Cape Diamonds PLC
01 April 2008
Cape Diamonds Plc
Interim results for the six months ended 31 December 2007 (unaudited)
1 April 2008
Cape Diamonds Plc (AIM: CAPE), the diamond producing company with diamond assets
in the Republic of South Africa, today reports its unaudited interim results for
the six months ended 31 December 2007.
Operational update - July to December 2007
• Mining activities have mainly focused on ore exposure in the Leicester
pit; 343,203 tonnes of ore and 902,490 tonnes of waste were mined.
• Both the Leicester and Russel pits have been constructed to ensure a
continuous supply of ore to the Dense Medium Separation plant ('DMS') when
the plant reaches full production.
• For the Russel pit, based on drilling results from the exploratory phase,
a final industry software Surpac mining model from company Gencom is now in
progress.
• Geological information is currently limited to indicated / inferred
resources. Based on results obtained from 6,800 metres of exploratory
drilling to date and planned DMS production up to June 2008, a new
geological model will be produced for the mine site. A revised evaluation of
ore resources and conversion to reserves will then be produced.
• Ore treated by the pan plant from July to September 2007 totalled 161,410
tonnes from which 1,215 carats of diamonds were recovered.
• The first phase pan plant remained operational until September 2007. The
pan plant was then shut down as it proved not to be commercially viable and
because the electrical supply used at the pan plant was required for the
start-up of the new DMS plant.
• The DMS plant was commissioned by the end of October 2007; the sort-house
is currently under construction and an interim grease table recovery plant
has been implemented to facilitate diamond recovery.
• The operation of the DMS plant was severely affected by electrical power
interruptions during cold commissioning in November and December 2007 to the
extent that production was halted in mid-December 2007.
• Typical problems experienced with power interruptions include ferrosilicon
losses, burnt electric motors (stop/start), conveyor belts tearing, choked
slimes lines and long standing times to rectify unplanned stoppages.
• Following on from the power interruptions, a 'force majeure' was declared
in January 2008 which has included halting the mining contractor's, Altivex,
on-mine activities.
• Options to overcome the interruptions to the electrical power supply were
evaluated and stand-by generator sets ('gen-sets') were ordered; the first
of which was delivered in February 2008.
• Following on from the installation of generator sets, the DMS ramp-up
production has been revised to 50,000, 80,000 and 150,000 tonnes
respectively for March, April and May 2008 respectively.
• The DMS is expected to reach full production capacity of 200,000 tonnes of
ore and internal kimberlite waste per month from June 2008 onwards.
Interim result highlights
• Turnover of £0.3 million (2006: £0.6 million)
• Loss of £1.7 million (2006: £1.4 million)
• In December 2007, the Company agreed with Industrial Development
Corporation ('IDC') a further financing facility of £2.1 million (Rand 30
million) of which £0.4 million (R5.1 million) has been drawn down since 31
December 2007.
An additional £2.85million (net of share issue costs) has been raised through
the issue of 10 million ordinary shares in December 2007.
We are pleased to announce the appointment of Mr David Gadd-Claxton, aged 50, as
Chief Executive Officer of the Company with immediate effect.
David is very familiar with the mining environments in Southern Africa and has
been on the Board of a number of AIM quoted companies. David held the positions
of President and Chief Executive Officer of Sierra Leone Diamond Company Limited
since 2005. David was formerly CEO and then President of Diamond Exploration and
Production for African Minerals Limited, and held the position of Chief
Operating Officer of Petra Diamonds Limited between July 2002 and June 2004.
David spent four and a half years as Vice President of SouthernEra Resources
Ltd, a Canadian diamond and platinum miner and was responsible for the building
of both the Klipspringer and Marsfontein diamond mines.
David is a mining engineer with more than 25 years experience in the mining
industry. He has extensive experience in both underground and open-pit mining in
the gold, coal and diamond industries. He worked for De Beers Consolidated Mines
for a number of years and participated in the Venetia mine project and has
developed expertise in large underground diamond mines such as Finch, Kimberley
and Koffiefontein.
Mr Manie Silver, has resigned from the position of Chief Executive Officer of
the Company, with effect from close of business on 28 March 2008.
Mr M A Alikhani resigned from the Board with effect from 22 February 2008
following which Dr Anna T M Mokgokong has been appointed acting Chairperson.
