REG - BlueRock DiamondsPLC - Half-year Report
BlueRock Diamonds PLC / AIM: BRD / Sector: Natural Resources
29 September 2020
BlueRock Diamonds Plc ("Bluerock" or the "Company")
Interim Results
BlueRock Diamonds, the AIM listed diamond mining company, which owns and operates the Kareevlei Diamond Mine ('Kareevlei') in the Kimberley region of South Africa, is pleased to announce its interim results for the six months ended 30 June 2020.
Overview
· Undertook rapid response to Covid-19 pandemic with positive outcomes at Kareevlei
· Reopened the mine as soon as was permitted in South Africa, after only 50 days of Care and Maintenance measures
· Continued expansion plans at Kareevlei, combining KV1 and KV2 to mine more efficiently, increased plant size by 20% to handle one million tonnes per annum and advanced work to upgrade the resource
· Strengthened balance sheet with two over-subscribed placings during and post period end to substantially increase annual production
· Established relationship with Bonas Group in Antwerp to sell Kareevlei diamonds on a "mine to market basis" at potentially stronger pricing over the long term
· Formed partnership with Delgatto Diamond Finance LLP to finance sales and increase flexibility on timings of diamond sales
· Quality of diamonds enables BlueRock to sell into niche markets - sold two parcels of diamonds for USD700,000 and USD1,255,000 during and post period end respectively
· Anticipate increasing incidence of higher value diamonds - post period end, sold one diamond for USD104,000 and recovered a second estimated at c.USD75,000
Chairman's Statement
Notwithstanding the unprecedented circumstances faced by the Company, a lot was achieved in the first half of 2020 and we are now well positioned to expand our operations as planned and to operate profitably again from H2 2020. When the onset of Covid-19 resulted in the closure of the mine in March 2020, we quickly revised our plans and implemented a 'reset and rebuild' strategy focused on minimising costs and further increasing production from our original expansion plans developed in January 2020. As part of this, we developed a new sales channel, which should enable us to achieve higher prices per carat, and a bridging financing facility to provide flexibility over the timing of our sales.
Nevertheless, Covid-19 had a material impact on our business in H1 2020, leading to significant cash outflows and losses in the period. The fundraising in July 2020 has restored our financial position and we are now busy on our enlarged expansion plans and expect to be commissioning the new plant in late 2020 with a build up to operating at a run rate of one million tonnes per annum.
Covid -19 Update
As soon as we were permitted, after six weeks on care and maintenance, the mine was reopened, and our expansion plans resumed. New processes were put in place to ensure the health and safety of our workforce and the local community. The mine went through a process of reviewing and implementing policies and procedures in line with the Department of Minerals and Energy ('DMRE') and Department of Health ('DOH') of South Africa to ensure we mitigate the risk of the Covid-19 pandemic and take precautional and preventive measures to protect our workforce.
These measures include screening and testing of all employees, daily shift thermal screening, sanitation measures, appropriate social distancing, compulsory wearing of face masks, training and counselling and the provision of personal protective equipment. To date, seven employees have tested positive for Covid-19 and all have recovered; the Company will continue with the strict measures and controls while the risk from Covid-19 remains.
Expansion Plans
By March 2020, we had started preparation for the expansion plans that we announced in February 2020; the second production line was on site and engineering preparation was advancing in order to establish the new line and move the existing line to its new site alongside the second line. As mentioned, when Covid-19 hit, the plant was put into care and maintenance and our expansion plans were halted due to the resultant uncertainty, particularly in relation to our ability to sell our production as tender houses were unable to function.
During this time, management took the opportunity to revisit the Processing Plant Design and agreed that at a limited capital cost the volumes could be increased materially from the planned 750,000 to one million tonnes per annum, and the proposed changes would further de-risk the crushing aspect of the circuit.
A key issue to running at this planned higher tonnage, was to ensure that the mining operations had greater flexibility. Accordingly, as part of longer term mine planning it was agreed to combine KV1 and KV2 to create the 'KV Main Pit'. This process continued throughout H1 2020 and has now been largely completed. We are now able to mine the combined pit much more efficiently from a capacity perspective and grades have returned to expected levels. We estimate that the strip ratio for KV Main Pit will be 1.8/1 down to a depth of 120m.
The cost consequences in H1 2020 of creating KV Main Pit were two-fold. Firstly, the need to mine and process lower grade and non-pure kimberlite from near surface as part of establishing the longer-term pit design; pleasingly now that we are back processing pure kimberlite from the 30m/40m level, grades have recovered to well above 4 cpht and in August 2020 we achieved an average grade of 5.1 cpht. Secondly, there was an above life of mine stripping ratio in H1 2020 (2.1/1); whilst these costs were not capitalised, they are an investment in the future of the mine.
Another deliverable within Phase 2 of the expansion plan is develop a combined national grid / generator mix of power versus the current 100% expensive generator operation; these changes are expected to be completed in the period to January to April 2021.
Resource Upgrade Work
Mining to date has shown that the KV1 footprint is approximately 25% larger than included in the current resource estimate and we now estimate that KV Main Pit has an estimated economic depth of c.120m although the current resource statement is based on 65m KV1 and 100m KV2.
As part of ensuring compliance to the JORC code and requirements by the competent person, a decision was made to perform some limited additional drilling work in KV Main Pit to delineate the down dip and depth extent. The drilling was delayed due to complications arising from Covid-19 but has now been commissioned and we expect to have an updated resource statement by the end of Q4 2020. In addition, there is a potential increase in the resource in KV3 where currently only 40% of the surface area is in the current resource statement. We plan to do further work to establish the resource in KV3 during 2021.
