| Thu 11 Nov 2010, 9:28 | | 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 nine month periods ended September 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")
BRC DIAMONDCORE LTD.
Interim Consolidated Financial Statements as at and for the three and nine month
periods ended September 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 nine month periods ended September 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 (Unaudited)
(expressed in Canadian dollars )
As at
December
As at 31,
September 30, 2009
2010
Assets
Current assets $ $
Cash 90,030 664,495
Prepaid expenses and other assets 130,371 163,175
220,401 827,670
Non-current
Mineral properties and deferred 5,789,841 5,808,835
exploration expenditures (Note 5)
Capital assets (Note 6) 10,438 141,794
5,800,279 5,950,629
6,020,680 6,778,299
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ $
906,747 1,027,172
Due to related parties (Note 4) 214,206 377,884
1,120,953 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)) 7,872,644 7,700,518
Accumulated deficit (118,487,823) (117,842,181)
4,842,697 5,316,213
$6,020,680 $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
September 30
2010 2009
Expenses $ $
Consulting fees - 27,123
Professional fees 191,361 (68,884)
General and administrative 67,762 155,523
Stock-based compensation (Note 7(b)) - 177,120
Depreciation - 41,677
Foreign exchange loss unrealized 1,010 683,114
Profit on sale of assets - (9,311)
Bad debt expense - 902,664
(260,133) (1,909,026)
Interest income - 277,519
Interest expense - (104,645)
Loss from continuing operations (260,133) (1,736,152)
Loss from discontinued operations -
(3,143,096)
Net loss for the period (260,133) (4,879,248)
Accumulated deficit, beginning of the (118,227,69
period 0) (118,227,690)
Net loss for the period (260,133) (4,879,248)
Accumulated deficit, end of the period (118,487,82
3) (123,106,938)
Loss per share all operations $(0.00) $(0.19)
Adjustments for HLPS $0.00 $0.12
Headline loss per share $(0.00) $(0.07)
Basic and diluted loss per share from $(0.00) $(0.07)
continuing operations
Basic and diluted loss per share from
discontinued operations
$(0.00) $(0.12)
Weighted average number of common shares 89,408,640 26,091,310
outstanding
BRC DiamondCore Ltd.
Interim Consolidated Statements of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
Nine months endedSeptember
30
2010 2009
Expenses $ $
Consulting fees - 103,172
Professional fees 335,954 51,108
General and administrative 174,318 2,492
Stock-based compensation (Note 7(b)) 132,000 388,320
Depreciation 41,677
Foreign exchange loss unrealized 3,370 45,650
Profit on sale of assets - (9,311)
Bad debt expense - 902,664
(645,642) (1,525,772)
Interest income - 238,378
Interest expense - (49,404)
Loss from continuing operations (645,642) (1,336,798)
Loss from discontinued operations - (7,086,620)
Net loss for the period (645,642) (8,423,420)
Accumulated deficit, beginning of the (108,890,56
period (117,842,181) 7)
Net loss for the period (645,642) (8,423,420)
Accumulated deficit, end of the period (118,487,823) (117,313,98
7)
Loss per share all operations $(0.32)
$(0.01)
Adjustments for HLPS $0.00 $0.27
Headline loss per share $(0.01) $(0.05)
Basic and diluted loss per share from $(0.05)
continuing operations $(0.01)
Basic and diluted loss per share from $(0.00) $(0.29)
discontinued operations
Weighted average number of common shares 26,091,310
outstanding 89,408,640
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 Nine months ended
September 30, September 30,
2010 2009 2010 2009
Operating activities $ $ $ $
(260,133) (4,879,248) (645,642) (8,423,420
Net loss from )
continuing operations
for the period
Items not affecting
cash
Stock-based - 177,120 132,000 388,320
compensation
Depreciation - 41,677 - 41,677
Profit on sale of - (9,311) - (9,311)
assets
(260,133) (4,669,762) (513,642) (8,002,734
)
Net change in non-cash
working capital
Prepaid expenses and (3,802) 163,869 165,489
other assets 32,804
Accounts payable and 25,648 (374,011) (120,425) 1,938,199
accrued liabilities
Cash used in continuing (238,287) (4,879,904) (601,263) (5,899,046
operations )
- - 6,337,734
Cash provided from 4,268,918
discontinued operations
Cash used in operating (238,287) (610,986) (601,263) 438,688
activities
Investing activities
Deferred exploration 225,425 433,798 190,476 (1,088,328
expenditures )
Property, plant and - 31,218 - 31,218
equipment sold
Cash (used in) provided - 465,016 - (1,057,110
from continued )
operations
Cash provided from - - - 338,003
discontinued operations
Cash (used in) provided 225,425 (719,107)
from investing
activities 465,016 190,476
Financing activities
Due to related parties 95,695 - (163,678) -
Increase in interest - 63,858 - 171,675
bearing liabilities
Cash (used in) provided 95,695 63,858 (163,678) 171,675
from continuing
operations
Cash (used in) provided 95,695 171,675
from financing
activities 63,858 (163,678)
- (57,836)
Disinvestment of
subsidiary - cash
balances (57,836) -
Increase (decrease) in 82,833 (139,948) (574,465) (166,580)
cash
Cash - beginning of the 7,197 171,453 664,495 198,085
period
Cash - end of the $90,030 $31,505 $90,030 $31,505
period
Supplemental Information
Interest paid $ $ $
- - - $
-
Income taxes paid $6,459 $- $6,459 $-
Going Concern (Note 1)
Depreciation of capital assets of $11,115 and $66,562 was capitalized to mineral
properties in the three and nine month periods ended September 30, 2010,
respectively (three and nine months ended September 30, 2009: $nil and $103,000,
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 ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
$ $ $ $
Net loss for the (260,133) (4,879,248) (645,642) (8,423,420)
period
Unrealized foreign - - - -
currency loss on self-
sustaining operation
Comprehensive loss (260,133) (4,879,248) (645,642) (8,423,420)
for the period
Going Concern (Note 1)
The accompanying notes are an integral part of these interim consolidated
financial statements.
