RNS Number:2026C
Brazilian Diamonds Limited
16 August 2007
BRAZILIAN DIAMONDS LIMITED
QUARTERLY REPORT FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2007
During the first half of 2007 Brazilian Diamonds Limited ("Brazilian Diamonds"
or "the Company") has continued to focus its exploration activities on exploring
kimberlite bodies located on its properties in Brazil while seeking ways to
maximize the value from its extensive diamondiferous alluvial gravel inventories
located on some of these same properties. The Company is encouraged by the
recent publication of the government's inter-departmental deliberations over the
finalization of permanent boundaries for the Serra da Canastra National Park
which is located in proximity to the Canastra 1 project. A new draft bill
(Projeto de Lei No. 1448/2007) has now been submitted to the Brazilian Congress
which excludes the Company's diamond areas from any new proposed National Park
Boundary. Whilst it is difficult to estimate the time required for new
legislation to pass through the Congress, it appears to have support from both
the Government and Opposition parties and therefore is expected to be resolved
expeditiously. Once approved, the Company will be able to commence trial mining
at its Canastra 1 project.
The Company is still awaiting the last of the micro diamond results from the
Stage II drilling program at the large Regis kimberlite and once received they
will be evaluated along with results previously received to determine the next
stage of exploration work on this project.
Following completion of Stage I bulk sampling at the Santo Antonio do Bonito
alluvials project, the Company is continuing discussions with its joint venture
partners over the economic viability of developing a large scale, dredge based
mining operation on the property. The Company is also examining the possibility
of establishing other forms of large scale mining operation at this project.
Decisions on these prospects are expected to be made before the end of 2007.
The Company is now preparing to begin the mini-bulk testing of its 6 hectare,
Salvador 1 kimberlite. The required mining and environmental licenses have been
issued by the relevant authorities and the Company has completed construction of
a mobile treatment plant which is now being moved to the project site. The
results from the first of these test pits are expected in the fourth quarter of
2007. Following completion of this mini-bulk sample, the Company will assess
the results obtained with a view to implementing a larger scale bulk sample as
part of a pre-feasibility study for a future mine development.
Following its change of name from Teather & Greenwood Limited to Landsbanki
Securities (UK) Limited with effect from 9 August 2007, the name of the
Company's broker has changed to Landsbanki Securities (UK) Limited.
For further information refer to the Company's website www.braziliandiamonds.com
or contact:
Brazilian Diamonds Limited
Ken Judge, Chairman + 44 7733 001 002
Stephen Fabian, CEO + 55 31 8814 5111
Investor Relations
Europe + 44 207 590 5503
North America 1-866-689-2599
Hanson Westhouse Limited (Nomad to the Company) + 44 113 246 2610
Tim Feather / Matthew Johnson
Landsbanki Securities (UK) Limited (Broker to the Company) + 44 207 426 9000
Tom Hulme
Management's Discussion and Analysis
General
The following discussion of performance and financial condition should be read
in conjunction with the audited consolidated financial statements for the
quarter ended June 30, 2007 and 2006. The Company's financial statements are
prepared in accordance with Canadian GAAP. The Company's reporting currency is
Canadian dollars unless otherwise stated. The date of this Management
Discussion and Analysis is August 14, 2007.
Description of Business
Brazilian Diamonds is a development stage resource company engaged in the
acquisition, exploration and development of kimberlite and alluvial diamond
properties in Minas Gerais State, Brazil. The Company has over 100,000 hectares
of alluvial and kimberlite exploration properties in the Paranaiba and Santo
Antonio do Bonito River Basins and the Patos de Minas region as well as over
115,000 hectares of prospective exploration properties in the Serra da Canastra
Kimberlite Province including the advanced stage diamondiferous Canastra 1
kimberlite pipe. In addition, the Company has its own diamond laboratory used
in the recovery of kimberlite indicator minerals and in 2006 the Company
received an ISO 17025 rating for the facility.
The Company's head office is located in Belo Horizonte, Brazil and its corporate
office is located in Vancouver, British Columbia, Canada. Exploration
headquarters are located in Patos de Minas, Brazil.
The Company is a reporting issuer in Ontario and British Columbia, Canada and
its common shares trade on the Toronto Stock Exchange and Alternative Investment
Market ("AIM") of the London Stock Exchange under the symbol BDY.
Resource Properties
Diamond properties
During the six months ended June 30, 2007, the Company focused its exploration
activities on diamond properties within Minas Gerais and Bahia States, Brazil.
a) Coromandel Region
i) Santo Antonio do Bonito River
The Company, through its wholly owned subsidiary, Cobre Sul, owns various
mineral claims covering both the headwaters and the main drainage valley of the
river.
