| Fri 16 Jan 2009, 7:05 | | RDI - Rockwell - Consolidated Financial Statements Three And Nine Months Ended |
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RDI
RDI
RDI - Rockwell - Consolidated Financial Statements, Three And Nine Months Ended
November 30, 2008 And 2007
ROCKWELL DIAMONDS INCORPORATED
(A company incorporated in accordance with the laws of British Columbia, Canada)
(Incorporation number BCO354545)
(Formerly Rockwell Ventures Inc.)
(South African registration number: 2007/031582/10)
Share code on the JSE Limited: RDI ISIN: CA77434W1032
Share code on the TSX: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2008 AND 2007
(Expressed in Canadian Dollars)
(Unaudited)
These financial statements have not been reviewed by the Company`s auditors.
ROCKWELL DIAMONDS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
November 30 2008 February 29 2008
(unaudited) (audited)
ASSETS
Current assets
Cash and equivalents $ 6,846,869 $ 19,623,847
Amounts receivable 1,349,518 631,446
Restricted cash 3,233,174 13,335,124
Trade receivable from a related party
(note 10) 1,948,474 593,434
Diamond inventory and supplies
(note 4) 9,285,537 3,465,853
Prepaids and deposits 166,794 946,858
22,830,366 38,596,562
Property, plant and equipment (note 5) 76,331,694 64,831,636
Mineral property interests (note 6) 36,831,336 25,247,937
Other assets and deposits 6,091,662 3,200,112
Reclamation deposits (note 8) 2,906,262 1,816,877
$ 144,991,320 $ 133,693,124
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 4,318,291 $ 4,420,212
Amounts owing pursuant to acquisition
(Note 6(a)) 3,439,632 294,402
Amounts due to related parties
(note 10) 150,461 49,604
Income taxes 1,297,767 890,332
Current portion of capital lease
obligations (note 7) 5,607,530 6,847,751
14,813,681 12,502,301
Long-term liabilities
Capital lease obligations (note 7) 3,621,883 7,955,548
Future income taxes 13,205,605 12,430,100
Reclamation obligation (note 8) 2,877,991 1,755,820
19,705,479 22,141,468
Non-controlling interest 12,466,345 11,934,548
Shareholders` equity
Share capital (note 9) 119,952,533 112,095,390
Warrants (note 9(c)) 1,693,197 1,693,197
Contributed surplus 3,890,399 2,332,882
Deficit (27,530,314) (29,006,662)
98,005,815 87,114,807
Nature and continuance of operations
(note 1)
Subsequent events (note 11)
Contingencies and commitments (note 12)
$ 144,991,320 $ 133,693,124
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board of Directors
/s/ Dr. John Bristow /s/ Desmond Morgan
Dr. John Bristow Desmond Morgan
Director, Chief Executive Officer Director, Chief Financial Officer
Consolidated Statements of Operations and Comprehensive Profit / (Loss)
(Unaudited - Expressed in Canadian Dollars)
Three months ended November 30
2008 2007
Revenue
Rough diamonds sales (note 10(g)) $ 3,064,446 $ 12,072,363
Contract diamond sales (note 10(g)) 13,162,269 -
Other sales (100,434) 52,581
16,126,281 12,124,944
Cost of sales
Cost of rough diamonds sales (3,709,562) (9,570,978)
Cost of contract diamond sales - -
Amortization and depletion (2,864,155) (2,141,157)
Operating profit 9,552,564 412,809
Expenses
Accretion of reclamation obligation (note 8) (94,525) (27,857)
Exploration (95,988) (126,741)
Foreign exchange (loss) gain 902,842 (126,397)
Interest on capital leases (335,426) (427,301)
Convertible note accretion and interest
expense (452,064) (101,618)
Legal, accounting and audit (678,032) (252,611)
Office and administration (688,828) (849,940)
Shareholder communications (173,129) (64,357)
Stock-based compensation - exploration
(note 9(b)) (194,571) (167,109)
Stock-based compensation - administration
(note 9(b)) (304,845) (449,672)
Travel and conferences (139,072) (147,443)
Transfer agent (27,969) (97,977)
(2,281,607) (2,586,229)
Other items
Write-off of amounts receivable - -
Gain (loss) on disposal of equipment 6,320 (3,323)
Interest income 357,248 185,813
Write-down of mineral property interests - -
363,568 182,490
Profit (loss) before income taxes 7,634,525 (1,990,930)
Income tax (expense) recovery (348,654) 398
Future income tax (expense) recovery 482,689 25,768
Profit (loss) before non-controlling interest 7,768,560 (1,964,764)
Non-controlling interest (3,241,010) 837,374
Profit (loss) for the period before
discontinued operations 4,527,550 (1,127,390)
Loss from discontinued operations (Note 6(d)) - -
Profit (loss) for the period 4,527,550 (1,127,391)
Other comprehensive profit (loss) income - -
Total Comprehensive Profit / (Loss) Income $ 4,527,550 $ (1,127,390)
Basic and diluted profit / (loss) per common
share $ 0.02 $ (0.01)
Weighted average number of
common shares outstanding 238,041,569 187,816,993
Nine months ended November 30
2008 2007
Revenue
Rough diamonds sales (note 10(g)) $ 20,072,069 $ 33,775,109
Contract diamond sales (note 10(g)) 13,322,845 179,975
Other sales 230,156 77,157
33,625,070 34,032,241
Cost of sales
Cost of rough diamonds sales (15,968,735) (22,327,592)
Cost of contract diamond sales - (152,979)
Amortization and depletion (8,111,115) (5,795,726)
Operating profit 9,545,220 5,755,944
Expenses
Accretion of reclamation obligation (note 8) (261,927) (141,871)
Exploration (367,170) (592,908)
Foreign exchange (loss) gain 277,955 3,623,774
Interest on capital leases (1,238,622) (1,331,540)
Convertible note accretion and interest
expense (700,894) (797,723)
Legal, accounting and audit (1,454,927) (720,775)
Office and administration (2,528,638) (3,201,820)
Shareholder communications (372,104) (189,879)
Stock-based compensation - exploration (note
9(b)) (531,814) (177,581)
Stock-based compensation - administration
(note 9(b)) (1,025,703) (478,851)
Travel and conferences (458,782) (558,469)
Transfer agent (72,665) (161,299)
(8,735,291) (4,728,942)
Other items
Write-off of amounts receivable - (224,942)
Gain (loss) on disposal of equipment (298,434) (60,466)
Interest income 2,480,700 893,848
Write-down of mineral property interests - (15,648)
2,182,266 592,792
Profit (loss) before income taxes 2,992,195 1,619,794
Income tax (expense) recovery (506,283) (26,496)
Future income tax (expense) recovery 1,757,497 (1,070,423)
Profit (loss) before non-controlling interest 4,243,409 522,875
Non-controlling interest (2,563,723) (3,140,501)
Profit (loss) for the period before
discontinued operations 1,679,686 (2,617,626)
Loss from discontinued operations (Note 6(d)) (203,338) -
Profit (loss) for the period 1,476,348 (2,617,627)
Other comprehensive profit (loss) income - -
Total Comprehensive Profit / (Loss) Income $ 1,476,348 $ (2,617,626)
Basic and diluted profit / (loss) per common
share $ 0.01 $ (0.01)
Weighted average number of
common shares outstanding 234,440,786 187,225,090
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Nine months ended November 30 2008 (unaudited)
Share capital Number of shares
223,755,854 $ 112,095,390
Balance at beginning of the period
Share purchase options exercised at
$0.40 per share - -
Share purchase options exercised at
$0.42 per share - -
Private placement November 2006, net of
issue costs at $0.47 per share - -
Private placement January 2008, net of
issue costs at $0.60 per share - -
Commission consideration for private
placement at $0.60 per share - -
Warrants exercised at $0.60 per share - -
Consideration for acquisition of
property net of issue cost at $0.78 per
share (note 6) - -
Consideration for additional interest
net of issue cost at $0.55 per share
(note 6(b)) 14,285,715 7,857,143
Consideration for property finders fees
at $0.78 per share - -
Fair value of stock options allocated
to shares issued on exercise - -
Balance at end of the period 238,041,569 $ 119,952,533
Warrants
Broker warrants issued as consideration
for private placement 1,693,197
Contibuted surplus $ 1,693,197
Balance at beginning of the period 2,332,882
Stock-based compensation (note 10(b)) 1,557,517
Fair value of stock options allocated
to shares issued on exercise -
Balance at end of the period $ 3,890,399
Deficit
Balance at beginning of the period (29,006,662)
Profit (loss) for the period 1,476,348
Balance at end of the period $ (27,530,314)
TOTAL SHAREHOLDERS` EQUITY $ 98,005,815
Nine months ended February 29 2008 (audited)
Share capital Number of shares
186,976,219 $ 88,903,530
Balance at beginning of the period
Share purchase options exercised at
$0.40 per share 107,917 43,167
Share purchase options exercised at
$0.42 per share 145,000 60,900
Private placement November 2006, net of
issue costs at $0.47 per share - 4,160
Private placement January 2008, net of
issue costs at $0.60 per share 24,101,526 13,860,916
Commission consideration for private
placement at $0.60 per share 500,000 300,000
Warrants exercised at $0.60 per share 2,400,000 1,440,000
Consideration for acquisition of
property net of issue cost at $0.78 per
share (note 6) 7,848,663 6,081,842
Consideration for additional interest
net of issue cost at $0.55 per share
(note 6(b)) - -
Consideration for property finders fees
at $0.78 per share 1,676,529 1,307,693
Fair value of stock options allocated
to shares issued on exercise - 93,182
Balance at end of the period 223,755,854 $ 112,095,390
Warrants
Broker warrants issued as consideration
for private placement 1,693,197
Contibuted surplus $ 1,693,197
Balance at beginning of the period 599,749
Stock-based compensation (note 10(b)) 1,826,315
Fair value of stock options allocated
to shares issued on exercise (93,182)
Balance at end of the period $ 2,332,882
Deficit
Balance at beginning of the period (19,603,634)
Profit (loss) for the period (9,403,028)
Balance at end of the period $ (29,006,662)
TOTAL SHAREHOLDERS` EQUITY $ 87,114,807
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended November 30
Cash provided by (applied to): 2008 2007
Operating activities
Profit (Loss) for the period $ 4,527,550 $ (1,127,390)
Items not affecting cash
Accretion of reclamation obligation 94,525 27,857
Amortization and depletion 3,106,658 1,381,374
Amortization of capital lease equipment (242,503) 759,783
Write-off of amounts receivable - -
Write-down of mineral property interests - -
Non cash convertible note accretion and
interest expense - -
Stock-based compensation (note 10(b)) 499,416 616,781
Unrealized foreign exchange gain (2,458,215) (28,444)
Loss (profit) on disposal of equipment (6,320) 3,323
Future income tax (recovery) expense (456,526) (25,768)
Provision for site reclamation - (4,722)
Non-controlling interest 3,241,008 (837,374)
Changes in non-cash working capital items
Accounts receivable (620,386) 85,450
Amounts due to and from related parties (647,441) (1,022,759)
Inventory (3,972,484) 1,723,631
Prepaids and deposits 877,982 913,442
Accounts payable and accrued liabilities (1,268,927) 3,328,091
Income taxes 24,246 (261,320)
Cash provided by (used in) operating
activities 2,698,583 5,531,955
Investing activities
Acquisition of Saxendrift Mine (Pty) Limited,
net of cash acquired (Note 6(a)) - -
Proceeds on sale of shares in subsidiary 3,712,025 -
Restricted cash (308,783) 21,087
Mineral property acquisitions - 2,426,673
Purchase of equipment (3,218,465) (10,769,428)
Proceeds received on disposal of equipment - 447,020
Other assets and deposits (3,265,164) (1,684,772)
Reclamation deposits (1,002,991) (63,177)
Reclamation obligation - -
Cash provided by (used in) investing
activities (4,083,378) (9,622,597)
Financing activities
Principal repayments under capital lease
obligations (1,898,449) (2,846,194)
Addition of capital lease obligations - -
Common shares and warrants issued for cash,
net of issue costs - 1,297,167
Amounts received (paid) to related parties 93,804 (2,199,094)
Amounts paid pursuant to property acquisition (74,530) (478,304)
Repayment of credit facility - -
Credit facility - -
Repayment of loans payable to related parties - -
Loans payable to related parties - -
Cash provided by (used in) financing
activities (1,879,176) (4,226,425)
Decrease in cash and equivalents during the
period (3,263,971) (8,317,067)
Cash and equivalents, beginning of period 10,110,840 21,092,040
Cash and equivalents, end of period $ 6,846,869 $ 12,774,973
Cash and equivalents is comprised of: $ 6,846,869 $ 12,774,973
Cash and equivalents $ 7,837,677 $ 12,774,973
Cash equivalent (Bank overdraft) $ (990,808) $ -
Interest paid during the period $ 452,064 $ 101,618
Interest received $ 357,248 $ 185,813
Income taxes paid during the period $ (24,246) $ 261,320
Supplemental disclosure of non-cash investing
and financing activities:
Issuance of warrants - consideration for
private placement $ - $ -
Issuance of common shares - consideration for
private placement $ - $ -
Issuance of commons shares as consideration
for acquisition of property (note 6 (b)) $ - $ 6,081,842
Issuance of common shares as consideration
for property finders fees $ - $ 1,307,693
Fair value of stock options allocated to
shares issued upon exercise $ - $ 9,040
Equipment acquired under capital lease
(note 7) $ - $ 1,136,242
Nine months ended November 30
Cash provided by (applied to): 2008 2007
Operating activities
Profit (Loss) for the period $ 1,476,348 $ (2,617,626)
Items not affecting cash
Accretion of reclamation obligation 261,927 141,871
Amortization and depletion 6,732,269 3,382,060
Amortization of capital lease equipment 1,378,846 2,335,423
Write-off of amounts receivable - 224,942
Write-down of mineral property interests (470,614) -
Non cash convertible note accretion and
interest expense - 862,765
Stock-based compensation (note 10(b)) 1,557,516 656,432
Unrealized foreign exchange gain (489,495) (4,399,032)
Loss (profit) on disposal of equipment 298,434 60,466
Future income tax (recovery) expense (1,731,334) 1,080,086
Provision for site reclamation - (499,955)
Non-controlling interest 2,563,723 3,140,501
Changes in non-cash working capital items
Accounts receivable (718,072) 499,216
Amounts due to and from related parties (1,355,040) (715,424)
Inventory (5,688,884) (1,658,295)
Prepaids and deposits 780,064 (7,032)
Accounts payable and accrued liabilities (101,921) 6,093,952
Income taxes 407,435 (1,545,832)
Cash provided by (used in) operating
activities 4,901,202 7,034,518
Investing activities
Acquisition of Saxendrift Mine (Pty)
Limited, net of cash acquired (Note 6(a)) (12,205,245) -
Proceeds on sale of shares in subsidiary 6,249,091 (1,201,297)
Restricted cash 9,935,536 (15,519,569)
Mineral property acquisitions (479,618) 1,303,601
Purchase of equipment (12,356,753) (21,426,566)
Proceeds received on disposal of equipment 216,364 1,074,841
Other assets and deposits (2,891,550) (5,477,709)
Reclamation deposits (1,089,385) (775,679)
Reclamation obligation - (21,294)
Cash provided by (used in) investing
activities (12,621,560) (42,043,672)
Financing activities
Principal repayments under capital lease
obligations (6,481,498) (6,489,099)
Addition of capital lease obligations 1,033,648 -
Common shares and warrants issued for cash,
net of issue costs - 57,939,958
Amounts received (paid) to related parties 100,857 (1,940,249)
Amounts paid pursuant to property acquisition 290,372 (4,253,201)
Repayment of credit facility - (11,000,000)
Credit facility - 5,000,000
Repayment of loans payable to related parties - (12,474,500)
Loans payable to related parties - 1,194,519
Cash provided by (used in) financing
activities (5,056,621) 27,977,428
Decrease in cash and equivalents during the
period (12,776,979) (7,031,726)
Cash and equivalents, beginning of period 19,623,848 19,806,699
Cash and equivalents, end of period 6,846,869 $ 12,774,973
Cash and equivalents is comprised of: $ 6,846,869 $ 12,774,973
Cash and equivalents $ 7,837,677 $ 12,774,973
Cash equivalent (Bank overdraft) $ (990,808) $ -
Interest paid during the period $ 700,894 $ 797,723
Interest received $ 2,480,700 $ 893,848
Income taxes paid during the period $ (407,435) $ 1,545,832
Supplemental disclosure of non-cash
investing and financing activities:
Issuance of warrants - consideration for
private placement $ - $ 1,693,197
Issuance of common shares - consideration
for private placement $ - $ 568,588
Issuance of commons shares as consideration
for acquisition of property (note 6 (b)) $ 7,857,143 $ -
Issuance of common shares as consideration
for property finders fees $ - $ 1,307,693
Fair value of stock options allocated to
shares issued upon exercise $ - $ 2,078
Equipment acquired under capital lease
(note 7) $ 1,033,648 $ 7,316,459
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the three and nine months ended November 30, 2008 and 2007
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
1. NATURE AND CONTINUANCE OF OPERATIONS
Rockwell Diamonds Inc. (the "Company") is incorporated under the British
Columbia Business Corporations Act (formerly the Company Act of British
Columbia), and is engaged in the business of diamond production, acquiring and
exploring natural resource properties. The Company`s principal mineral property
interests are located in South Africa.
