| Fri 15 Aug 2008, 16:05 | | BCD - BRC Diamondcore Ltd - Interim consolidated financial statements as at and |
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BCD
BCD - BRC Diamondcore Ltd - Interim consolidated financial statements as at and
for the three and six month periods ended June 30, 2008
BRC DIAMONDCORE LTD.
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: BCD & ISIN Number: CA05565C1095
("BRC DiamondCore" or "the Company")
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT AND FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008
(expressed in thousands of Canadian dollars)
(unaudited)
NOTICE TO READER
These interim consolidated financial statements of BRC DiamondCore Ltd. as at
and for the three and six month periods ended June 30, 2008 have been prepared
in accordance with Canadian generally accepted accounting principles and are
the responsibility of the Company`s management.
These interim consolidated financial statements have not been audited or
reviewed by the Company`s auditors.
BRC DIAMONDCORE LTD.
(formerly BRC Diamond Corporation)
CONSOLIDATED BALANCE SHEETS (unaudited)
(expressed in thousands of Canadian dollars)
As at As at
June 30, December 31,
Note 2008 2007
$`000 $`000
ASSETS
Current assets
Cash and cash equivalents $ 1,618 $ 932
Accounts receivable and other
receivables 1,312 403
Inventories 5 404 -
3,334 1,335
Deferred transaction costs 4 - 2,200
Mineral properties and deferred
exploration expenditures 6 36,698 14,188
Property, plant and equipment 7 16,157 594
Unallocated purchase price 4 59,949 -
$ 116,138 $ 18,317
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities
Debt 8 $ 6,014 $ 3,023
Accounts payable and accrued
liabilities 5,506 2,599
Tax payable (10) -
11,510 5,622
Long-term liabilities
Asset retirement obligation 9 1,027 -
-
Future Income tax liabilities 3,249 -
4,276 -
Non-controlling interest (9) -
Shareholders` equity
Capital stock 11 a) 105,291 15,827
-
Contributed surplus 11 e) 5,590 2,757
-
Deficit (10,520) (5,889)
Accumulated other comprehensive income - -
100,361 12,695
$ 116,138 $ 18,317
The accompanying notes are an integral part of these interim consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT
(unaudited) (expressed in thousands of Canadian dollars, except share and per
share amounts)
For the three month period ended
Note June 30, 2008 June 30, 2007
$`000 $`000
Expenses
Consulting fees $ 113 $ 73
Foreign exchange loss - unrealized 79 173
Foreign exchange profit - realized (1) -
General and administrative 669 87
Management fees - 12
Professional fees (53) 176
Regulatory expenses 60 -
Salaries 300 -
1,167 521
Other Income (59) -
Loss before the under noted items 1,108 521
Interest income 5 -
Interest expense (90) -
Net loss before income taxes 1,193 521
Income taxes - -
Net loss before non-controlling
interest 1,193 521
Non controlling interest - -
Net loss for the period 1,193 521
Other comprehensive income - -
Net loss and other comprehensive
loss
for the period 1,193 521
Deficit - beginning of the period 9,327 4,239
Deficit - end of the period $ 10,520 $ 4,760
Basic and diluted loss per share 11 d) $ 0.05 $ 0.04
Weighted average number of common
shares outstanding (`000) 11 d) 25,741 12,975
For the six month period ended
June 30, 2008 June 30, 2007
$`000 $`000
Expenses
Consulting fees $ 163 $ 128
Foreign exchange loss - unrealized 2,873 187
Foreign exchange profit - realized (15) -
General and administrative 813 116
Management fees - 49
Professional fees - 224
Regulatory expenses 250 -
Salaries 515 -
4,599 704
Other Income (85) -
Loss before the under noted items 4,514 704
Interest income 32 -
Interest expense (149) -
Net loss before income taxes 4,631 704
Income taxes - -
Net loss before non-controlling interest 4,631 704
Non controlling interest - -
Net loss for the period 4,631 704
Other comprehensive income - -
Net loss and other comprehensive loss
for the period 4,631 704
Deficit - beginning of the period 5,889 4,056
Deficit - end of the period $ 10,520 $ 4,760
Basic and diluted loss per share $ 0.20 $ 0.05
Weighted average number of common
shares outstanding (`000) 23,040 12,975
The accompanying notes are an integral part of these interim consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
(expressed in thousands of Canadian dollars)
For the three month period ended
Note June 30, 2008 June 30, 2007
$`000 $`000
Cash flows from operating activities
Net loss for the period $(1,193) $ (521)
Items not affecting cash
Depreciation 89 -
Stock based compensation - 55
Provisions 99 -
Asset Retirement Obligation 490 -
Options Vested 108 -
Unrealized foreign exchange loss 227 -
(180) (466)
Net change in non-cash working
capital items
Decrease in inventories 511 -
(Increase)/Decrease in trade and
other receivables (26) (68)
Increase/(Decrease) in accounts
payable and
accrued liabilities 553 (42)
Tax Paid (127) -
Due from related parties - -
Cash used in operating activities 731 (576)
Cash flows from investing activities
Cash balances acquired from
Diamond Core - -
Property, plant and equipment
acquired 147 (69)
Exploration costs capitalised (3,768) (991)
(3,621) (1,060)
Cash flows from financing activities
Issue of common shares and
warrants, net of
expenses - 26
Increase in debt 2,307 -
Due to related parties - 17
2,307 43
Increase/(decrease) in cash during
the period (583) (1,593)
Cash - beginning of period 2,201 4,701
Cash - end of period $ 1,618 $ 3,108
Supplemental information
Interest received $ 5 $ -
Interest paid 90 -
Capitalized asset retirement
obligation
liability incurred 538 -
Capitalized accretion - -
