| Tue 18 Nov 2008, 7:05 | | BCD - BRC DiamondCore - Interim Consolidated Financial Statements as at and for |
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BCD
BCD
BCD - BRC DiamondCore - Interim Consolidated Financial Statements as at and for
the three and nine month periods ended September 30, 2008
BRC DIAMONDCORE LTD.
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: BCD & ISIN Number: CA05565C1095
("BRC DiamondCore" or "the Company")
(formerly BRC Diamond Corporation)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE THREE AND NINE MONTH
PERIODS ENDED SEPTEMBER 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 nine month periods ended September 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.
As at As at
Note September 30, December 31,
2008 2007
$`000 $`000
ASSET
Current assets
Cash and cash equivalents $ 1,218 $ 932
Accounts receivable and other receivables 1,229 403
Inventories 5 347 -
2,794 1,335
Deferred transaction costs 4 - 2,200
Mineral properties and deferred exploration
expenditures 6 33,066 14,188
Property, plant and equipment 7 15,654 594
Unallocated purchase price 4 59,949 -
$ 111,463 $ 18,317
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities
Debt 8 $ 6,092 $ 3,023
Accounts payable and accrued liabilities 5,962 2,599
12,054 5,622
Long-term liabilities
Asset retirement obligation 9 1,541 -
Future income tax liabilities 3,243 -
4,784 -
Non-controlling interest - -
Shareholders` equity
Capital stock 11 a) 105,816 15,827
Contributed surplus 11 e) 6,827 2,757
Deficit (18,018) (5,889)
94,625 12,695
$ 111,463 $ 18,317
The accompanying notes are an integral part of these interim consolidated
financial statements.
Note For the three month period ended For the nine month period ended
September 30, September 30,
2008 2007 2008 2007
$`000 $`000 $`000 $`000
Expenses
Consulting fees $ 153 $ 471 $ 316 $ 599
Depreciation 41 - 130 -
Foreign exchange (profit)/loss
- unrealized (369) 39 2,499 277
General and administrative 992 127 1,350 242
Management fees - - - 42
Professional fees 93 445 93 669
Regulatory expenses 30 - 280 -
Salaries 133 - 648 -
Stock based compensation 11b)1,237 - 1,593 -
2,310 1,082 6,909 1,786
Other Income (176) - 261 -
Loss before the under noted
items 2,134 1,082 6,648 1,786
Interest expense (80) - (229) -
Interest income 28 - 60 -
Loss on sale of investment - (15) - (15)
Write-off of mineral
properties (5,312) (16) (5,312) (16)
Net loss before income taxes 7,498 1,113 12,129 1,817
Income taxes - - - -
Net loss before non-control-
ling interest 7,498 1,113 12,129 1,817
Non-controlling interest - - - -
Net loss for the period 7,498 1,113 12,129 1,817
Other comprehensive income - - - -
Net loss and other comprehensive
loss for the period 7,498 1,113 12,129 1,817
Deficit - beginning of the
period 10,520 4,760 5,889 4,056
Deficit - end of the
period $ 18,018 $ 5,873 $ 18,018 $ 5,873
Basic and diluted loss per
share 11d) $ 0.31 $ 0.08 $ 0.50 $ 0.14
Weighted average number of
common shares outstanding
(`000) 11d) 24,042 13,154 24,042 13,154
The accompanying notes are an integral part of these interim consolidated
financial statements.
