RNS Number:1116R
Brazilian Diamonds Limited
31 March 2008
BRAZILIAN DIAMONDS LIMITED
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Management's Discussion and Analysis
General
The following discussion of performance and financial condition should be read
in conjunction with the audited financial statements of the Company for the year
ended December 31, 2007. The Company's financial statements are prepared in
accordance with Canadian GAAP. The Company's reporting currency is Canadian
dollars. The date of this Management's Discussion and Analysis is March 31,
2008.
Description of Business
Brazilian Diamonds Limited (the "Company") is a development stage resource
company engaged in the acquisition, exploration and development of kimberlite
and alluvial diamond properties in 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 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.
Outlook
For the year ended December 31, 2007, 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 # 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 evaluating the micro diamond results from the Stage II drilling
program at the large Regis kimberlite 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 in discussions with its joint venture partners
to assess 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 during 2008.
The Company commenced drilling and pit testing of its 6 hectare, Salvador 1
kimberlite early in the fourth quarter of 2007. Excavation of the first pit was
completed in the fourth quarter and excavation of the second and third pits were
started. Results from the first of the bulk sample pits identified at least six
different kimberlitic rock types or "phases". Each of these phases potentially
may carry a different diamond grade and quality of diamonds. The identification
of multiple phases emphasized the importance of testing the entirety of all six
pits to determine a representative diamond concentration for the body.
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.
Resource Properties
Diamond properties
During the year ended December 31, 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. In accordance with the terms of the
agreement CODEMIG has spent $1,000,000 over the last two years completing 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. The Company is also pursuing other
potential joint venture partners for the project.
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. Canabrava is entitled to a 2%
royalty on any gross revenue generated by the production and sale of diamonds
from future mine 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) Salvador 1
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 in cash);
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 (paid in cash);
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;
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) Data Sets
On May 25, 2005, the Company, through its wholly owned subsidiary, Game Creek,
entered into an agreement with De Beers to purchase a data set for the Maravilha
Region of the State of Minas Gerais, Brazil. Pursuant to the agreement, the
Company paid a total of $299,750 for the purchase of the data set as follows:
i. Cash payment totalling $50,000 (paid);
ii. Issuance of a total of 450,000 common shares of the Company at a
fair value of $249,750 (issued).
Discussion of Operations
Current Year Activity
During the year-ended December 31, 2007, the Company's 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, the 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 began in the third quarter of 2007 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. Excavation of the first pit was completed in the fourth
quarter and excavation of the second and third pits were started. Results from
the first of the bulk sample pits identified at least six different kimberlitic
rock types or "phases". Each of these phases potentially may carry a different
diamond sample.
December 31 Acquisition Deferred Amortization December 31
2006 (Disposition) exploration 2007
Coromandel 8,620 - 1,125 - 9,745
Patos de Minas 2,737 - 446 - 3,183
Serra da Canastra 7,121 - 341 - 7,462
Salvador 1 466 - 1,612 - 2,078
Data Sets 2,383 - - (268) 2,115
Other projects 63 - 11 - 74
Total 21,390 - 3,535 (268) 24,657
December 31 Acquisition Deferred Amortization December 31
2005 (Disposition) exploration 2006
Coromandel 6,381 - 2,239 - 8,620
Patos de Minas 1,872 - 865 - 2,737
Serra da Canastra 6,871 - 250 - 7,121
Salvador 1 - 466 - - 466
Data Sets 2,618 - 52 (287) 2,383
Other projects 134 (84) 13 - 63
Total 17,876 382 3,419 (287) 21,390
Historical Information
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.
Results of Operations
Current Quarter
The loss for the three months ended December 31, 2007 was $174,000 as compared
to a loss of $323,000 for the same period last year before other income
(expenses). The decrease in expenses over the same period last year are due to
consultants expense decrease of $23,000, office costs decrease of $23,000,
salaries and benefits decrease of $32,000 and an increase in foreign exchange
gain of $69,000.
Cash and cash equivalent balances decreased by $619,000 to $456,000 at December
31, 2007. The cash spending for mineral properties was $934,000. The working
capital was $377,000 (2006 - $3,967,000).