For the six month period ended
June 30, 2008 June 30, 2007
$`000 $`000
Cash flows from operating activities
Net loss for the period $ (4,631) $ (704)
Items not affecting cash
Depreciation 89 -
Stock based compensation - 110
Provisions 99 -
Asset Retirement Obligation 490 -
Options Vested 356 -
Unrealized foreign exchange loss (3,084) -
(6,681) (594)
Net change in non-cash working capital items
Decrease in inventories 890 -
(Increase)/Decrease in trade and other
receivables 515 (67)
Increase/(Decrease) in accounts payable and
accrued liabilities (949) 187
Tax Paid (147) -
Due from related parties - 10
Cash used in operating activities (6,372) (464)
Cash flows from investing activities
Cash balances acquired from Diamond Core 2,308 -
Property, plant and equipment acquired 2,927 (71)
Exploration costs capitalised 148 (2,198)
5,383 (2,269)
Cash flows from financing activities
Issue of common shares and warrants,
net of expenses - 5,421
Increase in debt 1,675 -
Due to related parties - 47
1,675 5,468
Increase/(decrease) in cash during the
period 686 2,735
Cash - beginning of period 932 373
Cash - end of period $ 1,618 $ 3,108
Supplemental information
Interest received $ 32 $ -
Interest paid 149 -
Capitalized asset retirement obligation
liability incurred 538 -
Capitalized accretion - -
As part of the business acquisition described in note 4, the Company issued
12,089,678 common shares of the Company to acquire Diamond Core. The $2,308
represents the net cash acquired pursuant to the acquisition.
Depreciation of property, plant and equipment of $ 1,143 was capitalized to
mineral properties during the six months ended June 30, 2008 (June 30, 2007 -
$50).
The accompanying notes are an integral part of these interim consolidated
financial statements.
1. NATURE AND CONTINUATION OF THE BUSINESS
BRC DiamondCore Ltd. ("the Company" or "BRC DiamondCore") was incorporated
under the Ontario Business Corporations Act on August 7, 1990 and then
continued under the Canada Business Corporations Act on August 11, 2004, its
principal business being the acquisition and exploration of mineral (diamond)
properties. The Company`s principal mineral property interests are located in
the Democratic Republic of the Congo (DRC) and in South Africa.
In connection with the acquisition described in note 4, the Company changed its
name from BRC Diamond Corporation to BRC DiamondCore Ltd. and its shares were
listed on the Toronto Stock Exchange and the JSE Limited in Johannesburg, South
Africa.
The recoverability of amounts shown for mineral properties is dependent upon
the existence of economically recoverable reserves, the ability of the Company
to obtain financing to complete the development of the properties where
necessary and upon future profitable production, or, alternatively, upon the
Company`s ability to recover its spent costs through a disposition of its
interests, all of which are uncertain.
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") applicable to a going
concern, which assumes that the Company will continue in operation for a
reasonable period of time and will be able to realize its assets and discharge
its liabilities in the normal course of operations. The Company has incurred
significant net losses over the past three years and has a working capital
deficit of $ 8,176 as at June 30, 2008 (December 31, 2007 - $4,287). While the
financial statements have been prepared on the basis of accounting principles
applicable to a going concern, adverse conditions may cast substantial doubt
upon the validity of this assumption. In the event the Company is unable to
identify recoverable reserves and resources, receive the necessary permitting,
or arrange appropriate financing, the carrying value of the Company`s assets
could be subject to material adjustment.
These consolidated interim financial statements do not include any adjustments
to the recoverability and classification of certain recorded asset amounts and
classification of certain liabilities that might be necessary, if the Company
were unable to continue as a going concern.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited interim consolidated financial statements of the Company have
been prepared by the management of the Company in accordance with Canadian
GAAP.
These unaudited interim consolidated financial statements have been prepared
using the accounting policies that are consistent with the policies used in
preparing BRC DiamondCore`s audited consolidated financial statements as at and
for the year ended December 31, 2007 in accordance with Canadian GAAP, except
for those set out in note 3.
These unaudited interim consolidated financial statements do not contain all of
the necessary information required for annual financial statements.
Accordingly, these interim consolidated financial statements should be read in
conjunction with the annual consolidated financial statements as at and for the
year ended December 31, 2007, together with the notes thereon, that are
available on SEDAR at www.sedar.com.
The financial statements of Diamond Core Resources Limited ("Diamond Core")
(see note 4) used in the preparation of these unaudited interim consolidated
financial statements were prepared in accordance with International Financial
Reporting Standards and have been adjusted to be consistent with Canadian GAAP.
These unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position of the Company as at June 30, 2008 and the
results of operations and cash flows for the three and six months ended June
30, 2008 in accordance with Canadian GAAP.
3. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2008, the Company adopted the following sections of the
Handbook of the Canadian Institute of Chartered Accountants ("CICA"):
a) General Standards of Financial Statement Presentation
CICA Handbook Section 1400, as amended, changed the guidance related to
management`s responsibility to assess the ability of the entity to continue as
a going concern. Management is required to make an assessment of the entity`s
ability to continue as a going concern and should take into account all
information about the future, which is at least but not limited to 12 months
from the balance sheet date. Disclosure is required of material uncertainties
related to events or conditions that cast significant doubt upon the entity`s
ability to continue as a going concern. The adoption of this standard had no
impact on the Company`s presentation of its financial position or consolidated
results of operations as at June 30, 2008 and for the three and six month
period then ended.
b) Inventories
CICA Handbook Section 3031, Inventories, replaces corresponding Section 3030
and established new standards for the measurement and disclosure of
inventories. This new section requires inventories to be measured at the lower
of cost and net realizable value, provides guidance on the determination of cost
and requires the reversal of prior period write -downs when the net realizable
value of impaired inventory subsequently recovers. The adoption of this
section did not have any impact on the Company`s consolidated financial
statements.
c) Financial Instruments - Disclosure and Financial Instruments - Presentation
CICA Handbook Section 3862, Financial Instruments - Disclosures, and Handbook
Section 3863, Financial Instruments - Presentation, enhance existing disclosure
requirements and require entities to provide disclosures in their financial
statements that enable users to evaluate the significance of financial
instruments on the entity`s financial position and performance as well as the
nature and the risks arising from financial instruments and non -financial
derivatives. Comparative information about the nature and extent of risks
arising from financial instruments is not required in the year Section 3862 is
adopted. The adoption of these standards did not have any impact on the
disclosure, classification and measurement of the Company`s financial
statements.
The new disclosures pursuant to these new Handbook Sections are included in
Note 14 to these unaudited interim consolidated financial statements.
d) Capital Disclosures
CICA Handbook Section 1535, Capital Disclosures, establishes disclosure
requirements about an entity`s capital objectives, policies and process for
managing capital as well as compliance with any externally imposed capital
requirements.
The impact of adopting this standard is disclosed in Note 12 to these unaudited
interim consolidated financial statements.
e) Asset Retirement Obligations
CICA Handbook Section 3110, Asset Retirement Obligations, requires the
recognition of any statutory, contractual or other legal obligation related to
the retirement of tangible long -lived assets where such obligations are
incurred, if a reasonable estimate of fair value can be made.
These obligations are measured initially at fair value and the resulting costs
are capitalized to the carrying value of the related asset. In subsequent
periods, the liability is adjusted for the accretion of the discount and any
changes in the amount or timing of the underlying future cash flows. Changes
resulting from revisions to the timing or the amount of the original estimate
of undiscounted cash flows are recognized as an increase or decrease in the
carrying amount of the liability, and the related asset retirement cost is
capitalized as part of the carrying value of the related long -lived asset.
These new standards have been adopted on a prospective basis with no
restatement to prior period financial statements.
The following accounting pronouncements have not yet been adopted
a) Goodwill and Intangibles
In February 2008, the CICA issued accounting standard Section 3064, Goodwill
and intangible assets, replacing Section 3062 Goodwill and intangible assets
and Section 3450, Research and development costs. Section 3064 establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. Section 3064 will be
applicable to financial statements relating to fiscal years beginning on or
after October 1, 2008.
The Company is currently evaluating and has not yet determined the impact of
the adoption of this standard, if any, on its consolidated financial
statements.
b) International Financial Reporting Standards ("IFRS")
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that
Canadian GAAP for publicly accountable enterprises will be converged with IFRS
effective in calendar year 2011, with early adoption allowed starting in
calendar year 2009. The conversion to IFRS will be required, for the Company,
for interim and annual financial statements beginning on January 1, 2011. IFRS
uses a conceptual framework similar to Canadian GAAP, but there are significant
differences in recognition, measurement and disclosures. In the period leading
up to the conversion, the AcSB will continue to issue accounting standards that
are converged with IFRS such as IAS 2, Inventories, and IAS 38, Intangible
assets, thus mitigating the impact of adopting IFRS at the mandatory transition
date.
The Company is currently evaluating the impact of the adoption of IFR S on its
consolidated financial statements, and may consider the early adoption thereof,
particularly as Diamond Core had successfully adopted IFRS prior to the
acquisition thereof by the Company.
4. ACQUISTION OF DIAMOND CORE RESOURCES LIMITED
In July 2007, the Company and Diamond Core Resources Limited ("Diamond Core")
announced that they had entered into an agreement to merge the two companies by
way of a court-sanctioned scheme of arrangement ("the scheme") under South
African corporate law, pursuant to which the Company would acquire all of the
outstanding shares of Diamond Core in exchange for the issuance of BRC
DiamondCore common shares. Under the scheme, each Diamond Core shareholder was
entitled to receive one BRC DiamondCore share for every 24.5 Diamond Core
ordinary shares held. On January 14, 2008, Diamond Core shareholder approval
was obtained, and court approval was obtained on January 22, 2008. On February
11, 2008, the Company acquired all of the outstanding Diamond Core shares and,
as the consideration for this acquisition, issued BRC DiamondCore shares to
the Diamond Core shareholders in the agreed ratio, resulting in the issuance by
the Company of a total of 12,089,678 common shares. In connection with this
acquisition, the Company changed its name from BRC Diamond Corporation to BRC
DiamondCore Ltd. and its shares were listed on the Toronto Stock Exchange and
the JSE Limited in Johannesburg, South Africa.
In July 2005, Diamond Core acquired all of the outstanding shares of Samadi
Resources SA (Pty) Ltd ("Samadi"). As consideration for this acquisition,
Diamond Core issued ordinary shares to Samadi`s shareholders. The terms of the
acquisition agreement (the "Samadi Agreement") entered into by Diamond Core
with the Samadi shareholders with respect to this acquisition provide for the
potential issuance of additional Diamond Core ordinary shares should certain
operating profits be reached from certain of the projects acquired by Diamond
Core pursuant to the acquisition.