In 2004, thirteen adjacent licenses covering the headwaters and adjacent plateau
areas were acquired from Incris Mineracao Ltda ("INCRIS") for U.S. $8,000.
Under the agreement, INCRIS will retain a 1% gross royalty over any kimberlites
developed as mines on the licenses acquired.
ii) Santo Antonio do Bonito Alluvial Diamond Mining Joint Venture
In 2004, the Company signed an agreement with Companhia Mineradora de Minas
Gerais ("CODEMIG") and Mineracao Rio Novo Ltda ("MRN"), a wholly owned
subsidiary of Andrade Gutierrez SA, to form a joint venture to investigate the
potential for commercial exploitation of the alluvial diamond deposits within
the Santo Antonio do Bonito Valley. Under the terms of the agreement CODEMIG has
spent $1,000,000 over the last two years to complete a definitive feasibility
study prior to a decision to move to commercial mining operations.
In compensation for its investment in this feasibility work, CODEMIG will be
entitled to a 3.5% over-riding royalty from any future alluvial mining
operations undertaken by the joint venture partners. Following successful
completion of the evaluation programme, a new joint venture company is expected
to be established in which MRN will hold a 75% interest and the Company a 25%
interest.
The preliminary studies under Stage 1 of the project have now been completed and
the Company is awaiting a final report from the Joint Venture partners outlining
plans for the next phase of studies.
b) Patos de Minas Region
In 2003, the Company acquired Parima Mineracao Ltda. ("Parima") for $312,000
(U.S. $225,000) from Canabrava Diamond Corporation ("Canabrava"). Through the
acquisition of Parima, the Company took possession of office and laboratory
facilities, kimberlite geophysical and sampling databases and exploration
licenses over properties in proximity to the Company's license portfolio in the
Santo Antonio do Bonito and Abaete Valleys. In addition to the purchase price,
Canabrava will receive a 2% royalty on any gross revenue generated by the
production and sale of diamonds from future mines developed within the claims
acquired, plus a 1% royalty on an area over and surrounding the claims acquired.
c) Serra da Canastra Region
In 2002, the Company acquired all of the issued and outstanding shares of De
Beers Brasil Ltda.'s ("De Beers"), wholly owned Brazilian subsidiary, Mineracao
do Sul Ltda. ("Mineracao"). Mineracao's primary assets are the Canastra 1
kimberlite pipe and mineral licenses within the Serra da Canastra Region. The
issue of permits to commence trial mining of the Canastra 1 pipe has been
delayed until a dispute surrounding a possible extension of the nearby Serra da
Canastra National Park boundary is resolved. Recently new legislation has been
submitted to the Brazilian Congress which proposes the creation of a new park
boundary but which still excludes the Canastra 1 body and nearby Canastra 1
trend. Whilst this legislation passes in Congress the Company is also actively
working with various government ministries to expedite licensing that will
permit the commencement of operations at Canastra 1.
d) Data Sets
On September 13, 2006, the Company, through its wholly owned subsidiary, Game
Creek Company Ltd. ("Game Creek"), completed the acquisition of the Chapada
Diamantina Kimberlite Project data sets and mineral rights in the State of Bahia
from De Beers Brazil Ltda. Seventeen licenses totalling 28,087.45 Ha cover the
entire Salvador Kimberlite Cluster (3 kimberlite intrusives) and two bodies
within the Conquista Cluster. The terms of the acquisition include:
i. Cash payment on closing of $165,975 (paid);
ii. A second payment of $150,000 either in cash or the equivalent value in
the common shares of the Company 180 days after closing (paid);
iii. A third payment of $150,000 either in cash or the equivalent value in
the common shares of the Company 360 days after closing;
iv. The issue to De Beers of 1 million common shares of the Company in the
event of the discovery of a kimberlite pipe which after bulk testing is
confirmed to contain more than 200 carats of diamonds;
v. In the event that the Company shares are issued in lieu of cash, the
number of shares issued will be determined using the higher of the
prevailing market price or $0.10 per share; and
De Beers will retain the right to re-acquire an interest of up to 40% in any
kimberlite discovery which is confirmed to contain more than 200 carats of
diamonds. To exercise this right, De Beers will have to pay an amount
calculated as 300% of the Company's exploration expenditures to that date on the
kimberlite body.
e) Gold property
On November 4, 2005, the Company entered into an agreement with Hidefield Gold
plc ("Hidefield") pursuant to which the Company sold its 50% interest in the
Cata Preta Joint Venture for consideration comprising 2,500,000 new common
shares of Hidefield (note 3(a)). The Company had previously written down the
carrying value of the Cata Preta property to $Nil. The Company will also
receive a 5% net profit interest on any future production from the joint venture
license areas or 20% of the net proceeds received by Hidefield through future
joint ventures, leases, or outright sale of any of the mineral licenses.
