BRD.L Regulatory News (BRD)

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

22 June 2020

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

Final Results and Notice of AGM

BlueRock Diamonds PLC, the AIM listed diamond producer, which owns and operates the Kareevlei Diamond Mine ('Kareevlei' or the 'Project') in the Kimberley region of South Africa, is pleased to announce its audited results for the year ended 31 December 2019.

Highlights for The Year & Post Year End

· Revenue up 190% to £4.1 million (2018: £1.4 million)

· Carats sold up 124% to 12,675 (FY 2018: 5,657)

· Production volume up 70% to 323,000 tonnes (FY 2018: 190,000 tonnes)

· Average grade up 32% to 4.34 cpht (FY 2018: 3.28 cpht)

· Average price per carat up 24% to USD415 per carat (FY 2018: USD334)

· New operating team appointed May 2019, achieved target to reach annual run rate of 400,000 tonnes and operational profitability through enhanced production at the end of 2019

· Working well with new strategic partner, the Teichmann Group, which holds a 29% interest in the Company (after share issue post AGM)

· Advanced strategy to take the mine to a mid-sized mine positioned for a material increase in production

· Back to full production following the outbreak of COVID-19 - identified a new route to market with pre-sale financing that enables the Company to have greater flexibility over when sales are made

· Private sale of a parcel of diamonds completed in June 2020 at an average price of USD 290 per carat reflecting ongoing demand for Kareevlei diamonds

· Committed to providing both the community and the employees with a 5% interest in the local company in accordance with the South African Mining Charter

· Future focus on increasing production to increase economies of scale and reduce unit costs

The Company also announces that the BlueRock Annual General Meeting ('AGM') will be held at 10am on 14 July 2020 at the offices of SP Angel, 35- 39 Maddox Street, London, W1S 2PP. 

Please note that due to COVID-19 and the UK's Government restrictions on travel, assembly and guidance on meetings, shareholders, their proxies and corporate representatives are requested not to attend in person, as they will not be admitted to the meeting. Shareholders are only able to vote on resolutions set out in the Notice of AGM by proxy.

The Company will hold a shareholder call, following the AGM, on the afternoon of 14 July 2020, details of which will be provided in due course.

The Company's annual report and accounts, Notice of AGM and Forms of Proxy will be dispatched to shareholders later today and will be available on the website at www.bluerockdiamonds.co.uk.

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

ENDS

 To view the full report with illustrative graphs please visit our website: www.bluerockdiamonds.co.uk.

Chairman's Statement

I am pleased to present a review of your company in 2019. At the time of writing this report we continue to feel the impact of the coronavirus pandemic with its devastating effect on peoples' lives and the business environment. It is pleasing to note how well the management team and our employees have responded to what is a very difficult situation and I will cover this later in my report.

Operational Highlights

2019 was a successful year from two fronts, firstly your Company achieved all of its key objectives for the year and secondly, we have taken a number of steps to take the mine from an unconventional small scale operation to a mid-sized mine that is positioned for a material increase in production; set out below are the key operating statistics for the year.

· Revenue up 190% to £4.1 million (2018: £1.4 million)

· Carats sold up 124% to 12,675 (FY 2018: 5,657)

· Production volume up 70% to 323,000 tonnes (FY 2018: 190,000 tonnes)

· Average grade up 32% to 4.34 cpht (FY 2018: 3.28 cpht)

· Average price per carat up 24% to USD415 per carat (FY 2018: USD334)

The key turning point for Bluerock was the fund raising in May 2019 allied with the appointment of a new operating team in South Africa headed by Gus Simbanegavi and our strategic alliance with the Teichmann Group, a pan African mining and civil engineering group. The combination of the above brought new energy, focus and professionalism to the operations and this is reflected not only in results for the year but also in a dramatic change to the operations on the ground. All employees are to be commended for their efforts in what has been a transformational year.

Safety, health and environment was at the forefront of operations and it is pleasing to report that we remain fatality-free with only one loss time incident recorded during the year. Management have worked closely with the Department of Mineral Resources over the year and we express our appreciation for their support and advice.

We remain very conscious of our social responsibility to the community and continue to support projects in consultation with community leaders and the company has committed to meet its obligation in terms of the new mining regulations whereby both the community and the employees would have a 5% interest in the local company, which will be implemented on renewal of the mining licence or earlier.

The prices for our diamonds were stable for much of the year and BlueRock with its high-quality diamonds continued to build its brand. The overall average price for 2019 was outstanding at $415 per carat, a 24% increase over the average for 2018 at USD 334 per carat.

It has been pleasing to see the mining operations develop over the year with waste mining tonnes up 80% on 2018 at a strip ratio of 2 to 1 which is in line with our longer term mining plan. Total ore mined was 60% up on 2018 with the majority of ore for the year mined out of KV1. In developing KV1 we have established it is approximately 25% bigger in surface than declared in the Resource Statement set out in the Competent Person's Report dated August 2013.

Some test mining was done on KV5 with very positive results. We believe KV5 is a relatively small pipe, but the average size and quality of diamonds recovered was encouraging. We intend confirming this when we update the Resource Statement in 2020.

