| Fri 12 Aug 2011, 7:13 | | RDI - Rockwell Diamonds Inc - Unaudited Interim Consolidated Financial |
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RDI
RDI
RDI - Rockwell Diamonds Inc - Unaudited Interim Consolidated Financial
Statements for the 3 months ended 31 May 2011
Rockwell Diamonds Inc.
(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: CA77434W2022
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
Unaudited Interim Consolidated Financial Statements
for the 3 months ended 31 May 2011
Index
The reports and statements set out below comprise the unaudited interim
consolidated financial statements presented to the shareholders:
Index Page
Statement of Financial Position 2
Statement of Comprehensive Income 3
Statement of Changes in Equity 4
Statement of Cash Flows 5
Accounting Policies 6 - 13
Notes to the Unaudited Interim Consolidated Financial
Statements 14 - 31
The unaudited interim consolidated financial statements set out on pages 2 to
31, which have been prepared on the going concern basis, were approved by the
board on 10 August 2011 and were signed on its behalf by:
/s/ James Campbell /s/ Dr. Mark Bristow
James Campbell Dr Mark Bristow
Director, Chief Executive Officer Director
Notice of no Auditor Review of Interim Consolidated Financial Statements
In accordance with National Instrument 51102 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.
Statement of Financial Position
31 May 28 February 31
May
Figures in Canadian
Dollar Note(s) 2011 2011
2010
Assets
Non-current assets
Mineral property
interests 2 23 568 707 23 562 969 23 725 171
Property, plant and
equipment 3 63 770 319 62 828 438 56 397 896
Investment in
associate 4 146 004 129 660 98 017
Other financial
assets 5 2 522 749 2 042 291 679 648
Reclamation deposits 14 2 801 021 2 759 611 2 898 067
92 808 800 91 322 969 83 798 799
Current assets
Inventories 6 2 630 853 2 628 089 8 473 016
Loan to related
party 7 90 751 92 398 28 363
Trade and other
receivables 8 3 052 644 5 366 797 6 195 876
Cash and cash
equivalents 9 6 647 789 4 771 124 8 570 097
12 422 037 12 858 408 23 267 352
Total assets 105 230 837 104 181 377 107 066 151
Equity and
liabilities
Equity
Equity attributable
to equity holders
of Company
Share capital 10 136 425 223 135 989 508 135 989 508
Reserves 2 790 829 1 530 969 (867 479)
Retained loss (53 602 698) (52 686 500) (48 335 365)
85 613 354 84 833 977 86 786 664
Non-controlling
interest 410 010 647 407 517 663
Total equity 86 023 364 85 481 384 87 304 327
Liabilities
Non-current
liabilities
Loans from related
parties 7 430 943 424 572 414 566
Capital lease
obligation 12 - - 34 401
Deferred tax 13 5 902 000 5 840 000 3 972 000
Reclamation
obligation 14 3 890 782 3 814 638 4 002 878
10 223 725 10 079 210 8 423 845
Current liabilities
Loans from related
parties 7 163 709 72 064 175 815
Current tax payable 247 774 245 228 333 534
Capital lease
obligation 12 40 175 142 630 1 912 617
Trade and other
payables 15 4 900 075 6 373 382 6 903 083
Bank overdraft 9 3 632 015 1 787 479 2 012 930
8 983 748 8 620 783 11 337 979
Total liabilities 19 207 473 18 699 993 19 761 824
Total equity and
liabilities 105 230 837 104 181 377 107 066 151
Statement of Comprehensive Income
3 months 12 months 3 months
ended ended ended
31 May 28 February 31 May
Figures in Canadian
Dollar Note(s) 2011 2011 2010
Revenue 16 8 505 539 42 507 747 8 456 582
Cost of sales 17 (8 002 823) (37 525 869) (5 956 359)
Gross profit 502 716 4 981 878 2 500 223
Other income 105 780 193 157 4 690
General and administration
expenses (1 765 858) (7 063 633) (2 175 137)
Operating (loss)
profit 18 (1 157 362) (1 888 598) 329 776
Investment income 19 107 261 101 953 13 346
Fair value adjustments 20 - (31 920) -
Income from equity
accounted investments 14 873 34 396 2 327
Finance costs 21 (109 112) (449 003) (137 513)
(Loss) profit before
taxation (1 144 340) (2 233 172) 207 936
Income tax expense 22 (62 000) (2 933 066) (1 066 453)
Loss for the period (1 206 340) (5 166 238) (858 517)
Other comprehensive
income:
Exchange differences
on translating
foreign operations (1 131 560) (1 750 124) (15 583)
Total comprehensive
loss (2 337 900) (6 916 362) (874 100)
Loss attributable to:
Owners of the Company (916 198) (5 078 141) (727 003)
Non-controlling
interest (290 142) (88 097) (131 514)
(1 206 340) (5 166 238) (858 517)
Total comprehensive
loss attributable to:
Owners of the Company (2 047 758) (6 828 265) (742 586)
Non-controlling
interest (290 142) (88 097) (131 514)
(2 337 900) (6 916 362) (874 100)
Loss per share
Per share information
Basic and diluted
loss per share (c) 0.004 0.013 0.002
Headline loss per
share (c) 0.002 0.010 0.002
Statement of Changes in Equity
Share capital Foreign Share-based
currency payment
translation reserve
reserve
Figures in Canadian Dollar
Opening balance as previously
reported 127 999 040 (7 979 683) 6 195 051
Adjustments
Effects of transition to IFRS - 680 591 -
Balance at 01 March 2010 as
restated 127 999 040 (7 299 092) 6 195 051
Changes in equity
Total comprehensive income
(loss) for the year - 1 750 124 -
Share-based payment expense - - 884 886
Rights offering at subscription
price of $0.05 per share 4 583 644 - -
Private placement, net of issue
costs at $0.065 per share 3 406 824 - -
Foreign exchange movement - - -
Total changes 7 990 468 1 750 124 884 886
Opening balance as previously
reported 135 989 508 (6 363 878) 7 079 937
Adjustments
Effects of transition to IFRS - 814 910 -
Balance at 01 March 2011 as
restated 135 989 508 (5 548 968) 7 079 937
Changes in equity
Total comprehensive income
(loss) for the three months - 1 131 560 -
Private placement, net of issue
costs at $0.065 per share 435 715 - -
Share-based payment expense - - 128 300
Foreign exchange movement - - -
Total changes 435 715 1 131 560 128 300
Balance at 31 May 2011 136 425 223 (4 417 408) 7 208 237
Note(s) 10 11
Total reserves Retained loss Total
attributable to
equity holders
of the
Company
Figures in Canadian Dollar
Opening balance as
previously reported (1 784 632) (49 020 317) 77 194 091
Adjustments
Effects of transition to
IFRS 680 591 1 411 958 2 092 549
Balance at 01 March 2010
as restated (1 104 041) (47 608 359) 79 286 640
Changes in equity
Total comprehensive
income (loss) for the
year 1 750 124 (5 078 141) (3 328 017)
Share-based payment
expense 884 886 - 884 886
Rights offering at
subscription price of
$0.05 per share - - 4 583 644
Private placement, net of
issue costs at $0.065 per
share - - 3 406 824
Foreign exchange movement - - -
Total changes 2 635 010 (5 078 141) 5 547 337
Opening balance as
previously reported 716 059 (54 147 253) 82 558 314
Adjustments
Effects of transition to
IFRS 814 910 1 460 753 2 275 663
Balance at 01 March 2011
as restated 1 530 969 (52 686 500) 84 833 977
Changes in equity
Total comprehensive
income (loss) for the
three months 1 131 560 (916 198) 215 362
Private placement, net of
issue costs at $0.065 per
share - - 435 715
Share-based payment
expense 128 300 - 128 300
Foreign exchange movement - - -
Total changes 1 259 860 (916 198) 779 377
Balance at 31 May 2011 2 790 829 (53 602 698) 85 613 354
Non-controlling Total equity
interest
Figures in Canadian Dollar
Opening balance as previously reported 648 941 77 843 032
Adjustments
Effects of transition to IFRS - 2 092 549
Balance at 01 March 2010 as restated 648 941 79 935 581
Changes in equity
Total comprehensive income (loss) for the year (88 097) (3 416 114)
Share-based payment expense - 884 886
Rights offering at subscription price of
$0.05 per share - 4 583 644
Private placement, net of issue costs at
$0.065 per share - 3 406 824
Foreign exchange movement 86 563 86 563
Total changes (1 534) 5 545 803
Opening balance as previously reported 647 407 83 205 721
Adjustments
Effects of transition to IFRS - 2 275 663
