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Managements Discussion and Analysis of Financial Condition and Results of Operations for the year ended 30 June 2013
DELRAND RESOURCES LIMITED
(Formerly BRC DIAMONDCORE Limited)
(Incorporated in Canada) (Corporation number 627115-4)
Share code: DRN ISIN number; CA2472671072
("Delrand" or the "Company") DELRAND RESOURCES LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2013
The following management’s discussion and analysis of financial condition and results of
operations (the “MD and A”) has been prepared by management and provides a review of the
activities, results of operations and financial condition of Delrand Resources Limited (the
“Company” or “Delrand”) based upon International Financial Reporting Standards
(“IFRS”) issued by the International Accounting Standards Board. This MD and A should be
read in conjunction with the audited consolidated financial statements of the Company as at
and for the year ended June 30, 2013 and the comparative six month period ended June 30,
2012 and the year ended December 31, 2011 (the “Financial Statements”) as well as the
notes thereto. In 2012, the Company changed its financial year-end from December 31 to
June 30 such that the comparative prior periods are reporting results for the six months
ended June 30, 2012 and the year ended December 31, 2011. All amounts are expressed
in Canadian dollars unless otherwise stated.
This MD&A is dated September 27, 2013. Additional information relating to the Company,
including the Company’s annual information form, is available on SEDAR at
www.sedar.com.
FORWARD-LOOKING STATEMENTS
The following MD&A contains forward-looking statements. All statements, other than
statements of historical fact, that address activities, events or developments that the
Company believes, expects or anticipates will or may occur in the future (including, without
limitation, statements relating to exploration results, potential mineralization and future
plans and objectives of the Company) are forward-looking statements. These forward-
looking statements reflect the current expectations or beliefs of the Company based on
information currently available to the Company. Forward-looking statements are subject to
a number of risks and uncertainties that may cause the actual results of the Company to
differ materially from those discussed in the forward-looking statements, and even if such
actual results are realized or substantially realized, there can be no assurance that they will
have the expected consequences to, or effects on the Company. Factors that could cause
actual results or events to differ materially from current expectations include, among other
things, uncertainties relating to the availability and costs of financing needed in the future,
the possibility that future exploration results will not be consistent with the Company’s
expectations, changes in equity markets, changes in diamond markets, foreign currency
fluctuations, political developments in the Democratic Republic of the Congo (the "DRC"),
changes to regulations affecting the Company's activities, delays in obtaining or failure to
obtain required project approvals, the uncertainties involved in interpreting geological data
and the other risks involved in the mineral exploration business. Any forward-looking
statement speaks only as of the date on which it is made and, except as may be required
by applicable securities laws, the Company disclaims any intent or obligation to update any
forward-looking statement, whether as a result of new information, future events or results
or otherwise. Although the Company believes that the assumptions inherent in the
forward-looking statements are reasonable, forward-looking statements are not guarantees
of future performance and accordingly undue reliance should not be put on such statements
due to the inherent uncertainty therein.
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COMPANY OVERVIEW
The Company is engaged in the acquisition and exploration of diamond properties in known
diamond producing areas in the DRC. The Company also has an iron ore exploration project
in the DRC.
For the year ended June 30, 2013, the Company reported a net loss of $283,776 (six
months ended June 30, 2012: $239,429 and year ended December 31, 2011: $123,314).
The net asset value of the Company was $4,706,710 as at June 30, 2013 (June 30, 2012:
$4,728,364 and December 31, 2011: $4,567,793).
The Company’s accumulated deficit as at June 30, 2013 was $120,054,622 (June 30, 2012:
$119,770,846 and December 31, 2011: $119,531,417). The Company had a working
capital deficit of $429,967 as at June 30, 2013 (June 30, 2012: $421,063 and December
31, 2011: $533,191) and had a net decrease in cash of $338,942 during the year ended
June 30, 2013 (six months ended June 30, 2012: increase of $352,587 and year ended
December 31, 2011: decrease of $38,863).
While the Company’s financial statements have been prepared on the basis of IFRS
accounting principles applicable to a going concern, adverse conditions may cast substantial
doubt upon the validity of this assumption. In the event the Company is unable to identify
recoverable resources, receive the necessary permitting, or arrange appropriate financing,
the carrying value of the Company’s assets could be subject to further material adjustment.
Furthermore, the volatile global economic environment and its impact on certain market
conditions may cast significant doubt upon the validity of this assumption.
The Company’s ability to continue operations in the normal course of business is dependent
on several factors, including its ability to secure additional funding. Management has been
exploring all available options to secure additional funding, including equity financing and
strategic partnerships. In addition, the recoverability of amounts shown for exploration and
evaluation assets is dependent upon the existence of economically recoverable reserves,
the ability of the Company to obtain financing to perform its exploration activies or
complete the development of the properties where necessary, or, alternatively, upon the
Company’s ability to recover its spent costs through a disposition of its interests, all of
which are uncertain.
During the year ended June 30, 2013, the Company issued 6,000,000 common shares in a
private placement at a price of $0.045 per share for gross proceeds of $270,000. 2,620,000
of these common shares were purchased by directors and officers of the Company. During
the six months ended June 30, 2012, the Company issued 3,030,302 common shares upon
the exercise of 3,030,302 warrants of the Company at a price of $0.132 per share for
proceeds of $400,000. The two individuals who exercised the warrants were directors of
the Company.
DIAMOND PROJECTS
The Company’s present operations consist of the exploration and evaluation of several
mineral properties for diamonds in the DRC. During fiscal 2013, the Company’s exploration
programs in the DRC have focused on the Coexco and Bomili exploration permit areas in the
Bafwasende region in the northern DRC, and on the selection of targets in the Kasai
provinces in the southern DRC.