It was decided during the year that KV1 and KV2 should be mined as one opencast pit as this would provide the most efficient way of accessing KV2 (partially mined to +/-30m in 2017/18) and provide a higher degree of flexibility with the bigger surface area of the combined pipes. The full benefit of this combined pit will be realised in the second half of 2020, but whilst the pushback and road structure are being completed and KV2 is cleaned up, lower grades are possible.

KV1/KV2 will be the key source of ore in the mid-term whilst management look at the development of the largest resource in KV3 and the high grade but smaller KV5.

There has been good progress in our processing operation with improvements made in various areas. Processed tonnes were 70% up on 2018 and combined with higher grades achieved, carats sold were 124% up on 2018.

The major challenges remain dealing better with the wet season and the handling of harder more abrasive ore as a higher level of pure kimberlite is mined at depth. Recent modifications on the primary crushing circuit will go some way to resolving the situation but, the long term solution is in the design of the new upgraded plant. The new plant, when completed will also provide opportunity to increase the recovery rate by finer crushing.

The overall financial results for the year are encouraging although as stated in earlier reports the percentage of fixed costs remains too high and it is essential that we get the economies of scale right.

Strategic partner

Teichmann Group became a strategic partner in May 2019 when they took part in the May 2019 placing and became a 20% owner of the Company. They increased their group holding to approximately 29% in the February 2020 capital raise. Teichmann Group is a large civil engineering group, has been operating since 1995, has 1,800 employees and operates throughout Southern/Central Africa.

At the same time, Teichmann Group was appointed as our mining contractor as discussed in the mining section above.

Claims from a former director

The claims made by Riaan Visser, the ex-CEO of the Company, amounting to £260,108, remain unresolved. Nevertheless, an amount of £198,688 is provided for in the accounts and there is cash collateral held by our lawyers of £223,914 to fund the claim. Accordingly, there would be minimal impact upon the finances of the company even if the final resolution required to settle the amount in full, which the Board believes to be a highly unlikely outcome.

Company strategy

During 2019, the Company set out its short and medium term strategy. Our strategy has three distinct steps outlined below.

Step 1 was completed by the end of 2019 and the Group achieved positive comprehensive income for the second half of 2019 (excluding non-cash adjustments for IFRS 9 charges, share-based payments and movement in foreign exchange). Plans to implement Step 2 started to be developed during quarter 4 2019 and finalised at the beginning of quarter 1 resulting in the fund raising in February 2020. Although we had begun to implement Step 2 of our strategy, the onset of the COVID-19 pandemic has halted progress for the time being.

Steps 1 and 2 are designed to increase production and economies of scale and reduce costs and hence increase profitability. At an annual run rate of 400,000 the Group is expected to be profitable. Management's assessment is that given the size of the resource increasing production to between 700,000 to 1,000,000 tonnes a year is the optimum balance between economies of scale and the practicalities of mining.

Events following the end of the year

2020 started as planned. In February 2020, the Company raised £1.9 million gross of expenses in order to increase production from the current annual run rate of 400,000 tonnes per year to over 700,000 tonnes per year.

Key to this strategy was a) the acquisition of a second-hand plant on a rent to buy basis for a total of ZAR 12.3 million (approximately £650,000) over 3 years; b) upgrading the primary crushing circuit; and c) moving the existing plant to a new site alongside the second plant to comply with health and safety regulations as the mine continues to expand.

The purchase of the second plant was completed in February 2020. Once assembled, the new plant will run as a second line alongside the existing plant fed by the upgraded primary crushing circuit. Preliminary ground works for the new plant site had commenced when works were halted as a result of the South African Government's imposition of a nationwide lockdown commencing 26 March 2020.

Kareevlei was put into care and maintenance mode pending changes in the approach of South African Government and secondly on being able to identify a route to market that would allow the operations to run cash flow positively.

The tender held in Kimberley in March was poorly attended and the bids that were received for our diamonds are best described as speculative and, as a consequence, we withdrew the diamonds from sale.

Given the likely ongoing travel restrictions to and within South Africa and the likely ongoing impact on the South African diamond tenders, the Company expedited its plan to commence selling diamonds in the international market.

We focussed on Antwerp as being the most liquid diamond market and the most likely to return to operating normally in the shortest period of time, particularly as many diamond buyers have representatives located in Antwerp hence reducing the impact of any ongoing travel restrictions.

After discussion with a number of operators in Antwerp, an agreement was signed with Bonas-Couzyn NV, part of the Bonas Group ("Bonas"). Bonas is the world's longest established diamond brokerage and consultancy firm and is the largest global independent diamond and gemstone tender and auction house operating 50 sales a year having sold 6.1 million carats in 2019. Bonas attracts approximately 160 buyers to its sales, significantly more than attend the local tenders held in Kimberley. Bonas held its first tender since the outbreak of COVID-19 from 12 to 18 June 2020.

At the same time as reaching the agreement with Bonas, the Company entered into a non-binding letter of intent ("Letter of Intent") with Delgatto Diamond Finance Fund LP ("DDFF) to provide bridging finance between production of diamonds and eventual sale. Under the terms of the letter of intent, DDFF will finance monthly parcels of diamonds at 70% of the market value as determined by BONAS at a cost of 1.25% per month (equivalent to 15% per annum).

This will enable BlueRock to have flexibility over when its diamonds are sold. It is management's

expectation that the first sale will occur in Antwerp in September 2020.

