Preliminary Results

21st Oct 2009 07:00



 

21st October 2009 

West African Diamonds plc

Preliminary Results for Year Ended 30 April 2009

In a period of global economic turbulence, exacerbated by political instability, it is pleasing to be able to report significant progress in the development of West African Diamonds (WAD). Recent highlights include: 

The start up of our Bomboko alluvial diamond mine in Guinea and the subsequent decision to expand capacity; 

Initial diamond production of 433 carats at a value of $116 per carat;

A joint venture on our kimberlite pipe and dyke system in the Koidu area of Sierra Leone. This ensures rapid exploration and development, if justified; 

An agreement with local management in Sierra Leone whereby they have taken over ownership of the non-core mining lease over Plant 11 in Koidu. They are in the process of reopening the diamond recovery plant. WAD has a 5% net royalty on production; and

A rapid recovery in diamond prices after a catastrophic fall in 2007/2008. The price recovery is most notable in the size and quality range produced in West Africa.

Recent political instability in Guinea is a concern and the company is keeping a close eye on developments. WAD has managed to continue development of its operations in the country, though with some delays as a consequence of interruption to supply lines and a prolonged rainy season. Bringing Bomboko into production has been a considerable achievement. Investors in natural resources for the most part are aware that you must go to where the resources can be found before you can mine them. Some resources are widely distributed around the world. Others, diamonds in particular, are old, up to 2,500 million years, rare, scarce and incredibly difficult to find. Diamonds, for the most part, are brought to the surface in small volcanoes known as kimberlite pipes. The worldwide map of these pipes is fairly well known. For over a century, De Beers dominated the industry. During this time, they explored most parts of the world and, with some exceptions, controlled the hard rock kimberlite mines. The alternative to hardrock mining is alluvial mining.

Over millennia, erosion took diamonds from kimberlite pipes and distributed them in gravel on river beds and ultimately on seabeds. This opened up a second type of mining - alluvial mining, where dredges are used to recover the stones.

In addition to being hard to find, one source suggests that diamond prospecting has a 1 in 2,500 chance of commercial success; diamonds vary in quality and size. Most diamond mines produce mainly small stones, often valueless, but some of which are of industrial and/or consumer value. The bigger better quality stones grow exponentially in value.

Guinea and Sierra Leone produce very old beautiful high quality, sometimes very large, diamonds. Most of the diamonds are recovered from alluvial workings. The kimberlite pipes which originally brought the diamonds to the surface are significantly eroded, leaving smaller roots.

The outline above explains why WAD is in West Africa. For decades, Sierra Leone operated the largest alluvial diamond mine in the world in the Koidu region. Former management of the state owned mine approached WAD with a proposal to rework some of the dumps. This led to Mining Lease 104 in the Koidu region where we set up a gold and diamond recovery operation on a 7 million ton dump. The operation failed due in part to using a new technology and in part due to a focus on recovering gold prior to recovering diamonds. With our concentration on production at Bomboko this project has become non-core for the company.

I am therefore particularly pleased that our local management in Sierra Leone have formed a company, Pyramid Resources, acquired from WAD the lease and the diamond recovery plant and are reopening the project. This is good for the local area, for our former employees who have jobs, the state who will get revenue and exports, and for WAD who have a 5% production royalty.

The original focus of WAD in Sierra Leone was on the known kimberlite pipes and dykes in Koidu. We acquired licences over Pipe 3, the smallest of the known pipes and over an extensive swarm of kimberlite dykes - fissures up to 1 metre wide thought to contain high diamond grades. We mapped over 14 kilometres of dykes and confirmed high grades, up to 65 carats per hundred tonnes (cpht) of good quality diamonds. A diamond recovery operation on Pipe 3 was initially frustrated by poor plant design and loss of stones. When these problems were solved, we obtained a grade of 19 cpht, valued at over US$200 a carat. The pipe is very small but subsequent work extended the size. There is a hardrock mine adjacent to Pipe 3. Koidu Holdings mines Pipes 1 and 2.

