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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Consolidated Financial Statements
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 TSXV: RDI & CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31,2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED)
ROCKWELL DIAMONDS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
August 31, February 28,
2009 2009
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ $
866,770 3,997,807
Accounts receivable 881,851
1,131,026
Restricted cash (note 7) -
2,698,719
Trade receivable from a related 1,451,604
party (note 11) 3,490,725
Inventory (note 5) 4,476,508
3,719,919
Prepayments 108,265
61,775
7,784,998
15,099,971
Property, plant and equipment (note 6) 61,896,713
59,569,186
Mineral property interests (note 7) 34,653,825
28,894,477
Other assets and deposits 236,526
139,140
Reclamation deposits (note 9) 3,083,508
2,659,642
$ $
107,655,570 106,362,416
LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities
Bank indebtedness (note 12) $ $
3,116,898 3,540,880
Accounts payable and accrued 5,667,369 4,832,038
liabilities
Due to related parties (note 11) 772,723
193,655
Income taxes 957,831
456,046
Current portion of capital lease 5,454,805
obligations (note 8) 5,440,181
15,969,626
14,462,800
Long-term liabilities
Capital lease obligations (note 8) 1,515,732
3,284,596
Due to related parties (note 11) 427,306 383,330
Future income taxes 11,606,000
12,126,000
Reclamation obligation (note 9) 4,257,069
3,802,655
17,806,107
19,596,581
Non-controlling interest 1,597,817
1,882,009
Shareholders` equity
Share capital (note 10) 119,954,269
119,952,532
Warrants (note 10(c)) -
1,693,197
Contributed surplus 5,993,759
4,167,304
Accumulated other comprehensive loss (5,057,807) (13,409,383)
Deficit (48,608,201)
(41,982,624)
72,282,020
70,421,026
Continuance of operations and going
concern (note 1)
Contingencies (note 13)
Subsequent events (note 8)
107,655,570 106,362,416
The accompanying notes are an integral part of these consolidated financial
statements
Approved by the Board of Directors
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited - Quarter
Expressed in 1
Canadian
Dollars)
Three months ended August Six months ended August
31 31
2009 2008 2009 2008 2009
Revenue
Rough 5,802,006 9,912,702 9,674,805 17,007,623 3,872,799
diamonds
sales
Contract - 4,356 - 160,576 -
diamond
sales
Other 116,756 250,799 173,130 330,590 56,374
sales
5,918,762 10,167,857 9,847,935 17,498,789 3,929,173
Cost of
sales
Cost of (4,789,630) (7,650,605) (9,640,211) (12,259,173) (4,850,581)
rough
diamonds
sales
Amortizat (3,139,309) (2,672,728) (4,958,389) (5,246,960) (1,819,080)
ion and
depletion
Operating (2,010,177) (155,476) (4,750,665) (7,344) (2,740,488)
profit
(loss)
Expenses
Accretion 31,885 98,779 17,597 167,402 (14,288)
of
reclamati
on
obligatio
n (note
9)
Explorati 2,305 (32,976) 59,916 271,182 57,611
on
Foreign 2,362 831,009 548,421 624,887 546,059
exchange
loss
(gain)
Interest 251,548 440,378 594,269 903,195 342,721
on
capital
leases
Interest 73,047 162,790 480,349 248,831 407,302
expense
Legal, 159,309 639,568 493,009 776,895 333,700
accountin
g and
audit
Office 800,144 867,755 1,456,613 1,839,810 656,469
and
administr
ation
Sharehold 212,170 119,330 331,536 198,975 119,366
er
communica
tions
Stock- 7,807 134,619 37,640 337,243 29,833
based
compen-
sation -
explorati
on (note
10(b))
Stock- 10,150 237,883 96,426 720,858 86,276
based
compen-
sation -
administr
ation
(note
10(b))
Travel 41,163 107,806 76,782 319,709 35,619
and
conferenc
es
Transfer 57,381 34,646 79,554 44,697 22,173
agent
1,649,271 3,641,587 4,272,112 6,453,684 2,622,841
Other
items
Loss on 11,439 283,785 37,220 304,753 25,781
disposal
of
equipment
Loss on - 203,338 - 203,338
disposal
of
mineral
property
Interest (91,692) (742,169) (234,481) (2,123,452) (142,789)
income
Write- - - 657,634 - 657,634
down of
assets
(80,253) (255,045) 460,373 (1,615,361) 540,626