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Further interpretation of the Coexco and Bomili detailed sampling results continued and this
has permitted the reduction of the 22 Coexco permits to eight permits covering five targets
that have subsequently been prioritised. The two Bomili permits have been retained as a
result of the detailed sampling results and further work was carried out by the Company in
August 2013. Finally, during the three months ended June 30, 2013, the Company made
significant progress with the program to evaluate a large exploration dataset covering the
Kasai provinces.
Northern DRC Project (10 exploration permits)
Results from the reconnaissance stream samples, which were collected over the original 44
Coexco and two Delrand exploration permit areas in 2009, reported five ilmenites, 27
chrome spinels, one eclogitic garnet and 15 micro-diamonds (i.e. less than 0.5 mm in size).
After the ‘force majeur’ restictions were lifted, the follow-up sampling program in 2011 over
these positive areas was narrowed down to 22 Coexco and the two Delrand exploration
permits. The former is referred to as the Coexco project and the latter is referred to as the
Bomili project. Pursuant to the follow-up sampling program, 490 and 97 follow-up stream
samples were collected over the Coexco and Bomili project areas, respectively. All samples
were concentrated by the Company’s mechanical jig in Kinshasa, DRC before being
consigned to Rio Tinto’s heavy mineral laboratory in Perth. The results of these follow-up
samples were completed during the first six months of 2012.
The number of positive samples from both the reconnaissance and follow-up stream
sampling are limited to five targets within the Coexco permit areas and three targets in the
Bomili permit areas. These eight blocks were earmarked for further detailed stream
sampling with samples taken between 100 and 500 metres apart from each other
depending on the trap sites. These samples were collected in Q3 of 2012 and not all
samples have been analysed as yet. However, these should provide sufficient grains for
meaningful mineral chemistry interpretation to decide on next steps such as geophysics to
define drill targets.
The Coexco project area is dominated by almost horizontally bedded Neoproterozoic Lindian
Group sediments (shale, sandstone and conglomerate) overlying what has been referred to
as the Mbomou Archaean Craton. A large part of the Coexco project area is covered by a
thick and mature laterite crust masking most of the rock formations of the area. The
laterites are prone to depress the occurrences of kimberlitic satellite minerals significantly,
particularly such minerals as garnet and spinel, and to a lesser degree ilmenite. Artisanal
diamond diggings were also observed among others in and along the Makombe, Mopamu,
Aniede, Efule and Lobilo Rivers and its tributaries, all within the target area. Several other
isolated and sporadic diggings were seen scattered within the project area. The follow-up
program produced 48 diamonds in the 0.4 to 0.7 mm fraction, 12 kimberlitic ilmenites
(picro-ilmenite), 21 chromites and 7 garnets that have a marginal mantle signature (G3 and
G5) over the reduced area. Although the follow-up work failed to focus any specific targets,
the depressed distribution of the mantle minerals is due to the etching and dissolution of
silicate minerals by the unique chemical conditions of the thick (at least 10 metres) laterite.
The abundance of diamonds which are not affected by the chemical etching of the laterite,
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makes this a promising target and other exploration techniques may have to be utilised. The
conclusion from infra-red work on the initial micro-diamonds recovered from the
reconnaissance work suggests that these are derived from several sources. Visual
observations of the diamonds recovered from the follow-up samples indicate that there is no
obvious sign of wear or breakage. The 48 diamonds recovered from the follow-up work have
been sent for infra-red studies but no results have as yet been received.
In the Bomili project area there is no cover of Neoproterozoic sediments and the permit
areas are underlain by basement rocks of the Mbomou Craton. The follow-up program
produced no garnets, a few chromites but an abundance of ilmenite particularly in respect of
permit number PR 1174. The mineral chemistry suggests that these ilmenites have defined
two and possibly three separate kimberlite sources. These three targets on the two Delrand
permit areas were covered by detailed stream sampling in the second half of 2012. The
results of these samples has highlighted the Daikwayi, Etale, Abanza and Ekoko streams on
PR 1174 as highly anomalous. Several samples contain more than 20 ilmenite and these
areas have been identified as priority and were covered by a detailed ‘hammer’ prospecting
mission carried out by the Company in August 2013.
Tshikapa Project (7 exploration permits)
Delrand is continuing its discussions with Acacia to exercise its option which it has with that
company in order to continue its exploration activities over the remaining six Acacia
exploration permit areas. These were part of the original option agreement and have been
covered by a reconnaissance prospecting program.
The Company decided during fiscal 2013, after a detailed review of the exploration results
over the two Caspian exploration permit areas, to relinquish these permits.
Southern DRC
Delrand negotiated an exploration agreement with Rio Tinto in order to access and interpret
a large diamond exploration dataset which Rio Tinto has acquired. Delrand has identified
several promising targets which will in time be progressed.
At the same time Delrand will marry its own dataset with others such as the one described
above in order to focus its regional diamond interest for future target selection.
Security of Tenure
The exploration program in the DRC is focused on two areas: one in the northern DRC
around Bafwasende and one in the southern part of the country south of
Tshikapa. Exploration permits have been secured in both areas and are in good
standing. The Company has applied to reduce the Coexco ground from 22 permits to eight
permits based on the results from the detailed follow-up stream sampling program. Two
exploration permit applications are still at CAMI for consideration and Delrand is looking to
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make additional applications in the near future. Delrand holds the following permits directly
or by partners through various option agreements: Acacia (6), Delrand (3) and Coexco (8).
