| Mon 2 Oct 2006, 16:19 | | Diamond Core - Abridged annual results for the yea |
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DMR
DMR
Diamond Core - Abridged annual results for the year ended 30 June 2006
DIAMOND CORE RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/013468/06)
Share code: DMR ISIN: ZAE000076956
("Diamond Core" or "the company")
Highlights for 2006
- Completed the acquisition of Samadi, a company with a portfolio of alluvial
- projects with mining and prospecting rights and applications.
- Created a combined group with the potential to develop a portfolio of
- prospective alluvial and kimberlite projects, ranging from
grassroots to late
- stage exploration and feasibility.
- Raised 232 million in the equity capital markets primarily for exploration
- and project development.
- Strengthened the Board with the appointment of four new Directors
with a wide
- ranging portfolio of skills.
- Bolstered operational management and technical team.
- Increased South African institutional ownership above 50%.
- Initiated the construction of a number of bulk sampling sites.
- NAV 96.99 cents per share up from 31.35 cents per share
- NTAV 70.97 cents per share up from 10.51 cents per share
Abridged annual results for the year ended 30 June 2006
CONSOLIDATED INCOME STATEMENT Audited Audited
30 June 2005
30 June 2006
R R
Revenue - -
Cost of sales - -
Other operating income 18 880 443 284
Exploration costs (1 315 121) (4 570 796)
Other operating expenses (9 680 755) (4 700 915)
Rehabilitation provision - (2 400 000)
Impairment losses 1 232 833 (1 232 833)
Impairment of excess goodwill on
acquisition of
subsidiary (53 296 464) *1 -
Operating loss (63 040 627) (12 461 260)
Investment income 2 714 084 272 158
Finance costs (6 674) (6 153)
Net loss for the year (60 333 217) (12 195 255)
Number of shares in issue 294 275 898 64 793 929
Weighted average number of shares in issue 126 718 523 62 312 323
Loss per share (cents) (47.61) (19.57)
Headline loss per share (cents) (6.53) (14.37)
Reconciliation of headline loss:
Net loss for the year (60 333 217) (12 195 255)
Profit on disposal of fixed assets - (391 008)
Impairment of mining assets (1 232 833) 1 232 833
Impairment of excess goodwill on
acquisition of
subsidiary 53 296 464 -
Rehabilitation provision - 2 400 000
Headline loss (8 269 586) (8 953 430)
CONSOLIDATED BALANCE SHEET
ASSETS
Non-current assets 109 193 983 17 359 165
Mining assets 7 003 917 3 859 165
Mineral rights 101 864 019 13 500 000
Exploration costs 326 047 -
Current assets 220 216 844 7 884 678
Trade and other receivables 513 415 590 283
Cash and cash equivalents 219 703 429 7 294 395
Total assets 329 410 827 25 243 843
EQUITY AND LIABILITIES
Total equity 285 415 139 19 622 146
Share capital 2 943 6 479 393
Share premium 319 198 296 59 296 381
Shares to be issued 48 365 918 -
Share based payments reserve 24 825 600 490 773
Accumulated loss (106 977 618) (46 644 401)
Non-current liabilities 29 593 432 3 975 167
Non-interest bearing borrowings 1 075 167 1 075 167
Rehabilitation provision 2 900 000 2 900 000
Deferred taxation 25 618 265 *2 -
Current liabilities 14 402 256 1 646 530
Obligation to minorities 11 894 586 -
Trade and other payables 2 507 670 1 646 530
Total equity and liabilities 329 410 827 25 243 843
Net asset value per share (cents) 96.99 31.35
Net tangible asset value per share (cents) 70.97 10.51
CONSOLIDATED CASH FLOW STATEMENT
Cash flow from exploration
and mining activities (6 886 534) (9 475 344)
Cash flow from investment activities (2 024 486) 5 150 581
Cash flow from financing activities 221 320 054 7 183 306
Net increase in cash and cash equivalents 212 409 034 2 858 543
Net cash and cash equivalents
at beginning of year 7 294 395 4 435 852
Net cash and cash equivalents at end of year 219 703 429 7 294 395
STATEMENT OF CHANGES IN Share capital Shares to be Share based
SHAREHOLDERS EQUITY and share issued payments
premium reserve
R R R
Balance at 30 June 2004 58 592 468 - -
Adoption of IAS 16 (revised) - - -
Balance at 30 June 2004
(restated) 58 592 468 - -
Issue of share capital 7 183 306 - -
Share-based payments reserve
(restated) - - 490 773
Net loss for the year
(restated) - - -
Balance at 30 June 2005
(restated) 65 775 774 - 490 773
Issue of share capital 253 425 465 - -
Shares to be issued - 48 365 918 -
Share-based payments reserve - - 24 334 827
Net loss for the year - - -
Balance at 30 June 2006 319 201 239 48 365 918 24 825 600
STATEMENT OF CHANGES IN Accumulated Total
SHAREHOLDERS EQUITY loss
R R
Balance at 30 June 2004 (34 099 077) 21 493 391
Adoption of IAS 16 (revised) (350 069) (350 069)
Balance at 30 June 2004 (restated) (34 449 146) 24 143 322
Issue of share capital - 7 183 306
Share-based payments reserve (restated) - 490 773
Net loss for the year (restated) (12 195 255) (12 195 255)
Balance at 30 June 2005 (restated) (46 644 401) 19 622 146
Issue of share capital - 253 425 465
Shares to be issued - 48 365 918
Share-based payments reserve - 24 334 827
Net loss for the year (60 333 217) (60 333 217)
Balance at 30 June 2006 (106 977 618) 285 415 139
COMMENTARY
*1 Impairment of goodwill arising from IFRS 3: Business Combinations
In applying the requirements of IFRS 3: Business Combinations to these annual
results, the purchase consideration for the acquisition of Samadi Resources
(SA) (Pty) Ltd (Samadi) has been determined based on the share price ruling on
the acquisition date of 27 February 2006, this being the date that Diamond Core
shareholders approved the acquisition. The ruling market price of 180 cents per
consolidated share on this date was substantially higher than the accounting
value of 130 cents per consolidated share at which Diamond Core entered into
the agreement.