Note For the three month period ended For the nine month period ended
September 30, September 30,
2008 2007 2008 2007
$`000 $`000 $`000 $`000
Cash flows from operating activities
Net loss for the period $ (7,498) $ (1,113) $(12,129) $ (1,817)
Items not affecting cash
Depreciation 41 - 130 -
Stock based compensation 1,237 55 1,593 165
Provision for leave pay 21 - 120 -
Asset retirement obligation 514 - 1,048 -
Loss on sale of investment - 15 - 15
Write-off of mineral
properties 5,312 16 5,312 16
Unrealized foreign
exchange loss (369) - 2,499 -
(742) (1,027) (1,427) (1,621)
Net change in non-cash
working capital items
Decrease in inventories 61 - 751 -
(Increase)/Decrease in
accounts receivable
and other receivables 105 (80) 567 (147)
Increase in accounts
payable and accrued
Liabilities 380 389 51 577
Income tax (6) - (126) -
Due from related parties - - - 10
Cash used in operating
activities (202) (718) (184) (1,181)
Cash flows from investing
activities
Cash balances acquired
from Diamond Core - - 2,308 -
Property, plant and
equipment acquired 609 (130) 528 (202)
Sale of investment - 76 - 76
Exploration costs
capitalized (1,412) (1,617) (5,960) (3,815)
(803) (1,671) (3,124) (3,941)
Cash flows from financing activities
Issue of common shares and
warrants, net of expenses 525 15 525 5,436
Increase of debt 79 - 3,070 -
Due to related parties 1 (47) (1) -
605 (32) 3,594 5,436
Increase/(decrease) in cash
during the period (400) (2,421) 286 314
Cash - beginning of period 1,317 3,108 932 373
Cash equivalents - beginning
of period 301 - - -
Cash - end of period $ 942 $ 687 $ 942 $ 687
Cash equivalents - end of
period 276 - 276 -
Supplemental information
Interest received $ 80 $ - $ 60 $ -
Interest paid 28 - 229 -
Capitalised asset retirement obligation
liability incurred 1,003 - 1,514 -
Capitalised accretion - - - -
Taxes - - - -
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 $1,775 was capitalized to
mineral properties during the nine months ended September 30, 2008 (September
30, 2007 - $85).
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.
The principal business of the Company is 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 $9,260 as at September 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 was 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 September 30, 2008 and
the results of operations and cash flows for the three and nine months
ended September 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
September 30, 2008 and for the three and nine month periods 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 IFRS on
its consolidated financial statements. Diamond Core had successfully
adopted IFRS prior to the acquisition thereof by the Company.
c) Determining whether a contract is routinely denominated in a single
currency - EIC 169
In January 2008 the CICA issued Section 3855 - Financial Instruments -
Recognition and Measurement, paragraph 3855.37, requires an embedded
derivative to be separated from the host contract and accounted for as a
derivative if the economic characteristics and risks of the embedded
derivative are not closely related to the economic characteristics and
risks of the host contract. An exception is made in paragraph 3855.A34(d)
for an embedded foreign currency derivative in a host contract that is not
a financial instrument (such as a contract for the purchase or sale of a
non-financial item where the price is denominated in a foreign currency)
where the embedded derivative is not leveraged, does not contain an option
feature, and requires payments denominated in "the currency in which the
price of the related good or service that is acquired or delivered is
routinely denominated in commercial transactions around the world (such as
the US dollar for crude oil transactions)." EIC 169 supplements Section
3855 and provides guidance on how to define or apply the term "routinely
denominated in commercial transactions around the world". The EIC is in
effect for interim filing as of March 31, 2008.
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 and 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
September 30, December 31,
2008 2007
$`000 $`000
Diamonds $ 98 $ -
Consumables 249 -
$ 347 $ -
6. MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES
In order to focus the exploration program in the DRC on the most promising
areas, many exploration licences in the DRC were relinquished during the
third quarter of 2008 with a high degree of confidence that those areas
were barren and at the same time applications were lodged for more
interesting ground and option agreements were signed with two more
companies: Group Abba and Caspian Oil & Gas.
Relinquishments
During the third quarter of 2008, the following 43 DRC exploration licences
were relinquished: Acacia (2), BCE (8), the Company (10), Candore (9), CCE
(11), Ilunga (1), King`s Mine (2). As a result of these relinquishments,
deferred exploration costs capitalised under "mineral properties and
deferred exploration expenditures" on the balance sheet of $5,312 was
written off during the three and nine month periods ended September 30,
2008, since exploration in respect of these licences will not continue
(2007- $16).
