| Fri 26 Jun 2009, 17:00 | | RDI - Rockwell - Audited Consolidated Financial Statements Years Ended |
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RDI
RDI
RDI - Rockwell - Audited Consolidated Financial Statements Years Ended
February 28, 2009 and Nine Months Ended February 29, 2008
ROCKWELL DIAMONDS INCORPORATED
(A company incorporated in accordance with the laws of British Columbia,
Canada)
(Incorporated number: BC0354545)
(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
Audited Consolidated Financial Statements Years Ended February 28, 2009 and
Nine Months Ended February 29, 2008
CONSOLIDATED BALANCE SHEET
(Expressed in Canadian Dollars)
February 28 February 29
2009 2009-06-26
Audited Audited
$ $
ASSETS
Current assets
Cash and cash equivalents 3,997,807 19,623,847
Accounts receivable 1,131,026 631,446
Restricted cash (note 7(a)) 2,698,719 13,335,124
Trade receivable from a related 3,490,725 593,434
party (note 13)
Inventory (note 5) 3,719,919 3,465,853
Prepayments 61,775 946,858
15,099,971 38,596,562
Property, plant and equipment (note 59,569,186 64,831,636
6)
Mineral property interests (note 7) 28,894,477 25,247,937
Other assets and deposits (note 10) 139,140 3,200,112
Reclamation deposits (note 9) 2,659,642 1,816,877
106,362,416 133,693,124
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities
Bank indebtedness (note 16) 3,540,880 -
Accounts payable and accrued 4,832,038 4,420,212
liabilities
Amounts owing pursuant to - 294,402
acquisition (note 7(e))
Due to related parties (note 13) 193,655 49,604
Income taxes 456,046 890,332
Current portion of capital lease 5,440,181 6,847,751
obligations (note 8)
14,462,800 12,502,301
Long-term liabilities
Capital lease obligations (note 8) 3,284,596 7,955,548
Due to related parties (note 13) 383,330 -
Future income taxes (note 14) 12,126,000 12,430,100
Reclamation obligation (note 9) 3,802,655 1,755,820
19,596,581 22,141,468
Non-controlling interest (note 7) 1,882,009 11,934,548
Shareholders` equity
Share capital (note 11) 119,952,532 112,095,390
Warrants (note 11(c)) 1,693,197 1,693,197
Contributed surplus 4,167,304 2,332,882
Accumulated other comprehensive (13,409,383) -
loss
Deficit (41,982,624) (29,006,662)
70,421,026 87,114,807
Continuance of operations and going
concern (note 1)
Commitments relating to mineral
property interest (note 7)
Contingencies (notes 17)
Subsequent events (note 18)
106,362,416 133,693,124
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board of Directors
Dr. John Bristow Director, Chief Executive Officer
William J. Fisher Director
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)
Year ended Nine months Year ended
ended
February 28, February 29, May 31,
2009 2008 2007
$ $ $
Revenue
Rough diamonds sales
34,330,078 35,863,214 8,117,647
Contract diamond sales
- 174,892 1,967,889
Other sales
303,399 111,202 17,792
34,633,477 36,149,308 10,103,328
Cost of sales
Cost of rough diamonds sales
(25,113,363) (22,581,613) (7,206,389)
Cost of contract diamond
sales - (148,658) (1,768,353)
Amortization and depletion
(11,287,197) (6,533,941) (2,074,415)
Operating profit (loss)
(1,767,083) 6,885,096 (945,829)
Expenses
Accretion of reclamation
obligation (note 9) 1,072,389 464,316 55,471
Exploration
498,739 604,169 1,371,351
Foreign exchange gain
(350,485) (751,315) (3,580,364)
Interest on capital
leases 1,592,001 1,289,385 433,125
Interest expense
3,009,680 270,976 103,031
Legal, accounting and
audit 1,863,261 790,725 691,759
Office and administration
3,489,460 2,697,077 2,993,453
Shareholder
communications 453,489 198,985 200,574
Stock-based compensation
- exploration (note 11(b)) 629,347 514,892 41,372
Stock-based compensation
- administration (note 11(b)) 1,205,075 1,311,423 38,251
Travel and conferences
605,812 654,705 666,194
Transfer agent
250,878 544,232 176,530
14,319,646 8,589,570 3,190,747
Other items
Write-off of accounts
receivable 291,063 18,360 224,942
Loss on disposal of
equipment 364,918 402,411 94,621
Loss on disposal of
mineral property (note 7(f)) 203,339 - -
Interest income
(2,672,021) (1,118,396) (372,149)
Convertible note
accretion expense - - 2,363,808
Loss on early
extinguishment of convertible - - 137,957
promissory notes
Write-down of assets
(note 3(i)) 2,590,958 - -
Write-down of marketable
securities - - 1
778,257 (697,625) 2,449,180
Loss before income taxes
16,864,986 1,006,849 6,585,756
Current income tax
expense (note 14) 7,000 179,290 -
Future income tax
(recovery) expense (note 14) (3,347,000) 2,261,110 (635,773)
Loss before non-controlling
interest 13,524,986 3,447,249 5,949,983
Non-controlling interest
(549,024) 5,955,779 415,159
Loss for the period
12,975,962 9,403,028 6,365,142
Other comprehensive loss
(note 3(k)) 13,409,383 - -
Total comprehensive loss
26,385,345 9,403,028 6,365,142
Basic and diluted loss per
common share($) 0.05 0.05 0.11
Headline loss per share 0.04 0.05 0.11
Weighted average number of
common shares outstanding 237,924,152 196,428,551 55,418,242
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED COMPREHENSIVE LOSS AND DEFECIT
(Expressed in Canadian Dollars)
Year ended Nine months Year ended
ended
February 28, February 29, May 31,
2009 2008 2007
$ $ $
Accumulated other
comprehensive loss
Balance at beginning of
the period - - -
Comprehensive loss on
currency translation of (13,409,383) - -
previously integrated
operations
Balance at end of the
period (13,409,383) - -
Deficit
Balance at beginning of
the period (29,006,662) (19,603,634) (13,238,492)
Loss for the period
(12,975,962) (9,403,028) (6,365,142)
Balance at end of the
period (41,982,624) (29,006,662) (19,603,634)
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Expressed in Canadian Dollars)
Share capital Number of $ Number of $
shares shares
Year ended Year ended Nine months Nine months
ended ended
February February 28, February February 29,
28, 2009 29, 2008
2009 2008
Balance at beginning 223,755,854 112,095,390 186,976,219 88,903,530
of the period
Share purchase - - 107,917 43,167
options exercised at
$0.40 per share
Share purchase
options exercised at - - 145,000 60,900
$0.42 per share
Private placement
November 2006, net of - - - 4,160
issue costs at $0.47
per share
Private placement
January 2008, net of - - 24,101,526 13,860,916
issue costs at $0.60
per share
Commission
consideration for - - 500,000 300,000
private placement at
$0.60 per share
Warrants exercised at
$0.60 per share - - 2,400,000 1,440,000
Consideration for
acquisition of - - 7,848,663 6,081,842
property net of issue
cost at $0.78 per
share (note 7(b))
Consideration for
additional interest 14,285,715 7,857,142 - -
of operating mines
net of issue cost at
$0.55 per share (note
7(b))
Consideration for
property finders fees - - 1,676,529 1,307,693
at $0.78 per share
Fair value of stock
options allocated to - - - 93,182
shares issued on
exercise
Balance at end of the
period 238,041,569 119,952,532 223,755,854 112,095,390
Warrants
Broker warrants
issued as 1,693,197 1,693,197
consideration for
private placement,
beginning and
end of period
Contibuted surplus
Balance at beginning
of the period 2,332,882 599,749
Stock-based
compensation (note 1,834,422 1,826,315
11(b))
Fair value of stock
options allocated to - (93,182)
shares issued on
exercise
Balance at end of the
period 4,167,304 2,332,882
Accumulated other
comprehensive loss
Balance at beginning
of the period - -
Comprehensive loss on
currency translation (13,409,383) -
of previously
integrated operations
Balance at end of the
period (13,409,383) -
Deficit
Balance at beginning
of the period (29,006,662) (19,603,634)
Loss for the period
(12,975,962) (9,403,028)
Balance at end of the
period (41,982,624) (29,006,662)
TOTAL SHAREHOLDERS`
EQUITY 70,421,026 87,114,807
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in Canadian Dollars)
Year ended Nine months Year ended
ended
February 28, February 29, May 31,
2009 2008 2007
$ $ $
Cash provided by (used
in):
Operating activities
Loss for the period (12,975,962)
(9,403,028) (6,365,142)
Items not affecting
cash
Accretion of 1,072,389
reclamation obligation 464,316 55,471
Amortization and 8,347,837
depletion 4,460,323 1,196,682
Amortization of 2,939,360
capital lease equipment 2,073,618 877,733
Write-down of 2,590,958
assets - -
Write-off of 291,063
accounts receivable 18,360 224,942
