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RDI - Rockwell diamonds incorporated - Interim consolidated financial statements

Release Date: 17/01/2011 08:35
Code(s): RDI
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RDI - Rockwell diamonds incorporated - Interim consolidated financial statements three and nine months ended November 30, 2010 and 2009 (Expressed in Canadian Dollars) (Unaudited) ROCKWELL DIAMONDS INCORPORATED (A company incorporated in accordance with the laws of British Columbia, Canada) (Incorporation number BCO354545) (Formerly Rockwell Ventures Inc.) (South African registration number: 2007/031582/10) Share code on the JSE Limited: RDI ISIN: CA77434W1032 Share code on the TSXV: RDI CUSIP Number: 77434W103 Share code on the OTCBB: RDIAF ("Rockwell") INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED NOVEMBER 30, 2010 AND 2009 (Expressed in Canadian Dollars) (Unaudited) These financial statements have not been reviewed by the Company`s auditors. NOTICE OF NO AUDITOR REVIEW OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS In accordance with National Instrument 51-102 Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of these interim consolidated financial statements they must be accompanied by a notice indicating that these interim consolidated financial statements have not been reviewed by an auditor. The accompanying unaudited interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company`s management. Consolidated Balance Sheets (Expressed in Canadian Dollars) November 30, 2010 February 28, 2010 (unaudited) ASSETS Current assets Cash and cash equivalents $ 3,683,568 $ 2,512,610 Accounts receivable 6,406,194 6,260,717 Restricted cash (note 13) 2,029 4,946 Trade receivable from a related party (note 12) 34,694 46,108 Inventories (note 4) 9,343,810 2,976,058 Prepayments 239,706 75,275 19,710,001 11,875,714 Non-current assets Property, plant and equipment (note 5) 57,631,099 58,790,736 Mineral property interests (note 6) 30,375,861 30,850,998 Investment in equity accounted associate (note 9) 138,285 - Other assets and deposits (note 10) 3,687,277 827,871 Reclamation deposits (note 8) 3,093,964 2,898,067 94,926,486 93,367,672 $ 114,636,487 $ 105,243,386 LIABILITIES AND SHAREHOLDERS` EQUITY Current liabilities Bank indebtedness (note 13) $ 2,200,111 $ 698,015 Accounts payable and accrued liabilities 7,034,124 6,458,751 Due to related parties (note 12) 171,135 641,323 Taxes payable 855,334 583,194 Current portion of capital lease obligations (note 7) 295,411 3,196,189 10,556,115 11,577,472
Non-current liabilities Capital lease obligations (note 7) - 140,332 Due to related parties (note 12) 439,130 414,566 Future income taxes 12,681,066 11,545,000 Reclamation obligation (note 8) 3,897,108 3,722,984 17,017,304 15,822,882 Non-controlling interest 777,127 648,941 Shareholders` equity Share capital (note 11) 135,989,508 127,999,040 Contributed surplus 6,952,536 6,195,051 Accumulated other comprehensive loss (5,194,931) (7,979,683) Deficit (51,461,172) (49,020,317) 86,285,941 77,194,091 Continuance of operations and going concern (note 1) Contingencies (note 14) $ 114,636,487 $ 105,243,386 The accompanying notes are an integral part of these interim consolidated financial statements. Approved by the Board of Directors /s/ Dr. John Bristow /s/ Dr. Mark Bristow Dr. John Bristow Dr. Mark Bristow Director Director Consolidated Interim Statements of Operations and Comprehensive Income (Unaudited - Expressed in Canadian Dollars) Three months ended November 30, 2010 2009 Revenue Rough diamond sales $ 16,429,784 $ 12,765,759 Other sales 17,454 94,787 16,447,238 12,860,546 Cost of sales Cost of rough diamond sales (11,201,556) (7,096,938) Amortization and depletion (3,461,208) (3,292,865) Operating profit (loss) 1,784,474 2,470,743 Expenses Accretion of reclamation obligation (note 8) 92,736 80,461 Exploration - 34,069 Foreign exchange loss 1,510 66,008 Interest paid on capital leases 53,015 88,846 Interest expense 66,423 175,570 Legal, accounting and audit 202,823 351,115 Office and administration 905,483 852,970 Shareholder communications 32,024 105,162 Stock-based compensation (note 11(b)) 460,986 12,378 Travel and conferences 92,441 75,692 Transfer agent 6,258 16,416 1,913,699 1,858,687
Other items Write-down of property plant and equipment 2,682 - Write-down of mineral property - - (Gain) loss on disposal of equipment (639) (8,914) Interest income (76,046) - Share of profit from equity accounted investment (note 9) (13,496) - Write-down of investments held for reclamation 2,741 - (84,758) (8,914) (Loss) profit before income taxes (44,467) 620,970 Current income tax expense (recovery) 32,000 (18,946) Future income tax expense (recovery) 1,072,000 (456,073) (Loss) profit before non-controlling interest (1,148,467) 145,951 Non-controlling interest (274,788) 367,994 (Loss) profit for the period (1,423,255) 513,945 Other comprehensive income 259,041 967,021 Total comprehensive (Loss) income $ (1,164,214) $ 1,480,966 Basic and diluted loss (profit) per common share $ (0.003) $ 0.002 Weighted average number of common shares outstanding 518,185,238 238,041,569 Nine months ended November 30, 2010 2009 Revenue Rough diamond sales $ 36,274,316 $ 22,440,564 Other sales 71,343 267,917 36,345,659 22,708,481 Cost of sales Cost of rough diamond sales (22,966,500) (16,737,149) Amortization and depletion (9,702,725) (8,251,254) Operating profit (loss) 3,676,434 (2,279,922) Expenses Accretion of reclamation obligation (note 8) 362,580 98,058 Exploration 13,648 93,985 Foreign exchange loss 677 614,429 Interest paid on capital leases 85,783 683,115 Interest expense 214,325 538,287 Legal, accounting and audit 882,679 844,124 Office and administration 2,657,563 2,309,583 Shareholder communications 147,955 436,698 Stock-based compensation (note 11(b)) 757,485 146,444 Travel and conferences 298,428 152,474 Transfer agent 61,271 95,970 5,482,394 6,013,167 Other items Write-down of property plant and equipment 147,340 - Write-down of mineral property - 657,634 (Gain) loss on disposal of equipment (35,135) 28,306 Interest income (171,497) (116,849) Share of profit from equity accounted investment (note 9) (36,925) - Write-down of investments held for reclamation 150,520 - 54,303 569,091
