| Thu 31 May 2012, 8:39 | | DMC - DiamondCorp - Final Results for the year ended 31 December 2011 |
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DMC
DMC
DMC - DiamondCorp - Final Results for the year ended 31 December 2011
DiamondCorp plc
JSE share code: DMC
AIM share code: DCP
ISIN: GB00B183ZC46
(Incorporated in England and Wales)
(Registration number 05400982)
(SA company registration number 2007/031444/10)
(`DiamondCorp` or `the Company`)
Final Results for the year ended 31 December 2011
DiamondCorp plc, the African diamond mining and exploration company,
releases its audited results for the year ended 31 December 2011. The
Company`s Annual Report and Accounts and Notice of Annual General Meeting
will be posted to shareholders on 1 June 2012 and will be available on the
Company`s website (www.diamondcorp.plc.uk) shortly.
Contacts:
AIM Nomad: Fairfax I.S. PLC
AIM Brokers: Fairfax I.S. PLC, Ocean Equities Ltd
JSE Sponsor: PSG Capital (Pty) Limited
DiamondCorp plc - Paul Loudon +27 56 212 2308/ Euan Worthington +44 775 3862
097
Fairfax I.S. PLC - Ewan Leggat/Laura Littley +44 207 598 5368
Ocean Equities Ltd - Guy Wilkes +44 207 786 4370
PSG Capital (Pty) Ltd - John-Paul Dicks +27 21 887 9602
Russell & Associates - Charmane Russell +27 11 880 3924
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE
Dear Shareholder,
When we wrote to you a year ago, our mining team at Lace had just completed
driving a ramp down to the 26 level (-260m from surface) and intersected the
main kimberlite pipe. We had hoped to extract a 30,000 tonne bulk sample
from six (3metre x 3metre) parallel development drives across the full area
of the 2.5 hectare main pipe by the end of July 2011. However, on entering
the pipe at this level, we discovered three different kimberlite types, two
of which had not been intersected in drilling from the surface. Sampling
conditions proved difficult in these less competent facies and in the event
we decided, by the end of September 2011, that we had extracted enough ore
to give us a representative sample and for reasons of safety we stopped
mining on that level. A total of 15,414 tonnes of ore were extracted from
three different kimberlite facies and 2,157.41 carats of diamonds were
recovered. Importantly, the brown volcanoclastic kimberlite, which is the
dominant VK facies below the 33 level (-330m), returned a bulk sample grade
of 26 carats per hundred tonnes (cpht).
These results gave our technical advisors enough confidence to recommend
that we proceed to a full engineering study and the Board agreed to
commission SRK Consulting (South Africa) (Pty) Ltd ("SRK") to produce an
independent engineering report. The SRK report, which was finalised in March
this year, validated the project and recommended that we initiate mining
with a block cave on the 47 level (-470m). Ore will be crushed underground
and carried to surface on a conveyor system for treatment through the
existing 1.2mtpa plant.
Near Jwaneng in Botswana, during Q4 2011, we carried out wide diameter mini
bulk sample drilling of the two kimberlites which we had previously
discovered were diamondiferous. We had high hopes for these targets after
the initial core drilling, kimberlite type, diamond counts and proximity to
Jwaneng, the richest diamond mine in the world. However, as is often the
case in diamond exploration, the results from the mini bulk tests indicated
that neither J-01 nor J-05 were likely to be economic diamond mines at this
time. Consequently, we have decided not to proceed further with this
project.
The Diamond Market
After the very strong rally from the lows of early 2009 when the WWW
International Diamond Consultants Ltd overall index of rough diamond prices
rose more than threefold, the market was due a setback and in the middle of
last year, we saw a correction (c25%) before some recovery towards the end
of the year which has continued so far in 2012.
In February 2011, we sold a package of 1,321 carats recovered from the Lace
tailings for an average of US$94/ct which compared to the highest price
before the 2008 crash of $55/ct in September that year and the lowest of
$33/ct from a small scale in May 2009.
The diamonds recovered from the bulk sample were valued by experts at the
South African Diamond Exchange last September/October with an average price
of $160/ct after what was estimated to have been a 25% drop in previous
weeks. This value was one third higher than the Company`s original base case
price of $120/ct. We have not sold this parcel of 2,157.4 carats of diamonds
which have more recently been valued at $172/ct by the South African Diamond
Exchange.
We remain confident about the future of the diamond market with strong
demand from China, India and other parts of Asia expected to add to a
growing recovery in US consumer demand. As we and many other observers have
noted before, the only significant new source of diamonds worldwide are the
Marange diamond fields in Zimbabwe. These stones are having some impact on
the smaller and lower quality end of the diamond market but are not expected
to fill the emerging gap between supply and demand, particularly for stones
over 1ct.
The Lace Mine
The Lace mine, 200km southwest of Johannesburg, is owned and operated by our
74% owned subsidiary Lace Diamond Mines (Pty) Limited. The mine has a
granted mining right, grid power and is fully compliant with South Africa`s
black economic empowerment ("BEE") regulations. Well known and established
BEE groups Shanduka Resources and Sphere Holdings each own 13% of Lace
Diamond Mines (Pty) Ltd.
Early in 2011, the 1.2mtpa Lace processing plant, which had been on care and
maintenance since 2009, was recommissioned in readiness for the underground
bulk test which was completed in October. The plant operated to design
specification throughout the bulk test, and is now being used for the
retreatment of tailings. The diamonds recovered from tailings retreatment
will be tendered on a regular basis during development of the underground
mine and will contribute a valuable credit to the development cost.
During the year we also commenced crushing of our waste rock at the mine for
sale through a contractual arrangement with African Mobile Crushers. Revenue
from this activity will also provide a small credit to the underground
development cost.
Bulk Sampling Results
Kimberlite Tonnes Carats Recovered Estimated Estimated
type sampled recovered grade in area of area of the
carats the pipe pipe at the
per at the 25 34 level
hundred level from
tonnes from drilling
(cpht) sampling
Contact VK 6,425 583.81 9.09 15% Not
encountered
in drilling
Grey VK 6,319 882.85 13.60 45% Not
encountered
in drilling
Brown VK 2,670 690.75 25.87 40% Predominates
across the
pipe
TOTAL 15,414 2,157.41 100%
Bulk sampling of kimberlite types was undertaken in June-September 2011
between the 25 and 26 levels.
The planned underground development involves the establishment of a
continuous trough block cave on the 47 level. The first block cave will
allow the extraction of approximately 9mt of kimberlite over an 8-9 year
period, followed by subsequent block caves on the 67 level (-670m) and the
85 (-850m) level over a 25 year mine life. Block caving is used in most
South African underground kimberlite mines and allows very low operating
costs compared with other mining methods.
The cost of this development is estimated at R384 million (approximately $50
million). The mine will take an estimated 43 months to reach full production
but should start to produce diamonds after month 18 as much of the
development work from that date takes place within diamond bearing
kimberlite. While establishing the mine, approximately 600,000 tonnes of
kimberlite will be mined and the diamonds recovered sold. The revenue
generated from these sales will provide an important credit towards the
overall development cost and limits the peak forecast funding requirement to
approximately R285m ($37m), 25 months after development commences.
Our company benefits from the experience of our group mining consultant Bob
Harverson, who spent a large part of his career with De Beers and was
involved with the design and implementation of similar block caves at
Premier (now Cullinan) and Finsch mines.
Safety is a prime concern to our Company and we are pleased to report that
during the year under review, the Lace mine operated without any lost time
injuries or fatalities.
Following the completion of the bulk test, our underground mining fleet was
in need of a major overhaul prior to the commencement of mine development.
We constructed a heavy equipment workshop during 2011 and a programme of
5,000 hour machine rebuilds was initiated.
Once our project finance is available for drawdown, activities at the mine
will rapidly pick up speed in order to meet the development schedule we have
set ourselves. Our workforce will increase from the current 62 employees to
more than 200 during underground development and the majority of these jobs
created will exist for the life of the mine.
In terms of our commitment to corporate and social responsibility, we
concentrated our efforts on the Doornspruit school near the mine during the
year, refurbishing classrooms, building washrooms and providing necessary
text books. In the year ahead, it is our intention to fund the establishment
of a brick making business which will utilise the crushed mine waste rock
from Lace to build bricks for the local market. Since the year end, we are
pleased to have appointed Andre Labuschagne as the new mine manager at Lace.
Andre has considerable experience mining kimberlites from underground and
was previously mine manager for Petra Diamonds at the Sedibeng mine. Andre
will work with Bob Harverson and chief operating officer Steve West in
implementing the 47 level block cave development, the success of which will
be a cornerstone achievement in the building of our company.
Lace Mine Resource Statement
Depth (m) Tonnage (Mt) Grade (cpht) Carats (Mct)
Type &
Category
Main Satellite Total Main Satellite Main Satellite Total
Pipe Pipe Pipe Pipe Pipe Pipe
73-345 VK 5.879 1.375 7.254 24.4 7.1 1.435 0.098 1.533
Indicated
345-855 11.163 - 11.163 24.4 - 2.723 - 2.723
VK
Inferred
345-855 16.079 - 16.079 56.8 - 9.133 - 9.133
CK
Inferred
345-600 - 0.025 0.025 - Unknown - Unknown -
VK
Inferred
345-600 - 1.066 1.066 - Unknown - Unknown -
CK
Inferred
Total 33.121 2.466 35.587 40.12 13.389
Resource statement prepared March 2012 by VP3 Geoservices (Pty) Limited in
accordance with the SAMREC Reporting Code.
Corporate and Financing
In January 2011, we appointed resource specialist Ocean Equities Ltd, as
joint brokers and in March last year selected Fairfax I.S. PLC as our new
Nominated Adviser and joint broker. Together, in June 2011, they raised
GBP3.48 million gross for us at 13p per share to fund our exploration
programme in Botswana and general working capital.
As noted in our statement last year, we were seeking "to raise a further
GBP10 - 12 million in the near future". Therefore with the good bulk sample
results in hand, we went out marketing to existing and new institutions in
October 2011. We had some very positive feedback but ultimately, the Greek
debt crisis and setback in diamond prices exerted too much negative force.
