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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Unaudited interims for period ended 31
May 2010
ROCKWELL DIAMONDS INCORPORATED
(A company incorporated in accordance with the laws of British Columbia, Canada)
(Incorporation number BCO354545)
(Formerly Rockwell Ventures Inc.)
(South African registration number: 2007/031582/10)
Share code on the JSE Limited: RDI ISIN: CA77434W1032
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
NOTICE OF NO AUDITOR REVIEW OF CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
In accordance with National Instrument 51-102 Part 4,
subsection 4.3(3)(a), if an auditor has not performed a
review of these consolidated interim financial statements
they must be accompanied by a notice indicating that these
consolidated interim financial statements have not been
reviewed by an auditor.
The accompanying unaudited consolidated interim financial
statements of the Company have been prepared by and are
the responsibility of the Company`s management. The
Company`s independent auditor has not performed a review
of these financial statements in accordance with the
standards established by the Candaian Institute of
Chartered Accountants for a review of interim financial
statements by an entity`s auditor.
ROCKWELL DIAMONDS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
May 31, 2010 February 28, 2010
(unaudited)
ASSETS
Current
assets
Cash and
cash
equivalents $ 8,565,151 $ 2,512,610
Accounts
receivable 6,161,933 6,260,717
Restricted
cash (note 12) 4,946 4,946
Trade
receivable
from a
related
party
(note 11) 28,363 46,108
Inventories
(note 4) 8,473,016 2,976,058
Prepayments 33,944 75,275
23,267,353 11,875,714
Non-current
assets
Property,
plant and
equipment
(note 5) 56,397,897 58,790,736
Mineral
property
interests
(note 6) 30,229,885 30,850,998
Investment in
equity accounted
associate
(note 9) 98,017 -
Other
assets
and
deposits 679,648 827,871
Reclamation
deposits
(note 8) 2,898,067 2,898,067
90,303,514 93,367,672
$ 113,570,867 $ 105,243,386
LIABILITIES AND SHAREHOLDERS` EQUITY
Current
liabilities
Bank
indebtedness
(note 12) $ 2,012,930 $ 698,015
Accounts
payable
and
accrued
liabilities 6,608,191 6,458,751
Due to
related
parties
(note 11) 175,815 641,323
Taxes
payable 628,426 583,194
Current
portion
of
capital
lease
obligations
(note 7) 1,912,617 3,196,189
11,337,979 11,577,472
Non-current
liabilities
Capital
lease
obligations
(note7) 34,401 140,332
Due to
related
parties
(note 11) 414,566 414,566
Future
income
taxes 11,871,000 11,545,000
Reclamation
obligation
(note 8) 4,002,878 3,722,984
16,322,845 15,822,882
Non-controlling
interest 517,663 648,941
Shareholders`
equity
Share
capital
(note 10) 135,989,508 127,999,040
Contributed
surplus 6,416,032 6,195,051
Accumulated
other
comprehensive
loss (7,963,814) (7,979,683)
Deficit (49,049,346) (49,020,317)
85,392,380 77,194,091
Continuance of
operations and
going concern
(note 1)
Contingencies
(note 13)
Subsequent
events
(note 14)
$ 113,570,867 $ 105,243,386
The accompanying notes are an integral part of these
interim consolidated financial statements.
Approved by the Board of Directors
/s/ Dr. John Bristow /s/ Dr. Mark Bristow
Dr. John Bristow Dr. Mark Bristow
Director, Chief Executive Officer Director
Consolidated Statements of Operations and Comprehensive
Income (Loss)
(Unaudited-Expressed in Canadian Dollars)
Three months ended May 31,
2010 2009
Revenue
Rough
diamond
sales $ 8,456,582 $ 3,872,799
Other
sales - 56,374
8,456,582 3,929,173
Cost of
sales
Cost of
rough
diamond
sales (2,794,566) (4,850,581)
Amortization
and depletion (3,148,350) (1,819,080)
Operating
(loss) profit 2,513,666 (2,740,488)
Expenses
Accretion of
reclamation
obligation
(note 8) 331,098 (14,288)
Exploration 13,648 57,611
Foreign
exchange
(gain)/
loss (855) 546,059
Interest on
capital leases 88,555 342,721
Interest expense 48,958 407,302
Legal,
accounting
and audit 359,026 333,700
Office
and
administration 794,262 656,469
Shareholder
communications 58,406 119,366
Stock-based
compensation -
exploration
(note 10(b)) 20,966 29,833
Stock-based
compensation -
administration
(note 10(b)) 200,015 86,276
Travel
and
conferences 119,019 35,619
Transfer agent 28,890 22,173
2,061,988 2,622,841
Other items
Write-off of
accounts
receivable 153,837 -
Loss on
disposal
of
equipment - 25,781
Interest income (13,346) (142,789)
Share
of
profit
from
equity
accounted
investment
(note 9) (2,327) -
Write-down
of investments
held for
reclamation 146,670 657,634
284,834 540,626
Profit/(Loss)
before income
taxes 166,844 (5,903,955)
Current
income
tax
expense 1,387 -
Future
income
tax
expense
/(recovery) 326,000 (1,346,407)
Loss
before
non-con
trolling
interest (160,543) (4,557,548)
Non-controlling
interest 131,514 453,617
Loss
for the
period (29,029) (4,103,931)
Other
comprehensive
income 15,869 5,474,917
Total
comprehensive
income/
(loss) $ (13,160) $ 1,370,986
Basic
and
diluted
profit/
loss
per
common
share* $ (0.00) $ (0.02)
Weighted
average
number of
common
shares
outstanding 477,651,502 238,041,651
The accompanying notes are an integral part of these
interim consolidated financial statements.
