Final Results

*

Further cuts in overhead costs including mine G&A reduces net loss for the year to £2.61 million from £3.53m in 2012 and £4.24m in 2011

*

Finance package for Lace mine development finalised in January 2013, surface facilities installed and underground mining commenced

*

Carrying value of property, plant and equipment at year end £14.89m from £8.78m

*

Cash at year end £2.22m with a further £2.10m gross raised in April 2014

*

Lace mine is fully funded to production which is expected to begin earlier than previously expected

*

Underground mining fleet continues to provide near 90% availability with operating costs running at 95% of budget

*

Prices for rough diamonds remain firm with a positive outlook for the medium and longer term

Euan Worthington

Paul Loudon

Chairman

Chief Executive Officer

Group

Company

2013

2012

2013

2012

Note(s)

£

£

£

£

Other income

13,983

15,834

3,500

-

Operating expenses

(2,193,475)

(3,362,571)

(10,981,127)

(927,437)

Operating loss

20

(2,179,492)

(3,346,737)

(10,977,627)

(927,437)

Investment income

243,634

25,586

88

315

Fair value adjustments

(619,042)

(44,821)

(188,481)

(26,226)

Finance costs

22

(55,004)

(168,968)

(253,619)

(86,429)

Loss before taxation

(2,609,904)

(3,534,940)

(11,419,639)

(1,039,777)

Taxation

23

-

-

-

-

Loss for the year

(2,609,904)

(3,534,940)

(11,419,639)

(1,039,777)

Loss attributable to :

Owners of the parent

(2,382,647)

(3,016,615)

(11,419,639)

(1,039,777)

Non-controlling interest

(227,257)

(518,325)

(2,609,904)

(3,534,940)

(11,419,639)

(1,039,777)

Loss per share

Per share information

Basic and diluted loss per share (pence)

26

0.86

1.22

-

-

Group

Company

2013

2012

2013

2012

Note(s)

£

£

£

£

Loss for the year

(2,609,904)

(3,534,940)

(11,419,639)

(1,039,777)

Other comprehensive loss:

Items that may be reclassified to profit or loss

Exchange differences on translating foreign operations

(2,290,568)

(1,046,358)

-

-

Other comprehensive loss for the year net of taxation

25

(2,290,568)

(1,046,358)

-

-

Total comprehensive loss

(4,900,472)

(4,581,298)

(11,419,639)

(1,039,777)

Total comprehensive loss attributable to:

Owners of the parent

(4,057,858)

(4,165,247)

(11,419,639)

(1,039,777)

Non-controlling interest

(842,614)

(416,051)

-

-

(4,900,472)

(4,581,298)

(11,419,639)

(1,039,777)

Group

Company

2013

2012

2013

2012

Note(s)

£

£

£

£

Assets

Non-Current Assets

Property, plant and equipment

4

14,892,223

8,776,273

277,440

297,258

Goodwill

5

4,606,026

4,606,026

-

-

Investments in subsidiaries

6

-

-

4,672,501

4,672,501

Loans to group companies

7

-

-

13,714,510

-

Other non-current asset

9

43,632

-

-

-

Restricted cash

12

73,108

92,372

-

-

19,614,989

13,474,671

18,664,451

4,969,759

Current Assets

Inventories

10

557,085

297,474

-

-

Loans to group companies

7

-

-

-

23,436,964

Current tax receivable

6,651

8,403

-

-

Trade and other receivables

11

880,990

186,619

-

9,167

Cash and cash equivalents

12

2,220,130

4,227,404

5,979

1,363,545

3,664,856

4,719,900

5,979

24,809,676

Total Assets

23,279,845

18,194,571

18,670,430

29,779,435

Equity and Liabilities

Equity

Equity Attributable to Owners of Parent

Share capital

13

35,190,544

34,920,544

35,190,544

34,920,544

Reserves

-1,807,236

-218,920

618,131

531,236

Accumulated loss

-22,907,307

-20,524,660

-19,350,926

-7,931,287

10,476,001

14,176,964

16,457,749

27,520,493

Non-controlling interest

-1,946,868

-1,104,254

-

-

Total Equity

8,529,133

13,072,710

16,457,749

27,520,493

Liabilities

Non-Current Liabilities

Other financial liabilities

17

9,239,447

-

455,000

455,000

Provisions

18

528,828

119,745

-

-

9,768,275

119,745

455,000

455,000

Current Liabilities

Compound instruments - liabilities

16

2,532,981

2,642,739

981,022

780,261

Compound instruments - derivatives

16

2,107,849

1,525,391

730,079

541,598

Trade and other payables

19

341,607

833,986

46,580

482,083

4,982,437

5,002,116

1,757,681

1,803,942

Total Liabilities

14,750,712

5,121,861

2,212,681

2,258,942

Total Equity and Liabilities

23,279,845

18,194,571

18,670,430

29,779,435

Share Capital

Share premium

Total share capital

Foreign currency translation reserve

Share option reserve

Warrant reserve

Total reserve

Accumulated loss

Total attributable to the owner of the parent

Non-controlling interest

Total equity

Group

£

£

£

£

£

£

£

£

£

£

£

Balance at 01 January 2012

7,268,041

26,702,502

33,970,543

398,476

429,066

505,877

1,333,419

(18,013,922)

17,290,040

(688,203)

16,601,837

Loss for the year

-

-

-

-

-

-

-

(3,016,615)

(3,016,615)

(518,325)

(3,534,940)