Status of Exploration Permits of Delrand and Partners in the DRC as of June 30, 2013
Permits at June 30,
Company (Project) PR Numbers 2013
Permits Km²
Delrand (DRC North) 1174, 1175 2 188
Delrand (Tshikapa) 9083 1 212
Acacia (Tshikapa) 1175,1176,1177,1180, 6 1,043
1188, 1187
Coexco (DRC North) 6889, 6891, 6893, 6897, 8 557
6898, 6899, 6901, 6906
Total 17 2,000
IRON ORE PROJECT
In May 2011, the Company announced the discovery of high grade haematite (a form of
iron ore) in its exploration areas within Province Orientale, DRC, through its then joint
venture with Rio Tinto Minerals Development Limited ("Rio Tinto"). Additional iron ore
results were announced by the Company in November 2011. The drilling results for 1,117
metres of diamond drill holes, which are detailed below, revealed average grades from the
mineralized intercepts ranging from 62.5% to 68.5% iron. The iron ore exploration was
funded and operated by Rio Tinto.
Initial geological research and exploration had indicated that the exploration permit areas,
which hitherto had been largely unexplored using modern exploration methods, were highly
prospective for the discovery of iron ore deposits. This assessment is supported by these
initial drill results. Mapping and first pass drilling was completed on the Zatua 01 and 02
target areas with 11 diamond drill holes, one of which had to be abandoned, totaling 1,117
meters. Seven of these holes intercepted high grade haematite mineralization. The
mineralized package was not present in the remaining holes despite their central location.
The target areas had been selected after a regional airborne magnetic survey had identified
geophysical anomalies which subsequent ground follow up indicated to be associated with
outcropping haematite mineralization. Mineralized intervals, where intercepted by a drill
hole, range in thickness from 37 meters to 121 meters with both friable and massive
textures being observed.
Analytical results were received for all seven holes with values of 62.5%-68.5% for Fe;
0.56% to 4.78% for Al2O3; 0.48% to 6.36% for SiO2 and 0.040% to 0.148% for P, with the
elevated high phosphorous values appearing to be associated with recent weathering.
Despite limited thicknesses in some of the holes, the results give encouragement that high-
grade haematite is present in the area. No further work has been conducted at the iron ore
project since early 2012. Subsequently, Rio Tinto has withdrawn from the joint venture iron
ore project. Delrand however will maintain its interest in the project with a view to realizing
any potential value at a future date.
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QUALIFIED PERSON AND TECHNICAL REPORT
Dr. Michiel C. J. de Wit, the Company's President and a “qualified person” as such term is
defined in National Instrument 43-101, has reviewed and approved the technical
information in this MD&A.
Additional information with respect to the Company's Tshikapa project is contained in the
technical report prepared by Dr. Michiel C. J. de Wit and Fabrice Matheys, dated March 31,
2009 and titled "National Instrument 43-101 Technical Report on the Tshikapa Project of
BRC DiamondCore Ltd. in the Democratic Republic of the Congo". A copy of this report can
be obtained from SEDAR at www.sedar.com.
RESULTS OF OPERATIONS
As a result of the change in the Company’s financial year-end from December 31 to June
30, the comparative periods for the year ended June 30, 2013 are the six month period
ended June 30, 2012 and the year ended December 31, 2011.
For the year ended June 30, 2013, the Company reported a net loss of $283,776 (or $0.01
per share), compared to a net loss of $239,429 (or $0.00 per share) incurred during the six
months ended June 30, 2012. The increase in the loss was due to higher consulting and
professional fees and general and administrative costs as a result of the longer reporting
period. A loss of $123,314 ($0.00 per share) was incurred for the year ended December
31, 2011. The lower loss in 2011 was due to a gain on disposal of property, plant and
equipment of $430,085.
SELECTED ANNUAL INFORMATION
The following financial data is derived from the Company’s consolidated financial statements
for each of the three periods indicated. The Company’s reporting and measurement
currency is the Canadian dollar. The following financial data is reported in accordance with
IFRS.
Six Months Year Ended
Year Ended Ended December
June 30, 2013 June 30, 2012 31, 2011
Net loss $283,776 $239,429 $123,314
Net loss per share $0.01 $0.00 $0.00
Headline loss per share1 $0.01 $0.00 $0.00
Exploration and evaluation $5,142,097 $5,165,687 $5,121,486
Total assets $5,269,589 $5,660,814 $5,274,041
Total non-current liabilities $5,420 $16,260 $20,502
1. Headline loss per share excludes items such as impairment of property, plant, and equipment and
losses on disposal of assets.
SUMMARY OF QUARTERLY RESULTS
The following table sets out certain unaudited consolidated financial information of the
Company for each of the last eight quarters, beginning with the three months ended June
30, 2013. The Company’s reporting and measurement currency is the Canadian dollar.
The financial information is reported in accordance with IFRS.
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Three Three Three Three
months months months months
ended ended ended ended
June 30, March 31, December September
2013 2013 31, 2012 30, 2012
Net loss ($'000) $(72) $(63) $(75) $(74)
Net loss per share
(basic and diluted) $0.00 $0.00 $0.00 $0.00
Three Three Three
Three months months months
months ended ended ended
ended June March 31, December September
30, 2012 2012 31, 2011 30, 2011
Net income (loss)
($'000) $(141) $(98) $293 $(69)
Net income (loss) per
share (basic and
diluted) $0.00 $0.00 $0.00 $0.00
During the three month period ended June 30, 2013, the Company recorded a net loss of
$71,639 compared to a net loss of $62,839 that was recorded during the three months
ended March 31, 2013 due to higher consulting and professional fees.
During the three month period ended March 31, 2013, the Company recorded a net loss of
$62,839 compared to a net loss of $75,064 that was recorded during the three months
ended December 31, 2012. The decrease was primarily due to lower consulting fees of
$22,548 which was offset by an increase in general and administrative expenses of $9,727.
During the three month period ended December 31, 2012, the Company recorded a net loss
of $75,064 which was consistent with the net loss of $74,234 that was recorded during the
three months ended September 30, 2012.
During the three month period ended September 30, 2012, the Company recorded a net
loss of $74,234 compared to a net loss of $141,073 in the second quarter of 2012. This
decrease in net loss was primarily due to a decrease in consulting and professional fees of
$65,948, as audit fees were incurred in the three months ended June 30, 2012 due to the
change in year end.
