TIDMFDI
RNS Number : 9255N
Firestone Diamonds PLC
01 November 2016
1 November 2016
Firestone Diamonds plc
("Firestone", the "Group" or the "Company") (AIM: FDI)
Final results for the year ended 30 June 2016
Firestone Diamonds plc, the AIM-quoted diamond company, is
pleased to announce its final audited results for the year ended 30
June 2016.
HIGHLIGHTS FOR THE YEARED 30 JUNE 2016
Liqhobong Diamond Mine ("Liqhobong", the "Project" or the
"Mine")
-- 2,680,784 zero Lost Time Injury ("LTI") hours recorded with zero-LTI record maintained;
-- Production plant 18% commissioned; and
-- Project completion at 85% at year end.
Financial
-- Project fully funded beyond the first sale of diamonds;
-- Capital investment of US$68.2 million (2015: US$82.9 million)
in the Project during the year;
-- Profit after tax of US$13.6 million (2015: US$10.4 million loss);
-- US$39.0 million of the ABSA project debt facility still available to the Project; and
-- Standby facility of US$15.0 million available to the Project.
Outlook
-- Initial production achieved in October 2016, with full
production rates expected to take at least six months;
-- First diamond sales anticipated in January 2017; and
-- Becoming a one million carat per annum producer.
Key statistics
-- Project within budget of US$185.4 million;
-- Group fully funded beyond the first sale of diamonds in January 2017;
-- Steel, mechanical, plate work and piping nearing completion;
-- Liqhobong Diamond Resource (sum of Indicated and Inferred Resource) 23 million carats; and
-- In-situ value (base case un-escalated) US$3.0 billion.
For more information contact:
+44 (0)20 8741
Firestone Diamonds plc 7810
Stuart Brown
Strand Hanson Limited +44 (0)20 7409
(Nomad) 3494
Stuart Faulkner
Richard Tulloch
James Dance
Macquarie Capital (Europe) Limited (Joint
Broker)
+44(0)20 3037
Raj Khatri 2000
Nick Stamp
Mirabaud Securities LLP
(Joint Broker)
+44 (0)20 7878
Rory Scott 3360
+44 (0)20 7878
Ed Haig-Thomas 3447
Tavistock (Public and +44 (0)20 7920
Investor Relations) 3150
Emily Fenton +44 (0)7788 554
Jos Simson 035
Barney Hayward
Background information on Firestone
Firestone is an international diamond mining company with
operations focused on Lesotho. Firestone is currently in the
process of commencing production at the Liqhobong Diamond Mine in
Lesotho to become a one million carat per annum producer.
Lesotho is emerging as one of Africa's significant new diamond
producers, hosting Gem Diamonds' Letseng Mine, Firestone's
Liqhobong Mine and Namakwa Diamonds' Kao Mine.
For more information please visit:
www.firestonediamonds.com.
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulations (EU) No. 596/2014.
Chairman's statement
It is with a great deal of pride that I write to you as your
Company embarks on its next chapter as a diamond producer.
Since 2012, the Company has been solely focused on bringing our
flagship Liqhobong Diamond Mine into production. I am delighted to
report that this has been achieved ahead of the revised schedule
and within budget. The Project has been very challenging in many
respects; however, the team has never wavered from its goals. I am
extremely proud of their performance and in particular the
incredible safety record, indeed in August 2016, the Project
surpassed three million man-hours worked without a single LTI. This
is an outstanding achievement and on behalf of the entire Board, I
would like to congratulate Stuart Brown, Glenn Black, their team
and all those involved in delivering this Project with such a
safety record.
As we conclude the commissioning phase we move ever closer to
realising our vision of becoming a mid-tier diamond producer. In
doing so, we expect to maximise value for our stakeholders in a
sustainable manner, by operating with integrity, and leveraging
local resources to the benefit of the Kingdom of Lesotho and the
communities in which we operate as well as our shareholders and
employees.
Firestone will soon be joining the short list of global
producing diamond miners delivering one million carats per annum.
This is a milestone the Company has been working towards achieving
against the backdrop of an extremely challenging mining sector
climate.
A brief look at history reminds us that this deposit was
originally discovered in the 1950s and has been explored, evaluated
and part developed over many years without success. It was not
until Firestone, who acquired the Project from Kopane Diamonds in
2011, was restructured and Stuart Brown appointed in 2013, that
Liqhobong really had the opportunity to achieve its full
potential.
As mentioned in the last Annual Report, Firestone's focus for
2016 has been delivering Liqhobong with the construction focus
shifting from earth works and civils to erecting the plant and
installing machinery. Board members have had the pleasure of
visiting the site a number of times during the year and the
progress the team has made has been exemplary.
Over the last three months, Firestone has been preparing and
working with the operational readiness team to ensure a smooth
handover from the construction team. All the required planning and
operational requirements have been catered for and we have the
required operational team in place to ensure we move from the
successful commissioning phase into steady state production.
Firestone is endeavouring to mitigate all possible risks during
this crucial stage of project delivery.
Firestone anticipates that the ramp up process to full nameplate
capacity will take at least six months. During this early stage of
production, the ore being processed by the plant will be taken from
mixed low grade stockpiles and diluted ore from the main pit. This
is perfectly normal in the commissioning phase of a mine and the
Company will update the market on a regular basis as it moves
through the first phases of mining to establish a more
representative mining footprint with ore processed across the main
pit.
In September 2016, Tango Mining Limited ("Tango") informed
Firestone that it had not been able to meet the conditions of the
conditional sale agreement for the BK11 mine. As a result, and
following several extensions, the Company concluded that Tango
would be unlikely to complete the funding requirement and
accordingly, the sale process was terminated. The Company remains
committed to seeking ways of advancing/unlocking value from its
Botswana assets and will keep shareholders abreast of progress as
appropriate.
Lastly, I would like to thank each and every individual that has
contributed to Liqhobong's success to date, and in particular the
construction and operational leadership teams for their hard work.
Without you, the construction of the new Mine at Liqhobong would
not have been possible and I look forward to updating our
shareholders and stakeholders over the coming months as Firestone
transforms into a mid-tier diamond producer.
Lucio Genovese
Non-Executive Chairman
31 October 2016
Strategic report
Introduction
Firestone maintained its strategy over the past year as it
continued its commitment to developing the Liqhobong Diamond Mine
("Liqhobong") where the focus remained exclusively on construction
activities. Once completed, Liqhobong will join the ranks of
diamond producing companies, moving one step closer to realising
its goal of becoming a mid-tier, one million carat per annum
producer.
Liqhobong is owned 75% by Firestone with the Government of
Lesotho holding the remaining 25%. The diamond deposit was first
discovered in the late 1950s, and over the past 60 years it has
been through a series of feasibility studies and trial mining
phases, none of which proved to be financially viable. In 2010,
Firestone acquired its 75% interest and successfully completed all
the required work to finalise a detailed definitive feasibility
study ("DFS") and subsequently raised the necessary funds to begin
building the Project in 2014.
Liqhobong commenced production in October 2016. At full
production, Liqhobong will produce one million carats per annum,
which would place it in the mid-tier of diamond mines globally.
During 2015 the Company decided to sell its 90% interest in the
BK11 mine in Botswana to Tango Mining Limited (TSXV: TGV) in order
to focus solely on the development of Liqhobong. Tango was unable
to fulfil the conditions of the sale and the process was formally
terminated in September 2016. The Company remains of the view that
the BK11 mine has value and will look at further options to realise
this value.
Our vision
Firestone's vision is to become a mid-tier diamond producer and
preferred and trusted partner of choice by all of its stakeholders
and local communities alike.
Our strategy
Firestone's strategy to become a mid-tier diamond producer,
producing one million carats a year, is based on:
-- African operating experience
We have a strong team of highly experienced industry executives
who have worked extensively in Africa and have an in-depth
understanding of project execution, diamond mining and the
sector.
-- Skills development
We create in-country skills and capacity through careful
recruitment of citizen employees who are then trained and deployed
in front-line positions, thereby realising the skills transfer
requirements for our partner, the Government of Lesotho.
-- Trusted expertise
By demonstrating that our actions mirror our words, we will
become a preferred investment vehicle for investors and partners in
Africa.
-- High quality management
The formation of a highly skilled and experienced management
team, which is able to execute mine construction projects and
operate mines to ensure the Company's planned returns are realised
for all stakeholders.
Chief Executive Officer's review
Liqhobong and the Project
The focus in 2016 remained on the construction and delivery of
the Project in Lesotho. Construction activities developed from
earth moving and site civil construction to plant and machinery
erection for the majority of the 2016 financial year and I am
pleased to report that by the year end we were slightly ahead of
schedule on the revised timeline. The weather was relatively stable
allowing us to build momentum on the construction execution. The
Group employed a total of 61 full time employees and at the peak
there were around 1,000 contractors employed on the Project. The
shift to specialist contractors took place towards the end of the
year and we now employ fewer than 750 contractors on site.
Operational capability was increased during the year prior to the
commissioning phase of the Project.
From a cost perspective the Project remains well within the
original US$185.4 million budget with nearly all the budget
committed and agreed, greatly reducing the risk of cost over-runs.
Throughout the Project life cycle we have tried to manage our
exchange rate risk, and pleasingly we have realised additional
gains through the significant weakening of the Rand against the US
Dollar. This has allowed us to bring forward some capital items
that were in future capital budgets to de-risk the Project at
start-up. Our original budget was ZAR1,854 million and now stands
at ZAR2,100 million due to the inclusion of the earth moving cost
over-run, operational readiness and water risk mitigation.