Other comprehensive loss

-

-

-

(1,148,632)

-

-

(1,148,632)

-

(1,148,632)

102,274

(1,046,358)

Total comprehensive loss for the year

-

-

-

(1,148,632)

-

-

(1,148,632)

(3,016,615)

(4,165,247)

(416,051)

(4,581,298)

Issue of shares

857,143

142,857

1,000,000

-

-

-

-

-

1,000,000

-

1,000,000

Issue costs

-

(49,999)

(49,999)

-

-

-

-

-

(49,999)

-

(49,999)

Warrants granted

-

-

-

-

-

92,000

92,000

-

92,000

-

92,000

Expiry of warrants

-

-

-

-

-

(505,877)

(505,877)

505,877

-

-

-

Value attributed for equity based share based payments

-

-

-

-

10,170

-

10,170

-

10,170

-

10,170

Total contributions by and distributions to owners of company recognised directly in equity

857,143

92,858

950,001

-

10,170

(413,877)

(403,707)

505,877

1,052,171

-

1,052,171

Balance at 01 January 2013

8,125,184

26,795,360

34,920,544

(750,156)

439,236

92,000

(218,920)

(20,524,660)

14,176,964

(1,104,254)

13,072,710

Loss for the year

-

-

-

-

-

-

-

(2,382,647)

(2,382,647)

(227,257)

(2,609,904)

Other comprehensive loss

-

-

-

(1,675,211)

-

-

(1,675,211)

-

(1,675,211)

(615,357)

(2,290,568)

Total comprehensive loss for the year

-

-

-

(1,675,211)

-

-

(1,675,211)

(2,382,647)

(4,057,858)

(842,614)

(4,900,472)

Issue of shares

180,000

90,000

270,000

-

-

-

-

-

270,000

-

270,000

Value attributed for equity settled share based payments

-

-

-

-

86,895

-

86,895

-

86,895

-

86,895

Total contributions by and distributions to owners of company recognised directly in equity

180,000

90,000

270,000

-

86,895

-

86,895

-

356,895

-

356,895

Balance at 31 December 2013

8,305,184

26,885,360

35,190,544

(2,425,367)

526,131

92,000

(1,807,236)

(22,907,307)

10,476,001

(1,946,868)

8,529,133

Note(s)

13

13

13

15

Share Capital

Share premium

Total share capital

Foreign currency translation reserve

Share option reserve

Warrant reserve

Total reserve

Accumulated loss

Total attributable to the owner of the parent

Non-controlling interest

Total equity

Company

£

£

£

£

£

£

£

£

£

£

£

Balance at 01 January 2012

7,268,041

26,702,502

33,970,543

-

429,066

505,877

934,943

(7,397,387)

27,508,099

-

27,508,099

Loss for the year

-

-

-

-

-

-

-

(1,039,777)

(1,039,777)

-

(1,039,777)

Total comprehensive loss for the year

-

-

-

-

-

-

-

(1,039,777)

(1,039,777)

-

(1,039,777)

Issue of shares

857,143

142,857

1,000,000

-

-

-

-

-

1,000,000

-

1,000,000

Issue costs

-

(49,999)

(49,999)

-

-

-

-

-

(49,999)

-

(49,999)

Expiry of warrants

-

-

-

-

-

(505,877)

(505,877)

505,877

-

-

-

Value attributed for equity based share based payments

-

-

-

-

10,170

-

10,170

-

10,170

-

10,170

Warrants granted

-

-

-

-

-

92,000

92,000

-

92,000

-

92,000

Total contributions by and distributions to owners of company recognised directly in equity

857,143

92,858

950,001

-

10,170

(413,877)

(403,707)

505,877

1,052,171

-

1,052,171

Balance at 01 January 2013

8,125,184

26,795,360

34,920,544

-

439,236

92,000

531,236

(7,931,287)

27,520,493

-

27,520,493

Loss for the year

-

-

-

-

-

-

-

(11,419,639)

(11,419,639)

-

(11,419,639)

Total comprehensive loss for the year

-

-

-

-

-

-

-

(11,419,639)

(11,419,639)

-

(11,419,639)

Issue of shares

180,000

90,000

270,000

-

-

-

-

-

270,000

-

270,000

Value attributed for equity settled share based payments

-

-

-

-

86,895

-

86,895

-

86,895

-

86,895

Total contributions by and distributions to owners of company recognised directly in equity

180,000

90,000

270,000

-

86,895

-

86,895

-

356,895

-

356,895

Balance at 31 December 2013

8,305,184

26,885,360

35,190,544

-

526,131

92,000

618,131

(19,350,926)

16,457,749

-

16,457,749

Note(s)

13

13

13

15

Group

Company

2013

2012

2013

2012

Note(s)

£

£

£

£

Cash flows from operating activities

Cash used in operations

27

(3,313,229)

(3,313,229)

(3,313,229)

(3,313,229)

Finance costs

(55,004)

(55,004)

(55,004)

(55,004)

Net cash used in operating activities

(3,368,233)

(3,368,233)

(3,368,233)

(3,368,233)

Cash flows from investing activities

Purchase of property, plant and equipment

4

(6,765,660)

(6,765,660)

(6,765,660)

(6,765,660)

Sale of property, plant and equipment

4

2,530

2,530

2,530

2,530

Loans advanced to group companies

-

-

-

-

Outflow relating to other non-current asset

(43,632)

(43,632)

(43,632)

(43,632)

Interest Income

243,634

243,634

243,634

243,634

Net cash used in investing activities

(6,563,128)

