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Management's disc & analysis of fin condition and results of ops as at and for the 3 & 6 months ended 31 Dec 2014
Delrand Resources Limited
(Incorporated in Canada)
(Corporation number 627115-4)
Share code: DRN ISIN Number: CA2472672062
(“Delrand” or the "Company")
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AS AT AND FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 2014
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”). This MD&A should be read in conjunction with the unaudited interim condensed
financial statements of the Company as at and for the three and six month periods ended
December 31, 2014 (the “Interim Financial Statements”) together with the MD&A and
the audited consolidated financial statements of the Company as at and for the year ended
June 30, 2014 (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 13, 2015. 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's business is the acquisition and exploration of diamond properties in known
diamond producing areas in the DRC. The Company also has rights to iron ore exploration
properties in the DRC.
For the three and six month periods ended December 31, 2014, the Company reported a
net loss of $3,457,790 and $4,031,304 respectively(three and six month periods ended
December 31, 2013: $55,783 and 101,564). The net asset value of the Company was
($2,044,061) as at December 31, 2014 (June 30, 2014: $1,745,816).
The Company?s accumulated deficit as at December 31, 2014 was $127,573,478 (June 30,
2014: $123,542,174). The Company had a working capital deficit of $2,044,062 as at
December 31, 2014 (June 30, 2014: $587,641) and had a net decrease in cash of $65,092
and 22,661 during the respective three and six month periods ended December 31, 2014
(three and six month periods ended December 31, 2013: net decrease of $147,153 and
$1,903, 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 is in the exploration and evaluation stages of its mineral properties and the
Company's ability to execute its work plan, meet its administrative overhead obligations,
discharge its liabilities and fulfill its commitments as they come due is dependent on its
success in obtaining additional equity or debt financing and ultimately, on attaining future
profitable operations. These conditions, along with the fact that the Company does not
currently have revenue-generating properties and has incurred a loss of $3,457,790 for the
three months ended December 31, 2014 and the Company's accumulated deficit was
$127,573,478 as at December 31, 2014 indicate the existence of a material uncertainty
that may cast significant doubt about the Company's ability to continue as a going concern.
During the six month period ended December 31, 2014, the Company completed a private
placement of 500,000 units of the Company at a price of $0.50 per unit for gross proceeds
to the Company of $250,000. Each such unit was comprised of one common share of the
Company and one-half of one warrant of the Company, with each full warrant entitling the
holder to purchase one common share of the Company at a price of $0.75 for a period of
two years. During the year ended June 30, 2014, 1,036,617 warrants were exercised at a
price of $0.396 per share. This resulted in the issuance of 1,036,617 common shares of the
Company and gross proceeds to the Company of $410,500. 703,283 of the shares were
issued to a director of the Company (Arnold T. Kondrat). In April 2014, the Company closed
a non-brokered private placement of 666,667 common shares of the Company at a price of
$0.225 per share for gross proceeds of $150,000. A director of the Company (Mr. Kondrat)
was the purchaser of all of the shares.
In a press release dated September 15, 2014, the Company announced it had entered into
a share exchange agreement where it had agreed to acquire all of the outstanding shares of
VoiceTrust Holding Inc. (“VoiceTrust”), a privately-held global provider of voice biometrics
solutions based in Toronto, from VoiceTrust Holding B.V., an indirect subsidiary of
Ramphastos Participaties Coöperatief U.A. The said agreement provided that the Company
would acquire VoiceTrust for aggregate consideration of $27,000,000 to be paid by the
issuance of up to 36,565,839 common shares in the capital of the Company subject to
adjustment in certain circumstances (the “Acquisition”). Concurrently with the closing of the
Acquisition, the Company proposed to complete a private placement by the issuance of up
to 22,660,000 common shares of the Company. It was a condition of closing the Acquisition
that the Company dispose of its existing exploration assets to an arm's length party. At an
annual and special meeting of shareholders the Company held on December 8, 2014,
shareholders authorized the Acquisition and concurrent private placement, changing the
Company's name to VoiceTrust Biometrics Inc., the disposal of the Company?s wholly-
owned subsidiary Delrand Resources Congo SPRL, and a reduction in the Company?s stated
capital by $123,542,174. On February 12, 2015, the Company issued a press release
announcing that by mutual agreement, Delrand and VoiceTrust Holding B.V. have elected
not to proceed with the Acquisition. Accordingly, they have terminated the share exchange
agreement dated September 15, 2014. The proposed disposal of Delrand Resources Congo
SPRL is not proceeding as a result of the termination of the said agreement. Delrand will
continue to explore opportunities in the resources and other fields.
