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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Consolidated Financial Statements
Three And Nine Months Ended November 30,2009 And 2008 (Expressed In
Canadian Dollars)
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 NINE MONTHS ENDED NOVEMBER 30,2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED)
ROCKWELL DIAMONDS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
November 30, February 28,
2009 2009
(unaudited)
ASSETS
Current assets
Cash and cash equivalents 2 489 099 3 997 807
Accounts receivable 108 949 1 131 026
Restricted cash (note 7) 380 220 2 698 719
Trade receivable from a related 2 784 519 3 490 725
party (note 11)
Inventory (note 5) 3 316 223 3 719 919
Prepayments 71 050 61 775
9 150 060 15 099 971
Non Current Assets
Property, plant and 59 927 242 59 569 186
equipment (note 6)
Mineral property 34 332 985 28 894 477
interests (note 7)
Other assets and deposits 443 808 139 140
Reclamation 3 018 900 2 659 642
deposits (note 9)
97 722 935 91 262 445
106 872 995 106 362 416
LIABILITIES AND SHAREHOLDERS`
EQUITY
Current liabilities
Bank indebtedness (note 12) 415 443 3 540 880
Accounts payable and accrued 5 518 166 4 832 038
liabilities
Due to related parties (note 11) 1 003 077 193 655
Income taxes 1 289 649 456 046
Current portion of capital lease 5 064 273 5 440 181
obligations (note 8)
13 290 608 14 462 800
Long-term liabilities
Capital lease obligations 1 254 055 3 284 596
(note 8)
Due to related parties (note 431 851 383 330
11)
Future income taxes 12 096 000 12 126 000
Reclamation obligation (note 4 385 092 3 802 655
9)
18 166 998 19 596 581
Non-controlling interest 1 274 804 1 882 009
Shareholders` equity
Share capital (note 10) 119 939 269 119 952 532
Warrants (note 10(c)) - 1 693 197
Subscription received in 380 220 -
advance
Contributed surplus 6 006 138 4 167 304
Accumulated other (4 090 786) (13 409 383)
comprehensive loss
Deficit (48 094 256) (41 982 624)
74 140 585 70 421 026
Continuance of operations and
going concern (note 1)
Subsequent events (notes 10, 14)
Contingencies (note 13)
106 872 995 106 362 416
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)
ROCKWELL DIAMONDS
INC.
Consolidated Statements of
Operations and Comprehensive
Income (Loss)
(Unaudited -
Expressed in
Canadian Dollars)
Three months ended November Nine months ended November
30 30
2009 2008 2009 2008
Revenue
Rough diamonds $ 12 765 759 $ 3 064 446 $ 22 440 564 $ 20 072 069
sales
Contract diamond - 13 162 269 - 13 322 845
sales
Other sales 94 787 (100 434) 267 917 230 156
12 860 546 16 126 281 22 708 481 33 625 070
Cost of sales
Cost of rough (7 096 938) (3 709 562) (16 737 149) (15 968 735)
diamonds sales
(note 5)
Amortization and (3 292 865) (2 864 155) (8 251 254) (8 111 115)
depletion
Operating profit 2 470 743 9 552 564 (2 279 922) 9 545 220
(loss)
Expenses
Accretion of 80 461 94 525 98 058 261 927
reclamation
obligation
(note 9)
Exploration 34 069 95 988 93 985 367 170
Foreign exchange 66 008 (902 842) 614 429 (277 955)
loss (gain)
Interest on 88 846 335 426 683 115 1 238 622
capital leases
Interest expense 175 570 452 064 538 287 700 894
Legal, 351 115 678 032 844 124 1 454 927
accounting and
audit
Office and 852 970 688 828 2 309 583 2 528 638
administration
Shareholder 105 162 173 129 436 698 372 104
communications
Stock-based 5 382 194 571 43 022 531 814
compensation -
exploration (note
10(b))
Stock-based 6 996 304 845 103 422 1 025 703
compensation -
administration
(note 10(b))
Travel and 75 692 139 072 152 474 458 782
conferences
Transfer agent 16 416 27 969 95 970 72 665