Write-down of - -
marketable securities 1
Loss on early - -
extinguishment of 137,957
convertible promissory
note
Convertible note -
accretion expense - 2,363,808
Stock-based 1,834,422
compensation (note 11(b)) 1,826,315 79,623
Loss on disposal of 364,918
equipment 402,411 94,621
Future income tax
(recovery) expense (3,347,000) 2,261,110 (635,773)
Provision for site -
reclamation 230,622 (474,024)
Unrealized foreign
exchange gain (768,117) (2,967,105) (3,320,085)
Non-controlling
interest (549,024) 5,955,779 415,159
Changes in non-cash
working capital items
Accounts receivable (790,642)
1,074,612 (920,522)
Amounts due to and (2,369,910)
from related parties 245,819 6,074,609
Inventory (123,266)
(861,169) (508,110)
Prepayments 885,083
1,758,863 (2,672,073)
Accounts payable 411,826
and accrued liabilities (40,710) (3,485,300)
Income taxes (434,286)
(787,455) (872,950)
Cash provided by (used in) (2,620,351)
operating activities 6,712,681 (7,733,373)
Investing activities
Acquisition of Durnpike -
Investments (Pty) Limited, - (8,293,413)
net of cash acquired
Overdraft assumed on -
acquisition of Durnpike - (1,201,297)
Investments, net
Acquisition of (10,652,026)
Saxendraift Mines (Pty) - -
Limited
Amounts paid pursuant (294,402)
to acquisition (note 7(e)) - -
Restricted cash 10,636,405
- (15,642,120)
Purchase of equipment (12,687,176)
and mineral properties (21,003,124) (6,981,270)
Proceeds received on 310,944
disposal of equipment 1,034,620 263,010
Other assets and 3,060,972
deposits 313,337 (3,481,259)
Reclamation deposits (842,765)
(778,811) (63,760)
Cash used in investing (10,468,048)
activities (20,433,978) (35,400,109)
Financing activities
Principal repayments (6,078,521)
under capital lease (5,964,113) (2,678,965)
obligations
Common shares and -
warrants issued for cash, 15,709,143 76,234,018
net of issue costs
Amounts received (paid) -
to related parties (1,559,697) (872,735)
Amounts paid pursuant -
to property acquisition (7,466,565) 2,885,509
Repayment of credit - -
facility (11,000,000)
Drawdown of credit 3,540,880 -
facility 11,000,000
Repayment of - -
convertible promissory (9,500,000)
notes
Issuance of convertible - -
promissory notes 9,500,000
Repayment of loans - -
payable to related parties (12,474,500)
Loans payable to - -
related parties 12,474,500
Cash provided by (used in) (2,537,641)
financing activities 718,768 75,567,827
Increase (decrease) in (15,626,040)
cash and cash equivalents (13,002,529) 32,434,345
during the period
Cash and cash equivalents, 19,623,847
beginning of period 32,626,376 192,031
Cash and cash equivalents, 3,997,807
end of period 19,623,847 32,626,376
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. CONTINUANCE OF OPERATIONS AND GOING CONCERN
Rockwell Diamonds Inc. ("Rockwell" or 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 and the acquisition and exploration of natural
resource properties. The Company`s principal mineral property interests
are located in South Africa.
The accompanying consolidated financial statements have been prepared on
a going concern basis in accordance with Canadian generally accepted
accounting principles (``GAAP``). The going concern basis of presentation
assumes that Rockwell will continue in operation for the foreseeable
future and will be able to realise its assets and discharge its
liabilities and commitments in the normal course of business.
The Company incurred losses of $13 million during the year ended February
28, 2009 and continues to incur losses subsequent to year end. Although
the Company has reduced costs substantially, sales of diamonds have also
decreased. The risk that cash and working capital will not be sufficient
to fund the continuing losses indicates that a material uncertainty
exists which may cast substantial doubt on the ability of the Company to
continue as a going concern. The directors believe that the Company will
continue as a going concern for the fiscal year 2010 due to the
following:
- At year end, the Company`s current assets exceeded its current
liabilities by $0.6 million and the Company`s total assets exceeded
its total liabilities by $70.4 million.
- The cash flow forecasts for the fiscal year 2010 indicate that
additional funds of US$4 million will be required to enable the
Company to continue as a going concern. The additional funding was
calculated on the assumption that volumes remain constant with
current production, with the new plant still operating at below 50%
capacity, prices remaining at current depressed levels, which are
55% below pre crisis levels and the South African Rand remains at
current levels relative to the United States and Canadian dollar.
The directors have commenced plans to raise financing, and the following
plans have been considered to raise these funds:
- Private placement
- Prospectus
- Rights offering
The directors have started the process towards exercising either a rights
offering or a private placement, and have identified and communicated
with current investors and potential new investors to ensure that the
desired investment is raised.
Accordingly, the financial statements have been prepared on the basis of
accounting policies applicable to a going concern. Should the Company and
its subsidiaries be unsuccessful in raising the additional funds of
US$4 million, they may be unable to realise their assets and discharge
their liabilities in the normal course of business. If the going concern
basis is not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of
assets and liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
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,
its subsidiaries and its variable interest entities where the Company has
been determined to be the primary beneficiary. All significant
intercompany balances and transactions have been eliminated upon
consolidation.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments,
having maturity dates of three months or less from the date of purchase,
that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of change in value. At February 28,
2009, of the $3,997,807 (2008 - $19,623,847) cash and cash equivalents
held by the Company, $3,626,750 (ZAR 28,689,082) (2008 - $15,698,068 (ZAR
124,095,041)) were held in South African Rand ("ZAR"), and $371,057 (2008
- $3,925,779) in Canadian Dollars.
(b) Revenue recognition
Revenue from rough diamond sales is recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the Company`s price to
the customer is fixed or determinable and collection of the resulting
receivable is reasonably assured.
(c) Trade accounts receivables
Trade accounts receivables are recorded at the invoiced amount less an
estimate made for doubtful accounts based on a review of all outstanding
amounts on a quarterly basis. Account balances are charged off against
the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.
(d) Inventory
Rough diamond inventory is recorded at the lower of production cost and
net realizable value. Production costs include the cost of consumable
materials, direct labour, mine-site overhead expenses and amortization.
Supplies are valued at the lower of cost, at the average purchase cost
basis, and net realizable value. Appropriate provisions are made for
redundant and slow-moving items.
(e) Property, plant and equipment
Plant and equipment are stated at cost less accumulated amortization.
Assets are amortized on a straight-line method over the estimated useful
lives of the related assets, which are as follows:
Processing plant and equipment 4 - 10 years
Office equipment 6 years
Vehicles and light equipment 5 years
Repairs and maintenance expenditures are charged to operations as
incurred. Significant improvements and major replacements which extend
the useful life of the asset are capitalized as incurred.
(f) Mineral property interests
The acquisition costs of mineral properties are capitalized until the
property is placed into production, sold, or abandoned, or when
management has determined that there has been an impairment in value.
Such acquisition costs are amortized over the estimated life of the
property, based on the unit of production method, or written off to
operations if the property is abandoned, allowed to lapse, or if there is
little prospect of further work being carried out by the Company.
