TIDMNAD
RNS Number : 5669B
Namakwa Diamonds Limited
29 October 2009
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29 October 2009
LSE: NAD
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2009
Namakwa Diamonds Limited ("Namakwa Diamonds" or the "Group"), the Southern
African vertically integrated diamond resource group, today announces its
results for the financial year ended 31 August 2009.
HIGHLIGHTS
* Positive H2 EBITDA before impairments and non-operational expenses at Mining and
Beneficiation segmental levels.
* 4 mines re-opened in the North West Province ("North West") in H2; all operating
mines cash positive by year-end with the trend strengthening post year-end.
* Total production 46,741 carats, up 72% year on year (FY08: 27,177cts).
* North West production 26,256 carats (H1: 14,247 -v- H2: 12,009), with average
grade 0.61cpht (H1: 0.48cpht -v- 0.91cpht), average cost US$367/ct (H1:
US$430/ct -v- H2: US$279/ct), average price of US$325/ct, with significant
increase between Q3 and Q4 from US$244/ct to US$383/ct.
* Ramp up of DMS plant at South East Node ("SEN") in North West from 200 tonnes
per hour to operate at 400-450 tonnes per hour in 2010.
* SEN DMS production at 1,485cts since year-end, with average grade of 1.2cpht
exceeding budget by 60%, with average price in line with expectations at
US$400/ct and the largest stone recovered to date of 43.7cts.
* Trial mining in DRC produced 20,486 carats (H1: 2,475cts -v- H2: 18,011cts),
with average mining grade of 10cpht, average price of US$55 - US$75/ct; largest
stone recovered to date of 21.1cts.
* Management's valuation of unleveraged diamond inventory at US$32.8m, up 46% on
book value of US$22.4m, following price recovery.
* FY10 production targets - North West 50,000 carats; DRC 90,000 carats.
FINANCIAL PERFORMANCE
* Revenue US$27.3m (H1: US$7.8m -v- H2: US$19.5m; FY08: US$41.7m); impacted by
price, demand and fewer mining days.
* EBITDA before impairments and non-operational expenses:
* Mining - US$(0.9)m (H1: US$(1.3)m -v- H2: US$0.4m); and
* Beneficiation - US$0.5m (H1: US$(1.6)m -v- H2: US$2.1m).
* No impairments in H2. Conservative impairments taken in H1 at low point in
diamond price cycle; to property and equipment of US$27.7m (US$25.3m after tax)
and diamond inventory of US$32.1m
* Net working capital US$44.8m.
* Net working capital US$55m and net asset value US$95m, adjusted for management's
valuation of inventory.
* Management confident that EBITDA margins can be sustained at prevailing input
costs.
Nico Kruger, Chief Executive Officer of Namakwa Diamonds, commented:
"Whilst the impact of the global economic crisis on the diamond industry was the
dominating factor in the first half of this financial year, the second half has
given cause for optimism and provided an indication of the growth and
development of the Company.
In November 2008, we moved quickly to scale back production in the Mining
Segment to preserve cash and maximise long-term value. In February 2009, we
re-opened some of the mines in the North West Province of South Africa, albeit
at a scaled back level, to take advantage of an upturn in pricing and we are now
seeing those mines working on a cash positive basis. The in-house developed
project at the South East Node in the North West Province and the operations in
the DRC continue to impress and we anticipate production levels increasing
further over the coming year as our mining infrastructure is ramped up to
provide optimal throughput capacity.
The Beneficiation segment, continues to perform in line with expectations,
despite the disjoint between rough and polished prices, which has been the
dominant trend throughout the second half of the year. New distribution networks
in Israel and the Far East have helped to enhance our sales footprint.
We are in an enviable position: with 6,725 carats recovered from the North West
Province and 8,270 carats from the DRC, in the period since year-end; a healthy
balance sheet, showing net working capital of US$44.8 million, with cash
reserves of US$13.9 million excluding US$2.0 million in collateralised
receivables and prudently valued inventory of US$22.8 million; and a positive
EBITDA before impairments and non-operational items at group and segmental
levels for the second half of the year under review. We are well positioned to
sustain our improved operational and financial performance for continued growth
in 2010."
For further information please contact:
+------------------------------------+------------------------------------+
| Namakwa Diamonds | Taylor Rafferty |
| Nico Kruger | Rob Newman |
| Tel: +27 11 334 8886 | Tel: +44 207 614 2900 |
| Ryan Barrow | |
| Tel: +44 7974 453 954 | |
+------------------------------------+------------------------------------+
About Namakwa Diamonds:
Namakwa Diamonds (LSE: NAD) is a vertically integrated diamond resource group
with a portfolio of operating mines, exploration projects and beneficiation
operations across four African countries, namely: South Africa, the Democratic
Republic of Congo, Namibia and Angola. The Company adds value to its mining
operations with a well established beneficiation operation developed over a 30
year period, allowing Namakwa Diamonds to capitalize on margins across the
diamond value chain. Since listing on the London Stock Exchange in December
2007, the Company has focused on strategic acquisitions and building its asset
based. Whilst alluvial diamond deposits, including marine, constitute the
primary focus, kimberlite opportunities are considered if they represent an
advanced stage of development, consistent with Namakwa Diamonds' philosophy of a
short resource delivery time as provided by its alluvial diamond mines.
DIRECTORS' REPORT
Diamond Sector Update
In the second half of the year, we have seen a return of liquidity in certain
sectors of the diamond market, especially the market for rough diamonds. This
liquidity and the increased demand for rough diamonds has, in many categories,
sent rough prices back to pre-crash levels. Rough traders are optimistic about
demand in 2010 and are positioning themselves with producers to ensure continued
supply, as many expect shortages to become a real problem in the near future
given global production cutbacks over the last 18 months. However, rough prices
are not tied to a better outlook for diamond demand downstream as retail
confidence remains weak and we are experiencing a large disconnect between rough
and polished prices. Once demand returns in the United States, we believe that
the destocking which has taken place since January 2009 should contribute a
significant positive increase in rough and polished diamond prices.
Operational Overview
The last financial year has presented the Group with its most challenging
trading environment in its 30 year history. The Board recognised the pricing
downturn and market liquidity issues for the sector at an early stage. In
November 2008, rapid action was taken to implement a cost cutting exercise in
the wake of the dramatic downturn in diamond prices, to reduce cash outflows.
Mining activities were cut-back and employees were retrenched as mines were
placed on care and maintenance. However, during the course of H2, the mines have
been slowly brought back into production and we now have four mines in the North
West operating on a cash positive basis and only one mine on care and
maintenance.
The alluvial nature of Namakwa Diamonds' mining activities provided for a quick
re-start to operations, without the need for significant additional capital. The
DMS projects, at both the SEN mine in the North West and in the Tshikapa region
of the DRC, were commissioned and mining was resumed in the second half of the
year to take advantage of price improvements in rough stones. Both sites are now
fully operational and moving into the next phase of their development to permit
the optimal use of the DMS plants and an increase in production.
The SEN project, in particular, was assessed, modelled and developed by the
Namakwa Diamonds team from a prospective development project and now
incorporates a world-class alluvial deposit with grade significantly higher than
budget. This operation is expected to produce an increasingly high value product
in the coming years.
On the beneficiation side of the business, the carrying value of inventory was
conservatively impaired at a low point in the diamond price cycle, on 28
February 2009, recognising a cost of US$32.1 million. The revaluation reflected
the net realisable value of inventory in accordance with the "ordinary course of
business" principle. At the year-end, the book value of the diamond inventory
was US$22.4 million, however, management estimate the value of such inventory in
the current pricing environment, to be 46% higher at US$32.8 million.
During the year, high inventory levels at cutting-centres, scarce liquidity in
the market and poor demand were mitigated by the Group's disposal of a majority
of its low quality inventory into newly developed sales channels. Such actions
were complemented by the selective purchase of rough diamonds, providing above
average margins due to the Beneficiation Team's market knowledge of downstream
activity. This is evident in the relatively high margins realised in the period
following the year-end. It should be noted that Namakwa Diamonds' inventory
remains unleveraged, an important advantage in an environment of limited credit
facilities.
Alternative buying opportunities were developed during the year, in response to
the impact of mining cut-backs globally reducing supply. The opening of a buying
office in the DRC in May 2009 has mitigated the decline in supply from the
Angolan market.
Inventory holding patterns have also been adapted during the year to improve the
stock profile of "in-demand" categories. It is clear that the nature of the
diamond business has changed dramatically and only those who are able to adapt
to new volumes of trading, the number of sales categories and the high degree of
confidence required by clients, will survive.
The financial year also provided opportunities for the Group to develop and
improve its diamond distribution networks. The opening of the Tel Aviv trading
office provided access to new customers, suppliers and beneficiation plants in a
very active diamond centre. Furthermore, multiple new marketing associations
were formed and developed in Thailand, Vietnam, China and Taiwan where demand
for rough and polished product remains high. Subsequent to the financial
year-end, the Group also had a very successful first sale at the Hong Kong
Diamond Show, realising sales on polished diamonds of US$1.5 million, on 130cts,
at an average of US$11,630 per carat.
Continued Overleaf
Key Financial Results
The financial table below details the results for FY 2009, H2 2009, H1 2009 and
for comparative purposes FY 2008.
+------------------------------+-----------+-----------+-----------+-----------+
| Period | FY | H2 '09 | H1 '09 | FY '08 |
| | '09 | | (5) | |
+------------------------------+-----------+-----------+-----------+-----------+
| Revenue (US$ 000) | 27,270 | 19,435 | 7,835 | 41,722 |
+------------------------------+-----------+-----------+-----------+-----------+
| EBITDA excluding exceptional | (413) | 2,502 | (2,915) | (13,133) |
| costs (US$ 000) (1) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| EBITDA including exceptional | (21,669) | (6,006) | (15,663) | (32,565) |
| costs (US$ 000) (2) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Total carats mined | 46,741 | 30,019 | 16,722 | 27,177 |
+------------------------------+-----------+-----------+-----------+-----------+
| Carats mined - North | 26,256 | 12,009 | 14,247 | 27,177 |
| West | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Tonnes mined - North | 4,292,629 | 1,312,959 | 2,979,669 | 5,849,251 |
| West | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Carats mined - DRC | 20,485 | 18,010 | 2,475 | - |
+------------------------------+-----------+-----------+-----------+-----------+
| Tonnes mined - DRC (3) | 265,287 | 235,442 | 29,845 | - |
+------------------------------+-----------+-----------+-----------+-----------+
| Cash cost per tonne mined | 20.45 | 21.90 | 19.8 | 32.19 |
| (ZAR/ton) (4) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Cash cost per tonne mined | 2.25 | 2.55 | 2.08 | 4.35 |
| (US$/ton) (4) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Recovered grade (cpht) (4) | 0.61 | 0.91 | 0.48 | 0.35 |
+------------------------------+-----------+-----------+-----------+-----------+
| Carats in inventory: | 34,968 | 34,968 | 29,690 | 143,810 |
| Rough | 2,786 | 2,786 | 1,872 | 793 |
| Polished | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Inventory - Book value rough | 10,685 | 7,443 | 13,610 | 44,760 |
| (US$ 000) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Inventory - Book value | 11,747 | 11,747 | 8,277 | 3,959 |
| polished (US$ 000) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Inventory - Management's | 32,796 | 32,796 | - | - |
| valuation (US$ 000) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
| Net current assets (US$ 000) | 44,800 | 44,800 | 48,900 | 109,200 |
+------------------------------+-----------+-----------+-----------+-----------+
| Net current assets - | 55,144 | 55,144 | - | - |
| adjusted for Management's | | | | |
| valuation on inventory (US$ | | | | |
| 000) | | | | |
+------------------------------+-----------+-----------+-----------+-----------+
_______________
Notes:
(1) EBITDA excluding exceptional costs, being: depreciation, amortisation of
mineral properties, care and maintenance and rehabilitation costs of
non-operational mines and the cost relating to mines under development and
exploration and evaluation costs.
(2) EBITDA including exceptional costs includes care and maintenance and
rehabilitation costs of non-operational mines and the cost relating to mines
under development.
(3) Tonnes mined, includes exploratory mining in areas that have since been
excluded from the target area.
(4) Refers to the North West Province only.
(5) Information on carats, cash cost per tonne and recovered grade includes
contractor produce not previously reported in H1 results.
Financial Performance
Income statement
The Group's loss for the period under review, after impairments, totalled
US$87.2 million compared to a loss of US$39.0 million for the year ended 31
August 2008. To provide helpful context the following should be noted:
* The positive trend in underlying earnings evidenced by the year on year (FY08:
US$(13.1) million -v- FY09: US$(0.4) million) and half on half (H1: US$(2.9)
million -v- H2: US$2.5 million) progression towards positive EBITDA before
impairments and non-operating expenses was due largely to decisions taken in the
first half to mitigate losses.
* At 28 February 2009, the Group impaired its diamond inventory by US$32.1
million, as a result of the abnormal pricing environment, as well as its
goodwill and diamond mining and exploration properties to the value of US$25.3
million after tax (US$27.7 million before tax).
* There were no impairments in H2.
* Consistent with its accounting policy, the Group expensed exploration and
evaluation costs incurred, save for plant and equipment acquired during the
period, amounting to US$10.3 million.
* Exceptional cash costs relating to non-producing mines of US$3.15 million
incurred in H1.
* c.550 employees were retrenched in H1 at a total cost of US$0.43 million to the
Group.
* Expensing of non-cash equity payments to employees amounted to US$1.0 million.
* Loss per share and diluted loss per share for the period ended was US$0.69
(FY08: US$0.37).
Balance sheet
As at 31 August 2009, the Group had:
* Current assets of US$48.1 million, being cash at hand of US$13.9 million,
inventory of US$22.8 million and receivables of US$11.4 million. The Group will
benefit from its strong liquidity and available cash and inventory level to
execute its stated strategy.
* Net working capital of US$44.8 million, with current liabilities of US$3.4
million.
* Property, plant and equipment of US$40.7 million.
Mining Segment
Following the crash in diamond prices at the start of the financial year,
management reacted quickly to shut down mining operations in the North West in
November 2008. However, in H2 as a result of the improvement in diamond prices,
four mines in the North West were gradually re-opened and at year-end they were
all operating on a cash positive basis, delivering an overall EBITDA before
impairments and non-operational expenses for the mining segment at US$(0.9)
million (H1: US$(1.3) million -v- H2: US$0.4 million).
South Africa - North West Province
The North West is currently the principal focus of the Group's mining operations
and contains its production mines: (i) Central Node; (ii) Northern Node; (iii)
South West Node; (iv) South East Node; and (v) South Node.
Rapid shutdown took place at all mines in November 2008 and cost saving
measures, were implemented, with the retrenchment of mining and support staff.
However, a sufficient number of core employees with key skills were retained to
continue mining at a significantly reduced level and to perform rehabilitation
and care and maintenance activities. Vital strategic development plans like the
scheduled commissioning of the first DMS plant at the South East Node continued.
During H2, mining activities gradually resumed and the South East and Central
Nodes operated on a cash positive basis throughout the second half of the year,
whilst the Northern Node became cash positive in May 2009 and the South West
Node became cash positive in August 2009. This trend has continued since the
year-end, with all four nodes operating on a cash positive basis. The South Node
remains on care and maintenance.
The North West produced 26,256 carats during the year (H1: 14,247cts -v- H2:
12,009cts), with an average grade of 0.61cpht (H1: 0.48cpht -v- H2: 0.91cpht)
and an average cost of US$367/ct (H1: US$430/ct -v- H2: US$279/ct). The average
price for the year was US$325/ct, with a significant increase between Q3 and Q4
from US$244/ct to US$383/ct.
Given the uncertainty surrounding the recovery of rough diamond prices, the book
value of all goodwill and undeveloped property was written off in the first half
of the year. The total impairment cost amounted to US$27.3 million resulting in
a total segment loss of US$37.1 million before tax for the period under review.
Since the year-end, to the date of this announcement, an additional 6,725
carats, at an average grade of 0.87cpht have been recovered from the North West
operations.The largest stone recovered to date weighing 43.7 carats, together
with several stones between 10 and 30 carats.
The Group's expansion plans in the North West will continue to be assessed in
line with market developments. The original plan to commission a combination of
three DMS plants and 4 bespoke pan units by June 2009 was determined to be
unjustified in the financial climate. However, plans to fully commission the DMS
plant at SEN were continued and by year-end the plant was operating at 200
tonnes per-hour. The success of this development is highlighted by the fact that
the mine produced 2,954 carats during the year but this only included 4 months
of production, as the new DMS was installed. Since the year-end, 1,485 carats
have been produced at SEN, with an average grade of 1.2cpht, 60% higher than
budgeted, and an average price of US$400/ct. To date, 11% of the SEN production
has been diamonds larger than 10cts.
The capacity of the SEN DMS will be ramped-up to 400-450 tonnes per-hour in
2010, at an estimated one-off capital cost of US$1.6 million, as the mine
becomes the Group's flagship operation in the North West.
The other two DMS plants owned by the Group are available for employment within
the South African operations. Management believe that the time to production of
these additional DMS plants will only take 9 - 12 months once put into
commission, compared with the 18 month development period at SEN.
The Group has sufficient resources in the North West to sustain production for
the medium to long-term. Due to the depressed state of the diamond market there
are a number of opportunities available to the Group for expansion. In line with
its stated strategy, the Group will assess these opportunities and act on them
if they represent appropriate and value accretive investment opportunities.
Democratic Republic of Congo
Namakwa Diamonds remains the only listed diamond resource group in production in
the DRC at present. A highly motivated and competent team of professionals is in
place and the requisite infrastructure has been created in the area to provide
the Company with a springboard for further growth.
The Group has concentrated its activities in the DRC on two areas on the Kasai
River, where trial mining has taken place for the year under review. In June
2009, an additional DMS plant was successfully installed on the area under
development to supplement the two producing DMS units already present.
The DRC trial mining concessions recovered 20,486 carats during the year (H1:
2,475cts -v- H2: 18,011cts - with 14,000 carats recovered between 1 June - 31
August 2009), with an average recovered grade of 7.72cpht, although those
concessions warranting development in 2010 have produced an average recovered
mining grade of 10cpht. The largest stone recovered to date weighing 21cts.
Since the year-end, to the date of this announcement an additional 8,270 carats
have been recovered from the DRC operations.
The 2010 financial year will see operations ramped-up to full mining with the
DMS plants operating at a combined 70 tonnes per hour, with a run-of-mine head
feed of 160-170 tonnes per hour. Budgeted monthly production, once full mining
capacity is achieved during H1 2010, is expected to be 7,000 to 9,000 carats per
month. At current DMS capacity, expected mining costs and revenues are likely to
be similar (around US$60 - US$70/ct) providing a cash neutral operation until
there is further expansion. At current capacity, the life of mine is in excess
of 15 years presenting the opportunity to increase volumes and enhance
profitability.
Namibia
The Group's interests in Namibia are centred on the marine Tidal project, which
is situated north of the port of Luderitz and consists of mining and exclusive
prospecting rights that offer development and growth opportunities for Namakwa
Diamonds. The Tidal project is focused on the exploration and prospecting of
marine deposits. The Group's principal diamond recovery methods comprise
vessel-based sampling operations and diver?based exploration operations.
The mining and exploration of the Tidal concession remains a focus for the Group
and discussions with various contractors are underway.
Angola
Whilst there were no mining operations conducted on the Group's development
projects in Angola during the period under review, the Group remains focused on
assessing potential operations within the region.
Beneficiation Segment
The Group's beneficiation business is key to its strategy to capture a larger
share of the diamond industry value chain. Over the last 30 years, Namakwa
Diamonds' beneficiation business has been able to develop significant expertise,
extensive relationships and a reliable client and supplier network, principally
through the Beneficiation Team's reputation for excellent diamantaire skills.
These skills, together with the relationships of trust that the team has built
up with clients and suppliers over this period, have enabled the business to
grow and allow the Group to develop its integrated strategy in such a closed
industry.
