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Interim Condensed Consolidated Financial Statements (Unaudited)
DELRAND RESOURCES LIMITED
(formerly BRC DIAMONDCORE LTD.)
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: DRN ISIN Number: CA2472671072
(“Delrand” or the "Company")
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 2013
(Expressed in Canadian dollars)
NOTICE TO READER
These interim condensed consolidated financial statements of Delrand Resources Limited (the
“Company”) as at and for the three and six month periods ended December 31, 2013 have been
prepared by and are the responsibility of the Company?s management. These interim condensed
consolidated financial statements have not been audited or reviewed by the Company?s auditors.
CONTENTS
Interim Condensed Consolidated Statements of Financial Position ....................................................4
Interim Condensed Consolidated Statements of Comprehensive Loss.....................................................5
Interim Condensed Consolidated Statements of Changes in Equity......................................................6
Interim Condensed Consolidated Statements of Cash Flow..............................................................7
1. Corporate Information and Continuation of the Business ........................................................ 8
2. Basis of Preparation .......................................................................................... 8
3. Subsidiaries and Investment in Associate ..................................................................... 10
4. Exploration and Evaluation Asset ............................................................................. 11
5. Related Party Transactions ................................................................................... 11
6. Share Capital ................................................................................................ 12
7. Share-Based Payments ......................................................................................... 13
8. Segmented Reporting .......................................................................................... 14
9. Financial Risk Management Objectives and Policies ............................................................ 15
10. Commitments and Contingencies ................................................................................ 18
Notes December 31, 2013 June 30, 2013
$ $
Assets
Current Assets
Cash 99,810 101,713
Due from related parties 5 415 921
Prepaid expenses and other assets 38,964 24,858
Total Current Assets 139,189 127,492
Non-Current Assets
Exploration and evaluation 4 5,293,226 5,142,097
Total Non-Current Assets 5,293,226 5,142,097
Total Assets 5,432,415 5,269,589
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 407,613 420,637
Income taxes payable 5,420 10,840
Due to related parties 5 3,736 125,982
Total Current Liabilities 416,769 557,459
Non-Current Liabilities
Income taxes payable - 5,420
Total Liabilities 416,769 562,879
Shareholders' Equity
Share capital 6 117,012,188 116,601,688
Contributed surplus 8,159,644 8,159,644
Deficit (120,156,186) (120,054,622)
Total Shareholders' Equity 5,015,646 4,706,710
Total Liabilities and Shareholders' Equity 5,432,415 5,269,589
Common shares
Authorized 6a Unlimited Unlimited
Issued and outstanding 61,844,492 58,734,643
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Notes Three months ended Three months ended Six months ended Six months ended
December 31, 2013 December 31, 2012 December 31,2013 December 31, 2012
$ $ $ $
Expenses
Consulting and professional fees 8,318 33,139 12,058 60,746
General and administrative 47,155 43,015 87,182 83,282
Foreign exchange loss 310 (1,090) 2,324 5,270
Loss from operations (55,783) (75,064) (101,564) (149,298)
Net loss and comprehensive loss for the period (55,783) (75,064) (101,564) (149,298)
Basic and diluted loss per share 6c (0.00) (0.00) (0.00) (0.00)
Adjustments for headline loss per share 6c - - - -
Headline loss per share 6c (0.00) (0.00) (0.00) (0.00)
Weighted average number of common shares outstanding 61,844,492 52,734,643 60,948,720 52,734,643
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Common shares Total
Contributed
Notes Number of shares Deficit Shareholders'
Amount Surplus
(Note 6) equity
Balance at June 30, 2012 52,734,643 116,339,566 8,159,644 (119,770,846) 4,728,364
Net loss for the period - - - (149,298) (149,298)
Balance at December 31, 2012 52,734,643 $ 116,339,566 $ 8,159,644 $ (119,920,144) $ 4,579,066
Net loss for the period - - - (134,478) (134,478)
Share issuance (net of costs) 6 6,000,000 262,122 - - 262,122
Balance at June 30, 2013 58,734,643 $ 116,601,688 $ 8,159,644 $ (120,054,622) $ 4,706,710
