| Fri 13 Jul 2012, 7:05 | | Rockwell Diamonds Inc - RDI - INTERIM FINANCIAL STATEMENTS FOR PERIOD ENDED 31 MAY 2012 |
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RDI
RDI - INTERIM FINANCIAL STATEMENTS FOR PERIOD ENDED 31 MAY 2012
ROCKWELL DIAMONDS INCORPORATED
(A company incorporated in accordance with the laws
of British Columbia, Canada)
(Incorporation number BCO354545)
(Formerly Rockwell Ventures Inc.)
(South African registration number: 2007/031582/10)
Share code on the JSE Limited: RDI ISIN: CA77434W2022
Share code on the TSX: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
Unaudited Condensed Interim Consolidated Financial Statements
for the period ended 31 May 2012
Index
The reports and statements set out below comprise the unaudited condensed interim consolidated financial statements:
Index
Notice of no Auditor Review of Condensed Interim
Consolidated Financial Statements
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Accounting Policies 7 - 16
Notes to the Unaudited Condensed Interim Consolidated Financial Statements 17 - 36
The unaudited condensed interim consolidated financial statements set out on pages 3 to 36, which have been prepared on the
going concern basis, were approved by the board on 11 July 2012 and were signed on its behalf by:
James Campbell Dr Mark Bristow
Director Director
1
Notice of no Auditor Review of Condensed Interim Consolidated Financial
Statements
In accordance with National Instrument 51-102 Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of these
condensed interim consolidated financial statements they must be accompanied by a notice indicating that these condensed
interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements of the Group have been prepared by and
are the responsibility of the Group's management, and have not been reviewed by an auditor.
Consolidated Statements of Financial Position
As at As at
31 May 29 February
Amounts in Canadian Dollars Note(s) 2012 2012
Assets
Non-current assets
Mineral property interests 2 32 967 302 35 949 211
Investment in associate 3 180 229 161 049
Property, plant and equipment 4 44 537 516 49 391 831
Other financial assets 5 4 484 927 3 569 401
Reclamation deposits 14 1 875 551 3 104 716
Total non-current assets 84 045 525 92 176 208
Current assets
Inventories 6 2 531 147 1 622 880
Loans to related parties 16 142 938 276 601
Current tax receivable 41 901 -
Trade and other receivables 7 4 114 797 5 616 243
Cash and cash equivalents 8 10 479 516 10 741 341
Total current assets 17 310 299 18 257 065
Total assets 101 355 824 110 433 273
Equity and liabilities
Equity
Share capital 9 145 851 553 145 632 846
Reserves (8 152 590) (2 845 771)
Retained loss (67 744 959) (65 620 276)
Total equity attributable to the equity holders of the Group
69 954 004 77 166 799
Non-controlling interest (1 532 180) (712 429)
Total equity 68 421 824 76 454 370
Liabilities
Non-current liabilities
Loans from related parties 16 367 864 400 616
Other financial liabilities 11 4 372 608 4 582 095
Capital lease obligation 12 347 547 455 086
Deferred tax 13 6 059 738 7 540 531
Reclamation obligation 14 10 729 420 11 169 329
Total non-current liabilities 21 877 177 24 147 657
Current liabilities
Loans from related parties 16 66 339 330 116
Other financial liabilities 11 847 366 806 049
Current tax payable - -
Capital lease obligation 12 266 566 283 339
Trade and other payables 15 6 667 709 7 582 262
Bank overdraft 8 3 208 843 829 480
Total current liabilities 11 056 823 9 831 246
Total liabilities 32 934 000 33 978 903
Total equity and liabilities 101 355 824 110 433 273
Consolidated Statements of Comprehensive Loss
3 months 3 months
ended ended
31 May 31 May
Amounts in Canadian Dollars Note(s) 2012 2011
Revenue 20 7 098 183 8 505 539
Production cost 21 (6 902 255) (5 975 031)
Operating profit before amortisation and depreciation 195 928 2 530 508
Amortisation of mineral property interests (253 407) (201 743)
Depreciation of property, plant and equipment (1 643 953) (1 826 049)
Gross (loss) profit (1 701 432) 502 716
Other income 155 941 105 780
General and administration expenses (1 513 931) (1 746 999)
Reclamation expenditure (495 870) (18 859)
Results before net finance costs 22 (3 555 292) (1 157 362)
Finance income 23 69 193 107 261
Finance costs 24 (190 984) (109 112)
Results after net finance costs (3 677 083) (1 159 213)
Share of profit from equity accounted investment 3 26 740 14 873
Loss before taxation (3 650 343) (1 144 340)
Tax recovery (expense) 25 616 437 (62 000)
Loss for the period (3 033 906) (1 206 340)
Other comprehensive (loss) income:
Exchange differences on translating foreign operations (5 342 455) (1 131 560)
Total comprehensive loss for the period (8 376 361) (2 337 900)
(Loss) profit attributable to :
Owners of the Group (2 124 683) (916 198)
Non-controlling interest (909 223) (290 142)
Loss for the period (3 033 906) (1 206 340)
Total comprehensive loss attributable to:
Owners of the Group (7 556 610) (2 100 503)
Non-controlling interest (819 751) (237 397)
Total comprehensive loss for the period (8 376 361) (2 337 900)
Loss per share
Per share information
Basic and diluted loss per share (cents) 26 0,04 0,03
Consolidated Statements of Changes in Equity
Share capital Foreign Share-based Total net Retained loss Total equity Non-controlling Total equity
currency payment reserves attributable to interest
translation reserve equity holders
Amounts in Canadian Dollars reserve of the Group
Balance at 1 March 2011 135 989 508 (6 364 795) 7 079 937 715 142 (53 982 868) 82 721 782 647 407 83 369 189
Loss for the year - - - - (11 637 408) (11 637 408) (2 081 976) (13 719 384)
Share-based payment expense - - 525 956 525 956 - 525 956 - 525 956
Debt conversion, net of issue costs at $0.065 per share 435 715 - - - - 435 715 - 435 715
Private placement, net of issue costs at $0.75 per share 7 756 477 - - - - 7 756 477 - 7 756 477
Exchange differences on translating foreign operations - (4 086 869) - (4 086 869) - (4 086 869) (98 614) (4 185 483)
Share issue costs (35 532) - - - - (35 532) - (35 532)
Asset and liability acquisition 1 486 678 - - - - 1 486 678 820 754 2 307 432
Total changes 9 643 338 (4 086 869) 525 956 (3 560 913) (11 637 408) (5 554 983) (1 359 836) (6 914 819)
Balance at 1 March 2012 145 632 846 (10 451 664) 7 605 893 (2 845 771) (65 620 276) 77 166 799 (712 429) 76 454 370
Loss for the year - - - - (2 124 683) (2 124 683) (909 223) (3 033 906)
Debt conversion, net of issue costs at $0.48 per share 218 707 - - - - 218 707 - 218 707
Share-based payment expense - - 125 108 125 108 - 125 108 - 125 108
Exchange differences on translating foreign operations - (5 431 927) - (5 431 927) - (5 431 927) 89 472 (5 342 455)
Total changes 218 707 (5 431 927) 125 108 (5 306 819) (2 124 683) (7 212 795) (819 751) (8 032 546)
Balance at 31 May 2012 145 851 553 (15 883 591) 7 731 001 (8 152 590) (67 744 959) 69 954 004 (1 532 180) 68 421 824
Note(s) 9 10
5
Consolidated Statements of Cash Flows
3 months 3 months
ended ended
31 May 31 May
Amounts in Canadian Dollars Note(s) 2012 2011
Cash flows from operating activities
Cash receipts from customers 8 011 532 10 819 692
Cash paid to suppliers and employees (9 641 410) (8 906 736)
Cash (used in) generated from operations 18 (1 629 878) 1 912 956
Finance income 69 193 107 261
Finance costs (62 379) (109 112)
Tax paid 19 (41 901) 2 546
Net cash (outflow) inflow from operating activities (1 664 965) 1 913 651
Cash flows from investing activities
Purchase of property, plant and equipment 4 (798 368) (2 220 076)
Proceeds from sale of property, plant and equipment 4 44 485 -
Net movement in related party loans 98 261 99 663
Net movement in other financial assets (1 207 339) (94 368)
Decrease in reclamation deposits 975 343 -
Net cash outflow from investing activities (887 618) (2 214 781)
Cash flows from financing activities