DIAMOND PROJECTS
The Company's business is the exploration and evaluation of mineral properties for
diamonds in the DRC. The Company's exploration programs in the DRC have been 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 results of the very large concentrates from the Coexco ground
and results from the Bomili ground detailed sampling permitted the reduction of the eight
Coexco permits to two permits whilst the two Bomili permits have been relinquished. The
Company has also completed the program to evaluate a large exploration dataset covering
the Kasai provinces.
Northern DRC Project (2 exploration permits)
Results from the 2009 reconnaissance stream samples, collected over the original 44
Coexco and two Bomili exploration permit areas, reported positive results in terms of
ilmenites, chrome spinels, garnet and 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, in 2012.
The number of positive samples from both the reconnaissance and follow-up stream
sampling were limited to five targets within the Coexco permit areas and two targets in the
Bomili permit areas. These seven blocks were earmarked for further detailed stream
sampling, that was conducted in 2012.
The Bomili project area is underlain by the Archaean rocks of the Mbomou Craton and there
is no cover of Neoproterozoic sediments. The two targets on the two Bomili permits were
covered by detailed stream sampling in the second half of 2012. The results of these
samples highlighted four streams on exploration permit (PR) no. 1774 as highly anomalous.
These samples were screened in the field, concentrated in Kinshasa, DRC and sorted for
kimberlitic minerals in South Africa. The results produced ilmenite grains in 15 samples with
up to five grains per sample. This follow-up program produced no garnets, a few chromites
but an abundance of ilmenite particularly in respect of permit PR 1774. All ilmenites have
been probed and confirmed as kimberlitic and the mineral chemistry indicates two, possibly
three, separate kimberlite sources for these ilmenites. These areas were identified as
priority and covered by a detailed 'hammer' prospecting mission carried out by the
Company in 2013 with some samples returning more than 20 ilmenite. In late 2013 and
2014 additional detailed samples and more check samples were collected here. During this
program ten samples produced 21 ilmenites, 16 of which had “SS” surface textures – these
are sculptured surfaces and represent the mineral's original surface indicating that these
ilmenites have not been transported. At the same time a start was made with a ground
magnetic survey over these high counts on PR 1774. Break down of the geophysical
equipment meant that only 3 lines were surveyed and these results were inconclusive.
All the ilmenites have been identified visually as kimberlitic and 30 ilmenites from the two
missions were submitted to the microprobe for major element analysis to verify its
paragenesis. Although these have shown to be kimberlitic, based on the major element
mineral chemistry provided by Mineral Services, the chemistry of these grains have high
Fe³? values which indicates that crystalisation occurred under high fO2 (oxidizing) conditions
which is not favourable for the preservation of diamonds. Furthermore and based on the
limited geophysical work done over these targets, the presence of kimberlite dykes are
strongly suspected which are likely to be limited in size. In the absence of the other
important indicators such as garnet, Cr-Spinel and diamond in all of the stream samples,
the disappointing mineral chemistry of the ilmenites, and the likelihood of being small
kimberlite bodies, the Bomili project has been downgraded in terms of its diamond potential
and the Bomili permits have been relinquished.
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 several rivers and its
tributaries within the target 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. Although the follow-up work failed to
focus on 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 infra-red studies of the 48 diamonds recovered from the follow-up
work show derivation from a restricted number of sources. The sorting of these
concentrates, by Afrid Laboratory in South Africa, was only completed during Q1 of 2014
due to the large concentrates. The results of those samples produced eight diamonds in a
relatively small area covering the two Coexco permits that have been retained. An update of
the environmental management report (PAR) is being prepared as required by legislation in
order to keep the permits in good standing. However, due to the general spread of the
diamonds across the permits and lack of focus of these minerals into specific targets it has
been decided to suspend the operation until sufficient funds are available be fly a detailed
airborne magnetic survey over the area which would be the required next step in the
project.
