Final Results

RNS Number : 9248Q
BlueRock Diamonds PLC
01 July 2022
 

BlueRock Diamonds PLC / AIM: BRD / Sector: Natural Resources

1 July 2022

BlueRock Diamonds PLC ('BlueRock,' the 'Company' or the 'Group')

 

Final Results

 

BlueRock Diamonds PLC, the AIM listed diamond producer, which owns and operates the Kareevlei Diamond Mine ('Kareevlei') in the Kimberley region of South Africa, is pleased to announce its audited results for the year ended 31 December 2021.

 

The Company's annual report and accounts have been dispatched to shareholders and are available on the Company's website at www.bluerockdiamonds.co.uk .

 

OVERVIEW

 

Fundamentals for Kareevlei remain solid

· Commissioned new plant designed to increase production to 1Mtpa from c 400,000tpa

· Upgraded Diamond Resource with 49% increase in net tonnes to 10,368,300 - confident this will increase further once more work is completed on KV3, the largest pipe

· Commenced opening up the main pit to reflect the upgraded Diamond Resource at depth and area

 

Achieved significantly better results than in 2020 despite major challenges including shutdowns due to DMR, Covid-19 and extreme weather

· 53% increase in the number of carats produced

· More than doubled revenue to £7.85m

· Recovered an increasing number of larger stones with a value in excess of USD50,000

 

The diamond market recovered well in 2021 and has come back stronger after the pandemic

· 2021 average price of USD470 is 13% higher than the average for 2019 of USD415

· Spike in prices post period end in February 2022 largely linked to the Ukraine situation

· Market now stabilised, but so far in 2022 sales prices have averaged over USD600, an increase of 29% on 2021 prices

 

Managing corporate challenges

· Cash resources depleted during what continues to be a period of heavy investment in mining development

· Entered into discussions to obtain financing to support the Company through this period. Discussions are ongoing for BlueRock to issue a new Loan Note for £1.6m as well as the provision of debt funding facility to Kareevlei for up to ZAR30m to be drawn as and when required.

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

 

**ENDS**

 For further information, please visit BRD's website    www.bluerockdiamonds.co.uk    or contact:

 

BlueRock Diamonds PLC

Mike Houston

David Facey, FD

 

m.houston@bluerockdiamonds.co.uk

dfacey@bluerockdiamonds.co.uk

SP Angel (NOMAD and Broker)

Stuart Gledhill / Caroline Rowe

 

Tel: +44 (0)20 3470 0470

St Brides Partners Ltd (Financial PR)

Isabel de Salis / C harlotte Page

 

bluerock@stbridespartners.co.uk

 

Notes to editors:

BlueRock Diamonds is an AIM-listed diamond producer which operates the Kareevlei Diamond Mine near Kimberley in South Africa which produces diamonds of exceptional quality and ranks in the top ten in the world in terms of average value per carat. The Kareevlei licence area covers 3,000 hectares and hosts five known diamondiferous kimberlite pipes with a combined Inferred Resource of 10.4 million tonnes / 516,200 carats (February 2021); based on its planned production of 1 million tonnes per annum, this provides a minimum 10-year life of mine. 

 

CHAIRMAN'S STATEMENT

 

Dear Shareholders,

 

I am pleased to present our audited results for the year ended 31 December 2021.

 

Overview

 

Our main goal in 2021 was to complete the transformational new plant which is designed to increase production to 1 million tonnes per annum from c 400,000 tonnes per annum. By the end of the year the plant was being commissioned and beginning to demonstrate that it would be able to achieve our future production targets. Despite the ongoing expansion works the Company achieved significantly better results than in 2020; most notably a 53% increase in the number of carats produced and revenue more than doubling. Prices achieved in the year increased by 59%, reflecting the recovery in the market after Covid-19, and the recovery of some significantly larger diamonds.

 

Operations

 

The major objectives for the year were: 1) to open up the KV1/KV2 main pit to reflect the upgraded Diamond Resource at depth and area and this involved a material increase in development (waste) mining; 2) to complete the expanded new processing plant so that it was fully commissioned before the year end; 3) to manage the ongoing challenge of Covid-19 which was successfully done until Q4, when the Omicron version disrupted operations.

 

Mining

 

During Q1 management began to redesign its mine plan centered around the main pit. It was agreed a material pushback was required for the mine to access the new economic depth of 120/130m versus the previous estimate of 80/100m. This entailed a step up in the strip ratio in the short term, in order to ensure predictable and secure supplies of good quality ore as the new plant ramps up to full production. This new plan was also designed to ensure that there was sufficient stockpile to enable the plant to operate more easily in the rainy season. The new mining plan was delayed in its implementation due to mining equipment failure in Q3, the shut down imposed by the DMR in November/December 2021, which led to a loss of 20 days mining as announced on 19 November 2021, and the shutdown due to Covid-19 (Omicron) in December 2021 and January 2022, leading to a further loss of 14 days of mining as announced on 22 December 2021, at which point the rainy season had started inhibiting the development of the mine further. As we have reported the rainy season has extended into May 2022, hence we are some three or four months behind schedule in the mine development. The application for the renewal of the current Mining Licence, which expired in August 2019, has been progressing well. In accordance with South African legislation, the Group has the right to continue mining until such time as the application has been processed

 

Processing and Expansion project

 

The challenge for the year was to complete the expansion project, whilst maximising production using the old plant and later in the year utilising a mixture of the old plant, with the crushing circuit of the new plant. This proved successful although operating the two plants had an impact on costs, largely because of the requirement for a significant amount of rehandling of material.