Proceeds on share issue 9 - 435 714
Share issue costs 9 (5 293) -
Repayment of capital lease obligations (83 312) (102 455)
Net cash (outflow) inflow from financing activities (88 605) 333 259
Net movement in cash and cash equivalents for the period (2 641 188) 32 129
Cash and cash equivalents at the beginning of the period 9 911 861 2 983 645
Total net cash and cash equivalents at end of the period 8 7 270 673 3 015 774
Accounting Policies
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
1.1 Nature of operations
Rockwell Diamonds Inc. (Rockwell or the Company) is engaged in the business of diamond production and the acquisition
and exploration of natural resource properties. The unaudited condensed interim consolidated financial statements of the
Company as at and for the period ended 31 May 2012 and the year ended 29 February 2012 comprise the Company and its
subsidiaries (together referred to as the Group and individually as Group entities) and the Groups interest in associates.
The Groups mineral property interests are located in South Africa. Rockwell is incorporated under British Columbia Business
Corporations Act.
1.2 Continuance of operations
The financial statements have been prepared on the basis of accounting policies applicable to a going concern. Future events
beyond the Groups control may change the Groups ability to continue as a going concern. If the going concern concept was
no longer appropriate, significant adjustments would be required to the carrying value of assets and liabilities and would be
recorded at that time.
1.3. Basis of preparation
1.3.1 Statement of compliance
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
1.3.2 Basis of measurement
The unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis, except
where otherwise stated, as set out in the accounting policies below.
1.3.3 Presentation currency
These unaudited condensed interim consolidated financial statements are presented in Canadian Dollars.
1.3.4 Use of estimates and judgements
In preparing the unaudited condensed interim consolidated financial statements, management is required to make estimates
and assumptions that affect the amounts represented in the unaudited condensed interim consolidated financial statements
and related disclosures. Use of available information and the application of judgement are inherent in the formation of
estimates. Estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future periods affected.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts
recognised in the unaudited condensed interim consolidated financial statements is included in the following notes:
- Note 2 Mineral property interests
- Note 4 Property, plant and equipment
- Note 6 Inventories
- Note 10 Share-based payments
- Note 13 Deferred tax
- Note 14 Reclamation obligation
1.4 Significant accounting policies
The accounting policies set out below are applied consistently to all years presented in these unaudited condensed interim
consolidated financial statements and have been applied consistently by the Group entities.
1.4.1 Basis of consolidation
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which
control is transferred to the Group.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In
assessing control, consideration is given to potential voting rights that are currently exercisable. Judgement is applied in
determining the acquisition date and determining whether control is transferred from one party to another.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous
owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any
contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business
combination.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present
obligation and arises from a past event, and its fair value can be measured reliably.
Transaction costs incurred in connection with a business combination, such as legal fees, due diligence fees and other
professional and consulting fees are expensed as incurred, unless it is debt related. Directly attributable transaction costs
related to debt instruments are capitalised.
If the Group obtains control over one or more entities that are not businesses, then the bringing together of those entities are
not business combinations. The cost of acquisition is allocated among the individual identifiable assets and liabilities of such
entities, based on their relative fair values at the date of acquisition. Such transactions do not give rise to goodwill.
Non-controlling interests in the proportionate net assets of consolidated subsidiaries are identified and recognised separately
from the Group's interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling
interests are allocated to the non-controlling interests even if this results in a debit balance being recognised for non-controlling
interests.
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the unaudited
condensed interim consolidated financial statements from the date that control commences until the date that that control
ceases.
Associates
An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control
or joint control over those policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of
the voting power of another entity.
An investment in associate is accounted for using the equity method. Under the equity method, investments in associates are
carried in the unaudited condensed interim consolidated statement of financial position at cost adjusted for post-acquisition
changes in the Group's share of net assets of the associate, less any impairment losses.
Losses in an associate in excess of the Group's interest in that associate are recognised only to the extent that the Group has
incurred a legal or constructive obligation to make payments on behalf of the associate.
Unrealised profits or losses on transactions between the Group and an associate are eliminated to the extent of the Group's
interest therein.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are
eliminated in preparing the unaudited condensed interim consolidated financial statements. Unrealised losses are eliminated in
the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
1.4.2 Mineral property interests
The acquisitions of mineral property interests are initially measured at cost. Mineral property acquisition costs and development
expenditures incurred subsequent to the determination of the feasibility of mining operations and approval of development by
the Group are capitalised until the property is placed into production, sold, abandoned, or when management has determined
that there has been an impairment in value. Such acquisition costs are amortised over the estimated life of the mine, based on
the unit of production method, or written off to operations if the property is abandoned, allowed to lapse, or if there is little
prospect of further work being carried out by the Group. Under the unit of production method, the yearly depreciation charge is
calculated by dividing the actual resources mined into the estimated resources at the beginning of the year and then multiplying
the resulting fraction by the net carrying value of the related assets. The unit of production method results in a systematic and
rational allocation of the cost of the mineral property interests over the year the resources are utilised.
Exploration expenditure incurred subsequent to the mining operations which do not increase production or extend the life of
operations are expensed in the period incurred.
The amount presented for mineral property interests represents costs incurred to date less accumulated amortisation and
impairment losses, and does not necessarily reflect present or future values.
1.4.3 Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an asset when:
- it is probable that future economic benefits associated with the item will flow to the Group; and
- the cost of the item can be measured reliably.
