Interim Results

To be released at 7.00 a.m. on 28 February 2006 Karelian Diamonds Resources plc ('the Company') Interim Results for the six months ended 30 November 2005 Chairman's Statement I have great pleasure in presenting your Company's report for the six months ended November 2005. Your Company made excellent progress during the period covered by this report, successfully applying for admission to AIM and advancing its diamond exploration programme in Finland. Trading on your Company's shares on AIM commenced at the beginning of September, 2005. Your Company's exploration programme is focussed on discovering potential world-class diamond deposits in the Finnish sector of the Karelian Craton. This is a block of ancient crustal rocks which occupies much of eastern and northern Finland, extending over the border into Russia where it hosts a number of world-class diamond deposits. Your Company believes that the Finnish sector of the Craton, given its size and potential, is under explored and, by analogy with the Russian sector, has the potential to host similar deposits. Your Company's claims in Finland are grouped on a geographical basis into four blocks, all of which lie within the Karelian Craton. The Kuhmo block is the largest and includes claims covering a proven diamondiferous kimberlite pipe at Seitapera. This pipe, which has a surface area of approximately 4 hectares, was discovered by Malmikaivos Oy in 1993 but never fully explored. Only a very limited number of shallow vertical drill holes were completed by Malmikaivos Oy and its partner Ashton before the latter withdrew from the area to focus on other Finnish claims some 120km away. However, a 13.3t composite sample from the Seitapera pipe was reported to have returned a grade of 1.09 carats per hundred tonnes. The Seitaperä pipe shows that the right geochemical conditions exist to host diamonds in the Kuhmo area. Karelian has discovered 16 separate indicator mineral anomalies in the same general area as the pipe and also encountered kimberlitic material in a preliminary trenching programme in Riihivaara that followed a detailed magnetic survey of one of those anomalies. Karelian believes that these developments, together with the fact that kimberlites typically occur in clusters, suggest that multiple sources of diamonds may exist in the Kuhmo area. The objective of Karelian's current follow-up drilling programme on the Seitaperä pipe is to re-assess the geology, diamond potential and extent of the pipe as well as its significance in relation to other potential sources of kimberlitic pipes found by your Company in the Kuhmo area. Your Company has developed a close working relationship with the Geological Survey of Finland (GTK) and is able to draw on its expertise, its extensive knowledge of Finnish geology and its excellent technical and laboratory services. Your Company employs GTK staff under contract as local consultants and to undertake fieldwork and has benefited greatly from this relationship. In addition, your Company's senior consultant, Dr Bert Gerryts, is an internationally respected diamond geologist who pioneered the use of indicator minerals and geophysics in diamond exploration. Finance On admission to AIM your Company raised £500,000 (before expenses) through a placing of 10,000,000 ordinary shares at 5p each, which together with the facilities available to the Company, is financing the current phase of your Company's activities. Your directors are considering the various options for financing its future exploration and development programmes. These may include bringing in a joint venture partner or the raising of further capital. Directors and Staff I would like to thank my fellow directors, staff and consultants for their support and dedication. They have made the success of the Company possible. I look forward to the future with confidence Professor Richard Conroy Chairman 28 February 2006 PROFIT AND LOSS ACCOUNT For the six months ended 30 November 2005 Note Six months Year ended ended 31 May 30 November 2005 2005 € € Operating expenses (76,366) (98,941) Other income 2,074 - Loss for the financial period (74,292) (98,941) Profit and loss account at beginning of (98,941) - period Profit and Loss account at end of period (173,233) (98,941) Loss per share €0.002 €0.003 BALANCE SHEET At 30 November 2005 At At 30 November 31 May 2005 2005 € € Fixed Assets Mineral interests 3,167,141 2,885,831 Tangible assets 1,593 - Financial assets 4 4 3,138,738 2,885,835 Current Assets Debtors 10,438 660 Cash at bank and in hand 309,721 3 320,159 663 Creditors: amounts failing due within one year (575,097) (397,747) Net Current Liabilities (254,938) (397,084) Net Assets 2,913,800 2,488,751 Capital and Reserves Called up share capital 447,716 347,716 Share premium account 2,639,317 2,239,976 Profit and loss account (173,233) (98,941) Shareholders' Funds 2,913,800 2,488,751 CASH FLOW STATEMENT For the six months ended 30 November 2005 Six months Year ended ended 31 May 30 November 2005 2005 € € Net Cash Inflow from Operating Activities 93,364 139,978 Capital Expenditure and Financial Investments (282,987) (225,835) Net Cash Outflow before financing (189,623) (85,857) Financing 499,341 85,860 Increase in Cash 309,718 3 Notes to the Financial Statements 1. Publication of non-statutory accounts The financial information set out in this document does not comprise the statutory accounts of the Company. 2. Loss per share The calculation of the loss per ordinary share of €0.002 is based on the loss for the half year of €74,292 and the weighted average number of ordinary shares on a basic and fully diluted basis during the year of 39,771,676. Share options and warrants are not included in the calculation of fully diluted shares since the Company incurred a loss which results in these potential shares being anti-dilutive. 3. Dividends No dividends were paid or are proposed in respect of the period ended 30 November, 2005. 4. A copy of the Interim Report will be sent to all shareholders shortly and will be available from the Company's registered office, 10 Upper Pembroke Street, Dublin 2.
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