The table below provides an overview of the beneficiation segment's results for
the year under review:
+----------------------------+------------+-----------+----------+-----------+
| Beneficiation Segment | FY '09 | FY '09 | FY '08 | FY '08 |
+----------------------------+------------+-----------+----------+-----------+
| | Carats | US$/Carat | Carats | US$/Carat |
+----------------------------+------------+-----------+----------+-----------+
| Rough purchased from third | 72,715 | 214 | 183,652 | 320 |
| parties | | | | |
+----------------------------+------------+-----------+----------+-----------+
| Rough purchased from North | 23,123 | 398 | 27,177 | 652 |
| West | | | | |
+----------------------------+------------+-----------+----------+-----------+
| Rough purchased from DRC | 8,465 | 61 | - | - |
+----------------------------+------------+-----------+----------+-----------+
| Rough sold to third | 215,181 | 93 | 74,112 | 423 |
| parties | | | | |
+----------------------------+------------+-----------+----------+-----------+
| | | | | |
+----------------------------+------------+-----------+----------+-----------+
| Polished purchased from | 721 | 6,103 | 344 | 12,352 |
| third parties | | | | |
+----------------------------+------------+-----------+----------+-----------+
| Polished produced | 2,689 | 5,484 | 3,472 | 1,248 |
+----------------------------+------------+-----------+----------+-----------+
| Polished sold | 1,416 | 5,067 | 600 | 9,542 |
+----------------------------+------------+-----------+----------+-----------+
The beneficiation segment incurred a loss of US$34.7 million for the year under
review, including the impairment charge of US$32.1 million. Recognising the
widespread uncertainty regarding diamond prices for the next few terms, at the
time of releasing the results for H1, the Group re-valued inventory on hand at
28 February 2009, at probable prices attainable over a 12 month period in the
ordinary course of business and the impairment provision recognised.
EBITDA excluding impairments and non-operational expenses for the segment was
US$0.5 million (H1: US$(1.6) million -v- H2: US$2.1 million). Given the up-turn
in pricing in H2, Management's valuation of the diamond inventory, based on the
realisable value of product at year-end was US$32.8 million, compared to a book
value of US$22.4 million.
As at 31 August 2009, the Group owned 34,968 carats of rough diamonds (FY08:
143,810cts) at an average and impaired book value of US$306/ct (FY08: US$311/ct
cost) and 2,786 carats of polished diamonds (FY08: 793cts) at an average and
impaired value of US$4,207/ct (FY08: US$4,990/ct cost). The Group's diamond
inventory is unleveraged.
The lower price per carat achieved for rough diamonds during the year was as a
result of disposing of the bulk of the Group's low value product as well as the
impact of depressed global markets on rough diamond prices.
During the period, the Group produced polished diamonds with an average price of
US$5,484/ct (FY08: US$1,284/ct) following a decision to change the composition
of inventory. The change occurred as a result of the Group manufacturing higher
quality diamonds during a period when prices for larger more expensive rough
product was free falling.
Outlook
On the back of a turbulent FY09, the outlook for the coming year remains
positive: production levels are increasing; the Group's beneficiation experience
presents buying opportunities as the sale of goods acquired under current
conditions is seen to deliver high returns; the current disjoint in rough and
polish prices has presented opportunities which the Group will continue to
capitalise on in both rough and polished stones. Furthermore, opportunities for
the acquisition of distressed assets are expected to continue to arise.
As a result, the Group's FY10 production targets are to recover 50,000 carats in
the North West and 90,000 carats in the DRC. In addition, management remains
confident that EBITDA margins can be sustained at prevailing input costs.
Board Changes
During the period the following changes have been made to the Namakwa Diamonds
Board structure:
* On 1 March 2009, Mr. Jacques Conradie was appointed as Chief Financial Officer
and Mr. Jean Nel, the previous incumbent Chief Financial Officer, was appointed
Executive Director of Strategy and Business Development.
* On 1 March 2009, Mr. James Cross was appointed as a non-executive director.
* On 1 March 2009, Mr. Andries Janzen stepped down as an executive director.
* On 31 May 2009, Mr. Altie Krige resigned as Chief Operating Officer. His
position on the board was not replaced.
* On 21 August 2009, Mr. Jean Nel resigned as the Executive Director of Strategy
and Business Development. His position on the board was not replaced.
The Company's Board composition is compliant with the United Kingdom's Combined
Code on Corporate Governance.
Namakwa Diamond Holdings (Pty) Ltd - "A" Preference Shares
As of 31 August 2009, there were 119,522,260 ordinary shares in issue. Investors
should be aware of the financial impact of the 6,766,080 "A" shares in the
capital of a South African intermediary holding company which have a dilutive
effect, since they effectively carry economic rights similar to ordinary shares,
including the right to any dividend.
Forward-Looking Statements
This announcement includes forward-looking statements that reflect the current
views of the Group's management with respect to future events. These
forward-looking statements include matters that are neither historical facts nor
are statements regarding the Group's intentions, beliefs or current expectations
concerning, among other things, the Group's results of operations, financial
condition, liquidity, prospects, growth, strategies, and the industries in which
the Group operates. Forward-looking statements are based on current plans,
estimates and projections, and therefore too much reliance should not be placed
upon them. Such statements are subject to risks and uncertainties, most of which
are difficult to predict and are generally beyond the Group's control. The Group
cautions you that forward-looking statements are not guarantees of future
performance and that if risks and uncertainties materialise, or if the
assumptions underlying any of these statements prove incorrect, the Group's
actual results of operations, financial condition and liquidity and the
development of the industry in which the Group operates may materially differ
from those made in, or suggested by, the forward-looking statements contained in
this announcement. In addition, even if the Group's results of operations,
financial condition and liquidity and the development of the industry in which
the Group operates are consistent with the forward-looking statements contained
in this announcement, those results or developments may not be indicative of
results or developments in future periods. Except as required by the United
Kingdom Listing Authority's Listing Rules and applicable law, the Group does not
undertake any forward-looking statements to reflect events that occur or
circumstances that arise after the date of this announcement.
Ability to Fund Operations
The Company has sufficient cash and other net working capital that is required
to fund its activities in the ordinary course of business.
Accounting Standards
Namakwa Diamonds' financial results have consistently been reported in
accordance with International Financial Reporting Standards ("IFRS").
STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS
The directors are responsible for the preparation, integrity and fair
presentation of the financial statements of Namakwa Diamonds Limited and its
subsidiaries (the Group). The financial statements presented have been prepared
in accordance with International Financial Reporting Standards (IFRS), and
include amounts based on judgements and estimates made by management.
The directors consider that in preparing the financial statements they have used
the most appropriate accounting policies, consistently applied and supported by
reasonable and prudent judgements and estimates, and that all IFRS that they
consider to be applicable have been followed. The directors are satisfied that
the information contained in the financial statements fairly presents the
results of operations for the year and the financial position of the Group at
year end. The directors also reviewed the other information included in the
preliminary financial report and are responsible for both its accuracy and its
consistency with the financial statements.
The directors have responsibility for ensuring that accounting records are kept.
The accounting records should disclose with reasonable accuracy the financial
position of the companies to enable the directors to ensure that the financial
statements comply with the relevant legislation.
The going-concern basis has been adopted in preparing the financial statements.
The directors have no reason to believe that the company will not be a going
concern in foreseeable future based on forecast and available cash resources.
These financial statements support the viability of the Group.
The financial statements were approved by the board of directors on 28 October
2009 and are signed on its behalf by:
+----------------------------------------+----------------------------------------+
| ___________________________ | __________________________ |
+----------------------------------------+----------------------------------------+
| N Kruger | J Conradie |
+----------------------------------------+----------------------------------------+
| Chief Executive Officer | Chief Financial Officer |
+----------------------------------------+----------------------------------------+
Consolidated income statement
+-------------------------------------------------------+--------+-----------+----------+
| | | Year | Year |
| | | ended 31 | ended 31 |
| | | Aug | Aug |
+-------------------------------------------------------+--------+-----------+----------+
| In thousands of US dollars | Note | 2009 | 2008 |
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| | |Unaudited | Audited |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Revenue | | 27 270 | 41 722 |
+-------------------------------------------------------+--------+-----------+----------+
| Cost of sales | 8 | (61 255) | (47 171) |
+-------------------------------------------------------+--------+-----------+----------+
| Gross loss | | (33 985) | (5 449) |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Other (expenses)/income | 9 | (472) | (47) |
+-------------------------------------------------------+--------+-----------+----------+
| Impairment of property, plant, equipment and goodwill | 18 | (27 684) | - |
+-------------------------------------------------------+--------+-----------+----------+
| Exploration and evaluation expenses* | | (10 289) | (8 262) |
+-------------------------------------------------------+--------+-----------+----------+
| Acquired exploration properties expensed | 10 | (728) | (6 766) |
+-------------------------------------------------------+--------+-----------+----------+
| Listing cost expensed | 11 | - | (4 404) |
+-------------------------------------------------------+--------+-----------+----------+
| Other operating expenses | 12 | (16 727) | (15 165) |
+-------------------------------------------------------+--------+-----------+----------+
| Operating loss before finance costs and taxation | | (89 885) | (40 093) |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Finance income | 14 | 438 | 2 759 |
+-------------------------------------------------------+--------+-----------+----------+
| Finance expenses | 14 | (361) | (2 695) |
+-------------------------------------------------------+--------+-----------+----------+
| Net financing income | | 77 | 64 |
+-------------------------------------------------------+--------+-----------+----------+
| Loss before taxation | | (89 808) | (40 029) |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Taxation | 15 | 2 611 | 1 027 |
+-------------------------------------------------------+--------+-----------+----------+
| Loss for the year | | (87 197) | (39 002) |
+-------------------------------------------------------+--------+-----------+----------+
| - attributable to minority interest shareholders | | (4 672) | (4 772) |
+-------------------------------------------------------+--------+-----------+----------+
| - attributable to equity shareholders of | | (82 525) | (34 230) |
| Namakwa Diamonds Limited | | | |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Basic loss per ordinary share (dollars) | 25 | (0.69) | (0.37) |
+-------------------------------------------------------+--------+-----------+----------+
| Diluted loss per ordinary share (dollars) | 25 | (0.69) | (0.37) |
+-------------------------------------------------------+--------+-----------+----------+
| | | | |
+-------------------------------------------------------+--------+-----------+----------+
| Paid and proposed dividends | | - | - |
+-------------------------------------------------------+--------+-----------+----------+
* Previously called exploration expenses
The notes following are an integral part of the Consolidated Financial
statements
Consolidated balance sheet
+----------------------------------------------------+-------+-----------+-----------+
| | | | As at |
+----------------------------------------------------+-------+-----------+-----------+
| | | 31 Aug | 31 Aug |
+----------------------------------------------------+-------+-----------+-----------+
| In thousands of US dollars | Note | 2009 | 2008 |
+----------------------------------------------------+-------+-----------+-----------+
| | | Unaudited | Audited |
+----------------------------------------------------+-------+-----------+-----------+
| | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Assets | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Property, plant and equipment | 17 | 40 684 | 66 952 |
+----------------------------------------------------+-------+-----------+-----------+
| Goodwill | 18 | - | 4 572 |
+----------------------------------------------------+-------+-----------+-----------+
| Total non-current assets | | 40 684 | 71 524 |
+----------------------------------------------------+-------+-----------+-----------+
| | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Inventories | 20 | 22 785 | 49 210 |
+----------------------------------------------------+-------+-----------+-----------+
| Trade and other receivables | 21 | 11 458 | 16 090 |
+----------------------------------------------------+-------+-----------+-----------+
| Cash and cash equivalents | 22 | 13 879 | 52 020 |
+----------------------------------------------------+-------+-----------+-----------+
| Total current assets | | 48 122 | 117 320 |
+----------------------------------------------------+-------+-----------+-----------+
| Total assets | | 88 806 | 188 844 |
+----------------------------------------------------+-------+-----------+-----------+
| | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Equity | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Capital and reserves attributable to the equity | | | |
| holders of the Company | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Issued capital | 23 | 75 | 74 |
+----------------------------------------------------+-------+-----------+-----------+
| Share premium | 23 | 230 040 | 227 131 |
+----------------------------------------------------+-------+-----------+-----------+
| Reserves | 23 | (6 182) | (1 967) |
+----------------------------------------------------+-------+-----------+-----------+
| Accumulated loss | | (147 139) | (64 691) |
+----------------------------------------------------+-------+-----------+-----------+
| Total | | 76 794 | 160 547 |
+----------------------------------------------------+-------+-----------+-----------+
| Minority interest in equity | | 4 347 | 12 020 |
+----------------------------------------------------+-------+-----------+-----------+
| Total equity | | 81 141 | 172 567 |
+----------------------------------------------------+-------+-----------+-----------+
| | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Liabilities | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Interest-bearing loans and borrowings | 26 | 1 030 | 1 598 |
+----------------------------------------------------+-------+-----------+-----------+
| Provisions | 29 | 2 778 | 3 003 |
+----------------------------------------------------+-------+-----------+-----------+
| Deferred tax liabilities | 19 | 488 | 3 547 |
+----------------------------------------------------+-------+-----------+-----------+
| Total non-current liabilities | | 4 296 | 8 148 |
+----------------------------------------------------+-------+-----------+-----------+
| | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Trade and other payables | 30 | 2 790 | 7 486 |
+----------------------------------------------------+-------+-----------+-----------+
| Short term portion of interest-bearing loans | 26 | 575 | 586 |
| and borrowings | | | |
+----------------------------------------------------+-------+-----------+-----------+
| Tax liabilities | 16 | 4 | 57 |
+----------------------------------------------------+-------+-----------+-----------+
| Total current liabilities | | 3 369 | 8 129 |
+----------------------------------------------------+-------+-----------+-----------+
| Total liabilities | | 7 665 | 16 277 |
+----------------------------------------------------+-------+-----------+-----------+
| Total equity and liabilities | | 88 806 | 188 844 |
+----------------------------------------------------+-------+-----------+-----------+
The notes following are an integral part of the Consolidated Financial
statements
Consolidated statement of changes in equity
+-----------------------------------------------+--------+--------+----------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| In thousands of US dollars | | Share | Share | Translation | Share | Accumulated | Total equity | Minority | Total |
| | | capital | premium | reserve | based | Loss | attributable | interests | equity |
| | | | | | payment | | to ordinary | | |
| | | | | | reserve | | shareholders | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Year ended 31 August 2009 (Unaudited): | | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Balance at 1 September 2008 | | 74 | 227 131 | (4 165) | 2 198 | (64 691) | 160 547 | 12 020 | 172 567 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Shares issued | Note | 1 | 2 621 | | | | 2 622 | | 2 622 |
| | 23 | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Value of Services provided | | | | | 1 026 | | 1 026 | | 1 026 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Exercise of awards | | | 288 | | (288) | | - | | - |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Issue of "A" Shares | | | | | | | | 401 | 401 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Repurchase of 'A' shares | | | | | | | | (3 123) | (3 123) |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Change on translation of foreign operations | | | | (5 155) | | | (5 155) | | (5 155) |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Loss for the year | | | | | | (82 525) | (82 525) | (4 672) | (87 197) |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| | Note | 75 | 230 040 | (9 320) | 2 936 | (147 216) | 76 515 | 4 626 | 81 141 |
| | 23 | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Gain/ (loss) arising from impact on minority | | | | 204 | (2) | 77 | 279 | (279) | - |
| interest of the above equity transactions | | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Balance at 31 August 2009 | | 75 | 230 040 | (9 116) | 2 934 | (147 139) | 76 794 | 4 347 | 81 141 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| | | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Year ended 31 August 2008 (Audited): | | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Balance at 1 September 2007 | | 24 | 11 203 | 33 | 822 | (11 977) | 105 | 28 | 133 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Shares issued | Note | 31 | 171 639 | - | - | - | 171 670 | - | 171 670 |
| | 23 | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Value of services provided | | - | - | - | 2 980 | - | 2 980 | - | 2 980 |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Exercise of awards | | 1 | 1 439 | - | (1 440) | - | - | - | - |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Conversion of preference shares | | 18 | 42 850 | - | - | - | 42 868 | - | 42 868 |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Repurchase of 'A' shares | | - | - | - | - | - | - | (1 585) | (1 585) |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Minorities arising from business combinations | | | | | | | - | 226 | 226 |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Change on translation of foreign operations | | - | - | (4 510) | - | - | (4 510) | - | (4 510) |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Loss for the year | | - | - | - | - | (34 230) | (34 230) | (4 772) | (39 002) |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| | Note | 74 | 227 131 | (4 477) | 2 362 | (46 207) | 178 883 | (6 103) | 172 780 |
| | 23 | | | | | | | | |
+-----------------------------------------------+--------+--------+--------------------------------------------------------+-------------+---------+-------------+----------------+-----------+----------+
| Gain/ (loss) arising from impact on minority | | - | - | 312 | (164) | (18 484) | (18 336) | 18 123 | (213) |
| interest of the above equity transactions | | | | | | | | | |
+-----------------------------------------------+--------+-------------------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
| Balance at 31 August 2008 | | 74 | 227 131 | (4 165) | 2 198 | (64 691) | 160 547 | 12 020 | 172 567 |
+-----------------------------------------------+--------+--------+----------------------------------------------+---------+-------------+---------+-------------+----------------+-----------+----------+
Consolidated statement of cash flows
+------------------------------------------------+---------+-------------+------------+
| In thousands of US dollars | Note | Year ended | Year ended |
| | | 31 | 31 Aug |
| | | Aug | |
+------------------------------------------------+---------+-------------+------------+
| | | 2009 | 2008 |
+------------------------------------------------+---------+-------------+------------+
| | | Unaudited | Audited |
+------------------------------------------------+---------+-------------+------------+
| | | | |
+------------------------------------------------+---------+-------------+------------+
| Cash flows from operating activities | | | |
+------------------------------------------------+---------+-------------+------------+
| Loss for the year before tax | | (89 808) | (40 029) |
+------------------------------------------------+---------+-------------+------------+
| Adjustments for: | | | |
+------------------------------------------------+---------+-------------+------------+
| Depreciation | 17 | 6 050 | 3 936 |
+------------------------------------------------+---------+-------------+------------+
| Acquired exploration assets expense | | 327 | 6 766 |
+------------------------------------------------+---------+-------------+------------+
| Net realisable write down of inventory | 8 | 32 116 | 3 397 |
+------------------------------------------------+---------+-------------+------------+
| Impairment of non-financial assets | 18 | 27 684 | - |
+------------------------------------------------+---------+-------------+------------+
| Net finance (income)/expense | 14 | (77) | (64) |
+------------------------------------------------+---------+-------------+------------+
| Loss on disposal of property, plant and | 9 | 639 | 57 |
| equipment | | | |
+------------------------------------------------+---------+-------------+------------+
| Foreign exchange rate differences | 12 | 612 | - |
+------------------------------------------------+---------+-------------+------------+
| A shares issued for exploration rights | | 401 | - |
+------------------------------------------------+---------+-------------+------------+
| Impairment of accounts receivable balances | 12 | 516 | - |
+------------------------------------------------+---------+-------------+------------+
| Equity settled share-based payment | 13,27 | 1 026 | 3 780 |
| transactions | | | |
+------------------------------------------------+---------+-------------+------------+
| | | (20 514) | (22 157) |
+------------------------------------------------+---------+-------------+------------+
| | | | |
+------------------------------------------------+---------+-------------+------------+
| Change in inventories | | (5 691) | (43 380) |
+------------------------------------------------+---------+-------------+------------+
| Change in trade and other receivables | | 3 770 | (8 980) |
+------------------------------------------------+---------+-------------+------------+
| Change in trade and other payables | | (4 230) | 660 |
+------------------------------------------------+---------+-------------+------------+
| Change in provisions | 29 | (177) | 1 438 |
+------------------------------------------------+---------+-------------+------------+
| Net cash outflows from operations | | (26 842) | (72 419) |
+------------------------------------------------+---------+-------------+------------+
| Interest paid | 14 | (361) | (1 597) |
+------------------------------------------------+---------+-------------+------------+
| Income taxes paid | | (96) | (53) |
+------------------------------------------------+---------+-------------+------------+
| Net cash used in operating activities | | (27 299) | (74 069) |
+------------------------------------------------+---------+-------------+------------+
| | | | |
+------------------------------------------------+---------+-------------+------------+
| Cash flows from investing activities | | | |
+------------------------------------------------+---------+-------------+------------+
| Interest received | 14 | 438 | 2 759 |
+------------------------------------------------+---------+-------------+------------+
| Acquisition of subsidiaries, net of cash | 7 | - | (3 011) |
| acquired | | | |
+------------------------------------------------+---------+-------------+------------+
| Acquisition of property, plant and equipment | 17 | (6 204) | (32 315) |
+------------------------------------------------+---------+-------------+------------+
| Acquisition of exploration assets | | (3 815) | (6 766) |
+------------------------------------------------+---------+-------------+------------+
| Proceeds from disposal of property, plant and | | 100 | - |
| equipment | | | |
+------------------------------------------------+---------+-------------+------------+
| Net cash used in investing activities | | (9 481) | (39 333) |
+------------------------------------------------+---------+-------------+------------+
| | | | |
+------------------------------------------------+---------+-------------+------------+
| Cash flows from financing activities | | | |
+------------------------------------------------+---------+-------------+------------+
| Proceeds from the issue of share capital | 23 | 2 622 | 170 870 |
+------------------------------------------------+---------+-------------+------------+
| Buy back of Elite minorities | 7 | - | (365) |
+------------------------------------------------+---------+-------------+------------+
| Buy back of A Shares | 24 | (3 123) | (1 433) |
+------------------------------------------------+---------+-------------+------------+
| Repayment of borrowings | | (579) | (7 243) |
+------------------------------------------------+---------+-------------+------------+
| Buy back of preference shares | 26 | - | (1 682) |
+------------------------------------------------+---------+-------------+------------+
| Net cash from financing activities | | (1 080) | 160 147 |
+------------------------------------------------+---------+-------------+------------+
| | | | |
+------------------------------------------------+---------+-------------+------------+
| Net increase in cash and cash equivalents | | (37 860) | 46 745 |
+------------------------------------------------+---------+-------------+------------+
| Cash and cash equivalents at the beginning of | | 52 020 | 6 411 |
| the period | | | |
+------------------------------------------------+---------+-------------+------------+
| Effect of exchange rate fluctuations on cash | | (281) | (1 136) |
| held | | | |
+------------------------------------------------+---------+-------------+------------+
| Cash and cash equivalents at 31 August 2008 | 22 | 13 879 | 52 020 |
+------------------------------------------------+---------+-------------+------------+
The notes following are an integral part of the Consolidated Financial
statements
Notes to the consolidated financial statements
1.Reporting entity
Namakwa Diamonds Limited (the "Company") is a company that was incorporated in
Bermuda on 20 October 2006. The address of the Company's registered office is
Clarendon House, 2 Church Street, Hamilton. The consolidated financial
statements of the Company have been prepared for the year ended 31 August 2009
and comprise the Company and its subsidiaries (together referred to as the
"Group" and individually as "Group entities").
