| Tue 6 Apr 2010, 10:33 | | BCD - BRC DiamondCore - Management`s discussion and analysis of financial |
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BCD
BCD
BCD - BRC DiamondCore - Management`s discussion and analysis of financial
condition and results of operations for the year ended December 31, 2009
and renewal of cautionary announcement
BRC DIAMONDCORE LTD.
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: BCD & ISIN Number: CA05565C1095
("BRC DiamondCore" or "the Company")
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 AND RENEWAL OF CAUTIONARY
ANNOUNCEMENT
The following management`s discussion and analysis of financial condition
and results of operations (the "MD&A") has been prepared by management and
provides a review of the activities, results of operations and financial
condition of BRC DiamondCore Ltd. (formerly BRC Diamond Corporation) (the
"Company" or "BRC") based upon Canadian generally accepted accounting
principles. This MD&A should be read in conjunction with the audited
consolidated financial statements of the Company as at and for the
financial year ended December 31, 2009 (the "2009 Annual Financial
Statements") and the audited consolidated financial statements of the
Company as at and for the financial year ended December 31, 2008. All
amounts are expressed in Canadian dollars unless otherwise stated. This
MD&A is dated March 31, 2010. Additional information relating to the
Company, including the Company`s annual information form, is available on
SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
The following MD&A contains forward-looking statements. All statements,
other than statements of historical fact, that address activities, events
or developments that the Company believes, expects or anticipates will or
may occur in the future (including, without limitation, statements relating
to future diamond prices, exploration results, potential mineralization and
future plans and objectives of the Company) are forward-looking statements.
These forward-looking statements reflect the current expectations or
beliefs of the Company based on information currently available to the
Company.
Forward-looking statements are subject to a number of risks and
uncertainties that may cause the actual results of the Company to differ
materially from those discussed in the forward-looking statements, and even
if such actual results are realized or substantially realized, there can be
no assurance that they will have the expected consequences to, or effects
on the Company.
Factors that could cause actual results or events to differ materially from
current expectations include, among other things, uncertainties relating to
the availability and costs of financing needed in the future, the
possibility that future exploration results will not be consistent with the
Company`s expectations, changes in equity markets, changes in diamond
markets, foreign currency fluctuations, political developments in the
Democratic Republic of the Congo (the "DRC"), changes to regulations
affecting the Company`s activities, delays in obtaining or failure to
obtain required project approvals, the uncertainties involved in
interpreting geological data and the other risks involved in the mineral
exploration business. Any forward-looking statement speaks only as of the
date on which it is made and, except as may be required by applicable
securities laws, the Company disclaims any intent or obligation to update
any forward-looking statement, whether as a result of new information,
future events or results or otherwise. Although the Company believes that
the assumptions inherent in the forward-looking statements are reasonable,
forward-looking statements are not guarantees of future performance and
accordingly undue reliance should not be put on such statements due to the
inherent uncertainty therein.
COMPANY OVERVIEW
The Company is engaged in the acquisition and exploration of diamond
properties in known diamond producing areas in the DRC. Up until July 3
2009, the Company also had diamond projects in the Northern Cape of South
Africa.
The Company`s shares commenced trading on the Toronto Stock Exchange on
February 11, 2008, following the acquisition by the Company of Diamond Core
Resources Limited ("Diamond Core"), a South African based diamond
exploration and development company listed on the JSE Limited ("JSE") in
Johannesburg, South Africa. Diamond Core was primarily engaged in diamond
exploration and trial mining in the middle Orange area of Northern Cape,
South Africa. Prior to the said acquisition, the Company`s shares had
traded on the TSX Venture Exchange. The Company`s shares were also listed
on the JSE in connection with the Diamond Core transaction. The purchase
price of the acquisition was $94.3 million paid through the issuance of BRC
shares to the shareholders of Diamond Core.
For the year ended December 31, 2009, the Company reported a net loss of
$8,951,614 (2008: net loss of $103,001,649). The net asset value of the
Company was $5,316,213 as at December 31,2009 (2008: $2,565,234).
The loss in the year 2009, substantially reduced from the previous year
which had incurred significant impairment charges, was related to the
residual costs and overheads of the significantly scaled down operations in
the DRC and, particularly, in South Africa. On July 3, 2009, Diamond Core,
which was the holding company for the Company`s South African operations,
was the subject of a final liquidation order by the Northern Cape High
Court in South Africa. The Company subsequently disposed of all of its
shares in Diamond Core. This is described in more detail below.
The Company`s accumulated deficit as at December 31, 2009 was $117,842,181
(2008: $108,890,567). The Company had a working capital deficit of
$577,386 as at December 31, 2009 and had a net increase in cash of $466,410
during 2009.
While the financial statements have been prepared on the basis of
accounting principles applicable to a going concern, adverse conditions may
cast substantial doubt upon the validity of this assumption. In the event
the Company is unable to identify recoverable resources, receive the
necessary permitting, or arrange appropriate financing, the carrying value
of the Company`s assets could be subject to further material adjustment.
Furthermore, certain current market conditions including ongoing depressed
diamond carat prices have cast significant doubt upon the validity of this
assumption.
The Company`s ability to continue operations in the normal course of
business is dependent on several factors, including its ability to secure
additional funding. Management has been exploring all available options to
secure additional funding, including equity financing and strategic
partnerships. In addition, the recoverability of amounts shown for mineral
properties and long-lived assets is dependent upon the existence of
economically recoverable reserves, the ability of the Company to obtain
financing to complete the development of the properties where necessary,
or, alternatively, upon the Company`s ability to recover its spent costs
through a disposition of its interests, all of which are uncertain.
South Africa
The suspension of the Company`s bulk sampling operations in South Africa
which had been started in December 2008, continued throughout 2009 with all
bulk sampling projects remaining under care and maintenance. On July 3,
2009, Diamond Core (which was the holding company for all of the Company`s
South African projects) was the subject of a final liquidation order by the
Northern Cape High Court in South Africa. The application for the
liquidation was initiated by River Corporate Finance (Pty) Ltd ("River
Corporate Finance"), which had been the exclusive adviser to Diamond Core
on the transaction involving the acquisition by the Company of Diamond Core
(see "Company Overview" above). The liquidation application was based on a
claim in respect of the balance allegedly owing on a success fee of
US$1million. Diamond Core disputed the claim based on performance and
counter claimed against River Corporate Finance.
An application for leave to appeal the liquidation order was lodged with
the Northern Cape High Court but this was denied by the Court in early
2010. A petition that the appeal be heard by the Supreme Court of Appeal
has also been denied. Final liquidators have been appointed.