Sales & Marketing
During the lockdown, we sought to mitigate the various uncertainties created by Covid-19 by establishing a new marketing channel through a partnership with Bonas Group in Antwerp, which is anticipated to provide stronger pricing once specific "Blue Rock tenders" are fully operational . We also formed a partnership with Delgatto Diamond Finance LLP to provide the working capital to allow flexibility in deciding when to sell given sales in Antwerp will initially take place only every two or three months in order to sell parcels of 5,000 carats or more.
We are still awaiting permission to export, which has been delayed by the impact that Covid-19 has had on the administration of such approvals; we are awaiting the final approval and will commence exports when the time is right. In the meantime, we have developed a further sales channel in South Africa using one of the local tender houses, which is offering our diamonds as a complete parcel and selling into niche markets. Through this channel, we have made two sales during and post period end at average prices of USD290 per carat and USD330 per carat respectively. Whilst these prices, as would be expected, are below those we were achieving last year, they were considered competitive in the prevailing market environment and enabled us to operate on a cash flow positive basis.
Production
A summary of production for H1 2020 is shown below:
H1 2020
H1 2019
Inc/Dec
Tonnes processed (000)
165
120
37%
Grade cpht
3
4.2
-26%
Carats produced
4,981
4,938
1%
Despite being closed for approximately 50 days as a result of Covid-19, production increased by 37% to 165,000 tonnes compared with H1 2019. In addition, the first quarter was badly affected by the heaviest rains in a decade. Our management of the plant during the rainy season was a marked improvement over previous years and we expect this to improve further when the plant is moved as the design will handle difficult weather conditions much better.
As previously mentioned, now that we have recommenced mining in the lower levels, the grade has improved and has averaged 4.4 cpht since the beginning of July 2020. Carats produced did not increase over H1 2019 as the increased production was offset by the reduction in grade.
Costs
Our two internal measures of costs are per tonne and per carat. The cost per tonne measure is important as it focuses on production efficiency. Cost per carat is an indication of how profitable we are but is highly influenced by the grade. Our published target total South African cost per carat by the end of 2020 is USD220 per carat (excluding intercompany charges). We are already well on our way to achieving this and expect run rate costs to be lower than this by the end of the year.
Financials
In the first half of 2020, the Company made an operating loss of £1,498,000 on turnover of £1,292,000, compared with a loss of £471,000 on turnover of £1,366,000 in the first half of 2019.
The increase in operating loss was caused by three main factors: a) the impact of Covid-19 on production and prices; b) the cost of creating KV Main Pit; and c) the impact of the heavy rainfall in the first three months of the year.
The impact of Covid-19 was significant as it stopped production for 50 days and has had and continues to have an ongoing impact on prices. It is difficult to be exact about the financial impact that this has had but we estimate that the revenue impact to date is approximately £700,000 to £800,000.
The major cost involved in the development of KV Main Pit has been the lower grade arising from the necessity of mining nearer surface material. The increased dilution reduced the grade by c.1.2 cpht compared with the average grade for 2019. Based on the volume that was processed in the first half of 2020 of 165,000 tonnes, this has led to a direct reduction of c.2,000 carats. This has had a direct impact on revenue and an equal impact on profit of c.£600,000.
Cash and near cash on 30 June 2020 was £500,000, excluding restricted cash, and as at the date of this report is £2,100,000. This includes committed funds of £235,000 due from Teichmann from its subscription in July 2020, and approximately 2,860 carats in stock at an estimated value of $330 per carat.
The Group is expected to be operating cashflow positive and profitable in the second half of 2020.
Financing
In February 2020, the Company raised £1.9 million before expenses to increase production from an annual run rate of around 400,000 tonnes per annum to c.750,000 tonnes per annum. The funds were to be used to acquire additional plant and to fund the engineering works required to establish a two-line plant in a new safer location distant from KV Main Pit.
In July 2020, the Company raised a further £1.25 million before expenses. This fundraising was largely required to cover the costs of Covid-19. In addition, however, the decision had been taken to increase the run-rate to around one million tonnes per annum, an increase of c.250,000 tonnes compared with the original plans developed in January 2020.
At the same time as the July 2020 fundraising, the Convertible Loan Note holders granted the Company the option to extend the term of half of the face value of the convertible loan note of £925,000 by one year from its existing maturity date of October 2021. Following the fundraising in July 2020, the Convertible Loan Note became convertible into 555,721 shares at a price of 166p.
Guidance
Our guidance was suspended in March 2020 as a result of Covid-19. We are reinstating guidance although this is subject to any significant worsening in the Covid-19 environment. Set out below is a table, with guidance for the second half of the year and for 2021:
2020
6m to June*
6m to Dec
Total
2021
Volume ('000 tonnes)
164
220 to 280
384 to 444
850 to 1,000
Grade (cpht)
3.04
4.00 to 4.60
3.60 to 4.02
4.0 to 4.6
Carats
5,013
8,800 to 12,900
13,800 to 18,000
34,000 to 46,000
Value per carat US$
306
330
300 to 350
330
The guidance is based on assumptions that during balance of 2020 and 2021, operations will not be affected by closures outside of what would be deemed normal mining shutdowns. We have given a wide guidance for 2021 as number of variables from commissioning and ramp up of new plant /weather conditions in Q1 and impact of Covid 19 on operations and market. The conservative value per carat at $330 (2019 $420) assumes that the market will remain under pressure through much of 2021, although we would look to achieve higher prices particular in second half of the year.
