| Tue 18 May 2010, 11:27 | | BCD - BRC Diamondcore Ltd - Interim Consolidated Financial Statements March 31 |
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BCD
BCD
BCD - BRC Diamondcore Ltd - Interim Consolidated Financial Statements March 31,
2010
BRC DIAMONDCORE LTD
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: BCD & ISIN Number: CA05565C1095
("BRC DiamondCore" or "the Company")
Interim Consolidated Financial Statements
March 31, 2010
(expressed in Canadian dollars) (unaudited)
NOTICE TO READER
These interim consolidated financial statements of BRC DiamondCore Ltd.
(the "Company") as at and for the three month period ended March 31, 2010
have been prepared in accordance with Canadian generally accepted accounting
principles and are the responsibility of the Company`s management. These
interim consolidated financial statements have not been audited or reviewed
by the Company`s auditors.
BRC DiamondCore Ltd.
Consolidated Balance Sheets
(expressed in Canadian dollars)
As at As at
March 31, December 31,
2010 2009
(unaudited) (audited)
Assets $ $
Current assets
- Cash 202,204 664,495
- Prepaid expenses and other 128,227 163,675
assets
330,431 827,670
Non-current
- Mineral properties and 5,877,588 5,808,835
deferred exploration
expenditures (Note 5)
- Capital assets (Note 6) 113,361 141,794
5,990,949 5,950,629
6,321,380
Liabilities
Current liabilities
- Accounts payable and accrued 908,438 1,027,172
liabilities
- Due to related parties (Note 154,094 377,884
4)
1,062,532 1,405,056
Non-current
- Future tax liability 57,030 57,030
57,030 57,030
Going concern (Note 1)
Commitments, contingencies and
guarantees (Note 8)
Shareholders` equity
Capital stock (Note 7) 115,457,876 115,457,876
Contributed surplus (Notes 7 (b) 7,872,838 7,700,518
and (d))
Accumulated deficit (118,128,896) (117,842,181)
5,201,818 5,316,213
6,321,380 6,778,299
The accompanying notes are an integral part of these financial statements.
BRC DiamondCore Ltd.
Consolidated Statements of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
For the three months ended March 31, March 31,
2010 2009
$ $
Expenses
- Consulting fees - 46,005
- Professional fees 80,342 47,853
- General and administrative 72,336 38,111
- Stock-based compensation (Note 132,000 265,557
7(b))
- Foreign exchange loss (gain) 2,037 (525,744)
unrealized
(286,715) 128,219
Interest expense - (62,095)
(Loss) income from continuing (286,715) 66,124
operations
Loss from discontinued operations - (1,548,669)
Net loss for the period (286,715) (1,482,545)
Accumulated deficit, beginning of (117,842,181) (108,890,567)
the period
Net loss for the period (286,715) (1,482,545)
Accumulated deficit, end of the (118,128,896) (110,373,112)
period
Basic and diluted loss per share (0.00) (0.00)
from continuing operations
Basic and diluted loss per share - (0.06)
from discontinued operations
Weighted average number of common 89,408,640 26,091,310
shares outstanding
Headline earnings per share (0.00) (0.00)
Going Concern (Note 1)
The accompanying notes are an integral part of these financial statements.
BRC DiamondCore Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
(expressed in Canadian dollars)
For the three months ended March 31, March 31,
2010 2009
$ $
Operating activities
Net (loss) income from continuing (286,715) 66,124
operations for the period
Items not affecting cash
- Stock-based compensation 132,000 265,557
(154,715) 331,681
Net change in non-cash working
capital
- Prepaid expenses and other 34,948 406,791
assets
- Accounts payable and accrued (118,734) 733,614
liabilities
Cash (used in) provided from (238,501) 1,472,086
continuing operations
Cash used in discontinued - (2,647,057)
operations
Cash used in operating activities (238,501) (1,174,971)
Investing activities
Cash provided from discontinued - 923,018
operations
Cash provided by investing - 923,018
activities
Financing activities
- Due to related parties (223,790) -
- Increase in short-term debt - 55,261
Cash provided from continuing (223,790) -
operations
Cash provided from discontinued - 158,794
operations
Cash (used in) provided from (223,790) 214,055
financing activities
Effect of foreign exchange on cash - 72,510
balances of discontinued operations
Increase(decrease) in cash (462,291) 34,612
Cash - beginning of the period 664,495 198,085
Cash - end of the period 202,204 232,697
Supplemental Information
Interest paid - 109,848
Income taxes paid - -
Going Concern (Note 1)
Depreciation of capital assets of $28,433 was capitalized to mineral
properties in the three month period ended March 31, 2010 (March 31,
2009 - $41,000).
