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RDI - Rockwell Diamonds Incorporated - Unaudited Condensed Interim Consolidated
financial statements for the 9 months ended 30 November 2011
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: CA77434W2022
Share code on the TSXV: RDI CUSIP Number: 77434W103
Share code on the OTCBB: RDIAF
("Rockwell")
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE 9 MONTHS
ENDED 30 NOVEMBER 2011
Index
The reports and statements set out below comprise the unaudited condensed
interim consolidated financial statements presented to the shareholders:
Index
Notice of no Auditor Review of Condensed Interim
Consolidated Financial Statements
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Accounting Policies
Notes to the Unaudited Condensed Interim
Consolidated Financial Statements
The unaudited condensed interim consolidated financial statements set out on
pages 3 to 33, which have been prepared on the going concern basis, were
approved by the board on 11 January 2012 and were signed on its behalf by:
James Campbell Dr Mark Bristow
Director, Chief Executive Officer Director
Notice of no Auditor Review of Condensed 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 condensed interim consolidated
financial statements they must be accompanied by a notice indicating that these
condensed interim consolidated financial statements have not been reviewed by an
auditor.
The accompanying unaudited condensed interim consolidated financial statements
of the Company have been prepared by and are the responsibility of the Company`s
management, and have not been reviewed by an auditor.
Statement of Financial Position
30 November 28 February 30 November
Figures in Canadian Dollar Note(s) 2011 2011 2010
Assets
Noncurrent assets
Mineral property interests 2 28 228 115 23 562 969 25 060 360
Property, plant and equipment 3 53 110 170 62 828 438 57 631 099
Investment in associate 4 254 974 129 660 138 285
Other financial assets 5 499 533 2 042 291 3 687 277
Reclamation deposits 16 5 504 942 2 759 611 3 093 964
87 597 734 91 322 969 89 610 985
Current assets
Inventories 6 5 121 352 2 628 089 9 343 810
Loan to related party 7 106 968 92 398 34 694
Trade and other receivables 8 5 649 129 5 366 797 6 645 900
Cash and cash equivalents 9 11 150 160 4 771 124 3 685 597
22 027 609 12 858 408 19 710 001
Total assets 109 625 343 104 181 377 109 320 986
Equity and liabilities
Equity
Equity attributable to equity
holders of Company
Share capital 10 146 137 853 135 989 508 135 989 508
Reserves (3 356 130) 1 530 969 4 352 019
Retained loss (55 883 932) (52 686 500) (51 472 085)
86 897 791 84 833 977 88 869 442
Noncontrolling interest (1 756 963) 647 407 777 127
Total equity 85 140 828 85 481 384 89 646 569
Liabilities
Noncurrent liabilities
Loans from related parties 7 380 601 424 572 610 265
Other financial liabilities 13 2 451 506 - -
Capital lease obligation 14 497 700 - -
Deferred tax 15 5 665 247 5 840 000 4 782 066
Reclamation obligation 16 5 504 942 3 814 638 3 897 108
14 499 996 10 079 210 9 289 439
Current liabilities
Loans from related parties 7 328 160 72 064 -
Other financial liabilities 13 548 126 - -
Current tax payable 289 321 245 228 855 334
Capital lease obligation 14 259 503 142 630 295 411
Trade and other payables 18 8 133 630 6 373 382 7 034 122
Bank overdraft 9 425 779 1 787 479 2 200 111
9 984 519 8 620 783 10 384 978
Total liabilities 24 484 515 18 699 993 19 674 417
Total equity and liabilities 109 625 343 104 181 377 109 320 986
Statement of Comprehensive Income
3 months 9 months 3 months 9 months
ended ended ended ended
Figures in 30 November 30 November 30 November 30 November
Canadian Dollar
Note(s) 2011 2011 2010 2010
Revenue 22 8 276 040 25 987 497 11 116 679 30 961 211
Production cost (5 192 216) (16 540 214) (5 733 348) (18 251 297)
Inventory (719 888) (26 418) (17 459) 190 217
movement
Gross profit 2 363 936 9 420 865 5 365 872 12 900 131
before
depreciation and
depletion
Depreciation and (1 766 246) (5 614 134) (3 471 958) (9 689 464)
depletion
Gross profit 597 690 3 806 731 1 893 914 3 210 667
Other income 324 030 217 442 17 260 106 478
General and (1 686 012) (5 858 502) (1 936 495) (5 072 461)
administration
expenses
Arbitration (1 369 486) (1 369 486) - -
settlement
Operating loss 23 (2 133 778) (3 203 815) (25 321) (1 755 316)
Investment 24 302 578 478 845 76 046 171 497
income
Income from 53 028 135 463 13 496 36 925
equity accounted
investments
Finance costs 25 (272 399) (513 342) (119 438) (300 108)
Loss before (2 050 571) (3 102 849) (55 217) (1 847 002)
taxation
Income tax 26 (1 511 146) (578 782) (735 000) (2 097 132)
expense
Loss for the (3 561 717) (3 681 631) (790 217) (3 944 134)
period
Other
comprehensive
income:
Exchange (7 123 278) (7 309 952) 9 510 591 4 698 575
differences on
translating
foreign
operations
Total (10 684 995) (10 991 583) 8 720 374 754 441
comprehensive
(loss) income
Loss
attributable to:
Owners of the (3 545 180) (3 197 432) (1 065 005) (3 863 726)
Company
Noncontrolling (16 537) (484 199) 274 788 (80 408)
interest
(3 561 717) (3 681 631) (790 217) (3 944 134)
Total
comprehensive
(loss) income
attributable to:
Owners of the (10 668 458) (10 507 384) 8 445 586 834 849
Company
Noncontrolling (16 537) (484 199) 274 788 (80 408)
interest
(10 684 995) (10 991 583) 8 720 374 754 441
Earnings (loss) per share
Per share
information
Basic and 27 (0.22) (0.22) 0.24 0.02
diluted earnings
(loss) per share
(c)
Headline 27 (0.07) (0.07) (0.03) (0.11)
earnings (loss)
per share (c)
Statement of Changes in Equity
Figures in Canadian Share Foreign Share- Convertible Total
Dollar capital currency based instruments reserves
translation payment reserve
reserve reserve
Opening balance as 127 999 (7 979 683) 6 195 051 - (1 784
previously reported 040 632)
Adjustments
Effects of - 680 591 - - 680 591
transition to IFRS
Balance at 01 March 127 999 (7 299 092) 6 195 051 - (1 104
2010 as restated 040 041)
Changes in equity
Total comprehensive - 1 750 124 - - 1 750
income (loss) for 124
the year
Sharebased payment - - 884 886 - 884 886
expense
Rights offering at 4 583 644 - - - -
subscription price
of $0.05 per share
Private placement, 3 406 824 - - - -
net of issue costs
at $0.065 per share
Foreign exchange - - - - -
movement
Total changes 7 990 468 1 750 124 884 886 - 2 635
010
Opening balance as 135 989 (6 363 878) 7 079 937 - 716 059
previously reported 508
Adjustments
Effects of - 814 910 - - 814 910
transition to IFRS
Balance at 01 March 135 989 (5 548 968) 7 079 937 - 1 530
2011 as restated 508 969
Changes in equity
Total comprehensive - (7 309 952) - - (7 309
income (loss) for 952)
the nine months
Debt conversion, net 435 715 - - - -
of issue costs at
$0.065 per share
Private placement, 7 756 477 - - - -
net of issue costs
at $0.75 per share
Share-based payment - - 400 635 - 400 635
expense
Convertible bond - - - 2 022 218 2 022
equity component 218
Foreign exchange - - - - -
movement
Business 1 956 153 - - - -
combinations
Total changes 10 148 (7 309 952) 400 635 2 022 218 (4 887
345 099)
Balance at 30 146 137 (12 858 7 480 572 2 022 218 (3 356
November 2011 853 920) 130)
Note(s) 10 11 12
Figures in Canadian Retained Total Non- Totalequity
Dollar loss attributable controlling
to equity interest
holders of
the Company
Opening balance as (49 020 317) 77 194 091 648 941 77 843 032
previously reported
Adjustments
Effects of transition 1 411 958 2 092 549 - 2 092 549
to IFRS
Balance at 01 March (47 608 359) 79 286 640 648 941 79 935 581
2010 as restated
Changes in equity
Total comprehensive (5 078 141) (3 328 017) (88 097) (3 416 114)
income (loss) for the
year
Sharebased payment - 884 886 - 884 886
expense
Rights offering at - 4 583 644 - 4 583 644
subscription price of
$0.05 per share
Private placement, net - 3 406 824 - 3 406 824
of issue costs at
$0.065 per share
Foreign exchange - - 86 563 86 563
movement
Total changes (5 078 141) 5 547 337 (1 534) 5 545 803
Opening balance as (54 147 253) 82 558 314 647 407 83 205 721
previously reported
Adjustments