Outlook
Our core objective is focused on increasing production in sensible steps to the one million tonnes per annum target while reducing costs through the economies of scale and changes to the power structure. To this end, having acted quickly at the onset of Covid-19 to implement a robust 'reset and rebuild' strategy, we believe that we are in a much stronger position to navigate the 'New Norm' in our operations and in the market and build significant value for BlueRock shareholders.
Mike Houston
Chairman
Market Abuse Regulation (MAR) Disclosure - Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
**ENDS**
For further information, please visit BRD's website www.bluerockdiamonds.co.uk or contact:
BlueRock Diamonds PLC
Mike Houston
David Facey, FD
mhouston@bluerockdiamonds.co.uk
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 / Cosima Akerman
Tel: +44 (0)20 7236 1177
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. As at November 2018, it was estimated that the remaining Inferred Mineral Resource from the four kimberlite pipes (KV1, KV2, KV3 and KV5) represents a potential inground number of carats of 367,000.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2020
Consolidated Statement of Financial Position
Note
As at
30 June
2020
Unaudited
£
As at
30 June
2019
Unaudited
£
As at
31 December 2019
Audited
£
Assets
Non-current assets
Property, plant, and equipment
5
1,136,229
516,525
778,920
Right-of-use assets
5
479,522
208,376
455,381
Mining assets
5
391,352
390,096
406,068
Other receivables
7
301,344
215,943
344,442
2,308,447
1,330,940
1,984,811
Current assets
Inventories
6
453,108
340,757
837,347
Trade and other receivables
7
186,031
197,086
56,703
Cash and cash equivalents (including restricted cash)
8
728,909
1,069,796
389,849
1,368,048
1,607,639
1,283,899
Total assets
3,676,495
2,938,579
3,268,710
Equity and liabilities
Equity Attributable to Equity Holders of the Parent
Share capital
10
262,900
162,900
162,900
Share premium
10
5,747,980
4,147,980
4,147,980
Retained losses
(7,177,235)
(4,838,886)
(5,120,207)
Other reserves
3,691,010
2,948,198
3,118,484
2,524,655
2,420,192
2,309,157
Non-controlling interest
(1,902,883)
(1,791,670)
(1,764,910)
621,772
628,522
544,247
Liabilities
Current liabilities
Trade and other payables
11
634,869
725,098
880,584
Borrowings
12
171,507
51,601
156,698
Lease liabilities
12
7,872
21,502
13,195
Non-current liabilities
Embedded derivative
12
20,085
10,312
10,359
Borrowings
12
1,432,282
1,001,067
906,130
Lease liabilities
12
504,521
193,981
454,508
Provisions
13
283,587
306,496
302,989
Total liabilities
3,054,723
2,310,057
2,724,463
Total equity and liabilities
3,676,495
2,938,579
3,268,710
Consolidated Statement of Comprehensive Income
Note
6 months ended
30 June
2020
Unaudited
£
6 months ended
30 June
2019
Unaudited
£
12 months ended 31 December 2019
Audited
£
Revenue
1,292,056
1,366,163
4,073,853
Other income
641
93
911
Operating expenses
(2,790,880)
(1,837,502)
(4,546,931)
Operating loss
(1,498,183)
(471,246)
(472,167)
Finance income
13,086
7,201
25,460
Finance charges
(135,321)
(93,336)
(192,350)
Change in fair value of financial instruments designated at FVTPL
(9,725)
2,151
2,104
Foreign exchange (loss) / gain
3
(1,093,973)
174,203
(47,291)
Loss before taxation
(2,724,116)
(381,027)
(684,244)
Taxation
-
-
-
Total loss for the period
(2,724,116)
(381,027)
(684,244)
Total loss for the period, net of tax attributable to:
Owners of the parent
(2,342,714)
(229,401)
(510,722)
Non-controlling interest
(381,402)
(151,626)
(173,522)
(2,724,116)
(381,027)
(684,244)
Other Comprehensive Income:
Exchange differences on translating foreign operations
936,266
(154,840)
32,297
Total comprehensive loss, net of tax
(1,787,850)
(535,867)
(651.947)
Total comprehensive loss, net of tax attributable to:
Owners of the parent
(1,649,877)
(343,982)
(486,822)
Non-controlling interest
(137,973)
(191,885)
(165,125)
(1,787,850)
(535,867)
(651,947)
Earnings per share - from continuing activities
Basic and diluted
15
(1.00)
(0.28)
(0.21)
Consolidated Statement of Changes in Equity
Share capital
Share premium
Retained losses
Other reserves
Total attributable to equity holders of the Group
Non-controlling interest
Total equity
£
£
£
£
£
£
£
Balance at 1 January 2019:
44,352
3,460,309
(4,609,485)
2,330,670
1,225,846
(1,599,785)
(373,939)
Loss for the period
-
-
(229,401)
-
(229,401)
(151,626)
(381,027)
Other comprehensive income:
Foreign exchange movements
-
-
-
(114,581)
(114,581)
(40,259)
(154,840)
Total comprehensive loss:
-
-
(229,401)
(114,581)
(343,982)
(191,885)
(535,867)
Transactions with shareholders:
Issue of share capital
118,548
1,450,452
-
-
1,569,000
-
1,569,000
Share issue expenses
-
(113,214)
-
-
(113,214)
-
(113,214)
Issue of share options and warrants
-
(649,567)
-
732,109
82,542
-
82,542
Total transactions with shareholders:
118,548
687,671
-
732,109
1,538,328
-
1,538,328
Balance at 30 June 2019 (unaudited):
162,900
4,147,980
(4,838,886)
2,948,198
2,420,192
(1,791,670)
628,522
Balance at 1 July 2019:
162,900
4,147,980
(4,838,886)
2,948,198
2,420,192
(1,791,670)
628,522
Loss for the period
-
-
(281,321)
-
(281,321)
(21,895)
(303,216)
Other comprehensive income:
Foreign exchange movements
-
-
-
138,482
138,482
48,655
187,137
Total comprehensive loss:
-
-
(281,321)
138,482
(142,839)
26,760
(116,079)
Transaction with shareholders:
Issue of share options
-
-
-
31,804
31,804
-
31,804
Total transactions with shareholders:
-
-
-
31,804
31,804
-
31,804
Balance at 31 December 2019
162,900
4,147,980
(5,120,207)
3,118,484
2,309,157
(1,764,910)
544,247