Discussion of Operations
Following the acquisition of several mineral exploration databases from De
Beers, the Company now has access to the accumulated results of more than 30
years of exploration activity in the Canastra, Santo Antonio do Bonito, Patos de
Minas regions in Minas Gerais and the Chapada Diamantina region in Bahia.
Included within the Canastra data set are indicator mineral samples, microprobe
chemical analyses, and 19,000 line kilometres of proprietary airborne geophysics
covering the entire region. De Beers has also provided details about 35 known
kimberlite occurrences and the results of ground geophysics within the Canastra
region. The Chapada Diamantina data set, acquired in September 2006 from De
Beers, includes 194,120 line kilometres of airborne geophysics, indicator
mineral samples, microprobe analysis and mineral licenses covering the Salvador
1 kimberlite body plus five other kimberlites.
This data complements an already significant database the Company previously
acquired as a result of the purchase of De Beers' Brazilian subsidiary Mineracao
do Sul in August 2002. That acquisition also included 40,000 hectares of mineral
claims in the Canastra area and the Canastra 1 kimberlite for which licenses are
being sought to commence trial mining. The licencing process has been
complicated by the potential expansion of a nearby National Park. Although
there is every indication that a licence will be granted to mine Canastra 1, it
is not possible to accurately estimate the timetable for such a grant. While the
Company continues to work with various ministries of the Brazilian federal
government in an effort to hasten the process for the license grant, the Company
has been concentrating the majority of its exploration activity and resources on
its other prospective projects outside the Canastra Region.
During the past three years, the Company has committed significant resources
evaluating kimberlite targets in the Santo Antonio do Bonito River Basin and
Patos de Minas regions. During the first half of 2007 diamond drilling and
sampling activities were focused on the Regis and Salvador 1 projects which are
being prioritized for further evaluation.
Stage II drilling of holes RDH-03, 04, 05 and 06 at the Company's 100% owned
Regis kimberlite project was completed in the first quarter of 2007 and
following receipt and evaluation of the final results of lab testing of drill
cores for micro-diamonds, the Company will be in a position to determine what
further activity should be undertaken on this kimberlite.
The Company and its Joint Venture partners continue to assess various
alternatives for the possible development of one or more alluvial mining
operations at the Santo Antonio do Bonito alluvial project. These options may
include large scale dredging operations on the broader river flat areas along
the Santo Antonio do Bonito river as well as a smaller scale operation on what
are considered to be highly prospective but narrower river terrace areas.
During the first quarter of 2007, the Company's administrative functions in
Brazil were consolidated at the Patos de Minas office and laboratory with the
Company continuing to maintain a small representative corporate office in Belo
Horizonte. Through these measures, Company has been able to significantly
reduce its Brazilian overhead from the levels existing prior to the
restructuring carried out in the second half of 2006.
During the second quarter of 2007, the Company collected 6 replicate samples
totaling 6 tonnes from the Salvador 1 kimberlite in an attempt to confirm
results from a smaller (580 kg) sample taken in 2006. In total, 111 diamonds
were recovered from these new samples which together with original sample
tallied 120 diamonds. Preparations have now begun for the collection of six
much larger samples of approximately 650 m3 each from different parts of the
Salvador 1 kimberlite in order to better assess its diamond potential.
Results of Operations
Second Quarter
The income for the three months ended June 30, 2007 was $278,000 as compared to
a loss of $1,020,000 for the same period last year. The decrease in expenses
over the same period last year are due to stock-based compensation ($637,000),
corporate administrative services ($70,000), investor relations fees ($22,000)
and regulatory costs ($14,000). The increase in the unrealized fair value of
the Hidefield options was $599,000 (2006 - $Nil).
Cash and cash equivalent balances decreased by $0.9 million to $2.1 million at
June 30, 2007. The cash spending for mineral properties was $0.6 million. The
working capital was $1.9 million ($2.9 million at June 30, 2006).
Of the $0.6 million deferred exploration costs, $325,000 was spent on kimberlite
exploration in the Santo Antonio do Bonito River Basin, $135,000 was expended on
kimberlite projects in the Serra da Canastra Kimberlite Province, $125,000 was
spent on the Patos de Minas project and $111,000 was spent on other projects.