(Loss) profit before income taxes (1,860,263) (8,862,180) Current income tax expense (recovery) 222,000 (18,946) Future income tax expense (recovery) 439,000 1,609,761 (Loss) profit before non-controlling interest (2,521,263) (7,271,365) Non-controlling interest 80,408 1,159,733 (Loss) profit for the period (2,440,855) (6,111,632) Other comprehensive income 2,784,752 9,318,597 Total comprehensive (Loss) income $ 343,897 $ 3,206,965 Basic and diluted loss (profit) per common share $ (0.005) $ (0.026) Weighted average number of common shares outstanding 518,185,238 238,042,360 The accompanying notes are an integral part of these interim consolidated financial statements. Consolidated Statements of Shareholders` Equity (Expressed in Canadian Dollars) Nine months ended November 30, 2010 (unaudited)
Share capital Number of shares Balance at beginning of the period 370,843,069 $ 127,999,040 Share purchase options exercised at $0.62 per share - - Fair value of stock options allocated to shares issued on exercise - - Private placement, net of issue cost at $0.065 per share (note 11(c)) - - Rights offering at subscription price of $0.05 per share (note 11(d)) 92,710,767 4,583,644 Private placement, net of issue cost at $0.065 per share (note 11(e)) 54,631,402 3,406,824 Balance at end of the period 518,185,238 $ 135,989,508 Warrants Balance at beginning of the period $ - Expired broker warrants - Balance at end of the period $ - Contributed surplus Balance at beginning of the period $ 6,195,051 Stock-based compensation (note 11(b)) 757,485 Expired broker warrants - Fair value of stock options allocated to shares issued on exercise - Balance at end of the period $ 6,952,536 Accumulated other comprehensive loss Balance at beginning of the period $ (7,979,683) Comprehensive income on currency translation of self-sustaining operations 2,784,752 Balance at end of the period $ (5,194,931) Deficit Balance at beginning of the period $ (49,020,317) Loss for the period (2,440,855) Balance at end of the period $ (51,461,172) TOTAL SHAREHOLDERS` EQUITY $ 86,285,941 Year ended February 28, 2010 Share capital Number of shares Balance at beginning of the period 238,041,569 $ 119,952,532 Share purchase options exercised at $0.62 per share 1,500 929 Fair value of stock options allocated to shares issued on exercise - 808 Private placement, net of issue cost at $0.065 per share (note 11(c)) 132,800,000 8,044,771 Rights offering at subscription price of $0.05 per share (note 11(d)) - - Private placement, net of issue cost at $0.065 per share (note 11(e)) - - Balance at end of the period 370,843,069 $ 127,999,040 Warrants Balance at beginning of the period $ 1,693,197 Expired broker warrants (1,693,197) Balance at end of the period $ - Contributed surplus Balance at beginning of the period $ 4,167,304 Stock-based compensation (note 11(b)) 335,358 Expired broker warrants 1,693,197 Fair value of stock options allocated to shares issued on exercise (808) Balance at end of the period $ 6,195,051 Accumulated other comprehensive loss Balance at beginning of the period $ (13,409,383) Comprehensive income on currency translation of self-sustaining operations 5,429,700 Balance at end of the period $ (7,979,683) Deficit Balance at beginning of the period $ (41,982,624) Loss for the period (7,037,693) Balance at end of the period $ (49,020,317) TOTAL SHAREHOLDERS` EQUITY $ 77,194,091 The accompanying notes are an integral part of these interim consolidated financial statements. Consolidated Interim Statements of Accumulated Comprehensive Loss and Deficit (Unaudited - Expressed in Canadian Dollars) Three months ended Three months ended November 30, 2010 November 30, 2009 Accumulated other comprehensive loss Balance at beginning of the period $ (5,453,972) $ (5,057,807) Comprehensive income on currency translation of self-sustaining operations 259,041 967,021 Balance at end of the period $ (5,194,931) $ (4,090,786) Deficit Balance at beginning of the period $ (50,037,917) $ (48,608,201) (Loss) profit for the period (1,423,255) 513,945 Balance at end of the period $ (51,461,172) $ (48,094,256) Nine months ended Nine months ended November 30, 2010 November 30, 2009 Accumulated other comprehensive loss Balance at beginning of the period $ (7,979,683) $ (13,409,383) Comprehensive income on currency translation of self-sustaining operations 2,784,752 9,318,597 Balance at end of the period $ (5,194,931) $ (4,090,786) Deficit Balance at beginning of the period $ (49,020,317) $ (41,982,624) (Loss) profit for the period (2,440,855) (6,111,632) Balance at end of the period $ (51,461,172) $ (48,094,256) The accompanying notes are an integral part of these interim consolidated financial statements. Consolidated Interim Statements of Cash Flows (Unaudited - Expressed in Canadian Dollars) Three months ended November 30