Property, plant and equipment are initially measured at cost.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred
subsequently to add to and replace part of it. If a replacement cost is recognised in the carrying amount of an item of property,
plant and equipment, the carrying amount of the replaced part is derecognised.
Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated
residual value.
Property, plant and equipment are carried at cost less accumulated depreciation and any impairment losses.
The useful lives of items of property, plant and equipment have been assessed as follows:
Item Average useful life
Buildings 12 years
Plant and machinery 4 - 10 years
Motor vehicles 5 years
Office equipment 6 years
Land is not depreciated.
The residual value, useful life and depreciation method of each asset are reviewed annually. If the expectations differ from
previous estimates, the change is accounted for as a change in accounting estimate.
The depreciation charge for each period is recognised in loss or loss unless it is included in the carrying amount of another
asset.
The gain or loss arising from the derecognition of an item of property, plant and equipment is included in loss or loss when the
item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined
as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
1.4.4 Impairment of non-financial assets
The carrying amounts of the Groups non-financial assets, other than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets
recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of
impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).
An impairment loss is recognised if the carrying amount of an asset or its cash-generating units exceeds its estimated
recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-
generating units are allocated to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
Impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
1.4.5 Financial instruments
Initial recognition and measurement
Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments.
The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance of the contractual arrangement.
Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not
determinable, which are measured at cost and are classified as available-for-sale financial assets.
For financial instruments which are not at fair value through loss or loss, transaction costs are included in the initial
measurement of the instrument.
Transaction costs on financial instruments at fair value through loss or loss are recognised in profit or loss.
Subsequent measurement
Financial instruments at fair value through loss or loss are subsequently measured at fair value, with gains and losses arising
from changes in fair value being included in loss or loss for the period.
Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated
impairment losses.
Available-for-sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair
value is not determinable, which are measured at cost less accumulated impairment losses.
Financial liabilities are subsequently measured at amortised cost, using the effective interest method.
Investments
The Group classified its investments into the following categories: fair value through profit and loss, held-to-maturity and
available-for-sale. The classification is dependent on the purpose for which the investments were required. Management
determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular
basis. Investments that are acquired principally for the purpose of generating a profit from short term fluctuations in price are
classified as trading investments and included in current assets. Investments with a fixed maturity that management has the
intention and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for
maturities within 12 months from the reporting date which are classified as current assets. Investments intended to be held for
an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as
available-for-sale and are included in non-current assets unless management has the express intention of holding the
investment for less than 12 months from the reporting date or unless they will need to be sold to raise operating capital, in
which case they are included in current assets.
Purchases and sales of investments are recognised on the trade day, which is the date that the Group commits to purchase or
sell the asset. Cost of purchase includes transaction costs. Fair value through profit and loss and available-for-sale
investments are subsequently carried at fair value. The fair value of investments is based on cash value or amounts derived
from cash flow models. Equity securities for which fair value cannot be measured reliably are recognised at cost less
impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are
included in the statement of comprehensive income as gains and losses from investment securities. Held-to-maturity
investments are carried at amortised cost using the effective yield method.
Loans to (from) related parties
Loans to related parties are recognised as loans and receivables on the date that the Group becomes a party to the contractual
provisions of the loan. The Group derecognises the loan to a related party when the contractual rights to cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created
or retained by the Group is recognised as a separate asset or liability.
Loans from related parties are recognised on the date that the Group becomes a party to the contractual provisions of the loan.
The Group derecognises the loan from a related party when its contractual obligations are discharged, cancelled or expire.
Loans from related parties are recognised initially at fair value less any directly attributable transaction costs. Subsequent to
initial recognition, these liabilities are measured at amortised cost using the effective interest rate method.
Loans to (from) related parties are offset and the net amount presented in the statement of financial position when, and only
when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and
settle the liability simultaneously.
Loans to (from) related parties are at arms length.
Trade and other receivables
Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the
effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in loss or loss when
there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the
trade receivable might be impaired. The allowance recognised is measured as the difference between the assets carrying
amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial
recognition.
Trade and other receivables are classified as loans and receivables.
Share capital and equity
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised
as a deduction of equity, net of any tax effects.
Trade and other payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective
interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially
recorded at fair value and subsequently measured at amortised cost.
Impairment of financial assets
At each reporting date the Group assesses all financial assets, to determine whether there is objective evidence that a financial
asset or group of financial assets has been impaired.
For amounts due to the Group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and
default of payment is considered indicators of impairment.
Impairment losses are recognised in profit or loss.
Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available-for-sale.
Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because
fair value was not determinable.
1.4.6 Tax
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect
of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.
Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered
from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period.
Deferred tax assets and liabilities
Deferred tax is provided for using the liability method, on all temporary differences between the carrying values of assets and
liabilities for accounting purposes and the amounts used for tax purposes and on any tax losses. No deferred tax is provided for
on temporary differences relating to the initial recognition of an asset or liability to the extent that neither accounting nor taxable
profit is affected on acquisition and any adjustment to tax payable in respect of previous years.
The provision for deferred tax is calculated using enacted rates at the reporting date that are expected to apply when the asset
is realised or the liability is settled. A deferred tax asset is recognised to the extent that it is probable that future taxable profits
will be available against which the deferred tax asset could be realised.
Tax expenses
Current and deferred taxes are recognised as income or an expense and included in loss or loss for the period, except to the
extent that the tax arises from:
- a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or
- a business combination.
Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged,
in the same or a different period, directly in equity.
1.4.7 Inventories
Rough diamond inventories are valued at the lower of average production cost and net realisable value. Production costs
include the cost of consumable materials, direct labour, mine-site overhead expenses and amortisation. Work in progress stock
piles consist of ground excavated, but not yet fully processed at year end. The value of these stock piles represents
management's best estimate of the costs incurred to excavate and screen the ground as identified by an independent surveyor
at year end.
Mine supplies are valued at the lower of cost, at the weighted average cost basis, and net realisable value.
Cost of items that are not ordinarily interchangeable, and goods and services produced and segregated for specific projects,
are assigned by using a specific identification of their individual costs.
Previous write-downs are reversed to the lower of cost and net realisable value when there is a subsequent increase in the
value of inventories.
1.4.8 Share-based payments
The fair value of share-based payment awards granted to employees is recognised on the grant date as an employee cost, with
a corresponding increase in reserves, over the period that the employees become unconditionally entitled to the awards. The
amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market
performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the
number of awards that meet the related service and non-market performance conditions at the vesting date.
For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is
measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The fair value of the employee share options is measured using the Black-Scholes formula. Measurement inputs include the
share price on the measurement date, the exercise price of the instrument, expected volatility (based on an evaluation of the
Groups historic volatility, particularly over the historic period commensurate with the expected term), expected term of the
instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free
interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are
not taken into account in determining fair value.