The data sets are amortized over ten years. For the three months ended June 30,
2007, $78,000 (2006 - $Nil) was amortized and proportionally allocated to the
related mineral properties. The current period's exploration expenditures were
$212,000 less than the same period last year due to a reduction in the drilling
undertaken during the period.
Year-to-date
The loss for the six months ended June 30, 2007 was $1,000 as compared to a loss
of $1,512,000 for the same period last year. The decrease in expenses over the
same period last year are due to stock-based compensation ($637,000), consulting
fees ($131,000), corporate administrative services ($86,000), investor relations
fees ($32,000), regulatory costs ($14,000) and legal and audit fees ($18,000).
The increase in the unrealized fair value of the Hidefield options was $599,000
(2006 - $Nil).
Cash and cash equivalent balances decreased by $2.4 million to $2.1 million at
June 30, 2007. The cash spending for mineral properties was $1.5 million. The
working capital was $1.9 million ($2.9 million at June 30, 2006).
Of the $1.5 million deferred exploration costs, $755,000 was spent on kimberlite
exploration in the Santo Antonio do Bonito River Basin, $541,000 was spent on
the Patos de Minas project, $224,000 was expended on kimberlite projects in the
Serra da Canastra Kimberlite Province and $123,000 was spent on other projects.
The data sets are amortized over ten years. For the six months ended June 30,
2007, $156,000 (2006 - $Nil) was amortized and proportionally allocated to the
related mineral properties. The current period's exploration expenditures are
$134,000 less than the same period last year due to decreased drilling activity.
Results of Operations
Summary of Quarterly Results
The table below presents selected financial data for the Company's eight most
recently completed quarters.
($000) June Mar. Dec. Sept. June March Dec. Sept.
30, 31, 31, 30, 30, 31, 31, 30,
2007 2007 2006 2006 2006 2006 2005 2005
Financial results
Net loss(income) for -278 279 988 263 1,020 492 732 358
period
Basic and diluted loss 0.00 0.00 0.01 0.00 0.01 0.00 0.02 0.01
(income) per share
Expenditures on 591 898 1,009 974 803 820 516 461
resource properties
Balance sheet data
Cash and short term 2,147 3,037 4,514 1,529 2,696 4,020 1,082 1,651
deposits
Resource properties 22,865 22,274 21,376 20,451 19,477 18,590 17,770 17,349
Total assets 25,910 26,249 26,762 22,875 23,142 23,609 19,889 20,089
Shareholders' equity 25,074 24,796 25,075 21,869 22,131 22,370 18,600 18,693
Selected Annual Information
The following financial data has been prepared in accordance with Canadian
generally accepted accounting principles in Canadian currency:
($000) Year ended Year ended Nine Months ended
December 31, December 31, December 31,
2006 2005 2004
Financial results
Net loss for period * 2,763 790 3,901
Basic and diluted loss per share 0.02 0.01 0.03
Expenditures on resource properties 3,222 2,472 2,365
Balance sheet data
Cash and cash equivalents 4,514 1,082 1,312
Mineral properties 21,376 17,770 14,936
Total assets 26,762 19,889 17,078
Shareholders' equity 25,075 18,600 15,717
* Net loss for December 31, 2006 includes $.6M stock-based compensation (2005 -
$Nil) and reorganization costs of $.25M (2005 - $Nil).
Liquidity
The Company does not currently own or have an interest in any producing mineral
properties and does not derive any revenues from operations. The Company's
activities have been funded through equity financing and the Company expects
that it will continue to be able to utilize this source of financing until it
develops cash flow from operations. There can be no assurance, however, that
the Company will be successful in its efforts. If such funds are not available
or other sources of finance cannot be obtained, then the Company will be forced
to curtail its activities to a level for which funding is available or can be
obtained.
Most of the capital equipment for operations at Canastra 1 has already been
acquired and is included as part of resource properties. The Company has
minimal operating lease commitments (refer to Contractual Commitments).
Contractual Commitments
Except as outlined below, the Company has no other contractual commitments.
2007 2008 2009 2010 2011 Total
Office lease $ 80 $ 124 $ - $ - $ - $ 204
Photocopier lease 6 12 12 12 1 43
$ 86 $ 136 $ 12 $ 12 $ 1 $ 247
Capital Resources
The following forms of capital were raised during the year ended June 30, 2006:
i. On February 15, 2006, the Company issued 8,735,294 new common shares
to institutional investors at a price of $0.34 per share.
ii. On March 2, 2006, the Company issued 4,000,000 common shares at a
price of $0.34 per share.
iii. On March 2, 2006, the Company issued 352,093 common shares at a price
of $0.34 per share as settlement of accrued interest on convertible
loan.
iv. On April 24, 2006, 240,952 share purchase warrants were exercised at a
price of $0.25 per share for proceeds of $60,238.
v. On December 8, 2006, the Company issued 21,510,000 shares at a price
of $0.18 per share (8 pence per share) and 3,200,000 shares at a
price of $0.18 per share (U$0.16 per share).
