REG - BlueRock DiamondsPLC - Final Results
01/07/2022 07:00
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RNS Number : 9248Q BlueRock Diamonds PLC 01 July 2022
BlueRock Diamonds PLC / AIM: BRD / Sector: Natural Resources
1 July 2022
BlueRock Diamonds PLC ('BlueRock,' the 'Company' or the 'Group')
Final Results
BlueRock Diamonds PLC, the AIM listed diamond producer, which owns and
operates the Kareevlei Diamond Mine ('Kareevlei') in the Kimberley region of
South Africa, is pleased to announce its audited results for the year ended 31
December 2021.
The Company's annual report and accounts have been dispatched to shareholders
and are available on the Company's website at www.bluerockdiamonds.co.uk
(http://www.bluerockdiamonds.co.uk) .
OVERVIEW
Fundamentals for Kareevlei remain solid
· Commissioned new plant designed to increase production to 1Mtpa from
c 400,000tpa
· Upgraded Diamond Resource with 49% increase in net tonnes to
10,368,300 - confident this will increase further once more work is completed
on KV3, the largest pipe
· Commenced opening up the main pit to reflect the upgraded Diamond
Resource at depth and area
Achieved significantly better results than in 2020 despite major challenges
including shutdowns due to DMR, Covid-19 and extreme weather
· 53% increase in the number of carats produced
· More than doubled revenue to £7.85m
· Recovered an increasing number of larger stones with a value in
excess of USD50,000
The diamond market recovered well in 2021 and has come back stronger after the
pandemic
· 2021 average price of USD470 is 13% higher than the average for 2019
of USD415
· Spike in prices post period end in February 2022 largely linked to
the Ukraine situation
· Market now stabilised, but so far in 2022 sales prices have averaged
over USD600, an increase of 29% on 2021 prices
Managing corporate challenges
· Cash resources depleted during what continues to be a period of heavy
investment in mining development
· Entered into discussions to obtain financing to support the Company
through this period. Discussions are ongoing for BlueRock to issue a new Loan
Note for £1.6m as well as the provision of debt funding facility to Kareevlei
for up to ZAR30m to be drawn as and when required.
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this
announcement via Regulatory Information Service ('RIS'), this inside
information is now considered to be in the public domain.
**ENDS**
For further information, please visit BRD's
website www.bluerockdiamonds.co.uk (http://www.bluerockdiamonds.co.uk/)
or contact:
BlueRock Diamonds PLC
Mike Houston m.houston@bluerockdiamonds.co.uk
David Facey, FD dfacey@bluerockdiamonds.co.uk
SP Angel (NOMAD and Broker)
Stuart Gledhill / Caroline Rowe Tel: +44 (0)20 3470 0470
St Brides Partners Ltd (Financial PR)
Isabel de Salis / Charlotte Page bluerock@stbridespartners.co.uk
Notes to editors:
BlueRock Diamonds is an AIM-listed diamond producer which operates the
Kareevlei Diamond Mine near Kimberley in South Africa which produces diamonds
of exceptional quality and ranks in the top ten in the world in terms of
average value per carat. The Kareevlei licence area covers 3,000 hectares and
hosts five known diamondiferous kimberlite pipes with a combined Inferred
Resource of 10.4 million tonnes / 516,200 carats (February 2021); based on its
planned production of 1 million tonnes per annum, this provides a minimum
10-year life of mine.
CHAIRMAN'S STATEMENT
Dear Shareholders,
I am pleased to present our audited results for the year ended 31 December
2021.
Overview
Our main goal in 2021 was to complete the transformational new plant which is
designed to increase production to 1 million tonnes per annum from c 400,000
tonnes per annum. By the end of the year the plant was being commissioned and
beginning to demonstrate that it would be able to achieve our future
production targets. Despite the ongoing expansion works the Company achieved
significantly better results than in 2020; most notably a 53% increase in the
number of carats produced and revenue more than doubling. Prices achieved in
the year increased by 59%, reflecting the recovery in the market after
Covid-19, and the recovery of some significantly larger diamonds.
Operations
The major objectives for the year were: 1) to open up the KV1/KV2 main pit to
reflect the upgraded Diamond Resource at depth and area and this involved a
material increase in development (waste) mining; 2) to complete the expanded
new processing plant so that it was fully commissioned before the year end; 3)
to manage the ongoing challenge of Covid-19 which was successfully done until
Q4, when the Omicron version disrupted operations.
Mining
During Q1 management began to redesign its mine plan centered around the main
pit. It was agreed a material pushback was required for the mine to access the
new economic depth of 120/130m versus the previous estimate of 80/100m. This
entailed a step up in the strip ratio in the short term, in order to ensure
predictable and secure supplies of good quality ore as the new plant ramps up
to full production. This new plan was also designed to ensure that there was
sufficient stockpile to enable the plant to operate more easily in the rainy
season. The new mining plan was delayed in its implementation due to mining
equipment failure in Q3, the shut down imposed by the DMR in November/December
2021, which led to a loss of 20 days mining as announced on 19 November 2021,
and the shutdown due to Covid-19 (Omicron) in December 2021 and January 2022,
leading to a further loss of 14 days of mining as announced on 22 December
2021, at which point the rainy season had started inhibiting the development
of the mine further. As we have reported the rainy season has extended into
May 2022, hence we are some three or four months behind schedule in the mine
development. The application for the renewal of the current Mining Licence,
which expired in August 2019, has been progressing well. In accordance with
South African legislation, the Group has the right to continue mining until
such time as the application has been processed
Processing and Expansion project
The challenge for the year was to complete the expansion project, whilst
maximising production using the old plant and later in the year utilising a
mixture of the old plant, with the crushing circuit of the new plant. This
proved successful although operating the two plants had an impact on costs,
largely because of the requirement for a significant amount of rehandling of
material.