The accompanying notes are an integral part of these financial statements.
BRC DiamondCore Ltd.
Consolidated Statements of Comprehensive Loss
(Unaudited)
(expressed in Canadian dollars)
For the three months ended March 31, March 31,
2010 2009
$ $
Net loss (286,715) (1,482,545)
Unrealized foreign currency loss on - (4,555,106)
self-sustaining operation
Comprehensive loss (286,715) $(6,037,651)
Going Concern (Note 1)
Principal business activities and continuation of the business
The principal business of BRC DiamondCore Ltd. (the "Company") is the
acquisition and exploration of mineral properties in the Democratic
Republic of the Congo ("DRC"). For the three months ended March 31, 2010,
only operations from Canada and the DRC were included in the balance sheet
and the statement of operations as continuing operations. For the three
months ended March 31, 2009, operations from Canada and the DRC were
included in the statement of operations as continuing operations and the
Company`s former South Africa operations are shown as discontinued
operations (see Note 3).
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
applicable to a going concern, which assumes that the Company will
continue in operation for a reasonable period of time and will be able to
realize its assets and discharge its liabilities in the normal course of
operations. The Company has incurred a net loss of $286,715 in the current
period (three months ended March 31, 2009 - $1,482,545). The Company`s
accumulated deficit as at March 31, 2010 was $118,128,896 (December 31,
2009 - 117,842,181). The Company had a working capital deficit of $732,101
as at March 31, 2010 and had a net decrease in cash of $462,291 and used
net cash in operating activities of $238,501 during the three months ended
March 31, 2009. While the interim consolidated 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.
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 is exploring all available options to secure
additional funding, including equity financing and strategic partnerships.
In addition, the recoverability of amounts shown for mineral properties 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 incurred costs through a disposition of its
interests, all of which are uncertain.
In the event the Company is unable to identify recoverable reserves,
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 have cast
significant doubt upon the validity of the going concern assumption.
These interim consolidated financial statements do not include any
additional adjustments to the recoverability and classification of certain
recorded asset amounts, classification of certain liabilities and changes
to the statement of operations that might be necessary if the Company was
unable to continue as a going concern.
2. Significant accounting policies
Basis of consolidation
The Company`s consolidated financial statements as at March 31, 2010 and as
at December 31, 2009 include its accounts and those of its wholly-owned
subsidiary in the DRC, BRC DiamondCore Congo SPRL. All inter-company
balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. In addition to the going concern assumption, assets and
liabilities which have required management to make significant estimates
and assumptions in determining carrying values include mineral properties,
capital assets, future income taxes and stock-based compensation.
Comprehensive loss, financial instruments, hedges and equity
All financial instruments are required to be measured at fair value on
initial recognition, except for certain related party transactions. Due to
the short term nature of the Company`s financial assets and liabilities,
management believes that the carrying value approximates the fair value.
Measurement in subsequent periods depends on whether the financial
instrument has been classified as either loans and receivables, held-for-
trading, held-to-maturity, available-for-sale, or other liabilities. The
classification depends on the purpose for which the financial instruments
were acquired, their characteristics and/or management`s intent. Management
determines the classification of financial assets and financial liabilities
at initial recognition and, except in very limited circumstances, the
classification is not changed subsequent to initial recognition.
i Loans and receivables
Loans and receivables are initially recognized at fair value, including
direct and incremental transaction costs, and are subsequently measured at
amortized cost, using the effective interest method.
ii Held-for-trading
Financial assets and financial liabilities that are purchased and incurred
with the intention of generating income in the near term, are classified as
held-for-trading. Financial instruments included in this category are
initially recognized at fair value and transaction costs are taken directly
to earnings along with gains and losses arising from changes in fair value.