The Board has taken the decision to focus on keeping the cost of production as low as possible to minimise the risk that its selling or finance price (being 70% of market value) will be below cost of production. Accordingly, the decision has been taken to reduce the level of development mining to align with the lower annual production, remove contract crushing and freeze employment whilst continuing to manage overhead costs. The Company will also benefit for a period from the weaker exchange rate and the material drop in the oil price.

In late May 2020, we were approached by one of the local tender houses to consider a private sale of the diamonds that we had on hand at that time. The private sale was completed on 5 June 2020 at an average price of USD 290 per carat. This sale at a time when the traditional sales channels for diamonds remained closed and at a price which we estimated to be at current market value for that particular parcel of diamonds was an excellent result in a highly uncertain market. The parcel sold did not contain any notable high value diamonds and therefore the price achieved is approximately 15% below what we would have expected to achieve for this parcel pre the Covid-19 pandemic.

Cost of Covid-19 to date

Our estimate is that COVID-19 has directly had a negative impact on the cash position of the Company of approximately £550,000 comprising:

1) Impact on revenue - £100,000

As mentioned above, the March tender attracted speculative buyers only and our diamonds were withdrawn from sale. In June 2020 these diamonds together with additional diamonds were sold to a private buyer at $290 per carat.

Although this was below what would have been expected before Covid-19, this has reversed some of the short-term cash shortfall. The impact on anticipated revenue to date is £100,000 following the above sale, where prices were discounted by 15%.

2) Care and maintenance costs - £150,000

Costs were reduced to a minimum of approximately £40,000 per month in South Africa and approximately £35,000 a month in the UK after reductions in board salaries and deferred payments to our regulatory service providers.

3) Start-up costs - £300,000

In order to start up operations all of our suppliers insisted in being paid in full for all of the outstanding bills. This amounted to a working capital outflow of £300,000. This will be reversed over time as we re-institute the normal credit terms, although some suppliers are now insisting upon cash up front (notably diesel purchases).

The full effect of Covid-19 on profits is still uncertain and depends upon how quickly diamond prices recover, the possibility of a further shutdown and how soon we will now be able to implement our delayed expansion plans.

Currently, the Group has cash of £799,000 and committed funds of £274,000 due from Teichmann from their subscription in February 2020, in accordance with the terms agreed. We have 23,000 tonnes in concentrate form awaiting sorting. Assuming a grade of 3.5 we expect there to be approximately 810 carats.

Outlook

The Company has positioned itself for the challenges ahead as follows:

a) It has put in place a new sales channel in the most liquid diamond market in the world

b) It has put in place indicative financing in order to provide bridging finance until the market recovers sufficiently for the sale of diamonds at a more normalised value

c) It has amended its operating strategy to align mining activity with the revised levels of activity to minimise near time cash costs without endangering the long term future of the mine.

The Board believes that this approach is the best way of operating the company through what is likely to continue to be a challenging market.

The future of BlueRock will rely upon increasing production in order to increase economies of scale and reduce unit costs.

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

Michael Houston

Executive Chairman

Consolidated and Company Statements of Financial Position

Consolidated Statement of Profit of Loss and Other Comprehensive Income

As permitted by section 408 of the Companies Act 2006, the parent company's profit and loss account has not been included in these financial statements. The loss after taxation for the financial year for the parent company was £16,850 (2018: Loss of £368,480).

Consolidated Statement of Changes in Equity - Group

Consolidated Statement of Changes in Equity - Company

Consolidated and Company Statement of Cash Flows

Notes to the Consolidated Statements of Financial Accounts

1. Basis of preparation

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2019, but is derived from the Group's audited financial statements. The auditors have reported on the 2019 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006 but did contain a material uncertainty in relation to going concern.

The 2019 Annual Report was approved by the Board of Directors on 19 June 2020 The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The Group's consolidated financial statements, which form part of the 2019 Annual Report, have been prepared in accordance with International Financial Reporting standards ('IFRS') and IFRS Interpretations Committee ('IFRSIC') interpretations as adopted by the European Union, and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention except for items held at fair value. They are presented in British Pounds Sterling (Pounds) which is also the functional currency of the Company.

BlueRock Diamonds Plc is incorporated in England and Wales with company number 08248437 with registered office, 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS.

The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated and separate financial statements are disclosed in note 3.

Going concern

The Group has prepared forecasts covering the period to 31 December 2021. Appropriate diligence has been applied by the directors who believe that the forecasts are prepared on a realistic basis using the best available information. The Group had cash balances of £799,000, a further £274,000 due from Teichmann (in accordance with the terms of their share subscription) and approximately 800 carats of diamonds held in concentrate form and no bank debt at 16 June 2020.

Post year end COVID-19 has impacted the Group in two main ways. Firstly, the Group ceased operation on 26 March 2020 following the imposition of a lock down by the South African Government. The restrictions were relaxed on 23 April 2020 and after a period of preparation, operations recommenced on 11 May 2020. Whilst preparing for restarting preparations the Group also put in place a new marketing channel via Bonas in Antwerp and a non-binding finance arrangement with Delgatto Diamond Finance Fund LP.