I am pleased to say that our expansion project was completed at the end of
December 2021, after delays caused by the Section 54 stoppage imposed by the
DMR in November/December 2021, followed by the closure due to Covid-19
(Omicron) in December 2021 and early January 2022. Since the end of the year
the ramp up in production has been hindered by the excessive rain fall in Q1
and Q2 2022.
The Diamond Market
The diamond market recovered well in 2021. Average price per carat in 2021 was
USD470 compared with USD295 in 2020, although prices in 2020 were
significantly impacted by Covid-19 and the consequent cancellations of the
diamond auctions. Interestingly, the 2021 average price of USD470 is 13%
higher than the average for 2019 of USD415, indicating that the market has
come back stronger after the pandemic. Since the end of the year the market
was initially volatile with a big spike in prices in February largely linked
to the Ukraine situation. It has since stabilised, but at prices significantly
higher than our average for 2021. We expect the supply side of quality
diamonds, as those recovered by Kareevlei, to remain tight for the foreseeable
future, with the ongoing conflict in Ukraine affecting the supply of rough
diamonds.
Diamond Recoveries
The Company continued to recover an increasing number of larger stones with a
value in excess of USD50,000. During 2021 twelve larger stones were recovered
for an aggregate sales value of $1,764,000. The Company recovered a record 58
carat (previous largest mid 20 carat) reflecting the potential of the
Kareevlei Diamond Resource.
Diamond Resource ("Resource")
Kareevlei hosts five known diamondiferous kimberlite pipes with a combined
Inferred and Indicated Resource of 10.4 million tonnes/516,200 carats
(February 2021) and produces excellent quality diamonds with 90% of output gem
quality.
In February 2021, we announced a Resource update demonstrating a 49% increase
in net tonnes to 10,368,300, a 53% increase in net carats to 516,200 and
notably 19% of the Resource was upgraded from the Inferred to Indicated
category. Based on our planned production of 1mtpa, this provides a minimum
10-year life-of-mine, however, we remain confident that the Resource will
increase further once more work is completed on KV3, our largest pipe, where
at present only 40% of this pipe's volume is included.
Financing
In March 2021 the Company raised £1.5m of equity to continue to fund the
expansion project which had increased in scope from a capacity of 750,000
tonnes to 1 million tonnes per annum. A further £1.6m was raised (£0.94m
received during 2021 and £0.66m in 2022) for working capital purposes through
a convertible loan note issued to Teichmann, following the approval of a
waiver from the requirements of Rule 9 of the City Code on Takeovers and
Mergers, and shareholder approval in June 2021.
As announced on 1 June 2022, the impact of the unusually high rainfall in the
first five months of 2022 has severely impacted the Group's cash resources,
leaving the Group requiring additional funding, whilst it completes its mining
development.
Discussions continue with potential funders to BlueRock and to Kareevlei which
is expected to be sufficient to fund the company through this development
period. Further details will be announced as discussions progress.
Events following the end of the year
Due to the delays in implementing the new mining plan, exacerbated by the
excessive rainfall, the Group sought further funding to fund the mine
development costs and raised £2m through an issue of new equity in March
2022. Unfortunately, heavy rain continued into April and May 2022. As a result
Mining development fell 36% (400,000 tonnes) compared to the budget for April
and May, which has limited the mine's access to quality kimberlite and
necessitated the use of lower grade and more difficult to handle material
(high clay content) in Kareevlei's processing operations. Additionally, where
BlueRock had hoped to ramp up production at its new 1Mtpa processing plant,
the unforeseen days lost to rain and the lower-grade feed resulted in
operations being down against budget over the period March to May by 48% on
tonnes processed, 51% on grade and 74% on carats produced.
As a result of fewer diamonds being produced and sold, as well as increasing
costs, BlueRock's cash resources have been depleted during what continues to
be a period of heavy investment in mining development. The Company has
therefore entered into discussions to obtain financing to support it through
this period.
The Company continues to attract high prices for its high quality diamonds. So
far in 2022 sales prices have averaged over USD600, an increase of 29% on 2021
prices.
Despite the advances made in 2021, there is still work to be done for
Kareevlei to benefit fully from the potential of the new plant. The
fundamentals for Kareevlei remain solid and I look forward to reporting more
positive news as we move forward through the rest of the year.
I would like to thank everyone at BlueRock and Kareevlei, as well as our
shareholders and key stakeholders for their continued efforts and support.