Mineral property acquisition costs include the cash consideration and the
fair market value of common shares, based on the trading price of the
shares, on the date of issue or as otherwise provided under the agreed
terms for the mineral property interest.
Exploration expenditures and option payments incurred prior to the
determination of the feasibility of mining operations are charged to
operations as incurred. Exploration expenditures incurred subsequent to
the mining operations which do not increase production or extend the life
of operations are expensed in the period incurred.
Administrative expenditures are expensed in the period incurred.
The amount presented for mineral property interests represents costs
incurred to date and accumulated acquisition costs, less write-downs, and
does not necessarily reflect present or future values.
An impairment review of mineral property interests is carried out when
there is an indication that these may be impaired by comparing the
carrying amount of the interest to its estimated recoverable amount.
Where the recoverable amount is less than the carrying amount an
impairment charge is included in expenses in order to reduce the carrying
amount of mineral property interest to its fair value.
(g) Financial instruments
All financial assets and liabilities are recognized when the entity
becomes a party to the contract creating the asset or liability. All
financial instruments are classified into one of the following
categories: held for trading, held-to-maturity, loans and receivables,
available-for-sale financial assets, or other financial liabilities.
Initial and subsequent measurement and recognition of changes in the
value of financial instruments depends on their initial classification:
- Held-to-maturity investments, loans and receivables, and other
financial liabilities are initially measured at fair value and
subsequently measured at amortized cost. Amortization of premiums or
discounts and losses due to impairment are included in current
period net earnings.
- Available-for-sale financial assets are measured at fair value.
Changes in fair value are included in other comprehensive income
(loss) until the gain or loss is recognized in net earnings.
- Held for trading financial instruments are measured at fair value.
All gains and losses are included in net earnings in the period in
which they arise.
- All derivative financial instruments are measured at fair value,
even when they are part of a hedging relationship. Changes in fair
value are included in net earnings in the period in which they
arise, except for hedge transactions which qualify for hedge
accounting treatment in which case gains and losses are recognized
in other comprehensive income (loss).
In accordance with these policies, the Company has classified its
financial instruments as follows:
- Cash and cash equivalents and restricted cash are classified as held
for trading financial instruments and are measured at fair value.
- Accounts receivable and trade receivable from a related party are
classified as loans and receivables and are measured initially at
fair value and subsequently measured at amortized cost.
- Accounts payable and accrued liabilities, bank indebtedness, amounts
owing pursuant to acquisition and balances payable to related
parties are classified as other financial liabilities and are
measured initially at fair value and subsequently measured at
amortized cost.
- Reclamation deposits invested in interest bearing money market
linked investments are classified as available-for-sale securities
and are carried at fair market value, with the unrealized gain or
loss recorded in shareholders` equity as a component of other
comprehensive income (loss). During the period there were no
unrealized gains or losses relating the reclamation deposits as the
carrying amounts approximate the fair value.
(h) Site closure and reclamation obligations
The Company recognizes any statutory, contractual or other legal
obligation related to the retirement of tangible long-lived assets when
such obligations are incurred, if a reasonable estimate of fair value can
be made.
These obligations are measured initially at fair value and the resulting
costs are capitalized to the carrying value of the related asset. In
subsequent periods, the liability is adjusted for the accretion of the
discount and any changes in the amount or timing of the underlying future
cash flows. The asset retirement cost is amortized to operations over the
life of the asset. Changes resulting from revisions to the timing or the
amount of the original estimate of undiscounted cash flows are recognized
as an increase or a decrease in the carrying amount of the liability, and
the related asset retirement cost is capitalized as part of the carrying
amount of the related long-lived asset. In the event the required
decrease in the asset retirement cost is in excess of the carrying value,
the excess amount is recorded as a change in estimate in the statement of
operations.
(i) Impairment of long-lived assets
Long-lived assets, including mineral properties, property, plant and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed of would
be separately presented in the balance sheet and reported at the lower of
the carrying amount and the fair value less costs to sell, and are no
longer amortized. Previously recognized impairment losses are not
reversed if the fair value subsequently increases.
As at February 28, 2009, the Company completed an impairment analysis
which considered the indicators of impairment in accordance with Section
3063, "Impairment of Long-lived Assets" as well as EIC-126, "Accounting
by Exploration Companies for Exploration Costs" and AcG-11, "Enterprises
in the Development Stage". The Company prepared cash flow forecasts for
the mine and development projects using price assumptions reflecting
prevailing diamond prices and analysts` consensus forecasts, current life-
of-mine plans and forecast operating cost profiles. The analysis was
based on the life of mining properties, using long-term price assumptions
of US$968, US$824 and US$604 per carat for the Saxendrift, Klipdam and
Holpan mines respectively as well as a long-term foreign exchange of US$1
to ZAR 8.8. Sales and production volumes were set at 20% below forecast.
Other assumptions used in determining whether impairment existed include:
(a) Inflation rate of 5%, (b) Prime lending rate of 12%, (c) Finance
lease periods of 36 months, (d) No increases in salaries and wages, (e)
Royalty payments of 5%, (f) Fuel and oil increases of 2.5%, and (g)
Electricity increases of 27.5%.
The undiscounted cashflows were greater than the carrying value of the
long lived assets and thus, a comparison to fair value was not required.
The Company identified a portion of assets at Saxendrift, H.C. Van Wyk,
and Durnpike whose net asset values did not accurately reflect the
expected benefits of their remaining useful lives. These assets were
written down by a total amount of $2,590,958.
Management estimates of mineral prices, recoverable reserves, and
operating, capital and reclamation costs used in impairment tests are
subject to certain risks and uncertainties that may affect the
recoverability of mineral property costs. Although management has made
its best estimate of these factors, it is possible that changes could
occur in the future that could adversely affect management`s estimate of
the net cash flow from its assets.
(j) Variable interest entities
Variable interest entities ("VIE") are entities in which equity investors
do not have a controlling financial interest or the equity investment at
risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support provided by other
parties. The Company consolidates the accounts of VIEs where it has been
determined that the Company is the primary beneficiary, defined as the
party that receives the majority of the expected residual returns and/or
absorbs the majority of the entity`s expected losses.
(k) Foreign currency translation
During the year, the Company classified its foreign operations as self-
sustaining operations due to the Company reaching a stage in the
development of its foreign operations where the foreign subsidiaries are
now able to fund their operations from internally generated cash flows.
In prior years, these foreign subsidiaries were considered integrated due
to funding provided by the parent to fund its operations. The loss on
changing non-monetary assets and liabilities from the historical exchange
rate to the current rate was $13,499,733. During the year, an additional
income of $90,350 was recorded, resulting in an accumulated other
comprehensive loss on translation of self-sustaining foreign operations
of $13,409,383.
Self-sustaining operations are foreign operations that are financially
and operationally independent of the reporting enterprise such that the
exposure to exchange rate changes is limited to the reporting
enterprise`s net investment in the foreign operation and which have a
functional currency different from the entity. Assets and liabilities of
self-sustaining operations are translated into the reporting currency at
the exchange rate in effect at the balance sheet date. Revenue and
expense items (including depreciation and amortization) are translated
into the reporting currency at the exchange rate in effect on the dates
on which such items are recognized in income during the period or
appropriate averages.
For a self-sustaining operations exchange gains or losses are presumed
not to have a direct effect on the activities of the reporting enterprise
and are incorporated in the financial statements of the reporting
enterprise as a separate component of shareholders equity. However, as
the Company`s functional currency is the Canadian dollar gains or losses
on translation are recorded in other comprehensive income (loss), which
is a separate component of shareholders equity.
(l) Share capital
Common shares issued for mineral property interests are recorded at their
fair market value based upon the trading price of the shares on the
Toronto Stock Exchange ("TSX") on the date of issue or as otherwise
provided under the terms of the agreement to issue the shares. Share
issue costs are deducted from share capital.
(m) Stock-based compensation
The Company has a share option plan which is described in note 11(b).
The Company records all stock-based payments granted using the fair value
method.
Under the fair value method, stock-based payments are measured at the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable, and are
charged to operations over the vesting period, with an offsetting amount
to contributed surplus. Consideration received on the exercise of stock
options is recorded as share capital and the related contributed surplus
is transferred to share capital.
