Delrand Resources Ltd HY 2014 results

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Delrand Resources Ltd HY 2014 results

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Delrand Resources Ltd HY 2014 results

  1. 1. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) December 31, 2013 (Expressed in Canadian dollars)
  2. 2. NOTICE TO READER These interim condensed consolidated financial statements of Delrand Resources Limited (the “Company”) as at and for the three and six month periods ended December 31, 2013 have been prepared by and are the responsibility of the Company’s management. These interim condensed consolidated financial statements have not been audited or reviewed by the Company’s auditors. Page 2 of 18
  3. 3. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 CONTENTS Interim Condensed Consolidated Statements of Financial Position.....................................................4 Interim Condensed Consolidated Statements of Comprehensive Loss..................................................5 Interim Condensed Consolidated Statements of Changes in Equity.....................................................6 Interim Condensed Consolidated Statements of Cash Flow..............................................................7 1. Corporate Information and Continuation of the Business.............................................................. 8 2. Basis of Preparation .......................................................................................................... 8 3. Subsidiaries and Investment in Associate ................................................................................ 10 4. Exploration and Evaluation Assets ........................................................................................ 11 5. Related Party Transactions................................................................................................. 11 6. Share Capital ................................................................................................................. 12 7. Share-Based Payments ...................................................................................................... 13 8. Segmented Reporting ....................................................................................................... 14 9. Financial Risk Management Objectives and Policies ................................................................... 15 10. Commitments and Contingencies ....................................................................................... 18 Page 3 of 18
  4. 4. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian dollars) (unaudited) Notes December 31, 2013 June 30, 2013 $ $ Assets Current Assets Cash Due from related parties 99,810 101,713 415 921 38,964 24,858 139,189 127,492 5 Prepaid expenses and other assets Total Current Assets Non-Current Assets Exploration and evaluation 4 5,293,226 5,142,097 Total Non-Current Assets 5,293,226 5,142,097 Total Assets 5,432,415 5,269,589 407,613 420,637 5,420 10,840 3,736 125,982 416,769 557,459 Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities Income taxes payable Due to related parties 5 Total Current Liabilities Non-Current Liabilities Income taxes payable - 5,420 416,769 562,879 117,012,188 116,601,688 8,159,644 Total Liabilities 8,159,644 Shareholders' Equity Share capital 6 Contributed surplus Deficit (120,156,186) (120,054,622) Total Shareholders' Equity 5,015,646 4,706,710 Total Liabilities and Shareholders' Equity 5,432,415 5,269,589 Common shares Authorized Issued and outstanding 6a Unlimited 61,844,492 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Page 4 of 18 Unlimited 58,734,643
  5. 5. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Expressed in Canadian dollars) (unaudited) Notes Three months ended Three months ended Six months ended Six months ended December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012 $ $ $ $ Expenses Consulting and professional fees 8,318 Foreign exchange loss 33,139 12,058 60,746 47,155 General and administrative 43,015 87,182 83,282 (1,090) 2,324 310 5,270 Loss from operations (55,783) (75,064) (101,564) (149,298) Net loss and comprehensive loss for the period (55,783) (75,064) (101,564) (149,298) Basic and diluted loss per share 6c Adjustments for headline loss per share 6c Headline loss per share 6c Weighted average number of common shares outstanding (0.00) (0.00) 61,844,492 (0.00) (0.00) 52,734,643 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Page 5 of 18 (0.00) (0.00) 60,948,720 (0.00) (0.00) 52,734,643
  6. 6. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in Canadian dollars) (unaudited) Common shares Notes Number of shares Amount (Note 6) Net loss for the period Net loss for the period Balance at December 31, 2013 equity 116,339,566 8,159,644 (119,770,846) - - (149,298) 52,734,643 Balance at December 31, 2012 Warrants exercised Shareholders' - Net loss for the period Balance at June 30, 2013 Surplus Total Deficit 52,734,643 Balance at June 30, 2012 Share issuance (net of costs) Contributed $ 116,339,566 $ 8,159,644 6 - - 6,000,000 262,122 - 58,734,643 $ 116,601,688 $ 8,159,644 - - - 3,109,849 410,500 - 61,844,492 $ 117,012,188 $ 8,159,644 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Page 6 of 18 $ (119,920,144) $ (134,478) $ (120,054,622) $ (101,564) $ (120,156,186) $ 4,728,364 (149,298) 4,579,066 (134,478) 262,122 4,706,710 (101,564) 410,500 5,015,646
  7. 7. Delrand Resources Limited INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Expressed in Canadian dollars) (unaudited) Three months ended Three months ended Notes Six months ended Six months ended December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Cash flows from operating activities Net loss for the period (55,783) (75,064) (101,564) (149,298) (12,124) 7,282 (14,106) 34,632 - 27,530 - - 29,842 30,047 (13,024) (92,621) Changes in non-cash working capital Prepaid expenses and other assets Other receivable Accounts payable and accrued liabilities Taxes payable (10,840) (5,376) (10,840) (16,452) (48,905) (15,581) (139,534) (223,739) (148,479) (76,339) (208,399) (228,720) 26,739 Net cash flows used in operating activities (10,935) 57,270 Cash flows from investing activities Expenditures on exploration and evaluation 4 Funds received from Rio Tinto Net cash provided by (used in) investing activities (121,740) (87,274) (151,129) 170,625 (58,095) Cash flows from financing activities Warrants exercised 6 Due to related parties 5 - - 410,500 - 24,585 Due from related parties - 506 - 49,834 (122,246) (114,005) Net cash provided by (used in) financing activities 23,492 (1,093) 49,834 288,760 (114,005) Net (decrease) increase in cash during the period (147,153) (53,021) Cash, beginning of the period 246,963 97,837 101,713 440,655 Cash, end of the period 99,810 44,816 99,810 44,816 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Page 7 of 18 (1,903) (395,839)
  8. 8. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) 1. CORPORATE INFORMATION AND CONTINUATION OF THE BUSINESS Corporate Information The principal business of Delrand Resources Limited (“Delrand” or the “Company”) is the acquisition and exploration of mineral properties in the Democratic Republic of the Congo (“the DRC”). These interim condensed consolidated financial statements as at and for the three and six months ended December 31, 2013 include the accounts of the Company and of its wholly-owned subsidiaries incorporated in the DRC, Delrand Resources Congo SPRL and in South Africa, BRC Diamond South Africa (Proprietary) Limited. The Company is a publicly traded company whose outstanding common shares are listed for trading on the Toronto Stock Exchange and the JSE Limited in Johannesburg, South Africa. The head office of the Company is located at 1 First Canadian Place, 100 King Street West, Suite 7070, Toronto, Ontario, M5X 1E3, Canada. Continuation of the business These interim condensed consolidated financial statements are prepared on a going concern basis, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has not generated revenues from operations. The Company incurred a net loss of $101,564 during the six months ended December 31, 2013 and, as of that date, the Company’s deficit was $120,156,186. These conditions along with other matters indicate the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. As such, the Company’s ability to continue as a going concern depends on its ability to successfully raise additional financing for development of the mineral properties. Although the Company has been successful in the past in obtaining financing and subsequently raised financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable terms. 2. BASIS OF PREPARATION a) Statement of compliance These interim condensed consolidated financial statements as at and for the three and six month periods ended December 31, 2013, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with IFRS, have been omitted or condensed. b) Basis of measurement These interim condensed consolidated financial statements have been prepared on a going concern basis, under the historical cost convention, except for certain financial assets and liabilities which are presented at fair value. c) Summary of significant accounting policies These interim condensed consolidated financial statements have been prepared using the same accounting policies and methods of computation as presented in Note 3 of the annual consolidated financial statements of the Company as at and for the year ended June 30, 2013, except for those newly adopted accounting standards noted below. The Company has applied the following new and revised IFRSs in these unaudited interim condensed consolidated financial statements: IFRS 10 Consolidated financial statements (“IFRS 10”), IFRS 13 fair value measurements (“IFRS Page 8 of 18