Michael Houston
Executive Chairman
Consolidated and Company Statements of Financial Position
Group Group Company Company
Figures in £ 2021 2020 2021 2020
Assets
Non-current assets
Property, plant and equipment 4,312,946 2,344,335 - -
Right-of-use assets 517,789 520,795 - -
Mining assets 1,839,809 560,332 - -
Investments in subsidiaries - - 517,867 5
Other receivables 492,596 425,319 12,147,002 10,360,032
Total non-current assets 7,163,140 3,850,781 12,664,869 10,360,037
Current assets
Inventories 802,835 458,308 - -
Trade and other receivables 93,646 162,163 27,460 136,190
Cash and cash equivalents (including restricted 521,771 569,962 348,993 537,525
cash of £214,499 (2019: £223,914)
Total current assets 1,418,252 1,190,433 376,453 673,715
Total assets 8,581,392 5,041,214 13,041,322 11,033,752
Equity and liabilities
Equity
Share capital 706,050 454,333 706,050 454,333
Share premium 8,656,201 6,885,796 8,656,201 6,885,796
Other equity 94,680 - 94,680 -
Accumulated loss (7,781,745) (7,223,054) (673,019) (473,817)
Other reserves 3,286,179 3,393,154 2,506,862 3,081,203
Total equity attributable to owners of parent 4,961,365 3,510,229 11,290,774 9,947,515
Non-controlling interests (2,223,906) (2,261,809) - -
Total equity 2,737,459 1,248,420 11,290,774 9,947,515
Liabilities
Non-current liabilities
Provisions 544,692 454,197 - -
Borrowings 1,333,345 828,300 987,658 465,601
Lease liabilities 564,063 551,743 - -
Total non-current liabilities 2,442,100 1,834,240 987,658 465,601
Current liabilities
Trade and other payables 2,739,672 1,237,563 293,435 111,826
Borrowings 617,602 696,206 469,455 508,810
Lease liabilities 44,559 24,785 - -
Total current liabilities 3,401,833 1,958,554 762,890 620,636
Total liabilities 5,843,933 3,792,794 1,750,548 1,086,237
Total equity and liabilities 8,581,392 5,041,214 13,041,322 11,033,752
Consolidated Statement of Profit or Loss and Other Comprehensive Income
2021 2020
Figures in £ £ £
Revenue from contracts with customers 7,846,588 3,601,819
Other income 8,672 1,062
Administrative expenses (133,546) (192,137)
Operating expenses (7,823,169) (5,683,454)
Other gains 16,488 853
Loss from operating activities (84,967) (2,271,857)
Finance income 31,552 24,209
Finance costs (384,288) (248,022)
Other losses (911,194) (493,138)
Loss before taxation (1,348,897) (2,988,808)
Income tax expense - -
Loss for the year (1,348,897) (2,988,808)
Loss for the year attributable to:
Owners of Parent (1,222,590) (2,388,532)
Non-controlling interest (126,307) (600,276)
(1,348,897) (2,988,808)
Other comprehensive loss net of tax
Components of other comprehensive income that may be reclassified to profit or
loss
Gains on exchange differences on translation 631,576 397,605
Total other comprehensive income 631,576 397,605
Total comprehensive loss (717,321) (2,591,203)
Total comprehensive loss attributable to:
Owners of parent (755,224) (2,094,304)
Non-controlling interests 37,903 (496,899)
(717,321) (2,591,203)
Basic and diluted loss per share
Basic loss per share (0.09) (0.35)
As permitted by section 408 of the Companies Act 2006, the parent company's
profit and loss account has not been included in the financial statements.
The loss after taxation for the financial year for the parent company was
£863,101 (2020: loss of £680,058).
Consolidated Statement of Changes in Equity - Group
Foreign
Value of Capital currency Share-based Attributable Non-
Share Share conversion redemption translation payment Accumulated to owners of controlling
Figures in £ capital premium right reserve reserve reserve loss the parent interests Total
Balance at 1 January 2020 162,900 4,147,980 - 2,003,010 17,723 1,097,751 (5,120,207) 2,309,157 (1,764,910) 544,247
Changes in equity
Loss for the year - - - - - - (2,388,532) (2,388,532) (600,276) (2,988,808)
Other comprehensive income - - - - 294,228 - - 294,228 103,377 397,605
Total comprehensive income for the year - - - - 294,228 - (2,388,532) (2,094,304) (496,899) (2,591,203)
Issue of equity 291,433 2,870,501 - - - - - 3,161,934 - 3,161,934
Share issue expenses - (132,685) - - - - - (132,685) - (132,685)
Share-based payments - - - - - 266,127 - 266,127 - 266,127
Transfer lapsed options to accumulated loss - - - - - (285,685) 285,685 - - -
Balance at 31 December 2020 454,333 6,885,796 - 2,003,010 311,951 1,078,193 (7,223,054) 3,510,229 (2,261,809) 1,248,420
Balance at 1 January 2021 454,333 6,885,796 - 2,003,010 311,951 1,078,193 (7,223,054) 3,510,229 (2,261,809) 1,248,420
Changes in equity
Loss for the year - - - - - - (1,222,590) (1,222,590) (126,307) (1,348,897)
Other comprehensive income - - - - 467,366 - - 467,366 164,210 631,576
Total comprehensive income for the year - - - - 467,366 - (1,222,590) (755,224) 37,903 (717,321)
Issue of equity 251,717 1,831,255 - - - - - 2,082,972 - 2,082,972
Share issue expenses - (60,850) - - - - - (60,850) - (60,850)
Share-based payments - - - - - 89,558 - 89,558 - 89,558
Transfer lapsed options to accumulated loss - - - - - (663,899) 663,899 - - -