During the three months ended June 30, 2012, the Company recorded a net loss of
$141,073 compared to a net loss of $98,356 in the first three months of 2012. This
increase in net loss was primarily due to an increase in consulting and professional fees of
$34,080, as audit fees were incurred during the three months ended June 30, 2012 due to
the change in year end.
During the first three months of 2012, the Company recorded a net loss of $98,356
compared to net income in the last three months of 2011 of $293,117. There was a gain on
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disposal of property, plant and equipment in the last three months of 2011 of $430,085
which enabled the net income for the last three months of 2011.
During the last three months of 2011, the Company recorded net income of $293,117
compared to a net loss during the three months ended September 30, 2011 of $69,212.
The income in the last three months of 2011 was due to a gain on disposal of property,
plant and equipment of $430,085.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2013, the Company had cash of $101,713 and a working capital deficit of
$429,967 compared to cash of $440,655 and a working capital deficit of $421,063 as at
June 30, 2012 and cash of $88,068 and a working capital deficit of $533,191 as at
December 31, 2011.
During the year ended June 30, 2013, the Company issued 6,000,000 common shares in a
private placement at a price of $0.045 per share for proceeds of $270,000. 2,620,000 of
these common shares were purchased by directors and officers of the Company.
Subsequent to the year ended June 30, 2013, 3,109,849 warrants were exercised at a price
of $0.132 per share. This resulted in the issuance of 3,109,849 common shares of the
Company and gross proceeds to the Company of $410,500. 2,109,849 of the shares were
issued to a director of the Company.
The Company has no operating revenues and is wholly reliant upon external financing to
fund its activities. There is no assurance that such financing will be available on acceptable
terms, if at all.
Rio Tinto had funded all of the exploration at the Company’s DRC North diamond project
and all of the exploration at the DRC iron ore project.
In general, market conditions have limited the availability of funds. Given the Company’s
financial position and available resources, the Company currently expects a need to access
equity markets for financing over the next twelve months. In light of current conditions,
the Company has continued a series of measures to bring its spending in line with the
projected cash flows from its operations in order to preserve its balance sheet and maintain
its liquidity position. Management believes that based on its current financial position and
liquidity profile, the Company will be able to satisfy its current and long-term obligations.
The audited consolidated financial statements of the Company as at and for the year ended
June 30, 2013 have been prepared in accordance with IFRS applicable to a going concern.
As at June 30, 2013, June 30, 2012 and December 31, 2011 there were no contractual
obligations (that are not on the statement of financial position) entered into by the
Company.
The Company has an option agreement to secure an equity interest in prospective ground
held in six exploration permits in the DRC with ACACIA sprl, which has advised the
Company of its wish to modify the option agreement. The Company continues its
discussions with ACACIA sprl and believes it can reach an agreement that is satisfactory to
both parties.
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The Company’s litigation with a former director and officer of the Company relating to a
settlement agreement pertaining to his departure was resolved during 2013 with no
additional cost to the Company.
EXPLORATION AND EVALUATION EXPENDITURES
The following table provides a breakdown of the Company's exploration and evaluation
expenditures in the DRC for the year ended June 30, 2013, the six month period ended
June 30, 2012 and the year ended December 31, 2011:
Tshikapa Northern DRC Total
Balance June 30, 2012 $ 3,085,581 $ 2,077,887 $ 5,163,468
Operating expenses
Funds received from Rio Tinto - (265,577) (265,577)
Admin and office support 19,920 127,179 147,099
Amortization - - -
Field camp expenses 5,153 20,542 25,695
Remote sensing - - -
Drilling - - -
Geology - - -
Professional fees - 11,416 11,416
Business promotion - - -
Travel 4,148 47,432 51,580
Stock based compensation - - -
Permits and surface taxes - 4,692 4,692
Foreign exchange 752 753 1,505
Total Operating Expenses 29,973 (53,563) (23,590)
Balance June 30, 2013 3,115,554 2,024,324 5,139,878
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Tshikapa Northern DRC Total
Balance December 31, 2011 $ 3,039,854 $ 2,079,413 $ 5,119,267
Operating expenses
Funds received from Rio Tinto - (115,106) (115,106)
Admin and office support 19,802 67,194 86,996
Amortization - - -
Field camp expenses 3,981 302 4,283
Remote sensing - - -
Drilling - - -
Geology - - -
Professional fees 11,436 875 12,311
Business promotion - - -
Travel 10,683 8,550 19,233
Stock based compensation - - -
Permits and surface taxes - 36,834 36,834
Foreign exchange (175) (175) (350)
Total Operating Expenses 45,727 (1,526) 44,201
Balance June 30, 2012 3,085,581 2,077,887 5,163,468
Tshikapa Northern DRC Total
Balance December 31, 2010 $ 3,020,092 $ 2,052,730 $ 5,072,822
Operating expenses
Funds received from Rio Tinto - (367,256) (367,256)
Admin and office support 23,761 267,834 291,595
Amortization 2,050 2,051 4,101
Field camp expenses 6,054 37,726 43,780
Remote sensing - - -
Drilling - - -
Geology - 445 445
Professional fees 3,461 9,286 12,747
Business promotion - - -
Travel 5,597 49,137 54,734
Stock based compensation - - -
Permits and surface taxes 62,897 22,534 85,431
Foreign exchange 4,926 4,926 9,852
Gain on sale of asset (88,984) - (88,984)
Total Operating Expenses 19,762 26,683 46,445
Balance December 31, 2011 3,039,854 2,079,413 5,119,267
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OUTSTANDING SHARE DATA
The authorized share capital of the Company consists of an unlimited number of common
shares. As at September 27, 2013, the Company had outstanding 61,844,492 common
shares and warrants to purchase an aggregate of 8,859,849 common shares of the
Company.
