| Tue 15 Jul 2008, 17:17 | | RDI - Rockwell Diamonds Incorporated - Unaudited Consolidated |
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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Unaudited Consolidated
Financial Statements three months ended May 31, 2008 and 2007
Expressed in Canadian Dollars
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.
Operating results for the three months ended May 31, 2008 are
not necessarily indicative of the results that may be expected
for the full year ending February 28, 2009.
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 PRINCIPLES OF CONSOLIDATION
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.
These interim financial statements do not include all the
disclosures required for annual financial statements under
generally accepted accounting principles. However, these
interim financial statements follow the same accounting
policies and methods of application as the Company`s most
recent audited annual financial statements except for the
changes described in note 3 below. These interim consolidated
financial statements should be read in conjunction with the
Company`s nine months ending February 29, 2008 audited annual
consolidated financial statements which are filed on
www.sedar.com. Certain comparative information has been
reclassified to conform to the presentation adopted in the
current period.
3. CHANGES IN ACCOUNTING POLICIES
(a) Newly Adopted Accounting Policies
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an entity`s objectives,
policies and processes for managing capital, quantitative data
about what the entity regards as capital and whether the entity
has complied with any externally imposed capital requirements
and, if it has not complied, the consequences of such non-
compliance.
The Company`s objective when managing capital is to safeguard
the Company`s ability to continue as a going concern, so that
it can continue to explore and develop its projects for the
benefit of its shareholders and other stakeholders. The
Company considers the components of shareholders` equity, as
well as its cash and equivalents, as capital. The Company
manages the capital structure and makes adjustments to it in
the light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company may issue
new shares through private placements in order to maintain or
adjust the capital structure.
In order to facilitate the management of its capital
requirements, the Company prepares annual expenditure budgets
that are updated as necessary depending on various factors,
including successful capital deployment and general industry
conditions. The Company`s cash resources at May 31, 2008 are
sufficient for its present needs, specifically to continue
administrative and exploration operations at current levels
through the end of February 28, 2009.
There were no changes to the Company`s approach to capital
management during the three months ended May 31, 2008. The
Company is not subject to externally imposed capital
requirements as at May 31, 2008
(ii) Financial Instruments - Disclosure (Section 3862) and
Presentation (Section 3863)
These standards replace CICA 3861, Financial Instruments -
Disclosure and Presentation. They increase the disclosures
previously required, which 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.
The carrying value of the Company`s cash and equivalents,
amounts receivable, restricted cash, trade receivable from a
related party, reclamation deposits accounts payable and
accrued liabilities, due to/from related parties and capital
lease obligations approximate their fair values.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of
financial instrument related risk, including credit risk,
liquidity risk, foreign exchange risk, interest risk and
commodity price risk.
Credit Risk
Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its
contractual obligations. The Company`s credit risk is
primarily attributable to its liquid financial assets including
cash and equivalents, accounts receivable and trade receivable
from a related party. The Company limits exposure to credit
risk on liquid financial assets through maintaining its cash
and equivalents with high-credit quality financial
institutions. The carrying value of the Company`s cash and cash
equivalents, accounts receivable and trade receivable from a
related party represent the maximum exposure to credit risk.
The Company does not have financial assets that are invested in
asset backed commercial paper.
Liquidity Risk
Liquidity risk is the risk that the company will not be able to
meet its financial obligations as they fall due. The Company
ensures that there is sufficient capital in order to meet short
term business requirements, after taking into account cash
flows from operations and the Company`s holdings of cash and
cash equivalents. The Company believes that these sources will
be sufficient to cover the likely requirements for the
foreseeable future. The Company`s cash and equivalents are
invested in business accounts which are available on demand for
the Company`s programs, and which are not invested in any asset
backed deposits/investments.
The Company operates in South Africa. Like other foreign
entities operating there, the Company is subject to currency
exchange controls administered by the South African Reserve
Bank, that country`s central bank. A significant portion of
the Company`s funding structure for its South African
operations consists of advancing loans to its South Africa
incorporated subsidiaries and it is possible the Company may
not be able to acceptably repatriate such funds once those
subsidiaries are able to repay the loans or repatriate other
funds such as operating profits should any develop. The
repatriation of cash held in South Africa is permitted upon the
approval of the South African Reserve Bank. Cash balances in
South Africa are the Rand balances disclosed below.
