24 Oct 2008 07:00
24th October 2008
West African Diamonds PLC
Statement Accompanying Preliminary Results for
Year Ended 30 April 2008
This has been a tumultuous year for West African Diamonds. The lows centre on the problems of our Plant 11 mine in Sierra Leone to deliver the expected gold and diamonds. The highs have been the acquisition of excellent new ground in Guinea, the expansion in size and grade of the Pipe 3 kimberlite in Sierra Leone and the acquisition of a skilled management team capable of exploiting the opportunities.
Yesterday's announcement that two experienced directors are joining the board and that their organisations are investing cash to take a 29.9% stake in the Company is both positive and significant. The new funds will be used to bring our Bomboko mine on stream while the contacts and advice of the new directors will assist in determining a development strategy for West African Diamonds.
West African Diamonds, like almost every other AIM listed resource company, has been battered by the financial storms engulfing the world. Share prices have been quartered or decimated, liquidity is gone and new fund raising made almost impossible. Many of us have seen economic recessions and stock exchanges which do not function but the current situation is like no other in recent memory. The collapse in credit is shaking the very foundations of the world financial system. Undoubtedly, the financial malaise will spread into the wider economy which will experience a sharp and deep recession.
But, the recession will end and growth will resume. The political powerhouses of Brazil, Russia, India and China (BRIC) will become economic powerhouses while the Western world wilts. Prior to the current downturn, there were very positive signs that ladies in the BRIC countries were taking to diamonds. It is unrealistic to expect no downturn in diamond demand but in the longer term, the demand fundamentals are very sound.
Diamonds are hard to find, very hard. Very few places in the world are capable of producing good quality gemstone diamonds. West Africa is one such place. Over the years, some of the most beautiful and valuable diamonds, including the 970 carat 'Star of Sierra Leone', have come from Sierra Leone and Guinea. West African Diamonds is well positioned in both countries.
Sierra Leone
As an early mover after the Sierra Leone civil war of the last decade, West African Diamonds obtained choice ground. At the same time we entered the far less explored Guinea where we selectively picked licences.
In the early years of this decade, the West African licences were part of African Diamonds plc. This company discovered diamonds in Botswana and had less time and resources to focus on West Africa, so in early 2006, the assets were spun off to a newly AIM listed vehicle, West African Diamonds plc. The early focus of West African Diamonds was on Sierra Leone where we currently hold three advanced projects, the Plant 11 tailings retreatment project, the Pipe 3 kimberlite and the Koidu kimberlite dyke swarm.
We had high hopes that Plant 11 near Koidu would be an early cash provider. This 7 million tonne plus tailing contains gold and diamonds. During 2006 and early 2007, we built a mine capable of treating 1 million tonnes of ore a year. Results were extremely disappointing. Despite repeated efforts to rectify perceived problems, we were unable to make the project generate a positive cash flow. We closed the plant and placed it on care and maintenance while we examine whether the problem is low grades or low recoveries.
Pipe 3 is a small kimberlite located adjacent to the former Koidu Holdings mine on Pipes 1 and 2. We sampled 20,000 tonnes in 2005 and reprocessed material in 2007. We now believe that the pipe has a grade of about 19 carats per hundred tonnes and a value per carat in excess of $225. A geophysical survey over and around the pipe revealed an extension or a smaller pipe. We have been examining economic options for the pipe.
We have over 14km of mapped kimberlite diamondiferous dykes around Pipe 3, some of which are adjacent to the Petra Diamonds dyke mine. We are examining development options for the dykes. We are keeping a close watch on developments at the Petra project.
Guinea
Emerging opportunities in Guinea are overshadowing those in Sierra Leone. Our principal focus is on our Bomboko licence where we are developing a small alluvial mine which will come on stream in early 2009. We hold licences over 77km2 of the upper Bomboko river system in the Banankoro region of Guinea. Work by companies and artisans in earlier decades indicated the presence of diamonds. During 2007, West African Diamonds bulk sampled part of the river and recovered 200 carats averaging $135 per carat in value. The diamonds included stones of 9.2, 4.5, 4.2 and 3.8 carats. A pan plant is on site, earthmoving equipment is on the way and we expect to commence commercial operations in early 2009. Initial production is expected at a rate of 20 tonnes per hour, expanding to 50 tonnes per hour following further investment.
