TIDMDCP
RNS Number : 4697E
Diamondcorp Plc
31 May 2012
DiamondCorp plc JSE share code: DMC AIM share code: DCP ISIN:
GB00B183ZC46 (Incorporated in England and Wales) (Registration
number 05400982) (SA company registration number 2007/031444/10)
('DiamondCorp' or 'the Company')
Final Results for the year ended 31 December 2011
DiamondCorp plc, the African diamond mining and exploration
company, releases its audited results for the year ended 31
December 2011. The Company's Annual Report and Accounts and Notice
of Annual General Meeting will be posted to shareholders on 1 June
2012 and will be available on the Company's website
(www.diamondcorp.plc.uk) shortly.
Contacts:
AIM Nomad: Fairfax I.S. PLC
AIM Brokers: Fairfax I.S. PLC, Ocean Equities Ltd JSE Sponsor:
PSG Capital (Pty) Limited DiamondCorp plc - Paul Loudon +27 56 212
2308/ Euan Worthington +44 775 3862 097 Fairfax I.S. PLC - Ewan
Leggat/Laura Littley +44 207 598 5368 Ocean Equities Ltd - Guy
Wilkes +44 207 786 4370 PSG Capital (Pty) Ltd - John-Paul Dicks +27
21 887 9602 Russell & Associates - Charmane Russell +27 11 880
3924
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE
Dear Shareholder,
When we wrote to you a year ago, our mining team at Lace had
just completed driving a ramp down to the 26 level (-260m from
surface) and intersected the main kimberlite pipe. We had hoped to
extract a 30,000 tonne bulk sample from six (3metre x 3metre)
parallel development drives across the full area of the 2.5 hectare
main pipe by the end of July 2011. However, on entering the pipe at
this level, we discovered three different kimberlite types, two of
which had not been intersected in drilling from the surface.
Sampling conditions proved difficult in these less competent facies
and in the event we decided, by the end of September 2011, that we
had extracted enough ore to give us a representative sample and for
reasons of safety we stopped mining on that level. A total of
15,414 tonnes of ore were extracted from three different kimberlite
facies and 2,157.41 carats of diamonds were recovered. Importantly,
the brown volcanoclastic kimberlite, which is the dominant VK
facies below the 33 level (-330m), returned a bulk sample grade of
26 carats per hundred tonnes (cpht).
These results gave our technical advisors enough confidence to
recommend that we proceed to a full engineering study and the Board
agreed to commission SRK Consulting (South Africa) (Pty) Ltd
("SRK") to produce an independent engineering report. The SRK
report, which was finalised in March this year, validated the
project and recommended that we initiate mining with a block cave
on the 47 level (-470m). Ore will be crushed underground and
carried to surface on a conveyor system for treatment through the
existing 1.2mtpa plant.
Near Jwaneng in Botswana, during Q4 2011, we carried out wide
diameter mini bulk sample drilling of the two kimberlites which we
had previously discovered were diamondiferous. We had high hopes
for these targets after the initial core drilling, kimberlite type,
diamond counts and proximity to Jwaneng, the richest diamond mine
in the world. However, as is often the case in diamond exploration,
the results from the mini bulk tests indicated that neither J-01
nor J-05 were likely to be economic diamond mines at this time.
Consequently, we have decided not to proceed further with this
project.
The Diamond Market
After the very strong rally from the lows of early 2009 when the
WWW International Diamond Consultants Ltd overall index of rough
diamond prices rose more than threefold, the market was due a
setback and in the middle of last year, we saw a correction (c25%)
before some recovery towards the end of the year which has
continued so far in 2012.
In February 2011, we sold a package of 1,321 carats recovered
from the Lace tailings for an average of US$94/ct which compared to
the highest price before the 2008 crash of $55/ct in September that
year and the lowest of $33/ct from a small scale in May 2009.
The diamonds recovered from the bulk sample were valued by
experts at the South African Diamond Exchange last
September/October with an average price of $160/ct after what was
estimated to have been a 25% drop in previous weeks. This value was
one third higher than the Company's original base case price of
$120/ct. We have not sold this parcel of 2,157.4 carats of diamonds
which have more recently been valued at $172/ct by the South
African Diamond Exchange.
We remain confident about the future of the diamond market with
strong demand from China, India and other parts of Asia expected to
add to a growing recovery in US consumer demand. As we and many
other observers have noted before, the only significant new source
of diamonds worldwide are the Marange diamond fields in Zimbabwe.
These stones are having some impact on the smaller and lower
quality end of the diamond market but are not expected to fill the
emerging gap between supply and demand, particularly for stones
over 1ct.
The Lace Mine
The Lace mine, 200km southwest of Johannesburg, is owned and
operated by our 74% owned subsidiary Lace Diamond Mines (Pty)
Limited. The mine has a granted mining right, grid power and is
fully compliant with South Africa's black economic empowerment
("BEE") regulations. Well known and established BEE groups Shanduka
Resources and Sphere Holdings each own 13% of Lace Diamond Mines
(Pty) Ltd.
Early in 2011, the 1.2mtpa Lace processing plant, which had been
on care and maintenance since 2009, was recommissioned in readiness
for the underground bulk test which was completed in October. The
plant operated to design specification throughout the bulk test,
and is now being used for the retreatment of tailings. The diamonds
recovered from tailings retreatment will be tendered on a regular
basis during development of the underground mine and will
contribute a valuable credit to the development cost.
During the year we also commenced crushing of our waste rock at
the mine for sale through a contractual arrangement with African
Mobile Crushers. Revenue from this activity will also provide a
small credit to the underground development cost.
Bulk Sampling Results
Kimberlite Tonnes sampled Carats recovered Recovered Estimated Estimated
type grade in area of the area of
carats per pipe at the the pipe
hundred tonnes 25 level at the
(cpht) from sampling 34 level
from drilling
Not encountered
Contact VK 6,425 583.81 9.09 15% in drilling
Not encountered
Grey VK 6,319 882.85 13.60 45% in drilling
Predominates
across
Brown VK 2,670 690.75 25.87 40% the pipe
TOTAL 15,414 2,157.41 100%
Bulk sampling of kimberlite types was undertaken in
June-September 2011 between the 25 and 26 levels.
The planned underground development involves the establishment
of a continuous trough block cave on the 47 level. The first block
cave will allow the extraction of approximately 9mt of kimberlite
over an 8-9 year period, followed by subsequent block caves on the
67 level (-670m) and the 85 (-850m) level over a 25 year mine life.
Block caving is used in most South African underground kimberlite
mines and allows very low operating costs compared with other
mining methods.
The cost of this development is estimated at R384 million
(approximately $50 million). The mine will take an estimated 43
months to reach full production but should start to produce
diamonds after month 18 as much of the development work from that
date takes place within diamond bearing kimberlite. While
establishing the mine, approximately 600,000 tonnes of kimberlite
will be mined and the diamonds recovered sold. The revenue
generated from these sales will provide an important credit towards
the overall development cost and limits the peak forecast funding
requirement to approximately R285m ($37m), 25 months after
development commences.
Our company benefits from the experience of our group mining
consultant Bob Harverson, who spent a large part of his career with
De Beers and was involved with the design and implementation of
similar block caves at Premier (now Cullinan) and Finsch mines.
Safety is a prime concern to our Company and we are pleased to
report that during the year under review, the Lace mine operated
without any lost time injuries or fatalities.
Following the completion of the bulk test, our underground
mining fleet was in need of a major overhaul prior to the
commencement of mine development. We constructed a heavy equipment
workshop during 2011 and a programme of 5,000 hour machine rebuilds
was initiated.
Once our project finance is available for drawdown, activities
at the mine will rapidly pick up speed in order to meet the
development schedule we have set ourselves. Our workforce will
increase from the current 62 employees to more than 200 during
underground development and the majority of these jobs created will
exist for the life of the mine.
In terms of our commitment to corporate and social
responsibility, we concentrated our efforts on the Doornspruit
school near the mine during the year, refurbishing classrooms,
building washrooms and providing necessary text books. In the year
ahead, it is our intention to fund the establishment of a brick
making business which will utilise the crushed mine waste rock from
Lace to build bricks for the local market. Since the year end, we
are pleased to have appointed Andre Labuschagne as the new mine
manager at Lace. Andre has considerable experience mining
kimberlites from underground and was previously mine manager for
Petra Diamonds at the Sedibeng mine. Andre will work with Bob
Harverson and chief operating officer Steve West in implementing
the 47 level block cave development, the success of which will be a
cornerstone achievement in the building of our company.
Lace Mine Resource Statement
Depth (m) Tonnage (Mt) Grade (cpht) Carats (Mct)
Type & Category
Main Satellite Total Main Satellite Main Satellite Total
Pipe Pipe Pipe Pipe Pipe Pipe
------- ---------- ------- ------ ---------- ------ ---------- -------
73-345 VK
Indicated 5.879 1.375 7.254 24.4 7.1 1.435 0.098 1.533
345-855 VK
Inferred 11.163 - 11.163 24.4 - 2.723 - 2.723
345-855 CK
Inferred 16.079 - 16.079 56.8 - 9.133 - 9.133
345-600 VK
Inferred - 0.025 0.025 - Unknown - Unknown -
345-600 CK
Inferred - 1.066 1.066 - Unknown - Unknown -
Total 33.121 2.466 35.587 40.12 13.389
Resource statement prepared March 2012 by VP3 Geoservices (Pty)
Limited in accordance with the SAMREC Reporting Code.
Corporate and Financing
In January 2011, we appointed resource specialist Ocean Equities
Ltd, as joint brokers and in March last year selected Fairfax I.S.
PLC as our new Nominated Adviser and joint broker. Together, in
June 2011, they raised GBP3.48 million gross for us at 13p per
share to fund our exploration programme in Botswana and general
working capital.