Loss 3,579,195 3,542,017 9,483,150 4,845,667 5,903,955
before
income
taxes
Current - (110,367) - 157,629 -
income
tax
expense
Future (719,427) (592,800) (2,065,834) (1,346,407)
income (1,274,808)
tax
recovery
Loss 2,859,768 2,838,850 7,417,316 3,728,488 4,557,548
before
non-
controlli
ng
interest
Non- (338,122) (589,003) (791,739) (677,288) (453,617)
controlli
ng
interest
Loss for 2,521,646 2,249,848 6,625,577 3,051,200 4,103,931
the
period
Other (2,876,659) - (8,351,576) - (5,474,917)
comprehen
sive
income
Total 355,013 (2,249,848) 1,725,999 (3,051,200) 1,370,986
comprehen
sive
income
(loss)
Basic and 0.01 0.01 0.03 0.01 0.02
diluted
loss per
common
share
Headline 0.01 0.01 0.03 0.01 0.02
loss per
share
Weighted 238,041,651 238,041,569 238,042,360 237,963,291 238,041,651
average
number of
common
shares
outstandi
ng
CONSOLIDATED STATEMENTS OF SHAREHOLDERS` EQUITY
(Expressed in Canadian Dollars)
Six months ended August31 Year ended February 28
2009 2009
(unaudited)
Share capital Number of shares Number of shares
Balance at beginning
of the period 238,041,569 119,952,532 223,755,854 112,095,390
Share purchase
options
exercised
at $0.62
per share 1,500 930 -
-
Consideration for
additional interest
of operating mines
net of issue cost
at $0.55
per share - - 14,285,715 7,857,142
Fair value of stock
options allocated
to shares issued
on exercise - 807 - -
Balance at end
of the period 238,043,069 119,954,269 238,041,569 119,952,532
Warrants
Balance at
beginning of
the period 1,693,197 1,693,197
Expired
broker warrants (1,693,197) -
Balance at end
of the period - 1,693,197
Contributed surplus
Balance at beginning
of the period 4,167,304 2,332,882
Stock-based
compensation (note 10(b)) 134,065 1,834,422
Expired broker warrants 1,693,197 -
Fair value of
stock options
allocated to shares
issued on exercise (807) -
Balance at end
of the period 5,993,759 4,167,304
Accumulated other comprehensive loss
Balance at beginning
of the period (13,409,383) -
8,351,576 (13,409,383)
Balance at end of the period (5,057,807) (13,409,383)
Deficit
Balance at
beginning
of the period (41,982,624) (29,006,662)
Loss for the period (6,625,577) (12,975,962)
Balance at end of the period (48,608,201) (41,982,624)
TOTAL SHAREHOLDERS` EQUITY 72,282,020 70,421,026
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in Canadian Dollars)
Three months ended Six months ended
August 31 August 31
Cash provided by (used 2009 2008 2009 2008
in):
Operating activities
Loss for the period (2,521,646) (2,249,848) (6,625,577) (3,051,200)
Items not affecting
cash
Accretion of 31,885 98,779 17,597 167,402
reclamation obligation
Amortization and 3,125,915 1,794,224 3,818,835 3,625,611
depletion
Amortization of capital 13,394 878,504 1,139,554 1,621,349
lease equipment
Write-down of mineral - (895,590) 657,634 (470,615)
property interests
Stock-based 17,957 372,502 134,066 1,058,101
compensation (note 10)
Loss on disposal of 11,439 283,785 37,220 304,753
equipment
Future income tax (719,427) (592,800) (2,065,834) (1,274,808)
recovery
Unrealized foreign (93,117) 1,553,769 (409,836) 1,968,720
exchange gain
Non-controlling (338,122) (589,004) (791,739) (677,287)
interest
Changes in non-cash
working capital items
Accounts receivable 466,344 430,708 249,175 (97,687)
Amounts due to and from 724,662 (233,875) 2,662,165 (707,599)
related parties
Inventory (842,453) 743,635 (756,589) (1,716,400)
Prepayments (77,011) 2,198,419 (46,490) (97,918)
Accounts payable and 514,222 1,874,246 835,331 1,167,006
accrued liabilities
Income taxes 159,439 66,125 501,785 383,189
Cash provided used in 473,481 5,733,580 642,703) 2,202,617
operating activities
Investing activities
Acquisition of - - - (12,205,245)
Saxendrift Mines (Pty)
Limited
Restricted cash - (316,583) 2,698,719 10,244,319
Proceeds on sale of - 2,537,066 - 2,537,066
shares in subsidiary
Purchase of (455,198) (7,871,929) (2,854,924) (9,617,907)
equipment and mineral
properties
Proceeds received on 32,953 76,943 366,415 216,370