 

I am pleased to say that our expansion project was completed at the end of December 2021, after delays caused by the Section 54 stoppage imposed by the DMR in November/December 2021, followed by the closure due to Covid-19 (Omicron) in December 2021 and early January 2022. Since the end of the year the ramp up in production has been hindered by the excessive rain fall in Q1 and Q2 2022.

 

The Diamond Market

 

The diamond market recovered well in 2021. Average price per carat in 2021 was USD470 compared with USD295 in 2020, although prices in 2020 were significantly impacted by Covid-19 and the consequent cancellations of the diamond auctions. Interestingly, the 2021 average price of USD470 is 13% higher than the average for 2019 of USD415, indicating that the market has come back stronger after the pandemic. Since the end of the year the market was initially volatile with a big spike in prices in February largely linked to the Ukraine situation. It has since stabilised, but at prices significantly higher than our average for 2021. We expect the supply side of quality diamonds, as those recovered by Kareevlei, to remain tight for the foreseeable future, with the ongoing conflict in Ukraine affecting the supply of rough diamonds.

 

Diamond Recoveries

 

The Company continued to recover an increasing number of larger stones with a value in excess of USD50,000. During 2021 twelve larger stones were recovered for an aggregate sales value of $1,764,000. The Company recovered a record 58 carat (previous largest mid 20 carat) reflecting the potential of the Kareevlei Diamond Resource.

 

Diamond Resource ("Resource")

 

Kareevlei hosts five known diamondiferous kimberlite pipes with a combined Inferred and Indicated Resource of 10.4 million tonnes/516,200 carats (February 2021) and produces excellent quality diamonds with 90% of output gem quality.

 

In February 2021, we announced a Resource update demonstrating a 49% increase in net tonnes to 10,368,300, a 53% increase in net carats to 516,200 and notably 19% of the Resource was upgraded from the Inferred to Indicated category. Based on our planned production of 1mtpa, this provides a minimum 10-year life-of-mine, however, we remain confident that the Resource will increase further once more work is completed on KV3, our largest pipe, where at present only 40% of this pipe's volume is included.

 

Financing

 

In March 2021 the Company raised £1.5m of equity to continue to fund the expansion project which had increased in scope from a capacity of 750,000 tonnes to 1 million tonnes per annum. A further £1.6m was raised (£0.94m received during 2021 and £0.66m in 2022) for working capital purposes through a convertible loan note issued to Teichmann, following the approval of a waiver from the requirements of Rule 9 of the City Code on Takeovers and Mergers, and shareholder approval in June 2021.

 

As announced on 1 June 2022, the impact of the unusually high rainfall in the first five months of 2022 has severely impacted the Group's cash resources, leaving the Group requiring additional funding, whilst it completes its mining development.

 

Discussions continue with potential funders to BlueRock and to Kareevlei which is expected to be sufficient to fund the company through this development period. Further details will be announced as discussions progress.

 

Events following the end of the year

 

Due to the delays in implementing the new mining plan, exacerbated by the excessive rainfall, the Group sought further funding to fund the mine development costs and raised £2m through an issue of new equity in March 2022. Unfortunately, heavy rain continued into April and May 2022. As a result Mining development fell 36% (400,000 tonnes) compared to the budget for April and May, which has limited the mine's access to quality kimberlite and necessitated the use of lower grade and more difficult to handle material (high clay content) in Kareevlei's processing operations. Additionally, where BlueRock had hoped to ramp up production at its new 1Mtpa processing plant, the unforeseen days lost to rain and the lower-grade feed resulted in operations being down against budget over the period March to May by 48% on tonnes processed, 51% on grade and 74% on carats produced.

 

As a result of fewer diamonds being produced and sold, as well as increasing costs, BlueRock's cash resources have been depleted during what continues to be a period of heavy investment in mining development. The Company has therefore entered into discussions to obtain financing to support it through this period.

 

The Company continues to attract high prices for its high quality diamonds. So far in 2022 sales prices have averaged over USD600, an increase of 29% on 2021 prices.

 

Despite the advances made in 2021, there is still work to be done for Kareevlei to benefit fully from the potential of the new plant. The fundamentals for Kareevlei remain solid and I look forward to reporting more positive news as we move forward through the rest of the year.

 

I would like to thank everyone at BlueRock and Kareevlei, as well as our shareholders and key stakeholders for their continued efforts and support.

