| Wed 28 Sep 2005, 9:12 | | Diamond Core Resources Limited - Financial Report |
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Diamond Core Resources Limited - Financial Report
DIAMOND CORE RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/013468/06)
Share code: DMR ISIN : ZAE000045688
(`Diamond Core` or `the company`)
Abridged annual results for the year ended 30 June 2005, a no change statement,
details of Diamond Core`s annual general meeting, an update on the merger of
Diamond Core with Samadi Resources SA (Pty) Limited (`Samadi`) and a cautionary
announcement
Abridged annual results for the 12 months ended 30 June 2005
CONSOLIDATED INCOME STATEMENT Audited Audited
30 June 2005 30 June
2004
R R
Revenue - -
Cost of sales - -
Other operating income 443,284 517,995
Exploration costs (4,570,796) (1,145,992)
Other operating expenses (3,871,349) (4,957,520)
Rehabilitation provision (2,400,000) -
Impairment losses (1,232,833) -
Preference share capital cancelled - 7,200,000
Loans written back - 498,350
Net (expenditure) / income before (11,631,694) 2,112,833
finance charges
Investment income 272,158 79,276
Finance costs (6,153) (227,976)
Net (loss) / profit for the year (11,365,689) 1,964,133
Number of shares in issue 647,939,287 563,425,467
Weighted average number of shares in 623,123,235 468,753,336
issue
Weighted average number of shares in 663,057,870 469,592,969
issue for diluted earnings
Headline loss per share (cents) (1.30) (1.28)
(Loss) / earnings per share (cents) (1.82) 0.42
Diluted (loss) / earnings per share (1.71) 0.42
(cents)
Reconciliation of (loss) / profit
and headline loss:
Net (loss) / profit for the year (11,365,689) 1,964,133
Loans written off - (498,350)
Rehabilitation provision 2,400,000 -
Impairment losses 1,232,833 -
Preference share capital cancelled - (7,200,000)
Profit on disposal of mining assets (391,008) (254,749)
Headline loss (8,123,864) (5,988,966)
CONSOLIDATED BALANCE SHEET
ASSETS
Non-current assets 18,048,027 24,164,973
Mining assets 4,548,027 10,664,973
Intangible assets 13,500,000 13,500,000
Current assets 7,884,678 5,123,832
Accounts receivable 590,283 687,980
Cash and cash equivalents 7,294,395 4,435,852
Total assets 25,932,705 29,288,805
EQUITY AND LIABILITIES
Capital and reserves 20,311,008 24,493,391
Issued capital 65,775,774 58,592,468
Accumulated losses (45,464,766) (34,099,077)
Non-current liabilities 3,975,167 1,575,167
Interest bearing borrowings - 1,075,167
Non-interest bearing borrowings 1,075,167 -
Rehabilitation provision 2,900,000 500,000
Current liabilities 1,646,530 3,220,247
Trade and other payables 1,646,530 3,220,247
Bank overdraft - -
Total equity and liabilities 25,932,705 29,288,805
Net asset value per share (cents) 3.13 4.35
CONSOLIDATED CASH FLOW STATEMENT
Cash flows from exploration and (9,475,344) (5,758,749)
mining activities
Cash flows from investing activities 5,150,581 470,157
Cash flows from financing activities 7,183,306 10,000,000
Increase in cash and cash 2,858,543 4,711,408
equivalents
Net cash and cash equivalents 4,435,852 (275,556)
beginning of period
Net cash and cash equivalents end of 7,294,395 4,435,852
period
STATEMENT OF CHANGES IN EQUITY
Balance at beginning of year 24,493,391 19,729,258
Issue of share capital 7,183,306 10,000,000
Reduction of preference share - (7,200,000)
capital
Net (loss) / profit for the year (11,365,689) 1,964,133
Balance at end of year 20,311,008 24,493,391
1. GENERAL
The highlights of the past year have included the grant of the first prospecting
right in the Northern Cape to Dikeing Mining (Pty) Limited, a joint venture
between the company and the Skeyfontein Communal Property Association, and the
conclusion of an agreement relating to the merger between Diamond Core and
Samadi (`the merger`).
The following report provides an update on the progress of the merger as well as
the results of the geological work conducted to date, commentary on the
company`s prospects and a review of the financial results. Full details appear
in the annual report for the year ended 30 June 2005 (`the 2005 annual report`).
2. THE MERGER
On 18 July 2005, the board of Diamond Core announced the terms of the merger.
The board also announced its intention to raise R170 million through issues of
shares and options for cash and to amend the company`s share capital.
History of the applications for mining and prospecting rights by Samadi
Samadi was established in 2003 to hold alluvial diamond projects which are
housed in subsidiary companies, some of which were established prior to 2000.
During 2004, Samadi, in conjunction with a black empowerment partner, the
Sefalana consortium, applied for a number of diamond prospecting and mining
rights on the Middle Orange River (`the rights`) on terms which the parties
believed complied with the Mineral and Petroleum Resources Development Act, Act
28 of 2002 (`the MPRDA`). Considerable geological work had previously been done
on these project areas by the Samadi subsidiaries, in terms of old order
prospecting permits. Several agreements between Samadi and the Sefalana
consortium regarding the structure of the entities which have applied for the
rights have proven unsatisfactory to the Department of Minerals and Energy
(`DME`) despite the opinion of legal counsel that these agreements fully
complied with the MPRDA and the Charter developed in terms of section 100 of the
MPRDA. In the spirit of co-operation and compliance with DME policy, the
parties have elected to re-negotiate these agreements.
