| Mon 18 Oct 2010, 7:10 | | RDI - Rockwell Diamonds Incorporated - Interim consolidated financial statements |
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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Interim consolidated financial statements
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")
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 31, 2010 AND 2009
(Expressed in Canadian Dollars)
(Unaudited)
NOTICE OF NO AUDITOR REVIEW OF CONSOLIDATED INTERIM FINANCIAL STATEMENTS
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.
ROCKWELL DIAMONDS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
August 31, 2010 February 28, 2010
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 4,629,408 $ 2,512,610
Accounts receivable 10,127,254 6,260,717
Restricted cash (note 13) 2,022 4,946
Trade receivable from a related
party (note 12) 47,965 46,108
Inventories (note 4) 4,290,932 2,976,058
Prepayments 243,107 75,275
19,340,688 11,875,714
Non-current assets
Property, plant and equipment
(note 5) 60,981,504 58,790,736
Mineral property interests (note
6) 30,125,301 30,850,998
Investment in equity accounted
associate (note 9) 124,440 -
Other assets and deposits (note
10) 2,098,734 827,871
Reclamation deposits (note 8) 3,083,294 2,898,067
96,413,273 93,367,672
$ 115,753,961 $ 105,243,386
LIABILITIES AND SHAREHOLDERS`
EQUITY
Current liabilities
Bank indebtedness (note 13) $ 3,297,300 $ 698,015
Accounts payable and accrued
liabilities 7,165,894 6,458,751
Due to related parties (note 12) 174,180 641,323
Taxes payable 585,887 583,194
Current portion of capital lease
obligations (note 7) 1,008,467 3,196,189
12,231,728 11,577,472
Non-current liabilities
Capital lease obligations (note 7) - 140,332
Due to related parties (note 12) 437,615 414,566
Future income taxes 11,978,066 11,545,000
Reclamation obligation (note 8) 3,641,881 3,722,984
16,057,562 15,822,882
Non-controlling interest 475,502 648,941
Shareholders` equity
Share capital (note 11) 135,989,508 127,999,040
Contributed surplus 6,491,550 6,195,051
Accumulated other comprehensive
loss (5,453,972) (7,979,683)
Deficit (50,037,917) (49,020,317)
86,989,169 77,194,091
Continuance of operations and
going concern (note 1)
Contingencies (note 14)
Subsequent events (note 15)
$ 115,753,961 $ 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
ROCKWELL DIAMONDS INC.
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Unaudited - Expressed in Canadian Dollars)
Three months ended August 31,
2010 2009
Revenue
Rough diamond sales $ 11,387,950 $ 5,802,006
Other sales 53,889 116,756
11,441,839 5,918,762
Cost of sales
Cost of rough diamonds sales (8,909,124) (4,789,630)
Amortization and depletion (3,093,167) (3,139,309)
Operating (loss) profit (560,452) (2,010,177)
Expenses
Accretion (reduction) of
reclamation obligation (note 8) (61,254) 31,885
Exploration - 2,305
Foreign exchange (gain) loss 22 2,362
Interest (recouped) paid on
capital leases (55,787) 251,548
Interest expense 98,944 73,047
Legal, accounting and audit 320,830 159,309
Office and administration 1,019,072 800,144
Shareholder communications 57,525 212,170
Stock-based compensation -
exploration (note 11(b)) 4,612 7,807
Stock-based compensation -
administration (note 11(b)) 70,906 10,150
Travel and conferences 86,968 41,163
Transfer agent 26,123 57,381
1,567,961 1,649,271
Other items
Reversal of accounts receivable (153,837) -
Write down of property plant &
equipment 144,658 -
(Gain) loss on disposal of
equipment (34,496) 11,439
Interest income (82,105) (91,692)
Share of profit from equity
accounted investment (note 9) (21,102) -
Write-down of investments held
for reclamation 1,109 -
(145,773) (80,253)
Loss before income taxes (1,982,640) (3,579,195)
Current income tax expense 188,613 -
Future income tax recovery (959,000) (719,427)
Loss before non-controlling
interest (1,212,253) (2,859,768)
Non-controlling interest 223,682 (338,122)
Loss for the period (988,571) (2,521,646)
Other comprehensive income 2,509,842 2,876,659
Total comprehensive income $ 1,521,271 $ 355,013
Basic and diluted loss per
common share (0.002) (0.01)
Weighted average number of
common shares outstanding 518,185,238 238,041,651
Six months ended August 31,
2010 2009
Revenue
Rough diamond sales $ 19,844,532 $ 9,674,805
Other sales 53,889 173,130
