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DMC - DiamondCorp - Final Results for the year ended 31 December 2011

Release Date: 31/05/2012 08:39
Code(s): DMC
Wrap Text

DMC - DiamondCorp - Final Results for the year ended 31 December 2011 DiamondCorp plc JSE share code: DMC AIM share code: DCP ISIN: GB00B183ZC46 (Incorporated in England and Wales) (Registration number 05400982) (SA company registration number 2007/031444/10) (`DiamondCorp` or `the Company`) Final Results for the year ended 31 December 2011 DiamondCorp plc, the African diamond mining and exploration company, releases its audited results for the year ended 31 December 2011. The Company`s Annual Report and Accounts and Notice of Annual General Meeting will be posted to shareholders on 1 June 2012 and will be available on the Company`s website (www.diamondcorp.plc.uk) shortly. Contacts: AIM Nomad: Fairfax I.S. PLC AIM Brokers: Fairfax I.S. PLC, Ocean Equities Ltd JSE Sponsor: PSG Capital (Pty) Limited DiamondCorp plc - Paul Loudon +27 56 212 2308/ Euan Worthington +44 775 3862 097 Fairfax I.S. PLC - Ewan Leggat/Laura Littley +44 207 598 5368 Ocean Equities Ltd - Guy Wilkes +44 207 786 4370 PSG Capital (Pty) Ltd - John-Paul Dicks +27 21 887 9602 Russell & Associates - Charmane Russell +27 11 880 3924 LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE Dear Shareholder, When we wrote to you a year ago, our mining team at Lace had just completed driving a ramp down to the 26 level (-260m from surface) and intersected the main kimberlite pipe. We had hoped to extract a 30,000 tonne bulk sample from six (3metre x 3metre) parallel development drives across the full area of the 2.5 hectare main pipe by the end of July 2011. However, on entering the pipe at this level, we discovered three different kimberlite types, two of which had not been intersected in drilling from the surface. Sampling conditions proved difficult in these less competent facies and in the event we decided, by the end of September 2011, that we had extracted enough ore to give us a representative sample and for reasons of safety we stopped mining on that level. A total of 15,414 tonnes of ore were extracted from three different kimberlite facies and 2,157.41 carats of diamonds were recovered. Importantly, the brown volcanoclastic kimberlite, which is the dominant VK facies below the 33 level (-330m), returned a bulk sample grade of 26 carats per hundred tonnes (cpht). These results gave our technical advisors enough confidence to recommend that we proceed to a full engineering study and the Board agreed to commission SRK Consulting (South Africa) (Pty) Ltd ("SRK") to produce an independent engineering report. The SRK report, which was finalised in March this year, validated the project and recommended that we initiate mining with a block cave on the 47 level (-470m). Ore will be crushed underground and carried to surface on a conveyor system for treatment through the existing 1.2mtpa plant. Near Jwaneng in Botswana, during Q4 2011, we carried out wide diameter mini bulk sample drilling of the two kimberlites which we had previously discovered were diamondiferous. We had high hopes for these targets after the initial core drilling, kimberlite type, diamond counts and proximity to Jwaneng, the richest diamond mine in the world. However, as is often the case in diamond exploration, the results from the mini bulk tests indicated that neither J-01 nor J-05 were likely to be economic diamond mines at this time. Consequently, we have decided not to proceed further with this project. The Diamond Market After the very strong rally from the lows of early 2009 when the WWW International Diamond Consultants Ltd overall index of rough diamond prices rose more than threefold, the market was due a setback and in the middle of last year, we saw a correction (c25%) before some recovery towards the end of the year which has continued so far in 2012. In February 2011, we sold a package of 1,321 carats recovered from the Lace tailings for an average of US$94/ct which compared to the highest price before the 2008 crash of $55/ct in September that year and the lowest of $33/ct from a small scale in May 2009. The diamonds recovered from the bulk sample were valued by experts at the South African Diamond Exchange last September/October with an average price of $160/ct after what was estimated to have been a 25% drop in previous weeks. This value was one third higher than the Company`s original base case price of $120/ct. We have not sold this parcel of 2,157.4 carats of diamonds which have more recently been valued at $172/ct by the South African Diamond Exchange. We remain confident about the future of the diamond market with strong demand from China, India and other parts of Asia expected to add to a growing recovery in US consumer demand. As we and many other observers have noted before, the only significant new source of diamonds worldwide are the Marange diamond fields in Zimbabwe. These stones are having some impact on the smaller and lower quality end of the diamond market but are not expected to fill the emerging gap between supply and demand, particularly for stones over 1ct. The Lace Mine The Lace mine, 200km southwest of Johannesburg, is owned and operated by our 74% owned subsidiary Lace Diamond Mines (Pty) Limited. The mine has a granted mining right, grid power and is fully compliant with South Africa`s black economic empowerment ("BEE") regulations. Well known and established BEE groups Shanduka Resources and Sphere Holdings each own 13% of Lace Diamond Mines (Pty) Ltd. Early in 2011, the 1.2mtpa Lace processing plant, which had been on care and maintenance since 2009, was recommissioned in readiness for the underground bulk test which was completed in October. The plant operated to design specification throughout the bulk test, and is now being used for the retreatment of tailings. The diamonds recovered from tailings retreatment will be tendered on a regular basis during development of the underground mine and will contribute a valuable credit to the development cost. During the year we also commenced crushing of our waste rock at the mine for sale through a contractual arrangement with African Mobile Crushers. Revenue from this activity will also provide a small credit to the underground development cost. Bulk Sampling Results Kimberlite Tonnes Carats Recovered Estimated Estimated type sampled recovered grade in area of area of the carats the pipe pipe at the per at the 25 34 level hundred level from
tonnes from drilling (cpht) sampling Contact VK 6,425 583.81 9.09 15% Not encountered
in drilling Grey VK 6,319 882.85 13.60 45% Not encountered in drilling
Brown VK 2,670 690.75 25.87 40% Predominates across the pipe TOTAL 15,414 2,157.41 100% Bulk sampling of kimberlite types was undertaken in June-September 2011 between the 25 and 26 levels. The planned underground development involves the establishment of a continuous trough block cave on the 47 level. The first block cave will allow the extraction of approximately 9mt of kimberlite over an 8-9 year period, followed by subsequent block caves on the 67 level (-670m) and the 85 (-850m) level over a 25 year mine life. Block caving is used in most South African underground kimberlite mines and allows very low operating costs compared with other mining methods. The cost of this development is estimated at R384 million (approximately $50 million). The mine will take an estimated 43 months to reach full production but should start to produce diamonds after month 18 as much of the development work from that date takes place within diamond bearing kimberlite. While establishing the mine, approximately 600,000 tonnes of kimberlite will be mined and the diamonds recovered sold. The revenue generated from these sales will provide an important credit towards the overall development cost and limits the peak forecast funding requirement to approximately R285m ($37m), 25 months after development commences. Our company benefits from the experience of our group mining consultant Bob Harverson, who spent a large part of his career with De Beers and was involved with the design and implementation of similar block caves at Premier (now Cullinan) and Finsch mines. Safety is a prime concern to our Company and we are pleased to report that during the year under review, the Lace mine operated without any lost time injuries or fatalities. Following the completion of the bulk test, our underground mining fleet was in need of a major overhaul prior to the commencement of mine development. We constructed a heavy equipment workshop during 2011 and a programme of 5,000 hour machine rebuilds was initiated. Once our project finance is available for drawdown, activities at the mine will rapidly pick up speed in order to meet the development schedule we have set ourselves. Our workforce will increase from the current 62 employees to more than 200 during underground development and the majority of these