We had enough headroom to issue 31.6 million shares at 6.5p which allowed us
to pay off debt and accrued interest due to the Africa Opportunity Fund LP
and give us GBP0.6 million of working capital.
In hindsight, the inability to raise this equity finance for the underground
development at Lace has been in the best interests of shareholders, since it
gave us time to carry out further studies on the optimum mine planning, and
as you have recently seen, move towards securing a debt finance package from
the Industrial Development Corporation of South Africa Limited (IDC) which
will not dilute shareholders` value.
Another piece of good news came at the end of last year when our South
African operating subsidiary Lace Diamond Mines (Pty) Limited reached an
agreement with Mutual and Federal Insurance Limited on a claim for damage to
timbers and pumps in the vertical shaft at the Lace mine incurred during
heavy rains earlier in the year; after deductibles, we received R25 million
(GBP2.2 million).
Last month, the IDC presented us with a Term Sheet offering Lace Diamond
Mines (Pty) Limited a loan of R280 million (GBP21.3 million) subject to the
completion of due diligence for underground development and purchase of
mining equipment. Your Board has reviewed and accepted this Term Sheet which
will cover 98% of the estimated capital cost for development of the first
block cave on the 47 level at Lace. We anticipate that the loan financing
agreement will be finalised by the end of July 2012.
The Future
We have been rebuilding our underground mining fleet ready to start
underground mining as soon as possible. We then estimate that it will take
18 months to mine down to the 47 level where we will establish a development
level of troughs, slots and haulage ways for the first block cave. The
mining at that level will be in kimberlite, so we expect our first revenues
before the end of Q1 2014 with full production in Q2 2015.
Planned Lace Mine Production (carats)
Please see the link at the end of this announcement for a graph of the
planned Lace Mine Production.
There will be much work to be done at Lace in that period, but with that
mine`s future now expected to be secure, we will be turning more seriously
to the search for opportunities to build your company into a mid-tier
diamond miner.
In Conclusion
A year ago, we could not have anticipated the good and bad luck which would
come our way, and although it would have been very exciting to have
discovered a new mine in Botswana, we have proved up the viability of Lace
and secured a strong partner in the IDC. We must thank all our employees and
managers for their hard work and enthusiasm which has helped us reach this
position with an exciting future for the Company.
Euan Executive Chairman
Worthington
Paul Loudon Chief Executive
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2011
Consolidated income Note 2011 2010
statement GBP GBP
Depreciation and (918,291) (1,115,553)
amortisation
Other administrative (2,042,690) (1,834,968)
expenses
Total administrative (2,960,981) (2,950,521)
expenses
Gain on insurance settlement 2,195,816 -
Other income 11,048 -
Impairment of intangible (2,373,616) -
asset
Write off of Botswana (1,013,032) -
project
OPERATING LOSS 3 (4,140,765) (2,950,521)
Investment revenues 24,685 77,057
Finance costs (123,066) (441,863)
LOSS BEFORE TAX (4,239,146) (3,315,327)
Tax 6 - -
LOSS FOR THE FINANCIAL YEAR 18 (4,239,146) (3,315,327)
ATTRIBUTABLE TO:
Equity holders of the parent (3,823,586) (2,970,452)
Non controlling interest 19 (415,560) (344,875)
(4,239,146) (3,315,327)
BASIC AND DILUTED LOSS PER 7 (1.87p) (2.27p)
SHARE
HEADLINE LOSS PER SHARE* 7 (2.43p) (2.30p)
All of the activities of the Group are classed as continuing.
* The Group presents an alternative measure of loss per share after
excluding all capital gains and losses from the loss attributable to
ordinary shareholders (see note 7).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
Year ended 31 December 2011
Consolidated statement of comprehensive 2011 2010
income and expense GBP GBP
Net loss (4,239,146) (3,315,327)
(2,443,288) 1,418,679
Foreign exchange on translation of
overseas operations
Total comprehensive expense (6,682,434) (1,896,648)
ATTRIBUTABLE TO:
Equity holders of the parent (6,405,668) (1,485,211)
Non controlling interest (276,766) (411,437)
(6,682,434) (1,896,648)
COMPANY INCOME STATEMENT
Year ended 31 December 2011
Company income statement Note 2011 2010
GBP GBP
Administrative expenses (943,158) (948,103)
Write off of loan to Botswana Diamondcorp (1,021,402) -
Limited
OPERATING LOSS 3 (1,964,560) (948,103)
Investment revenues 5,494 70,208
Finance costs (123,066) (441,863)
LOSS FOR THE FINANCIAL YEAR 18 (2,082,132) (1,319,758)
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE (2,082,132) (1,319,758)
PARENT
All of the activities of the Company are classed as continuing.
There were no other gains or losses during the year.
CONSOLIDATED BALANCE SHEET
31 December 2011
Consolidated balance sheet Note 2011 2010
GBP GBP
NON-CURRENT ASSETS
Goodwill 8 4,606,026 4,606,026
Other intangible assets 8 4,641,801 4,947,778
Property, plant and 9 4,609,284 6,260,302
equipment
13,857,111 15,814,106
CURRENT ASSETS
Inventories 11 442,433 355,349
Other receivables 12 182,350 398,266
Cash and cash equivalents 2,632,760 4,293,185
3,257,543 5,046,800
TOTAL ASSETS 17,114,654 20,860,906
CURRENT LIABILITIES
Obligations under finance - (25,718)
leases
Other payables 13 (498,876) (627,028)
Borrowings 14 - (2,184,950)
Provisions (13,941) (16,740)
(512,817) (2,854,436)
NET ASSETS 16,601,837 18,006,470
EQUITY
Share capital 17 7,268,041 5,516,209
Share premium account 18 26,702,502 23,203,016
Warrant reserve 18 505,877 505,877
Share option reserve 18 429,066 402,583
Translation reserve 18 398,476 2,980,558
Retained losses 18 (18,013,922 (14,190,336)
)
Equity attributable to 17,290,040 18,417,907
equity holders of the parent
Non controlling interest 19 (688,203) (411,437)
TOTAL EQUITY 16,601,837 18,006,470
The financial statements of DiamondCorp plc, registered number 5400982, were
approved by the Board of Directors and authorised for issue on 30 May 2012.
Signed on behalf of the Board of Directors
E A Worthington
Director
COMPANY BALANCE SHEET
31 December 2011
Company balance sheet Note 2011 2010
GBP GBP
NON-CURRENT ASSETS
Investments in 10 4,217,501 4,217,501
subsidiaries
Other intangible assets 8 317,075 336,892
4,534,576 4,554,393
CURRENT ASSETS
Other receivables 12 22,835,064 18,096,220
Cash and cash equivalents 257,042 4,014,781
23,092,106 22,111,001
TOTAL ASSETS 27,626,682 26,665,394
CURRENT LIABILITIES
Other payables 13 (118,580) (168,011)
Borrowings 14 - (2,184,950)
(118,580) (2,352,961)
NET ASSETS 27,508,102 24,312,433
EQUITY
Share capital 17 7,268,041 5,516,209
Share premium account 18 26,702,502 23,203,016
Warrant reserve 18 505,877 505,877
Share option reserve 18 429,066 402,583
Retained losses 18 (7,397,384) (5,315,252)
TOTAL EQUITY 27,508,102 24,312,433
The financial statements of DiamondCorp plc, registered number 5400982, were
approved by the Board of Directors and authorised for issue on 30 May 2012.