Commenting on the results, Dr Anna T M Mokgokong, Chairperson of Cape Diamonds,
said:
'The generator set installed at the end of February 2008 was commissioned
successfully and proved to have sufficient capacity to power the whole plant
including the crushing circuit. This was proved by operating the plant solely
on generator power for the greater part of March. With the power situation
resolved and the DMS fully operational by June 2008, we will be in a position to
update the resource summary.'
31 March 2008
Chairperson's Statement
I am pleased to report the unaudited results of Cape Diamonds Plc ('Cape
Diamonds') for the six month period ended 31 December 2007.
Matters of significance during the six months related mainly to the
commissioning of the DMS plant at the end of October 2007 and consequent
disruption of production outputs following electrical power supply interruptions
towards the end of 2007. As a result of these interruptions, the mine was
placed on care and maintenance until March 2008 when it returned to operation.
During this period mining activity by the contractor was halted, and
standby-generator sets were sourced to bridge the impact of power supply to the
plant. The first generator was delivered in February 2008 and production ramp-up
commenced from March 2008 onwards.
Unaudited interim results for the six months ended 31 December 2007
The interim results show a loss before taxation of £1.9 million compared with a
loss of £2.5 million for the corresponding period in the prior year. A deferred
tax credit of £0.2 million (2006: £1.1 million) has been recognised on
development costs and losses.
Outlook
The DMS plant is now commissioned and electrical power supply interruptions are
not expected to recur from the end of February 2008. The period from March to
June 2008 will be used to fine-tune the DMS plant to reach 200,000 tonnes full
production capacity. In addition, this period will be critical as a new
Competent Persons' Report ('CPR') will be produced.
Financing
In December 2007, the Company agreed a further financing facility of £2.1
million (Rand 30 million) with the IDC Bank. £0.4 million (R5.1 million) of this
facility has been drawn down post December 2007.
The Board believes that it is necessary to give the Company the ability to raise
further funds, to counter the risk that production from DMS plant is delayed or
at lower volumes or grades than expected. The Company has obtained the authority
to issue up to 17 million additional ordinary shares on a pre-emptive basis to
facilitate raising further finance through the issue of shares.
Going concern basis
The Group was loss making in the current period, recording a loss of £1.9
million. In addition, the nature of the Group's business is such that there is
significant reliance on the DMS plant at the Elandslaagte mine reaching full
capacity by June 2008.
The Directors' assumption over the timing of the DMS plant reaching full
capacity is crucial to the Group meeting its forecast cashflows for the next 12
months from the date of this report. Should the full commissioning of the DMS
plant be delayed or the expected levels of production not be reached there may
be insufficient cashflow for the Group to manage its day to day operations
without seeking and relying on further financing, which may or may not be
available. Therefore there is a material uncertainty which may cast significant
doubt on the entity's ability to continue as a going concern and therefore, that
it may be unable to realise its assets and discharge its liabilities in the
normal course of business.
Due to electrical power supply interruptions, the mine was placed on care and
maintenance until March 2008 when it returned to operation. During this period
mining activity by the contractor was halted, and standby-generator sets were
sourced to bridge the impact of power supply to the plant. The first generator
was delivered in February 2008 and production ramp-up commenced from March 2008
onwards. The generator set installed at the end of February 2008 was
commissioned successfully and proved to have sufficient capacity to power the
whole plant including the crushing circuit. This was proved by operating the
plant solely on generator power for the greater part of March.
With the power situation resolved and the DMS plant tested, the Board is
confident that the DMS will be fully operational and be in full production in
June 2008.
After making enquiries, the Directors have formed a judgement, at the time of
approving the interim financial information, that there is a reasonable
expectation that the Group can access adequate resources to continue in
operation and remain in existence for the foreseeable future. This assumes that
these resources include the Group's ability to raise further funds if the
production from the plant is delayed or does not meet forecast expectations. The
Directors have the approval of the shareholders to issue a further 17 million
shares on a pre-emptive basis.
For these reasons the Directors continue to adopt the going concern basis in
preparing the interim results.
Resource
The resource summary as shown in the Admission Document dated 22 May 2006 will
be updated following ramp up completion in June 2008.