jobs created will exist for the life of the mine. In terms of our commitment to corporate and social responsibility, we concentrated our efforts on the Doornspruit school near the mine during the year, refurbishing classrooms, building washrooms and providing necessary text books. In the year ahead, it is our intention to fund the establishment of a brick making business which will utilise the crushed mine waste rock from Lace to build bricks for the local market. Since the year end, we are pleased to have appointed Andre Labuschagne as the new mine manager at Lace. Andre has considerable experience mining kimberlites from underground and was previously mine manager for Petra Diamonds at the Sedibeng mine. Andre will work with Bob Harverson and chief operating officer Steve West in implementing the 47 level block cave development, the success of which will be a cornerstone achievement in the building of our company. Lace Mine Resource Statement Depth (m) Tonnage (Mt) Grade (cpht) Carats (Mct) Type & Category Main Satellite Total Main Satellite Main Satellite Total Pipe Pipe Pipe Pipe Pipe Pipe 73-345 VK 5.879 1.375 7.254 24.4 7.1 1.435 0.098 1.533 Indicated 345-855 11.163 - 11.163 24.4 - 2.723 - 2.723 VK Inferred 345-855 16.079 - 16.079 56.8 - 9.133 - 9.133 CK Inferred 345-600 - 0.025 0.025 - Unknown - Unknown - VK Inferred 345-600 - 1.066 1.066 - Unknown - Unknown - CK Inferred Total 33.121 2.466 35.587 40.12 13.389 Resource statement prepared March 2012 by VP3 Geoservices (Pty) Limited in accordance with the SAMREC Reporting Code. Corporate and Financing In January 2011, we appointed resource specialist Ocean Equities Ltd, as joint brokers and in March last year selected Fairfax I.S. PLC as our new Nominated Adviser and joint broker. Together, in June 2011, they raised GBP3.48 million gross for us at 13p per share to fund our exploration programme in Botswana and general working capital. As noted in our statement last year, we were seeking "to raise a further GBP10 - 12 million in the near future". Therefore with the good bulk sample results in hand, we went out marketing to existing and new institutions in October 2011. We had some very positive feedback but ultimately, the Greek debt crisis and setback in diamond prices exerted too much negative force. We had enough headroom to issue 31.6 million shares at 6.5p which allowed us to pay off debt and accrued interest due to the Africa Opportunity Fund LP and give us GBP0.6 million of working capital. In hindsight, the inability to raise this equity finance for the underground development at Lace has been in the best interests of shareholders, since it gave us time to carry out further studies on the optimum mine planning, and as you have recently seen, move towards securing a debt finance package from the Industrial Development Corporation of South Africa Limited (IDC) which will not dilute shareholders` value. Another piece of good news came at the end of last year when our South African operating subsidiary Lace Diamond Mines (Pty) Limited reached an agreement with Mutual and Federal Insurance Limited on a claim for damage to timbers and pumps in the vertical shaft at the Lace mine incurred during heavy rains earlier in the year; after deductibles, we received R25 million (GBP2.2 million). Last month, the IDC presented us with a Term Sheet offering Lace Diamond Mines (Pty) Limited a loan of R280 million (GBP21.3 million) subject to the completion of due diligence for underground development and purchase of mining equipment. Your Board has reviewed and accepted this Term Sheet which will cover 98% of the estimated capital cost for development of the first block cave on the 47 level at Lace. We anticipate that the loan financing agreement will be finalised by the end of July 2012. The Future We have been rebuilding our underground mining fleet ready to start underground mining as soon as possible. We then estimate that it will take 18 months to mine down to the 47 level where we will establish a development level of troughs, slots and haulage ways for the first block cave. The mining at that level will be in kimberlite, so we expect our first revenues before the end of Q1 2014 with full production in Q2 2015. Planned Lace Mine Production (carats) Please see the link at the end of this announcement for a graph of the planned Lace Mine Production. There will be much work to be done at Lace in that period, but with that mine`s future now expected to be secure, we will be turning more seriously to the search for opportunities to build your company into a mid-tier diamond miner. In Conclusion A year ago, we could not have anticipated the good and bad luck which would come our way, and although it would have been very exciting to have discovered a new mine in Botswana, we have proved up the viability of Lace and secured a strong partner in the IDC. We must thank all our employees and managers for their hard work and enthusiasm which has helped us reach this position with an exciting future for the Company. Euan Executive Chairman Worthington Paul Loudon Chief Executive CONSOLIDATED INCOME STATEMENT Year ended 31 December 2011 Consolidated income Note 2011 2010 statement GBP GBP Depreciation and (918,291) (1,115,553) amortisation Other administrative (2,042,690) (1,834,968) expenses
Total administrative (2,960,981) (2,950,521) expenses Gain on insurance settlement 2,195,816 - Other income 11,048 - Impairment of intangible (2,373,616) - asset Write off of Botswana (1,013,032) - project OPERATING LOSS 3 (4,140,765) (2,950,521) Investment revenues 24,685 77,057 Finance costs (123,066) (441,863) LOSS BEFORE TAX (4,239,146) (3,315,327) Tax 6 - -
LOSS FOR THE FINANCIAL YEAR 18 (4,239,146) (3,315,327) ATTRIBUTABLE TO: Equity holders of the parent (3,823,586) (2,970,452) Non controlling interest 19 (415,560) (344,875) (4,239,146) (3,315,327)
BASIC AND DILUTED LOSS PER 7 (1.87p) (2.27p) SHARE HEADLINE LOSS PER SHARE* 7 (2.43p) (2.30p) All of the activities of the Group are classed as continuing. * The Group presents an alternative measure of loss per share after excluding all capital gains and losses from the loss attributable to ordinary shareholders (see note 7). CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE Year ended 31 December 2011 Consolidated statement of comprehensive 2011 2010 income and expense GBP GBP
Net loss (4,239,146) (3,315,327) (2,443,288) 1,418,679 Foreign exchange on translation of overseas operations Total comprehensive expense (6,682,434) (1,896,648)
ATTRIBUTABLE TO: Equity holders of the parent (6,405,668) (1,485,211) Non controlling interest (276,766) (411,437)
(6,682,434) (1,896,648) COMPANY INCOME STATEMENT Year ended 31 December 2011 Company income statement Note 2011 2010 GBP GBP Administrative expenses (943,158) (948,103) Write off of loan to Botswana Diamondcorp (1,021,402) - Limited OPERATING LOSS 3 (1,964,560) (948,103) Investment revenues 5,494 70,208 Finance costs (123,066) (441,863) LOSS FOR THE FINANCIAL YEAR 18 (2,082,132) (1,319,758) ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE (2,082,132) (1,319,758) PARENT
All of the activities of the Company are classed as continuing. There were no other gains or losses during the year. CONSOLIDATED BALANCE SHEET 31 December 2011 Consolidated balance sheet Note 2011 2010 GBP GBP NON-CURRENT ASSETS Goodwill 8 4,606,026 4,606,026 Other intangible assets 8 4,641,801 4,947,778 Property, plant and 9 4,609,284 6,260,302 equipment 13,857,111 15,814,106 CURRENT ASSETS Inventories 11 442,433 355,349 Other receivables 12 182,350 398,266 Cash and cash equivalents 2,632,760 4,293,185
3,257,543 5,046,800 TOTAL ASSETS 17,114,654 20,860,906
CURRENT LIABILITIES Obligations under finance - (25,718) leases Other payables 13 (498,876) (627,028) Borrowings 14 - (2,184,950) Provisions (13,941) (16,740)
(512,817) (2,854,436) NET ASSETS 16,601,837 18,006,470
EQUITY Share capital 17 7,268,041 5,516,209 Share premium account 18 26,702,502 23,203,016 Warrant reserve 18 505,877 505,877 Share option reserve 18 429,066 402,583 Translation reserve 18 398,476 2,980,558 Retained losses 18 (18,013,922 (14,190,336) )
Equity attributable to 17,290,040 18,417,907 equity holders of the parent Non controlling interest 19 (688,203) (411,437) TOTAL EQUITY 16,601,837 18,006,470
The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of Directors and authorised for issue on 30 May 2012. Signed on behalf of the Board of Directors E A Worthington Director COMPANY BALANCE SHEET 31 December 2011 Company balance sheet Note 2011 2010 GBP GBP NON-CURRENT ASSETS Investments in 10 4,217,501 4,217,501 subsidiaries Other intangible assets 8 317,075 336,892 4,534,576 4,554,393
CURRENT ASSETS Other receivables 12 22,835,064 18,096,220 Cash and cash equivalents 257,042 4,014,781
23,092,106 22,111,001 TOTAL ASSETS 27,626,682 26,665,394
