,197 $10,778,916
equivalents,
end of period
Cash and
equivalents is
comprised of:
Interest paid $101,618 $- $187,392 $-
during the
period
Interest $185,813 $- $671,566 $-
received
Income taxes $261,320 $- $531,371 $-
paid during
the period
Supplemental
disclosure of
non-cash
investing and
financing
activities:
Issuance of $ - $ - $ 300,000 $ -
common shares
- deferred
financing cost
(note 11(b))
Issuance of $ - $ 522,500 $ - $ 1,045,000
common shares
- interest on
convertible
promissory
notes
Issuance of $ - $ 594,000 $ - $ 594,000
common shares
- interest on
credit
facility
Issuance of $ 6,081,842 $ - $ 6,081,842 $ -
commons shares
as
consideration
for
acquisition of
property (note
6)
Issuance of $ 1,307,693 $ - $ 1,307,693 $ -
common shares
as
consideration
for property
finders fees
(note 6)
Fair value of $ 9,040 $ 337 $ 41,747 $ 337
stock options
allocated to
shares issued
upon exercise
Equipment $ 1,136,242 $ - $ 1,922,159 $ -
acquired under
capital lease
(note 5)
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the three and six months ended November 30, 2007
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
1. NATURE AND CONTINUANCE OF OPERATIONS
Rockwell Diamonds Inc. (the "Company") is incorporated under the British
Columbia Business Corporations Act (formerly the Company Act of British
Columbia), and is engaged in the business of diamond production, acquiring and
exploring natural resource properties. The Company`s principal mineral
property interests are located in South Africa and Chile.
These interim consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles. They do not include all the
disclosures as required for annual financial statements under generally
accepted accounting principles. However, these interim consolidated financial
statements follow the same accounting policies and methods of application as
the Company`s most recent audited annual financial statements except for
changes described in note 3 below. These interim consolidated financial
statements should be read in conjunction with the Company`s audited annual
consolidated financial statements which are available through the Internet on
SEDAR at www.sedar.com.
Subsequent to the quarter ended November 30, 2007, the Company`s Board of
Directors approved a resolution to change the Company`s year end from May 31,
2008 to February 29, 2008. The change in year end is subject to regulatory
approval.
Operating results for the three and six months ended November 30, 2007 are not
necessarily indicative of the results that may be expected for the year ending
February 29, 2008.
The Company has estimated that it will have adequate funds from existing
working capital to meet its corporate, operational, development, administrative
and property obligations for the coming year. The Company will periodically
need to obtain additional financing, and while it has been successful in the
past, there can be no assurance that it will be able to do so in the future.
The recoverability of the amounts shown for the Company`s mineral property
interests, property, plant and equipment and inventory is dependent upon the
existence of economically recoverable mineral resources and future profitable
production or proceeds from the disposition of the mine. The Company`s
continuing operations are also dependent upon the discovery and existence of
economically recoverable mineral reserves, the ability of the Company to obtain
the necessary financing to complete the exploration and development of its
mineral property interests, and upon future profitable production or proceeds
from the disposition of its mineral property interests.
These consolidated financial statements do not include adjustments to amounts
and classifications of assets and liabilities that might be necessary should
the Company be unable to continue operations.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. These consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated upon consolidation.
3. CHANGES IN ACCOUNTING POLICIES
Effective June 1, 2007, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants ("CICA")
relating to financial instruments. These new standards have been adopted on a
prospective basis with no restatement to prior period financial statements.
(a) Section 3855 - Financial Instruments - Recognition and Measurement
This standard sets out criteria for the recognition and measurement of
financial instruments for fiscal years beginning on or after October 1, 2006.
This standard requires all financial instruments within its scope, including
derivatives, to be included on a Company`s balance sheet and measured either at
fair value or, in certain circumstances when fair value may not be considered
most relevant, at cost or amortized cost. Changes in fair value are to be
recognized in the statements of operations and comprehensive income, depending
on the classification of the related instruments.
All financial assets and liabilities are recognized when the entity becomes a
party to the contract creating the item. As such, any of the Company`s
outstanding financial assets and liabilities at the effective date of adoption
are recognized and measured in accordance with the new requirements as if these
requirements had always been in effect. Any changes to the fair values of
assets and liabilities prior to June 1, 2007 are recognized by adjusting
opening deficit or opening accumulated other comprehensive income.
