Balance Sheet Date
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
326,402
|
|
|
$
|
390,660
|
|
Total Assets
|
|
$
|
8,318,402
|
|
|
$
|
8,382,920
|
|
Total Liabilities
|
|
$
|
427,891
|
|
|
$
|
817,166
|
|
Stockholders’ Equity
|
|
$
|
7,890,511
|
|
|
$
|
7,565,754
|
|
Plan of Operation
As described above, on November 20, 2014, we entered into a formal joint venture agreement (the “Joint Venture Agreement”) with Mineracao Batovi which contemplates the Company acquiring an interest in Mineracao Batovi to develop, finance and operate the Batovi Diamond Project. Pursuant to the Joint Venture Agreement, we must contribute $1,000,000 in cash to Mineracao Batovi in order to acquire an initial 20% equity interest in that company. Mineracao Batovi holds the mineral claims underlying the Batovi Diamond Project. We may earn an additional 29% equity interest in Mineracao Batovi by funding a further $2,000,000 of exploration expenses no later than November 20, 2017.
The Joint Venture Agreement provides that Mineracao Batovi is to be managed by a board of directors comprised of two representatives from each of our Company and Mineracao Batovi, provided that if we fail to earn an additional 29% equity interest in Mineracao Batovi by November 20, 2017, the board of directors will be comprised of three representatives of the existing Mineracao Batovi management and one representative of our Company. We will cease to be entitled to any representation on Mineracao Batovi's board of directors if our Company’s equity interest is reduced to 10% or less.
Certain specified matters are subject to the approval of at least three of the four members of Mineracao Batovi's board of directors, including the adoption of the project's annual budget and any amendments thereto, the scope and purpose of a feasibility study for the Batovi project (including the determination that the study is positive), and the decision to mine and commence commercial production.
Until we earn the additional 29% equity interest in Mineracao Batovi, and so long as we elect to participate in the joint venture, we will bear 100% of Mineracao Batovi’s expenses (up to the total amount of $3,000,000, including Diamante’s initial $1,000,000 contribution to Mineracao Batovi), provided that all such expenses are first approved in writing by our Company’s representatives on Mineracao Batovi’s board of directors.
The parties originally agreed to cause the joint venture company to engage Kel-Ex Development Ltd., a privately-held British Columbia corporation that is under common control with Mineracao Batovi, to carry out exploration activities on the Batovi Diamond Project in accordance with approved budgets. Kel-Ex was to be entitled to charge a 10% administration fee on all exploration expenditures incurred under $50,000 and 5% on all exploration expenditures incurred over $50,000. In addition, we have issued 2,700,000 fully-paid and non-assessable common shares to Kel-Ex Development under the Joint Venture Agreement. By our Company's letter agreement dated February 27, 2015, effective upon acceptance by Mineracao Batovi and Kel-Ex on March 9, 2015, the parties amended the Joint Venture Agreement to provide that the Company would be engaged to act as operator of the Batovi Diamond Project on terms whereby our Company will be entitled to charge a 10% administration fee on all exploration expenditures incurred under $50,000 and 5% on all exploration expenditures incurred over $50,000. Our Company has discretion to subcontract with third parties, including Kel-Ex, to enable it to fulfill its role as operator.
On January 22, 2016, we entered into a loan agreement (the “Loan Agreement”) with Blendcore LLC, a Delaware corporation (“Blendcore”) and Petaquilla Gold, S.A., a Panama corporation (“Petaquilla Gold”), pursuant to which our Company has agreed to advance a loan in the principal amount of US$250,000 to Blendcore (the “Loan”).
Petaquilla Gold, as the owner of minerals sourced from the Molejon Gold Mine located in Donoso District, Colon Province of Panama (the “Mine”), has engaged Blendcore, as master contractor, to act as operator in connection with the restarting of the processing of stockpiled ore at the Mine. The Loan proceeds are to be applied by Blendcore in that capacity in accordance with a use-of-funds budget (the “Budget”) that has been annexed to the Loan Agreement. Petaquilla Gold is a party to the Loan Agreement in its capacity as the title holder of the minerals, but is not entitled to receive any advances under the Loan Agreement.