Operating results for the three and nine months ended November 30, 2008 are not
necessarily indicative of the results that may be expected for the full year
ending February 28, 2009.
The Company has estimated that it will have adequate funds from existing
working capital to meet its corporate, operational, development, administrative
and property obligations for the coming year.
The Company will periodically need to obtain additional financing, and while it
has been successful in the past, there can be no assurance that it will be able
to do so in the future.
The recoverability of the amounts shown for the Company`s mineral property
interests, property, plant and equipment and inventory is dependent upon the
existence of economically recoverable mineral resources and future profitable
production or proceeds from the disposition of the mine. The Company`s
continuing operations are also dependent upon the discovery and existence of
economically recoverable mineral reserves, the ability of the Company to obtain
the necessary financing to complete the exploration and development of its
mineral property interests, and upon future profitable production or proceeds
from the disposition of its mineral property interests.
These consolidated financial statements do not include adjustments to amounts
and classifications of assets and liabilities that might be necessary should
the Company be unable to continue operations.
2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. These consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated upon consolidation.
These interim financial statements do not include all the disclosures required
for annual financial statements under generally accepted accounting principles.
However, these interim financial statements follow the same accounting policies
and methods of application as the Company`s most recent audited annual
financial statements except for the changes described in note 3 below. These
interim consolidated financial statements should be read in conjunction with
the Company`s nine months ending February 29, 2008 audited annual consolidated
financial statements which are filed on www.sedar.com. Certain comparative
information has been reclassified to conform to the presentation adopted in the
current period.
3. CHANGES IN ACCOUNTING POLICIES
(a) Newly Adopted Accounting Policies
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an entity`s objectives, policies and
processes for managing capital, quantitative data about what the entity regards
as capital and whether the entity has complied with any externally imposed
capital requirements and, if it has not complied, the consequences of such
non-compliance.
The Company`s objective when managing capital is to safeguard the Company`s
ability to continue as a going concern, so that it can continue to explore and
develop its projects for the benefit of its shareholders and other
stakeholders. The Company considers the components of shareholders` equity, as
well as its cash and equivalents, as capital. The Company manages the capital
structure and makes adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets. The Company
may issue new shares through private placements in order to maintain or adjust
the capital structure.
In order to facilitate the management of its capital requirements, the Company
prepares annual expenditure budgets that are updated as necessary depending on
various factors, including successful capital deployment and general industry
conditions. The Company`s cash resources at November 30, 2008 are sufficient
for its present needs, specifically to continue administrative and exploration
operations at current levels through the end of February 28, 2009.
There were no changes to the Company`s approach to capital management during
the nine months ended November 30, 2008. The Company is not subject to
externally imposed capital requirements as at November 30, 2008
(ii) Financial Instruments - Disclosure (Section 3862) and Presentation
(Section 3863) These standards replace CICA 3861, Financial Instruments -
Disclosure and Presentation. They increase the disclosures previously required,
which will enable users to evaluate the significance of financial instruments
for an entity`s financial position and performance, including disclosures about
fair value. In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk. The quantitative disclosures must provide information about the
extent to which the entity is exposed to risk, based on information provided
internally to the entity`s key management personnel.
The carrying value of the Company`s cash and equivalents, amounts receivable,
restricted cash, trade receivable from a related party, reclamation deposits,
accounts payable and accrued liabilities, due to/from related parties and
capital lease obligations approximate their fair values.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of financial instrument
related risk, including credit risk, liquidity risk, foreign exchange risk,
interest risk and commodity price risk.
Credit Risk
Credit risk is the risk of potential loss to the Company if a counterparty to a
financial instrument fails to meet its contractual obligations. The Company`s
credit risk is primarily attributable to its liquid financial assets including
cash and equivalents, accounts receivable and trade receivable from a related
party. The Company limits exposure to credit risk on liquid financial assets
through maintaining its cash and equivalents with high-credit quality financial
institutions. The carrying value of the Company`s cash and cash equivalents,
accounts receivable and trade receivable from a related party represent the
maximum exposure to credit risk. The Company does not have financial assets
that are invested in asset backed commercial paper.
Liquidity Risk
Liquidity risk is the risk that the company will not be able to meet its
financial obligations as they fall due. The Company ensures that there is
sufficient capital in order to meet short term business requirements, after
taking into account cash flows from operations and the Company`s holdings of
cash and cash equivalents. The Company believes that these sources will be
sufficient to cover the likely requirements for the foreseeable future. The
Company`s cash and equivalents are invested in business accounts which are
available on demand for the Company`s programs, and which are not invested in
any asset backed deposits/investments.
The Company operates in South Africa. Like other foreign entities operating
there, the Company is subject to currency exchange controls administered by the
South African Reserve Bank, that country`s central bank. A significant portion
of the Company`s funding structure for its South African operations consists of
advancing loans to its South Africa incorporated subsidiaries and it is
possible the Company may not be able to acceptably repatriate such funds once
those subsidiaries are able to repay the loans or repatriate other funds such
as operating profits should any develop. The repatriation of cash held in South
Africa is permitted upon the approval of the South African Reserve Bank. Cash
balances in South Africa are the Rand balances disclosed below.
The following are the contractual maturities of financial liabilities:
Carrying Contractual
amount cash flow 2009 2010 2011
November 30, 2008
Accounts payable
and accrued $ $
liabilities $4,318,291 $4,318,291 $4,318,291 - -
Amounts due to
related parties 150,461 150,461 150,461 - -
Capital lease
obligations 9,229,413 10,500,403 6,492,352 3,792,613 215,438
Foreign Exchange Risk
In the normal course of business, the Company enters into transactions for the
purchase of supplies and services denominated in South African Rand ("ZAR"). In
addition, the Company has cash and certain liabilities denominated in ZAR. As a
result, the Company is subject to foreign exchange risk from fluctuations in
foreign exchange rates. The Company has not entered into any derivative or
other financial instruments to mitigate this foreign exchange risk.
The exposure of the Company`s cash and equivalents, amounts receivable and
amounts due from related parties to foreign exchange risk is as follows:
Currency November 30, 2008 February 29, 2008
South African Rand $ 9,269,808 $ 16,362,773
Other 44,743 1,127,790
Total Financial Assets $ 9,314,551 $ 17,490,563
The exposure of the Company`s accounts payable and accrued liabilities, amounts
due to related parties and capital lease obligations to foreign exchange risk
is as follows:
Currency November 30, 2008 February 29, 2008
South African Rand $ 13,727,971 $ 18,909,003
Total Financial Liabilities $ 13,727,971 $ 18,909,003
Sensitivity analysis:
A 10 percent change of the Canadian dollar against the ZAR at November 30, 2008
would have changed net profit by $749,210. This analysis assumes that all other
variables, in particular interest rates, remain constant.
Sensitivity analysis:
A 10 percent change of the prime rate for the period November 30, 2008 would
have changed net profit by $123,862. This analysis assumes that all other
variables, in particular foreign exchange rates, remain constant.
(iii) Amendments to Section 1400 - Going Concern
CICA 1400, General Standards of Financial Statement Presentation, was amended
to include requirements to assess and disclose an entity`s ability to continue
as a going concern. The new requirements are effective for the Company`s 2009
fiscal year. The Company`s assessment and disclosure of its ability to continue
as a going concern is disclosed in Note 1.
(iv) Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same title and will
harmonize accounting for inventories under Canadian GAAP with International
Financial Reporting Standards ("IFRS"). This standard requires that inventories
be measured at the lower of cost and net realizable value, and includes
guidance on the determination of cost, including the allocation of overheads
and other costs. The standard also requires that similar inventories within a
consolidated group be measured using the same method. It also requires the
reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. This new section is effective
for the Company`s 2009 fiscal year. Upon adoption of this standard, the Company
concluded that there were no material differences between the new standard and
the Company`s current accounting policy for its diamond and supplies inventory.
(b) Accounting Policies Not Yet Adopted
(i) International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with International Financial Reporting Standards ("IFRS") over an
expected five year transitional period. In February 2008, the AcSB announced
that 2011 is the changeover date for publicly-listed companies to use IFRS,
replacing Canadian GAAP. The date is for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2011. The
transition date of March 1, 2011 will require the restatement for comparative
purposes of amounts reported by the Company for the year ended February 28,
2011. The Company is currently in the process of developing an IFRS conversion
plan and evaluating the impact of the transition to IFRS.
(ii) Goodwill and Intangibles - Section 3064
The AcSB issued CICA Handbook Section 3064 which replaces Section 3062,
Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs. This new section establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets. Standards concerning goodwill remain
unchanged from the standards included in the previous Section 3062. The section
applies to interim and annual financial statements issued on or after January
1, 2009. Section 3064 is not expected to have a significant impact on the
financial statement.
4. DIAMOND INVENTORY AND SUPPLIES
As at As at
November 30, 2008 February 29, 2008
Rough diamond inventory $ 6,649,547 $ 830,780
Work in progress 95,027 433,074
Mine supplies 2,268,182 1,990,699
Fuel, oil and grease 272,781 211,300
Total inventory and supplies $ 9,285,537 $ 3,465,853
5. PROPERTY, PLANT AND EQUIPMENT
As at November 30, 2008
Accumulated Net book
Cost amortization value
$ $ $
Land 7 007 901 - 7,007,901
Processing plant and equipment 49,294,126 5,011,207 44,282,919
Processing plant and equipment
under capital lease 28,436,963 5,562,967 22,873,996
Office equipment 896,028 147,810 748,218
Vehicles and light equipment 1,750,522 432,156 1,318,366
Vehicles and light equipment
under capital lease 154,299 54,005 100,294
$ $ 11,208,145 $76,331,694
As at February 29, 2008
Accumulated Net book
Cost amortization value
Land $ 3,936,092 $ $ 3,936,092
Processing plant and equipment 35,421,362 1,474,746 33,946,616
Processing plant and equipment
under capital lease 27,850,217 2,961,508 24,888,709
Office equipment 815,209 8,476 806,733
Vehicles and light equipment 1,389,566 259,538 1,130,028
Vehicles and light equipment
under capital lease 154,323 30,865 123,458
$69,566,769 $ 4,735,133 $64,831,636
6. MINERAL PROPERTY INTERESTS
As at As at
Acquisition Costs November 30, 2008 February 29, 2008
Durnpike Investments (Pty) Limited
Balance, beginning of period $ 25,247,936 $ 24,121,854
Acquisition costs 55,746 1,822,138
Adjustment to mineral property cost (178,661) -
Financial, legal, advisory, and
other fees - 4,216
Site closure and reclamation
obligation recognized - 230,622
Future income tax liability (118,993) 419,050
Change in Future Income Tax rate (132,447) -
Depletion of mineral properties
during the period (1,031,105) (1,349,944)
Durnpike Investments (Pty) Limited,
end of period 23,842,476 25,247,936
Ricardo Property - 1
Saxendrift Mine (Pty) Ltd
Balance, beginning of period - -
Acquisition costs 9,822,979 -
Adjustment to mineral property costs 649,288
Financial, legal, advisory, and other fees 76,772 -
Future income tax liability 2,932,235 -
Depletion of mineral properties
during the year (492,414) -
Saxendrift Mine (Pty) Ltd,
end of period 12,988,860 -
Balance, end of period $ 36,831,336 $ 25,247,937
In April 2008, the Company completed the acquisition of Saxendrift Mine (Pty)
Ltd a South African private company with an alluvial diamond property in the
Middle Orange river area. The cash consideration paid of $15,256,809 comprised
of $9,899,763 for mineral rights, $6,245,700 for property, plant and equipment,
$130,800 for inventory, $786 for other assets and a reclamation obligation of
$1,020,240.