* Less than one Canadian cent reflects as zero.
Consolidated Interim Statements of Accumulated
Comprehensive Loss and Deficit
(Unaudited-Expressed in Canadian Dollars)
Three months Three months
ended May 31 ended May 31
2010 2009
Accumulated
other
comprehensive
loss
Balance at
beginning of
the period $ (7,979,683) $ (13,409,383)
Comprehensive
income on
currency
translation of
self-sustaining
operations 15,869 5,474,917
Balance at end
of the period $ (7,963,814) $ (7,934,466)
Deficit
Balance at
beginning of
the period $ (49,020,317) $ (41,982,624)
Profit/(Loss)
for the period (29,029) (4,103,931)
Balance at end
of the period $ (49,049,346) $ (46,086,555)
The accompanying notes are an integral part of these
interim consolidated financial statements.
Consolidated Interim Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Three months ended
May 31, 2010
(unaudited)
Share capital Number of shares
Balance at
beginning of the
period 370,843,069 $ 127,999,040
Share purchase
options exercised
at $0.62 per
share - -
Fair value of
stock options
allocated to
shares issued on
exercise - -
Private
placement, net of
issue cost at
$0.065 per share
(note 10(c)) - -
Rights offering
at subscription
price of $0.05
per share (note
10(d)) 92,710,767 4,583,644
Private
placement, net of
issue cost at
$0.065 per share
(note 10(e)) 54,631,402 3,406,824
Balance at end of
the period 518,185,238 $ 135,989,508
Warrants
Balance at
beginning of the
period $ -
Expired broker
warrants -
Balance at end of
the period $ -
Contributed surplus
Balance at
beginning of the
period $ 6,195,051
Stock-based
compensation
(note 10(b)) 220,981
Expired broker
warrants -
Fair value of
stock options
allocated to
shares issued on
exercise -
Balance at end of
the period $ 6,416,032
Accumulated other
comprehensive
loss
Balance at
beginning of the
period $ (7,979,683)
Comprehensive
income on
currency
translation of
self-sustaining
operations 15,869
Balance at end of
the period $ (7,963,814)
Deficit
Balance at
beginning of the
period $ (49,020,317)
Loss for the
period (29,029)
Balance at end of
the period $ (49,049,346)
TOTAL
SHAREHOLDERS`
EQUITY $ 85,392,380
Year ended
February 28, 2010
Share capital Number of shares
Balance at
beginning of the
period 238,041,569 $ 119,952,532
Share purchase
options exercised
at $0.62 per
share 1,500 929
Fair value of
stock options
allocated to
shares issued on
exercise - 808
Private
placement, net of
issue cost at
$0.065 per share
(note 10(c)) 132,800,000 8,044,771
Rights offering
at subscription
price of $0.05
per share (note
10(d)) - -
Private
placement, net of
issue cost at
$0.065 per share
(note 10(e)) - -
Balance at end of
the period 370,843,069 $ 127,999,040
Warrants
Balance at
beginning of the
period $ 1,693,197
Expired broker
warrants (1,693,197)
Balance at end of
the period $ -
Contributed surplus
Balance at
beginning of the
period $ 4,167,304
Stock-based
compensation
(note 10(b)) 335,358
Expired broker
warrants 1,693,197
Fair value of
stock options
allocated to
shares issued on
exercise (808)
Balance at end of
the period $ 6,195,051
Accumulated other
comprehensive
loss
Balance at
beginning of the
period $ (13,409,383)
Comprehensive
income on
currency
translation of
self-sustaining
operations 5,429,700
Balance at end of
the period $ (7,979,683)
Deficit
Balance at
beginning of the
period $ (41,982,624)
Loss for the
period (7,037,693)
Balance at end of
the period $ (49,020,317)
TOTAL
SHAREHOLDERS`
EQUITY $ 77,194,091
The accompanying notes are an integral part of these
interim consolidated financial statements.
Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended May 31
Cash used in: 2010 2009
Operating activities
Loss for the period $ (29,029) $ (4,103,931)
Items not affecting
cash
Accretion of
reclamation
obligation 331,098 (14, 288)
Amortization and
depletion 2,770,563 692, 920
Amortization of
capital lease
equipment 377,787 1,126, 160
Write-down of
mineral property
interests - 657, 634
Write-down of
investment held for
reclamation 146,670 -
Write-down of
amounts receivable 153,837 -
Stock-based
compensation (note 10) 220,981 116,109
Loss on disposal of
equipment - 25,781
Future income tax
charge/(recovery) 326,000 (1,346,407)
Unrealized foreign
exchange gain - (316,719)
Non-controlling
interest (131,514) (453,617)
Share of profit from
equity accounted
investment (2,327) -
Changes in non-cash
working capital
items
Accounts receivable 98,784 (217,169)
Amounts due to and
from related parties (447,763) 1,937,503
Movement in
reclamation
obligation (50,703) -
Inventory (5,496,958) 85,864
Prepayments 41,331 30,521
Accounts payable and
accrued liabilities 149,440 321,109
Income taxes 45,232 342,346
Cash used in
operating activities (1,496,571) (1,116,184)
Investing activities
Investment in
Associate (95,690) -
Restricted cash - 2,698,719
Purchase of
equipment and
mineral properties (129,950) (2,399,726)
Proceeds received on
disposal of
equipment - 333,462
Other assets and
deposits (141,128) (22,859)
Reclamation deposits - (303,021)
Cash provided by/
(used in) investing
activities (366,768) 306,575
Financing activities
Principal repayments
under capital lease
obligations (1,389,503) (1,175,218)
Common shares issued
for cash, net of
issue costs 7,990,468 930
Drawdown of credit
facility 1,314,915 187,031
Cash provided
by/(used in)
financing activities $ 7,915,880 $ (987,257)
Increase/(Decrease)
in cash and cash
equivalents during
the period 6,052,541 (1,796,866)
Cash and cash
equivalents,
beginning of period $ 2,512,610 $ 3,997,807
Cash and cash
equivalents, end of
period $ 8,565,151 $ 2,200,941
Interest paid on
facilities during
the period $ 48,958 $ 407,302
Interest paid on
capital leases 88,555 342,721
Interest received 13,346 142,789
Income taxes paid
during the period - -
Supplemental
disclosure of
non-cash investing
and financing
activities:
Issuance of common
shares as
consideration for
property finders
fees $ - 86,276
Equipment acquired
under capital lease $ - 1,346,407
The accompanying notes are an integral part of these
interim consolidated financial statements.
Notes to the Interim Consolidated Financial Statements
For the three months ended May 31, 2010 and 2009.
(Unaudited - Expressed in Canadian Dollars unless
otherwise stated)
1. CONTINUANCE OF OPERATIONS AND GOING CONCERN
Rockwell Diamonds Inc. ("Rockwell" or the "Company") is
engaged in the business of diamond production and the
acquisition and exploration of natural resource
properties. The Company`s principal mineral property
interests are located in South Africa.
The accompanying interim consolidated financial statements
have been prepared on a going concern basis in accordance
with Canadian generally accepted accounting principles
(``Canadian GAAP``). The going concern basis of
presentation assumes that Rockwell will continue in
operation for the foreseeable future and will be able to
realise its assets and discharge its liabilities and
commitments in the normal course of business.
For the three months ended May 31, 2010 the Company made a
loss of $29,029 that has increased Rockwell`s accumulated
losses to $49 million.
In fiscal 2009, diamond sales prices increased from US$585
per carat during March 2009 to $1,154 per carat during
February 2010. The average sales price for fiscal 2010 was
US$1,010 per carat. The average diamond sales price
achieved for the first quarter of fiscal 2011 is US$1,611
per carat.
At May 31, 2010, the Company`s current assets exceeded its
current liabilities by $11.9 million and the Company`s
total assets exceeded its total liabilities by $85.9
million. Based on Rockwell`s current forecasted cash flows
for fiscal years 2011 and 2012 the Company is confident
that it will continue as a going concern. The forecasts
assume the Company achieves its projected operating
parameters, prices remain at roughly current levels, which
are approximately 15 - 20% below pre- economic crisis
levels, and the South African Rand remains at current
levels relative to the United States and Canadian dollar.