RELATED PARTY TRANSACTIONS
a) Key Management Remuneration
The Company’s related parties include key management. Key management includes
executive directors. The remuneration of the key management of the Company as defined
above, during the year ended June 30, 2013, the six month period ended June 30, 2012,
and the year ended December 31, 2011 was as follows:
Year ended Six months ended Year ended
June 30, June 30, December 31,
2013 2012 2011
Salaries $ 267,444 $ 133,162 $ 270,310
$ 267,444 $ 133,162 $ 270,310
b) Other Related Parties
As at June 30, 2013, an amount of $117,107 was owed to a director of the Company
representing consulting fees (June 30, 2012: $242,793 and December 31, 2011: $133,333,
which related to two directors’ consulting fees). For the year ended June 30, 2013,
consulting fees of $100,000 and $81,033, respectively were incurred to two directors (six
months ended June 30, 2012: $50,000 and year ended December 31, 2011: $100,000 each
to the two directors).
During the year ended June 30, 2013, the Company incurred common expenses of $8,875
(six months ended June 30, 2012: $nil and year ended December 31, 2011: $nil) in the
DRC together with Loncor Resources Inc. (“Loncor”), a corporation with common directors.
As at June 30, 2013, an amount of $8,875 (June 30, 2012: $nil and December 31, 2011:
$nil) owing from Loncor was included in due from related parties in the consolidated
statement of financial position.
As at June 30, 2013, Banro Corporation(“Banro”) owed the Company an amount of $921
(June 30, 2012: $11,326 and December 31, 2011: $11,313 owed to Banro). Banro owns
17,716,994 common shares of the Company, representing a 30.16% interest in the
Company as at June 30, 2013.
During the year ended December 31 2011, legal expenses of $31,697, incurred in
connection with general corporate matters, were paid to a law firm of which a director and
officer of the Company was a partner until February 2011. As at December 31, 2011,
$56,338 owing to this legal firm was included in accounts payable.
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During the year ended June 30, 2013, the Company issued 6,000,000 common shares in a
private placement at a price of $0.045 per share for proceeds of $270,000. 2,620,000 of
these common shares were purchased by directors and officers of the Company.
During the six months ended June 30, 2012, the Company issued 3,030,302 common
shares upon the exercise of 3,030,302 warrants of the Company at a price of $0.132 per
share for proceeds of $400,000. The two individuals who exercised the warrants are
directors of the Company.
FUTURE ACCOUNTING STANDARDS
The Company has reviewed new and revised accounting pronouncements that have been
issued but are not yet effective and determined that the following may have an impact on
the Company:
IFRS 9 Financial instruments (“IFRS 9”) was issued by the International Accounting
Standards Board (the “IASB”) on November 12, 2009 and will replace International
Accounting Standards (“IAS”) 39 Financial Instruments: Recognition and Measurement
(“IAS 39”). IFRS 9 replaces the multiple rules in IAS 39 with a single approach to
determine whether a financial asset is measured at amortized cost or fair value and a new
mixed measurement model for debt instruments having only two categories: amortized cost
and fair value. The approach in IFRS 9 is based on how an entity manages its financial
instruments in the context of its business model and the contractual cash flow
characteristics of the financial assets. The new standard also requires a single impairment
method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
effective for annual periods beginning on or after January 1, 2013. The Company is
currently evaluating the impact of IFRS 9 on its consolidated financial statements.
IFRS 10 Consolidated Financial Statements (“IFRS 10”) establishes principles for the
presentation and preparation of consolidated financial statements when an entity controls
one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate
Financial Statements” and SIC-12 “Consolidated – Special Purpose Entities” and is effective
for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
The Company is currently evaluating the impact of this standard on its consolidated financial
statements.
IFRS 11 Joint Arrangements (“IFRS 11”) establishes principles for financial reporting by
parties to a joint arrangement. IFRS 11 supersedes the current IAS 31 “Interests in Joint
Ventures” and SIC-13 “Jointly Controlled Entities – Non-Monetary Contributions by
Venturers” and is effective for annual periods beginning on or after January 1, 2013. Earlier
application is permitted. The Company is currently evaluating the impact of this standard
on its consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) applies to entities that have an
interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured
entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier
application is permitted. The Company is currently evaluating the impact of this standard
on its consolidated financial statements.
IFRS 13 Fair Value Measurements (“IFRS 13”) defines fair value, sets out in a single IFRS
framework for measuring fair value and requires disclosures about fair value measurements.
IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures
13
about fair value measurements (and measurements, such as fair value less costs to sell,
based on fair value or disclosures about those measurements), except in specified
circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1,
2013. Earlier application is permitted. The Company is currently evaluating the impact of
this standard on its consolidated financial statements.
IAS 19, Employee Benefits (“IAS 19”) was re-issued by the IASB in June 2011. IAS
continues to prescribe the accounting for employee benefits, but amendments make the OCI
presentation changes in respect of pensions (and similar items) only, but all other long term
benefits are required to be measured in the same way even though changes in the
recognised amount are fully reflected in profit or loss. Also changed in IAS 19 is the
treatment for termination benefits, specifically the point in time when an entity would
recognise a liability for termination benefits. The amendments to IAS 19 are effective for
annual periods beginning on or after January 1, 2013. The Company is currently evaluating
the impact of the amendments on its consolidated financial statements.
IAS 27, Separate financial statements (“IAS 27”) was re-issued by the IASB in May 2011 to
only prescribe the accounting and disclosure requirements for investments in subsidiaries,
joint ventures and associates when an entity prepares separate financial statements. The
consolidation guidance will now be included in IFRS 10. The amendments to IAS 27 are
effective for annual periods beginning on or after January 1, 2013. The Company is
currently evaluating the impact of the amendments on its consolidated financial statements.