(n) Income taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, future income tax assets and liabilities are
computed based on differences between the carrying amount of assets and
liabilities on the balance sheet and their corresponding tax values,
using the enacted or substantively enacted income tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Future tax assets are recognized to the extent that they are considered
more likely than not to be realized. The valuation of future income tax
assets is adjusted, if necessary, by the use of a valuation allowance to
reflect the estimated realizable amount.
(o) Loss per share
Basic income (loss) per share is calculated by dividing the loss for the
period by the weighted average number of common shares outstanding during
the period.
Diluted income (loss) per share is calculated using the treasury stock
method. Under the treasury stock method, the weighted average number of
common shares outstanding used for the calculation of diluted income
(loss) per share assumes that the proceeds receivable upon exercise of
dilutive share purchase options and warrants are used to repurchase
common shares at the average market price during the period.
Diluted loss per share has not been presented separately as the effect of
outstanding options and warrants would be anti-dilutive for all periods
presented.
(p) Use of estimates
The preparation of consolidated financial statements in conformity with
Canadian generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
as at the balance sheet date, and the reported amounts of revenues and
expenses during the reporting period. Significant areas requiring the use
of management estimates relate to the impairment of long lived assets,
rates for depletion and amortization, determination of reclamation
obligations and the assumptions used in determining stock-based
compensation expense. Actual results could differ from those estimates.
(q) Comprehensive Income (Loss)
Comprehensive income (loss) is the change in the Company`s shareholders`
equity that results from transactions and other events from other than
the Company`s shareholders and includes items that would not normally be
included in net income (loss), such as unrealized gains or losses on
available-for-sale investments. Certain gains and losses that would
otherwise be recorded as part of net income (loss) are to be presented in
other accumulated comprehensive income (loss) until it is considered
appropriate to recognize into net income (loss). Accumulated other
comprehensive income (loss) is presented as a new category in
shareholders` equity.
(r) Comparative figures
Prior years` comparative figures have not been reclassified to conform to
the presentation adopted for the current year.
4. CHANGES IN ACCOUNTING POLICIES
(a) Newly Adopted Accounting Policies
Effective March 1, 2008, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants
("CICA"). These new standards have been adopted on a prospective basis
with no restatement to prior period financial statements.
(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 capital requirements and, if it has not
complied, the consequences of such non-compliance. As at February
28, 2009, the Company is not subject to externally imposed capital
requirements other than its restricted cash (note 7(a)) and its
overdraft facility (note 16).
The Company`s primary objectives when managing capital are to
safeguard the Company`s ability to continue as a going concern, so
that it can continue to provide returns for shareholders, and to
have sufficient funds on hand for business opportunities as they
arise. The Company considers the components of shareholders` equity,
as well as its cash and cash equivalents, and bank indebtedness as
capital. The Company`s investment policy is to invest its cash in
highly liquid short-term interest-bearing investments, having
maturity dates of three months or less from the date of acquisition,
that are readily convertible to known amounts of cash.
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, issue debt, or return capital to
shareholders, 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.
There were no changes to the Company`s approach to capital
management during the year ended February 28, 2009 and the Company
expects it will be able to raise sufficient capital resources to
carry out its plans of operations for fiscal 2010 as disclosed in
note 1.
(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 cash equivalents,
accounts receivable, restricted cash, trade receivable from a
related party, reclamation deposits, bank indebtedness, accounts
payable and accrued liabilities and due to/from related parties
approximate their fair values.
Aside from the financial assets mentioned above, the carrying
amounts of the Company`s other financial assets approximate their
fair values. The following tables show the estimated fair values of
the financial assets:
Estimated fair value as at
February 28, February 29,
2009 2008
Cash and equivalents $ $
3,997,807 19,623,847
Restricted cash 2,698,719 13,335,124
Held for trading $ $
6,696,526 32,958,971
Accounts receivable $ $
1,131,026 631,446
Trade receivable from a 3,490,725 593,434
related party
Loans and receivables $ $
4,621,751 1,224,880
Reclamation deposits $ $
2,659,642 1,816,877
Available for sale financial $ $
assets 2,659,642 1,816,877
Total financial assets $ $
13,977,919 36,000,728
The fair value of marketable securities and investments and reclamation
deposits represents the market value of quoted investments.
The fair values of financial liabilities are as follows:
Estimated fair value as at
February February 29,
28, 2009 2008
Bank Indebtedness $ $
3,540,880 -
Accounts payable and accrued 4,832,038 4,420,212
liabilities
Amounts due to a related 576,985 49,604
party
Amounts owing pursuant to - 294,402
acquisition
Capital lease obligations 8,724,777 14,803,299
Income tax liability 456,046 890,332
$ $
18,130,726 20,457,849
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 diamond 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, restricted cash,
accounts receivable and trade receivable from a related party. The
carrying value, which approximates fair 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 limits exposure to credit risk on liquid financial assets
through maintaining its cash and equivalents with high-credit quality
financial institutions. The Company does not have financial assets that
are invested in asset backed commercial paper.
The Company`s minimize its credit risk by settling the receivables on its
diamond sales in the month following the sale.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. As discussed in note 1, the
Company is confident that it will be able to raise 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 at
carrying values (excluding interest payments):
February Carrying Contractual 2010 2011 2012
28, 2009 amount cash flow
Accounts $4,832,038 $4,832,038 $4,832,038 $ $
payable - -
and
accrued
liabilitie
s
Due to 576,985 576,985 193,655 383,330 -
related
parties
Bank 3,540,880 3,540,880 3,540,880 - -
indebtedne
ss
Capital 8,724,777 9,537,062 6,570,081 2,860,859 106,122
lease
obligation
s
Income tax 456,046 456,046 456,046 - -
liability
February 29, Carrying Contractua 2009 2010 2011
2008 amount l cash
flow
Accounts $4,420,212 $4,420,212 $4,420,212 $ $
payable and - -
accrued
liabilities
Amounts due 49,604 49,604 49,604 - -
to related
parties
Capital 14,803,299 16,832,458 8,385,013 6,087,834 2,389,611
lease
obligations
Income tax 890,332 890,332 890,332 - -
liability
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 cash equivalents, restricted cash,
accounts receivable and amounts due from related parties to foreign
exchange risk is as follows:
Currency February 28, February 29,
2009 2008
South African $ 10,082,048 $ 16,362,773
Rand
Other 19,649 1,127,790
Total Financial $ 10,101,697 $ 17,490,563
Assets
The exposure of the Company`s bank indebtedness, accounts payable and
accrued liabilities, amounts due to related parties and capital lease
obligations to foreign exchange risk is as follows:
Currency February 28, February 29,
2009 2008
South African Rand $ 16,853,686 $ 18,909,003
Total Financial $ 16,853,686 $ 18,909,003
Liabilities
Sensitivity analysis:
A 10 percent change of the Canadian dollar against the ZAR at February
28, 2009 would have changed net loss by $659,120. This analysis assumes
that all other variables, in particular interest rates, remain constant.
Interest Rate Risk
The Company is subject to interest rate risk with respect to its
investments in cash and cash equivalents. The Company`s policy is to
invest cash at floating rates of interest and cash reserves are to be
maintained in cash equivalents in order to maintain liquidity, while
achieving a satisfactory return for shareholders. Fluctuations in
interest rates when the cash equivalents mature impact interest income
earned.
The Company has capital lease obligations with several financial
institutions as detailed in note 8. The capital leases bear interest at
rates linked to the prevailing prime rate of the relative financial
institution, and are subject to interest rate change risk.
Sensitivity analysis:
A 10 percent change of the prime rate for the year ended February 28,
2009 would have changed net loss by $159,200. This analysis assumes that
all other variables, in particular foreign exchange rates, remain
constant.
Diamond price risk
The value of the Company`s mineral resource properties is dependent on
the price and the outlook of diamonds.
For the past several months, the international diamond market has
softened as a consequence of the credit crunch and the volatility and
uncertainty in the banking and financial market sectors. Diamond demand
and prices fluctuate and are affected by numerous factors beyond the
control of the Company, including worldwide economic trends, worldwide
levels of diamond discovery and production and the level of demand for,
and discretionary spending on, luxury goods such as diamonds and jewelry.