Net loss for the period - - - (101,564) (101,564)
Warrants exercised 3,109,849 410,500 - - 410,500
Balance at December 31, 2013 61,844,492 $ 117,012,188 $ 8,159,644 $ (120,156,186) $ 5,015,646
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Three months ended Three months ended Six months ended Six months ended
December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Notes
Cash flows from operating activities
Net loss for the period (55,783) (75,064) (101,564) (149,298)
Changes in non-cash working capital
Prepaid expenses and other assets (12,124) 7,282 (14,106) 34,632
Other receivable - 27,530 - -
Accounts payable and accrued liabilities 29,842 30,047 (13,024) (92,621)
Taxes payable (10,840) (5,376) (10,840) (16,452)
Net cash flows used in operating activities (48,905) (15,581) (139,534) (223,739)
Cash flows from investing activities
Expenditures on exploration and evaluation 4 (148,479) (76,339) (208,399) (228,720)
Funds received from Rio Tinto 26,739 (10,935) 57,270 170,625
Net cash provided by (used in) investing activities (121,740) (87,274) (151,129) (58,095)
Cash flows from financing activities
Warrants exercised 6 - - 410,500 -
Due from related parties 24,585 - 506 -
Due to related parties 5 (1,093) 49,834 (122,246) (114,005)
Net cash provided by (used in) financing activities 23,492 49,834 288,760 (114,005)
Net (decrease) increase in cash during the period (147,153) (53,021) (1,903) (395,839)
Cash, beginning of the period 246,963 97,837 101,713 440,655
Cash, end of the period 99,810 44,816 99,810 44,816
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
1. CORPORATE INFORMATION AND CONTINUATION OF THE BUSINESS
Corporate Information
The principal business of Delrand Resources Limited (“Delrand” or the “Company”) is the acquisition and exploration of
mineral properties in the Democratic Republic of the Congo (“the DRC”).
These interim condensed consolidated financial statements as at and for the three and six months ended December 31, 2013
include the accounts of the Company and of its wholly-owned subsidiaries incorporated in the DRC, Delrand Resources Congo
SPRL and in South Africa, BRC Diamond South Africa (Proprietary) Limited.
The Company is a publicly traded company whose outstanding common shares are listed for trading on the Toronto Stock
Exchange and the JSE Limited in Johannesburg, South Africa. The head office of the Company is located at 1 First Canadian
Place, 100 King Street West, Suite 7070, Toronto, Ontario, M5X 1E3, Canada.
Continuation of the business
These interim condensed consolidated financial statements are prepared on a going concern basis, which assumes that the
Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its
liabilities in the normal course of operations. The Company has not generated revenues from operations. The Company
incurred a net loss of $101,564 during the six months ended December 31, 2013 and, as of that date, the Company?s deficit
was $120,156,186. These conditions along with other matters indicate the existence of material uncertainties that may cast
significant doubt about the Company?s ability to continue as a going concern. As such, the Company?s ability to continue as a
going concern depends on its ability to successfully raise additional financing for development of the mineral properties.
Although the Company has been successful in the past in obtaining financing and subsequently raised financing, there is no
assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable
terms.
2. BASIS OF PREPARATION
a) Statement of compliance
These interim condensed consolidated financial statements as at and for the three and six month periods ended
December 31, 2013, including comparatives, have been prepared in accordance with International Accounting Standards
(“IAS”) 34 „Interim Financial Reporting? (“IAS 34”) using accounting policies consistent with the International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Accordingly, certain
information and footnote disclosure normally included in the annual financial statements prepared in accordance with
IFRS, have been omitted or condensed.
b) Basis of measurement
These interim condensed consolidated financial statements have been prepared on a going concern basis, under the
historical cost convention, except for certain financial assets and liabilities which are presented at fair value.
c) Summary of significant accounting policies
These interim condensed consolidated financial statements have been prepared using the same accounting policies and
methods of computation as presented in Note 3 of the annual consolidated financial statements of the Company as at
and for the year ended June 30, 2013, except for those newly adopted accounting standards noted below.