Since incorporation the Company has acquired a number of exploration and
evaluation assets and entities involved in the exploration, development and sale
of diamonds. Following these acquisitions the Group is primarily involved in the
exploration, mining, trading and sale of diamonds. The Group's current operating
mines are located in South Africa and the principal locations of its exploration
and evaluation projects are South Africa, the Democratic Republic of Congo,
Angola and Namibia.
The Company has a primary listing on the London stock exchange.
The Group consolidated financial statements were authorised for issue by the
Board of Directors on 28 October 2009.
2.Basis of preparation
The preliminary annual financial statements for the twelve months ended 31
August 2009 do not constitute statutory accounts and have been drawn up using
accounting policies and presentation consistent with those applied in the
financial information presented in the annual financial statements for the
period ended 31 August 2008.
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS's) and International Financial
Reporting Interpretations Committee (IFRIC) interpretations and on the
assumption that the entity is a going concern.
(b)Basis of measurement
The consolidated financial statements have been prepared on the historical cost
basis, adjusted for impairments, except for the following:
?financial instruments at fair value through profit or loss are measured at fair
value
?available-for-sale financial assets are measured at fair value
?share based payments at fair value, in accordance with IFRS 2
?fair value of assets and liabilities acquired through a Business Combination,
in accordance with IFRS 3
The methods used to measure fair values are discussed further in note 4.
(c) Use of estimates and judgements
The preparation of financial statements in conforming to IFRS requires
management to make judgements, 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. Revisions
to accounting estimates are recognised in the year in which the estimates are
revised and in any future years affected.
Notes to the consolidated financial statements
2.Basis of preparation (continued)
In particular, significant areas of estimation uncertainty and critical
judgements in applying accounting policies that have the most significant effect
on the amounts recognised in the financial statements relate to the following:
(i) Business combinations
A business combination results in the assets, liabilities and contingent
liabilities of the acquiree being recognised at their fair values on the date of
the business combination.
The significant fair values resulting from these transactions for the group
relate to:
* Property, plant and equipment
* Inventories
For details of these fair values calculated refer to Note 4.
There were no business combinations occurring during the 2009 period. It was not
necessary to adjust the fair values arising from the 2008 business combinations
for any changes in provisional amounts.
(ii) Impairment of property, plant, equipment and goodwill
The recoverable amounts of cash generating units have been determined based on
fair values less costs to sell.
Details of the assumptions used and the results of the impairment can be found
in Note 18.
(iii) Utilisation of tax losses
The group is subject to income taxes in a number of jurisdictions. At present
many of the entities are making tax losses. These tax losses are only recognised
to the extent that there are future taxable profits to offset against these
losses.
(iv) Net realisable value of inventory
During the period diamond prices were severely affected by the downturn in the
global financial markets. It therefore became necessary to write down much of
the groups' diamond inventories to net realisable value.
Details of the reasons and assumptions for the write down are included in Note
20.
(v) Measurement of share-based payments
The granting of share options to employees requires the recognition of the fair
value of the option granted to be recognised over the vesting period of the
option. Refer to note 4 for details of the fair value evaluation.
(vi) Provisions
The group is required to rehabilitate the mining sites in accordance with local
laws. The basis for these estimates is obtained from the experience of
management and by comparison to current market related costs. Refer to note 29
for details of the assumptions used.
Notes to the consolidated financial statements
2.Basis of preparation (continued)
(vii) Mineral resources
The estimate of remaining mineral resources is based on the use of external
experts. The estimate of these resources is used for the initial valuation of
assets acquired under business combinations and the amortisation of the
undeveloped properties and mineral rights.
The estimate of the Group's mineral resources is a critical estimate which
impacts the recognition and measurement of the Group's assets, liabilities and
depreciation expense.
(d) Accounting for acquisitions of entities under common control
The Group's
policy is to account for business combinations between entities under common
control using the acquisition accounting provisions of IFRS 3 Business
Combinations, which require the recognition of the assets and liabilities of the
subsidiaries at fair value at the date of acquisition, and the consolidation of
the businesses from that date.
3. Significant accounting policies
The principal accounting policies applied by the Group in the preparation of
these consolidated financial statements are set out below. These policies have
been consistently applied to all the periods presented, unless otherwise stated.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities (including special purpose entities) controlled by the
Group. Control exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In
assessing control, potential voting rights that currently are exercisable are
taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the
date that control ceases. The accounting policies of subsidiaries have been
changed where necessary to align them with the policies adopted by the Group.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured at the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the Income
Statement.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses on intercompany
transactions are also eliminated but considered an impairment indicator of the
asset transferred.
(ii) Transactions with minority shareholders - 'economic entity approach'
The group applies a policy of treating transactions with minority interests as
transactions with equity owners of the group. For purchases from minority
interests, the difference between any consideration paid and the relevant share
acquired of the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to minority interests are also recorded in
equity.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
(iii) Jointly controlled assets
Some joint ventures involve the joint control of one or more assets contributed
to, or acquired for the purpose of, the joint venture and dedicated to the
purposes of the joint venture. The assets are used to obtain benefits for the
venturers. These joint ventures do not involve the establishment of a
corporation, partnership or other entity, or a financial structure that is
separate from the venturers themselves. Each venturer has control over its share
of future economic benefits through its share of the jointly controlled asset.
In respect of its interest in jointly controlled assets, the Group recognises:
? its share of the jointly controlled assets, classified according to the nature
of the assets;
? any liabilities that it has incurred;
? its share of any liabilities incurred jointly with the other venturers in
relation to the joint venture;
? any income from the sale or use of its share of the output of the joint
venture, together with its share of any expenses incurred by the joint venture;
and
? any expenses that it has incurred in respect of its interest in the joint
venture.
(b) Foreign currency
(i) Functional and presentation currency
The consolidated financial statements is presented in US dollars, which is the
Company's functional currency. All financial information presented in US dollars
has been rounded to the nearest thousand.
(ii) Foreign currency transactions
Foreign currency transactions are recorded at the rate of exchange ruling at the
transaction date, unless this is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates. Monetary
assets and liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at the balance sheet date. Gains and losses arising on
translation are credited to or charged against income.
(iii) Foreign currency translation on consolidation
On consolidation, Income Statement items are translated into US dollars at
average rates of exchange. Balance Sheet items are translated at year end
exchange rates. Exchange differences on translation of the net assets of
entities with functional currencies other than the US dollar are recognised
directly in equity in the foreign currency translation reserve.
(iv) Net investments in subsidiaries
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, are taken to the foreign currency translation
reserve. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are recognised in the income statement
as part of the gain or loss on sale
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
(c) Financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash
and cash equivalents, loans and borrowings, preference shares and trade and
other payables. Financial assets are defined as cash, an equity instrument of
another entity, or a contractual right to receive cash or another financial
asset or to exchange a financial instrument under favourable conditions.
Financial liabilities are contractual obligations to pay cash or transfer other
benefits or an obligation to exchange financial instruments under unfavourable
conditions.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
Financial instruments are recognised when the Group becomes a party to the
contractual provisions of the instrument. A financial asset is derecognised when
the contractual rights to the cash flows from the financial asset expire, or the
Group transfers the financial asset and such transfer qualify for derecognition.
A financial liability is derecognised when the obligation specified in the
contract is discharged or cancelled or expires.
Regular purchases and sales of financial assets are recognised on the trade-date
- the date on which the Group commits to purchase or sell the asset.
Non-derivative financial instruments are recognised initially at fair value
plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs. Subsequent to initial recognition non-derivative
financial instruments are measured as described below.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Subsequent to
initial recognition, loans and receivables are measured at amortised cost using
the effective interest method, less provision for impairment. The following
financial assets are classified as loans and receivables: Cash and cash
equivalents and trade and other receivables (excluding prepayments and VAT
receivable).
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits, and are
stated at amortised cost. Bank overdrafts that are repayable on demand and form
an integral part of the Group's cash management are included as a component of
cash and cash equivalents for the purpose of the Statement of Cash Flows.
Held-to-maturity investments
If the Group has the positive intent and ability to hold debt securities to
maturity, then they are classified as held-to-maturity. Held-to-maturity
investments are measured at amortised cost using the effective interest method,
less any impairment losses. Investments held-to-maturity are respectively
recognised and derecognised on the day they are transferred to or by the Group.
Trade and other receivables
Trade and other receivables are stated at amortised cost using the effective
interest method less impairment losses.
Financial liabilities at amortised cost
Loans and borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition, interest
bearing borrowings are stated at amortised cost using the effective interest
method with any difference between cost and redemption value being recognised in
the income statement over the period of the borrowings on an effective interest
basis.
Trade and other payables
Trade and other receivables are amounts due from customers for sales performed
in the ordinary course of business. Trade and other payables are stated at
amortised cost using the effective interest method.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
Financial assets at fair value through profit or loss
An instrument is classified at fair value through profit or loss if it is held
for trading or is designated as such upon initial recognition. Financial
instruments are designated at fair value through profit or loss if the Group
manages such investments and makes purchase and sale decisions based on their
fair value in accordance with the Group's documented risk management or
investment strategy. Upon initial recognition attributable transaction costs are
recognised in profit or loss when incurred. Financial instruments at fair value
through profit or loss are measured at fair value, and changes therein are
recognised in the Income Statement.
Other non-derivative financial instruments are measured at amortised cost using
the effective interest rate method, less any impairment losses.
The Group does not hold any derivative financial instruments
(d) Finance income and expenses
Finance income comprises interest income on funds invested. Interest income is
recognised as it accrues, using the effective interest method.
Finance expenses comprise interest expense on borrowings, unwinding of the
discount on provisions, dividends on preference shares classified as
liabilities, and impairment losses recognised on financial assets. All borrowing
costs are recognised in the income statement using the effective interest
method.
(e) Revenue
Revenue from the sale of rough and polished diamonds in the ordinary course of
the Group's activities is measured at the fair value of the consideration
received or receivable. Revenue is shown net of value-added tax, returns,
rebates and discounts and after eliminating sales within the group.
Revenue is recognised when the significant risks and rewards of control have
been transferred to the buyer, recovery of the consideration is probable, the
associated costs can be estimated reliably, and the amount of revenue can be
measured reliably.
(f) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in income except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the year end, and any
adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the
initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit, and
differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred tax is not recognised for taxable
temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the year end.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
Deferred tax assets and liabilities are offset if there is a legally enforceable
right to offset current tax liabilities and assets, and they relate to income
taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future
taxable profits will be available against which the temporary difference can be
utilised. Deferred tax assets are reviewed at each year end and are reduced to
the extent that it is no longer probable that the related tax benefit will be
realised.
(g) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its
equity shareholders. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the year. Diluted EPS is determined
by adjusting the profit or loss attributable to ordinary shareholders and the
weighted average number of ordinary shares outstanding for the effects of all
dilutive potential ordinary shares, which comprise share options granted to
employees.
(h) Exploration and evaluation costs
Exploration and evaluation activities related to the search for mineral
resources and evaluation activities undertaken with the prospect of gaining
knowledge regarding the feasibility study of a mineral properties, is recognised
in the income statement as an expense as incurred.
The costs of acquiring exploration properties and mineral prospecting rights are
written off on acquisition.
Where a property's feasibility study indicates the probability of the inflow of
future economic benefits, all direct development costs thereafter are
capitalised. These costs are classified as mineral properties within tangible
fixed assets and are stated at cost less accumulated amortisation and impairment
losses.
(i) Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses. Cost includes expenditure that
is directly attributable to the acquisition of the asset.
When parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate components of property, plant and
equipment.
Gains and losses on disposal of an item of property, plant and equipment are
determined by comparing the proceeds from disposal with the carrying amount of
property, plant and equipment and are recognised net within "other
(expenses)/income" in the income statement.
The cost of replacing part of an item of property, plant and equipment is
recognised in the carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the Group and its cost
can be measured reliably. The carrying amount of the replaced part is
derecognised. The costs of the day-to-day servicing of property, plant and
equipment are recognised in the income statement as incurred.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
Depreciation is recognised in the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and
equipment except for mineral properties which are depreciated using units of
production. The useful lives of mineral properties and leases and plant and
equipment with the same useful life of the related mineral property is estimated
based on the Group's assessment of the expected productive life of mineral
resources of each project. Depreciation commences at the point of reaching
commercial production. Leased assets are depreciated over the shorter of the
lease term and their useful lives unless it is reasonably certain that the Group
will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives are as follows:
* Mineral properties and leases 5 to 10 years
* Plant and equipment 2 to 10 years
* Buildings under construction Not depreciated
Depreciation methods, useful lives and residual values are reviewed at each year
end. Buildings under construction are not depreciated until they come in use.
(j) Goodwill
Goodwill represents the excess of the cost of the acquisition over the Group's
interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When there is an excess of the acquirers
interest in the net fair value of the acquiree's identifiable assets and
liabilities over costs, it is recognised immediately in the income statement.
Goodwill is measured at cost less accumulated impairment losses. In respect of
equity accounted investees, the carrying amount of goodwill is included in the
carrying amount of the investment. Goodwill is not amortised.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses.
(k) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost
of inventories, per category, is based on the weighted average method, and
includes expenditure incurred in acquiring the inventories, production or
conversion costs and other costs incurred in bringing them to their existing
location and condition. In the case of inventories and work in progress, cost
includes an appropriate share of production overheads based on normal operating
capacity.
Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
(l) Impairment
(i) Financial assets
A financial asset is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is considered
to be impaired if objective evidence indicates that one or more events have had
a negative effect on the estimated future cash flows of that asset. Significant
financial difficulties of the debtor, probability that the debtor will enter
into bankruptcy and default or delinquency in payments are considered indicators
that the trade receivable is impaired.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
An impairment loss in respect of a financial asset measured at amortised cost is
calculated as the difference between its carrying amount, and its recoverable
amount. Individually significant financial assets are tested for impairment on
an individual basis. The remaining financial assets are assessed collectively in
groups that share similar risk characteristics.
The carrying amount of the asset is reduced through the use of an allowance
account, and the amount of the loss is recognised in the income statement. When
a trade receivable is uncollectible, it is written off against the allowance
account.
An impairment loss is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognised. For financial assets
measured at amortised cost the reversal is recognised in the income statement.
(ii) Non-financial assets
The carrying amounts of the Group's non-financial assets, other than inventories
and deferred tax assets, are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists,
then the asset's recoverable amount is estimated. For goodwill, the recoverable
amount is estimated at each year end.
The recoverable amount of an asset or cash-generating unit is the greater of its
value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the "cash-generating unit").
The goodwill acquired in a business combination, for the purpose of impairment
testing, is allocated to cash-generating units that are expected to benefit from
the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its estimated recoverable amount. Impairment losses
are recognised in the income statement. Impairment losses recognised in respect
of cash-generating units are allocated first to reduce the carrying amount of
any goodwill allocated to the units and then to reduce the carrying amount of
the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other
assets, impairment losses recognised in prior periods are assessed at each year
end for any indications that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
(m) Provisions
(i) Provision for mine rehabilitation
In accordance with applicable regulatory requirements, the Group is required to
restore exploration and mining sites at the end of the project lives to a
condition acceptable to the relevant authorities.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
The cost of any committed rehabilitation, decommissioning or restoration
programme is provided for when the obligation arises and the damage has
occurred. Rehabilitation activities are generally undertaken on a continuous
basis at the Group's alluvial mining operations. Where the Group acquires a
property where rehabilitation activities are necessary but have not been
undertaken at the date of control passing, a provision is raised with respect to
the cost of remediating the damage caused by these past activities as part of
the purchase price adjustment. The provision is based on the estimated present
value of the cost to restore the land and the discount on the provision is
unwound through finance costs at each reporting date.
(ii) Other provisions
A provision is recognised if, as a result of a past event, the Group has a
present legal or constructive obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. Movements in provisions
are recognised through the income statement.
(n) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are recognised as
a deduction from equity, net of tax.
Preference share capital
Preference share capital is classified as a liability if it is redeemable on a
specific date or at the option of the shareholders or if dividend payments are
not discretionary. If it does not meet the above criteria, it will be classified
as equity. Dividends on preference shares classified as liabilities are
recognised as interest expenses in the Income Statement according to the
effective yield as accrued.
'A' Shares
A second class of shares, 'A' shares, were issued in Namakwa
Diamonds Holdings (Pty) Ltd, a 100% controlled subsidiary of the Company. These
'A' shares rank pari passu with the rights attaching to the Namakwa Diamond
Limited ordinary shares and give the holder an effective economic interest in
the equity of the Company. As these shares were issued by a subsidiary of the
Company, they have been classified as a minority interest in the Group accounts.
A gain/(loss) arises on the issue of "A" Shares to the minority shareholders
which represents the difference between the fair value of the consideration
received and the share of the carrying amount of the Group's net assets
attributable to the minorities. This gain is transferred to the ordinary
shareholders of the Group within equity, according to the Economic Entity
method.
(o) Employee benefits
(i) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognised
for the amount expected to be paid under short-term cash bonus or profit-sharing
plans if the Group has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and the obligation
can be estimated reliably.
