| Fri 21 Jan 2011, 10:12 | | RDI - Rockwell Diamonds Incorporated - Interim consolidated financial |
|
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 NINE MONTHS ENDED NOVEMBER 30, 2010 AND 2009
(Expressed in Canadian Dollars) (Unaudited)
EXPLANATORY NOTE
Explanation of amendment on Rockwell Diamonds Inc. Consolidated interim
financial statements for the period ended November 30, 2010:
The original interim financial statements filed on SEDAR on January 14, 2011
has been amended to eliminate contract mining fees of $5,313,105 previously
included in both the revenue and the cost of sales for the three and nine
months ended November 30, 2010.
All other information contained in the originally filed interim financials
statements remain unchanged. Except where specifically noted to the contrary,
this amended and restated financial statements does not reflect events
occuring after the filing of the original interim financial statements, or
modify or update the disclosure therein, in any way other than as required to
reflect the amendments set forth herein.
These financial statements have not been reviewed by the Company`s auditors.
Amended and restated - Please refer to Explanatory Note above
NOTICE OF NO AUDITOR REVIEW OF INTERIM CONSOLIDATED 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 interim consolidated
financial statements they must be accompanied by a notice indicating that
these interim consolidated financial statements have not been reviewed by an
auditor.
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared by and are the responsibility of the Company`s
management.
Consolidated Balance Sheets Amended and restated -
(Expressed in Canadian Dollars)
November 30, 2010 February 28, 2010
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,683,568 $ 2,512,610
Accounts receivable 6,406,194 6,260,717
Restricted cash (note 13) 2,029 4,946
Trade receivable from a
related party (note 12) 34,694 46,108
Inventories (note 4) 9,343,810 2,976,058
Prepayments 239,706 75,275
19,710,001 11,875,714
Non-current assets
Property, plant and equipment
(note 5) 57,631,099 58,790,736
Mineral property interests
(note 6) 30,375,861 30,850,998
Investment in equity accounted
associate (note 9) 138,285 -
Other assets and deposits
(note 10) 3,687,277 827,871
Reclamation deposits (note 8) 3,093,964 2,898,067
94,926,486 93,367,672
$ 114,636,487 $ 105,243,386
LIABILITIES AND SHAREHOLDERS`
EQUITY
Current liabilities
Bank indebtedness (note 13) $ 2,200,111 $ 698,015
Accounts payable and accrued
liabilities 7,034,124 6,458,751
Due to related parties (note 12) 171,135 641,323
Taxes payable 855,334 583,194
Current portion of capital
lease obligations (note 7) 295,411 3,196,189
10,556,115 11,577,472
Non-current liabilities
Capital lease obligations
(note 7) - 140,332
Due to related parties (note 12) 439,130 414,566
Future income taxes 12,681,066 11,545,000
Reclamation obligation (note 8) 3,897,108 3,722,984
17,017,304 15,822,882
Non-controlling interest 777,127 648,941
Shareholders` equity
Share capital (note 11) 135,989,508 127,999,040
Contributed surplus 6,952,536 6,195,051
Accumulated other
comprehensive loss (5,194,931) (7,979,683)
Deficit (51,461,173) (49,020,317)
86,285,940 77,194,091
Continuance of operations and
going concern (note 1)
Contingencies (note 14)
$ 114,636,486 $ 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 Director
Consolidated Interim Statements of Operations and Comprehensive Income
Amended and restated
(Unaudited - Expressed in Canadian Dollars)
Three months ended November 30,
2010 2009
Revenue
Rough diamond sales $ 11,116,679 $ 12,765,759
Other sales 17,454 94,787
11,134,133 12,860,546
Cost of sales
Cost of rough diamond sales (5,888,452) (7,096,938)
Amortization and depletion (3,461,208) (3,292,865)
Operating profit (loss) 1,784,473 2,470,743
