Kopane Diamond Developments PLC
LSE : KDD
|
November 25, 2008 02:00 ET
PRELIMINARY ANNOUNCEMENT OF RESULTS FOR YEAR ENDED 30 JUNE 2008; NOTICE OF ANNUAL GENERAL MEETING
Kopane Diamond Developments Plc
PRESS RELEASE
25 November 2008
PRELIMINARY ANNOUNCEMENT OF RESULTS FOR
YEAR ENDED 30 JUNE 2008; NOTICE OF ANNUAL GENERAL MEETING
Kopane Diamond Developments Plc ("Kopane") is a diamond producer, developer and explorer with core projects at
Liqhobong in Lesotho, Southern Africa. The Liqhobong operations are operated by Liqhobong Mining Development Company
("LMDC") which is 75% owned by Kopane and 25% by the Government of Lesotho ("GoL").
LMDC has to date produced over 340,000 carats of diamonds since operations commenced at the end of 2005 and is
currently producing at a rate of 160,000 carats per annum. The principal development project is the Main Pipe which
has the potential to produce at a rate of one million carats per annum.
Highlights of the year include:
> Diamond production of 152,013 carats in the year to 30 June 2008 compared to 111,372 carats in previous year, an
increase of 36.5%
> Sales of 148,824 carats valued at $6.9 million in the year to 30 June 2008, an increase of 28% when compared to
the 77,311 carats sold at a value of $5.4m in the year to 30 June 2007
> Recovery of 13.32 carat vivid yellow stone in June 2008 for $35,136 per carat, sold in July 2008
> Substantial progress on the Main Pipe Definitive Feasibility Study
* 33,921 tonnes near surface bulk sampling programme recovering 12,514 carats
* Completion of 25 hole, 4,415 metre, large diameter drilling programme
> New interim resources statement:
* 76 million tonnes of Kimberlite
* Average grade of 39.1 carats per hundred tonnes
* Gross diamond resource of 29.6 million carats
* Run of mine value of $86 per carat
* Indicative Main Pipe value $2.5 billion
> Joint venture for exploration and development of Finnish assets
At 30 June 2008 the Company's cash balance was £4.7 million, upon which the Company has drawn down in order to
progress the Definitive Feasibility Study on the Main Pipe. In line with the current severe economic and market
turbulence, diamond prices have fallen significantly over the last couple of months and this, in conjunction with
planned discretionary project expenditure, has required that the Company assess its current funding requirements in
the immediate future. All steps necessary to preserve the Company and its principal assets are being reviewed.
Notice of Annual General Meeting
The Annual General Meeting will be held at the Park Plaza Hotel, Edward Suite 1, 239 Vauxhall Bridge Road,
London SW1V 1EQ on Thursday, 18 December 2008 at 11.00 am.
At the AGM shareholders will be asked to vote, inter alia, on a resolution which proposes a reduction in the nominal
value of the ordinary shares in the Company. The resolution is being proposed to facilitate the Company's ability to
raise equity capital for the business should the Directors deem it to be in the best interests of the Company.
Currently the ordinary shares in the Company have a nominal value of 5p per share, below which level the Company is
legally not able to issue shares. Against this, the Company's shares are currently trading below that level. Full
details of the process of the change in nominal value of the ordinary shares has been sent to shareholders together
with the notice of AGM.
The 2008 Annual Report and Accounts, Notice of Annual General Meeting and Form of Proxy have been mailed to
shareholders.
Copies of the 2008 Annual Report and Accounts, Notice of Annual General Meeting and Form of Proxy are available for
download from the Company's website at www.kopanediamonds.com and are also available from the Company's registered
office at 43 North Audley Street, London, W1K 6WH.
For further information contact:
Kopane Diamond Developments PLC
Tim Read, Executive Chairman +44 (0) 20 7529 7502
James Cable, Finance Director
Threadneedle Communications
Laurence Read +44 (0) 20 7653 9855
Canaccord Adams Limited
Robert Finlay +44 (0) 20 7050 6500
Mike Jones
Kopane Diamond Developments Plc
PRELIMINARY ANNOUNCEMENT OF RESULTS
YEAR ENDED 30 JUNE 2008
Chairman's Letter to Shareholders
Dear Shareholders
At the time that I write this annual letter to you, reports on the state of the global economy continue to be
universally negative. No sector seems immune to this downturn and its impact upon the pricing of resource companies
has been severe. The ultimate effect of this crisis upon the demand for diamonds and consequently the realisable
prices for our rough diamonds has yet to be fully determined. Prices have fallen significantly over the last couple
of months and your Board is reviewing all steps necessary to preserve the Company and its principal assets.
Against this gloomy background, I am very pleased to say that over the last year, the Company ("Kopane" or "KDD")
has achieved considerable progress in the development of the Liqhobong project and has added substantial value to
its diamond resource.
The following is a summary of the Company's principal operational and financial highlights of the past year:-
* Progressing the Definitive Feasibility Study ("DFS") for the Liqhobong Main Pipe project, including the
completion of a 4,415 metre large diameter drilling programme and a 33,921 tonne near-surface bulk sampling
programme. These bulk samples produced 12,514 carats, including boart, which were valued by independent diamond
brokers at $86 per carat. Excluding the boart, prices exceeded $106 per carat. These values compare very
favourably with that of $70 per carat, including boart, used in the Pre Feasibility Study.
* Following this work, KDD has published a new preliminary resource statement, prepared by ACA Howe
International Limited ("Howe"), under strict QA/QC protocols to a DFS standard, giving a total resource
tonnage of 76 million tonnes, up 79 % on the Pre-Feasibility Study ("PFS") statement published last year of
42 million tonnes. The average grade has increased to 39.1 carats per hundred tonnes ("cpht")
(PFS - 27.8 cpht), giving a 156 % increase in the gross diamond resource of 29.6 million carats
(PFS - 11.5 million carats).
* Applying the value generated by the bulk sample of $86 per carat, the indicative value of the Main Pipe has
increased by 213% to $2.54 billion (29.6 million carats at $86 per carat) from the $0.81 billion (11.5 million
carats at $70 per carat) shown in the PFS resource statement.
* Total Liqhobong diamond production, which included production from the Satellite Pipe as well as production
and bulk sampling from the Main Pipe, in the year to June 2008, totalled 152,013 carats, compared with 111,752
carats in the previous year. This was due to a substantial improvement in the operational efficiencies as the
average grade of the kimberlite feed fell to 43.5 cpht, from 53.5 cpht in 2007, as a greater proportion of ore
was sourced from the lower grade Main Pipe.