Signed on behalf of the Board of Directors
E A Worthington
Director
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2011
Stateme Share Sha Non Total
nt of Share premi Warr re Transl Retained contro- GBP
changes capit um ant opt ation losses Sub- lling
in al accou rese ion reserv GBP total interest
equity GBP nt rve res e GBP GBP
GBP GBP erv GBP
e
GBP
GROUP
Balance 1,416 17,87 555, 371 1,495, (11,269, 10,442,5 - 10,442,525
at 1 ,960 2,580 036 ,67 317 043) 25
January 5
2010
Loss - - - - - (2,970,4 (2,970,4 (344,875) (3,315,327)
for 52) 52)
financi
al year
Other - - (49, - 1,485, 49,159 1,485,24 (66,562) 1,418,679
compreh 159) 241 1
ensive
income
Total - - (49, - 1,485, (2,921,2 (1,485,2 (411,437) (1,896,648)
compreh 159) 241 93) 11)
ensive
income
Issue 4,099 5,489 - - - - 9,589,01 - 9,589,012
of ,249 ,763 2
share
capital
Issue - (159, - - - - (159,327 - (159,327)
costs 327) )
Value - - - 30, - - 30,908 - 30,908
attribu 908
ted for
equity
settled
share
based
payment
s
Balance 5,516 23,20 505, 402 2,980, (14,190, 18,417,9 (411,437) 18,006,470
at 31 ,209 3,016 877 ,58 558 336) 07
Decembe 3
r 2010
Balance 5,516 23,20 505, 402 2,980, (14,190, 18,417,9 (411,437) 18,006,470
at 1 ,209 3,016 877 ,58 558 336) 07
January 3
2011
Loss - - - - - (3,823,5 (3,823,5 (415,560) (4,239,146)
for 86) 86)
financi
al year
Other - - - - (2,582 - (2,582,0 138,794 (2,443,288)
compreh ,082) 82)
ensive
income
Total - - - - (2,582 (3,823,5 (6,405,6 (276,766) (6,682,434)
compreh ,082) 86) 68)
ensive
income
Issue 1,751 3,785 - - - - 5,537,27 - 5,537,272
of ,832 ,440 2
share
capital
Issue - (285, - - - - (285,954 - (285,954)
costs 954) )
Value - - 26, - - 26,483 - 26,483
attribu 483
ted for
equity
settled
share
based
payment
s
Balance 7,268 26,70 505, 429 398,47 (18,013, 17,290,0 (688,203) 16,601,837
at 31 ,041 2,502 877 ,06 6 922) 40
Decembe 6
r 2011
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2011
Share Share
Share premium Warrant option Retained
capital account reserve reserv losses Total
GBP GBP GBP e GBP GBP
GBP
COMPANY
Balance at 1 1,416,9 17,872, 555,036 371,67 (4,044,6 16,171,
January 2010 60 580 5 53) 598
Loss for - - - - (1,319,7 (1,319,
financial year 58) 758)
Other - - (49,159) - 49,159 -
comprehensive
income
Total - - (49,159) - (1,270,5 (1,319,
comprehensive 99) 758)
income
Issue of share 4,099,2 5,489,7 - - - 9,589,0
capital 49 63 12
Issue costs - (159,32 - - - (159,32
7) 7)
Value attributed - - - 30,908 - 30,908
for equity
settled share
based payments
Balance at 31 5,516,2 23,203, 505,877 402,58 (5,315,2 24,312,
December 2010 09 016 3 52) 433
Balance at 1 5,516,2 23,203, 505,877 402,58 (5,315,2 24,312,
January 2011 09 016 3 52) 433
Loss for - - - - (2,082,1 (2,082,
financial year 32) 132)
Total - - - - (2,082,1 (2,082,
comprehensive 32) 132)
income
Issue of share 1,751,8 3,785,4 - - - 5,537,2
capital 32 40 72
Issue costs - (285,95 - - - (285,95
4) 4)
Value attributed - - 26,483 - 26,483
for equity
settled share
based payments
Balance at 31 7,268,0 26,702, 505,877 429,06 (7,397,3 27,508,
December 2011 41 502 6 84) 102
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2011
Consolidated cash flow statement 2011 2010
GBP GBP
Operating loss (4,140,765) (2,950,521)
Depreciation and amortisation 918,291 1,115,553
Share based payment charge 26,483 50,097
Gain on disposal of property plant and (1,985) (44,415)
equipment
Impairment of intangible asset 2,373,616 -
Write off of Botswana project 1,013,032 -
Decrease (increase) in receivables 215,916 (207,563)
Increase in inventories (87,084) (52,329)
Decrease in payables (156,668) (107,478)
Effect of foreign exchange translation - 103,842
NET CASH FROM (USED IN) OPERATING 160,836 (2,092,814)
ACTIVITIES
INVESTING ACTIVITIES
Purchase of intangible assets (3,996,606) (2,008,860)
Purchase of property, plant and equipment (376,794) (74,030)
Disposal of property, plant and equipment 74,265 79,807
Investment revenues 24,685 77,057
NET CASH USED IN INVESTING ACTIVITIES (4,274,450) (1,926,026)
FINANCING ACTIVITIES
Repayment of borrowings (2,308,016) (1,417,627)
Proceeds on issue of ordinary shares 5,251,318 9,429,685
NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058
NET (DECREASE) INCREASE IN CASH AND CASH (1,170,312) 3,993,218
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF 4,293,185 288,188
YEAR
Effect of foreign exchange rate changes (490,113) 11,779
CASH AND CASH EQUIVALENTS AT END OF YEAR 2,632,760 4,293,185
COMPANY CASH FLOW STATEMENT
Year ended 31 December 2011
Company cash flow statement 2011 2010
GBP GBP
Operating loss (1,964,560) (948,103)
Depreciation 19,817 19,817
Share option expense 26,483 50,097
Write off of loan to Botswana Diamondcorp (1,021,402) -
Limited
Increase in receivables (3,717,442) (3,319,049)
Decrease in payables (49,431) (68,621)
NET CASH USED IN OPERATING ACTIVITIES (6,706,535) (4,265,859)
INVESTING ACTIVITIES
Investment revenues 5,494 70,208
NET CASH FROM INVESTING ACTIVITIES 5,494 70,208
FINANCING ACTIVITIES
Repayment of borrowings (2,308,016) (1,417,627)
Proceeds on issue of ordinary shares 5,251,318 9,429,685
NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058
NET (DECREASE) INCREASE IN CASH AND CASH (3,757,739) 3,816,407
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,014,781 161,598
Effect of foreign exchange rate changes - 36,776
CASH AND CASH EQUIVALENTS AT END OF YEAR 257,042 4,014,781
AUDIT OPINION
The auditors, Deloitte LLP, have audited the financial statements for the
year ended 31 December 2011. A copy of their audit report, which is
unqualified but contains an emphasis of matter (which is reproduced below),
will be sent to shareholders with the report and accounts and will be made
available for inspection at the Company`s registered office.
EMPHASIS OF MATTER - GOING CONCERN
In forming our opinion on the financial statements, which is not qualified,
we have considered the adequacy of the disclosure made in note 1 to the
financial statements concerning the company`s ability to continue as a going
concern. The Group incurred a net loss attributable to the equity holders of
the parent of GBP3,823,586 and the company incurred a net loss of
GBP2,082,132 during the year ended 31 December 2011. The Directors have
prepared cash flow forecasts which indicate the business will require
additional funding in the next 12 months. As described in note 1, the
Directors have signed a term sheet with the Industrial Development
Corporation of South Africa Limited for a R280 million (approximately
GBP21.3 million) facility which the Directors expect to finalise and draw
down following completion of certain conditions precedent. In addition, the
Group and Company will need to raise additional equity finance to supplement
its cash resources in 2012. The requirement to finalise the IDC facility
and the need to raise additional equity finance, along with other matters
explained in note 1 to the financial statements, indicate the existence of a
material uncertainty which may cast significant doubt about the company`s
ability to continue as a going concern. The financial statements do not
include the adjustments that would result if the company was unable to
continue as a going concern.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2011
Notes to the financial statements 1. BASIS OF PREPARATION AND ACCOUNTING
POLICIES
General information
DiamondCorp plc is a Company incorporated in England and Wales under the
Companies Act 2006 and incorporated as an external company in South Africa
under the Companies Act No 61 of 1973. The address of the registered office
is given on page 1. The nature of the Group`s operations and its principal
activities are set out in the Directors` Report on page 9.
These financial statements are presented in pounds sterling because that is
the functional currency of the parent Company of the Group. Foreign
operations are included in accordance with the policies set out in this
note.
a) Adoption of new and revised International Financial Reporting Standards
The following new and revised Standards and Interpretations have been
adopted in the current year. Their adoption has not had any significant
impact on the amounts reported in these financial statements, but with the
exception of the amendment to IFRS 1, may impact the accounting for future
transactions and arrangements.
Amendment to IFRS 1 The amendment provides a limited exemption
Limited Exemption from for first-time adopters from providing
Comparative IFRS 7 Disclosures comparative fair-value hierarchy
for First-time Adopters
disclosures under IFRS 7.
IAS 24 (2009) Related Party The revised Standard has a new, clearer
Disclosures definition of a related party, with
inconsistencies under the previous
definition having been removed.
Amendment to IAS 32 Under the amendment, rights issues of
Classification of Rights Issues instruments issued to acquire a fixed
number of an entity`s own non-derivative
equity instruments for a fixed amount in
any currency and which otherwise meet the
definition of equity are classified as
equity.
Amendments to IFRIC 14 The amendments now enable recognition of an
Prepayments of a Minimum asset in the form of prepaid minimum
Funding Requirements funding contributions.
Improvements to IFRSs 2010 Aside from those items already identified
above, the amendments made to standards
under the 2010 improvements to IFRSs have
had no impact on the Group.
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective (and in some cases had not
yet been adopted by the EU):
IFRS 1 Severe Hyperinflation and Removal of Fixed Dates
(amended) for First-time Adopters
IFRS 7 Disclosures - Transfers of Financial Assets
(amended)
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in other Entities
IFRS 13 Fair Value Measurement
IAS 1 (amended) Presentation of Items of Other Comprehensive
Income
IAS 12 Deferred Tax: Recovery of Underlying Assets
(amended)
IAS 19 Employee Benefits
(revised)
IAS 27 Separate Financial Statements
(revised)
IAS 28 Investments in Associates and Joint Ventures
(revised)
IAS 32 Offsetting Financial Assets and Financial
(amended) Liabilities
IFRIC 20 Stripping Costs in the Production Phase of a
Surface Mine
The adoption of IFRS 9 which the Group plans to adopt for the year beginning
on 1 January 2013 will impact both the measurement and disclosures of
Financial Instruments. The Directors do not expect that the adoption of the
other standards listed above will have a material impact on the financial
statements of the Group in future periods.
b) Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs). The financial
statements have also been prepared in accordance with IFRSs adopted by the
European Union and therefore the Group financial statements comply with
Article 4 of the EU IAS Regulation.
c) Basis of preparation
The financial statements have been prepared on the historical cost basis,
except for certain financial instruments that are measured at fair value, as
explained in the accounting policies below. Historical cost is generally
based on fair value of the consideration given in exchange for assets. The
financial statements have been prepared on a going concern basis. The
principal accounting policies adopted are set out below.
d) Going Concern
In determining the appropriate basis of presentation of the financial
statements, the Directors are required to consider whether the Group can
continue in operational existence for the foreseeable future, this being a
period of not less than 12 months from the date of the approval of the
financial statements. The Group`s business activities and goals are set out
in the Letter from the Chairman and Chief Executive.
During the next 12 months the Group will be in a mine-development phase and
forecasts indicate that the Group would have insufficient financial
resources to accomplish all its development goals and meet all its financial
obligations over the next 12 months with its current level of funding. As a
result, the Group signed a detailed loan funding term sheet on 18 May 2012
with the Industrial Development Corporation of South Africa Limited ("IDC"),
pursuant to which the main terms of a proposed loan funding were agreed in
principle. It is intended that the loan funding term sheet will form the
basis of the final loan financing agreement. Under the terms of the loan
funding term sheet, IDC (the "Lender") has agreed to provide a loan facility
to Lace to the value of R280 million (approximately GBP21.3 million) for the
purpose of underground development and purchase of mining equipment at the
Lace mine.
The loan will be secured over the assets of Lace and will be guaranteed by
the parent company. The term of the loan is expected to be 7 years. It is
anticipated that the loan will attract an interest rate of 2% over the South
African Prime Rate (which is currently 9%), such interest to be capitalised
for the first two years from the draw down date and payable semi-annually in
arrears thereafter. There will also be a two year moratorium on loan
repayments.