Cash provided by (used in): 2010 2009 Operating activities Loss for the period $ (1,423,255) $ 513,945 Items not affecting cash Accretion of reclamation obligation 92,736 80,461 Amortization and depletion 3,511,612 3,292,865 Amortization of capital lease equipment (50,404) - Write-down of mineral property interests - - Write-down of assets 2,682 - Write-down of investment held for reclamation (147,779) - Stock-based compensation (note 11) 460,986 12,379 Future income tax expense (recovery) 1,072,000 456,073 Unrealized foreign exchange gain - 546,890 (Gain) loss on disposal of equipment (639) (8,914) Non-controlling interest 274,788 (367,994) Share of profit from equity accounted investment (13,496) - Changes in non-cash working capital items Accounts receivable 3,721,060 772,902 Amounts due to and from related parties 11,741 (1,529,867) Movement in reclamation obligation 137,644 - Inventory (5,406,859) 1,160,285 Prepayments 3,401 37,215 Accounts payable and accrued liabilities 206,197 (149,203) Income taxes 219,307 331,818 Cash provided by operating activities 2,671,722 5,148,855 Investing activities Investment in Associate - - Restricted cash (7) (380,220) Purchase of equipment and mineral properties (402,544) (19,665) Proceeds received on disposal of equipment 639 4,478 Other assets and deposits (1,542,514) (207,282) Reclamation deposits 137,109 64,608 Cash used in investing activities (1,807,317) (538,081) Financing activities Principal repayments under capital lease obligations (713,056) (652,209) Common shares issued for cash, net of issue costs - (15,001) Subscriptions received - 380,220 (Repayment) Drawdown repayment of credit facility (1,097,189) (2,701,455) Cash (used in) provided by financing activities (1,810,245) (2,988,445) (Decrease) Increase in cash and cash equivalents during the period (945,840) 1,622,329 Cash and cash equivalents, beginning of period 4,629,408 $ 866,770 Cash and cash equivalents, end of period $ 3,683,568 $ 2,489,099 Interest paid on facilities during the period $ 66,423 $ 175,570 Interest paid on capital leases $ 53,015 $ 88,846 Interest received $ 76,046 $ - Income taxes paid during the period $ - $ (331,818) Nine months ended November 30
Cash provided by (used in): 2010 2009 Operating activities Loss for the period $ (2,440,855) $ (6,111,632) Items not affecting cash Accretion of reclamation obligation 362,580 98,058 Amortization and depletion 9,374,345 7,111,700 Amortization of capital lease equipment 328,380 1,139,554 Write-down of mineral property interests - 657,634 Write-down of assets 147,340 - Write-down of investment held for reclamation - - Stock-based compensation (note 11) 757,485 146,445 Future income tax expense (recovery) 439,000 (1,609,761) Unrealized foreign exchange gain - 137,054 (Gain) loss on disposal of equipment (35,135) 28,306 Non-controlling interest (80,408) (1,159,733) Share of profit from equity accounted investment (36,925) - Changes in non-cash working capital items Accounts receivable (145,477) 1,022,077 Amounts due to and from related parties (434,210) 1,132,298 Movement in reclamation obligation (407,684) - Inventory (6,854,319) 403,696 Prepayments (164,431) (9,275) Accounts payable and accrued liabilities 1,272,439 686,128 Income taxes 222,000 833,603 Cash provided by operating activities 2,304,125 4,506,152 Investing activities Investment in Associate (95,690) - Restricted cash 2,917 2,318,499 Purchase of equipment and mineral properties (4,471,680) (2,874,589) Proceeds received on disposal of equipment 35,135 370,893 Other assets and deposits (2,859,406) (304,668) Reclamation deposits (195,897) (359,258) Cash used in investing activities (7,584,621) (849,123) Financing activities Principal repayments under capital lease obligations (3,041,110) (2,406,449) Common shares issued for cash, net of issue costs 7,990,468 (14,071) Subscriptions received - 380,220 (Repayment) Drawdown repayment of credit facility 1,502,096 (3,125,437) Cash (used in) provided by financing activities 6,451,454 (5,165,737) (Decrease) Increase in cash and cash equivalents during the period 1,170,958 (1,508,708) Cash and cash equivalents, beginning of period 2,512,610 $ 3,997,807 Cash and cash equivalents, end of period $ 3,683,568 $ 2,489,099 Interest paid on facilities during the period $ 214,325 $ 538,287 Interest paid on capital leases $ 85,783 $ 683,115 Interest received $ 171,497 $ 116,849 Income taxes paid during the period $ - $ (833,603) The accompanying notes are an integral part of these interim consolidated financial statements. Notes to the Interim Consolidated Financial Statements For the three and nine months ended November 30, 2010 and 2009. (Unaudited - Expressed in Canadian Dollars unless otherwise stated) 1. CONTINUANCE OF OPERATIONS AND GOING CONCERN Rockwell Diamonds Inc. ("Rockwell" or the "Company") is engaged in the business of diamond production as well as the acquisition and exploration of natural resource properties. The Company`s mineral property interests are located in South Africa. The accompanying interim consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The going concern basis of presentation assumes that Rockwell will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities and commitments in the normal course of business. For the nine months ended November 30, 2010 the Company incurred a loss of $2,440,855 that has increased Rockwell`s accumulated losses (deficit) to $51.5 