The following are the contractual maturities of financial
liabilities:
May 31, 2008 Carrying Contractual 2009 2010 2011
amount cash flow
Accounts payable $4,336,445 $4,336,445 $4,336,445 $ - $ -
and accrued
liabilities
Amounts due to 82,228 82,228 82,228 - -
related parties
Capital lease 13,882,839 15,782,042 8,105,169 5,987,374 1,689,499
obligations
Foreign Exchange Risk
In the normal course of business, the Company enters into
transactions for the purchase of supplies and services
denominated in South African Rand ("ZAR"). In addition, the
Company has cash and certain liabilities denominated in South
African Rand. As a result, the Company is subject to foreign
exchange risk from fluctuations in foreign exchange rates. The
Company has not entered into any derivative or other financial
instruments to mitigate this foreign exchange risk.
The exposure of the Company`s cash and equivalents, amounts
receivable and amounts due from related parties to foreign
exchange risk is as follows:
Currency May 31, 2008 February 29, 2008
South African Rand $ 12,701,538 $ 16,362,773
Other 83,454 1,127,790
Total Financial $ 12,784,992 $ 17,490,563
Assets
The exposure of the Company`s accounts payable and accrued
liabilities, amounts due to related parties and capital lease
obligations to foreign exchange risk is as follows:
Currency May 31, 2008 February 29, 2008
South African Rand $ 18,050,370 $ 18,909,003
Total Financial $ $ 18,909,003
Liabilities 18,050,370
Sensitivity analysis:
A 10 percent change of the Canadian dollar against the ZAR at
May 31, 2008 would have changed net loss by $46,945. This
analysis assumes that all other variables, in particular
interest rates, remain constant.
Sensitivity analysis:
A 10 percent change of the prime rate for the period May 31,
2008 would have changed net loss by $46,282. This analysis
assumes that all other variables, in particular foreign
exchange rates, remain constant.
(iii) Amendments to Section 1400 - Going Concern
CICA 1400, General Standards of Financial Statement
Presentation, was amended to include requirements to assess and
disclose an entity`s ability to continue as a going concern.
The new requirements are effective for the Company`s 2009
fiscal year. The Company`s assessment and disclosure of its
ability to continue as a going concern is disclosed in Note 1.
- (iv) Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same
title and will harmonize accounting for inventories under
Canadian GAAP with International Financial Reporting Standards
("IFRS"). This standard requires that inventories be measured
at the lower of cost and net realizable value, and includes
guidance on the determination of cost, including the allocation
of overheads and other costs. The standard also requires that
similar inventories within a consolidated group be measured
using the same method. It also requires the reversal of
previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. This new
section is effective for the Company`s 2009 fiscal year. Upon
adoption of this standard, the Company concluded that there
were no material differences between the new standard and the
Company`s current accounting policy for its diamond and
supplies inventory.
(b) Accounting Policies Not Yet Adopted
(i) International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB")
published a new strategic plan that will significantly affect
financial reporting requirements for Canadian companies. The
AcSB strategic plan outlines the convergence of Canadian GAAP
with International Financial Reporting Standards ("IFRS") over
an expected five year transitional period. In February 2008,
the AcSB announced that 2011 is the changeover date for
publicly-listed companies to use IFRS, replacing Canadian GAAP.
The date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.
The transition date of March 1, 2011 will require the
restatement for comparative purposes of amounts reported by the
Company for the year ended February 28, 2011. While the
Company has begun assessing the impact of adoption of IFRS for
2011, the financial reporting impact of the transition to IFRS
cannot be reasonably estimated at this time.