Iii Other liabilities
Financial liabilities, including accounts payable and accrued liabilities,
are classified as "other liabilities". Other liabilities are initially
recognized at fair value and are subsequently measured at amortized cost
using the effective interest method.
Iv Comprehensive loss
Comprehensive loss is composed of the Company`s net loss and other
comprehensive loss. Other comprehensive loss includes any unrealized gains
and losses on available-for-sale securities, foreign currency translation
gains and losses on the net investment in self-sustaining foreign
operations and changes in the fair market value of derivative instruments
designated as cash flow hedges, all net of income taxes. The components of
comprehensive loss are disclosed in the consolidated statements of
comprehensive loss.
V Derivatives and hedge accounting
Derivative instruments, including embedded derivatives, are recorded at
fair value unless exempted from derivative treatment as normal purchase and
sale. All changes in their fair value are recorded in income unless cash
flow hedge accounting is used, in which case changes in fair value are
recorded in other comprehensive income. The Company does not currently
apply hedge accounting or have derivative instruments.
The Company designated its financial instruments as follows:
Financial
instruments Classification Measurement
Cash Held-for-trading Fair value
Other assets Loans and Amortized cost
receivables
Accounts payable Loans and Amortized cost
and accrued receivables
liabilities
Mining assets
Exploration costs
Exploration costs are recorded in the statement of operations and deficit
until such time as the Company has legal title to the mineral rights.
Thereafter all exploration and evaluation expenditures are capitalized
until such time as the mining property is capable of commercial production.
It will then be subject to impairment tests when facts and circumstances
suggest that the carrying amount of the assets may exceed their recoverable
amount. The value of any diamonds recovered from exploration activities is
offset against exploration costs.
Land and mineral rights
Undeveloped properties and mineral rights, upon which the Company has not
performed sufficient exploration work to determine whether sufficient
mineralization exists, are carried at original cost.
Land is not depreciated.
Mineral rights are amortized over the expected life of the mine from the
date on which commercial production commences. Where there is little
likelihood of a mineral right being exploited, or the value of an
exploitable mineral right has diminished below cost, a write down is
recorded representing the difference between carrying value and fair value.
Non- producing mineral properties
Costs relating to the acquisition, exploration and development of
non-producing resource properties are capitalized until such time as
either economically recoverable reserves are established, the properties
are sold or abandoned, or the value of the particular property is impaired.
The excess of these costs over estimated recoveries is charged to
operations. The ultimate recovery of these costs depends on the discovery
and development of economic reserves or the sale of the mineral rights.
The amounts shown for non-producing resource properties do not necessarily
reflect present or future values.
In addition, the Company`s exploration opportunities in the DRC may be
subject to sovereign risks, including political and economic instability,
government regulations relating to mining, military repression, civil
disorder, currency fluctuations and inflation, all or any of which may
impede the Company`s activities in this country or may result in the
impairment or loss of part or all of the Company`s interest in the
properties.
Capital assets
Capital assets of the Company are recorded at cost. Depreciation of capital
assets is recorded on a straight line basis over the following periods:
Vehicles four years
Furniture and office equipment two to seven years
Computer equipment three years
Processing plant hours worked / volumes
processed
Exploration and mining assets two to 4years
The depreciation methods, useful lives and residual values, if not
insignificant, are reassessed annually.
Impairment of long-lived assets
The Company reviews and evaluates the carrying value of its exploration
properties for impairment when events or circumstances indicate that the
carrying amounts of related assets or groups of assets may not be
recoverable. If the total estimated future cash flows on an undiscounted
basis are less than the carrying amount of the asset, an impairment loss is
measured and assets are written down to fair value. Future cash flows are
estimated based on estimated future recoverable mine production, expected
sales prices and considering current and historical commodity prices, price
trends and related factors, production levels, cash costs of production and
capital and reclamation costs, and the sustainable exploitation of the
indicated ore body.