All financial instruments are classified into one of the following categories:
held for trading, held-to-maturity and available-for-sale financial assets.
Initial and subsequent measurement and recognition of changes in the value of
financial instruments depends on their initial classification:
Held-to-maturity investments, loans and receivables, and other financial
liabilities are initially measured at fair value and subsequently measured at
amortized cost. Amortization of premiums or discounts and losses due to
impairment are included in current period net earnings.
Available-for-sale financial assets are measured at fair value. Changes in fair
value are included in other comprehensive income until the gain or loss is
recognized in income.
Held for trading financial instruments are measured at fair value. All gains
and losses are included in net earnings in the period in which they arise.
All derivative financial instruments are measured at fair value, even when they
are part of a hedging relationship. Changes in fair value are included in net
earnings in the period in which they arise, except for hedge transactions which
qualify for hedge accounting treatment in which case gains and closes are
recognized in other comprehensive income.
(b) Section 3865 - Hedges.
This new standard specifies the circumstances under which hedge accounting is
permissible and how hedge accounting may be performed. The Company currently
does not have any financial instruments which qualify for hedge accounting.
(c) Section 1530 - Comprehensive Income.
Comprehensive income is the change in the Company`s shareholder equity that
results from transactions and other events from other than the Company`s
shareholders and includes items that would not normally be included in net
earnings, such as unrealized gains or losses on available-for-sale investments.
This standard requires certain gains and losses that would otherwise be
recorded as part of net earnings to be presented in other "comprehensive
income" until it is considered appropriate to recognize into net earnings.
This standard requires the presentation of comprehensive income, and its
components in a separate financial statement that is displayed with the same
prominence as the other financial statements. Accumulated other comprehensive
income is presented as a new category in shareholders` equity. As at November
30, 2007, the Company had no accumulated other comprehensive income and for the
three and six months ended November 30, 2007, comprehensive income (loss)
equals net loss.
4. DIAMOND INVENTORY AND SUPPLIES
November May 31,
30, 2007 2007
Rough diamond inventory $1,374,894 $644,459
Mine supplies 2,002,950 1,741,412
Fuel, oil and grease 342,320 218,813
Total inventory and supplies $3,720,164 $2,604,684
5. PROPERTY, PLANT AND EQUIPMENT
As at November 30, 2007
Cost Accumulated Net book
amortization value
Land and building $7,016,467 $ - $ 7,016,467
Processing plant and 28,548,842 1,660,518 26,888,324
equipment
Processing plant and 23,761,993 2,236,170 21,525,823
equipment under capital
lease
Office equipment 400,628 89,263 311,365
Vehicles and light equipment 1,578,632 471,136 1,107,496
Vehicles and light equipment 154,299 23,145 131,154
under capital lease
$61,460,861 $ 4,480,232 $56,980,629
As at May 31, 2007
Cost Accumulated Net book
amortization value
Land and building $ 3,823,455 $ - $ 3,823,455
Processing plant and 16,307,635 609,026 15,698,609
equipment
Processing plant and 24,686,561 870,018 23,816,543
equipment under
capital lease
Office equipment 299,072 20,515 278,557
Vehicles and light 1,065,396 43,199 1,022,197
equipment
Vehicles and light 158,795 7,715 151,080
equipment under
capital lease
$46,340,914 $ 1,550,473 $44,790,441
6. MINERAL PROPERTY INTERESTS
Six Year ended
months ended
Acquisition Costs November 30, May 31, 2007
2007
Durnpike Investments (Pty) Limited
Balance, beginning of period $ 24,121,854 $ -
Acquisition costs 1,241,097 18,696,487
Financial, legal, advisory, and 15,822 527,328
other fees
Future income tax liability 424,850 5,421,981
Depletion of mineral properties (875,296) (523,942)
during the period
Durnpike Investments (Pty) Limited, 24,928,326 24,121,854
end of period
Ricardo Property 1 1
Balance, end of period $24,928,327 $24,121,855
In July 2007, the Company completed the acquisition of all the issued and
outstanding shares in the capital of a South African private company with an
alluvial diamond property in the Wouterspan project area, for total cash
consideration to the acquired company`s shareholders of $2,208,500 which
comprised of $1,465,000 for mineral rights and properties and $743,500 for land
and buildings.