Related Party Transactions
During the six months ended June 30, 2007, the Company entered into the
following transactions with related parties:
a) The Company paid or accrued for corporate administrative fees which
includes office administration and corporate secretarial services, accounting,
investor relations, chief financial officer, rent and other office expenses at
cost of $105,000 (2006 - $91,000) to HRG Management Ltd. ("HRG"). The Company
received or accrued miscellaneous office recoveries of $12,000 (2006 - $33,000)
from HRG. HRG is a captive management company jointly owned by the Company and
certain other companies that share the Vancouver office and staff on a cost
recovery basis. Kenneth P. Judge and Stephen L. Fabian are common directors of
the Company and HRG.
b) Received or accrued office rent recoveries of $Nil (2006 - $61,000) from
HRG. Received or accrued office rent recoveries of $Nil (2006 - $8,000)
companies with common directors of the Company.
c) Paid or accrued consulting fees for technical services and rent in the
amount of $98,000 (2006 - $226,000) to Hamilton Capital Partners Limited, a
company in which Kenneth P. Judge is a director.
d) Paid or accrued management fees of $68,000 (2006 - $68,000) to Massif
Limited ("Massif"), a company in which Stephen L. Fabian has an interest.
e) Paid or accrued professional fees of $3,000 (2006 - $10,000) to a law
firm in which David Cowan is a partner.
f) Paid or accrued corporate admin fees of $Nil (2006 - $79,000) to RWA
Management Limited, a company controlled by a former officer of the Company.
g) Accrued or recovered office and technical costs of $25,000 (2006 -
$68,000) from Hidefield Gold PLC ("HIF") have been capitalized to mineral
properties. Kenneth P. Judge and Francis Johnstone are also directors of HIF.
Critical Accounting Estimates
The preparation of financial statements requires the Company to select from
possible alternative accounting principles, and to make estimates and
assumptions that determine the reported amounts of assets and liabilities at the
balance sheet date and reported costs and expenditures during the reporting
period. Estimates and assumptions may be revised as new information is
obtained, and are subject to change. The Company's accounting policies and
estimates used in the preparation of the Financial Statements are considered
appropriate in the circumstances, but are subject to judgments and uncertainties
inherent in the financial reporting process.
Stock Based Compensation
In calculating the value of stock options granted, management is required to
make significant estimates in relation to the future volatility of the Company's
share price and the period in which stock options will be exercised. The
selection of the volatility factor and the estimate of the expected option life
will have a significant impact on costs recognized for stock based compensation.
The estimates concerning volatility are made with reference to historical
volatility, which is not necessarily an accurate indicator of volatility that
will be experienced in the future. Management assumes that stock options will
remain unexercised until immediately prior to their expiry date, which may not
be the case.
Carrying Value of Assets
The Company reviews the carrying value of mineral properties and deferred
exploration costs when there are any events or circumstances that may indicate
impairment. Where estimates of future cash flows are available, an impairment
charge is recorded if the undiscounted future net cash flows are less than the
carrying amount. Reductions in the carrying value of the properties are
recorded to the extent the net book value of the property exceeds the discounted
value of future cash flows. Where estimates of future cash flows are not
available and where other conditions suggest impairment, management assess if
carrying value can be recovered and provides for impairment if so indicated. As
at June 30, 2007 the Company has assessed the impairment to long-lived assets
and has found no significant impairment.
Asset Retirement Obligations
The Company relied on the results of a professional, engineering firm and used
the discount and inflation rate as at December 31, 2006 to estimate the fair
value of its asset retirement obligations.
Financial Instruments
During the year ended December 31, 2006, interest on the convertible loan was
settled by the issue of 352,093 common shares at a price of $0.34 per share.
Hidefield Options
The Company used the Black-Scholes option pricing model to estimate the fair
value of the Hidefield options.
Risk
There are significant risks that might affect further development of the
Company. Although the Company has prospective diamond projects and has
demonstrated that it has the ability to obtain environmental and trial mining
permits, there is a risk that these projects will not be economically mineable
or that the required permits will be granted in the future. Further, future
market prices for diamonds are not predictable. There is also a risk that
should additional development of the properties be required, financing may not
be obtainable. Repatriation of earnings and capital from Brazil is subject to
compliance with registration requirements. There can be no assurance that
restrictions on repatriation will not be imposed in the future.