The safety performance for the Project has been remarkable and
we have just completed another year without any LTI. At the
year-end, 2.7 million man-hours had been worked and by the end of
September 2016, post the year end, over 3.2 million man-hours had
been worked without a single LTI. Safety performance, particularly
considering the harsh environment and the nature of such a project
is extremely pleasing and all team members are to be congratulated.
Zero harm remains the target and the new operational team are
integrating all new employees into our procedures and safety
practices to ensure that the excellent culture of safety, which has
been adopted during the construction phase, carries over into
operations.
The Company commenced initial production during October 2016 and
is targeting January 2017 for its first sale of diamonds.
The Company has managed its funding carefully and had US$39.0
million remaining from the ABSA debt facility at the year end as
well as the US$15.0 million standby facility with RCF, to fund the
remaining Project costs and any potential cost over-runs or
delays.
Grid power project
The grid power project for Liqhobong was completed early in the
financial year and successful switchover to the national grid
occurred in October 2015. The promised savings have been achieved
due to the early switchover and the contribution from Storm
Mountain Diamonds was also successfully completed.
Project commissioning
The operational readiness team refined detailed mine plans and
recruited the required staff to ensure there is a smooth start-up
and successful commissioning of all the operational activities on
the Mine. The recruitment of the additional operational staff
required to ensure that production ramp up is smooth is in place.
Skills remain scarce in Lesotho, however, we have committed to
achieving our goal of maximising local Basotho recruitment where
possible and we have engaged with all our contractors to retain the
best skills from the construction phase of the Project to ensure
operational continuity where possible.
Diamond Resource and Reserve update for Liqhobong
Diamond Resource
The Diamond Resource remains the same as released in 2015 as we
have yet to commence mining so no changes were necessary.
SAMREC compliant Diamond Resource statement for Liqhobong Main
Pipe as at 30 September 2015 (including Reserves)
DIAMOND RESOURCE
----------- --------------- ------------------------------------------------------------------
Specific
Diamond Volume gravity Metric
Resource Depth from in m(3) (tonnes/m(3) tonnes Grade Carats
Category and to (millions) ) (millions) (cpht) (millions)
----------- --------------- ------------ -------------- ------------ -------- ------------
Surface
(2,650 masl)
to 2,467
Indicated masl 13.547 2.61 35.364 27 9.533
2,467 masl
to 2,127
Inferred masl 18.135 2.65 48.064 28 13.553
----------- --------------- ------------ -------------- ------------ -------- ------------
Total Diamond Resource 31.682 2.63 83.428 28 23.086
---------------------------- ------------ -------------- ------------ -------- ------------
-- The above Diamond Resource is stated at a 1.25mm bottom cut-off.
-- The weighted average diamond price per carat is estimated at US$132/ct.
-- Tonnes are metric tonnes and totals are rounded.
Diamond Reserve
SAMREC compliant Diamond Reserve statement for the Liqhobong
Main Pipe as at 30 September 2015
DIAMOND RESERVE
----------------- ----------------- ------------------------------------
Metric
Diamond Reserve Depth from and tonnes Grade Carats
Category to (millions) (cpht) (millions)
----------------- ----------------- ------------ -------- ------------
Surface (2,650
masl) to 2,467
Probable masl 36.046 26.4 9.523
----------------- ----------------- ------------ -------- ------------
Total Diamond Reserve 36.046 26.4 9.523
------------------------------------ ------------ -------- ------------
-- The above Diamond Reserve is stated at a 1.25mm bottom cut-off.
-- The weighted average diamond price per carat is estimated at US$131/ct.
-- Reserve tonnes and grade include dilution as a result of external waste.
-- Tonnes are metric tonnes and totals are rounded.
Further detailed information on the Diamond Resource and Diamond
Reserve, which have been prepared in accordance with SAMREC
guidelines (2009), can be found within the Company's internal
Technical Report. The internal Technical Report does not constitute
a Competent Person's Report as defined in the AIM Rules.
Diamond market
The diamond market over the latter part of 2015 and early 2016
remained relatively subdued with the major producers seeming to
have slightly reduced the quantity of goods entering the rough
market. This has helped improve sentiment and the pipeline seems to
have balanced itself somewhat when compared to early 2015. Polished
prices have remained under pressure with some categories of
polished doing better than others based on fluctuating supply and
demand. The net result of all the movement is that the market
experienced a better first half of 2016 when compared to the same
period in 2015. However, the mood remains cautious for the
remainder of 2016 even though prices seem to have stabilised,
albeit, at levels well below the peak of late 2014. Funding and
liquidity concerns within the midstream market remain, but sales
seem to be executed where price is reasonable. We expect the new
production that will come on stream late in 2016 and early in 2017
to be balanced somewhat by the impact of some mine closures (in
particular, Snap Lake) and the reduction of supply from ageing
mines. Commodities remain under pressure compared to the boom years
but we have seen more price stability in 2016, although further
shocks such as the Brexit decision have not helped. China retail
performance numbers have been subdued and overall, the global value
of diamond jewellery sold in 2015 was slightly lower than the
previous year at $79 billion. The supply/demand fundamentals of the
diamond industry are still favourable when taking a long-term view
as they indicate an increase in demand and declining production.
The major producers, De Beers, Alrosa, Rio Tinto and Dominion
Diamonds along with the mid-tier producers, have continued to work
to retain the confidence in the industry which we view as positive
in the long term.
Botswana
Throughout the 2016 financial year Management worked to complete
the sale of its Botswana assets to Tango Mining Limited, a
TSXV-listed mining company, for a total consideration of US$8.0
million in cash. Numerous extensions were granted to Tango in order
to finalise its funding arrangements and a final extension was
requested in September 2016. After careful consideration of all the
facts, we concluded that Tango would be unlikely to complete its
funding in a reasonable timeframe and we had to bring the process
to a close. We remain committed to unlocking shareholder value from
this asset in the future.
Conclusion and outlook
During the year ended June 2016, we continued to focus on the
construction of the Mine ahead of the commissioning of the Project
during Q4 2016. It was therefore with great pride that, following
the completion of all major construction activities, we were able
to announce that the first diamonds have been recovered early this
month, which was a significant milestone for the Company.
The Project has required considerable effort from all involved
and it is a testament to their work that the Project has been
delivered ahead of the revised schedule and within budget. The
construction team remains committed to completing the Project as
the operational team starts to ramp up production to full nameplate
capacity, being 3.6 million tonnes per annum or 500 tonnes per hour
to recover up to one million carats per annum, over the next six
months. On this basis, we currently anticipate treating between 1.8
and 2.0 million tonnes of ore, recovering between 380,000 and
450,000 carats, during the financial year ending 30 June 2017.
The Company's first diamond sale is scheduled to take place in
Antwerp in January 2017 and thereafter, we propose to host two
sales per quarter. During the initial ramp-up phase, ore from mixed
low grade stockpiles and diluted ore from the main pit will be
processed through the plant which will have an impact on the
quality of diamonds recovered. As we progress with the ramp up of
production and begin treating run-of-mine ore from the main pit, we
expect that the quality and size of the diamonds recovered will
improve. Accordingly, I look forward to updating all our
stakeholders as we move through the ramp-up phase to nameplate
production.
I wish to thank all those involved in the Project, our
shareholders, our employees and contractors and the local community
in and around Liqhobong village, without whom the successful
completion of the Project and start-up of the Mine would not have
been possible.
Safety
Firestone strives to provide its employees with a safe and
healthy workplace and it is therefore gratifying to be able to
report another fatality-free and LTI-free year at its subsidiary,
Liqhobong. At the end of the 2016 financial year, there were 779
people working on the Liqhobong Mine site of which 68% were Basotho
nationals. The Project employed well over 1,000 people at its peak.
Firestone appointed DRA Minerals in 2014 as the lead engineering,
procurement and construction management contractor to manage all
construction activities and sub-contractors and to be responsible
for the safety management system on the site. Since the start of
the Project in July 2014 to the end of June 2016, the Project
recorded a total of 2,680,784 LTI-free man-hours worked, which is a
significant achievement. We are very proud to report that the
3,000,000 man-hours milestone worked without a LTI was achieved on
2 September 2016. This is a phenomenal achievement for a
construction project of this magnitude, situated in a very remote
location and harsh environment in the Highlands of Lesotho. We
believe our safety approach ranks with the best globally and our
results speak for themselves.
The safety management system encourages a culture of incident
and near-miss reporting, which are categorised according to
potential severity and actioned accordingly. All non-LTIs (first
aid cases) are investigated and preventative actions put in place
as appropriate.
The current focus is to ensure a smooth safety management
transition between the Project construction teams and the Liqhobong
operational team.
Health
The health of employees and contractors is of the utmost
importance to Firestone. A new fully equipped clinic was opened
during the 2016 financial year at the Liqhobong Mine. The new
clinic has seven beds, two consulting rooms, a dispensary and two
medical supply store rooms. The clinic is permanently manned by a
qualified paramedic. The clinic's monthly statistics are analysed
for trends and appropriate action is taken as required.
The clinic has a fully equipped ambulance that can be used to
transport patients to the nearest hospital if required. For serious
injuries a helicopter casualty evacuation plan is in place.
Environment
Firestone is committed to minimising its impact on the
environments in which it operates. It is therefore pleasing to
report that no major environmental incidents were recorded at the
Liqhobong construction site during the financial year. Liqhobong's
Environmental Management Plan ("EMP") was updated to reflect the
latest operating parameters and mitigation actions. These were
submitted to the Department of Environment ("DOE") during the year
and were subsequently approved.