 

 

Michael Houston

Executive Chairman

 

 

 

Consolidated and Company Statements of Financial Position

 


Group

 

Group

 

Company

 

Company

Figures in £

2021

 

2020

 

2021

 

2020

Assets

 







Non-current assets

 







Property, plant and equipment

4,312,946


2,344,335


-


-

Right-of-use assets

517,789


520,795


-


-

Mining assets

1,839,809


560,332


-


-

Investments in subsidiaries

-


-


517,867


5

Other receivables

492,596 


425,319


12,147,002


10,360,032

Total non-current assets

7,163,140


3,850,781

 

12,664,869


10,360,037

Current assets

 







Inventories

802,835


458,308


-


-

Trade and other receivables

93,646


162,163


27,460


136,190

Cash and cash equivalents (including restricted

521,771


569,962


348,993


537,525

cash of £214,499 (2019: £223,914)








Total current assets

1,418,252


1,190,433

 

376,453


673,715

 








Total assets

8,581,392 

 

5,041,214

 

13,041,322


11,033,752

Equity and liabilities

 







Equity

 







Share capital

706,050


454,333


706,050


454,333

Share premium

8,656,201


6,885,796


8,656,201


6,885,796

Other equity

94,680


-


94,680


-

Accumulated loss

(7,781,745)


(7,223,054)


(673,019)


(473,817)

Other reserves

3,286,179 


3,393,154


 2,506,862


3,081,203

Total equity attributable to owners of parent

4,961,365


3,510,229


11,290,774


9,947,515

Non-controlling interests

(2,223,906)


(2,261,809)


 -


-

Total equity

2,737,459


1,248,420

 

11,290,774


9,947,515

Liabilities

 







Non-current liabilities

 







Provisions

544,692


454,197


-


-

Borrowings

1,333,345


828,300


987,658


465,601

Lease liabilities

564,063 


551,743



-

Total non-current liabilities

2,442,100


1,834,240

 

987,658


465,601

Current liabilities

 




 



Trade and other payables

2,739,672


1,237,563


293,435


111,826

Borrowings

617,602


696,206


469,455


508,810

Lease liabilities

44,559 


24,785



-

Total current liabilities

3,401,833


1,958,554

 

762,890


620,636









Total liabilities

5,843,933


3,792,794

 

1,750,548


1,086,237

 








Total equity and liabilities

8,581,392

 

5,041,214

 

13,041,322


11,033,752

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 


2021

 

2020

Figures in £

£

 

£





Revenue from contracts with customers

7,846,588


3,601,819

Other income

8,672


1,062

Administrative expenses

(133,546)


(192,137)

Operating expenses

(7,823,169)


(5,683,454)

Other gains

16,488


853

Loss from operating activities

(84,967)

 

(2,271,857)





Finance income

31,552


24,209

Finance costs

(384,288)


(248,022)

Other losses

(911,194)


(493,138)

Loss before taxation

(1,348,897)


(2,988,808)





Income tax expense

-


-

Loss for the year

(1,348,897)

 

(2,988,808)

 




Loss for the year attributable to:

 



Owners of Parent

(1,222,590)


(2,388,532)

Non-controlling interest

(126,307)


(600,276)


(1,348,897)

 

(2,988,808)

Other comprehensive loss net of tax




Components of other comprehensive income that may be reclassified to profit or loss




Gains on exchange differences on translation

631,576


397,605

Total other comprehensive income

631,576

 

397,605





Total comprehensive loss

(717,321)

 

(2,591,203)

 




Total comprehensive loss attributable to:




Owners of parent

(755,224)


(2,094,304)

Non-controlling interests

37,903


(496,899)


(717,321)

 

(2,591,203)

 




Basic and diluted loss per share




Basic loss per share

(0.09)


(0.35)

 

As permitted by section 408 of the Companies Act 2006, the parent company's profit and loss account has not been included in the financial statements.  The loss after taxation for the financial year for the parent company was £863,101 (2020: loss of £680,058).


Consolidated Statement of Changes in Equity - Group






Foreign

 








Value of

Capital

currency

Share-based

 

Attributable

Non-

 


Share

Share

conversion

redemption

translation

payment

Accumulated

to owners of

controlling

 

Figures in £

capital

premium

right

reserve

reserve

reserve

loss

the parent

interests

Total

Balance at 1 January 2020

162,900

4,147,980

-

2,003,010

17,723

1,097,751

(5,120,207)

2,309,157

(1,764,910)

544,247

Changes in equity

 










Loss for the year

-

-

-

-

-

-

(2,388,532)

(2,388,532)

(600,276)

(2,988,808)

Other comprehensive income

-

-

-

-

294,228

-

-

294,228

103,377

397,605

Total comprehensive income for the year

-

-

-

-

294,228

-

(2,388,532)

(2,094,304)

(496,899)

(2,591,203)

Issue of equity

291,433

2,870,501

-

-

-

-

-

3,161,934

-

3,161,934

Share issue expenses

-

(132,685)

-

-

-

-

-

(132,685)

-

(132,685)

Share-based payments

-

-

-

-

-

266,127

-

266,127

-

266,127

Transfer lapsed options to accumulated loss

-

-

-

-

-

(285,685)