In making its going concern assessment, the Board has considered the higher level of uncertainty resulting from the impact of the COVID-19 pandemic in all aspects of its forecasting but particularly in relation to production, the market value of its diamonds and the timing of their sale. The board has implemented measures to a) ensure that unit costs of production are aligned with the likely weakening in pricing; b) ensure that operations comply with the regulations issued by the South African Government in respect of COVID-19; and c) has entered into a non-binding agreement with Delgatto Diamond Finance Fund LP ("DDFF") in order to provide bridging finance at 70% of market value between production and eventual sale at a time when it is reasonable to expect that diamond prices will have returned to a pre pandemic levels. It is the board's assessment that these measures will allow the company to operate using its own cash resources. Nevertheless, given the current uncertainty created by the COVID-19 pandemic, there are certain circumstances that could give rise to the Company needing to raise further finance from the equity market. These circumstances include changes in South African regulations relating to Coronavirus which require mining operations to be temporarily suspended or otherwise impact production, future diamond prices/valuations being below the cost of running the Kareevlei operations or DDFF opting not to provide finance as outlined in their letter of intent.

After review of these uncertainties the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. In reaching this conclusion, the Directors note that a) the mine has resumed production b), recently completed a sale of a diamond parcel for USD700,000 at a price of USD290 per carat, a price at which the Group can operate cash flow positively, and c) the Directors anticipate DDFF providing bridge funding notwithstanding the non-binding nature of the arrangement. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

However, at the date of approval of these financial statements, the potential future impact of COVID-19 outlined above and the resulting need to raise additional funds should such adverse scenarios materialise, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

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

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated and separate annual financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Consolidation

Subsidiaries

Subsidiaries are all entities over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group's accounting policies.

Disposal of subsidiaries

When the group ceases to have control of a subsidiary any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

2.2 Foreign currency

Functional and presentation currencies

The consolidated and separate financial statements have been presented in British Pound Sterling (Pounds), which is also the functional currency of the company. The functional currency of the South African subsidiaries is the South African Rand.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Group companies

The results and financial position of all the group's entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date;

• Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the exchange rates at the dates of the transactions, in which case income and expense items are translated at the exchange rates at the dates of the transactions); and

• All resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate at each reporting date.

2.3 Property, plant and equipment

Recognition

Property, plant and equipment is recognised as an asset when:

• it is probable that future economic benefits associated with the asset will flow to the entity; and

• the cost of the asset can be measured reliably.

Initial measurement

An item of property, plant and equipment that qualifies for recognition as an asset is initially measured at its cost.

The cost of an item of property, plant and equipment includes:

• its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

• any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

• the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Subsequent measurement - Cost model

After initial recognition, property, plant and equipment is measured at cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure incurred on items of property, plant and equipment is only capitalised to the extent that such expenditure enhances the value or previous capacity of those assets. Repairs and maintenance not deemed to enhance the economic benefit or service potential of items of property, plant and equipment are expensed as incurred.

Where the entity replaces parts of an asset, it derecognises the part of the asset being replaced and capitalises the new component.

Stripping costs

Costs associated with removal of waste overburden are classified as stripping costs.

Stripping activities that are undertaken during the production phase of a surface mine may create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and where the benefit is the creation of mining flexibility and improved access to ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a 'stripping activity asset', if:

a) future economic benefits (being improved access to the orebody) are probable;

b) the component of the orebody for which access will be improved can be accurately identified; and

c) the costs associated with the improved access can be reliably measured.

If all the criteria are not met, the production stripping costs are charged to the statement of profit or loss as operating costs. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. If the costs of the stripping activity asset and the inventory produced are not separately identifiable, a relevant production measure is used to allocate the production stripping costs between the inventory produced and the stripping activity asset. The stripping activity asset is subsequently amortised over the expected useful life of the identified component of the orebody that became more accessible as a result of the stripping activity.

The expected average stripping ratio over the average life of the area being mined is used to amortise the stripping activity. As a result, the stripping activity asset is carried at cost less amortisation and any impairment losses.

The average life of area cost per tonne is calculated as the total expected costs to be incurred to mine the orebody divided by the number of tonnes expected to be mined. The average life of area stripping ratio and the average life of area cost per tonne are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate.

Depreciation

Depreciation of an asset commences when it is available for use, and ceases at the earlier of the date that the asset is classified as held for sale, or the date that the asset is derecognised.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation charge for each period is recognised in profit or loss unless the asset enhances another asset under construction whereby it is included in the carrying amount of another asset. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life. The depreciable amount of an asset is determined after deducting its residual value.

Residual values, useful lives and depreciation methods are reviewed at each financial year end. Where there are significant changes in the expected pattern of economic consumption of the benefits embodied in the asset, the relevant changes will be made to the residual values and depreciation rates, and the change will be accounted for as a change in accounting estimate.

The measurement base, useful life or depreciation rate as well as the depreciation method for all major classes of assets are as follows:

Units of production method

When a units-of-production basis is used, applicable to deferred stripping, mining rehabilitation assets and mining rights, the relevant assets are depreciated at a rate determined as the tonnes of ore mined (typically production facility assets) from the relevant orebody section, divided by the Group's estimate of ore tonnes held in reserves and resources which have sufficient geological and geophysical certainty and are economically viable. The relevant reserves and resources are matched to the existing assets which will be utilised for their extraction. The assets depreciated in the units-of-production method are existing assets. Future capital expenditure is only subject to depreciation over remaining resources once incurred. The Group depreciates its assets according to the relevant sections of the orebody over which they will be utilised.