4. DIAMOND INVENTORY AND SUPPLIES
As at As at
May 31, 2008 February 29, 2008
Rough diamond inventory $ 2,916,437 $ 830,780
Work in progress 534,272 433,074
Mine supplies 2,327,794 1,990,699
Fuel, oil and grease 278,185 211,300
Total inventory and $6,056,688 $ 3,465,853
supplies
5. PROPERTY, PLANT AND EQUIPMENT
As at May 31, 2008
Cost Accumulated Net book
amortization value
Land $ 6,400,833 $ $ 6,400,833
-
Processing plant and equipment 39,603,079 2,285,263 37,317,816
Processing plant and equipment 28,279,566 4,006,057 24,273,509
under capital lease
Office equipment 827,240 50,715 776,525
Vehicles and light equipment 1,652,534 310,993 1,341,541
Vehicles and light equipment 154,324 38,600 115,724
under capital lease
$76,917,576 $ 6,691,628 $70,225,948
As at February 29, 2008
Cost Accumulated Net book
amortization value
Land $ 3,936,092 $ - $ 3,936,092
Processing plant and equipment 35,421,362 1,474,746 33,946,616
Processing plant and equipment 27,850,217 2,961,508 24,888,709
under capital lease
Office equipment 815,209 8,476 806,733
Vehicles and light equipment 1,389,566 259,538 1,130,028
Vehicles and light equipment 154,323 30,865 123,458
under capital lease
$69,566,769 $ 4,735,133 $64,831,636
6. MINERAL PROPERTY INTERESTS
As at As at
Acquisition Costs May 31, 2008 February 29,
2008
Durnpike Investments (Pty) Limited
Balance, beginning of period $ 25,247,936 $ 24,121,854
Acquisition costs 55,745 1,822,138
Adjustment to mineral property (424,975) -
cost
Financial, legal, advisory, and - 4,216
other fees
Site closure and reclamation - 230,622
obligation recognized
Future income tax liability (118,992) 419,050
Change in Future Income Tax rate (201,415) -
Depletion of mineral properties (616,880) (1,349,944)
during the period
Durnpike Investments (Pty) 23,941,419 25,247,936
Limited, end of period
Ricardo Property 1 1
Saxendrift Mine (Pty) Ltd
Balance, beginning of period $ - $ -
Acquisition costs 9,822,991 -
Financial, legal, advisory, and 76,772 -
other fees
Future income tax liability 2,750,437 -
Depletion of mineral properties - -
during the year
Saxendrift Mine (Pty) Ltd, end of 12,650,200 -
period
Balance, end of period $ 36,591,620 $ 25,247,937
In April 2008, the Company completed the acquisition of
Saxendrift Mine (Pty) Ltd a South African private company with
an alluvial diamond property in the Middle Orange river area.
The cash consideration paid of $15,256,809 comprised of
$9,899,763 for mineral rights, $6,245,700 for property, plant
and equipment, $130,800 for inventory, $786 for other assets
and a reclamation obligation of $1,020,240.
(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;
- the material plant, machinery, equipment and other movable assets
owned and/or used by THO;
- certain employees of THO; and
- a rehabilitation liability which will be taken over by the
Company.
On April 11, 2008 the Company completed the MORO acquisition.
The substantive conditions to the Transaction have been
fulfilled and the Company completed the MORO acquisition.
Registration of transfer to Saxendrift Mine Pty (Ltd) of the
Saxendrift mining right, as well as prospecting rights in
respect of the Kwartelspan, Zwemkuil-Mooidraai and part of the
Remhoogte-Holsloot projects has already been obtained. Cession
of the Niewejaarskraal mining right is still awaited at this
time from the DME, and the Remhoogte prospecting right is in
the process of being renewed.
The results of the Saxendrift operations have been included in
the consolidated financial statements since April 11, 2008, the
date of acquisition. The following table summarizes the total
purchase consideration of the Saxendrift assets:
Amount (ZAR) Amount
($)
Cash advanced to fund Rockwell`s 93,312,269 12,205,245
acquisition of 100% of Saxendrift
Cash committed to fund 23,330,000 3,051,564
Total purchase consideration 116,642,269 15,256,809
The total acquisition price has been allocated to the net
assets acquired and liabilities assumed of Saxendrift as
follows:
Amount Amount
(ZAR) ($)
Inventory 1,000,000 130,800
Plant and equipment 47,750,000 6,245,700
Other assets 6,009 786
Mineral property interests 75,686,260 9,899,763
Reclamation obligation (7,800,000) (1,020,240)
116,642,269 15,256,809
The allocation of purchase price is based on management`s
estimates of the fair value of the assets acquired and
liabilities assumed at the date of acquisition, April 11, 2008.
As at May 31, 2008, the Company had the following payment
commitments relating to the acquisition of Saxendrift
remaining: (a) Payment of ZAR27.5 million ($3.6 million) in
cash to Trans Hex subject to the anticipated grant of
Ministerial Consent to the cession of each of the Outstanding
Mining Rights to the Company and registration of cession of
such rights in its name.
(b)Assumption of 85% ownership of HC Van Wyk Diamonds Ltd
("HCVW`) and Klipdam Mining Company Limited ("Klipdam")
Effective March 1, 2008, the Company increased its ownership of
HCVW and Klipdam by 34% resulting to an 85% interest by issuing
14,285,715 common shares of the Company pursuant to the June
2006 Durnpike Definitive Agreement thereby reducing the non-
controlling interest to 15% as at May 31, 2008.