285,685

-

-

-

Balance at 31 December 2020

454,333

6,885,796

-

2,003,010

311,951

1,078,193

(7,223,054)

3,510,229

(2,261,809)

1,248,420

Balance at 1 January 2021

454,333

6,885,796

-

2,003,010

311,951

1,078,193

(7,223,054)

3,510,229

(2,261,809)

1,248,420

Changes in equity

 










Loss for the year

-

-

-

-

-

-

(1,222,590)

(1,222,590)

(126,307)

(1,348,897)

Other comprehensive income

-

-

-

467,366 

-

-

467,366

164,210

631,576

Total comprehensive income for the year

-

-

-

-

467,366

-

(1,222,590)

(755,224)

37,903

(717,321)

Issue of equity

251,717

1,831,255

-

-

-

-

-

2,082,972

-

2,082,972

Share issue expenses

-

(60,850)

-

-

-

-

-

(60,850)

-

(60,850)

Share-based payments

-

-

-

-

-

89,558

-

89,558

-

89,558

Transfer lapsed options to accumulated loss

-

-

-

-

-

(663,899)

663,899

-

-

-

Value of conversion rights - convertible notes

-

-

94,680

-

-

-

-

94,680

-

94,680

Balance at 31 December 2021

706,050 

8,656,201

94,680

2,003,010 

779,317

503,852

(7,781,745)

4,961,365

(2,223,906)

2,737,459

 

 



Consolidated Statement of Changes in Equity - Company




Value of

Capital

Share-based

 



Share

Share

conversion

redemption

payment

Accumulated

 

Figures in £

capital

premium

right

reserve

reserve

loss

Total

Balance at 1 January 2020

162,900

4,147,980

-

2,003,010

1,097,751

(79,444)

7,332,197

Changes in equity

 







Loss for the year

-

-

-

-

-

(680,058)

(680,058)

Total comprehensive income

-

-

-

-

-

(680,058)

(680,058)

Issue of share capital

291,433

2,870,501

-

-

-

-

3,161,934

Share issue expenses

-

(132,685)

-

-

-

-

(132,685)

Share-based payments

-

-

-

-

266,127

-

266,127

Transfer lapsed options to accumulated loss

-

-

-

-

(285,685)

285,685

-

Balance at 31 December 2020

453,333

6,885,796

-

2,003,010

1,078,193

(473,817)

9,947,515

Balance at 1 January 2021

453,333

6,885,796

-

2,003,010

1,078,193

(473,817)

9,947,515

Changes in equity

 







Loss for the year

-

-

-

-

(863,101)

(863,101)

Total comprehensive income

-

-

-

-

-

(863,101)

(863,101)

Issue of share capital

251,717

1,831,255

-

-

-

-

2,082,972

Share issue expenses

-

(60,850)

-

-

-

-

(60,850)

Share-based payments

-

-

-

-

89,558

-

89,558

Transfer lapsed options to accumulated loss

-

-

-

-

(663,899)

663,899

-

Value of conversion rights - convertible notes

-

-

94,680

-

-

-

94,680

Balance at 31 December 2021

706,050

8,656,201

94,680

2,003,010

503,852

(673,019)

11,290,774




 

Consolidated and Company Statements of Cash Flows


Group 2021

Group 2020

Company 2021

Company 2020

Figures in £





Cash flows used in operations





Cash used in operations

2,405,359

(1,025,363)

(180,462)

(530,401)

Net cash flows used in operations

2,405,359

(1,025,363)

(180,462)

(530,401)











Cash flows used in investing activities





Proceeds from sales of property, plant and equipment

56,572

2,889

-

-

Purchase of property, plant and equipment

(2,669,974)

(1,268,083)

-

-

Purchase of mining assets

(1,395,448)

-

-

-

Increase in loan advanced to group company

-

-

(1,831,782)

(2,030,802)

Movement in rehabilitation guarantee

(99,030)

(101,888)

-

-

Cash flows used in investing activities

(4,107,880)

(1,367,082)

(1,831,782)

(2,030,802)

Cash flows from financing activities





Proceeds from issuing shares (net of fees:

1,436,527

2,895,784

1,436,527

2,895,784

£60,850 (2020: £132,685))





Loans drawn down in the year

941,146

-

941,146

-

Repayments of borrowings

(610,125)

(245,237)

(538,798)

(156,892)

Repayments of lease liabilities

(87,750)

(66,380)

-

-

Increase in restricted cash

(7,082)

(8,811)

(7,082)

(8,811)

Cash flows from financing activities

1,672,716

2,575,356

1,831,793

2,730,081

Net increase / (decrease) in cash and cash

(29,805)

182,911

(180,451)

168,878

equivalents

 

 

 

 

Exchange rate changes on cash and cash

(10,305)

6,617

-

-

equivalents





Net (decrease) / increase in cash and cash

(40,110)

189,528

(180,451)

168,878

equivalents

 

 

 

 

Cash and cash equivalents at beginning of

355,463

165,935

323,026

154,148

year





Cash and cash equivalents at end of year

315,353

355,463

142,575

323,026

 

Notes to the Financial Statements

1. Basis of preparation

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2021, but is derived from the Group's audited financial statements. The auditors have reported on the 2020 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006 but did contain a material uncertainty in relation to going concern. The 2021 Annual Report was approved by the Board of Directors on 30 June 2022. The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group's consolidated financial statements, which form part of the 2021 Annual Report, have been prepared in accordance with applicable law and UK adopted international accounting standards and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention except for items held at fair value. They are presented in British Pounds Sterling (Pounds) which is also the functional currency of the Company. BlueRock Diamonds Plc is incorporated in England and Wales with company number 08248437 with registered office, 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS. The preparation of financial statements in conformity with UK adopted IAS and Companies Act 2006 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies.