(6,563,128)

(6,563,128)

(6,563,128)

Cash flows from financing activities

Proceeds on share issue

13

270,000

270,000

270,000

270,000

Proceeds from other financial liabilities

9,442,618

9,442,618

9,442,618

9,442,618

Movement in other payables

-

-

-

-

Proceeds from issue of convertible bonds

-

-

-

-

Net cash from financing activities

9,712,618

9,712,618

9,712,618

9,712,618

Total cash movement for the year

(218,743)

(218,743)

(218,743)

(218,743)

Cash at the beginning of the year

4,227,404

4,227,404

4,227,404

4,227,404

Effect of exchange rate movement on cash balances

(1,788,531)

(1,788,531)

(1,788,531)

(1,788,531)

Total cash at end of the year

12

2,220,130

2,220,130

2,220,130

2,220,130

1.

General information

DiamondCorp plc is a Company incorporated in England and Wales under the Companies Act 2006 and incorporated as an external company in South Africa under the Companies Act No 71 of 2008. The address of the registered office is given on page 2. The nature of the Group's operations and its principal activities are set out in the Directors' Report on page 11.

These financial statements are presented in pounds sterling because that is the functional currency of the parent Company as well as presentation currency of the Group. Foreign operations are included in accordance with the policies set out in this note.

These accounting policies are consistent with the previous period.

1.1

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating-decision maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer that makes strategic decisions.

The basis of segmental reporting has been set out in note 3.

1.2

Consolidation

Basis of consolidation

The audited consolidated and separate financial statements incorporate the audited consolidated and separate financial statements of the group and all investees which are controlled by the Company (its subsidiaries).

The group has control of an investee when it has power over the investee; it is exposed to or has rights to variable returns

from involvement with the investee; and it has the ability to use its power over the investee to affect the amount of the investor's returns.

The results of subsidiaries are included in the audited consolidated and separate financial statements from the effective date of acquisition to the effective date of disposal.

Adjustments are made when necessary to the audited consolidated and separate financial statements of subsidiaries to bring their accounting policies in line with those of the group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the group's interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest.

Transactions which result in changes in ownership levels, where the group has control of the subsidiary both before and after the transaction are regarded as equity transactions and are recognised directly in the statement of changes in equity.

The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent.

Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to the Group's cash-generating unit expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the presentation currency of the group at the end of each reporting period with the adjustment recognised in equity through other comprehensive income.

Statement of compliance

The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the IASB and in accordance with IFRS interpretations committee (IFRS IC) interpretations. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

Basis of preparation

The financial statements have been prepared in accordance with the UK Companies Act 2006 applicable to companies reporting under IFRS and in terms of the Companies Act 2008 of South Africa.

The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on fair value of the consideration given in exchange for assets. The financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out below.

1.3

Significant judgements and sources of estimation uncertainty

In preparing the audited consolidated and separate financial statements, management is required to make estimates and assumptions that affect the amounts represented in the audited consolidated and separate financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the audited consolidated and separate financial statements. Significant judgements include:

Impairment testing

Impairment of goodwill - Judgements is applied in determining appropriate assumptions to be used in testing for and calculating impairment. See policy regarding Goodwill.

Provisions

Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in note 18 - Provisions.

Provisions are recognised when:

*

the group has a present obligation as a result of a past event;

*

it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation;

*

a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

Valuations

*

Valuation of inventory - Judgement was applied in calculating the initial carrying value of inventory and judgement continues to be applied in assessing the net realisable value. See accounting policy regarding Inventories.

*

Valuation of warrants, share options and ordinary shares issued as consideration - Judgement is applied in determining appropriate assumptions to be used in calculating the fair value of warrants, shares and share options issued. See notes 14 and 15.

*

Valuation of convertible bonds - Judgement is applied in determining appropriate assumptions to be used in calculating the fair value of convertible bonds. See note 16.

Going concern

Judgement is applied in assessing the likelihood and timing of future cash flows associated with the Group's activities. Judgement is also applied in assessing the likelihood of receiving future funding.

1.4

Property, plant and equipment

Initial recognition

The cost of an item of property, plant and equipment is recognised as an asset when:

*

it is probable that future economic benefits associated with the item will flow to the company; and

*

the cost of the item can be measured reliably

Property, plant and equipment is initially measured at cost.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, service it, the initial estimate of the rehabilitation obligation, and for qualifying assets (where relevant), borrowing costs. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. The purchase price or construction cost is the aggregate amount paid and the fair value any other consideration given to acquire the asset. The capitalised value of a finance lease is also included within property, plant and equipment.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.

Upon completion of mine construction, the assets are transferred into "Property, plant and equipment". Items of property, plant and equipment and mining properties are stated at cost, less accumulated depreciation and accumulated impairment losses.

Mines under construction

Upon transfer of "Exploration and evaluation assets" into "Construction in progress" within "Property, plant and equipment", all subsequent expenditure on the construction, installation or completion of infrastructure facilities is capitalised within "Construction in progress". Development expenditure is net of proceeds from the incidental sale of diamonds extracted during the development phase. After production starts, all assets included in "Construction in progress" are transferred to "Mining properties" within "Property, plant and equipment".

Depreciation/amortisation

Mining properties are depreciated/amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight-line method is applied.

The units of production rate for the depreciation/amortisation of mining properties takes into account expenditure relating to mining properties currently and to be expensed in future.

