| Fri 25 May 2012, 8:05 | | RDI - Rockwell Diamonds Incorporated - Consolidated financial statements for the |
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RDI
RDI
RDI - Rockwell Diamonds Incorporated - Consolidated financial statements for the
years ended 29 February 2012 and 28 February 2011
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: CA77434W2022
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED 29 FEBRUARY 2012 AND 28 FEBRUARY 2011
INDEX
The reports and statements set out below comprise
the consolidated financial statements:
INDEX
Management`s Responsibilities and Approval
Independent Auditors` Report
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Accounting Policies
Notes to the Consolidated Financial Statements
Management`s Responsibilities and Approval
The consolidated financial statements, the notes thereto and other financial
information contained in the Annual Report have been prepared in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board and are the responsibility of the management of
Rockwell Diamonds Inc. The financial information presented elsewhere in the
Annual Report is consistent with the data that is contained in the consolidated
financial statements. The consolidated financial statements, where necessary,
include amounts which are based on the best estimates and judgement of
management.
In order to discharge the management`s responsibility for the integrity of the
financial statements, the Company maintains a system of internal accounting
controls. These controls are designed to provide reasonable assurance that the
Company`s assets are safeguarded, transactions are executed and recorded in
accordance with management`s authorisation, proper records are maintained and
relevant and reliable financial information is produced. These controls include
maintaining quality standards in hiring and training of employees, policies and
procedures manuals, a corporate code of conduct and ensuring that there is
proper accountability for performance within appropriate and well-defined areas
of responsibility. The system of internal controls is further supported by a
compliance function, which is designed to ensure that we and our employees
comply with securities legislation and conflict of interest rules.
The Board of Directors is responsible for overseeing management`s performance of
its responsibilities for financial reporting and internal control. The Audit
Committee, which is composed of non-executive directors, meets with management
as well as the external auditors to ensure that management is properly
fulfilling its financial reporting responsibilities to the Directors who approve
the consolidated financial statements. The external auditors have full and
unrestricted access to the Audit Committee to discuss the scope of their audits,
the system of internal controls and review financial reporting issues.
The consolidated financial statements have been audited by KPMG Inc, the
independent registered public accounting firm, in accordance with Canadian
Auditing Standards.
The consolidated financial statements set out on pages 4 to 54, which have been
prepared on the going concern basis, were approved by the board on 24 May 2012
and were signed on its behalf by:
James Campbell Dr Mark Bristow
Director Director
Independent Auditors` Report
To the Shareholders of Rockwell Diamonds Inc.
We have audited the accompanying consolidated financial statements of Rockwell
Diamonds Inc., which comprise the consolidated statements of financial position
as at 29 February 2012, 28 February 2011 and 1 March 2010, the consolidated
statements of comprehensive loss, statements of changes in equity and statements
of cash flows for the years ended 29 February 2012 and 28 February 2011, and
notes, comprising a summary of significant accounting policies and other
explanatory information.
Management`s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board,
and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors` Responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on our judgement, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control
relevant to the entity`s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity`s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Rockwell Diamonds Inc.
as at 29 February 2012, 28 February 2011 and 1 March 2010 and its consolidated
financial performance and its consolidated cash flows for the years ended 29
February 2012 and 28 February 2011 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
KPMG Inc
Registered Auditors
Johannesburg, South Africa
24 May 2012
Consolidated Statements of Financial Position
Amounts in Canadian Dollars Note(s) As at As at As at
29 February 28 February 1 March 2010
2012 2011 (Note 29)
(Note 29)
Assets
Non-current assets Mineral 2 35 949 211 25 175 713 26 530 663
property interests
Investment in associate 3 161 049 129 660 -
Property, plant and equipment 4 49 391 831 62 828 438 58 790 736
Other financial assets 5 3 569 401 4 801 902 3 725 938
Reclamation deposits 14 3 104 716 - -
Total non-current assets 92 176 208 92 935 713 89 047 337
Current assets Inventories 6 1 622 880 2 628 090 2 976 058
Loans to related parties 15 276 601 92 398 46 108
Trade and other receivables 7 5 616 243 5 530 266 6 335 992
Cash and cash equivalents 8 10 741 341 4 771 124 2 517 556
Total current assets 18 257 065 13 021 878 11 875 714
Total assets 110 433 273 105 957 591 100 923 051
Equity and liabilities
Equity
Share capital 9 145 632 846 135 989 508 127 999 040
Reserves (2 845 771) 715 142 (1 784 632)
Retained loss (65 620 276) (53 982 868) (49 020 317)
Total equity attributable to 77 166 799 82 721 782 77 194 091
the equity holders of the
Group
Non-controlling interest (712 429) 647 407 648 941
Total equity 76 454 370 83 369 189 77 843 032
Liabilities
Non-current liabilities
Loans from related parties 15 400 616 424 572 414 566
Other financial liabilities 11 4 582 095 - -
Capital lease obligation 12 455 086 - 140 332
Deferred tax 13 7 540 531 9 728 409 7 224 665
Reclamation obligation 14 11 169 329 3 814 638 3 722 984
Total non-current liabilities 24 147 657 13 967 619 11 502 547
Current liabilities Loans 15 330 116 72 064 641 323
from related parties
Other financial liabilities 11 806 049 - -
Current tax payable - - 473 650
Capital lease obligation 12 283 339 142 630 3 196 189
Trade and other payables 16 7 582 262 6 618 610 6 568 295
Bank overdraft 8 829 480 1 787 479 698 015
Total current liabilities 9 831 246 8 620 783 11 577 472
Total liabilities 33 978 903 22 588 402 23 080 019
Total equity and liabilities 110 433 273 105 957 591 100 923 051
Consolidated Statements of Comprehensive Loss
Amounts in Canadian Dollars Note(s) For the For the
year ended year ended
29 February 28 February
2012 2011
(Note 29)
Revenue 20 34 221 023 42 507 747
Production cost 21 (26 936 716) (28 079 696)
Operating profit before amortisation and 7 284 307 14 428 051
depreciation
Amortisation of mineral property interests (1 306 743) (2 730 915)
Depreciation of property, plant and (6 679 466) (7 509 445)
equipment
Gross (loss) profit (701 902) 4 187 691
Other income 1 372 463 357 542
General and administration expenses (8 215 897) (6 777 126)
Reclamation expenditure (1 288 532) (1 809)
Arbitration settlement 32 (1 369 486) -
Impairment of property, plant and (4 938 893) (284 696)
equipment
Results before net finance costs 22 (15 142 247) (2 518 398)
Finance income 23 780 482 101 953
Finance costs 24 (873 796) (480 923)
Results after net finance costs (15 235 561) (2 897 368)
Share of profit from equity accounted 3 36 918 34 396
investment
Loss before taxation (15 198 643) (2 862 972)
Tax (expense) recovery 25 1 479 259 (2 187 676)
Loss for the year (13 719 384) (5 050 648)
Other comprehensive (loss) income: (4 185 483) 1 701 451
Exchange differences on translating
foreign operations
Total comprehensive loss for the year (17 904 867) (3 349 197)
Loss attributable to: (11 637 408) (4 962 551)
Owners of the Group
Non-controlling interest (2 081 976) (88 097)
Loss for the year (13 719 384) (5 050 648)
Total comprehensive loss attributable to: (15 724 277) (3 347 663)
Owners of the Group
Non-controlling interest (2 180 590) (1 534)
Total comprehensive loss for the year (17 904 867) (3 349 197)
Loss per share
Per share information Basic and diluted 26 (28.74) (14.65)
loss per share (cents)
Consolidated Statements of Changes in Equity
Amounts in Share Capital Foreign Share-based Total net
Canadian Dollars currency payment reserves
translation reserve
reserve
Balance at 1 March 2010 127 999 040 (7 979 683) 6 195 051 (1 784 632)
Loss for the year - - - -
Share-based payment - - 884 886 884 886
expense
Rights offering at 4 583 644 - - -
subscription price of
$0.05 per share
Private placement, net of 3 406 824 - - -
issue costs at $0.065 per
share
Exchange differences on - 1 614 888 - 1 614 888
translating foreign
operations
Total Changes 7 990 468 1 614 888 884 886 2 499 774
Balance at 28 February 135 989 508 (6 364 795) 7 079 937 715 142
2011
Loss for the year - - - -
Debt conversion, net issue 435 715 - - -
costs at $0.065 per share
Private placement, net of 7 756 477 - - -
issue costs at $0.75 per
share
Share-based payment - - 525 956 525 956
expense
Exchange differences on - (4 086 869) - (4 086 869)
translating foreign
operations
Share issue costs (35 532) - - -
Asset and liability 1 486 678 - - -
acquisition (note 17)
Total changes 9 643 338 (4 086 869) 525 956 (3 560 913)
Balance at 145 632 846 (10 451 7 605 893 (2 845 771)
29 February 2012 664)
Notes 9 10
Consolidated Statements of Changes in Equity continued
Amounts in Retained Loss Total equity Non- Total Equity
Canadian Dollars attributable to controlling
equity holders interest
of the Group
Balance at 1 March (49 020 317) 77 194 091 648 941 77 843 032
2010
Loss for the year (4 962 551) (4 962 551) (88 097) (5 050 648)
Share-based - 884 886 - 884 886
payment expense
Rights offering at - 4 583 644 - 4 583 644
subscription price
of $0.05 per share
Private placement, - 3 406 824 - 3 406 824
net of issue costs
at $0.65 per share
Exchange - 1 614 888 86 563 1 701 451
differences on
translating
foreign operations
Total Changes (4 962 551) 5 527 691 (1 534) 5 526 157
Balance at 28 (53 982 868) 82 721 782 647 407 83 369 189
February 2011
Loss for the year (11 637 408) (11 637 408) 2 081 976) 13 719 384)
Debt conversion, - 435 715 - 435 715
net issue costs at
$0.065 per share
Private placement, - 7 756 477 - 7 756 477
net of issue costs
at $0.75 per share
Share-based - 525 956 - 525 956
payment expense
Exchange - (4 086 869) (98 614) (4 185 483)
differences on
translating
foreign operations
Share issue costs - (35 532) - (35 532)
Asset and - 1 486 678 820 754 2 307 432
liability
acquisition (note
17)
Total changes (11 637 408) (5 554 983) (1 359 836) (6 914 819)
Balance at (65 620 276) 77 166 799 (712 429) 76 454 370
29 February 2012
Notes
Consolidated Statements of Cash Flows
Amounts in Canadian Dollars
Cash flows from operating activities Note(s For the For the
) year ended year ended
29 February 28 February
2012 2011
Cash receipts from customers 34 169 864 44 194 690
Cash paid to suppliers and employees (34 019 404) (33 811 782)
Cash generated from operations 18 150 460 10 382 908
Finance income 255 672 101 953
Finance costs (592 001) (449 003)
Tax paid 19 - (473 650)
Net cash (outflow) inflow from operating (185 869) 9 562 208
activities
Cash flows from investing activities
Purchase of property, plant and 4 (6 802 916) (10 790 700)
equipment
Proceeds from sale of property, plant 4 5 664 161 301 518
and equipment
Purchase of mineral property interests 2 - (845 773)
Asset and liability acquisition net of 17 (555 121) -
cash and cash equivalents acquired
Acquisition of associate 3 - (95 690)
Net movement in related party loans 74 131 (634 248)
Net movement in other financial assets 493 245 (1 024 738)
Increase in reclamation deposits (1 277 225) -
Net cash outflow from investing (2 403 725) (13 089 631)
activities
Cash flows from financing activities
Proceeds on share issue 9 7 720 945 7 990 468
Proceeds from convertible loan 2 066 403 -
Repayment of other financial liabilities (885 264) -
Proceeds from (repayment of) capital 615 726 (3 298 941)
lease obligations
Net cash inflow from financing 9 517 810 4 691 527
activities
Net movement in cash and cash 6 928 216 1 164 104
equivalents for the year
Cash and cash equivalents at the 2 983 645 1 819 541
beginning of the year
Total cash and cash equivalents at end 8 9 911 861 2 983 645
of the year
Accounting Policies
The accompanying notes are an integral part of these consolidated financial
statements.