Southern DRC
Delrand negotiated an exploration agreement with Rio Tinto Minerals Development Limited
("Rio Tinto") in order to access and interpret a large diamond exploration dataset which
Rio Tinto acquired. Delrand has since recognized a regional background 'noise' of kimberlitic
indicator minerals which has complicated the recognition of residual mineral anomalies.
However, it has now highlighted several promising targets. The DRC Department of Mines
(CAMI) however remains closed for applications for new exploration permits (PR) and Rio
Tinto has therefore suspended the agreement until such time when it will be possible to
secure exploration permits over these promising targets.
At the same time, Delrand has reviewed its own dataset which it has built up since 2003
and has identified several promising targets which it hopes to secure once the CAMI is in a
position to accept new applications.
Security of Tenure
The Company has applied to reduce the Coexco ground from 22 permits to two permits
based on the results from the detailed follow-up stream sampling program from 2012
through to 2014. Two exploration permit applications are still at CAMI for consideration and
Delrand is looking to make additional applications as soon as CAMI opens for new
applications. Delrand holds the following exploration permits through an option agreement:
Coexco (2).
Status of Exploration Permits in the DRC as of December 31, 2014
Permits at
Company (Project) PR Numbers
December 31 2014
Permits Km²
Coexco (DRC North) 6898, 6906 2 257
Total 2 257
IRON ORE PROPERTIES
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. 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 Al 2O3; 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 has however maintained its interest in the properties with a view to
realizing any potential value at a future date.
QUALIFIED PERSON
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.
RESULTS OF OPERATIONS
For the three and six month periods ended December 31, 2014, the Company reported a
net loss of $3,457,790 (or $0.16 per share) and $4,031,304 (or $0.19 per share),
respectively, compared to a net loss of $55,783 (or $0.00 per share) and $101,564 (or
$0.00 per share) incurred during three and six month periods ended December 31, 2013.
The higher loss in the three and six month periods ended December 31, 2014 is mainly the
result of higher legal and consulting fees relating to the VoiceTrust transaction and an
impairment loss of $2,353,315 for the deferred exploration costs of the Northern DRC
Project.
SUMMARY OF QUARTERLY RESULTS
The following table sets out certain consolidated financial information of the Company for
each of the last eight quarters, beginning with the three months ended December 31, 2014.
The Company?s presentation and functional currency is the Canadian dollar. The financial
information is reported in accordance with IFRS.
Three Three Three Three
months months months months
ended ended ended ended
December September June 30, March
31, 2014 30, 2014 2014 31, 2014
Net loss ($'000) $(3,458) $(573) $(3,311) $(75)
Net loss per share
(basic and diluted) $0.16 $0.03 $0.16 $0.00
Three Three Three Three
months months months months
ended ended ended ended
December September June 30, March 31,
31, 2013 30, 2013 2013 2013
Net loss ($'000) $(56) $(45) $(72) $(63)
Net loss per share
(basic and diluted) $0.00 $0.00 $0.00 $0.00
During the three month period ended December 31, 2014 the Company recorded a net loss
of $3,457,790 compared to a net loss of $573,514 that was recorded during the three
month period ended September 30, 2014. The increase in net loss was mainly due to an
impairment of deferred exploration expenditures of $2,353,315 during the three month
period ended December 31, 2014 and increased legal and consulting fees pertaining to the
VoiceTrust transaction.
During the three month period ended September 30, 2014, the Company recorded a net
loss of $573,514 compared to a net loss of $3,311,169 that was recorded during the three
month period ended June 30, 2014. The decrease in the net loss was due to an impairment
of deferred exploration expenditures of $3,115,554 during the three month period ended
June 30, 2014, which was partially offset by higher legal and consulting fees.
During the three month period ended June 30, 2014, the Company recorded a net loss of
$3,311,169 compared to a net loss of $74,819 that was recorded during the three month
period ended March 31, 2014. The increase in the net loss was mainly due to impairment
of deferred exploration expenditures of $3,115,554 and an increase in audit fees related to
year end reporting as well as legal and consultant fees relating to corporate activities.
During the three month period ended March 31, 2014, the Company recorded a net loss of
$74,819 compared to a net loss of $55,783 that was recorded during the three month
period ended December 31, 2013. The increase in the net loss was mainly due to an
increase in filing fees relating to the TSX listing and tax consulting fees.
