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DRN - Delrand Resources Limited - Consolidated financial statements for the
years ended 31 December 2011 and 2010
DELRAND RESOURCES LIMITED
(formerly BRC DiamondCore Ltd.)
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: DRN & ISIN Number: CA2472671072
("Delrand" or "the Company")
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2011 AND
2010
Management`s Report
The consolidated financial statements, the notes thereto and other financial
information contained in the Management`s Discussion and Analysis have been
prepared in accordance with International Financial Reporting Standards and
are the responsibility of the management of Delrand Resources Limited
(formerly BRC DiamondCore Ltd., the "Company"). The financial information
presented elsewhere in the Management`s Discussion and Analysis is consistent
with the data that is contained in the consolidated financial statements. The
consolidated financial statements, where necessary, include amounts which are
based on the best estimates and judgments of management.
In order to discharge management`s responsibility for the integrity of the
financial statements, the Company maintains a system of internal controls.
These controls are designed to provide reasonable assurance that the Company`s
assets are safeguarded, transactions are executed and recorded in accordance
with management`s authorization, proper records are maintained and relevant
and reliable information is produced. These controls include maintaining
quality standards in hiring and training of employees, policies and procedures
manuals, a corporate code of conduct and ensuring that there is proper
accountability for performance within appropriate and well-defined areas of
responsibility. The system of internal controls is further supported by a
compliance function, which is designed to ensure that management and the
Company`s employees comply with securities legislation and conflict of
interest rules.
The Board of Directors is responsible for overseeing management`s performance
of its responsibilities for financial reporting and internal control. The
Audit Committee, which is composed of non-executive directors, meets with
management as well as the external auditors, as and when appropriate, to
ensure that management is properly fulfilling its financial reporting
responsibilities to the Board of Directors who approve the consolidated
financial statements. The external auditors have full and unrestricted access
to the Audit Committee to discuss the scope of their audits, the adequacy of
the system of internal controls and review reporting issues.
The consolidated financial statements for the year ended December 31, 2011
have been audited by Deloitte & Touche LLP, Chartered Accountants and Licensed
Public Accountants, in accordance with Canadian generally accepted auditing
standards.
Signed) "Michiel C.J. de Wit" (Signed) "Brian P. Scallan"
Michiel C.J. de Wit Brian P. Scallan,
President Vice President, Finance
March 29, 2012
Independent Auditor`s Report
To the Shareholders of Delrand Resources Limited (formerly BRC DiamondCore
Ltd.)
We have audited the accompanying consolidated financial statements of Delrand
Resources Limited (the "Company"), which comprise the consolidated statements
of financial position as at December 31, 2011, December 31, 2010 and January
1, 2010, and the consolidated statements of comprehensive loss, statements of
changes in equity and statements of cash flow for the years ended December 31,
2011 and December 31, 2010, and a summary of significant accounting policies
and other explanatory information.
Management`s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor`s Responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor`s judgment, including the assessment
of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity`s preparation
and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity`s
internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Delrand Resources Limited as at
December 31, 2011, December 31, 2010 and January 1, 2010, and its financial
performance and its cash flows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial Reporting
Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 - Corporate
Information and Continuation of the Business in the consolidated financial
statements which indicates that the Company incurred a net loss of $123,314
for the year ended December 31, 2011 and, as of that date, the Company`s
current liabilities exceeded current assets by $533,191 and the Company`s
deficit was $119,531,417. These conditions, along with other matters as set
forth in Note 1, indicate the existence of material uncertainties that may
cast significant doubt about the Company`s ability to continue as a going
concern.
/s/ Deloitte & Touche LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
March 29, 2012
CONTENTS
Consolidated Statements of Financial Position..........
Consolidated Statements of Comprehensive Loss.............
Consolidated Statements of Changes in Equity..............
Consolidated Statements of Cash Flow..............
1. Corporate Information and Continuation of the Business
2. Basis of Preparation
3. Summary of Significant Accounting Policies
4. Subsidiaries and Investment in Associate
5. Cash
6. Property, Plant and Equipment
7. Exploration and Evaluation Assets
8. Accounts Payable and Accrued Liabilities
9. Notes Payable
10. Related Party Transactions
11. Share Capital
12. Share-Based Payments
13. Segmented Reporting
14. Financial Risk Management Objectives and Policies
15. Supplemental Cash Flow Information
16. Commitments and Contingencies
17. Income Taxes
18. First Time Adoption of International Financial Reporting Standards
CONSOLIDATED STATEMENTS OF FINANICAL POSITION
Expressed in Notes December 31, December 31, January 1, 2010
Canadian Dollars 2011 2010 (Note 18) (Note 18)
$ $ $
Assets
Current Assets
Cash 5 88,068 126,931 664,495
Other receivable 7b 26,145 - -
Prepaid expenses 38,342 21,713 163,175
and other assets
Total Current 152,555 148,644 827,670
Assets
Non-Current Assets
Property, plant and 6 - 4,100 141,794
equipment
Exploration and 7 5,121,486 5,075,041 5,826,755
evaluation
Total Non-Current 5,121,486 5,079,141 5,968,549
Assets
Total Assets 5,274,041 5,227,785 6,796,219
Liabilities and
Shareholders`
Equity
Current Liabilities
Accounts payable 8 530,024 834,176 1,027,172
and accrued
liabilities
Notes payable 9 - 400,493 -
Income taxes 17 11,076 6,127 -
payable
Due to related 10 144,646 106,029 377,884
parties
Total Current 685,746 1,346,825 1,405,056
Liabilities
Non-current
Income taxes 17 20,502 15,789 57,030
payable
Total Liabilities 706,248 1,362,614 1,462,086
Shareholders`
Equity
Share capital 11 115,939,566 115,457,876 115,457,876
Contributed surplus 8,159,644 7,815,398 7,777,105
Deficit (119,531,417) (119,408,103) (117,900,848)
Total Shareholders` 4,567,793 3,865,171 5,334,133
Equity
Total Liabilities and 5,274,041 6,796,219
Shareholders` Equity 5,227,785
Going Concern 1
Common shares
Authorized Unlimited (Note Unlimited (Note Unlimited (Note
11a) 11a) 11a)
Issued and
outstanding 49,704,341 44,704,320 44,704,320
The accompanying notes are an integral part of these consolidated financial
statements.
These consolidated financial statements are authorized for issue by the Board
of Directors on March 29, 2012.
They are signed on the Company`s behalf by:
/s/ Michiel de Wit /s/ Brian Scallan
Michiel de Wit Brian Scallan
Director Director
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Expressed in Canadian Dollars Notes Year ended Year ended
December 31, December 31,
2011 2010
$ $
Expenses
Consulting and professional fees 308,346 447,319
General and administrative 223,467 209,285
Share-based payment expense 12 - 29,333
Foreign exchange (gain) loss (8,323) 3,356
Impairment of mineral properties - 740,975
and deferred exploration
expenditures
Gain on disposal of property, 7 (430,085) -
plant and equipment
Interest expense 8,000 493
Bad debt expense - 105,009
Loss from operations before income (101,405) (1,535,770)
taxes
Income tax (expense) recovery (21,909) 28,515
(123,314) (1,507,255)
Headline loss
Net loss and comprehensive loss (123,314) (1,507,255)
for the year
Basic and diluted loss per share (0.00) (0.03)
Headline loss and diluted loss per (0.00) (0.03)
share
Weighted average number of common 47,855,026 44,704,320
shares outstanding
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Expressed in Notes Common shares Contribut Deficit Total
Canadian Dollars ed Sharehold
Surplus er`s
equity
Number of Amount
shares $
(Note 11)
Balance at 18
January 1, 2010 44,704,320 115,457,876 $7,777,10 $(117,900,848 $5,334,13
5 ) 3
Net loss for the
year - - - (1,507,255) (1,507,25
5)
Share based 12
compensation - - 38,293 - 38,293
Balance at
December 31, 44,704,320 115,457,876 7,815,398 (119,408,103) 3,865,171
2010
Balance at
January 1, 2011 44,704,320 115,457,876 7,815,398 (119,408,103) 3,865,171
Net loss for the
year - - - (123,314) (123,314)
Share issuance 11
(net of costs) 5,000,000 481,690 - - 481,690
Warrant issuance 11
(net of costs) - - 344,246 - 344,246
Fractional 11a
shares due to 21 - - -
consolidation
Balance at 49,704,341
December 30, 115,939,566 8,159,644 (119,531,417) 4,567,793
2011
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
Expressed in Canadian Dollars Notes Year ended Year ended
December 31, December 31,
2011 2010
$ $
Cash flows from operating
activities
Net loss for the year (123,314) (1,507,255)
Adjustments to reconcile loss to
net cash used in operating
activities
Interest expense 8,000 493
Interest paid - Note payable (8,493) -
Impairment of properties - 740,975
Share based payment expense 12 - 29,333
Bad debt expense - 105,009
Income taxes 21,909 (28,515)
Income taxes paid (12,247) (6,598)
Gain on disposal of property, (430,085)
plant and equipment -
Changes in non-cash working
capital
Prepaid expenses and other (16,629)
current assets 36,453
Accounts receivable (26,145) -
Accounts payable and accrued (304,152)
liabilities (192,996)
Net cash flows used in operating
activities (891,156) (823,101)
Cash flows from investing
activities
Proceeds from disposal of capital
asset 430,085 64,794
Expenditures on exploration and
evaluation (409,600) (338,757)
Funds received from Rio Tinto
367,255 431,355
Net cash provided by investing
activities 387,740 157,392
Cash flows from financing
activities
Issuance of units 825,936 -
Notes payable 9 (400,000) 400,000
Due to related parties 38,617 (271,855)
Net cash provided by financing
activities 464,553 128,145
Net decrease in cash during the
year (38,863) (537,564)
Cash, beginning of the year 126,931 664,495
Cash, end of the year 88,068 126,931
Supplemental cash flow information (Note 15)
The accompanying notes are an integral part of these consolidated financial
statements.
1. CORPORATE INFORMATION AND CONTINUATION OF THE BUSINESS
Corporate Information
The principal business of Delrand Resources Limited (formerly BRC DiamondCore
Ltd.) (the "Company") is the acquisition and exploration of mineral properties
in the Democratic Republic of the Congo ("DRC"). In June 2011, the Company
effected a change in the name of the Company from BRC DiamondCore Ltd. to
Delrand Resources Limited and a consolidation of the outstanding common shares
of the Company on a two to one basis. As a result of the share consolidation,
all of the issued and outstanding share amounts included in the financial
statements have been restated to reflect the consolidation.