Stock options
The Company`s stock option plan is summarized in Note 7(b). Stock-based
compensation is recorded using the fair value method of accounting for
stock options granted to directors, officers and employees whereby the
weighted average fair value of options granted is recorded as compensation
expense in the consolidated financial statements. Compensation expense on
stock options granted is recognized and amortized over the vesting period,
with the offset being credited to contributed surplus, which will transfer
to share capital if the related options are converted into common shares.
Compensation expense on stock options granted to non-employees is recorded
as an expense in the period at the earlier of the completion of performance
and the date the options are vested using the fair value method. Any
consideration paid for shares purchased under the plan is credited to share
capital.
Income taxes
The Company follows the liability method of accounting for income taxes.
Under this method, future income taxes are recognized based on the expected
future tax consequences of differences between the carrying amount of
balance sheet items and their corresponding tax basis, using the
substantively enacted income tax rates for the year in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce future income tax assets to amounts expected to
Loss per share
Basic loss per share is computed by dividing net loss by the weighted
average number of shares outstanding during the reporting period. Due to
reported losses, diluted loss per share data is the same as basic loss per
share as the assumed exercise of stock options and warrants is
anti-dilutive (see Note 7(c)).
Foreign currency translation
These consolidated financial statements are presented in Canadian dollars.
The Company`s functional currency is the Canadian dollar. Prior to July 3,
2009 (see Note 3), self-sustaining foreign operations were translated into
Canadian dollars using the current-rate method. Under this method, assets
and liabilities were translated at the rate of exchange in effect at the
balance sheet date while revenue and expense items (including depletion and
amortization) were translated at the average rates of exchange prevailing
during the period. Exchange gains and losses that resulted from the
translation were deferred and disclosed as a component of "accumulated
other comprehensive income (loss)". The operations in South Africa were
considered self-sustaining and prior to their disposal their functional
currency was the South African rand.
Transactions in foreign currencies of integrated foreign operations are
translated into Canadian dollars at rates of exchange at the time of such
transactions. Monetary assets and liabilities are translated at current
rates of exchange with the resulting gains or losses included in income.
Non-monetary items are translated at historical exchange rates. Revenue and
expense items are translated at the average rates of exchange, except
depletion and amortization which are translated at the rates of exchange
applicable to the related assets. Gains or losses resulting from these
translation adjustments are included in income. The activities in the DRC
are considered integrated.
Transactions denominated in a foreign currency are translated into Canadian
dollars at the rate of exchange in effect at the time of such transactions.
Monetary assets and liabilities denominated in foreign currency are
translated at the rate of exchange at the balance sheet date. The resulting
gains and losses are included in income.
Variable interest entities (VIEs)
VIEs are consolidated by the Company when it is determined that it will, as
the primary beneficiary, absorb the majority of the VIEs expected losses or
expected residual returns. The Company currently does not have any
interests in VIEs.
Future accounting standards
a) Business Combinations/Consolidated Financial Statements/Non-Controlling
Interests
In January 2009, the Canadian Institute of Chartered Accountants ("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.
3. Discontinued operations - Diamond Core
On July 3, 2009, Diamond Core Resources (Pty) Ltd. ("Diamond Core")
(which was the holding company for 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 in February 2008. 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.
Effective July 3, 2009, as a result of the liquidation order on July 3,
2009, the Company ceased to consolidate Diamond Core`s 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.
4. Related party transactions
During the three month period ended March 31, 2010, legal fees and related
costs of $55,342 (March 31, 2009 - $53,705) 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. The amount owing as at March 31,
2010 is $70,539 and is recorded in accounts payable (December 31, 2009 -
$49,113).
As at March 31, 2010 an amount of $33,334 was owed to two directors and
officers of the Company representing management fees (December 31, 2009 -
$278,849). During the three months ended March 31, 2010, management fees
of $50,000 (March 31, 2009 - $50,000), were incurred.