At an operating level, Liqhobong's environmental focus continues
to be on waste management, water monitoring, incident reporting and
auditing of contractor activities. The Company adopted a waste
segregation at source policy which allows for the separation and
collection of recyclable and hazardous material that are removed
and disposed of by accredited service providers.
Surface water samples are collected monthly and analysed for
bacterial and chemical content. Water sampling points include
drinking water sources as well as control points upstream and
downstream of the mine. The results are compared against the South
African National Standards ("SANS") and all anomalies are
investigated and action taken accordingly. Liqhobong collaborates
and shares water sampling results with stakeholders such as the
Lesotho Highlands Development Agency, the Department of Water
Affairs and the DOE.
Community
Firestone and its subsidiary, Liqhobong are committed to
Corporate Social Investment ("CSI") as an integral part of a
sustainable social development programme for the empowerment and
economic upliftment of their host communities. Among the Company's
most important stakeholders are the communities that live in close
proximity to the Mine, the two villages of Liqhobong and Pulane.
Over time, these communities have seen previous companies and
management teams come and go and were initially sceptical and
distrustful of the new Liqhobong operational management team.
However, through an ongoing engagement process and ethos of
delivering on promises, the project and management teams have
improved relationships. In addition to daily interaction between
Liqhobong officers and villagers, there is a formal monthly meeting
between the management team and the Liqhobong Working Committee
("LWC") which represents the two villages. A grievance process was
in place since the commencement of the Project in 2014. Grievances
are logged, investigated and resolved.
Relocation
A total of 24 families residing in the Liqhobong village were
identified for relocation as a precautionary measure due to their
proximity to the new residual storage facility dam wall. New houses
were built, and to date 15 of the families have been relocated.
Currently the construction of kraals and rondavels, and
stabilisation of platforms, are in progress at the remainder of the
properties to ensure that facilities at the new sites are
equivalent to those at the original sites. The target date for
completion is the end of 2016.
Compensation
Construction of a new 6km access road to the Mine at the start
of the Project affected a number of croplands. Liqhobong negotiated
an annual compensation amount for the affected farmers based on a
crop production analysis study that was conducted by an independent
consultant.
A portion of the mining lease is in the process of being fenced
in and an annual compensation amount was agreed with the local
community at the end of 2015 for the loss of grazing land. This
compensation amount was also calculated by an independent
consultant and based on the Lesotho Highlands Water Project formula
used previously in Lesotho. The first annual payment will be made
during 2016 once the fence is complete. Payments will be used to
fund projects which are in the interests of the communities as a
whole. A decision will be taken in collaboration with the LWC as to
which projects should be undertaken.
Recruitment
A significant positive contribution to the local people living
close to the Mine is the provision of long-term employment once the
Mine commences production. Liqhobong has committed to giving local
communities first priority in respect of unskilled positions. Job
advertisements are translated into Sesotho, the local language, and
distributed to the eight villages in the vicinity of the Mine. The
recruitment process will be completed by early 2017.
Corporate Social Responsibility ("CSR") projects
Firestone has committed to making funds available for community
upliftment projects once the Mine goes into production and profits
are being generated. Notwithstanding this commitment, the Company
has decided to embark on two projects during 2016 prior to
production. The first project was motivated by the need of the
Liqhobong community for a pre-primary school. After a consultation
process, plans were finalised, a local builder was appointed and
construction commenced during September 2016.
Another very important project that commenced is the sustainable
supply of drinking water to the two villages adjacent to the mine.
In collaboration with the Department of Rural Water Supply,
Liqhobong completed a survey and assessment of all the natural
water points in the two villages and determined that there is
sufficient yield to support the installation of a communal tap
system. This project will commence in the latter part of 2016 and
is expected to be completed during 2017.
Conclusion
After a challenging two-year period of construction, the Project
is nearing completion and we are now entering the operational phase
of the Mine life. The Company intends to operate the Mine for many
years to come and our commitment is to continually achieve
exceptional standards when it comes to the safety of our employees,
the care of environments in which we operate and beneficial
engagement with the local communities that are situated close to
our operations.
Stuart Brown
Chief Executive Officer
31 October 2016
Risk Review
Firestone's focus is the successful execution of the Liqhobong
Mine Project in Lesotho.
The Project entails the construction and commissioning of a new
main treatment plant capable of treating 500 tonnes per hour, as
well as the required infrastructure to ensure that the mine
successfully operates over its planned life and once built,
operates at the designed specification to deliver the anticipated
returns.
The Company is exposed to a number of risks and uncertainties,
which, if they occur, could have a material impact on the
successful achievement of its goals. Management of these risks and
uncertainties is a key function of the Board and management of the
Company.
The following risks have been identified as the main risks that
could potentially impact on the Company achieving its goals:
Strategic risk
Retention of key personnel
The Company is heavily reliant on a small group of key staff to
achieve its objectives.
Responsibility
The Board carries the responsibility through its Executive
Directors, the Remuneration Committee and the Nomination Committee
to ensure appropriate remuneration structures are adequate to
attract and retain staff with the required skills and experience to
ensure that the project and operational requirements are met.
Mitigation
Firestone believes that it has mitigated this risk by
implementing competitive remuneration structures, which includes a
balance of fixed and variable remuneration based on the key
performance indicators for individuals as well as the Group as a
whole, and practices to attract appropriate individuals to the
team.
External risk
Country and political risk
Liqhobong is situated in Lesotho and BK11 in Botswana, both
southern African countries. Whilst Botswana has been politically
stable over its history the same is not true for Lesotho. Lesotho
is currently experiencing a period of political instability. This
is not uncommon in emerging markets which can be subject to greater
volatility and political risk.
Responsibility
The responsibility for managing this risk lies with Executive
Management.
Mitigation
The Firestone team has extensive experience of operating in
southern Africa. The Company keeps in close contact with
representatives of the Government in Lesotho to ensure it keeps
abreast of all political and regulatory developments. The political
changes and developments in Lesotho during 2016 have not materially
disrupted the Company's operations directly but they do cause
uncertainty with international investors and other interested and
affected parties. The situation is managed as closely as possible
under the circumstances and will continue to be monitored.
Operational risks
Health, safety, environmental and community risk
Failure to comply with any of the legislative or social
requirements would cause a delay or suspension of the Company's
operational activities in Lesotho or Botswana.
Responsibility
The Executive Directors and the Safety, Health, Environment and
Corporate Social Responsibility Committee.
Mitigation
Liqhobong, under the leadership and direction of Firestone is
able to operate to the highest standards possible. The operational
team remains very thorough in the execution of its strategy in
engaging with the local community in Liqhobong as well as local and
central government representatives to manage expectations and
requirements. These relationships are maintained and monitored on a
regular basis.
Project delivery risk
Should the Company not achieve Project completion on time and on
budget, there may be an impact on the Group's ability to complete
the Project with existing cash and debt facilities, which could
result in a further funding requirement.
Responsibility
The Executive Directors and the Chief Project Officer.
Mitigation
The Company has assembled an experienced team, which has a track
record of successful project delivery in the diamond industry.
The engineering, procurement and contract management partner
also has extensive experience in the diamond industry and
importantly, a history of working in the Lesotho Highlands.
The Project design has been selected to mitigate time over-runs
and is closely monitored and measured by the Project Management
Steering Committee.
The Group has a US$15.0 million standby facility in place
provided by Resource Capital Fund VI L.P., one of its significant
shareholders.
Production start-up risk
Commissioning a new plant is often very difficult and can cause
additional expenditure requirements and delays to revenue if not
well planned and managed.
Responsibility
The Executive Management and operational team.
Mitigation
The commissioning process has been planned to be very thorough
with all installed equipment extensively tested and operated prior
to the start of the commissioning phases. Operational staff have
been recruited early to ensure a smooth handover between the
construction and operational teams on site. Stockpiled ore is
available for processing during the first month of ramp up
production. The operations team has been carefully selected for its
experience and knowledge of the site conditions.
Water supply risk
Southern Africa, including Lesotho, is still experiencing the
after effects of one of the worst droughts in recent history. The
limited availability for water storage facilities in the Liqhobong
valley poses a risk to normal operations of the production
plant.
Responsibility
The Executive Directors and the Executive Management.
Mitigation
Efforts to mitigate the risk for the longer term are focused on
improved water recycling, enlarging the storage capacity of the
satellite pit, making use of the main pit water and constructing an
additional storage dam on site. Water collection, storage and use
is a key priority for the management team. Additional water
reduction and recycling options are continuously considered.
Electricity supply risk
Liqhobong is connected to the Lesotho National Power Grid
through a 132kW power line constructed as part of the power
project. The power line stretches 28km from the Ha Lejone
substation over mountainous terrain and is susceptible to lightning
strikes. These can and do lead to power supply interruptions to the
Mine. Power supply interruptions thus pose a risk to mine
operations.
Responsibility
The Executive Management and Electrical Engineering Department
on the Mine site.
Mitigation
A power factor correction unit was installed on site, which
manages constant power supply to the Mine site and eliminates any
power surges. A close relationship with the Lesotho Electricity
Company has been established, with its representatives planned to
be permanently based on site when production commences.
Financial risk
Financing risk
The Company raised, what it believes to be sufficient funding
through a combination of debt and equity to fund the Group beyond
the expected first sale of diamonds in January 2017. A project cost
over-run or a delay in commissioning of the Project or first
diamond sale could lead to a further funding requirement.
Responsibility
The Executive Directors, the Audit Committee and the senior
management.
Mitigation
Management has prepared detailed capital expenditure plans and
budgets for the construction and operations phases of the Project.