1.1 Nature of operations
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 consolidated financial statements of the
Company as at and for the years ended 29 February 2012 and 28 February 2011
comprise the Company and its subsidiaries (together referred to as the
"Group" and individually as "Group entities") and the Group`s interest in
associates. The Group`s mineral property interests are located in South
Africa. Rockwell is incorporated under British Columbia Business
Corporations Act.
1.2 Continuance of operations
The financial statements have been prepared on the basis of accounting
policies applicable to a going concern. Future events beyond the Group`s
control may change the Group`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.
1.3. Basis of preparation
1.3.1 Statement of compliance
The accompanying consolidated financial statements are the first annual
financial statements that have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board and have been prepared in
accordance with IFRS 1 ``First Time Adoption of International Financial
Reporting Standards`` (``IFRS 1``). The Group`s date of transition to IFRS
and its opening IFRS balance sheet is at 1 March 2010 (the ``Transition
Date``).
The Group`s financial statements were previously prepared in accordance
with Canadian generally accepted accounting principles (``CDN GAAP``) which
differs in some respects from IFRS. In preparing these financial
statements, certain accounting and valuation methods previously applied
under CDN GAAP were changed. The transition date balance sheet and the
comparative amounts as at and for the year ended 28 February 2011 have been
restated to reflect the accounting policies at 29 February 2012 with the
exception of certain mandatory and optional exemptions for first time
adopters of IFRS. The Group elected to take the optional exemption to apply
the requirements of IFRS 3, Business Combinations (as revised in 2008),
prospectively from the Transition Date.
The impact of the conversion from CDN GAAP to IFRS is explained in note 29
First time adoption of International Financial Reporting Standards
1.3.2 Basis of measurement
The consolidated financial statements have been prepared on the historical
cost basis, except where otherwise stated, as set out in the accounting
policies below.
1.3.3 Presentation currency
These consolidated financial statements are presented in Canadian Dollars
1.3.4 Use of estimates and judgements
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the amounts represented in
the consolidated financial statements and related disclosures. Use of
available information and the application of judgement are inherent in the
formation of estimates. Estimates and underlying assumptions are reviewed
on a ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Information about critical judgements in applying accounting policies that have
the most significant effect on the amounts recognised in the consolidated
financial statements is included in the following notes:
Note 2 - Mineral property interests
Note 4 - Property, plant and equipment
Note 6 - Inventories
Note 10 - Share-based payments
Note 13 - Deferred tax
Note 14 - Reclamation obligation
1.4 Significant accounting policies
The accounting policies set out below are applied consistently to all years
presented in these consolidated financial statements and have been applied
consistently by the Group entities.
1.4.1 Basis of consolidation
Business combinations
Business combinations are accounted for using the acquisition method as at the
acquisition date, which is the date on which control is transferred to the
Group.
Control is the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. In assessing control,
consideration is given to potential voting rights that are currently
exercisable. Judgement is applied in determining the acquisition date and
determining whether control is transferred from one party to another.
Consideration transferred includes the fair values of the assets transferred,
liabilities incurred by the Group to the previous owners of the acquiree, and
equity interests issued by the Group. Consideration transferred also includes
the fair value of any contingent consideration and share-based payment awards of
the acquiree that are replaced mandatorily in the business combination.
A contingent liability of the acquiree is assumed in a business combination only
if such a liability represents a present obligation and arises from a past
event, and its fair value can be measured reliably.
Transaction costs incurred in connection with a business combination, such as
legal fees, due diligence fees and other professional and consulting fees are
expensed as incurred, unless it is debt related. Directly attributable
transaction costs related to debt instruments are capitalised.
If the Group obtains control over one or more entities that are not businesses,
then the bringing together of those entities are not business combinations. The
cost of acquisition is allocated among the individual identifiable assets and
liabilities of such entities, based on their relative fair values at the date of
acquisition. Such transactions do not give rise to goodwill.
Non-controlling interests in the proportionate net assets of consolidated
subsidiaries are identified and recognised separately from the Group`s interest
therein, and are recognised within equity. Losses of subsidiaries attributable
to non-controlling interests are allocated to the non-controlling interests even
if this results in a debit balance being recognised for non-controlling
interests.
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that that control ceases.
1.4.1 Basis of consolidation (continued)
Associates
An associate is an entity over which the Group 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. Significant influence is presumed to exist when the Group holds
between 20% and 50% of the voting power of another entity.
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 Group`s share of net assets of the associate, less any impairment losses.
Losses in an associate in excess of the Group`s interest in that associate are
recognised only to the extent that the Group has incurred a legal or
constructive obligation to make payments on behalf of the associate.
Unrealised profits or losses on transactions between the Group and an associate
are eliminated to the extent of the Group`s interest therein.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements. Unrealised losses are eliminated in the same
way as unrealised gains, but only to the extent that there is no evidence of
impairment.
1.4.2 Mineral property interests
The acquisitions of mineral property interests are initially measured at cost.
Mineral property acquisition costs and development expenditures incurred
subsequent to the determination of the feasibility of mining operations and
approval of development by the Group are capitalised until the property is
placed into production, sold, 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 the unit of production method, 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 Group. Under
the unit of production method, the yearly depreciation charge is calculated by
dividing the actual resources mined into the estimated resources at the
beginning of the year and then multiplying the resulting fraction by the net
carrying value of the related assets. The unit of production method results in a
systematic and rational allocation of the cost of the mineral property interests
over the year the resources are utilised.
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 less accumulated amortisation and impairment losses, and does not
necessarily reflect present or future values.
1.4.3 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 Group; and
- the cost of the item can be measured reliably.
Property, plant and equipment are 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 are 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
Land is not depreciated.
The residual value, useful life and depreciation method of each asset are
reviewed annually. 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 loss 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 loss 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.
1.4.4 Impairment of non-financial assets
The carrying amounts of the Group`s non-financial assets, other than inventories
and deferred tax assets, are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists,
then the asset`s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its
value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the "cash-generating unit").
An impairment loss is recognised if the carrying amount of an asset or its cash-
generating units exceeds its estimated recoverable amount. Impairment losses are
recognised in profit or loss. Impairment losses recognised in respect of cash-
generating units are allocated to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
Impairment losses recognised in prior years are assessed at each reporting date
for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset`s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
1.4.5 Financial instruments
Initial recognition and measurement
Financial instruments are recognised initially when the Group becomes a party to
the contractual provisions of the instruments.
The Group 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 loss or loss,
transaction costs are included in the initial measurement of the instrument.
Transaction costs on financial instruments at fair value through loss or loss
are recognised in profit or loss.
Subsequent measurement
Financial instruments at fair value through loss or loss are subsequently
measured at fair value, with gains and losses arising from changes in fair value
being included in loss 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 are subsequently measured at amortised cost, using the
effective interest method.
Investments
The Group classified its investments into the following categories: fair value
through profit and loss, held-to-maturity and available-for-sale. The
classification is dependent 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 Group 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.
The fair value of investments is based on cash value or amounts derived from
cash flow models. Equity securities for which fair value cannot be measured
reliably are recognised at cost less impairment. When 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) related parties
Loans to related parties are recognised as loans and receivables on the date
that the Group becomes a party to the contractual provisions of the loan. The
Group derecognises the loan to a related party when the contractual rights to
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in
such transferred financial assets that is created or retained by the Group is
recognised as a separate asset or liability.
Loans from related parties are recognised on the date that the Group becomes a
party to the contractual provisions of the loan. The Group derecognises the loan
from a related party when its contractual obligations are discharged, cancelled
or expire. Loans from related parties are recognised initially at fair value
less any directly attributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using the
effective interest rate method.
Loans to (from) related parties are offset and the net amount presented in the
statement of financial position when, and only when, the Group has a legal right
to offset the amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Loans to (from) related parties are at arms length.
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 loss 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 are considered indicators that the trade receivable
might be 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.
Share capital and equity
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities.
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction of
equity, net of any tax effects.
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 recorded at fair value and subsequently measured at
amortised cost.
Impairment of financial assets
At each reporting date the Group 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 Group, significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy and default of payment is
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.
1.4.6 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 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 and any adjustment to tax payable in
respect of previous years.
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 loss 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.
1.4.7 Inventories
Rough diamond inventories are valued at the lower of average production cost and
net realisable value. Production costs include the cost of consumable materials,
direct labour, mine-site overhead expenses and amortisation. Work in progress
stock piles consist of ground excavated, but not yet fully processed at year
end. The value of these stock piles represents management`s best estimate of the
costs incurred to excavate and screen the ground as identified by an independent
surveyor at year end.
Mine supplies are valued at the lower of cost, at the weighted average cost
basis, and net realisable value.
Cost of items that are not ordinarily interchangeable, and goods and services
produced and segregated for specific projects, are assigned by using a specific
identification of their individual costs.
Previous write-downs are reversed to the lower of cost and net realisable value
when there is a subsequent increase in the value of inventories.
1.4.8 Share-based payments
The fair value of share-based payment awards granted to employees is recognised
on the grant date as an employee cost, with a corresponding increase in
reserves, over the period that the employees become unconditionally entitled to
the awards. The amount recognised as an expense is adjusted to reflect the
number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognised as
an expense is based on the number of awards that meet the related service and
non-market performance conditions at the vesting date.
For share-based payment awards with non-vesting conditions, the grant-date
fair value of the share-based payment is measured to reflect such conditions and
there is no true-up for differences between expected and actual outcomes.