disposal of equipment
Other assets and (74,527) (290,912) (97,386) 373,614
deposits
Reclamation deposits (120,845) (43,791) (423,866) (86,394)
Cash used in investing (617,617) (5,909,206) (311,042) (8,538,177)
activities
Financing activities
Principal repayments (579,022) (2,189,963) (1,754,240) (4,583,049)
under capital lease
obligations
Common shares issued - - 930 -
for cash, net of issue
costs
Addition of capital - 14,213 - 1,033,647
lease obligations
Amounts received to - (25,570) - 7,053
related parties
Amounts paid - (94,174) - 364,901
pursuant to property
acquisition
Drawdown of credit (611,013) - (423,982) -
facility
Cash provided by (used (1,190,035) (2,295,494) (2,177,292) (3,177,448)
in) financing
activities
Decrease in cash and (1,334,171) (2,471,120) (3,131,037 (9,513,008)
cash equivalents during
the period
Cash and cash 2,200,941 12,581,960 3,997,807 19,623,848
equivalents, beginning
of period
Cash and cash 866,770 10,110,840 866,770 10,110,840
equivalents, end of
period
Interest paid on 73,047 - 480,349 -
facilities during the
period
Interest paid on 251,548 162,790 594,269 248,831
capital leases
Interest received 91,692 742,169 234,481 2,123,452
Income taxes paid (159,439) (66,125) (501,785) (383,189)
during the period
Supplemental disclosure - - - (7,857,143
of non-cash investing
and financing
activities:
Issuance of commons - - - -
shares as consideration
for acquisition of
property
Issuance of common as - - - -
consideration for
property finders fees
Equipment acquired - 14,214 - 1,033,648
under capital lease
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2009 AND 2008
(UNAUDITED - EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE STATED)
1. CONTINUANCE OF OPERATIONS AND GOING CONCERN
Rockwell Diamonds Inc. ("Rockwell" or the "Company") 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 interim 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 $6,625,577 during the six months ended August
31, 2009 and continues to incur losses subsequent to the end of the second
quarter. Although the Company has reduced costs substantially, sales prices
of diamonds have also decreased compared to fiscal 2009. 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
next quarter as well as the fiscal year ending on February 28, 2010.
The cash flow forecasts for the 2010 fiscal year indicate that additional
funds of approximately $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 50% below pre-September 2008 levels) and the
South African Rand remains at current levels relative to the United States
and Canadian dollar.
The Company is in the advanced stages of raising capital to meet expenditure
requirements to ensure the continuation of operations until such time as the
international diamond markets recover and sufficient funds for capital
expenditure to improve efficiencies at existing operations, expand
operations to take advantage of existing resources and reopen operations
that have been on care and maintenance.
Working capital will be applied to reducing the short term finance and the
payment deferral, which will cause significant reductions in interest
expenses. Working capital will also be sufficient to provide financial
leeway to hold sales tenders at dates where there is higher market demand
due to seasonal events. This will generate larger profit margins and
improved cash inflows. The capital expenditure will be applied to reopening
operations that were placed on care and maintenance and the commencement of
the credit crunch, expand operations to take advantage of existing resources
and improve efficiencies at existing plants, which will increase production
and thereby reducing operation costs. Under a standby commitment, the
minimum amount of capital to be raised will ensure that there is sufficient
capital to meet expenditure requirements and generate sufficient funds to
apply to capital expenditure to ensure improved efficiencies to return the
company to profitability.