The Company has also implemented a detailed cash and expenditure
monitoring system to ensure that expenditure remains within
approved capital and contingency budgets. Cash flow planning is
continually updated to take into account historic cash outflow
against budget, exchange rate movements as well as budget shifts.
The Audit Committee considers cash flow forecasts on a regular
basis to ensure that the Company is adequately funded. Project
spending is tightly controlled and managed. Expenditure on the
Project has been very close to budget and there is a high level of
confidence in the remaining expenditure forecast. In addition, the
Company has access to a further US$15.0 million standby facility to
fund any over-runs on the Project.
Currency risk
Foreign currency exposure risk
The Company is exposed to currency risk as a result of its
operations in various jurisdictions which include Lesotho, South
Africa, Botswana and the UK. The most substantial currency risk for
the Group relates to the Project and operating costs which are
incurred in South African Rand ("Rand") and Lesotho Maloti
("Maloti"), which is pegged to the Rand, from funds raised through
a combination of US Dollars ("USD") or ("US$") and Pounds Sterling
("GBP") or ("GBP") and revenues from the sale of diamonds
denominated in US Dollars. Should the Rand, which is a volatile
emerging market currency, strengthen against the US$ or GBP beyond
the budgeted rates, the Group could have a potential funding
shortfall.
Responsibility
The Executive Directors, Audit Committee and Senior
Management.
Mitigation
The Company monitors the movement of the Rand against the US
Dollar and Pound Sterling very closely. During the construction
phase the Company has mitigated the risk and indeed benefitted from
the deterioration of local currency and has used the Company's
hedging policy to lock in rates above those expected to ensure
certainty. A number of hedging contracts were entered into during
the financial year, thereby reducing the risk of a shortfall in
funding to an acceptable level.
Interest rate risk
Floating interest rate exposure risk
The Group is exposed to risk posed by floating interest rates
charged on the Project's debt facilities. Rising interest rates
pose a risk to the Group's cash flow, which could lead to the Group
not being able to meet its operational and debt covenant cash
requirements.
Responsibility
The Executive Directors, Audit Committee and Senior
Management.
Mitigation
By applying the Group's hedging policy the Group has entered
into floating-to-fixed interest swaps for a portion of the debt,
which will ensure that the interest remains fixed for the duration
of the debt facilities.
Market risk
Diamond price risk
The Group is exposed to a number of factors affecting rough
diamond prices. These range from oversupply of rough diamonds,
polished diamond price weakness, man-made (synthetic) diamonds,
currency risk as diamonds are priced in US Dollars and a slowdown
in the growth of the global diamond retail market.
Responsibility
The Executive Directors, Management and the Audit Committee.
Mitigation
The diamond prices used in the financial model and budget for
the year ended 30 June 2017 are based on conservative forecasts,
and no upside for the recovery of large or special stones was taken
into account in these models. This ensures that modelled cash flow
is robust and leaves a margin of safety between base cash
requirements and expected cash received.
Financial review
Summary
-- 85% Project construction complete;
-- US$142.0 million spent against a total Project budget of US$185.4 million;
-- ZAR240 million of additional project costs funded by cash
gains from effective treasury management;
-- Eurobonds of US$30.0 million issued during the year;
-- US$43.4 million utilised against the ABSA project debt facility during the year;
-- US$15.0 million standby facility available to the Group; and
-- Sufficient cash on hand and debt facilities in place beyond
the expected first diamond sale in January 2017.
Results for the year ended 30 June 2016 reflect the Group's
focus on the Liqhobong Project. The Group generated a profit after
tax of US$13.6 million. However, this resulted from the recognition
of tax credits of US$22.6 million, which, if excluded, present a
loss of US$9.0 million compared with the prior year loss of US$10.4
million, a more appropriate comparison presenting a slight
improvement year on year. The Group had no revenue from the sale of
diamonds as it was still developing its Liqhobong mine during the
2016 financial year.
Our aim is to ensure that the Project completes during Q4 2016
within the original US$185.4 million budget and at the year end,
the Group was well on track to achieve this, having reached 85%
completion at the end of June 2016. Costs across the Group are well
controlled, particularly those related to the Project where the
team has performed exceptionally.
Whilst the Project has undeniably benefited from the weakness in
the Rand, there was no guarantee at the time the funding was
secured that the Rand would continue to devalue and this presented
a risk which had to be managed accordingly. The Group entered into
a series of currency contracts which mitigated this risk, the
success of which is clearly evident. As at the year end, additional
Project costs of ZAR240 million have all been funded from foreign
exchange gains through effective treasury management. ZAR156
million was related to increased overburden and adverse weather
delays experienced in the early part of construction and ZAR84
million related to risk mitigation items which include increased
water storage capacity on site.
During the year, funding of US$73.4 million was received.
Liqhobong commenced drawdown from the ABSA project debt facility in
September 2015 and received US$43.4 million during the year, and
US$30.0 million in net proceeds was received from the issue of
Eurobonds by the Company. This funding, together with opening cash
of US$17.6 million was sufficient to cover Project and other
operating costs of US$77.6 million and US$3.4 million in corporate
overheads.
At the year end, the Group had cash and remaining debt
facilities of US$49.3 million with a further US$40.3 million to be
spent on the Project and corporate expenses leaving headroom of
US$9.0 million excluding the US$15.0 million standby facility.
The funding structure as at the year end is sufficient to fund
the Group beyond its first sale of diamonds, which is expected to
take place in January 2017.
Statement of profit and loss
Liqhobong BK11 Corporate Total
US$ million 2016 2015 2016 2015 2016 2015 2016 2015
------------------------------- ------ ------ ------ ------ ------ ------ ------ -------
Other income 0.5 - - - - - 0.5 -
Administrative expenses 0.4 0.5 - - - - 0.4 0.5
Care and maintenance expenses - - 0.5 0.5 - - 0.5 0.5
Corporate expenses - - - - 3.4 3.6 3.4 3.6
Depreciation and amortisation 0.6 - 1.8 - - 0.1 2.4 0.1
Impairment losses - - - 2.6 - - - 2.6
Share-based payments - - - - 0.8 0.8 0.8 0.8
Rehabilitation provision - - - 0.1 - - - 0.1
------------------------------- ------ ------ ------ ------ ------ ------ ------ -------
Loss before finance charges (0.5) (0.5) (2.3) (3.2) (4.2) (4.5) (7.0) (8.2)
Finance income 0.1 - - - - 0.1 0.1 0.1
Finance cost (1.8) - - - (0.3) (2.3) (2.1) (2.3)
------------------------------- ------ ------ ------ ------ ------ ------ ------ -------
Loss before tax (2.2) (0.5) (2.3) (3.2) (4.5) (6.7) (9.0) (10.4)
Deferred tax credit 22.6 - - - - - 22.6 -
------------------------------- ------ ------ ------ ------ ------ ------ ------ -------
Profit/(loss) after tax 20.4 (0.5) (2.3) (3.2) (4.5) (6.7) 13.6 (10.4)
------------------------------- ------ ------ ------ ------ ------ ------ ------ -------
This business segment was classified as held for sale as at 30
June 2015. As at 30 June 2016 the requirements to recognise the
assets as held for sale were not met resulting in reclassification
to continuing operations.
The Group generated a profit after tax for the year of US$13.6
million compared with a loss in the previous year of US$10.4
million. The main contributing factor is a tax credit of US$22.6
million in the current year which resulted from recognising the
benefit of tax losses brought forward from previous years, the
reason for which is discussed further in the report. The loss
before tax therefore presents a more appropriate comparison of the
financial performance of the Group for the year, where the loss
reduced by US$1.4 million to US$9.0 million (2015: US$10.4
million). As reported previously, all costs incurred that relate
directly to the Project are capitalised to the cost of the asset as
reflected in the Statement of Financial Position. The loss for the
Group excluding Liqhobong decreased by US$3.1 million to US$6.8
million (2015: US$9.9 million), mainly due to a reduction in losses
on foreign exchange.
It is pleasing to note that cash costs for the Group have been
contained during the year and that the cost of the Project remains
within the original US$185.4 million budget.
Liqhobong
The Group was firmly focused on the Project during the year,
which reached 85% completion at year end. Liqhobong generated a
profit of US$20.4 million for the year compared to a loss of US$0.5
million in the previous year. From an operational perspective,
excluding the benefit of the tax credit which is explained below,
the loss before income tax increased by US$1.7 million to US$2.2
million for the year (2015: US$0.5 million) as a result of foreign
exchange losses of US$1.8 million which were offset by savings on
administrative expenses of US$0.1 million. Finance costs of US$1.8
million during the year (2015: US$nil) comprise foreign exchange
losses on currency contracts which were entered into in order to
protect the Project budget rate of ZAR10:US$1. Although an average
rate of ZAR11.92:US$1 was achieved, which is favourable when
compared to the Project budget rate of ZAR10:US$1, revaluation of
the contracts resulted in a book loss.
Liqhobong recognises a tax credit of US$22.6 million which
relates to the tax benefit of losses incurred in prior years. The
benefit is recognised in the current year as there are reasonable
grounds upon which to expect that profits will be generated in the
future which can be offset against the tax losses brought forward.
Based on current forecasts the Group expects to deplete the tax
losses over the next four years.
BK11
On 9 September 2016 the Group was informed by Tango Mining
Limited that it has not been able to meet the conditions of the
sale agreement entered into on 9 July 2015 for the disposal of its
Botswana Operations. The Group classified its Botswana operations
as a held for sale asset in the 2015 Annual Report. As the
conditions to classify these assets as held for sale are no longer
met, the Board decided to reclassify the Botswana operations to
continuing operations.
