Wrap Text
Final Results for the year ended 31 December 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", "the Group" or "the Company")
Final Results for the year ended 31 December 2012
Highlights
- Net loss reduced from GBP4,239,146 for 2011 to GBP3,534,940 for 2012.
- Cash at year-end GBP4,319,776.
- Further US$6 million (GBP4.2 million) in term loan funds received from Tiffany & Co.
subsidiary Laurelton Diamonds since year-end.
- IDC Loan R220 million (GBP15.7 million) available for drawn down when required in Q3
2013.
- Progress on box cut and ramp development on schedule and within budget.
DiamondCorp plc, the African diamond mining and exploration company, releases its audited results
for the year ended 31 December 2012. The Company's Annual Report and Accounts and Notice of
Annual General Meeting will be posted to shareholders on 7 June 2013 and will be available on the
Company's website (www.diamondcorp.plc.uk).
Contact details:
DiamondCorp Plc Joint Broker
Paul Loudon, Chief Executive SP Angel Corporate Finance LLP
Euan Worthington, Chairman Ewan Leggat/Laura Littley
Tel: +44 20 3151 0970 Tel: +44 207 598 5368
+27 56 212 2930
UK Broker & Nomad JSE Sponsor
Panmure Gordon (UK) Limited PSG Capital (Pty) Limited
Dominic Morley/Adam James John-Paul Dicks
Tel: +44 20 7886 2500 Tel: +27 21 887 9602
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE
Dear Shareholder
We are very pleased and proud to have completed a financing package for development of the first
block cave at the Lace Mine. We achieved this success during 2012 in the toughest market conditions
that we have experienced in our careers and have done it with minimal dilution for existing
shareholders.
The results from an underground bulk sample completed in Q4 2011 were sufficiently positive for our
advisors to recommend that the Company proceed to a full engineering study on an underground
mine. We appointed SRK Consulting (South Africa) (Pty) Limited., ("SRK") to produce an independent
report which was completed in March 2012 and recommended that we initiate mining with a block
cave on the 47 Level (-470m below surface).
European banks remained uninterested in anything but the most secure lowest risk mining project but
after reviewing the SRK report, a number of South African banks showed enthusiasm for the provision
of debt finance to develop the Lace Mine and your Board deemed that the most attractive proposal
received was from the Industrial Development Corporation of South Africa ("IDC").
Lace Mine financing package
In May last year, we received a draft Terms Sheet indicating that the IDC would lend Lace Diamond
Mines ("Lace"), our 74% owned operating subsidiary, R280 million (US$33.6 million) for underground
mine development and the purchase of mining equipment. The IDC's lengthy due diligence, financial
modelling and risk assessment process regrettably coincided with worsening world economic
conditions exacerbated by the Greek debt crisis. As a consequence, it was agreed that the IDC would
lend Lace R220 million (US$26.7 million), representing approximately 77% of the estimated R285
million peak funding requirement for the 47 Level block cave development, including new underground
ramps, crusher and conveyor system. This sum estimated by the Company`s engineers and
consultants included a 15% contingency.
For its part, DiamondCorp agreed to arrange additional funding of R100 million to be advanced to
Lace prior to the initial drawdown of the IDC debt facility, meaning a total R320 million funding
package would be provided, including a 33% contingency on the Company`s forecast capital budget.
The principal amount of the loan and initial drawdown condition differed from the original IDC Terms
Sheet after the parties agreed that increasing the total amount available for the project would be
prudent in the light of challenging macroeconomic conditions and rand volatility which has a potential
major impact on capital and input costs, particularly diesel, steel, tyres and conveyor belting. In other
respects, the major commercial terms of the loan remained unchanged.
The IDC loan is secured over the assets of Lace and guaranteed by DiamondCorp plc. The term of the
loan is seven years with an interest rate of 2% above the South African Prime Lending Rate (which is
currently 8.5%), such interest to be capitalised for the first two years from the initial drawdown date,
which can be anytime up to 31 July 2014. We anticipate initial drawdown will be in Q3 this year and
interest will be calculated semi-annually in arrears thereafter, with a two year moratorium on loan
repayments from the first drawdown date.
To raise the additional R100 million we appointed Rand Merchant Bank and PSG Capital as advisors
and arrangers in South Africa to raise up to R150 million through an issue of convertible bonds. There
was a good response to marketing these bonds but as potential investors carried out their due
diligence, strikes at the South African platinum mines culminated in the shooting of rioters at Marikana,
a platinum mine owned by Lonmin Plc, in August 2012. Unsurprisingly, this sad event caused many institutions
to withdraw their interest in any mining company investment and only R40 million of bonds were placed in SA,
conditional on the balance of funds being raised elsewhere.
We turned to the London capital markets to fill the gap, but with the fallout from the European banking
crisis combined with intense media coverage of events on the South African platinum mines,
sentiment in the UK was not much better. However, supported by core investments from some of our
largest shareholders, we succeeded in placing GBP1.0 million of new equity and a further
GBP1.4 million of convertible bonds, which are parallel in most respects to the South African
instrument.
While we were in the process of finalising documentation for the bond issue, Laurelton Diamonds Inc.,
a wholly owned subsidiary of leading jewellery firm Tiffany & Co., heard that we were close to
financing Lace. Earlier in the year, Laurelton had shown strong interest in the Lace product, visited the
mine and viewed the bulk sample. Negotiations led to an offer of US$6 million as a term loan from
Laurelton in exchange for the right to purchase, on commercial terms related to fair market value,
diamond production from the Lace Mine. The Off-take Agreement is subject to any purchases by
the South African State Diamond Trader and will be for stones which meet the high quality and colour
characteristics required to yield Tiffany-standard polished diamonds. Larger (over 10.5 carats) and
special stones (any diamond worth more than $5,000 per carat) are excluded from the Off-take
Agreement. The balance of production that Tiffany does not purchase will be marketed by the
Company in Johannesburg and Antwerp at regular intervals.
Together, the convertible bonds, the new equity and the Laurelton loan total some R113 million, most
of which has been advanced to Lace to satisfy the initial drawdown condition of the IDC loan.
Lace Mine development schedule
The finance package was finalised in the first week of January 2013 with the signing of the Laurelton
loan, allowing underground development to resume in earnest at Lace. Over the next 12 months, the
following development is planned:
- Excavation of 66,500 cubic metres of surface material to establish a boxcut and new life of mine
access ramp and portal into the underground workings.
- Drilling and blasting of a 50m vent raise to by-pass a blockage in the old vertical shaft and
provide sufficient temporary ventilation so that underground development can be undertaken
to the 470m level.
- Drilling and blasting of approximately 3,000m of underground tunnelling comprising a 4.5m x
4.5m men and materials access decline alongside a 5m x 3m conveyor belt decline at 12
degrees.
- Approximately 2,000m of underground core drilling of the "bulge" area on the south-east side of
the main pipe to define the extent of additional kimberlite which might be available for mining
ahead of the block cave.
- Design, fabrication and installation of approximately 1,000m of conveyor belting. This conveyor
will ultimately extend to the underground crushing chamber below the 47 level block cave and
provide kimberlite feed for the plant.
- Refurbishment of the 1.2 million tpa Lace processing plant, including essential modifications to
allow the transition from treating tailings to treating underground kimberlite during 2014.