During 2007, West African Diamonds was awarded a 53km2 exploration licence in the Bounoudou area. There is a pipe like body on the licence called Droujba, which is a complex orebody. Earlier work suggested a grade of 65 carats per hundred tonnes for the pipe. West African Diamonds undertook a detailed suite of surveys over the pipe and associated dykes. Results suggest the known pipe is larger than thought, while two new satellite pipes have been discovered.
Work also continues on the secondary alluvial deposits in the Bounoudou area.
Management
Management is a principal asset of West African Diamonds. We have a team on the ground in West Africa who know the area and can explore and build mines. They are complemented by main board directors with decades of diamond mining experience while another has thirty years on the ground experience. The value and scarcity of this team should not be underestimated.
Finance
We raised too little money when we listed the Company. We believed that £1 million would bring the Plant 11 mine into positive cash flow production. It took longer to build the mine, it cost more and produced less. A small placing in 2007 was designed to bring Plant 11 into profit. This did not happen.
Once a decision was made to develop the Bomboko mine in Guinea as well as drill out the Droujba pipe, finance was required.
The attractive portfolio, the strong management team and the stock exchange listing are powerful attractions. A series of potential suitors have had discussions with your board. Agreement was reached with a private company to merge. The falling share price stymied this proposal. After extensive discussions, an agreement has been reached with a group of expert investors to purchase a 29.9% stake in West African Diamonds by acquiring new shares. The funds will be used to complete the Bomboko mine and to undertake exploration programmes in both Sierra Leone and Guinea. Two experienced directors are joining the board.
Future
West African Diamonds will be a very different company in the future. New directors and new money will bring new ideas and projects. I welcome the infusion of cash, talent and experience. It will be good for shareholders.
John Teeling
Chairman
24th October 2008
Enquiries:
| West African Diamonds | |
| John Teeling, Chairman | + 353 1 833 2833 |
| James Campbell, Deputy Chairman | +27 83 457 3724 |
| Blue Oar Securities Plc John Wakefield Simon Moynagh | +44 (0) 117 933 0020 |
| College Hill Paddy Blewer Nick Elwes | +44 (0) 20 7457 2020 |
www.westafdiamonds.com
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 APRIL 2008
| 2008 | 2007 | ||
| £ | £ | ||
| Continuing Operations | |||
| Cost of admission to AIM | - | (393,713) | |
| Administrative expenses | (228,325) | (302,650) | |
| OPERATING LOSS | (228,325) | (696,363) | |
| Finance costs | (2,159) | (821) | |
| Investment income | 10,418 | 4,924 | |
| LOSS BEFORE TAXATION | (220,066) | (692,260) | |
| Income tax expense | - | - | |
| LOSS AFTER TAXATION | |||
| FOR THE FINANCIAL YEAR | (220,066) | (692,260) | |
| Loss per share - basic | (0.58p) | (4.78p) | |
| Loss per share - diluted | (0.58p) | (4.78p) |
CONSOLIDATED BALANCE SHEET
AT 30 APRIL 2008
| 2008 | 2007 | ||
| £ | £ | ||
| ASSETS: | |||
| NON CURRENT ASSETS | |||
| Intangible assets | 6,608,768 | 5,061,044 | |
| Property, plant and equipment | 1,293,173 | 638,958 | |
| 7,901,941 | 5,700,002 | ||
| CURRENT ASSETS | |||
| Receivables | 23,043 | 288,450 | |
| Cash and cash equivalents | 78,758 | 550,058 | |
| 101,801 | 838,508 | ||
| TOTAL ASSETS | 8,003,742 | 6,538,510 | |
| LIABILITIES: | |||
| CURRENT LIABILITIES | |||
| Trade and other payables | (323,423) | (194,589) | |
| NET CURRENT (LIABILITIES)/ASSETS | (221,622) | 643,919 | |
| NET ASSETS | 7,680,319 | 6,343,921 | |
| EQUITY: | |||
| Called-up share capital | 407,508 | 335,700 | |
