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DELRAND RESOURCES LIMITED - Managements discussion and analysis Financial Condition and results of operations for the three and six month period

Release Date: 18/02/2014 14:04
Code(s): DRN     PDF:  
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Managements discussion and analysis Financial Condition and results of operations for the three and six month period

DELRAND RESOURCES LIMITED
(formerly BRC DIAMONDCORE LTD.)
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: DRN ISIN Number: CA2472671072
(“Delrand” or the "Company")


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AT AT AND FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31,
2013


The following management?s discussion and analysis of financial condition and results of operations
(the “MD&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&A should be read in conjunction with the unaudited interim condensed
consolidated financial statements of the Company as at and for the three and six month periods ended
December 31, 2013 (the “Interim Financial Statements”), together with the MD&A and the audited
financial statements as at and for the year ended June 30, 2013 (the “Financial Statements”) as
well as the notes thereto. All amounts are expressed in Canadian dollars unless otherwise stated.

This MD&A is dated February 14, 2014. 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.
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 three and six months ended December 31, 2013, the Company reported a net loss of $55,783
and $101,564 (three and six months ended December 31, 2012: $75,604 and $149,298). The net
asset value of the Company was $5,015,646 as at December 31, 2013 (June 30, 2013: $4,706,710).

The Company?s accumulated deficit as at December 31, 2013 was $120,156,186 (June 30, 2013:
$120,054,622). The Company had a working capital deficit of $277,580 as at December 31, 2013
(June 30, 2013: $429,967) and had a net decrease in cash of $147,153 and $1,903 during the three
and six months ended December 31, 2013 (three and six months ended December 31, 2012:
decrease of $53,021 and $395,839 respectively).

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 six months 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.


DIAMOND PROJECTS

The Company?s present operations consist of the exploration and evaluation of several mineral
properties for diamonds in the DRC. The Company?s exploration programs in the DRC are currently
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.

Further interpretation of the Coexco and Bomili detailed sampling results has permitted the reduction
of the eight Coexco permits to four permits covering five targets that have subsequently been
prioritised. Applications for the renewal of these four permits have been submitted to CAMI. In
addition the two Bomili permits have been retained as a result of the detailed sampling results from
the work that the Company carried out in August and December 2013. During the three months
ended December 31, 2013, the Company made significant progress with the program to evaluate a
large exploration dataset covering the Kasai provinces.

Northern DRC Project (6 exploration permits)

Results from the 2009 reconnaissance stream samples, collected over the original 44 Coexco and two
Bomili exploration permit areas, reported five ilmenites, 27 chrome spinels, one eclogitic garnet and
15 micro-diamonds (i.e. less than 0.5 mm but larger than 0.4 mm in size). The follow-up sampling
program in 2011 over these positive areas was narrowed down to 22 Coexco and the two Bomili
exploration permits. 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 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 two targets in the Bomili permit areas.
These eight blocks were earmarked for further detailed stream sampling, that was conducted in Q3 of
2012. Additional detailed samples were collected over the Bomili targets in August and December
2013. The results of the 2012 and most of the August 2013 samples are available whilst those
collected in December are still in the field and should be available for treatment during the first
quarter of 2014.

The Coexco project area is dominated by almost horizontally bedded Neoproterozoic Lindian Group
sediments (shale, sandstone and conglomerate) overlying the Archaean Mbomou 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. These laterites have chemically altered and etched, and hence depressed the
occurrences of kimberlitic satellite minerals significantly. Artisanal diamond diggings were observed
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
2012 follow-up program produced 48 diamonds, 12 kimberlitic ilmenites (picro-ilmenite), 21
chromites and 7 garnets that have a marginal mantle signature (G3 and G5) over the reduced area all
in the 0.4 to 0.7 mm fraction. Although the follow-up work failed to focus any specific targets, the
depressed distribution of the mantle minerals is due to the thick (at least 10 metres) laterite. The
abundance of diamonds which are not affected by the chemical etching of the laterite, makes this a
promising target. The conclusion from infra-red work on the initial micro-diamonds recovered from the
reconnaissance work suggests that there are two sources, one in the north and one more to the
south. 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. The results of these also show derivation from a resticted number of
sources. The detailed follow-up samples collected in 2012 for blocks 4 to 6 were submitted for heavy
liquid separation (Tetrabromoethane - TBE with a density of 2.96 g/ml). The total weight of the TBE
concentrate of the 102 samples is 23,929.74 grams (24 kg) and translates to an average of 234.61
grams per sample. This is extremely high and the sorting of these concentrates, by Afrid Laboratory in
South Africa, will most likely only be completed during Q1 of 2014. The results of those samples will
be used to highlight areas for ground geophysics with the Company?s magnetometers. If magnetic
anomalies resembling kimberlites are identified, the Company intends to drill these. Delrand?s drill rig
is in storage in the DRC at the moment and it will not be difficult to mobilize this equipment and start
a drill program, which should preferably been done in this year?s dry season.

In the Bomili project area there is no cover of Neoproterozoic sediments and the permit areas are
underlain by the same Archaean 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 have 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. During this
program eight samples were collected and each contained ilmenite with “SS” surface textures. This
stands for sculptured surfaces and represents the mineral?s original surface indicating that these
ilmenites have not travelled. Electron microprobe analysis will be conducted on these grains to obtain
its interest rating. In December 2013, and based on the visual results from the August mission, a
ground magnetic survey was planned and initiated over the high counts on PR 1174. In addition, more
samples were collected over the positive samples obtained in August to increase the number of
kimberlitic minerals for microprobe analysis. This field program is presently in progress and is planned
to be completed during Q1 2014. If the geophysics have identified suitable drill targets, and the
mineral chemistry of the August and December 2013 missions are encouraging enough, the Company
intends to commence a drilling program during next year?s dry season to cover targets in both the
Coexco and Bomil ground.