Low or negative growth in the worldwide economy, prolonged credit market
disruptions or activities creating disruptions in economic growth could
result in decreased demand for diamonds, thereby negatively affecting the
price of diamonds. Similarly, a substantial increase in the worldwide
level of diamond production could also negatively affect the price of
diamonds.
The profitability of the Company`s operations is highly correlated to the
market price of diamonds. If diamond prices decline for a prolonged
period below the cost of production of the Company`s operating mines, it
may not be economically feasible to continue production.
(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 Company`s assessment and
disclosure of its ability to continue as a going concern are disclosed in
note 1.
(iv) Inventories (Section 3031)
In June 2007, the CICA issued Section 3031 - "Inventories" which
replaces Section 3030 and establishes standards for the measurement
and disclosure of inventories. This section applies to fiscal years
beginning on or after January 1, 2008. The main features of the new
section are:
- Measurement at the lower of cost and net realizable value;
- Cost of items that are not ordinarily interchangeable, and
goods and services produced and segregated for specific
projects, assigned by using a specific identification of their
individual costs;
- Consistent use of either first-in first-out or weighted average
cost formula to measure the cost of other inventories; and
- Reversal of previous write-downs to net realizable value when
there is a subsequent increase in the value of inventories.
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 as disclosed in
note 3 (d).
(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 the Company`s 2010 fiscal year. Section 3064 is
not expected to have a significant impact on the financial
statements.
(iii)EIC 173 - Credit Risk and the Fair value of Financial Assets and
Financial Liabilities
The AcSB issued EIC-173 which requires the Company to consider its
own credit risk as well as the credit risk of its counterparty when
determining the fair value of financial assets and liabilities,
including derivative instruments. The standard is effective for the
first quarter of fiscal 2010 and is required to be applied
retrospectively without restatement of prior periods. The Company is
currently evaluating the impact of this new standard on its
consolidated financial statements.
(iv) EIC 174 - Mining Exploration Costs
The AcSB issued EIC-174, "Mining Exploration Costs" which provides
guidance to mining enterprises related to the measurement of
exploration costs and the conditions that a mining enterprise should
consider when determining the need to perform an impairment review
of such costs. The standard is effective for the first quarter of
fiscal 2010 and is required to be applied retrospectively without
restatement of prior periods. The Company is currently evaluating
the impact of this new standard on its consolidated financial
statements.
(v) Business Combinations/Consolidated Financial Statements/Non-
Controlling Interests
The AcSB adopted CICA sections 1582, "Business Combinations", 1601,
"Consolidated Financial Statements", and 1602, "Non-Controlling
Interests" which superseded current sections 1581, "Business
Combinations" and 1600 "Consolidated Financial Statements". These
new sections replace existing guidance on business combinations and
consolidated financial statements to harmonize Canadian accounting
for business combinations with IFRS. These Sections will be applied
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2011. Earlier adoption is
permitted. If an entity applies these Sections before January 1,
2011, it is required to disclose that fact and apply each of the new
sections concurrently. The Corporation is currently evaluating the
impact of the adoption of these changes on its consolidated
financial statements.
5. INVENTORY
As at As at
February 28, February 29,
2009 2008
Rough diamond inventory $ 1,845,986 $ 830,780
Mine supplies 1,873,933 2,635,073
Total inventory $ 3,719,919 $ 3,465,853
As at February 28, 2009, rough diamond inventory was valued at net realizable
value.
6. PROPERTY, PLANT AND EQUIPMENT
As at February 28, 2009
Cost Accumulated Net book
Amortization value
and
Impairments
Land and buildings $ $ $
5,822,677 228,591 5,594,086
Processing plant and 52,090,193 15,102,720 36,987,473
equipment
Processing plant and 21,374,971 5,931,733 15,443,238
equipment under capital
lease obligation
Office equipment 859,678 302,618 557,060
Vehicles and light 1,579,592 592,263 987,329
equipment
Vehicles and light - - -
equipment under capital
lease obligation
$ 81,727,111 $ 22,157,925 $59,569,186
As at February 29, 2008
Cost Accumulated Net book
amortization value
Land $ $ $
3,936,092 - 3,936,092
Processing plant and 35,421,362 1,474,746 33,946,616
equipment
Processing plant and 27,850,217 2,961,508 24,888,709
equipment under capital
lease obligation
Office equipment 815,209 8,476 806,733
Vehicles and light 1,389,566 259,538 1,130,028
equipment
Vehicles and light 154,323 30,865 123,458
equipment under capital
lease obligation
$ $ 4,735,133 $
69,566,769 64,831,636
The group`s bankers have registered two notarial general covering bonds of ZAR
10 million ($1,264,000) over all loose assets on the property of the farm
Holpan, Barkley West, Northern Cape.
7. MINERAL PROPERTY INTERESTS
As at
As at
Acquisition Costs February 28, February 29,
2009 2008
H.C. Van Wyk Diamonds and Klipdam
Mining
Balance, beginning of period $ 25,247,936 $
24,121,854
Acquisition costs 55,746 1,822,138
Foreign exchange adjustments -
(7,321,972)
Financial, legal, advisory, and - 4,216
other fees
Site closure and reclamation - 230,622
obligation recognized
Future income tax liability 6,390,327 419,050
Change in future income tax (201,415) -
rate
Depletion of mineral properties (1,796,639) (1,349,944)
during the period
H.C. Van Wyk and Klipdam, end of 22,373,983 25,247,936
period
Ricardo Property - 1
Saxendrift Mine
Balance, beginning of period
- -
Acquisition costs 5,295,754 -
Foreign exchange adjustments (178,144) -
Future income tax liability 1,990,181 -
Depletion of mineral properties (587,297) -
during the year
Saxendrift Mine (Pty) Ltd, end of 6,520,494 -
period
Balance, end of period $ 28,894,477 $ 25,247,937
(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"), was 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 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. Registration
and transfer of Saxendrift Mine Pty (Ltd) and the Saxendrift mining right, as
well as prospecting rights in respect of the Kwartelspan, Zwemkuil-Mooidraai
and part of the Remhoogte-Holsloot projects were obtained. In March 2009, the
Niewejaarskraal mining rights were acquired subsequent to year end.
The results of the Saxendrift operations have been included in the
consolidated financial statements since the date of acquisition. The
following table summarizes the total purchase consideration of the Saxendrift
assets:
Amount (ZAR) Amount
($)
Cash consideration 73,536,000 $
9,618,508
Acquisition costs and other 4,912,895 642,607
Other commitments 2,988,619 390,911
Total purchase consideration 81,437,514 $
10,652,026
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 100 12
Mineral property interests 40,487,414 5,295,754
Reclamation obligation (7,800,000) (1,020,240)
81,437,514 $ 10,652,026
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,
Liberty Lane Investments (Pty) Ltd ("Liberty Lane") acquired a
shareholding of 26% by subscribing for shares in Saxendrift. The
acquisition by Liberty Lane was financed via loans provided by Rockwell
RSA to Liberty Lane. The Company has determined that its 74% interest in
Saxendrift qualifies as a variable interest entity ("VIE") due to certain
voting arrangements required under the Saxendrift shareholders agreement.
The Company has also determined the Company is the primary beneficiary of
the VIE as it is most closely related to the activities and has primary
exposure to the expected losses of the VIE. Consequently, the Company has
consolidated 100% of the results of operations of Saxendrift since the
date of acquisition. Upon full repayment of the outstanding loans by
Liberty Lane, the Company will reduce the consolidation of Saxendrift`s
results of operations to 74%.
The Company continues to maintain good standing with its BEE partner and
is operating under the terms of its BEE agreement, including the
appointment of a director to its Board.