As noted in our statement last year, we were seeking "to raise a
further GBP10 - 12 million in the near future". Therefore with the
good bulk sample results in hand, we went out marketing to existing
and new institutions in October 2011. We had some very positive
feedback but ultimately, the Greek debt crisis and setback in
diamond prices exerted too much negative force. We had enough
headroom to issue 31.6 million shares at 6.5p which allowed us to
pay off debt and accrued interest due to the Africa Opportunity
Fund LP and give us GBP0.6 million of working capital.
In hindsight, the inability to raise this equity finance for the
underground development at Lace has been in the best interests of
shareholders, since it gave us time to carry out further studies on
the optimum mine planning, and as you have recently seen, move
towards securing a debt finance package from the Industrial
Development Corporation of South Africa Limited (IDC) which will
not dilute shareholders' value.
Another piece of good news came at the end of last year when our
South African operating subsidiary Lace Diamond Mines (Pty) Limited
reached an agreement with Mutual and Federal Insurance Limited on a
claim for damage to timbers and pumps in the vertical shaft at the
Lace mine incurred during heavy rains earlier in the year; after
deductibles, we received R25 million (GBP2.2 million).
Last month, the IDC presented us with a Term Sheet offering Lace
Diamond Mines (Pty) Limited a loan of R280 million (GBP21.3
million) subject to the completion of due diligence for underground
development and purchase of mining equipment. Your Board has
reviewed and accepted this Term Sheet which will cover 98% of the
estimated capital cost for development of the first block cave on
the 47 level at Lace. We anticipate that the loan financing
agreement will be finalised by the end of July 2012.
The Future
We have been rebuilding our underground mining fleet ready to
start underground mining as soon as possible. We then estimate that
it will take 18 months to mine down to the 47 level where we will
establish a development level of troughs, slots and haulage ways
for the first block cave. The mining at that level will be in
kimberlite, so we expect our first revenues before the end of Q1
2014 with full production in Q2 2015.
Planned Lace Mine Production (carats)
Please see the link at the end of this announcement for a graph
of the planned Lace Mine Production.
There will be much work to be done at Lace in that period, but
with that mine's future now expected to be secure, we will be
turning more seriously to the search for opportunities to build
your company into a mid-tier diamond miner.
In Conclusion
A year ago, we could not have anticipated the good and bad luck
which would come our way, and although it would have been very
exciting to have discovered a new mine in Botswana, we have proved
up the viability of Lace and secured a strong partner in the IDC.
We must thank all our employees and managers for their hard work
and enthusiasm which has helped us reach this position with an
exciting future for the Company.
Euan Worthington Executive Chairman
Paul Loudon Chief Executive
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2011
2011 2010
Note GBP GBP
---- ----------- -----------
Depreciation and amortisation (918,291) (1,115,553)
Other administrative expenses (2,042,690) (1,834,968)
Total administrative expenses (2,960,981) (2,950,521)
Gain on insurance settlement 2,195,816 -
Other income 11,048 -
Impairment of intangible asset (2,373,616) -
Write off of Botswana project (1,013,032) -
OPERATING LOSS 3 (4,140,765) (2,950,521)
Investment revenues 24,685 77,057
Finance costs (123,066) (441,863)
LOSS BEFORE TAX (4,239,146) (3,315,327)
Tax 6 - -
LOSS FOR THE FINANCIAL YEAR 18 (4,239,146) (3,315,327)
ATTRIBUTABLE TO:
Equity holders of the parent (3,823,586) (2,970,452)
Non controlling interest 19 (415,560) (344,875)
(4,239,146) (3,315,327)
BASIC AND DILUTED LOSS PER
SHARE 7 (1.87p) (2.27p)
HEADLINE LOSS PER SHARE* 7 (2.43p) (2.30p)
All of the activities of the Group are classed as
continuing.
* The Group presents an alternative measure of loss per share
after excluding all capital gains and losses from the loss
attributable to ordinary shareholders (see note 7).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
Year ended 31 December 2011
2011 2010
GBP GBP
----------- -----------
Net loss (4,239,146) (3,315,327)
Foreign exchange on translation of overseas
operations (2,443,288) 1,418,679
Total comprehensive expense (6,682,434) (1,896,648)
ATTRIBUTABLE TO:
Equity holders of the parent (6,405,668) (1,485,211)
Non controlling interest (276,766) (411,437)
(6,682,434) (1,896,648)
COMPANY INCOME STATEMENT
Year ended 31 December 2011
2011 2010
Note GBP GBP
---- ----------- -----------
Administrative expenses (943,158) (948,103)
Write off of loan to Botswana Diamondcorp
Limited (1,021,402) -
OPERATING LOSS 3 (1,964,560) (948,103)
Investment revenues 5,494 70,208
Finance costs (123,066) (441,863)
LOSS FOR THE FINANCIAL YEAR 18 (2,082,132) (1,319,758)
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE
PARENT (2,082,132) (1,319,758)
All of the activities of the Company are classed as
continuing.
There were no other gains or losses during the year.
CONSOLIDATED BALANCE SHEET
31 December 2011
2011 2010
Note GBP GBP
---- ------------ ------------
NON-CURRENT ASSETS
Goodwill 8 4,606,026 4,606,026
Other intangible assets 8 4,641,801 4,947,778
Property, plant and equipment 9 4,609,284 6,260,302
13,857,111 15,814,106
CURRENT ASSETS
Inventories 11 442,433 355,349
Other receivables 12 182,350 398,266
Cash and cash equivalents 2,632,760 4,293,185
3,257,543 5,046,800
TOTAL ASSETS 17,114,654 20,860,906
CURRENT LIABILITIES
Obligations under finance leases - (25,718)
Other payables 13 (498,876) (627,028)
Borrowings 14 - (2,184,950)
Provisions (13,941) (16,740)
(512,817) (2,854,436)
NET ASSETS 16,601,837 18,006,470
EQUITY
Share capital 17 7,268,041 5,516,209
Share premium account 18 26,702,502 23,203,016
Warrant reserve 18 505,877 505,877
Share option reserve 18 429,066 402,583
Translation reserve 18 398,476 2,980,558
Retained losses 18 (18,013,922) (14,190,336)
Equity attributable to equity
holders of the parent 17,290,040 18,417,907
Non controlling interest 19 (688,203) (411,437)
TOTAL EQUITY 16,601,837 18,006,470
The financial statements of DiamondCorp plc, registered number
5400982, were approved by the Board of Directors and authorised for
issue on 30 May 2012.
Signed on behalf of the Board of Directors
E A Worthington
Director
COMPANY BALANCE SHEET
31 December 2011
2011 2010
Note GBP GBP
---- ----------- -----------
NON-CURRENT ASSETS
Investments in subsidiaries 10 4,217,501 4,217,501
Other intangible assets 8 317,075 336,892
4,534,576 4,554,393
CURRENT ASSETS
Other receivables 12 22,835,064 18,096,220
Cash and cash equivalents 257,042 4,014,781
23,092,106 22,111,001
TOTAL ASSETS 27,626,682 26,665,394
CURRENT LIABILITIES
Other payables 13 (118,580) (168,011)
Borrowings 14 - (2,184,950)
(118,580) (2,352,961)
NET ASSETS 27,508,102 24,312,433
EQUITY
Share capital 17 7,268,041 5,516,209
Share premium account 18 26,702,502 23,203,016
Warrant reserve 18 505,877 505,877
Share option reserve 18 429,066 402,583
Retained losses 18 (7,397,384) (5,315,252)
TOTAL EQUITY 27,508,102 24,312,433
The financial statements of DiamondCorp plc, registered number
5400982, were approved by the Board of Directors and authorised for
issue on 30 May 2012.