1.4.9 Reclamation obligation
Estimated rehabilitation costs, which are based on the Groups interpretation of current environmental and regulatory
requirements, represent the present value of the expected future costs to rehabilitate the mine properties at termination of
mining operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in
legislation, technology or other circumstances.
Provision is made for the Groups legal and constructive obligations to dismantle, remove and restore items of property, plant
and equipment and remediation of disturbed areas in the financial period when the related environmental disturbance occurs,
based on the estimated future costs using information available at the balance sheet date. The provision is discounted using a
market-based pre-tax discount rate and the unwinding of the discount is included in interest expense. The provision is not
discounted if the discounting is not significant in relation to the provision made. Rehabilitation of disturbed areas, at the
operating Northern Cape mines, is performed on a continuous basis. Rehabilitation of disturbed areas where the alluvial open-
cast bench mining process is followed and the non-operating Northern Cape mines will be performed when the mining
operations cease.
Based on current environmental regulations and known rehabilitation requirements, management has included its best
estimate of these obligations in its rehabilitation provision.
1.4.10 Leases
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the Group.
A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership
to the Group.
Finance leases
Finance leases are recognised as assets and liabilities in the consolidated statements of financial position at amounts equal to
the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability
to the lessor is included in the consolidated statements of financial position as a finance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance charge
is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the
liability.
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between
the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability
is not discounted.
Any contingent rents are expensed in the period they are incurred.
1.4.11 Revenue
Revenue arising from the sale of diamonds are recognised when all the following conditions have been satisfied:
- the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
- the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Group; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for
goods and services provided in the normal course of business, net of value added tax.
1.4.12 Finance income and finance cost
Finance income comprises interest on funds invested, gains on reclamation deposits held and fair value gains on financial
assets at fair value through profit or loss. Finance income is recognised, in profit or loss, using the effective interest rate
method.
Finance cost comprises interest expense on borrowings, unwinding of discount on provisions and fair value losses on financial
assets at fair value through profit or loss. Finance costs that are not directly attributable to the acquisition, construction or
production of a qualifying asset are recognised in profit or loss using the effective interest rate method.
1.4.13 Loss per share
The Group presents basic and diluted loss per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares
outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable
to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held and
for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
1.4.14 Translation of foreign currencies
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in Canadian Dollars, by applying to the foreign currency
amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
At the end of the reporting period:
- foreign currency monetary items are translated using the closing rate;
- non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction; and
- non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those
at which they were translated on initial recognition during the period or in previous financial statements are recognised in loss
or loss in the period in which they arise.
Cash flows arising from transactions in a foreign currency are recorded in Canadian Dollars by applying to the foreign currency
amount the exchange rate between the Canadian Dollars and the foreign currency at the date of the cash flow.
Consolidation
For consolidation purposes the results and financial position of a foreign operation are translated into the reporting currency
using the following procedures:
- assets and liabilities are translated at the closing rate at the date of that consolidated statements of financia position;
- equity components are translated at historical rates;
- income and expenses are translated at exchange rates at the dates of the transactions; and
- all resulting exchange differences are recognised in other comprehensive income and accumulated as a separate
component of equity. When a foreign investment is disposed off the cumulative exchange differences previously
recognised in other comprehensive income are transferred to profit and loss.
Exchange differences arising on a monetary item that forms part of a net investment in a foreign operation are recognised
initially to other comprehensive income and accumulated in the translation reserve. They are recognised in loss or loss as a
reclassification adjustment through to other comprehensive income on disposal of net investment.
The cash flows of a foreign subsidiary are translated at the exchange rates between the functional currency and the foreign
currency at the dates of the cash flows.
1.5. New standards and interpretations not yet adopted
At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing
standards have been published but are not yet effective, and have not been adopted early by the Group.
Management anticipates that all of the pronouncements will be adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and
interpretations have been issued but are not expected to have a material impact on the Group's financial statements.
Standard Details of Amendment Annual periods
beginning on or after
IAS 1 amendment Presentation of Financial Statements: Presentation 1 July 2012
of Items of Other Comprehensive Income
IAS 28 Investments in Associates and Joint Ventures (2011) 1 January 2013
IFRS 9 (2009) Financial Instruments 1 January 2015
IFRS 9 (2010) Financial Instruments 1 January 2015
IFRS 10 Consolidated Financial Statements 1 January 2013
IFRS 12 Disclosure of Interests in Other Entities 1 January 2013
IFRS 13 Fair Value Measurement 1 January 2013
IFRIC 20 Stripping Costs in the Production Phase of a 1 January 2013
Surface Mine
The aggregate impact of the initial application of the statements and interpretations on the Group's annual financial statements
has not yet been assessed by management.
2. Mineral property interests
As at As at
31 May 29 February
2012 2012
Cost Accumulated Carrying value Cost Accumulated Carrying value
amortisation amortisation
Mineral property interests 43 393 317 (10 426 015) 32 967 302 47 029 751 (11 080 540) 35 949 211
Reconciliation of mineral property interests - 31 May 2012
Opening Foreign Amortisation Closing
balance exchange balance
movements
Mineral property interests 35 949 211 (2 728 502) (253 407) 32 967 302
Reconciliation of mineral property interests - 29 February 2012
Opening Assets and Foreign Amortisation Closing
balance liability exchange balance
acquisitions movements
Mineral property interests 25 175 713 13 953 802 (1 873 561) (1 306 743) 35 949 211
The Group's mineral property interests consist of the following:
Wouterspan
The Wouterspan property is located in the Herbert district of the Northern Cape Province of South Africa approximately 145km southwest of Kimberley. The operation is located on the farm
Lanyonvale (various portions) with an aggregate area of 2,579.8ha.
The operations is currently on care and maintenance.
Holpan/Klipdam
The Klipdam Property is located 45 km from Kimberley, South Africa and consists of the adjacent Holpan 161 and Klipdam 157 farms, covering an area of 4,019.9 hectares. Holpan was put
on care and maintenance in May 2011.
Saxendrift
The 5,142 hectare Saxendrift mine property is located on the south bank of the Middle Orange River, and adjacent to the Wouterspan property.
Niewejaarskraal
Niewejaarskraal is located in the Hay district of the Northern Cape Province of South Africa approximately 124km southwest of Kimberley. The operations are located on Niewejaarskraal 40
and Viegulands Put 39 (total of 3,085.695ha). The operation has been on care and maintenance since December 2009.
Makoenskloof
The Group has previously reported that it has been seeking to sell the Makoenskloof property. This process has been approved by the Board, but a previous potential sale did not
materialise.
The Groups intention to sell Makoenskloof still remains, but this is not highly probable in terms of IFRS 5, due to the following:
- A selling price has not been established;
- A selling agent has not been appointed;
- No interested seller has been found; and
- No contracts or agreements have been established.
The accounting treatment of the property has therefore not changed, and this will remain the case until such a time as a sale is highly probable.
Windsorton Erf 2004
This is a prospecting property covering an area of 1,146 ha, and is adjacent to the Klipdam mine.