The provision of the loan is subject to certain conditions precedent,
including the completion of satisfactory due diligence by the Lender and
unconditional approval by the Lender`s executive committee and/or board of
Directors. Subject to satisfactory completion of due diligence and
satisfaction of the conditions precedent, including approval for the upgrade
of the electricity supply to the mine by Eskom, the Directors anticipate
that the loan financing agreement will be finalised by the end of July 2012.
The loan financing agreement will include representations and warranties
from the Borrower that are usual for transactions of this nature.
While it is anticipated that adequate funding for the development at Lace
will be available via IDC, the Company will have to supplement cash
resources by accessing equity markets in 2012.
The conditions to be satisfied in the loan financing to be approved by the
lender and the requirement to raise additional equity funds indicate the
existence of a material uncertainty which may cast significant doubt about
the company`s ability to continue as a going concern. After reviewing the
IDC conditions in detail and making an assessment of the Group`s ability to
raise further equity funds, the Directors have a reasonable expectation that
the group can meet all conditions precedent for finalising the loan and
raise additional equity funds as required and therefore they continue to
adopt the going concern basis of presentation of the financial statements.
e) Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and entities controlled by the Company (its subsidiaries).
Control is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from
its activities.
Income and expenses of subsidiaries acquired or disposed of during the year
are included in the consolidated statement of comprehensive income from the
effective date of acquisition and up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group.
All intra-Group transactions, balances, income and expenses are eliminated
on consolidation.
Non-controlling interests in subsidiaries are identified separately from the
Group`s equity therein. Total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling interests
even if this results in the non-controlling interests having a deficit
balance.
Changes in the Group`s ownership interests in existing subsidiaries
Changes in the Group`s ownership interests in subsidiaries that do not
result in the Group losing control over the subsidiaries are accounted for
as equity transactions. The carrying amounts of the Group`s interests and
the non-controlling interests are adjusted to reflect the changes in their
relative interests in the subsidiaries. Any difference between the amount by
which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal
is calculated as the difference between (i) the aggregate of the fair value
of the consideration received and the fair value of any retained interest
and (ii) the previous carrying amount of the assets (including goodwill),
and liabilities of the subsidiary and any non-controlling interests. When
assets of the subsidiary are carried at revalued amounts or fair values and
the related cumulative gain or loss has been recognised in other
comprehensive income and accumulated in equity, the amounts previously
recognised in other comprehensive income and accumulated in equity are
accounted for as if the Company had directly disposed of the relevant assets
(i.e. reclassified to profit or loss or transferred directly to retained
earnings as specified by applicable IFRSs). The fair value of any investment
retained in the former subsidiary at the date when control is lost is
regarded as the fair value on initial recognition for subsequent accounting
under IAS 39 Financial Instruments: Recognition and Measurement or, when
applicable, the cost on initial recognition of an investment in an associate
or a jointly controlled entity.
f) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the
acquisition method. The consideration for each acquisition is measured at
the aggregate of the fair values (at the date of exchange) of assets given,
liabilities incurred or assumed, and equity instruments issued by the Group
in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
Where applicable, the consideration for the acquisition includes any asset
or liability resulting from a contingent consideration arrangement, measured
at its acquisition-date fair value. Subsequent changes in such fair values
are adjusted against the cost of acquisition where they qualify as
measurement period adjustments (see below). All other subsequent changes in
the fair value of contingent consideration classified as an asset or
liability are accounted for in accordance with relevant IFRSs. Changes in
the fair value of contingent consideration classified as equity are not
recognised.
Where a business combination is achieved in stages, the Group`s previously-
held interests in the acquired entity are remeasured to fair value at the
acquisition date (i.e. the date the Group attains control) and the resulting
gain or loss, if any, is recognised in profit or loss. Amounts arising from
interests in the acquiree prior to the acquisition date that have previously
been recognised in other comprehensive income are reclassified to profit or
loss, where such treatment would be appropriate if that interest were
disposed of.
The acquiree`s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 (2008) are recognised
at their fair value at the acquisition date, except that:
- deferred tax assets or liabilities and liabilities or assets related
to employee benefit arrangements are recognised and measured in accordance
with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
- liabilities or equity instruments related to the replacement by the
Group of an acquiree`s share-based payment awards are measured in accordance
with IFRS 2 Share-based Payment; and
- assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that Standard.
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the Group
reports provisional amounts for the items for which the accounting is
incomplete. Those provisional amounts are adjusted during the measurement
period (see below), or additional assets or liabilities are recognised, to
reflect new information obtained about facts and circumstances that existed
as of the acquisition date that, if known, would have affected the amounts
recognised as of that date.
The measurement period is the period from the date of acquisition to the
date the Group obtains complete information about facts and circumstances
that existed as of the acquisition date, and is subject to a maximum of one
year.
Business combinations that took place prior to 1 January 2010 were accounted
for in accordance with the previous version of IFRS 3.
g) Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group`s interest in the fair value of the identifiable
assets and liabilities of a subsidiary, at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill which is
recognised as an asset is reviewed for impairment at least annually. Any
impairment is recognised immediately in profit or loss and is not
subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to the Group`s
cash-generating unit expected to benefit from the synergies of the
combination. The cash-generating unit to which goodwill has been allocated
is tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit pro-
rata on the basis of the carrying amount of each asset in the unit.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
h) Intangible assets
Exploration and evaluation expenditure comprises costs which are directly
attributable to the acquisition of exploration licenses and subsequent
exploration expenditures.
Exploration and evaluation expenditure is carried forward as an asset
provided that one of the following conditions is met:
i) Such costs are expected to be recouped in full through successful
development and exploration of the area of interest or alternatively, by its
sale;
ii) Exploration and evaluation activities in the area of interest have
reached a stage which permits a reasonable assessment of the existence of
economically recoverable reserves with active and significant operations in
relation to the area continuing, or planned for the future.
Identifiable exploration and evaluation assets acquired are recognised as
assets at their cost of acquisition. An impairment review is performed when
facts and circumstances suggest that the carrying amount of the assets may
exceed their recoverable amounts. Exploration assets are reassessed on a
regular basis and these costs are carried forward provided that at least one
of the conditions outlined is met. Exploration rights are amortised over the
useful economic life of the mine to which it relates, commencing when the
asset is available for use.
Expenditure on research activities is recognised as an expense in the period
in which it is incurred.
Capitalised pre-production expenditure includes costs incurred and
capitalised during the plant construction phase which are intangible in
nature. Prior to obtaining the Mining Right in 2008, which was granted for a
period of 20 years, these capitalised expenditures were amortised over the
life of the work in progress. Since the grant of the Mining Right these
expenditures will be amortised at a rate of 5% based on the life of the
Mining Right.
Rights to use the Power Line are capitalised at their cost of acquisition
and are being amortised over the useful economic life at a rate of 5% per
annum.
Underground exploration and evaluation expenditure will be amortised from
the point at which it is available for use over its useful economic life,
expected to be 5% per annum.
i) Property, plant and equipment
Property, plant and equipment is stated at cost less any subsequent
accumulated depreciation and subsequent accumulated impairment losses.
Depreciation is charged so as to write off the cost, less estimated residual
value on assets other than land, over their estimated useful lives, using
the straight line method, on the following bases:
Plant 5%
Mining fleet 25%
Buildings 5%
Other tangible 20 - 33.33%
assets
Land is not depreciated. The estimated useful lives, residual values and
depreciation method are reviewed at the end of each reporting period, with
the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
An item of property, plant and equipment is derecognised upon disposal or
when no future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on the disposal or retirement of
an item of property, plant and equipment is determined as the difference
between the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
j) Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where it is not
possible to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated to individual cash-
generating units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent allocation basis
can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet
available for use are tested for impairment at least annually, and whenever
there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value
in use. In assessing value in use, the estimated future cash flows are
discounted to the present value using a pretax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cashgenerating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (cash-
generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is
carried at a re-valued amount, in which case the impairment loss is treated
as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in prior years. A
reversal of an impairment loss is recognised as income immediately, unless
the relevant asset is carried at a re-valued amount, in which case the
reversal of the impairment loss is treated as a revaluation increase.
k) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable losses for the period. Taxable
loss differs from net loss as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible.
The Group`s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary differences arise from the
initial recognition of goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in
joint ventures, except where the Group is able to control the reversal of
the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled or the asset is realised. Deferred
tax is charged or credited in the income statement, except when it relates
to items charged or credited directly to equity, in which case the deferred
tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
l) Financial instruments
Financial assets and financial liabilities are recognised on the Group`s
balance sheet when the Group becomes a party to the contractual provisions
of the instrument.
Trade 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 the income statement when there is objective evidence that the
asset is impaired. The allowance recognised is measured as the difference
between the asset`s carrying amount and the present value of estimated
future cash flows discounted at the effective interest rate computed at
initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprises cash in 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.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
The effective interest method is a method of calculating the amortised cost
of a financial asset and of allocating interest income over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees on points paid or
received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life
of the financial asset, or, where appropriate, a shorter period.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Intercompany receivables
Intercompany receivables are initially recognised by the Company at fair
value and are subsequently measured at amortised cost using the effective
interest rate method.
m) Foreign currencies
The individual financial statements of each Group Company are presented in
the currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group Company are
expressed in pounds sterling, which is the functional currency of the
Company, and the presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual entities,
transactions in currencies other than the entity`s functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at
the rates prevailing on the balance sheet date. Non-monetary items carried
at fair value that are denominated in foreign currencies are retranslated at
the rates prevailing on the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign
currency are not translated.
Group and Company
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income statement for
the period. Exchange differences arising on the retranslation of non-
monetary items carried at fair value are included in the income statement
for the period except for differences arising on the retranslation of non-
monetary items in respect of which gains and losses are recognised directly
in equity. For such non-monetary items, any exchange component of that gain
or loss is also recognised directly in equity.
In addition, in the case of presenting consolidated financial statements,
any foreign exchange differences arising on elimination of intercompany loan
balances upon consolidation of the Group Companies, are classified as equity
and transferred to the Group`s translation reserve, as these loans are for
long term investment purposes.