Balance at 01 March 2011 as restated 647 407 85 481 384
Changes in equity
Total comprehensive income (loss) for the
three months (290 142) (74 780)
Private placement, net of issue costs at
$0.065 per share - 435 715
Share-based payment expense - 128 300
Foreign exchange movement 52 745 52 745
Total changes (237 397) 541 980
Balance at 31 May 2011 410 010 86 023 364
Statement of Cash Flows
3 months 12 months 3 months
ended ended ended
31 May 28 February 31 May
Figures in Canadian
Dollar Note(s) 2011 2011 2010
Cash flows from
operating activities
Cash generated from
operations 23 1 912 956 10 808 399 (969 873)
Investment income 107 261 101 953 13 346
Finance costs (109 112) (449 003) (137 513)
Tax paid (refunded) 24 2 546 (899 141) 45 232
Net cash inflow
(outflow) from
operating activities 1 913 651 9 562 208 (1 048 808)
Cash flows from
investing activities
Purchase of property,
plant and equipment 3 (2 220 076) (10 790 700) (129 950)
Proceeds from sale of
property, plant and
equipment 3 - 301 518 -
Purchase of mineral
property interests 2 - (845 773) -
Acquisition of
associate - (95 690) (95 690)
Repayment of loans to
group companies - (634 248) (447 763)
Proceeds from loans
from group companies 99 663 - -
Proceeds from sale of
financial assets (94 368) (1 024 738) (141 128)
Net cash outflow from
investing activities (2 214 781) (13 089 631) (814 531)
Cash flows from
financing activities
Proceeds on share
issue 10 435 714 7 990 468 7 990 468
Capital lease
obligation repayments (102 455) (3 298 941) (1 389 503)
Net cash inflow from
financing activities 333 259 4 691 527 6 600 965
Net movement in cash
and cash equivalents
for the period 32 129 1 164 104 4 737 626
Cash and cash
equivalents at the
beginning of the
period 2 983 645 1 819 541 1 819 541
Total cash and cash
equivalents at end of
the period 9 3 015 774 2 983 645 6 557 167
Accounting Policies
1. Presentation of Unaudited Interim Consolidated Financial Statements
Rockwell Diamonds Inc. ("Rockwell" or the "Company") is engaged in the
business of diamond production and the acquisition and exploration of natural
resource properties. The Company`s principal mineral property interests are
located in South Africa.
The accompanying unaudited interim consolidated financial statements are the
first financial statements that have been prepared in accordance with
International Financial Reporting Standards. The unaudited interim
consolidated financial statements have been prepared in accordance with IAS
34 "Interim Financial Reporting". The unaudited interim consolidated
financial statements have been prepared on the historical cost basis, except
for the measurement certain financial instruments at fair value, and
incorporate the principal accounting policies set out below. Amounts are
presented in Canadian Dollars, unless otherwise stated.
These accounting policies are consistent with the previous period, except for
the changes set out in note 26 First-time adoption of International Financial
Reporting Standards.
1.1 Continuance of operations and going concern
The going concern basis of presentation assumes that the Company will
continue in operation for the foreseeable future and will be able to realise
its assets and discharge its liabilities and commitments in the normal course
of business.
For the three months ended May 31, 2011, the Company incurred consolidated
losses of $1.2 million and has incurred accumulated losses to date of $53.6
million.
In fiscal 2011, diamond prices have increased gradually from US$1,010 for
fiscal 2010 to US$1,365 for the year ending February 28, 2011, with the
average sales value increasing to $1,631 for the current quarter in
comparison to a fourth quarter of fiscal 2011 sales value of US$1,430.
At May 31, 2011, the Company`s current assets exceeded its current
liabilities by $4.9 million and the Company`s total assets exceeded its total
liabilities by $86.0 million. The Company has forecasted its cash flows for
the fiscal years 2012 and 2013 and these forecasts indicate that the Company
will continue as a going concern. The forecasts assume the plant operating at
85% of capacity, prices remaining at current levels and the South African
Rand remaining at current levels relative to the United States and Canadian
Dollars.
On the performance of the last two quarters, the operations made a positive
contribution towards the cashflow. This is not sufficient to fund to planned
capital projects at Wouterspan and Tirisano. These expansion projects will be
funded by means of a planned private placement.
Based on the Company`s cash resources and the above forecasts, the Company
has sufficient working capital and reserves to maintain operations.
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.
1.2 Basis of presentation and principles of consolidation
Basis of consolidation
The unaudited interim consolidated financial statements incorporate the
unaudited interim consolidated financial statements of the Company, its
subsidiares and associates.
Control exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries are included in the unaudited interim
consolidated financial statements from the effective date of acquisition to
the effective date of disposal.
All intra-company transactions, balances, income and expenses are eliminated
in full on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified and recognised separately from the Company`s interest therein, and
are recognised within equity. Losses of subsidiaries attributable to non-
controlling interests are allocated to the non-controlling interest even if
this results in a debit balance being recognised for non-controlling
interest.
Investment in associates
An associate is an entity over which the Company has significant influence
and which is neither a subsidiary nor a joint venture. Significant influence
is the power to participate in the financial and operating policy decisions
of the investee but is not control or joint control over those policies.
An investment in associate is accounted for using the equity method. Under
the equity method, investments in associates are carried in the consolidated
statement of financial position at cost adjusted for post acquisition changes
in the Company`s share of net assets of the associate, less any impairment
losses.
Losses in an associate in excess of the Company`s interest in that associate
are recognised only to the extent that the Company has incurred a legal or
constructive obligation to make payments on behalf of the associate.
Profits or losses on transactions between the Company and an associate are
eliminated to the extent of the Company`s interest therein.
1.3 Significant judgements and sources of estimation uncertainty
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the
amounts represented in the unaudited interim consolidated financial
statements and related disclosures. Use of available information and the
application of judgement is inherent in the formation of estimates. Actual
results in the future could differ from these estimates which may be material
to the unaudited interim consolidated financial statements. Significant
judgements include:
Trade receivables and loans and receivables
The Company assesses its trade receivables and loans and receivables for
impairment at the end of each reporting period. In determining whether an
impairment loss should be recorded in profit or loss, the Company makes
judgements as to whether there is observable data indicating a measurable
decrease in the estimated future cash flows from a financial asset.
Fair value estimation
The carrying value less impairment provision of trade receivables and
payables are assumed to approximate their fair values. The fair value of
financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is
available to the Company for similar financial instruments.