Based on the Company`s cash resources and the above
forecasts, the Company has sufficient working capital and
reserves to maintain operations through breakeven point
and sufficient cash and working capital to fund the
continuing losses until then. Accordingly, the financial
statements have been prepared on the basis of accounting
policies applicable to a going concern. Future events
beyond the Company`s control may change the Company`s
ability to continue as a going concern. If the going
concern concept was no longer appropriate, significant
adjustments would be required to the carrying value of
assets and liabilities and would be recorded at that time.
2. BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
These interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles. These interim consolidated
financial statements include the accounts of the Company,
its subsidiaries and its variable interest entities where
the Company has been determined to be the primary
beneficiary. All significant intercompany balances and
transactions have been eliminated upon consolidation.
3. CHANGES IN ACCOUNTING POLICIES
Effective March 1, 2010, the Company adopted the following
accounting standards issued by the Canadian Institute of
Chartered Accountants ("CICA"). These new standards have
been adopted with no restatement to prior period financial
statements.
(a) Section 3050 - Long Term investments - Companies
subject to significant influence
Investments in companies subject to significant influence
are accounted for using the equity method.
The equity method is a basis of accounting whereby the
investment is initially recorded at cost and the carrying
value is adjusted thereafter to include the Company`s
pro-rata share of post-acquisition income or loss. The
amount of the adjustment is included in the determination
of net income (loss) by the Company and the investment
account of the Company is also increased or decreased to
reflect the Company`s share of capital transactions and
changes in accounting policies and corrections of errors.
Profit distributions received or receivable from the
investments will reduce the carrying value of the
investment. Investments accounted for on the equity basis
are written down to their fair value when they have a loss
in value that is other than a temporary decline.
(b) Accounting Policies Not Yet Adopted
(i) International Financial Reporting Standards ("IFRS")
The AcSB has announced its decision to replace Canadian
generally accepted accounting principles ("Canadian GAAP")
with IFRS for all Canadian publicly-listed companies. The
AcSB announced that the changeover date will commence for
interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2011. The
transition date for the Company to changeover to IFRS will
be March 1, 2011. Therefore, the IFRS adoption will
require the restatement for comparative purposes of
amounts reported by the Company for the year ending
February 28, 2011. During fiscal 2010, the Company has
established a formal project plan, allocated internal
resources and engaged expert consultants, monitored by a
steering committee to manage the transition from Canadian
GAAP to IFRS reporting.
(ii) Business Combinations/Consolidated Financial
Statements/Non-Controlling Interests
The AcSB issued CICA Sections 1582, Business Combinations,
1601, Consolidated Financial Statements, and 1602,
Non-Controlling Interests, which superseded current
Sections 1581, Business Combinations and 1600 Consolidated
Financial Statements. These new Sections replace existing
guidance on business combinations and consolidated
financial statements to harmonize Canadian accounting for
business combinations with IFRS. These Sections will be
applied prospectively to business combinations for which
the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
January 1, 2011. Earlier adoption is permitted. If an
entity applies these Sections before January 1, 2011, it
is required to disclose that fact and apply each of the
new sections concurrently. The Company is currently
evaluating the impact of the adoption of these changes on
its consolidated financial statements.
4. INVENTORIES
As at As at
May 31, 2010 February 28, 2010
Rough diamond
inventories $ 4,214,127 $ 1,283,604
Mine supplies 4,258,889 1,692,454
Total inventories $ 8,473,016 $ 2,976,058
As at May 31, 2010, rough diamond inventories were valued
at cost and mine supplies at cost less accumulative
impairment charges.
The cost of inventories is based on the weighted average
cost basis and includes all direct mining cost in bringing
diamond inventory to it`s existing location and condition.
As at February 28, 2010, rough diamond inventories were
valued at net realizable value and mine supplies at cost
less accumulative impairment charges. Obsolete mine
supplies were written down by $588,927 to $1,692,454 for
the 2010 fiscal year.
The net realizable value of diamond inventories are
estimated at the average price per carat achieved for the
most recent diamond tender taking into account the
variable factors of clarity, carat, shape and color. As at
February 28, 2010, rough diamond inventories were written
down by $360,429 from cost to net realizable value.
No further impairments were recorded against mine supplies
for the quarter ending May 31, 2010.