2. Going concern

The Group and parent Company have prepared forecasts covering the period to 31 December 2023. Appropriate diligence has been applied by the Directors who believe that the forecasts are prepared on a realistic basis using the best available information.

As announced on 1 June 2022, the impact of the unusually high rainfall in the first five months of 2022 has resulted in a significant reduction in production compared to our forecasts, resulting in a severe impact on the Group's cash resources, leaving the Group and parent Company requiring additional funding in the immediate future, whilst it completes its mining development.

Discussions are ongoing with an existing shareholder for BlueRock to issue a new Loan Note ("LN") for £1.6m as well as the provision of debt funding facility to Kareevlei for up to ZAR30m to be drawn as and when required. The forecasts indicate that the combination of the LN and debt funding facility will be sufficient to meet the Group's cash requirements over the going concern period, however, until the LN has been issued and the debt funding facility finalised, there remains an uncertainty that this financing will be available.

After review of the uncertainty, the Directors have a reasonable expectation, based on discussions and correspondence with the existing shareholder, that the additional funding will be received and the Group and parent Company will then have adequate resources to continue in operational existence for the foreseeable future, based on its assessment of the forecasts, principal risks and uncertainties and mitigating actions considered available to the Group and parent Company in the event of downside scenarios. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

However, at the date of approval of these financial statements, uncertainties relating to completing the issue of the funding arrangements indicate the existence of a material uncertainty which may cast significant doubt about the Group and parent Company's ability to continue as a going concern, and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The financial statements do not include the adjustments that would result if the Group and parent Company were unable to continue as a going concern.

3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

3.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

3.1.1 Ore reserves and associated Life of Mine (LoM)

There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of diamonds, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore reserves being restated. Where assumptions change the LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, lease terms and environmental provisions are reassessed to take into account the revised LoM estimate.

3.1.2 Valuation of embedded derivatives

There is an adjustable conversion feature within the convertible loan agreement with M Poole/T Leslie, which effects the conversion price and the number of new ordinary shares issued. IFRS 9 requires a fair value calculation of the embedded derivative at recognition, as it is not closely related to the host contract, and a revaluation to be performed at each year end. The embedded derivative has been fair valued using the Monte Carlo model which requires critical estimates, in particular the Group's future share price volatility. At the year end the fair value of the embedded derivative was £3,198 (2020: £21,718).

3.1.3 Valuation of "fixed-for-fixed" convertible loan notes

The Group entered into "fixed-for-fixed" convertible loan notes with the Teichmann Group, whereby the number of conversion shares were determined at the issue date. The initial fair value of the liability portion of the bond is determined using a market interest rate for an equivalent non-convertible bond at the issue date, which requires critical estimates, in particular the implicit interest rate. After considering industry and Group specific risk factors, the Group determined 16.5% to be the most appropriate implicit interest rate to value the liability portion. The remainder of the proceeds were allocated to the conversion option and recognised in shareholders' equity (net of income tax) and is not subsequently remeasured.

3.1.4 Rehabilitation provision

Estimates and assumptions are made in determining the amount attributable to the rehabilitation provision. These deal with uncertainties such as legal and regulatory framework, timing and future costs. The carrying value of the rehabilitation provision is disclosed in note 14 of the financial statements. The Board use an expert to determine the existing disturbance level and associated cost of works and estimates of inflation and risk-free discount rates are based on market data.

3.1.4 Impairment of non-current assets

Mining assets and Property, plant and equipment representing the Group's mining assets in South Africa are reviewed for impairment at each reporting date. The impairment test is performed using the approved Life of Mine plan and those future cash flow estimates are discounted using asset specific discount rates and are based on expectations about future operations. The impairment test requires estimates about future production and sales volumes, diamond prices, grades, operating costs and capital expenditures necessary to extract resources in the current medium term mine plan. Production forecasts include further growth from existing production levels, reflecting plant upgrades, steps to improve mining flexibility and investment to open new mining areas. Diamond prices are estimated with reference to recent achieved prices and the Board's assessment of the diamond market outlook.

Changes in such estimates could impact recoverable values of these assets.

The impairment test using the medium-term forecasts indicated significant headroom as at 31 December 2021 and therefore no impairment is considered to be appropriate. However, such headroom is dependent on the upgraded plant running at full capacity. However, the Directors consider the forecasted production levels to be achievable best estimates. The plant is currently nearing full capacity.