Management's Responsibility for Financial Statements
The information provided in this report, including the financial statements, is
the responsibility of management. In the preparation of these statements,
estimates are sometimes necessary to make a determination of future values for
certain assets or liabilities. Management believes such estimates have been
based on careful judgments and have been properly reflected in the accompanying
financial statements.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance
that all relevant information is gathered and reported to senior management,
including the President and Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), on a timely basis so that appropriate decisions can
be made regarding public disclosure.
An evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures was conducted as of December 31, 2006, by and
under the supervision of management, including the CEO and the CFO. Based on
this evaluation, the CEO and the CFO have concluded that the Company's
disclosure controls and procedures, as defined by Multilateral Instrument
52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, are
effective to ensure that information required to be disclosed in reports filed
or submitted under Canadian securities legislation is recorded, processed,
summarized and reported within the time period specified in those rules and
forms and reported to senior management so that appropriate decisions can be
made regarding public disclosure.
Internal Control Over Financial Reporting
Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with Canadian GAAP. Management is
responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.
An evaluation of the design of the Company's internal control over financial
reporting was conducted as of December 31, 2006, by and under the supervision of
management, including the CEO and the CFO. Based on this evaluation, the CEO and
the CFO have concluded that the Company's design of internal control over
financial reporting, as defined by Multilateral Instrument 52-109, Certification
of Disclosure in Issuers' Annual and Interim Filings, is sufficient to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with Canadian GAAP.
There have been no changes in internal control over financial reporting during
the quarter ended June 30, 2007 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Changes in Accounting Policies
There were no changes in accounting policy during this period.
Subsequent Events
a) On July 12, 2007, in accordance with the Company's stock option plan, it
has granted to certain of its directors, officers and consultants incentive
stock options to purchase up to an aggregate of 4,325,000 common shares
exercisable on or before July 12, 2012 at a price of $0.25 per share.
b) On July 16, 2007, Homero B. Silva was appointed to the position of
President of the Company.
Other Information
Additional information is available on the Company's website
www.braziliandiamonds.com or on SEDAR at www.sedar.com.
Caution Regarding Forward Looking Statements
Statements contained in this document, which are not historical facts, are
forward looking statements that involve risks, uncertainties and other factors
that could cause actual results to differ materially from those expressed or
implied by such forward looking statements. Factors that could cause such
differences include, but are not limited to, volatility and sensitivity to the
market price for precious metals, environmental and safety issues and changes to
government regulations and policies. Although the Company believes that the
assumptions intrinsic in forward looking statements are reasonable, we recommend
that one should not rely heavily on these statements. The Company disclaims any
intention or obligation to update or revise any forward looking statements
whether as a result of new information, future events or otherwise.
Consolidated Balance Sheets June 30, December 31,
As at 2007 2006
(expressed in thousands of Canadian dollars) $ $
Assets
Current assets
Cash and cash equivalents 2,147 4,514
Accounts receivable and prepaids 254 220
Due from related parties - 4
2,401 4,738
Investments (note 3) 634 634
Mineral properties 22,865 21,376
Property, plant and equipment 10 14
25,910 26,762
Liabilities
Current liabilities
Accounts payable and accrued liabilities 511 755
Long term payable 8 16
Hidefield options 238 837
Asset retirement obligations 79 79
836 1,687
Shareholders' Equity
Capital stock 92,848 92,848
Warrants 682 682
Contributed surplus 2,219 2,219
Deficit (70,675) (70,674)
25,074 25,075
25,910 26,762
Nature of operations (note 1)
Consolidated Statements of Income (Loss) and Three month Three month Six month Six month
Deficit period ended period ended period ended period ended
(expressed in thousands of Canadian dollars) June 30, June 30, June 30, June 30,
2007 2006 2007 2006
$ $ $ $
Expenses
AIM listing costs 4 - 6 -
Amortization 3 1 5 4
Consultants 53 62 109 240
Corporate administrative services 17 87 35 121
Foreign exchange loss (gain) 30 9 44 46
Insurance 20 13 34 29
Interest (23) (28) (57) (39)
Investor relations 36 58 77 109
Legal and audit 49 64 88 106
Office costs 45 29 84 59
Regulatory 32 46 69 89
Salaries and benefits 33 34 68 72
Stock-based compensation - 637 - 637
Travel 22 8 38 39
(321) (1,020) (600) (1,512)
Other income (expenses)
Unrealized fair value of Hidefield options 599 - 599 -
Income (Loss) for the period 278 (1,020) (1) (1,512)
Deficit - Beginning of period (70,953) (68,403) (70,674) (67,911)
Deficit - End of period (70,675) (69,423) (70,675) (69,423)