Of the $0.96 million deferred exploration costs, $95,000 was spent on kimberlite
exploration in the Santo Antonio do Bonito River Basin, $46,000 was expended on
kimberlite projects in the Serra da Canastra Kimberlite Province, net recovery
of $121,000 on the Patos de Minas project, $999,000 was spent on Salvador 1, and
$4,000 was recovered on the data sets. The data sets are amortized over ten
years. For the three months ended December 31, 2007, $56,000 (2006 - $287,000)
was amortized and proportionally allocated to the related mineral properties.
The current period's exploration expenditures were $33,000 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 year ended December 31, 2007 was $1,370,000 as compared to a
loss of $2,113,000 for the same period last year before other income (expenses).
The decrease in expenses over the same period last year are due to stock-based
compensation decrease of $476,000, consulting fees decrease of $172,000 and
corporate administrative services decrease of $87,000 due to reorganization of
the Company during the current year. The only significant increase in expenses
was due to an increase in foreign exchange loss of $111,000 over the same period
last year due to a 5 % appreciation of the Brazilian Real average conversion
rate (2007- 0.5517, 2006- 0.5217).
Cash and cash equivalent balances decreased by $4,058,000 to $456,000 at
December 31, 2007. The cash spending for mineral properties was $2,988,000.
The working capital was $377,000 ((2006 - $3,967,000).
Of the $3.3 million deferred exploration costs, $1,125,000 was spent on
kimberlite exploration in the Santo Antonio do Bonito River Basin, $446,000 was
spent on the Patos de Minas project, $341,000 was expended on kimberlite
projects in the Serra da Canastra Kimberlite Province, $1,612,000 was spent on
Salvador 1, and $19,000 was spent on other projects. The data sets are
amortized over ten years. For the year ended December 31, 2007, $268,000 (2006
- $287,000) was amortized and proportionally allocated to the related mineral
properties. The current year's exploration expenditures are $331,000 less than
last year due to decreased drilling activity.
Summary of Quarterly Results
The table below present's selected financial data for the Company's eight most
recently completed quarters.
($000) Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 March 31
2007 2007 2007 2007 2006 2006 2006 2006
Financial results
Net loss(income) for 426 (278) 279 988 263 1,020 492
period (265)
Other comprehensive 192 317 345 384 - - - -
loss**
Basic and diluted loss 0.00 0.00 0.00 0.00 0.01 0.00 0.01 0.00
(income) per share
Expenditures on 1,213 573 591 898 1,009 974 803 820
resource properties
Balance sheet data
Cash and short term 456 1,075 2,147 3,037 4,514 1,529 2,696 4,020
deposits
Resource properties 24,657 23,693 22,865 22,274 21,390 20,451 19,477 18,590
Total assets 26,408 25,689 25,910 26,249 26,762 22,875 23,142 23,609
Shareholders' equity 25,968 25,069 25,074 24,796 25,075 21,869 22,131 22,370
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 Year ended
December 31 December 31 December 31
2007 2006 2005
Financial results
Net loss for period * 162 2,763 790
Other comprehensive loss** 1,503 - -
Basic and diluted loss per share 0.00 0.02 0.01
Expenditures on resource properties 2,988 3,130 2,472
Balance sheet data
Cash and cash equivalents 456 4,514 1,082
Mineral properties 24,657 21,390 17,770
Total assets 26,408 26,762 19,889
Shareholders' equity 25,968 25,075 18,600
* Net loss for December 31, 2006 includes $.6M stock-based compensation (2005 -
$Nil) and reorganization costs of $.25M (2005 - $Nil).
** The Company has reflected in its financial statements as at and for the year
ended December 31, 2007 the adjustments and disclosures required by the
following CICA Handbook Sections 3855 Financial Instruments - Recognition and
Measurement; Section 3861 Financial Instruments - Disclosure and Presentation;
Section 3865 - Hedges; Section 1530 Comprehensive Income and Section 3251
Equity. However, the Company did not accurately reflect the effect of these new
pronouncements in the 2007 quarterly financial statements. Management has
reflected the appropriate adjustments comprehensive loss in the Summary of
Quarterly Results above.
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 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).
These financial statements have been prepared using Canadian generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business as the come due. For the year ended December 31, 2007, the Company
reported a loss of $162,000 and an accumulated deficit of $70,836,000 at that
date. In addition to its ongoing working capital requirements, the Company must
secure sufficient funding for existing commitments as well as ongoing mineral
property exploration. These circumstances lend substantial doubt as to the
ability of the Company to meet its obligations as they come due and,
accordingly, the appropriateness of the use of accounting principles applicable
to a going concern.