Value of conversion rights - convertible notes - - 94,680 - - - - 94,680 - 94,680
Balance at 31 December 2021 706,050 8,656,201 94,680 2,003,010 779,317 503,852 (7,781,745) 4,961,365 (2,223,906) 2,737,459
Consolidated Statement of Changes in Equity - Company
Value of Capital Share-based
Share Share conversion redemption payment Accumulated
Figures in £ capital premium right reserve reserve loss Total
Balance at 1 January 2020 162,900 4,147,980 - 2,003,010 1,097,751 (79,444) 7,332,197
Changes in equity
Loss for the year - - - - - (680,058) (680,058)
Total comprehensive income - - - - - (680,058) (680,058)
Issue of share capital 291,433 2,870,501 - - - - 3,161,934
Share issue expenses - (132,685) - - - - (132,685)
Share-based payments - - - - 266,127 - 266,127
Transfer lapsed options to accumulated loss - - - - (285,685) 285,685 -
Balance at 31 December 2020 453,333 6,885,796 - 2,003,010 1,078,193 (473,817) 9,947,515
Balance at 1 January 2021 453,333 6,885,796 - 2,003,010 1,078,193 (473,817) 9,947,515
Changes in equity
Loss for the year - - - - - (863,101) (863,101)
Total comprehensive income - - - - - (863,101) (863,101)
Issue of share capital 251,717 1,831,255 - - - - 2,082,972
Share issue expenses - (60,850) - - - - (60,850)
Share-based payments - - - - 89,558 - 89,558
Transfer lapsed options to accumulated loss - - - - (663,899) 663,899 -
Value of conversion rights - convertible notes - - 94,680 - - - 94,680
Balance at 31 December 2021 706,050 8,656,201 94,680 2,003,010 503,852 (673,019) 11,290,774
Consolidated and Company Statements of Cash Flows
Group 2021 Group 2020 Company 2021 Company 2020
Figures in £
Cash flows used in operations
Cash used in operations 2,405,359 (1,025,363) (180,462) (530,401)
Net cash flows used in operations 2,405,359 (1,025,363) (180,462) (530,401)
Cash flows used in investing activities
Proceeds from sales of property, plant and equipment 56,572 2,889 - -
Purchase of property, plant and equipment (2,669,974) (1,268,083) - -
Purchase of mining assets (1,395,448) - - -
Increase in loan advanced to group company - - (1,831,782) (2,030,802)
Movement in rehabilitation guarantee (99,030) (101,888) - -
Cash flows used in investing activities (4,107,880) (1,367,082) (1,831,782) (2,030,802)
Cash flows from financing activities
Proceeds from issuing shares (net of fees: 1,436,527 2,895,784 1,436,527 2,895,784
£60,850 (2020: £132,685))
Loans drawn down in the year 941,146 - 941,146 -
Repayments of borrowings (610,125) (245,237) (538,798) (156,892)
Repayments of lease liabilities (87,750) (66,380) - -
Increase in restricted cash (7,082) (8,811) (7,082) (8,811)
Cash flows from financing activities 1,672,716 2,575,356 1,831,793 2,730,081
Net increase / (decrease) in cash and cash (29,805) 182,911 (180,451) 168,878
equivalents
Exchange rate changes on cash and cash (10,305) 6,617 - -
equivalents
Net (decrease) / increase in cash and cash (40,110) 189,528 (180,451) 168,878
equivalents
Cash and cash equivalents at beginning of 355,463 165,935 323,026 154,148
year
Cash and cash equivalents at end of year 315,353 355,463 142,575 323,026
Notes to the Financial Statements
1. Basis of preparation
The financial information set out herein does not constitute the Group's
statutory financial statements for the year ended 31 December 2021, but is
derived from the Group's audited financial statements. The auditors have
reported on the 2020 financial statements and their reports were unqualified
and did not contain statements under s498(2) or (3) Companies Act 2006 but did
contain a material uncertainty in relation to going concern. The 2021 Annual
Report was approved by the Board of Directors on 30 June 2022. The financial
information in this statement is audited but does not have the status of
statutory accounts within the meaning of Section 434 of the Companies Act
2006. The Group's consolidated financial statements, which form part of the
2021 Annual Report, have been prepared in accordance with applicable law and
UK adopted international accounting standards and, as regards the Parent
Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006. The consolidated financial statements have been
prepared under the historical cost convention except for items held at fair
value. They are presented in British Pounds Sterling (Pounds) which is also
the functional currency of the Company. BlueRock Diamonds Plc is incorporated
in England and Wales with company number 08248437 with registered office, 4th
Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS. The
preparation of financial statements in conformity with UK adopted IAS and
Companies Act 2006 requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of
applying the group's accounting policies.
2. Going concern
The Group and parent Company have prepared forecasts covering the period to 31
December 2023. Appropriate diligence has been applied by the Directors who
believe that the forecasts are prepared on a realistic basis using the best
available information.
