3rd Quarter Results
BRAZILIAN DIAMONDS LIMTIED
QUARTERLY REPORT FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2008
During the nine months ended 30 September 2008, Brazilian Diamonds
Limited ("Brazilian Diamonds" or "the Company") has continued to
focus its exploration activities on exploring kimberlite bodies
located on its properties in Brazil while seeking ways to maximize
the value from its extensive diamondiferous alluvial gravel
inventories located on some of these same properties.
The Company remains encouraged by the publication of the Brazilian
Government's inter-departmental deliberations over the finalization
of permanent boundaries for the Serra da Canastra National Park,
which is located in proximity to the Canastra 1 project, and the
progress made with respect to the passage of this legislation. A
draft bill (Projeto de Lei No. 1448/2007) has been submitted to the
Brazilian Congress which excludes the Company's diamond areas from
any new proposed National Park boundary. The Company understands
that the Congress has yet to complete its review of the legislation,
however it remains encouraged that the bill appears to have support
from both the Government and Opposition parties. Once approved, the
Company will be able to commence trial mining at its Canastra 1
project.
The Company's joint venture partners have now made a decision to
defer the next phase of studies with regards to developing a large
scale, dredge based mining operation on the Santo Antonio do Bonito
alluvials project. As a result, Brazilian Diamonds has commenced
discussions with an investor group with the aim of developing an
alluvial project focused primarily on the large diamonds found in the
river terraces.
The Company is evaluating the results of the drilling and testing of
the Salvador 1 kimberlite before deciding on what further activity
should be undertaken on this project.
The continuing uncertainties in international capital markets has had
a demonstrable and negative impact on the ability of junior resource
exploration companies to finance their activities and in light of
these developments, the Company is therefore reviewing its plans for
future activities which may well require the sale or disposal of
assets and the relinquishment of exploration licenses as part of a
rationalisation plan to meet the challenges posed by this difficult
environment.
For further information contact:
Brazilian Diamonds Limited
Ken Judge, Chairman + 44 7733 001 002
Stephen Fabian, CEO + 55 31 9186 4660
Hanson Westhouse Limited (Nomad to the Company) + 44 113 246 2610
Tim Feather/Matthew Johnson
Introduction
The following discussion of performance and financial condition
should be read in conjunction with the interim consolidated financial
statements of the Company for the nine months ended September 30,
2008. The Company's financial statements are prepared in accordance
with Canadian GAAP. The Company's reporting currency is Canadian
dollars. The date of this Management's Discussion and Analysis is
November 10, 2008.
Description of Business
Brazilian Diamonds is a development stage resource company engaged in
the acquisition, exploration and development of kimberlite and
alluvial diamond properties in Brazil. The Company has over 100,000
hectares of alluvial and kimberlite exploration properties in the
Paranaiba and Santo Antonio do Bonito River Basins and the Patos de
Minas region as well as over 115,000 hectares of prospective
exploration properties in the Serra da Canastra Kimberlite Province
including the advanced stage diamondiferous Canastra 1 kimberlite
pipe. In addition, the Company has its own diamond laboratory used
in the recovery of kimberlite indicator minerals and in 2006 the
Company received an ISO 17025 rating for the facility.
The Company's head office is located in Belo Horizonte, Brazil and
the corporate office is located in Vancouver British Columbia,
Canada. Exploration headquarters are located in Patos de Minas,
Brazil.
The Company is a reporting issuer in Ontario and British Columbia,
Canada and its common shares trade on the Toronto Stock Exchange and
Alternative Investment Market ("AIM") of the London Stock Exchange
under the symbol BDY.
Discussion of Operations
Current Year Activity
December September
31 Acquisition Deferred Amortization/ 30
2007 (Disposal) Exploration Write Down 2008
Coromandel 9,745 - 294 - 10,039
Patos de
Minas 3,183 - 116 (3,020) 279
Serra da
Canastra 7,462 - 229 - 7,691
Salvador 1 2,078 - 1,731 - 3,809
Data Sets 2,115 - - (201) 1,914
Other
projects 74 - 12 - 86
Total 24,657 - 2,382 (3,221) 23,818
December December
31 Acquisition Deferred Amortization/ 31
2006 (Disposal) Exploration Write Down 2007
Coromandel 8,620 - 1,125 - 9,745
Patos de
Minas 2,737 - 446 - 3,183
Serra da
Canastra 7,121 - 341 - 7,462
Salvador 1 466 - 1,612 - 2,078
Data Sets 2,383 - - (268) 2,115
Other
projects 63 - 11 - 74
Total 21,390 - 3,535 (268) 24,657
During the nine months ended September 30, 2008, the Company's
diamond drilling and sampling activities were focused on the Salvador
1 and Santo Antonio do Bonito projects which are being prioritized
for further evaluation.