Tirisano
The Tirisano mine, totalling 10,805.57 hectares is located some 35 kilometres due north of Ventersdorp, in the North West Province and approximately 150 kilometres west of
Johannesburg. The Tirisano mineral property was acquired as part of the asset and liability acquisition on 1 September 2011. The purchase price allocated to the mineral property and is
supported by a valuation performed by an independent competent person. The range of the attributable value of the mineral property in this valuation exceeds the allocated purchase price.
Farhom, Okapi and Kanonloop
The Group holds the mineral rights to Farhom, Okapi and Kanonloop which are located in the Northern Cape. A pre-feasibility study on these mineral rights will commence in the next 18
months after which a decision will be taken on the future of the mining potential. Management is in the process of negotiation with the Department of Minerals and Resources to consolidate
the right within the Wouterspan mineral right.
Estimations
Carats available at the mineral property interests have been estimated by a qualified geologist employed by the Group and was reviewed by an independent qualified geologist. These
resource estimates include inferred resources which have a great amount of uncertainty as to their existence, and economic and legal feasibiliy. The estimated carats have been published
as required by National Instrument 43 -101. The carats included in 43-101 is used in the calculation of the amortisation for the period (refer accounting policy).
As at 31 May As at 29
2012 February 2012
3. Investment in associate
3.1. Flawless Diamonds Trading House (Pty) Ltd - (20% shareholding)
Carrying amount
Opening balance 161 049 129 660
Share of profit from equity accounted investment 26 740 36 918
Foreign exchange movements (7 560) (5 529)
Closing balance 180 229 161 049
Summarised financial information of associate
Total assets 3 210 333 2 604 145
Total liabilities 2 387 972 1 847 525
Net assets 822 361 756 620
Revenue 14 381 886 55 570 156
Total comprehensive income for the period 133 572 173 411
Capital commitments and contingent liabilities of associate - -
On 21 April 2010 the Group acquired a 20% shareholding in Flawless Diamonds Trading House (Pty) Ltd ("Flawless")
incorporated in the Republic of South Africa for ZAR700,000 ($95,690) cash. Flawless is a registered diamond broker which
provides specialist diamond valuation, marketing and tender sales services to the Group.
As the Group has significant influence over Flawless' operations it accounts for the investment using the equity method.
3.2. Banzi Trade (26) (Pty) Ltd - (49% shareholding)
Banzi Trade (26) (Pty) Ltd was incorporated in 2005 with nominal equity. The Group acquired a 49% shareholding in the same
year. Since the incorporation date the Group's portion of the losses from Banzi Trade (26) (Pty) Ltd exceeded its investment in
the associate. The Group, in terms of its accounting policy, does not account for losses in excess of its investment in
associates. The Group's carrying value of its investment in Banzi Trade (26) (Pty) Ltd is Nil.
4. Property, plant and equipment
As at As at
31 May 29 February
2012 2012
Cost Accumulated Carrying value Cost Accumulated Carrying value
depreciation depreciation
Land and buildings 6 703 435 (1 412 862) 5 290 573 7 293 865 (1 484 130) 5 809 735
Plant and machinery 70 471 774 (33 086 887) 37 384 887 75 464 483 (34 654 874) 40 809 609
Motor vehicles 1 563 785 (1 113 239) 450 546 1 637 108 (1 183 352) 453 756
Office equipment 996 587 (680 439) 316 148 1 065 166 (711 703) 353 463
Construction in progress 1 095 362 - 1 095 362 1 965 268 - 1 965 268
80 830 943 (36 293 427) 44 537 516 87 425 890 (38 034 059) 49 391 831
Reconciliation of property, plant and equipment - 31 May 2012
Opening Additions Transfers Foreign Depreciation Closing
balance exchange balance
movements
Land and buildings 5 809 735 6 151 - (472 854) (52 459) 5 290 573
Plant and machinery 40 809 609 418 882 1 033 687 (3 341 906) (1 535 385) 37 384 887
Motor vehicles 453 756 63 411 - (38 717) (27 904) 450 546
Office equipment 353 463 19 386 - (28 496) (28 205) 316 148
Construction in progress 1 965 268 290 538 (1 033 687) (126 757) - 1 095 362
49 391 831 798 368 - (4 008 730) (1 643 953) 44 537 516
Reconciliation of property, plant and equipment - 29 February 2012
Opening Additions Assets and Disposals Transfers Foreign Depreciation Impairment Closing
balance liabilities exchange loss balance
acquisitions movements
Land and buildings 6 353 551 12 368 208 838 - 870 038 (357 649) (407 373) (870 038) 5 809 735
Plant and machinery 49 212 345 5 546 769 129 015 (6 104 971) 4 331 970 (2 210 677) (6 025 987) (4 068 855) 40 809 609
Motor vehicles 588 581 6 624 40 995 (13 317) - (33 626) (135 501) - 453 756
Office equipment 391 263 76 088 56 193 (35 488) - (23 988) (110 605) - 353 463
Construction in progress 6 282 698 1 161 067 - - (5 202 008) (276 489) - - 1 965 268
62 828 438 6 802 916 435 041 (6 153 776) - (2 902 429) (6 679 466) (4 938 893) 49 391 831
Assets subject to finance lease (net carrying value)
Plant and machinery 800 091 881 772
The Groups bankers have registered two notarial general covering bonds (First Lien) of ZAR 10 million ($1.3 million) over all
moveable assets related to the property known as Holpan, district Barkley West, Northern Cape Province (refer Note 27).
Estimates and judgements
Management performs an annual review of the Groups property, plant and equipment to consider indicators for impairment
and where indicators for impairment were identified, the recoverable amount. Comparisons are made to similar assets
available in the market taking into consideration its economic life, residual value, current condition and application in the mining
and recovery processes. Impairment indicators were identified for certain items of property, plant and equipment and where no
future economic benefits (value in use) will flow from the identified assets, judgement is applied to consider fair value less costs
to sell. Assets identified, where the carrying value exceeds the recoverable amount, are impaired. Life of mine models forms
the basis against which the value in use is measured.
As at 31 May As at 29
2012 February 2012
5. Other financial assets
At fair value through profit or loss
Investments 4 419 876 3 498 558
The Group invests in investment policies with endowment benefits on maturity of the
policies in order to provide funding for the reclamation obligations. Premiums are
invested on an initial lump sum and/or monthly annuity premium basis with the insurers
and invested in specific investment plans. Policy investment value at any one time
represents the value of premiums and growth after deduction of administration and
investment fees. Withdrawals could be made against the policies before endowment
against the deduction of penalties, which is lower than the investment value. To
surrender the policy prior to maturity date will similarly attract penalties at a lower rate,
and represents the value accessible at any one stage. Fair value at any one stage
represents the surrender value of the investments. These policies are encumbered by
the guarantees issue by Standard Bank on behalf of the Group (refer notes 14 and 27).