million. In fiscal 2009, diamond sales prices increased from US$585 per carat during March 2009 to $1,154 per carat during February 2010. The average sales price for fiscal 2010 was US$1,322 per carat. The average diamond sales price achieved for the first nine months of fiscal 2011 is US$1,345 per carat. At November 30, 2010, the Company`s current assets exceeded its current liabilities by $9.2 million and the Company`s total assets exceeded its total liabilities by $87.1 million. Based on Rockwell`s current forecasted cash flows for fiscal years 2011 and 2012 the Company is confident that it will continue as a going concern. The forecasts assume the Company achieves its projected operating parameters, prices remain at around current levels, which are approximately 15 - 20% below pre- economic crisis levels, and the South African Rand remains at current levels relative to the United States and Canadian dollar. Based on the Company`s cash resources and the above forecasts, the Company has sufficient working capital and reserves to maintain operations through breakeven point and sufficient cash and working capital to fund the continuing losses until then. Accordingly, the financial statements have been prepared on the basis of accounting policies applicable to a going concern. Future events beyond the Company`s control may change the Company`s ability to continue as a going concern. If the going concern concept was no longer appropriate, significant adjustments would be required to the carrying value of assets and liabilities and would be recorded at that time. 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. These interim consolidated financial statements include the accounts of the Company, its subsidiaries and its variable interest entities where the Company has been determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated upon consolidation. 3. CHANGES IN ACCOUNTING POLICIES Effective March 1, 2010, the Company adopted the following accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA"). These new standards have been adopted with no restatement to prior period financial statements. (a) Section 3050 - Long Term investments - Companies subject to significant influence Investments in companies subject to significant influence are accounted for using the equity method. The equity method is a basis of accounting whereby the investment is initially recorded at cost and the carrying value is adjusted thereafter to include the Company`s pro-rata share of post-acquisition income or loss. The amount of the adjustment is included in the determination of net income (loss) by the Company and the investment account of the Company is also increased or decreased to reflect the Company`s share of capital transactions and changes in accounting policies and corrections of errors. Profit distributions received or receivable from the investments will reduce the carrying value of the investment. Investments accounted for on the equity basis are written down to their fair value when they have a loss in value that is other than a temporary decline. (b) Accounting Policies Not Yet Adopted (i) International Financial Reporting Standards ("IFRS") The AcSB has announced its decision to replace Canadian generally accepted accounting principles ("Canadian GAAP") with IFRS for all Canadian publicly-listed companies. The AcSB announced that the changeover date will commence for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date for the Company to changeover to IFRS will be March 1, 2011. Therefore, the IFRS adoption will require the restatement for comparative purposes of amounts reported by the Company for the year ending February 28, 2011. During fiscal 2010, the Company has established a formal project plan, allocated internal resources and engaged expert consultants, monitored by a steering committee to manage the transition from Canadian GAAP to IFRS reporting. ii) Business Combinations/Consolidated Financial Statements/Non- Controlling Interests The AcSB issued CICA Sections 1582, Business Combinations, 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests, which superseded current Sections 1581, Business Combinations and 1600 Consolidated Financial Statements. These new Sections replace existing guidance on business combinations and consolidated financial statements to harmonize Canadian accounting for business combinations with IFRS. These Sections will be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Earlier adoption is permitted. If an entity applies these Sections before January 1, 2011, it is required to disclose that fact and apply each of the new sections concurrently. The Company is currently evaluating the impact of the adoption of these changes on its consolidated financial statements. 4. INVENTORIES As at As at November 30, 2010 February 28, 2010 Rough diamond inventories $ 4,593,445 $ 1,283,604 Mine supplies 4,750,365 1,692,454 Total inventories $ 9,343,810 $ 2,976,058 As at November 30, 2010, rough diamond inventories were valued at cost and mine supplies at cost less accumulative impairment charges. The cost of inventories is based on the weighted average cost basis and includes all direct mining cost in bringing diamond inventory to its existing location and condition. As at February 28, 2010, rough diamond inventories were valued at net realizable value and mine supplies at cost less accumulative impairment charges. Obsolete mine supplies were written down by $588,927 to $1,692,454 for the 2010 fiscal year. The net realizable value of diamond inventories are estimated at the average price per carat achieved for the most recent diamond tender taking into account the variable factors of clarity, carat, shape and color. As at February 28, 2010, rough diamond inventories were written down by $360,429 from cost to net realizable value. No further impairments were recorded against mine supplies for the nine months ending November 30, 2010. 5. PROPERTY, PLANT AND EQUIPMENT As at November 30, 2010 Accumulated