These consolidated financial statements as at December 31, 2011, December 31,
2010 and January 1, 2010 and for the year ended December 31, 2011, December
31, 2010 include the accounts of the Company and of its wholly-owned
subsidiaries incorporated in the DRC, BRC DiamondCore Congo SPRL, and in South
Africa, BRC Diamond South Africa (Proprietary) Limited.
The Company is a publicly traded company whose outstanding common shares are
listed for trading on the Toronto Stock Exchange and the JSE Limited in
Johannesburg, South Africa. The head office of the Company is located at 1
First Canadian Place, 100 King St. West, Suite 707O, Toronto, Ontario, M5X
1E3, Canada.
Continuation of the business
For the year ended December 31, 2011, the Company has incurred a net loss of
$123,314 (year ended December 31, 2010 - $1,507,255). The Company`s deficit as
at December 31, 2011 was $119,531,417 (December 31, 2010 - $119,408,103,
January 1, 2010 - $117,900,848). The Company had a working capital deficit of
$533,191 as at December 31, 2011 (December 31, 2010 - $1,198,181, January 1,
2010 - $577,386) and had a net decrease in cash of $38,863 (December 31, 2010
- decrease in cash of $537,564) and used net cash in operating activities of
$891,156 during 2011 (December 31, 2010 - $823,101). These conditions along
with other matters indicate the existence of material uncertainties that may
cast significant doubt about the Company`s ability to continue as a going
concern. While the financial statements have been prepared on the basis of
accounting principles applicable to a going concern, adverse conditions may
cast substantial doubt upon the validity of this assumption.
The Company`s ability to continue operations in the normal course of business
is dependent on several factors, including its ability to secure additional
funding. Management is exploring all available options to secure additional
funding, including equity financing and strategic partnerships. In addition,
the recoverability of amount shown for exploration and evaluation assets is
dependent upon the existence of economically recoverable reserves, the ability
of the Company to obtain financing to complete the development of the
properties where necessary, or alternatively, upon the Company`s ability to
recover its incurred costs through a disposition of its interests, all of
which are uncertain.
In the event the Company is unable to identify recoverable resources, receive
the necessary permitting, or arrange appropriate financing, the carrying value
of the Company`s assets could be subject to material adjustment. Furthermore,
certain market conditions may cast significant doubt upon the validity of the
going concern assumption.
These consolidated financial statements do not include any additional
adjustments to the recoverability and classification of certain recorded asset
amounts, classification of certain liabilities and changes to the statements
of comprehensive loss that might be necessary if the Company was unable to
continue as a going concern.
2. BASIS OF PREPARATION
a) Statement of compliance
These consolidated financial statements as at and for the years ended December
31, 2011 and December 31, 2010 have been prepared in accordance with
International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standards Board ("IASB"). The Company`s 2010 annual
consolidated financial statements were previously prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP").
The Company`s date of transition to IFRS is January 1, 2010 (the "transition
date"). Reconciliations and explanations of how the transition of previously
prepared financial statements in accordance with Canadian GAAP to IFRS has
affected the reported financial position, financial performance and cash flows
of the Company are provided in Note 18. This note includes reconciliations of
equity and loss for comparative periods and of equity at the date of
transition reported under Canadian GAAP to those reported for those periods
and at the date of transition under IFRS. The 2010 comparative figures have
been restated to reflect the adjustments, except as described in the
accounting policies.
The accompanying financial information as at and for the years ended December
31, 2011 and 2010, have been prepared in accordance with the IFRS standards
and IFRS Interpretation Committee (IFRIC) interpretations issued and
effective, or issued and early-adopted, at December 31, 2011.
b) Basis of measurement
These consolidated financial statements have been prepared under the
historical cost convention, except for certain financials assets which are
presented at fair value, as explained in the summary of significant accounting
policies set out in Note 3.
3. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing
the opening IFRS consolidated statements of financial position at January 1,
2010 for the purposes of the transition to IFRS, unless otherwise indicated.
The exemptions taken in applying IFRS for the first time are set out in Note
18. The accounting policies have been applied consistently by all group
entities and for all periods presented.
a) Basis of Consolidation
i. Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when
the Company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits
from its activities. This control is evidenced through owning more than
50% of the voting rights or currently exercisable potential voting rights
of a company`s share capital. The financial statements of subsidiaries
are included in the consolidated financial statements of the Company from
the date that control commences until the date that control ceases.
Consolidation accounting is applied for all of the Company`s
subsidiaries.
ii. Associate
Where the Company has the power to significantly influence but not
control the financial and operating policy decisions of another entity,
it is classified as an associate. Associates are initially recognized in
the consolidated statements of financial position at cost and adjusted
thereafter for the post-acquisition changes in the Company`s share of the
net assets of the associate, under the equity method of accounting. The
Company`s share of post-acquisition profits and losses is recognized in
the consolidated statement of comprehensive loss, except that losses in
excess of the Company`s investment in the associate are not recognized
unless there is a legal or constructive obligation to recognize such
losses. If the associate subsequently reports profits, the Company`s
share of profits is recognized only after the Company`s share of the
profits equals the share of losses not recognized.
Profits and losses arising on transactions between the Company and its
associates are recognized only to the extent of unrelated investor`s
interests in the associate. The investor`s share in the associate`s
profits and losses resulting from these transactions is eliminated
against the carrying value of the associate.
Any premium paid for an associate above the fair value of the Company`s
share of the identifiable assets, liabilities and contingent liabilities
acquired is capitalized and included in the carrying amount of the
Company`s investment in an associate. Where there is objective evidence
that the investment in an associate has been impaired, the carrying
amount of the investment is tested for impairment in the same way as
other non-financial assets.
iii. Transactions eliminated on consolidation
Inter-company balances, transactions, and any unrealized income and
expenses, are eliminated in preparing the consolidated financial
statements.
Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
b) Use of Estimates and Judgments
The preparation of these consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
In preparing these consolidated financial statements, the significant
judgments and estimates have been made by management in applying the
Company`s accounting policies. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any
future periods affected. Information about critical judgments in applying
accounting policies that have the most significant effect on the amounts
recognized in the consolidated financial statements is included in the
following notes:
Estimates:
i) Provisions and contingencies
The amount recognized as provision, including legal, contractual,
constructive and other exposures or obligations, is the best estimate of
the consideration required to settle the related liability, including any
related interest charges, taking into account the risks and uncertainties
surrounding the obligation. In addition, contingencies will only be
resolved when one or more future events occur or fail to occur. Therefore
assessment of contingencies inherently involves the exercise of
significant judgment and estimates of the outcome of future events. The
Company assesses its liabilities and contingencies based upon the best
information available, relevant tax laws and other appropriate
requirements.
ii) Impairment
Assets, including property, plant and equipment and exploration and
evaluation, are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amounts exceed their
recoverable amounts. The assessment of the fair value often requires
estimates and assumptions such as discount rates, exchange rates,
commodity prices, rehabilitation and restoration costs, future capital
requirements and future operating performance. Changes in such estimates
could impact recoverable values of these assets. Estimates are reviewed
regularly by management.
iii) Share-based payment transactions
The Company measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments at the
date at which they are granted. Estimating fair value for share-based
payment transactions requires determining the most appropriate valuation
model, which is dependent on the terms and conditions of the grant. This
estimate also requires determining the most appropriate inputs to the
valuation model including the expected life of the stock option,
volatility, dividend yield, forfeiture rate and making assumptions about
them. The assumptions and models used for estimating fair value for share-
based payment transactions are disclosed in Note 12.
iv) Decommissioning and environmental provisions
The Company`s operations are subject to environmental regulations in the
DRC. Upon any establishment of commercial viability of a site, the
Company estimates the cost to restore the site following the completion
of commercial activities and depletion of reserves. These future
obligations are estimated by taking into consideration closure plans,
known environmental impacts, and internal and external studies which
estimate the activities and costs that will be carried out to meet the
decommissioning and environmental obligations. Amounts recorded for
decommissioning and environmental provisions are based on estimates of
decommissioning and environmental costs which may not be incurred for
several years or decades. The decommissioning and environmental cost
estimates could change due to amendments in laws and regulations in the
DRC. Additionally, actual estimated decommissioning and reclamation costs
may differ from those projected as a result of an increase over time of
actual remediation costs, a change in the timing for utilization of
reserves and the potential for increasingly stringent environmental
regulatory requirements. The Company is currently in the exploration
stage and as such, there are no decommissioning and environmental
reclamation costs as at December 31, 2011.
Judgments:
i) Exploration and evaluation expenditure
The application of the Company`s accounting policy for exploration and
evaluation expenditure requires judgment in determining whether it is
likely that future economic benefits will flow to the Company, which may
be based on assumptions about future events or circumstances. Estimates
and assumptions made may change if new information becomes available. If,
after the expenditure is capitalized, information becomes available
suggesting that the recovery of the expenditure is unlikely, the amount
capitalized is written off in the statement of comprehensive loss during
the period the new information becomes available.
ii) Income taxes
The Company is subject to income taxes in various jurisdictions and
subject to various rates and rules of taxation. Significant judgment is
required in determining the provision for income taxes. There are many
transactions and calculations undertaken during the ordinary course of
business for which the ultimate tax determination is uncertain. The
Company recognizes liabilities for anticipated tax audit issues based on
the Company`s current understanding of the tax law. Where the final tax
outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the current and deferred
tax provisions in the period in which such determination is made.
In addition, the Company has not recognized deferred tax assets relating
to tax losses carried forward. Future realization of the tax losses
depends on the ability of the entity to satisfy certain tests at the time
the losses are recouped, including current and future economic
conditions, production rates and production costs.
iii) Functional and presentation currency
Judgment is required to determine the functional currency of each entity.
These judgments are continuously evaluated and are based on management`s
experience and knowledge of the relevant facts and circumstances
iv) Impairment
Judgment is involved in assessing whether there is any indication that an
asset or cash generating unit may be impaired. This assessment is made
based on the analysis of, amongst other factors, changes in the market or
business environment, events that have transpired that have impacted the
asset or cash generating unit, and information from internal reporting.
v) Going Concern
As described in the continuation of business note, management uses its
judgment in determining whether the Company is able to continue as a
going concern.
c) Foreign Currency Translation
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars
("$"), which is the Company`s functional and presentation currency.