The Company has applied the following new and revised IFRSs in these unaudited interim condensed consolidated
financial statements: IFRS 10 Consolidated financial statements (“IFRS 10”), IFRS 13 fair value measurements (“IFRS
13”), IAS 1 Presentation of financial statements (“IAS 1”), IAS 27 Separate financial statements (“IAS 27”), and IAS 28
Investments in associates and joint ventures.
d) Use of estimates and judgments
The preparation of these interim condensed consolidated financial statements in conformity with IFRS as issued by the
IASB 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.
e) Accounting Standards Issued But Not Yet Effective
The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective
and determined that the following may have an impact on the Company:
IFRS 9, Financial instruments (“IFRS 9”) intends to replace IAS 39 Financial Instruments: Recognition and Measurement in
its entirety with IFRS 9, however, no mandatorily effective date has currently been defined. IFRS 9 is intended to reduce
the complexity for the classification and measurement of financial instruments. The Company is currently evaluating the
impact the final standard is expected to have 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 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 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 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, IFRS Interpretation Committee (“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.
3. SUBSIDIARIES AND INVESTMENT IN ASSOCIATE
The table below lists the Company?s subsidiaries as follows:
Proportion of
Name of Subsidiary Place of Incorporation Ownership Principal Activity
Interest
Delrand Resources Congo SPRL Democratic Republic of the Congo 100% Mineral Exploration
BRC Diamond South Africa (Proprietary) Limited South Africa 100% Dormant
The Company?s investment in Rio Tinto Exploration DRC Oriental Limited (“DRC Orientale”), which meets the definition of an
associate of the Company, is summarized a follows:
As at December As at June 30,
31, 2013 2013
Portion of ownership interest 25.00% 25.00%
Common shares held 250 250
Total investment $ - $ -
On January 26, 2010, the Company entered into an agreement (the “Iron Ore Agreement”) with Rio Tinto Minerals
Development Limited ("Rio Tinto Minerals") for the exploration for iron ore in areas within the Orientale Province of the
DRC. Under the Iron Ore Agreement, which is in the form of a shareholders' agreement, the Company owns 25% and Rio Tinto
Minerals owns 75% of the capital stock of DRC Orientale, which owns a DRC registered company called Rio Tinto Exploration
RDC Orientale SPRL. The Company?s investment in DRC Orientale is accounted for in the consolidated financial statements
using the equity method. For the six-months ended December 31, 2013 and the year ended June 30, 2013, DRC Orientale was
a company which did not have any significant assets or liabilities and had no significant balances in the statement of
comprehensive loss. As such, there has been no change in the value of the investment since the date of acquisition.
Under the Iron Ore Agreement, all iron ore exploration was fully funded by Rio Tinto Minerals with the Company not suffering
any dilution, such that the Company?s 25% interest was maintained. During the fiscal year ended June 30, 2013, Rio Tinto
Minerals advised the Company that it has decided not to continue with the iron ore project.
4. EXPLORATION AND EVALUATION ASSETS
The following table summarizes the Company?s tangible exploration and evaluation expenditures with respect to its
properties in the DRC:
Tshikapa Northern DRC
Notes Total
Project Project
Cost
Balance as at June 30, 2012 3,085,581 2,077,887 5,163,468
Additions 29,973 85,517 115,490
Other adjustments - (139,080) (139,080)
Balance as at June 30, 2013 3,115,554 2,024,324 5,139,878
Additions - 151,129 151,129
Balance as at December 31, 2013 3,115,554 2,175,453 5,291,007
There is $2,219 of intangible exploration and evaluation expenditures as at December 31, 2013 (June 30, 2013: $2,219).