Pursuant to the terms of the Loan Agreement, the Loan is to be advanced in three tranches as follows:
|
·
|
US$50,000 was advanced upon execution of the Loan Agreement;
|
|
|
|
|
·
|
US$100,000 was required to be advanced within 2 weeks from the execution of the Loan Agreement, and was in fact advanced on January 27, 2016; and
|
|
|
|
|
·
|
US$100,000 will be advanced as required in accordance with the Budget.
|
As at October 31, 2016, we have advanced $215,000 to Blendcore LLC.
In exchange for the provision of the Loan, our Company is to receive a royalty of 12.5% on the first 1,000 ounces of gold produced per month for 12 months (the “Royalty Period”). The Royalty Period is to commence once production ramps up to 1,000 ounces per month. For monthly production between 1,001 and 2,000 ounces of gold per month, our Company is to receive a reduced royalty of 5%. In addition to the royalty stream, our Company has a right of first option to provide funding for the expansion and development of the Mine.
Under the terms of the Loan Agreement, the Loan is to be forgiven provided that there is at least 12,000 ounces of gold produced during the Royalty Period. Upon the completion of the Royalty Period, our Company has the option to extend the royalty for a further 12 month period through the provision of a second $250,000 loan on substantially the same terms as the initial Loan. This right shall survive the royalty agreement by a period of one year.
Petaquilla Gold and Blendcore have entered into a Collateral Assignment Agreement dated January 11, 2016 (the “Collateral Assignment Agreement”; a copy of which is annexed to the Loan Agreement), pursuant to which Petaquilla Gold has collaterally assigned to Blendcore such number of ounces of gold from that which is mined at the Mine as shall be necessary to enable Blendcore to satisfy its obligations to our Company under the Loan Agreement. By letter of authorization dated January 18, 2016, Petaquilla Gold has consented to the transfer by Blendcore to our Company of Blendcore’s rights under the Collateral Assignment Agreement.
Limited Operating History; Need for Additional Capital
As described above, in order to obtain our initial 20% interest in the Batovi Diamond Project, we will need to raise a significant amount of funds. We have no assurance that financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing would result in additional dilution to existing shareholders.
There is no historical financial information about us upon which to base an evaluation of our performance. We are a start-up company and have not generated any revenues. We cannot guarantee success of our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.
We anticipate that we will need $2,400,000 to fund the next 12 months of our operations, including our commitments under the Loan Agreement with Blendcore and Petaquilla Gold. If we are unable to meet our needs for cash from either the money that we raise from future financings, or possible alternative sources, then we may be unable to continue, develop, or expand our operations. We currently do not have sufficient funds to operate our business for the next 12 months.
Liquidity and Capital Resources
Working Capital
|
|
October 31,
2016
|
|
|
July 31,
2016
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
326,402
|
|
|
$
|
390,920
|
|
Current Liabilities
|
|
|
427,891
|
|
|
|
817,166
|
|
Working Capital Deficiency
|
|
$
|
101,489
|
|
|
$
|
426,246
|
|
Cash Flows
|
|
Three
Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
October 31,
2016
|
|
|
April 30,
2016
|
|
Cash Flows used in Operating Activities
|
|
$
|
(64,258
|
)
|
|
$
|
(27,843
|
)
|
Cash Flows used in Investing Activities
|
|
|
-
|
|
|
|
-
|
|
Cash Flows provided by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
Net change in Cash During the Period
|
|
$
|
(64,258
|
)
|
|
$
|
(27,843
|
)
|
As at October 31, 2016, our Company’s cash balance was $326,402 compared to $390,920 as at July 31, 2016. The decrease in cash was primarily due to cash used in operating activities, mainly legal costs associated with the Loan to Blendcore.
As at October 31, 2016, our Company had total liabilities of $427,891 compared with total liabilities of $817,166 as at July 31, 2016. The decrease in total liabilities was primarily attributed to a recovery of management fees pursuant to the employment agreements with our Chief Executive Officer and our Chief Financial Officer.
As at October 31, 2016, our Company had working capital deficit of $101,489 compared with working capital deficit of $426,246 as at July 31, 2016. The decrease in working capital deficit was primarily attributed to management fees adjusted during the period.
Cash Flow from Operating Activities
During the three months ended October 31, 2016, our Company used $64,258 in cash from operating activities compared to cash used by operating activities of $27,843 during the three months ended October 31, 2015.