(a) Acquisition of Saxendrift Mine (Pty) Ltd.
On March 6, 2007, the Company and Trans Hex Group Limited ("Trans Hex") entered
into a conditional agreement whereby the Company`s wholly owned South African
subsidiary, Rockwell Resources RSA (Pty) Ltd. ("Rockwell RSA"), would acquire
two open pit alluvial diamond mines and three alluvial diamond exploration
projects from Trans Hex ("the Transaction"). Trans Hex, through its
wholly-owned subsidiary, Trans Hex Operations (Pty) Ltd. ("THO"), is the owner
of two open pit alluvial diamond mines, namely Saxendrift and Niewejaarskraal,
and three alluvial diamond exploration projects, namely Kwartelspan,
Zwemkuil-Mooidraai and Remhoogte-Holsloot, which are located along the southern
bank of the Middle Orange River between Douglas and Prieska in the Northern
Cape Province of South Africa ("Northern Cape") and which are collectively
referred to as the Middle Orange River Operations and Projects (or "MORO"). The
MORO includes:
the rights to prospect, explore and/or mine precious stones and/or other
minerals and/or metals held directly or indirectly by THO in the Saxendrift
area of the Northern Cape;
a series of large remnant alluvial diamond terraces;
the material plant, machinery, equipment and other movable assets owned
and/or used by THO;
certain employees of THO; and
a rehabilitation liability which will be taken over by the Company.
On April 11, 2008 the Company completed the MORO acquisition. The substantive
conditions to the Transaction have been fulfilled and the Company completed the
MORO acquisition.
Registration of transfer to Saxendrift Mine Pty (Ltd) of the Saxendrift mining
right, as well as prospecting rights in respect of the Kwartelspan,
Zwemkuil-Mooidraai and part of the Remhoogte-Holsloot projects has already
been obtained. Cession of the Niewejaarskraal mining right is still awaited at
this time from the DME, and the Remhoogte prospecting right is in the process
of being renewed.
The results of the Saxendrift operations have been included in the consolidated
financial statements since April 11, 2008, the date of acquisition. The
following table summarizes the total purchase consideration of the Saxendrift
assets:
Amount Amount
(ZAR) ($)
Cash advanced to fund Rockwell`s acquisition of
100% of 93,312,269 12,205,245
Saxendrift
Cash committed to fund 23,330,000 3,051,564
Total purchase consideration 116,642,269 15,256,809
The total acquisition price has been allocated to the net assets acquired and
liabilities assumed of Saxendrift as follows:
Amount Amount
(ZAR) ($)
Inventory 1,000,000 130,800
Plant and equipment 47,750,000 6,245,700
Other assets 6,009 786
Mineral property interests 75,686,260 9,899,763
Reclamation obligation (7,800,000) (1,020,240)
116,642,269 15,256,809
The allocation of purchase price is based on management`s estimates of the fair
value of the assets acquired and liabilities assumed at the date of
acquisition, April 11, 2008.
Effective July 1, 2008, a Black Economic Empowerment ("BEE") group acquired a
shareholding of 26% by subscribing for shares in Saxendrift, thereby reducing
the Company`s interest to 74%.
As at November 30, 2008, the Company had the following payment commitments
relating to the acquisition of Saxendrift remaining: (a) Payment of ZAR27.5
million ($3.4 million) in cash to Trans Hex subject to the anticipated grant of
Ministerial Consent to the cession of each of the Outstanding Mining Rights to
the Company and registration of cession of such rights in its name.
(b) Assumption of 74% ownership of HC Van Wyk Diamonds Ltd ("HCVW`) and Klipdam
Mining Company Limited ("Klipdam")
Effective March 1, 2008, the Company increased its ownership of HCVW and
Klipdam by 34% resulting to an 85% interest by issuing 14,285,715 common shares
of the Company pursuant to the June 2006 Durnpike Definitive Agreement thereby
reducing the non-controlling interest to 15%.
Subsequent to that, effective June 1, 2008 the BEE group increased its
shareholding from 15% to 26% by subscribing for an additional 11% shares in
HCVW and Klipdam, thereby reducing the Company`s interest to 74%.
(c) Galputs Minerale Project
As provided for in the June 2006 Durnpike Definitive Agreement, the Company
executed an agreement in relation to the acquisition of control of the mineral
rights relating to the Galputs Minerale Project ("Galputs"). In order for the
Company to fully control the Galputs minerals rights, the South African
Department of Minerals and Energy ("DME") had to give its final written
approval to transfer of the shares of Galputs from Virgilia Investments Inc. to
the Company on or before May 31, 2008. Since no written approval had been
received from the DME by May 31, 2008, the provisions of the agreement shall
not be enforced and as a result all parties have been restored to a position
prior to entering the agreement.
(d) Disposal of discontinued operations - Minera Ricardo
During the period ended August 31, 2008, the Company sold its 100% interest in
certain mineral exploration and exploitation concessions in the Calama Mining
District in Chile known as the Ricardo Property through the sale of all its
shares in Minera Ricardo Resources Inc. S.A. ("Minera Ricardo") to Hunter
Dickinson Acquisitions Inc., a company with certain directors and officers in
common, for a nominal price of $1, resulting in a loss of $203,338.
Accordingly, the results of operations of Minera Ricardo have been segregated
and presented separately as discontinued operations in the consolidated
financial statements. The results of discontinued operations, including the
loss on the sale of assets, were as follows:
Period ended
November 30,
2008
$ -
Revenue
Loss from operations until July 14, 2008 (135,528)
Loss on disposal (67,810)
Income tax effect -
Loss from sale of discontinued operations $ (203,338)
7. CAPITAL LEASE OBLIGATIONS
Included in property, plant and equipment are mining equipment that the Company
acquired pursuant to three to four year capital lease agreements.
The Company`s capital lease obligations are with the following financial
institutions:
Capital lease obligations as detailed above aae secured over plant As d
tequipment and are repayable in monthly instalment
As at As at
November 30, 2008 February 29, 2008
Future minimum lease paymentsas follows:
$ $
ELB Finance - 105,418
Stannic 1,162,472 2,093,869
Wesbank 105,340 319,236
Nedbank 244,094 1,842,519
Komatfin 7,717,507 10,442,257
$ 9,229,413 $ 14,803,299
As at
November 30,
2008
2009 $ 6,492,352
2010 3,792,613
2011 215,438
Total minimum lease payments 10,500,403
Less interest portion (1,270,990)
Present value of capital lease obligations 9,229,413
Current portion (5,607,530)
$
Non-current portion 3,621,883
8. RECLAMATION OBLIGATION
The continuity of the provision for site closure and reclamation costs related
to the Holpan, Wouterspan, Klipdam owned by the Durnpike Investments subsidiary
and Saxendrift mines, are as follows:
As at As at
November 30, February 29,
2008 2008
Durnpike Investments (Pty) Limited
Balance, beginning of period $ 1,755,820 $ 1,361,557
Changes during the period:
Site closure and reclamation obligation
recognized 230,622
Foreign exchange on reclamation (65,306) (300,675)
Accretion expense 171,557 464,316
$ 1,862,071 $ 1,755,820
Durnpike Investments (Pty) Limited, end of
period
Saxendrift Mines (Pty) Limited
Balance, beginning of period
$ - $ -
Changes during the period:
Site closure and reclamation obligation
recognized 1,020,240 -
Foreign exchange on reclamation (94,690) -
Accretion expense 90,370 -
Saxendrift Mines (Pty) Limited, end of period $ 1,015,920 $ -
Balance, end of period $ 2,877,991 $ 1,755,820
The estimated amount of the reclamation costs, adjusted for estimated inflation
at 9% per year, is $732,688 for the Klipdam mine in the year 2011, $1.3 million
for the Holpan mine in the year 2013 and $3.8 million for the Wouterspan mine
in the year 2027 and is expected to be spent over periods of approximately
three years beginning in 2011, 2013 and 2027 respectively. The estimated
reclamation costs for Saxendrift is $1,131,600 which is the amount that had
been established by an independent consultant during the acquisition process.
As no gravel mining has taken place yet it has not been necessary to adjust
this amount. The credit-adjusted risk free rate at which the estimated future
cash flows have been discounted is 13%, to arrive at a net present value of
$2,877,991. The accretion of $261,927 (2008 - $464,316) is charged to the
statement of operations. During the period the Company revised the site closure
and reclamation obligation.
As required by regulatory authorities, at November 30, 2008, the Company had
cash reclamation deposits totaling $2,906,262 (2008 - $ 1,816,877) comprised of
$1,784,902 (2008 - $ 1,657,489) for the Holpan and Wouterspan mines, $159,388
(2008 - $159,388) for the Klipdam mine and $961,972 (2008 - Nil) for the
Saxendrift mine. These deposits are invested in interest bearing money market
linked investments at rates ranging from 9.5% to 11%.
9. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an unlimited number of
common shares, without par value, and an unlimited number of preferred shares
without par value, of which none have been issued.
(b) Share purchase options
The Company has a share purchase option compensation plan approved by the
shareholders that allows the Company to grant options for up to 10% of the
issued and outstanding shares of the Company at any one time, typically vesting
over two years, to its directors, employees, officers, and consultants. The
exercise price of each option is set by the Board of Directors at the time of
grant and cannot be less than the market price (less permissible discounts) on
the Toronto Stock Exchange. Options have a maximum term of five years and
typically terminate 30 days following the termination of the optionee`s
employment, except in the case of retirement or death.
The continuity of share purchase options for the nine months ended November 30,
2008 is as follows:
Exercise February
Expiry date price 29 2008 Granted
March 28, 2008 $ 0.50 150,000 -
July 10, 2010 $ 0.68 300,000 -
September 24, 2012 $ 0.62 5,903,000 -
November 14, 2012 $ 0.63 1,109,000 -
June 20, 2011 $ 0.45 - 1,150,000
7,462,000 1,150,000
Weighted average exercise price $ 0.62
Expired/ November
Expiry date Exercised cancelled 30 2008
March 28, 2008 - 150,000 -
July 10, 2010 - 100,000 200,000
September 24, 2012 - - 5,903,000
November 14, 2012 - 2,500 1,106,500
June 20, 2011 - 133,334 1,016,666
- 385,834 8,226,166
Weighted average exercise price $ 0.60
As at November 30, 2008, 2,439,833 of the options outstanding with a weighted
average exercise price of $0.60 per share have vested with grantees.
Using a Black-Scholes option pricing model with the assumptions noted below,
the fair values of stock options granted have been reflected in the statement
of operations as follows:
Three months ended Nine months ended
November 30 November 30
2008 2007 2008 2007
Exploration and
engineering $ 194,571 $ 167,109 $ 531,814 $ 177,581
Operations and
administration 304,845 449,672 1,025,703 478,851
Total compensation
cost expensed to
operations,
with the offset
credited to
contributed surplus $ 499,416 $ 616,781 $1,557,517 $ 656,432
The weighted-average assumptions used to estimate the fair value of options
granted are as follows:
Three months ended Nine months ended
November 30 November 30
2008 2007 2008 2007
Risk free interest rate 3.4% 4% 3.4% 4%
Weighted average
expected life 4.8 years 2.0 years 4.8 years 2.0 years
Weighted average
expected volatility 117% 83% 117% 83%
Expected dividends nil nil nil nil
c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable into one
common share) for the period ended November 30, 2008 is:
November 22, 2009 (i) May 09, 2009 (ii) May 09, 2009 (iii)
Expiry
date
Exercise
price $1.00 $0.70 $0.70
Balance,
February
29, 2008 39,600,000 116,007,154 5,772,000
Issued - - -
Exercised - - -
Expired - - -
Balance,
November
30, 2008 39,600,000 116,007,154 5,772,000
(i) The share purchase warrants are exercisable over three years with the
option to exercise at $0.60 expiring on November 22, 2007, the option to
exercise at $0.80 expiring on November 22, 2008 and the option to exercise at
$1.00 expiring on November 22, 2009. In May 2007, Rockwell completed a
$60 million private placement financing of
(ii) 116,007,154 million equity Units at $0.52 each with each Unit consisting
of one common share and one share purchase warrant exercisable over two years
at $0.70. In May 2007, the Company issued 5,772,000 broker warrants exercisable
over two years at
(iii) $0.70 expiring on May 9, 2009. Using a Black-Scholes option pricing
model, the fair value of the 5,772,000 broker warrants granted in the amount of
$1,693,197 have been reflected in the consolidated balance sheet. The
weighted-average assumptions used to estimate the fair value of warrants
granted were an expected volatility of 97%, expected dividends of nil, expected
life of 2 years and risk free rate of 4%.
10. RELATED PARTY BALANCES AND TRANSACTIONS
As at As at
Balances payable
November 30, 2008 February 29,2008
Banzi Trading (h) $ 5,227 $ -
Jakes Tyres (i) 93,678 49,604
Hunter Dickinson Services Inc. (a) 51,556 -
$ 150,461 $ 49,604
Balances receivable
Hunter Dickinson Services Inc. (a) $ - $ 78,504
Flawless Diamonds Trading House (g) 1,881,778 477,298
Banzi Trade 26 (Pty) Ltd (h) 34,744 33,744
Diacor CC (k) 31,952 3,888
$ 1,948,474 $ 593,434
Three months ended Nine months ended
November 30 November 30
Transactions 2008 2007 2008 2007
Services rendered and expenses
reimbursed:
Hunter Dickinson Services Inc. (a) $ $ $ $
316,304 283,436 697,012 816,459
Euro-American Capital
Corporation (b) - 6,208 - 20,208
CEC Engineering (c) 10,349 17,641 24,638 47,364
Jeffrey B Traders CC (d) - 13,185 - 82,143
Seven Bridges Trading (e) 29,649 19,277 96,499 52,882
Cashmere Trading (f) - 119,544 18,970 284,240
Banzi Trade 26 (Pty) Ltd (h) 12,732 5,064 25,095 261,158
Jakes Tyres (i) 96,593 737,538 438,781 1,140,771
AA Van Wyk (j) - - - 326,956
Diacor CC (k) 677 - 36,311 -
Sales rendered to:
Flawless Diamonds
Trading House (g) $ $ $ $
16,226,715 12,072,363 33,394,914 33,955,084
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company equally owned
by several public companies, one of which is Rockwell, and has certain
directors in common with the Company. HDSI provides geological, technical,
corporate development, administrative and management services to, and incurs
third party costs on behalf of, the Company on a full cost recovery market
related basis pursuant to an agreement dated June 1, 2008. There are no
specific terms of repayment.