Salvador 1 Kimberlite Testing
The Salvador 1 kimberlite is a six hectare body partly exposed
beneath the sands and gravels of an old alluvial diamond mine in
central Bahia State, Brazil. The testing of the Salvador 1
kimberlite has involved the excavation of a number of pits, with each
pit designed to extract approximately 1,300 tonnes of kimberlite from
different parts of the kimberlite pipe.
Extraction began in the last quarter of 2007 and continued through
the nine months ended September 30, 2008. The kimberlite is
multiphase with as many as six kimberlite rock types identified in
Pit 1, therefore providing numerous challenges in evaluation process.
Processing of the kimberlite samples began in December 2007 using a
processing plant consisting of a primary disaggregation rotary pan,
followed by x-ray flowsort and grease table for the recovery of
diamonds. The processing plant has recently been augmented with a
roll crusher to better handle harder kimberlite fragments, however,
throughout the nine months ended September 30, 2008, sample treatment
remained slower than excavation.
Quality control and quality assurance of this evaluation process is
being undertaken at the Company's certified ISO 17025 indicator
mineral processing laboratory on Patos de Minas, where concentrates
are re-examined for diamonds that may not have been recovered in
processing by the on-site plant.
As at September 30, 2008, the Company has completed field operations
at its pit sample evaluation of the Salvador 1 kimberlite pipe. The
Company excavated three pits from 8 to 11m deep and processed the
extracted kimberlite in a plant built on-site. In addition, the
Company completed drill holes and conducted microdiamond tests to
identify potentially higher grade zone. Kimberlite weighing 603.5
tonnes from Pit 1 yielded 12.44 carats of diamonds, demonstrating
that the pipe is diamondiferous although with a low abundance in the
portion tested. Preliminary results from 402 tonnes of kimberlite
extracted from Pit 3 yielded 10.44 carats of diamonds. Additional
kimberlite, mostly from the second and third pits has been shipped to
the Company's mineral processing laboratory in Patos de Minas, Brazil
for final diamond processing and quality control tests following
initial processing steps on-site. On receipt of the results, the
Company will assess the next steps for the project. All field
equipment has been moved to the Santo Antonio do Bonito project site
in Minas Gerais State where the Company is investigating the
possibility of re-starting operations.
Salvador 1 Alluvial Sand and Gravel Testing
Concurrent with the kimberliete sampling and processing at Salvador
1, a separate processing plant was used to recover diamonds from the
sands and gravels overlying the Salvador 1 kimberlite. Approximately
2,300 tonnes of sands and gravels were processed through the jig
plant, yielding 78.93 carats. The two largest recovered diamonds
weighed 3.15 and 2.65 carats respectively. The shallow overlying
alluvial sands and gravels are enriched in diamond content compared
to the kimberlite, although the volumes are smaller. The
confirmation of a diamondiferous kimberlite feeding the alluvial
deposits of central Bahia has positive implications for further
exploration within the Company's extensive land position and database
for the region.
Santo Antonio do Bonito
Having consolidated all field equipment to the Santo Antonio do
Bonito project site in Minas Gerais State, the Company is
investigating the possibility of re-starting operations.
Patos de Minas
During the year ended December 31, 2007, the land, building and
assets in Parima were transferred to Samsul for R$285,000. The land
is now registered in Samsul with the Brazilian land registry. For
the nine months ended September 30, 2008, deferred expenses of
$3,020,000 mostly relating to the Tucano project were written off and
all remaining mineral licenses were transferred from Parima to Samsul
for $nil value.
Historical Information
Following the acquisition of several mineral exploration databases
from De Beers, the Company now has access to the accumulated results
of more than 30 years of exploration activity in the Canastra, Santo
Antonio do Bonito and Patos de Minas regions in Minas Gerais and the
Chapada Diamantina region in Bahia. Included within the Canastra
data set are indicator mineral samples, microprobe chemical analyses,
and 19,000 line kilometres of proprietary airborne geophysics
covering the entire region. De Beers has also provided details about
35 known kimberlite occurrences and the results of ground geophysics
within the Canastra region. The Chapada Diamantina data set,
acquired in September 2006 from De Beers, includes 194,120 line
kilometres of airborne geophysics, indicator mineral samples,
microprobe analysis and mineral licenses covering the Salvador 1
kimberlite body plus five other kimberlites.