Impairment testing
The recoverable amounts of cash-generating units and individual assets have
been determined based on the higher of value-in-use calculations and fair
values less costs to sell. These calculations require the use of estimates
and assumptions. It is reasonably possible that the residual value and useful
life assumption may change which may then impact our estimations and may then
require a material adjustment to the carrying value of tangible assets.
The Company reviews and tests the carrying value of assets when events or
changes in circumstances suggest that the carrying amount may not be
recoverable. Assets are grouped at the lowest level for which identifiable
cash flows are largely independent of cash flows of other assets and
liabilities. If there are indications that impairment may have occurred,
estimates are prepared of expected future cash flows for each group of
assets. Expected future cash flows used to determine the value in use of
goodwill and tangible assets are inherently uncertain and could materially
change over time.
Provisions
Provisions were raised and management determined an estimate based on the
information available. Additional disclosure of these estimates of provisions
are included in note 14 - Reclamation obligation.
1.4 Mineral property interests
The acquisition costs of mineral properties are capitalised until the
property is placed into production, sold, or abandoned, or when management
has determined that there has been an impairment in value. Such acquisition
costs are amortised over the estimated life of the mine, based on a straight
line basis, or written off to operations if the property is abandoned,
allowed to lapse, or if there is little prospect of further work being
carried out by the Company.
Exploration expenditure incurred subsequent to the mining operations which do
not increase production or extend the life of operations are expensed in the
period incurred.
The amount presented for mineral property interests represents costs incurred
to date and accumulated amortisation costs, less write-downs, and does not
necessarily reflect present or future values.
An impairment review of mineral property interests is carried out when there
is an indication that these may be impaired by comparing the carrying amount
of the interest to its estimated recoverable amount. Where the recoverable
amount is less than the carrying amount an impairment charge is included in
expenses in order to reduce the carrying amount of mineral property interest
to its fair value.
1.5 Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an
asset when:
* it is probable that future economic benefits associated with the item will
flow to the Company; and
* the cost of the item can be measured reliably.
Property, plant and equipment is initially measured at cost.
Costs include costs incurred initially to acquire or construct an item of
property, plant and equipment and costs incurred subsequently to add to and
replace part of it. If a replacement cost is recognised in the carrying
amount of an item of property, plant and equipment, the carrying amount of
the replaced part is derecognised.
Property, plant and equipment are depreciated on the straight line basis over
their expected useful lives to their estimated residual value.
Property, plant and equipment is carried at cost less accumulated
depreciation and any impairment losses.
The useful lives of items of property, plant and equipment have been assessed
as follows:
Item Average useful life
Buildings 12 years
Plant and machinery 4 - 10 years
Motor vehicles 5 years
Office equipment 6 years
The residual value, useful life and depreciation method of each asset are
reviewed at the end of each reporting period. If the expectations differ from
previous estimates, the change is accounted for as a change in accounting
estimate.
The depreciation charge for each period is recognised in profit or loss
unless it is included in the carrying amount of another asset.
The gain or loss arising from the derecognition of an item of property, plant
and equipment is included in profit or loss when the item is derecognised.
The gain or loss arising from the derecognition of an item of property, plant
and equipment is determined as the difference between the net disposal
proceeds, if any, and the carrying amount of the item.
1.6 Financial instruments
Initial recognition and measurement
Financial instruments are recognised initially when the Company becomes a
party to the contractual provisions of the instruments.
The Company classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual arrangement.
Financial instruments are measured initially at fair value, except for equity
investments for which a fair value is not determinable, which are measured at
cost and are classified as available-for-sale financial assets.
For financial instruments which are not at fair value through profit or loss,
transaction costs are included in the initial measurement of the instrument.
Transaction costs on financial instruments at fair value through profit or
loss are recognised in profit or loss.
Subsequent measurement
Financial instruments at fair value through profit or loss are subsequently
measured at fair value, with gains and losses arising from changes in fair
value being included in profit or loss for the period.
Loans and receivables are subsequently measured at amortised cost, using the
effective interest method, less accumulated impairment losses.
Available-for-sale financial assets are subsequently measured at fair value.
This excludes equity investments for which a fair value is not determinable,
which are measured at cost less accumulated impairment losses.
Financial liabilities at amortised cost are subsequently measured at
amortised cost, using the effective interest method.
Impairment of financial assets
At each reporting date the Company assesses all financial assets, to
determine whether there is objective evidence that a financial asset or group
of financial assets has been impaired.
For amounts due to the Company, significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy and default of
payments are all considered indicators of impairment.
Impairment losses are recognised in profit or loss.
Reversals of impairment losses are recognised in profit or loss except for
equity investments classified as available-for-sale.
Impairment losses are also not subsequently reversed for available-for-sale
equity investments which are held at cost because fair value was not
determinable.
Investments
The Company classified its investments in debt and equity securities into the
following categories: fair value through profit and loss, held-to-maturity
and available-for-sale. The classification is dependant on the purpose for
which the investments were required. Management determines the classification
of its investments at the time of the purchase and re-evaluates such
designation on a regular basis. Investments that are acquired principally for
the purpose of generating a profit from short term fluctuations in price are
classified as trading investments and included in current assets. Investments
with a fixed maturity that management has the intention and ability to hold
to maturity are classified as held-to-maturity and are included in non-
current assets, except for maturities within 12 months from the reporting
date which are classified as current assets. Investments intended to be held
for an indefinite period of time, which may be sold in response to needs for
liquidity or changes in interest rates, are classified as available-for-sale
and are included in non-current assets unless management has the express
intention of holding the investment for less than 12 months from the
reporting date or unless they will need to be sold to raise operating
capital, in which case they are included in current assets.
Purchases and sales of investments are recognised on the trade day, which is
the date that the Company commits to purchase or sell the asset. Cost of
purchase includes transaction costs. Fair value through profit and loss and
available-for-sale investments are subsequently carried at fair value.
Realised and unrealised gains and losses arising from changes in the fair
value of trading investments are included in equity in the period in which
they arise. The fair value of investments is based on quoted bid prices or
amounts derived from cash flow models. Equity securities for which fair value
cannot be measured reliably are recognised at cost less impairment. W hen
securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments are included in the statement of
comprehensive income as gains and losses from investment securities. Held-to-
maturity investments are carried at amortised cost using the effective yield
method.
Loans to (from) group companies
These include loans to and from subsidiaries and associates and are
recognised initially at fair value plus direct transaction costs.
Loans to group companies are classified as loans and receivables.
Loans from group companies are classified as financial liabilities measured
at amortised cost.
Trade and other receivables
Trade receivables are measured at initial recognition at fair value, and are
subsequently measured at amortised cost using the effective interest rate
method. Appropriate allowances for estimated irrecoverable amounts are
recognised in profit or loss when there is objective evidence that the asset
is impaired. Significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganisation, and
default or delinquency in payments (more than 30 days overdue) are considered
indicators that the trade receivable is impaired. The allowance recognised is
measured as the difference between the asset`s carrying amount and the
present value of estimated future cash flows discounted at the effective
interest rate computed at initial recognition.
Trade and other receivables are classified as loans and receivables.
Trade and other payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and
other short-term highly liquid investments that are readily convertible to a
known amount of cash and are subject to an insignificant risk of changes in
value. These are initially and subsequently recorded at fair value.
Bank overdraft and borrowings
Bank overdrafts and borrowings are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective interest rate
method. Any difference between the proceeds (net of transaction costs) and
the settlement or redemption of borrowings is recognised over the term of the
borrowings in accordance with the company`s accounting policy for borrowing
costs.