CURRENT LIABILITIES Other payables 13 (118,580) (168,011) Borrowings 14 - (2,184,950) (118,580) (2,352,961) NET ASSETS 27,508,102 24,312,433 EQUITY Share capital 17 7,268,041 5,516,209 Share premium account 18 26,702,502 23,203,016 Warrant reserve 18 505,877 505,877 Share option reserve 18 429,066 402,583 Retained losses 18 (7,397,384) (5,315,252)
TOTAL EQUITY 27,508,102 24,312,433 The financial statements of DiamondCorp plc, registered number 5400982, were approved by the Board of Directors and authorised for issue on 30 May 2012. Signed on behalf of the Board of Directors E A Worthington Director STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2011 Stateme Share Sha Non Total nt of Share premi Warr re Transl Retained contro- GBP changes capit um ant opt ation losses Sub- lling in al accou rese ion reserv GBP total interest equity GBP nt rve res e GBP GBP GBP GBP erv GBP e
GBP GROUP Balance 1,416 17,87 555, 371 1,495, (11,269, 10,442,5 - 10,442,525 at 1 ,960 2,580 036 ,67 317 043) 25 January 5 2010 Loss - - - - - (2,970,4 (2,970,4 (344,875) (3,315,327) for 52) 52) financi al year Other - - (49, - 1,485, 49,159 1,485,24 (66,562) 1,418,679 compreh 159) 241 1 ensive income
Total - - (49, - 1,485, (2,921,2 (1,485,2 (411,437) (1,896,648) compreh 159) 241 93) 11) ensive income Issue 4,099 5,489 - - - - 9,589,01 - 9,589,012 of ,249 ,763 2 share capital Issue - (159, - - - - (159,327 - (159,327) costs 327) ) Value - - - 30, - - 30,908 - 30,908 attribu 908 ted for equity settled share based payment s
Balance 5,516 23,20 505, 402 2,980, (14,190, 18,417,9 (411,437) 18,006,470 at 31 ,209 3,016 877 ,58 558 336) 07 Decembe 3 r 2010 Balance 5,516 23,20 505, 402 2,980, (14,190, 18,417,9 (411,437) 18,006,470 at 1 ,209 3,016 877 ,58 558 336) 07 January 3 2011 Loss - - - - - (3,823,5 (3,823,5 (415,560) (4,239,146) for 86) 86) financi al year Other - - - - (2,582 - (2,582,0 138,794 (2,443,288) compreh ,082) 82) ensive income
Total - - - - (2,582 (3,823,5 (6,405,6 (276,766) (6,682,434) compreh ,082) 86) 68) ensive income Issue 1,751 3,785 - - - - 5,537,27 - 5,537,272 of ,832 ,440 2 share capital Issue - (285, - - - - (285,954 - (285,954) costs 954) ) Value - - 26, - - 26,483 - 26,483 attribu 483 ted for equity settled share based payment s
Balance 7,268 26,70 505, 429 398,47 (18,013, 17,290,0 (688,203) 16,601,837 at 31 ,041 2,502 877 ,06 6 922) 40 Decembe 6 r 2011 STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2011 Share Share Share premium Warrant option Retained
capital account reserve reserv losses Total GBP GBP GBP e GBP GBP GBP COMPANY Balance at 1 1,416,9 17,872, 555,036 371,67 (4,044,6 16,171, January 2010 60 580 5 53) 598 Loss for - - - - (1,319,7 (1,319, financial year 58) 758) Other - - (49,159) - 49,159 - comprehensive income Total - - (49,159) - (1,270,5 (1,319, comprehensive 99) 758) income Issue of share 4,099,2 5,489,7 - - - 9,589,0 capital 49 63 12 Issue costs - (159,32 - - - (159,32 7) 7)
Value attributed - - - 30,908 - 30,908 for equity settled share based payments Balance at 31 5,516,2 23,203, 505,877 402,58 (5,315,2 24,312, December 2010 09 016 3 52) 433
Balance at 1 5,516,2 23,203, 505,877 402,58 (5,315,2 24,312, January 2011 09 016 3 52) 433
Loss for - - - - (2,082,1 (2,082, financial year 32) 132) Total - - - - (2,082,1 (2,082, comprehensive 32) 132) income Issue of share 1,751,8 3,785,4 - - - 5,537,2 capital 32 40 72 Issue costs - (285,95 - - - (285,95 4) 4) Value attributed - - 26,483 - 26,483 for equity settled share based payments Balance at 31 7,268,0 26,702, 505,877 429,06 (7,397,3 27,508, December 2011 41 502 6 84) 102 CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2011 Consolidated cash flow statement 2011 2010 GBP GBP Operating loss (4,140,765) (2,950,521) Depreciation and amortisation 918,291 1,115,553 Share based payment charge 26,483 50,097 Gain on disposal of property plant and (1,985) (44,415) equipment Impairment of intangible asset 2,373,616 - Write off of Botswana project 1,013,032 - Decrease (increase) in receivables 215,916 (207,563) Increase in inventories (87,084) (52,329) Decrease in payables (156,668) (107,478) Effect of foreign exchange translation - 103,842 NET CASH FROM (USED IN) OPERATING 160,836 (2,092,814) ACTIVITIES
INVESTING ACTIVITIES Purchase of intangible assets (3,996,606) (2,008,860) Purchase of property, plant and equipment (376,794) (74,030) Disposal of property, plant and equipment 74,265 79,807 Investment revenues 24,685 77,057 NET CASH USED IN INVESTING ACTIVITIES (4,274,450) (1,926,026)
FINANCING ACTIVITIES Repayment of borrowings (2,308,016) (1,417,627) Proceeds on issue of ordinary shares 5,251,318 9,429,685 NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058 NET (DECREASE) INCREASE IN CASH AND CASH (1,170,312) 3,993,218 EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF 4,293,185 288,188 YEAR Effect of foreign exchange rate changes (490,113) 11,779 CASH AND CASH EQUIVALENTS AT END OF YEAR 2,632,760 4,293,185 COMPANY CASH FLOW STATEMENT Year ended 31 December 2011 Company cash flow statement 2011 2010 GBP GBP
Operating loss (1,964,560) (948,103) Depreciation 19,817 19,817 Share option expense 26,483 50,097 Write off of loan to Botswana Diamondcorp (1,021,402) - Limited Increase in receivables (3,717,442) (3,319,049) Decrease in payables (49,431) (68,621)
NET CASH USED IN OPERATING ACTIVITIES (6,706,535) (4,265,859) INVESTING ACTIVITIES Investment revenues 5,494 70,208 NET CASH FROM INVESTING ACTIVITIES 5,494 70,208 FINANCING ACTIVITIES Repayment of borrowings (2,308,016) (1,417,627) Proceeds on issue of ordinary shares 5,251,318 9,429,685 NET CASH FROM FINANCING ACTIVITIES 2,943,302 8,012,058 NET (DECREASE) INCREASE IN CASH AND CASH (3,757,739) 3,816,407 EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,014,781 161,598 Effect of foreign exchange rate changes - 36,776 CASH AND CASH EQUIVALENTS AT END OF YEAR 257,042 4,014,781 AUDIT OPINION The auditors, Deloitte LLP, have audited the financial statements for the year ended 31 December 2011. A copy of their audit report, which is unqualified but contains an emphasis of matter (which is reproduced below), will be sent to shareholders with the report and accounts and will be made available for inspection at the Company`s registered office. EMPHASIS OF MATTER - GOING CONCERN In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 1 to the financial statements concerning the company`s ability to continue as a going concern. The Group incurred a net loss attributable to the equity holders of the parent of GBP3,823,586 and the company incurred a net loss of GBP2,082,132 during the year ended 31 December 2011. The Directors have prepared cash flow forecasts which indicate the business will require additional funding in the next 12 months. As described in note 1, the Directors have signed a term sheet with the Industrial Development Corporation of South Africa Limited for a R280 million (approximately GBP21.3 million) facility which the Directors expect to finalise and draw down following completion of certain conditions precedent. In addition, the Group and Company will need to raise additional equity finance to supplement its cash resources in 2012. The requirement to finalise the IDC facility and the need to raise additional equity finance, along with other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company`s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern. NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2011 Notes to the financial statements 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES General information DiamondCorp plc is a Company incorporated in England and Wales under the Companies Act 2006 and incorporated as an external company in South Africa under the Companies Act No 61 of 1973. The address of the registered office is given on page 1. The nature of the Group`s operations and its principal activities are set out in the Directors` Report on page 9. These financial statements are presented in pounds sterling because that is the functional currency of the parent Company of the Group. Foreign operations are included in accordance with the policies set out in this note. a) Adoption of new and revised International Financial Reporting Standards The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements, but with the exception of the amendment to IFRS 1, may impact the accounting for future transactions and arrangements. Amendment to IFRS 1 The amendment provides a limited exemption Limited Exemption from for first-time adopters from providing Comparative IFRS 7 Disclosures comparative fair-value hierarchy for First-time Adopters
disclosures under IFRS 7. IAS 24 (2009) Related Party The revised Standard has a new, clearer Disclosures definition of a related party, with inconsistencies under the previous
definition having been removed. Amendment to IAS 32 Under the amendment, rights issues of Classification of Rights Issues instruments issued to acquire a fixed number of an entity`s own non-derivative
equity instruments for a fixed amount in any currency and which otherwise meet the definition of equity are classified as equity.