The underground development is being undertaken by the Company's own mining teams using our
fleet of 9.5-tonne low profile loaders, 20-tonne low profile dump trucks and face drilling rigs. The
experience that the Company gained during bulk sampling has demonstrated that considerable time
and financial savings can be achieved with this approach as we are too small to demand the best
rates and equipment from contractors. We also understand that equipment availability is critical to
high-speed underground development and have concentrated on building up a core competency in
rebuilding our heavy equipment on-site to ensure our mining fleet gives us the performance we
require. This approach underscores our long-term commitment to underground mining and has
allowed us to attract some high-calibre personnel with many years of experience in underground
kimberlite mining.
Diamond prices
Diamonds are raw materials in luxury goods manufacturing and diamond prices are therefore a
reflection of the health of the world economy. World markets remain volatile and demand for luxury
goods has been dampened as a consequence. Nonetheless, diamond prices appear to have
stabilised in the first few months of 2013, and market indicators look like we are starting to see early
signs of recovery in the US which remains the world's biggest market for diamonds. Diamond prices
are expected to remain volatile until such time as a sustained economic recovery is achieved.
The Company intends recommissioning the Lace plant before the middle of 2013 with kimberlite
tailings and we will then test the market in the second half of the year with sales of the diamonds we
recover. Depending on the prices achieved, the Company will assess if it is worth increasing tailings
production ahead of kimberlite being mined from underground in 2014.
Company strategy
It is very tempting for us to focus solely on the development of the Lace Mine which by any
account is one of the most attractive diamond projects in the world today. However, it is your Board`s
view that there are risks to being a one mine company and that with the skilled management team in
place, we should be looking for other assets.
In recent years, we have been offered diamond projects around the world but nothing has offered the
financial returns or upside potential we consider necessary to be value accretive for shareholders and
warrant the management attention required. We do not see value in most alluvial projects where it is
difficult to budget or plan ahead and we are not prepared to take the risk of operating in the
Democratic Republic of Congo or Angola at this time. We believe that the high level of risk of
grassroots exploration is not what our shareholders want and diversifying too far afield stretches the
budget of a small company. DiamondCorp`s skills are in underground mining of kimberlites to which
we can add the ability to find finance in the harshest market conditions.
Therefore, we will continue to look at new opportunities but you can be assured that they will only be
in the diamond sector and that our due diligence and risk assessment process will remain intense
while we will call on input from all our employees, directors and consultants.
In conclusion
In our statement a year ago, we wrote about the good and bad luck that had come our way. This
roller-coaster theme continued in 2012 but thanks to everyone`s perseverance, enthusiasm and
support, we are now on the way to developing the 47 Level block cave at Lace. Once established, this
should provide production for at least the next seven years, while subsequent block caves planned for
the 670 and 850m levels will allow us to access the currently defined mine resource of 13.3 million
carats over the next 25 years. With the pipe open at depth, Lace should operate for longer than this.
Our success would not have been possible without the great team we have in place at DiamondCorp
and while thanking everyone in the Company and our consultants, we would like to single out Steve
West, Chief Operating Officer and Andre Labuschagne, the new Lace Mine manager, who maintained
the morale of the workforce at the mine during a testing year.
We have been humbled by everyone`s efforts to secure development of the Lace Mine and, although
a lot of hard work remains to be done, we look forward to an exciting future for Lace and the
Company.
Euan Worthington - Chairman
Paul Loudon - Chief Executive
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2012
2012 2011
Notes GBP GBP
Depreciation and amortisation (669,656) (918,291)
Gain on insurance settlement - 2,195,816
Other income - 11,048
Write off of tailings inventory (275,561) -
Impairment of intangible asset - (2,373,616)
Write off of Botswana project - (1,013,032)
OPERATING LOSS 3 (3,346,737) (4,140,765)
Investment revenues 25,586 24,685
Finance costs (137,707) (123,066)
Fair value movement on convertible bonds 16 (44,821) -
Effective interest cost on convertible bonds 16 (31,261) -
LOSS BEFORE TAX (3,534,940) (4,239,146)
Tax 6 - -
LOSS FOR THE FINANCIAL YEAR (3,534,940) (4,239,146)
ATTRIBUTABLE TO:
Non-controlling interest 23 (518,325) (415,560)
(3,534,940) (4,239,146)
BASIC AND DILUTED LOSS PER SHARE 7 (1.22p) (1.87p)
HEADLINE LOSS PER SHARE* 7 (1.22p) (2.43p)
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 for the financial year (see note 7).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND
EXPENSE
Year ended 31 December 2012
2012 2011
GBP GBP
Net loss (3,534,940) (4,239,146)
Foreign exchange on translation of overseas operations (1,046,352) (2,443,288)
Total comprehensive expense (4,581,292) (6,682,434)
ATTRIBUTABLE TO:
Equity holders of the parent (4,165,241) (6,405,668)
Non controlling interest (416,051) (276,766)
(4,581,292) (6,682,434)
COMPANY INCOME STATEMENT
Year ended 31 December 2012
2012 2011
Notes GBP GBP
Administrative expenses (927,437) (943,158)
Write off of loan to Botswana Diamondcorp Limited - (1,021,402)
OPERATING LOSS 3 (927,437) (1,964,560)
Investment revenues 315 5,494
Finance costs (78,019) (123,066)
Fair value movement on convertible bonds 16 (26,226) -
Effective interest cost of convertible bonds 16 (8,410) -
LOSS FOR THE FINANCIAL YEAR (1,039,777) (2,082,132)
ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT (1,039,777) (2,082,132)
All of the activities of the Company are classed as continuing.
There were no other gains or losses during the year.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2012
2012 2011
Notes GBP GBP
NON-CURRENT ASSETS
Goodwill 8 4,606,026 4,606,026
Other intangible assets 8 - 4,641,801
Property, plant and equipment 9 8,776,273 4,609,284
13,382,299 13,857,111
CURRENT ASSETS
Inventories 11 297,474 442,433
Other receivables 12 195,028 182,350
Cash and cash equivalents 13 4,319,776 2,632,760
4,812,278 3,257,543
TOTAL ASSETS 18,194,577 17,114,654
CURRENT LIABILITIES
Other payables 14 (765,501) (498,876)
Other current borrowings 14/20 (68,485) -
Convertible bond notes payable 16 (2,642,739) -
Derivative financial instruments 17 (1,525,391) -
Provisions (119,745) (13,941)
(5,121,861) (512,817)
NET ASSETS 13,072,716 16,601,837
EQUITY
Share capital 21 8,125,184 7,268,041
Share premium account 26,795,360 26,702,502
Warrant reserve 22 92,000 505,877
Share option reserve 439,236 429,066
Translation reserve (750,150) 398,476
Retained losses (20,524,660) (18,013,922)
Equity attributable to equity holders of the parent 14,176,970 17,290,040
Non-controlling interest 23 (1,104,254) (688,203)
TOTAL EQUITY 13,072,716 16,601,837
The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of
Directors and authorised for issue on 10 May 2013.