Effects of transition 1 460 753 2 275 663 - 2 275 663
to IFRS
Balance at 01 March (52 686 500) 84 833 977 647 407 85 481 384
2011 as restated
Changes in equity
Total comprehensive (3 197 432) (10 507 384) (484 199) (10 991 583)
income (loss) for the
nine months
Private placement, net - 435 715 - 435 715
of issue costs at
$0.065 per share
Subscriptions - 7 756 477 - 7 756 477
received, net of issue
costs at $0.075 per
share (refer note 12)
Share-based payment - 400 635 - 400 635
expense
Convertible bond - 2 022 218 - 2 022 218
equity component
Foreign exchange - - (330 184) (330 184)
movement
Business combinations - 1 956 153 (1 589 987) 366 166
Total changes (3 197 432) 2 063 814 (2 404 370) (340 556)
Balance at 30 November (55 883 932) 86 897 791 (1 756 963) 85 140 828
2011
Note(s)
Statement of Cash Flows
9 months 12 months 9 months
ended ended ended
30 November 28 February 30 November
Figures in Canadian Dollar Note(s) 2011 2011 2010
Cash flows from operating activities
Cash used in operations 19 (595 228) 10 808 399 2 495 264
Investment income 478 845 101 953 171 497
Finance costs (513 342) (449 003) (300 108)
Tax refunded (paid) 21 44 093 (899 141) 222 000
Net cash inflow (outflow) from (585 632) 9 562 208 2 588 653
operating activities
Cash flows from investing activities
Purchase of property, plant 3 (8 714 158) (10 790 700) (3 628 030)
and equipment
Proceeds from sale of 3 7 808 245 301 518 186 940
property, plant and equipment
Purchase of mineral property 2 (736 317) (845 773) (845 773)
interests
Sale of mineral property 2 101 185 - -
interests
Business combination 20 (1 323 416) - -
Acquisition of associate - (95 690) (95 690)
Movements in related party 197 555 (634 248) (434 210)
loans
Proceeds from sale of 3 839 943 (1 024 738) (3 055 303)
financial assets
Net cash outflow from 1 173 037 (13 089 631) (7 872 066)
investing activities
Cash flows from financing activities
Proceeds on share issue 10 8 192 192 7 990 468 7 990 468
Proceeds from convertible bond 1 950 985 - -
Repayment of other financial (3 604 419) - -
liabilities
Capital lease obligation 614 573 (3 298 941) (3 041 110)
proceeds (repayments)
Net cash inflow from financing 7 153 331 4 691 527 4 949 358
activities
Net movement in cash and cash 7 740 736 1 164 104 (334 055)
equivalents for the period
Cash and cash equivalents at 2 983 645 1 819 541 1 819 541
the beginning of the period
Total cash and cash 9 10 724 381 2 983 645 1 485 486
equivalents at end of the
period
Accounting Policies
The accompanying notes are an integral part of these unaudited condensed interim
consolidated financial statements.
1. Presentation of Unaudited Condensed Interim Consolidated Financial Statements
Rockwell Diamonds Inc. ("Rockwell" or the "Company") is engaged in the business
of diamond production and the acquisition and exploration of natural resource
properties.The Company`s principal mineral property interests are located in
South Africa.
The accompanying unaudited condensed interim consolidated financial statements
are the third financial statementsthat have been prepared in accordance with
International Financial Reporting Standards. The unaudited interim consolidated
financial statements have been prepared in accordance with IAS 34 "Interim
Financial Reporting". The unaudited condensed interim consolidated financial
statements have been prepared on the historical cost basis, except for the
measurement of certain financial instruments at fair value, and incorporate the
principal accounting policies set out below. Amounts are presented in Canadian
Dollars, unless otherwise stated.
These accounting policies are consistent with the previous period, except for
the changes set out in note 29 Firsttime adoption of International Financial
Reporting Standards.
1.1Continuance of operations
The going concern basis of presentation assumes that the Company 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 30 November 2011, the Company incurred consolidated
losses of $3.7 million and has incurred accumulated losses to date of $55.9
million that has been funded to date.
In fiscal 2011, diamond prices have increased gradually from US$1,010 for fiscal
2010 to US$1,365 for the year ending February 28, 2011, with the average sales
value increasing to $1,555 for the current year to date in comparison to a
fourth quarter of fiscal 2011 sales value of US$1,430.
At 30 November 2011, the Company`s current assets exceeded its current
liabilities by $12.0 million and the Company`s total assets exceeded its total
liabilities by $85.1 million.The Company has forecasted its cash flows for the
fiscal years 2012 and 2013 and these forecasts indicate that the Company will
continue as a going concern. The forecasts assume the plant operating at 85% of
capacity, prices remaining at current levels and the South African Rand
remaining at current levels relative to the United States and Canadian Dollars.
Based on the Company`s cash resources and the above forecasts, the Company has
sufficient working capital and reserves to maintain operations. 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.
1.2.Basis of presentation and principles of consolidation
Basis of consolidation
The unaudited condensed interim consolidated financial statements incorporate
the unaudited condensed interim consolidated financial statements of the Company
and its subsidiaries.
Control exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries are included in the unaudited condensed interim
consolidated financial statements from the effective date of acquisition to the
effective date of disposal.
Investments in associates over which the Company has significant influence are
accounted for using the equity method.
All intra-group transactions, balances, income and expenses are eliminated in
full on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified and recognised separately from the Company`s interest therein, and
are recognised within equity. Losses of subsidiaries attributable to non-
controlling interests are allocated to the non-controlling interest even if this
results in a debit balance being recognised for non-controlling interest.
Investment in associates
An associate is an entity over which the Company has significant influence and
which is neither a subsidiary nor a joint venture. Significant influence is the
power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies.
An investment in associate is accounted for using the equity method. Under the
equity method, investments in associates are carried in the consolidated
statement of financial position at cost adjusted for post-acquisition changes in
the Company`s share of net assets of the associate, less any impairment losses.
Losses in an associate in excess of the Company`s interest in that associate are
recognised only to the extent that the Company has incurred a legal or
constructive obligation to make payments on behalf of the associate.
Profits or losses on transactions between the Company and an associate are
eliminated to the extent of the Company`s interest therein.
1.3 Significant judgements and sources of estimation uncertainty
In preparing the unaudited condensed interim consolidated financial statements,
management is required to make estimates and assumptions that affect the amounts
represented in the unaudited condensed interim consolidated financial statements
and related disclosures. Use of available information and the application of
judgement are inherent in the formation of estimates. Actual results in the
future could differ from these estimates which may be material to the unaudited
condensed interim consolidated financial statements. Significant judgements
include:
Trade receivables and Loans and receivables
The Company assesses its trade receivables and loans and receivables for
impairment at the end of each reporting period. In determining whether an
impairment loss should be recorded in profit or loss, the Company makes
judgements as to whether there is observable data indicating a measurable
decrease in the estimated future cash flows from a financial asset.