In anticipation of the implementation of the scheme, the Company and Diamond
Core entered into an agreement (the "Samadi Amending Agreement") with the said
Samadi shareholders pursuant to which the Samadi shareholders would, if the
relevant profit thresholds are met, be entitled to receive BRC DiamondCore
common shares in substitution for the Diamond Core ordinary shares, with the
number of BRC DiamondCore shares issuable to such shareholders adjusted to
reflect the exchange ratio applicable under the terms of the scheme.
Accordingly, the number of BRC DiamondCore shares issuable to the said Samadi
shareholders under the Samadi Amending Agreement, in the same circumstances as
contemplated in the Samadi Agreement, is a maximum of 1,434,502 BRC DiamondCore
shares. Since the outcome a amount of the contingency cannot be determined
without reasonable doubt, no recognition has been made for in these financial
statements.
Also in connection with the acquisition by the Company of all of the
outstanding shares of Diamond Core, 15,133,190 stock options that had been
issued to employees of Diamond Core pursuant to The Diamond Core Resources
Share Trust Deed to acquire 15,133,190 ordinary shares in Diamond Core (the
"Old Options") have been substituted with new stock options of BRC DiamondCore
(the "Replacement Options"), so as to allow all holders of Old Options to
acquire the number of BRC DiamondCore common shares that is calculated by
dividing the number of ordinary shares of Diamond Core that would otherwise
have been issuable upon the exercise of the Old Options by 24.5, rounded up to
the nearest whole number of BRC DiamondCore shares, with the exercise price of
such Replacement Options being adjusted to the number that is equal to the
exercise price of the Old Options (denominated in South African rand)
multiplied by 24.5. A total of 617,710 Replacement Options were issued by the
Company.
Allocation of Purchase Price
Based on BRC DiamondCore`s average closing price of $7.40 per share, calculated
with reference to the share price around July 5, 2007, BRC DiamondCore issued
12,089,678 common shares valued at $89,464 to Diamond Core shareholders holding
296,218,483 Diamond Core ordinary shares outstanding on the same date.
The acquisition has been accounted for using the purchase method of accounting
with BRC DiamondCore being identified as the acquirer and Diamond Core as the
acquiree. In accordance with the purchase method of accounting, assets and
liabilities acquired from Diamond Core are measured at their individual fair
values on the date of the acquisition and the difference between these fair
values of net assets acquired and the purchase price is recorded in the
consolidated balance sheet as unallocated purchase price.
The allocation of the purchase price to the assets and liabilities acquired as
presented in these interim consolidated financial statements is preliminary and
subject to change. The Company has not yet finalised the fair value of all
identifiable assets and liabilities acquired, or the amount of the purchase
price that may be allocated to goodwill, or the complete impact of applying
purchase accounting on the consolidated statement of operations. Therefore,
after reflecting the purchase adjustments identified to date, the excess of the
purchase consideration over the adjusted book values of Diamond Core`s assets
and liabilities has been presented as "unallocated purchase price". The Company
has commenced the process whereby the fair value of all identifiable assets and
liabilities acquired as well as any goodwill and future income taxes arising
from the acquisition will be determined. On completion of valuation, any
adjustment to the carrying amounts of mineral properties, or the recording of
any finite life intangible assets on acquisition, will impact, if applicable,
the measurement of amortization recorded in the consolidated statement of
operations of the Company for the period after the date of acquisition.
$`000
Issuance of 12,089,678 BRC DiamondCore common shares 89,464
Issuance of Replacement Options 2,477
Transaction costs 2,200
Purchase price 94,141
The preliminary allocation of the purchase price to the net assets acquired is
as follows:
Cash 2,308
Trade and other receivables 1,313
Inventories 1,196
Mineral rights 14,188
Property, plant and equipment 17,129
Deferred exploration costs 5,713
Trade and other payables -3,472
Taxation -127
Asset retirement obligation -537
Future taxation -3,534
Non-controlling interest 15
Net assets acquired 34,192
Unallocated purchase price 59,949
Fair value of net assets acquired $94,141
The purchase consideration and transaction costs of $94,141 exceeded the
carrying value of the net assets acquired by $59,949 which has been recorded as
unallocated purchase price.
5. INVENTORIES
As at As at
June 30, 2008 December 31, 2007
$`000 $`000
Diamonds $ 167 $ -
Consumables 237 -
$ 404 $ -
6. MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES
As at June 30, 2008, the Company`s DRC subsidiary held title to 18 Prospecting
Research Permits ("PRs") for diamonds of which 5 are in the Lubao district, 1
is in the Kwango district, 1 is in the Somkuru district and 11 are in the
northern DRC. The properties, which represent a surface area of approximately
4,609 square kilometers, are located in the Bandundu, Kasai-Oriental, Equateur
and Orientale provinces of the DRC. The DRC Mining Code gives the holder of a
PR for precious stones exclusive rights for a period of four years, renewable
for two additional two-year periods. Upon discovery of an economically viable
deposit, the holder can apply for a Permit of Exploitation.
The Company has signed exclusive option agreements with a number of private
Congolese companies and two Australian companies to gain access in respect of
an aggregate of 90 PRs for diamonds in the DRC.
As at June 30, 2008, the Company had access to a total 118 PRs (either through
PRs owned by the Company`s DRC subsidiary or through option agreements entered
into by the Company with PR holders) representing approximately 31,270 square
kilometers available for diamond exploration in the DRC.
As at June 30, 2008, the Company`s South African subsidiaries held title to 2
mining rights and 11 prospecting rights in the Northern Cape and Free State
Provinces of South Africa.