Amortization and Cost Impairments Carrying value Land and buildings $ 7,753,809 $ 917,045 $ 6,836,764 Processing plant and equipment 82,255,387 37,189,644 45,065,743 Processing plant and equipment under capital lease obligation 3,702,894 875,829 2,827,065 Construction in progress 1,748,393 - `1,748,393 Office equipment 1,041,448 608,354 433,094 Vehicles and light equipment 1,868,085 1,148,045 720,040 $ 98,370,016 $40,738,917 $57,631,099 As at February 28, 2010 Accumulated Amortization and
Cost Impairments Carrying value Land and buildings $ 7,226,428 $ 598,462 $ 6,627,966 Processing plant and equipment 66,230,352 25,074,689 41,155,663 Processing plant and equipment under capital lease obligation 13,553,529 3,782,247 9,771,282 Office equipment 946,759 492,287 454,472 Vehicles and light equipment 1,675,705 894,352 781,353 $ 89,632,773 $ 30,842,037 $58,790,736 Components of property, plant and equipment are amortized over their estimated useful life. The amortization charge for the nine months ending November 30, 2010 was $7,880,545 (2009 - $5,105,833). The company`s bankers have registered two notarial general covering bonds of ZAR10.0 million each ($1,447,995) over all moveable assets on the property of the farms Holpan, Barkley West, Northern Cape and one over moveable assets. Construction in progress includes projects at Saxendrift mine (jig plant, in-pit screening, scrubber, trammel upgrades) and Wouterspan mine (Phase I engineering, scoping, technical data pack and drawings). The construction of the Saxendrift project and Phase I of the Wouterspan project are to be completed within the 2011 fiscal year. 6. MINERAL PROPERTY INTERESTS As at As at
November 30, 2010 February 28, 2010 H.C. Van Wyk Diamonds Ltd and Klipdam Mining Company Ltd Balance, beginning of period $ 22,128,231 $ 22,373,983 Acquisition cost (Erf 2004) 868,206 - Foreign exchange adjustments 356,358 2,042,252 Depletion of mineral properties during the period (1,356,092) (1,630,370) Write-down of mineral property - (657,634) H.C. Van Wyk Diamonds Ltd and Klipdam Mining Company Ltd, end of period 21,996,703 22,128,231 Saxendrift Mine (Pty) Ltd Balance, beginning of period $ 8,722,767 $ 6,520,494 Acquisition costs - 1,703,195 Foreign exchange adjustments 122,480 733,083 Future income tax liability - 662,354 Depletion of mineral properties during the period (466,089) (896,359) Saxendrift Mine (Pty) Ltd, end of period 8,379,158 8,722,767 Balance, end of period $ 30,375,861 $ 30,850,998 Acquisition of ERF 2004 Windsorton("Erf 2004") On November 1, 2010, HC Van Wyk Diamonds Ltd ("HCVW") exercised an option in terms of an agreement with Batla Resources Pty Ltd the holder of a prospecting and mineral right and MJA Boerdery CC the surface owner whereby HCVW would acquire the prospect and mining rights to Erf 2004 (a portion of Erf 2003) Windsorton for ZAR 6.0 million ($0.8 million) of which ZAR 2.0 million ($0.2 million) was paid immediately and the balance to be paid in ten equal monthly installments monthly thereafter. Erf 2004 is adjacent to Klipdam mine and will be explored and bulk sampled during fiscal 2012. 7. CAPITAL LEASE OBLIGATIONS Included in property, plant and equipment are mining equipment that the Company acquired pursuant to three or four year capital lease agreements. The Company`s capital lease obligations are with the following financial institutions: As at As at November 30, 2010 February 28, 2010
Wesbank $ 17,048 $ 48,792 Komatfin 278,363 3,287,729 $ 295,411 $ 3,336,521 Capital lease obligations as detailed above are secured over plant and equipment and are repayable, on average, in 36 monthly installments with the final payment being on June 30, 2011. Interest is charged at rates of between 1.25% to 2.00% less the prevailing prime rate, which is currently 9.00%, per annum. There are no significant restrictions imposed on the lessee as a result of the lease agreements. Future minimum lease payments are as follows: As at As at November 30, 2010 February 28, 2010
2011 $ 302,181 $3,301,394 2012 - 141,544 Total minimum lease payments 302,181 3,442,938 Less: interest portion (6,770) (106,417) Present value of capital lease obligations 295,411 3,336,521 Current portion (295,411) 3,196,189 Non-current portion $ - $ 140,332 8. RECLAMATION OBLIGATION The continuity of the provision for reclamation costs related to the Holpan, Wouterspan, Klipdam and Saxendrift mines, are as follows: As at As at November 30, 2010 February 28, 2010