As announced on 1 June 2022, the impact of the unusually high rainfall in the
first five months of 2022 has resulted in a significant reduction in
production compared to our forecasts, resulting in a severe impact on the
Group's cash resources, leaving the Group and parent Company requiring
additional funding in the immediate future, whilst it completes its mining
development.
Discussions are ongoing with an existing shareholder for BlueRock to issue a
new Loan Note ("LN") for £1.6m as well as the provision of debt funding
facility to Kareevlei for up to ZAR30m to be drawn as and when required. The
forecasts indicate that the combination of the LN and debt funding facility
will be sufficient to meet the Group's cash requirements over the going
concern period, however, until the LN has been issued and the debt funding
facility finalised, there remains an uncertainty that this financing will be
available.
After review of the uncertainty, the Directors have a reasonable expectation,
based on discussions and correspondence with the existing shareholder, that
the additional funding will be received and the Group and parent Company will
then have adequate resources to continue in operational existence for the
foreseeable future, based on its assessment of the forecasts, principal risks
and uncertainties and mitigating actions considered available to the Group and
parent Company in the event of downside scenarios. Accordingly, the Directors
continue to adopt the going concern basis in preparing the financial
statements.
However, at the date of approval of these financial statements, uncertainties
relating to completing the issue of the funding arrangements indicate the
existence of a material uncertainty which may cast significant doubt about the
Group and parent Company's ability to continue as a going concern, and
therefore it may be unable to realise its assets and discharge its liabilities
in the normal course of business.
The financial statements do not include the adjustments that would result if
the Group and parent Company were unable to continue as a going concern.
3. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
3.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below.
3.1.1 Ore reserves and associated Life of Mine (LoM)
There are numerous uncertainties inherent in estimating ore reserves and the
associated LoM. Therefore, the Group must make a number of assumptions in
making those estimations, including assumptions as to the prices of diamonds,
exchange rates, production costs and recovery rates. Assumptions that are
valid at the time of estimation may change significantly when new information
becomes available. Changes in the forecast prices of diamonds, exchange rates,
production costs or recovery rates may change the economic status of ore
reserves and may, ultimately, result in the ore reserves being restated. Where
assumptions change the LoM estimates, the associated depreciation rates,
residual values, waste stripping and amortisation ratios, lease terms and
environmental provisions are reassessed to take into account the revised LoM
estimate.
3.1.2 Valuation of embedded derivatives
There is an adjustable conversion feature within the convertible loan
agreement with M Poole/T Leslie, which effects the conversion price and the
number of new ordinary shares issued. IFRS 9 requires a fair value calculation
of the embedded derivative at recognition, as it is not closely related to the
host contract, and a revaluation to be performed at each year end. The
embedded derivative has been fair valued using the Monte Carlo model which
requires critical estimates, in particular the Group's future share price
volatility. At the year end the fair value of the embedded derivative was
£3,198 (2020: £21,718).
3.1.3 Valuation of "fixed-for-fixed" convertible loan notes
The Group entered into "fixed-for-fixed" convertible loan notes with the
Teichmann Group, whereby the number of conversion shares were determined at
the issue date. The initial fair value of the liability portion of the bond is
determined using a market interest rate for an equivalent non-convertible bond
at the issue date, which requires critical estimates, in particular the
implicit interest rate. After considering industry and Group specific risk
factors, the Group determined 16.5% to be the most appropriate implicit
interest rate to value the liability portion. The remainder of the proceeds
were allocated to the conversion option and recognised in shareholders' equity
(net of income tax) and is not subsequently remeasured.
3.1.4 Rehabilitation provision
Estimates and assumptions are made in determining the amount attributable to
the rehabilitation provision. These deal with uncertainties such as legal and
regulatory framework, timing and future costs. The carrying value of the
rehabilitation provision is disclosed in note 14 of the financial statements.
The Board use an expert to determine the existing disturbance level and
associated cost of works and estimates of inflation and risk-free discount
rates are based on market data.
3.1.4 Impairment of non-current assets
Mining assets and Property, plant and equipment representing the Group's
mining assets in South Africa are reviewed for impairment at each reporting
date. The impairment test is performed using the approved Life of Mine plan
and those future cash flow estimates are discounted using asset specific
discount rates and are based on expectations about future operations. The
impairment test requires estimates about future production and sales volumes,
diamond prices, grades, operating costs and capital expenditures necessary to
extract resources in the current medium term mine plan. Production forecasts
include further growth from existing production levels, reflecting plant
upgrades, steps to improve mining flexibility and investment to open new
mining areas. Diamond prices are estimated with reference to recent achieved
prices and the Board's assessment of the diamond market outlook.
Changes in such estimates could impact recoverable values of these assets.
The impairment test using the medium-term forecasts indicated significant
headroom as at 31 December 2021 and therefore no impairment is considered to
be appropriate. However, such headroom is dependent on the upgraded plant
running at full capacity. However, the Directors consider the forecasted
production levels to be achievable best estimates. The plant is currently
nearing full capacity.
The key assumptions used in the recoverable amount calculations, determined on
a value-in-use basis, are listed below:
Valuation basis
Discounted present value of future cash flows.