(ii) Share-based payment transactions - equity settled
The grant date fair value of equity settled options granted to employees is
recognised as an employee expense, with a corresponding increase in equity, over
the period that the employees become unconditionally entitled to the options.
The amount recognised as an expense is adjusted to reflect the actual number of
share options that vest.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
(iii) Share-based payment transactions - cash settled
The fair value of the amount payable to employees in respect of share
appreciation rights or similar such instruments, which are settled in cash, is
recognised as an expense, with a corresponding increase in liabilities, over the
period that the employees become unconditionally entitled to payment. The
liability is remeasured at each reporting date and at settlement date. Any
changes in the fair value of the liability are recognised as personnel expense
in the income statement.
When the options are exercised and upon issue of the shares, the par value of
the shares issued will be transferred from the share option reserve to share
capital and the balance to share premium.
(iv) Empowerment transactions
The Company may in the future enter into Black
Economic Empowerment transactions. In these transactions unidentified benefits
may be received by the Company. These benefits will be accounted for in terms of
IFRS 2 - Share based payments, resulting in these benefits being treated as a
share-based compensation expense. Where shares vest immediately, the benefit is
presumed to have been received and is recognised as an expense.
(p) Finance leases
Leases in which the Group assumes substantially all the risks and rewards of
ownership are classified as finance leases. Upon initial recognition the leased
asset is measured at the lower of fair value of the assets and the present value
of the minimum lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to that asset.
Minimum lease payments made under finance leases are apportioned between the
finance expense and the reduction of the outstanding liability. The finance
expense is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
Contingent lease payments are accounted for as expenses in the period in which
they are incurred.
Finance leases are capitalised at commencement of the lease.
(q) Operating leases
Payments made under operating leases are recognised in the income statement on a
straight line basis over the term of the lease. Lease incentives received are
recognised in the income statement as an integral part of the total lease
expense.
(r) Segment reporting
A segment is a distinguishable component of the Group about which separate
financial reporting information is available that is evaluated by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The chief operating decision maker is the Management Committee,
which consists out of the Chief Executive Officer, the Chief Financial Officer,
the Chief Operations Officer, the Director of Trade and Beneficiation and the
General Manager. Accordingly, the reporting segments are determined based on the
Group's management and internal reporting structure. Segment results, assets and
liabilities include items directly attributable to a segment as well as those
that can be allocated on a reasonable basis. Inter-segment pricing is based on
arms length prices. Segment capital expenditure is the total cost incurred
during the year to acquire property, plant and equipment, and intangible assets
other than goodwill.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
(s) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 31 August 2009, and have not been applied in
preparing the consolidated financial statements:
* IAS 23 - Borrowing Costs - Revised (effective for years beginning on or after 1
January 2009)The main change from the previous version of IAS 23 is the removal
of the option of immediately recognising as an expense borrowing costs that
relate to assets that take a substantial period of time to get ready for use or
sale.
* IAS 1 - Presentation of Financial Statements - Revised (effective for years
beginning on or after 1 January 2009)The revised IAS 1 requires information in
financial statements to be aggregated on the basis of shared characteristics and
to introduce a statement of comprehensive income. This will enable readers to
analyse changes in a company's equity resulting from transactions with owners in
their capacity as owners separately from 'non-owner' changes. The revisions
include changes in the titles of some of the financial statements to reflect
their function more clearly (for example, the balance sheet is renamed a
statement of financial position). The new titles are not mandatory for use in
financial statements.
* IFRS 1 and IAS 27 Amended - Amendments to IFRS 1 First-Time Adoption of
International Financial Reporting Standards and IAS 27 Consolidated and Separate
Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate (1 January 2009) The amendment allow first-time adopters to
use a deemed cost of either fair value or the carrying amount under previous
accounting practice to measure the initial cost of investments in subsidiaries,
jointly controlled entities and associates in the separate financial statements.
The amendment also removed the definition of the cost method from IAS 27 and
replaced it with a requirement to present dividends as income in the separate
financial statements of the investor.
* IFRS 2 Amended: Share-based Payments - Vesting conditions and Cancellations (1
January 2009) The amendment deals with two matters. It clarifies that vesting
conditions are service conditions and performance conditions only. Other
features of a share-based payment are not vesting conditions. It also specifies
that all cancellations, whether by the entity or by other parties, should
receive the same accounting treatment.
* IAS 27 - Consolidated and Separate Financial Statements - Revised (1 July 2009)
IAS 27 (revised) requires the effects of all transactions with non-controlling
interests to be recorded in equity if there is no change in control. They will
no longer result in goodwill or gains and losses. The standard also specifies
the accounting when control is lost. Any remaining interest in the entity is
re-measured to fair value and a gain or loss is recognised in profit or loss.
* IAS 39 Amended: Financial Instruments: Recognition and Measurement Exposures
Qualifying for Hedge Accounting (1 July 2009) The amendment makes two
significant changes. It prohibits designating inflation as a hedgeable component
of a fixed rate debt. It also prohibits including time value in the one-sided
hedged risk when designating options as hedges.
* IFRS 3 Revised - Business combinations (1 July 2009) The new standard continues
to apply the acquisition method to business combinations, with some significant
changes. For example, all payments to purchase a business are to be recorded at
fair value at the acquisition date, with some contingent payments subsequently
re-measured at fair value through income. Goodwill may be calculated based on
the parent's share of net assets or it may include goodwill related to the
minority interest. All transaction costs will be expensed.
* Improvements to IFRSs - (Issued August 2008) (Unless otherwise specified the
amendments are effective for annual periods beginning on or after 1 January
2009) This is a collection of amendments to IFRSs. These amendments are the
result of conclusions the IASB reached on proposals made in its annual
improvements project. The annual improvements project provides a vehicle for
making non-urgent but necessary amendments to IFRSs. Some amendments involve
consequential amendments to other IFRSs.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
* IAS 32 and IAS 1 Amended - Amendment to IAS 32 Financial Instruments:
Presentation and IAS 1 Presentation of financial statements - Puttable Financial
Instruments and Obligations Arising on Liquidation (1 Jan 2009)The amendments
require entities to classify the following types of financial instruments as
equity, provided they have particular features and meet specific conditions: a)
puttable financial instruments (for example, some shares issued by co-operative
entities); b) instruments, or components of instruments, that impose on the
entity an obligation to deliver to another party a pro rata share of the net
assets of the entity only on liquidation (for example, some partnership
interests and some shares issued by limited life entities). Additional
disclosures are required about the instruments affected by the amendments.
* IFRS 1 - Revised - First time Adoption of International Financial Reporting
Standards (1 July 2009) The revised standard has an improved structure but does
not contain any technical changes
* IFRS 2 - Amended - Amendments to IFRS 2: Group cash-settled share-based payment
transactions (1 Jan 2010) The amendment clarifies the accounting for group
cash-settled share-based payment transactions. The entity receiving the goods or
services shall measure the share-based payment transaction as equity-settled
only when the awards granted are its own equity instruments, or the entity has
no obligation to settle the share-based payment transaction. The entity settling
a share-based payment transaction when another entity in the group receives the
goods or services recognises the transaction as equity-settled only if it is
settled in its own equity instruments. In all other cases, the transaction is
accounted for as cash-settled.
* Improvements to IFRSs - (Issued May 2009) (Unless otherwise specified the
amendments are effective for annual periods beginning on or after 1 January
2010) This is a collection of amendments to IFRSs. These amendments are the
result of conclusions the IASB reached on proposals made in its annual
improvements project. The annual improvements project provides a vehicle for
making non-urgent but necessary amendments to IFRSs. Some amendments involve
consequential amendments to other IFRSs.
* IFRIC 15 - Agreements for the construction of real estate (1 January 2009) IFRIC
15 addresses diversity in accounting for real estate sales. IFRIC 15 clarifies
how to determine whether an agreement is within the scope of IAS 11 -
Construction contracts or IAS 18 - Revenue and when revenue from construction
should be recognised. The guidance replaces example 9 in the appendix to IAS 18.
* IFRIC 16 - Hedges of a net investment in a foreign operation (1 October 2008)
IFRIC 16 provides guidance on identifying the foreign currency risks that
qualify as a hedged risk (in the hedge of a net investment in a foreign
operation). It secondly provides guidance on where, within a group, hedging
instruments that are hedges of a net investment in a foreign operation can be
held to qualify for hedge accounting. Thirdly, it provides guidance on how an
entity should determine the amounts to be reclassified from equity to profit or
loss for both the hedging instrument and the hedged item.
* IFRIC 17 - Distribution of Non-cash Assets (1 July 2009) IFRIC 17 applies to the
accounting for distributions of non-cash assets (commonly referred to as
dividends in specie) to the owners of the entity. The interpretation clarifies
that: a dividend payable should be recognised when the dividend is appropriately
authorised and is no longer at the discretion of the entity; an entity should
measure the dividend payable at the fair value of the net assets to be
distributed; and an entity should recognise the difference between the dividend
paid and the carrying amount of the net assets distributed in profit or loss.
* IFRIC 18 - Transfers of Assets from Customers (Transfers of assets from
customers received on or after 1 July 2009) IFRIC 18 clarifies the accounting
treatment for transfers of property, plant and equipment received from
customers. This Interpretation applies to agreements with customers in which the
entity receives cash from a customer when that amount of cash must be used only
to construct or acquire an item of property, plant and equipment and the entity
must then use the item of property, plant and equipment either to connect the
customer to a network or to provide the customer with ongoing access to a supply
of goods and services, or to do both.
Notes to the consolidated financial statements
3. Significant accounting policies (continued)
* IFRIC 9 and IAS 39 Amended - Amendments to IFRIC 9 - Reassessment of Embedded
Derivatives and IAS 39 - Financial Instruments: Recognition and Measurement (1
July 2009) - The amendments clarify that if an asset is reclassified under the
amendment to IAS 39 and IFRS 7 it must be assessed for embedded derivatives at
the date of reclassification. In addition, a contract that includes an embedded
derivative that cannot be separately measured, is prohibited from being
reclassified out of the 'at fair value through profit or loss' category.
Management does not expect the above amendments to have a significant impact on
the group.
(t) New standards and interpretations applied but not yet effective
IFRS 8: Operating Segments statement together with its amendments were applied
for the first time for the period ended 31 August 2007 and have been applied in
the preparation of the consolidated financial statements. IFRS 8 requires
disclosure regarding the nature and financial effect of the business activities
in which the Group engages and the economic environment in which the Group
operates.
(u) Standards, interpretations and amendments to published standards effective
for the year
During the financial year, the following new and revised accounting standards,
amendments to standards and new interpretations were adopted by the Group:
* IFRIC 12 Service concession arrangements (1 January 2008) IFRIC 12 addresses how
service concession operators should apply existing IFRSs to account for the
obligations they undertake and rights they receive in service concession
arrangements.
* IFRIC 13 - Customer Loyalty Programmes (1 July 2008) IFRIC 13 addresses
accounting by entities that grant loyalty award credits to customers who buy
other goods or services. Specifically, it explains how such entities should
account for their obligations to provide free or discounted goods or services to
customers who redeem award credits.
* IFRIC 14 - IAS 19 - The limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction - (1 January 2008) IFRIC 14 provides general
guidance on how to assess the limit in IAS 19 on the amount of the surplus that
can be recognised as an asset. It also explains how the pension asset or
liability may be affected when there is a statutory or contractual minimum
funding requirement.
These standards, interpretations and amendments did not have a material effect
on the Group.
4. Determination of fair values
A number of the Group's accounting policies and disclosures require the
determination of fair value, for both financial and non-financial assets and
liabilities. Fair values have been determined for measurement and / or
disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
(i) Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a
business combination is based on market values. The market value of property is
the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion. The market value of items of
plant and equipment is based on the quoted market prices for similar items.
Notes to the consolidated financial statements
4. Determination of fair values (continued)
(ii) Inventories
The fair value of inventories acquired in a business combination is determined
based on its estimated selling price in the ordinary course of business less the
estimated costs of completion and sale, and a reasonable profit margin based on
the effort required to complete and sell the inventories.
(iii) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value
of future cash flows, discounted at the market rate of interest at the year end.
(iv) Non-derivative financial instruments
Fair value, which is determined for disclosure purposes, is calculated based on
the present value of future principal and interest cash flows, discounted at the
market rate of interest at the year end. In respect of the liability component
of convertible notes, the market rate of interest is determined by reference to
similar liabilities that do not have a conversion option. For finance leases the
market rate of interest is determined by reference to similar lease agreements.
(v) Share-based payment transactions
The fair value of employee share options is measured using a combination of a
binomial lattice model and the Black Scholes model. Measurement inputs include:
* share price on measurement date
* exercise price of the instrument
* expected volatility (based on weighted average historic volatility adjusted for
changes expected due to publicly available information)
* weighted average expected life of the instruments (based on historical
experience and general option holder behaviour)
* expected dividends
* risk-free interest rate (based on government bonds)
The specific inputs used for each grant can be located in Note 27.
5.Financial risk management
The Group's activities expose it to a variety of financial risks, including
credit risk, market risk and liquidity risk.
Credit risk
Management has a credit policy in place and the exposure to credit risk is
monitored on an ongoing basis.
Credit risk arises from the risk that the financial asset counterpart may
default or not meet its obligations timeously.
The Group's principal financial assets are cash and cash equivalents and trade
and other receivables.
(i) Cash and cash equivalents
Cash and cash equivalents are managed to maximise returns while minimising risk.
In order to maximise credit protection, cash and cash equivalents are placed
with a variety of high quality financial institutions. Funds are principally
held with Goldman Sachs, Investec, Standard Bank, Nedbank, First International
Bank of Israel, African Alliance and Union Bank.
Notes to the consolidated financial statement
5.Financial risk management (continued)
A treasury report is produced monthly and presented to senior management. Senior
management use this information to identify and minimise credit risk whilst
maximising return on funds.
Group policy is to manage and control funds at parent company level and minimise
funds held within operating and exploration subsidiaries. This reduces credit
risk by ensuring funds are held in higher rated funds and reduces exposure to
exchange rate movements.
(ii) Trade and other receivables
Trade debtors and other receivables primarily relate to amounts due for diamonds
sold to customers and strategic transactions entered into by the beneficiation
segment. The group has policies in place to ensure that all sales and strategic
transactions are contracted with customers with an appropriate credit history.
Credit evaluations are performed on all customers requiring credit over agreed
limits and limits are set in accordance with internal evaluations and limits set
by the board. The utilisation of credit limits is regularly monitored. Trade
debtors comprise a number of customers, dispersed across different geographical
areas.
The Group does not require collateral in respect of financial assets.
Concentration risk is addressed by the regular monitoring of credit limits and
obtaining collaterals when deemed necessary. At year end five trade debtors made
up 48% of the outstanding trade receivable value. From these five, one exceeded
22% of the trade receivable value. The company has an established relationship
with these trade debtors and past dealings does not indicate any necessary
impairment. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet.
Market risk
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate due to changes in market interest rates.
The Group's cash flow interest rate risk arises from its long and short-term
borrowings subject to adjusted prime interest rates. Borrowings issued at
variable rates expose the Group to cash flow interest rate risk. The low level
of borrowings in the group limits the exposure to this risk. The Group had not
entered into derivatives to manage the interest rate risk, but monitors exposure
to interest rate risk.
During 2009 and 2008 the group's borrowings at variable rate were denominated in
South African Rand.
Notes to the consolidated financial statements
5.Financial risk management (continued)
At the reporting date the interest rate profile of the Group's interest-bearing
financial instruments was as follows:
+--------------------------+-------+-----------+-----------+----------+----------+
| | | Average rate | Carrying amount |
+--------------------------+-------+-----------------------+---------------------+
| In thousands of US | Note | 2009 | 2008 | 2009 | 2008 |
| dollars | | | | | |
+--------------------------+-------+-----------+-----------+----------+----------+
| | | | | | |
+--------------------------+-------+-----------+-----------+----------+----------+
| Zero rate instruments | | | | | |
+--------------------------+-------+-----------+-----------+----------+----------+
| Financial assets | 21 | - | - | 11 458 | 16 090 |
+--------------------------+-------+-----------+-----------+----------+----------+
| Financial liabilities | 31 | - | - | (2 790) | (7 486) |
+--------------------------+-------+-----------+-----------+----------+----------+
| | | | | 8 668 | 8 604 |
+--------------------------+-------+-----------+-----------+----------+----------+
| Variable rate | | | | | |
| instruments | | | | | |
+--------------------------+-------+-----------+-----------+----------+----------+
| Financial assets | 22 | 3.18% | 4.85% | 13 879 | 52 020 |
+--------------------------+-------+-----------+-----------+----------+----------+
| Financial liabilities | 26 | 14.15% | 14.83% | (1 605) | (2 184) |
+--------------------------+-------+-----------+-----------+----------+----------+
| | - | | | 12 274 | 49 836 |
+--------------------------+-------+-----------+-----------+----------+----------+
For individual interest rates applicable to each class of instrument, see note
27.
Fair value sensitivity analysis for fixed rate instruments
The Group does not measure any fixed rate financial assets or liabilities at
fair value or hold any interest rate derivatives. Therefore a change in interest
rates at the reporting date would not affect income or equity.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates would have increased (decreased)
income and equity by the amounts shown below. This analysis assumes that all
other variables, in particular foreign currency rates, remain constant.
+----------------+----------------+----------------+----------------+----------------+
| | Income | Equity |
+----------------+---------------------------------+---------------------------------+
| | 100 bp | 100 bp | 100 bp | 100 bp |
| | increase | decrease | increase | decrease |
+----------------+----------------+----------------+----------------+----------------+
| 31 August 2009 | (12) | 12 | - | - |
+----------------+----------------+----------------+----------------+----------------+
| 31 August 2008 | (50) | 50 | - | - |
+----------------+----------------+----------------+----------------+----------------+
Foreign exchange risk
Foreign exchange risk is the risk that fair value or future cash flows of a
financial instrument will fluctuate in Rands due to changes in foreign exchange
rates.
The Group is exposed to foreign currency risk on sales, purchases and borrowings
that are denominated in a currency other than the respective functional
currencies of Group entities. The currencies giving rise to foreign currency
risk are primarily South African Rand (ZAR), Pounds Sterling (GBP), U.S. Dollars
(USD) and Congolese Franc. The Group does not use derivatives to manage this
risk.
In respect of other monetary assets and liabilities held in currencies other
than US dollars, the Group ensures that the net exposure is kept to an
acceptable level by only holding enough foreign currencies necessary to meet
expected obligations.
Notes to the consolidated financial statements
5.Financial risk management (continued)
The Group's exposure to foreign currency risk was as follows based on notional
amounts:
+------------------------------------+-------------+----------+
| | USD Dollar exposure to |
| | ZAR |
+------------------------------------+------------------------+
| In thousands of US dollars | 2009 | 2008 |
+------------------------------------+-------------+----------+
| | | |
+------------------------------------+-------------+----------+
| Trade receivables | 4 457 | 3 932 |
+------------------------------------+-------------+----------+
| Secured loans | (87) | (97) |
+------------------------------------+-------------+----------+
| Finance Leases | (1 518) | (2 087) |
+------------------------------------+-------------+----------+
| Trade payables | (1 254) | (6 737) |
+------------------------------------+-------------+----------+
| Gross balance sheet exposure | 1 598 | (4 989) |
+------------------------------------+-------------+----------+
| Estimated forecast purchases | (34 396) | (90 000) |
+------------------------------------+-------------+----------+
| Net exposure | (32 798) | (94 989) |
+------------------------------------+-------------+----------+
| | | |
+------------------------------------+-------------+----------+
A 5 percent strengthening in the U.S. Dollar against the following currency at
31 August would have increased income by the amounts shown below. This analysis
assumes that all other variables, in particular interest rates, remain constant.