Foreign currency transactions
The functional currency for each of the Company`s subsidiaries is the
currency of the primary economic environment in which the entity
operates. Transactions entered into by the Company`s subsidiaries in a
currency other than the currency of the primary economic environment in
which they operate (their "functional currency") are recorded at the
rates ruling when the transactions occur except depreciation and
amortization which are translated at the rates of exchange applicable to
the related assets, with any gains or losses recognized in the
consolidated statements of comprehensive loss. Foreign currency monetary
assets and liabilities are translated at current rates of exchange with
the resulting gain or losses recognized in the consolidated statements of
comprehensive loss. Exchange differences arising on the retranslation of
unsettled monetary assets and liabilities are recognized immediately in
net loss. Non-monetary assets and liabilities are translated using the
historical exchange rates. Non-monetary assets and liabilities measured
at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined.
d) Cash
Cash includes cash on hand and deposits held with financial institutions.
e) Financial Assets
Financial assets are classified as either financial assets at fair value
through profit or loss ("FVTPL"), loans and receivables, held to maturity
investments ("HTM"), or available for sale financial assets ("AFS"), as
appropriate at initial recognition and, except in very limited
circumstances, the classification is not changed subsequent to initial
recognition. The classification is determined at initial recognition and
depends on the nature and purpose of the financial asset. A financial
asset is derecognized when contractual rights to the asset`s cash flows
expire or if substantially all the risks and rewards of the asset are
transferred.
i. Financial assets at FVTPL
Financial assets are classified as FVTPL when the financial asset is held
for trading or it is designated upon initial recognition as at FVTPL. A
financial asset is classified as held for trading if (1) it has been
acquired principally for the purpose of selling or repurchasing in the
near term; (2) it is part of an identified portfolio of financial
instruments that the Company manages and has an actual pattern of short
term profit taking; or (3) it is a derivative that is not designated and
effective as a hedging instrument. Financial assets at FVTPL are carried
in the consolidated statement of financial position at fair value with
changes in fair value recognized in net loss. Transaction costs are
expensed as incurred.
ii. Loans and receivables
Trade receivables, loans and other receivables that have fixed or
determinable payments that are not quoted in an active market are
classified as loans and receivable.
Loans and receivables are initially recognized at fair value plus
transaction costs that are directly attributable to their acquisition or
issue, and are subsequently carried at amortized cost less losses for
impairment. The impairment loss of receivables is based on a review of
all outstanding amounts at period end. Bad debts are written off during
the period in which they are identified. Amortized cost is calculated
taking into account any discount or premium on acquisition and includes
fees that are an integral part of the effective interest rate and
transaction costs. Gains and losses are recognized in the statements of
comprehensive loss when the loans and receivables are derecognized or
impaired, as well as through the amortization process.
The Company has classified cash as loans and receivables.
iii. HTM investments
HTM financial instruments are initially measured at fair value.
Subsequently, HTM financial assets are measured at amortized cost using
the effective interest rate method, less any impairment losses. The
Company did not classify any assets as HTM.
iv. AFS financial assets
Non-derivative financial assets not included in the above categories are
classified as AFS financial assets. They are carried at fair value with
changes in fair value generally recognized in other comprehensive loss
and accumulated in the AFS reserve. Impairment losses are recognized in
net loss. Purchases and sales of AFS financial assets are recognized on
settlement date with any change in fair value between trade date and
settlement date being recognized in the AFS reserve. On sale, the
cumulative gain or loss recognized in other comprehensive loss is
reclassified from the AFS reserve to net loss. The Company has not
designated any of its financial assets as AFS.
v. Impairment of financial assets
The Company assesses at each reporting date whether a financial asset or
a group of financial assets is impaired. A financial asset or group of
financial assets is deemed to be impaired, if, and only if, there is
objective evidence of impairment as a result of one or more events that
has occurred after the initial recognition of the asset and that event
has an impact on the estimated future cash flows of the financial asset
or the group of financial assets that can be reliably estimated.
Financial assets carried at amortized cost, the amount of the impairment
is the difference between the asset`s carrying amount and the present
value of estimated future cash flows, discounted at the asset`s original
effective rate.
The carrying amount of all financial assets, excluding other receivables,
is directly reduced by the impairment loss. The carrying amount of other
receivables is reduced through the use of an allowance account.
Associated allowances are written off when there is no realistic prospect
of future recovery and all collateral has been realized or has been
transferred to the Company. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in the
carrying amount of the allowance account are recognized in net loss. A
provision for impairment is made in relation to other receivable, and an
impairment loss is recognized in profit and loss when there is objective
evidence that the Company will not be able to collect all of the amounts
due under the original terms. The carrying amount of the receivable is
reduced through use of an allowance account.
With the exception of AFS equity instruments, if in a subsequent period
the amount of impairment loss decreases and the decrease relates to an
event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed through net loss. On the date of
impairment reversal, the carrying amount of the financial asset cannot
exceed its amortized cost had the impairment not been recognized.
Reversal for AFS equity instruments are not recognized in net loss.
vi. Effective interest method
The effective interest method calculates the amortized cost of a
financial instrument asset or liability and allocates interest income
over the corresponding period. The effective interest rate is the rate
that discounts estimated future cash receipts over the expected life of
the financial asset or liability, or where appropriate, a shorter period.
Income is recognized on an effective interest basis for debt instruments
other than those financial assets classified as FVTPL.
f) Financial Liabilities
Financial liabilities are classified as FVTPL, or other financial
liabilities, as appropriate upon initial recognition. A financial
liability is derecognized when the obligation under the liability is
discharged, cancelled or expired.
i. Financial liabilities classified as other financial liabilities are
initially recognized at fair value less directly attributable transaction
costs. Subsequent to the initial recognition, other financial liabilities
are measured at amortized cost using the effective interest method. The
Company`s other financial liabilities include accounts payable and
accrued liabilities and notes payable.
ii. Financial liabilities classified as FVTPL include financial liabilities
held for trading and financial liabilities designated upon initial
recognition as FVTPL. Financial liabilities are classified as held-for-
trading if they are acquired for the purpose of selling in the near term.
This category includes derivative financial instruments (including
separated embedded derivatives) held for trading unless they are
designated as effective hedging instruments. Gains or losses on
liabilities held for trading are recognized in the consolidated statement
of comprehensive loss. The Company does not have any financial
liabilities classified as FVTPL.
g) Loss Per Share
Basic loss per share is computed by dividing the net loss applicable by
the weighted average number of common shares outstanding during the
reporting period. Diluted loss per share is computed by dividing the net
loss by the sum of the weighted average number of common shares issued
and outstanding during the reporting period and all additional common
shares for the assumed exercise of stock options and warrants outstanding
for the reporting period, if dilutive. The treasury stock method is used
for the assumed proceeds upon the exercise of stock options and warrants
that are used to purchase common shares at the average market price
during the reporting period. As the Company is incurring losses, basic
and diluted loss per share are the same because the exercise of
outstanding stock options and share purchase warrants in the diluted loss
per share calculation is be anti-dilutive.
h) Property, Plant and Equipment ("PPE")
i. Recognition and measurement
Items of PPE are measured at cost less accumulated depreciation and
accumulated impairment losses. Cost includes expenditures that are
directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials, directed labor and any
other cost directly attributable to bring the asset to the location and
condition necessary to be capable of operating in the manner intended by
the Company. Assets in the course of construction are capitalized in the
capital construction in progress category and transferred to the
appropriate category of PPE upon completion. When components of an asset
have different useful lives, depreciation is calculated on each separate
component.
ii. Subsequent costs
The cost of replacing part of an item of PPE is recognized in the
carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Company and its cost
can be measured reliably. The carrying amount of the replaced part is
derecognized and included in net loss. If the carrying amount of the
replaced component is not known, it is estimated based on the cost of the
new component less estimated depreciation. The costs of the day to day
servicing of property, plant and equipment are recognized in net loss as
incurred.
iii. Depreciation
Depreciation is based on the cost of an asset less its residual value.
Significant components of individual assets are assessed to determine
whether a component has an estimated useful life that is different from
that of the remainder of that asset, in which case that component is
depreciated separately. Depreciation is recognized in net loss on a
straight line basis over the estimated useful lives of each item or
component of an item of PPE as follows:
- Furniture and office equipment two to seven years
- Vehicles four years
Computer equipment three years
- Exploration and mining assets two to four years
Depreciation methods, useful lives and residual values are reviewed
annually and adjusted, if appropriate. Depreciation commences when an
asset is available for use. Changes in estimates are accounted for
prospectively.
iv. Gains and losses
Gains and losses on disposal of an item of PPE are determined by
comparing the proceeds from disposal with the carrying amount of the PPE,
and are recognized net within other income/expenses in the statement of
comprehensive loss.
v. Repairs and maintenance
Repairs and maintenance costs are charged to expense as incurred, except
major inspections or overhauls that are performed at regular intervals
over the useful life of an asset are capitalized as part of PPE.
vi. De-recognition
An item of PPE is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on de-recognition of the assets (calculated as the
difference between the net disposal proceeds and the carrying amount of
the item) is included in net loss in the period the item is derecognized.
i) Exploration and Evaluation Assets
All direct costs related to exploration and evaluation of mineral
properties, net of incidental revenues, are capitalized under exploration
and evaluation assets. Exploration and evaluation expenditures include
such costs as acquisition of rights to explore; sampling, trenching and
surveying costs; costs related to topography, geology, geochemistry and
geophysical studies; drilling costs and costs in relation to technical
feasibility and commercial viability of extracting a mineral resource.
A regular review of each property is undertaken to determine the
appropriateness of continuing to carry forward costs in relation to
exploration and evaluation of mineral properties. Should the carrying
value of the expenditure not yet amortized exceed its estimated
recoverable amount in any year, the excess is written off to the
consolidated statements of comprehensive loss.
The Company has not recognized impairment of exploration and evaluation
assets during the year ended December 31, 2011 (year ended December 31,
2010 - $740,975).
j) Impairment of Non-financial Assets
The Company`s PPE is assessed for indication of impairment at each
consolidated statements of financial position date. Exploration and
evaluation assets are assessed for impairment when facts and
circumstances suggest that the carrying amount of an exploration and
evaluation asset may exceed its recoverable amount. Internal factors,
such as budgets and forecasts, as well as external factors, such as
expected future prices, costs and other market factors are also monitored
to determine if indications of impairment exist. If any indication of
impairment exists, an estimate of the asset`s recoverable amount is
calculated. The recoverable amount is determined as the higher of the
fair value less costs to sell for the asset and the asset`s value in use.