1 858 687 2 281 607 6 013 167 8 735 291
Other items
Loss (gain) on (8 914) (6 320) 28 306 298 434
disposal of
equipment
Loss on disposal - - - 203 338
of mineral
property
Interest income - (357 248) (116 849) (2 480 700)
Write-down of - - 657 634 -
assets
(8 914) (363 568) 569 091 (1 978 928)
Profit (loss) 620 970 7 634 525 (8 862 180) 2 788 858
before income
taxes
Current income (18 946) (348 654) (18 946) (506 283)
tax expense
Future income (456 073) 482 689 1 609 761 1 757 497
tax (expense)
recovery
Profit (loss) 145 951 7 768 560 (7 271 365) 4 040 072
before non-
controlling
interest
Non-controlling 367 994 (3 241 010) 1 159 733 (2 563 723)
interest
Profit (loss) for 513 945 4 527 550 (6 111 632) 1 476 349
the period
Other 967 021 - 9 318 597 -
comprehensive
income
Total $ 1 480 966 $ 4 527 550 $ 3 206 965 $ 1 476 349
comprehensive
income
Basic and diluted $ 0.002 $ 0.019 $ (0.026) $ 0.006
profit / (loss)
per common share
Headline Earnings $ 0.002 - $ (0.023) -
per share
Weighted average
number of
common shares 238 041 651 238 041 569 238 042 360 234 440 786
outstanding
The accompanying notes are an integral part of
these consolidated financial statements
Approved by the Board of Directors
CONSOLIDATED STATEMENTS OF SHAREHOLDERS` EQUITY
(Expressed in Canadian Dollars)
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Nine months ended November 30 Year ended February 28
2009 2009
(unaudited)
Share capital Number of Number of
shares shares
Balance at 238 041 569 $ 119 952 532 223 755 854 $ 112 095 390
beginning of
the period
Share purchase 1 500 930 - -
options
exercised at
$0.62 per
share
Consideration - - 14 285 715 7 857 142
for additional
interest
of operating
mines net
of issue cost
at $0.55 per
share
Fair value - 807 - -
of stock
options
allocated
to shares
issued on
exercise
Issue Cost - (15 000) - -
Balance at end 238 043 069 $ 119 939 269 238 041 569 $ 119 952 532
of the period
Warrants
Balance at $ 1 693 197 $ 1 693 197
beginning of
the period
Expired broker (1 693 197) -
warrants
Balance at end $ - $ 1 693 197
of the period
Subscriptions $ 380 220 $ -
received in
advance
Contributed
surplus
Balance at $ 4 167 304 $ 2 332 882
beginning of
the period
Stock-based 146 444 1 834 422
compensation
(note 10(b))
Expired broker 1 693 197 -
warrants
Fair value of (807) -
stock options
allocated to
shares issued
on exercise
Balance at end $ 6 006 138 $ 4 167 304
of the period
Accumulated
other
comprehensive
loss
Balance at $ (13 409 383) $ -
beginning of
the period
Comprehensive 9 318 597 (13 409 383)
income (loss)
on currency
translation of
previously
integrated
operations
Balance at end $ (4 090 786) $ (13 409 383)
of the period
Deficit
Balance at $ $ 9 006 662)
beginning of
the period
Loss for the (6 111 632) (12 975 962)
period
Balance at end $ (48 094 256) $ (41 982 624)
of the period
TOTAL $ 74 140 585 $ 70 421 026
SHAREHOLDERS`
EQUITY
The accompanying notes are an integral part of
these consolidated financial statements
Approved by the Board of Directors
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in Canadian Dollars)
ROCKWELL DIAMONDS INC.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended November 30 Nine months ended November
30
Cash provided 2009 2008 2009 2008
by (used in):
Operating
activities
Profit (loss) $ 513 945 $ 4 527 550 $ (6 111 $ 1 476 349
for the 632)
period
Items not
affecting
cash
Accretion of 80 461 94 525 98 058 261 927
reclamation
obligation
Amortization 3 292 865 3 106 658 7 111 700 6 732 269
and depletion
Amortization - (242 503) 1 139 554 1 378 846
of capital
lease
equipment
Write-down of - - 657 634 (470 614)
mineral
property