Impairments

Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. This includes mining assets, property, plant and equipment. A review involves determining whether the carrying amounts are in excess of their recoverable amounts. An asset's recoverable amount is determined as the higher of its fair value less costs of disposal and its value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken on a cash generating unit basis.

If the carrying amount of an asset exceeds its recoverable amount an asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less cost to sell and value in use) if that is less than the asset's carrying amount. Any change in carrying value is recognised in the comprehensive income statement.

Derecognition

The carrying amount of an item of property, plant and equipment is derecognised when the asset is disposed of or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. Gains are classified as other gains on the face of the consolidated statement of profit or loss and other comprehensive income.

2.4 Mining rights

Mining rights are recognised at cost, including any directly attributable transaction costs. The amortisation charge for each period is recognised on a 'units of production' method.

2.5 Mining rehabilitation asset

The estimated cost of environmental rehabilitation is based on current legal requirements and existing technology. A provision is raised based on the present value of the estimated costs. These costs are included in the cost of the related asset. The capitalised assets are depreciated in accordance with the accounting policy for property, plant and equipment.

2.6 Financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when the group becomes a party to the contractual provisions of the instrument.

Financial assets

Financial assets are classified as either financial assets at amortised cost, at fair value through other comprehensive income ("FVTOCI") or at fair value through profit or loss ("FVPL") depending upon the business model for managing the financial assets and the nature of the contractual cash flow characteristics of the financial asset.

A loss allowance for expected credit losses is determined for all financial assets, other than those at FVPL, at the end of each reporting period. The Group applies a simplified approach to measure the credit loss allowance for trade receivables using the lifetime expected credit loss provision. The lifetime expected credit loss is evaluated for each trade receivable taking into account payment history, payments made subsequent to year end and prior to reporting, past default experience and the impact of any other relevant and current observable data. The group applies a general approach on all other receivables classified as financial assets. The general approach recognises lifetime expected credit losses when there has been a significant increase in credit risk since initial recognition.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or have expired.

Other receivables

Other receivables are accounted for at amortised cost and are stated at their nominal value as reduced by appropriate expected credit loss allowances.

Trade and other receivables

Trade receivables are initially recorded at fair value and subsequently carried at amortised cost. Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate expected credit loss allowances for estimated recoverable amounts as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

Trade and other payables

Trade and other payables are initially recorded at fair value and subsequently carried at amortised cost.

Included under trade and other payables are income in advance. Income received in advance refers to advances received at year end in respect of future diamond sales. On tender award, revenue for the sale of diamonds are recorded and the liability extinguished.

Borrowings excluding convertible loans

Borrowings are included as financial liabilities on the group balance sheet at the amounts drawn on the particular facilities net of the unamortised cost of financing. Interest payable on those facilities is expensed as finance cost in the period to which it relates.

Derivatives

Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss.

Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise.

Convertible loan notes

The convertible loan notes are accounted for under the guidance of IAS 32, Financial Instruments: Presentation. These can either be treated as compound instruments or stand-alone instruments with an embedded derivative relating to the conversion feature. When the instrument is treated as a compound instrument the fair value of the liability portion of the convertible loan notes is determined using a market interest rate on an equivalent non-convertible loan note. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the loan notes. The remainder of the proceeds are allocated to the conversion option, which is recognised and included in shareholders' equity, net of tax effects and is not subsequently re-measured. In cases where the criteria for compound instrument are not met, the host debt contract is valued initially at fair value and the embedded derivative is separately carried at fair value through profit and loss.

2.7 Exploration and evaluation assets

During the exploration phase of operations, all costs are expensed in the consolidated statement of comprehensive income as incurred.

A subsequent decision to develop a mine property within an area of interest is based on the exploration results, an assessment of the commercial viability of the property, the availability of financing and the existence of markets for the product. Once the decision to proceed to development is made, development and other expenditures relating to the project are capitalised and carried at cost with the intention that these will be depreciated by charges against earnings from future mining operations over the relevant life of mine on a units of production basis. Expenditure is only capitalised provided it meets the following recognition requirements:

• completion of the project is technically feasible and the Group has the ability to and intends to complete it;

• the project is expected to generate future economic benefits;

• there are adequate technical, financial and other resources to complete the project; and

• the expenditure attributable to the development can be measured reliably.

No depreciation is charged against the property until commercial production commences. After a mine property has been brought into commercial production, costs of any additional work on that property are capitalised as incurred.

2.8 Inventories

Recognition

Inventories are recognised as an asset when

• it is probable that future economic benefits associated with the item will flow to the entity; and

• the cost of the inventories can be measured reliably.

Measurement

Inventories, which include rough diamonds, are measured at the lower of cost of production or net realisable value using the first-in-first-out formula.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. Net realisable value also incorporates costs of processing in the case of the ore stock piles. Changes in net realisable value are recognised in the income statement.

The cost of production includes direct labour, other direct costs and related production overheads. Consumables are stated at the lower of cost on the weighted average basis or estimated replacement value. Work in progress are stated at raw material cost including allocated labour and overhead costs.