IAS 28, Investments in associates and joint ventures (“IAS 28”) was re-issued by the IASB in
May 2011. IAS 28 continues to prescribe the accounting for investments in associates, but is
now the only source of guidance describing the application of the equity method. The amended
IAS 28 will be applied by all entities that have an ownership interest with joint control of, or
significant influence over, an investee. The amendments to IAS 28 are effective for annual
periods beginning on or after January 1, 2013. The Company is currently evaluating the impact
of the amendments on its consolidated financial statements.
IFRIC 20, Stripping costs in the production phase of a surface mine (“IFRIC 20”) was
issued by the IASB in October 2011 clarifying the requirements for accounting for stripping
costs in the production phase of a surface mine. The interpretation is effective for annual
periods beginning on or after January 1, 2013. The Company is currently evaluating the
impact of the interpretation on its consolidated financial statements.
An amendment to IAS 36, Impairment of Assets (“IAS 36”) was issued by the IASB in May
2013. The amendment reduces the circumstances in which the recoverable amount of
assets or cash-generating units are required to be disclosed, clarifies the disclosures
required, and introduces an explicit requirement to disclose the discount rate used in
determining impairment. The amendments to IAS 36 are effective for annual periods
beginning on or after January 1, 2014. The Company does not expect the standard to have
a material impact on its consolidated financial statements.
An amendment to IAS 32, Financial Instruments: presentation (“IAS 32”) was issued by
the IASB in December 2011. The amendment clarifies the meaning of ‘currently has a
legally enforceable right to set-off’. The amendments to IAS 32 are effective for annual
periods beginning on or after January 1, 2014. The Company does not expect the standard
to have a material impact on its consolidated financial statements.
An amendment to IAS 39, Financial Instruments: recognition (“IAS 39”) was issued by the
IASB in June 2013. The amendment clarifies that there is no need to discontinue hedge
14
accounting if a hedging derivative is novated, provided certain criteria are met. A novation
indicates an event where the original parties to a derivative agree that one or more clearing
counterparties replace their original counterparty to become the new counterparty to each
of the parties. The amendments to IAS 39 are effective for annual periods beginning on or
after January 1, 2014. The Company does not expect the standard to have a material
impact on its consolidated financial statements.
In May 2013, IFRIC published IFRIC Interpretation 21, Levies (“IFRIC 21”), effective for
annual periods beginning on or after January 1, 2014. IFRIC 21 provides guidance on when
to recognize a liability for a levy imposed by a government. IFRIC 21 identifies the
obligating event for the recognition of a liability as the activity that triggers the payment of
the levy in accordance with the relevant legislation. The Company does not expect the
standard to have a material impact on its consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements in conformity with
IFRS requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Information about critical judgments in
applying accounting policies that have the most significant effect on the amounts
recognized in the financial statements included the following:
Provisions and contingencies
The amount recognized as provision, including legal, contractual and other exposures or
obligations, is the best estimate of the consideration required to settle the related liability,
including any related interest charges, taking into account the risks and uncertainties
surrounding the obligation. In addition, contingencies will only be resolved when one or
more future events occur or fail to occur. Therefore assessment of contingencies inherently
involves the exercise of significant judgment and estimates of the outcome of future events.
The Company assesses its liabilities and contingencies based upon the best information
available, relevant tax laws and other appropriate requirements.
Exploration and evaluation expenditure
The application of the Company’s accounting policy for exploration and evaluation
expenditure requires judgment in determining whether it is likely that future economic
benefits will flow to the Company, which may be based on assumptions about future events
or circumstances. Estimates and assumptions made may change if new information
becomes available. If, after expenditure is capitalized, information becomes available
suggesting that the recovery of expenditure is unlikely, the amount capitalized is written off
in the statement of comprehensive loss during the period the new information becomes
available.
15
Impairment
Assets, including property, plant and equipment and exploration and evaluation assets, are
reviewed for impairment whenever events or changes in circumstances indicate that their
carrying amounts exceed their recoverable amounts. The assessment of the fair value
often requires estimates and assumptions such as discount rates, exchange rates,
commodity prices, rehabilitation and restoration costs, future capital requirements and
future operating performance. Changes in such estimates could impact recoverable values
of these assets. Estimates are reviewed regularly by management.
Share-based payment transactions
The Company measures the cost of equity-settled transactions with employees by reference
to the fair value of the equity instruments at the date at which they are granted.
Estimating fair value for share-based payment transactions requires determining the most
appropriate valuation model, which is dependent on the terms and conditions of the grant.
This estimate also requires determining the most appropriate inputs to the valuation model
including the expected life of the share option, volatility and dividend yield and making
assumptions about them.
The fair value at grant date is determined using a Black-Scholes option pricing model that
takes into account the exercise price, the term of the option, the impact of dilution, the
share price at grant date and expected price volatility of the underlying share, the expected
dividend yield and the risk free interest rate for the term of the option. Under IFRS, the
Company is required to estimate the number of forfeitures likely to occur on grant date and
reflect this in the share-based payment expense revising for actual experiences in
subsequent periods.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties that could significantly
impact on its operations and future prospects. The following discussion pertains to certain
principal risks and uncertainties but is not, by its nature, all inclusive.
The only sources of future funds for further exploration programs which are presently
available to the Company are the sale of equity capital, or the offering by the Company of
an interest in its properties to be earned by another party carrying out further exploration.
There is no assurance that such sources of financing will be available on acceptable terms, if
at all. In the event that commercial quantities of minerals are found on the Company's
properties, the Company does not have the financial resources at this time to bring a mine
into production.
The current financial climate is characterized by volatile and uncertain times. The
uncertainty of forward looking statements is therefore greater. Diamond prices were
reduced significantly as a result of the economic downturn and the recovery could be
accompanied by volatility.