This is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other
assets or the Company`s assets. If this is the case, the individual
assets are grouped together into cash generating units ("CGU") for
impairment purposes. Such CGUs represent the lowest level for which there
are separately identifiable cash inflows that are largely independent of
the cash flows from other assets.
If the carrying amount of the asset exceeds its recoverable amount, the
asset is impaired and an impairment loss is charged to the consolidated
statements of comprehensive loss so as to reduce the carrying amount to
its recoverable amount (i.e., the higher of fair value less cost to sell
and value in use). Fair value less cost to sell is the amount obtainable
from the sale of an asset or CGU in an arm`s length transaction between
knowledgeable, willing parties, less the costs of disposal. Value in use
is determined as the present value of the future cash flows expected to
be derived from an asset or CGU. Estimated future cash flows are
calculated using estimated future prices, mineral reserves and resources
and operating and capital costs. All assumptions used are those that an
independent market participant would consider appropriate. The estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which estimates of
future cash flows have not been adjusted.
k) Income Taxes
Income tax expense consists of current and deferred tax expense. Income
tax expense is recognized in profit and loss, except to the extent that
it relates to items recognized in other comprehensive income or directly
in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity.
Current income tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute
current income tax assets and liabilities are measured at future
anticipated tax rates, which have been enacted or substantively enacted
at the reporting date. Current tax assets and current tax liabilities are
only offset if a legally enforceable right exists to set off the amounts,
and the Company intends to settle on a net basis, or to realize the asset
and settle the liability simultaneously.
Deferred taxation is provided on all qualifying temporary differences at
the reporting date between the tax basis of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred tax
assets are only recognized to the extent that it is probable that the
deductible temporary differences will reverse in the foreseeable future
and future taxable profit will be available against which the temporary
difference can be utilized.
Deferred tax liabilities and assets are not recognized for temporary
differences between the carrying amount and tax bases of investments in
controlled entities where the parent entity is able to control the timing
of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future. Deferred tax
assets and liabilities are offset when there is a legally enforceable
right to offset current tax assets and liabilities and when the deferred
tax balances relate to the same taxation authority.
l) Share-Based Payments
Equity-settled share-based payments for directors, officers and employees
are measured at fair value at the date of grant and recorded as
compensation expense in the financial statements. The fair value
determined at the grant date of the equity-settled share-based payments
is expensed on a straight-line basis over the vesting period based on the
Company`s estimate of shares that will eventually vest. The number of
forfeitures likely to occur is estimated on grant date. Any
consideration paid by the optionee on exercise of equity-settled share-
based payments is credited to share capital. Shares are issued from
treasury upon the exercise of equity-settled share-based instruments.
Compensation expense on stock options granted to non-employees is
measured at the earlier of the completion of performance and the date the
options are vested using the fair value method and is recorded as an
expense in the same period as if the Company had paid cash for the goods
or services received.
When the value of goods or services received in exchange for the share-
based payment cannot be reliably estimated, the fair value is measured by
use of a Black-Scholes valuation model. The expected life used in the
model is adjusted, based on management`s best estimate, for the effects
of non-transferability, exercise restrictions, and behavioural
considerations.
m) Provisions and Contingencies
Provisions are recognized when a legal or constructive obligation exists,
as a result of past events, and it is probable that an outflow of
resources that can be reliably estimated will be required to settle the
obligation. Where the effect is material, the provision is discounted
using an appropriate current market-based pre-tax discount rate. The
increase in the provision due to passage of time is recognized as
interest expense.
When a contingency substantiated by confirming events, can be reliably
measured and is likely to result in an economic outflow, a liability is
recognized as the best estimate required to settle the obligation. A
contingent liability is disclosed where the existence of an obligation
will only be confirmed by future events, or where the amount of a present
obligation cannot be measured reliably or will likely not result in an
economic outflow. Contingent assets are only disclosed when the inflow of
economic benefits is probable. When the economic benefit becomes
virtually certain, the asset is no longer contingent and is recognized in
the consolidated financial statements.
n) Related Party Transactions
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence
over the other party in making financial and operating decisions. Parties
are also considered to be related if they are subject to common control
or common significant influence, related parties may be individuals or
corporate entities. A transaction is considered to be a related party
transaction when there is a transfer of resources or obligations between
related parties. Related party transactions that are in the normal course
of business and have commercial substance are measured at the exchange
amount.
o) New Accounting Standards Adopted
Accounting standards expected to be effective for the period ended
December 31, 2011 have been adopted as part of the transition to IFRS. In
addition, the following accounting standards have been adopted during the
year:
A revised version of IAS 24 Related party disclosures ("IAS 24") was
issued by the IASB on November 4, 2009. IAS 24 requires entities to
disclose in their consolidated financial statements information about
transactions with related parties. Generally, two parties are related to
each other if one party controls, or significantly influences, the other
party. IAS 24 has simplified the definition of a related party and
removed certain of the disclosures required by the predecessor standard.
The revised standard is effective for annual periods beginning on or
after January 1, 2011. The adoption of this issuance did not have a
significant impact on the Company`s consolidated financial statements.
IFRS 7 Financial instruments: disclosures ("IFRS 7") The Accounting
Standards Board ("AcSB") approved the incorporation of the IASB`s
amendments to IFRS 7 Financial Instruments: Disclosures and the related
amendment to IFRS 1 First-time Adoption of International Financial
Reporting Standards into Part I of the Canadian Institute of Chartered
Accountants Handbook. These amendments were made to Part I in January
2011 and are effective for annual periods beginning on or after July 1,
2011. Earlier application is permitted. The amendments relate to required
disclosures for transfers of financial assets to help users of the
financial statements evaluate the risk exposures relating to such
transfers and the effect of those risks on an entity`s financial
position. The Company`s adoption of IFRS 7 had no significant impact on
its consolidated financial statements.
p) Accounting Standards Issued But Not Net Effective
The Company has reviewed new and revised accounting pronouncements that
have been issued but are not yet effective and determined that the
following may have an impact on the Company:
IFRS 9 Financial instruments ("IFRS 9") was issued by the IASB on
November 12, 2009 and will replace IAS 39 Financial Instruments:
Recognition and Measurement ("IAS 39"). IFRS 9 replaces the multiple
rules in IAS 39 with a single approach to determine whether a financial
asset is measured at amortized cost or fair value and a new mixed
measurement model for debt instruments having only two categories:
amortized cost and fair value. The approach in IFRS 9 is based on how an
entity manages its financial instruments in the context of its business
model and the contractual cash flow characteristics of the financial
assets. The new standard also requires a single impairment method to be
used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
effective for annual periods beginning on or after January 1, 2015. The
Company is currently evaluating the impact of IFRS 9 on its consolidated
financial statements.
IFRS 10 Consolidated Financial Statements ("IFRS 10") establishes
principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities. IFRS 10
supersedes IAS 27 "Consolidated and Separate Financial Statements" and
SIC-12 "Consolidated - Special Purpose Entities" and is effective for
annual periods beginning on or after January 1, 2013. Earlier application
is permitted. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.
IFRS 11 Joint Arrangements ("IFRS 11") establishes principles for
financial reporting by parties to a joint arrangement. IFRS 11 supersedes
the current IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly
Controlled Entities - Non-Monetary Contributions by Venturers" and is
effective for annual periods beginning on or after January 1, 2013.
Earlier application is permitted. The Company is currently evaluating the
impact of this standard on its consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities ("IFRS 12") applies to
entities that have an interest in a subsidiary, a joint arrangement, an
associate or an unconsolidated structured entity. IFRS 12 is effective
for annual periods beginning on or after January 1, 2013. Earlier
application is permitted. The Company is currently evaluating the impact
of this standard on its consolidated financial statements.
IFRS 13 Fair Value Measurements ("IFRS 13") defines fair value, sets out
in a single IFRS framework for measuring fair value and requires
disclosures about fair value measurements. IFRS 13 applies to IFRSs that
require or permit fair value measurements or disclosures about fair value
measurements (and measurements, such as fair value less costs to sell,
based on fair value or disclosures about those measurements), except in
specified circumstances. IFRS 13 is to be applied for annual periods
beginning on or after January 1, 2013. Earlier application is permitted.
The Company is currently evaluating the impact of this standard on its
consolidated financial statements.
An amendment to IAS 1, Presentation of financial statements was issued by
the IASB in June 2011. The amendment requires separate presentation for
items of other comprehensive income that would be reclassified to net
loss in the future, such as foreign currency differences on disposal of a
foreign operation, if certain conditions are met from those that would
never be reclassified to net loss. The effective date is July 1, 2012 and
earlier adoption is permitted. The Company is currently evaluating the
impact of this amendment on its consolidated financial statements.
An amendment to IAS 12, Income Taxes ("IAS 12") was issued by the IASB in
June 2011. The amendment requires that deferred tax on non-depreciable
assets to be determined based on the rebuttable presumption that the
assets will be recovered entirely through sale. The amendments to IAS 12
are effective for annual periods beginning on or after January 1, 2012.
The Company is currently evaluating the impact of the amendments on its
consolidated financial statements.
IAS 19, Employee Benefits ("IAS 19") was re-issued by the IASB in June
2011. IAS continues to prescribe the accounting for employee benefits,
but amendments make the OCI presentation changes in respect of pensions
(and similar items) only, but all other long term benefits are required
to be measured in the same way even though changes in the recognised
amount are fully reflected in net loss. Also changed in IAS 19 is the
treatment for termination benefits, specifically the point in time when
an entity would recognise a liability for termination benefits. The
amendments to IAS 19 are effective for annual periods beginning on or
after January 1, 2013. The Company is currently evaluating the impact of
the amendments on its consolidated financial statements.
IAS 27, Separate financial statements ("IAS 27") was re-issued by the
IASB in May 2011 to only prescribe the accounting and disclosure
requirements for investments in subsidiaries, joint ventures and
associates when an entity prepares separate financial statements. The
consolidation guidance will now be included in IFRS 10. The amendments to
IAS 27 are effective for annual periods beginning on or after January 1,
2013. The Company is currently evaluating the impact of the amendments on
its consolidated financial statements.
IAS 28, Investments in associates and joint ventures ("IAS 28") was re-
issued by the IASB in May 2011. IAS 28 continues to prescribe the
accounting for investments in associates, but is now the only source of
guidance describing the application of the equity method. The amended IAS
28 will be applied by all entities that have an ownership interest with
joint control of, or significant influence over, an investee. The
amendments to IAS 28 are effective for annual periods beginning on or
after January 1, 2013. The Company is currently evaluating the impact of
the amendments on its consolidated financial statements.