Cash Flow from Investing Activities
During the three months ended October 31, 2016 and 2015, $nil funds were used for investing activity.
Cash Flow from Financing Activities
During the three months ended October 31, 2016 and 2015, our Company used $nil cash for financing activities.
For the three months ended October 31, 2016 and 2015
Revenues
Our Company did not generate any revenues during the three months ended October 31, 2016 and 2015.
Total operating expenses
For the three months ended October 31, 2016, total operating expenses were a net recovery of $324,757, which included general and administrative expenses of $5,012, management fee recovery adjustment of $360,969, and professional fees of $31,200.
For the three months ended October 31, 2015, total operating expenses were $160,899, which included general and administrative expenses of $8,656, management fees of $121,505, and professional fees of $30,738.
Loss
For the three months ended October 31, 2016, our Company had income of $324,757, as compared to a loss for the three months ended October 31, 2015 of $160,899. General and administrative costs during these periods have decreased in the current year, due to lower staffing costs. In the current period, our Company recorded a recovery of management fees due to a decline in the fair market value of the stock price; as total accrued management fees are based on this price, there was a decrease in the total amount owing to the CEO and the CFO under their respective employment agreements. In the prior period, management fees were comprised of the amounts issued, with no resulting decrease. Professional fees during these periods have remained consistent.
Going Concern Consideration
Our Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending July 31, 2017. Our auditors have issued a going concern opinion on our audited financial statements for the year ended July 31, 2016. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay for our expenses. We may in the future attempt to obtain financing through private offerings of debt or equity. Equity financing would result in additional dilution to existing stockholders. We currently have no agreements or arrangements to obtain funds through bank loans, lines of credit or any other sources. There is no assurance we will ever be successful doing so.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Properties
Our executive offices are located at 203 – 1634 Harvey Ave, Kelowna, BC, Canada, V1Y 6G2. We believe that this office space will be adequate for the foreseeable future.
As described under the heading “Plan of Operation” above, our Company has entered into a definitive Joint Venture Agreement with Mineracao Batovi pursuant to which we may acquire up to a 75% interest in the Batovi Diamond Project. This project covers 21 claims held by Mineraco Batovi as federal exploration licenses, covering a total area of approximately 109,688 hectares, as more particularly described in the following table and map:
Township/Area
|
|
Claim Number
|
|
Recording Date
|
|
Expiration Date
(mm/dd/yy)
|
|
Area (hectares)
|
|
Mato Grosso
|
|
866.467/2011
|
|
05/30/2011
|
|
2/9/2019
|
|
|
3,051.04
|
|
Mato Grosso
|
|
866.468/2011
|
|
05/30/2011
|
|
2/3/2018
|
|
|
348.13
|
|
Mato Grosso
|
|
866.469/2011
|
|
05/30/2011
|
|
5/5/2018
|
|
|
8,414.68
|
|
Mato Grosso
|
|
866.544/2011
|
|
06/22/2011
|
|
3/9/2018
|
|
|
1,446.25
|
|
Mato Grosso
|
|
866.545/2011
|
|
06/22/2011
|
|
3/9/2018
|
|
|
9,934.17
|
|
Mato Grosso
|
|
866.560/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
5,026.23
|
|
Mato Grosso
|
|
866.561/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
9,439.19
|
|
Mato Grosso
|
|
866.562/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
4,113.14
|
|
Mato Grosso
|
|
866.563/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
7,112.30
|
|
Mato Grosso
|
|
866.564/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
3,511.58
|
|
Mato Grosso
|
|
866.565/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
1,371.85
|
|
Mato Grosso
|
|
866.566/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
6,861.69
|
|
Mato Grosso
|
|
866.567/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
3,569.48
|
|
Mato Grosso
|
|
866.568/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
4,424.19
|
|
Mato Grosso
|
|
866.569/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
1,311.55
|
|
Mato Grosso
|
|
866.570/2011
|
|
06/28/2011
|
|
3/9/2018
|
|
|
5,357.18
|
|
Mato Grosso
|
|
866.571/2011
|
|
06/28/2011
|
|
5/5/2018
|
|
|
9,534.95
|
|
Mato Grosso
|
|
866.572/2011
|
|
06/28/2011
|
|
2/9/2019
|
|
|
3,322.88
|
|
Mato Grosso
|
|
866.573/2011
|
|
06/29/2011
|
|
3/9/2018
|
|
|
7,199.99
|
|
Mato Grosso
|
|
866.574/2011
|
|
06/30/2011
|
|
3/9/2018
|
|
|
5,776.71
|
|
Mato Grosso
|
|
867.453/2010
|
|
05/06/2010
|
|
2/3/2018
|
|
|
8,560.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,687.58
|
|
We currently hold no direct or indirect interest in the Batovi Diamond Project. Pursuant to the Joint Venture Agreement, we are required to contribute $1,000,000 in cash to Mineracao Batovi in order to acquire our initial 20% equity interest in that company. As Mineracao Batovi hold the rights to the Batovi Diamond Project, our interest in the Batovi Diamond Project would be limited to our shareholdings in Mineracao Batovi.