While evaluating options for Pipe 3, we received an approach from Thunderball Limited - a consortium of foreign and local investors keen to develop a mine on Pipe 3 and the dykes. We have transferred our entire interest in the area to this company, who have committed to intensive exploration, evaluation and, if justified, development. WAD has a 20% interest in the venture and is fully carried through to commercial production.

The net result of these developments is that our Sierra Leone operations will continue, and will develop, at no further cost to WAD.

The focus of operations is now Guinea. Independent geological estimates suggest that our licences on the Bomboko contain at least 750,000 carats of diamonds. Despite infrastructure challenges our management team in Guinea shifted plant and equipment from both operations in Sierra Leone to our new Bomboko alluvial mine.

During 2008 and the first part of 2009, the Bomboko mine was constructed. It came on stream in June 2009. The current grade is as we expected, averaging 6.5 cpht at a value of US$116 a carat, including a 16 carat gem that sold for over $1,000 per carat. This price has probably risen in recent months. Given the encouraging results a decision was made to increase production by installing additional processing plant, namely a 16 foot pan plant. Large excavators are also in use. It is expected that the mine will reach full capacity by the end of 2009. Monthly carat production is expected to rise to in excess of 2,000 carats per month, providing the company with robust revenue.

The second significant operation in Guinea is the Droujba area where WAD has a licence over a series of small kimberlites. Using a rig, we have been drilling shallow holes on this licence. Our hope was to see the small pipes coalesce into one. We also wanted to check grade and diamond quality. The grade is high, we estimate in excess of 100cpht, the quality is as expected but further drilling and testing of the diamond grade is required to establish the economics of the pipes.

In addition to the hard rock project, we have been sampling the rivers in the area where there appears to be significant hard rock and alluvial diamond potential.

Future

If the world has weathered the economic storm and is poised for growth then the future for diamonds is very bright. In recent years, there has been almost no exploration success, apart from the Botswana discovery by African Diamonds. Mines deplete. Most analysts agree that there will be a supply deficit of gem quality diamonds in the coming years.

This impending shortage is the opportunity for WAD. We are a producer of high quality stones. We have known reserves, we are experienced in the industry, but we are too small. Investors, particularly institutional investors, rarely invest in small market capitalisation companies.

Therefore, the future strategy for WAD is to grow by mergers and acquisition, while continuing to develop our own reserves. Toward that end, we were in discussions with a number of other companies. These early discussions came to nothing. However, discussions of this nature continue and I am hopeful that a good result will come from these talks. If positive, it would be a step toward building an independent gem quality diamond producer, founded and focussed in developing high grade and high value diamond resources in West Africa.

JOHN TEELING

CHAIRMAN

21st October 2009 

Enquiries:

West African Diamonds plc
John Teeling, Chairman	+ 353 1 833 2833
James Campbell, Deputy Chairman	+27 83 457 3724
Astaire Securities plc Lindsay Mair	+44 (0)20 7448 4400
College Hill Nick Elwes	+44 (0) 20 7457 2020

www.westafdiamonds.com

 

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 APRIL 2009

	2009	2008
	£	£
Continuing operations
Administrative expenses	(247,442)	(228,325)
OPERATING LOSS	(247,442)	(228,325)
Finance costs	(2,558)	(2,159)
Investment income	3,535	10,418
LOSS BEFORE TAXATION	(246,465)	(220,066)
Income tax expense	-	-
LOSS AFTER TAXATION
FOR THE FINANCIAL YEAR	(246,465)	(220,066)
Loss per share - basic	(0.48p)	(0.58p)
Loss per share - diluted	(0.48p)	(0.58p)

 

CONSOLIDATED BALANCE SHEET

AS AT 30 APRIL 2009

		2009	2008
		£	£
ASSETS:
NON CURRENT ASSETS
Intangible assets		9,468,387	6,608,768
Property, plant and equipment		2,066,417	1,293,173
		11,534,804	7,901,941
CURRENT ASSETS
Receivables		7,192	23,043
Cash and cash equivalents		242,472	78,758
		249,664	101,801
TOTAL ASSETS		11,784,468	8,003,742
LIABILITIES:
CURRENT LIABILITIES
Trade and other payables		(196,305)	(323,423)
NET CURRENT ASSETS/(LIABILITIES)		53,359	(221,622)
NET ASSETS		11,588,163	7,680,319
EQUITY:
Called-up share capital		682,809	407,508
Share premium		9,630,785	7,768,467
Share based payment reserve		355,396	355,396
Retained earnings - (deficit)		(1,097,517)	(851,052)
Translation reserve		2,016,690	-
TOTAL EQUITY
		11,588,163	7,680,319

