Karelian Regulatory News (KDR)

Karelian Diamond Resources Plc - Half-year Report

PR Newswire

London, February 27

28 February 2020

Karelian Diamond Resources plc

(“Karelian” or “the Company”)

Half-yearly results for the six months ended 30 November 2019

Karelian Diamond Resources plc (AIM: KDR), the diamond exploration company focused on Finland, announces its unaudited results for the six months ended 30 November 2019. Details of these can be found below and a full copy of the statement can be viewed on the Company’s website.

Highlights of the half-year period included:

Professor Richard Conroy, Chairman of Karelian, said:

“Despite the distraction of the EGMs being called the Company has made further progress with the Lahtojoki Diamond Mining Project and continued to carry out further exploration work at both Lahtojoki and in the Kuhmo region. I am particularly pleased with the very encouraging news in regard to pink diamonds at Lahtojoki.”

CHAIRMAN’S STATEMENT

I have great pleasure in presenting the Company’s half-yearly report for the six months ended 30 November 2019. During the period the Company continued to advance its diamond mining project at Lahtojoki in the Kaavi region and its successful diamond exploration programme in the Kuhmo region, both in Eastern Finland. During the half year Howard Bird, a distinguished geoscientist who has wide experience in the diamond industry, joined the Board of the Company as a non-executive director.

The Lahtojoki Diamond Deposit

Progress has continued to be made in relation to the assessment and permitting of the Lahtojoki diamond deposit, which the Company acquired in the Kaavi region of Eastern Finland, and which, if developed, will not only be the Company’s first diamond mine but the first diamond mine in Europe (outside Russia).

A particularly interesting feature of the Lahtojoki deposit is the presence of coloured stones and especially of pink diamonds. Analysis of available data and reports suggests that these coloured stones could amount to as much as seven per cent of the diamond content of the Lahtojoki deposit and that perhaps three per cent could be pink diamonds. Examination of the pink diamonds made available for inspection by the Company, together with photographs of diamonds from the deposit, indicates that these diamonds are of high quality.

The importance of the pink diamonds may be put into context when one considers that pink diamonds, although only accounting for less than five per cent of the world’s biggest diamond mine, Argyll in Western Australia, account for nearly fifty per cent of its revenue.

Progress in relation to mandatory regulatory matters under the Finnish mining laws continued to be made. In particular, the process in relation to agreeing compensation for landowners at Lahtojoki is now at an advanced stage.

Diamond Exploration

Kimberlite boulders discovered to the south of the Lahtojoki diamond deposit are comprised of material which does not appear to be derived from the Lahtojoki kimberlite. This suggests that these boulders may come from an undiscovered kimberlite up ice. The Company therefore applied for an exploration permit over the relevant area and has been informed that this has become legally valid. The possible existence of a further diamondiferous kimberlite nearby, if confirmed, would, in the Board’s view, further increase the attractiveness of the Lahtojoki diamond deposit.

Exploration is also continuing in the Kuhmo region of Finland where the Company has already discovered a diamond in till, a very rare event, and, of course, the best possible kimberlite indicator. The Company has also discovered a new kimberlite body, at Riihivaara, and is following up on the large series of other kimberlite anomalies which it has discovered in the region.

Board Appointment

I am delighted to report that in September 2019, Howard Bird joined the Board of the Company as a Non-Executive Director. This is in addition to his previously announced role as a geoscience consultant to the Company which will continue. Mr Bird is an internationally experienced geoscientist who has been involved in the discovery through to production success of several new economic diamond deposits.

In December 2019 and post period end, Louis Maguire did not stand for re-election at the Company’s Annual General Meeting and retired from the Board.

Extraordinary General Meetings

The Company has, since just before the beginning of the half year, had to contend with a series of actions by a group of shareholders which have hindered the Board of Directors and management from pursuing the Company’s business objectives as planned during the period.

These actions culminated in the holding of two separate Extraordinary General Meetings (“EGMs”) in July 2019 and October 2019 following requisitions being received from these shareholders. The requisitionists, in association with a former employee/consultant to the Company, endeavoured to gain control of the Company by removing all but two of the current members of the Board and electing four replacements, nominated by them, to the Board.

The resolutions were rejected by shareholders of the Company at the first EGM and the same resolutions were defeated by an even larger majority at the second EGM.

Finance

The loss after taxation for the half year ended 30 November 2019 was €250,150 (for the six-month period ended 30 November 2018: €215,342) and the net assets as at 30 November 2019 were €9,177,513 (30 November 2018: €9,345,090).