2.9 Tax

Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax.

Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period.

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.

Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:

• deductible temporary differences;

• the carry forward of unused tax losses; and

• the carry forward of unused tax credits.

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. The amount already paid in respect of current and prior periods which exceeds the amount due for those periods, is recognised as an asset.

The benefit relating to a tax loss that can be carried back to recover current tax of a previous period is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

Current tax assets and liabilities are offset only where:

• there is a legally enforceable right to set off the recognised amounts; and

• there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax assets and liabilities

A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:

• the initial recognition of goodwill; or

• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:

• is not a business combination; and

• at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and deferred tax assets are made to reflect the tax consequences that would follow from the manner in which it is expected, at the end of the reporting period, recovery or settlement if temporary differences will occur.

Deferred tax assets and liabilities are offset only where:

• there is a legally enforceable right to set off current tax assets against current tax liabilities; and

• the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same entity within the group or different taxable entities within the group which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

2.10 Leases

Identification of a lease

At inception of a contract, it is assessed to determine whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the terms and conditions of a contract are changed, it is reassessed to once again determine if the contract is still or now contains a lease.

The practical expedient allowed by IFRS16 is elected, and therefore the non-lease components are not separated from the lease components. Each lease component and any associated non-lease component is treated as a single lease component.

Refer to note 4 for details of the adoption of IFRS 16 on 1 January 2019.

Lease term

The lease term of a lease is determined as the non-cancellable period of the lease, together with the periods covered by an option to extend the lease where there is reasonable certainty that the option will be exercised, and periods covered by an option to terminate the lease if there is reasonable certainty that the option will not be exercised.

The assessment of the reasonable certainty of the exercising of options to extend the lease or not exercising of options to terminate the lease is reassessed upon the occurrence of either a significant event or a significant change in circumstances that is within the group's control and it affects the reasonable certainty assumptions.

The assessment of the lease term is revised if there is a change in the non-cancellable lease period.

Recognition and measurement

At inception, a right-of-use asset and a lease liability is recognised in the statement of financial position.

Right-of-use assets

Right-of-use assets are initially measured at cost, comprising the following:

• the amount of the initial measurement of the lease liability;

• any lease payments made at or before the commencement date, less any lease incentives received;

• any initial direct costs incurred; and

• an estimate of costs to be incurred in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The obligation for those costs are incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.

The right of use assets are presented separately in the statement of financial position.

The right of use asset is subsequently depreciated using the straight line method from the lease commencement date to the earlier of the useful life of the right of use asset or the end of the lease term. In addition, the group applies IAS 36 Impairment of Assets to determine whether a right of use asset is impaired and accounts for the identified impairment loss as described in the policy for property, plant and equipment.

Lease liability

The lease liability is initially measured at the present value of the lease payments that are not yet paid at the commencement date. Lease payments are discounted using the interest rate implicit in the lease, if the rate can be readily determined, else it is based on the group's incremental borrowing rate. The following lease payments are included where they are not paid at the commencement date:

• fixed payments, less any lease incentives receivable;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under residual value guarantees;

• the exercise price of a purchase option if there is reasonably certainty that the option will be exercised; and

• payments of penalties for terminating the lease, if the lease term reflects the exercising an option to terminate the lease.

• Subsequently, the lease liability is measured by:

• increasing the carrying amount to reflect interest on the lease liability;

• reducing the carrying amount to reflect the lease payments made; and

• remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

Reassessment of lease liability

Where there are changes in the lease payments, the amount of the remeasurement of the lease liability is recognised as an adjustment to the right-of-use asset. Where the carrying amount of the right of use asset is reduced to zero, and there is a further reduction in the measurement of the lease liability, the remaining amount of the remeasurement is recognised in profit or loss.

Short-term leases and leases of low-value items

The group has elected not to recognise right of use assets and lease liabilities for short term leases and leases of low value assets. The group recognises the lease payments associated with these leases as an expense in the statement of profit or loss on a straight line basis over the lease term.

Variable lease payments

Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and the right of use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in 'Operating expenses' in the statement of profit or loss as shown in note 19 to the financial statements.

2.11 Provisions and contingencies

A provision is a liability of uncertain timing or amount. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

A contingent liability is:

• a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

• a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

A provision is recognised when:

• there is a present obligation (legal or constructive) as a result of a past event;

• it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

• a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Contingent assets and liabilities are not recognised, but details are disclosed in the notes to the annual financial statements.

2.12 Share-based payments

The Group operates equity-settled share-based remuneration plans for its employees. None of the Group's plans are cash-settled.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees' services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions.

All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to retained earnings. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.

Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium.

2.13 Revenue

Rough diamond sales are made through a competitive tender process and revenue is recognised when the customer has a legally binding obligation to settle under the terms of the contract when the performance obligations have been satisfied, which is once control of the goods has transferred to the buyer which occurs when the tender closes.

Revenue is measured based on consideration specified in the tender award.

Where the Group makes rough diamond sales to customers and retains a vested right in the future sale of a polished diamond, the Group will record such revenue only at the date when the polished diamond is sold (and only its interest therein).

Revenue is shown net of value added tax.

Interest income is recognised using the effective interest method.

