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DRN - Delrand Resources Limited - Interim condensed consolidated financial
statements(UNAUDITED) 31 March 2012 (Expressed in Canadian dollars)
DELRAND RESOURCES LIMITED
(formerly BRC DIAMONDCORE LTD.)
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: DRN ISIN Number: CA2472671072
("Delrand" or the "Company")
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
31 MARCH 2012 (Expressed in Canadian dollars)
NOTICE TO READER
These interim condensed consolidated financial statements of Delrand Resources
Limited (the "Company") as at and for the three month period ended March 31,
2012 have been prepared by and are the responsibility of the Company`s
management. These interim condensed consolidated financial statements have not
been audited or reviewed by the Company`s auditors.
Notes December 31, 2011 December
31, 2011
$ $
Assets
Current Assets
Cash 144,993 88,068
Other receivable 5b - 26,145
Prepaid expenses and other assets 51,203 38,342
Total Current Assets 196,196 152,555
Non-Current Assets
Exploration and evaluation 5 5,072,986 5,121,486
Total Non-Current Assets 5,072,986 5,121,486
Total Assets 5,269,182 5,274,041
Liabilities and Shareholders`
Equity
Current Liabilities
Accounts payable and accrued 573,737 530,024
liabilities
Notes payable - -
Income taxes payable 11,076 ,076
Due to related parties 6 194,430 144,646
Total Current Liabilities 685,746 685,746
Non-current
Income taxes payable 20,502 20,502
Total Liabilities 779,2438 706,248
Shareholders` Equity
Share capital 7 115,939,566 115,939,566
Contributed surplus 8,159,644 8,159,644
Deficit (119,629,773) (119,531,41
7)
Total Shareholders` Equity 4,469,437 4,567,793
Total Liabilities and Shareholders` 5,269,182 5,274,041
Equity
Going Concern 1
Common shares
Authorized Unlimited Unlimited
Issued and outstanding 49,704,341 49,704,341
Notes Three months Three
ended March 31, months
2012 ended March
31, 2011
$ $
Expenses
Consulting and professional fees 59,475 105,122
General and admistrative 55,964 70,410
Foreign exchange (gain) loss 1,414 2,243
Loss from operations (101,405) (177,775)
Other revenue 18,497 -
(98,356) (177,775)
Headline loss
Net loss and comprehensive loss (98,356) (177,775)
for the year
Basic and diluted loss per share (0.00) (0.00)
Weighted average number of common 49,704,341 47,855,026
shares outstanding
Notes Common shares Contribute Deficit Total
d Surplus Shareholde
r`s equity
Number of Amount
shares
(Note 11)
Balance at
January 1, 2011 44,704,320 115,457,876 7,815,398 (119,408,1 3,865,171
03)
Net loss for the
period - - - (177,775) (177,775)
Balance at March
31, 2011 44,704,320 115,457,876 7,815,398 (119,585,8 3,687,396
78)
Net incomes for -
the period - - 54,461 54,461
Share issuance 7 - 481,690
(net of costs) 5,000,000 481,690 -
Warrant issuance 7 - - 344,246 - 344,246
(net of costs)
Fractional 7a 21 - - - -
shares due to
consolidation
Balance at
December 31, 49,704,341 115,939,566 8,159,644 (119,531,4 4,567,793
2011 17)
Net loss for the - - - (98,536) (98,536)
period
Balance at March
31, 2011 49,704,341 115,939,566 8,159,644 (119,629,7 4,469,437
73)
For the three months ended
Notes March 31, March 31, 2011
2012
$ $
Cash flows from operating
activities
Net loss for the period (177,775)
(98,356)
Adjustments to reconcile loss to net
cash used in operating activities
Interest paid - Note payable - (4,931)
Changes in non-cash working
capital
Prepaid expenses and other 11,436
current assets (12,860)
Accounts receivable
(26,144) -
Accounts payable and accrued 43,713 8,904
liabilities
Net cash flows used in operating
activities (41,359) (152,504)
Cash flows from investing
activities
Expenditures on exploration and (181,275)
evaluation (66,606)
Funds received from Rio Tinto 191,263
115,106
Net cash provided by investing
activities 48,500 9,988
Cash flows from financing
activities
Due to related parties 163,417
49,784
Net cash provided by financing
activities 49,784 163,417
Net increase in cash during the 20,901
year 56,925
Cash, beginning of the year 126,931
88,068
Cash, end of the year
144,993 147,832
1 Corporate Information and Continuation of the Business
Corporate Information
The principal business of Delrand Resources Limited ("Delrand" or 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 Diamond Core 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
these financial statements have been restated to reflect the consolidation.