Dr Anna T M Mokgokong
Chairperson
31 March 2008
Enquiries to:
Cape Diamonds Plc
Sharon Sasson + 972 52 272 7394
Oren Lubow + 972 54 332 0908
www.capediamonds.com
W.H. Ireland
Tim Cofman-Nicoresti +44 (0)121 265 6330
Consolidated income statement
Six months Six months
ended ended
31-Dec 31-Dec
2007 2006
Unaudited Unaudited
Notes £ £
Revenue 4 305,690 607,787
Mining expenses (861,988) (1,975,145)
Gross loss (556,298) (1,367,358)
Other operating income 86,000 21,767
Administrative expenses (591,658) (1,038,884)
Other operating expenses (671,528) (257,961)
Operating loss (1,733,484) (2,642,436)
Investment income 38,470 141,935
Finance costs (244,781) (3)
Loss before taxation (1,939,795) (2,500,504)
Taxation 5 249,265 1,134,465
Loss for the period (1,690,530) (1,366,039)
Attributable to:
Equity holders of the parent 7 (1,437,943) (1,366,039)
Minority interest 7 (252,587) -
(1,690,530) (1,366,039)
Loss per share
Basic and diluted 6 4.16p 4.15p
The above results relate to continuing operations.
Consolidated statement of recognised income and expense
Six month Six month period
period ended ended
31 December 2007 31 December 2006
Unaudited Unaudited
£ £
Exchange differences on translation of foreign operations 187,339 (159,198)
Loss for the period (1,690,530) (1,366,039)
Total income and expense recognised (1,503,191) (1,525,237)
Attributable to:
Equity holders of the parent (1,250,604) (1,525,237)
Minority interest (252,587) -
(1,503,191) (1,525,237)
Consolidated balance sheet
As at As at
31 December 2007 31 December 2006
Notes Unaudited Unaudited
Non-current assets £ £
Property, plant and equipment 52,314,897 42,932,022
Investment - insurance policy Sanlam (S Africa) 108,207 -
Deferred tax 185,837 1,815,589
52,608,941 44,747,611
Current assets
Diamond stock 29,764 240,376
Trade and other debtors 632,999 1,500,444
Cash and cash equivalents 3,208,650 3,239,143
3,871,413 4,979,963
Total assets 56,480,354 49,727,574
Current liabilities
Trade and other payables (2,854,722) (1,458,304)
Provisions (38,974) (50,440)
(2,893,696) (1,508,744)
Net current assets 977,717 3,471,219
Non-current liabilities
Long term liability - IDC loan (3,120,014) -
Provisions (298,134) (193,313)
Deferred tax (10,009,142) (10,009,142)
(13,427,290) (10,202,455)
Total liabilities (16,320,986) (11,711,199)
Net assets 40,159,368 38,016,375
Equity
Share capital 7 4,459,605 3,299,605
Share premium 7 28,244,541 25,089,041
Translation reserve 7 (28,566) (267,354)
Retained earnings 7 3,048,380 9,895,083
Equity attributable to equity holders of the parent 7 35,723,960 38,016,375
Minority interest 7 4,435,408 -
Total equity 40,159,368 38,016,375
Consolidated cash flow statement
Six month period Six month
ended period ended
31 December 31 December
2007 2006
Unaudited Unaudited
Notes £ £
Net cash outflow from operating activities 8 (174,758) (4,208,602)
Investing activities
Interest received 38,470 141,935
Pre-production development costs (1,996,653) (2,258,142)
Acquisition of property, plant and equipment (2,454,110) -
Investment - insurance policy Sanlam (S Africa) 57,037 -
Net cash used in investing activities (4,355,256) (2,116,207)
Financing activities
Proceeds on issue of shares 7 3,000,000 17,500
Share issue costs 7 (150,000) -
Loan received - IDC 1,874,116 -
Interest paid (244,781) -
Net cash from financing activities 4,479,335 17,500
Net decrease in cash and cash equivalents (50,679) (6,307,309)
Cash and cash equivalents at 1 July 2007 3,013,191 9,731,664
Effect of foreign exchange rate changes 246,138 (185,212)
Cash and cash equivalents at 31 December 2007 3,208,650 3,239,143
Interim results for the six months ended 31 December 2006 (unaudited)
Notes to the financial information
1. General information and accounting policies
Cape Diamonds Plc is a company incorporated in the United Kingdom under the
Companies Act 1985. It was incorporated on 25 March 2004 under the name of
Dominion Mining Plc and changed its name to Cape Diamonds Plc on 26 January
2006.
This announcement is for the unaudited interim results for the six month period
ended 31 December 2007.