Other plant and equipment such as mobile mine equipment is generally depreciated on a straight-line basis over their estimated useful lives to their residual values.

The useful lives of items of property, plant and equipment have been assessed as follows:

Item

Average useful life

Land

N/A

Buildings

20 years

Plant and machinery

5 - 20 years

Mining rights

20 years (life of mine)

Rehabilitation asset

20 years (life of mine)

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Assets which the (company/group) holds for rentals to others and subsequently routinely sell as part of the ordinary course of activities, are transferred to inventories when the rentals end and the assets are available-for-sale. These assets are not accounted for as non-current assets held for sale. Proceeds from sales of these assets are recognised as revenue. All cash flows on these assets are included in cash flows from operating activities in the cash flow statement.

Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Group through an extended life, the expenditure is capitalised.

Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced asset(s).

Repairs and maintenance that do not meet the recognition criteria of an asset are expensed when incurred.

1.5

Site restoration and dismantling cost

The company has an obligation to dismantle, remove and restore items of property, plant and equipment. Such obligations are referred to as 'decommissioning, restoration and similar liabilities'. The cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

If the related asset is measured using the cost model:

*

subject to (b), changes in the liability are added to, or deducted from, the cost of the related asset in the current period

*

if a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in profit or loss.

*

if the adjustment results in an addition to the cost of an asset, the entity considers whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the asset is tested for impairment by estimating its recoverable amount, and any impairment loss is recognised in profit or loss.

1.6

Financial liabilities / assets

Initial recognition and measurement

Financial liabilities are classified as either financial liabilities at fair value through profit or loss ("at FVTPL") or 'other financial liabilities'.

Other financial liabilities

Other liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

A financial liability is classified as held for trading if:

*

it has been incurred principally for the purpose of repurchasing it in the near term; or

*

on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

*

it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

*

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

*

the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

*

it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments:

Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Loans to (from) group companies

These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.

Loans to group companies are classified as loans and receivables.

Loans from group companies are classified as financial liabilities measured at amortised cost.

Trade and other receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.

Trade and other receivables are classified as loans and receivables.

Trade and other payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, other short-term highly liquid investments and restricted cash that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at amortised cost.

Convertible bond policy

The component parts of compound instruments (convertible bonds) issued by the Group are classified separately as an amortised cost financial liability and an embedded derivative financial liability in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the embedded derivative financial liability component is estimated using observable market data input into the Black Scholes model, modified for the Barone Adesi Whaley approximation. This amount is recorded as an embedded derivative financial liability held at fair value through profit and loss. The amortised cost financial liability (host debt contract) is determined by deducting the amount of the embedded derivative component from the fair value of the compound instrument as a whole. The host debt contract is held on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date.

Financial guarantee contract liabilities

Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as at FVTPL, are subsequently measured at:

*

the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent

Equity instruments

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue cost.

1.7

Tax

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Tax expenses

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from:

*

a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or

*

a business combination.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.

1.8

Leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Operating leases - lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset / liability. This asset / liability is not discounted.

Any contingent rents are expensed in the period they are incurred.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

1.9

Inventories

Inventories and work in progress are measured at the lower of cost, on a FIFO basis, and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Inventory relating from development of the underground is carried at the lower of cost, on a FIFO basis, and net realisable value.

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.10

Impairment of assets

The group assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the group also:

*

tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period.

*

tests goodwill acquired in a business combination for impairment annually.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to the present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.11

Share capital and equity

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

1.12

 Share based payments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 13.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Save As You Earn ("SAYE") share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

1.13

Revenue

Revenue from the sale of diamonds is recorded when the diamonds are sold. Incidental sale of diamonds derived from underground development are credited to mine development costs.

Incidental sale of diamonds derived from underground development is credited to mine development costs.

Revenue earned from sales prior to the new operations achieving commercial production were recognised as a reduction in the carrying value of the pre-production expenses held within intangible assets. Revenue is measured at the fair value of the consideration received or receivable. Subsequently it is recognised as a reduction in the carrying value of mine development costs until production commences once development is completed.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying value.

Dividends are recognised, in profit or loss, when the company's right to receive payment has been established.

1.14

Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows:

*

Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings.

*

Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.

The capitalisation of borrowing costs commences when:

*

expenditures for the asset have occurred;

*

borrowing costs have been incurred, and

*

activities that are necessary to prepare the asset for its intended use or sale are in progress.

Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

Bank ovedraft and borrowings are initially measured at fair value, and are susequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the group's accounting policy for borrowing costs.

1.15

Translation of foreign currencies

Functional and presentation currency

Items included in the audited consolidated and separate financial statements of each of the group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency).

The audited consolidated and separate financial statements are presented in Pounds sterling which is the company's functional and presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated.

Group and Company

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-

monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In addition, in the case of presenting consolidated financial statements, any foreign exchange differences arising on elimination of intercompany loan balances upon consolidation of the Group Companies, are classified as equity and transferred to the Group's translation reserve, as these loans are for long term investment purposes.

Determining the rate of exchange to be used

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as other comprehensive income and transferred to the Group's translation reserve. Such translation differences are recognised in the income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

1.16

Environmental restoration and decommissioning obligations

An obligation to incur environmental restoration, rehabilitation and decommissioning costs arises when disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are recognised in the income statement over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision.

Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and recognised in the income statement as extraction progresses.

Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work (that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate) are added to or deducted from, the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above.

1.17

Warranty reserve policy

Options issued as warranties are treated as equity settled share based payments.

2.