The Batovi Diamond Project
The Batovi Diamond Project is located in the State of Mato Grosso, in west-central Brazil, approximately 360 kilometers northeast of Cuiaba, the state capital.
The Batovi Diamond Project is accessible from Cuiaba by main and secondary roads. One would travel east from Cuiaba on paved road BR-070 220 kilometers to Primavera do Leste before heading 140 kilometers north on partially paved road MT-130 to Paranatinga. An all-weather gravel road connects Paranatinga to the project area, which lies 120 kilometers to the north.
In addition, Paranatinga has an airport that is suitable for charter aircraft.
Currently there is no plant or equipment on the project site.
In Brazil, exploration licenses are issued by the Director General of the Departamento Nacional de Produção Mineral (translated as the National Department of Mineral Production and referred to in this quarterly report as the “DNPM”). An exploration license is granted for an initial term of up to three years and can be renewed once if the license holder submits an interim report on the exploration work completed to date which justifies further exploration.
An annual exploration fee must be paid to the DNPM to keep an exploration license in good standing. The exploration fee is assessed at the rate of R$2.02 per hectare for each year during the initial term of the license, and at the rate of R$3.95 per hectare for each year during the renewal term. Mineracao Batovi has provided documentation to us evidencing that its exploration licenses comprising the Batovi Diamond Project are in good standing.
The Batovi Diamond Project represents an opportunity for the potential discovery of primary diamond bearing kimberlite intrusives. Due diligence documents provided by Mineraco Batovi confirm that the general area is host to over 40 known kimberlite intrusives which were discovered by DeBeers and Rio Tinto who explored the area between 1967 to about 1997. Historically, a number of the kimberlites were evaluated as possible sources of large, high quality alluvial diamonds found in the area in small, artisanal alluvial mining operations. Although limited testing of the discovered kimberlites returned a few small stones from some of the kimberlites, they were generally not found to be significantly diamondiferous. This suggests that diamond bearing kimberlites which are the source of the large alluvial diamonds found in the project area have yet to be discovered.
Mineracao Batovi has followed up this historic work with limited exploration activities at a cost of approximately CDN$4.7 million, and has identified possible individual diamond indicator mineral trains on the property.
Since we have not funded the $1,000,000 payment required to be made to Mineracao Batovi in order to acquire our initial 20% equity interest in the Batovi Diamond Project, we are not in a position to assume our duties as the operator as contemplated by the Joint Venture Agreement. However, if we are able to fund such $1,000,000, we anticipate that a majority of the proceeds will be applied to fund exploration work aimed at defining the potential source kimberlites of the indicator mineral trains.
Typically, geophysical surveys are used to locate potential kimberlites. Geophysical surveys measure the physical properties of the rocks below them. It is hoped that the kimberlites would have contrasting physical properties to the surrounding rocks. The proposed geophysical survey would detect both the conductivity and magnetic signature of the underlying rocks. It is expected that the kimberlites would differ from the surrounding host rocks in terms of these physical properties.
If we earn our initial 20% equity interest in Mineracao Batovi and assume our role as the operator of the project, we anticipate that our first step will be to commission an airborne electromagnetic geophysical survey over certain areas preliminarily identified by Mineracao Batovi as having the potential to host diamond bearing kimberlites. Mobilizing an airborne survey system to the project area could take a couple of months after execution of the survey contract. The airborne survey itself should take less than a month. Thereafter, the survey data will have to be extensively manipulated to allow its use. We anticipate that such analytical manipulation would require one to two months to complete. We estimate that the airborne survey will cost approximately $500,000.