Since 2006, Diamond Core has entered into transactions with Black Economic
Empowerment (BEE) partners in order to satisfy the requirements of the
transformed mining and minerals industry legislation of South Africa,
specifically in compliance with the Broad Based Socio -Economic Empowerment
Charter of the Mineral and Petroleum Resources Development Act (Act 28 of 2002;
MPRDA).Under the MPRDA, mining companies are obliged to, among other
requirements, have negotiated a BEE equity ownership agreement through which
historically disadvantaged South Africans (HDSAs) own 26% of the issued equity
in the operational assets by 2014. In the case of previously state held rights,
HDSA ownership of 51% is required before granting of the right to a private
company.
Through its subsidiaries, Diamond Core entered into BEE transactions with
Morwakoma Exploration (Pty) Limited ("Morwakoma"), Selang Resources (Pty)
Limited ("Selang") and Sefalana Mineral Resources (Pty) Limited ("Sefalana").
Mo rwakoma acquired 50% of the issued share capital of Diamond Core Kimberlite
Projects (Pty) Limited (Strydpan and Kuiltjespan projects) in 2006, while
Selang acquired 50% of the issued share capital of Samadi Gemsbok Resources
(Pty) Limited (Uitdraai Portion 9), Diamond Core Alluvial Projects (Pty)
Limited (Muishoek Project) and Sandrif Exploration (Pty) Limited (option over
Sanddrift Project) in 2007.
Sefalana acquired 50% of the issued ordinary share capital of each of the
subsidiaries of Samadi Resources (SA) (Pty) Limited (Samadi Resources;
Silverstreams, Koa River Valley, De Kalk and Uitdraai RE of Portion 1 projects)
other than Samadi Gemsbok Resources (Pty) Limited, in 2006.
Sefalana subsequently failed to fulfill certain conditions as stated in the
agreements and was obliged to offer the said shares to Samadi Resources. Samadi
Resources currently contends to hold the entire issued ordinary share capital
of the subsidiaries. Sefalana is disputing this. Diamond Core has entered into
correspondence to relieve Sefalana as Samadi Resources` BEE partner and is
actively seeking an appropriate replacement.
Diamond Core Mining and Exploration (Pty) Limited will require a BEE partner
for the Paardeberg East project prior to Diamond Core`s old order mining
licence over the project expiring in 2009.
The Company has incurred deferred exploration expenditures and mineral property
costs, of $36,698 in the DRC and in South Africa as at June 30, 2008 as
follows:
a) Company
Six months Year Cumulative,
ended ended inception to
June 30, 2008 December 31, 2007 June 30,2008
$`000 $`000 $`000
Mineral property costs
DRC $ - $ - $ 3
South Africa 18,556 - 18,556
18,556 - 18,559
Deferred exploration
expenditure
DRC 3,607 6,745 17,792
South Africa 347 - 347
3,954 6,745 18,139
Total mineral property
costs and
deferred exploration
expenditure $ 22,510 $ 6,745 $ 36,698
b) DRC
Six months Year Cumulative,
ended ended inception to
June 30, 2008 December 31, 2007 June 30, 2008
$`000 $`000 $`000
Mineral property costs
Claims and staking $ - $ - $ 3
Total mineral
property costs - - 3
Deferred exploration
expenditure
Administrative and
office support 925 1,778 3,752
Depreciation 108 138 391
Drilling 72 179 468
Field camp expenses 548 419 1,974
Geochemistry - 230 329
Geology - contract
geologists 173 399 1,774
Geophysics 226 688 2,328
Option fees - 121 308
Permits and surface
taxes 464 586 1,790
Professional fees 23 33 175
Remote sensing and
surveying - 28 46
Stock based
compensation 243 1,043 1,286
Transport cost and
helicopter 624 1,103 2,970
Unrealised foreign
exchange loss 201 - 201
Total deferred
exploration
expenditure 3,607 6,745 17,792
DRC mineral property
costs and
deferred exploration
expenditure $ 3,607 $ 6,745 $ 17,795
c) South Africa
Six months Year Cumulative,
ended ended acquisition to
June 30, 2008 December 31, 2007 June 30, 2008
$`000 $`000 $`000
Mineral property
costs
Acquisition of
Diamond Core $ 19,901 $ - $ 19,901
Unrealized foreign
exchange loss (1,345) - (1,345)
18,556 - 18,556
Deferred exploration
expenditure
Administrative and
office support 931 - 931
Depreciation 1,035 - 1,035
Field camp expenses 1,694 - 1,694
Geology - contract
geologists 61 - 61
Professional fees 15 - 15
Rehabilitation 522 - 522
Security 435 - 435
Surveying 19 - 19
Unrealised foreign
exchange loss 4 - 4
4,716 - 4,716
Net proceeds on
diamond sales (4,369) - (4,369)
347 - 347
SA mineral property
costs and
deferred exploration
properties $ 18,903 $ - $ 18,903
7. PROPERTY, PLANT AND EQUIPMENT
At June 30, 2008
Accumulated Net Book
Cost Depreciation Value
$`000 $`000 $`000
Land and buildings $ 764 $ 275 $ 489
Processing plant 11,361 1,269 10,092
Earthmoving equipment 6,193 1,588 4,605
Furniture and office equipment 163 77 86
Computer equipment 359 130 229
Vehicles 643 320 323
Exploration and mining assets 823 490 333
Leasehold Improvements -
$ 20,306 $ 4,149 $16,157
At December 31, 2007
Accumulated
Cost Depreciation Net Book Value
$`000 $`000 $`000
Land and buildings $ - $ - $ -
Processing plant - - -
Earthmoving equipment - - -
Furniture and office equipment 19 15 4
Computer equipment - - -
Vehicles 539 184 355
Exploration and mining assets 318 83 235
Leasehold improvements 225 225 -
$ 1,101 $ 507 $ 594
During the six month period ended June 30, 2008, $1,143 of depreciation was
included in mineral properties and deferred exploration expenditures (see note
6(b) and 6(c)) (June 30, 2007 - $50).