19,898,421 9,847,935
Cost of sales
Cost of rough diamonds sales (11,764,944) (9,640,211)
Amortization and depletion (6,241,517) (4,958,389)
Operating (loss) profit 1,891,960 (4,750,665)
Expenses
Accretion (reduction) of
reclamation obligation (note 8) 269,844 17,597
Exploration 13,648 59,916
Foreign exchange (gain) loss (833) 548,421
Interest (recouped) received on
capital leases 32,768 594,269
Interest expense 147,902 480,349
Legal, accounting and audit 679,856 493,009
Office and administration 1,752,080 1,456,613
Shareholder communications 115,931 331,536
Stock-based compensation -
exploration (note 11(b)) 25,578 37,640
Stock-based compensation -
administration (note 11(b)) 270,921 96,426
Travel and conferences 205,987 76,782
Transfer agent 55,013 79,554
3,568,695 4,272,112
Other items
Reversal of accounts receivable - -
Write-down of property plant &
equipment 144,658 -
(Gain) loss on disposal of
equipment (34,496) 37,220
Interest income (95,451) (234,481)
Share of profit from equity
accounted investment (note 9) (23,429) -
Write-down of investments held
for reclamation 147,779 657,634
139,061 460,373
Loss before income taxes (1,815,796) (9,483,150)
Current income tax expense 190,000 -
Future income tax recovery (633,000) (2,065,834)
Loss before non-controlling
interest (1,372,796) (7,417,316)
Non-controlling interest 355,196 (791,739)
Loss for the period (1,017,600) (6,625,577)
Other comprehensive income 2,525,711 8,351,576
Total comprehensive income $ 1,508,111 $ 1,725,999
Basic, Headline and diluted loss per common
share (0.002) (0.03)
Weighted average number of
common shares outstanding 497,918,370 237,963,291
The accompanying notes are an integral part of these interim consolidated
financial statements.
ROCKWELL DIAMONDS INC.
Consolidated Interim Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Six months ended August 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 11(c)) - -
Rights offering at subscription price of
$0.05 per share (note 11(d)) 92,710,767 4,583,644
Private placement, net of issue cost at
$0.065 per share (note 11(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 $ -
Contibuted surplus
Balance at beginning of the period $ 6,195,051
Stock-based compensation (note 11(b)) 296,499
Expired broker warrants -
Fair value of stock options allocated to
shares issued on exercise -
Balance at end of the period $ 6,491,550
Accumulated other comprehensive loss
Balance at beginning of the period $ (7,979,683)
Comprehensive income on currency
translation of self-sustaining
operations 2,525,711
Balance at end of the period $ (5,453,972)
Deficit
Balance at beginning of the period $ (49,020,317)
Loss for the period (1,017,600)
Balance at end of the period $ (50,037,917)
TOTAL SHAREHOLDERS` EQUITY $ 86,989,169
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 11(c)) 132,800,000 8,044,771
Rights offering at subscription price of
$0.05 per share (note 11(d)) - -
Private placement, net of issue cost at
$0.065 per share (note 11(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 $ -
Contibuted surplus
Balance at beginning of the period $ 4,167,304
Stock-based compensation (note 11(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.
ROCKWELL DIAMONDS INC.
Consolidated Interim Statements of Accumulated Comprehensive Loss and Deficit
(Unaudited-Expressed in Canadian Dollars)
Three months Three months
ended August 31, ended August 31,
2010 2009
Accumulated other comprehensive
loss
Balance at beginning of the
period $ (7,963,814) $ (7,934,466)
Comprehensive income on currency
translation of self-sustaining
operations 2,509,842 2,876,659
Balance at end of the period $ (5,453,972) $ (5,057,807)
Deficit
Balance at beginning of the
period $ (49,049,346) $ (46,086,555)
Loss for the period (988,571) (2,521,646)
Balance at end of the period $ (50,037,917) $ (48,608,201)
Six months ended Six months ended
August 31, August 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 2,525,711 8,351,576
Balance at end of the period $ (5,453,972) $ (5,057,807)
Deficit
Balance at beginning of the
period $ (49,020,317) $ (41,982,624)
Loss for the period (1,017,600) (6,625,577)
Balance at end of the period $ (50,037,917) $ (48,608,201)
The accompanying notes are an integral part of these interim consolidated
financial statements.