New Standards and Interpretations

2.1

Standards and interpretations effective and adopted in the current year

In the current year, the group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:

IFRS 10 Consolidated Financial Statements

Standard replaces the consolidation sections of IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. The standard sets out a new definition of control, which exists only when an entity is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to effect those returns through power over the investee.

The effective date of the standard is for years beginning on or after 1 January 2013.

The group has adopted the standard for the first time in the 2013 audited consolidated and separate financial statements. The impact of the standard is not material.

IAS 27 Separate Financial Statements

Consequential amendment as a result of IFRS 10. The amended Standard now only deals with separate financial statements.

The effective date of the amendment is for years beginning on or after 1 January 2013.

The group has adopted the amendment for the first time in the 2013 audited consolidated and separate financial statements.

The impact of the amendment is not material.

IFRS 12 Disclosure of Interests in Other Entities

The standard sets out disclosure requirements for investments in Subsidiaries, associates, joint ventures and unconsolidated structured entities. The disclosures are aimed to provide information about the significance and exposure to risks of such interests. The most significant impact is the disclosure requirement for unconsolidated structured entities or off balance sheet vehicles.

The effective date of the standard is for years beginning on or after 1 January 2013.

The group has adopted the standard for the first time in the 2013 audited consolidated and separate financial statements. The impact of the standard is not material.

IFRS 13 Fair Value Measurement

New standard setting out guidance on the measurement and disclosure of items measured at fair value or required to be disclosed at fair value in terms of other IFRS's.

The effective date of the standard is for years beginning on or after 1 January 2013.

The group has adopted the standard for the first time in the 2013 audited consolidated and separate financial statements. The impact of the standard is not material.

2.2

Standards and interpretations not yet effective

The group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the group's accounting periods beginning on or after 1 January 2014 or later periods:

IFRS 9 Financial Instruments

This new standard is the first phase of a three phase project to replace IAS 39 Financial Instruments: Recognition and Measurement. To date, the standard includes chapters for classification, measurement and derecognition of financial assets and liabilities. The following are main changes from IAS 39:

*

Financial assets will be categorised as those subsequently measured at fair value or at amortised cost.

*

Financial assets at amortised cost are those financial assets where the business model for managing the assets is to hold the assets to collect contractual cash flows (where the contractual cash flows represent payments of principal and interest only). All other financial assets are to be subsequently measured at fair value.

*

Under certain circumstances, financial assets may be designated as at fair value.

*

For hybrid contracts, where the host contract is an asset within the scope of IFRS 9, then the whole instrument is classified in accordance with IFRS 9, without separation of the embedded derivative. In other circumstances, the provisions of IAS 39 still apply.

*

Voluntary reclassification of financial assets is prohibited. Financial assets shall be reclassified if the entity changes its business model for the management of financial assets. In such circumstances, reclassification takes place prospectively from the beginning of the first reporting period after the date of change of the business model.

*

Voluntary reclassification of financial assets is prohibited. Financial assets shall be reclassified if the entity changes its business model for the management of financial assets. In such circumstances, reclassification takes place prospectively from the beginning of the first reporting period after the date of change of the business model.

*

Investments in equity instruments may be measured at fair value through other comprehensive income. When such an election is made, it may not subsequently be revoked, and gains or losses accumulated in equity are not recycled to profit or loss on derecognition of the investment. The election may be made per individual investment.

*

IFRS 9 does not allow for investments in equity instruments to be measured at cost.

*

The classification categories for financial liabilities remains unchanged. However, where a financial liability is designated as at fair value through profit or loss, the change in fair value attributable to changes in the liabilities credit risk shall be presented in other comprehensive income. This excludes situations where such presentation will create or enlarge an accounting mismatch, in which case, the full fair value adjustment shall be recognised in profit or loss.

The effective date of the standard is for years beginning on or after 1 January 2018.

The group expects to adopt the standard for the first time in the 2018 audited consolidated and separate financial statements.

It is unlikely that the standard will have a material impact on the company's audited consolidated and separate financial statements.

IFRS 10, IFRS 12 and IAS 27 - Investment Entities

The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments in its consolidated and separate audited consolidated and separate financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27.

The effective date of the amendments is for years beginning on or after 1 January 2014.

The group expects to adopt the amendments for the first time in the 2014 audited consolidated and separate financial statements.

It is unlikely that the amendment will have a material impact on the company's audited consolidated and separate financial statements.

3.

Segmental information

The Group is currently operating the Lace Diamond Mine. This operation is located in the northern part of the Free State province in South Africa, 200 kilometres from Johannesburg, 30 kilometres from Kroonstad and 30 kilometres from Viljoenskroon. The Lace Diamond Mine operation is treated as a single operation with the corporate head office and other subsidiaries reported separately, including consolidation entries.