  9. 9. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) 13”), IAS 1 Presentation of financial statements (“IAS 1”), IAS 27 Separate financial statements (“IAS 27”), and IAS 28 Investments in associates and joint ventures. d) Use of estimates and judgments The preparation of these interim condensed consolidated financial statements in conformity with IFRS as issued by the IASB requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. e) Accounting Standards Issued But Not Yet Effective The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company: IFRS 9, Financial instruments (“IFRS 9”) intends to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety with IFRS 9, however, no mandatorily effective date has currently been defined. IFRS 9 is intended to reduce the complexity for the classification and measurement of financial instruments. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements. An amendment to IAS 32, Financial Instruments: presentation (“IAS 32”) was issued by the IASB in December 2011. The amendment clarifies the meaning of ‘currently has a legally enforceable right to set-off’. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the standard to have a material impact on its consolidated financial statements. An amendment to IAS 36, Impairment of Assets (“IAS 36”) was issued by the IASB in May 2013. The amendment reduces the circumstances in which the recoverable amount of assets or cash-generating units are required to be disclosed, clarifies the disclosures required, and introduces an explicit requirement to disclose the discount rate used in determining impairment. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the standard to have a material impact on its consolidated financial statements. An amendment to IAS 39, Financial Instruments: recognition (“IAS 39”) was issued by the IASB in June 2013. The amendment clarifies that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. A novation indicates an event where the original parties to a derivative agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. The amendments to IAS 39 are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the standard to have a material impact on its consolidated financial statements. In May 2013, IFRS Interpretation Committee (“IFRIC”) published IFRIC Interpretation 21, Levies (“IFRIC 21”), effective for annual periods beginning on or after January 1, 2014. IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government. IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. The Company does not expect the standard to have a material impact on its consolidated financial statements. Page 9 of 18
  10. 10. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) 3. SUBSIDIARIES AND INVESTMENT IN ASSOCIATE The table below lists the Company’s subsidiaries as follows: Proportion of Ownership Name of Subsidiary Place of Incorporation Delrand Resources Congo SPRL Democratic Republic of the Congo 100% Mineral Exploration BRC Diamond South Africa (Proprietary) Limited South Africa 100% Dormant Interest Principal Activity The Company’s investment in Rio Tinto Exploration DRC Oriental Limited (“DRC Orientale”), which meets the definition of an associate of the Company, is summarized a follows: As at December As at June 30, 31, 2013 2013 Portion of ownership interest 25.00% Common shares held Total investment 25.00% 250 $ - 250 $ - On January 26, 2010, the Company entered into an agreement (the “Iron Ore Agreement”) with Rio Tinto Minerals Development Limited ("Rio Tinto Minerals") for the exploration for iron ore in areas within the Orientale Province of the DRC. Under the Iron Ore Agreement, which is in the form of a shareholders' agreement, the Company owns 25% and Rio Tinto Minerals owns 75% of the capital stock of DRC Orientale, which owns a DRC registered company called Rio Tinto Exploration RDC Orientale SPRL. The Company’s investment in DRC Orientale is accounted for in the consolidated financial statements using the equity method. For the six-months ended December 31, 2013 and the year ended June 30, 2013, DRC Orientale was a company which did not have any significant assets or liabilities and had no significant balances in the statement of comprehensive loss. As such, there has been no change in the value of the investment since the date of acquisition. Under the Iron Ore Agreement, all iron ore exploration was fully funded by Rio Tinto Minerals with the Company not suffering any dilution, such that the Company’s 25% interest was maintained. During the fiscal year ended June 30, 2013, Rio Tinto Minerals advised the Company that it has decided not to continue with the iron ore project. Page 10 of 18
  11. 11. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) 4. EXPLORATION AND EVALUATION ASSETS The following table summarizes the Company’s tangible exploration and evaluation expenditures with respect to its properties in the DRC: Notes Tshikapa Northern DRC Project Project Total Cost Balance as at June 30, 2012 3,085,581 2,077,887 5,163,468 29,973 85,517 115,490 Additions Other adjustments Balance as at June 30, 2013 - (139,080) 2,024,324 5,139,878 - 151,129 151,129 3,115,554 2,175,453 5,291,007 Additions Balance as at December 31, 2013 (139,080) 3,115,554 There is $2,219 of intangible exploration and evaluation expenditures as at December 31, 2013 (June 30, 2013: $2,219). There have not been any additions or disposals to intangible assets since January 1, 2010. a. Tshikapa Project The Tshikapa project is located in the south-western part of the Kasai Occidental province of the DRC near the town of Tshikapa. The Tshikapa project is located within the so-called Tshikapa triangle, bordering the Kasai River in the east, the Loange River in the west and the Angolan border in the south. The properties also lie within the broader kimberlite emplacement corridor which extends from known kimberlite pipes located in Angola. The Tshikapa diamond field has been extensively mined by alluvial diamond companies and small-scale miners, and it is estimated that it has produced over 100 million carats of diamonds since 1912. The Company has focused its attention on the Tshikapa triangle through six exploration permits, covering an area of 1,043km², held through an option agreement with the permit holder Acacia SPRL. Acacia SPRL has advised the Company of its wish to modify the option agreement. The Tshikapa project also includes a seventh exploration permit held by the Company through its wholly-owned DRC subsidiary and which covers an area of 212 km² to the west of the Tshikapa triangle. b. Northern DRC Project The Company's northern DRC diamond project is located in Orientale Province of the DRC and consists of 10 exploration permits, two of which are held by the Company directly through its DRC subsidiary and the balance of which are held through an option agreement with the holder of the permits. Rio Tinto Mining and Exploration Limited (“Rio Tinto”) was party to this agreement but has advised the Company that it no longer wishes to continue with this diamond project. Previously 22 exploration permits under option covered an area of 4,155 km² but based on ongoing exploration, application has been made to reduce these permits to the current total of 8 permits covering an area of 557 km². The two additional exploration permits held by the Company’s DRC subsidiary cover an area of 188 km² (after its obligatory 50% reduction) directly north of the optioned ground. 5. RELATED PARTY TRANSACTIONS a) Key Management Remuneration The Company’s related parties include key management. Key management includes executive directors and non-executive directors. The remuneration of the key management of the Company as defined above, during the three and six months ended December 31, 2013 and three and six months ended December 31, 2012 was as follows: Page 11 of 18