interests
Stock-based 12 379 499 416 146 445 1 557 516
compensation
(note 10)
Loss (gain) (8 914) (6 320) 28 306 298 434
on disposal
of equipment
Future income 456 073 (456 526) (1 609 761) (1 731 334)
tax expense
(recovery)
Unrealized 546 890 (2 458 215) 137 054 (489 495)
foreign
exchange gain
Non- (367 994) 3 241 008 (1 159 733) 2 563 723
controlling
interest
Changes in
non-cash
working
capital items
Accounts 772 902 (620 386) 1 022 077 (718 072)
receivable
Amounts due (1 529 867) (647 441) 1 132 298 (1 355 040)
to and from
related
parties
Inventory 1 160 285 (3 972 484) 403 696 (5 688 884)
Prepayments 37 215 877 982 (9 275) 780 064
Accounts (149 203) (1 268 927) 686 128 (101 921)
payable and
accrued
liabilities
Income taxes 331 818 24 246 833 603 407 435
Cash provided 5 148 855 2 698 583 4 506 152 4 901 202
used in
operating
activities
Investing
activities
Acquisition - - - (12 205 245)
of Saxendrift
Mines (Pty)
Limited
Restricted (380 220) (308 783) 2 318 499 9 935 536
cash
Proceeds on - 3 712 025 - 6 249 091
sale of
shares in
subsidiary
Purchase of (19 665) (3 218 465) (2 874 589) (12 836 372)
equipment and
mineral
properties
Proceeds 4 478 - 370 893 216 364
received on
disposal of
equipment
Other assets (207 282) (3 265 164) (304 668) (2 891 550)
and deposits
Reclamation 64 608 (1 002 991) (359 258) (1 089 385)
deposits
Cash used in (538 081) (4 083 378) (849 123) (12 621 560)
investing
activities
Financing
activities
Principal (652 209) (1 898 449) (2 406 449) (6 481 498)
repayments
under capital
lease
obligations
Common shares (15 001) - (14 071) -
issued for
cash, net of
issue costs
Subscriptions 380 220 - 380 220 -
received
Addition of - - - 1 033 648
capital lease
obligations
Amounts - 93 804 - 100 857
received from
related
parties
Amounts paid - (74 530) - 290 372
pursuant to
property
acquisition
Drawdown of (2 701 455) - (3 125 437) -
credit
facility
Cash used in $ (2 988 445) (1 879 176) $ (5 165 (5 056 621)
financing 737)
activities
Decrease in 1 622 329 (3 263 971) (1 508 708) (12 776 979)
cash and cash
equivalents
during the
period
Cash and cash $ 866 770 10 110 840 $ 3 997 807 19 623 848
equivalents,
beginning of
period
Cash and cash $ 2 489 099 $ 6 846 869 $ 2 489 099 $ 6 846 869
equivalents,
end of period
Interest paid $ 175 570 $ 452 064 $ 538 287 $ 700 894
on facilities
during the
period
Interest paid 88 846 335 426 683 115 1 238 622
on capital
leases
Interest $ - 357 248 116 849 2 480 700
received
Income taxes (331 818) (24 246) (833 603) (407 435)
paid during
the period
Supplemental
disclosure of
non-cash
investing and
financing
activities:
Issuance of $ - $ - $ - $ (7 857 143)
commons
shares as
consideration
for
acquisition
of property
Equipment $ - $ - $ - 1 033 648
acquired
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 $6,111,632 during
the nine months ended November 30, 2009, however
achieved a profit of $513,945 for the quarter
ended on November 30, 2009. The Company has
reduced costs substantially and the sales prices
of diamonds have increased compared to fiscal
2009. The improved diamond price and the
improvements in production output and consistant
costs have resulted in the company generating a
positive cash flow. In the subsequent period, the
company has raised $8.6 million, $5 million which
will be used to pay off the short term credit
facility and bank indebitness. $2.4 million will
be used to improve existing plant to operate more
cost efficiently. This will ensure the continued
positive cash generation of operations resulting
in a reduction of going concern risk. 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, 2011.