* In June 2008, a 13.32 carat vivid yellow was recovered from K5. This stone sold post the year-end for
$466,679 equivalent to $35,136 per carat, which is the highest price per carat achieved by LMDC so far.
* Continued improvement in sales of diamonds in terms of both quantity and value per carat. In the past
financial year we were able to ship and sell 148,824 carats, including 13,321 carats of boart stones, with a
total value of $6.9 million. This compares to total sales in the previous financial year of 77,312 carats
with gross proceeds of $5.4 million, which included no boart sales and benefited from the sale of 4 diamonds
with an aggregate weight of 78 carats that realised $1.46 million. In recent weeks, the diamond market has
shown a sudden and severe weakness.
* 309,480 dry tonnes of kimberlite were mined and processed in the year to the 30 June 2008 representing an
increase of 67% over the previous year. Despite increased mining and processing costs, due in part to the high
cost of diesel used to power generators at site, the average cost per tonne mined and processed, in Sterling
terms was similar to the previous year at £11.1 per tonne versus £11.8 per tonne.
* Raising £6 million of new equity capital in May 2008 by the issue of 60 million new ordinary shares, to
finance the DFS and to provide working capital. HSBC Principal Investments Limited ("HSBC") subscribed
£2.7 million of this equity raising, so becoming a 15.85% shareholder of KDD's enlarged share capital.
This investment by HSBC was only made after it had conducted extensive technical and legal due diligence on
the Company and its projects.
* Significant progress achieved in sourcing and structuring the funding of a 132 KVA power line to the
Liqhobong mine, a critical component of the Main Pipe project. The feasibility study and environmental impact
assessment for this project have been completed.
* Execution of a joint venture agreement with Mantle Diamonds Limited ("Mantle") for the exploration and
development of the Company's Finnish assets. Mantle will earn up to a 70% interest in the properties by
spending $5 million on a Definitive Feasibility Study.
The Company's assets in Lesotho are owned and managed by its operating subsidiary Liqhobong Mining Development
Company ("LMDC"). KDD owns 75% of LMDC with the balance of ownership held by the Government of Lesotho ("GoL"). This
partnership has proved to be outstandingly successful and I would like to thank the Ministry of Natural Resources
for the considerable support and cooperation we have received. In return, LMDC endeavours to operate the Liqhobong
assets with the highest level of responsibility due to all its stakeholders.
Throughout 2008, LMDC has been tasked with managing two important objectives, namely progressing the advanced
geological evaluation elements of the Main Pipe DFS as quickly as possible whilst simultaneously attempting to
improve the operational efficiencies of the existing Satellite Plant (the "Plant"). The evaluation work for the DFS
has necessitated the extraction and processing of a series of bulk samples to test the grade of the four identified
facies, namely the K2, K4, K5 and K6. This bulk sampling programme totalled 33,921 tonnes and extended over two
months. A total of 12,514 carats were produced from the bulk samples and a value of $86 per carat has been
determined by putting the parcel out to independent valuation. This value compares very favourably with the $70 per
carat value used in the PFS. The bulk sampling has provided grade, stone size distribution and stone value data for
each of the four facies.
The second element to the resource evaluation has been a programme of narrow (HQ/NQ) diameter core drilling,
comprising 4 holes with a total depth of 1,705 metres plus a further 5 geotechnical holes with a total depth of
1,247 metres. This programme has permitted a recalculation of the dimensions of the Main Pipe, resulting in a much
larger resource tonnage of 75.6 million tonnes, a 79% increase on the 42 million tonnes resource identified in the
PFS, as disclosed to shareholders on 17 November 2008.
The third component of the advanced geological evaluation has been the Large Diameter Drilling ("LDD") programme
utilising a Prakla RB-40 RC drill rig. This was a 25 hole programme, now completed, totalling 4,415 metres of
drilling and recovering some 1,800 tonnes of mini bulk samples. These samples are currently being treated at
Liqhobong in a custom-built dense media separation ("DMS") plant with a capacity of 5 tonnes per hour. Once these
samples have been processed we will have depth continuity data on grade for each of the facies, enabling us to
report a substantial increase in the measured and indicated categories of the resource beyond that which was
released on 17 November 2008.
The LDD programme has overrun by some three months owing to drilling rates being initially slower than expected.
This has had some knock-on effect on the schedule for the completion of the DFS.
We are expecting Howe, the project's geological consultants, to publish the final resource in early 2009. This
statement will include the results of the LDD mini bulk samples and, as a consequence, the measured and indicated
categories should represent a substantially greater proportion of the total resource. In comparison to the
previously released PFS parameters, we now find we have a 79% larger resource, with a 41.7% higher grade and a 22.9%
improvement in value per carat resulting in an in-situ value increase of 213% over the previous study.
Work is continuing on the other elements of the DFS under the project management of AMC Consultants (UK) Limited
("AMC"), supported by a number of sub contractors, including DRA, Golder Associates, SRK and Africom. The
substantial increase in the resource has necessitated a rethink of the project's physical and commercial parameters
which, in conjunction with the delays in the LDD programme noted before, has led to some delay. As a result, the
full document will now be completed in the first half of 2009. In the meantime we have sought more up-to-date
capital and operating cost estimates to enable KDD to progress its work on funding the project.
In this regard, we have already commenced preliminary discussions with certain project lending banks and
institutions.
The successful development of the Liqhobong Main Pipe will be totally dependent upon the provision of grid
electrical power from the Lesotho electricity grid. I am pleased to report that negotiations are now well advanced
with the GoL, the Lesotho Electricity Company and certain lending institutions to finance a 132 KVA power line
construction to proceed without the need for LMDC to make any up-front capital contribution. If all goes to
schedule, power should be available to site by mid 2010.
Setting up the Plant to treat these bulk samples and to attain maximum diamond recoveries interrupted production and
reduced throughput. The Company, however, had determined at an early stage that meeting the goals of the DFS would
take precedence over short term production targets. The Company's future lies in the successful development of the
Main Pipe project and any future corporate valuation would depend upon the clear demonstration of the dimensions and
grade of the Main Pipe's long term mineable resource. Nevertheless, in the year to 30 June 2008, a total of 309,480
dry tonnes were processed through the Plant compared with 185,600 dry tonnes in the previous year. Following the
completion of the bulk sampling programme in August 2008, production has attained record levels. In October 2008 the
plant, on average, attained its target capacity of 62 tonnes per hour, producing 13,611 carats from predominantly
Main Pipe material.