At amortised cost
Deposits 65 051 70 843
This deposit relates to deposits paid to the South African electricity supplier.
Total other financial assets 4 484 927 3 569 401
Non-current assets
At fair value through profit or loss 4 419 876 3 498 558
At amortised cost 65 051 70 843
4 484 927 3 569 401
6. Inventories
Rough diamond inventories 904 341 150 751
Stockpile diamond inventory 37 568 39 490
Fuel, oil and grease 207 051 209 067
Mine supplies 1 382 187 1 223 572
2 531 147 1 622 880
No write-down of inventory was done during the period ended 31 May 2012 or 29 February 2012.
The net realisable value of rough diamond inventories are estimated at the average price per carat achieved for the most
recent diamond tender taking into account the variable factors of clarity, carat, shape and colour.
Estimates and judgements
Management performs an annual review of inventory in order to determine the net realisable value and to identify inventory that
requires a write off. Obsolete, slow moving and damaged inventory are indicators that a write off is required. Management's
best judgement is applied in estimating the write off should this be necessary.
As at 31 May As at 29
2012 February 2012
7. Trade and other receivables
Trade receivables 3 587 592 2 887 305
Prepayments 322 259 876 537
VAT 204 946 1 852 401
4 114 797 5 616 243
8. Cash and cash equivalents
Cash and cash equivalents consist of:
Cash on hand 2 615 946
Bank balances 10 476 901 10 740 395
10 479 516 10 741 341
Bank overdraft (3 208 843) (829 480)
7 270 673 9 911 861
Current assets 10 479 516 10 741 341
Current liabilities (3 208 843) (829 480)
7 270 673 9 911 861
9. Share capital
Reconciliation of number of shares issued:
Number of shares - beginning of period 47 942 746 518 185 238
Debt conversion at $0.065 per share - 6 703 292
Share consolidation 15:1 (a) - (489 895 959)
Number of post consolidation shares 47 942 746 34 992 571
Private placement at $0.75 per share (b) - 10 341 969
Shares issued with asset and liability acquisition (c) - 2 608 206
Debt conversion at $0.48 per share 466 667 -
Number of shares - end of period 48 409 413 47 942 746
The Companys authorised share capital consists of an unlimited number of common shares, without par value, and an
unlimited number of preference shares without par value, of which no preference shares have been issued. The directors have
the authority to issue unissued shares, up to 10% of outstanding shares, without shareholders approval.
(a) Effective 11 July 2011 the Company completed a consolidation of its outstanding shares on the basis of 1 post consolidated
common share for 15 pre-consolidated shares.
(b) The Company raised $7,8 million through a private placement, with shares issued at $0.75 per share during Q3 2012.
(c) As at 1 September 2011, the Company issued 2,608,206 shares for the asset and liability purchase of Etruscan Diamonds
(Pty) Ltd and Blue Gum Diamonds (Pty) Ltd.
The following shares are reserved for issue:
- Share options 3,501,236
- Daboll loan 3,499,256
10. Share-based payments
The Group has a share-based payment plan approved by the shareholders that allows the Group to grant options for up to 10%
of the issued and outstanding shares of the Group at any one time, typically vesting over two years, to its directors, employees,
officers, and consultants. The exercise price of each share option is set by the board of directors at the time of the grant and
cannot be less than the market price (less permissible discounts) on the Toronto Stock Exchange. Share options have a
maximum term of five years and typically terminate 90 days following the termination of the optionees employment, except in
the case of retirement or death, which terminate one year thereafter.
From time to time, the Group may grant share options to employees, directors, and service providers. The Group uses the
Black-Scholes option pricing model to estimate a fair value for these options at grant date. This model require inputs such as
expected volatility, expected life to exercise, and interest rates. Changes in any of these inputs could cause a significant
change in the share-based payment expense charged in a period.
Effective 11 July 2011 the Company completed a consolidation of its outstanding shares on the basis of 15 pre-consolidated
common shares for 1 post consolidated common share. The effect of the share consolidation has been applied retrospectively.
All options are to be setled by physical delivery of shares.
The continuity of share-based payments for the quarter ended 31 May 2012 is as follows
Grant date 29 February Exercised Expired / 31 May 2012
2012 cancelled
24 September 2007 322 790 - - 322 790
14 November 2007 72 421 - - 72 421
7 December 2009 707 734 - (30 000) 677 734
8 October 2010 776 722 - (73 333) 703 389
12 October 2011 1 153 927 - - 1 153 627
12 October 2011 571 275 - - 571 275
3 604 869 - (103 333) 3 501 536
Weighted average exercise price $ 1.64 - $ 2.52 $ 1.72
The continuity of share-based payments for the year ended 29 February 2012 is as follows:
Grant date 28 February Granted/ Exercised Expired / 29 February
2011 issued cancelled 2012
24 September 2007 392 767 - - (69 977) 322 790
14 November 2007 72 433 - - (12) 72 421
20 June 2008 63 333 - - (63 333) -
7 December 2009 912 173 - - (204 439) 707 734
18 January 2010 40 000 - - (40 000) -
8 October 2010 1 002 800 - - (226 078) 776 722
12 October 2011 - 1 153 627 - - 1 153 627
12 October 2011 - 584 075 - (12 800) 571 275
2 483 506 1 737 702 - (616 639) 3 604 569
Weighted average exercise price $ 2.70 $ 0.61 - $ 2.52 $ 1.64
Weighted average fair value of share options granted
during the year $ 0.46
Employee expenses
For the For the year
quarter ended ended 29
31 May 2012 February 2012
Share options granted in previous years 125 108 209 575
Share options granted in current period - 316 381
Total share-based payment cost expensed to operations, with the 125 108 525 956
offset credited to share-based payment reserve
As at 31 May As at 29
2012 February 2012
11. Other financial liabilities
Held at amortised cost
Industrial Development Corporation of South Africa Limited 3 129 050 3 321 741
The loan was acquired by Rockwell Diamonds Inc. with the asset and liability
acquisition of Etruscan Diamonds (Pty) Ltd, and was entered into by Blue Gum
Diamonds (Pty) Ltd, a 74% owned subsidiary of Etruscan Diamonds (Pty) Ltd.
The loan is repayable in 10 equal bi-annual instalments, the first of which will be paid
in fiscal 2013, bears interest at 1.28% above the current prime rate (9% p.a.) and is
denominated in South African Rand.
Daboll loan 2 090 924 2 066 403
On 2 June 2011, the Group signed a Convertible Loan Agreement with Daboll
Consultants Limited. It was agreed that Daboll Consultants Limited would lend
Rockwell Diamonds Inc $2,000,000 within 5 days of the agreement being signed.
As the loan is repayable at the election of the borrower (except if converted after 12
months by the lender), it is disclosed as non-current.
The loan bears interest at 5% p.a. payable each calendar quarter, and any unpaid
interest is compounded annually.