(b) Euro-American Capital Corporation is a private company controlled by Rene
Carrier, a director of the Company, which provided management services to the
Company at market rates for those services, until February 29, 2008. Rene
Carrier resigned as a Director in November 2008.
(c) CEC Engineering Ltd. is a private company owned by David Copeland, Chairman
and a director of the Company, which provides engineering and project
management services at market rates.
(d) Jeffrey B Traders CC is a private
(e) company controlled by Jeffrey Brenner, a former director and employee of
the Company, which provided management and specialized diamond marketing
services to the Company at market rates, until February 29, 2008.
(f) Seven Bridges Trading is a wholly owned subsidiary of Randgold Resources, a
public company where Mark Bristow, a director of the Company, serves in an
executive capacity. Seven Bridges Trading provides office, conferencing,
information technology, and other administrative and management services at
market rates to the Company`s South African subsidiaries.
(g) Cashmere Trading is a private company owned by Hennie Van Wyk, an officer
of the Company, which provides helicopter services for the movement of product
on an ad-hoc basis at competitive market rates thereby providing benefits to
the company and its employees in respect of secure transport of high value
product and reduced insurance premiums.
(h) Flawless Diamonds Trading House ("Flawless") is a private company where
certain directors, former directors and officers of the Company, namely, Messr.
Brenner, J W Bristow, D M Bristow and H C Van Wyk, are shareholders of.
Flawless is a registered diamond broker which provides specialist diamond
valuation, marketing and tender sales services to the Company for a fixed fee
of 1% of turnover which is below the market rate charged by similar tender
houses.
(i) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC van Wyk Diamonds Ltd
and 51% by Bokomoso Trust. Banzi is an empowered private company established to
provide self sustaining job creation programs to local communities as part of
the company`s Social and Labour Plan which is required in terms of the Minerals
and Petroleum Resources Development Act ("MPRDA") Banzi provides the Company
with buildings materials at market rates.
(j) Jakes Tyres is a private company of which H C Van Wyk is a director that
provides tyres, tyre repair services and consumables at market rates to
Rockwell`s remote Middle Orange River operations.
(k) AA Van Wyk is a private company of which H C Van Wyk is a director and
shareholder and which provided contract mining services at market rates until
February 29, 2008.
(l) Diacor CC is a private company of which H C van Wyk is a director that has
provided consumable materials at market rates to the Company.
11. SUBSEQUENT EVENTS
(a) Outstanding Niewejaarskraal mining rights
On April 11th, 2008 all the conditions precedent to the Saxendrift acquisition
had been met, however the Niewejaarskraal new mining order rights are still
outstanding and are subject to the approval of the South African Department of
Minerals and Energy.
(b) Response to current market conditions
Subsequent to the quarter, the deterioration of global economic conditions has
resulted in a significant weakening of mineral prices and high volatility in
exchange traded commodity prices.
The deterioration in credit market conditions has also increased the cost of
obtaining capital and limited the availability of funds. In these conditions,
it is difficult to forecast diamond prices and customer demand for our
products.
Valuation of Rockwell`s rough diamond inventory is calculated on a formula
based on a six month sales average, excluding sales in excess of $650,000 per
diamond, reduced by 30%. At 30 November 2008, in light of the global economic
downturn, this value was further reduced by 25% from $1,576 per carat to $1,182
per carat. This measure was considered to be conservative at the balance sheet
date, however due to the uncertainty caused by these unprecedented times; we
have included two further scenarios.
The following table expresses the possible effects on Net Profit and Earnings
per Share should net realizable value of rough diamond inventory value fall to
a low case scenario of $919 per carat, a medium base scenario of $1,051 per
carat and the reported case of $1,182 per carat.
$ per $ per Carat Net profit reported Possible Earnings per
Carat inventory share
adjustment
$ $ $ $ $
900 1,182 1,476,348 - 0.0063
800 1,051 1,476,348 546,741 0.0040
700 919 1,476,348 1,093,481 0.0016
Note: Exchange rate as at 30 November 2008 used to convert US Dollars to
Canadian Dollars.
12. CONTINGENCIES AND COMMITMENTS
(a) In connection with the property described in the Company`s audited annual
consolidated financial statements for the nine months ending February 29, 2008.
Subsequent to the finalization of the agreement one of the 50% shareholders of
Midamines denied the validity of that agreement. Due to this dispute, Midamines
has not afforded Durnpike access to the site, and assistance as regards its
proposed operations on the site, in the manner contemplated in the Midamines
Agreement. This failure significantly delayed the Company`s proposed operations
on the site, and it is consequently the Company`s position that the required
royalty payments be suspended for the duration of the dispute. Following
apparent resolution of this dispute in late 2007 Rockwell during the third
quarter of fiscal 2008 paid a consideration of $600,000 to Midamines in order
to increase the size of the concession. During fiscal 2009 the Company
attempted to initiate small scale prospecting operations on the Midamines
project on the Kwango River. However problems were again experienced in respect
of access to the project area which resulted in Rockwell giving notice to
terminate the project. Rockwell has engaged appropriate legal counsel to
address this situation, and although the outcome is currently not determinable
the project is not a material operation of the Company.
(b) As at November 30, 2008, the Company had the following payment commitments
relating to the acquisition of Saxendrift remaining: (a) Payment of ZAR27.5
million ($3.4 million) in cash to Trans Hex subject to the anticipated grant of
Ministerial Consent to the cession of each of the Outstanding Mining Rights to
the Company and registration of cession of such rights in its name.
(c) As at December 16, the Company has decided to place the Wouterspan mine on
care and maintenance to evaluate refurbishment options.
ROCKWELL DIAMONDS INC.
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2008
MANAGEMENT`S DISCUSSION AND ANALYSIS
TABLE OF CONTENTS
1.1 DATE ....................................................................2
1.2 OVERVIEW..................................................................2
1.3 SELECTED ANNUAL INFORMATION ............................................ 16
1.4 SUMMARY OF QUARTERLY RESULTS ........................................... 18
1.5 RESULTS OF OPERATIONS .................................................. 19
1.6 LIQUIDITY .............................................................. 20
1.7 CAPITAL RESOURCES ...................................................... 21
1.8 OFF-BALANCE SHEET ARRANGEMENTS ......................................... 21
1.9 TRANSACTIONS WITH RELATED PARTIES ...................................... 22
1.10 FOURTH QUARTER ........................................................ 24
1.11 PROPOSED TRANSACTIONS ................................................. 25
1.12 CRITICAL ACCOUNTING ESTIMATES.......................................... 25
1.13 CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION ............. 26
1.14 FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS ........................... 27
1.15 OTHER MD&A REQUIREMENTS ............................................... 29
1.15.1 ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT
SIGNIFICANT REVENUE.................................................. 29
1.15.2 DISCLOSURE OF OUTSTANDING SHARE DATA ................................ 29
1.15.3 INTERNAL CONTROLS OVER FINANCIAL REPORTING PROCEDURES ............... 30
ROCKWELL DIAMONDS INC.
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2008
MANAGEMENT`S DISCUSSION AND ANALYSIS
1.1 Date
This Management Discussion and Analysis ("MD&A") should be read in conjunction
with the unaudited consolidated financial statements of Rockwell Diamonds Inc.
("Rockwell", or the "Company") for the nine months ended November 30, 2008 and
the audited consolidated financial statements for the nine months ended
February 29, 2008, prepared in accordance with Canadian generally accepted
accounting principles, and publicly available on SEDAR at www.sedar.com.
In December 2007, the Company`s Board of Directors approved a resolution to
change the Company`s year end from May 31, 2008 to February 29, 2008.
This MD&A is prepared as of January 14th, 2009. All dollar figures stated
herein are expressed in Canadian dollars, unless otherwise specified.
This discussion includes certain statements that may be deemed "forward-looking
statements". All statements in this discussion, other than statements of
historical facts, that address future production, reserve potential,
exploration drilling, exploitation activities and events or developments that
the Company expects are forward-looking statements. Although the Company
believes the expectations expressed in such forward-looking statements are
based on reasonable assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially from those
in the forward-looking statements. Factors that could cause actual results to
differ materially from those in forward-looking statements include market
prices, exploitation and exploration successes, continued availability of
capital and financing and general economic, market or business conditions.
Investors are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in the forward-looking statements.
1.2 Overview
Rockwell Diamonds Inc. ("Rockwell" or the "Company") is engaged in the business
of alluvial diamond production. The Company has also investigated other
potential acquisitions which would provide accretive value to Rockwell. In the
light of current financial and diamond market conditions the Company is
unlikely to progress acquisition opportunities until such time as market
conditions improve.
1.2.1 Summary
During the nine months of fiscal 2009, the Company operated three alluvial
diamond mines and one development property. During this period the company
finalised the commissioning of the new final recovery, and began the
commissioning of the new processing facility at the Saxendrift property.
Following the work stoppages of the 2nd quarter full operation were resumed on
September 3, 2008. The Wouterspan mining operation was reorganised to lower the
unit production cost.
In the three month period ended November 30, 2008:
5,981.25 carats were produced at the Holpan/Klipdam, Wouterspan and
Saxendrift operations
1,997.94 carats were sold at an average price of $6,762.76 per carat
Revenues from sales were $16.2 million. (Raw sales $13.5 million,
beneficiated sales $2.7 million)
Cost of sales and amortization totalled $6.5 million, resulting in an
operating profit of $9.5 million for the period.
Net general and administrative expenses amounted to $1.9 million, offset by a
net tax recovery of $134,035 resulted in a net profit of $4.5 million or $0.02
per share.
In the nine months ending November 30, 2008:
16,558.09 carats were produced from operations at Holpan/Klipdam, Wouterspan
and Saxendrift.
11,965.58 carats were sold at an average price of $2,538.43 per carat.
Revenues from sales of $33.3 million, inclusive of revenue received from
contract diamond sales of $13.3 million.
Cost of sales and amortization totalled $24.1 million, resulting in an
operating profit of $9.5 million for the period.
Net general and administrative expenses amounted to $6.5 million, offset by a
net tax recovery of $1.2 million, and the loss on the sale of a discontinued
operation of $203,338 resulted in a net profit of $1.4 million or $0.01 per
share.
Diamonds in inventory at November 30, 2008 totalled 5,619.24 carats.
In August 2008, the Company acquired some 12,254 hectares in additional
prospecting permits in the North Cape Province, a number of which are adjacent
to the Wouterspan and Saxendrift operations.
On September 9, 2008, Pala Investments Holdings Limited ("Pala") made an
unsolicited offer to acquire all of the outstanding shares of Rockwell for
$0.36 per share ("the Offer"). After careful consideration, including
consultation with its independent financial and legal advisors and
recommendation from a special committee, Rockwell`s Board concluded that the
Offer significantly undervalues Rockwell and was not in the best interests of
its shareholders. Management recommended to shareholders to reject the Offer.
A Directors` circular was mailed to shareholders on September 22, 2008. This
offer was subsequently withdrawn by Pala.
The commissioning of the new Saxendrift high volume wet rotary pan plant
comprising four modular scrubber and 18foot pans was conducted during November
2008. This plant will start production and ramp-up during the fourth quarter of
fiscal 2009.
Full scale pre-commissioning trials of the new final recovery facility at the
Saxendrift operation began three weeks ahead of schedule in September 2008. The
facility incorporates seven, flow-sort X-ray recovery machines, a state of the
art optical sort machine, hands-off diamond recovery units with built-in secure
storage capability and security monitoring. The flow sort X-ray recovery units
are configured to process and recover diamonds in the size fraction +2 mm to 32
mm at a high level of throughput and efficiency, and will recover diamonds of
up to about 210 carats in size. In addition, an optical sort machine has been
integrated that will also allow recovery of considerably larger stones up to
about 500 carats in size.
1.2.2 Financings
In fiscal year ended May 31, 2007, the Company completed two significant equity
financings. During the nine month period ended February 29, 2008, the Company
completed a brokered private placement financing. There were no financings
completed during nine months ended November 30, 2008.
$21 million private placement financing
In November 2006, Rockwell completed a private placement of $21 million,
consisting of 42 million units at $0.50 per unit (the "Offering"). Each unit
consists of one common share ("Share") in the capital of the Company and one
Share purchase warrant. Each warrant entitles the holder to buy one common
share in the capital of the Company at the exercise price of $0.60 during the
first year from completion of the financing, or at an exercise price of $0.80
during the second year or at an exercise price of $1.00 during the third year.
The third year term of the warrants is conditional upon Rockwell achieving Tier
1 status on the TSX Venture Exchange within the first two years. The Company
listed on the TSX in fiscal 2008. A portion of the securities is subject to
additional US resale restrictions in the United States. The Company paid cash
commissions of $1,215,770.
Financing to raise up to $60 million
In May 2007, the Company completed a private placement and issued 116,007,154
million equity units at a price of $0.52 per unit for aggregate proceeds of up
to $60 million, comprised of approximately $50 million to be issued to
investors under the brokered offering and $10 million to be issued in a
non-brokered offering. Each unit consists of one common share and one share
purchase warrant exercisable at $0.70 for a 24 month period from completion.
Units issued under the brokered offering were being offered by a syndicate of
agents. Closing of the offering occurred on May 9, 2007.