Amendments to IFRIC 14 The amendments now enable recognition of an Prepayments of a Minimum asset in the form of prepaid minimum Funding Requirements funding contributions. Improvements to IFRSs 2010 Aside from those items already identified above, the amendments made to standards under the 2010 improvements to IFRSs have had no impact on the Group.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): IFRS 1 Severe Hyperinflation and Removal of Fixed Dates (amended) for First-time Adopters IFRS 7 Disclosures - Transfers of Financial Assets (amended) IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in other Entities IFRS 13 Fair Value Measurement IAS 1 (amended) Presentation of Items of Other Comprehensive Income IAS 12 Deferred Tax: Recovery of Underlying Assets (amended) IAS 19 Employee Benefits (revised) IAS 27 Separate Financial Statements (revised) IAS 28 Investments in Associates and Joint Ventures (revised) IAS 32 Offsetting Financial Assets and Financial (amended) Liabilities IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 January 2013 will impact both the measurement and disclosures of Financial Instruments. The Directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods. b) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. c) Basis of preparation The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on fair value of the consideration given in exchange for assets. The financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out below. d) Going Concern In determining the appropriate basis of presentation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future, this being a period of not less than 12 months from the date of the approval of the financial statements. The Group`s business activities and goals are set out in the Letter from the Chairman and Chief Executive. During the next 12 months the Group will be in a mine-development phase and forecasts indicate that the Group would have insufficient financial resources to accomplish all its development goals and meet all its financial obligations over the next 12 months with its current level of funding. As a result, the Group signed a detailed loan funding term sheet on 18 May 2012 with the Industrial Development Corporation of South Africa Limited ("IDC"), pursuant to which the main terms of a proposed loan funding were agreed in principle. It is intended that the loan funding term sheet will form the basis of the final loan financing agreement. Under the terms of the loan funding term sheet, IDC (the "Lender") has agreed to provide a loan facility to Lace to the value of R280 million (approximately GBP21.3 million) for the purpose of underground development and purchase of mining equipment at the Lace mine. The loan will be secured over the assets of Lace and will be guaranteed by the parent company. The term of the loan is expected to be 7 years. It is anticipated that the loan will attract an interest rate of 2% over the South African Prime Rate (which is currently 9%), such interest to be capitalised for the first two years from the draw down date and payable semi-annually in arrears thereafter. There will also be a two year moratorium on loan repayments. The provision of the loan is subject to certain conditions precedent, including the completion of satisfactory due diligence by the Lender and unconditional approval by the Lender`s executive committee and/or board of Directors. Subject to satisfactory completion of due diligence and satisfaction of the conditions precedent, including approval for the upgrade of the electricity supply to the mine by Eskom, the Directors anticipate that the loan financing agreement will be finalised by the end of July 2012. The loan financing agreement will include representations and warranties from the Borrower that are usual for transactions of this nature. While it is anticipated that adequate funding for the development at Lace will be available via IDC, the Company will have to supplement cash resources by accessing equity markets in 2012. The conditions to be satisfied in the loan financing to be approved by the lender and the requirement to raise additional equity funds indicate the existence of a material uncertainty which may cast significant doubt about the company`s ability to continue as a going concern. After reviewing the IDC conditions in detail and making an assessment of the Group`s ability to raise further equity funds, the Directors have a reasonable expectation that the group can meet all conditions precedent for finalising the loan and raise additional equity funds as required and therefore they continue to adopt the going concern basis of presentation of the financial statements. e) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in subsidiaries are identified separately from the Group`s equity therein. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group`s ownership interests in existing subsidiaries Changes in the Group`s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group`s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. f) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised. Where a business combination is achieved in stages, the Group`s previously- held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquiree`s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that: - deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; - liabilities or equity instruments related to the replacement by the Group of an acquiree`s share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and - assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3. g) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group`s interest in the fair value of the identifiable assets and liabilities of a subsidiary, at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to the Group`s cash-generating unit expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro- rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. h) Intangible assets Exploration and evaluation expenditure comprises costs which are directly attributable to the acquisition of exploration licenses and subsequent exploration expenditures. Exploration and evaluation expenditure is carried forward as an asset provided that one of the following conditions is met: i) Such costs are expected to be recouped in full through successful development and exploration of the area of interest or alternatively, by its sale; ii) Exploration and evaluation activities in the area of interest have reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves with active and significant operations in relation to the area continuing, or planned for the future. Identifiable exploration and evaluation assets acquired are recognised as assets at their cost of acquisition. An impairment review is performed when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amounts. Exploration assets are reassessed on a regular basis and these costs are carried forward provided that at least one of the conditions outlined is met. Exploration rights are amortised over the useful economic life of the mine to which it relates, commencing when the asset is available for use. Expenditure on research activities is recognised as an expense in the period in which it is incurred. Capitalised pre-production expenditure includes costs incurred and capitalised during the plant construction phase which are intangible in nature. Prior to obtaining the Mining Right in 2008, which was granted for a period of 20 years, these capitalised expenditures were amortised over the life of the work in progress. Since the grant of the Mining Right these expenditures will be amortised at a rate of 5% based on the life of the Mining Right. Rights to use the Power Line are capitalised at their cost of acquisition and are being amortised over the useful economic life at a rate of 5% per annum. Underground exploration and evaluation expenditure will be amortised from the point at which it is available for use over its useful economic life, expected to be 5% per annum. i) Property, plant and equipment Property, plant and equipment is stated at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation is charged so as to write off the cost, less estimated residual value on assets other than land, over their estimated useful lives, using the straight line method, on the following bases: Plant 5% Mining fleet 25% Buildings 5% Other tangible 20 - 33.33% assets Land is not depreciated. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. An item of property, plant and equipment is derecognised 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 the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. j) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash- generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to the present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cashgenerating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash- generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. k) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable losses for the period. Taxable loss differs from net loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group`s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. l) Financial instruments Financial assets and financial liabilities are recognised on the Group`s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset`s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Cash and cash equivalents Cash and cash equivalents comprises cash in hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Intercompany receivables Intercompany receivables are initially recognised by the Company at fair value and are subsequently measured at amortised cost using the effective interest rate method. m) Foreign currencies The individual financial statements of each Group Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group Company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity`s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not translated. Group and Company Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non- monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non- monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. In addition, in the case of presenting consolidated financial statements, any foreign exchange differences arising on elimination of intercompany loan balances upon consolidation of the Group Companies, are classified as equity and transferred to the Group`s translation reserve, as these loans are for long term investment purposes. Determining the rate of exchange to be used: For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group`s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as other comprehensive income and transferred to the Group`s translation reserve. Such translation differences are recognised in the income statement in the period in which the foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. n) Restoration, rehabilitation and environmental costs An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged against profits over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above. o) Inventories Inventory and work in progress are valued at the lower of cost and net realisable value. Work in progress relates to tailings and was valued at the time of acquisition at GBP2.84 per carat based on an in situ valuation equivalent to 8% of the market value of US$63 per carat achieved at a sale of Lace project diamonds in May 2005. The number of carats in inventory (370,285 carats) was based on an expert determination provided to the Company by a qualified external valuer. Work in progress is being amortized on the units of production method. Inventory relating from development of the underground is carried at the value determined by the South African Diamond Exchange which is considered to be a reliable reflection of market value. p) Revenue Revenue from the sale of diamonds is recorded when the diamonds are sold at tender. The Lace plant was commissioned on 1 October 2007 before full operations were suspended in 2008. Revenue earned from sales prior to the new operations achieving commercial production are recognised as a reduction in the carrying value of the pre- production expenses held within intangible assets. Revenue is measured at the fair value of the consideration received or receivable. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset`s net carrying value. Revenues from the sale of carats recovered during the development phase are recognised as a credit against the cost of development. q) Finance leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. r) Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 19. The fair value determined at the grant date of the equity-settled share- based payments is expensed on a straight-line basis over the vesting period, based on the Group`s estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period. For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year. s) Critical accounting judgements In the process of applying the Group`s accounting policies, which are described above, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial information. - Valuation of inventory - Judgement was applied in calculating the initial carrying value of inventory and judgement continues to be applied in assessing the net realisable value - see accounting policy n) above. - Valuation of warrants, share options and ordinary shares issued as consideration - Judgement is applied in determining appropriate assumptions to be used in calculating the fair value of warrants, shares and share options issued - see notes 18 and 20. - Impairment of goodwill and other intangible assets - Judgement is applied in determining appropriate assumptions to be used in testing for and calculating impairment - see policy f) and g) above. - Going concern - Judgement is applied in assessing the likelihood and timing of future cash flows associated with the Group`s activities. Judgement is also applied in assessing the likelihood of receiving future funding - see page 29. 2. BUSINESS AND GEOGRAPHICAL SEGMENTS For management purposes, the Group has one business and geographical segment - diamond mining and exploration in the Republic of South Africa. In 2010 the Group also commenced exploring for diamonds in Botswana, but this project was terminated during 2011. 3. OPERATING LOSS Group Group Company Company 2011 2010 2011 2010 GBP GBP GBP GBP
Operating loss is after charging (crediting): Auditors` remuneration 75,500 62,848 52,500 56,298 Foreign exchange losses 110,805 201,022 110,806 203,409 Profit on disposal of fixed assets (1,985) (44,415) - - Depreciation of tangible assets 854,492 1,050,549 - - Amortisation of intangible assets 63,799 65,004 19,817 19,817 Impairment of intangible assets 2,373,616 - - - Write off Botswana project 1,013,032 - - - The analysis of auditors` remuneration is as follows: Fees payable to the Company`s auditors for the audit of Company`s 52,500 34,000 52,500 34,000 accounts Fees payable to the Company`s auditors and their associates for other services to the Group The audit of the 23,000 33,000 - - Company`s subsidiaries Total audit fees 75,500 67,000 52,500 34,000
Corporate finance services - 42,000 - 42,000 Total non-audit fees - 42,000 - 42,000
TOTAL 75,500 109,000 52,500 76,000 4. STAFF COSTS Staff costs of the Group and Company were: 2011 2010
Group GBP GBP Wages and salaries 357,322 436,946 Social security costs 30,084 20,786 387,406 457,732 Average number of administrative staff 9 5 Average number of operational staff 20 18 Average number of employees 29 23
2011 2010 GBP GBP Company
Wages and salaries 188,465 164,995 Social security costs 22,414 16,744 210,879 181,739
Average number of employees 4 3 5. DIRECTORS` EMOLUMENTS Directors` emoluments for the year ended 31 December 2011 and 2010 and for the highest paid director were as follows: 2011 2010 GBP GBP
Directors` remuneration Fees paid by the Company and its 252,167 231,166 subsidiaries
Emoluments of highest paid director 137,500 137,500 6. TAX Group 2011 2010 GBP GBP Current tax - - Deferred tax (see note 15) - - Tax expense for the year - -
The charge for the year can be reconciled to the loss per the income statement as follows: 2011 2010 GBP GBP
Loss for the year (4,239, (3,315, 146) 327)
Tax at the UK corporation tax rate of (1,123, (928,29 26.5% (2010 - 28%) 374) 2) Expenses not deductible 308,733 221,052 Tax losses carried forward 814,641 707,240 Tax expense for the year - - In March 2011, the UK Government announced a reduction in the standard rate of UK corporation tax to 26% effective 1 April 2011. This rate reduction was substantively enacted in March 2011. In March 2012, the UK Government announced the main rate of UK corporation tax would reduce to 24% with effect from 1 April 2012, with subsequent 1% reductions annually to 22% by April 2014. These changes were substantively enacted on 26 March 2012. 7. LOSS PER SHARE a) Basic loss per share Basic loss per share is calculated by dividing the loss for the year by the weighted average number of shares in issue during the year. The weighted average number of shares used is 203,928,771 (2010 - 130,765,634). b) Diluted loss per share International Accounting Standard 33 requires presentation of diluted earnings per share when a company could be called upon to issues shares that would decrease the net profit or increase the net loss per share. For a loss making company with outstanding options, net loss per share would only be increased by the exercise of out-of-money options. Since it seems inappropriate to assume that option holders would exercise out-of-money options, no adjustment has been made to diluted loss per share for out-of- money share options. c) Headline loss per share The Group presents an alternative measure of loss per share after excluding all capital gains and losses from the loss attributable to ordinary shareholders. The impact of this is as follows: Basic 2011 2010 Loss per share (1.87p) (2.27p) Effect of gain on disposal of property, plant and - (0.03p) equipment Effect of gain on insurance settlement 0.80p - Effect of impairment of intangible assets (1.36p) - Adjusted loss per share (2.43p) (2.30p) 8. INTANGIBLE FIXED ASSETS For the year ended 31 December 2011 Group Goodw Jwane Power Power Pre- Under- Mineral Total ill ng line line production ground rights GBP GBP GBP Phase Phase capita- Capita- GBP 1 2 lised lised GBP GBP expenses expenses
GBP GBP Cost At 1 4,606 310,4 484,04 184,1 554,764 4,679,942 681,614 11,500,972 January ,026 22 0 64 2011 Addition - 702,6 - - - 3,293,996 - 3,996,606 s 10 Impairme - (1,01 - - - - - (1,013,032) nt 3,032 ) Exchange - - (88,37 (33,6 (101,292) (1,463,83 (52,086) (1,739,219) differen 9) 26) 6) ces At 31 4,606 - 395,66 150,5 453,472 6,510,102 629,528 12,745,327 December ,026 1 38 2011