Subsequent to being reclassified to continuing operations, the
loss for the year decreased by US$0.9 million to US$2.3 million
(2015: US$3.2 million). The reduction in the loss is due to the
depreciation charge in the current year of US$1.8 million, which is
being offset by the impairment loss recognised in the previous year
of US$2.6 million. The ongoing cost of care and maintenance
remained consistent at US$0.5 million.
Corporate
The loss at corporate level decreased by US$2.2 million to
US$4.5 million (2015: US$6.7 million) mainly as a result of a
reduced loss on foreign exchange of US$2.0 million. Corporate
expenses of US$3.4 million for the year reduced slightly from
US$3.6 million in the previous year.
Statement of financial position
Liqhobong BK11 Corporate Total
US$ million 2016 2015 2016 2015 2016 2015 2016 2015
--------------------------------- ------ ------ ----- ----- ------- ----- ------ ------
Assets
Non-current assets
Property, plant and equipment 170.4 121.2 6.6 9.0 0.1 0.1 177.1 130.3
Deferred tax 20.2 - - - - - 20.2 -
Loan receivable 2.8 - - - - - 2.8 -
Current assets
Current assets (excluding cash) 3.6 13.6 0.1 0.1 - 0.2 3.7 13.9
Cash equivalents 6.7 4.5 0.1 0.1 3.5 13.0 10.3 17.6
------ ------ ----- ----- ------- ----- ------ ------
203.7 139.3 6.8 9.2 3.6 13.3 214.1 161.8
------ ------ ----- ----- ------- ----- ------ ------
Liabilities
Non-current liabilities
Borrowings 27.8 - - - 22.2 - 50.0 -
Rehabilitation provisions 2.0 1.7 1.3 1.4 - - 3.3 3.1
Deferred tax - 3.5 - - - - - 3.5
Current liabilities
Borrowings 4.7 - - - - - 4.7 -
Other current liabilities 14.7 19.4 0.2 0.1 1.5 1.0 16.4 20.5
------ ------ ----- ----- ------- ----- ------ ------
49.2 24.6 1.5 1.5 23.7 1.0 74.4 27.1
------ ------ ----- ----- ------- ----- ------ ------
Equity value 154.5 114.7 5.3 7.7 (20.1) 12.3 139.7 134.7
------ ------ ----- ----- ------- ----- ------ ------
This business segment was classified as held for sale as at 30
June 2015. As at 30 June 2016 the requirements to recognise the
assets as held for sale were not met resulting in reclassification
to continuing operations.
The Group's equity balance increased by US$5.0 million to
US$139.7 million (2015: US$134.7 million). Increases in equity of
US$26.7 million included profit of US$13.6 million, an increase in
non-controlling interest of US$4.4 million and warrants issued of
US$7.6 million together with a share premium of US$1.1 million in
relation to the Eurobond facility. Decreases in equity of US$21.7
million included foreign exchange translation losses of US$20.3
million and other reserves of US$1.4 million. Foreign exchange
translation losses reflect the impact of the Group's assets and
liabilities which are mainly denominated in currencies other than
the US Dollar, particularly the Lesotho Maloti, which is pegged at
1:1 to the Rand and which devalued against the US Dollar during the
year by 20.3% to ZAR14.77:US$1 (2015: ZAR12.28:US$1), resulting in
lower values being reported in US Dollar terms.
Non-current assets increased by US$69.8 million to US$200.1
million (2015: US$130.3 million). The value of property, plant and
equipment increased by US$46.8 million to US$177.1 million (2015:
US$130.3 million). The current year's movement consists of Project
costs of US$71.9 million offset by a depreciation charge of US$1.9
million and foreign exchange translation losses of US$22.6 million
and includes a reclassification of Botswana operations of US$0.6
million from discontinued operations. The Group recognises a
deferred tax asset of US$23.1 million in respect of the benefit
that the Group will receive from tax losses incurred in previous
years. The deferred tax liability of US$2.9 million was offset
against the deferred tax asset resulting in a net deferred tax
asset of US$20.2 million.
The value of current assets decreased by US$17.5 million to
US$14.0 million (2015: US$31.5 million) as a result of a US$7.3
million decrease in cash balances and a decrease in trade and other
receivables of US$10.2 million. Trade and other receivables
decreased as currency contracts matured and deposits were
released.
The value of non-current liabilities increased by US$46.7
million to US$53.3 million (2015: US$6.6 million) mainly as a
result of an increase in borrowings of US$50.0 million. During the
year, the Group accessed total funding of US$73.4 million
comprising US$43.4 million of the total US$82.4 million ABSA debt
facility and US$30.0 million through the issue of Eurobonds by the
Company. The funds raised were applied to Project construction
costs and other Group operating costs.
Finance costs paid in advance of US$9.9 million for the ABSA
debt facility and US$7.9 million in respect to warrants issued in
connection with the Eurobonds have been allocated to each of the
debt facilities and are to be amortised over the life of the
facilities. This resulted in an effective interest rate for the
Eurobond of 12.33% and 9.60% for the ABSA debt facility as at 30
June 2016.
Current liabilities increased by US$0.6 million to US$21.1
million (2015: US$20.5 million) as a result of a US$4.1 million
reduction in creditors' balances offset by an increase of US$4.7
million in borrowings which are due for payment within the next
twelve months. Liqhobong is in the final stages of development and
work is centred around pipework, steel work and electrical and
instrumentation where spend is at a lower level compared with the
previous year when substantial amounts of earthworks and initial
construction work was underway.
Cash flow statement
Liqhobong BK11 Corporate Total
US$ million 2016 2015 2016 2015 2016 2015 2016 2015
------- ------- ------ ------ ------- ------- ------- -------
Opening cash
at 1 July 4.7 15.9 0.1 - 12.8 91.1 17.6 107.0
Operations 4.0 0.6 (0.5) (0.4) (3.1) (4.6) 0.4 (4.4)
------- ------- ------ ------ ------- ------- ------- -------
Operating
cash flow
adjusted for
non-cash items (2.2) (0.5) (0.5) (0.5) (3.4) (3.6) (6.1) (4.6)
Change in
working capital 6.2 1.1 - 0.1 0.3 (1.0) 6.5 0.2
------- ------- ------ ------ ------- ------- ------- -------
Capital development (68.2) (82.9) - - - 0.2 (68.2) (82.7)
------- ------- ------ ------ ------- ------- ------- -------
Capital expenditure (68.2) (82.9) - - - - (68.2) (82.9)
Proceeds from
disposal of
subsidiaries - - - - - 0.2 - 0.2
------- ------- ------ ------ ------- ------- ------- -------
Cash financing 67.0 72.9 0.5 0.5 (6.2) (73.8) 61.3 (0.4)
------- ------- ------ ------ ------- ------- ------- -------
Minority contribution - 1.9 - - - - - 1.9
Loans received 43.4 - - - 30.0 - 73.4 -
Finance income 0.1 - - - - - 0.1 -
Finance cost (10.5) - - - (1.5) (2.3) (12.0) (2.3)
Dividends
paid to minorities (0.2) - - - - - (0.2) -
Intra-group
transfers 34.2 71.0 0.5 0.5 (34.7) (71.5) - -
------- ------- ------ ------ ------- ------- ------- -------
FX loss on
opening balance (0.8) (1.8) - - - (0.1) (0.8) (1.9)
Closing cash
at 30 June 6.7 4.7 0.1 0.1 3.5 12.8 10.3 17.6
------- ------- ------ ------ ------- ------- ------- -------
This business segment was classified as held for sale as at 30
June 2015. As at 30 June 2016 the requirements to recognise the
assets as held for sale were not met resulting in reclassification
to continuing operations.
The Group started the year with cash of US$17.6 million. During
the year, the Group spent US$6.1 million on operating activities,
invested a further US$68.2 million in the Project, paid finance
costs in advance of US$12.0 million and paid a dividend to minority
shareholders of US$0.2 million. The above mentioned spend was
funded from opening cash balances, cash raised from debt facilities
of US$73.4 million and a reduction in working capital of US$6.5
million. The Group incurred foreign exchange losses on opening cash
of US$0.8 million mainly as a result of Maloti-denominated funds
being converted to US Dollars at stronger US Dollar rates
throughout the year. The result is a net cash movement of US$7.3
million and a closing cash balance at the end of the year, after
adjusting for the effects of foreign exchange movements of US$10.3
million.
Liqhobong
Liqhobong started the year with cash of US$4.7 million. During
the year, Liqhobong spent USS$68.2 million on the Project, paid
finance costs in advance of US$10.5 million, spent US$2.2 million
on operating activities and paid a dividend to the minority
shareholders of Infrastructure Projects (Proprietary) Limited, who
owns the power line, of US$0.2 million. Liqhobong funded its
expenditure from cash receipts from the ABSA debt facility of
US$43.4 million, Group loans of US$34.2 million, decreased working
capital of US$6.2 million and opening cash balances, resulting in
net cash movement of US$2.8 million and a closing cash balance
after adjusting for the effects of foreign exchange movements of
US$6.7 million.
Cash expenditure of US$68.2 million on the Project represents a
further 34% of the total project budget of US$185.4 million. This
increases total Project spend to 76% (2015: 42%) of the Project
budget. During the year all major earthworks, construction of the
residual storage facility and major fabrication was completed.
Erection of the steel, mechanical, plate and pipework commenced as
the various civil areas were completed and signed off by the civils
contractor. All critical works streams remain within the revised
baseline and at year end overall physical completion was at
85%.
BK11 mine
During the year BK11 expended US$0.5 million on continued care
and maintenance expenses. Cash requirements were funded from Group
loans.