IFRIC 20, Stripping costs in the production phase of a surface mine
("IFRIC 20") was issued by the IASB in October 2011 clarifying the
requirements for accounting for stripping costs in the production phase
of a surface mine. The interpretation is effective for annual periods
beginning on or after January 1, 2013. The Company is currently
evaluating the impact of the interpretation on its consolidated financial
statements.
4. SUBSIDIARIES AND INVESTMENT IN ASSOCIATES
The table below lists the Company`s subsidiaries as follows:
Name of Subsidiary Place of Proportion Principal
Incorporation of Ownership Activity
Interest
BRC DiamondCore Congo SPRL Democratic Republic 100% Mineral
of the Congo Exploration
BRC Diamond South Africa South Africa 100% Dormant
The Company`s investment in Rio Tinto Exploration DRC Oriental Limited ("DRC
Oriental") which meets the definition of an associate of the Company, is
summarized as follows:
Delrand Resources Limited December December January
31, 2011 31, 2010 1, 2010
Percentage of ownership interest 25.00% 25.00% 0.00%
Common shares held
250 250 -
Total investment $ - $ $
- -
On January 26, 2010, the Company entered into an agreement (the "Iron Ore
Agreement") with Rio Tinto Minerals Development Limited ("Rio Tinto Minerals")
for the exploration for iron ore in areas within the Orientale Province of the
DRC. These areas are covered by exploration permits (the "Permits") which had
been controlled by the Company. Under the Iron Ore Agreement, which is in the
form of a shareholders` agreement, the Company owns 25% and Rio Tinto Minerals
owns 75% of the capital stock of a company ("Holdco"), which owns a DRC
registered company called Rio Tinto Exploration RDC Orientale SPRL. The
registered company holds the Permits. The Company`s investment in Holdco is
accounted for in the consolidated financial statements using the equity
method. For the years ended December 31, 2011 and December 31, 2010, Holdco
was an inactive company which did not have any significant assets or
liabilities and had no significant balances in the statement of comprehensive
income. As such, there has been no change in the value of the investment since
the date of acquisition.
Under the Iron Ore Agreement, all iron ore exploration up to and including the
completion of any pre-feasibility study, as required to obtain an exploitation
permit, will be funded by Rio Tinto Minerals. The Company will not suffer any
dilution during this period, such that the Company`s 25% interest in the
properties will be maintained during this period. The exploration will be
carried out by Rio Tinto Minerals or one of its affiliates as the operator.
After the completion of the pre-feasibility study, funding for the project is
to be provided by Rio Tinto Minerals and the Company based on their
proportionate respective interests in the said holding company.
5. CASH
Cash of the Company includes cash on hand and deposits held at financial
institutions.
6. PROPERTY, PLANT AND EQUIPMENT
The Company`s property, plant and equipment are summarized as follows:
Notes Exploration Computer Vehicles Furniture Total
assets equipmen and
t office
equipment
$ $ $ $ $
Cost
Balance at 316,476
January 1, 2010 28,658 254,436 18,106 617,676
Additions - - - - -
Disposals (207,371) - (1,256) (302,950
(94,323) )
Balance at 109,105
December 31, 2010 28,658 160,113 16,850 314,726
Additions - - - - -
Disposals - - - - -
Balance at
December 31, 2011 109,105 28,658 160,113 16,850 314,726
Accumulated
Depreciation
Balance at 216,384 19,478 225,820 14,200 475,882
January 1, 2010
Depreciation for 34,398 28,616 2,686
the year 6,985 72,685
Disposals (142,578) (94,323) (1,040)
(237,941
)
Balance at 108,204
December 31, 2010 26,463 160,113 15,846 310,626
Depreciation for 901 2,195 - 1,004
the year 4,100
Disposals - - - -
-
Balance at 109,105 160,113 16,850
December 31, 2011 28,658 314,726
Carrying amounts
Balance at 100,092 9,180 28,616 3,906 141,794
January 1, 2010
Balance at 901 2,195 - 1,004
December 31, 2010 4,100
Balance at
December 31, 2011 - - - - -
During the year ended December 31, 2011, the Company sold the containerized
bulk sampling plant from the Kwango project for a gain of $430,085 as
described in Note 7 (d). This asset had a nil carrying value.
7. EXPLORATION AND EVALUATION ASSETS
The following table summarizes the Company`s tangible exploration and
evaluation expenditures with respect to its properties in the DRC:
Notes Tshikapa Lubao Tshikapa Northern Total
Project (Candore) DRC
Project
Cost
Balance as at $325,416 $415,559 $2,184,441 $5,824,536
January 1, $2,899,120
2010
Additions 120,972 - - (131,711) (10,739)
Impairment - - (740,975)
(325,416) (415,559)
Balance as at
December 31, 3,020,092 - - 2,052,730 5,072,822
2010
Additions 19,762 - - 26,683 46,445
Balance as at
December 31, 3,039,854 - - 2,079,413 5,119,267
2011
There are $2,219 of intangible exploration and evaluation expenditures as at
December 31, 2011 (December 31, 2010: $2,219). There have not been any
additions or disposals to intangible assets since January 1, 2010.
a. Tshikapa Project
The Tshikapa project is located in the south-western part of the Kasai
Occidental province of the DRC near the town of Tshikapa. The Tshikapa
project is located within the so-called Tshikapa triangle, bordering the
Kasai River in the east, the Loange River in the west and the Angolan
border in the south. The properties also lie within the broader
kimberlite emplacement corridor which extends from known kimberlite pipes
located in Angola. The Tshikapa diamond field has been extensively mined
by alluvial diamond companies and small-scale miners, and it is estimated
that it has produced over 100 million carats of diamonds since 1912. The
Company has focused its attention on the Tshikapa triangle through nine
exploration permits covering an area of 1,429 kmSquared. One of these
permits is held by the Company`s wholly-owned DRC subsidiary and the
other eight permits are controlled through option agreements with the
permit holders. Six of the permits controlled through option agreements
related to Acacia SPRL, the terms of which option provide that payment of
$356,881 (US$350,000) gives the Company 55% ownership in the resulting
joint venture entity. Acacia has advised the Company of its wish to
modify the option agreement. The remaining two permits relate to Caspian
Oil & Gas and entitle the Company to 65% of a joint venture entity after
spending $203,932 (US$200,000)
b. Northern DRC Project
The Company`s northern DRC diamond project is located in Orientale
Province of the DRC and consists of 46 exploration permits, two of which
are held by the Company directly through its DRC subsidiary and the
balance of which are held through an option agreement with the holder of
the permits. Rio Tinto Mining and Exploration Limited ("Rio Tinto") is
also party to this agreement. Under this agreement, funding for the
exploration of the areas covered by the permits is provided by Rio Tinto.
Funds received from Rio Tinto under this agreement are deducted from
exploration and evaluation expenditures in the Company`s statement of
financial position. Assuming ongoing satisfactory exploration results,
the Company will acquire a 30% interest in the said permits subject to
certain conditions. The 44 exploration permits under option cover an area
of 7,313 kmSquared. The two additional exploration permits held by the
Company`s DRC subsidiary cover an area of 749 kmSquared directly north of
the optioned ground.
c. During the year ended December 31, 2010, the Company decided to
discontinue its Lubao and Candore projects which resulted in an
impairment loss of $740,975.
d. In April 2011, the Company sold the containerized bulk sampling plant
that had been constructed for the alluvial deposits on the Kwango River
in southern DRC. The Kwango project had previously been abandoned by the
Company and the related licences relinquished when it was concluded that
the project would not be economically viable. The gross proceeds from
the sale of the plant were $550,977 (US$575,000) and were recorded as a
gain on disposal of property, plant and equipment in the statement of
comprehensive loss.
e. During the year ended December 31, 2010, a drill rig was sold which
resulted in a gain on sale of $90,170. The gain on sale was capitalized
to exploration and evaluation assets.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are mainly comprised of amounts
outstanding for purchases relating to exploration activities and amounts
payable for professional services. The credit period for purchases
typically ranges from 30 to 90 days.
9. NOTES PAYABLE
In December 2010, the Company entered into two promissory notes payable
with arm-length parties (the "Notes") in amounts of $100,000 and
$300,000, respectively. The Notes bore simple interest at a rate of 5%
per annum and were unsecured and due on demand. The fair value
approximated the carrying value as at December 31, 2010. The Notes were
fully repaid in May 2011 including accrued interest of $8,493.
10. RELATED PARTY TRANSACTIONS
a) Key Management Remuneration
The Company`s related parties include key management. Key management includes
directors (executive and non-executive), the President and Vice President,
Finance. The remuneration of the key management of the Company as defined
above, during the year ended December 31, 2011 and 2010 was as follows:
Years ended
December December
31, 2011 31, 2010
Salaries $270,310 $301,907
$270,310 $301,907
B) Other Related Parties
During the year ended, December 31 2011, legal expenses of $31,697 (year ended
December 31, 2010: $98,017), incurred in connection with general corporate
matters, were paid to a law firm of which a director and officer of the
Company was a partner until February 2011. As at December 31, 2011, $56,338
(December 31, 2010: $90,778, January 1, 2010: $49,113) owing to this legal
firm was included in accounts payable.
As at December 31, 2011, an amount of $133,333 was owed to two directors of
the Company representing consulting fees (December 31, 2010: $102,311, January
1, 2010: $276,849). During the year ended December 31, 2011, consulting fees
of $200,000 were incurred to the two directors (year ended December 31, 2010:
$200,000 to the two directors).
As at December 31, 2011, an amount of $11,313 (December 31, 2010: $3,719
January 1, 2010: $3,922) was owed to Banro Corporation ("Banro"). Banro owns
17,716,994 common shares of the Company, representing a 35.64% interest in the
Company. During the year ended December 31, 2010, a drill rig was sold to
Banro by the Company for gross proceeds of $154,964.
On May 27, 2011 the Company closed a non-brokered private placement of
1,250,000 units of the Company at a price of $0.20 per unit for proceeds of
$250,000. The purchasers of the units under this private placement were
directors and officers of the Company (see Note 11a).
All amounts due to related parties are unsecured, non-interest bearing and due
on demand. All transactions are in the normal course of operations and are
measured at the exchange value.
11. SHARE CAPITAL
a) Authorized
The Company`s authorized share capital consists of an unlimited number of
common shares with no par value.