| Share premium | 7,768,467 | 6,315,581 | |
| Share based payment reserve | 355,396 | 384,900 | |
| Retained earnings - (deficit) | (851,052) | (692,260) | |
| TOTAL EQUITY | 7,680,319 | 6,343,921 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 APRIL 2008
| Consolidated | Called up | Share Based | Retained | ||
| Share Capital | Share Premium | Payment Reserve | Earnings Deficit | Total | |
| £ | £ | £ | £ | £ | |
| At 1 May 2006 | 2 | - | - | - | 2 |
| Share based payments | - | - | 384,900 | - | 384,900 |
| Shares issued for cash | 335,698 | 6,378,259 | - | - | 6,713,957 |
| Share issue expenses | - | (62,678) | - | - | (62,678) |
| Loss for the period | - | - | - | (692,260) | (692,260) |
| At 30 April 2007 | 335,700 | 6,315,581 | 384,900 | (692,260) | 6,343,921 |
| Share based payments | - | - | 31,770 | - | 31,770 |
| Issue of shares under share based payment plan | - | - | (61,274) | 61,274 | - |
| Shares issued for cash | 71,808 | 1,505,708 | - | - | 1,577,516 |
| Share issue expenses | - | (52,822) | - | - | (52,822) |
| Loss for the year | - | - | - | (220,066) | (220,066) |
| At 30 April 2008 | 407,508 | 7,768,467 | 355,396 | (851,052) | 7,680,319 |
Share premium reserve
The share premium reserve comprises of the excess of monies received in respect of share capital over the nominal value of shares issued, less share issue costs.
Share based payment reserve
The share based payment reserve represents the cumulative charge to the Consolidated Income Statement and Intangible assets, of share based payments issued which are not yet exercised and issued as shares. Upon issue of shares under the share based payment plan, the value is transferred to retained earnings.
Retained earnings deficit
Retained earnings comprises accumulated losses in the current year and prior years.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 APRIL 2008
| 2008 | 2007 | ||
| £ | £ | ||
| CASH FLOW FROM OPERATING ACTIVITIES | |||
| Loss for the year | (220,066) | (692,260) | |
| Exchange movements | (583) | - | |
| Share based payments | 10,970 | 162,585 | |
| Finance cost | 2,159 | 821 | |
| Investment revenue | (10,418) | (4,924) | |
| OPERATING CASH OUTFLOW BEFORE | |||
| MOVEMENTS IN WORKING CAPITAL | (217,938) | (533,778) | |
| Increase in trade and other payables | 128,834 | 194,589 | |
| Decrease/(increase) in trade and other receivables | 265,407 | (288,448) | |
| CASH GENERATED/(USED) BY OPERATIONS | 176,303 | (627,637) | |
| Finance costs | (2,159) | (821) | |
| Investment revenue | 10,418 | 4,924 | |
| NET CASH GENERATED/(USED) IN | |||
| OPERATING ACTIVITIES | 184,562 | (623,534) | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Payments for intangible assets | (1,526,924) | (1,040,143) | |
| Payment for tangible assets | (654,215) | (638,958) | |
| NET CASH USED IN INVESTING ACTIVITIES | (2,181,139) | (1,679,101) | |
| CASH FLOW FROM FINANCING ACTIVITIES | |||
| Proceeds from issue of equity shares | 1,577,516 | 2,915,371 | |
| Payment for share issue costs | (52,822) | (62,678) | |
| NET CASH GENERATED FROM | |||
| FINANCING ACTIVITIES | 1,524,694 | 2,852,693 | |
| NET (DECREASE)/INCREASE IN CASH | (471,883) | 550,058 | |
| Cash and cash equivalents at beginning of the financial year | 550,058 | - | |
| Effect of exchange rate changes on cash held in | |||
| foreign currencies | 583 | - | |
| Cash and cash equivalents at end of the financial year | 78,758 | 550,058 |
NOTES:
1. Accounting Policies
The Group's transition date to IFRS is 1 May 2006. The comparative financial information for the year ended 30 April 2007 has been stated on a consistent basis with those accounting policies applied by the Group in preparing their first full financial statements in accordance with IFRS as at 30 April 2008, except where otherwise required or permitted by IFRS 1 "First Time Adoption of International Accounting Standards".