From the commencement of production in the second half of 2005 until the end of October 2008, the Company has
recovered some 340,000 carats of rough diamonds, of which 292,000 have been sold, including low grade industrial or
boart stones, at an average price of $55 per carat. In the financial year to 30 June 2008, production and sales
showed substantial increases over the previous year, 92% in terms of carats sold (148,824 versus 77,312) and 27% in
terms of revenue (US$6.9 million versus US$5.4 million). The previous year's sales included 4 stones, totalling 78
carats, of very high quality, which realised $1.4 million. In the first quarter of the new financial year, LMDC has
sold a further 31,510 carats realising $2.5 million, including three premium yellow stones, one of which, a 13.32
carat vivid yellow, sold for $35,136 per carat, our highest price per carat achieved so far. In addition, 12,514
carats of rough diamonds, including boart, were recovered in July and August 2008 from the bulk sample programme and
these will be retained in inventory during the financing period for the new Main Pipe project.
In April 2008, LMDC renewed its sales agreement with BHP Billiton to organise diamond sales on the Company's behalf
in Antwerp. In September 2008 BHP Billiton gave notice of termination under the Agreement and therefore LMDC is in
the process of selecting a new sales agent.
A shortlist of potential agents has been compiled and a final selection process is in train. The identity of the new
agency will be announced shortly. The relationship with BHP Billiton has proven to be very constructive for the
Company in the early stages of its production, enabling LMDC to achieve a high level of price discovery of its
stones and to develop continuing interest from regular buyers. We believe that the agency agreement has enabled LMDC
to maximize prices obtained for its rough diamonds. The appointment of a new agent now permits LMDC to seek
participation in the down-stream value added by retaining some level of ownership of its premium stones through
cutting, polishing and jewellery manufacture.
Between March 2006 and October 2008, 21 tenders have been held by BHP Billiton on LMDC's behalf in Antwerp, with
aggregate sales of 278,706 carats, realising $16 million.
As I remarked at the beginning of this report, there has been, in recent weeks, a dramatic drop in rough diamond
prices. Until the end of September 2008 rough prices had been buoyant, with prices having risen by some 16-18% since
the start of this calendar year. Since then, however, prices have retreated in US dollar terms by some 25-30%. It is
impossible to gauge how long this market weakness will continue although no recovery is anticipated until next year.
For the longer term, the fundamentals for the industry had previously been seen as very positive, with a widening
gap between demand and production. It is expected that this situation should reassert itself once consumer
confidence has been restored. It is too early to judge the impact of this price decline on the short term economics
of the Liqhobong operations, especially as it has been sheltered to a large degree by the dramatic weakening of the
Rand from the average level of R7.3:US$1 which prevailed through the last financial year to the current level of
R10:US$1.
In May 2008, the Company completed a placement of 60 million new ordinary shares at 10p per share to raise £6
million. Of these new shares, 40.3 million were conditional upon shareholder approval, which was overwhelmingly
given at an EGM held on 18 June 2008. The proceeds of this placement have been applied to progressing the DFS as
well as to general working capital requirements. HSBC took a leading role in this capital raising, subscribing for
26.6 million shares, and as a result now holds 15.85% of the Company's share capital. Prior to participating in the
share placement, HSBC conducted substantial legal and technical due diligence on the Company and its assets in
Lesotho.
Shareholders will be aware that in May 2008 the Company received an indicative proposal from a third party relating
to a possible offer for Kopane at 17p in cash for each ordinary share. This proposal contained no equity element
which would have enabled Kopane shareholders to participate in the future development of Kopane's Liqhobong project.
Furthermore, this proposal stated that the 17p price would cease to be available in the event that Kopane proceeded
with its conditional placing of 40,300,000 shares, announced on 22 May 2008 and in respect of which an EGM was
called seeking approval.
The Board of Kopane considered that although this conditional approach was at a significant premium to the then
current market price, the proposal did not adequately reflect the future prospects of Kopane's Liqhobong project and
did not address the Company's short to medium term funding requirements.
The Board, having consulted a number of its major institutional shareholders and in receipt of appropriate
professional advice, determined that the pursuit of this tentative, conditional takeover approach at the expense of
the refinancing of the Company would not be in the best interests of Kopane or its shareholders. It nevertheless
made a public disclosure of this approach ahead of the EGM, at which it received the overwhelming support of its
shareholders to issue the placement shares, rendering the offer null and void.
Since the last annual report, there have been substantial changes to the management of the Company and the
composition of the Board of Directors. In December 2007, Roy Spencer resigned as non-executive director of the
Company. Roy had served as Chief Executive Officer since the Company's formation in 2001 until July 2007. Stephen
Lay, Chief Operating Officer, resigned from the Board and Company on 30 September 2008 to pursue other interests. On
your behalf, I would like to thank both of them for their contribution to the progress of the Company.
In May 2008, Ed Marlow, Managing Director of HSBC Principal Investors, joined the Board as a non-executive director,
following HSBC's investment in the Company. In August 2008, Mike Wittet, former Deputy Managing Director of
Debswana, the partnership between De Beers and the Government of Botswana, joined the board as non-executive
director. In November 2008, Mike was subsequently appointed Chief Executive Officer and executive director of
Kopane. He will be based in South Africa to oversee management of operations at Liqhobong, completion of the DFS and
subsequent construction and start up of the proposed new Main Pipe plant. At the same time, we have appointed Danie
Smit as General Manager of the Liqhobong Mine. Prior to joining LMDC, Danie, like Mike, another De Beers veteran,
had been General Manager of the Williamson diamond mine in Tanzania. We welcome the relevant experience and skill-
sets that Ed, Mike and Danie will each bring to your Company and its operations.
Last year I reported that the Company was considering a secondary flotation on the AltX market of the Johannesburg
Stock Exchange. The Company obtained the necessary regulatory approvals but in consequence of the deteriorating
market conditions and after discussions with our advisors, we decided to shelve such a listing for the foreseeable
future.
Kopane retains important diamond claims in Finland and exploration conducted on these properties has continued to
support the prospectivity of the Finnish Karelian Craton. In January 2008 the Company announced that it had entered
into a Joint Venture Agreement with Mantle Diamonds Ltd ("Mantle") whereby Mantle will earn up to a 70% interest in
all the properties by fulfilling certain investment conditions in the Lahtojoki property.
The principal challenges now facing your company's executive management and its Board of Directors in the current
year, are to close the considerable gap between the intrinsic value of Kopane's assets and its stock-market price,
whilst continuing to progress the development of Liqhobong and conserving the company's cash resources.