Effective July 3, 2009, as a result of the liquidation order on July 3,
2009, the Company ceased to consolidate Diamond Core`s consolidated
financial statements into those of the Company`s. Effective September 30,
2009, the Company disposed of all of its shares in Diamond Core for nominal
consideration plus, if the offer of compromise referred to below is
approved by the court, the Company will receive cash proceeds of
US$500,000. The terms of the sale contemplated that the purchaser enter
into an offer of compromise with the creditors of Diamond Core. The
Company understands that the purchaser is in discussions with the creditors
of Diamond Core to reach a settlement. It is uncertain whether such a
settlement will be achieved and whether therefore the Company will receive
the said US$500,000.
Reference is made to Note 4 to the audited consolidated financial
statements of the Company as at and for the financial year ended December
31, 2009, for information regarding the statements of discontinued
operations with respect to the disposition of Diamond Core as well as the
assets and liabilities disposed.
Democratic Republic of the Congo ("DRC")
The Company`s operations in the DRC consist of the exploration and
evaluation of several mineral properties for diamonds. During the 2009
fiscal year, the Company`s DRC diamond exploration programs focused on the
Tshikapa area in southern DRC and the Bafwasende region in the northern
DRC. Financial modelling significantly downgraded the Kwango project in
terms of its prospectivity and the Company withdrew from the project. The
Company`s operations in the DRC were placed on a care and maintenance basis
between March and November of 2009 while the Company restructured its
financial position. The Company commenced a drilling program at its
Tshikapa project in November of 2009.
Southern DRC
Tshikapa Project (11 permits)
With the additional drilling at the Tshikapa project, the Company has
focussed on the most interesting areas. One hole was drilled on
exploration permit number 1188 (Acacia) in the first quarter of 2009 and
terminated in sandstone with slightly elevated magnetic susceptibility
readings. Four other holes were drilled during the last quarter of 2009 on
permit number 3220 (Groupe Abba) where two targets had been identified.
These holes were resolved as basement granite gneiss. The option agreement
with Groupe Abba was subsequently cancelled.
In total, five holes drilled to a cumulative depth of 495 meters from which
344 meters of core were collected. All cores are stored at the Tshikapa
camp.
Re-evaluation of BRC`s geophysical data over the remaining exploration
permits by the geophysicists of Rio Tinto suggested that the targets on the
King`s Mine exploration permit were not due to kimberlite intrusions and
the option agreement with that company was cancelled. Two more exploration
permits were dropped and the Company now has retained access to 10
exploration permits in the Tshikapa area through the following companies:
Acacia sprl (6 permits), Caspian Oil & Gas (2 permits) and Investors Equity
Ltd (2 permits). One permit, exploration permit number 9083 in the Wamba
drainage, was approved by CAMI and has been added to the portfolio
increasing the Tshikapa permits to 11.
The drilling program from Tshikapa was temporarily suspended between March
and November while the Company restructured its financial position. During
that time, the camp at Tshikapa was under care and maintenance.
Kwango Project
A financial model was run based on the diamond size frequency analysis that
was conducted on diamonds from the main target areas in the Kwango. A
total of 2,734 stones (282.41 carats) were used in this study and the
average stone size varied from 0.118 to 0.074 carats per stone from the
most upstream permit to the most downstream permit respectively.
Optimistic values of US$100 per carat were used in the model.
The overburden thickness varied from 7 to 12 meters and gravel thickness
between 0.2 to 0.6 meters of the various terrace deposits. Grade estimates
from local mining operations do not exceed 10cpht. Based on the financial
model using various sensitivities the resource was not profitable even with
the most optimistic mining costs. At a mining cost of US$3/tonne, which is
probably unrealistic in the DRC, grades would have to be at least 60cpht.
This was made worse by the drop in global diamond prices at the end of
2008. It was therefore decided to withdraw from the Kwango alluvial
project during the first quarter of 2009 and Acacia sprl was informed that
BRC no longer wishes to retain the Kwango exploration permits in the option
agreement.
Northern DRC
Northern DRC Project (18 permits)
The project in the northern DRC is part of the Rio Tinto northern DRC joint
venture in which Rio Tinto has the right to earn in over the various stages
of the exploration program. Greenfields stream sampling work over the
Bomili property was completed during the first quarter of 2009 and a total
of 156 stream samples were collected.
Most of the samples were collected over the Coexco exploration permits (107
samples) and this ground has now been completely covered by stream sediment
sampling. Other samples were collected from the BRC (21 samples) and BCE
(28 samples) permits. All samples were taken on a spacing of one sample to
every 20 to 25 kmSquared and covered well over 4,660 kmSquared of very
difficult and tough terrain.
The screened and hand gravitated samples were concentrated by mechanical
jig in Kinshasa, DRC and these concentrates have been submitted to the Rio
Tinto laboratory in Perth Australia for analyses. The geochemical samples
were forwarded to Coexco for analysis for other minerals.
Security of Tenure
In order to focus the exploration program on the most promising areas, many
exploration permits were relinquished in 2009 with a high degree of
confidence. Three new applications for exploration permits were lodged in
2009.
During 2009, BRC obtained one new exploration permit in the Wamba valley
(exploration permit number 9083). Two future permit applications are still
at CAMI for consideration. The following exploration permits were
relinquished during 2009: Acacia (5), BRC (4), Candore (5), BCM (1),
Caspian Oil and Gas (9), Kwango Mines (3), Coexco (44), Group Abba (1) and
King`s Mine (1). BRC will keep its focus on the following exploration
permits which are held by BRC directly or by partners through various
option agreements: Acacia (6), Rio Tinto (14), BCE (2), BRC (3), Caspian
Oil & Gas (2), and Investors Equity Ltd (2).
Status of Exploration Permits of BRC and Partners in DRC -2009
Company Permits at Dec Relinquished Added 2009 Permits at Dec
(Project) 2008 2009 2009
Permits KmSqua Permits KmSqua Permits KmSq Permits KmSqua
red red uare red
d
BRC (2 - 6 2,113 4 1,159 1 212 3 1,166
DRCN, 1
-Tshikapa)
Acacia 11 1,815 5 760 0 0 6 1,055
(Tshikapa)
BCE and Rio 16 5,344 0 0 0 0 16 5,344
(DRC N)
BCM 1 351 1 351 0 0 0 0
(Tshikapa)
Candore 5 816 5 816 0 0 0 0
(Tshikapa)
Caspian O &G 11 3,229 9 3,051 0 0 2 178
(Tshikapa)
Coexco 44 6,904 44 6,904 0 0 0 0
(DRC N)
Group Abba 1 178 1 178 0 0 0 0
(Tshikapa)
Investors 2 279 0 0 0 0 2 279
Equity Ltd
(Tshikapa)
King`s Mine 1 77 1 77 0 0 0 0
(Tshikapa)
Kwango Mines 3 590 3 590 0 0 0 0
(Tshikapa)
Total 101 21, 73 13,886 1 212 29 8,022
696
QUALIFIED PERSON AND TECHNICAL REPORT
Dr. Michiel C. J. de Wit, the Company`s President and a "qualified person"
as such term is defined in National Instrument 43-101, has reviewed and
approved the technical information in this MD&A.