Balance at 1 January 2020:
162,900
4,147,980
(5,120,207)
3,118,484
2,309,157
(1,764,910)
544,247
Loss for the period
-
-
(2,342,714)
-
(2,342,714)
(381,402)
(2,724,116)
Other comprehensive income:
Foreign exchange movements
-
-
-
692,837
692,837
243,429
936,266
Total comprehensive loss:
-
-
(2,342,714)
692,837
(1,649,877)
(137,973)
(1,787,850)
Transaction with shareholders:
Issue of share capital
100,000
1,600,000
-
-
1,700,000
-
1,700,000
Issue of share options
-
-
-
165,375
165,375
-
165,375
Transfer lapsed share options to retained losses
-
-
285,686
(285,686)
-
-
-
Total transactions with shareholders:
100,000
1,600,000
285,686
(120,311)
1,865,375
-
1,865,375
Balance at 30 June 2020 (unaudited)
262,900
5,747,980
(7,177,235)
3,691,010
2,524,655
(1,902,883)
621,772
Consolidated Statement of Cash Flows
6 months ended
30 June
2020
Unaudited
£
6 months ended
30 June
2019
Unaudited
£
12 months ended 31 December 2019
Audited
£
Operating activities
Cash used in operations
14
(1,104,383)
(359,484)
(362,022)
Net cash used in operating activities
(1,104,383)
(359,484)
(362,022)
Investing activities
Purchase of property, plant and equipment
5
(47,173)
(101,258)
(569,367)
Proceeds on sale of property, plant and equipment
5
10,317
-
-
Movement in rehabilitation guarantee
7
(3,102)
(158,485)
(286,984)
Net cash used in investing activities
(39,958)
(259,743)
(856,351)
Financing activities
Proceeds on share issue
10
1,634,406
1,448,786
1,448,786
Repayments of borrowings
12
(116,088)
(129,142)
(142,262)
Repayments of lease liabilities
12
(31,535)
(24,827)
(63,545)
Movement in restricted cash
8
(5,408)
(6,962)
(13,786)
Net cash received from financing activities
1,481,374
1,287,854
1,229,193
Net (decrease) / increase in cash and cash equivalents
337,033
668,627
10,820
Cash and cash equivalents at the beginning of the period
8
165,935
168,181
168,181
Foreign exchange differences
(3,381)
15,898
(13,066)
Cash and cash equivalents at the end of the period
8
499,587
852,706
165,935
Notes to the Interim Consolidated Financial Statements
1. Accounting policies
1.1 General information and basis of preparation
The condensed interim consolidated financial statements (the "interim financial statements") are for the six-month period ended 30 June 2020.
These interim financial statements have not been audited or reviewed, and the financial information set out in this report does not constitute statutory accounts as defined by the Companies Act 2006. The comparative figures for the year ended 31 December 2019 were derived from the statutory accounts for the year to 31 December 2019, which have been delivered to the Registrar of Companies. Those accounts received an unqualified audit report which did not contain statements under sections 498(2) or (3) (accounting records or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006.
The interim financial statements have been prepared on the basis of the accounting policies set out in the December 2019 financial statements of BlueRock Diamonds plc, amended for new standards effective from 1 January 2020 and IAS 34 "Interim Financial Reporting" on a going concern basis. They are presented in sterling, which is also the functional currency of the parent company. They do not include all the information required in annual financial statements in accordance with IFRS and should be read in conjunction with the consolidated financial statements of the Group for the period ended 31 December 2019.
The interim financial statements have been approved for issue by the Board of Directors on 29 September 2020.
Going concern
The Group has prepared forecasts covering the period to 31 December 2021. Appropriate diligence has been
applied by the directors who believe that the forecasts are prepared on a realistic basis using the best available information. The Group had cash and near cash balances of £2,100,000, including committed funds of £235,000 due from Teichmann from its subscription in July 2020, and approximately 2,860 carats in stock at an estimated value of $330 per carat, and no bank debt at 29 September 2020.
In making its going concern assessment, the Board has considered the higher level of uncertainty resulting from the impact of the COVID-19 pandemic in all aspects of its forecasting but particularly in relation to production, the market value of its diamonds and the timing of their sale. The board has implemented measures to a) ensure that unit costs of production are aligned with the likely weakening in pricing; b) ensure that operations comply with the regulations issued by the South African Government in respect of COVID-19; and c) has entered into a non-binding agreement with Delgatto Diamond Finance Fund LP ("DDFF") in order to provide bridging finance at 70% of market value between production and eventual sale at a time when it is reasonable to expect that diamond prices will have returned to a pre pandemic levels. It is the board's assessment that these measures will allow the company to operate using its own cash resources. Nevertheless, given the current uncertainty created by the COVID-19 pandemic, there are certain circumstances that could give rise to the Company needing to raise further finance from
the equity market. These circumstances include changes in South African regulations relating to Coronavirus which require mining operations to be temporarily suspended or otherwise impact production, future diamond prices/valuations being below the cost of running the Kareevlei operations or DDFF opting not to provide finance as outlined in their letter of intent.