Fair value estimation
The carrying value less impairment provision of trade receivables and payables
are assumed to approximate their fair values. The fair value of financial
liabilities for disclosure purposes is estimated by discounting the future
contractual cash flows at the current market interest rate that is available to
the Company for similar financial instruments.
Impairment testing
The recoverable amounts of cash-generating units and individual assets have been
determined based on the higher of value-in-use calculations and fair value less
cost to sell. These calculations require the use of estimates and assumptions.
It is reasonably possible that the residual value and useful lifeassumption may
change which may then impact our estimations and may then require a material
adjustment to the carrying value of tangible assets.
The Company reviews and tests the carrying value of assets when events or
changes in circumstances suggest that the carrying amount may not be
recoverable. Assets are grouped at the lowest level for which identifiable cash
flows are largely independent of cash flows of other assets and liabilities. If
there are indications that impairment may have occurred, estimates are prepared
of expected future cash flows for each group of assets. Expected future cash
flows used to determine the value in use of goodwill and tangible assets are
inherently uncertain and could materially change over time.
Provisions
Provisions were raised and management determined an estimate based on the
information available. Additional disclosure of these estimates of provisions is
included in note 16 - Reclamation obligation.
1.4 Mineral property interests
The acquisition costs of mineral properties are capitalised until the property
is placed into production, sold, abandoned, or when management has determined
that there has been an impairment in value. Such acquisition costs are amortised
over the estimated life of the mine, based on a straight line basis, or written
off to operations if the property is abandoned, allowed to lapse, or if there is
little prospect of further work being carried out by the Company.
Exploration expenditure incurred subsequent to the mining operations which do
not increase production or extend the life of operations are expensed in the
period incurred.
The amount presented for mineral property interests represents costs incurred to
date and accumulated amortisation costs, less write-downs, and does not
necessarily reflect present or future values.
An impairment review of mineral property interests is carried out when there is
an indication that these may be impaired by comparing the carrying amount of the
interest to its estimated recoverable amount. Where the recoverable amount is
less than the carrying amount an impairment charge is included in expenses in
order to reduce the carrying amount of mineral property interest to its fair
value.
1.5 Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an asset
when:
-it is probable that future economic benefits associated with the item will flow
to the Company; and
-the cost of the item can be measured reliably.
Property, plant and equipment are initially measured at cost.
Costs include costs incurred initially to acquire or construct an item of
property, plant and equipment and costs incurred subsequently to add to and
replace part of it. If a replacement cost is recognised in the carrying amount
of an item of property, plant and equipment, the carrying amount of the replaced
part is derecognised.
Property, plant and equipment are depreciated on the straight line basis over
their expected useful lives to their estimated residual value.
Property, plant and equipment are carried at cost less accumulated depreciation
and any impairment losses.
The useful lives of items of property, plant and equipment have been assessed as
follows:
Item Average useful life
Buildings 12 years
Plant and machinery 4 - 10 years
Motor vehicles 5 years
Office equipment 6 years
The residual value, useful life and depreciation method of each asset are
reviewed at the end of each reporting period. If the expectations differ from
previous estimates, the change is accounted for as a change in accounting
estimate.
The depreciation charge for each period is recognised in profit or loss unless
it is included in the carrying amount of another asset.
The gain or loss arising from the derecognition of an item of property, plant
and equipment is included in profit or loss when the item is derecognised. The
gain or loss arising from the derecognition of an item of property, plant and
equipment is determined as the difference between the net disposal proceeds, if
any, and the carrying amount of the item.
1.6 Financial instruments
Initial recognition and measurement
Financial instruments are recognised initially when the Company becomes a party
to the contractual provisions of the instruments.
The Company classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual arrangement.
Financial instruments are measured initially at fair value, except for equity
investments for which a fair value is not determinable, which are measured at
cost and are classified as available for sale financial assets.
For financial instruments which are not at fair value through profit or loss,
transaction costs are included in the initial measurement of the instrument.
Transaction costs on financial instruments at fair value through profit or loss
are recognised in profit or loss.
Subsequent measurement
Financial instruments at fair value through profit or loss are subsequently
measured at fair value, with gains and losses arising from changes in fair value
being included in profit or loss for the period.
Loans and receivables are subsequently measured at amortised cost, using the
effective interest method, less accumulated impairment losses.
Available-for-sale financial assets are subsequently measured at fair value.
This excludes equity investments for which a fair value is not determinable,
which are measured at cost less accumulated impairment losses
Financial liabilities at amortised cost are subsequently measured at amortised
cost, using the effective interest method.
Impairment of financial assets
At each reporting date the Company assesses all financial assets, to determine
whether there is objective evidence that a financial asset or group of financial
assets has been impaired.
For amounts due to the Company, significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy and default of
payments are all considered indicators of impairment.
Impairment losses are recognised in profit or loss.
Reversals of impairment losses are recognised in profit or loss except for
equity investments classified as available-for-sale.
Impairment losses are also not subsequently reversed for available-for-sale
equity investments which are held at cost because fair value was not
determinable.
Investments
The Company classified its investments in debt and equity securities into the
following categories: fair value through profit and loss, held-to-maturity and
available-for-sale. The classification is dependent on the purpose for which the
investments were required. Management determines the classification of its
investments at the time of the purchase and re-evaluates such designation on a
regular basis. Investments that are acquired principally for the purpose of
generating a profit from short term fluctuations in price are classified as
trading investments and included in current assets. Investments with a fixed
maturity that management has the intention and ability to hold to maturity are
classified as held-to-maturity and are included in non-current assets, except
for maturities within 12 months from the reporting date which are classified as
current assets. Investments intended to be held for an indefinite period of
time, which may be sold in response to needs for liquidity or changes in
interest rates, are classified as available-for-sale and are included in non-
current assets unless management has the express intention of holding the
investment for less than 12months from the reporting date or unless they will
need to be sold to raise operating capital, in which case they are included in
current assets.
Purchases and sales of investments are recognised on the trade day, which is the
date that the Company commits to purchase or sell the asset. Cost of purchase
includes transaction costs. Fair value through profit and loss and available for
sale investments are subsequently carried at fair value. Realised and unrealised
gains and losses arising from changes in the fair value of trading investments
are included in equity in the period in which they arise. The fair value of
investments is based on quoted bid prices or amounts derived from cash flow
models. Equity securities for which fair value cannot be measured reliably are
recognised at cost less impairment. When securities classified as available-for-
sale are sold or impaired, the accumulated fair value adjustments are included
in the statement of comprehensive income as gains and losses from investment
securities. Held-to-maturity investments are carried at amortised cost using the
effective yield method.
Loans to (from) group companies
These include loans to and from subsidiaries and associates and are recognised
initially at fair value plus direct transaction costs.
Loans to group companies are classified as loans and receivables.
Loans from group companies are classified as financial liabilities measured at
amortised cost.
Trade and other 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 profit or loss when there is objective evidence that the asset is
impaired. Significant financial difficulties of the debtor, probability that the
debtor will enter bankruptcy or financial reorganisation, and default or
delinquency in payments (more than 30 days overdue) are considered indicators
that the trade receivable 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.
Trade and other receivables are classified as loans and receivables.
Trade and other payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
shortterm highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
These are initially and subsequently recorded at fair value.
Bank overdraft and borrowings
Bank overdrafts and borrowings are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective interest rate
method. Any difference between the proceeds (net of transaction costs) and the
settlement or redemption of borrowings is recognised over the term of the
borrowings in accordance with the group`s accounting policy for borrowing costs.
1.7 Tax
Current tax assets and liabilities
Current tax for current and prior periods is, to the extent unpaid, recognised
as a liability. If the amount already paid in respect of current and prior
periods exceeds the amount due for those periods, the excess is recognised as an
asset.
Current tax liabilities (assets) for the current and prior periods are measured
at the amount expected to be paid to (recovered from) the tax authorities, using
the tax rates (and tax laws) that have been enacted or substantively enacted by
the end of the reporting period.