  12. 12. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) Three months ended Six months ended Six months ended December 31, December 31, December 31, 2013 Salaries Three months ended December 31, 2012 2013 2012 68,431 $ 62,967 $ 110,559 $ 144,288 $ b) $ 68,431 $ 62,967 $ 110,559 $ 144,288 Other Related Parties As at December 31, 2013, an amount of $nil (June 30, 2013 - $117,107 owed to one director) was owing to one director of the Company representing consulting fees. As at December 31, 2013, an amount of $415 was owed from Banro Corporation (“Banro”) (June 30, 2013 - $921). Banro owns 17,716,994 common shares of the Company, representing a 28.65% interest in the Company. During the three and six months ended December 31, 2013, the Company incurred common expenses of $nil and $nil (three and six months ended December 31, 2012 - $nil and $nil) in the DRC together with Loncor Resources Inc. (“Loncor”), a corporation with common directors. As at December 31, 2013, an amount of $3,736 (June 30, 2013 - $8,875) owing to Loncor was included in due to related parties in the consolidated statement of financial position. December 31, 2013 $ Due from related parties Due to related party June 30, 2013 $ 415 921 3,736 125,982 All amounts due to related parties are unsecured, non-interest bearing and due on demand. All transactions are in the normal course of operations and are measured at the exchange value. 6. SHARE CAPITAL a) Authorized The Company's authorized share capital consists of an unlimited number of common shares with no par value. The holders of the common shares are entitled to receive notice of and to attend all meetings of the shareholders of the Company and shall have one vote for each common share held at all meetings of the shareholders of the Company. The holders of the common shares are entitled to (a) receive any dividends as and when declared by the board of directors, out of the assets of the Company properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine, and (b) receive the remaining property of the Company in the event of any liquidation, dissolution or winding-up of the Company. During the six month period ended December 31, 2013, 3,109,849 warrants were exercised at a price of $0.132 per share. This resulted in the issuance of 3,109,849 common shares of the Company and gross proceeds to the Company of $410,500. 2,109,849 of the shares were issued to a director of the Company. As of December 31, 2013, the Company had 61,844,492 common shares issued and outstanding (June 30, 2013 – 58,734,643). b) Share purchase warrants As at December 31, 2013, the Company had outstanding warrants to purchase 5,000,000 (June 30, 2013: 11,969,698) common shares of the Company. The 5,000,000 are exercisable at a price of $0.22 per share until May 2014. Page 12 of 18
  13. 13. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) c) Loss per share Loss per share was calculated on the basis of the weighted average number of common shares outstanding for three and six months ended December 31, 2013, amounting to 61,844,492 and 60,948,720 (three and six months ended December 31, 2012: 52,734,643) common shares. Diluted loss per share was calculated using the treasury stock method. For the three and six months ended December 31, 2013, total stock options of nil (three and six months ended December 31 2012: 675,000) and warrants of 5,000,000 (December 31, 2012: 11,969,698) were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive. Items that are adjusted in the reconciliation between loss per share and headline loss per share to arrive at the Company’s headline loss per share include impairment of property, plant, and equipment and losses on disposal of assets, however they have no effect on the Company’s headline loss per share. Three months ended Three months ended Six months ended Six months ended December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Loss for the period Adjustments for headline loss Headline loss for the period Basic and diluted loss per share Headline loss per share (55,783) - (75,064) - (101,564) (149,298) - - (55,783) (75,064) (101,564) (149,298) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) 7. SHARE-BASED PAYMENTS In August 2011, the Company’s board of directors established a new stock option plan for the Company (the "New Plan"). In establishing the New Plan, the Board of Directors also provided that no additional stock options may be granted under the Company’s other stock option plan (the "Old Plan") and terminated the Old Plan effective upon the exercise, expiry, termination or cancellation of all of the currently outstanding stock options that were granted under the Old Plan. Under the New Plan, non-transferable options to purchase common shares of the Company may be granted by the Company’s Board of Directors to any director, officer, employee or consultant of the Company or any subsidiary of the Company. The New Plan contains provisions providing that the term of an option may not be longer than ten years and the exercise price of an option shall not be lower than the last closing price of the Company’s shares on the Toronto Stock Exchange prior to the date the stock option is granted. Unless the Board of Directors makes a specific determination otherwise, stock options granted under the New Plan and all rights to purchase Company shares pursuant thereto shall expire and terminate immediately upon the optionee who holds such stock options ceasing to be at least one of a director, officer or employee of or consultant to the Company or a subsidiary of the Company, as the case may be. Stock options granted pursuant to the New Plan vest as follows: 75% of the stock options vest on the 12 month anniversary of their grant date and the remaining 25% of such stock options vest on the 18 month anniversary of their grant date. The total number of common shares of the Company issuable upon the exercise of all outstanding stock options granted under the New Plan shall not at any time exceed 12% of the total number of outstanding common shares of the Company, from time to time. As at December 31, 2013, the Company had outstanding under the Old Plan stock options to acquire nil (June 30, 2013 – 675,000) common shares of the Company at a weighted-average exercise price of $nil (June 30, 2013 - $2.10) per share. There are currently no stock options outstanding under the New Plan. Page 13 of 18
  14. 14. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) The following tables summarize information regarding outstanding stock options: For six months ended December 31, 2013: During the Year Exercise Price Range ($) Opening Balance Granted Exercised Weighted average Expired Closing Balance Forfeited remaining Vested & contractual life Exercisable Unvested (years) 2.10 - 7.51 675,000 - - (675,000) - - - - - 675,000 - - (675,000) - - - - - Weighted Average Exercise Price $ 2.10 $ - $ - $ - $ - $ - - $ - $ - For six months ended December 31, 2012: During the Year Exercise Price Range ($) Opening Balance Granted Exercised Weighted average Expired Closing Balance Forfeited remaining Vested & contractual life Exercisable Unvested (years) 2.10 - 7.51 800,000 - - (125,000) - 7.52 - 16.00 90,000 - - (90,000) - - - 890,000 - - (215,000) - 675,000 - 2.10 - 675,000 1.16 675,000 - - - 675,000 - Weighted Average Exercise Price $ 3.51 $ - $ - $ - $ - $ $ 2.10 $ - The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The contractual life of all options on the date of grant is 5 years. The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. 8. SEGMENTED REPORTING The Company has one operating segment: the acquisition, exploration and development of mineral properties located in the DRC. The operations of the Company are located in two geographic locations, Canada and the DRC. Geographic segmentation of non-current assets is as follows: Page 14 of 18
  15. 15. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) As at December 31, 2013 Exploration and evaluation Canada $5,293,226 $5,293,226 - - $5,293,226 DRC Total Assets $5,293,226 As at June 30, 2013 Exploration and evaluation Canada $5,142,097 $5,142,097 - - $5,142,097 DRC Total Assets $5,142,097 9. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a) Fair value of financial assets and liabilities The consolidated statements of financial position carrying amounts for cash, prepaid expenses and other assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature. Due to the use of subjective judgments and uncertainties in the determination of fair values these values should not be interpreted as being realizable in an immediate settlement of the financial instruments. Fair value hierarchy The following provides a description of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair values of financial assets and liabilities carried at amortized cost are approximated by their carrying values. Cash is ranked level 2 as it is based on similar loans in the market. b) Risk Management Policies The Company is sensitive to changes in commodity prices and foreign-exchange. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. Although the Company has the ability to address its price-related exposures through the use of options, futures and forward contacts, it does not generally enter into such arrangements. c) Foreign Currency Risk Foreign currency risk is the risk that a variation in exchange rates between the Canadian dollar and United States dollar or other foreign currencies will affect the Company’s operations and financial results. A portion of the Company’s transactions are denominated in United States dollars, Congolese francs and South African rand. The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities. The Company’s functional currency Page 15 of 18