As at March 31, 2010, an amount of $3,798 (December 31, 2009 - $3,922) was
owed to Banro Corporation ("Banro"). Banro owns 35,433,987 common shares
of the Company, representing a 39.63% interest in the Company.
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.
5. Mineral properties
Effective September 30, 2009, the Company disposed of its entire
shareholding in Diamond Core, which held the Company`s South African
diamond projects (see Note 3).
Mineral properties in the DRC comprise eleven exploration permits in the
Tshikapa area in the Kasai province of the DRC, and 4 exploration permits
north of Bafwasende in the Orientale province of the DRC.
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") which had
been controlled by the Company. Under the JV Agreement, which is in the
form of a shareholders` agreement, the Company owns 25% and Rio Tinto 75%
of the share capital of a holding company which owns a DRC registered
company that holds the Permits.
During the three months ended March 31, 2010, the Company has received
proceeds of $169,835 (as at December 31, 2009 - $555,379) from Rio Tinto in
order to assist with future expenditures towards the iron ore exploration.
Under the JV Agreement, all iron ore exploration up to and including the
completion of any pre-feasibility study (as required to obtain an
exploitation permit) 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
the operator. After the completion of the pre-feasibility study, funding
for the project will be provided by Rio Tinto and the Company based on
their proportionate respective interests in the said holding company. As
at March 31, 2010, Rio Tinto advanced $286,798 and $159,146 was spent on
exploration expenditures at this time. The remaining $127,652 is recorded
in the amount due to related parties in the balance sheet.
The Company has incurred deferred exploration expenditures and mineral
property costs, (net of write offs of $16,788,479) in the DRC as at March
31, 2010 as follows:
Year Cumulativ
3 months Ended e
ended December from
March 31, 31, 2009 inception
2010 to March
31, 2010
$ $ $
Mineral property costs
Claims and staking - - 2,713
Total mineral property - - 2,713
costs
Deferred exploration
expenditures
Funds received (169,835) (555,379 (725,214)
from Rio Tinto )
Administrative and 156,417 275,308 4,977,734
office support
Depreciation 28,433 172,121 742,183
Drilling - 18,755 505,112
Field camp 3,544 102,305 2,928,317
expenses
Geochemistry - - 329,145
Geology - Contract - - 1,600,765
geologists
Geophysics - - 2,369,677
Option fees - - 308,443
Permits and - 19,057 1,867,724
surface taxes
Professional fees 2,473 42,774 659,181
Remote sensing and - - 46,729
surveying
Stock based 40,320 210,357 2,239,314
compensation
Transport cost and 18,486 14,332 3,256,692
helicopter
Profit on sale of - (54,048) (54,048)
assets
Unrealized foreign (11,085) - 1,611,600
exchange difference
Write off - - (16,788,4
79)
Total deferred 68,753 245,965 5,874,875
exploration expenditures
Total mineral properties 68,753 245,965 5,877,588
and deferred exploration
expenditures
6. Capital assets
As at
March 31,
2010
Accumu- Net Book
lated Value
Amorti-
Cost zation
$ $ $
Computer equipment 28,658 21,483 7,175
Exploration and 316,476 231,967 84,509
mining assets
Furniture and office 18,106 14,871 3,235
equipment
Vehicles 254,436 235,994 18,442
617,676 504,315 113,361
As at
December
31,
2009
Accumu-
lated
Amorti- Net Book
Cost zation Value
$ $ $
Computer equipment 28,658 19,478 9,180
Exploration and 316,476 216,384
mining assets 100,092
Furniture and office 18,106 14,200 3,906
equipment
Vehicles 254,436 225,820 28,616
617,676 475,882 141,794
During the three months ended March 31, 2010, $28,433 of depreciation
was included in mineral properties and deferred exploration expenditures
(see Note 5) (three months ended March 31, 2009 - $41,000).