Signed on behalf of the Board of Directors
E A Worthington
Director
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2011
Share Share Non
Share premium Warrant option Translation Retained controlling
capital account reserve reserve reserve losses Sub-total interest Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
--------- ---------- -------- ------- ----------- ------------ ----------- ----------- -----------
GROUP
Balance
at 1 January
2010 1,416,960 17,872,580 555,036 371,675 1,495,317 (11,269,043) 10,442,525 - 10,442,525
Loss for
financial
year - - - - - (2,970,452) (2,970,452) (344,875) (3,315,327)
Other
comprehensive
income - - (49,159) - 1,485,241 49,159 1,485,241 (66,562) 1,418,679
Total
comprehensive
income - - (49,159) - 1,485,241 (2,921,293) (1,485,211) (411,437) (1,896,648)
Issue of
share capital 4,099,249 5,489,763 - - - - 9,589,012 - 9,589,012
Issue costs - (159,327) - - - - (159,327) - (159,327)
Value
attributed
for equity
settled
share based
payments - - - 30,908 - - 30,908 - 30,908
Balance
at 31
December
2010 5,516,209 23,203,016 505,877 402,583 2,980,558 (14,190,336) 18,417,907 (411,437) 18,006,470
Balance
at 1 January
2011 5,516,209 23,203,016 505,877 402,583 2,980,558 (14,190,336) 18,417,907 (411,437) 18,006,470
Loss for
financial
year - - - - - (3,823,586) (3,823,586) (415,560) (4,239,146)
Other
comprehensive
income - - - - (2,582,082) - (2,582,082) 138,794 (2,443,288)
Total
comprehensive
income - - - - (2,582,082) (3,823,586) (6,405,668) (276,766) (6,682,434)
Issue of
share capital 1,751,832 3,785,440 - - - - 5,537,272 - 5,537,272
Issue costs - (285,954) - - - - (285,954) - (285,954)
Value
attributed
for equity
settled
share based
payments - - 26,483 - - 26,483 - 26,483
Balance
at 31
December
2011 7,268,041 26,702,502 505,877 429,066 398,476 (18,013,922) 17,290,040 (688,203) 16,601,837
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2011
Share premium Share option
Share capital account Warrant reserve Retained
GBP GBP reserve GBP losses Total
GBP GBP GBP
-------------- ------------- -------- ------------ ----------- -----------
COMPANY
Balance at 1 January
2010 1,416,960 17,872,580 555,036 371,675 (4,044,653) 16,171,598
Loss for financial
year - - - - (1,319,758) (1,319,758)
Other comprehensive
income - - (49,159) - 49,159 -
Total comprehensive
income - - (49,159) - (1,270,599) (1,319,758)
Issue of share
capital 4,099,249 5,489,763 - - - 9,589,012
Issue costs - (159,327) - - - (159,327)
Value attributed
for equity settled
share based payments - - - 30,908 - 30,908
Balance at 31 December
2010 5,516,209 23,203,016 505,877 402,583 (5,315,252) 24,312,433
Balance at 1 January
2011 5,516,209 23,203,016 505,877 402,583 (5,315,252) 24,312,433
Loss for financial
year - - - - (2,082,132) (2,082,132)
Total comprehensive
income - - - - (2,082,132) (2,082,132)
Issue of share
capital 1,751,832 3,785,440 - - - 5,537,272
Issue costs - (285,954) - - - (285,954)
Value attributed
for equity settled
share based payments - - 26,483 - 26,483
Balance at 31 December
2011 7,268,041 26,702,502 505,877 429,066 (7,397,384) 27,508,102
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2011
2011 2010
GBP GBP
----------- -----------
Operating loss (4,140,765) (2,950,521)
Depreciation and amortisation 918,291 1,115,553
Share based payment charge 26,483 50,097
Gain on disposal of property plant and equipment (1,985) (44,415)
Impairment of intangible asset 2,373,616 -
Write off of Botswana project 1,013,032 -
Decrease (increase) in receivables 215,916 (207,563)
Increase in inventories (87,084) (52,329)
Decrease in payables (156,668) (107,478)
Effect of foreign exchange translation - 103,842
NET CASH FROM (USED IN) OPERATING ACTIVITIES 160,836 (2,092,814)
INVESTING ACTIVITIES
Purchase of intangible assets (3,996,606) (2,008,860)
Purchase of property, plant and equipment (376,794) (74,030)
Disposal of property, plant and equipment 74,265 79,807
Investment revenues 24,685 77,057
NET CASH USED IN INVESTING ACTIVITIES (4,274,450) (1,926,026)
FINANCING ACTIVITIES
Repayment of borrowings (2,308,016) (1,417,627)
Proceeds on issue of ordinary shares 5,251,318 9,429,685
NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,170,312) 3,993,218
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,293,185 288,188
Effect of foreign exchange rate changes (490,113) 11,779
CASH AND CASH EQUIVALENTS AT END OF YEAR 2,632,760 4,293,185
COMPANY CASH FLOW STATEMENT
Year ended 31 December 2011
2011 2010
GBP GBP
----------- -----------
Operating loss (1,964,560) (948,103)
Depreciation 19,817 19,817
Share option expense 26,483 50,097
Write off of loan to Botswana Diamondcorp Limited (1,021,402) -
Increase in receivables (3,717,442) (3,319,049)
Decrease in payables (49,431) (68,621)
NET CASH USED IN OPERATING ACTIVITIES (6,706,535) (4,265,859)
INVESTING ACTIVITIES
Investment revenues 5,494 70,208
NET CASH FROM INVESTING ACTIVITIES 5,494 70,208
FINANCING ACTIVITIES
Repayment of borrowings (2,308,016) (1,417,627)
Proceeds on issue of ordinary shares 5,251,318 9,429,685
NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,757,739) 3,816,407
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,014,781 161,598
Effect of foreign exchange rate changes - 36,776
CASH AND CASH EQUIVALENTS AT END OF YEAR 257,042 4,014,781
AUDIT OPINION
The auditors, Deloitte LLP, have audited the financial
statements for the year ended 31 December 2011. A copy of their
audit report, which is unqualified but contains an emphasis of
matter (which is reproduced below), will be sent to shareholders
with the report and accounts and will be made available for
inspection at the Company's registered office.
EMPHASIS OF MATTER - GOING CONCERN
In forming our opinion on the financial statements, which is not
qualified, we have considered the adequacy of the disclosure made
in note 1 to the financial statements concerning the company's
ability to continue as a going concern. The Group incurred a net
loss attributable to the equity holders of the parent of
GBP3,823,586 and the company incurred a net loss of GBP2,082,132
during the year ended 31 December 2011. The Directors have prepared
cash flow forecasts which indicate the business will require
additional funding in the next 12 months. As described in note 1,
the Directors have signed a term sheet with the Industrial
Development Corporation of South Africa Limited for a R280 million
(approximately GBP21.3 million) facility which the Directors expect
to finalise and draw down following completion of certain
conditions precedent. In addition, the Group and Company will need
to raise additional equity finance to supplement its cash resources
in 2012. The requirement to finalise the IDC facility and the need
to raise additional equity finance, along with other matters
explained in note 1 to the financial statements, indicate the
existence of a material uncertainty which may cast significant
doubt about the company's ability to continue as a going concern.
The financial statements do not include the adjustments that would
result if the company was unable to continue as a going
concern.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2011
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
General information
DiamondCorp plc is a Company incorporated in England and Wales
under the Companies Act 2006 and incorporated as an external
company in South Africa under the Companies Act No 61 of 1973. The
address of the registered office is given on page 1. The nature of
the Group's operations and its principal activities are set out in
the Directors' Report on page 9.
These financial statements are presented in pounds sterling
because that is the functional currency of the parent Company of
the Group. Foreign operations are included in accordance with the
policies set out in this note.
a) Adoption of new and revised International Financial Reporting
Standards
The following new and revised Standards and Interpretations have
been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these financial
statements, but with the exception of the amendment to IFRS 1, may
impact the accounting for future transactions and arrangements.
Amendment to IFRS 1 The amendment provides a limited
Limited Exemption from Comparative exemption for first-time adopters
IFRS 7 Disclosures for First-time from providing comparative fair-value
Adopters hierarchy disclosures under IFRS
7.
IAS 24 (2009) Related Party Disclosures The revised Standard has a new, clearer
definition of a related party, with
inconsistencies under the previous
definition having been removed.
Amendment to IAS 32 Under the amendment, rights issues
Classification of Rights Issues of instruments issued to acquire
a fixed number of an entity's own
non-derivative equity instruments
for a fixed amount in any currency
and which otherwise meet the definition
of equity are classified as equity.
Amendments to IFRIC 14 The amendments now enable recognition
Prepayments of a Minimum Funding of an asset in the form of prepaid
Requirements minimum funding contributions.
Improvements to IFRSs 2010 Aside from those items already identified
above, the amendments made to standards
under the 2010 improvements to IFRSs
have had no impact on the Group.
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not yet been adopted by the EU):
IFRS 1 (amended) Severe Hyperinflation and Removal of Fixed Dates
for First-time Adopters
IFRS 7 (amended) Disclosures - Transfers of Financial Assets
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in other Entities
IFRS 13 Fair Value Measurement
IAS 1 (amended) Presentation of Items of Other Comprehensive Income
IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets
IAS 19 (revised) Employee Benefits
IAS 27 (revised) Separate Financial Statements
IAS 28 (revised) Investments in Associates and Joint Ventures
IAS 32 (amended) Offsetting Financial Assets and Financial Liabilities
IFRIC 20 Stripping Costs in the Production Phase of a Surface
Mine
The adoption of IFRS 9 which the Group plans to adopt for the
year beginning on 1 January 2013 will impact both the measurement
and disclosures of Financial Instruments. The Directors do not
expect that the adoption of the other standards listed above will
have a material impact on the financial statements of the Group in
future periods.
b) Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRSs). The financial statements have also been prepared in
accordance with IFRSs adopted by the European Union and therefore
the Group financial statements comply with Article 4 of the EU IAS
Regulation.
c) Basis of preparation
The financial statements have been prepared on the historical
cost basis, except for certain financial instruments that are
measured at fair value, as explained in the accounting policies
below. Historical cost is generally based on fair value of the
consideration given in exchange for assets. The financial
statements have been prepared on a going concern basis. The
principal accounting policies adopted are set out below.
d) Going Concern
In determining the appropriate basis of presentation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future, this being a period of not less than 12 months
from the date of the approval of the financial statements. The
Group's business activities and goals are set out in the Letter
from the Chairman and Chief Executive.
During the next 12 months the Group will be in a
mine-development phase and forecasts indicate that the Group would
have insufficient financial resources to accomplish all its
development goals and meet all its financial obligations over the
next 12 months with its current level of funding. As a result, the
Group signed a detailed loan funding term sheet on 18 May 2012 with
the Industrial Development Corporation of South Africa Limited
("IDC"), pursuant to which the main terms of a proposed loan
funding were agreed in principle. It is intended that the loan
funding term sheet will form the basis of the final loan financing
agreement. Under the terms of the loan funding term sheet, IDC (the
"Lender") has agreed to provide a loan facility to Lace to the
value of R280 million (approximately GBP21.3 million) for the
purpose of underground development and purchase of mining equipment
at the Lace mine.
The loan will be secured over the assets of Lace and will be
guaranteed by the parent company. The term of the loan is expected
to be 7 years. It is anticipated that the loan will attract an
interest rate of 2% over the South African Prime Rate (which is
currently 9%), such interest to be capitalised for the first two
years from the draw down date and payable semi-annually in arrears
thereafter. There will also be a two year moratorium on loan
repayments.
The provision of the loan is subject to certain conditions
precedent, including the completion of satisfactory due diligence
by the Lender and unconditional approval by the Lender's executive
committee and/or board of Directors. Subject to satisfactory
completion of due diligence and satisfaction of the conditions
precedent, including approval for the upgrade of the electricity
supply to the mine by Eskom, the Directors anticipate that the loan
financing agreement will be finalised by the end of July 2012. The
loan financing agreement will include representations and
warranties from the Borrower that are usual for transactions of
this nature.