1.7 Tax
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid,
recognised as a liability. If the amount already paid in respect of current
and prior periods exceeds the amount due for those periods, the excess is
recognised as an asset.
Current tax liabilities (assets) for the current and prior periods are
measured at the amount expected to be paid to (recovered from) the tax
authorities, using the tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities
Deferred tax is provided for using the liability method, on all temporary
differences, between the carrying values of assets and the liabilities for
accounting purposes and the amounts used for tax purposes and on any tax
losses. No deferred tax is provided for on temporary differences relating to
the initial recognition of an asset or liability to the extent that neither
accounting nor taxable profit is affected on acquisition.
The provision for deferred tax is calculated using enacted rates at the
reporting date that are expected to apply when the asset is realised or the
liability is settled. A deferred tax asset is recognised to the extent that
it is probable that future taxable profits will be available against which
the deferred tax asset could be realised.
Tax expenses
Current and deferred taxes are recognised as income or an expense and
included in profit or loss for the period, except to the extent that the tax
arises from:
* a transaction or event which is recognised, in the same or a different
period, to other comprehensive income, or
* a business combination.
Current tax and deferred taxes are charged or credited directly to equity if
the tax relates to items that are credited or charged, in the same or a
different period, directly in equity.
1.8 Share-based payments
Goods or services received or acquired in a share-based payment transaction
are recognised when the goods or as the services are received. A
corresponding increase in equity is recognised if the goods or services were
received in an equity-settled share-based payment transaction or a liability
if the goods or services were acquired in a cash-settled share-based payment
transaction.
When the goods or services received or acquired in a share-based payment
transaction do not qualify for recognition as assets, they are recognised as
expenses.
For equity-settled share-based payment transactions the goods or services
received and the corresponding increase in equity are measured, directly, at
the fair value of the goods or services received provided that the fair value
cannot be estimated reliably.
If the fair value of the goods or services received cannot be estimated
reliably, their value and the corresponding increase in equity, indirectly,
are measured by reference to the fair value of the equity instruments
granted.
For cash-settled share-based payment transactions, the goods or services
acquired and the liability incurred are measured at the fair value of the
liability. Until the liability is settled, the fair value of the liability is
re-measured at each reporting date and at the date of settlement, with any
changes in fair value recognised in profit or loss for the period.
If the share based payments granted do not vest until the counterparty
completes a specified period of service, Company accounts for those services
as they are rendered by the counterparty during the vesting period, (or on a
straight line basis over the vesting period).
If the share based payments vest immediately the services received are
recognised in full.
For share-based payment transactions in which the terms of the arrangement
provide either the entity or the counterparty with the choice of whether the
entity settles the transaction in cash (or other assets) or by issuing equity
instruments, the components of that transaction are recorded, as a cash-
settled share-based payment transaction if, and to the extent that, a
liability to settle in cash or other assets has been incurred, or as an
equity-settled share-based payment transaction if, and to the extent that, no
such liability has been incurred.
1.9 Reclamation obligation
Estimated rehabilitation costs, which are based on the Company`s
interpretation of current environmental and regulatory requirements,
represent the present value of the expected future costs to rehabilitate the
mine properties at termination of mining operations. The estimated costs of
rehabilitation are reviewed annually and adjusted as appropriate for changes
in legislation, technology or other circumstances.
Provision is made for the Company`s legal and constructive obligations to
dismantle, remove and restore items of property, plant and equipment and
remediation of disturbed areas in the financial period when the related
environmental disturbance occurs, based on the estimated future costs using
information available at the balance sheet date. The provision is discounted
using a market-based pre-tax discount rate and the unwinding of the discount
is included in interest expense. The provision is not discounted if the
discounting is not significant in relation to the provision made.
Rehabilitation of disturbed areas is performed on a continuous basis. At the
time of establishing the provision, a corresponding asset is capitalised,
where it gives rise to a future benefit, and depreciated over its useful life
on a straight line method.
Based on current environmental regulations and known rehabilitation
requirements, management has included its best estimate of these obligations
in its rehabilitation provision. However, it is reasonably possible that the
Company`s estimates of its ultimate rehabilitation liabilities could change
as a result of changes in regulations or cost estimates.
1.10 Translation of foreign currencies
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in
Canadian Dollar, by applying to the foreign currency amount the spot exchange
rate between the functional currency and the foreign currency at the date of
the transaction.
At the end of the reporting period:
* foreign currency monetary items are translated using the closing rate;
* non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date of the
transaction; and
* non-monetary items that are measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
determined.
Exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
translated on initial recognition during the period or in previous financial
statements are recognised in profit or loss in the period in which they
arise.
Cash flows arising from transactions in a foreign currency are recorded in
Canadian Dollar by applying to the foreign currency amount the exchange rate
between the Canadian Dollar and the foreign currency at the date of the cash
flow.
Investments in subsidiaries and associates
The results and financial position of a foreign operation are translated into
the functional currency using the following procedures:
* assets and liabilities for each statement of financial position presented
are translated at the closing rate at the date of that statement of financial
position;
* income and expenses for each item of profit or loss are translated at
exchange rates at the dates of the transactions; and
* all resulting exchange differences are recognised to other comprehensive
income and accumulated as a separate component of equity.
Exchange differences arising on a monetary item that forms part of a net
investment in a foreign operation are recognised initially to other
comprehensive income and accumulated in the translation reserve. They are
recognised in profit or loss as a reclassification adjustment through to
other comprehensive income on disposal of net investment.
The cash flows of a foreign subsidiary are translated at the exchange rates
between the functional currency and the foreign currency at the dates of the
cash flows.
1.11 Changes in accounting policies
At the date of authorisation of these financial statements, certain new
standards, amendments and interpretations to existing standards have been
published but are not yet effective, and have not been adopted early by the
Company.
The directors anticipates that all of the pronouncements will be adopted in
the Company`s accounting policies for the first period beginning after the
effective date of the pronouncement. Information on new standards, amendments
and interpretations that are expected to be relevant to the Company`s
financial statements is provided below. Certain other new standards and
interpretations have been issued but are not expected to have a material
impact on the Company`s financial statements.
Standard Details of Amendment Annual periods
beginning on
or after
IFRS 9 (AC 146) Financial Instruments 1 January 2013
IFRS 7 amendment Disclosures - Transfers of Financial Assets 1 July 2011
The aggregate impact of the initial application of the statements and
interpretations on the Company`s annual financial statements has not yet been
assessed by the directors.