7. Capital stock
Share capital
Number of Amount $
Shares
Balance, December 31, 2008 26,091,310 105,815,141
Shares issued for the private 20,000,000 1,000,000
placement
Shares issued for the debt 43,317,330 8,663,466
settlement transactions
Financing costs - (20,731)
Outstanding at December 31, 2009 89,408,640 115,457,876
Outstanding at March 31, 2010 89,408,640 115,457,876
As at March 31, 2010, the authorized share capital of the Company is
comprised of an unlimited number of common shares.
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 that were 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, 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, such that Banro currently
owns 35,433,987 (or 39.63%) of the outstanding common shares of the
Company.
The Company also in November 2009 carried out 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, 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.
b) Stock option plan
The Company has a stock option plan under which non-transferable options
to purchase common shares of the Company may be granted by the Board of
Directors to any director, officer, employee or consultant of the Company
or any subsidiary of the Company. This stock option plan contains
provisions providing that the term of an option may not be longer than
five years and the exercise price of an option shall not be lower than the
last closing price of the Company`s shares on the Toronto Stock Exchange
prior to the date the stock option is granted. Unless the Board at any
time makes a specific determination otherwise, a stock option and all
rights to purchase Company shares pursuant thereto shall expire and
terminate immediately upon the optionee who holds such stock option
ceasing to be at least one of a director, officer or employee of or
consultant to the Company or a subsidiary of the Company, as the case may
be. One-quarter (1/4) of the stock options granted pursuant to the stock
option plan vest immediately on their date of grant and another
one-quarter of such stock options vest on each of the 6-month, 12-month
and 18-month anniversaries of the grant date.
As at March 31, 2010, the Company had outstanding under the stock option
plan stock options to acquire 2,700,000 (December 31, 2009 - 2,941,400)
common shares of the Company at a weighted-average price of $2.10 (December
31, 2009 - $2.15) per share.
The following table summarizes information about stock options outstanding
and exercisable at March 31, 2010:
Date of grant Number of Options Number
outstanding at exercised, Outstanding
12/31/2009 expired or at 3/31/10
cancelled
03/04/05 16,400 16,400 -
03/18/05 225,000 225,000 -
04/29/05 225,000 - 225,000
06/29/06 200,000 - 200,000
04/09/07 300,000 - 300,000
08/03/07 180,000 - 180,000
08/28/08 1,795,000 - 1,795,000
2,941,400 241,400 2,700,000
Date of Options Exercise Fair value Expiry
grant Exercisable price date of date
at 3/31/10 grant
03/04/05 - $2.10 $1.78 03/04/2010
03/18/05 - $2.50 $1.76 03/18/2010
04/29/05 225,000 $2.50 $2.14 04/29/2010
06/29/06 200,000 $3.75 $2.16 06/29/2011
04/09/07 300,000 $5.50 $3.25 04/09/2012
08/03/07 180,000 $8.00 $2.85 08/03/2012
08/28/08 1,795,000 $1.05 $0.77 08/28/2013
2,700,000
During the three months ended March 31, 2010, the Company recognized in
the statement of operations as stock-based compensation expense $132,000
(March 31, 2009 - $265,557) representing the fair value of stock options
previously granted to employees, directors and officers under the
Company`s stock option plan. An amount of $40,320 was capitalized as
deferred exploration expenditures (March 31, 2009 - $nil). These amounts
were credited accordingly to contributed surplus in the balance sheet.
The Black-Scholes option-pricing model was used to estimate the fair
values of all stock options granted 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
c) Replacement options
In connection with the acquisition by the Company of all of the
outstanding shares of Diamond Core, in February 2008, 15,133,190 stock
options that had been issued to employees of Diamond Core pursuant to
The Diamond Core Resources Share Trust Deed to acquire 15,133,190 ordinary
shares in Diamond Core (the "Old Options") were substituted with new stock
options of the Company (the "Replacement Options"), so as to allow holders
of Old Options to acquire the number of Company common shares that is
calculated by dividing the number of ordinary shares of Diamond Core that
would otherwise have been issuable upon the exercise of the Old Options
by 24.5, rounded up to the nearest whole number of Company shares, with
the exercise price of such Replacement Options being adjusted to the
number that is equal to the exercise price of the Old Options
(denominated in South African rand) multiplied by 24.5. A total of 617,710
Replacement Options were issued by the Company. At March 31, 2010, 460,968
of these options had been cancelled.