Signed on behalf of the Board of Directors
E A Worthington
Director
COMPANY BALANCE SHEET
31 December 2012
2012 2011
Notes GBP GBP
NON-CURRENT ASSETS
Investments in subsidiaries 10 4,672,501 4,217,501
Property plant and equipment 9 297,258 317,075
CURRENT ASSETS
Other receivables 12 23,446,133 22,835,064
Cash and cash equivalents 13 1,363,545 257,042
TOTAL ASSETS 29,779,437 27,626,682
CURRENT LIABILITIES
Other payables 14 (413,597) (118,580)
Other current borrowings 14/20 (68,485) -
Financial guarantee contracts 16 (455,000) -
Convertible bond notes payable 16 (780,261) -
Derivative financial instruments 17 (541,598) -
(2,258,941) (118,580)
NET ASSETS 27,520,496 27,508,102
EQUITY
Share capital 21 8,125,184 7,268,041
Share premium account 26,795,360 26,702,502
Warrant reserve 22 92,000 505,877
Share option reserve 439,236 429,066
Retained losses (7,931,284) (7,397,384)
TOTAL EQUITY 27,520,496 27,508,102
The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of
Directors and authorised for issue on 10 May 2013.
Signed on behalf of the Board of Directors
E A Worthington
Director
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2012
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 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
Balance at 1 January 2012 7,268,041 26,702,502 505,877 429,066 398,476 (18,013,922) 17,290,040 (688,203) 16,601,837
Loss for financial year - - - - - (3,016,615) (3,016,615) (518,325) (3,534,940)
Other comprehensive income - - - - (1,148,626) - (1,148,626) 102,274 (1,046,352)
Total comprehensive income - - - - (1,148,626) (3,016,615) (4,165,241) (416,051) (4,581,292)
Issue of share capital 857,143 142,857 - - - - 1,000,000 - 1,000,000
Issue costs - (49,999) - - - - (49,999) - (49,999)
Warrants granted - - 92,000 - - - 92,000 - 92,000
Expiry of warrants - - (505,877) 505,877 - - -
Value attributed for equity settled share based payments - - - 10,170 - - 10,170 - 10,170
Balance at 31 December 2012 8,125,184 26,795,360 92,000 439,236 (750,150) (20,524,660) 14,176,970 (1,104,254) 13,072,716
STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2012
Share Share
Share premium Warrant option Retained
capital account reserve reserve losses Total
GBP GBP GBP GBP GBP GBP
COMPANY
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
Balance at 1 January 2012 7,268,041 26,702,502 505,877 429,066 (7,397,384) 27,508,102
Loss for financial year - - - - (1,039,777) (1,039,777)
Total comprehensive income - - - - (1,039,777) (1,039,777)
Issue of share capital 857,143 142,857 - - - 1,000,000
Issue costs - (49,999) - - - (49,999)
Warrants granted - - 92,000 - - 92,000
Expiry of warrants - - (505,877) - 505,877 -
Value attributed for equity settled share based payments - - - 10,170 - 10,170
Balance at 31 December 2012 8,125,184 26,795,360 92,000 439,236 (7,931,284) 27,520,496
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2012
2012 2011
GBP GBP
Operating loss (3,346,737) (4,140,765)
Depreciation and amortisation 669,656 918,291
Share-based payment charge 10,170 26,483
Warrants granted 92,000 -
Gain on disposal of property plant and equipment - (1,985)
Write off of tailings inventory 275,561 -
Impairment of intangible asset - 2,373,616
Write off of Botswana project - 1,013,032
(Increase) decrease in other receivables (12,675) 215,916
Increase in inventories (140,443) (87,084)
Increase (decrease) in other payables 266,625 (156,668)
NET CASH (USED IN) FROM OPERATING ACTIVITIES (2,185,843) 160,836
INVESTING ACTIVITIES
Purchase of intangible assets - (3,996,606)
Purchase of property, plant and equipment (850,034) (376,794)
Disposal of property, plant and equipment - 74,265
Investment revenues 25,586 24,685
NET CASH USED IN INVESTING ACTIVITIES (824,448) (4,274,450)
FINANCING ACTIVITIES
Repayment of borrowings - (2,308,016)
Net director loan received 50,000 -
Proceeds on issue of convertible bonds, net of issue costs 3,911,944 -
Proceeds on issue of ordinary shares, net of issue costs 950,001 5,251,318
NET CASH FROM FINANCING ACTIVITIES 4,911,945 2,943,302
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,901,654 (1,170,312)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,632,760 4,293,185
Effect of foreign exchange rate changes (214,638) (490,113)
CASH AND CASH EQUIVALENTS AT END OF YEAR 4,319,776 2,632,760
As outlined in note 13 to the financial statements, GBP4.1 million of the cash and cash equivalents held by the Group
at 31 December 2012 was restricted.
COMPANY CASH FLOW STATEMENT
Year ended 31 December 2012
2012 2011
GBP GBP
Operating loss (927,437) (1,964,560)
Share option expense 10,170 26,483
Warrants granted 92,000 -
Write off of loan to Botswana Diamondcorp Limited - (1,021,402)
Increase in other receivables (611,069) (3,717,442)
Increase (decrease) in other payables and other current borrowings 306,211 (49,431)
NET CASH USED IN OPERATING ACTIVITIES (1,110,308) (6,706,535)
INVESTING ACTIVITIES
Investment revenues 315 5,494
NET CASH FROM INVESTING ACTIVITIES 315 5,494
FINANCING ACTIVITIES
Repayment of borrowings - (2,308,016)
Net director loan received 50,000 -
Proceeds on issue of convertible bonds 1,216,495 -
Proceeds on issue of ordinary shares 950,001 5,251,318
NET CASH FROM FINANCING ACTIVITIES 2,216,496 2,943,302
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,106,503 (3,757,739)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 257,042 4,014,781
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,363,545 257,042
As outlined in note 13 to the financial statements, GBP1.2 million of the cash and cash equivalents held by the
Company at 31 December 2012 was restricted.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2012
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 71 of 2008. 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 7.
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 may
impact the accounting for future transactions and arrangements.
Amendments to IFRS 7 Financial The Group has applied the amendments to IFRS 7 titled Disclosures
instruments: Disclosures Transfers of Financial Assets in the current year. The amendments
increase the disclosure requirements for transactions involving the
transfer of financial assets in order to provide greater transparency
around risk exposures when financial assets are transferred.
Amendments to IAS 12 Income taxes The Group has applied the amendments to IAS 12 (December
2010) titled Deferred tax: Recovery of underlying assets. The
amendments provide a practical approach for measuring deferred
tax liabilities and deferred tax assets when investment property is
measured using the fair value model in IAS 40 Investment
Property. The amendments introduce a presumption that an
investment property is recovered entirely through sale. This
presumption is rebutted if the investment property is held within a
business model whose objective is to consume substantially all of
the economic benefits embodied in the investment property over
time, rather than through sale.
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) Government Loans
IFRS 7 (amended) Disclosures - Offsetting Financial Assets and Financial Liabilities
Annual Improvements to IFRSs (2009 2011) Cycle
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 10, IFRS 12 and IAS 27 Investment entities (amended)
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
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 directors do not expect that the adoption of the standards listed above will have a material impact on the
financial statements of the Group in future periods, except as follows:
- IFRS 7 (amended) will increase the disclosure requirements where netting arrangements are in place
for financial assets and financial liabilities;
- IFRS 9 will impact both the measurement and disclosures of Financial Instruments;
- IFRS 12 will impact the disclosure of interests DiamondCorp plc has in other entities; and
- IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the
associated disclosures.