While it is anticipated that adequate funding for the
development at Lace will be available via IDC, the Company will
have to supplement cash resources by accessing equity markets in
2012.
The conditions to be satisfied in the loan financing to be
approved by the lender and the requirement to raise additional
equity funds indicate the existence of a material uncertainty which
may cast significant doubt about the company's ability to continue
as a going concern. After reviewing the IDC conditions in detail
and making an assessment of the Group's ability to raise further
equity funds, the Directors have a reasonable expectation that the
group can meet all conditions precedent for finalising the loan and
raise additional equity funds as required and therefore they
continue to adopt the going concern basis of presentation of the
financial statements.
e) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved where the Company has the
power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities.
Income and expenses of subsidiaries acquired or disposed of
during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition and up
to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by the Group.
All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.
Non-controlling interests in subsidiaries are identified
separately from the Group's equity therein. Total comprehensive
income of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group's ownership interests in existing
subsidiaries
Changes in the Group's ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to owners of the Company.
When the Group loses control of a subsidiary, the profit or loss
on disposal is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the
fair value of any retained interest and (ii) the previous carrying
amount of the assets (including goodwill), and liabilities of the
subsidiary and any non-controlling interests. When assets of the
subsidiary are carried at revalued amounts or fair values and the
related cumulative gain or loss has been recognised in other
comprehensive income and accumulated in equity, the amounts
previously recognised in other comprehensive income and accumulated
in equity are accounted for as if the Company had directly disposed
of the relevant assets (i.e. reclassified to profit or loss or
transferred directly to retained earnings as specified by
applicable IFRSs). The fair value of any investment retained in the
former subsidiary at the date when control is lost is regarded as
the fair value on initial recognition for subsequent accounting
under IAS 39 Financial Instruments: Recognition and Measurement or,
when applicable, the cost on initial recognition of an investment
in an associate or a jointly controlled entity.
f) Business combinations
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method. The consideration for each
acquisition is measured at the aggregate of the fair values (at the
date of exchange) of assets given, liabilities incurred or assumed,
and equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition-related costs are recognised in profit
or loss as incurred.
Where applicable, the consideration for the acquisition includes
any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition-date fair value.
Subsequent changes in such fair values are adjusted against the
cost of acquisition where they qualify as measurement period
adjustments (see below). All other subsequent changes in the fair
value of contingent consideration classified as an asset or
liability are accounted for in accordance with relevant IFRSs.
Changes in the fair value of contingent consideration classified as
equity are not recognised.
Where a business combination is achieved in stages, the Group's
previously-held interests in the acquired entity are remeasured to
fair value at the acquisition date (i.e. the date the Group attains
control) and the resulting gain or loss, if any, is recognised in
profit or loss. Amounts arising from interests in the acquiree
prior to the acquisition date that have previously been recognised
in other comprehensive income are reclassified to profit or loss,
where such treatment would be appropriate if that interest were
disposed of.
The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
(2008) are recognised at their fair value at the acquisition date,
except that:
- deferred tax assets or liabilities and liabilities or assets
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits respectively;
- liabilities or equity instruments related to the replacement
by the Group of an acquiree's share-based payment awards are
measured in accordance with IFRS 2 Share-based Payment; and
- assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that
Standard.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the
items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period (see below), or
additional assets or liabilities are recognised, to reflect new
information obtained about facts and circumstances that existed as
of the acquisition date that, if known, would have affected the
amounts recognised as of that date.
The measurement period is the period from the date of
acquisition to the date the Group obtains complete information
about facts and circumstances that existed as of the acquisition
date, and is subject to a maximum of one year.
Business combinations that took place prior to 1 January 2010
were accounted for in accordance with the previous version of IFRS
3.
g) Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group's interest in the fair value of
the identifiable assets and liabilities of a subsidiary, at the
date of acquisition. Goodwill is initially recognised as an asset
at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill which is recognised as an asset is
reviewed for impairment at least annually. Any impairment is
recognised immediately in profit or loss and is not subsequently
reversed.
For the purpose of impairment testing, goodwill is allocated to
the Group's cash-generating unit expected to benefit from the
synergies of the combination. The cash-generating unit to which
goodwill has been allocated is tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the
unit.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
h) Intangible assets
Exploration and evaluation expenditure comprises costs which are
directly attributable to the acquisition of exploration licenses
and subsequent exploration expenditures.
Exploration and evaluation expenditure is carried forward as an
asset provided that one of the following conditions is met:
i) Such costs are expected to be recouped in full through
successful development and exploration of the area of interest or
alternatively, by its sale;
ii) Exploration and evaluation activities in the area of
interest have reached a stage which permits a reasonable assessment
of the existence of economically recoverable reserves with active
and significant operations in relation to the area continuing, or
planned for the future.
Identifiable exploration and evaluation assets acquired are
recognised as assets at their cost of acquisition. An impairment
review is performed when facts and circumstances suggest that the
carrying amount of the assets may exceed their recoverable amounts.
Exploration assets are reassessed on a regular basis and these
costs are carried forward provided that at least one of the
conditions outlined is met. Exploration rights are amortised over
the useful economic life of the mine to which it relates,
commencing when the asset is available for use.
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
Capitalised pre-production expenditure includes costs incurred
and capitalised during the plant construction phase which are
intangible in nature. Prior to obtaining the Mining Right in 2008,
which was granted for a period of 20 years, these capitalised
expenditures were amortised over the life of the work in progress.
Since the grant of the Mining Right these expenditures will be
amortised at a rate of 5% based on the life of the Mining
Right.
Rights to use the Power Line are capitalised at their cost of
acquisition and are being amortised over the useful economic life
at a rate of 5% per annum.
Underground exploration and evaluation expenditure will be
amortised from the point at which it is available for use over its
useful economic life, expected to be 5% per annum.
i) Property, plant and equipment
Property, plant and equipment is stated at cost less any
subsequent accumulated depreciation and subsequent accumulated
impairment losses.
Depreciation is charged so as to write off the cost, less
estimated residual value on assets other than land, over their
estimated useful lives, using the straight line method, on the
following bases:
Plant 5%
Mining fleet 25%
Buildings 5%
Other tangible
assets 20 - 33.33%
Land is not depreciated. The estimated useful lives, residual
values and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate
accounted for on a prospective basis.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on
the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in
profit or loss.
j) Impairment of tangible and intangible assets excluding
goodwill
At each balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to
estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to
which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at least
annually, and whenever there is an indication that the asset may be
impaired.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to the present value using a
pre--tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash--generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a re-valued
amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately, unless the
relevant asset is carried at a re-valued amount, in which case the
reversal of the impairment loss is treated as a revaluation
increase.
k) Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable losses for the
period. Taxable loss differs from net loss as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary differences arise
from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the tax
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
l) Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair
value, and are subsequently measured at amortised cost using the
effective interest rate method. Appropriate allowances for
estimated irrecoverable amounts are recognised in the income
statement when there is objective evidence that the asset is
impaired. The allowance recognised is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows discounted at the effective interest
rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprises cash in hand and demand
deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Trade payables
Trade payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective
interest rate method.
The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts
(including all fees on points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial asset, or, where appropriate, a shorter period.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Intercompany receivables
Intercompany receivables are initially recognised by the Company
at fair value and are subsequently measured at amortised cost using
the effective interest rate method.
m) Foreign currencies
The individual financial statements of each Group Company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial
position of each Group Company are expressed in pounds sterling,
which is the functional currency of the Company, and the
presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items carried at
fair value that are denominated in foreign currencies are
retranslated at the rates prevailing on the date when the fair
value was determined. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not translated.
Group and Company
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
the income statement for the period. Exchange differences arising
on the retranslation of non-monetary items carried at fair value
are included in the income statement for the period except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange component of that
gain or loss is also recognised directly in equity.
In addition, in the case of presenting consolidated financial
statements, any foreign exchange differences arising on elimination
of intercompany loan balances upon consolidation of the Group
Companies, are classified as equity and transferred to the Group's
translation reserve, as these loans are for long term investment
purposes.
Determining the rate of exchange to be used:
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange
rates for the period, unless exchange rates fluctuated
significantly during that period, in which case the exchange rates
at the dates of the transactions are used. Exchange differences
arising, if any, are classified as other comprehensive income and
transferred to the Group's translation reserve. Such translation
differences are recognised in the income statement in the period in
which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
n) Restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused
by the development or ongoing production of a mining property. Such
costs arising from the installation of plant and other site
preparation work, discounted to their net present value, are
provided for and capitalised at the start of each project, as soon
as the obligation to incur such costs arises. These costs are
charged against profits over the life of the operation, through the
depreciation of the asset and the unwinding of the discount on the
provision. Costs for restoration of subsequent site damage which is
created on an ongoing basis during production are provided for at
their net present values and charged against profits as extraction
progresses.
Changes in the measurement of a liability relating to the
decommissioning of plant or other site preparation work that result
from changes in the estimated timing or amount of the cash flow, or
a change in the discount rate, are added to, or deducted from, the
cost of the related asset in the current period. If a decrease in
the liability exceeds the carrying amount of the asset, the excess
is recognised immediately in the income statement. If the asset
value is increased and there is an indication that the revised
carrying value is not recoverable, an impairment test is performed
in accordance with the accounting policy above.
o) Inventories
Inventory and work in progress are valued at the lower of cost
and net realisable value.
Work in progress relates to tailings and was valued at the time
of acquisition at GBP2.84 per carat based on an in situ valuation
equivalent to 8% of the market value of US$63 per carat achieved at
a sale of Lace project diamonds in May 2005. The number of carats
in inventory (370,285 carats) was based on an expert determination
provided to the Company by a qualified external valuer. Work in
progress is being amortized on the units of production method.