This data complements an already significant database the Company
previously acquired as a result of the purchase of De Beers'
Brazilian subsidiary Mineracao do Sul in August 2002. That
acquisition also included 40,000 hectares of mineral claims in the
Canastra area and the Canastra 1 kimberlite for which licenses are
being sought to commence trial mining. The licencing process has
been complicated by the potential expansion of a nearby National
Park. Although there is every indication that a licence will be
granted to mine Canastra 1, it is not possible to accurately estimate
the timetable for such a grant. While the Company continues to work
with various ministries of the Brazilian federal government in an
effort to hasten the process for the license grant, the Company has
been concentrating the majority of its exploration activity and
resources on its other prospective projects outside the Canastra
Region.
During the past three years, the Company has committed significant
resources evaluating kimberlite targets in the Santo Antonio do
Bonito River Basin and Patos de Minas regions.
Salvador 1
In 2007, the Company collected 6 replicate samples totaling 6 tonnes
from the Salvador 1 kimberlite in an attempt to confirm results from
a smaller (580 kg) sample taken in 2006. In total, 111 diamonds were
recovered from these new samples which together with original sample
tallied 120 diamonds. Preparations began in the third quarter of
2007 for the collection of six much larger samples of approximately
650 m3 each from different parts of the Salvador 1 kimberlite in
order to better assess its diamond potential. Excavation of the
first pit was completed in the fourth quarter and excavation of the
second and third pits were started. Results from the first of the
bulk sample pits identified at least six different kimberlitic rock
types or "phases". Each of these phases potentially may carry a
different diamond sample.
Serra da Canastra
The Company is awaiting final approval before commencing the
environmental licensing process for the development of the Canastra 1
kimberlite body for which mine feasibility work has already been
completed and the required Mines Department approvals are already in
place. The Company will bring Canastra 1 into production once the
environmental licensing process is completed.
Coromandel
The Company with its Joint Venture partners assessed various
alternatives for the possible development of one or more alluvial
mining operations at the Santo Ant�nio do Bonito alluvial project.
These options included large scale dredging operations on the
broader river flat areas along the Santo Ant�nio do Bonito river as
well as a smaller scale operation on what are considered to be highly
prospective but narrower river terrace areas. As at September 30,
2008, the Joint Venture partners have made a decision to defer the
next phase of studies.
Patos de Minas
During the first quarter of 2007, the Company's administrative
functions in Brazil were consolidated at the Patos de Minas office
and laboratory with the Company continuing to maintain a small
representative corporate office in Belo Horizonte. Through these
measures, the Company has been able to significantly reduce its
Brazilian overhead from the levels existing prior to the
restructuring carried out in the second half of 2006.
Stage II drilling of holes RDH-03, 04, 05 and 06 at the Company's
100% owned Regis kimberlite project was completed in the first
quarter of 2007 and following receipt and evaluation of the final
results of lab testing of drill cores for micro-diamonds, the Company
will be in a position to determine what further activity should be
undertaken on this kimberlite.
Financial Performance
Third Quarter
The loss for the three months ended September 30, 2008 was $293,000
as compared to a loss of $596,000 for the same period last year
before other income (expenses). The decrease in expenses over the
same period last year is due to a decrease in stock-based
compensation of $165,000, foreign exchange loss of $118,000 and
travel expenses of $11,000.
Cash and cash equivalent balances decreased by $813,000 to $226,000
at September 30, 2008. The cash spending for mineral properties was
$666,000. The working capital was $76,000 (2007 - $883,000).
Of the $666,000 deferred exploration costs, $141,000 was spent on
kimberlite exploration in the Santo Antonio do Bonito River Basin,
$66,000 was expended on kimberlite projects in the Serra da Canastra
Kimberlite Province, $58,000 was spent on the Patos de Minas project,
$465,000 was spent on Salvador 1, and $3,000 was spent on other
projects. The data sets are amortized over ten years. For the three
months ended September 30, 2008, $67,000 (2007 - $56,000) was
amortized and proportionally allocated to the related mineral
properties. The current period's exploration expenditures were
$162,000 less than the same period last year due to a decrease in
drilling during the period.