8. DEBT
The Company has a loan facility established with a Canadian financial
institution which bears interest at prime rate plus 1% per annum.
The effective interest rate for the six months ended June 30, 2008 was 6.25%
(December 31, 2007 - 7.25%). At June 30, 2008, the balance of this short term
debt was $ 6,014 (December 31, 2007 - $3,023), including accrued interest of $
141 (December 31, 2007 - $22). This loan facility is guaranteed by Banro
Corporation, a significant shareholder of the Company. The Company has agreed
with Banro Corporation to pay all amounts outstanding under the loan facility
and to terminate the loan facility by July 28, 2008.
9. ASSET RETIREMENT OBLIGATIONS
The provision for the site closure and reclamation costs relate to the
Silverstreams and Paardeberg East projects in South Africa.
As at As at
June 30, 2008 December 31, 2007
$`000 $`000
Balance at beginning of period $ - $ -
Changes during the period 1,027 -
Reclamation liability acquired 538 -
Site closure and reclamation obligation
recognised 522 -
Accretion expense - -
Foreign exchange revaluation (33) -
Balance at end of period $ 1,027 $ -
The estimated amount of reclamation costs, adjusted for inflation at 9% per
year, is $579 for the Paardeberg East project, and $448 for the Silverstreams
project and is expected to be spent over periods of approximately 14 years
beginning in 2007. The credit-adjusted risk free rate at which estimated future
cash flows have been discounted is 12.9%, to arrive at a net present value of
$1,027. The accretion of $nil (2007 - no comparative) is charged to the
statement of operations.
The Company had cash reclamation deposits totaling $301 (December 31, 2007 -
$nil) as determined by the regulatory authorities in South Africa. The deposits
are invested in interest bearing money market linked investments at rates
ranging from 10.5% to 11%.
10. RELATED PARTY BALANCES AND TRANSACTIONS
As at As at
June 30, 2008 December 31, 2007
Balances payable/(receivable) $`000 $`000
Macleod Dixon LLP $ 583 $ 269
Banro Corporation (11) 29
Banro Congo Mining sprl 4 4
$ 576 $ 302
For the six month period ended
June 30, 2008 June 30, 2007
Services rendered and expenses reimbursed $`000 $`000
Macleod Dixon LLP (a) $ 189 $ 207
Banro Corporation (b) (11) 47
Banro Congo Mining sprl (c) - -
SFW Village (d) 50 -
AT Kondrat (e) 42 33
DK Madilo (f) 20 16
$ 290 $ 303
a) During the six month period ended June 30, 2008 legal fees of $189 (June 30,
2007 - $207) incurred in connection with general corporate matters as well as
the acquisition of Diamond Core were billed by a law firm of which one partner
is a director and officer of the Company.
b) Banro Corporation ("Banro") owns 3,744,032 common shares representing a
14.55% (December 31, 2007 - 27.43%) equity stake in the Company. It is engaged
in the acquisition and exploration of gold properties in the DRC.
During the six month period ended June 30, 2008 the Company incurred $4 in
rental expenses on behalf of Banro.
c) A subsidiary of Banro that incurred expenditure on behalf of the Company
previously.
d) Consulting fees in respect of services to the Company. Mr Village is a
director of the Company and has been an officer of the Company since February
2008.
e) Salaries paid. Mr Kondrat is a non-executive director of the Company and was
an officer of the Company until February 2008.
f) Salaries paid. Mr Madilo is an officer of the Company and was a director of
the Company until February 2008.
All amounts due to related parties are unsecured, non-interest bearing and due
on demand. These transactions are in the normal course of operations and are
measured at the exchange value.
11. CAPITAL STOCK
a) Share capital
Number Amount
(`000) $`000
Balance, December 31, 2006 12,424 $ 10,213
Shares issued for cash 1,000 4,971
Exercise of warrants 114 511
Exercise of options 114 132
Balance, December 31, 2007 13,652 15,827
Shares issued for acquisition of Diamond Core 12,089 89,464
Balance, June 30, 2008 25,741 $ 105,291
The authorized share capital of the Company is comprised of an unlimited number
of common shares.
In March 2007, the Company completed a non-brokered private placement of
1,000,000 common shares of the Company at a price of $5.00 per share resulting
in aggregate gross proceeds of $5,000,000. The proceeds from this financing
were used to advance the Company`s exploration projects in the DRC and for
general corporate purposes.
On February 11, 2008, BRC DiamondCore acquired all of the outstanding shares of
Diamond Core on the basis of 1 BRC DiamondCore share for every 24.5 Diamond
Core shares resulting in the issuance by the Company of a total of 12,089,678
common shares. This acquisition was effected by way of a scheme of arrangement
("the scheme") under the laws of the Republic of South Africa. The scheme was
approved by the Diamond Core shareholders at a meeting of shareholders held on
January 14, 2008, received court approval on January 22, 2008 and closed on
February 11, 2008. See note 4.
b) Stock option plan
The Company has a stock option plan under which non -transferable options to
purchase common shares of the Company may be granted by the Board of Directors
to any director, officer, employee or consultant of the Company or any
subsidiary of the Company. This stock option plan contains provisions providing
that the term of an option may not be longer than five years and the exercise
price of an option shall not be lower than the market price of the Company`s
shares at the time of grant.