Inventory relating from development of the underground is
carried at the value determined by the South African Diamond
Exchange which is considered to be a reliable reflection of market
value.
p) Revenue
Revenue from the sale of diamonds is recorded when the diamonds
are sold at tender. The Lace plant was commissioned on 1 October
2007 before full operations were suspended in 2008.
Revenue earned from sales prior to the new operations achieving
commercial production are recognised as a reduction in the carrying
value of the pre-production expenses held within intangible assets.
Revenue is measured at the fair value of the consideration received
or receivable.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying value.
Revenues from the sale of carats recovered during the
development phase are recognised as a credit against the cost of
development.
q) Finance leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases. Rentals payable under operating leases are
charged to income on a straight-line basis over the term of the
relevant lease. Assets held under finance leases are initially
recognised as assets of the Group at their fair value at the
inception of the lease or, if lower, at the present value of the
minimum lease payments. The corresponding liability to the lessor
is included in the balance sheet as a finance lease obligation.
r) Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date. The fair value excludes the
effect of non market-based vesting conditions. Details regarding
the determination of the fair value of equity-settled share-based
transactions are set out in note 19.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of
equity instruments that will eventually vest. At each balance sheet
date, the Group revises its estimate of the number of equity
instruments expected to vest as a result of the effect of non
market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such
that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to equity reserves.
SAYE share options granted to employees are treated as cancelled
when employees cease to contribute to the scheme. This results in
accelerated recognition of the expenses that would have arisen over
the remainder of the original vesting period.
For cash-settled share-based payments, a liability is recognised
for the goods or services acquired, measured initially at the fair
value of the liability. At each balance sheet date until the
liability is settled, and at the date of settlement, the fair value
of the liability is remeasured, with any changes in fair value
recognised in profit or loss for the year.
s) Critical accounting judgements
In the process of applying the Group's accounting policies,
which are described above, the Directors have made the following
judgements that have the most significant effect on the amounts
recognised in the financial information.
- Valuation of inventory - Judgement was applied in calculating
the initial carrying value of inventory and judgement continues to
be applied in assessing the net realisable value - see accounting
policy n) above.
- Valuation of warrants, share options and ordinary shares
issued as consideration - Judgement is applied in determining
appropriate assumptions to be used in calculating the fair value of
warrants, shares and share options issued - see notes 18 and
20.
- Impairment of goodwill and other intangible assets - Judgement
is applied in determining appropriate assumptions to be used in
testing for and calculating impairment - see policy f) and g)
above.
- Going concern - Judgement is applied in assessing the
likelihood and timing of future cash flows associated with the
Group's activities. Judgement is also applied in assessing the
likelihood of receiving future funding - see page 29.
2. BUSINESS AND GEOGRAPHICAL SEGMENTS
For management purposes, the Group has one business and
geographical segment - diamond mining and exploration in the
Republic of South Africa. In 2010 the Group also commenced
exploring for diamonds in Botswana, but this project was terminated
during 2011.
3. OPERATING LOSS
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
--------- --------- ------- -------
Operating loss is after charging
(crediting):
Auditors' remuneration 75,500 62,848 52,500 56,298
Foreign exchange losses 110,805 201,022 110,806 203,409
Profit on disposal of fixed assets (1,985) (44,415) - -
Depreciation of tangible assets 854,492 1,050,549 - -
Amortisation of intangible assets 63,799 65,004 19,817 19,817
Impairment of intangible assets 2,373,616 - - -
Write off Botswana project 1,013,032 - - -
The analysis of auditors' remuneration
is as follows:
Fees payable to the Company's auditors
for the audit of Company's accounts 52,500 34,000 52,500 34,000
Fees payable to the Company's auditors
and their
associates for other services to
the Group
The audit of the Company's subsidiaries 23,000 33,000 - -
Total audit fees 75,500 67,000 52,500 34,000
Corporate finance services - 42,000 - 42,000
Total non-audit fees - 42,000 - 42,000
TOTAL 75,500 109,000 52,500 76,000
4. STAFF COSTS
Staff costs of the Group and Company were:
2011 2010
Group GBP GBP
------- -------
Wages and salaries 357,322 436,946
Social security costs 30,084 20,786
387,406 457,732
Average number of administrative staff 9 5
Average number of operational staff 20 18
Average number of employees 29 23
2011 2010
Company GBP GBP
Wages and salaries 188,465 164,995
Social security costs 22,414 16,744
210,879 181,739
Average number of employees 4 3
5. DIRECTORS' EMOLUMENTS
Directors' emoluments for the year ended 31 December 2011 and
2010 and for the highest paid director were as follows:
2011 2010
GBP GBP
------- -------
Directors' remuneration
Fees paid by the Company and its subsidiaries 252,167 231,166
Emoluments of highest paid director 137,500 137,500
6. TAX
Group
2011 2010
GBP GBP
---- ----
Current tax - -
Deferred tax (see note 15) - -
Tax expense for the year - -
The charge for the year can be reconciled to the loss per the
income statement as follows:
2011 2010
GBP GBP
----------- -----------
Loss for the year (4,239,146) (3,315,327)
Tax at the UK corporation tax rate of 26.5%
(2010 - 28%) (1,123,374) (928,292)
Expenses not deductible 308,733 221,052
Tax losses carried forward 814,641 707,240
Tax expense for the year - -
In March 2011, the UK Government announced a reduction in the
standard rate of UK corporation tax to 26% effective 1 April 2011.
This rate reduction was substantively enacted in March 2011.
In March 2012, the UK Government announced the main rate of UK
corporation tax would reduce to 24% with effect from 1 April 2012,
with subsequent 1% reductions annually to 22% by April 2014. These
changes were substantively enacted on 26 March 2012.
7. LOSS PER SHARE
a) Basic loss per share
Basic loss per share is calculated by dividing the loss for the
year by the weighted average number of shares in issue during the
year. The weighted average number of shares used is 203,928,771
(2010 - 130,765,634).
b) Diluted loss per share
International Accounting Standard 33 requires presentation of
diluted earnings per share when a company could be called upon to
issues shares that would decrease the net profit or increase the
net loss per share. For a loss making company with outstanding
options, net loss per share would only be increased by the exercise
of out-of-money options. Since it seems inappropriate to assume
that option holders would exercise out-of-money options, no
adjustment has been made to diluted loss per share for out-of-money
share options.
c) Headline loss per share
The Group presents an alternative measure of loss per share
after excluding all capital gains and losses from the loss
attributable to ordinary shareholders. The impact of this is as
follows:
Basic 2011 2010
------- -------
Loss per share (1.87p) (2.27p)
Effect of gain on disposal of property, plant and
equipment - (0.03p)
Effect of gain on insurance settlement 0.80p -
Effect of impairment of intangible assets (1.36p) -
Adjusted loss per share (2.43p) (2.30p)
8. INTANGIBLE FIXED ASSETS
For the year ended 31 December 2011
Group Goodwill Jwaneng Power Power Pre-production Under-ground Mineral Total
GBP GBP line line capitalised capitalised rights GBP
Phase Phase expenses expenses GBP
1 2 GBP GBP
GBP GBP
--------- ----------- -------- -------- -------------- ------------ --------- -----------
Cost
At 1 January
2011 4,606,026 310,422 484,040 184,164 554,764 4,679,942 681,614 11,500,972
Additions - 702,610 - - - 3,293,996 - 3,996,606
Impairment - (1,013,032) - - - - - (1,013,032)
Exchange
differences - - (88,379) (33,626) (101,292) (1,463,836) (52,086) (1,739,219)
At 31 December
2011 4,606,026 - 395,661 150,538 453,472 6,510,102 629,528 12,745,327
Accumulated
amortisation
At 1 January
2011 - - (71,899) (27,356) (76,732) (1,668,939) (102,242) (1,947,168)
Charge for
the year - - (22,716) (8,643) - - (32,440) (63,799)
Impairment - - - - - (2,373,616) - (2,373,616)
Exchange
differences - - 14,863 5,655 14,010 843,778 8,777 887,083
At 31 December
2011 - - (79,752) (30,344) (62,722) (3,198,777) (125,905) (3,497,500)
Carrying
amount
At 31 December
2011 4,606,026 - 315,909 120,194 390,750 3,311,325 503,623 9,247,827
At 31 December
2010 4,606,026 310,422 412,141 156,808 478,032 3,011,003 579,372 9,553,804
In 2011 Lace Diamond Mines (Pty) Limited reached an agreement
with Mutual and Federal Insurance Limited on a claim for damage to
timbers and pumps in the vertical shaft at the Lace mine incurred
during heavy rains earlier in the year; after deductibles, we
received R25 million (GBP2.2 million) and recognised an impairment
against underground capitalised expenses of R27.5 million (GBP2.4
million).
For the year ended 31 December 2010
Group Goodwill Jwaneng Power Power Pre-production Under-ground Mineral Total
GBP GBP line line capitalised capitalised rights GBP
Phase Phase expenses expenses GBP
1 2 GBP GBP
GBP GBP
--------- ------- -------- -------- -------------- ------------ --------- -----------
Cost
At 1 January
2010 4,606,026 99,120 420,085 159,831 481,465 2,571,488 643,922 8,981,937
Additions - 211,302 - - - 1,797,558 - 2,008,860
Exchange
differences - - 63,955 24,333 73,299 310,896 37,692 510,175
At 31 December
2010 4,606,026 310,422 484,040 184,164 554,764 4,679,942 681,614 11,500,972
Accumulated
amortisation
At 1 January
2010 - - (47,542) (7,846) (66,594) (1,666,234) (64,392) (1,852,608)
Charge
for the
year - - (15,565) (16,653) - - (32,786) (65,004)
Exchange
differences - - (8,792) (2,857) (10,138) (2,705) (5,064) (29,556)
At 31 December
2010 - - (71,899) (27,356) (76,732) (1,668,939) (102,242) (1,947,168)
Carrying
amount
At 31 December
2010 4,606,026 310,422 412,141 156,808 478,032 3,011,003 579,372 9,553,804
At 31 December
2009 4,606,026 99,120 372,543 151,985 414,871 905,254 579,530 7,129,329
For the year ended 31 December 2011 Mineral
Company rights
GBP
Cost and carrying amount
At 1 January 2011 336,892
Charge for the year (19,817)
At 31 December 2011 317,075
For the year ended 31 December 2010 Mineral
Company rights
GBP
Cost and carrying amount
At 1 January 2010 356,709
Charge for the year (19,817)
At 31 December 2010 336,892
The Group tests annually for impairment, or more frequently if
there are indications that goodwill might be impaired. The Group
has one reportable business segment and all goodwill is associated
with that segment. The recoverable amounts of the cash generating
unit ("CGU") is determined from value in use calculations. The key
assumptions for the value in use calculations are those regarding
the discount rates, growth rates and expected changes to selling
prices and direct costs during the period. A post tax discount rate
of 10% has been used, which is consistent with the rate used for
determining the value of purchased intangibles.