The Company paid cash commissions of $3,877,665, issued 1,093,440 common shares
fair valued at $568,588 as compensation to agents as well as 5,772,000 broker
warrants fair valued at $1,693,197 to the agents, bringing the total issued
common shares to 117,100,594 and total commissions to $6,139,450.
The net proceeds from the offerings will be used to fund Rockwell`s acquisition
of the MORO from Trans Hex, expand production capacity at its Wouterspan
operation across the river from the MORO, implement improvements at its other
operations, and for general corporate purposes.
$14.5 million private placement financing, January 2008
In January 2008, the Company completed a brokered private placement, which had
been announced on November 28, 2007, and issued a total of 24,101,526 Common
Shares at a price of $0.60 per share for total proceeds of $14,460,916. The
Company issued 500,000 Common Shares and paid a cash fee of $300,000 as
finder`s fees relating to the private placement. All shares issued pursuant to
the private placement were subject to a hold period that expired on March 31,
2008.
Proceeds from the financing will be used to fund Rockwell`s diamond operations
and new project evaluation and development.
1.2.3 Agreements
Durnpike Agreement
On June 30, 2006, the Company entered into an Agreement-in-Principle to acquire
interests and/or rights in four alluvial diamond properties in South Africa and
the Democratic Republic of Congo ("DRC"). These four properties include the
Holpan/Klipdam Property in South Africa, Wouterspan Property in South Africa,
Kwango River Project in the DRC and Galputs Minerale Project in South Africa.
Subsequently and pursuant to the terms of the Definitive Agreement, the Company
acquired all of the shares and loans in Durnpike, a private South African
company, from eight vendors (the "Vendors") for consideration set forth below,
payable in common shares of the Company ("Common Shares") related to the
closing price of the Common Shares on the TSX Venture Exchange on the specified
dates described below. Durnpike holds an interest in respect of and/or rights
in the four alluvial diamond properties.
The Holpan/Klipdam Property and the Wouterspan Property were indirectly owned
by the H.C. Van Wyk Diamante Trust ("Van Wyk Trust"), a business trust
registered in South Africa. The Van Wyk Trust held 99% of HC Van Wyk Diamonds
Ltd ("HCVW"), a private South African company, and 99% of Klipdam Mining
Company Limited ("Klipdam"), a private South African company. The remaining 1%
of HCVW and Klipdam was owned by nominees of the Van Wyk Trust. HCVW and
Klipdam were collectively referred to as The Van Wyk Diamond Group of companies
("VWDG").
On July 7, 2006, Durnpike completed the acquisition of an initial 49% of the
issued and outstanding shares of HCVW and 51% of the issued and outstanding
shares of Klipdam (the "Acquisition Interest") for South African Rand ("ZAR")
50 million ($7.8 million) and agreed to pay an additional ZAR30 million ($4.5
million) to the Van Wyk Trust on July 7, 2007.
To facilitate Durnpike`s payment of ZAR50 million to the Van Wyk Trust on July
7, 2006, the Company advanced a non-interest bearing loan to Durnpike of ZAR50
million (Cdn$7.8 million). This loan is secured by a pledge of Durnpike`s
Acquisition Interest. The payment of ZAR30 million was made to the Van Wyk
Trust in June 2007.
Durnpike increased its shareholding in HCVW to a 51% controlling interest by
(a) subscribing for additional shares in HCVW for the amount of ZAR 1 million
($160,000) and (b) introducing a ZAR 24 million ($3.9 million) working capital
loan into VWDG. These conditions were met in January 2007.
The Company also entered into an Exchange Agreement with the Van Wyk Trust to
acquire the remaining shareholding of VWDG for ZAR 60 million ($9 million),
payable in Common Shares. The Exchange Agreement became effective upon Rockwell
completing its listing of the Company`s Common Shares on the JSE Limited
("JSE") stock exchange. In March 2008, the Company issued Common Shares to the
Van Wyk Trust and increased its ownership by 34% to a total of 85% of the VWDG
assets.
Pursuant to the Definitive Agreement:
The Company acquired from the Vendors all of their shares and loans in
Durnpike for consideration of ZAR 39.8 million ($6.1 million), payable in
common shares of the Company on the earlier of (i) the date of the JSE listing;
and (ii) within approximately 12 months from signature of the Definitive
Agreement. By virtue of such acquisition, the Company acquired Durnpike`s
interests in the four alluvial diamond properties in South Africa and the DRC.
The ZAR consideration does not include payment in respect of the Kwango River
Project, which payment stands to be made by the Company only when (and if) the
feasibility study referred to below has been completed and approved by the
board of directors of the Company.
On November 30, 2007, the Company began trading on the JSE and hence completed
its JSE listing condition. Consequently, the Company issued 7,848,663 Common
Shares as settlement of its commitment and also 1,676,529 Common Shares as
finder fees relating to the Durnpike acquisition.
The Company has spent C$283,691 on a feasibility study on the Kwango River
Project by November 30, 2007. This deadline may be extended to February 29,
2008 at no cost and be further extended to December 31, 2008 by payment of $1
million in Common Shares. As the deadline of February 29, 2008 was not met, the
Company negotiated an extension to such deadline. If the Company wishes to
retain the Kwango River Project following completion of the feasibility study,
the Company must (i) pay to the Vendors an amount equal to 60% of the net
present value of the Kwango River Project Valuation (as determined in terms of
the feasibility study and subject to a minimum acquisition cost of $13
million and a maximum acquisition cost of $26 million), which payment shall
be effected by the issuance of Common Shares and (ii) commit to incur an
additional amount of up to $6 million in expenditures for development of the
Kwango River Project within 16 months from the date of completion of the
feasibility study. If the Company does not wish to retain the Kwango River
Project following completion of the feasibility study, the Definitive Agreement
provides for Durnpike being divested of such project on certain terms, with the
Company nevertheless retaining 100% of the shares in Durnpike (and therefore
the indirect interests in the Holpan/Klipdam, Wouterspan and Galputs
properties). In such event, the full and final purchase consideration for
Durnpike will be limited to the ZAR Consideration.
Durnpike`s interest in the Kwango River Project is constituted by an agreement
("Midamines Agreement") with Midamines SPRL ("Midamines"), the holder of the
exploration permit on the Kwango River Project, to act as contractor on behalf
of Midamines to manage and carry out exploration and mining. Durnpike will be
entitled to an 80% share of the net revenue from the sale of any diamonds
produced from the contract area.
Under the Midamines Agreement, Durnpike agreed to certain minimum royalty
payments being made to Midamines. These royalties take the form of a series of
recurring annual minimum royalty payments of $1,200,000 per annum (commencing
on December 31, 2007). (As to the enforceability of this commitment in light of
developments pertaining to the Midamines Agreement, see note 15(a) to the
audited financial statements for the nine months ending February 29, 2008).
During the third quarter of 2008 the Company paid consideration of $600,000 to
Midamines in order to increase the size of the concession (Permit 331).
All of the Common Shares issued to the Vendors pursuant to the acquisition,
other than the Common Shares issued to extend the feasibility study deadline,
will be held in escrow for at least nine months from the date of issuance,
provided that a limited portion of those escrowed Common Shares may be released
to enable the Vendors to meet certain specified obligations.
On January 31, 2007, all the conditions precedent to implementation of the
Acquisition as per the Definitive Agreement, were fulfilled. The Company also
received the necessary regulatory approvals in Canada and South Africa.
As provided for in the Definitive Agreement, the Company executed an agreement
in relation to the acquisition of control of the mineral rights relating to the
Galputs Minerale Project. For the Galputs deal to be fulfilled the condition
precedent was that the South African Department of Minerals and Energy had to
give its written approval to transfer the shares from the vendor to the
purchaser by no later than May 31, 2008. Due to the fact that no written
approval had been obtained on or before May 31, 2008, the provisions of the
agreement shall not be of any force and all parties have been restored to a
position as if the agreement had not been entered into.
During the year ended May 31, 2007, a BEE group purchased 15% of the VWDG from
the Van Wyk Trust for an amount of ZAR22.5 million ($3.4 million). The BEE
company is African Vanguard Resources (Pty) Ltd., the holding company of
Richtrau No 136 (Pty) Ltd. During the nine months ended November 30, 2008 the
BEE group increased its shareholding from 15% to 26% by subscribing for an
additional 11% shares in the VWDG. This additional 11% were at a subscription
price of ZAR 17.5 million and the BEE group will also inject ZAR 10.5 million
in working capital into the VWDG.
Makoenskloof property acquisition
In conjunction with the acquisition of Durnpike, HCVW had an option agreement
to acquire the Makoenskloof alluvial diamond project. The Makoenskloof property
is located on the north bank of the Middle Orange River, approximately 20 km
from the town of Douglas, South Africa, and 40 km upstream from the Wouterspan
diamond operation. As a result of the acquisition of HCVW by Durnpike, and
concurrent acquisition of Durnpike by Rockwell, the Company assumed the option
to purchase the Makoenskloof property.
In November 2006, HCVW exercised its option to purchase the property and the
company that held the mineral rights of the Makoenskloof property. HCVW paid
ZAR 5.4 million ($880,000) in January 2007 for the property and mining permits.
Pursuant to this option exercise, HCVW also entered into a sub-contracting
agreement with Folmink Delwery CC to perform bulk sampling, commencing in March
2007. In April 2007, HCVW entered into an agreement to purchase ZAR 21.3
million (approximately $3 million) in plant and equipment from the
sub-contractor and to terminate the sub-contracting arrangement. The Company
has paid a total consideration of ZAR 19 million ($2.7 million).
The Makoenskloof property is currently on care and maintenance.
Middle Orange River Operations ("MORO") Agreement
In March 2007, Rockwell and Trans Hex, through its wholly owned subsidiary
Trans Hex Operations (Pty) Ltd ("THO"), announced that the companies had
entered into an agreement whereby Rockwell`s wholly owned South African
subsidiary, Rockwell Resources RSA (Pty) Ltd ("Rockwell RSA"), would acquire
two open pit alluvial diamond mines (Saxendrift and Niewejaarskraal) currently
on care and maintenance, and three alluvial diamond exploration projects
(Kwartelspan, Zwemkuil-Mooidraai, and Remhooget-Holsloot) referred to
collectively as the Middle Orange River Operations from Trans Hex ("the
Transaction"). Pursuant to the terms of the Transaction, Trans Hex will
transfer all its relevant mineral rights and associated assets into a new
special purpose vehicle ("Saxendrift Mine Pty (Ltd)") which Rockwell acquired
via Rockwell RSA.
The MORO include:
the rights to prospect and explore for and/or mine precious stones and/or
other minerals and/or metals held directly or indirectly by THO in the
Saxendrift area (described above);
substantial indicated and inferred mineral resources;
the material plant, machinery, equipment and other movable assets owned
and/or used by THO - These operating assets were independently valued by
Manhattan Mining Equipment (Pty) Limited in April 2005 at ZAR 53.3 million
($8.0 million);
the employees of THO in terms of Section 197 of South Africa`s Labour
Relations Act of 1995; and
a rehabilitation liability which will be taken over by Rockwell on the basis
that the tailings and other heaps of unprocessed diamond bearing middlings
gravel and Rooikoppie gravels will be reprocessed by Rockwell to recover
contained diamonds. The plan is to process the material and simultaneously
rehabilitate these areas.
The Company has paid cash consideration to Trans Hex of ZAR 93.3 million ($12.2
million) and assumed potential liabilities for staff layoffs of ZAR 5 million
($0.6 million) and rehabilitation bonds of ZAR 7.8 million ($1 million). An
independent consultant has been appointed to determine the value of the
rehabilitation bonds. All payments and liabilities are expected to total $16.2
million, subject to certain final adjustments. Trans Hex will transfer all its
relevant mineral rights and associated assets into Saxendrift Mine Pty (Ltd) to
be acquired by the Rockwell RSA.
The Transaction was completed in April 2008. Registration of transfer to
Saxendrift Mine Pty (Ltd) of the Saxendrift mining right, as well as
prospecting rights in respect of the Kwartelspan, Zwemkuil-Mooidraai and part
of the Remhoogte-Holsloot projects was obtained. Cession of the Niewejaarskraal
mining right is still awaited from the DME, and the Remhoogte prospecting right
is in the process of being renewed.
Until these rights have been awarded, funds of ZAR 26.8 million allocated for
their purchase will be retained in an interest-bearing Trust account. Once the
DME has issued the necessary cession and renewal documents, these rights will
also be transferred to Rockwell RSA via the Saxendrift Mine Pty (Ltd) and the
funds in Trust released to Trans Hex.
Farhom Property
On July 30, 2007, H.C. Van Wyk Diamonds acquired 100% of the shares and
shareholder loans of Farhom Mining & Construction (Pty) Ltd for ZAR 10 million
($1.5 million). This company holds the mineral rights over the Farhom farm
property. This transaction was concluded in terms of an option granted to HCVW
on February 24, 2005 and later amended on July 10, 2007.
1.2.4 Production Properties
Production and Sales - Quarter Comparison
The following is a comparison of the current quarter (ending November 30, 2008)
with the quarter ending November 30, 2007.
PRODUCTION
Operation 3 months ending November 30, 2008
Volume Carats Average grade
(cubic (carats per 100
meters) cubic meters)
Holpan 155,759 1290.42 0.83
Klipdam 239,245 2,288.88 0.96
Wouterspan 189,224 1,568.00 0.83
Makoenskloof - - -
Saxendrift 83,632 833.95 1.00
Total 667,860 5,981.25 0.90
Operation 3 months ending November 30, 2007
Volume Carats Average grade
(cubic (carats per 100
meters) cubic meters)
Holpan 232,930 1,673.29 0.72
Klipdam 142,534 1,256.06 0.88
Wouterspan 341,099 2,016.54 0.59
Makoenskloof 136,154 633.28 0.47
Saxendrift - - -
Total 852,717 5,579.17 0.65
SALES, REVENUE AND INVENTORY
Operation 3 months ending November 30, 2008
Sales Value of Average Inventory
(carats) Sales value (carats)
($) ($
per
carat)
Holpan 268.43 487,127 1,814.73 1,287.79
Klipdam 912.42 11,035,293 12,094.53 2,050.74
Wouterspan 313.40 681,760 2,175.37 1,529.26
Makoenskloof - - - -
Saxendrift 503.69 1,307,412 2,595.67 751.45
Total 1,997.94 13,511,592 6,762.76 5,619.24
Operation 3 months ending November 30, 2007
Sales Value of Average Inventory
(carats) Sales value (carats)
($) ($
per
carat)
Holpan 2,683.94 2,437,250 908.09 372.00
Klipdam 2,044.82 1,076,732 526.57 382.94
Wouterspan 2,511.57 4,975,788 1,981.15 496.53
Makoenskloof 787.93 3,808,122 4,833.07 82.65
Saxendrift - - - -
Total 8,028.26 12,297,892 1,531.83 1,334.12
Production and Sales -Nine Month Comparison
The following is a comparison of the nine months of fiscal 2009 (ending
November 30, 2008) with the nine months ending November 30, 2007.