Determining the rate of exchange to be used:
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group`s foreign operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case the
exchange rates at the dates of the transactions are used. Exchange
differences arising, if any, are classified as other comprehensive income
and transferred to the Group`s translation reserve. Such translation
differences are recognised in the income statement in the period in which
the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
n) Restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and environmental costs
arises when environmental disturbance is caused by the development or
ongoing production of a mining property. Such costs arising from the
installation of plant and other site preparation work, discounted to their
net present value, are provided for and capitalised at the start of each
project, as soon as the obligation to incur such costs arises. These costs
are charged against profits over the life of the operation, through the
depreciation of the asset and the unwinding of the discount on the
provision. Costs for restoration of subsequent site damage which is created
on an ongoing basis during production are provided for at their net present
values and charged against profits as extraction progresses.
Changes in the measurement of a liability relating to the decommissioning of
plant or other site preparation work that result from changes in the
estimated timing or amount of the cash flow, or a change in the discount
rate, are added to, or deducted from, the cost of the related asset in the
current period. If a decrease in the liability exceeds the carrying amount
of the asset, the excess is recognised immediately in the income statement.
If the asset value is increased and there is an indication that the revised
carrying value is not recoverable, an impairment test is performed in
accordance with the accounting policy above.
o) Inventories
Inventory and work in progress are valued at the lower of cost and net
realisable value.
Work in progress relates to tailings and was valued at the time of
acquisition at GBP2.84 per carat based on an in situ valuation equivalent to
8% of the market value of US$63 per carat achieved at a sale of Lace project
diamonds in May 2005. The number of carats in inventory (370,285 carats) was
based on an expert determination provided to the Company by a qualified
external valuer. Work in progress is being amortized on the units of
production method.
Inventory relating from development of the underground is carried at the
value determined by the South African Diamond Exchange which is considered
to be a reliable reflection of market value.
p) Revenue
Revenue from the sale of diamonds is recorded when the diamonds are sold at
tender. The Lace plant was commissioned on 1 October 2007 before full
operations were suspended in 2008.
Revenue earned from sales prior to the new operations achieving commercial
production are recognised as a reduction in the carrying value of the pre-
production expenses held within intangible assets. Revenue is measured at
the fair value of the consideration received or receivable.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset`s net carrying value.
Revenues from the sale of carats recovered during the development phase are
recognised as a credit against the cost of development.
q) Finance leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases. Rentals payable under
operating leases are charged to income on a straight-line basis over the
term of the relevant lease. Assets held under finance leases are initially
recognised as assets of the Group at their fair value at the inception of
the lease or, if lower, at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the balance sheet
as a finance lease obligation.
r) Share-based payments
Equity-settled share-based payments to employees and others providing
similar services are measured at the fair value of the equity instruments at
the grant date. The fair value excludes the effect of non market-based
vesting conditions. Details regarding the determination of the fair value
of equity-settled share-based transactions are set out in note 19.
The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over the vesting period,
based on the Group`s estimate of equity instruments that will eventually
vest. At each balance sheet date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of
non market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to equity reserves.
SAYE share options granted to employees are treated as cancelled when
employees cease to contribute to the scheme. This results in accelerated
recognition of the expenses that would have arisen over the remainder of the
original vesting period.
For cash-settled share-based payments, a liability is recognised for the
goods or services acquired, measured initially at the fair value of the
liability. At each balance sheet date until the liability is settled, and
at the date of settlement, the fair value of the liability is remeasured,
with any changes in fair value recognised in profit or loss for the year.
s) Critical accounting judgements
In the process of applying the Group`s accounting policies, which are
described above, the Directors have made the following judgements that have
the most significant effect on the amounts recognised in the financial
information.
- Valuation of inventory - Judgement was applied in calculating the initial
carrying value of inventory and judgement continues to be applied in
assessing the net realisable value - see accounting policy n) above.
- Valuation of warrants, share options and ordinary shares issued as
consideration - Judgement is applied in determining appropriate assumptions
to be used in calculating the fair value of warrants, shares and share
options issued - see notes 18 and 20.
- Impairment of goodwill and other intangible assets - Judgement is applied
in determining appropriate assumptions to be used in testing for and
calculating impairment - see policy f) and g) above.
- Going concern - Judgement is applied in assessing the likelihood and
timing of future cash flows associated with the Group`s activities.
Judgement is also applied in assessing the likelihood of receiving future
funding - see page 29.
2. BUSINESS AND GEOGRAPHICAL SEGMENTS
For management purposes, the Group has one business and geographical segment
- diamond mining and exploration in the Republic of South Africa. In 2010
the Group also commenced exploring for diamonds in Botswana, but this
project was terminated during 2011.
3. OPERATING LOSS
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
Operating loss is after charging
(crediting):
Auditors` remuneration 75,500 62,848 52,500 56,298
Foreign exchange losses 110,805 201,022 110,806 203,409
Profit on disposal of fixed assets (1,985) (44,415) - -
Depreciation of tangible assets 854,492 1,050,549 - -
Amortisation of intangible assets 63,799 65,004 19,817 19,817
Impairment of intangible assets 2,373,616 - - -
Write off Botswana project 1,013,032 - - -
The analysis of auditors`
remuneration is as follows:
Fees payable to the Company`s
auditors for the audit of Company`s 52,500 34,000 52,500 34,000
accounts
Fees payable to the Company`s
auditors and their
associates for other services to
the Group
The audit of the 23,000 33,000 - -
Company`s subsidiaries
Total audit fees 75,500 67,000 52,500 34,000
Corporate finance services - 42,000 - 42,000
Total non-audit fees - 42,000 - 42,000
TOTAL 75,500 109,000 52,500 76,000
4. STAFF COSTS
Staff costs of the Group and Company were:
2011 2010
Group GBP GBP
Wages and salaries 357,322 436,946
Social security costs 30,084 20,786
387,406 457,732
Average number of administrative staff 9 5
Average number of operational staff 20 18
Average number of employees 29 23
2011 2010
GBP GBP
Company
Wages and salaries 188,465 164,995
Social security costs 22,414 16,744
210,879 181,739
Average number of employees 4 3
5. DIRECTORS` EMOLUMENTS
Directors` emoluments for the year ended 31 December 2011 and 2010 and for
the highest paid director were as follows:
2011 2010
GBP GBP
Directors` remuneration
Fees paid by the Company and its 252,167 231,166
subsidiaries
Emoluments of highest paid director 137,500 137,500
6. TAX
Group
2011 2010
GBP GBP
Current tax - -
Deferred tax (see note 15) - -
Tax expense for the year - -
The charge for the year can be reconciled to the loss per the income
statement as follows:
2011 2010
GBP GBP
Loss for the year (4,239, (3,315,
146) 327)
Tax at the UK corporation tax rate of (1,123, (928,29
26.5% (2010 - 28%) 374) 2)
Expenses not deductible 308,733 221,052
Tax losses carried forward 814,641 707,240
Tax expense for the year - -
In March 2011, the UK Government announced a reduction in the standard rate
of UK corporation tax to 26% effective 1 April 2011. This rate reduction was
substantively enacted in March 2011.
In March 2012, the UK Government announced the main rate of UK corporation
tax would reduce to 24% with effect from 1 April 2012, with subsequent 1%
reductions annually to 22% by April 2014. These changes were substantively
enacted on 26 March 2012.
7. LOSS PER SHARE
a) Basic loss per share
Basic loss per share is calculated by dividing the loss for the year by the
weighted average number of shares in issue during the year. The weighted
average number of shares used is 203,928,771 (2010 - 130,765,634).
b) Diluted loss per share
International Accounting Standard 33 requires presentation of diluted
earnings per share when a company could be called upon to issues shares that
would decrease the net profit or increase the net loss per share. For a
loss making company with outstanding options, net loss per share would only
be increased by the exercise of out-of-money options. Since it seems
inappropriate to assume that option holders would exercise out-of-money
options, no adjustment has been made to diluted loss per share for out-of-
money share options.
c) Headline loss per share
The Group presents an alternative measure of loss per share after excluding
all capital gains and losses from the loss attributable to ordinary
shareholders. The impact of this is as follows:
Basic 2011 2010
Loss per share (1.87p) (2.27p)
Effect of gain on disposal of property, plant and - (0.03p)
equipment
Effect of gain on insurance settlement 0.80p -
Effect of impairment of intangible assets (1.36p) -
Adjusted loss per share (2.43p) (2.30p)
8. INTANGIBLE FIXED ASSETS
For the year ended 31 December 2011
Group Goodw Jwane Power Power Pre- Under- Mineral Total
ill ng line line production ground rights GBP
GBP GBP Phase Phase capita- Capita- GBP
1 2 lised lised
GBP GBP expenses expenses
GBP GBP
Cost
At 1 4,606 310,4 484,04 184,1 554,764 4,679,942 681,614
11,500,972
January ,026 22 0 64
2011
Addition - 702,6 - - - 3,293,996 -
3,996,606
s 10
Impairme - (1,01 - - - - -
(1,013,032)
nt 3,032
)
Exchange - - (88,37 (33,6 (101,292) (1,463,83 (52,086)
(1,739,219)
differen 9) 26) 6)
ces
At 31 4,606 - 395,66 150,5 453,472 6,510,102 629,528
12,745,327
December ,026 1 38
2011
Accumula
ted
amortisa
tion
At 1 - - (71,89 (27,3 (76,732) (1,668,93 (102,242)
(1,947,168)
January 9) 56) 9)
2011
Charge - - (22,71 (8,64 - - (32,440) (63,799)
for the 6) 3)
year
Impairme - - - - - (2,373,61 -
(2,373,616)
nt 6)
Exchange - - 14,863 5,655 14,010 843,778 8,777 887,083
differen
ces
At 31 - - (79,75 (30,3 (62,722) (3,198,77 (125,905)
(3,497,500)
December 2) 44) 7)
2011
Carrying
amount
At 31 4,606 - 315,90 120,1 390,750 3,311,325 503,623
9,247,827
December ,026 9 94
2011
At 31 4,606 310,4 412,14 156,8 478,032 3,011,003 579,372
9,553,804
December ,026 22 1 08
2010
In 2011 Lace Diamond Mines (Pty) Limited reached an agreement with Mutual
and Federal Insurance Limited on a claim for damage to timbers and pumps in
the vertical shaft at the Lace mine incurred during heavy rains earlier in
the year; after deductibles, we received R25 million (GBP2.2 million) and
recognised an impairment against underground capitalised expenses of R27.5
million (GBP2.4 million).