Year-to-date
The loss for the nine months ended September 30, 2008 was $783,000 as
compared to a loss of $1,196,000 for the same period last year before
other income (expenses). The decrease in expenses over the same
period last year is due to a decrease in foreign exchange loss of
$183,000, stock-based compensation of $165,000, investor relations of
$37,000, legal and audit of $32,000 and travel expenses of $28,000.
Cash and cash equivalent balances decreased by $230,000 to $226,000
at September 30, 2008. The cash spending for mineral properties was
$2,181,000. The working capital was $76,000 (2007 - $883,000).
Of the $2,181,000 deferred exploration costs, $294,000 was spent on
kimberlite exploration in the Santo Antonio do Bonito River Basin,
$229,000 was expended on kimberlite projects in the Serra da Canastra
Kimberlite Province, $116,000 was spent on the Patos de Minas
project, $1,731,000 was spent on Salvador 1, and $12,000 was spent on
other projects. The data sets are amortized over ten years. For the
nine months ended September 30, 2008, $201,000 (2007 - $212,000) was
amortized and proportionally allocated to the related mineral
properties. The current period's exploration expenditures were
$136,000 less than the same period last year due to a decrease in
drilling during the period. Deferred expenses of $3,020,000 (2007 -
$nil) were written off in the nine months ended September 30, 2008.
All mineral licenses were transferred from Parima to Samsul for $nil
value.
Results of Operations
Summary of Quarterly Results
The table below present's selected financial data for the Company's
eight most recently completed quarters.
June June
($000) Sept.30 30 Mar.31 Dec.31 Sept.30 30 Mar.31 Dec.31
2008 2008 2008 2007 2007 2007 2007 2006
Financial
results
Net
loss(income) 293 200 3,193 (265) 426 (278) 279 988
for period
Comprehensive 231 120 367 192 743 67 663 -
loss**
Basic and
diluted loss 0.00 0.00 0.02 0.00 0.00 0.00 0.00 0.01
(income) per
share
Expenditures
on resource
properties 666 806 709 1,213 573 591 898 1,009
Balance sheet
data
Cash and
short term 226 1,039 701 456 1,075 2,147 3,037 4,514
deposits
Resource 23,818 23,152 22,346 24,657 23,693 22,865 22,274 21,390
properties
Total assets 24,512 24,965 23,903 26,408 25,689 25,910 26,249 26,762
Shareholders' 24,042 24,572 23,428 25,968 25,069 25,074 24,796 25,075
equity
Selected Annual Information
The following financial data has been prepared in accordance with
Canadian generally accepted accounting principles in Canadian
currency:
Year ended Year ended Year ended
($000) December 31 December 31 December 31
2007 2006 2005
Financial results
Net loss for period * 162 2,763 790
Other comprehensive
loss** 1,503 - -
Basic and diluted loss
per share 0.00 0.02 0.01
Expenditures on
resource
properties 2,988 3,130 2,472
Balance sheet data
Cash and cash
equivalents 456 4,514 1,082
Mineral properties 24,657 21,390 17,770
Total assets 26,408 26,762 19,889
Shareholders' equity 25,968 25,075 18,600
* Net loss for December 31, 2006 includes $.6M stock-based
compensation (2005 - $Nil) and reorganization costs of $0.25m (2005
$nil)
** The Company has reflected in its financial statements as at and
for the year ended December 31, 2007 the adjustments and disclosures
required by the following CICA Handbook Sections 3855 Financial
Instruments - Recognition and Measurement; Section 3861 Financial
Instruments - Disclosure and Presentation; Section 3865 - Hedges;
Section 1530 Comprehensive Income and Section 3251 Equity. However,
the Company did not accurately record the effect of these new
pronouncements n the 2007 quarterly financial statements. Management
has reflected the appropriate adjustments to comprehensive loss in
the Summary of Quarterly Results above
Liquidity and Capital
The Company does not currently own or have an interest in any
producing mineral properties and does not derive any revenues from
operations. The Company's activities have been funded through equity
financing and while the Company remains optimistic that it will
continue to be able to utilize this source of financing until it
develops cash flow from operations, there can be no assurance,
however, that the Company will be successful in its efforts. If such
funds are not available or other sources of finance cannot be
obtained, then the Company will attempt to curtail its activities to
a level for which funding is available or can be obtained.
Most of the capital equipment for operations at Canastra 1 has
already been acquired and is included as part of resource
properties. The Company has minimal operating lease commitments
(refer to Contractual Commitments).