In recognition of these circumstances, the Company has secured funding in the
amount of $2,492 ,000 net of share issue costs subsequent to year end. This
funding, while substantial, is not sufficient to enable the Company to fund all
aspects of its operations and, accordingly, management is pursuing other
financing alternatives to fund the Company's operations so it can continue as a
going concern. Management expects that the Company will be able to secure the
necessary financing through a combination of the exercise of existing warrants
for the purchase of common shares, the issue of new equity or debt instruments
and the entering into joint venture arrangements. Nevertheless, there is no
assurance that these initiatives will be successful.
The Company's ability to continue as a going concern is dependent upon its
ability to fund its ongoing operating costs and exploration and development of
mineral properties, attain profitable mining operations, or receive proceeds
from the disposition of its mineral property interests. These financial
statements do not reflect the adjustments to the carrying values of assets and
liabilities and the reported expenses and balance sheet classifications that
would be necessary were the going concern assumption inappropriate, and these
adjustments could be material.
Contractual Commitments
Except as outlined below, the Company has no other contractual commitments.
2008 2009 2010 2011 Total
Office leases $128 $- $- $- $128
Photocopier leases 12 12 12 1 37
Services agreement with HRG 204 - - - 204
$344 $12 $12 $1 $369
Capital Resources
For the year ended December 31, 2007, no new shares were issued.
The following forms of capital were raised during the year ended December 31,
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 year ended December 31, 2007, the Company entered into the following
transactions with related parties:
2007 2006
HRG Management Ltd. - Directors and Officers in common
Paid or accrued contractual service costs (note a) $ 231,000 $ 229,000
Received or accrued miscellaneous office recoveries (note b)
28,000 50,000
Received or accrued rent recoveries - 122,000
Deposits made (note c)
80,000 35,000
Hamilton Capital Partners Limited ("HCPL") - Director in common:
Paid or accrued consulting fees and office rent 190,000 364,000
Sale of Hidefield shares (note d) 607,000 -
Massif Limited - Director in common
Paid or accrued management fees 129,000 165,000
Lang Michener - Director in common
Paid or accrued legal fees 5,000 27,000
RWA Management Ltd - Former Officer in common
Paid or accrued corporate administrative services - 79,000
Hidefield Gold PLC - Directors in common
Accrued or recovered office and technical costs (note e) 25,000 126,000
Received or accrued rent recoveries from companies with directors and
officers in common - 8,000
a) Effective February 1, 2006, the Company entered into a services
agreement with HRG Management Ltd. ("HRG") in which the Company agreed to pay a
monthly corporate administration fee of approximately $17,000 that includes
office rent, administration, accounting, corporate secretarial, chief financial
officer, investor relations and other related services. HRG is a management
company jointly owned by the Company and certain other public companies, all of
which share office space and staff on a cost recovery basis. The Company share
directors and officers in common with HRG. The agreement expires December 31,
2008 and can be terminated by either party prior to expiration with 90 days
written notice.
b) At December 31, 2007, HRG owed the Company $17,000 (2006 - $Nil) in
office recoveries and have normal trade terms. At December 31, 2006, $4,000 was
due from companies with common directors of the Company in office recoveries and
have normal trade terms.
c) At December 31, 2007, included in accounts receivable, prepaids, rent
and deposits to HRG of $80,000 (2006 - $35,000).
d) The Company received proceeds of $607,000 on the exercise of 5 million
Hidefield options for 5 million Hidefield Gold plc shares at 6 pence from HCPL.
e) Accrued or recovered office and technical costs of $25,000 (2006 -
$126,000) from Hidefield Gold PLC ("HIF") have been capitalized to mineral
properties.
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 December 31, 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, 2007 to estimate the fair
value of its asset retirement obligations.
New accounting pronouncements
The Canadian Institute of Chartered Accountants has issued two new standards
which may affect the financial disclosures and results of operations of the
Company for interim and annual periods beginning January 1, 2008. The Company
will adopt the requirements commencing in the interim period ended March 31,
2008 and is considering the impact this will have on the Company's financial
statements.
(a) Section 1535 - Capital Disclosures. Section 1535 establishes standards
for disclosing information about an entity's capital and how it is managed.
Under this standard the Company will be required to disclose the following based
on the information provided internally to the entity's key management personnel:
1) qualitative information about its objectives, policies and processes for
managing capital;
2) summary quantitative data about what it manages as capital;
3) whether during the period it complied with such externally imposed
capital requirements to which it is subject; and
4) when the Company has not complied with such externally imposed capital
requirements, the consequences of such non-compliance.