Expenses
Accretion of reclamation obligation
(note 8) 92,736 80,461
Exploration - 34,069
Foreign exchange loss 1,510 66,008
Interest paid on capital leases 53,015 88,846
Interest expense 66,423 175,570
Legal, accounting and audit 202,823 351,115
Office and administration 905,483 852,970
Shareholder communications 32,024 105,162
Stock-based compensation (note 11(b)) 460,986 12,378
Travel and conferences 92,441 75,692
Transfer agent 6,258 16,416
1,913,699 1,858,687
Other items
Write-down of property, plant and
equipment 2,682 -
Write-down of mineral property - -
(Gain) loss on disposal of equipment (639) (8,914)
Interest income (76,046) -
Share of profit from equity
accounted investment (note 9) (13,496) -
Write-down of investments held for
reclamation 2,741 -
(84,758) (8,914)
(Loss) profit before income taxes (44,468) 620,970
Current income tax expense
(recovery) 32,000 (18,946)
Future income tax expense (recovery) 1,072,000 (456,073)
(Loss) profit before
non-controlling interest (1,148,468) 145,951
Non-controlling interest (274,788) 367,994
(Loss) profit for the period (1,423,256) 513,945
Other comprehensive income 259,041 967,021
Total comprehensive (Loss) income $ (1,164,215) $ 1,480,966
Basic and diluted loss (profit) per
common share $ (0.003) $ 0.002
Weighted average number of
common shares outstanding 518,185,238 238,041,569
Nine months ended November 30,
2010 2009
Revenue
Rough diamond sales $ 30,961,211 $ 22,440,564
Other sales 71,343 267,917
31,032,554 22,708,481
Cost of sales
Cost of rough diamond sales (17,653,396) (16,737,149)
Amortization and depletion (9,702,725) (8,251,254)
Operating profit (loss) 3,676,433 (2,279,922)
Expenses
Accretion of reclamation obligation
(note 8) 362,580 98,058
Exploration 13,648 93,985
Foreign exchange loss 677 614,429
Interest paid on capital leases 85,783 683,115
Interest expense 214,325 538,287
Legal, accounting and audit 882,679 844,124
Office and administration 2,657,563 2,309,583
Shareholder communications 147,955 436,698
Stock-based compensation (note 11(b)) 757,485 146,444
Travel and conferences 298,428 152,474
Transfer agent 61,271 95,970
5,482,394 6,013,167
Other items
Write-down of property, plant and
equipment 147,340 -
Write-down of mineral property - 657,634
(Gain) loss on disposal of equipment (35,135) 28,306
Interest income (171,497) (116,849)
Share of profit from equity accounted
investment (note 9) (36,925) -
Write-down of investments held for
reclamation 150,520 -
54,303 569,091
(Loss) profit before income taxes (1,860,264) (8,862,180)
Current income tax expense (recovery) 222,000 (18,946)
Future income tax expense (recovery) 439,000 1,609,761
(Loss) profit before non-controlling
interest (2,521,264) (7,271,365)
Non-controlling interest 80,408 1,159,733
(Loss) profit for the period (2,440,856) (6,111,632)
Other comprehensive income 2,784,752 9,318,597
Total comprehensive (Loss) income $ 343,896 $ 3,206,965
Basic and diluted loss (profit) per
common share $ (0.005) $ (0.026)
Weighted average number of
common shares outstanding 518,185,238 238,042,360
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars) Amended and restated
Nine months ended November 30, 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)) 757,485
Expired broker warrants -
Fair value of stock options allocated to
shares issued on exercise -
Balance at end of the period $ 6,952,536
Accumulated other comprehensive loss
Balance at beginning of the period $ (7,979,683)
Comprehensive income on currency
translation of self-sustaining
operations 2,784,752
Balance at end of the period $
(5,194,931)
Deficit
Balance at beginning of the period $ (49,020,317)
Loss for the period (2,440,856)
Balance at end of the period $ (51,461,173)
TOTAL SHAREHOLDERS` EQUITY $ 86,285,940
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.