The fair value of the employee share options is measured using the Black-Scholes
formula. Measurement inputs include the share price on the measurement date, the
exercise price of the instrument, expected volatility (based on an evaluation of
the Group`s historic volatility, particularly over the historic period
commensurate with the expected term), expected term of the instruments (based on
historical experience and general option holder behaviour), expected dividends,
and the risk-free interest rate (based on government bonds). Service and non-
market performance conditions attached to the transactions are not taken into
account in determining fair value.
1.4.9 Reclamation obligation
Estimated rehabilitation costs, which are based on the Group`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 Group`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, at the operating Northern Cape mines, is performed on a
continuous basis. Rehabilitation of disturbed areas where the alluvial open-cast
bench mining process is followed and the non-operating Northern Cape mines will
be performed when the mining operations cease.
Based on current environmental regulations and known rehabilitation
requirements, management has included its best estimate of these obligations in
its rehabilitation provision.
1.4.10 Leases
A lease is classified as a finance lease if it transfers substantially all the
risks and rewards incidental to ownership to the Group. A lease is classified as
an operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership to the Group.
Finance leases
Finance leases are recognised as assets and liabilities in the consolidated
statements of financial position at amounts equal to the fair value of the
leased property or, if lower, the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the consolidated
statements of financial position as a finance lease obligation.
The discount rate used in calculating the present value of the minimum lease
payments is the interest rate implicit in the lease.
The lease payments are apportioned between the finance charge and reduction of
the outstanding liability. The finance charge is allocated to each period during
the lease term so as to produce a constant periodic rate on the remaining
balance of the liability.
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis
over the lease term. The difference between the amounts recognised as an expense
and the contractual payments are recognised as an operating lease asset. This
liability is not discounted.
Any contingent rents are expensed in the period they are incurred.
1.4.11 Revenue
Revenue arising from the sale of diamonds are recognised when all the following
conditions have been satisfied:
- the Group has transferred to the buyer the significant risks and rewards of
ownership of the goods;
- the Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction
will flow to the Group; and
- the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
Revenue is measured at the fair value of the consideration received or
receivable and represents the amounts receivable for goods and services provided
in the normal course of business, net of value added tax.
1.4.12 Finance income and finance cost
Finance income comprises interest on funds invested, gains on reclamation
deposits held and fair value gains on financial assets at fair value through
profit or loss. Finance income is recognised, in profit or loss, using the
effective interest rate method.
Finance cost comprises interest expense on borrowings, unwinding of discount on
provisions and fair value losses on financial assets at fair value through
profit or loss Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are recognised in
profit or loss using the effective interest rate method.
1.4.13 Loss per share
The Group presents basic and diluted loss per share ("EPS") data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the year, adjusted for own shares
held. Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares
outstanding, adjusted for own shares held and for the effects of all dilutive
potential ordinary shares, which comprise share options granted to employees.
1.4.14 Translation of foreign currencies
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in Canadian
Dollars, 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 loss or loss in the period in which they arise.
Cash flows arising from transactions in a foreign currency are recorded in
Canadian Dollars by applying to the foreign currency amount the exchange rate
between the Canadian Dollars and the foreign currency at the date of the cash
flow.
Consolidation
For consolidation purposes the results and financial position of a foreign
operation are translated into the reporting currency using the following
procedures:
- assets and liabilities are translated at the closing rate at the date
of that consolidated statements of financial position;
- equity components are translated at historical rates;
- income and expenses are translated at exchange rates at the dates of the
transactions; and
- all resulting exchange differences are recognised in other comprehensive
income and accumulated as a separate component of equity. When a foreign
investment is disposed off the cumulative exchange differences previously
recognised in other comprehensive income are transferred to profit and loss.
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 loss 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.
1.4.15 Segmental reporting
Segmental results that are reported to the chief operating decision maker, or
decision making group, include items directly attributable to a segment as well
as those that can be allocated on a reasonable basis. Unallocated items comprise
mainly corporate assets (primarily the Group`s headquarters), head office
expenses, and tax assets and liabilities.
1.5. New standards and interpretations not yet adopted
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
Group.
Management anticipates that all of the pronouncements will be adopted in the
Group`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 Group`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 Group`s
financial statements.
Standard Details of Amendment Annual periods
beginning on
or after
IAS 1 amendment Presentation of Financial Statements: 1 July 2012
Presentation of Items of Other
Comprehensive Income
IAS 12 amendment Deferred tax: Recovery of Underlying 1 January 2012
Assets
IAS 28 Investments in Associates and Joint 1 January 2013
Ventures (2011)
IFRS 7 amendment Disclosures - Transfers of Financial 1 July 2011
Assets
IFRS 9 (2009) Financial Instruments 1 January 2015
IFRS 9 (2010) Financial Instruments 1 January 2015
IFRS 10 Consolidated Financial Statements 1 January 2013
IFRS 12 Disclosure of Interests in Other 1 January 2013
Entities
IFRS 13 Fair Value Measurement 1 January 2013
IFRIC 20 Stripping Costs in the Production 1 January 2013
Phase of a Surface Mine
The aggregate impact of the initial application of the statements and
interpretations on the Group`s annual financial statements has not yet been
assessed by management.
Notes to the Consolidated Financial Statements
Amounts in Canadian Dollars
2. Mineral property interests
As at 29 February 2012
Cost Accumulated Carrying value
amortisation
Mineral property interests 47 029 751 (11 080 540) 35 949 211
As at 28 February 2011
Cost Accumulated Carrying value
amortisation
Mineral property interests 35 374 618 (10 198 905) 25 175 713
Reconciliation of mineral property interests - 29 February 2012
Opening Assets and Foreign Amortisation Closing
balance liability exchange balance
acquisitions movements
(Note 17)
Mineral 25 175 713 13 953 802 (1 873 561) (1 306 743) 35 949 211
Property
interests
Reconciliation of mineral property interests - 28 February 2011
Opening Additions Foreign Amortisation Closing
balance exchange balance
movements
Mineral 26 530 663 845 773 530 192 (2 730 915) 25 175 713
Property
interests
The Group`s mineral property interest consists of the following:
Wouterspan
The Wouterspan property is located in the Herbert district of the Northern Cape
Province of South Africa approximately 145km southwest of Kimberley. The
operation is located on the farm Lanyonvale (various portions) with an aggregate
area of 2,579.8ha.
The operations is currently on care and maintenance.
Holpan/Klipdam
The Klipdam Property is located 45 km from Kimberley, South Africa and consists
of the adjacent Holpan 161 and Klipdam 157 farms, covering an area of 4,019.9
hectares. Holpan was put on care and maintenance in May 2011.
Saxendrift
The 5,142 hectare Saxendrift mine property is located on the south bank of the
Middle Orange River, and adjacent to the Wouterspan property.
Niewejaarskraal
Niewejaarskraal is located in the Hay district of the Northern Cape Province of
South Africa approximately 124km southwest of Kimberley. The operations are
located on Niewejaarskraal 40 and Viegulands Put 39 (total of 3,085.695ha). The
operation has been on care and maintenance since December 2009.
Makoenskloof
The Group has previously reported that it has been seeking to sell the
Makoenskloof property. This process has been approved by the Board, but a
previous potential sale did not materialise.
The Group`s intention to sell Makoenskloof still remains, but this is not highly
probable in terms of IFRS 5, due to the following:
- A selling price has not been established;
- A selling agent has not been appointed;
- No interested seller has been found; and
- No contracts or agreements have been established.
The accounting treatment of the property has therefore not changed, and this
will remain the case until such a time as a sale is highly probable.
Windsorton Erf 2004
This is a prospecting property covering an area of 1,146 ha, and is adjacent to
the Klipdam mine.
Tirisano
The Tirisano mine, totalling 10,805.57 hectares is located some 35 kilometres
due north of Ventersdorp, in the North West Province and approximately 150
kilometres west of Johannesburg. The Tirisano mineral property was acquired as
part of the asset and liability acquisition on 1 September 2011. The purchase
price allocated to the mineral property, refer note 17, is supported by a
valuation performed by an independent competent person. The range of the
attributable value of the mineral property in this valuation exceeds the
allocated purchase price.
Farhom, Okapi and Kanonloop
The Group holds the mineral rights to Farhom, Okapi and Kanonloop which are
located in the Northern Cape. A pre-feasibility study on these mineral rights
will commence in the next 18 months after which a decision will be taken on the
future of the mining potential. Management is in the process of negotiation with
the Department of Minerals and Resources to consolidate the right within the
Wouterspan mineral right.
Estimations
Carats available at the mineral property interests have been estimated by a
qualified geologist employed by the Group and was reviewed by an independent
qualified geologist. These resource estimates include inferred resources which
have a great amount of uncertainty as to their existence, and economic and legal
feasibiliy. The estimated carats have been published as required by National
Instrument 43 -101. The carats included in 43-101 is used in the calculation of
the amortisation for the period (refer accounting policy).
3. Investment in associate
3.1. Flawless Diamonds Trading House (Pty) Ltd - (20% shareholding)
Amounts in Canadian Dollars As at 29 As at 28
February February
2012 2011
Carrying amount
Opening balance 129 660 -
Cost of investment in associate - 95 690
Share of profit from equity accounted 36 918 34 396
investment
Foreign exchange movements (5 529) (426)
Closing balance 161 049 129 660
Summarised financial information of associate
Total assets 2 604 145 9 690 007
Total liabilities 1 847 525 8 986 428
Net assets 756 620 703 579
Revenue 55 570 156 60 383 011
Total comprehensive income for the year 173 411 206 374
Capital commitments and contingent - -
liabilities of associate
On 21 April 2010 the Group 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 Group.
As the Group has significant influence over Flawless` operations it accounts for
the investment using the equity method.
3.2. Banzi Trade (26) (Pty) Ltd - (49% shareholding)
Banzi Trade (26) (Pty) Ltd was incorporated in 2005 with nominal equity. The
Group acquired a 49% shareholding in the same year. Since the incorporation
date the Group`s portion of the losses from Banzi Trade (26) (Pty) Ltd exceeded
its investment in the associate. The Group, in terms of its accounting policy,
does not account for losses in excess of its investment in associates. The
Group`s carrying value of its investment in Banzi Trade (26) (Pty) Ltd is Nil.