Deferred tax assets and liabilities
Deferred tax is provided for using the liability method, on all temporary
differences, between the carrying values of assets and the liabilities for
accounting purposes and the amounts used for tax purposes and on any tax losses.
No deferred tax is provided for on temporary differences relating to the initial
recognition of an asset or liability to the extent that neither accounting nor
taxable profit is affected on acquisition.
The provision for deferred tax is calculated using enacted rates at the
reporting date that are expected to apply when the asset is realised or the
liability is settled. A deferred tax asset is recognised to the extent that it
is probable that future taxable profits will be available against which the
deferred tax asset could be realised.
Tax expenses
Current and deferred taxes are recognised as income or an expense and included
in profit or loss for the period, except to the extent that the tax arises from:
- transaction or event which is recognised, in the same or a different period,
to other comprehensive income, or
- business combination.
Current tax and deferred taxes are charged or credited directly to equity if the
tax relates to items that are credited or charged, in the same or a different
period, directly in equity.
1.8 Inventories
Rough diamond inventories are valued at the lower of average production cost and
net realisable value. Production costs include the cost of consumable materials,
direct labour, mine-site overhead expenses and amortization.
Supplies are valued at the lower of cost, at the average purchase cost basis,
and net realisable value.
Appropriate provisions are made for redundant and slowmoving items. Cost of
items that are not ordinarily interchangeable, and goods and services produced
and segregated for specific projects, are assigned by using a specific
identification of their individual costs.
Consistent use of either first-in first-out or weighted average cost formula to
measure the cost of other inventories is applied.
Previous write-downs are reversed to the lower of cost and net realisable value
when there is a subsequent increase in the value of inventories.
1.9 Share-based payments
Goods or services received or acquired in a share-based payment transaction are
recognised when the goods or as the services are received. A corresponding
increase in equity is recognised if the goods or services were received in an
equity-settled share-based payment transaction or a liability if the goods or
services were acquired in a cash-settled share-based payment transaction.
When the goods or services received or acquired in a share-based payment
transaction do not qualify for recognition as assets, they are recognised as
expenses.
For equity-settled share-based payment transactions the goods or services
received and the corresponding increase in equity are measured, directly, at the
fair value of the goods or services received provided that the fair value cannot
be estimated reliably.
If the fair value of the goods or services received cannot be estimated
reliably, their value and the corresponding increase in equity, indirectly, are
measured by reference to the fair value of the equity instruments granted.
For cash-settled share-based payment transactions, the goods or services
acquired and the liability incurred are measured at the fair value of the
liability. Until the liability is settled, the fair value of the liability is re
measured at each reporting date and at the date of settlement, with any changes
in fair value recognised in profit or loss for the period.
If the share-based payments granted do not vest until the counterparty completes
a specified period of service, Company accounts for those services as they are
rendered by the counterparty during the vesting period, (or on a straight line
basis over the vesting period).
If the share-based payments vest immediately the services received are
recognised in full.
For share-based payment transactions in which the terms of the arrangement
provide either the entity or the counterparty with the choice of whether the
entity settles the transaction in cash (or other assets) or by issuing equity
instruments, the components of that transaction are recorded, as a cash-settled
share-based payment transaction if, and to the extent that, a liability to
settle in cash or other assets has been incurred, or as an equity-settled share-
based payment transaction if, and to the extent that, no such liability has been
incurred.
1.10 Reclamation obligation
Estimated rehabilitation costs, which are based on the Company`s interpretation
of current environmental and regulatory requirements, represent the present
value of the expected future costs to rehabilitate the mine properties at
termination of mining operations. The estimated costs of rehabilitation are
reviewed annually and adjusted as appropriate for changes in legislation,
technology or other circumstances.
Provision is made for the Company`s legal and constructive obligations to
dismantle, remove and restore items of property, plant and equipment and
remediation of disturbed areas in the financial period when the related
environmental disturbance occurs, based on the estimated future costs using
information available at the balance sheet date. The provision is discounted
using a market-based pre-tax discount rate and the unwinding of the discount is
included in interest expense. The provision is not discounted if the discounting
is not significant in relation to the provision made. Rehabilitation of
disturbed areas is performed on a continuous basis. At the time of establishing
the provision, a corresponding asset is capitalised, where it gives rise to a
future benefit, and depreciated over its useful life on a straight-line method.
Based on current environmental regulations and known rehabilitation
requirements, management has included its best estimate of these obligations in
its rehabilitation provision. However, it is reasonably possible that the
Company`s estimates of its ultimate rehabilitation liabilities could change as a
result of changes in regulations or cost estimates.
1.11 Translation of foreign currencies
Foreign currency transactions
A foreign currency transaction is recorded, on initial recognition in Canadian
Dollar, by applying to the foreign currency amount the spot exchange rate
between the functional currency and the foreign currency at the date of the
transaction.
At the end of the reporting period:
-foreign currency monetary items are translated using the closing rate;
- monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction;
and
- monetary items that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was
determined.
Exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
translated on initial recognition during the period or in previous financial
statements are recognised in profit or loss in the period in which they arise.
Cash flows arising from transactions in a foreign currency are recorded in
Canadian Dollar by applying to the foreign currency amount the exchange rate
between the Canadian Dollar and the foreign currency at the date of the cash
flow.
Investments in subsidiaries and associates
The results and financial position of a foreign operation are translated into
the functional currency using the following procedures:
- assets and liabilities for each statement of financial position presented are
translated at the closing rate at the date of that statement of financial
position;
- income and expenses for each item of profit or loss are translated at exchange
rates at the dates of the transactions; and
-all resulting exchange differences are recognised to other comprehensive income
and accumulated as a separate component of equity.
Exchange differences arising on a monetary item that forms part of a net
investment in a foreign operation are recognised initially to other
comprehensive income and accumulated in the translation reserve. They are
recognised in profit or loss as a reclassification adjustment through to other
comprehensive income on disposal of net investment.
The cash flows of a foreign subsidiary are translated at the exchange rates
between the functional currency and the foreign currency at the dates of the
cash flows.
1.12. Changes in accounting policies
At the date of authorisation of these financial statements, certain new
standards, amendments and interpretations to existing standards have been
published but are not yet effective, and have not been adopted early by the
Company.
The directors anticipates that all of the pronouncements will be adopted in the
Company`s accounting policies for the first period beginning after the effective
date of the pronouncement. Information on new standards, amendments and
interpretations that are expected to be relevant to the Company`s financial
statements is provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on the Company`s
financial statements.
Standard Details of Amendment Annual periods beginning on
or after
IFRS 9 (AC 146) Financial Instruments 1 January 2013
IFRS 7 amendment Disclosures - Transfers of 1 July 2011
Financial Assets
IAS 12 Income Taxes 1 January 2013
IFRS 10 Consolidated Financial 1 January 2013
Statements
The aggregate impact of the initial application of the statements and
interpretations on the Company`s annual financial statements has not yet been
assessed by the directors.