The loan is convertible into common shares of the Company after 12 months, if it is not
repaid earlier, at the option of Daboll Consultants Limited. The conversion price is
$0.0375 per common share and a maximum of 52,488,853 can be issued in relation to
this conversion.
On 11 July 2011, the Company completed a consolidation of its outstanding common
shares on the basis of 15 pre-consolidation shares for 1 post consolidated common
share. Therefore the maximum number of shares that can be issued is now 3,499,256
at $0.5625.
5 219 974 5 388 144
Non-current liabilities
At amortised cost 4 372 608 4 582 095
Current liabilities
At amortised cost 847 366 806 049
5 219 974 5 388 144
12. Capital lease obligation
Minimum lease payments due
- within one year 319 724 349 069
- between one and five years 371 318 492 589
691 042 841 658
less: future finance charges (76 929) (103 233)
Present value of minimum lease payments 614 113 738 425
Present value of minimum lease payments due
- within one year 266 566 283 339
- between one and five years 347 547 455 086
614 113 738 425
Non-current liabilities 347 547 455 086
Current liabilities 266 566 283 339
614 113 738 425
Capital lease obligations as detailed above are secured over plant and equipment are repayable, on average, in 36 monthly
instalments and are denominated in South African Rand. Interest is charged at rates of between 1.25% to 2.00% in excess of
the prevailing prime rate, which is 9.00% per annum at 31 May 2012. There are no significant restrictions imposed on the
lessee as a result of the lease obligations.
13. Deferred tax
Deferred tax liability
Tax effect of temporary differences (6 059 738) (7 540 531)
Reconciliation of net deferred tax liability
At beginning of the period (7 540 531) (9 728 409)
Foreign exchange movement 864 356 708 619
Recognised through statement of comprehensive loss 616 437 1 479 259
(6 059 738) (7 540 531)
Judgements and estimates used in recognition of deferred tax asset
Deferred tax assets are raised only to the extent that future taxable income will be available against which the deferred tax
asset can be set off. Management estimates future taxable income using forecasts based on the best available current
information. Based on current estimates there is not sufficient future taxable income in the Group entities to which the
unrecognised deferred tax assets relate to against which to set off the deferred tax asset and therefore no deferred tax assets
are raised.
14. Reclamation obligation
Reconciliation of obligation - 31 May 2012
Opening Reclamation Foreign Total
balance expenditure / exchange
obligation movements
recognised
Holpan, Wouterspan, and Klipdam Mines 2 318 100 117 137 (194 877) 2 240 360
Saxendrift Mine 2 019 017 241 465 (176 080) 2 084 402
Tirisano Mine 6 832 212 137 268 (564 822) 6 404 658
11 169 329 495 870 (935 779) 10 729 420
Reconciliation of obligation - 29 February 2012
Opening Reclamation Foreign Reversed Accretion Total
balance expenditure / exchange during the expense
obligation movements year
recognised
Holpan, Wouterspan, and 2 565 377 (104 569) (142 708) - - 2 318 100
Klipdam Mines
Saxendrift Mine 1 249 261 856 781 (87 025) - - 2 019 017
Tirisano Mine - 536 320 (356 220) 6 370 317 281 795 6 832 212
3 814 638 1 288 532 (585 953) 6 370 317 281 795 11 169 329
Estimated rehabilitation costs, which are based on the Groups interpretation of current environmental and regulatory
requirements, represent the present value of the expected future costs to rehabilitate the mine properties during and at
termination of mining operations. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for
changes in legislation, technology or other circumstances.
Based on current environmental regulations and known rehabilitation requirements, management has included its best
estimate of these obligations in its rehabilitation provision based on professional surveys of the environmental disturbance.
The current value of the reclamation cost is $12,933,507 (29 February 2012: $14,085,050).
The ultimate rehabilitation will be financed from existing funds and policies invested for this purpose, ongoing contributions as
well as the proceeds on sale of assets and metal from plant clean-up at the time of the mine closure. The expected timing of
the cash flows in respect of the provisions is dependent on the mineral property award and/or the Life of Mine. However, it is
reasonably possible that the Groups estimates of its ultimate rehabilitation liabilities could change as a result of changes in
regulations or cost estimates. The following key assumptions were used in estimating the reclamation obligation:
Discount period: 4 - 18 years
South African discount rate: 9%
South African inflation rate: 7%
As required by regulatory authorities, at 31 May 2012, the Group had cash reclamation deposits totalling $1,875,551
(29 February 2012 $3,104,716) comprised of $1,078,558 (29 February 2012 $1,160,196) for the Holpan, Wouterspan and
Klipdam mine, $Nil (29 February 2012 $Nil) for the Saxendrift mine and $796,993 (29 February 2012 $1,944,520) for the
Tirisano mine. These deposits are invested in interest bearing money market linked investments. These investments have
been pledged as security in favour of the guarantees the bank issued on behalf of the Group. Refer to note 27.
As at 31 May As at 29
2012 February 2012
15. Trade and other payables
Trade payables 2 274 204 2 706 586
Royalties payable 3 015 335 3 201 935
Other payables 540 782 362 626
Payroll accruals 837 388 553 162
VAT - 757 953
6 667 709 7 582 262
16. Related party balances
Balances payable
Banzi Trade (e) 1 919 4 065
Hunter Dickinson Services Inc. (a) 40 076 43 425
Seven Bridges Trading (c) 24 344 -
CEC Engineering (b) - 4 292
Dr. D.M. Bristow (h) - 278 334
Current balances payable 66 339 330 116
Non-current balances payable - Liberty Lane (g) 367 864 400 616
Loans from related parties 434 203 730 732
Balances receivable
Banzi Trade (e) 103 216 105 530
Steinmetz - 127 817
Mogopa Minerals (f) 39 722 43 254
Loans to related parties 142 938 276 601
17. Related party transactions
Services rendered and expenses reimbursed:
Hunter Dickinson Services Inc. (a) 48 468 90 465
CEC Engineering (b) 10 788 23 331
Seven Bridges Trading (c) 19 701 31 704
Banzi Trade (e) 1 764 31 120
Mogopa Minerals (f) 19 390 -
Flawless Diamonds Trading House (d) - 1 847 945
Sales rendered to:
Banzi Trade (e) - 119
Flawless Diamonds Trading House (d) 70 728 - 3 months 3 months
ended ended
All related party transactions are calculated at arms length transaction values in the normal course of business.
(a) Hunter Dickinson Services Inc. (HDSI) is a private company with a director in common with the Group. HDSI
provides geological, technical, corporate development, administrative and management services to, and incurs third
party costs on behalf of, the Group on a full cost recovery market related basis pursuant to an agreement dated
21 November 2008.
(b) CEC Engineering Ltd is a private company owned by David Copeland, a director of the Group, which provides
engineering and project management services at market rates.
(c) Seven Bridges Trading 14 (Pty) Ltd ("Seven Bridges Trading") is a wholly-owned subsidiary of Randgold Resources
Ltd, a public company where Mark Bristow, a director of the Group, serves in an executive capacity. Seven Bridges
Trading provides office, payroll and other administrative and management services.