The holders of the common shares are entitled to receive notice of and to
attend all meetings of the shareholders of the Company and shall have one
vote for each common share held at all meetings of the shareholders of
the Company. The holders of the common shares are entitled to (a) receive
any dividends as and when declared by the board of directors, out of the
assets of the Company properly applicable to the payment of dividends, in
such amount and in such form as the board of directors may from time to
time determine, and (b) receive the remaining property of the Company in
the event of any liquidation, dissolution or winding-up of the Company.
On May 11, 2011, the Company closed a non-brokered private placement of
3,750,000 units of the Company at a price of $0.16 per unit for proceeds
of $600,000, and on May 27, 2011 the Company closed a non-brokered
private placement of 1,250,000 units of the Company at a price of $0.20
per unit for proceeds of $250,000. Each of the said units was comprised
of one common share of the Company and one warrant of the Company
entitling the holder to purchase one common share of the Company at a
price of $0.22 for a period of three years from the date of issuance of
the warrant. The purchasers of the units under the May 27, 2011 private
placement were directors and officers of the Company.
In June 2011, the Company consolidated its outstanding common shares on a
two to one basis. Immediately prior to the consolidation, the Company had
99,408,640 common shares outstanding (December 31, 2010: 89,408,640,
January 1, 2010: 89,408,640). Upon effecting the consolidation, and as of
December 31, 2011, the Company had 49,704,341 common shares outstanding
(December 31, 2010: 44,704,320). The Company issued 21 additional common
shares due to the consolidation.
Number of Amount
shares
Balance at January 1, 2010 $
44,704,320 115,457,876
Shares issued for:
Cash - -
Balance at December 31, 2010
44,704,320 $115,457,876
Shares issued for: $
Cash 5,000,000 481,690
Exercise of stock options - -
Consolidation of shares: 2 to 1 21
Balance at December 31, 2011 49,704,341 $115,939,566
b) Share purchase warrants
The Company`s outstanding warrants have been adjusted to reflect the two
to one share consolidation that occurred in June 2011 (see Note 11a). As
at December 31, 2011, the Company had outstanding warrants to purchase
15,000,000 (December 31, 2010: 10,000,000) common shares of the Company.
Of the 15,000,000 warrants outstanding, 10,000,000 are exercisable at a
price of $0.132 per share until November 2013 and the remaining 5,000,000
are exercisable at a price of $0.22 per share until May 2014.
c) Loss per share
Loss per share was calculated on the basis of the weighted average number
of common shares outstanding for year ended December 31, 2011, amounting
to 47,855,026 (year ended December 31, 2010: 44,704,320) common shares.
Diluted loss per share was calculated using the treasury stock method.
Total stock options for the year ended December 31, 2011 of 1,061,771
(year ended December 31 2010: 1,140,000) and warrants of 15,000,000 (year
ended December 31, 2010: 10,000,000) were excluded from the calculation
of diluted loss per share as their effect would have been anti-dilutive.
12. SHARE BASED PAYMENTS
In August 2011, the Company`s board of directors established a new stock
option plan for the Company (the "New Plan"). In establishing the New Plan,
the Board of Directors also provided that no additional stock options may be
granted under the Company`s other stock option plan (the "Old Plan") and
terminated the Old Plan effective upon the exercise, expiry, termination or
cancellation of all of the currently outstanding stock options that were
granted under the Old Plan.
Under the New Plan, non-transferable options to purchase common shares of the
Company may be granted by the Company`s Board of Directors to any director,
officer, employee or consultant of the Company or any subsidiary of the
Company. The New Plan contains provisions providing that the term of an
option may not be longer than ten years and the exercise price of an option
shall not be lower than the last closing price of the Company`s shares on the
Toronto Stock Exchange prior to the date the stock option is granted. Unless
the Board of Directors makes a specific determination otherwise, stock options
granted under the New Plan and all rights to purchase Company shares pursuant
thereto shall expire and terminate immediately upon the optionee who holds
such stock options ceasing to be at least one of a director, officer or
employee of or consultant to the Company or a subsidiary of the Company, as
the case may be. Stock options granted pursuant to the New Plan vest as
follows: 75% of the stock options vest on the 12 month anniversary of their
grant date and the remaining 25% of such stock options vest on the 18 month
anniversary of their grant date. The total number of common shares of the
Company issuable upon the exercise of all outstanding stock options granted
under the New Plan shall not at any time exceed 12% of the total number of
outstanding common shares of the Company, from time to time.
The Company`s outstanding stock options have been adjusted to reflect the two
to one share consolidation that was implemented by the Company in June 2011.
As at December 31, 2011, the Company had outstanding under the Old Plan stock
options to acquire 1,040,000 (December 31, 2010 - 1,140,000) common shares of
the Company at a weighted-average exercise price of $4.59 (December 31, 2010 -
$2.42) per share. There are currently no stock options outstanding under the
New Plan.
The following tables summarize information about stock options (post-
consolidation):
For year ended December 31, 2011:
Exer Openin During the Year Closin Weighted Vested Unves
cise g g average & ted
Pric Balanc Balanc remainin Exerci
e e e g sable
Rang contract
e ual life
(Cdn (years)
$)
Grant Exerci Expir Forfei
ed sed ed ted
2.10- 800,00 800,00 1.66 800,00
5.00 0 - - - - 0 0 -
5.20- 100,00
7.50 0 - - 100,0 - - - - -
00
7.52- 240,00 240,00 0.39 240,00
16.0 0 - - - - 0 0 -
0
1,140,
000 - - 100,0 - 1,040, 1,040, -
00 000 000
Weig $ $ - $ - $ $ - $ $ $ -
hted 4.84 7.50 4.59 4.59
Aver
age
Exer
cise
Pric
e
(Cdn
$)**
For the year ended December 31, 2010:
Exercis Openi During the Year Closi Weighted Vested Unves
e Price ng ng average & ted
Range Balan Balan remainin Exercis
(Cdn$) ce ce g able
contract
ual life
(years)
Gran Exerci Expi Forfei
ted sed red ted
2.10 - 1,130 800,0 2.66 800,000
5.00 ,700 - - 233, 97,500 00 -
200
5.20 - 100,0 100,0 0.49 100,000
7.50 00 - - - - 00 -
7.52 - 240,0 240,0 1.39 240,000
16.00 00 - - - - 00 -
1,470
,700 - - 233, 97,500 1,140 1,140,0 -
200 ,000 00
Weighte $ $ $ $ $
d 4.68 - - 4.97 2.10 4.84 4.84 -
Average
Exercis
e Price
(Cdn$)
The fair value at grant date is determined using a Black-Scholes option
pricing model that takes into account the exercise price, the term of the
option, the impact of dilution, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option. The contractual life of
all options on the date of grant is 5 years.
The expected price volatility is based on the historic volatility (based on
the remaining life of the options), adjusted for any expected changes to
future volatility due to publicly available information.
During the year ended December 31, 2011, the Company recognized in the
statement of comprehensive loss as an expense $nil (year ended December 31,
2010 $29,333) representing the fair value at the date of grant of stock
options previously granted to employees, directors and officers under the
Company`s Stock Option Plan. The weighted average fair value of stock options
issued was estimated at $1.87 per share option at the grant date using the
Black-Scholes option-pricing model. In addition, an amount of $nil for the
year ended December 31, 2011 (year ended December 31, 2010: $8,893) related to
stock options issued to employees of the Company`s subsidiary in the DRC was
capitalized to exploration and evaluation assets.
These amounts were credited accordingly to contributed surplus in the
consolidated statements of financial position.
Replacement options
In connection with the acquisition by the Company of all of the outstanding
shares of Diamond Core Resources Limited ("Diamond Core") on February 11,
2008, 617,710 (the "Replacement Options") stock options were issued by the
Company to employees of Diamond Core to substitute for their stock options in
Diamond Core. Diamond Core was subsequently disposed of by the Company. As
at December 31, 2011, there were 21,771 replacement options outstanding
(December 31, 2010: 70,752).
13. SEGMENTED REPORTING
The Company has one operating segment: the acquisition, exploration and
development of mineral properties located in the DRC. The operations of the
Company are located in two geographic locations, Canada and the DRC.
Geographic segmentation of non-current assets is as follows:
December 31, 2011
Property, Exploration Total
plant and and Assets
equipment evaluation
DRC $0 $5,121,486 $5,121,48
6
Canada
- - -
$0 $5,121,486 $5,121,48
6
December 31, 2010
Property, Exploration Total
plant and and Assets
equipment evaluation
DRC $4,100 $5,075,041 $5,079,14
1
Canada
- - -
$4,100 $5,075,041 $5,079,14
1
January 1, 2010
Property, Exploration Total
plant and and Assets
equipment evaluation
DRC $141,794 $5,826,755 $5,968,54
9
Canada
- - -
$141,794 $5,826,755 $5,968,54
9
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
a) Fair value of financial assets and liabilities
The consolidated statements of financial position carrying amounts for
cash, other assets, accounts payable and accrued liabilities and notes
payable approximate fair value due to their short-term nature. Due to
the use of subjective judgments and uncertainties in the determination of
fair values these values should not be interpreted as being realizable in
an immediate settlement of the financial instruments.
Fair value hierarchy
The following provides a description of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
- Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities;
- Level 2 fair value measurements are those derived from inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
The fair values of financial assets and liabilities carried at amortized
cost are approximated by their carrying values. Cash and notes payable
are ranked level 2 as it is based on similar loans in the market.
b) Risk Management Policies
The Company is sensitive to changes in commodity prices and foreign-
exchange. The Company`s Board of Directors has overall responsibility for
the establishment and oversight of the Company`s risk management
framework. Although the Company has the ability to address its price-
related exposures through the use of options, futures and forward
contacts, it does not generally enter into such arrangements.
c) Foreign Currency Risk
Foreign currency risk is the risk that a variation in exchange rates
between the Canadian dollar and United States dollar or other foreign
currencies will affect the Company`s operations and financial results. A
portion of the Company`s transactions are denominated in United States
dollars, Congolese francs and South African rand. The Company is also
exposed to the impact of currency fluctuations on its monetary assets and
liabilities. The Company`s functional currency is the Canadian dollar.
The majority of major expenditures are transacted in US dollars. The
Company maintains the majority of its cash in Canadian dollars but it
does hold balances in US dollars. Significant foreign exchange gains or
losses are reflected as a separate component of the consolidated
statement of comprehensive loss. The Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
The following table indicates the impact of foreign currency exchange
risk on net working capital as at December 31, 2011. The table below also
provides a sensitivity analysis of a 10 percent strengthening of the
Canadian dollar against foreign currencies as identified which would have
increased (decreased) the Company`s net loss by the amounts shown in the
table below. A 10 percent weakening of the Canadian dollar against the
same foreign currencies would have had the equal but opposite effect as
at December 31, 2011.