The Company is in the advanced stages of a rights
issue, which is Guaranteed to raise $3 million
which will result in 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 November 30, 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 November 30, 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
November 30, February 28,
2009 2009
Cash and equivalents $ 2,489,099 $ 3,997,807
Restricted cash 380,220 2,698,719
Held for trading $ 2,869,319 $ 6,696,526
Accounts receivable $ 108,949 $ 1,131,026
Trade receivable from a 2,784,519 3,490,725
related party
Loans and receivables $ 2,893,468 $ 4,621,751
Reclamation deposits $ 3,018,900 $ 2,659,642
Available for sale financial $ 3,018,900 $ 2,659,642
assets
Total financial assets $ 8,781,687 $ 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
November 30, February 28,
2009 2009
Bank Indebtedness $ 415,443 $ 3,540,880
Accounts payable and accrued 5,518,166 4,832,038
liabilities
Amounts due to a related 1,434,928 576,985
party
Capital lease obligations 6,318,328 8,724,777
Income tax liability 1,289,649 456,046
$ 14,976,514 $ 18,130,726
The fair value of reclamation deposits represents the market value of quoted
investments.
5. INVENTORY
As at As at
November 30, February 28,
2009 2009
Rough diamond inventory $ 1,752,973 $ 1,845,986
Mine supplies 1,563,250 1,873,933
Total inventory $ 3,316,223 $3,719,919
As at November 30, 2009, rough diamond inventories were valued at production
cost. During the quarter ended November 30, 2009 an inventory write down of
$587,634 on slow moving and obsolete mine supplies was recorded as a charge to
cost of sales.
6. PROPERTY, PLANT AND EQUIPMENT
As at November 30, 2009
Cost Cost Cost
Land and buildings $6,721,463 $6,721,463 $6,721,463
Processing plant and 61,827,827 61,827,827 61,827,827
equipment
Processing plant and 21,166,537 21,166,537 21,166,537
equipment under capital lease
obligation
Office equipment 980,208 980,208 980,208
Vehicles and light equipment 1,771,872 1,771,872 1,771,872
$92,467,907 $92,467,907 $92,467,907
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 equipment 52,090,193 15,102,720 36,987,473
Processing plant and equipment 21,374,971 5,931,733 15,443,238
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
Acquisition Costs November 30, 2009 February 28,
2009
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 2,504,841 (7,321,972)
adjustments
Future income tax liability - 6,390,327
Change in future income tax - (201,415)
rate
Depletion of mineral (437,527) (1,796,639)
properties during the period
H.C. Van Wyk and Klipdam, end $ 24,441,298 $ 22,373,983
of period
Saxendrift Mine
Balance, beginning of period $ 6,520,494 $ -
Acquisition costs 1,997,268 5,295,754
Foreign exchange and other 1,002,979 (178,144)
adjustments
Future income tax liability 776,715 1,990,181
Depletion of mineral (405,769) (587,297)
properties during the period
Saxendrift Mine (Pty) Ltd, $ 9,891,687 $ 6,520,494
end of period
Balance, end of period $ 34,332,985 $ 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 11, 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
November 30, February 28,
2009 2009
Stannic $ - $ 883,409
Wesbank 57,857 81,779
Nedbank - 178,092
Komatfin 6,260,471 7,581,497
$ 6,318,328 $ 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
November 30, 2009 February 28, 2009
2010 $ 5,473,923 $ 6,570,081
2011 1,188,963 2,860,859
2012 - 106,122
Total minimum lease 6,662,886 9,537,062
payments
Less: interest portion (344,558) (812,285)
Present value of capital 6,318,328 8,724,777
lease obligations
Current portion 5,064,273 5,440,181
Non-current portion $1,254,055 $3,284,596
Commencing July 2009, the Company successfully negotiated a payment deferral
of the capital portion of the lease payments on its Komatsu equipment with
Komatfin. This enabled the group to defer its cash commitments by ZAR 4
million ($ 569,598) per month for the months of July 2009 to October 2009.