  16. 16. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) is the Canadian dollar. The majority of major expenditures are transacted in US dollars. The Company maintains the majority of its cash in Canadian dollars but it does hold balances in US dollars and South African Rand. Significant foreign exchange gains or losses are reflected as a separate component of the consolidated statement of comprehensive loss. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. The following table indicates the impact of foreign currency exchange risk on net working capital as at December 31, 2013. The table below also provides a sensitivity analysis of a 10 percent strengthening of the Canadian dollar against foreign currencies as identified which would have increased (decreased) the Company’s net loss by the amounts shown in the table below. A 10 percent weakening of the Canadian dollar against the same foreign currencies would have had the equal but opposite effect as at December 31, 2013. U.S dollar South African rand $ ZAR Cash 87,272 8,348 Prepaids and other assets 12,544 79,823 (81,702) (82,663) 18,114 5,508 1.0636 0.1013 19,266 558 1,927 56 Accounts payable and accrued liabilities Total foreign currency financial assets and liabilities Foreign exchange rate at December 31, 2013 Total foreign currency financial assets and liabilities in CDN $ Impact of a 10% strengthening or weakening of the CDN $ on net loss d) Credit Risk Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash. Cash is maintained with several financial institutions of reputable credit in Canada, the DRC and South Africa and may be redeemed upon demand. It is therefore the Company’s opinion that such credit risk is subject to normal industry risks and is considered minimal. e) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company attempts to ensure that there is sufficient cash to meet its liabilities when they are due and manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments in a cost-effective manner. The key to success in managing liquidity is the degree of certainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. The Company’s liquidity requirements are met through a variety of sources, including cash, credit facilities and equity capital markets. In light of market conditions, the Company initiated a series of measures to bring its spending in line with the projected cash flows from its operations and available project specific facilities in order to preserve its financial position and maintain its liquidity position. Accounts payable and accrued liabilities of $407,613 and amounts due to related parties of $3,736 are due within one year and represent all significant contractual commitments, obligations, and interest and principal repayments on financial liabilities. Please refer to Note 1, Continuation of the Business. Page 16 of 18
  17. 17. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) f) Mineral Property Risk The Company’s operations in the DRC are exposed to various levels of political risk and uncertainties, including political and economic instability, government regulations relating to exploration and mining, military repression and civil disorder, all or any of which may have a material adverse impact on the Company’s activities or may result in impairment in or loss of part or all of the Company's assets. g) Market Risk Market risk is the potential for financial loss from adverse changes in underlying market factors, including foreignexchange rates, commodity prices, interest rates and stock based compensation costs. h) Interest rate risk Interest rate risk is the potential impact on any Company earnings due to changes in bank lending rates and short term deposit rates. The Company is not exposed to significant interest rate risk other than cash flow interest rate risk on its cash. The Company does not use derivative instruments to reduce its exposure to interest rate risk. A fluctuation of interest rates of 1% would not affect significantly the fair value of cash. i) Title risk Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mining properties. Although the Company has investigated title to all of its mineral properties for which it holds concessions or other mineral licenses, the Company cannot give any assurance that title to such properties will not be challenged or impugned and cannot be certain that it will have valid title to its mineral properties. The Company relies on title opinions by legal counsel who base such opinions on the laws of countries in which the Company operates. j) Country risk The DRC is a developing country and as such, the Company’s exploration projects in the DRC could be adversely affected by uncertain political or economic environments, war, civil or other disturbances, and a changing fiscal regime and by DRC’s underdeveloped industrial and economic infrastructure. The Company’s operations in the DRC may be effected by economic pressures on the DRC. Any changes to regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect its business. Operations may be affected in varying degrees by factors such as DRC government regulations with respect to foreign currency conversion, production, price controls, export controls, income taxes or reinvestment credits, expropriation of property, environmental legislation, land use, water use and mine safety. There can be no assurance that policies towards foreign investment and profit repatriation will continue or that a change in economic conditions will not result in a change in the policies of the DRC government or the imposition of more stringent foreign investment restrictions. Such changes cannot be accurately predicted. k) Capital Management The Company manages its cash, common shares, warrants and any stock options as capital. The Company’s main objectives when managing its capital are: • to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk while providing an appropriate return to its shareholders; • to maintain a sufficient capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business; • to safeguard the Company’s ability to obtain financing; and • to maintain financial flexibility in order to have access to capital in the event of future acquisitions. Page 17 of 18
  18. 18. Delrand Resources Limited NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 2013 (Expressed in Canadian dollars) (unaudited) The Company manages its capital structure and makes adjustments to it in accordance with the objectives stated above, as well as responds to changes in economic conditions and the risk characteristics of the underlying assets. There were no significant changes to the Company’s approach to capital management during the three month period ended December 31, 2013. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. As at December 31, 2013 As at June 30, 2013 Cash $ 99,810 $ 101,713 Share capital $ 117,012,188 $ 116,601,688 Deficit $ (120,156,186) $ Contributed surplus $ 8,159,644 10. $ (120,054,622) 8,159,644 COMMITMENTS AND CONTINGENCIES Six of the exploration permits comprising part of the Company’s Tshikapa project in the DRC are held through an option agreement with Acacia SPRL. Acacia SPRL has advised the Company of its wish to modify the option agreement. The Company continues its discussions with Acacia SPRL and believes it can reach an agreement that is satisfactory for both parties. The Company and its subsidiaries are subject to routine legal proceedings and tax audits. The Company does not believe that the outcome of any of these matters, individually or in aggregate, would have a material adverse effect on its consolidated losses, cash flow or financial position. Page 18 of 18
  19. 19. DELRAND RESOURCES LIMITED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AT AT AND FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2013 The following management’s discussion and analysis of financial condition and results of operations (the “MD&A”) has been prepared by management and provides a review of the activities, results of operations and financial condition of Delrand Resources Limited (the “Company” or “Delrand”) based upon International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board. This MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company as at and for the three and six month periods ended December 31, 2013 (the “Interim Financial Statements”), together with the MD&A and the audited financial statements as at and for the year ended June 30, 2013 (the “Financial Statements”) as well as the notes thereto. All amounts are expressed in Canadian dollars unless otherwise stated. This MD&A is dated February 14, 2014. Additional information relating to the Company, including the Company’s annual information form, is available on SEDAR at www.sedar.com. FORWARD-LOOKING STATEMENTS The following MD&A contains forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements relating to exploration results, potential mineralization and future plans and objectives of the Company) are forward-looking statements. These forwardlooking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things, uncertainties relating to the availability and costs of financing needed in the future, the possibility that future exploration results will not be consistent with the Company’s expectations, changes in equity markets, changes in diamond markets, foreign currency fluctuations, political developments in the Democratic Republic of the Congo (the "DRC"), changes to regulations affecting the Company's activities, delays in obtaining or failure to obtain required project approvals, the uncertainties involved in interpreting geological data and the other risks involved in the mineral exploration business. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.