There have not been any additions or disposals to intangible assets since January 1, 2010.
a. Tshikapa Project
The Tshikapa project is located in the south-western part of the Kasai Occidental province of the DRC near the town
of Tshikapa. The Tshikapa project is located within the so-called Tshikapa triangle, bordering the Kasai River in the
east, the Loange River in the west and the Angolan border in the south. The properties also lie within the broader
kimberlite emplacement corridor which extends from known kimberlite pipes located in Angola. The Tshikapa
diamond field has been extensively mined by alluvial diamond companies and small-scale miners, and it is estimated
that it has produced over 100 million carats of diamonds since 1912. The Company has focused its attention on the
Tshikapa triangle through six exploration permits, covering an area of 1,043km², held through an option agreement
with the permit holder Acacia SPRL. Acacia SPRL has advised the Company of its wish to modify the option
agreement. The Tshikapa project also includes a seventh exploration permit held by the Company through its
wholly-owned DRC subsidiary and which covers an area of 212 km² to the west of the Tshikapa triangle.
b. Northern DRC Project
The Company's northern DRC diamond project is located in Orientale Province of the DRC and consists of 10
exploration permits, two of which are held by the Company directly through its DRC subsidiary and the balance of
which are held through an option agreement with the holder of the permits. Rio Tinto Mining and Exploration
Limited (“Rio Tinto”) was party to this agreement but has advised the Company that it no longer wishes to continue
with this diamond project. Previously 22 exploration permits under option covered an area of 4,155 km² but based
on ongoing exploration, application has been made to reduce these permits to the current total of 8 permits
covering an area of 557 km². The two additional exploration permits held by the Company?s DRC subsidiary cover an
area of 188 km² (after its obligatory 50% reduction) directly north of the optioned ground.
5. RELATED PARTY TRANSACTIONS
a) Key Management Remuneration
The Company?s related parties include key management. Key management includes executive directors and non-executive
directors. The remuneration of the key management of the Company as defined above, during the three and six months
ended December 31, 2013 and three and six months ended December 31, 2012 was as follows:
Three months ended Three months ended Six months ended Six months ended
December 31, December 31, December 31, December 31,
2013 2012 2013 2012
Salaries $ 68,431 $ 62,967 $ 110,559 $ 144,288
$ 68,431 $ 62,967 $ 110,559 $ 144,288
b) Other Related Parties
As at December 31, 2013, an amount of $nil (June 30, 2013 - $117,107 owed to one director) was owing to one director of the
Company representing consulting fees.
As at December 31, 2013, an amount of $415 was owed from Banro Corporation (“Banro”) (June 30, 2013 - $921). Banro owns
17,716,994 common shares of the Company, representing a 28.65% interest in the Company.
During the three and six months ended December 31, 2013, the Company incurred common expenses of $nil and $nil (three
and six months ended December 31, 2012 - $nil and $nil) in the DRC together with Loncor Resources Inc. (“Loncor”), a
corporation with common directors. As at December 31, 2013, an amount of $3,736 (June 30, 2013 - $8,875) owing to Loncor
was included in due to related parties in the consolidated statement of financial position.
December 31, 2013 June 30, 2013
$ $
Due from related parties 415 921
Due to related party 3,736 125,982
All amounts due to related parties are unsecured, non-interest bearing and due on demand. All transactions are in the normal
course of operations and are measured at the exchange value.
6. SHARE CAPITAL
a) Authorized
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
The holders of the common shares are entitled to receive notice of and to attend all meetings of the shareholders of the
Company and shall have one vote for each common share held at all meetings of the shareholders of the Company. The
holders of the common shares are entitled to (a) receive any dividends as and when declared by the board of directors,
out of the assets of the Company properly applicable to the payment of dividends, in such amount and in such form as
the board of directors may from time to time determine, and (b) receive the remaining property of the Company in the
event of any liquidation, dissolution or winding-up of the Company.