As I mentioned at the start of this letter, your Board is reviewing all steps necessary to preserve the Company and
its principal assets. In order to provide maximum financial flexibility to access additional equity funding when
required on the best terms available, the Company is proposing resolutions at the Annual General Meeting which give
the directors' power to issue new shares for cash on a non pre-emptive basis over 30% of the issued share capital
and a change in the share capital structure whereby each existing ordinary share of 5p each is divided into one
ordinary share of 1p nominal value and one deferred share of 4p nominal value. This latter change is proposed
because the Company's shares are currently trading at a discount to the nominal value of 5p per ordinary share and
company law does not permit the Directors to issue new shares at less than nominal value.
An explanation of these resolutions as well as changes to be made to the Company's Articles of Association is
included in the Appendix to the Notice of Meeting attached to the Annual Report.
Over the past twelve months, great success has been achieved in building the Liqhobong resource to almost 30 million
carats.
The great prospectivity of Kopane's assets should no longer be in any doubt. Meanwhile, production is now being
sustained at consistently high levels. This has been achieved against a background of deteriorating financial and
commercial markets and tight working capital rationing. All this has placed considerable demands on our staff,
consultants and advisors and I would like to thank them all for their contribution to a successful year. I would
also thank our shareholders for their continued support and patience in challenging stock market conditions as the
company continues to evolve as a major diamond producer.
Tim Read
Executive Chairman
Operational Review
LESOTHO
The Company's diamond operations are located at the head of the Liqhobong Valley, high in the Maluti Mountains of
northern Lesotho, on a mining lease covering 390 hectares. This licence contains five kimberlites of which three
have yet to be extensively explored. Current operations comprise the Satellite Pipe, with a surface area of 0.9
hectare, the much larger Main Pipe, with a surface area of over 8.5 hectares, and the Satellite Plant ("the Plant").
The Liqhobong operating company, LMDC, received the original production licence for the Satellite Pipe from the GoL
in 2001 and in February 2007 was successful in reaching agreement with the GoL for an extension to this mining
licence to enable it to mine from the Main Pipe for up to 20 years.
Kopane owns a 75% interest in LMDC and the remainder is owned by the GoL.
Capacity, Production and Sales
The Plant, which has a name-plate capacity of 60 tonnes per hour ("tph"), commenced production in late 2005. By July
2006, throughput had reached 40 tph, which was determined to be the formal Commencement of Commercial Production, so
satisfying the provisions of the mining licence with the GoL.
In 2007/8, a total of 309,480 dry tonnes were treated in the Plant producing 152,013 carats. This compares with
equivalent figures of 185,600 dry tonnes and 111,752 carats in the previous year. The grade of the feed declined to
49.1 cpht from 60.2 cpht in 2007, as a greater proportion of the feed was sourced from the lower grade, but higher
diamond value, Main Pipe. Plant efficiencies have improved throughout the year although, of necessity there was in
the latter part of the year certain planned interruptions to production as preparation was made for the bulk
sampling of the individual facies, as required for the DFS. Following completion of the bulk sampling programme in
late August 2008, production was ramped up to a rate of approximately 60 tph from a blend of Satellite and Main Pipe
kimberlites to maximise production and revenues. In October, the Plant throughput consistently exceeded name-plate
capacity. Additional diesel generator capacity is being sourced and, when this is installed, estimated in early
2009, the plant, after modest flow-sheet modifications, should support at least a 10% increase in throughput. The
Company is also reviewing more wide-ranging plant de-bottlenecking scenarios to permit a more substantial increase
in production at the Plant once grid electricity is available at site.
From the commencement of production, in the second half of 2005 until the end of October 2008, the Company has
recovered some 340,000 carats of rough diamonds, of which 292,000 have been sold, including low grade industrial or
boart stones, at an average price of $55 per carat. In the financial year to 30 June 2008, sales showed substantial
increases over the previous year, 92% in terms of carats sold (148,824 versus 77,312) and 27% in terms of revenue
(US$6.9 million versus US$5.4 million). The previous year's sales included four stones, totalling 78 carats, of very
high quality, which realised $1.4 million. In the first quarter of the new financial year, LMDC has sold a further
31,510 carats realising $2.5 million, including three premium yellow stones, one of which, a 13.32 carat vivid
yellow, sold for $35,136 per carat, our highest price per carat achieved so far.
During the course of the year, different facies of the Main Pipe have been processed in discrete campaigns through
the Plant in order to determine specific processing characteristics ahead of the rigorously controlled processing of
bulk samples that were conducted in July and August 2008 as part of the DFS of the Main Pipe. The most significant
campaign, processing ore from the K5 facies of the Main Pipe, commenced in late April 2008, continued through to the
end of May. A total of 38,433 dry tonnes (not surveyed) was processed from the K5 facies, resulting in a total
diamond production of 19,887 carats at a calculated grade of 51.7 carats per hundred tonnes ("cpht"). This grade is
materially greater than the average K5 grade used in the PFS of 30 cpht. Of this production, 17,165 carats, of gem
quality, were sold for $1.69 million in July 2008. If these proceeds were applied to the total production, i.e.
ascribing no value to the industrial stones, it would give an average value of $85 per carat.
The 33,921 tonne bulk sampling campaign, which took place during July and August 2008, recovered 12,514 carats and
these were sent to Antwerp for valuation by several established diamantiers, generating an average value of $86 per
carat. It is planned that these stones will be retained in inventory by the Company to allow further inspection and
valuation, as may be required from time to time as part of funding due diligence for the Main Pipe plant project.
The Liqhobong project employs 113 workers, including sub contractors, most of whom are Lesotho nationals and of
these a significant number are sourced from local communities. In addition, 25 other workers have been temporarily
employed during the conduct of the DFS. In previous years, operator training remains a key issue and the Company is
committed to maintaining a high standard of operation in this challenging location. There is little doubt that
LMDC's operating experience at Liqhobong will place the company in a very strong position when the planned much
larger Main Pipe plant is constructed and commissioned over the next few years.
Liqhobong diamonds have so far been marketed in Antwerp by BHP Billiton. In April 2008, we renewed our contract with
BHP Billiton to an "evergreen" basis with a three month notice period by either party, although BHP Billiton issued
notice of termination in September 2008. As mentioned in the Chairman's Report to Shareholders, the Company is in
the process of selecting a new sales agent to market the rough diamonds. Liqhobong stones are established in the
marketplace and regular buyers have been attracted to the parcels of diamonds sold in the 10 tenders held each year
in Antwerp.
The Company is reviewing the most appropriate sales arrangements going forward as it increases the number of stones
offered over the period until the new Main Pipe plant is implemented.