Additional information with respect to the Company`s Tshikapa project is
contained in the technical report prepared by Dr. Michiel C. J. de Wit and
Fabrice Matheys, dated March 31, 2009 and titled "National Instrument 43-
101 Technical Report on the Tshikapa Project of BRC DiamondCore Ltd. in the
Democratic Republic of the Congo". A copy of this report can be obtained
from SEDAR at www.sedar.com.
SELECTED ANNUAL INFORMATION
The Company is in the diamond exploration business. The Company has no
expectation of sustainable revenues in the foreseeable future with respect
to the Company`s DRC projects. The revenue realized during 2008 from sales
of diamonds produced from bulk sampling in the South African operations was
not available to the Company in the first half of the year due to the
ongoing suspension of operations and the placing them on a care and
maintenance basis and, in the second half of the year, the liquidation
order and subsequent disposition of Diamond Core.
The following financial data has been prepared in accordance with Canadian
generally accepted accounting principles and is derived from the Company`s
audited consolidated financial statements for each of the three most
recently completed financial years. The Company`s reporting and
measurement currency is the Canadian dollar.
2009 2008 2007
Net loss $8,951,614 $103,001,649 $1,832,891
(1)
Net loss per share $0.27 $4.20 $0.14
Mineral properties $5,808,835 $9,075,139 $14,188,659
and deferred
exploration
expenditures
Total assets $6,778,299 $19,112,324 $18,316,988
(1) This figure includes the loss from discontinued operations of
$7,296,948 relating to the disposal of Diamond Core. The net loss
from continuing operations for 2009 was $1,654,666, and the net loss
per share from continuing operations for 2009 was $0.05.
The Company`s net loss for fiscal 2009 was significantly less than that
recorded for 2008. This is due to the substantial impairment of the
goodwill that had arisen from the purchase of Diamond Core and the
impairment of the Company`s mineral properties and capital assets that was
recorded in 2008.
RESULTS OF OPERATIONS
The year 2009 was characterized by greatly decreased activity. Exploration
in the DRC was suspended early in the year and only resumed in November.
The South African operations, prior to the liquidation order against
Diamond Core on July 3, 2009, remained on a care and maintenance basis in
2009.
For the year ended December 31, 2009, the Company reported a net loss of
$8,951,614 (or $0.27 per share), compared to a net loss of $103,001,649 (or
$4.20 per share) incurred during the year ended December 31, 2008. The
decrease in the net loss for the year 2009 as compared 2008 is due to the
prior year impairment of goodwill arising from the acquisition of Diamond
Core and the impairment of mineral properties and capital assets in 2008.
Significant components of the loss in 2009 were the loss on the disposal of
Diamond Core ($7,296,948) and a bad debt expense ($342,248). The bad debt
expense was a management fee charged by the Company on its South African
subsidiaries which was written off as a result of the Diamond Core
liquidation process. Other components of the loss in 2009 included
professional fees of $344,888 (2008: $488,849) and the annual amortization
of stock-based compensation of former years of $555,520 (2008: $352,000).
SUMMARY OF QUARTERLY RESULTS
The following table sets out certain unaudited consolidated financial
information of the Company for each of the last eight quarters, beginning
with the fourth quarter of 2009. This financial information has been
prepared in accordance with Canadian generally accepted accounting
principles. The Company`s reporting and measurement currency is the
Canadian dollar.
2009 2009 2009 2009
4th 3rd 2nd 1st
quarter quarter quarter quarter
Net loss ($`000) $528 $4,879 $2,062 $1,483
Net loss per $0.01
share (basic and $0.19 $0.08 $0.06
diluted)
2008
2008 2008 2008
4th 3rd 2nd 1st
quarter quarter quarter quarter
Net loss ($`000) $90,873 $7,498 $1,193 $3,438
Net loss per $3.70 $0.31 $0.05 $0.17
share (basic and
diluted)
During the fourth quarter of 2009, the Company`s net loss was $528,193
compared to a net loss of $90,873,000 reported during the fourth quarter of
2008. The loss in 2009 was mainly related to the loss on the disposition
of Diamond Core. The high losses of the fourth quarter of 2008 were due
mainly to the impairment of goodwill, mineral properties and capital
assets.
In the third quarter of 2009, the loss of $4,879,248 comprised a loss of
$3,143,096 attributable to discontinued operations and $1,736,152
attributable to continued operations. The loss per share is $0.12 for
discontinued operations and $0.07 for continued operations.
During the second quarter of 2009, the Company`s net loss was $2,062,000
compared to a net loss of $1,483,000 reported during the first quarter of
2009. The increased loss, reported in Canadian dollars, is partially as a
result of the 17% appreciation in the South African rand over the second
quarter. There were additional costs associated with retrenchment of
employees.
During the second quarter, the Company maintained its decision to place its
South African bulk sampling operations on a care and maintenance basis as a
result of market conditions. Similarly, the DRC exploration activities
remained on a care and maintenance basis as a result of decreased funding
for operations in the DRC.
During the first quarter of 2009, the Company`s net loss reduced to
$1,483,000 compared to a net loss of $90,873,000 reported during the fourth
quarter of 2008. This change was mainly as a result of the Company`s
decision to place its operations on a care and maintenance basis as a
result of decreased funding for operations in the DRC and the low diamond
prices adversely affecting the bulk sampling operations in South Africa,
which was in effect throughout the first quarter of 2009 but for only part
of the fourth quarter of 2008.
During the fourth quarter of 2008, the Company`s net loss increased to
$90,873,000 compared to a net loss of $7,498,000 reported during the third
quarter of 2008. This increase was due mainly to the impairment of
goodwill, mineral properties and capital assets.
During the third quarter of 2008, the Company`s net loss increased to
$7,498,000 compared to a net loss of $1,193,000 reported during the second
quarter of 2008. This increase was due mainly to the impairment of
$5,312,000 on certain properties in the DRC that had been relinquished, the
accounting for stock based compensation and a reversal from unrealised
foreign exchange profits to losses on the conversion of the South African
balance sheet from a relatively weaker rand to the Canadian dollar.