After review of these uncertainties the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason,
we continue to adopt the going concern basis in preparing this half year report and accounts of the Group.
1.2 Changes in accounting standards and disclosures
There are no changes to the accounting policies as described in the 2019 annual financial statements.
The other amendments or interpretation, which are effective in 2020 and relevant to the Group's operations, do not have a significant effect on the Group's accounting policies.
The Group has not early adopted any standard or amendments that have been issued but not yet effective.
2. Significant judgements and sources of estimation uncertainty
In the application of the Group's accounting policies the Directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The judgements, estimates and assumptions applied in the interim financial statements including the key sources of estimation uncertainty were the same as those applied in the financial statements for the period ended 31 December 2019.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
3. Foreign exchange (loss) / gain
6 months ended 30 June
2020
£
Unaudited
6 months ended
30 June
2019
£
Unaudited
12 months ended
31 December
2019
£
Audited
Foreign exchange (loss) / gain
(1,093,973)
174,203
(47,291)
The foreign exchanges (loss) / gain relate to the translation of balances denominated in foreign currencies at year-end exchange rates.
4. Segmental reporting
Operating segments are identified based on internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The Group's operations relate to the exploration for, and development of mineral deposits in the Kimberley region of South Africa and as such the Group has only one reportable segment. The non-current assets in the Kimberley region in June 2020 were £2,308,446 (June 2019: £1,330,939; December 2019: £1,984,809)
All revenue consists of sales of diamonds in South Africa through auctions as is customary in the industry. The Company sold its diamonds through auctions run by CS Diamonds (Pty) Ltd during the period. The group entered into an agreement with Bonas-Cousyns NV, an independent diamond and gemstone brokerage firm, for its diamonds to be marketed in Antwerp during the period.
5. Property, plant and equipment
Cost / Valuation
30 June 2020
£
Accumulated depreciation
£
Carrying value
30 June 2020
£
Unaudited
Motor vehicles
46,676
(22,216)
24,460
Plant and machinery
2,141,006
(1,029,237)
1,111,769
Right-of-use-assets
551,878
(72,356)
479,522
Mining assets
500,163
(108,811)
391,352
Total
3,239,723
1,232,621
2,007,103
Reconciliation of property, plant and equipment
Carrying value
1 January 2020
£
Audited
Additions
£
Depreciation
£
Disposals and transfers
£
FX revaluation
£
Carrying value
30 June 2020
£
Unaudited
Motor vehicles
21,475
8,113
(2,142)
-
(2.986)
24,460
Plant and machinery
757,445
580,294
(115,978)
-
(109,992)
1,111,769
Right-of-use-assets
455,381
125,805
(26,697)
(12,143)
(62,824)
479,522
Mining assets
406,068
51,764
(11,339)
-
(55,141)
391,352
1,640,369
765,976
(156,156)
(12,143)
(230,943)
2,007,103
Right-of-use assets comprise the following:
Land and buildings
425,295
107,930
(25,310)
-
(58,491)
449,424
Motor vehicles
30,086
17,875
(1,387)
(12,143)
(4,333)
30,098
455,381
125,805
(26,697)
(12,143)
(62,824)
479,522
6. Inventories
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Diamonds on hand
338,971
340,757
527,300
Work in progress
107,250
-
294,880
Consumable stores
6,887
-
15,167
453,108
340,757
837,347
7. Trade and other receivables
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Current receivables:
Trade receivables
-
443
-
Prepayments
10,471
12,917
4,830
VAT
98,331
27,533
50,489
Other receivables
77,229
156,193
1,384
Total current receivables
186,031
197,086
56,703
Non-current receivables
Other receivables
301,344
215,943
344,442
Total non-current receivables
301,344
215,943
344,442
The carrying value of all trade and other receivables is considered a reasonable approximation of fair value.
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.
8. Cash and cash equivalents
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Cash in bank and on hand
728,909
1,069,796
389,849
The above includes unrestricted cash of 499,587, and bank balances to the value of £229,321 (30 June 2019: £217,090, 31 December 2019: £223,914) 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.
9. Share Based Payments
The Company had the following share-based payment agreements which are described below:
Type of arrangement
Date of grant
Number of shares granted
Contractual life
Exercise price
Directors share option plan - Tranche 4
01/05/2016
1,552
4 years
5,500p
Directors share option plan - Tranche 5
19/01/2017
4,454
5 years
2,500p
Directors share option plan - Tranche 9
16/05/2019
228,060
5 years
50p
Directors share option plan - Tranche 10
18/02/2020
130,320
5 years
85p
Directors share option plan - Tranche 11
18/02/2020
465,615
5 years
85p
Tranche 4 and 5 have fully vested. All options in Tranche 4 lapsed during the period.
Tranche 9 options are split with half vesting 1 year from the date of grant and half vesting immediately on the date of grant. Tranche 9 options have fully vested.
Tranche 10 options vested immediately on the date of grant.
Tranche 11 options are split with half vesting 1 year from the date of grant and half vesting 2 years from the date of grant.
Movements in the number of share options outstanding and their related weighted average prices are as follows:
30 June 2020
31 December 2019
30 June 2019
Average exercise price in pence per share
Number of options
Average exercise price in pence per share
Number of options
Average exercise price in pence per share
Number of options
Outstanding at the beginning of the period
132.77
234,066
2,235.00
22,961
2,235.00
22,961
Granted
85.00
595,935
50.00
228,060
50.00
228,060
Lapsed
(5,500.00)
(1,551)
(688.70)
(16,955)
-
-
Exercised
-
-
-
-
-
-
Outstanding at the period / year end
88.35
828,450
132.77
234,066
205.00
251,021
Exercisable at the period / year end
92.65
362,835
211.39
120,037
210.00
120,037
Options are valued at date of grant using the Black-Scholes option pricing model.