Additional ground
Option agreements were signed by the Company with Group Abba and Caspian
Oil & Gas for one and two exploration licences, respectively, in the
Tshikapa area bringing the total licences to which the Company has access
in the DRC to 115. The agreement with Caspian Oil & Gas is in addition to
the agreement signed with the same company in the first quarter of this
year for nine licences in northern DRC.
Current DRC exploration licences
The following licences are currently held by the Company (through its DRC
subsidiary) or are covered by option agreements entered into by the Company
with the licence holders: Acacia (14), BCE (23), BCM (1), BRC (10), Candore
(5), Caspian Oil & Gas (11), CCE (1), Coexco (44), Group Abba (1), King`s
Mine (1), Kwango Mines (3) and Vangu Phambu (1). These licences represent a
total surface area of 26,349 kmSquared.
As at September 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.
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, (net of write offs of $5,312 and net proceeds on diamond
sales of $6,380 and diamond inventories of $98) in the DRC and in South
Africa as at September 30, 2008 as follows:
a) Company
Nine months Year Cumulative,
ended ended inception to
September30,2008 December 31,2007 September 30, 2008
$`000 $`000 $`000
Mineral property costs
DRC $ - $ - $ 3
South Africa 13,022 - 13,022
13,022 - 13,025
Deferred exploration expenditure
DRC (860) 6,745 13,325
South Africa 6,716 - 6,716
5,856 6,745 20,041
Total mineral property costs
And Deferred exploration
expenditure $ 18,878 $ 6,745 $ 33,066
b) DRC
Nine months Year Cumulative,
ended ended inception to
September 30, 2008 December 31, 2007 September 30, 2008
$`000 $`000 $`000
Mineral property costs
Claims and staking $ - $ - $ 3
Total mineral property cost - - 3
Deferred exploration
Expenditure
Administrative and office
support 1,393 1,778 4,220
Depreciation 165 138 448
Drilling 76 179 472
Field camp expenses 917 419 2,343
Geochemistry - 230 329
Geology - contract geologists 173 399 1,774
Geophysics 230 688 2,332
Option fees - 121 308
Permits and surface taxes 450 586 1,776
Professional fees 134 33 286
Remote sensing and surveying - 28 46
Stock based compensation 243 1,043 1,286
Transport cost and helicopter 671 1,103 3,017
Unrealised foreign exchange loss- - -
Write off (5,312) - (5,312)
Total deferred exploration
expenditure (860) 6,745 (13,325)
DRC mineral and property costs
And Deferred exploration
expenditure $ (860) $ 6,745 $ 13,328
c) South Africa
Nine months Year Cumulative,
ended ended inception to
September 30, 2008 December 31, 2007 September 30, 2008
$`000 $`000 $`000
Mineral property costs
Acquisition of Diamond Core $19,901 $ - $ 19,901
Total mineral property cost 14,188 - 14,188
Deferred exploration
expenditure 5,713 - 5,713
Unrealised foreign exchange
loss (2,360) - (2,360)
17,541 - (17,541)
Deferred exploration
Expenditure Administrative
and office support 2,174 - 2,174
Depreciation 1,610 - 1,610
Field camp expenses 2,969 - 2,969
Geology - contract geologists 62 - 62
Geophysics 13 - 13
Professional fees 77 - 77
Rehabilitation 972 - 972
Security 763 - 763
Surveying 35 - 35
Unrealised foreign exchange loss- - -
8,675 - 8,675
Net proceeds on diamond sales
and diamond Inventory (6,478) - (6,478)
2,197 - 2,197
7. PROPERTY, PLANT AND EQUIPMENT
As at September 30, 2008
Accumulated Net Book
Cost Depreciation Value
$`000 $`000 $`000
Land and buildings $ 786 $ 287 $ 499
Processing plant 10,704 1,594 9,110
Earthmoving equipment 6,191 1,871 4,320
Furniture and office equipment1,001 67 934
Computer equipment 366 157 209
Vehicles 653 370 283
Exploration and mining assets 825 526 299
$ 20,526 $ 4,872 $ 15,654
As at December 31, 2007
Accumulated Net Book
Cost Depreciation 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 nine month period ended September 30, 2008, $ 1,775 of depreciation
was included in mineral properties and deferred exploration expenditures (see
note 6(b) and 6(c)) (September 30, 2007 - $85).