Holpan, Wouterspan and Klipdam Mines Balance, beginning of period $ 2,918,102 $ 2,690,335 Changes during the period: Reclamation (expenditure incurred)/obligation recognized (407,684) (473,278) Foreign exchange on reclamation 160,551 219,113 Accretion expense - 481,932 Balance, end of period $ 2,670,969 $ 2,918,102 Saxendrift Mine Balance, beginning of period $ 804,882 $ 1,112,320 Changes during the period Reclamation (expenditure incurred)/obligation recognized - (403,063) Foreign exchange on reclamation 58,677 95,625 Accretion expense 362,580 - Balance, end of period $ 1,226,139 $ 804,882 Total reclamation obligation, end of period $ 3,897,108 $ 3,722,984 The liability is based on the disturbance of the natural physical environment due to the alluvial mining methods that the company engages in. The volume of disturbance is quantified on a monthly basis by a professional surveyor through physical observation and technical quantification in cubic meters and is therefore not discounted. The company does not make use of a mining contractor and applies an internal costing rate per cubic meter which is based on applying its own resources and equipment in doing such rehabilitation. This costing rate represents the operating cost, including fuel, applying specific mining fleet units to the rehabilitation process and labour usage. The physical disturbance in the cubic meters multiplied by the costing rate represents the rehabilitation liability at any one stage. As required by regulatory authorities, at November 30, 2010, the Company had cash reclamation deposits totaling $3,093,964 (February 28, 2010 - $2,898,067) comprised of $1,516,645 (February 28, 2010 - $1,238,104) for the Holpan, Wouterspan and Klipdam mine and $ 1,577,319(February 28, 2010 - $1,659,963) for the Saxendrift mine. These deposits are invested in interest bearing money market linked investments. These investments have been ceded as security in favour of the guarantees the bank issued on behalf of the company. Refer to note 13. 9. INVESTMENT IN EQUITY ACCOUNTED ASSOCIATE As at As at
November 30, 2010 February 28, 2010 Investment in associate at cost $ 95,690 $ - Foreign exchange adjustments 5,670 - Share of profit for the period ended November 30, 2010 36,925 - Balance at the end of the period $ 138,285 $ - On May 5, 2010 the Company acquired a 20% shareholding in Flawless Diamonds Trading House (Pty) Limited ("Flawless") incorporated in the Republic of South Africa. Flawless is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the Company. As the Company has significant influence over Flawless operations it accounts for the investment using the equity method and includes a pro-rata share of the Flawless income for the period. Summarised financial information of associate As at As at November 30, 2010 February 28, 2010
Financial Position Total Assets $ 6,111,414 $ 5,159,027 Total Liabilities 5,405,484 4,672,164 Net Assets 705,930 486,863 Nine months ended Year ended November 30-,2010 February 28, 2010 Financial Performance Total Revenue $ 41,544,217 $ 36,813,912 Total profit for the period 184,624 168,712 Capital commitments and contingent liabilities of associate Nil Nil 10. OTHER ASSETS AND DEPOSITS As at As at November 30, 2010 February 28, 2010 Refundable security deposits $ 161,460 $ 152,259 Investments (a) 875,421 574,086 Deposits on future assets (b) - 101,526 Etruscan Diamonds Limited (c) 2,650,346 - Total other assets and deposits $ 3,687,277 $ 827,871 (a) The Company invests in investment policies with endowment benefits on maturity of the policies. Premiums are invested on an initial lump sum and/ or monthly annuity premium basis with the Insurers and invested in specific investment plans. Policy investment value at any one time represents the value of premiums and growth after deduction of administration and investment fees. Withdrawals could be made against the policies before endowment against the deduction of penalties, which is lower than the investment value. To surrender the policy prior to maturity date will similarly attract penalties at a lower rate, and represents the value accessible at any one stage. Fair value at any one stage represents the surrender value of the investments. The fair value of the policies at November 30, 2010 amounted to $3,969, 385 (February 28, 2010 - $3,472,153) of which $3,093,964 (February 28, 2010 - $2,898,067) has been disclosed as reclamation deposits (refer note 8). (b) This deposit relates to deposits on motor vehicles only delivered after the fiscal 2010 year end. (c) Short-term amount receivable from Etruscan Diamonds Limited that is not interest bearing and has no fixed repayment terms. 11. SHARE CAPITAL (a) Authorized share capital The Company`s authorized share capital consists of an unlimited number of common shares, without par value, and an unlimited number of preferred shares without par value, of which no preferred, shares have been issued. (b) Stock-based compensation The continuity of stock-based compensation for the period ended November 30, 2010 is as follows: Exercise Granted/ Expiry date price Feb 28, 2010 Issued September 24, 2012 $ 0.62 5,896,500 - November 14, 2012 $ 0.63 1,101,500 - June 20, 2011 $ 0.45 950,000 - December 7, 2014 $ 0.06 14,270,890 - January 18, 2015 $ 0.07 600,000 - October 8,2015 $0.065 - 15,042,000 22,818,890 15,042,000 Weighted average exercise price $ 0.25 $ 0.065 $ - Weighted average fair value of stock options granted during the period Expired/ Expiry date Exercised cancelled Nov 30, 2010 September 24, 2012 - (5,000) 5,891,500 November 14, 2012 - (15,000) 1,086,500 June 20, 2011 - - 950,000 December 7, 2014 - (588,300) 13,682,590 January 18, 2015 - - 600,000 October 8,2015 - - 15,042,000 - (608,300) 37,252,590 Weighted average exercise price $ 0.08 $ 0.25 Weighted average fair value of stock options granted during the period $ 0.065 As at November 30, 2010, 22,463,727 of the stock options outstanding with a weighted average exercise price of $0.25 per share have vested with grantees. Using a Black-Scholes option pricing model the fair values of stock options vested have been reflected in the statement of operations as follows: Three months ended November 30 2010 2009 Exploration and engineering $ 190,052 $ 5,382 Operations and administration 270,934 6,996 Total compensation cost expensed to operations, with the offset credited to contributed surplus $ 460,986 $ 12,378 Nine months ended November 30 2010 2009