During the second quarter of 2008, the Company`s net loss decreased to
$1,193,000 compared to a net loss of $3,438,000 reported for the first
quarter of 2008, due mainly to a decrease in unrealised foreign exchange
losses created on the revaluation of the South African balance sheet to
Canadian dollars (June 30, 2008 - $79,000; March 30, 2008 - $2,794,000).
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2009, the Company had cash of $664,495 and a working
capital deficit of $577,386, compared to cash of $198,085 and a working
capital deficit of $9,678,428 as at December 31, 2008.
The Company has no operating revenues and is wholly reliant upon external
financing to fund its activities. There is no assurance that such
financing will be available on acceptable terms, if at all.
Net revenue generated from the bulk sampling activities in South Africa in
2008 amounted to $8,475,174 and consisted of diamond sales of $8,510,635
during 2008 less inventory on hand of $35,461. This revenue had been
adequate to support but not grow the South African operations until the
fourth quarter of 2008 when the collapse of diamond prices meant that
operating costs exceeded expected revenues from the sale of diamonds
recovered from bulk sampling operations. This resulted in a suspension of
the bulk sampling operations in South Africa as reported above.
In 2009, the Company successfully raised funds by selling participation in
its projects or areas where it held the exploration rights. This was the
case with Rio Tinto who paid the Company US$380,000 to enable Rio Tinto to
obtain a 75% interest in the iron ore project (see "Subsequent Events"
below).
In November 2009, the Company completed debt settlement transactions with
certain of its creditors, pursuant to which such creditors accepted common
shares of the Company, issued from treasury by the Company, in satisfaction
of indebtedness owed to them by the Company (the "Debt Settlements"). The
total number of common shares issued by the Company to the creditors under
the Debt Settlements was 43,317,330 shares (the "Debt Shares") and the
total amount of Company debt settled by such share issuances was
$8,663,466. One of the creditors involved in the Debt Settlements was
Banro Corporation ("Banro"), which held 3,744,032 (or 14.35%) of the
outstanding common shares of the Company prior to the Debt Settlements.
31,689,955 of the Debt Shares were issued to Banro pursuant to its debt
settlement agreement to settle $6,337,991 of indebtedness owed by the
Company to Banro. As a result of this share issuance, Banro now owns a
total of 35,433,987 common shares of the Company, which represent 39.63% of
the outstanding common shares of the Company.
Also in November 2009, the Company completed a non-brokered private
placement of 20,000,000 units of the Company (the "Units") at a price of
$0.05 per Unit for proceeds to the Company of $1,000,000. Each Unit is
comprised of one common share of the Company and one warrant of the Company
(a "Warrant"), with each such Warrant entitling the holder to purchase one
common share of the Company at a price of $0.066 for a period of four
years. Directors of the Company purchased a total of 12,250,000 of the
Units issued under this financing.
Taking into account the shares issued under the said Unit financing and the
Debt Settlements (but not taking into account the shares issuable on
exercise of the Warrants comprising part of the Units), the Company now has
outstanding 89,408,640 common shares.
The Company`s liquidity requirements are thus met through a variety of
sources, including cash on hand and equity markets.
The prevailing global economic conditions led to a significant weakness in
commodity prices, including diamond prices which have only recovered
marginally. In general, market conditions have limited the availability of
funds. Given the Company`s financial position and available resources, the
Company currently expects a need to access equity markets for financing
over the next twelve months. However, as the duration of the general
economic uncertainty and its detrimental effect on capital markets is
unknown, it is difficult to determine the long-term impact on the Company.
In light of current market conditions, the Company has continued a series
of measures to bring its spending in line with the projected cash flows
from its operations in order to preserve its balance sheet and maintain its
liquidity position. Management believes that based on its current
financial position and liquidity profile, the Company will be able to
satisfy its current and long-term obligations. As at December 31, 2009,
the consolidated financial statements of the Company as at and for the
financial year ended December 31, 2009 have been prepared in accordance
with Canadian GAAP applicable to a going concern.
During the third quarter of 2008, the Company completed a private placement
involving the issue and sale of 350,000 common shares of the Company at a
price of $1.50 per share for total proceeds of $525,000.
During the fourth quarter of 2007, the Company had obtained a $3,000,000
credit line (the "Loan Facility") from a Canadian financial institution, of
which $3,000,000 was utilized as at December 31, 2007. During the first
quarter of 2008, the Loan Facility had been increased from $3,000,000 to
$6,000,000. In September 2009, Banro, which had guaranteed the Loan
Facility, advanced to the Company a loan in the amount of $6,337,991, that
was used by the Company to pay in full the Loan Facility (principal and
interest). This loan from Banro was settled in full pursuant to the Debt
Settlements referred to above.
Contractual obligations (not on balance sheet) entered into by the Company
as at December 31, 2009 were nil compared to the December 31, 2008 amount
of $126,078.
The Company has an option agreement to secure an equity interest in
prospective ground held in six exploration permits in the DRC with ACACIA
sprl, which has advised the Company of its wish to modify the option
agreement. The Company continues its discussions with ACACIA sprl and is
optimistic of reaching an agreement that is satisfactory to both parties.
The Company expects to pay approximately US$350,000 as an option exercise
fee.
DEFERRED EXPLORATION EXPENDITURES
The following table provides a breakdown of the Company`s deferred
exploration expenditures in the DRC for the year ended December 31, 2009:
DRC
Lubao Tshikapa Tshikapa Other Total
Project (Acacia) (Candore) Pro-
Project Project jects
$`000 $`000 $`000 $`000
$`000
(amounts rounded
to the nearest
thousand)
Balance 12/31/2008 327 3,032 415 1,787 5,561
Administrative and - (416) - 137 (279)
office support (1)
Depreciation - 89 - 83 172
Drilling - 15 - 4 19
Field camp - 55 - 47 102
expenses
Geochemistry - - - - -
Geology - contract - - - - -
geologists
Geophysics - - - - -
Permits and - - - 19 19
surface taxes
Professional fees - 32 - 11 43
Profit on sale of - (28) - (26) (54)
assets
Remote sensing - - - - -
Stock based - 108 - 102 210
compensation
Transport and - 3 - 11 14
helicopter
Foreign exchange - - - - -
profit
Write off - - - - -
Subtotal - 2009 - (142) - 388 246
Balance 12/31/2009 327 2,890 415 2,175 5,809
(1) This balance includes $555 of funds received from Rio Tinto in
association with the Tshikapa project.