4. Property, plant and equipment
Amounts in Canadian Dollars
As at 29 February 2012
Cost Accumulated Carrying value
depreciation
Land and buildings 7 293 865 (1 484 130) 5 809 735
Plant and machinery 75 464 483 (34 654 874) 40 809 609
Motor vehicles 1 637 108 (1 183 352) 453 756
Office equipment 1 065 166 (711 703) 353 463
Construction in progress 1 965 268 - 1 965 268
87 425 890 (38 034 059) 49 391 831
As at 28 February 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
Reconciliation of property, plant and equipment - 29 February 2012
Opening Additions Assets and Disposals Transfers
balance liabilities
acquisitions
(Note 17)
Land and 6 353 551 12 368 208 838 - 870 038
buildings
Plant and 49 212 345 5 546 769 129 015 (6 104 971) 4 331 970
machinery
Motor vehicles 588 581 6 624 40 995 (13 317) -
Office 391 263 76 088 56 193 (35 488) -
equipment
Construction in 6 282 698 1 161 067 - - (5 202 008)
progress
62 828 438 6 802 916 435 041 (6 153 776) -
Foreign Depreciation Impairment Closing
exchange loss balance
movements
Land and buildings (357 649) (407 373) (870 038) 5 809 735
Plant and machinery (2 210 677) (6 025 987) (4 068 855) 40 809 609
Motor vehicles (33 626) (135 501) - 453 756
Office equipment (23 988) (110 605) - 353 463
Construction in (276 489) - - 1 965 268
progress
(2 902 429) (6 679 466) (4 938 893) 49 391 831
Reconciliation of property, plant and equipment - 28 February 2011
Opening Additions Disposals Foreign Deprecia- Impairment Closing
balance exchange tion loss balance
movements
58 790 736 10 790 (598 028) 1 639 171 (7 509 445) (284 696) 62 828
700 438
Assets subject to finance lease (net carrying value)
As at As at
29 February 28 February
2012 2011
Plant and machinery 881 772 776 297
The Group`s bankers have registered two notarial general covering bonds
(First Lien) of ZAR 10 million ($1.3 million) over all moveable assets
related to the property known as Holpan, district Barkley West, Northern
Cape Province (refer Note 28).
Transfers from construction in progress to plant and machinery relate to the
plant at Tirisano, which is now operational.
Disposals during fiscal 2012 relate mainly to the sale of mining equipment
(Komatsu PC 3000) that was not utilised at the Holpan Dense Media Separation
plant. The equipment was no longer required after Holpan was placed on care
and maintenance.
Estimates and judgements
Management performs an annual review of the Group`s property, plant and
equipment to consider indicators for impairment and, where indicators for
impairment are identified, the recoverable amount. Comparisons are made to
similar assets available in the market taking into consideration its economic
life, residual value, current condition and application in the mining and
recovery processes. Impairment indicators were identified for certain items
of property, plant and equipment and where no future economic benefits
(value in use) will flow from the identified assets, judgement is applied
to consider fair value less costs to sell. Assets identified, where the carrying
value exceeds the recoverable amount, are impaired. Life of mine models forms
the basis against which the value in use is measured.
5. Other financial assets
Amounts in Canadian Dollars
As at As at
29 February 28 February
2012 2011
At fair value through loss or loss
Investments 3 498 558 3 958 793
The Group invests in investment policies with endowment benefits on maturity of
the policies in order to provide funding for the reclamation obligations.
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. These policies are encumbered by the
guarantees issue by Standard Bank on behalf of the Group (refer notes 14 and
28).
At amortised cost - 768 030
Etruscan Diamonds Limited
Represents amounts advanced to Etruscan Diamonds
Limited.
Deposits 70 843 75 079
This deposit relates to deposits paid to the
South African electricity supplier.
70 843 843 109
Total other financial assets 3 569 401 4 801 902
Non-current assets 3 498 558 3 958 793
At fair value through profit or loss
At amortised cost 70 843 843 109
6. Inventories
150 751 749 971
Rough diamond inventories
Stockpile diamond inventory 39 490 74 541
Fuel, oil and grease 209 067 383 381
Mine supplies 1 223 572 1 420 197
1 622 880 2 628 090
No write-down of inventory was done during the year ended 29 February 2012.
Mine supplies were written down by $190,700 to $1,803,578 during the 2011
fiscal year.
The net realisable value of rough 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 colour.
Estimates and judgements
Management performs an annual review of inventory in order to determine the net
realisable value and to identify inventory that requires a write off. Obsolete,
slow moving and damaged inventory are indicators that a write off is required.
Management`s best judgement is applied in estimating the write off should this
be necessary.
7. Trade and other receivables
Amounts in Canadian Dollars
As at 29 February As at 28 February
2012 2011
Trade receivables 2 887 305 4 906 502
Prepayments 876 537 82 808
VAT 1 852 401 540 956
5 616 243 5 530 266
8. Cash and cash equivalents
Amounts in Canadian Dollars As at 29 February As at 28 February
2012 2011
Cash and cash equivalents consist of: 946 1 796
Cash on hand
Bank balances 10 740 395 4 769 328
10 741 341 4 771 124
Bank overdraft (829 480) (1 787 479)
9 911 861 2 983 645
Current assets 10 741 341 4 771 124
Current liabilities (829 480) (1 787 479)
9 911 861 2 983 645
9. Share capital
Amounts in Canadian Dollars
As at 29 As at 28
February 2012 February 2011
Number of Number of
shares shares
Reconciliation of number of shares 518 185 238 370 843 069
issued:
Beginning of year
Private placement at $0.065 per share - 54 631 402
Rights offering at subscription price - 92 710 767
of $0.05 per share 6 703 292 -
Debt conversion at $0.065 per share
Share consolidation 15:1 (a) (489 895 959) -
Post consolidation shares 34 992 571 518 185 238
Private placement at $0.75 per share (b) 10 341 969 -
Shares issued with asset and liability (c) 2 608 206 -
acquisition
Balance at end of year 47 942 746 518 185 238
The Company`s authorised share capital consists of an unlimited number of common
shares, without par value, and an unlimited number of preference
shares without par value, of which no preference shares have been issued.
The directors have the authority to issue unissued shares, up to 10% of
outstanding shares, without shareholders` approval.
(a) Effective 11 July 2011 the Company completed a consolidation of its
outstanding shares on the basis of 1 post consolidated common share for 15
pre-consolidated shares.
(b) The Company raised $7,8 million through a private placement, with shares
issued at $0.75 per share during Q3 2012.
(c) As at 1 September 2011, the Company issued 2,608,206 shares for the asset
and liability purchase of Etruscan Diamonds (Pty) Ltd and Blue Gum Diamonds
(Pty) Ltd (refer Note 17).
The following shares are reserved for issue:
- Share options 3,604,569
- Daboll loan 3,499,256
- Loan from director 466,667
10. Share-based payments
Amounts in Canadian Dollars
The Group has a share-based payment plan approved by the shareholders that
allows the Group to grant options for up to 10% of the issued and outstanding
shares of the Group 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 90 days following the termination of the optionee`s employment, except
in the case of retirement or death, which terminate one year thereafter.
From time to time, the Group may grant share options to employees, directors,
and service providers. The Group uses the Black-Scholes option pricing model to
estimate a fair value for these options at grant date. This model requires
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.
Effective 11 July 2011 the Company completed a consolidation of its outstanding
shares on the basis of 15 pre-consolidated common shares for 1
post consolidated common share. The effect of the share consolidation has
been applied retrospectively.
All options are to be settled by physical delivery of shares.
The terms and conditions of the grants of the share option plan are as follows:
Number of Number of Vesting conditions Contractual
instruments instruments life of
granted - granted - options
key senior (in years)
management employees
24 September 194 332 380 711 1/3 in 6 months, 5
2007 a 1/3 in 12 months
and a 1/3 in 18 months
14 November 1 060 214 54 286 1/3 in 6 months, 5
2007 a 1/3 in 12 months
and a 1/3 in 18 months
20 June 66 665 72 222 1/3 immediately, 5
2008 a 1/3 in 12 months
and a 1/3 in 24 months
7 December 2009 360 666 931 289 1/3 immediately, 5
a 1/3 in 6 months
and a 1/3 in 12 months
18 January 2010 - 40 000 1/3 immediately, 5
a 1/3 in 6 months
and a 1/3 in 12 months
8 October 2010 253 333 749 467 1/3 vest 8 October 5
2010,
a 1/3 vest 8 April 2011
and a 1/3 vest 8
October 2011
12 October 2011 185 000 517 408 1/3 vest immediately, 5
a 1/3 vest 30 March
2012
and 1/3 vest 30
September 2012
12 October 2011 733 333 - 1/3 vest 1 June 2013, 5
a 1/3 vest 1 June 2014
and a 1/3 vest 1 June
2015
12 October 2011 - 66 667 1/2 vest 26 May 2012 5
and 1/2 26 May 2013
12 October 2011 235 294 - 1/3 vest 11 July 2012, 5
a 1/3 vest 11 July 2012
and a 1/3 vest 11 July
2014
The terms and conditions of the grants of the share option plan are as follows
continued:
Assumptions used to fair value options:
Fair Share Exercise Risk free Expected Expected Expected
value price price interest life volatility dividend
grant grant rate
date date
24 7.53 7.95 9.30 4.0% 5 119.2% Nil
September
2007
14 7.68 6.90 9.45 4.0% 5 120.2% Nil
November
2007
20 June 3.90 6.90 6.75 4.0% 5 87.4% Nil
2008
7 0.80 0.90 0.90 2.4% 5 138.7% Nil
December
2009
18 0.95 1.20 1.05 2.6% 5 139.7% Nil
January
2010
8 October 0.83 0.98 0.98 1.9% 5 128.6% Nil
2010
12 0.40 0.55 0.48 1.9% 5 208.6% Nil
October
2011
12 0.52 0.55 0.75 1.9% 5 208.6% Nil
October
2011
12 0.45 0.55 0.48 1.9% 5 208.6% Nil
October
2011
12 0.50 0.55 0.60 1.9% 5 208.6% Nil
October
2011
10. Share-based payments (continued)
The continuity of share-based payments for the year
ended 29 February 2012 is as follows:
Grant Date 28 Granted/ Exercised Expired/ 29 February
February issued cancelled 2012
2011
24 September 392 767 - - (69 977) 322 790
2007
14 November 72 433 - - (12) 72 421
2007
20 June 2008 63 333 - - (63 333) -
7 December 912 173 - - (204 439) 707 734
2009
18 January 40 000 - - (40 000) -
2010
8 October 1 002 800 - - (226 078) 776 722
2010
12 October - 1 153 627 - - 1 153 627
2011
12 October - 584 075 - (12 800) 571 275
2011
2 483 506 1 737 702 - (616 639) 3 604 569
Weighted $ 2.70 $ 0.61 - $ 2.52 $ 1.64
average
exercise
price
Weighted $ 0.46
average fair
value of
share
options
granted
during the
year
The continuity of share-based payments for the year
ended 28 February 2011 is as follows:
Grant date 28 February Granted/ Exercised Expired/ 28 February
2010 Issued cancelled 2011
24 September 393 100 - - (333) 392 767
2007
14 November 73 433 - - (1 000) 72 433
2007
20 June 63 333 - - - 63 333
2008
7 December 951 393 - - (39 220) 912 173
2009
18 January 40 000 - - - 40 000
2010
8 October - 1 002 800 - - 1 002 800
2010
1 521 259 1 002 800 - (40 553) 2 483 506
Weighted $3.75 $0.98 - $1.20 $2.70
average
exercise price
Weighted $0.84
average fair
value of share
options
granted during
the year
Employee expenses
For the For the
year ended year ended
29 February 28 February
2012 2011
Share options granted in 209 575 275 463
previous year
Share options granted in 316 381 609 423
current year
Total share-based payment cost expensed to 525 956 884 886
operations, with the offset credited to Share-
Based payment reserve
11. Other financial liabilities
Amounts in Canadian Dollars As at As at
29 February 28 February
2012 2011
Held at amortised cost
Industrial Development Corporation of South 3 321 741 -
Africa Limited
The loan was acquired by Rockwell Diamonds Inc
with the asset and liability purchase of
Etruscan Diamonds (Pty) Ltd, and was entered
into by Blue Gum Diamonds (Pty) Ltd, a 74% owned
subsidiary of Etruscan Diamonds (Pty) Ltd.