5. PROPERTY, PLANT AND EQUIPMENT
As at May 31, 2010
Accumulated
Amortization
Cost and Impairments Carrying value
Land and
buildings $ 7,250,993 $ 686,273 $ 6,564,720
Processing
plant and
equipment 67,163,474 27,543,714 39,619,760
Processing
plant and
equipment
under
capital lease
obligation 12,634,906 3,654,827 8,980,079
Office
equipment 949,381 522,904 426,477
Vehicles
and light
equipment 1,763,589 956,728 806,861
$ 89,762,343 $ 33,364,446 $56,397,897
As at February 28, 2010
Accumulated
Amortization
Cost and Impairments Carrying value
Land and
buildings $ 7,226,428 $ 598,462 $ 6,627,966
Processing
plant and
equipment 66,230,352 25,074,689 41,155,663
Processing
plant and
equipment
under
capital
lease
obligation 13,553,529 3,782,247 9,771,282
Office
equipment 946,759 492,287 454,472
Vehicles
and light
equipment 1,675,705 894,352 781,353
$ 89,632,773 $ 30,842,037 $58,790,736
Components of property, plant and equipment are amortized
over their estimated useful life. The amortization charge
for the quarter was $2,526,950 (May 31,2009 - $1,819,080).
The group`s bankers have registered two notarial general
covering bonds of ZAR10.0 million each ($1,366,998) over
all moveable assets on the property of the farm Holpan,
Barkley West, Northern Cape and one over moveable assets.
6. MINERAL PROPERTY INTERESTS
As at As at
May 31, 2010 February 28, 2010
H.C. Van Wyk
Diamonds Ltd
and Klipdam
Mining
Company Ltd
Balance,
beginning of
period $ 22,128,231 $ 22,373,983
Foreign
exchange
adjustments 204 2,042,252
Depletion of
mineral
properties
during the
period (442,076) (1,630,370)
Write down of
mineral
property - (657,634)
H.C. Van Wyk
Diamonds Ltd
and Klipdam
Mining 21,686,359 22,128,231
Company Ltd,
end of period
Saxendrift Mine
(Pty) Ltd
Balance,
beginning of
period $ 8,722,767 $ 6,520,494
Acquisition
costs - 1,703,195
Foreign
exchange
adjustments 83 733,083
Future income
tax liability - 662,354
Depletion of
mineral
properties
during the
period (179,324) (896,359)
Saxendrift Mine
(Pty) Ltd, end
of period 8,543,526 8,722,767
Balance, end of
period $ 30,229,885 $ 30,850,998
7. CAPITAL LEASE OBLIGATIONS
Included in property, plant and equipment are mining
equipment that the Company acquired pursuant to three or
four year capital lease agreements.
The Company`s capital lease obligations are with the
following financial institutions:
As at As at
May 31, 2010 February 28, 2010
Wesbank $ 37,819 $ 48,792
Komatfin 1,909,199 3,287,729
$ 1,947,018 $ 3,336,521
Capital lease obligations as detailed above are secured
over plant and equipment and are repayable, on average, in
36 monthly installments with the final payment being on
June 30, 2011. Interest is charged at rates of between
8.00% to 12.00% per annum linked to the prevailing prime
rate of the relative financial institution mentioned
above. There are no significant restrictions imposed on
the lessee as a result of the lease agreements.
Future minimum lease payments are as follows:
As at As at
May 31, 2010 February 28, 2010
2010 $ 1,960,468 $3,301,394
2011 34,417 141,544
Total minimum lease
payments 1,994,885 3,442,938
Less: Interest
portion (47,867) (106,417)
Present value of
capital lease
obligations 1,947,018 3,336,521
Current portion 1,912,617 3,196,189
Non-current portion $ 34,401 $ 140,332
8. RECLAMATION OBLIGATION
The continuity of the provision for reclamation costs
related to the Holpan, Wouterspan, Klipdam and Saxendrift
mines, are as follows:
As at As at
May 31, 2010 February 28, 2010
Holpan, Wouterspan
and Klipdam Mines
Balance, beginning
of period $ 2,918,102 $ 2,690,335
Changes during the
period:
Reclamation
(expenditure
incurred)/obligation
recognized (50,703) (473,278)
Foreign exchange on
reclamation (237) 219,113
Accretion expense 183,871 481,932
Balance, end of
period $ 3,051,033 $ 2,918,102
Saxendrift Mine
Balance, beginning
of period $ 804,882 $ 1,112,320
Changes during the
period
Reclamation
(expenditure
incurred)/obligation
recognized - (403,063)
Foreign exchange on
reclamation (264) 95,625
Accretion expense 147,227 -
Balance, end of
period $ 951,845 $ 804,882
Total reclamation
obligation, end of
period $ 4,002,878 $ 3,722,984
The liability is based on the disturbance of the natural
physical environment due to the alluvial mining methods
that the company engages in. The volume of disturbance is
quantified on a monthly basis by a professional surveyor
through physical observation and technical quantification
in cubic meters and is therefore not discounted.