South Africa
The South African deferred exploration expenditures had all been written
down to zero as at December 31, 2008. No exploration expenditure was
undertaken in 2009 in South Africa prior to the liquidation of Diamond
Core.
OUTSTANDING SHARE DATA
The authorized share capital of the Company consists of an unlimited number
of common shares. As at March 31, 2010, the Company had outstanding
89,408,640 common shares, stock options to purchase an aggregate of
3,098,142 common shares of the Company and Warrants to purchase an
aggregate of 20,000,000 common shares of the Company.
RELATED PARTY TRANSACTIONS
As at
As at December
December 31, 2008
31, 2009
$ $
Balances payable
Macleod Dixon LLP 49,113 744,641
D.K. Madilo 48,000 -
A.T. Kondrat 29,620 -
SFW Village 247,229 -
Banro Corporation 3,922 4,569
Scallan Project Facilitation (Pty) - 13,200
Ltd.
Sterling Portfolio Securities Inc. - 11,000
377,884 773,410
For the
For the year
year ended
ended December
December 31, 2008
31, 2009
$ $
Transactions
Macleod Dixon LLP (a) 184,996 299,954
SFW Village (b) 247,229 99,996
AT Kondrat (c) 99,999 99,999
DK Madilo (d) 48,000 48,000
Scallan Project Facilitation (Pty) - 58,091
Ltd. (e)
Sterling Portfolio Securities Inc. 168,621 11,000
(f)
Banro Corporation (g) 6,337,991 -
7,086,836 617,040
a) During the year ended December 31, 2009, legal fees and related costs
of $184,996 (December 31, 2008 - $299,954) incurred in connection with
general corporate matters were billed by a law firm of which one
partner is a director and officer of the Company. In November 2009,
as part of a debt settlement transaction, Macleod Dixon LLP received
3,687,375 common shares of the Company to settle $737,475 of
indebtedness owed by the Company to Macleod Dixon LLP. See Note 12 of
the 2009 Annual Financial Statements.
b) Represents consulting fees for Mr. Village ($99,999) as well as a
short term loan advanced to the Company by Mr. Village in 2009. Mr.
Village is a director of the Company and has been an officer of the
Company since February 2008.
C) Represents consulting fees for Mr. Kondrat who is a non-executive
director of the Company.
d) Represents consulting fees for Mr. Madilo, who is currently an officer
of the Company and was a director of the Company until February 2008.
e) Represents consulting fees in respect of services to the Company prior
to Mr. Scallan entering into an employment contract with the Company.
Mr. Scallan is now an officer and a director of the Company and is the
sole shareholder of Scallan Project Facilitation (Pty) Ltd.
f) During 2009 and 2008, Sterling Portfolio Securities Inc. advanced a
short term loan to the Company. The officer and director of Sterling
Portfolio Securities Inc. is a non-executive director of the Company.
g) Banro Corporation ("Banro") owns 35,433,987 common shares of the
Company, representing a 39.63% interest in the Company. See the
discussion under "Liquidity and Capital Resources" for information
relating to the loan from Banro to the Company in 2009 and the debt
settlement transaction entered into between Banro and the Company in
2009.
All amounts due to related parties are unsecured, non-interest bearing and
due on demand. These transactions are in the normal course of operations
and are measured at the exchange value
NEW ACCOUNTING STANDARDS
a) Financial Instruments - Disclosures
In June 2009, the Canadian Institute of Chartered Accountants (the
"CICA") amended Section 3862, "Financial Instruments - Disclosures",
to include additional disclosure requirements about fair value
measurement for financial instruments and liquidity risk disclosures.
These amendments require a three level hierarchy that reflects the
significance of the inputs used in making the fair value measurements.
Fair value of assets and liabilities included in Level 1 are
determined by reference to quoted prices in active markets for
identical assets and liabilities. Assets and liabilities in Level 2
include valuations using inputs other than the quoted prices for which
all significant inputs are based on observable market data, either
directly or indirectly. Level 3 valuations are based on inputs that
are not based on observable market data. The amendments to Section
3862 apply to annual financial statements for fiscal years ending
after September 30, 2009. See Note 16 to the 2009 Annual Financial
Statements for disclosures.
b) Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities
In January 2009, the CICA issued EIC-173, "Credit Risk and the Fair
Value of Financial Assets and Financial Liabilities" 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 2009 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
the Company`s financial assets or liabilities.
c) Mining Exploration Costs
In March 2009, the CICA issued EIC-174, "Mining Exploration Costs", to
provide additional guidance for mining exploration enterprises on when
an impairment test is required. This new Abstract replaces EIC-126,
Accounting by Mining Enterprises for Exploration Costs. The Abstract
states that an enterprise that has initially capitalized exploration
costs has an obligation in the current and subsequent accounting
periods to test such costs for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The accounting treatments provided in EIC-174 have been
applied in the preparation of these financial statements and did not
have a significant impact on the valuation of exploration assets.
d) Goodwill and Intangible Assets
Effective January 1, 2009, the Company adopted CICA Section 3064,
"Goodwill and Intangible Assets", replacing Section 3062, "Goodwill
and Other Intangible Assets", and Section 3450, "Research and
Development Costs". Section 3064 establishes standards for the
recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. The adoption of this new standard did
not have a significant impact on the financial statements.
FUTURE ACCOUNTING STANDARDS
a) Business Combinations / Consolidated Financial Statements / Non-
Controlling Interests
In January 2009, the CICA adopted 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 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 will disclose that fact and apply each of
the new sections concurrently. These new sections were created to
converge Canadian GAAP with IFRS.
The Company is currently evaluating the impact of the adoption of
these changes on its consolidated financial statements.
b) International Financial Reporting Standards
The CICA Accounting Standards Board ("AcSB") requires all Canadian
publicly accountable entities to adopt International Financial
Reporting Standards ("IFRS") for years beginning on or after January
1, 2011. The Company`s first mandatory filing under IFRS, which will
be the first quarter of 2011, will contain IFRS-compliant information
on a comparative basis, as well as reconciliations for that quarter
and as at the January 1, 2010 transition date. Although IFRS uses a
conceptual framework similar to Canadian GAAP, there are significant
differences in recognition, measurement and disclosure. The Company
has developed a plan for IFRS convergence and has started the
implementation process. Detailed analysis of the differences between
IFRS and the Company`s accounting policies and assessments of the
various alternatives for first time adoption of IFRS are in progress.