Sales of premium stones represent a relatively high proportion of sales revenues and the Company is therefore
reviewing the best way to maximise its revenues taking into account how and where its diamonds are sold and from the
benefit from retaining an interest in the eventual sale of certain high value cut and polished diamonds. The
Company's approach to these matters is likely to develop gradually according to circumstances.
Since diamond sales began in Antwerp in March 2006, 21 tenders have been conducted and the general response from
buyers has been excellent, our production of Lesotho yellow diamonds being particularly in demand. Sales, to end
October 2008, have totalled 278,706 carats, excluding industrial grade boart stones which are accumulated and sold
separately, realising total proceeds of $16 million, equivalent to $58.16 per carat. In addition, inventory of rough
diamonds, excluding boart stones, at 31 October 2008 amounted to some 43,000 carats, including 12,514 carats
recovered during the bulk sample.
The above table shows a steady increase in sales and prices achieved per carat since 2005, with the exception of the
second half of the 2007/8 financial year when production and thus sales reduced due to the requirement for the Plant
to be prepared for bulk sampling. The rate of production in the first 4 months since the end of the financial year
increased over the first 6 months of 2008 and the number of carats sold increased despite retention of the 12,514
carats of bulk sample stones.
The sales shown in the table below in 2008/9 include a sale in early July 2008 of 17,020 carats which, except for
approximately 200 carats of small stones recovered from the Satellite Pipe, were all campaign recovered from the K5
facies of the Main Pipe. Sales revenue achieved was $1.69 million, which represents $99.36/ct and included the
following three premium stones:
* 13.32 ct Vivid yellow sold for $35,136/ct
* 9.86 ct Fancy yellow sold for $10,149/ct
* 5.98 ct Fancy yellow sold for $10,066/ct
In line with general market conditions for rough diamonds, there was a gradual increase in sales prices as is shown
in the above table, although this is somewhat distorted by the sale of special premium diamonds from time to time.
Prices for better high quality goods remained particularly robust with consistent prices being achieved at each
tender and the sales have continued to attract interest from established buyers of Liqhobong rough diamonds. Prices
in the next months are likely to be weak as a result of the global economic situation, but the markets should
recover once consumer confidence is restored.
Sales in Antwerp (excluding boart)
Year Carats $m $/Carat No. of sales
2008/9
(4 months to 31 Oct.) 40,504 2.73 67.40 3
2007/8 - H2 57,928 3.10 53.57 5
- H1 77,575 3.81 49.09 5
2006/7 - H2 47,287 2.28 48.26 4
- H1 30,025 3.16 105.15* 2
2005/6 - H2 25,387 1.13 44.36 2
Total 278,706 16.21 58.16 21
* In the first half of 2006/7, 4 stones with an aggregate weight of 78 carats were sold for a consideration of $1.46
million (equivalent to a value of $18,718 per carat).
The impact of high value stones is illustrated by the following table:
High value stones sold since H2 2005/6
Sales
Total Ave. Price Revenue % of total
Stones Carats $/ct $m Sales
Top 20 185.42 13,966 2.59 16%
Top 40 320.09 9,696 3.10 19%
Top 86* 665.03 5,658 3.76 23%
* Stones with individual values greater than $1,000 per carat.
Power
Electricity for the current operations is supplied by diesel generation but it is not envisaged that this will
provide a long term solution for Liqhobong, particularly for the full development of the Main Pipe project. In
future, Liqhobong will need to have to access grid power for both cost and logistical reasons. In 2007 a technical
steering committee was established between the Lesotho Electricity Company ("LEC"), LMDC and Lesotho Diamond Company
Limited, which is developing the Kao mine in a valley adjacent to Liqhobong, to progress the provision of grid power
to these two mines and to the adjacent region. LMDC had previously commissioned Plantech Associates to conduct both
technical feasibility and environmental impact studies and these have been completed. Tender documents for the
construction of the line have already been prepared.
A capital estimate for this project was completed by Plantech in August 2008, which showed a total cost of between
$12 and $18 million depending upon whether the reticulation extends to the Kao mine in the initial stage. LMDC's
share of these costs would be $7 to $8 million accordingly. The Company has naturally been reluctant to seek new
capital to fund this project or to provide power offtake guarantees ahead of completing the DFS and ensuring that
project finance for the Main Pipe project were secure. On the other hand, the availability of grid power would
mitigate important risks for the Main Pipe project and facilitate its project financing. LMDC has therefore been
investigating ways to fund the powerline and enable its construction to start, whilst eliminating LMDC's capital
contribution. Discussions have been held with LEC, the GoL and certain financial institutions to help provide this
finance.
The GoL views this project's as being of considerable infrastructural importance and is, therefore, prepared to
provide assistance. The Company is optimistic that funding for this project's construction could be put in place, to
enable construction to start in 2009 and for supply to be available from 2010.
LMDC's fuel cost savings from the availability of grid power, even for the existing scale of operations, would be
considerable. It would also facilitate a brown-field expansion of the Plant to 750,000 tonnes per annum.
The Definitive Feasibility Study
The DFS commenced in the fourth quarter of 2007, with AMC selected as manager and with leading engineering
companies; DRA for plant design, Golder Associates for tailings disposal, Africon for infrastructure and civil work
and SRK for the environmental, geotechnical and social impact studies. Howe were contracted to supervise the
geological components of the DFS, to ensure that the drilling and bulk sampling programmes were conducted under the
highest standards of QA/QC's and to produce the geological resource estimate.
This geological work has comprised three separate programmes:
* A bulk sampling programme of all four separately identified facies
* A HQ/NQ diamond drill programme
* A large diameter reverse circulation drill programme
The bulk sampling programme consisted of a series of samples extracted and processed to test the grade of the four
identified facies, namely the K2, K4, K5 and K6, totalling 33,921 tonnes, to provide grade, stone size distribution
and stone value data in each case. A total of 12,514 carats were produced from the bulk samples, at a bottom cut-off
of 1 millimetre.
Valuation of the bulk samples of $86 per carat, for run of mine production, has been determined by putting the
parcel out to independent valuation. This would be equivalent to $34 per tonne processed. This new value compares
favourably with $70 per carat run of mine valuation used in the PFS.
The programme of narrow (HQ/NQ) diameter core drilling comprising 4 holes with a total depth of 1,705 metres plus a
further 5 geotechnical holes with a total depth of 1,247 metres.
This programme has permitted a recalculation of the dimensions of the Main Pipe, resulting in a much larger resource
tonnage.