The interim results including all comparatives have been prepared using the
accounting policies consistent with the audited financial statements for the
year ended 30 June 2007.
This financial information is presented in pounds sterling. The currency of the
primary economic environment in which the group operates is South African Rand
('R').
The R/£ exchange rates for the period are as follows:
Six months ended Six months ended
31 December 2007 31 December 2006
Period end rate 13.69 13.82
Average rate for period 14.14 13.74
2. Basis of accounting
The accounting policies for the interim financial information are
consistent with those applied in the preparation of the audited financial
statements for the year ended 30 June 2007, which were prepared in accordance
with the International Financial Reporting Standards ('IFRS') as adopted for use
in the European Union and therefore comply with Article 4 of the EU IAS
Regulation.
This financial information has been prepared on a historical cost basis, except
for certain financial instruments which are carried at fair value in accordance
with IFRS.
The financial information of the subsidiaries is prepared for the same reporting
period as the parent company, using consistent accounting policies.
IFRS 7 Financial Instruments: Disclosures will be adopted for June 2008
statements and is not mandatory for interim financial information.
3. Interim results for the six month period ended 31 December 2007 (unaudited)
The financial information presented for the interim period covers the period
from 1 July 2007 to 31 December 2007. The comparative figures cover the period
from 1 July 2006 to 31 December 2006.
The financial information set out in the interim report is unaudited.
This announcement was approved by the Board of Directors of the Company on 31
March 2008.
4. Revenue
Revenue for the six month period ended 31 December 2007 of £305,690 (2006:
£607,787) comprises the sale of diamonds in the South African market which is
the Group's only segment.
5. Current Tax - Group
Six month period Six month period
ended ended
31 December 31 December
2007 2006
Unaudited Unaudited
£ £
Current tax
- UK corporation tax - -
- South African tax - -
Deferred taxation - South Africa 249,265 1,134,465
Total tax credit 249,265 1,134,465
The current tax credit is significantly different to the statutory tax charge
due to non-deductible expenses, timing differences and tax losses not
recognised.
6. Loss per share
From continuing operations:
The calculation of the basic and diluted loss per share is based on the
following data:
Six month period Six month period
ended ended
31 December 2007 31 December 2006
Unaudited Unaudited
£ £
Earnings
Loss for the purposes of basic and diluted loss per
share being share attributable to equity holders of the
parent (1,437,943) (1,366,039)
Statutory number of shares
Weighted average number of ordinary
shares for the purpose of basic loss per share 34,596,053 32,910,999
Effect of dilutive potential ordinary shares:
Share warrants 4,739,150 4,569,150
Weighted average number of ordinary shares for the
purpose of diluted earnings per share 39,335,203 37,480,149
Basic and diluted loss per share 4.16p 4.15p
The outstanding share warrants are anti-dilutive as the Group made a loss during
the current and prior periods.
7 (a) Statement of change in equity for the six month period ended 31 December 2006
Share Share Translation Retained Minority Total
capital premium reserve earnings interest
£ £ £ £ £ £
At 1 July 2006 3,282,105 25,089,041 (42,924) 10,827,197 - 39,155,419
Net loss for the period - - - (1,366,039) - (1,366,039)
Shares issued 17,500 - - - 17,500
Share-based payments - - - 368,694 - 368,694
Exchange differences
on translation of
overseas operations - - (224,430) 65,231 - (159,199)
At 31 December 2006 3,299,605 25,089,041 (267,354) 9,895,083 - 38,016,375
(b) Statement of change in equity for the six month period ended 31 December 2007
Share Share Translation Retained Minority Total
capital premium reserve earnings interest
£ £ £ £ £ £
At 1 July 2007 3,459,605 26,394,541 (215,906) 4,259,047 4,687,995 38,585,282
Net loss for the period - - - (1,437,943 ) (252,587) (1,690,530)
Shares issued 1,000,000 2,000,000 - - - 3,000,000
Share issue expenses - (150,000) - - - (150,000)
Exchange differences on
translation of overseas
operations 187,340 187,340
Share-based payments - - - 227,276 - 227,276
At 31 December 2007 4,459,605 28,244,541 (28,566) 3,048,380 4,435,408 40,159,368
(c) The translation of the Group's foreign operations to the functional
currency at each balance sheet gives rise to a foreign exchange difference that
is initially recorded as a separate component of the equity in the translation
reserve. This reserve is recognised in the income statement on the disposal of
the foreign operation.