As at June 30, 2008, the Company had outstanding stock options to acquire
1,526,400 (December 31, 2007 - 1,526,400) common shares of the Company at a
weighted-average price of $3.54 (December 31, 2007 - $3.54) per share.
The maximum number of new stock options that can be granted in the future under
the Company`s stock option plan is 2,420,000.
The following table summarizes information about stock options outstanding and
exercisable at June 30, 2008:
Options Options
Number granted exercised, Number
Date of outstanding at during the expired or outstanding
Grant 12/31/2007 period forfeited at 06/30/2008
11/19/03 70,000 - - 70,000
04/14/04 210,000 - - 210,000
10/06/04 50,000 - - 50,000
03/04/05 16,400 - - 16,400
03/18/05 225,000 - - 225,000
04/29/05 225,000 - - 225,000
06/29/06 200,000 - - 200,000
04/09/07 300,000 - - 300,000
08/03/07 230,000 - - 230,000
1,526,400 - - 1,526,400
Options
Date of exerciseable Exercise Fair value Expiry
Grant at 06/30/08 price of grant date
11/19/03 70,000 $ 0.50 $ 0.42 11/19/08
04/14/04 210,000 $ 1.50 $ 1.24 04/14/09
10/06/04 50,000 $ 2.00 $ 1.73 10/06/09
03/04/05 16,400 $ 2.10 $ 1.78 03/04/10
03/18/05 225,000 $ 2.50 $ 1.76 03/18/10
04/29/05 225,000 $ 2.50 $ 2.14 04/29/10
06/29/06 200,000 $ 3.75 $ 2.16 06/29/11
04/09/07 225,000 $ 5.50 $ 3.25 04/09/11
08/03/07 115,000 $ 8.00 $ 2.85 08/03/12
1,336,400
During the six month period ended June, 30 2008, the Company recognized $nil in
the statement of operations as stock -based compensation expense (June 30, 2007
- $nil) representing the fair value of stock options previously granted to
employees, directors and officers under the Company`s stock option plan. An
amount of $243 (June 30, 2007 - $325) related to stock options issued to an
employee of the Corporation`s subsidiary in the DRC was capitalised as deferred
exploration expenditures. These amounts were credited accordingly to the
contributed surplus in the balance sheet.
During the six month period ended June 30, 2008, the Company recognized
consulting fees of $nil (June 30, 2007 - $110) representing the fair value of
stock options granted to consultants under the Company`s stock option plan.
The Black-Scholes option-pricing model was used to estimate the fair values of
all stock options granted based on the following factors:
risk-free interest rate: 4.11% to 4.53% (2007 - 4.11 to 4.53%; 2006 - 4.38%;
2005 - 2.91% to 3.30%)
expected volatility: 62% (2007 - 62%; 2006 - 63.8% ; 2005 - 117.97% to 129.39%)
expected life: 5 years (2007 - 5 years; 2006 - 5 years ; 2005 - 2 to 5 years)
expected dividends: $nil (2007 - $nil; 2006 - $nil ; 2005 - $nil)
One-quarter of the stock options granted pursuant to the Option Plan vest
immediately on their date of grant and another one-quarter of such stock
options vests on each of the 6-month, 12-month and 18 -month anniversaries of
the grant date.
c) Replacement options
In connection with the acquisition by the Company of all of the outstanding
shares of Diamond Core (see note 5), 15,133,190 stock options that had been
issued to employees of Diamond Core pursuant to The Diamond Core Resources
Share Trust Deed to acquire 15,133,190 ordinary shares in Diamond Core (the
"Old Options") have been substituted with new stock options of BRC DiamondCore
(the "Replacement Options"), so as to allow all holders of Old Options to
acquire the number of BRC DiamondCore common shares that is calculated by
dividing the number of ordinary shares of Diamond Core that would otherwise
have been issuable upon the exercise of the Old Options by 24.5, rounded up to
the nearest whole number of BRC DiamondCore shares, with the exercise price of
such Replacement Options being adjusted to the number that is equal to the
exercise price of the Old Options (denominated in South African rand)
multiplied by 24.5. A total of 617,710 Replacement Options were issued by the
Company.
d) Loss per share
Details of the calculation of loss per share for the six months ended June 30,
2008 are set out below. The calculations of basic and diluted loss per share
amounts are identical. All stock options (including the Replacement Options)
and warrants were excluded from the calculation of diluted loss per share as
their effect would have been anti -dilutive.
June 30, 2008 June 30, 2007
Net loss for the period ($`000) $ 4,631 $ 704
Weighted average number of common shares
outstanding (`000) 23,040 12,975
Basic loss per share $ (0.20) $ (0.05)
Diluted loss per share $ (0.20) $ (0.05)
Shares issued for acquisition of Diamond
Core (`000) 12,089 89,464
e) Contributed Surplus
Number Amount
(`000) $`000
Balance, December 31, 2006 1,110 $ 1,553
Options granted 530 1,263
Options exercised 114 (59)
Balance, December 31, 2007 1,526 2,757
Options granted - 356
Acquisition of Diamond Core 618 2,477
Balance, June 30, 2008 2,144 $ 5,590
12. CAPITAL MANAGEMENT
The Company`s main objectives when managing its capital are:
to maintain a flexible capital structure which optimizes the cost of capital
at acceptable risk while providing an appropriate return to its shareholders;
to maintain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development of the business;
to safeguard the Company`s ability to obtain financing should the need arise;
and
to maintain financial flexibility in order to have access to capital in the
event of future acquisitions.
The Company manages its capital structure and makes adjustments to it in
accordance with the objectives stated above, as well as responds to changes in
economic conditions and the risk characteristics of the underlying assets.