As at February 28, 2009, the Company has a commitment to pay ZAR27.5
million ($3.4 million) in cash to Trans Hex for the remaining
Niewejaarskraal mining rights and part of the Remhoogte-Holsloot
projects. The Company has placed $2.7 million in trust toward application
of this remaining payment and will be released to Transhex upon 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) Acquisition of Durnpike Investments (Pty) Limited
On January 31, 2007, the Company completed the acquisition of Durnpike
Investments (Pty) Limited ("Durnpike"), a private South African company
("Acquisition"). Durnpike holds an interest in respect of and/or rights
in the four alluvial diamond properties in South Africa and the
Democratic Republic of Congo. These four properties include the
Holpan/Klipdam Property in South Africa, Wouterspan Property in South
Africa, Kwango River Project in the Democratic Republic of Congo and
Galputs Minerale Project in South Africa.
Pursuant to the Durnpike Acquisition Definitive Agreement, the Company:
- Acquired all of the shares and loans in Durnpike for consideration
of ZAR 39.8 million ($6.1 million), payable in common shares of the
Company. The Company issued 7,848,663 Common Shares and also issued
1,676,529 Common Shares as finder fees relating to the Durnpike
acquisition. The common shares were issued on November 30, 2007.
- 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.
The Holpan/Klipdam Property and the Wouterspan Property were initially
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, and were collectively referred to as
The Van Wyk Diamond Group of companies ("VWDG"). To facilitate
Durnpike`s initial acquisition of 49% of the issued and outstanding
shares of HCVW and 51% of the issued and outstanding shares of Klipdam
(the "Acquisition Interest"), the Company advanced a non-interest bearing
loan to Durnpike of ZAR50 million (Cdn$7.8 million) and committed to pay
an additional ZAR30 million ($4.5 million) to the Van Wyk Trust on July
7, 2007. This loan was 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 also had the option to increase its shareholding in HCVW to a
51% controlling interest by (a) subscribing for additional shares in HCVW
for the amount of ZAR1 million ($160,000) and (b) introducing a ZAR24
million ($3.9 million) working capital loan into VWDG. These conditions
were met in January 2007.
On January 31, 2007, all the conditions precedent to the completion of
the Acquisition as per the Definitive Agreement were fulfilled. The
Company also received the necessary regulatory approvals in Canada and
South Africa.
During the year ended May 31, 2007, a black economic empowerment ("BEE")
group, African Vanguard Resources (Pty) Ltd., the holding company of
Richtrau No 136 (Pty) Ltd, purchased 15% of the VWDG from the Van Wyk
Trust for an amount of ZAR22.5 million ($3.4 million).
The Company also entered into an Exchange Agreement with the Van Wyk
Trust to acquire the remaining shareholding of VWDG for ZAR60 million
($7.6 million), payable in Common Shares. On March 1, 2008, the Company
ratified the Exchange Agreement and increased its ownership of HCVW and
Klipdam by 34%, resulting in an 85% interest, by issuing 14,285,715
common shares of the Company pursuant to the Definitive Agreement and
thereby reducing the non-controlling interest to 15%. On 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%. This additional 11% is at a subscription price
of ZAR17.5 million and is funded by Rockwell RSA, a subsidiary of the
Company. Consequently, the Company has consolidated 85% of the results of
operations of HCVW and Klipdam until the outstanding loans by the BEE
group are fully repaid, at which time the Company will then reduce the
consolidation of HCVW and Klipdam`s results of operations to 74%.
(c) Kwango River Project - Democratic Republic of Congo
Pursuant to the Durnpike Acquisition Definitive Agreement, the Company
had to incur US$7 million on a feasibility study on the Kwango River
Project by August 31, 2007. This deadline was extended to February 29,
2008 at no cost and could be further extended to December 31, 2008 by
payment of US$1 million in Common Shares.
Durnpike`s interest in the Kwango River Project in the DRC was
constituted by an agreement concluded during 2006 ("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 was 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, and Midamines undertook several
obligations in favour of Durnpike including that of procuring and
facilitating Durnpike`s access to the Kwango River Project site. These
royalties took the form of a series of recurring minimum royalty payments
of US$1,200,000 per annum (commencing on December 31, 2007).
During the first quarter of 2008, pursuant to an amending agreement to
the Midamines Agreement, the Company paid consideration of $600,000 to
Midamines in order to increase the size of the concession (Permit 331).
As part of such amending agreement, Midamines waived its right to payment
of the abovementioned US$1,200,000 royalty payment on December 31, 2007.
Subsequently, and pursuant to Midamines` persistent breach of material
provisions of the Midamines Agreement (coupled with its failure to remedy
such instances of breach notwithstanding notice to do so), Durnpike
cancelled the Midamines Agreement and claimed damages.
Midamines has subsequently disputed Durnpike`s entitlement to cancel the
Midamines Agreement and has demanded payment of US$1,200,000 as well as
other amounts which have not yet been determined. Midamines has
threatened to refer the dispute to arbitration and to join Rockwell as
party thereto, but no formal referral to arbitration has as yet been
forthcoming.
(d) Galputs Minerale Project
As provided for in the Durnpike Acquisition 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.
(e) Makoenskloof Property, South Africa
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 ("MOR"). 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 December 2007, Makoenskloof property was placed on care and
maintenance in order for management to evaluate the results of the bulk
sampling activities which had taken place up until the end of November
2007.
In April 2007 the Company, entered into an agreement in relation to its
Makoenskloof property to purchase plant and equipment in the amount of
ZAR21.3 million (approximately $3.2 million) from Folmink Delwery CC. As
at February 29, 2008 the Company was committed to pay the remaining
consideration of ZAR2.3 million ($294,402) and completed the payment of
the final consideration in August 2008.
(f) Disposal of 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 a
director and officer in common, for a nominal price of $1, resulting in a
loss of $203,339.
8. CAPITAL LEASE OBLIGATIONS
Included in property, plant and equipment are mining equipment that the
Company acquired pursuant to three to four year capital lease agreements.
The Company`s capital lease obligations are with the following financial
institutions:
As at As at
February 28, 2009 February 29, 2008
ELB Finance $ - $ 105,418
Stannic 883,409 2,093,869
Wesbank 81,779 319,236
Nedbank 178,092 1,842,519
Komatfin 7,581,497 10,442,257
$ 8,724,777 $ 14,803,299
Capital lease obligations as detailed above are secured over plant and
equipment and are repayable, on average, in 36 monthly installments. Interest
is charged at rates of between 12.00% to 12.75% per annum linked to the
prevailing prime rate of the relative financial institution mentioned above.
Future minimum lease payments are as follows:
As at As at
February 28, February 29,
2009 2008
2009 $ - $ 8,385,013
2010 6,570,081 6,087,834
2011 2,860,859 2,389,611
2012 106,122 -
Total minimum lease payments 9,537,062 16,862,458
Less: interest portion (812,285) (2,059,159)
Present value of capital 14,803,299
lease obligations 8,724,777
Current portion 5,440,181 6,847,751
Non-current portion $ 3,284,596 $ 7,955,548
9. RECLAMATION OBLIGATION
The continuity of the provision for reclamation costs related to the
Holpan, Wouterspan, Klipdam and Saxendrift mines, are as follows:
As at As at
February 28, February 29,
2009 2008
Holpan, Wouterspan and Klipdam
Balance, beginning of period $ 1,755,820 $ 1,361,557
Changes during the period:
Reclamation obligation (10,274) 230,622
recognized (expenditure
incurred)
Foreign exchange on - (300,675)
reclamation
Accretion expense 944,789 464,316
Balance, end of period $ 2,690,335 $ 1,755,820
Saxendrift
Balance, beginning of period $ - $ -
Changes during the period:
Reclamation obligation 984,720 -
recognized
Foreign exchange on - -
reclamation
Accretion expense 127,600 -
Balance, end of period $ 1,112,320 $ -
Total reclamation obligation, $ 3,802,655 $ 1,755,820
end of period
The rehabilitation provision is based on an independent professional
surveyor`s measurement of those mined areas which need to be
rehabilitated at year-end.
These measurements determine the volume of material needed to reclaim the
mined areas. The liability is calculated by applying a cost of ZAR4.00
($0.51) for each cubic meter measured, and has been determined with
reference to plant, fuel and labour usage and has been found acceptable
by the Department of Mineral and Energy Affairs.