These financial statements have been prepared using Canadian
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and settlement
of liabilities in the normal course of business as they come due.
For the nine months ended September 30, 2008, the Company reported a
loss of $3,686,000 and an accumulated deficit of $74,522,000 at that
date. In addition to its ongoing working capital requirements, the
Company must secure sufficient funding for existing commitments as
well as ongoing mineral property exploration. These circumstances
lend substantial doubt as to the ability of the Company to meet its
obligations as they come due and, accordingly, the appropriateness of
the use of accounting principles applicable to a going concern.
The Company's ability to continue as a going concern is dependent
upon its ability to fund its ongoing operating costs and exploration
and development of mineral properties, attain profitable mining
operations, or receive proceeds from the disposition of its mineral
property interests. These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the
reported expenses and balance sheet classifications that would be
necessary were the going concern assumption inappropriate, and these
adjustments could be material.
Subsequent Events
1) The Company will not be renewing its office leases when the
leases expires. The office leases will be assumed by HRG. Office
rent is included under the services agreement with HRG Management
Ltd. (note a).
Contractual Commitments
Except as outlined below, the Company has no other contractual
commitments.
2008 2009 2010 2011 Total
Office $ $ - $ - $ - $
leases 13 13
Photocopier 2 9 9 21
leases 1
Services
agreement 55 - - - 55
with HRG
$ $ 9 $ 9 $ 1 $
70 89
Off Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements
other than those disclosed in Commitments note 10 of the interim
consolidated financial statements.
Transactions with Related Parties
During the nine months ended September 30, 2008 and 2007, the Company
entered into the following transactions with related parties:
2008 2007
$ $
HRG Management Ltd. - Kenneth Judge, Stephen L.
Fabian
- Kerry
Beamish (note a)
Paid or accrued contractual service costs (note a) 165,000 157,000
Miscellaneous office recoveries (note b) - 12,000
Deposits made (note c) 58,000 62,000
Hamilton Capital Partners Limited ("HCPL") -
Kenneth Judge
Paid or accrued consulting fees and office rent 130,000 144,000
Sale of Hidefield shares (note d) 185,000 -
Massif Limited - Stephen L. Fabian
Paid or accrued management fees - (note e) 91,000 100,000
Lang Michener - David Cowan
Paid or accrued legal fees - (note f) 11,000 4,000
Hidefield Gold PLC - Kenneth Judge, Francis
Johnstone
Office and technical cost recoveries (note g) - 25,000
a) Effective February 1, 2006, the Company entered into a
services agreement with HRG Management Ltd. ("HRG") in which the
Company agreed to pay a monthly corporate administration fee of
approximately $18,400 that includes office rent, administration,
accounting, corporate secretarial, chief financial officer, investor
relations and other related services. HRG is a management company
jointly owned by the Company and certain other public companies, all
of which share office space and staff on a cost recovery basis. The
Company share directors and officers in common with HRG. The
agreement expires December 31, 2008 and can be terminated by either
party prior to expiration with 90 days written notice. Kenneth Judge
and Stephen L. Fabian are both directors of HRG. Kerry Beamish is
the CFO of HRG.
b) At September 30, 2008, HRG owed the Company $3,000 (2007 -
$Nil) and have normal trade terms.
c) At September 30, 2008, $58,000 (2007 - $62,000) is included
in accounts receivable, prepaids and deposits to HRG for fixed assets
and services.
d) The Company received proceeds of $185,000 on the sale of 2
million Hidefield Gold plc shares at 4.75 pence from HCPL.
e) The Company paid or accrued management fees of $91,000 (2007
- $100,000) to Massif Limited, a company in which Stephen L. Fabian
is interested.
f) The Company paid or accrued professional fees of $11,000
(2007 - $4,000) to a law firm in which David Cowan, director is a
partner.
g) The Company has capitalized office and technical cost
recoveries of $Nil (2007 - $25,000) from Hidefield Gold PLC ("HIF")
to mineral properties.
Share Capital Information
The table below presents the Company's common share data as of
November 10, 2008.
Number of
Exercise Price Expiry date common shares
Common shares, issued
and outstanding 194,370,722
Securities convertible
into common shares -
March 29,
Options $0.65 2009 50,000
October 26,
$0.45 2009 2,875,000
$0.41 April 5, 2011 2,175,000
$0.25 July 12, 2012 1,750,000
October 12,
$0.25 2012 100,000
201,320,722
Critical Accounting Estimates
The preparation of financial statements requires the Company to
select from possible alternative accounting principles, and to make
estimates and assumptions that determine the reported amounts of
assets and liabilities at the balance sheet date and reported costs
and expenditures during the reporting period. Estimates and
assumptions may be revised as new information is obtained, and are
subject to change. The Company's accounting policies and estimates
used in the preparation of the Financial Statements are considered
appropriate in the circumstances, but are subject to judgments and
uncertainties inherent in the financial reporting process.