LoM and recoverable value of Diamond Reserves and Resources
Economically recoverable Diamond Reserves and Resources, carats recoverable
and grades achievable are based on management's expectations of the
availability of Diamond Reserves and Resources at Kareevlei and technical
studies undertaken by third-party specialists. Diamond Reserves remaining
after the current LoM plan have not been included in determining the value in
use of the operations. The forecast LoM of Kareevlei, based on current
estimates, is to 2030 (2020: 2030).
Cost and inflation rate
Operating costs are determined based on management's experience and the use of
contractors over a period of time whose costs are fairly reasonably
determinable. Mining and processing costs have been based on the agreements
with the relevant contractors. Management has applied local inflation rates of
5.0% (2020: 5.0%) for operating costs.
Capital costs in the short-term has been based on management's capital
programme after which a fixed percentage of revenue have been applied to
determine the capital costs necessary to maintain current levels of
operations.
Exchange rates
Exchange rates are estimated based on an assessment of current market
fundamentals and long-term expectations. The US dollar/South-African Rand
(ZAR) exchange rate used, was determined with reference to the average rate
for 2021 of ZAR 14.7 (31 December 2020: ZAR 16.5).
Diamond prices
The short-term diamond prices used in the impairment test have been set with
reference to recent prices achieved, recent market trends and the Group's
short-term forecast. Medium and long-term diamond price escalation reflects
the Group's assessment of market supply/demand fundamentals.
Discount rate
A discount rate of 13.8% (2020: 10%) was used. The discount rate was
calculated based on a nominal weighted cost of capital including the effect of
factors such as market risk and country risk as at the Year end.
3.1.6 Expected credit loss assessment for receivables due from subsidiaries
The Directors make judgements to assess the expected credit loss provision on
the loan to the Company's subsidiary. This includes assessment of scenarios
and the subsidiary's ability to repay its loan under such scenarios
considering risks and uncertainties including diamond prices, future
production performance, recoverable diamond reserves, environmental
legislation and other factors. No credit loss provision was raised. If the
assumed factors vary from actual occurrence, this will impact on the amount at
which the loan should be carried on the Company Statement of Financial
Position.
3.1.7 Capitalised stripping costs
Waste removal costs (stripping costs) are incurred during the development and
production phases at surface mining operations. Furthermore, during the
production phase, stripping costs are incurred in the production of inventory
as well as in the creation of future benefits by improving access and mining
flexibility in respect of the ore to be mined, the latter being referred to as
a 'stripping activity asset'. Judgement is required to distinguish between
these two activities at Kareevlei. The orebody needs to be identified in its
various separately identifiable components. An identifiable component is a
specific volume of the orebody that is made more accessible by the stripping
activity. Judgement is required to identify and define these components, and
also to determine the expected volumes (tonnes) of waste to be stripped and
ore to be mined in each of these components. These assessments are based on a
combination of information available in the mine plans, specific
characteristics of the orebody and the milestones relating to major capital
investment decisions. KV1 and KV2, are mined as a combined pit and is
therefore judged to be one separable identified component.
Judgement is also required to identify a suitable production measure that can
be applied in the calculation and allocation of production stripping costs
between inventory and the stripping activity asset. The ratio of expected
volume (tonnes) of waste to be stripped for an expected volume (tonnes) of ore
to be mined for a specific component of the orebody, compared to the current
period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore
is considered to determine the most suitable production measure.
These judgements and estimates are used to calculate and allocate the
production stripping costs to inventory and/or the stripping activity
asset(s). Furthermore, judgements and estimates are also used to apply the
stripping ratio calculation in determining the amortisation of the stripping
activity asset.
At the year end the carrying value of the capitalised stripping costs were
£844,014 (2020: £nil).
3.1.8 Contingent liabilities
The Group is subject to claims by a former director and companies related to
that former director totalling £222,164. Whilst fully disputing the claims,
the Group maintains liabilities to the claimants of £170,598. The Group has
placed £206,418 (2020: £214,499) in escrow with its attorneys to meet any
payments under the claims. The Group has taken legal advice which advises that
the claims are without merit and no provision is made for the additional claim
amount. This matter has required the Board to exercise judgment in assessing
both the extent to which liabilities should be retained and the decision not
to provide for the additional claim amount.
3.1.9 Theft
During January 2022, management at the Kareevlei mine identified a theft of
concentrate from the new plant. Management have conducted a full investigation
and have passed the case onto the South African police force. At the time of
the theft the new plant was being commissioned and subsequently more robust
physical security controls have been put in place. Management have considered
the impact of the theft on the financial statements and considering all
information available, do not consider that the theft has had a material
impact on the financial statements.
3.2 Critical judgements in applying the entity's accounting policies
3.2.1 Mining Licence
An application for the renewal of the current Mining Licence has been
submitted to the Department of Mineral Resources & Energy in South Africa.
As at the date of approval of this report the outcome of this application has
not yet been received. In accordance with South African legislation, the Group
has the right to continue mining until such time as the application has been
processed. The Directors have applied their judgement, and have determined
that there is no reason to believe that the approval will not be obtained and
have therefore based their assumptions and estimates in the financial
statements on the fact that the application will be successful.