+---------------------------+-----------------------------------------------------------------------------------+-----------------------------------------------------------------------------------+
| | 2009 | 2008 |
+---------------------------+-----------------------------------------------------------------------------------+-----------------------------------------------------------------------------------+
| South African Rand | 1640 | 4749 |
+---------------------------+-----------------------------------------------------------------------------------+-----------------------------------------------------------------------------------+
A 5 percent weakening in the U.S. Dollar against these currencies at 31 August
would have had the equal but opposite effect to the amounts shown above, on the
basis that all other variables remain constant.
The following significant exchange rates applied during the year:
+----------------+----------------+----------------+----------------+----------------+
| | Average rate | Reporting datespot rate |
+----------------+---------------------------------+---------------------------------+
| US dollar | 2009 | 2008 | 2009 | 2008 |
+----------------+----------------+----------------+----------------+----------------+
| South African | 9.09931 | 7.4055 | 7.8036 | 7.7545 |
| Rand | | | | |
+----------------+----------------+----------------+----------------+----------------+
Other price risk
The Group's normal policy is to sell diamonds at their prevailing market price.
Accordingly the Group is highly exposed to fluctuations in the price for
diamonds.
The Group uses its Beneficiation department to ensure that all products mined
are sold at optimum prices. In order to achieve this, diamonds are grouped and
marketed in parcels to achieve optimum prices. Value is also added by the
polishing of diamonds.
The Group did not hold any financial instruments that exposed the Group to
commodity or other price risk at year end.
Notes to the consolidated financial statements
5.Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that there will be insufficient funds available to
settle obligations when they are due.
Prudent liquidity management implies maintaining sufficient cash and the
availability of funding through an adequate amount of committed credit
facilities. The Group aims to maintain flexibility in funding by keeping
committed credit lines available.
Surplus cash held by operating entities over and above balance required for
working capital management are transferred to group treasury. These are invested
and managed to ensure optimum returns for the group.
The following are the contractual maturities of financial liabilities, including
estimated interest payments and excluding the impact of netting agreements:
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| In thousands of US | Carrying | Contractual | 6 | 6-12 | 1-2 | 2-5 | More |
| dollars | amount | cash flow | months | months | years | years | than |
| | | | or | | | | 5 |
| | | | less | | | | years |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| 31 August 2009 | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Financial | | | | | | | |
| liabilities | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Secured bank loans | 87 | (133) | (9) | (9) | (39) | (76) | - |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Finance lease | 1 518 | (1 733) | (404) | (300) | (907) | (122) | - |
| liabilities | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Trade and other | 2 790 | (2 790) | (2 790) | - | - | - | - |
| payables | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | 4 395 | (4 656) | (3 203) | (309) | (946) | (198) | - |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| 31 August 2008 | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Financial | | | | | | | |
| liabilities | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Secured bank loans | 97 | (163) | (10) | (10) | (21) | (63) | (59) |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Finance lease | 2 087 | (2 571) | (464) | (421) | (811) | (875) | |
| liabilities | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| Trade and other | 7 486 | (7 486) | (7 486) | - | - | - | |
| payables | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | 9 670 | (10 220) | (7 960) | (431) | (832) | (938) | (59) |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
| | | | | | | | |
+----------------------+----------+-------------+---------+---------+-------+-------+-------+
There were no breaches or defaults with respect to any non-current liabilities
in either the current or the prior year.
Fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying
amounts shown in the balance sheet, are as follows:
+-------------------------------+----------+----------+----------+----------+
| | Carrying Amount | Fair Value |
| | | |
+-------------------------------+---------------------+---------------------+
| In thousands of US dollars | 2009 | 2008 | 2009 | 2008 |
+-------------------------------+----------+----------+----------+----------+
| | | | | |
+-------------------------------+----------+----------+----------+----------+
| Trade and other receivables | 11 458 | 16 090 | 11 458 | 16 090 |
+-------------------------------+----------+----------+----------+----------+
| Cash and cash equivalents | 13 879 | 52 020 | 13 879 | 52 020 |
+-------------------------------+----------+----------+----------+----------+
| Secured bank loans | (87) | (97) | (87) | (97) |
+-------------------------------+----------+----------+----------+----------+
| Finance lease liabilities | (1 518) | (2 087) | (1 518) | (2 087) |
+-------------------------------+----------+----------+----------+----------+
| Trade and other payables | (2 790) | (7 486) | (2 790) | (7 486) |
+-------------------------------+----------+----------+----------+----------+
| | | | | |
+-------------------------------+----------+----------+----------+----------+
| | 20 942 | 58 440 | 20 942 | 58 440 |
+-------------------------------+----------+----------+----------+----------+
Notes to the consolidated financial statements
5.Financial risk management (continued)
Capital risk management
The group defines total capital as "equity" in the consolidated balance sheet
plus debt. The Group's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust this capital structure, the Group may issue new
shares, adjust the amount of dividends paid to shareholders, return capital to
shareholders or sell assets to reduce debt.
The Group monitors capital on the basis of a gearing ratio. This ratio is
calculated as net debt divided by total equity. Net debt is calculated as total
borrowings (including current and non-current borrowings as shown in the balance
sheet) less cash and cash equivalents. Total equity is calculated as shown in
the balance sheet plus net debt.
There were no changes to the Group's approach to capital management during the
year.
The Group is not subject to externally imposed capital requirements.
Notes to the consolidated financial statements
6.Segment reporting
Operating segments
The Group comprises the following operating segments:
??Exploration and Evaluation: Exploration and evaluation includes all
exploration and evaluation projects up to the stage where a project commences
production at which point it will form part of the Mining segment. In the
previous year this segment was referred to as exploration.
??Mining: Mining includes all diamond mining operation. The bulk
of mined diamonds are sold to the beneficiation segment.
??Beneficiation: Beneficiation includes the purchase of diamonds from
the mining segment and external sources, and all revenue from the sale of these
beneficiated and mined diamonds.
In presenting information on the basis of operating segments, segment revenue is
based on the results from each operation. Segment assets are based on the
operation in which they are used.
31 August 2009:
+--------------------------------+----------+-------------+---------------+---------+----------+
| | Mining | Exploration | Beneficiation | Other | Total |
| | | & | | | |
| | | Evaluation | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| In thousands of US dollars | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Total revenue from external | 63 | 270 | 26 937 | - | 27 270 |
| customers | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| * Rough Diamonds | 63 | 270 | 20 428 | | 20 761 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| * Polished Diamonds | - | | 6 509 | | 6 509 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Inter-segment revenue | 8 504 | 491 | - | - | 8 995 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Production costs* | 9 442 | | | | 9 442 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Development/ Care and | 3 152 | | | | 3 152 |
| maintenance costs* | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Finance income | 24 | - | 75 | 339 | 438 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Finance expense | (246) | (11) | (4) | (100) | (361) |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Depreciation and amortisation | (2 727) | (3 129) | (89) | (105) | (6 050) |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Impairment of non-financial | (27 357) | (14) | (313) | - | (27 684) |
| assets | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Segment (loss)/profit before | (37 116) | (13 742) | (34 733) | (4 217) | (89 808) |
| tax | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Taxation | 2 567 | - | 44 | - | 2 611 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Segment (loss)/profit after | (34 549) | (13 742) | (34 689) | (4 217) | (87 197) |
| tax | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| | | | | | |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Reportable segment assets | 26 724 | 17 616 | 32 319 | 12 147 | 88 806 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Capital expenditure | 2 389 | 3 655 | 104 | 56 | 6 204 |
+--------------------------------+----------+-------------+---------------+---------+----------+
| Reportable segment liabilities | 5 353 | 406 | 1 283 | 623 | 7 665 |
+--------------------------------+----------+-------------+---------------+---------+----------+
The following results are reportable in terms of geographical segments:
+-----------------------------------+---------+----------+-----------+-----------+
| | South | Other | Other | Total |
| | Africa | Africa | | |
+-----------------------------------+---------+----------+-----------+-----------+
| In thousands of US dollars | | | | |
+-----------------------------------+---------+----------+-----------+-----------+
| | | | | |
+-----------------------------------+---------+----------+-----------+-----------+
| Total revenue from external | 15 807 | 269 | 11 194 | 27 270 |
| customers | | | | |
+-----------------------------------+---------+----------+-----------+-----------+
| Revenue related to Top 5 | 5 501 | - | 1 314 | 6 815 |
| customers (Note 6) | | | | |
+-----------------------------------+---------+----------+-----------+-----------+
| Amount outstanding Top 5 | 1 745 | | 373 | 2 118 |
| customers (Note 6) | | | | |
+-----------------------------------+---------+----------+-----------+-----------+
| Reportable net assets | 32 143 | 17 173 | 31 825 | 81 141 |
+-----------------------------------+---------+----------+-----------+-----------+
Notes to the consolidated financial statements
6. Segment reporting (continued)
*- Reconciliation of items included in segment report to costs of sales as per
note 8
+-----------------------------------+---------------------------+-+------------+-+
| Total cost of sales as per note 8 | | | 61 255 | |
+-----------------------------------+---------------------------+-+------------+-+
| | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| Included in segment report | | | 61 255 | |
+-----------------------------------+---------------------------+-+------------+-+
| Production Costs | | | 9 442 | |
+-----------------------------------+---------------------------+-+------------+-+
| Evaluation/ Care and | | | 3 152 | |
| maintenance costs | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| Depreciation included in | | | 2 160 | |
| Cost of Sales | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| Carrying value of | | | 46 440 | |
| inventory value sold | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| * Carrying value of inventory | | | 19 677 | |
| sold | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| * Included in mining segment | | | (5 353) | |
| production | | | | |
+-----------------------------------+---------------------------+-+------------+-+
| * NRV write down | | | 32 116 | |
+-----------------------------------+---------------------------+-+------------+-+
| Other | | | 61 | |
+-----------------------------------+---------------------------+-+------------+-+
| | | | | |
+-----------------------------------+---------------------------+-+------------+-+
31 August 2008:
+----------------------------------+----------+-------------+---------------+----------+------------+
| | Mining |Exploration |Beneficiation | Other | Total |
| | | & | | | |
| | | Evaluation | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| In thousands of US dollars | | | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| | | | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Total revenue from external | | | 41 722 | | 41 722 |
| customers | | | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| * Rough Diamonds | - | - | 31 541 | - | 31 541 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| * Polished Diamonds | | | 10 181 | - | 10 181 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Inter-segment revenue | 15 013 | - | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Total segment revenue | 15 013 | | 41 722 | 6 375 | 63 110 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| | | | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Finance income | - | - | - | 2 759 | 2 759 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Finance expense | (268) | (15) | (7) | (2 405) | (2 695) |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Depreciation and amortisation | (3 790) | - | (82) | (64) | (3 936) |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Segment (loss)/profit before tax | (17 490) | (15 795) | (1 161) | (5 583) | (40 029) |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Taxation | 1 027 | - | - | - | 1 027 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Segment (loss)/profit after tax | (16 463) | (15 795) | (1 161) | (5 583) | (39 002) |
+----------------------------------+----------+-------------+---------------+----------+------------+
| | | | | | |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Reportable segment assets | 59 337 | 16 851 | 55 011 | 57 645 | 188 844 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Capital expenditure | 20 336 | 13 876 | 1 043 | - | 35 255 |
+----------------------------------+----------+-------------+---------------+----------+------------+
| Reportable segment liabilities | 9 054 | 984 | 3 567 | 2 672 | 16 277 |
+----------------------------------+----------+-------------+---------------+----------+------------+
The following results are reportable in terms of geographical segments:
+-------------------------------------+--------+----------+-----+-----------+----------+
| | South | Other Africa | Other | Total |
| |Africa | | | |
+-------------------------------------+--------+----------------+-----------+----------+
| In thousands of US dollars | | | | |
+-------------------------------------+--------+----------+-----------------+----------+
| | | | | |
+-------------------------------------+--------+----------+-----------------+----------+
| Total revenue from external | 38 477 | - | 3 245 | 41 722 |
| customers | | | | |
+-------------------------------------+--------+----------+-----------------+----------+
| Revenue related to Top 5 customers | 9 429 | | | 9 429 |
| (Note 6) | | | | |
+-------------------------------------+--------+----------+-----------------+----------+
| Amount outstanding Top 5 customers | 1 194 | | | 1 194 |
| (Note 6) | | | | |
+-------------------------------------+--------+----------+-----------------+----------+
| Reportable net assets | 80 237 | 15 819 | 76 511 | 172 567 |
+-------------------------------------+--------+----------+-----+-----------+----------+
Notes to the consolidated financial statements
7. Business combinations
Prior year business combinations:
(i) Jacobus Smit
On 1 September 2007, the Group acquired the South African alluvial diamond
mining assets of Jacobus Smit for consideration of US$2,522,153 in cash. In the
twelve months to 31 August 2008 the business contributed a loss of US $ 238 158
to the consolidated loss for the year. The acquisition had the following effect
on the Group's assets and liabilities on acquisition date:
Acquiree's net assets at the acquisition date
+--------------------------------------------------+--------------+-------------+-------------+
| In thousands of US dollars | Pre | Fair | Recognised |
| | -acquisition | value | values on |
| | carrying | adjustments | acquisition |
| | amounts | | |
+--------------------------------------------------+--------------+-------------+-------------+
| | | | |
+--------------------------------------------------+--------------+-------------+-------------+
| Property, plant and equipment | 1 068 | 332 | 1 400 |
+--------------------------------------------------+--------------+-------------+-------------+
| Mineral properties | - | 1 563 | 1 563 |
+--------------------------------------------------+--------------+-------------+-------------+
| Deferred tax liabilities | - | (531) | (531) |
+--------------------------------------------------+--------------+-------------+-------------+
| Provision for rehabilitation | (441) | - | (441) |
+--------------------------------------------------+--------------+-------------+-------------+
| Net identifiable assets and liabilities | | | 1 991 |
+--------------------------------------------------+--------------+-------------+-------------+
| Goodwill on acquisition (Note 18) | | | 531 |
+--------------------------------------------------+--------------+-------------+-------------+
| Total consideration | | | 2 522 |
+--------------------------------------------------+--------------+-------------+-------------+
| Comprised of: | | | |
+--------------------------------------------------+--------------+-------------+-------------+
| Deferred consideration | | | - |
+--------------------------------------------------+--------------+-------------+-------------+
| Consideration paid, satisfied in cash | | | (2 522) |
+--------------------------------------------------+--------------+-------------+-------------+
| Cash (acquired) | | | - |
+--------------------------------------------------+--------------+-------------+-------------+
| Net cash outflow | | | (2 522) |
+--------------------------------------------------+--------------+-------------+-------------+
| | | | |
+--------------------------------------------------+--------------+-------------+-------------+
The goodwill is attributable to the tax amortisation benefit arising from the
fair value adjustments to assets and liabilities. The goodwill has been entirely
written off as per note 18 and is included in the impairment relating to Mining
Operations. Notes to the consolidated financial information
7. Business combinations (continued)
(ii) Elite Diamond Cutting Works (Pty) Limited
On 1 September 2007 the Group entered into an agreement to acquire 100 per cent
shareholding in a diamond polishing business, Elite Diamond Cutting Works (Pty)
Limited, incorporated in South Africa. The acquisition of 66.67 per cent was
concluded for a consideration of US$765 299; the remaining 33.33 per cent was
concluded on 1 March 2008 for a consideration of US$364 701. In the twelve
months to 31 August 2008, the subsidiary contributed a loss of US$314 136 to the
consolidated loss for the year. Elite Diamond Cutting Works (Pty) Limited is a
company incorporated in South Africa. The acquisition had the following effect
on the Group's assets and liabilities on acquisition date and should be
considered provisional and subject to review due to the timing of the
transaction:
Acquiree's net assets at the acquisition date
+----------------------------------------------------+--------------+-------------+-------------+
| In thousands of US dollars | Pre | Fair | Recognised |
| | -acquisition | value | values on |
| | carrying | adjustments | acquisition |
| | amounts | | |
+----------------------------------------------------+--------------+-------------+-------------+
| | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| Property, plant and equipment | 21 | 65 | 86 |
+----------------------------------------------------+--------------+-------------+-------------+
| Diamond inventory | 1 059 | 151 | 1 210 |
+----------------------------------------------------+--------------+-------------+-------------+
| Trade receivables | 180 | - | 180 |
+----------------------------------------------------+--------------+-------------+-------------+
| Cash and cash equivalents | 276 | - | 276 |
+----------------------------------------------------+--------------+-------------+-------------+
| Loans and borrowings | (894) | - | (894) |
+----------------------------------------------------+--------------+-------------+-------------+
| Deferred tax liabilities | - | (60) | (60) |
+----------------------------------------------------+--------------+-------------+-------------+
| Trade payables | (120) | - | (120) |
+----------------------------------------------------+--------------+-------------+-------------+
| Net identifiable assets and liabilities | | | 678 |
+----------------------------------------------------+--------------+-------------+-------------+
| Minority interest | | | (226) |
+----------------------------------------------------+--------------+-------------+-------------+
| Goodwill on acquisition (Note 18) | | | 313 |
+----------------------------------------------------+--------------+-------------+-------------+
| Total consideration | | | 765 |
+----------------------------------------------------+--------------+-------------+-------------+
| | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| Consideration paid | | | (765) |
+----------------------------------------------------+--------------+-------------+-------------+
| Cash acquired | | | 276 |
+----------------------------------------------------+--------------+-------------+-------------+
| Net cash outflow | | | (489) |
+----------------------------------------------------+--------------+-------------+-------------+
| | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| Transaction with Minorities: | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| After the above business combination the remaining | | | |
| 33% was acquired on 1 March 2008. The result of | | | |
| the transaction is as follows: | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| Minority interest arising on business combination | | | 226 |
+----------------------------------------------------+--------------+-------------+-------------+
| Share of Elite loss to the date of this | | | (74) |
| transaction | | | |
+----------------------------------------------------+--------------+-------------+-------------+
| | | | 152 |
+----------------------------------------------------+--------------+-------------+-------------+
| Consideration settled in cash | | | (365) |
+----------------------------------------------------+--------------+-------------+-------------+
| Loss on transaction with minorities | | | (213) |
+----------------------------------------------------+--------------+-------------+-------------+
The goodwill is attributable to the tax amortisation benefit arising from the
fair value adjustments to assets and liabilities. The goodwill has been entirely
written off as per note 18 and is included in the impairment relating to
Beneficiation.
Notes to the consolidated financial statements
8. Cost of Sales
+-----------------------------------------------------+---------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+--------+
| | | |
+-----------------------------------------------------+---------+--------+
| Carrying value of inventory sold (Note 20) | 19 677 | 26 485 |
+-----------------------------------------------------+---------+--------+
| Inventory write down to Net Realisable Value (Note | 32 116 | |
| 20) | | |
+-----------------------------------------------------+---------+--------+
| Depreciation relating to operations | 2 160 | 3 406 |
+-----------------------------------------------------+---------+--------+
| Electricity and water | 251 | 189 |
+-----------------------------------------------------+---------+--------+
| Equipment rental | 99 | 753 |
+-----------------------------------------------------+---------+--------+
| Fuel and lubricants | 2 479 | 6 434 |
+-----------------------------------------------------+---------+--------+
| Motor vehicle expenses | 85 | 158 |
+-----------------------------------------------------+---------+--------+
| Other | 654 | 457 |
+-----------------------------------------------------+---------+--------+
| Personnel expenses | 2 601 | 4 657 |
+-----------------------------------------------------+---------+--------+
| Repairs and maintenance | 1 133 | 4 632 |
+-----------------------------------------------------+---------+--------+
| | 61 255 | 47 171 |
+-----------------------------------------------------+---------+--------+
9.Other (expenses)/income
+-----------------------------------------------------+---------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+--------+
| | | |
+-----------------------------------------------------+---------+--------+
| Loss on disposal/scrapping of fixed assets | (639) | (57) |
+-----------------------------------------------------+---------+--------+
| Rental income | 24 | 4 |
+-----------------------------------------------------+---------+--------+
| Other income | 143 | 6 |
+-----------------------------------------------------+---------+--------+
| | (472) | (47) |
+-----------------------------------------------------+---------+--------+
10. Acquired exploration properties
+-----------------------------------------------------+---------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+--------+
| | | |
+-----------------------------------------------------+---------+--------+
| Acquired exploration properties expensed | 728 | 6 766 |
+-----------------------------------------------------+---------+--------+
The group were involved in various exploration and evaluation ventures in South
Africa, Namibia, Angola and the DRC, during the previous and current financial
years. These ventures also did not represent business combinations and were
expensed as exploration costs in line with the Group's accounting policy.