Over the deferral, the company continued paying the interest portion of the
payments, resulting n Komatfin not charging penalty interest.
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
November February
30, 2009 28, 2009
Holpan, Wouterspan and Klipdam
Balance, beginning of period $ 2,690,335 $ 1,755,820
Changes during the period:
Reclamation obligation recognized
(expenditure incurred) (505,083) (10,274)
Foreign exchange on reclamation 337,096 -
Accretion expense 394,328 944,789
Balance, end of period $ 2,916,676 $ 2,690,335
Saxendrift
Balance, beginning of period $1,112,320 -
Changes during the period:
Reclamation obligation - 984,720
recognized
Foreign exchange on 147,283 -
reclamation
Accretion expense 208,813 127,600
Balance, end of period $ 1,468,416 $ 1,112,320
Total reclamation obligation, end $ 4,385,092 $ 3,802,655
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 November 30, 2009, the Company had
cash reclamation deposits totalling $3,018,900 (February 28, 2008 -
$2,659,642). These investments have been ceded as security in favour of the
guarantees the bank issued on behalf of the group.
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.
Share purchase options
The continuity of share purchase options for nine months ended November 30,
2009 is as follows:
Exercise Feb 28 Grante Exercise Expired/ November
Expiry price 2009 d d cancelled 30 2009
date
Septembe $ 0.62 5,901,334 - 1,500 3,334 5,896,500
r 24,
2012
November $ 0.63 1,104,834 - - 3,334 1,101,500
14, 2012
June 20, $ 0.45 950,000 - - - 950,000
2011
7,956,168 - 1,500 6,668 7,948,000
Weighted average $ 0.60 $ 0.00 $ 0.62 $ 0.63 $ 0.60
exercise price
Weighted $ 0.00
average
fair value
of options
granted
during the
period
As at November 30, 2009, 7,948,000 of the options outstanding with a weighted
average exercise price of $0.60 per share have vested with grantees.
Subsequent to November 30, 2009 14,330,890 options were granted with an
average exercise price of $0.06 expiring December 7, 2014
Using a Black-Scholes option pricing model with the assumptions noted below,
the fair values of stock options granted have been reflected in the statement
of operations as follows:
Three months ended Nine months ended
November 30 November 30
2009 2008 2009 2008
Exploration and $ 5,382 $ 194,571 $ 43,022 $ 531,814
engineering
Operations and 6,996 304,845 103,422 1,025,703
administration
Total compensation $ 12,378 $ 499,416 $ 146,444 $1,557,517
cost expensed to
operations,
with the offset
credited to
contributed surplus
The weighted-average assumptions used to estimate the fair value of options
granted are as follows:
Three months ended Nine months ended
November 30 November 30
2009 2008 2009 2008
Risk free interest rate nil 4% nil 4%
Weighted average expected nil 4.8 years nil 4.8
life years
Weighted average expected nil 114% nil 114%
volatility
Expected dividends nil nil nil nil
c) Share purchase warrants
The continuity of share purchase warrants (each warrant exercisable into
one common share) for the period ended November 30, 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 39,600,000 116,007,154 5,772,000
Balance, November - - -
30, 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
Balances payable As at As at
November 30, February 28,
2009 2009
Banzi Trade 26 (Pty) $ 3,885 $ -
Ltd (f)
Jeffrey Brenner - 7,890
Jakes Tyres (g) 21,892 5,498
Hunter Dickinson 963,882 180,267
Services Inc. (a)
Seven Bridges Trading 13,418 -
(c)
Current balances $ 1,003,077 $ 193,655
payable
Liberty Lane (i) 431,851 383,330
Long-term balances $ 431,851 $ 383,330
payable
Balances receivable
Flawless Diamonds $ 2,728,304 $ 3,441,510
Trading House (e)
Banzi Trade 26 (Pty) 23,748 19,547
Ltd (f)
Diacor CC (h) 32,467 29,668
$ 2,784,519 $ 3,490,725
Three months ended Nine months ended
November 30 November 30
Transactions 2009 2008 2009 2008
Services rendered and
expenses reimbursed:
Hunter Dickinson $281,909 $316,304 $818,535 $697,012
Services Inc. (a)
CEC Engineering (b) - 10,349 - 24,638
Seven Bridges 29,575 29,649 102,710 96,499
Trading (c)
Cashmere Trade (d) - 9,483 - 18,970
Banzi Trade 26 (Pty) 9,537 12,732 17,115 25,095
Ltd (f)
Jakes Tyres (g) 30,857 96,593 74,702 438,781
Diacor CC (h) - 677 - 36,311
Sales rendered to:
Flawless Diamonds $12,765,759 $ $22,440,564 $33,394,914
Trading House (e) 16,226,715
Banzi Trade 26 (Pty) $ - $ - $ 1,469 $ -
Ltd (f)
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.