The difference in these values arising from the application of IFRS 3 to the
purchase has as a consequence given rise to a substantial goodwill entry, which
has been created as a result of market activity in respect of the shares of the
Company rather than actual business related events within the Group which were
under the control of the directors and management. This goodwill has been
impaired at year end in terms of prevailing accounting standards.
For the original transaction accounting purposes the Diamond Core shares were
issued at a price of 13 cents per share (pre-consolidation), which was equal to
the trade weighted average price of Diamond Core shares on the JSE during the
30 day period which ended on 2 June 2005, this being the date on which Diamond
Core agreed in principle to the terms of the acquisition. The effective date
for the acquisition was 1 July 2005.
The terms at which the acquisition was agreed had been communicated in the
circular to shareholders dated 3 February 2006.
There has been no effect on the net asset value or the cash flows of the Group
for the year under review.
The effective loss for the year remains at R7 038 753 after the R53 296 464
goodwill impairment arising from the application of IFRS 3. The cash position
remains at R219 703 429 at 30 June 2006.
*2 Deferred tax liability
As a result of the fair value adjustment to the mineral rights of Samadi on
acquisition, the Group has recognised a deferred tax liability of R25 618 265
in respect of the revaluation of the Samadi mineral rights.
The Group will not however be liable for any cash taxation payments, as this
liability will be reversed to the income statement over time as the carrying
value of the mineral rights is recovered.
General
The acquisition of Samadi Resources (SA) (Pty) Ltd with the Company was
announced and a successful capital raising exercise undertaken. R232 million
was raised to create the requisite infrastructure for the implementation of the
strategy of the Company. EY Corporate Finance (Pty) Ltd issued a fair and
reasonable opinion on the issue of shares for cash for purposes of the capital
raise during the current financial year of 120 cents per share.
The acquisition has created a combined group with the potential to develop a
portfolio of prospective alluvial and kimberlite projects, ranging from
grassroots to late stage exploration and feasibility.
As indicated in the circular to shareholders, the Board of Directors has been
restructured and expanded in order to enhance and improve Corporate Governance
through a reformulated and strengthened Board Charter. Four new Directors have
been appointed.
The Board is competent to provide support and strategic guidance to the Company
and has a wide-ranging portfolio of skills.
The operational and technical team required to implement the strategy of the
Company have been appointed, and have been given responsibility and
accountability for the administration and implementation of the strategy in
their particular area of expertise and reference.
The socio-economic initiative strategy for integrating the Company into the
fabric of the Northern Cape Province is underway.
The technical team has revised and commented on all technical work done to
date; has motivated and implemented the requisite additions, changes and
revisions; and has taken ownership of and accountability for its particular
area of responsibility. Consultants in a portfolio of disciplines ranging from
human resources, metallurgy and geology continue to be utilised by the Company
to supplement internal capabilities.
IT and reporting systems for accounting and technical controls are being
reviewed and enhanced.
A public relations consultant has been appointed to assist in all facets of
public relations.
FINANCIAL REVIEW
Audit and annual report
The results of the Group as set out above have been audited by Charles Orbach
and Company. Their unqualified audit report on the annual financial statements
is available for inspection at the registered office of the Company.
Basis of preparation and accounting policies
The financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS). IFRS 1, First-time Adoption of
International Financial Reporting Standards, has been applied in preparing
these financial statements. The financial statements are prepared under the
historical cost convention except for certain financial instruments that are
stated at fair value.
Until 30 June 2005 the Group prepared its financial statements in accordance
with South African Statements of Generally Accepted Accounting Principles
(GAAP). GAAP differs in certain respects from IFRS. In preparing these
financial statements, management has amended certain accounting and valuation
methods applied in GAAP financial statements to comply with IFRS. The
comparative figures in respect of 2005 were restated to reflect these
adjustments.