2.Mineral property interests
30 November 2011 28 February 2011
Figures in Cost Accumulat Carrying Cost Accumulat Carrying
Canadian ed value ed value
Dollar depletion depletion
Mineral 36 111 (7 883 28 228 115 31 540 (7 977 23 562
property 563 448) 840 871) 969
interests
30 November 2010
Figures in Cost Accumulat Carrying
Canadian ed value
Dollar depletion
Mineral 31 943 (6 882 25 060 360
property 174 814)
interests
Reconciliation of mineral property interests - 30 November 2011
Opening Additio Additions Dispos Foreign Deplet Total
balance ns through als exchange ion
business movement
combinatio s
ns
Wouterspan 13 890 - - - (1 425 - 12 465
989 736) 253
Holpan 1 072 - - (101 (123 (146 701 123
472 185) 569) 595)
Klipdam (227 - - - 23 592 - (204
805) 213)
Saxendrift 7 398 555 317 - - (811 (531 6 610
138 507) 632) 316
Niewejaars- 239 459 - - - (24 799) - 214 660
kraal
Makoensklo 332 719 - - - (34 450) - 298 269
of
Windsorton 856 997 - - - (88 753) - 768 244
Erf 2004
Tirisano - 181 000 7 202 054 - - (8 7 374
591) 463
23 562 736 317 7 202 054 (101 (2 485 (686 28 228
969 185) 222) 818) 115
Reconciliation of mineral property interests - 28 February 2011
Mineral property Opening Effects Additions Foreig Depletio Total
interests balance of n n
Figures in transitio exchan
Canadian Dollar n to IFRS ge
moveme
nts
Mineral property 30 850 (30 850 - - - -
interests 998 998)
Wouterspan - 13 722 - 168 - 13 890
048 941 989
Holpan - 1 468 070 - 88 394 (483 1 072
992) 472
Klipdam - 571 902 - 107 (907 (227
977 684) 805)
Saxendrift - 7 743 816 - 199 (545 7 398
374 052) 138
Niewejaarskraal - 235 907 - 3 552 - 239 459
Makoenskloof - 327 791 - 4 928 - 332 719
WindsortonErf - - 845 773 11 224 - 856 997
2004
30 850 (6 781 845 773 584 (1 936 23 562
998 464) 390 728) 969
Reconciliation of mineral property interests - 30 November 2010
Opening Additions Effects Foreig Depletio Total
balance of n n
transitio exchan
n ge
to IFRS moveme
nts
Mineral property 30 850 - (30 850 - - -
interests 998 998)
Wouterspan - - 13 642 517 - 14 159
143 716 859
Holpan - - 1 564 113 253 (326 1 490
565 681) 997
Klipdam - - 687 553 488 (986 189 465
232 320)
Saxendrift - - 7 878 492 420 (495 7 803
570 918) 144
Niewejaarskraal - - 236 149 6 607 - 242 756
Makoenskloof - - 297 031 8 311 - 305 342
WindsortonErf - 845 773 - 23 024 - 868 797
2004
30 850 845 773 (6 545 1 718 (1 808 25 060
998 517) 025 919) 360
3.Property, plant and equipment
Figures in 30 November 2011 28 February 2011
Canadian
Dollar
Mineral Cost Accumula Carryin Cost Accumulat Carry
property ted g value ed ing
interests deprecia depreciat value
tion ion
Land and 6 998 733 (1 386 5 612 7 502 768 (1 149 6 353
buildings 321) 412 217) 551
Plant and 75 795 (30 816 44 978 85 045 595 (35 833 49
machinery 717 953) 764 250) 212
345
Motor vehicles 1 677 798 (1 198 479 387 1 594 663 (1 006 588
411) 082) 581
Office 1 080 216 (715 365 052 1 006 922 (615 659) 391
equipment 164) 263
Construction 1 674 555 - 1 674 6 282 698 - 6 282
in progress * 555 698
87 227 (34 116 53 110 101 432 646 (38 604 62
019 849) 170 208) 828
438
30 November 2010
Cost Accumula Carryin
ted g value
deprecia
tion
Figures in 7 002 188 (165 6 836
Canadian 425) 763
Dollar
Mineral 85 958 (38 065 47 892
property 281 473) 808
interests
Land and 1 868 085 (1 148 720 040
buildings 045)
Plant and 1 041 448 (608 433 094
machinery 354)
Motor vehicles 1 748 394 - 1 748
394
Office 97 618 (39 987 57 631
equipment 396 297) 099
Construction 7 002 188 (165 6 836
in progress * 425) 763
Reconciliation of property, plant and equipment - 30 November 2011
Opening Addition Additions Disposals Transfers
balance s through
business
combinati
ons
Land and 6 353 551 10 085 194 653 - -
buildings
Plant and 49 212 6 749 192 995 (7 997 5 797 727
machinery 345 025 134)
Motor vehicles 588 581 - 64 950 - -
Office 391 263 35 120 62 132 - -
equipment
Construction 6 282 698 1 840 - - (5 797
in progress * 239 727)
62 828 8 634 514 730 (7 997 -
438 469 134)
Foreign Deprecia Total
exchange tion
movements
Land and (629 052) (316 5 612 412
buildings 825)
Plant and (4 581 (4 394 44 978
machinery 552) 642) 764
Motor vehicles (49 576) (124 479 387
568)
Office (32 182) (91 281) 365 052
equipment
Construction (650 655) - 1 674 555
in progress *
(5 943 (4 927 53 110
017) 316) 170
Reconciliation of property, plant and equipment - 28 February 2011
Mineral Opening Additio Dispos Foreign Depreci- Impairm Total
property balance ns als exchang ation ent
interests e loss
movemen
Figures ts
in
Canadian
Dollar
Land and 6 627 93 310 - 183 030 (550 - 6 353
buildings 966 755) 551
Plant and 50 926 4 396 (341 1 238 (6 723 (284 49 212
machinery 945 818 821) 687 588) 696) 345
Motor 781 353 111 711 (256 63 454 (111 - 588 581
vehicles 207) 730)
Office 454 472 39 439 - 20 724 (123 - 391 263
equipment 372)
Construct - 6 149 - 133 276 - - 6 282
ion in 422 698
progress
*
58 790 10 790 (598 1 639 (7 509 (284 62 828
736 700 028) 171 445) 696) 438
Reconciliation of property, plant and equipment - 30 November 2010
Opening Addition Disposa Foreign Depreci- Total
balance s ls exchang ation
e
movemen
ts
Land and 6 627 99 200 - 384 397 (274 6 836
buildings 966 800) 763
Plant and 50 926 1 648 (151 2 795 (7 326 47 892
machinery 945 754 805) 585 671) 808
Motor 781 353 93 091 - 40 396 (194 720 040
vehicles 800)
Office 454 472 38 591 - 24 305 (84 274) 433 094
equipment
Construction - 1 748 - - - 1 748
in progress 394 394
58 790 3 628 (151 3 244 (7 880 57 631
736 030 805) 683 545) 099
3. Property, plant and equipment (continued)
Components of property, plant and equipment are depreciated over their estimated
useful life. The depreciation charge for the nine months ending 30 November 2011
was $ 4,927,316 (30 November 2010 $7,880,545).
The Company`s bankers have registered two notarial general covering bonds (First
Lien) of ZAR 10 million ($1.4 million) over all loose assets on the property
known as Holpan, Barkley West, Northern Cape (refer Note 29).
(*) Construction in progress at Tirisano.
Transfers from construction in progress to plant and machinery relate to the
plant at Tirisano, which is now fully operational.
Disposals relate mainly to the sale of mining equipment (Komatsu PC 3000) that
was not being effectively utilised and the Holpan DMS plant that was no longer
required after the closure of the mine.
4.Investment in associate
Figures in Canadian Dollar 30 28 30
November February November
2011 2011 2010
Flawless Diamonds Trading House (Pty)
Ltd - 20%
Carrying amount
Opening balance 129 660 - -
Cost of investment in associate - 95 690 95 690
Share of profit for the period 135 463 34 396 36 925
Foreign exchange adjustments (10 149) (426) 5 670
Closing balance 254 974 129 660 138 285
Summarised financial information of
associate
Total assets 2 457 662 9 690 007 6 111 414
Total liabilities 1 207 392 8 969 428 5 405 484
Net assets 1 250 270 703 579 705 930
Revenue 41 535 945 60 383 011 41 544 217
Total net earnings for the period 677 316 206 374 184 624
Capital commitments and contingent - - -
liabilities of associate
On 21 April 2010 the Company acquired a 20% shareholding in Flawless Diamonds
Trading House (Pty) Ltd ("Flawless") incorporated in the Republic of South
Africa for ZAR700,000 ($95,690) cash.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` net income (loss) for the year.