All of the Company's projects are located in the DRC The assets and operations of the
Company are therefore subject to various political, economic and other uncertainties,
including, among other things, the risks of war and civil unrest, hostage taking, military
repression, labor unrest, illegal mining, expropriation, nationalization, renegotiation or
nullification of existing licenses, permits, approvals and contracts, taxation policies, foreign
exchange and repatriation restrictions, changing political conditions, international monetary
16
fluctuations, currency controls and foreign governmental regulations that favor or require
the awarding of contracts to local contractors or require foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. Changes, if any, in mining
or investment policies or shifts in political attitude in the DRC may adversely affect the
Company's operations. Operations may be affected in varying degrees by government
regulations with respect to, but not limited to, restrictions on production, price controls,
export controls, currency remittance, income taxes, foreign investment, maintenance of
claims, environmental legislation, land use, land claims of local people, water use and mine
safety. Failure to comply strictly with applicable laws, regulations and local practices
relating to mineral rights could result in loss, reduction or expropriation of entitlements. In
addition, in the event of a dispute arising from operations in the DRC, the Company may be
subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting
foreign persons to the jurisdiction of courts in Canada. The Company also may be hindered
or prevented from enforcing its rights with respect to a governmental instrumentality
because of the doctrine of sovereign immunity. It is not possible for the Company to
accurately predict such developments or changes in laws or policy or to what extent any
such developments or changes may have a material adverse effect on the Company's
operations.
The DRC is a developing nation emerging from a period of civil war and conflict. Physical
and institutional infrastructure throughout the DRC is in a debilitated condition. The DRC is
in transition from a largely state controlled economy to one based on free market principles,
and from a non-democratic political system with a centralized ethnic power base, to one
based on more democratic principles. There can be no assurance that these changes will be
effected or that the achievement of these objectives will not have material adverse
consequences for the Company and its operations. The DRC continues to experience
violence and significant instability in parts of the country due to certain militia and criminal
elements. While the government and United Nations forces are working to support the
extension of central government authority throughout the country, there can be no
assurance that such efforts will be successful.
All of the Company's properties are in the exploration stage only and none of the properties
contain a known body of commercial ore. The Company currently operates at a loss and does
not generate any revenue from operations. The exploration and development of mineral
deposits involve significant financial risks over a significant period of time which even a
combination of careful evaluation, experience and knowledge may not eliminate. Few
properties which are explored are ultimately developed into producing mines. Major
expenditures may be required to establish reserves by drilling and to construct mining and
processing facilities at a site. It is impossible to ensure that the Company's exploration
programs will result in a profitable commercial mining operation.
The Company is exposed to currency risk as its principal business is conducted in foreign
currencies. Unfavorable changes in the applicable exchange rate may result in a decrease
or increase in foreign exchange gains or losses. The Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
The Company's exploration and, if such exploration is successful, development of its properties
is subject to all of the hazards and risks normally incident to mineral exploration and
development, any of which could result in damage to life or property, environmental damage
and possible legal liability for any or all damage.
17
The natural resource industry is intensely competitive in all of its phases, and the Company
competes with many companies possessing greater financial resources and technical
facilities than itself.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
a) Fair value of financial assets and liabilities
The consolidated statements of financial position carrying amounts for cash, prepaid expenses
and other assets and accounts payable and accrued liabilities approximate their fair value due
to their short-term nature. Due to the use of subjective judgments and uncertainties in the
determination of fair values these values should not be interpreted as being realizable in an
immediate settlement of the financial instruments.
The following presents the fair value and carrying value of the Company's financial
instruments:
Fair value hierarchy
The following table provides an analysis of financial instruments that are measured subsequent
to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the
fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted)
in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that
include inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
There were no transfers between Level 1 and 2 during the reporting period. The fair
values of financial assets and liabilities carried at amortized cost are approximated by
their carrying values. Cash is ranked Level 1 as the market value is readily observable.
The carrying value of cash approximates fair value as maturities are less than three
months.
b) Risk Management Policies
The Company is sensitive to changes in commodity prices and foreign-exchange. The
Company’s Board of Directors has overall responsibility for the establishment and
oversight of the Company’s risk management framework. Although the Company has the
ability to address its price-related exposures through the use of options, futures and
forward contacts, it does not generally enter into such arrangements.
c) Foreign Currency Risk
Foreign currency risk is the risk that a variation in exchange rates between the Canadian
dollar and United States dollar or other foreign currencies will affect the Company’s
operations and financial results. Different portions of the Company’s transactions are
18
denominated in United States dollars, Congolese francs and South African rand. The
Company is also exposed to the impact of currency fluctuations on its monetary assets
and liabilities. The Company’s functional currency is the Canadian dollar. The majority
of major expenditures are transacted in US dollars. The Company maintains the
majority of its cash in Canadian dollars but it does hold balances in US dollars.
Significant foreign exchange gains or losses are reflected as a separate component of
the consolidated statement of comprehensive loss. The Company does not use derivative
instruments to reduce its exposure to foreign currency risk. See Note 12(c) of the
Financial Statements for additional details.
d) Credit Risk
Financial instruments which are potentially subject to credit risk for the Company consist
primarily of cash. Cash is maintained with several financial institutions of reputable
credit in Canada, the DRC and South Africa and may be redeemed upon demand. It is
therefore the Company’s opinion that such credit risk is subject to normal industry risks
and is considered minimal.
e) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they become due. The Company attempts to ensure that there is sufficient
cash to meet its liabilities when they are due and manages this risk by regularly
evaluating its liquid financial resources to fund current and long-term obligations and to
meet its capital commitments in a cost-effective manner. The key to success in
managing liquidity is the degree of certainty in the cash flow projections. If future cash
flows are fairly uncertain, the liquidity risk increases. The Company’s liquidity
requirements are met through a variety of sources, including cash, existing credit
facilities and equity capital markets. In light of market conditions, the Company initiated
a series of measures to bring its spending in line with the projected cash flows from its
operations and available project specific facilities in order to preserve its financial
position and maintain its liquidity position.