Notes to the Unaudited Interim Consolidated Financial Statements
Figures in Canadian Dollar
2. Mineral property interests
2011
Cost Accumulated Carrying value
depletion
Mineral property interests 31 820 968 (8 252 261) 23 568 707
2011
Cost Accumulated Carrying value
depletion
Mineral property interests 31 540 840 (7 977 871) 23 562
969
2010
Cost Accumulated Carrying value
depletion
Mineral property interests 30 228 646 (6 503 475) 23 725 171
Reconciliation of mineral property interests - May 31, 2011
Opening Foreign Depletion
Total
balance exchange
movements
Wouterspan 13 890 989 136 830 - 14 027 819
Holpan 1 072 472 (125 894) - 946 578
Klipdam (227 805) 166 007 (95 124) (156 922)
Saxendrift 7 398 138 17 837 (106 619) 7 309 356
Niewejaarskraal 239 459 2 127 - 241 586
Makoenskloof 332 727 2 955 - 335 682
Windsorton Erf 2004 856 997 7 611 - 864 608
23 562 977 207 473 (201 743) 23 568 707
Reconciliation of mineral property interests - February 28, 2011
Opening Effects of Additions
balance transition to
IFRS
Mineral property interests 30 850 998 (30 850 998) -
Wouterspan - 13 722 048 -
Holpan - 1 468 070 -
Klipdam - 571 902 -
Saxendrift - 7 743 816 -
Niewejaarskraal - 235 907 -
Makoenskloof - 327 791 -
Windsorton Erf 2004 - - 845 773
30 850 998 (6 781 464) 845 773
Foreign Depletion Total
exchange
movements
Mineral property interests - - -
Wouterspan 168 941 - 13 890 989
Holpan 88 394 (483 992) 1 072 472
Klipdam 107 977 (907 684) (227 805)
Saxendrift 199 374 (545 052) 7 398 138
Niewejaarskraal 3 552 - 239 459
Makoenskloof 4 928 - 332 719
Windsorton Erf 2004 11 224 - 856 997
584 390 (1 936 728) 23 562 969
Reconciliation of mineral property interests - May 31, 2010
Opening Effects of Foreign
balance transition to exchange
IFRS movements
Mineral property interests 30 850 998 (30 850 998) -
Wouterspan - 13 642 143 -
Holpan - 1 564 113 (1)
Klipdam - 687 553 -
Saxendrift - 7 878 492 -
Niewejaarskraal - 236 149 -
Makoenskloof - 297 031 -
30 850 998 (6 545 517) (1)
Depletion Total
Mineral property interests - -
Wouterspan - 13 642 143
Holpan (104 033) 1 460 079
Klipdam (275 595) 411 958
Saxendrift (200 681) 7 677 811
Niewejaarskraal - 236 149
Makoenskloof - 297 031
(580 309) 23 725 171
3. Property, plant and equipment
2011
Cost Accumulated Carrying value
depreciation
Land and buildings 7 616 274 (1 272 167) 6 344 107
Plant and machinery 86 210 235 (37 910 485) 48 299 750
Motor vehicles 1 618 592 (1 067 872) 550 720
Office equipment 1 047 170 (652 001) 395 169
Construction in progress * 8 180 573 - 8 180 573
104 672 844 (40 902 525) 63 770 319
2011
Cost Accumulated Carrying value
depreciation
Land and buildings 7 502 768 (1 149 217) 6 353 551
Plant and machinery 85 045 595 (35 833 250) 49 212 345
Motor vehicles 1 594 663 (1 006 082) 588 581
Office equipment 1 006 922 (615 659) 391 263
Construction in progress * 6 282 698 - 6 282 698
101 432 646 (38 604 208) 62 828 438
2010
Cost Accumulated Carrying value
depreciation
Land and buildings 6 676 271 (111 551) 6 564 720
Plant and machinery 79 798 380 (31 198 541) 48 599 839
Motor vehicles 1 763 589 (956 729) 806 860
Office equipment 949 381 (522 904) 426 477
Construction in progress * - - -
89 187 621 (32 789 725) 56 397 896
Reconciliation of property, plant and equipment - May 31, 2011
Opening Additions Foreign
balance exchange
movements
Buildings 6 353 551 921 95 341
Plant and machinery 49 212 345 - 733 952
Motor vehicles 588 581 - 8 832
Office equipment 391 263 25 139 5 870
Construction in progress * 6 282 698 2 194 016 (296 141)
62 828 438 2 220 076 547 854
Depreciation Total
Buildings (105 706) 6 344 107
Plant and machinery (1 646 547) 48 299 750
Motor vehicles (46 693) 550 720
Office equipment (27 103) 395 169
Construction in progress * - 8 180 573
(1 826 049) 63 770 319
Reconciliation of property, plant and equipment - February 28, 2011
Opening Additions Disposals Foreign
balance exchange
movements
Land and buildings 6 627 966 93 310 - 183 030
Plant and machinery 50 926 945 4 396 818 (341 821) 1 238 687
Motor vehicles 781 353 111 711 (256 207) 63 454
Office equipment 454 472 39 439 - 20 724
Construction in progress * - 6 149 422 - 133 276
58 790 736 10 790 700 (598 028) 1 639 171
Depreciation Impairment Total
loss
Land and buildings (550 755) - 6 353 551
Plant and machinery (6 723 588) (284 696) 49 212 345
Motor vehicles (111 730) - 588 581
Office equipment (123 372) - 391 263
Construction in progress * - - 6 282 698
(7 509 445) (284 696) 62 828 438
Reconciliation of property, plant and equipment - May 31, 2010
Opening Additions Foreign
balance exchange
movements
Land and buildings 6 627 966 24 565 158
Plant and machinery 50 926 945 14 879 3 835
Motor vehicles 781 353 87 884 112
Office equipment 454 472 2 622 55
58 790 736 129 950 4 160
Depreciation Total
Land and buildings (87 969) 6 564 720
Plant and machinery (2 345 820) 48 599 839
Motor vehicles (62 489) 806 860
Office equipment (30 672) 426 477
(2 526 950) 56 397 896
Components of property, plant and equipment are depreciated over their
estimated useful life. The depreciation charge for the quarter was $1,826,049
(February 28, 2011 - $7,509,445).
The Company`s bankers have registered two notarial general covering bonds of
ZAR 10 million ($1.4 million) over all loose assets on the property of the
farm Holpan, Barkley West, Northern Cape (refer Note 25).
(*) Construction in progress at Tirisano.
4. Investment in associate
Name of company % % %
holding holding holding
May 31, February May 31,
2011 28, 2011 2010
Flawless Diamonds
Trading House (Pty)
Ltd 20% 20% 20%
Name of company Carrying Carrying Carrying
amount May amount amount May
31, 2011 February 28, 31, 2010
2011
Flawless Diamonds
Trading House (Pty)
Ltd 146 004 129 660 98 017
2011 2011 2010
Opening balance 129 660 - -
Cost of investment in associate - 95 690 95 690
Share of profit for the period 14 873 34 396 2 327
Foreign exchange adjustments 1 471 (426) -
146 004 129 660 98 017
Summarised financial information of
associate
Total assets 3 551 876 9 690 007 5 159 027
Total liabilities 2 763 202 8 969 428 4 672 164
Net assets 788 674 703 579 486 863
Revenue 15 824 321 60 383 011 36 813 912
Total net earnings for the year 74 363 206 374 168 712
Capital commitments and contingent
liabilities of associate - - -
On April 21, 2010 the Company acquired a 20% shareholding in Flawless
Diamonds Trading House (Pty) Ltd ("Flawless") incorporated in the Republic of
South Africa for ZAR700,000 ($95,690) cash. 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` net income (loss) for the year.
The carrying amounts of associates are shown net of impairment losses.
Figures in Canadian Dollar 2011 2011 2010
5. Other financial assets
At fair value through profit or loss -
designated
Investments 1 420 397 1 199 182 525 624
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 May 31,
2011 amounted to $4,221,418
(February 28, 2010 - $3,958,793) of
which $2,801,021 (February 28,
2011 - $2,759,611) has been disclosed as
reclamation deposits (Refer note 14).
Loans and receivables
Etruscan Diamonds Limited 1 026 146 768 030 -
Represents amounts paid to Etruscan
Diamonds Limited.
Deposits 76 206 75 079 154 024
This deposit relates to deposits on
motor vehicles only delivered in the
2011 fiscal year.