The carrying amounts of associates are shown net of impairment losses.
Figures in Canadian Dollar 30 28 30
November February November
2011 2011 2010
5. Other financial assets
At fair value through profit or loss
- designated
Investments 429 184 1 199 182 875 471
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 30 November 2011
amounted to $5,934,125 (February 28,
2011 $3,958,793) of which $5,504,942
(February 28, 2011 $2,759,611) has
been disclosed as reclamation
deposits (Refer note 16).
Loans and receivables
Etruscan Diamonds Limited - 768 030 2 650 346
Represents amounts paid to Etruscan
Diamonds Limited.
During the quarter the Tirisano deal
was completed and the Etruscan loan
was repaid.
Deposits 70 349 75 079 161 460
This deposit relates to deposits paid
to the local electricity supplier.
70 349 843 109 2 811 806
Total other financial assets 499 533 2 042 291 3 687 277
Noncurrent assets
At fair value through profit or loss 429 184 1 199 182 875 471
Loans and receivables 70 349 843 109 2 811 806
499 533 2 042 291 3 687 277
6.Inventories
Rough diamond inventories 2 077 723 824 513 4 593 445
Mine supplies 3 043 629 1 803 576 4 750 365
5 121 352 2 628 089 9 343 810
As at 30 November 2011, rough diamond inventories were valued at net realisable
value and mine supplies at cost less cumulative impairment charges. No write-
down of inventory was done during the nine months ended 30 November 2011. Mine
supplies were written down by $190,700 to $1,803,578 during the 2011 fiscal
year.
The net realisable 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 colour.
7.Loans to (from) related parties
Current assets 106 968 92 398 34 694
Non-current liabilities (380 601) (424 572) (610 265)
Current liabilities (328 160) (72 064) -
(601 793) (404 238) (575 571)
Included in current liabilities is an amount of $266,000 owing to a director as
disclosed in note 17, Related parties.
8.Trade and other receivables
Trade receivables 5 530 106 4 743 033 6 270 928
Prepayments 119 023 82 808 239 706
VAT - 540 956 135 266
5 649 129 5 366 797 6 645 900
9. Cash and cash equivalents
Cash and cash equivalents consist of:
Bank balances 7 947 662 4 771 124 3 683 568
Short-term cash deposits 3 202 498 - 2 029
Bank overdraft (425 779) (1 787 (2 200
479) 111)
10 724 381 2 983 645 1 485 486
Current assets 11 150 160 4 771 124 3 685 597
Current liabilities (425 779) (1 787 (2 200
479) 111)
10 724 381 2 983 645 1 485 486
10.Share capital
Reconciliation of number of shares
issued:
Beginning of period 518 185 238 370 843 069 370 843
069
Rights offering at subscription - 92 710 767 92 710 767
price of $0.05 per share
Debt conversion at $0.065 per 6 703 292 54 631 402 54 631 402
share
Share consolidation 15:1 (#) (489 895 - -
959)
Post consolidation shares 34 992 571 518 185 238 518 185
Private placement at $0.75 per 10 341 969 - 238
share -
Business combination 2 608 206 - -
47 942 746 518 185 238 518 185
238
Issued
Ordinary 146 137 853 135 989 508 135 989
508
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.
# Effective 11 July 2011 the Company completed a consolidation of its
outstanding Common Shares on the basis of 15 preconsolidated common shares for 1
post consolidated common share.
During the second quarter of fiscal 2012, the Company raised $7,8 million
through a private placement, with shares issued at $0.75 per share during Q3
2012.
11.Share-based payments
The Company has a share-based payment plan approved by the shareholders that
allows the Company to grant options for up to 10% of the issued and outstanding
shares of the Company at any one time, typically vesting over two years, to its
directors, employees, officers, and consultants. The exercise price of each
share option is set by the board of directors at the time of the grant and
cannot be less than the market price (less permissible discounts) on the Toronto
Stock Exchange. Share options have a maximum term of five years and typically
terminate 30 days following the termination of the optionee`s employment, except
in the case of retirement or death.
From time to time, the Company may grant share options to employees, directors,
and service providers. The Company uses the Black-Scholes option pricing model
to estimate a value for these options. This model, and other models which are
used to fair value share options, require inputs such as expected volatility,
expected life to exercise, and interest rates. Changes in any of these inputs
could cause a significant change in the share-based payment expense charged in a
period.
Effective 11 July 2011 the Company completed a consolidation of its outstanding
Common Shares on the basis of 15 pre-consolidated common shares for 1 post
consolidated common share. The effect of the share consolidation has been
applied retrospectively.
The continuity of share-based payments for the nine months ended
30 November 2011 is as follows:
Expiry Exercis 28 Granted/ Exercise Expired/ 30
date e price February Issued d cancelled November
Figures in 2011 2011
Canadian
Dollar
24 $ 9.30 392 767 - - (46 644) 346 123
September
2012
14 $ 9.45 72 433 - - (12) 72 421
November
2012
20 June $ 6.75 63 333 - - (63 333) -
2011
7 December $ 0.90 912 173 - - (81 108) 831 065
2014
18 January $ 1.05 40 000 - - - 40 000
2015
8 October $ 0.98 1 002 800 - - (170 478) 832 322
2015
12 October $ 0.48 - 1 153 - - 1 153 627
2016 627
12 October $ 0.48 - 584 075 - - 584 075
2014
2 483 506 1 737 - (361 575) 3 859 633
702
Weighted $ 2.66 $ 0.48 - $ 3.05 $ 1.64
average
exercise
price
Weighted $ 0.48
average
fair value
of share
options
granted
during the
period
As at 30 November 2011 2,675,097 of the share options outstanding with a
weighted average exercise price of $1.64 per share have vested with grantees.
The continuity of share-based payments for the year ended 28 February 2011
is as follows:
Expiry Exercis 28 Granted/ Exercise Expired/ 28
date e price February Issued d cancelled February
Figures in 2010 2011
Canadian
Dollar
24 $ 9.30 393 100 - - (333) 392 767
September
2012
14 $ 9.45 73 433 - - (1 000) 72 433
November
2012
20 June $ 6.75 63 333 - - - 63 333
2011
7 December $ 0.90 951 393 - - (39 220) 912 173
2014
18 January $ 1.05 40 000 - - - 40 000
2015
8 October $ 0.98 - 1 002 - - 1 002 800
2015 800
1 521 259 1 002 - (40 553) 2 483 506
800
Weighted $ 3.75 $ 0.98 - $ 1.20 $ 2.70
average
exercise
price
Weighted $ 0.84
average
fair value
of share
options
granted
during the
period
As at 28 February 2011 1,055,678 of the share options outstanding with a
weighted average exercise price of $0.90 per share have vested with grantees.
The continuity of share-based payments for the year ended
30 November 2010 is as follows:
Expiry Exercis 28 Granted/ Exercise Expired/ 30
date e price February Issued d cancelled November
Figures in 2010 2010
Canadian
Dollar
24 $ 9.30 393 100 - - (333) 392 767
September
2012
14 $ 9.45 73 433 - - (1 000) 72 433
November
2012
20 June $ 6.75 63 333 - - - 63 333
2011
7 December $ 0.90 951 393 - - (9 000) 942 393
2014
18 January $ 1.05 40 000 - - - 40 000
2015
8 October $ 0.98 - 1 002 - - 1 002 800
2015 800
1 521 259 1 002 - (10 333) 2 513 726
800
Weighted $ 3.75 $ 0.98 - $ 1.20 $ 3.75
average
exercise
price
Weighted $ 0.98
average
fair value
of share
options
granted
during the
period
As at 30 November 2010 1,497,581 of the share options outstanding with a
weighted average exercise price of $3.75 per share have vested with grantees.