2013

Separately disclosable items

Total other income

EBITDA

Depreciation and amortisation

Interest income

Interest expense

Taxation

£

£

£

£

£

£

Lace Diamond Mine

13,645

(911,232)

-

39,012

-

-

All other segments

204,825

(1,043,956)

(19,817)

135

(55,004)

-

Total

218,470

(1,955,188)

(19,817)

39,147

(55,004)

-

Reconciling items

Fair value adjustments

(619,042)

Loss after tax

(2,609,904)

2012

Separately disclosable items

Total Other Income

EBITDA

Depreciation and amortisation

Interest income

Interest Expense

Taxation

£

£

£

£

£

£

Lace Diamond Mine

-

(201,760)

(503,391)

24,045

-

-

All other segments

15,834

(2,475,321)

(166,265)

1,541

168,968

-

Total

15,834

(2,677,081)

(669,656)

25,586

168,968

-

Reconciling items

Fair value adjustments

(44,821)

Loss after tax

(3,534,940)

Segment assets and liabilities

The amounts provided to the Chief Executive Officer with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

2013

Additions to non-current assets

Total assets

Lace Diamond Mines

7,736,774

17,813,845

All other segments

2,891

5,466,000

Total

7,739,665

23,279,845

2012

Additions to non-current assets

Total assets

Lace Mines Diamond

951,284

9,310,270

All other segments

5,480

8,884,301

Total

956,764

18,194,571

4.

Property, plant and equipment

2013

2012

Group

Cost / Valuation

Accumulated depreciation/ amortisation/ exchange differences

Carrying valut

Cost / valuation

Accumulated depreciation/ amortisation/ exchange differences

Carrying value

£

£

£

£

£

£

Land & Buildings

863,020

(191,071)

671,949

796,573

(197,001)

599,572

Plant and machinery

6,898,130

(3,355,700)

3,542,430

7,307,782

(3,719,464)

3,588,318

Mining Rights

565,493

(169,648)

395,845

610,067

(152,516)

457,551

Construction in Progress

12,602,367

(2,320,368)

10,281,999

7,120,133

(2,989,301)

4,130,832

Total

20,929,010

(6,036,787)

14,892,223

15,834,555

(7,058,282)

8,776,273

2013

2012

Company

Cost / Valuation

Accumulated depreciation/ amortisation/ exchange differences

Carrying valut

Cost / valuation

Accumulated depreciation/ amortisation/ exchange differences

Carrying value

£

£

£

£

£

£

Mining Rights

396,343

(118,903)

277,440

396,343

(99,085)

297,258

Plant and machinery includes mining fleet, processing plant, office equipment and motor vehicles which were previously separately classified. The property, plant and equipment is pledged as security for the Convertible Bonds (note 16).

However, once the Industrial Development Corporation of South Africa Limited ("IDC") loan is drawn down in whole or in part, the Bondholders security interest in these assets will be subordinated to the security interest of the IDC (note 17).

On 1 January 2012, a decision was taken that the mining property is economically feasible therefore all previous exploration and evaluation and pre-production development expenditure has now been capitalised within property, plant and equipment under construction in progress and has been transferred from intangible assets, and is still under development.

5.

Goodwill

The goodwill relates to the acquisition of DiamondCorp Holdings Limited.

The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group has one reportable business segment and all goodwill is associated with that segment. The recoverable amounts of the cash generating unit ("CGU") are determined from discounted cash flows to estimate fair value less cost to sell. The key assumptions for the discounted cash flow calculations are those regarding the discount rates, production, resources and expected changes to selling prices and direct costs during the period. A post tax discount rate of 15% has been used.

The Group's test for impairment is based on several considerations including a model adopted by management from the model prepared for the Lace Mine by one of its technical advisors. This model uses grade assumptions based on the resource statement of the Group's technical advisor and it uses diamond prices considered representative of market prices. The model assumes that the Lace mine will reach full production of 1,200,000 tonnes of kimberlite in 2015 and run through 2040. The valuations of the Lace Mine generated by the Model under variable sets of assumptions as to grades, revenues and costs indicate that there has been no impairment of goodwill during the year. Management have considered the key assumptions to be reasonable. A reasonable possible change in a key assumption would not lead to an indicator of impairment of the cash generating unit which contains goodwill.

6.

Interests in subsidiaries including consolidated structured entities

The following table lists the entities which are controlled by the company, either directly or indirectly through subsidiaries.

Subsidiaries with material non-controlling interests The following information is provided for subsidiaries with non-controlling interests which are material to the reporting company. The summarised financial information is provided prior to intercompany eliminations

7.

Loans to group companies

The Directors consider that the carrying amount of these assets approximates their fair value. All receivable balances are non-interest bearing. The loan at the end of the year is in terms of agreement not repayable within the next 12 months.

Credit quality of loans to group companies

The credit quality of loans to group companies is neither past nor due. The loan has an unrated credit rating. The loan has been impaired to the extent that the liabilities of the subsidiary exceeds its assets. The company has subordinated as much of its loan as is required to support its subsidiary in this position.

Credit quality of loans to group companies

The credit quality of loans to group companies that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

8.

Deferred tax

Deferred tax asset

Until it is probable that sufficient taxable profits will be available to allow the entire or partial recovery of potential deferred tax assets of £2,773,590 (2012: £2,259,551), the accounting benefit of tax losses will not be reflected in the accounts. The Group's tax losses have no expiry date.

Due to the Group's accumulated loss position, there are no temporary differences associated with investments in the Group's subsidiaries.

9.

Other non-current asset

Contributions to an insurance policy to cover future environmental rehabilitation and closure cost.

10.

Inventories

Diamond inventories at 31 December 2013 totalled 7,675 carats. Of these, 2,189 carats were recovered from bulk testing and the balance, 5,486 carats, from tailings. Inventory is valued as per the accounting policy. No inventories were recognised as an expense during the year. There were no write down of inventories (2012: £275,561) or any reversal of inventory write downs during the year.

11.

Trade and other receivables

The Directors consider that the carrying amount of these assets approximates their fair value. All receivables balances are non-interest bearing.