Any priority targets identified by the airborne survey will need to be tested, likely by drilling. The length and scope of any such drill program – and the appropriate drill and associated equipment required - will depend on the nature and number of targets, but we anticipate that it would likely take several months to complete. Until the results of the geophysical survey are complete, it is difficult to ascertain what the cost of this target testing phase will be, but we estimate that the initial round of drilling will likely cost between $300,000 to $500,000.
Any future work would be contingent upon the initial round of testing generating positive results. Should a kimberlite be discovered with potentially economic diamond content, we expect that the next phases of work would be delineation drilling followed by bulk sampling and, if warranted, a feasibility study.
The Batovi Diamond Project is centered on the perennial Batovi River; it is conceivable that this would provide a water source for any future operations. We have not investigated what steps would be required or what arrangements will have to be made to secure water rights.
There is currently no power grid at the project area. If future exploration activities justify development at the project site which will give rise to substantial power requirements, diesel generators will have to be installed, or arrangements will have to be made to fund the extension of the power grid from Paranatinga which is located 120 kilometers to the south of the project area.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our exposure to market risks includes, but is not necessarily limited to, equity price risk, commodity price risk, foreign currency risk and country risk.
Equity Price Risk
We are subject to market risk related to the market price of our common stock which trades over the counter on the OTCQB. Historically, we have relied upon equity financings from the sale of our common stock to fund our operations. Movements in the price of our common stock have been volatile in the past and may continue to be volatile in the future. As a result, there is risk that we may not be able to complete an equity financing at an acceptable price when required.
Commodity Price Risk
We may in the future be subject to market risk related to the market price of rough diamonds, which are priced per carat, and gold, which is priced per ounce. However, at October 31, 2016, we had no interest in the Batovi Diamond Project or in any other diamond exploration property, and the Royalty Period on Petaquilla Gold’s Molejon Gold Mine project had not yet begun. Accordingly, fluctuations in the market price of rough diamonds or gold do not currently have a direct impact on our operations.
Foreign Currency Risk
We are subject to market risk related to foreign currency exchange rate fluctuations. Our functional currency is the United States dollar. However, a portion of our business is transacted in the Canadian dollar and, if we acquire an interest in Mineracao Batovi we expect that a significant portion of our business will be transacted in the Brazilian real. To date, foreign exchange currency fluctuations have not had a material impact on our results of operations. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure to manage our foreign currency fluctuation risk.
Country Risk
We are subject to market risk related to our operations in foreign jurisdictions. We are party to a Joint Venture Agreement with Mineracao Batovi dated November 20, 2014, which contemplates our Company acquiring an interest in Mineracao Batovi to develop, finance and operate the Batovi Diamond Project in Brazil. We have also entered into the Loan Agreement with Blendcore and Petaquilla Gold in relation to the start up of processing of stockpiled ore at Petaquilla Gold’s Molejon Gold Mine in the Republic of Panama.
Foreign countries expose our Company to risks that may not otherwise be experienced if our operations were domestic. The risks include, but are not limited to, those arising under local laws relating to environmental protection, land use, water use, health and safety, labor, restrictions on production, price controls, currency remittance, and maintenance of mineral tenure and expropriation of property. For example, changes to regulations in Brazil relating to royalties, allowable production, importing and exporting of diamonds and environmental protection, may result in our Company not receiving an adequate return on investment capital.
Although the operating environments in Brazil and Panama are considered more favourably compared to those in certain other developing countries, there are still political risks. These risks include, but are not limited to: terrorism, hostage taking, military repression, expropriation, extreme fluctuations in currency exchange rates, high rates of inflation and labor unrest. Changes in mining or investment policies or shifts in political attitudes in these countries may also adversely affect our Company's business. In addition, there may be greater exposure to a risk of corruption and bribery (including possible prosecution under the federal Corruption of Foreign Public Officials Act). Also, in the event of a dispute arising in foreign operations, our Company may be subject to the exclusive jurisdiction of foreign courts and may be hindered or prevented from enforcing its rights. Furthermore, it is possible that future changes in taxes in any of the countries in which our Company operates will adversely affect our Company's operations and economic returns.
Interest Rate Risk
We have no significant exposure to interest rate fluctuation risk.