During the six month period ended December 31, 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.
As of December 31, 2013, the Company had 61,844,492 common shares issued and outstanding (June 30, 2013 –
58,734,643).
b) Share purchase warrants
As at December 31, 2013, the Company had outstanding warrants to purchase 5,000,000 (June 30, 2013: 11,969,698)
common shares of the Company. The 5,000,000 are exercisable at a price of $0.22 per share until May 2014.
c) Loss per share
Loss per share was calculated on the basis of the weighted average number of common shares outstanding for three and
six months ended December 31, 2013, amounting to 61,844,492 and 60,948,720 (three and six months ended December
31, 2012: 52,734,643) common shares. Diluted loss per share was calculated using the treasury stock method. For the
three and six months ended December 31, 2013, total stock options of nil (three and six months ended December 31
2012: 675,000) and warrants of 5,000,000 (December 31, 2012: 11,969,698) were excluded from the calculation of
diluted loss per share as their effect would have been anti-dilutive. Items that are adjusted in the reconciliation
between loss per share and headline loss per share to arrive at the Company?s headline loss per share include
impairment of property, plant, and equipment and losses on disposal of assets, however they have no effect on the
Company?s headline loss per share.
Three months ended Three months ended Six months ended Six months ended
December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Loss for the period (55,783) (75,064) (101,564) (149,298)
Adjustments for headline loss - - - -
Headline loss for the period (55,783) (75,064) (101,564) (149,298)
Basic and diluted loss per share (0.00) (0.00) (0.00) (0.00)
Headline loss per share (0.00) (0.00) (0.00) (0.00)
7. SHARE-BASED PAYMENTS
In August 2011, the Company?s board of directors established a new stock option plan for the Company (the "New Plan").
In establishing the New Plan, the Board of Directors also provided that no additional stock options may be granted under
the Company?s other stock option plan (the "Old Plan") and terminated the Old Plan effective upon the exercise, expiry,
termination or cancellation of all of the currently outstanding stock options that were granted under the Old Plan.
Under the New Plan, non-transferable options to purchase common shares of the Company may be granted by the
Company?s Board of Directors to any director, officer, employee or consultant of the Company or any subsidiary of the
Company. The New Plan contains provisions providing that the term of an option may not be longer than ten years and
the exercise price of an option shall not be lower than the last closing price of the Company?s shares on the Toronto
Stock Exchange prior to the date the stock option is granted. Unless the Board of Directors makes a specific
determination otherwise, stock options granted under the New Plan and all rights to purchase Company shares pursuant
thereto shall expire and terminate immediately upon the optionee who holds such stock options ceasing to be at least
one of a director, officer or employee of or consultant to the Company or a subsidiary of the Company, as the case may
be. Stock options granted pursuant to the New Plan vest as follows: 75% of the stock options vest on the 12 month
anniversary of their grant date and the remaining 25% of such stock options vest on the 18 month anniversary of their
grant date. The total number of common shares of the Company issuable upon the exercise of all outstanding stock
options granted under the New Plan shall not at any time exceed 12% of the total number of outstanding common shares
of the Company, from time to time.
As at December 31, 2013, the Company had outstanding under the Old Plan stock options to acquire nil (June 30, 2013 –
675,000) common shares of the Company at a weighted-average exercise price of $nil (June 30, 2013 - $2.10) per share.
There are currently no stock options outstanding under the New Plan.