(c)Galputs Minerale Project
As provided for in the June 2006 Durnpike Definitive Agreement,
the Company executed an agreement in relation to the
acquisition of control of the mineral rights relating to the
Galputs Minerale Project ("Galputs"). In order for the Company
to fully control the Galputs minerals rights, the South African
Department of Minerals and Energy ("DME") had to give its final
written approval to transfer of the shares of Galputs from
Virgilia Investments Inc. to the Company on or before May 31,
2008. Since no written approval had been received from the DME
by May 31, 2008, the provisions of the agreement shall not be
enforced and as a result all parties have been restored to a
position prior to entering the agreement.
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
May 31, 2008 February 29,
2008
ELB Finance $- $ 105,418
Stannic 1,864,108 2,093,869
Wesbank 258,069 319,236
Nedbank 1,177,702 1,842,519
Komatfin 10,582,960 10,442,257
$ 13,882,839 $ 14,803,299
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
May 31, 2008
2009 $8,105,169
2010 5,987,374
2011 1,689,499
Total minimum lease 15,782,042
payments
Less interest portion (1,899,203)
Present value of capital 13,882,839
lease obligations
Current portion (6,553,215)
Non-current portion $ 7,329,624
8.RECLAMATION OBLIGATION
The continuity of the provision for site closure and
reclamation costs related to the Holpan, Wouterspan, Klipdam
owned by the Durnpike Investments subsidiary and Saxendrift
mines, are as follows:
As at As at
May 31, 2008 February
29, 2008
Durnpike Investments (Pty) Limited
Balance, beginning of period $ 1,755,820 $ 1,361,557
Changes during the period:
Site closure and reclamation 230,622
obligation recognized
Foreign exchange on reclamation 56,122 (300,675)
Accretion expense 55,513 464,316
Durnpike Investments (Pty) Limited, $ 1,867,455 $ 1,755,820
end of period
Saxendrift Mines (Pty) Limited
Balance, beginning of period $ - $ -
Changes during the period:
Site closure and reclamation 1,021,240 -
obligation recognized
Foreign exchange on reclamation (2,400) -
Accretion expense 13,110 -
Saxendrift Mines (Pty) Limited, end $1,030,950 $ -
of period
Balance, end of period $2,898,405 $1,755,820
The estimated amount of the reclamation costs, adjusted for
estimated inflation at 9% per year, is $732,688 for the Klipdam
mine in the year 2011, $1.3 million for the Holpan mine in the
year 2013 and $3.8 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 estimated
reclamation costs for Saxendrift is $1,030,950 which is the
amount that had been established by an independent consultant
during the acquisition process. As no gravel mining has taken
place yet it has not been necessary to adjust this amount. 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 $2,898,405. The accretion of $68,423 (2008 -
$464,316) is charged to the statement of operations. During the
period the Company revised the site closure and reclamation
obligation.
As required by regulatory authorities, at May 31, 2008, the
Company had cash reclamation deposits totaling $1,859,781 (2008
- $ 1,816,877) comprised of $1,700,393 (2008 - $ 1,657,489) for
the Holpan and Wouterspan mines and $159,388 (2008 - $159,388)
for the Klipdam mine. These deposits are invested in interest
bearing money market linked investments at rates ranging from
9.5% to 11%.
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.
(a) Share purchase options
The Company has a share purchase option compensation plan
approved by the shareholders that allows the Company to grant
options for up to 10% of the issued and outstanding shares of
the Company at any one time, typically vesting over two years,
to its directors, employees, officers, and consultants. The
exercise price of each option is set by the Board of Directors
at the time of grant and cannot be less than the market price
(less permissible discounts) on the Toronto Stock Exchange.
Options have a maximum term of five years and typically
terminate 30 days following the termination of the optionee`s
employment, except in the case of retirement or death.
The continuity of share purchase options for the three months ended
May 31, 2008 is as follows:
Exercise February Expired/ May 31
Expiry price 29 2008 Granted Exercised cancelled 2008
date
March 28, $ 0.50 150,000 - - 150,000 -
2008
July 10, $ 0.68 300,000 - - - 300,000
2010
September $ 0.62 5,903,000 - - - 5,903,000
24, 2012
November $ 0.63 1,109,000 - - 2,500 1,106,500
14, 2012
7,462,000 - - 152,500 7,309,500
Weighted average $0.62 $0.62
exercise price
As at May 31, 2008, 2,439,833 of the options outstanding with a
weighted average exercise price of $0.62 per share have vested
with grantees.