Stock Based Compensation
In calculating the value of stock options granted, management is
required to make significant estimates in relation to the future
volatility of the Company's share price and the period in which stock
options will be exercised. The selection of the volatility factor
and the estimate of the expected option life will have a significant
impact on costs recognized for stock based compensation. The
estimates concerning volatility are made with reference to historical
volatility, which is not necessarily an accurate indicator of
volatility that will be experienced in the future. Management
assumes that stock options will remain unexercised until immediately
prior to their expiry date, which may not be the case.
Carrying Value of Assets
The Company reviews the carrying value of mineral properties and
deferred exploration costs when there are any events or circumstances
that may indicate impairment. Where estimates of future cash flows
are available, an impairment charge is recorded if the undiscounted
future net cash flows are less than the carrying amount. Reductions
in the carrying value of the properties are recorded to the extent
the net book value of the property exceeds the discounted value of
future cash flows. Where estimates of future cash flows are not
available and where other conditions suggest impairment, management
assess if carrying value can be recovered and provides for impairment
if so indicated. As at September 30, 2008, the Company has written
down $3,020,000 in deferred expenses.
Asset Retirement Obligations
The Company relied on the results of a professional, engineering firm
and used the discount and inflation rate as at December 31, 2007 to
estimate the fair value of its asset retirement obligations.
Changes in Accounting Policies
The Company implemented the following accounting policy changes
during the period.
Effective January 1, 2008, the Company adopted three new accounting
standards issued by the Canadian Institute of Chartered Accountants
("CICA"); Section 1535 - Capital Disclosures, Section 3862 -
Financial Instruments - Disclosure, Section 3863 - Financial
Instruments - Presentation. These standards were adopted on a
prospective basis, and as such prior periods have not been restated.
a) Section 1535, "Capital Disclosures", establishes standards
for disclosing information about an entity's capital and how it is
managed. These standards require an entity to disclose the
following:
i. its objectives, policies and
processes for managing capital;
ii. summary quantitative data about
what the Company views as capital;
iii. whether during the period, it
complied with any externally imposed capital requirements to which it
is subject;
iv. when the entity has not complied with
such requirement, the consequences of such non-compliance.
b) Financial Instruments - Disclosure (Section 3862) and
Presentation (Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure
and Presentation. The increased disclosures will enable users to
evaluate the significance of financial instruments for an entity's
financial position and performance, including disclosures about fair
value. In addition, disclosure is required of qualitative and
quantitative information about exposure to risks arising from
financial instruments, including specified minimum disclosures about
credit risk, liquidity risk and market risk. The quantitative
disclosures must provide information about the extent to which the
entity is exposed to risk, based on information provided internally
to the entity's key management personnel.
Risk
There are significant risks that might affect further development of
the Company. Although the Company has prospective diamond projects
and has demonstrated that it has the ability to obtain environmental
and trial mining permits, there is a risk that these projects will
not be economically mineable or that the required permits will be
granted in the future. Further, future market prices for diamonds
are not predictable. There is also a risk that should additional
development of the properties be required, financing may not be
obtainable. Repatriation of earnings and capital from Brazil is
subject to compliance with registration requirements. There can be
no assurance that restrictions on repatriation will not be imposed in
the future.
Management's Responsibility for Financial Statements
The information provided in this report, including the financial
statements, is the responsibility of management. In the preparation
of these statements, estimates are sometimes necessary to make a
determination of future values for certain assets or liabilities.
Management believes such estimates have been based on careful
judgments and have been properly reflected in the accompanying
financial statements.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to
senior management, including the President, Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so
that appropriate decisions can be made regarding public disclosure.
An evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures was conducted as of
September 30, 2008, by and under the supervision of management,
including the CEO and the CFO. Based on this evaluation, the CEO and
the CFO have concluded that the Company's disclosure controls and
procedures, as defined by Multilateral Instrument 52-109,
Certification of Disclosure in Issuers' Annual and Interim Filings,
are effective to ensure that information required to be disclosed in
reports filed or submitted under Canadian securities legislation is
recorded, processed, summarized and reported within the time period
specified in those rules and forms and reported to senior management
so that appropriate decisions can be made regarding public
disclosure.