The following tables summarize information regarding outstanding stock options:
For six months ended December 31, 2013:
During the Year Weighted average
Exercise Price Range remaining Vested &
Opening Balance Closing Balance Unvested
($) Granted Exercised Expired Forfeited contractual life Exercisable
(years)
2.10 - 7.51 675,000 - - (675,000) - - - - -
675,000 - - (675,000) - - - - -
Weighted Average
Exercise Price $ 2.10 $ - $ - $ - $ - $ - - $ - $ -
For six months ended December 31, 2012:
During the Year Weighted average
Exercise Price Range remaining Vested &
Opening Balance Closing Balance Unvested
($) Granted Exercised Expired Forfeited contractual life Exercisable
(years)
2.10 - 7.51 800,000 - - (125,000) - 675,000 1.16 675,000 -
7.52 - 16.00 90,000 - - (90,000) - - - - -
890,000 - - (215,000) - 675,000 - 675,000 -
Weighted Average
Exercise Price $ 3.51 $ - $ - $ - $ - $ 2.10 - $ 2.10 $ -
The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The contractual life
of all options on the date of grant is 5 years.
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any
expected changes to future volatility due to publicly available information.
8. SEGMENTED REPORTING
The Company has one operating segment: the acquisition, exploration and development of mineral properties located in the
DRC. The operations of the Company are located in two geographic locations, Canada and the DRC. Geographic segmentation
of non-current assets is as follows:
As at December 31, 2013
Exploration and
evaluation Total Assets
DRC $5,293,226 $5,293,226
Canada - -
$5,293,226 $5,293,226
As at June 30, 2013
Exploration and
evaluation Total Assets
DRC $5,142,097 $5,142,097
Canada - -
$5,142,097 $5,142,097
9. 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 fair value due to their short-term nature. Due to the use of
subjective judgments and uncertainties in the determination of fair values these values should not be interpreted as
being realizable in an immediate settlement of the financial instruments.
Fair value hierarchy
The following provides a description of financial instruments that are measured subsequent to initial recognition at fair
value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or
liabilities;
- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
The fair values of financial assets and liabilities carried at amortized cost are approximated by their carrying values.
Cash is ranked level 2 as it is based on similar loans in the market.
b) Risk Management Policies
The Company is sensitive to changes in commodity prices and foreign-exchange. The Company?s Board of Directors has
overall responsibility for the establishment and oversight of the Company?s risk management framework. Although the
Company has the ability to address its price-related exposures through the use of options, futures and forward contacts,
it does not generally enter into such arrangements.
c) Foreign Currency Risk
Foreign currency risk is the risk that a variation in exchange rates between the Canadian dollar and United States dollar
or other foreign currencies will affect the Company?s operations and financial results. A portion of the Company?s
transactions are denominated in United States dollars, Congolese francs and South African rand. The Company is also
exposed to the impact of currency fluctuations on its monetary assets and liabilities. The Company?s functional currency
is the Canadian dollar. The majority of major expenditures are transacted in US dollars. The Company maintains the
majority of its cash in Canadian dollars but it does hold balances in US dollars and South African Rand. Significant
foreign exchange gains or losses are reflected as a separate component of the consolidated statement of comprehensive
loss. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.
The following table indicates the impact of foreign currency exchange risk on net working capital as at December 31,
2013. The table below also provides a sensitivity analysis of a 10 percent strengthening of the Canadian dollar against
foreign currencies as identified which would have increased (decreased) the Company?s net loss by the amounts shown in
the table below. A 10 percent weakening of the Canadian dollar against the same foreign currencies would have had the
equal but opposite effect as at December 31, 2013.
U.S dollar South African rand
$ ZAR
Cash 87,272 8,348
Prepaids and other assets 12,544 79,823
Accounts payable and accrued
liabilities (81,702) (82,663)
Total foreign currency financial
assets and liabilities 18,114 5,508
Foreign exchange rate at
December 31, 2013 1.0636 0.1013
Total foreign currency financial
assets and liabilities in CDN $ 19,266 558
Impact of a 10% strengthening
or weakening of the CDN $ on
net loss 1,927 56
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, credit facilities and equity capital markets. In light
of market conditions, the Company initiated a series of measures to bring its spending in line with the projected cash
flows from its operations and available project specific facilities in order to preserve its financial position and maintain
its liquidity position. Accounts payable and accrued liabilities of $407,613 and amounts due to related parties of $3,736
are due within one year and represent all significant contractual commitments, obligations, and interest and principal
repayments on financial liabilities. Please refer to Note 1, Continuation of the Business.