  20. 20. 2 COMPANY OVERVIEW The Company is engaged in the acquisition and exploration of diamond properties in known diamond producing areas in the DRC. The Company also has an iron ore exploration project in the DRC. For the three and six months ended December 31, 2013, the Company reported a net loss of $55,783 and $101,564 (three and six months ended December 31, 2012: $75,604 and $149,298). The net asset value of the Company was $5,015,646 as at December 31, 2013 (June 30, 2013: $4,706,710). The Company’s accumulated deficit as at December 31, 2013 was $120,156,186 (June 30, 2013: $120,054,622). The Company had a working capital deficit of $277,580 as at December 31, 2013 (June 30, 2013: $429,967) and had a net decrease in cash of $147,153 and $1,903 during the three and six months ended December 31, 2013 (three and six months ended December 31, 2012: decrease of $53,021 and $395,839 respectively). While the Company’s financial statements have been prepared on the basis of IFRS accounting principles applicable to a going concern, adverse conditions may cast substantial doubt upon the validity of this assumption. In the event the Company is unable to identify recoverable resources, receive the necessary permitting, or arrange appropriate financing, the carrying value of the Company’s assets could be subject to further material adjustment. Furthermore, the volatile global economic environment and its impact on certain market conditions may cast significant doubt upon the validity of this assumption. The Company’s ability to continue operations in the normal course of business is dependent on several factors, including its ability to secure additional funding. Management has been exploring all available options to secure additional funding, including equity financing and strategic partnerships. In addition, the recoverability of amounts shown for exploration and evaluation assets is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain financing to perform its exploration activies or complete the development of the properties where necessary, or, alternatively, upon the Company’s ability to recover its spent costs through a disposition of its interests, all of which are uncertain. During the six months ended December 31, 2013, 3,109,849 warrants were exercised at a price of $0.132 per share. This resulted in the issuance of 3,109,849 common shares of the Company and gross proceeds to the Company of $410,500. 2,109,849 of the shares were issued to a director of the Company. DIAMOND PROJECTS The Company’s present operations consist of the exploration and evaluation of several mineral properties for diamonds in the DRC. The Company’s exploration programs in the DRC are currently focused on the Coexco and Bomili exploration permit areas in the Bafwasende region in the northern DRC, and on the selection of targets in the Kasai provinces in the southern DRC. Further interpretation of the Coexco and Bomili detailed sampling results has permitted the reduction of the eight Coexco permits to four permits covering five targets that have subsequently been prioritised. Applications for the renewal of these four permits have been submitted to CAMI. In addition the two Bomili permits have been retained as a result of the
  21. 21. 3 detailed sampling results from the work that the Company carried out in August and December 2013. During the three months ended December 31, 2013, the Company made significant progress with the program to evaluate a large exploration dataset covering the Kasai provinces. Northern DRC Project (6 exploration permits) Results from the 2009 reconnaissance stream samples, collected over the original 44 Coexco and two Bomili exploration permit areas, reported five ilmenites, 27 chrome spinels, one eclogitic garnet and 15 micro-diamonds (i.e. less than 0.5 mm but larger than 0.4 mm in size). The follow-up sampling program in 2011 over these positive areas was narrowed down to 22 Coexco and the two Bomili exploration permits. Pursuant to the follow-up sampling program, 490 and 97 follow-up stream samples were collected over the Coexco and Bomili project areas, respectively. All samples were concentrated by the Company’s mechanical jig before being consigned to Rio Tinto’s heavy mineral laboratory in Perth. The results of these follow-up samples were completed during the first six months of 2012. The number of positive samples from both the reconnaissance and follow-up stream sampling are limited to five targets within the Coexco permit areas and two targets in the Bomili permit areas. These eight blocks were earmarked for further detailed stream sampling, that was conducted in Q3 of 2012. Additional detailed samples were collected over the Bomili targets in August and December 2013. The results of the 2012 and most of the August 2013 samples are available whilst those collected in December are still in the field and should be available for treatment during the first quarter of 2014. The Coexco project area is dominated by almost horizontally bedded Neoproterozoic Lindian Group sediments (shale, sandstone and conglomerate) overlying the Archaean Mbomou Craton. A large part of the Coexco project area is covered by a thick and mature laterite crust masking most of the rock formations of the area. These laterites have chemically altered and etched, and hence depressed the occurrences of kimberlitic satellite minerals significantly. Artisanal diamond diggings were observed along the Makombe, Mopamu, Aniede, Efule and Lobilo Rivers and its tributaries, all within the target area. Several other isolated and sporadic diggings were seen scattered within the project area. The 2012 followup program produced 48 diamonds, 12 kimberlitic ilmenites (picro-ilmenite), 21 chromites and 7 garnets that have a marginal mantle signature (G3 and G5) over the reduced area all in the 0.4 to 0.7 mm fraction. Although the follow-up work failed to focus any specific targets, the depressed distribution of the mantle minerals is due to the thick (at least 10 metres) laterite. The abundance of diamonds which are not affected by the chemical etching of the laterite, makes this a promising target. The conclusion from infra-red work on the initial micro-diamonds recovered from the reconnaissance work suggests that there are two sources, one in the north and one more to the south. Visual observations of the diamonds recovered from the follow-up samples indicate that there is no obvious sign of wear or breakage. The 48 diamonds recovered from the follow-up work have been sent for infra-red studies. The results of these also show derivation from a resticted number of sources. The detailed follow-up samples collected in 2012 for blocks 4 to 6 were submitted for heavy liquid separation (Tetrabromoethane - TBE with a density of 2.96 g/ml). The total weight of
  22. 22. 4 the TBE concentrate of the 102 samples is 23,929.74 grams (24 kg) and translates to an average of 234.61 grams per sample. This is extremely high and the sorting of these concentrates, by Afrid Laboratory in South Africa, will most likely only be completed during Q1 of 2014. The results of those samples will be used to highlight areas for ground geophysics with the Company’s magnetometers. If magnetic anomalies resembling kimberlites are identified, the Company intends to drill these. Delrand’s drill rig is in storage in the DRC at the moment and it will not be difficult to mobilize this equipment and start a drill program, which should preferably been done in this year’s dry season. In the Bomili project area there is no cover of Neoproterozoic sediments and the permit areas are underlain by the same Archaean rocks of the Mbomou Craton. The follow-up program produced no garnets, a few chromites but an abundance of ilmenite particularly in respect of permit number PR 1174. The mineral chemistry suggests that these ilmenites have defined two and possibly three separate kimberlite sources. These three targets on the two Delrand permit areas were covered by detailed stream sampling in the second half of 2012. The results of these samples have highlighted the Daikwayi, Etale, Abanza and Ekoko streams on PR 1174 as highly anomalous. Several samples contain more than 20 ilmenite and these areas have been identified as priority and were covered by a detailed ‘hammer’ prospecting mission carried out by the Company in August 2013. During this program eight samples were collected and each contained ilmenite with “SS” surface textures. This stands for sculptured surfaces and represents the mineral’s original surface indicating that these ilmenites have not travelled. Electron microprobe analysis will be conducted on these grains to obtain its interest rating. In December 2013, and based on the visual results from the August mission, a ground magnetic survey was planned and initiated over the high counts on PR 1174. In addition, more samples were collected over the positive samples obtained in August to increase the number of kimberlitic minerals for microprobe analysis. This field program is presently in progress and is planned to be completed during Q1 2014. If the geophysics have identified suitable drill targets, and the mineral chemistry of the August and December 2013 missions are encouraging enough, the Company intends to commence a drilling program during next year’s dry season to cover targets in both the Coexco and Bomil ground. Tshikapa Project (7 exploration permits) Delrand is continuing discussions with Acacia to exercise its option which it has with that company in order to continue its exploration activities over the remaining six Acacia exploration permit areas. These are the remaining permits that were part of the original option agreement and have been covered by a reconnaissance prospecting program. Southern DRC Delrand has negotiated an exploration agreement with Rio Tinto in order to access interpret a large diamond exploration dataset which Rio Tinto has acquired. Delrand identified several promising targets which will in time be progressed. Delrand recognized a regional background ‘noise’ of kimberlitic indicator minerals which and has also has
  23. 23. 5 complicated the recognition of residual mineral anomalies. However, it has now highlighted several targets that will need to be explored. The next step is to get agreement with Rio Tinto on the priority rating and submit applications to the Department of Mines (CAMI) for exploration permits (PR). However, since CAMI remains closed for new applications Rio Tinto has suspended the agreement until such time when it will be possible to secure exploration permits over these promising targets. At the same time, Delrand will marry its own dataset with others such as the one described above in order to focus its regional diamond interest for future target selection. Security of Tenure The exploration program in the DRC is focused on two areas: one in the northern DRC around Bafwasende and one in the southern part of the country south of Tshikapa. Exploration permits have been secured in both areas and are in good standing. The Company has applied to reduce the Coexco ground from 22 permits to eight permits based on the results from the detailed follow-up stream sampling program. As of the start of 2014 these eight Coexco permits will be further reduced and focused on four. Two exploration permit applications are still at CAMI for consideration and Delrand is looking to make additional applicatioons as soon as CAMI opens for new applications. Delrand holds the following permits directly or by partners through various option agreements: Acacia (6), Delrand (3) and Coexco (8). Status of Exploration Permits of Delrand and Partners in the DRC as of December 31, 2013 Company (Project) Delrand (DRC North) Delrand (Tshikapa) Acacia (Tshikapa) Coexco (DRC North) Total PR Numbers 1174, 1175 9083 1175,1176,1177,1180, 1188, 1187 6889, 6891, 6893, 6897, 6898, 6899, 6901, 6906 Permits at December 31, 2013 Permits Km² 2 188 1 212 6 1,043 8 557 17 2,000 IRON ORE PROJECT In May 2011, the Company announced the discovery of high grade haematite (a form of iron ore) in its exploration areas within Province Orientale, DRC, through its then joint venture with Rio Tinto Minerals Development Limited ("Rio Tinto"). Additional iron ore results were announced by the Company in November 2011. The drilling results for 1,117 metres of diamond drill holes, which are detailed below, revealed average grades from the mineralized intercepts ranging from 62.5% to 68.5% iron. The iron ore exploration was funded and operated by Rio Tinto.