Exploration and engineering $ 215,630 $ 43,022 Operations and administration 541,855 103,422 Total compensation cost expensed to operations, with the offset credited to contributed surplus $ 757,485 $ 146,444 (c) Private Placements between December 2009 to February 2010 During February 2010, the Company completed private placements of 132,800,000 common shares at $0.065 per share for a total of $8,632,000. The company paid a cash fee of $587,229 finder`s fees relating to the private placements. Proceeds from the financing were used to repay short term debt, finance lease obligations and fund diamond operations. (d) Rights Offering On March 19, 2010 the Company completed a rights offering whereby each registered holder of the Company`s common shares on the record date received one right for each common share held. The rights offering was 100% subscribed and applications for additional shares were received but could not be fulfilled because they exceeded the maximum. Pursuant to the rights offering, Rockwell issued 92.7 million common shares at a subscription price of $0.05 per common share yielding gross proceeds of approximately $4.6 million (ZAR33.2 million). The Company plans to use the funds to modernize and re-commission the Wouterspan operation which was placed on care and maintenance in January 2009, and identify value-added merger and acquisition targets such as the Etruscan acquisition. (e) Private Placement March 2010 In March 2010, the Company completed a private placement of 54.6 million common shares at a price of $0.065 per share for total proceeds of $3.4 million. The Company paid a cash fee of $0.1 million finder`s fees relating to the private placement. 12. RELATED PARTY BALANCES AND TRANSACTIONS As at As at
Balances payable November 30, 2010 February 28, 2010 Banzi Trade 26 (Pty) Ltd (d) $ 34,518 $ 603 Hunter Dickinson Services Inc. (a) 65,011 627,435 Seven Bridges Trading (b) 11,468 13,285 Flawless Diamonds Trading House (c) 60,138 - Current balances payable $ 171,135 $ 641,323 Liberty Lane (f) 439,130 414,566 Long-term balances payable $ 439,130 $ 414,566 Balances receivable Banzi Trade 26 (Pty) Ltd (d) 34,694 46,108 $ 34,694 $ 46,108 Three months ended Nov 30
Transactions 2010 2009 Services rendered and expenses reimbursed: Hunter Dickinson Services Inc. (a) $ 140,333 $ 281,909 Seven Bridges Trading (b) 35,976 29,575 Flawless Diamonds Trading House (c) 143,367 127,658 Banzi Trade 26 (Pty) Ltd (d) 37,868 9,537 Jakes Tyres (e) - 30,857 CEC Engineering (g) 13,036 - Sales rendered to: Banzi Trade 26 (Pty) Ltd (d) $ - $ - Nine months ended Nov 30
Transactions 2010 2009 Services rendered and expenses reimbursed: Hunter Dickinson Services Inc. (a) $ 425,479 $ 818,535 Seven Bridges Trading (b) 105,145 102,710 Flawless Diamonds Trading House (c) 295,492 224,405 Banzi Trade 26 (Pty) Ltd (d) 133,312 17,115 Jakes Tyres (e) - 74,702 CEC Engineering (g) 13,036 - Sales rendered to: Banzi Trade 26 (Pty) Ltd (d) $ - $ 1,438 All related party transactions are arm`s length transactions in the normal course of business. (a) Hunter Dickinson Services Inc. ("HDSI") is a private company with a director in common with the Company. HDSI provides geological, technical, corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company on a full cost recovery market-related basis pursuant to an agreement dated November 21, 2008. (b) Seven Bridges Trading 14 (Pty) Ltd (Seven Bridges Trading) is a wholly-owned subsidiary of Randgold Resources Ltd, a public company where Mark Bristow, a director of the Company, serves in an executive capacity. Seven Bridges Trading provides office, conferencing, information technology, and other administrative and management services at market rates to the Company`s South African subsidiaries. (c) Flawless Diamonds Trading House (Pty) Ltd ("Flawless") is a private company where certain directors, former directors and officers of the Company, namely, Messr. Brenner, J.W. and D.M. Bristow are shareholders of Flawless. Flawless is a registered diamond broker which provides specialist diamond valuation, marketing and tender sales services to the Company for a fixed fee of 1% of turnover. On May 5, 2010 the Company acquired a 20% shareholding in Flawless Diamonds Trading House (Pty) Limited incorporated in the Republic of South Africa. (d) Banzi Trade 26 (Pty) Ltd ("Banzi") is 49% owned by HC van Wyk Diamonds Ltd and 51% by Bokomoso Trust. Banzi is an empowered private company established to provide self-sustaining job creation programs to local communities as part of the Company`s Social and Labour Plan which is required in terms of the Minerals and Petroleum Resources Development Act ("MPRDA"). Banzi provides the Company with building materials at market rates. (e) Jakes Tyres is a private company with former directors and officers (HC van Wyk) in common with the Company that provides tyres, tyre repair services and consumables at market rates to Rockwell`s remote Middle Orange River operations. (f) Liberty Lane is the BEE partner of the Saxendrift property and has certain directors in common with the Company. (g) CEC Engineering Ltd. is a private company owned by David Copeland, Chairman and a director of the Company, which provides engineering and project management services at market rates. 