Credit quality of trade and other receivables

The credit quality of trade and other receivables that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

Trade and other receivables past due but not impaired

Trade and other receivables which are less than 3 months past due are not considered to be impaired. At 31 December 2013, £ - (2012: £ -) were past due but not impaired.

12.

Cash and cash equivalents

The restricted cash above form the basis of a guarantee issued by the financial institution, where the cash is held, in favour of the Department of Mineral Resources providing for the original determined cost of environmental rehabilitation and decommissioning on termination of the Lace project.

In terms of an agreement the group's right, title and interest in and to the debit balances have been encumbered for the benefit of the bond holders as referred to note 16.

Credit quality of cash at bank and short term deposits, excluding cash on hand

The credit quality of cash at bank and short term deposits, excluding cash on hand that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or historical information about counterparty default rates:

13.

Share capital

AUTHORISED

DiamondCorp plc does not have an authorised share capital, in line with the provisions of the UK Companies Act 2006.

The Directors' authority to issue and allot shares in the company is set each year by Company's shareholders at the Annual General Meeting. The level of disapplication in respect of pre-emption authority is determined by the Company's Nominated Adviser and is based on UK corporate governance guidlines for AIM companies.

ISSUED

-

In October 2012, the Company issued 28,571,430 ordinary shares at 3.5 pence each. The cost associated with the issuance of these shares has been charged to the share premium account.

-

Existing ordinary shares were sub-divided into one new ordinary share of 0.1 pence each ("New Ordinary Share") and one deferred ordinary share of 2.90 pence each (Deferred Ordinary Share). As at year end each ordinary share holder held the same number of ordinary shares and deferred ordinary shares.

-

The New Ordinary Shares continue to carry the same rights and benefits as those attached to the Company's existing ordinary shares (save for the reduction in nominal value). The number of New Ordinary Shares in issue following the Share Capital Reorganisation is identical to the number of existing ordinary shares in issue immediately prior to the Share Capital Reorganisation.

-

The Deferred Ordinary Shares do not entitle the holders to (a) receive notice of or attend and vote at any general meeting of the Company; (b) to receive any dividend or other distribution; or (c) to participate in any return on capital on winding up, other than the nominal amount paid on such shares following a substantial distribution of ordinary shares in the Company.

-

The Deferred Ordinary Shares are effectively valueless, non-transferable and have no effect on the economic interest of the Shareholders.

-

In January 2013, 4,500,000 ordinary shares at 5 pence each were issued to a director and certain employees for successful completion of the project financing to fund the development of Lace mine.

-

In April 2013, 1,500,000 ordinary shares at 3.5 pence each were issued to a financial advisor in respect of a success fee for introducing Laurelton Diamonds Inc., a wholly owned subsidiary of Tiffany & Co.

14.

Share based payments

Equity-settled share option scheme

The Company has a share option scheme for all employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company's shares on the date of grant. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are generally forfeited if the employee leaves the Group before the options vest.

Details of the share options outstanding during the year are as follows.

At 31 December 2013, 8,345,000 (2012: 6,345,000) options were outstanding at a weighted average exercise price of 13p (2012: 15p), and a weighted average remaining contractual life of 5.4 years (2012: 6.5 years).

During 2013, the Group recognised an expense of £86,895 (2012 - £10,170) relating to equity-settled share-based payment transactions. The Group also recognised an expense of £225,000 in 2013 relating to shares issued to employees in lieu of bonus payments, bringing the total share based payments expense for the Group to £311,895.

During 2007, options over 2,940,000 ordinary shares of 3 pence each were granted to employees and management of the Company, exercisable at 135 pence for a period of 10 years from the date of issue.

270,000 of these options vested on grant date and the balance vest over 3 years at one-third at each anniversary of the issue date. 690,000 of these options were forfeited during 2008 by reason of retirement and 120,000 options were forfeited in 2009.

Share options granted during the year ended 31 December 2007 were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed in the table above:

At 31 December 2013, 2,130,000 options were outstanding under this plan (2012 - 2,130,000).

The DiamondCorp Share Option Plan ("DCP Plan")

During 2008, a share option plan was approved and registered in the Republic of South Africa to provide eligible employees of the Group with the opportunity to acquire as an incentive an interest in the equity of the Company. Eligible employees were granted options over 695,000 ordinary shares of 3 pence each, exercisable at 50 pence for a period of 10 years from the date of issue, 16 December 2008. These options vest over 3 years at one-third at each anniversary of the issue date. During 2009, a further 200,000 options were granted under this plan and 340,000 options were forfeited.

These options were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed in the table above.

In August 2010, the exercise price of these options was adjusted to 21 pence. All other conditions remain unchanged. At 31 December 2013, the number of options outstanding under this plan was 555,000 (2012 - 555,000).

2010 Option Plan ("2010 Plan")

During 2010, options over 4,570,000 ordinary shares of 3 pence each were granted to employees and management of the Company, exercisable at 12 pence each for a period of 10 years from the date of issue. These options vest over 3 years at one third on each anniversary of the date of issue, subject to the share price of the Company attaining and trading at or above 17 pence for a period of 3 consecutive months.

These options were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed above.

During the year ended 31 December 2010, 660,000 options expired.

During the year ended 31 December 2011, 250,000 option expired.

During 2012 the exercise price of these options was adjusted to 5 pence. All other conditions remain unchanged. At 31 December 2013, 3,660,000 options were outstanding under this plan (2012 - 3,660,000).