  24. 24. 6 Initial geological research and exploration had indicated that the exploration permit areas, which hitherto had been largely unexplored using modern exploration methods, were highly prospective for the discovery of iron ore deposits. This assessment is supported by these initial drill results. Mapping and first pass drilling was completed on the Zatua 01 and 02 target areas with 11 diamond drill holes, one of which had to be abandoned, totaling 1,117 meters. Seven of these holes intercepted high grade haematite mineralization. The mineralized package was not present in the remaining holes despite their central location. The target areas had been selected after a regional airborne magnetic survey had identified geophysical anomalies which subsequent ground follow up indicated to be associated with outcropping haematite mineralization. Mineralized intervals, where intercepted by a drill hole, range in thickness from 37 meters to 121 meters with both friable and massive textures being observed. Analytical results were received for all seven holes with values of 62.5%-68.5% for Fe; 0.56% to 4.78% for Al2O3; 0.48% to 6.36% for SiO2 and 0.040% to 0.148% for P, with the elevated high phosphorous values appearing to be associated with recent weathering. Despite limited thicknesses in some of the holes, the results give encouragement that highgrade haematite is present in the area. No further work has been conducted at the iron ore project since early 2012. Subsequently, Rio Tinto has withdrawn from the joint venture iron ore project. Delrand however will maintain its interest in the project with a view to realizing any potential value at a future date. QUALIFIED PERSON AND TECHNICAL REPORT Dr. Michiel C. J. de Wit, the Company's President and a “qualified person” as such term is defined in National Instrument 43-101, has reviewed and approved the technical information in this MD&A. Additional information with respect to the Company's Tshikapa project is contained in the technical report prepared by Dr. Michiel C. J. de Wit and Fabrice Matheys, dated March 31, 2009 and titled "National Instrument 43-101 Technical Report on the Tshikapa Project of BRC DiamondCore Ltd. in the Democratic Republic of the Congo". A copy of this report can be obtained from SEDAR at www.sedar.com. RESULTS OF OPERATIONS For the three and six months ended December 31, 2013, the Company reported a net loss of $55,783 (or $0.00 per share) and $101,564 (or $0.00 per share), compared to a net loss of $75,064 (or $0.00 per share) and $149,298 (or $0.00 per share) incurred during the three months ended December 30, 2012. The decrease in the net loss was mainly the result of lower consulting and professional fees. SUMMARY OF QUARTERLY RESULTS The following table sets out certain unaudited consolidated financial information of the Company for each of the last eight quarters, beginning with the three months ended December 31, 2013. The Company’s reporting and measurement currency is the Canadian dollar. The financial information is reported in accordance with IFRS.
  25. 25. 7 Three months ended December 31, 2013 Net loss ($'000) Net loss per share (basic and diluted) Three months ended June 30, 2013 Three months ended March 31, 2013 $(56) $(45) $(72) $(63) $0.00 $0.00 $0.00 $0.00 Three months ended December 31, 2012 Net loss ($'000) Net loss per share (basic and diluted) Three months ended September 30, 2013 Three months ended September 30, 2012 Three months ended June 30, 2012 Three months ended March 31, 2012 $(75) $(74) $(141) $(98) $0.00 $0.00 $0.00 $0.00 During the three month period ended December 31, 2013, the Company recorded a net loss of $55,783 compared to a net loss of $45,781 that was recorded during the three months ended September 30, 2013. The increase in the net loss was mainly due to a increase in both shareholder information costs and consulting fees. During the three month period ended September 30, 2013, the Company recorded a net loss of $45,781 compared to a net loss of $71,639 that was recorded during the three months ended June 30, 2013, mainly due to a reduction in consulting fees related to the departure of a former director. During the three month period ended June 30, 2013, the Company recorded a net loss of $71,639 compared to a net loss of $62,839 that was recorded during the three months ended March 31, 2013 due to higher consulting and professional fees. During the three month period ended March 31, 2013, the Company recorded a net loss of $62,839 compared to a net loss of $75,064 that was recorded during the three months ended December 31, 2012. The decrease was primarily due to lower consulting fees of $22,548 which was offset by an increase in general and administrative expenses of $9,727. During the three month period ended December 31, 2012, the Company recorded a net loss of $75,064 which was consistent with the net loss of $74,234 that was recorded during the three months ended September 30, 2012. During the three month period ended September 30, 2012, the Company recorded a net loss of $74,234 compared to a net loss of $141,073 during the three months ended June 30, 2012. This decrease in net loss was primarily due to a decrease in consulting and professional fees of $65,948, as audit fees were incurred in the three months ended June 30, 2012 due to the change in year end.