The number of shares and price per share were adjusted for the share consolidation that was affected on 25 July 2019 at a ratio of 500:1.
The fair value per option of options granted during the current period and 2019, and the assumptions used in the calculations are shown below:
2019
2020
Tranche 9
Tranche 10
Tranche 11
Average grant date share price (p)
67.50
88.00
88.00
Average exercise price (p)
50.00
85.00
85.00
Share price volatility (p.a)
85.71%
82.79%
82.79%
Risk-free interest rate (p.a)
0.83%
0.48%
0.48%
Dividend yield (p.a)
0%
0%
0%
Average contractual life (years)
5
5
5
Average fair value per option (p)
48.43
57.70
57.70
The total share-based payment expense for the period ended 30 June 2020 was £165,375 (June 2019: £82,542; December 2019: £114,348).
10. Share capital and share premium
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Number of Ordinary shares
5,258,004
1,629,001,910
3,258,004
Ordinary share capital of 5p (June 2019: 0.01p, December 2019: 5p) per share
262,900
162,900
162,900
Share premium
5,747,980
4,147,980
4,147,980
6,010,880
4,310,880
4,310,880
In the period ended 30 June 2020 the following Ordinary share issues occurred:
Date of issue
Details of issue
Number of ordinary shares
Share capital
£
Share premium
£
At 1 January 2020
3,258,004
162,900
4,147,980
18 February 2020
Placing and equity issue
2,000,000
100,000
1,600,000
At 30 June 2020
5,258,004
262,900
5,747,980
On 25 July 2019, a share consolidation was approved whereby every 500 ordinary shares of 0.01 pence were consolidated into 1 ordinary share of 5 pence each. The number of ordinary shares in issue were adjusted accordingly at that date.
Details of warrants issued
2020:
There were no new warrants issued during the period. 69,067 warrants with an average price of 1,500p lapsed during the period.
2019:
On 11 February 2019 1 warrant was issued for each ordinary share issued on that date. A total of 383,333 warrants were issued and exercisable at 200p for a period of 2 years.
On 16 May 2019 1 warrant was issued for each ordinary share issued on that date. A total of 1,974,000 warrants were issued and exercisable at 100p for a period of 2 years.
Warrants are valued at the date of grant using the Black-Scholes option pricing model.
The fair value per warrant granted during 2019 and the assumptions used in the calculation are shown below:
11 February 2019
16 May 2019
Pricing model used
Black-Scholes
Black-Scholes
Weighted average share price at grant date (pence)
155.00
67.50
Weighted average exercise price (pence)
200.00
100.00
Weighted average contractual life (years)
2
2
Share price volatility (%)
73.16%
85.71%
Dividend yield (%)
0%
0%
Risk-free interest rate (%)
0.72%
0.73%
Average fair value per warrant (p)
50.19
23.89
11. Trade and other payables
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Trade payables
514,577
643,085
737,541
Accrued expenses
99,857
57,750
119,447
Other payables
20,435
24,263
23,596
634,869
725,098
880,584
An amount of £151,643 (30 June 2019: £180,035, 31 December 2019: £175,092) is included within trade payables for amounts being claimed as being due to companies related to a former director of the Company. This amount is disputed in full by the Company based on legal advice received.
Within other payables is an amount of £20,435 (30 June 2019: £24,263, 31 December 2019: £23,596) which relates to an amount claimed by a former director and which, based on legal advice received by the company, is disputing in full. See note 17 for further details.
12. Borrowings and embedded derivative
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Convertible loans
814,614
740,558
776,704
Loan facilities
789,175
312,110
286,124
Lease liabilities
512,392
215,483
467,703
2,116,181
1,268,151
1,530,531
Embedded derivative
20,085
10,312
10,359
2,136,266
1,278,463
1,540,890
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Due within the year
Loan facilities
171,507
51,601
156,698
Lease liabilities
7,872
21,502
13,195
179,379
73,103
169,893
Due greater than one year
Convertible loan
814,614
740,558
776,704
Loan facilities
617,668
260,509
129,426
Lease liabilities
504,521
193,981
454,508
1,936,803
1,195,048
1,360,638
Convertible loans and embedded derivative
The movement on each convertible loan liability component can be summarised as follows:
Embedded derivative
£
Convertible loan
£
Total
£
Balance at 1 January 2019
12,463
706,094
718,557
Finance charge: unwinding the discount factor
-
34,464
34,464
Fair value adjustment to embedded derivative
(2,151)
-
(2,151)
Balance at 30 June 2019
10,312
740,558
750,870
Finance charge: unwinding the discount factor
-
36,146
36,146
Fair value adjustment to embedded derivative
47
-
47
Balance at 31 December 2019
10,359
776,704
787,063
Finance charge: unwinding the discount factor
-
37,910
37,910
Fair value adjustment to embedded derivative
9,726
-
9,726
Balance at 30 June 2020
20,085
814,614
834,699
At 30 June 2020, the Group had in issue convertible loan stocks of £925,000 which has a term for until 16 October 2021. On 27 February 2020, the Company announced that 50% of the total loan had been transferred to Mr Tim Leslie, a non-executive Director of BlueRock Diamonds Plc.
The terms of the convertible loan note provide a mechanism for weighted conversion price revisions should additional funds be raised below the prevailing conversion price. The current conversion price is 166p.