d) Loss per share
The loss per share figures for the three months ended March 31, 2010
and 2009 are calculated using the weighted average number of shares
outstanding during the respective accounting periods amounting to
89,408,640 and 26,091,310 common shares, respectively. The calculations
of basic and diluted loss per share amounts are identical. All common
share options and warrants were excluded from the calculation of diluted
loss per share as their effect would have been antidilutive.
e) Contributed surplus
As at
As at December
March 31, 31, 2009
2010
$ $
Balance, beginning of the year 7,700,518 6,934,641
Options expensed 172,320 765,877
7,872,838 7,700,518
8. Commitments, contingencies and guarantees
The Company is committed to the payment of the surface fees and taxes.
For 2010, these fees and taxes are estimated to be approximately
US$120,000. The surface fees and taxes are required to be paid annually
under the DRC Mining Code in order to keep exploration permits in good
standing.
In addition, as at March 31, 2010, the Company had a bank guarantee of
US$4,373 (December 31, 2009 - $4,373) with respect to expenses related
to a mitigation and rehabilitation plan required from holders of
exploration permits under the DRC Mining Code.
Six of the exploration permits comprising part of the Company`s Tshikapa
project in the DRC are held through an option agreement with Acacia
sprl.Acacia sprl 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 for both parties.
Labour disputes
As at March 31, 2010 the Company was in dispute with two of its previous
directors. One of those individuals applied for a summary judgment in the
High Court of South Africa; the application was dismissed and the Company
was granted leave to defend his claim. The matter will now proceed in the
High Court on an opposed basis. The other individual has referred two
disputes to the Commission for Conciliation Mediation and Arbitration in
Johannesburg, South Africa and an action to the High Court in that same
jurisdiction. He elected to withdraw an application for summary judgment
The Company believes that these claims are without merit and is vigorously
defending these actions.
9. Capital management
The Company manages its cash, common shares, warrants and stock options
as capital.
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
rise; 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 period ended March 31, 2010.
Neither the Company nor any of its subsidiaries are subject to
externally imposed capital requirements.
10. Financial instruments and risk management
a) Fair value of financial instruments
The Company has classified financial instruments as follows:
As at
As at December
March 31, 2009
31, 2010
$ $
Financial assets
Held-for-trading, measured at fair
value
Cash 202,204 664,495
Loans and receivables, measured at
amortized cost
Prepaid expenses and other assets 128,227 163,675
Financial liabilities
Other liabilities, measured at
amortized cost
Accounts payable and accrued 908,438 1,027,17
liabilities 2
Due to related parties 154,094 377,884
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:
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
arket 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:
March 31, 2010 Level 1 Level 2 Level 3
Assets:
Cash $202,204 - -
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.
In light of current 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 March 31, 2010, these interim consolidated financial statements have
been prepared in accordance with Canadian GAAP applicable to a going
concern (see Note 1).
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 three month period ended March 31, 2010, 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 $293,879
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 liabilities Non-interest bearing
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
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.
11. 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 DRC segment represents the Company`s
exploration activities in the DRC. The Canadian segment comprises its
general corporate activities.
For the DRC, its exploration costs are capitalized. Canadian corporate
costs are expensed to the statement of operations and deficit.
The Company carries on business in the following geographic areas:
As at
As at December
March 31, 31, 2009
2010
$ $
Congo - Mineral properties 5,877,588 5,808,835
Congo - Property, plant and 113,361 141,794
equipment
Canada - Property, plant and - -
equipment
5,990,949 5,950,629
JOHANNESBURG
18 May 2010
Sponsor
Arcay Moela Sponsors (Proprietary) Limited
Date: 18/05/2010 11:27:00 Produced by the JSE SENS Department.
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