Internal Control Over Financial Reporting
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with
Canadian GAAP. Management is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company.
An evaluation of the design of the Company's internal control over
financial reporting was conducted as of September 30, 2008, by and
under the supervision of management, including the CEO and the CFO.
Based on this evaluation, the CEO and the CFO have concluded that
the Company's design of internal control over financial reporting, as
defined by Multilateral Instrument 52-109, Certification of
Disclosure in Issuers' Annual and Interim Filings, is sufficient to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with Canadian GAAP.
There have been no changes in internal control over financial
reporting during the nine months ended September 30, 2008 that have
materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Other information
Additional information is available on the Company's website at
www.braziliandiamonds.com or on SEDAR at www.sedar.com.
Interim Consolidated Balance Sheet
(expressed in thousands of Canadian
Dollars) September 30 December 31
(unaudited) 2008 2007
$ $
Assets
Current assets
Cash and cash equivalents 226 456
Accounts receivable, prepaids and deposits 227 240
Due from related parties 8 17
461 713
Investments 233 1,038
Mineral properties 23,818 24,657
24,512 26,408
Liabilities
Current liabilities
Accounts payable and accrued liabilities 385 336
Hidefield options - 19
Asset retirement obligation 85 85
470 440
Shareholders' Equity
Capital stock 95,326 92,848
Warrants - 519
Contributed surplus 3,336 2,817
Deficit (74,522) (70,836)
Accumulated other comprehensive income (98) 620
24,042 25,968
24,512 26,408
Nature of Operations and Going Concern
(note 1)
Interim
Consolidated
Statements of Loss
and Deficit
(expressed in Nine- Nine-
thousands of Three - Three - month month
Canadian dollars, month period month period period period
except per share ended Sept ended Sept ended Sept ended Sept
amounts) 30, 30, 30, 30,
(unaudited) 2008 2007 2008 2007
$ $ $ $
Expenses
Consultants 55 53 162 162
Corporate 22 18
administrative
services 61 53
Foreign exchange 29 147
loss 8 191
Insurance 11 15 34 49
Interest (1) (13) (4) (70)
Investor relations 46 53 93 130
Legal and audit 30 38 94 126
Office costs 37 39 116 128
Regulatory 29 34 103 109
Salaries and 31 32
benefits 91 100
Stock-based - 165
compensation - 165
Travel 4 15 25 53
(293) (596) (783) (1,196)
Other income
(expenses)
Unrealized fair - 170
value of Hidefield
options 19 769
Gain on sale of - -
investments 98 -
Write-down of - -
mineral properties (3,020) -
Loss for the period (293) (426) (3,686) (427)
Deficit - Beginning (74,229) (70,675)
of period (70,836) (70,674)
Deficit - End of
period (74,522) (71,101) (74,522) (71,101)
Loss per common
share
0.00
Basic and diluted 0.00 0.02 0.00
Weighted average
common shares
outstanding (000's)
Basic and diluted 194,371 168,414 186,318 168,414
Interim Consolidated Three - Three - Nine-
Statements of month month Nine- month month
Comprehensive Loss period period period period
(expressed in thousands ended Sept ended Sept ended Sept ended
of Canadian dollars) 30, 30, 30, Sept 30,
(unaudited) 2008 2007 2008 2007
$ $ $ $
Loss for the period (293) (426) (3,686) (427)
Other comprehensive loss
Unrealized loss on (231) -
available-for-sale
securities (718) -
Comprehensive loss for
the period (524) (426) (4,404) (427)
Interim Consolidated Three- Three- Nine-
Statements of Cash month month Nine- month month
Flows period period period period
(expressed in ended Sept ended Sept ended Sept ended Sept
thousands of Canadian 30, 30, 30, 30,
dollars) 2008 2007 2008 2007
(unaudited) $ $ $ $
Cash flows from
operating activities
Loss for the year (293) (426) (3,686) (427)
Adjustments for
non-cash changes
Amortization - 2 - 7
Stock-based 165
compensation 165
Write-down of mineral - -
properties 3,020 -
Gain on sale of - -
investments (98) -
Unrealized fair value - (170)
of Hidefield options (19) (769)
Changes in non-cash
working capital
(Increase) decrease in 79 (23) 13 (58)
accounts receivable
and prepaids
(Increase) decrease (4) (1)
due from related
parties 9 3
Increase (decrease) in 77 (40) 49 (284)
accounts payable and
accrued liabilities
(141) (493) (712) (1,363)
Cash flows from
financing activities
Decrease in long-term - (6)
debt - (14)
Issue of shares for - -
private placement 2,596 -
Share issue costs (6) - (118) -
(6) (6) 2,478 (14)
Cash flows from
investing activities
Proceeds from exercise - -
of HIF options and
shares 185 -
Deferred mineral (666) (573)
property costs (2,181) (2,062)
(666) (573) (1,996) (2,062)
Decrease in cash and (813) (1,072) (230) (3,439)
cash equivalents
Cash and cash 1,039 2,147 456 4,514
equivalents -