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 nine months ended September 30, 2008 was 5.75% (December
31, 2007 - 7.25%). At September 30, 2008, the balance of this short term debt
was $6,092 (December 31, 2007 - $3,023), including accrued interest of $243
(December 31, 2007 - $22). This loan facility is guaranteed by Banro
Corporation, a significant shareholder of the Company. The Company has
undertaken to release Banro Corporation from this guarantee as soon as possible.
9. ASSET RETIREMENT OBLIGATIONS
The provision for the site closure and reclamation costs relate to the
Silverstreams, Paardeberg East and De Kalk projects in South Africa.
As at As at
September 30, December 31,
2008 2007
$`000 $`000
Balance at beginning of period $ - $ -
Changes during the period 1,541 -
Reclamation liability acquired 538 -
Site closure and reclamation obligation
recognized 1,005 -
Accretion expenses - -
Foreign exchange revaluation (2) -
Balance at end of period $ 1,541 $ -
The estimated amount of reclamation costs, adjusted for inflation at 9% per
year, is $560 for the Paardeberg East project, $857 for the Silverstreams
project and $124 for the De Kalk project. It 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 $1,541. The accretion of $nil (2007 - no
comparative) is charged to the statement of operations.
The Company had cash reclamation deposits totaling $276 (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
September 30, December 31,
2008 2007
Balances payable $`000 $`000
Macleod Dixon LLP $ 669 $ 269
Banro Corporation - 29
Banro Congo Mining sprl - 4
Scallan Project Facilitation (Pty) Ltd 24 -
$ 693 $ 302
For the three month period ended For the nine month period ended
September 30, September 30,
2008 2007 2008 2007
$`000 $`000 $`000 $`000
Transactions
Macleod Dixon LLP (a) $ 83 $ 188 $ 272 $ 395
Banro Corporation (b) - - (11) 47
SFW Village (c) 25 25 75 42
AT Kondrat (d) 25 25 75 75
DK Madillo (e) 12 12 36 36
Scallan Project Facilitation
(Pty) Ltd (f) 58 - 58 -
$ 203 $ 250 $ 505 $ 595
a) During the three and nine month periods ended September 30, 2008 legal fees
and related costs of $83 and $272 (September 30, 2007 - $188 and $395)
incurred in connection with general corporate matters as well as the
Diamond Core acquisition (see note 4) 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
14.35% (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 three and nine month periods ended September 30, 2008 the
Company incurred $11 in rental expenses on behalf of Banro Corporation
(September 30, 2007 - $nil and $47).
c) 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.
d) Salaries paid to Mr Kondrat who is a non-executive director of the Company
and was an officer of the Company until February 2008.
e) Salaries paid to Mr Madilo who is an officer of the Company and was a
director of the Company until February 2008.
f) Consulting fees paid in respect of services to the Company. Mr Scallan is
an officer and a director of the Company and is the sole shareholder of
Scallan Project Facilitation (Pty) Limited.
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, 2007 13,652 $ 15,827
Shares issued for acquisition
of Diamond Core 12,089 89,464
Shares issued for cash 350 525
Balance, September 30, 2008 26,091 $ 105,816
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. In July 2008, the Company completed a
non-brokered private placement of 350,000 common shares of the Company at a
price of $1.50 per share resulting in an aggregate gross proceeds of $525.
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 September 30, 2008, the Company had outstanding stock options to acquire
3,946,400 (December 31, 2007 -1,526,400) common shares of the Company at a
weighted-average price of $2.13 (December 31, 2007 - $3.54) per share.
The maximum number of new stock options that can currently be granted in the
future under the Company`s stock option plan is nil.