Accordingly, the interim financial statements have been prepared on the
basis of accounting policies applicable to a going concern. 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 GAAP. 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.
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 audited annual consolidated financial
statements for the year ended February 28, 2009, which are filed on
www.sedar.com.
3. CHANGES IN ACCOUNTING POLICIES
Effective March 1, 2009, the Company adopted the following 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.
(a) Section 3064 - Goodwill and Intangibles
The Canadian Accounting Standards Board ("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 Company evaluated the impact of this new standard
and concluded that this standard did not have a significant impact on
the financial statements.
(b) EIC 173 - Credit Risk and the Fair value of Financial Assets and
Financial Liabilities
The AcSB issued EIC-173 which requires the Corporation 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 adoption of
this standard did not have an impact on the valuation of financial
assets or liabilities of the Company.
(c) 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 accounting treatments provided in EIC-174 have been
applied in the preparation of these financial statements and did not
have an impact on the valuation of the Company`s mineral properties.
(d) New Accounting Standards 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) 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.
4. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
(a) Capital Management Objectives
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.
As at August 31, 2009, the Company is not subject to externally imposed
capital requirements other than the overdraft facility (note 12).
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 three months ended August 31, 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.
(b) Carrying Amounts and Fair Values of Financial Instrument
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
August 31, February 28,
2009 2009
Cash and equivalents $866,770 $3,997,807
Restricted cash - 2,698,719
Held for trading $866,770 $6,696,526
Accounts receivable $881,851 $1,131,026
Trade receivable from a
related party 1,451,604 3,490,725
Loans and receivables $2,333,455 $4,621,751
Reclamation deposits $3,083,508 $2,659,642
Available for sale financial $3,083,508 $2,659,642
assets
Total financial assets $6,283,733 $13,977,919
The fair value of reclamation deposits represents the market value of quoted
investments.
The fair values of financial liabilities are as follows:
Estimated fair value as at
August 31, February 28,
2009 2009
Bank Indebtedness $ $
3,116,898 3,540,880
Accounts payable and accrued 4,832,038
liabilities 5,667,369
Amounts due to a related 1,200,029 576,985
party
Capital lease obligations 6,970,537 8,724,777
Income tax liability 957,831 456,046
$
$ 18,130,726
17,912,664
5. INVENTORY
As at As at
August 31, February 28,
2009 2009
Rough diamond inventory $ 2,357,137 $1,845,986
Mine supplies 2,119,371 1,873,933
Total inventory $ 4,476,508 $3,719,919
As at August 31, 2009, rough diamond inventory was valued at net realizable
value. This is established using the values of previous tenders less
estimated cost of realizing the sale.
6. PROPERTY, PLANT AND EQUIPMENT
As at August 31, 2009
Cost Accumulated Net book
Amortization value
Land and buildings $ $ $
6,395,904 - 6,395,904
Processing plant and 57,624,602 20,018,519 37,606,083
equipment
Processing plant and 23,827,112 7,429,969 16,397,143
equipment under capital lease
obligation
Office equipment 959,460 433,992 525,468
Vehicles and light equipment 1,753,222 781,107 972,115
$ $ $
90,560,300 28,663,587 61,896,713
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 equipment 1,579,592 592,263 987,329
$ 81,727,111 $ 22,157,925 $59,569,186
The Company`s bankers have registered two notarial general covering bonds of
ZAR 10 million ($1.4 million) over all loose assets on the property of the
farm Holpan, Barkley West, Northern Cape (refer Note 12).