Earnings (Loss) per common share
Basic and diluted (0.00) (0.01) (0.00) (0.01)
Weighted average common shares outstanding (000's)
Basic and diluted 168,414 144,072 168,414 140,479
Consolidated Statements of Cash Flows Three month Three month Six month Six month
period ended period ended period period ended
(figures in tables expressed in thousands of June30, June 30, ended June June 30,
Canadian dollars) 30,
2007 2006 2007 2006
$ $ $ $
Cash flows from operating activities
Income (Loss) for the year 278 (1,020) (1) (1,512)
Adjustments for non-cash changes
Amortization 3 1 5 4
Stock-based compensation - 637 - 637
Unrealized fair value of Hidefield options (599) - (599) -
Changes in non-cash working capital
(Increase) decrease in accounts receivable and 32 12 (35) (90)
prepaids
Decrease due from related parties 5 - 4 -
Decrease in loan receivable - - - 71
Decrease in accounts payable and accrued (12) (228) (244) (278)
liabilities
(293) (581) (870) (1,168)
Cash flows from financing activities
Decrease in long-term debt (6) - (8) -
Issue of shares for private placement - - - 4,330
Exercise of warrants - 60 - 60
Share issue costs - - - (187)
Decrease in convertible loan interest - (1) - 119
(6) 59 (8) 4,322
Cash flows from investing activities
Loan receivable - - - -
(Acquistion) Disposition of property, plant - 1 - 83
and equipment
Deferred mineral property costs (591) (803) (1,489) (1,623)
Proceeds on sale of investment (note 3) - - - -
(591) (802) (1,489) (1,540)
Increase (Decrease) in cash and cash (890) (1,324) (2,367) 1,614
equivalents
Cash and cash equivalents - Beginning of 3,037 4,020 4,514 1,082
period
Cash and cash equivalents - End of period 2,147 2,696 2,147 2,696
1. Nature of operations
The Company is engaged in the exploration for and development of mineral
resources. The properties of the Company are without a known body of commercial
ore, the exploration programs undertaken and proposed constitute an exploratory
search, and there is no assurance that the Company will be successful in its
search. The Company has not earned any revenue to date from its mining
operations and is therefore considered to be in the development stage. The
business of exploring for minerals and mining involves a high degree of risk,
and few properties that are explored are ultimately developed into producing
mines. Significant expenses may be required to establish ore reserves, to
develop recovery processes, and to construct mining and processing facilities at
a particular site. It is not possible to ensure that the current exploration
programs planned by the Company will result in a profitable commercial mining
operation.
Although the Company has taken steps to verify title to mineral properties in
which it has an interest, in accordance with industry standards for the current
stage of exploration of such properties, these procedures do not guarantee the
Company's title. Property title may be subject to prior agreements and
non-compliance with regulatory requirements.
The Company is actively exploring and maintaining its current mineral property
portfolio in Brazil. It expects to selectively explore and develop the
portfolio itself and through joint venture arrangements or otherwise. The
scheduling and scale of such future activities will depend on results and market
conditions. Repatriation of earnings and capital from Brazil is subject to
compliance with registration requirements.
2. Significant accounting policies
These interim consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles, and they follow the same
accounting policies and methods of application as the most recent annual
financial statements. Consequently, these statements should be read in
conjunction with the audited annual consolidated financial statements for the
year ended December 31, 2006.
3. Investments
June 30, 2007 December 31, 2006
Carrying Market Carrying Market
value value value value
Lysander Minerals Corporation $ - $ - $ - $ 192
Hidefield Gold plc (a) 634 2,028 311 2,374
$ 634 $ 2,028 $ 311 $ 2,566
a) During the year ended December 31, 2005, the Company entered into an
agreement with Hidefield Gold PLC ("Hidefield") whereby they transferred their
interests in the Cata Preta Joint Venture for consideration of 2,500,000 common
shares of Hidefield with a market value of $323,094 (note 4(e)). As the
Company had previously written down the carrying value of its Cata Preta
property to $Nil, the Company recorded a gain of $323,094. On December 20,
2006, the Company received the 2,500,000 Hidefield shares. At June 30, 2007,
the Company owned 14,625,000 shares of Hidefield.
b) i) During the year ended December 31, 2005, the Company sold 12,125,000 of
the 24,250,000 Hidefield units with a book value of $311,674 to related parties
for proceeds of $1,200,375. Each Hidefield unit was sold for 4.5 pence and is
comprised of one ordinary common share of Hidefield and an option to acquire
12,125,000 common shares of Hidefield from the Company's remaining shareholding
at 6 pence per share within three years of the date of grant ("the Hidefield
options").
ii) At June 30, 2007, the net unrealized gain of the 12,125,000 Hidefield
shares if sold at the current market value of 6.50 pence (December 31, 2006 -
8.25 pence) would be $1,132,000 (December 31, 2006 - $1,135,000). The fair
value of the Hidefield options at June 30, 2007, calculated using the
Black-Scholes option pricing model was $238,000 (December 31, 2006 - $837,000)
resulting in an unrealized gain of $599,000 (December 31, 2006 - $(404,000)
expense).