Using a Black-Scholes option pricing model with the assumptions noted below, the
fair values of share options vested have been reflected in the statement of
operations as follows:
Figures in Canadian Dollar 3 months 9 months 3 months 9 months
ended 30 ended 30 ended 30 ended 30
November November November November
2011 2011 2010 2010
Exploration and engineering 98 794 131 821 190 052 215 630
Operations and administration 146 001 268 814 514 765 541 857
Total share-based payment cost 244 798 400 644 704 820 757 496
expensed to operations, with
the offset credited to share-
based payment reserve
12.Prepaid capital contributions
An amount received is convertible and/or repayable at the discretion of the
Company for a period of twelve months, and is valued on the residual method at
the review date.
13.Other financial liabilities
Figures in Canadian Dollar
Held at amortised cost
Industrial Development Corporation of 2 999 - -
South Africa Limited 632
The loan was acquired by Rockwell
Diamonds Inc. in the business
combination of Etruscan Diamonds (Pty)
Ltd, and was entered into by Blue Gum
Diamonds (Pty) Ltd, a 74% owned
subsidiary of Etruscan Diamonds (Pty)
Ltd.
The loan is repayable in 10 equal bi-
annual instalments, the first of which
will be paid in Q4 2012, and bears
interest at 1.28% above the current
prime rate (9% p.a.).
Non-current liabilities
At amortised cost 2 451 - -
506
Current liabilities
At amortised cost 548 126 - -
2 999 - -
632
14.Capital lease obligation
Figures in Canadian Dollar
Minimum lease payments due
- within one year 328 397 143 997 302 181
- in second to fifth year inclusive 545 772 - -
874 169 143 997 302 181
less: future finance charges (116 (1 367) (6 770)
966)
Present value of minimum lease payments 757 203 142 630 295 411
Present value of minimum lease payments
due
- within one year 259 503 142 630 295 411
- in second to fifth year inclusive 497 700 - -
757 203 142 630 295 411
Non-current liabilities 497 700 - -
Current liabilities 259 503 142 630 295 411
757 203 142 630 295 411
Included in property, plant and equipment are mining equipment that the Company
acquired pursuant to three year capital lease obligations.
Capital lease obligations as detailed above are secured over plant and equipment
and are repayable, on average, in 36 monthly installments. 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 obligations.
15.Deferred tax
Deferred tax liability
Figures in Canadian Dollar
Temporary differences 5 665 5 840 000 4 782 066
247
Reconciliation of deferred tax liability
At beginning of the year 5 840 11 545 11 545 000
000 000
Effects of transition to IFRS - (8 638 (8 638
066) 066)
Foreign exchange movement 753 535 - -
Recognised through statement of 578 782 2 933 066 1 875 132
comprehensive income
5 665 5 840 000 4 782 066
247
16.Reclamation obligation
Reconciliation of obligation - 30 November 2011
Figures in Opening Reclamation Foreign Acquired Total
Canadian Dollar balance (expenditur exchange through
e movements business
incurred)/ combinatio
obligation n
recognized
Holpan, 2 565 377 (198 050) (248 790) - 2 118
Wouterspan, and 537
Klipdam Mines
Saxendrift Mine 1 249 261 254 487 (151 078) - 1 352
670
Tirisano Mine - - - 2 033 735 2 033
735
3 814 638 56 437 (399 868) 2 033 735 5 504
942
Reconciliation of obligation - 28 February 2011
Figures in Canadian Dollar Opening Reclamation Foreign Total
balance (expenditur exchange
e movements
incurred)/
obligation
recognized
Holpan, Wouterspan, and 2 918 102 (426 066) 73 341 2 565 377
Klipdam Mines
Saxendrift Mine 804 882 427 875 16 504 1 249 261
3 722 984 1 809 89 845 3 814 638
Reconciliation of obligation - 30 November 2010
Figures in Canadian Dollar Opening Reclamation Foreign Total
balance (expenditur exchange
e movements
incurred)/
obligation
recognized
Holpan, Wouterspan, and 2 918 102 (407 684) 160 551 2 670 969
Klipdam Mines
Saxendrift Mine 804 882 362 580 58 677 1 226 139
3 722 984 (45 104) 219 228 3 897 108
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 labor 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 30 November 2011, the Company had cash
reclamation deposits totaling $5,504,942 (February 28, 2011 - $2,759,611)
comprised of $2,118,537 (February 28, 2011 - $1,686,913) for the Holpan,
Wouterspan and Klipdam mine, $1,352,670 (February 28, 2011 - $1,072,698) for the
Saxendrift mine and $2,033,735 for the Tirisano mine. These deposits are
invested in interest bearing money market linked investments at rates ranging
from 9.5% to 11.0% per annum. These investments have been pledged as security in
favour of the guarantees the bank issued on behalf of the Company. Refer to note
28.
17.Related parties
Related party balances
Figures in Canadian Dollar
Balances payable
Banzi Trade (e) 1 073 34 385 34 518
Hunter Dickinson Services Inc. (a) 61 087 34 113 65 011
Seven Bridges Trading (c) - - 11 468
Flawless Diamonds Trading House (d) - 3 566 60 138
Mark Bristow (h) 266 000 - -
Current balances payable 328 160 72 064 171 135
Liberty Lane (f) 380 601 424 572 439 130
Non-current balances payable 380 601 424 572 439 130
Balances receivable
Banzi Trade (e) 94 418 92 398 34 694
Magopa Minerals (g) 12 550 - -
Current balances receivable 106 968 92 398 34 694
Related party transactions
Services rendered and expenses
reimbursed:
Hunter Dickinson Services Inc. (a) 271 467 151 425 479
077
CEC Engineering (b) 20 012 23 331 13 036
Seven Bridges Trading (c) 72 853 134 483 105 145
Banzi Trade 26 (e) 105 165 077 133 312
854
Magopa Minerals (g) 62 563 - -
Flawless Diamonds Trading House (d) 254 420 006 295 492
178
Sales rendered to:
Banzi Trade 26 (Pty) Ltd (e) 124 143 -
All related party transactions are calculated at arms length transaction values
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 21 November 2008.
(b)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.
(c)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.
(d)Flawless Diamonds Trading House (Pty) Ltd ("Flawless Diamonds Trading House")
is a private company where certain directors, former directors and officers of
the Company, namely, Messrs Brenner, J.W. and D.M. Bristow and Van Wyk, are
shareholders. During fiscal 2011 the Company acquired a 20% shareholding in
Flawless Diamonds Trading House (refer note 4). 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 which is below the
market rate charged by similar tender houses.
(e)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.
(f)Liberty Lane is the BEE partner of the Saxendrift property and has certain
directors in common with the Company.
(g)Magopa Community Trust/Magopa Minerals (Pty) Ltd/Magopa Blue Gum (Pty) Ltd
The Bakwena Ba Magopa Trust is the beneficial owner of 26% in the Tirisano Mine
operation resident in Blue Gum diamonds (Pty) Ltd. This interest is held by
Magopa Minerals (Pty) Ltd through Magopa Blue Gum (Pty) Ltd. As the landowner,
surface rentals are paid to the Trust, while business and support services are
paid to Magopa Minerals for shareholder relations and related services.
(h)Mark Bristow
A short term loan was advanced by the director of the Company to Etruscan
Limited in order to proceed with capital orders on Tirisano. The capital portion
of the loan is convertible to equity while the interest is repayable in Q4 2012.
266,667 common shares of the Company will be issued during Q4 2012 in settlement
of the capital portion of the loan.
