Karelian Regulatory News (KDR)

20 Oct 2005 06:00

To be embargoed until 7.00 a.m. 20 October 2005 Karelian Diamond Resources Plc ("KDR") Final Results for the period from date of incorporation, 1 March 2004 to 31 May 2005 Dear Shareholder,I have great pleasure in presenting your Company's first Annual Report andFinancial Statements.Karelian Diamond Resources Plc is the holding company of a diamond explorationgroup focused on the discovery of potential world-class diamond deposits on theFinnish side of the Karelian Craton.The Karelian Craton, a block of ancient crustal rocks in North West Europe,shows all the characteristics of diamond producing cratons found elsewhere inthe world. The potential of the Karelian Craton to host diamond deposits isindicated by major discoveries by other companies on the Russian side of thesame Craton. These include two world class deposits, the Grib pipe which isestimated to contain a resource of 98 million tonnes at an average grade of 69cpht with an estimated in situ value of US$3.7 billion and the Lomonosovadiamond deposit whose diamond reserves are estimated to be worth US$ 12.0billion.The regional geology of Finland is also similar to that of Canada's Slave LakeCraton, where diamonds were first discovered in 1991. BHP Billiton's Ekati mineopened in 1998 and produced over 7 million carats in 2003, worth approximatelyUS$800 million. Rio Tinto's Diavik mine opened in early 2003 and produced some3.8 million carats in its first year, worth around US$380 million. Two furtherdiamond mines (Jericho and Snap Lake) are planned to come into production inthe region in the near future.KDR holds a total of 58 diamond claims in Finland, 21 of which were acquired inJuly 2004,when the Company purchased Nordic Diamonds Limited from Conroy Plcand Karelian Diamonds Limited from Conroy Diamonds and Gold plc., together withall intellectual property and confidential proprietary data relating to thediamond exploration programmes in Finland of those two companies. KDR hassubsequently applied for and been awarded a further 37 claims under claimreservation exclusivity, including claims covering a diamondiferous kimberlitepipe at Seitaperƒ¤ in the Kuhmo area.KDR's licences in Finland are divided on a geographical basis into fourseparate claim blocks (Lapland, Western Finland, Kuhmo and South-easternFinland) all four of which have been independently assessed as "highlyprospective for diamonds."Diamondiferous kimberlites are largely confined to ancient stable cratons wherethe thickness of the earth's crust is sufficient to minimise heat loss andpreserve the high temperatures necessary for diamond formation. The Kuhmo areaof the Karelian Craton is characterised by a particularly thick crustal zone.KDR management has developed a close working relationship with the GeologicalSurvey of Finland ("GTK") and is able to draw on its expertise, its extensiveknowledge of the geology of Finland and its excellent technical and laboratoryservices. Karelian employs GTK staff as local consultants and to carry outfieldwork and has benefited greatly from this relationship, which has extendedover many years. In addition KDR's senior consultant, Dr Bert Gerryts, is aninternationally respected diamond geologist who pioneered the use of indicatorminerals and geophysics in diamond exploration.KDR's exploration programme will include further drilling of the knowndiamondiferous pipe at Seitaperƒ¤ in the Kuhmo block, ground geophysics in theadjacent area to select further drilling targets and till sampling up ice,followed where appropriate by ground geophysics and drilling. Work will alsocontinue on the other three highly prospective blocks.Your Company is undertaking its diamond exploration programme at a time ofbuoyant market conditions for diamonds due to the tightness of supply andgrowing demand. Diamond prices are now rising faster than at any time since thelate 1980s.The management of your Company, together with its staff and consultants, have atrack record of success in mineral exploration and look to enhance this recordwith a major commercial diamond discovery in Finland.STRATEGY AND PROSPECTSYour Company's strategy is to apply up-to-date diamond exploration techniquesin the Finnish Karelian Craton with a view to the discovery in Finland of majordiamond deposits similar to those which have been found in the same Cratonacross the border in Russia. KDR has developed a model for diamondprospectivity in Finland. Key elements in the model include: * the identification of thick Archaean crust (45km to 240km); * the identification of favourable structural zones for emplacement of kimberlites, including activation zones and broad zones of deep seismic activity indicating