The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:

Valuation basis

Discounted present value of future cash flows.

LoM and recoverable value of Diamond Reserves and Resources

Economically recoverable Diamond Reserves and Resources, carats recoverable and grades achievable are based on management's expectations of the availability of Diamond Reserves and Resources at Kareevlei and technical studies undertaken by third-party specialists. Diamond Reserves remaining after the current LoM plan have not been included in determining the value in use of the operations. The forecast LoM of Kareevlei, based on current estimates, is to 2030 (2020: 2030).

Cost and inflation rate

Operating costs are determined based on management's experience and the use of contractors over a period of time whose costs are fairly reasonably determinable. Mining and processing costs have been based on the agreements with the relevant contractors. Management has applied local inflation rates of 5.0% (2020: 5.0%) for operating costs.

Capital costs in the short-term has been based on management's capital programme after which a fixed percentage of revenue have been applied to determine the capital costs necessary to maintain current levels of operations.

Exchange rates

Exchange rates are estimated based on an assessment of current market fundamentals and long-term expectations. The US dollar/South-African Rand (ZAR) exchange rate used, was determined with reference to the average rate for 2021 of ZAR 14.7 (31 December 2020: ZAR 16.5).

Diamond prices

The short-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and the Group's short-term forecast. Medium and long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals.

Discount rate

A discount rate of 13.8% (2020: 10%) was used. The discount rate was calculated based on a nominal weighted cost of capital including the effect of factors such as market risk and country risk as at the Year end.

3.1.6 Expected credit loss assessment for receivables due from subsidiaries

The Directors make judgements to assess the expected credit loss provision on the loan to the Company's subsidiary. This includes assessment of scenarios and the subsidiary's ability to repay its loan under such scenarios considering risks and uncertainties including diamond prices, future production performance, recoverable diamond reserves, environmental legislation and other factors. No credit loss provision was raised. If the assumed factors vary from actual occurrence, this will impact on the amount at which the loan should be carried on the Company Statement of Financial Position.

3.1.7 Capitalised stripping costs

Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations. Furthermore, during the production phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the ore to be mined, the latter being referred to as a 'stripping activity asset'. Judgement is required to distinguish between these two activities at Kareevlei. The orebody needs to be identified in its various separately identifiable components. An identifiable component is a specific volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these components, and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are based on a combination of information available in the mine plans, specific characteristics of the orebody and the milestones relating to major capital investment decisions. KV1 and KV2, are mined as a combined pit and is therefore judged to be one separable identified component.

Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of production stripping costs between inventory and the stripping activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore is considered to determine the most suitable production measure.

These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the stripping ratio calculation in determining the amortisation of the stripping activity asset.

At the year end the carrying value of the capitalised stripping costs were £844,014 (2020: £nil).

3.1.8 Contingent liabilities

The Group is subject to claims by a former director and companies related to that former director totalling £222,164. Whilst fully disputing the claims, the Group maintains liabilities to the claimants of £170,598. The Group has placed £206,418 (2020: £214,499) in escrow with its attorneys to meet any payments under the claims. The Group has taken legal advice which advises that the claims are without merit and no provision is made for the additional claim amount. This matter has required the Board to exercise judgment in assessing both the extent to which liabilities should be retained and the decision not to provide for the additional claim amount.

3.1.9 Theft

During January 2022, management at the Kareevlei mine identified a theft of concentrate from the new plant. Management have conducted a full investigation and have passed the case onto the South African police force. At the time of the theft the new plant was being commissioned and subsequently more robust physical security controls have been put in place. Management have considered the impact of the theft on the financial statements and considering all information available, do not consider that the theft has had a material impact on the financial statements. 

3.2 Critical judgements in applying the entity's accounting policies

3.2.1 Mining Licence

An application for the renewal of the current Mining Licence has been submitted to the Department of Mineral Resources & Energy in South Africa. As at the date of approval of this report the outcome of this application has not yet been received. In accordance with South African legislation, the Group has the right to continue mining until such time as the application has been processed. The Directors have applied their judgement, and have determined that there is no reason to believe that the approval will not be obtained and have therefore based their assumptions and estimates in the financial statements on the fact that the application will be successful.

3.2.2 Determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise, or not to exercise, an extension option. Extension options are only included in the lease term for instances where the company is reasonably certain that it will extend or will not terminate the lease when the lease expires. For all leases, the most relevant factors include:

· If there are significant penalties to terminate (or not extend), the group is typically reasonably certain to extend (or not terminate).

· When the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty, the group is typically certain to terminate.

· Otherwise, the group considers other factors including historical lease durations, related costs and the possible business disruption as a result of replacement of the leased asset.

The lease term is reassessed on an ongoing basis, especially when the option to extend becomes exercisable or on occurrence of a significant event or a significant change in circumstances which affects this assessment, and that is within the control of the group.

Judgment is needed in determining the lease term of surface lease agreements. The lease term of surface lease agreements are based on the approved Life of Mine (LoM) estimate.