Consolidated Interim Statements of Accumulated Comprehensive Loss and Deficit
(Unaudited - Expressed in Canadian Dollars) Amended and restated
Three months Three months
ended November ended November
30, 2010 30, 2009
Accumulated other comprehensive loss
Balance at beginning of the period $ (5,453,972) $ (5,057,807)
Comprehensive income on currency
translation of self-sustaining
operations 259,041 967,021
Balance at end of the period $ (5,194,931) $ (4,090,786)
Deficit
Balance at beginning of the period $ (50,037,917) $ (48,608,201)
(Loss) profit for the period (1,423,256) 513,945
Balance at end of the period $ (51,461,173) $ (48,094,256)
Nine months ended Nine months ended
November 30, November 30,
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 2,784,752 9,318,597
Balance at end of the period $ (5,194,931) $ (4,090,786)
Deficit
Balance at beginning of the period$ (49,020,317) $ (41,982,624)
(Loss) profit for the period (2,440,856) (6,111,632)
Balance at end of the period $ (51,461,173) $ (48,094,256)
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars) Amended and restated
Three months ended November 30,
Cash provided by (used in): 2010 2009
Operating activities
Loss for the period $ (1,423,256) $ 513,945
Items not affecting cash
Accretion of reclamation obligation 92,736 80,461
Amortization and depletion 3,511,612 3,292,865
Amortization of capital lease equipment (50,404) -
Write-down of mineral property
interests - -
Write-down of assets 2,682 -
Write-down of investment held for
reclamation (147,779) -
Stock-based compensation (note 11) 460,986 12,379
Future income tax expense (recovery) 1,072,000 456,073
Unrealized foreign exchange gain - 546,890
(Gain) loss on disposal of equipment (639) (8,914)
Non-controlling interest 274,788 (367,994)
Share of profit from equity accounted
investment (13,496) -
Changes in non-cash working capital
items
Accounts receivable 3,721,060 772,902
Amounts due to and from related parties 11,741
(1,529,867)
Movement in reclamation obligation 137,644 -
Inventory (5,406,859) 1,160,285
Prepayments 3,401 37,215
Accounts payable and accrued
liabilities 206,197 (149,203)
Income taxes 219,307 331,818
Cash provided by operating activities 2,671,721 5,148,855
Investing activities
Investment in Associate - -
Restricted cash (7) (380,220)
Purchase of equipment and mineral
properties (402,544) (19,665)
Proceeds received on disposal of
equipment 639 4,478
Other assets and deposits (1,542,514) (207,282)
Reclamation deposits 137,109 64,608
Cash used in investing activities (1,807,317) (538,081)
Financing activities
Principal repayments under capital
lease obligations (713,056) (652,209)
Common shares issued for cash, net of
issue costs - (15,001)
Subscriptions received - 380,220
(Repayment) Drawdown repayment of
credit facility (1,097,189) (2,701,455)
Cash (used in) provided by financing
activities (1,810,245) (2,988,445)
(Decrease) Increase in cash and cash
equivalents during the period (945,841) 1,622,329
Cash and cash equivalents, beginning
of period 4,629,408 $ 866,770
Cash and cash equivalents, end of
period $ 3,683,567 $ 2,489,099
Interest paid on facilities during the
period $ 66,423 $ 175,570
Interest paid on capital leases $ 53,015 $ 88,846
Interest received $ 76,046 $ -
Income taxes paid during the period $ - $ (331,818)
Nine months ended November 30,
Cash provided by (used in): 2010 2009
Operating activities
Loss for the period $ (2,440,855) $ (6,111,632)
Items not affecting cash
Accretion of reclamation
obligation 362,580 98,058
Amortization and depletion 9,374,345 7,111,700
Amortization of capital lease
equipment 328,380 1,139,554
Write-down of mineral property
interests - 657,634
Write-down of assets 147,340 -
Write-down of investment held
for reclamation - -
Stock-based compensation (note 11) 757,485 146,445
Future income tax expense