PRODUCTION
Operation 9 months ending November 30, 2008
Volume Average grade
(cubic (carats per 100
meters) Carats cubic meters)
Holpan 512,510 3,869.78 0.76
Klipdam 668,674 6,520.90 0.98
Wouterspan 552,293 3,896.42 0.71
Makoenskloof - - -
Saxendrift 175,441 2,270.99 1.23
Total 1,908,918 16,558.09 0.87
Operation 9 months ending November 30, 2007
Volume Average grade
(cubic (carats per 100
meters) Carats cubic meters)
Holpan 904,862 6,272.18 0.69
Klipdam 599,001 5,256.51 0.88
Wouterspan 980,387 6,228.27 0.64
Makoenskloof 199,263 857.81 0.43
Saxendrift - - -
Total 2,683,513 18,614.77 0.69
SALES, REVENUE AND INVENTORY
Operation 9 months ending November 30, 2008
Average
Value of value
Sales Sales ($ Inventory
(carats) ($) per (carats)
carat)
Holpan 2,946.42 3,958,748 1,343.58 1,287.79
Klipdam 4,825.13 18,779,616 3,892.04 2,050.74
Wouterspan 2,673.86 4,360,884 1,630.93 1,529.26
Makoenskloof - - - -
Saxendrift 1,520.17 3,274,483 2.154.02 751.45
Total 11,965.58 30,373,731 2,538.43 5,619.24
Operation 9 months ending November 30, 2007
Average
Value of value
($
Sales Sales Inventory
(carats) ($) per (carats)
carat)
Holpan 6,331.00 7,590,633 1,199.96 372.00
Klipdam 5,134.22 7,402,845 1,442.86 382.94
Wouterspan 5,978.55 12,121,715 2,027.53 496.53
Makoenskloof 894.85 5,577,090 6,232.62 82.65
Saxendrift - - - -
Total 18,338.62 32,692,283 1,782.70 1,334.12
Holpan/Klipdam
The Holpan/Klipdam Property is located 45 km from Kimberley, South Africa. It
consists of the contiguous Holpan 161 farm and Klipdam 157 farm, covering an
area of 3,836 hectares. The production from Holpan and Klipdam is accounted for
separately because they are separate operating entities.
Quarter ending November 30, 2008
Production at Holpan in the quarter was 1,290.42 carats from 155,759 cubic
meters (288,154 tonnes) of gravels processed, compared with 1,673.29 carats
from 232,930 cubic meters (430,920 tonnes) of gravels processed in the quarter
ending November 30, 2007.
Sales from Holpan were 268.43 carats at an average value of $1,814.73 per
carat, a decrease in carats from the 2,683.94 carats at an average value per
carat of $908.09 sold in the quarter ending November 30, 2007.
Production at Klipdam was 2,288.88 carats from 239,245 cubic meters (442,603
tonnes) of gravels, compared to 1,256.06 carats from 142,534 cubic meters
(263,686 tonnes) of gravels produced in the quarter ending November 30, 2007.
Sales from Klipdam were 912.42 carats at an average value of $12,094.53 per
carat, which included the sale of an exceptional 189.6 carat white stone for
approximately $10.2 million, a decrease in carats and increase in value
compared to 2,044.82 carats at an average value per carat of $526.57 in the
quarter ending November 30, 2007.
Nine months ending November 30, 2008
Production at Holpan over the nine months was 3,869.78 carats from 512,510
cubic meters (948,143 tonnes) of gravels processed, compared with 6,272.18
carats from 904,862 cubic meters (1,681,394 tonnes) of gravels processed in the
nine months ending November 30, 2007.
Sales from Holpan were 2,946.42 carats at an average value of $1,343.58 per
carat, a decrease in carat sales and increase in value per carat sold from
6,311.00 carats at an average value of $1,199.96 per carat in the period
ending November 30, 2007.
The inventory at Holpan is 1,287.79 carats.
In the first nine months of the 2009 fiscal year, production at Klipdam was
6,520.90 carats from 668,674 cubic meters (1,237,046 tonnes) of gravels,
compared to 5,256.51 carats from 599,001 cubic meters (1,109,151 tonnes) of
gravels produced in the quarter ending November 30, 2007.
Sales from Klipdam were 4,825.13 carats at an average value of $3,892.04 per
carat, a decrease in carats sold but an increase in value per carat sold from
5,134.22 carats at an average value of $1,442.86 per carat in the period
ending November 30, 2007.
There is an inventory of 2,050.74 carats for Klipdam.
Wouterspan
The Wouterspan Property is located near Douglas, South Africa. It comprises
portions, totalling 969.4 hectares, of the Lanyon Vale 376 farm. Operations are
taking place on three portions of the property called the Farhom, Okapi, and
Stofdraai farms, exploiting the Rooikoppie and Primary gravel units.
Quarter ending November 30, 2008
During the quarter, the property produced 1,568.00 carats from 189,224 cubic
meters (397,370 tonnes) of gravels, a decrease from 2,016.54 carats produced
and 341,099 cubic meters (716,307 tonnes) of gravels processed in the quarter
ended November 30, 2007.
Sales from Wouterspan were 313.40 carats at an average price of $2,175.37 per
carat, compared to 2,511.57 carats sold at an average value per carat of
$1,981.15 in the quarter ending November 30, 2007.
Nine months ending November 30, 2008
During the first nine months of the fiscal 2009 year, the property produced
3,896.42 carats from 552,293 cubic meters (1,159,815 tonnes) of gravels, a
decrease from 6,228.27 carats produced and 980,387 cubic meters (2,058,812
tonnes) of gravels processed in the nine months ending November 30, 2007.
Sales from Wouterspan were 2,673.86 carats at an average price of $1,630.93
per carat, a decrease in carats and value per carat sold from 5,978.55 carats
at an average value of $2,027.53 per carat in the nine months ending November
30, 2007.
The inventory at Wouterspan is 1,529.26 carats.
Saxendrift Property
The Saxendrift property is located on the south bank of the Middle Orange River
and adjacent to the Wouterspan diamond operation. The Company acquired and
re-commissioned an existing small pan plant on the property in the first
quarter of fiscal 2009.
Quarter ending November 30, 2008
During the quarter, the property produced 833.95 carats from 836.32 cubic
meters (169,766 tonnes) of gravels. In the 3rd quarter, 503.69 carats were sold
at an average price of $2,595.67 per carat.
Nine months ending November 30, 2008
During the nine month period, 2,270.99 carats were recovered from 175,441 cubic
meters (365,543 tonnes) of gravels during re-commissioning.
During the nine months 1,520.17 carats were sold at an average value of
$2,154.02.
The inventory at Saxendrift is 751.45 carats.
Production Costs
The average operating cost during the quarter was $4.09 per tonne (excluding
Saxendrift, which is currently in a ramp-up phase, it is $8.80), an increase
from $3.80 per tonne in the quarter ending November 30, 2007.
The average operating cost over nine months was $4.41 per tonne (excluding
Saxendrift, which is currently in a ramp-up phase, it is $9.15), an increase
from $3.69 per tonne in the nine months ending November 30, 2007.
1.2.5 Exploration and Development Properties
Middle Orange River Operations
In addition to the Saxendrift mine (see production above) and the past
producing Niewejaarskraal mine, the MORO properties include Kwartelspan,
Vieglandsput, Zwemkuil-Mooidraai and Remhoogte-Holsloot prospecting projects,
totaling approximately 14,950 hectares.
The Niewejaarskraal Mine was operated from 2002-2006 by Trans Hex. It has been
on care and maintenance since late 2006. Once the final permitting has been
acquired for Niewejaarskraal, Rockwell`s Project Team will be tasked with the
construction and recommissioning of this mine.
Trans Hex also conducted exploration and evaluation work on several large
alluvial gravel terraces on the Kwartelspan property, located to the north-east
of Saxendrift, and on the Vieglandsput, Zwemkuil- Mooidraai and
Remhoogte-Holsloot properties, located to the south-west of Niewejaarskraal.
The exploration work included reverse circulation drilling, trenching and bulk
sampling.
Rockwell has a current plan for exploration activities at Kwartelspan and
Saxendrift. It will assess and implement plans for the other properties once
Kwango River Project, DRC
The Kwango River Project comprises approximately 109 square km within
Exploitation Permit Number 331 ("PPE331") held by Midamines, a DRC company.
Durnpike has an option agreement with Midamines ("Midamines Agreement") to
manage and carry out exploration and mining on a portion of PPE331, as
contractor for and on behalf of Midamines, and is entitled to an 80% share of
the net revenue from the sale of any diamonds produced from the contract area.
PPE 331, issued in December 2003, is valid until January 2017 (and is renewable
for a second term) and allows the holder to conduct exploration, develop and
exploit the deposit as well as market the diamonds produced from the deposit
according to local government requirements and the Kimberley process.
The Project encompasses over 75 km of river frontage and also extends across
elevated, palaeo-river terraces. Alluvial diamond deposits occur as gravel
assemblages within the modern Kwango River, underlying its banks and in the
adjacent terraces, which are being mined by small scale operations.
In 2007, the Company advanced the logistical activities for its planned
exploration and bulk sampling initiative with Midamines, established a working
base in Kinshasa and conducted geophysical and other investigations on site. No
work was done in fiscal 2009.
One of the 50% shareholders of Midamines has, subsequent to the conclusion of
the Midamines Agreement denied the validity of that agreement. The other 50%
shareholder disputes this view and remains committed to the Midamines
Agreement. Due to this dispute, Midamines has not afforded Durnpike access to
the site, and assistance as regards its proposed operations on the site, in the
manner contemplated in the Midamines Agreement. This failure has significantly
delayed the Company`s proposed operations on the site, and it is consequently
the Company`s position that the required royalty payments have become suspended
for the duration of the dispute.
The Company obtained formal legal advice from counsel to evaluate remedies.
During the third quarter of fiscal 2008 the Company paid consideration of
$600,000 to Midamines in order to increase the size of the concession. The
Company also attempted to initiate small prospecting activities on the
Midamines during the second and third quarter of fiscal 2009. However problems
were again encountered in respect of access to the project area which resulted
in Rockwell giving notice to Midamines to terminate the project. Rockwell has
engaged appropriate legal counsel to address this situation, and although the
outcome is currently not determinable the project is not a material operation
of the Company.
Ricardo Property, Chile
The Company held a 100% interest in the Ricardo Property, a copper prospect
located within the Calama Mining District, Chile that it acquired in 1998.
Exploration was carried out by two companies who optioned the property in 2000
and 2004. Since that time, Rockwell has sought partners to continue exploration
or to divest of the property. In July 2008, the Ricardo property was acquired
by Hunter Dickinson Acquisitions Inc., a company with certain directors and
officers in common.
1.2.6 Diamond Market Trends
In the quarter ended November 30, 2008, market demand continued to decrease as
retailers continued to resist committing their limited capital towards polished
diamond inventory. This situation was caused by world financial crisis and
banks not lending money to retailers to purchase new stock until their debt had
been reduced. This had an immediate effect on their ability to purchase rough
diamonds.
Diamond Traders have experienced these `slow downs` in the past, so the
industry remained calm and there was a limited amount of forced selling, so
although there was a limited amount of trade in polished stones, polished
prices did not decrease markedly.
However, demand on the secondary rough diamond market ceased, and first hand
buyers that purchased from producers like Diamond Trading Company (DTC) and
Alrosa turned down a large percentage of their allotments.
Producers felt the effects of this reluctance to purchase rough diamonds. Any
purchases made on the secondary market during this quarter were opportunistic
and at prices well below market value. This has allowed the buyers to sit on
the stock until such time the market begins trading again.
The world`s producers, particularly the two largest De Beers and Alrosa,
immediately reduced production.
De Beers launched their largest ever campaign, called Enduring Value, to drive
consumer demand for diamond jewellery.
India enforced a month-long ban on imports of rough stones, effective November
25. Diamond market leaders asked the industry to exercise caution and be
responsible until such time as there is stability in financial markets.
Auctions, primarily via Sotheby`s and Christie`s, have continued to receive
interest from private buyers which have been successful in their bids of
special and rare jewellery, due to the absence of diamond traders. High net
worth individuals still invest in diamonds and interest in rare diamonds
continues to be stable.
Rockwell sold via tender in September and achieved its reserve prices - an
excellent result. In October, a further four diamonds were sold into the
Steinmetz Diamond Group beneficiation joint venture. This result was satisfying
as the world`s market prices had continued to slide. Thereafter, the diamond
market continued to decrease. The Company cancelled its October and November
tender sales but intends to continue to review diamond markets and return to
sales in fourth quarter.
During the third quarter, polished diamonds were sold through the Steinmetz
Diamond Group agreement. Three exceptional yellow gemstones were sold,
resulting in additional revenues of approximately $2 million.
Rockwell shut down its operations at the end of November. All diamond
producers, worldwide, have reduced their production. The industry is waiting
for the results of holiday sales before the restocking of any inventory will
take place. In addition, once this assessment has been made, producers should
have a better insight into the diamond prices.
As a result of reduced production, stability is expected to return to the
markets and a return to trade at reduced prices will occur. Rockwell management
is confident of its ability to sustain its operations even under these changes
in rough diamond prices. Subsequent to its extended Christmas period shutdown
(November 27 to January 5), Rockwell elected to continue the shutdown until
January 31st, 2009 in order to conserve cash and have additional time to
ascertain conditions in the rough diamond market.
1.3 Selected Annual Information
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles, and are expressed in
Canadian dollars except common shares outstanding.