Pursuant to the Definitive Agreement disclosed in note 5(a) of the audited
financial statements for year ended May 31, 2007, the Company was committed to
issue Common Shares of the Company as consideration for acquiring all of the
shares and loans in Durnpike for ZAR39.8 million ($6.1 million) on the earlier
of (i) the date of the Johannesburg Stock Exchange listing ("JSE Listing"); and
(ii) within 12 months from signature of the Definitive Agreement.
On November 30, 2007, the Company began trading on the Johannesburg Stock
Exchange and hence completed its JSE listing condition. Consequently, the
Company issued 7,848,663 Common Shares as settlement of its commitment and also
1,676,529 Common Shares as finder fees relating to the Durnpike acquisition.
7. CAPITAL LEASE OBLIGATIONS
Included in property, plant and equipment are mining equipment that the Company
acquired pursuant to three to four year capital lease agreements.
The Company`s capital lease obligations are with the following financial
institutions:
As at As at
November 30, May 31, 2007
2007
Liebherr Finance $ 18,563 $ 131,572
ELB Finance 127,093 175,180
Stannic 2,758,609 3,452,953
Wesbank 396,012 557,153
Nedbank 2,759,693 4,383,372
Komatfin 7,920,979 8,403,305
$ 13,980,949 $ 17,103,535
Capital lease obligations as detailed above are secured over plant and
equipment and are repayable in monthly installments. Interest is charged at
rates linked to the prevailing prime rate of the relative financial institution
mentioned above.
Future minimum lease payments are as follows:
As at
November
30, 2007
2008 $ 7,205,099
2009 5,927,037
2010 2,473,945
Total minimum lease payments 15,606,081
Less interest portion (1,625,132)
Present value of capital 13,980,949
lease obligations
Current portion (7,004,539)
Non-current portion $ 6,976,410
8. RECLAMATION OBLIGATION
The continuity of the provision for site closure and reclamation costs related
to the Holpan, Wouterspan and the Klipdam mines are as follows:
Balance, May 31, 2007 $1,361,557
Changes during the period:
Reclamation expenses incurred during the period (25,931)
Accretion expense 86,400
Site closure and reclamation obligations, November $1,422,026
30, 2007
The estimated amount of the reclamation costs, adjusted for estimated inflation
at 6% per year, is $800,000 for the Klipdam mine in the year 2011, $1.3 million
for the Holpan mine in the year 2013 and $2.6 million for the Wouterspan mine
in the year 2027 and is expected to be spent over periods of approximately
three years beginning in 2011, 2013 and 2027. The credit-adjusted risk free
rate at which the estimated future cash flows have been discounted is 13%, to
arrive at a net present value of $1,422,026. The accretion of $86,400 (2007 -
$Nil) is charged to the statement of operations.
As required by regulatory authorities, at November 30, 2007, the Company had
cash reclamation deposits totaling $1,782,064 (2007 - $ 1,038,066) comprised of
$1,622,676 (2007 - $ 878,678) for the Holpan and Wouterspan mines and $159,388
(2007 - $159,388) for the Klipdam mine. These deposits are invested in
interest bearing money market linked investments at rates ranging from 8% to
9.5%.
9. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an unlimited number of
common shares, without par value, and an unlimited number of preferred shares
without par value, of which none have been issued.
(b) Share purchase options
The continuity of share purchase options for the period ended November 30, 2007
is as follows:
Exercise May 31 Expired/ November 30
Expiry price 2007 Granted Exercised cancelled 2007
date
September $ 0.40 107,917 - 107,917 - -
28, 2007
February $ 0.42 190,000 - 10,000 5,000 175,000
29, 2008
March 28, $ 0.50 150,000 - - - 150,000
2008
July 10, $ 0.68 - 300,000 - - 300,000
2010
September $ 0.62 - 5,905,500 - - 5,905,500
24, 2012
November $ 0.63 - 1,114,500 - - 1,114,500
14, 2012
447,917 7,320,000 117,917 5,000 7,645,000
Weighted average $ 0.44 $ 0.62 $ 0.40 $ 0.42 $ 0.62
exercise price
Weighted average fair value of options $ 0.62
granted during the period
As at November 30, 2007, 325,000 of the options outstanding with a weighted
average exercise price of $0.40 per share had vested with grantees.