(b) Section 3862 - Financial Instruments - Disclosures. Section 3862 requires
entities to provide disclosure of quantitative and qualitative information in
their financial statements that enable users to evaluate (a) the significance of
financial statements for the entity's financial position and performance; and
(b) the nature and extent of risks arising from financial instruments to which
the entity is exposed during the period and at the balance sheet date, and
management's objectives, policies and procedures for managing such risks.
Entities will be required to disclose the measurement basis or bases used, and
the criteria used to determine classification for different types of
instruments. Section 3862 requires specific disclosures to be made, including
the criteria for:
1) designating financial assets and liabilities as held for trading;
2) designating financial assets as available-for-sale; and
3) determining when impairment is recorded against the related financial
asset or when an allowance account is used.
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, 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, 2007, 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, 2007, 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 year ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Changes in Accounting Policies
Effective January 1, 2007, the Company has adopted CICA Handbook Sections 3855
Financial Instruments - Recognition and Measurement: Section 3861 Financial
Instruments - Disclosure and Presentation; Section 3865 Hedges; Section 1530
Comprehensive Income and Section 3251 Equity. As the Company has not previously
undertaken hedging activities, adoption of Section 3865 currently has no impact.
Subsequent Events
a) On January 25, 2008, 7,125,000 Hidefield options expired.
b) On March 12, 2008, the Company sold 2,000,000 Hidefield Gold plc shares
at price of 4.75 pence per share for a total of $185,000 to Hamilton Capital
Partners Limited, a company in which Kenneth P. Judge is a director.
c) On March 26, 2008, the Company issued 25,957,000 common shares at a
price of $0.10 per share for net proceeds of $2,492,000. The Company has
received $1,060,000 as at date of the financial statements.
Other information
Additional information is available on the Company's website at
www.braziliandiamonds.com or on SEDAR at www.sedar.com.
Caution Regarding Forward Looking Statements
Except for historical information contained in this discussion and analysis,
disclosure statements contained herein are forward-looking. Forward-looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from those in such forward-looking statements.
Forward-looking statements are made based on management's beliefs, estimates and
opinions on the date the statements are made and the Company undertakes no
obligation to update forward-looking statements if these beliefs, estimates and
opinions or other circumstances should change. Investors are cautioned against
attributing undue certainty to forward-looking statements.
Consolidated Balance Sheets 2007 2006
As at December 31 $ $
(expressed in thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents 456 4,514
Accounts receivable, prepaids and deposits 240 220
Due from related parties 17 4
713 4,738
Investments (note 3) 1,038 634
Mineral properties 24,657 21,390
26,408 26,762
Liabilities
Current liabilities
Accounts payable and accrued liabilities 336 771
Hidefield options 19 837
Asset retirement obligations 85 79
440 1,687
Shareholders' Equity
Capital stock 92,848 92,848
Warrants 519 682
Contributed surplus 2,817 2,219
Deficit (70,836) (70,674)
Accumulated other comprehensive income 620 -
25,968 25,075
26,408 26,762
Nature of operations (note 1)
Consolidated Statements of Loss and Deficit Year ended Year ended
December 31 December 31
(expressed in thousands of Canadian dollars)
2007 2006
$ $
Expenses
Corporate administrative services 70 157
Consultants 217 389
Foreign exchange loss (gain) 100 (11)
Insurance 64 57
Interest (73) (67)
Investor relations 175 174
Legal and audit 164 197
Office costs 145 172
Regulatory 143 155
Salaries and management fees 131 169
Stock-based compensation 161 637
Travel 73 84
(1,370) (2,113)
Other income (expenses)
Unrealized fair value of Hidefield options 473 (404)
Realized gain on Hidefield options 345 -
Gain on sale of investments 390 -
Reorganization costs - (246)
Loss for the year (162) (2,763)
Deficit - Beginning of period (70,674) (67,911)
Deficit - End of period (70,836) (70,674)
Loss per common share - basic and diluted 0.00 0.02
Weighted average common shares outstanding (000's) 168,414 143,692
Consolidated Statements of Comprehensive Loss Year ended Year ended
December 31 December 31
(figures in tables expressed in thousands of Canadian dollars)
2007 2006
$ $
Loss for the year (162) (2,763)
Other comprehensive loss
Unrealized loss on available-for-sale securities (1,503) -
Comprehensive loss for the year (1,665) (2,763)
Consolidated Statements of Cash Flows Year ended Year ended
December 31, December 31,
(figures in tables expressed in thousands of Canadian dollars)
2007 2006