7. MINERAL PROPERTY INTERESTS
As at As at
August 31, 2009 February 28, 2009
Acquisition Costs
H.C. Van Wyk Diamonds
and Klipdam Mining
Balance, beginning of period $ 22,373,984 $ 25,247,936
Acquisition costs - 55,746
Foreign exchange and
other adjustments 2,235,795 (7,321,972)
Future income tax liability - 6,390,327
Change in future income tax rate - (201,415)
Depletion of mineral
properties during the period (130,188) (1,796,639)
H.C. Van Wyk and Klipdam, end
of period $ 24,479,591 $ 22,373,983
Saxendrift Mine
Balance, beginning of period $ 6,520,494 $ -
Acquisition costs 1,997,268 5,295,754
Foreign exchange and other
Adjustments 917,468 (178,144)
Future income tax liability 776,715 1,990,181
Depletion of mineral properties
during the period (37,711) (587,297)
Saxendrift Mine (Pty) Ltd, end
of period $ 10,174,234 6,520,494
Balance, end of period $ 34,653,825 $ 28,894,477
Acquisition of Niewejaarskraal mining rights relating to Saxendrift Mine
(Pty) Ltd. acquisition
As at February 28, 2009, the Company was committed to pay Trans Hex for the
acquisition of the remaining Niewejaarskraal mining rights. The Company had
placed $2.7 million in trust toward application of the remaining payment, to
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.
On April 11th, 2009 all the conditions precedent were met and the Company
paid ZAR18.9 million ($2.6 million) in cash to Trans Hex for the remaining
Niewejaarskraal mining rights of which ZAR 16.5 million ($2.0 million) was
capitalized. This action completed the Saxendrift/Remhoogte-Holsloot
transaction negotiated during April 2008. The Company has no further
commitments in relation to more acquisitions.
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
August 31, February 28, 2009
2009
Stannic $ $
250,710 883,409
Wesbank 71,167 81,779
Nedbank - 178,092
Komatfin 6,648,660 7,581,497
$ $
6,970,537 8,724,777
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
August 31, February 28, 2009
2009
2010 $ $ 6,570,081
6,008,067
2011 1,435,121 2,860,859
2012 - 106,122
Total minimum lease payments 7,443,188 9,537,062
Less: interest portion (472,651) (812,285)
Present value of capital 6,970,537 8,724,777
lease obligations
Current portion 5,454,805 5,440,181
Non-current portion $ $
1,515,732 3,284,596
Commencing July 2009, the Company successfully negotiated a payment deferral
of the capital portion of the lease payments on its Komatsu equipment with
Komatfin. This enabled the group to defer its cash commitments by ZAR 4
million ($ 554,000) per month for the months of July 2009 to October 2009.
Notes to the Consolidated Financial Statements for the three and six months
ended August 31, 2009 and 2008
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
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
August 31, February
2009 28, 2009
Holpan, Wouterspan and Klipdam
Balance, beginning of period $ $
2,690,335 1,755,820
Changes during the period:
Reclamation obligation recognized (500,718) (10,274)
(expenditure incurred)
Foreign exchange on reclamation -
303,592
Accretion expense 944,789
346,402
Balance, end of period $ $
2,839,611 2,690,335
Saxendrift
Balance, beginning of period $ $
1,112,320 -
Changes during the period:
Reclamation obligation recognized - 984,720
Foreign exchange on reclamation 133,225 -
Accretion expense 171,913 127,600
Balance, end of period $ $
1,417,458 1,112,320
Total reclamation obligation, end of $ $
period 4,257,069 3,802,655
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 August 31, 2009, the Company had
cash reclamation deposits totaling $3,083,508 (2008 - $3,167,790). These
investments have been ceded as security in favour of the guarantees the bank
issued on behalf of the group.