Beginning of period
Cash and cash 226 1,075
equivalents - End of
period 226 1,075
Notes to Consolidated Financial Statements
1. Nature of Operations and Going Concern
The Company is engaged in the exploration for and development of
mineral resources. The properties of the Company are without a known
body of commercial ore, the exploration programs undertaken and
proposed constitute an exploratory search, and there is no assurance
that the Company will be successful in its search. The Company has
not earned any revenue to date from its current operations and is
therefore considered to be in the development stage. The business of
exploring for minerals and mining involves a high degree of risk, and
few properties that are explored are ultimately developed into
producing mines. Significant expenses may be required to establish
ore reserves, to develop recovery processes, and to construct mining
and processing facilities at a particular site. It is not possible to
ensure that the current exploration programs planned by the Company
will result in a profitable commercial mining operation.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, in accordance with industry
standards for the current stage of exploration of such properties,
these procedures do not guarantee the Company's title. Property
title may be subject to prior agreements and non-compliance with
regulatory requirements.
The Company is actively exploring and maintaining its current mineral
property portfolio in Brazil. It expects to selectively explore and
develop the portfolio itself, through joint venture or other
arrangements. The scheduling and scale of such future activities
will depend on results and market conditions. Repatriation of
earnings and capital from Brazil is subject to compliance with
registration requirements.
These financial statements have been prepared using Canadian
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and settlement
of liabilities in the normal course of business as the come due. For
the nine months ended September 30, 2008, the Company reported a loss
of $3,686,000 and an accumulated deficit of $74,522,000 at that date.
In addition to its ongoing working capital requirements, the Company
must secure sufficient funding for existing commitments as well as
ongoing mineral property exploration. These circumstances lend
substantial doubt as to the ability of the Company to meet its
obligations as they come due and, accordingly, the appropriateness of
the use of accounting principles applicable to a going concern.
The Company's ability to continue as a going concern is dependent
upon its ability to fund its ongoing operating costs and exploration
and development of mineral properties, attain profitable mining
operations, or receive proceeds from the disposition of its mineral
property interests. These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the
reported expenses and balance sheet classifications that would be
necessary were the going concern assumption inappropriate, and these
adjustments could be material.
2. Significant accounting policies
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles,
and they follow the same accounting policies and methods of
application as the most recent annual financial statements.
Consequently, these statements should be read in conjunction with the
audited annual consolidated financial statements for the year ended
December 31, 2007.
3. Investments
September 30, 2008
Number of Shares Amount % Holding
Hidefield Gold plc 7,625,000 $ 233 2.75%
September 30, 2007
Number of Shares Carrying value Fair value % Holding
Hidefield Gold
plc 14,625,000 $ 634 $ 1,711 5.31%
a) During the nine month period ended September 30, 2008, the
Company recognized an unrealized loss of $718,000 (2007 - $Nil) on
marketable securities designated as available-for-sale in other
comprehensive income.
b) On February 8, 2008, the Company sold 2,000,000 Hidefield
Gold plc ("Hidefield") shares at a price of 4.75 pence (market value
- 4.20 pence) per share for a total of $185,000 to Hamilton Capital
Partners Limited (note 9(d)) and recorded a gain of $98,000 on the
sale.
c) On January 25, 2008, the Company's 7,125,000 Hidefield
options expired and the $19,000 unrealized fair value of the
Hidefield options was written down. During the year ended December
31, 2005, the Company sold 12,125,000 Hidefield units to related
parties. Each Hidefield unit was sold for 4.5 pence and was
comprised of one ordinary common share of Hidefield and an option
granted to acquire one additional ordinary share of Hidefield from
the Company's remaining shareholding at 6 pence per share ("the
Hidefield options").
---END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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