As required by regulatory authorities, at February 28, 2009, the Company
had cash reclamation deposits totaling $2,659,642 (2008 - $ 1,816,877)
comprised of $1,654,589 (2008 - $ 1,816,877) for the Holpan, Wouterspan
and Klipdam mine and $1,005,053 (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% per annum. These
investments have been ceded as security in favour of the guarantees the
bank issued on behalf of the group (note 16).
10. OTHER ASSETS AND DEPOSITS
As at As at
February 28, February 29,
2009 2008
Loans receivable (a) $ - $ 3,045,110
Other assets 3,068 -
Refundable security deposits 136,072 155,002
Total other assets and deposits $ 139,140 $ 3,200,112
(a) Loans receivable in 2008 was represented by $830,194 receivable for
the Saxendrift acquisition and $2,214,916 receivable from the BEE group.
11. 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 no preferred shares
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 year ended February 28,
2009 is as follows:
Exercise Feb 29 Expired/ Feb 28
Expiry price 2008 Granted Exercised cancelled 2009
date
March 28, $ 0.50 150,000 - - 150,000 -
2008
July 10, $ 0.68 300,000 - - 300,000 _
2010
September $ 0.62 5,903,000 - - 1,666 5,901,334
24, 2012
November $ 0.63 1,109,000 - - 4,166 1,104,834
14, 2012
June 20, $ 0.45 - 1,150,0 - 950,000
2011 00 200,000
7,462,000 1,150,0 - 655,832 7,956,168
00
Weighted average $ 0.62 $ $ $ 0.57 $
exercise price 0.45 - 0.60
Weighted average fair value of options granted $
during the period 0.45
As at February 28, 2009, 4,987,445 of the options outstanding with a
weighted average exercise price of $0.60 per share have vested with
grantees.
The continuity of share purchase options for the nine months ended
February 29, 2008 is as follows:
Exerci May 31 Expired/ Feb 29
Expiry se 2007 Granted Exercised cancelled 2008
date price
September $ 0.40 107,917 - 107,917 - -
28, 2007
February $ 0.42 190,000 - 145,000 45,000 -
29, 2008
March 28, $ 0.50 150,000 - - - 150,000
2008
July 10, $ 0.68 - 300,000 - - 300,000
2010
September $ 0.62 - 5,905,500 - 2,500 5,903,000
24, 2012
November $ 0.63 - 1,114,500 - 5,500 1,109,000
14, 2012
447,917 7,320,000 252,917 53,000 7,462,000
Weighted average $ 0.44 $ $ 0.41 $ $
exercise price 0.62 0.45 0.62
Weighted average fair value of options $
granted during the period 0.62
As at February 29, 2008, 250,000 of the options outstanding with a weighted
average exercise price of $0.57 per share had vested with grantees.
The continuity of share purchase options for the year ended May 31, 2007 is as
follows:
Exerci May 31 Expired/ May 31
Expiry se 2006 Grante Exercised cancelled 2007
date price d
September $ 0.40 115,417 - 5,833 1,667 107,917
28, 2007
February $ 0.42 210,000 - 3,334 16,666 190,000
29, 2008
March 28, $ 0.50 150,000 - - - 150,000
2008
475,417 - 9,167 18,333 447,917
Weighted average $ 0.44 $ $ 0.41 $ 0.42 $
exercise price - 0.44
Weighted average fair value of $
options granted during the year Nil
As at May 31, 2007, 327,917 of the options outstanding with a weighted average
exercise price of $0.40 per share had 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:
Year ended Nine Months Year ended
February 28 ended May 31
2009 February 29 2007
2008
Exploration and engineering $ 629,347 $ 514,892 $41,372
Operations and administration 1,205,075 1,311,425 38,251
Total compensation cost
expensed to operations, with $ 1,834,422 $ 1,826,317 $ 79,623
the offset credited to
contributed surplus
The weighted-average assumptions used to estimate the fair value of options
granted are as follows:
2009 2008 2007
Risk free 4% 4% 4%
interest rate
Expected life 3 4.8 2 years
years years
Expected 122% 111% 97%
volatility
Expected nil nil nil
dividends
(c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable into
one common share) for the period ended February 28, 2009 is:
Expiry date November 22, May 09, 2009 May 09, 2009
2009 (i) (ii) (iii)
Balance, May 31, 2007 42,000,000 116,007,154 5,772,000
Issued - - -
Exercised 2,400,000 - -
Expired - - -
Balance, February 29, 39,600,000 116,007,154 5,772,000
2008
Issued - - -
Exercised - -
-
Expired - - -
Balance, February 28, 39,600,000 116,007,154 5,772,000
2009
(i) The share purchase warrants are exercisable over three years
with the option to exercise at $0.60 expiring on November 22,
2007, the option to exercise at $0.80 expiring on November 22,
2008 and the option to exercise at $1.00 expiring on November
22, 2009.
(ii) In May 2007, Rockwell completed a $60 million private placement
financing of 116,007,154 million equity Units at $0.52 each
with each Unit consisting of one common share and one share
purchase warrant exercisable over two years at $0.70.
(iii)In May 2007, the Company issued 5,772,000 broker warrants
exercisable over two years at $0.70 expiring on May 9, 2009.
Using a Black-Scholes option pricing model, the fair value of
the 5,772,000 broker warrants granted in the amount of
$1,693,197 (2008 $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%.
(d) Private placement, May 2007
In May 2007, Rockwell completed a $60 million financing of
116,007,154 million equity Units at $0.52 each with each Unit
consisting of one common share and one share purchase warrant
exercisable over two years at $0.70. All securities are subject to a
four month hold period in Canada expiring September 10, 2007. In
addition, the securities have not been, and will not be, registered
under the United States Securities Act of 1933, as amended, and may
not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. 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.
(e) Shares issued, November 2007
On November 30, 2007 the Company issued 7,848,663 Common Shares at a
price of $0.78 per share for a total of $6,081,842, net of issue
costs, and also issued 1,676,529 Common Shares at a share price of
$0.78 per share for a total of $1,307,693 as finder fees relating to
the Durnpike acquisition (note 7(b)).
(f) Private Placement, January 2008
In January 2008 the Company completed a brokered private placement
of 24,101,526 Common Shares at a price of $0.60 per share for total
proceeds of $13,860,916, net of issue costs. The Company issued
500,000 Common Shares and paid a cash fee of $300,000 as finder`s
fees relating to the private placement. All shares issued pursuant
to the private placement are subject to a hold period expiring on
March 31, 2008.
Proceeds from the financing were used to fund Rockwell`s diamond
operations and new project evaluation and development.
(g) Shares issued, March 2008
On March 1, 2008, the Company issued 14,285,715 common shares at a
price of $0.55 per share for a total of $7,857,143 to increase its
ownership of HCVW and Klipdam by 34%, resulting in a total interest
holding of 85%, and thereby reducing the non-controlling interest of
HCVW and Klipdam to 15% (note 7(b)).
12. LOSS PER SHARE
Year ended Nine months Year ended
February Ended May 31,
28, February
29,
(Number of common shares) 2009 2008 2007
Basic weighted average shares
outstanding: 237,924,152 196,428,551 55,418,242
Weighted average shares dilution
adjustments:
Dilutive stock options - - -
Common share purchase warrants - - -
Diluted weighted average shares 237,924,152
outstanding 196,428,551 55,418,242
Weighted average shares dilution
adjustments - exclusions(a)
Stock options
7,956,168 7,462,000 447,917
Common share purchase warrants 161,379,154 161,379,154 163,779,154
(a) These adjustments were excluded, as they were anti-dilutive. Diluted
loss per share has not been presented separately on the Statement of
Operations as the effect of outstanding options and warrants would
be anti-dilutive.