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 month
period ended September 30, 2013. The increase in the net loss was mainly due to an
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
month period 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 month
period ended March 31, 2013 due to higher consulting and professional fees.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2014, the Company had cash of $8,898 and a working capital deficit of
$2,044,062 compared to cash of $31,559 and a working capital deficit of $587,641 as at
June 30, 2014 .
During the year ended June 30, 2014, 1,036,617 warrants were exercised at a price of
$0.396 per share. This resulted in the issuance of 1,036,617 common shares of the
Company and gross proceeds to the Company of $410,500. 703,283 of the shares were
issued to Arnold T. Kondrat, a director of the Company (Mr. Kondrat was also, subsequent
to the warrant excercise, appointed Chief Excecutive Officer of the Company).
In April 2014, the Company closed a non-brokered private placement of 666,667 common
shares of the Company at a price of $0.225 per share for gross proceeds of Cdn$150,000. A
director of the Company (Mr. Kondrat) was the purchaser of all of the shares.
In July 2014, the Company closed a non-brokered arm?s length private placement of
500,000 units of the Company at a price of $0.50 per unit for gross proceeds to the
Company of $250,000. Each such unit was comprised of one common share of the
Company and one-half of one warrant of the Company, with each full warrant entitling the
holder to purchase one common share of the Company at a price of $0.75 for a period of
two years.
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 previously 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. The Company 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 31, 2014 and June 30, 2014, there were no contractual obligations (that
are not on the statement of financial position) entered into by 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 six month period ended December 31, 2014:
Tshikapa Northern DRC Total
Balance June 30, 2014 $ - $ 2,331,238 $ 2,331,238
Operating expenses
Funds received from Rio Tinto - - -
Exploration office expenses - 2,817 2,817
Salaries - 4,176 4,176
Consulting fees - - -
Field camp expenses - - -
Geochemistry - - -
Professional fees - - -
Travel - 50 50
Permits and surface taxes - - -
Foreign exchange - 12,816 12,816
Total Operating Expenses - 19,859 19,859
Impairment - (2,351,097) (2,351,097)
Balance December 31, 2014 $ - $ - $ -
OUTSTANDING SHARE DATA
The authorized share capital of the Company consists of an unlimited number of common
shares. As at February 13, 2015, the Company had outstanding 21,781,581 common shares
and 250,000 common share purchase warrants.
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 three and six month periods ended December 31, 2014, and December
31, 2013, was as follows:
Three months ended Three months ended Six months ended Six months ended
December 31, December 31, December 31, December 31,
2014 2013 2014 2013
Salaries $ 25,000 $ 68,431 $ 60,000 $ 110,559
$ 25,000 $ 68,431 $ 60,000 $ 110,559
b) Other Related Parties
As at December 31, 2014, an amount of $183,447 was owing to two directors of the
Company representing consulting fees (June 30, 2014: $56,462).
During the three and six month periods ended December 31, 2014, the Company incurred
common expenses of $98 and $1,179 (three and six month periods ended December 31,
2013: $nil and $nil) in the DRC together with Loncor Resources Inc. (“Loncor”), a
corporation with common directors. As at December 31, 2014, an amount of $2,821 (June
30, 2014: $3,750) owing to Loncor was included in due to related parties in the
consolidated statement of financial position.
As at December 31, 2014, an amount of $79,490 was owed to Banro Corporation (“Banro”)
(June 30, 2014: $1,588 Banro owed the Company), relating to common expenses. Banro
owns 1,538,998 common shares of the Company, representing a 7.07% interest in 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”) intends to replace IAS 39 Financial Instruments:
Recognition and Measurement in its entirety with IFRS 9. IFRS 9 is intended to reduce the
complexity for the classification and measurement of financial instruments. The mandatory
effective date was previously January 1, 2015 and has since been removed with the
effective date to be determined when the remaining phases of IFRS 9 are completed. Once
it is complete, the Company will be evaluating the impact the final standard is expected to
have on its consolidated financial statements.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) was issued by the IASB on
May 28, 2014 and will replace IAS 18 Revenue and IAS 11 Construction Contracts. IFRS 15
provides a more detailed framework for the timing of revenue recognition and increased
requirements for disclosure of revenue. IFRS 15 uses a control-based approach to recognize
revenue which is a change from the risk and reward approach under the current standard.