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.
As at 31 December 2012 the group had drawn down GBP4.3 million relating to the UK and South African
convertible bonds, giving a cash balance of GBP4.3 million.
As set out in note 16, the UK and South African convertible bonds are currently legally repayable on demand
in cash, for an amount equal to the value of shares calculated under the conversion formula. The current Group
share price of 4.3 pence is 35% lower than the share price required, if the convertible bonds are called, for the
full repayment of the original principal amount of the UK and South African convertible bonds.
Only once a special resolution is passed at a general meeting of shareholders, will the Group then have the
option of settling the debt, if called, through the issue of a fixed amount of shares. The directors plan to
propose the necessary special resolution at the Annual General Meeting ("AGM"), scheduled for July 2013.
Whilst the directors remain confident that the special resolution will be passed at the AGM and the holders
will not seek early redemption of the convertible bonds prior to the AGM, if this were to take place the Group
may have insufficient unrestricted cash to meet any amounts due which would be proportionate to the share
price of the group. After making an assessment of the likelihood of the convertible bonds being called prior to
the special resolution being obtained and the Group's cash flow forecasts, the directors have a reasonable
expectation that the Group will continue to have sufficient funds available to meet any financial obligations in
respect of the convertible bonds.
Post-year-end the Group signed and on 10 April 2013 drew down the final tranche of the $6 million (GBP4
million) Laurelton loan. Following this, the Group has secured the full R100 million of additional funding
required as a condition precedent for the drawdown of the R220 million (GBP15.7 million) IDC loan facility.
Subject to the successful completion of a number of remaining procedural conditions precedent, management
is confident the Group will be able to drawdown on the IDC loan facility in the near future. As at 19 April
2013 the Group had a cash balance of GBP5.6 million, which combined with the undrawn IDC loan facility,
provides full funding for the development of the Lace mine. The funding from the above convertible bonds
and loans are restricted solely for that use.
While all of the necessary finance for the development of the Lace mine has been secured, the restricted nature
of those funds means the Company has insufficient cash to cover its corporate costs and will have to
supplement its cash resources by accessing the equity markets in the imminent future.
The requirement for the Company to raise additional equity funds in the imminent future indicates the
existence of a material uncertainty which may cast significant doubt about the Company's ability to continue
as a going concern. After making an assessment of the Group's ability to raise further equity funds, given the
successful fundraisings in the current and prior years, the Directors have a reasonable expectation that the
Group can raise additional equity funds as required and therefore they continue to adopt the going concern
basis of preparation in 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 intraGroup 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 (ie 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 (ie 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.
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; or
(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 preproduction 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.
During the current year, a decision was taken that the mining property is economically feasible therefore all
previous exploration and evaluation and pre-production development expenditure has now been capitalised
within property, plant and equipment under construction in progress and has been transferred from intangible
assets.
i) Property, plant and equipment
Initial recognition
Upon completion of mine construction, the assets are transferred into "Property, plant and equipment". Items
of property, plant and equipment and producing mine are stated at cost, less accumulated depreciation and
accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to
bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets
(where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and
the fair value of any other consideration given to acquire the asset. The capitalised value of a finance lease is
also included within property, plant and equipment.
When a mine construction project moves into the production stage, the capitalisation of certain mine
construction costs ceases and costs are either regarded as part of the cost of inventory or expensed, except for
costs which qualify for capitalisation relating to mining asset additions or improvements, underground mine
development or mineable reserve development.
Mines under construction
Upon transfer of "Exploration and evaluation assets" into "Construction in progress" within "Property, plant
and equipment", all subsequent expenditure on the construction, installation or completion of infrastructure
facilities is capitalised within "Construction in progress". Development expenditure is net of proceeds from
all, but the incidental sale of ore extracted during the development phase. After production starts, all assets
included in "Construction in progress" are transferred to "Mining properties" within "Property, plant and
equipment".
Depreciation/amortisation
Accumulated mine development costs are depreciated/amortised on a unit-of-production basis over the
economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is
shorter than the life of the mine, in which case the straight-line method is applied.
The unit-of-production rate for the depreciation/amortisation of mine development costs takes into account
expenditures incurred to date, together with sanctioned future development expenditure.
Other plant and equipment such as mobile mine equipment is generally depreciated on a straight-line basis
over their estimated useful lives as follows:
Buildings 20 years
Plant and equipment 5 to 20 years
Mining rights (life of mining right 20 years)
Other tangible assets 3 to 5 years
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.
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.
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 and any significant part initially recognised is derecognised upon
disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in profit or loss when the asset is derecognised.
The assets' residual values, useful lives and methods of depreciation/amortisation are reviewed at each
reporting period, and adjusted prospectively if appropriate.
Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets
and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is
replaced, and it is probable that future economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a component, the replacement value is used to
estimate the carrying amount of the replaced asset(s).
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 revalued 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) Financial liabilities
Financial liabilities are classified as either financial liabilities "at FVTPL" or "other financial liabilities".
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is
designated as at FVTPL.
A financial liability is classified as held for trading if:
- it has been incurred principally for the purpose of repurchasing it in the near term; or
- on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial
recognition if:
- such designation eliminates or significantly reduces a measurement or recognition inconsistency that
would otherwise arise; or
- the financial liability forms part of a group of financial assets or financial liabilities or both, which is
managed and its performance is evaluated on a fair value basis, in accordance with the Group's
documented risk management or investment strategy, and information about the grouping is provided
internally on that basis; or
- it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to
be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on
the financial liability and is included in the "other gains and losses" line item in the income statement. Fair
value is determined in the manner described in note 25.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability, or, where appropriate, a
shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged,
cancelled or they expire.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and
foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross
currency swaps. Further details of derivative financial instruments are disclosed in note 25.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised
in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The
Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm
commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign
currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative
fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current
liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be
realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives
when their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at FVTPL.
An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity
of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected
to be realised or settled within 12 months. Other derivatives are presented as current assets or current
liabilities.
l) 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.
m) 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, 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, and restricted cash.
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.
Convertible bond policy
The component parts of compound instruments (convertible bonds) issued by the Group are classified
separately as an amortised cost financial liability and an embedded derivative financial liability in accordance
with the substance of the contractual arrangement. At the date of issue, the fair value of the embedded
derivative financial liability component is estimated using observable market data input into the Black Scholes
model, modified for the Barone Adesi Whaley approximation. This amount is recorded as an embedded
derivative financial liability held at fair value through profit and loss. The amortised cost financial liability
(host debt contract) is determined by deducting the amount of the embedded derivative component from the
fair value of the compound instrument as a whole. The host debt contract is held on an amortised cost basis
using the effective interest method until extinguished upon conversion or at the instrument's maturity date.
Financial guarantee contract liabilities
Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as at
FVTPL, are subsequently measured at the higher of:
- the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets; and
- the amount initially recognised less, where appropriate, cumulative amortisation recognised in
accordance with the revenue recognition policies set out above.