18.Trade and other payables
Figures in Canadian Dollar
Trade payables 7 709 948 6 373 382 7 034 122
VAT 423 682 - -
8 133 630 6 373 382 7 034 122
19.Cash used in operations
Figures in Canadian Dollar
Loss before taxation (3 102 849) (2 233 172) (1 847 002)
Adjustments for:
Depreciation and depletion 5 614 134 9 446 173 9 689 464
Loss on sale of assets 188 889 296 510 (35 135)
Foreign exchange movements 585 416 (82 873) -
Income from equity accounted (135 463) (34 396) (36 925)
investments
Investment income (478 845) (101 953) (171 497)
Finance costs 513 342 449 003 300 108
Fair value adjustments - 31 920 -
Net reclamation obligation (573 533) 1 809 (416 788)
recognised
Share-based payment expense 400 644 884 886 757 487
Write-down on inventory - 899 034 -
Write-down of property, plant and - 284 696 -
equipment
Write-down of assets - - 147 340
Movement in reclamation deposit (2 745 331) - -
Changes in working capital:
Inventories (2 339 548) (476 349) (6 854 319)
Trade and other receivables (282 332) 1 686 027 (309 908)
Trade and other payables 1 760 248 (242 916) 1 272 439
(595 228) 10 808 399 2 495 264
20.Business combination
In September 2011, the Company completed the acquisition of 100% of the share
capital in Etruscan Diamonds (Pty) Ltd. The total consideration paid by the
Company for the shares was satisfied as follows:
(a) The issue of 2,608,206 common shares of the Company; and
(b) $1.32 million in cash advances to Etruscan Diamonds (Pty) Ltd to fund the
care and maintenance of Tirisano mine during the completion of the transaction.
A summary of the accounting treatment of fair value of net assets
acquired and consideration paid is as follows:
Figures in Canadian Dollar
Net assets (5 981 947) - -
Mineral property interests 7 202 054 - -
Total identifiable net assets
1 220 107 - -
Non-controlling interest 1 589 987 - -
2 810 094 - -
Purchase consideration
Cash paid 1 323 416 - -
Shares issued (2,608,206 common 1 486 678 - -
shares)
Purchase price 2 810 094 - -
Net cash outflow on acquisition
Cash consideration paid (1 323 416) - -
For accounting purposes, the Company used the closing share price on
31 August 2011 to value the share element of the purchase consideration.
21.Tax refunded (paid)
Figures in Canadian Dollar
Balance at beginning of the (245 228) (1 144 369) (411 334)
period
Current tax for the period - - (222 000)
recognised in profit or loss
Balance at end of the period 289 321 245 228 855 334
44 093 (899 141) 222 000
Figures in 3 months 9 months 3 months 9 months
Canadian Dollar ended 30 ended 30 ended 30 ended 30
November November November November
2011 2011 2010 2010
22.Revenue
Sale of diamonds 5 979 243 20 482 146 10 219 251 28 396 081
Beneficiation income 2 296 797 5 505 351 897 428 2 565 130
8 276 040 25 987 497 11 116 679 30 961 211
Beneficiation income represents profit share on value add (cut and polish),
arising through the Company`s beneficiation joint venture with The
Steinmetz Diamond Group. The Company is entitled to 50% of the profits from
the sale of the polished diamonds produced by the Company and sold through
this channel.
23.Operating loss
Operating loss for the period is stated after accounting for the following:
Loss (profit) on sale of 59 687 188 889 (639) (35 135)
property, plant and
equipment
Depreciation on property, 1 575 149 4 927 316 2 774 712 7 880 545
plant and equipment
Depletion mineral property 191 097 686 818 697 246 1 808 919
interests
Employee costs 559 184 1 518 648 440 565 1 440 646
Arbitration settlement 1 369 486 1 369 486 - -
24. Investment income
Interest revenue
Bank 302 578 478 845 76 046 171 497
25. Finance costs
Interest on convertible 156 220 156 220 - -
loans
Capital leases obligation 48 040 140 259 53 015 85 783
Bank 68 139 216 863 66 423 214 325
272 399 513 342 119 438 300 108
26. Income tax expense
Major components of the
tax expense
Current tax
Local income tax current - - 32 000 222 000
period
Deferred tax
Movement in deferred tax 1 511 146 578 782 703 000 1 875 132
balance
1 511 146 578 782 735 000 2 097 132
27.Earnings (loss) per
share
Basic and diluted earnings (loss) per share
Basic earnings (loss) per share was calculated based on a weighted average
number of ordinary shares of 47 942 746 for the 3 months ended 30 November
2011 (3 months ended 30 November 2010: 34 545 683) and for the 9 months
ended 30 November 2011 47 942 746 (9 months ended 30 November 20103 545
683).
Reconciliation of earnings
(loss) for the period to
basic earnings (loss)
Total comprehensive profit (10 684 (10 991 8 720 374 754 441
(loss) 995) 583)
Adjusted for:
Noncontrolling interest 16 537 484 199 (274 788) 80 408
Basic earnings (loss) (10 668 (10 507 8 445 586 834 849
attributable to owners of 458) 384)
the Company
Diluted earnings (loss)
per share is equal to
earnings (loss) per share
because there are no
dilutive potential
ordinary shares in issue.
Headline earnings (loss)
per share
Reconciliation between
basic earnings (loss) and
headline earnings (loss)
Basic earnings (loss) (10 668 (10 507 8 445 586 834 849
458) 384)
Adjusted for:
Exchange differences on 7 123 278 7 309 952 (9 510 (4 698
translating foreign 591) 575)
operations
Headline earnings (loss) (3 545 180) (3 197 432) (1 065 (3 863
attributable to owners of 005) 726)
the Company
28.Contingencies
Bank indebtedness
The Company has an overdraft facility in the amount of ZAR28.0 million ($3.9
million) available for its operations. This facility has an interest cost of
prime (currently 9% per annum) plus 0.6%. The security for the ZAR28.0 million
consists of 2 covering bonds (First Lien) 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, Saxendrift Mine (Pty) Ltd
held guarantees with the bank towards Eskom (Electricity Provider) of
ZAR4,856,100 ($663,828) and the Department of Minerals and Energy (DME) of
ZAR21,367,228 ($2,920,896) towards rehabilitation expenses.
29.Firsttime adoption of International Financial Reporting
Standards
The group has applied IFRS 1, Firsttime adoption of International Financial
Reporting Standards, to provide a starting point for the reporting under
International Reporting and Accounting Standards. On principle these standards
have been applied retrospectively and the 30 November 2010 and 28 February 2011
comparatives contained in these unaudited condensed interim consolidated
financial statements differ from those published in the financial statements
published for the nine months ended 30 November 2010 and the 12 months ended 28
February 2011.
The date of transition was 1 March 2010 and the effect of the transition was as
follows.
Reconciliation of equity at 30 November 2010
As reported Effects of IFRS
under transition
Canadian to IFRS
GAAP
Property, plant and equipment 57 631 099 - 57 631 099
Mineral property interests 30 375 859 (5 315 497) 25 060 362
Investment in associate 138 285 - 138 285
Other assets and deposits 3 687 277 - 3 687 277
Reclamation deposits 3 093 964 - 3 093 964
Total noncurrent assets 94 926 484 (5 315 497) 89 610 987
Trade and other receivables 6 645 900 - 6 645 900
Inventories 9 343 810 - 9 343 810
Loan to related party 34 694 - 34 694
Cash and cash equivalents 3 685 597 - 3 685 597
Total current assets 19 710 001 - 19 710 001
Capital leases 295 411 - 295 411
Trade and other payables 7 034 124 - 7 034 124
Loans from related parties 610 265 - 610 265
Reclamation obligation 3 897 108 - 3 897 108
Current tax liability 855 334 - 855 334
Deferred tax liability 12 681 066 (7 899 000) 4 782 066
Bank overdraft 2 200 111 - 2 200 111
Total liabilities 27 573 419 (7 899 000) 19 674 419
Total assets less total 87 063 066 2 583 503 89 646 569
liabilities
Issued capital 135 989 508 - 135 989 508
Sharebased payment 6 952 536 - 6 952 536
reserve
Foreign currency translation (5 194 931) 2 594 414 (2 600 517)
reserve
Retained loss (51 461 174) (10 911) (51 472 085)
Minority interest 777 127 - 777 127
Total equity 87 063 066 2 583 503 89 646 569
13 January 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 13/01/2012 07:05:33 Supplied by www.sharenet.co.za
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