Nine months ended Years ended
Balance Sheets February 29, 2008 May 31, 2007 May 31, 2006
Current assets $ 38,596,562 $ 56,142,572 $ 256,456
Mineral properties 25,247,937 24,121,855 1
Other assets 69,848,625 49,341,956 32,190
Total assets 133,693,124 129,606,383 288,647
Current liabilities 12,502,301 29,399,774 1,146,070
Other liabilities 34,076,016 28,613,767 -
Shareholders` equity
(deficiency) 87,114,807 71,592,842 (857,423)
Total liabilities and
shareholders` equity 133,693,124 129,606,383 288,647
Nine months ended Years ended
Statement
of Operations February 29, 2008 May 31, 2007 May 31, 2006
$ 36,149,308 $ 10,103,328 $ -
Revenue
Mine site operating
costs (22,730,271) (8,974,742) -
Amortization and
depletion (6,533,941) (2,074,415) -
6,885,096 (945,829) -
Operating profit (loss)
February 29, 2008 May 31, 2007 May 31, 2006
Expenses
Accretion of
reclamation obligation 464,316 55,471 -
Exploration 604,169 1,371,351 307,390
Foreign exchange loss
(gain) (751,318) (3,580,364) (46,881)
Legal, accounting and
audit 790,725 691,759 175,782
Office and
administration 2,697,077 2,993,453 489,015
Property Investigations - - 399,006
Shareholder
communications 198,985 200,574 32,130
Stock-based compensation 1,826,317 79,623 83,516
Travel and conference 654,705 666,194 132,645
Transfer agent filings 544,232 176,530 20,843
7,029,208 2,654,591 1,593,446
Subtotal
Gain on sale of
marketable securities - - (56,585)
Loss on disposal of
equipment 402,411 94,621 -
Interest income (1,118,396) (372,149) (2,172)
Interest on capital
leases 1,289,385 433,125 -
Convertible note
accretion and interest
expense 270,976 2,466,839 -
Loss on early
extinguishment
convertible promissory
notes - 137,957 -
Write-off of amounts
receivable 18,360 224,942 -
Write-down of
marketable securities - 1 19,128
Write-down of mineral
property interests - - 46,856
862,736 2,985,336 1,600,673
1,006,848 6,585,756 1,600,673
Loss before income taxes
Income tax expense 179,290 - -
Future income tax
(recovery) expense 2,261,110 (635,773) -
3,447,248 5,949,983 1,600,673
Loss before
non-controlling
interest
Non-controlling interest 5,955,779 415,159 -
9,403,027 6,365,142 1,600,673
Loss for the year ended
Basic and diluted loss
per common share $ (0.05) $ (0.11) $ (0.07)
Weighted average number
of common shares
outstanding 196,428,551 55,418,242 23,640,123
1.4 Summary of Quarterly Results
Expressed in thousands of Canadian dollars, except per-share amounts. Minor
differences are due to rounding.
Nov 30 Aug 31 May 31 Feb 29
2008 2008 2008 2008
Current assets $22,830 $21,757 $27,190 $38,597
Mineral properties 36,831 37,386 36,592 25,248
Other assets 85,330 80,146 74,621 69,848
Total assets 144,991 139,289 138,403 133,693
Current liabilities 14,814 17,369 15,353 12,502
Other liabilities 32,171 28,942 28,194 34,076
Shareholders` equity
(deficiency) 98,006 92,979 94,856 87,115
Total liabilities and
shareholders`
equity 144,991 139,289 138,403 133,693
Working capital (deficit) 8,017 4,388 11,837 26,905
Revenue 16,126 10,168 7,331 9,802
Mine site operating costs (3,710) (7,651) (4,609) (7,350)
Amortization (2,864) (2,673) (2,574) (2,418)
Operating profit (loss) 9,552 (155) 148 34
Expenses
Accretion of reclamation
obligation 95 99 69 3 78
Exploration 96 (33) 304 1 74
Foreign exchange (903) 831 (206) 16
Legal, accounting and audit 678 640 137 4 72
Office and administration 689 868 972 1,147
Shareholder communications 173 119 80 65
Stock-based compensation 499 373 686 1,177
Travel and conference 139 108 212 3 82
Transfer agent filings 28 35 10 4 39
Subtotal 1,494 3,038 2,263 4,250
Gain on investments - - - -
Write-off of amounts
receivable - - - 18
Loss (gain) on disposal of
equipment (6) 284 21 4 24
Interest income (357) (742) (1,381) (447)
Interest on capital leases 335 440 463 391
Accretion and interest
expense 452 163 86 84
Loss on early retirement of
convertible note - - - -
Profit (loss) before income
taxes 7,635 (3,339) (1,304) (4,687)
Future income tax recovery
(expense) 134 703 414 6 98
Profit (loss) before
non-controlling 7,769 (2,636) (890) (5,385)
interest
Non-controlling interest (3,241) 589 88 (3,322)
Profit (loss) for the period $4,528 $ (2,047) $ (801) $ (8,707)
Loss from discontinued
operation - (203) - -
Nov 30 Aug 31 May 31 Feb 28
2007 2007 2007 2007
Current assets $36,823 $46,861 $56,143 $25,751
Mineral properties 24,928 25,589 24,122 18,788
Other assets 66,544 55,997 49,342 36,884
Total assets 128,295 128,447 129,606 81,423
Current liabilities 17,173 23,899 29,400 43,261
Other liabilities 30,395 32,297 28,613 21,966
Shareholders` equity
(deficiency) 80,727 72,251 71,593 16,196
Total liabilities and
shareholders`
equity 128,295 128,447 139,606 81,423
Working capital (deficit) 19,650 22,962 26,743 (17,510)
Revenue 12,125 14,222 7,684 2,419
Mine site operating costs (9,571) (5,809) (7,100) (1,874)
Amortization (2,141) (1,975) (1,680) (395)
Operating profit (loss) 413 6,438 (1,096) 150
Expenses
Accretion of reclamation
obligation 28 59 55 -
Exploration 127 304 162 508
Foreign exchange (126) (641) (2,856) (336)
Legal, accounting and audit 253 66 403 (252)
Office and administration 850 700 1,651 621
Shareholder communications 64 69 57 53
Stock-based compensation 617 32 8 16
Travel and conference 147 126 285 120
Transfer agent filings 98 7 56 23
Subtotal 2,058 721 (179) 754
Gain on investments - - 16 (16)
Write-off of amounts
receivable - - 225 -
Loss (gain) on disposal of
equipment 3 (25) 82 12
Interest income (186) (486) (222) (97)
Interest on capital leases 427 471 433 -
Accretion and interest
expense 102 86 610 356
Loss on early retirement of
convertible note - - - -
Profit (loss) before income
taxes (1,991) 5,671 (2,061) (859)
Future income tax recovery
(expense) 26 (1,768) 646 (10)
Profit (loss) before
non-controlling (1,965) 3,903 (1,415) (868)
interest
Non-controlling interest 837 (3,472) (506) 91
Profit (loss) for the period$ (1,128) 431 $(1,921) $(777)
Loss from discontinued
operation - - - -
Nov 30 Aug 31 May 31 Feb 29
2008 2008 2008 2008
Net Income (Loss) $ 4,528 $ (2,250) $ (801) $ (8,707)
Basic and diluted
profit (loss) per share $ 0.02 $ (0.01) $ (0.003) $ (0.04)
Weighted average number
of common shares
outstanding (thousands) 238,042 238,042 237,731 223,891
Nov 30 Aug 31 May 31 Feb 28
2007 2007 2007 2007
Net Income (Loss) $ (1,128) $ 431 $(1,921) $(777)
Basic and diluted
profit (loss) per share $ 0.00 $ 0.00 $ (0.03) $ (0.01)
Weighted average number
of common shares
outstanding (thousands) 187,817 187,132 99,614 68,307
1.5 Results of Operations
The Company had a profit of $1,476,348 for the nine month period ended November
30, 2008 compared to a net loss of $2,617,626 for the comparable period in the
prior year. The loss turnaround during the period is mainly due to a decrease
in cost of sales of $15,968,735 incurred during the nine month period ending
November 30, 2008 compared to the cost of sales of $22,480,571 recorded during
the nine month period ending November 30, 2007. This decrease in cost of sales
is despite the high inflation of 12.4% in South Africa, and the increase in the
wage bill and fuel, oil and steel prices. The cost of sales for nine month
period ending November 30, 2007 also only had mining costs for three mines, but
the comparable period ending November 30, 2008 had mining costs for four
operating mines.
During the nine months ended November 30, 2008, the Company realized diamond
sales of $33,394,914 compared to $33,955,084 for the comparable period in the
prior year, this decrease is as a result of industrial action at the mines
during July and August 2008 during which time production fell by approximately
55%. Mine site operating costs for the nine months ended November 30, 2008
amounted to $15,968,735 (nine months ended November 30, 2007 - $22,480,571),
which excludes amortization and depletion charges of $8,111,115 (nine months
ended November 30, 2007 - $5,795,726).
Exploration expenses (excluding stock-based compensation) decreased to $367,170
for the nine months ended November 30, 2008 compared to $592,908 for the same
period in the prior year. This decrease is due to less engineering activities
and property assessment fees performed during the nine month period ended
November 30, 2008 on South African diamond properties and the Kwango River
Project in the DRC.
A foreign exchange gain of $277,955 was recorded for the nine months ended
November 30, 2008 compared to a foreign exchange gain of $3,623,774 for the
same period in the previous year due to a higher amount of South African
denominated liabilities and the strengthening of the Canadian dollar.
Administrative costs for the nine months ended November 30, 2008 decreased to
$2,528,638 in comparison to $3,201,820 incurred in for the same period in the
prior year, primarily due to centralized administration and salary expenses
which are in line with those in the market. Travel and conference expenses
amounted to $458,782 for the nine months ended November 30, 2008 compared
to $558,469 for the same period in the previous year. Legal, accounting and
audit expenses for the nine months ended November 30, 2008 amounted to
$1,454,927 compared to $720,775 incurred for the same period in the prior year.
This increase was due to increased legal services in the current period as a
result of the hostile takeover bid brought against Rockwell Diamonds.
Stock-based compensation increased to $1,557,517 for the nine months ending
November 30, 2008 in comparison to $656,432 for the same period in the previous
year due to an increase in the number of options granted during fiscal 2008.
Interest expenses decreased to $700,894 for the nine months ended November 30,
2008, compared to $797,723 for the nine months ended November 30, 2007, mainly
due to the accretion and interest charges relating to the issuance of the
convertible promissory notes incurred during the period ended November 30,
2007.
1.6 Liquidity
Historically, the Company`s sole source of funding has been the issuance of
equity securities for cash, primarily through private placements to
sophisticated investors and institutions. The Company has issued common share
capital in each of the past few years, pursuant to private placement financings
and the exercise of warrants and options. The Company`s access to exploration
financing, when the financing is not transaction specific, is always uncertain.
There can be no assurance of continued access to significant equity funding.
At November 30, 2008, the Company had a working capital of $8,016,685 compared
to working capital of $26,094,261 at February 29, 2008.
Effective March 1, 2008, the Company increased its ownership of VWDG and
Klipdam by 34% resulting to an 85% interest by issuing 14,285,715 common shares
of the Company pursuant to the June 2006 Durnpike Definitive Agreement. During
the period ended November 30, 2008 the BEE group increased its shareholding
from 15% to 26% by subscribing for an additional 11% shares in the VWDG. This
additional 11% were at a subscription price of ZAR 17.5 million and the BEE
group will also inject ZAR 10.5 million in working capital into the VWDG.
The Company has the following payment commitments: (a) minimum lease payments
of ZAR75 million ($9.2 million) in instalments up to the year 2011 to various
financial institutions for plant and equipment (c) Remaining acquisition
payment of ZAR27.5 million ($3.4 million) to Trans Hex following the
acquisition of Saxendrift Mine (Pty) Ltd. subject to the anticipated grant of
Ministerial Consent to the cession of each of the Outstanding Mining Rights to
the Company and registration of cession of such rights in its name.
Other than described above the Company has no "Purchase Obligations" defined as
any agreement to purchase goods or services that is enforceable and legally
binding on the Company that specifies all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction.
1.7 Capital Resources
As described in 1.2.2 Financings, the Company did not complete any debt
financings during the period, however the Company has sufficient funds
available to meet its capital expenditure requirements.
In January 2008, the Company completed a $14.5 million private placement which
will be used to fund Rockwell`s diamond operations and new project evaluation
and development (described in item
1.2.2 Financings).
As at November 30, 2008, the Company has the following capital expenditure
commitments:
a) Pursuant to the Definitive Agreement, the Company is required to spend $7
million on a feasibility study on the Kwango River Project by November 30,
2007. This deadline was extended due to delays in the ability of Rockwell to
initiate evaluation work on the Kwango River. In addition, Under the
Midamines Agreement, Durnpike agreed to certain minimum royalty payments
being made to Midamines. These royalties take the form of a series or
recurring annual minimum royalty payments of $1,200,000 per annum
(commencing on December 31, 2007). (As to the enforceability of this
commitment in light of developments pertaining to the Midamines Agreement,
see Kwango River Discussion at 1.2.5 Exploration and Development Properties
- Kwango River Project);
b) Pursuant to the Exchange Agreement (described in item 1.2.2 Financings) the
Company issued Common Shares to the Van Wyk Trust and increased its
ownership by 34 % to a total of 85% of the VWDG assets.
c) During the nine months ending November 30, 2008, the BEE group increased its
shareholding from 15% to 26% by subscribing for an additional 11% shares in
the VWDG at a subscription price of ZAR17.5 million and are to inject
ZAR10.5 million in working capital into the VWDG.
d) Other than already described, the Company had no commitments for capital
expenditures and no lines of credit or other sources of financing which have
been arranged but as yet unused as at November 30, 2008.
1.8 Off-Balance Sheet Arrangements
None.