There were no changes to the Company`s approach to capital management during
the six months ended June 30, 2008.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
13. CONTINGENCIES AND COMMITMENTS
The Company is committed to the payment of the surface fees and taxes under the
option agreements referred to in note 5. These surface fees and taxes are
required to be paid annually under the DRC Mining Code in order to keep PRs in
good standing. Surface fees and taxes amounting to $520 were paid in the six
months ended June 30, 2008 (June 30, 2007 - $250).
In addition, as at June 30, 2008, the Company had a bank guarantee of US$5 with
respect to expenses related to a mitigation and rehabilitation plan required
from holders of PRs under the DRC Mining Code.
The Company is in the process of exercising an option agreement to secure an
equity interest in prospective ground currently held under option. The Company
expects to pay US$350 as an option exercise fee.
14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair value of financial instruments
The Company has classified financial instruments as follows:
June 30, 2008 December 31, 2007
$`000 $`000
Financial assets
Held-for-trading, measured at fair value
Cash $ 1,618 $ 932
Loans and receivables, measured at
amortized cost
Accounts receivable 1,312 403
Financial liabilities
Other liabilities, measured at
amortized cost
Accounts payable and accrued liabilities $ 5,506 $ 2,599
b) Allowance account for credit losses
June 30, 2008 December 31, 2007
$`000 $`000
Accounts receivable $ 314 $ -
Allowance for doubtful accounts - -
Other 998 403
$ 1,312 $ 403
c) Fair value of financial instruments
The balance sheet carrying amounts for cash and cash equivalents, accounts
receivable and other receivables, accounts payable and accrued liabilities
approximate fair value due to their short-term nature. Due to the use of
subjective judgments and uncertainties in the determination of fair values
these values should not be interpreted as being realizable in an immediate
settlement of the financial instruments.
d) Risk management policies and hedging activities
The Company is sensitive to changes in commodity prices, foreign exchange and
interest rates. The Company`s board of directors has overall responsibility for
the establishment and oversight of the Company`s risk management framework.
Although the Company has the ability to address its price-related exposures
through the use of options, futures and forward contracts, it does not
generally enter into such arrangements. Similarly, derivative financial
instruments are not used to reduce these financial risks.
Credit risk
Financial instruments which are potentially subject to credit risk for the
Company consist primarily of cash and cash equivalents. Cash and cash
equivalents are maintained with several financial institutions of reputable
credit and may be redeemed upon demand. It is therefore the Company`s opinion
that such credit risk is subject to normal industry risks and is considered
minimal.
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`s approach to managing
liquidity is to ensure that it will have sufficient liquidity to meet its
liabilities when due. To the extent the Company does not believe it has
sufficient liquidity to meet these obligations, management will consider
securing additional funding through equity or debt transactions.
The Company manages its liquidity risk by continuously monitoring forecast and
cash flow from operations.
Financial liabilities consist of accounts payable and accrued liabilities.
Trade payables and accrued liabilities are paid in the normal course of
business except under certain exceptions no later than the second month.
Currency risk
The Company is exposed to currency risk as its principal business is conducted
in foreign currencies. Monetary assets and liabilities denominated in foreign
currencies are translated from US Dollars and South African Rands into Canadian
dollars. Unfavourable changes in the applicable exchange rate may result in a
decrease or increase in foreign exchange gains or losses. The Company does not
use derivative instruments to reduce its exposure to foreign currency risk.
For the six months ended June 30 2008, everything else being equal, a 5%
increase or decrease in the exchange rate between the Canadian dollar, the
South African Rand and the US dollar would have resulted in a $1,150 decrease
and $1,339 increase in the Company`s net loss.
Interest rate risk
Interest rate risk is the potential impact on the Company`s earnings due to
changes in bank lending rates and short term deposit rates.
The Company`s exposure to interest rate risk is as follows:
Cash and cash equivalents Variable interest rate
Accounts receivable Non -interest bearing
Accounts payable and accrued liabilities Non -interest bearing
Short term debt Variable interest rate
The majority of the Company`s cash is held in South African Rands and is
invested in short term deposits.
The Company believes that the interest rates prevailing in Canada should not
significantly increase in 2008 and estimates that its interest rate risk
exposure will diminish in future quarters.
Market risk
Market risk is the risk that the value of a financial instrument might be
adversely affected by a change in commodity prices, interest rates or currency
exchange rates. The Company manages the market risk associated with commodity
prices by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
Title risk
Title to mineral properties and mining rights involves certain inherent risks
due to the difficulties of determining the validity of certain claims as well
as the potential for problems arising from the frequently ambiguous
conveyancing history characteristic of many mining properties. Although the
Company has investigated title to all of its mineral properties for which it
holds concessions or other mineral leases or licenses, the Company cannot give
any assurance that title to such properties will not be challenged or impugned
and cannot be certain that it will have valid title to its mining properties.
The Company relies on title opinions by legal counsel who base such opinions on
the laws of countries in which the Company operates.
15. SUBSEQUENT EVENTS
Diamond Sales
The Company realized US$ 993 from the sale of diamonds through the Company`s
fifth tender sale.
Capital Stock
The Company issued 350,000 common shares by way of private placement at an
issue price of $1.50 per share in July 2008 for proceeds of $525,000.
Debt
The loan facility of $6,014 guaranteed by Banro Corporation, a significant
shareholder of the Company had an agreed date of repayment, being June 28,
2008. This was defaulted on.
Johannesburg
15 August 2008
Sponsor
River Group
Date: 15/08/2008 16:05:02 Produced by the JSE SENS Department.
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