For the year ended 31 December 2010
Group Goodw Jwa Power Power Pre- Under-ground Mineral Total
ill nen line line production capitalised rights GBP
GBP g Phase 1 Phase capitalise expenses GBP
GBP GBP 2 d expenses GBP
GBP GBP
Cost
At 1 4,606 99, 420,085 159,8 481,465 2,571,488 643,922
8,981,937
January ,026 120 31
2010
Additio - 211 - - - 1,797,558 -
2,008,860
ns ,30
2
Exchang - - 63,955 24,33 73,299 310,896 37,692 510,175
e 3
differe
nces
At 31 4,606 310 484,040 184,1 554,764 4,679,942 681,614
11,500,972
Decembe ,026 ,42 64
r 2010 2
Accumul
ated
amortis
ation
At 1 - - (47,542) (7,84 (66,594) (1,666,234) (64,392)
(1,852,608)
January 6)
2010
Charge - - (15,565) (16,6 - - (32,786)
(65,004)
for the 53)
year
Exchang - - (8,792) (2,85 (10,138) (2,705) (5,064)
(29,556)
e 7)
differe
nces
At 31 - - (71,899) (27,3 (76,732) (1,668,939) (102,242)
(1,947,168)
Decembe 56)
r 2010
Carryin
g
amount
At 31 4,606 310 412,141 156,8 478,032 3,011,003 579,372
9,553,804
Decembe ,026 ,42 08
r 2010 2
At 31 4,606 99, 372,543 151,9 414,871 905,254 579,530
7,129,329
Decembe ,026 120 85
r 2009
For the year ended 31 December 2011 Mineral rights
Company GBP
Cost and carrying amount
At 1 January 2011 336,892
Charge for the year (19,817)
At 31 December 2011 317,075
For the year ended 31 December 2010 Mineral rights
Company GBP
Cost and carrying amount
At 1 January 2010 356,709
Charge for the year (19,817)
At 31 December 2010 336,892
The Group tests annually for impairment, or more frequently if there are
indications that goodwill might be impaired. The Group has one reportable
business segment and all goodwill is associated with that segment. The
recoverable amounts of the cash generating unit ("CGU") is determined from
value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and
expected changes to selling prices and direct costs during the period. A
post tax discount rate of 10% has been used, which is consistent with the
rate used for determining the value of purchased intangibles.
The Group`s test for impairment is based on several considerations including
a model adopted by management from the model prepared for the Lace Mine by
one of its technical advisors. This model uses grade assumptions based on
the resource statement of the Group`s technical advisor and it uses diamond
prices considered representative of market prices. The model assumes that
the Lace mine will reach full production of 1,200,000 tonnes of kimberlite
in 2015 and run through 2039. The valuations of the Lace Mine generated by
the Model under variable sets of assumptions as to grades, revenues and
costs indicate that there has been no impairment of goodwill during the
year. Management have considered the key assumptions to be reasonable. A
reasonable possible change in a key assumption would not lead to an
indicator of impairment of the cash generating unit which contains goodwill.
9. PROPERTY, PLANT AND EQUIPMENT
For the year ended 31 December 2011
Group Land Other
Mining and tangible
Plant fleet buildings assets Total
GBP GBP GBP GBP GBP
Cost
At 1 January 2011 6,336,605 2,508,082 322,693 423,150
9,590,530
Additions 110,081 179,100 48,521 39,092 376,794
Disposals - - (72,280) (10,617) (82,897)
Reclassification (542,168) 542,168 - - -
Exchange (1,165,380) (471,618) (57,105) (79,436)
(1,773,53
differences 9)
At 31 December 4,739,138 2,757,732 241,829 372,189
8,110,888
2011
Accumulated
depreciation
At 1 January 2011 (851,651) (2,231,957) (62,626) (183,994)
(3,330,22
8)
Charge for the (251,047) (538,428) (12,047) (52,970)
(854,492)
year
Disposals - - - 10,617 10,617
Exchange 174,672 448,645 12,355 36,827 672,499
differences
At 31 December (928,026) (2,321,740) (62,318) (189,520)
(3,501,60
2011 4)
Carrying amount
At 31 December 3,811,112 435,992 179,511 182,669
4,609,284
2011
At 31 December 5,484,954 276,125 260,067 239,156
6,260,302
2010
For the year ended 31 December 2010
Group Plant Mining Land Other Total
fleet and tangible
buildings assets
GBP GBP GBP GBP GBP
Cost
At 1 January 5,499,369 2,329,054 248,416 328,216 8,405,055
2010
Additions - - 33,147 40,883 74,030
Disposals - (159,616) - - (159,616)
Exchange 837,236 338,644 41,130 54,051 1,271,061
differences
At 31 December 6,336,605 2,508,082 322,693 423,150 9,590,530
2010
Accumulated
depreciation
At 1 January (764,702) (1,063,478) (45,210) (118,668) (1,992,058)
2010
Charge for the (413,590) (581,221) (9,577) (46,161) (1,050,549)
year
Disposals - 124,223 - - 124,223
Exchange 326,641 (711,481) (7,839) (19,165) (411,844)
differences
At 31 December (851,651) (2,231,957) (62,626) (183,994) (3,330,228)
2010
Carrying amount
At 31 December 5,484,954 276,125 260,067 239,156 6,260,302
2010
At 31 December 4,734,667 1,265,576 203,206 209,548 6,412,997
2009
10. INVESTMENT IN SUBSIDIARIES
For the year ended 31 December 2011
Company GBP
Cost and carrying amount
At 1 January 2011 and 31 December 4,217,501
2011
For the year ended 31 December 2010
Company GBP
Cost and carrying amount
At 1 January 2010 4,217,500
Additions 1
At 31 December 2010 4,217,501
The investment represents 100% of the share capital of Crown Diamond Mining
Limited ("CDM") which was acquired on 15 May 2006. CDM changed its name to
Diamondcorp Holdings Limited in 2007 ("DHL") and is a Company registered in
the British Virgin Islands.
During 2010, Botswana Diamondcorp Limited ("BWD") was incorporated in the
British Virgin Islands as a wholly-owned subsidiary of DiamondCorp plc,
represented by a GBP1 investment on the balance sheet of the Company.
The Africa Opportunity Fund L.P. loan (Note 14) which was paid off in 2011
was secured by the assets of the subsidiaries. For a list of subsidiaries,
please refer to note 22.
11. INVENTORIES
2011 2010
Group GBP GBP
Work in progress (tailings)
Cost and carrying amount at 349,152 303,020
beginning of year
Foreign exchange (loss) gain (63,750) 46,132
Carrying amount at end of year 285,402 349,152
Diamond inventories 141,889 -
Consumable and other inventories 15,142 6,197
442,433 355,349
Work in progress related to tailings and was valued on acquisition at
GBP2.84 per carat based on an in situ valuation equivalent to 8% of the
market value of US$63 per carat achieved at a sale of Lace project diamonds
in May 2005. The number of carats in work in progress (370,285 carats) was
based on an expert determination provided to the Company by a qualified
external valuer. In 2008, the carrying value of work in progress was written
down by GBP377,534 to reflect depreciation in diamond prices and reduction
in grades.
12. OTHER RECEIVABLES
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
Receivables due from Group - - 22,802,199 18,082,222
undertakings
Prepayments and other 182,350 398,266 32,865 13,998
receivables
182,350 398,266 22,835,064 18,096,220
The Directors consider that the carrying amount of these assets approximates
their fair value. All receivables balances are non-interest bearing.
Included in prepayments and other receivables, is a rehabilitation bond held
by the Department of Minerals and Energy in the amount of GBP67,923 (2010 -
GBP83,094) providing for the cost of rehabilitation on termination of the
Lace project.
13. OTHER PAYABLES
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
Interest on long term loan - 55,539 - 55,539
Accruals and deferred 498,876 571,489 118,580 112,472
income
498,876 627,028 118,580 168,011
The Directors consider that the carrying amount of these liabilities
approximates their fair value. All payables balances are non-interest
bearing.
14. BORROWINGS
In October 2011, the final amount due under the loan with Africa Opportunity
Fund L.P. ("AOF") was repaid in full and the Company and its subsidiaries
have been released of all security. The following discussion provides a
history of the loan.
On 17 October 2008, the Company completed a long term loan with AOF in the
amount of US$5,000,000. The loan was secured by the Company`s equity
interest in Lace Diamond Mines (Pty) Ltd and by the assets of the Company`s
subsidiaries.
The loan was repayable over 36 months as detailed in the schedule below.
AOF Repayment Schedule Capital Interest
repayment payment
Schedule schedule Total
Repayment date (US$) (US$) (US$)
16 April 2009 - 299,178 299,178
16 October 2009 - 300,822 300,822
16 April 2010 500,000 299,178 799,178
10 May 2010 * 150,000 1,282 151,282
16 October 2010 1,000,000 261,715 1,261,715
16 April 2011 1,500,000 200,449 1,700,449
16 October 2011 1,850,000 111,304 1,961,304
5,000,000 1,473,928 6,473,928
Reconciliation of payments made on
long term loan:
Amounts paid as at 31 December 2011 5,000,000 1,473,928 6,473,928
Amounts due within 1 year - - -
5,000,000 1,473,928 6,473,928
* Early redemption payment (see below)
Interest accrued daily and was payable half-yearly at a rate of 12%. Any
portion of the interest in relation to a reporting period that remained
unpaid, was accrued for. Accrued interest for the year ended 31 December
2011 was nil (2010 - US$85,907 / GBP55,539).
The cost of the warrants granted to AOF, GBP57,566, (refer note 18) has been
offset against the loan in accordance with IAS 39. The cost of these
warrants is to be expensed over the life of the loan and does not constitute
payment towards the loan. The warrant cost expensed during the period was
nil (2010 - GBP19,189). At the balance sheet date, the carrying amount of
the loan was nil (2010 - GBP2,184,950, net of associated costs of
GBP19,189).