f) Mineral Property Risk
The Company’s operations in the DRC are exposed to various levels of political risk and
uncertainties, including political and economic instability, government regulations
relating to exploration and mining, military repression and civil disorder, all or any of
which may have a material adverse impact on the Company’s activities or may result in
impairment in or loss of part or all of the Company's assets.
g) Market Risk
Market risk is the potential for financial loss from adverse changes in underlying market
factors, including foreign-exchange rates, commodity prices, interest rates and stock
based compensation costs. The Company manages the market risk associated with
commodity prices by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
19
h) Interest rate risk
Interest rate risk is the potential impact on any Company earnings due to changes in
bank lending rates and short term deposit rates. The Company is not exposed to
significant interest rate risk other than cash flow interest rate risk on its cash. The
Company does not use derivative instruments to reduce its exposure to interest rate risk.
A fluctuation of interest rates of 1% would not affect significantly the fair value of cash.
i) Title risk
Title to mineral properties involves certain inherent risks due to the difficulties of
determining the validity of certain claims as well as the potential for problems arising
from the frequently ambiguous conveyancing history characteristic of many mining
properties. Although the Company has investigated title to all of its mineral properties
for which it holds concessions or other mineral licenses, the Company cannot give any
assurance that title to such properties will not be challenged or impugned and cannot be
certain that it will have valid title to its mineral properties. The Company relies on title
opinions by legal counsel who base such opinions on the laws of countries in which the
Company operates.
j) Country risk
The DRC is a developing country and as such, the Company’s exploration projects in the
DRC could be adversely affected by uncertain political or economic environments, war,
civil or other disturbances, a changing fiscal regime and by DRC’s underdeveloped
industrial and economic infrastructure.
The Company’s operations in the DRC may be affected by economic pressures on the
DRC. Any changes to regulations or shifts in political attitudes are beyond the control of
the Company and may adversely affect its business. Operations may be affected in
varying degrees by factors such as DRC government regulations with respect to foreign
currency conversion, production, price controls, export controls, income taxes or
reinvestment credits, expropriation of property, environmental legislation, land use,
water use and mine safety.
There can be no assurance that policies towards foreign investment and profit
repatriation will continue or that a change in economic conditions will not result in a
change in the policies of the DRC government or the imposition of more stringent foreign
investment restrictions. Such changes cannot be accurately predicted.
k) Capital Management
The Company manages its cash, common shares and warrants as capital. The Company’s
main objectives when managing its capital are:
• to maintain a flexible capital structure which optimizes the cost of capital at an
acceptable level of risk while providing an appropriate return to its shareholders;
• to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business;
• to safeguard the Company’s ability to obtain financing; and
• to maintain financial flexibility in order to have access to capital in the event of
future acquisitions.
20
The Company manages its capital structure and makes adjustments to it in accordance
with the objectives stated above, as well as responds to changes in economic conditions
and the risk characteristics of the underlying assets.
There were no significant changes to the Company’s approach to capital management
during the year ended June 30, 2013.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital
requirements.
SEGMENTED INFORMATION
The Company has one operating segment: the acquisition, exploration and development
of mineral properties located in the DRC. The operations of the Company are located in
two geographic locations, Canada and the DRC. Geographic segmentation of non-current
assets is as follows:
As at June 30, 2013
Exploration and Total Non-Current
evaluation Assets
DRC $5,142,097 $5,142,097
Canada - -
$5,142,097 $5,142,097
As at June 30, 2012
Exploration and Total Non-Current
evaluation Assets
DRC $5,165,687 $5,165,687
Canada - -
$5,165,687 $5,165,687
As at December 31, 2011
Exploration and Total Non-Current
evaluation Assets
DRC $5,121,486 $5,121,486
Canada - -
$5,121,486 $5,121,486
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all
relevant information is gathered and reported to senior management, including the
Company’s President and Vice President, Finance, on a timely basis so that appropriate
decisions can be made regarding public disclosure. As at June 30, 2013, the Company's
President and Vice President, Finance evaluated or caused to be evaluated under their
supervision the effectiveness of the Company’s disclosure controls and procedures as
required by Canadian securities laws. Based on that evaluation, the President and Vice
President, Finance have concluded that, as of June 30, 2013, the Company's disclosure
controls and procedures were effective. No material weaknesses have been identified.
21
INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal controls have been designed to provide reasonable assurance regarding the
reliability of the Company’s financial reporting and the preparation of financial statements
together with the other financial information for external purposes in accordance with IFRS.
As at June 30, 2013, the Company’s President and Vice President, Finance evaluated or
caused to be evaluated under their supervision, the effectiveness of the Company’s internal
control over financial reporting as required by Canadian securities laws. Based on that
evaluation, the President and Vice President, Finance have concluded that, as of June 30,
2013, the Company’s internal control over financial reporting was effective. No material
weaknesses have been identified.
The Company is required under Canadian securities laws to disclose herein any change in
the Company’s internal control over financial reporting that occurred during the Company’s
most recent interim period that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting. No changes were identified
in the Company’s internal control over financial reporting during the year ended June 30,
2013, that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
It should be noted that a control system, including the Company’s disclosure and internal
controls and procedures, no matter how well conceived can provide only reasonable, but
not absolute, assurance that the objective of the control system will be met and it should
not be expected that the disclosure and internal controls and procedures will prevent all
errors or fraud.
30 September 2013
Johannesburg
____________________________________________________________________________________
Sponsor
Arcay Moela Sponsors Proprietary Limited
Date: 30/09/2013 03:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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