(recovery) 439,000 (1,609,761)
Unrealized foreign exchange gain - 137,054
(Gain) loss on disposal of
equipment (35,135) 28,306
Non-controlling interest (80,408) (1,159,733)
Share of profit from equity
accounted investment (36,925) -
Changes in non-cash working
capital items
Accounts receivable (145,477) 1,022,077
Amounts due to and from related
parties (434,210) 1,132,298
Movement in reclamation
obligation (407,684) -
Inventory (6,854,319) 403,696
Prepayments (164,431) (9,275)
Accounts payable and accrued
liabilities 1,272,439 686,128
Income taxes 222,000 833,603
Cash provided by operating
activities 2,304,125 4,506,152
Investing activities
Investment in Associate (95,690) -
Restricted cash 2,917 2,318,499
Purchase of equipment and
mineral properties (4,471,680) (2,874,589)
Proceeds received on disposal of
equipment 35,135 370,893
Other assets and deposits (2,859,406) (304,668)
Reclamation deposits (195,897) (359,258)
Cash used in investing activities (7,584,621) (849,123)
Financing activities
Principal repayments under
capital lease obligations (3,041,110) (2,406,449)
Common shares issued for cash,
net of issue costs 7,990,468 (14,071)
Subscriptions received - 380,220
(Repayment) Drawdown repayment
of credit facility 1,502,096 (3,125,437)
Cash (used in) provided by
financing activities 6,451,454 (5,165,737)
(Decrease) Increase in cash and
cash equivalents during the
period 1,170,958 (1,508,708)
Cash and cash equivalents,
beginning of period 2,512,610 $ 3,997,807
Cash and cash equivalents, end
of period $ 3,683,568 $ 2,489,099
Interest paid on facilities
during the period $ 214,325 $ 538,287
Interest paid on capital leases $ 85,783 $ 683,115
Interest received $ 171,497 $ 116,849
Income taxes paid during the
period $ - $ (833,603)
The accompanying notes are an integral part of these interim consolidated
financial statements.
Notes to the Interim Consolidated Financial Statements
For the three and nine months ended November 30, 2010 and 2009
(Unaudited - Expressed in Canadian Dollars unless otherwise stated)
Amended and restated
Please refer to Explanatory Note on Cover
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 nine months ended November 30, 2010 the Company incurred a loss of
$2,440,855 that has increased Rockwell`s accumulated losses (deficit) to
$51.5 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 nine months of fiscal 2011 is US$1,345 per carat.
At November 30, 2010, the Company`s current assets exceeded its current
liabilities by $9.2 million and the Company`s total assets exceeded its total
liabilities by $87.1 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
November 30, 2010 February 28, 2010
Rough diamond inventories $ 4,593,445 $ 1,283,604
Mine supplies 4,750,365 1,692,454
Total inventories $ 9,343,810 $ 2,976,058
As at November 30, 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 its 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 nine
months ending November 30, 2010.
5. PROPERTY, PLANT AND EQUIPMENT
As at November 30, 2010
Accumulated
Amortization and
Cost Impairments Carrying value
Land and buildings $ 7,753,809 $ 917,045 $ 6,836,764
Processing plant and
equipment 82,255,387 37,189,644 45,065,743
Processing plant and
equipment under capital
lease obligation 3,702,894 875,829 2,827,065
Construction in progress 1,748,393 - 1,748,393
Office equipment 1,041,448 608,354 433,094
Vehicles and light
equipment 1,868,085 1,148,045 720,040
$ 98,370,016 $40,738,917 $57,631,099
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 nine months ending
November 30, 2010 was $7,880,545 (2009 - $5,105,833).
The company`s bankers have registered two notarial general covering bonds of
ZAR10.0 million each ($1,447,995) over all moveable assets on the property of
the farms 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 fiscal year.