3.2.3 Determining the incremental borrowing rate to measure lease liabilities

Interest rate implicit in leases is not available, therefore, the group uses the relevant incremental borrowing rate (IBR) to measure its lease liabilities. The IBR is estimated to be the interest rate that the group would pay to borrow:

· over a similar term

· with similar security

· the amount necessary to obtain an asset of a similar value to the right of use asset

· in a similar economic environment

The IBR, therefore, is considered to be the best estimate of the incremental rate and requires management's judgement as there are no observable rates available.

 

4. Property, plant and equipment

 

4.1 Balances at year end and movements for the year

 


Leasehold

 

Plant and

 

Motor

 



improvements


Machinery


vehicles


Total

Reconciliation for the year ended 31 December

 







2021 - Group

 







Balance at 1 January 2021

 







At cost

4,676


3,513,434


35,754


3,553,864

Accumulated depreciation

(467)


(1,197,156)


(11,906)


(1,209,529)

Net book value

4,209

 

2,316,278

 

23,848

 

2,344,335

Movements for the year ended 31 December 2021

 







Additions

-


2,669,974


-


2,669,974

Depreciation

(460)


(291,311)


(2,622)


(294,393)

Impairment loss recognised in profit or loss

-


(83,392)


-


(83,392)

Disposals

-


(40,082)


-


(40,082)

Exchange differences - Cost

(326)


(383,734)


(2,489)


(386,549)

Exchange differences - Accumulated depreciation

57


102,027


969


103,053

Property, plant and equipment at end of year

3,480

 

4,289,760

 

19,706

 

4,312,946

Closing balance at 31 December 2021

 







At cost

5,067


1,809,364


44,700


1,859,131

Accumulated depreciation

-


(1,056,986)


(23,225)


(1,080,211)

Net book value

5,067 

 

752,378

 

21,475

 

778,920

Reconciliation for the year ended 31 December

 







2020 - Group

 







Balance at 1 January 2020

 







At cost

5,067


1,809,364


44,700


1,859,131

Accumulated depreciation

-


(1,056,986)


(23,225)


(1,080,211)

Net book value

5,067

 

752,378

 

21,475

 

778,920

Movements for the year ended 31 December 2020

 







Additions

-


1,754,985


8,047


1,763,032

Depreciation

(443)


(216,653)


(4,225)


(221,321)

Disposals

-


(439)


-


(439)

Exchange differences - Cost

(391)


(44,067)


(3,734)


(48,192)

Exchange differences - Accumulated depreciation

(24)


70,074


2,285


72,335

Property, plant and equipment at end of year

4,209

 

2,316,278

 

23,848

 

2,344,335

Closing balance at 31 December 2020

 







At cost

4,676


3,513,434


35,754


3,553,864

Accumulated depreciation

(467)


(1,197,156)


(11,906)


(1,209,529)

Net book value

4,209

 

2,316,278

 

23,848

 

2,344,335

 

4.2 Additional disclosures 

 

Assets whose title is restricted and pledged as

Group

 

Group

 

Company

 

Company

security

2021

 

2020

 

2021

 

2020

 








The carrying values of assets pledged as

 







security is as follows:

 







Plant and Machinery

 18,339


94,103


-


-

 

Plant and equipment to the value of £18,339 are under security of the loan agreement with Mark Poole.  The Group cannot pledge these assets as security for other borrowings or sell them to another entity. In the event of default Mark Poole may acquire the equipment of Kareevlei Mining Proprietory Limited for 1.00 South African Rand.

 

5.  Inventories

Inventories comprise:


Group 2021

Group 2020

Company 2021

Company 2020

Consumable stores

20,912

13,820

-

-

Work in progress

435,722

137,735

-

-

Diamonds on hand

346,201

306,753

-

-

Total

802,835

458,308

-

-

 

Inventory is carried at the lower of cost or net realisable value.  During the year no write-downs to net realisable value were recorded.

 

6. Trade and other receivables

 

6.1  Trade and other receivables comprise:

 


Group 2021

Group 2020

Company  2021

Company 2020

Current





Trade receivables

4,835

-

3,254

-

Other receivables

27,462

122,139

3,253

122,139

Prepaid expenses

17,894

9,032

9,520

2,509

Value added tax

43,455

30,992

11,433

11,542

Total current receivables

93,646

162,163

27,460

136,190

Non-Current





Other receivables (i)

492,596

425,319

654,874

575,674

Amounts due by subsidiary (ii)

-

-

11,492,128

9,784,358

Total non-current receivables

492,596

425,319

12,147,002

10,360,032

 

The carrying value of all trade and other receivables including the loan to a group company is considered a reasonable approximation of fair value.

 

Company:

(i) Non-current other receivables represent management fees receivable from Kareevlei Mining Proprietary Limited.

(ii)  The amounts due by subsidiary is a loan to Kareevlei Mining Proprietary Limited that bears interest at the Nedbank Limited prime variable overdraft rate or unsecured loans to corporate customers.