These interim condensed consolidated financial statements as at and for the
three months ended March 31, 2012 include the accounts of the Company and
of its wholly-owned subsidiaries incorporated in the DRC, BRC Diamond Core
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
These interim condensed consolidated financial statements are prepared on a
going concern basis, which assumes that the Company will continue in
operation for a reasonable period of time and will be able to realize its
assets and discharge its liabilities in the normal course of operations.
The Company has not generated revenues from operations. The Company
incurred a net loss of $98,356 during the three months ended March 31, 2012
and, as of that date, the Company`s deficit was $119,629,773. 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. As such, the Company`s ability to continue
as a going concern depends on its ability to successfully raise additional
financing for development of the mineral properties. Although the Company
has been successful in the past in obtaining financing and subsequently
raised financing, there is no assurance that it will be able to obtain
adequate financing in the future or that such financing will be available
on acceptable terms.
2 Basis of Preparation
a) Statement of compliance
These interim condensed consolidated financial statements as at and for the
three months ended March 31, 2012, including comparatives, have been
prepared in accordance with International Accounting Standards ("IAS") 34
`Interim Financial Reporting` ("IAS 34") using accounting policies
consistent with the International Financial Reporting Standards ("IFRS")
issued by the International Accounting Standards Board ("IASB").
Accordingly, certain information and footnote disclosure normally included
in the annual financial statements prepared in accordance with IFRS, have
been omitted or condensed.
b) Basis of measurement
These interim condensed consolidated financial statements have been
prepared on a going concern basis, under the historical cost convention,
except for certain financial assets and liabilities which are presented at
fair value.
3 Summary of Significant Accounting Policies
These interim condensed consolidated financial statements have been
prepared using the same accounting policies and methods of computation as
the annual consolidated financial statements of Delrand for the year ended
December 31, 2011. The disclosure contained in these interim condensed
consolidated financial statements does not include all the requirements in
IAS 1 Presentation of Financial Statements ("IAS 1"). Accordingly, these
interim condensed consolidated financial statements should be read in
conjunction with the Company`s consolidated financial statements for the
year ended December 31, 2011.
The accounting policies set out below have been applied consistently to all
periods presented in these interim condensed consolidated financial
statements.
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 interim condensed 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 wholly-owned 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 interim condensed consolidated
financial statements.
Unrealized gains arising from transactions with associates are eliminated
against the investment to the extent of the Company`s interest in the
investee. Unrealized losses are eliminated in the same way as unrealized
gains, but only to the extent that there is no evidence of impairment.
Delrand Resources Limited March 31,2012 December 31, 2011
Percentage of ownership interest 25.00% 25.00%
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 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 Holdco.
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 Northern DRC Total
Project Project
Cost
Balance as at $2,608,499 $2,510,768 $5,119,267
December 31, 2011
Balance as at 2,510,768 5,119,267
January 1, 2012 2,608,499
Additions (90,564) (48,500)
42,064
Balance as at March 2,420,204 5,070,767
31, 2012 2,650,563
There is $2,219 of intangible exploration and evaluation expenditures as at
March 31, 2012 (December 31, 2011: $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 option agreement permits relate to Acacia SPRL, which has advised the
Company of its wish to modify the option agreement with the Company. The
remaining two option agreement permits relate to Caspian Oil & Gas.
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.
4 Related Party Transactions
a Key Management Remuneration
The Company`s related parties include key management. Key management
includes executive directors and non-executive directors. The remuneration
of the key management of the Company as defined above, during the three
months ended March 31, 2012 and 2011 was as follows:
Years ended
March 31, 2012 March 31, 2011
Salaries $65,468 $87,745
b Other Related Parties
As at March 31, 2012, an amount of $183,333 (December 31, 2011 - $133,333)
was owed to two directors of the Company representing consulting fees.
During the three months ended March 31, 2012, consulting fees of $50,000
were incurred to the two directors (three months ended March 31, 2011:
$50,000 to the two directors).
As at March 31, 2012, an amount of $11,097 (December 31, 2011 - $11,313)
was owed to Banro Corporation ("Banro"). Banro owns 17,716,994 common
shares of the Company, representing a 35.64% interest in the Company
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.