The company does not make use of a mining contractor and
applies an internal costing rate per cubic meter which is
based on applying its own resources and equipment in doing
such rehabilitation. This costing rate represents the
operating cost, including fuel, applying specific mining
fleet units to the rehabilitation process and labour
usage.
The physical disturbance in the cubic meters multiplied by
the costing rate represent the rehabilitation liability at
any one stage.
As required by regulatory authorities, at May 31, 2010,
the Company had cash reclamation deposits totaling
$2,898,067 (February 28, 2010 - $2,898,067) comprised of
$1,238,104 (February 28, 2010 - $1,654,589) for the
Holpan, Wouterspan and Klipdam mine and $1,659,963
(February 28, 2010 - $1,005,053) for the Saxendrift mine.
These deposits are invested in interest bearing money
market linked investments at rates ranging from 9.5% to
11.0% per annum. These investments have been ceded as
security in favour of the guarantees the bank issued on
behalf of the group. Refer to note 12.
9. INVESTMENT IN EQUITY ACCOUNTED ASSOCIATE
As at As at
May 31, 2010 February 28, 2010
Investment in
associate at cost $ 95,690 $ -
Share of profit for
the period 2,327 -
Balance at the end
of the period $ 98,017 $ -
On May 5, 2010 the Company acquired a 20% shareholding in
Flawless Diamonds Trading House (Pty) Limited ("Flawless")
incorporated in the Republic of South Africa. Flawless is
a registered diamond broker which provides specialist
diamond valuation, marketing and tender sales services to
the Company.
As the company has significant influence over Flawless
operations it accounts for the investment using the equity
method and includes a pro-rata share of the Flawless
income for the period.
Summarised financial information of associate
Financial Position as at February 28, 2010
Total Assets 5,159,027
Total Liabilities 4,672,164
Net Assets 486,863
Financial Performance for the year ended
February 28, 2010
Total Revenue 36,813,912
Total profit for the period 168,712
Capital commitments and contingent
liabilities of associate Nil
10. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an
unlimited number of common shares, without par value, and
an unlimited number of preferred shares without par value,
of which no preferred shares have been issued.
(b) Stock-based compensation
The continuity of stock-based compensation for the period
ended May 31, 2010 is as follows:
Exercise Feb 28, Granted/
Expiry date price 2010 Issued
September 24, 2012 $ 0.62 5,896,500 -
November 14, 2012 $ 0.63 1,101,500 -
June 20, 2011 $ 0.45 950,000 -
December 7, 2014 $ 0.06 14,270,890 -
January 18, 2015 $ 0.07 600,000 -
22,818,890 -
Weighted average
exercise price $ 0.25 $ -
Expired/ May 31,
Expiry date Exercised cancelled 2010
September 24,
2012 - - 5,896,500
November 14, 2012 - (15,000) 1,086,500
June 20, 2011 - - 950,000
December 7, 2014 - (95,600) 14,175,290
January 18, 2015 - - 600,000
- (110,600) 22,708,290
Weighted average
exercise price $ - $ 0.14 $ 0. 25
Weighted average
fair value of
stock options
granted during
the period -
As at May 31, 2010, 12,563,296 of the stock options
outstanding with a weighted average exercise price of
$0.39 per share have vested with grantees.
Using a Black-Scholes option pricing model with the
assumptions noted below, the fair values of stock options
vested have been reflected in the statement of operations
as follows:
Three months Three months
ended May 31, ended May 31,
2010 2009
Exploration and
engineering $ 20,966 $ 29,833
Operations and
administration 200,015 86,276
Total stock-based
compensation cost
expensed to
operations, with the
offset
credited to
contributed surplus $ 220,981 $ 116,109
(c) Private Placements between December 2009 to
February 2010
During February 2010, the Company completed private
placements of 132,800,000 common shares at $0.065 per
share for a total of $8,632,000. The company paid a cash
fee of $587,229 finder`s fees relating to the private
placements.
Proceeds from the financing were used to repay short term
debt, finance lease obligations and fund diamond
operations.
(d) Rights Offering
On March 19, 2010 the Company completed a rights offering
whereby each registered holder of the Company`s common
shares on the record date received one right for each
common share held. The rights offering was 100% subscribed
and applications for additional shares were received but
could not be fulfilled because they exceeded the maximum.
Pursuant to the rights offering, Rockwell issued
92.7 million common shares at a subscription price of
$0.05 per common share yielding gross proceeds of
approximately $4.6 million (ZAR33.2 million).