$ $
Cash flows from operating activities
Loss for the year (162) (2,763)
Add (deduct) items not affecting cash
Gain on sale of investments (390) -
Stock-based compensation 161 637
Unrealized (gain) loss on Hidefield options (473) 404
Realized gain on Hidefield options (345) -
Changes in non-cash working capital related to operations
Accounts receivable, prepaids and deposits (20) 6
Loan receivable - 71
Related parties receivable (13) (4)
Accounts payable and accrued liabilities (435) (187)
(1,677) (1,836)
Cash flows from financing activities
Issue of shares for private placement - 8,789
Exercise of warrants - 60
Share issue costs - (451)
- 8,398
Cash flows from investing activities
Deferred mineral property costs (2,988) (3,130)
Proceeds from exercise of Hidefield options and shares 607 -
(2,381) (3,130)
Increase (Decrease) in cash and cash equivalents (4,058) 3,432
Cash and cash equivalents - Beginning of period 4,514 1,082
Cash and cash equivalents - End of period 456 4,514
1. NATURE OF OPERATIONS AND GOING CONCERN
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 current
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, through joint venture or other arrangements. 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.
These financial statements have been prepared using Canadian generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business as the come due. For the year ended December 31, 2007, the Company
reported a loss of $162,000 and an accumulated deficit of $70,836,000 at that
date. In addition to its ongoing working capital requirements, the Company must
secure sufficient funding for existing commitments as well as ongoing mineral
property exploration. These circumstances lend substantial doubt as to the
ability of the Company to meet its obligations as they come due and,
accordingly, the appropriateness of the use of accounting principles applicable
to a going concern.
In recognition of these circumstances, the Company has secured funding in the
amount of $2,492 ,000 net of share issue costs subsequent to year end. This
funding, while substantial, is not sufficient to enable the Company to fund all
aspects of its operations and, accordingly, management is pursuing other
financing alternatives to fund the Company's operations so it can continue as a
going concern. Management expects that the Company will be able to secure the
necessary financing through a combination of the exercise of existing warrants
for the purchase of common shares, the issue of new equity or debt instruments
and the entering into joint venture arrangements. Nevertheless, there is no
assurance that these initiatives will be successful.
The Company's ability to continue as a going concern is dependent upon its
ability to fund its ongoing operating costs and exploration and development of
mineral properties, attain profitable mining operations, or receive proceeds
from the disposition of its mineral property interests. These financial
statements do not reflect the adjustments to the carrying values of assets and
liabilities and the reported expenses and balance sheet classifications that
would be necessary were the going concern assumption inappropriate, and these
adjustments could be material.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries: BSG Investments Inc. (BSGII) and its
subsidiaries, Canastra Investments Holdings Inc., Mineracao do Sul Ltda., and
Parima Mineracao Ltda.; Game Creek Company Ltd. and its subsidiaries,
principally Samsul Mineracao Ltda. (Samsul) and Cobre Sul Mineracao Ltda.
Inter-company balances and transactions are eliminated on consolidation.
Use of estimates
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenditures during the
reporting period. Significant estimates include assessment of potential
impairments of the carrying value of mineral properties, the determination of
asset retirement obligations, the fair value of the Hidefield options and the
determination of stock-based compensation. Actual results could differ from
those reported.
Cash and cash equivalents
Cash and cash equivalents comprise cash and short term investments with
maturities of nine months or less from date of acquisition. Cash and cash
equivalents include cash balances held with major Canadian and Brazilian banks
and short-term deposits with these banks. All cash equivalents are highly
liquid, with low credit risk.
Investments
The Company's investments in equity instruments are designated as
available-for-sale measured at fair value pursuant to Section 3855 of the CICA
Handbook. Prior to January 1, 2007, investments were carried at cost less
provisions, where applicable, for impairments in value that were other than
temporary.
Mineral properties
The Company records its interests in mineral properties and areas of geological
interest at cost. All direct and indirect costs relating to the acquisition of
these interests are capitalized on the basis of specific claim blocks or areas
of geological interest until the properties to which they relate are placed into
production, sold or management has determined there to be impairment in value.