3.2.2 Determining the lease term
In determining the lease term, management considers all facts and
circumstances that create an economic incentive to exercise, or not to
exercise, an extension option. Extension options are only included in the
lease term for instances where the company is reasonably certain that it will
extend or will not terminate the lease when the lease expires. For all leases,
the most relevant factors include:
· If there are significant penalties to terminate (or not extend),
the group is typically reasonably certain to extend (or not terminate).
· When the lessee and the lessor each has the right to terminate
the lease without permission from the other party with no more than an
insignificant penalty, the group is typically certain to terminate.
· Otherwise, the group considers other factors including historical
lease durations, related costs and the possible business disruption as a
result of replacement of the leased asset.
The lease term is reassessed on an ongoing basis, especially when the option
to extend becomes exercisable or on occurrence of a significant event or a
significant change in circumstances which affects this assessment, and that is
within the control of the group.
Judgment is needed in determining the lease term of surface lease agreements.
The lease term of surface lease agreements are based on the approved Life of
Mine (LoM) estimate.
3.2.3 Determining the incremental borrowing rate to measure lease liabilities
Interest rate implicit in leases is not available, therefore, the group uses
the relevant incremental borrowing rate (IBR) to measure its lease
liabilities. The IBR is estimated to be the interest rate that the group would
pay to borrow:
· over a similar term
· with similar security
· the amount necessary to obtain an asset of a similar value to the
right of use asset
· in a similar economic environment
The IBR, therefore, is considered to be the best estimate of the incremental
rate and requires management's judgement as there are no observable rates
available.
4. Property, plant and equipment
4.1 Balances at year end and movements for the year
Leasehold Plant and Motor
improvements Machinery vehicles Total
Reconciliation for the year ended 31 December
2021 - Group
Balance at 1 January 2021
At cost 4,676 3,513,434 35,754 3,553,864
Accumulated depreciation (467) (1,197,156) (11,906) (1,209,529)
Net book value 4,209 2,316,278 23,848 2,344,335
Movements for the year ended 31 December 2021
Additions - 2,669,974 - 2,669,974
Depreciation (460) (291,311) (2,622) (294,393)
Impairment loss recognised in profit or loss - (83,392) - (83,392)
Disposals - (40,082) - (40,082)
Exchange differences - Cost (326) (383,734) (2,489) (386,549)
Exchange differences - Accumulated depreciation 57 102,027 969 103,053
Property, plant and equipment at end of year 3,480 4,289,760 19,706 4,312,946
Closing balance at 31 December 2021
At cost 5,067 1,809,364 44,700 1,859,131
Accumulated depreciation - (1,056,986) (23,225) (1,080,211)
Net book value 5,067 752,378 21,475 778,920
Reconciliation for the year ended 31 December
2020 - Group
Balance at 1 January 2020
At cost 5,067 1,809,364 44,700 1,859,131
Accumulated depreciation - (1,056,986) (23,225) (1,080,211)
Net book value 5,067 752,378 21,475 778,920
Movements for the year ended 31 December 2020
Additions - 1,754,985 8,047 1,763,032
Depreciation (443) (216,653) (4,225) (221,321)
Disposals - (439) - (439)
Exchange differences - Cost (391) (44,067) (3,734) (48,192)
Exchange differences - Accumulated depreciation (24) 70,074 2,285 72,335
Property, plant and equipment at end of year 4,209 2,316,278 23,848 2,344,335
Closing balance at 31 December 2020
At cost 4,676 3,513,434 35,754 3,553,864
Accumulated depreciation (467) (1,197,156) (11,906) (1,209,529)
Net book value 4,209 2,316,278 23,848 2,344,335
4.2 Additional
disclosures
Assets whose title is restricted and pledged as Group Group Company Company
security 2021 2020 2021 2020
The carrying values of assets pledged as
security is as follows:
Plant and Machinery 18,339 94,103 - -
Plant and equipment to the value of £18,339 are under security of the loan
agreement with Mark Poole. The Group cannot pledge these assets as security
for other borrowings or sell them to another entity. In the event of default
Mark Poole may acquire the equipment of Kareevlei Mining Proprietory Limited
for 1.00 South African Rand.
5. Inventories
Inventories comprise:
Group 2021 Group 2020 Company 2021 Company 2020
Consumable stores 20,912 13,820 - -
Work in progress 435,722 137,735 - -
Diamonds on hand 346,201 306,753 - -
Total 802,835 458,308 - -
Inventory is carried at the lower of cost or net realisable value. During
the year no write-downs to net realisable value were recorded.
6. Trade and other receivables
6.1 Trade and other receivables comprise:
Group 2021 Group 2020 Company 2021 Company 2020
Current
Trade receivables 4,835 - 3,254 -
Other receivables 27,462 122,139 3,253 122,139
Prepaid expenses 17,894 9,032 9,520 2,509
Value added tax 43,455 30,992 11,433 11,542
Total current receivables 93,646 162,163 27,460 136,190
Non-Current
Other receivables (i) 492,596 425,319 654,874 575,674
Amounts due by subsidiary (ii) - - 11,492,128 9,784,358
Total non-current receivables 492,596 425,319 12,147,002 10,360,032
The carrying value of all trade and other receivables including the loan to a
group company is considered a reasonable approximation of fair value.