The LDD programme undertaken by Bauer Technologies South Africa (Pty) Limited, using a Prakla RB-40 RC drill rig,
commenced in March 2008 and has now completed. This was a 25 hole programme, totalling 4,415 metres of drilling and
recovering some 1,800 tonnes of mini bulk samples. These samples are currently being treated in a custom-built dense
media separation ("DMS") plant at Liqhobong with a capacity of 5 tonnes per hour, under the QA/QC supervision of
Howe. Once these samples have been processed, the Company will have depth continuity data on grade for each of the
facies, which will enable more of the resource to be classified into the higher definition measured and indicated
categories.
On 17 November 2008, the Company published a preliminary resource statement produced by Howe under strict QA/QC
protocols to a DFS standard, giving a total resource tonnage of 76 million tonnes, up 79 % on the Pre-Feasibility
Study ("PFS") statement published last year of 42 million tonnes.
The resource categorization and limits are based on the same parameters used for the 2007 PFS interim resource
estimate. The average grade has increased to 39.1 carats per hundred tonnes ("cpht") (PFS - 27.8 cpht), giving a 156
% increase in the gross diamond resource of 29.6 million carats (PFS - 11.5 million carats). This resource has been
calculated to the 2,140 metre level only, which is to a mean depth of 420 metres below surface. The mineralization
is open at depth and one earlier diamond drill hole remained in kimberlite to a depth of 650 metres below surface.
The details of the preliminary resource are as follows:
Category Attributable to LMDC (100%) Net Attributable to Kopane (75%)
MAIN PIPE Tonnes Grade Contained Tonnes Grade Contained
Mineral (millions) (cpht) Diamonds (millions) (cpht) Diamonds
Resources (million carats) (million carats)
Measured - - - - - -
Indicated 16.0 34.12 5.498 12.0 34.12 4.124
Inferred 59.6 40.42 24.078 21.13 40.42 18.059
Total 75.6 39.12 29.576 31.62 39.12 22.182
Other progress in the DFS includes collection of ore dressing study samples to assist in the plant design,
completion of an airborne laser topographic survey in connection with identifying infrastructure requirements,
including grid power road access and the installation of environmental monitoring equipment.
The DFS, which was originally expected to be finalised by the end of 2008, now is expected to be completed by mid-
2009, due to initial slow start in completing holes under the LDD programme and because the Resource is
significantly larger than that indicated in the PFS.
FINLAND
In January 2008, Kopane and Mantle Diamonds Limited signed the Joint Venture Agreement ("JVA") to establish a new
joint venture to operate, finance and develop the Company's diamond exploration assets in Finland (the
"Properties"). Mantle is a privately-owned UK company with diamond exploration interests in Australia, Canada,
Liberia, Mali, the DRC, Angola and Zimbabwe as well as Finland.
Kopane currently holds 28 mineral claims and reservations in Finland, including its assets at Lahtojoki, Kuusumo and
Lentiira. Under the JVA, Mantle will be able to earn up to a 70% interest in the Properties by spending
$5 million on exploration and evaluation on the Properties, primarily a bankable feasibility study in respect of the
Company's Lahtojoki property. In return Kopane will be paid a total of 10 million Mantle shares over three years
subject to certain conditions, of which 3.3 million shares have been earned so far.
During the first quarter of 2008 Mantle completed a diamond drilling programme into the Lahtojoki kimberlite pipe
comprising 11 shallow angled holes totalling 495m. This programme was carried out to provide a better understanding
of the surface outline of the kimberlite beneath the till cover. An environmental permit has been obtained to carry
out a bulk sampling programme at Lahtojoki. In order to expose sufficient kimberlite for the bulk sample a
significant amount of overburden till will be stripped. A detailed design was generated following geotechnical and
pit mining consultancy studies carried out by Golder Associates and AMC. During the second quarter of 2008 Mantle
signed an agreement with Hartikainen Oy, an experienced surface mining contractor to commence stripping work at
Lahtojoki. To date 50,000m3 of overburden till has been stripped over Lahtojoki. Mantle plans to collect
approximately 6,000 tonnes of representative kimberlite sample from surface trenching and a large diameter Kelly Bar
Bauer drill rig during the second half of 2008.
DIAMOND DEMAND AND PRICES
Average prices of rough diamonds increased by almost 100% since January 2002 and by around 20% in the nine months to
September 2008, as a result of rough diamond supply failing to satisfy the increased consumer spending on diamond
jewellery in the USA and Asia. The USA accounts for nearly half of all diamonds sold in jewellery by value, while
Europe and Japan account for some 30%. However, it is evident that economic conditions prevailing currently in the
world and in particular the USA are causing a severe correction to prices, in the order of 25 - 30% so far. It is
unclear how far prices will fall or how long the weakness in the market will continue.
Despite current very difficult circumstances, it is well recognised that there is a material shortage of supply
against forecast long-term demand. Rough production dipped in 2007 and there are no major new mines on the horizon
beyond Snap Lake and Victor in Canada, which are not anywhere near the size of the major discoveries at Orapa,
Jwaneng, Argle, Venetia, Catoca, Ekati and Diavik. Eight kimberlite mines make up 50% of world rough diamond
production. We believe that these fundamentals will allow the market to stabilise once consumer confidence is
restored and the long term prognosis is good.
FINANCIAL
The consolidated net loss after taxation in respect of the year ended 30 June 2008 amounted to £4.7 million (loss
per share 4.1p) compared to the restated consolidated net loss after taxation for 2007 of £7.2 million (loss per
share 8.5p). The loss was less than the previous year due mainly to an increase in sales from £2.8 million to £3.4
million resulting from greater production of rough diamonds compared to the previous year, a gain on the disposal of
the Group's interest in its Finnish subsidiaries of £0.3 million (2007: nil) and a reduction of £1.0 million in
depreciation resulting from writing off the mining assets over a longer period, following an extension of the
estimated expected life of the Satellite Plant to 30 June 2012. These gains were partially offset by higher manpower
costs and an increase in mining and processing costs, reflecting a substantial increase in the cost of diesel fuel
and other factor inputs over the course of the year, although average costs per tonne of kimberlite mined and
processed were similar to the previous year. In addition, the previous year's loss included a £2.7 million
impairment of the carrying value of the Finnish exploration and evaluation costs.
There were 10 diamond sales in the year to 30 June 2008 totalling 148,824 carats generating revenue of £3.4 million
(2007: £2.8 million). Since the year end there have been further sales to 31 October 2008 generating £1.6 million in
revenue. The Group's only other income in the year arose from bank deposit interest which amounted to £93,000 (2007:
£38,000), the increase being due to higher cash balances held throughout the year.