The Group's test for impairment is based on several
considerations including a model adopted by management from the
model prepared for the Lace Mine by one of its technical advisors.
This model uses grade assumptions based on the resource statement
of the Group's technical advisor and it uses diamond prices
considered representative of market prices. The model assumes that
the Lace mine will reach full production of 1,200,000 tonnes of
kimberlite in 2015 and run through 2039. The valuations of the Lace
Mine generated by the Model under variable sets of assumptions as
to grades, revenues and costs indicate that there has been no
impairment of goodwill during the year. Management have considered
the key assumptions to be reasonable. A reasonable possible change
in a key assumption would not lead to an indicator of impairment of
the cash generating unit which contains goodwill.
9. PROPERTY, PLANT AND EQUIPMENT
For the year ended 31 December 2011
Group Land Other
Mining and tangible
Plant fleet buildings assets Total
GBP GBP GBP GBP GBP
----------- ----------- ---------- --------- -----------
Cost
At 1 January 2011 6,336,605 2,508,082 322,693 423,150 9,590,530
Additions 110,081 179,100 48,521 39,092 376,794
Disposals - - (72,280) (10,617) (82,897)
Reclassification (542,168) 542,168 - - -
Exchange differences (1,165,380) (471,618) (57,105) (79,436) (1,773,539)
At 31 December 2011 4,739,138 2,757,732 241,829 372,189 8,110,888
Accumulated depreciation
At 1 January 2011 (851,651) (2,231,957) (62,626) (183,994) (3,330,228)
Charge for the year (251,047) (538,428) (12,047) (52,970) (854,492)
Disposals - - - 10,617 10,617
Exchange differences 174,672 448,645 12,355 36,827 672,499
At 31 December 2011 (928,026) (2,321,740) (62,318) (189,520) (3,501,604)
Carrying amount
At 31 December 2011 3,811,112 435,992 179,511 182,669 4,609,284
At 31 December 2010 5,484,954 276,125 260,067 239,156 6,260,302
For the year ended 31 December 2010
Group Plant Mining Land Other Total
fleet and tangible
buildings assets
GBP GBP GBP GBP GBP
--------- ----------- ---------- --------- -----------
Cost
At 1 January 2010 5,499,369 2,329,054 248,416 328,216 8,405,055
Additions - - 33,147 40,883 74,030
Disposals - (159,616) - - (159,616)
Exchange differences 837,236 338,644 41,130 54,051 1,271,061
At 31 December 2010 6,336,605 2,508,082 322,693 423,150 9,590,530
Accumulated depreciation
At 1 January 2010 (764,702) (1,063,478) (45,210) (118,668) (1,992,058)
Charge for the year (413,590) (581,221) (9,577) (46,161) (1,050,549)
Disposals - 124,223 - - 124,223
Exchange differences 326,641 (711,481) (7,839) (19,165) (411,844)
At 31 December 2010 (851,651) (2,231,957) (62,626) (183,994) (3,330,228)
Carrying amount
At 31 December 2010 5,484,954 276,125 260,067 239,156 6,260,302
At 31 December 2009 4,734,667 1,265,576 203,206 209,548 6,412,997
10. INVESTMENT IN SUBSIDIARIES
For the year ended 31 December 2011
Company GBP
Cost and carrying amount
At 1 January 2011 and 31 December
2011 4,217,501
For the year ended 31 December 2010
Company GBP
Cost and carrying amount
At 1 January 2010 4,217,500
Additions 1
At 31 December 2010 4,217,501
The investment represents 100% of the share capital of Crown
Diamond Mining Limited ("CDM") which was acquired on 15 May 2006.
CDM changed its name to Diamondcorp Holdings Limited in 2007
("DHL") and is a Company registered in the British Virgin
Islands.
During 2010, Botswana Diamondcorp Limited ("BWD") was
incorporated in the British Virgin Islands as a wholly-owned
subsidiary of DiamondCorp plc, represented by a GBP1 investment on
the balance sheet of the Company.
The Africa Opportunity Fund L.P. loan (Note 14) which was paid
off in 2011 was secured by the assets of the subsidiaries. For a
list of subsidiaries, please refer to note 22.
11. INVENTORIES
2011 2010
Group GBP GBP
-------- -------
Work in progress (tailings)
Cost and carrying amount at beginning
of year 349,152 303,020
Foreign exchange (loss) gain (63,750) 46,132
Carrying amount at end of year 285,402 349,152
Diamond inventories 141,889 -
Consumable and other inventories 15,142 6,197
442,433 355,349
Work in progress related to tailings and was valued on
acquisition at GBP2.84 per carat based on an in situ valuation
equivalent to 8% of the market value of US$63 per carat achieved at
a sale of Lace project diamonds in May 2005. The number of carats
in work in progress (370,285 carats) was based on an expert
determination provided to the Company by a qualified external
valuer. In 2008, the carrying value of work in progress was written
down by GBP377,534 to reflect depreciation in diamond prices and
reduction in grades.
12. OTHER RECEIVABLES
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
------- ------- ---------- ----------
Receivables due from Group
undertakings - - 22,802,199 18,082,222
Prepayments and other receivables 182,350 398,266 32,865 13,998
182,350 398,266 22,835,064 18,096,220
The Directors consider that the carrying amount of these assets
approximates their fair value. All receivables balances are
non-interest bearing.
Included in prepayments and other receivables, is a
rehabilitation bond held by the Department of Minerals and Energy
in the amount of GBP67,923 (2010 - GBP83,094) providing for the
cost of rehabilitation on termination of the Lace project.
13. OTHER PAYABLES
Group Group Company Company
2011 2010 2011 2010
GBP GBP GBP GBP
------- ------- ------- -------
Interest on long term loan - 55,539 - 55,539
Accruals and deferred income 498,876 571,489 118,580 112,472
498,876 627,028 118,580 168,011
The Directors consider that the carrying amount of these
liabilities approximates their fair value. All payables balances
are non-interest bearing.
14. BORROWINGS
In October 2011, the final amount due under the loan with Africa
Opportunity Fund L.P. ("AOF") was repaid in full and the Company
and its subsidiaries have been released of all security. The
following discussion provides a history of the loan.
On 17 October 2008, the Company completed a long term loan with
AOF in the amount of US$5,000,000. The loan was secured by the
Company's equity interest in Lace Diamond Mines (Pty) Ltd and by
the assets of the Company's subsidiaries.
The loan was repayable over 36 months as detailed in the
schedule below.
AOF Repayment Schedule Capital Interest
repayment payment
Schedule schedule Total
Repayment date (US$) (US$) (US$)
---------- --------- ---------
16 April 2009 - 299,178 299,178
16 October 2009 - 300,822 300,822
16 April 2010 500,000 299,178 799,178
10 May 2010 * 150,000 1,282 151,282
16 October 2010 1,000,000 261,715 1,261,715
16 April 2011 1,500,000 200,449 1,700,449
16 October 2011 1,850,000 111,304 1,961,304
5,000,000 1,473,928 6,473,928
Reconciliation of payments made on
long term loan:
Amounts paid as at 31 December 2011 5,000,000 1,473,928 6,473,928
Amounts due within 1 year - - -
5,000,000 1,473,928 6,473,928
* Early redemption payment (see below)
Interest accrued daily and was payable half-yearly at a rate of
12%. Any portion of the interest in relation to a reporting period
that remained unpaid, was accrued for. Accrued interest for the
year ended 31 December 2011 was nil (2010 - US$85,907 /
GBP55,539).
The cost of the warrants granted to AOF, GBP57,566, (refer note
18) has been offset against the loan in accordance with IAS 39. The
cost of these warrants is to be expensed over the life of the loan
and does not constitute payment towards the loan. The warrant cost
expensed during the period was nil (2010 - GBP19,189). At the
balance sheet date, the carrying amount of the loan was nil (2010 -
GBP2,184,950, net of associated costs of GBP19,189).
15. DEFERRED TAX
Until it is probable that sufficient taxable profits will be
available to allow the entire or partial recovery of potential
deferred tax assets of GBP4,847,154 (2010 - GBP4,032,513), the
accounting benefit of tax losses will not be reflected in the
accounts. The Group's tax losses have no expiry date.
Due to the Group's retained loss position, there are no
temporary differences associated with investments in the Group's
subsidiaries.
16. RELATED PARTY TRANSACTIONS
The Directors consider that there is no ultimate controlling
party of the Company. Transactions between the Company and its
subsidiaries, which are related parties of the Company have been
disclosed in the Company section of this note.
The Directors are considered to be the key personnel of the
Group and therefore all transactions with such individuals have
been disclosed below and in the audited section of the remuneration
report.
Details of transactions between the Group and other related
parties are disclosed below.