The estimated fair value of each option using the Black-Scholes option pricing
model has been calculated based on the following assumptions:
December 31, December 31,
2006 2006
Expected dividend yield 0% 0%
Expected share price volatility 28% 51%
Risk-free interest rate 6.75% 5.28%
Expected life of options 6 months 1 year
4. Significant differences from United States accounting principles
The United States generally accepted accounting principles ("U.S. GAAP")
reconciliation is included solely for the purpose of the Company's filing on the
Alternative Investment Market (AIM) of the London Stock Exchange. The Company
is currently listed on the Toronto Stock Exchange and is not a registrant with
the United States Securities and Exchange Commission.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in Canada which differ, in
certain respects, from U.S. GAAP. Had the Company prepared the consolidated
financial statements in accordance with U.S. GAAP, certain items on the
consolidated balance sheet, statements of loss and deficit and statements of
cash flows would have been reported as follows:
June 30, June 30,
2007 2006
Consolidated statements of loss
As reported in accordance with Canadian GAAP (1) (1,512)
Mineral property expenditures written off in the year - net (a) (1,716) (1,367)
Accretion on convertible loan (b) - -
Foreign exchange (b) - -
Net loss under U.S. GAAP (1,717) (2,879)
Available-for-sale securities (c) (320) 1,015
Comprehensive loss (2,037) (1,864)
Basic and diluted loss per common share under U.S. GAAP (0.01) (0.01)
Property, plant and equipment
Under Canadian GAAP 22,865 19,477
Mineral properties and exploration expenditures (a) (19,446) (15,976)
Under U.S. GAAP 3,419 3,501
Investments
Under Canadian GAAP 634 311
Unrealized holding gains (c) 1,071 2,255
Under U.S. GAAP 1,705 2,566
Shareholders' Equity
Capital stock
Under Canadian and U.S. GAAP 92,848 88,653
Convertible debt - -
92,848 88,653
Warrants
Under Canadian and U.S. GAAP 682 695
Contributed surplus
Under Canadian and U.S. GAAP 2,219 2,206
Deficit
Under Canadian GAAP (70,675) (69,423)
Accretion on convertible loan (b) - -
Foreign exchange (b) - -
Mineral properties and exploration expenditures (a) (19,446) (15,976)
Under U.S. GAAP (90,121) (85,399)
Unrealized holding gain
Under Canadian GAAP - -
Available-for-sale securities (c) 1,071 2,255
Under U.S. GAAP 1,071 2,255
Total shareholders' equity under U.S. GAAP 6,699 8,410
a) Mineral property expenditures
Mineral property expenditures are accounted for in accordance with Canadian GAAP
as disclosed in note 2. For U.S. GAAP purposes, the Company expenses
expenditures relating to unproven mineral properties as they are incurred. When
proven and probable reserves are indicated by a bankable feasibility study for a
property, subsequent exploration and development costs of the property are
capitalized.
Under Canadian GAAP, exploration expenditures capitalized are shown as investing
activities in the statement of cash flows. Under U.S. GAAP, exploration amounts
expensed are classified as operating activities in the statement of cash flows.
b) Convertible loan
The Convertible loan has been accounted under Canadian GAAP which requires a
portion of the convertible loan to be classified as equity. The difference
between the carrying amount of the convertible loan and its face value is
accreted over the life of the loan with a charge to the statement of loss and
deficit. Under U.S. GAAP the convertible loan would be classified as a
liability at its face value.
c) Unrealized holding gains (losses)
Under U.S. GAAP, securities are classified as trading securities or available-
for-sale securities depending upon the Company's intentions. Unrealized holding
gains and losses for trading securities are included in earnings. Unrealized
holding gains and losses for available-for-sale securities are excluded from
earnings and reported as a net amount in a separate component of shareholders'
equity until realized or an other than temporary impairment in value occurs.
The Company has available-for-sale securities and the adjustment necessary in
the six months ended June 30, 2007 was a reduction of $320,000 (six months ended
June 30, 2006 - increase of $1,015,000) to the unrealized holding gain category
within shareholders' equity.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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