Notes to the Consolidated Financial Statements for the three and six months
ended August 31, 2009 and 2008
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
10. 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 continuity of share purchase options for three months ended August
31, 2009 is as follows:
Exercise Feb 28 Expired/ August
Expiry date price 2009 Granted Exercised cancelle 31 2009
d
September $ 0.62 5,901,334 - 1,500 3,334 5,896,500
24, 2012
November 14, $ 0.63 1,104,834 - - 3,334 1,101,500
2012
June 20, $ 0.45 950,000 - - - 950,000
2011
7,956,168 - 1,500 6,668 7,948,000
Weighted average $ $ $ $ $
exercise price 0.60 0.00 0.62 0.63 0.60
Weighted average fair value of options granted $
during the period 0.00
As at August 31, 2009, 7,318,000 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 Six months ended
ended August 31 August 31
2009 2008 2009 2008
Exploration and engineering $ $ $ $
7,807 134,619 37,640 337,243
Operations and administration 10,150 237,883 96,426 720,858
Total compensation cost $ $ $1,058,10
expensed to operations, with 17,957 372,502 $ 1
the offset credited to 134,066
contributed surplus
The weighted-average assumptions used to estimate the fair value of options
granted are as follows:
Three months ended Six months ended
August 31 August 31
2009 2008 2009 2008
Risk free interest rate nil 4% nil 4%
Weighted average expected nil 4.8 nil 4.8
life years years
Weighted average expected nil 114% nil 114%
volatility
Expected dividends nil nil nil nil
Notes to the Consolidated Financial Statements for the three and six months
ended August 31, 2009 and 2008
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable
into one common share) for the period ended August 31, 2009 is as
follows:
Expiry date November 22, May 09, 2009 May 09,
2009 (i) (ii) 2009 (iii)
Balance, February 39,600,000 116,007,154 5,772,000
28, 2009
Issued - - -
Exercised - - -
Expired - 116,007,154 5,772,000
Balance, August 31, 39,600,000
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. These warrants
expired unexercised on May 9, 2009.
(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%. These warrants expired unexercised on May 9, 2009.
11. RELATED PARTY BALANCES AND TRANSACTIONS
As at As at
Balances payable August 31, 2009 February 28, 2009
Jeffrey Brenner - 7,890
Jakes Tyres (g) 21,660 5,498
Hunter Dickinson
Services Inc. (a) 740,711 180,267
Seven Bridges Trading (c) 10,352 -
Current balances payable $ 772,723 $ 193,655
Liberty Lane (i) 427,306 383,330
Long-term balances payable $ 1,200,029 $ 383,330
Balances receivable
Flawless Diamonds
Trading House (e) $ 1,395,997 $ 3,441,510
Banzi Trade 26 (Pty) Ltd (f) 23,482 19,547
Diacor CC (h) 32,125 29,668
Notes to the Consolidated Financial Statements for the three and six months
ended August 31, 2009 and 2008
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
Three months ended Six months ended Aug
Aug 31 31
Transactions 2009 2008 2009 2008
Services rendered and
expenses reimbursed:
Hunter Dickinson $ $ $ $
Services Inc. (a) 173,616 249,346 536,627 380,708
CEC Engineering - 14,289 - 14,289
(b)
Seven Bridges 57,396 37,128 73,135 67,992
Trading (c)
Cashmere Trading - 9.483 - -
(d)
Banzi Trade 26 6,666 4,927 7,578 12,573
(Pty) Ltd (f)
Jakes Tyres (g) 38,815 148,644 43,845 348,037
Diacor CC (h) - 32,696 - 36,314
Sales rendered to:
Flawless Diamonds $ $ $ $
Trading House (e) 5,802,006 9,912,702 9,674,805 17,007,623
Banzi Trade 26 $ - $ $
(Pty) Ltd (f) 861 1,438 884
(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) 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.
(c) 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.
(d) Cashmere Trading is a private company owned by Hennie Van Wyk, a
former 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.
(e) 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.
(f) 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.
(g) Jakes Tyres is a private company with former 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.
(h) Diacor CC is a private company of which H C van Wyk, a former
director and officer of the Company, is a director from which the
Company has purchased consumable materials at market rates.
(i) Liberty Lane is the BEE partner of the Saxendrift property and has
certain directors in common with the Company.
12. BANK INDEBTEDNESS
The Company has an overdraft facility in the amount of ZAR28 million ($3.9
million) available for its operations, of which $3.1 million has been
utilized. 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 has a notarial bond over assets of ZAR10million ($1.4 million).
HC van Wyk Diamonds Ltd holds guarantees by the bank towards Eskom
(Electricity Provider) of ZAR1,225,300 ($172,646) and the Department of
Minerals and Energy (DME) of ZAR 21,884,273($3,083,508) towards
rehabilitation expenses.
13. CONTINGENCIES
In connection with the acquisition of Saxendrift, one of the assets
purchased from Trans Hex, with a carrying value of $6,459 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 fiscal 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
US$1,200,000 in 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.
16 October 2009
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 16/10/2009 13:22:05 Produced by the JSE SENS Department.
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