11. Listing costs
+-----------------------------------------------------+---------+---------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+---------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+---------+
| | | |
+-----------------------------------------------------+---------+---------+
| | - | 20 281 |
+-----------------------------------------------------+---------+---------+
| Listing costs expensed | - | 4 404 |
+-----------------------------------------------------+---------+---------+
| Capital raising costs deducted from share premium | - | 15 877 |
+-----------------------------------------------------+---------+---------+
In line with IAS 32, costs directly related to the issue of shares are allocated
as a reduction of the equity raised. Costs attributed to the listing on the
London Stock Exchange are expensed.
Notes to the consolidated financial statements
12.Other operating expenses
+-----------------------------------------------------+---------+---------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+---------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+---------+
| | | |
+-----------------------------------------------------+---------+---------+
| Administration and office expenses | 872 | 828 |
+-----------------------------------------------------+---------+---------+
| Auditors remuneration | | |
+-----------------------------------------------------+---------+---------+
| - Audit fee | 416 | 303 |
+-----------------------------------------------------+---------+---------+
| - Fees for other services | 14 | - |
+-----------------------------------------------------+---------+---------+
| Impairment of accounts receivable balances (Note | 516 | - |
| 21) | | |
+-----------------------------------------------------+---------+---------+
| Consulting fees | 578 | 845 |
+-----------------------------------------------------+---------+---------+
| Depreciation (Note 17) | 3 890 | 530 |
+-----------------------------------------------------+---------+---------+
| Legal fees | 588 | 339 |
+-----------------------------------------------------+---------+---------+
| Loss on foreign exchange | 612 | 636 |
+-----------------------------------------------------+---------+---------+
| Personnel expenses (Note 13) | 6 879 | 7 457 |
+-----------------------------------------------------+---------+---------+
| Rehabilitation costs (Note 29) | (177) | 1 774 |
+-----------------------------------------------------+---------+---------+
| Short Term Insurance | 333 | 268 |
+-----------------------------------------------------+---------+---------+
| Travel | 1 156 | 1 342 |
+-----------------------------------------------------+---------+---------+
| Other | 1 050 | 843 |
+-----------------------------------------------------+---------+---------+
| | 16 727 | 15 165 |
+-----------------------------------------------------+---------+---------+
13. Personnel expenses
+-----------------------------------------------------+----------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+----------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
| Wages and salaries | 7 923 | 8 277 |
+-----------------------------------------------------+----------+--------+
| Retrenchment costs | 433 | |
+-----------------------------------------------------+----------+--------+
| Staff welfare | 98 | 57 |
+-----------------------------------------------------+----------+--------+
| Equity-settled transactions | 1 026 | 3 780 |
+-----------------------------------------------------+----------+--------+
| | 9 480 | 12 114 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
| The above is classified as follows: | | |
+-----------------------------------------------------+----------+--------+
| Cost of sales - relating to operations (Note 8) | 2 601 | 4 657 |
+-----------------------------------------------------+----------+--------+
| Other operating expenses (Note 12) | 6 879 | 7 457 |
+-----------------------------------------------------+----------+--------+
| | 9 480 | 12 114 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
| Number of employees | 277 | 775 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
14.Finance income and expenses
+----------------------------------------------------+------------+---------+
| In thousands of US dollars | | |
+----------------------------------------------------+------------+---------+
| | 2009 | 2008 |
+----------------------------------------------------+------------+---------+
| | | |
+----------------------------------------------------+------------+---------+
| Interest income | 438 | 2 759 |
+----------------------------------------------------+------------+---------+
| | | |
+----------------------------------------------------+------------+---------+
| Interest expense - Preference shares | - | (1 098) |
+----------------------------------------------------+------------+---------+
| Interest expense - Unsecured loan | - | (907) |
+----------------------------------------------------+------------+---------+
| Interest expense - Other | (361) | (690) |
+----------------------------------------------------+------------+---------+
| | (361) | (2 695) |
+----------------------------------------------------+------------+---------+
| | | |
+----------------------------------------------------+------------+---------+
| Net financing income | 77 | 64 |
+----------------------------------------------------+------------+---------+
Notes to the consolidated financial statements
15. Income tax expense
Recognised in the income statement
+-----------------------------------------------------+----------+---------+
| In thousands of US dollars | | |
+-----------------------------------------------------+----------+---------+
| | 2009 | 2008 |
+-----------------------------------------------------+----------+---------+
| | | |
+-----------------------------------------------------+----------+---------+
| Current tax expense | | |
+-----------------------------------------------------+----------+---------+
| Foreign tax - current tax | - | - |
+-----------------------------------------------------+----------+---------+
| | - | - |
+-----------------------------------------------------+----------+---------+
| | | |
+-----------------------------------------------------+----------+---------+
| Deferred tax expense | | |
+-----------------------------------------------------+----------+---------+
| | | |
+-----------------------------------------------------+----------+---------+
| Origination and reversal of temporary differences | (3 954) | (1 365) |
+-----------------------------------------------------+----------+---------+
| Change in previously unrecognised differences | (2 629) | (1 840) |
+-----------------------------------------------------+----------+---------+
| Benefit of previously unrecognised tax losses | 3 972 | 2 110 |
| recognised | | |
+-----------------------------------------------------+----------+---------+
| Effect of change in income tax rate * | - | 68 |
+-----------------------------------------------------+----------+---------+
| | (2 611) | (1 027) |
+-----------------------------------------------------+----------+---------+
| Total income tax credit in income statement | (2 611) | (1 027) |
+-----------------------------------------------------+----------+---------+
'* The South African Income Tax rate for companies decreased by 1% to 28% in the
previous year.
Reconciliation of effective tax rate
+-----------------------------------------------------+----------+----------+
| In thousands of US dollars | | |
+-----------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+-----------------------------------------------------+----------+----------+
| | | |
+-----------------------------------------------------+----------+----------+
| Loss before tax | (89 808) | (40 029) |
+-----------------------------------------------------+----------+----------+
| | | |
+-----------------------------------------------------+----------+----------+
| | | |
+-----------------------------------------------------+----------+----------+
| Tax calculated at domestic tax rates applicable in | (24 294) | (8 122) |
| the respective countries | 3 548 | |
| Adjusted for: | - | 2 122 |
| Non-allowable items | 23 397 | (6) |
| Tax exempt income | (40) | 5 281 |
| Current year losses for which no deferred tax | | (302) |
| assets were raised | | |
| Previous year losses utilised | | |
+-----------------------------------------------------+----------+----------+
| | 2 611 | (1 027) |
+-----------------------------------------------------+----------+----------+
16. Current tax assets and liabilities
The current tax liability of US$4,000 (2008 US$ 57,000) represents the amount of
income taxes payable in respect of current and prior periods that exceed
payments already made. The current tax receivable of US$ 43,000 ($2008 $ 0)
represents the amount of income taxes paid that exceeds tax payable. (For 2009,
this amount is included in trade and other receivables - note 21)
Notes to the consolidated financial statements
17. Property, plant and equipment
+-----------------------------------------+-------+-----------+------------+----------+---------+
| In thousands of US dollars | Land | Plant | Mineral | Capital | Total |
| | | and | properties | work in | |
| | | equipment | | progress | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Cost | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Year ended 31 August 2009: | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 01 September 2008 | 1 119 | 39 731 | 26 244 | 5 806 | 72 900 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Additions | - | 6 131 | 73 | | 6 204 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Reclassifications | | 1 568 | | (1 568) | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Disposals/Scrapings | - | (3 047) | - | - | (3 047) |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Effect of translation of foreign | (7) | (390) | (169) | (9) | (575) |
| currencies | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 31 August 2009 | 1 112 | 43 993 | 26 148 | 4 229 | 75 482 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Period ended 31 August 2008: | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 01 September 2007 | 439 | 16 649 | 20 712 | 40 | 37 840 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Acquisitions through business | - | 1 486 | 1 563 | - | 3 049 |
| combinations | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Other additions | 713 | 23 144 | 5 629 | 5 769 | 35 255 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Disposals | - | (196) | - | - | (196) |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Effect of translation of foreign | (33) | (1 352) | (1 660) | (3) | (3 048) |
| currencies | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 31 August 2008 | 1 119 | 39 731 | 26 244 | 5 806 | 72 900 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Depreciation and impairment losses | | | | |
+-----------------------------------------+-------+-----------+------------+----------+
| Year ended 31 August 2009 | | | | |
+-----------------------------------------+-------+-----------+------------+----------+
| Balance at 01 September 2008 | - | 4 988 | 960 | - | 5 948 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Depreciation charge for the year | - | 5 655 | 395 | - | 6 050 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Disposals/Scrapings | - | (2 308) | - | - | (2 308) |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Impairment (Note 18) | - | 387 | 20 055 | - | 20 442 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Effect of translation of foreign | - | (72) | 4 738 | - | 4 666 |
| currencies | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 31 August 2009 | - | 8 650 | 26 148 | - | 34 798 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Period ended 31 August 2008: | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 01 September 2007 | - | 2 115 | 213 | - | 2 328 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Depreciation charge for the year | - | 3 173 | 763 | - | 3 936 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Disposals | - | (139) | - | - | (139) |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Effect of translation of foreign | | (161) | (16) | - | (177) |
| currencies | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Balance at 31 August 2008 | - | 4 988 | 960 | - | 5 948 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| Net book value | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| At 31 August 2009 | 1 112 | 35 343 | - | 4 229 | 40 684 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| At 31 August 2008 | 1 119 | 34 743 | 25 284 | 5 806 | 66 952 |
+-----------------------------------------+-------+-----------+------------+----------+---------+
| | | | | | |
+-----------------------------------------+-------+-----------+------------+----------+---------+
Notes to the consolidated financial statements
17. Property, plant and equipment (continued)
Land and buildings
At 31 August 2009, land with a carrying amount of US$146 086 (2008: US$ 147 011)
was subject to a registered debenture to secure loans (see note 26)
The Group leases production equipment under a number of instalment sale
agreements. The leased equipment secures lease obligations (classified as
finance leases, see note 26). At 31 August 2009 the net carrying amount of
leased plant and machinery was US$1 518 434 (2008: US$2 472 169).
Depreciation expense of US$2 160 270 (2008: US$ 3 405 920) has been charged in
cost of goods sold and US$3 889 611 (2008: US$530 500) in operating expenditure.
During the 2009 financial year, management performed a cost cutting and
restructuring exercise where they identified a number of underperforming assets.
These assets were then sold or scrapped in order to streamline the operations.
This exercise resulted in a loss of US$ 639 225, which is included in the amount
disclosed as per note 9.
Details of the impairment and assumptions used can be found in Note 18.
18. Goodwill and impairment of property, plant and equipment
Reconciliation of Goodwill:
+-----------------------------------------------------+----------+-------+
| In thousands of US dollars | | |
+-----------------------------------------------------+----------+-------+
| | 2009 | 2008 |
+-----------------------------------------------------+----------+-------+
| | | |
+-----------------------------------------------------+----------+-------+
| Opening Balance | 4 572 | 4 152 |
+-----------------------------------------------------+----------+-------+
| Acquisitions through business combinations | | 844 |
+-----------------------------------------------------+----------+-------+
| Impairment (see below) | (3 754) | - |
+-----------------------------------------------------+----------+-------+
| Foreign Currency Translation Reserve | (818) | (424) |
+-----------------------------------------------------+----------+-------+
| | | |
+-----------------------------------------------------+----------+-------+
| | - | 4 572 |
+-----------------------------------------------------+----------+-------+
Allocated to the operating segments as follows:
+------------------------------------------------------+---------+--------+
| In thousands of US dollars | | |
+------------------------------------------------------+---------+--------+
| | 2009 | 2008 |
+------------------------------------------------------+---------+--------+
| Carrying amount | | |
+------------------------------------------------------+---------+--------+
| | | |
+------------------------------------------------------+---------+--------+
| Mining | - | 4 283 |
+------------------------------------------------------+---------+--------+
| Evaluation | - | - |
+------------------------------------------------------+---------+--------+
| Beneficiation | - | 289 |
+------------------------------------------------------+---------+--------+
| Other | - | - |
+------------------------------------------------------+---------+--------+
| | - | 4 572 |
+------------------------------------------------------+---------+--------+
Impairment tests for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group's
operating segments which represent the lowest level within the Group at which
the goodwill is monitored for internal management purposes.
As a result of the global financial crisis, the diamond market was severely
impacted. This indicator of impairment was considered with the groups annual
impairment exercise.
Notes to the consolidated financial statements
18. Goodwill (continued)
Recovered amounts were based on fair value less costs to sell after considering:
Diamond Prices:
Diamonds are not openly traded as a commodity in a metals exchange, rather, they
are sold based on tenders or private sales and the price of each diamond is
based on its size, colour, clarity and character. Currently, demand for diamonds
is below the same time last year.
Management considered these prices in light of recent transactions and on their
expectations for future improvement.
Resources and reserves:
Decisions for impairment were based on the expected carats and grades
recoverable, expected costs to achieve this and expected revenues. The
consideration of carats and grades was based on the external experts estimate of
resources.
Tangible assets:
The nature and condition of the remaining tangible assets of the cash generating
units was also considered. The value of these assets is based on their current
market values and the ease at which they could be disposed of.
Based on the above property, plant, equipment and goodwill were impaired as
follows:
+-----------------------------------+------------+------------+---------------+--------+
| In thousands of US dollars | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| | Mining | Evaluation | Beneficiation | Total |
+-----------------------------------+------------+------------+---------------+--------+
| | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| Goodwill | 3 441 | | 313 | 3 754 |
+-----------------------------------+------------+------------+---------------+--------+
| Undeveloped properties and | 23 529 | 14 | - | 23 543 |
| Mineral rights | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| * Capitalised in previous years | 20 041 | 14 | - | 20 055 |
| (Note 17) | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| * Expensed directly in income | 3 488 | | | 3 488 |
| statement (below) | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| Properties plant and equipment | 387 | | - | 387 |
+-----------------------------------+------------+------------+---------------+--------+
| | | | | |
+-----------------------------------+------------+------------+---------------+--------+
| Total | 27 357 | 14 | 313 | 27 684 |
+-----------------------------------+------------+------------+---------------+--------+
Included in the mineral rights impairment as above is an impairment relating to
the investment in Idada Trading 167 (Pty) Ltd. On 5 September 2008 the Group
acquired the alluvial diamond mining entity of Idada Trading 167 (Pty) Ltd for
the consideration of US$3 487 556. The purchase consideration was based on the
result of a due diligence on the underlying value in the resources of the
assets. The entire purchase price was written off.
Notes to the consolidated financial statements
19. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Year ended 31 August 2009:
+---------------------------------------------------+--------+-----------+-------+
| In thousands of US dollars | Asset | Liability | Net |
+---------------------------------------------------+--------+-----------+-------+
| | | | |
+---------------------------------------------------+--------+-----------+-------+
| Property, plant and equipment | - | (737) | (737) |
+---------------------------------------------------+--------+-----------+-------+
| Provisions | 106 | - | 106 |
+---------------------------------------------------+--------+-----------+-------+
| Tax value of loss carry-forwards recognised | 143 | - | 143 |
+---------------------------------------------------+--------+-----------+-------+
| Net tax assets /( liabilities) | 249 | (737) | (488) |
+---------------------------------------------------+--------+-----------+-------+
| | | | |
+---------------------------------------------------+--------+-----------+-------+
Year ended 31 August 2008:
+---------------------------------------------------+---------+-----------+---------+
| In thousands of US dollars | Asset | Liability | Net |
+---------------------------------------------------+---------+-----------+---------+
| | | | |
+---------------------------------------------------+---------+-----------+---------+
| Property, plant and equipment | - | (4 165) | (4 165) |
+---------------------------------------------------+---------+-----------+---------+
| Provisions | 209 | - | 209 |
+---------------------------------------------------+---------+-----------+---------+
| Inventories | - | (8) | (8) |
+---------------------------------------------------+---------+-----------+---------+
| Tax value of loss carry-forwards recognised | 417 | - | 417 |
+---------------------------------------------------+---------+-----------+---------+
| Net tax assets / (liabilities) | 626 | (4 173) | (3 547) |
+---------------------------------------------------+---------+-----------+---------+
| | | | |
+---------------------------------------------------+---------+-----------+---------+
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
+---------------------------------------------------+---------+-------+
| In thousands of US dollars | | |
+---------------------------------------------------+---------+-------+
| | 2009 | 2008 |
+---------------------------------------------------+---------+-------+
| | | |
+---------------------------------------------------+---------+-------+
| Deductible temporary differences | 3 115 | 1 184 |
+---------------------------------------------------+---------+-------+
| Tax losses | 7 856 | 3 130 |
+---------------------------------------------------+---------+-------+
| | 10 971 | 4 314 |
+---------------------------------------------------+---------+-------+
The deductible temporary differences do not expire under current tax legislation
in the countries of origin. Deferred tax assets have not been recognised in
respect of these items because it is not probable that future taxable profit
will be available against which the Group can utilise the benefits.
Notes to the consolidated financial statements
19. Deferred tax assets and liabilities
Movement in temporary differences during the year
Year ended 31 August 2009:
+----------------------------------+---------+------------+-------------+-------------+---------+
| In thousands of dollars | Balance | Recognised | Acquired | Effect | Balance |
| | 1 Sep | in income | through | of | 31 Aug |
| | 08 | | business | translation | 09 |
| | | | combination | of foreign | |
| | | | | currencies | |
+----------------------------------+---------+------------+-------------+-------------+---------+
| | | | | | |
+----------------------------------+---------+------------+-------------+-------------+---------+
| Property, plant and equipment | 4 165 | (2 976) | - | (452) | 737 |
+----------------------------------+---------+------------+-------------+-------------+---------+
| Inventory | 8 | (8) | - | - | 0 |
+----------------------------------+---------+------------+-------------+-------------+---------+
| Provisions | (209) | 102 | - | 1 | (106) |
+----------------------------------+---------+------------+-------------+-------------+---------+
| Tax value of loss carry-forward | (417) | 271 | - | 3 | (143) |
| utilised | | | | | |
+----------------------------------+---------+------------+-------------+-------------+---------+
| | 3 547 | (2 611) | - | (448) | 488 |
+----------------------------------+---------+------------+-------------+-------------+---------+
Year ended 31 August 2008:
+----------------------------------+---------+--------------+-------------+-------------+---------+
| In thousands of dollars | Balance | Recog- nised | Acquired | Effect | Balance |
| | 1 Sep | in income | through | of | 31 Aug |
| | 07 | | business | translation | 08 |
| | | | combination | of foreign | |
| | | | | currencies | |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| | | | | | |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| Property, plant and equipment | 4 650 | (633) | 549 | (401) | 4 165 |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| Inventory | - | (34) | 42 | | 8 |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| Provisions | (176) | (46) | | 13 | (209) |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| Tax value of loss carry-forwards | (112) | (314) | | 9 | (417) |
| utilised | | | | | |
+----------------------------------+---------+--------------+-------------+-------------+---------+
| | 4 362 | (1 027) | 591 | (379) | 3 547 |
+----------------------------------+---------+--------------+-------------+-------------+---------+
20. Inventories
+-----------------------------------------------------+--------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+--------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+--------+--------+
| | | |
+-----------------------------------------------------+--------+--------+
| Rough diamonds | 10 685 | 44 762 |
+-----------------------------------------------------+--------+--------+
| Polished diamonds | 11 702 | 3 867 |
+-----------------------------------------------------+--------+--------+
| Jewellery | 45 | 90 |
+-----------------------------------------------------+--------+--------+
| Consumables | 353 | 491 |
+-----------------------------------------------------+--------+--------+
| | 22 785 | 49 210 |
+-----------------------------------------------------+--------+--------+
Included in rough diamonds are inventories to the value of US$7 352 826 (2008:
US$2 376 650) carried at net realisable value. Included in polished diamonds are
inventories to the value of US$7 575 939 (2008: US$615 323) carried at net
realisable value.