BRC DiamondCore Ltd.
Notes to the consolidated financial statements (unaudited)
September 30, 2010
(amounts in Canadian dollars, unless otherwise specified)
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 nine months ended
September 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 nine months ended September 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 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 $260,133 and $645,642 during the three and nine
months ended September 30, 2010, respectively (three and nine months ended
September 30, 2009: $4,879,248 and $8,423,420). The Company`s accumulated
deficit as at September 30, 2010 was $118,487,823 (December 31, 2009 -
117,842,181). The Company had a working capital deficit of $900,552 as at
September 30, 2010 and had a net decrease in cash of $574,465 and used net
cash in operating activities of $601,263 during the nine months ended
September 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 resources,
receive the necessary permitting, or arrange appropriate financing, the
carrying value of the Company`s assets could be subject to 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 September 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 Classification Measurement
instruments
Cash Held-for-trading Fair value
Other assets Loans and Amortized cost
receivables
Accounts payable Loans and Amortized cost
and accrued receivables
liabilities
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.
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 Company`s former 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 on 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 is to receive cash
proceeds of US$500,000. The terms of the sale contemplated that the
purchaser would enter into an offer of compromise with the creditors of
Diamond Core. As a result of the purchaser acquiring control of the claims
of the bulk of the creditors of Diamond Core and security having been
tendered by the purchaser for the balance of the alleged claims against
Diamond Core, the Northern Cape High Court in South Africa has rescinded
the Diamond Core liquidation order. There are certain legal and
administrative matters to be attended to before the US $500,000 may be
available to the Company, such that receipt by the Company of the US
$500,000 is uncertain.
4. Related party transactions
During the three and nine month periods ended September 30, 2010, legal
fees and related costs of $14,808 and $95,176, respectively (three and nine
months ended September 30, 2009 - $74,346 and $194,990) 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 September 30, 2010 is $102,937 and is recorded in accounts
payable (December 31, 2009 - $49,113).
As at September 30, 2010, an amount of $143,747 was owed to two directors
of the Company representing consulting fees and an advance (December 31,
2009 - $278,849). During the three and nine months ended September 30,
2010, consulting fees of $50,000 and $150,000, respectively were incurred
(same respective periods in 2009 ($50,000 and $150,000).
As at September 30, 2010, an amount of $66,611 (December 31, 2009 - $nil)
was advanced by a company owned by a non-executive director of the Company.
As at September 30, 2010, an amount of $3,848 (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.
During the three months ended September 30, 2010, a drill rig was sold to
Banro by the Company for gross proceeds of $154,964 (see Note 6 for
additional information).
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 nine months ended September 30, 2010, the Company received
proceeds of $401,124 (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 is to 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
September 30, 2010 as follows:
Year Cumulative
Nine Ended from
months December inception
ended 31, 2009 to September
Septembe 30, 2010
r 30,
2010
$ $ $
Mineral property costs
Claims and staking - - 2,713
Total mineral property costs - - 2,713
Deferred exploration
expenditures
Funds received from Rio Tinto (401,124 (555,379) (956,503)
)
Administrative and office 324,994 275,308 5,146,311
support
Depreciation 66,562 172,121 780,312
Drilling - 18,755 505,112
Field camp expenses 13,443 102,305 2,938,216
Geochemistry - - 329,145
Geology - Contract geologists 4,661 - 1,605,426
Geophysics - - 2,369,677
Option fees - - 308,443
Permits and surface taxes - 19,057 1,867,724
Professional fees 4,839 42,774 661,547
Remote sensing and surveying 2,071 - 48,800
Stock based compensation 40,126 210,357 2,239,120
Transport cost and helicopter 21,280 14,332 3,259,486
Profit on sale of assets (90,170) (54,048) (144,218)
Unrealized foreign exchange (5,676) - 1,617,009
difference
- - (16,788,479)
Write off
Total deferred exploration . . 5,787,128
expenditures (18,994) 245,582
Total mineral properties and 5,789,841
deferred exploration (18,994) 245,582
expenditures
6. Capital assets
As at
September 30,
2010
Cost Accumulated Net Book
Amortization Value
$ $ $
Computer equipment 28,659 25,108 3,551
Exploration and mining 109,10 107,052 2,052
assets 4
Furniture and office 18,106 16,215 1,891
equipment
Vehicles 254,43 251,492 2,944
6
410,30 399,867 10,438
5
As at
December 31,
2009
Cost Accumulated Net Book
Amortization Value
$ $ $
Computer equipment 28,658 19,478 9,180
Exploration and mining 316,476 216,384 100,092
assets
Furniture and office 18,106 14,200 3,906
equipment
Vehicles 254,436 225,820 28,616
617,676 475,882 141,794
During the nine months ended September 30, 2010, $66,562 of depreciation
was included in mineral properties and deferred exploration expenditures
(see Note 5) (nine months ended September 30, 2009 - $103,000). In
addition, during the nine months ended September 30, 2010, a drill rig was
sold which resulted in a gain on sale of $90,170. The gain on sale was
capitalized in mineral properties and deferred exploration expenditures.