Accumula ted amortisa tion At 1 - - (71,89 (27,3 (76,732) (1,668,93 (102,242) (1,947,168) January 9) 56) 9) 2011 Charge - - (22,71 (8,64 - - (32,440) (63,799) for the 6) 3) year Impairme - - - - - (2,373,61 - (2,373,616) nt 6) Exchange - - 14,863 5,655 14,010 843,778 8,777 887,083 differen ces At 31 - - (79,75 (30,3 (62,722) (3,198,77 (125,905) (3,497,500) December 2) 44) 7) 2011 Carrying amount At 31 4,606 - 315,90 120,1 390,750 3,311,325 503,623 9,247,827 December ,026 9 94 2011 At 31 4,606 310,4 412,14 156,8 478,032 3,011,003 579,372 9,553,804 December ,026 22 1 08 2010 In 2011 Lace Diamond Mines (Pty) Limited reached an agreement with Mutual and Federal Insurance Limited on a claim for damage to timbers and pumps in the vertical shaft at the Lace mine incurred during heavy rains earlier in the year; after deductibles, we received R25 million (GBP2.2 million) and recognised an impairment against underground capitalised expenses of R27.5 million (GBP2.4 million). For the year ended 31 December 2010 Group Goodw Jwa Power Power Pre- Under-ground Mineral Total ill nen line line production capitalised rights GBP GBP g Phase 1 Phase capitalise expenses GBP GBP GBP 2 d expenses GBP GBP GBP Cost At 1 4,606 99, 420,085 159,8 481,465 2,571,488 643,922 8,981,937 January ,026 120 31 2010 Additio - 211 - - - 1,797,558 - 2,008,860 ns ,30 2
Exchang - - 63,955 24,33 73,299 310,896 37,692 510,175 e 3 differe nces At 31 4,606 310 484,040 184,1 554,764 4,679,942 681,614 11,500,972 Decembe ,026 ,42 64 r 2010 2 Accumul ated amortis ation At 1 - - (47,542) (7,84 (66,594) (1,666,234) (64,392) (1,852,608) January 6) 2010 Charge - - (15,565) (16,6 - - (32,786) (65,004) for the 53) year Exchang - - (8,792) (2,85 (10,138) (2,705) (5,064) (29,556) e 7) differe nces At 31 - - (71,899) (27,3 (76,732) (1,668,939) (102,242) (1,947,168) Decembe 56) r 2010 Carryin g amount At 31 4,606 310 412,141 156,8 478,032 3,011,003 579,372 9,553,804 Decembe ,026 ,42 08 r 2010 2 At 31 4,606 99, 372,543 151,9 414,871 905,254 579,530 7,129,329 Decembe ,026 120 85 r 2009 For the year ended 31 December 2011 Mineral rights Company GBP Cost and carrying amount At 1 January 2011 336,892 Charge for the year (19,817) At 31 December 2011 317,075 For the year ended 31 December 2010 Mineral rights Company GBP Cost and carrying amount At 1 January 2010 356,709 Charge for the year (19,817) At 31 December 2010 336,892 The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group has one reportable business segment and all goodwill is associated with that segment. The recoverable amounts of the cash generating unit ("CGU") is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. A post tax discount rate of 10% has been used, which is consistent with the rate used for determining the value of purchased intangibles. The Group`s test for impairment is based on several considerations including a model adopted by management from the model prepared for the Lace Mine by one of its technical advisors. This model uses grade assumptions based on the resource statement of the Group`s technical advisor and it uses diamond prices considered representative of market prices. The model assumes that the Lace mine will reach full production of 1,200,000 tonnes of kimberlite in 2015 and run through 2039. The valuations of the Lace Mine generated by the Model under variable sets of assumptions as to grades, revenues and costs indicate that there has been no impairment of goodwill during the year. Management have considered the key assumptions to be reasonable. A reasonable possible change in a key assumption would not lead to an indicator of impairment of the cash generating unit which contains goodwill. 9. PROPERTY, PLANT AND EQUIPMENT For the year ended 31 December 2011 Group Land Other Mining and tangible Plant fleet buildings assets Total GBP GBP GBP GBP GBP Cost At 1 January 2011 6,336,605 2,508,082 322,693 423,150 9,590,530 Additions 110,081 179,100 48,521 39,092 376,794 Disposals - - (72,280) (10,617) (82,897) Reclassification (542,168) 542,168 - - - Exchange (1,165,380) (471,618) (57,105) (79,436) (1,773,53 differences 9) At 31 December 4,739,138 2,757,732 241,829 372,189 8,110,888 2011 Accumulated depreciation At 1 January 2011 (851,651) (2,231,957) (62,626) (183,994) (3,330,22 8) Charge for the (251,047) (538,428) (12,047) (52,970) (854,492) year Disposals - - - 10,617 10,617 Exchange 174,672 448,645 12,355 36,827 672,499 differences At 31 December (928,026) (2,321,740) (62,318) (189,520) (3,501,60 2011 4) Carrying amount At 31 December 3,811,112 435,992 179,511 182,669 4,609,284 2011 At 31 December 5,484,954 276,125 260,067 239,156 6,260,302 2010 For the year ended 31 December 2010 Group Plant Mining Land Other Total fleet and tangible buildings assets GBP GBP GBP GBP GBP
Cost At 1 January 5,499,369 2,329,054 248,416 328,216 8,405,055 2010 Additions - - 33,147 40,883 74,030 Disposals - (159,616) - - (159,616) Exchange 837,236 338,644 41,130 54,051 1,271,061 differences
At 31 December 6,336,605 2,508,082 322,693 423,150 9,590,530 2010
Accumulated depreciation At 1 January (764,702) (1,063,478) (45,210) (118,668) (1,992,058) 2010 Charge for the (413,590) (581,221) (9,577) (46,161) (1,050,549) year Disposals - 124,223 - - 124,223 Exchange 326,641 (711,481) (7,839) (19,165) (411,844) differences At 31 December (851,651) (2,231,957) (62,626) (183,994) (3,330,228) 2010 Carrying amount At 31 December 5,484,954 276,125 260,067 239,156 6,260,302 2010 At 31 December 4,734,667 1,265,576 203,206 209,548 6,412,997 2009
10. INVESTMENT IN SUBSIDIARIES For the year ended 31 December 2011 Company GBP
Cost and carrying amount At 1 January 2011 and 31 December 4,217,501 2011
For the year ended 31 December 2010 Company GBP Cost and carrying amount At 1 January 2010 4,217,500 Additions 1 At 31 December 2010 4,217,501 The investment represents 100% of the share capital of Crown Diamond Mining Limited ("CDM") which was acquired on 15 May 2006. CDM changed its name to Diamondcorp Holdings Limited in 2007 ("DHL") and is a Company registered in the British Virgin Islands. During 2010, Botswana Diamondcorp Limited ("BWD") was incorporated in the British Virgin Islands as a wholly-owned subsidiary of DiamondCorp plc, represented by a GBP1 investment on the balance sheet of the Company. The Africa Opportunity Fund L.P. loan (Note 14) which was paid off in 2011 was secured by the assets of the subsidiaries. For a list of subsidiaries, please refer to note 22. 11. INVENTORIES 2011 2010 Group GBP GBP Work in progress (tailings) Cost and carrying amount at 349,152 303,020 beginning of year Foreign exchange (loss) gain (63,750) 46,132
Carrying amount at end of year 285,402 349,152 Diamond inventories 141,889 - Consumable and other inventories 15,142 6,197 442,433 355,349 Work in progress related to tailings and was valued on acquisition at GBP2.84 per carat based on an in situ valuation equivalent to 8% of the market value of US$63 per carat achieved at a sale of Lace project diamonds in May 2005. The number of carats in work in progress (370,285 carats) was based on an expert determination provided to the Company by a qualified external valuer. In 2008, the carrying value of work in progress was written down by GBP377,534 to reflect depreciation in diamond prices and reduction in grades. 12. OTHER RECEIVABLES Group Group Company Company 2011 2010 2011 2010 GBP GBP GBP GBP
Receivables due from Group - - 22,802,199 18,082,222 undertakings Prepayments and other 182,350 398,266 32,865 13,998 receivables 182,350 398,266 22,835,064 18,096,220 The Directors consider that the carrying amount of these assets approximates their fair value. All receivables balances are non-interest bearing. Included in prepayments and other receivables, is a rehabilitation bond held by the Department of Minerals and Energy in the amount of GBP67,923 (2010 - GBP83,094) providing for the cost of rehabilitation on termination of the Lace project. 13. OTHER PAYABLES Group Group Company Company 2011 2010 2011 2010
GBP GBP GBP GBP Interest on long term loan - 55,539 - 55,539 Accruals and deferred 498,876 571,489 118,580 112,472 income 498,876 627,028 118,580 168,011
The Directors consider that the carrying amount of these liabilities approximates their fair value. All payables balances are non-interest bearing. 14. BORROWINGS In October 2011, the final amount due under the loan with Africa Opportunity Fund L.P. ("AOF") was repaid in full and the Company and its subsidiaries have been released of all security. The following discussion provides a history of the loan. On 17 October 2008, the Company completed a long term loan with AOF in the amount of US$5,000,000. The loan was secured by the Company`s equity interest in Lace Diamond Mines (Pty) Ltd and by the assets of the Company`s subsidiaries. The loan was repayable over 36 months as detailed in the schedule below. AOF Repayment Schedule Capital Interest repayment payment Schedule schedule Total
Repayment date (US$) (US$) (US$) 16 April 2009 - 299,178 299,178 16 October 2009 - 300,822 300,822 16 April 2010 500,000 299,178 799,178 10 May 2010 * 150,000 1,282 151,282 16 October 2010 1,000,000 261,715 1,261,715 16 April 2011 1,500,000 200,449 1,700,449 16 October 2011 1,850,000 111,304 1,961,304 5,000,000 1,473,928 6,473,928