15. DEFERRED TAX
Until it is probable that sufficient taxable profits will be available to
allow the entire or partial recovery of potential deferred tax assets of
GBP4,847,154 (2010 - GBP4,032,513), the accounting benefit of tax losses
will not be reflected in the accounts. The Group`s tax losses have no expiry
date.
Due to the Group`s retained loss position, there are no temporary
differences associated with investments in the Group`s subsidiaries.
16. RELATED PARTY TRANSACTIONS
The Directors consider that there is no ultimate controlling party of the
Company. Transactions between the Company and its subsidiaries, which are
related parties of the Company have been disclosed in the Company section of
this note.
The Directors are considered to be the key personnel of the Group and
therefore all transactions with such individuals have been disclosed below
and in the audited section of the remuneration report.
Details of transactions between the Group and other related parties are
disclosed below.
During the year ended 31 December 2011:
(i) GBP92,667 (2010 - GBP98,334) were paid to the following companies as
Directors` remuneration:
- GBP60,000 to Glendree Capital Management Limited (2010 - GBP60,000), a
Company owned by P R Loudon;
- GBPnil to Mining Finance Solutions (2010 - GBP6,667), a Company owned
by E A Worthington;
- GBP12,000 to Loeb Aron & Company Limited (2009 - GBP12,000), a Company
where J Willis-Richards is a director;
- GBP20,667 to European Islamic Investment Bank plc (2010 - GBP19,667),
represented on the Company`s Board of Directors by S Benkhadra (resigned 19
September 2011) and G K Morton;
In addition, during the year ended 31 December 2011:
(i) DiamondCorp plc incurred rent of GBPnil from Loeb Aron & Company Limited
(2010 - GBP14,583).
Company
The Company held a loan to Diamondcorp Holdings Limited of GBP22,802,199
(2010 - GBP17,852,298), to Lace Diamond Mining (Pty) Limited of GBPnil (2010
- GBP17,127) and to Botswana Diamondcorp Limited of nil (2010 - GBP212,797).
17. SHARE CAPITAL
2011 2010
No. GBP No. GBP
Called up, allotted
and fully paid
Ordinary shares of 242,268,048 7,268,041 183,873,651 5,516,209
3 pence each
On 11 January 2010 the trading of DiamondCorp`s shares on the JSE was
transferred to Alt-X.
In January 2010, the Company issued 285,000 ordinary shares at 10 pence
each. There were no costs associated with the issuance of these shares.
In March 2010, the Company issued 101,062,538 ordinary shares at 7 pence
each. The cost associated with the issuance of these shares has been charged
to the share premium account.
In December 2010, the Company issued 35,294,118 ordinary shares at 8.5 pence
each. The cost associated with the issuance of these shares has been charged
to the share premium account.
In June 2011, the Company issued 26,794,397 ordinary shares at 13 pence
each. The cost associated with the issuance of these shares has been charged
to the share premium account.
In October 2011, the Company issued 31,600,000 ordinary shares at 6.5 pence
each. The cost associated with the issuance of these shares has been charged
to the share premium account.
18. RESERVES
For the year ended 31 December 2011
Group Share Warrant Share Translatio Retained
premium reserve option n reserve losses
account GBP reserve GBP GBP
GBP GBP
At 1 January 2011 23,203,016 505,877 402,583 2,980,558 (14,190,336)
Loss for the year - - - - (4,239,146)
Change in non-
controlling interest - - - (138,794) 415,560
(note 19)
Premium arising on 3,785,440 - - - -
issue of equity
shares
Issue costs (285,954) - - - -
Share option expense - - 26,483 - -
in year
Movement during the - - - (2,443,288 -
year )
At 31 December 2011 26,702,502 505,877 429,066 398,476 (18,013,922)
Company Share Warrant Share Retained
premium reserve option losses
account GBP reserve GBP
GBP GBP
At 1 January 2011 23,203,016 505,877 402,583 (5,315,252)
Loss for the year - - - (2,082,132)
Premium arising on issue of 3,785,440 - - -
equity shares
Issue costs (285,954) - - -
Share option expense in year - - 26,483 -
At 31 December 2011 26,702,502 505,877 429,066 (7,397,384)
For the year ended 31 December 2010
Group Share Warrant Share Transl- Retained
premium reserve option ation losses
account GBP reserve reserve GBP
GBP GBP GBP
At 1 January 2010 17,872,580 555,036 371,675 1,495,317 (11,269,043)
Loss for the year - - - - (3,315,327)
Warrants expired - (49,159) - - 49,159
Change in non-
controlling interest - - - 66,562 344,875
(note 19)
Premium arising on
issue of equity shares 5,489,763 - - - -
Issue costs (159,327) - - - -
Share option expense in - - 30,908 - -
year
Movement during the - - - 1,418,679 -
year
At 31 December 2010 23,203,016 505,877 402,583 2,980,558 (14,190,336)
Share Share
Company premium Warrant option Retained
account reserve reserve losses
GBP GBP GBP GBP
At 1 January 2010 17,872,580 555,036 371,675 (4,044,653)
Loss for the year - - - (1,319,758)
Warrants expired - (49,159) - 49,159
Premium arising on issue of 5,489,763 - - -
equity shares
Issue costs (159,327) - - -
Share option expense in year - - 30,908 -
At 31 December 2010 23,203,016 505,877 402,583 (5,315,252)
WARRANTS
Warrant
Warrants in reserve
issue GBP
Group and Company
Outstanding at 1 January 2011 5,816,666 505,877
Expired during the year - -
At 31 December 2011 5,816,666 505,877
Group and Company
Outstanding at 1 January 2010 6,066,666 555,036
Expired during the year (250,000) (49,159)
At 31 December 2010 5,816,666 505,877
(i) Vendor Warrants
The vendors of Crown Diamond Mining Limited (which changed its name to
Diamondcorp Holdings Limited in 2007) were entitled to be issued on
completion of the sale of its ordinary share capital to the Company with a
total of 4,166,666 warrants to subscribe for ordinary shares of 3 pence each
at a price of the lower of 180 pence or price at which the Company raises
equity finance on admission to the Alternative Investment Market (90 pence).
These warrants expired on 1 February 2012, being five years from the date of
admission to the Alternative Investment Market. Certificates in relation to
these warrants were issued on 30 June 2006 following and taking into
account, the consolidation of the Company`s share capital on that date.
These warrants were valued by the Directors using the Black-Scholes
valuation model, based on the assumptions as detailed below.
(ii) AOF Warrants
In 2008 a warrant was issued to Africa Opportunity Fund to subscribe for
1,650,000 ordinary shares of 3 pence each, exercisable at 21.6 pence for a
period ended on 25 January 2012. These warrants were not exercised and have
now expired.
These warrants were valued by the Directors using the Black-Scholes
valuation model, based on the assumptions as detailed below.
(iii) BBK Warrants
In 2007 a warrant was issued to BBK Consultancy plc to subscribe for 250,000
ordinary shares of 3 pence each for a period of 3 years at an exercise price
of 121.5 pence. The warrants vest when the Company`s share price is above
135 pence per share for 28 consecutive trading days and are exercisable at
any time up to and including 30 April 2010. These warrants were not
exercised and expired during 2010.
These warrants were valued by the Directors using the Black-Scholes
valuation model, based on the assumptions as detailed below.
Black-Scholes Vendor BBK AOF Warrants
Assumptions Warrants* Warrants
Term range 5.6 years 3 years 0.5 years
Expected dividend Nil Nil Nil
yield
Risk free interest 5 % 5 % 2 %
rate
Share price 55 % 40 % 40 %
volatility
Share price at time 45 pence 90 pence 56.5 pence
of grant
* These warrants were subject to the share consolidation on 30 June 2006.
19. NON-CONTROLLING INTEREST
GBP
Balance at 1 January 2010 -
Share of total comprehensive loss for the (344,875)
year
Currency translation loss (66,562)
Balance at 1 January 2011 (411,437)
Share of total comprehensive loss for the (415,560)
year
Currency translation gain 138,794
Balance at 31 December 2011 (688,203)
20. SHARE BASED PAYMENTS
Equity-settled share option scheme
The Company has a share option scheme for all employees of the Group.
Options are exercisable at a price equal to the average quoted market price
of the Company`s shares on the date of grant. The vesting period is three
years. If the options remain unexercised after a period of ten years from
the date of grant the options expire. Options are generally forfeited if the
employee leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows.
Number of 2011 2010
share Weighted Weighted
options average average
exercise Number of exercise
price share price
(GBP) options (GBP)
Outstanding at beginning of 6,595,000 55p 2,685,000 117p
year
Granted during the year - 4,570,000 12p
Forfeited during the year (250,000) (660,000)
Exercised during the year - -
Expired during the year - -
Outstanding at the end of the 6,345,000 19p 6,595,000 55p
year
Exercisable at the end of the 3,838,333 24p 2,433,333 124p
year
At 31 December 2011, 6,345,000 options were outstanding at a weighted
average exercise price of 19p, and a weighted average remaining contractual
life of 7.5 years. The aggregate of the estimated fair values of the options
granted on those dates is GBPnil.
The inputs into the Black-Scholes model are as follows:
2011 2010
Weighted average share price - 6.88p
Weighted average exercise price - 12p
Expected volatility - 50%
Expected life - 3 years
Risk-free rate - 2%
Expected dividend yields - 0%
Expected volatility was determined based on management`s best estimate. The
expected life used in the model has been adjusted, based on management`s
best estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
During 2011, the Group recognised total expenses of GBP26,483 (2011 -
GBP30,908) relating to equity-settled share-based payment transactions.
Black-Scholes The
Assumptions 2010 2007 DiamondCorp
Option UK Option Share
Plan Plan Option Plan
Term range 3 years 3 years 3 years
Expected dividend Nil Nil Nil
yield
Risk free interest 2% 5 % 2 %
rate
Share price volatility 50% 40 % 40 %
Share price at time of 6.88 pence 90 pence 34.5 pence
grant
(i) 2007 UK Options ("2007 Plan")
During 2007, options over 2,940,000 ordinary shares of 3 pence each were
granted to employees and management of the Company, exercisable at 135 pence
for a period of 10 years from the date of issue.