6. MINERAL PROPERTY INTERESTS
As at As at
November 30, 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
Acquisition cost (Erf 2004) 868,206 -
Foreign exchange adjustments 356,358 2,042,252
Depletion of mineral properties during
the period (1,356,092) (1,630,370)
Write-down of mineral property - (657,634)
H.C. Van Wyk Diamonds Ltd and Klipdam
Mining Company Ltd, end of period 21,996,703 22,128,231
Saxendrift Mine (Pty) Ltd
Balance, beginning of period $ 8,722,767 $ 6,520,494
Acquisition costs -
1,703,195
Foreign exchange adjustments 122,480 733,083
Future income tax liability - 662,354
Depletion of mineral properties during
the period (466,089) (896,359)
Saxendrift Mine (Pty) Ltd, end of
period 8,379,158 8,722,767
Balance, end of period $ 30,375,861 $ 30,850,998
Acquisition of ERF 2004 Windsorton("Erf 2004")
On November 1, 2010, HC Van Wyk Diamonds Ltd ("HCVW") exercised an option in
terms of an agreement with Batla Resources Pty Ltd the holder of a
prospecting and mineral right and MJA Boerdery CC the surface owner whereby
HCVW would acquire the prospect and mining rights to Erf 2004 (a portion of
Erf 2003) Windsorton for ZAR 6.0 million ($0.8 million) of which ZAR 2.0
million ($0.2 million) was paid immediately and the balance to be paid in ten
equal monthly installments monthly thereafter. Erf 2004 is adjacent to
Klipdam mine and will be explored and bulk sampled during fiscal 2012.
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
November 30, 2010 February 28, 2010
Wesbank $ 17,048 $ 48,792
Komatfin 278,363 3,287,729
$ 295,411 $ 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 9.00%, 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
November 30, 2010 February 28, 2010
2011 $ 302,181 $3,301,394
2012 - 141,544
Total minimum lease payments 302,181 3,442,938
Less: interest portion (6,770) (106,417)
Present value of capital lease
obligations 295,411 3,336,521
Current portion (295,411) 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
November 30, 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 (407,684) (473,278)
Foreign exchange on reclamation 160,551 219,113
Accretion expense - 481,932
Balance, end of period $ 2,670,969 $ 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 58,677 95,625
Accretion expense 362,580 -
Balance, end of period $ 1,226,139 $ 804,882
Total reclamation obligation, end of
period $ 3,897,108 $ 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 November 30, 2010, the Company had
cash reclamation deposits totaling $3,093,964 (February 28, 2010 -
$2,898,067) comprised of $1,516,645 (February 28, 2010 - $1,238,104) for the
Holpan, Wouterspan and Klipdam mine and $ 1,577,319(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
company. Refer to note 13.
9. INVESTMENT IN EQUITY ACCOUNTED ASSOCIATE
As at As at
November 30, 2010 February 28, 2010
Investment in associate at cost $ 95,690 $ -
Foreign exchange adjustments 5,670 -
Share of profit for the period ended
November 30, 2010 36,925 -
Balance at the end of the period $ 138,285 $ -
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
November 30, February 28,
2010 2010
Financial Position
Total Assets $ 6,111,414 $ 5,159,027
Total Liabilities 5,405,484 4,672,164
Net Assets 705,930 486,863
Nine months ended Year ended
November 30, February 28,
2010 2010
Financial Performance
Total Revenue $ 41,544,217 $ 36,813,912
Total profit for the period 184,624 168,712
Capital commitments and contingent
liabilities of associate Nil Nil
10. OTHER ASSETS AND DEPOSITS
As at As at
November 30, 2010 February 28, 2010
Refundable security deposits $ 161,460 $ 152,259
Investments(a) 875,421 574,086
Deposits on future assets(b) - 101,526
Etruscan Diamonds Limited(c) 2,650,346 -
Total other assets and deposits $ 3,687,277 $ 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 November 30, 2010 amounted to $3,969,385
(February 28, 2010 - $3,472,153) of which $3,093,964 (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
the fiscal 2010 year end.
(c) Short-term amount receivable from Etruscan Diamonds Limited that is not
interest bearing and has no fixed repayment terms.