(d) Flawless Diamonds Trading House (Pty) Ltd (Flawless Diamonds Trading House) is a private company where
certain directors, former directors and officers of the Group, namely, Mr J.B. Brenner and Dr D.M. Bristow, are
shareholders. During fiscal 2011 the Group acquired a 20% shareholding in Flawless Diamonds Trading House (refer
note 3). Flawless is a registered diamond broker which provides specialist diamond valuation, marketing and tender
sales services to the Group for a fixed fee of 1% of turnover which is below the market rate charged by similar tender
houses.
(e) Banzi Trade 26 (Pty) Ltd (Banzi Trade) is 49% owned by HC van Wyk Diamonds Ltd and 51% by Bokomoso Trust.
Banzi Trade is an empowered private company established to provide self sustaining job creation programs to local
communities as part of the companys Social and Labour Plan which is required in terms of the Minerals and
Petroleum Resources Development Act (MPRDA). Banzi provides the Group with building materials at market rates.
(f) The Bakwena Ba Mogopa Trust is the beneficial owner of 26% in the Tirisano Mine operation resident in Blue Gum
Diamonds (Pty) Ltd. This interest is held by Mogopa Minerals (Pty) Ltd through Mogopa Blue Gum (Pty) Ltd. As the
landowner, surface rentals are paid to the Trust, while business and support services are paid to Mogopa Minerals for
shareholder relations and related services.
All the above named loans are unsecured, interest free and have no fixed terms of repayment and are therefore
disclosed as current.
(g) Liberty Lane Trading 167 (Pty) Ltd ("Liberty Lane") is the BEE partner of the Saxendrift property and has certain
directors in common with the Group. In terms of the sale of shares and claims agreement, Liberty Lane made a partial
payment towards shares to be issued in terms of this agreement. The agreement specifies for the shares in Saxendrift
only to be issued once Liberty Lane has made full payment of the purchase considration in terms of the agreement. As
the payment was made towards the issue of shares in terms of the agreement the balance of payments received to
date has been classified as non-current. Refer to Note 28.
(h) A short term loan was advanced by Dr. D.M. Bristow, a non-executive director of the Group, to Etruscan Limited
(previous owner of the Tirisano Mine operations), in order to make critical creditor payments and to proceed with
capital orders on Tirisano in 2009. The loan is convertible into equity. 466,667 Shares of the Company were issued
during Q1 2013 in settlement of the capital portion of the loan. The loan was fully settled during Q1 2013.
3 months 3 months
ended ended
31 May 31 May
2012 2011
18. Cash generated from operations
Loss before taxation (3 650 343) (1 144 340)
Adjustments for:
Depreciation and depletion 1 897 360 2 027 792
Profit on sale of assets (44 485) -
Share of profit from equity accounted investment (26 740) (14 873)
Finance income (69 193) (107 261)
Finance costs 190 984 109 112
Net reclamation obligation 495 870 76 144
Share-based payment expense 125 108 128 300
Changes in working capital:
Inventories (1 040 943) (2 764)
Trade and other receivables 913 349 2 314 153
Trade and other payables (420 845) (1 473 307)
(1 629 878) 1 912 956
19. Tax paid
Balance at beginning of the period - (245 228)
Balance at end of the period (41 901) 247 774
(41 901) 2 546
20. Revenue
Sale of diamonds 6 071 022 7 561 697
Beneficiation income 1 027 161 943 842
7 098 183 8 505 539
Beneficiation income represents profit share on value add (cut and polish), arising through the Group's beneficiation agreement
with the Steinmetz Diamond Group. The Group is entitled to 50% of the profits from the sale of the polished diamonds
produced by the Group and sold through this channel. The beneficiation income is recognised on the date the Steinmetz
Diamond Group notifies the Group of the succesful sale of the diamonds to third parties.
21. Production cost
Production cost 7 704 788 6 161 983
Inventory movement (802 533) (186 952)
6 902 255 5 975 031
22. Results before net finance costs
Results before net finance costs for the period is stated after accounting for the following:
Profit on sale of property, plant and equipment (44 485) -
Depreciation on property, plant and equipment 1 643 953 1 826 049
Amortisation on mineral property interests 253 407 201 743
Salaries and wages 457 029 490 268
Share based payment expense 125 108 128 300
23. Finance income
Bank 69 193 107 261
24. Finance costs
Capital leases obligation 42 501 28 123
Bank 148 483 80 989
190 984 109 112
25. Tax (expense) recovery
Major components of the tax income
Deferred tax
Movement in deferred tax balance recognised through profit and loss (616 437) 62 000
26. Loss per share
Basic and diluted loss per share
Basic loss per share
Cents per share (0,04) (0,03)
Basic loss per share was calculated based on a weighted average number of ordinary shares of 48 173 515 (31 May 2011:
34 992 569).
Reconciliation of loss for the year to basic loss
Loss for the year (3 033 906) (1 206 340)
Adjusted for:
Loss attributable to non-controlling interest 909 223 290 142
Basic loss attributable to owners of the Group (2 124 683) (916 198)
Diluted loss per share is equal to loss per share because there are no dilutive potential ordinary shares in issue.
At 31 May 2012 and 31 May 2011 the impact of share-based payment options were excluded from the weighted average
number of shares as the effect would have been anti-dilutive.
Basic and diluted headline loss per share
Headline loss per share (cents) (0,05) (0,03)
Reconciliation between basic loss and headline loss
Basic loss attributable to owners of the Group (2 124 683) (916 198)
Adjusted for:
Profit on disposal of property, plant and equipment (44 485) -
Headline loss attributable to owners of the Group (2 169 168) (916 198)
27. Contingencies
Cash and cash equivalents
The Group has an overdraft facility in the amount of ZAR28.0 million ($3.9 million) available for its operations. This facility has
an interest cost of prime (currently 9% per annum) plus 0.6%. The security for the ZAR28.0 million consists of 2 covering
bonds (First Lien) of ZAR10.0 million ($1.4 million) each over moveable assets and property of the farm Holpan.
HC van Wyk Diamonds Ltd, Klipdam Mining Company Ltd, Saxendrift Mine (Pty) Ltd held guarantees with the bank towards
Eskom (Electricity Provider) of ZAR4,856,100 ($663,828) and the Department of Minerals and Resources (DMR) of
ZAR21,367,228 ($2,920,896) towards rehabilitation expenses.
28. Subsequent events
Makoenskloof
On 14 June 2012, the Group signed an agreement for the sale of the farm Makoenskloof for ZAR 3 million plus ZAR 500,000
for the water rights. A total of approximately $ 425,000. The purchaser is required to deliver certain guarantees within 30 days
of signing the agreement, in order to secure the purchase price. Possession and occupation will be granted to the purchaser on
the date of registration at the Deeds Office.
Johannesburg
13 July 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
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