U.S Congolese South
dollar franc African
rand
$ $ $
Cash
76,862 - -
Prepaid expenses
38,341 - 13,500
Accounts payable
(162,345) - (9,135)
Total foreign currency
financial assets and (47,142) - 4,365
liabilities
Foreign exchange rate at
December 31, 2011 1.0170 0.00108 0.1259
Total foreign currency
financial assets and (47,943) - 550
liabilities in CDN $
Impact of a 10% strengthening
of the CDN $ on net loss (4,794) - 55
d) Credit Risk
Financial instruments which are potentially subject to credit risk for
the Company consist primarily of cash. Cash is maintained with several
financial institutions of reputable credit in Canada, the DRC and South
Africa and may be redeemed upon demand. It is therefore the Company`s
opinion that such credit risk is subject to normal industry risks and is
considered minimal.
e) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they become due. The Company attempts to ensure
that there is sufficient cash to meet its liabilities when they are due
and manages this risk by regularly evaluating its liquid financial
resources to fund current and long-term obligations and to meet its
capital commitments in a cost-effective manner. The key to success in
managing liquidity is the degree of certainty in the cash flow
projections. If future cash flows are fairly uncertain, the liquidity
risk increases. The Company`s liquidity requirements are met through a
variety of sources, including cash, existing credit facilities and equity
capital markets. In light of market conditions, the Company initiated a
series of measures to bring its spending in line with the projected cash
flows from its operations and available project specific facilities in
order to preserve its financial position and maintain its liquidity
position. Accounts payable and accrued liabilities of $530,024 and
amounts due to related parties of $144,646 are due within one year and
represent all significant contractual commitments, obligations, and
interest and principal repayments on financial liabilities. Please refer
to Note 1, Continuation of Business.
f) Mineral Property Risk
The Company`s operations in the DRC are exposed to various levels of
political risk and uncertainties, including political and economic
instability, government regulations relating to exploration and mining,
military repression and civil disorder, all or any of which may have a
material adverse impact on the Company`s activities or may result in
impairment in or loss of part or all of the Company`s assets.
g) Market Risk
Market risk is the potential for financial loss from adverse changes in
underlying market factors, including foreign-exchange rates, commodity
prices, interest rates and stock based compensation costs.
h) Interest rate risk
Interest rate risk is the potential impact on any Company earnings due to
changes in bank lending rates and short term deposit rates. The Company
is not exposed to significant interest rate risk other than cash flow
interest rate risk on its cash. The Company does not use derivative
instruments to reduce its exposure to interest rate risk. A fluctuation
of interest rates of 1% would not affect significantly the fair value of
cash.
i) Title risk
Title to mineral properties involves certain inherent risks due to the
difficulties of determining the validity of certain claims as well as the
potential for problems arising from the frequently ambiguous conveyancing
history characteristic of many mining properties. Although the Company
has investigated title to all of its mineral properties for which it
holds concessions or other mineral licenses, the Company cannot give any
assurance that title to such properties will not be challenged or
impugned and cannot be certain that it will have valid title to its
mineral properties. The Company relies on title opinions by legal
counsel who base such opinions on the laws of countries in which the
Company operates.
j) Country risk
The DRC is a developing country and as such, the Company`s exploration
projects in the DRC could be adversely affected by uncertain political or
economic environments, war, civil or other disturbances, and a changing
fiscal regime and by DRC`s underdeveloped industrial and economic
infrastructure.
Company`s operations in the DRC may be effected by economic pressures on
the DRC. Any changes to regulations or shifts in political attitudes are
beyond the control of the Company and may adversely affect its business.
Operations may be affected in varying degrees by factors such as DRC
government regulations with respect to foreign currency conversion,
production, price controls, export controls, income taxes or reinvestment
credits, expropriation of property, environmental legislation, land use,
water use and mine safety.
There can be no assurance that policies towards foreign investment and
profit repatriation will continue or that a change in economic conditions
will not result in a change in the policies of the DRC government or the
imposition of more stringent foreign investment restrictions. Such
changes cannot be accurately predicted.
k) Capital Management
The Company manages its cash, common shares, warrants and stock options
as capital. The Company`s main objectives when managing its capital are:
- to maintain a flexible capital structure which optimizes the cost of
capital at acceptable risk while providing an appropriate return to
its shareholders;
- to maintain a sufficient capital base so as to maintain investor,
creditor and market confidence and to sustain future development of
the business;
- to safeguard the Company`s ability to obtain financing; and
- to maintain financial flexibility in order to have access to capital
in the event of future acquisitions.
The Company manages its capital structure and makes adjustments to it in
accordance with the objectives stated above, as well as responds to
changes in economic conditions and the risk characteristics of the
underlying assets.
There were no significant changes to the Company`s approach to capital
management during the period ended December 31, 2011.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
December 31, 2011 December 31, 2010 January 1, 2010
Cash $ 88,068 $ 126,931 $ 664,495
Share $ 115,939,566 $ 115,457,876 $ 115,457,876
capital
Deficit $ (119,531,417) $ (119,408,103) $(117,900,848)
Contributed $ 8,159,644 $ 7,815,398 $ 7,777,105
surplus
15. SUPPLEMENTAL CASH FLOW INFORMATION
During the years indicated the Company undertook the following significant non-
cash transactions:
Note December 31, December 31,
2011 2010
Depreciation included in 7 $ 4,100 $ 72,685
exploration and evaluation
assets
Stock-based compensation 11 $ - $ 9,590
included in exploration and
evaluation assets
16. COMMITMENTS AND CONTINGENCIES
The Company is committed to the payment of surface fees and taxes. For the
year ended December 31, 2011, these fees and taxes are estimated to be
$127,981 (US$ 132,000) compared to $109,409 (US$ 110,000) incurred in the year
ended December 31, 2010. The surface fees and taxes are required to be paid
annually under the DRC Mining Code in order to keep exploration permits in
good standing.
Six of the exploration permits comprising part of the Company`s Tshikapa
project in the DRC are held through an option agreement with Acacia SPRL.
Acacia SPRL has advised the Company of its wish to modify the option
agreement. The Company continues its discussions with Acacia SPRL and
believes it can reach an agreement that is satisfactory for both parties.
In addition to the above matters, the Company and its subsidiaries are also
subject to routine legal proceedings and tax audits. The Company does not
believe that the outcome of any of these matters, individually or in
aggregate, would have a material adverse effect on its consolidated losses,
cash flow or financial position.
Labour disputes
The Company is in dispute with two of its previous directors and officers.
One of the individuals had applied in 2008 for a summary judgment against the
Company in the Witwatersrand Local Division of the High Court of South Africa
in respect of a dispute relating to a settlement agreement pertaining to his
departure. The application for summary judgment was dismissed and the Company
was granted leave to defend the claim. This individual has not taken further
steps to progress that matter. However, in October 2010, almost two years
after the original claim, the same former director and officer instituted
fresh proceedings against the Company. He has repeated the claim made
previously, but this time in a summons lodged before the North Gauteng High
Court in South Africa. This former director and officer is claiming he is
owed payment of 1.2 million South African rand plus interest. The trial date
for this matter has been set down for September 10, 2012. The other
individual has referred two disputes to the Commission for Conciliation
Mediation and Arbitration in Johannesburg, South Africa and an action to the
High Court in that same jurisdiction. He elected to withdraw an application
for summary judgment. The Company is unable to determine and estimate an
amount as the probability and liability amount is uncertain. The Company is
defending all these actions.
17. INCOME TAXES
The provision for income taxes is at an effective tax rate which differs from
the basic corporate tax rate for the following reasons:
Year ended December 31, 2011 2010
Canadian basic Federal and
Provincial income tax rates 28.3% 31.0%
Net Income (loss) before tax $(101,405) $ (1,535,770)
Recovery of income taxes based on (28,698) (476,089)
statutory rates
Benefit of losses (129,025) 0
previously not recognized
Foreign rate differential 7,526 10,560
Difference in future tax 17,273 41,338
rates
Stock option expense - 9,093
Unrecognized benefit of 132,924 415,098
losses
Change in provision related 21,909 (28,515)
to Ontario harmonization
Income tax (recovery) expense $ 21,909 $ (28,515)
The change in the Canadian statutory rate over the prior year is a result of a
reduction in the federal and provincial tax rates.
Income Tax Provision (Recovery)
The Company recorded current and deferred income taxes related to the
transitional debit from the harmonization of Ontario corporate income tax with
Federal.
Year ended December 31, 2011 2010
Current tax expense 17,196 6,127
Deferred tax expense (recovery) 4,713 (34,642)
Total income tax expense $ 21,909 $(28,515)
(recovery)
Non-Current Income Tax
The Company has a non-current income tax payable as a result of the Ontario
harmonization as at December 31, 2011 and 2010.
As at December 31, 2011 2010
Non-current income tax payable $ 20,502 $ 15,789
As at December 31, 2011 the Company has unrecognized temporary differences of
approximately $115,427,672 (2010 - 114,868,016)
Unrecognized Income Tax Assets
The following information summarizes the main temporary differences for which
no deferred tax asset has been recognized:
As at December 31, 2011 2010
Deductible temporary differences 18,794,641 18,967,661
Tax losses 96,633,031 95,900,355
Total $ 115,427,672 $ 114,868,016
Deferred tax assets have not been recognized in respect of these items because
the Company does not have a history of taxable earnings.
The following table summarizes the Company`s net operating tax losses and
temporary differences not recognized that can be applied against future
taxable profit. The Company capital losses not recognized can be applied
against future capital gains.
Country Type Amount Expiry Date
Canada Net operating losses $4,072,586 2027 - 2031
Canada Capital losses 92,560,445 No expiry
Canada Deductible temporary 950,461 2012 - no
differences expiry
Congo Deductible temporary 17,844,180 No expiry
differences
18. FIRST TIME ADOPTION OF INTERNATIONAL FINANICIAL REPORTING STANDARDS
IFRS 1, First Time Adoption of International Financial Reporting Standards
("IFRS 1"), requires that comparative financial information be provided. As a
result, the first date at which the Company has applied IFRS was January 1,
2010. IFRS 1 requires first-time adopters to retrospectively apply all
effective IFRS standards as of the reporting date, which for the Company will
be December 31, 2011. However, it also provides for certain optional
exemptions and certain mandatory exceptions for first-time IFRS adoption.