2.14 Employee benefits

Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees or for the termination of employment.

2.15 Equity, reserves and dividend payments

Share capital represents the nominal value of shares that have been issued.

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

Other components of equity include the following:

• Other reserves - comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into Sterling, the recognition of share based payment movements and the non-distributable redemption reserve for cancelled deferred shares charge

• Retained earnings includes all current and prior period retained profits.

Non-controlling interest represents current and prior period retained profits and other comprehensive income items attributable to the non-controlling shareholder in subsidiaries

All transactions with owners of the parent are recorded separately within equity.

Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

3. Critical accounting estimates and judgements

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

3.1 Critical accounting estimates and assumptions

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

3.1.1 Ore reserves and associated Life of Mine (LoM)

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

3.1.2 Valuation of embedded derivatives

There is an adjustable conversion feature within the convertible loan agreement which effects the conversion price and the number of new ordinary shares issued. IFRS 9 requires a fair value calculation of the embedded derivative at recognition, as it is not closely related to the host contract, and a revaluation to be performed at each year end. The embedded derivative has been fair valued using the Monte Carlo model which requires critical estimates, in particular the Group's future share price volatility. At the year end the fair value of the embedded derivative was £10,359. Further details can be found in note 16.

3.1.3 Rehabilitation provision

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

3.1.4 Impairment of non-current assets

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

The effects of Covid-19 is a post balance sheet non-adjusting event and has therefore not had any influence in the impairment test performed on the Group's non-current assets.

Changes in such estimates could impact recoverable values of these assets. Details of the carrying value of property, plant and equipment and mining assets can be found in note 5 and 7.

The impairment test using the medium-term forecasts indicated significant headroom as at 31 December 2019 and therefore no impairment is considered to be appropriate. However, such headroom, which itself excludes additional resources included in the Resource Statement but which are outside of the medium-term forecasts, is dependent on the achieving increases in short term and medium term production by opening additional pits and upgrading the plant. However, the directors consider the forecasted production levels to be achievable best estimates.

3.1.5 Expected credit loss assessment for receivables due from subsidiaries

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

The carrying value of the subsidiary loan is set out in note 10.

3.1.6 Capitalised stripping costs

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

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

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

No stripping costs were capitalised during the current financial year as the waste stripping ratio was below the estimated average strip ratio for the relevant sections of the ore body based on the existing medium term detailed mine plans, as the primary benefit of the stripping was access to ore mined in the period. Whilst there may be a longer term benefit through access to deeper sections of the ore body the Board concluded that the criteria for recognition under the Group's accounting policy were not met having considered the absence of a defined measured and indicated resource and consideration of the longer term mine planning status. All stripping costs incurred during the period were charged to the statement of profit or loss.

3.1.7 Contingent liabilities

The Group is subject to claims by a former director and companies related to that former director totalling £260,108. Whilst fully disputing the claims, the Group maintains liabilities to the claimants of £198,688 as disclosed in note 15. The Group has placed monies in escrow with its attorneys to meet any payments under the claims. The Group has taken legal advice which advises that the claims are without merit and no provision is made for the additional claim amount. This matter has required the Board to exercise judgment in assessing both the extent to which liabilities should be retained and the decision not to provide for the additional claim amount.

3.2 Critical judgements in applying the entity's accounting policies

3.2.1 Determining the lease term

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

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

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

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

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

Judgment is needed in determining the lease term of surface lease agreements. The lease term of surface lease agreements is based on the approved Life of Mine (LoM) estimate. As at 1 January 2019 when IFRS16 was adopted by the Group, management estimated the LoM to be 5 years.

A lease term of 5 years was therefore used in determining the carrying value of the right-of-use assets and associated lease liabilities as at 1 January 2019.

Management reassessed the LoM at 31 December 2019 to be 10 years. The lease terms of the surface lease agreements were therefore increased to 10 years to reflect the increase in the LoM. The carrying value of the right-of-use assets and lease liabilities were remeasured at that date and adjusted accordingly.

3.2.2 Determining the incremental borrowing rate to measure lease liabilities

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

• over a similar term

• with similar security

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

• in a similar economic environment

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

4. Changes in accounting policies and disclosures 4.1 Adoption of new and revised pronouncements

In the current year, the group has adopted all new and revised IFRSs that are relevant to its operations and effective for annual reporting periods beginning on or after 1 January 2019.

At the date of authorisation of these financial statements for the year ended 31 December 2019, the following IFRSs were adopted:

IFRS 16 Leases

IFRS 16 Leases replaces IAS 17 Leases along with three interpretations (IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease) and sets out updated requirements on recognition and measurement of leases.

The group adopted IFRS 16 Leases retrospectively from 1 January 2019 but did not restate comparatives for the 2018 reporting periods as permitted under the modified transition approach in the standard.

Adjustments recognised on adoption of IFRS 16 Leases

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which were previously classified as operating leases under the principles of IAS 17 excluding low value leases or those leases with a remaining lease term of less than 12 months (i.e. short term leases). These liabilities were measured at the present value of the remaining lease payments, discounted using the group's incremental borrowing rate as of 1 January 2019. The weighted average incremental borrowing rate used to measure the lease liabilities on 1 January 2019 was 10.25%.