During the period the Company raised a total of €150,000 through two subscriptions. In addition, I converted loans amounting to €71,425 into equity.

Post period a subscription and issue of a convertible loan note raised a total of £240,000. This subscription and issue of convertible loan note was subscribed by a new investor Fredrik Björnberg.

Mr Björnberg, qualified in geology, was involved in the early stages of the discovery of the Lahtojoki diamond deposit and is a member of a prominent family in Finland with a range of business activities. The Björnberg family previously owned the Luikonlahti copper mine in the Kaavi area and still have close connections with this part of Finland.

Directors and Staff

I would like to welcome Howard Bird to the Board. I would also like to express my deep appreciation for the support and dedication of my fellow directors, staff and consultants which has enabled the continued success of the Company.

I would particularly wish to express my appreciation and thanks to Louis Maguire who did not seek re-election as a director of the Company at the Annual General Meeting held in December 2019. Louis was a founding director of the Company and played a major role in its development and success.

Outlook

The Company has continued to progress in the period under review and I look forward with confidence to further success during the coming period.

Condensed income statement and condensed statement of comprehensive income

for the six month period ended 30 November 2019

Condensed statement of comprehensive income

The accompanying notes form an integral part of these condensed financial statements.

Condensed statement of financial position

as at 30 November 2019

Condensed statement of cash flows

for the six month period ended 30 November 2019

Condensed statement of changes in equity

for the six month period ended 30 November 2019

Share capital

The share capital comprises the nominal value share capital issued for cash and non-cash consideration. The share capital also comprises deferred share capital. The deferred share capital* arose through the restructuring of share capital which was approved at an Annual General Meeting held on 9 December 2016.

Authorised share capital:

The authorised share capital at 30 November 2019 compromised 7,301,301,041 ordinary shares of €0.00025 each, and 317,785,034 deferred shares of €0.00999 each* (€5,000,000), (30 November 2018: 7,301,301,041 ordinary shares of €0.00025 each, and 317,785,034 deferred shares of €0.00999 each* (€5,000,000)).

*Capital reorganisation:

Following approval at an Annual General Meeting (“AGM”) held on 9 December 2016, the Company reorganised its share capital by subdividing and reclassifying each issued ordinary share of €0.01 as one ordinary share of €0.00001 each and one deferred share of €0.00999 each. The Deferred Shares have no right to vote, attend or speak at general meetings of the Company and have no right to receive any dividend or other distribution, and have only limited rights to participate in any return of capital on a winding-up or liquidation of the Company, which will be of no material value. No application was made to the London Stock Exchange for admission of the Deferred Shares to trading on the AIM.

Consolidated shares:

On 21 December 2017, the Company passed a Special Resolution at the Company’s AGM, that all of the ordinary shares of €0.00001 each in the capital of the Company, whether issued or unissued were consolidated into New Ordinary Shares of €0.00025 each in the capital of the Company (“consolidated shares”) on the basis of one consolidated share for every 25 existing ordinary shares. Following the consolidation of the ordinary shares on 21 December 2017, the warrants in issue were consolidated into one consolidated warrant for every 25 existing warrants. The exercise price in relation to the warrants was also adjusted at this time (see Note 2).

Share issues during the period:

On 16 July 2019, the Company raised €111,377, (before expenses) through the issue of 2,500,000 ordinary shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share. On 8 October 2019, the Company raised €56,060, (before expenses) through the issue of 1,428,571 ordinary shares of €0.00025 in the capital of the Company at a price of £0.035 per Subscription Share. On 4 September 2019, the Director, Richard Conroy converted €71,425 of his loan into 1,625,000 shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share.

On 11 June 2018, the Company raised €569,390, (before expenses), through the issue of 11,111,111 ordinary shares of €0.00025 in the capital of the Company at a price of £0.045 per Subscription Share. 388,889 broker warrants were also issued on 11 June 2018.

Share premium

The share premium reserve comprises the excess consideration received in respect of share capital over the nominal value of the shares issued.

Share based payment reserve

The share based payment reserve comprises of the fair value of all share options and warrants which have been charged over the vesting period, net of amounts relating to share options and warrants forfeited, exercised or lapsed during the year, which are reclassified to retained earnings.

Retained losses

This reserve represents the accumulated losses incurred by the Company up to the condensed statement of financial position date.

Notes to and forming part of the condensed financial statements for the six month period ended 30 November 2019

Reporting entity

Karelian Diamond Resources plc (the “Company”) is a company domiciled in Ireland.