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.
n) 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.
o) Environmental restoration and decommissioning obligations
An obligation to incur environmental restoration, rehabilitation and decommissioning costs arises when
disturbance is caused by the development or ongoing production of a mining property. Such costs arising
from the decommissioning 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 recognised in the income statement 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
recognised in the income statement 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.
p) 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 was amortized on the
units of production method. During 2012, tailings inventory was written off as processing it was deemed
uneconomical at current diamond prices.
Inventory relating from development of the underground is carried at the lower of cost and net realisable
value.
q) 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 preproduction 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.
r) 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.
s) 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 24.
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.
t) 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 p 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 22 and 24.
- Valuation of convertible bonds - Judgement is applied in determining appropriate assumptions to be used in
calculating the fair value of convertible bonds. See note 16.
- 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 g and h 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 31.
2. BUSINESS AND GEOGRAPHICAL SEGMENTS
For management purposes, the Group has one business and geographical segment - diamond mining and
exploration at the Lace mine in South Africa.
3. OPERATING LOSS
Group Group Company Company
2012 2011 2012 2011
GBP GBP GBP GBP
Operating loss is after charging (crediting):
Auditors' remuneration 79,855 75,500 53,255 52,500
Foreign exchange losses 372 110,806 372 110,806
Profit on disposal of fixed assets - (1,985) - -
Depreciation and amortisation 669,656 918,291 19,817 19,817
Write off of tailings inventory 275,561 - -
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 53,255 52,500 53,255 52,500
Fees payable to the Company's auditors and their
associates for other services to the Group
The audit of the Company's subsidiaries 26,600 23,000 - -
Total audit fees 79,855 75,500 53,255 52,500
TOTAL 79,855 75,500 53,255 52,500
There were no non-audit services in 2012 (2011 - nil).
4. STAFF COSTS
Staff costs of the Group and Company were:
2012 2011
GROUP GBP GBP
Wages and salaries 948,160 775,874
Social security costs 85,061 48,100
Average number of administrative staff 8 9
Average number of operational staff 62 58
Average number of employees 70 67
2012 2011
COMPANY GBP GBP
Wages and salaries 155,208 188,465
Social security costs 18,118 22,414
Average number of employees 3 4
5. DIRECTORS' EMOLUMENTS
Directors' emoluments for the year ended 31 December 2012 and 2011 and for the highest paid director were
as follows:
2012 2011
GBP GBP
Directors' remuneration
Fees paid by the Company and its subsidiaries 277,541 252,167
Emoluments of highest paid director 163,541 137,500
Refer to the Remuneration Report where the detail of directors' remuneration has been disclosed.
6. TAX
GROUP 2012 2011
GBP GBP
Current tax - -
Deferred tax (see note 19) - -
Tax expense for the year - -
The charge for the year can be reconciled to the loss per the income statement as follows:
2012 2011
GBP GBP
Loss for the year (3,534,940) (4,239,146)
Tax at the UK corporation tax rate of 24.5% (2011 - 26.5%) (866,060) (1,123,374)
Expenses not deductible 55,710 308,733
Tax losses carried forward 810,350 814,641
Tax expense for the year - -
In March 2012, the UK Government announced a reduction in the standard rate of UK corporation tax to 24%
effective 1 April 2012 and to 23% effective 1 April 2013. These rate reductions became substantively enacted
in March 2012 and July 2012, respectively.
In December 2012, the UK Government also proposed to further reduce the standard rate of UK corporation
tax to 21% effective 1 April 2014.
In March 2013, the UK Government also proposed to further reduce this standard rate of UK corporation tax
to 20% effective 1 April 2015, but this change has not been substantively enacted.
The effect of these tax rate reductions on the deferred tax balance will be accounted for in the period in which
the tax rate reductions are substantively enacted.
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 247,576,401 (2011 - 203,928,771).
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. The
calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential
ordinary shares that would increase the net profit or decrease the net loss per share. As the Group is currently
in a loss-making position then the inclusion of the potential ordinary shares associated with share options or
the convertible bonds in the diluted loss per share calculation would serve to decrease the net loss per share.
On that basis, no adjustment has been made for diluted loss per share.
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 2012 2011
Loss per share (1.22p) (1.87p)
Effect of gain on insurance settlement - 0.80p
Effect of impairment of intangible assets - (1.36p)
Adjusted loss per share (1.22p) (2.43p)
8. INTANGIBLE ASSETS
For the year ended 31 December 2012
Pre-production Under-ground
GROUP Power line Power line capitalised capitalised
Goodwill Phase 1 Phase 2 expenses expenses Mineral rights Total
GBP GBP GBP GBP GBP GBP GBP
Cost
At 1 January 2012 4,606,026 395,661 150,538 453,472 6,510,102 629,528 12,745,327
Transfer to property, plant and
equipment - (395,661) (150,538) (453,472) (6,510,102) (629,528) (8,139,301)
At 31 December 2012 4,606,026 - - - - - 4,606,026
Accumulated amortisation
At 1 January 2012 - (79,752) (30,344) (62,722) (3,198,777) (125,905) (3,497,500)
Transfer to property, plant and
equipment - 79,752 30,344 62,722 3,198,777 125,905 3,497,500
At 31 December 2012 - - - - - - -
Carrying amount
At 31 December 2012 4,606,026 - - - - - 4,606,026
At 31 December 2011 4,606,026 315,909 120,194 390,750 3,311,325 503,623 9,247,827
At 1 January 2012, a decision was taken that the mining property is economically feasible and therefore all previous exploration and evaluation and pre-
production development expenditure has been transferred from intangible assets and has now been capitalised within property, plant and equipment under
construction in progress.
Pre-production Under-ground
GROUP Power line Power line capitalised capitalised
Goodwill Jwaneng Phase 1 Phase 2 expenses expenses Mineral rights Total
GBP GBP GBP GBP 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).
9. PROPERTY, PLANT AND EQUIPMENT
For the year ended 31 December 2012
GROUP Land
and Plant and Mining Construction
buildings equipment rights in progress Total
GBP GBP GBP GBP GBP
Cost
At 1 January 2012 241,829 7,869,059 - - 8,110,888
Transfer from intangible assets 546,199 - 629,528 6,963,574 8,139,301
Additions 78,282 97,709 - 780,773 956,764
Exchange differences (69,737) (658,986) (19,461) (624,214) (1,372,398)
At 31 December 2012 796,573 7,307,782 610,067 7,120,133 15,834,555
Accumulated depreciation
At 1 January 2012 (62,318) (3,439,286) - - (3,501,604)
Transfer from intangible assets (110,097) - (125,905) (3,261,498) (3,497,500)
Charge for the year (41,058) (597,524) (31,075) - (669,656)
Exchange differences 16,472 317,346 4,463 272,198 610,478
At 31 December 2012 (197,001) (3,719,464) (152,517) (2,989,300) (7,058,282)
Carrying amount
At 31 December 2012 599,572 3,588,318 457,550 4,130,833 8,776,273
At 31 December 2011 179,511 4,429,773 - - 4,609,284
Plant and equipment includes mining fleet, processing plant, office equipment and motor vehicles which were previously separately classified. The property, plant and
equipment is pledged as security for the Convertible Bonds. However, once the IDC loan is drawn down in whole or in part, the Bondholders security interest in these assets
will be subordinated to the security interest of the Industrial Development Corporation of South Africa Limited ("IDC"). On 1 January 2012, a decision was taken that the
mining property is economically feasible therefore all previous exploration and evaluation and pre-production development expenditure has now been capitalised within
property, plant and equipment under construction in progress and has been transferred from intangible assets.