  26. 26. 8 During the three months ended June 30, 2012, the Company recorded a net loss of $141,073 compared to a net loss of $98,356 in the first three months of 2012. This increase in net loss was primarily due to an increase in consulting and professional fees of $34,080, as audit fees were incurred during the three months ended June 30, 2012 due to the change in year end. LIQUIDITY AND CAPITAL RESOURCES As at December 31, 2013, the Company had cash of $99,810 and a working capital deficit of $277,580 compared to cash of $101,713 and a working capital deficit of $429,967 as at June 30, 2013. During the six months ended December 31, 2013, 3,109,849 warrants were exercised at a price of $0.132 per share. This resulted in the issuance of 3,109,849 common shares of the Company and gross proceeds to the Company of $410,500. 2,109,849 of the shares were issued to a director of the Company. The Company has no operating revenues and is wholly reliant upon external financing to fund its activities. There is no assurance that such financing will be available on acceptable terms, if at all. Rio Tinto had funded exploration at the Company’s DRC North diamond project and all of the exploration at the DRC iron ore project. In general, market conditions have limited the availability of funds. Given the Company’s financial position and available resources, the Company currently expects a need to access equity markets for financing over the next twelve months. In light of current conditions, the Company has continued a series of measures to bring its spending in line with the projected cash flows from its operations in order to preserve its balance sheet and maintain its liquidity position. Management believes that based on its current financial position and liquidity profile, the Company will be able to satisfy its current and long-term obligations. The Interim Financial Statements of the Company have been prepared in accordance with IFRS applicable to a going concern. As at December 30, 2013 and June 30, 2013, there were no contractual obligations (that are not on the statement of financial position) entered into by the Company. The Company has an option agreement to secure an equity interest in prospective ground held in six exploration permits in the DRC with ACACIA sprl, which has advised the Company of its wish to modify the option agreement. The Company continues its discussions with ACACIA sprl and believes it can reach an agreement that is satisfactory to both parties. EXPLORATION AND EVALUATION EXPENDITURES The following table provides a breakdown of the Company's exploration and evaluation expenditures in the DRC for the six months ended December 31, 2013:
  27. 27. 9 Tshikapa Northern DRC $ 3,115,554 Balance June 30, 2013 $ 2,024,324 Total $ 5,139,878 Operating expenses Funds received from Rio Tinto - (57,269) (57,269) Exploration office expenses - 14,114 14,114 75,393 75,393 Salaries Consulting fees - 27,871 27,871 Field camp expenses - 8,316 8,316 Geochemistry - 3,818 3,818 Professional fees - 6,839 6,839 Travel - 21,493 21,493 Permits and surface taxes - 48,779 48,779 Foreign exchange - 1,775 1,775 Total Operating Expenses - 151,129 151,129 Balance December 31, 2013 $ 3,115,554 $ 2,175,453 $ 5,291,007 OUTSTANDING SHARE DATA The authorized share capital of the Company consists of an unlimited number of common shares. As at February 14, 2014, the Company had outstanding 61,844,492 common shares and warrants to purchase an aggregate of 5,000,000 common shares of the Company. RELATED PARTY TRANSACTIONS a) Key Management Remuneration The Company’s related parties include key management. Key management includes executive and non-executive directors. The remuneration of the key management of the Company as defined above, during the three and six months ended December 31, 2013 and December 31, 2012 was as follows: Three months ended Six months ended Six months ended December 31, December 31, December 31, December 31, 2013 Salaries Three months ended 2012 2013 2012 $ 68,431 $ 62,967 $ 110,559 $ 144,288 $ 68,431 $ 62,967 $ 110,559 $ 144,288
  28. 28. 10 b) Other Related Parties As at December 31, 2013, an amount of $nil (June 30, 2013 - $117,107 owed to one director) was owing to one director of the Company representing consulting fees. As at December 31, 2013, an amount of $415 was owed from Banro Corporation (“Banro”) (June 30, 2013 - $921). Banro owns 17,716,994 common shares of the Company, representing a 28.65% interest in the Company. During the three and six months ended December 31, 2013, the Company incurred common expenses of $nil and $nil (three and six months ended December 31, 2012 - $nil and $nil) in the DRC together with Loncor Resources Inc. (“Loncor”), a corporation with common directors. As at December 31, 2013, an amount of $3,736 (June 30, 2013 $8,875) owing to Loncor was included in due to related parties in the consolidated statement of financial position. FUTURE ACCOUNTING STANDARDS The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Company: IFRS 9, Financial instruments (“IFRS 9”) intends to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety with IFRS 9, however, no mandatorily effective date has currently been defined. IFRS 9 is intended to reduce the complexity for the classification and measurement of financial instruments. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements. An amendment to IAS 36, Impairment of Assets (“IAS 36”) was issued by the IASB in May 2013. The amendment reduces the circumstances in which the recoverable amount of assets or cash-generating units are required to be disclosed, clarifies the disclosures required, and introduces an explicit requirement to disclose the discount rate used in determining impairment. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the standard to have a material impact on its consolidated financial statements. An amendment to IAS 32, Financial Instruments: presentation (“IAS the IASB in December 2011. The amendment clarifies the meaning legally enforceable right to set-off’. The amendments to IAS 32 are periods beginning on or after January 1, 2014. The Company does not to have a material impact on its consolidated financial statements. 32”) was issued by of ‘currently has a effective for annual expect the standard An amendment to IAS 39, Financial Instruments: recognition (“IAS 39”) was issued by the IASB in June 2013. The amendment clarifies that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. A novation indicates an event where the original parties to a derivative agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. The amendments to IAS 39 are effective for annual periods beginning on or after January 1, 2014. The Company does not expect the standard to have a material impact on its consolidated financial statements.
  29. 29. 11 In May 2013, IFRIC published IFRIC Interpretation 21, Levies (“IFRIC 21”), effective for annual periods beginning on or after January 1, 2014. IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government. IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. The Company does not expect the standard to have a material impact on its consolidated financial statements. CRITICAL ACCOUNTING ESTIMATES The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements included the following: Provisions and contingencies The amount recognized as provision, including legal, contractual and other exposures or obligations, is the best estimate of the consideration required to settle the related liability, including any related interest charges, taking into account the risks and uncertainties surrounding the obligation. In addition, contingencies will only be resolved when one or more future events occur or fail to occur. Therefore assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. The Company assesses its liabilities and contingencies based upon the best information available, relevant tax laws and other appropriate requirements. Exploration and evaluation expenditure The application of the Company’s accounting policy for exploration and evaluation expenditure requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalized, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalized is written off in the statement of comprehensive loss during the period the new information becomes available. Impairment Assets, including exploration and evaluation assets, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their recoverable amounts. The assessment of the fair value often requires estimates and assumptions such as discount rates, exchange rates, commodity prices, rehabilitation and restoration costs, future capital requirements and future operating performance. Changes in such estimates could impact recoverable values of these assets. Estimates are reviewed regularly by management. Share-based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted.