Training for key employees has begun and will continue throughout the
implementation. Due to anticipated changes in IFRS prior to
transition, it is currently not possible to fully determine the impact
to the consolidated financial results.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates used in the preparation of the consolidated
financial statements include the Company`s estimate of the recoverable
value of its mineral properties and related deferred exploration
expenditures, foreign currency translation and stock-based compensation.
All of these estimates involve considerable judgment and are, or could be,
affected by significant factors that are out of the Company`s control.
Mineral Properties and Deferred Exploration Expenditures
The Company`s recoverability of the recorded value of its mineral
properties and associated deferred exploration expenses is based on market
conditions for minerals, any underlying mineral resources associated with
the properties and future costs that may be required for ultimate
realization through mining operations or by sale.
The Company is in an industry that is dependent on a number of factors
including environmental, legal, and political risks, the existence of
economically recoverable reserves, the ability of the Company to obtain
necessary financing to complete the development and future profitable
production or the proceeds of disposition thereof.
Management uses its best available information to identify the point at
which a development project is capitalized, assess resources, future costs
and benefits and, where considered necessary, engages qualified third-party
professionals to assist in the process. Changing assumptions about future
commodity prices, exchange rates, production costs and revised information
on any resources may change management`s recoverable amounts and depletion
and amortization.
Foreign Currency Translation
The functional currency of the Company is Canadian dollars. The Company`s
businesses undertake transactions in currencies other than the Canadian
dollar, including US dollars and the South African rand. As part of its
ongoing review of critical accounting policies and estimates, the Company
reviews the foreign currency translation method of its foreign operations
to determine if there are significant changes to economic facts and
circumstances that may indicate whether or not the foreign operations are
largely self-sufficient and the economic exposure is more closely tied to
their respective domestic currencies. Any change in translation method
resulting from this review will be accounted for prospectively. The
Company had accounted for its South African operations as self-sustaining
and accounts for the DRC operations as an integrated foreign operation.
Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to determine the
fair value of stock options granted. This model requires the Company to
make reasonable assumptions in order to derive parameters such as the
expected volatility of the Company`s shares, the expected life of the
option and interest rates, all of which are based on historical
information. Future behaviors of these parameters are beyond the Company`s
control, and thus, may be significantly different from the Company`s
estimates.
The values of all stock options granted were estimated, using the Black-
Scholes option-pricing model, based on the following factors:
(i) risk-free interest rate: 3.075%
(ii) expected volatility: 95%
(iii) expected life: 5 years
(iv) expected dividends: $Nil
CAPITAL MANAGEMENT
The Company`s main objectives when managing its capital are:
- to maintain a flexible capital structure which optimizes the cost of
capital at acceptable risk while providing an appropriate return to
its shareholders;
- to maintain a strong capital base so as to maintain investor, creditor
and market confidence and to sustain future development of the
business;
- to safeguard the Company`s ability to obtain financing should the need
arise; and
- to maintain financial flexibility in order to have access to capital
in the event of future acquisitions.
The Company manages its capital structure and makes adjustments to it in
accordance with the objectives stated above, as well as responds to changes
in economic conditions and the risk characteristics of the underlying
assets.
There were no changes to the Company`s approach to capital management
during the year ended December 31, 2009.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties that could
significantly impact on its operations and future prospects. The following
discussion pertains to certain principal risks and uncertainties but is
not, by its nature, all inclusive.
The only sources of future funds for further exploration programs which are
presently available to the Company are the sale of equity capital, or the
offering by the Company of an interest in its properties to be earned by
another party carrying out further exploration. There is no assurance that
such sources of financing will be available on acceptable terms, if at all.
In the event that commercial quantities of minerals are found on the
Company`s properties, the Company does not have the financial resources at
this time to bring a mine into production.
The current financial climate is characterized by volatile and uncertain
times. The uncertainty of forward looking statements is therefore greater.
Diamond prices have reduced significantly as a result of the economic
downturn and any recovery could be accompanied by volatility.
All of the Company`s projects are located in the DRC The assets and
operations of the Company are therefore subject to various political,
economic and other uncertainties, including, among other things, the risks
of war and civil unrest, hostage taking, military repression, labor unrest,
illegal mining, expropriation, nationalization, renegotiation or
nullification of existing licenses, permits, approvals and contracts,
taxation policies, foreign exchange and repatriation restrictions, changing
political conditions, international monetary fluctuations, currency
controls and foreign governmental regulations that favor or require the
awarding of contracts to local contractors or require foreign contractors
to employ citizens of, or purchase supplies from, a particular
jurisdiction. Changes, if any, in mining or investment policies or shifts
in political attitude in the DRC may adversely affect the Company`s
operations. Operations may be affected in varying degrees by government
regulations with respect to, but not limited to, restrictions on
production, price controls, export controls, currency remittance, income
taxes, foreign investment, maintenance of claims, environmental
legislation, land use, land claims of local people, water use and mine
safety. Failure to comply strictly with applicable laws, regulations and
local practices relating to mineral rights could result in loss, reduction
or expropriation of entitlements. In addition, in the event of a dispute
arising from operations in the DRC, the Company may be subject to the
exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of courts in Canada. The
Company also may be hindered or prevented from enforcing its rights with
respect to a governmental instrumentality because of the doctrine of
sovereign immunity. It is not possible for the Company to accurately
predict such developments or changes in laws or policy or to what extent
any such developments or changes may have a material adverse effect on the
Company`s operations.
The DRC is a developing nation emerging from a period of civil war and
conflict. Physical and institutional infrastructure throughout the DRC is
in a debilitated condition. The DRC is in transition from a largely state
controlled economy to one based on free market principles, and from a non-
democratic political system with a centralized ethnic power base, to one
based on more democratic principles. There can be no assurance that these
changes will be effected or that the achievement of these objectives will
not have material adverse consequences for the Company and its operations.
The DRC continues to experience violence and significant instability in
parts of the country due to certain militia and criminal elements. While
the government and United Nations forces are working to support the
extension of central government authority throughout the country, there can
be no assurance that such efforts will be successful.
All of the Company`s properties are in the exploration stage only and none
of the properties contain a known body of commercial ore. The Company
currently operates at a loss and does not generate any revenue from
operations. The exploration and development of mineral deposits involve
significant financial risks over a significant period of time which even a
combination of careful evaluation, experience and knowledge may not
eliminate. Few properties which are explored are ultimately developed into
producing mines. Major expenditures may be required to establish reserves
by drilling and to construct mining and processing facilities at a site.
It is impossible to ensure that the Company`s exploration programs will
result in a profitable commercial mining operation.