GROUP Land Other
Plant and Mining and tangible
equipment fleet buildings assets Total
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 2012
COMPANY Mining
rights
GBP
Cost and carrying amount
At 1 January 2012 317,075
Charge for the year (19,817)
At 31 December 2012 297,258
For the year ended 31 December 2011
COMPANY Mining
rights
GBP
Cost and carrying amount
At 1 January 2011 336,892
Charge for the year (19,817)
At 31 December 2011 317,075
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 2040. 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.
10. INVESTMENT IN SUBSIDIARIES
For the year ended 31 December 2012
COMPANY GBP
Cost and carrying amount
At 1 January 2012 4,217,501
Capital contribution 455,000
At 31 December 2012 4,672,501
For the year ended 31 December 2011
COMPANY GBP
Cost and carrying amount
At 1 January 2011 and 31 December 2011 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.
The capital contribution made during 2012 relates to the financial guarantee that DiamondCorp plc has
provided to Soapstone Investments (Pty) Limited ("Soapstone"), its 100% owned subsidiary registered in South
Africa, in respect of the convertible bonds issued by Soapstone during the year (see note 16). The financial
guarantee contract has been recorded at fair value in DiamondCorp plc's balance sheet with a corresponding
increase in the carrying value of the investment.
11. INVENTORIES
2012 2011
GROUP GBP GBP
Work in progress (tailings) - 285,402
Diamond inventories 293,283 141,889
Consumable and other inventories 4,191 15,142
297,474 442,433
Diamond inventories at 31 December 2012 totalled 7,193 carats. Of these, 2,168 carats were recovered from
bulk testing and the balance (5,025 carats) from tailings.
During 2012, tailings inventory was written off as processing it was deemed uneconomical at current diamond
prices.
12. OTHER RECEIVABLES
Group Group Company Company
2012 2011 2012 2011
GBP GBP GBP GBP
Receivables due from Group undertakings - - 23,436,966 22,802,199
Prepayments and other receivables 195,028 182,350 9,167 32,865
195,028 182,350 23,446,133 22,835,064
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 an environmental rehabilitation and decommissioning bond
held by the Department of Mineral Resources in the amount of GBP92,372 (2011 - GBP67,923) providing for
the originally determined cost of environmental rehabilitation and decommissioning on termination of the
Lace project.
13. CASH AND CASH EQUIVALENTS
Group Company
2012 2011 2012 2011
GBP GBP GBP GBP
Cash and cash equivalents 4,319,776 2,632,760 1,363,545 257,042
Included in the cash and cash equivalents at 31 December 2012 are the following:
- GBP2,922,716 (R 40 million) of proceeds from the issue of the SA Bonds held in an escrow account; and
- GBP1,210,000 of restricted cash being the proceeds from the issue of the UK Bonds:
The proceeds from the issue of bonds are to be released upon completion of the loan agreement between
Diamondcorp Holdings Limited, an associated company, and Laurelton Diamonds, Inc. (note 27).
14. OTHER PAYABLES
Group Group Company Company
2012 2011 2012 2011
GBP GBP GBP GBP
Accruals and deferred income 833,986 498,876 482,082 118,580
The Directors consider that the carrying amount of these liabilities approximates their fair value. All payables
balances are non-interest bearing.
15. BORROWINGS
On 17 October 2008, the Company arranged a long-term loan with Africa Opportunity Fund L.P. ("AOF") in
the amount of US$5,000,000. The loan was secured by the Company's equity interest in Lace Diamond Mines
(Pty) Limited and by the assets of the Company's subsidiaries. In October 2011, the final amount due under the
loan with AOF was repaid in full and the Company and its subsidiaries have been released of all security. The
following discussion provides a history of the loan.
Reconciliation of payments made on long-term loan: Principal Interest Total
US$ US$ US$
Amounts paid as at 31 December 2011 5,000,000 1,473,928 6,473,928
Interest accrued daily and was paid half-yearly at a rate of 12%. Any portion of the interest in relation to a
reporting period that remained unpaid, was accrued for.
The cost of the warrants granted to AOF, GBP57,566, (see note 22) has been offset against the loan in
accordance with IAS 39. The cost of these warrants was to be expensed over the life of the loan and did not
constitute payment towards the loan. The warrant cost expensed during the period was GBPnil (2011 -
GBPnil). The loan was repaid in full in 2011.
16. CONVERTIBLE LOAN NOTES
UK Bonds
On 14 December 2012, the Company, issued GBP1,410,000 14% senior secured bonds (the "UK Bonds") to
investors in the United Kingdom. The proceeds of the UK Bonds was held in escrow and released from
escrow upon completion of a loan agreement between Diamondcorp Holdings Limited, an associated
company, and Laurelton Diamonds, Inc.. The UK Bonds are due for repayment 31 December 2018 with
interest payable quarterly in arrears, with the first 24 months of interest on the UK Bonds to be accumulated
and added to the principal amount to be repaid. Bondholders can request conversion of the UK Bonds and
outstanding interest at any time after 41 days from issue, or 24 January 2013. Any request for conversion can
be settled at the absolute discretion of the Company with ordinary shares at 5.81 pence per share or the cash
equivalent of the number of underlying shares multiplied by the share price at the time of conversion. The UK
Bonds are secured by the assets of the Company and have a reversionary interest in the assets of Lace
Diamond Mines (Pty) Limited. GBP250,000 of the UK Bonds were taken up by directors of the Company or
other related parties (see note 20).
SA Bonds
On 14 December 2012, Soapstone Investments (Pty) Limited ("Soapstone"), wholly owned subsidiary of the
Company, issued R 40,000,000 14% senior secured bonds (the "SA Bonds") to investors in South Africa. The
proceeds of the SA Bonds was held in escrow and released from escrow upon completion of a loan agreement
between Diamondcorp Holdings Limited, an associated company, and Laurelton Diamonds, Inc.. The SA
Bonds are due for repayment 31 December 2018 with interest payable quarterly in arrears, the first payment
being 14 March 2013. The first two years of interest will be held in escrow to be paid on the quarterly interest
dates. Bondholders can request conversion of the SA Bonds and outstanding interest at any time after 41 days
from issue, or 24 January 2013. Any request for conversion can be settled at the absolute discretion of the
Company with ordinary shares at R 0.81 per share or the cash equivalent of the number of underlying shares
multiplied by the share price at the time of conversion. The SA Bonds are secured by the assets of Soapstone
and have a reversionary interest in the assets of Lace Diamond Mines (Pty) Limited. The SA Bond is also
secured by way of a financial guarantee provided by DiamondCorp plc.
