Botswana Diam Regulatory News (BOD)

24th November 2014

Preliminary Results for the Year Ended 30 June 2014

Those of us involved in the diamond industry frequently forget just how unusual a business it is. The product we explore for, process, market or own is so rare as to boggle the imagination.

· Diamond is the hardest natural material in the world

· Every single diamond is unique as it depends on colour, shape, quality and size

· Each diamond is beyond ancient, most are over 2,000 million years old

· Diamonds come from depths greater than 100 miles in the earth. They almost always appear through volcanoes, often very small, known as kimberlites

· For centuries, diamonds were believed to have come from the Gods - stars dropping to Earth - until 1870 all diamonds came from alluvial sources. The discovery of diamonds in kimberlites in South Africa changed the diamond world

· For centuries, if not millennia, diamonds were owned and controlled almost exclusively by Indian royalty

· Diamonds are weighed by carats, each carat is one fifth of a gram. So a 150 carat diamond worth a fortune, weighs only an ounce

· About 7,000 kimberlites have been discovered since hard rock exploration started

· Only about 20% of kimberlites contain diamonds

· About 1% of kimberlites are commercial so there have been only about 70 hardrock mines ever

· Kimberlites are usually found in clusters, e.g. the Orapa area in Botswana

· Supply is declining, down from 177 million carats a year in 2005 to 130 million carats in 2013

· The industry is an oligopoly with 4 companies controlling 80 per cent of the industry. Alrosa, De Beers, Rio Tinto, Dominion Diamonds

· While supply is contracting demand is growing. Emerging middle classes are buying gemstones. "A diamond is forever" has worldwide appeal

· Demand in Asia, Africa and South America is strong. It is expected that world annual growth rates will exceed 5%

· The result is that prices, though volatile, are expected to rise by all industry commentators

The challenge is to find new sources of diamonds. Botswana Diamonds is an explorer. How do we increase the chances of finding a commercial deposit? We do two things. We go where diamonds may be and we put together the best exploration team.

Botswana is the home of diamonds. It is the largest producer in the world by value. The Orapa area in Botswana is the best place in the world for gemstone diamonds with 4 operating mines. The Orapa area is the focus of our exploration efforts. We hold extensive ground in the area.

The second vital factor is the exploration team. We have a very strong and experienced team in BOD. We, as principals, tasted success in Botswana in the 2000s and have partnered with Alrosa, the biggest diamond producer and the most successful discoverer of diamonds. Our joint team has been working together for two years. 2013 was spent gathering data in Botswana, sending it to St. Petersburg where proprietary analytical techniques were used to select targets in the Orapa area.

During 2014, a BOD/Alrosa team conducted two extensive fieldwork programmes and a 4 hole drilling programme on Block 117 in the Orapa region. The drilling programme was an excellent test of the Alrosa technology. Two of the four holes intersected kimberlite veins, two found basalt. A reasonable but not great result. Further work is being carried out on the drilling results but we are unlikely to drill further on that licence as the targets look small.

Focus has now turned to the 5 licence block PL206 to PL210 covering 1,357 sq km of highly prospective ground. These licences were identified as prospective by Alrosa almost two years ago. We applied in 2013 and waited a year for the award. A number of Category 1 targets are contained on this ground. A major fieldwork programme was carried out in September/October this year by a team of 8 Russian geologists supported by BOD geological team. The Alrosa team had test equipment with them which greatly facilitated, expedited and directed their soil sampling and geophysical analysis. Substantial quantities of concentrated soil samples are now being analysed in St. Petersburg. Early evidence suggests that the technical analysis is identifying good drilling opportunities. Alrosa will identify a series of targets on the blocks. We will agree a budget for 2015 which will include, drilling and more fieldwork to better pinpoint drilling locations.

Brightstone Licence Block, Gope, Botswana

We have an earn in agreement on 13 licences in the Gope region of Botswana. The licence area covers over 6,500 sq km in the Kalahari Desert. The Gope area is an emerging diamond province containing the newly opened Ghagoo diamond mine and a recent discovery by Petra Diamonds. Work done by BOD and Alrosa identified targets across the Brightstone block. The BOD targets are in a corridor across the Southwest of the block while the Alrosa targets are in the North.

BOD has been actively speaking to parties regarding farm in arrangements into the Brightstone block. While there has been some interest there is no guarantee that any transaction will be completed. BOD's preference is for a deal that would see a partner with the appropriate expertise taking on the operatorship and funding of the exploration with BOD retaining a minority carried interest.

Future

The coming year will be an important test of the Alrosa/BOD strategy. The work done to date and the extensive analyses being conducted by Alrosa will identify targets which we will drill to test if they are diamondiferous kimberlites. The programme is not yet agreed but I will be surprised if it does not include a double digit number of drill holes. Our joint venture with Alrosa is a 50/50 heads up which means we pay our share. Funds raised in 2013 and 2014 funded all of the exploration to date with cash remaining to cover some if not all of next year's programme.

I must express gratitude to the Alrosa and BOD teams. From different cultures and backgrounds their shared professionalism resulted in a very effective team effort. Working for months in the Kalahari Desert is challenging. We are lucky to have a good crew.

Political and economic uncertainty abounds in the world. Commodity prices are soft and resource investment out of favour while junior explorers are ignored. But diamond fundamentals are good. We have the ground and the team. Success, if achieved, will bring great rewards.