ROCKWELL DIAMONDS INC.
Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended August 31
Cash provided by (used in): 2010 2009
Operating activities
Loss for the period $ (988,571) $ (2,521,646)
Items not affecting cash
Accretion (reduction) of reclamation
obligation (61,254) 31,885
Amortization and depletion 3,092,170 3,125,915
Amortization of capital lease
equipment 997 13,394
Write-down of mineral property
interests - -
Write-down of assets 144,658 -
Write-down of investment held for
reclamation 1,109 -
Reversal of amounts receivable (153,837) -
Stock-based compensation (note 11(b)) 75,518
17,957
Loss on disposal of equipment - 11,439
Future income tax recovery (959,000) (719,427)
Unrealized foreign exchange gain - (93,117)
Profit on disposal of equipment (34,496) -
Non-controlling interest (223,682) (338,122)
Share of profit from equity accounted
investment (21,102) -
Changes in non-cash working capital
items
Accounts receivable (3,965,321) 466,344
Amounts due to and from related
parties 1,812 724,662
Movement in reclamation obligation (494,625) -
Inventory 4,049,498 (842,453)
Prepayments (209,163) (77,011)
Accounts payable and accrued
liabilities 916,802 514,222
Income taxes (42,539) 159,439
Cash provided by (used in) used in
operating activities 1,128,974 473,481
Investing activities
Investment in Associate - -
Restricted cash 2,924 -
Purchase of equipment and mineral
properties (3,939,186) (455,198)
Proceeds received on disposal of
equipment 34,496 32,953
Other assets and deposits (1,175,764) (74,527)
Reclamation deposits (333,006) (120,845)
Cash used in investing activities (5,410,536) (617,617)
Financing activities
Principal repayments under capital
lease obligations (938,551) (579,022)
Common shares issued for cash, net of
issue costs - -
Drawdown of credit facility 1,284,370 (611,013)
Cash provided by (used in) financing
activities $ 345,819 $ (1,190,035)
(Decrease) Increase in cash and cash
equivalents during the period (3,935,743) (1,334,171)
Cash and cash equivalents, beginning
of period $ 8,565,151 $ 2,200,941
Cash and cash equivalents, end of
period $ 4,629,408 $ 866,770
Interest paid on facilities during
the period $ 98,944 $ 73,047
Interest paid (recouped) on capital
leases $ (55,787) $ 251,548
Interest received $ 82,105 $ 91,692
Income taxes paid during the period $ - $ (159,439)
Six months ended August 31
Cash provided by (used in): 2010 2009
Operating activities
Loss for the period $ (1,017,600) $ (6,625,577)
Items not affecting cash
Accretion (reduction) of reclamation
obligation 269,844 17,597
Amortization and depletion 5,862,733 3,818,835
Amortization of capital lease
equipment 378,784 1,139,554
Write-down of mineral property
interests - 657,634
Write-down of assets 144,658 -
Write-down of investment held for
reclamation 147,779 -
Reversal of amounts receivable - -
Stock-based compensation (note 11(b)) 296,499
134,066
Loss on disposal of equipment - 37,220
Future income tax recovery (633,000) (2,065,834)
Unrealized foreign exchange gain - (409,836)
Profit on disposal of equipment (34,496) -
Non-controlling interest (355,196) (791,739)
Share of profit from equity
accounted investment (23,429) -
Changes in non-cash working capital
items
Accounts receivable (3,866,537) 249,175
Amounts due to and from related
parties (445,951) 2,662,165
Movement in reclamation obligation (545,328) -
Inventory (1,447,460) (756,589)
Prepayments (167,832) (46,490)
Accounts payable and accrued
liabilities 1,066,242 835,331
Income taxes 2,693 501,785
Cash provided by (used in)
operating activities (367,597) (642,703)
Investing activities
Investment in Associate (95,690) -
Restricted cash 2,924 2,698,719
Purchase of equipment and mineral
properties (4,069,136) (2,854,924)
Proceeds received on disposal of
equipment 34,496 366,415
Other assets and deposits (1,316,892) (97,386)
Reclamation deposits (333,006) (423,866)
Cash used in investing activities (5,777,304) (311,042)
Financing activities
Principal repayments under capital
lease obligations (2,328,054) (1,754,240)
Common shares issued for cash, net
of issue costs 7,990,468 930
Drawdown of credit facility 2,599,285 (423,982)
Cash provided by (used in) financing
activities $ 8,261,699 $ (2,177,292)
(Decrease) Increase in cash and cash
equivalents during the period 2,116,798 (3,131,037)
Cash and cash equivalents, beginning
of period $ 2,512,610 3,997,807
Cash and cash equivalents, end of
period $ 4,629,408 $ 866,770
Interest paid on facilities during
the period $ 147,902 $ 480,349
Interest paid (recouped) on capital
leases $ 32,768 $ 594,269
Interest received $ 95,451 $ 234,481
Income taxes paid during the period $ - $ (501,785)
The accompanying notes are an integral part of these interim consolidated
financial statements.
ROCKWELL DIAMONDS INC.
Notes to the Interim Consolidated Financial Statements
For the three and six months ended August 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 as well as the acquisition and exploration of natural
resource properties. The Company`s 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 six months ended August 31, 2010 the Company made a loss of $ 1,017,600
that has increased Rockwell`s accumulated losses (deficit) to $ 50.0 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$1,322 per carat. The average diamond sales price achieved for
the first six months of fiscal 2011 is US$1,243 per carat.
At August 31, 2010, the Company`s current assets exceeded its current
liabilities by $7.1 million and the Company`s total assets exceeded its total
liabilities by $87.5 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 around 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
August 31, 2010 February 28, 2010
Rough diamond inventories $ 1,936,655 $ 1,283,604
Mine supplies 2,354,277 1,692,454
Total inventories $ 4,290,932 $ 2,976,058
As at August 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 six months
ending August 31, 2010.
5. PROPERTY, PLANT AND EQUIPMENT
As at August 31, 2010
Accumulated
Amortization and
Cost Impairments Carrying value
Land and buildings $ 7,693,281 $ 805,043 $ 6,888,238
Processing plant and
equipment 78,931,235 33,429,526 45,501,709
Processing plant and
equipment under
capital lease
obligation 6,576,040 1,956,628 4,619,412
Construction in
progress 2,739,672 - 2,739,672
Office equipment 1,026,334 578,501 447,833
Vehicles and light
equipment 1,861,643 1,077,003 784,640
$ 98,828,205 $ 37,846,701 $60,981,504
As at February 28, 2010
Accumulated
Amortization and
Cost 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 six months ending August 31, 2010
was $5,105,833 (2009 - $4,790,494).
The group`s bankers have registered two notarial general covering bonds of
ZAR10.0 million each ($1,443,001) over all moveable assets on the property of
the farm Holpan, Barkley West, Northern Cape and one over moveable assets.
Construction in progress includes projects at Saxendrift mine (jig plant, in-
pit screening, scrubber, trammel upgrades) and Wouterspan mine (Phase I
engineering, scoping, technical data pack and drawings). The construction of the
Saxendrift project and Phase I of the Wouterspan project are to be completed
within the 2011 financial year.
6. MINERAL PROPERTY INTERESTS
As at As at
August 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 280,863 2,042,252
Depletion of mineral properties during
the period (778,006) (1,630,370)
Write-down of mineral property - (657,634)
H.C. Van Wyk Diamonds Ltd and Klipdam
Mining 21,631,088 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 129,124 733,083
Future income tax liability - 662,354
Depletion of mineral properties during
the period (357,678) (896,359)
Saxendrift Mine (Pty) Ltd, end of period 8,494,213 8,722,767
Balance, end of period $ 30,125,301 $ 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
August 31, 2010 February 28, 2010
Wesbank $ 28,735 $ 48,792
Komatfin 979,732 3,287,729
$ 1,008,467 $ 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 1.25% to 2.00%
less the prevailing prime rate, which is currently 9.50%, per annum. 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
August 31, 2010 February 28, 2010
2011 $ 1,028,721 $ 3,301,394
2012 - 141,544
Total minimum lease payments 1,028,721 3,442,938
Less: interest portion (20,254) (106,417)
Present value of capital lease
obligations 1,008,467 3,336,521
Current portion 1,008,467 3,196,189
Non-current portion $ - $ 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
August 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 (545,328) (473,278)
Foreign exchange on reclamation 137,275 219,113
Accretion expense - 481,932
Balance, end of period $ 2,510,049 $ 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 57,106 95,625
Accretion expense 269,844 -
Balance, end of period $ 1,131,832 $ 804,882
Total reclamation obligation, end of
period $ 3,641,881 $ 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
represents the rehabilitation liability at any one stage.
As required by regulatory authorities, at August 31, 2010, the Company had cash
reclamation deposits totaling $3,083,294 (February 28, 2010 - $2,898,067)
comprised of $1,511,415 (February 28, 2010 - $1,238,104) for the Holpan,
Wouterspan and Klipdam mine and $ 1,571,879 (February 28, 2010 - $1,659,963) for
the Saxendrift mine. These deposits are invested in interest bearing money
market linked investments.. These investments have been ceded as security in
favour of the guarantees the bank issued on behalf of the group. Refer to note
13.
9. INVESTMENT IN EQUITY ACCOUNTED ASSOCIATE
As at As at
August 31, 2010 February 28, 2010
Investment in associate at cost $ 95,690 $ -
Foreign exchange adjustments 5,321 -
Share of profit for the period ended
August , 31 2010 23,429 -
Balance at the end of the period $ 124,440 $ -
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 As at As at
August 31, February 28,
2010 2010
Financial Position
Total Assets $ 10,981,656 $ 5,159,027
Total Liabilities 10,335,462 4,672,164
Net Assets 646,194 486,863
Six months Year ended
ended August, February 28,
31,2010 2010
Financial Performance
Total Revenue $ 28,427,620 $ 36,813,912
Total profit for the period 122,511 168,712
Capital commitments and contingent
liabilities of associate Nil Nil
10. OTHER ASSETS AND DEPOSITS
As at As at
August 31, 2010 February 28, 2010
Refundable security deposits $ 163,680 $ 152,259
(a)
Investments 706,368 574,086
Deposits on future assets(b) - 101,526
Etruscan Diamonds Limited(c) 1,228,686 -
Total other assets and deposits $ 2,098,734 $ 827,871
(a) The Company invests in investment policies with endowment benefits on
maturity of the policies. Premiums are invested on an initial lump sum and/or
monthly annuity premium basis with the Insurers and invested in specific
investment plans. Policy investment value at any one time represents the value
of premiums and growth after deduction of administration and investment fees.
Withdrawals could be made against the policies before endowment against the
deduction of penalties, which is lower than the investment value. To surrender
the policy prior to maturity date will similarly attract penalties at a lower
rate, and represents the value accessible at any one stage. Fair value at any
one stage represents the surrender value of the investments. The fair value of
the policies at August 31, 2010 amounted to $3,789,662 (February 28, 2010 -
$3,472,153) of which $3,083,294 (February 28, 2010 - $2,898,067) has been
disclosed as reclamation deposits (refer note 8).
(b) This deposit relates to deposits on motor vehicles only delivered after year
end.
(c) Short term amounts receivable from Etruscan Diamonds Limited that is not
interest bearing and has no fixed repayment terms (refer note 15).
11. 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 August 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/ Aug
Expiry date Exercised cancelled 31, 2010
September 24, 2012 - (5,000) 5,891,500
November 14, 2012 - (15,000) 1,086,500
June 20, 2011 - - 950,000
December 7, 2014 - (135,000) 14,135,890
January 18, 2015 - - 600,000
- (155,000) 22,663,890
Weighted average
exercise price $ - $ 0.14 $ 0.25
Weighted average fair
value of stock options
granted during the period -
As at August 31, 2010, 17,756,327 of the stock options outstanding with a
weighted average exercise price of $0.27 per share have vested with grantees.