13. RELATED PARTY BALANCES AND TRANSACTIONS
Balances payable As at As at
February 28, February
2009 29,2008
Banzi Trading (h) $ $
- -
Jeffrey Brenner 7,890 -
Jakes Tyres (i) 5,498 49,604
Hunter Dickinson Services 180,267 -
Inc. (a)
Current balances payable $ $
193,655 49,604
Liberty Lane (l) 383,330 -
Long-term balances $ $
payable 383,330 -
Balances receivable
Hunter Dickinson Services $ $
Inc. (a) - 78,504
Flawless Diamonds Trading 3,441,510 477,298
House (g)
Banzi Trade 26 (Pty) Ltd 19,547 33,744
(h)
Diacor CC (k) 29,668 3,888
$ 3,490,725 $
593,434
Year ended Nine Months Year ended
Transactions February February 29 May 31
28 2008 2007
2009
Services rendered and
expenses reimbursed:
Hunter Dickinson $ 1,280,316 $ 863,861 $ 1,988,027
Services Inc. (a)
Euro-American Capital - 14,393 18,765
Corporation (b)
CEC Engineering (c) 26,904 39,766 187,225
John Bristow - - 115,320
Jeffrey B Traders CC - 52,740 141,318
(d)
Seven Bridges Trading - 57,952 55,534
(e)
Cashmere Trading (f) 18,808 353,736 43,357
Banzi Trade 26 (Pty) 29,768 47,575 251,942
Ltd (h)
Jakes Tyres (i) 440,283 1,141,454 267,361
AA Van Wyk (j) - 148,658 173,977
Diacor CC (k) 39,510 3,888 -
Sales rendered to:
Flawless Diamonds $ $ 36,038,106 $ 10,085,536
Trading House (g) 34,330,078
Banzi Trade 26 (Pty) 884 - -
Ltd (h)
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company with a
director 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 November 21, 2008.
(b) Euro-American Capital Corporation is a private company controlled by
Rene Carrier, a former director of the Company, which provided
management services to the Company at market rates for those
services. 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.
(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 and 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.
(k) Diacor CC is a private company of which H C van Wyk is a director
from which the Company has purchased consumable materials at market
rates.
(l) Liberty Lane is the BEE partner of the Saxendrift property and has
certain directors in common with the Company.
14. INCOME TAXES
Income tax expense (recovery) differs from the amount which would result
from applying the statutory Canadian income tax rates in 2009 of 30.75%
(2008 - 33.5%, 2007 - 34.1%) for the following reasons:
Year ended Nine months Year ended
February 28 ended May 31
February 29
2009 2008 2007
Loss before income taxes and $ $ $
non-controlling interest (16,864,986) (1,006,849) (6,585,756)
Expected income tax recovery $ $ $
(5,186,000) (338,000) (2,324,000)
Difference in foreign tax (253,000) 298,000 101,000
rates
Permanent differences 1,232,000 1,200,000 309,000
Change in tax rate 671,000 440,000 -
Change in valuation (390,000) (477,000) 1,409,433
allowance
Other non-deductible items 586,000 1,317,400 (131,206)
Net income tax expense $ $ $
(recovery) (3,340,000) 2,440,400 (635,773)
The estimated tax effect of the significant components within the
Company`s future tax assets and liabilities are as follows:
As at As at As at
February 28 February 29 May 31
2009 2008 2007
Future income tax asset
(liability)
Resource allowances $ $ $
1,409,000 1,938,000 2,133,000
Loss carry forwards 4,767,000 3,559,000 3,824,000
Other 2,005,000 1,460,000 1,835,000
Total 8,181,000 6,957,000 7,792,000
Less: valuation allowance (7,434,860)
(6,567,000) (6,957,000)
1,614,000 - 357,140
Mineral properties
(8,090,000) (3,937,000) (5,005,000)
Equipment (5,650,000) (8,493,100) (7,331,000)
Net future tax asset $ $ $
(liability) (12,126,000) (12,430,100) (11,978,860)
At February 28, 2009, the Company had available for deduction against
future taxable income non-capital losses in Canada of approximately
$16,394,000 (2008 - $12,587,000, 2007 - $10,711,000). These losses, if
not utilized, will expire in various years ranging from 2010 to 2029.
Subject to certain restrictions, the Company also had Canadian resource
expenditures of approximately $5,635,000 (2008 - $5,635,000; 2007 -
$5,635,000), which are available to reduce taxable income in future
years.
The Company has losses in South Africa of $2,000,000 (2008 - $ nil) which
are available for deduction against future taxable income. These losses
carry forward indefinitely.
15. SEGMENTED INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly
by the chief operation decision maker, or decision-making group, in
deciding how to allocate resources and in assessing performance. All of
the Company`s operations are within the mineral exploration and diamond
mining sector. The Company`s resource properties are currently only
located in the Northern Cape region of the Republic of South Africa.
For the year
ended February Canada Chile South Total
28, 2009 Africa
Revenue $ $ $ $
- - 34,633,477 34,633,477
Loss for the (5,590,213) (135,528) (7,250,221) (12,975,962)
year
Total assets 575,275 - 105,787,141 106,362,416
Mineral - - 28,894,477 28,894,477
property
interests
Property, - - 59,569,186 59,569,186
plant and
equipment
For the nine
months ended Canada Chile South Total
February 29, Africa
2008
Revenue $ $ $ $
- - 36,149,308 36,149,308
Loss for the (3,393,226) (92,767) (5,917,035) (9,403,028)
period
Total assets 4,002,546 70,133. 129,620,445 133,693,124
Mineral - 1 25,247,936 25,247,937
property
interests
Property, - - 64,831,636 64,831,636
plant and
equipment
For the year
ended Canada Chile South Total
May 31, 2007 Africa
Revenue $ $ $ $
- - 10,103,328 10,103,328
Loss for the (5,342,557) (191,800) (830,785) (6,365,142)
year
Total assets 38,281,401 62,857. 91,262,125 129,606,383
Mineral - 1 24,121,854 24,121,855
property
interests
Property, - - 44,790,441 44,790,441
plant and
equipment
16. BANK INDEBTEDNESS
The Company has an overdraft facility in the amount of ZAR28 million
($3.8 million) available for its operations (current balance $3.5
million). Current operating income is being used to service this
facility. This facility has an interest cost of Prime (currently 11% per
annum) plus 0.6% and have a notarial bond over assets of ZAR10 million
($1.3 million).
HC van Wyk Diamonds Ltd holds guarantees by the bank towards Eskom
(Electricity Provider) of ZAR 1,225,300 ($154,886) and the Department of
Minerals and Energy (DME) of ZAR 11,576,104 ($1,463,292) towards
rehabilitation expenses.
17. CONTINGENCIES
In connection with the acquisition of Saxendrift in note 7(a), one of the
assets purchased from Trans Hex, with a carrying value of $6,257,000 is
the subject of a dispute between Trans Hex and a third party, which
claims ownership in a certain plant. Although the Company is not subject
to this dispute and cannot determine the likelihood of the outcome, the
Company has a warranty claim with Trans Hex should the third party be
successful with its claim against Trans Hex.
During the first quarter of 2008, pursuant to an amending agreement to
the Midamines Agreement, the Company paid consideration of $600,000 to
Midamines in order to increase the size of the concession (Permit 331).
As part of such amending agreement, Midamines waived its right to payment
of the abovementioned US$1,200,000 royalty payment on December 31, 2007.
Subsequently, and pursuant to Midamines` persistent breach of material
provisions of the Midamines Agreement (coupled with its failure to remedy
such instances of breach notwithstanding notice to do so), Durnpike
cancelled the Midamines Agreement and claimed damages.
Midamines has subsequently disputed Durnpike`s entitlement to cancel the
Midamines Agreement and has demanded payment of US$1,200,000 as well as
other amounts which have not yet been particularised. Midamines has
threatened to refer the dispute to arbitration and to join Rockwell as
party thereto, but no formal referral to arbitration has as yet been
forthcoming (refer note 7(c)).
18. 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) Warrants expired and share options granted subsequent to February
28, 2009
Subsequent to February 28, 2009, 5,772,000 broker warrants and 116,007,154
share purchase warrants expired unexercised (note 11(c)). No additional share
options have been granted subsequent to year end.
Notice of Annual General Meeting and posting of Annual Report
The Annual report will be posted to shareholders on 13 July 2009. Notice of
the annual general meeting will be advised in due course.
26 June 2009
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 26/06/2009 17:00:04 Produced by the JSE SENS Department.
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