1 102 352 843 109 154 024
Total other financial assets 2 522 749 2 042 291 679 648
Non-current assets
At fair value through profit or loss 1 420 397 1 199 182 525 624
Loans and receivables 1 102 352 843 109 154 024
2 522 749 2 042 291 679 648
6. Inventories
Rough diamond inventories 1 023 637 824 513 4 214 127
Mine supplies 1 607 216 1 803 576 4 258 889
2 630 853 2 628 089 8 473 016
As at May 31, 2011, rough diamond inventories were valued at net realizable
value and mine supplies at cost less accumulative impairment charges. Mine
supplies were written down by $190,700 to $1,803,578 during the 2011 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, 2011, rough diamond inventories were written down by $708,334
from cost to net realizable value.
Figures in Canadian Dollar 2011 2011 2010
7. Loans to (from) related
parties
Current assets 90 751 92 398 28 363
Non-current liabilities (430 943) (424 572) (414
566)
Current liabilities (163 709) (72 064) (175 815)
(503 901) (404 238) (562 018)
8. Trade and other
receivables
Trade receivables 2 548 061 4 743 033 6 161 932
Prepayments 46 838 82 808 33 944
VAT 457 745 540 956 -
3 052 644 5 366 797 6 195 876
9. Cash and cash equivalents
Cash and cash equivalents
consist of:
Bank balances 6 647 789 4 771 124 8 565 151
Short-term cash deposits - - 4 946
Bank overdraft (3 632 015) (1 787 479) (2 012 930)
3 015 774 2 983 645 6 557 167
Current assets 6 647 789 4 771 124 8 570 097
Current liabilities (3 632 015) (1 787 479) (2 012 930)
3 015 774 2 983 645 6 557 167
10. Share capital
Reconciliation of number of
shares issued:
Beginning of period 518 185 238 370 843 069 370 843 069
Rights offering at
subscription price of $0.05
per share - 92 710 767 92 710 767
Private placement, net of
issue costs at $0.065 per
share 6 703 292 54 631 402 54 631 402
524 888 530 518 185 238 518 185 238
Issued
Ordinary 136 425 223 135 989 508 135 989 508
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.
Figures in Canadian Dollar 2011 2011 2010
11. Share-based payments
The Company has a share-based payment plan approved by the shareholders that
allows the Company to grant options for up to 10% of the issued and
outstanding shares of the Company at any one time, typically vesting over two
years, to its directors, employees, officers, and consultants. The exercise
price of each share option is set by the board of directors at the time of
the grant and cannot be less than the market price (less permissible
discounts) on the Toronto Stock Exchange. Share options have a maximum term
of five years and typically terminate 30 days following the termination of
the optionee`s employment, except in the case of retirement or death.
From time to time, the Company may grant share options to employees,
directors, and service providers. The Company uses the Black-Scholes option
pricing model to estimate a value for these options. This model, and other
models which are used to fair value share options, require inputs such as
expected volatility, expected life to exercise, and interest rates. Changes
in any of these inputs could cause a significant change in the share-based
payment expense charged in a period.
The continuity of share-based payments for the year ended May 31, 2011 is as
follows:
Expiry date Exercise price Feb 28, 2011 Granted /
Issued
September 24, 2012 $0.62 5 891 500 -
November 14, 2012 $0.63 1 086 500 -
June 20, 2011 $0.45 950 000 -
December 7, 2014 $0.06 13 682 590 -
January 18, 2015 $0.07 600 000 -
October 8, 2015 $0.065 15 042 000 -
37 252 590 -
Weighted average exercise price $ 0.18 -
Weighted average fair value of
share options granted during the
period
Expiry date Exercised Expired / May 31, 2011
cancelled
September 24, 2012 - - 5 891 500
November 14, 2012 - - 1 086 500
June 20, 2011 - - 950 000
December 7, 2014 - (16 500) 13 666 090
January 18, 2015 - - 600 000
October 8, 2015 - - 15 042 000
- (16 500) 37 236 090
Weighted average exercise price - $ 0.18 $ 0.19
Weighted average fair value of
share options granted during the
period -
As at May 31, 2011, 32,222,090 of the share options outstanding with a
weighted average exercise price of $0.19 per share have vested with grantees.
The continuity of share-based payments for the year ended February 28, 2011
is as follows:
Expiry date Exercise price Feb 28, 2010 Granted /
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
share options granted during the
period
Expiry date Exercised Expired / Feb 28, 2011
cancelled
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 $ 0.18
Weighted average fair value of
share options granted during the
period $ 0.056
As at February 28, 2011, 15,835,170 of the share options outstanding with a
weighted average exercise price of $0.06 per share have vested with grantees.
The continuity of share-based payments for the year ended May 31, 2010 is as
follows:
Expiry date Exercise price Feb 28, 2010 Granted /
Issued
September 24, 2012 $0.62 5 896 500 -
November 14, 2012 $0.63 1 101 500 -
June 20, 2011 $0.45 950 000 -
December 7, 2014 $0.06 14 270 890 -
January 18, 2015 $0.07 600 000 -
22 818 890 -
Weighted average exercise price $ 0.25 -
Weighted average fair value of
share options granted during the
period
Expiry date Exercised Expired / May 31, 2010
cancelled
September 24, 2012 - - 5 896 500
November 14, 2012 - (15 000) 1 086 500
June 20, 2011 - - 950 000
December 7, 2014 - (95 600) 14 175 290
January 18, 2015 - - 600 000
- (110 600) 22 708 290
Weighted average exercise price - $ 0.14 $ 0.25
Weighted average fair value of
share options granted during the
period -
As at May 31, 2010, 0 of the share options outstanding with a weighted
average exercise price of $0.25 per share have vested with grantees.
Using a Black-Scholes option pricing model with the assumptions noted below,
the fair values of share options vested have been reflected in the statement
of operations as follows:
Exploration and engineering 32 970 270 674 20 966
Operations and administration 95 330 614 212 200 015
Total share-based payment cost expensed to
operations, with the 128 300 884 886 220 981
offset credited to share-based payment
reserve
12. Capital lease obligation
Minimum lease payments due
- within one year 40 448 143 997 1 960 468
- in second to fifth year inclusive - - 34 417
40 448 143 997 1 994 885
Less: future finance charges (273) (1 367) (47 867)
Present value of minimum lease payments 40 175 142 630 1 947 018
Present value of minimum lease payments due
- within one year 40 175 142 630 1 912 617
- in second to fifth year inclusive - - 34 401
40 175 142 630 1 947 018
Non-current liabilities - - 34 401
Current liabilities 40 175 142 630 1 912 617
40 175 142 630 1 947 018
Included in property, plant and equipment are mining equipment that the
Company acquired pursuant to three year capital lease obligations.
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 obligations.