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 November 30,
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 -
October 8,2015 $0.065 - 15,042,000
22,818,890 15,042,000
Weighted average exercise
price $ 0.25 $ 0.065
Weighted average fair value
of stock options granted
during the period
Expired/ Nov 30,
Expiry date Exercised cancelled 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 - (588,300) 13,682,590
January 18, 2015 - - 600,000
October 8,2015 - - 15,042,000
- (608,300) 37,252,590
Weighted average exercise
price $ - $ 0.08 $ 0.25
Weighted average fair value
of stock options granted
during the period $ 0.065
As at November 30, 2010, 22,463,727 of the stock options outstanding with a
weighted average exercise price of $0.25 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 Nine months ended
November 30 November 30
2010 2009 2010 2009
Exploration and
engineering $ 190,052 $ 5,382 $ 215,630 $ 43,022
Operations and
administration 270,934 6,996 541,855 103,422
Total compensation cost
expensed to operations,
with the offset credited
to contributed surplus $ 460,986 $ 12,378 $ 757,485 $ 146,444
(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
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
As at As at
Balances payable November 30, 2010 February 28, 2010
Banzi Trade 26 (Pty) Ltd (d) $ 34,518 $ 603
Hunter Dickinson Services Inc. (a) 65,011 627,435
Seven Bridges Trading (b) 11,468 13,285
Flawless Diamonds Trading House (c) 60,138 -
Current balances payable $ 171,135 $ 641,323
Liberty Lane (f) 439,130 414,566
Long-term balances payable $ 439,130 $ 414,566
Balances receivable
Banzi Trade 26 (Pty) Ltd (d) 34,694 46,108
$ 34,694 $ 46,108
Three months ended Nov 30, Nine months ended Nov 30,
Transactions 2010 2009 2010 2009
Services rendered and
expenses reimbursed:
Hunter Dickinson
Services Inc. (a) $ 140,333 $ 281,909 $ 425,479 $ 818,535
Seven Bridges Trading (b) 35,976 29,575 105,145 102,710
Flawless Diamonds
Trading House (c) 143,367 127,658 295,492 224,405
Banzi Trade 26 (Pty)
Ltd (d) 37,868 9,537 133,312 17,115
Jakes Tyres (e) - 30,857 - 74,702
CEC Engineering (g) 13,036 - 13,036 -
Sales rendered to:
Banzi Trade 26 (Pty) Ltd (d) $ - $ - $ - $ 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.
(g) CEC Engineering Ltd is a private company owned by David Copeland,
Chairman and a director of the Company, which provides engineering and
project management services at market rates.
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 million) available for its
operations (current balance $2.2 million). This facility has an interest cost
of prime (currently 9.0% 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
ZAR4,911,100 ($711,125) and the Department of Minerals and Energy (DME) of
ZAR21,367,228 ($3,093,964) towards rehabilitation expenses.
Restricted cash of $2,029 (February 28, 2010 - $4,946) relates to monies held
in trust by the company`s lawyers.
14. CONTINGENCIES
Kwango River Project, Democratic Republic of Congo
Rockwell`s indirect subsidiary, Durnpike Investments (Proprietary) Limited`s
("Durnpike") interest in the Kwango River Project was constituted by an
agreement ("Midamines Agreement") which was concluded between Durnpike and
Midamines SPRL ("Midamines"), the holder of the permit for the Kwango River
Project, during 2006, in terms of which Durnpike was 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 certain 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, as escalated in accordance with the Midamines Agreement
(commencing on December 31, 2007). During the first quarter of 2008, pursuant
to an amendment to the Midamines Agreement (contained in the Fifth Addendum
thereto), 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 and such payment was deferred to December
31, 2008.
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 and/or the Fifth Addendum thereto.
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 by Rockwell and
Durnpike of compensation in the amount of US$41.8 million (while reserving
the right to increase the claim to US$68.073 million if the DRC authorities
cancel Midamines` permit for the Kwango Project) plus interest. Durnpike
and/or Rockwell have defended the claim and have, in turn, instituted a
counter-claim in the estimated and provisional amounts of approximately
ZAR25.4 million for equipment purchased to undertake exploration and
feasibility work, C$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 $164.3 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.
21 January 2011
(Sasfin Capital)
A division of Sasfin Bank Limited)
Date: 21/01/2011 10:12:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