 

STATEMENTS OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 30 APRIL 2009

		Called-up	Share	Share Based	Retained
		Share Capital	Premium	Payment Reserve	Earnings (Deficit)	Translation Reserve	Total
		£	£	£	£	£	£
At 1 May 2007		335,700	6,315,581	384,900	(692,260)	-	6,343,921
Share based payments		-	-	31,770	-	-	31,770
Shares Issued		71,808	1,505,708	(61,274)	61,274	-	1,577,516
Share issue expenses		-	(52,822)	-	-	-	(52,822)
Loss for the period		-	-	-	(220,066)	-	(220,066)
At 30 April 2008		407,508	7,768,467	355,396	(851,052)	-	7,680,319
Shares issued for cash		275,301	1,869,903	-	-	-	2,145,204
Share issue expenses		-	(7,585)	-	-	-	(7,585)
Exchange differences arising on translation of foreign operations		-	-	-	-	2,016,690	2,016,690
Loss for the year		-	-	-	(246,465)	-	(246,465)
At 30 April 2009		682,809	9,630,785	355,396	(1,097,517)	2,016,690	11,588,163

Share premium 

The share premium comprises of the excess of monies received in respect of share capital over the nominal value of shares issued, less share issue costs.

Share based payment reserve

The share based payment reserve represents the cumulative charge to the Consolidated Income Statement and intangible assets, of share based payments issued which are not yet exercised and issued as shares. Upon issue of shares under the share based payment plan, the relevant value is transferred to retained earnings. 

Translation reserve

Exchange differences relating to the translation from the functional currencies of the Group's foreign subsidiaries into Sterling, the reporting currency of the Group, and are recognised directly in the translation reserve. The US$:STG£ exchange rate at 30 April 2008 was 1.98:1 compared to 1.42:1 at 30 April 2009 which accounts for the movement in the translation reserve in the current year.

Retained earnings deficit

Retained earnings comprises accumulated losses in the current year and prior years.

 

CONSOLIDATED CASH FLOW STATEMENT 

FOR THE YEAR ENDED 30 APRIL 2009

	2009	2008
	£	£
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the year	(246,465)	(220,066)
Exchange movements	(3,686)	(583)
Share based payments	-	10,970
Finance cost	2,558	2,159
Investment revenue	(3,535)	(10,418)
OPERATING CASH OUTFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL	(251,128)	(217,938)
(Decrease)/increase in trade and other payables	(127,118)	128,834
Decrease in trade and other receivables	15,851	265,407
CASH (USED IN)/GENERATED BY OPERATIONS	(362,395)	176,303
Finance costs	(2,558)	(2,159)
Investment revenue	3,535	10,418
NET CASH (USED IN)/GENERATED BY
OPERATING ACTIVITIES	(361,418)	184,562
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for intangible assets	(1,335,113)	(1,526,924)
Payment for tangible assets	(281,060)	(654,215)
NET CASH USED IN INVESTING ACTIVITIES	(1,616,173)	(2,181,139)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of equity shares	2,145,204	1,577,516
Share issue costs	(7,585)	(52,822)
NET CASH GENERATED FROM FINANCING ACTIVITIES	2,137,619	1,524,694
NET INCREASE/(DECREASE) IN CASH	160,028	(471,883)
Cash and cash equivalents at beginning of the financial year	78,758	550,058
Effect of exchange rate changes on cash held in
foreign currencies	3,686	583
Cash and cash equivalents at end of the financial year	242,472	78,758

 

 

NOTES

 

1. Accounting Policies

There were no changes in accounting policies from those set out in the Group's Annual Report for the financial year ended 30 April 2009. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRSs as adopted by the European Union.