Corporate
Corporate started the year with cash of US$12.8 million.
Corporate spent US$3.4 million on operating activities, paid
finance cost in advance of US$1.5 million in relation to the
Eurobond and advanced a further US$34.2 million to Liqhobong for
further investment in the Project and US$0.5 million to BK11 to
fund ongoing care and maintenance costs. Corporate funded its cash
expenditure from US$30.0 million cash raised from the Eurobond, a
decrease in working capital of US$0.3 million and opening cash
balances. This resulted in net cash movement of US$9.3 million and
a closing cash balance of US$3.5 million.
Grant Ferriman
Chief Financial Officer
31 October 2016
Strategic report
This Strategic report was approved by the Board on 31 October
2016 and is signed on its behalf by:
Lucio Genovese
Non-Executive Chairman
31 October 2016
The Directors present their Annual Report and Accounts for the
year ended 30 June 2016. The disclosure requirements of the
Companies Act 2006 and AIM Rules and, where the Directors have
deemed it appropriate, the Listing Rules and the UKLA Disclosure
and Transparency Rules have been met by the contents of this
Report, along with the Strategic Report and the Directors'
Remuneration Report which should, therefore, be read in conjunction
with this report.
Results and dividends
The Group made a profit after taxation of US$13.6 million (2015:
loss after tax of US$10.4 million). Further details are shown in
the Consolidated Statement of Comprehensive Income.
The Directors do not recommend a dividend (2015: US$nil).
Capital structure
The Company's share capital consists of one class of ordinary
shares and two classes of deferred shares. At the date of this
report the ordinary share capital of the Company was 314,948,244
ordinary shares of 1 pence each (2015: 308,992,814 ordinary shares
of 1 pence each).
Other than the general provision of the Articles (and prevailing
legislation) there are no specific restrictions on the size of a
holding or on the transfer of ordinary shares.
The Directors are not aware of any agreement between holders of
the Company's shares that may result in the restriction of the
transfer or securities or on voting rights. No shareholder holds
any securities carrying any special rights or control over the
Company's share capital.
At the date of this report the Company had been notified of the
following interests in the issued ordinary share capital:
Shares % holding
------------------------- ----------- ----------
Resource Capital Fund
VI L.P. 74,143,918 23.5
Pacific Road Resources 74,105,286 23.5
Edwards Family Holdings
Limited 28,296,842 9.0
FIL Ltd 15,601,540 5.0
Sustainable Capital
Limited 15,501,170 4.9
Includes Pacific Road Resources Fund II L.P. ("PRC LP") and
Pacific Road Resources Fund II ("PC Trust").
Directors
The Directors who served during the year and up to the date of
this report were as follows:
Position
--------------- ------------------------
Stuart Brown Chief Executive Officer
Lucio Genovese Non-Executive Chairman
Keith Johnson Non-Executive Director
Braam Jonker Non-Executive Director
Ken Owen Non-Executive Director
Paul Sobie Non-Executive Director
Mike Wittet Non-Executive Director
Niall Young Non-Executive Director
--------------- ------------------------
The Company maintains Directors' and Officers' Liability
Insurance which in the view of the Directors, should provide
appropriate cover for any potential legal action brought against
its Directors. The Company has also provided in its Articles of
Association an indemnity for its Directors, which is a qualifying
third party indemnity provision for the purposes of section 234 of
the Companies Act 2006. This was in place throughout the financial
year under review and up to the date of the approval of the
financial statements.
Employees
The Group had 61 full time employees at the year end.
Employee involvement
The Company's policy is to actively involve its employees in the
business and to ensure that matters of concern to them, including
the Group's aims and objectives and the financial and economic
factors which impact thereon are communicated in an open and
regular manner. This is achieved through regular management
briefs.
Financial risk management and exposure to risks from the use of
financial instruments
Financial risk disclosures and details of the Group's exposure
to risk arising from the use of financial instruments are provided
within the Strategic report and in note 30 of the financial
statements.
Going concern
The Directors, after making enquiries and considering
uncertainties associated with the Group's operations, believe that
the Group and Company have, or have access to the necessary
financial resources to continue in operational existence for the
foreseeable future. Accordingly, the Directors continue to adopt
the going concern basis in preparing the Annual Report and Accounts
which do not include any adjustments that would result from the
going concern basis of preparation being inappropriate.
Post-balance sheet events
Post-balance sheet events are detailed in note 8 of this
report.
Auditor
In the case of each person who was a Director at the time this
report was approved:
-- so far as that Director was aware, there was no relevant
available information of which the Company's auditor is unaware;
and
-- that Director has taken all steps that the Director ought to
have taken as a Director to make himself aware of any relevant
audit information and to establish that the Company's auditor was
aware of that information.
A resolution to re-appoint BDO LLP as auditor to the Company
will be proposed at the forthcoming Annual General Meeting.
On behalf of the Board
Lucio Genovese
Non-Executive Chairman
31 October 2016
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF FIRESTONE DIAMONDS
PLC
We have audited the financial statements of Firestone Diamonds
plc for the year ended 30 June 2016 which comprise the Consolidated
Statement of Comprehensive Income, Consolidated Statement of
Financial Position, Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows, Company Statement of
Financial Position, Company Statement of Changes in Equity, Company
Statement of Cash Flows and the related notes. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
("IFRS") as adopted by the European Union and, as regards the
parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's 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 and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Financial Reporting
Council's ("FRC's") Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the FRC's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and the parent company's affairs as at 30 June
2016 and of the Group's profit for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with IFRS as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRS as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion the information given in the Strategic Report and
Directors' Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Scott Knight (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
31 October 2016
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of comprehensive income for the year
ended 30 June 2016
2016 2015*
Note US$'000 US$'000
Other income 450 -
Total administrative expenses (7,396) (8,172)
Other administrative expenses (290) (645)
Amortisation and depreciation (2,464) (35)
Impairment - (2,558)
Share-based payments (775) (827)
Care and maintenance (518) (521)
Corporate expenses (3,349) (3,586)
-------------------------------------------------------------------- ----- --------- ---------
Loss before finance charges and income tax (6,946) (8,172)
Finance income 111 76
Finance costs (2,198) (2,290)
-------------------------------------------------------------------- ----- --------- ---------
Loss before tax (9,033) (10,386)
Taxation credit 2 22,641 -
-------------------------------------------------------------------- ----- --------- ---------
Profit / (loss) after tax for the year 13,608 (10,386)
-------------------------------------------------------------------- ----- --------- ---------
Profit / (loss) after tax for the year attributable to:
Owners of the parent 7,884 (10,304)
Non-controlling interests 5,724 (82)
-------------------------------------------------------------------- ----- --------- ---------
Profit / (loss) after tax for the year 13,608 (10,386)
-------------------------------------------------------------------- ----- --------- ---------
Other comprehensive loss:
Items that may be reclassified subsequently to profit and loss
Exchange differences on translating foreign operations net of tax (20,337) (14,588)
Profit / (loss) on cash flow hedges 344 (2,438)
-------------------------------------------------------------------- ----- --------- ---------
Other comprehensive loss (19,993) (17,026)
-------------------------------------------------------------------- ----- --------- ---------
Total comprehensive loss for the year (6,385) (27,412)
-------------------------------------------------------------------- ----- --------- ---------
Total comprehensive loss for the year attributable to:
Owners of the parent (7,541) (23,702)
Non-controlling interests 1,156 (3,710)
-------------------------------------------------------------------- ----- --------- ---------
Total comprehensive loss for the year (6,385) (27,412)
-------------------------------------------------------------------- ----- --------- ---------
Profit/(loss) per share
Basic profit/(loss) per share from continuing operations (cents) 3 2.5 (3.3)
Diluted profit/(loss) per share
Diluted profit/(loss) per share from continuing operations (cents) 3 2.5 (3.3)
* In 2015, the BK11 mine was held for sale, however, as at 30
June 2016 the requirements to recognise the assets as held for sale
are no longer met resulting in reclassification to continuing
operations for both the current and preceding year. The impact of
the change is disclosed in note 6 - Discontinued operations.
Consolidated statement of financial position as at 30 June
2016
2016 2015*
Note US$'000 US$'000
----------------------------------------------------------- ----- ---------- ----------
ASSETS
Non-current assets
Property, plant and equipment 4 177,141 130,276
Deferred tax 5 20,248 -
Loan receivable 2,816 -
----------------------------------------------------------- ----- ---------- ----------
Total non-current assets 200,205 130,276
----------------------------------------------------------- ----- ---------- ----------
Current assets
Inventories 248 270
Trade and other receivables 3,420 13,622
Cash and cash equivalents 10,282 17,628
----------------------------------------------------------- ----- ---------- ----------
Total current assets 13,950 31,520
----------------------------------------------------------- ----- ---------- ----------
Total assets 214,155 161,796
----------------------------------------------------------- ----- ---------- ----------
EQUITY
Share capital 163,493 163,441
Share premium 164,680 163,600
Reserves (46,065) (39,183)
Accumulated losses (129,041) (134,250)
----------------------------------------------------------- ----- ---------- ----------
Total equity attributable to equity holders of the parent 153,067 153,608
Non-controlling interests (13,402) (18,975)
----------------------------------------------------------- ----- ---------- ----------
Total equity 139,665 134,633
----------------------------------------------------------- ----- ---------- ----------
LIABILITIES
Non-current liabilities
Borrowings 7 50,097 -
Deferred tax 5 - 3,480
Rehabilitation provisions 3,306 3,078
----------------------------------------------------------- ----- ---------- ----------
Total non-current liabilities 53,403 6,558
----------------------------------------------------------- ----- ---------- ----------
Current liabilities
Borrowings 7 4,680 -
Other financial liabilities 1,688 2,438
Trade and other payables 14,198 17,777
Provisions 521 390
----------------------------------------------------------- ----- ---------- ----------
Total current liabilities 21,087 20,605
----------------------------------------------------------- ----- ---------- ----------
Total liabilities 74,490 27,163
----------------------------------------------------------- ----- ---------- ----------
Total equity and liabilities 214,155 161,796
----------------------------------------------------------- ----- ---------- ----------
* In 2015, the BK11 mine was held for sale, however, as at 30
June 2016 the requirements to recognise the assets as held for sale
are no longer met resulting in reclassification to continuing
operations for both the current and preceding year. The impact of
the change is disclosed in note 6 - Discontinued operations.