The net assets of the Group amounted to approximately £15 million as at the year end (2007: £14.1 million) which
included fixed assets of £3.2 million (2007: £4.3 million). The reduction in fixed assets relates primarily to
depreciation of the plant at Liqhobong. Intangible assets relate to accumulated deferred exploration and evaluation
costs and goodwill in respect of the Group's diamond interests in the Main Pipe in Lesotho.
The Group's accounting policy is to capitalise exploration and development costs pending determination of the
feasibility of the project to which they relate.
These intangible assets at 30 June 2008 were approximately £2.7 million (2007: £5.6 million), the decrease due to
new expenditure in Lesotho offset by the Finnish assets being transferred to the Group's investment in a joint
venture of £1.2 million (2007: nil). In addition, the Group has an investment in its joint venture partner of £0.7
million (2007: nil). Inventories, which consist primarily of the cost of diamonds held for sale, increased to £0.7
million (2007: £0.6 million). Cash at 30 June 2008 of £4.7 million (2007: £4.4 million) reflected the placement of
60 million new ordinary shares in the year which raised £6 million.
CORPORATE AND SOCIAL RESPONSIBILITY
Kopane is committed to adhere to high standards of Corporate and Social Responsibility. The DFS for the Liqhobong
Main Pipe project incorporates an Environmental and Social Impact Assessment produced in compliance with the Equator
Principles. The development of this project will be structured to ensure the maximum possible positive social impact
on the Liqhobong Valley and the Kingdom of Lesotho as a whole.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's diamond sales are based on the number and quality of rough diamonds recovered from production at its
mine in Lesotho and transported to market. The Group's diamond sales are made in Antwerp, Belgium to invited
customers who submit sealed bids. The Group is therefore dependent on its mine production, recovery of diamonds and
market conditions which prevail at the time of the sales.
The exploration activities of the Group are speculative due to the high-risk nature of this part of its business.
There can be no assurance that the Group will be able to find or economically recover diamonds from its projects or
that it will be able to complete planned development.
The Group's diamond sales are made in Belgium in US dollars which are converted into Lesotho Maloti.
The Group also makes expenditure in Lesotho Maloti, South African Rand and Euros.
The Group is therefore exposed to the movement in exchange rates for the US dollar, Lesotho Maloti, South African
Rand and Euros to Sterling. The Group does not hedge foreign exchange risk although monitors this situation and
seeks to minimise cash held in foreign currencies.
The Group's projects require funding in order to realise their potential. The availability of funding cannot be
guaranteed.
The Group is exposed to the impact of changes to environmental legislation on its operations.
PRELIMINARY STATEMENT OF RESULTS
This preliminary statement was approved by the Board of Directors on 19 November 2008 and has been agreed by the
auditors. It does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The
statutory accounts have been sent to shareholders and will be filed following the Company's Annual General Meeting.
The Auditors have reported on these financial statements; the auditors' report is unqualified but contains a
paragraph drawing attention to the adequacy of disclosures made in note 2(a) to the financial statements (and set
out in note 1 to this announcement) about the existence of a material uncertainty which may cast significant doubt
about the ability of the company to continue as a going concern. It does not contain statements under section 237(2)
or (3) of the Companies Act 1985.
Consolidated income statement
Year Year
ended ended
30 June 30 June
2008 2007
(restated)
£'000 £'000
Revenue 3,422 2,791
Changes in inventories 134 450
Mining and processing costs (3,432) (2,198)
Employee benefit expense (2,398) (1,541)
Depreciation expense (1,073) (2,040)
Impairment of deferred exploration expenditure - (2,700)
Gain on disposal of interest in subsidiary undertaking 325 -
Gain/(loss) on exchange 114 (219)
Other expenses (1,815) (1,776)
Operating loss (4,723) (7,233)
Investment income 93 38
Finance costs - (17)
Share of loss in joint venture (29) -
Loss for the period (4,659) (7,212)
Basic and diluted loss per share (Pence) 4.1p 8.5p
All amounts reflected above relate to continuing operations.
Consolidated balance sheet
Group Group
as at as at
30 June 30 June
2008 2007
(restated)
£'000 £'000
Assets
Property, plant & equipment 3,179 4,298
Intangible assets 2,728 5,592
Investments in joint venture entity 1,171 -
Available for sale investments 667 -
Trade and other receivables due after more 2,583 -
than one year
Total non-current assets 10,328 9,890
Inventories 727 594
Trade and other receivables - due within 217 124
one year
Cash and cash equivalents 4,729 4,424
Total current assets 5,673 5,142
Total assets 16,001 15,032
Equity
Issued share capital 8,481 5,468
Share premium 24,933 22,286
Merger reserve 3,242 3,271
Share-based payments 987 589
Foreign exchange translation reserve (879) (416)
Retained loss (21,754) (17,095)
Total equity 15,010 14,103
Trade and other payables 953 791
Total current liabilities 953 791
Deferred income - 113
Provision for liabilities and charges 38 25
Total liabilities 991 929
Total equity and liabilities 16,001 15,032
Minority interest - equity - -
16,001 15,032
Consolidated statement of cash flows
Year Year
ended ended
30 June 30 June
2008 2007
£'000 £'000
Cash flows from operating activities
Operating loss for the period (4,723) (7,233)
Adjustments for:
Depreciation 1,073 2,040
Exchange difference (272) 199
Equity-settled share-based payment transactions 398 309
Impairment of deferred exploration expenditure - 129
Shares issued in lieu of payment of services - 2,700
Profit on disposal of interest in subsidiary (325) -
(3,849) (1,856)
(Increase)/decrease in trade and other receivables (128) 119
(Increase) in inventories (189) (460)
Increase in provisions for liabilities 13 11
Increase/(decrease) in trade and other payables 199 (17)
Interest paid - (17)
Net cash used in operating activities (3,954) (2,220)
Cash flows from investing activities
Interest received 93 38
Acquisition of intangibles (1,242) (885)
Acquisition of property, plant and equipment (252) (135)
Net cash used in investing activities (1,401) (982)
Cash flows from financing activities
Proceeds from issue of share capital 6,030 8,311
Loans - (384)
Payment of transaction costs (370) (555)
Net cash from financing activities 5,660 7,372
Net increase in cash and cash equivalents 305 4,170
Cash and cash equivalents at 1 July 2007 4,424 254
Cash and cash equivalents at 30 June 2008 4,729 4,424
Consolidated statement of changes in shareholders' equity
Share Foreign
Based exchange
Share Share Merger payment translation Retained
capital premium reserve reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 1 July 2007 5,486 22,286 3,271 589 (416) (17,095) 14,103
Loss for the period - - - - - (4,659) (4,659)
Foreign exchange loss - - - - (463) - (463)
Total recognised loss for the year - - - - (463) (4,659) (5,122)
Shares issued for cash 3,013 3,017 - - - - 6,030
Share issue costs - (370) - - - - (370)
Share based payments - - - 398 - - 398
Disposal of share in joint venture - - (29) - - - (29)
Balance at 30 June 2008 8,481 24,933 3,242 987 (879) (21,754) 15,010
1. NATURE OF OPERATIONS AND GOING CONCERN
The Group owns diamond interests in Lesotho and Finland. In Lesotho, production continued from both the Satellite
and Main Pipes and 10 sales of rough diamonds were held in the reporting period. The Pre-Feasibility Study into the
viability of the Main Pipe was completed in July 2007 and the recommended Definitive Feasibility Study ("DFS") was
commenced.