Basis of preparation and statement of compliance

The condensed financial statements for the six months ended 30 November 2019 are unaudited.

The condensed financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34: Interim Financial Reporting.

The condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company’s annual financial statements as at 31 May 2019, which are available on the Company’s website - www.kareliandiamondresources.com. The accounting policies adopted in the presentation of the condensed financial statements are consistent with those followed in the preparation of the Company’s annual financial statements for the year ended 31 May 2019

The condensed financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are measured at fair value at each reporting date.

The condensed financial statements are presented in Euro (“€”). € is the functional currency of the Company.

The preparation of condensed financial statements requires the Board of Directors and management to use judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial period in which the estimate is revised and in any future financial periods affected. Details of critical judgements are disclosed in the accounting policies detailed in the annual financial statements.

The financial information presented herein does not amount to statutory financial statements that are required by Chapter 4 part 6 of the Companies Act 2014 to be annexed to the annual return of the Company. The statutory financial statements for the financial year ended 31 May 2019 were annexed to the annual return and filed with the Registrar of Companies. The audit report on those financial statements was unqualified.

These Condensed Financial Statements were authorised for issue by the Board of Directors on 27 February 2020.

Going concern

The Company incurred a loss of €250,150 (30 November 2018: €215,342) for the six month period ended 30 November 2019. The Company had net current liabilities of €1,011,690 (30 November 2018: €464,552) at that date.

The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 28 February 2021. As set out further in the Chairman’s statement, the Company expects to incur capital expenditure in 2020, consistent with its strategy as an exploration company. In reviewing the proposed work programme for exploration and evaluation assets and, on the basis of the equity raised during the financial period, the results obtained from the exploration programme and the prospects for raising additional funds as required, the Board of Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

Statement of compliance

The Company’s financial statements have been prepared in accordance with IFRS as adopted by the European Union (“EU”).

Recent accounting pronouncements

The following new standards, amendments to standards and interpretations adopted and endorsed by the EU came into effect 1 January 2019. The adoption of these amendments and interpretations does not have a significant impact on the consolidated financial statements either due to being not applicable or immaterial:

The following new standard and amendments to standards have been issued by the International Accounting Standards Board but have not yet been endorsed by the EU, accordingly none of these standards have been applied in the current period. The Board of Directors are currently assessing whether these standards once endorsed by the EU will have any impact or a material impact on the consolidated financial statements.

On 16 July 2019, the Company raised €111,377, (before expenses) through the issue of 2,500,000 ordinary shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share. On 8 October 2019, the Company raised €56,060, (before expenses) through the issue of 1,428,571 ordinary shares of €0.00025 in the capital of the Company at a price of £0.035 per Subscription Share. On 4 September 2019, the Director, Richard Conroy converted €71,425 of his loan into 1,625,000 shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share.

On 11 June 2018, the Company raised €569,390, (before expenses), through the issue of 11,111,111 ordinary shares of €0.00025 in the capital of the Company at a price of £0.045 per Subscription Share.

Diluted earnings per share

The effect of share options and warrants is anti-dilutive.

Following the consolidation of the ordinary shares on 21 December 2017, the warrants in issue were consolidated into one consolidated warrant for every 25 existing warrants. The exercise price in relation to the warrants was also adjusted at that time, to the following:

Exploration and evaluation assets relate to expenditure incurred in the development of mineral exploration opportunities. These assets are carried at historical cost and have been assessed for impairment in particular with regard to the requirements of IFRS 6: Exploration for and Evaluation of Mineral Resources relating to remaining licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of activities as a result of specific claims and available data which may suggest that the recoverable value of an exploration and evaluation asset is less than its carrying amount. 

The Board of Directors have considered the proposed work programmes for the underlying mineral resources. They are satisfied that there are no indications of impairment.

The Board of Directors note that the realisation of the intangible assets is dependent on further successful development and ultimate production of the mineral resources and the availability of sufficient finance to bring the resources to economic maturity and profitability.

At 30 November 2019, there were no capital commitments or contingent liabilities (31 May 2019: No capital commitments or contingencies liabilities). Should the Company decide to develop the Lahtojoki project, an amount of €80,000 is payable by the Company.

Prior to the various placings of shares, the immediate funding requirements of the Company had been financed by advances from Professor Richard Conroy (executive chairman and major shareholder).

These Condensed Financial Statements were approved by the Board of Directors on 27 February 2020. A copy of the Condensed Financial Statements will be available on the Company’s website www.kareliandiamondresources.com on 28 February 2020.

ENDS