These costs will be amortized on the basis of units produced in relation to the
proven and probable reserves available on the related property following
commencement of production. Mineral properties which are sold before reaching
the production stage will have all revenues from the sale of the property
credited against the cost of the property. Properties which have reached the
production stage will have a gain or loss calculated based on the portion of
that property sold.
The amounts shown for mineral properties represent costs, net of write-downs,
and do not necessarily reflect present or future values. Recoverability of
these amounts will depend upon the existence of economically recoverable
reserves, the ability of the Company to obtain financing necessary to complete
development, and future profitable production. The Company reviews the carrying
value of mineral properties and deferred exploration costs when there are any
events or change in 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 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 assesses if carrying value can be recovered and
provides for impairment if so indicated.
Intangible assets
Intangible assets which consist of data sets related to the Company's Brazilian
exploration activities (note 4(e)), are recorded at cost and are amortized on a
straight line basis over their estimated useful lives, to a maturity of 10
years. The amortization of intangible assets is proportionally allocated to the
related mineral properties. Management assess the recoverability of intangible
assets annually and at such times as events or circumstances indicate that the
carrying amounts may not be recoverable. In the event that an impairment is
identified, the carrying value of the intangible asset is written down to its
estimated fair value.
Asset retirement obligations
The fair value of a liability for an asset retirement obligation, such as site
closure and reclamation costs, is recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The Company is
required to record the estimated present value of future cash flows associated
with site closure and reclamation as a liability and increase the carrying value
of the related assets for that amount. Subsequently, these asset retirement
costs are amortized to expense over the life of the related assets. At the end
of each period, the liability is revised to reflect the passage of time and
changes in the estimated future cash flows underlying any initial fair value
measurements.
Financial instruments
Effective January 1, 2007, the Company has adopted CICA Handbook Sections 3855
Financial Instruments - Recognition and Measurement: Section 3861 Financial
Instruments - Disclosure and Presentation; Section 3865 Hedges; Section 1530
Comprehensive Income and Section 3251 Equity. As the Company has not previously
undertaken hedging activities, adoption of Section 3865 currently has no impact.
CICA section 3855 requires that all financial assets, except those classified as
held to maturity, and loans and receivables, must be measured at fair value.
All financial liabilities must be measured at fair value when they are
classified as held-for trading, otherwise, they are measured at amortized cost.
Investments classified as available-for-sale are reported at fair market value
(or marked to market) based on quoted market prices with unrealized gains or
losses excluded from earnings and reported as other comprehensive income or
loss. Those instruments classified as held-for trading, have gains or losses
included earnings in the period in which they arise. All of the Company's
investments have been designated as available-for-sale.
Comprehensive income is the change in our net assets that results from
transactions, events and circumstances from sources other than our shareholders
and includes items that would not normally be included in net earnings such as
unrealized gains or losses on available-for-sale investments. Other
comprehensive income includes the gains and losses from available-for-sale
securities which are not included in net income (loss) until realized.
The adoption of Sections 1530 and 3855 impacts the opening equity. The
unrealized gain on the available-for-sale securities from purchase to January 1,
2007 was $2,123,000 which is reported as a transition adjustment to the opening
balance of accumulated other comprehensive income. The net unrealized loss on
the available-for-sale securities for the year ended December 31, 2007 was
$1,503,000. There would be no tax impact resulting from adjustments arising
from comprehensive income.
The fair value of the Company's cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their carrying values due
to the short-term nature of those instruments. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from financial instruments.
Foreign currency translation
The Company's subsidiaries are integrated foreign operations and are translated
into Canadian dollars using the temporal method. Monetary items are translated
at the exchange rate in effect at the balance sheet date; non-monetary items are
translated at historical exchange rates. Income and expense items are translated
at the average exchange rate for the period. Exchange gains and losses arising
on currency translation are credited or charged to earnings.
Stock-based compensation
The Company uses the fair value method of accounting for all stock-based
compensation, including options granted under the Company's incentive stock
option plan. Compensation expense for options granted is determined based on
the estimated fair values of the stock options at the time of grant, the cost of
which is recognized over the vesting periods of the respective options. Stock-
based compensation expense is recorded as a charge to operations or capitalized
to mineral properties with a corresponding credit to contributed surplus.
Consideration paid for shares on the exercise of options is credited to share
capital.