Using a Black- Three months ended Six months ended
Scholes option November 30 November 30
pricing model with
the assumptions
noted below, the
fair values of
stock options
granted have been
reflected in the
statement of
operations as
follows:
2007 2006 2007 2006
Exploration and $ 167,109 $ 9,292 $ 173,571 $ 29,301
engineering
Operations and 449,672 9,102 475,283 27,134
administration
Total compensation $ 616,781 $ 18,394 $ 648,854 $ 56,434
cost expensed to
operations,
with the offset
credited to
contributed
surplus
The weighted-average assumptions used to estimate the fair value of options
granted are as follows:
Three months ended Six months ended
November 30 November 30
2007 2006 2007 2006
Risk free interest 4% 4% 4% 4%
rate
Weighted average 2.0 years 1.7 years 1.7 years 1.7 years
expected life
Vesting period 3-10 3-10 3-10 3-10
months months months months
Weighted average 83% 108% 83% 108%
expected volatility
Expected dividends nil nil nil nil
(c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable into one
common share) for the
period ended November 30, 2007 is:
Expiry date November 22, May 09, May 09,
2008 (i) 2009 (ii) 2009
(iii)
Exercise price $0.80 $0.70 $0.70
Balance, May 31, 2007 42,000,000 116,007,154 5,772,000
Issued - - -
Exercised 2,400,000 - -
Expired - - -
Balance, November 30, 2007 39,600,000 116,007,154 5,772,000
(i)The share purchase warrants are exercisable over three years with the option
to exercise at $0.60 expiring on November 22, 2007, the option to exercise at
$0.80 expiring on November 22, 2008 and the option to exercise at $1.00 on
November 22, 2009.
(ii)In May 2007, Rockwell completed a $60 million private placement financing
of 116,007,154 million equity Units at $0.52 each with each Unit consisting of
one common share and one share purchase warrant exercisable over two years at
$0.70. All securities are subject to a four month hold period in Canada which
expired on September 10, 2007.
(iii)In May 2007, the Company issued 5,772,000 broker warrants exercisable over
two years at $0.70 expiring on May 9, 2009. Using a Black-Scholes option
pricing model the fair values of 5,772,000 broker warrants granted in the
amount of $1,693,197 have been reflected in the consolidated balance sheet. The
weighted-average assumptions used to estimate the fair value of warrants
granted were an expected volatility of 97%, expected dividends of nil, expected
life of 2 yearsand risk free rate of 4%.
10. RELATED PARTY BALANCES AND TRANSACTIONS
Balances payable As at As at
November 30, May 31,
2007 2007
Hunter Dickinson Inc. (a) $ $
153,341 37,571
Euro-Amerian Capital Corporation 6,561 2,879
(b)
CEC Engineering (c) 10,446 5,558
Durnpike shareholder loans (i) 36,361 1,503,566
Banzi Trading (j) - 2,191
Jakes Tyres (k) 289,434 10,993
Cashmere Trading (g) 45,644 46,543
$ 541,787 $ 1,609,301
Balances receivable
Flawless Diamonds Trading House $ 3,782,853 $ 781,928
(h)
Banzi Trading (j) 34,667 -
AA Van Wyk (l) - 57,325
$ 3,817,520 $ 839,253
Three months ended Six months ended
November 30 November 30
Transactions 2007 2006 2007 2006
Services rendered
and expenses
reimbursed:
Hunter Dickinson $ 283,436 $565,291 $504,305 $956,722
Inc. (a)
Euro-American 6,208 2,960 14,356 7,400
Capital
Corporation (b)
CEC Engineering 17,641 62,087 32,916 107,420
(c)
John Bristow (d) - 41,188 - 102,096
Jeffrey B Traders 13,185 55,386 52,740 55,386
CC (e)
Seven Bridges 19,277 - 38,929 -
Trading (f)
Cashmere Trading 119,544 - 239,088 -
(g)
Banzi Trade 26 5,064 - 9,155 -
(Pty) Ltd (j)
Jakes Tyres (k) 737,538 - 871,400 -
AA Van Wyk (l) - - 150,716 -
Sales rendered to:
Flawless Diamonds $12,072,363 $ - $26,274,312 $ -
Trading House (h)
Hunter Dickinson Inc. ("HDI") is private company owned equally by nine public
companies, one of which is Rockwell, and has certain directors in common with
the Company.
HDI provides geological, technical, corporate development, administrative and
management services to, and incurs third party costs on behalf of, the Company
on a full cost recovery basis pursuant to an agreement dated January 1, 2001.