the presence of these zones; and * the identification of diamondiferous rocks in target areas of the craton, e.g. kimberlites, lamproites and various hybrids. The extensive aeromagnetic and electromagnetic data available in Finland hastherefore been useful in your Company's regional exploration. Kimberlite pipes,because of their geological composition, may exhibit a geophysical signaturedifferent to that of the surrounding rock, however, similar geophysicalanomalies may arise from other causes. The interpretation of the geophysicaldata has, therefore, been followed by extensive regional deep till sampling inthe course of which over a thousand samples were collected and analysed. Anumber of these samples yielded both kimberlitic and diamond indicatorminerals, including G9 and G10 garnets. These garnets are particularlyimportant as they are formed at similar temperatures and pressures to diamonds.A number of potential diamond targets have been identified using this strategy.This led to the selection of four blocks of licences grouped geographically andreferred to as the Lapland, Kuhmo, Western Finland and South-eastern Finlandlicence blocks. All four blocks are highly prospective for diamonds.The Kuhmo block is known to contain a diamondiferous kimberlite body with areported grade of 1.09 cpht (the Seitaperƒ¤ pipe). KDR's exploration programmewill include follow up drilling of the Seitaperƒ¤ pipe. This pipe has a surfacearea of four hectares and to date has been the subject of only a limiteddrilling programme.Diamond indicator minerals have been discovered by KDR elsewhere in the Kuhmoblock, leading to the conclusion that multiple sources for diamonds may existin this area. Ground geophysics and deep till sampling will be used to searchfor and drill other kimberlite pipes in the Kuhmo area.A follow up exploration programme will also be carried out on the other highlyprospective blocks with a view to the location and drilling of potentialdiamondiferous kimberlite pipes.CLAIMSYour Company's claims are divided into four blocks.Kuhmo BlockThe Kuhmo block in eastern Finland, which contains a known diamondiferous pipeat Seitaperƒ¤, comprises forty nine claims, which are believed to be highlyprospective for diamondiferous kimberlites.An extensive reconnaissance till sampling programme has been completed in thearea, with samples from approximately 200 sites, on three north-southtraverses, initially collected and processed and subsequently followed up byfurther localised traverses.Some 28 diamond indicator pyrope garnets (including G9s and G10s) have beenrecovered as well as 15 chrome diopsides of kimberlitic composition. Sixteenseparate indicator mineral anomalies have been identified. Drill targets havebeen highlighted by ground geophysics over one of the sixteen anomalies and theremaining fifteen similar anomalies are scheduled for systematic evaluation.Coupled with the presence of the known diamondiferous kimberlite pipe atSeitaperƒ¤, these findings suggest that multiple sources for diamonds may existin the area.Western BlockA group of five claims in an area of west-central Finland that is characterisedby aeromagnetic anomalies. Preliminary basal till sampling from 34 siteslocated down-ice from selected anomalies has resulted in the identification ofa number of kimberlitic indicator minerals, including a G9 garnet.Lapland BlockThree claims have been taken out in this area in the Kola portion of theKarelian Craton following a detailed examination of the aeromagnetic databaseand an extensive till sampling programme. Initial results have been encouragingwith a kimberlite indicator mineral (chrome diopside) recovered from 1 claimfollowing preliminary deep till sampling.Southeastern BlockThis block comprises a single claim to the south-east of the Kuhmo block in anarea of strong aeromagnetic anomalies.INDEPENDENT GEOLOGIST'S REPORTAn independent geologist's report was prepared by the CSA Group ("CSA") toprovide an independent assessment of Karelian's diamond exploration propertiesand information portfolio in Finland in preparation for the listing of yourCompany on AIM.CSA, in their summary and conclusions stated that, `The Archaean Cratons (Kolaand Karelia) of Finland are an area of thick lithosphere and low heat flow.Structural zones (activation zones) exist that provide pathways for Kimberliteemplacement. Significant and world class diamond occurrences have been foundwithin the Craton, eg. Archangel Kimberlite Fields in Russia. Diamonds havealso been found in the Karelian Craton, e.g. the Kuopio-Kaavi kimberliteclusters. The area has proven prospectivity for diamonds.'CSA also commented that the `comprehensive data package, exclusive surveyresults and