Prior to transition to IFRS, the Company prepared its financial statement in
accordance with Canadian GAAP.
In preparing the Company`s opening IFRS consolidated statements of financial
position, the Company has adjusted amounts reported previously in the
financial statements prepared in accordance with previous Canadian GAAP. The
IFRS 1 applicable exemptions and exceptions applied in the conversion from
Canadian GAAP to IFRS are as follows:
i. Share-based payment transactions
The Company has elected not to retrospectively apply IFRS 2, Share based
payments ("IFRS 2") to equity instruments that were granted and that vest
before the transition date. As a result of applying this exemption, the
Company has applied the provision of IFRS 2 retrospectively to all
outstanding equity instruments that were unvested as of to the date of
transition to IFRS.
ii. Deemed Cost of Exploration and Evaluation Assets
The Company has elected to measure its exploration and evaluation assets
at the date of transition to IFRS at the amount determined under Canadian
GAAP. Per IFRS 1, the Company has tested these assets for impairment at
the date of transition to IFRS in accordance with IFRS 6 respectively.
iii. Estimates
The estimates previously made by the Company under Canadian GAAP were not
revised for the application of IFRS except where necessary to reflect any
difference in accounting policy or where there was objective evidence
that those estimates were in error. As a result, the Company has not
used hindsight to create or revise estimates.
IFRS employs a conceptual framework that is similar to Canadian GAAP. However
significant differences exist in certain matters of recognition, measurement
and disclosure. While the adoption has not changed the Company`s actual cash
flows, it has resulted in changes to the Company`s consolidated statement of
financial position and statement comprehensive loss. The statements of
comprehensive loss have been changed to comply with IAS 1 Presentation of
Financial Statements. The Canadian GAAP consolidated balance sheets as at
January 1, 2010 and December 31, 2010, the consolidated statements of
comprehensive loss for the year ended December 31, 2010 as well as the
consolidated statement of cash flows for the year ended December 31, 2010 have
been reconciled to IFRS, with a summary of the significant changes in share-
based payments as follows:
a) Share Based Payments
Under IFRS 2, Share Based Payments, each tranche of an award with
different graded vesting is accounted for as a separate award and the
resulting fair value is amortized over the vesting period of the
respective tranches. Under Canadian GAAP, the Company was accounting for
these as a single award. In addition, under IFRS 2, the Company is
required to estimate the number of forfeitures likely to occur on grant
date and reflect this in the share-based payment expense revising for
actual experiences in subsequent periods. Under Canadian GAAP,
forfeitures were recognized as they occurred.
The impact of adjustments relates to share based payments on the
Company`s consolidated statement of financial position is as follows:
December 31, 2010 January 1, 2010
$ $
Exploration and evaluation - 17,920
Contributed surplus - 76,587
Deficit - (58,667)
- 17,920
b) Mineral Properties
Under Canadian GAAP, exploration and development costs relating to
mineral properties and rights are deferred and carried as an asset until
the properties are in production or until the project is abandoned.
Canadian GAAP does not provide a single accounting standard for
exploration and evaluation of mineral resources. In contrast, IFRS 6
Exploration for and Evaluation of Mineral Resources provides specific
industry guidance on the treatment of exploration and evaluation
expenditures. Expenditures related to the development of mineral
resources are not recognised as exploration and evaluation assets, but
based on the nature of the Company`s properties, no development
activities have occurred. As a result, the Company has reclassified
expenses recorded under mineral properties into exploration and
evaluation assets.
Based on the foregoing, the reclassification of mineral properties to
exploration and evaluation is as follows:
December 31, 2010 January 1, 2010
$ $
Mineral properties and deferred (5,075,041) (5,808,835)
exploration expenditures CDN
GAAP balance
Reallocation - IFRS:
Exploration and evaluation 5,075,041 5,808,835
- -
The Canadian GAAP consolidated balance sheet including changes in equity as at
January 1, 2010 has been reconciled to IFRS as follows:
January 1, 2010
Notes Canadian GAAP Effect of IFRS
Transition to
IFRS
Assets
Current Assets
Cash and cash $ $ - $ 664,495
equivalents 664,495
Prepaid expenses and - 163,175
other assets 163,175
Total Current Assets 827,670 - 827,670
Non-Current Assets
Property, plant and 141,794 - 141,794
equipment
Mineral properties and b (5,808,835)
deferred exploration 5,808,835 -
expenditures
Exploration and a, b - 5,826,755 5,826,755
evaluation
Total Non-Current Assets 5,950,629 17,920 5,968,549
Total Assets 6,778,299 17,920 6,796,219
Liabilities and
Shareholders` Equity
Current Liabilities
Accounts payable and
accrued liabilities 1,027,172 - 1,027,172
Due to related parties 377,884 - 377,884
Total Current 1,405,056 - 1,405,056
Liabilities
Non-current
Deferred tax liability 57,030 - 57,030
Total Liabilities 1,462,086 - 1,462,086
Shareholders` Equity
Share capital 115,457,876 - 115,457,876
Contributed surplus a 7,700,518 76,587 7,777,105
Deficit a (58,667) (117,900,848)
(117,842,181)
Total Shareholders` 5,316,213 17,920 5,334,133
Equity
Total Liabilities and 6,778,299 17,920 6,796,219
Shareholders` Equity
The Canadian GAAP consolidated balance sheet including changes in equity as at
December 31, 2010 has been reconciled to IFRS as follows:
December 31, 2010
Notes Canadian GAAP Effect of IFRS
Transition
to IFRS
Assets
Current Assets
Cash $ $ - $ 126,931
126,931
Prepaids expenses and
other assets 21,713 - 21,713
Total Current Assets 148,644 - 148,644
Non-Current Assets
Property, plant and
equipment 4,100 - 4,100
Mineral properties and b 5,075,041 (5,075,041) -
deferred exploration
expenditures
Exploration and b
evaluation - 5,075,041 5,075,041
Total Non-Current 5,079,141
Assets - 5,079,141
Total Assets 5,227,785
- 5,227,785
Liabilities and
Shareholders` Equity
Current Liabilities
Accounts payable and
accrued liabilities 834,176 - 834,176
Notes payable 400,493 - 400,493
Income taxes payable 6,127 - 6,127
Due to related parties 106,029 - 106,029
Total Current 1,346,825 - 1,346,825
Liabilities
Non-current
Deferred income tax
liabilities 15,789 - 15,789
Total Liabilities 1,362,614 - 1,362,614
Shareholders` Equity
Share capital 115,457,876 - 115,457,876
Contributed surplus 7,815,398 - 7,815,398
Deficit - (119,408,103)
(119,408,103)
Total Shareholders` 3,865,171 - 3,865,171
Equity
Total Liabilities and 5,227,785 - 5,227,785
Shareholders` Equity
The Canadian GAAP consolidated statements of operations and other
comprehensive loss for the year ended December 31, 2010 have been reconciled
to IFRS as follows:
Year Ended December 31, 2010
Notes Canadian Effect of IFRS
GAAP Transition
to IFRS
Expenses
Consulting and $ $ $ 447,319
professional fees 447,319 -
General and
administrative 209,778 - 209,778
Share based payment a
expense 88,000 (58,667) 29,333
Foreign exchange (loss)
gain 3,356 - 3,356
Impairment of mineral
properties and deferred 740,975 - 740,975
exploration expenditures
Bad debt expense
105,009 - 105,009
Loss from operations (58,667) (1,535,770)
(1,594,437)
Income tax recovery
28,515 - 28,515
Loss for the year (58,667) (1,507,255)
(1,565,922)
Comprehensive loss for $ $ $(1,507,255)
the year (1,565,922) (58,667)
Loss per share, basic
and diluted (0.03) - (0.03)
The Canadian GAAP reconciliation to IFRS of the consolidated statement of cash
flow for the year ended December 31, 2010 is as follows:
Year ended December 31, 2010
Notes Canadian Effect of IFRS
GAAP Transition
to IFRS
Cash flows from operating
activities
Net loss for the year a $(1,565,922) $ 58,667 $(1,507,255)
Adjustments to reconcile loss
to net cash used in operating
activities
Impairment of properties 740,975 - 740,975
Share based payment expense a 88,000 (58,667) 29,333
Interest expense 493 - 493
Bad debt expense 105,009 - 105,009
Income taxes (28,515) - (28,515)
Changes in non-cash working
capital -
Prepaid expenses and other
current assets 36,453 - 36,453
Accounts payables and
accrued liabilities (192,996) - (192,996)
Income taxes paid (6,598) - (6,598)
Net cash flows from operating (823,101) - (823,101)
activities
Cash flows from investing
activities
Proceeds from disposal of
capital asset 64,794 - 64,794
Expenditures on exploration
and evaluation (338,757) - (338,757)
Funds received from Rio Tinto 431,355 - 431,355
Net cash provided by 157,392 - 157,392
investing activities
Cash flows from financing
activities
Due to related parties (271,855) - (271,855)
Notes payable 400,000 - 400,000
Net cash provided by 128,145 - 128,145
financing activities
Net decrease in cash during (537,564) - (537,564)
the year
Cash, beginning of the year 664,495 - 664,495
Cash, end of the year $ 126,931 $ - $ 126,931
The Canadian GAAP reconciliation to IFRS of the consolidated statement of
changes in equity as at January 1, 2010 is as follows:
January 1, 2010
Notes Canadian GAAP Effect of IFRS
Transition
to IFRS
Share Capital $ 115,457,876 $ - $ 115,457,876
Contributed a
Surplus 7,700,518 76,587 7,777,105
Deficit a
(117,842,181) (58,667) (117,900,848)
Total $ 5,316,213 $ $ 5,334,133
Shareholders` 17,920
Equity
The Canadian GAAP reconciliation to IFRS of the consolidated statement of
changes in equity for the year ended December 31, 2010 is as follows:
Year ended December 31, 2010
Notes Canadian GAAP Effect of IFRS
Transition
to IFRS
Share Capital $ 115,457,876 $ - $ 115,457,876
Contributed a
Surplus 7,815,398 - 7,815,398
Deficit a
(119,408,103) - (119,408,103)
Total $ 3,865,171 $ - $ 3,865,171
Shareholders`
Equity
Sponsor
Arcay Moela (Proprietary) Limited
5 April 2012
Date: 05/04/2012 10:32:01 Supplied by www.sharenet.co.za
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