The Company plans to use the funds to modernize and
re-commission the Wouterspan operation which was placed on
care and maintenance in January 2009, and identify value
add merger and acquisition targets such as the recently
announced Etruscan acquisition.
(e) Private placement March 2010
In March 2010, the company completed a private placement
of 54.6 million common shares at a price of $0.065 per
share for total proceeds of $3.4 million. The company
paid a cash fee of $0.1 million finder`s fees relating to
the private placement.
11. RELATED PARTY BALANCES AND TRANSACTIONS
Balances payable As at As at
May 31, February 28,
2010 2010
Banzi Trade 26 (Pty)
Ltd (e) 5,582 603
Hunter Dickinson
Services Inc. (a) 159,547 627,435
Seven Bridges Trading
(c) 10,686 13,285
Current balances payable $ 175,815 $ 641,323
Liberty Lane (g) 414,566 414,566
Long-term balances
payable $ 414,566 $ 414,566
Balances receivable 28,363 46,108
Banzi Trade 26 (Pty)
Ltd (e) $ 28,363 $ 46,108
Three months Three months
Transactions ended May 31, ended May 31,
2010 2009
Services rendered and
expenses reimbursed:
Hunter Dickinson
Services Inc. (a) $ 140,333 $ 173,616
CEC Engineering (b) 7,600 -
Seven Bridges Trading
(c) 19,823 15,739
Banzi Trade 26 (Pty)
Ltd (e) 25,151 912
Jakes Tyres (f) - 5,030
Flawless Diamonds
Trading House (d) $ 37,736 $ 38,728
Sales rendered to:
Banzi Trade 26 (Pty)
Ltd (e) 249 577
All related party transactions are arms length transaction
in the normal course of business.
(a) Hunter Dickinson Services Inc. ("HDSI") is a private
company with a director in common with the Company. HDSI
provides geological, technical, corporate development,
administrative and management services to, and incurs
third party costs on behalf of, the Company on a full cost
recovery market related basis pursuant to an agreement
dated November 21, 2008.
(b) CEC Engineering Ltd. is a private company owned by
David Copeland, Chairman and a director of the Company,
which provides engineering and project management services
at market rates.
(c) Seven Bridges Trading 14 (Pty) Ltd (Seven Bridges
Trading) is a wholly owned subsidiary of Randgold
Resources Ltd, a public company where Mark Bristow, a
director of the Company, serves in an executive capacity.
Seven Bridges Trading provides office, conferencing,
information technology, and other administrative and
management services at market rates to the Company`s South
African subsidiaries.
(d) Flawless Diamonds Trading House (Pty) Ltd ("Flawless
Diamonds Trading House") is a private company where
certain directors, former directors and officers of the
Company, namely, Messr. Brenner, J W and D M Bristow are
shareholders of Flawless.
Flawless is a registered diamond broker which provides
specialist diamond valuation, marketing and tender sales
services to the Company for a fixed fee of 1% of turnover.
On May 5, 2010 the Company acquired a 20% shareholding in
Flawless Diamonds Trading House (Pty) Limited incorporated
in the Republic of South Africa.
(e) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC
van Wyk Diamonds Ltd and 51% by Bokomoso Trust. Banzi is
an empowered private company established to provide self
sustaining job creation programs to local communities as
part of the company`s Social and Labour Plan which is
required in terms of the Minerals and Petroleum Resources
Development Act ("MPRDA"). Banzi provides the Company with
buildings materials at market rates.
(f) Jakes Tyres is a private company with former directors
and officers (H C van Wyk) in common with the Company that
provides tyres, tyre repair services and consumables at
market rates to Rockwell`s remote Middle Orange River
operations.
(g) Liberty Lane is the BEE partner of the Saxendrift
property and has certain directors in common with the
Company.
12. BANK INDEBTEDNESS AND RESTRICTED CASH
Consistent with the prior financial year, the Company has
an overdraft facility in the amount of ZAR28.0 million
($3.8 million) available for its operations (current
balance $2,012,930). This facility has an interest cost of
prime (currently 10% per annum) plus 0.6%. The security
for the ZAR28.0 million consists of 2 notorial bonds of
ZAR10.0 million each over loose assets and property of the
farm Holpan.
HC van Wyk Diamonds Ltd, Klipdam Mining Company Ltd,
Saxendrift Mine (Pty) Ltd hold guarantees by the bank
towards Eskom (Electricity Provider) of ZAR1,419,660
($194,059) and the Department of Minerals and Energy (DME)
of ZAR21,200,228 ($2,898,067) towards rehabilitation
expenses.