The Company is exposed to currency risk as its principal business is
conducted in foreign currencies. Unfavorable changes in the applicable
exchange rate may result in a decrease or increase in foreign exchange
gains or losses. The Company does not use derivative instruments to reduce
its exposure to foreign currency risk.
The Company`s exploration and, if such exploration is successful,
development of its properties is subject to all of the hazards and risks
normally incident to mineral exploration and development, any of which
could result in damage to life or property, environmental damage and
possible legal liability for any or all damage.
The natural resource industry is intensely competitive in all of its
phases, and the Company competes with many companies possessing greater
financial resources and technical facilities than itself.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair value of financial instruments
The Company has classified financial instruments as follows:
As at
As at December
December 31, 2008
31, 2009
$ $
Financial assets
Held-for-trading, measured at fair
value
Cash 664,495 144,816
Restricted Cash - -
Loans and receivables, measured at
amortized cost
Prepaid expenses and other 163,175 321,587
assets
Financial liabilities
Other liabilities, measured at
amortized cost
Accounts payable and accrued 1,027,17 3,212,30
liabilities 2 4
Due to related parties 377,884 760,210
Debt - 6,172,31
7
b) Fair value of financial instruments
The balance sheet carrying amounts for cash, prepaid expenses and
other assets, accounts payable and accrued liabilities
approximate fair value due to their short-term nature. Due to
the use of subjective judgments and uncertainties in the
determination of fair values these values should not be
interpreted as being realizable in an immediate settlement of the
financial instruments.
The fair value hierarchy established by CICA Section 3862
"Financial Instruments - Disclosures" establishes three levels to
classify the inputs to valuation techniques used to measure fair
value.
The fair value hierarchy is as follows:
Level 1 - Quoted (unadjusted) prices for identical assets or
liabilities in active markets.
Level 2 - Inputs other than quoted prices included with Level 1
that are observable for the asset or liability, either directly
or indirectly, including:
- Quoted prices for similar assets/liabilities in active
markets;
- Quoted prices for identical or similar assets in non-active
markets (few transactions, limited information, non-current
prices, high variability over time);
- Inputs other than quoted prices that are observable for the
asset/liability (e.g. interest rates, yield curves,
volatilities, default rates, etc.); and
- Inputs that are derived principally from or corroborated by
other observable market data.
Level 3 - Unobservable inputs that cannot be corroborated by
observable market data.
The Company`s assets are measured as follows:
Cash - The carrying value of cash approximates fair value as
maturities are less than three months.
Fair Value Measurements at Reporting Date Using:
Level 2 Level 3
December 31, 2009 Level 1
Assets:
$ -- -
Cash 664,495
c) Risk management policies and hedging activities
The Company is sensitive to changes in commodity prices, foreign
exchange and interest rates. The Company`s board of directors has
overall responsibility for the establishment and oversight of the
Company`s risk management framework. Although the Company has the
ability to address its price-related exposures through the use of
options, futures and forward contracts, it does not generally enter
into such arrangements. Similarly, derivative financial instruments
are not used to reduce these financial risks.
d) Credit risk
Financial instruments which are potentially subject to credit risk for
the Company consist primarily of cash. Cash is maintained with several
financial institutions of reputable credit and may be redeemed upon
demand. It is therefore the Company`s opinion that such credit risk
is subject to normal industry risks and is considered minimal.
e) Liquidity risk
Liquidity risk arises from the Company`s financial obligations and in
the management of its assets, liabilities and optimal capital
structure. The Company manages this risk by regularly evaluating its
liquid financial resources to fund its current and long term
obligations and to meet its capital commitments in a cost effective
manner. The main factors that affect liquidity include working capital
requirements, future capital expenditure requirements, the Company`s
credit capacity and expected future debt and equity capital market
conditions.
The Company`s liquidity requirements are met through a variety of
sources, including: cash on hand, existing credit facilities, leases,
and debt and equity markets.
Because the duration of the current general economic uncertainty and
its detrimental effect on credit and capital markets is unknown, it is
difficult to determine the long-term impact on the Company.
In light of current market conditions, the Company has initiated a
series of measures to bring its spending in line with the projected
cash flows from its operations and available project specific
facilities in order to preserve its balance sheet and maintain its
liquidity position.
As at December 31, 2009, the 2009 Annual Financial Statements have
been prepared in accordance with Canadian GAAP applicable to a going
concern (See Note 1 to such statements).
f) Currency risk
The Company is exposed to currency risk as its principal business
is conducted in foreign currencies. Monetary assets and
liabilities denominated in foreign currencies are translated from
US dollars and into Canadian dollars. Unfavourable changes in
the applicable exchange rate may result in a decrease or increase
in foreign exchange gains or losses. The Company does not use
derivative instruments to reduce its exposure to foreign currency
risk.
For the year ended December 31, 2009, everything else being
equal, a 5% increase or decrease in the exchange rate between the
Canadian dollar and the US dollar would have resulted in a
respective $255,680 decrease and increase in the value of mineral
properties and deferred exploration expenditures in the DRC.
g) Interest rate risk
Interest rate risk is the potential impact on the Company`s
earnings due to changes in bank lending rates and short term
deposit rates.
The Company`s exposure to interest rate risk is as follows:
Cash Variable interest rate
Other assets Non-interest bearing
Accounts payable and accrued Non-interest bearing
liabilities
h) Market risk
Market risk is the risk that the value of a financial instrument
might be adversely affected by a change in commodity prices,
interest rates or currency exchange rates. The Company manages
the market risk associated with commodity prices by establishing
and monitoring parameters that limit the types and degree of
market risk that may be undertaken.
i) Title risk
Title to mineral properties involves certain inherent risks due
to the difficulties of determining the validity of certain claims
as well as the potential for problems arising from the frequently
ambiguous conveyancing history characteristic of many mining
properties. Although the Company has investigated title to all
of its mineral properties for which it holds concessions or other
mineral licenses, the Company cannot give any assurance that
title to such properties will not be challenged or impugned and
cannot be certain that it will have valid title to its mineral
properties. The Company relies on title opinions by legal
counsel who base such opinions on the laws of countries in which
the Company operates.
j) Country risk
The DRC is a developing country and as such, the Company`s
exploration projects in the DRC could be adversely affected by
uncertain political or economic environments, war, civil or other
disturbances, and a changing fiscal regime and by DRC`s
underdeveloped industrial and economic infrastructure.