The mandatory effective date is for annual periods beginning on or after January 1, 2017.
The Company is evaluating the impact of this standard.
An amendment to IAS 1, Presentation of Financial Statements (“IAS 1”) was issued by the
IASB in December 2014. The amendment clarifies principles for the presentation and
materiality consideration for the financial statements and notes to improve
understandability and comparability. The amendment to IAS 1 is effective for annual
periods beginning on or after January 1, 2016. The Company is evaluating the impact of
this standard on its consolidated financial statements.
An amendment to IAS 16, Property, Plant and Equipment (“IAS 16”) was issued by the
IASB in May 2014. The amendment prohibits the use of a revenue-based depreciation
method for property, plant and equipment as it is not reflective of the economic benefits of
using the asset. It clarifies that the depreciation method applied should reflect the expected
pattern of consumption of the future economic benefits of the asset. The amendment to IAS
16 is effective for annual periods beginning on or after January 1, 2016. The Company does
not expect the standard to have a material impact on its consolidated financial statements.
An amendment to IAS 38 Intangible Assets (“IAS 38”) was issued by the IASB in May
2014. The amendment prohibits the use of a revenue-based depreciation method for
intangible assets. Exceptions are allowed where the asset is expressed as a measure of
revenue or revenue and consumption of economic benefits for the asset are highly
correlated. The amendment to IAS 38 is effective for annual periods beginning on or after
January 1, 2016. The Company is evaluating the impact of this standard but does not
expect the standard to have a material impact on its consolidated financial statements.
Amendments IFRS 10 Consolidated Financial Statements (“IFRS 10”), IFRS 12 Disclosure
of Interests in Other Entities (“IFRS 12”), and IAS 28 Investments in Associates and Joint
Ventures (“IAS 28”) were published by the IASB in December 2014. The amendments
define the application of the consolidation exception for investment entities. They are
effective for annual periods beginning on or after January 1, 2016. The Company is
evaluating the impact of this standard but 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.
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.
Decommissioning and environmental provisions
The Company's operations are subject to environmental regulations in the DRC. Upon any
establishment of commercial viability of a site, the Company will estimate the cost to
restore the site following the completion of commercial activities and depletion of reserves.
These future obligations are estimated by taking into consideration closure plans, known
environmental impacts, and internal and external studies which estimate the activities and
costs that will be carried out to meet the decommissioning and environmental obligations.
Amounts recorded for decommissioning and environmental provisions are based on
estimates of decommissioning and environmental costs which may not be incurred for
several years or decades. The decommissioning and environmental cost estimates could
change due to amendments in laws and regulations in the DRC. Additionally, actual
estimated decommissioning and reclamation costs may differ from those projected as a
result of an increase over time of actual remediation costs, a change in the timing for
utilization of reserves and the potential for increasingly stringent environmental regulatory
requirements. The Company is currently in the exploration stage and as such, there are no
decommissioning and environmental reclamation costs as at December 31, 2014.
Functional and presentation currency
Judgment is required to determine the functional currency of each entity. These judgments
are continuously evaluated and are based on management?s experience and knowledge of
the relevant facts and circumstances.
Impairment
Judgment is involved in assessing whether there is any indication that an asset or cash
generating unit may be impaired. This assessment is made based on the analysis of,
amongst other factors, changes in the market or business environment, events that have
transpired that have impacted the asset or cash generating unit, and information from
internal reporting.
Going Concern
As described in the continuation of business note in the Interim Financial Statements,
management uses its judgment in determining whether the Company is able to continue as
a going concern. Refer to Note 1 of the Interim Financial Statements.
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).
There were no transfers between Level 1 and 2 during the reporting periods. The fair values of
financial assets and liabilities carried at amortized cost are approximated by their carrying
values.
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 activitiess 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 activities 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 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 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 six months ended December 31, 2014.
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, 2014
Exploration and Total Non-
evaluation current assets
DRC $1 $1
Canada - -
$1 $1
As at June 30, 2014
Exploration and Total Non-
evaluation current assets
DRC $2,333,457 $2,333,457
Canada - -
$2,333,457 $2,333,457
16 February 20154
Sponsor
Arbor Capital Sponsors Proprietary Limited
Date: 16/02/2015 04:53:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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