Using a Black-Scholes option pricing model with the assumptions
noted below, the fair values of stock options granted have been
reflected in the statement of operations as follows:
Three months ended May 31
2008 2007
Exploration and engineering $ 202,624 $ 4,010
Operations and administration 482,975 3,568
Total compensation cost expensed to $ 685,599 $ 7,578
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 May 31
2008 2007
Risk free interest rate 4% 4%
Expected life 4.8 years 2 years
Expected volatility 112% 97%
Expected dividends nil nil
(c)Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable
into one common share) for the period ended May 31, 2008 is:
Expiry date November 22, May 09, 2009 May 09,
2008 (i) (ii) 2009 (iii)
Exercise price $0.80 $0.70 $0.70
Balance, February 29, 39,600,000 116,007,154 5,772,000
2008
Issued - - -
Exercised - - -
Expired - - -
Balance, May 31, 2008 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 expiring 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.
(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 value
of the 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 years and risk free rate of 4%
10. RELATED PARTY BALANCES AND TRANSACTIONS
Balances payable As at As at
May 31, 2008 February 29,
2008
Banzi Trading (h) 8,811 -
Jakes Tyres (i) 73,417 49,604
$ 82,228 $ 49,604
Balances receivable
Hunter Dickinson Services Inc. $ 346,166 $ 78,504
(a)
Flawless Diamonds Trading House 685,052 477,298
(g)
Banzi Trade 26 (Pty) Ltd (h) 34,932 33,744
Diacor CC (k) 1,008 3,888
$ 1,067,158 $ 593,434
Three months ended May
31
Transactions 2008 2007
Services rendered and
expenses reimbursed:
Hunter Dickinson $ 249,346 $312,154
Services Inc. (a)
Euro-American Capital - 5,852
Corporation (b)
CEC Engineering (c) - 14,448
Jeffrey B Traders CC - 41,895
(d)
Seven Bridges Trading 30,864 20,416
(e)
Cashmere Trading (f) 9.812 43,357
Banzi Trade 26 (Pty) 7,646 251,942
Ltd (h)
Jakes Tyres (i) 199,393 267,361
AA Van Wyk (j) - 173,977
Diacor CC (k) 3,618 -
Sales rendered to:
Flawless Diamonds $7,094,921 $7,680,772
Trading House (g)
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company
equally owned by several public companies, one of which is Rockwell,
and has certain directors in common with the Company. HDSI 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 June 1, 2008. There are no specific terms of repayment.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) Cashmere Trading is a private company owned by Hennie Van Wyk,
an officer of the Company, which provides helicopter services at
market rates.
(g) 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.
(h) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC van Wyk
Diamonds Ltd and 51% 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.
(i) Jakes Tyres is a private company with certain directors and
officers in common with the Company that provides consumable
materials at market rates.
(j) 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.
(k) Diacor CC is a private company with certain directors and
officers in common with the Company that purchases consumable
materials at market rates.
10. SUBSEQUENT EVENTS
(a) Acquisition of an additional 11% by the Black Economic
Empowerment Group("BEE")
Subsequent to the three months ending May 31, 2008, the BEE
group increased its shareholding from 15% to 26% by subscribing
for an additional 11% of the shares in the Van Wyk Diamond
Group ("VWDG") at a subscription price of ZAR17.5 million and
committing to inject ZAR10.5 million working capital into the
VWDG by December 1, 2008.
(b) Outstanding Niewejaarskraal mining rights
On April 11th, 2008 all the conditions precedent to the
Saxendrift acquisition had been met, however the
Niewejaarskraal new mining order rights were still outstanding
and are subject to the approval of the South African Department
of Minerals and Energy.
12. CONTINGENCIES AND COMMITMENTS
(a) In connection with the property described in the Company`s
audited annual consolidated financial statements for the nine months
ending February 29, 2008, one of the 50% shareholders of Midamines
has, subsequent to the conclusion of the Midamines Agreement denied
the validity of that agreement. The other 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
ofthe dispute.
The Company will obtain formal legal advice from counsel
and evaluate its available remedies. Although the outcome
is not currently determinable the project is not a
material operation of the Company. During the third
quarter of fiscal 2008 the Company paid consideration of
$600,000 to Midamines in order to increase the size of the
concession.
(b) 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 May 31, 2008 the Company is
committed to pay the remaining consideration of ZAR996,203
($130,005) in the following manner:
- The balance shall be paid in monthly payments of
ZAR500,000 ($63,000). The monthly payments shall
incur interest calculated at the prime rate of the
Standard Bank of South Africa.
Canada
15 July 2008
Sponsor
Sasfin Capital
Date: 15/07/2008 17:17:01 Produced by the JSE SENS Department.
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