During the 2009 financial year, in accordance with IFRS, the group performed a
detailed exercise to determine the net realisable value of its inventory. This
exercise was necessitated by a decline in the market prices of diamonds.
To determine the net realisable value management considered the colour, clarity,
size and other relevant characteristics of its diamond stocks in comparison to
recent diamond transactions.
As a result of this exercise the total value of inventories reduced by
US$32,115,810.
Notes to the consolidated financial statements
21. Trade and other receivables
+-----------------------------------------------------+----------+--------+
| In thousands of US dollars | | |
+-----------------------------------------------------+----------+--------+
| | 2009 | 2008 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
| Financial instruments | | |
+-----------------------------------------------------+----------+--------+
| Trade receivables | 4 457 | 3 932 |
+-----------------------------------------------------+----------+--------+
| Other receivables | 5 145 | 34 |
+-----------------------------------------------------+----------+--------+
| | 9 602 | 3 966 |
+-----------------------------------------------------+----------+--------+
| Non-financial instruments | | |
+-----------------------------------------------------+----------+--------+
| VAT receivable | 879 | 2 259 |
+-----------------------------------------------------+----------+--------+
| Tax receivable | 43 | |
+-----------------------------------------------------+----------+--------+
| Prepayments | 934 | 9 865 |
+-----------------------------------------------------+----------+--------+
| | 1 856 | 12 124 |
+-----------------------------------------------------+----------+--------+
| | | |
+-----------------------------------------------------+----------+--------+
| | 11 458 | 16 090 |
+-----------------------------------------------------+----------+--------+
Trade Receivables:
As of 31 August 2009, trade receivables with a gross value of US$1 178 861 were
impaired and provided for. The amount of the provision was US$573,958 as of 31
August 2009 (2008:0). Debtors with a gross value US$1,008,601 were subject to
renegotiation during the current financial year (2008: 0). Of this amount,
US$352,401 was impaired and is included in the provision of US$573,958.
Management obtained collateral over land and buildings to recover the rest of
the outstanding balance.
The ageing of trade debtors at year end is as follows:
+---------------------------+---------+------------+--------+--------+------------+---------+
| | 2009 | 2008 |
+---------------------------+-------------------------------+-------------------------------+
| | Gross | Impairment | Net | Gross | Impairment | Net |
+---------------------------+---------+------------+--------+--------+------------+---------+
| Not past due | 2 462 | - | 2 462 | 2 958 | - | 2 958 |
+---------------------------+---------+------------+--------+--------+------------+---------+
| Past due by 1 to 30 days | 416 | - | 416 | 399 | - | 399 |
+---------------------------+---------+------------+--------+--------+------------+---------+
| Past due by 31 to 60 days | 12 | - | 12 | 70 | - | 70 |
+---------------------------+---------+------------+--------+--------+------------+---------+
| Past due by more than 60 | 2 141 | (574) | 1 567 | 505 | - | 505 |
| days | | | | | | |
+---------------------------+---------+------------+--------+--------+------------+---------+
| Total | 5 031 | (574) | 4 457 | 3 932 | - | 3 932 |
+---------------------------+---------+------------+--------+--------+------------+---------+
Provision for Bad Debts
+---------------------------------------------------------+---------+-------+
| In thousands of US dollars | | |
+---------------------------------------------------------+---------+-------+
| | 2009 | 2008 |
+---------------------------------------------------------+---------+-------+
| | | |
+---------------------------------------------------------+---------+-------+
| | | |
+---------------------------------------------------------+---------+-------+
| Balance at the beginning of the year | - | - |
+---------------------------------------------------------+---------+-------+
| Provisions raised during the current year | 516 | - |
+---------------------------------------------------------+---------+-------+
| Effect of translation of foreign currencies | 58 | - |
+---------------------------------------------------------+---------+-------+
| Balance at the end of the year | 574 | - |
+---------------------------------------------------------+---------+-------+
| | | |
+---------------------------------------------------------+---------+-------+
Other Receivables:
Included in other receivables are amounts to the value of US$4 315 000 relating
to strategic transactions concluded in the beneficiation sector. The nature of
these transactions is different from those of normal trade receivables and is
therefore disclosed separately.
These transactions were concluded to enable the company to gain from unique
opportunities in the market that could only be utilised by contracting with
these parties.
Notes to the consolidated financial statements
21. Trade and other receivable (continued)
These transactions have been concluded with current performing customers of the
company and therefore management are satisfied that no need for impairment of
these receivables is necessary. The amounts are outstanding for approximately
one year.
No securities have been obtained to cover these debts.
22. Cash and cash equivalents
+------------------------------------------------------+--------+--------+
| In thousands of US dollars | | |
+------------------------------------------------------+--------+--------+
| | 2009 | 2008 |
+------------------------------------------------------+--------+--------+
| | | |
+------------------------------------------------------+--------+--------+
| Bank balances | 13 664 | 51 711 |
+------------------------------------------------------+--------+--------+
| Cash equivalents | 215 | 309 |
+------------------------------------------------------+--------+--------+
| Cash and cash equivalents in the statement of cash | 13 879 | 52 020 |
| flows | | |
+------------------------------------------------------+--------+--------+
23. Capital and reserves
Share capital and share premium
Movements in the Group's share capital are reflected below:
Ordinary Shares
+--------------------------------------------------+-------------+-----------+
| In thousands of shares | 31 August |31 August |
| | 2009 | 2008 |
+--------------------------------------------------+-------------+-----------+
| | | |
+--------------------------------------------------+-------------+-----------+
| On issue at beginning of the year | 116 866 | 2 357 |
+--------------------------------------------------+-------------+-----------+
| Issued for cash | - | 46 |
+--------------------------------------------------+-------------+-----------+
| Share based payments | 444 | 100 |
+--------------------------------------------------+-------------+-----------+
| Repurchase of "A" shares | 2 212 | 69 |
+--------------------------------------------------+-------------+-----------+
| | 119 522 | 2 572 |
+--------------------------------------------------+-------------+-----------+
| Share split 16:1 (2008) | - | 38 582 |
+--------------------------------------------------+-------------+-----------+
| Reduction in pre-listing shares* | - | (1 688) |
+--------------------------------------------------+-------------+-----------+
| Conversion of preference shares on listing** | - | 25 825 |
+--------------------------------------------------+-------------+-----------+
| Issued as script dividend to preference | - | 673 |
| shareholders | | |
+--------------------------------------------------+-------------+-----------+
| Shares issued to non-executive directors | - | 341 |
+--------------------------------------------------+-------------+-----------+
| Issued on IPO | - | 50 118 |
+--------------------------------------------------+-------------+-----------+
| Exercise of share grant | - | 443 |
+--------------------------------------------------+-------------+-----------+
| On issue at the end of the year - fully paid | 119 522 | 116 866 |
+--------------------------------------------------+-------------+-----------+
At 31 August 2009 the authorised share capital comprised 251 000 000 (31 August
2008: 251 000 000) ordinary shares. All classes of shares have a par value of $
0.000625 (31 August 2008 $ 0.000625) per share. All issued shares are fully
paid. The Group also granted share options (see note 27).
*- 2008: The number of ordinary shares was diluted at listing to affect the
redemption of the convertible loan notes valued at $6,238m.
**-2008: The redeemable preference shares were completely redeemed and converted
into ordinary shares.
Notes to the consolidated financial statements
23. Capital and reserves (continued)
Share capital and share premium (continued)
+------------------------------------------------------+---------+---------+
| | | |
+------------------------------------------------------+---------+---------+
| Ordinary share capital and share premium | 31 | 31 |
| | August | August |
| | 2009 | 2008 |
+------------------------------------------------------+---------+---------+
| In thousands of US dollars | | |
+------------------------------------------------------+---------+---------+
| | | |
+------------------------------------------------------+---------+---------+
| Nominal value | 75 | 74 |
+------------------------------------------------------+---------+---------+
| Share premium | 230 040 | 227 131 |
+------------------------------------------------------+---------+---------+
| | 230 115 | 227 205 |
+------------------------------------------------------+---------+---------+
Ordinary share capital and share premium
+--------------------------------------------------------+---------+---------+
| In thousands of US dollars | | |
+--------------------------------------------------------+---------+---------+
| | | |
+--------------------------------------------------------+---------+---------+
| On issue at the beginning of the period | 227 205 | 11 227 |
+--------------------------------------------------------+---------+---------+
| Issued for cash | - | 170 754 |
+--------------------------------------------------------+---------+---------+
| Conversion of preference shares on listing | - | 42 868 |
+--------------------------------------------------------+---------+---------+
| Issued for the repurchase of "A" shares | 2 622 | 916 |
+--------------------------------------------------------+---------+---------+
| Exercise of awards | 288 | 1 440 |
+--------------------------------------------------------+---------+---------+
| | 230 115 | 227 205 |
+--------------------------------------------------------+---------+---------+
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
23.1 Translation reserve
The translation reserve comprises all foreign currency differences arising from
the translation of the financial statements of foreign operations.
23.2 Dividends
No ordinary dividends were declared or paid during the year.
23.3 Share based payment reserve
The reserve for own shares comprises of the cost of the Company's shares issued
as part of the share-based payment. See note 25.
Reserves
+------------------------------------------------------+----------+----------+
| In thousands of US dollars | | |
+------------------------------------------------------+----------+----------+
| | 31 | 31 |
| | August | August |
| | 2009 | 2008 |
+------------------------------------------------------+----------+----------+
| | | |
+------------------------------------------------------+----------+----------+
| Foreign currency translation reserve | ( 9 116) | ( 4 165) |
+------------------------------------------------------+----------+----------+
| Share based payment reserve | 2 934 | 2 198 |
+------------------------------------------------------+----------+----------+
| | (6 182) | (1 967) |
+------------------------------------------------------+----------+----------+
Notes to the consolidated financial statements
24. Minority interests
A Subsidiary of the Company has also issued 'A' shares ranking pari passu with
the ordinary shareholders.
The holders of these shares are therefore treated as minority shareholders in
the group.
Number of A Shares
+-------------------------------------------------+----------+--------+
| | 31 | 31 |
| | August | August |
| | 2009 | 2008 |
+-------------------------------------------------+----------+--------+
| In thousands of shares | | |
+-------------------------------------------------+----------+--------+
| | | |
+-------------------------------------------------+----------+--------+
| On issue at the beginning of the period | 8 750 | 635 |
+-------------------------------------------------+----------+--------+
| Share buy back before split | - | (69) |
+-------------------------------------------------+----------+--------+
| | 8 750 | 566 |
+-------------------------------------------------+----------+--------+
| Share split 16:1 | - | 8 490 |
+-------------------------------------------------+----------+--------+
| Share Buy Back | (2 083) | (306) |
+-------------------------------------------------+----------+--------+
| Issued for property, plant and equipment | 99 | - |
+-------------------------------------------------+----------+--------+
| On issue at the end of the period - fully paid | 6 766 | 8 750 |
+-------------------------------------------------+----------+--------+
Capital Balance of A Shares
+-------------------------------------------------+----------+--------+
| In thousands of US dollars | | |
+-------------------------------------------------+----------+--------+
| | | |
+-------------------------------------------------+----------+--------+
| | | |
+-------------------------------------------------+----------+--------+
| Nominal value | 4 | 5 |
+-------------------------------------------------+----------+--------+
| Share premium | 2 883 | 5 604 |
+-------------------------------------------------+----------+--------+
| | 2 887 | 5 609 |
+-------------------------------------------------+----------+--------+
Reconciliation of A Shares Balance
+-------------------------------------------------+-----------+---------+
| In thousands of US dollars | | |
+-------------------------------------------------+-----------+---------+
| | | |
+-------------------------------------------------+-----------+---------+
| On issue at the beginning of the period | 5 609 | 7 042 |
+-------------------------------------------------+-----------+---------+
| Issued for cash | - | - |
+-------------------------------------------------+-----------+---------+
| Share based payments | - | - |
+-------------------------------------------------+-----------+---------+
| Issued for the conversion of the convertible | - | - |
| loan | | |
+-------------------------------------------------+-----------+---------+
| Issued for property, plant and equipment | 401 | - |
+-------------------------------------------------+-----------+---------+
| Share buy back | (3 123) | (1,433) |
+-------------------------------------------------+-----------+---------+
| On issue at the end of the period- fully paid | 2 887 | 5 609 |
+-------------------------------------------------+-----------+---------+
Summary of 'A' shares
Rights
Each 'A' share will be issued on the basis that?the rights attaching to the
shares shall rank pari passu with the rights attaching to the Namakwa Diamonds
Limited Ordinary Shares, and any alteration of the ordinary share capital of
Namakwa Diamonds Limited shall apply mutatis mutandis to the 'A' Ordinary
Shares.
Notes to the consolidated financial statements
24. Minority interests (continued)
Dividends
The 'A' Shareholders shall be entitled to an 'A' Ordinary Dividend out of the
profits of Namakwa Diamond Holdings (Pty) Ltd equal to the dividend declared and
payable by Namakwa Diamonds Limited, converted to South African Rand at the spot
foreign exchange rate on the date on which the relevant Namakwa ordinary
dividend is payable.
Repurchase
Each 'A' Shareholder shall be entitled to require the Company to repurchase some
or all of the 'A' Ordinary Shares at any time. The repurchase price is
determined by calculating the aggregate of the par value of the "A" Shares plus
any unpaid dividend plus the weighted average traded price of Namakwa Diamonds
Limited ordinary shares for the 30 day period prior to repurchase.?
25. Earnings per share
Basic earnings per share
The calculation of basic loss per share for the year was based on the loss
attributable to ordinary shareholders of US$82 525 398 and a weighted average
number of ordinary shares outstanding of 118 789 025, based on the dates on
which shares were issued during the year.
Profit attributable to ordinary shareholders
+------------------------------------------------------+--------+--------+
| In thousands of US dollars | | |
+------------------------------------------------------+--------+--------+
| | 2009 | 2008 |
+------------------------------------------------------+--------+--------+
| Loss attributable to ordinary shareholders | 82 525 | 34 230 |
+------------------------------------------------------+--------+--------+
| Loss attributable to minority shareholders | 4 672 | 4 772 |
+------------------------------------------------------+--------+--------+
Weighted average number of ordinary shares
+------------------------------------------------------+---------+--------+
| In thousands of shares | | |
+------------------------------------------------------+---------+--------+
| | 2009 | 2008 |
+------------------------------------------------------+---------+--------+
| Weighted average number of ordinary shares at 31 | 118 789 | 92 890 |
| August | | |
+------------------------------------------------------+---------+--------+
| Weighted average number of 'A' shares at 31 August | 8 689 | 9 100 |
+------------------------------------------------------+---------+--------+
Earnings per share
+------------------------------------------------------+---------+---------+
| In thousands of US dollars | | |
+------------------------------------------------------+---------+---------+
| | 2009 | 2008 |
+------------------------------------------------------+---------+---------+
| Basic earnings per share | (0.69) | (0.37) |
+------------------------------------------------------+---------+---------+
| Diluted earnings per share | (0.69) | (0.37) |
+------------------------------------------------------+---------+---------+
Diluted loss per share
The calculation of diluted loss per share at 31 August 2009 was based on loss
attributable to ordinary shareholders of US$82 525 398, a weighted average
number of ordinary shares outstanding after adjustment for the effects of all
dilutive potential ordinary shares of 118 789 025. There were no adjustments to
the amounts used for basic earnings per share, as the Company is in a net loss
position and the following dilutive transaction became anti-dilutive:
* The share options outstanding (see note 27).
Notes to the consolidated financial statements
26. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate and foreign currency risk, see note 5.
+------------------------------------------------------+-------+-------+
| In thousands of US dollars | | |
+------------------------------------------------------+-------+-------+
| | 2009 | 2008 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
| Non-current liabilities | | |
+------------------------------------------------------+-------+-------+
| Secured bank loan | 79 | 84 |
+------------------------------------------------------+-------+-------+
| Finance lease liabilities | 951 | 1 514 |
+------------------------------------------------------+-------+-------+
| | 1 030 | 1 598 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
| Current liabilities | | |
+------------------------------------------------------+-------+-------+
| Current portion of finance lease liabilities | 567 | 573 |
+------------------------------------------------------+-------+-------+
| Secured bank loan | 8 | 13 |
+------------------------------------------------------+-------+-------+
| | 575 | 586 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
| Disclosed in the balance sheet as: | | |
+------------------------------------------------------+-------+-------+
| Non - Current | | |
+------------------------------------------------------+-------+-------+
| Interest bearing loans and borrowings | 1 030 | 1 598 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
| Current | | |
+------------------------------------------------------+-------+-------+
| Current portion of interest bearing loans and | 575 | 586 |
| borrowings | | |
+------------------------------------------------------+-------+-------+
Terms and debt repayment schedule
+----------------+-------------+-------------+-------------+-------------+-------------+
| 31 Aug 2009 | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| In thousands |Denominated | Nominal | Year of | Fair value | Carrying |
| of US dollars | Currency | interest | maturity | | amount |
| | | rate | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Floating rate | | | | | |
| borrowings: | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Secured bank | ZAR | Prime* | 2016 | 87 | 87 |
| loan | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Finance lease | ZAR | 9-17% | 2009-2013 | 1 518 | 1 518 |
| liabilities | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
*- In South Africa the Prime interest rate represents the index on which banks
lend to their customers and is derived from the interbank rate.
**- The bank loan is secured by fixed property
***- The Group has not negotiated any cash borrowing facilities
Notes to the consolidated financial statements
26. Interest-bearing loans and borrowings (continued)
For the period ended 31 August 2008:
+----------------+-------------+-------------+-------------+-------------+-------------+
| 31 Aug 2008 | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| In thousands |Denominated | Nominal | Year of | Fair value | Carrying |
| of US dollars | Currency | interest | maturity | | amount |
| | | rate | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Floating rate | | | | | |
| borrowings: | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Secured bank | ZAR | Prime* | 2016 | 97 | 97 |
| loan | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
| Finance lease | ZAR | 9-17% | 2008-2013 | 2 087 | 2 087 |
| liabilities | | | | | |
+----------------+-------------+-------------+-------------+-------------+-------------+
*- In South Africa the Prime interest rate represents the index on which banks
lend to their customers and is derived from the interbank rate.
Convertible redeemable preference shares
The convertible redeemable preference shares were issued on 24 April 2007 and
were redeemed at an issue price of US$28 on an initial public offering.
Dividends are set at 9 per cent of the issue price and are payable annually in
arrears.
+------------------------------------------------------+---------+----------+
| In thousands of US dollars | 2009 | 2008 |
+------------------------------------------------------+---------+----------+
| | | |
+------------------------------------------------------+---------+----------+
| Opening balance | - | 43 452 |
+------------------------------------------------------+---------+----------+
| Proceeds on the issue of convertible redeemable | - | - |
| preference shares | | |
+------------------------------------------------------+---------+----------+
| Accrued interest | - | 1 098 |
+------------------------------------------------------+---------+----------+
| Transaction cost | - | - |
+------------------------------------------------------+---------+----------+
| Redeemed for the issue of ordinary shares | - | (42 868) |
+------------------------------------------------------+---------+----------+
| Redeemed for cash | - | (1 682) |
+------------------------------------------------------+---------+----------+
| | - | - |
+------------------------------------------------------+---------+----------+
Secured loan
The loan is secured over certain properties as discussed in Note 17.