In January 2008, the Company entered into an agreement with Mantle Diamonds Plc ("Mantle") whereby Mantle will be
able to earn up to a 70% interest in the Company's Finnish properties by spending $5 million on exploration and
evaluation on the Properties, including a bankable feasibility study in respect of the Company's Lahtojoki property,
and by paying Kopane 10 million Mantle shares over three years. The directors consider the planned Finnish
expenditure to be fully funded.
In May 2008 the Group raised £6 million in cash by the issue of 60 million ordinary shares in order to provide funds
for the DFS and general working capital. The Group also receives revenue from its diamond sales. The Company's
planned discretionary project expenditure will necessitate the raising of further funds within the next 12 months.
Revenue from diamond sales together with current cash balances and access to additional funds will enable the
Company to fund the planned expenditure and its general operating overheads. Given the stage of the project and the
positive initial findings of the DFS, the directors believe that the necessary funds will be available and therefore
the financial statements have been prepared on the going concern basis.
The consolidated financial statements do not include any adjustment that would result from the Company or any of its
subsidiary undertakings ceasing to operate as a going concern.
2. ACCOUNTING POLICIES
The financial statements have been prepared on the basis of the recognition and measurement requirements of IFRSs as
adopted by the European Union ("EU") and implemented in the UK and their interpretations adopted by the
International Accounting Standards Board ("IASB"). They have also been prepared in accordance with those parts of
the Companies Act 1985 applicable to those companies reporting under IFRS. Interim financial statements at 31
December 2007 were prepared under IFRSs. Previously the Company prepared financial statements in accordance with UK
Generally Accepted Accounting Principals ("UK GAAP"). At 30 June 2008 financial statements include comparatives for
2007, the Group's date of transition to IFRS was 1 July 2006 and the 2007 comparatives are restated according to
IFRS.
Basis of consolidation and accounting for goodwill
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or
indirectly, 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 presently are exercisable or convertible 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.
(ii) Joint ventures
A joint venture is an undertaking over which the Group is in a position to exercise joint control. The results,
assets and liabilities of joint ventures are incorporated in these financial statements using the equity method.
Under the equity method of accounting, the Group's share of the net assets and the profit or loss for the period are
recognised in the balance sheet and income statement respectively.
(iii) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains, losses, income or expenses arising from intra-group transactions are
eliminated in preparing the consolidated financial statements.
Deferred Exploration and Evaluation Costs
These comprise costs directly incurred in exploration and evaluation as well as the cost of mineral licences. They
are capitalised as intangible assets pending the determination of the feasibility of the project. When the existence
of economically recoverable reserves is established the related intangible assets are transferred to property, plant
and equipment and the exploration and evaluation costs are amortised over the estimated life of the project. Where a
project is abandoned or is determined not economically viable, the related costs are written off.
The recoverability of deferred exploration and evaluation costs is dependent upon a number of factors common to the
natural resource sector. These include the extent to which a Company can establish economically recoverable reserves
on its properties, the ability of the Company to obtain necessary financing to complete the development of such
reserves and future profitable production or proceeds from the disposition thereof.
Share based payments
The share option programme allows Group employees to acquire shares of the Company. The fair value of options
granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period until the options vest unconditionally to the employee. The fair value of the
options granted is measured using the Black- Scholes model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number
of share options that vest, except if the change is due to market based conditions not being satisfied.
Revenue Recognition
Revenue represents gross revenue from the sale of rough diamonds before selling costs. Revenue is recognised at the
point of acceptance of customers' bids for the rough diamonds.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the rate applicable.
Adoption of International Financial Reporting Standards
The financial statements are prepared in accordance with International Financial Reporting Standards and
interpretations in force at the reporting date. The Group has not adopted any standards or interpretations in
advance of the required implementation dates. It is not expected that adoption of standards or interpretations which
have been issued by the Accounting Standards Board, but have not been adopted will have a material impact on the
financial statements. During the year the Group applied IFRS 7 (Financial instruments: disclosure) and the capital
management disclosures of IAS 1 (revised) (Presentation of financial statements) for the first time.
There was no other effect from the adoption of these standards.
Property, plant and equipment - Depreciation
Depreciation is charged to the income statement at the following rates in order to write off each asset over its
estimated useful life.
* Mining assets 20% on straight line basis
* Fixtures and fittings 25% on reducing balance
* Computer equipment 25% on reducing balance
The residual value, if not insignificant, is reassessed annually. The company has reviewed the remaining useful life
of the Mining assets and has extended the write-off period until 30 June 2012.
(c) Financial instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and
other payables.
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, except as described below. Subsequent to
initial recognition, non-derivative financial instruments are measured as described below. At 30 June 2008 the fair
value equated to the historical cost for all non-derivative instruments.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets
expire or if the Group transfers the financial asset to another party without retaining control or substantially all
risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date,
i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if
the Group's obligations specified in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand are
included as a component of cash flows from financing activities, for the purposes of the statement of cash flows.
(ii) Share capital
Incremental costs directly attributable to issue of common shares and share options are recognised as a deduction
from equity.
Loss Per Share
Basic loss per share
The calculation of basic loss per share at 30 June 2008 was based on the loss attributable to common shareholders of
£4,659,000 (2007: £7,212,000) and a weighted average number of common shares outstanding during the year ended 30
June 2008 of 113,385,589 (2007: 84,367,325).
Diluted loss per share
The potential increase in ordinary shares from the exercise of any of the warrants or share options would be anti-
dilutive as the Company has a net loss. These potential ordinary shares are therefore excluded from the calculation
and the diluted loss per share figure reported is the same as the basic earnings per share.