Reconciliation of payments made on long term loan: Amounts paid as at 31 December 2011 5,000,000 1,473,928 6,473,928 Amounts due within 1 year - - - 5,000,000 1,473,928 6,473,928 * Early redemption payment (see below) Interest accrued daily and was payable half-yearly at a rate of 12%. Any portion of the interest in relation to a reporting period that remained unpaid, was accrued for. Accrued interest for the year ended 31 December 2011 was nil (2010 - US$85,907 / GBP55,539). The cost of the warrants granted to AOF, GBP57,566, (refer note 18) has been offset against the loan in accordance with IAS 39. The cost of these warrants is to be expensed over the life of the loan and does not constitute payment towards the loan. The warrant cost expensed during the period was nil (2010 - GBP19,189). At the balance sheet date, the carrying amount of the loan was nil (2010 - GBP2,184,950, net of associated costs of GBP19,189). 15. DEFERRED TAX Until it is probable that sufficient taxable profits will be available to allow the entire or partial recovery of potential deferred tax assets of GBP4,847,154 (2010 - GBP4,032,513), the accounting benefit of tax losses will not be reflected in the accounts. The Group`s tax losses have no expiry date. Due to the Group`s retained loss position, there are no temporary differences associated with investments in the Group`s subsidiaries. 16. RELATED PARTY TRANSACTIONS The Directors consider that there is no ultimate controlling party of the Company. Transactions between the Company and its subsidiaries, which are related parties of the Company have been disclosed in the Company section of this note. The Directors are considered to be the key personnel of the Group and therefore all transactions with such individuals have been disclosed below and in the audited section of the remuneration report. Details of transactions between the Group and other related parties are disclosed below. During the year ended 31 December 2011: (i) GBP92,667 (2010 - GBP98,334) were paid to the following companies as Directors` remuneration: - GBP60,000 to Glendree Capital Management Limited (2010 - GBP60,000), a Company owned by P R Loudon; - GBPnil to Mining Finance Solutions (2010 - GBP6,667), a Company owned by E A Worthington; - GBP12,000 to Loeb Aron & Company Limited (2009 - GBP12,000), a Company where J Willis-Richards is a director; - GBP20,667 to European Islamic Investment Bank plc (2010 - GBP19,667), represented on the Company`s Board of Directors by S Benkhadra (resigned 19 September 2011) and G K Morton; In addition, during the year ended 31 December 2011: (i) DiamondCorp plc incurred rent of GBPnil from Loeb Aron & Company Limited (2010 - GBP14,583). Company The Company held a loan to Diamondcorp Holdings Limited of GBP22,802,199 (2010 - GBP17,852,298), to Lace Diamond Mining (Pty) Limited of GBPnil (2010 - GBP17,127) and to Botswana Diamondcorp Limited of nil (2010 - GBP212,797). 17. SHARE CAPITAL 2011 2010 No. GBP No. GBP Called up, allotted and fully paid Ordinary shares of 242,268,048 7,268,041 183,873,651 5,516,209 3 pence each On 11 January 2010 the trading of DiamondCorp`s shares on the JSE was transferred to Alt-X. In January 2010, the Company issued 285,000 ordinary shares at 10 pence each. There were no costs associated with the issuance of these shares. In March 2010, the Company issued 101,062,538 ordinary shares at 7 pence each. The cost associated with the issuance of these shares has been charged to the share premium account. In December 2010, the Company issued 35,294,118 ordinary shares at 8.5 pence each. The cost associated with the issuance of these shares has been charged to the share premium account. In June 2011, the Company issued 26,794,397 ordinary shares at 13 pence each. The cost associated with the issuance of these shares has been charged to the share premium account. In October 2011, the Company issued 31,600,000 ordinary shares at 6.5 pence each. The cost associated with the issuance of these shares has been charged to the share premium account. 18. RESERVES For the year ended 31 December 2011 Group Share Warrant Share Translatio Retained premium reserve option n reserve losses account GBP reserve GBP GBP
GBP GBP At 1 January 2011 23,203,016 505,877 402,583 2,980,558 (14,190,336) Loss for the year - - - - (4,239,146) Change in non- controlling interest - - - (138,794) 415,560 (note 19) Premium arising on 3,785,440 - - - - issue of equity shares Issue costs (285,954) - - - - Share option expense - - 26,483 - - in year Movement during the - - - (2,443,288 - year )
At 31 December 2011 26,702,502 505,877 429,066 398,476 (18,013,922) Company Share Warrant Share Retained premium reserve option losses account GBP reserve GBP
GBP GBP At 1 January 2011 23,203,016 505,877 402,583 (5,315,252) Loss for the year - - - (2,082,132) Premium arising on issue of 3,785,440 - - - equity shares Issue costs (285,954) - - - Share option expense in year - - 26,483 - At 31 December 2011 26,702,502 505,877 429,066 (7,397,384) For the year ended 31 December 2010 Group Share Warrant Share Transl- Retained premium reserve option ation losses account GBP reserve reserve GBP GBP GBP GBP
At 1 January 2010 17,872,580 555,036 371,675 1,495,317 (11,269,043) Loss for the year - - - - (3,315,327) Warrants expired - (49,159) - - 49,159 Change in non- controlling interest - - - 66,562 344,875 (note 19) Premium arising on issue of equity shares 5,489,763 - - - - Issue costs (159,327) - - - - Share option expense in - - 30,908 - - year Movement during the - - - 1,418,679 - year At 31 December 2010 23,203,016 505,877 402,583 2,980,558 (14,190,336) Share Share
Company premium Warrant option Retained account reserve reserve losses GBP GBP GBP GBP
At 1 January 2010 17,872,580 555,036 371,675 (4,044,653) Loss for the year - - - (1,319,758) Warrants expired - (49,159) - 49,159 Premium arising on issue of 5,489,763 - - - equity shares Issue costs (159,327) - - - Share option expense in year - - 30,908 -
At 31 December 2010 23,203,016 505,877 402,583 (5,315,252) WARRANTS Warrant
Warrants in reserve issue GBP Group and Company Outstanding at 1 January 2011 5,816,666 505,877 Expired during the year - - At 31 December 2011 5,816,666 505,877
Group and Company Outstanding at 1 January 2010 6,066,666 555,036 Expired during the year (250,000) (49,159)
At 31 December 2010 5,816,666 505,877 (i) Vendor Warrants The vendors of Crown Diamond Mining Limited (which changed its name to Diamondcorp Holdings Limited in 2007) were entitled to be issued on completion of the sale of its ordinary share capital to the Company with a total of 4,166,666 warrants to subscribe for ordinary shares of 3 pence each at a price of the lower of 180 pence or price at which the Company raises equity finance on admission to the Alternative Investment Market (90 pence). These warrants expired on 1 February 2012, being five years from the date of admission to the Alternative Investment Market. Certificates in relation to these warrants were issued on 30 June 2006 following and taking into account, the consolidation of the Company`s share capital on that date. These warrants were valued by the Directors using the Black-Scholes valuation model, based on the assumptions as detailed below. (ii) AOF Warrants In 2008 a warrant was issued to Africa Opportunity Fund to subscribe for 1,650,000 ordinary shares of 3 pence each, exercisable at 21.6 pence for a period ended on 25 January 2012. These warrants were not exercised and have now expired. These warrants were valued by the Directors using the Black-Scholes valuation model, based on the assumptions as detailed below. (iii) BBK Warrants In 2007 a warrant was issued to BBK Consultancy plc to subscribe for 250,000 ordinary shares of 3 pence each for a period of 3 years at an exercise price of 121.5 pence. The warrants vest when the Company`s share price is above 135 pence per share for 28 consecutive trading days and are exercisable at any time up to and including 30 April 2010. These warrants were not exercised and expired during 2010. These warrants were valued by the Directors using the Black-Scholes valuation model, based on the assumptions as detailed below. Black-Scholes Vendor BBK AOF Warrants Assumptions Warrants* Warrants Term range 5.6 years 3 years 0.5 years Expected dividend Nil Nil Nil yield Risk free interest 5 % 5 % 2 % rate Share price 55 % 40 % 40 % volatility Share price at time 45 pence 90 pence 56.5 pence of grant * These warrants were subject to the share consolidation on 30 June 2006. 19. NON-CONTROLLING INTEREST GBP Balance at 1 January 2010 - Share of total comprehensive loss for the (344,875) year Currency translation loss (66,562)
Balance at 1 January 2011 (411,437) Share of total comprehensive loss for the (415,560) year Currency translation gain 138,794 Balance at 31 December 2011 (688,203) 20. SHARE BASED PAYMENTS Equity-settled share option scheme The Company has a share option scheme for all employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company`s shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are generally forfeited if the employee leaves the Group before the options vest. Details of the share options outstanding during the year are as follows. Number of 2011 2010 share Weighted Weighted options average average exercise Number of exercise
price share price (GBP) options (GBP) Outstanding at beginning of 6,595,000 55p 2,685,000 117p year Granted during the year - 4,570,000 12p Forfeited during the year (250,000) (660,000) Exercised during the year - - Expired during the year - - Outstanding at the end of the 6,345,000 19p 6,595,000 55p year Exercisable at the end of the 3,838,333 24p 2,433,333 124p year
At 31 December 2011, 6,345,000 options were outstanding at a weighted average exercise price of 19p, and a weighted average remaining contractual life of 7.5 years. The aggregate of the estimated fair values of the options granted on those dates is GBPnil. The inputs into the Black-Scholes model are as follows: 2011 2010
Weighted average share price - 6.88p Weighted average exercise price - 12p Expected volatility - 50% Expected life - 3 years Risk-free rate - 2% Expected dividend yields - 0% Expected volatility was determined based on management`s best estimate. The expected life used in the model has been adjusted, based on management`s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. During 2011, the Group recognised total expenses of GBP26,483 (2011 - GBP30,908) relating to equity-settled share-based payment transactions. Black-Scholes The Assumptions 2010 2007 DiamondCorp Option UK Option Share