a significant portfolio of claims transferred into Karelian willprovide Karelian with a significant advantage in its' future operations.' Theyalso stated that `all four blocks of claims are highly prospective fordiamonds.'PLACING AND ADMISSION TO AIMYour Company's shares were admitted to trading on AIM on September 1st, 2005.On admission, KDR raised ‚£500,000 (before expenses) through a placing of10,000,000 ordinary shares at 5 pence each, representing 22.3 per cent of theenlarged issued share capital of 44,771,676 ordinary shares.The Directors believe that Admission to AIM will have a number of benefits,including the following: * raising the profile of the Company, both amongst the investment community and within the mining industry; * facilitating the raising of further equity capital should it become required or desirable, thereby assisting the Company's ability to grow; * the Company will be better able to enter into negotiations with vendors of target businesses or assets, to whom the issue of publicly traded shares as consideration is potentially more attractive than shares in a private company; * the provision of share based incentive schemes involving quoted shares should assist in the recruitment, incentivisation, reward and retention of high calibre employees; and * an AIM listing will provide liquidity for current and future Shareholders. APPOINTMENT OF BROKER AND NOMINATED ADVISORCity Capital Securities Limited, a part of City Capital Corporation (3C), havebeen appointed as your Company's Broker, and John East & Partners Limited asyour Company's Nominated Advisor.I have great pleasure in welcoming them and thanking them for the recentsuccessful placing and admission of your Company to AIM.FINANCEThe Financial Statements refer to the period from date of incorporation, 1March 2004 to 31 May 2005. The Financial Statements were previously publishedin the admission document to AIM.The Company recorded a loss for the period of ¢â€š¬98,941. Since the accounts werecompleted the Company has raised ¢â€š¬735,294 gross in the placing referred toabove.The Directors intend to raise additional equity financing from time to time, asrequired in order to continue your Company's activities and/or make such otherjoint venture, farm-out, or other arrangements as are appropriate in theinterests of the Company.DIRECTORS, MANAGEMENT AND CONSULTANTSI would also like to express my appreciation and support and dedication ofDirectors, Management and Consultants, which has made possible the excellentprogress, and significant success which your Company has already achieved. Ilook forward with confidence to the future.Professor Richard ConroyChairmanProfit and Loss AccountFor the period from date of incorporation, 1 March 2004 to 31 May 2005 ¢â€š¬ Operating Expenses (98,941) Loss for the Financial Period (98,941) Profit and Loss Account at beginning of period - Profit and Loss Account at end of period (98,941) Loss per share ¢â€š¬0.0028There are no recognised gains or losses other than that for the periodBalance Sheet - 31 May 2005 ¢â€š¬ Fixed Assets Mineral interests 2,885,831 Financial assets 4 2,885,835 Current Assets Debtors 660 Cash at bank and in hand 3 663 Creditors: Amounts falling due within one year (397,747) Net Current Liabilities (397,084) Net Assets 2,488,751 Capital and Reserves Called up share capital 347,716 Share premium account 2,239,976 Profit and loss account (98,941) Shareholders' Funds 2,488,751 Cash Flow StatementFor the period from date of incorporation, 1 March 2004 to 31 May 2005 ¢â€š¬ Net Cash Inflow from Operating Activities 139,978 Capital Expenditure and Financial Investments (225,835) Net cash Outflow before Financing (85,857) Financing 85,860 Increase in Cash 3Notes to the Financial Statements1. Publication of non-statutory accountsThe financial information set out in this preliminary announcement does areabbreviated accounts as defined in Section 19 of the Companies (Amendment) Act1986.The financial information for the period ended 31 May 2005 have been extractedfrom the Company's financial statements to that date which have received anunqualified auditors' report but have not yet been delivered to the Registrarof Companies.2. Loss per shareThe calculation of basic loss per ordinary share is based on a loss of ¢â€š¬98,941and on 34,771,600 ordinary shares, being the weighted average number ofordinary shares in issue during the period.3. DividendsNo dividends were paid or are proposed in respect of the period ended 31 May,2005.4. A copy of the Annual Report and Accounts will be sent to all shareholdersshortly and will be available from the Company's registered office, 10 UpperPembroke Street, Dublin 2.ENDKARELIAN DIAMOND RESOURCES PLC