Figures in Canadian Dollar 2011 2011 2010
13. Deferred tax
Deferred tax liability
Temporary differences 5 902 000 5 840 000 3 972 000
Reconciliation of deferred tax
liability
At beginning of the year 5 840 000 11 545 000 11 545 000
Effects of transition to IFRS - (8 638 066) (8 638 066)
Recognised through statement of
comprehensive income 62 000 2 933 066 1 065 066
5 902 000 5 840 000 3 972 000
14. Reclamation obligation
Reconciliation of obligation - May 31, 2011
Opening Reclamation Foreign Total
balance (expenditure exchange
incurred) / movements
obligation
recognized
Holpan, Wouterspan,
and Klipdam Mines 2 565 377 52 895 38 619 2 656 891
Saxendrift Mine 1 249 261 (34 037) 18 667 1 233 891
3 814 638 18 858 57 286 3 890 782
Reconciliation of obligation - February 28, 2011
Opening Reclamation Foreign
Total
balance (expenditure exchange
incurred) / movements
obligation
recognized
Holpan, Wouterspan,
and Klipdam Mines 2 918 102 (426 066) 73 341 2 565 377
Saxendrift Mine 804 882 427 875 16 504 1 249 261
3 722 984 1 809 89 845 3 814 638
Reconciliation of obligation - May 31, 2010
Opening Reclamation Foreign
balance (expenditure exchange
incurred) / movements
obligation
recognized
Holpan, Wouterspan, and Klipdam Mines 2 918 102 (50 703) (237)
Saxendrift Mine 804 882 - (264)
3 722 984 (50 703) (501)
Accretion Total
expense
Holpan, Wouterspan, and Klipdam Mines 183 871 3 051 033
Saxendrift Mine 147 227 951 845
331 098 4 002 878
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 labor 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 May 31, 2011, the Company had cash
reclamation deposits totaling $2,801,021 (February 28, 2011 - $2,759,611)
comprised of $1,711,679 (2010 - $1,686,913) for the Holpan, Wouterspan and
Klipdam mine and $1,089,342 (2010 - $1,072,698) for the Saxendrift mine.
These deposits are invested in interest bearing money market linked
investments at rates ranging from 9.5% to 11.0% per annum. These investments
have been ceded as security in favour of the guarantees the bank issued on
behalf of the Company. Refer to note 25.
15. Trade and other payables
Trade payables 4 900 075 6 373 382 6 608 191
VAT - - 294 892
4 900 075 6 373 382 6 903 083
16. Revenue
Sale of diamonds 7 561 697 37 732 476 8 167 572
Beneficiation income 943 842 4 775 271 289 010
8 505 539 42 507 747 8 456 582
17. Cost of sales
Production cost 6 161 983 27 538 347 5 783 391
Inventory movement (186 952) 541 349 (2 934 291)
5 975 031 28 079 696 2 849 100
Depreciation of property, plant and
equipment 1 826 049 7 509 445 2 526 950
Depletion of mineral property interest 201 743 1 936 728 580 309
2 027 792 9 446 173 3 107 259
8 002 823 37 525 869 5 956 359
18. Operating (loss) profit
Operating (loss) profit for
the period is stated after
accounting for the following:
Profit on sale of property, plant and
equipment - (296 510) -
Depreciation on property, plant and
equipment 1 826 049 7 509 445 2 526 950
Depletion mineral property interests 201 743 1 936 728 580 309
Employee costs 490 268 2 185 744 478 625
19. Investment income
Interest revenue
Bank 107 261 101 953 13 346
20. Fair value adjustments
Other financial assets - (31 920) -
21. Finance costs
Capital leases obligation 28 123 119 286 88 555
Bank 80 989 329 717 48 958
109 112 449 003 137 513
22. Income tax expense
Major components of the tax expense
Current tax
Local income tax - current period - - 1 387
Deferred tax
Movement in deferred tax balance 62 000 2 933 066 1 065 066
62 000 2 933 066 1 066 453
23. Loss per share
Basic and diluted loss per
share
Basic loss per share was
calculated based on a weighted
average
number of ordinary shares of
524 888 530 (February 28,
2011: 518 185 238 ; May 31,
2010: 477 651 502).
Reconciliation of loss for the
period to basic loss
Total comprehensive loss (2 337 900) (6 916 362) (874 100)
Adjusted for:
Non-controlling interest 290 142 88 097 131 514
Basic loss attributable to
owners of the Company (2 047 758) (6 828 265) (742 586)
Diluted loss per share is
equal to loss per share
because there are
no dilutive potential ordinary
shares in issue.
Headline loss per share
Reconciliation between basic
loss and headline loss
Basic loss (2 047 758) (6 828 265) (742 586)
Adjusted for:
Exchange differences on
translating foreign operations 1 131 560 1 750 124 15 583
Headline loss attributable to
owners of the Company (916 198) (5 078 141) (727 003)
24. Cash generated from operations
Loss before taxation (1 144 340) (2 233 172) 207 936
Adjustments for:
Depreciation and depletion 2 027 792 9 446 173 3 107 259
Loss on sale of assets - 296 510 -
Loss on foreign exchange - (82 873) -
Income from equity accounted
investments (14 873) (34 396) (2 327)
Investment income (107 261) (101 953) (13 346)
Finance costs 109 112 449 003 137 513
Fair value adjustments - 31 920 -
Net reclamation obligation recognised 76 144 1 809 280 395
Share-based payment expense 128 300 884 886 220 981
Write down on inventory - 899 034 -
Write down of property, plant and
equipment - 284 696 -
Figures in Canadian Dollar 2011 2011 2010
Write down of investment held for
reclamation - - 146 670
Write down of amounts receivable - - 153 837
Changes in working capital:
Inventories (2 764) (476 349) (5 496 958)
Trade and other receivables 2 314 153 1 686 027 138 727
Trade and other payables (1 473 307) (242 916) 149 440
1 912 956 10 808 399 (969 873)
25. Tax refunded (paid)
Balance at beginning of the period (245 228) (1 144 369) (286 915)
Current tax for the period
recognised in profit or loss - - (1 387)
Balance at end of the period 247 774 245 228 333 534
2 546 (899 141) 45 232
26. Contingencies
Bank indebtedness
Consistent with the prior financial year, the Company has an overdraft
facility in the amount of ZAR28.0 million ($3.9 million) available for its
operations (current balance of $3,632,015). This facility has an interest
cost of prime (currently 9% 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, Saxendrift Mine (Pty)
Ltd held guarantees with the bank towards Eskom (Electricity Provider) of
ZAR4,856,100 ($663,828) and the Department of Minerals and Energy (DME) of
ZAR21,367,228 ($2,920,896) towards rehabilitation expenses.
Kwango River Project, Democratic Republic of Congo
Rockwell`s subsidiary, Durnpike Investments (Proprietary) Limited`s
("Durnpike") interest in the Kwango River project that 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 above mentioned US$1.2 million royalty
payment due on December 31, 2007.
Subsequently, and pursuant to Midamines` persistent breach of material
provisions of the Midamines Agreement coupled with its failure to remedy such
instances of breach not withstanding 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 were completed in Belgium. Their ruling is expected in October
2011. Subsequent to the quarter ending May 31, 2011, the Company was notified
of additional legal fees of EURO90 000 to be paid before the outcome will be
announced.
27. First-time adoption of International Financial Reporting Standards
The company has applied IFRS 1, First-time adoption of International
Financial Reporting Standards, to provide a starting point for the reporting
under International Reporting and Accounting Standards. On principle these
standards have been applied retrospectively and the May 31, 2010 and February
28, 2011 comparatives contained in these unaudited interim consolidated
financial statements differ from those published in the financial statements
published for the three months ended May 31, 2010 and the 12 months ended
February 28, 2011.