13. BANK INDEBTEDNESS AND RESTRICTED CASH Consistent with the prior financial year, the Company has an overdraft facility in the amount of ZAR28.0 million ($4 million) available for its operations (current balance $2.2 million). This facility has an interest cost of prime (currently 9.0% per annum) plus 0.6%. The security for the ZAR28.0 million consists of 2 notorial bonds of ZAR10.0 million ($1.4 million) each over loose assets and property of the farm Holpan. HC van Wyk Diamonds Ltd, Klipdam Mining Company Ltd and Saxendrift Mine (Pty) Ltd hold guarantees by the bank towards Eskom (Electricity Provider) of ZAR4,911,100 ($711,125) and the Department of Minerals and Energy (DME) of ZAR21,367,228 ($3,093,964) towards rehabilitation expenses. Restricted cash of $2,029 (February 28, 2010 - $4,946) relates to monies held in trust by the company`s lawyers. 14. CONTINGENCIES Kwango River Project, Democratic Republic of Congo Rockwell`s indirect subsidiary, Durnpike Investments (Proprietary) Limited`s ("Durnpike") interest in the Kwango River Project was constituted by an agreement ("Midamines Agreement") which was concluded between Durnpike and Midamines SPRL ("Midamines"), the holder of the permit for the Kwango River Project, during 2006, in terms of which Durnpike was to act as independent contractor on behalf of Midamines to manage and carry out exploration activities and potentially, mining activities. Durnpike was entitled to an 80% share of the net revenue from the sale of any diamonds produced from the contract area. Under the Midamines Agreement, Durnpike agreed to certain minimum royalty payments being made to Midamines, and Midamines undertook certain obligations in favour of Durnpike, including that of procuring and facilitating Durnpike`s access to the Kwango River Project site. The royalties took the form of a series of recurring annual minimum royalty payments of US$1.2 million per annum, as escalated in accordance with the Midamines Agreement (commencing on December 31, 2007). During the first quarter of 2008, pursuant to an amendment to the Midamines Agreement (contained in the Fifth Addendum thereto), Durnpike paid consideration of US$600,000 to Midamines as compensation for access to the entire concession area (Permit 331), as opposed to the limited contract area. As part of such amendment, Midamines waived its right to payment of the abovementioned US$1.2 million royalty payment due on December 31, 2007 and such payment was deferred to December 31, 2008. Subsequently, and pursuant to Midamines` persistent breach of material provisions of the Midamines Agreement (coupled with its failure to remedy such instances of breach notwithstanding notice to do so), Durnpike and/or Rockwell cancelled the Midamines Agreement and/or the Fifth Addendum thereto. Midamines thereafter disputed the entitlement of Durnpike and/or Rockwell to cancel the Midamines Agreement. It has referred to arbitration a dispute against Durnpike and Rockwell, in which it claims payment by Rockwell and Durnpike of compensation in the amount of US$41.8 million (while reserving the right to increase the claim to US$68.073 million if the DRC authorities cancel Midamines` permit for the Kwango Project) plus interest. Durnpike and/or Rockwell have defended the claim and have, in turn, instituted a counter-claim in the estimated and provisional amounts of approximately ZAR25.4 million for equipment purchased to undertake exploration and feasibility work, C$1.6 million for start-up and acquisition costs in the DRC, and US$20 million (while reserving the right to increase the counter- claim to at least $164.3 million) as an initial estimate of possible lost earnings. Comprehensive documentation has been filed by the parties and arbitration proceedings have been initiated in Belgium. The Company remains of the view that the claim against it is without merit and will vigorously defend against it. Niewejaarskraal During the course of 2008 and prior to the prospecting and mining rights having been transferred from Trans Hex to Rockwell, a representative of the land owner of Niewejaarskraal asserted a claim of ownership over the equipment located on Niewejaarskraal. This claim was ostensibly based on a surface rights agreement entered into between Trans Hex and the owner of Niewejaarskraal and an allegation that Trans Hex had abandoned the mining equipment concerned. This Contract expired prior to Rockwell receiving the Niewejaarskraal mining rights. Since the transfer of the prospecting and mining rights associated with and the mining equipment located on Niewejaarskraal to Rockwell, it has not received any formal approach from the land owner of Niewejaarskraal to progress this claim. Discussions with the landowner have indicated that he would be happy to enter into amenable and workable landowner agreements with Rockwell, subject to appropriate land use agreements being entered into between the Parties. Rockwell would defend its ownership of that equipment and would if necessary also rely on protective warranties and indemnities that were given to it by Trans Hex in the Sale of Shares and Claims Agreement. 17 January 2011 Sasfin Capital (A division of Sasfin Bank Limited) Date: 17/01/2011 08:35:01 Supplied by www.sharenet.co.za 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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