During the year ended 31 December 2011:
(i) GBP92,667 (2010 - GBP98,334) were paid to the following
companies as Directors' remuneration:
- GBP60,000 to Glendree Capital Management Limited (2010 -
GBP60,000), a Company owned by P R Loudon;
- GBPnil to Mining Finance Solutions (2010 - GBP6,667), a
Company owned by E A Worthington;
- GBP12,000 to Loeb Aron & Company Limited (2009 -
GBP12,000), a Company where J Willis-Richards is a director;
- GBP20,667 to European Islamic Investment Bank plc (2010 -
GBP19,667), represented on the Company's Board of Directors by S
Benkhadra (resigned 19 September 2011) and G K Morton;
In addition, during the year ended 31 December 2011:
(i) DiamondCorp plc incurred rent of GBPnil from Loeb Aron &
Company Limited (2010 - GBP14,583).
Company
The Company held a loan to Diamondcorp Holdings Limited of
GBP22,802,199 (2010 - GBP17,852,298), to Lace Diamond Mining (Pty)
Limited of GBPnil (2010 - GBP17,127) and to Botswana Diamondcorp
Limited of nil (2010 - GBP212,797).
17. SHARE CAPITAL
2011 2010
No. GBP No. GBP
----------- --------- ----------- ---------
Called up, allotted
and fully paid
Ordinary shares of 3
pence each 242,268,048 7,268,041 183,873,651 5,516,209
On 11 January 2010 the trading of DiamondCorp's shares on the
JSE was transferred to Alt-X.
In January 2010, the Company issued 285,000 ordinary shares at
10 pence each. There were no costs associated with the issuance of
these shares.
In March 2010, the Company issued 101,062,538 ordinary shares at
7 pence each. The cost associated with the issuance of these shares
has been charged to the share premium account.
In December 2010, the Company issued 35,294,118 ordinary shares
at 8.5 pence each. The cost associated with the issuance of these
shares has been charged to the share premium account.
In June 2011, the Company issued 26,794,397 ordinary shares at
13 pence each. The cost associated with the issuance of these
shares has been charged to the share premium account.
In October 2011, the Company issued 31,600,000 ordinary shares
at 6.5 pence each. The cost associated with the issuance of these
shares has been charged to the share premium account.
18. RESERVES
For the year ended 31 December 2011
Group Share premium Warrant Share Translation Retained
account reserve option reserve losses
GBP GBP reserve GBP GBP
GBP
------------- -------- -------- ----------- ------------
At 1 January 2011 23,203,016 505,877 402,583 2,980,558 (14,190,336)
Loss for the year - - - - (4,239,146)
Change in non-controlling
interest (note 19) - - - (138,794) 415,560
Premium arising on issue
of equity shares 3,785,440 - - - -
Issue costs (285,954) - - - -
Share option expense in year - - 26,483 - -
Movement during the year - - - (2,443,288) -
At 31 December 2011 26,702,502 505,877 429,066 398,476 (18,013,922)
Company Share premium Warrant Share Retained
account reserve option losses
GBP GBP reserve GBP
GBP
------------- -------- -------- -----------
At 1 January 2011 23,203,016 505,877 402,583 (5,315,252)
Loss for the year - - - (2,082,132)
Premium arising on issue of equity
shares 3,785,440 - - -
Issue costs (285,954) - - -
Share option expense in year - - 26,483 -
At 31 December 2011 26,702,502 505,877 429,066 (7,397,384)
For the year ended 31 December 2010
Group Share premium Warrant Share Translation Retained
account reserve option reserve losses
GBP GBP reserve GBP GBP
GBP
------------- -------- -------- ----------- ------------
At 1 January 2010 17,872,580 555,036 371,675 1,495,317 (11,269,043)
Loss for the year - - - - (3,315,327)
Warrants expired - (49,159) - - 49,159
Change in non-controlling
interest (note 19) - - - 66,562 344,875
Premium arising on issue
of equity shares 5,489,763 - - - -
Issue costs (159,327) - - - -
Share option expense in
year - - 30,908 - -
Movement during the year - - - 1,418,679 -
At 31 December 2010 23,203,016 505,877 402,583 2,980,558 (14,190,336)
Share premium Share
Company account Warrant option Retained
GBP reserve reserve losses
GBP GBP GBP
------------- -------- -------- -----------
At 1 January 2010 17,872,580 555,036 371,675 (4,044,653)
Loss for the year - - - (1,319,758)
Warrants expired - (49,159) - 49,159
Premium arising on issue of equity
shares 5,489,763 - - -
Issue costs (159,327) - - -
Share option expense in year - - 30,908 -
At 31 December 2010 23,203,016 505,877 402,583 (5,315,252)
WARRANTS
Warrant
Warrants reserve
in issue GBP
--------- --------
Group and Company
Outstanding at 1 January 2011 5,816,666 505,877
Expired during the year - -
At 31 December 2011 5,816,666 505,877
Group and Company
Outstanding at 1 January 2010 6,066,666 555,036
Expired during the year (250,000) (49,159)
At 31 December 2010 5,816,666 505,877
(i) Vendor Warrants
The vendors of Crown Diamond Mining Limited (which changed its
name to Diamondcorp Holdings Limited in 2007) were entitled to be
issued on completion of the sale of its ordinary share capital to
the Company with a total of 4,166,666 warrants to subscribe for
ordinary shares of 3 pence each at a price of the lower of 180
pence or price at which the Company raises equity finance on
admission to the Alternative Investment Market (90 pence). These
warrants expired on 1 February 2012, being five years from the date
of admission to the Alternative Investment Market. Certificates in
relation to these warrants were issued on 30 June 2006 following
and taking into account, the consolidation of the Company's share
capital on that date.
These warrants were valued by the Directors using the
Black-Scholes valuation model, based on the assumptions as detailed
below.
(ii) AOF Warrants
In 2008 a warrant was issued to Africa Opportunity Fund to
subscribe for 1,650,000 ordinary shares of 3 pence each,
exercisable at 21.6 pence for a period ended on 25 January 2012.
These warrants were not exercised and have now expired.
These warrants were valued by the Directors using the
Black-Scholes valuation model, based on the assumptions as detailed
below.
(iii) BBK Warrants
In 2007 a warrant was issued to BBK Consultancy plc to subscribe
for 250,000 ordinary shares of 3 pence each for a period of 3 years
at an exercise price of 121.5 pence. The warrants vest when the
Company's share price is above 135 pence per share for 28
consecutive trading days and are exercisable at any time up to and
including 30 April 2010. These warrants were not exercised and
expired during 2010.
These warrants were valued by the Directors using the
Black-Scholes valuation model, based on the assumptions as detailed
below.
Black-Scholes Assumptions Vendor BBK Warrants AOF Warrants
Warrants*
-------------------------- ---------- ------------ ------------
Term range 5.6 years 3 years 0.5 years
Expected dividend yield Nil Nil Nil
Risk free interest
rate 5 % 5 % 2 %
Share price volatility 55 % 40 % 40 %
Share price at time 45 pence 90 pence 56.5 pence
of grant
* These warrants were subject to the share consolidation on 30
June 2006.
19. NON-CONTROLLING INTEREST
GBP
Balance at 1 January 2010 -
Share of total comprehensive loss for the
year (344,875)
Currency translation loss (66,562)
Balance at 1 January 2011 (411,437)
Share of total comprehensive loss for the
year (415,560)
Currency translation gain 138,794
Balance at 31 December 2011 (688,203)
20. SHARE BASED PAYMENTS
Equity-settled share option scheme
The Company has a share option scheme for all employees of the
Group. Options are exercisable at a price equal to the average
quoted market price of the Company's shares on the date of grant.
The vesting period is three years. If the options remain
unexercised after a period of ten years from the date of grant the
options expire. Options are generally forfeited if the employee
leaves the Group before the options vest.
Details of the share options outstanding during the year are as
follows.
2011 2010
Weighted Weighted
average average
Number exercise Number exercise
of share price of share price
options (GBP) options (GBP)
--------- --------- --------- ---------
Outstanding at beginning of year 6,595,000 55p 2,685,000 117p
Granted during the year - 4,570,000 12p
Forfeited during the year (250,000) (660,000)
Exercised during the year - -
Expired during the year - -
Outstanding at the end of the year 6,345,000 19p 6,595,000 55p
Exercisable at the end of the year 3,838,333 24p 2,433,333 124p
At 31 December 2011, 6,345,000 options were outstanding at a
weighted average exercise price of 19p, and a weighted average
remaining contractual life of 7.5 years. The aggregate of the
estimated fair values of the options granted on those dates is
GBPnil.
The inputs into the Black-Scholes model are as follows:
2011 2010
Weighted average share price - 6.88p
Weighted average exercise price - 12p
Expected volatility - 50%
Expected life - 3 years
Risk-free rate - 2%
Expected dividend yields - 0%
Expected volatility was determined based on management's best
estimate. The expected life used in the model has been adjusted,
based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural
considerations.
During 2011, the Group recognised total expenses of GBP26,483
(2011 - GBP30,908) relating to equity-settled share-based payment
transactions.
Black-Scholes Assumptions The DiamondCorp
2010 2007 Share Option
Option UK Option Plan
Plan Plan
-------------------------- ---------- ---------- ---------------
Term range 3 years 3 years 3 years
Expected dividend yield Nil Nil Nil
Risk free interest rate 2% 5 % 2 %
Share price volatility 50% 40 % 40 %
Share price at time of 6.88 pence 90 pence 34.5 pence
grant
(i) 2007 UK Options ("2007 Plan")
During 2007, options over 2,940,000 ordinary shares of 3 pence
each were granted to employees and management of the Company,
exercisable at 135 pence for a period of 10 years from the date of
issue.
270,000 of these options vested on grant and the balance vest
over 3 years at one-third at each anniversary of the issue date.
690,000 of these options were forfeited during 2008 by reason of
retirement and 120,000
options were forfeited in 2009.