Tshikapa Project (7 exploration permits)

Delrand is continuing 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 are the remaining permits that were part of the original option agreement and have been
covered by a reconnaissance prospecting program.


Southern DRC

Delrand has 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. Delrand also recognized a regional background
„noise? of kimberlitic indicator minerals which has complicated the recognition of residual mineral
anomalies. However, it has now highlighted several targets that will need to be explored. The next
step is to get agreement with Rio Tinto on the priority rating and submit applications to the
Department of Mines (CAMI) for exploration permits (PR). However, since CAMI remains closed for
new applications Rio Tinto has suspended the agreement until such time when it will be possible to
secure exploration permits over these promising targets.

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. As of the start of 2014 these eight Coexco permits will be further reduced and
focused on four. Two exploration permit applications are still at CAMI for consideration and Delrand is
looking to make additional applicatioons as soon as CAMI opens for new applications. 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 December 31, 2013


                                                                     Permits at 
         Company (Project)              PR Numbers                 December 31, 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.
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

For the three and six months ended December 31, 2013, the Company reported a net loss of $55,783
(or $0.00 per share) and $101,564 (or $0.00 per share), compared to a net loss of $75,064 (or $0.00
per share) and $149,298 (or $0.00 per share) incurred during the three months ended December 30,
2012. The decrease in the net loss was mainly the result of lower consulting and professional fees.


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 December 31, 2013. The
Company?s reporting and measurement currency is the Canadian dollar. The financial information is
reported in accordance with IFRS.


                                       Three          Three          Three          Three
                                      months         months         months         months
                                       ended          ended          ended          ended
                                    December      September        June 30,      March 31,
                                    31, 2013       30, 2013           2013           2013

       Net loss ($'000)                 $(56)          $(45)          $(72)          $(63)
       Net loss per share 
      (basicand diluted)               $0.00          $0.00          $0.00          $0.00



                                       Three         Three          Three           Three
                                     months         months         months          months
                                      ended          ended          ended           ended
                                   December      September        June 30,       March 31,
                                    31, 2012       30, 2012          2012            2012

       Net loss ($'000)                 $(75)          $(74)        $(141)           $(98)
       Net loss per share (basic
       and diluted)                     $0.00          $0.00         $0.00          $0.00

During the three month period ended December 31, 2013, the Company recorded a net loss of
$55,783 compared to a net loss of $45,781 that was recorded during the three months ended
September 30, 2013. The increase in the net loss was mainly due to a increase in both shareholder
information costs and consulting fees.

During the three month period ended September 30, 2013, the Company recorded a net loss of
$45,781 compared to a net loss of $71,639 that was recorded during the three months ended June
30, 2013, mainly due to a reduction in consulting fees related to the departure of a former director.

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 during the three months ended June 30, 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.


LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2013, the Company had cash of $99,810 and a working capital deficit of
$277,580 compared to cash of $101,713 and a working capital deficit of $429,967 as at June 30,
2013.

During the six months 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.

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 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 Interim Financial Statements of the Company have been
prepared in accordance with IFRS applicable to a going concern.

As at December 30, 2013 and June 30, 2013, 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.


EXPLORATION AND EVALUATION EXPENDITURES

The following table provides a breakdown of the Company's exploration and evaluation expenditures
in the DRC for the six months ended December 31, 2013:


                                     Tshikapa       Northern DRC          Total


Balance June 30, 2013             $ 3,115,554       $  2,024,324    $ 5,139,878


Operating expenses
Funds received from Rio Tinto                 -        (57,269)         (57,269)
Exploration office expenses                   -          14,114          14,114
Salaries                                                 75,393          75,393
Consulting fees                               -          27,871          27,871
Field camp expenses                           -           8,316           8,316
Geochemistry                                  -           3,818           3,818
Professional fees                             -           6,839           6,839
Travel                                        -          21,493          21,493
Permits and surface taxes                     -          48,779          48,779
Foreign exchange                              -           1,775           1,775
Total Operating Expenses                      -         151,129         151,129
Balance December 31, 2013          $ 3,115,554    $   2,175,453     $ 5,291,007



OUTSTANDING SHARE DATA

The authorized share capital of the Company consists of an unlimited number of common shares. As
at February 14, 2014, the Company had outstanding 61,844,492 common shares and warrants to
purchase an aggregate of 5,000,000 common shares of the Company.
RELATED PARTY TRANSACTIONS

a)         Key Management Remuneration

The Company?s related parties include key management. Key management includes executive 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 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.


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”) 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 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 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.
Impairment

Assets, including 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 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.

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).


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. Different portions of the Company?s transactions are denominated in United States dollars,
Congolese francs and South African rand. The Company is also exposed to the impact of currency
fluctuations on its monetary assets and liabilities. The Company?s functional currency is the Canadian
dollar. The majority of major expenditures are transacted in US dollars. The Company maintains the
majority of its cash in Canadian dollars but it does hold balances in US dollars. Significant foreign
exchange gains or losses are reflected as a separate component of the consolidated statement of
comprehensive loss. The Company does not use derivative instruments to reduce its exposure to
foreign currency risk. See Note 9(c) of the Interim 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, 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.

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.

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 six
months ended December 31, 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 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




18 February 2014

Sponsors
Arcay Moela Sponsors (Pty) Ltd

Date: 18/02/2014 02:04:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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