8. Notes to the cash flow statement
Six months ended Six months
31 December ended 31 December
2007 2006
Unaudited Unaudited
£ £
Operating loss from continuing operations (1,733,484) (2,642,436)
Adjustments for:
Depreciation of property, plant and equipment 285,377 166,816
Increase/(decrease) in provisions 102,287 (3,104)
Share-based payments 227,276 368,692
Net foreign exchange (gain)/loss (423,314) 370,767
Operating cash flows before movements in working capital (1,541,858) (1,739,265)
Decrease / (increase) in stock 118,779 (198,275)
Decrease/(increase) in receivables 764,234 (1,096,020)
Increase / (decrease) in payables 484,087 (1,175,042)
Net cash outflow from operating activities (174,758) (4,208,602)
Included in the operating loss above is an amount of £212,638 owed by Prema
Mining (Proprietary) Limited, a previous shareholder of Golden Falls, which has
been provided for in the period.
9. Events after the balance sheet date
An additional IDC loan facility for £2.1 million (R30 million) was agreed in
December 2007 to finance the expenditure on the new DMS of which £0.4 million (R
5.1 million) was drawn down post 31 December 2007.
Mr Manie Silver resigned with effect from 28 March 2008 with severance payment
payable representing three months' salary and totalling £30,000.
10. Going concern
The Group was loss making in the current year, recording a loss of £1.7 million.
In addition, the nature of the Group's business is such that there is
significant reliance on the DMS plant at the Elandslaagte mine reaching full
capacity by June 2008.
The Directors' assumption over the timing of the DMS plant reaching full
capacity is crucial to the Group meeting its forecast cashflows for the period
ending 31 December 2008. Should the full commissioning of the DMS plant be
delayed or expected levels of production or grade recoveries not be reached
there may be insufficient cashflow for the Group to manage its day to day
operations without seeking and relying on further financing, which may or may
not be available. Therefore there is a material uncertainty which may cast
significant doubt on the entity's ability to continue as a going concern and
therefore, that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Due to electrical power supply interruptions, the mine was placed on care and
maintenance until March 2008 when it returned to operation. During this period
mining activity by the contractor was halted, and standby-generator sets were
sourced to bridge the impact of power supply to the plant. The first generator
was delivered in February 2008 and production ramp-up commenced from March 2008
onwards. The generator set installed at the end of February 2008 was
commissioned successfully and proved to have sufficient capacity to power the
whole plant including the crushing circuit. This was proved by operating the
plant solely on generator power for the greater part of March.
With the power situation resolved and the DMS plant tested, the Board is
confident that the DMS will be fully operational and be in full production in
June 2008.
After making enquiries, the Directors have formed a judgement, at the time of
approving the financial information, that there is a reasonable expectation that
the Group can access adequate resources to continue in operation and remain in
existence for the foreseeable future. This assumes that these resources include
the Group's ability to raise further funds if the production from the plant is
delayed or does not meet forecast expectations. The Directors have obtained the
approval of the shareholders to issue a further 17 million shares when required.
In addition, the Directors consider that there are various costs in relation to
the mining activities which could be deferred without an adverse impact on the
operations.
For these reasons the Directors continue to adopt the going concern basis in
preparing the financial information.
INDEPENDENT REVIEW REPORT TO CAPE DIAMONDS PLC
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
December 2007 which comprises the income statement, the balance sheet, the
statement of changes in equity, recognised income and expense, the cash flow
statement and related notes 1 to 10. We have read the other information
contained in the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the Company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report have been prepared in accordance with the accounting policies the Group
intends to use in preparing its next annual financial statements.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 31 December 2007 is not prepared, in all
material respects, in accordance with the AIM Rules of the London Stock
Exchange.
Emphasis of matter - Going concern
Without qualifying our conclusion, we draw attention to the disclosures made in
note 10 to the financial information concerning the Group's ability to continue
as a going concern which would depend on full commissioning of the DMS plant on
a timely basis and the expected levels of production of the plant being met, or
alternatively, on obtaining additional financing if the plant is delayed further
or underperforming. This, along with other matters as set forth in note 10,
indicates the existence of a material uncertainty which may cast significant
doubt about the Company's and the Group's ability to continue as a going
concern. The interim financial information does not include adjustments that
would result if the Company of the Group was unable to continue as a going
concern as it is not practicable to determine or quantify them.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
31 March 2008
London, UK
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