On 22 September 2005, Samadi and the Sefalana consortium signed a Memorandum of
Understanding regarding the structure of their relationship which it is expected
will meet with the approval of the DME. As soon as the rights have been
granted, the company will make a full announcement on the terms of the revised
arrangements between Samadi and the Sefalana consortium.
Impact on the merger
Although it is not expected that these arrangements will affect the terms of the
merger, the board of directors of Diamond Core is of the view that it is not
appropriate to seek shareholder approval of the merger, the capital raising or
the share capital amendments until the rights have been approved. Shareholders
are accordingly advised that the circular relating to these transactions will
not be posted until then and are accordingly advised to exercise caution until a
full announcement is made.
3. GEOLOGICAL AND OPERATIONAL REVIEW
The company currently holds rights over two properties - the Paardeberg East
project near Kimberley and the Skeyfontein project near Postmasburg.
Paardeberg East : A desktop study condensing all the information on Paardeberg
East has been completed and will be used as the basis for a way forward on this
project once the company has raised the capital required to do so.
Skeyfontein : Phase 1 exploration, comprising soil sampling, a grid sampling
program, geophysics and some geochemistry, was completed during the period. A
chemical probe analysis on a sample taken from the SKY1 dyke returned positive
results. The company plans to drill further exploration holes on the dyke in
order to source samples of un-oxidized material for analysis.
4. FUNDING OF THE COMPANY
During the financial year, the company raised R6.7 million from South African
institutions through issues of shares for cash. In addition, the company
disposed of its Dense Medium Separation plant, which was inappropriately sized
for the company`s projects, for R5.5 million. The company now requires
substantial capital in order to undertake significant exploration on the
Skeyfontein and Paardeberg East projects and to construct a new Dense Medium
Separation plant which will be tailored to the company`s strategy and needs and
will be used for trial mining and bulk sampling. The company is evaluating a
number of options to secure this funding. In addition, once the rights have
been granted, and assuming the merger is approved by shareholders, further
funding will be required to commence mining and continue with prospecting on the
Samadi group`s projects. The company intends to secure this funding through
issues of shares and options for cash as discussed in paragraph 2 above.
5. FINANCIAL REVIEW
Audit, review and accounting policies
The results for the year ended 30 June 2005 have been audited by Charles Orbach
& Company. Their audit opinion is available for inspection at the registered
office of the company. Without qualifying their report, the auditors have drawn
attention to the going concern status of Diamond Core.
The accounting policies and methods of computation applied by the company are
consistent with those applied in the previous financial years and periods.
These policies are in compliance with South African Statements of Generally
Accepted Accounting Practice.
Commentary
The loss for the year under review amounted to 1.82 cents per share compared
with the earnings per share for 2004 of 0.42 cents. However, the headline loss
increased by only 1.6% to 1.30 cents per share from 1.28 cents per share. The
main contributing factors that resulted in the significant (apparent) decline in
earnings are:
- the R2.4 million increase in the rehabilitation provision for the Paardeberg
East site;
- the R1.2 million impairment of the water pipeline for the Paardeberg East
project; and
- the fact that the 2004 earnings were `inflated` by the write back of R7.2
million as a result of the cancellation of the preference shares.
In addition, expenditure on exploration increased during the period whilst no
revenue was earned.
The net asset value per share decreased by 28% to 3.13 cents per share from the
2004 figure of 4.35 cents per share as a result of the rehabilitation provision
and the pipeline impairment referred to above.
Expenditure on exploration and tenure during 2005 amounted to R4.57 million
which represents 54.1% of the total spend for the year. Whilst this is an
improvement on the 18.8% in 2004, it is still far too low. The company`s aim is
to spend between 70% and 85% of its expenditure on direct exploration and
development costs. This will happen when the company holds the rights to a
critical mass of projects and is not spending an unreasonable amount of time on
applications for such rights.
6. FUTURE PROSPECTS
The success of mining and exploration activities in South Africa is very
dependent on the DME. Whilst Diamond Core has always enjoyed cordial relations
with the DME, the time taken for prospecting and mining rights to be processed
and granted is a major concern to the board. The board is of the view that the
current mineral licensing landscape in South Africa is counter-productive and
far from conducive for local and foreign investments in the country`s mining
industry.
Nevertheless, Diamond Core is hopeful that an exciting and challenging year lies
ahead. The primary task of the company will be to raise the funding required to
continue with and extend the operations of the company.
7. NO CHANGE STATEMENT AND ANNUAL GENERAL MEETING
The 2005 annual report will be posted to shareholders on 29 September 2005. The
financial information presented in such report is unchanged from that presented
above. The annual general meeting will be held in the boardroom at the
company`s offices, 5th Floor, South Wing, Hyde Park Corner, cnr Jan Smuts and
William Nicol Ave, Hyde Park, Sandton, Johannesburg on Friday 4 November 2005 at
10h00.
For and on behalf of the board:
A C Louw T Botoulas
Chairman Managing director
28 September 2005
Directors: AC Louw, T Botoulas, D Levithan, S Nachom ** Non-Executive
**American
Company secretary: J Marshall
Registered address: 5th Floor, South Wing, Hyde Park Corner, cnr Jan Smuts and
William Nicol Ave, Hyde Park, Sandton
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001
Sponsor: QuestCo (Pty) Limited