f) Mineral Property Risk
The Company?s operations in the DRC are exposed to various levels of political risk and uncertainties, including political
and economic instability, government regulations relating to exploration and mining, military repression and civil
disorder, all or any of which may have a material adverse impact on the Company?s activities or may result in
impairment in or loss of part or all of the Company's assets.
g) Market Risk
Market risk is the potential for financial loss from adverse changes in underlying market factors, including foreign-
exchange rates, commodity prices, interest rates and stock based compensation costs.
h) Interest rate risk
Interest rate risk is the potential impact on any Company earnings due to changes in bank lending rates and short term
deposit rates. The Company is not exposed to significant interest rate risk other than cash flow interest rate risk on its
cash. The Company does not use derivative instruments to reduce its exposure to interest rate risk. A fluctuation of
interest rates of 1% would not affect significantly the fair value of cash.
i) Title risk
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain
claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of
many mining properties. Although the Company has investigated title to all of its mineral properties for which it holds
concessions or other mineral licenses, the Company cannot give any assurance that title to such properties will not be
challenged or impugned and cannot be certain that it will have valid title to its mineral properties. The Company relies
on title opinions by legal counsel who base such opinions on the laws of countries in which the Company operates.
j) Country risk
The DRC is a developing country and as such, the Company?s exploration projects in the DRC could be adversely affected
by uncertain political or economic environments, war, civil or other disturbances, and a changing fiscal regime and by
DRC?s underdeveloped industrial and economic infrastructure.
The Company?s operations in the DRC may be effected by economic pressures on the DRC. Any changes to regulations or
shifts in political attitudes are beyond the control of the Company and may adversely affect its business. Operations may
be affected in varying degrees by factors such as DRC government regulations with respect to foreign currency conversion,
production, price controls, export controls, income taxes or reinvestment credits, expropriation of property,
environmental legislation, land use, water use and mine safety.
There can be no assurance that policies towards foreign investment and profit repatriation will continue or that a change
in economic conditions will not result in a change in the policies of the DRC government or the imposition of more
stringent foreign investment restrictions. Such changes cannot be accurately predicted.
k) Capital Management
The Company manages its cash, common shares, warrants and any stock options as capital. The Company?s main
objectives when managing its capital are:
- to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk while providing an appropriate
return to its shareholders;
- to maintain a sufficient capital base so as to maintain investor, creditor and market confidence and to sustain future development
of the business;
- to safeguard the Company’s ability to obtain financing; and
- to maintain financial flexibility in order to have access to capital in the event of future acquisitions.
The Company manages its capital structure and makes adjustments to it in accordance with the objectives stated above,
as well as responds to changes in economic conditions and the risk characteristics of the underlying assets.
There were no significant changes to the Company?s approach to capital management during the three month period
ended December 31, 2013.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
As at December 31, 2013 As at June 30, 2013
Cash $ 99,810 $ 101,713
Share capital $ 117,012,188 $ 116,601,688
Deficit $ (120,156,186) $ (120,054,622)
Contributed surplus $ 8,159,644 $ 8,159,644
10. COMMITMENTS AND CONTINGENCIES
Six of the exploration permits comprising part of the Company?s Tshikapa project in the DRC are held through an option
agreement with Acacia SPRL. Acacia SPRL has advised the Company of its wish to modify the option agreement. The
Company continues its discussions with Acacia SPRL and believes it can reach an agreement that is satisfactory for both
parties.
The Company and its subsidiaries are subject to routine legal proceedings and tax audits. The Company does not believe that
the outcome of any of these matters, individually or in aggregate, would have a material adverse effect on its consolidated
losses, cash flow or financial position.
18 February 2014
Sponsors
Arcay Moela Sponsors (Pty) Ltd
Date: 18/02/2014 12:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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