 

Group:

(i) Other non-current receivables represent amounts held by financial institutions and the Department of Minerals and Energy as guarantees in respect of environmental rehabilitation obligations in respect of the Group's South African mines.

 

 6.2 

 

Items included in trade and other receivables not classified as financial instruments

Group

2021

Group

2020

Company

2021

Company

2020






Prepaid expenses

17,894

9,032

9,520

2,509

Value added tax

43,455

30,992

11,433

11,542

Total non-financial instruments included in trade and other receivables

61,349

40,024

20,953

14,051

Total trade and other receivables excluding non-financial assets included in trade and other receivables

524,893

547,458

12,153,509

10,482,171

Total trade and other receivables

586,242

587,482

12,174,462

10,496,222

 

 

7.  Cash and cash equivalents (including restricted cash)

 

7.1  Cash and cash equivalents comprise:

 


Group

2021

Group

2020

Company

2021

Company

2020

Cash





Cash on hand

103

136

-

-

Balances with banks

521,668

569,826

348,993

537,525

Total Cash

521,771

569,962

348,993

537,525

Total cash and cash equivalents included in current assets

521,771

569,692

348,993

537,525

 

Cash and cash equivalents in the Consolidated Statement of Cash flows excludes restricted cash of £206,418 (2020: £214,499).

 

7.2  Cash and cash equivalents where availability is restricted

 

Bank balances to the value of £206,418 (2020: £214,499) are not available for use as it is held in trust with the Group's attorneys.  This account is held as security for the claims submitted by a former director of the Group and may only be utilised against this claim, should it be successful.

 

 

8.  Share capital

 

Authorised and issued share capital

 

Group

2021

Group

2020

Company

2021

Company

2020

Issued 14,141,002 (2020: 9,086,657) Ordinary shares of 5p (2020: 5p) each

706,050

454,333

706,050

454,333

Share premium

8,656,201

6,885,796

8,656,201

6,885,796


9,362,251

7,340,129

9,362,251

7,340,129

 

Share reconciliation

 

Details of issue

Date

Number of ordinary shares

Share Capital £

Share premium £

Opening Balance

01/01/2021

9,086,657

454,333

6,885,796

Placing and equity issue

03/03/2021

3,750,000

187,500

1,312,500

Placing and equity issue expenses

03/03/2021

-

-

(60,850)

Issue of shares as repayment of loan facility

06/04/2021

61,013

3,050

23,306

Issue of shares as repayment of payables

21/05/2021

1,223,332

61,167

495,449

Shares outstanding - closing

 

14,121,002

706,050

8,656,201

 

9. Trade and other payables

 

9.1 Trade and other payables comprise:


Group

2021

Group

2020

Company

2021

Company

2020

Trade payables

2,568,336

1,068,671

226,935

45,643

Accrued liabilities

151,076

147,116

66,500

66,183

Account due to former Director

20,260

21,776

-

-

Total trade and other payables

2,739,672

1,237,563

293,435

111,826

 

An amount of £150,339 (2020: £161,588) is included within trade payables which are subject to amounts claimed as being due to companies related to the former Director of the company. These amounts are historic and disputed in full by the Company based on legal advice received. The account due to a former Director totalling £20,260 (2020: £21,776) relates to amounts claimed but disputed in full by the Company.

 

10. Borrowings

 

10.1 Carrying amount of borrowings by category


Designated at fair value

At amortised cost

Total

Year ended 31 December 2021 - Group



 

Convertible loans

-

1,414,845

1,414,845

Loan facilities

-

532,904

532,904

Embedded derivative

3,198

-

3,198

Components listed under borrowings on the consolidated and company statements of financial position

3,198

1,947,749

1,950,947

 

 

 

 

Trade and other payables excluding non-financial liabilities

-

2,739,672

2,739,672

Components listed separately on the consolidated and company statements of financial position

-

2,739,672

2,739,672

 

3,198

4,687,421

4,690,619

 




Borrowings comprise the following on the consolidated and company statement of financial position:




Current portion

3,198

614,404

617,602

Non-current portion

-

1,333,345

1,333,345

 

3,198

1,947,749

1,950,947

 




Year ended 31 December 2020 - Group




Convertible loans

-

815,539

815,539

Loan facilities

-

687,249

687,249

Embedded derivative

21,718

-

21,718

Components listed under borrowings on the consolidated and company statements of financial position

21,718

1,502,788

1,524,506





Trade and other payables excluding non-financial liabilities

-

1,237,563

1,237,563

Components listed separately on the consolidated and company statements of financial position

-

1,237,563

1,237,563

 

21,718

2,740,351

2,762,069

 

 

 

 

Borrowings comprise the following on the consolidated and company statement of financial position:



 

Current portion

6,244

689,962

696,206

Non-current portion

15,474

812,826

828,300


21,718

1,502,788

1,524,506

 

 

11. Basic earnings per share

 


Group 2021

Group 2020

Loss for the year attributable to owners of the company

(1,222,590)

(2,388,532)

Weighted average number of ordinary shares

12,970,498

6,753,581

Basic loss per share

(0.09)

(0.35)

 

 

 

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