The loan is repayable in 10 equal bi-annual
installments, the first of which will be paid in
fiscal 2013, bears interest at 1.28% above the
current prime rate (9% p.a) and is denominated
in South African Rand
Daboll loan 2 066 403 -
On 2 June 2011, the Group signed a Convertible
Loan Agreement with Daboll Consultants Limited.
It was agreed that Daboll Consultants Limited
would lend Rockwell Diamonds Inc $2,000,000
within 5 days of the agreement being signed.
As the loan is repayable at the election of the
borrower (except if converted after 12 months by
the lender), it is disclosed as non-current.
The loan bears interest at 5% p.a. payable each
calendar quarter, and any unpaid interest is
compounded annually.
The loan is convertible into common shares of
the Company after 12 months, if it is not repaid
earlier, at the option of Daboll Consultants
Limited. The conversion price is $0.0375 per
common share and a maximum of 52,488,853 can be
issued in relation to this conversion.
On 11 July 2011, the Company completed a
consolidation of its outstanding common shares
on the basis of 15 pre-consolidation shares for
1 post consolidated common share. Therefore the
maximum number of shares that can be issued is
now 3,499,256 at $0.5625.
5 388 144 -
Non-current liabilities 4 582 095 -
At amortised cost
Current liabilities 806 049 -
At amortised cost
5 388 144 -
12. Capital lease obligation
Amounts in Canadian Dollars As at As at
29 February 29 February
2012 2011
Minimum lease payments due 349 069 143 997
- within one year
- between one and five years 492 589 -
841 658 143 997
less: future finance charges (103 233) (1 367)
Present value of minimum lease payments 738 425 142 630
Present value of minimum lease payments due 283 339 142 630
- within one year
- between one and five years 455 086 -
738 425 142 630
Non-current liabilities 455 086 -
Current liabilities 283 339 142 630
738 425 142 630
Capital lease obligations as detailed above are secured over plant and equipment
are repayable, on average, in 36 monthly installments and are denominated in
South African Rand. Interest is charged at rates of between 1.25% to 2.00% in
excess of the prevailing prime rate, which is 9.00% per annum at 29 February
2012. There are no significant restrictions imposed on the lessee as a result of
the lease obligations.
13. Deferred tax
Amounts in Canadian Dollars
As at As at
29February 28 February
2011 2011
Deferred tax liability
Mineral property interests (3 428 142) (3 888 409)
Property, plant and equipment (6 131 253) (7 750 000)
Other - (156 320)
(9 559 395) (11 794 729)
Deferred tax asset
Reclamation obligation 840 820 1 068 099
Estimated tax losses carry-forward 1 145 884 998 221
Other 32 160 -
2 018 864 2 066 320
(7 540 531) (9 728 409)
Reconciliation of net deferred tax
liability
At beginning of the year (9 728 409) (7 224 665)
Foreign exchange movement 708 619 (316 068)
Recognised through statement of 1 479 259 (2 187 676)
comprehensive loss
(7 540 531) (9 728 409)
Judgements and estimates used in
recognition of deferred tax asset
Deferred tax assets are raised only to the extent that future taxable income
will be available against which the deferred tax asset can be set off.
Management estimates future taxable income using forecasts based on the best
available current information. Based on current estimates there is not
sufficient future taxable income in the Group entities to which the unrecognised
deferred tax assets relate to against which to set off the deferred tax asset
and therefore no deferred tax assets are raised.
Unrecognised deferred tax asset
Deferred tax assets have not been recognised for temporary differences where
it`s not probable that the respective entities to which they relate will
generate future taxable income against which to utilise the temporary
differences. Estimated unrecognised deferred tax assets could be summarised as
follows:
As at As at
29 February 28 February
2012 2011
Canada 22 031 276 21 112 000
South Africa 9 801 235 8 223 000
31 832 511 29 335 000
14. Reclamation obligation
Reconciliation of obligation - 29 February 2012
Amounts in Canadian Dollars
Opening Reclamation Foreign Asset & Unwinding Total
balance expenditure/ exchange liability of
obligation movements acquisition discount
recognised rate
Holpan, 2 565 377 (104 569) (142 708) - - 2 318 100
Wouters
pan&
Klipdam
Mines
Saxendr 1 249 261 856 781 (87 025) - - 2 019 017
ift
Mine
Tirisan - 536 320 (356 220) 6 370 317 281 795 6 832 212
o Mine
3 814 638 1 288 532 (585 953) 6 370 317 281 795 11 169 329
Reconciliation of obligation - 28 February 2011
Opening Reclamation Foreign exchange Total
balance expenditure/ movements
obligation
recognized
Holpan, Wouterspan, 2 918 102 (426 066) 73 341 2 565 377
and Klipdam Mines
Saxendrift Mine 804 882 427 875 16 504 1 249 261
3 722 984 1 809 89 845 3 814 638
Estimated rehabilitation costs, which are based on the Group`s interpretation of
current environmental and regulatory requirements, represent the present value
of the expected future costs to rehabilitate the mine properties during and 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.
Based on current environmental regulations and known rehabilitation
requirements, management has included its best estimate of these obligations in
its rehabilitation provision based on professional surveys of the environmental
disturbance.
The current value of the reclamation cost is $14,085,050 (2011: $3,814,638).
The ultimate rehabilitation will be financed from existing funds and policies
invested for this purpose, ongoing contributions as well as the proceeds on sale
of assets and metal from plant clean-up at the time of the mine closure. The
expected timing of the cash flows in respect of the provisions is dependent on
the mineral property award and/or the Life of Mine. However, it is reasonably
possible that the Group`s estimates of its ultimate rehabilitation liabilities
could change as a result of changes in regulations or cost estimates. The
following key assumptions were used in estimating the reclamation obligation:
Discount period: 4 - 18 years
South African discount rate: 9%
South African inflation rate: 7%
As required by regulatory authorities, at 29 February 2012, the Group had cash
reclamation deposits totaling $3,104,716 (28 February 2011 - $Nil) comprised of
$1,160,196 (28 February 2011 - $Nil) for the Holpan, Wouterspan and Klipdam
mine, $Nil (28 February 2011 - $Nil) for the Saxendrift mine and $1,944,520 for
the Tirisano mine. These deposits are invested in interest bearing money market
linked investments. These investments have been pledged as security in favour of
the guarantees the bank issued on behalf of the Group. Refer to note 28.
15. Related parties
Amounts in Canadian Dollars As at As at
29 February 28 February
2012 2011
Related party balances
Balances payable 4 065 34 385
Banzi Trade (e)
Hunter Dickinson Services Inc. (a) 43 425 34 113
Seven Bridges Trading (c) - -
Flawless Diamonds Trading House (d) - 3 566
CEC Engineering (b) 4 292 -
Dr. D.M. Bristow (h) 278 334 -
Current balances payable 330 116 72 064
Non-current balances payable - Liberty Lane 400 616 424 572
(g)
Loans from related parties 730 732 496 636
Balances receivable 105 530 92 398
Banzi Trade (e)
Steinmetz 127 817 -
Mogopa Minerals (f) 43 254 -
Loans to related parties 276 601 92 398
Related party transactions
Services rendered and expenses reimbursed: 338 155 467 151
Hunter Dickinson Services Inc. (a)
CEC Engineering (b) 24 678 23 331
Seven Bridges Trading (c) 87 690 134 483
Banzi Trade (e) 107 799 165 077
Mogopa Minerals (f) 61 423 -
Flawless Diamonds Trading House (d) 354 947 420 006
Sales rendered to: 122 879
Banzi Trade (e)
Compensation to key management personnel 1 191 314 973 806
Salaries and other short-term benefits
Bonus 20 205 16 070
Termination benefits 67 350 -
Share-based payment (note 10) 229 365 224 358
All related party transactions are calculated at arms length transaction values
in the normal course of business.
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company with a
director in common with the Group. HDSI provides geological, technical,
corporate development, administrative and management services to, and incurs
third party costs on behalf of, the Group on a full cost recovery market related
basis pursuant to an agreement dated 21 November 2008.
(b) CEC Engineering Ltd is a private company owned by David Copeland, a
director of the Group, 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 Group, serves in an executive capacity.
Seven Bridges Trading provides office, payroll and other administrative and
management services.
(d) Flawless Diamonds Trading House (Pty) Ltd ("Flawless Diamonds Trading
House") is a private company where certain directors, former directors and
officers of the Group, namely, Mr J.B. Brenner and Dr D.M. Bristow, are
shareholders. During fiscal 2011 the Group acquired a 20% shareholding in
Flawless Diamonds Trading House (refer note 3). Flawless is a registered diamond
broker which provides specialist diamond valuation, marketing and tender sales
services to the Group 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 Trade") is 49% owned by HC van Wyk
Diamonds Ltd and 51% by Bokomoso Trust. Banzi Trade 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 Group with building materials at market rates.
(f) The Bakwena Ba Mogopa Trust is the beneficial owner of 26% in the Tirisano
Mine operation resident in Blue Gum Diamonds (Pty) Ltd. This interest is held by
Magopa Minerals (Pty) Ltd through Magopa Blue Gum (Pty) Ltd. As the landowner,
surface rentals are paid to the Trust, while business and support services are
paid to Magopa Minerals for shareholder relations and related services.
All the above named loans are unsecured, interest free and have no fixed terms
of repayment and are therefore disclosed as current.
(g) Liberty Lane Trading 167 (Pty) Ltd ("Liberty Lane") is the BEE partner of
the Saxendrift property and has certain directors in common with the Group. In
terms of the sale of shares and claims agreement, Liberty Lane made a partial
payment towards shares to be issued in terms of this agreement. The agreement
specifies for the shares in Saxendrift only to be issued once Liberty Lane has
made full payment of the purchase consideration in terms of the agreement. As
the payment was made towards the issue of shares in terms of the agreement the
balance of payments received to date has been classified as
non-current. Refer to Note 33.
(h) A short term loan was advanced by Dr. D.M. Bristow, a non-executive
director of the Group, to Etruscan Limited (previous owner of the Tirisano Mine
operations), in order to make critical creditor payments and to proceed with
capital orders on Tirisano in 2009. The loan is convertible into equity. 466,667
Shares of the Company will be issued during Q1 2013 in settlement of the capital
portion of the loan. The loan is unsecured and a settlement agreement has been
concluded and is therefore disclosed as current.