 

2. Loss per Share

Basic earnings or loss per share is computed by dividing the profit or loss after taxation for the year available to ordinary shareholders by sum of the weighted average number of ordinary shares in issue and ranking for dividend during the year. Diluted earnings or loss per share is computed by dividing the profit or loss after taxation for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

The following table sets forth the computation for  basic and diluted loss per share (EPS): 

		2009	2008
		£	£
Numerator
Numerator for basic EPS - retained loss		(246,465)	(220,066)
		Number	Number
Denominator
Denominator for basic EPS and diluted EPS		52,147,985	38,102,064
Basic and diluted EPS		(0.48p)	(0.58p)

Basic and diluted loss per share is the same as the effect of the outstanding share options is anti dilutive and is therefore excluded.

3. Intangible Assets

	2009	2008
	£	£
Exploration and evaluation assets:
Cost:
Opening balance	6,608,768	5,061,044
Additions during the year	1,335,113	1,547,724
Net foreign exchange differences	1,524,506	-
Closing balance	9,468,387	6,608,768
Net Carrying Amount	9,468,387	6,608,768
	2009	2008
	£	£
Segmental analysis
Sierra Leone	6,873,890	4,961,317
Guinea	2,594,497	1,647,451
	9,468,387	6,608,768

Exploration and evaluation assets relate to expenditure incurred in diamond and gold exploration and related expenditure in Sierra Leone and Guinea. 

The directors are aware that by its nature there is an inherent uncertainty in exploration and evaluation, and therefore inherent uncertainty in relation to the carrying value of capitalised exploration and evaluation assets. 

The realisation of these intangible assets is dependent on the successful discovery and development of economic resources, and is subject to a number of significant potential risks including;

Price fluctuations;

Uncertainties over development and operational costs; 

Funding requirements.

Should these prove unsuccessful the value included in the balance sheet would be written off to the income statement. 

Having reviewed the deferred exploration and evaluation expenditure at 30 April 2009, the directors are satisfied that the value of the intangible asset is not less than carrying value. 

Included above is an amount of £Nil (2008: £20,800) of capitalised expenses related to equity-settled share-based payment transactions during the year.

4. Property, Plant and Equipment

Group		Assets in the
		Course of
	Plant	Construction
	and	- Diamond
	Equipment	Interests	Total
	£	£	£
Cost:
At 1 May 2007	25,526	613,432	638,958
Additions during the year	13,304	640,911	654,215
At 30 April 2008	38,830	1,254,343	1,293,173
Additions during the year	-	281,060	281,060
Net foreign exchange differences	-	492,184	492,184
At 30 April 2009	38,830	2,027,587	2,066,417
Net Carrying Amount
At 30 April 2009	38,830	2,027,587	2,066,417

£2,027,587 relates to assets in the course of construction in Sierra Leone and Guinea. The carrying value of the above assets is dependent on the successful discovery and development of economic reserves, including the ability to raise finance to develop future projects. Should this prove unsuccessful the value included in the balance sheet would be written down to their net recoverable value.

In the opinion of the directors, the carrying value is not less than its recoverable amount. No depreciation has been charged in respect of these assets as they are not in a condition necessary for them to be capable of operating in the manner intended by management.

 

During the year assets amounting to £539,430 were transferred from Sierra Leone to Guinea. 

Segmental analysis - Group	2009	2008
	£	£
Sierra Leone	923,354	1,254,343
Guinea	1,143,063	38,830
	2,066,417	1,293,173

 

 

5. General Information

The financial information set out above does not constitute the Company's financial statements for the year ended 30 April 2009. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Companies Registration Office. The auditors have reported on 2008 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, tangible assets and amounts due by group undertakings. The financial statements for 2009 will be delivered to the Companies Registration Office following the Company's Annual General Meeting. 

A copy of the Company's Annual Report and Accounts for 2009 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 20 - 22 Bedford Row, London, WC1R 4JS. The Annual Report may also be viewed at West African Diamonds plc's website at www.westafdiamonds.com. 

ENDFR EALEEADENFFE

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