John Teeling

Chairman

21st November 2014

-Ends-

Enquiries:

www.botswanadiamonds.co.uk

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2014

CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2014

Share Premium

Share Premium comprises of a premium arising on the issue of shares.

Share Based Payment and Warrant Reserve

The share based payment reserve arises on the grant of share options under the share option plan. The warrant reserve arises on the grant of warrants exercisable for a period of six months from date of issue.

Retained Deficit

Retained deficit comprises of losses incurred in the current and prior year.

Other Reserve

During 2010 the company acquired certain assets and liabilities from African Diamonds plc, a company under common control. In accordance with accounting standards the assets and liabilities acquired were recognised at their book value and no goodwill was recognised on acquisition. The difference between the book value of the assets acquired and the purchase consideration was recognised directly in reserves.

Translation Reserve

The translation reserve arises from the translation of foreign operations.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2014

1. ACCOUNTING POLICIES

There were no changes in accounting policies from those set out in the Group's Annual Report for the year ended 30 June 2013. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

2. LOSS PER SHARE

Basic loss per share is computed by dividing the loss after taxation for the year available to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking for dividend during the year. Diluted earnings per share is computed by dividing the profit or loss after taxation for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

The following table sets forth the computation for basic and diluted earnings per share (EPS):

The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of shares for the purposes of the diluted earnings per share:

3. INTANGIBLE ASSETS 

Exploration and evaluation assets relate to expenditure incurred in exploration for diamonds in Botswana, Zimbabwe and Cameroon. The directors are aware that by its nature there is an inherent uncertainty in exploration and evaluation assets and therefore inherent uncertainty in relation to the carrying value of capitalized exploration and evaluation assets.

The Group's focus is to maximize the full potential of the Botswana operations. Therefore, the directors have decided to provide in full against the carrying value of the operations in Zimbabwe and Cameroon. Accordingly, an impairment provision of £615,796 has been recorded by the Group in the current year.

On July 23 2013 the group entered into an agreement with Siseko Minerals (Pty) Limited over the 13 licence Brightstone block in the Gope area of Botswana. Under the terms of the agreement the company will earn a 51% interest in the block by spending up to US $940,000 over three years.

On July 25 2013 the group entered into an agreement with Eversharp Investments (Pty) Limited over the PL117/2011 licence area in Botswana. Under the terms of the agreement the company will earn a 51% interest in the block by spending up to US$300,000 over three years.

On August 16 2013 the group entered into a joint venture agreement with Alrosa Overseas SA a wholly owned subsidiary of OJSC Alrosa of Russia to explore for diamonds in Botswana.

The directors believe that there were no facts or circumstances indicating that the carrying value of intangible assets may exceed their recoverable amount and thus no impairment review was deemed necessary by the directors. The realisation of these intangible assets is dependent on the successful discovery and development of economic diamond resources and the ability of the group to raise sufficient finance to develop the projects. It is subject to a number of significant potential risks, as set out below:

- price fluctuations;

- foreign exchange risks;

- uncertainties over development and operational costs;

- political and legal risks, including arrangements with governments for licenses, profit sharing and taxation;

- foreign investment risks including increases in taxes, royalties and renegotiation of contracts;

- liquidity risks;

- funding risks;

- going concern; and

- operational and environmental risks.

Included in additions for the year are £3,378 of share based payments (2013: £3,378), £18,481 (2013: £16,429) of wages and salaries and £50,000 (2013: £50,000) of directors remuneration.

4. INVESTMENTS IN ASSOCIATE

The group held 35.42% of the issued share capital of Bugeco S.A. a private company incorporated in Belgium.

On 2 June 2014, Botswana Diamonds announced that it had liquidated its interest in Bugeco S.A. and had received £200,454 from the proceeds of the liquidation.

5. CALLED-UP SHARE CAPITAL

Movements in share capital

On 13 December 2013, the company raised £540,000 through the issue of 21,600,000 new ordinary shares at a price of 2.5p per share to provide additional working capital and fund development costs. In addition, the company settled £200,000 of existing liabilities with the directors of the company through the issue of 8,000,000 new ordinary shares at a price of 2.5p.

On 13 December 2013, 59,200,000 warrants were granted to the subscribers of the placing at a price of 2.5p per share. These warrants were exercisable for a period of six months from date of issue. At date of issue the warrants had a fair value of 0.20p.

On 20 January 2014, 1,000,000 warrants were exercised at a price of 2.5p per warrant for £25,000.

On 20 June 2014, 27,346,000 warrants were exercised at a price of 2.5p per warrant for £683,650. The balance of the warrants expired before the year end.

6. GENERAL INFORMATION

The financial information set out above does not constitute the Company's financial statements for the year ended 30 June 2014. The financial information for 2013 is derived from the financial statements for 2013 which have been delivered to the Registrar of Companies. The auditors have reported on the 2014 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006. The financial statements for 2014 will be delivered to the Registrar of Companies.

The Annual Report and Accounts will be mailed shortly only to those shareholders who have elected to receive it. Otherwise, shareholders will be notified that the Annual Report and Accounts will be available on the website at botswanadiamonds.co.uk. Copies of The Annual Report will also be available for collection from the company's registered office at 20-22 Bedford Row, London, WC1R 4JS.

7. ANNUAL GENERAL MEETING

The Annual General Meeting is due to be held at the Hilton London Paddington Hotel, 146 Praed Street, London W2 IEE on Friday 19 December 2014 at 11.00am.