| Wed 18 Aug 2010, 9:03 | | BCD - BRC Diamondcore Ltd - Interim Consolidated Financial Statements as at and |
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BCD
BCD
BCD - BRC Diamondcore Ltd - Interim Consolidated Financial Statements as at and
for the three and six month periods ended June 30, 2010 (expressed in Canadian
dollars) (unaudited)
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 As at and for the three and six month
periods ended June 30, 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 and six month periods ended June 30, 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 and unaudited)
As at
December 31
As at 2009
June 30
2010
Assets $ $
Current assets
Cash 7,197 664,495
Pre paid expenses and other 126,569 163,175
assets
133,766 827,670
Non-current
Mineral properties and 5,939,291 5,808,835
Deferred exploration
expenditures (Note 5)
Capital assets (Note 6) 86,347 141,794
6,025,638 5,950,629
6,159,404 6,778,299
Liabilities
Current liabilities
Bank indebtedness 7,686 -
Accounts payable and accrued 873,413 1,027,172
liabilities
Due to related parties 118,511 377,884
(Note 4)
999,610 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) and (e)) 7,872,578 7,700,518
Accumulated deficit (118,227,690) (117,842,181)
5,102,764 5,316,213
6,159,404 6,778,299
The accompanying notes are an integral part of these interim consolidated
financial statements.
BRC DiamondCore Ltd.
Interim Consolidated Statements of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
Three months
Ended
June 30,
2010 2009
$ $
Expenses
Consulting fees - 70,729
Professional fees 64,251 72,139
General and administrative 34,220 111,878
Stock-based compensation - 105,600
(Note 7(b))
Foreign exchange loss (gain) 323 (111,720)
unrealized
(98,794) (248,626)
Interest income - 18,726
Interest expense - (278)
(Loss) income from continuing operations (98,794) (230,178)
Loss from discontinued operations - (1,831,449)
Net loss for the period (98,794) (2,061,627)
Accumulated deficit, beginning of the period (118,128,896) (110,373,112)
Net loss for the period (98,794) (2,061,627)
Accumulated deficit, end of the period (118,227,690) (112,434,739)
Basic and diluted (loss) income per share from (0.00) (0.01)
continuing operations
Basic and diluted loss per share from - (0.07)
discontinued operations
Weighted average number of common shares 89,408,640 26,091,310
outstanding
Headline loss per share from continuing (0.00) (0.01)
operations
Six months
Ended
June 30,
2010 2009
$ $
Expenses
Consulting fees - 116,734
Professional fees 144,593 119,992
General and administrative 106,556 149,989
Stock-based compensation 132,000 211,200
(Note 7(b))
Foreign exchange loss (gain) 2,360 (637,464)
unrealized
(385,509) 39,549
Interest income - 18,726
Interest expense - (278)
(Loss) income from continuing operations (385,509) 57,997
Loss from discontinued operations - (3,602,170)
Net loss for the period (385,509) (3,544,173)
Accumulated deficit, beginning of the period (117,842,181) (108,890,567)
Net loss for the period (385,509) (3,544,173)
Accumulated deficit, end of the period (118,227,690) (112,434,740)
Basic and diluted (loss) income per share from (0.00) 0.00
continuing operations
Basic and diluted loss per share from - (0.14)
discontinued operations
Weighted average number of common shares 89,408,640 26,091,310
outstanding
Headline loss per share from continuing (0.00) (0.00)
operations
Going Concern (Note 1)
The accompanying notes are an integral part of these interim consolidated
financial statements.
BRC DiamondCore Ltd.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(expressed in Canadian dollars)
Three months
Ended
June 30
2010 2009
$ $
Operating activities
Net (loss) income from continuing operations (98,794) (230,178)
for the period
Items not affecting cash
Stock-based compensation - 239,716
(98,794) 9,538
Net change in non-cash working capital
Prepaid expenses and other 1,658 (663,396)
assets
Accounts payable and accrued (27,339) 4,411,213
liabilities
Cash (used in) provided from continuing (124,475) 3,757,355
operations
Cash used in discontinued operations - (1,598,120)
Cash used in operating activities (124,475) 2,159,235
Investing activities
Deferred exploration expenditures (34,949) (1,656,242)
Cash provided from discontinued operations - (585,014)
Cash provided by investing activities (34,949) (2,241,256)
Financing activities
Due to related parties (35,583) -
Increase in short-term debt - 274,791
Cash provided from continuing operations (35,583) 274,791
Cash provided from discontinued operations - (241,225)
Cash (used in) provided from financing (35,583) 33,566
activities
Effect of foreign exchange on cash balances of - (12,789)
discontinued operations
Decrease in cash (195,007) (61,244)
Cash - beginning of the period 202,204 232,697
Cash - end of the period 7,197 171,453
Six months
Ended
June 30
2010 2009
$ $
Operating activities
Net (loss) income from continuing operations (385,509) 57,997
for the period
Items not affecting cash
Stock-based compensation 132,000 345,316
(253,509) 403,313
Net change in non-cash working capital
Prepaid expenses and other 36,606 (256,605)
assets
Accounts payable and accrued (146,073) 5,144,827
liabilities
Cash (used in) provided from continuing (362,976) 5,291,535
operations
Cash used in discontinued operations - (4,307,271)
Cash used in operating activities (362,976) 984,264
Investing activities
Deferred exploration expenditures (34,949) (1,656,242)
Cash provided from discontinued operations - 338,004
Cash provided by investing activities (34,949) (1,318,238)
Financing activities
Due to related parties (259,373) -
Increase in short-term debt - 330,052
Cash provided from continuing operations (259,373) 330,052
Cash provided from discontinued operations - (82,431)
Cash (used in) provided from financing (259,373) 247,621
activities
Effect of foreign exchange on cash balances of - 59,721
discontinued operations
Decrease in cash (657,298) (26,632)
Cash - beginning of the period 664,495 198,085
7,197 171,453
Cash - end of the period
Supplemental Information
Three months Six months
Ended Ended
June 30 June 30
2010 2009 2010 2009
$ $ $ $
Interest paid - 278 - 278
Income taxes paid - - - -
Going Concern (Note 1)
Depreciation of capital assets of $27,014 and $55,447 was capitalized to mineral
properties in the three and six month periods ended June 30, 2010, respectively
(three and six months ended June 30, 2009: $61,454 and $102,454, respectively).
The accompanying notes are an integral part of these interim consolidated
financial statements.
BRC DiamondCore Ltd.
Interim Consolidated Statements of Comprehensive Loss
(Unaudited)
(expressed in Canadian dollars)
Three months Six months
Ended Ended
June 30, June 30,
2010 2009 2010 2009
$ $ $ $
Net loss for the period (98,794) (2,061,627) (385,509) (3,544,172)
Unrealized foreign currency - 4,723,266 - 168,160
loss on self-sustaining
operation
Comprehensive loss for the (98,794) 2,661,639 (385,509) (3,376,012)
period
Going Concern (Note 1)
The accompanying notes are an integral part of these interim consolidated
financial statements.
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 and six months ended June 30,
2010, only operations from Canada and the DRC were included in the
statements of operations and deficit as continuing operations. For the
three and six months ended June 30, 2009, operations from Canada and the
DRC were included in the statements of operations and deficit 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 $98,794 and $385,509
during the three and six months ended June 30, 2010, respectively (three
and six months ended June 30, 2009 - $2,061,627 and $3,544,173). The
Company`s accumulated deficit as at June 30, 2010 was $118,227,690
(December 31, 2009 - 117,842,181). The Company had a working capital
deficit of $865,844 as at June 30, 2010 and had a net decrease in cash of
$657,298 and used net cash in operating activities of $362,976 during the
six months ended June 30, 2010. 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 and
deferred exploration expenditures 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 market conditions may 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 and deficit 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 June 30, 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 any 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 any 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 and Loans and Amortized cost
accrued liabilities receivables
Mineral properties
Costs relating to the acquisition, exploration and development of mineral
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
mineral properties and deferred exploration expenditures 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
Exploration and mining assets - two to four years
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 be
realized.
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(d)).
Foreign currency translation
These interim 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
"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 Resources (Pty) Ltd
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 has acquired control of
the claims of the bulk of the creditors of Diamond Core to reach a
settlement. It is uncertain whether such a settlement will be achieved.
An application is currently before the Northern Cape High Court in South
Africa to rescind the liquidation order. This application is being opposed
by the appointed liquidators.
4. Related party transactions
During the three and six month periods ended June 30, 2010, legal fees and
related costs of $25,026 and $80,368, respectively (three and six months
ended June 30, 2009 - $72,140 and $119,993) 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 June 30,
2010 is $90,313 and is recorded in accounts payable (December 31, 2009 -
$49,113).
As at June 30, 2010, an amount of $83,333 was owed to two directors and
officers of the Company representing management fees (December 31, 2009 -
$278,849). During the three and six months ended June 30, 2010, management
fees of $50,000 and $100,000, respectively were incurred (same respective
periods in 2009 - $50,000 and $100,000).
As at June 30, 2010, an amount of $31,197 (December 31, 2009 - $nil) was
advanced by a company owned by a non-executive director of the Company.
As at June 30, 2010, an amount of $3,980 (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 and deferred exploration expenditures
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 Bafawsende 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
Orientale Province of 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 owns 75% of the share capital of a holding company which owns a DRC
registered company that holds the Permits.
During the six months ended June 30, 2010, the Company received proceeds of
$286,798 (as at December 31, 2009 - $555,379) from Rio Tinto in connection
with the iron ore project and diamond exploration in the Tshikapa area.
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.
The Company has incurred deferred exploration expenditures and mineral
property costs, (net of write offs of $16,788,479) in the DRC as at June
30, 2010 as follows:
Year Cumulative
ended from
Six months December inception
ended 31, 2009 to
June 30, June 30,
2010 2010
$ $ $
Mineral property costs
Claims and staking - - 2,713
Total mineral property costs - - 2,713
Deferred exploration expenditures
Funds received from (286,798) (555,379) (842,177)
Rio Tinto
Administrative and 277,890 275,308 5,099,217
office support
Depreciation 55,447 172,121 769,197
Drilling - 18,755 505,112
Field camp expenses 10,380 102,305 2,935,153
Geochemistry - - 329,145
Geology - Contract - - 1,600,765
geologists
Geophysics - - 2,369,677
Option fees - - 308,443
Permits and surface - 19,057 1,867,724
taxes
Professional fees 4,831 42,774 661,539
Remote sensing and 48,797
surveying 2,068 -
Stock based 2,239,054
compensation 40,060 210,357
Transport cost and 3,257,967
helicopter 19,761 14,332
Profit on sale of (54,048)
assets - (54,048)
Unrealized foreign 1,629,492
exchange difference 6,807 -
Write off - - (16,788,479)
Total deferred 130,456 5,936,578
exploration expenditures 245,582
Total mineral 130,456 5,939,291
properties and deferred exploration 245,582
expenditures
6. Capital assets
As at June
30, 2010
Cost Accumulated Net Book
Amortization Value
$ $ $
Computer equipment 28,658 23,311 5,347
Exploration and mining assets 316,476 247,435 69,041
Furniture and office equipment 18,106 15,543 2,563
Vehicles 254,436 245,040 9,396
617,676 531,329 86,347
As at
December 31,
2009
Cost Accumulated Net Book
Amortization Value
$ $ $
Computer equipment 28,658 19,478 9,180
Exploration and mining assets 316,476 216,384 100,092
Furniture and office equipment 18,106 14,200 3,906
Vehicles 254,436 225,820 28,616
617,676 475,882 141,794
During the six months ended June 30, 2010, $55,447 of depreciation was
included in mineral properties and deferred exploration expenditures (see
Note 5) (six months ended June 30, 2009 - $102,454).
7. Capital stock
(a)Share capital
Number of Amount
Shares $
Balance, December 31, 2008 26,091,310 105,815,141
Shares issued for the private placement 20,000,000 1,000,000
Shares issued for the debt settlement 43,317,330 8,663,466
transactions
Financing costs - (20,731)
Outstanding at December 31, 2009 89,408,640 115,457,876
Outstanding at June 30, 2010 89,408,640 115,457,876
As at June 30, 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 was
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 June 30, 2010, the Company had outstanding under the stock option
plan stock options to acquire 2,375,000 (December 31, 2009 - 2,941,400)
common shares of the Company at a weighted-average price of $2.37 (December
31, 2009 - $2.15) per share.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 2010:
Date of Number Options
grant outstanding exercised,
at 12/31/09 expired or
forfeited Options
at 6/30/10 Outstanding
and exercisable
at 06/30/10
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 1,795,000 100,000 1,695,000
2,941,400 566,400 2,375,000
Date of Exercise Expiry
grant price Fair value date
$ of grant
$
03/04/05 2.10 1.78 03/04/10
03/18/05 2.50 1.76 03/18/10
04/29/05 2.50 2.14 04/29/10
06/29/06 3.75 2.16 06/29/11
04/09/07 5.50 3.25 04/09/12
08/03/07 8.00 4.52 08/03/12
08/28/08 1.05 0.77 08/28/13
During the three and six months ended June 30, 2010, the Company recognized
in the statement of operations and deficit as stock-based compensation
expense $nil and $132,000, respectively (same respective periods in June
30, 2009 - $105,600 and $211,200) representing the fair value of stock
options previously granted to employees, directors and officers under the
Company`s stock option plan. An amount of $40,060 was capitalized as
deferred exploration expenditures (June 30, 2009 - $134,116). 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% (December 31, 2009 - 3.075%)
ii) expected volatility: 95% (December 31, 2009 - 95%)
iii) expected life: 5 years (December 31, 2009 - 5 years)
iv) expected dividends: $Nil (December 31, 2009 - $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 June 30, 2010, 476,207 of these options had been cancelled.
d) Loss per share
The loss per share figures for the three and six month periods ended June
30, 2010 and 2009 are calculated using the weighted average number of
shares outstanding during the respective 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 31,
June 30, 2009
2010
$ $
Balance, beginning of the 7,700,518 6,934,641
year
Options expensed 172,060 765,877
7,872,578 7,700,518
8. Commitments, contingencies and guarantees
The Company is committed to the payment of surface fees and taxes relating
to mineral properties in the DRC. For fiscal year 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 June 30, 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.
The Company had expected to pay US$350,000 as an option exercise fee.
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.
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
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 six month period ended June 30, 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 31,
June 30, 2009
2010
$ $
Financial assets
Held-for-trading, measured at
fair value
Cash 7,197 664,495
Loans and receivables, measured
at amortized cost
Prepaid expenses and other 126,569 163,675
assets
Financial liabilities
Other liabilities, measured at
amortized cost
Bank indebtedness 7,686 -
Accounts payable and 873,413 1,027,172
accrued liabilities
Due to related parties 118,511 377,884
The balance sheet carrying amounts for cash, prepaid expenses and other
assets, bank indebtedness, accounts payable and accrued liabilities and due
to related parties 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 the maturity
is less than three months.
Fair Value Measurements at Reporting Date Using:
June 30, 2010 Level 1 Level 2 Level 3
$
Assets:
Cash 7,197 - -
b)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.
c)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.
d)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 June 30, 2010, these interim consolidated financial statements have
been prepared in accordance with Canadian GAAP applicable to a going
concern (see Note 1).
e)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
Congolese francs 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.
As at June 30, 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 $296,965 decrease and increase in the value
of mineral properties and deferred exploration expenditures in the DRC.
f)Interest rate risk
Interest rate risk is the potential impact on the Company`s financial
condition 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
Bank indebtedness Variable interest rate
Other assets Non-interest bearing
Accounts payable and accrued
liabilities Non-interest bearing
g)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.
h)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 local laws of
the jurisdiction in which the Company operates.
i)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 31,
June 30, 2009
2010 $
$
DRC - Mineral properties and 5,939,291 5,808,835
deferred exploration expenditures
DRC - Capital assets 86,347 141,794
Canada - Capital assets - -
6,025,638 5,950,629
JOHANNESBURG
18 August 2010
Sponsor
Arcay Moela Sponsors (Proprietary) Limited
Date: 18/08/2010 09:03:02 Produced by the JSE SENS Department.
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