Share options granted during the year ended 31 December 2007
were valued by the Directors using the Black-Scholes valuation
model, based upon the assumptions as detailed in the table
above:
At 31 December 2011, 2,130,000 options were outstanding under
this plan.
(ii) The DiamondCorp Share Option Plan ("DCP Plan")
During 2008, a share option plan was approved and registered in
the Republic of South Africa to provide eligible employees of the
Group with the opportunity to acquire as incentive an interest in
the equity of the Company. Eligible employees were granted options
over 695,000 ordinary shares of 3 pence each, exercisable at 50
pence for a period of 10 years from the date of issue, 16 December
2008. These options vest over 3 years at one-third at each
anniversary of the issue date. During 2009, a further 200,000
options were granted under this plan and 340,000 options were
forfeited.
At 31 December 2011, the number of options outstanding under
this plan was 555,000 (2010 - 555,000).
These options were valued by the Directors using the
Black-Scholes valuation model, based upon the assumptions as
detailed in the table above.
In August 2010, the exercise price of these options was adjusted
to 21 pence. All other conditions remain unchanged.
(iii) 2010 Option Plan ("2010 Plan")
During 2010, options over 4,570,000 ordinary shares of 3 pence
each were granted to employees and management of the Company,
exercisable at 12 pence each for a period of 10 years from the date
of issue. These options vest over 3 years at one third on each
anniversary of the date of issue, subject to the share price of the
Company attaining and trading at or above 17 pence for a period of
3 consecutive months.
These options were valued by the Directors using the
Black-Scholes valuation model, based upon the assumptions as
detailed below. As the fair value of these options is not material
to the financial statements, the Directors did not consider it
necessary to incur the additional expense required to employ a
third party to calculate the fair value of the options using the
Monte Carlo Method.
During the year ended 31 December 2010, 660,000 options
expired.
During the year ended 31 December 2011, 250,000 options
expired.
At 31 December 2011, 3,660,000 options were outstanding under
this plan.
21. FINANCIAL INSTRUMENTS
Group and Company
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of
debt, which includes the borrowings disclosed in note 14, cash and
cash equivalents and equity attributable to equity holders of the
parent, comprising issued capital, reserves and retained earnings
as disclosed in note 18. The Group is not subject to any externally
imposed capital requirements. The Group's Directors review the
capital structure on a regular basis. As part of this review the
Directors consider the cost of capital and the risks associated
with each class of capital.
Significant accounting policies
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial
liability and equity instrument are disclosed in note 1 to the
financial statements.
Categories of financial instruments
Group Company
Carrying value Carrying value
2011 2010 2011 2010
GBP GBP GBP GBP
--------- --------- ---------- ----------
Financial assets
Loans and receivables (including
cash and cash equivalents) 2,632,760 4,293,185 23,092,106 22,111,001
Financial liabilities
Amortised cost 498,876 2,854,437 118,580 2,352,961
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate their fair values.
Financial risk management objectives
The Group's financial function provides services to the
business, monitors and manages the financial risks relating to the
operations of the Group. These risks include market risk (including
currency risk, fair value interest rate risk and price risk),
credit risk, liquidity risk and cash flow interest rate risk.
The Group does not enter into or trade financial instruments,
including derivative financial instruments, for any purpose.
Market risk
The Group's activities expose it primarily to the financial
risks of changes in foreign currency exchange rates. There has been
no change to the Group's exposure to market risks or the manner in
which it is measured and managed.
Credit risk management
The Group and Company's principal financial assets are bank
balances and cash. The credit risk on liquid funds is limited
because the counterparties are banks with high credit-ratings
assigned by international credit-rating agencies. Management
reviews the credit worthiness of all customers before entering into
a transaction.
The Company also holds amounts receivable from related parties
as disclosed in note 16. Management reviews the credit worthiness
of all balances due from related parties with reference to future
profitability.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign
currencies. Hence, exposures to exchange rate fluctuations
arise.
The carrying amounts of the Group's and Company's foreign
currency denominated monetary assets and monetary liabilities at
the reporting date are as follows:
Assets (Liabilities)
2011 2010
GBP GBP
------ --------------
Cash denominated in South African
Rand - 371,924
Cash denominated in United States
Dollar - 661,171
Loan denominated in United States
Dollar - (2,165,762)
Foreign currency sensitivity analysis
The Group is exposed to the currency of South Africa (Rand) and
the United States Dollar.
The following table details the Group's sensitivity to a 20%
increase and decrease in the Sterling against South African Rand
and United States Dollar. 20% is the sensitivity rate used when
reporting foreign currency risk internally to key management
personnel and represents management's assessment of the reasonably
possible change in foreign exchange rates. The sensitivity analysis
includes only outstanding foreign currency denominated monetary
items and adjusts their translation at the period end for a 20%
change in foreign currency rates. A negative number below indicates
a decrease in profit where the Sterling strengthens 20% against the
relevant currency. For a 20% weakening of the Sterling against the
relevant currency, there would be an equal and opposite impact on
the profit and the balances below would be positive.
Rand currency
impact
2011 2010
GBP GBP
Loss due to a 20% change against
ZAR - 9,068
Loss due to a 20% change against
USD - (243,178)
The Group's sensitivity to foreign currency has increased during
the current period, because the Company held higher balances of
foreign currency. However, the Group's South African Rand deposits
are held at a subsidiary level in South Africa and as such this
sensitivity analysis does not represent a real cash foreign
exchange risk to the Group.
In management's opinion, the impact of the sensitivity analysis
is representative of the inherent foreign exchange risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Group's short
term funding and liquidity management requirements. The Group
manages liquidity risk by maintaining adequate reserves, by
continuously monitoring forecast and actual cash flows and matching
the maturity profiles of financial assets and liabilities.
Interest rate risk management
The Group is exposed to interest rate risk because entities in
the Group borrow funds at both fixed and floating interest rates.
The risk is managed by the Group by maintaining an appropriate mix
between fixed and floating rate borrowings, and by the use of
interest rate swap contracts and forward interest rate contracts.
Hedging activities are evaluated regularly to align with interest
rate views and defined risk appetite; ensuring the most
cost-effective hedging strategies are applied.
The Group's exposure to interest rates on financial assets and
financial liabilities are detailed in the liquidity risk management
section of this note.
Liquidity and interest risk tables
The following table details the Group's remaining contractual
maturity for its non-derivative financial liabilities. The tables
have been drawn up based on the undiscounted cash flows of
financial liabilities based on the earliest date on which the Group
can be required to pay. The table includes the principal cash flows
all of which are due within less than one year.
Group
Weighted average
effective interest Less than 1
rate year
% GBP
------------------- -----------
2011
Non-interest bearing - 369,217
Finance lease liability - -
Fixed interest rate instruments - -
369,217
2010
Non-interest bearing - 369,771
Finance lease liability - 25,718
Fixed interest rate instruments 12% 2,184,950
2,580,439
Company
Weighted average
effective interest Less than 1
rate year
% GBP
------------------- -----------
2011
Non-interest bearing - 43,703
Fixed interest rate instruments - -
43,703
2010
Non-interest bearing - 52,606
Fixed interest rate instruments 12% 2,184,950
2,237,556
The following table details the Group's and Company's expected
maturity for its non-derivative financial assets. The tables below
have been drawn up based on the undiscounted contractual maturities
of the financial assets including interest that will be earned on
those assets.
Group Company
Weighted Weighted
average average
effective effective
interest Less than interest Less than
rate 1 month rate 1 month
% GBP % GBP
---------- --------- ---------- ---------
2011
Non-interest bearing - 2,632,760 - 257,042
2010
Non-interest bearing - 4,293,185 - 4,014,781
22. SUBSIDIARIES
Details of the Company's subsidiaries at 31 December 2011 were
as follows:
Place of Proportion Proportion
incorporation of ownership of voting
(or registration) interest power held
Name of subsidiary and operation % % Principal activity
-------------------- -------------- ------------ --------------------
Holding Company
Diamondcorp Holdings British Virgin of a Trading
Limited (1) Islands 100 100 Group
Botswana Diamondcorp British Virgin
Limited Islands 100 100 Holding Company
Republic
Lace Diamond Mines of Diamond exploration
(Pty) Limited South Africa 74 74 and exploitation
Republic
Soapstone Investments of South
(Pty) Limited Africa 100 100 Investment Company
DCP Exploration (Pty) Diamond exploration
Ltd Botswana 100 100 and exploitation
(1) Formerly named Crown Diamond Mining Limited
23. SUBSEQUENT EVENTS
(i) In March 2012 SRK Consulting (South Africa) (Pty) Ltd
completed its Independent Engineering Report on the underground
development plans for the Lace mine. This was announced on 20 March
2012 and a copy of the SRK report is available for download from
the Company's website at www.diamondcorp.plc.uk.
(ii) On 18 May 2012 Lace Diamond Mines (Pty) Limited ("Lace")
signed a Term Sheet with the Industrial Development Corporation of
South Africa ("IDC").
Under the Term Sheet IDC has agreed to provide a 7-year loan
facility for up to R280 million for the purpose of underground
development and purchase of mining equipment. The loan will be
secured over the assets of Lace and guaranteed by the parent
company. Interest will be calculated at South Africa Prime Rate +
2%. Interest will be capitalised in the first 2 years from the
drawdown date and thereafter payable semi-annually in arrears. The
loan contains provisions for prepayment without penalty after Year
1. The provision of the loan by IDC is subject to satisfactory
completion of due diligence; the Terms Sheet projects a closing in
July 2012.
(iii) In Q1 2012, all of the warrants outstanding at 31 December
2011 (5,816,666 warrants) expired.
To view the graph of the planned Lace Mine Production, please
click on or paste the following link in your browser:
http://www.rns-pdf.londonstockexchange.com/rns/4697E_-2012-5-30.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR WGUBAAUPPGMU
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