270,000 of these options vested on grant and the balance vest over 3 years
at one-third at each anniversary of the issue date. 690,000 of these options
were forfeited during 2008 by reason of retirement and 120,000
options were forfeited in 2009.
Share options granted during the year ended 31 December 2007 were valued by
the Directors using the Black-Scholes valuation model, based upon the
assumptions as detailed in the table above:
At 31 December 2011, 2,130,000 options were outstanding under this plan.
(ii) The DiamondCorp Share Option Plan ("DCP Plan")
During 2008, a share option plan was approved and registered in the Republic
of South Africa to provide eligible employees of the Group with the
opportunity to acquire as incentive an interest in the equity of the
Company. Eligible employees were granted options over 695,000 ordinary
shares of 3 pence each, exercisable at 50 pence for a period of 10 years
from the date of issue, 16 December 2008. These options vest over 3 years at
one-third at each anniversary of the issue date. During 2009, a further
200,000 options were granted under this plan and 340,000 options were
forfeited.
At 31 December 2011, the number of options outstanding under this plan was
555,000 (2010 - 555,000).
These options were valued by the Directors using the Black-Scholes valuation
model, based upon the assumptions as detailed in the table above.
In August 2010, the exercise price of these options was adjusted to 21
pence. All other conditions remain unchanged.
(iii) 2010 Option Plan ("2010 Plan")
During 2010, options over 4,570,000 ordinary shares of 3 pence each were
granted to employees and management of the Company, exercisable at 12 pence
each for a period of 10 years from the date of issue. These options vest
over 3 years at one third on each anniversary of the date of issue, subject
to the share price of the Company attaining and trading at or above 17 pence
for a period of 3 consecutive months.
These options were valued by the Directors using the Black-Scholes valuation
model, based upon the assumptions as detailed below. As the fair value of
these options is not material to the financial statements, the Directors did
not consider it necessary to incur the additional expense required to employ
a third party to calculate the fair value of the options using the Monte
Carlo Method.
During the year ended 31 December 2010, 660,000 options expired.
During the year ended 31 December 2011, 250,000 options expired.
At 31 December 2011, 3,660,000 options were outstanding under this plan.
21. FINANCIAL INSTRUMENTS
Group and Company
Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as going concerns while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The
capital structure of the Group consists of debt, which includes the
borrowings disclosed in note 14, cash and cash equivalents and equity
attributable to equity holders of the parent, comprising issued capital,
reserves and retained earnings as disclosed in note 18. The Group is not
subject to any externally imposed capital requirements. The Group`s
Directors review the capital structure on a regular basis. As part of this
review the Directors consider the cost of capital and the risks associated
with each class of capital.
Significant accounting policies
Details of the significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement and the
basis on which income and expenses are recognised, in respect of each class
of financial asset, financial liability and equity instrument are disclosed
in note 1 to the financial statements.
Categories of financial instruments
Group Company
Carrying value Carrying value
2011 2010 2011 2010
GBP GBP GBP GBP
Financial assets
Loans and receivables 2,632,760 4,293,185 23,092,106 22,111,001
(including cash and cash
equivalents)
Financial liabilities
Amortised cost 498,876 2,854,437 118,580 2,352,961
The Directors consider that the carrying amounts of financial assets and
financial liabilities recorded at amortised cost in the financial statements
approximate their fair values.
Financial risk management objectives
The Group`s financial function provides services to the business, monitors
and manages the financial risks relating to the operations of the Group.
These risks include market risk (including currency risk, fair value
interest rate risk and price risk), credit risk, liquidity risk and cash
flow interest rate risk.
The Group does not enter into or trade financial instruments, including
derivative financial instruments, for any purpose.
Market risk
The Group`s activities expose it primarily to the financial risks of changes
in foreign currency exchange rates. There has been no change to the Group`s
exposure to market risks or the manner in which it is measured and managed.
Credit risk management
The Group and Company`s principal financial assets are bank balances and
cash. The credit risk on liquid funds is limited because the counterparties
are banks with high credit-ratings assigned by international credit-rating
agencies. Management reviews the credit worthiness of all customers before
entering into a transaction.
The Company also holds amounts receivable from related parties as disclosed
in note 16. Management reviews the credit worthiness of all balances due
from related parties with reference to future profitability.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies.
Hence, exposures to exchange rate fluctuations arise.
The carrying amounts of the Group`s and Company`s foreign currency
denominated monetary assets and monetary liabilities at the reporting date
are as follows:
Assets (Liabilities)
2011 2010
GBP GBP
Cash denominated in South African - 371,924
Rand
Cash denominated in United States - 661,171
Dollar
Loan denominated in United States - (2,165,762)
Dollar
Foreign currency sensitivity analysis
The Group is exposed to the currency of South Africa (Rand) and the United
States Dollar.
The following table details the Group`s sensitivity to a 20% increase and
decrease in the Sterling against South African Rand and United States
Dollar. 20% is the sensitivity rate used when reporting foreign currency
risk internally to key management personnel and represents management`s
assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the period end for a 20%
change in foreign currency rates. A negative number below indicates a
decrease in profit where the Sterling strengthens 20% against the relevant
currency. For a 20% weakening of the Sterling against the relevant currency,
there would be an equal and opposite impact on the profit and the balances
below would be positive.
Rand currency impact
2011 2010
GBP GBP
Loss due to a 20% change against - 9,068
ZAR
Loss due to a 20% change against - (243,178)
USD
The Group`s sensitivity to foreign currency has increased during the current
period, because the Company held higher balances of foreign currency.
However, the Group`s South African Rand deposits are held at a subsidiary
level in South Africa and as such this sensitivity analysis does not
represent a real cash foreign exchange risk to the Group.
In management`s opinion, the impact of the sensitivity analysis is
representative of the inherent foreign exchange risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board
of Directors, which has built an appropriate liquidity risk management
framework for the management of the Group`s short term funding and liquidity
management requirements. The Group manages liquidity risk by maintaining
adequate reserves, by continuously monitoring forecast and actual cash flows
and matching the maturity profiles of financial assets and liabilities.
Interest rate risk management
The Group is exposed to interest rate risk because entities in the Group
borrow funds at both fixed and floating interest rates. The risk is managed
by the Group by maintaining an appropriate mix between fixed and floating
rate borrowings, and by the use of interest rate swap contracts and forward
interest rate contracts. Hedging activities are evaluated regularly to align
with interest rate views and defined risk appetite; ensuring the most cost-
effective hedging strategies are applied.
The Group`s exposure to interest rates on financial assets and financial
liabilities are detailed in the liquidity risk management section of this
note.
Liquidity and interest risk tables
The following table details the Group`s remaining contractual maturity for
its non-derivative financial liabilities. The tables have been drawn up
based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Group can be required to pay. The table includes
the principal cash flows all of which are due within less than one year.
Group
Weighted Less than 1
average year
effective GBP
interest rate
%
2011
Non-interest bearing - 369,217
Finance lease liability - -
Fixed interest rate - -
instruments
369,217
2010
Non-interest bearing - 369,771
Finance lease liability - 25,718
Fixed interest rate 12% 2,184,950
instruments
2,580,439
Company
Weighted Less than 1
average year
effective GBP
interest rate
%
2011
Non-interest bearing - 43,703
Fixed interest rate - -
instruments
43,703
2010
Non-interest bearing - 52,606
Fixed interest rate 12% 2,184,950
instruments
2,237,556
The following table details the Group`s and Company`s expected maturity for
its non-derivative financial assets. The tables below have been drawn up
based on the undiscounted contractual maturities of the financial assets
including interest that will be earned on those assets.
Group Company
Weighted Less than Weighted Less than 1
average 1 month average month
effective GBP effective GBP
interest interest rate
rate %
%
2011
Non-interest bearing - 2,632,760 - 257,042
2010
Non-interest bearing - 4,293,185 - 4,014,781
22. SUBSIDIARIES
Details of the Company`s subsidiaries at 31 December 2011 were as follows:
Place of Proportio Proportion
incorporation n of of voting
(or ownership power held
Name of subsidiary registration) interest % Principal
and operation % activity
Diamondcorp British Virgin 100 100 Holding
Holdings Limited Islands Company of a
(1) Trading Group
Botswana British Virgin 100 100 Holding
Diamondcorp Limited Islands Company
Lace Diamond Mines Republic of 74 74 Diamond
(Pty) Limited South Africa exploration
and
exploitation
Soapstone Republic of 100 100 Investment
Investments (Pty) South Africa Company
Limited
DCP Exploration Botswana 100 100 Diamond
(Pty) Ltd exploration
and
exploitation
(1) Formerly named Crown Diamond Mining Limited
23. SUBSEQUENT EVENTS
(i) In March 2012 SRK Consulting (South Africa) (Pty) Ltd completed its
Independent Engineering Report on the underground development plans for the
Lace mine. This was announced on 20 March 2012 and a copy of the SRK report
is available for download from the Company`s website at
www.diamondcorp.plc.uk.
(ii) On 18 May 2012 Lace Diamond Mines (Pty) Limited ("Lace") signed a Term
Sheet with the Industrial Development Corporation of South Africa ("IDC").
Under the Term Sheet IDC has agreed to provide a 7-year loan facility for up
to R280 million for the purpose of underground development and purchase of
mining equipment. The loan will be secured over the assets of Lace and
guaranteed by the parent company. Interest will be calculated at South
Africa Prime Rate + 2%. Interest will be capitalised in the first 2 years
from the drawdown date and thereafter payable semi-annually in arrears. The
loan contains provisions for prepayment without penalty after Year 1. The
provision of the loan by IDC is subject to satisfactory completion of due
diligence; the Terms Sheet projects a closing in July 2012.
(iii) In Q1 2012, all of the warrants outstanding at 31 December 2011
(5,816,666 warrants) expired.
Date: 31/05/2012 08:39:14 Produced by the JSE SENS Department.
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