Consolidated statement of changes in equity for the year ended 30 June 2016
-----------------------------------------------------------------------------------------------------------------------------------------------------
Equity
attributable
Share-based to holders Non-
Share Share Warrant Merger Hedging payment Translation Accumulated of controlling Total
capital premium reserve reserve reserve reserve reserve losses the parent Interests equity
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Balance as at 30
June 2014 163,441 163,600 - (1,614) - 3,690 (27,713) (125,103) 176,301 (16,999) 159,302
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Comprehensive
loss
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Loss for the
year - - - - - - - (10,304) (10,304) (82) (10,386)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Other
comprehensive
loss for the
year
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Exchange losses
on translating
foreign
operations - - - - - - (11,570) - (11,570) (3,018) (14,588)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Loss on foreign
exchange hedges - - - - (1,828) - - - (1,828) (610) (2,438)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Total
comprehensive
loss for the
year - - - - (1,828) - (11,570) (10,304) (23,702) (3,710) (27,412)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Contributions by
and
distributions to
owners
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Non-controlling
interest in
subsidiary - - - - - - - - - 1,734 1,734
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Share-based
payment
transactions - - - - - 1,009 - - 1,009 - 1,009
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Share-based
payments
lapsed/expired - - - - - (1,157) - 1,157 - - -
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Total
contributions
by and
distributions
to owners - - - - - (148) - 1,157 1,009 1,734 2,743
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Balance as at 30
June 2015 163,441 163,600 - (1,614) (1,828) 3,542 (39,283) (134,250) 153,608 (18,975) 134,633
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Comprehensive
loss
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Profit for the
year - - - - - - - 7,884 7,884 5,724 13,608
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Other
comprehensive
loss for the
year - - - - - - - - - - -
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Exchange losses
on translating
foreign
operations - - - - - - (15,685) - (15,685) (4,652) (20,337)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Profit on cash
flow hedges - - - - 260 - - - 260 84 344
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Total
comprehensive
loss for the
year - - - - 260 - (15,685) 7,884 (7,541) 1,156 (6,385)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Contributions by
and
distributions to
owners
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Shares issued in
the year 52 1,080 - - - - - - 1,132 - 1,132
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Warrants issued
in the year - - 7,609 - - - - - 7,609 - 7,609
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Non-controlling
interest in
subsidiary - - - - - - - (2,749) (2,749) 4,582 1,833
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Share-based
payment
transactions - - - - - 1,008 - - 1,008 - 1,008
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Share-based
payments
lapsed/expired - - - - - (74) - 74 - - -
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Dividends paid
to minorities - - - - - - - - - (165) (165)
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Total
contributions
by and
distributions
to owners 52 1,080 7,609 - - 934 - (2,675) 7,000 4,417 11,417
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Balance as at 30
June 2016 163,493 164,680 7,609 (1,614) (1,568) 4,476 (54,968) (129,041) 153,067 (13,402) 139,665
----------------- -------- -------- -------- -------- -------- ------------ ------------ ------------ ------------- ------------ ---------
Consolidated statement of cash flows for the year ended 30 June
2016
2016 2015
Note US$'000 US$'000
---------------------------------------------------------------------------- ----- ------------------- ---------
Cash flows used in operating activities
Loss before taxation (9,033) (10,386)
Adjustments for:
Depreciation and amortisation 4 2,464 35
Impairment - 2,558
Effect of foreign exchange movements (2,615) (410)
Equity-settled share-based payments 775 827
(Profit)/loss on sale of assets (3) 49
Changes in provisions 157 203
Finance income (111) (76)
Finance cost 2,198 2,290
---------------------------------------------------------------------------- ----- ------------------- ---------
Net cash flows used in operating activities before working capital changes (6,168) (4,910)
Decrease in inventories - 126
Decrease/(increase) in trade and other receivables 7,853 (14,077)
(Decrease)/increase in trade and other payables (1,307) 14,571
---------------------------------------------------------------------------- ----- ------------------- ---------
Net cash flows from/(used) in operating activities 378 (4,290)
---------------------------------------------------------------------------- ----- ------------------- ---------
Cash flows used in investing activities
Additions to property, plant and equipment (68,209) (83,122)
Proceeds on disposal of investments - 214
Proceeds on disposal of property, plant and equipment 16 29
---------------------------------------------------------------------------- ----- ------------------- ---------
Net cash used in investing activities (68,193) (82,879)
---------------------------------------------------------------------------- ----- ------------------- ---------
Cash flows from financing activities
Minority investment in subsidiary - 1,861
Loans received 73,400 -
Finance income 111 76
Finance cost (12,062) (2,290)
Dividends paid to minorities (165) -
---------------------------------------------------------------------------- ----- ------------------- ---------
Net cash from/(used in) financing activities 61,284 (353)
---------------------------------------------------------------------------- ----- ------------------- ---------
Net decrease in cash and cash equivalents (6,531) (87,522)
Cash and cash equivalents at beginning of the year 17,628 107,003
Exchange rate movement on cash and cash equivalents at beginning of year (815) (1,853)
---------------------------------------------------------------------------- ----- ------------------- ---------
Cash and cash equivalents at end of the year 10,282 17,628
---------------------------------------------------------------------------- ----- ------------------- ---------
The financial statements were approved by the Board of Directors
and authorised for issue on 31 October 2016.
Lucio Genovese
Director
Notes to the extract of the Consolidated Financial Statements
for the year ended 30 June 2016
1. Basis of preparation
Firestone Diamonds plc (the "Company") is a company domiciled in
the United Kingdom and is quoted on the AIM market of the London
Stock Exchange. The consolidated financial statements of the
Company for the year ended 30 June 2016 comprise the Company and
its subsidiaries (together referred to as the "Group"). The Group
is primarily involved in diamond mining and exploration in southern
Africa.
The financial information for the years ended 30 June 2016 and
30 June 2015 does not constitute statutory accounts as defined by
section 435 of the Companies Act 2006 but is extracted from the
audited accounts for those years.
The Company has adopted International Financial Reporting
Standards ("IFRSs") as issued by the International Accounting
Standards Board and as adopted for use in the European Union and
with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The 30 June 2015 accounts have been delivered to the Registrar
of Companies and the 30 June 2016 accounts will be delivered to the
Registrar of Companies within the statutory filing deadline. The
auditors have reported on those accounts. Their report is
unqualified and does not contain statements under Section 498 (2)
or (3) of the Companies Act 2006.
2. Taxation
Group
------------------
2016 2015
------------------------------ -------- --------
US$'000 US$'000
Current tax - -
Deferred tax credit 22,641 -
------------------------------ -------- --------
Total tax credit for the year 22,641 -
------------------------------ -------- --------
The difference between the total tax credit shown above and the
amount calculated by applying the standard rate of UK corporation
tax to the loss before tax is as follows:
Factors affecting the tax charge for the year
The reasons for the difference between the actual tax credit and
the standard rate of corporation tax of 20% (2015: 20.75%) in the
United Kingdom applied to the loss for the year are as follows:
Group
---------------------
2016 2015
US$'000 US$'000
--------- ----------
Loss before tax (9,033) (10,386)
--------- ----------
Tax on loss at standard rate of 20% (2015: 20.75%) (1,807) (2,155)
Effect of tax in foreign jurisdictions (1,397) 344
Effect of the change in the standard tax rate 126 (18)
Foreign exchange adjustment on effective interest rate on borrowings 307 -
Recognition of previously unrecognised deferred tax assets (19,871) -
Expenses not deductible for tax purposes 1 (290)
Adjustments to deferred tax not recognised - 2,119
---------------------------------------------------------------------- --------- ----------
(22,641) -
---------------------------------------------------------------------- --------- ----------
Other comprehensive income
There is no tax movement arising in respect of the Group's other
comprehensive income.
3. Profit/(loss) per share
The calculation of the basic profit per share is based upon the
net profit after tax attributable to ordinary shareholders of
US$7.9 million (2015: US$10.3 million loss, after the reallocation
of US$3.2 million loss from discontinued operations) and a weighted
average number of shares in issue for the year of 310,377,720
(2015: 308,992,814).
Diluted profit/(loss) per share
The calculation of the dilutive profit or loss per share is
based upon the net profit after tax attributable to ordinary
shareholders of US$7.9 million (2015: US$10.3 million after
reallocation of US$3.2 million loss from discontinued operations).
The weighted average number of shares in issue for the year of
312,373,475 (2015: 308,992,814), includes potentially issuable
shares in respect of share options issued to employees of 1,995,755
(2015: nil).
The diluted loss per share in 2015 from continuing operations is
the same as the basic loss per share as the potential ordinary
shares to be issued have no dilutive effect.