Finance lease liabilities
Finance lease liabilities are payable as follows:
For the year ended 31 August 2009:
+------------------------------+------------+------------+-----------+
| | Minimum | Capital | Interest |
| | lease | | |
| | payments | | |
+------------------------------+------------+------------+-----------+
| In thousands of US dollars | 2009 | 2009 | 2009 |
+------------------------------+------------+------------+-----------+
| | | | |
+------------------------------+------------+------------+-----------+
| Less than one year | 704 | 567 | 137 |
+------------------------------+------------+------------+-----------+
| Between one and five years | 1 029 | 951 | 78 |
+------------------------------+------------+------------+-----------+
| | 1 733 | 1 518 | 215 |
+------------------------------+------------+------------+-----------+
Notes to the consolidated financial statements
26. Interest-bearing loans and borrowings (continued)
For the year ended 31 August 2008:
+--------------------------------------+------------+------------+-----------+
| | Minimum | Capital | Interest |
| | lease | | |
| | payments | | |
+--------------------------------------+------------+------------+-----------+
| In thousands of US dollars | 2008 | 2008 | 2008 |
+--------------------------------------+------------+------------+-----------+
| | | | |
+--------------------------------------+------------+------------+-----------+
| Less than one year | 885 | 573 | 312 |
+--------------------------------------+------------+------------+-----------+
| Between one and five years | 1 686 | 1 514 | 172 |
+--------------------------------------+------------+------------+-----------+
| | 2 571 | 2 087 | 484 |
+--------------------------------------+------------+------------+-----------+
27. Share-based payments
Share grants
During the 2007 financial year, key management personnel were incentivised by
the grant of shares in the Company. The terms and conditions of the share grants
are as follows:
+----------------+----------+-----------+--------+----------+-------------+----------------+
| Grant date / | Number of | Fair | Share | Vesting | Status |
| employees | instruments | value | class | conditions | |
| entitled | | at | | | |
| | | grant | | | |
| | | date | | | |
+----------------+----------------------+--------+----------+-------------+----------------+
| | Before | After | US | | | |
| | split | split | Dollar | | | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| Shares issued | | | | | | |
| to key | | | | | | |
| management | | | | | | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| 20 October | 89 888 | 1 438 208 | 10.38 | Ordinary | Vest over | See |
| 2006 | | | | shares | 4 years | reconciliation |
| | | | | | in 3 | below |
| | | | | | equal | |
| | | | | | tranches | |
| | | | | | starting | |
| | | | | | on the | |
| | | | | | 2nd | |
| | | | | | anniversary | |
| | | | | | of his | |
| | | | | | employment | |
| | | | | | date | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| 02 November | 89 888 | 1 438 208 | 10.38 | Ordinary | Vests on | Issued |
| 2006 | | | | shares | initial | |
| | | | | | public | |
| | | | | | offering | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| 29 September | 19 829 | 317 264 | 16.64 | Ordinary | No | Issued |
| 2006 | | | | shares | vesting | |
| | | | | | conditions | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| 19 June 2007 | 6 703* | 107 248 | 27.88 | Ordinary | Vests on | Issued |
| | | | | shares | initial | |
| | | | | | public | |
| | | | | | offering | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| Shares issued | | | | | | |
| to | | | | | | |
| non-executive | | | | | | |
| directors | | | | | | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
| 20 December | | 340 648 | 3.52** | Ordinary | Vested | Issued |
| 2007 | | | | shares | immediately | |
+----------------+----------+-----------+--------+----------+-------------+----------------+
The fair value of these shares was based on the market value at the grant date.
If the market value of the shares at the grant date could not be established the
shares were valued by reference to the cost of the first shares issued to other
shareholders after the grant date.
-* 3 489 share grants never vested
-** The total value of the grant was US$1 200 000, of which the directors paid
US$400,000 for these shares. The remaining portion was included in personnel
expenses.
Notes to the consolidated financial statements
27. Share-based payments (continued)
Reconciliation of 20 October 2006 Grant:
+--------------------------------------+------------+------------+
| Number of share grants | 2009 | 2008 |
+--------------------------------------+------------+------------+
| | | |
+--------------------------------------+------------+------------+
| Total outstanding at beginning of | 944 221 | 1 438 208 |
| year | | |
+--------------------------------------+------------+------------+
| Exercised during period | (443 648) | (493 987) |
+--------------------------------------+------------+------------+
| Total outstanding at the end of the | 500 573 | 944 221 |
| year | | |
+--------------------------------------+------------+------------+
Share options
In 2007 the Group established a share option plan that entitles senior employees
to be granted options over shares in the Company. In accordance with this plan,
options were granted to certain members of
key management on 30 November 2007 with an exercise price equal to the
subscription price of US$27.88 (converted to US$0.000625 each), paid by
investors for each preference share in the capital of the Company subscribed
under the subscription and shareholders agreement entered into 8 May 2007.
The terms and conditions of the options granted are listed below and all options
are to be settled by physical delivery of shares:
+-----------------------+-------------------------+-----------+----------+-------------+-------------+
| Grant date / | Original | Weighted | Share | Vesting | Contractual |
| employees entitled | number of | average | class | conditions | life of |
| | instruments | exercise | | | options |
| | granted | price | | | |
| | | (US$) | | | |
+-----------------------+-------------------------+-----------+----------+-------------+-------------+
| | | | | | |
+-----------------------+-------------------------+-----------+----------+-------------+-------------+
| #1 Key Management | 603,994 | 2,09 | Ordinary | Vested on | 5 |
| 30 November 2007 | 1,685,837 | 1,99 | Shares | 30 November | years |
| #2 Key Management 2 | 1,421,479 | | Ordinary | 2007 | 5 |
| 30 November 2007 | | 2,76 | shares | A portion | years |
| #3 Management and | | | Ordinary | vests in 3 | 5 |
| staff | | | shares | equal | years |
| 30 November 2007 to | | | | tranches | |
| 28 July 2008 | | | | over | |
| | | | | 12/24/36 | |
| | | | | months and | |
| | | | | the | |
| | | | | remainder | |
| | | | | over | |
| | | | | 24/36/48 | |
| | | | | months | |
| | | | | Vests in 3 | |
| | | | | equal | |
| | | | | tranches | |
| | | | | over | |
| | | | | 24/36/48 | |
| | | | | months | |
| | | | | | |
+-----------------------+-------------------------+-----------+----------+-------------+-------------+
| Total share options | 3,711,310 | 2,30 | | | |
+-----------------------+-------------------------+-----------+----------+-------------+-------------+
The number and weighted average exercise prices of the share options are as
follows:
+----------------------------------------------+----------+---------+----------+----------+
| | Weighted | Number | Weighted | Number |
| | average | | average | of |
| | exercise | of | exercise | options |
| | price | options | price | |
+----------------------------------------------+----------+---------+----------+----------+
| In thousands of options | 2009 | 2009 | 2008 | 2008 |
+----------------------------------------------+----------+---------+----------+----------+
| | | | | |
+----------------------------------------------+----------+---------+----------+----------+
| Outstanding balance at the beginning of the | 2.30 | 3 711 | 1.74 | 147 |
| year | | | | |
+----------------------------------------------+----------+---------+----------+----------+
| Cancelled option scheme | | - | 1.74 | (147) |
+----------------------------------------------+----------+---------+----------+----------+
| Forfeited | | (1 083) | | |
+----------------------------------------------+----------+---------+----------+----------+
| Renegotiated options granted during the year | | - | 2.30 | 3 711 |
+----------------------------------------------+----------+---------+----------+----------+
| Outstanding balance at the end of the year | 1.82 | 2 628 | 2.30 | 3 711 |
+----------------------------------------------+----------+---------+----------+----------+
| Exercisable at the end of the year | | 732 | | 732 |
+----------------------------------------------+----------+---------+----------+----------+
| | | | | |
+----------------------------------------------+----------+---------+----------+----------+
Notes to the consolidated financial statements
27. Share-based payments (continued)
The fair value of services received in return for share options granted is based
on the fair value of share options granted, measured using a binomial lattice
model, with the following inputs:
+-------------------------------------------------------+----------------------+
| | #1 Key management |
| | personnel |
+-------------------------------------------------------+----------------------+
| Fair value of share options and assumptions | |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Fair value per option granted (weighted average) | $1.77 |
+-------------------------------------------------------+----------------------+
| Share price (weighted average) | $2.09 |
+-------------------------------------------------------+----------------------+
| Exercise price (weighted average) | $2.09 |
+-------------------------------------------------------+----------------------+
| Expected volatility | 37.22% |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Expected option life (weighted average) | 4.66 years |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Expected dividends | 0% |
+-------------------------------------------------------+----------------------+
| Risk-free interest rate (based on national government | 3.59% |
| bonds) - USD | |
+-------------------------------------------------------+----------------------+
+-------------------------------------------------------+----------------------+---+
| | #2 Key management |
| | personnel |
+-------------------------------------------------------+--------------------------+
| Fair value of share options and assumptions | |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Fair value per option granted (weighted average) | $1.99 |
+-------------------------------------------------------+----------------------+
| Share price (weighted average) | $1.82 |
+-------------------------------------------------------+----------------------+
| Exercise price (weighted average) | $1.82 |
+-------------------------------------------------------+----------------------+
| Expected volatility | 37.22% |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Expected option life (weighted average) | 3 years |
+-------------------------------------------------------+----------------------+
| | |
+-------------------------------------------------------+----------------------+
| Expected dividends | 0% |
+-------------------------------------------------------+----------------------+
| Risk-free interest rate (based on national government | 3.59% |
| bonds) - USD | |
+-------------------------------------------------------+----------------------+---+
Notes to the consolidated financial statements
27. Share-based payments (continued)
+--------------------------------------------------------------+----------------+--+
| | #3 Management |
| | and staff |
+--------------------------------------------------------------+----------------+
| Fair value of share options and assumptions | |
+--------------------------------------------------------------+-------------------+
| | |
+--------------------------------------------------------------+-------------------+
| Fair value per option granted (weighted average) | $0.81 |
+--------------------------------------------------------------+-------------------+
| Share price (weighted average) | $2.76 |
+--------------------------------------------------------------+-------------------+
| Exercise price (weighted average) | $2.76 |
+--------------------------------------------------------------+-------------------+
| Expected volatility | 37.22% |
+--------------------------------------------------------------+-------------------+
| | |
+--------------------------------------------------------------+-------------------+
| Expected option life (weighted average) | 3 years |
+--------------------------------------------------------------+-------------------+
| | |
+--------------------------------------------------------------+-------------------+
| Expected dividends | 0% |
+--------------------------------------------------------------+-------------------+
| Risk-free interest rate (based on national government bonds) | 3.59% |
| - USD | |
+--------------------------------------------------------------+----------------+--+
The volatility of the company was not easily measurable as the company had been
listed for less than one year at the grant date. The volatility of Trans Hex
Group Limited was therefore used as a surrogate in the share option valuation of
Namakwa Diamonds Limited according to management's best estimates.
Non-market vesting conditions are not taken into account in the grant date fair
value measurement of the services received. There are no market conditions
associated with the share option grants.
Personnel expenses
+------------------------------------------------------+-------+-------+
| In thousands of dollars | 2009 | 2008 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
| Expense relating to share options | 663 | 1,994 |
+------------------------------------------------------+-------+-------+
| Expense relating to direct share grants | 363 | 986 |
+------------------------------------------------------+-------+-------+
| Total expense recognised as employee costs | 1 026 | 2,980 |
+------------------------------------------------------+-------+-------+
| | | |
+------------------------------------------------------+-------+-------+
28. Operating leases
Non-cancellable operating lease rentals are payable as follows:
+------------------------------------------------------+--------+-------+
| | | |
+------------------------------------------------------+--------+-------+
| In thousands of US dollars | 2009 | 2008 |
+------------------------------------------------------+--------+-------+
| | | |
+------------------------------------------------------+--------+-------+
| Less than one year | 145 | 71 |
+------------------------------------------------------+--------+-------+
| Between one and five years | 288 | 132 |
+------------------------------------------------------+--------+-------+
| More than 5 years | 69 | - |
+------------------------------------------------------+--------+-------+
| | 502 | 203 |
+------------------------------------------------------+--------+-------+
The Group leases office space under operating leases. The leases run for
variable periods and rent increases are negotiated annually.
During the year ended 31 August 2009, US$223 540 was recognised as an expense in
the income statement included in other operating expenses.
Notes to the consolidated financial statements
29. Provisions
+------------------------------------------------+------------+-----------+
| In thousands of dollars | Environmental |
| | restoration |
+------------------------------------------------+------------------------+
| | 2009 | 2008 |
+------------------------------------------------+------------+-----------+
| Balance at 1 September | 3 003 | 1 222 |
+------------------------------------------------+------------+-----------+
| Acquired through business combinations | - | 441 |
+------------------------------------------------+------------+-----------+
| Change in estimate for the year | (177) | 1 438 |
+------------------------------------------------+------------+-----------+
| Effect of translation of foreign currencies | (48) | (98) |
+------------------------------------------------+------------+-----------+
| Balance at 31 August | 2 778 | 3 003 |
+------------------------------------------------+------------+-----------+
| | | |
+------------------------------------------------+------------+-----------+
| Non-current | 2 778 | 3 003 |
+------------------------------------------------+------------+-----------+
| Current | - | - |
+------------------------------------------------+------------+-----------+
| | 2 778 | 3 003 |
+------------------------------------------------+------------+-----------+
Provision for rehabilitation of mining sites
The provision represents the Group's obligation to rehabilitate mining sites
acquired during previous periods. In accordance with South African law, land
contamination by the Group's mines operated by its subsidiaries in South Africa
must be restored to their original condition at the end of the mines useful
life. All current mining operations' sites are restored on an ongoing basis and
no liability is recognised at the reporting date. However, a liability exists
for past unrestored sites acquired during previous years. The long-term nature
of the liability results in considerable uncertainty in estimating the costs
that will be incurred and the timing of restoration. In particular, the Group
has assumed that the sites will be restored using technology and materials that
are currently available.
The provision has been calculated using a discount rate of 11 % and an inflation
rate ranging from 7% to 13%, depending on the expected inflation rate for
specific items. In addition the following assumptions were embedded in the
calculation:
+-----------------------------------------------------+-----------+-----------+
| | | |
+-----------------------------------------------------+-----------+-----------+
| | 2009 | 2008 |
+-----------------------------------------------------+-----------+-----------+
| | | |
+-----------------------------------------------------+-----------+-----------+
| Rehabilitation cost per ton (In South African | 5.91 | 6.18 |
| Rands) | | |
+-----------------------------------------------------+-----------+-----------+
| Volumes to be filled (In cubic meters) | 4 572 810 | 4 279 523 |
+-----------------------------------------------------+-----------+-----------+
| | | |
+-----------------------------------------------------+-----------+-----------+
30. Trade and other payables
+-----------------------------------------------------+---------+-----------+
| In thousands of US dollars | | |
+-----------------------------------------------------+---------+-----------+
| | 2009 | 2008 |
+-----------------------------------------------------+---------+-----------+
| | | |
+-----------------------------------------------------+---------+-----------+
| Trade payables | 1 558 | 6 737 |
+-----------------------------------------------------+---------+-----------+
| Other payables | 1 232 | 749 |
+-----------------------------------------------------+---------+-----------+
| | 2 790 | 7 486 |
+-----------------------------------------------------+---------+-----------+
31. Capital commitments
During the year ended 31 August 2009 the Group entered into a contract to
purchase property, plant and equipment for US$1 650 000 (2008:US$2 702 514).
These commitments are expected to be settled in the following financial year.
Notes to the consolidated financial statements
32. Related parties
Identity of related parties
The Group has a related party relationship with its subsidiaries, joint
ventures, directors and executive officers.
Transactions with key management personnel
Directors of the Company and their immediate relatives control 16.51 per cent
(2008: 19.15 per cent) of the voting shares of the Company.
During the year remuneration was paid to key management personnel for executive
services rendered to the amount of US$2 779 703 (2008: US$ 3 944 232). In
addition to these payments, share based payments were granted as described in
note 27.
Notes to the consolidated financial statements
32. Related parties(continued)
Group entities
Significant subsidiaries
As at the year end the following were subsidiaries:
+--------------------------------------+---------------+---------------+------------+
| | Activities | Country of | Ownership |
| | of | Incorporation | Interest |
| | principal | | |
| | subsidiaries | | |
+--------------------------------------+---------------+---------------+------------+
| | | 2009 | |
+--------------------------------------+---------------+---------------+------------+
| Amira SA | | Panama | 100 |
+--------------------------------------+---------------+---------------+------------+
| Debon Logistics Limited SA | | Panama | 100 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds DRC | | Panama | 100 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Namibia SA | | Panama | 100 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Management Services | Management | RSA | 100 |
| (Pty) Limited | Services | | |
+--------------------------------------+---------------+---------------+------------+
| Namdima Enterprises SA | | Panama | 100 |
+--------------------------------------+---------------+---------------+------------+
| Adima SPRL | | DRC | 100* |
+--------------------------------------+---------------+---------------+------------+
| Dorod SPRL | | DRC | 100* |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Mining Company DRC | Development | DRC | 100* |
| SPRL | | | |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamond Holdings (Pty) Ltd | | RSA | 100** |
+--------------------------------------+---------------+---------------+------------+
| Tidal Diamonds (Pty) Limited | | Namibia | 100 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Properties Namibia (Pty) Ltd | | Namibia | 100 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Trading (Pty) | Beneficiation | RSA | 100 |
| Limited | | | |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Mining North West | | RSA | 100 |
| (Pty) Limited | | | |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Mining South Africa | | RSA | 100 100 |
| (Pty) Limited | | | |
+--------------------------------------+---------------+---------------+------------+
| Albetros Inland Exploration (Pty) | | RSA | 100 100 |
| Limited | | | |
+--------------------------------------+---------------+---------------+------------+
| South Node (Pty) Limited | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Pypklip Diamante (Pty) Limited | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| South West Node (Pty) Limited | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Amber Cascades (Pty) Limited | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Dumela Diamonds (Pty) Limited | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Big Sky Trading 461 (Pty) Limited | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| South East Node (Pty) Limited | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Central Node (Pty) Ltd | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Morning Dew Properties (Pty) Limited | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Praxos (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Scarlett Queen Properties (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Central High Trading 58 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Counter Point Trading 403 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Batavia Trading 46 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Spring Green Trading 115 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Mirimar Trading 57 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| River Queen Trading (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Meondo Trading 72 (Pty) Ltd | | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Monroe Mining (Pty) Ltd | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Elite Diamond Cutting Works (Pty) | Beneficiation | RSA | 100 |
| Ltd | | | |
+--------------------------------------+---------------+---------------+------------+
| Northern Node (Pty) Ltd | Mining | RSA | 100 |
+--------------------------------------+---------------+---------------+------------+
| Idada Trading 167 (Pty) Ltd | | RSA | 74 |
+--------------------------------------+---------------+---------------+------------+
| Namakwa Diamonds Israel Limited | Beneficiation | Israel | 100 |
+--------------------------------------+---------------+---------------+------------+
* In three of the subsidiaries, incorporated in DRC, one per cent of the
shareholding is held by an employee on behalf of the Group to comply to the
regulatory environment of the country. These one per cent shareholdings are
effectively held by the Group and included in the consolidation of the Group.
Notes to the consolidated financial statements
33. Subsequent events
On 27 August 2009, Namakwa Diamonds Limited executed a trust deed constituting
the Namakwa Diamonds Employee Benefit Trust (the "EBT"), with Namakwa Diamonds
Trustees Limited, a wholly owned subsidiary of the Company, appointed as trustee
(the "Trustee"). The establishment of the EBT enables the Trustee to acquire
shares in the Company and to make interests in those shares available for the
benefit of current and future employees of the Company and its subsidiaries, as
part of the Group's employee incentive strategy. The Trust and the Trustee had
not entered into any transactions during the 2009 period.
On 9 October 2009, the Trustee acquired 870,000 ordinary shares in the Company
at a price of GBP0.35 per share, through market purchases, on behalf of the EBT,
pursuant to a mandate with an independent third party. Such mandate allows the
independent third party to make trading decisions in relation to the Company's
securities independently and uninfluenced by the Company.
The Trust will be consolidated from a Group perspective and all Namakwa Diamonds
Ltd shares held by the Trust will be accounted for as treasury shares. Any
grants of shares or share options by the Trust will be accounted for in
accordance with IFRS 2 Share based payments.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FEUSFUSUSESS
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