1.9 Transactions with Related Parties
Balances payable As at November 30, 2008 As at February 29,2008
Banzi Trading (h) $ 5,227 $ -
Jakes Tyres (i) 93,678 49,604
Hunter Dickinson
Services Inc. (a) 51,556
$ 150,461 $ 49,604
Balances receivable
Hunter Dickinson
Services Inc. (a) $ - $ 78,504
Flawless Diamonds
Trading House (g) 1,881,778 477,298
Banzi Trade 26 (Pty) Ltd
(h) 34,744 33,744
Diacor CC (k) 31,952 3,888
$ 1,948,474 $ 593,434
Three months ended
November 30
Transactions 2008 2007
Services rendered and expenses reimbursed:
Hunter Dickinson Services Inc. (a) $ $
316,304 283,436
Euro-American Capital Corporation (b) - 6,208
CEC Engineering (c) 10,349 17,641
Jeffrey B Traders CC (d) - 13,185
Seven Bridges Trading (e) 29,649 19,277
Cashmere Trading (f) - 119,544
Banzi Trade 26 (Pty) Ltd (h) 12,732 5,064
Jakes Tyres (i) 96,593 737,538
AA Van Wyk (j) - -
Diacor CC (k) 677 -
Sales rendered to:
Flawless Diamonds Trading House (g) $ $
16,226,715 12,072,363
Nine months ended
November 30
Transactions 2008 2007
Services rendered and expenses reimbursed:
Hunter Dickinson Services Inc. (a) $ $
697,012 816,459
Euro-American Capital Corporation (b) - 20,208
CEC Engineering (c) 24,638 47,364
Jeffrey B Traders CC (d) - 82,143
Seven Bridges Trading (e) 96,499 52,882
Cashmere Trading (f) 18,970 284,240
Banzi Trade 26 (Pty) Ltd (h) 25,095 261,158
Jakes Tyres (i) 438,781 1,140,771
AA Van Wyk (j) - 326,956
Diacor CC (k) 36,311 -
Sales rendered to:
Flawless Diamonds Trading House (g) $ $
33,394,914 33,955,084
Related Party transactions are explained below. These arrangements and
transactions have typically been established to provide professional and cost
effective services and resources to Rockwell. In particular these services
relate to the remote areas in which some of Rockwell`s operations are located
and have also been established to address security and social responsibility
requirements. In remote areas it is difficult to obtain key services and make
purchases of certain supplies on an as needed basis. Likewise security
consideration is paramount given the high value product produced by the
Company.
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company equally owned
by several public companies, one of which is Rockwell, and has certain
directors in common with the Company. HDSI provides geological, technical,
corporate development, administrative and management services to, and incurs
third party costs on behalf of, the Company on a full cost recovery market
related basis pursuant to an agreement dated June 1, 2008. There are no
specific terms of repayment.
(b) Euro-American Capital Corporation is a private company controlled by Rene
Carrier, a director of the Company, which provided management services to the
Company at market rates for those services, until February 29, 2008. Rene
Carrier resigned as a Director in November 2008.
(c) CEC Engineering Ltd. is a private company owned by David Copeland, Chairman
and a director of the Company, which provides engineering and project
management services at market rates.
(d) Jeffrey B Traders CC is a private company controlled by Jeffrey Brenner, a
former director and employee of the Company, which provided management and
specialized diamond marketing services to the Company at market rates, until
February 29, 2008.
(e) Seven Bridges Trading is a wholly owned subsidiary of Randgold Resources, a
public company where Mark Bristow, a director of the Company, serves in an
executive capacity. Seven Bridges Trading provides office, conferencing,
information technology, and other administrative and management services at
market rates to the Company`s South African subsidiaries.
(f) Cashmere Trading is a private company owned by Hennie Van Wyk, an officer
of the Company, which provides helicopter services for the movement of product
on an ad-hoc basis at competitive market rates thereby providing benefits to
the company and its employees in respect of secure transport of high value
product and reduced insurance premiums.
(g) Flawless Diamonds Trading House ("Flawless") is a private company where
certain directors, former directors and officers of the Company, namely, Messr.
Brenner, J W nad D M Bristow and Van Wyk, are shareholders of. Flawless is a
registered diamond broker which provides specialist diamond valuation,
marketing and tender sales services to the Company for a fixed fee of 1% of
turnover which is below the market rate charged by similar tender houses.
(h) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC van Wyk Diamonds Ltd
and 51% by Bokomoso Trust. Banzi is an empowered private company established to
provide self sustaining job creation programs to local communities as part of
the company`s Social and Labour Plan which is required in terms of the Minerals
and Petroleum Resources Development Act ("MPRDA") Banzi provides the Company
with buildings materials at market rates.
(i) Jakes Tyres is a private company with certain directors and officers ( H C
van Wyk) in common with the Company that provides tyres, tyre repair services
and consumables at market rates to Rockwell`s remote Middle Orange River
operations.
(j) AA Van Wyk is a private company owned by a party related to the directors
and officers of the Company, which provided contract mining services at market
rates until February 29, 2008.
(k) Diacor CC is a private company of which H C van Wyk is a directors from
which Company has purchased consumable materials at market rates.
1.10 Fourth Quarter
Not applicable.
1.11 Proposed Transactions
Please refer to the discussion of the proposed transaction in Section 1.2.3
Acquisitions.
1.12 Critical Accounting Estimates
The Company`s accounting policies are presented in note 3 of the consolidated
financial statements for the nine month period ended February 29, 2008, which
have been publicly filed on SEDAR at www.sedar.com and as presented in changes
in accounting policies item 1.13 The preparation of consolidated financial
statements in accordance with generally accepted accounting principles requires
management to select accounting policies and make estimates. Such estimates may
have a significant impact on the financial statements. These estimates include:
mineral resources and reserves,
the carrying values of property, plant and equipment,
restoration costs following completion of the mining activities, and
the valuation of stock-based compensation expense.
Actual amounts could differ from the estimates used and, accordingly, affect
the results of operation.
Mineral resources and reserves, and the carrying values of property, plant and
equipment
Mineral resources and reserves are estimated by professional geologists and
engineers in accordance with recognized industry, professional and regulatory
standards. These estimates require inputs such as future metals prices, future
operating costs, and various technical geological, engineering, and
construction parameters. Changes in any of these inputs could cause a
significant change in the estimated resources and reserves which, in turn,
could have a material effect on the carrying value of property, plant and
equipment.
Site restoration costs
Upon the completion of any mining activities, the Company will ordinarily be
required to undertake environmental reclamation activities in accordance with
local and/or industry standards. The estimated costs of these reclamation
activities are dependent on labour costs, the environmental impacts of the
Company`s operations, the effectiveness of the chosen reclamation techniques,
and applicable government environmental standards. Changes in any of these
factors could cause a significant change in the reclamation expense charged in
a period.
Stock-based compensation expense
From time to time, the Company may grant share purchase options to employees,
directors, and service providers. The Company uses the Black-Scholes option
pricing model to estimate a value for these options. This model, and other
models which are used to value options, require inputs such as expected
volatility, expected life to exercise, and interest rates. Changes in any of
these inputs could cause a significant change in the stock-based compensation
expense charged in a period.
1.13 Changes in Accounting Policies including Initial Adoption
(a) The following accounting policies were adopted during the 3 months ended
May 31, 2008:
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an entity`s objectives, policies and
processes for managing capital, quantitative data about what the entity regards
as capital and whether the entity has complied with any externally imposed
capital requirements and, if it has not complied, the consequences of such
non-compliance.
(ii) Financial Instruments - Disclosure (Section 3862) and Presentation
(Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure and
Presentation. They increase the disclosures previously required, which will
enable users to evaluate the significance of financial instruments for an
entity`s financial position and performance, including disclosures about fair
value. In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk. The quantitative disclosures must provide information about the
extent to which the entity is exposed to risk, based on information provided
internally to the entity`s key management personnel.
(iii) Amendments to Section 1400 - Going Concern
CICA 1400, General Standards of Financial Statement Presentation, was amended
to include requirements to assess and disclose an entity`s ability to continue
as a going concern. The new requirements are effective for the Company`s 2009
fiscal year. The Company`s assessment and disclosure of its ability to continue
as a going concern is disclosed in Note 1 of the interim consolidated financial
statements fore the period ended May 31, 2008.
(iv) Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same title and will
harmonize accounting for inventories under Canadian GAAP with International
Financial Reporting Standards ("IFRS"). This standard requires that inventories
be measured at the lower of cost and net realizable value, and includes
guidance on the determination of cost, including the allocation of overheads
and other costs. The standard also requires that similar inventories within a
consolidated group be measured using the same method. It also requires the
reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. This new section is effective
for the Company`s 2009 fiscal year. Upon adoption of this standard, the Company
concluded that there were no material differences between the new standard and
the Company`s current accounting policy for its diamond and supplies inventory.
(b) Accounting Policies Not Yet Adopted
(i) International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with International Financial Reporting Standards ("IFRS") over an
expected five year transitional period. In February 2008, the AcSB announced
that 2011 is the changeover date for publicly-listed companies to use IFRS,
replacing Canadian GAAP. The date is for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2011. The
transition date of March 1, 2011 will require the restatement for comparative
purposes of amounts reported by the Company for the year ended February 28,
2011. While the Company has begun assessing the impact of adoption of IFRS for
2011, the financial reporting impact of the transition to IFRS cannot be
reasonably estimated at this time.
(ii) Goodwill and Intangibles - Section 3064
The AcSB issued CICA Handbook Section 3064 which replaces Section 3062,
Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs. This new section establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets. Standards concerning goodwill remain
unchanged from the standards included in the previous Section 3062. The section
applies to interim and annual financial statements issued on or after January
1, 2009. Section 3064 is not expected to have a significant impact on the
financial statement.
1.14 Financial Instruments and Other Instruments
The carrying value of the Company`s cash and equivalents, amounts receivable,
restricted cash, trade receivable from a related party, reclamation deposits
accounts payable and accrued liabilities, due to/from related parties and
capital lease obligations approximate their fair values.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of financial market and
financial instrument related risk, including credit risk, liquidity risk,
foreign exchange risk, interest risk and commodity price risk. It is also
exposed to the diamond market.
Credit Risk
Credit risk is the risk of potential loss to the Company if a counterparty to a
financial instrument fails to meet its contractual obligations. The Company`s
credit risk is primarily attributable to its liquid financial assets including
cash and equivalents, accounts receivable and trade receivable from a related
party. The Company limits exposure to credit risk on liquid financial assets
through maintaining its cash and equivalents with high-credit quality financial
institutions. The carrying value of the Company`s cash and cash equivalents,
accounts receivable and trade receivable from a related party represent the
maximum exposure to credit risk. The Company does not have financial assets
that are invested in asset backed commercial paper.
Liquidity Risk
Liquidity risk is the risk that the company will not be able to meet its
financial obligations as they fall due. The Company ensures that there is
sufficient capital in order to meet short term business requirements, after
taking into account cash flows from operations and the Company`s holdings of
cash and cash equivalents. The Company believes that these sources will be
sufficient to cover the likely requirements for the foreseeable future. The
Company`s cash and equivalents are invested in business accounts which are
available on demand for the Company`s programs, and which are not invested in
any asset backed deposits/investments.
The Company operates in South Africa. Like other foreign entities operating
there, the Company is subject to currency exchange controls administered by the
South African Reserve Bank, that country`s central bank. A significant portion
of the Company`s funding structure for its South African operations consists of
advancing loans to its South Africa incorporated subsidiaries and it is
possible the Company may not be able to acceptably repatriate such funds once
those subsidiaries are able to repay the loans or repatriate other funds such
as operating profits should any develop. The repatriation of cash held in South
Africa is permitted upon the approval of the South African Reserve Bank. Cash
balances in South Africa are the Rand balances disclosed below.
Foreign Exchange Risk
In the normal course of business, the Company enters into transactions for the
purchase of supplies and services denominated in South African Rand ("ZAR"). In
addition, the Company has cash and certain liabilities denominated in South
African Rand. As a result, the Company is subject to foreign exchange risk from
fluctuations in foreign exchange rates. The Company has not entered into any
derivative or other financial instruments to mitigate this foreign exchange
risk.
Capital Market Risk
The Company is operating in an uncertain and volatile capital market
environment which presents risks in respect of the Company being able to raise
equity or debt to finance existing or new projects, or pursue growth
opportunities through acquisition
Diamond Market
Subsequent to September 2008 the international diamond market has softened as a
consequence of the credit crunch and the volatility and uncertainty in the
banking and financial market sector.
Sales of rough diamonds have slowed and prices have weakened and this situation
could have an impact of Rockwell`s business going forward.
1.15 Other MD&A Requirements
Additional information relating to the Company is available on SEDAR at
www.sedar.com.
1.15.1 Additional Disclosure for Venture Issuers Without Significant Revenue
Not applicable. The Company is not a venture issuer.
1.15.2 Disclosure of Outstanding Share Data
The following details the share capital structure as at January 14th, 2009,
which is the date of this MD&A. These figures may be subject to minor
accounting adjustments prior to presentation in future consolidated financial
statements.
Exercise
Expiry date price Number Number
Common shares 238,041,569
Share purchase options
July 10, 2010 $ 0.68 200,000
September 24, 2012 $ 0.62 5,903,000
November 14, 2012 $ 0.63 1,106,500
June 20, 2011 $ 0.45 1,016,666 8,226,166
Warrants November 22, 2009 $ 1.00 39,600,000
Exercise
price
Expiry date Number Number
May 9, 2009 $ 0.70 21,779,154 161,379,154
1.15.3 Internal Controls over Financial Reporting Procedures
The Company`s management is responsible for establishing and maintaining
adequate internal control over financial reporting. Any system of internal
control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
There have been no significant changes in internal controls over financial
reporting during the quarter ended November 30, 2008 that could have materially
affected or are reasonably likely to materially affect the Company`s internal
control over financial reporting.
1.15.4 Disclosure Controls and Procedures
The Company has disclosure controls and procedures in place to provide
reasonable assurance that any information required to be disclosed by the
Company under securities legislation is recorded, processed, summarized and
reported within the applicable time periods and to ensure that required
information is gathered and communicated to the Company`s management so that
decisions can be made about timely disclosure of that information.
There have been no significant changes in the Company`s disclosure controls
during the quarter ended November 30, 2008 that could significantly affect
disclosure controls subsequent to the date the Company carried out its last
evaluation.
Sasfin Capital
16 January 2009
Date: 16/01/2009 07:05:04 Produced by the JSE SENS Department.
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JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