2013 Option Plan ("2013 Plan")

During 2013, options over 2,000,000 ordinary shares of 0.10 pence each were granted to Mr. EA Worthington, exercisable at a price of 5 pence each for a period of 5 years from the date of issue. The 2,000,000 options vest immediately.

These options were valued by the Directors using the Black-Scholes valuation model, based upon the assumptions as detailed above.

At 31 December 2013, 2,000,000 options were outstanding under this plan.

15.

Warrant Reserve

Darwin Warrants

In respect of agreeing to provide a standby equity finance facility of up to £10,000,000 which can be drawn upon at the Company's discretion during a period of 36 months ending on 18 October 2015, the Company has granted 5,000,000 warrants to Darwin Strategic Limited a unit of Henderson Global Investors which are exercisable at 9p on or before 18 October 2015.

These warrants were valued by the Directors using the Black-Scholes valuation model, based on the assumptions as detailed below.

UK Bonds

On 14 December 2012, the Company, issued £1,410,000 14% senior secured bonds (the "UK Bonds") to investors in the United Kingdom. The proceeds of the UK Bonds was held in escrow and released from escrow upon completion of a loan agreement between Diamondcorp Holdings Limited, an associated company, and Laurelton Diamonds Inc. The UK Bonds are due for repayment 14 December 2018 with interest payable quarterly in arrears, with the first 24 months of interest on the UK Bonds to be accumulated and added to the principal amount to be repaid. Bondholders can request conversion of the UK Bonds and outstanding interest at any time after 24 January 2013. Any request for conversion can be settled at the absolute discretion of the Company with ordinary shares at 5.80 pence per share or the cash equivalent of the number of underlying shares multiplied by the share price at the time of conversion. The UK Bonds are secured by the assets of the Company and have a reversionary interest in the assets of Lace Diamond Mines (Pty) Limited. £250,000 of the UK Bonds were taken up by directors of the Company or other related parties (see note 28).

SA Bonds

On 14 December 2012, Soapstone Investment Ltd ("Soapstone"), wholly-owned subsidiary of the Company, issued ZAR 40,000,000 14% senior secured bonds (the "SA Bonds") to investors in South Africa. The proceeds of the SA Bonds was held in escrow and released from escrow upon completion of a loan agreement between Diamondcorp Holdings Limited, a subsidiary company, and Laurelton Diamonds Inc. The SA Bonds are due for repayment 14 December 2018 with interest payable quarterly in arrears, the first payment being 14 March 2013. The first two years of interest will be held in escrow to be paid on the quarterly interest dates. Bondholders can request conversion of the SA Bonds and outstanding interest at any time after 24 January 2013. Any request for conversion can be settled at the absolute discretion of the Company with ordinary shares at ZAR 0.81 per share or the cash equivalent of the number of underlying shares multiplied by the share price at the time of conversion. The SA Bonds are secured by the assets of Soapstone and have a reversionary interest in the assets of Lace Diamond Mines (Pty) Limited. The SA Bond is also secured by way of a financial guarantee provided by DiamondCorp plc.

Fair Value

Refer to note 31 for the valuation techniques and assumptions applied for the purposes of measuring fair value.

17.

Other financial liabilities

IDC Loan

On 20 September 2012, Lace Diamond Mines (Pty) Ltd ("Lace"), a 74% owned subsidiary of the Company, entered into an agreement with the Industrial Development Corporation of South Africa Limited ("IDC") whereby IDC will provide a project loan facility of ZAR 220,000,000. The term of the loan is 7 years from the initial drawdown date which was 14 August 2013 with an interest rate of South Africa Prime Rate + 2%. Interest will be capitalised for two years, subject to a maximum of ZAR 20,141,000 and thereafter is payable semi-annually in arrears. The loan is repayable in 10 bi-annual payments of ZAR 24,014,000 commencing on the date that is 2 years after the initial drawdown date and every six months thereafter.

The IDC Loan is secured by a general charge over the assets of Lace. In addition there is a cession in favour of IDC of shares held by Lace's shareholders and of loans to Lace by shareholders and associated companies. The initial drawdown was conditional on ZAR100,000,000 having been advanced to Lace by shareholders and associated companies after 20 September 2012.

Loan from Laurelton Diamonds Inc

On 4 January 2013 DiamondCorp Holdings Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Laurelton Diamonds Inc ("Laurelton") whereby Laurelton will provide a Lace project loan facility of $6,000,000 in total. The terms of the loan are 8 years, an interest rate of 9% per annum. Interest from the initial drawdown date will be capitalised for 3 years and the interest accrued will be added to the loan balance.

The loan is repayable in 30 quarterly payments of $463,298 commencing on the date 3 years after the initial drawdown date and every quarter thereafter. This loan is further secured by a guarantee from DiamondCorp plc and a third ranking bond over the assets of Lace Diamond Mines (Pty) Ltd.

Financial Guarantee Contract

DiamondCorp plc has provided a financial guarantee to the Bondholders of the SA Bond, guaranteeing any amounts due under the SA Bond agreement by its wholly-owned subsidiary, Soapstone Investment Ltd. This financial guarantee meets the definition of a financial guarantee contract under IAS 39, Financial Instruments: Recognition and Measurement. In accordance with IAS 39, the financial guarantee contract must be recognised initially at fair value. The fair value of the financial guarantee contract has been determined to be £455,000 and this amount has been recorded as a financial liability on the Company's balance sheet, with a corresponding increase in the cost of its investment balance.

Based on expectations at the end of the reporting period, the Company considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses.