4th Mar 2008 07:00
Diamondcorp Plc04 March 2008 4 March 2008 DiamondCorp plc('DiamondCorp', 'DCP' or 'the Company') Audited Results for the period ended 31 December 2007 DiamondCorp plc (AIM:DCP), the South African diamond mine development andexploration company, releases its audited results for the period ended 31December 2007. Highlights for 2007 - Completion of a 1.6 million tonne per annum dense media separation plant and commissioning of Phase One tailings retreatment operation at the Lace mine in the Free State Province of South Africa. - Total diamond recoveries of 25,266 carats, of which 15,976 carats were produced post-commissioning of the processing plant. - Diamond quality exceeds management's expectations, including a significant proportion of fancy coloured stones. - Initial revenue of £74,795 from 4,454 carats of diamonds sold late in the year. Gross loss on this production was £114,608 which is not representative of steady state production, but was due to operational problems related to South African power outages, weather-related processing problems and an extended mechanical breakdown in the recrush circuit. - Net Loss for the year was £2,101,251, including non-cash items of £790,329 (net £1,310,922). The loss included some one off charges associated with the Company's IPO. - Accelerated development plan formulated to bring Phase Two underground mining into production in the second half of 2008, more than 12 months ahead of schedule. - Snowden Mining Industry Consultants Pty Ltd completed a Scoping Study on the accelerated development plan which validated management's proposal. Post Period Highlights - Most of the operational issues which hampered production late in 2007 have largely been overcome and February was a record month in terms of tailings throughput. - Management worked with Investec Bank Limited on an inward listing of the Company's shares on the main board of the JSE Limited which is expected to be completed in March. Chairman's Statement I am pleased to say that 2007 was the year that your Company joined the ranks ofdiamond producers as its 74% owned South African subsidiary began recoveringgems from the Lace Mine tailings dumps. The last time that Lace produceddiamonds was in 1931. It is also gratifying to report our first revenues fromthe sales of diamonds in the second half of the year. At the end of September we commissioned the 1.6 million tonne per annum densemedia separation plant at Lace, near Kroonstad, some 200km southwest ofJohannesburg. During the commissioning process and the three months followingcommissioning, 320,045 tonnes of tailings were treated for the recovery of25,266 carats of diamonds including a 17.72 carat stone and a 13.81 carat stone.It was exciting to recover these large stones in material that had been treatedpreviously and perhaps even more thrilling to recover a significant proportionof fancy yellow stones, numerous vivid purples and one small intense bluediamond. A large proportion of stones recovered have been of gem quality andprices received from our three tenders at the Johannesburg Diamond Bourse havebeen in line with expectations. These results all give us an insight into whatwe can expect when we start underground mining in Phase Two of the Lace minere-development. An underground ramp is well advanced towards the primary kimberlite and we areon target to take a bulk sample from there in the third quarter of this year andsubject to receiving all the necessary permits, we will then start treating orefrom underground before the end of the year. With the addition of crushingcapacity, this ore will be treated through the existing plant in a batchsequence with the tailings. Phase Two of operations at Lace will then have beenbrought forward by 12 months. It would be wrong for me to paint too bright a picture of progress in 2007 andplans for this year, as there have been commissioning problems with the plant,while particularly high rainfall has hampered the movement of tailings and inparticular power cuts by Eskom have caused lost production. We believe that wehave now resolved problems with the crusher and have agreed with Eskom to accessa new source of power for Lace from the dedicated power line supplying thenearby Voorspoed Diamond Mine being developed by De Beers. This supply shouldcome on line within the next six months and will provide Lace with all the powerit requires for the Phase Two underground operation. In the short term, Lace isstill at the mercy of Eskom and South Africa's power problems but by mid year weshould have access to two separate electricity supplies from different areas ofthe Free State. The problems in 2007 which seriously impacted the mining rate and diamondrecoveries combined with the extended mechanical failure of the crusher resultedin the Group incurring a Gross Loss of £114,608 for the year. Net Loss for theyear was £2,101,251, including all non-cash items from the operating section ofthe consolidated cashflow statement with the exception of working capitalmovements in receivables, inventories and payables of £1,075,175 (net £981,076).This loss also included some one off charges associated with the Company's IPOand is not representative of steady state production. Having established the tailings operation, Alistair Holmes, Managing Director ofLace Diamond Mines who had been with us from the start and was a great source ofknowledge on the local diamond mining industry retired to Australia. We are verygrateful to him for bringing the Lace opportunity to us and bringing the projectto fruition. I am pleased to report that Paul Sharples who joined us in July hastaken up where Alistair left off and is doing an excellent job under testingconditions. Employees at Lace now total over 100, we are well established in thecommunity and are fully compliant with South Africa's Black Economic Empowermentregulationst. In my report last year, I talked about the Directors seeking a dual listing forthe Company's shares on the AltX market of the Johannesburg Stock Exchange(JSE). However, with further investigation, we were advised that bettervisibility and marketability could be obtained by a full listing on the JSE andwe appointed Investec to process our application. This should be completed inthe next few weeks. After that and when market conditions improve, we are likelyto issue a tranche of new shares to South African investors to enhance liquidityand provide capex for underground mine development and a milling circuit in theprocessing plant. We are continually seeking opportunities to build your Company and in August,entered an option Agreement to acquire the private diamond mining Group Sonopwhich is the largest privately owned diamond producer in South Africa. Thiswould have been a significant move by your Company. As you know, our shares weresuspended on AIM since it was viewed as a reverse takeover. In the event, Sonop's new operations on the Middle Orange River failed to reach the conditions thatwe set in our Agreement and we decided not to proceed with the acquisition. Management completed reviews and due diligence on a number of other potentialdiamond projects in southern Africa including acquisitions and joint ventures.None of these have currently met the Company's targets for scalability orprofitability and we will not build DiamondCorp on projects which do not addvalue. We continue to evaluate all opportunities. Our focus to date has been on bringing the Lace mine into production but theCompany also has a number of diamond exploration targets in our current leasearea which we will begin to review when free cashflow is available fromoperations. I would like to thank all our management and employees for successfully bringingthe Lace mine back into production after so many years. Their hard work puts theCompany in a strong position for an exciting future. Euan WorthingtonChairman29 February 2008 Enquiries: Diamondcorp plc Paul Loudon 020 7256 2651 Managing Director and CEO Cenkos Securities plc Joe Nally/Ivonne Cantu 020 7397 8900 Investec Bank Limited Robert Smith/Cindy Stoutjesdyk +27 11 286 7662 Conduit PR Jane Stacey/Arabella Hobbs 020 7429 6606/+44 792 292 3306 CONSOLIDATED INCOME STATEMENT Note 1 January 16 May 2006 2007 to 31 to 31Year ended 31 December 2007 December December 2007 2006 £ £ Revenue 74,795 -Cost of sales (189,403) - GROSS LOSS (114,608) - Administrative expenses (2,054,135) (813,191) OPERATING LOSS 3 (2,168,743) (813,191)Investment revenues - interest on bank deposits 112,492 14,145 LOSS BEFORE TAX (2,056,251) (799,046)Tax 7 (45,000) - LOSS FOR THE FINANCIAL PERIOD 17 (2,101,251) (799,046) ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT (2,101,251) (799,046) BASIC LOSS PER SHARE 8 (6.27p) (4.50p)HEADLINE LOSS PER SHARE (6.26p) (4.50p) All of the activities of the Group are classed as continuing. CONSOLIDATED BALANCE SHEET 31 December 2007 2007 2006 Note £ £ NON-CURRENT ASSETSGoodwill 9 4,606,026 4,606,026Other intangible assets 9 1,445,567 1,110,530Property, plant and equipment 10 4,958,689 3,421,081 11,010,282 9,137,637 CURRENT ASSETSInventories 12 986,049 1,052,000Other receivables 13 136,495 259,754Cash and cash equivalents 22 1,330,707 2,822,089 2,453,251 4,133,843 TOTAL ASSETS 13,463,533 13,271,480 CURRENT LIABILITIESConvertible Loan Notes 15 - (3,666,000)Other payables 14 (198,609) (587,125) TOTAL LIABILITIES (198,609) (4,253,125) NET ASSETS 13,264,924 9,018,355 EQUITYShare capital 17 1,043,112 742,112Share premium account 18 14,116,306 8,534,095Warrant reserve 18 740,949 641,667Share option reserve 18 282,790 -Translation reserve 18 82,537 -Retained losses 18 (3,000,770) (899,519) TOTAL EQUITY 13,264,924 9,018,355 COMPANY BALANCE SHEET 31 December 2007 2007 2006 Note £ £ NON-CURRENT ASSETSInvestments in subsidiaries 11 4,217,500 4,217,500Other intangible assets 9 396,343 393,653Equipment 10 - 3,322 4,613,843 4,614,475CURRENT ASSETSOther receivables 13 8,759,826 7,412,307Cash and cash equivalents 1,265,368 1,093,058 10,025,194 8,505,365 TOTAL ASSETS 14,639,037 13,119,840 CURRENT LIABILITIESConvertible Loan Notes 15 - (3,666,000)Other payables 14 (64,193) (65,515) TOTAL LIABILITIES (64,193) (3,731,515) NET ASSETS 14,574,844 9,388,325 EQUITYShare capital 17 1,043,112 742,112Share premium account 18 14,116,306 8,534,095Warrant reserve 18 740,949 641,667Share option reserve 18 282,790 -Retained losses 18 (1,608,313) (529,549) TOTAL EQUITY 14,574,844 9,388,325 STATEMENT OF CHANGES IN EQUITY 1 January 16 May 2006 2007 to 31 to 31Year ended 31 December 2007 December December 2007 2006 £ £ GROUP Opening balance 9,018,355 6,923,709Loss for financial period (2,101,251) (799,046)New equity share capital subscribed 301,000 367,110Premium on new equity share capital subscribed 5,582,211 4,529,382Value attributed to warrants granted 99,282 -Value attributed to share options granted 282,790 -Translation reserve 82,537 -Value of shares reserved for issuance (issued) - (2,002,800) Closing balance 13,264,924 9,018,355 COMPANY 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006 £ £ Opening balance 9,388,325 6,923,709Loss for financial period (1,078,764) (429,076)New equity share capital subscribed 301,000 367,110Premium on new equity share capital subscribed 5,582,211 4,529,382Value attributed to warrants granted 99,282 -Value attributed to share options granted 282,790 -Value of shares reserved for issuance (issued) - (2,002,800) Closing balance 14,574,844 9,388,325 CONSOLIDATED CASH FLOW STATEMENT 1 January 16 May 2006 2007 to 31 to 31Year ended 31 December 2007 December December 2007 2006 £ £ Operating loss (2,168,743) (813,191)Depreciation and amortisation 297,954 29,018Amortisation of inventories 72,264 -Share option expense 282,790 -Other non-cash movements 49,159 -Loss on disposal of property plant and equipment 3,322 -Provision for loss on diamond inventories 84,737 -Decrease (increase) in receivables 123,259 (117,100)Increase in inventories (231,284) -(Decrease) increase in payables (433,516) 559,613Effect of foreign exchange translation 284,849 - NET CASH USED IN OPERATING ACTIVITIES (1,635,209) (341,660) INVESTING ACTIVITIESPurchase of intangible assets (461,043) (470,203)Purchase of property, plant and equipment (1,740,069) (3,366,073)Interest received 112,492 14,145 NET CASH USED IN INVESTING ACTIVITIES (2,088,620) (3,822,131) FINANCING ACTIVITIESProceeds on issue of convertible loan notes - 3,666,000Proceeds on issue of ordinary shares 2,267,335 2,893,692 NET CASH FROM FINANCING ACTIVITIES 2,267,335 6,559,692 NET DECREASE IN CASH AND CASH EQUIVALENTS (1,456,494) 2,395,901 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,822,089 426,188Effect of foreign exchange rate changes (34,888) - CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,330,707 2,822,089 COMPANY CASH FLOW STATEMENT 1 January 16 May 2006 2007 to 31 to 31Year ended 31 December 2007 December December 2007 2006 £ £ Operating loss (1,159,521) (429,076)Share option expense 282,790 -Other non-cash movements 49,159 -Loss on disposal of property plant and equipment 3,322Increase in receivables (1,347,520) (5,352,781)Decrease/increase in payables (1,322) 42,811 NET CASH USED IN OPERATING ACTIVITIES (2,173,092) (5,739,046) INVESTING ACTIVITIESPurchase of intangible assets (2,690) (93,653)Purchase of equipment - (3,322)Interest received 80,757 - NET CASH FROM (USED IN) INVESTING ACTIVITIES 78,067 (96,975) FINANCING ACTIVITIESProceeds on issue of convertible loan notes - 3,666,000Proceeds on issue of ordinary shares 2,267,335 2,893,692 NET CASH FROM FINANCING ACTIVITIES 2,267,335 6,559,692 NET INCREASE IN CASH AND CASH EQUIVALENTS 172,310 723,671 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,093,058 369,387 CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,265,368 1,093,058 NOTES TO THE FINANCIAL INFORMATION Year ended 31 december 2007 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES General information DiamondCorp Plc is a Company incorporated in England and Wales under theCompanies Act 1985. The address of the registered office is given on page 1. Thenature of the Group's operations and its principal activities are set out in theDirectors' report on page 7. These financial statements are presented in pounds sterling because that is thecurrency of the parent Company of the Group. Foreign operations are included inaccordance with the policies set out in this note. a) Adoption of new and revised International Financial ReportingStandards In the current year, the Group has adopted IFRS 7 Financial Instruments:Disclosures which is effective for annual reporting periods beginning on orafter 1 January 2007, and the related amendment to IAS 1 Presentation ofFinancial Statements. The impact of the adoption of IFRS 7 and the changes toIAS 1 has been to expand the disclosures provided in these financial statementsregarding the Group's financial instruments and management of capital (see note19). At the date of authorisation of these financial statements, the followingstandards and interpretations were in issue but not yet effective: IFRS8: Operating segments Amendments to IAS 1: Presentation of financial statement - A revisedpresentation Amendments to IAS 23: Borrowing costs IFRIC 11: IFRS 2: Group and treasury share transactions IFRIC 12: Service concession arrangements IFRIC 13: Customer loyalty programmes IFRIC 14: IAS 19 The limit on a defined benefit asset, minimum fundingrequirements and their interaction The Directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group. b) Basis of preparation Diamondcorp plc was incorporated on 22 March 2005. On 15 May 2006 the Companyacquired the entire issued share capital of Crown Diamond Mining Limited whichchanged its name to Diamondcorp Holdings Limited in 2007(DHL) - see note 10. DHLowns 74% of the issued share capital of Lace Diamond Mines (Pty) Limited. The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards. The financial statements have been prepared onthe historical cost basis. The financial statements have also been prepared inaccordance with IFRSs adopted by the European Union and therefore the Groupfinancial statements comply with Article 4 of the EU IAS Regulation. Theprincipal accounting policies adopted are set out below. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) c) Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Controlis achieved where the Company has the power to govern the financial andoperating policies of an investee entity so as to obtain benefits from itsactivities. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the Group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination (seebelow) and the minority's share of changes in equity since the date of thecombination. Losses applicable to the minority in excess of the minority'sinterest in the subsidiary's equity are allocated against the interests of theGroup except to the extent that the minority has a binding obligation and isable to make an additional investment to cover the losses. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-Group transactions, balances, income and expenses are eliminated onconsolidation. d) Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 "Business Combination" are recognised attheir fair value at the acquisition date, except for non-current assets (ordisposal Groups) that are classified as held for resale in accordance with IFRS5 "Non-Current Assets held for Sale and Discontinued Operations" which are notrecognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised. e) Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, at the date of acquisition. Goodwill isinitially recognised as an asset at cost and is subsequently measured at costless any accumulated impairment losses. Goodwill which is recognised as an assetis reviewed for impairment at least annually. Any impairment is recognisedimmediately in profit or loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) f) Intangible assets Exploration and evaluation expenditure comprises costs which are directlyattributable to the acquisition of exploration licenses and subsequentexploration expenditures. Exploration and evaluation expenditure is carried forward as an asset providedthat one of the following conditions is met: (i) Such costs are expected to berecouped in full through successful development and exploration of the area ofinterest or alternatively, by its sale; (ii) Exploration and evaluationactivities in the area of interest have not yet reached a stage which permits areasonable assessment of the existence of economically recoverable reserves andactive and significant operations in relation to the area are continuing, orplanned for the future. Identifiable exploration and evaluation assets acquired are recognised as assetsat their cost of acquisition. An impairment review is performed when facts andcircumstances suggest that the carrying amount of the assets may exceed theirrecoverable amounts. Exploration assets are reassessed on a regular basis andthese costs are carried forward provided that at least one of the conditionsoutlined is met. Exploration rights are amortised over the useful economic lifeof the mine to which it relates, commencing when the asset is available for use. Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Capitalised pre-production expenditure includes costs incurred and capitalisedduring the plant construction phase which are intangible in nature. Thesecapitalised expenditures are being amortised over the life of the work inprogress, i.e. 24 months. Rights to use the Power Line are capitalised at their cost of acquisition andare being amortised over the useful economic life at a rate of 4% per annum. Underground exploration and evaluation expenditure will be amortised from thepoint at which it is available for use over its useful economic life, expectedto be 4% per annum. g) Property, plant and equipment Property, plant and equipment is stated at cost less any subsequent accumulateddepreciation and subsequent accumulated impairment losses. Depreciation is charged so as to write off the cost, less estimated residualvalue on assets other than land, over their estimated useful lives, using thereducing balance method, on the following bases: Plant 5%Buildings 4%Fixtures and equipment 20-30% The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in income. h) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto the present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset forwhich the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata re-valued amount, in which case the impairment loss is treated as arevaluation decrease. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) h) Impairment of tangible and intangible assets excluding goodwill(continued) Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a re-valued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. i) Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable losses for the period. Taxableloss differs from net loss as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifferences arise from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) j) Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables are measured at initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of estimated futurecash flows discounted at the effective interest rate computed at initialrecognition. Cash and cash equivalents Cash and cash equivalents comprises cash in hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Convertible loan notes Convertible loan notes are regarded as compound instruments, consisting of aliability component and an equity component. At the date of issue, the fairvalue of the liability component is estimated using the prevailing marketinterest rate for similar non-convertible debt. The difference between theproceeds of issue of the convertible loan notes and the fair value assigned tothe liability component, representing the embedded option to convert theliability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of theconvertible loan notes based on their relative carrying amounts at the date ofissue. The portion relating to the equity component is charged directly againstequity. The interest expense on the liability component is calculated by applying theprevailing market interest rate for similar non-convertible debt to theliability component of the instrument. The difference between this amount andthe interest paid is added to the carrying amount of the convertible loan note. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) k) Foreign currencies The individual financial statements of each Group Company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each Group Company are expressed in poundssterling, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are retranslated at the rates prevailing onthe date when the fair value was determined. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are not translated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in the profit and loss account for the period exceptfor differences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatedsignificantly during that period, in which case the exchange rates at the datesof the transactions are used. Exchange differences arising, if any, areclassified as equity and transferred to the Group's translation reserve. Suchtranslation differences are recognised in the income statement in the period inwhich the foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. l) Restoration, rehabilitation and environmental costs An obligation to incur restoration, rehabilitation and environmental costsarises when environmental disturbance is caused by the development or ongoingproduction of a mining property. Such costs arising from the installation ofplant 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 theobligation to incur such costs arises. These costs are charged against profitsover the life of the operation, through the depreciation of the asset and theunwinding of the discount on the provision. Costs for restoration of subsequentsite damage which is created on an ongoing basis during production are providedfor at their net present values and charged against profits as extractionprogresses. Changes in the measurement of a liability relating to the decommissioning ofplant or other site preparation work that result from changes in the estimatedtiming or amount of the cash flow, or a change in the discount rate, are addedto, or deducted from, the cost of the related asset in the current period. If adecrease in the liability exceeds the carrying amount of the asset, the excessis recognised immediately in the income statement. If the asset value isincreased and there is an indication that the revised carrying value is notrecoverable, an impairment test is performed in accordance with the accountingpolicy above. 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) m) Inventories Inventory and work in progress are valued at the lower of cost and netrealisable value. Work in progress was valued at the time of acquisition at £2.84 per carat basedon an in situ valuation equivalent to 8% of the market value of US$63 per caratachieved at a sale of Lace project diamonds in May 2005. The number of carats ininventory (370,285 carats) was based on an expert determination provided to theCompany by a qualified external valuer. Work in progress is being amortized onthe units of production method. n) Revenue Revenue from the sale of diamonds is recorded when the diamonds are sold attender. The Lace plant was commissioned on 1 October 2007. The net proceeds fromthe sale of diamonds recovered prior to that date have been recorded as areduction in the carrying value of the pre-production expenses held withinintangible assets. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying value. o) Critical accounting judgements In the process of applying the Group's accounting policies, which are describedabove, the Directors have made the following judgements that have the mostsignificant effect on the amounts recognised in the financial information. - Valuation of inventory - see accounting policy m) above. - Valuation of warrants issued and ordinary shares issued asconsideration - see notes 17 and 18. In addition, the Directors have considered the following key sourcesof estimation uncertainty: - An issue exists between the Company and the Department of Mines andEnergy (DME) over whether or not a Mining Right is required for Phase Onetailings retreatment. The Company's legal advice is that processing of tailingsdumps do not fall within the ambit of the Mineral and Petroleum ResourcesDevelopment Act 28 of 2002 and does not require a mining right or a miningpermit. The view held by the Company and its legal advisers was upheld by theHigh Court of the Orange Free State Provincial Division in December 2007 in acase between the DME and De Beers in relation to diamond tailings dumps atJagersfontein1. 2. business and geographical segments For management purposes, the Group has one business and geographical segment -diamond mining and exploration in the Republic of South Africa. 3. OPERATING LOSS 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006 £ £Operating loss is after chargingAuditors' remuneration- as auditors 65,000 45,000Foreign exchange losses 324,931 22,494Depreciation of tangible assets 289,821 29,018Amortisation of intangible assets 8,133 -Amortisation of work in progress 72,264 - The analysis of auditors' remuneration is as follows:Fees payable to the Company's auditors for the audit of Company'saccounts 34,000 25,000Fees payable to the Company's auditors and their associates for otherservices to the Group 10,000 -The audit of the Company's subsidiaries* 21,000 20,000 Total audit fees 65,000 45,000 Corporate finance services 15,000 120,000 Total non-audit fees 15,000 120,000 TOTAL 80,000 165,000 *Nkonki Inc performed the audit of Lace Diamond Mines (Pty) Limited for theperiod 16 May 2006 to 31 December 2006. 4. STAFF COSTS Staff costs of the Group and Company were: 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006Group £ £ Wages and salaries 175,364 107,409Social Security Costs 35,983 17,930 211,347 125,339 Average number of employees 14 7 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006Company Wages and salaries 120,913 65,545Social Security Costs 15,900 6,491 136,813 72,036 Average number of employees 4 3 5. DIRECTORS' EMOLUMENTS Directors' emoluments for the year ended 31 December 2007 and for the period 16May 2006 - 31 December 2006 and for the highest paid director were as follows: 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006 £ £Directors' remuneration Fees 208,000 91,333 Emoluments of highest paid director 151,000 75,000 6. LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY The loss dealt with in the financial statements of the parent Company was£1,078,764 (16 May 2006 to 31 December 2006 - £429,076) 7. Tax 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006 £ £ Current tax 45,000 -Deferred tax - - Tax expense for the period 45,000 - Until it is probable that sufficient taxable profits will be available to allowall or partial recovery of deferred tax assets of £520,453 (2006 - £269,856),the accounting benefit of tax losses will not be reflected in the accounts. The charge for the period can be reconciled to the loss per the income statementas follows: 1 January 16 May 2006 2007 to 31 to 31 December December 2007 2006 £ £ Loss for the period (2,056,251) (799,046) Tax at the UK corporation tax rate of 30% (616,875) (239,714)Tax losses carried forward 661,875 239,714 Tax expense for the period 45,000 - The tax charge for the year relates to interest earned by Soapstone Investments(Pty) Limited on an intercompany loan to Lace Diamond Mines (Pty) Limited. 8. LOSS PER SHARE a) Basic loss per share Basic loss per share is calculated by dividing the profit for the year by theweighted average number of shares in issue during the period. The weightedaverage number of shares used is 33,501,444 (2006 - 17,766,026). The prior yearweighted average number of shares has been restated to account for the reverseshare split on 30 June 2006 disclosed in note 17. b) Diluted loss per share International Accounting Standard 33 requires presentation of diluted earningsper share when a Company could be called upon to issues shares that woulddecrease the net profit or increase the net loss per share. For a loss makingCompany with outstanding options, net loss per share would only be increased bythe exercise of out-of-money options. Since it seems inappropriate to assumethat option holders would exercise out-of-money options, no adjustment has beenmade to diluted loss per share for out-of-money share options. c) Headline loss per share The Group presents an alternative measure of loss per share after excluding allcapital gains and losses from the loss attributable to ordinary shareholders.The impact of this is as follows: 2007 2006 BasicLoss per share (6.27p) (4.50p)Effect of loss on disposal of property, plant and equipment 0.01p - Adjusted loss per share (6.26p) (4.50p) 9. INTANGIBLE FIXED ASSETS For the year ended 1 January 2007 to 31 December 2007 Pre-production Under-ground MineralGroup capitalised capitalised development Goodwill Power line expenses expenses rights Total £ £ £ £ £ £CostAt 1 January 2007 4,606,026 - - - 1,110,530 5,716,556Regrouping intangible assets - 256,957 238,891 9,408 (505,256) -Exchange differences - 5,083 (127,345) 2,364 2,025 (117,873)Additions - 79,181 313,246 68,616 - 461,043 At 31 December 2007 4,606,026 341,221 424,792 80,388 607,299 6,059,726 Accumulated amortisationAt 1 January 2007 - - - - - -Charge for the year - (4,265) (3,868) - - (8,133) At 31 December 2007 - (4,265) (3,868) - - (8,133) Carrying amountAt 31 December 2007 4,606,026 336,956 420,924 80,388 607,299 6,051,593 Mineral develop-mentCompany rights £CostAt 1 January 2007 393,653Additions 2,690 At 31 December 2007 396,343 9. INTANGIBLE FIXED ASSETS (continued) For the period 16 May 2006 to 31 December 2006 Mineral develop-mentGroup Goodwill rights Total £ £ £Cost and carrying amountAt 16 May 2006 4,606,026 630,550 5,236,576Additions - 479,980 479,980 At 31 December 2006 4,606,026 1,110,530 5,716,556 Mineral develop-mentCompany rights £Cost and carrying amountAt 16 May 2006 300,000Additions 93,653 At 31 December 2006 393,653 Grouping of the intangible assets of the Group has changed from that of 31December 2006 for presentational purposes to improve understanding of underlyingbalances. The Group has been granted "New Order Prospecting Rights" in respect of twoproperties in the Free State of the Republic of South Africa: (i) Ruby 691 Farm, which covers an area of 1,180.6 hectares and in which is situated the historical workings of the Lace diamond mine; and (ii) Silverbank Farm, which covers an area of 4,407.6 hectares. In addition, the Group purchased the surface rights to Subdivision 1 of Ruby 691Farm which is 108.2 hectares in area. The Group tests annually for impairment of goodwill. The recoverable amounts ofthe cash generating unit ("CGU"), the mine, is determined from value in usecalculations. The key assumptions for the value in use calculations are thoseregarding the discount rates, growth rates and expected changes to sellingprices and direct costs during the year. Management estimates discount ratesusing pre-tax rates that reflect current market assessments of the time value ofmoney and the risks specific to the mine. The growth rates and selling pricesare based on information in the competent persons report. Having prepared impairment testing, no impairment has been identified, andtherefore no impairment loss has been recognised in either year. 10. property plant and equipment For the year ended 1 January 2007 to 31 December 2007 Group Land Other Mining and tangible Plant fleet buildings assets Total £ £ £ £ £CostAt 1 January 2007 2,655,794 672,581 73,484 48,240 3,450,099Additions 1,247,602 320,949 57,829 113,689 1,740,069Exchange differences 66,760 17,073 2,620 4,229 90,682Disposals - - - (3,322) (3,322) At 31 December 2007 3,970,156 1,010,603 133,933 162,836 5,277,528 Accumulated depreciationAt 1 January 2007 - (25,953) (242) (2,823) (29,018)Charge for the year (48,899) (207,491) (10,356) (23,075) (289,821) At 31 December 2007 (48,899) (233,444) (10,598) (25,898) (318,839) Carrying amountAt 31 December 2007 3,921,257 777,159 123,335 136,938 4,958,689 For the period 16 May 2006 to 31 December 2006 Group Land Other Mining and tangible Plant fleet buildings assets Total £ £ £ £ £CostAt 16 May 2006 - - 71,707 12,319 84,026Acquisition during period 2,655,794 672,581 1,777 35,921 3,366,073 At 31 December 2006 2,655,794 672,581 73,484 48,240 3,450,099 Accumulated depreciationAt 16 May 2006 - - - - -Charge for the period - (25,953) (242) (2,823) (29,018) At 31 December 2006 - (25,953) (242) (2,823) (29,018) Carrying amountAt 31 December 2006 2,655,794 646,628 73,242 45,417 3,421,081 10. property plant and equipment (continued) Grouping of the tangible assets of the Group has changed from that of 31December 2006 for presentational purposes. Comparative results were changedaccordingly. Other tangible assets now include vehicles and fixtures andequipment. Land and buildings, which were presented separately, have now beencombined. Company Fixtures and equipment £ Cost and carrying value at 1 January 2007 3,322Written off during the year (3,322) Carrying value at 31 December 2007 - Company Fixtures and equipment £ Cost and carrying value at 16 May 2006 -Additions 3,322 Cost and carrying value at 31 December 2006 3,322 11. INVESTMENT IN SUBSIDIARIES For the year ended 1 January 2007 to 31 December 2007Company £ Cost and carrying amountAt 1 January 2007 and 31 December 2007 4,217,500 For the period 16 May 2006 to 31 December 2006Company £ Cost and carrying amountAt 15 May 2006 and 31 December 2006 4,217,500 The investment represents 100% of the share capital of Crown Diamond MiningLimited ("CDM") which was acquired on 15 May 2006. CDM changed its name toDiamondCorp Holdings Limited in 2007 ("DHL") and is a Company registered in theBritish Virgin Islands. For a list of subsidiaries, please refer to note 21. 12. INVENTORIES 2007 2006Group £ £ Work in progress Cost and carrying amount at beginning of period 1,052,000 1,052,000 Effect of translation (137,840) - Impairment of inventories (84,737) - Amortisation (72,264) - Foreign exchange loss (2,394) - Carrying amount at end of period 754,765 1,052,000 Diamond inventories 198,758 -Consumable and other inventories 32,526 - 986,049 1,052,000 At 31 December 2007 diamond inventories amounted to 11,522 carats. 6,529 caratswere sold at tender on 30 January 2008 resulting in a write-down of £84,737. Theremaining 4,993 carats were carried at zero value in inventory. Work in progress was valued on acquisition at £2.84 per carat based on an insitu valuation equivalent to 8% of the market value of US$63 per carat achievedat a sale of Lace project diamonds in May 2005. The number of carats in work inprogress (370,285 carats) was based on an expert determination provided to theCompany by a qualified external valuer. Commissioning of the tailings plantoccurred on 1 October 2007. Amortisation of work in progress in the amount of£72,264, based on the units of production method, was recorded in 2007. 13. Other RECEIVABLES Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Receivables due from Group undertakings - - 8,749,747 7,410,469Prepayments and other receivables 136,495 259,754 10,079 1,838 136,495 259,754 8,759,826 7,412,307 The Directors consider that the carrying amount of these assets approximatestheir fair value. All other receivables balances are non-interest bearing. 14. OTHER PAYABLES Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Corporation tax 45,000 - - -Accruals and deferred income 153,609 587,125 64,193 65,515 198,609 587,125 64,193 65,515 The Directors consider that the carrying amount of these liabilitiesapproximates their fair value. All other payables balances are non-interestbearing. 15. CONVERTIBLE LOAN NOTE At 31 December 2006, a convertible loan note of £3,900,000 was in issue.Commission of 6% paid in respect of the placement was netted against theprincipal balance. The note converted automatically into ordinary shares of the Company attwo-thirds of the placing price upon admission of the Company to the AlternativeInvestment Market (AIM). The note was secured by a general floating charge overthe assets of DiamondCorp plc. The note was interest free until 1 May 2007.Thereafter, the note would bear interest at the rate of 15% per annum,calculated monthly (on the basis of a 360 day year) and payable in cash monthlyin arrears, until it was converted or redeemed. By mutual agreement between theCompany and the note holder, the Company could redeem the loan note at any timeby the payment in cash of the principal amount plus 50% and any accrued andoutstanding interest. The note contained a condition that, if the Company had not completed an IPO orredeemed the note by 1 November 2007, the Company would immediately redeem thenote by the payment in cash of the principal amount plus 50% and any accrued andoutstanding interest, plus an additional redemption sum of 6.75% of theprincipal payable for each calendar month between 1 May 2007 and 1 November2007, eg commencing in June 2007. The Company was admitted to AIM on 1 February 2007 and the note was converted to6,500,000 ordinary shares of 3 pence each at a conversion price of 60 pencebeing two-thirds of the 90 pence placing that occurred simultaneously withadmission to AIM. 16. RELATED PARTY TRANSACTIONS The Directors consider that there is no ultimate controlling party of theCompany. Transactions between the Company and its subsidiaries, which arerelated parties of the Company have been disclosed in the Company section ofthis note. The Directors are considered to be the key personnel of the Group and thereforeall transactions with such individuals have been disclosed below and in theaudited section of the remuneration report. Details of transactions between the Group and other related parties aredisclosed below. During the year ended 31 December 2007: (i) £85,000 were paid to the following companies as Directors' remuneration: - Glendree Capital Management Limited (£54,000), a Company owned by P R Loudon; - Mining Finance Solutions (£20,000), a Company owned by E A Worthington; - Loeb Aron & Company Limited (£11,000), a Company where J Willis-Richards is a director; (ii) DiamondCorp Plc incurred no corporate advisory fees (31 December 2006 -£64,000) and no commissions (31 December 2006 - £45,972) from Loeb Aron &Company Limited ("Loeb Aron"), a Company of which both P R Loudon and J Willis-Richards are Directors and a Company which owns more than 3% of the issuedshares . In addition, in reference to fundraisings completed by Loeb Aron, LoebAron was granted a warrant to purchase 750,000 shares for a period of two yearsfrom the date of admission to the Alternative Investment Market, exercisable at35 pence per ordinary share (250,000 warrants to purchase ordinary shares at 105pence per share following the share consolidation - notes 17 and 18). In addition, during the year ended 31 December 2007: (i) DiamondCorp Plc incurred rent of £25,000 from Loeb Aron & Company Limited (31 December 2006 - £15,625). (ii) Lace incurred consulting fees of £4,242 (2006 £73,875) from TheMineral Corporation, a Company in which G Robbertze, a director of Lace, is aprincipal. Company The company held a loan to Diamondcorp Holdings Limited of £8,732,619 (2006£7,393,342) and to Lace Diamond Mining (Pty) Limited of £17,127 (2006 £17,127). 17. SHARE CAPITAL 2007 2006 £ £Authorised share capital166,666,666 ordinary shares of 3 pence each 5,000,000 5,000,000 No. £ No. £Called up, allotted and fully paidOrdinary shares of 3 pence each 34,770,408 1,043,112 24,737,073 742,112 On 30 June 2006 every three ordinary shares of 1 pence each were consolidatedinto one ordinary share of 3 pence with no other change in the rights attachedto the ordinary shares. On 16 September 2006 the 2,130,000 Convertible Loan Notes were converted to7,100,006 ordinary shares of 3 pence each at a price of 30 pence per share. (seenote 17) On 16 September 2006 the Company issued 3,815,000 ordinary shares of 3 penceeach in respect of a private placement completed at 60 pence per ordinary share. On 24 November 2006 the Company issued 1,322,000 ordinary shares of 3 pence eachin respect of a private placement completed at 60 pence per ordinary share. On 1 February 2007 the Company was admitted to the AIM market and simultaneouslyissued 2,750,000 ordinary shares at 90 pence each. In accordance with the termsof the Convertible Loan Notes, on the date of admission the notes converted to6,500,000 ordinary shares (see Note 15). During the year ended 31 December 2007, 783,330 warrants were exercised forproceeds of £235,000 and the same number of ordinary shares were issued. 18. RESERVES For the year ended 31 December 2007 Group Share Share Warrant option premium Retained Translation reserve reserve account losses reserve £ £ £ £ £ At 1 January 2007 641,667 - 8,534,095 (899,519) -Loss for the year - - - (2,101,251) -(Exercise of warrants)/Share premium onexercise (86,167) - 86,167 - -Premium arising on issue of equity shares - - 6,074,999 - -Value of warrants over ordinary shares 185,449 - - - -Grant of share options - 282,790 - - -Movement during the year - - - - 82,537Issue costs - - (578,955) - - At 31 December 2007 740,949 282,790 14,116,306 (3,000,770) 82,537 Company Share Share Warrant option premium Retained reserve reserve account losses £ £ £ £ At 1 January 2007 641,667 - 8,534,095 (529,549)Loss for the year - - - (1,078,764)(Exercise of warrants)/Share premium on exercise (86,167) - 86,167 -Premium arising on issue of equity shares - - 6,074,999 -Issue of warrants over ordinary shares 185,449 - - -Grant of share options - 282,790 - -Issue costs - - (578,955) - At 31 December 2007 740,949 282,790 14,116,306 (1,608,313) For the period 16 May 2006 to 31 December 2006 ShareGroup Warrant Equity premium Retained reserve reserve account losses £ £ £ £ At 15 May 2006 641,667 2,002,800 4,004,713 (100,473)Loss for the period - - - (799,046)Premium arising on issue of equity shares - - 4,717,890 -Issue of warrants over ordinary shares - (2,002,800) - -Issue costs - - (188,508) - At 31 December 2006 641,667 - 8,534,095 (899,519) 18. RESERVES (continued) Company Share Warrant Equity premium Retained reserve reserve account losses £ £ £ £ At 15 May 2006 641,667 2,002,800 4,004,713 (100,473)Loss for the period - - - (429,076)Premium arising on issue of equity shares - - 4,717,890 -Issue of warrants over ordinary shares - (2,002,800) - -Issue costs - - (188,508) - At 31 December 2006 641,667 - 8,534,095 (529,549) Warrant reserve Warrant Warrants in reserve issue £ Group and CompanyAt 31 December 2007 6,466,655 740,949 Group and CompanyAt 31 December 2006 5,999,990 641,667 Stock Option Reserve Stock Stock option options reserve in issue £ Group and CompanyAt 31 December 2007 2,940,000 282,790 Group and CompanyAt 31 December 2006 - - 18. RESERVES (continued) Valuation (i) Warrants granted during the period from 22 March 2005 to 15 May 2006 werevalued by the Directors using the Black-Scholes valuation model, based upon thefollowing assumptions: - Term range of one to three 1/2 years - Expected dividend yield of nil - Risk free interest rate of 5% - Share price volatility of 55% - Current share price of 15 pence (45 pence post share consolidation - see note17). The number of warrants, warrant exercise prices and nominal share valuesreferred to below reflect the share structure after the share consolidationwhich occurred on 30 June 2006. Following the share consolidation, all warrantexercise prices and nominal share values increased by a factor of three. Thenumber of warrants reduces by a factor of three. (ii)Share options granted during the year ended 31 December 2007were valued by the Directors using the Black-Scholes valuation model, based uponthe following assumptions: - Term range of three years - Expected dividend yield of nil - Risk free interest rate of 5% - Share price volatility of 40% - Current share price of 90 pence. The number of warrants, warrant exercise prices and nominal share valuesreferred to below reflect the share structure after the 3:1 share consolidationwhich occurred on 30 June 2006. Loan Note Warrants The holders of convertible loan notes which were converted into 4,750,000ordinary shares of 1 penny each on 21 December 2005, were entitled to be issued,on conversion, with a total of 1,583,333 warrants to subscribe for ordinaryshares of 3 pence each at the lower of 180 pence per share or price at which theCompany issued ordinary shares of 3 pence each on admission to the AlternativeInvestment Market. The exercise price was reduced to 30 pence per ordinaryshare when admission did not take place prior to 30 April 2006. These warrantsexpire on 30 April 2008. Certificates in relation to these warrants were issuedon 30 June 2006 following and taking into account, the consolidation of theCompany's share capital on that date. Vendor Warrants The vendors of Crown Diamond Mining Limited (which changed its name toDiamondcorp Holdings Limited in 2007) were entitled to be issued on completionof the sale of its ordinary share capital to the Company with a total of4,166,666 warrants to subscribe for ordinary shares of 3 pence each at a priceof the lower of 180 pence or price at which the Company raises equity finance onadmission to the Alternative Investment Market (90 pence). These warrantsexpire on that date which is five years from the date of admission to theAlternative Investment Market. Certificates in relation to these warrants wereissued on 30 June 2006 following and taking into account, the consolidation ofthe Company's share capital on that date. 18. RESERVES (continued) Other Warrants (i) In reference to work performed on fundraisings by Loeb Aron &Company Limited, Loeb Aron were issued warrants over 250,000 ordinary shares of3 pence each for a period of two years from the date of admission to theAlternative Investment Market, exercisable at 105 pence per share. (ii) In January 2007, Cenkos Securities Plc, the Company's nominatedadvisor and broker, received warrants to subscribe for up to 1,000,000 ordinaryshares of 3 pence each exercisable at 121.5 pence for a period of 24 months fromdate of admission to the AIM market. (iii) In 2007 a warrant was issued to BBK Consultancy Plc to subscribe for250,000 ordinary shares of 3 pence each for a period of 3 years at an exerciseprice of 121.5 pence. The warrants vest when the Company's share price is above135 pence per share for 28 consecutive trading days and are exercisable at anytime up to and including 30 April 2011. 19. Share based payments Equity-settled share option scheme The Company has a share option scheme for all employees of the Group. Optionsare exercisable at a price equal to the average quoted market price of theCompany's shares on the date of grant. The vesting period is three years. If theoptions remain unexercised after a period of ten years from the date of grantthe options expire. Options are generally forfeited if the employee leaves theGroup before the options vest. Details of the share options outstanding during the year are as follows. 2007 Weighted average Number of exercise share price options (£) Outstanding at beginning of period -Granted during the period 2,940,000 135pForfeited during the period -Exercise during the period -Expired during the period - Outstanding at the end of the period 2,940,000 135p Exercisable at the end of the period 270,000 135p The options outstanding at 31 December 2007 had a weighted average exerciseprice of 135p, and a weighted average remaining contractual life of 9 years. Theaggregate of the estimated fair values of the options granted on those dates is£977,000. No options were granted or outstanding in 2006. 19. Share based payments (continued) The inputs into the Black-Scholes model are as follows: 2007 2006 Weighted average share price 90p -Weighted average exercise price 135p -Expected volatility 40%Expected life 3 years -Risk-free rate 5% -Expected dividend yields 0% - Expected volatility was determined based on management's best estimate. Theexpected life used in the model has been adjusted, based on management's bestestimate, for the effects of non-transferability, exercise restrictions, andbehavioural considerations. The Group recognised total expenses of £282,790 relating to equity-settledshare-based payment transactions in 2007. No expense had previously beenrecognised. 20. Financial Instruments Group and Company Capital risk management The Group manages its capital to ensure that entities in the Group will be ableto continue as going concerns while maximising the return to stakeholdersthrough the optimisation of the debt and equity balance. The capital structureof the Group consists of debt, which includes the borrowings disclosed in note15, cash and cash equivalents and equity attributable to equity holders of theparent, comprising issued capital, reserves and retained earnings as disclosedin note 18. Significant accounting policies Details of the significant accounting policies and methods adopted, includingthe criteria for recognition, the basis of measurement and the basis on whichincome and expenses are recognised, in respect of each class of financial asset,financial liability and equity instrument are disclosed in note 1 to thefinancial statements. Categories of financial instruments Group Company Carrying value Carrying value 2007 2006 2007 2006 £ £ £ £Financial assetsLoans and receivables (including cash and cash equivalents) 1,330,707 2,822,089 10,015,115 8,503,527 Financial liabilitiesAmortised cost 94,382 4,198,625 - 3,666,000 Financial risk management objectives The Group's financial function provides services to the business, monitors andmanages the financial risks relating to the operations of the Group. These risksinclude market risk (including currency risk, fair value interest rate risk andprice risk), credit risk, liquidity risk and cash flow interest rate risk. The Group does not enter into or trade financial instruments, includingderivative financial instruments, for any purpose. 20. Financial Instruments (continued) Market risk The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates. There has been no change to the Group'sexposure to market risks or to the manner in which it measures and manages therisk. Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies.Hence, exposures to exchange rate fluctuations arise. The carrying amounts of the Group's and Company's foreign currency denominatedmonetary assets and monetary liabilities at the reporting date are as follows: Assets 2007 2006 £ £ Cash denominated in foreign currency 100,709 280,863 Foreign currency sensitivity analysis The Group is only exposed to the currency of South Africa (Rand). The following table details the Group's sensitivity to a 20% increase anddecrease in the Sterling against South African Rand. 20% is the sensitivity rateused when reporting foreign currency risk internally to key management personneland represents management's assessment of the reasonably possible change inforeign exchange rates. The sensitivity analysis includes only outstandingforeign currency denominated monetary items and adjusts their translation at theperiod end for a 20% change in foreign currency rates. A negative number belowindicates a decrease in profit where the Sterling strengthens 20% against therelevant currency. For a 20% weakening of the Sterling against the relevantcurrency, there would be an equal and opposite impact on the profit and thebalances below would be positive. Rand currency impact 2007 2006 £ £ Loss (12,000) (55,000) The Group's sensitivity to foreign currency has decreased during the currentperiod, because the Company held lower balances of foreign currency. In management's opinion, the impact of the sensitivity analysis isrepresentative, but the 2006 impact is unrepresentative, because the Company washolding an unrepresentative amount of Rand in anticipation of an instalmentpayment due to the contractors building the Lace plant. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board ofDirectors, which has built an appropriate liquidity risk management frameworkfor the management of the Group's short term funding and liquidity managementrequirements. The Group manages liquidity risk by maintaining adequate reserves,by continuously monitoring forecast and actual cash flows and matching thematurity profiles of financial assets and liabilities. 20. Financial Instruments (continued) Liquidity and interest risk tables The following table details the Group's remaining contractual maturity for itsnon-derivative financial liabilities. The tables have been drawn up based on theundiscounted cash flows of financial liabilities based on the earliest date onwhich the Group can be required to pay. The table includes the principal cashflows. All amounts are repayable within 1 year. Group Company 2007 2006 2007 2006 £ £ £ £ Non-interest bearing 94,382 4,198,625 - 3,666,000 The following table details the Group's and Company's expected maturity for itsnon-derivative financial assets. The tables below have been drawn up based onthe undiscounted contractual maturities of the financial assets includinginterest that will be earned on those assets. Group Company Weighted Weighted average average effective effective interest Less than 1 interest Less than 1 rate month rate month % £ % £2007Non-interest bearing - 289,342 - 9,015,115Fixed interest rate instruments 7.02 % 1,041,365 5.8% 1,000,000 1,330,707 10,015,115 2006Non-interest bearing - 1,181,683 - 8,503,527Fixed interest rate instruments 7.88 % 1,640,406 - - 2,822,089 8,503,527 21. SUBSIDIARIES Details of the Company's subsidiaries at 31 December 2007 were as follows: Place of Proportion of Proportion of incorporation (or ownership voting power registration) and interest held operation % % Name of subsidiary Principal activity Diamondcorp Holdings Limited British Virgin(1) Islands 100 100 Holding CompanyLace Diamond Mines (Pty) Republic of 74 74 Diamond exploration andLimited exploitation South AfricaSoapstone Investments (Pty) Republic of 100 100 Investment CompanyLimited South Africa (1) Formerly named Crown Diamond Mining Limited Soapstone Investments (Pty) Limited was incorporated on 30 November 2006 and wasset up as an investment Company in South Africa 22. CONTINGENT LIABILITY The Company is making application to list on the Johannesburg Stock Exchange inMarch 2007. On successful listing the Company would incur professional advisoryfees of £250,000 (ZAR 3,500,000). 23. COPIES OF THE ANNUAL REPORT Copies of the Group's annual report will be sent to shareholders in due courseand will be available on the Group's website (http://www.diamondcorp.plc.uk)pursuant to AIM rule 26 at that time. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
DCP.L