There are no specific terms of repayment.
Euro-American Capital Corporation is a private company controlled by Rene
Carrier, a director of the Company, which provides management services to the
Company at market rates for those services.
CEC Engineering Ltd. is a private company owned by David Copeland, Chairman and
a director of the Company, which provides engineering and project management
services at market rates.
John Bristow, President, Chief Executive Officer and a director of the Company,
provided engineering consulting services at market rates to the Company.
Jeffrey B Traders CC is a private company controlled by Jeffrey Brenner, a
former director and employee of the Company, which provides management and
marketing services to the Company at market rates.
Seven Bridges Trading is a wholly owned subsidiary of Randgold Resources, a
public company where Mark Bristow, a director of the Company, serves in an
executive capacity. Seven Bridges Trading provides administrative and
management services at market rates to the Company`s South African
subsidiaries.
Cashmere Trading is a private company owned by Hennie Van Wyk, an officer of
the Company, which provides helicopter services at market rates.
Flawless Diamonds Trading House ("Flawless") is a private company where certain
directors, former directors and officers of the Company, namely, Messr.
Brenner, Bristow and Van Wyk, are shareholders of. Flawless is a registered
diamond broker and purchases diamonds from the Company at market prices.
Pursuant to the Company` agreement to acquire all of the shares and loans in
Durnpike Investments (Pty) Limited from eight individuals (the "Vendors"), of
which three individuals from the Vendors were subsequently appointed to the
Company`s Board of Directors (Messr. Brenner, M.Bristow, J.Bristow).
Banzi Trade 26 (Pty) Ltd ("Banzi") is 50% owned by Hennie Van Wyk Family Trust,
30% by Ronnie Visagie, a member of the van Wyk family and 20% by Bokomoso
Trust. Banzi is a private company focused on providing self sustaining programs
to local communities. During the period, Banzi provided the Company with
buildings materials at market rates.
Jakes Tyres is a private company with certain directors and officers in common
with the Company that provides consumable materials at market rates.
AA Van Wyk is a private company owned by a party related to the directors and
officers of the Company, which provides contract mining services at market
rates.
11. SUBSEQUENT EVENTS
(a) Acquisition of Saxendrift Mine (Pty) Ltd.
On March 6, 2007, the Company and Trans Hex Group Limited ("Trans Hex") entered
into a conditional agreement whereby the Company`s wholly owned South African
subsidiary, Rockwell Resources RSA (Pty) Ltd. ("Rockwell RSA"), would acquire
two open pit alluvial diamond mines and three alluvial diamond exploration
projects from Trans Hex ("the Transaction"). Trans Hex, through its wholly-
owned subsidiary, Trans Hex Operations (Pty) Ltd. ("THO"), is the owner of two
open pit alluvial diamond mines, namely Saxendrift and Niewejaarskraal, and
three alluvial diamond exploration projects, namely Kwartelspan, Zwemkuil-
Mooidraai and Remhoogte-Holsloot, which are located along the southern bank of
the Middle Orange River between Douglas and Prieska in the Northern Cape
Province of South Africa ("Northern Cape") and which are collectively referred
to as the Middle Orange River Operations and Projects (or "MORO").
The MORO includes:
- the rights to prospect, explore and/or mine precious stones and/or other
minerals and/or metals held directly or indirectly by THO in the Saxendrift
area of the Northern Cape;
- a series of large remnant alluvial diamond terraces comprising
approximately 8.7 million cubic meters of indicated resource and 30.4 million
cubic meters of inferred resources;
- the material plant, machinery, equipment and othemovable assets owned
and/or used by THO valued at ZAR53 million (approx. $8.0 million);
- ertain employees of THO; and
- rehabilitation liability which will be taken over by the Company.
The Company will pay cash consideration to Trans Hex of approximately ZAR100.4
million ($14.8 million) and will assume
potential liabilities for staff layoffs (capped at ZAR5 million ($0.8 million))
and rehabilitation bonds (capped at ZAR4.25 million($0.6 million)). An
independent consultant has been appointed to determine the value of the
rehabilitation bonds. All payments and liabilities are expected to total
approximately $16.2 million, subject to certain final adjustments. Trans Hex
will transfer all its relevant mineral rights and associated assets into a new
special purpose entity ("Saxendrift SPV"), to be acquired by the Rockwell RSA.