Loss per share
Loss per share is calculated based on the weighted average number of shares
issued and outstanding during the year. Basic and diluted losses per share are
the same for the periods reported, as the effect of potential issuances of
shares under warrant or share option agreements would be anti-dilutive.
Income taxes
Future income taxes are recorded using the asset and liability method whereby
future income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply when the asset is realized or
the liability settled. The effect on future tax assets and liabilities of a
change in tax rates is recognized in income in the period that substantive
enactment or enactment occurs. To the extent that the Company does not consider
it to be more likely than not that a future tax asset will be recovered, it
provides a valuation allowance against the excess.
New accounting pronouncements
The Canadian Institute of Chartered Accountants has issued two new standards
which may affect the financial disclosures and results of operations of the
Company for interim and annual periods beginning January 1, 2008. The Company
will adopt the requirements commencing in the interim period ended March 31,
2008 and is considering the impact this will have on the Company's financial
statements.
(b) Section 1535 - Capital Disclosures. Section 1535 establishes standards
for disclosing information about an entity's capital and how it is managed.
Under this standard the Company will be required to disclose the following based
on the information provided internally to the entity's key management personnel:
1) qualitative information about its objectives, policies and processes for
managing capital;
2) summary quantitative data about what it manages as capital;
3) whether during the period it complied with such externally imposed
capital requirements to which it is subject; and
4) when the Company has not complied with such externally imposed capital
requirements, the consequences of such non-compliance.
(b) Section 3862 - Financial Instruments - Disclosures. Section 3862 requires
entities to provide disclosure of quantitative and qualitative information in
their financial statements that enable users to evaluate (a) the significance
of financial statements for the entity's financial position and performance; and
(b) the nature and extent of risks arising from financial instruments to which
the entity is exposed during the period and at the balance sheet date, and
management's objectives, policies and procedures for managing such risks.
Entities will be required to disclose the measurement basis or bases used, and
the criteria used to determine classification for different types of
instruments. Section 3862 requires specific disclosures to be made, including
the criteria for:
1) designating financial assets and liabilities as held for trading;
2) designating financial assets as available-for-sale; and
3) determining when impairment is recorded against the related financial
asset or when an allowance account is used.
3. INVESTMENTS
December 31, 2007
Number of Shares Amount Fair % Holding
value
Hidefield Gold plc (a) 9,625,000 $416 $1,038 3.50%
December 31, 2006
Number of Shares Carrying Fair % Holding
value value
Hidefield Gold plc (a) 14,625,000 $634 $2,757 5.98%
a) On January 1, 2007, the Company recognized an adjustment of $2,123,000
to the opening balance of accumulated other comprehensive income pursuant to the
adoption of the CICA Handbook Section 3855 Financial Instruments - Recognition
and Measurement, representing the unrealized gain on available-for-sale
marketable securities held at January 1, 2007. During the year ended December
31, 2007, the Company recognized an unrealized loss of $1,530,000 (2006 - $Nil)
on marketable securities designated as available-for-sale in other comprehensive
income.
b) i) During the year ended December 31, 2005, the Company sold 12,125,000
Hidefield units. Each Hidefield unit was sold for 4.5 pence and was comprised of
one ordinary common share of Hidefield and an option granted to acquire one
additional ordinary share of Hidefield from the Company's remaining shareholding
at 6 pence per share for a term expiring January 25, 2008 ("the Hidefield
options").
ii) During the year ended December 31, 2007, 5,000,000 of the Hidefield
options were exercised by a related party at 6 pence per share for proceeds of
$607,000. The Company recorded realized fair value of the Hidefield options
exercised of $345,000 and a gain of $390,000 on the sale of 5,000,000 Hidefield
shares.
iii) At December 31, 2007, there were 7,125,000 Hidefield options
outstanding. The fair value of the Hidefield options at December 31, 2007,
calculated using the Black-Scholes option pricing model was $19,000 (2006 -
$837,000) resulting in an unrealized gain arising on the change in the fair
value of $473,000 (2006 - $404,000 loss).
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
2007 2006
Expected dividend yield 0% 0%
Expected share price volatility 53% 51%
Risk-free interest rate 5.84% 5.28%
Expected life of options 0.07 year 1 year
Brazilian Diamonds Limited
Ken Judge, Chairman + 44 7733 001 002
Stephen Fabian, CEO + 55 31 9186 4660
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
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URUARWUROOUR
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