Using a Black-Scholes option pricing model the fair values of stock options
vested have been reflected in the statement of operations as follows:
Three months ended
August 31
2010 2009
Exploration and engineering $ 4,612 $ 7,807
Operations and administration 70,906 10,150
Total compensation cost expensed to operations,
with the offset credited to contributed surplus $ 75,518 $ 17,957
Six months ended
August 31
2010 2009
Exploration and engineering $ 25,578 $ 37,640
Operations and administration 270,921 96,426
Total compensation cost expensed to operations,
with the offset credited to contributed surplus $ 296,499 $ 134,066
(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 added 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.
12. RELATED PARTY BALANCES AND TRANSACTIONS
Balances payable As at As at
August 31, 2010 February 28,
2010
Banzi Trade 26 (Pty) Ltd (d) $ 23,814 $ 603
Hunter Dickinson Services Inc. (a) 79,009 627,435
Seven Bridges Trading (b) 10,941 13,285
Flawless Diamonds Trading House (c) 60,416 -
Current balances payable $ 174,180 $ 641,323
Liberty Lane (f) 437,615 414,566
Long-term balances payable $ 437,615 $ 414,566
Balances receivable
Banzi Trade 26 (Pty) Ltd (d) 47,965 46,108
$ 47,965 $ 46,108
Three months ended Aug 31
Transactions 2010 2009
Services rendered and expenses
reimbursed:
Hunter Dickinson Services Inc. (a) $ 155,575 $ 173,616
Seven Bridges Trading (b) 32,956 57,396
Flawless Diamonds Trading House (c) $ 38,022 $ 58,020
Banzi Trade 26 (Pty) Ltd (d) 65,609 6,666
Jakes Tyres (e) - 38,815
Sales rendered to:
Banzi Trade 26 (Pty) Ltd (d) $ 143 $ 861
Six months ended Aug 31
Transactions 2010 2009
Services rendered and expenses
reimbursed:
Hunter Dickinson Services Inc. (a) $ 295,908 $ 536,627
Seven Bridges Trading (b) 63,106 73,135
Flawless Diamonds Trading House (c) $ 144,962 $ 96,748
Banzi Trade 26 (Pty) Ltd (d) 90,950 7,578
Jakes Tyres (e) - 43,845
Sales rendered to:
Banzi Trade 26 (Pty) Ltd (d) $ 394 $ 1,438
All related party transactions are arm`s length transactions 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) 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.
(c) Flawless Diamonds Trading House (Pty) Ltd ("Flawless") 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.
(d) 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 building materials at market rates.
(e) Jakes Tyres is a private company with former directors and officers (HC 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.
(f) Liberty Lane is the BEE partner of the Saxendrift property and has certain
directors in common with the Company.
13. BANK INDEBTEDNESS AND RESTRICTED CASH
Consistent with the prior financial year, the Company has an overdraft facility
in the amount of ZAR28.0 million ($4.0 million) available for its operations
(current balance $3,297,300). This facility has an interest cost of prime
(currently 9.5% per annum) plus 0.6%. The security for the ZAR28.0 million
consists of 2 notorial bonds of ZAR10.0 million ($1.4 million) each over loose
assets and property of the farm Holpan.
HC van Wyk Diamonds Ltd, Klipdam Mining Company Ltd and Saxendrift Mine (Pty)
Ltd hold guarantees by the bank towards Eskom (Electricity Provider) of
ZAR4,711,100 ($679,812) and the Department of Minerals and Energy (DME) of
ZAR21,367,228 ($3,083,294) towards rehabilitation expenses.
Restricted cash of $2,022 (February 28, 2010 - $4,946) relates to monies held in
trust by the group`s lawyers.
14. 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") which 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 have been initiated 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
protective warranties and indemnities that were given to it by Trans Hex in the
Sale of Shares and Claims Agreement.
15. SUBSEQUENT EVENTS
Etruscan Diamonds Limited
Post quarter-end the Company has signed the Sale of Shares agreement with
Etruscan Diamonds Limited whereby the Company agrees 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 $4.83 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 by the Department of
Mineral Resources ("DMR"), which is the final suspensive condition, to proceed
with the transaction.
18 October 2010
Sponsor
Sasfin Capital
(A division of Sasfin Bank Limited)
Date: 18/10/2010 07:10:01 Produced by the JSE SENS Department.
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