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.
Seven Bridges Trading 14 (Pty) Ltd (Seven Bridges Trading) is a wholly owned
subsidiary of Randgold Resources Ltd, 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.
Cashmere Trade 19 (Pty) Ltd (Cashmere Trade) 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.
Flawless Diamonds Trading House (Pty) Ltd ("Flawless Diamonds Trading House")
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.
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.
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.
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.
Liberty Lane Trading 167 (Pty) Ltd (Liberty Lane) is the BEE partner of
Saxendrift Mine (Pty) Ltd and has certain directors in common with the
Company.
12. BANK INDEBTEDNESS
The Company has an overdraft facility in the amount of ZAR28 million ($4
million) available for its operations, of which $ 0.4 million has been
utilized. Current operating income is being used to service this facility.
This facility has an interest cost of Prime (currently 10.5% per annum) plus
0.6% and has a notarial bond over assets of ZAR10 million ($1.4 million).
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 amendment to the
Midamines Agreement, the Company paid consideration of $600,000 to Midamines
as compensation for access to the entire concession area (Permit 331).
Subsequently, and pursuant to Midamines` persistent breach of material
provisions of the Midamines Agreement and the amendment thereto (coupled with
its failure to remedy such instances of breach notwithstanding notice to do
so), the Midamines Agreement and amendment was cancelled.
Midamines thereafter disputed the entitlement of Durnpike and/or RDI to cancel
the Midamines Agreement. It has referred to arbitration a dispute against
Durnpike and RDI, in which it claims payment of an estimated and provisional
amount of $41,823 million. Durnpike and/or RDI have in turn instituted a
counter-claim in the estimated and provisional amount of approximately ZAR
25,400 million, C$ 1,634 million and US$ 20 million (whilst reserving the
right to increase the counter-claim to at least $164,942 million). Preliminary
papers have been filed by the parties and the arbitration proceedings are
pending. The Company remains of the view that the claim against it is without
merit and will vigorously defend against it.
14. SUBSEQUENT EVENTS
Private placements and share options granted
By January 12, 2010, the company completed a private placement of 132.8
million common shares at a price of $0.065 per share for total proceeds of
$8.6 million. The company paid a cash fee of $0.2 million finder`s fees
relating to the private placement.
Proceeds from the financing will be used to fund working capital on the mining
operations, settle the debts from the Komatfin Wesbank Holiday and upgrade and
reopen Wouterspan, the mine placed on care and maintenance during the credit
crunch.
Share options granted
The company has a share option plan where options with respect to the issue of
up to 10% of the number of shares in the capital of the company outstanding
may be granted.
Allocations were made to members of senior management and in accordance with
historical practices and in terms of the Corporate Services Agreement in place
between Rockwell Diamonds Inc and Hunter Dickenson Services Inc, options have
been granted to service providers.
Subsequent to November 30, 2009 14,330,890 options were granted with an
average exercise price of $0.06 expiring December 14, 2014
15 January 2010
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 15/01/2010 14:00:01 Produced by the JSE SENS Department.
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