Company:
(i) Non-current other receivables represent management fees receivable from
Kareevlei Mining Proprietary Limited.
(ii) The amounts due by subsidiary is a loan to Kareevlei Mining Proprietary
Limited that bears interest at the Nedbank Limited prime variable overdraft
rate or unsecured loans to corporate customers.
Group:
(i) Other non-current receivables represent amounts held by financial
institutions and the Department of Minerals and Energy as guarantees in
respect of environmental rehabilitation obligations in respect of the Group's
South African mines.
6.2
Items included in trade and other receivables not classified as financial Group Group Company Company
instruments
2021 2020 2021 2020
Prepaid expenses 17,894 9,032 9,520 2,509
Value added tax 43,455 30,992 11,433 11,542
Total non-financial instruments included in trade and other receivables 61,349 40,024 20,953 14,051
Total trade and other receivables excluding non-financial assets included in 524,893 547,458 12,153,509 10,482,171
trade and other receivables
Total trade and other receivables 586,242 587,482 12,174,462 10,496,222
7. Cash and cash equivalents (including restricted cash)
7.1 Cash and cash equivalents comprise:
Group Group Company Company
2021 2020 2021 2020
Cash
Cash on hand 103 136 - -
Balances with banks 521,668 569,826 348,993 537,525
Total Cash 521,771 569,962 348,993 537,525
Total cash and cash equivalents included in current assets 521,771 569,692 348,993 537,525
Cash and cash equivalents in the Consolidated Statement of Cash flows excludes
restricted cash of £206,418 (2020: £214,499).
7.2 Cash and cash equivalents where availability is restricted
Bank balances to the value of £206,418 (2020: £214,499) are not available
for use as it is held in trust with the Group's attorneys. This account is
held as security for the claims submitted by a former director of the Group
and may only be utilised against this claim, should it be successful.
8. Share capital
Authorised and issued share capital Group Group Company Company
2021 2020 2021 2020
Issued 14,141,002 (2020: 9,086,657) Ordinary shares of 5p (2020: 5p) each 706,050 454,333 706,050 454,333
Share premium 8,656,201 6,885,796 8,656,201 6,885,796
9,362,251 7,340,129 9,362,251 7,340,129
Share reconciliation
Details of issue Date Number of ordinary shares Share Capital £ Share premium £
Opening Balance 01/01/2021 9,086,657 454,333 6,885,796
Placing and equity issue 03/03/2021 3,750,000 187,500 1,312,500
Placing and equity issue expenses 03/03/2021 - - (60,850)
Issue of shares as repayment of loan facility 06/04/2021 61,013 3,050 23,306
Issue of shares as repayment of payables 21/05/2021 1,223,332 61,167 495,449
Shares outstanding - closing 14,121,002 706,050 8,656,201
9. Trade and other payables
9.1 Trade and other payables comprise:
Group Group Company Company
2021 2020 2021 2020
Trade payables 2,568,336 1,068,671 226,935 45,643
Accrued liabilities 151,076 147,116 66,500 66,183
Account due to former Director 20,260 21,776 - -
Total trade and other payables 2,739,672 1,237,563 293,435 111,826
An amount of £150,339 (2020: £161,588) is included within trade payables
which are subject to amounts claimed as being due to companies related to the
former Director of the company. These amounts are historic and disputed in
full by the Company based on legal advice received. The account due to a
former Director totalling £20,260 (2020: £21,776) relates to amounts claimed
but disputed in full by the Company.
10. Borrowings
10.1 Carrying amount of borrowings by category
Designated at fair value At amortised cost Total
Year ended 31 December 2021 - Group
Convertible loans - 1,414,845 1,414,845
Loan facilities - 532,904 532,904
Embedded derivative 3,198 - 3,198
Components listed under borrowings on the consolidated and company statements 3,198 1,947,749 1,950,947
of financial position
Trade and other payables excluding non-financial liabilities - 2,739,672 2,739,672
Components listed separately on the consolidated and company statements of - 2,739,672 2,739,672
financial position
3,198 4,687,421 4,690,619
Borrowings comprise the following on the consolidated and company statement of
financial position:
Current portion 3,198 614,404 617,602
Non-current portion - 1,333,345 1,333,345
3,198 1,947,749 1,950,947
Year ended 31 December 2020 - Group
Convertible loans - 815,539 815,539
Loan facilities - 687,249 687,249
Embedded derivative 21,718 - 21,718
Components listed under borrowings on the consolidated and company statements 21,718 1,502,788 1,524,506
of financial position
Trade and other payables excluding non-financial liabilities - 1,237,563 1,237,563
Components listed separately on the consolidated and company statements of - 1,237,563 1,237,563
financial position
21,718 2,740,351 2,762,069
Borrowings comprise the following on the consolidated and company statement of
financial position:
Current portion 6,244 689,962 696,206
Non-current portion 15,474 812,826 828,300
21,718 1,502,788 1,524,506
11. Basic earnings per share
Group 2021 Group 2020
Loss for the year attributable to owners of the company (1,222,590) (2,388,532)
Weighted average number of ordinary shares 12,970,498 6,753,581
Basic loss per share (0.09) (0.35)
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