The Company`s operations in the DRC may be effected by economic
pressures on the DRC. Any changes to regulations or shifts in
political attitudes are beyond the control of the Company and may
adversely affect its business. Operations may be affected in
varying degrees by such factors as DRC government regulations
with respect to currency conversion, production, price controls,
export controls, income taxes or reinvestment credits,
expropriation of property, environmental legislation, land use,
water use and mine safety.
There can be no assurance that policies towards foreign
investment and profit repatriation will continue or that a change
in economic conditions will not result in a change in the
policies of the DRC government or the imposition of more
stringent foreign investment restrictions. Such changes cannot be
accurately predicted.
SEGMENTED INFORMATION
The Company`s reportable segments have been determined at the level
where decisions are made on the allocation of resources and capital,
and where internal financial statements are available, which is
essentially the different geographic regions. The South African
segment comprised the exploration, development, mining, processing and
marketing of its diamonds in South Africa. The DRC segment represents
the Company`s exploration activities in the DRC. The Corporate
segment comprises its general corporate activities.
Prior to their disposal, as the South African operations were in the
development stage, all the direct costs incurred for projects that
initialised bulk sampling activities are capitalized, and revenue
earned from the sale of diamonds reduced the deferred capitalized
costs. For the DRC, its exploration costs are capitalized. Canadian
corporate costs are expensed to the statement of operations and
deficit. Further discrete segment information is provided in Note 10
to the 2009 Annual Financial Statements.
The Company carries on business in the following geographic areas:
As at December 31, Group Canada DRC South
2009 Africa
$ $ $ $
Net operating loss
(1,431,159) (1,431,159) - -
Interest income - - - -
Interest expense (166,477) (166,477) - -
Income tax expense -
(57,030) (57,030) -
Loss from continuing
operations after tax
(1,654,666) (1,654,666)
- -
Loss from discontinued
operations
(7,296,948) - - (7,296,948)
Net loss 8,951,614 8,951,614 - -
Segment assets 6,778,299 601,793 6,068,814 107,692
Mineral properties and
capital assets
5,950,629 - 5,950,629 -
Segment liabilities
1,462,086 905,389 556,697 -
As at December 31, Group Canada DRC South
2008 Africa
$ $ $ $
Net operating loss
73,677,568 60,018,696 13,658,872 -
Interest income (34) (34) - -
Interest expense 6,754 6,754 - -
Loss from continuing
operations after tax
73,684,288 60,025,416 13,658,872 -
Loss from discontinued
operations
29,317,361 - - 29,317,361
Net loss 103,001,649 60,025,416 13,658,872 -
Segment assets 6,531,927 177,766 6,354,161 -
Mineral properties and
capital assets
6,065,524 - 6,065,524 -
Assets of discontinued
operations
12,580,397 - - 12,580,397
Segment liabilities
10,144,831 10,005,270 139,561 -
Liabilities of
discontinued
operations 6,402,259 - - 6,402,259
SUBSEQUENT EVENTS
In 2009, the Company had been subjected to a delisting review by the
Toronto Stock Exchange ("TSX"). In January 2010, the TSX notified the
Company that the Continued Listings Committee of the TSX determined that
the Company satisfies the TSX`s continued listing requirements.
Also in January 2010, the Company announced that it had entered into an
agreement (the "JV Agreement") with Rio Tinto Minerals Development Limited
("Rio Tinto") for the exploration for iron ore in areas within the Province
Orientale, in the DRC. These areas total approximately 4,550 square
kilometres and are covered by exploration permits (the "Permits") in which
the diamond and iron ore rights had been controlled by the Company.
Under the JV Agreement, which is in the form of a shareholders` agreement,
the Company owns 25% of the share capital of the joint venture company
which owns the DRC company that holds the Permits, with Rio Tinto owning
75% of the share capital of the joint venture company.
Under the JV Agreement, all iron ore exploration up to and including the
completion of any feasibility study will be funded by Rio Tinto. The
Company will not suffer any dilution during this period, such that the
Company`s 25% interest in the properties will be maintained during this
period. The exploration will be carried out by Rio Tinto (or one of its
affiliates) as operator. After the completion of any feasibility study,
funding for the project is to be provided by Rio Tinto and BRC pro rata
based on their respective interests in the joint venture company.
Initial geological research and exploration indicates that the Permit
areas, which are largely unexplored using modern exploration methods, are
highly prospective for the discovery of iron ore deposits. As part of the
2010 exploration program, Rio Tinto plans to undertake a reconnaissance
drill program over the Permit areas.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to senior
management, including the Company`s President and Vice President, Finance,
on a timely basis so that appropriate decisions can be made regarding
public disclosure. As at December 31, 2009, the Company`s President and
Vice President, Finance evaluated or caused to be evaluated under their
supervision the effectiveness of the Company`s disclosure controls and
procedures as required by Canadian securities laws. Based on that
evaluation, the President and Vice President, Finance have concluded that,
as of December 31, 2009, the Company`s disclosure controls and procedures
were effective. No material weaknesses have been identified.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal controls have been designed to provide reasonable assurance
regarding the reliability of the Company`s financial reporting and the
preparation of financial statements together with the other financial
information for external purposes in accordance with Canadian GAAP. As at
December 31, 2009, the Company`s President and Vice President, Finance
evaluated or caused to be evaluated under their supervision, the
effectiveness of the Company`s internal control over financial reporting as
required by Canadian securities laws. Based on that evaluation, the
President and Vice President, Finance have concluded that, as of December
31, 2009, the Company`s internal control over financial reporting was
effective. No material weaknesses have been identified.
The Company is required under Canadian securities laws to disclose herein
any change in the Company`s internal control over financial reporting that
occurred during the Company`s most recent interim period that has
materially affected, or is reasonably likely to materially affect, the
Company`s internal control over financial reporting. No changes were
identified in the Company`s internal control over financial reporting
during the quarter ended December 31, 2009, that have materially affected,
or are reasonably likely to materially affect, the Company`s internal
control over financial reporting.
It should be noted that a control system, including the Company`s
disclosure and internal controls and procedures, no matter how well
conceived can provide only reasonable, but not absolute, assurance that the
objective of the control system will be met and it should not be expected
that the disclosure and internal controls and procedures will prevent all
errors or fraud.
RENEWAL OF CAUTIONARY
Further to the cautionary announcements issued on 6 November 2009, 11
December 2009, 13 January 2010 and 24 February 2010 respectively,
shareholders are advised that negotiations are ongoing and that they should
continue to exercise caution when dealing in their securities until a
further announcement is made.
JOHANNESBURG
06 April 2010
Sponsor
Arcay Moela Sponsors (Proprietary) Limited
Date: 06/04/2010 10:33:01 Produced by the JSE SENS Department.
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