This option to convert the loan into shares has been treated as a separate financial instrument, as an embedded derivative. This is due to a clause in the updated convertible loan note agreement which will require the Company to issue a variable number of shares if future fundraising over life of the convertible loan note raises additional funds at a price per Ordinary share of less than 5p. This requires a separate valuation as it does not relate to the host contract.
In addition, if the Company sells its interest in Kareevlei Mining (Pty) Ltd before the final repayment date for consideration equivalent to or greater than 120% of the loan note outstanding then the notes will become redeemable and a 20% premium will be payable to the note holder.
Management have carried out an assessment of the terms of the convertible loan and have judged that the instrument consists of two components:
· a loan instrument; held at amortised cost
· an embedded redemption feature (payable on a sale of the Group's interest for consideration greater than 120% of the loan note value). The embedded derivative should be recognised separately as a derivative financial instrument at fair value through profit and loss (FVTPL).
A fair value exercise to determine the value of the two components was undertaken by the Directors at the date the convertible loan was initially drawn down. The fair value of the host loan instrument (including the embedded redemption feature) has been valued as the residual of:
· The fair value of the first draw down on 16 October 2014 is discounted at a commercially applicable rate of 9.25%. The fair values of the draw downs on 27 May 2016 and 2 October 2016 have been discounted at a commercially applicable rate of 10.5%.
Loan facilities:
M Poole
In 2017 the Company entered into a loan facility agreement with Mark Poole. A 90-day interest free period was included in the agreement from the date of the first draw down. After this point interest accrues on the capital balance at a rate of 10% per annum, which is payable quarterly in arrears. All capital to be repaid within 5 years from the date of the draw down on the facility.
Additionally, a security over the property, plant and equipment of Kareevlei Mining (Pty) Limited is held.
During the period ended 30 June 2020 an interest charge of £5,517 (June 2019: £4,518, December 2019: £10,701) was recognised on the total capital drawn down. Outstanding at the period ended 30 June 2020 was £91,272 capital and £3,835 interest.
A Waugh and P Beck
BlueRock Diamonds Plc and its subsidiary Kareevlei Mining Proprietary Limited entered into a loan agreement with Adam Waugh (Former Non-Executive Director) and Paul Beck (Former Chairman) on 17 August 2018. The loan was fully drawn down on 17 August 2018. The Loan will only be available to satisfy any final determination of any further claim that Mr CB Visser brings.
The principal amount of the loan is £231,400 comprising £50,000 from Paul Beck and £181,400 from Adam Waugh.
The key provisions of the loan are as follows:
· a term of up to three years, but pre-payable in full or in part at any time at the option of the Company;
· an arrangement fee of 5 percent of the loan principal;
· interest payable of 11 percent per annum on the loan principal payable quarterly, 6 percent payable in cash and the remaining 5 percent payable by a combination of cash and shares (at the Company's sole discretion);
· a repayment premium at an amount equal to 2 percent of the loan principal per month that the loan is outstanding, payable on repayment of the loan in full or in part to be satisfied half in cash and half in shares, at the mid-market price at the time of the relevant repayment, or cash (at the Company's sole discretion);
· and that if the Company raises further funds, preference is given to repaying the loan. It will be the Board's intention to repay the Loan as soon as practicable.
On 16 May 2019, it was further agreed with Adam Waugh to repay his loan in £30,000 quarterly instalments in arrears commencing on 31 August 2019.
As at 30 June 2020 the balance payable to A Waugh was £137,477. Paul Beck's loan was paid in full during 2019.
Numovista (Pty) Ltd
During March 2020 Kareevlei Mining (Pty) Ltd entered into a sale of assets agreement with Numovista (Pty) Ltd whereby mining equipment were purchased from Numovista (Pty) Ltd. Ownership of the equipment transferred with the payment of the initial deposit. The balance of the loan is repayable in 36 monthly instalments of £17,000. The effective interest rate is 9.75%. As at 30 June 2020 the balance payable was £557,090.
13. Provisions
Reconciliation of provisions
Rehabilitation costs
£
Balance at 1 January 2019
204,840
Change in estimate
Unwinding of discount
Exchange differences
93,622
1,065
6,969
Balance at 30 June 2019
306,496
Change in estimate
3,300
Unwinding of discount
1,272
Exchange differences
(8,079)
Balance at 31 December 2019
302,989
Change in estimate
7,937
Unwinding of discount
13,647
Exchange differences
(40,986)
Balance at 30 June 2020
283,587
The provision for environmental rehabilitation closure cost was independently assessed by Ndi Mudau of NDI Geological Consulting Services. The closure cost assessment reports over the Remainder of the Farm No. 113 (Skietfontein), Portion of Portion 2 (Kareeboompan) of the Farm 142, Portion 1 (Westhoek) of the Farm 113, and Portion 2 (Klipvlei) of the Farm 113. The financial provision was calculated in accordance with Regulation 54 of the Minerals and Petroleum Resources Development Act 2002 (Act 28 of 2002) during March 2020.
In determining the amounts attributable to the rehabilitation provision at the Kareevlei mining area, management used a discount rate of 10% (30 June 2019: 10.25%, 31 December 2019: 10%), estimated rehabilitation timing of 10 years (30 June 2019: 5 years, 31 December 2019: 10 years) and an inflation rate of 4.9% (30 June 2019: 5.3%, 31 December 2019: 4.9%).