The Company has a further 13,544,834 (2015: 15,052,200)
potentially issuable shares in respect of share options issued to
employees that do not have a dilutive effect as at 30 June 2016 and
48,786,437 (2015: nil) potentially issuable shares in respect of
warrants issued to strategic investors.
4. Property, plant and equipment
Group Mining Plant and Motor vehicles
US$'000 property equipment and other assets Total
-------------------------------- --------- ---------- ----------------- ---------
Cost
At 1 July 2014 53,177 25,541 2,351 81,069
Additions 83,708 11 168 83,887
Disposals - - (81) (81)
Reclassification 7,768 (7,768) - -
Exchange difference (14,139) (268) (115) (14,522)
-------------------------------- --------- ---------- ----------------- ---------
At 30 June 2015 130,514 17,516 2,323 150,353
Additions 71,652 - 233 71,885
Disposals - - (45) (45)
Exchange difference (23,381) (1,695) (246) (25,322)
-------------------------------- --------- ---------- ----------------- ---------
At 30 June 2016 178,785 15,821 2,265 196,871
-------------------------------- --------- ---------- ----------------- ---------
Accumulated depreciation
At 1 July 2014 9,849 10,748 1,364 21,961
Charge for the year - - 35 35
Disposals - - (34) (34)
Reclassification 2,179 (2,179) - -
Exchange difference (1,664) (164) (57) (1,885)
-------------------------------- --------- ---------- ----------------- ---------
At 30 June 2015 10,364 8,405 1,308 20,077
Charge for the year 652 1,599 213 2,464
Disposals - - (32) (32)
Exchange difference (1,763) (889) (127) (2,779)
-------------------------------- --------- ---------- ----------------- ---------
At 30 June 2016 9,253 9,115 1,362 19,730
-------------------------------- --------- ---------- ----------------- ---------
Net book value at 1 July 2014 43,328 14,793 987 59,108
-------------------------------- --------- ---------- ----------------- ---------
Net book value at 30 June 2015 120,150 9,111 1,015 130,276
-------------------------------- --------- ---------- ----------------- ---------
Net book value at 30 June 2016 169,532 6,706 903 177,141
-------------------------------- --------- ---------- ----------------- ---------
The Group capitalised total net borrowing costs of US$4.5
million (2015: US$1.8 million) as part of the cost of the Project.
All borrowing costs capitalised are Project specific.
The Group transferred US$9.0 million from assets held for sale
relating to the BK11 mine which is no longer classified as held for
sale. Refer to note 6 - Discontinued operations for further
detail.
5. Deferred tax
The deferred tax included in the balance sheet is as
follows:
Group
------------------
2016 2015
Deferred tax asset/(liability) US$'000 US$'000
-------------------------------------------------------- -------- --------
At 1 July (3,480) (4,038)
Movement in temporary differences recognised in income 22,641 -
Exchange difference 214 558
Income tax credits receivable 873 -
-------------------------------------------------------- -------- --------
At 30 June 20,248 (3,480)
-------------------------------------------------------- -------- --------
The deferred tax asset/(liability) comprises:
Group
-------------------
2016 2015
US$'000 US$'000
--------------------------------------------------------------------------- --------- --------
Accelerated capital allowances (37,718) -
Provisions 502 -
Borrowings (2,471) -
Losses available for offsetting against future taxable income 61,954 -
Income tax credits available for offsetting against future taxable income 873 -
Temporary difference arising on acquisition of subsidiary (2,892) (3,480)
--------------------------------------------------------------------------- --------- --------
20,248 (3,480)
--------------------------------------------------------------------------- --------- --------
The Liqhobong Mine Development Project ("LMDP") is expected to
be completed in the second quarter of the June 2017 financial year.
The Directors considered the financial model of the LMDP and the
model provides convincing evidence that sufficient taxable profit
will be generated from operations in the foreseeable future to
offset unused tax losses. Based on current forecasts the Group
expects to deplete the tax losses over the next four years.
Deferred tax assets have been recognised in respect of all tax
losses and other temporary differences giving rise to deferred tax
assets where the Directors believe it is probable that these assets
will be recovered.
Deferred tax assets and deferred tax liabilities relating to the
same tax authorities have been disclosed as a net asset or
liability.
The Group has unrecognised tax losses of approximately US$61.4
million (2015: US$235.6 million), and unrecognised accelerated
capital allowances of US$13.4 million (2015: US$18.9 million).
6. Discontinued operations
BK11 Mine
Management decided not to recognise the Group's BK11 mine as
held for sale as at 30 June 2016 as described in note 8 -
Post-balance sheet events.
The Company's Botswana operations will remain under care and
maintenance whilst Management is focused on the completion and
commissioning of its Liqhobong Diamond Mine in Lesotho. Management
remain committed to seeking ways of unlocking shareholder value
from the Group's Botswana assets.
As required by accounting standards certain comparative figures
have been reclassified. The effects of the reclassification are as
follows:
2015
----------------------------------- ---------------------------------------------------------------------------------
Items included in the Disposal Group reclassified to After
Consolidated Statement of Before reclassification continuing operations Reclassification
Comprehensive Income: US$'000 US$'000 US$'000
----------------------------------- ------------------------ ----------------------------------- ------------------
Other administrative expenses (490) (155) (645)
Impairment - (2,558) (2,558)
Care and maintenance expenses - (521) (521)
Loss from continuing operations
before finance charges and income
tax (4,938) (3,234) (8,172)
Finance income 76 - 76
Finance costs (2,290) - (2,290)
----------------------------------- ------------------------ ----------------------------------- ------------------
Loss from continuing operations
before tax (7,152) (3,234) (10,386)
----------------------------------- ------------------------ ----------------------------------- ------------------
Loss from discontinued operations (3,234) 3,234 -
----------------------------------- ------------------------ ----------------------------------- ------------------
Loss for the year after tax (10,386) - (10,386)
----------------------------------- ------------------------ ----------------------------------- ------------------
Items included in the Consolidated
Statement of Financial Position:
----------------------------------- ------------------------ ----------------------------------- ------------------
Non-current assets
Property, plant and equipment 121,266 9,010 130,276
Current assets
Inventories 67 203 270
Trade and other debtors 13,605 17 13,622
----------------------------------- ------------------------ ----------------------------------- ------------------
Total assets held for sale
reclassified 134,938 9,230 144,168
----------------------------------- ------------------------ ----------------------------------- ------------------
Non-current liabilities
Rehabilitation provisions 1,746 1,332 3,078
Current liabilities
Provisions 192 198 390
----------------------------------- ------------------------ ----------------------------------- ------------------
Total liabilities of a disposal
group reclassified 1,938 1,530 3,468
----------------------------------- ------------------------ ----------------------------------- ------------------
7. Borrowings
Group
-------------------
2016 2015
US$'000 US$'000
------------------------------------------------------------- --------- --------
ABSA debt facility
Capital amount 43,400 -
Finance cost to be amortised over the life of the loan (10,763) -
------------------------------------------------------------- --------- --------
ABSA debt facility at amortised cost 32,637 -
------------------------------------------------------------- --------- --------
Eurobond
Capital amount 30,000 -
Finance cost to be amortised over the life of the instrument (7,860) -
------------------------------------------------------------- --------- --------
Eurobond at amortised cost 22,140 -
Total 54,777 -
------------------------------------------------------------- --------- --------
Non-current liabilities 50,097 -
Current liabilities 4,680 -
------------------------------------------------------------- --------- --------
Total liabilities 54,777 -
------------------------------------------------------------- --------- --------
The ABSA debt facility carries a variable interest rate, based
on Libor, which was 0.65% as at 30 June 2016, plus a weighted
average margin of 2.66%. The effective interest rate is, in
aggregate 9.60%. The facility is repayable in 18 quarterly
instalments commencing 31 March 2017.
The ABSA debt facility is secured by a first ranking general
notarial bond, over all movable assets for a total capital amount
of US$165.0 million.
The Eurobonds have a coupon rate of 8.00% per annum payable
quarterly. The effective interest rate is, in aggregate 12.33%. The
interest can be settled in cash or through the issue of ordinary
shares at market value based on the volume-weighted average price
of the share for the 20 days preceding the interest calculation
date. The bonds are repayable on the final maturity date, which is
August 2022.
The Directors are of the opinion that the carrying value of
borrowings approximates their fair value based on similar loan
terms in the market.
8. Post-balance sheet events
On 9 September 2016 the Group was informed by Tango Mining
Limited that it has not been able to meet the conditions of the
sale agreement entered into on 9 July 2015 for the disposal of its
Botswana operations. The Group classified its Botswana operations
as a held for sale asset in the 2015 Annual Report. As the
conditions to classify these assets as held for sale are no longer
met, the Board decided to reclassify the Botswana operations to
continuing operations. The effects of this reclassification are
disclosed in note 6.
The Directors are not aware of any other significant matters or
circumstances arising since the end of the financial year, not
otherwise dealt with in this report or the annual financial
statements, that significantly affects the financial position of
the Company or the results of its operations until the date of this
report.
9. Capital commitments and contingencies
At 30 June 2015 the Group had contracted capital commitments of
US$20.1 million (2015: US$47.4 million) relating to the Project.
The Board approved the Project with a total capital budget of
US$185.4 million before construction commenced in July 2014.
Annual General Meeting and availability of the Annual Report
The Annual General Meeting ("AGM") of the Company will be held
at the offices of Tavistock Communications, 131 Finsbury Pavement,
London EC2A 1NT at 10.30 a.m. on Thursday, 8 December 2016. Copies
of the annual report and the notice of AGM will be sent to
shareholders shortly and will be available on the Company's website
today.
**ENDS**
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FDMFAFFMSELS
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