  30. 30. 12 Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Under IFRS, the Company is required to estimate the number of forfeitures likely to occur on grant date and reflect this in the share-based payment expense revising for actual experiences in subsequent periods. RISKS AND UNCERTAINTIES The Company is subject to a number of risks and uncertainties that could significantly impact on its operations and future prospects. The following discussion pertains to certain principal risks and uncertainties but is not, by its nature, all inclusive. The only sources of future funds for further exploration programs which are presently available to the Company are the sale of equity capital, or the offering by the Company of an interest in its properties to be earned by another party carrying out further exploration. There is no assurance that such sources of financing will be available on acceptable terms, if at all. In the event that commercial quantities of minerals are found on the Company's properties, the Company does not have the financial resources at this time to bring a mine into production. The current financial climate is characterized by volatile and uncertain times. The uncertainty of forward looking statements is therefore greater. Diamond prices were reduced significantly as a result of the economic downturn and the recovery could be accompanied by volatility. All of the Company's projects are located in the DRC The assets and operations of the Company are therefore subject to various political, economic and other uncertainties, including, among other things, the risks of war and civil unrest, hostage taking, military repression, labor unrest, illegal mining, expropriation, nationalization, renegotiation or nullification of existing licenses, permits, approvals and contracts, taxation policies, foreign exchange and repatriation restrictions, changing political conditions, international monetary fluctuations, currency controls and foreign governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Changes, if any, in mining or investment policies or shifts in political attitude in the DRC may adversely affect the Company's operations. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral rights could result in loss, reduction or expropriation of entitlements. In addition, in the event of a dispute arising from operations in the DRC, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Canada. The Company also may be hindered or prevented from enforcing its rights with respect to a governmental instrumentality
  31. 31. 13 because of the doctrine of sovereign immunity. It is not possible for the Company to accurately predict such developments or changes in laws or policy or to what extent any such developments or changes may have a material adverse effect on the Company's operations. The DRC is a developing nation emerging from a period of civil war and conflict. Physical and institutional infrastructure throughout the DRC is in a debilitated condition. The DRC is in transition from a largely state controlled economy to one based on free market principles, and from a non-democratic political system with a centralized ethnic power base, to one based on more democratic principles. There can be no assurance that these changes will be effected or that the achievement of these objectives will not have material adverse consequences for the Company and its operations. The DRC continues to experience violence and significant instability in parts of the country due to certain militia and criminal elements. While the government and United Nations forces are working to support the extension of central government authority throughout the country, there can be no assurance that such efforts will be successful. All of the Company's properties are in the exploration stage only and none of the properties contain a known body of commercial ore. The Company currently operates at a loss and does not generate any revenue from operations. The exploration and development of mineral deposits involve significant financial risks over a significant period of time which even a combination of careful evaluation, experience and knowledge may not eliminate. Few properties which are explored are ultimately developed into producing mines. Major expenditures may be required to establish reserves by drilling and to construct mining and processing facilities at a site. It is impossible to ensure that the Company's exploration programs will result in a profitable commercial mining operation. The Company is exposed to currency risk as its principal business is conducted in foreign currencies. Unfavorable changes in the applicable exchange rate may result in a decrease or increase in foreign exchange gains or losses. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. The Company's exploration and, if such exploration is successful, development of its properties is subject to all of the hazards and risks normally incident to mineral exploration and development, any of which could result in damage to life or property, environmental damage and possible legal liability for any or all damage. The natural resource industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater financial resources and technical facilities than itself. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a) Fair value of financial assets and liabilities The consolidated statements of financial position carrying amounts for cash, prepaid expenses and other assets and accounts payable and accrued liabilities approximate their fair value due to their short-term nature. Due to the use of subjective judgments and uncertainties in the determination of fair values these values should not be interpreted as being realizable in an immediate settlement of the financial instruments. The following presents the fair value and carrying value of the Company's financial instruments:
  32. 32. 14 Fair value hierarchy The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair values of financial assets and liabilities carried at amortized cost are approximated by their carrying values. Cash is ranked level 2 as it is based on similar loans in the market. b) Risk Management Policies The Company is sensitive to changes in commodity prices and foreign-exchange. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. Although the Company has the ability to address its price-related exposures through the use of options, futures and forward contacts, it does not generally enter into such arrangements. c) Foreign Currency Risk Foreign currency risk is the risk that a variation in exchange rates between the Canadian dollar and United States dollar or other foreign currencies will affect the Company’s operations and financial results. Different portions of the Company’s transactions are denominated in United States dollars, Congolese francs and South African rand. The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities. The Company’s functional currency is the Canadian dollar. The majority of major expenditures are transacted in US dollars. The Company maintains the majority of its cash in Canadian dollars but it does hold balances in US dollars. Significant foreign exchange gains or losses are reflected as a separate component of the consolidated statement of comprehensive loss. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. See Note 9(c) of the Interim Financial Statements for additional details. d) Credit Risk Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash. Cash is maintained with several financial institutions of reputable credit in Canada, the DRC and South Africa and may be redeemed upon demand. It is therefore the Company’s opinion that such credit risk is subject to normal industry risks and is considered minimal.
  33. 33. 15 e) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company attempts to ensure that there is sufficient cash to meet its liabilities when they are due and manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments in a cost-effective manner. The key to success in managing liquidity is the degree of certainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. The Company’s liquidity requirements are met through a variety of sources, including cash, credit facilities and equity capital markets. In light of market conditions, the Company initiated a series of measures to bring its spending in line with the projected cash flows from its operations and available project specific facilities in order to preserve its financial position and maintain its liquidity position. f) Mineral Property Risk The Company’s operations in the DRC are exposed to various levels of political risk and uncertainties, including political and economic instability, government regulations relating to exploration and mining, military repression and civil disorder, all or any of which may have a material adverse impact on the Company’s activities or may result in impairment in or loss of part or all of the Company's assets. g) Market Risk Market risk is the potential for financial loss from adverse changes in underlying market factors, including foreign-exchange rates, commodity prices, interest rates and stock based compensation costs. h) Interest rate risk Interest rate risk is the potential impact on any Company earnings due to changes in bank lending rates and short term deposit rates. The Company is not exposed to significant interest rate risk other than cash flow interest rate risk on its cash. The Company does not use derivative instruments to reduce its exposure to interest rate risk. A fluctuation of interest rates of 1% would not affect significantly the fair value of cash. i) Title risk Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mining properties. Although the Company has investigated title to all of its mineral properties for which it holds concessions or other mineral licenses, the Company cannot give any assurance that title to such properties will not be challenged or impugned and cannot be certain that it will have valid title to its mineral properties. The Company relies on title opinions by legal counsel who base such opinions on the laws of countries in which the Company operates.
  34. 34. 16 j) Country risk The DRC is a developing country and as such, the Company’s exploration projects in the DRC could be adversely affected by uncertain political or economic environments, war, civil or other disturbances, a changing fiscal regime and by DRC’s underdeveloped industrial and economic infrastructure. The Company’s operations in the DRC may be affected by economic pressures on the DRC. Any changes to regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect its business. Operations may be affected in varying degrees by factors such as DRC government regulations with respect to foreign currency conversion, production, price controls, export controls, income taxes or reinvestment credits, expropriation of property, environmental legislation, land use, water use and mine safety. There can be no assurance that policies towards foreign investment and profit repatriation will continue or that a change in economic conditions will not result in a change in the policies of the DRC government or the imposition of more stringent foreign investment restrictions. Such changes cannot be accurately predicted. k) Capital Management The Company manages its cash, common shares and warrants as capital. The Company’s main objectives when managing its capital are: • to maintain a flexible capital structure which optimizes the cost of capital at an acceptable level of risk while providing an appropriate return to its shareholders; • to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business; • to safeguard the Company’s ability to obtain financing; and • to maintain financial flexibility in order to have access to capital in the event of future acquisitions. The Company manages its capital structure and makes adjustments to it in accordance with the objectives stated above, as well as responds to changes in economic conditions and the risk characteristics of the underlying assets. There were no significant changes to the Company’s approach to capital management during the six months ended December 31, 2013. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. SEGMENTED INFORMATION The Company has one operating segment: the acquisition, exploration and development of mineral properties located in the DRC. The operations of the Company are located in two geographic locations, Canada and the DRC. Geographic segmentation of non-current assets is as follows:
  35. 35. 17 As at December 31, 2013 Exploration and evaluation Canada $5,293,226 $5,293,226 - - $5,293,226 DRC Total Assets $5,293,226 As at June 30, 2013 Exploration and evaluation DRC Canada Total Assets $5,142,097 $5,142,097 - - $5,142,097 $5,142,097

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