The following table summarizes information about stock options outstanding and
exercisable at September 30, 2008:
Date of Number Optio O Number Option Exerci Fair value Expiry
Grant outstan ns p outstandin s se of grant date
ding at grant t g at exerci price
12/31/2 ed i 09/30/2008 sable
007 durin o at
g the n 09/30/
perio s 08
d e
x
e
r
c
i
s
e
d
,
e
x
p
i
r
e
d
o
r
f
o
r
f
e
i
t
e
d
11/19/03 $ $ 11/19/08
70,000 - - 70,000 70,000 0.50 0.42
04/14/04 $ $ 04/14/09
210,000 - - 210,000 210,00 1.50 1.24
0
10/06/04 $ $ 10/06/09
50,000 - - 50,000 50,000 2.00 1.73
03/04/05 $ $ 03/04/10
16,400 - - 16,400 16,400 2.10 1.78
03/18/05 $ $ 03/18/10
225,000 - - 225,000 225,00 2.50 1.76
0
04/29/05 $ $ 04/29/10
225,000 - - 225,000 225,00 2.50 2.14
0
06/29/06 $ $ 06/29/11
200,000 - - 200,000 200,00 3.75 2.16
0
04/09/07 $ $ 04/09/12
300,000 - - 300,000 225,00 5.50 3.25
0
08/03/07 $ $ 08/03/12
230,000 - - 230,000 172,50 8.00 2.85
0
08/28/08 $ $ 08/28/13
- 2,420 - 2,420,000 605,00 1.05 0.65
,000 0
1,526,4 2,420 - 3,946,400 1,998,
00 ,000 900
During the three and nine month periods ended September, 30 2008, the Company
recognized $1,193 and $1,549 in the statement of operations as stock-based
compensation expense (September 30, 2007 - $nil and $nil ) representing the fair
value of stock options granted to employees, directors and officers under the
Company`s stock option plan. During the three and nine month periods ended
September 30, 2008 an amount of $nil and $243 (September 30, 2007 - $340 and
$665 ) 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 three and nine month periods ended September 30, 2008, the Company
recognized consulting fees of $44 and $44 (September 30, 2007 - $55 and $165)
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: 3.02% to 4.53% (2007 - 4.11 to 4.53%; 2006 -
4.38%; 2005 - 2.91% to 3.30%)
- expected volatility: 72% to 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 - $nil)
One-quarter of the stock options granted pursuant to the Company`s stock option
plan vest immediately on their date of grant and another one-quarter of such
stock options vests on each of the 6-month, 12-month and 18-month anniversaries
of the grant date.
c) Replacement options
In connection with the acquisition by the Company of all of the outstanding
shares of Diamond Core (see note 4), 15,133,190 stock options that had been
issued to employees of Diamond Core pursuant to The Diamond Core Resources
Share Trust Deed to acquire 15,133,190 ordinary shares in Diamond Core (the
"Old Options") have been substituted with new stock options of BRC
DiamondCore (the "Replacement Options"), so as to allow all holders of Old
Options to acquire the number of BRC DiamondCore common shares that is
calculated by dividing the number of ordinary shares of Diamond Core that
would otherwise have been issuable upon the exercise of the Old Options by
24.5, rounded up to the nearest whole number of BRC DiamondCore shares,
with the exercise price of such Replacement Options being adjusted to the
number that is equal to the exercise price of the Old Options (denominated
in South African rand) multiplied by 24.5. A total of 617,710 Replacement
Options were issued by the Company.
d) Loss per share
Details of the calculation of loss per share for the three and nine month
periods ended September 30, 2008 are set out below. The calculations of basic
and diluted loss per share amounts are identical. All stock options (including
the Replacement Options) and warrants were excluded from the calculation of
diluted loss per share as their effect would have been antidilutive.
For the three month period ended For the nine month period ended
September 30, September 30,
2008 2007 2008 2007
Net loss for the period (`000)$ 7,498 $1,817 $12,129 $1,817
Weighted average number of common
shares outstanding (`000) 24,042 13,154 24,042 13,154
Basic loss per share $ (0.31) $ (0.14) $(0.50) $(0.14)
Diluted loss per share $ (0.31) $ (0.14) $(0.50) $(0.14)
Shares issued for acquisition of Diamond Core
(`000) 12,089
e) Contributed Surplus
Amount
$`000
Balance, December 31, 2006 $ 1,553
Options granted 1,263
Options exercised (59)
Balance, December 31, 2007 $ 2,757
Options granted 1,593
Acquisition of Diamond Core 2,477
Balance, September 30, 2008 $ 6,827
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
nine months ended September 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 6. These surface fees and taxes
are required to be paid annually under the DRC Mining Code in order to keep
exploration licences in good standing. Surface fees and taxes amounting to
$520 were paid in the nine months ended September 30, 2008 (September 30,
2007 - $250).
In addition, as at September 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 exploration licences 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:
September December
30, 2008 31, 2007
$`000 $`000
Financial assets
Held-for-trading, measured at
fair value
Cash
$ $
1,218 932
Loans and receivables, measured
at amortized cost
Accounts receivable
1,219 403
Financial liabilities
Other liabilities, measured at
amortized cost
Accounts payable and accrued $ $
liabilities 5,962 2,599
b) Allowance account for credit losses
September December
30, 2008 31, 2007
$`000 $`000
Accounts receivable $ $
413 -
Allowance for doubtful accounts
- -
Other
806 403
$ $
1,219 403
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 arises from the Company`s financial obligations and in the
management of its assets, liabilities and optimal capital structure. The
Company manages this risk by regularly evaluating the Company`s liquid
financial resources to fund its current and long term obligations and to
meet its capital commitments in a cost effective manner. The main factors
that affect liquidity include realized sales prices, production levels,
cash production costs, working capital requirements, future capital
expenditure requirements, scheduled repayments of long-term debt
obligations, its credit capacity and expected future debt and equity
capital market conditions.
The Company`s liquidity requirements are met through a variety of sources,
including: cash and cash equivalents on hand, cash generated from
operations, existing credit facilities, leases, and debt and equity
markets.
Weakening global economic conditions have led to a significant weakness in
exchange traded commodity prices in recent weeks, including diamond prices.
In general, credit market conditions have increased the cost of obtaining
capital and limited the availability of funds. As economic conditions
stabilize, management expects to be in a similar position as it has been
previously in terms of its ability to access its traditional sources of
liquidity.
Given the Company`s financial position, available credit facilities and the
fact that there are scheduled maturities on its debt in 2008, the Company
currently expects a need to access debt and equity markets for financing
over the next twelve months. However, because the duration of the general
economic uncertainty and its detrimental effect on credit and capital
markets us unknown, it is difficult to determine the long-term impact on
the Company.
In light of current market conditions, the Company has initiated a series
of measures to bring its spending in line with the projected cash flows
from its operations and available project specific facilities in order to
preserve its balance sheet and maintain its liquidity position.
The Company currently believes that based on its financial position and
liquidity profile at September 30, 2008, the Company will be able to
satisfy its current and long-term obligations.
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 nine months ended September 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
respective $1,709 decrease and 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.
Country risk
The DRC is a developing country and as such, the Company`s exploration
projects in the DRC could be adversely effected by uncertain political or
economic environments, war, civil or other disturbances, and a changing
fiscal regime and by DRC`s underdeveloped industrial and economic
infrastructure.
The Company`s operations in the DRC may be effected by economic pressures
on the DRC. Any changes to regulations or shifts in political attitudes are
beyond the control of the Company and may adversely affect its business.
Operations may be affected in varying degrees by such factors as DRC
government regulations with respect to currency conversion, production,
price controls, export controls, income taxes or reinvestment credits,
expropriation of property, environmental legislation, land use, water use
and mine safety.
There can be no assurance that policies towards foreign investment and
profit repatriation will continue or that a change in economic conditions
will not result in a change in the policies of the DRC government or the
imposition of more stringent foreign investment restrictions. Such changes
cannot be accurately predicted.
15. SUBSEQUENT EVENTS
Diamond Sales
The Company realized US$ 670 from the sale of diamonds through the Company`s
eighth tender sale.
Debt
As at November 14, 2008, the loan facility disclosed in note 8 is still in
place.
Johannesburg
17 November 2008
Sponsor
River Group
Date: 18/11/2008 07:05:04 Produced by the JSE SENS Department.
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