16. Trade and other payables
Amounts in Canadian Dollars As at As at
29 February 28 February
2012 2011
Trade payables 2 706 586 1 885 008
Royalties payable 3 201 935 3 068 855
Other payables 362 626 1 419 519
Payroll accruals 553 162 115 108
VAT 757 953 130 120
7 582 262 6 618 610
17. Asset and liability acquisition
On 1 September 2011, the Group obtained control of 100% of the share capital in
Etruscan Diamonds (Pty) Ltd, which holds 74% of the shares in Blue Gum Diamonds
(Pty) Ltd.
The interest was obtained for the aggregate purchase consideration of $
3,086,697 and with the purpose of expanding the current diamond operations of
the Group. Non-controlling interest was measured at 26% of the book value of the
net identifiable assets and liabilities at acquisition date of Blue Gum Diamonds
(Pty) Ltd.
The acquisition was accounted as the acquisition of assets and liabilities as
the acquisition did not meet the criteria for an acquired business in terms of
IFRS 3: Business Combinations.
Etruscan, previously owned by Etruscan Diamonds Ltd (25%) and Etruscan Diamonds
Bermuda Ltd (75%) is located in Ventersdorp and was acquired with the purpose of
producing type 2, gem quality diamonds at the Tirisano Mine.
The Group financed the purchase consideration through:
587 953
Cash advances in the current year
Cash advances in the prior years on loan account 1 012 066
Total cash advances * 1 600 019
2 608 206 Common shares issued (non-cash) 1 486 678
Total acquisition price 3 086 697
* Amounts advanced in terms of the sale of shares agreement and to be
capitalised as a reduction of the purchase price.
The following summarises the assets and liabilities acquired:
Allocated cost
based on relative
fair value
Mineral property interests ** 13 953 802
Property, plant and equipment 435 041
Reclamation deposits 1 889 355
Inventory 153 715
Trade and other receivables 375 002
Cash and cash equivalents 32 832
Non-controlling interest (820 754)
Reclamation obligation (6 370 317)
Other financial liabilities (4 473 135)
Trade and other payables (2 088 844)
Identifiable net assets and liabilities 3 086 697
** The value placed on the mineral property interest was supported by a
competent independent valuator in excess of the carrying value indicated.
18. Cash generated from operations
Amounts in Canadian Dollars Year ended Year ended
29 February 28 February
2012 2011
Loss before taxation (15 198 643) (2 862 972)
Adjustments for:
Depreciation and depletion 7 986 209 10 240 360
Loss on sale of assets 489 615 296 510
Foreign exchange movements - (83 791)
Share of profit from equity accounted (36 918) (34 396)
investment
Finance income (780 482) (101 953)
Finance costs 873 796 480 923
Net reclamation obligation 1 288 532 1 809
Share-based payment expense 525 956 884 886
Write-down on inventory - 899 034
Write-down of property, plant and 4 938 893 284 696
equipment
Reversal of impairment on trade and other - (164 385)
receivables
Changes in working capital: 867 004 (476 349)
Inventories
Trade and other receivables (51 159) 1 686 943
Trade and other payables (752 343) (668 407)
150 460 10 382 908
Amounts in Canadian Dollars
19. Tax paid
Balance at beginning of the year and paid - (473 650)
during the year
20. Revenue
Amounts in Canadian Dollars Year ended Year ended
29 February 28 February
2012 2011
Sale of diamonds 26 375 947 37 732 476
Beneficiation income 7 845 076 4 775 271
34 221 023 42 507 747
Beneficiation income represents profit share on value add (cut and polish),
arising through the Group`s beneficiation agreement with the Steinmetz Diamond
Group. The Group is entitled to 50% of the profits from the sale of the polished
diamonds produced by the Group and sold through this channel. The beneficiation
income is recognised on the date the Steinmetz Diamond Group notifies the Group
of the successful sale of the diamonds to third parties.
21. Production cost
Amounts in Canadian Dollars Year ended Year ended
29 February 28 February
2012 2011
Production cost 26 882 953 27 538 347
Inventory movement 53 763 541 349
26 936 716 28 079 696
22. Results before net finance costs
Results before net finance costs for the
year is stated after accounting for the
following:
Loss on sale of property, plant and 489 615 296 510
equipment
Depreciation on property, plant and 6 679 466 7 509 445
equipment
Amortisation on mineral property interests 1 306 743 2 730 915
Salaries and wages 2 084 773 2 185 745
Share based payment expense 525 956 884 888
Arbitration settlement (note 32) 1 369 486 -
Impairment of property, plant and equipment 4 938 893 284 696
Reversal of impairment on trade and other - (164 385)
receivables
Auditors` remuneration
- Audit fee 504 665 671 521
- Other services 47 881 25 373
23. Finance income
Bank 255 672 101 953
Fair value adjustments on other financial 524 810 -
assets
780 482 101 953
24. Finance costs
Capital leases obligation 196 386 119 286
Bank 395 615 329 717
Fair value adjustments - 31 920
Unwinding of reclamation obligation 281 795 -
873 796 480 923
25. Tax (expense) recovery
Major components of the tax income
Deferred tax
Amounts in Canadian Dollars Year ended Year ended
29 February 28 February
2012 2011
Movement in deferred tax balance (1 479 259) (2 187 676)
recognised through profit and loss
Reconciliation of the tax expense
Reconciliation between accounting loss
and tax expense:
Loss before tax (15 198 643) (2 862 972)
Tax at the applicable tax rate of 26.26% (3 991 164) (806 786)
(2011: 28.18%)
Tax effect of adjustments on taxable
income
Difference in foreign tax rates (264 456) 13 000
Non-deductible expenses 278 850 1 002 462
Change in tax rate - 47 000
Unrecognised deferred tax assets 2 497 511 1 932 000
(1 479 259) 2 187 676
26. Loss per share
Amounts in Canadian Dollars
Year ended 29 Year ended 28
February 2012 February 2011
Basic and diluted loss per share
Basic loss per share
Cents per share (28.74) (14.65)
Basic loss per share was calculated based on a
weighted average number of shares of 40 485 275
(2011: 33 864 568).
Reconciliation of loss for the year to basic
loss
Loss for the year (13 719 384) (5 050 648)
Adjusted for:
Loss attributable to non-controlling interest 2 081 976 88 097
Basic loss attributable to owners of the Group (11 637 408) (4 962 551)
Diluted loss per share is equal to loss per share because there are no dilutive
potential ordinary shares in issue.
At 29 February 2012 and 28 February 2011 the impact of share-based payment
options were excluded from the weighted average number of shares as the effect
would have been anti-dilutive.
Amounts in Canadian Dollars Year ended 29 Year ended 28
February 2012 February 2011
Basic and diluted headline loss per share (15.34) (12.94)
Headline loss per share (cents)
Reconciliation between basic loss and headline (11 637 408) (4 962 551)
loss
Basic loss attributable to owners of the Group
Adjusted for: 489 615 296 510
Loss on disposal of assets
Impairment of property, plant and equipment 4 938 893 284 696
Headline loss attributable to owners of the (6 208 900) (4 381 345)
Group
27. Commitments
Authorised capital expenditure
(not contracted for)
- Property, plant and equipment 630 119 -
- Mineral property interests 812 585 -
Operating leases
Minimum lease payments due
- within one year 265 729 252 427
- in second to fifth year inclusive 965 348 760 368
- later than five years - 176 780
1 231 077 1 189 575
Operating lease payments represent rentals payable by the Group for surface
rentals and certain of its office properties.
28. Contingencies
Cash and cash equivalents
The Group has an overdraft facility in the amount of ZAR28.0 million ($3.9
million) available for its operations. 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 covering bonds (First Lien) of ZAR10.0 million ($1.4 million) each
over moveable 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.
29. First-time adoption of International Financial Reporting Standards
The accounting policies in note 1.4 have been applied in preparing the
consolidated financial statements for the year ended 28 February 2011 and the
preparation of an opening IFRS statement of financial position on 1 March 2010,
the Transition Date.
In preparation of these consolidated financial statements, the financial
statements for the year ended 28 February 2011, have been adjusted from amounts
reported previously in the financial statements prepared in accordance with CDN
GAAP.