The net proceeds received from the issue of the UK Bonds and SA Bonds (together "the Bonds") have been
split between the financial liability element and an embedded derivative component, representing the fair
value of the embedded option to convert the financial liability with reference to the Company's share price
(either through the payment of cash or issuance of equity), as follows:
GROUP GBP
Proceeds on issue of convertible loan notes (net of issue costs) 3,911,944
Embedded derivative component
Balance at date of issue 1,462,589
Fair value movement 44,821
Exchange differences 17,981
Balance at 31 December 2012 1,525,391
Liability component
Balance at date of issue 2,577,340
Effective interest charged 31,261
Exchange differences 34,138
Balance at 31 December 2012 2,642,739
The liability component is measured at amortised cost. The interest expensed for the year is calculated by
applying an effective interest rate of 23.6 per cent for the UK Bonds and 26.5 per cent for the SA Bonds to the
liability component for the 17-day period since the loan notes were issued. The difference between the
carrying amount of the liability component at the date of issue and the amount reported in the balance sheet at
31 December 2012 represents the effective interest rate less interest paid to that date.
Issue costs totalling GBP366,920 were incurred in issuing the UK and SA Bonds. Of this amount,
GBP127,985 was allocated to the embedded derivative element of the convertibe bonds and was recognised in
the income statement during the year. The remaining amount was allocated to the liability component and was
capitalised onto the balance sheet and is taken into account when calculating the effective interest rate for the
Bonds.
COMPANY GBP
Proceeds on issue of convertible loan notes (net of issue costs) 1,216,494
Embedded derivative component
Balance at date of issue 515,372
Fair value movement 26,226
Balance at 31 December 2012 541,598
Liability component
Balance at date of issue 771,851
Effective interest charged 8,410
Balance at 31 December 2012 780,261
Issue costs totalling GBP193,506 were incurred in issuing the UK Bonds. Of this amount, GBP70,729 was
allocated to the embedded derivative element of the convertible bonds and was recognised in the income
statement during the year. The remaining amount was allocated to the liability component and was capitalised
onto the balance sheet and is taken into account when calculating the effective interest rate for the Bonds.
DiamondCorp plc has provided a financial guarantee to the Bondholders of the SA Bond, guaranteeing any
amounts due under the SA Bond agreement by its wholly owned subsidiary, Soapstone Investments (Pty) Limited.
This financial guarantee meets the definition of a financial guarantee contract under IAS 39, Financial
Instruments: Recognition and Measurement. In accordance with IAS 39, the financial guarantee contract must
be recognised initially at fair value. The fair value of the financial guarantee contract has been determined to
be GBP455,000 and this amount has been recorded as a financial liability on the Company's balance sheet,
with a corresponding increase in the cost of its investment balance.
Based on expectations at the end of the reporting period, the Company considers that it is more likely than not
that no amount will be payable under the arrangement. However, this estimate is subject to change depending
on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that
the financial receivables held by the counterparty which are guaranteed suffer credit losses.
17. DERIVATIVE FINANCIAL INSTRUMENTS
2012
GROUP GBP
Financial liabilities carried at fair value through profit or loss (FVTPL) 1,525,391
2012
COMPANY GBP
Financial liabilities carried at fair value through profit or loss (FVTPL) 541,598
Further details of these derivative financial instruments related to the bonds are provided in notes 16 and 25.
18. COMMITMENTS
IDC Loan
On 20 September 2012, Lace Diamond Mine (Pty) Limited ("Lace"), wholly owned subsidiary of the Company,
entered into an agreement with the Industrial Development Corporation of South Africa Limited ("IDC")
whereby IDC will provide a project loan facility of R220,000,000. The term of the loan is seven years with an
interest rate of South Africa Prime Rate + 2%. The initial drawdown must occur before 31 July 2014 and
interest from the initial drawdown date will be capitalised for two years, subject to a maximum of R20,141,000
and thereafter is payable semi-annually in arrears. The loan is repayable in 10 biannual payments of R24,014,000
commencing on the date that is two years after the initial drawdown date and every six months thereafter.
The IDC Loan is secured by a general charge over the assets of Lace. In addition there is a cession in favour
of IDC of shares held by Lace's shareholders and of loans to Lace by shareholders and associated companies.
The initial drawdown is conditional on R100,000,000 having been advanced to Lace by shareholders and associated
companies after 20 September 2012.
19. 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 GBP5,458,225 (2011 - GBP4,847,154), 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.
20. 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 2012:
(i) GBP131,458 (2011 - GBP92,667) were paid to the following companies as directors' remuneration:
- GBP91,458 to Glendree Capital Management Limited (2011 - GBP60,000), a company owned
by P R Loudon;
- GBP20,000 to Loeb Aron & Company Limited (2011 - GBP12,000), a company where P R Loudon
and J Willis-Richards are directors, of which GBP8,000 was paid to Loeb Aron as
commission on placing bonds and GBP12,000 as non-executive directors fees for Mr Willis-
Richards. In addition, Loeb Aron subscribed to GBP50,000 of the UK Bonds (see note 16).
- GBP20,000 to European Islamic Investment Bank plc (2011 - GBP20,667), represented on the
Company's Board of Directors by M Toxvaerd (appointed 1 May 2012) and G K Morton and S
Benkhadra (resigned 19 September 2011) in 2011;
(ii) During 2012, Mr Worthington made a loan to the Company of GBP150,000 bearing cumulative
interest at 1% per month. On 14 December 2012, GBP100,000 of the loan was settled by the Company
through the issuance of GBP100,000 of convertible bonds (see below). At 31 December 2012, the
amount owing to Mr Worthington, including interest, amounted to GBP68,485, of which GBP18,485
constitutes interest.
(iii) During 2012, Messrs Worthington and Loudon both participated in the UK Bond placement (note 16),
each taking up GBP100,000 in bonds. In consideration Mr Loudon waived outstanding remuneration
owing to him of the same amount.
COMPANY
The Company held a loan to Diamondcorp Holdings Limited of GBP23,553,845 (2011 - GBP22,802,199).
The Company has provided a financial guarantee to the Bondholders of the SA Bond, guaranteeing any
amounts due under the SA Bond agreement by its wholly owned subsidiary, Soapstone Investments (Pty) Limited.
See note 16 for further details.
21. SHARE CAPITAL
2012 2011
Number GBP Number GBP
Called up, allotted and fully paid
Ordinary shares of 3 pence each 270,839,478 8,125,184 242,268,048 7,268,041
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.
In October 2012, the Company issued 28,571,430 ordinary shares at 3.5 pence each. The cost associated with
the issuance of these shares has been charged to the share premium account.
22. WARRANT RESERVE
Warrant
Warrants reserve
in issue GBP
GROUP AND COMPANY
Outstanding at 1 January 2012 5,816,666 505,877
Granted during the year 5,000,000 92,000
Expired during the year (5,816,666) (505,877)
Outstanding at 31 December 2012 5,000,000 92,000
GROUP AND COMPANY
Outstanding at 1 January 2011 and 31 December 2011 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) Darwin Warrants
In respect of agreeing to provide a standby equity finance facility of up to GBP10,000,000 which can be
drawn upon at the Company's discretion during a period of 36 months ending on 18 October 2015, the
Company has granted 5,000,000 warrants to Darwin Strategic Limited a unit of Henderson Global Investors
which are exercisable at 9 pence on or before 18 October 2015.