Plan Plan Option Plan Term range 3 years 3 years 3 years Expected dividend Nil Nil Nil yield Risk free interest 2% 5 % 2 % rate Share price volatility 50% 40 % 40 % Share price at time of 6.88 pence 90 pence 34.5 pence grant (i) 2007 UK Options ("2007 Plan") During 2007, options over 2,940,000 ordinary shares of 3 pence each were granted to employees and management of the Company, exercisable at 135 pence for a period of 10 years from the date of issue. 270,000 of these options vested on grant and the balance vest over 3 years at one-third at each anniversary of the issue date. 690,000 of these options were forfeited during 2008 by reason of retirement and 120,000 options were forfeited in 2009. Share options granted during the year ended 31 December 2007 were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed in the table above: At 31 December 2011, 2,130,000 options were outstanding under this plan. (ii) The DiamondCorp Share Option Plan ("DCP Plan") During 2008, a share option plan was approved and registered in the Republic of South Africa to provide eligible employees of the Group with the opportunity to acquire as incentive an interest in the equity of the Company. Eligible employees were granted options over 695,000 ordinary shares of 3 pence each, exercisable at 50 pence for a period of 10 years from the date of issue, 16 December 2008. These options vest over 3 years at one-third at each anniversary of the issue date. During 2009, a further 200,000 options were granted under this plan and 340,000 options were forfeited. At 31 December 2011, the number of options outstanding under this plan was 555,000 (2010 - 555,000). These options were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed in the table above. In August 2010, the exercise price of these options was adjusted to 21 pence. All other conditions remain unchanged. (iii) 2010 Option Plan ("2010 Plan") During 2010, options over 4,570,000 ordinary shares of 3 pence each were granted to employees and management of the Company, exercisable at 12 pence each for a period of 10 years from the date of issue. These options vest over 3 years at one third on each anniversary of the date of issue, subject to the share price of the Company attaining and trading at or above 17 pence for a period of 3 consecutive months. These options were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed below. As the fair value of these options is not material to the financial statements, the Directors did not consider it necessary to incur the additional expense required to employ a third party to calculate the fair value of the options using the Monte Carlo Method. During the year ended 31 December 2010, 660,000 options expired. During the year ended 31 December 2011, 250,000 options expired. At 31 December 2011, 3,660,000 options were outstanding under this plan. 21. FINANCIAL INSTRUMENTS Group and Company Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 14, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in note 18. The Group is not subject to any externally imposed capital requirements. The Group`s Directors review the capital structure on a regular basis. As part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements. Categories of financial instruments Group Company
Carrying value Carrying value 2011 2010 2011 2010 GBP GBP GBP GBP Financial assets Loans and receivables 2,632,760 4,293,185 23,092,106 22,111,001 (including cash and cash equivalents)
Financial liabilities Amortised cost 498,876 2,854,437 118,580 2,352,961 The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. Financial risk management objectives The Group`s financial function provides services to the business, monitors and manages the financial risks relating to the operations of the Group. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group does not enter into or trade financial instruments, including derivative financial instruments, for any purpose. Market risk The Group`s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. There has been no change to the Group`s exposure to market risks or the manner in which it is measured and managed. Credit risk management The Group and Company`s principal financial assets are bank balances and cash. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. Management reviews the credit worthiness of all customers before entering into a transaction. The Company also holds amounts receivable from related parties as disclosed in note 16. Management reviews the credit worthiness of all balances due from related parties with reference to future profitability. Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The carrying amounts of the Group`s and Company`s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Assets (Liabilities) 2011 2010 GBP GBP
Cash denominated in South African - 371,924 Rand Cash denominated in United States - 661,171 Dollar Loan denominated in United States - (2,165,762) Dollar Foreign currency sensitivity analysis The Group is exposed to the currency of South Africa (Rand) and the United States Dollar. The following table details the Group`s sensitivity to a 20% increase and decrease in the Sterling against South African Rand and United States Dollar. 20% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management`s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 20% change in foreign currency rates. A negative number below indicates a decrease in profit where the Sterling strengthens 20% against the relevant currency. For a 20% weakening of the Sterling against the relevant currency, there would be an equal and opposite impact on the profit and the balances below would be positive. Rand currency impact 2011 2010
GBP GBP Loss due to a 20% change against - 9,068 ZAR Loss due to a 20% change against - (243,178) USD The Group`s sensitivity to foreign currency has increased during the current period, because the Company held higher balances of foreign currency. However, the Group`s South African Rand deposits are held at a subsidiary level in South Africa and as such this sensitivity analysis does not represent a real cash foreign exchange risk to the Group. In management`s opinion, the impact of the sensitivity analysis is representative of the inherent foreign exchange risk. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group`s short term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Interest rate risk management The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite; ensuring the most cost- effective hedging strategies are applied. The Group`s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Liquidity and interest risk tables The following table details the Group`s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes the principal cash flows all of which are due within less than one year. Group Weighted Less than 1 average year effective GBP interest rate
% 2011 Non-interest bearing - 369,217 Finance lease liability - - Fixed interest rate - - instruments
369,217 2010 Non-interest bearing - 369,771 Finance lease liability - 25,718 Fixed interest rate 12% 2,184,950 instruments
2,580,439 Company Weighted Less than 1 average year effective GBP interest rate
% 2011 Non-interest bearing - 43,703 Fixed interest rate - - instruments 43,703
2010 Non-interest bearing - 52,606 Fixed interest rate 12% 2,184,950 instruments 2,237,556
The following table details the Group`s and Company`s expected maturity for its non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. Group Company Weighted Less than Weighted Less than 1 average 1 month average month effective GBP effective GBP
interest interest rate rate % % 2011 Non-interest bearing - 2,632,760 - 257,042 2010 Non-interest bearing - 4,293,185 - 4,014,781 22. SUBSIDIARIES Details of the Company`s subsidiaries at 31 December 2011 were as follows: Place of Proportio Proportion
incorporation n of of voting (or ownership power held Name of subsidiary registration) interest % Principal and operation % activity
Diamondcorp British Virgin 100 100 Holding Holdings Limited Islands Company of a (1) Trading Group Botswana British Virgin 100 100 Holding Diamondcorp Limited Islands Company Lace Diamond Mines Republic of 74 74 Diamond (Pty) Limited South Africa exploration and
exploitation Soapstone Republic of 100 100 Investment Investments (Pty) South Africa Company Limited DCP Exploration Botswana 100 100 Diamond (Pty) Ltd exploration and exploitation
(1) Formerly named Crown Diamond Mining Limited 23. SUBSEQUENT EVENTS (i) In March 2012 SRK Consulting (South Africa) (Pty) Ltd completed its Independent Engineering Report on the underground development plans for the Lace mine. This was announced on 20 March 2012 and a copy of the SRK report is available for download from the Company`s website at www.diamondcorp.plc.uk. (ii) On 18 May 2012 Lace Diamond Mines (Pty) Limited ("Lace") signed a Term Sheet with the Industrial Development Corporation of South Africa ("IDC"). Under the Term Sheet IDC has agreed to provide a 7-year loan facility for up to R280 million for the purpose of underground development and purchase of mining equipment. The loan will be secured over the assets of Lace and guaranteed by the parent company. Interest will be calculated at South Africa Prime Rate + 2%. Interest will be capitalised in the first 2 years from the drawdown date and thereafter payable semi-annually in arrears. The loan contains provisions for prepayment without penalty after Year 1. The provision of the loan by IDC is subject to satisfactory completion of due diligence; the Terms Sheet projects a closing in July 2012. (iii) In Q1 2012, all of the warrants outstanding at 31 December 2011 (5,816,666 warrants) expired. Date: 31/05/2012 08:39:14 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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