An explanation of how the transition from CDN GAAP to IFRS has affected the
Group`s financial statements is set out in the following statements:
Amounts in Canadian Dollars
Reconciliation of equity at 28 February 2011
As reported Reclas- Effects of IFRS
under CDN sification transition
GAAP to IFRS
Non-current assets
Mineral property 29 565 304 - (4 389 591) 25 175 713
interests
Investment in associate 129 660 - - 129 660
Property, plant and 62 828 438 - - 62 828 438
equipment
Other financial assets 2 042 291 2 759 611 - 4 801 902
Reclamation deposits 2 759 611 (2 759 611) - -
Total non-current assets 97 325 304 - (4 389 591) 92 935 713
Current assets
Inventories 2 628 090 - - 2 628 090
Loan to related party 92 398 - - 92 398
Trade and other 4 743 034 623 764 163 468 5 530 266
receivables
Prepayments 82 808 (82 808) - -
Current tax receivable 540 956 (540 956) - -
Cash and cash 4 771 124 - - 4 771 124
equivalents
Total current assets 12 858 410 - 163 468 13 021 878
Equity and liabilities
Liabilities
Non-current liabilities
Loans from related 424 572 - - 424 572
parties
Deferred tax 14 118 000 - (4 389 591) 9 728 409
Reclamation obligation 3 814 638 - - 3 814 638
Total non-current 18 357 210 - (4 389 591) 13 967 619
liabilities
Current liabilities
Loans from related 72 064 - - 72 064
parties
Current tax payable 245 228 (245 228) - -
Capital lease obligation 142 630 - - 142 630
Trade and other payables 6 373 382 245 228 - 6 618 610
Bank overdraft 1 787 479 - - 1 787 479
Total current 8 620 783 - - 8 620 783
liabilities
Total liabilities 26 977 993 - (4 389 591) 22 588 402
Non-controlling interest 647 407 (647 407) - -
Equity
Share capital 135 989 508 - - 135 989 508
Reserves 716 059 - (917) 715 142
Retained loss (54 147 253) - 164 385 (53 982 868)
Total equity 82 558 314 - 163 468 82 721 782
attributable to equity
holders of the Group
Non-controlling interest - 647 407 - 647 407
Total equity 83 205 721 - 163 468 83 369 189
Assets
Non-current assets
Mineral property 30 850 998 - (4 320 335) 26 530 663
interests
Property, plant and 58 790 736 - - 58 790 736
equipment
Other financial assets 827 871 2 898 067 - 3 725 938
Reclamation deposits 2 898 067 (2 898 067) - -
067)
Total non-current assets 93 367 672 - (4 320 335) 89 047 337
Current assets
Inventories 2 976 058 - - 2 976 058
Loan to related party 46 108 - - 46 108
Trade and other 6 260 717 75 275 - 6 335 992
receivables
Prepayments 75 275 (75 275) - -
Cash and cash 2 512 610 4 946 - 2 517 556
equivalents
Restricted cash 4 946 (4 946) - -
Total current assets 11 875 714 - - 11 875 714
Equity and liabilities
Liabilities
Non-current liabilities
Loans from related 414 566 - - 414 566
parties
Capital lease obligation 140 332 - - 140 332
Deferred tax 11 545 000 - (4 320 335) 7 224 665
Reclamation obligation 3 722 984 - - 3 722 984
Total non-current 15 822 882 - (4 320 335) 11 502 547
liabilities
Current liabilities
Loans from related 641 323 - - 641 323
parties
Current tax payable 583 194 (109 544) - 473 650
Capital lease obligation 3 196 189 - - 3 196 189
Trade and other payables 6 458 751 109 544 - 6 568 295
Bank overdraft 698 015 - - 698 015
Total current 11 577 472 - - 11 577 472
liabilities
Total liabilities 27 400 354 - (4 320 335) 23 080 019
Non-controlling interest 648 941 (648 941) - -
Equity
Share capital 127 999 040 - -
127 999 040
Reserves (1 784 632) - - (1 784 632)
Retained loss (49 020 317) - - (49 020 317)
Total equity 77 194 091 - - 77 194 091
attributable to equity
holders of the Group
Non-controlling interest - 648 941 - 648 941
Total equity 77 843 032 - - 77 843 032
Revenue 42 507 747 - - 42 507 747
Production cost (28 079 696) - - (28 079 696)
Operating profit before 14 428 051 - - 14 428 051
amortization and
depreciation
Amortisation of mineral (2 897 591) - 166 676 (2 730 915)
property interests
Depreciation of (7 509 445) - - (7 509 445)
property, plant and
equipment
Gross profit 4 021 015 - 166 676 4 187 691
Other income 193 157 - 164 385 357 542
General and (6 809 046) 31 020 - (6 777 126)
administration expenses
Reclamation expenditure (1 809) - - (1 809)
Impairment of property, (284 696) - - (284 696)
plant and equipment
Results before net (2 881 379) 31 920 331 061 (2 518 398)
finance costs
Finance income 101 953 - - 101 953
Finance cost (449 003) (31 920) - (480 923)
Results after net (3 228 429) - 331 061 (2 897 368)
finance costs
Income from equity 34 396 - - 34 396
accounted investment
Loss before taxation (3 194 033) - 331 061 (2 862 972)
Tax expense (2 021 000) - (166 676) (2 187 676)
Loss for the year (5 215 033) - 164 385 (5 050 648)
Other comprehensive
income:
Exchange differences on 1 701 451 - - 1 701 451
translating foreign
operations
Total comprehensive loss (3 513 582) - 164 385 (3 349 197)
for the year
Loss attributable to:
Owners of the Group (5 126 936) - 164 385 (4 962 551)
Non-controlling interest (88 097) - - (88 097)
Loss for the year (5 215 033) - 164 385 (5 050 648)
Total comprehensive loss
attributable to:
Owners of the Group (3 512 048) - 164 385 (3 347 663)
Non-controlling interest (1 534) - - (1 534)
Total comprehensive loss (3 513 582) - 164 385 (3 349 197)
for the year
Loss per share
Per share information
Basic and diluted loss (15.14) - 0.49 (14.65)
per share (cents)
Notes
Deferred tax on mineral properties
Under CDN GAAP the Group recognised future income taxes on temporary differences
arising on the initial recognition of acquired mineral property interests (where
the fair value of the asset acquired exceeded its tax basis) in a transaction
which was not a business combination and affected neither accounting profit
(loss) nor taxable profit (loss). IAS 12, Income Taxes ("IAS 12"), does not
permit the recognition of deferred taxes on such transactions.
As of the Transition Date and 28 February 2011, the Group has derecognised the
impacts of all deferred taxes which had previously been recognised on the
initial acquisition of the mineral properties through transactions deemed not to
be business combinations and affecting neither accounting profit (loss) nor
taxable profit (loss).
Reclassifications
The following items have been reclassified from their presentation under CDN
GAAP to conform to the presentation under IFRS:
Consolidated statement of financial position:
- Cash and cash equivalents include restricted cash under IFRS; therefore,
restricted cash under CDN GAAP have been reclassified to cash and cash
equivalents;
- Trade and other receivables include prepayments under IFRS; therefore,
prepayments under CDN GAAP have been reclassified to trade and other
receivables;
- Reclamation deposits now excludes other financial assets under IFRS,
therefore, investment policies included in reclamation deposits under CDN GAAP
have been reclassified to other financial assets;
- VAT payable is now presented under trade and other payables, reclassified
from taxes payable; and
- Non-controlling interest has been reclassified to equity.
Consolidated statements of comprehensive loss:
- Impairments of property, plant and equipment are separately disclosed under
IFRS; therefore, impairments included in general and administration expenses
under CDN GAAP have been reclassified to impairments. Expenses previously
reported under CDN GAAP could be reconciled to the line item General and
administration expenses as follows:
Exploration 49 184
Foreign exchange loss 1 381
Legal, accounting and audit 1 211 186
Office and administration 3 615 436
Shareholder communications 185 490
Stock-based compensation 884 886
Travel and conferences 433 636
Transfer agent 99 417
Loss on disposal of equipment 296 510
Fair value adjustment to investments held 31 920
Total 6 809 046
- Finance costs includes fair value losses on financial assets at fair value
through profit and loss under IFRS; therefore, fair value losses on financial
assets under CDN GAAP have been reclassified to finance costs.
Presentation
Certain other amounts on the statement of financial position, statement of
comprehensive loss and statement of cash flows have been reclassified to conform
to the presentation adopted under IFRS.
30. Segmental information
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. All of the Group`s operations
are within the mineral exploration and diamond mining sector. The Group`s
resource properties are currently located in the Northern Cape and North West
provinces of the Republic of South Africa.
For the year ended 29 February 2012
Amounts in Canadian Dollars Northern North West Corporate Total
Cape
Property, plant and equipment 39 892 086 9 499 331 414 49 391 831
Mineral property interests 22 762 857 13 186 354 - 35 949 211
Total assets 74 061 479 27 679 859 8 691 935 110 433 273
Total liabilities 19 626 581 11 684 934 2 667 388 33 978 903
Revenue 32 299 173 1 921 850 - 34 221 023
Depreciation on property, plant 6 195 990 482 655 821 6 679 466
and equipment
Amortisation on mineral 1 282 834 23 909 - 1 306 743
property interests
Impairment of property, plant 4 938 893 - - 4 938 893
and equipment
Loss for the year 5 465 268 4 411 757 3 842 359 13 719 384
For the year ended 28 February 2011
Amounts in Canadian Dollars Northern North West Corporate Total
Cape
Property, plant and equipment 62 827 146 - 1 292 62 828 438
Mineral property interests 25 175 713 - - 25 175 713
Total assets 102 494 252 - 3 463 339 105 957 591
Total liabilities 21 657 289 - 931 113 22 588 402
Revenue 42 507 747 - - 42 507 747
Depreciation on property, 7 506 342 - 3 103 7 509 445
plant and equipment
Amortisation on mineral 2 730 915 - - 2 730 915
property interests
Impairment of property, plant 284 696 - - 284 696
and equipment
Loss for the year 1 595 237 - 3 455 411 5 050 648
31. Financial risk management
The Board of Directors has overall responsibility for the establishment and
oversight of the Group`s risk management framework. The Group`s risk management
policies are established to identify and analyse the risks faced by the Group,
to set appropriate risk limits and controls, and to monitor risks and adherence
to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group`s activities.
Overview
The Group has exposure to the following market risks from its use of financial
instruments:
- Credit risk
- Liquidity risk
- Foreign currency risk
- Interest rate risk
This note presents information about the Group`s exposure to each of the above
risks, the Group`s objectives, policies and processes for measuring and managing
risk and the Group`s management of capital. Further quantitative disclosures are
included throughout these consolidated financial statements.
Capital management
As at 29 February 2012, the Group is not subject to externally imposed capital
requirements other than its overdraft facility. Refer to note 28.
At 29 February 2012, of the $10,741,341 (February 28, 2011 - $4,771,124) cash
and cash equivalents held by the Group, $4,121,433 (February 28, 2011 -
$1,976,678) were held in South African Rand ("ZAR"), $6,005,288 (February 28,
2011 - $2,785,215) in Canadian Dollars and $614,619 (February 28, 2011 - $9,231)
in United States Dollars.
The Group`s primary objectives when managing capital are to safeguard the
Group`s ability to continue as a going concern, so that it can continue to
provide returns for shareholders, and to have sufficient funds on hand for
business opportunities as they arise. The Group considers the components of
shareholders` equity, as well as its cash and cash equivalents, and bank
indebtedness as capital. The Group`s investment policy is to invest its cash in
highly liquid short-term interest-bearing investments, having maturity dates of
three months or less from the date of acquisition, that are readily convertible
to known amounts of cash.
The Group manages the capital structure and makes adjustments to it in the light
of changes in economic conditions and the risk characteristics of the underlying
assets. The Group may issue new shares through private placements, issue debt,
or return capital to shareholders, in order to maintain or adjust the capital
structure.
In order to facilitate the management of its capital requirements, the Group
prepares annual expenditure budgets that are updated as necessary depending on
various factors, including successful capital deployment and general industry
conditions.
There were no changes to the Group`s approach to capital management during the
year ended February 29, 2012 and the Group expects it will be able to raise
sufficient capital resources to carry out its plans of operations for fiscal
2013 as disclosed in note 1.2.
31. Financial risk management (continued)
Carrying amount and fair values of financial instruments
The fair value of a financial instrument is the price at which a party would
accept the rights and/or obligations of the financial instrument from an
independent third party. Given the varying influencing factors, the reported
fair values are only indicators of the prices that may actually be realised for
these financial instruments.
Financial instruments measured at fair value are classified into one of three
levels in the fair value hierarchy according to the relative reliability of the
inputs used to estimate the fair values. The three levels of the fair value
hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or
liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or
liability either directly or indirectly; and
Level 3 - Inputs that are not based on observable market data.
It is not practicable to determine the fair value of amounts due to and from
related parties as the loans do not have fixed repayment terms and the absence
of a secondary market for such instruments.