14. Cash used in operations
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December 2019
£
Audited
Loss before taxation
(2,724,116)
(381,027)
(684,244)
Adjustments for non-cash items:
Depreciation and amortisation
156,156
176,224
371,927
Foreign exchange movement
1,093,973
(174,203)
47,291
Embedded derivative charge
9,725
(2,151)
(2,104)
Share based payment expense
165,376
82,542
114,347
Interest accrued on borrowings and lease liabilities
121,445
89.907
124,676
Interest accrued on provisions
13,647
1,065
2,337
Loss on sale of property, plant and equipment
2,052
-
-
Changes in working capital:
(Increase)/decrease in trade and other receivables
(67,946)
(125,260)
15,024
Increase/(decrease) in trade and other payables
(138,196)
122,322
295,912
(Increase) / decrease in inventories
277,148
(148,903)
(647,188)
(1,104,383)
(359,484)
(362,022)
15. Earnings per share
30 June
2020
£
Unaudited
30 June
2019
£
Unaudited
31 December
2019
£
Audited
Loss attributable to ordinary shareholders
(2,342,714)
(229,401)
(510,722)
Weighted average number of shares
2,344,380
828,480
2,470,871
Loss per share basic and diluted
(1.00)
(0.28)
(0.21)
Weighted average number of shares after dilution
2,344,380
828,480
2,470,871
Fully diluted earnings per share
(1.00)
(0.28)
(0.21)
Share options granted to directors could potentially dilute EPS in the future but are not included in a dilutive EPS calculation because they are antidilutive for the period.
On 25 July 2019, a share consolidation was affected whereby every 500 ordinary shares of 0.01 pence were consolidated into 1 ordinary share of 5 pence each. The weighted number of ordinary shares for 30 June 2019 was adjusted to reflect the change and the comparative figures have been restated.
16. Related party transactions
Relationships
Minority Interest ‑ William van Wyk
Minority interest in Kareevlei Mining (Pty) Ltd
Michael Houston
Executive Chairman
David Facey
Financial Director
Tim Leslie
Non-Executive Director
Gus Simbanegavi
Chief Operating Officer
Adam Waugh*
Former Non-Executive Director
Teichmann Company Limited
Significant shareholder of BlueRock Diamonds Plc
Numovista (Pty) Ltd
Common shareholder with significant influence
* Adam Waugh resigned on 18 September 2019
Issue of Share Options
Share options issued to certain directors were as follows:
Director
No. of Share Options issued
Exercise price per Share Option
Mike Houston
181,564
85p
David Facey
116,404
85p
Gus Simbanegavi
297,967
85p
Refer to note 9 for details of the share options granted during the period.
Following the grant of the Share Options, Mike Houston, David Facey and Gus Simbanegavi held share options and warrants as follows:
Director
Total no. of share options held
Total no. of warrants held
Total no. of warrants and share options held
Mike Houston
279,304
30,000
309,304
David Facey
181.564
20,000
201,564
Gus Simbanegavi
363,127
10,000
373,127
Borrowings from related parties
William van Wyk
During March 2018 the Group entered into a lease facility agreement with William van Wyk, whereby motor vehicles are leased over a term of 72 months at a rate of 12.5% per annum with the final repayment during February 2024. As at 30 June 2020 the balance payable on the lease facility was £28,655 (June 2019: £30,121; December 2019: £26,918).
Interest paid: £1,575 (June 2019: £1,953; December 2019: £3,759)
A Waugh
As at 30 June 2020 the balance due on the loan facility granted to the group was £137,477 (30 June 2019: £172,270, 31 December 2019: £169,127). See note 12 for further details.
Interest paid: £6,583 (June 2019: £11,137; December 2019: £27,741)
Numovista (Pty) Ltd
As at 30 June 2020 the balance due on the loan facility granted to the group was £557,090. See note 12 for further details.
Trade payables due to related party
Teichmann Company Limited - £166,339 (30 June 2019: null, 31 December 2019: £179,054)
Transactions with related parties:
Teichmann Company Limited - Contractor fees paid - £468,257 (30 June 2019: null, 31 December 2019: £739,202)
A Waugh - Consulting fees paid - £25,000 (30 June 2019: £null, 31 December 2019: £null)
Directors' remuneration
The following directors' remuneration were paid during the period:
M Houston - received fees of £29,500 (30 June 2019: £17,510, 31 December 2019: £55,417)
D Facey - received fees of £29,000 (30 June 2019: £18,000, 31 December 2019: £56,000)
G Simbanegavi - received fees of £65,327 (30 June 2019 and 31 December 2019: £null)
T Leslie - received fees of £9,167 (30 June 2019: £null, 31 December 2019: £10,000)
A Waugh - received fees of £null (30 June 2019: £40,000, 31 December 2019: £40,000)
At 30 June 2020 the Group was owed £270,974 from the Teichmann Group in accordance with the agreed payment terms of their participation in the February 2020 subscription. This amount was paid in August 2020.
17. Contingent liabilities
The amounts payable to CB Visser and his related companies as disclosed in note 11, are currently under dispute. CB Visser is a former director and CEO of both Kareevlei Mining (Pty) Ltd and BlueRock Diamonds Plc. who resigned during September 2016. The total claim submitted by him amounts to £260,108 of which £172,078 has been accounted for under trade and other payables. The Group has given security for the amount of £229,321 in respect of the above claim. This security is held in trust by the group's lawyers. The company's legal advisors are of the opinion that based on current available information, the claims are without merit.
18. Events after the reporting period
Fundraising
On 16 July 2020, the group successfully raised an aggregate before expenses of £1.25 million via the issue of 3,571,429 ordinary shares of 5 pence each in the capital of the Company through a placing and subscription at 35 pence per share. The group will use the majority of the funding to fast-track its growth plans and strengthen its balance sheet.
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