See Note 4 for additional information.
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 20,000,000 1,000,000
placement
Shares issued for the debt 43,317,330 8,663,466
settlement transactions
Financing costs - (20,731)
Outstanding at December 31, 89,408,640 115,457,876
2009
Outstanding at September 30, 89,408,640 115,457,876
2010
As at September 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
consists 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 September 30, 2010, the Company had outstanding under the stock
option plan stock options to acquire 2,350,000 (December 31, 2009 -
2,941,400) common shares of the Company at a weighted-average price of
$2.30 (December 31, 2009 - $2.15) per share.
The following table summarizes information about stock options outstanding
and exercisable at September 30, 2010:
Date of Number Options Exe
grant outstandin exercise Options rci
g at d, outstandi se
12/31/09 expired ng and pri
or exercisab ce Fair Expiry
forfeite le at $ value date
d at 9/30/10 of
9/30/10 grant
$
03/04/05 16,400 16,400 - 2.1 1.78 03/04/10
0
03/18/05 225,000 225,000 - 2.5 1.76 03/18/10
0
04/29/05 225,000 225,000 - 2.5 2.14 04/29/10
0
06/29/06 200,000 - 200,000 3.7 2.16 06/29/11
5
04/09/07 - 300,000 5.5 3.25 04/09/12
300,000 0
08/03/07 - 180,000 8.0 4.52 08/03/12
180,000 0
08/28/08 125,000 1,670,000 1.0 0.77 08/28/13
1,795,000 5
2,941,400 2,350,000
591,400
During the three and nine months ended September 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 ended September 30, 2009: $177,120 and $388,320) representing the
fair value of stock options previously granted to employees, directors and
officers under the Company`s stock option plan. An amount of $40,126 was
capitalized as deferred exploration expenditures during the nine months
ended September 30, 2010 (September 30, 2009: $134,012). 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 September 30, 2010, 476,207 of these options had
been cancelled.
d) Loss per share
The loss per share figures for the three and nine month periods ended
September 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
September 31, 2009
30, 2010
$ $
Balance, beginning of the 7,700,518 6,934,641
year
Options expensed 172,126 765,877
7,872,644 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 September 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 nine month period ended September 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
September 31, 2009
30, 2010
$ $
Financial assets
Held-for-trading, measured at fair
value
Cash 90,030 664,495
Prepaid expenses and other 130,371 163,175
assets
Financial liabilities
Other liabilities, measured at
amortized cost
Accounts payable and accrued 906,747 1,027,172
liabilities
Due to related parties 214,206 377,884
The balance sheet carrying amounts for cash, prepaid expenses and other
assets, accounts payable and accrued liabilities and amounts 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.
a) Fair value of financial instruments (continued)
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:
Level 2 Level 3
September 30, 2010 Level 1
Assets:
Cash $90,030 - -
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, cash
flow obtained pursuant to joint venture agreements, 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 September 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 September 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 $289,492 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
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
September 31,
30, 2010 2009
$ $
DRC - Mineral properties and deferred 5,789,841 5,808,835
exploration expenditures
DRC - Capital assets 10,438 141,794
Canada - Capital assets - -
$5,800,279 $5,950,629
12. Subsequent events
As referred to in the Company`s annual financial statements for the year
ended December 31, 2009, a former director and officer of the Company had
applied for a summary judgment against the Company in the Witwatersrand
Local Division of the High Court of South Africa in respect of a dispute
relating to a settlement agreement pertaining to his departure. The
application for summary judgment was dismissed and the Company was granted
leave to defend the claim. This individual has not taken further steps to
progress that matter. However, in October 2010, almost two years after the
original claim, the same former director and officer instituted fresh
proceedings against the company. He has repeated the claim made previously,
but this time in a summons lodged before the North Gauteng High Court in
South Africa. The former director and officer is claiming he is owed
payment of 1.2 million South African rand plus interest. As in the
previous matter, the Company is defending this action.
JOHANNESBURG
11 November 2010
SPONSOR
Arcay Moela Sponsors (Proprietary) Limited
Date: 11/11/2010 09:28:02 Produced by the JSE SENS Department.
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