5 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.
As of March 31, 2012, the Company had 49,704,341 common shares issued and
outstanding (December 31, 2011 - 49,704,341) and no preference shares
issued and outstanding.
B Share purchase warrants
As at March 31, 2012, the Company had outstanding warrants to purchase
15,000,000 (December 31, 2011: 15,000,000) 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 three months ended March 31, 2012,
amounting to 49,704,341 (three months ended March 31, 2011: 44,704,230)
common shares. Diluted loss per share was calculated using the treasury
stock method. For the three months ended March 31, 2012, total stock
options of 1,061,771 (three-months ended March 31 2011: 1,140,000) and
warrants of 15,000,000 (three months ended March 31, 2011: 10,000,000) were
excluded from the calculation of diluted loss per share as their effect
would have been anti-dilutive.
6 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 March 31, 2012, the Company had outstanding under the Old Plan
stock options to acquire 1,040,000 (December 31, 2010 - 1,040,000) common
shares of the Company at a weighted-average exercise price of $4.59
(December 31, 2010 - $4.59) per share. There are currently no stock options
outstanding under the New Plan.
The following tables summarize information regarding outstanding stock
options (post-consolidation):
For three months ended March 31, 2012:
Exercise Opening During the Year Closing Weighted Veste Unve
Price Balance Balance average d & sted
Range remaining Exerc
(Cdn$) contractu isabl
al life e
(years)
Gran Exerci Expir Forfe
ted sed ed ited
2.10- 800,000 800,000 1.41 800,0
7.51 - - - - 00 -
7.52- 240,000 240,000 0.14 240,0
16.00 - - - - 00 -
1,140,0 -
00 - - - 1,040,0 1,040 -
00 ,000
Weighted $ 4.59 $ $ - $ - $ - $ 4.59 $ $
Average - 4.59 -
Exercise
Price
(Cdn$)
For the three months ended March 31, 2011 (pre-consolidation):
Exercise Opening During the Year Closing Weighted Vested Unve
Price Balance Balance average & sted
Range remainin Exerci
(Cdn$) g sable
contract
ual life
(years)
Gran Exerci Expir Forfe
ted sed ed ited
1.05- 2.50 1,600,0 1,600,0 2.41 1,600,
00 - - - - 00 000 -
2.60 - 200,000 200,000 0.25 200,00
3.75 - - - - 0 -
3.76 - 480,000 480,000 1.15 480,00
8.00 - - - - 0 -
2,280,0
00 - - - - 1,140,0 1,140, -
00 000
Weighted $ $ $ $ $
Average 2.42 - - - - 2.42 2.42 -
Exercise
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.
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 March 31, 2012, there were 21,771 replacement options outstanding
(December 31, 2011: 21,771).
7 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:
March 31, December 31,
2012 2011
Cash $ 144,993 $ 88,068
Share $115,939,566 $115,939,566
capital
Deficit $(119,629,773) $(119,531,417)
Contributed $ 8,159,644 $ 8,159,644
surplus
8 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 and accounts payable and accrued liabilities 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 is 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 March 31, 2012. 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 March 31,
2012.
U.S
dollar
$
Cash
102,644
Prepaid expenses
37,900
Accounts payable
(151,940)
Total foreign currency financial assets and
liabilities (11,396)
Foreign exchange rate at December 31, 2011
1.0025
Total foreign currency financial assets and
liabilities in CDN $ (11,424)
Impact of a 10% strengthening of the CDN $ on net
loss (1,142)
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 $573,737 and amounts due to related parties of $194,430 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 the 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.
The 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 March 31, 2012.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
March 31, 2012 December 31,
2011
Cash $ 144,993 $
88,068
Share capital $ 115,939,566 $
115,939,566
Deficit $ (119,629,773) $
(119,531,417)
Contributed surplus $ 8,159,644 $
8,159,644
9 Supplemental Cash Flow Information
During the years indicated the Company undertook the following significant
non-cash transactions:
Note March 31, March 31, 2011
2012
Depreciation included in 7 $ - $ 2,289
exploration and evaluation
assets
10 Commitments and Contingencies
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.
The Company and its subsidiaries are 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.
18 May 2012
Sponsor
Arcay Moela Sponsors (Proprietary) Limited
Date: 18/05/2012 17:00:02 Supplied by www.sharenet.co.za
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