2. Earnings per Share
Basic earnings or loss per share is computed by dividing the profit or loss after taxation for the year available to ordinary shareholders by sum of the weighted average number of ordinary shares in issue and ranking for dividend during the year. Diluted earnings or loss per share is computed by dividing the profit or loss after taxation for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.
The following table sets forth the computation for basic and diluted loss per share (EPS):
| 2008 | 2007 | ||
| £ | £ | ||
| Numerator | |||
| Numerator for basic EPS - retained loss | (220,066) | (692,260) | |
| Denominator | Number | Number | |
| Denominator for basic EPS and diluted EPS | 38,102,064 | 14,480,967 | |
| Basic and diluted EPS | (0.58p) | (4.78p) |
Basic and diluted loss per share is the same as the effect of the outstanding share options is anti-dilutive and is therefore excluded.
3. Intangible Assets
| 2008 | 2007 | ||
| Exploration and evaluation assets: | £ | £ | |
| Cost: | |||
| Opening balance | 5,061,044 | - | |
| Assets acquired | - | 4,020,901 | |
| Additions during the year | 1,547,724 | 1,040,143 | |
| Closing balance | 6,608,768 | 5,061,044 | |
| Net Book Value: | |||
| Closing balance | 6,608,768 | 5,061,044 | |
| Opening balance | 5,061,044 | - |
| 2008 | 2007 | ||
| £ | £ | ||
| Segmental analysis | |||
| Sierra Leone | 4,961,317 | 3,813,560 | |
| Guinea | 1,647,451 | 1,247,484 | |
| Total for continuing operations | 6,608,768 | 5,061,044 |
Exploration and evaluation assets relate to expenditure incurred in diamond and gold exploration and related expenditure in Sierra Leone and Guinea.
All present indications are that exploration projects will have a value in excess of the accumulated costs to date. No impairment provision has been made in respect of these intangible assets.
The realisation of these intangible assets is dependent on the successful discovery and development of economic reserves, including the ability to raise finance to develop future projects. Should this prove unsuccessful the value included in the balance sheet would be written off to the income statement.
The directors are aware that by its nature there is an inherent uncertainty, in such exploration and evaluation expenditure, relating to the value of the asset. Having reviewed the exploration and evaluation assets at 30 April 2008, the directors are satisfied that the value of the intangible asset is not less than the carrying value.
4. Property Plant and Equipment
|
| Assets in the | ||||
| Course of | |||||
| Plant | Construction | ||||
| and | -Diamond | ||||
| Equipment | Interests | Total | |||
| £ | £ | £ | |||
| Cost: | |||||
| At 1 May 2006 | - | - | - | ||
| Additions during the year | 25,526 | 613,432 | 638,958 | ||
| At 30 April 2007 | 25,526 | 613,432 | 638,958 | ||
| Additions during the year | 13,304 | 640,911 | 654,215 | ||
| At 30 April 2008 | 38,830 | 1,254,343 | 1,293,173 | ||
| Net Book Value: | |||||
| At 30 April 2008 | 38,830 | 1,254,343 | 1,293,173 | ||
| At 30 April 2007 | 25,526 | 613,432 | 638,958 |
£1,254,343 relates to assets in the course of construction in Guinea and Sierra Leone. The carrying value of the above assets is dependent on the successful discovery and development of economic reserves, including the ability to raise finance to develop future projects. Should this prove unsuccessful the value included in the balance sheet would be written off to the income statement.
In the opinion of the directors, the carrying value is not less than its recoverable amount. No depreciation has been charged in respect of these assets as they are not in a condition necessary for them to be capable of operating in the manner intended by management.
| Segmental analysis | |||
| 2008 | 2007 | ||
| £ | £ | ||
| Sierra Leone | 1,254,343 | 613,432 | |
| Guinea | 38,830 | 25,526 | |
| 1,293,173 | 638,958 |
5. General Information
The financial information set out above does not constitute the Company's financial statements for the year ended 30 April 2008. The financial information for 2007 is derived from the financial statements for 2007 which have been delivered to the Registrar of Companies. The auditors have reported on 2007 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial statements for 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
A copy of the Company's Annual Report and Accounts for 2008 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 20-22 Bedford Row, London WC1R 4JS. The Annual Report and Accounts may also be viewed on West African Diamonds plc's website at www.westafdiamonds.com.