In applying IFRS, the Group has applied the mandatory exceptions and certain of
the optional exemptions from full retrospective application of IFRS. The
requirements of IFRS 2: Share based payments, were only applied to equity
instruments that were granted on or after 7 November 2002 and vested after
1 January 2005 and the requirements of IFRS 3: Business Combinations have not
been applied retrospectively to past business combinations. On the basis that
IFRS 6: Exploration for and Evaluation of Mineral Resources, was early adopted
by the Group, it need not apply this standard to comparative information.
Significant changes to the Group"s accounting policies as a result of the
adoption of IFRS
1. Business combinations - IFRS 3
The cost of a business combination is measured as the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or
assumed, and equity instruments issued by the acquirer, in exchange for
control of the acquiree, plus any costs directly attributable to the business
combination
2. Share-based payment transactions - IFRS 2
The fair value of options granted to employees is now recognised as an
expense in the income statement, with a corresponding credit to equity, over
the vesting periods.
3. Property plant and equipment - IAS 16
The depreciation basis has been changed to a usage basis for categories where
appropriate, while the straight line basis will continue to be used for the
remaining categories of assets. Residual values and components subject to
depreciation were also re-assessed.
The above changes have had a negative impact on the Group"s previously reported
earnings and net asset values, as shown in the profit and equity
reconciliations below. There were no material effects on cash flows.
Equity reconciliation of previous SA GAAP to IFRS:
Year ended Transition date
30 June 2005 30 June 2004
Total equity
As previously reported 20 311 008 24 493 391
Property, plant and equipment (688 862) (350 069)
As reported under IFRS 19 622 146 24 143 322
Income statement reconciliation of
previous SA GAAP to IFRS:
Net loss for the period
As previously reported (11 365 689) -
Property, plant and equipment (338 793) -
Share-based payments (490 773) -
As reported under IFRS (12 195 255) -
Commentary
The Group has adopted International Financial Reporting Standards (IFRS) for
the first time and the financial statements are presented in accordance
therewith. Adoption of IFRS has resulted in a charge against profits of
R 1 179 635 in respect of prior years. The loss for the year under review
amounted to R 60 333 217 (including the non-cash goodwill impairment of
R53 296 464 discussed earlier) or 47.61 cents per share, compared with
R12 195 255, or a restated 19.57 cents per share.
Headline loss per share decreased to 6.53 cents per share from 14.37 cents
per share.
The net asset value per share increased to 96.99 cents per share from
31.35 cents per share.
The main contributing factors that gave rise to the change in performance are
- the issue of shares for cash
- the goodwill impairment of R53,3 m arising from the application of IFRS 3:
- Business Combinations to the purchase consideration for Samadi
- the reversal of the R1,2 million water pipeline impairment following its
reinstatement
- the decrease in exploration expenditure pending the finalisation
of legal and
- tenure requirements
The operating results of the Samadi group prior to control being acquired by
the Group have been excluded from the calculation of earnings. Had the result
been included for the full year, the operating result for the Group would be
increased by a loss of R2 517 015.
Exploration costs of R1 648 168, of which R326 047 has been capitalised,
reduced from R4 570 796 for the prior year. Operating expenses of R9 680 755
increased from R4 744 084, mainly as a result of the extensive use of
consultants during the year. The imbalance between administration and
exploration expenditure will be addressed in the ensuing year.
Investment income increased to R2 714 084 from R272 158 due to the increased
cash resource following the capital raise.
The increase in the net asset value is directly attributable to the value of
the mineral rights and the cash resource raised as part of the recapitalisation
of the company.
PROSPECTS
The situation in which the Group finds itself is the most favourable in its
history. Nevertheless, the management of the Group is aware that the
exploration for, and mining of, diamonds is a long-term, high-risk business
activity, which needs to be planned and implemented optimally.
In addition to the current projects, the Group runs a parallel strategy to
identify targets for acquisition which would add value for Company shareholders
and which are in line with our operating strategy and philosophy. All
opportunities are analysed in terms of relevance and value uplift for Diamond
Core shareholders, and a transaction will only be entered into if a potential
acquisition is value accretive.
The current focus of the Group is limited to bringing to account the projects
in the portfolio for which the cash resources available to it have been
allocated and to which these cash resources will be applied.
The balance sheet of the Group is largely debt-free and it is the intention of
management to optimise and maximise, as appropriate, the capital structure and
balance sheet of the Group.
For and on behalf of the Board
T Botoulas GD Hunter
Chief Executive Officer Non-executive
29 September 2006
Directors: AR Davids* (Chairman) T Botoulas (CEO) MJ Prinsloo* GD Hunter*
DN Levithan* S Nachom* (USA) JK Barker* (British) (* non executive)
Company secretary: J Marshall
Registered address: Block C, St Andrews Office Park, Meadowbrook Lane,
Epsom Downs, Bryanston
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg 2001
Sponsor: River Group
Date: 02/10/2006
Date: 02/10/2006 04:19:29 PM Produced by the JSE SENS Department