Restricted cash of $4,946 (February 28, 2010 - $4,946)
relates to monies held in trust by the group`s lawyers.
13. CONTINGENCIES
Kwango River Project, Democratic Republic of Congo
Rockwell`s subsidiary, Durnpike Investments (Proprietary)
Limited`s ("Durnpike") interest in the Kwango River
Project was constituted by an agreement ("Midamines
Agreement") concluded during 2006 with Midamines SPRL
("Midamines"), the holder of the exploration permit on the
Kwango River Project, to act as independent contractor on
behalf of Midamines to manage and carry out exploration
activities and potentially, mining activities. Durnpike
was entitled to an 80% share of the net revenue from the
sale of any diamonds produced from the contract area.
Under the Midamines Agreement, Durnpike agreed to certain
minimum royalty payments being made to Midamines, and
Midamines undertook several obligations in favour of
Durnpike, including that of procuring and facilitating
Durnpike`s access to the Kwango River Project site. The
royalties took the form of a series of recurring annual
minimum royalty payments of US$1.2 million per annum
(commencing on December 31, 2007). During the first
quarter of 2008, pursuant to an amendment to the Midamines
Agreement, Durnpike paid consideration of US$600,000 to
Midamines as compensation for access to the entire
concession area (Permit 331), as opposed to the limited
contract area. As part of such amendment, Midamines waived
its right to payment of the abovementioned US$1.2 million
royalty payment due on December 31, 2007.
Subsequently, and pursuant to Midamines` persistent breach
of material provisions of the Midamines Agreement (coupled
with its failure to remedy such instances of breach
notwithstanding notice to do so), Durnpike and/or Rockwell
cancelled the Midamines Agreement. Midamines thereafter
disputed the entitlement of Durnpike and/or Rockwell to
cancel the Midamines Agreement. It has referred to
arbitration a dispute against Durnpike and Rockwell, in
which it claims payment of an estimated and provisional
amount of $41.8 million. Durnpike and/or Rockwell have, in
turn, instituted a counter- claim in the estimated and
provisional amounts of approximately ZAR25.4 million for
equipment purchased by Rockwell to undertake exploration
and feasibility work, $1.6 million for start-up and
acquisition costs in the DRC, and US$20 million (while
reserving the right to increase the counter-claim to at
least $164.9 million) as an initial estimate of possible
lost earnings.
Comprehensive documentation has been filed by the parties
and arbitration proceedings are pending in Belgium. The
Company remains of the view that the claim against it is
without merit and will vigorously defend against it.
Niewejaarskraal
During the course of 2008 and prior to the prospecting and
mining rights having been transferred from Trans Hex to
Rockwell, a representative of the land owner of
Niewejaarskraal asserted a claim of ownership over the
equipment located on Niewejaarskraal. This claim was
ostensibly based on a surface rights agreement entered
into between Trans Hex and the owner of Niewejaarskraal
and an allegation that Trans Hex had abandoned the mining
equipment concerned. This Contract expired prior to
Rockwell receiving the Niewejaarskraal mining rights.
Since the transfer of the prospecting and mining rights
associated with and the mining equipment located on
Niewejaarskraal to Rockwell, it has not received any
formal approach from the land owner of Niewejaarskraal to
progress this claim.
Discussions with the landowner have indicated that he
would be happy to enter into amenable and workable
landowner agreements with Rockwell, subject to appropriate
land use agreements being entered into between the
Parties. Rockwell would defend its ownership of that
equipment and would if necessary also rely on certain
protective warranties and indemnities that were given to
it by Trans Hex in the Sale of Shares and Claims
Agreement.
14. SUBSEQUENT EVENTS
Etruscan Diamonds Limited
The Company has signed a term sheet with Etruscan diamonds
Limited whereby the Company proposes to purchase
Etruscan`s Blue Gum diamond operation in the Ventersdorp
region, South Africa. The acquisition is for 74% of the
operation with the balance owned pursuant to South
Africa`s Black Economic Empowerment regime. The price to
be paid to Etruscan is an amount not exceeding ZAR33.5
million (approximately $4.7 million) payable in Rockwell
shares valued at $0.068 each. The Company will also assume
certain non-material property maintenance obligations
effective immediately and other financial obligations upon
completion of the acquisition.
The Company is awaiting transfer of the Mineral Right,
which is a suspensive condition, to proceed with the
transaction.
16 July 2010
Johannesburg
Sponsor
Sasfin Capital (A division of Sasfin Bank Limited)
Date: 16/07/2010 09:54:01 Produced by the JSE SENS Department.
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