The following tables show the estimated fair values of the financial
instruments:
Amounts in Canadian Dollars
29 February 29 February 29 February 29 February
2012 2012 2011 2011
Carrying Fair Carrying Fair
amount value amount value
Assets carried at
fair value through
profit and
loss
Other financial 3 569 401 3 569 401 4 801 902 4 801 902
assets
Reclamation 3 104 716 3 104 716 - -
deposits
Assets carried at
amortised cost
Trade and other 2 887 305 2 887 305 4 906 502 4 906 502
receivables
Cash and cash 10 741 341 10 741 341 4 771 124 4 771 124
equivalents
Liabilities carried
at amortised cost
Other financial 5 388 144 5 388 144 - -
liabilities
Trade and other 3 069 212 3 069 212 3 304 527 3 304 527
payables
Capital lease 738 425 738 425 142 630 142 630
obligations
Bank overdraft 829 480 829 480 1 787 479 1 787 479
The following table illustrates the classification of the Group`s financial
instruments recorded at fair value within the fair value hierarchy as at 29
February 2012:
Amounts in Canadian Dollars
Level 1 Level 2 Level 3 Total
Financial assets at fair
value - 29 February 2012
Other financial assets 3 569 401 - - 3 569 401
Reclamation deposits 3 104 716 - - 3 104 716
Financial assets at fair
value - 28 February 2011
Other financial assets 4 801 902 - - 4 801 902
Financial instrument risk exposure and risk management
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange
rates and interest rates will affect the Group`s income of the value of its
holdings of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while
optimising the return.
The Group is exposed in varying degrees to a variety of financial instrument
related risks. The Board approves and monitors the risk management processes,
including treasury policies, counterparty limits, controlling and reporting
structures, credit risk, liquidity risk, currency risk, interest risk and
diamond price risk. The types of risk exposure and the way in which such
exposure is managed are provided as follows:
Credit risk
Credit risk is the risk of potential loss to the Group if counterparties to a
financial instrument fails to meet its contractual obligations. The Group`s
credit risk is primarily attributable to its liquid financial assets including
cash and equivalents, restricted cash, accounts receivable and trade receivable
from a related party. The carrying values of the Group`s cash and cash
equivalents, accounts receivable and trade receivable from a related party
represents the maximum exposure to credit risk.
The Group limits exposure to credit risk on liquid financial assets through
maintaining its cash and equivalents with high-credit quality financial
institutions. The Group does not have financial assets that are invested in
asset backed commercial paper.
The Group minimises its credit risk by reducing credit terms to 30 days on its
sales.
The ageing of receivables at the reporting date was:
Amounts in Canadian Dollars
29 February 29 February 28 February 28 February
2012 2012 2011 2011
Carrying Carrying
amount Impairment amount Impairment
Not past due 2 887 305 - 4 906 502 -
Past due 0 - 30 days - - - -
Past due 31 - 120 days - - - -
More than one year - - - -
The current carrying values represent the Group`s maximum exposure to credit
risk.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due. The Group raised $7.8 million in a private
placement during the year. After taking into account cash flows from operations
and the Group`s holdings of cash and cash equivalents, the Group believes that
these sources will be sufficient to cover the likely requirements for the
foreseeable future. The Group`s cash and equivalents are invested in business
accounts which are available on demand for the Group`s capital programs, and
which are not invested in any asset backed deposits/investments.
The Group operates in South Africa. The Group is subject to currency exchange
controls administered by the South African Reserve Bank, that country`s central
bank. A significant portion of the Group`s funding structure for its South
African operations consists of advancing loans to its South Africa incorporated
subsidiaries and it is possible the Company may not be able to acceptably
repatriate such funds once those subsidiaries are able to repay the loans or
repatriate other funds such as operating profits should any develop. The
repatriation of cash held in South Africa is permitted upon the approval of the
South African Reserve Bank. Cash balances in South Africa are disclosed below.
The following are the contractual maturities of financial liabilities at
carrying values (excluding future interest payments):
29 February 2012
Non-derivative financial Carrying Contractual 2013 2014 2015 -
liabilities amount cash flow 2017
Trade and other payables 3 069 212 3 069 212 3 069 212 - -
Due to related parties 730 732 730 732 330 116 400 616 -
Bank overdraft 829 480 829 480 829 480 - -
Capital lease 738 425 738 425 283 339 315 399 139 687
obligations
Other financial 5 388 144 5 388 144 806 049 624 232 3 957 863
liabilities
28 February 2011
Non-derivative Carrying Contractual 2012 2013 2014
financial liabilities amount cash flow
Trade and other 3 304 527 3 304 527 3 304 527 - -
payables
Due to related parties 496 636 496 636 72 064 424 572 -
Bank overdraft 1 787 479 1 787 479 1 787 479 - -
Capital lease 142 630 142 630 142 630 - -
obligations
Foreign currency risk
In the normal course of business, the Group enters into transactions for the
purchase of supplies and services denominated in ZAR. In addition, the Group has
cash and certain liabilities denominated in ZAR. As a result, the Group is
subject to currency risk from fluctuations in foreign exchange rates. The Group
has not entered into any derivative or other financial instruments to mitigate
this foreign exchange risk.
The exposure of the Group`s financial assets and liabilities to currency risk is
as follows:
The exposure of the Group`s financial assets and liabilities to currency risk is
as follows:
As at As at
29 February 28 February 2011
2012
Assets
South African Rand
Cash and cash equivalents 4 121 433 1 976 678
Trade and other receivables 2 887 305 4 743 034
Trade receivable from related party - 92 398
Other financial assets 3 569 401 4 801 902
Reclamation deposits 3 104 716 -
United States Dollar 614 619 9 231
Cash and cash equivalents
Total assets 14 297 474 11 623 243
Liabilities
South African Rand
Bank indebtedness 829 480 1 787 479
Trade and other payables 3 069 212 3 304 527
Due to related parties 452 398 496 636
Capital lease obligations 738 425 142 630
Other financial liabilities 3 321 741 -
Total liabilities 8 411 256 5 731 272
Exchange rates used for conversion of
foreign operations were:
CDN vs. ZAR - Annual average rate 0.1347 0.1400
CDN vs. ZAR - Year end spot rate 0.1321 0.1411
CDN vs. USD - Annual average rate 0.9916 1.0202
CDN vs. USD - Year end spot rate 1.0136 1.0268
Sensitivity analysis:
Interest rate risk
The Group is subject to interest rate risk with respect to its investments in
cash and cash equivalents. The Group`s policy is to invest cash at floating
rates of interest and cash reserves are to be maintained in cash equivalents in
order to maintain liquidity, while achieving a satisfactory return for
shareholders. Fluctuations in interest rates when the cash equivalents mature
impact interest income earned.
The Group has capital lease obligations with several financial institutions as
detailed in note 12. The capital leases bear interest at rates linked to the
prevailing prime rate of the relative financial institution, and are subject to
interest rate change risk.
Sensitivity analysis:
A 10% percent increase/decrease in the prime rate for the year ended February
29, 2012 would have a net loss/gain effect of $18,848 (February 28, 2011 -
$37,897). This analysis assumes that all other variables, in particular foreign
exchange rates, remain constant.
Business risk - Diamond price risk
The value of the Group`s mineral resource properties is dependent on the price
and the outlook of diamonds. Diamond demand and prices fluctuate and are
affected by numerous factors beyond the control of the Group, including
worldwide economic trends, worldwide levels of diamond discovery and production,
and the level of demand for and discretionary spending on, luxury goods such as
diamonds and jewellery. Low or negative growth in the worldwide economy,
prolonged credit market disruptions or activities creating disruptions in
economic growth could result in decreased demand for diamonds, thereby
negatively affecting the price of diamonds. Similarly, a substantial increase in
the worldwide level of diamond production could also negatively affect the price
of diamonds. In each case, such developments could materially adversely affect
the Group`s results of operations.
The profitability of the Group`s operations is highly correlated to the market
price of diamonds. If diamond prices decline for a prolonged period below the
cost of production of the Group`s operating mines, it may not be economically
feasible to continue production.
32. Arbitration settlement
Midamines Arbitration
In previous years the dispute with Midamines was disclosed in detail.
Arbitration proceedings were done during the financial year. Simultaneous final
written submissions were submitted to the Arbitration Tribunal on July 8, 2011.
A written award was made by the Arbitration Tribunal on 12 October 2011 against
Durnpike and Rockwell to the value of US$1.2 million excluding interest, in full
and final settlement of any claims. This was paid during the third quarter. In
addition, interest and legal fees were paid in relation to the settlement,
bringing the total cost to $1.4 million. This concluded the matter.
33. Subsequent events
Jasper Acquisition & AVR unbundling
On 9 March 2012, the Group signed an agreement with Africa Vanguard Resources
("AVR") on a way forward with respect to the Group`s Northern Cape operations
which includes an agreement to acquire AVR`s Jasper Mine property. The Jasper
Mine property is contiguous to Rockwell`s Saxendrift Mine and has the potential
to extend the life of Saxendrift Mine with limited new investment.
As required by South African law, Rockwell entered into an arrangement with AVR
to permit them to purchase a 26% interest in the Group under the Black Economic
Empowerment (`BEE`) legislative provisions. The management of Rockwell has been
in ongoing discussions with AVR regarding the replacement of the vendor funding
provided by Rockwell to AVR relating to the acquisition by AVR of 26% of HC Van
Wyk Diamond Group ("VWDG") and Saxendrift Mine (Pty) Ltd in 2008, the Rockwell
subsidiaries which hold the Group`s Northern Cape operations and projects. As
part of the original agreements, AVR paid an amount of $2.9 million (ZAR22.5
million) with the balance of $7.9 million (ZAR61.6 million) still owing to
Rockwell.
The restructured agreement makes provision for a repayment to AVR by Rockwell of
$1.9 million (ZAR15 million). This repayment will be in the form of Rockwell
shares, listed on the JSE Limited. AVR has undertaken not to trade these shares
for a period of one year. Incorporated into the settlement arrangements is the
acquisition by Rockwell of the Jasper Mine property from AVR ("the
transactions"). The completion of these transactions is subject to various
conditions precedent, including the completion by Rockwell of a due diligence
investigation, regulatory approvals and obtaining approval from the DMR with
respect to certain parts of the transaction. The deadline for the fulfilment of
the conditions precedent is 31 December 2013, extendable by mutual agreement
between the parties.
Preliminary estimates indicate that the past producing Jasper Mine, which is a
brownfield opportunity, has remaining diamond-bearing deposits that are easily
accessible to the infrastructure at the Saxendrift Mine and could extend the
life of Saxendrift Mine, which is currently three years.
The restructure and unwinding of the AVR transaction on an asset level will,
subject to the conditions precedent being fulfilled, provide Rockwell with the
opportunity to enter into a new BEE partnership and will also retain AVR as a
meaningful shareholder in Rockwell. The Group is actively pursuing discussions
with several BEE entities, who have indicated their interest to partner with
Rockwell in a value creating transaction. In compliance with the requirements of
the Mining Charter, AVR`s shares will be transferred to the new BEE partner once
a suitable transaction is concluded.
No recognition has been given to this transaction in these consolidated
financial statements.
Canada
24 May 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 25/05/2012 08:05:00 Produced by the JSE SENS Department.
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