Lease liability

The following is a reconciliation of total operating lease commitments at 31 December 2018, to the lease liability recognised on 1 January 2019:

Right-of-use assets

All right-of-use assets were measured at an amount equal to the lease liability.

There were no onerous lease contracts that would require an adjustment to the right of use assets at the date of initial application.

The recognised right of use assets relate to the following types of property, plant and equipment:

The impact of the change in the accounting policy on the statement of financial position on 1 January 2019 was as follows:

• increase in right of use assets by £230,049

• increase in lease liabilities by £228,831

• no effect on accumulated losses due to the fact that the carrying value of right-of-use assets equalled the lease liability recognised and the finance leases previously recognised under IAS 17 did not have an effect on accumulated losses. The net effect of finance leases and leased assets transferred to lease liabilities and right-of-use assets at 1 January 2019 were £1,218.

Practical expedients applied on the adoption of IFRS 16

In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:

• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short term leases

• the non reassessment of whether an existing lease contract is or contains a lease as defined in IAS 17 Leases and IFRIC 4 Determining whether an Arrangement contracts a Lease

Payments associated with short term leases and leases of low value assets are recognised as an expense in profit or loss. Short term leases are leases shorter than 12 months. Low value assets are assets that are below the group's capitalisation threshold.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation aims to clarify how to apply the recognition and measurement requirements of IAS 12 Income Taxes when there is uncertainty over income tax treatments. IFRIC 23 became effective for periods beginning on or after 1 January 2019.

The application of this standard did not have an impact on the financial statements.

Prepayment Features with Negative Compensation (Amendments to IFRS 9)

Amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

The application of this standard did not have an impact on the financial statements.

4.2 New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the group. These standards are not expected to have a material impact on the group in the current or future reporting periods and on foreseeable future transactions.

5. Property, plant and equipment

5.1 Balances at year end and movements for the year

5.2 Additional disclosures

Plant and equipment are under security of the loan agreement with Mark Poole. The Group cannot pledge these assets as security for other borrowings or sell them to another entity. In the event of default Mark Poole may acquire the equipment of Kareevlei Mining Proprietory Limited for 1.00 South African Rand, see note 16 for further detail.

Leased assets - 2018

As at 31 December 2018, motor vehicles included the following amounts where the group was a lessee under finance leases:

From 2019 leased assets are presented as a separate line item in the statement of financial position, see note 6.

Refer to note 4 for details about the changes in accounting policy.

6. Leases

This note provides information for leases where the group is a lessee.

6.1 Amounts recognised in the statement of financial position - Group

In the previous year, the group only recognised lease assets and lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17 Leases. The assets were presented in property, plant and equipment and the liabilities as part of the group's borrowings. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 4.

6.2 Amounts recognised in the statement of profit or loss - Group

All amounts are included in operating expenses.

6.3 Amounts recognised in the statement of cash flows

6.4 Other information related to leases

The group's leases consist mainly of leasing of buildings, land and motor vehicles. With the exception of leases of low value underlying assets and short-term leases, each lease is reflected on the statement of financial position as a right of use asset and a lease liability. Lease payments are fixed. Variable lease payments which do not depend on an index or a rate are excluded from the initial measurement of the lease liability and the related right of use asset. The group classifies and depreciates its right of use assets in a consistent manner to its property, plant and equipment.

7. Mining assets

For further details on the mining rehabilitation provision see note 14.

8. Investments in subsidiaries

8.2.4 Details of minority

BlueRock's subsidiary, Kareevlei Mining Proprietary Limited, is 26 per cent owned by Ghaap Mining Proprietary Limited, a Kimberley based company. Ghaap Mining Proprietary Limited is a South African private company wholly owned by Mr. William Alexander van Wyk who, in terms of South African legislation is considered to qualify as an Historically Disadvantaged South African ("HDSAs").

On 27 September 2018 the Broad-Based Socio-Economic Empowerment Charter for the South African mining and minerals industry, 2018, (the '2018 Charter') was announced and gazetted in South Africa. This Charter replaced the previous 2017 Charter. The 2018 Charter aims to drive transformation, while taking into account the realities facing the industry.

The implementation of the 2018 Charter requires the Group to implement certain changes to maintain compliance, primarily in respect of: (i) the increased mandatory Black Economic Empowerment shareholding increasing from 26% to 30%. This increase only becomes mandatory on the renewal of existing mining rights and with the application for new mining rights; (ii) in the required make-up of management demographics; and (iii) in human resources development. This will be implemented at the time our licence is renewed or earlier.

10. Trade and other receivables

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

Refer to note 29.3 for the group's expected credit loss provision assessment for receivables.

Company:

Included under other receivables are management fees receivable from Kareevlei Mining (Pty) Ltd of £496 474 (2018: £443 662)

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

Group:

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

11. Cash and cash equivalents (including restricted cash)

Cash and cash equivalents in the Consolidated Statement of Cash flows excludes restricted cash of £223,914 (2018: £210,128).

11.2 Cash and cash equivalents where availability is restricted

Bank balances to the value of £223,914 (2018: £210,128) are not available for use as it is held in trust with the Group's attorneys. This account is held as security for the claims submitted by a former director of the Group and may only be utilised against this claim, should it be successful. Refer to note 25 for further details.

12. Share capital