The implementation of the Transaction is subject to fulfillment of certain
conditions precedent including:
- The unconditional approval of South Africa`s Competition Commission; which
has already taken place;
- All requisite consents by South Africa`s Minister of Minerals and Energy
to the cession and transfer of the underlying mining and prospecting rights
pertaining to the MORO to the Saxendrift SPV and the acquisition by the Company
of the shares in Saxendrift SPV;
- Satisfactory provision by the Company of certain financial undertakings to
THO;
- Approval by the TSX Venture Exchange;
- Completion by the Company of a mineral title due diligence investigation;
and
- The audited balance sheet of Saxendrift SPV as at the effective date.
Fulfillment of some of the conditions precedent may be waived, or the date
specified for their fulfillment extended, in certain limited circumstances.
The MORO will be placed in care and maintenance with effect from date of
signature of the relevant transaction agreements pending fulfillment of the
conditions precedent.
In January 2007, the Company entered into a credit facility with Canadian
Imperial Bank of Commerce ("CIBC") for a standby letter of credit of $16.5
million for the acquisition of Saxendrift Mine. The Company secured this
facility by providing sufficient funds on deposit equal the amount of the
outstanding letter of credit, being $15.6 million as of May 31, 2007. The
facility was not utilized and expired on July 31, 2007.
On July 31, 2007 the funds, previously utilized to secure the facility, were
transferred to an account held in trust for the Company for acquisition of the
Saxendrift Mine.
(b)January 2008, Private Placement of $14.5 million
In January 2008 the Company completed a brokered private placement of
24,101,285 Common Shares at a price of $0.60 per share for total proceeds of
Cdn$14,460,771.
The Company issued 500,000 Common Shares and paid a cash fee of $300,000 as
finder`s fees relating to the private placement. All shares issued pursuant to
the private placement are subject to a hold period expiring on March 31, 2008.
Proceeds from the financing will be used to fund Rockwell`s diamond operations
and new project evaluation and development.
12. CONTINGENCIES AND COMMITMENTS
(a)One of the 50% shareholders of Midamines has, subsequent to the conclusion
of the Midamines Agreement
(b)(see note 5(a) of the audited financial statements for the year ended May
31, 2007) in accordance with a mandate granted by such shareholder, denied the
validity of the Midamines Agreement. The remaining 50% shareholder disputes
this view and remains committed to the Midamines Agreement. Due to this
dispute, Midamines has not afforded Durnpike access to the site, and assistance
as regards its proposed operations on the site, in the manner contemplated in
the Midamines Agreement. This failure has significantly delayed the Company`s
proposed operations on the site, and it is consequently the Company`s position
that the required royalty payments have become suspended for the duration of
Midamines internal dispute.
The Company remains committed to the Kwango River Project and is confident that
the ongoing dispute between the shareholders of Midamines will be resolved. The
Company will obtain formal legal advice from both Belgian and DRC legal counsel
as soon as possible as the Midamines Agreement is governed by Belgian law and
the obligations under the Midamines Agreement are to be implemented, where
required, in accordance with the laws of the DRC. Concurrently, the Company
will also monitor the resolution of the internal dispute between the Midamines
shareholders. If the issue of minimum royalty payments is not settled on or
before December 31, 2008, the Company will seek formal legal advice and may
consider formally terminating the Midamines Agreement.
(c)In April 2007 the Company, entered into an agreement in relation to its
Makoenskloof property to purchase plant and equipment in the amount of ZAR21.3
million (approximately $3.2 million) from Folmink Delwery CC. As at November
30, 2007 the Company is committed to pay the remaining consideration of ZAR4.2
million ($622,257) in the following manner:
- ZAR3 million ($450,300) shall be payable by way of Common Shares of the
Company. The shares cannot be exchanged, or traded, or sold in any manner, by
the seller for a period of one year after date a listing on the JSE.
- The remaining balance payable of shall be paid in monthly payments of
ZAR500,000 ($75,050). The monthly payments shall incur interest calculated at
the prime rate of the Standard Bank of South Africa.
15 JANUARY 2008
JOHANNESBURG
SPONSOR
SASFIN CAPITAL
(A DIVISION OF SASFIN BANK LIMITED)
Date: 15/01/2008 15:54:01 Produced by the JSE SENS Department.
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