Black-Scholes Assumptions Vendor AOF Darwin
Warrants* Warrants Warrants
Term range 5.6 years 0.5 years 3 years
Expected dividend yield Nil Nil Nil
Risk free interest rate 5 % 2 % 1.4 %
Share price volatility 55 % 40 % 100 %
Share price at time of grant 45 pence 56.5 pence 4 pence
* These warrants were subject to the share consolidation on 30 June 2006.
23. NON CONTROLLING INTEREST
GBP
GROUP
Balance at 1 January 2011 (411,437)
Share of total comprehensive loss for the year (415,560)
Currency translation loss 138,794
Balance at 1 January 2012 (688,203)
Share of total comprehensive loss for the year (518,325)
Currency translation gain 102,274
Balance at 31 December 2012 (1,104,254)
24. 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.
2012 2011
Weighted Weighted
average average
Number of exercise Number of exercise
share price share price
options (GBP) options (GBP)
Outstanding at beginning of year 6,345,000 19p 6,595,000 55p
Granted during the year - -
Forfeited during the year - (250,000)
Exercised during the year - -
Expired during the year - -
Outstanding at the end of the year 6,345,000 15p 6,345,000 19p
Exercisable at the end of the year 5,125,000 21p 3,838,333 24p
At 31 December 2012, 6,345,000 options were outstanding at a weighted average exercise price of 15 pence, and a
weighted average remaining contractual life of 6.5 years.
During 2012, the Group recognised total expenses of GBP10,170 (2011 - GBP26,483) relating to equity-
settled share-based payment transactions.
Black-Scholes Assumptions The
2010 2007 DiamondCorp
Option UK Option Share 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 grant 6.88 pence 90 pence 34.5 pence
(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 three 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 2012, 2,130,000 options were outstanding under this plan (2011 - 2,130,000).
(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 three 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.
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.
At 31 December 2012, the number of options outstanding under this plan was 555,000 (2011 - 555,000).
(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 three 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.
During 2012 the exercise price of these options was adjusted to 5 pence. All other conditions remain
unchanged.
At 31 December 2012, 3,660,000 options were outstanding under this plan (2011 - 3,660,000).
25. 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 (note 13) and equity attributable to equity holders of the parent, comprising issued capital,
reserves and retained earnings. 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
2012 2011 2012 2011
GBP GBP GBP GBP
Financial assets
Loans and receivables (including cash and cash
equivalents) 287,060 2,632,760 23,716,556 23,092,106
Financial liabilities
Amortised cost 3,476,725 498,876 1,023,680 118,580
Financial guarantee contracts - - 455,000 -
Derivative instruments designated as fair value
through profit and loss (FVPL) 1,525,391 - 541,598 -
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.
Valuation techniques and assumptions applied for the purposes of measuring fair value
The fair values of derivative instruments are calculated using quoted prices. Where such prices are not
available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the
instruments for non-optional derivatives, and option pricing models for optional derivatives. The fair value of
the embedded derivative component of the convertible bonds was determined using the Black Scholes (using
the Barone-Adesi and Whaley approximation technique) option pricing model. The table below outlines the
fair value inputs used in the embedded derivative valuation.
Black-Scholes Assumptions 31 December 14 December
2012 2012
Term range 6 years 6 years
Expected dividend yield Nil Nil
Risk free interest rate 1.4 % 1.4 %
Share price volatility 96 % 96 %
Share price at time of valuation 3.9 pence 3.8 pence
The embedded derivative component of the convertible bonds is deemed to represent a Level 2 fair value
instrument in the fair value hierarchy.
- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities;
- Level 2 fair value measurements are those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie
derived from prices); and
- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data (unobservable inputs).
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 20. 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)
2012 2011
GBP GBP
Cash denominated in South African Rand 2,958,573 371,924
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
2012 2011
GBP GBP
Loss due to a 20% depreciation of the ZAR (390) -
Profit due to a 20% appreciation of the ZAR 586 -
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.
In respect of the financial liability and the financial guarantee contract liability (Company only), the terms on
which those instruments might be required to be settled are outlined in note 16. The amounts outlined below
in respect of these financial instruments represent the amortised cost financial liability and the fair value
financial guarantee contract which are currently repayable on demand and disclosed as current liabilities in the
balance sheet of the Group and the Company.
GROUP
Weighted average Less
effective interest than
rate 1 year
% GBP
2012
Non-interest bearing - 486,004
Finance lease liability - -
Fixed interest rate instruments 13.9% 2,711,224
3,197,228
2011
Non-interest bearing - 369,217
Finance lease liability - -
Fixed interest rate instruments - -
369,217
Weighted average Less
effective interest than
rate 1 year
% GBP
2012
Non-interest bearing - 56,051
Fixed interest rate instruments 13.8% 848,746
Financial guarantee contract 455,000
1,359,797
2011
Non-interest bearing - 43,703
Fixed interest rate instruments - -
43,703
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 Less than 1 effective Less than 1
interest rate month interest rate month
% GBP % GBP
2012
Non-interest bearing - 187,060 - 153,545
2011
Non-interest bearing - 2,632,760 - 257,042
26. SUBSIDIARIES
Details of the Company's subsidiaries at 31 December 2012 were as follows:
Place of Proportion Proportion
incorporation of of voting
(or registration) ownership power held
Name of subsidiary and operation interest % Principal activity
%
Diamondcorp Holdings British Virgin 100 100 Holding Company of a
Limited (1) Islands Trading Group
Botswana Diamondcorp British Virgin 100 100 Holding Company
Limited Islands
Lace Diamond Mine (Pty) Republic of 74 74 D Diamond exploration and
Limited South Africa exploitation
Soapstone Investments Republic of 100 100 Investment Company
(Pty) Limited South Africa
DCP Exploration (Pty) Limited Botswana 100 100 D Diamond exploration and
exploitation
(1) Formerly named Crown Diamond Mining Limited
27. SUBSEQUENT EVENTS
(i) On 7 January 2013 Diamondcorp Holdings Limited, a wholly owned subsidiary of the Company,
entered into a term loan agreement with Laurelton Diamonds, Inc., a wholly owned subsidiary of
Tiffany & Co, in the amount of US$6,000,000 (the "Loan") in exchange for an Off-take Agreement.
The Loan has been drawn down in two instalments of US$3,000,000 each on 10 January 2013 and 10
April 2013. The Loan bears interest at 9%, and is repayable in full by 10 April 2021. There will be no
payments of principal or interest for the first three years of the Loan with accrued interest being added to
the principal balance of the Loan. A blended payment of principal and interest in the amount of
US$1,575,963 is due on 10 April 2017 and every anniversary thereafter until payment in full has been
made. The Loan can be repaid early without penalty.
The Off-take Agreement over Lace Mine production takes effect from 10 January 2013 until the end of
the life of the mine. Subject to any purchases by the South African State Diamond Trader, the Off-take
Agreement will give Laurelton Diamonds, Inc. the right to purchase, on commercial terms related to
fair market value, production from the Lace Mine that meets the quality and colour standards of
Laurelton.
The Competent Person responsible for the technical information contained in this announcement is Mr Paul Zweitstra
(Pr. Sci. Nat., Registration number 400016/93) a full-time employee of VP3 Geoservices (Pty) Ltd. VP3 and Mr
Zweistra have reviewed the information contained herein and approved the contents of this press release.
13 May 2013
Date: 13/05/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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