The date of transition was March 1, 2010 and the effect of the transition was
as follows:
Reconciliation of equity at May 31, 2010
As reported Effects of IFRS
under transition to
Canadian IFRS
GAAP
Property, plant and equipment 56 397 896 - 56 397 896
Mineral property interests 30 229 885 (6 504 714) 23 725 171
Investment in associate 98 017 - 98 017
Other assets and deposits 679 648 - 679 648
Reclamation deposits 2 898 067 - 2 898 067
Total non-current assets 90 303 513 (6 504 714) 83 798 799
Trade and other receivables 6 195 876 - 6 195 876
Inventories 8 473 016 - 8 473 016
Loan to related party 28 363 - 28 363
Cash and cash equivalents 8 570 097 - 8 570 097
Total current assets 23 267 352 - 23 267 352
Capital leases 1 947 018 - 1 947 018
Trade and other payables 6 608 191 - 6 608 191
Loans from related parties 590 381 - 590 381
Reclamation obligation 4 002 878 - 4 002 878
Current tax liability 628 426 - 628 426
Deferred tax liability 11 871 000 (7 899 000) 3 972 000
Bank overdraft 2 012 930 - 2 012 930
Total liabilities 27 660 824 (7 899 000) 19 761 824
Total assets less total
liabilities 85 910 041 1 394 286 87 304 327
Issued capital 135 989 508 - 135 989 508
Share-based payment reserve 6 416 032 - 6 416 032
Foreign currency translation
reserve (7 963 816) 680 305 (7 283 511)
Retained loss (49 049 346) 713 981 (48 335 365)
Minority interest 517 663 - 517 663
Total equity 85 910 041 1 394 286 87 304 327
Reconciliation of equity at February 28, 2011
As reported Effects of IFRS
under transition to
Canadian IFRS
GAAP
Property, plant and equipment 62 828 438 - 62 828 438
Mineral property interests 29 565 306 (6 002 337) 23 562 969
Investment in associate 129 660 - 129 660
Other assets and deposits 2 042 291 - 2 042 291
Reclamation deposits 2 759 611 - 2 759 611
Total non-current assets 97 325 306 (6 002 337) 91 322 969
Trade and other receivables 5 366 797 - 5 366 797
Inventories 2 628 089 - 2 628 089
Loan to related party 92 398 - 92 398
Cash and cash equivalents 4 771 124 - 4 771 124
Total current assets 12 858 408 - 12 858 408
Capital leases 142 630 - 142 630
Trade and other payables 6 373 382 - 6 373 382
Loans from related parties 496 636 - 496 636
Reclamation obligation 3 814 638 - 3 814 638
Current tax liability 245 228 - 245 228
Deferred tax liability 14 118 000 (8 278 000) 5 840 000
Bank overdraft 1 787 479 - 1 787 479
Total liabilities 26 977 993 (8 278 000) 18 699 993
Total assets less total
liabilities 83 205 721 2 275 663 85 481 384
Issued capital 135 989 508 - 135 989 508
Share-based payment reserve 7 079 937 - 7 079 937
Foreign currency translation
reserve (6 363 880) 814 912 (5 548 968)
Retained loss (54 147 251) 1 460 751 (52 686 500)
Minority interest 647 407 - 647 407
Total equity 83 205 721 2 275 663 85 481 384
Figures in Canadian Dollar 2011 2011 2010
28. Related parties
Related party balances
Balances payable
Banzi Trade (e) 9 100 34 385 5 582
Hunter Dickinson Services Inc. (a) 122 769 34 113 159 547
Seven Bridges Trading (c) - - 10 686
Flawless Diamonds Trading House (d) 31 840 3 566 -
Current balances payable 163 709 72 064 175 815
Liberty Lane (g) 430 943 424 572 414 566
Non-current balances payable 430 943 424 572 414 566
Balances receivable
Banzi Trade (e) 90 751 92 398 28 363
Current balances receivable 90 751 92 398 28 363
Related party transactions
Services rendered and expenses reimbursed:
Hunter Dickinson Services Inc. (a) 90 465 467 151 140 333
CEC Engineering (b) 23 331 23 331 7 600
Seven Bridges Trading (c) 31 704 134 483 19 823
Banzi Trade 26 (e) 31 120 165 077 25 151
Flawless Diamonds Trading House (d) 1 847 945 420 006 37 736
Sales rendered to:
Banzi Trade 26 (Pty) Ltd (e) 119 879 249
All related party transactions are arms length transaction in the normal
course of business.
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company with a
director in common with the Company. HDSI provides geological, technical,
corporate development, administrative and management services to, and incurs
third party costs on behalf of, the Company on a full cost recovery market
related basis pursuant to an agreement dated November 21, 2008.
(b) CEC Engineering Ltd is a private company owned by David Copeland,
Chairman and a director of the Company, which provides engineering and
project management services at market rates.
(c) Seven Bridges Trading 14 (Pty) Ltd ("Seven Bridges Trading") is a wholly-
owned subsidiary of Randgold Resources Ltd, a public company where Mark
Bristow, a director of the Company, serves in an executive capacity. Seven
Bridges Trading provides office, conferencing, information technology, and
other administrative and management services at market rates to the Company`s
South African subsidiaries.
(d) Flawless Diamonds Trading House (Pty) Ltd ("Flawless Diamonds Trading
House") is a private company where certain directors, former directors and
officers of the Company, namely, Messr. Brenner, J.W. and D.M. Bristow and
Van Wyk, are shareholders. During fiscal 2011 the Company acquired a 20%
shareholding in Flawless Diamonds Trading House (refer note 4). 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 which is below the market rate charged by similar tender houses.
(e) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC van Wyk Diamonds
Ltd and 51% by Bokomoso Trust. Banzi is an empowered private company
established to provide self sustaining job creation programs to local
communities as part of the company`s Social and Labour Plan which is required
in terms of the Minerals and Petroleum Resources Development Act ("MPRDA").
Banzi provides the Company with building materials at market rates.
(f) Jakes Tyres is a private company with former directors and officers
(H C van Wyk) in common with the Company that provides tyres, tyre repair
services and consumables at market rates to Rockwell`s remote Middle Orange
River operations.
(g) Liberty Lane is the BEE partner of the Saxendrift property and has
certain directors in common with the Company.
(h) Cashmere Trade 19 (Pty) Ltd ("Cashmere Trade") is a private company owned
by Hennie Van Wyk, a former officer of the Company, which provides helicopter
services for the movement of products on an ad-hoc basis at competitive
market rates thereby providing benefits to the Company and its employees in
respect of secure transport of high value product and reduced insurance
premiums.
(i) Diacor CC is a private company of which H C van Wyk, a former director
and officer of the Company, is a director from which the Company has
purchased consumable materials at market rates.
28. Events after the reporting period
On July 26, 2011 Rockwell Diamonds Inc. announced the sale of three non core
assets which generated total proceeds of $6.5 million.
The assets which have been disposed of are as follows:
- The sale of Makoenskloof property, located in the Northern Cape, was
concluded in mid July 2011 for $0.9million, which will be settled by the end
of August 2011.
- The PC3000 excavator located at the Wouterspan mine which is on care and
maintenance has been sold. The sale was completed in the third week of July
2011 and the full sale consideration of $3.0 million has been received. - A
sale agreement for the Holpan DMS plant has been concluded for a total
consideration of $2.6 million which is payable in two equal tranches. The
first payment of $1.3 million has been received with the balance payable
within 30 days.
On July 1, 2011 the board of directors of Rockwell have resolved and the
shareholders advised, that a decision was taken to consolidate the authorized
and issued ordinary share capital of Rockwell on the basis of 1 share for
every 15 shares held ("the consolidation"). The consolidation was aimed at
reducing the large number of issued and unissued shares in Rockwell and
increasing the price per share at which ordinary shares in Rockwell are
traded on the Canadian Stock Exchange ("the TSX") and the JSE Limited ("the
JSE").
Trading in shares under the new consolidated share capital commenced on
Monday July 11, 2011.
Canada
11 August 2011
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 12/08/2011 07:13:01 Produced by the JSE SENS Department.
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